2Q09 Results Boadilla, July 2009
Important Information 2 Banco Santander, S.A. ("Santander") cautions that this presentation contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. These forward-looking statements are found in various places throughout this presentation 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 and other key 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. The information contained in this presentation 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 presentation. In making this presentation 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. 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 there from. Nothing contained in this presentation 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, historical share price or financial accretion are not intended to mean that future performance, historical 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 presentation should be construed as a profit forecast. Note: The results information contained in this presentation has been prepared according to Spanish accounting criteria and regulation in a manner applicable to all subsidiaries of the Santander Group and as a result it may differ from the one disclosed locally by Banco Santander
Agenda 3 Macroeconomic scenario and review of banking system 2009 - Strategy and business -Results
Macroeconomic Scenario 4 2009: low growth and inflation allows for sharp decrease in interest rates GDP (YoY Growth, % ) Internal Demand (YoY growth, %) 4.7 3.2 3.4-0.5 7.8 7.4-4.3 5.3 2007 2008 2009 (f) 2010 (f) 2007 2008 2009 (f) 2010 (f) Inflation (Chg. CPI, %) Central Bank Reference Rate (%) 7.8 7.1 6.0 8.3-0.4 3.6 0.5 2.0 2007 2008 2009 (f) 2010 (f) 2007 2008 2009 (f) 2010 (f) Source: Central Bank. (f): Forecast Santander Group
Macroeconomic Scenario 5 Slowdown should tend to revert in 2nd Half 2009 Economic Expectations* GDP (YoY Growth, % ) 43 41 39 41.4 40.4 4.6 37 35 33 31 33.4 34.6 35.4 36.1 1.2 2.6 3.1 29 27 25 0.2-2.1-1.0-0.2 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 3Q08 4Q08 1Q09 (f) 2Q09 (f) 3Q09 (f) 4Q09 (f) 1Q10 (f) 2Q10 (f) * Economic Expectations Index. Percentage of population that is optimistic about economic outlook in 12 months minus percentage that is pessimistic. Source: Adimark-GfK, Central Bank of. (f): Forecast Santander Group.
Banking System: Customer funds growth 6 Growth rate of customer funds falls; recovery of mutual funds Customer Funds, constant US$ billion* 111 Total Costumer Funds 119 131 137 141 22 23 Mutual funds 26 21 30 21.2 19.7 18.7 15.2 10.3 39.7 27.7 19.2-7.2 10.3 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Demand deposits Time deposits 20 12.6 23 24 20.8 22.7 26 26 9.0 10.2 81 69 72 18.7 17.0 17.4 90 24.2 84 6.9 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Volume YoY growth, % * Using the exchange rate as of 2Q09. Source: Superintendency of Banks of Jun.07 Dic.07 Jun-08 Dec-08 Jun-09
Banking System: Loan growth 7 Corporate Lending slows as external liquidity improves and peso appreciates Loans, constant US$ billion* Total loans Corporate lending 99 110 121 133 127 63 70 77 86 80 17.4% 21.3% 23.6% 20.9% 7.3% 16.3% 21.6% 24.6% 22.9% 6.7% Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Consumer lending Residential mortgage** 14 15 16 16 16 23 25 28 31 31 18.8% 15.3% 15.8% 9.7% 1.4% 15.8% 15.3% 14.7% 13.8% 9.0% Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Volume YoY Growth, % * Using the exchange rate as of 2Q09. ** Residential mortgage change in real terms. Source: Superintendency of Banks of
Agenda 8 Macroeconomic scenario and review of banking system 2009 - Strategy and business -Results
Our franchise 9 Santander : the strongest banking franchise in June 2009 Bn US$ Market Share* Rank Loans: 26.2 20.3% 1 Deposits: 20.7 20.0% 1 Customer funds: 27.2 20.4% 1 Net income: 423 US$mn 34.6% 1 Attribut. net income 343 US$mn Clients: 3.0 millions 41.3%** 1 Branches: 502 24.0% 1 ATMs 1.929 31.6% 1 * As of may 2009. ** Over workforce. Market share, Source: Superintendencia de Bancos de, latest available information
Business: Market Share 10 Market share falls slightly due to focus on profitability Santander : market share, % Loans Individuals - Consumer + Credit cards -Mortgage Loans to companies* Customer funds Share May. 09, % 20.3 24.6 25.3 24.2 17.8 Change in last 12M (basic points) -16-47 -86-20 -2 20.4-21 * Includes Government and lending to SMEs, Middle-market and Corporate. Source: Superintendency of Banks of Focus on selective growth and liquidity over market share. As of May 2009, Santander generated a record level 34.6% of Net income of an financial system, reaching the highest ROE among all banks.
Liquidity 11 Healthy liquidity position 18.7 Balance Sheet Structure US$ billion 4.2 7.5 Mortgage 5.0 Loans Other Loans 6.5 14.2 Liabilities Permanent Liabilities Bonds Time Dep Institutional Sight + Time Dep Retail 11.5 Core funding* at 114% of loans Pension funds deposits represent 12% of core funding, with greater duration than retail deposits Additionally, the Bank has US$ 4.8 billion in liquid assets, mainly Banco Central de notes (74%) * Core deposits, bonds, long-term institutional deposits and equity
Capital 12 High capital base Capital ratios, % Dec. 2008 Jun. 2009 BIS RATIO 13.8% 15.1% CORE CAPITAL 10.1% 11.1% TIER II 3.7% 4.0% Santander : best risk rating in Latin America Deposits: Senior Bonds: Sub-Bonds: S&P: A+ A+ A Moody s: A1 Aa2 Aa3 Fitch: A+ Local ratings (Feller & Fitch): AAA senior, AA+ subordinated Active management of RWAs
Capital 13 High return / High capital level BIS Ratio vs. pre tax ROE; may 2009 Return on capital (before taxes) Santander reaches the highest ROE among all an banks Source: Superintendency of Banks of. Santander s figures correspond to the Bank, not to the Group.
Our Strategy 14 Strategy 2009-10 centered on 4 objectives Santander : Strategic drivers 2009-2010 1. Active management of risk and recoveries to attenuate impact of the weak economy 2. Increase in efficiency; focus on productivity gains / control of recurring costs to compensate probable slowdown in growth of income 3. Selective growth of business: focus on customer funds, loans to middle/high income individuals and companies and spreads 4. Increase of cross-selling and product usage of the current clients base to boost fees
Business: Customer funds 15 Decrease in interest rates moves customer funds from deposits to mutual funds Customer funds, constant US$ billion* 23.6 14.0 Customer funds 28.5 27.4 27.2 26.0 17.2 16.1 9.5-0.9 06.30.09 Bn US$ Sight 5.0 Mutual Funds 6.5 Annual growth rate,%* 0.1% Time and others 15.7-4.6% 8.6% Total 27.2-0.9% 06.30.07 12.31.07 06.30.08 12.31.08 06.30.09 Volume YoY Growth % Bonds** 5.0 10.4% Lengthening funding term to further strengthen liquidity * Constant exchange rate as of 6M09. ** Senior and subordinated
Business: Loan growth 16 Slowdown of retail loans, offset by Corporate segment Loans, constant US$ billion* Retail loans 12.8 14.0 15.3 16.4 16.1 19.7 15.7 16 16.7 5.1 06.30.07 12.31.07 06.30.08 12.31.08 06.30.09 Retail volume YoY Growth % 06.30.09 Bn US$ Annual growth rate,%* Individuals** 11.9 6.2% Consumer + C. cards 3.6 0.6% Mortgage 7.5 10.2% SMEs 4.2 2.2% Total Retail 16.1 5.1% Middle-Market*** 4.8-6.1% Commercial 20.9 2.3% Corporate 4.4 8.3% Total**** 26.2 1.5% * Constant exchange rate as of 6M09. ** Includes Others (past due loans and other loans to individuals). *** Includes Institutional lending. **** Includes other loans non-segment.
Business: Loan growth In individuals loan growth concentrated in low risk segments 17 YoY growth by segment as of 06.30.09, % (in oval) and percentage over total loans* Companies Chg. Vol. 09/08 Companies: 0.9% Individuals Chg. Vol. 09/08 Individuals: 6.2% 30.5% 2.2% 30.9% 7.1% 5.7% -14.8% 40.6% -7.1% 35.5% 35.8% -7.5% 32.9% 3.10% 11.7% 3.40% 30.5% 32.8% 52.2 % 19.5% 58.7% 8.3% Jun. 08 Jun-09 Corporate Institutional Large SM Es 2008 2009 M iddle-high M iddle M iddle-low * Relative weight of the segment over total of loans to individuals and companies
Conclusions: strategy and business 18 / Banking system has confronted well the current economic environment. Economic deceleration should reverse in the 2H09 Financial System shows a slowdown in customer funds. Corporate lending also slows as external liquidity improves and the peso appreciates Santander continues to show strong structural liquidity, solid capitalization levels and high profitability ratios Santander s strategy remains oriented to sustaining profitability in a scenario of lower growth & higher risks: Active management of the whole cycle of risk. Managing recoveries as a business Increasing efficiency: management centered on extracting value from current client base and new branches installed in the last 4 years Focus on selective growth of loans, funding, product usage and spreads
Agenda 19 Macroeconomic scenario and review of banking system 2009 - Strategy and business - Results
Results: Net interest income Client interest income rises 18.7% as a result of higher spreads 20 Net interest income Net interest income, constant US$ million* 411 22 483 70 471 0 5.1% 329 432 6M09 Client NII 889 6M08 749 Chg., % 09/08* 18.7% 389 413 471 444 445 Non-client NII -128 Net interest income 761 16 765 n/a -0.5% -115-13 2Q08 3Q08 4Q08 1Q09 2Q09 Client NII Non-client NII Total Quarterly Inflation rate** 2.17% 3.63% 2.21% -2.30% -0.13% Decrease of Non-client NII is explained by negative inflation in 1H09 * Constant exchange rate as of 6M09. ** UF Quarterly change, an unit indexed to the variation of the Consumer Price Index (CPI)
Results: Spreads 21 Growth in low risk segments places pressure on loan spread Deposit Spread, % Loan Spread, % Commercial Banking deposits Commercial Banking loans 3.2 3.5 3.2 2.0 1.9 5.5 5.2 5.4 5.9 5.9 1.8 2.0 2.0 1.2 1.1 4.7 4.5 4.6 5.1 5.2 Total deposits Total loans 2Q08 3Q08 4Q08 1Q09 2Q09 2Q08 3Q08 4Q08 1Q09 2Q09 Sharp decrease in interest rates impacts spread of non-interest bearing liabilities
Results: Fees + Insurance activity results 22 Moderate growth of fees Fees, US$ million* Fees and Insurance Activities 6M09 6M08 Chg., % 09/08* 127 14 133 132 15 14 125 13 130 12 113 118 118 118 112 Insurance** 74 72 2.8% Checking accts 40 46-13.0% Credit cards 40 34 17.6% Asset mgmt. 23 25-8.0% Foreign Trade 17 9 88.9% Cash mgmt. 11 9 22.2% Securities brokerage 7 7 0.0% Others 42 46-8.7% Total 255 247 3.2% 2Q08 3Q08 4Q08 1Q09 2Q09 Note: Fees 230 218 5.4% Fees Total Insurance activity Insurance Activity 25 29-13.8% * Constant exchange rate as of 6M09. ** Includes insurance brokerage fees and insurance activity results
Results: Gains on Financial Transactions 23 Fall in interest rates and deflation boosts Gains on Financial Transactions Gains on Financial Transactions, constant US$ million* Gains on Financial Transactions 145 6M09 6M08 Chg., % 09/08* 22 0 25 46-25 -24 20-7 75 13 31 2Q08 3Q08 4Q08 1Q09 2Q09 Client Financ. Trx. 13 70 44 Non-client Financ. Trx. Total 10-Years Interest Rate 3.37% 3.24% 3.28% 2.55% 2.91% Gains Financ. Transac. of which Client Financ. Transac. 189 3 x 63 106 60 76.7% Mark-to-market of bond portfolio acts as a natural hedge that covers the fall of interest rates and the period s negative inflation * Constant exchange rate as of 6M09
Results: Gross client income 24 Gross client income increases 18.4% in 1H09 Gross client income Gross client income, US$* millions 541 25 127 592 12.0% 622 644 606 46 20 75 31 133 131 125 130 6M09 Client net int. inc. 889 Fees Insurance Activity 6M08 Chg., % 09/08* 749 18.7% 230 218 5.4% 25 29-13.8% 389 413 471 444 445 Client Financial Trx. 106 60 76.7% Total 1,250 1,056 18.4% 2Q08 3Q08 4Q08 1Q09 2Q09 Client NII Fees + Insurance Client Financial Trx. Total * Constant exchange rate as of 6M09
Results: Costs Aiming for zero cost growth in 2009 Costs, US$* millions 25 Costs -1.0% 6M09 6M08 Chg., % 09/08* 202 201 19 19 197 21 191 20 200 23 Adm. expenses Depreciation 348 347 0.2% 43 38 14.2% 183 182 176 171 177 Operating costs 391 385 1.6% 2Q08 3Q08 4Q08 1Q09 2Q09 Adm. expenses Total Depreciation Costs grew 1.6% YoY in 1H09 despite an annual inflation of 1.9% (2/3 of costs are indexed to inflation). Efficiency improves 550 bp., reaching 32.4% * Constant exchange rate as of 6M09
Results: Net operating income Activities with clients boost operating income by 29.3% in 1H09 26 Net operating income, constant US$ million* 19.3% Net operating income 342 424 426 408 408 631 29.3% 816 2Q08 3Q08 4Q08 1Q09 2Q09 Total 6M08 6M09 * Constant exchange rate as of 6M09
Results: Loan loss provisions, risk premium and asset quality Net op. income net of provisions grows 13.4% vs 1H08 27 Net operating income & Net Loan Loss Provisions, US$ million * Provision expense 26.0% 181 150 139 7 119 117 175 158 120 4 113 141 2.38% 2.53% 1.87% 1.81% 2.07% -1-8 -2 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 Credit provisions Generic provisions Total Risk premium Chg., % 09/08* Gross op. income 816 631 29.3% Credit provisions -331-204 62.8% Net op. inc. net of credit prov. 485 427 13.4% Note: Coverage 6M09 6M08 93.8% 111.2% NPL ratio 3.30% 2.28% NPLs stabilizing; provisions in 2Q09 decrease 17.1% vs. 1Q09 * Constant exchange rate as of 6M09.
Results: Net Income Attributable profit grows 7.4% in 1H09 Net Income, US$ million * 28 Net income 13.0% 6M09 6M08 Chg., % 09/08* 200 262 217 197 226 Net income before taxes 500 443 12.9% Taxes -77-49 56.2% Tax rate,% 15.4% 11.1% +4.3 Net income 423 394 7.4% Attributable profit 343 315 8.9% 2Q08 3Q08 4Q08 1Q09 2Q09 Net income in 2Q09 grows 13.0% vs. 2Q08 and 14.7% vs. 1Q09 * Constant exchange rate as of 6M09
Results: Ratios ROE reaches 28.4% and Efficiency 32.4% Financial indexes accumulated, % 29 ROE Efficiency* 33.1 28.4 37.9 32.4 6M08 6M09 6M08 6M09 Fees / Costs 62.8 66.0 6M08 6M09 * Cost / Income. Includes depreciation and insurance activity
Conclusions 30 / Banking system has confronted well the current economic environment. Economic deceleration would tend to revert in 2H09 Santander: focus on profitability boosts client income: Client NII grows 18.7% in 12 months. Impact of negative inflation on Non-client NII reduces growth of Net interest income Reduction of interest rates and inflation increase the Gains on Financial Transactions and offsets the decrease of Non-client margins Increase of client related income and cost control drives the 29.3% YoY rise in Net operating income. Net op. income after of credit provisions grows 13.4% in the period. Provisions fall with respect to 1Q09 Net income before taxes and net income rise 12.9% and 7.4% vs. 1H08, respectively. ROE reaches 28.4% and Efficiency improves 550 bp., reaching 32.4% Santander s strategy remains oriented to sustaining profitability in a scenario of lower growth & higher risks
31 ANEXXES Income Statement Quarterly Income Statement Balance sheet
Income Statement 32 US$ million. Constant currency* Variación H1 09 H1 08 Absoluta % Net interest income 761 765 (4) (0.5) Net fees 230 218 12 5.4 Gains (losses) on financial transactions 189 3 186 Other operating income** 28 30 (2) (7.4) Gross income 1,208 1,016 191 18.8 Operating expenses (391) (385) (6) 1.6 General administrative expenses (348) (347) (1) 0.2 Personnel (212) (216) 4 (1.6) Other general administrative expenses (136) (132) (4) 3.3 Depreciation and amortisation (43) (38) (5) 14.2 Net operating income 816 631 185 29.3 Net loan-loss provisions (331) (204) (128) 62.8 Other income 16 16 (0) (1.8) Profit before taxes 500 443 57 12.9 Tax on profit (77) (49) (28) 56.2 Profit from continuing operations 423 394 29 7.4 Net profit from discontinued operations Consolidated profit 423 394 29 7.4 Minority interests 80 79 1 1.8 Attributable profit to the Group 343 315 28 8.9 * As of H1'09 ** Including dividends, income from equity-accounted method and other operating income/expenses
Quarterly Income Statement 33 US$ million. Constant currency* Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Net interest income 354 411 483 471 329 432 Net fees 105 113 118 118 112 118 Gains (losses) on financial transactions 3 0 22 13 145 44 Other operating income** 11 19 2 21 13 14 Gross income 473 543 625 623 600 608 Operating expenses (184) (201) (200) (197) (192) (200) General administrative expenses (165) (183) (182) (176) (171) (177) Personnel (101) (114) (111) (107) (104) (108) Other general administrative expenses (63) (68) (71) (70) (67) (69) Depreciation and amortisation (19) (19) (19) (21) (20) (23) Net operating income 289 342 424 426 408 408 Net loan-loss provisions (84) (119) (117) (138) (181) (150) Other income 13 3 (5) (37) 10 6 Profit before taxes 218 226 303 251 237 264 Tax on profit (23) (26) (41) (33) (39) (38) Profit from continuing operations 194 200 262 217 197 226 Net profit from discontinued operations Consolidated profit 194 200 262 217 197 226 Minority interests 37 42 54 35 40 41 Attributable profit to the Group 157 157 209 182 158 185 * As of H1'09 ** Including dividends, income from equity-accounted method and other operating income/expenses
Balance Sheet 34 US$ million. Constant currency* Variación 30.06.09 30.06.08 Absoluta % Loans and credits** 26,206 25,808 398 1.5 Trading portfolio (w/o loans) 4,274 3,500 774 22.1 Available-for-sale financial assets 2,891 2,519 372 14.8 Due from credit institutions** 3,232 2,802 430 15.3 Intangible assets and property and equipment 484 474 10 2.2 Other assets 2,092 2,778 (686) (24.7) Total assets/liabilities & shareholders' equity 39,178 37,880 1,298 3.4 Customer deposits** 20,693 21,442 (750) (3.5) Marketable debt securities** 3,773 3,493 280 8.0 Subordinated debt 1,165 980 185 18.9 Insurance liabilities 194 129 65 50.0 Due to credit institutions** 5,848 6,386 (538) (8.4) Other liabilities 4,985 3,397 1,589 46.8 Shareholders' equity 2,520 2,053 467 22.8 Off-balance-sheet funds 6,475 5,961 514 8.6 Mutual funds 6,466 5,953 513 8.6 Pension funds Managed portfolios Savings-insurance policies 9 8 2 21.0 Customer funds under management 32,105 31,875 230 0.7 * As of 30.06.09 ** Includes all stock of concept classified in the balance sheet
Investor Relations Bandera 140 Piso 19 Santiago, Tel: (562) 320-8284 Fax (562) 671-6554 email: rmorenoh@santander.cl www.santander.cl Investor and Analyst Relations Ciudad Grupo Santander - Avda de Cantabria, s/n 28660 Boadilla del Monte (Madrid) Tel. 34 91 259 65 20 34 91 259 65 14 Centralita: 34 91 289 00 00 Fax: 34 91 257 02 45 E-mail: investor@gruposantander.com www.gruposantander.com/inversores www.gruposantander.com/investor