BANCO SANTANDER, SA
Hecho Relevante #99984 - 10/11/2008 10:21
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Santander Rights Issue
10 November 2008
José Antonio Alvarez, Group CFO
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Important information
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 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, 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.
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Important information
We expect to file a registration statement (including a prospectus) later today with the SEC for the offering to which this communication
relates. Before you invest, you should read the prospectus in that registration statement and other documents we have filed with the
SEC for more complete information about us and this offering. You may get these documents for free by visiting EDGAR on the SEC
Web site at www.sec.gov. Alternatively, we, any underwriter or any dealer participating in the offering will arrange to send you the
prospectus if you request it by calling (212) 350-3681.
The prospectus will give further details of the New Shares and the Pre-emptive Subscription Rights to be offered pursuant to the Rights
Issue.
This presentation is not a Prospectus but an advertisement (within the meaning of the United Kingdom Prospectus Rules) and investors
should not subscribe for any New Shares or purchase any Pre-emptive Subscription Rights referred to in this presentation except on
the basis of the information contained in the Prospectus.
This presentation does not constitute an offer to sell, or a solicitation of an offer to subscribe for, the Pre-emptive Subscription Rights or
the New Shares being issued in connection with the Rights Issue, in any jurisdiction in which such offer or solicitation is unlawful.
Neither the content of the Santander website nor any website accessible by hyperlinks on the Santander website is incorporated in, or
forms part of, this presentation.
The distribution of this presentation and/or the prospectus and/or the transfer of Pre-emptive Subscription Rights and/or New Shares
into jurisdictions other than Spain, the United Kingdom and Portugal may be restricted by law. Persons into whose possession this
presentation comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions
may constitute a violation of the securities laws of any such jurisdiction.
The Share Securities Note and the Summary of the share capital increase of Banco Santander, S.A. with pre-emptive subscription
rights through the issuance of ordinary shares of the Bank (the “Capital Increase”) are currently pending approval by the National
Securities Market Commission (“CNMV”) in Spain. Once approved, the Share Securities Note and the Summary, together with the
Share Registration Document approved and registered by the CNMV on October 29, 2008, will constitute the Prospectus of the Capital
Increase, which will be made available to investors on the web sites of Santander (www.santander.com) and the CNMV
(www.cnmv.es), at the registered offices of Santander, the relevant stock exchanges and the agent.
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Proposed rights issue
Proposed rights issue
Why we propose this rights issue
Why we propose this rights issue
Conclusions
Conclusions
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EUR 7.2bn capital increase
Capital increase of EUR 7.2bn with Preferential Subscription Rights
Amount Number of shares: 1,599mm
1 new share for 4 existing ones
Pricing: EUR 4.5 per share
Discount: 46.0% to previous day price or 40.6% to TERP
Theoretical value of each subscription right: EUR 0.77
Terms and
Merrill Lynch structured the transaction, which is fully underwritten
Conditions* Merrill Lynch, Banc of America and Santander Investment are acting
as global coordinators and joint bookrunners; Credit Suisse as joint
bookrunner; Calyon as joint lead-manager; and Fox-Pitt Kelton as
co-lead manager
Timetable Subscription period: 13 Nov.-27 Nov.
Expected Listing of new shares: 4 Dic.
Financial Core Tier 1 impact: >100bp
impact**
(*) Calculated on the basis of the closing share price of 7 November 2008 of €8.34
(**) Calculated based on the average expected 2008E RWAs for UBS, KBW, Morgan Stanley,
Merrill Lynch and Raymond James equity research estimates. Pro-forma for $61bn RWAs linked
to Sovereign
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Proposed rights issue
Proposed rights issue
Why we propose this rights issue
Why we propose this rights issue
Conclusions
Conclusions
In Q3’08 Santander again did well in an extremely complex 7
environment ...
Quarterly ordinary attributable profit Group’s ordinary attrib. profit
EUR million
2.524
+15.8%
2.206 2,205 6.935
2.074 2.113 2.121
1.802 5.990
Q1'07 Q2 Q3 Q4 Q1'08 Q2 Q3 9M'07 9M'08
EPS* 28.9 33.2 33.9 31.9 33.1 37.9 33.0 EPS* (€) 0.96 1.04
(€ cents)
+8.3%
In Q3’08 capital gains of EUR 586 million from the sale of Santander Financial
City are not included
(*) To calculate the EPS we are including the number of shares corresponding to Valores
Santander issued in October 2007.
… which allows us to continue widening the gap with our 8
competitors* ...
H1’08 profit (EUR mill.) EPS (% chg 2007**)
C1 5,050 SAN (ordinary) +8.3
SAN 4,730 C1 +6.2
C2 3,486 C2 +2.2
C3 3,108 C3 -10.3
C4 3,105 C4 -18.1
C5 2,873 C5 -18.2
C6 2,862 C6 -19.3
C7 2,775 C7 -27.2
C8 2,454 C8 -31.6
C9 2,366 C9 -34.8
C10 2,218 C10 -37.4
C11 1,740 C11 -56.1
C12 1,574 C12 -57.3
C13 1,381 C13 -62.5
C14 1,378 C14 -62.6
C15 1,202 C15 -66.4
C16 968 C16 -66.4
C17 744 C17 -76.1
C18 -1,035 C18 n.a (+/-)
C19 -4,974 C19 n.a (+/-)
C20 -7,406 C20 n.a (+/-)
Source: The banks’ quarterly reports (**) Latest data available: 9M’08/9M’07 or H1’08/H1’07
(*) Large banks that due to their size, characteristics and /or degree of direct competition are the referenced
banks to surpass: Banco Itaú, Bank of America, Barclays, BBVA, BNP Paribas, Citigroup, Credit Agricole,
HBOS, HSBC, Intesa Sanpaolo, JP Morgan, Lloyds, Mitsubishi (Q4’07+Q1’08), Nordea, Royal Bank of
Canada, RBS, Societe Generale, UBS, UniCredit, Wells Fargo.
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… not only in profits but also in capital and dividends ...
Strong profit generation + sound balance sheet (no Structured credit
products)…
… surpassing our target core capital
of 6% ... We think a > 6% CT1 ratio is
enough in economic terms for
Santander: Core capital our business model...
6,25% 6,31%
Target
6% CT1 + generic provisions above
7% CT1
A largely plain vanilla balance
sheet
…with a high conversion ratio
Dec'07 Sep'08
of RWA / Assets
A strong recurrent profit > 2 bn
Additionally, EUR 6.3 bill. on-balance per quarter
sheet generic funds
Note: Data at Dec’07, under BIS I. At Sep’08 under BIS II
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A very challenging environment that has changed the rules of
the game of the banking industry
Economic Change in industry standards
downturn
Higher quality capital
Greater Government recapitalisation
Volatility of
financial solvency processes that change the playing
Drastic field
markets demand
change Market perception of higher capital
Scarcity and needs
greater cost of in the
liquidity
banking
Government sector
intervention
Higher
Excess leverage capital
ratios
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We have decided to raise our core Tier 1 target from 6% to 7%
Santander’s core capital has recurrently been New target
around 6% ... (after integrations)
~ 7%
6.25% 6.31%
Previous
6.14% 6.05% 5.91%
target 6%
5.07% 5.05%
2002 2003 2004 2005 2006 2007 Sep'08 Core capital
... consistent with sustained growth of the Maintaining approx.
cash dividend 50% pay-out
CAGR (02–07) = +18% in cash
Note: Data at Sep’08 under BIS II. Other years under BIS I.
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To attain the new target core capital we propose …
… a capital increase with rights
aimed to our shareholders.
A differential transaction vs. our
competitors ...
We aim to keep our
We continue to
With a low risk Dividend per Share
deliver solid flat in 2009 relative
results … balance sheet
to 2008
A rights issue alternative is the most fair alternative to our Shareholders
We have additional capacity to strengthen our core 13
capital over time…
... with an efficient capital management
Ordinary generation
Approx. 40 - 50 b.p. /year
of free capital
Deleverage of non- In Abbey + A&L: £ 20-30 Bill.
core assets in new
acquisitions In Sovereign: US$ 10 Bill.
Financial City Accomplished
Banco Venezuela and /or
Potential sales of ABN shared assets
underway
non-core assets Industrial equity stakes (Cepsa)
Product factories (AM, insurance)
Any sale will be realised only at attractive prices for our shareholders
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Transaction rationale
We have taken the strategic decision to operate with higher
A drastic change
capital ratios within an environment of greater uncertainty and
in the banking a market demand for higher capital ratios in the financial
sector industry
It is NOT related to
We do not have acquisition plans
acquisitions
No hidden losses: credit quality evolution better than the
It is NOT related to market
hidden losses
– We have EUR 6.3 billion of generic provisions
It does NOT reflect Businesses maintain a good performance
a deterioration – Lower business volume than what we envisaged at the
trend of the beginning of the year, but higher spreads, and better
business cost control
In short, a transaction to further strengthen our 15
solvency relative to the sector
We are ahead of our competitors … …and benefit from a
higher core capital
“Quality” balance sheet / structure credit ~ 7%
assets
High NPL coverage
Maximum quality capital
Two digit profit increases
+
We turn to our shareholders…
…without cutting the cash dividend per
share in 2009 Target
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Dividend Policy
We aim to keep our Dividend per Share flat in 2009
DPS impact relative to 2008 (with payout remaining around the 45-
55% level), paid fully in cash
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Proposed rights issue
Proposed rights issue
Why we propose this rights issue
Why we propose this rights issue
Conclusions
Conclusions
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A transaction to further strengthen our solvency relative to the
sector
In the new environment, we have decided to increase our Core Tier 1
target from ca. 6% to ca. 7%
In this context, a EUR 7bn rights issue allows us to reach the best
balance between earnings and capital
We have additional capacity to strengthen our core capital through profit
retention, selective de-leverage and disposals. However, we will only sell
non-core assets if the price is right for our shareholders
We aim to keep our DPS flat, fully paid in cash, in 2009, with our payout
around the 45-55% level. This continues to translate into a very attractive
yield for our shareholders.
Investors and Analysts Relations
Ciudad Grupo Santander
Edificio Pereda, 1ª planta
Avda de Cantabria, s/n
28660 Boadilla del Monte, Madrid (España)
Teléfonos: 91 259 65 14 - 91 259 65 20
Fax: 91 257 02 45
e-mail: investor@gruposantander.com
www.gruposantander.com
Fuente: CNMV