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Speech by Emilio Botín 2014 Annual General Meeting
SPEECH BY EMILIO BOTÍN
ANNUAL GENERAL MEEETING, MARCH 28, 2014
President of Cantabria,
Ladies and gentlemen;
A very good morning to you.
Thank you for attending Banco Santander’s annual general meeting again.
In my speech, I will address the following points:
1. The 2013 results and shareholder remuneration;
2. Banco Santander’s model and strategic position with regard to the European
3. Our corporate governance; and
4. The outlook and our vision for the future.
Year results and remuneration to shareholders
Banco Santander made a profit of EUR 4.37 billion in 2013: 90% more than the year
before. The results this year – the fifth since the start of the international financial
crisis – once more demonstrate Banco Santander’s great resilience in the most
difficult of contexts, thanks to its diversified and recurring income and solid balance
Indeed, Banco Santander is one of the very few international banks that have come
through the entire economic crisis without making a loss in any single quarter.
The 2013 results were achieved in a difficult economic context with strong regulatory
pressures and weak demand for credit in mature markets, I would specifically like to
highlight four key points:
Pre-provision profit, which gives an idea of a financial institution’s capacity to
generate income, increased to EUR 19.909 billion, one of the highest among
our competitors worldwide.
Control of costs, which were lower than the year before, kept Santander
among the leading international banks in terms of efficiency.
The reduction of provisions, which is part of a trend back towards more normal
levels that will continue in 2014, 2015 and 2016.
And lastly, we have maintained our remuneration for you, ladies and
gentlemen – our shareholders – at EUR 0.60 a share for the fifth consecutive
I would also like to bring your attention to some figures that reflect Banco Santander’s
capital strength, asset quality and liquidity position.
Specifically, Santander Group’s capital ratio under Basel II rules, was 11.7% at the
end of 2013, 138 basis points more than a year earlier. This demonstrates our
capacity to increase capital organically.
With regard to risk, the Group’s non-performing loan rate was 5.64%. It rose in Spain
because of the still difficult economic conditions, but there were significant reductions
in other major Group markets, such as Brazil, the U.K. and the U.S.
Our liquidity position has improved greatly. The loan-to-deposit ratio for the Group as
a whole stands at 109%, compared with 150% in 2008, and the trend has been even
more favourable in Spain, where it now stands 87%.
The Santander Group more than fulfils all the regulatory requirements for liquidity
without resorting to European Central Bank financing.
I also want to underline the success of the mergers that were underway in Spain
(Santander, Banesto and Banif) and Poland (Bank Zachodni and Kredyt Bank) in
2013. They are already producing significant cost savings and an increase in
commercial efficiency in those countries.
The Group also signed strategic agreements during the year that will boost some of
its key businesses: asset management, through the alliance with Warburg Pincus;
consumer finance, with the purchase of 51% of the finance business of El Corte
Inglés; and expansion of our presence in Asia through the acquisition of an 8% stake
in the Bank of Shanghai.
This last agreement is in addition to the projects we already have underway in
consumer banking. Although China is not one of our main markets, the trade flows
between Asia, Latin America and Europe will intensify noticeably in the future and we
are building platforms that will allow us to benefit from those opportunities.
To sum up, last year was a period of transition towards a more normal level of profit,
which we will see in 2014, 2015 and 2016.
During the years of crisis, we have taken significant steps in the Group’s structure
and to strengthen the balance sheet.
* * * * * * * * * * * *
I will now move on to a point that will, I am sure, be of interest to you, our
shareholders: the remuneration that you receive for your Banco Santander shares.
Throughout the crisis, Banco Santander has maintained its shareholder remuneration
and has made no changes or reductions. This, as you know, is a priority for the
Under the Santander Dividendo Elección scheme, which was put in place five years
ago, the bank’s over three million shareholders can choose between receiving the
dividend in cash or shares. In 2013, 87% of shareholders opted to receive their
remuneration in shares.
If the proposal submitted to this meeting under items TWO and TEN on the agenda is
approved in relation to the complementary dividend due in May:
Remuneration for 2013 will amount to EUR 0.60 a share,
Over the last five years, our shareholders will have received EUR 28.1 billion
The Board of Directors is also proposing to the meeting that we maintain the
Santander Dividendo Elección scheme in 2014 for the four quarterly payments and
also a total remuneration of EUR 0.60 per share.
Santander’s share performance was helped last year by an improvement in
investors’ and analysts’ perception of the Bank, by better economic prospects and
less uncertainty about Europe and Spain. It ended the year 6.7% higher. This,
together with the remuneration received as dividend, amounts to a 16.7% return over
If we use the share price at the time of last year’s general meeting as our reference,
total return in the year has been 30%.
* * * * * * * * * * * *
Next, I would like to refer to our banking model.
Our banking model
There is no doubt that Santander has emerged from the international banking crisis
stronger. That is largely thanks to its banking model and management’s focus on
strengthening the balance sheet.
Our model is based on the following strengths:
Firstly, geographical diversification
Banco Santander has a significant presence in ten key countries and a good
balance between mature and emerging markets, which contribute 47% and
53%, respectively, to Group profit. Geographical diversification is a key factor
in providing income stability, moderating risk and identifying best practices in
the Group’s activity.
I would like to emphasise that Santander’s remarkable diversification is a
strategic decision that is carefully thought out and approved annually by the
The process of diversification began nearly 30 years ago and is, therefore,
unique and difficult to replicate in international banking.
This model provides greater income stability and protects the Group’s capital
and balance sheet against possible adverse circumstances in any of the
countries in which we operate.
Clear proof of the success of this strategy, as I said at the start of my speech,
is that Banco Santander is one of the very few international banks that have
come through the crisis without having a single quarter of losses.
Second is our subsidiary model.
The Group is structured through subsidiaries that are autonomous in capital
and liquidity. This has clear strategic and regulatory advantages, offers greater
management flexibility, allows a double layer of global and local supervision
and isolates risks within the Group.
This model means each subsidiary’s exposure to credit risk is concentrated in
the country in which it does business and in the local currency. Therefore, the
Group’s exposure to cross-border credit risk is very limited.
It is our policy for all the Group’s main subsidiaries to be listed as soon as
market conditions allow.
In January this year, we completed the stock market flotation of our U.S.
consumer finance subsidiary, which was valued at USD 8.3 billion. You will
remember that, six years ago, we bought Drive for USD 800 million.
Today, our stakes in our listed banks in Brazil, Mexico, Chile, Poland, and now
Santander Consumer USA, have a market value of EUR 35 billion.
Our focus on retail and commercial banking is the third strength
Customers are at the heart of Banco Santander’s business model. We want to
strengthen customer linkage and offer the products and services that best fit
their needs, while constantly improving the quality of our service.
87% of our income comes from retail and commercial banking – the Group’s
traditional business – where we have clear competitive advantages. This also
provides us with much more stable and recurring results.
Fourth is our solid solvency position
The Group has substantial capacity to generate capital organically and
through active management of its business portfolio.
At the start of 2014, our core capital , under Basel III rules, stood at 11% – well
above the 8% regulatory requirement.
In line with the Bank’s strategy of diversifying and making its capital structure
more efficient, Banco Santander successfully issued EUR 1.5 billion in
contingent convertible bonds on March 5.
The issue attracted record demand of over EUR 15 billion, the vast majority
from foreign investors. The interest rate was fixed at an annual 6.25% – the
lowest in Europe in the last year for an issue of this nature. This attests to the
perceived strength and solvency of the Bank in international markets.
Fifth is our ample liquidity position.
The nature of our retail and commercial banking business automatically
provides the Group with a stable liquidity base through its customer deposits.
As I mentioned, the loan-to-deposit ratio is 109% for the Group and 87% in
We also have ample access to wholesale markets through multiple
instruments in all the markets in which we are present.
The sixth strength of our model is prudent risk management.
The Board of Directors places special emphasis on risk management, setting
the risk appetite at a medium to low level every year.
Individual and sector exposures remain moderate and our cross-border
country risk is minimal, representing less than 1% of total Group assets.
Our public debt holdings in each country are basically limited to covering
interest rate risk on the local balance sheet.
Furthermore, Santander Group’s credit risk is highly geographically diversified.
Last in our banking model, but by no means least, is our efficiency and
The fact that Santander uses the same technology and operational systems in
all its geographical markets, provide cost savings and productivity gains that
make Santander one of the most technologically advanced and efficient banks
in the world.
To sum up, the crisis has proved the advantages of Santander’s business
model. The Bank’s strategic position is also now much better than it was at the
start of the international financial crisis, both in terms of geographical
diversification and balance sheet strength.
Over that period, Santander has strengthened its presence in the U.K. and has
entered the retail and commercial banking business in Poland, Germany and
the U.S., increasing its international diversification even more.
In Spain, I want to highlight the substantial restructuring experienced by the
financial sector, which has emerged visibly strengthened after the crisis, as
recognised by international authorities.
Unlike other banks, which have opted to make acquisitions in Spain,
Santander has focused on strengthening its competitive position by gaining
market share in deposits and improving its competitiveness through brand
integration and cost control.
Furthermore, since the start of the crisis, the Santander Group has:
made provisions and write-downs of EUR 65 billion;
generated EUR 18.4 billion of capital; and
remunerated its shareholders with the equivalent of EUR 28.1 billion, or EUR
0.60 per share every year.
I also want to stress that we have done all this without receiving any state aid in any
of the countries in which we operate.
On the contrary, Banco Santander has made a significant contribution to cleaning up
Spain’s savings banks by putting EUR 4 billion into the deposit guarantee fund and
its share of the capital of SAREB.
The Group’s low credit risk profile and the high level of provisions on our balance
sheet are other signs of strength. Over 60% of the loan portfolio is backed by real
guarantees. We have also acted decisively in reducing some problematic assets,
such as real estate in Spain, where net exposure has fallen from EUR 41 billion in
2008 to EUR 11 billion at the end of 2013.
I will now move on to a very significant change which is happening in the European
Union: banking union.
At last year’s annual general meeting, I said that banking union represented a
“decisive step” forward with positive effects for Spanish banks, which would “benefit
from competitive conditions that are homogeneous in their regulation, better credit
ratings and access to the capital markets.”
Now, 12 months on, major steps have been taken in that direction. From November,
the European Central Bank will assume ultimate responsibility for supervision of the
whole European financial system and, in particular, take on direct supervision of the
Eurozone’s main financial institutions.
Meanwhile, financial institutions’ risk profiles are being analysed and progress is
being made on the so-called AQR (Asset Quality Review) that will examine the
quality of banks’ assets.
The European banking system will then undergo a stress test to check banks’ capital
strength in adverse economic scenarios, just before the ECB takes charge of
Banco Santander will easily exceed the requirements and will emerge strengthened
from this exercise.
I am convinced that Banco Santander’s exceptional diversification at a global
level will be very well assessed in that stress test. I think this is very important.
Furthermore, I am sure that direct supervision by the European Central Bank
from November this year will lead to the application of the same rules for
everyone, providing a level playing field, which will contribute to making the
strength of Banco Santander’s business model more evident.
Ladies and gentlemen, before talking to you about our vision and prospects for the
future, I would like to mention our corporate governance.
The composition of our board of directors reflects best international practice and
provides a good balance of 11 external directors and five executive directors. The
Group has applies the same corporate governance policies to all its banks and has
global units dedicated to supervising compliance and control.
In April 2013, after 11 years of great work as CEO, Alfredo Sáenz announced he
would be voluntarily stepping down from his duties.
The board of directors agreed to appoint Javier Marín as CEO. He joined the Group
in 1991 and had been a senior executive vice president of the group since 2007.
In his extensive career within the Group, Javier Marín has successfully taken up
posts of great responsibility. His last position was head of the Private Banking, Asset
Management and Insurance Division.
There have been other changes to the Bank’s board during the year with Manuel
Soto and Lord Burns ceasing to be part of it.
On behalf of myself and the Board, I would like to express our thanks to both of them
for the great work they have done.
Juan Miguel Villar Mir and Sheila Bair, former chair of the Federal Deposit Insurance
Corporation, are joining the board, subject to ratification from today’s general
I am sure they will both make a very positive contribution to the Group.
On a separate matter, the Board proposes to the general meeting under item SIX on
the agenda – once again in anticipation of regulatory requirements, and in this case
those of the Community Directive on capital – some statutory changes to complete
the structure of the Board and its committees.
We propose creating a new committee to support and advise the Board on risk
supervision, and issues as important as regulation and compliance. Likewise, we are
separating the responsibilities of the chairman, the CEO and the role of the
coordinating director, thereby elevating what was already normal practice in Banco
Santander’s corporate governance to statutory level.
In the area of corporate social responsibility, the Group has a strong commitment to a
sustainable and customer-centred business model, to training its employees and to
the development of the societies in which it operates.
The resources the group channelled towards universities deserves a special mention.
At the end of 2013, Banco Santander has agreements with 1,115 universities in 20
countries and had spent EUR 142 million on this collaboration, providing grants and
support to 22,422 students and lecturers.
Furthermore, in the last three years, the Bank has financed 12,500 grants for
university students and graduates to do professional internships in small and
medium-sized businesses. The grants total EUR 22.5 million and help our young
graduates enter the job market.
This programme of internships in Spain will continue in 2014 with 5,000 new grants.
* * * * * * * * * * * * * * *
Ladies and gentlemen,
Next, I want to share with you our vision of the Group’s prospects for 2014 and
Santander’s future strategy.
Banco Santander has started the year in an excellent position, supported by the
strength of its balance sheet, its liquidity position and the geographical diversification
of its activities.
We are prepared to make the most of all the opportunities for growth within our
Recently, the ratings agency Moody’s raised our rating one notch, to the equivalent
of BBB+, which continues to be above Spain’s sovereign rating.
In particular, Moody’s has highlighted Santander’s:
capacity to generate recurring earnings; and
The economic context is also more favourable. Growth prospects for the world
economy are going to improve in 2014 and 2015, according to the International
Monetary Fund. But this time, growth will be better balanced between emerging and
mature economies, with the latter taking the lead after a long period of inertia.
For the first time in recent years, all the countries in which the Group operates will
experience economic growth in 2014. The CEO has already outlined in his speech
our vision and prospects in the countries in which Banco Santander has the greatest
I am going to talk about Spain.
No one now doubts that the Spanish economy is recovering. It has come out of
recession, is now generating employment, and is headed for growth of over 1% in
2014. This improvement is also a result of major structural reforms that are bearing
Spain has emerged from the financial assistance programme with a very favourable
assessment from the ‘troika’.
We should remember that the EUR 40 billion that Spain received in aid were to
resolve the problem of the savings banks that were in difficulty. No Spanish banks
benefited from that aid.
Now we have a more solid and competitive system and, above all, a more realistic
structure: there are fewer banks that are more homogenous.
After many years, we have broken away from a dual system of banks and savings
banks, with very disparate forms of governance, which, without doubt, accentuated
the effects of the crisis in Spain.
I want to highlight the great work the Spanish government is doing in the reforms it is
carrying out, its effort to correct the deficit and its political commitment to continuing
to make progress in balancing the public sector accounts.
The external sector, which reflects our competitive capacity, has achieved a
favourable turnaround and the current account is now in surplus, while, five years
ago, its deficit was the equivalent of 10% of GDP.
From an historical perspective, it is very important to have been able to recover our
lost competitiveness without resorting to devaluation of the exchange rate, which is
not possible in a monetary union.
It is true that there is still a long way to go. The priority must continue to be job
creation and neither the government nor the private sector should become
All this is being recognised through the remarkable increase in foreign investor
confidence in Spain and Moody’s recent decision to raise the sovereign rating.
The improvement in foreign investor confidence is evident in banks’ share prices and
the success of the recent sale of a stake in Bankia.
Spain’s economic recovery is now a fact. Banco Santander is selling twice the
number of mortgages than last year, while car finance and loans to SMEs are
I am convinced that 2014 will be a much better year:
lending will return
growth will return
and, though slower, employment will return.
For all these reasons, we expect Banco Santander in Spain this year to achieve:
an increase in lending and financial income;
lower costs as a result of the merger with Banesto and Banif; and
a more normal level of provisions with the cost of risk approaching that of
before the crisis.
This week we have announced an ambitious plan to turn Banco Santander into the
leading bank for SMEs:
with increased lending;
support in internationalisation;
quicker and more flexible solutions;
more and better financial and non-financial services; and
access to training.
It is a project that we are going to undertake first in Spain and then in all the Group’s
At Banco Santander, we are doing everything possible to ensure that not one
viable project is left without financing in Spain.
We are convinced that this set of initiatives will support economic growth and job
Ultimately, as I have said on more than one occasion and will repeat now, Spain is
going to be one of the most positive stories in Santander’s results in the coming 3
We maintain our forecast that we will make a profit of EUR 3 billion in Spain in 2016.
Ladies and gentlemen,
I am very optimistic about the future of the Santander Group. We have a business
model and a degree of diversification that is unique in international banking.
To that is added:
the strength of the balance sheet;
more favourable prospects in countries in which we operate; and
the best team in international banking, made up of Banco Santander’s 180,000
After a number of years in which the priority has been to strengthen our balance
sheet and liquidity position, we are now perfectly ready to enter a new phase of
sustained profit growth, focusing:
First, on strengthening our business relationship with our more than 100
million customers in our ten biggest markets. To achieve this, we will better
segment our products and services with a particular focus on service quality.
As our corporate claim reflects
Santander, a bank for your ideas
we want our customers to know that we have the necessary experience and
resources to help them carry out their projects.
Second, on controlling costs and efficiency in a very competitive context, so
that we can continue to be leaders among the major international retail and
And third, making the most of all the competitive opportunities provided by
European banking union, in what we hope will be a more level and uniform
playing field than in the past.
Very few international banks are in such a good competitive position at a
time when new banking regulations are calling some business models into
question and placing restrictions on some investment banking activities.
I can say that we have made a very good start to 2014, and an improvement in
our results will be evident in the coming quarters. I am convinced that this will be
reflected in our share price.
The board of directors, the CEO and I are absolutely committed to continuing to
manage the bank in a way that rewards the trust that shareholders have placed in
Thank you very much.