Annual Report 2007 - Santander

“Of the 20 European and US banks that we take asour peer group, Santander was one of only two whoseshare had a positive return in 2007”• Second, each local bank has the opportunity to benefitfrom the Group’s economies of scale. For example, toshare operational centres and corporate technologicaldevelopments. This enables the bank to achieve gains inefficiency that are not within the reach of its localcompetitors.• Third, the interaction of our local units with our globalproduct units (insurance, cards, etc) has to be capable ofimpulsing growth by applying best practices to each localmarket, exploiting the Group’s experience andeconomies of scale.• Each local unit must also be capable of exploiting theexisting skills and know-how of other local units. We areachieving this through corporate projects that enable usto create business models on the basis of the Group’salready existing skills.6. And without falling into the inefficiencies oforganisations that become too big. We recognise thatlarge institutions can fall into bad habits by becoming toobig, as a result of unnecessary growth in costs resulting fromtoo much bureaucracy, the loss of business drive andvocation for growth, and greater laxness in controlling risks.We know that leveraging our global scope and creating valueas a group is not just an option. It is an obligation. The marketwill demand a “break -up” of any bank that is not able tocreate value as a group, thus being only a collection ofbusinesses.We are therefore managing our institution to maximise theadvantages of our global size and avoid possibledisadvantages. In my view, we are doing this successfully.However, we should be realistic: we are just beginning.Neither we nor our international competitors have yetmanaged to squeeze all the potential out of being a globalbank, either in terms of efficiency or the capacity togenerate revenues. For this reason I believe that exploiting“global synergies” will be a very important source of growthand creation of value in the coming years.7 Lastly, we must ensure that we maintain the strategicflexibility needed to continue to re-balance our Group,making acquisitions in areas of growth and high profitabilityand selling in less attractive areas. In 2007, we conductedboth types of transactions, most strikingly the jointacquisition with our partners, The Royal Bank of Scotlandand Fortis, of the Dutch bank ABN AMRO. As well as itsstrategic importance for Banco Santander, explained by ourChairman, I would like to single out the novel aspects:• The acquisition was made by a consortium, somethingunthinkable until 2007. In the future, size will not preventbanks with mediocre results from being seen as targets byother banks also operating in a consortium.• This purchase is excellent for Santander because itstrengthens our position in Brazil (vertical strategy) enablingus to become one of the leading banks, achieving synergieswith little execution risk.• Another positive aspect is the way in which the transactionwas financed: optimising the Group’s balance sheet so thatthe acquisition could be made without having to issueshares. This means that the purchase has a positive impacton our EPS as of the first year.OUR UNITS’ RESULTS REFLECTOUR MANAGEMENT PRINCIPLESI. Continental EuropeAttributable profit, excluding capital gains, was 27.4% higher atEUR 4,423 million. Its growth was solid and very diversified. Allunits’ gross operating income increased by 10% or more and theirefficiency ratios improved.a. Retail BankingIn a year in which strong investments in business capacity weremade, the growth differential between the rise in gross operatingincome and operating costs of our retail banking units inContinental Europe was 8.7 percentage points in 2007. This iswhat we call “managing the jaws” (maintaining the growth ofgross operating income at 5-10 p.p. higher than the rise in costs).The Santander branch network’s attributable profit increased19.9% to EUR 1,806 million. The “We Want to be your Bank”plan is yielding very good results. When we launched the plan, wetook a bold step by eliminating fees for our linked customers. In2007, it continued to produce results.Banesto’s ordinary attributable profit was 24.2% higher. Thisbank is achieving strong growth in key segments: SMEs, consumercredit and cards and individual customers. Lending to smallcompanies grew 31% and to medium-sized ones 26%.12