Chairman’s speech at the 2012 results presentation

Speech by Mr. Emilio Botin
Presentation of Banco Santander results
31 January 2013

INTRODUCTION

Good morning.
Welcome to Santander Group City for the presentation of Banco Santander's
2012 results.
In a particularly difficult economic and regulatory environment, Banco
Santander in 2012 registered attributed net profit of EUR 2.205 billion, a decline
of 59% from the previous year.

These profits were significantly affected by the extraordinarily high special
provisions and writedowns carried out in Spain. These amounted to EUR 6.140
billion and were only partially offset by the EUR 1.241 billion in extraordinary
gains.
I regard Banco Santander’s 2012 profits as very positive because they enable
us to view the immediate future with optimism.
There are four reasons for this:
First, profit before provisions in 2012 was EUR 23.559 billion.

This figure ranks our bank as third in the world in profit before provisions and
shows the group's ability to generate profits once the provisions and write-
downs return to normal.
Second, we strengthened the balance sheet in three key areas:

 provisions
 increased capital
 and liquidity.

In particular:

 In 2012, we allocated 18.800 billion euros to provisions and write-downs,
54% more than in 2011. This was due to the exceptional circumstances
we are undergoing.

 At the close of 2012, our core capital was 10.33%, complying with
regulatory requirements with plenty of leeway.

 And we have significantly strengthened our liquidity position. The
Group’s ratio of loans to deposits improved from 117% to 113%. In
Spain, it was 96%.
Speech by Mr. Emilio Botin–Presentation of Banco Santander's 2012 profits (final) January 31, 2013 1

Third, We set in motion three major transactions that strengthen our position in
three main markets:

 integration of Banesto and Banif into Banco Santander
 the IPO of our bank in Mexico
 and the merger between our bank in Poland and Kredyt Bank.
Fourth: As I announced at last year's shareholders' meeting, Banco Santander
is going to continue to pay its 3.3 million shareholders EUR 0.60 per share
against 2012 results. In its meeting on Jan. 28, Banco Santander's board of
directors approved the new Santander Dividendo Elección program, for EUR
0.15 euros per share on the dates on which the complementary dividend is paid
(from 1 May). It is, however, subject to the General Meeting's ratification.

 Performance of recurring profit, a reflection of the ability to generate
sustained profits, and the soundness of our balance sheet, allow us to
maintain shareholder remuneration at the same level as in 2011.

 The market is recognising our provisions and values our ability to
generate recurring profits.

 Santander’s shares rose 3.9% in 2012, compared to a decrease in the
Ibex index. The total return for Banco Santander shareholders was
17.3%. We are the top bank in the eurozone in market capitalisation.
Santander's share is the most liquid in the Eurostoxx.

In general, the markets started off strong in 2013. Santander shares
have done particularly well, rising by an additional 5%.

I am convinced that the market will continue to reward the bank's good
management as Euromoney has done, naming us the Best Bank in the
World in 2012.

Next, I will talk to you about:

 The foundations of Banco Santander's strategy, which have enabled us
to generate excellent profits in a very trying macroeconomic and financial
environment.

 And I will talk about the outlook for 2013.

GROUNDS FOR BANCO SANTANDER'S STRATEGY

Banco Santander is one of the international financial institutions that has best
weathered the financial crisis.


This is due to five fundamental principles and a strategy that has been kept
consistent over the years:

 strength in the balance sheet and liquidity,
 diversification and the structure of subsidiaries,
 the commercial banking model,
 prudent risk management
 and cost efficiency.

1. Strength of the balance sheet and liquidity

Provisions, capital and liquidity management were the group’s priorities in
2012.

 Banco Santander has maintained its solid core capital, which
increased from 10.02% at the close of 2011 to 10.33% by Basel II criteria.

The group's strength was confirmed in the stress test analyses supervised by
the European Central Bank, the European Commission, the International
Monetary Fund and other international agencies. These tests were
exceptionally rigorous and transparent and were not performed elsewhere in
Europe.
The stress test, carried out in the third quarter of 2012, ranked Banco
Santander as the most solid institution in the country, with a capital surplus of
EUR 25.297 billion in the most adverse economic scenario – well above other
Spanish banks.
Our goal is to always keep a large excess of core capital above regulatory
requirements.

 In 2012, Banco Santander set aside provisions and reserves of EUR
18.800 billion and improved coverage of non-performing loans by 11
points to 73%.
I would like to make special mention of steps taken throughout the year
to strengthen the balance sheet and liquidity in Spain:
o We allocated EUR 6.140 billion in provisions to cover
exposure to problem real estate assets. This amount exceeded
the requirements of the two Spanish government royal decree
laws.
o We have reduced real estate exposure in Spain, net of
provisions, by EUR 12.400 billion, from EUR 24.900 billion to EUR
12.500 billion. This adjustment substantially strengthened the
balance sheet. We achieved it with the sale of 33,500 bank-
owned properties, development projects, and loan portfolios.

Exposure to the property sector in Spain, net of provisions, represented
1.7% of the group’s loan portfolio at the end of the year.


 The improvement in liquidity during the year has also been very
important.

As already stated, the group's loan-to- deposit ratio improved from 117%
to 113%, driven by growth in deposits.
In Spain, we have a loan-to-deposit ratio of 96% after the success of the
Santander and Banesto networks in securing customer deposits, which
increased by EUR 22.000 billion in the year.
Additionally, we issued EUR 31 billion debt in major international
markets. We have also taken advantage of windows of opportunity in
Spain by issuing another EUR 9.000 billion, and we have a comfortable
maturity structure.

2.- Diversification and subsidiary model.

The second fundamental principle of Banco Santander's strategy is the
geographic distribution of its businesses. It has achieved this while maintaining
a commercial banking model with critical mass in its ten core markets and a
balanced distribution of profits: 45% in mature markets and 55% in emerging
markets.

Banco Santander's international structure is based on a model of subsidiaries
that are autonomous in capital and liquidity, some of them publicly listed.

Our goal is for all our major subsidiaries to be listed on their markets.

In 2012, we advanced with this model, which allows us a great deal of
management flexibility. I would like to highlight two major transactions carried
out during the year:

First, the highly successful placement of 24.9% of Santander México, for
EUR 3.178 billion euros. Demand outstripped supply fivefold. Since then,
Santander México shares have risen by 25%, giving the unit a current
market value of US $20.000 billion. This makes this subsidiary the
world’s 70th largest bank by market value.

 Second, in late 2012, our Polish subsidiary Bank Zachodni WBK, and
Kredyt Bank merged. Today, we are the third-largest bank in Poland by
deposits, loans and number of branches. We have more than 3.5 million
customers. This transaction, completed on January 4th, was clearly made
possible by our subsidiary structure.

The absorption of Kredyt Bank by our subsidiary in Poland took place
with Zachodni shares, did not dilute group shareholders, and had no
impact on capital ratios. Thus, the merger in Poland will create value for
shareholders from the first year.


I will now speak about our main markets, and the CEO will explain the profits in
each one of them in detail.

Brazil

Brazil is the largest contributor to the group's results, EUR 2.212 billion, or 26%
of the total.
After a year of lower-than-expected growth, I know that there are those of you
who are beginning to question Brazil’s potential, competitiveness and its
capacity to maintain leadership in the region.
I do not agree with these doubts at all. Here's why:

 Brazil has a huge domestic market, the sixth in the world, with 195 million
inhabitants.
 It has first-rate entrepreneurs in highly diversified sectors.
 It has a sound and efficient financial system.
 It has strong institutions that for years have demonstrated a commitment
to the country's economic and social stability.
All of this has been reflected in very significant progress for the various layers of
Brazilian society, with an upsurge in the middle classes and the level of banking
penetration.
I am sure the government will continue to carry out reforms to consolidate this
progress. Therefore, I completely trust in Brazil.
It is and will continue to be the benchmark for Latin America. And it looks
set to become one of the world's leading economies.

Santander Brazil has been adapting to this new environment with improvements
in efficiency, developing more innovative platforms and providing new services
and products.
In the medium term, this strategy will generate recurring and more diversified
growth of our revenues.

United Kingdom

Attributable profit in the UK amounted to EUR 1.175 billion, or 13% of the
group's total. It remains the third highest contributing country.

Activity in the United Kingdom has continued to be affected by a difficult
economic and regulatory environment. Santander UK is the U.K.’s most
profitable retail bank and is becoming a leader in the British market due to
Commercial innovation, Efficiency, Solidity and due to development of the
universal banking model with a 13% share in mortgages, 9.2% in deposit, 32%
gowth in remunerated current accounts and strong growth in the corporate
segment.


As we announced in October, the agreement to acquire business banking
branches from the Royal Bank of Scotland was cancelled because of delays in
the integration process that would not allow an assured transition in an
acceptable period for customers.
Therefore, we chose to grow organically. In fact, lending to SMEs increased by
18% in 2012.

In 2013, a year with an improved economic outlook for the United Kingdom, our
model's competitive advantages will become apparent.

Mexico

Mexico’s economy has performed very well in recent years, and the bank's
various businesses are capitalising on it very well.
Mexico has had balanced growth of around 4% with sustained growth in lending
and deposits, with the rate of non-performing loans stable at low levels.
Banco Santander, Mexico's third largest financial group by volume, completed a
magnificent year in 2012 with good performance in margins, lending and
profits, that reached 1 bn euros, 12% of the group’s total. We continue to invest
in Mexico in business projects and are going to open 200 branches in the next
two years.
Mexico's perspectives are very favourable, and the new government already
indicated its objective of undertaking major reforms to strengthen the country as
a new power.

Spain
In Spain, Santander group profit before provisions came to EUR 5.016 billion.
Attributed profit was EUR 1.290 billion, or 15% of the total.
The environment was quite difficult due to the recession and the significant
tension in sovereign and bank debt markets.
This had a direct effect on:

 Margins, which have been under a great deal of pressure
 The rate of NPLs, which increased, although still less than the sector,
thus increasing the allocation of specific provisions and
 Demand for credit, which caused the bank's total lending to fall by 6%.

Regarding this, I want to tell you that throughout the year, Banco Santander
has held major campaigns to support companies.

We launched special lines of credit through the export plan and the activation
campaign under highly favorable conditions. However, solvent demand is still
weak, affected by the deleveraging of households and companies.


In spite of this context, Banco Santander has completed a very good year,
sticking to the priorities that we had set out:

 First, deposits increased in Spain by EUR 22 billion and our market share
grew by 2.2 points. These data reflect the confidence that Banco Santander
generates..

 Second, we reduced our exposure to real estate by 12.400 billion euros.
For the first time since the crisis began, the volume of properties acquired in
lieu of payment decreased, falling by 8% during the year. In other words,
more properties left the balance sheet than were added to it.

 Third, the default rate remained much below that of the sector - 4.7 points
below the average - and we increased coverage to 71%
The CEO will give you more details about this.
At the end of last year, and against the backdrop of the restructuring the
Spanish financial system, we decided that Banesto and Banif will be integrated
into Banco Santander.

Before the end of 2013, the group's sales networks in Spain will be completely
unified under the Santander brand, recognised by Brand Finance as the leading
banking brand in Spain and fourth in the world.
This transaction, which will be submitted to a vote at the shareholders' meeting
next March, is very positive.

 For the Santander group's customers in Spain, who will have more
branches where they can transact and a broader product range;
 For employees, as the business's new structure in Spain and our
international diversification will offer new professional opportunities.
 And for Banco Santander's shareholders, because we foresee cost and
revenue synergies of EUR 520 million and an increase in profit per share
of 3% starting the third year.
Banesto shareholders will receive a 25% premium in exchanging their
shares for Santander's.

I am confident that the merger of our commercial networks in Spain will
strengthen our retail, corporate and private banking business, and will
consolidate us as a leading bank in Spain. Our goal is to gain market share in
loans and deposits.
Before you ask me why we have decided to carry out this merger now
when we repeatedly said the opposite in the past, you probably know
what I think: Every day is a new day.


The strategy of having two branch networks in Spain and a high-income private
banking network separate made sense in the past, in a different economic
setting.
Now, with the sector's deep restructuring resulting in fewer, larger banks, it
makes much more sense to operate with a sole brand as we are going to be
able to compete better with:

 A network of 4,000 branch offices
 A better regional balance
 The strongest brand in Spain and the fourth worldwide.
Banco Santander has also been sensitive to the situation that Spain is
undergoing, and it has shown its commitment to our country on
numerous occasions:
This year, a particularly sensitive issue has been evictions in Spain. At Banco
Santander, we are very clear on this.

Eviction is the last and worst option for everyone, for our customers and also for
the bank. Proof of this is that we anticipated the problem when we launched the
mortgage moratorium program in the summer of 2011, which, at the close of
2012, had benefited 21,000 customers.
In addition, Banco Santander has actively participated in initiatives that
represent our commitment and support of the Spanish financial system's
stability as a whole and the Spanish economy and society. These are essential
requirements for recovering activity and jobs.
I want to highlight:

 Our participation as a shareholder of the Company for the Management
of Assets Coming from Bank Restructuring (Sociedad de Gestión de
Activos Procedentes de la Restructuración Bancaria, SAREB).
 And we are involved in the payment plan to suppliers from autonomous
communities and local institutions.
Also in the scope of corporate social responsibility.

 We participate in the Social Housing Fund
 And we decided to increase our commitment with students and SMEs for
2013 by doubling the number of grants for internships for Spanish
university students to 5,000. As you know, Santander Universities is a
unique alliance in the world between the bank and universities that
began 15 years ago and has more than 1,000 agreements today. Last
year, we dedicated EUR 135 million to this program worldwide.

3. The commercial banking model

The third element that defines Banco Santander's business strategy is our
model of commercial banking, our main activity. Eighty-eight per cent of


revenues come from commercial banking, which lends a great deal of
recurrence to profits.

Santander is a strong brand. To take another step closer to the customer and
to reaffirm the bank's commitment to the people who place their trust in us every
day, in 2012 the bank launched its new corporate slogan:
"Santander, a bank for your ideas."
With this slogan, the bank wants to convey to our customers that we make our
experience, capacity and knowledge available to them so that they can realise
their projects.
The new slogan will accompany all our actions and initiatives with customers
and will be on all communications in the countries in which we are present.
I also want to tell you that in October, 2013, we will change the brand in the
U.S. As has occurred with the rest of the group's banks, Sovereign will change
its name to Santander.

4. Prudent risk management

Prudent and comprehensive risk management is the fourth fundamental
element of our business model.

In practically all the countries where Banco Santander operates, we maintain a
default rate below the sector's average.

The discipline for staying within risk profiles that are well known and can be
managed has been decisive during the financial crisis. We have a mid to low
appetite for risk with precise limits for credit exposures.

5. Cost efficiency

Finally, a tightly-controlled cost structure is a clear competitive advantage in
commercial banking. The group's shared services generate significant
economies of scale.

Global business management is added to this to make it possible for us to have
a cost-to-income ratio of 46.1%, one of the most efficient in international
banking.

OUTLOOK FOR 2013

To close, I will talk to you about our outlook for this year, which has begun
very positively in financial markets.


Trends will generally be similar to those of 2012:
o emerging economies are going to continue to grow
o and Europe will still be slow in showing clear signs of recovery, at least
during the first part of the year.

Very important progress has been achieved in the economic and political
arenas. The foundations for a stronger and more integrated Europe, and a more
solid and competitive Spain, are being laid.
I believe that we are entering a new phase and the recovery will be more
visible in 2014. This is for two reasons:

 The crisis in the eurozone is now being better managed
 and there have been far-reaching reforms in Spain.
The European Council of last June was fundamental for the eurozone's
future.

 The authorities acknowledged that the solution did not depend only on
austerity, but also on more integration to favour economic growth. So it
was decided:

o to encourage European banking union with the creation of a single
supervision mechanism
o and to study a roadmap to complete the monetary union with an
economic, fiscal, financial and political union.
The expectations created in June were confirmed in the December European
Council.
The single supervision mechanism, led by the European Central Bank, will
begin to operate in March of 2014. Throughout 2013, progress will be made in
the other two basic components of the banking union: the single resolution
mechanism and the common deposit guarantee fund.
This is important because:

 It lays the foundation for a truly European financial system with a
common regulation.
 It breaks the tie between sovereign risk and bank risk, and
 It is a step that reinforces the monetary union's institutional structure.

In short, banking union will be a decisive advance...
o for the European economy,
o for its financial system...
o for access to corporate and household financing and
o for Spanish financial institutions that will be favoured...
 by competition conditions that are homogeneous in their
regulation,
 better credit ratings
 and access to the capital markets.


As for supervision by the Bank of Spain, I would like to mention that after
many years our experience at Banco Santander is that an intrusive supervisory
system, with a large number of inspectors who are permanently at our bank,
has proved to be very effective and useful.
We have always obtained valuable recommendations from the Bank of Spain
that have helped us with our management.
The European Central Bank, together with Mario Draghi, has also played a
key and determining role in managing the crisis. First, with the three-year
liquidity auctions, and, more recently, with its commitment to intervene without
limits if a country requests financial aid from the European Union.
I would like to tell you that last week, we returned EUR 24.000 billion of the
medium-term liquidity to the European Central Bank that it made available to
European banks. It is liquidity insurance. We had the funds deposited at the
European Central Bank.
I will now turn to Spain, which was the crisis's focal point during much of 2012.
This has recently changed thanks to evident progress in the correction of
imbalances and reforms undertaken by the government:

 The labour reform has been deep and provides more flexibility to
companies and the economy as a whole.
 The public deficit has been reduced a great deal on the structural side
and the institutional framework is much more demanding, with better
incentives for discipline in medium-term public accounts.
 Bank restructuring has entered its final phase. They have faced with
decisiveness the problems

o linked to real estate exposure
o associated with the system's overcapacity and fragmentation,
o generated by insufficient transparency and poor corporate
governance in part of the financial system
o as well as financing problems.

The reform schedule is clear, the plans are the right ones and I am fully
confident that, in a few quarters, we will have a well-balanced financial
system that is more solvent and more efficient: the most solid one
in Europe.

In this regard, I would like to highlight an OECD report from January 10th
of this year that very favourably underscores the Spanish financial
system's situation versus other European banks in terms of core capital
levels over total assets.

The private sector has also made an enormous effort:

 On one hand, the cost adjustments and increase in productivity of
Spanish companies during the last four years has no equal in Europe.


 On the other hand, the improvement of external accounts, that reflect the
large advance in our competitiveness and the search for new markets.
The growth of exports is the best proof of this process.
 There is much to do, but we have a corporate fabric and human capital
with capacities to move our economy into a new phase of expansion.

The conviction that the euro will not break down, together with the evident
advances in reforms and the private sector's effort in Spain, are translating into
a clear improvement in the perception of the country abroad.
The performance of the markets during these first weeks of the year confirms it:

 The risk premium continues to decrease and is now at 360 basis points.
 Foreigners are once again investing in Spain: they are purchasing debt,
money is entering the stock exchange and they are also investing in
companies and properties.
This positive development should not make us lower our guard. Economic
recovery requires a continued effort from all of us. We have to continue with
reforms and focus on the public debt. The financial system should...

 complete its restructuring,
 keep an eye on liquidity
 and improve profitability.
And obviously, as of now, all European countries have to meet the main
challenge we are facing: slow growth.

CONCLUSION

Banco Santander is facing the coming years from a solid position and confident
that it has the best strategy to continue creating value for its shareholders,
customers, employees and society at large in all countries where it is present.
We look toward the future with optimism because although this year, 2013, will
be tough, we are confident that we are approaching a change of cycle.
We are confident that we will see a change for the better.

Thank you very much.


Chairman’s speech at the 2012 results presentation

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