Result of AGM

RNS Number : 2623X

Banco Santander S.A.

23 June 2008

Mr. President of Cantabria

Mr. Chairman of the CEOE

Dear Shareholders,

Once again, I thank you for attending this Annual General Meeting of Banco Santander.

In the course of my speech I will discuss:

Firstly, the economic situation.
Next, the highlights of 2007 for Banco Santander and the dividend for our shareholders.
Thirdly, Banco Santander's Corporate Governance and Social Responsibility policy.
Lastly, the year to date and the outlook for the Group.

1. A difficult economic environment.

I would like to begin by pointing out the circumstances that have affected the international financial system during the last twelve months and the possible impact for the world economy.

An analysis of these facts is fundamental to be able to understand the strengths of our Group and the strategy we have followed in the last years.

Last year, I told you the following in this AGM:

'It is obviously not easy to sustain indefinitely an era of strong economic growth and such favourable financial conditions.'

'It is thus inevitable that we ask ourselves if we are prepared to carry out our business in a less propitious environment.'

And I said then:

'The answer is a robust yes. Banco Santander is better prepared than our competitors to face the future.'

Nobody thought that the change in the cycle would come so soon and be so intense.

As all of you know, from the month of August, beginning with the subprime mortgage market in the United States, a set of factors have negatively affected:

international liquidity,
the risk premium in credit markets
confidence in the growth of the world economy
and, even more intensely, the values of a wide range of financial assets.

These factors have led to recognised losses of USD 400 billion in the international financial system.

To sum up, these are very complex times, probably the most difficult seen by a whole generation of bankers, that put to the test...

strategies,
business and risk management
as well as the Corporate Governance of major international financial institutions.

Against this backdrop, the share prices of the 20 leading financial institutions that we consider our peers have generally been strongly penalized, falling an average of 36% between January, 2007, and today - a total loss of EUR 520 billion in shareholder value.

Banco Santander's share has fallen by 15.4% in these same 18 months.

Today we are the seventh bank in the world by market value, ahead of other banks that until recently were leaders by capitalization.

Today we are worth more than the 2nd, 3rd, 4th and 5th Spanish banks together, and more than the 1st and 2nd German banks.

These figures show that Banco Santander has passed this difficult test with remarkable success thanks to our business model, focused

on commercial banking
on our traditional discipline in risks
on our permanent cost management
and on capital and balance sheet strength.

Now I will turn to the year 2007 for Banco Santander.

2. The fiscal year 2007 for Santander and the dividend for our shareholders.

Our Group earned attributable net profit of EUR 9,060 million in 2007, 19.3% more than the previous year.

The ordinary attributable net profit per share was been EUR 1.28, an increase of 21.4%.

Last year was part of a very consistent trend that allowed us to obtain, over the last decade, an accumulated annual increase in attributable net profit of 25.7% and in earnings per share of 15.5%.

In 2007, Banco Santander became one of the top five banks in the world by profits.

Our earnings per share in 2007 was 2.6 times higher than in 2003.

This positive performance, together with our great confidence in the future, led the Board to propose the dividend we bring to this General Meeting today for its approval.

Our proposal is to assign 50% of the ordinary net profit to the payment of dividends, representing a total dividend of EUR 0.65 per share, charged against the results of the 2007 fiscal year.

This is a 25% increase in the dividend for the third year in a row, underlining the importance that the Group's Board of Directors places on the dividend as the most effective and recurrent way to remunerate our shareholders.

In Banco Santander, we've always followed this line and we haven't deviated from it when, at some moments, markets have preferred other forms of compensation.

I want you, our shareholders, to know that the Board of Directors of the bank will maintain this policy in the future.

As a result, and consistent with our payout policy and the commitment we undertook with the market in September 2007 to increase our ordinary earnings per share by 15%, the Board of Directors approved in a meeting yesterday a first interim dividend charged to 2008 fiscal earnings of EUR 0.135234, an increase of 10% from the first interim dividend of the previous year.

This dividend will be paid on August 1st.

I would like to emphasize the excellent results generated by our strategy, thanks mainly to our business model and our focus on the following:

Commercial banking
Risk management
Efficiency
And good liquidity and capital management

In all these areas, we are outstanding among our international competitors.

Firstly, we are a retail bank, whose activity focuses primarily on individual banking customers and small and medium sized enterprises, without forgetting our big clients.

We are the international bank with the most branches (13,200 including Banco Real) and 84% of our results come from retail banking. We base the growth of our results on recurrent business.

Secondly, the traditional caution of Banco Santander in risk management enabled us, in a very difficult period for the international financial sector, to avoid the losses that many big banks around the world have had.

In Banco Santander, we have always maintained a low and predictable risk profile.

We turn down many transactions that may be profitable but don't fit with our risk policy.

either because we don't know the client well enough
or because it means a high concentration of risk
or because the transaction is unnecesarily complex

Banco Santander has not had to make any kind of special provisions related to securities linked with the subprime housing market or products affected by the international financial situation.

Loans to hedge funds are minimal and backed by excellent collateral; the use of conduits that we consolidated in our accounts is residual and the exposition to credit derivatives represents a very marginal risk in our balance sheet.

In the 2007 Annual Report, on page 146, you'll find all the information on these risks within the Group, with the level of detail and transparency that has always been our hallmark.

Thirdly, we have also taken outstanding steps in costs.

Work on the Group's technology and permanent cost control have enabled us to improve the efficiency levels of the Group significantly, with a cost-income ratio of 44.2% at the end of the year.

Fourthly, the focus and monitoring of liquidity management has become more important during the last year and continues, in 2008, to figure prominently in the management of financial institutions.

In our Annual Report, we describe in detail the Group's comfortable situation in this regard, thanks to

the strong deposit base in the retail businesses, our main source of liquidity
ample access to the wholesale markets, thanks to our high ratings.
diversification of markets and instruments to obtain liquidity and the large liquid or cash equivalent asset portfolio on our balance sheet.
and, finally, we foresaw and took advantage of good market conditions of recent years, building up a very considerable position in long-term funding.

Again, in 2008, we led the way by opening the market when we issued EUR 15 billion in senior debt, despite the difficulties of the market.

As a result, I can tell you, our shareholders, that Banco Santander is not limiting and has no need to limit growth in loans because of liquidity. As always, the only factor determining our decisions is the credit quality of our customers.

We have, moreover, an excellent capital base. When many international banks needed to launch right issues totalling USD 250 billion, Banco Santander closed 2007 with a BIS ratio of 12.66% and core capital of 6.25%, among the highest of our peer group.

To sum up, Banco Santander has shown its considerable strength in the face of the abrupt change in financial markets and our strategy and banking model have shown their clear advantages in these circumstances.

In contrast to many of our competitors, we have not needed to change our model. We never deviated from the basics that have always characterized Banco Santander: solid and recurrent banking business in terms of risk, capital and a close relationship with our customers.

The Santander share closed yesterday at EUR 11.96. As you know, the consensus or analysts' average says that the share should cost EUR 16.5.

In my opinion, this price still does not recognize our bank's huge potential to generate recurrent profit in the medium term.

* * * * * * * * * *

ABN-AMRO operation

So far, I have discussed the results, the dividend and the share.

Now I would like to turn to the acquisition of ABN-AMRO, which was so prominent last year.

Although you know this transaction very well, as we described it in the Extraordinary General Meeting held on July 27th, I would like to highlight some of its main features.

The purchase of ABN-AMRO by a consortium made up of our Group, the Royal Bank of Scotland and Fortis, was the most far-reaching transaction ever in the international financial system.

for its size, EUR 71 billion
and also because it was unique, carried out by a partnership.

The special features of the purchase of ABN-AMRO have changed the way future international banking consolidation can be conceived and executed.

Traditional paradigms have been broken: size, in itself, does not protect an institution from a well-designed buyout transaction.

On the other hand, transactions beyond one's own borders - cross-border transactions - are more likely to be succeed, as long as they meet clear criteria that I have pointed out to this Meeting on other occasions:

the transactions must be acquisitions, not mergers, with a clear chain of command, and they must add value, contributing as soon as possible to the buyer's earnings

per share.

The acquisition of ABN met these criteria. Its execution was flawless, despite the natural difficulties when you carry out something so unique.

Having said that, what really matters to you, our shareholders, is what this transaction brings to the Group and the way in which we financed the operation.

The ABN-AMRO acquisition enabled us to advance our strategy by adding an extraordinarily valuable asset, Banco Real, in Brazil, with 2,000 branches and a business model very complementary to that of Santander Brasil.

With this acquisition, we become the third bank in Brazil by loans and the second by deposits in a market with 190 million inhabitants and huge potential, reinforced by the investment grade rating the country has received.

You can see the importance of Brazil by considering that that two of its main banks, Bradesco and Itau, our main competitors there, are worth more in stock market value than European banks such as Deutsche Bank, UBS, Societe Generale or Barclays.

On October 30th and 31st we'll do a presentation in Brazil in which, in an extensive and detailed way, we'll shed light on our plans in that country for the next three years. I assure you that it will be well received by the market.

At the same time, the purchase of ABN-Amro has enabled us to take our model of consumer banking in Europe forward as we exchanged businesses obtained in the transaction for consumer banking assets belonging to General Electric, mainly in Germany and the UK, that fit in well strategically and operationally with our consumer finance unit, Santander Consumer.

The ABN transaction met comfortably our strategic and financial criteria, as defined by the Board - the one I recalled to you in the Annual General Meeting of last year.

In effect, we have funded this acquisition in the most efficient way:

a) Optimizing the balance sheet through the sale of Group assets.

b) And keeping direct and indirect new share issues to a minimum.

Both strategies met with success through the following two transactions:

The sale of Group properties (not the Bank headquarters in Boadilla, which will close this year), for a capital gain of EUR 1.076 billion in 2007.

And the placement in Spain of obligatorily convertible bonds among 129,000 persons.

It seemed impossible to attract EUR 7 billion when market liquidity was scarce.

Normally, in these cases, you make a placement in the institutional market. Nobody dares to in the retail market. And we took the decision in June, when the markets were quiet.

I'm sure that the people who have subscribed to these bonds have made a good investment.

The ABN-AMRO acquisition has been perfect for Banco Santander from the strategic and financial point of view, and has been seen this way by analysts and the international press.

Moreover, we reduced the net cost of Banco Real for Santander to EUR 11,000 million through the sale of Antonveneta, another asset assigned to us in the ABN-AMRO transaction but which didn't fulfil the strategic criteria needed to develop our retail business in Italy.

The acquisition will have a positive impact on EPS from the first year, and with a rough return on investment of more than 18% in the third year.

3. Corporate Governance and Corporate Social Responsibility.

A difficult environment like the present one tests the quality of the Corporate Governance of any financial institution.

Experience, decision-making procedures, internal control and independent risk management are all essential aspects of our Group's Corporate Governance. Once it again, this structure has shown itself to be appropriate and effective.

Once again, I will tell you: we have an excellent Board of Directors, a unique Board that does its job with great efficiency and professionalism, as do the various Board committees.

Since our last General Meeting, Mr. Luis Rodríguez Durón, representatiing Mutua Madrileña, which has sold its stake in the bank, has left the Board. I would lie to take this opportunity to thank his him for his work with our Board.

Mr. Juan Rodríguez Inciarte has joined the Baord as Executive Director. I'm sure that his contribution will be very positive for the future development of our work, given his experience in the Group.

I thank Mr. Antonino Fernández, chairman of the International Advisory Council and an important shareholder of the bank, for attending this meeting. I have invited him to sit on this dais with the Board.

Within the framework of Corporate Social Responsibility and our commitment to communities, I would like to emphasize that in 2007 we invested EUR 119 million, focused basically on universities.

In the last 10 years, we have created a very close relationship with the university world. There is nothing similar anywhere else in the world.

We want to be close to universities, supporting their future projects. This spurred us to create a Global Division within the Group called, naturally, Santander Universities.

The fruit of our efforts in this field are the agreements we have with universities in 15 countries and the Universia network, which brings together 1,070 universities in Spain, Portugal and Latin America.

I would also like to make a special mention of two factors that constitute a solid guarantee for our future

our brand, Santander, as the banner and substance of global differentiation
and our management team.

Regarding the brand, during the last year we have taken important steps to unify it and reinforce our corporate identity. We have increased very significantly its recognition and international reputation.

This is giving us the access to a greater number of clients and increasing their link with our bank, strengthening the foundation for future growth.

Regarding our management team, the results we've registered over the years are the best evidence of their quality and professionalism, unanimously recognized by analysts and international investors.

Our management team has what it takes to get the best out of all those who work day in and day out for our Group, whose dedication and effort I want to recognize.

As part of our executive management programme, we present today for your consideration in the eleventh point of the General Meeting's agenda, as we did in the General Meeting of 2007, new cycles of the long-term incentive plan. These are linked to specific requirements regarding the length of the manager's tenure in the Group and performance of total shareholder return and the dividend per share, compared to the 20 benchmark banks that we consider peers.

This plan, which affects 5,000 managers, is absolutely consistent with our main goal for you, our shareholders, ...

which is the creation of value in the medium and long term.

4. Year 2008 and the future of the Group

Regarding 2008, it is obvious that the circumstances of the international economy, with persistent liquidity tensions and a sharp fall in growth, have not been favourable to financial institutions as a group in the last few months.

As you already know the first quarter results showed an increase of 22%, to EUR 2.206 billion, from the previous year.

This profit is the highest registered during the quarter by any international bank. It represents high quality, as it is the result of the geographic diversification of our earnings, and in particular:

- Abbey in the United Kingdom, where we are growing by more than our competitors, with
lower costs, fewer non-performing loans and and higher profitability.

- The excellent performance of our commercial banking businesses in Spain and Latin
America.

Moreover, the recurrent nature of the earnings (some 85% comes from commercial banking) gives our Group a solid base to continue growing.

Why am I optimistic about our future?

The instability that has marked international markets during these months is starting to show signs of improvement.

In terms of risk differentials and liquidity tensions, we have been through the worst and we can now expect a gradual normalization in markets.

Although the financial tensions have had their effect on economic growth in most developed economies, the positive impact of globalization, with a growing and more stable contribution from emerging markets, will in the future provide clear support to global growth.

In any case, it is always best to learn lessons from situations like the current one, which must serve as a warning for the international financial system to improve in some areas.

I agree with the reflections by various international organizations, which tabled important issues such as the following:

· The need for more transparency

· The management of financial risks

· Appropriate asset valuation

· Prudent liquidity management

· And the proper functioning of the credit rating agencies

Proposals about the operation of the supervision system have been also made.

In this vein, I would like to point out the excellent quality of supervision and prudent regulation of the Bank of Spain, which has been more evident than ever in the recent international crisis.

Thanks to the vision and foresight of the Bank of Spain, the Spanish banking system as a whole enjoys a very comfortable capital position and provisions to face the future.

In our case, during the last few years, we have also built an excellent business platform, well diversified, maintaining an appropriate balance among our positions.

in more mature markets, like in Spain, Portugal and the UK, as well as the rest of Europe

in markets with great growth potential, like Brazil, Chile and Mexico, with represent 80% of the GDP of the region.

Regarding the Spanish economy, there's no doubt that its performance is worse than had been expected. We have entered a phase of significant deceleration of growth, which is affecting the confidence of consumers and the creation of employment.

I am confident this negative phase will not be long, because the Spanish economy has strengths that it did not have in previous cycles.

public accounts are healthy
the means of production are more flexible
and we have a very dynamic and diversified business sector, with more international presence, as the companies have multiplied by seven their assets abroad in the last decade

Still, it would be useful to redouble those measures which enhance productivity and competitiveness in the Spanish economy.

The economic situation is affecting the level of non-performing loans in the financial sector. This will undoubtedly increase in the next months.

However, I would like to emphasize that in Spain...

we are starting from a bad loan rate that is less than half than the European average
and our loans have solid guarantees.
Moreover, the significant generic provisions in the financial system more than cover any foreseeable loss.

In short, to have a strong and solvent financial system is one of the best guarantees for the future of our economy.

Regarding Latin America, I would like to remark upon the very good performance of the main countries of the region in the last months, against the backdrop of financial turmoil. It is a direct and positive result of the well designed economic policies in the region in recent years.

We will continue to watch how the various countries manage inflation and commodity price developments.

We will stay the course in Latin America, where we have an exceptional franchise and a long experience.

Overall, we expect a good year 2008 for Latin America, with an increase in 'bancarization' - banking intermediation - and, in our case, an increase of net profit of more than 20% in dollars.

Regarding our diversification by businesses, I would like to emphasize that we have been able to combine - always within our commercial banking-focused strategy - businesses with lower margins and, consequently, with lower risk premiums (such as mortgage lending), with others with greater margins (like consumer finance).

Also, we have fostered a global wholesale banking business that, in contrast to those of some other international institutions, is focused on customer business, almost exclusively in markets where we have a significant commercial presence.

You, our shareholders, will see that in order to maintain earnings growth Banco Santander doesn't need to assume complex and difficult-to-monitor risks like those that generated the recent problems in the international banking system.

Our balanced and recurrent business platform has the support of our wide branch network and requires management to clearly set our priorities.

These are focused in four fronts:

a) To use technology to continue improving the efficiency of our businesses.

b) To seize the opportunities to optimize our position as a global bank and extend best practices throughout the Group, so that the whole is worth more than its parts.

c) To maintain strict control over risks.

d) And to continue to improve customer service.

I have full confidence in our performance in these four fronts, which is why I am optimistic about the performance of Banco Santander.

This is why I would like to emphasize that our Group is the right size to be able to continue to be profitable for our shareholders to the medium and long term.

Of course, it is our duty to be alert to opportunities for non-organic growth, but we will never enter into acquisitions just to increase our size.

Shareholders,

In this speech, I have tried to set out three basic ideas:

Firstly, the economic and financial global environment has become much more difficult, but there are signs that the worst of the financial instability is over.

Secondly, we have showed the strength of our strategy in terms of the quality of results, market and credit risks, liquidity and capital. We are thus very well prepared to face this new environment.

And, finally, there are many reasons we see the future results of Banco Santander with confidence, with a predictable increase in the value of its shares and dividends.