Emilio Botín: "We expect to be able to increase shareholder remuneration from 2013 onwards."

"Santander will obtain ROE of 12-14% and ROTE of 16-18% in 2014. We will deliver fully diluted earnings per share (EPS) annual growth of around 10% from 2011 to 2014."

"Spain can be the biggest positive surprise for investors in the coming years. We expect 2012 to be similar to 2011. From 2013 onwards we expect a gradual normalization of provisions, non-performing loans and funding costs."

"We will continue to deliver strong growth in earnings in emerging markets and we will gain market share in the U.S., the U.K. and Germany."

"Our organic capital generation will enable our core capital to get closer to a 10% ratio in 2013, without any capital increase"

"The current share price of Banco Santander does not reflect our value. Achieving our estimates should lead to a significant revaluation of our share price. Santander's dividend yield stands at 10%. Santander is a "high-yield, low-risk investment opportunity"

"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".

London, September 30th 2011 - Banco Santander Chairman Emilio Botín said Banco Santander's business model "has proved to be the right one to overcome the last four years of financial crisis and regulatory changes." During his speech at the closing of the two-day meeting with analysts and investors that the bank held in London this week, Botín pointed out that since 2008 the bank has registered average annual net profits of EUR 8 billion (or total net profit of EUR 32 billion), has distributed dividends of EUR 19 billion to shareholders. Moreover, according to recent results of the EBA stress test, in an adverse scenario 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", Botín said. He added that 2012 will be a similar year to the current one. From 2013 onwards, the macroeconomic and financial environment should gradually improve. "Assuming the same perimeter, I expect Banco Santander to achieve a Return on Equity (ROE) of 12% to 14% and a Return on Tangible Equity (ROTE) of 16% to 18% in 2014. This should lead to a significant revaluation of our share price," Botín said.

Botin is convinced that "Santander is a "high-yield, low-risk investment opportunity," mentioning three reasons that justify this view: "Banco Santander is stronger today than before the crisis; has a unique strategic position among global banks; and a clear strategy to create value for shareholders in coming years."


Botín said: "Over the last four 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:

Our profits have remained stable and we have maintained our remuneration per share.

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 more than EUR 30 billion provisions in the last three years. Our loan-to-deposit ratio has fallen from 159 per cent to 116 per cent.

Banco Santander has been able to grow during the crisis on three fronts: Through strategic acquisitions; an organic increase of our market share in Spain, the UK and in Consumer Finance; and a far greater global awareness of the Banco Santander brand;

Unique strategic positioning

Regarding the strategic positioning, he highlighted geographic diversification: "Santander is present in 10 core markets. Five of them are emerging countries (Brazil, Mexico, Chile, Argentina and Poland), contributing 48% of profit, and another five developed economies (Spain, U.K., Portugal, Germany and the U.S.), which contribute 52% of profit. This is unique among global banks. In each of our 10 core markets we target to achieve a market share above 10% and become one of the top three banks in retail and commercial banking." He added that having critical mass in each of these 10 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.

He also spoke about the "culture of prudent risk management and focus on retail and commercial banking and independent 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, building strong provisions and reserves to strengthen our balance sheet. This way we are able to better overcome the business cycles."

Botín insisted on the strategic and regulatory advantages of having a model of subsidiaries which are autonomous in funding and capital. "All our subsidiaries manage their own liquidity without any assistance from the group. We have access to debt capital markets in 10 different countries globally," he said. Listing subsidiaries has significant strategic and regulatory advantages. It allows us to have access to capital at group level or at subsidiary; it makes the shares of our subsidiaries an attractive currency for local acquisitions; increases valuation visibility of our business units; 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.

"Santander combines the financial flexibility of subsidiaries with a high degree of integration, creating significant group synergies and, therefore, higher earnings than what the different countries would achieve as stand alone banks." He highlighted that Santander's efficiency ratio stood at 43.3% in 2010 "well below the average of our peers, at 59.4%."

"What makes Santander different are the corporate systems that we roll-out across the Group, allowing us to achieve cost and revenue synergies; to reinforce Santander's culture with special importance on risk management and better control of our operations globally; and finally, to invest in a more efficient way than our peers. We still have significant potential for the coming years," he added.

He also talked about the importance of adopting a single global brand strategy, as well as the global cooperation with universities, with specific agreements and cooperation projects in the field of higher education where the bank invested EUR 105 million in 2010.

"As a result, Santander has a higher profitability on capital than its peers. Banco Santander's Return on Tangible Equity (ROTE) calculated on recurrent earnings is currently 14.5%, well above the levels of most of our peers. High profitability is a key competitive advantage for Banco Santander as it allows us to maintain a dividend payout of around 50 per cent 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 EUR 17 billion of organic capital or more than 300 basis points, during the last four years."

Strategy to create value

Botín said: "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 remain and regulatory requirements will continue to increase.

In this environment, many of our competitors have recently announced significant changes in their strategy. 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."

The Banco Santander Chairman mentioned the main drivers of value creation in the next three years: organic growth and higher profitability; active portfolio management with a balanced strategy of acquisitions and disposals; and capital strength.

Regarding organic growth and higher profitability in Santander's ten core markets, Botín pointed out the larger contribution to profit of the businesses in Spain driven by lower provisions and higher margins, especially from 2013 onwards. He added: "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 U.S., the U.K. and Germany where we are finishing the implementation of our Santander model of technology and costs and our commercial strategy."

Regarding Spain, Botín said: "We have hit 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 costs. I believe that Spain's contribution to earnings can be the biggest positive surprise for investors in the coming years. We have real estate provisions 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 than in 2011 and a downward trend from 2013 onwards. 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."

With regard to the U.K., Botín said: "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." He also commented on regulation: "There is a risk that current banking reform initiatives combined with tight global liquidity could constrain economic growth in the U.K. We need strong banks that can provide credit to customers at all times." He pointed out that the acquisition of the RBS branches "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 Brazil, the Banco Santander chairman said: "We have finalized the integration of two very good banks in Brazil. We expect our business in Brazil to grow driven by the expansion of our distribution footprint and further development of business partnerships." As to other core markets, he pointed out that Portugal will show profits in 2011 and 2012"; that "we are in the U.S to stay"; and that in Poland "we target a market share of 10 per cent in the medium term."

He highlighted the importance of an "active portfolio management with a balanced strategy of acquisitions and disposals. Over the last 3 years the value of Banco Santander acquisitions is roughly the same as the value of our disposals. Both around 14 billion euros. Very strict acquisition and disposal criteria are 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."

He also mentioned the importance of capital. 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."

Lastly, Botín reviewed the main conclusions of the Investor Day:

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

  2. "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 synergies. We combine high-growth markets with strong positions in developed countries."

  3. 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 details of our exposure to real estate in Spain. Neither these two or any other positions could affect in a material way our results.

  4. "Banco Santander has a clear capital management policy. We do not need to tap our shareholders to maintain our core capital ratio above the minimum regulatory requirement, except for our annual voluntary scrip dividend."

  5. "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%.and would generate fully diluted EPS annual growth of around 10% from 2011 to 2014. Therefore, we expect to be able to increase the remuneration per share from 2013 onwards."

  6. "We are not planning any significant acquisition or divestment in coming years. Our geographical diversification gives us the right balance."

Botin ended his speech with a message of confidence regarding the Santander share. "The current share price of Banco Santander does not reflect our value. Achieving our 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. Santander is a high yield, low risk investment opportunity, he said.


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.