Banco de Sabadell, S.A.

Good morning everyone and thank you for joining our audio webcast today. My name is Cecilia Romero, I'm Head of Investor Relations.

And today, I'm here with our management team, who will be presenting our first Quarter Results. Our presentation this time will follow a slightly different strategy to previous quarters.

Our CEO, Jaime Guardiola will start by going through the key highlights of the quarter. I will then provide details on our commercial activity.

Our CFO, Tomás Varela will then discuss financial results, capital, liquidity and asset quality before our CEO comes back to conclude with some closing remarks. We plan to spend a maximum of 30 minutes on the presentation and then we will give you the opportunity to ask questions.

You should have already received details on how to participate in our live, this time is live Q&A session. And now, I will hand it off to Mr.

Guardiola to kick off our presentation. Good morning, Mr.

Guardiola.

Good morning. Thank you, Cecilia.

Good morning, everyone. Let me begin by highlighting that we are starting the year with a strong set of result.

We have improved our profitability and we remain focused on increasing shareholders return. We recorded a net profit up to €258 million this quarter and a 2% increase in our tangible book value per share, which sets us on the right track to achieve an increase of more than 5% in our tangible book value per share in 2019.

Return on equity in the quarter was 7.2%, while return on tangible equity was 8.9% both of which are higher than one year ago. Now, let me share a quick recap on our yearend guidance.

On this page, you can see that we are expecting to generate 50 basis points of organic capital in the year. This guidance currently assumes a cash dividend payout of 50% of recurrent profit, at the same time, we expect to increase tangible book value per share by more than 5% in the year, as I've said a moment ago.

The results will be achieved by increasing group net interest income by between 1% to 2% and obtaining an increase in fees in the high single digits. Trading expected to contribute between €80 million €100 million to our 2019 results.

Cost to income will end the year at a maximum of 55% which includes efficiency initiatives that may be carried out at TSB this year. We anticipate that the cost of risk will fall to 40, 45 basis points and we expect TSB to have a neutral contribution excluding items such as potential fines or insurance recoveries, but including cost for efficiency gains.

However, after Debbie Rodriguez [ph] joins 1st of May, she will work on updating the TSB plan and the guidance will be updated after this - after this is finished/ All of this implies that we should finish the year with a return on equity close to 7% and a core equity Tier 1 fully loaded at or above 11.6%. With regard to the summary of our performance in the quarter, we saw positive volume growth momentum at the Group level with both the gross and performing loans increasing year-on-year.

Core banking revenue continue to rise steadily, supported only by a good performance in volumes, but also by a solid delivery on fees, which were up nearly 9% year-on-year. We have also continued with our efforts to digitilize and transform our business model and to make it more efficient.

At the end of the quarter, our cost to income ratio stood at 52.1% which was significantly lower year-on-year. And our risk profile continues to improve with our key asset quality ratios down further this quarter.

The non-performing loans ratio stood at 4.1% and cost of risk continued its downward trend to 51 basis points. Liquidity remains strong with equity coverage ratio at 163% and loan to deposit of 101%.

In terms of capital, our position was stable in the quarter. Our fully loaded CET1 came to 11% after factoring in - after factoring in the 48 basis points impact of IFRS 16 and TRIM, which were accounted for this quarter.

And finally, our fully loaded CET1 was performer with pro forma 11.3%. If we include the impact of the disposals, obviously of institutional NPAs which was agreed as announced last year and the disposal of Solvia Servicios Inmobiliarios which closed earlier this week.

Moving on to business performance. In regard to performing loans by region, you can see that this quarter's growth was mostly driven by the strong performance of Spain, which includes foreign offices and of Mexico.

Volumes in Spain grew by 0.2%, 4.5% in the year, while in Mexico they were up 1.2% quarter-on-quarter and 28% year-on-year. TSB volumes remained stable in the quarter and fell 3.4% year-on-year, as the result of the slowdown of commercial activity before and after the IT immigration.

Overall group performing loans increased slightly in the quarter and were up by 2.8% in the year. The following slide shows a summary of the different figures related to the commercial activity ex-TSB.

On the left hand side you can see the breakdown of performing loans by customer segment. Overall performing loans were up by point 0.4% in the quarter and 5.3% in the year.

As you can see in this graph, SMEs and other lending to individuals were the main drivers of credit growth in the quarter, more than offsetting the deleveraging in other segments. On the right hand side in customer funds we registered at 0.5% increase in the quarter, representing an increase of more than 3% in the year.

The growth in our balance sheet funds was driven by sight accounts which increased by 11.7% in the year, demonstrating the strength of our banking franchise. Our balance sheets funds decrease in both the quarter and the year, impacted by the decline in mutual funds' performance, which in the quarter was partially offset by positive dynamics in pension and insurance.

In Spain, commercial momentum across products remains strong in the quarter. Compared to the first quarter of 2018 we can see a slowdown in new lending to individuals, basically mortgages caused by regulatory uncertainty at the end of the year in relation to the allocation of mortgage costs.

That aside, we continue to show significant growth in new lending to companies and we achieved double-digit growth rates in other significant areas such as credit cards and retail and payment service turnover. This positive performance was reflected once again in market share increases.

We increased our market share in both customer's loans and customer funds. In addition, we continue to improve our share year-on-year across other products and we also increased our market penetration in SMEs by 125 basis points.

A key factor in sustaining this positive commercial momentum in Spain is our continued focus on customer's experience and service quality. In this regard, we performed better than the industry average in terms of service quality and will retain our place at the top of NPAs ranking both in SMEs and large enterprises.

In the UK, TSB core business show growth this quarter, showing a renew commercial momentum for the bank post-migration. On the asset side in terms of net loans quarterly growth was driven by core mortgage volumes, as strong applications performance in Q4 impacted completions this quarter.

Core mortgage growth was partially offset by the runoff of the banks Whistletree portfolio and lower and secured lending low volumes. During the year, performance as I explained before suffered as commercial activity decline before and after our IT immigration.

On the liability side, current accounts increased by 2.4% in the quarter and 2.5% in the year, driven by higher balances. The reduction in savings deposits both quarterly and in the year affects pricing decisions taken earlier - early last year to manage deposits volumes given the TSBs strong liquidity position.

On this slide, we can see several indicators that show how TSB regained its commercial momentum. In regard to new mortgage lending, we performed better in the first quarter of 2019, that in any of the quarters of 2018.

On the personal current account side, we continue to see a positive trend in switch-ins and current account openings. Bank NPS, as well as mobile and NPS continue to improve.

In this regard, it should be noted that the bank NPS have returned to positive figures in this quarter and moreover mobile NPS is almost back to pre-migration levels. And finally, we'd like to highlight that all the complaints related to migrations have now been resolved.

To finish this part of the presentation, as slide regarding the transformation where we can see how the performance of our key metrics was very positive. For example, the group, digital and mobile customers were up 7% and 14% respectively year-on-year.

Digital sales of unsecured loans in Spain increased by 72% on a year-on-year basis. Meanwhile, digital sales in the UK are still below pre-migration levels, showing a decline of 11 percentage points.

However, they have been steadily rising since migration. Lastly, I would also like to highlight that we have recently launched two new digital initiatives, blink in Spain in Spain and Digital Franchise launched in the UK.

Blink is a digital insurance platform that allows our customers to acquire insurance through, online and mobile channels, while the digital franchise loans initiative allows our TSB customers to contract unsecured loans via digital channels. Well, I will now hand over to Tomás, who will discuss financial results, capital liquidity and asset quality.

Thank you very much, Jaime. Good morning, everyone.

Regarding our quarterly results, our reported net profit in the quarter was €258 million, representing a significant growth quarter-on-quarter. It is also important to note that this comparison has been impacted by the year end payment to the deposit guarantee fund and the deposit tax, things that always are paid in December.

Most importantly results were flat year-on-year despite significantly lower trading results and this performance is possible - was possible, thanks to the positive underlying performance of our core business, in particular fees on lower operating costs and significantly lower impairments. NII operating expenses and amortization were impacted by the implementation of IFRS 16 in this quarter.

You can see the detail summarized in this page on the lower left hand side. And overall the impact of this reclassification so to speak is neutral in the quarter.

Moving now on to the quarterly evolution of net interest income. Group NII decreased by 1.7% in the year and by 3.8% in the quarter.

This was in the quarter negatively impacted by fewer calendar days that represented a negative of €19 million. The cost of our Tier 1 - sorry, Tier 2 transaction that corresponds to the issue that we did last December which has impacted €5 million.

A lower contribution of their fixed income portfolio, given its smaller size during the quarter, that was negative €5 million and the impact from IFRS 16 which impacted in €4 million. We were already expecting the seasonality in Q1.

And overall we are on track to meet the group guidance of growth between 1% and 2% in the year. This will be driven by healthy volume growth and broader CN [ph] deals, which included to illustrate this further a chart in the right hand side, the lower right hand side of this slide where we see that the average balance of lending in - of the loan portfolio in the first quarter stands at 138, that this of course, higher than all the four quarters of last year.

We show also the path of growth leading to a level circa €142 billion in the last quarter of this year. This expected path is supported by the growth that we've seen in the quarter already year-to-date.

In terms of from book pricing in Spain, we have continued to defend yields across segments. We've grown more in segments with higher yields in the quarter, such as SMEs and consumer loans and that is - at the same time from book yields continue to be higher than bank [ph] yields across most products.

Overall, these are positive dynamics that have helped our deal ex-TSB to increase quarter-on-quarter. Overall, also our customers spread was three basis points lower in the quarter, driven by an increase in yields at ex-TSB level.

This was offset by the higher cost of Forex deposits except in Spain where they remained stable and by lower yields at TSB which were brought down by increased competition and a greater weight of mortgages in TSBs business mix. We've included an additional detail in the slide show in the evolution of the deposits in Spain.

Of course, the increase that we see an evolution of ex-TSB deposits is mainly driven by deposits in Mexico and in America in dollars and in Mexico what we are seeing is an increase and enhance performance in deposit growth, which is set at a cost level that is improving the average cost of funding because it's replacing more expensive funding, such as markets or wholesale funding in dollars and also the funding provided by the [indiscernible] in Mexico. The NIM of Mexico stands at 3.62% in the quarter and shows a positive trend.

Additionally net interest margin was also impacted by higher wholesale funding costs. We can see the pick up here in the quarter caused by the issuance of our Tier 2 back in December as I just mentioned and an increase liquidity in the quarter, that of course in this situation in this environment has an additional cost.

Group fees were lower in the quarter, impacted by seasonality and fewer calendar days. In the year fees increased an 8.8% in line with our yearend guidance.

In terms of segment evolution, it is worth highlighting that services were also down in the quarter due to lower syndicated loan fees [ph] which have a more volatile nature and were especially high last quarter. Year-on-year service fees grew at 14.7% and we expect them to lift there or drive the overall growth of fees in 2029.

The decrease in asset management and credit and contingent risk was mostly due to the seasonality in the quarter and TSB fees also increase both quarter-on-quarter and year-on-year as we continue to rebuild commercial momentum. Group total costs both recurring and non-recurring declined significantly in the quarter.

The fall in recurring costs in the quarter was driven by lower general expenses, which here is worth noting that in this case was affected by some positive seasonality and lower yearend bonuses. As I explained earlier, the impact of IFRS 16 also has been a positive for general expenses, but negative for amortization, although the overall impact on total cost was not material.

The bottom line here is that, we are on track to meet or beat the yearend efficiency guidance of 55% which already includes a cost of any TSB efficiency initiatives to be taken in the year. Cost of risk continued its own work trend in the quarter and currently stands at 51 basis points.

As you can see on the left hand side, provisions have decreased significantly since the announcement of the institutional non-performing assets sales in Q2. As we have started to accrue a good part of the savings.

Overall, provisions were down by 22.5% year-on-year and are expected to fall further during the rest of 2019 as the credit conditions or the behavior of the portfolios will continue to improve. In this regard, it is worth noting what we show in the slide, in the quarter provisions were impacted by two items that will not occur during the rest of the year.

The first one is a single name impact of €8 million, sorry, it's the other way around, it's an €80 million effect due to seasonality on specific portfolio that decreases significantly in the other quarters and a single name impact of €9 million that will be recovered probably in the second quarter. We have made significant progress and we can confirm that we are on track to achieve our 45 basis points yearend target with exclusivity that we have today.

Moving on now to the balance sheet section of our presentation, starting with liquidity. The group has a strong liquidity position with an LCR of 163%.

Our loan to deposit ratio of 101% and a high quality liquid assets amount of circa €43 billion. Another point to highlight is that Fitch has initiated its rating coverage of high yield this quarter.

They have signed a long term issuer before rating of BBB with a stable outlook and in fact all it instrument - all that instruments are rated investment grade by Fitch, including our Tier 2. Furthermore, we currently have €20.5 billion of TLTRO outstanding and around 80% of this i.e.

€16 billion is a positive back at the European Central Bank. In order to repay the outstanding amount we are planning to use part of our excess cash, as we can see in the right, lower right side the chart, also the cast received from the NPA portfolios on the Solvia sales, the cash received as payment for the deposit guarantee fund receivable related to the asset protection scheme and also net debt issuance, so the inflows coming from their net debt issuance that we undertake in this year and the coming year.

LCR will remain comfortably above requirements at 140% after the TLTRO-II repayment. With regard to our funding plans, we received an MREL requirement based on our December 2016 balance sheet which was 22.7% of RWAs and we are on track to meet their requirement before year end.

The funding plan that we have prepared in order to do this is outlined on the right hand side of the page. In terms of 81 and Tier 2 the markets are nearly completed.

So we are expecting no new transactions in 2019. We will launch our inaugural senior non- preferred transaction in Q2.

Overall, we expect to issue €1.5 billion annually over the next three years of senior loan preferred. In terms of senior preferred that we have already issued €1 billion in the domestic market year to date with an average cost of 0.6% and we plan to issue an additional €1.5 billion in 2019 and a smaller amount in the following years.

In terms of corporate bonds and securitization, TSB has issued 750 million sterling to date. Overall there will be additional issuance of €1.5 billion combined sterling and euro in the rest of the year.

With regard to maturities, it is also important to highlight that 1.8 billion will mature during the rest of 2019 at an average cost of 1.42%. We have continued to make progress in terms of asset quality.

The non-performing loans ratio fell further to 4.1%. Non-performing - the non-performing asset reduction was €93 million in the quarter, which brings out NPA balance to €8.2 billion and year on year decrease of almost 50%.

The NPA coverage was largely stable. As usual on this slide, we also provide details on the assets currently included in the available for sale portfolio which will be completely removed from our balance sheet once the institutional sales are closed later this year, those are shown in grey, as well as details on the pool of assets that are managed by our developer - sorry, developments that are shown in orange.

On the following slide, we have included details on the quarter on quarter revolution of the group's fully loaded CET 1 ratio, as well as the expected capital path to end of 2019. When that 2018 with reported fully loaded CET1 one of 11.1% and we can follow on the graph to the right, going to the right, we can see the different drivers that have impacted capitals in the quarter.

We have seen 20 basis points of organic capital generation in the quarter, including net profit 81, so the payment of 81 coupons, dividends, intangibles and organic are RWA reduction. This reduction in RWAs and organic RWAs have been driven by DTA recoveries, so that RWAs related to DTAs that decreased because of the recoveries, lower equity investment related to insurance due to the fact that we received dividends from our stake in the insurance joint venture that we have and I know that the balance sheet dynamics such as reduction are in order risks RWAs.

The decreasing capital reductions were in connection with recovery of mature assets that were related - were in connection with related parties. Tax loss carry forward and capital threshold that in total meant a contribution of 14 basis points of capital.

And finally, the impact of the regulatory RWAs growth was 48 basis points in the quarter that included 15 basis points for IFRS 16 and 33 basis points for TRIM. The impact of TRIM includes a review of the SMEs and corporate portfolios.

In this quarter the review on our mortgage portfolio had occurred already last year and therefore the total impact of those reviews that are the most part of our portfolio has been already absorbed to date. The review of TRIM as I said is largely covered or complete.

There is one portfolio with 3 billion in RWAs and 50% density which is a low default portfolio that is still pending conclusion of the process and given the nature of these amounts we don't see significant potential impact coming from this and this is likely to close in 2020. Taking all of this into account, our fully loaded CET 1 ratio was 11% at the end of Q1 and going forward for the rest of 2019, there are series of additional factors that expected to impact capital positively.

The capital gain on the sale of Solvia Servicios which was announced last year and settled earlier this week will add a total of 15 basis points. The institutional disposals of NPAs also announced last year and expected to close later in 2019 should add a further 18 basis points, as shown in the slide and the organic capital generation that we expect for the rest of the year should add a further 30 basis points or so for the next nine months of the year, and this together with what we generated in Q 1 is in line with our organic capital generation guidance of circa 50 basis points for 2019.

Also it is important to highlight that these are organic capital calculations, as you can see also in the slide assumes a cash dividend payout of 50%. Considering all of these impacts, we expect our fully loaded CET 1 to go from 11% reported at the end of Q1 to 11.6% by year end.

Additionally to this, as also shown in the slide, there are other opportunities, potential - potential measures, some of the ongoing that include Solvia developments and the disposal of further small more assets or divestitures. This doesn't include any sale of businesses and those could increase our capital level further by year end above the 11.6%/ On the following page, you have the details of our current reported capital base in both fully loaded and phase-in terms versus requirements.

As at the end of Q1, our reported phase-in total capital ratio stood at 14.89% which was 175 basis points above our requirements of 13.14%. Our phase-in leverage ratio was 4.94% as at the end of March.

As you know TSB is primarily our mortgage bank and as such it has a lower leverage ratio which impacts the ratio at the group level. We are comfortable with the group leverage ratio at about this level.

And with this, I will hand over to Jaime to close our presentation today.

Well, thank you, Tomás. To finish our presentation today, I would like to reiterate that with this quarter's set of results we are back to increasing profitability and we are fully focused on creating value for our shareholders.

We have a clear set of targets for the year linked to both capital generation and shareholder remuneration, which are supported by high commercial dynamics in Spain and Mexico, core revenue growth, lower impairments and costs under new momentum TSB. I can also now confirm that this [indiscernible] will join the company in this upcoming May 1st.

In regard to our capital position, we have a strong commitment to continue to grow capital during the year and we are set to reach 11.6% or above by year end. And with that, we open the floor to questions.

Cecilia?

Thank you very much, Jaime and thank you Tomás. We are now going to start the live Q&A.

I would like to remind our audience that we will be limiting the questions to a maximum of two per person and this is in order to give you more time and chance to participate in the Q&A. Please kindly take this into account when participating during the session.

And with that, operator, please can we have the first question.

Hello, good morning. Thank you very much for the presentation.

I have two questions. First one is on [indiscernible] exposure, the one you report to the market was around €1.4 billion, that was a soft Q2, Q3, '18.

Could you please us - I believe that you've been reducing these or what's exposure as of today and what's the study that you are following here and maybe if you could also comment if you can on expectations ahead of hopefully the ruling which is expected actually in Q3? And the second question is on the MT sale, which I believe was expected to be closed by Q2.

I mean, just to make sure that this is still the case and also with regard to the negotiations you have to negotiate to two different parties, one is the investor, the other despot warranty fund. So I guess the question here is whether given that the slowdown that we see in the Spanish economy and in particular in the real estate sector, whether we should expect there's any risk for any change in the terms with either of these two parties and whether we should expect or there is a possibility of some sort of unexpected one-off impact to unveil or even lower positive impact to capital from a potential change in terms?

Thank you very much.

Okay. Regarding the first - the first question about the RPH.

Well, first of all, it's important to note or remark that the index, the RPH index is a transparent index, its calculated and published by the Bank of Spain. So I think that is quite difficult to consider this - in this as abusive.

We have one of the lowest exposure of RPH in Spain which comes from basically from our acquisition of [indiscernible] Our current exposure to the RPH mortgage is below €800 million. You know, that we have been permanently during the last year offering to our customers not have this index or even the Yellow River having or no floors we have offered the alternative to move the - their mortgage to from valuable to fix.

And this strategy has been very successful in terms - there are a lot of customers that has made this change and obtaining very cheap pricing because of the very low interest rates that we are having in the last years. Well we don't know what's going to be the final impact.

Obviously we have to expect to wait for the final court ruling that is expected to happen in September or October. Regarding the NPA sales and the end of my answer if you can master at anything.

The deals are no waiting for the anti-trust approval. In fact, we expect to close the deal regarding NPL in the next month of May and the deals regarding NPAs is coming in the second part of the year.

The process of obtaining the antitrust approval from the government is longer than the case of the NPLs. There we don't expect any kind of change in the deals that we have announced last year.

So I think that there is not expectations about any kind of a potential change.

You want to add anything.

No I don't have anything else to add.

Thank you.

Operator, police next question?

Hello. Two questions also for me on the capital side.

I am wondering if you can comment on the plans for asset disposals beyond Solvia [indiscernible] in particular the asset management business. And then also on the dividend I wondered how committed you are to the 50% dividend payout given the depressed valuation multiples and that you are still below the capital - the targets that you have for this year end?

And - sorry, I have a follow up on the capital you have included on this slide 27 on the average to get to the 11.6 on the positive tailwinds. But I wonder is there is - we should expect any headwind beyond the IRBA that we should take into account this year or next?

Thank you.

Well, no I don't. But your view refers to the allocation - the asset management business.

Well, we are in the process of selling [indiscernible] finally we - this transaction is done, we will have positive impact in capital. We don't have any plan to sell more assets, but obviously the different businesses that are related with alliances with - and that are evolving in a strategical terms could be analyze.

In the sense the asset management industry is evolving very quickly would have been different processes of consolidation in different countries and we are analyzing which options we have. But my view is that is not done in terms of capital, it is more done in terms of our strategic view about how these kind of businesses are evolving.

Regarding the second - the second question, we really are committed to this. Well, we have done the figures of the presentation with a 50% payout ratio, our commitment - traditional commitment is more between 40 and 50 payout ratio, obviously this decision has been taken by the board.

But our view is that the situation of the ban allows perfectly to reach this level of payout.

Jaime, there is an additional thing in the first question is whether we are expecting potential headwinds since we are showing that tailwinds to build the capital ratio and Parker was asking if we have any views on IRPH. I think that as well, as I think I - as I may said, we think there are many reasons for considering that any advanced ruling shouldn't happen, any way and if it happens there are a number of potential scenarios.

And the thing is that our exposure today to this kind of index is 800 million and therefore we don't know what can happen. But in any case - in our case as I've said this corresponds to one of the lowest exposures in Spain and any potential impact coming from this would be manageable.

Tomás, Parker was asking as if in addition to RPH if you think that is any other headwinds for the rest…

In addition, no, no. In addition to these I don't see any other things.

Okay. Thank you very much.

Yeah. Hi, there.

Good morning. Thanks for doing the live Q&A.

I've got two questions as well please. On the TLTRO-II, you've detailed how you will confront the repayment and you've included in there the 3.1 billion APS account receivable payment.

How confident are you that you're going to receive the cash payment or the - this timeframe. And if not what other measures could there be and maybe you can comment also a little bit on your views on TLTRO-III?

And my second question is on the non-recurring costs. There were some non-recurring costs in TSB in this quarter, €25 million euros or so I believe.

Could you tell us what this was related to, were there any other kind of charges still related to the migration. And what is the outlook for nonrecurring costs that you see this year?

Thank you.

Thank you, Britta. In the quarter we received a win - so far for the first question and what did we received already our 1 billion, as you mentioned from their deposit guarantee fund the amount that previously of the receiveable that previously was standing at above 4 billion has now been reduced to 3 and the payments that flows will come with the process of the usual process of authorization of the sales, several recognition settlement and therefore we are fully confident that we will receive the whole amount of the receivable within that time frame that we - that we need to see consider TLTRO-II repayment.

In terms of the additional things for the TLTRO repayment, we have the funding and that we will be doing in the rest of this year and also in the coming year. We have all that potential success for the repo market which are as you know very usually used by us and very accessible to us.

In terms of costs of TSB in the quarter, I think you referred to the extraordinary costs or non-recurring costs, right. There 12 non-recurring cost of 28 million, three of them are for severance payments in ex-TSB, the remaining 25 are TSB, a significant part of those are related to legal costs still helping throughout the investigation processes in TSB.

These are more than 50% lower than they were in the fourth quarter, but also there is some other item there, the costs related with discontinuation of some banking agreements - business banking agreements in the quarter. So those are really done half recurring and neither are related to their post migration situation.

And Cecilia what was the…

Peterio, asked about TLTRO-III, or am I mistaking?

Yeah, about the LTRO-III, we don't a special view on that. We will be just vigilant to it, but we - this is not part of our plans today.

Thank you. Thank you very much, Britta.

Good morning and I was - thank you as well for doing the live Q&A. It's very helpful for us.

Two questions for me. First of all on capital, I realize that you have Solvia Desarrollos e-mortgage still too close - still to agree, but it looks like that's also going to take your company above the 11.6.

Considering your as rep is in 9.6, is 12% the capital, or you can run with, that you aim to run with or should we expect next year a further buildup of capital. I just want to get a feel of if there's any further journey or you - and if you could end the year closer to 12% if you do close Solvia or somewhere in the middle, just a bit of color on where the end journey is given where we are now and given the pipeline and disposals?

And the second question is on NII, and apologize if you've gone through it in the presentation because I had to skip out. But the run rate on my numbers points to a minus two, if you analyze Q1, with minus 2% for the full year versus growth versus 2018.

I realize obviously there's seasonality in Q1, but can you may miss give us a bit more color on why you're still confident to grow NII, I think you said 1% or 2%, is volume growth going to recover, is it just the seasonality, is there anything else? Thank you.

Thank you, Alvero. In terms of capital, what we've seen after the capital formation that we've experimented in the quarter on our views for the rest of the year, of course, I think this shows that further capital formation on the normal course of business would lead us to above 12 next year.

But we are not consider naturally to build. So the formation could take us further north of 12% percent.

We don't have found a specific target to build both 12%. 12% appears to be these days the new normal in the market, so our capital formation capacity take us there is where we will find ourselves comfortable.

So nothing as to highlight far there in this space. In of terms of NII.

If you take into account the impact of the 19 million of seasonality actually I take it that, your numbers should take you to a different level, but on top of this you need to take into account that of course there are things there that - that are permanent in for a year, like the impact of the wholesale funding cost increase by the issuance of [indiscernible] and the low lower contribution of a ALCO portfolio. But the loan growth that we've seen in the first quarter, the fact that we've introduced this - included this information for your benefit on where we stand in terms of average balances because actually average balances is what - is what drives the NII growth.

And you can see the relevant progression that we've had in the quarter in comparison with last year's, last quarter, but also the older previous quarters and also the behavior - behavior we've seen in the quarter in term so loan growth supports our view to end the year with an average of circa 142 billion for the last quarter of the year. This drives NII growth to the levels that we are guiding to.

Thank you very much.

You're welcome. Alvero, thank you.

Hello. Good morning.

Thank you for taking my questions. My first one is on TSB, NII.

You mentioned margin pressure, if we assume that NII just keeps constant in the UK it would be down by 2.5% in the year. So since there is margin pressure going on, can we expect a sincerely soft office, can you give us some color there?

Also you mentioned, if I'm correct, that TLTRO-III is not in your plans. Does this mean that the size of the fixed income portfolio should reduce significantly in 2020 in line with the TLTRO-II maturities?

And finally if I may a very quick follow up on Solvia Desarrollos sale if you could comment on the timing of this deal? Thank you.

Mario, we didn't get your second question on the TLTRO-II, sorry, can you repeat.

Yeah, the second question was that if I'm correct, I think that the CFO said that TLTRO-III is not in your plans. If this is the case, does this mean that you are happy to see a reduction of the fixed income portfolio in 2020 and 2021?

Thank you, Mario. Mario, thank you very much.

In terms of TSB, yeah, the margin pressure we've already seen - we've seen loan yields for mortgages reducing significantly in the market since 2014 for instance. Still this is a business that is dawning in the UK market at double-digit ROE.

So it's a profitable business, but of course there's been this compression. To give you an idea, the TSB NIM in the quarter is being 2.12%, if I'm not mistaken, we could precise this more in detail, but I think is that and we see potentially an erosion of 5, 6 basis points for the whole year.

This is the intensity of the pressure. It could be that this is reduced because of course in terms of volumes performance what we've seen in the quarter is been an increase of the weight of mortgages due to the fact that there's still some business banking lending products in digital are going to be launched and haven't been viable in the first quarter and therefore there has been a decrease in the business banking lending portfolio and those of course have higher margins.

So this is the landscape in terms of what we expect from the TSB in that regard. In terms of the TLTRO, you asked about whether - as not having plans for using the TLTRO-III would mean that we are happy reducing the size of the portfolio.

We don't need it. We don't need this.

So because as we show in the presentation we can repay these with cash flows coming from the sales of the assets, with the inflows coming from them, unwinding of their receivable from the deposit guarantee fund and also using part of the liquidity, they access liquidity, which is cash, that is deposited now in ECB [ph]. Less than half or circa half of this, so they offered it, still will be very significant.

So we don't need to reduce, we don't need to act on the size of the Alco [ph] portfolio, the size of the Alco portfolio we expect it to remain stable throughout this year. The contribution to NII in the quarter has been slightly above 100 million, we expect it to be stable.

This is basically a 12 - this has basically a 12% of total NII and actually remains very, very, very similar to what has been in there. It's a little bit less.

It's always stands around between 12%, 15%, 16%. And then I think…

For the last fully last question about the Solvia, the Solvia sales. Well, as I said before we have launched the sale process, the pre-mentoring consideration for sale as a net asset value that ranges between €700 million and €900 million and we expect to close the sale during this year.

Thank you. Thank you very much.

Good morning. A couple of questions as well.

The first one is a bit more on the specific slide which is related with other income and I saw in you release, that there was a positive effect from the negotiation - from the renegotiation of something contracts at the SB namely the visa contract, whether with positive impacts on other income. My doubt is whether this is a recurrent positive impact that we saw - that we saw in the quarter.

Should we expect - so we expect there to maintain over the coming quarters or was this more of one-off? And so this was on the other income.

Then on fees, I was wondering as well if you could give us some color on how do you expected to evolve throughout the year. First Q was - so was I would say particular - particularly or quite good performance considering the market environments.

I was wondering how you expected to evolve throughout the rest of the year. Thank you very much.

Thank you, Carlos. Thank you very much for your questions.

Regarding the first one, what we see in other income is basically fees. So revenues coming from the recurring activities, so we should expect this level is, not exactly this level, but more or less the activity is maintained throughout the year.

And actually we are expecting growth for - in TSB for this line of P&L throughout the year.

Regarding fees, as I said before, so this year we are targeting high single digit growth, driven by several factors. I think that the first quarter reflects this evolution.

Basically we are having a very good commercial moment in Spain with higher transactionality and increasing our customer base. We have also since last year launched a strategy to increasing customer loyalty.

This first quarter we are launching new policies, increasing this or developing this strategy of increasing customer loyalty. We are also doing very well in terms of insurance production, so we are optimistic about us achieving this target of a high single digit for the end of the year in terms of fees.

Thank you. Next question, operator, please?

Hi, good morning. it's Derrick Wynn [ph] from KBW.

One question on the U.K., if you could just maybe highlight again your outlook for the year in terms of one-off or non-recurrent items that we need to consider in both revenues and costs. And then a question, maybe more a medium term question relating to Mexico and still showing very strong loan growth.

It's now roughly what about 2.5% or just under 2.5% of the performing loan book. Over the medium term, how big or how much bigger should the Mexican business become in the context of the group?

Thank you.

Thank you, Derrick. Regarding the UK, in terms of revenues, I think we shouldn't be expecting any non-recurrent in particular.

So I think what we've seen in the first quarter has been again catching up with past towards loan growth. We are expecting further loan growth in the UK in the coming three quarters and also a behavior or performance from other income more or less similar to this quarter.

In terms of costs, we see that there's been some reduction in that recurring costs and that we still have some non-recurring and this non-recurring are linked to what I just explained. So some legal costs is still running in parallel to the investigations.

In the guidance, we've included, but we don't disclose, but in the guidance we have included costs related to the efficiency initiatives that in theory will be undertaken or are being undertaking. And so this part - this makes part of the guidance more details and of course the guidance on the outlook will be updated when the CEO that starts first of May, David Crosbie [ph] reviews the plan and updates it, in this moment there will be, as I said the communication on the targets of the plan, more disclosure and more details on how it is going to look like.

Regarding Mexico, I think that - so I think that the quarter in fact has been better in terms of - has been better in terms of income and profit than in terms of growth of lending growth. Our view is that at this moment in Mexico we are beginning to take - to benefit from the increase of the offer with more cross-selling activity, offering more products and services, also obtaining a cheaper funding because we are consolidating our position in the market and looking for ways that from this year probably we will see that better performance in terms of income and profit in Mexico and lower level of growth that we have experienced last years, the last years.

We are thinking a growth - lending growth above 5%, taking in and taking into account the economy and the situation of the - of some kind of uncertainty that there are in the market. So my view is that Mexico now is more an asset that is going to contribute positively in terms of income and profit and probably we will see more slow, parse of the lending activity.

Yes, hi. Good morning, everyone.

Yes I have one question on the margins in Spain, and I have gone through the new production and they'll frame that you have had you know, - my question is more on the recent offer that you have during mortgage market where you are just offering like the 190 flat margin for fixed rate mortgages, which looks to me like a very competitive, particularly in the long end of mortgages above 25 years. Well, I mean do you see this as a temporary offer ahead of the new mortgage law or that something to stay.

And what will be then the impact that you see over the new mortgage law in terms of the cost - of the product itself going forward? Thanks.

Well, I think that this offer was done just to targeting our best customers with strong uh consumption of other products and very loyal. And I think that was more, let me see a commercial - was offering a commercial and add aim that's really the average of the offers that we are doing.

In terms of mortgages what we have been, we have seen in the quarter and probably also in the second quarter is an increase of the spread, the average spreads of the mortgage activity. So I think that - I think that in general the market because of the new low and because of the new situation of the market, we are going to see better spreads in the future.

Thank you very much. I believe this gives us time for just one last question, please operator.

Thank you. All my questions have been answered already.

Okay. Well, while one more operator please.

Thank you.

Hi, guys. Good morning and thanks for this inaugural live Q&A, much, much appreciated.

A couple of questions hopefully pretty quick ones on my side. Number one on TSB.

So from what I understand you are assuming some of the £160 million of synergies coming through this year, but you're not disclosing how much. If I can just confirm that.

And number two on the IRPH mortgages, could you just comment when you convert these mortgages, what's the rate that you offer to the people versus the sort of 190 to 200 basis points that's available in the market. And how comfortable do you feel with the legal risks embedded in the waivers that you ask your clients to sign.

And lastly on the ALCO portfolio there was another reshuffle from fair value through OCI into HTM. Can you just explain what the reasons are for that and what we should expect going forward?

Are we eventually going to see most of the ALCO portfolio and the securities portfolio as HTM rather than fair value? Thank you.

Thank you, Stefan. About TSB, no we are not assuming that the total 160 million synergies come in this year in TSB.

I confirm this. Yes, some of them are already built in, in their cost base.

But the extent of the synergies and their cost efficiency achievements will be part of the disclosure that will be made. As I referred to earlier when David Crosbie [ph] reviews an updated plan.

So we should expect that at least she will need three, four months and then the plan will be communicated. We think that the potential for synergies remains there.

And the timeline will be confirmed with the finished plan. In terms of IRPH, Jaime is going to answer?

Well, we are doing this a strategy of offering fixed rates instead the variable to customers since the moment were the interest rates were very, very, very low and we have done this - we have followed this strategy with all types of variable mortgages what are rated to [indiscernible] what are rated with or without floors, and also IRPH and other another variable index. And at this moment more or less the offer is about a 2% rate for mortgages that have a maturity of 15, 20 years more or less.

But obviously the offer depends of the type - the different type of customers and the different type of assets and the loan to values and all this kind of thing that's are material in the decision of pricing.

Thank you, Jaime. Stefan, about your last question on ALKO.

There hasn't been any reclassification between the OCI and the HTM portfolios. What happened was that - there has been sales on the OCI and there has been purchases on the HTM, but no reclassifications.

So as you know the HTM corresponds us at a perimeter that is heavy from business definition and reference and it has its own dynamics, but there haven't been any reclassification.

Okay. All very clear.

Thank you, guys.

Thank you.

Thank you, everyone. Thank you very much for listening.

Thank you for participating, I am afraid this is all we have time for today, with record in this quarter and so again, thank you for listening. In the Investor Relations department we are obviously available to answer any other questions that you have throughout the day.

And have a great day.