Santander's Record First Half: TSB Integration and a Capital Story
Profit hits EUR 3.8B, RoTE 15.6% as ONE Transformation delivers, while Danish Compromise adds a new twist to the capital debate.
SAN.MC · Earnings Call · 2026-07-22
A Record Half, Powered by TSB and ONE Transformation
In the second quarter of 2026, Banco Santander delivered its strongest half ever, with quarterly profit of EUR 3.8 billion and a 14% increase in underlying profit year-on-year. CEO Héctor Grisi opened the call with a clear message:The engine behind this was operational leverage from the ONE Transformation program, which has been a recurring theme in past quarters but now shows tangible results: revenue up 6% in constant euros while costs declined 1%, with efficiency improving to 42.8%. The TSB acquisition, closed on April 30, 2026, is now contributing two months of results. While the year-on-year impact is limited, it adds a high-quality deposit base and a low-risk mortgage portfolio, and the group is on track to deliver at least EUR 400 million of synergies by 2028. CFO José García Cantera noted the structural hedge changes post-TSB: "In December, we had GBP 103 billion of structural hedge. In June, the amount was GBP 118 billion... The yield is now 3.2%." This is a concrete shift in the balance sheet that supports future NII.Our quarterly profit hit a new record of EUR 3.8 billion, making H1 2026 the best half ever, driven by strong revenue growth across global businesses and our growing franchise of 182 million customers.
Capital, Danish Compromise, and the Path to 20% RoTE
Capital generation remains a key differentiator. CET1 rose to 14% despite absorbing 55 basis points from TSB, and the group continues to generate organic capital at a solid pace. A new theme this quarter is the Danish Compromise — the European insurance treatment that could free up capital. Héctor confirmed they are expecting approval "in the next couple of months", but José was more cautious:This nuance matters for investors modeling the capital trajectory. The group reiterated its 2026 guidance of >EUR 14.1 billion profit ex-M&A, and the medium-term RoTE target of 20% by 2028 remains intact. The transactional deposit growth, a result of becoming "the number one bank to our customers," is driving a lower cost of funds, with retail fees up 6% and cost per active customer down 6%. “So the answer is very simple. No more bolt-on acquisitions.” — Ana Botín-Sanz De Sautuola y O'Shea, Executive Chair · 2026-02-04 That was the message in February 2026, as Ana Botín capped the acquisition spree. Now, the focus is on execution. Webster received ECB approval, and the deal is on track to close in H2. The ALCO portfolio has grown to EUR 60 billion, with a yield of 3.3% and a six-year duration, providing a ballast to NII amid rate expectations. José explained, "We plan to keep it at this level. We don't plan to increase the ALCO portfolio above this level." Meanwhile, cost of risk remains a watch item. Excluding Argentina, asset quality improved 2 basis points to 1.07%. In the prior October call, José had noted a more normalized trend: “In the first 2 quarters of this year, we had cost of risk of 4.9%. It's back to 4.5% in the third quarter.” — José Antonio García Cantera, CFO · 2025-10-29 This quarter, the group guides to a stable 1.15% group cost of risk, with Argentina offsetting seasonal U.S. auto provisions. In summary, Santander is executing on its transformation, with record results, a strengthened capital position, and a clear path to 20% RoTE. The Danish Compromise, while not an immediate capital release, adds optionality. The market reaction will hinge on the ability to sustain double-digit value creation.The Danish compromise will not add any capital to Santander. Obviously, future investments will benefit from the Danish compromise treatment for capital, but no impact from the Danish Compromise at all.