SPEECH: Ana Botín | 2023 GENERAL SHAREHOLDERS' MEETING | Banco Santander

Good morning ladies and gentlemen, shareholders, all of you here in Madrid and all of you connected remotely. Welcome to the general meeting of Banco Santander. This hybrid meeting format ensures that all shareholders can participate, access information, and exercise their rights with all the guarantees of security and reliability, as they prefer, here in person or remotely.

In 2022 we met our objectives for the year and also met the medium-term commitments we set in 2019. We increased customers by 7 million to 160 million, strengthened the balance sheet, which led to a record profit, and all this despite 2022 being a complicated year, a year in which we saw a new world emerge, geopolitically more complex and economically more volatile and uncertain.

In December 2021, when the impact of the pandemic began to recede, economists estimated that the inflation spike would be transitory, that Europe would grow more than the United States, and that China's GDP would grow above 5%. Well, none of that happened. The Russian invasion of Ukraine triggered the worst energy crisis in Europe since the 1970s. Inflation, fueled by war, supply chain disruptions, and the impact of climate change, became the biggest concerns.

Growth has therefore slowed worldwide due to the tightening of financial conditions and the impact of inflation on the income of companies and families. However, employment is showing great resilience, and in fact, in nine of the ten main markets where we operate, where Santander was present, we are almost at full employment.

Despite the economic slowdown, the impact of rising energy prices and inflation here in Spain, the economy is recovering. We are creating jobs, curbing inflation, and have reasonable economic prospects. The recovery in Spain is thanks first to the leadership of millions of self-employed workers, SMEs, and companies that strive every day to improve, also due to improved tourism, a good level of savings by companies and families, and the focus on reducing energy dependence.

To take our country to the next level, we need structural reforms that allow us to resume convergence with Europe in terms of income, well-being, and quality of life. We share a common goal with Europe: growth. And to drive growth, we need to invest more to improve productivity. And yes, here banks have a key role.

However, in recent weeks the banking sector in the United States and then in Europe has faced new challenges. And I want to reiterate, as has already been said, that today the regulated financial sector in which we banks operate is in a solid situation, much more so than 15 years ago. In the case of European banks, we are subject to the strictest regulation and supervision in the world. As the European Central Bank has recently said, European banking is solid, it has a comfortable capital and liquidity position to deal with specific episodes of volatility in specific entities.

The rapid response by the authorities in the United States, Switzerland, and the European Central Bank has been fundamental in restoring appropriate conditions and regaining confidence. And I want to take this opportunity to say that the current situation is a great opportunity to accelerate the final steps to complete the Capital Markets Union and the Banking Union with the creation of a European deposit guarantee fund. This would be the best response to Europe's challenges, would undoubtedly contribute to generating greater confidence, and would be a great basis for attracting the necessary investment for growth.

And how prepared is Santander to face these challenges? The answer is very well prepared, thanks to the strength of our business model, the focus on the customer, diversification and scale, and also the work of recent years during which we have invested in improving our business.

First, therefore, customers. Thanks to our focus on commercial banking, 80% of our deposits come from millions of individuals and companies in different countries. Most are backed by deposit guarantee funds. As a result, our funding base is much more stable and resilient in times of crisis. Second, diversification. We are diversified not only geographically but also by business. Some argue that diversification does not add value. The data says the opposite. Diversification provides stability. It has helped us build a stronger balance sheet. Today we have a capital ratio above 12% and a balance sheet that has consistently positioned Santander among the best banks in the stress tests carried out by the regulator.

And this in turn leads to perhaps the most important thing: a solid first line of defense, which is our profit before provisions. Finally, scale. A unique combination of local and global scale that allows us to be confident that we will achieve the set objectives despite the challenges. I will explain later that our goal is to build a digital bank with branches, driven by the Santander network, leveraging strengths and opportunities that would be difficult for others to replicate.

I will now focus on explaining the main achievements of 2022, a year in which we advanced in our goal of being the best open platform for financial services, acting responsibly and earning the trust of our employees, customers, shareholders, and society. We remained true to our mission of contributing to the progress of people and businesses in a simple, personal, and fair way. This approach has contributed to growth in customers and revenues, also favored by the normalization of interest rates. We are aware that inflation and rate hikes are impacting our customers, and just as we did during COVID, we have taken measures to support them. Our teams in all markets offer solutions to customers who need them to adapt to this new environment. The bank has also supported its employees, especially those with lower incomes, in all countries.

In this way, we maintained the upward trend in profitability with an increase in return on tangible capital to 13.4% from 12% in 2021. Our record profit of 9,605 million euros and the reduction in the number of shares due to buyback programs allowed a 23% increase in earnings per share.

And very importantly, these results were achieved while we continued to transform the business model. The greater operational productivity was reflected in an improvement in the efficiency ratio from 46.2% to 45.8%, while also improving the experience for our customers. We maintained a low risk profile. The group's cost of risk stood at 100 basis points, in line with our target. And in 2022, as I already mentioned, we reached a capital ratio of 12.04%, above our target.

In accordance with our shareholder remuneration policy, half of the remuneration was made through share buybacks. In the current scenario, we believe this is one of the most efficient ways to generate value for shareholders while retaining the capacity to continue investing in our business. Today we submit for approval at this general meeting a cash dividend of 5.95 euro cents per share, to be paid from May 2, 2023, as part of the remuneration charged to the 2022 financial year.

As a result, the total cash dividend per share will be 11.78 euro cents, 18% more than last year. And this is complemented by a second share buyback for 921 million euros, of which we have already executed 71.1%. The total cash dividend per share charged to results is therefore 18% higher than the previous year, and total remuneration has increased an average of 16% since 2014, from 1,100 million to 3,842 million euros. Our intention is to continue increasing shareholder remuneration as profits increase. Shareholder remuneration and value creation remain our priority.

And as you have surely all seen, since the beginning of the year the share price has performed very well. The total shareholder return from January 1 to yesterday's close for Santander was over 23.2%, which is 17 percentage points better than the European banking sector, which has risen 5.7% so far this year.

We also continue to advance in our responsible banking model, which integrates into the day-to-day business a way of doing things where how we do things matters as much as what we achieve. This is something you have heard me say many times over the past few years. Our ESG strategy is clear, supported by solid governance that allows us to leverage the strengths of our business to address major global challenges and also generate profits with social impact. I would like to highlight three areas that Ramiro Mato will detail later. First, supporting our customers in their transition to a green economy while we move towards our goal of generating net zero emissions as a group by 2050. One example is our global leadership in renewable energy financing, which is a great opportunity in a market valued at almost half a trillion dollars. Second, financial inclusion, another great opportunity. In Latin America, there are more than 100 million people who do not use financial services. Between 2019 and 2022, we financially empowered about 12 million people, exceeding our target of reaching 10 million people three years ahead of schedule. Therefore, we have announced a new goal: to financially empower 5 million more people between 2023 and 2025.

And finally, we continue to bet on supporting education, employment, and entrepreneurship. In 2022, Santander Universities granted more than 266,000 scholarships and grants to students, teachers, entrepreneurs, and SMEs, and allocated 100 million euros to collaborations with more than 1,300 universities. Our progress depends on our ability to attract and develop the best talent based on a culture where transparency and customer focus distinguish us. Going forward, we will prioritize teamwork even more, what we call One Santander, which will be the focus for all of us.

I also want to say that we have advanced a lot. The level of employee commitment at Santander is in the top 10% of the financial sector, and we have also advanced a lot in our commitments to diversity, equity, and inclusion. By 2025, today 29% of management positions are held by women, compared to 20% four years ago. This is an improvement of almost 50%. Finally, our corporate governance system continues to demonstrate its effectiveness in defining the strategy that best suits the group and supervising its execution. We have implemented improvement actions that we identified last year, which were reported and approved by this meeting. Recent changes in the composition of the Board have strengthened its ability to contribute to the transformation and success of Santander while controlling risks and meeting the expectations of supervisors, shareholders, analysts, and investors. Today we have an excellent board, both in terms of its independence, with two-thirds independent directors, and in terms of diversity, with 40% women and six different nationalities. Our board has long complied with the rules that the European Union directive and Spanish law will now make mandatory, and we continue to strengthen the skills and experience of our directors with the appointment today of Héctor Grisi and Glenn Hutchings, who are being put to a vote by shareholders.

2022 marks the close of a four-year strategic plan that we have successfully completed. Today the Santander community already has 160 million customers at the close of 2022. When a new customer comes to the bank, we can take advantage of what we call the network effect, which in practice means we can offer them an average of two to three additional products. Second, the combination of local and global scale, which is the essence of our model. Today we already have two businesses that are managed as global communities: corporate and investment banking, where our global presence allowed us to generate revenues of 7.4 billion euros, 14% of the group in 2022, and wealth management and insurance, where our competitive advantage again lies in global platforms. Here in 2022 we reached 51 billion euros in assets under management, also thanks to our network. We also have two businesses we call network businesses: payments and auto. In payments, we have processed more than 30 billion transactions already in PagoNxt, which increased revenues by 72% last year. The acquiring business Getnet, part of PagoNxt, ranked third in Latin America in 2022, and Ebury, an investee, also grew revenues by 76%. We also manage 97 million cards, we are one of the largest in the world, and in 2022 this business also continued to grow at double digits. In auto, we are number one in Europe and Latin America and fifth in the United States. In summary, in 2022 these global and network businesses together represented more than 30% of the group's revenues and more than 50% of profit.

Third, our diversification, which is key to more stable profit generation and balance sheet strength, proved to be a fundamental competitive advantage during the 2008 financial crisis and remains so now. Santander's capital, leverage, and liquidity ratios are well above regulatory minimums, and we manage all these risks with a conservative approach. Let me share some data worth knowing: we have nearly 200 billion euros in cash deposited with central banks, equivalent to 20% of our total deposit base. Second, 80% of our deposits are from retail customers, which provides much greater stability. In our main markets—Spain, the United Kingdom, the United States—around 70% are insured by deposit guarantee funds. Our sovereign debt portfolio is balanced, the interest rate risk of the balance sheet is small, diversified, and has an average duration of 4 years, and is also relatively new. This of course represents a greater opportunity to rebuild this portfolio with much higher profitability. And finally, very importantly, we have low, predictable, and diversified credit risk, with long experience in managing it.

Looking to the future, these excellent results I just mentioned and the progress we have made in improving the bank's business since 2014 give us a very solid foundation on which to continue building. In this first quarter of 2023, and taking into account how things are going, how the business is going, we expect to achieve a return on tangible capital of close to 14%, which without analyzing the impact of the extraordinary bank tax in Spain would be around 15%, with a capital ratio of 12% and efficiency and credit cost ratios in line to achieve the 2023 objectives. Commercial activity in January and February maintains a positive trend. More than one million new customers have joined the bank, which would lead to credit growth of 4%, deposits around 6%, and revenues growing at double digits year-on-year. We maintain the liquidity coverage ratio (LCR) stable compared to December at around 145%, and we improved the NSFR (net stable funding ratio) of the parent company to around 120%. And all this despite having continued with the TLTRO repayment plan, the line provided by the European Central Bank in recent months. Therefore, in summary, we are confident of achieving the objectives for 2023 that we shared in the 2022 results presentation.

On February 28, we also announced to the market the next three-year plan, a new phase of growth and value creation for Santander. We aspire to achieve an RoTE of 15% to 17% with a CET1 capital ratio above 12%. We will continue to allocate capital rigorously, with a target that 85% of risk-weighted assets are in businesses that generate returns above the cost of capital, and we will increase shareholder remuneration as we have already announced, moving from a payout ratio (the proportion of profit allocated to remunerating you, the shareholders) from 14% to 50%. Our objective remains the same since 2014: to create value per share, generating a future average annual double-digit growth in tangible book value per share and dividend per share over the cycle. We aspire to be the most profitable local bank in each of the markets in which we operate and also the best bank for our customers.

And we will achieve this by combining our leadership in local markets with our global scale. The plan includes, first, a focus on the customer with the transformation of our operating and business model. We are going to build a digital bank with branches—that's how we summarize it—driven by the Santander network. With this concept, what we want to reflect is that our customers are not simple users, as happens in many digital businesses. Our customers are people, people who entrust us with their savings, who want a service that is simple, personal, and fair, and who expect a great experience across all channels. And to meet these ever-increasing expectations of our customers, what we are going to do is simple: it is banking as always, only better. We are going to further simplify our product offering. This will allow us to automate operations—those that the customer uses, those they see, and also the back end, which are the bank's operating systems. This will help us reduce the cost of service, allow us to offer a better customer experience, and our teams in the branches will be able to dedicate more time to offering personalized service, especially when making the most important financial decisions, and also across all channels.

Second, our scale to achieve the best profitability in all our markets, as we have been doing but even more. We want to make the most of this combination of global scale from global and network businesses. Therefore, the objectives for the next three years are: corporate banking aims to increase revenues by 27%; wealth management and insurance aims to increase revenues at double digits; in payments, the goal is to process more than 47 billion transactions in 2025, growing faster than the market, and PagoNxt will be profitable from this year, 2023; and in auto, leverage the global relationships we have with car manufacturers and distributors to expand the business in the three regions. In summary, the value of these businesses will be reflected in their contribution to our total revenues, which will become more than 40% and will represent more than 50% of fee income in 2025. All this, combined with what we call One Transformation (the CEO will provide more detail), will help us improve our operational performance, moving the efficiency ratio from 46% to around 42% in 2025.

And finally, diversification, which I have already referred to, but to highlight that this conservative risk profile and the diversification of our businesses would translate into a cost of risk of around 1% over the cycle. This year it is likely that the cost of risk will be somewhat higher as credit conditions normalize in several countries, especially in the United States, but in any case, we expect it to remain below 1.2%.

Situations like those experienced by European and American banking in recent weeks remind us of the great value underlying traditional banking management models, such as Santander's: prudence in risk control, solvency, conservative management of liquidity levels. Santander has successfully faced profound changes and challenges, something we will do again now thanks to a strategy that highlights our strengths.

We are a bank that is easy to understand, focused on commercial banking. We operate in 10 markets that add value to our global businesses, while these support our customers in the countries. We want to generate lasting relationships with our customers, help them progress, offer them the best possible experience, anticipate their needs, and accompany them in their transition to a more digital, green, and sustainable economy. And we are achieving this. Since 2015, we have almost doubled our number of active customers to nearly 100 million. And our culture is the foundation of our success, building a single team, One Santander, with a single purpose, reinforcing gender diversity, experiences, and talent so that we are even more creative, inclusive, and dynamic, doing things increasingly in a simple, personal, and fair way—three words that summarize what our customers want.

Today we begin a new stage at Banco Santander with our new CEO, Héctor Grisi. With his excellent career and deep knowledge of Santander, we are sure that he will contribute decisively to accelerating the transformation of the group while we achieve the annual objectives. And I am very grateful to José Antonio Álvarez for his work and contribution to the group over the last 20 years. It has been a privilege to work with you, José Antonio. He has been a great partner. I am delighted that he remains on our board of directors as non-executive vice chairman. I would also like to thank Martín Chávez and Sergio Rial for their dedication to the board and welcome Glenn Hutchings, whose appointment will be voted on today and who also brings extensive international financial experience.

166 years ago, a group of businessmen from the city of Santander decided to found a bank. Since then, and thanks to the work of its teams, hand in hand with our customers and the support of you, our shareholders, we have turned Santander into one of the greatest success stories in global banking. We have achieved this by overcoming uncertainties, managing risk prudently, and facing changes with energy. I am optimistic about our future. Today, once again, we are going to lead change. And I want to end by recalling what I already told you in 2015. Madeleine Albright, the first woman to be Secretary of State in the United States, said: 'I don't believe things happen by accident. One rather earns them.' And we are going to earn it with a first-class board and team of more than 200,000 colleagues around the world, with the trust of our 160 million customers and yours, our shareholders. I am convinced that the best is yet to come. Thank you all very much.