Speech by Mr. Emilio Botín – Annual General Meeting 2013

Speech by Mr. Emilio Botín – Annual General Meeting
March 22, 2013

INTRODUCTION
President of the Autonomous Region of Cantabria
Mayor of Santander
Shareholders
Good morning

Thank you for attending Banco Santander’s 2013 Annual General Meeting.
In my speech:

 I will explain the 2012 results and decisions Banco Santander’s
management took in a difficult macro-economic and financial
environment.

 I will discuss our corporate governance and our corporate social
responsibility policy.

 And I will discuss our vision for 2013.

Against a particularly difficult economic and regulatory backdrop, Banco
Santander registered attributable net profit of EUR 2.205 billion, a decline of
59% from the previous year.

These profits were significantly affected by the extraordinarily high level of
special provisions and write-downs carried out in Spain. These amounted to
EUR 6.140 billion and were only partially offset by EUR 1.241 billion in
extraordinary gains.

I would like to highlight that, with the provisions made in 2012, the coverage of
real estate exposure in Spain has been completed.

The decisions we took over the course of 2012 and Banco Santander’s results
allow us to be optimistic about the immediate future. There are four reasons for
this:

First, pre-provision profit was EUR 23.559 billion in 2012.

Speech by Mr. Emilio Botin – Banco Santander Annual General Meeting of Shareholders

Regulatory authorities study this figure carefully because it shows the solidity
and stability of the Bank's revenues and confirms our Group's ability to generate
profits once the level of provisions and write-downs returns to normal. Banco
Santander is the third largest bank in the world in terms of pre-provision profit.

Second, we strengthened the balance sheet in three key areas:
 Provisions
 Capital
 Liquidity.

Specifically:
 In 2012, we allocated EUR 18.800 billion to provisions and write-downs -
- 54% more than in 2011 -- due to the exceptional circumstances we
faced.

 At the close of 2012, our core capital was 10.33%, comfortably above the
regulatory requirement.

 And we have significantly strengthened our liquidity. The Group’s ratio of
loans to deposits improved from 117% to 113%. In Spain, it was 96%.

Third, we set in motion three major transactions that strengthen our position in
three main markets:
 The integration of Banesto and Banif into Banco Santander
 The IPO of Banco Santander Mexico
 And the merger between our bank in Poland and Kredyt Bank.

Fourth, as I announced at last year's Annual General Meeting, Banco
Santander is going to continue to pay its 3.3 million shareholders EUR 0.60 per
share against the 2012 results. Performance of recurring profit, a reflection of
the ability to generate sustained profits, and the soundness of our balance
sheet, have enabled us to maintain the same remuneration for four consecutive
years.

For the 2012 financial year, we have already paid our shareholders EUR 0.45
per share through the Santander Dividendo Elección, or scrip dividend,
programme.

At its meeting on January 28, Banco Santander's board of directors approved
this programme once again, for EUR 0.15 euros per share on the dates on


which the complementary dividend is usually paid (from May 1), subject to the
ratification of this AGM.

As you know, the Santander Scrip Dividend programme gives our shareholders
the option to receive payment in cash or in shares. Since its launch, four years
ago, holders of more than 80% of the share capital have opted to receive
shares.

Accordingly, the amount allocated by the Bank to pay its shareholders for the
2012 financial year amounts to EUR 6.086 billion, in cash and shares, 15.7%
more than in 2011.

Over the last five years, we have paid our shareholders a total of EUR 26
billion.

In view of the success of the Santander Scrip Dividend programme, the Bank
intends to apply it once again to pay its shareholders in 2013. This is also in line
with the European Union recommendation to use scrip issues to pay dividends.

Specifically, at this meeting, the board proposes the application of the
Santander Scrip Dividend programme on the dates on which the first, second
and third interim dividends are usually paid for the 2013 financial year. The
board intends to include the complementary dividend, payable from May 1
2014, in the scrip programme, subject to the approval of next year’s annual
general meeting.

Santander’s share price rose 3.9% in 2012, compared with a fall in the IBEX
index. The total return for Banco Santander shareholders was 17.3%. We
remain the top bank in the eurozone by market value and Santander's share is
the most liquid in the Eurostoxx index.
The markets and Santander shares got off to a strong start in 2013. However,
uncertainty generated by the Italian elections and the situation in Cyprus have
led to a certain amount of instability in the markets. In any case, I am convinced
that as the situation returns to normal, the market will reward the bank for its
sound management.


THE BASIS OF BANCO SANTANDER'S STRATEGY

Our results and our ability to pay dividends is the result of the consistent
strategy we have followed over the years, made up of five fundamental
principles:

 Strength in the balance sheet and liquidity,
 Diversification and the structure of our subsidiaries,
 The commercial banking model,
 Prudent risk management,
 And cost efficiency.
1. Strength in the balance sheet and liquidity,

Provisions, along with capital and liquidity management, were Banco
Santander’s priorities in 2012.

The group's strength was confirmed in the stress tests 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 Spain, with a capital surplus of EUR 25.297
billion even in the most adverse economic scenario – well above the other
Spanish banks.
Our goal is to always maintain a considerable excess of core capital over
and above regulatory requirements.
I would now like to mention the new Basel III capital requirements:

As you know, they are due to come into effect in January 2014, at the earliest.

What’s more, they are scheduled to be applied gradually up to, in principle,
2019, which is when full compliance is expected.

However, markets are pressuring banks to provide advance notice of their
expected capital ratios under Basel III.


Therefore, ladies and gentlemen, I would like to inform you of our estimates,
subject to clarification of the regulations governing minimum capital
requirements in the next few weeks.

According to these estimates, at the end of 2013, Grupo Santander’s core
capital ratio under Basel III would be:

 11% in accordance with the approved implementation schedule; and

 8% in terms of what the market calls "fully loaded", that is to say, if the
deadline for the new requirements were brought forward to December
31, 2013, instead of in 2019 as planned.

It is important to highlight that:

 These estimates assume that, as I mentioned previously, in 2013 we will
apply the Santander Scrip Dividend programme to pay our shareholders
each of the four dividends due, maintaining the sum of EUR 0.60 per
share;

 Furthermore, these estimates are based on the organic growth in profits,
without a capital increase; and

 We have the advantage that the Bank for International Settlements
requires Santander to hold only one percentage point extra core capital
for being a systemic institution. This is thanks to our geographic
diversification and risk profile. By contrast, the bank requires our
international competitors to have an average of 2.3 percentage points
extra.

All of this demonstrates the Group's ability to generate profits and the strength
of the Group’s capital, based on our diversified business model and recurring
profits.

Ladies and gentlemen,

I would like to make special mention of the steps taken in 2012 to strengthen
the balance sheet and liquidity in Spain:


 In 2012, Banco Santander set aside provisions and reserves of EUR
18.800 billion and improved coverage of non-performing loans by eleven
points to 73%.

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 decrees.

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 properties, belonging to the bank and to property
developers it has financed, and with the sale of loan portfolios.

For the first time since the crisis began, the volume of foreclosed properties
decreased, falling by 8% during the year. In other words, in 2012, more
properties came off the balance sheet than were added to it. By 2014, I
expect that we will have sold a significantly more of the property
portfolio.

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. As I mentioned at
the beginning of my speech, as a result of the provisions set aside in 2012,
the coverage of real estate exposure in Spain has been completed.

o The improvement in liquidity during the year has also been very
important.
In Spain, we have a loan-to-deposit ratio of 96% following the success in
securing customer deposits, which increased by EUR 22.000 billion in the
year, meaning that our market share increased by 2.2 percentage points.
These data reflect the confidence that Banco Santander generates in the
Spanish market and we hope that this trend will continue in 2013.

Additionally, we issued EUR 31 billion in debt in major international markets.
We have also taken advantage of windows of opportunity in the Spanish market
to issue a further EUR 9 billion.

Taken as a whole, we have a comfortable maturity structure. All of this has
allowed us to return EUR 24 billion of the European Central Bank medium-term


liquidity made available to European banks. These funds were deposited with
the European Central Bank as liquidity insurance.

2.- Diversification and subsidiary model

The second fundamental principle of Banco Santander's strategy is the
geographic distribution of its businesses. We 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 respective markets.

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

 The highly successful placement of 24.9% of Santander Mexico. The
volume was of EUR 3.178 billion euros and demand outstripped supply
fivefold. This group subsidiary ranks as the world’s 70thlargest bank by
market value.

 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 and we have more than 4 million
customers.

This transaction, completed on January 4, was clearly made possible by
our subsidiary structure. The absorption of Kredyt Bank by our subsidiary
in Poland was paid for with Zachodni shares and the merger will create
value for shareholders from the very first year.
Yesterday, Thursday, the successful placement of 21% of our bank in Poland
was completed. Of that, 16% was held by KBC, in line with the merger
agreement.
Finally, in December, we announced the integration of Banesto and Banif into
Banco Santander in Spain. This was a strategic decision taken as part of the
restructuring of the Spanish financial system.


This transaction, which was approved yesterday by Banesto's Annual General
Meeting, , is being submitted to Banco Santander's shareholders for approval
today in points six and seven on the agenda.

The strategy of having two separate branch networks in Spain and a private
banking network for high-net-worth customers made sense in the past, in a
different economic setting.

Now, with the sector's profound restructuring resulting in fewer, larger banks, it
makes much more sense to operate under a single brand. We are going to
be able to compete better with:
 A network of 4,000 branchesA better regional balance
 The strongest brand in Spain and the top retail banking brand worldwide.

By the end of 2013, the group's sales networks in Spain will be completely
unified under the Santander brand,

This is a very positive transaction:
 For shareholders in Banco Santander, because we foresee cost and
revenue synergies of EUR 520 million and an increase in profit per share
of 3% starting in the third year.
I am confident that the merger of our commercial networks in Spain will
strengthen our retail, corporate and private banking business and will
consolidate our position as a leading bank in Spain. Our goal is to gain
market share in loans and deposits.

Banesto shareholders, on the other hand, will receive a 25% premium
when their Banesto shares are exchanged for Santander shares and will
become shareholders in an international bank with one of the highest
dividend yields.

 It is also positive for employees, as the business's new structure in
Spain and our international diversification will offer new career
opportunities. Furthermore, an agreement has already been signed with
the unions.

 And Grupo Santander's customers in Spain will benefit from the
merger because they will have access to more branches and a broader
range of products.


The merger is practically free of execution risk because Banesto has been part
of the group for almost twenty years. It will be carried out rapidly and efficiently,
with focus particularly on the quality of service provided to our customers.

I can tell you that we are ahead of schedule and as of today:

 All Santander and Banesto customers can withdraw cash using their
debit cards, with no commission, from the cash machines of both
networks in Spain.
 And those who are customers of both banks will be able to make
transfers between their accounts as if they were transferring within the
same institution; in other words, with no costs and with immediate effect.

3. The Retail Banking Model

The third element that defines Banco Santander's business strategy is our retail
banking model, our main activity.

Eighty-eight per cent of revenues come from retail and commercial banking,
which makes our revenues highly recurrent . To this end, we have 14,400
branches - the largest international banking branch network - in which we serve
more than one hundred million individual, SME and corporate customers.

In line with our goal to maximise the quality of our service and the satisfaction of
our customers, the bank launched a new corporate slogan:

"Santander, a bank for your ideas".

With this slogan the bank intends to convey to our customers that we make our
experience, capabilities and knowledge available to them so that they can make
their projects a reality.

The new slogan will be included in all our activities and initiatives with
customers and in all communications in the countries in which we are present.

4. Prudent risk management

Prudent and comprehensive risk management is the fourth fundamental
element of our business model and a hallmark of Banco Santander during its
more than 150-year history.


The bank has very well defined principles of risk management:
 The management and control of risk in the group are independent of the
business areas.
 Decisions are made by a majority and there is a clear definition of
powers.
 The final responsibility for risk management rests with the board of
directors, which sets a medium-to-low risk appetite.
 The board is closely involved in risk management, both directly and
through its executive and risk committees. The risk committee met 98
times in 2012.
 The bank also maintains a high level of diversification of risk, avoiding
excessive concentrations by customer, product or country.
The precision and prudence with which Santander manages its risk is reflected
in the fact that, in almost all the countries where we operate, we have a non-
performing-loan ratio below the sector average.

5. Cost Efficiency

Finally, a tightly-controlled cost structure is a clear competitive advantage in
retail banking. The group's shared services, or ‘factories’, produce significant
economies of scale.

This combines with the advantages of global business management to allow us
to have a cost-to-income ratio of 46.1%, one of the most efficient in international
banking.

All these aspects relating to group management earned recognition
fromEuromoney, one of the most prestigious financial publications, which
named us Best Bank in the World in 2012 and Best Bank in the UK, Mexico,
Poland, Portugal and Argentina.

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

BOARD AND CORPORATE GOVERNANCE

These five pillars of Banco Santander's strategy are supported by solid
corporate governance, based on the principles of transparency, effectiveness
and the protection of shareholders’ interests.


The composition of the board is balanced between external and executive
members, all of whom have extensive knowledge of banking and finance and
international experience. The board oversees compliance with international best
practices in corporate governance.

According to a study performed by the most prestigious international consulting
firms:
 The annual dedication of each director to the board’s duties and its
committees is 319 hours, practically triple that of comparable
international banks.

 And banks with smaller boards and experienced members with greater
dedication, like that of Banco Santander, obtain better results than their
competitors.

In recent years, Banco Santander has followed a policy of total transparency in
board and senior management remuneration, ensuring that it does not foster
inappropriate risk-taking.

I would like to highlight that:
 In 2012, total board pay was reduced by 35% from the previous year.
 At our own request, the bonuses of the CEO and Chairman were
reduced by 50%.

Under point fifteen on the agenda, the report on board member remuneration
policy is submitted to shareholders for a consultative vote.
CORPORATE SOCIAL RESPONSIBILITY POLICY

Banco Santander has a sustainable and customer-oriented business model.
Furthermore, the bank has a clear commitment to promoting the professional
growth of its employees, respecting the environment and contributing to the
development of society through its support of higher education.

Most of the bank's investment in Corporate Social Responsibility is carried out
through Santander Universities. This alliance between the bank and universities
is unique in the world. It began 16 years ago and now consists of more than
1,027 agreements with universities in 20 countries. The bank contributed EUR
130 million last year and provided 28,303 study grants.


In particular, we are supporting Spanish university students and SMEs. In 2012,
we granted 2,500 grants for internships in SMEs and in 2013, we have decided
to double that figure to 5,000.

This year, evictions have been a particularly sensitive issue in Spain. At Banco
Santander, we are very clear on this matter. Eviction is the last resort and
the worst option for everyone, for our customers and also for the bank.

Proof of this is that we anticipated the problem when we launched a flexible
payment programme in the summer of 2011, which, at the close of 2012, had
benefited 21,000 customers.
OUTLOOK FOR 2013

I am now going to discuss our outlook for this year.

Generally speaking, the trends will be similar to 2012:
o Emerging economies will to continue to grow
o and Europe will still be slow in showing clear signs of recovery, at least
during the early part of the year.

Specifically, as regards our main markets:

Brazil is the largest contributor to the group's results, EUR 2.212 billion, or 26%
of the total.

Brazil continues to grow, with sharp increases in the middle classes and the
level of banking penetration. We have every confidence in Brazil and its
excellent prospects, which offer a unique opportunity for our group.

Mexico's economy has performed very well in recent years, and the bank's
various businesses are capitalising on this very well. We are the third biggest
financial group in the country and we have just concluded a magnificent year.
We will continue to invest in Mexico and will open200 branches over the next
two years.

Mexico and Brazil are two key countries for the Bank: in less than eight
years they are expected to have a greater population than the entire
Eurozone.


In the U.S., where we have completed the IT integration, our franchise is based
on Sovereign, which will become Santander as of October 2013, when it adopts
the global brand, and on a powerful consumer unit.

Activity in the United Kingdom has continued to be affected by a difficult
economic and regulatory environment. Santander UK is the most profitable
retail bank and is becoming a leader in the British market.

In 2013, as the economic outlook for the United Kingdom improves, our model's
competitive advantages will become apparent.

In Germany, Santander has more than six million customers and is a leader in
consumer loans. Over the coming years, we will be concentrating on developing
our commercial banking business in the country.

In Spain, the environment has been very difficult owing to the recession and the
significant tension in sovereign debt and banking debt markets.

This had a direct effect on:
 Margins, which have been under a great deal of pressure, and
 The rate of NPLs, which increased, although less than the sector
average, thus increasing the allocation of specific provisions.

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 with very favourable conditions. However, solvent demand is still
weak, affected by the deleveraging of households and companies and
particularly by the difficult situation still affecting the real estate sector.

This year we will continue to search for solutions and launch initiatives to
promote growth. What's more, we hope to achieve leadership in ICO credit
lines.

The outlook for the Spanish economy is beginning to look more
favourable owing to the decisions adopted in Europe, the measures
implemented by the Spanish government and the adjustments in the private
sector. The Spanish economy has embarked on a new phase, the fruits of
which will begin to be seen in the second half of the year and, more clearly, in
2014.


In Europe, the foundations have been laid for greater integration, which will
resolve the institutional deficiencies with which the euro started out. There were
two fundamental and significant accomplishments in 2012:

 Firstly, the European Council meetings held in June and December made
progress on integration by deciding to study a roadmap to complete
monetary union with economic, fiscal, financial and political union and to
encourage a European banking union with the creation of a single
supervisory mechanism.

Banking union will be a decisive step forward:
o For the European economy,
o For its financial system, ...
o For access to corporate and household financing and
o For Spanish financial institutions, which will benefit from...
o Competitive conditions that are homogeneous in their
regulation,
o Better credit ratings
o And access to the capital markets.

 Measures taken by the European Central Bank and its governor, Mario
Draghi, have also played a key and determining role in managing the
crisis.

In Spain, major progress has been achieved in the correction of imbalances.
This is essentially because the government has adopted some very courageous
and necessary measures to overcome the crisis and lay the foundations for a
new period of prosperity:
 A deep labour reform was implemented, which provides more flexibility
for companies and the economy as a whole.
 In 2012, the public deficit was reduced to 6.7% of GDP, despite the
recession, which I consider a success. An adjustment like this is
unprecedented in Europe and although it has been tough, it was
necessary to re-establish confidence and ensure the sustainability of our
welfare state.
 But having said that, progress needs to be made on reforming public
administration, announced by the government, which will be key to
controlling the deficit.

 The restructuring of the financial sector has entered its final phase.
The problems have been faced decisively, specifically those


o Linked to real estate exposure,
o Associated with the system's overcapacity and fragmentation,
o And generated by insufficient transparency and poor corporate
governance in part of the financial system.

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

 The latest government measures, aimed at supporting small and
medium-sized companies, enterprise and business initiatives and
employment, announced by the Spanish Prime Minister in the State of
the Nation debate, are also very appropriate and necessary.

The private sector has also made an enormous effort:
 On the one hand, the cost adjustments and increase in productivity of
Spanish companies over the last four years is unequalled anywhere in
Europe.
 This, combined with the search for new markets, has resulted in a
significant improvement of external accounts, which have gone from a
deficit of more than 10% of GDP to a balanced situation.

 There is much to do, but we are already a competitive country with the
ability to grow. We have a corporate fabric and human capital capable of
moving our economy into a new phase of expansion.

The conviction that the euro will not fall apart, together with the evident
advances in reforms and the private sector's effort in Spain, are resulting in a
clear improvement in the perception of the country abroad.

This positive development should not make us lower our guard...
 in Europe
 in Spain...
 among authorities
 or the private sector.

We need to be ambitious and continue with the reforms that put Spain
at an advantage to compete with the rest of the world.


CONCLUSION

Ladies and gentlemen,
Grupo Santander's goals for 2013 are:

 First, once the coverage of real estate exposure in Spain has been
completed, to return to growth in profit.
 Second, to maintain strong liquidity and capital positions.
 Third, to carry out the integrations underway in Spain and Poland in an
exemplary manner.
 And fourth, maintain remuneration for our shareholders at EUR 0.60
a share for the fifth consecutive year.

Banco Santander is in a solid position to face the coming years. We are
confident that it has the best strategy and the best team in international
banking, made up of 186,000 professionals, to continue to create value for our
shareholders in all the countries where we are present.

We look ahead with optimism because, although the coming quarters will be
tough in Spain, we are confident that we are approaching a change of cycle.
In, 2012 our bank's profits marked a turning point and in 2013, once the real
estate coverage has been completed, we will see a significant increase in
profits.

Thank you very much.


Speech by Mr. Emilio Botín – Annual General Meeting 2013

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