Banco Santander, S.A. (NYSE: SAN) — The Value Trade That Worked, and Therefore Ended

An independent fundamental research note · Report date: 25 July 2026 Security: Banco Santander, S.A., American Depositary Shares (NYSE: SAN); 1 ADS = 1 ordinary share Domicile / listing: Spain; Madrid, Barcelona, Bilbao, Valencia, NYSE (ADR), London (CDI), Mexico, Warsaw CIK: 0000891478 · CUSIP: 05964H105 · ISIN: US05964H1059 · Filer status: Foreign private issuer (20-F / 6-K) Reference price: $13.54 ADS (2026-07-24) ≈ €11.86/share at EUR/USD 1.1420 · Market cap: ~$189bn / ~€166bn Fiscal year: 31 December · Reporting currency: EUR

⚡ Claude’s Take

This block is the author’s own subjective opinion. It is general information, not investment advice, and no recommendation is made to any person. The analysis that follows takes no position and carries no price target — it discusses valuation only as embedded expectations and scenarios.

Verdict: HOLD / AVOID-here at ~$13.54. This is a genuinely repaired bank at a fully repaired price. My base case — a 17% sustainable return on tangible equity capitalised at an 11% cost of equity — produces ~1.86x tangible book, or ~$13.42. The stock trades at 1.88x, or $13.54. There is no discount left to the plan working. Not a short: earnings power is real, the buyback is enormous, and the balance sheet is solid. Accumulate only on a de-rating into roughly 1.45–1.60x TNAV, or about $10.50–$11.75. Conviction: medium.

Santander has done something genuinely difficult. It has taken a sprawling ten-country conglomerate and made it demonstrably more efficient: the cost-to-income ratio is 42.8%, down 2.9 points year-on-year, against Lloyds Banking Group’s 58.6% and best-in-class US regional Webster Financial’s ~46% — and in its largest market, Spain, revenue rose 17% while costs fell 3%. Underlying profit is up 15% to a record €7.3bn in the half, underlying EPS up 20%, TNAV per share plus dividends up 19%, and the share count is down 16% from its 2020 peak. That is not narrative; it shows up in the cost line, and it is the reason the multiple has gone from 1.28x tangible book a year ago to 1.91x at 30 June — a 49% re-rating in twelve months against 15% TNAV growth. Roughly three-quarters of the last year’s return was the multiple, not the book.

And that is the problem. At 1.88x TNAV the price embeds a permanent ~18% RoTE (11% cost of equity, 3% growth) — 240bp above the 15.6% just delivered, 100bp above management’s own capital-normalised 17%, and 640bp above the eight-year average ROE of 11.6%. The market has already capitalised roughly 90% of the February Investor Day plan (>20% RoTE, >€20bn profit, ~36% efficiency by 2028) and assumed it never fades. The plan is not the upside; the plan is the base case. Meanwhile the factor evidence says plainly what you are actually buying: the dominant loading is Country: Spain at +1.51 — with Momentum entirely absent despite a 57%/yr three-year run — and the single closest factor analogue to this stock is the iShares MSCI Spain ETF (0.94 similarity). That is fundamentally justified, because Spain is 35% of group profit. It also means valuation and factor exposure are the same bet: a levered wager that the required return on peripheral-European and Latin American bank equity stays permanently compressed. One point of cost of equity moves fair value ~15%.

Framing: a completed value re-rating — explicitly not momentum, not a falling knife, not a bubble. The 0.6x-to-1.9x-book trade is over; from here you are paid only if management out-executes its own guidance, while carrying tails the tape is ignoring: a £200–300m MFS exposure that Santander has never once named in its press release, financial report or earnings call (Barclays quantified its £228m hit; Santander said “some single names”), a PRA rebuke on due diligence, five securities-fraud investigations, a CNMC proceeding against all six Spanish lenders over mortgage practices with no disclosed accrual, an Argentine cost of risk that doubled to 11.12%, and a Botín family directing the bank on a 0.75% economic stake. Conviction is medium. The bull trigger is a printed RoTE at or above 18% on normalised capital with Webster closed and Brazil recovering — i.e. management’s own 2027 pay gate cleared early. The bear trigger is group cost of risk breaking through ~1.35%, or a CNMC fine landing alongside further CIB single-name losses; either resets RoTE toward 13–14% and the multiple toward 1.3x, which is ~30% lower. Tag: “You are buying a Spain ETF with a 42.8% cost-to-income ratio — and paying up for both.”

📈 Stock Price Action — Five-Year Event Map

Prices are split- and dividend-adjusted ADS closes from the AZI five-year CSV. The price move is a Fact; the attributed driver is Interpretation. No price target, no recommendation, no chart-pattern or support/resistance reading.

Santander has made one of the great round trips in large-cap European financials. From a five-year closing low of $2.00 on 2022-07-14, the ADS has risen roughly 6.8x to a five-year closing high of $14.37 on 2026-07-06, closing at $13.54 on 2026-07-24 — 5.8% off the high, inside a 52-week range of $8.22–$14.37, and above its 21-, 50- and 200-day EMAs ($13.53 / $13.11 / $11.61) in ascending order. Calendar-year closes tell the story better than any chart: $2.53 (2020), $2.79 (2021), $2.61 (2022), $3.81 (2023), $4.39 (2024), $11.59 (2025), $13.54 today. FY2025 alone was +164%. The long record is the mirror image: a lifetime return of +5.8%/yr with a −80.5% maximum drawdown, and a ten-year return of +17.1%/yr with a −73.8% drawdown. This is a stock that destroyed capital for fifteen years and then compounded at 57%/yr for three.

Cycle narrative. (1) The 2021–22 decline was a peripheral-Europe risk-premium event, not a Santander event — Ukraine, recession fear and LatAm currencies. (2) The turn in September 2022 is precisely dated to the ECB abandoning negative rates: a bank that had been forced to lend at zero suddenly had a spread. (3) The February–May 2023 setback was pure sector contagion from the US regional failures and Credit Suisse; Santander’s funding never came under stress. (4) Through 2023–24 the market slowly conceded that the NII windfall was durable rather than a one-quarter print, and Santander began cancelling stock in size. (5) The mid-2024 dip was a rate-cut and LatAm-FX scare. (6) Event 6 is the whole investment case. Over thirteen months the ADS nearly tripled as the European bank complex re-rated, Santander delivered a record €14.1bn with a 16.3% RoTE, Spain established itself as Europe’s fastest-growing large economy, and the February 2026 Investor Day put a >20% RoTE and >€20bn profit on the board for 2028. Crucially, the company’s own disclosure shows P/TBV going 1.28x → 1.55x → 1.91x across this stretch: this was a multiple event. (7) The February–March 2026 drawdown is datable to two things — the Webster acquisition, two-thirds of it cash and the rest new paper, and the MFS insolvency, which knocked 7.6% off the ADS in two sessions and triggered the securities-fraud investigations. (8) The recovery since has been earnings delivery plus the Poland gain plus TSB completion, capped by the symbolically loaded moment in June when Santander passed Inditex to become Spain’s most valuable listed company for the first time in eight years.

1. Executive Summary

Banco Santander is a €1.87 trillion-asset global bank headquartered in Boadilla del Monte, Madrid, serving 182 million customers across ten core markets in Europe and the Americas with 185,000 employees and roughly 9,900 branches. It is organised into five global businesses — Retail & Commercial Banking, Openbank (the renamed Digital Consumer Bank), Corporate & Investment Banking, Wealth Management & Insurance, and Payments — overlaid on nine reported country units. It is a foreign private issuer filing 20-F and 6-K; its ADS trades one-for-one against the Madrid ordinary share.

The operating story is real. H1 2026 produced record underlying profit of €7,328m, up 15%, on revenue of €30,847m (+6%), with net interest income of €22,711m (+7%) and net fee income of €6,851m (+9%). Costs were flat as reported and down 2% in constant euros excluding TSB, driving the efficiency ratio to 42.8% — an improvement of 2.9 percentage points and a figure that compares favourably with Lloyds’ 58.6% and with Webster’s ~46%. Underlying RoTE reached 15.6%, underlying EPS rose 20%, and TNAV per share plus cash dividends rose 19.3%. The mechanism is identifiable and not merely asserted: a single core banking platform (“Gravity”, fully live in Spain, Mexico and Chile), one global app, and a common customer-interaction layer, amortised across 182 million customers. In Spain’s new commercial model, revenue rose 17% while costs fell 3%.

The earnings quality requires a caveat. Reported attributable profit of €8,973m (+31%) is not operating growth: it contains +€1,645m of non-recurring items, namely a €1,895m capital gain on the January disposal of 49% of Santander Bank Polska to Erste Group, less €250m of TSB restructuring. On a statutory basis Q2 attributable profit rose only 3% year-on-year and fell 36% sequentially. Underlying +15% is the honest number. The return profile also rests on leverage: a 13.6% FY2025 ROE is earned on a 0.76% return on assets — roughly 18x asset-to-equity — against a tangible common equity ratio of 5.2%, and the loan-to-deposit ratio is 101%.

Capital allocation has been unusually busy and, on price, largely defensible. Three transactions in fifteen months: Poland sold at a €1.9bn gain with ~50% of the released capital returned via an incremental €3.2bn buyback; TSB acquired for £2.65bn/€3.3bn, completed 30 April 2026, adding 4m customers and ≥£400m of targeted synergies; and Webster Financial agreed for $12.2bn on 3 February 2026 at 2.0x tangible book and ~10x expected 2028 earnings — a franchise whose disclosed FY2025 metrics are strong (FY2025 ROTCE 17.16%, ~46% efficiency, ~29% of deposits at effectively zero cost). Santander is issuing paper at roughly the multiple it is paying, for a business earning above its own return. The concern is funding mix: 65% of the Webster consideration is cash, which is why CET1 falls from 14.0% to a guided 12.8–13.0% and why the buyback was suspended in April. Distributions are large and real — ~€9bn of buybacks toward a ≥€10bn 2025–26 commitment, a 24-cent 2025 dividend (+14%), and a 16% reduction in share count since 2020 — but the multi-decade record is one of dilution (share count roughly doubled from 2010 to 2020 via scrip dividends and the €7.07bn Banco Popular rights issue) and goodwill destruction (goodwill halved from €24.2bn in 2019 to €12.0bn today).

The valuation is the conclusion. Santander’s own disclosure puts P/TBV at 1.91x at 30 June 2026, against 1.55x in March and 1.28x a year earlier; on AZI’s own-history percentiles the stock sits at the 96.9th percentile composite — 98.7th on P/B and 99.3rd on P/S, essentially the most expensive it has ever been on book and sales. At $13.54 (≈€11.86 against €6.32 TNAV/share) the multiple is 1.88x, which under a Gordon framework at an 11% cost of equity embeds a permanent ~18% RoTE. That is above what has been delivered (15.6%), above management’s capital-normalised claim (~17%), and far above the eight-year average (11.6% ex-2020). A base case of 17% RoTE and 4% growth values the shares at ~1.86x, or ~$13.42 — within 1% of the market. The bull case (20.5% RoTE sustained) supports ~2.46x/~$17.76; the bear case (13% RoTE) ~1.27x/~$9.17.

What the market may be underweighting. A £200–300m exposure to the fraud-driven collapse of Market Financial Solutions, never named in any Santander disclosure or on any call, accompanied by PRA criticism of banks’ due diligence and five plaintiffs’-firm investigations; a CNMC disciplinary proceeding against all six listed Spanish lenders over mortgage practices (Spanish antitrust fines can reach 10% of turnover) with no disclosed accrual; an Argentine cost of risk that doubled to 11.12%; €245m of UK motor-finance provisions; an unexplained Asia-Pacific management purge including the removal of the top banker in Beijing; and a €20bn increase in the ALCO bond portfolio in six months. None is individually existential. Collectively they describe a bank whose returns are being pushed to record levels while its disclosure of adverse items has become notably less specific than its peers’.

2. Business Overview

2.1 What Santander actually is

Banco Santander is not best understood as a single bank. It is a holding company for a portfolio of national retail-and-commercial banking franchises, run since 2023 on a matrix that reports five global businesses as primary segments and nine country units plus a Corporate Centre as secondary segments. Founded in 1856 in Santander, Cantabria, it took its present name in 2007 after the Banco Santander Central Hispano era. Ana Botín has been Executive Chair since 2014 — the third generation of Botín family leadership — with Héctor Grisi as Chief Executive since January 2023 and José García Cantera as Chief Financial Officer.

Scale, as at 30 June 2026: €1,867,515m of total assets (FY2025), 182 million customers (up 12 million year-on-year, including 4 million from TSB), 185,000 employees, ~9,879 branches, 3.5 million shareholders, and a market capitalisation of €178bn at the half-year date. Net loans and advances to customers were €1,149,162m against customer deposits of €1,133,762m — a 101% loan-to-deposit ratio.

2.2 The five global businesses

H1 2026 underlying attributable profit, with year-on-year change in constant euros:

Note: Openbank’s underlying profit was depressed by €245m gross of UK motor-finance provisions (€207m in Q1) and the end of US electric-vehicle tax incentives. Recurrent PBT excluding motor finance rose 15%; including it, PBT fell 2%.

Retail & Commercial Banking is the core — 56% of group underlying profit, and the home of the ONE Transformation cost programme. Loans grew 9% (2% excluding TSB), deposits 13% (6% excluding TSB), driven by mortgages. Costs fell 3% (5% excluding TSB) and digital sales rose 21%. A 17.1% RoTE on a conventional retail bank is a good outcome.

Openbank is the renamed Digital Consumer Bank: Santander’s global consumer-finance operation (predominantly auto lending in Europe, the US and Latin America) merged with its digital-only bank. This is the group’s highest-risk book — a 2.09% cost of risk — and the vehicle for embedded finance (Openbank Pay, 2.6m customers). It is also where the UK motor-finance conduct problem sits.

Corporate & Investment Banking is the fastest-growing and highest-returning business: profit +17%, revenue +16%, RoTE 20.3%, efficiency 40.8%, with Global Banking and Global Markets the main contributors. Management frames the strategy as tilting toward “advisory and capital-light businesses.” This is also, as the risk discussion covers, where the MFS credit accident occurred.

Wealth Management & Insurance is the highest-quality earnings stream — profit +19%, fees +11%, record AuM of €581bn (+13%), private-banking client assets +15%, insurance gross written premiums +11%. Management discloses a supplementary “PAT + fees ceded” metric of €1,945m for H1’26 to capture the total contribution including fees passed to the branch network.

Payments is sub-scale but improving: €78m of profit on €771m of revenue, with the EBITDA margin up 3.8 points to 32.6%. Getnet’s total payments volume rose 10%; Getnet Platforms processed 9 billion account-to-account and card transactions, five times the prior year; Ebury grew active customers 28% to over 28,000. Santander invested a further £50m into Ebury in April 2026 as part of a £550m Centerbridge-led round.

2.3 Geography is the real segmentation

The global-business view flatters Santander by making it look like an integrated platform. The country view shows what it is:

Two facts dominate. First, Spain alone is roughly 35% of group underlying profit (32% of the countries listed, before the Corporate Centre’s −€525m drag) and is the single largest unit by a factor of more than two. Second, the conversion of revenue into profit varies enormously — Portugal turns 50 cents of every revenue euro into profit and Spain nearly 40 cents, while Brazil manages 16.6% and Openbank Europe 8.5%. Brazil generates more revenue than Spain and less than half the profit, because a 4.14% cost of risk consumes the difference.

This is the structural point the “diversification” narrative obscures: Santander is a highly profitable Iberian bank with a large, volatile, lower-returning Latin American annex and two improving but sub-par franchises in the UK and the US.

2.4 Recurring versus cyclical revenue

Management states that more than 95% of group revenue is linked to customer activity rather than trading — a genuine quality point, and consistent with the mix: NII is 74% of total income and net fees 22%, with markets and other income the small remainder. Fees are growing faster than NII (+9% versus +7%), which management guides to continue. But “customer-linked” is not the same as “rate-insensitive.” Net interest income is 74% of the top line, and on the Q2 call the CFO conceded that the NII profile is “stronger and more resilient than anticipated in Investor Day guidance, as the benefits from higher for longer rate environment in most markets more than offset the more moderate contribution from Brazil.” Translated: the beat is coming from rates, not only from execution.

Verdict — Business Overview. Santander is a genuinely large-scale, genuinely more efficient bank than it was three years ago, with a credible technology-led cost programme and a good, growing fee complex in wealth and payments. But it is structurally an Iberian retail bank (Spain plus Portugal = 38% of country profit at ~42% blended conversion) carrying a Latin American book that contributes most of the revenue growth and most of the credit risk, plus two turnaround franchises. The five-global-business presentation is a management construct; the nine-country table is the business.

3. Industry Dynamics

3.1 The eurozone: a genuinely better industry than it was

European retail banking spent 2012–2021 as one of the worst industries in the developed world: negative policy rates that made deposit-taking a cost rather than a franchise, a decade of forced deleveraging, sovereign-bank doom loops in the periphery, and returns below the cost of equity for the entire sector. That has changed, and the change is structural rather than merely cyclical in one important respect: capacity left. Fifteen years of branch closures, national consolidations, foreign-bank retreats and cost programmes withdrew supply from the industry. In Marathon’s capital-cycle framing, this is the textbook setup for return recovery — returns rise not because incumbents got smarter but because competitors disappeared.

Spain is the clearest case. The country’s banking system consolidated from roughly fifty savings banks to a handful of national players after the 2012 crisis, and the CNMC’s June 2026 action naming all six listed lenders is itself an admission of how concentrated the market has become. Layered on top is macroeconomic outperformance: Spain has been Europe’s strongest large economy through 2025–26, widely framed in the financial press as “one of Europe’s strongest large market growth stories in 2026.” A concentrated oligopoly in a fast-growing economy with positive policy rates is a good place to be a bank — which is exactly why 35% of Santander’s profit converts at ~40% and why the stock carries a 1.51 beta to Spain.

The rate environment is a live tailwind that management explicitly did not forecast. Higher-for-longer rates across most of Santander’s footprint have more than offset a softer Brazil, and an analyst on the Q2 call asked directly whether this makes the 2025–28 NII plan conservative. Management declined to re-guide upward but did not disagree.

3.2 Where this industry is structurally bad

Three features cap the sector’s quality permanently.

Regulatory return-suppression. Bank returns are policed by capital requirements. Santander runs a 12–13% CET1 operating range set in dialogue with the ECB, and every euro of distribution requires ECB approval — the €1.8bn H1’26 buyback is described in the press release as “already approved by the ECB.” A business whose ability to return its own earnings is licensed is a business whose returns are administratively bounded.

Political extraction of excess profit. When banks earn well in Europe, governments take a share. Santander accrued €174m in H1’26 alone for the Spanish tax on expected income obtained in Spain — the windfall levy — the same amount as H1’25. The UK’s motor-finance dealer-commission redress regime has cost Santander €245m gross in H1’26. And the CNMC’s June 2026 disciplinary proceedings against all six Spanish lenders over mortgage-market practices carry theoretical exposure up to 10% of total turnover under Spanish competition law. Excess returns in European retail banking attract fines and levies with reliability.

No pricing power over a differentiated product. Deposits and mortgages are commodities. Santander cannot raise the price of a Spanish mortgage because its app is better; it can only take share or cut cost. This is why the only durable advantage available in this industry is a cost advantage — and why the Competitive Position section concludes that a cost advantage is precisely what Santander has.

3.3 Latin America: higher return, far higher risk, rising competition

Roughly 30%+ of Santander’s profit comes from Brazil, Mexico, Chile and Argentina. These are structurally higher-margin markets — Brazil generated €6,595m of revenue on a smaller balance sheet than Spain’s — and structurally higher-loss markets. The twelve-month cost of risk by country as at June 2026:

Argentina’s cost of risk more than doubled in twelve months, which management attributes to “sector-wide trends in the country.” Brazil, at 4.14%, is stable but is running four times the group average and consumes most of the segment’s revenue advantage.

Competition is also intensifying. Nubank is a direct digital competitor in both Brazil and Mexico, and an analyst on the Q2 2026 call specifically raised Nubank’s receipt of a Mexican banking licence as a risk to Santander’s Mexican growth expectations. Nubank’s own disclosure establishes it as a genuinely lower-cost-to-serve competitor in exactly Santander’s mass-market Latin American segments. Meanwhile Santander Brasil — separately listed — has been trading below book on a depressed ROE, which is the market’s verdict on the Brazilian franchise’s current returns.

3.4 The UK and the US

The UK is a structurally poor banking market: intense mortgage competition, a persistent conduct-redress regime, and low nominal growth. Santander’s own target for Santander UK is a RoTE of only ~16% by 2028 after TSB synergies — the weakest ambition of any major unit. The TSB acquisition is a rational response (buy scale, cut cost, retire the brand) rather than evidence of an attractive market.

US regional banking is consolidating after the March–May 2023 failures of Silicon Valley Bank, Signature Bank and First Republic, which permanently raised the sector’s liquidity and funding cost structure. Santander is buying into that consolidation rather than causing it, and is buying a genuinely good asset. But it is entering a market where it currently earns sub-scale returns and where the largest four banks take a disproportionate share of the profit pool.

Verdict — Industry Dynamics: structurally improved, but not a good industry, and improving partly for cyclical reasons. The eurozone banking industry is materially better than a decade ago because supply was withdrawn and rates turned positive — a real, durable change. Spain specifically is a concentrated oligopoly in Europe’s best-growing economy, which is a genuinely favourable position. But this remains an industry with no product pricing power, administratively capped returns, and a political economy that taxes and fines excess profitability with reliability. Santander compounds the profile by holding a Latin American book that earns more and defaults four-to-ten times as often. Marathon’s warning applies with force: high returns are now attracting capital back — the sector is doing deals at 2.0x tangible book, Santander among them — which is the classic late-cycle signature, not an early one.

4. Competitive Position

4.1 Naming the moat

Under the Greenwald taxonomy, there are three genuine competitive advantages: supply-side (cost), demand-side (customer captivity), and economies of scale combined with some captivity. Santander’s case must be argued precisely, because the company’s own framing — global diversification, 182 million customers, network effects — does not survive contact with the framework.

What Santander does not have. It does not have meaningful customer captivity. Retail banking products are substitutable, switching is regulator-facilitated in both the EU and UK, and Santander competes on price for Spanish mortgages and Brazilian cards like everyone else. It does not have network effects in any rigorous sense: a Spanish depositor derives no benefit from a Mexican borrower joining. Management’s cross-border referral statistic (client referrals up more than 20%) is real but small — this is a distribution synergy, not a network effect. And it does not have brand pricing power: the decision to retire the TSB brand after paying £2.65bn for it is management’s own admission that retail bank brands carry limited standalone value.

What Santander does have: a genuine economies-of-scale cost advantage in technology amortisation. This is the real moat, and it is measurable. Santander runs one back-end core banking platform (“Gravity”, fully implemented in Spain, Mexico and Chile, technically ready for Brazil in 2026), one global mobile app (live in Spain, Mexico, Brazil and Chile), and one customer-interaction platform (live in five markets, ready for Spain), with an assisted-channel solution operational in more than half the group’s branches. The fixed cost of building each of those is spread across 182 million customers in ten countries. The financial outcome is the efficiency ratio:

This passes the test that matters: there is an identifiable financial outcome that would deteriorate without the advantage. If Santander had to build and run ten national core platforms rather than one, the cost line would be structurally higher, and the 2.9-point year-on-year efficiency improvement — achieved with costs falling 2% in constant euros excluding TSB while revenue rose 6% — would not be available. The Spanish commercial-model result is the cleanest single proof: revenue +17%, costs −3% in one market, year-on-year.

A second, weaker advantage: local scale plus regulatory barriers in concentrated national markets. In Spain, Portugal and Chile, Santander holds top-tier share in oligopolistic markets with high regulatory barriers to entry. This is Greenwald’s “economies of scale plus captivity” case, and it is genuine — but it exists at the country level, not the group level.

4.2 The honest counter-argument

A moat that exists country-by-country does not compound into a group moat. What it produces is a holding company whose consolidated return is the weighted average of ten separate competitive positions. Santander’s group RoTE of 15.6% is not the output of a single durable advantage; it is Spain at ~40% conversion and Portugal at ~50% averaged against Brazil at 16.6% and Openbank Europe at 8.5%. There is no mechanism by which the Spanish franchise’s strength protects the Brazilian franchise’s returns. The diversification argument is genuine as a volatility claim — management’s assertion that “our results are sustainable and less volatile than peers” is defensible, and the 2023 banking crisis supports it — but it is not a returns claim.

There is a further tension. The technology-scale advantage is only an advantage if the platforms actually consolidate. Gravity is live in three of ten markets after years of work and is only “technically ready” for Brazil, the largest LatAm unit. The customer-interaction platform is live in five markets but only now “ready to roll out” in Spain — the biggest market. The moat is real but partially unbuilt, which is simultaneously the bull case (more cost to come) and the risk (execution).

4.3 Direct comparison versus named competitors

• BBVA — the closest comparable: Spanish, LatAm-weighted (Mexico rather than Brazil), similar efficiency. FactorsToday puts BBVA as Santander’s second-closest factor neighbour at 0.926 similarity. The two are effectively the same trade.
• Lloyds Banking Group — the UK benchmark. Lloyds’ own FY2025 reporting shows it runs a 58.6% cost-to-income ratio and that its hedge structure drives more than 100% of NII growth. Santander is materially the better-run bank on cost, and it is buying UK scale (TSB) while Lloyds defends share.
• Barclays — a fellow MFS creditor (~£500m exposure, £228m taken in Q1) with a larger investment bank and lower retail returns.
• Nubank — the structural threat in Brazil and Mexico: a digital-native cost base attacking Santander’s mass-market LatAm customers, now with a Mexican banking licence.
• Webster Financial — soon a subsidiary rather than a competitor. Notably, Webster’s ~46% efficiency and 17.16% ROTCE mean Santander is buying a business that is worse on cost than the group but better on return — because Webster’s deposit base (29% of deposits at effectively zero cost, HSA money at 0.16% with near-zero beta through a 525bp cycle) is cheaper than anything Santander owns.

Verdict — Competitive Position: a real but narrow moat — a technology-scale cost advantage, not a franchise advantage. Santander has a genuine, measurable, defensible supply-side edge: one technology stack amortised over 182 million customers, producing a 42.8% cost-to-income ratio versus 58.6% at Lloyds. That is a durable advantage and it is the correct reason to respect this business. It is not a moat around revenue — there is no pricing power, no customer captivity and no network effect — and it does not operate at group level, only country by country. Santander is therefore best described as a well-run, low-cost operator in a structurally mediocre industry, which is a genuinely investable proposition at the right price, and a dangerous one at a record multiple, because a cost advantage protects margin but does not protect against a credit cycle or a political levy.

5. Growth History and Forward Opportunities

5.1 The historical record

Three observations. First, revenue growth has been modest — total income rose from €51.1bn (2019) to €60.0bn (2025), a 2.8% compound rate, and actually fell slightly in 2025. This is not a growth company at the top line. Second, EPS growth has been dramatic — from €0.347 to €0.989, a 19% compound rate — driven by three levers stacked on flat revenue: margin expansion (rates), cost reduction (ONE Transformation), and a 15% reduction in the share count. Third, 2020 was catastrophic: a €8,771m attributable loss and a −13.2% ROE from goodwill and deferred-tax writedowns, a reminder that this balance sheet can produce very large negative numbers.

The customer count is the cleanest growth metric: from 160 million in 2022 to 182 million today (+13% since 2022, +12 million in the last twelve months, of which 4 million came from TSB). Revenue per customer has therefore been roughly flat — Santander is growing by adding customers and cutting cost, not by monetising existing relationships harder.

5.2 H1 2026 growth composition

The critical distinction: roughly a third to a half of the headline volume growth is acquired, not organic. Loans grew 9% but only 5% excluding TSB; deposits 13% in Retail but 6% excluding TSB; customers +12m but 4m from TSB. Organic loan growth of ~5% with organic cost reduction of ~2% is a good result — but it is a mid-single-digit growth business, not a compounder.

5.3 Forward opportunities

ONE Transformation and AI. The 2028 efficiency target of ~36% from 42.8% implies roughly 700bp of further cost-to-income improvement. Santander quantifies AI’s contribution honestly: €84m of measured business value in H1’26 against a stated target of over €1bn between 2026 and 2028, with AI tools being extended to all employees. The Spanish early-retirement agreement covering up to 3,000 employees, signed with unions around 21 July 2026, is the concrete mechanism — and will carry a restructuring charge.

The two acquisitions. TSB should deliver ≥£400m of cost synergies and lift Santander UK toward ~16% RoTE by 2028. Webster is targeted to lift US RoTE to 18% and the US efficiency ratio below 40% by 2028, with ~7–8% group EPS accretion. Together these are the largest single contributors to the 2028 plan, and both are inorganic.

Wealth and Payments. The genuinely attractive growth. Wealth Management & Insurance grew profit 19% with record €581bn AuM and 11% fee growth — a capital-light, fee-based business Santander is under-indexed to relative to its customer base, with insurance described by management as “one of the biggest growth opportunities across the group.” Payments grew its EBITDA margin 3.8 points to 32.6% with Getnet Platforms’ transaction count up fivefold. These two businesses are 16% of profit and should be a larger share.

Openbank as a primary digital bank. Expanding from auto lending into embedded finance (Openbank Pay, 2.6m customers) and deposit-gathering, including a US launch. Strategically sensible; currently the lowest-return, highest-credit-risk unit.

Verdict — Growth: real, but low-quality in composition and increasingly purchased. The EPS growth record is genuinely excellent — 19% compound since 2019 — but it is the product of a rate cycle, a cost programme and a shrinking share count laid over a top line compounding at under 3%. Forward growth depends on (i) a further 700bp of efficiency gain that requires paying for redundancies, (ii) two acquisitions that are not yet integrated and one not yet closed, and (iii) fee businesses that are the right answer but only 16% of profit. Excluding TSB, organic loan growth was 5% and organic cost reduction 2% — a respectable mid-single-digit engine, not a compounding machine. The quality of the growth is improving (fees over NII, wealth over consumer credit); the quantity is unremarkable.

6. Financial Quality

6.1 Earnings quality: separating the operating result from the disposal gain

This is the single most important analytical adjustment in the file.

Reported attributable profit grew 31%; the operating business grew 15%. The €1,895m Poland capital gain — from selling 49% of Santander Bank Polska to Erste Group on 9 January 2026 — is a genuine, cash-generative, capital-releasing event and should be credited as good capital allocation. It is not recurring earnings. Note also that underlying comparatives strip €456m of H1’25 profit from the disposed Polish business, which mechanically helps the underlying growth rate.

The statutory picture is bleaker than the headline: Q2 attributable profit of €3,518m rose only 3% year-on-year and fell 36% sequentially, which is how the Wall Street Journal and Reuters led their coverage while the company led with “record.” Both are true; only one is operating.

6.2 Returns, and what they are earned on

The 15.6% RoTE is a good number achieved in a specific way: a 0.76% return on assets levered roughly 18 times. The tangible common equity ratio is 5.2% of assets. This is not a criticism unique to Santander — it is how banking works — but it must be stated plainly, because it is the reason the eight-year average ROE is 11.6% (excluding 2020) rather than 15%: at 18x leverage, a modest deterioration in credit or spread swings the return materially, and in 2020 it swung to −13.2%.

The declining effective tax rate (33.6% in 2021 to 25.3% in 2025) has quietly contributed to EPS growth and is worth flagging as a lever that has already been pulled.

6.3 Credit quality: solid in aggregate, deteriorating at the edges

Aggregate credit quality is genuinely good and improving — the NPL ratio fell 7bp in the quarter, Spanish credit performance is described as “solid,” and Brazil improved on a portfolio mix shift. But three items deserve scepticism. Argentina’s cost of risk more than doubled to 11.12%, and while management attributes this to sector-wide conditions, it accounted for essentially all of the group’s provision increase — “excluding Argentina, the Group’s net loan-loss provisions were practically stable.” Mexico’s increase is partly attributed to “model updates,” which is a phrase that deserves a follow-up question. And NPL coverage fell to 64–66%, which management justifies on the grounds that the retail portfolio contains high-quality-collateral Spanish and UK mortgages — defensible, but it is still a reserve release in substance.

The €6,574m of H1 provisions represent 21% of total income. That is the standing cost of the Latin American and consumer-finance mix, and it is the structural reason group RoTE is 15.6% rather than 20%.

6.4 Capital, funding and the ALCO position

CET1 of 14.0% at 30 June is strong, up despite absorbing a 55bp hit from TSB, with 20bp of organic generation in the quarter. Management guides to 12.8–13.0% at year-end 2026 after Webster — the upper end of a 12–13% operating range. Santander is rated A1 by Moody’s (upgraded October 2025 following Spain’s September 2025 sovereign upgrade) and is rated above the Spanish sovereign by both Moody’s and Fitch. That is a genuine credential and also an explicit statement that the credit is benchmarked to Spain.

Two funding observations. The 101% loan-to-deposit ratio means Santander is fully lent and dependent on wholesale markets at the margin — the five-year filing record (34 424B5 take-downs, 17 free-writing prospectuses, 16 new security registrations, and a $850m AT1 tender in May 2026) is the fingerprint of a habitual wholesale issuer. For comparison, Webster runs an 82% loan-to-deposit ratio. Second, the ALCO bond portfolio grew by almost €20bn in H1 2026 — raised by an analyst on the Q2 call, not volunteered — a substantial duration and carry position added on a higher-for-longer view. That is a bet, and it is not prominently disclosed.

6.5 The buyback as an EPS engine

The share count has fallen from 17,312m (2020) to 14,321m excluding treasury (June 2026) — a 17% reduction, with 3.8% removed in the last twelve months alone. Of the 20% underlying EPS growth in H1’26, roughly 4–5 points is share-count reduction rather than profit growth. This is legitimate value creation, but it should be identified as a distinct lever with a finite runway, particularly given the price now being paid.

Verdict — Financial Quality: genuinely good and genuinely improving, with two honest caveats. The economics do improve with scale here, and it is visible in the right place: costs fell in absolute constant-currency terms while revenue grew 6%, producing 11% operating-income growth and a 2.9-point efficiency gain. Fee income is outgrowing NII. Capital is strong at 14.0% CET1 and the credit book is broadly clean. The caveats are that (i) the headline profit growth is materially flattered by a €1.9bn disposal gain, with statutory Q2 profit up only 3%, and (ii) the return is earned on 18x leverage against a 5.2% tangible equity ratio with a 101% loan-to-deposit ratio, in a group where provisions consume 21% of revenue and one country’s cost of risk just doubled to 11%. This is a good bank’s financials, not a great business’s financials.

7. Capital Allocation

7.1 Three transactions in fifteen months

The Poland disposal is unambiguously good capital allocation. Santander sold a controlling stake in a decent but non-core franchise at a €1.9bn gain, and returned roughly half the released capital to shareholders through an incremental €3.2bn buyback rather than redeploying it. That is the behaviour of a management team allocating capital rather than accumulating empire.

TSB is a defensible consolidation play. Buying 4 million UK customers, a low-risk mortgage book and a high-quality deposit base for £2.65bn, then extracting ≥£400m of annual cost synergies and retiring the acquired brand, is the correct playbook in a low-growth, over-branched market where the only lever is cost. The tell that this is a cost deal, not a growth deal: Santander UK’s post-synergy 2028 RoTE ambition is only ~16%.

Webster is the one to scrutinise, and it survives scrutiny on price. Santander is paying 2.0x tangible book while its own stock trades at 1.91x — issuing paper at roughly the multiple it is paying — for a franchise whose returns are above its own. Our own independent prior analysis of Webster corroborates the quality: FY2025 ROTCE of 17.16%, ROA 1.23%, NIM 3.42%, a ~46% efficiency ratio that is best-in-cohort, and a genuinely differentiated funding base in which ~29% of average deposits cost effectively nothing, including $9.18bn of HSA deposits at 0.16% with near-zero deposit beta through a 525bp rate cycle. That is cheaper, stickier funding than anything Santander owns, and it is the correct thing for a 101%-loan-to-deposit bank to buy. A 14% premium to the undisturbed price for a top-quartile asset in a consolidating market is not an overpayment.

The criticism of Webster is the funding mix, not the price. Sixty-five percent of the $12.2bn is cash — paid out of a balance sheet with a 5.2% tangible common equity ratio — which is precisely why CET1 falls from 14.0% to a guided 12.8–13.0%, why the ECB’s approval remains outstanding, and why Santander suspended its buyback in April 2026 pending the Webster shareholder vote. A more shareholder-friendly structure would have used more paper at 1.91x book. Management chose to spend capital instead of issuing equity, which is a bet on its own share price being cheap — a bet that looks less obviously right at the 98.7th percentile of the stock’s own valuation history.

7.2 Distributions: excellent execution, then a formula

Every completed programme was followed by cancellation of the repurchased shares, not warehousing in treasury — the correct treatment. Cumulative 2025–26 buybacks will reach roughly €9bn against a ≥€10bn commitment, and 2026 alone will total c.€6.9bn, equivalent to c.114 basis points of CET1. The 2025 cash dividend was 24 euro cents (+14% year-on-year), paid in two tranches. Total distributions since 2014 exceed €36bn.

The execution has been good: a €8.67 weighted average repurchase price in the second half of 2025, at roughly 1.4x tangible book, against €11.86 today. That was value-accretive buying.

The forward policy is the problem. From 2027 results, the ordinary remuneration policy comprises ~35% of underlying profit in cash dividends plus ~15% in buybacks — a formula, with no stated price discipline, at a moment when the stock trades at 1.88x tangible book rather than 1.4x. Repurchasing tangible book at 1.88x reduces TNAV per share for continuing holders; it remains EPS-accretive only because the ~9% earnings yield at 11x still clears the bar. This is a mechanical buyback whose formula was written when the stock was cheap. A genuinely opportunistic allocator would flex between buybacks and dividends with the multiple; Santander has pre-committed not to.

7.3 The long record is much worse than the recent one

Honesty requires the full history. Santander’s share count roughly doubled from ~8.3bn in 2010 to 17,312m in 2020, via the “Santander Scrip Dividend programme” — still referenced in the 20-F’s own total-shareholder-return definition — and the €7,072m rights issue of 1.46bn new shares in 2017 to recapitalise Banco Popular, which Santander acquired for €1 and which diluted existing holders ~9.1%. Over the same era, goodwill fell from €24,246m (2019) to €11,958m (2025): roughly half the acquisition premia accumulated across three decades of dealmaking has been written off, most violently in the €8,771m attributable loss of 2020.

So the correct characterisation is not “Santander is a good capital allocator.” It is: Santander was a serial diluter and acquirer that destroyed roughly half its accumulated goodwill, and has for approximately four years behaved very differently — selling assets at gains, buying only self-funding bolt-ons at sensible multiples, cancelling stock, and raising the dividend. Four years is a real track record. It is not yet a culture.

7.4 Incentive alignment: unusually good

Forty percent of executive directors’ total variable remuneration is subject to long-term metrics. For the 2025–2027 cycle:

This is materially better alignment than most European banks offer. Half the long-term award is relative TSR against a genuine peer set with a hard zero below median; another 30% is a RoTE gate with a real cliff at 17%. Deferred amounts are payable in 2029–2031, subject to malus and clawback, with executive directors additionally required to hold shares received as variable pay for three years.

The analytically important consequence: management’s own pay gate (17% RoTE by 2027) sits above the 15.6% currently delivered. Executives are paid nothing on the RoTE component unless they clear a threshold they have not yet reached. That is the thesis under test, written into the remuneration policy. The 20% sustainability weighting is noted here only because it is 20% of the long-term incentive pool and therefore financially material to management behaviour; it is not treated as an investment factor.

7.5 Governance: the 0.75% problem

No shareholder holds more than 3% of Santander’s voting rights. BlackRock is registered at 6.861% but holds on behalf of third-party funds; the large registrations are custodial (State Street 13.90%, Chase Nominees 7.50%, BNY Mellon 7.18%, Citibank 6.40%).

The Botín family’s position is disclosed precisely and is smaller than most investors assume. A February 2006 shareholders’ agreement syndicates the family’s holdings; as at 31 December 2025 the parties to it held 110,326,647 shares — 0.75% of capital (of which 0.55% is also transfer-restricted). The syndicate chair is Javier Botín, a director of the bank and the brother of Executive Chair Ana Botín. The agreement runs to 2056 with automatic ten-year extensions and can be terminated early only by unanimity.

The family that has directed Santander for three generations does so while holding three-quarters of one percent of the economics. This is lawful, the syndicate carries no control block, and Ana Botín’s tenure has coincided with the operational turnaround now under way. But it is a genuine asymmetry: executive influence here is institutional and dynastic rather than proprietary, and there is no large aligned owner on the register to police capital allocation — a structural gap that matters more, not less, when management is executing three deals in fifteen months. Compounding this, as a foreign private issuer Santander files no Form 3, 4 or 5, and only four Form 144s exist across the last five years. An outside shareholder therefore has no insider-conviction signal at all — neither purchases nor discretionary sales. That is an evidentiary gap, not evidence of anything.

Verdict — Capital Allocation: currently good, historically poor, and prospectively formulaic. On the evidence of the last four years, management has allocated capital intelligently: a disposal at a €1.9bn gain with the proceeds returned, two bolt-ons at defensible multiples in markets where scale is the only lever, ~€9bn of buybacks with every tranche cancelled, a rising dividend, and a 17% reduction in share count. Incentives are cleanly aligned via relative TSR and a hard RoTE gate. Against that: the multi-decade record is dilution and the destruction of half the group’s goodwill; 65% of the Webster price is cash from a 5.2%-TCE balance sheet, forcing a buyback suspension; the post-2027 distribution policy hard-codes repurchases at any price just as the stock reaches its richest-ever multiple; and the controlling family holds 0.75% of the equity with no offsetting large owner and no insider-transaction disclosure regime. The verdict is positive on execution and cautious on durability.

8. Changes and Headwinds — Last Two Years

8.1 Strategic and structural changes

• February 2026 — Investor Day, London (25 February). The 2026–2028 plan: RoTE above 20%, attributable profit above €20bn, more than 210 million customers, efficiency ratio ~36%, cash dividend per share more than doubled, and a new remuneration policy of ~35% of underlying profit in dividends plus ~15% in buybacks from 2027.
• January 2026 — Poland exited. 49% of Santander Bank Polska sold to Erste Group, completed 9 January; €1,895m net gain; €3.2bn incremental buyback.
• April 2026 — TSB completed (30 April), the UK’s largest bank acquisition in years; combined Santander UK serves nearly 28 million retail and business customers. The TSB brand will be retired (FT, 6 May 2026).
• February 2026 — Webster agreed (3 February), $12.2bn; Webster shareholders approved 26 May; OCC approved 12 June; Fed and ECB outstanding; targeted close 2H 2026.
• Q1 2026 — Digital Consumer Bank renamed Openbank, integrating global consumer finance with the digital bank; Openbank and Santander Consumer Finance were merged into a single entity (announced Q3 2025).
• Technology. Gravity core platform fully live in Spain, Mexico and Chile, ready for Brazil in 2026; global app live in four markets; customer-interaction platform live in five markets and ready for Spain. AI extended to all employees, targeting >€1bn of business value 2026–28 (€84m delivered in H1’26).
• July 2026 — Spanish early-retirement agreement signed with unions, covering up to 3,000 employees, confirmed on the Q2 call (“We signed yesterday the agreement with the unions”). Restructuring charges to follow.
• May 2026 — $850m AT1 tender, a routine liability-management exercise on the 4.750% contingent convertible preferred securities, paired with replacement issuance.

8.2 Headwinds and adverse developments

• The MFS collapse (February–March 2026) — the most consequential undisclosed item. Market Financial Solutions Ltd, a UK specialist bridging lender, entered insolvency on 25 February 2026 amid fraud allegations; the presiding judge cited creditor allegations that MFS had been double-pledging its assets to lenders, with an aggregate collateral shortfall reported at up to £930m. Santander’s exposure is £200–300m, secured against a mortgage portfolio (Bloomberg, 4 March 2026), against Barclays’ ~£500m and Apollo/Atlas SP’s ~£400m. The Bank of England’s Prudential Regulation Authority raised concerns about “insufficient risk assessment and due diligence checks” by banks on MFS and its sister companies. Santander’s ADS fell 4.48% on 27 February and 7.57% over two sessions. At least five plaintiffs’ firms have opened securities-fraud investigations (Pomerantz, Glancy Prongay Wolke & Rotter, Howard G. Smith, Frank R. Cruz, Schall). Critically: MFS is named nowhere in the Q2 2026 press release, the Q2 2026 financial report, or the Q2 2026 earnings call — searches for “MFS”, “Market Financial”, “double-pledg” and “fraud” return zero hits. The only reference is “some single names in CIB in Europe and Brazil.” Barclays quantified a £228m hit; Santander has quantified nothing.
• CNMC mortgage antitrust proceedings (16 June 2026). Spain’s competition authority opened disciplinary proceedings against all six listed Spanish lenders, including Santander and BBVA, for possible anti-competitive practices in the mortgage market. Spanish antitrust fines can reach 10% of total turnover. No accrual is disclosed, and the matter is not mentioned in the Q2 press release or on the call.
• UK motor-finance redress. €245m gross of additional provisions for dealer-commission complaints in H1’26 (€207m Q1, €39m Q2), inside Openbank Europe, reducing that segment’s PBT growth from +15% to −2%.
• Argentine credit deterioration. Twelve-month cost of risk 11.12%, up from 5.09% — more than doubled, and the source of essentially all of the group’s provision increase.
• Spanish windfall levy. €174m accrued in H1’26 for the tax on expected income obtained in Spain (same in H1’25).
• Asia-Pacific management purge (8 July 2026). Santander overhauled its Asia-Pacific business under new management, removed its top banker in Beijing, and tightened employee oversight in the region (FT via Reuters). The company has disclosed no explanation.
• Buyback suspension (23 April 2026) pending the Webster shareholder vote — a distribution interruption caused by a cash-heavy deal.
• ALCO duration build. The ALCO bond portfolio grew by almost €20bn in H1 2026, surfaced by an analyst rather than volunteered.
• Nubank’s Mexican banking licence, raised on the Q2 call as a competitive risk to Mexican growth.

8.3 Tailwinds

• Higher-for-longer rates across most markets, explicitly ahead of Investor Day guidance.
• Spanish macro outperformance — Europe’s strongest large economy through 2026.
• Moody’s A1 upgrade (October 2025) following Spain’s sovereign upgrade; rated above the sovereign by Moody’s and Fitch.
• Symbolic re-rating — Santander overtook Inditex as Spain’s most valuable listed company in June 2026, for the first time in eight years.

Verdict — Changes: strategically strengthening, disclosure-wise weakening. The strategic changes of the last two years are coherent and mostly value-creating: exit a non-core geography at a gain, buy scale in two markets where cost is the only lever, consolidate the technology stack, and put a demanding, incentive-linked plan on the board. That genuinely strengthens the thesis. What weakens it is the pattern of adverse-item disclosure. Within six months Santander has faced a fraud-driven credit loss of £200–300m, a PRA critique of its due diligence, five securities-fraud investigations, an antitrust proceeding with a theoretical ceiling of 10% of turnover, a doubling of Argentine credit costs, and an unexplained purge of its Asia-Pacific management — and not one of the first three is named in its quarterly disclosure or on its earnings call. A bank reporting record profits while describing a fraud-driven loss as “some single names” is telling you where its emphasis lies.

9. Risk Analysis

Verdict — Risk. The dominant risk here is not credit, solvency or fraud; it is valuation and country concentration operating together. Risks 1 and 2 are the same risk viewed from two angles: the stock is at its richest-ever multiple and its largest single exposure is the Spanish economy, so a Spanish disappointment would compress earnings and the multiple at once. The credit risks (3, 5) are real and currently deteriorating at the margin but are not solvency-threatening. The conduct and levy risks (4) are near-certain in occurrence and moderate in size — a permanent tax on this industry’s excess returns. The structural risks (8, 10) do not have “likelihoods”; they are features of the asset that magnify everything else. Risk of a total loss is very low; risk of a 30% de-rating is genuine and is the risk that matters.

10. Valuation Discussion — Embedded Expectations

No price target and no recommendation appears in this section. The single labelled exception in this document is Claude’s Take, above.

10.1 Where the stock actually trades

10.2 The own-history percentile: the single most important valuation datum

Santander has essentially never been more expensive relative to its own history on book value or sales. For a bank this is the cleanest possible read, because price-to-book is the natural valuation frame for a spread business and — unlike a REIT, a cyclical at a trough, or a pharma carrying in-process R&D — Santander’s IFRS earnings are economically meaningful, so the 92.7th-percentile P/E is corroborating rather than distorted. This is own-history context only; it is never a cross-sectional judgement and never a price target.

The company’s own three-point series makes the same point without any third-party data: P/TBV 1.28x (Jun-25) → 1.55x (Mar-26) → 1.91x (Jun-26). The multiple expanded ~49% in twelve months while TNAV per share rose 15% (€5.50 → €6.32). Roughly three-quarters of the last year’s 55.9% total return was multiple expansion, not book-value accretion.

10.3 What must be true at 1.88x tangible book

For a bank, the Gordon relationship P/TNAV = (RoTE − g) / (CoE − g) is the correct embedded-expectations tool. Solving for the sustainable RoTE the current price requires:

Assumption: an 11% cost of equity is the defensible central case. Beta is 1.03 and the credit is A1-rated above its sovereign, which argues for less; but ~35% of profit is Spanish, ~30%+ is Latin American across Brazil, Mexico, Chile and Argentina, and the equity is levered ~18x on a 5.2% tangible common equity ratio, which argues for more.

Therefore: at 1.88x TNAV the market is underwriting a permanent ~18% return on tangible equity. Set that against what exists:

The price sits 240bp above the delivered return, ~100bp above management’s own capital-adjusted figure, and 640bp above the eight-year average. The market has already capitalised roughly 90% of the February 2026 plan and assumed it never fades. The plan is not the upside case; the plan is the base case.

10.4 Scenario analysis

All scenarios use TNAV per share of €6.32 and EUR/USD 1.1420. Explicit assumptions are stated; these are illustrative valuation mechanics, not forecasts.

Bear assumptions: RoTE reverts to 13% as the rate cycle turns, Argentine and Mexican credit deterioration spreads, a CNMC mortgage fine lands, further CIB single-name losses occur, and Spanish growth normalises toward the eurozone average. Base assumptions: RoTE settles at management’s own capital-normalised 17% — which is also precisely the floor of the 2027 executive-pay gate — with Webster and TSB delivering approximately as guided and the efficiency ratio improving but short of 36%. Bull assumptions: the full 2028 plan lands and is treated as permanent: >20% RoTE, >€20bn profit, ~36% efficiency, both integrations executed, no material conduct or antitrust charge.

The base case lands within 1% of the market price. That is the valuation conclusion: the shares are efficiently priced for management’s own normalised return, with roughly 31% of upside available only if the entire three-year plan is delivered and permanently capitalised, against roughly 32% of downside if returns revert toward — not even to — the historical average.

10.5 The cost of equity is the swing variable, not the RoTE

Holding RoTE at 17% and growth at 4%:

One percentage point of required return moves fair value ~15%. This is analytically decisive, because it connects the valuation directly to the factor evidence. The dominant factor loading is Country: Spain +1.51; the nearest factor analogue is the iShares MSCI Spain ETF (0.939 similarity); and the Base-model loadings are macro, not fundamental — USDollar −0.81, Market +0.76, CreditRisk +0.39, DividendYield +0.25, PeripheryCore −0.13. The CreditRisk and PeripheryCore loadings are the cost of equity, expressed as a factor. Valuation sensitivity and factor exposure are therefore the same bet: owning Santander at 1.88x tangible book is a levered wager that the market’s required return on peripheral-European and Latin American bank equity remains permanently compressed.

10.6 The bulls’ best argument: the 2028 earnings multiple

The strongest counter to everything above is that the price-to-book frame flatters the bear case, because Santander’s earnings are growing faster than its book. On the 2028 target of >€20bn of attributable profit and an estimated 13.5–14.0bn shares (14,321m today, reduced by buybacks of ~15% of profit annually, increased by up to 334,809,216 new shares authorised for the Webster consideration), 2028 EPS is approximately €1.43–1.48. Against €11.86, that is ~8.0–8.3x 2028 earnings — which is not an expensive multiple for a bank compounding book value at high single digits and returning ~50% of profit.

This argument is legitimate and is the strongest constraint on the bear reading of the price-to-book evidence. Its weakness is that it is entirely assumption-dependent: it requires the full plan, and the full plan is what the price already embeds. An investor buying on the 8x-2028 argument is not buying a cheap stock; they are buying a fairly-priced stock and accepting the plan as the downside case as well as the base case.

10.7 Sum-of-the-parts is not warranted

A sum-of-the-parts would in principle value Spain and Portugal at a premium (39.7% and 50.3% revenue-to-profit conversion) and Brazil, Argentina and Openbank Europe at a discount (16.6% and 8.5%). It is not attempted here because Santander does not disclose per-country tangible equity on a consistent basis, and it explicitly notes that Santander Spain “does not have its own accounting tangible equity” and that its allocation methodology was changed during the period to reflect the capital required for a 13% CET1 ratio. Any SOTP would therefore rest on the analyst’s own equity allocation rather than on disclosure, and would create false precision.

Verdict — Valuation: efficiently priced for a plan that has not yet been delivered. Santander trades at 1.88x tangible book — the 98.7th percentile of its own price-to-book history — which embeds a permanent ~18% return on tangible equity at an 11% cost of equity, against 15.6% delivered, ~17% claimed on normalised capital, and 11.6% averaged over eight years. The base case is fair value to within 1%. The market is underwriting management’s own strategic plan correctly in direction and possibly in magnitude; what it is arguably underwriting incorrectly is permanence — that a bank whose returns have been rate-cycle- and country-dependent for its entire history has now achieved a structurally higher plateau — and the required return, where a single point of cost of equity is worth 15% of the price.

11. Variant Perception

11.1 The consensus belief

Consensus is constructive and roughly correct on the facts. Sell-side coverage carries an average “Moderate Buy” (one sell, three hold, five buy, one strong buy as at late April 2026), with published targets as high as $17.50. The consensus narrative runs: Santander has structurally re-rated because ONE Transformation is delivering genuine operating leverage; the efficiency ratio is heading to ~36%; two accretive acquisitions bolt scale onto the UK and US; capital return is large and rising; and at ~11x trailing earnings and ~8x 2028 earnings the stock remains cheap versus US banks. European banks more broadly are held to be “no bubble” and still undervalued relative to domestic peers.

The consensus is not wrong about the operating improvement. It is, in my reading, wrong about three things: what the stock is in risk terms, how much of the plan is already paid for, and how thin the disclosure of adverse items has become.

11.2 The strongest bull case

1. The cost advantage is real, measurable and unfinished. 42.8% cost-to-income versus Lloyds’ 58.6% and Webster’s ~46%, with costs falling 2% in constant euros while revenue grew 6%, and Spain delivering revenue +17% against costs −3%. Gravity is live in only three of ten markets and the interaction platform has not yet reached Spain — so the largest cost savings are still ahead.
2. The 2028 earnings multiple is genuinely low. >€20bn on ~13.5–14.0bn shares is ~€1.45 of EPS against €11.86 — about 8x, for a bank returning ~50% of profit and compounding TNAV at high single digits.
3. Incentives are cleanly aligned and demanding. 50% relative TSR with a hard zero below median, plus a 30%-weighted RoTE gate that pays nothing below 17% in 2027. Management is not paid for the status quo.
4. Capital allocation has demonstrably improved. Poland sold at a €1.9bn gain with half the capital returned; ~€9bn of buybacks with every tranche cancelled; share count down 17% since 2020; a 24-cent dividend up 14%; and two bolt-ons at defensible multiples — Webster at 2.0x book while Santander’s own stock trades at 1.91x.
5. Rates are running ahead of plan and management has not re-guided upward, leaving room for beats.
6. Capital and credit are strong — 14.0% CET1, NPLs at 2.93% and falling, A1-rated above the Spanish sovereign.

11.3 The strongest bear case

1. The re-rating has done all the work and cannot repeat. P/TBV 1.28x → 1.91x in twelve months while TNAV grew 15%: three-quarters of the return was the multiple. From 1.88x, and the 98.7th percentile of its own history, the multiple is far likelier to be a headwind than a tailwind.
2. The price already embeds ~18% RoTE — above anything ever delivered. Delivered 15.6%; claimed 17% on normalised capital; eight-year average 11.6%. The 2028 plan is the base case, not the upside.
3. This is a Spain-and-macro trade wearing a global bank’s clothes. Dominant factor loading Country: Spain +1.51; nearest analogue an actual Spain ETF; Base-model loadings are USDollar, Market, CreditRisk, DividendYield, PeripheryCore. Momentum, Quality and Size load at essentially zero despite a 57%/yr three-year run. Diversification across ten countries has not produced diversified risk: it has produced a levered claim on Spanish and peripheral credit spreads.
4. Adverse-item disclosure has deteriorated. A £200–300m fraud-driven MFS exposure named nowhere in the quarterly report, the press release or the call — described only as “some single names” — while Barclays quantified £228m. A PRA finding of “insufficient risk assessment and due diligence checks.” Five securities-fraud investigations. A CNMC proceeding with a theoretical ceiling of 10% of turnover and no disclosed accrual. An unexplained Asia-Pacific management purge including the removal of the top banker in Beijing.
5. The credit mix is deteriorating where it is most expensive. Argentina’s cost of risk doubled to 11.12%; Mexico rose partly on “model updates”; NPL coverage fell to 64–66%; provisions already consume 21% of revenue. Group cost of risk through ~1.35% breaks the RoTE path.
6. Returns rest on 18x leverage and a 101% loan-to-deposit ratio with a 5.2% tangible common equity ratio — and 2020 demonstrated what this balance sheet can print (−€8.8bn, −13.2% ROE).
7. The forward buyback is formulaic at a record multiple. From 2027, ~15% of profit is committed to repurchase with no price discipline, at 1.88x book rather than the 1.4x at which the good buying was done (€8.67 average in H2 2025).
8. The long-run record is dilution and goodwill destruction — share count roughly doubled 2010–2020, goodwill halved from €24.2bn to €12.0bn — governed by a family holding 0.75% of the economics with no aligned large owner and no Form 4 regime.

11.4 The three-to-five assumptions that actually matter

11.5 Falsification evidence

What would falsify the bull case: a printed group cost of risk above 1.35% for two consecutive quarters; a CNMC decision imposing a fine of scale; RoTE failing to reach 17% in 2027 (which the remuneration policy would reveal by paying zero on that component); the efficiency ratio stalling above 42% into 2027; or a Webster block/delay by the Fed or ECB.

What would falsify the bear case: an underlying RoTE printing at or above 18% on a normalised 12–13% CET1 with Webster closed; Brazilian returns recovering toward 20% with cost of risk below 4%; the efficiency ratio reaching ~38% by end-2027; a specific, quantified and fully-provisioned resolution of MFS alongside restored disclosure discipline; and buybacks continuing at scale without CET1 dropping below 12.5%.

11.6 The factor-positioning read, and where consensus is offsides

The factor model gives the sharpest statement of the variant perception. A stock that has annualised +56.9% over three years and +55.9% over one carries no momentum loading whatsoever (L1-zeroed), no quality loading (−0.010) and no size loading (−0.004). What it carries is Country: Spain +1.51, USDollar −0.92, CreditRisk +0.49, DividendYield +0.45 and Value +0.14, with an R² of 0.719 and idiosyncratic volatility of just 16.8%. A zero style loading is itself the finding: this is not being priced as a trend or as a quality compounder. It is a country-and-macro vehicle, and the marginal buyer — as the DividendYield +0.45 and Value +0.14 loadings against zero Quality indicate — has been a yield and country allocator, not a quality investor.

That is where consensus is offsides. The bull narrative is a quality narrative — transformation, technology, structural efficiency, a fixed bank. The tape says the money that has arrived is income and country money that bought a cheap Spanish bank for its yield and its beta to Spain. Those are different holders with different reaction functions. Quality holders tolerate a bad quarter; yield-and-country allocators sell when Spain’s growth premium narrows, when the euro turns, or when the dividend yield stops being the reason to own it — which, at 1.79% trailing and the 98.7th percentile of price-to-book, is close to now.

Verdict — Variant Perception. Consensus has the operating story right and the risk characterisation wrong. My variant view is not that Santander is a bad bank — it is demonstrably a better-run bank than Lloyds and, on cost, than the high-quality US regional it is buying. It is that the market has mistaken a country-and-rate re-rating for the permanent achievement of a structurally higher return, and has paid for permanence at the 98.7th percentile of the stock’s own valuation history, while under-weighting a cluster of disclosure and credit signals — an unnamed £200–300m fraud loss, a PRA due-diligence finding, an unaccrued antitrust proceeding against every Spanish lender, and an Argentine cost of risk that doubled — that a bank reporting record profits has had little incentive to emphasise.

12. Fact vs. Interpretation

13. Open Questions

1. What is Santander’s actual booked provision against the £200–300m MFS exposure, and how much is still carried at par? Barclays quantified £228m. Santander has quantified nothing and did not name MFS in its press release, financial report or earnings call. This is the most important unanswered question in the file.
2. Is the CNMC mortgage-antitrust proceeding provisioned, and what is management’s assessed range? No accrual is disclosed. Spanish competition fines can reach 10% of total turnover.
3. Why was Santander’s top banker in Beijing removed, and what prompted the Asia-Pacific management overhaul and “tightened employee oversight”? The company has disclosed nothing.
4. How much of the 2.9-point efficiency improvement is structural (ONE Transformation) versus cyclical (revenue growth on a fixed cost base at higher rates)? The distinction determines whether ~36% by 2028 is achievable in a rate-cut environment.
5. What are the duration, size and unrealised mark of the ALCO bond portfolio after adding ~€20bn in H1 2026? Surfaced by an analyst, not volunteered.
6. What is the cost of the Spanish early-retirement agreement covering up to 3,000 employees, and in which quarter is it charged? Signed around 21 July 2026 and not yet quantified.
7. What explains Mexico’s cost-of-risk increase being attributed partly to “model updates”? Model-driven provision changes deserve specificity.
8. On what basis is per-country tangible equity allocated, given the disclosure that Santander Spain “does not have its own accounting tangible equity” and that the methodology was changed during the period? This determines whether the 17.1% Retail and 20.3% CIB RoTEs are comparable across periods.
9. If the Webster deal is blocked or delayed by the Fed or ECB, what happens to the suspended buyback and the 12.8–13.0% CET1 guidance?
10. What is the group’s remaining exposure to UK specialist/bridging lenders and non-bank financial institutions of the MFS type? The PRA’s due-diligence criticism implies a category, not a single name.
11. Given no Form 4 regime and only four Form 144s in five years, is there any CNMV-disclosed director or officer dealing that would evidence insider conviction either way? Not resolvable from SEC sources.

14. What Must Be True

14.1 For the bull case

14.2 For the bear case

15. Source Appendix

See Appendix B — Source Appendix, below, for the complete, categorised source list with URLs and access dates.

Published 25 July 2026. All figures reconciled to primary filings where available. The analysis sections contain no investment recommendation and no price target; the sole exception in this article is the clearly-labelled Claude's Take block, which is the author’s own subjective opinion. This is general information and not investment advice.

APPENDIX A — Standard Diligence Questionnaire

Report date: 25 July 2026 · Reference price: $13.54 ADS (2026-07-24) ≈ €11.86/share Status: Supplemental appendix to the main analysis. Labelling: Fact / Interpretation / Assumption applied where the distinction matters. No recommendation and no price target appears in this appendix.

General

What thoughtful questions have other investors asked about this company?

The Q2 2026 earnings call is the best available record of what sophisticated holders actually want to know, and the questions were notably sharper than the company’s own framing.

• Francisco Riquel (Alantra) asked three things that all cut in the same direction: (i) whether Spanish net interest income guidance of low-to-mid single-digit growth is now too conservative given H1 came in above it; (ii) why the ALCO bond portfolio had grown by almost €20 billion in the first half, and what the size and duration strategy now is; and (iii) what the Spanish cost-to-income target becomes once the newly-agreed early-retirement plan is implemented. The ALCO question is the most important thing an analyst asked all quarter — a €20bn duration and carry addition, surfaced by an outsider rather than volunteered by the company.
• Another analyst asked whether higher-for-longer rates across the footprint make the 2025–2028 NII plan a net tailwind, and where within the guided range NII growth would now land. Management acknowledged the environment was better than Investor Day assumed but declined to re-guide — which is either conservatism or an admission that Brazil offsets more than they would like.
• A third asked directly about Mexican risk from a more uncertain macro and policy backdrop, including the move to biannual USMCA reviews, and specifically about Nubank receiving a Mexican banking licence. This is the right question: Santander’s Mexican unit earns €897m and faces a digital-native competitor with a structurally lower cost to serve.
• On the credit line, analysts probed the divergence between a ~0.6% retail cost of risk and the group’s 1.19%, and the sustainability of CIB’s strong quarter — a polite way of asking whether CIB’s 20.3% RoTE is being earned by taking credit risk that has not yet surfaced.

Interpretation: what investors are not asking about is striking. There was no question on the MFS collapse, no question on the CNMC mortgage-antitrust proceeding, and no question on the Asia-Pacific management purge. The buy side is focused on NII, costs and LatAm credit — the model inputs — and is largely ignoring the conduct, control and disclosure cluster that this analysis regards as the more interesting variant.

Cyclicality & Earnings Nature

Are earnings at a cyclical high or low?

Interpretation: a cyclical high, though not an extreme one. Three independent lines of evidence point the same way. First, net interest income is 74% of total income, and management stated on the Q2 call that the NII profile is “stronger and more resilient than anticipated in Investor Day guidance, as the benefits from higher for longer rate environment in most markets more than offset the more moderate contribution from Brazil” — i.e. the beat is rate-driven. Second, the underlying RoTE of 15.6% compares with an eight-year mean ROE of 11.6% excluding 2020 and 8.4% including it. Third, credit costs are historically benign in the developed markets (Spanish credit described as “solid,” NPL ratio 2.93% and falling, NPL coverage released to 64–66%) while already elevated in LatAm. Benign developed-market credit plus above-trend rates plus a released reserve is the definition of a good point in the cycle.

The counter-argument, which has force: a meaningful part of the improvement is structural rather than cyclical. Costs fell 2% in constant euros excluding TSB while revenue rose 6%; that is not a rate phenomenon.

Driven by the external environment or internal actions?

Both, and they are separable. Internal: the cost line. Total costs down 2% in constant euros ex-TSB, the efficiency ratio down 2.9 points to 42.8%, and Spain’s commercial model delivering revenue +17% against costs −3%. That is management’s work. External: the revenue line. NII +7% on a rate environment management concedes it did not forecast, plus €1,895m of Poland disposal gain, plus 4 million acquired TSB customers and roughly 40% of the reported loan growth coming from that acquisition. Interpretation: the cost improvement is internal and durable; the revenue and headline-profit improvement is substantially external and acquired.

How stable are revenues?

Moderately stable and improving in mix. Management states more than 95% of group revenue is linked to customer activity rather than trading, which is credible given NII is 74% and net fees 22% of total income. Net fee income is growing faster than NII (+9% vs +7%) and is guided to continue doing so — a genuine quality improvement. Total income has, however, been remarkably flat over the medium term: €51.1bn (2019) to €60.0bn (2025) is a 2.8% compound rate, and 2025 revenue actually declined slightly versus 2024. Fact: revenue is stable but barely growing; earnings growth has come from margin, cost and share count, not the top line.

Outlook for products/services?

The product mix is shifting in a favourable direction. Mortgages drove H1 loan growth across Spain, Portugal, Brazil and the UK. The fastest-growing and highest-quality lines are Wealth Management & Insurance (profit +19%, record €581bn AuM, insurance gross written premiums +11%, described by management as “one of the biggest growth opportunities across the group”) and Payments (EBITDA margin +3.8pp to 32.6%, Getnet Platforms transaction volume up fivefold). The weakest is Openbank’s consumer/auto book — a 2.09% cost of risk, hurt by UK motor-finance redress and the expiry of US electric-vehicle tax incentives. Interpretation: the direction of travel is from spread-and-credit toward fee-and-capital-light, which is correct, but those businesses are only ~16% of profit.

How big will this market be — growing, shrinking, domestic or international?

Genuinely international: ten core markets across Europe and the Americas, 182 million customers heading toward a stated 210 million-plus by 2028. But the profit is concentrated: Spain is ~35% of group underlying profit, and Spain plus Portugal is 38% of the country total at roughly 42% blended revenue-to-profit conversion. Latin America (Brazil, Mexico, Chile, Argentina) contributes over 30% of profit and most of the volume growth. European retail banking is a low-growth, consolidating market where the addressable opportunity is cost and share, not volume; LatAm is a genuinely growing market with structurally higher credit losses and rising digital competition. Interpretation: the group is best understood as a mature, consolidating Iberian/European core funding expansion into growing but riskier emerging markets — not as a growth business.

Business Quality & Competitive Moat

Is the industry getting more or less competitive?

Less competitive in Europe, more competitive in Latin America. European banking has consolidated for fifteen years — branch closures, national mergers, foreign retreats — and the CNMC’s June 2026 action naming all six listed Spanish lenders is itself evidence of how concentrated Spain has become. In Marathon capital-cycle terms, supply left and returns recovered. But the cycle is turning: high returns are attracting capital back, and the clearest evidence is the M&A wave in which Santander is a leading participant — three transactions in fifteen months, and a sector transacting at 2.0x tangible book. In LatAm the direction is opposite: Nubank is a digital-native competitor with a lower cost to serve, now licensed as a bank in Mexico, attacking exactly Santander’s mass-market Brazilian and Mexican segments.

How profitable is the business (ROIC, ROE)?

For a bank, ROIC is not the correct metric — invested capital is not meaningfully separable from the funding base, and there is no enterprise value that means anything when deposits are the raw material. The correct sector analogues are return on equity, return on tangible equity and return on assets.

Fact: the 15.6% RoTE is earned on a 0.76% return on assets — roughly 18x asset-to-equity leverage — against a tangible common equity ratio of 5.2%. Interpretation: the headline return is respectable and improving, but it is a leverage-amplified return on a thin equity base, which is why the eight-year average is 11.6% and why 2020 produced −13.2%.

How profitable is the industry — how many competitors, what barriers to entry?

Spain: six listed lenders, high regulatory barriers (banking licence, ECB supervision, capital requirements), and genuinely oligopolistic economics — Santander converts 39.7% of Spanish revenue to profit. Portugal converts 50.3%. These are the good markets. Brazil converts 16.6% with a 4.14% cost of risk; Openbank Europe converts 8.5%. Interpretation: the industry’s profitability is entirely a function of national market structure, and Santander’s group return is a weighted average of ten very different competitive positions. Barriers to entry are high in the licensing sense and low in the competitive sense — digital entrants like Nubank did not need a legacy branch network to take share.

Can the business be easily understood?

No — and this is a genuine and material negative. Santander is a €1.87 trillion balance sheet reported in two overlapping segmentations (five global businesses and nine countries plus a Corporate Centre), on an “underlying” basis that excludes items management designates as non-recurring, with essentially every growth rate quoted “in constant euros,” and with Argentina handled on a special FX convention (last-working-day rates rather than average). Reconciling underlying to statutory requires the Alternative Performance Measures section. Per-country tangible equity is allocated rather than accounted for — the report states plainly that “the Santander Spain secondary segment does not have its own accounting tangible equity” and that the allocation methodology was changed during the period. Interpretation: this is among the harder large-cap financials to analyse honestly, and the complexity consistently runs in the direction of presenting a cleaner picture than the statutory accounts show.

Can it be undermined by foreign low-cost labour?

Not directly — banking is a licensed, locally-regulated, relationship business. But the analogous threat is real and management is embracing it rather than resisting it: labour is being replaced by technology. Santander is negotiating up to 3,000 early voluntary retirements in Spain explicitly “amid an AI shift,” has extended AI tools to all employees, and targets over €1 billion of AI-derived business value between 2026 and 2028 (€84 million delivered in H1 2026). The ONE Transformation programme is in substance a labour-for-software substitution. Interpretation: the risk is not offshoring; it is that the cost savings management is promising require it to shrink its own workforce faster than competitors, in jurisdictions with strong unions and negotiated redundancy costs.

Do brands matter?

Demonstrably less than management has historically paid for them. The single cleanest piece of evidence in the file: Santander paid £2.65 billion for TSB and intends to retire the TSB brand (FT, 6 May 2026). Similarly, Digital Consumer Bank was renamed Openbank in Q1 2026 without apparent customer disruption. Santander does maintain the “Simple, Personal and Fair” positioning and a very large global brand presence, and brand supports trust and deposit-gathering at the margin — but it does not confer pricing power. Interpretation: bank brands matter for customer acquisition cost and deposit stickiness, not for price.

What is the nature of competition?

Price and cost. Deposits compete on rate; mortgages compete on rate; consumer credit competes on rate and speed of underwriting. There is no differentiated product. Consequently the only sustainable advantage is a lower cost base, which is precisely why Santander’s 42.8% cost-to-income ratio versus Lloyds’ 58.6% is the single most important competitive fact about it. In CIB, competition is on balance-sheet willingness and relationship — which is how a £200–300m MFS exposure gets underwritten.

Customers’ switching costs?

Low, and deliberately lowered by regulators. EU payment-account switching rules and the UK Current Account Switch Service exist specifically to reduce them. Some genuine friction remains: primary current accounts with direct debits and salary credits are sticky in practice, mortgages carry transaction costs to refinance, and SME relationships with lending facilities are stickier still. Santander’s own strategy targets “customer primacy” and adding “200,000 customers per quarter on a net basis” in Spain, which is the language of a company that must win customers continually rather than retain captives. Interpretation: switching costs are real but modest — behavioural inertia rather than structural lock-in. This is not a source of moat.

Financial Condition & Balance Sheet

Assets not fully recognised on the balance sheet?

Yes, several, and mostly favourable. Fact: Wealth Management & Insurance manages €581bn of assets under management and reports €6.5bn+ of growth in client assets, the great bulk of which is off-balance-sheet and generates fee income without consuming capital; management discloses a supplementary “PAT + fees ceded” metric of €1,945m for H1’26 precisely because the statutory segment profit understates the business’s contribution. The insurance manufacturing relationships and bancassurance distribution agreements carry economic value not capitalised. The technology platforms (Gravity, the global app, the interaction platform) are the group’s most valuable strategic asset and are largely expensed or carried at modest book value — of €17,308m of disclosed intangibles, €11,958m is goodwill and only €5,350m is other intangibles. Interpretation: the genuine hidden asset is the technology stack, whose value shows up in the efficiency ratio rather than on the balance sheet.

Off-balance-sheet liabilities?

The material ones for a bank of this type are undrawn credit commitments and guarantees (standard, disclosed in the 20-F), securitisation and derivative exposures, and pension obligations (pension liabilities of €1,656m at end-2025, down from €6,358m in 2019 — a substantial de-risking). The more relevant category here is unprovisioned contingent liabilities, and two are live and unquantified: (i) the CNMC mortgage-antitrust proceeding against all six Spanish lenders, with no disclosed accrual and a theoretical statutory ceiling of 10% of total turnover; and (ii) any unprovisioned residual of the £200–300m MFS exposure, which Santander has never quantified. UK motor-finance redress is at least partially provisioned (€245m gross in H1’26). Interpretation: the off-balance-sheet risk that matters is legal and conduct, not structural.

How conservative is the accounting?

Mixed, with a clear directional bias toward presentation. Conservative features: NPL coverage of 64–66%, a 14.0% CET1 ratio well above requirement, aggressive historical goodwill write-downs (goodwill halved from €24,246m in 2019 to €11,958m in 2025 — the group has taken its medicine rather than deferring it), and IFRS 9 expected-loss provisioning that front-loads credit costs.

Less conservative features, all disclosure-related rather than fraud-related: (i) the “underlying” presentation excludes a €1,895m disposal gain and a €250m restructuring charge, but the net effect in H1’26 was to convert +31% reported growth into a +15% underlying rate — meaning the underlying measure was, this half, less flattering than statutory, which is to management’s credit; (ii) however, underlying comparatives also strip €456m of prior-year Polish profit, which mechanically raises the growth rate; (iii) NPL coverage was released by 1 point in Q2, justified by mortgage collateral quality — defensible but a reserve release in substance; (iv) Mexico’s cost-of-risk increase is attributed partly to “model updates,” which is unspecific; and (v) per-country tangible equity is allocated on a methodology changed during the period, which impairs comparability of the segment RoTEs management highlights. Interpretation: the accounting is not aggressive; the communication is selective, and the clearest evidence is that a fraud-driven £200–300m exposure is described as “some single names.”

How CapEx-hungry is the business?

Not capital-expenditure-hungry in the industrial sense — net fixed assets are €26,416m against €1,867,515m of total assets, roughly 1.4% — but intensely regulatory-capital-hungry, which is the correct sector analogue. Every euro of loan growth consumes CET1 at the applicable risk weight; risk-weighted-asset growth consumed 31 basis points of capital in Q2 2026 alone, offset by organic generation. The binding constraint on growth and on distributions is the 12–13% CET1 operating range, not physical investment. Technology spend is the real “capex” and is substantially expensed, which flatters reported book value while depressing current earnings. Interpretation: read CET1 generation, not capital expenditure, as the constraint.

Capital Allocation & Management

How much FCF does the business generate, how does management use it, what is the philosophy?

Free cash flow is not a meaningful metric for a bank and should not be used. ROIC.ai reports free cash flow per share of −€1.51 for 2025 and −€2.24 for 2024; these figures are artefacts of treating changes in loans, deposits and the securities book as working-capital and investing flows. They carry no information.

The correct sector analogues are (i) organic CET1 generation and (ii) distributable profit. Santander generated 20 basis points of organic capital in Q2 2026 alone after absorbing risk-weighted-asset growth, and CET1 stood at 14.0% including a −55bp hit from TSB. Distributions in 2026 will total roughly €6.9bn of buybacks, equivalent to c.114 basis points of CET1, plus the cash dividend.

The stated philosophy — from the Investor Day of 25 February 2026, effective from 2027 results — is ~35% of underlying profit as cash dividends plus ~15% as share buybacks, i.e. ~50% total payout, with cash dividend per share targeted to more than double by 2028. Management describes a “strict capital hierarchy” governing organic growth, bolt-on M&A and distributions. Interpretation: the philosophy is coherent and shareholder-oriented, but the buyback half of it is a formula with no stated price discipline — which is a live problem at 1.88x tangible book, given the good buying was done at €8.67 (roughly 1.4x).

Significant acquisitions recently?

Three transactions in fifteen months, treated fully in the capital-allocation discussion:

Interpretation: on price, this is defensible allocation. Poland was sold at a gain with the capital returned. Webster is being bought at 2.0x tangible book while Santander’s own stock trades at 1.91x — issuing paper at roughly the multiple it is paying — for a franchise our own independent prior work rates highly (FY2025 ROTCE 17.16%, ~46% efficiency, ~29% of deposits at effectively zero cost, HSA money at 0.16% with near-zero beta through a 525bp cycle). For a bank running a 101% loan-to-deposit ratio, buying the cheapest deposits in US regional banking is strategically correct. The criticism is the funding mix: 65% of the Webster price is cash from a balance sheet with a 5.2% tangible common equity ratio, which is why CET1 falls to a guided 12.8–13.0% and why the buyback was suspended in April 2026.

Buying back shares?

Yes, at genuine scale, and — historically — well.

Fact: every completed programme was followed by cancellation of the repurchased shares, not warehousing in treasury. Shares excluding treasury have fallen from 17,312m (2020) to 14,321m (June 2026) — a 17% reduction, 3.8% in the last twelve months. Cumulative 2025–26 buybacks will reach ~€9bn against a ≥€10bn commitment. Interpretation: roughly 4–5 points of the 20% underlying EPS growth in H1’26 is share-count reduction. The execution at €8.67 was value-accretive; the forward commitment of ~15% of profit regardless of price, at 1.88x tangible book, is merely acceptable — repurchasing tangible book above book reduces TNAV per share for continuing holders.

Issuing large amounts of new shares to insiders?

No. Executive remuneration is delivered substantially in deferred shares, but the quantum is modest relative to the share count and, notably, the 20-F states that the weight of executive directors’ remuneration relative to underlying attributable profit has declined continuously since 2013. Five S-8 registrations over five years relate to employee plans. There is no evidence of insider-directed dilution.

The genuine dilution events are corporate, not insider: (i) the 2026 AGM authorised up to 334,809,216 new shares (~2.3% of capital) as consideration in kind for Webster shares; and (ii) historically, the €7,072m rights issue of 1.46bn new shares in 2017 to recapitalise Banco Popular (~9.1% dilution), plus a decade of the “Santander Scrip Dividend programme” that roughly doubled the share count from ~8.3bn in 2010 to 17,312m in 2020. Interpretation: the historical dilution record is poor; the recent record is the opposite. Four years of buybacks do not yet erase fifteen years of scrip.

Compensation policy of directors/management?

Unusually well-structured for a European bank. Forty percent of executive directors’ total variable remuneration is subject to long-term metrics, deferred to 2029–2031, subject to malus and clawback, with shares received required to be held for three years. For the 2025–2027 cycle:

Historical achievement ratios on the multi-year component were 115.2% for 2022, 91.6% for 2021 and 83.3% for 2020 — a spread that indicates the targets bite rather than paying out automatically. Interpretation: this is genuine alignment. Half the long-term award is relative TSR with a hard zero below median, and the RoTE gate has a real cliff at 17% — above the 15.6% currently delivered. Management is paid nothing on that component unless it clears a threshold it has not yet reached, which makes the remuneration policy a public falsification test for the bull case. The 20% sustainability weighting is noted only because it is financially material to management behaviour as a fifth of the LTI pool; it is not treated as an investment factor.

Motivations of management?

Structurally, the incentive is to hit a 2027 RoTE above 17% and to out-total-return nine named peers — which aligns closely with an outside shareholder’s interest, and explains the intensity of both the cost programme and the buyback.

The governance qualification is material and specific. No shareholder holds more than 3% of voting rights; BlackRock’s 6.861% registration is held on behalf of third-party funds, and the large register entries are custodial (State Street 13.90%, Chase Nominees 7.50%, BNY Mellon 7.18%, Citibank 6.40%). The Botín family, which has led Santander for three generations and provides the current Executive Chair, holds — via a February 2006 shareholders’ agreement running to 2056 — 110,326,647 shares, or 0.75% of capital (0.55% also transfer-restricted), with the syndicate chaired by Javier Botín, a director and Ana Botín’s brother. Interpretation: the family directs the bank while holding three-quarters of one percent of the economics, and there is no large aligned owner on the register to police capital allocation. This is lawful and Ana Botín’s tenure has coincided with the operational turnaround; it is nonetheless a real asymmetry between control and ownership. Compounding it, as a foreign private issuer Santander files no Form 3, 4 or 5, and only four Form 144s exist in five years — so an outside shareholder has no insider-conviction signal whatsoever, in either direction. That is an evidentiary gap, not evidence.

Valuation & Market Data

Is the stock an ADR, MLP, or K-1 issuer?

It is an ADR. Banco Santander, S.A. American Depositary Shares trade on the NYSE under SAN at a ratio of 1 ADS = 1 ordinary share (CUSIP 05964H105, ISIN US05964H1059). It is not an MLP and issues no K-1. Practical consequences for a US holder:

• Foreign private issuer status: Santander files Form 20-F annually and Form 6-K for interim and material events. There is no 10-Q, no 10-K, no DEF 14A proxy, and no Form 3/4/5 insider reporting. Quarterly information arrives via 6-K on Santander’s own schedule.
• Currency: the ADS is a USD claim on a EUR-denominated equity. Reported results are in euros; the ADR embeds EUR/USD. FactorsToday measures a −0.92 loading to the US dollar, which is largely this translation effect. At 30 June 2026 the company’s disclosed €12.084 share price against a $13.80 ADS close implies EUR/USD of 1.1420.
• Withholding tax: Spanish dividend withholding applies (statutory 19%, reducible under the US–Spain treaty), with depositary fees deducted. Holders should expect Form 1099-DIV treatment with foreign tax paid, and potential foreign-tax-credit complexity.
• Listing multiplicity: the shares also list in Madrid, Barcelona, Bilbao and Valencia, in London as a CDI, in Mexico, and in Poland — so the ADS is not the price-setting venue.

Dividend policy?

Fact: the 2025 cash dividend was 24 euro cents per share, up 14% year-on-year, paid in two tranches — 11.50 cents in November 2025 (interim) and 12.50 cents in May 2026 (final). Trailing dividend yield is approximately 1.79%, which materially understates the forward return because it excludes the buyback (c.€6.9bn in 2026, ~114bp of CET1) and precedes the targeted increase.

Forward policy, from 2027 results: ~35% of Group underlying profit in cash dividends plus ~15% in share buybacks, with cash dividend per share targeted to more than double by 2028. Total distributions since 2014 exceed €36bn. All distributions require ECB approval — the €1.8bn buyback against H1’26 results is described as “already approved by the ECB.”

Interpretation: the policy is clear, generous and improving, and the shift from scrip dividends (the decade-long dilution mechanism, still referenced in the 20-F’s own TSR definition) to cash dividends plus cancelled buybacks is a genuine improvement in shareholder treatment. The weakness is the absence of price discipline in the buyback half.

How profitable is the business?

Covered above: FY2025 ROE 13.64%, H1’26 underlying RoTE 15.6% (management asserts ~17% adjusted for capital above the 12–13% CET1 range), return on assets 0.76%, efficiency ratio 42.8%, effective tax rate 25.3%. Against an eight-year mean ROE of 11.6% excluding 2020 and 8.4% including it.

Is net income diverging from cash from operations?

This question does not map to a bank and should not be answered as posed. For a financial institution, cash from operations is dominated by movements in loans, deposits, trading books and the securities portfolio, which swing by tens of billions of euros for reasons that have nothing to do with earnings quality. ROIC.ai reports cash flow per share of −€1.00 for 2025 versus +€3.28 for 2021 — variance driven by balance-sheet flows, not by accrual quality.

The correct sector analogues are three, and all are answered elsewhere: (i) is reported profit converting to regulatory capital? Yes — 20bp of organic CET1 generation in Q2 2026 with CET1 at 14.0%. (ii) Is profit being flattered by non-recurring items? Yes, materially: reported attributable profit of €8,973m (+31%) contains €1,645m of net non-recurring items, chiefly the €1,895m Poland gain; underlying profit of €7,328m (+15%) is the operating rate, and statutory Q2 profit rose only 3% year-on-year and fell 36% sequentially. (iii) Are provisions keeping pace with credit formation? Broadly yes — the NPL ratio fell 7bp to 2.93% — but NPL coverage was released by 1 point to 64–66%, and the group’s provision increase was concentrated in Argentina, where the cost of risk more than doubled to 11.12%. Interpretation: the divergence to watch here is not net income versus operating cash flow; it is statutory versus underlying profit, and the gap this half was €1.6bn.

Risks & Downside

What factors would cause the stock to decline?

In descending order of significance, drawing on the risk matrix:

1. Multiple compression from a record valuation. At 1.88x tangible book — the 98.7th percentile of the stock’s own price-to-book history — the price embeds a permanent ~18% RoTE at an 11% cost of equity, against 15.6% delivered and 11.6% averaged over eight years. Roughly three-quarters of the last year’s 55.9% return was multiple expansion (P/TBV 1.28x → 1.91x while TNAV per share rose 15%). The multiple is far likelier to be a headwind than a tailwind.
2. A Spanish or peripheral-European repricing. Spain is ~35% of group underlying profit and the dominant factor exposure (Country: Spain +1.51, the largest loading in the model). A Spanish growth or political shock hits earnings and the required return simultaneously. Note the sensitivity: one percentage point of cost of equity is worth ~15% of fair value.
3. Latin American credit deterioration spreading. Argentina at 11.12% cost of risk (doubled), Brazil at 4.14%, Mexico rising partly on “model updates,” with provisions already consuming 21% of revenue. Group cost of risk through ~1.35% breaks the RoTE path.
4. Rate reversal. NII is 74% of revenue and management concedes the beat is rate-driven and ahead of Investor Day guidance.
5. Conduct, antitrust and levies crystallising together — a CNMC mortgage fine (theoretical ceiling 10% of turnover, no accrual disclosed), further UK motor-finance redress beyond the €245m booked, and the recurring €174m-per-half Spanish windfall levy.
6. Further CIB credit accidents or an adverse securities-fraud development following MFS, the PRA’s due-diligence criticism, and five plaintiffs’-firm investigations.
7. Webster being blocked or delayed by the Fed or ECB, removing 7–8% of 2028 EPS accretion and extending the buyback suspension.

Risk of a catastrophic loss?

Low, but not negligible, and the historical precedent is specific. In 2020 Santander reported an attributable loss of €8,771m and an ROE of −13.2%, driven by goodwill and deferred-tax-asset write-downs. That is what this balance sheet can print in a severe year — a loss roughly equal to 60% of a good year’s profit — without any solvency event occurring. The amplifier is structural: a 0.76% return on assets levered ~18 times against a 5.2% tangible common equity ratio, with a 101% loan-to-deposit ratio that leaves the group dependent on wholesale markets at the margin.

Set against that, the defences are strong and specific: CET1 of 14.0%, an A1 Moody’s rating that sits above the Kingdom of Spain’s sovereign rating (as does Fitch’s), genuine geographic diversification of the funding base, and demonstrated resilience through both the 2020 pandemic and the March 2023 banking crisis without funding stress. AT1 contingent convertibles provide a further loss-absorbing layer above equity — Santander tendered $850m of 4.750% CCPS in May 2026 as routine liability management.

Interpretation: a 30–40% drawdown is a live and reasonably probable scenario (the bear case implies ~−32%); a catastrophic impairment of the equity is not.

Chance of a total loss?

Very low — as close to negligible as a levered financial institution allows. Santander is a global systemically important bank with €1.87 trillion of assets, 14.0% CET1, 182 million customers, A1/above-sovereign ratings, and direct ECB supervision. It survived the eurozone sovereign crisis, absorbed Banco Popular’s failure (acquiring it for €1 while recapitalising with a €7.07bn rights issue), absorbed an €8.8bn loss in 2020, and passed through 2023 without deposit stress. A total loss would require a sovereign-level Spanish crisis combined with simultaneous Latin American collapse — and even then, resolution mechanisms (AT1 conversion, bail-in of subordinated debt) are designed to impose losses on other layers first. The honest statement of downside is not zero; it is the ~30% de-rating in the bear case, with a tail scenario of a dilutive capital raise in a severe multi-market credit event — the 2017 Banco Popular rights issue being the template for how that would look.

Recent News & Events

Has the business environment changed recently?

Yes, materially and in both directions, within the last six months.

Favourably: rates have stayed higher for longer across most of Santander’s footprint, explicitly ahead of the Investor Day plan; Spain has established itself as Europe’s fastest-growing large economy; Moody’s upgraded Santander to A1 in October 2025 following Spain’s sovereign upgrade; and in June 2026 Santander overtook Inditex to become Spain’s most valuable listed company for the first time in eight years.

Adversely, and less widely discussed: the collapse of Market Financial Solutions Ltd on 25 February 2026 amid fraud allegations of asset double-pledging, with an aggregate reported collateral shortfall of up to £930m and Santander exposed for £200–300m — an event that knocked 7.57% off the ADS in two sessions, drew PRA criticism of banks’ “insufficient risk assessment and due diligence checks,” and triggered securities-fraud investigations by at least five plaintiffs’ firms. In June 2026 Spain’s CNMC opened disciplinary proceedings against all six listed Spanish lenders over mortgage-market practices. Argentina’s cost of risk more than doubled to 11.12%. And in July 2026 Santander overhauled its Asia-Pacific business, removed its top banker in Beijing and tightened employee oversight, without disclosed explanation. Interpretation: none of the adverse items is individually material to solvency; collectively they describe a control-and-conduct cluster that the company’s own quarterly disclosure does not name.

Significant acquisitions?

Yes — three transactions in fifteen months (Poland disposal completed January 2026 at a €1,895m gain; TSB acquisition completed 30 April 2026 for £2.65bn; Webster Financial agreed 3 February 2026 for $12.2bn, pending Fed and ECB approval). Fully detailed above and in the capital-allocation discussion.

Change in accounting policies?

Yes — a presentational change effective Q1 2026, communicated to the CNMV on 10 February 2026. The Group changed the presentation of its financial information such that “non-recurring items” are now reported on a single line and excluded from underlying profit. In practice this line captures: the €1,895m Poland disposal gain (Q1’26), €250m of TSB integration restructuring costs (Q2’26), and €456m of H1’25 results from the business subject to the Poland disposal.

Separately and importantly, the methodology for allocating tangible equity to the Santander Spain secondary segment was updated during the period — the report discloses that this segment “does not have its own accounting tangible equity” and that the allocation now reflects (i) the amount required to reach a 13% CET1 ratio and (ii) the allocation of capital deductions and add-ons. Interpretation: neither change is improper and both are disclosed, but together they reduce period-over-period comparability of exactly the metrics management emphasises — underlying profit growth and segment RoTE. An analyst should recompute rather than trust the year-on-year deltas.

Recent changes — new markets, facilities, management?

• Markets: exited Poland (49% of Santander Bank Polska sold to Erste, January 2026); expanded materially in the UK (TSB, 4m customers, completed April 2026); expanding materially in the US pending Webster’s close, which would create a top-ten US bank by assets and a top-five Northeast deposit franchise; Openbank launched in the US in 2024.
• Facilities: the Santander Tower in Miami is under construction. Branch count is being reduced in Spain alongside the early-retirement programme.
• Segment structure: Digital Consumer Bank renamed Openbank in Q1 2026, integrating global consumer finance with the digital bank; Openbank and Santander Consumer Finance merged into a single entity.
• Management: Héctor Grisi has been CEO since January 2023 under Executive Chair Ana Botín, with José García Cantera as CFO — a stable senior team through the transformation. Post-Webster, Christiana Riley remains country head for the US and CEO of Santander Holdings USA, with Webster’s CEO John Ciulla becoming CEO of Santander Bank NA, into which Webster will be integrated. In Asia-Pacific, new management was installed and the top banker in Beijing removed (July 2026).
• Workforce: up to 3,000 early voluntary retirements in Spain, agreed with unions around 21 July 2026, explicitly linked to the AI transition; AI tools extended to all employees against a >€1bn 2026–28 business-value target.

This appendix is supplemental to the main analysis. It contains no investment recommendation and no price target. Sources are catalogued in the Source Appendix.

APPENDIX B — Source Appendix

Report date: 25 July 2026 · All sources accessed 25 July 2026 unless otherwise stated. Sources are ordered by evidentiary priority: regulatory filings first, then earnings releases and transcripts, investor presentations, sector/regulatory material, quantitative data services, and trade and financial press.

1. Primary regulatory filings — SEC EDGAR (CIK 0000891478)

As a foreign private issuer, Banco Santander files Form 20-F annually and Form 6-K for interim results and material events. There is no 10-K, 10-Q, DEF 14A or Form 3/4/5.

Note on the SEC corpus: the full trailing five years of filings was enumerated. Santander is a foreign private issuer whose corpus is dominated by 6-K interim reports and wholesale-funding take-downs (424B5/FWP/CERT/8-A12B) rather than 10-K/10-Q/DEF 14A/Form 4. The material documents above were retrieved and read; the 424B5/FWP/CERT/25-NSE/13F-HR volume was excluded as funding and administrative noise.

2. Earnings call transcripts

Coverage note: ROIC.ai’s transcript corpus is earnings-call-centric. The February 2026 Investor Day presentation is not in it; its content was sourced from the company’s own press release and the Form 425 Executive Chair’s letter.

3. Company investor material and press releases

4. Quantitative data services

5. Financial and trade press — material events

The Market Financial Solutions (MFS) collapse

Regulatory, legal and conduct

Corporate events and M&A

Results coverage and market context

6. Peer and counterparty filings used for benchmarking

Comparative analysis drew on the primary filings of Santander’s peers and of its acquisition target. Independent primary research on Santander was performed regardless.

8. Analytical frameworks applied

9. Data-quality notes, corrections and evidentiary gaps

1. AZI book value is total, not tangible. AZI’s valuation_index reports book value per share of $8.0919 and P/B 1.67x. This is a USD-translated total book value. The correct tangible measure is Santander’s own €6.32 TNAV per share, giving 1.88x P/TNAV at $13.54 — consistent with the company’s disclosed 1.91x at 30 June. Both are stated in the memo with the distinction made explicit; the percentile rank (98.7th on P/B) is used only as own-history context and is unaffected by the level.
2. Currency bridge derived, not assumed. EUR/USD of 1.1420 is derived from the company’s own pairing of a €12.084 share price at 30 June 2026 against the $13.80 ADS close on the same date, and cross-checked at 30 June 2025 (€7.027 vs $8.122 → 1.1559).
3. FactorsToday leaderboard figures are annualised at every horizon, including short windows. m3_return of 0.7279 is an annualised rate; the actual quarter was ≈+14.6%, de-annualised and cross-checked against the AZI CSV before use.
4. Factor loadings must be read within a single model. The hierarchy re-strips at each nested level, so the same factor’s beta legitimately differs across the Base / Base+Sector / Base+Sector+Industry / All-Factors models. Loadings are quoted with their model and R² attached; no cross-model comparison is made. L1-sparse zeros mean absent, not missing — which is why the absence of a Momentum loading is reported as a finding.
5. ROIC.ai line items inappropriate for a bank were excluded. is_sg_and_a_expense, ebitda, ebitda_margin, gross_margin (reported as 100%), and free cash flow per share (−€1.51 for 2025) carry no information for a financial institution and were not relied upon. Only ROE, EPS, book/tangible-book per share, share count, ROA, tax rate and goodwill series were used, each reconciled to the filings.
6. Ticker collision in the news feed. Approximately seven of the ~46 ROIC news items returned for “SAN” are mis-tagged Sanofi (SNY) articles, plus unrelated JetBlue and Kalshi items. None were used.
7. No insider-transaction read is available. As a foreign private issuer Santander files no Form 3/4/5, and only four Form 144s exist across five years. Spanish insider dealing is disclosed to the CNMV, not the SEC. The memo states this as an evidentiary gap and does not infer anything from the absence of recorded purchases.
8. Management assertions are labelled as such throughout, as a standing analytical rule: “underlying RoTE close to 17% at normalized CET1 levels,” the ≥£400m TSB synergies, the ~15% Webster return on invested capital, and the 7–8% EPS accretion are management hypotheses carried as hypotheses, not facts.
9. Two material items are unquantified in any primary source and are carried as Open Questions: Santander’s booked provision against the £200–300m MFS exposure, and any accrual against the CNMC mortgage-antitrust proceeding.
10. Comparability caveat on segment RoTE. Santander disclosed that the Spain secondary segment “does not have its own accounting tangible equity” and that the tangible-equity allocation methodology was updated during the period. Segment RoTEs are therefore not strictly comparable across periods, and no sum-of-the-parts valuation was attempted for that reason (see the valuation discussion).
11. Presentational change effective Q1 2026, communicated to the CNMV on 10 February 2026: non-recurring items are now reported on a single line and excluded from underlying profit. This affects year-on-year comparability of underlying growth rates, which were recomputed rather than taken from management’s deltas.

All URLs verified live as at 25 July 2026 unless the source is a subscription publication cited via its public headline and a corroborating secondary report.