EMILIO BOTIN, CHAIRMAN

BANCO SANTANDER INVESTOR DAY 2011

30th September 2011

Good afternoon ladies and gentlemen.

I am delighted to be in London with this very special audience for the closure of the 2011 Banco Santander Investor Day.

During this Investor Day you have heard from the key management of the Group. I hope this has been useful for you to understand our strategy for the coming 3 years.

In September 2007, during our first Investor Day, I told you

"We are a bank that knows how to adjust our ambitions to our capabilities.

"We have never gone too far … but we have also never stayed one metre behind our possibilities."

This philosophy and Banco Santander's business model have proved to be the right ones to overcome the last four years of financial crisis and regulatory changes.

Since 2007, we have shown average annual net profits of 8 billion euros, or total net profit of 35 billion euros, the third largest in global banking.

We have distributed a total of 19 billion euros to our shareholders during last 4 years of economic crisis.

And recent results of the EBA stress test shows that in an adverse scenario over the next two years, Santander would be the most profitable European bank, with the highest dividend and highest retained earnings.

Banco Santander's earnings today are clearly below its potential. 2012 will be a year similar to the current one. From 2013 onwards, the macroeconomic and financial environment should progressively improve.

Assuming the same perimeter, I expect Banco Santander to achieve a Return on Equity of 12% to 14% and a Return on Tangible Equity of 16% to 18% in 2014, well above current levels. The lower range of this estimate considers a macroeconomic scenario in line with the current market outlook of a progressive improvement but very limited economic growth and low interest rates over the next two years.

This should lead to a significant revaluation of our current share price. In addition, Banco Santander's unique business model and positioning have significant benefits for our shareholders in the present difficult environment:

Less earnings volatility than our peers

    • with more growth potential

    • a stable dividend payout, 

    • clear strategic focus without changes

    • our strong balance sheet

And more capacity to create value to shareholders given our high profitability

Finally, we are the most liquid stock in Europe and among the top 10 globally.

In short: Banco Santander is a "high-yield, low-risk" investment opportunity.

I know some of you will be sceptical about this, but I make this claim for three very good reasons, which I will elaborate on during my speech:

First, Banco Santander is stronger today than before the crisis

Second, Santander has a unique strategic position among global banks

And third, Banco Santander has a clear strategy to create value for shareholders in coming years

FIRSTLY, BANCO SANTANDER IS STRONGER TODAY THAN BEFORE THE CRISIS

Since our last Investors day in 2007 we have gone through very difficult times:

a global financial crisis with many banks needing government support,

economic recession in many developed countries,

a sovereign debt crisis in Europe,

significant market volatility

and the definition of a new regulatory framework for financial institutions.

Banco Santander faced the crisis from a position of strength, with

a solid retail and commercial banking model,

a strong balance sheet

and unique geographical diversification with

45% of earnings in Latin America,

35% in the UK, the US and Continental Europe

and 20% in Spain and Portugal.

Over the last 4 years of economic crisis, Banco Santander has achieved three targets that I consider to be as important as the last 20 years of successful growth:

FIRST, our profits have remained stable and we have maintained our remuneration per share. Strong earnings growth in Latin America has offset weakness in Spain and Portugal.

SECOND, we have significantly strengthened our capital and liquidity:

Our core capital ratio has increased from 6.2% in 2007 to 9.2% today. In addition, we have maintained a very conservative provisioning policy with over 30 billion euros in the last 3 years.

Our loan-to-deposit ratio has fallen from 159% to 116% and we have increased our liquidity position in our full balance sheet.

THIRD, Banco Santander has been able to grow during the crisis on three fronts:

Through strategic acquisitions: We completed the acquisition of Banco Real and Sovereign. We acquired Alliance & Leicester and Bradford & Bingley in the UK, SEB in Germany and Bank Zachodni WBK in Poland.

Far greater global awareness of the Banco Santander brand. Five years ago, we were number 23. Now Santander is the fourth most important brand globally according to "Brand Finance."

We have increased our market share organically in Spain, the UK and in Consumer Finance.

In Banco Santander, we do not look for easy earnings. Before the crisis, we didn't get into complex securitizations of U.S. mortgages and, more recently, we have kept our exposure to sovereign risk at very low levels. We have a conservative liquidity position and our business is client driven with no role for Proprietary Trading.

In short, we have used our strength to become stronger and grow during the last few years

SANTANDER'S UNIQUE STRATEGIC POSITIONING

I will now move on to my second point.

Banco Santander has a unique strategic position compared to other Global banks, in five main ways:

First, geographic diversification with the right balance between emerging and developed markets

Second, a very prudent culture of risk management and focus on retail banking

Third, a model of subsidiaries that are autonomous in funding and capital

Fourth, Santander is a well-integrated Group with corporate systems generating significant synergies so that the value of the Group is higher than the sum of the parts.

Our "Santander model" allows us to add value to our subsidiaries, contributing with costs savings and additional revenues from our global business units.

And fifth, the Santander brand and our corporate responsibility programme with its unique cooperation with Universities

As a consequence of these five factors, Santander has one of the highest returns on capital among global banks with a Return on Tangible Equity of 14.5%.This "per se" also becomes a competitive advantage against peers.

The first factor is Santander's Geographic Diversification

Santander is present in 10 core markets. Five of them are emerging countries and another five developed countries. This is unique among global banks:

In Latin America we are the leading global financial institution, with around double the size of our closest competitor.

In Brazil we are among the top three banks, a position that is now probably impossible to achieve, for other global banks.

In Europe, Santander is the only bank with a top three position in retail and commercial banking in three countries.

In each of our 10 core markets, we aim to achieve a market share above 10% and become one of the top three banks in retail and commercial banking

Five core markets are in emerging countries: Brazil, Mexico, Chile, Argentina and Poland. They account for 48% of our profits.

Another five core markets are in developed countries: the U.K., Spain, Portugal, Germany and the U.S. They account for 52% of our profits.

To have critical mass in each of these 10 core markets allows Banco Santander to:

be efficient and competitive in the local market

consider the potential listing of the subsidiaries when this creates value to the Group

and be an active player in the consolidation of the local financial sector

The second factor is, Santander's culture of prudent risk management and focus on retail and commercial banking

Matías Rodríguez Inciarte has presented in detail this morning on Banco Santander's prudent risk culture, which has always been a key pillar of Santander's success, especially over the last four years.

Let me underline five basic concepts:

Our model of risk management is based on close involvement of the Board and independence from the business lines.

Our risk management model, policies and practices are global, assuring that we have a complete view of the Group's risks.

Santander follows a very disciplined risk policy. We never go into areas that we don't know well or deviate from our model of low-risk commercial banking.

Our Group follows a policy of building strong provisions and reserves to strengthen our balance sheet. This way we are able to better overcome the business cycles.

As a result, we are able to consistently outperform our peers in risk quality in the various countries in which we operate.

The third factor is Santander's subsidiary model, with some units listed in their local stock market

Our business model of subsidiaries that are autonomous in funding and capital is reinforced through the listings of some of our subsidiaries.

All of our subsidiaries manage their own liquidity without any assistance from the group. We have access to debt capital markets in 10 different countries globally.

Listing subsidiaries has significant strategic and regulatory advantages.

  • Listed subsidiaries allow us to have access to capital at group level or at subsidiary level in a fast and efficient manner, always choosing the best alternative for our shareholders. A clear example was the IPO of Brazil in 2009 in the middle of the crisis.

The shares of our subsidiaries become an attractive currency for local acquisitions and, hence, we can avoid investing capital from the Group level if we decide to.

Listing subsidiaries increase valuation visibility of our business units

Listing subsidiaries guarantees the highest level of transparency and corporate governance, reinforces the Santander brand in the local market and becomes a significant incentive for local management.

Finally listing subsidiaries is welcome by both the Group regulator and the local market regulator as it has significant advantages in the new regulatory framework. Let me mention three:

One: It sets real firewalls among different markets improving the definition of the group Living Will and driving to real diversification of risk.

Two: Local subsidiary access to equity capital markets independent from the group is very attractive and sometimes "a requirement" from local regulators.

Three: The Group reduces its systemic risk. Indeed, we expect Santander's "systemic risk capital requirement" as a "SIFI" to be lower than many of our peers due to our business model.

Banco Santander combines the financial flexibility of subsidiaries with a high degree of integration, which is the fourth factor of our unique strategic position.

As Alfredo Saenz, has explained yesterday, Banco Santander operates as a well integrated Group creating significant group synergies and therefore, higher earnings than what the different countries would achieve as stand alone banks.

Banco Santander cost income ratio in 2010 was 43.3%, well below the average of our peers of 59.4%. This is explained by our global footprint and our high group synergies.

We have central purchasing and a single brand, but what makes Santander different is our Corporate Systems that we roll-out across the Group allowing us to achieve four goals:

Cost synergies as we share the same core banking system across the Group.

Revenue synergies as Corporate Systems allows us to develop Santander business model of customer service with global business strategies exporting best practices from one country to another.

Corporate Systems reinforce the Santander Culture, with special importance placed on risk management, and allow us to better control our operations globally.

Finally, we can invest in a more efficient way than our peers as we share the systems globally. Banco Santander has been the European bank with the highest investment in R&D in 2010.

These Group synergies are not easy to replicate as they have taken us 10 years of hard work. We have significant potential for the coming years.

The fifth factor is, Santander's brand and our global cooperation with Universities

Since 2005, we have had a strategy of adopting a single global brand. In 2010, we made Santander the single brand in the U.K. and in Brazil. Here in the UK, 90% of the population now knows the Santander brand.

As I said before, we are now the fourth financial institution brand in the world.

The Santander brand represents:

Our leadership globally and in the local market

Strength, trust, security and the Santander model of client care and service

and finally, Sustainability. We are proud to be named "The greenest bank in the World" according to Bloomberg and to be ranked among top 15 financial institutions in Dow Jones Sustainability index.

The Santander brand is a key intangible asset in facing our customers. This is critical to attract the best talent and create a Santander culture.

Most importantly, we have achieved this leap in our global brand awareness through centralized management. This has allowed us to reduce the ratio of our marketing budget to revenues from 2.1% to 1.5% in the last four years.

Within our corporate responsibility strategy, let me highlight Santander's programme of cooperating with Universities around the world.

At Banco Santander, we believe that supporting Universities is the best investment that can be made. Fifteen years ago, we began to cooperate with the academic world in Spain and now we have a global programme with:

961 agreements with Universities in 15 countries

We provide annually 17,000 university scholarships.

Last year we launched more than 4,000 projects and we invested 100 million euros in our programme of collaboration with Universities worldwide.

As a consequence of the five factors mentioned above, Santander has a higher Profitability on Capital than its Peers

Banco Santander Return on Tangible Equity calculated on recurrent earnings is currently 14.5%, well above the levels of most of our peers.

Driven by higher earnings in Spain and Portugal and by organic growth in other countries we expect our Return on Tangible Equity to be 16% to 18% in 2014 assuming the same perimeter

High profitability is a key competitive advantage for Banco Santander as it allows us to:

Maintain a dividend payout of around 50% of net profit in good and in bad times and, at the same time, generate organic capital of a minimum of 60 basis points per year. Banco Santander has generated 17 billion euros of organic capital, or more than 300 basis points, during the last four years.

Let me now move on to the third section: SANTANDER'S STRATEGY TO CREATE VALUE FOR SHAREHOLDERS IN THE COMING YEARS

Over the next few years, we expect:

Mature markets will continue to delever and the world economic recovery will be gradual, led by emerging markets, with increasing visibility in 2013 and 2014.

Market volatility will come and go

Regulatory requirements will continue to increase

Regarding Europe, despite the current uncertainties, I consider that important steps are being taken. Yesterday the German Parliament approved the amendment of the European Financial Stability Facility with a majority vote. This is a step in the right direction. It is clear that more coordination in the economic policies in Europe is needed, but I am fully confident that Europe will find the way toward a stable and strong Eurozone.

In this environment, many of our competitors have recently announced significant changes in their strategy. Some of them are closing businesses or adapting their approach.

Banco Santander will maintain its strategy and business model, as we believe they fit very well with the new regulation and already incorporate the key pillars for a competitive global bank in the future.

Let me summarize the main drivers of value creation in coming 3 years:

First, Organic Growth and higher profitability:

Increase in profitability of our business in Spain, driven by lower provisions and higher margins, especially from 2013 onwards.

We will continue to deliver strong growth in earnings in emerging markets, which account for 48% of our earnings.

We will gain market share in developed countries like the US, the UK and Germany where we are finishing the implementation of our "Santander Model" of technology and costs and our commercial strategy.

Let me give you just a brief "high-level" comment on the 10 core markets where we operate:

Spain: We have hit the bottom and we expect 2012 to be similar to 2011. From 2013 onwards we expect a gradual normalization of provisions, non-performing loans and funding cost.

I believe that Spain's contribution to earnings can be the biggest positive surprise for investors in the coming years.

I am convinced that Spain will bring the biggest positive surprise for investors.

We have enough scale in Spain with two very competitive banks, Santander and Banesto. Further consolidation in the sector should allow us to continue gaining market share organically.

Regarding real estate assets in Spain, we have given details of our exposure. Our current provisions are well above the regulatory requirements. We revise our internal models periodically and increase our provisions if required. In a very conservative scenario, we are expecting to have a similar provision charge in 2012 as in 2011. From 2013 onwards, we expect a downward trend in provisions.

Portugal: We have a strong liquidity and capital position with a core capital ratio above 10%. We expect to show profits in 2011 and 2012.

The United Kingdom: Today we have over 25 million customers who we serve on our common IT platform. We are seen as one of the strongest banks in the UK.

We are currently working on the integration of RBS branches, a truly transformational deal for the UK, which will provide us with critical mass to compete in the Small and Medium Enterprise and Corporate segments.

We are building a full-service clearing bank with a customer-centric model, combining our strength in risk management and innovation. This will allow us to deliver more recurrent revenues over the cycle.

Regarding the Santander UK IPO, given the current market environment and regulatory uncertainty, we do not expect to launch the IPO before 2013. We will launch it when market conditions are there to create value for the Group.

One comment on regulation in the UK. There is a risk that current banking reform initiatives combined with tight global liquidity could constrain economic growth in the UK. We all need strong banks that can provide credit to all clients and customers at all times.

From a global perspective, I consider that keeping a level playing field should be a priority for the UK, especially as a leading global financial centre.

Germany: We are a leading bank in consumer finance and we are becoming a universal bank following the recent acquisition of SEB. Germany is the largest European market and a core element for the future European financial industry.

The U.S.: We are in the U.S. to stay. We have a profitable consumer finance business and Sovereign Bank. We see significant growth potential for both in the coming years. In the medium term, we would like to be one of the leading banks in the States where we operate.

Brazil: We have finalized the integration of two very good banks in Brazil. A complicated process that has been executed successfully but has taken us longer than expected and has required management focus on the integration.

Now, after the successful integration, our focus is business growth supported by our very strict and conservative risk culture.

We expect Brazil to maintain resilient economic growth in coming years and our business in Brazil to grow driven by the expansion of our distribution footprint and further development of business partnerships. Growth in Small and Medium Enterprise customers will be very important for us in the coming years.

Mexico: We are the third banking franchise, we have developed a multichannel platform and become the most efficient bank in the country. We are strongly placed in the most profitable business segments and willing to grow with Mexico in the development of a deep financial market.

Argentina: We have the leading bank in profitability in Argentina with a very low risk profile as it focuses on transactional business. Future economic growth of Argentina will lead to a significant increase in credit penetration in the country.

Chile: We are the leading financial institution in Chile with 20% market share. Our current strategic focus is to increase client productivity and develop a well integrated risk management model.

And, finally, Poland: Our latest acquisition has been the best bank in Poland, with an excellent management team. As part of Santander Group, we will be able to achieve high earnings growth in the coming years. We target a market share of 10 per cent in the medium term in Poland.

Another key pillar of value creation in the coming three years will be our active Portfolio management with a balanced strategy of Acquisitions and Disposals:

Over the last three years the value of Banco Santander acquisitions is roughly the same as the value of our disposals. Both around 14 billion euros.

We consider the Financial Sector will continue to consolidate in many countries and globally. Some of our Peers will continue to sell businesses due to lack of scale or lack of efficiency.

Very strict acquisition and disposal criteria have become more important than ever given the higher cost of funding and capital.

This has been our policy in the past and will continue in the future. In current market environment our financial criteria for acquisitions get reinforced as we maintain our target of achieving a higher Return on Investment than Cost of Equity and also a positive contribution to EPS in three years.

Given our subsidiary model, we can use local shares for future acquisitions in the local market reducing the capital invested by the Group while creating significant synergies potential.

Finally, capital is another pillar of value creation in the coming three years:

We have a core capital ratio above 9% under Basel II. Capital strength is a key management principle for Banco Santander.

Our organic capital generation will keep our core capital ratio under Basel III above 9% by 2013 and getting closer to a 10% ratio, without any capital increase.

CONCLUSION

Let me conclude my speech and these two days of presentations with six key ideas:

First, Banco Santander's business model has proved to be highly robust during the last 4 years of financial crisis, due to our focus on commercial banking, our geographical diversification and our prudent risk culture.

Second, Banco Santander has a unique strategic position to face the new regulatory and competitive environment in global financial services. We combine the financial flexibility of subsidiaries with a well integrated Group with significant group synergies. We combine high-growth markets with strong positions in developed countries.

Third, Banco Santander's balance sheet is very transparent. Our Balance sheet integrity and resilience in the most adverse scenario is a key pillar of our Group. We have shown, over the past two days, our limited sovereign risk position and all details of our exposure to real estate in Spain. Neither these two or any other positions could affect in a material way our results.

Fourth, Banco Santander has a clear capital management policy. Except for our annual optional scrip dividend, we do not need to tap our shareholders to maintain our core capital ratio above the minimum regulatory requirement. This is due to our high profitability, earnings power and our strict capital management discipline. The recent EBA stress test has proved our strength in capital even in the most difficult scenarios.

Fifth, in 2014 we expect to achieve a Return on Equity of 12% to 14% and a Return on Tangible Equity of 16% to 18% assuming the same perimeter.These objectives are aligned with a core capital ratio above 9%. The key drivers to achieve these higher profitability levels will be:

  • Progressive normalization of profits in developed markets, especially Spain.

  • Structural growth in our emerging markets

  • And further optimization of group costs and revenues through our global management

By achieving our expected Return on Equity and Tangible Equity mentioned before, we will deliver fully diluted EPS annual growth of around 10% from 2011 to 2014. Therefore, we expect to be able to increase the remuneration per share to shareholders from 2013 onwards.

Sixth, we are not planning any significant acquisition or divestment in coming years. The geographical diversification of our global platform gives us the right balance.

Finally, behind the successful execution of the six ideas mentioned before is Banco Santander excellent management team which you have met during the last two days. Santander has a strong culture of execution which is today more important than ever. The internal development of our management team and to be able to attract the best talent will continue to be a central pillar in our strategy.

The current share price of Banco Santander, trading at a multiple of 0.7 times Price to Book does not reflect our value.

The achievement of Banco Santander's estimates should lead to a significant revaluation of Banco Santander's share price. Together with the current 10% dividend yield, Santander offers a very attractive potential return.

I hope that during my speech I have been able to convince you that Santander is a "high yield - low risk" investment opportunity.

Thank you very much for your attention.

DISCLAIMER:

Banco Santander, S.A. ("Santander") cautions that this speech contains forward-looking statements. These forward-looking statements are found in various places throughout this speech and include, without limitation, statements concerning our future business development and economic performance. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. The risk factors that we have indicated in our past and future filings and reports, including those with the Securities and Exchange Commission of the United States of America (the "SEC") could adversely affect our business and financial performance. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.

Forward-looking statements speak only as of the date on which they are made and are based on the knowledge, information available and views taken on the date on which they are made; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The information contained in this speech is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the speech. In making this speech available, Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever.

Neither this speech nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this speech is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000.

Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this speech should be construed as a profit forecast.