Strength against the crisis: The experience of Banco Santander

Transcription

1 Matías Rodríguez Inciarte Vicepresident Banco Santander Strength against the crisis: The experience of Banco Santander Washington, October 9 th 2012 Peterson Institute

2 Agenda 1. A challenging economic environment: Especially in Europe and Spain 2. Santander s experience

3 Agenda 1. A challenging economic environment: Especially in Europe and Spain 2. Santander s experience

4 A challenging economic environment: Especially in Europe and Spain 1. Economic growth Duality persists: Developed vs. Emerging countries Risks remain mainly in the Eurozone and somewhat in the US. Emerging markets have more room of manoeuver Smooth quarterly recovery of world growth Economic growth (yoy%) ene-05 ene-06 ene-07 ene-08 ene-09 ene-10 ene-11 ene-12 ene-13 Advanced economies Emerging and developing economies World

5 A challenging economic environment: Especially in Europe and Spain 2. European Stability: the main risk A crisis of fundamental design - an incomplete framework US: A well-functioning institutional framework Eurozone: The new trilemma TARP, FDIC Bank-sovereign interdependence Feds quick reaction Fiscal response of Federal Government Strict nomonetary financing Source: Bruegel No co-responsibility for public debt I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created. Romano Prodi, President of the European Commission. FT, December 4 th 2001

6 A challenging economic environment: Especially in Europe and Spain 3. European Stability: the main risk A new approach in crisis management Two turning points: EU summit (June): European Banking Union. ECB support (short term) while EU integration advances (mid term). However, don t expect a quick implementation but a clear road-map is essential Spain: 10 year bond spread to date (basis points) Spain Italy 250 mar-12 may-12 jul-12 sep-12 Source: Thomson Datastream, octubre bp

7 A challenging economic environment: Especially in Europe and Spain 4. And in the middle the European Banking Union A crucial step to enhance the European Monetary Union Essential to break the domestic bias of the banking sector The real way to foster financial integration But it will take time: European commission urgency vs. National governments Sovereign solvency Sovereign and Financial sector ratings Single supervisor Banks Capital deficit Financial assistance + ECB+ Banking Union Wholesale market access/ Financial costs Single rule book Banking Union Revolution framework Deposit Guarantee Scheme 7

8 A challenging economic environment: Especially in Europe and Spain 5. Spain: dual problem domestic and European Domestic difficulties result from a combination of growth, fiscal and financial problems Economic Recession: - Deleveraging - Competitiveness Public finances: - Regional governments - Deficit revision Financial System: - Asset quality - Funding that led to loss of confidence in the Spanish economy.

9 A challenging economic environment: Especially in Europe and Spain 6. Low economic growth Correction of Imbalances affects growth, Deleveraging process Housing market oversupply Fiscal adjustment Internal devaluation Spain: GDP % annual change 5 forecast. GDP: Spain and EMU (annual change) 6 Spain Eurozone Source: Thomson Datastream September 2012 Source: Thomson Datastream. September 2012

10 A challenging economic environment: Especially in Europe and Spain 7. Low economic growth reforms are key to improve potential growth Important measures have been taken: pensions reform: delaying retirement age labour reform: greater flexibility, lower firing costs financial restructuring: clean-up of balance sheets, bad bank and consolidation Strengthening of fiscal framework. External sector as a driver: increasing its weight and competitiveness Exports (1T08=100)) Spain Germany Eurozone France Italy Unit labour costs 2000 = 100 Unit labour costs 2000 = Eurozone Gremany Gremany Spain Spain Italy France T08 3T08 1T09 3T09 1T10 3T10 1T11 3T11 1T12 Source: Thomson Datastream and Santander Research June Source: European 2000 Commission, 2002 June Source: European Commission, June 2012

11 A challenging economic environment: Especially in Europe and Spain 8. Public finance in the focus Government firmly committed with the consolidation path Financial Stability Law included in the Constitution. Structural deficit = 0, debt below 60% by Increased control over Regions. Hard fiscal consolidation process. expenditure cuts income tax and VAT increase, reduction of civil servant remuneration, savings in health and education. Public Sector fiscal situation and objectives (% GDP) Social Security Local Regional Central Total Public Source: Ministry of Finance

12 A challenging economic environment: Especially in Europe and Spain 9. The restructuring of the Spanish Financial Sector The problems: Real estate exposure Increasing non-interest assets hit P&Ls High concentration in real estate by certain entities and regions. Funding Small institutions have bigger problems to access the markets Overcapacity and fragmentation Excess capacity for a lower volume of business Expansion of some cajas beyond its natural market Corporate governance and transparency Breaking political links with cajas From cajas to commercial banks

13 A challenging economic environment: Especially in Europe and Spain 10. After three years of a gradual restructuring process RD-I 9/2009 FROB Law RD-I 11/2010 Saving banks law RD-I 2/2011 Recapitalisation law 6/2011 EBAs new capital requirement RD 2/2012 Financial reform Writedowns and capital requirements Consolidation Capacity reduction Improved governance More solvency More market discipline More efficiency

14 A challenging economic environment: Especially in Europe and Spain 11. the reform is close to an end The financial assistance (up to 100bn) Attached with a demanding MoU that define a clear roadmap for the clean-up and recapitalization/resolution of the weaker institutions.

15 A challenging economic environment: Especially in Europe and Spain 12. the reform is close to an end The bottom-up exercise Exhaustive external audit of balance-sheets (classification, refinance) Granular approach for the real estate exposure A tough adverse scenario with three years under recession Adverse Scenario Real GDP GDP deflator Nominal GDP Harmonized Consumer Prices Capital surplus/deficit in the adverse scenario ( bn, figures net of tax effect) bn Unemployment Rate Short-term interest rate Euribor, 12 month Housing prices Exchage rate against USD Madrid Stock Exchange Credit to Other Resident Sectors Households Non-financial firms Long-term interest rates (10y) Land prices Santander BBVA Caixabank Kutxabank Sabadell Bankinter Unicaja Libercaja BMN Popular B.Valencia NovaCaixaG CX Bankia Source: Promontory Source: Bank of Spain, September 2012

16 After the first steps of the Roadmap Band bank. A challenging economic environment: Especially in Europe and Spain 13. What s next? Recapitalisation plans and categorisation Restructuring plans (Burden sharing) Top-down analysis Bottom-up analysis Categorisation Final approval Raising of private capital June 21 st Sept 28 th October / January / October November June The reform will define a new playing field with less but stronger competitors that will configure a more stable and sound financial system

17 Agenda 1. A challenging economic environment: Especially in Europe and Spain 2. Santander s experience

18 Santander s experience 1. Santander has proven resilient throughout the crisis Net operating income EUR billion H1 12: EUR 12.5 bn. New half year record CAGR: +17% 21,8 22,7 23,2 18,5 14, ,7 5,9 5,6 5,7 6,4 11,2 8, Note: Figures from 2004 on according to IFRS. Figures from 2009 on a like-for-like basis with Group's current perimeter

19 Santander s experience 2. The main reasons for this are Resilience factors: Diversification Stand-alone subsidiaries Retail focus Strong financials Capital Liquidity Efficiency Risk culture

20 Santander s experience 3. High diversification Attributable profit by geographic segment in H1'12(1) Spain 14% Portugal 2% Poland 4% Germany 5% Other Europe 2% Brazil 26% UK 13% Mexico 12% USA 10% Chile 6% (1) Over operating areas attributable profit Other LatAm 6%

21 Santander s experience 4. Stand-alone subsidiaries A decentralised model with legally independent subsidiaries Subject to local regulation and supervision FIREWALL National deposit guarantee fund Transparency Market discipline No transfer of assets and liabilities among subsidiaries FIREWALL FIREWALL Independent in capital and liquidity... which benefit from the Group's corporate policies Corporate Governance Technological environment Product development Risk management

22 Santander s experience 5. Retail focus: betting on distribution and proximity to customers H1'12 Attributable profit (by business areas) We are the international banking group with the largest branch network Retail Banking 73% Global Wholesale Banking 23% Santander Unicredit Wells Fargo HSBC BNP Paribas BBVA Intesa SP Citi 77% Retail business 23% Wholesale business Asset Management & Insurance 4% Bank of America JP Morgan Barclays RBS R.Bank of Canada 1,000 3,000 5,000 7,000 9,000 11,000 13,000 15,000

23 Santander s experience 6. Strong financials: Capital and liquidity Core capital (BIS II) above 10% Loan-to-deposit ratio1. Total Group 10.0% 10.1% 8.6% 8.8% 5.9% 6.3% 7.6% 150% 135% 117% 117% 117% Dec'06 Dec'07 Dec'08 Dec'09 Dec'10 Dec'11 Jun'12 D'08 D'09 D'10 D'11 Jn'12 Note: Dec 06 and Dec 07 according to BIS I

24 Santander s experience 7. Efficiency as an essential goal Efficiency ratio1 vs Peers (%) Data 2011* Efficiency ratio vs Peers (%) Data Jun'12* 61.1 Grupo SAN C C2 C C4 C C C7 C C Grupo Santander (1) Expenses / Revenues Peers average Backed by operationan and technological integration C10 C11 C12 C13 C14 C15 C (*) According to the latest available information from each entity. Peer Group are large banks that given their size, characteristics and /or degree of direct competition are the reference ones to surpass: Banco Itaú, BBVA, BNP Paribas, Credit Suisse, HSBC, ING Group, Intesa Sanpaolo, JP Morgan, Mitsubishi, Nordea, Royal Bank of Canada, Societe Generale, Standard Chartered, UBS, Unicredito and Wells Fargo.

25 Santander s experience 8. Risk management culture Global Credit / Markets /... Committees Global Risks Committee Daily meetings Meetings: twice a week 99 MEETINGS / YEAR > 50 mill. 5 Board Members Former CRO Vice president Vice president Risks teams senior members Independence of risk function Secretary of the Board Collegiate decisions Dedication by Board Former CRO > 150 mill. Board s Executive Committee Meetings: at least once a week aware of the importance of a defined risk appetite

26 Strength against the crisis: The experience of Banco Santander In Conclusion The world s financial sector faces a challenging economic and regulatory environment Europe is a critical point, as it needs to complete the Euro s institutional framework European Banking Union will be a significant step forward, it should help to stabilize the markets Spain is under severe economic and financial adjustment, it is critical to reduce its funding costs Santander has proven resilient to the crisis, due to its business model, legal structure and international diversification

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