BANCO SANTANDER, SA
Otras Comunicaciones #27531 - 31/10/2008 11:31
Presentación relativa a Santander Brasil.
PDF Adjunto:
GRUPO
SANTANDER BRASIL
Integration for
leadership
São Paulo. 31 October 2008
José Antonio Álvarez,
CFO Santander
2
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.
3
Introduction
Introduction
Our Portfolio Management principles
Our Portfolio Management principles
Why invest in Brazil
Why invest in Brazil
Why we are comfortable with Brazil representing 20% of our portfolio / /earnings
Why we are comfortable with Brazil representing 20% of our portfolio earnings
Financials //Guidance
Financials Guidance
Summary //outlook for SAN
Summary outlook for SAN
4
Introduction
Our goal as a Group:
Our goal as a Group:
To deliver long term, high quality,
To deliver long term, high quality,
recurrent profit growth…
recurrent profit growth…
… profit growth 5% above
… profit growth 5% above
our competitors in any cycle
our competitors in any cycle
5
What does “high quality growth” mean?
P&L Quality: Good “vertical quality”:
P&L Quality: Good “vertical quality”:
Bottom line growth driven by customer activity; higher quality P&L lines
Bottom line growth driven by customer activity; higher quality P&L lines
(e.g., customer NII, fees) are the main growth drivers
(e.g., customer NII, fees) are the main growth drivers
P&L Quality: Good “horizontal quality”:
P&L Quality: Good “horizontal quality”:
All units contributing to bottom line growth
All units contributing to bottom line growth
Balance sheet quality:
Balance sheet quality:
We have never chosen to compromise future growth by relaxing risk
We have never chosen to compromise future growth by relaxing risk
standards
standards
Customer Service Quality: Some banks feel the temptation to trade
Customer Service Quality: Some banks feel the temptation to trade
customer satisfaction (i.e., long term franchise value) for short-term profits.
customer satisfaction (i.e., long term franchise value) for short-term profits.
6
Introduction
Introduction
Our Portfolio Management principles
Our Portfolio Management principles
Why invest in Brazil
Why invest in Brazil
Why we are comfortable with Brazil representing 20% of our portfolio / /earnings
Why we are comfortable with Brazil representing 20% of our portfolio earnings
Financials //Guidance
Financials Guidance
Summary //outlook for SAN
Summary outlook for SAN
Portfolio management 7
Our principles:
1 •• A “diversified growth” business portfolio
1 A “diversified growth” business portfolio
2 •• Good balance between mature and emerging markets
2 Good balance between mature and emerging markets
3 •• “Vertical Strategy”
3 “Vertical Strategy”
4 •• “Natural owner”
4 “Natural owner”
5 •• Conservative Balance-Sheet management
5 Conservative Balance-Sheet management
8
1 •• A “diversified growth” business portfolio
1 A “diversified growth” business portfolio
Principal Segments Business Areas
Attributable profit Proforma* Profit before Taxes- proforma
EUR Mill. and %
Retail Units
Europe UK Commercial
Banking
13%
(943) Global
42% 17% Banking &
79% Markets
(3,059) 29%
(2,167)
4%
Insurance /
6% 10% Asset Mgmt
(725) Latam
(471)
Other ABN-Real
83%
Europe retail
(*) Operating areas attributable profit + ABN Real (accounted for by the equity method
in Financial Management and Equity Stakes): EUR 7,365 mill.
9
2 •• With a good balance between mature and emerging markets…
2 With a good balance between mature and emerging markets…
Principal Segments
EUR Mill. and %
Retail Units
Europe
UK
13%
(943)
60% 42%
(3,059) 29%
40%
Mature (2,167)
Emerging
6% 10%
(725) Latam
(471)
Other ABN-Real
Europe
… and we are one of the few international banks with
a significant presence in a “BRIC” country
10
3 •• “Vertical Strategy”
3 “Vertical Strategy”
Strong positions //critical mass in a limited number of
Strong positions critical mass in a limited number of
attractive markets to obtain competitive efficiency levels
attractive markets to obtain competitive efficiency levels
75%
Cost / income ratio (H1 08)
Abbey
2004
65%
55%
Abbey Abbey 2008
2007 proforma
45%
Portugal
Brasil - Chile
35% Standalone Brasil -
Spain Proforma
Mexico
25%
0% 5% 10% 15% 20% 25%
Market share (branches)
11
4 •• “Natural Owner”
4 “Natural Owner”
0 3 .5 0 0 7 .0 0 0 1 0 .5 0 0 1 4 .0 0 0
S a n ta n d e r
“Natural Owner” means:
“Natural Owner” means: W e lls F a rg o (1 )
U n ic re d it
HSBC
Businesses we perfectly know
Businesses we perfectly know
C i ti
In te s a S P
how to manage (where we can
how to manage (where we can B B VA
create value)…
create value)…
B N P P a rib a s (1 )
B a n k o f A m e ric a (1 )
J P M o rg a n (1 )
We are the
… in markets we know well
… in markets we know well B a r c l a ys international
RBS
bank with the
largest branch network
The market recognises us a
The market recognises us a
“Natural Owners” of:
“Natural Owners” of: Our philosophy:
Our philosophy:
Retail and Commercial banks
Retail and Commercial banks Expand the “front”
Expand the “front”
Branch based //focused on distribution
Branch based focused on distribution
In our “home markets” (Europe //America)
In our “home markets” (Europe America)
Cut the “back”
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5 •• Conservative Balance Sheet management
5 Conservative Balance Sheet management
Group- 30/06/08
900
800
700
Loan
•• Low liquidity risk
Low liquidity risk 600
Loan
portfolio
portfolio
funded with
292,0 Deposits
funded with
E U R bn
500 Loans 560,4 deposits,
deposits,
M/T, L/T
M/T, L/T
••Strong capital base
M/T, L/T
400 155,0
Strong capital base 300
funding
funding
99,0
funding
Securitisations
200 38,3 Capital instr.
••Sound credit policies
Sound credit policies 100
Fixed assets
Financial
84,7
Negative
Negative
84,6 Capital / others
126,3 carry trade 102,5
and monitoring markets carry trade S/T funding
and monitoring 0
Assets Liabilities
Activo Pasivo
Santander: Core capital
••Disciplined
Disciplined
international expansion
international expansion Target
6,25% 6,31%
6%
i.e., a low risk portfolio
i.e., a low risk portfolio
Dec'07 Sep'08
13
Introduction
Introduction
Our Portfolio Management principles
Our Portfolio Management principles
Why invest in Brazil
Why invest in Brazil portfolio / earnings
Why we are comfortable with Brazil representing 20% of our
Why we are comfortable with Brazil representing 20% of our portfolio / earnings
Financials //Guidance
Financials Guidance
Summary //outlook for SAN
Summary outlook for SAN
Why invest in Brazil? 14
1
1 Largest market in LatAm
Largest market in LatAm
2
2 Risk profile has changed // no way back
Risk profile has changed no way back
3
3 Banco Real fits well in our portfolio
Banco Real fits well in our portfolio
1
1 Brazil is the largest market in Latin America
Brazil is the largest market in Latin America
15
Brazil
LatAm - Others •• 40% of LatAm in terms of GDP
40% of LatAm in terms of GDP
($ 1.3tr) and Population (189mn)
($ 1.3tr) and Population (189mn)
•• Top 10 economy in the World
Top 10 economy in the World
GDP 40% •• Good demographical profile, labour
60% Good demographical profile, labour
force over 100 mn people and low
force over 100 mn people and low
unemployment
unemployment
•• Natural resources only partly
Natural resources only partly
explored
explored
Population •• Less volatility in GDP growth and
Less volatility in GDP growth and
inflation
inflation
39%
61% You can not have a leading
franchise in LatAm without a
strong presence in Brazil
LatAm – Others:
Argentine, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela
Source: IMF
1
1 … with significant potential to improve bancarisation
… with significant potential to improve bancarisation
16
••Low banking penetration on
Low banking penetration on
debt and deposits on GDP.
debt and deposits on GDP.
••Rise of the middle class
Rise of the middle class
and neccesary reduction in
and neccesary reduction in
inequality of income
inequality of income
distribution.
distribution.
GDP growth Bancarisation
Growth
••Regulatory steps to ease
Regulatory steps to ease
access to banking
access to banking
products.
products.
2
2 Risk profile has changed, and this time there is no way back
Risk profile has changed, and this time there is no way back
17
Why is this time different?
Why is this time different?
A virtuous circle out of policy improvement and commodity prices leads
A virtuous circle out of policy improvement and commodity prices leads
to the development of local capital markets
to the development of local capital markets
Increased
confidence
Reliance on domestic saving
– Current account surplus
– Primary Fiscal surplus
Floating exchange rates Debt issuance
– competitive adjustments if
required – Local denominated
– Long term
Independent monetary maturities
policy – Fixed rates
– Sucessful fight against – Long yield curve
inflation
2
2 Risk profile has changed, and this time there is no way back
Risk profile has changed, and this time there is no way back
18
Brazil’s virtuous circle
2500 Increased confidence
2000
1500 EMBI+ (Basic points)
1000
500
0
oct-01 oct-02 oct-03 oct-04 oct-05 oct-06 oct-07 oct-08
Solid fundamentals
Debt issuance
100%
Fixed
80%
Open market -
others 60%
Price indexed
40%
Exchange
20%
Selic
0%
BCB as of august 2008 2001 2002 2003 2004 2005 2006 2007 2008
2
2 Risk profile has changed, and this time there is no way back
Risk profile has changed, and this time there is no way back
19
Therefore, Brazil is in a more sustainable financial position:
••Increase in fiscal
Increase in fiscal
orthodoxy
orthodoxy
••Increase in monetary
Increase in monetary
orthodoxy
orthodoxy
••Terms of trade
Terms of trade
••Higher market confidence
Higher market confidence
= longer debt durations
= longer debt durations
(= virtuous cycle)
(= virtuous cycle)
••Development of a yield
Development of a yield
curve = higher durations,
curve = higher durations,
development of some
development of some
businesses (e.g.,
businesses (e.g.,
mortgage market)
mortgage market)
••This has led to investment
This has led to investment
grade status
grade status
In summary, the “growth multiplier” in Brazil seems to 20
us more attractive than in most emerging markets…
HIGH GDP INCREASED
GROWTH BANCARISATION
3
3 Banco Real perfectly fits with our portfolio
Banco Real perfectly fits with our portfolio
21
Real is a bank that fits with our business model
Santander is a
Santander is a Banco Real
Banco Real
“natural owner” of:
“natural owner” of:
•• Retail and commercial banks •• Real’s core business is retail
Real’s core business is retail
Retail and commercial banks
/ /commercial banking
commercial banking
•• Branch-based / /focus on
Branch-based focus on
distribution •• Adds c.2000 branches,
Adds c.2000 branches,
distribution
c.10.000 ATM’s…
c.10.000 ATM’s…
•• With strong customer bases
With strong customer bases •• Good customer franchise…
Good customer franchise…
•• Stable deposit bases
Stable deposit bases •• …with R$ +60bn deposits!
…with R$ +60bn deposits!
•• Where we can create value
Where we can create value •• In-market synergies
In-market synergies
•• In markets that we know well / /
In markets that we know well •• LatAm is one of our core
LatAm is one of our core
with growth potential
with growth potential markets
markets
3
3 Banco Real perfectly fits with our portfolio
Banco Real perfectly fits with our portfolio
22
Good fit with
Good fit with Good fit in our Group
Good fit in our Group
Santander Brasil
Santander Brasil
Excellent
Excellent Retail Spain
Retail
Portugal
Retail
UK
… Retail Latam
geographical fit
geographical fit
Wholesale
Consumer finance
Low product //
Low product Cards
customer overlap
customer overlap
Asset Management
Insurance …
23
Introduction
Introduction
Our Portfolio Management principles
Our Portfolio Management principles
Why invest in Brazil
Why invest in Brazil
Why we are comfortable with Brazil representing 20% of our portfolio / /earnings
Why we are comfortable with Brazil representing 20% of our portfolio earnings
Financials // Guidance
Financials Guidance
Summary //outlook for SAN
Summary outlook for SAN
At the time of the ABN Amro transaction, we announced 24
EUR 810 million in pre-tax synergies
EUR Million
110 810
135 700
70
40
150
305
Cost IT Ops Head Merger Total Revenues TOTAL
reduction Integration Integration Office costs SYNERGIES
Real integration synergies
This was a previous “educated estimate” from the outside
We have now developed a better assessment of the potential
We have upgraded our cost synergy estimate 25
R$ 1.9bn (*) R$ 0.5bn R$ 2.4bn
(= EUR 700 bn.)
Original synergies Synergy upgrade Revised synergies
(*) R$ 1.9bn equivalent to EUR 700m (May 07 exchange rates)
Cost synergies upgraded from 18% to 22% of proforma combined
2006 costs
We expect the following business dynamics… 26
Healthy revenue growth: significant increase in customer
Healthy revenue growth: significant increase in customer
base and business volumes
base and business volumes
Flat margins, through increased revenue by customer
Flat margins, through increased revenue by customer
(linkage + cross-selling) and change in business mix.
(linkage + cross-selling) and change in business mix.
Improved efficiency: Flat costs, with cost synergies
Improved efficiency: Flat costs, with cost synergies
exceeding those initially announced and absorbing
exceeding those initially announced and absorbing
incremental investments (commercial capacity)
incremental investments (commercial capacity)
•• Expected “jaws”: 15pp (vs competitors’ 4pp)
Expected “jaws”: 15pp (vs competitors’ 4pp)
Natural increase in credit provisions… but our risk
Natural increase in credit provisions… but our risk
appetite will continue to be low
appetite will continue to be low
Increased capital generation
Increased capital generation
…that translate into our detailed Business Plan 2008-2010: 27
Targets 2008-2010
% growth in Brazilian Reales
Businesses: 15-20% CAGR
Customer ~
revenues: =
15% CAGR Attributable
Attributable
Expenses: < 0% in 2009 and 2010 profit: >25%
profit: >25%
Cost synergies*: R$ 2,400 mln. CAGR 08-10
CAGR 08-10
Provisions: growing in line with the
lending portfolio and the
business mix
(*) Cost synergies in 2011
We expect a R$ 7.9bn net profit (for both banks
combined) in 2010
28
Introduction
Introduction
Our Portfolio Management principles
Our Portfolio Management principles
Why invest in Brazil
Why invest in Brazil
Why we are comfortable with Brazil representing 20% of our portfolio / /earnings
Why we are comfortable with Brazil representing 20% of our portfolio earnings
Financials //Guidance
Financials Guidance
Summary // outlook for SAN
Summary outlook for SAN
Summary / outlook for SAN 29
•• We are going to reach // surpass the goals we
We are going to reach surpass the goals we
exposed in the ABN – Banco Real acquisition
exposed in the ABN – Banco Real acquisition
•• Brazil is an important source of growth for
Brazil is an important source of growth for
Santander in the next years
Santander in the next years
•• We are well positioned to continue delivering
We are well positioned to continue delivering
stronger results than our competitors
stronger results than our competitors
Brazil’s plan, by itself, translates into
+5% annual profit growth for the Group
over the 2008-2010 period1
1 In constant currency terms
Fuente: CNMV