Annual report 2009 - Santander

124SovereignMillion euros 2009Income statementNet interest income 1,160Net fees 380Gains (losses) on financial transactions 13Other operating income (1) (91)Gross income 1,463Operating expenses (881)General administrative expenses (766)Personnel (457)Other general administrative expenses (309)Depreciation and amortisation (114)Net operating income 582Net loan-loss provisions (571)Other income (58)Profit before taxes (47)Tax on profit 22Profit from continuing operations (25)Net profit from discontinued operations —Consolidated profit (25)Minority interests —Attributable profit to the Group (25)Balance sheetCustomer loans (2) 34,605Trading portfolio (w/o loans) 163Available-for-sale financial assets 9,568Due from credit institutions (2) 496Intangible assets and property and equipment 391Other assets 3,568Total assets/liabilities & shareholders' equity 48,791Customer deposits (2) 30,888Marketable debt securities (2) 11,236Subordinated debt (2) 2,129Insurance liabilities —Due to credit institutions (2) 736Other liabilities 1,689Shareholders' equity (3) 2,113Other customer funds under management 327Mutual funds —Pension funds —Managed portfolios 327Savings-insurance policies —Customer funds under management 44,581(1).- Including dividends, income from equity-accounted method and other operatingincome/expenses(2).- Including all on-balance sheet balances for this item(3).- Not including profit of the yearNet operating incomeMillion US$Gross incomeOperatingespensesNet operatingincome501374127+9%-11%544332+66% 212+3%-3%+12%561323238+6%-1%+15%595321274Q1’09* Q2’09 Q3’09 Q4’09Sovereign• Focus on integration and restructuring to give thebank corporate stability and a solid balance sheet andincome statement.• Break-even reached in the fourth quarter, thanks tohigher revenues, lower costs and controlled provisions• The target level of provisions as a percentage of loansannounced at the time of the acquisition wassurpassed: 3.6% at the end of 2009.• Decline in non-strategic assets and in higher cost funds.Description of the bank and its environmentBanco Santander completed on 30 January the acquisition of75.65% of Sovereign that it did not already own, making it afully-owned subsidiary of Grupo Santander. An issue ofordinary shares for an effective amount of EUR 1,302 millionwas made.Sovereign improves Grupo Santander’s geographicdiversification as it enables it to operate in the US andspecifically in the northeast, one of the most attractive andstable areas and less prone to cyclical changes and where six ofthe 26 largest US cities are located.Sovereign has 722 branches, 2,359 ATMs and close to $100,000million of loans and deposits (almost equally divided).Its business model, focused on retail customers and smallcompanies, fits Santander’s profile perfectly and offers a notablegrowth potential in earnings in coming years, both via businessas well as through synergies.Sovereign’s performance since becoming part of the Group hasbeen very conditioned by its integration and, above all, byrecession at the start of 2009 (GDP declined quarter-on-quarterthroughout the year). This evolution improved in the third andfourth quarters when growth was positive.The recession took its toll on banking business in the US. Ofnote was the 8% decline in lending, because of the reduceddemand to finance consumption and investment. The mostaffected segments were construction (-20%) and industrial andcommercial companies (-15%). Mortgage lending was down 6%and consumer credit 4%.On the liabilities side, deposits increased 5%, spurred by retaildeposits (+9%).Activity picked up in Sovereign’s business area, showing itsgreater potential and soundness. Of note was the betterevolution than the US average in construction and industrial andcommercial companies (-7% and -10%, respectively).Integration of Sovereign in Grupo Santander2009 for Sovereign was a period of integration and aligningitself with the business model of Grupo Santander. In order toinject stability into corporate governance and make thebalance sheet and income statement more solid, a series ofsteps were taken:* February-March data at a quarterly rateAnnual Report 2009Economic and Financial Review