Banco Santander SA (SAN) 2007 Q3 法說會逐字稿

(Spoken in foreign language). Okay, good morning. Thank you for being there in our third (technical difficulty). We have started with a small delay due to our technical problem. You probably have seen it in our web. Up to now it should be solved but, in any case, we have sent all the -- both [serious] presentations and quarterly report to you by email. So you should have received it half an hour ago. If you haven't, please contact us at the Investor Relations team and we will send it to you.

So we will now start, as with all quarters, with a general presentation by our CEO, Mr. Alfredo Saenz. Thank you.

(Interpreted). Good morning. We will divide this [overshow] of the third quarter results for area. The first will be the trend of the Group in the first nine months. After that, Mr. Jose Antonio Alvarez will explain in more detail the numbers of the different business areas. And then we will explain the current state of the operation to acquire ABN Amro. Lastly, I will sum up.

The first idea I wanted to transmit is that this was another excellent quarter for Santander and the drivers were the same as those in previous quarters. The illustration, with the five drivers in the slide, is exactly the same as the second quarter.

There is only one addition, and that is the results obtained in a much more complex environment, when many of the [world big] banks announced shortfalls in their profits. We believe, therefore, that the Group performance, which is good, has given more value in the (inaudible) terms. First, the strong growth in earnings, in particular the earnings per share, their sustainability and quality.

As I have mentioned in previous presentations, the high quality growth of our earnings is fundamental because it's a firm foundation for continued growth. Of note, is the strength of recurrent revenues throughout the Group units. Our provisions are maintained within the expectations. There has been an increase that is driven by the -- basically, the change in the mix of the different business units. There is also an impact of the perimeter due to the integration of Drive. Finally, we would like to stress the soundness of the balance sheet.

I will start to talk about the main profits and the main increase in the lines. The growth in profits has been 22% more than in the same period for 2006. The profit is -- in earnings per share is EUR0.339 for the third quarter. So we maintain the strong growth in profits of the last [quarter's].

The main difference in this quarter is, basically, Spain. The third quarter in Spain is weaker on its previous quarter. The same happens in Portugal. The difference mainly with the second quarter's was reduce has happened between the second and the third quarter because of some seasonal effects. [Summer in] Spain, or lower collection of dividends [over] the second quarter is the main key difference.

Attributable profit excluding capital gains exceeded EUR2m (sic - see presentation) for the second time in the Group history. As a result, attributable profits for the first nine months was EUR6,000m before capital gains and is still growing at more than 20%. Including capital gains of EUR566m generated in the second quarter from the sale of a stake in Intesa Sanpaolo, total attributable profit for the first nine months was EUR6,572m; 32.8% more than in the same period of 2006.

I would like also to emphasize that this figure only includes the capital gains of Sanpaolo. The sale of the pension fund units in LatAm, nor buildings in Spain are not included yet.

In terms of the vertical quality of the P&L, I would like to mention that the growth in gross operating income of more than 20% doubled the [rise in] cost. As a result, net operating income increased by 31%. Loan-loss provision increased 34% compared with 37% in the first half.

Net operating income net of provisions rose [30.6%], at the same pace as gross operating income. The incorporation of other income and provisions brought growth in profits from ordinary activity to 27%. Lower down the income statement the impact of discontinued operations in 2006 and the sale of minorities interests in Chile brought growth in attributable profit, excluding capital, gains to 21%.

These increases were negatively impacted by exchange rates which, for the whole of the Group, took away about two percentage points. On the other hand, the entry of Drive had a positive effect of two percentage points. The overall exchange rate on perimeter was virtually zero.

In terms of horizontal quality, all the areas have very [accumulated] growth. By geographical areas, Continental Europe grew by 35% with a good performance in all units. Santander [Consumer Finance], Banesto, Portugal and Global Wholesale Banking in Europe grew by more than 20%. Abbey rose 42% on a like for like basis. Latin America rose 23%, the profit in dollars.

And in terms of business units, Retail Banking increased their result by 27%, Wholesale Banking by 43% and Asset Management and Insurance increased by 6% (sic - see presentation). So in this half all the units, both geographically and by business area, the growth has been very sound.

If we explain the different lines of the P&L, the net interest income has had a very strong growth. Income has been growing very strongly. Net interest income plus fees has been very solid. The net interest income grew 24%. Insurance contribution had a growth of 40%. Fees grew basically very strongly, despite of the no -- basically, the policy of no charging fees in Spain and in Portugal. Gains on financial transactions increased by 39.2%, similar to the first half. So revenues, in summary, were very [good] and driven by most (technical difficulty).

On top of that, the revenues were very consistent in the different quarters. If we look at the core revenues driven by the recurring business, you see that there has been a consistent growth quarter after quarter. And currently, this growth of the quarterly revenues has been the consequence of more activity in terms of volume. We have strong growth rates of lending and customer funds. And, of course, it is also the consequence of very appropriate spread management which has been favored, obviously, in some markets because of rising interest rates.

Okay, efficiency. Efficiency for us, it's always an essential aspect. It's the crucial driver of our result. And I've been speaking about these mandibles for quite a few years. But you can see that in 2007 we haven't just maintained these mandibles, but have opened them even more than in 2006.

[In] efficiency, we've gone from 48% in September to 44.4% now. So we've improved on the results of June and we will continue along these lines. And by the end of the year we'll improve our efficiency ratio, our cost income ratio, even more and that in every market.

In Continental Europe we're already below 38%. Abbey is already at 50%. So we're also within the group of the British banks. And in Latin America, it is almost 40% which is a ratio that a very short time ago would have seemed unthinkable, even for Europe.

Costs, which is another of the key aspects. In order to maintain these strong growth levels and these cost income improvements, we have also always tried to selectively improve our costs. If we look at the different units, we can see that the costs have grown only very moderately in real terms, especially if we consider that we're undergoing strong network expansions.

We have increased our size by 12% in the last month. Santander Consumer Finance has grown even more. It's grown 20% in its costs, but that's due to major components. First, growth projects. And secondly, the perimeter effect because of the inclusion of Drive. And if we were to subtract this, the costs would have only grown -- there would be 13 percentage points less cost growth than what you see in this chart.

Abbey is still rationalizing its costs very successfully. We've reduced our costs by 4% in sterling, in their currency. And in Latin America, basically, the budgets are being met. The Latin American countries are experiencing cost growth in line with their budgets.

And I, of course, want to remind you that in Latin America we are continuing to develop our Retail branches. We've increased the number of branches by 8%. We have opened 1,300 new ATMs versus September last year and that obviously has an impact on the costs. It's an area in which we're still investing in our Retail structure. Apart from this, as you know, we also have strong development projects, both for our businesses and our brand and technology. And these, of course, have had an impact on the costs in 2007.

As for point number four in the structure we saw earlier, we can see that provisions have grown in the Group by 29% in the third quarter, in comparison with the third quarter 2006. There's been something of an acceleration in the growth rate. And as a result, the nine months accumulated have increased by 34%, which is slightly lower than the first half, which was 37%.

But if we were to subtract the impact of the integration of Drive into the perimeter, the growth would have been of only [13%], which is very much in line with the growth in the Group's lending. Or, in other words, the growth in our provisions and in our lending are fairly much in line.

Looking at Drive independently because, obviously, we need to keep an eye on Drive, Drive has remained stable with around EUR100m, EUR110m per quarter in provision. And, of course, all of these provisions -- the volume of provisions is very much in line with the performance of the Group's most recurrent results, as you can see on the chart on the right.

Our net operating income of provisions compared to the growth of provisions itself. So nothing new in this area of provisions in comparison with what we have been saying in the first and second quarters and with what we've said in the Investors' Day back in September. Nothing new either, in terms of a more detailed analysis of these provisions by business areas in 2007 and the comparison with 2006.

When we look at the growth in specific provisions we will see that, on the one hand, the change is due to the consolidation of Drive, which represents more than half the increase in Europe. We've included Drive in Europe so as not to break up the Santander Consumer Finance European unit. And the increase in Latin America has been the result, mostly of the impact in Mexico of the NPL ratio in credit cards, which have already stabilized in terms of the risk premium.

We have seen significant reductions in Wholesale Banking due, precisely, to the effect of generic provisions. And also we are seeing smaller provisions in the Santander network. Therefore, higher provisions in Latin America, Brazil and Chile, because of greater lending, Mexico because of the credit card business, and the perimeter effect due to Drive's entry.

Finally, point five of this structure we showed you at the beginning, in order to structure our presentation of the results for the third quarter, we said that another key was the strength of the balance sheet.

The NPL ratio has remained stable. There was a slight increase in the quarter, but it has remained pretty much at the same level that we had in the third quarter of 2006, so, very stable. Coverage is still very high, at 158%. And this, in numbers, means that we have generic provisions more than EUR9b -- sorry, almost EUR6b in generic provisions with a total coverage of almost EUR9b. EUR6b generic, EUR9b total.

Together with a very effective risk management, another of our priorities is an efficient use of capital. And in this context our core capital remains at 6.2%, obviously, before the ABN acquisition.

And so these were the basic ideas of this third quarter and of the nine months of the year. And now, I'm going to give the floor to Jose Antonio Alvarez, so he can continue to tell you about the different business areas and business units in the Group.

(Interpreted). Good morning. As our Managing Director was telling you, as our CEO was telling you, I'm going to now go over the various business areas and units. After seeing the totals and the general figures for the Group, it is to be expected that the behavior of the different business areas and units will also be very good as it has been in the previous quarters.

Starting with the different geographies, specifically with Continental Europe, our attributable profit has been EUR3.53b. That's including that small change of perimeter due to Drive, which we include in Santander Consumer Finance. Minus Drive, our profits would have grown by 32%.

We can see that we're still experiencing strong income growth, over 29%. Our costs [are growing at] 14%, so our net operating income is 1.6% (sic - see presentation). The difference between the net operating income and the profit is due to that increase in provisioning which the CEO was telling you about.

In the chart you can see that our Retail Banking business is still generating revenues on a very good rate. There has been a slight seasonal effect of the second quarter and we've included the divestment of the BPI; that's EUR77m.

But the rest of the business, as we will see also for other units, especially for Wholesale Banking and somewhat for Latin America, 2007 in comparison with 2006, and basically then the market variables, the second and third quarters -- for markets the second quarter was worse than the third. While in 2007 it's been the opposite; the third quarter was worse than the second. But that's because of the evolution of markets, as said.

If we take it another step further and look at the different units within Continental Europe, we can see reasonably homogeneous behavior of all the units. They've all experienced similar revenue growth. Operating income grew by about 15% or more. Net operating income rose by over 20%. And in attributable profit there's very good growth.

We see some peculiarities. For the Santander branch network we've seeing 29% growth, strongly supported by the growth of our net interest income which grew by 21% and fees grew by 10% after absorbing the expansion of We Want to be Your Bank plan.

Banesto's profit grew by 13%, and here we have the Urbis impact with interrupted or discontinued operations but, without that, profits were up 25%.

As for Santander Consumer Finance, I'll talk about this in a bit more detail later. Bottom line has gone up 30% but, of course, here Drive's entry has a greater impact. Without Drive, it would have grown by 12%. And I'll explain a little more what the Consumer Finance Division is doing.

Portugal rose by 24%. Here, the impact of the capital gain from the sale of BPI was minor, because it was mostly applied to anticipate costs and provisions for possible contingencies.

Outside there four main units we have what we call the remainder, and that's a combination of Asset Management, Insurance and Private Banking and Global Wholesale Banking. Global Wholesale Banking is the larger part, as you can see on the screen. And Global Wholesale Banking is still performing very well in Europe because of the good performance of customer revenues and also because of a lower need for generic provisions, as has already been explained.

So if we look at the different units in a bit more detail, we can see that the Santander Branch Network, we are at record highs, very good rate of generation of income. Our net interest income has gone up 21% and that's the main driver for these profits.

The growth of our net interest income is, of course, a combination of growth in volume and increase in spreads. Volumes are slowing down, mostly because the mortgage business is only growing at 12%, but there is a significant improvement in the spreads. Our customer spread has improved by 53 basis points versus the third -- versus the nine months -- the nine months of 2007 versus the nine months of 2006. And although it doesn't actually have an impact on the numbers for the quarter, or doesn't have a direct impact, it can have indirect impact.

The success with [Valeris] Santander where we placed, as you know, EUR7b of paper convertible bank shares demonstrates -- I think it's a very clear demonstration of our enormous placement ability through our branch network. Overall, income is growing at double the rate of costs. And as a result, for the first time, the efficiency ratio, the cost income ratio, is below 40% with an improvement of 2.5 points -- percentage points, and is already below 40%.

Currently, we have 120 more branches than a year ago and we've increased our network by 4%. Nevertheless, we're achieving these significant cost income ratio improvements. We have reduced provisions because of lesser need for generic provisions, whilst specific provisions remain at very low levels. The annualized cost of credit to the Santander Network is only 0.08%.

Banesto is also showing similar evolution. Net interest income is growing at 18%. Costs are growing at 5%. Volumes are growing very significantly. Lending at 25%. And there is an improvement in our cost income ratio of 4.1% and is currently at 41.7%. Credit quality is still excellent. NPL ratios are still at an historic low.

And there is a year-on-year growth of provisions in line with that of lending. Annualized cost of credit for Banesto is 0.6%, so six basis points. On the left you can see that lending is growing at 25% greatly driven by SMEs and corporates, which are offsetting the slower growth in mortgages. So in short, an excellent quarter for Banesto and [that is already presented] by its management.

Santander Consumer Finance. I will separate Santander Consumer Finance Europe from Drive in the U.S., so we can compare like with like and talk specifically about Drive. In Europe, this business is facing strong pressures, or some pressures on its spreads, as we did last year, because of rising interest rates. We've been discussing this in all of our presentations. Plus, we've had a fall in car sales both in Germany and in Spain.

In this environment, which is a challenging market environment, our gross operating income, nevertheless, grew by 10% [and] driven mostly by cross-selling. Net fees grew by 35%. Provisions remained stable. NPL ratios stable at 2.8%, also stable in the quarter and so our attributable profit grew by 12% without Drive. That's the year-on-year attributable profit growth, which compares very favorably with that of our consumers in this market segment who are growing substantially less.

On the other hand, Drive is still developing very successfully. It has generated EUR78m in attributable profits in the quarter, surpassing our initial forecasts. And overall, the Consumer Finance business is a business which has gone from generating EUR140m to generating EUR180m, EUR200m a quarter. So, very good performance in a more challenging context, especially in Europe, because of rising interest rates and the fall in car sales in Spain and Germany.

As for Portugal, we still have growth, very good growth, in the Retail part of the business; individuals and SMEs. In corporates growth has decreased, but the individuals and SMEs business is growing at a very good rate. As a result, our income is growing also in line, driven mostly by the net interest income and [our ROS] customers from Santander Global Connect, which we already mentioned we were developing in Portugal in previous presentations.

And as a result, we have a very reasonable gross operating income situation. And, by controlling our costs, our net interest income is now growing at -- our net operating income is growing at 20%. Lower provisions because of higher recoveries on the sale of certain portfolios, as a result of which our attributable profit's been rising, as we have seen in previous quarters, by about 20%, versus the same quarter 2006, and the same as in the previous quarters.

Moving on now to Abbey, the profile of the account is the same that I showed you in the first quarter. We are currently at EUR613m, which is 21% more than in 2006. Profit before discontinued operations, as the CEO pointed out, is growing at 42% because of that 19% rise in net operating income and lower loan loss provisions, which we will discuss in more detail later.

The growth in our net operating income is due to a very good behavior of our gross operating income, which rose at 6.5% in a concept in which personal financial services in the U.K. is a market that's been growing at an average of 2%, 3%. Costs are still dropping by 4% annual. And that means our profits, our net operating income and our net profits are growing a great deal.

Moving on, because, of course, Abbey is outperforming its market very significantly, there are some highlights of the business which are strongly connected to its ability to launch new products, but also our customer management ability, because of the Partenon deployment which is still on course. And all of this has enabled us to improve our overall view of the customers. And we are beginning to be able to carry out processes which were common in other areas of the Bank, which are mostly to do with cross-selling.

Our management is much more focused on spreads than on volumes. As a result, we've been able to improve our revenues in Retail Banking. Our net interest income is growing at double-digit growth in that area, which is particularly remarkable in a market like the U.K. Our cost income ratio is at 50%. It's already -- as I've said, it's 50% and that's five percentage points better than the last year. And the risk quality at Abbey is substantially better than the average per sector.

NPL ratio for mortgages is 0.61%, whilst the average for the sector is over 1%. And so, we have been able to keep provisions in line with those for three previous quarters, 22% lower than the previous year because, as you remember, we discontinued the Cahoot personal loan business in August 2006 and that was a business which had more provision requirement.

Moving on to the different businesses, in Abbey we see that mortgages have grown. The last quarter was especially good in terms of net production. Our market share was up to 11%. We are not actually actively competing for market share. We are focused more on our spreads, as I've said. The mortgage business spread has dropped by seven basis points.

In the other business lines, in the customer funds, deposits and investment business has been performing well. We had zero growth and now we are growing at 5%, with a significant improvement in our net flows and the spread is now 12 basis points in a portfolio of a very significant size, because we're talking about a portfolio GBP71b.

In personal lending, I mentioned that we discontinued the Cahoot business. As a result there has been a drop in volumes, but a very significant improvement in the spreads of 71 basis points, which is a lot more significant in a context where, as you know, the Bank of England has raised interest rates by 100 basis points, which means that we've not just been able to transfer those basis points, but also improved our spread further.

In current accounts we are growing at a very good rate. Balances are growing at 8% with an improvement in the spreads and this is derived, mostly in this case, the rise in interest rates that I've mentioned has helped a great deal. As a result, in Abbey we have a context of improving spreads for all the liability products and a very good control of our mix volume spread growth in our mortgage business.

Moving on to Latin America, the third quarter in Latin America was very good. Currently, there's quite a lot of consensus in terms of emerging markets, and specifically Latin America are performing very well. The customer business is performing excellently. There's a very strong growth in the Retail business. In this quarter our financial revenues were lower than in the previous quarter because of market conditions. In previous quarters we had sharp drops in rates, especially in Brazil, which has slowed down somewhat in the third quarter. But in any case, the region overall has grown at very strong rates. And as a result, we have been able to grow our profit in dollars 23% in comparison with 2006.

As far as our profit before taxes, [once subtract] the impact of the taxation rate, we are growing at rates of 30%, specifically 29%. So a strong income growth, 33%, double that rise -- than the rise in costs. Then operating income, 45% up, strong growth in volumes, change in the business mix, as we've seen in previous quarters, with a higher cost of provisions. But, overall, the net operating income net of provisions is still growing at a very solid 30%.

So net operating income, net of provisions, still up 30%. The impact against the euro, the exchange rate is six percentage points -- minus six points when we transfer these numbers into euros.

But looking at the main business units, Brazil, Mexico, Chile, you can see that all the units performed very well, both in terms of net operating income and net interest income.

There has been a growth of over 50% in Brazil and Mexico, 18% in Chile and 27% in the other countries, so a very good performance indeed. Net attributable profit growing very successfully, also 26% in Brazil. A drop between -- from 58% to 26% and that's because of extraordinary funds and a higher tax rate.

Mexico growing at 40%, well above market averages. Chile 29%. And if we take into account the sale of minority interests, the growth would have been 38%. Remember, that last year we divested seven percentage of the Bank's business.

The rest -- and I'm going to speak about the rest, attributable profit is down 9%, even though our net operating income is up 27%. And I'll jut give you a few more details about this. In Argentina the business has grown 24%, the profit, the same thing with Venezuela, which is growing at 20%. The effects of -- the negative effects are due to the fact that in 2006 we sold off our Bolivia and the Peru pension funds, and so the capital gains were included in these -- in this area for Latin America. And there were some extraordinary revenues in Columbia in 2006, which we didn't have this year.

But the only real impact in terms of business is the larger provisioning in Puerto Rico, which is an economy which, as you know, is undergoing a recession with a very significant rise in the cost of credit. On the other hand, Santander Private Banking has continued to grow its income very well at 25%, in terms of operating income and profit.

Moving on to the different geographies in Brazil, we've had a very good economic environment. There has been a significant drop in interest rates in comparison with those of 2006; 360 basis points. The system's growing well, credit at 25%, lending -- customer funds at 21%. Santander Banespa is grown very much, 27%. Total growth in lending to individuals, SMEs and corporates all growing at a very good rate.

And in customer funds we've seen an increase in investment funds and also deposits; very significant cost income ratio improvement from 46% to 39%. There is also a very good contribution of the [IRS] throughout the year, although in the last quarter we didn't reach the record levels per [sector]. But overall, income's growing at 39%, which is more than twice the [rise] of costs and that gives us a cost income ratio, as I mentioned earlier.

As for provisions, again, to say that they have grown versus 2006 because of the increase in lending and the change in the product mix. The risk premium has remained stable in the last quarters. It remains stable [before now] at around 3.3% to 3.4%.

Mexico. The macroeconomic environment is still solid and you can see this in the improving rating of the country. Interest rates have risen slightly by 25 basis points. The system is growing strongly. Lending at 26%. Deposits are also growing sharply. Our brand is doing very well.

We've had a lot of new customers, almost 960,000 new customers, linked almost 300,000. Payroll checks, credit cards growing very significantly. Credit cards are now at 5m and we're growing a lot faster than market in loans to individuals and this is reflected in an increase in our net interest income of 39% and 29% in fees and insurance.

Costs are growing because of the new branches -- the 43 new branches we've opened and the over 500 new ATMs opened in the last 12 months. But their growth is well below that of gross operating income as a result of which the efficiency ratio is 36.8. Excellent evolution of our net operating income, which has surged by 74%. 53% net of provisions because, as we've said, there's been a rise in the cost of credit for cards. So our net operating income is up net by 53%, which has meant our attributable profit has grown, as we said before, very significantly.

And finally Chile, the macroeconomic conditions in Chile are extremely solid. The only negative variable has been the inflation rate, which rose significantly in the country. As a result of which, the Central Bank raised interest rates by 75 basis points. It's currently -- they are currently at 5.75%.

Financial system has been growing at around 20%. We've been growing slightly below that system average. But our percentage of net interest income has grown and, if we compare that with that of our competitors, [we're] probably 200 basis points in NIM above our peer group, which indicates our greater focus on the Retail business versus our competitors. We're not growing in the more Wholesale part of the business.

(Spoken in Spanish).

Firstly, growth in income has grown by 16% with two different behaviors; the customers by 23% and the others have been at lower levels. And there's been sustained growth in customers' Treasury. A high increase in Investment Banking and in Global Transaction Banking there's been growth of 15% with custody and sales management above the average.

And the second matter for provisions has been already mentioned. There have been releases because of the Treasury syndication, as I've already mentioned in previous quarters. And in the third quarter the provisions are more normal. And this development in provisioning means that the profit in this area has grown by 43% after provisioning.

In Asset and Insurance Management, finally, we have a growth in income of 17% with a very good performance in Insurance, which has grown by 22%. And this is now the area which is providing most to the total amount of the business. And in investment funds in Europe we are in two digits.

Abbey is going very well. Their income has grown by 25% and Latin America is growing by 20%. And in the pension funds growth is lower and, in fact, there's been a drop of 9%, basically, because in -- of the business that we've divested in Latin America, although the quarterly accounts do not include this.

And finally we have Insurance ,where there has been very good performance in Spain with 43%. They have been selling products -- structured products based on the insurance and in Latin America, where the business is waking up, with increases of 40% or so, with great potential for the next few years.

And so, having gone through all of this, I'm going to pass the floor back to the CEO, who will now talk about the ABN Amro operation and the conclusions of the results of the third quarter.

(Interpreted). Okay. Well, the ABM Amro operation, clearly, we're still quite -- we can't really provide a lot of information yet because of the current status of the operation -- the acquisition operation. But all the same, I'm going to go over the main events and also I'll be talking about the steps we'll be taking in the near future.

Firstly, I would like to say that this operation is going to be a very positive one for our Group, because it fits perfectly well in our strategy and our capacity. So, on October 5 we completed the initial offering, which was made by the three banks in the consortium. This was accepted by 86% of the capital and, therefore, we exceeded the minimum that had been established.

On October 10 we declared the unconditional bid. And we opened, up until October 31, a period for the rest of the ABN shareholders, so that they could place their shares if they wish at the disposal of the bid. On October 16 (sic - see presentation) we made the initial payment. That is, we paid out 86% of our share, which represented EUR16m (sic - see presentation) -- EUR16b (sic - see presentation).

And after that, the Company created by the three banks, RFS Holdings, is now the holder -- the owner of the majority of the capital of ABN Amro. And the plan is that in the fourth quarter we shall include the, by the equity method, the results for our participation in RFS.

Proposals have been made for members of the governing bodies of ABN Amro, for both the Supervisory Board and the Management Board, and these members will be ratified in the General Shareholders' Meeting to be held by ABN Amro on November 1.

And finally, I would like to say that the consortium has 60 days -- a period of 60 days to present to the Central Bank in Holland, the Dutch Supervisory Bank, a plan for splitting up the different assets amongst the different shareholders.

So, this plan for segregation has been carried out in a very precise way. We have a project which can be seen here in this graph. We are creating a structure which will be dealing with the segregation within ABN and we, in Santander, have to set up a structure, which we could call a mirror project, so that we can perceive what is passed on to us as a result of this [planned] segregation.

And the separation plans have such certain governing bodies, which include the -- let's say, the incorporation of -- in the Supervisory Board of a representative of each of the members of the consortium. And the Management Board will be in charge of carrying out the business as usual of ABN Amro.

Santander has appointed two representatives for this and there is going to be a Transition Management Committee, which is a sub-committee, which will be responsible for coordinating and taking decisions throughout the whole process of segregation of assets for each of the members of the consortium.

And there's also an office called PMO. That is Project Management Office, which will be giving support to the -- this coordination. And also there'll be a number of working groups, the TSGs, which will be responsible for receiving information and drawing up the plans for separation, and as proposed by the Transition Management Committee and the Management Board.

So as I have said, we have created a mirror structure. Obviously, the main purpose of this mirror [is that the] project is to maintain the proper functioning of ABN during the transition period until all the businesses are separated and to ensure proper optimization of the businesses in the existing business of all the members of the consortium.

So in summary, I think we could say that we've had an excellent quarter in a complex environment. We have had a complication, or complications, rather, in the financial environment as a result of instability in international markets, because of the crisis in confidence and liquidity problems. And in this environment the fact is that we've had very good results especially, as I've already said, if we look at what's been happening in other international banks, especially the wholesale banks.

And we have been able to maintain our strong position in results, a strong position in our balance sheet and also a strong position in liquidity precisely because of our strengths -- our basic strengths, such as our high weight in Retail Banking, our diversification on a geographical level and also our traditional quality of risk, which is not exposed to fairly complex products, which are the ones which have really caused the recent crisis. And this has allowed us to maintain a high level of growth in our results and in our income especially. And this has taken our growth to more than 20%.

So, as you've seen in Europe, all the commercial units have had a good quarter in results. In Abbey we're still meeting our objectives, in spite of the fact that the sector in the United Kingdom is showing signs of weakening. And in Latin America we are, we could say, accompanying a very good performance in credit activity, in banking activity throughout the region. And this is allowing us to grow in revenue and also to achieve this product mix that we've already mentioned. And all of this is taking us to a strong position in our balance sheet, [specifically with] regard to NPL ratio and also capital provisioning.

And I think this concerns, on the one hand, the projections we made in Investor Day and it shows that our difference with regard to our peers is seven percentage points in growth above the price per share of our competitors. And this confirms our position as stated in Investors Day.

And all of this can be confirmed over this quarter with the process of the purchase of ABN. And I think this is really, I have to say, a magnificent operation for the Santander, because it really fits very well in our financial position and in our strategy because these are markets we know well. They are markets in which we can create value and they're markets that really meet our financial criteria in terms of both profit per share and also ROE.

So, that's all, thank you very much.

(Interpreted). Okay, I'll now open floor to questions.

Ladies and gentlemen, the Q&A session starts now. (OPERATOR INSTRUCTIONS).

(Interpreted). Via the website. There is a certain degree of [anonymity] in the questions with regard to a possible write-off of the goodwill of Sovereign, as the result of the current price of Sovereign, and especially the profit developments in view of the capital gains and also the fact that they're having no impact on capital. This is being asked by UBS, Dresdner, Deutsche, JPMorgan and some others.

(Interpreted). Well, it's not really necessary to do an impairment because the valuation of the goodwill is not related to the share price. It's related, rather, to the capacity for generating profit in the value of the asset, that is, the value of the Bank. So, that's the first idea I have to express.

So from a technical point of view, the impairment is not necessary unless there's a clear reduction in the capacity to generate profit. But I think the goodwill is going to be reviewed at the end of the year. That's when we'll have to take any decisions on this matter. But we must understand that all these write-offs are done on the basis of the P&L. So, they have no effect on the capital, because goodwill has already been subtracted from the capital. So, it has no -- there's no impact here.

(Interpreted). Also, there's a question from UBS about our appeal to the market and financing during the third quarter. They suggest that we've had a good access to the market and they would like to know about the appeal process.

(Interpreted). I'm going to pass this floor to my colleague who'll answer better.

(Interpreted). Well, it's true that after the sub-prime crisis in early August, liquidity in the markets was seriously damaged, especially in products that are related to credit, that is, securitization. And it's also true that spreads in senior and secure, and mortgage certificates have reduced considerably. And we've already stated in our liquidity position in Investors' Day, we are a bank that finances itself in a conservative way.

The Wholesale financing has an average life of four and a half years and our placement in the short-term markets, commercial paper etc., deposit certificates etc., although, this is very limited and we were net lenders in the inter-bank market. And I think even after the operation of ABN, our position continues to be very good. We're still net lenders in the inter-bank market.

And we have done some operations in market that is open. The prices are rising with -- there have been operations in subordinated debt, a significant volume, EUR4b at high prices. So, we're not talking about a lack of liquidity for much larger credit spreads. And during this period, basically, we could say that we have financed ourselves with the excess liquidity we had and also some issues in the short term.

And finally, we have been able to place some securitization in the market, basically, in July. During this period, from September to October, we have placed $1.1b -- $1.1m, sorry. And basically, I'm referring to the sub-prime sector where we have been able to place $1.1m in securitization in the market at higher prices that we had in July and so we have the necessary liquidity. The liquidity environment is one of wider spreads rather than lack of liquidity.

(Interpreted). Okay. There are also some questions from different banks on ABN and the possible financing through a rights issue, because of the equity position we had a number of months ago and also the [enlargement] after the issue of convertibles.

(Interpreted). Well, there's no change in our projections that we gave on, I think, May 20 or so, when we spoke in London. We've issued 7,000 of an -- 7b, sorry. We have a total of 3.3b and the next issue is going to be soon, probably -- obviously, before the end of the year, but we've not decided exactly what date this is going to take place. But we're still waiting for the same basic premise, the same basic ideas that we have been updated. Well, basically, what we've been doing has been to confirm our projections.

(Interpreted). Also, there's a question from Antonio Ramirez about the rest of Continental Europe and Latin America, where there's been a slowdown quarter on quarter and negative performance in comparison with last year. Could you explain this please?

(Interpreted). Well, in Latin America I'm very clear about this, because in Latin America there has been a poor performance in Puerto Rico in the third quarter. And as the Financial Manager already stated, in Latin America last year during this period in 2006, we had some capital gains of -- as a result of the sales in Bolivia and Peru. And obviously, these two effects taken together in comparison with the third quarter of 2006, this has resulted in the poor result.

In Europe, nothing special has happened really. Perhaps, the effect comes more from the movements in Wholesale Banking where, in the third quarter of 2006, there was very strong corporate operations, which resulted in the strong growth in revenue, as you may remember. And it's also true that we have a low provisioning, especially in generic products, and we've been able to recover during the first and second quarters.

But if we're talking about operating margin, operating profit, well, that's probably the effect of the slowdown in the third quarter in comparison with 2006 overall. But I think that this might have a lot to do with the operations that took place in Spain also in the third quarter -- in Europe rather, including Spain, in the third quarter of 2006 which, to some extent, because they didn't take place with the same degree of intensity in 2007, this might be the reason for the slowdown in profit.

But the attributed profit in the third quarter of 2007 was 106%. Now, the figure's 98%, so we're talking about figures that are really very high for growth in attributed profit in Europe over these two periods.

(Interpreted). There are three questions from Javier Bernat in Caja Madrid. Firstly, can you update the cost of implementing the MiFID Standards in 2007? What do you think is going to be the impact of these in 2008?

And the second question is it's the increase in equity [premium] in Puerto Rico can be transferred to the risk in Latin America in 2008.

And the third question is when do you expect consolidation on a global level of Antonveneta and Banco Real? And there are a number of economists asking about when we're going to be consolidating all of this and when are we going to be doing the division of the assets.

(Interpreted). The last question with -- a question of consolidation is going to be -- well, that's going to take place as soon we have done the legal separation of Antonveneta and Banco Real from ABN. And as a result of the agreement amongst the four supervisors involved, we're basically doing the equity method and all the -- any area for global consolidation [as well].

When we're talking about the MiFID, well, the fact is I don't know what the cost of MiFID is. It's certainly very costly in work, but I don't know how much it costs in money. And the impact? Well, I too would like to know what the impact's going to be. I hope it's going to be the same for all of us. I'm clear about that.

And on the subject of Puerto Rico, I don't think we can really transfer that position to the rest of America for 2008. Puerto Rico is in a recession. It's showing negative growth. At least, we don't think the situation could be applied to the rest of Latin America in 2008 and certainly it's very far from a consensus.

(Interpreted). And there's a question from Deutsche Bank about the ratio of non-performing loans in Spain. Why is it rising? And how can we fit all of this in with a level of provisions which is not too high over the quarter?

(Interpreted). Well, the increase rose in September and in comparison with June and we had an NPL ratio of 0.51. Then it was 0.56, so it rose by five base points. I don't think this is a very high rise. I think it's a very small rise, quite the opposite.

And also we have provisions, which we have stated on an Investors' Day, with regard to risk premium, which are sitting very well in the overall situation now. Our level of provisioning, I think, is more than comfortable, we could say.

(Interpreted). Now, a question from [Opendra Chogarry] from Fund Analysts. On the weight of Brazil in the Group after consolidation, which is going to reach about 20%, are we concerned about this weight? Do we think it's appropriate considering that this is for an individual country within Latin America?

And the second part of the question is could we say something about growth in credit in Brazil in the short and medium term? And to what extent can we maintain that level of growth?

(Interpreted). Well, I think that we've had great news. It's not a matter of concern. It's really great news we have got. So we have an opportunity in a country like Brazil, which is a country that is growing tremendously. It has a tremendously dynamic situation and it's going to enter the investment grade soon.

And ahead of it, I think, it has very positive prospects in both growth -- macroeconomic growth and banking growth. And, therefore, it's going to offer tremendous opportunities for generating business. And I think there is no element of concern in the short term.

It's just a question of having the necessary diversification, which we already have, and we have certain components in Continental Europe, in Ireland, in the -- Europe, that is, the U.K. and also in countries with high levels of growth. Our position is tremendously good. And we're -- what we've seen in Brazil and in the operations in Brazil, I think we're noting positive elements rather than elements for concern. It's quite the opposite. I think there's really a lot of opportunity in Brazil.

So, what are our prospects for growth? Well, if the macro situation in Brazil continues to be positive, as we can think it will continue to be, then I think the demand for growth, or the demand for credit rather, will continue to rise marginally above 20%, which is the current level of growth. I think it's going to grow between 20% and 30% and that the increase in credit -- well, I think a figure -- the actual figure doesn't matter. That's -- but I think, certainly, all of this is going to give tremendous impetus to the banking business and to our results.

And so, therefore, I think it's very good news, but it is something that is reasonably sustainable. And, therefore, I do hope that over the next years it will be a source of great satisfaction for the Group.

(Interpreted). Okay, there is a question about our stakes in Sovereign and Sepsa from Kato Mukuru from the Citigroup. Are we planning to sell our stake in Sovereign? And can you update what the divestment plan is for Sepsa and any potential capital gains?

(Interpreted). The first question is, no, we are not planning to sell our stake in Sovereign.

And the second is obviously, as we have said repeatedly, our stake in Sepsa is currently an investment which is available for sale and when we have more precise information we will give it to you. But right now there is no additional news to be discussed.

(Interpreted). Okay, there are two questions from [Liz McGarrie] and [Joaquim Sota] from AOB and Dynamo Capital with regards to synergies in Brazil and the part of [those] revenue and costs. There's a presentation about these synergies on the website, but if you can't find it you can get in touch with us and we'll give you the details.

There is a question from [Luis Tenia] from DB about the selling of our real estate. Will we close it with the announced capital gains of EUR1b some, and when?

(Interpreted). Well, like I said in my presentation, this is a subject that is still ongoing. We've had some offers for all the real estate that we have put on sale. They are being studied. There's some very good offers, actually. And so, I expect the operation to go through. When? Very soon. That's a decision that must be made by the Bank when the time comes.

(Interpreted). All right, [Mario Lobos] from Mirage Securities has several questions. First, says he's positively surprised by the evolution in customer spreads in the third quarter versus the second, especially when compared with the competition in Spain in two quarters, where the [the increase of spreads] by 50 basis points. And he wanted to know if that's a price effect or a business mix effect.

He's also asking about the new loans to SMEs and new mortgage backed loans for SMEs and the other types of loans -- new loans. Well, we can explain about those later, if you like.

And then asking about the evolution of the income in the corporate headquarters and also the impact of the depreciation of the dollar on our accounts, both consolidated accounts and in the corporate headquarters.

(Interpreted). Very well, I'm going to give the analyst from Mirage Securities just a flavor of what's happening in this third quarter 2007 in Spain.

Our third quarter, it's true, has been very good in comparison with our other competitors, but that's because of a good management of our spreads mostly. And if we look forward we're not actually pessimistic, quite the contrary. We are quite optimistic because, although it's true that the business will be slowing down in terms of lending volumes, because there's a -- less of a demand for credit.

And in 2006, or even in first quarter 2007, we are seeing a slowing down in the demand. We're not growing at 20% any more. It's more like 15% or 16%. So, we are seeing a slight slowing down of the business. But we are also at the same time seeing a very clear improvement in our spreads for several reasons. There are different causes for that. That's as far as lending.

And as far as customer funds, obviously, comparing interest rates now versus 2006 it has a positive impact on customer funds. And as a result we are, overall, seeing a very beneficial evolution of our spreads. But there is a deliberate management on the part of our Branch Network in terms of selecting the right product mix and the right price or spread target.

Of course, there is a slowing down of the mortgage business, but at the same time we are seeing growing activity with SMEs in general with the business sector. And that, of course, is also a contributor to these results we have mentioned.

(Interpreted). Right, there is a question about the revenue, the corporate headquarters and the impact of the depreciation of the dollar.

(Interpreted). Well, in the corporate headquarters, as I explained, as you know, we have a short-term dollar position, long- term euro position. And, overall, in the three quarters that has generated about EUR200m impact in the ROS of the corporate center. And in the last quarter it's been about EUR170m, more or less. And that explains the movements in the corporate center which is, I think, the only part of the Group which has significantly changed.

(Interpreted). Arturo Garcia has several questions. He's asking about provisioning in Latin America which is -- well, can we explain our expectations for that market? He's asking about dollar hedging and I think we have 4% -- no, 100% euro dollar hedging.

Sovereign, he's asking and that's already been answered and a couple [on lodgment] too, so it's really just provisioning in Latin America.

(Interpreted). Right, I don't really think there's going to be, or has been, any specific circumstance beyond the growth of the business to explain the growth of provisions. Our business in Latin America is growing very strongly, both lending and customer funds. If -- there may be some minor element, perhaps, greater acceleration of investment funds in some countries [than of] deposits, and that may -- fees even, perhaps, they could also be an effect of the change of our asset mix, which will also generate more fee income.

The credit card impact, of course, in Mexico and perhaps in some other countries may also have an effect. But really what we're seeing in Latin America, as I've already explained, is that the business is growing extremely strongly and that growth is accelerating, both those that contribute fees and those that contribute net interest income. We're launching Santander Global Connect in Latin America and that's generating fee income.

The Insurance business in Latin America is growing very strongly. It's accelerating as it did when we launched in Portugal and Spain, and that's also having an impact on our fee income. So, it's probably a combination of all of these effects, more insurance, more Santander Global Connect, more investment funds; all of these elements are contributing to this growth in our fee income and our revenues.

(Interpreted). Ignacio [Soto] has several questions. Most of them have already been answered. There's maybe two left. He's asking about deceleration of growth in Spain -- our deceleration versus that of our competitors. He wonders whether we are still comfortable with our target of plus 11% to 12% in our revenues for 2008.

And as for generic and specific provisions, how they will evolve in Spain in the fourth quarter?

(Interpreted). Well, the final part of your question, whether we're comfortable with our 10%, 11%, 12%, 14% or even 15% target growth I'd say, yes, we are, absolutely. I don't think that we are going to be content with 10% next year. We aspire to growing our revenue in Spain by well above 10%. So, we are comfortable with our target. And what we said in the Investors' Day, I can't remember off the top of my head, but I think we're talking about something, in fact, slightly higher than these numbers. So, yes, we stand by that.

And the other question, sorry, it's slipped my mind?

(Interpreted). Generic and specific provisions how they will evolve in Spain.

(Interpreted). Well, my forecast for provisions, well, for generic they're growing less because they're connected to volume and, since volume is growing, less generic provisions will grow less. That's just logical.

And for specific there is a slightly greater growth, but that's highly connected to what we have been saying and seeing, slightly higher risk premiums and then the cost of credit, but not significantly in any case.

(Interpreted). And there's a question about the size of UBS versus the size of the book in Drive and your provisions against that book.

(Interpreted). The size of the book is $4.5b. Basically, that's the Drive book. And it's a business, which basically has -- well, it's a business where you have a lot of non-performing loans. Our provisions are $205m and the NPLs generally represent $160m.

However, the charge has been $395m, because the NPL ratio in Drive is actually very high. So the impact on the P&L, $395m, but actual non-performing loans at the year end is $160m. But we've been saying quarter on quarter that the performance of Drive is actually surpassing our expectations. And, in fact, the NPL ratios have been in line with the losses expected in this business, which are significantly higher than that of any other business in our portfolio.

(Interpreted). All right, two questions from Eva Hernandez from Morgan Stanley and Jean-Claude [Cloty] from Merrill Lynch, both along the same lines. You've partly answered some of these. But it's basically about how we will account for holding in the RFS consortium. And what the capital target is for year end and the impact of the integration on the capital -- on the core capital?

(Interpreted). We've already partly answered this, but as far as [RFS], as [Debra] said, we will use [the] equivalency method until there is full legal incorporation and so, whatever it is right now before the separation from ABN Amro and then full integration.

As for the capital structure, there's two stages. There's an intermediate stage in coordination, of course, with the accounting of the stake. But in the period when we're using the equivalency method, we will have -- and after also an impact of the goodwill in our core capital, but then one-on-one subtraction of the theoretical accounting values, since it's higher than 10% of our equity use extracted from the Tier 1 -- from the Tier 2 on a one on one. That's why we issued that subordinate debt two weeks ago.

And so in that intermediate period, that's the way it's going to work and then it will be a global integration and it will be like any other element. You will integrate the assets globally, so it [will] consume capital because of the risk assets we're integrating, which are EUR65m -- EUR60m depending a bit on the growth.

And then there will be the goodwill, which will be subtracted from the Tier 1 capital. So, we've published the figures -- the post-integration figures for ABN Amro and we're talking about a core capital of 5.3, which will probably be slightly higher because, I remember, that we hadn't included in that 5.3 the whole sale of the pension fund business in Latin America, which has an impact of 20 points on the core capital. So, it will be at that level that we had announced then.

(Interpreted). Right, there is a final question from Marco [Triana] from Standard & Poor's and he's saying that fee income, both in Spain and Portugal, are tending to stabilize year on year and are actually dropping, comparing the fourth -- the third quarter with the second. What's the reason? What do we expect in the fourth quarter?

(Interpreted). Well, we have had as a consequence of a deliberate policy, a reduction in our fee income because of our policies in Spain and Portugal with the We Want to be Your Bank plan and also the special accounts that have been launched in Portugal and with those same objectives.

Point two, also, we've had a slight change in our customer fund policy; less mutual funds, more products of other types, which don't really generate deposits, for instance, which don't commissions or fee incomes. So, there is an impact of that and then also a purely seasonal impacts, but there's nothing really too significant. There has been no major event or change versus our trends of the last quarters, not just this last quarter, but the four or five last quarters.

(Interpreted). Okay, that's all from the Internet. Thank you. Any additional questions that have not been answered, you can contact us at any time. Thank you.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The Interpreter was provided by the Company sponsoring this Event.