The IE Spain Club in collaboration with the Strategy and Finance

Santander: a story of Growth

Clubs invites you to the conference:
“Santander: A Story of Growth”
Juan Inciarte
Host Speaker: Juan Rodríguez R. Inciarte
Executive Member of the Board of Directors and
Group Senior Executive Vice President of Strategy of Grupo Santander

Date: Wednesday, November 17th, 7pm

Venue: Pinar 9, Room E -101
In collaboration with
Time: 7:00pm November 17, 2010
Register at Alumni Agenda
http://www.ie.edu/alumniagenda/
Santander: a story of Growth
Juan R. Inciarte

November 17, 2010

 3
AGENDA

Santander’s Story

 Santander’s Model

 Current Environment

 Looking at the future

 4
Santander – Overview

Since May 1857: more than 150 years of international buisiness

Historical Headquarter – Santander, Spain

Current Headquarter –Madrid, Spain


Total Assets: EUR 1.236 trillion 
Based in Madrid, Spain


Total Loans: EUR 735 Bn

Branches: 13,907


Employees: 176,471

Customer Deposits: EUR 601 Bn

Shareholders: 3.1 Million

Market value: EUR 72 bln (Nov. 2010)
 …And more than 90 million customers

Data as of September 2010 except market value

 5

SANTANDER’S STORY

Santander: In 1985, a medium-sized bank in Spain

Santander in 1985

# 152 worldwide # 6 in Spain

 Santander’s Story: Organic Growth… 6

New Products
“Light” Credit Card Insurances

“Súper Selección” Funds “Súper Gestión”

funds
“Súper Crédito Retail Business Model
Vivienda” Mortgage
“Súper Libreta”
Risk
culture

“Súper Depósitos” Service quality

Commercial culture
“Súper Cuenta” Campaigns

Commercial
Cross Distribution Channels
selling
management tools
Dealers

Phone Internet
Customer
segmentation
…and acquisitions 7

Continuous expansion and business repositioning

1994 Banesto’s auction

1994-98 Expansion in Latin America

1999 January 15th, 1999: Merger with BCH

2004 Abbey’s acquisition

2001-07 Santander Consumer Finance

2007 ABN AMRO acquisition

2008-09 Acquisitions of A&L, B&B and Sovereign

2010 Acquisitions Zachodni Bank – poland

Santander’s Story 8

In a short time, we have taken a gigantic leap

From a domestic … to a global

retail bank… financial group

1985 2009
Number of customers 750,000 92 million
Attributable profit EUR 133 mill. EUR 8,943 mill.
Market capitalisation EUR 2,455 mill. EUR 95,043 mill.
 Santander’s Story 9

Top 4 worldwide in 2009 and the only one remaining in the Top 7
since 2006

2006 2007 2008 2009

Citi 17.2 HSBC 14.0 ICBC 10.9 ICBC 13.4

BOA 16.8 JPM 11.2 CCB 9.1 CCB 11.5

HSBC 12.6 BOA 10.8 SAN 8.9 3º Barclays* 10.6

JPM 11.5 RBS 10.7 BoChina 6.3 SAN 8.9 4º

RBS 9.1 SAN 9.1 5º Barclays 5.5 GS 8.8

UBS 7.8 GS 8.3 BBVA 5.0 BoChina 8.4

SAN 7.6 7º BNP 7.8 Unicre 4.0 JPM+Wamu 6.3

GS 7.5 ICBC 7.8 HSBC 3.9 BNP 5.8

Wfargo+
BNP 7.3 Intesa 7.3 JPM 3.8
Wachovia
5.7

Deutsche
C. Suis. 7.2 CCB 6.6 BNP 3.0
Bank
5.0

Chinese banks

Note: Profit attributable to common shareholders. Data en EUR billion

(*) Barclays obtained in 2009 extraordinary capital gains due to the disposal of BGI (Barclays
Global Investors ( EUR 7,064 million)
 10
Constantly In the Worldwide top-15 by Market Cap

2000 $ Bn
2010
ICBC 258

CHINA CONST. BANK 235

HSBC 194

JP MORGAN 157

WELLS FARGO 145

BANK OF CHINA 140

AG BANK OF CHINA 138

CITIGROUP 125

BANK OF AMERICA 122

BANCO ITAU 99

SANTANDER 98

GOLDMAN SACHS 90

BNP 87

LLOYDS 77

ROYAL B. OF CANADA 75

COMM. BANK OF AUST. 75

RBS 74

STANDARD CHARTERED 72

BANCO BRADESCO 69

SBERBANK 69

Source for 2000 data: Financial Times

Source for 2010 data: Bloomberg, data as of November 15
 11
AGENDA

 Santander’s Story

Santander’s Model

 Current Environment

 Looking at the future

 Santander’s Model 12

A “VIRTUOUS CIRCLE”
To be a top player, Santander focuses on a few markets, understands them in depth
and creates critical mass to control costs and risks, allowing it to offer the best rates

The “virtuous circle” enables to gain market share

Critical
Mass

Best SANTANDER’S Cost

Customers MODEL Efficiency

Risk
Control
Santander’s Model 13

Our strategy
1. Critical mass in our core markets
1
2. High diversification by geographies and businesses: Focus on retail
2
banking

3. Solid retail banking model. Commercial focus (expand the “front”),

3
continued efficiency improvement (reduce the “back”) and a prudent
risk policy.

4. Balance sheet strength: A hallmark mark of Grupo Santander

4

5. Active management of business portfolio: Improving our

5
strategic positioning during the crisis

6. Single Brand: An asset that creates value

6
 Santander’s Model 14

1 •
High market share: critical mass in our core markets
Germany
USA
 Ranking: 6º
 Branches: 722 UK 3
 Mkt. share1 : 14%
 Customers: >2 mill.  Ranking1: 2nd
 Branches : 350
 Mkt. share1: 10%
 Customers : 7 mill.
Mexico  Branches: 1,640
 Customers: 28 mill.
 Ranking1: 3rd
 Mkt. share1: 15%
 Branches: 1,093 Spain2
 Customers: 8.8 mill.  Ranking1: 1st
 Mkt. share1: 16%
Brazil 6  Branches: 4,764
 Customers: 11.4 mill.
 Ranking1: 3rd
 Mkt. share1: 10%
 Branches: 3,593
 Customers: 21 mill.
Portugal2 Santander
Chile Consumer4
 Ranking1: 4th (5)
 Ranking1: 1st  Mkt. share1: 10%  Branches: 311
 Mkt. share1: 19%  Branches: 763  Dealers: > 100,000
 Branches: 498  Customers: 2.2 mill.  Customers: 12.9 mill.
 Customers: 3.2 mill.
(1) Loans + deposits (balance sheet funds) + mutual funds Data as of 30/06/2010
(2) Santander Consumer not included (in Spain: 3.3 million customers and 77 branches; Portugal: 0.3 million customers and 7 branches)
(3) Ranking 3rd by deposits and second by mortgages portfolio
(4) Present in 17 countries. Loyalty cards not included under customers
(5) Third largest private bank in Portugal and first by profit in 2009
(6) Excluding public-sector banks.
 Santander’s Model 15

2 We are one of the few international banks with a significant presence in a

•

“BRIC” country - BRAZIL

Operating profit breakdown (ex Corporate Center)- 2009
SPAIN- retail
Rest of LatAm banking (SAN
Chile 4% network +
5%
Emerging Banesto)
Mexico 19%
markets: 44% 6%
Portugal
3%
Santander
Developed
Consumer Finance markets: 56%
12%
BRAZIL
29% Europe- rest
7%
US (Sovereign)
UK 2%
13%
We can generate growth in both parts of our portfolio
Santander’s Model 16

3 Efficiency as a target: continuous improvement

•

Our long term efficiency

improvement track record
68.6%

65.0%
63,0%  Among the Best Banks by efficiency
60.3%
Abbey
58.6%

55.2%
 Continuous improvement also
52.8% 52.9% B. Real within tougher phases of the cycle

48.6%

45.5%
 Ability to bring new Business Units
44.6%
at Group efficiency levels
41.7%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
 Santander’s Model 17

4
Solid balance sheet: Solid core capital and high capacity to generate free capital
•

Core capital

+1.1 p.p.
8.6% 8.6%
 Well above regulatory requirements
7.5%

6.3%  Among the Best European Banks in

6.1% 5.9%
recent “Stress tests”

 Ready for the upcoming challenge of

Basel III
2005 2006 2007 2008 2009 1H10
Note: 2008 under BIS II, previous data under BIS I

In 2009 we have strengthened our solvency ratios and in 2010 we are maintaining them:
we are positioned very well for the current scenario
Santander’s Model 18

5 Active management of business portfolio:

Acquisitions in high growth / profitability areas
+
Disposals in low growth / profitability areas

Acquisitions ... … and disposals

 Banespa (Brazil), Grupo Totta &  Financial stakes (Intesa Sanpaolo,
Açores (Portugal), Mexico, Chile…
Urbis, BPI…)
 Abbey (United Kingdom)
 Consumer businesses: 15  Abbey Insurance business
countries, among them Germany,
Italy, USA …  LatAm pensions
 ABN AMRO (in consortium)
 Real estate sales (lease-back)
 Offer for Alliance & Leicester
 Bradford&Bingley  Antonveneta (Italy, part of ABN)
 Sovereign
 Bank of Venezuela
 Zachodni
 Santander’s Model 19

6
•
Single Brand: an asset that creates value
In 2009 Santander was the 2nd most valuable brand ($16.0 Bn)
of an International Bank1

Transition to
Santander
Brand

Global
Brands

Exceptions

1
Source: “Most Valuable Brands 2009”, Millward Brown
Top-10 Ranking - Financial Institutions : ICBC, China Construction Bank, Bank of China,
HSBC, VISA, Wells Fargo, Santander, Bank of America, American Express, RBC
 20
AGENDA

 Santander’s Story

 Santander’s Model

Current Environment

 Looking at the future

Current Environment: the Regulatory Reform 21

Any financial regulation has an impact on real economy


Financial regulation is key for a controlled development of
financial markets


Any regulation needs a strict Supervision


Regulation must be dynamic


Usually reforms arise as a consequence of financial crises


Any regulation implies costs
Current Environment: the Regulatory Reform 22

More
New liquidity ratios
Capital Requirements

Pressure on the
Financial
Cost of Capital
Sector

Credit offer Reduction

Impact:
-Employment reduction Real
-Negative impact on GDP Economy
Current Environment: the Regulatory Reform 23

We must find a balance

between costs and benefits

Implies higher
A Higher Costs both in the
financial Financial Sector
Stability and in real
Economy
 Regulatory Reform: Ten keys to success (1/2) 24

1. Back to Basics  Retail Banking, customer focus and

prudent risk management

 The riskier, the more capital required

2. Regulation: More vs BETTER  Higher quality of Capital; Homogeneous
ratios
 Guarantee liquidity both in the short and
the long term

3. Improve Supervision  Intrusive, strict, rigorous

4. Regulate shadow banking  Avoid regulatory arbitrage

5. Size is not the problem  Focus on riskier Institutions rather than

making a list of “the big ones”
 Regulatory Reform: Ten keys to success (1/2) 25

6. Bankruptcy should be  Living wills

foreseen for Banks

7. Business Model:  Subsidiaries: Liquidity and Capital

Subsidiaries vs. Branches autonomy

8. Strengthen Corporate  Transparency, independence

Governance

9. Additional Taxes are not the  Righteous should not pay for sinners
solution

10. Identifying key measures  Valuation of the whole Reform Impact

 26
AGENDA

 Santander’s Story

 Santander’s Model

 Current Environment

Looking at the future

 In a changing world… 27

Rise of Asia can be seen as “return to norm”

Industrial Internet
Share of total world GDP (1AD–2009 AD), Percent revolution revolution

Fall of Roman Marco Polo's Discovery French and US Oil

Empire trips to Asia of America revolution crisis Financial
Crisis
2008
100
Rest of
•

the world
80
Japan
•

Europe &
•

60
North America
•

40
•
India

20
•
China
0
•
Year 1 500 1000 1500 2009

Source: McKinsey
… with a new regulatory framework… 28

Basel III
4. Crisis
1. Capital 2. Liquidity 3. Systemic Risk Management – 5. Other Actions
Living Wills

New Regulatory entities

Minimum Capital

Compensation Policies
Stress Tests

Liquidity Ratios

“Living Wills”
…Santander has a proven successful model 29

Santander is facing the new scenario

from a position of strength

Capital Business Potential

• Core > 8% • Diversification • Synergies
• Liquidity • Income

A Bank with a winning Model that will continue overcoming

its peers in a new scenario