SAN

Business Context and Reporting Period

Company: Banco Santander, S.A.
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Nine months ended September 30, 2025 (9M 2025)
Key Context: The filing presents underlying financial results, maintaining the same perimeter as previous quarters, which includes Santander Bank Polska despite the announced sale of a 49% stake to Erste Group. The report utilizes both IFRS and Alternative Performance Measures (APMs). Constant euro figures are used to mitigate distortions from hyperinflation in Argentina.

Key Financial Metrics (9M 2025)

Material Changes vs. Prior Period

• Profit Growth: Underlying attributable profit increased by 11.0% year-over-year to €10.3 billion, driven primarily by improved operating income and lower provisions in key markets.
• Revenue Composition: Net interest income declined slightly (-2.5% current EUR) due to margin compression, while net fee income grew (+3.6% current EUR), offsetting the decline.
• Asset Quality: The Group NPL ratio improved to 2.92% from 3.06% in Q3 2024. NPL coverage ratio increased to 67.1%.
• Segment Performance:
  • Payments: Showed exceptional growth with underlying attributable profit up 269.4% YoY.
  • UK: Profit before tax surged 48.0% QoQ and 43.1% YoY, aided by lower provisions.
  • Brazil: Profit before tax declined 40.5% YoY (current EUR) due to FX impacts and higher cost of risk, though constant EUR results were more stable.
  • Argentina: Profit before tax grew 6.8% YoY despite significant FX volatility.
• Capital Position: CET1 ratio stands at 13.09%, exceeding the 12-13% operating range and the minimum requirement of 9.72%.

Guidance, Outlook, and Risks

• Capital Targets: Management maintains a target CET1 ratio of >12% for year-end 2025. The current estimate is comfortably above this target.
• Funding Plan: The 2025 funding plan has been adjusted. MREL/TLAC needs were reduced by approximately €7 billion due to regulatory improvements (CRR3, FRTB delay) and risk transfers. This allows for increased Covered Bond issuances to maintain liquidity metrics.
• Stress Test Results: In the EBA Stress Test, Santander achieved the highest Profit After Tax (PAT) in the baseline scenario and the second highest in the adverse scenario, ending with a Fully Loaded CET1 of 12.3% in the adverse 2027 scenario, above the peer average.
• Risks and Contingencies:
  • Geopolitical: Exposure to wars in Ukraine and the Middle East, and political instability in key operating regions (Spain, UK, Latin America, US).
  • Market Risks: Interest rate volatility, foreign exchange fluctuations, and credit spread shifts.
  • Operational: Cyberattacks, data breaches, and climate-related regulations.
  • Argentina: Significant measurement uncertainties due to hyperinflation and exchange rate volatility.

Investor Verification Checklist

• Constant vs. Current EUR: Verify the distinction between current and constant euro figures, particularly for Latin American operations (Argentina, Brazil, Mexico), as FX impacts significantly distort current EUR results.
• Perimeter Consistency: Confirm that the inclusion of Santander Bank Polska in the results aligns with the "underlying" basis despite the pending sale of a 49% stake to Erste Group.
• Argentina Exchange Rates: Review the specific exchange rate methodology applied for Argentina between Q2 2024 and Q1 2025, as an alternative rate was used to better reflect inflation.
• Provisions in Brazil: Investigate the drivers behind the 40.5% decline in Brazil's profit before tax (current EUR) and the elevated cost of risk (4.71%).
• AT1/Tier 2 Issuances: Verify the execution of the adjusted 2025 funding plan, specifically the net AT1 issuance of €1.033 billion and the shift towards Covered Bonds.