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Speech by Ana Botín 2015 in the Annual General Meeting

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Speech by Ana Botín 2015 in the Annual General Meeting

  1. 1. Annual General Meeting-Ana Botin speech 1 ANA BOTÍN ANNUAL GENERAL MEETING SHAREHOLDERS SANTANDER– 27 MARCH 2015 1. INTRODUCTION Before starting this meeting I want to want to say a few words about last Tuesday´s airline tragedy. On behalf of the Board of Directors and the entire team at Grupo Santander, as well as I am sure, the shareholders here today, I would like express my deepest sympathy to those affected by the tragedy. We have sent condolences to the Governments of the affected countries. Mr. President of the Government of Cantabria, Mr. Mayor of the city of Santander, Ladies and gentlemen shareholders, Good morning and thank you for joining us today. I would like to start by thanking you for your support over the years. Your trust has always been critical for the success of Banco Santander. Since the Bank was founded, the attention to and relationship with our shareholders has always been one of Santander’s priorities, and it will continue to be. Today, Banco Santander is in an excellent position. As I said at the Extraordinary Shareholders’ Meeting held last September, this is largely due to the work, strategic vision and leadership of the former Chairman, Emilio Botín. Under his chairmanship, Santander, went from being the seventh bank in Spain to becoming the largest bank of the Eurozone, the most prominent franchise in Latin America and one of the world’s top ten banks in terms of market capitalisation.
  2. 2. Annual General Meeting-Ana Botin speech 2 Since I joined the Bank in 1988, I always worked closely with him, both on the board and in the executive duties I have had, from the expansion in Latin America to heading Banesto and Santander UK. Today, thanks to his vision, Santander is not only larger but more diversified and sound, as shown by its resilience during the financial crisis. Santander is one of only three large financial institutions which have not reported losses in a single quarter throughout the financial crisis. His support of education and culture was also outstanding. Banco Santander is an international benchmark for its commitment to Universities and communities, both in Spain and in all the countries in which we operate. Since my appointment as Executive Chairman, we have taken important decisions in four areas:  Corporate governance and the composition of the Board,  The management team,  Our capital position and dividend policy, and  The strategic review of our businesses and priorities I would like to address all these points today and also highlight the main elements of our results this year. 2. IMPROVEMENT OF CORPORATE GOVERNANCE AND CHANGES IN THE MANAGEMENT TEAM I would like to begin by talking about corporate governance and the bank´s team. The changes made to the bank´s Board and management team aim to provide it with the best prepared and most qualified people; and endow the group with the best international practices in corporate governance. Banco Santander meets all recommendations, as well as the highest standards of corporate governance, that apply to it as a listed company and credit institution. Joining the Board as independent members are Bruce Carnegie-Brown, who is also vice chairman and coordinator of the non-executive directors, as well as Ms Sol Daurella and Mr
  3. 3. Annual General Meeting-Ana Botin speech 3 Carlos Fernández. This strengthens the international and financial experience of the board, providing interesting entrepreneurial expertise in consumer behaviour and customer relationships. Their appointments will be submitted for ratification today at this Annual General Meeting. The appointment of Rodrigo Echenique as executive vice chairman, means the Bank will focus even more on compliance – a vital function for the bank – and we will continue to benefit from his wealth of broad banking experience. We have strengthened and increased the independence of all the board’s committees, particularly the RiskSupervision, Regulation and Compliance Committee. We have also split the Appointments and Remuneration Committee into two independent committees. Our board is diverse and balanced: five of the 15 board members are executive and the 10 non-executive members have broad financial, regulatory and corporate expertise and knowledge of the markets where the Group operates. Of the ten non-executive members, eight are independent – representing 53% of the board. One third of the board are women. I would like to acknowledge the invaluable contributions of Fernando Asúa and Abel Matutes to the bank and their service on the Board and to thank Javier Marín for his dedication to the Bank for more than 20 years. With regards to the changes to the Bank’s executive teams, the new Chief Executive Officer, José Antonio Álvarez, has a long track record with the group, where he has been Chief Financial Officer for over a decade. He is the ideal person for this new chapter. . The rest of the appointments made are a natural part of this renewal process. They are intended to strengthen those areas on which the Group wants to focus, drawing on the Bank’s executive talent. We have also strengthened our management teams and the boards in the United Kingdom, the United States, Brazil and Spain, with new chairmen of the boards in Santander UK, Brazil and the US, among other changes. 3. ECONOMIC ENVIRONMENT AND 2014 RESULTS Now I would like to talk about our results last year. 2014 saw a slight recovery in the global economy, with particularly strong growth in the United States and the United Kingdom.
  4. 4. Annual General Meeting-Ana Botin speech 4 In Latin America, growth slowed further in light of falling commodity prices and less expansive financial conditions. The ongoing reforms in countries like Mexico suggest an acceleration of growth in the mid-term. Brazil – another of our core markets – is going through a year of transition but the new Government is taking the necessary measures so that the economy realises its potential as soon as possible. Aside from the broader context, our bank in Brazil is making significant progress and we are convinced of its advance in a very competitive market. In Europe, the recovery is still ”work in progress”. The most important thing is that Europe now has more solid and stronger institutions, making it more resilient in the face of the challenges which may arise in the future. Banking Union is almost a reality. The European Central Bank has taken on the functions of the Single Supervisor and a European resolution framework is already in place. With the important advances made in Banking Union, the European financial system is stronger and more solid, and more able to support the growth of European economies. Last year the ECB performed an asset quality review (AQR) and an assessment of the impact of various severe scenarios on the capital of the European banks (the so-called stress test). In both tests, Santander achieved excellent results, being the best of the largest banks assessed, in terms of the adjustments needed to its balance sheet. This demonstrates the Bank´s soundness, analysed from an objective and demanding perspective, and compared with the rest of the European banks. In 2014 Santander generated an attributable profit of €5,816m, which represents a 39.3% year-on-year increase. The chief executive officer will provide you with more in-depth information on the main performance indicators of the Group. But I would like to highlight some aspects which strike me as being particularly important:  The quality of profits, which reflect an increase in profit before taxes in all the Group’s units and net improvement in results,
  5. 5. Annual General Meeting-Ana Botin speech 5  the reduction in the NPL ratio to 5.2%, and also of the cost of credit, which we are sure will continue to improve and,  the containment of costs, which increased below the inflation rate at a Group level, placing our cost to income ratio at 47%, one of the best in the sector in Europe. For the year 2014, total shareholder return was 17.2%, 10% of which corresponds to the dividend and the rest to the increase in share price. Our competitors’ average shareholder return was 2%. Since the day of the capital increase at €6.18 per share, 13 January 2015 – shareholders have seen share appreciation of 11.9%1 , which, when added to the 0.146 euro dividend means total return for shareholders of 14.3%1 in less than 3 months. 4. ECONOMIC ENVIRONMENT AND OUTLOOK FOR SANTANDER – CHALLENGES AND OPPORTUNITIES Now I would like to talk to you about the future. This year, the markets in which we operate have, in general, a positive growth outlook. Spain is a clear example of this, as is the United Kingdom, the United States, Poland, Germany, Mexico and Chile. In Brazil, as I said before, it will be a year of adjustment in which we aspire to do better than our competitors. The policy of the European Central Bank to promote greater liquidity (Quantitative Easing) will support Eurozone growth. The fall in oil prices and the depreciation of the euro will also help boost this progress. Obviously, we are closely monitoring the growing geopolitical risks. But today we have reason to be confident. Looking ahead, the financial sector today faces major challenges: Firstly, developed markets are experiencing a period of very low interest rates, which has a negative impact from the standpoint of the sector’s profitability. 1 Figure from March 26, 2015 market close
  6. 6. Annual General Meeting-Ana Botin speech 6 Secondly, the global financial system has evolved greatly over the last few years with regulatory standards that are more demanding in terms of solvency, liquidity and the commercialisation of products. According to the last report of the Basel Committee, systemic entities have increased their capital over the last 3 years by 540,000 million euros, a figure similar to the total profits obtained during the same period. And the reforms continue:  The way to calculate risk weighted assets is under review to guarantee consistency between entities and countries, and this review will result in higher demands of absolute levels of capital.  The European Union is working on a proposal for structural reform that could mean the prohibition or separation of certain business areas. We operate in an environment in which regulatory demands continue to increase, impacting costs, mainly those of technology and human resources. The important thing now is to resolve all the issues that are pending definition as soon as possible and concentrate on implementing the measures needed. A continuous and global evaluation of the impact of the new regulatory framework will be essential to guarantee that an adequate balance is reached between financial stability and economic growth. Without a doubt, the regulatory framework, although changing and ever more demanding, requires all of our attention and dedicated resources. Moreover, the model of our bank, and in particular our tradition of risk control, places us in an excellent position to address these challenges, which we will turn to our advantage. Thirdly, we must confront the challenges posed by the technological revolution and new consumer behaviour. The world is changing at an exponential rate. Our competitors are not only the traditional financial institutions or large “shadow banking” funds, subjected to less regulation and supervision, but also the major tech giants.
  7. 7. Annual General Meeting-Ana Botin speech 7 5. BUSINESS MODEL. OUR CURRENT POSITION Banco Santander is well prepared to take on these challenges. I would like to share with you our strategy and our priorities. We have a business model that is notable for:  Geographic diversification  A focus on retail banking  Our independent subsidiaries model, with a presence and market share in the countries where we operate that makes us an important competitor  The same culture and global brand, with access to the best quality international talent  Our balance sheet strength, prudent risk management and global control frameworks;  And, lastly, our investment in innovation, digital transformation and our ability to share best practices between our different local units. Banco Santander’s business model sets us apart. We are not complicated to manage, nor difficult to understand, nor do we operate a wide range of business lines scattered throughout a large number of markets. We are a bank that is:  Easy to understand, and  Focused on retail banking. We do business in ten core countries through autonomous banks with powerful local boards, backed by a corporate structure which adds value and with clear and well-defined control functions. 6. STRATEGIC REVIEW AND PRIORITIES. PURPOSE, AIM AND HOW This model offers us a unique opportunity. And we are going to take advantage of it because we have a team which shares the same purpose, that is committed to the Bank’s aim and that shares a common way of doing things, for our teams, customers, shareholders and society.
  8. 8. Annual General Meeting-Ana Botin speech 8 Santander’s purpose is to help people and businesses prosper. This is the purpose that the bank´s founders laid out here in Santander in 1857: to fund trade between Spain and Latin America and, by doing so, create jobs and prosperity on both continents. Today, Santander’s size and international scope have changed dramatically, but our attitude and our purpose are the same. Our aim is to be the best retail and commercial bank, earning the lasting loyalty of our teams, customers, shareholders and communities. If our team feels motivated, committed and rewarded, they will do everything they can to help customers. If our customers receive excellent service and feel that we fulfil their needs, their loyalty towards the Bank will increase. They will use our credit cards, our insurance policies more frequently, they will take out a mortgage with us, and they will apply for our loans. And, above all, they will tell their friends about us. When this happens, our profits and profitability grow, increasing the return for our shareholders, ensuring their loyalty and encouraging them to invest more in the Bank. This will enable us to help society even more, generating trust and loyalty towards us, and so in turn increasing the sense of pride in belonging to our team. And then this virtuous cycle will start all over again. And how are we going to go about building the best bank for everyone? What are our priorities? TEAMS Our teams come first. The people who work in the Bank play a crucial role in guaranteeing this virtuous circle and the continued success of Banco Santander. One of our most important targets for 2017 is for Santander to be one of the top three banks for employees in most of our core countries.
  9. 9. Annual General Meeting-Ana Botin speech 9 Over the last few months I have talked to our teams a lot. In all these meetings our people have said that one of their main concerns is work-life balance. They are completely committed to the bank, but they need greater balance, and that is something that many of our competitors offer today. To address this, in Santander Spain we have announced a new flexibility policy to promote a better work environment for our teams. This policy, which aims to help men as well as women, will:  Improve our organization and work planning, becoming more efficient in our time management and control the length of meetings.  Use our technology to work more flexibly. This will help our efficiency ratio, because we will be able to work remote more and travel less.  Implement mentoring programs for managers: we plan to start a programme with the members of the Management Committee, Territorial Directors, Commercial Directors and Area Directors. Progress across the group in these aspects is uneven, so we will share best practices among countries. Our goal is to go further in promoting diversity and flexibility, because we are convinced that this change will deepen our teams’ commitment to the bank. CUSTOMERS Only if we have loyal and motivated teams can we aspire to earn the loyalty of our clients. Today Santander operates in markets with over 1.0 billion people, who are potential customers. We have over 100 million customers; 53 million are active, but only 13 million are loyal, in other words customers who consider Santander their primary bank. Our target is for the number of loyal customers, both individuals and companies, to increase by around 40% by 2017, reaching 18 million. This strategy has already been proven successful in the United Kingdom, where we increased the number of loyal customers from 3 to 5 million (primary). As a result, we have
  10. 10. Annual General Meeting-Ana Botin speech 10 considerably increased our revenue and profit. Improvement in customer service was key to this success. Now, we will repeat this success in other markets. At the same time, we want to continue to improve our model of operational excellence, increasing customer satisfaction. Offering digital services will be an essential part of this process. The target we have set for 2017 is to reach 25 million digital customers, compared with the present figure of 14 million. To achieve this, we are investing heavily in developing a multi-channel distribution model where the customer is the focal point of our strategy. We want to make the customer´s experience of banking with us as easy and convenient as possible – anywhere, anyhow, anytime. We already have examples of success in the United Kingdom, where we went from 29,000 mobile telephone customers in 2011 to more than 1 million in 2014 and where approximately 1/3 of sales are carried out through digital channels. In Poland, where our mobile bank is considered one of the best in the market. In Mexico, where we have developed a voice recognition system to identify customers. Banco Santander has room for growth within our customer base and in our ten core markets. Hence, we do not need to make acquisitions. This doesn´t rule out looking at certain one-off investments, provided we add value for our shareholders. SHAREHOLDERS If we can be the best Bank for our teams and customers, we will be able to offer our shareholders growing and sustainable results. A strong capital base is key to take advantage of the opportunities for organic growth which arise in our markets, and so provide better service to our customers. For this reason, and after a detailed analysis of the different options, at the beginning of this year the Board decided to raise 7.5 billion euros of capital. We executed the transaction in the market using an accelerated bookbuilding offer. The Board decided to use this option because it is less dilutive for shareholders. Against a
  11. 11. Annual General Meeting-Ana Botin speech 11 background of market uncertainty and high market volatility, any other alternative would have meant a greater discount and more dilution. The capital increase was very well received by the market, with demand 50% higher than the shares offered. Subsequently, retail shareholders had ample opportunity to buy shares on the market at the price at which the capital increase was carried out, and even at a lower price in the days following the issue. After the capital increase, our fully loaded CET capital ratio stands at 9.7%. At the same time, the Board deemed it necessary to revise our dividend policy. In keeping with the Bank’s tradition, the goal was to continue to emphasize a cash dividend, in a way which is non dilutive and sustainable and which grows along with the Group’s earnings. The Scrip Dividend programme fulfilled its role and served the dual purpose of facilitating the bank´s capitalisation while allowing shareholders to be remunerated in shares or in cash. After the capital increase, the Board decided it was appropriate to go back to the traditional cash formula. As a result, we plan to pay a 0.20 euros per share dividend charged against 2015 results. The proposal we make today is that just one payment, corresponding to November, is made via scrip for 0.05 euros while the rest is in cash. In 2015, shareholders will receive a total of 0.40 euros per share, of which 0.30 are charged against fiscal year 2014 and 0.10 against the results of the current year, which means dividend yield per share of around 6%. Going forward, our goal is that the dividend follow the same trend as the profits generated by the Group, with a pay-out ratio of between 30%-40%, i.e., distributing between 30% and 40% of recurring profit. This new dividend policy is good both for the shareholders and the Bank. For the Board, it is just as important to offer a total return to our shareholders (increases in the share price plus the dividend) which is better than our competitors, as it is to obtain growth in earnings per share and dividends.
  12. 12. Annual General Meeting-Ana Botin speech 12 We have set ambitious targets for the 2017 year: 1. Reach ROTE (return on tangible equity) of between 12% and 14%. 2. Obtain a higher earnings per share than our competitors. COMMUNITIES If we are the best bank for our shareholders, we will be able to invest even more back into our communities. The most important way in which we help communities is through investing in education. Thanks to our commitment over so many years, Banco Santander is today the world’s number one corporate contributor to education. That is according to a report by the Varkey Foundation, in collaboration with Unesco. In 2014, we spent 146 million euros on supporting research and education and helped 28,443 students with grants. And we are going to do more. We have announced that over the next four years, we will spend another 700 million euros on universities. Let me remind you once again that our purpose is to help people and businesses prosper. For example:  Someone with a brilliant idea, who is trying to set up his first business  A couple who wish to buy their first home  A student who is worried about how to pay her university fees  A pensioner who is wondering about how to invest his life’s savings. For these people to achieve their goals, they need confidence and a bright outlook for growth. I would now like to refer specifically to Spain and the most important problem that we need to solve as a country: unemployment. As long as there are so many unemployed people, they should be our priority. We need to generate more jobs. And I think that for that to happen, economic growth is needed, along with social progress and always looking at the medium and long term.
  13. 13. Annual General Meeting-Ana Botin speech 13 As Group Executive Chairman of Santander, I want to stress that we will continue to work hard to contribute to the progress of the families and companies in Spain and other countries where we operate. Many elections will be taking place this year, against a background of an incipient recovery in Europe. It is the responsibility of political parties to make proposals to forge ahead with building a more prosperous Europe, of citizens to evaluate the options, and of the private sector and companies to make further commitments to society and to continue investing with a long-term outlook. In order to be successful, we need to work together to support entrepreneurs, companies, and to give them the tools, the confidence and the support they need to help them be more competitive, to grow and create more jobs. At Santander, this is what we are doing: in 2014 alone, we awarded 16,915 grants in Spain and the UK, 8,142 of which were so that students could work in SMEs and businesses. And we are going to continue to work side by side with universities and governments, investing in training and supporting companies. In the case of Spain, in the first two months of 2015, we increased gross lending to SMEs and companies 3.9% compared to the same period last year, mortgages 26% and consumer credit 35%. As we did in 2014, we are confident again this year that our lending in Spain will grow more than the market average. 7. SPF In short: we have improved corporate governance, we have the teams we need, the capital, we have a clear strategy, and we have set ambitious targets. To achieve these targets, we have to change the way we do things. Everything we do must be Simple, Personal and Fair.  A Simple bank offers its customers products which are easy to understand and quality service, regardless of how, when and where customers wish to bank with us. It is a bank which improves its processes from day to day, making them more simple, clear and accessible for its customers and team.
  14. 14. Annual General Meeting-Ana Botin speech 14  A Personal bank values and treats its customers as valued individuals, providing a professional and tailor made service which they can always rely on. It also supports its employees so that they can develop all their potential and achieve their ambitions.  A Fair bank treats people as they like to be treated, and seeks to deliver investors attractive returns, while contributing its share to support communities. Simple, Personal and Fair. These three words, Simple, Personal and Fair, together reflect what our teams and customers around the world tell us they want from us. If we do things in a way which is Simple, Personal and fair, then we will manage to be the best retail and commercial bank, and earn the lasting loyalty of our employees, customers, shareholders and communities. 8.- CLOSING REMARKS To finish, I would like you to cast your minds back when Banco Santander was established. One hundred and fifty-eight years ago, a group of entrepreneurs decided to found a bank in this great city of Santander. Since then, thanks to the efforts of our teams and the support of all of you, our shareholders, we have made Banco Santander one of the biggest success stories in Spain. We achieved this by overcoming uncertainty, prudently managing risk and energetically confronting change. Today, once again, we are going to lead change. We are confident we can do so because we are building on solid foundations and, above all, because we have a strategy designed for the future. Madeleine Albright, the first woman to become Secretary of State of the United States said: “I don´t believe that things happen accidentally. I believe you earn them”. And we are determined to earn them.
  15. 15. Annual General Meeting-Ana Botin speech 15 We know what we want to be: the best retail and commercial bank, earning the lasting loyalty of our employees, customers, shareholders and our communities. And we know how to go about it: doing things in a way which is Simple, Personal and Fair. If we do that, we will continue to help people and businesses to prosper while keeping our shareholders´ interests in mind. With a committed board and team of professionals, and, above all, with the support and confidence of all of you, our shareholders, I am sure that the best is still to come. Many thanks.

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