SAN -BOA -Merril Lynch Conference 280910

8/8/2019 SAN -BOA -Merril Lynch Conference 280910

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Santander’s strategy ina dual World

September 2010

Alfredo SáenzCEOGrupo Santander



2

Macro and banking outlook: a dual World

Macro and banking outlook: a dual World

Santander’s strategy in a dual World

Santander’s strategy in a dual World

Conclusions

Conclusions

Our recent transactions reflect our strategy

Our recent transactions reflect our strategy



3

For the first time in a long time, we are living in atruly DUAL WORLD

For the first time in a long time, we are living in a

truly DUAL WORLD

Need forPRIVATE

SECTOR to

deleverage

Need for PUBLIC SECTORto ajust large fiscal

deficits

LOW HIGH

HIGH

LOW

LeveragedMATURE

MARKETS

LeveragedMATUREMARKETS

BalancedEMERGINGMARKETS

BalancedEMERGINGMARKETS

MATURE MARKETShave started to

behave like maturemarkets…

i.e., not growing…

… and EMERGINGMARKETS have started to

behave like emergingmarkets… i.e., delivering

DIFFERENTIAL GROWTH…



4In the pre-crisis World, most economies were “emerging”markets

Average annual GDP growth(2002-2007)

Average annual GDP growth(2007-2012)

0% 2% 4%

US

Spain

UK

Brazil

Mexico

0% 2% 4%

US

Spain

UK

Brazil

Mexico

The “GreatDivergence”

The “GreatDivergence”



5In the pre-crisis World, most banking markets were“emerging” markets

Increase in private sector loans / GDP(2002-2007)

Increase in private sector loans / GDP(2007-2012)

0% 10% 20% 30% 40% 50% 60% 70% 80%

US

Spain

UK

Brazil

Mexico

-20% -10% 0% 10% 20% 30%

US

Spain

UK

Brazil

Mexico

The “GreatDivergence”The “Great

Divergence”



6

Differential GDPgrowth

(not involved in theexcesses of the past cycle)

Differential GDPgrowth

(not involved in theexcesses of the past cycle)

Increased

bancarisation(development of middle

classes)

Increasedbancarisation

(development of middleclasses)

xx

The DOBLE MULTIPLIER:

In EMERGING MARKETS…the banking sector has a big opportunity …

In EMERGING MARKETS…the banking sector has a big opportunity …1

1



7

In MATURE ECONOMIES, the banking

sector is facing a tough environment..

Deleveraging: Low

credit demand

Deleveraging: Lowcredit demand

Deposit marginpressure due to thelow interest rates

Deposit marginpressure due to thelow interest rates

Delinquency ratesremain at relativelyhigh levels

Delinquency ratesremain at relativelyhigh levels

11

22

33

… and regulatoryconstraints

… and regulatoryconstraints44

We are entering

into a periodwhere the“revenue cake”

is likely to

shrink

We are enteringinto a period

where the“revenue cake”

is likely to

shrink

22



8In Spain, the “FROB” iniciative sets a roadmap for therestructuring of the savings bank sector

The “FROB” roadmap

Allows savings banks to absorblosses

Creates bigger, more stable

entities

Reduces “excess capacity” inthe sector

Introduces market discipline inthe savings bank sector

The “FROB” roadmap

Allows savings banks to absorblosses

Creates bigger, more stableentities

Reduces “excess capacity” inthe sector

Introduces market discipline inthe savings bank sector

Excellentnews forstrong

focusedbanks…

… a greatopportunity to

GAINMARKETSHARE at“rational”

prices

Excellentnews for

strongfocusedbanks…

… a great

opportunity toGAIN

MARKETSHARE at

“rational”prices



9

Macro and banking outlook: a dual WorldMacro and banking outlook: a dual World

Santander’s strategy in a dual WorldSantander’s strategy in a dual World

ConclusionsConclusions

Our recent transactions reflect our strategyOur recent transactions reflect our strategy



10

Portugal

3%

Santander

Consumer Finance12%

Europe- rest

7%

US (Sovereign)

2%

Mexico6%

UK13%

BRAZIL

29%

Chile

5%

Rest of LatAm

4%

SPAIN- retail

banking (SAN

network +

Banesto)

19%

Emerging

markets: 44%

Developedmarkets: 56%

Operating profit breakdown (ex Corporate Center)- 2009

1

2

We can generate strong results in both parts of our portfolio…

… we are well positioned in a dual World

This emerging markets

contribution is very rare ininternational banking… and

very valuable



11

Ranking: 1st

Mkt. share: 20% Branches: 498 Customers: 3.2 mill.

Ranking: 3rd

Mkt. share: 12% Branches: 3,593 Customers: 21 mill.

Ranking: 3rd

Mkt. share: 15% Branches: 1,093 Customers: 8.8 mill.

Mexico

Brazil6

Chile

EMERGING MARKETS: 1. A unique franchise, in terms of size(net profit > USD 5bn), contribution to our portfolio,and exposure to attractive, high growth markets

5,745 branches

Ranking: 2rd

Mkt. share: 10% Branches: 258 Customers: 2.0 mill.

Argentina



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Presence in “TRUE”

emerging markets

Presence in “TRUE”

emerging markets

We have presence in markets with… GDP per capita below USD 15,000... AND Private sector loans (households +corporates) to GDP below 85%

We have RETAIL ANDCOMMERCIAL BANKING

franchises, withDISTRIBUTION CAPILARITY

We have RETAIL ANDCOMMERCIAL BANKING

franchises, withDISTRIBUTION CAPILARITY

… able to reachthe rising middle

class

We have STRONG

PRESENCES in our coremarkets

We have STRONG

PRESENCES in our coremarkets

“Top 5” franchises (market share > 10%)have a clear advantage, in terms of

economies of scale, brand recognition,market impact…

EMERGING MARKETS: 2. We have a good quality emergingmarkets franchise (strong “capilarity” in attractive markets)



13

+9,7%

+14,5%

+8,6%

+6,7%

+2,5%

+5,1%

+7,1%

Attributable

profit (*)

Profit before

tax

Net oper. inc

net of LLPs

Net operating

income

Expenses

Gross income

Net interest

income + fees

Var. H1’10 / H1’09 in constant US$ (%)

(*) Profit from continued operations: +27.1%

H1 2010 Attributable profit:US$ 1,711 mill. (EUR 1,294 mill.)

BRAZILBRAZIL REST OF LATAMREST OF LATAM

H1'10

Attributable profit

Change (%)H1'09

Mexico 385 336 +14.8

Chile 398 382 +4.4

Argentina* 183 134 +35.7

Uruguay 46 36 +26.9Puerto Rico 25 24 +5.5

Colombia 25 26 -3.0

Other -3 26 --

SUBTOTAL 1,059 963 +10.0

Santander Private Banking 86 105 -18.4

TOTAL 1,145 1,068 +7.2

Venezuela -- 112 --

EMERGING MARKETS: 3. We are delivering strong results

We expect to deliver high double-digit net income growth in our emergingmarket units over the next 3 years



15

Keeplow riskprofile

Keeplow riskprofile

Control COSTS / deliver SYNERGIESControl COSTS / deliver SYNERGIES Continue to manage asset marginsContinue to manage asset margins

Our well-proven “EXECUTION (DEFENSIVE) SKILLS”:The Santander UK example

1

2217

SAN UK

mortgages

Market

mortgages

10065

UPLs

SAN UK

Market

UPLs

>

Coverage (%)

2.38

1.43

SAN UK

mortgages

Market

mortgages

NPLs (%)

<

(1) FY 08 includes depreciation and amortisation and B&B



16… stepping up our “ATTACK SKILLS”: growrevenues and increase market share

The Santander UK example

2

20%origination

marketshare…

significantlyabove our14% stock

marketshare

20%origination

marketshare…

significantlyabove our14% stock

marketshare



17

(STG 0.6bn)

Selective acquisitions: take advantage of therestructuring of the system

The Santander UK example

3

20082008

20102010

(STG 1.3bn)

RBS branches(STG 1.7bn)

Our integration discipline:

• Integrate business / implement technology /deliver synergies / apply best practices

• De-risk / focus on core businesses

11.5

5.7

Jun'09 Jun'10

Treasuryportfolio

-50%

£ billion

Reduction of non coreassets in the UK

Sovereign’s run-off portfolio

UK RWA now below the pre-

A&L level, as a result of thereduction in non-core assets

UK RWA now below the pre-

A&L level, as a result of thereduction in non-core assets

… LEADING TO SIGNIFICANT CAPITAL RELEASE



18DEVELOPED MARKETS: Resilient results in a very difficultenvironment…

(500)

1.000

2.500

4.000

1S '101S '09

Sovereign (US)

UK

Continental Europe- rest

Portugal

Santander Consumer Finance

Santander network (Spain) +Banesto

EUR

3.73bnEUR

3.56bn

+5%



19

74%

54%

SAN European peers

3,34 3,373,03 3,242,82

Jun'09 Sep Dec Mar'10 Jun

+21 bp +21 bp +10 bp

747572 73 73

Jun'09 Sep Dec Mar'10 Jun

… and, at Group level, credit risk is firmly under control…NPL and coverage ratios

Grupo SAN

Percentage

Group ratios (Mar.’10)

NPLs Coverage

5,89%

3,34%

SAN European peers

Net NPL entries*. Group total

NPLs Coverage

(*) Excluding perimeter and exchange rate impact

2,32,8

3,54,3

5,34,9

3,43,43,9

4,2

Q1'08 Q2 Q3 Q4 Q1'09 Q2 Q3 Q4 Q1'10 Q2

EUR billion

+3 bp

6.027 6.181 6.727

3.275

6.6796.679

12.219 13.232

6.682

11.770

19.91118.89818.497

12.863

9.302

Dec 07 Dec 08 Dec 09 Mar'10 Jun'10

Specific

Generic

EUR million

Totalfunds

Balance sheet provisions

… with strong capital ratios and a comfortable liquidity position…



20… which has translated into very positive stress test results

10,1

8,2

9,3

9,2

9,6

8,5

10,2

10,0

9,0

7,8

8,78,8

9,1

10,9

9,4

12,5

8,1

10,0

8,86,3

9,7

9,9

11,2

4,7

10,013,7Barclays

Santander

Nordea

Intesa SP

BBVA

Lloyds

BNP Paribas

BPCd'Epargne

HSBC

Societe Generale

Credit Agricole

Unicredit

DZ BankING Bank

Commerzbank

Dexia

KBC Bank

Rabobank

LB Baden-Wurttemb.

Danske Bank

Bayerische LBJupiter - Cajamadrid

Deutsche Bank

ABN/Fortis

RBS

Hypo Real Estate

-0,1

-0,1

-0,1

-0,4

-0,5

-0,6

-0,6

-0,7

-0,7

-0,8

-1,2-1,4

-1,4

-1,4

-1,5

-1,6

-1,7

-1,7

-2,1-2,3

-2,9

-3,1

-3,2

-4,7

0,0

0,7

TIER I (p.p.) Var. / 2009 (p.p.)

After paying EUR 4.4billion of dividends andrebuild EUR 1.8 billionof generic provisions…

… equivalent to1.07 p.p. of Tier I

(which would rise to11.1%)

Adverse scenario 2011: continue paying dividends, building upgeneric provisions and maintaining intact its Tier I

(*) Comparison with 25 large European banking groups (with balance sheets of over EUR 300billion, according to The Banker, July 2009-) included in the stress testSource: CEBS, on a like-for-like basis for all analysed entities



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22

Portugal3%

Santander

Consumer Finance12%

Europe- rest

7%

US (Sovereign)2%

Mexico6%

UK

13%

BRAZIL

29%

Chile5%

Rest of LatAm4%

SPAIN- retailbanking (SAN

network +

Banesto)

19%

Emerging

markets: 44%

Emerging

markets: 44%



Operating profit breakdown (ex Corporate Center)- 2009Operating profit breakdown (ex Corporate Center)- 2009

11

22

Santander’s M&A strategy in the new environment

HIGH GROWTH, STABLEEMERGING MARKETS:

Increase our presence:

• Minorities- Mexico

• Poland (BZW)

HIGH GROWTH, STABLEEMERGING MARKETS:

Increase our presence:

• Minorities- Mexico

• Poland (BZW)

DEVELOPED MARKETS:Take advantage of restructuringprocess / gain market share:

• RBS branches (UK)

• Germany (SEB)• Consumer finance (US)

DEVELOPED MARKETS:Take advantage of restructuringprocess / gain market share:

• RBS branches (UK)

• Germany (SEB)

• Consumer finance (US)

… plus asset disposals of non-core assets / in non-core markets



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• The acquisition increases our exposureto a high growth, core business• We were “underweight” Mexico

Minorities- Mexico Poland- BZW

-

1.000

2.000

3.000

4.000

- 500 1.000 1.500 2.000

Total GDP (USD bn)

C o n t r i b u t i o n t o S A N

G r o u p - E U R m

( Q 1 1 0 a n n u a l i s e d )

Brazil

Mexico

Chile

Argentina

ColombiaPR

Urg.

• We strengthen our presence in a market withpotential: Poland (“vertical strategy”)

• Potential to add value (improve efficiency+accelerate commercial growth)

196

276

319

367

400

441

472

512

1,028

1,228

SC Poland

Bank 9

Bank 8

Bank 7

Bank 6

Bank 5

Bank 4

BZ WBK

Bank 2

Bank 1

Branches (Excluding Agency Outlets)Ranking by Players - 2009

16.1%16.1%

8.0%8.0%

7.4%7.4%

6.9%6.9%

6.3%6.3%

5.8%5.8%

5.0%5.0%

4.3%4.3%

3.1%3.1%

19.3%19.3%

Increasing our exposure to strong local franchises, with critical mass, inemerging markets

Increasing our exposure to strong local franchises, with critical mass, inemerging markets

HIGH GROWTH, STABLE EMERGING MARKETSHIGH GROWTH, STABLE EMERGING MARKETS



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• Increase market share in the UK market

RBS branches (UK) Germany (SEB)

Consumer finance (US)

UK Map re distribution

coverageSavings 73%

Current

accounts 27%

Note: Of the 40 SME centres, a number are co-located with branches. All 4 corporate banking centres are co-located with SME centres.

4 corporate banking centres3 private banking centres

318 branches40 SME centres4 corporate banking centres3 private banking centres

318 branches40 SME centres4 corporate banking centres3 private banking centres

318 branches40 SME centres

Cardiff

Bristol

Liverpool

Leeds

Manchester

Cardiff

Bristol

Liverpool

Leeds

Manchester

Cardiff

Bristol

Liverpool

Leeds

Manchester

Branch network coverage

5,750 customer-facingFTE plus certain directsupport functions

• Accelerateour expansionin the SMEmarket

• Improveefficiency

• Increase market share in theGerman market

• Apply our retail banking businessmodel- improve commercialperformance and efficiency

• Synergies / economies of scale withexisting (mainly consumer finance)business in Germany

• Leverage existing platform

Take full advantage of restructuringprocesses / gain market share /strengthen market position

Take full advantage of restructuringprocesses / gain market share /strengthen market position

DEVELOPED MARKETSDEVELOPED MARKETS

IMPROVE EFFICIENCY +DE-RISK / FOCUS ON CORE BS.

IMPROVE EFFICIENCY +DE-RISK / FOCUS ON CORE BS.



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All transactions meet our financial criteria

Eps growth- 2013 ROI- 2013

Highgrowth /

emergingmarkets

Mature

markets

+0% +2% +4%

Mexico

Poland

RBS

branches

0% 10% 20%

Mexico

Poland

RBS

branches

… and we have the necessary management resources to execute them

W t Ti 1 t i f 8% f FY 2011



26We expect a core Tier 1 rate in excess of 8% for FY 2011,as a result of our strong organic capital generation

We expect to be fully BIS III compliant by 2013We expect to be fully BIS III compliant by 2013

0.9%

0.3%

8.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Starting Point

June 2010

Organic Capital

Generation

Acquisitions Scrip Dividends

(2010)

"Organic" CT1

Dec 2011

8.4%

/

8.6%

-1.2%/-1.4%

Minorities Mexico -30bpGermany RB’s SEB -8bpPoland (BZ WBK) -40/-60bpRBS Branches -40bp 8.6%



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We have a WELL BALANCED BUSINESS PORTFOLIO:

We generate 44% of our operating profits in our core emerging markets…

… and 56% in our core mature markets

We can deliver strong results in both parts of our portfolio…

In developed markets…

take full advantage ofrestructuring processes /gain market share /strengthen marketposition

In developed markets…

take full advantage ofrestructuring processes /gain market share /

strengthen marketposition

In emerging markets…

increase our exposure tostrong local franchises,

with critical mass, inemerging markets

In emerging markets…

increase our exposure tostrong local franchises,

with critical mass, inemerging markets

SAN -BOA -Merril Lynch Conference 280910

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