3Q09 Results Boadilla, October 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 Economy would grow 4.5% in 2010 and inflation will normalize GDP (YoY Growth, % ) Internal Demand (YoY growth, %) 4.7 3.2 4.5 7.8 7.4 6.8-1.3-5.4 2007 2008 2009 (f) 2010 (f) 2007 2008 2009 (f) 2010 (f) Inflation (Chg. CPI, %) Unemployment (Avg., % of workforce) 7.8 7.1 7.0 7.7 10.1 10.0 2.8-1.0 2007 2008 2009 (f) 2010 (f) 2007 2008 2009 (f) 2010 (f) Source: Central Bank. (f): Forecast Santander Group
Macroeconomic Scenario driven by better external conditions, consumers confidence and monetary & fiscal incentives 5 Copper Price (US$ / pound) Index of Economic Perceptions** 3.8 3.7 3.2 1.4 1.7 2.3 2.8 41.4 33.4 34.6 35.4 36.1 40.4 44.6 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09* Central Bank ST rate (%, end- of period) 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09* Fiscal Surplus (% GDP) 6.3 6.8 8.3 8.3 7.7 8.8 5.1 2.3 0.8 0.5 0.1 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09* * As of September, 30th or latest information available. ** Percentage of population that is optimistic about economic outlook in 12 months minus percentage that is pessimistic. Source: Adimark-GfK, Central Bank of. -3.7 2006 2007 2008 2009 (f) 2010 (f)
Macroeconomic Scenario 6 Positive growth since May 2009 * Monthly change IMACEC (GDP) Cyclical Trend: change of the economy in relation with the previous month annualized adjusted by calendar effects and seasonality. Source: Central Bank of.
Banking System: Customer funds growth 7 Growth of Customer and mutual funds stabilizes Customer Funds, constant US$ billion* Total Costumer Funds Mutual funds 109 118 126 134 138 23 23 22 27 32 20.9 17.2 15.1 12.8 10.0 38.2 17.9-1.0 18.8 10.0 Sep-07 Mar-08 Sep-08 Mar-09 Aug-09 Sight deposits Sep.07 Mar-08 Sep-08 Mar-09 Aug-09 Time deposits 20 20.9 22 23 24 26 18.4 17.7 15.4 10.9 67 74 16.0 16.9 81 83 80 20.4 11.6 1.4 Sep-07 Mar-08 Sep-08 Mar-09 Aug-09 Sep.07 Mar-08 Sep-08 Mar-09 Aug-09 Volume YoY growth, % * Using the exchange rate as of 3Q09. Source: Superintendencia de Bancos de
Banking System: Loan growth 8 Loan growth slows Loans, constant US$ billion* Total loans Corporate lending 100.2 109.9 122 123.9 122.7 63 69 78 79 77 20.9% 21.8% 19.4% 12.7% 2.2% 19.3% 20.0% 22.7% 13.9% 0.7% Sep-07 Mar-08 Sep-08 Mar-09 Aug-09 Sep-07 Mar-08 Sep-08 Mar-09 Aug-09 Consumer lending Residential mortgage** 14 15 16 16 15 23 26 29 30 31 16.7% 17.0% 13.1% 3.0% -0.5% 14.7% 15.9% 13.9% 9.6% 9.0% Sep-07 Mar-08 Sep-08 Mar-09 Aug-09 Sep-07 Mar-08 Sep-08 Mar-09 Aug-09 Volume YoY Growth, % * Using the exchange rate as of 3Q09. ** Residential mortgage change in real terms. Source: Superintendencia de Bancos de
Banking System: Loan growth 9 although this trend begins to reverse Source: Superintendencia de Bancos de
Agenda 10 Macroeconomic scenario and review of banking system 2009 - Strategy and business -Results
Our franchise 11 Santander : the strongest banking franchise in Sept. 2009 Bn US$ Market Share* Rank Loans: 25.7 20.0% 1 Deposits: 18.9 18.8% 1 Customer funds: 25.4 19.1% 2 Net income: 658 US$mn 34.6% 1 Attribut. net income 533 US$mn Clients: 3.0 millions 41.3%** 1 Branches: 502 24.0% 1 ATMs 1,991 31.6% 1 * As of August 2009. ** Over workforce. Market share, Source: Superintendencia de Bancos de, latest available information
Business: Market Share 12 Market share falls slightly due to focus on profitability Loans Individuals - Consumer + Credit cards -Mortgage Loans to companies* Customer funds Santander : market share, % Mkt. Share August 09, % 20.0 24.4 25.4 23.9 17.4 19.1 Change in last 12M (basic points) -50-61 -86-43 -54-102 Focus on selective growth and liquidity over market share. As of August 2009, Santander generated a record 34.6% of profits in the an financial system. * Includes Government and lending to SMEs, Middle-market and Corporate. Source: Superintendencia de Bancos de
Liquidity 13 Healthy liquidity position 7.0 Balance Sheet Structure US$ billion as of 09.30.09 Mortgage Other Loans 3.5 5.0 18.7 18.9 Loans Liabilities Equity Bonds Customers Deposits Core funding* at 106.6% of loans Pension funds deposits represent 12% of core funding, with greater duration than retail deposits Additionally, the Bank has US$ 6.2 billion in liquid assets, mainly Banco Central de notes * Customers deposits, bonds and equity
Capital 14 High capital base Capital ratios, % Dec. 2008 Sept. 2009 BIS RATIO 13.8% 15.2% CORE CAPITAL 10.1% 11.2% 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 Aa3 A1 Fitch: A+ Local ratings (Feller & Fitch): AAA senior, AA+ subordinated Active management of RWAs
Capital 15 High return / High capital level BIS Ratio vs. pre tax ROE; august 2009 Return on capital (before taxes) Santander reaches the highest ROE among all an banks Source: Superintendencia de Bancos de. Santander s figures correspond to the Bank, not to the Group.
Our Strategy 16 Strategy centered on 4 objectives Santander : Strategic drivers 1. Active management of risk and recoveries to reduce impact of the slowing down of the economy 2. Increase in efficiency; focus on productivity gains / control of recurring costs to compensate for the lower top-line growth 3. Selective growth of business in line with better economic perspectives and normalization of spreads 4. Increase of cross-selling and product usage of the current clients base to boost fees
Business: Customer funds 17 As interest rates fall funds shift from time deposits to mutual funds Customer funds, constant US$ billion* Customer funds 09.30.09 Bn US$ Annual growth rate,%* 22.9 25.6 25.7 27.4 25.4 Sight 5.4 13.5% 14.3 13.8 12.2 7.2 Time deposits 13.5-10.3% Mutual Funds 6.5 33.3% -1.2 Total 25.4 (1.2%) 09.30.07 03.31.08 09.30.08 03.31.09 09.30.09 Volume YoY Growth % Bonds** 5.0 9.4% Commercial strategy and negative inflation boost sight deposits * Constant exchange rate as of 9M09. ** Senior and subordinated
Business: Loan growth 18 Retail loans Volume growth begins to recover Loans, constant US$ billion* 09.30.09 Bn US$ Annual growth rate,%* Quarterly rate, %* 13.1 14.2 15.7 15.7 16.3 19.5 15.4 16.6 10.8 3.8 09.30.07 03.31.08 09.30.08 03.31.09 09.30.09 Retail Volume YoY Growth % Individuals** 12.1 4.6% Consumer + C. Cards 3.8-2.0% Mortgage 7.0 5.6% SMEs 4.2 0.3% Total Retail 16.3 3.8% Middle-Market*** 4.9-10.2% Commercial 21.2 0.0% Corporate 4.4 1.6% Total**** 25.7 (1.6%) 2.5% 1.5% 1.6% 2.4% 2.4% 0.8% 2.1% 0.7% 1.8% * Constant exchange rate as of 9M09. ** Includes Others (past due loans and other loans to individuals). *** Includes Institutional lending. **** Includes other loans non-segment.
Business: Loan growth Selective loan growth 19 YoY growth by segment as of 09.30.09, % (in oval) and percentage over total loans* Companies Chg. Vol. 09/08 Companies: -3,3% Individuals Chg. Vol. 09/08 Individuals: 4,6% 30.2% 0.2% 31.3% 7.0 % 5.4 % -14.8% 39.7% -7.1% 34.3% 35.7% -12.7% 32.3% 2.80% 28.6% 3.70% 31.3% 32.7% 53.3% 19.5% 60.3% 1.1% Sep.08 Sep-09 Sep.08 Sep.09 Corporate Institutional Large SM Es M iddle-high M iddle-low M iddle * Relative weight of the segment over total of loans to individuals and companies
Conclusions: strategy and business 20 / Banking system has weathered well the current economic environment. Economy begins to recover in 3Q09 and perspectives for 2010 improve Financial System begins to show positive growth trends in line with the economic recovery Santander keeps strong liquidity position and solid capitalization levels Santander remains strategy centered on 4 objectives: 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 in line with the stronger growth of the economy and increasing product usage and transactions
Agenda 21 Macroeconomic scenario and review of banking system 2009 - Strategy and business - Results
Results: Net interest income Higher spreads explains 11.8% increase of client net interest income 22 Net interest income Net interest income, constant US$ million* 495 482 72 0 337 442 407 9M09 Client Net Int. Inc. 1,330 9M08 1,190 Chg., % 09/08* 11.8% Non-client NII -143 88 n/a 423 482 454 456 420 Net interest income 1,186 1,278-7.2% -117-14 -13 3Q08 4Q08 1Q09 2Q09 3Q09 Client NII Non-client NI Total Quarterly Inflation rate** 3.63% 2.21% -2.30% -0.13% -0.47% Non-client NII hit by deflation * Constant exchange rate as of 9M09. ** UF Quarterly change, an unit indexed to the variation of the Consumer Price Index (CPI)
Results: Spreads 23 Normalization of loan spreads Deposit Spread, % Loan Spread, % Commercial Banking Commercial Banking 3.5 3.2 2.0 1.9 1.9 5.2 5.4 5.9 5.9 5.6 2.0 2.0 1,2 1.1 1.1 4.5 4.6 5.1 5.2 4.9 Total deposits Total loans 3Q08 4Q08 1Q09 2Q09 3Q09 3Q08 4Q08 1Q09 2Q09 3Q09 Sharp decrease in interest rates impacts spread earned over sight deposits
Results: Fees + Insurance activity results 24 Moderate growth of fee income Fees, US$ million* Fees and Insurance Activities 9M09 9M08 Chg., % 09/08* 137 134 16 14 128 132 133 13 12 10 121 120 115 123 120 3Q08 4Q08 1Q09 2Q09 3Q09 Insurance** Checking accts Credit cards Asset mgmt. Foreign Trade Cash mgmt. Securities brokerage Others 115 60 62 38 25 16 12 65 113 71 51 39 15 14 11 76 1.8% -15.5% 21.6% -2.6% 66.7% 14.3% 9.1% -14.5% Total 393 390 0.8% Note: Fees 358 344 4.1% Fees Total Insurance activity Insurance Activity 35 46-23.9% * Constant exchange rate as of 9M09. ** Includes insurance brokerage fees and insurance activity results
Results: Gains on Financial Transactions 25 Fall in interest rates and deflation boosts Gains on Financial Transactions Gains on Financial Transactions, constant US$ million* Gains on Financial Transactions 23 48-25 13 20-7 72 77 45 53 13 24 32 29 3Q08 4Q08 1Q09 2Q09 3Q09 Client Financ. Trx. 149 Total Non-client Financ. Trx. 10-Years Interest Rate 3.24% 3.28% 2.55% 2.91% 2.80% Gains Financ. Transac. of which Client Financ. Transac. 9M09 9M08 Chg., % 09/08* 247 26 9.5 x 138 109 26.6% Increase of Gains on Financial Transactions offsets to a large extent the fall in Nonclient Net interest income * Constant exchange rate as of 9M09
Results: Gross client income 26 Gross client income increases 10.2% in 2009 Gross client income Gross client income, US$* millions 9M09 9M08 Chg., % 09/08* 607 48 136 637 659 620 20 135 77 32 128 133 581 29 132 Client net int. inc. 1,330 Fees Insurance Activity 1,190 11.8% 358 344 4.1% 35 46-23.9% 423 482 454 455 420 Client Financial Trx. 138 109 26.6% Total 1,861 1,689 10.2% 3Q08 4Q08 1Q09 2Q09 3Q09 Client NII Fees+Insurance Client Financial Trx. Total * Constant exchange rate as of 9M09
Results: Costs Aiming for zero cost growth in 2009 Costs, US$* millions 27 Costs -1.0% 9M09 9M08 Chg., % 09/08* 205 19 21 202 205 203 196 21 24 23 Adm. expenses Depreciation 536 542-1.0% 68 58 17.2% 186 181 175 181 180 Operating costs 604 600 0.7% 3Q08 4Q08 1Q09 2Q09 3Q09 Adm. Expenses Total Depreciation Efficiency improves 260 bp., reaching 33.1% * Constant exchange rate as of 9M09
Results: Net operating income Activities with clients boost operating income by 13.0% 28 Net operating income, constant US$ million* 1,080 13.0% 1,221 9M08 9M09 * Constant exchange rate as of 9M09
Results: Loan loss provisions, risk premium and asset quality Positive evolution of provisions expense 29 Net operating income & Net Loan Loss Provisions, US$ million * 120 4 116 1.81% Provision expense 5.8% 186 141 7 153 127 179 161 143 132 2.07% 2.38% 2.53% 2.60% -2-8 -5 9M09 9M08 Chg., % 09/08* Net op. income 1,221 1,080 13.0% Credit provisions -466-328 42.0% Net op. inc. net of credit prov. 755 752 0.4% Note: Coverage 94.5% 110.8% NPL ratio 3.38% 2.45% 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 Credit provisions Generic provisions Total Risk premium Sharp decrease in NPL; provisions 3Q09 fall 32% and 17% vs. 1Q09 and 2Q09 respectively * Constant exchange rate as of 9M09.
Results: Loan loss provisions, risk premium and asset quality 30 due to favorable evolution of risk in individuals Monthly growth of Substandard loans*, Ch$ millions 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 * Monthly grow of Substandard loans of individuals. Substandard loans: NPLs + deteriorated loans + Charge-offs - Recoveries Individuals The greater participation of commercial executives in controlling asset quality has successful results
Results: Net income Net income before taxes grows 1.6% Net Income, US$ million * 31 Net income 9M09 9M08 Chg., % 09/08* 268 222 202 231 225 Net Inc. before taxes 776 764 1.6% Taxes -118-92 27.7% Net income 658 672-2.0% Tax rate,% 15.2% 12.0% +3.2 Attributable profit 533 536-0.6% 3Q08 4Q08 1Q09 2Q09 3Q09 * Constant exchange rate as of 9M09
Results: Ratios ROE reaches 29.5% and Efficiency 33.1% Financial indexes accumulated, % 32 ROE Efficiency* 36.7 29.5 35.7 33.1 9M08 9M09 9M08 9M09 Fees / Costs 63.5 66.7 9M08 9M09 * Cost / Income. Includes depreciation and insurance activity
Conclusions 33 / Banking system has weathered well the current economic environment. Economy begins to recover in 3Q09 and perspectives for 2010 improve Santander: focus on profitability drives client income: Client NII grows 11.8% in 12 months. Impact of negative inflation on Non-client NII reduces growth of Net interest income Increase of Gains on Financial Transactions due to reduction of interest rates and inflation offsets to a large extent the decrease of Non-client margins Increase of client related income and cost control boost Net operating income 13.0%. Net op. income after of credit provisions grows 0.4% in the period Provision expense declines compared to 1Q and 2Q 2009 Net income before taxes rises 1.6% vs. 9M08. ROE reaches 29.5% and Efficiency improves 260 bp., reaching 33.1% Santander maintains strategy focused on profitability. Volumes begin to recover in the quarter
34 ANEXXES Income Statement Quarterly Income Statement Balance sheet
Income Statement 35 US$ million. Constant currency* Variation 9M 09 9M 08 Amount % Net interest income 1,186 1,278 (92) (7.2) Net fees 358 344 14 4.1 Gains (losses) on financial transactions 247 26 221 850.5 Other operating income** 35 32 2 6.7 Gross income 1,825 1,680 145 8.6 Operating expenses (604) (600) (4) 0.7 General administrative expenses (536) (542) 6 (1.0) Personnel (326) (334) 8 (2.5) Other general administrative expenses (210) (208) (3) 1.3 Depreciation and amortisation (68) (58) (10) 17.2 Net operating income 1,221 1,080 141 13.0 Net loan-loss provisions (466) (328) (138) 42.0 Other income 21 12 10 82.4 Profit before taxes 776 764 12 1.6 Tax on profit (118) (92) (26) 27.7 Profit from continuing operations 658 672 (13) (2.0) Net profit from discontinued operations Consolidated profit 658 672 (13) (2.0) Minority interests 125 136 (10) (7.7) Attributable profit to the Group 533 536 (3) (0.6) * As of 9M'09 ** Including dividends, income from equity-accounted method and other operating income/expenses
Quarterly Income Statement 36 US$ million. Constant currency* Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Net interest income 362 421 495 482 337 442 407 Net fees 107 116 121 120 115 120 123 Gains (losses) on financial transactions 3 0 23 13 149 45 53 Other operating income** 11 19 2 22 14 15 6 Gross income 485 556 639 637 614 622 588 Operating expenses (188) (206) (205) (202) (196) (205) (203) General administrative expenses (169) (187) (186) (181) (175) (181) (180) Personnel (104) (117) (113) (109) (106) (111) (109) Other general administrative expenses (65) (70) (73) (71) (69) (70) (71) Depreciation and amortisation (20) (19) (19) (21) (21) (23) (23) Net operating income 296 350 434 436 418 418 385 Net loan-loss provisions (86) (122) (120) (141) (186) (153) (127) Other income 13 3 (5) (38) 10 6 5 Profit before taxes 223 231 310 257 242 270 264 Tax on profit (24) (27) (42) (34) (40) (39) (39) Profit from continuing operations 199 204 268 222 202 231 225 Net profit from discontinued operations Consolidated profit 199 204 268 222 202 231 225 Minority interests 38 43 55 36 41 42 43 Attributable profit to the Group 161 161 214 186 161 189 182 * As of 9M'09 ** Including dividends, income from equity-accounted method and other operating income/expenses
Balance Sheet 37 US$ million. Constant currency* Variation 30.09.09 30.09.08 Amount % Loans and credits** 25,702 26,113 (411) (1.6) Trading portfolio (w/o loans) 4,746 3,514 1,231 35.0 Available-for-sale financial assets 3,808 2,467 1,341 54.4 Due from credit institutions** 2,775 2,257 518 23.0 Intangible assets and property and equipment 463 469 (6) (1.2) Other assets 2,042 2,906 (865) (29.8) Total assets/liabilities & shareholders' equity 39,535 37,726 1,810 4.8 Customer deposits** 18,860 20,807 (1,947) (9.4) Marketable debt securities** 3,827 3,446 382 11.1 Subordinated debt 1,136 1,089 47 4.3 Insurance liabilities 244 146 98 67.1 Due to credit institutions** 7,368 5,739 1,629 28.4 Other liabilities 5,744 4,476 1,268 28.3 Shareholders' equity 2,356 2,023 332 16.4 Off-balance-sheet funds 6,577 4,916 1,661 33.8 Mutual funds 6,536 4,904 1,631 33.3 Pension funds Managed portfolios Savings-insurance policies 41 11 30 261.8 Customer funds under management 30,401 30,258 143 0.5 * As of 30.09.09 ** 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