Alfredo Sáenz: "Profit will return to normal in three years"

"Emerging markets (Latin America and Poland) are expected to provide double-digit growth in net profit in the short and medium term."

"Mature markets where provisions have stabilized or are falling (the U.K., the U.S. and Santander Consumer Finance) will register single-digit increases in net profit over the next three years."

"We expect that in 2013 and 2014 Spain and Portugal "will generate EUR 2.0 billion in excess free capital a year."

"The crisis has validated our business model of diversification with financially autonomous subsidiaries and strong operational integration within the Group."

London, Sept. 29, 2011 - Banco Santander Chief Executive Alfredo Sáenz said that "over the next three years, we will see a gradual normalization" of the bank's profit, which will lead to an improvement in return on equity of between 3 and 6 percentage points.

"With our solid business model and a great effort from all our units, it is within our reach to return to levels of ROE of 12-14%," he added

The recovery in profitability takes into account the high costs of new regulations and funding and will come about through a normalization of provisions in mature markets. Moreover, the current low-interest rate environment could favour future results, he added.

Sáenz was speaking at the opening of the Banco Santander Investor Day attended by more than 300 analysts and investors. At the meeting, Banco Santander senior management is presenting to the financial community the bank's outlook in the businesses and countries in which it operates. Santander Chairman Emilio Botín will close the meeting in a session on Friday.

Sáenz reviewed the Group's performance in the last four years, stating that "the crisis has validated our business model." He said that "diversification has allowed us to offset pressures in some markets with the better/strong pace of other units.The world is a tale of two types of markets: emerging and mature, and we believe we generate attractive returns in both, though in different ways. Mature markets will provide high levels of free capital which will feed dividend levels and support emerging markets growth."

Santander's emerging markets (Latin American and Poland), which currently contribute 48% of the Group's earnings, are expected to provide double-digit growth in net profit in the short to medium terms. The businesses in mature markets where provisions have stabilized or are falling (the U.K., U.S. and Santander Consumer Finance), in contrast, will register single-digit growth in net profit. Lastly, in Spain and Portugal, two mature markets where provisions continue to be high, Sáenz said he expects to see the "generation of excess free of EUR 2 billion a year in 2013 and 2014."

Alfredo Sáenz pointed out that Banco Santander "generated more accumulated profit than any other western bank during the crisis, despite being much smaller than many others in terms of revenues and capital. Moreover, the stress tests carried out by the EBA have shown that we generate more profit and pay the highest dividend in the stress scenarios."

"Our business model continues to be valid and has grown stronger during the crisis." The model is founded on seven principles:

  1. Diversification is key: We have a good balance between emerging and mature economies, avoiding exposure of more than 25% of earnings to any one country. 

  2. A vertical strategy: We focus on 10 large and attractive markets with a significant position in each one. Local critical mass is essential to greater profitability.

  3. Focus on retail and commercial banking: This activity accounts for 76% of profit. We have more branches than any other international bank. "We will continue to shun businesses that we do not know well."

  4. We are increasingly playing on international connectivity and the business derived from it. We have strong banks in Europe, Latin America and the U.S., as well as branches in Asia. We are focusing on capturing business from the flows among the regions where we operate.

  5. A low risk profile, backed by a high degree of geographical diversification, with a clear view of risks and a highly collateralized loan portfolio. This means low exposure to sovereign risk and a focus on risks that we understand, in which losses can be predicted, and deep involvement of senior management. This principle and the following are not negotiable.

  6. Efficiency in costs: Positive jaws by which revenues grow more than costs) are absolutely necessary. We have been able to maintain our relative strength in efficiency compared to our competitors and we are well above the average for banks. This strength in efficiency is due to our global integration, which we exploit with three types of intra-Group synergies: Cost synergies in technology and operations; revenue synergies through shared commercial models, manufacturing of products such as insurance, asset management and treasury, and synergies in governance, which include shared models of risk management, financial control, accounting and corporate governance.

  7. Subsidiary model: Each unit is responsible for its own capital and funding.

  8. Sáenz pointed out that the Santander subsidiary model is based on units having a strong local presence and being financially independent, but with strong operational integration within the Group. "We have a business model that allows us to have greater value than the sum of our parts," he said. 

The Group's businesses can be divided into three large blocs. In each one of them, Santander is able to obtain very good results, Sáenz said.

  1. Markets in which provisions are still at cyclical highs: Spain and Portugal. We will work to recover profit we have lost in the last few years. The task in these markets is to prepare for an improvement in the credit cycle, to actively manage margins, adapt the cost structure to market realities and gain profitable market share. "From 2011 to 2014 we are going to work to regain lost profit. Specific provisions show an underlying downward trend and we expect the credit cycle to start improving in 2012." We expect that in 2013 and 2014 Spain and Portugal will "generate an annual EUR 2 billion in free capital."

  2. Mature markets in which provisions are stable or falling: the U.K., Germany, the Nordic countries and the U.S: We must build strong business franchises and execute the operational integration of the units in the U.K. and the U.S. In the short-term, these units will have to absorb the impact of low interest rates, regulatory costs and integration. In the medium term, they will obtain "ROE in double digits and single-digit growth in profit."

  3. Emerging markets: Latin America and Poland. In the short and medium term our task is to build strong and efficient business franchises, with a balanced appetite for risk, increasing market share and growing profits by double digits.

Lastly, the CEO reviewed the main messages of each of the group's main units.

On the first day of the presentations, the heads of Santander's units in the U.K., Brazil, Chile, Mexico and the Santander branch network in Spain.

Santander UK

Santander UK aims to generate return on tangible equity of 16% by 2014, when the results of an intensive two-year investment programme of nearly £500 million will start to contribute to earnings. According to CEO Ana Botín, Santander UK's strategic plan for 2011 through 2013 is based on adopting the Santander Group retail relationship and customer-based model in the U.K. This will involve, among other things, a focus on rewarding existing customers through simple, value-added products. The bank is also actively developing new products and services for SMEs as well as integrating the branches acquired from RBS -- which upon completion will prove a transformational addition to Santander UK's business.
Despite strong regulatory and macroeconomic headwinds, Santander UK's efficiency and profitability will continue to be above that of its peers throughout this period. In 2014, Santander UK will have a more sustainable business model, a stronger balance sheet and more customers using more of its products.


Santander Brazil expects to grow its profit by 15% a year in 2012 and 2013, according to Marcial Portela, the country head in Brazil. Santander is the third largest private bank in Brazil, with 24 million customers, 3,700 points of service and 18,000 ATMs. Against the expected outlook for the Brazilian economy in coming years - sustained annual growth in GDP of around 4% between 2011 and 2013 and a low credit-to-GDP ratio - Santander Brasil has a strong capital base, prudent risk management, the international experience of the Group, and the boost of its newly rolled-out and robust core banking platform. These strengths will help to grow the customer base in numbers and in products per customers, opening between 100 and 120 branches a year in the next three years and increasing market share in key business such as mortgages, credit cards and consumer finance, with annual growth in lending of between 15% and 17% in the next two years.

Santander branch network in Spain

In one of the most difficult economic situations ever for the Spanish economy and financial system, the Santander branch network expects to exceed 2010 earnings, due to improved margins (and average gross margin of 6% through 2013) and lower provisions. The head of the Retail Banking division in Spain, Enrique García Candelas, affirmed that "we are meeting the targets we set for ourselves" when we set out our priorities for managing through the crisis. Among the main challenges, he cited "improved customer margins and recurrence in revenues, keeping costs flat and maintaining installed capacity, with a 20% reduction in the funding gap. He highlighted that NPLs in the Santander branch network are below the average for the system, with lower needs for specific provisions from 2012.
García Candelas said he expects the loan book to decline by 3% and deposits to rise by 5% a year on average through 2013. The goal is to maintain "growth in capturing and retaining customers," with a focus on "attracting profitable customers." Along these lines, he said the aim is to capture 55,000 customers and one percentage point of market share in the corporate, business and public institutions segment. Moreover, the Santander branch network expects to strengthen its leadership in personal and private banking and increase multichannel banking among mass market individuals.


Santander Chile is the largest banking group in Chile. Its main strength is commercial and retail banking, in which it has markets shares of 20% in terms of lending and customers. According to Claudio Melandri, General Manager of the bank, Santander Chile is the market leader in efficiency and profitability, with 3.4 million customers and the country's largest network of branches and ATMs. Based on estimates of growth for the Chilean economy of between 4.5% and 6.5% through 2013, with low inflation, Santander Chile expects to maintain double-digit growth rates, expanding its model of Prime Banking to 100% of the segment, increasing cross-selling in the mass market and improving its efficiency ratio to around 35%-36%.


Marcos Martínez Gavira, country head in of Santander in Mexico, highlighted that the bank has registered the best performance in the market and is more profitable than the sector average. The demography and structure of the Mexican population, together with a solid, growing economy and increasing financial intermediation, represent unique opportunities for growth and the development of financial services in the country. With a clear and diversified business model, Santander has enormous medium-term growth potential, with an annual increase in net profit of between 15% and 20% in 2012 and 2013.


Santander Río in the leading private bank in Argentina, with market shares of 10% in lending as well as deposits. The bank has been growing profits without interruption since 2003, maintaining high levels of ROE. A retail bank with 2.3 million individual customers with segmented products, it also serves 120,000 small and medium enterprises. In the next two years, Santander Río expects to grow by 25% in new lending as well as deposits, while keeping NPLs below 1%, according to Argentina country head Enrique Cristofani.

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