Financial indicators

Total on-balance sheet assets

1,266,296

Million euros

 

 

CETI fully loaded

9.7%

 

 

Balance sheet and results (Million euros)		2014				2013
Customer loans (net)			734,711				684,690
Customer deposits			647,628				607,836
Shareholders’ funds			80,806				70,326
Gross income			42,612				41,920
Pre-provision profit (net operating income)			22,574				21,762
Attributable profit to the Group			5,816				4,175
Ratios (%)		2014				2013
Earnings per share (euros)			0.479				0.385
RoE*			7.0				5.8
RoTE*			11.0				9.6
Efficiency (with amortisation)			47.0				48.1
Non-performing loan (NPL) ratio			5.2				5.6
Loan-to-deposit ratio			113				112
*  Proforma figure in 2014 that includes the January 2015 capital increase of €7,500 million.

 

{ I became Group executive chairman of Santander Group last September. As you will know, since then we have made some significant changes to the board and governance and to the management team. We have also focused on reviewing our capital position and our dividend policy. This done, I now want to focus on how Santander is to grow in the years ahead. To do that, we have reviewed the markets in which we do business, our strategy and how we operate.

I now want to set out why I am so confident about Santander’s future – the fantastic opportunities for growth that lie before us, and how we are going to take advantage of them.

 

Santander today

Santander is a retail and commercial bank listed in Madrid and on the NYSE, with a market capitalization of ~€90bn, total assets of €1.2trn and a capital base of ~€88bn. In 2014 the Bank achieved a net attributable profit of €5.8bn in 2013 and remunerated shareholders with €0.60 per share.

The bank has a unique model and franchise to compete in the global retail banking landscape. This model has been developed over the last 158 years, especially under the inspiring leadership of my father Emilio Botín. At its core lies:

 

•

A diversified presence. Our well-balanced emerging-mature markets mix is delivering growth above our peers. Average GDP growth in our markets is forecast to be close to 3% in 2016.

 

•

Strong retail and commercial operations. We are or aim to be one of the top 3 banks in our core 10 markets, which give us access to one billion customers.

 

•

Autonomous subsidiaries in liquidity and capital. This creates incentives for good local management and enhances our stability and flexibility.

 

•

International talent management, a common culture and a top global brand. We are able to attract and retain world class talent. We have a shared approach as to how we want to operate and behave. And we have created a powerful, global brand: according to Brand Finance, we are number 10 in the world.

 

•

Prudent risk management and balance sheet strength, underpinned by our Group’s solid control framework. We have delivered a dividend every year for more than 50 years, including during the financial crisis.

 

•

Investment in innovation, driving digital transformation, and sharing best practice. Our global scale enables the Group to add value to our subsidiaries around the world.

 

 

 

Our virtuous circle

 

 

At the heart of our culture we believe that, wherever we operate, everything we do should be Simple, Personal and Fair

Santander’s purpose, aim and culture

These strong foundations give us a unique opportunity to grow. We can only do this with a team that fulfills Santander’s purpose, understands its aim and lives by its values.

Santander’s purpose is to help people and businesses prosper.

Back in 1857, the founders of Santander wanted to finance trade between Spain and Latin America that generated jobs and prosperity in both continents. Today, our role is obviously broader but the outcome of our efforts is the same.

Our aim is to be the best retail and commercial bank that earns the lasting loyalty of our people, customers, shareholders and communities.

I am convinced that the only way to achieve such aim is by having the best possible relationships with our team, our customers, our shareholders and the communities that we serve. And the most precious asset in these relationships is loyalty:

 

•

A loyal team is one that feels motivated, engaged and rewarded to go the extra mile for customers.

 

•

When our customers get excellent service and can see we are addressing their personal needs, their loyalty to us will grow.

 

•

When that happens, our return and value will also grow – securing loyal shareholders who will invest more in us.

 

•

This, in turn, allows us to do more to support our local communities, generating loyalty to us and strengthening our team’s pride in the business.

And then this virtuous circle will begin again.

At the heart of our culture we believe that, wherever we operate, everything we do should be Simple, Personal and Fair.

We have picked these three words because, together, they reflect what our teams and our customers around the world tell us they want from a bank.

A simple bank offers its customers a service that is convenient and products that are easy to understand, however and whenever they choose to bank. It makes its processes better every day, so they are easy and clear for customers and its team.

A personal bank treats its customers as valued individuals, providing a professional, personal service they can trust. It supports colleagues to develop their skills and achieve their ambitions.

A fair bank treats people as they like to be treated – and it earns investors an adequate and sustainable return, while contributing its share to help communities.

 

Our strategy going forward

As I said, we have reviewed our strategy from the perspective of our purpose, our aim and our culture. I should stress that I am not in favor of changing processes or platforms that are delivering results. We will stick to the elements that have underpinned our success and will build upon them to take Santander to the next level and achieve our goals.

With Simple, Personal and Fair as our guiding principle, we will focus on the following:

People

A strong internal culture. Above all else, Santander’s continued success depends on our employees. We should be able to attract, retain and develop our talent to have the best professionals, so we have a very ambitious goal for 2017: to be the one of the Top 3 banks to work for in the majority of our core geographies (according to the relevant rankings).

Customers

Earn the loyalty of our retail and commercial customers; and improve our franchise. We have more than 100 million customers: 53 million are “active”, but only 13 million are classified as “loyal”, that is, banking regularly with us. This presents us with a great opportunity – and one we need to grasp.

For instance, if 40% of our total retail active customers were to become “loyal” in UK and Spain, and 25% in Mexico and Brazil, we could generate two to three billion Euro of additional income. Critically, these would be satisfied customers, and that means a better and more sustainable revenue generation.

In the UK, for example, we increased the number of loyal customers from about 1 million to 3.3 million by rewarding their loyalty with our innovative, transparent, value-adding products and services, such as the 1|2|3 world, for both existing customers and new customers. By having more loyal customers we were able to reduce the cost of our retail deposits and our Group profit before taxes in the UK rose from £ 1,008m in 2012 to £1,612 in 2014 (+c.60%).

So we know how to earn and retain loyalty. Our task now is to change how we do things, so that we increase the loyalty of retail and commercial customers across all our core markets in Europe and the Americas.

Our goal for 2017 is to have 17 million loyal retail customers —40% more than today— and 1.1 million loyal SME customers.

Operational Excellence: We will continue to build on our operational excellence, starting with customer satisfaction. Our goal is to be within the top 3 group in customer satisfaction across our core markets.

Our digital offering is key to this. Only 28% of customers use our digital channels now: the objective is to increase this to 45% in 2017. To achieve this, a number of initiatives have already started including a Multichannel Development Plan, Mobile First, the deployment of Smart ATMs and our unique Innoventures Fintech Fund.

 

 

 

 

 

 

 

 

 

 

 

 

 

The results of these initiatives are encouraging. In 2014 alone the number of digital customers across the Group grew by 17%.

We will also continue to simplify internal processes and to improve the role of the Corporate Center in order to achieve our efficiency plan targets of a Cost to Income of less than 45% by 2017.

In 2014 we improved this ratio to 47% from 48% in 2013. We are, for example, simplifying the group structure from 15 to 11 divisions.

Shareholders

Reinforced capital and risk management. Even before our capital increase we were amongst the best in several important capital ratios, as shown by the recent AQR and stress tests where we came out “best-in-class”.

Our €7.5bn capital increase was a huge success: 235 investors participated with a total demand of above €11bn –79% of the demand coming from US and UK investors.

We did this for two reasons. First, we wanted to be able to accelerate organic growth, with the new capital allowing us prudently to gain profitable market share now that most of our core markets are forecast to see economic growth once again.

Second, we wanted to be able to have in place a sustainable dividend policy and increase the cash component of the pay-out to between 30-40% of recurrent earnings. Our cash dividend will go up from €1bn to €2.5bn.

Looking ahead, we will be amongst the best in overall capital ratios, reaching a CET1 fully loaded of 10% in 2015 and a target 10-11% for 2017.

We will focus on organic growth – mainly in Europe and the Americas; be stricter in our capital allocation – allocating capital to businesses with higher potential returns; and although acquisitions are not a priority, were we to consider an acquisition, we would be stricter in our criteria. Our goal is a ROTE of 12-14% by 2017.

To achieve this, excellence in risk management is essential. We are working on a Group Wide Risk Management Program to enhance our holistic and timely control of all types of risks. In our Risk Data Aggregation project alone we are investing €500m. Our goal is to continue to achieve a predictable risk profile, with NPLs below 5%.

The most important aspect of risk management, however, is strong corporate governance. Banco Santander’s board of directors is fully involved in the Group’s risk oversight and management. Our modern, diverse and international board has broad knowledge of different sectors and the right balance between executive and independent directors (60% of the total), and 33% are women.

 

I would like to thank Fernando de Asúa and Abel Matutes for their invaluable contribution to the Bank over many years.

Enhanced profitability. Our strategy of focusing on loyal customers will enable us to deliver higher growth than our peers and improved profitability to our shareholders.

Our aim is to deliver higher EPS growth than peers.

Communities

Santander Universities lies at the heart of our support for our communities. Since 1996 Banco Santander has invested more than EUR 1.0 bn in universities projects and has supported more than 160,000 students and professors through its scholarship program in countries where we operate.

Over the next four years we will invest EUR 700 million in universities; and we will continue to support charities and NGOs on a range of other initiatives, including corporate volunteering.

The ultimate measure of success

I joined Santander in 1988, so I know well the Santander team and our businesses around the world. Over the last few months, we have made the necessary changes both at executive and board level so that, together, we will become the best retail and commercial bank that earns the lasting loyalty of our people, customers, shareholders and communities.

Ultimately, the measure of our success will be that wherever we operate, our customers are the ones who champion our services and bring in new customers.

I am confident we will achieve this because each of us at Santander is committed to going the extra mile to serve our customers. I would like to thank every member of our team: their hard work, commitment and loyalty to Santander are the foundation of our success.

Finally, I would like to thank you, as one of our shareholders, and our board for the support and loyalty shown over the years. We can all be proud of what has been achieved—but our best days lie ahead.

Kind regards and all the best for 2015,

 

Ana Botín Group executive chairman

 

The measure of our success will be that wherever we operate, our customers are the ones who champion our services and bring in new customers

 

Message from

José Antonio Álvarez

 

 

2014 was a year when the global economic situation improved, particularly in the developed economies, the hardest hit by the financial crisis. The financial situation of both consumers and companies improved which, coupled with the measures taken by central banks, is facilitating access to credit.

The year, however, was not free of volatility and uncertainties, with geopolitical risks and falls in commodity prices. Interest rates continued to decline globally, particularly in the euro zone where the ECB’s benchmark rate was 0.05%. The regulatory environment also continued to evolve with new capital measures and new stress tests conducted by several of our regulators, which our Bank passed in all cases better than the sector’s average.

In this environment, Grupo Santander generated an attributable profit of €5,816 million in 2014, 39.3% more than in 2013. Attributable profit per share was 24.4% higher at €0.479.

We posted a higher quality profit, characterised by:

 

•

Gross income rose in nine of the 10 core units, mainly due to the improvement in commercial activities.

 

•

Costs were controlled; they rose in the Group at below the average inflation rate, while absorbing investments in order to be able to grow.

 

•

Loan-loss provisions declined in seven of the 10 core units, particularly in countries hit by recession or affected by an economic downturn in the last few years.

 

•

All units increased their pre-tax profits in local currency for the first time since 2007, reflecting a differentiated management and one tailored to each country’s situation.

As regards the balance sheet, the downward trend in lending was reversed and growth returned at Group level after several years of falling. Moreover, this growth occurred in both individual customers as well as companies and in all the core countries except for Portugal. This was made possible thanks to the effort made to offer our customers new products and services.

 

On the liabilities side, we combined an increase in all the units with management focused on reducing the cost of deposits, particularly in countries with interest rates at historically low levels.

In this way, the Group ended the year with a larger but also more solid balance sheet:

 

•

With better credit quality. The sharp fall in entries of non-performing loans was reflected in lower NPL ratios at Group level and in its main units, while the coverage ratio continued to increase.

 

•

With a comfortable liquidity situation. The net loan-to-deposit ratio (LTD) of 113% remained within our comfort zone and we expect to comply ahead of schedule and amply with the short-term regulatory requirements (liquidity coverage ratio or LCR), both at Group level and in the main subsidiaries.

 

•

With strengthened capital ratios via organic generation, the issue of additional Tier 1 capital and, in January 2015, a capital increase.

Santander’s balance sheet strength, recurrent results and low risk business model were underscored by the European Central Bank’s comprehensive assessment of the European Union’s largest banks. Two big conclusions can be drawn from the results of these tests:

 

1.	Santander has a clean and prudently valued balance sheet. The Bank registered a marginal impact (€200 million in a balance sheet of almost €1,300 billion), as a result of the Asset Quality Review (AQR), the lowest among its European peers.

 

2.

Our business model is less volatile than that of the rest of the banking sector and consumes less capital in unfavourable economic situations. In the adverse stress test scenario, we were the bank with the least impact among our peers as we showed a €19,500 million capital surplus above the minimum requirement.

In short, the profit and balance sheet evolution increased Grupo Santander’s profitability. Return on tangible capital (RoTE) was 1.4 p.p. higher than in 2013 at 11.0%, while return on risk weighted assets (RoRWA) improved to 1.3% and reached levels that although comparing well with many of our competitors are still far from our potential.

For the first time since 2007, all units increased their pre-tax profit in local currency terms, reflecting our differentiated management and one tailored to each country’s situation

The Group ended the year with a larger but also more solid balance sheet

 

The profit and balance sheet evolution increased Grupo Santander’s profitability

 

 

Outlook by business unit

The economic outlook for 2015 is better than in recent years. In particular, we expect the European recovery to firm up and emerging countries to grow more strongly. Banks, however, will continue to operate in a very complex environment of low interest rates and economic growth below that of the previous cycle.

The regulatory environment, meanwhile, will continue to evolve quickly in order to have stronger and more transparent banking systems. We are conscious of the correctness of the objective, but also of the increasing complexity it generates and its impact on the structural profitability of banks in the coming years. Consequently, we believe that the regulator should assess the impact that the reforms and the new environment have on economic growth and banks’ capacity to conduct on a sustained basis the function entrusted in them: to finance the economy’s growth and contribute to the wealth of households and companies.

The executive chairman explains in detail in her letter the Group’s strategic priorities for the next few years. I will review the performance of the main units in 2014 and their management priorities for 2015.

Developed markets

 

•

United Kingdom

The transformation of the commercial franchise and the favourable economic environment had a positive impact in 2014 on Santander UK’s business, commercial revenues and provisions. Attributable profit was 30% higher at £1,270 million. Also noteworthy was the growth in lending to companies above that of the market, the increased engagement of individual customers and the change of trend in mortgages (+1%).

These business dynamics, combined with our balance sheet strength, represent an excellent foundation for tackling 2015, a year when we will maintain the main strategic lines: increase the number of engaged customers, demand deposit accounts and lending to companies by more than the market. We will also continue to invest in digital technology, which we will combine with a further improvement in the efficiency ratio.

 

•

Spain

The year 2014 saw a return to profit and business growth. Attributable profit more than doubled to €1,121 million, driven by a lower cost of liabilities, reduced costs and a fall in provisions from the credit risk improvement. Also of note was the growth in lending, for the first time since 2008, due to companies and SMEs, as well as the strong rise in new mortgage lending.

In 2015, with a macroeconomic environment that will further improve, profit and profitability will continue to normalise. With the integration completed, we will focus more on the commercial business, the quality of service and customer engagement. We also aim to increase our market share in the most attractive lending segments, where we believe we can again surpass the sector. And the particular attention paid to improving the cost of credit and operational excellence will positively affect results.

 

•

Santander Consumer Finance

Santander Consumer Finance (SCF) is one of the areas that best performed during the crisis, and better than its peers. Attributable profit in 2014 was €891 million, 12% more than in 2013, fuelled by greater lending and revenues and a very low cost of credit for its type of business.

 

We also reached agreements that enhanced our position and future growth potential. In 2015, the entry into force of the agreement with Banque PSA Finance and of the business acquired from GE Nordics will consolidate our leadership in auto finance in various European countries, enabling us to enter markets such as France and Switzerland where we have not operated until now.

The priority for the year will be to achieve a model integration of the new operations in order to extract all their potential, without overlooking the growth of the rest of units and with spreads tailored to each market.

 

•

United States

Santander USA posted an attributable profit of $1,061 million in 2014, similar to 2013. It did not increase because of the higher minority interests of SCUSA after its stock market listing. Before these interests, profit was 4% higher due to the units’ varied strategies:

 

•

Santander Bank, our retail and commercial bank in the north east of the US, focused its business growth on companies and auto finance, while repositioning its balance sheet in terms of profitability, by reducing unproductive assets and cancelling long-term debt whose cost was above the market’s.

 

•

SCUSA, our consumer finance unit, increased origination and sale of credits, following the agreement with Chrysler, as well as the weight of servicing in total business.

Our two main objectives in 2015 are: on the one hand, continue to improve the commercial franchise in order to be in a position to gain market share in a growing economy; on the other, strengthen governance and control structures by investing more in technology, risk and regulatory compliance, enabling us to fulfil the regulator’s requirements as quickly as possible. It will take time, but we will build a better bank.

 

•

Portugal

In a still weak market context, Santander Totta continues to be the country’s most profitable bank. Attributable profit increased 65% to €189 million, with revenues, costs and provisions all contributing to this growth.

We will continue to normalise profit in 2015. In an environment where competitors are in a situation of weakness, we have the opportunity to gain profitable market share in the next few years, growing in customers and revenues. We will see further improvements in costs and lower provisions.

Emerging markets

 

•

Brazil

In an environment of adjustment and low growth, we are improving our business model in order to make it more sustainable, through increased commercial activity, greater engagement of customers, more recurrent revenues and lower risk.

The 2014 results began to reflect this strategy. Attributable profit rose 8% in constant currency to €1,558 million. The drivers of this growth were lower provisions and growth in costs well below the inflation rate. Revenues are still growing weakly because of the change of mix to lower risk businesses and lower spreads, already reflected in the cost of credit.

 

 

 

 

 

This year we are implementing measures to increase the number of engaged customers, keep on growing in the high segment of companies and in those sectors where our presence is low, while continuing to improve efficiency. In addition, the acquisition of minority interests and investments in GetNet and Bonsuceso endorses the Bank’s confidence in the country’s medium and long term potential, and will have a positive direct impact on results.

 

•

Mexico

Santander Mexico continued in 2014 to expand and strengthen its franchise. As a result, pre-tax profit rose 9% to €1,057 million at constant exchange rates, fuelled by higher gross income from business volumes and an improvement in the cost of credit. Attributable profit fell 3%, due to the higher tax charge.

We will combine in 2015 investments in the multi-channel business and in opening branches with the efficiency plan. The objective is to grow more than the market, particularly in high income clients (Select), SMEs (Advance) and companies. We are ready to take advantage of the economic recovery and want to be one of the leading banks in financing the government’s infrastructure plan.

 

•

Chile

Santander Chile made an attributable profit of €509 million, 35% more than in 2013 at constant exchange rates. This was an excellent result generated by growth in target segments, lower provisions and the favourable impact on revenues of the UF portfolio, indexed to inflation, in a year when inflation was higher than expected.

The Bank focused on improving commercial management and customer engagement, which helped to boost customer satisfaction in all networks and channels. The more expansive tone of monetary and fiscal policy in 2015 heralds an upturn in activity. The Bank’s strategy will continue to focus on perfecting the customer experience, transforming commercial and retail banking and deepening the relationship model with companies and large corporations.

 

•

Poland

In a context of a sharp drop in interest rates, BZ WBK posted an attributable profit of €358 million, 7% more than in 2013 at constant exchange rates. Of note was the improvement in commercial revenues, distinguishing us from our peers, following the success of that commercial campaigns that enabled us to increase lending and funds.

We face 2015 in a good market position, with the integration of BZ WBK and Kredyt Bank completed. We draw strength from our leadership in cards, mobile banking and electronic banking, from our capacity to offer innovative solutions to individual customers and companies, and development of the Next Generation Bank strategic programme, whose main objective is to make BZ WBK the Bank of first choice.

 

•

Argentina

In a complex environment, Santander Río increased its attributable profit by 33%, to €298 million. We continue to be the leading private sector bank in volume terms, we have a very transaction-based business model and a solid balance sheet of low structural risk.

We will continue to develop in 2015 a strategy focused on improving our commercial position in order to fully exploit the country’s more developed banking system, with greater emphasis on high income individuals, SMEs and transaction products.

 

Global businesses

Santander Global Banking and Markets posted an attributable profit of €1,614 million in 2014, 16% more than in 2013 in constant euros. Growth was fuelled by customer revenues and lower provisions. The Group will continue to develop in 2015 its capacities to expand its presence in the segment of large multinationals that operate in our main geographic areas: Europe and the United Kingdom, North America and Latin America.

Private Banking, Asset Management and Insurance continued to increase their contribution to the Group. This business generated total revenues of €4,528 million including those paid to the commercial network, 7% higher than in 2013 with constant exchange rates and perimeter (10% of the Group’s total). A key driver was the good performance of our strategic agreements with product specialists in various countries in order to spur the insurance and asset management businesses in the coming years.

Conclusions

I will conclude with some basic ideas on Santander’s outlook for the next few years:

 

•

We began 2015 with good dynamics in results and volumes.

 

•

We have comfortable liquidity and capital positions to be able to grow in an environment of greater activity in our core markets.

 

•

We know what to do in order to be commercially successful: make the customer the focal point of our management.

 

•

We will maintain our focus on operational excellence in order to streamline internal processes, transform the Bank digitally and improve efficiency and customer service.

 

•

We will strengthen risk management, a longstanding priority for Santander.

 

•

We will use capital much more efficiently and exit non-strategic businesses, focusing on growth areas.

 

•

Our ultimate objective is to improve the return on the capital employed.

I expect the Group’s profits to normalise and return to pre-crisis levels. As the chairman indicated in her letter, we aspire to attain a return on tangible equity of between 12% and 14%, with most of the dividend distribution in cash and in accordance with the growth in profits. This will have a positive impact on the value of our share.

In order to implement our strategy and meet our goals, we have an experienced team and the capacities of adequate management, which we will continue to strengthen via the strategic Human Resources plan. Its objective is to make Santander the best bank to work for.

I am confident that, with the support and motivation of our employees and the confidence of our customers and shareholders, we will be able to achieve all the goals set for 2015.

 

José Antonio Álvarez Chief executive officer

Our ultimate objective is to improve the return on the capital employed. We aspire to attain a return on tangible capital of between 12% and 14%

 

The board of directors

Banco Santander’s board of directors is the top decision-making body, except for matters reserved for the general shareholders’ meeting. It is responsible, among other things, for the Group’s strategy. Its functioning and activities are regulated by the Bank’s internal rules, which are based on principles of transparency, efficiency and defence of shareholders’ interests. The board also oversees compliance, taking into account the best international practices in corporate governance, and closely involves itself in the Group’s taking of risks. In particular, the board, at the proposal of senior management, is the body responsible for establishing and monitoring the Group’s risk appetite.

The board’s composition is balanced between executive and non-executive directors.

There are 15 directors, five of which are executive and 10 non-executive. Of the 10 non-executive directors, nine are independent and one proprietary.

All members are recognised for their professional capacity, integrity and independence. The non-executive directors are noted for their financial expertise, wide knowledge of the markets where the Group operates and different sectors and customer attention models, from top executive positions.

The board held 16 meetings in 2014.

Remuneration policy

The remuneration policy for directors and the Bank’s senior management is based on the following principles:

1. Remuneration must be consistent with rigorous and prudent risk management.

2. Anticipating and adapting to regulatory changes in remuneration matters. The executive director’s variable remuneration deferred period, as well as that of other directors within the Group’s identified category, are consistent with the provisions of the CRD IV.

3. Involvement of the board, as, at the proposal of the remuneration committee, it approves the annual remuneration report for directors and submits it to the general meeting of shareholders on a consultative basis and as a separate item on the agenda.

4. Transparent information.

The board’s total remuneration increased 8.9% compared to the Group’s profit growth of 39%.

In 2014, the board increased its gender and geographic diversity

 

For more information on corporate governance, see pages 68 to 99 of this annual report.

 

 

Changes in the board’s composition
On September 10, following the death of Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos, the Bank’s board agreed to appoint Ms. Ana Botín- Sanz de Sautuola y O’Shea executive chairman.		•    Mr. Bruce Carnegie-Brown, vice chairman, independent director, lead independent director and coordinator of the non-executive directors.
The board, at its meeting on November 25, appointed Mr. José Antonio Álvarez Álvarez chief executive officer, in the place of Mr. Javier Marín Romano, and it also agreed the following appointments:		•    Ms. Sol Daurella Comadrán, as independent director.   •    Mr. Carlos Fernández González, as independent director.   The new independent directors filled the vacancies occurred, including those produced by the resignations of Mr. Fernando de Asúa Álvarez and Mr. Abel Matutes Juan.
•    Mr. Rodrigo Echenique Gordillo, as vice chairman. In 2015, he was appointed executive director responsible for compliance, as well as other functions that might be delegated in him by the executive chairman.

 

 

 

Board of directors

of Banco Santander

1.

Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea

Executive chairman. Executive director

2.

Mr. José Antonio Álvarez Álvarez

Chief executive officer and executive director

3.

Mr. Bruce Carnegie-Brown

Vice chairman. Non-executive director (independent), coordinator of the non-executive directors and lead independent director

4.

Mr. Rodrigo Echenique Gordillo

Vice chairman. Executive director

5.

Mr. Matías Rodríguez Inciarte

Vice chairman. Executive director

6.

Mr. Guillermo de la Dehesa Romero

Vice chairman. Non-executive director (independent)

7.

Ms. Esther Giménez-Salinas i Colomer

Non-executive director (independent)

8.

Mr. Juan Miguel Villar Mir

Non-executive director (independent)

 

 

 

Structure and internal governance of Grupo Santander

Model of subsidiaries

Grupo Santander is structured via a model of subsidiaries autonomous in terms of capital and liquidity. The Group’s parent company is Banco Santander whose registered office is in the city of Santander, Spain, and operating headquarters and corporate centre are in Boadilla del Monte, Madrid.

The Group’s model of subsidiaries is characterised by:

 

•

The administration bodies of each subsidiary are responsible for rigorous and prudent management, ensuring economic soundness and overseeing the interests of shareholders and other stakeholders.

 

•

The subsidiaries are managed on the basis of local criteria and by local teams that contribute a lot of expertise of clients in their markets, while benefiting from the synergies and advantages of belonging to Grupo Santander.

 

•

They are subject to the regulation and supervision of their local authorities, without detriment to that exercised by the European Central Bank on the Group.

 

•

Their deposits are guaranteed by the respective deposit guarantee funds of the countries where they are located.

The subsidiaries are funded autonomously in terms of capital and liquidity.

•

Capital: the local units are endowed with the capital required to conduct their business and meet regulatory requirements.

 

•

Liquidity: each subsidiary develops its financial plans and liquidity projections and calculates its funding needs without counting on the parent company’s resources and guarantees. The subsidiaries obtain liquidity autonomously in local and international markets on the basis of their needs.

The Group’s capital and liquidity needs are coordinated in corporate committees. Intragroup exposures are limited, transparent and at market prices.

The subsidiaries’ autonomy limits the contagion risks between the Group’s different units, which reduces systemic risk. Each subsidiary has its own resolution plan.

Listed subsidiaries

The Group has subsidiaries listed in their respective markets, always retaining a stake that gives it control.

The listed subsidiaries:

 

•

Provide access to local funding sources. They are submitted to market discipline, which generates incentives for good management.

 

•

They guarantee a high level of transparency and corporate governance, and strengthen the Group brand in its respective countries.

Grupo Santander’s subsidiaries are autonomous in terms of capital and liquidity

 

 

 

 

 

Santander has a value added structure which enables the Bank to obtain better results than that which would come from the sum of each of the local banks

 

Simple, Personal and Fair

Simple, Personal and Fair transmits how all Santander’s professionals think and act and what our customers demand of us as a bank. It defines what guides our actions and decisions and the way in which we must relate to our customers, shareholders and communities.

Simple, Personal and Fair is the way to become the best bank for our customers and the best company for our employees.

•

We offer a convenient service to our customers with products that are simple, easy to understand and uncomplicated.

 

•

We use clear, concise and understandable language.

 

•

We improve our processes every day for customers and professionals by simplifying procedures and eliminating unnecessary steps.

•

We treat our customers in an individual and personalised manner by offering them products, services and tools so they can decide which ones best suit their needs.

 

•

We strive to make every customer feel unique and appreciated.

 

•

We are committed to our professionals and support them so they can develop their full potential and achieve their objectives.

•

We treat our customers in a just and fair way, through transparency and resolving their complaints quickly and diligently.

 

•

We establish relations in such a way that both the Bank as well as employees, customers and shareholders obtain a profit, as we understand that what is good for them is also good for the Bank.

 

•

We meet our promises and take responsibility for the commitments made with our customers.

 

Santander launched in 2014 a strategic Human Resources plan whose main objective is to make Santander the best place to work.

This plan revolves around seven elements and has a system of governance and monitoring for overseeing the execution and impact of the initiatives included in each one of them.

 

Among the main projects launched during 2014 under this plan were:

Talent management

Santander drew up a harmonised and homogeneous plan to identify and develop the Group’s talent, as well as a succession plan that guarantees the viability of the business.

The following steps were taken:

 

•

Committees to assess talent, bodies that meet regularly and involve senior management: division executives, country heads and members of management committees. These committees analyse professionals, their career path and future potential. In some cases, individual development plans are established to accelerate professional development. There were 143 of these committees in 2014.

 

•

Global job posting: a corporate platform that offers all the Group’s professionals the possibility of knowing and opting for vacant positions in other countries. The objective is to facilitate employee mobility, foster their

development and make internal selection processes more transparent. More than 500 positions in various countries have been publicised since its launch in July 2014 and 60 offers of incorporation made.

Santander continued to be committed to gender diversity through various initiatives:

 

•

Programmes such as Sumando Talento or Take the Lead for women in executive or pre-executive positions in all countries in order to foster the development of talent and female leadership.

 

•

In Spain, Banco Santander signed a voluntary agreement with the Ministry of Health, Social Services and Equality to increase the presence of women in executive and pre-executive positions in four years.

 

•

The III Santander Woman and Company Meeting was held at the Bank’s headquarters in Boadilla del Monte with the title Other leadership perspectives. Close to 1,000 people attended.

 

Assessment

The new management performance model, launched in 2014 for corporate executives, includes the following developments:

 

•

Independent measurement of objectives and powers including a 180° process of assessment involving direct reports as well as the person’s immediate superior.

 

•

Incorporation of an objective of “people management” with a minimum weight of 15% which the 180° assessment will take into account.

 

•

Strengthening crossed or functional evaluation.

 

•

Elimination of the curve of differentiation of evaluations.

Commitment

The Group launched for the first time a global survey of professionals in all countries in order to gauge their level of engagement, as well as the organisational aspects they most value and those where there is room for improvement.

The global participation rate in the survey was 78% and the results indicate that 70% of the Bank’s professionals have a high level of engagement (6 p.p. above the financial sector’s average). Furthermore, 78% of professionals are proud to work for Santander and want to continue doing so for a long time. Of note among the aspects most valued by employees are professional development opportunities, the Bank’s innovative spirit in developing products and services and the social benefits they can access. There are also areas of improvement regarding flexibility, cooperation and recognition.

Communication

In order to foster the active listening of professionals and a more transparent and participative style of communication, two key projects were launched in 2014:

 

•

Santander Ideas, the Group’s first internal social network that enables professionals from all countries to share their ideas on strategic issues for the Bank, vote on them and comment on them. This channel energises internal communication and fosters a culture of work focused on innovation, cooperation and participation, taking advantage of the diversity and collective intelligence of Santander’s more than 180,000 professionals throughout the world.

More than 10,000 ideas were obtained from almost 25,000 participants in all the Group’s countries, via the three global challenges launched in 2014 related to customers, employees and branches. Of them, 213 were selected for implementation and 50 have already been put into effect in various countries.

 

•

Somos Santander (We are Santander), a communications campaign that fosters the idea of a united and cohesive team, where the talent and commitment of all the Group’s professionals is vital for achieving sustainable growth that benefits our customers, shareholders and communities.

The Semana Somos Santander (We are Santander week) is one of the main events and enables professionals from all the Group’s countries to become protagonists and celebrate the pride of working for Santander. Furthermore, during this week Santander volunteers expressed their solidarity and in just one day collected 59 tonnes of food that was delivered to various NGOs throughout the world.

 

 

 

 

 

 

 

 

 

In order to continue to increase the loyalty of customers with the Bank and provide them with excellent service, we continued to work in 2014 on a commercial model that aims to offer value with simple and tailored solutions, via the most appropriate and efficient channels and with just and fair treatment.

Customer loyalty

Progress was made during 2014 in improving knowledge of customers and adapting the attention model and solutions that the Bank offers to satisfy their demands.

Knowing our customers

In order to facilitate a personalised dialogue with customers that enables us to better understand their behaviour, expectations and needs, new management tools and other initiatives were launched, such as events and group dynamics.

After the launch in 2012 of NEO CRM in Chile, it was introduced in 2014 in Brazil, Spain and the US. It will be implemented throughout 2015 in Argentina, Mexico, Portugal, Poland and the UK.

The NEO CRM project is a novel tool for organising commercial activity that enables us to gather and analyse the information of each customer and have a 360º vision of their performance and relationship with the Bank. This information enables customer needs to be anticipated and tailored solutions to be offered.

Group customers
Million
Spain			12.6
Portugal			3.6
UK			25.7
Poland			4.3
Germany			6.3
Rest of Europe			10.3
Total Europe			62.8
Brazil			31.1
Mexico			11.7
Chile			3.6
Argentina			2.5
Rest of Latin America			0.5
Total Latin America			49.4
United States			4.7
Total customers			117.0

 

 

New customer behaviours

 

•

Customer behaviour is changing due to greater access to new technologies

 

•

Mobile phones have changed the way customers interact to the Bank

 

•

Customers demand a more comprehensive and simple service and greater accessibility, seeking comfort and convenience when operating with the Bank

 

 

 

 

•

Santander Trade is a unique platform in the financial sector that helps to internationalise the activity of companies, thanks to bringing business opportunities to the business community. It has been launched in 12 countries: Argentina, Brazil, Chile, Spain, the US, Mexico, Poland, Portugal, Peru, Puerto Rico, the UK and Uruguay.

The Bank strengthened this service in 2014 with Santander Trade Club, an online community that enables clients from various countries to get in contact with one another in order to step up their international activity. More than 9,000 companies are currently involved, more than one million visits were registered and more than 50,000 data bases downloaded.

 

•

The new cooperation project between retail and commercial banking and wholesale banking (collaboration revenues) aims to put at the disposal of all the Bank’s customers the products and services that best suit their needs and which, until now, were only available to large companies.

Operational excellence

Santander wants to provide its customers with excellent service and so in 2014 the Bank launched new initiatives that aim to improve processes from the customers’ standpoint, incorporating the benefits brought by the digital transformation.

Multichannel and digital strategy

The digital transformation is a strategic priority for Banco Santander. During 2014, the Bank progressed in developing a multichannel distribution model that facilitates customers’ relations with the Bank where they want, how they want and when they want.

The Bank also continued to work during 2014 on a new model based on the concept of the multichannel branch.

In the case of branches, which are the main channel for forging and maintaining long-term relations with customers, the objective is to have more modern and simpler spaces that combine the advantages of the use of technology with the proximity and professionalism provided by the Bank’s employees to customers.

Santander also strengthened its range of services via mobile phones, electronic banking and the contact centre.

 

•

Mobile First was promoted in the mobile phone sphere, which aims to improve the client’s experience with initiatives such as the simple mobile banking in the UK (Smartbank), the mobile wallet in Spain to manage payments from the smartphone, and the new mobile apps in Brazil, Germany, Poland, Uruguay, Puerto Rico and Portugal.

Benefits of Santander Passport

 

•

A global interlocutor that will tend to a company in any country with the support of local account managers

 

•

Personalised attention with the support of local specialists in new markets

 

•

Facilities to open an account or contract products

 

•

Quick response to credit requests, as the Bank will have at its fingertips the risk analysis of the company’s activity in different markets

 

•

App Passport to access via mobile devices to all the advantages of Santander Passport

 

 

Customer satisfaction
% of active customers satisfied
Bank		End 2014				End 2013
Argentina			86.8	%			85.2	%
Brazil			70.6	%			78.4	%
Chile			88.4	%			85.4	%
Spain			85.0	%			87.2	%
Mexico			95.0	%			92.0	%
Poland			93.5	%			96.7	%
Portugal			94.1	%			93.8	%
UK			94.5	%			92.3	%
US			80.8	%			80.8	%
Total			85.3	%			86.9	%

 

•

Of note in the online sphere was the launch of new commercial websites in the United Kingdom, Portugal, Spain and Argentina, the new online banking project in Brazil, the virtual advisor in Poland, which facilitates advice at a distance to customers, and the digital manager in Spain.

 

•

As regards the contact centres, of note is the success of the voiceprint in Mexico (customer identified by their voice).

 

•

An extra push is being given to social networks in order to reach customers with offers of products and services in the appropriate place and moment.

Customer satisfaction

One of Banco Santander’s strategic objectives is to have more satisfied customers. We believe that such customers use the Bank’s products more assiduously, their average savings balances are higher and the probability of them leaving is significantly lower than in the case of an unsatisfied customer.

In 2014, 85.3% of Grupo Santander’s active individual customers were satisfied. Of particular note was the increased satisfaction of customers in Mexico, Chile, the UK and Argentina.

As for complaints, their number was 14% lower in 2014 than in 2013, reflecting Santander’s commitment to continuously improve customer attention and the quality of service. Among the main markets, those that most reduced the volume of complaints were Portugal, the UK, Chile, the US and Brazil.

 

As well as the programme to continuously improve quality, established in the Group years ago, an initiative was launched in 2014 to transform the customer experience for the main customer journeys.

This project, launched in the Group’s 10 core markets, identifies the customer processes that impact the most on their experience and redesigns them from the customer’s perspective.

A methodology is used whose basis is the customers’ views and expectations and with the work carried out by many of the Bank’s areas a new experience is delivered to the customer.

At the moment the two to three main customer journeys in each country are being improved, such as the process of taking on a customer.

Innovation

Santander’s commitment to innovation, in response to the challenges that digital transformation represents for the business and our customers, is reflected in the following two initiatives:

 

•

Corporate unit of innovation, whose purpose is to plan and develop the Group’s digital innovation strategy from a global perspective, taking advantage of the innovation capacities that already exist in the different units and businesses. Of note among its functions is the global observatory, which analyses and consolidates the market’s trends and best practices, and the laboratories, which conceptualise and execute projects using innovative methodologies.

 

•

The mutual fund Santander InnoVentures, with $100 million to invest in start-ups and innovative companies in the financial sector.

 

 

Simplification in the process of registering customers

An initiative that aims to improve the customer experience during the first 90 days of their relationship with the Bank

Examples of progress in countries:

 

•

United Kingdom: simplifying documents delivered to the customer

 

•

Spain: digital signing in a tablet

Other Customers Journeys

Improvement in the various processes which are critical in customers’ daily interaction with the Bank

For example:

 

•

Mexico: paperless process for loans, beginning with the customer’s first visit and online pre-evaluation

 

•

Argentina: incidents resolved immediately and via the same channel the customer uses to communicate it

 

The base of Banco Santander’s value proposal for its shareholders is a business model with a high degree of recurring revenues, prudence in risks, efficient and with disciplined use of capital and financial strength.

Capital strength and risk management

Banco Santander’s strategy focuses on organic growth and an efficient capital allocation among its businesses. The Bank is implementing an enterprise wide risk management (Santander Advanced Risk Management) model, which will enable it to strengthen and improve its medium-low risk profile and reduce its NPL ratio below 5% by 2017.

The results of the stress test and the Asset Quality Review (AQR) conducted by the European Central Bank in 2014 showed that Santander has one of Europe’s best-capitalised balance sheets.

 

•

The adjustment to Grupo Santander’s levels of provisions resulting from the AQR was the lowest among its international peers (impact of 0.04 p.p. on its capital ratio).

 

•

In the adverse scenario of the stress test, Santander was the bank whose capital was reduced the least among its international peers, representing a €20,000 million surplus above the minimum capital required at that time.

In 2015, Banco Santander has increased its capital by €7,500 million, through the issue of 1,214 million new shares. The issue consisted of an accelerated book building process aimed at institutional investors. The new shares began to be listed on January 13, 2015 on the Spanish stock exchange.

This capital strengthening will enable the Bank to benefit from the strong growth envisaged in its core markets in 2016, taking advantage of the organic growth opportunities and increasing lending and its market share. It will also make it possible to comply

ahead of schedule with the Basel III capital requirements, assuming then fully as of 2015 although they will only be required as of January 2019.

As a result of this capital increase, the Bank will attain in 2015 a fully loaded capital ratio of around 10%, making Santander one of the best capitalised banks at an international level, bearing in mind its geographic diversification and retail and commercial banking model that enable it to generate results with a low level of volatility.

International investors received the capital increase warmly, as shown by the speed with which it was carried out, the number of participating investors and the high demand for the new shares. This operation is positive for shareholders, as earnings per share are estimated to improve as of 2016.

Main figures of the January 2015 capital increase

 

•

€7,500 million capital increase, representing 8.8% of the Bank’s capital after the transaction

 

•

1,214 million new shares issued

 

•

€6.18 per share: placement price

 

•

235 investors took part in the transaction

 

•

€11,000 million total demand for the new shares

 

•

Operation closed after four hours

 

•

79% of the demand for the new shares came from the US and the UK

The capital increase will enable the Bank to benefit from the growth envisaged in its core markets and be one of the international banks with the strongest capital position

 

Enhanced profitability

The growth expectations in the main markets in which Santander operates enable us to anticipate a substantial improvement in the Bank’s profitability, as shown by the sharp rise in profits in 2014 (+39.3%). The Group’s objective is to increase its return on tangible equity from 11% in 2014 to 12-14% in 2017.

The amount assigned by Banco Santander to its shareholders charged to 2014’s earnings will be €0.60 per share, if the proposal that the board submits to the 2015 general meeting of shareholders is approved.

The Santander Scrip Dividend Scheme has enabled shareholders to opt to receive their dividend in shares or in cash and allowed the Bank, during the years of the crisis, to recapitalise at the pace of the regulatory requirements.

Following the capital increase, Banco Santander decided to reformulate its dividend policy. In the context of the improvement in the economic growth scenario and the change in tax regulations, which worsens the treatment of receiving a dividend in the scrip format, the board decided to set the remuneration per share charged to 2015’s earnings at €0.20 per share, which will be paid, as always, in four payments, three of them in cash and the other in shares or cash, at the shareholder’s choice.

In the coming years, the evolution of the dividend will be in accordance with the growth in earnings, with the objective that the cash pay-out represents between 30% and 40% of the recurring profit, instead of the current 20%.

Shareholder remuneration in 2014 and 2015

 

		February » €0.15 : Santander Scrip Dividend charged to 2013’s earnings   May » €0.15 : Santander Scrip Dividend charged to 2013’s earnings   August » €0.15 : Santander Scrip Dividend charged to 2014’s earnings   November » €0.15 : Santander Scrip Dividend charged to 2014’s earnings   February » €0.15 : Santander Scrip Dividend charged to 2014’s earnings   May » €0.15 : Santander Scrip Dividend charged to 2014’s earnings August » €0.05 : Cash dividend charged to 2015’s earnings   November » €0.05 : Santander Scrip Dividend charged to 2015’s earnings   … In the coming years, the evolution of the dividend will be in accordance with the growth in earnings

 

 

Evolution of the Santander share

Santander continued to be the largest bank in the euro zone in 2014 by market capitalisation for the 12^th year running, and the 11^th in the world, with a value of €88,041 million.

The Santander share ended 2014 at €6.996 per share, 7.5% higher than a year earlier. This evolution outperforms that of the Ibex 35 (+3.7%), the Spanish blue chip index, and of the main international indices, such as the DJ Stoxx Banks (-2.8%) and the DJ Stoxx 50 (+2.9%).

At the beginning of 2015, the Santander share was affected by the announcement of the Bank’s capital increase and by the turbulence in the market due to political risks in Greece, the oil prices and the correction in the US monetary policy.

Shareholder base and capital

Number of shareholders

At the end of 2014, Banco Santander had 3.2 million shareholders in more than 100 different countries.

Number of shares

The number of Banco Santander shares was 12,584,414,659 at the end of 2014, after four capital increases to tend to the demand of the four scrip dividend programmes during the year. These entailed issuing a total of 880,057,105 new shares (7.8% of the capital at the beginning of the year). In addition, and in order to tend to the exchange of the offer for acquiring 13.65% of Santander Brazil, 370,937,066 shares were issued.

 

 

Listing in two new stock markets

The Santander share began to be listed on the Sao Paulo stock exchange on November 17 after the offer to acquire 13.65% of Santander Brazil’s capital. This meant issuing new Banco Santander shares. The Santander share was also listed on the Warsaw stock exchange on December 3, bringing the number of markets where the share is traded to nine: the four Spanish markets, New York, Milan, Lisbon, London, Buenos Aires, Mexico, Sao Paulo and Warsaw.

Shareholder relations offices

Banco Santander wants to listen to all its shareholders and, in order to do so, puts at their disposal, via shareholder relations offices, varied channels to facilitate their communication with the Bank, including: shareholder mail box, telephone line, corporate website, the I am a shareholder website and the Santander Shareholders app.

Shareholders can send their comments and suggestions via these channels, while also receiving all the information on the evolution of the share and of the Group. Also, 329 events were held with shareholders to inform them of the Group’s results and offer them a personalised attention.

In 2014 :

32,034

e-mails tended to

227,968

telephone consultations received

339,049

letters

3,826,979

alerts sent via SMS

 

Banco Santander’s commitment to society and the environment is manifested in two fundamental spheres:

1. Responsibility in developing its activity

Banco Santander is aware of the enormous impact its regular activity has on the environment and is committed to acting responsibly.

 

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It has a sustainability committee chaired by the chief executive officer, which is responsible for integrating sustainability within the Group’s business model.

 

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It has developed corporate policies and rigorous processes of marketing products and services that aim to guarantee they are sold appropriately.

 

•

It fosters compliance with the codes of conduct that govern the behaviour of its professionals.

 

•

It measures the social and environmental risks in large credit operations.

 

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It has internal policies that govern the Bank’s activities in sensitive sectors, such as defence, energy and forestry.

 

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It complies with the highest standards of corporate governance as regards transparency, effectiveness and defence of shareholders’ interests.

 

•

It promotes compliance with the United Nations Global Compact among its suppliers and manages purchase processes in a coordinated, efficient and sustainable way.

 

•

It has implemented energy efficiency measures in all the Group’s facilities and offers funding lines for the development of clean energy projects.

2. Commitment with the community

Santander shows its commitment to the society in which it conducts its business by investing in its development and social progress, with initiatives in different spheres:

 

•

Education. A quality education for everyone is a guarantee of social and economic wellbeing. Banco Santander supports education as the engine of communities’ progress, particularly higher education. The Santander Universities programme is the hallmark of the Group’s social commitment. Moreover, the Bank promotes access to quality nursery education through various initiatives, some of which directly involve employees.

 

•

Entrepreneurship and job creation. Santander promotes entrepreneurship and job creation, paying particular attention to the spheres of higher education and universities. The Bank has various business incubation initiatives and promotion of young talent with entrepreneurial spirit, as well as programmes that contribute to strengthening the business fabric and sustainable development.

 

•

Financial inclusion. Banco Santander pursues financial inclusion and the socio occupational integration of vulnerable collectives, in order to improve their quality of life and that of their environment. Santander has microcredit programmes in Brazil, Chile and El Salvador. Furthermore, the Bank is firmly committed to financial education, conscious of the need to promote better knowledge of basic aspects of finance.

 

•

Culture. Santander carries out intense activity to protect, preserve and disseminate art and culture. The Banco Santander Foundation in Spain and Santander Cultural in Brazil are the best examples of the Group’s cultural investment.

Santander forms part of the main stock market indices that analyse and assess the companies’ activity in the sphere of corporate social responsibility: the Dow Jones Sustainability Index (DJSI) in the bronze category, and the FTSE4Good

 

 

Santander Universities

Investment in higher education is a hallmark of the Bank’s social commitment and this support is articulated and managed via Santander Universities.

For 18 years Santander has maintained a long-term strategic alliance with universities, unique in the world. Santander cooperates in launching projects to improve education, internationalisation and modernisation of universities, student and teacher mobility, the entry of students into the labour market and fostering an entrepreneurial culture in universities.

This cooperation is articulated via comprehensive cooperation agreements, support for international cooperation agreements between universities, encouraging and cooperating with international academic networks, and backing global projects.

Of note among the main activities in 2014 were:

 

•

The 4th edition of the internship aid programme for professionals in SMEs in Spain, which made 5,000 grants. The success of this programme led to its launch, for the second time, in Argentina, the UK and Puerto Rico. The programme facilitates the insertion of students in the labour market. Almost 50% of students who were interns under this programme had a work relation with the company at the end of the programme.

•

The Universia network also helps young people to enter the labour market. There were 2.8 million job offers in 2014 and 16 million job requests registered in the platforms of the work community.

 

•

Innovation and entrepreneurship is a key priority in the support that Santander Universities gives to the university community. Of note was the holding of the 10th edition of the Santander Universities prizes for Innovation and Entrepreneurship in Brazil (20,100 projects presented) and the editions in Mexico, Argentina, Chile and Puerto Rico. Of note also is the organisation of Spin 2014, an international event held in Mexico City, in cooperation with Red Emprendia, the Latin American university network of business incubation that promotes the transfer of knowledge, technological development, innovation and responsible entrepreneurship.

 

•

Launch of the latest edition of the Santander Iberoamérica scholarship programmes, fulfilling the commitment made at the II Meeting of University vice-chancellors in Guadalajara, Mexico, in 2010.

 

 

The III International Meeting of Vice-chancellors was held by Universia in 2014 in Rio de Janeiro, attended by 1,109 vice-chancellors from universities in 32 countries who, during two days, debated the projection of universities and their capacity to respond to society’s demands.

The conclusions of the different working sessions are set out in the 2014 Universia Rio Declaration, which details the main challenges and priorities facing Latin American universities in the 21st century and along which is fostering entrepreneurship. This declaration was delivered by Ana Botín, executive chairman of Banco Santander, to Enrique Peña Nieto, the president of Mexico, King Felipe VI of Spain and the Ibero-American General Secretariat in the

framework of the summit of heads of state held in December 2014 in Veracruz, Mexico.

At the Rio meeting, the Bank announced its commitment to invest €700 million in university support programmes over the next four years. Of it, 40% will go on university entry scholarships and national and international student and teacher mobility; 30% on fostering research, innovation and university entrepreneurship; and the remaining 30% on supporting academic projects and initiatives to modernise and incorporate new technologies to universities.

 

 

 

 

 

Recognitions

Prestigious international organisations recognised during 2014 Banco Santander’s commitment to society:

 

•

The world’s greenest bank for the third time, according to the magazine Bloomberg Markets, which for the last four years has drawn up a ranking of the world’s greenest banks which assesses the financing of renewable energy projects and the reduction of the environmental impact with energy efficiency measures.

 

•

World’s most transparent bank, according to the NGO Transparency International, which drew up the second edition of its Transparency in Corporate Reporting index. Santander was classified in fifth place in the ranking of the world’s most transparent multinationals and the first among international banks, thanks to the information provided on its anti-corruption programmes and organisational transparency.

Other recognitions obtained during the year in countries where Santander operates include:

•

Santander Brazil won the BeyondBanking award, in the Banking Planet category –adapting and responding to climate change effects– granted by the Inter-American Development Bank (IDB), for its Reduce and Compensate CO2 programme. This award recognises the best financial institutions in the sustainability sphere in all of Latin America.

 

•

Santander Chile was recognised as the leading company in corporate governance by ALAS20 on its report on sustainability and responsible investments. It also obtained an award in the leading company in sustainability and investor relations categories.

 

•

Santander UK attained a national award for the Community Plus programme of the Santander UK Foundation for being considered the best corporate foundation programme in the 2014 Corporate Engagement Awards, which are granted to corporate social responsibility initiatives.

 

•

Santander Totta was recognised for its energy efficiency management plans at its headquarters, in the ninth edition of the EDP Electric Energy and Environment awards.

 

 

Santander Chile:

financial education

In order to promote financial education in an inclusive way, foster conducts such as responsible consumption, savings and good use of banking products and services, various initiatives were developed for individuals and SMEs such as sanodelucas.cl, a digital and interactive platform with contents and tools, and the recently launched Financial Education Centre.

Santander Mexico:

nursery education

The Bécalos project, in which the Bank has participated for many years in cooperation with the Mexican Banking Association and the Televisa Foundation, promotes education in Mexico through granting scholarships to students and teachers in public schools.

Under Bécalos, 90 out of every 100 students can attend the following school course. The Bank collected more than €53,000 in 2014 for this initiative via ATMs. The Bank, on its part, contributed €200,000. Over 200.000 students have benefited from this programme.

Santander Brazil:

microcredit programme

 

•

Santander Brazil is the leading private bank and the second in microcredits in Brazil. It is present in more than 600 municipalities throughout the country.

 

•

The programme grants credits of €700-€800, with maturities of around eight months, to charity groups formed by five to six people.

 

•

More than 300,000 people, 70% of them women, have benefited from this programme since 2002.

 

During its more than 150 years of activity, Santander has developed a combination of prudence in risk management together with the use of advanced techniques that have proven to be decisive in generating recurring economic results.

Grupo Santander’s risk policy is focused on maintaining a medium-low and predictable profile for all of its risks. Its risk management model is a key factor for achieving the Group’s strategic objectives.

 

 

•

In Latin America, growth slowed in 2014 (1.3% vs. 2.7% in 2013) in an international environment characterised by the normalisation of monetary policy in the US, lower growth in China and less favourable terms of foreign trade than in the past. Despite this lower growth, inflation rose, as a result of several supply shocks and the impact of the depreciation of Latin American currencies.

 

•

Brazil recorded moderate growth, despite which the jobless rate remained very low. The first measures announced by the new government were positively valued by the markets.

 

•

The Chilean economy slowed down, which allowed for more expansive monetary (benchmark interest rate at 3%) and fiscal policies.

 

•

Mexico was on an upward growth trend during 2014, thanks to the strong trade links with the US and the expectations raised by the major structural reforms.

The main international institutions foresee an upturn in the global economy in 2015 which would gain steam in 2016.

Financial markets and exchange rates

In general, financial conditions improved substantially. The advances mainly occurred in the first half of the year when the global perception of risk declined substantially, stock market indices registered widespread gains, public and private debt risk premiums fell sharply, access to capital markets was more fluid and the conditions of bank credit – in developed economies – eased.

This performance was linked to central banks’ monetary policies, which resulted in abundant liquidity and in the consequent search for profitability. Another important factor was the progress in the European Banking Union and the idea that the most extreme risks were a thing of the past.

In the second half of 2014 there was a correction and a greater differentiation in the performance depending on the nature of the asset and the prospects of each economy in the face of the downgrading of global growth forecasts, the end of the US bond buying programme and the notable fall in commodity prices, particularly in the case of oil.

Exchange rates registered important changes during 2014. The dollar, in particular, appreciated sharply against the euro and against the main Latin American currencies.

Financial conditions improved substantially and exchange rates registered important changes during 2014

 

Banking sector environment

The most important development for the banking systems in which Santander operates was the progress toward the Banking Union in the euro zone. The ECB assumed the function of supervisor of all euro zone banks and directly for the 120 most important (82% of the system’s total assets).

Before beginning this task, it conducted an exhaustive health check of the banks’ assets and liabilities. The assessment included two key elements: an Asset Quality Review and a simulation of the impact of different macroeconomic scenarios on the solvency of banks (stress test). Of the 123 banks analysed, only 13 recorded a net deficit of capital (€9,475 million total) when the results were announced.

2014 represented a turning point for European banks, thanks to the assessment of their balance sheets and the preparatory work by the banks, which strengthened their solvency decisively.

This was reflected in a clear improvement during the year in the confidence in the European financial system. Economic weakness, meanwhile, continued to weigh on business and the low interest rates continued to exert downward pressure on results. Even so, the trend of improvement during the year in the evolution of credit and the cost of credit is expected to support a gradual improvement in spreads in 2015.

2014 represented a turning point toward a clear improvement in the confidence in the European financial system, thanks to the ECB’s assessment of their balance sheets

 

 

 

 

The year in Europe was marked by the launch of the single supervisor