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Annual General Meeting José Antonio Álvarez speech
JOSÉ ANTONIO ÁLVAREZ
ANNUAL GENERAL MEETING SHAREHOLDERS
SANTANDER– 27 MARCH 2015
Mr. President of Cantabria
Mayor of Santander
Ladies and gentlemen, Shareholders of Banco Santander
Good morning and thank you for attending this meeting.
Today, I am going to speak about four things. First of all, I will look at Grupo
Santander’s 2014 results and then our outlook for the economic and regulatory
environment in which we operate.
This will be followed by the performance of the Group’s main units in 2014 and
their management priorities for this year.
Lastly, I will spend a few minutes on summing up our financial objectives and
how we plan to achieve them.
1. Results and activity
Ladies and gentlemen shareholders,
Last year, in an environment of slight economic recovery but with increasing
regulatory requirements and competitive pressures, the Group focused on two
First, boost profits and profitability, gaining market share and improving the
loyalty of our customers.
Second, maintain a strong, liquid and low-risk balance sheet.
Grupo Santander’s profit in 2014 was 39% higher at €5,816 million, putting us in
a noteworthy position among the big international banks and the leader, by far,
in the euro zone.
Moreover, the quality of these results was also better:
Almost all units increased their gross income and degree of recurrence,
mainly through stronger business.
We improved our efficiency, backed by the Efficiency and Productivity Plan
we are developing and with which we expect to generate €2 billion of cost
savings. This plan enables us to combine savings with the investments
needed to be able to grow our business.
In 2014, we reduced loan-loss provisions and thus, the cost of credit
improved, particularly in the countries most affected by recession or
economic slowdown in the last few years. Furthermore, we increased
coverage by two points to 67%.
As a result, we have had a widespread increase in our profits, as I will refer to
As regards the balance sheet, we reversed the trend in lending. It grew 5%
after two years of decline.
This growth came from both individual customers, as well as SMEs, companies
and large corporations, and reflected the effort we have put into offering new
and more specialised products and services for each segment.
All countries except for Portugal, which continues to deleverage, increased their
lending last year.
Deposits and mutual funds also registered an excellent performance. Balances
increased 6%, mainly demand deposits and mutual funds, and we reduced their
financial cost significantly.
The European Central Bank’s comprehensive assessment underscored the
strength and quality of our balance sheet, as the Chairman has stated. Two main
conclusions can be drawn from this:
The first one is that Santander has a healthy and prudently assessed
The second is that it would withstand an adverse economic environment
much better than its peers.
Ladies and gentlemen shareholders, the Group ended 2014 with a growing and
more solid balance sheet:
In 2014 we improved the credit quality of the main units and consequently
that of the Group. For the first time since the onset of the crisis the non-
performing loan ratio was lower. Furthermore, the coverage ratio increased.
We expect to maintain both trends in the coming years.
We continue to have a comfortable liquidity position. The loan-to-deposit
ratio is in our comfort level and we are complying ahead of schedule with
the regulatory metrics in both the Group as well as in the main subsidiaries.
And, under our capital management policy, we are increasing the ratios
o Organic generation.
o January’s capital increase, which puts us in a good position to take
advantage of growth opportunities.
o And issuance of Additional Tier 1 and Tier 2 capital instruments, with
which we are further strengthening the total capital ratio.
All these factors are enabling us to anticipate future requirements and optimise
our capital structure.
In short, the profit growth and balance sheet evolution produced a 24% rise in
earnings per share and the return on tangible equity (RoTE) increased by 1.3
percentage points to 11%. This level, which compares well with many of our
domestic and international competitors, is still below our potential and our
2. Economic and regulatory outlook
Ladies and gentlemen shareholders,
We believe we can improve our profitability even in a global environment of low
interest rates and tougher regulatory requirements.
The outlook for the global economy this year shows a continued trend of
gradual recovery led by the developed economies and particularly in many of
our core markets such as Spain, United States and United Kingdom.
These countries will benefit from still expansive monetary policies, less
restrictive fiscal policies, lower commodity prices, adjustments largely
completed and greater financial stability that will favour the main domestic
demand components of these countries: consumption and investment.
Emerging economies meanwhile will continue to slow down, although their
pace of growth will still be higher than that of developed countries, which will
enable them to keep on increasing their participation in the global economy.
At the same time, and as the chairman has mentioned, we are seeing tougher
regulatory requirements that are impacting banks’ structural profitability
through various ways:
First, and in order to reduce the probability of new banking crises, the
quantity and quality of capital requirements has risen. Moreover, additional
loss absorbency capacity requirements are being established that could
condition the structure of banks’ liabilities.
Second, a more demanding regulatory environment in all business aspects is
affecting both revenues, particularly fee income, as well as the necessary
costs for the implementation of the new regulations.
Santander is fully aware of the importance and correctness of the objectives of
the new regulatory environment, but also of the increasing complexity and costs
In short, although there are still challenges and uncertainties in the banking
industry, we believe the worst of the crisis is over and we are embarking on a
new phase where the priority is to improve business profitability.
We began 2015 with good trends in results and volumes. These trends, coupled
with the strategies announced by the chairman, enable us to be confident that
profitability will improve and with it the shareholders return.
3. Evolution and outlook by business area
Ladies and gentleman shareholders:
I will now turn to the business units, with a look at their results last year and the
management priorities for 2015.
Last year saw the return to growth in profits and business volumes.
Attributable profit more than doubled to €1,121 million, and lending rose for
the first time since 2008, spurred by companies and SMEs. We are also seeing
strong growth in new household mortgages and in customer funds.
This performance happened in a year when we completed the integration of
Santander, Banesto and Banif ahead of schedule. We took advantage of this
integration to optimise the segmentation of branches and develop products
such as Select for personal banking or Santander Advance for SMEs, which
includes an offer of non-financial activities in which more than 10,000
companies participated last year.
I can assure you that as a result of the integration we have a stronger and more
prepared commercial network in Spain, which will enable us to grow
In 2015, in a firmly recovering economy, profits and profitability will continue on
their path to normalisation. We envisage:
A gain in market share after completion of the integration.
Strict cost management maintained, compatible with multi-channel
A further fall in the cost of credit.
Attributable profit rose 30% at constant exchange rate to €1,576 million. The
transformation of the commercial franchise and the favourable economic
environment had a positive impact on commercial revenues and provisions.
Also noteworthy is the growth in lending to companies, higher than that of the
market, and the change of trend in mortgages.
We will keep the same strategic lines in 2015, which have been successful in the
last few years:
Increase the number of loyal customers with their primary account in
Santander, and boost lending to companies and mortgages.
Continue to invest in technology developments in order to improve multi-
Maintain good credit quality and continue to strengthen the balance sheet,
liquidity and capital.
Brazil’s attributable profit was 8% higher at €1,558 million at constant exchange
In an environment of moderate GDP decline, Santander has a well-positioned
franchise and is improving its business model through more commercial activity,
greater revenue recurrence and a lower risk cost. The main initiatives this year
Increasing customer loyalty.
Boosting lending, particularly to SMEs thanks to the launch of the Advance
Improving commercial productivity, keeping growth in costs below the
Santander Consumer Finance
Santander Consumer Finance (SCF) is one of the areas that has evolved the best
during the crisis, outperforming its competitors. Attributable profit in 2014 grew
12% to €891 million.
The recently acquired business in the Nordic countries and the agreement with
Banque PSA Finance will consolidate our leadership in auto finance in various
countries and enable entry into new markets such as France and Switzerland.
The priorities this year are:
Carry out a model integration of the new operations in order to extract all
Grow in the rest of units at adequate spreads, taking advantage of brand
agreements and our leadership position.
Santander USA posted an attributable profit of €800 million, similar to that in
2013. Before minority interests, which increased because of Santander
Consumer USA’s initial public offering, profit was up 5%.
We are continuing to work this year on strengthening the Group’s position in
the country, with two overriding objectives:
Improve the commercial franchise further.
Comply as quickly as possible with the regulator’s requirements taking into
account that the regulatory framework for non-US banks has changed
dramatically, which required us to create a new Bank Holding Company for
which we must assign all the human and technical resources needed for
effective business management in the US.
In this sense, and in relation to the stress tests conducted by the US Federal
Reserve, Santander Holding USA surpassed the quantitative part, with a Tier 1
common ratio of 9.4% in the severely adverse scenario. This put us in 11th
among the 31 banks analysed and underscores our balance sheet soundness
However, we have to improve the qualitative part, where the Fed pointed out
some shortcomings in the bank’s internal processes, which are only
circumscribed to the US.
As a result, we have been working in the last few months on two fronts:
Strengthening the governance and management structure, for which we
have appointed a new chairman and CEO of Santander Holding USA.
Ensuring the holding has the necessary resources to comply with its
This is part of a project we are developing over several years to improve the
bank, comply with the regulator’s expectations and with our own standards of
Attributable profit was lower at €660 million because of the higher tax charge.
Pre-tax profit increased 9% at constant exchange rate.
The Group will complete its three-year branch-opening plan this year, which is
strengthening our presence in the country. This should enable us to take
advantage of the opportunities of an economy whose growth potential is being
raised by the reforms undertaken.
Specifically, we aim to keep on growing faster than the market in target
segments and participate actively in financing the government’s infrastructure
plan, as well as in projects related to energy sector reforms.
Attributable profit amounted to €509 million, 35% more than in 2013 at
constant exchange rate. This excellent result was due to business growth and
the favourable impact on revenues of the inflation-indexed portfolio.
This year the strategy focuses on:
Continuing the retail banking transformation in order to improve the
Deepen the loyalty of high-income clients (Select) and the relationship
model with companies, institutions and large corporations, where we expect
to grow more strongly.
Attributable profit increased 7% to €358 million at constant exchange rate.
We began 2015 from a good market position, following the completed
integration of BZ WBK and Kredyt Bank. In a growing economy and with interest
rates at historic lows, the priorities are:
Develop the Next Generation Bank strategic programme whose main aim is
to make us the leading bank for customers and employees. This is being
driven by our leadership in cards, mobile banking and online banking.
Increase our market share.
Attributable profit was 33% higher at €298 million. We continue to be the
country’s leading private sector bank by volumes, have a very transaction-based
business model and a solid and low structural risk balance sheet.
The priorities this year are to enhance the Group’s commercial position in order
to take better advantage of the country’s greater degree of banking
Santander continues to be the country’s most profitable bank. Attributable
profit rose 65% to €189 million.
In a market with competitors in a weak situation, we have the opportunity to
gain market share organically, growing in customers and revenues. The
Continue to normalise the cost of deposits and credit in a recovering
Maintain efficiency plans to cut costs.
Increase market share in SMEs and companies.
Lastly, Uruguay and Peru’s profits increased by 16% and 31%, respectively, in
their local currencies.
In global businesses, Santander Global Banking and Markets made a profit of
€1,614 million, 16% more than in 2013 in constant euros. The drivers were
strong customer revenues and lower provisions.
We will continue in 2015 to increase our presence in the segment for large
multinationals that operate in our core markets: Europe and United Kingdom,
North America and Latin America.
These results would not have been possible without the contribution of the
Corporate Centre, which contributes value to the Group with well-defined
functions: control, support, improved global/local relationship and enabling
best practices transmission within the areas.
In our increasingly competitive world, it is vital that the Corporate Centre
provides global skills and know-how to the subsidiaries in order to outperform
local competitors without such support.
Ladies and gentlemen shareholders,
I will conclude with some basic ideas for the coming years:
We have good growth dynamics in business volumes and results.
We have comfortable liquidity and capital positions to grow in an
environment of greater activity in our core markets.
With this starting point, we know what to do in order to be commercially
successful: make the customer the focal point of our management.
We will remain focused on operational excellence in order to simplify
internal processes, transform the bank digitally and improve efficiency and
We are reinforcing risk management, an all-time priority for Banco
We will use capital much more efficiently, focusing on growth areas.
We will have more streamlined and simple structures. We have simplified
the corporate structure, reducing the number of divisions from 15 to 11. This
boosts our response capacity and strengthens risk control.
Our overriding objective is to improve the profitability of the capital
These aspirations are crystallised in ambitious financial and non-financial
medium-term objectives whose goal is to create value for our employees,
customers, shareholders and society as a whole.
The chairman has already stated some of them:
The objective for our employees is to make Santander the best bank to
work for. Our strategic human resources plan will manage talent globally,
we are going to listen even more to employees and introduce new ways
The basic objective for our customers is to improve the quality of service
and the level of satisfaction. This should help us to increase customer
engagement in all the countries where we operate, as I have been
commenting on throughout my speech.
And as regards society, we will continue to invest in education, in
providing opportunities for young people and in social projects. I would
like here to praise the commitment of our professionals to society. More
than 63,000 employees in 2014 took part in volunteer activities.
Lastly, I will comment on our three-year financial objectives for improving key
aspects of banking activity and which should be positively reflected in the return
for our shareholders.
1. Increase our business at a faster pace than our main competitors and so gain
2. Improve our operational efficiency so that the cost/income ratio is below
3. Reduce the non-performing loan ratio to below 5% permanently.
4. Maintain core capital ratios under Basel 3 criteria of between 10% and 11%.
5. Increase earnings per share above that of our main competitors and
achieve a return on tangible capital of between 12% and 14%, with a
dividend distribution mainly in cash and in accordance with the growth in
This is what we want to do, but just as important as the “what” and the “how
much” is “how” we achieve it. That is, how we act and behave day to day. And
this is summarized in three words: Simple, Personal and Fair.
We have a skilled, experienced and committed team with which to achieve
these objectives, and I would like to congratulate them for their efforts and
hard work in a very demanding year.
I trust that, with the support and motivation of our employees and the
confidence of our customers and shareholders, we will be able to achieve all the
objectives proposed for the coming years.
Thank you very much for your attention.