Claudio Melandri – General Manager Alfredo Sáenz Abad – Chief Executive Officer

We are going to start this results presentation. First, the highlights for the quarter, for this first quarter 2013. Although with some signs of improvement, the economic context for our business has continued to be complex, there has been continued downturn in the euro zone’s GDP at the beginning of the year with strong deleveraging continuing in the peripheral countries, slightly better trends in the U.S. and the UK due to their (inaudible) programs although growth is still very moderate. In Latin America, the year began with a slowdown in Mexico, and a weak recovery in Brazil, which is expected to improve throughout the year and invest some low growth environment, interest rates have remained at record lows in many countries after the cuts in recent quarters. So in this context, our priority continues to be strengthened our balance sheet to triple approach based on liquidity, capital ratios, and risk quality, posted by our ability to generate results. The main developments in the quarter were first to change in the trend in profit, which has begun to return to normal after the large provisions made in the last few quarters. This is a process that has been impacted by our strategy strengthening the balance sheet and by this very low interest rate environment. Second, we have maintained our strategy to attract deposits, thus improving our liquidity position, which can be seen in a short reduction of our commercial gap, and a great improvement in management ratios. Third, strong organic capital generation in the quarter has enabled us to maintain a comfortable position, our [biz] to core capital ratio was 10.67% at the end of March, and the [face in] estimated for the end of the year and the Basel III was close to 12%. Fourth, stabilization of NPLs in the…

Good morning. As our CEO has said, I will reviewing the Group’s business areas. I will begin as usual with this slide, which shows one of the Group’s great strength, which is the geographic diversification of profit generation, which has changed since Q4. 55% of our profit comes from emerging markets. Brazil contributes 26%, Mexico 12%, and Poland 4%. Spain, the UK and the U.S., the matured markets contribute 7% to each or 11%, 12% and Santander Consumer Finance in Europe overall brings in 9%. Starting with Spain, and I’d like to remind you that due to the merger, we’ve included a new geography, which has been the Spain unit, best unit as we announced a months ago, includes the retail businesses of Santander what we use the call the Santander Network, Banesto, Banif plus global businesses in Spain, wholesale banking, asset management, insurance and cards, as well as the ALCO portfolio and Spain to this unit based on stable low cost or no cost deposits in the unit. Remember that this does not include the specialized Santander Consumer Finance unit in Spain, which is in the Santander Consumer Finance Europe unit nor been discontinued state business, which I will explain separately later. In volumes, I would say that we have maintained the same excellent pace of deposit, recruitment within moderate drop on loans, which we will review in the next slide. Gross income reflects the impact on net interest income of low interest rates and the re-pricing of our mortgage portfolio and the rise in the cost of deposits we’ve seen in the second half of 2012. In 2013, both trends will gradually reverse. We will finish mortgage re-pricing towards the end of Q3, beginning of Q4. The re-pricing was begun in September, October last year and the cost…

Let me conclude with a few comments on the current situation and my outlook for the future. The first quarter saw radical change in the group profit trend after the exceptional provision need for real estate in 2012. Today, we are in a different profit dimension as declined from levels of €100 and €400 million in the last three quarters to more than €1 billion in the first quarter of this year. The several of profit however is far from our potential and there are several factors today that exist pressure on the group’s result. First of all raw macroeconomic growth, which coupled with regulatory fact is limiting the growth of the business or the volume of the business. Number two is our global environment of our interest rate, I think it’s current level in many countries, which have an impact on the spreads on loans. And certainly very important management focus in a very complex environment has the given priority to managing liquidity and risk over process. We made the biggest retail check deposit. We were conservative in issuances, and now we are back to more usual funding. We also improve the risk profile. We reduce the relative share in profitable products but of greater risk, for example, interest only mortgages in the UK or consumer credit in Brazil and we are deleveraging on some non-core businesses. As the one would expect all which is having an impact on our results, but it is positioning us better to take advantage of the economic recovery when it happens. And, for the next few months I don’t see drastic changes. Overall, I do see a gradual improvement as the year progresses, especially after the year 2014 I expect a recovery in revenue in our larger units. In Spain, due to the…

Good morning. We will start with the questions that we received over the Internet and then if we have any questions from the conference hall, we will take it later. We are going to organize questions by subject, let’s start with strategies and regulation. There is our first question from (inaudible) autonomous and (inaudible). With regards to IPOs, (inaudible) in the U.S. and what is the intention of our partners?

The only IPO that we’re considering now, although we still haven’t made a final decision on the price or the timing is taking part of our U.S. subsidiary ex-drives the consumer lending unit. But we don’t have any plans for 2013 for any other IPO end market. Antonia (inaudible) from Key would like to ask about our dividend payout policy, €0.60 and the continuity of the script dividends if we have a dividend and cash policy or if we are thinking about reducing the dividends. The only decision that we’ve made is that in the year 2013, this year 2013 the dividend is going to paid out in first group dividend with regards to the dividend policy for 2014 we haven’t decided yet and we will decide that when the time comes. So we can’t say anything about that. There are several questions on deposit strategy and Spain that we come under from the (inaudible) from acquire and several of that from it put it into sample. (inaudible) from Citi. The question is with regard to the deposit strategy in Spain; are you making and effort and why in attempt to process. Is that related to the something from wholesale market, is there is a slight quality if we’re wouldn’t enough have the quality what is our pricing policy for deposit despite recommendation from the Bank of Spain and can we say something about deposit clause in April in Spain.

Everything is related to freight and policy strategy, and size of quality. Well are on the deposit policy as mentioned several time. It’s based on the following concept. First of all, we want to take advantage of the opportunities that arise in the national market. The national market is distorted at present because of the restructuring properties and we think that it is an excellent opportunity to attract customers and to take part of that market and gain market share. The second concept which is really related to the first is that in the market. We are witnessing a certain flight to quality that we want to take advantage off precisely to increase our position among customers in the retail market. The third concept is that we are carrying out a pricing policy that although as the rest of the market was quite aggressive until we end up 2012 because there was a competition, a lot of competition based on prices. After the recommendation from the Bank of Spain and based on the real situation of the interest rates, all of us, of course, our exceptions, we know that there are exceptions but in general terms, we are average in deposits at much lower prices with a significant reduction on prices in 2012, particularly the fourth quarter of 2012 and this trend is going to continue because interest rates are falling because there might be even – because interest rates might fall even further. We have reduced the price of deposits but nevertheless, we continued to increase our market share in deposits because of that flight to quality that you mentioned.

We are going to financial management now, there are several questions. The first question (inaudible) from Citi. Asking if we have any gaining measures to offset the negative impact of Basel III like selling assets or deleveraging and if we can elaborate on the main drivers of the evolution of core capital III or core capital Basel III. Yes, we could elaborate on many things when we talk about capital, but we feel very comfortable with the capital situation we’re in right now. On the other hand recently, however, environment issued a report and that some Spanish bank commissioned on the comparability of the risk-weighted assets among the new European geographies, in other words comparing Spain with Italy, France, the UK, Germany, et cetera. The main conclusion of this report and we have been talking about this frequently in the market is that capital consumption is greater indicates of cases that there are banks in the southern Spain than banks in other countries. This report that we will publish on our web page, this is aside from two things, the more conservative nature of the models approved in Spain by the supervisor, and secondly, because it’s a lower percentage of models approved outside of Spain than for banks in Spain. If we were to apply the risk-weighted assets criteria and percentages under the advanced model of the less conservative practices in Europe, in other words as a most aggressive ones I comment that way, if we were to apply these criteria and these percentages, our core capital ratio would improve from 90 to 150 basis points. In other words, it will grow from 10.7 that we’ve published this morning to 11.6 or 12.2. That’s for Basel II and a half. But if we talk about Basel III fully loaded, which is 9.2 for us, it would be 10.1 to 10.7, with in that range. So that range would mean that we would be one of the highest that we can see in Europe right now. So this is something that we’ve been insisting on for a long time. This is something that regulators of our Basel committee and the EVA are already working on. They are aware that there are these differences between European countries and these differences make it very difficult to compare with us. Base 10 in Spain is quite different to 10 in any of these other countries.

So that’s just far as the things that are difficult to compare on various questions. But on the other hand, I said at the beginning that we feel very comfortable with the capital ratios we have, we currently generate capital every quarter plus, we have a balance sheet risk profile, which is medium to low because of the nature of our retail banking business. And in fact when we had this stress test a few months ago, the other requirement stress test, the fact is that, Santander has not destroyed any capital since 2007. And that stress test demonstrated our strength and our solidity and we continue to generate capital organically throughout this downturn. And of course, capital ratios and profit are a balance, which you have to strike and there, I would include business models too. so with these three pillars, capital ratios, business model and cap and perfect, we feel very comfortable with our capital ratios. Moving on with more capital ratio related questions, (inaudible) from Merrill Lynch is asking about the 77 points in the slide together with the organic growth this year. Benjie Creelan from Macquarie is asking the same thing. the number that we showed this already at the Morgan Stanley Conference, it’s a method of the new accounting standards, but basically, just over a half is to the alternative standard in Brazil and the other is due to other internal local models of less importance, which we will be applying throughout the year. There is another question about, could we explain changes in core capital in the quarter and 300 million from Keith (inaudible) and connected to that, they’re also asking about the trends and minorities, Britta Schmidt from Autonomous and someone from the Texas. So core ratio trends in the quarter were up 3 billion, can we explain the $1.9 billion or $2 billion increase in minority interests, so connected to the same thing, apart from the profit there’s an increase in minority stakes, basically because of Poland, we have about $1.3 billion, $1.4 billion from Poland and the rest is exchange rate effect as far as minorities and the rest of the capital increase I think we mentioned in the presentation, profit/scrip dividend plus Poland exchange rate effects and so on.

There is another question about capital and that is what we expect for risk weighted asset trends, because (inaudible) are asking whether we expect to pay in any sort of savings with risk weighted assets, and what do we expect from risk weighted assets in the group, but in the different units? I wonder if you’d like to elaborate.

Well obviously, here there are two effects, one purely the business effect, where we think risk weighted assets will continue in those geographies where there is deleveraging, they will remain stable or fall, Spain and Portugal, as it has been the case in the last quarters. The U.K. will remain relatively stable too, and Latin America, naturally we expect them to grow, but that’s probably due to business parameters. There’s two additional factors are important excluding the perimeter effect. Two additional factors that are significant, one is exchange rate evolution, very important in this quarter, and most of the year has appreciated mostly versus most of those other currencies. So those currencies have appreciated versus the euro, and there are significant relations in the quarter. Brazil appreciated 5%, Mexico 8%, Chile 1.5%, and that of course changes the risk weighted assets, and quarter-on-quarter, this has an effect on both sides on the amount of capital as Andres mentioned earlier, and on risk weighted assets – mortgage being offset. And the third element, returning to – globally to 67 points that is a capital we expect to generate [and currently] said that 33 of those points come from the application of the alternatives and that model to operational risk in Brazil. So in Brazil, we expect to fall in risk weighted assets, so result and also the risk is the application of advanced models, and as they get approved in the different countries. And of course it’s very granular and in some countries, it’s by country and others by business segment, but those are the keys the business parameters, exchange rate effect, risk weighted assets and the application of internal models. In Brazil, it’s special case because of its size. And then there is the polish impact you mentioned that Poland. In risk weighted assets, yes Poland of course in the quarter risk weighted assets up $7 billion because of the [KB] integration also $1.3 billion up core capitals minority interest in Poland. : There is also a question from our that includes in the fully loaded from 8% to 9% remember that presentation DDAs have no change, the calendars 10 years and so we’re talking full loaded 2019 instead of 2024. And finally there is a question from Santiago López from Exane.

Given the impact of Basel III, the 380 basis points, do you think that the bank needs a capital increase?

I imagine the answer is very short. I already said what we felt about our capital ratio, so the answer clearly is no, we don’t need a capital increase.

And as far as the PLL for corporate center (inaudible) from Morgan Stanley is asking, in Spain, what’s behind the fall spreads in Spain for the corporate center. He is asking, could we elaborate a little bit on the evolution of net interest income for Spain and for the corporate center. There are several questions about this. (Inaudible) from Merrill Lynch who is asking this too and others ask in specifically about the net interest income in Spain and the corporate center.

Well, trends, net interest income I think I’ve explained in the presentation, there are two main effects here. The first is mortgage re-pricing, mortgages throughout 2000 what, since the beginning of 2011 and until September 2012 were re-priced with the one year Euribor, which at that point was between 1.5% and 2% more or less. And now we’re re-pricing since September-October 2012 until September-October 2013, we see Euribor at 0.5%, 0.6%. So there obviously, there is a fall due to this mortgage re-pricing, which will be completed around September, so gradually we’ll have lesser effect. This is significant negative effect depending on the mix as we saw in our mortgages represent about 25%, 27%. And so that is showing a significant fall in yield because of that re-pricing. This is somewhat offset, but only partially by other loans, which we spread for improving generally. And as for deposits it’s true that the cost of deposits is falling strongly as I mentioned in the talk. At some point term deposits were at 3% and now they are at 1.5% more or less, so there has been a fall by the mix and the sequences meant that overall cost of deposits hasn’t fallen yet, but it will start to fall very quickly. So these two trends as I try to explain, spreads for week as I said in Q1, both price still be weak in Q2, but we will gradually improve, but there is no significant ways and exchange rates. Although it’s been said that they use to be lower rates even further with the relevant rate in this case is the 12-month Euribor, and of course, that is having a negative impact because of mortgages and the three-month Euribor, because we pay part of our funding with three months Euribor, that…

Okay.

No, I mentioned this earlier that let me clarify or it will confuse you even further. What I said earlier was that we expect decreasing volumes in lending about 3%, the profit volume that will grow 5% to 8% growth is what we expect in terms of volume, and if the three year (inaudible) to remain at 0.5 for the year and 0.2 for three months – in the year we would expect a cause at a reduction of 30 to 45 basis point in the cost of the process. I am going to compared December 13 with December 12, a 30 to 45 basis points is by how much the cost of the process would fall with a – and a fall lending will be half of that. The outgo visit is stable about $30 billion for the whole of Spain. Therefore, the first quarter was negative, the second will be less negative, the third quarter might be stable or growing a little and the first quarter growth. Of course with all the caveats the other bank – the European Central Bank et cetera, what they might do with the rate. The driver you know that well enough. There’s a question about the real estate in Spain, we mention that in the fourth quarter, we might make an additional 1 billion in provision for real estate assets in order to accelerate the selling of assets. We’re still thinking about accelerating that sale and generating capital gains to offset that. I’m going to answer that question because I was the one who made that statement in that results presentation. Yes, when we made our earnings announcement, I think I it was in February, we thought that the sales in 2013 end up that prices in 2013. If you continue to…

Yes, interest of the net interest income is under pressure. There is several impacts here, several effects. On the one hand, we believe and our management team in Brazil continues to believe that if the economy in Brazil grows 3% as the consensus has established and that is also the opinion of our economies and other people in Brazil. Well, if that happens if the economy grows 3%, the asset volume will accelerate in line with the economy to grow and were part of private banks and in our key we would be growing by two digits more than two digits from 10% to 15%, 10%, 12%, 13%, 14%, if the economy grows 3%. So that’s a positive impact on the net interest income. Now what is a negative impact on the short-term for the net interest income over the fall of spreads it has been a fall of spreads for two reasons. On the one hand because of the pressure of the competition, which is making spreads fall and on the other hand because of the product mix that we have in our bank, because we are focusing on more secure products with more security and therefore lower spreads, and that will mean that the cost of lending will fall, because these loans or these products have a lower cost of credit, but also lower spread. On the other hand, the contrary effect would be the fees that will accelerate with credit volumes, because fees are doing well, and its lending increases by two digits then, obviously fees will also grow by two digits. Therefore, if the economy does grow at 3% as we expected, that would give us better performance in volumes and also in the credit quality. And that is why we believe that in our outlook…

Okay. With regards to the first question, the number is very positive. It’s positive because we have served a certain stability in the spreads on lending and a reduction of cost on deposits and household funding and that combined those have been combined. Well, I think the net interest income is going to grow 6% so it’s more positive and on the revenue side we have negative impact on the standby situation of the selling of financial product, we have to take – make a decision of what policy we are going to follow for the products that has have a negative impact, but the cost to the government program is there’s aid and that helps, but it will be terrible, but we can say by how much right now.

Well there is a question from Steven (inaudible)

Can we extrapolate results remember that is quarter KBS included in the volume the contribution to earnings is almost none or very smaller or even negative, slightly negative and we already gave data on synergies and expectations on the recent placement of the market in the market. On the United States the last question is on the U.S. what are the business expectations, revenue expectations in the U.S. would you like to add anything to that and we would finish with this question?

There we have two units one of them is going through a transformation process and extending the range of products. We are trying to after sales or try to sell to do asset management insurance selling cars that is the advance priority right now and when that materializes that will be having effect on the revenue, but doesn’t happen in one single quarter, it takes longer. In the case of drive of the consumer business in the U.S., it is well-known that a deal has been signed, which is transformational for them, which is to turn into the supplier of funding for Chrysler car dealers, that is going to – unlike it grow strong, and it’s a transformational deal for the consumer business in the U.S., that we’re not going to see yet. We’ll notify in the next few quarters, but it is an element that does change size and the pace of growth of the consumer business in the U.S. Let me answer your question in Chile, surprised by the evolution of the MPL rate, it has been going up since, we’ve been recording more provisions for that, still getting ahead of movement, and that means that the cost rates will be flat during the year – every customer asks about the fall in the rest of Latin America of revenue for the revenue. It is the addition of different sectors that we already gave you, also a small fall in BTI, but it’s a marginal fall. I don’t think there are any further questions, no questions from the conference call either. So with this, we finish this presentation. Thank you very much.