EFTA Document EFTA01385511

> Financials Deutsche Bank 0 Banco Santander - Ignacio Ulargui, BUY, close €5.6, €6.6 tgt, 17% upside • Santander is a very large cap stock (market cap > €90bn) with significant earnings momentum and an attractive valuation. • We expect high-single-digit growth in Brazil over the next two years driven by the economic recovery. - NIl should rise at a c4% CAGR for 18-19E driven by stronger loan growth (we expect 10%112% in 18E/19E). Santander has been the most active in increasing lending, being the only Brazilian bank posting both YoY and QoQ growth. - The economic recovery should help reduce cost of risk and hence provisions. We forecast a 59bps fall in the cost of risk through to 2019. • Costs and provisions should deliver profit growth in Spain. Popular's contribution could be bigger than expected driven by revenues and lower provisions (the company expects the acquisition of Popular to deliver E550m of synergies), and NPAs should fall over time to non-material levels. • The USA has revenue and cost tailwinds to come, starting 1H18. • The UK is becoming less of a drag. Competition necessitates management's margin caution, but the outlook on costs of risk and operations is more positive. • Client loyalty focus should bring fee income outperformance. Realising the potential from the 131m customer base should deliver a 7% fee income CAGR in 2018-19E is Santander has a P/B of only 0.9x for an estimated 11.4% 18E RoTE. • Catalysts — UK & Brazil newsflow and quarterly results Related DB Research: Reaffirming targets. Buy reiterated (Ulargui) Santander Brasil is achieving market-leading loan growth -6.8% 1O17 2Q17 3O17 3016 4Q16 • Santander Brazil • Bradesco Source: Deutsche Bank estimates and company data Itau 6.4% 7.6% • Banco do Brazil Spanish NPAs over loans have been materially reduced 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 49% stake in Blackstone's vehicle Pre Blackstone deal Souse: Deutsche Bank estimates. company data r Post Blackstone deal Deutsche Bank Research. European Equity Focus —Janutuy 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086797 CONFIDENTIAL SDNY_GM_00232981 EFTA01385511