Multiplus - Bank of America Merril Lynch 2011 Brazil Conference
SAN -BOA -Merril Lynch Conference 280910
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Santander’s strategy ina dual World
September 2010
Alfredo SáenzCEOGrupo Santander
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Macro and banking outlook: a dual World
Macro and banking outlook: a dual World
Santander’s strategy in a dual World
Santander’s strategy in a dual World
Conclusions
Conclusions
Our recent transactions reflect our strategy
Our recent transactions reflect our strategy
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For the first time in a long time, we are living in atruly DUAL WORLD
For the first time in a long time, we are living in a
truly DUAL WORLD
Need forPRIVATE
SECTOR to
deleverage
Need for PUBLIC SECTORto ajust large fiscal
deficits
LOW HIGH
HIGH
LOW
LeveragedMATURE
MARKETS
LeveragedMATUREMARKETS
BalancedEMERGINGMARKETS
BalancedEMERGINGMARKETS
MATURE MARKETShave started to
behave like maturemarkets…
i.e., not growing…
… and EMERGINGMARKETS have started to
behave like emergingmarkets… i.e., delivering
DIFFERENTIAL GROWTH…
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4In the pre-crisis World, most economies were “emerging”markets
Average annual GDP growth(2002-2007)
Average annual GDP growth(2007-2012)
0% 2% 4%
US
Spain
UK
Brazil
Mexico
0% 2% 4%
US
Spain
UK
Brazil
Mexico
The “GreatDivergence”
The “GreatDivergence”
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5In the pre-crisis World, most banking markets were“emerging” markets
Increase in private sector loans / GDP(2002-2007)
Increase in private sector loans / GDP(2007-2012)
0% 10% 20% 30% 40% 50% 60% 70% 80%
US
Spain
UK
Brazil
Mexico
-20% -10% 0% 10% 20% 30%
US
Spain
UK
Brazil
Mexico
The “GreatDivergence”The “Great
Divergence”
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Differential GDPgrowth
(not involved in theexcesses of the past cycle)
Differential GDPgrowth
(not involved in theexcesses of the past cycle)
Increased
bancarisation(development of middle
classes)
Increasedbancarisation
(development of middleclasses)
xx
The DOBLE MULTIPLIER:
In EMERGING MARKETS…the banking sector has a big opportunity …
In EMERGING MARKETS…the banking sector has a big opportunity …1
1
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In MATURE ECONOMIES, the banking
sector is facing a tough environment..
Deleveraging: Low
credit demand
Deleveraging: Lowcredit demand
Deposit marginpressure due to thelow interest rates
Deposit marginpressure due to thelow interest rates
Delinquency ratesremain at relativelyhigh levels
Delinquency ratesremain at relativelyhigh levels
11
22
33
… and regulatoryconstraints
… and regulatoryconstraints44
We are entering
into a periodwhere the“revenue cake”
is likely to
shrink
We are enteringinto a period
where the“revenue cake”
is likely to
shrink
22
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8In Spain, the “FROB” iniciative sets a roadmap for therestructuring of the savings bank sector
The “FROB” roadmap
Allows savings banks to absorblosses
Creates bigger, more stable
entities
Reduces “excess capacity” inthe sector
Introduces market discipline inthe savings bank sector
The “FROB” roadmap
Allows savings banks to absorblosses
Creates bigger, more stableentities
Reduces “excess capacity” inthe sector
Introduces market discipline inthe savings bank sector
Excellentnews forstrong
focusedbanks…
… a greatopportunity to
GAINMARKETSHARE at“rational”
prices
Excellentnews for
strongfocusedbanks…
… a great
opportunity toGAIN
MARKETSHARE at
“rational”prices
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Macro and banking outlook: a dual WorldMacro and banking outlook: a dual World
Santander’s strategy in a dual WorldSantander’s strategy in a dual World
ConclusionsConclusions
Our recent transactions reflect our strategyOur recent transactions reflect our strategy
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Portugal
3%
Santander
Consumer Finance12%
Europe- rest
7%
US (Sovereign)
2%
Mexico6%
UK13%
BRAZIL
29%
Chile
5%
Rest of LatAm
4%
SPAIN- retail
banking (SAN
network +
Banesto)
19%
Emerging
markets: 44%
Developedmarkets: 56%
Operating profit breakdown (ex Corporate Center)- 2009
1
2
We can generate strong results in both parts of our portfolio…
… we are well positioned in a dual World
This emerging markets
contribution is very rare ininternational banking… and
very valuable
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Ranking: 1st
Mkt. share: 20% Branches: 498 Customers: 3.2 mill.
Ranking: 3rd
Mkt. share: 12% Branches: 3,593 Customers: 21 mill.
Ranking: 3rd
Mkt. share: 15% Branches: 1,093 Customers: 8.8 mill.
Mexico
Brazil6
Chile
EMERGING MARKETS: 1. A unique franchise, in terms of size(net profit > USD 5bn), contribution to our portfolio,and exposure to attractive, high growth markets
5,745 branches
Ranking: 2rd
Mkt. share: 10% Branches: 258 Customers: 2.0 mill.
Argentina
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Presence in “TRUE”
emerging markets
Presence in “TRUE”
emerging markets
We have presence in markets with… GDP per capita below USD 15,000... AND Private sector loans (households +corporates) to GDP below 85%
We have RETAIL ANDCOMMERCIAL BANKING
franchises, withDISTRIBUTION CAPILARITY
We have RETAIL ANDCOMMERCIAL BANKING
franchises, withDISTRIBUTION CAPILARITY
… able to reachthe rising middle
class
We have STRONG
PRESENCES in our coremarkets
We have STRONG
PRESENCES in our coremarkets
“Top 5” franchises (market share > 10%)have a clear advantage, in terms of
economies of scale, brand recognition,market impact…
EMERGING MARKETS: 2. We have a good quality emergingmarkets franchise (strong “capilarity” in attractive markets)
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+9,7%
+14,5%
+8,6%
+6,7%
+2,5%
+5,1%
+7,1%
Attributable
profit (*)
Profit before
tax
Net oper. inc
net of LLPs
Net operating
income
Expenses
Gross income
Net interest
income + fees
Var. H1’10 / H1’09 in constant US$ (%)
(*) Profit from continued operations: +27.1%
H1 2010 Attributable profit:US$ 1,711 mill. (EUR 1,294 mill.)
BRAZILBRAZIL REST OF LATAMREST OF LATAM
H1'10
Attributable profit
Change (%)H1'09
Mexico 385 336 +14.8
Chile 398 382 +4.4
Argentina* 183 134 +35.7
Uruguay 46 36 +26.9Puerto Rico 25 24 +5.5
Colombia 25 26 -3.0
Other -3 26 --
SUBTOTAL 1,059 963 +10.0
Santander Private Banking 86 105 -18.4
TOTAL 1,145 1,068 +7.2
Venezuela -- 112 --
EMERGING MARKETS: 3. We are delivering strong results
We expect to deliver high double-digit net income growth in our emergingmarket units over the next 3 years
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Keeplow riskprofile
Keeplow riskprofile
Control COSTS / deliver SYNERGIESControl COSTS / deliver SYNERGIES Continue to manage asset marginsContinue to manage asset margins
Our well-proven “EXECUTION (DEFENSIVE) SKILLS”:The Santander UK example
1
2217
SAN UK
mortgages
Market
mortgages
10065
UPLs
SAN UK
Market
UPLs
>
Coverage (%)
2.38
1.43
SAN UK
mortgages
Market
mortgages
NPLs (%)
<
(1) FY 08 includes depreciation and amortisation and B&B
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16… stepping up our “ATTACK SKILLS”: growrevenues and increase market share
The Santander UK example
2
20%origination
marketshare…
significantlyabove our14% stock
marketshare
20%origination
marketshare…
significantlyabove our14% stock
marketshare
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(STG 0.6bn)
Selective acquisitions: take advantage of therestructuring of the system
The Santander UK example
3
20082008
20102010
(STG 1.3bn)
RBS branches(STG 1.7bn)
Our integration discipline:
• Integrate business / implement technology /deliver synergies / apply best practices
• De-risk / focus on core businesses
11.5
5.7
Jun'09 Jun'10
Treasuryportfolio
-50%
£ billion
Reduction of non coreassets in the UK
Sovereign’s run-off portfolio
UK RWA now below the pre-
A&L level, as a result of thereduction in non-core assets
UK RWA now below the pre-
A&L level, as a result of thereduction in non-core assets
… LEADING TO SIGNIFICANT CAPITAL RELEASE
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18DEVELOPED MARKETS: Resilient results in a very difficultenvironment…
(500)
1.000
2.500
4.000
1S '101S '09
Sovereign (US)
UK
Continental Europe- rest
Portugal
Santander Consumer Finance
Santander network (Spain) +Banesto
EUR
3.73bnEUR
3.56bn
+5%
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74%
54%
SAN European peers
3,34 3,373,03 3,242,82
Jun'09 Sep Dec Mar'10 Jun
+21 bp +21 bp +10 bp
747572 73 73
Jun'09 Sep Dec Mar'10 Jun
… and, at Group level, credit risk is firmly under control…NPL and coverage ratios
Grupo SAN
Percentage
Group ratios (Mar.’10)
NPLs Coverage
5,89%
3,34%
SAN European peers
Net NPL entries*. Group total
NPLs Coverage
(*) Excluding perimeter and exchange rate impact
2,32,8
3,54,3
5,34,9
3,43,43,9
4,2
Q1'08 Q2 Q3 Q4 Q1'09 Q2 Q3 Q4 Q1'10 Q2
EUR billion
+3 bp
6.027 6.181 6.727
3.275
6.6796.679
12.219 13.232
6.682
11.770
19.91118.89818.497
12.863
9.302
Dec 07 Dec 08 Dec 09 Mar'10 Jun'10
Specific
Generic
EUR million
Totalfunds
Balance sheet provisions
… with strong capital ratios and a comfortable liquidity position…
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20… which has translated into very positive stress test results
10,1
8,2
9,3
9,2
9,6
8,5
10,2
10,0
9,0
7,8
8,78,8
9,1
10,9
9,4
12,5
8,1
10,0
8,86,3
9,7
9,9
11,2
4,7
10,013,7Barclays
Santander
Nordea
Intesa SP
BBVA
Lloyds
BNP Paribas
BPCd'Epargne
HSBC
Societe Generale
Credit Agricole
Unicredit
DZ BankING Bank
Commerzbank
Dexia
KBC Bank
Rabobank
LB Baden-Wurttemb.
Danske Bank
Bayerische LBJupiter - Cajamadrid
Deutsche Bank
ABN/Fortis
RBS
Hypo Real Estate
-0,1
-0,1
-0,1
-0,4
-0,5
-0,6
-0,6
-0,7
-0,7
-0,8
-1,2-1,4
-1,4
-1,4
-1,5
-1,6
-1,7
-1,7
-2,1-2,3
-2,9
-3,1
-3,2
-4,7
0,0
0,7
TIER I (p.p.) Var. / 2009 (p.p.)
After paying EUR 4.4billion of dividends andrebuild EUR 1.8 billionof generic provisions…
… equivalent to1.07 p.p. of Tier I
(which would rise to11.1%)
Adverse scenario 2011: continue paying dividends, building upgeneric provisions and maintaining intact its Tier I
(*) Comparison with 25 large European banking groups (with balance sheets of over EUR 300billion, according to The Banker, July 2009-) included in the stress testSource: CEBS, on a like-for-like basis for all analysed entities
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Macro and banking outlook: a dual WorldMacro and banking outlook: a dual World
Santander’s strategy in a dual WorldSantander’s strategy in a dual World
ConclusionsConclusions
Our recent transactions reflect our strategyOur recent transactions reflect our strategy
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Portugal3%
Santander
Consumer Finance12%
Europe- rest
7%
US (Sovereign)2%
Mexico6%
UK
13%
BRAZIL
29%
Chile5%
Rest of LatAm4%
SPAIN- retailbanking (SAN
network +
Banesto)
19%
Emerging
markets: 44%
Emerging
markets: 44%
Developedmarkets: 56%
Developedmarkets: 56%
Operating profit breakdown (ex Corporate Center)- 2009Operating profit breakdown (ex Corporate Center)- 2009
11
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Santander’s M&A strategy in the new environment
HIGH GROWTH, STABLEEMERGING MARKETS:
Increase our presence:
• Minorities- Mexico
• Poland (BZW)
HIGH GROWTH, STABLEEMERGING MARKETS:
Increase our presence:
• Minorities- Mexico
• Poland (BZW)
DEVELOPED MARKETS:Take advantage of restructuringprocess / gain market share:
• RBS branches (UK)
• Germany (SEB)• Consumer finance (US)
DEVELOPED MARKETS:Take advantage of restructuringprocess / gain market share:
• RBS branches (UK)
• Germany (SEB)
• Consumer finance (US)
… plus asset disposals of non-core assets / in non-core markets
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• The acquisition increases our exposureto a high growth, core business• We were “underweight” Mexico
Minorities- Mexico Poland- BZW
-
1.000
2.000
3.000
4.000
- 500 1.000 1.500 2.000
Total GDP (USD bn)
C o n t r i b u t i o n t o S A N
G r o u p - E U R m
( Q 1 1 0 a n n u a l i s e d )
Brazil
Mexico
Chile
Argentina
ColombiaPR
Urg.
• We strengthen our presence in a market withpotential: Poland (“vertical strategy”)
• Potential to add value (improve efficiency+accelerate commercial growth)
196
276
319
367
400
441
472
512
1,028
1,228
SC Poland
Bank 9
Bank 8
Bank 7
Bank 6
Bank 5
Bank 4
BZ WBK
Bank 2
Bank 1
Branches (Excluding Agency Outlets)Ranking by Players - 2009
16.1%16.1%
8.0%8.0%
7.4%7.4%
6.9%6.9%
6.3%6.3%
5.8%5.8%
5.0%5.0%
4.3%4.3%
3.1%3.1%
19.3%19.3%
Increasing our exposure to strong local franchises, with critical mass, inemerging markets
Increasing our exposure to strong local franchises, with critical mass, inemerging markets
HIGH GROWTH, STABLE EMERGING MARKETSHIGH GROWTH, STABLE EMERGING MARKETS
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• Increase market share in the UK market
RBS branches (UK) Germany (SEB)
Consumer finance (US)
UK Map re distribution
coverageSavings 73%
Current
accounts 27%
Note: Of the 40 SME centres, a number are co-located with branches. All 4 corporate banking centres are co-located with SME centres.
4 corporate banking centres3 private banking centres
318 branches40 SME centres4 corporate banking centres3 private banking centres
318 branches40 SME centres4 corporate banking centres3 private banking centres
318 branches40 SME centres
Cardiff
Bristol
Liverpool
Leeds
Manchester
Cardiff
Bristol
Liverpool
Leeds
Manchester
Cardiff
Bristol
Liverpool
Leeds
Manchester
Branch network coverage
5,750 customer-facingFTE plus certain directsupport functions
• Accelerateour expansionin the SMEmarket
• Improveefficiency
• Increase market share in theGerman market
• Apply our retail banking businessmodel- improve commercialperformance and efficiency
• Synergies / economies of scale withexisting (mainly consumer finance)business in Germany
• Leverage existing platform
Take full advantage of restructuringprocesses / gain market share /strengthen market position
Take full advantage of restructuringprocesses / gain market share /strengthen market position
DEVELOPED MARKETSDEVELOPED MARKETS
IMPROVE EFFICIENCY +DE-RISK / FOCUS ON CORE BS.
IMPROVE EFFICIENCY +DE-RISK / FOCUS ON CORE BS.
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All transactions meet our financial criteria
Eps growth- 2013 ROI- 2013
Highgrowth /
emergingmarkets
Mature
markets
+0% +2% +4%
Mexico
Poland
RBS
branches
0% 10% 20%
Mexico
Poland
RBS
branches
… and we have the necessary management resources to execute them
W t Ti 1 t i f 8% f FY 2011
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26We expect a core Tier 1 rate in excess of 8% for FY 2011,as a result of our strong organic capital generation
We expect to be fully BIS III compliant by 2013We expect to be fully BIS III compliant by 2013
0.9%
0.3%
8.6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Starting Point
June 2010
Organic Capital
Generation
Acquisitions Scrip Dividends
(2010)
"Organic" CT1
Dec 2011
8.4%
/
8.6%
-1.2%/-1.4%
Minorities Mexico -30bpGermany RB’s SEB -8bpPoland (BZ WBK) -40/-60bpRBS Branches -40bp 8.6%
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Macro and banking outlook: a dual WorldMacro and banking outlook: a dual World
Santander’s strategy in a dual WorldSantander’s strategy in a dual World
ConclusionsConclusions
Our recent transactions reflect our strategyOur recent transactions reflect our strategy
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We have a WELL BALANCED BUSINESS PORTFOLIO:
We generate 44% of our operating profits in our core emerging markets…
… and 56% in our core mature markets
We can deliver strong results in both parts of our portfolio…
In developed markets…
take full advantage ofrestructuring processes /gain market share /strengthen marketposition
In developed markets…
take full advantage ofrestructuring processes /gain market share /
strengthen marketposition
In emerging markets…
increase our exposure tostrong local franchises,
with critical mass, inemerging markets
In emerging markets…
increase our exposure tostrong local franchises,
with critical mass, inemerging markets
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