SANTANDER TOTTA-SANTANDER INVESTOR DAY 2011
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The document provides a disclaimer and forward-looking statements regarding a presentation by Banco Santander Totta, S.A. and Banco Santander, S.A. It cautions that the presentation contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. It also states that the information in the presentation should be read in conjunction with other public disclosures and does not constitute an offer to buy or sell securities.
SANTANDER TOTTA-SANTANDER INVESTOR DAY 2011
- 1. Nuno Amado Portugal
- 2. Disclaimer Banco Santander Totta, S.A. (“Santander Totta”) and Banco Santander, S.A. ("Santander") both caution that this presentation contains forward-looking statements. 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 that Santander Totta and Santander have indicated in its past and future filings and reports, including in Santander’s case 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. Neither Santander Totta nor Santander 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 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 Totta and 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 Totta and Santander give no advice and make no recommendation to buy, sell or otherwise deal in shares in Santander Totta, Santander or in any other securities or investments whatsoever. Neither this presentation 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 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 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 presentation should be construed as a profit forecast. 2
- 3. Index 1 Business evolution 2 Business environment 3 Strategy 4 Outlook 2011 / 2013 3
- 4. Index 1 Business evolution 2 Business environment 3 Strategy 4 Outlook 2011 / 2013 4
- 5. We are a Retail Bank… Who we are Acquisition in year 2000 Attributable profit H1’11 €131 million 2% (1) Group’s AP (2) Third Private Bank Loans € 29.2 Bn Strong Retail Network Solid Balance 730 branches Core Capital around 10% 1,701 ATM MKT Share Yearly average maturity €1.0 Bn (3) 6,108 employees of wholesale funding 1.3 million active clients 10% ≈10% (1) Recurring attributable profit Core Capital (2) Domestic Activity (3) Credit market share Consolidated criteria, June 2011 data 5
- 6. …with efficient revenue generation in recent years… (Net Interest Inc. + Cost / Income Fees / Expenses Fees) / Credit 69.9 49.9 66.1 63.3 3.5 3.6 3.4 45.4 42.8 2009 2010 Jun11 2009 2010 Jun11 2009 2010 Jun11 Consolidated criteria 6
- 7. … that gives us a competitive advantage over our Peers Data in Local criteria Cost / Income NPL ROE 15.3 60.1 3.3 45.5 1.5 6.3 BST Peers BST Peers BST Peers December 2010 Data; % 7
- 8. Based on a strong balance sheet… RWA optimization since 2008 Balance Credit/Deposits : 139% Dec10 / 131% Jun11 Closing the commercial GAP (*) Capital & Core Capital around 10% Liquidity Stable liquidity plan Default Rate: 2.9% Dec10 / 3.3% Jun11 Credit Risk Coverage Rate: 60% Dec10 / 62% Jun11 Consolidated criteria (*) GAP: Net Credit - Deposits 8
- 9. We have been focused on balance sheet management… RWA (€Bn) Over the last years we have reduced RWA 26.3 24.0 23.4 23.4 22.4 Managed our commercial GAP 2008 2009 Jun10 2010 Jun11 GAP (€Bn) Credit / Deposits (%) 17.1 17.3 210 216 14.9 181 139 131 8.4 7.0 2008 2009 Jun10 2010 Jun11 2008 2009 Jun10 2010 Jun11 Consolidated criteria, June 2011 data;% 9
- 10. With a stable and sustained liquidity plan DebtCapital BST Core Amortization Debt Amortization Profile (€ Bn) No wholesale amortizations until June/12 1.5 Less than €1Bn average wholesale market 1.2 1.3 amortization per year until 2014 ECB liquidity €2.4 Bn drawn of net liquidity (Aug/11) 2012 2013 2014 Retail Bonds Covered Senior Bonds unsecured Portuguese Public Debt We maintain €1.6 Bn in our balance 10
- 11. We keep a controlled real estate risk… Mortgages 56% is the average LTV mortgage Average LTV 56% Default rate 2.7% Construction portfolio represents less than 92% first residential propose 4% of loans Construction Credit GBM Individuals €1.1 Bn Loans 1.9 Mortgages 77% residential; 9% building land SME Default rate 13.4% (*) 7.8 Foreclosed Assets 16.3 1.1 Portfolio 203 millon (0.7% of our 2.7 credit balance) Construction Coverage rate 27% Rest (Individuals) Consolidated criteria, June 2011 data (*) August 2011 data 11
- 12. …and our credit quality is better than the system NPL Mortgages Data in Local criteria 1.6 1.0 NPL ratio 3.8 BST Peers 3.4 3.0 NPL Consumer and other 8.3 1.8 1.8 5.0 1.4 1.3 1.5 0.8 0.5 BST Peers NPL Corporates 2007 2008 2009 2010 Jun11 5.8 BST System 2.4 BST Peers June 2011 Data; % 12
- 13. Index 1 Business evolution 2 Business environment 3 Strategy 4 Outlook 2011 / 2013 13
- 14. Portugal is under a macroeconomic program with strong goals, although necessary and achievable… 140.0 Fiscal Deficit & Public Debt (% GDP) 12.0 120.0 10.0 100.0 8.0 General 80.0 6.0 60.0 Government 40.0 4.0 2.0 20.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fiscal Adjustment Sustainability Public Debt Fiscal Deficit Credit/Deposits Ratio (%) (*) 158% 151% 139% 133% 129% Financial System 120% Deleveraging Solvency 2000 2010 2011 2012 2013 2014 Potential GDP 2.5% 2.0% 2.2% 1.3% 1.2% Structural Reforms -1.8% -2.2% Productivity Exports 2010 2011 2012 2013 2014 2015 2016 Source: International Monetary Fund, World (*) Source: Finance Ministery, July 11, forecasts 2011 Economic Outlook Database, September 2011; 14 and 2012; 2013-2015: Memorandum of Understanding
- 15. Recovering the growth path in 2013 Years 2011 and 2012 will be the most acute in economic terms, recovering the growth path at the beginning of 2013 % 13.4 13.4 12.0 12.2 12.4 10.6 8.5 10.1 9.1 5.9 Deficit Forecasts 2.3% 3.5 3.4 4.5 2.1 2.5 3.0 2.6 1.4 GDP 2.5% 1.5 2.3 1.3 -0.9 1.2 1.5 0 Inflation 1.5% -2.2 -1.8 -2.5 Unemployment 12.4% FY 2008 FY 2009 FY 2010 FY 2011E FY 2012E FY 2013E FY 2014E Source: International Monetary Fund, World 15 Economic Outlook Database, September 2011
- 16. The financial system has to achieve targets of deleveraging and minimum solvency ratios between 2011 and 2014 Data in Local criteria System Credit/Deposits Balance Sheet 120% Deleveraging 162% 158% Credit/Deposits (Local) (*) 2009 2010 ECB Access ECB Limit access 40Bn 7Bn Liquidity 35Bn €35 Bn debt line of Financial Line guaranteed by the state 2009 2010 Core Capital Core Capital ratios 8.0% 8.3% Capital 10% required 9% in 2011 and 10% from 2012 onwards Core Capital Line €12 Bn to recapitalize 2009 2010 16 (*) Troika Plan
- 17. These impacts are beginning to reflect in the system's profitability Data in Local criteria ROE 17.7 10.1 8.8 7.7 4.1 2007 2008 2009 2010 Jun11e System 17
- 18. Index 1 Business evolution 2 Business environment 3 Strategy 4 Outlook 2011 / 2013 18
- 19. Strategy Individuals Private Banking & Premium Productivity (Ready Project) SOLVENCY Corporates Balanced business plan Focus on transactions Credit Risk DELEVERAGING Strong NPL control Focus on recovery … with rigorous cost management 19
- 20. Individuals Strategy Customer Spreads NPL Resources management management Control 50% of the network: 70% of 50% of the network: its goals are 50% customer its objectives focus on funds, 25% gross income and 25% Credit risk Credit risk “Ready Project” Private Banking & Premium Increased Productivity: Selective Focus: • Important review of the Systematic • ~65% of customer funds are follow-up model and business concentrated in this segment, about objectives 6% of customers • Revitalization program based on • Development of segmented offering in individual performances and rankings terms of distribution / service / product • Select Project (affluent) 20
- 21. Corporates Strategy “SELF FUNDED STRATEGY” Balanced Growth Transactional New Customers (Credit - Deposits) (Commissions Base) (Selective Focus) Liquidity: self-finance Factoring/Confirming: Key Element in the objectives/to improve with controlled risk Strategy to Credit/Deposits ratio strengthen the Trade-Finance: focus position on export Selective focus on Credit: repricing and highly selective growth commercial offer to Cash-Management: clients (not only seek in customers Collection and payment a credit relationship) services / tools / with international Resources: to capture / institutional clients business and sustain credit development, growth Commissions: supported by the repricing of products Group's network and services 21
- 22. Credit Risk Impacts NPL rate % Unemployment Credit restriction 0.8 Decrease in GDP 0.5 0.1 ≈5.0 ≈6.0 2.9 4.1 Increased NPL 2010 2011e 2012e 2013e rate Our approach is based on Default Deleveraging efect Close monitoring of the loan portfolio Coverage rate % Default credit management Improved recovery process 60 56 64 69 Consolidated criteria 22
- 23. Expenses The basis of our efficiency is the constant optimization of our processes and strict cost control Process optimization of installed capacity: • Closing more than 30 branches in 2011. Optimization process. • Optimization of International Network 2013 Cost / • Additional staff reductions in 2012 (about 80) Income Optimization of the cost base: ≈50% • Renegotiation of contracts: price • Rationalizing consumption: quantity • Increased competitive position: reengineering process • Reduced discretionary spending: expenses control In 2011, up until August: 28 branches closed and reduced staff by 100 Optimization of cost base Energy Project, Central Services, Communications Project costs After the implementation of Parthenon, the core IT processing platform, is expected to reduce technology investment Consolidated criteria 23
- 24. Deleveraging Data in Local criteria Target Commercial Gap Credit/Deposits Decreased to - Lower Credit in 2014 2014 - Increase in Deposits - Rise in provisions 120% €7.9 Bn Commercial Gap narrowed between Deposits strategy and the Apr - Aug 2011(*): €2,200 Million natural amortization of our mortgage portfolio are the Individuals 266 Credit drivers of our plan We will maintain profit Corporates 822 generation and solvency Credit in the whole process Deposits 1,005 Provisions 51 (*) Troika Plan is based on Financial Information at March 2011 to December 2014 24
- 25. Solvency The deleveraging plan will lead to a reduction in RWA, which will improve our Core Capital above 10% from 2012 (minimum required) Data in Local criteria Estimated impact of deleverage over RWA Core Capital estimated impact of (€Bn) deleverage (%) 22.9 -1.4 21.5 ≈0.8pp Jun11 2014e Exercise with constant credit factors 25
- 26. Index 1 Business evolution 2 Business environment 3 Strategy 4 Outlook 2011 / 2013 26
- 27. The reforms shall lead to GDP growth Structural Reforms Over the next 2 years Portugal has 6.0% GDP and growth contributions to prepare the foundations for a 4.0% stable growth as of 2013, based on 2.0% productivity improvements and 2.0% fiscal balances 0.3% 0.0% -2.0% -2.0% International Investment Position and Current Account Balance (% GDP) -4.0% -60 0 -70 -2 -6.0% -80 -4 -90 -6 -8.0% -100 -8 1992- 1997- 2002- 2007- 2011- 2013- 2016 -110 -10 1996 2001 2006 2010 2012 2016 -120 -12 -130 -14 Private Public 2008 2009 2010 2011 2012 2013 2014 2015 2016 Consumption Consumption GDP International Current Account Investments Export Investment (%GDP) Balance (%GDP) Source: International Monetary Fund, World Economic Outlook Database, September 2011; Finance Ministery; Bank of Portugal 27
- 28. In a complex environment… 2013 Revenue Structure Assumptions We will maintain positive returns, Net Interest Inc.+ Fees and will not destroy capital Ca. 3.5% Credit We have a stable and sustainable liquidity over the next years Cost / Income Comply with core capital <50% requirements during the plan In a process that will reduce our commercial GAP by € 7.9 Bn by Fees the end of 2014 (Bank of Portugal Expenses Ca. 65% criteria), 28% done. Consolidated criteria 28
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