Grupo Santander: Technology and Operations in a Global Bank

2010 had been marked by significant economic stagnation, social reform resistance, the Greek dept crisis and the 2010 World Cup in South Africa. In July, right after Spain had become the World Champion in football defeating Holland, the Bank of Santander announced the acquisition of the German SEB, a Scandinavian bank accounting for a total of 173 retail branches. It seemed that neither the financial crisis, nor the recession or the dept would hold back Santander’s global expansion. The bank was soon to be awarded as one of the Most Efficient Banks in the World, due to their efforts to optimize the technological and operational models within the corporation to unprecedented extent.

History of Grupo Santander

The Santander group started in 1857 as a local bank. Yet, its strategic position in the city of Santander soon made it a key player in the trade between the north of Spain and Latin America. The bank grew in importance and financial resources and in the beginning of the XX century it acquired the major Spanish Banks Banco Hispanoamericano (1900), Español de Crédito (1902) and Central (1919). The expansion continued with new strength in the late 40s until the 60s when Santander acquired its main rival Banco Mercantil de Santander (1946) and started its strong international expansion. First, it established a branch in Cuba (1947). Then it entered México, Argentina and Venezuela and by 1956, the bank’s Latin American Department was set up. In the following years, offices were opened in London, New York, Paris and Frankfurt. In 1965 Santander established the Banco Intercontinental Español, today - Bankinter.

The gradual expansion of the business continued with offices in Puerto Rico, Chile, Portugal and Germany. In 1989, the “Supercuenta Santander” was launched. This was one of the most innovative financial products at that time in the Spanish banking system. This famous innovation was a focal point not only in the history of the Santander Group itself, but also for the whole banking system in Spain. It destroyed the “status quo” and opened up the Spanish financial system to competition. It initiated a fierce race between rival banks which was one of the key reasons for Santander to become one of the proven leaders internationally.

In 1994, Santander bought Banco Español de Credito (Banesto), which ultimately reaffirmed the bank’s position as the leading player on the Spanish market. Five years later, the corporation merged with BCH – the first major bank merger under the Euro and became the largest finance house in Spain and the leader in Latin America. Expansion continued in Portugal, where the group bought the financial group Totta y Açores and Crédito Predial Portugués.

The Group incorporated Banespa in Brazil, Grupo Serfín in Mexico and Banco Santiago in Chile in 2000, making it the leading financial franchise in Latin America.

In 2003, the Group set up Santander Consumer merging with the German company CC-Bank, the Italian Finconsumo, the Hispamer in Spain and other Group companies. This new consumer banking franchise is currently present in 12 European countries (Spain, the UK, Portugal, Italy, Germany, the Netherlands, Poland, the Czech Republic,

1

Austria, Hungary, Norway and Sweden), the US (through Drive Finance), and is soon going to start up its first operation in Chile.

In April 2004, the bank moved its Central Services from Santander to Madrid in what has become known as the Santander City, where 6,800 people work today. Another major event of 2004 was the takeover of Abbey, the sixth largest bank in the United Kingdom. The following year, Santander signed a contract with the Sovereign Bancorp, the 18th biggest bank in the USA, for 20% stake in the corporation.  

Santander broke another record in 2006, when it became the company with the largest profits (almost €7,6 Billion), more then any Spanish company, spurring heavy investment in retail banking and quality of service. “We want to be your bank” in Spain and other enterprising action in Portugal, at Abbey and in America are examples of this drive.

In 2007, Santander celebrated its 150th Anniversary as the twelfth largest bank in the world by stock market capitalization, seventh by profits and the bank with the largest retail distribution network in the western world: 10,852 branches. Santander formed a consortium with the Royal Bank of Scotland and Fortis to launch a take-over bid for ABN Amro, through which the bank acquired Banco Real in Brazil, doubling its presence in the Latin American country.

The next year, Santander continued to grow, making important acquisitions in another strategic market - the UK. Through the incorporation of Alliance & Leicester and Bradford & Bingley, Santander expanded its high street network to 1,300 branches and became the third largest bank in the UK by deposits. Reaching profits of € 8,876 Million, Santander became the third largest bank in the world. (See exhibit 1).

In 2009, Santander entered the US retail banking market with the acquisition of Sovereign, which has 722 branches in the north east of America.

Today, Santander has a well-balanced geographic diversification spanning throughout both developed and developing markets. It focuses its presence in nine leading locations: Spain, Portugal, Germany, United Kingdom, Brazil, México, Chile, Argentina and the United States, where it has a sustainable market share in the commercial banking sector.

The Santander Group presently accounts for more than 90 millions customers, 13.660 branches and over 169.000 employees.

In 2009, it reported a net income of € 8.943 Million, market capitalization of € 95.043 Million and asset management above € 1.100 Billion (December 2009)1 . (See exhibit 2, for Banco Santander’s financial statements).

1 Grupo Santander. Mileshones in Santander’s History. Online. Available. 20th October 2010.

2

As can be seen in Figure 1, in 2010, the Santander Group is a global bank organized in three main units:

Primary segments of the business. Global businesses. Support.

Taking a closer look (Figure 2), it becomes evident that the primary segments of the business are in essence the different banks organized in six distinct divisions. Further, the group has identified five different global areas:

credit cards, private baking insurance and direct banking asset management global wholesale banking

All these businesses are united under one bank and they are supported by a strong set of centralized corporate functions.

Figure 1Organization of the Santander Group

3

Figure 2Integrating banks and business over the World under the same Santander’s brand

The Department of Technology and Operations is key to understanding the ability of the corporation to reach high level of functional efficiency and to achieve the set goals and objectives. Technology and Operations (IT&OPS) integrates all the group’s operations in a model, designed to help in the unification of the diverse systems by using the same underlying technological platform while accomplishing maximized efficiency.

Technology and Operations Corporate Function

Technology is the foundation for improved operational and commercial efficiency. The Santander Group has differentiated itself from its competitors through the design and implementation of a unique technological platform and a successful operational and organizational model.

The current operational model of the Banco Santander Group has been developed through the acquisition of Banesto, taking advantage of the technological platform that Banesto had already put in place prior to the acquisition. Figure 3 illustrates the different layers of the technological platform that the Group currently uses. The basis (referred to as Partenon in Banesto, Exhibit 3) is a “common” transactional system which is flexible, modular and expandable. Not only does this unified platform allow for rationalizing the Operations module but also it creates cross-selling opportunities, improves customers’ satisfaction and operational performance. The platform uses a single database so all of a customer's relationships with the bank are automatically linked through a single view of customers. It is a structural competitive advantage for Santander, since it is a more advanced system than other banks’.

Temporarily Partenon coexists with Altair, the transactional system of the Latin American Banks, yet convergence between the two systems is planned for the near future.

4

Over the transactional system there is a “middleware” layer which serves as the baseline for the multi channel services, such as integrating ATMs, Internet banking, offices, etc. Finally there is a user’s layer, called Alhambra, which executes functions typical for a CMS platform, customer service, information integration, etc. The Group is determined to unify all the existing IT systems in one unique technological platform in order to provide high efficiency throughout all levels of services.

Figure 3

This technological base supports what is known as the Santander’s Technology, Operations & Cost Model consisting of four building blocks:

1- Strong cost management discipline with low operational risk2- Integrated management of efficiency3- IT&OP group model4- Global factories

The Santander Group is determined to be recognized as the most efficient bank in the world. In order to achieve this goal, it has put forward a strategy aiming to reduce costs, by implementing a strong cost discipline, and increase efficiency through unification and standardization of both processes and technology. The implemented efficiency model emphasizes on the importance of three clearly defined dimensions - decrease in costs, control of operational risks, and continuous improvement in the quality of service. These three dimensions further encompass all three levels of the technological support system - Technological, Operational and Organizational (Figure 4) making the system not only a technological advance but also an irreplaceable part of the entire business model. Thus, it entails a coordinated work between the different systems and its impact over the three dimensions of efficiency, known as the integrated management of efficiency.

5

Figure 4The model implies joint discussions about systems and efficiency

This relation makes the integration between the different systems and the core business activities it serves mandatory. Successfully implementing this unification implies that the integrated management systems pressures the businesses to decrease cost and increase efficiencies while the business provides demands that guide the work on the manufacturing side of the group.

Figure 5 shows how this works in practice in a global model of IT&OP. The model integrates the system’s plan with measures to improve costs, considering necessary restrictions in quality and risk, while interacting with the different business areas.

Figure 5The integration results in a balanced management model

Due to its common technological platform the Bank of Santander can also benefit from the economies of scale principle as it is capable to transfer key technological aspects, information systems and processes to unified and centralized units, focusing on different parts of the core business of the institution.

The relationship between the operational system and the Bank is demonstrated in Figures 6 and 7. Each business unit (a bank, for example) has a Manufacturing Manager, responsible for the technology and operations of the unit while also being a member of the executive team in charge of the management of the business. The Manufacturing Manager’s main objective would, thus, be to maximize the value of the bank while introducing an adequate optimization of costs, improvements in quality, and adequate control of operational risk.

6

Figure 6: The Manufacturing Manager’s Function

Moreover, the work at the individual unit has been further consolidated with that of the corporation as most of the technology and operations is subcontracted to the centralized units (factories) of the group. This unification and centralization leads to a substantial improvement of efficiency due to the effective and successful coordination of the relations between the two entities.

Through this model of technology and operations (Figure 7) all the business units (majority banks) use these centralized factories with unified policies established at corporate level in the Group, guaranteeing the maximum level of efficiency. This allows the banks to remain in control of their processes, operations and technology while they can depend on the highly specialized functionality of the centralized units. In essence the bank outsources the execution of these services on a technological level, while, due to the interconnectedness of the central and local units, the process remains within its premises; i.e. once the local unit needs something done it would send its request to the manufacturing manager who would assume responsibility and thus, the execution of this request would stay within the bank, yet through an extensive and unified system of rules and regulations the manufacturing manager would outsource the same task to the most appropriate centralized unit which would in turn make use both of its bank know-how and its extensively specialized services to produce the best result.

7

Figure 7: Outsourcing unit functions to centralized factories

The efficiency ratio, used as a principle ratio to measure efficiency of operations, is the cost to income ratio. It measures how much each unit of income costs in operations, i.e. the smaller the ratio the better the efficiency within the unit. This, however, is not the only measurement that the Group to reflect on the corporate development uses as the improvements should be done by increasing the quality without deteriorating the banking risk. This balance is key to the future development of the bank.

Exhibit 4 Graph 1 compares the efficiency ratio of the Santander Group against other global banks during 2009. With 41.7 % Grupo Santander was the third most efficient bank with an efficiency level 21, 8 points below the average in the industry. Exhibit 4 Graph 2 shows Santander’s evolution of this index since 1998. It is important to note the Group’s outstanding skills to overcome the negative impact on the efficiency ratio induced by the acquisition of less efficient banks (the ratio during 2009 was 41, 7% but would have been 39, 5% if it were not considered the recent acquisitions). In spite of this substantial improvement, the Santander Group continues heavy efforts and investment to further increase efficiency.

The main goal is that the bank has a manufacturing manager in each unit (bank/business) it owns. The manufacturing managers are at a key position as they are the final responsible for all technology and operations processes of the unit, as they are members of the management committee in the corresponding unit and as such they are always measured by results. On the other hand, they are also part of the manufacturing team of the whole group. This duality of functions is key for the model to work and to integrate the business and the operation concerns. Through it each unit develops a very sophisticated contractual relationship with each one of the centralized factories. These contracts specify service level, risk ratios, prices, etc. The group has also implemented a very extensive governance structure where these contracts, actual performance, and any possible incidents are followed closely at different structural levels. The manufacturing manager is also responsible to record everything in a diary on a monthly basis and has direct access to the factory managers, corporate officers and the corporate director of the technology and operations if necessary.

8

To achieve these spectacular results, the group gradually implemented the Operations model, applying the following steps:

Designation of an IT&OP Manager in each bank/country and implementing a reporting structure for the employees

Incorporation of the IT&OP Manager in the bank’s Steering Committee Implementation of the Corporate Management Model Launch of the centralized factories Implementation of Corporate Core Applications Definition, implementation and communication of every area’s corporate

policies

The centralized factories

Isban, Produban and Geoban, three specialized and centralized factories working mainly in the areas of software banking engineering, infrastructure, and process outsourcing, have already taken up the model of specialization and best practices. The factories model allows solving the classic dilemma between outsourcing and in-sourcing like this:

The centralized factories provide value to the units at a local level The factories allow to simplify the governance Synergies are obtained through economies of scale Factories allow to share best practices through the group

The individual factory’s strategy is built as an integrated part of a wider common strategy. We can simplify these characteristics like this:

Natural presence in emerging markets, taking advantage of the established branches of the Group

Resource optimization in different countries. Achieving arbitrage through factories, for example, off shoring from UK to

Spain, followed by from Spain to Latin America. This can be observed in many cases and it leads to considerable cost saving for the company.

There are a number of contracts signed by Geoban, Isban and Produban regarding the provision of services. The three organizations act as external suppliers to the Bank of Santander Group, working with auditable market parameters as well as prices defined by the market. The contracts include clauses on the following:

Levels of services, being evaluated by a number of homogeneous indicators in all the factories, which are evaluated by the committees.

The relationship between the unit and the factories

Isban

Isban (Software banking engineering) forms part of the Technology and Operations division of the Santander Group.2 It is the factory responsible for the software development within the Group. The mission of the entity is to do so with high efficiency and quality. Its strategy is based on a simple concept: becoming the ally of the financial

2 Isban. Isban. Online. Available. 21.10.2010.

9

institutions of the Santander Group through the use of Technology, with the aim of providing their customers with better service, while reducing operating costs. The Santander Group’s technology platform, and support from the Technology and Operations areas, allows for global customer management, quicker time-to-market, integrated channel management, consistency and quality in management information and minimal operational costs.

Operational Model

The production of the Isban factory is centralized in labs in Spain. They are in charge of assuring the best quality and the maximum efficiency. The process of integration is performed by the respective integrating units in each country. When the Alhambra project was being implemented, the Group formed a specialized multidisciplinary team to ensure the successful execution of the project. There are around 3500 employees in Isban and the number rises to about 9000 including the subcontracted companies and specialists internationally. The factory has strategic physical presence in the countries where the Bank also has offices, Spain, UK, Germany, Portugal, Italy, United States, Brazil, México, Chile and Argentina. In the cases of Colombia, Puerto Rico and Uruguay its activities are handled through the other points in Latin America, which have a bigger critical mass. (See Exhibit 5).

In order to secure the success, ISBAN has developed very strict methodologies at all levels of its processes, maintaining demanding quality standards. The methodologies and the indicators utilized are the standardized in all the countries allowing for easier interaction with the entity and efficient integration processes. While responsibility is local, the implementation is global. The follow up of all projects is done both at corporate and local level to ensures a better control of all the system.

ISBAN externalizes some of its projects to subcontractors. The process for the standardization and approval of local and global suppliers is very rigorous. There are three main ways that this collaboration could be structured:

Order a turnkey product – this only happens in very particular cases as the main goal of the entity is to not lose the control of the key links in the chain.

Technical assistance – this is the most common way of collaboration since it basically clusters the specialists in the teams managed by ISBAN internationally.

Software factories – this approach is exclusively used by the labs, which manage very specific activities (such us software testing). ISBAN utilizes multiple suppliers for the same task to avoid excessive dependence. Additionally, as a group, they have high amount of power of negotiation.

To summarize, Isban’s main characteristics are:

It is a key part of the technology and operations model of Grupo Santander It develops proprietary software for the corporation It requires considerable investment in methodology and middleware It works for all the Business units of the group It thinks globally, but act locally, seeking to exploit differences

10

An important indicator in ISBAN is the number of incidents and resolutions. The stock of incidents in Europe decreased 65% and 52% in 2008 and 2009 respectively. During 2010, the expected decrease is forecasted to be of another 50%. Likewise, the influx of incidents decreased during the same years was 20% and 40% respectively and in 2010 it suppose to decrease by another 40%.

Produban

Produban was created in 2005 to be in charge of the Group’s infrastructure. The main focus of its activities is in Brazil, Mexico, Spain and UK. It has 2000 full time employees and almost 2000 subcontracted. In only 3 years, Produban had implemented its infrastructure management model in all financial entities on the Group (62 in 19 countries).

As can be seen in Figure 8, Produban has five centers: the Latin American and US operations are processed in Mexico (Querétaro); the continental EU countries and Chile are processed in Spain (Madrid); UK is processed locally; and Brazil is at this point an experimental project. As Spain has a good balance between operational risk and acceptable level of costs, there are service centers of monitoring located in Cantabria (Spain).

Produban complements these centers with other external locations. For example, it has a processing center in Portugal, and is testing some operations with TCS in its offices in India and México.

Figure 8

Produban has a global network that links the banks (and all its respective nets) and the processing centers. Referring to cases of disaster recovery (DR), the group uses data processing in other regions (separated by more than 400 km). For example, the DR of Chile and Mexico is located in Madrid. For the case of Argentina, however, it is still outsourced by IBM.

11

Produban also provides services to Isban with a specialized subgroup.

Produban is key at times of acquisitions. For example, when a bank is acquired, the first thing done is to move its infrastructure. In most acquisitions there are synergies of around 30%, achieved just with this integration.

Exhibit 6 shows some of the operational parameters performed by Produban. As can be seen, the capacity has increased drastically while expenses had been kept under control resulting in a significant increase of the return of investment – while expenses had increased 1.33 times, productivity has been doubled.

Geoban

Since its creation in 2003, Geoban has positioned itself as one of the most important providers in the Business Process Outsourcing market in the financial sector. It has 6 offshore factories with 1200 full time employees and 1100 employees subcontracted providers. Ever since their establishment, the Geoban factories have demonstrated exceptional growth and consolidation managing all the operative activities - Accounts, Transactional, Cards, Values, Asset Management, Treasury, Renting, Insurances, Financing and consumption.

Apart from these three major centralized factories, there are other Operations units established at country level, as near-shore units. They provide system administration and operations management services for all the banks & business units in proximity and have a total of 4000 full time employees. These units are Santander Operations Retail (SOR) in Spain, Geoban UK, Geoban Germany and Geoban USA.

Operational Model:

The operational model is based on three main layers:

1- A corporate model of operations, in which the Corporate Operations Area defines both the operational and control models applicable to the banks that it serves.

2- A layer at a country level defined as the ‘bank layer’ or ‘system administration & operations management layer’. It carries the control and the know-how of the processes. In some cases, it is also in charge of managing particular operational processes with other local suppliers.

3- The Operations Factories which are specialized in providing a particular service based on their know-how, expertise and capabilities (For example, in Poland a factory was created for the handling of credit cards which provides services to the whole Europe). These factories, however, do not interact directly with the business units. Rather, they communicate to the middle layer. (a.k.a ‘bank layer’)

In order for a specific functionality to be assigned to a branch of Geoban in a specific country, the candidates need to pass an extensive evaluation processes to determine

12

their level of preparation to assume specific tasks. Once this evaluation is done, there is a further detailed study which aims to determine the specific cultural peculiarities and law regulations which might make one location better then another, especially when there are particular language requirements and legislation. For example, Geoban Poland is specialized in serving the German units, as the employees are required to have a high level of English and German and furthermore, the are a part of the EU and thus, are very aware of the legislative regulations that they are required to follow (such as the Personal Data Protection Law, for example).

On the other hand, while the Partenon technological platform is not implemented universally, Geoban in México provides services to the countries that use the Altair platform. Querétaro handles Chile, Argentina, Colombia, México and USA. Currently, the Santander Group is investing heavily into building a new factory in Argentina, which would take over the services in Argentina, Uruguay and Spain.

The objective of Geoban is to reduce the cost of operations, contributing to the overall improvement in the costs of the group. Costs have been reduced approximately 20-25% in the Polish factory alone (compared to the Spanish one). This allows the corporation to cover the start up costs and to be able to invest and improve the processes’ cost. (Exhibit 7).

Ability to InvestGeoban is adding value, through a near and off shoring factory network that executes the group’s back office. The savings that the conglomerate has managed to achieve through increasing the efficiency of the overall of the Technology and Operation systems in the bank have lead to its ability to further invest in Research and Development to secure continuous improvement of its services and processes. Due to the cost cuts that the Santander Group was able to achieve by implementing this innovative “outsourcing inhouse” approach it was able to distribute the financial and human resources to other areas of their activities. Thus, in 2010, the Santander Group has been pronounced the leader in R&D in Spain (Exhibit 8), investing close to a €100 Million more then its main rival Telefonica. Further, it is the European Bank with the highest investment in R&D with over €200 Million ahead of RBS (Exhibit 9). Its success in optimization, the saved and reinvested resources along with overall conviction in the importance of innovation at all levels, have currently put Banco Santander on the 31st place in Europe for R&D investment (Exhibit 10).

13

Exhibit 1

Milestones in Santander’s History

One of Santander’s key strengths is its powerful presence in the countries where it operates

14

Exhibit 2

Key consolidated dataVariation

2009 2008 Amount % 2007 2007

Balance sheet (million euros)

Total assets 1.110.529 1.049.632 60.898 5,8 912.915

Net customer loans 682.551 626.888 55.662 8,9 571.099

Customer funds under management 900.057 826.567 73.489 8,9 784.872

Shareholders' equity 70.006 63.768 6.239 9,8 51.945

Total managed funds 1.245.420 1.168.355 77.065 6,6 1.063.892

Income statement (million euros)

Net interest income 26.299 20.945 5.353 25,6 14.443

Gross income 39.381 33.489 5.892 17,6 26.441

Net operating income 22.960 18.540 4.420 23,8 14.417

Profit from continuing operations 9.427 9.030 397 4,4 8.327

Attributable profit to the Group 8.943 8.876 66 0,7 8.111 9.060

EPS, profitability and efficiency (%)

EPS (euro) (1) 1,0454 1,2207 (0,1753) (14,4) 1,1924 1,3320

Diluted EPS (euro) (1) 1,0382 1,2133 (0,1751) (14,4) 1,1809 1,3191

ROE 13,90 17,07 19,61 21,91

ROA 0,86 0,96 0,98 1,09

RoRWA 1,74 1,86 1,76 1,95

Efficiency ratio (with amortisations) 41,7 44,6 45,5

BIS II ratios and NPL ratios (%)

Core capital (2) 8,6 7,5 6,3

Tier I (2) 10,1 9,1 7,7

BIS ratio (2) 14,2 13,3 12,7

NPL ratio 3,24 2,04 0,95

NPL coverage 75,33 90,64 150,55

Market capitalisation and shares

Shares outstanding (millions at period-end) 8.229 7.994 235 2,9 6.254

Share price (euros) 11,550 6,750 4,800 71,1 13,790

Market capitalisation (million euros) 95.043 53.960 41.083 76,1 92.501

Book value (euro) (1) 8,04 7,58 7,23

Price / Book value (X) (1) 1,44 0,89 1,91

P/E ratio (X) 11,05 5,53 11,56

Other data

Number of shareholders 3.062.633 3.034.816 27.817 0,9 2.278.321

Number of employees 169.460 170.961 (1.501) (0,9) 131.819

Continental Europe 49.870 48.467 1.403 2,9 47.838

o/w: Spain 33.262 34.492 (1.230) (3,6) 34.821

United Kingdom 22.949 24.379 (1.430) (5,9) 16.827

Latin America 85.974 96.405 (10.431) (10,8) 65.628

Sovereign 8.847 — 8.847 — —

Corporate Activities 1.820 1.710 110 6,4 1.526

Number of branches 13.660 13.390 270 2,0 11.178

Continental Europe 5.871 5.998 (127) (2,1) 5.976

15

Exhibit 2 (Continued)

o/w: Spain 4.865 5.022 (157) (3,1) 5.014

United Kingdom 1.322 1.303 19 1,5 704

Latin America 5.745 6.089 (344) (5,6) 4.498

Sovereign 722 — 722 — —

(*).- Including extraordinary capital gains and allowances

(1).- Data 2008 and 2007 adjusted to the capital increase with preemptive rights at the end of 2008.

(2).- Data 2007, BIS I criteria.Note: The financial information in this report has not been audited, but it was approved by the Board of Directors at its meeting on January 25, 2010, following a favourable report from the Audit and Compliance Committee on January 20, 2010. The Committee verified that the information for the quarter was based on the same principles and practices as those used to draw up the annual financial statements.

Exhibit 3

Partenón architecture provides the retail segment of the Santander Group in the USA and Europe with a platform to address product and banking service functionality. It is customer oriented and it consolidates the existing databases throughout the units to ensure that there is only one data entry point and that all the necessary information is readily available so that the clients would be best served. Partenón architecture ensures balancing at the accounting level and consistency with the information provided to the management systems.  The entire organization shares a unified vision of the progress of the business. It provides an integrated vision of the clients and their positions in all of the channels. As such, the provided services are business process oriented in scope (multichannel, multilanguage, multicountry, multientity, communications to clients, etc.).Partenón provides a single product catalogue that allows easy configuration of new products thus reducing time to market.

16

Exhibit 4: In 2009 Santander ranked 3rd in level of efficiency among its competitors

1998 – 2010 Continuous improvement/decrease in their efficiency ratio

17

Exhibit 5: ISBAN is the global centralized factory specialized in the development and implementation of the Santander Group software strategy, providing services to the entire group since 2002

18

Exhibit 6: PRODUBAN operates the technical platform and provides services to all the Group’s entities

The Group has a powerful IT infrastructure:

5 TWIN DC framed on a TIER 3+ Phisical facilities

quality

Interconnected data centers on an international

network of high speed: GSNET

Groups Operational Risk Reduction through the merge of DC’s, seeking optimal point between risk and efficiency: Improving Resilience

Key Figures

• > 25.000 ATM’s• > 425.000 POS’s• > 40 Gbps Telecom Capacity.• > 17.000 m2 Technical rooms• > 25.000 Servers

57.400

74.496

95.99281.896

2006 2007 2008 2009MIPS

Process Capacity evolution

19

57,400

110,366

74,496

95,992

81,896

1,4411,331

1,1931,0841,084

2006 2007 2008 2009 2010

MIPS Spending M EUR

x1,33

x2

Exhibit 7: Geoban is adding value, through a near and off shoring factory network that executes the group’s back office.

Exhibit 8: Research and Development Investment by Spanish Companies (millions Euros) in 2009

Exhibit 9: Investment in Research and Development in European Banks (Millions Euros) in 2009

20

1,9 3,56,5

17,3

35,2

2005 2006 2007 2008 2009

1

Exhibit 10: Investment in Research and Development in European companies (in millions Euros) in 2009

21

References:Grupo Santander. Milestones in Santander’s History. Online. Available. 20th October 2010. <http://www.santander.com/csgs/Satellite?accesibilidad=3&canal=CAccionistas&cid=1146205899430&empr=SANCorporativo&leng=en_GB&pagename=SANCorporativo/Page/SC_ContenedorGeneral>.

Isban. Isban. Online. Available. 21.10.2010. <http://www.isban.es/eng/eng_isban.html>.

22

1º