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SANTANDER: 3Q'19 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'19 vs. 3Q'18 Results
N.I.I.: € 8.806 Bn (+5.5% vs. +6.3% BS(e) and +6.1% consensus);
Total Revenues: € 12.466 Bn (+6.4% vs. +6.3% BS(e) and +5.5% consensus);
Operating Profit: € 6.744 Bn (+6.1% vs. +6.1% BS(e) and +3.8% consensus);
Net Profit: € 501.0 M (-74.8% vs. -77.6% BS(e) and -79.4% consensus);
3Q'19 vs. 2Q'19 Results
N.I.I.: € 8.806 Bn (-1.7% vs. -0.9% BS(e) and -1.1% consensus);
Total Revenues: € 12.466 Bn (+0.9% vs. +0.9% BS(e) and +0.1% consensus);
Operating Profit: € 6.744 Bn (+3.4% vs. +3.4% BS(e) and +1.2% consensus);
Net Profit: € 501.0 M (-64.0% in 2Q'19 vs. -68.0% BS(e) and -70.6% consensus);

The results are fully in line with our estimates in Operating Income, but +2.2% above the consensus (due to higher fee and trading revenues that more than offset the greater weakness seen in NII, and a better performance of costs). Provisions (CoR and generic) were in line, and the tax rate came in lower (given some one-off profits in the UK this quarter, lower inflation in Mexico and a seasonal effect in Portugal given its contribution to the Portuguese guarantee fund). This fact explains the deviation in Net Profit vs. our estimates (+13% and vs. +22% vs. consensus). Additionally, we stress that the Operating Net Profit reached the highest level since 2018. By divisions, Spain performed better (due to trading revenues), United Kingdom worse (greater price pressure), Brazil in line, and US somewhat below the consensus estimate.
The FL CET1 ratio came in at 11.07% (vs. 11.10% BS(e)), as was the case in the 1H’19 although we stress the good organic generation on the quarter, +19bps that offset the increased regulatory costs (-17bps). On the positive side, the bank only has around -2/-3bps of regulatory adjustments pending in the 4Q’19 that would be also offset by +3bps from the sale of the custody business. Thus, SAN is expected to meet its FL CET target of ~11.25% for 2019 (11.5% fully phased in). We expect a positive market reception. BUY. T.P. € 4.70/sh. (upside +18.49%).