20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from                      to                     

o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 001-12518

BANCO SANTANDER, S.A.

(Exact name of Registrant as specified in its charter)

Kingdom of Spain
(Jurisdiction of incorporation)

Ciudad Grupo Santander
28660 Boadilla del Monte (Madrid), Spain
(address of principal executive offices)

José Antonio Álvarez
Banco Santander, S.A.
Ciudad Grupo Santander
28660 Boadilla del Monte
Madrid, Spain
Tel: +34 91 289 32 80
Fax: +34 91 257 12 82
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered, pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American Depositary Shares, each representing the right to receive one Share of Capital Stock of Banco Santander, S.A., par value Euro 0.50 each	New York Stock Exchange
Shares of Capital Stock of Banco Santander, S.A., par value Euro 0.50 each	New York Stock Exchange *
Guarantee of Non-cumulative Guaranteed Preferred Stock of Santander Finance Preferred, S.A. Unipersonal, Series 1, 4, 5, 6, 10 and 11	New York Stock Exchange **

*	Banco Santander Shares are not listed for trading, but are only listed in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange.
**	The guarantee is not listed for trading, but is listed only in connection with the registration of the corresponding Non-cumulative Guaranteed Preferred Stock of Santander Finance Preferred, S.A. Unipersonal (a wholly owned subsidiary of Banco Santander, S.A.)

Securities registered or to be registered pursuant to Section 12(g) of the Act.
None.

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None.

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

US GAAP o  International Financial Reporting Standards as issued by the International Accounting Standards Board þ  Other o

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close
of business covered by the annual report.
8,228,826,135 shares

BANCO SANTANDER, S.A.

TABLE OF CONTENTS

	Page
Presentation of Financial and Other Information		3
Cautionary Statement Regarding Forward-Looking Statements		4
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		6
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		6
ITEM 3. KEY INFORMATION		6
A. Selected financial data		6
B. Capitalization and indebtedness		10
C. Reasons for the offer and use of proceeds		10
D. Risk factors		11
ITEM 4. INFORMATION ON THE COMPANY		18
A. History and development of the company		18
B. Business overview		30
C. Organizational structure		86
D. Property, plant and equipment		86
ITEM 4A. UNRESOLVED STAFF COMMENTS		86
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		86
A. Operating results		92
B. Liquidity and capital resources		122
C. Research and development, patents and licenses, etc.		123
D. Trend information		123
E. Off-balance sheet arrangements		124
F. Tabular disclosure of contractual obligations		125
G. Other disclosures		126
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		128
A. Directors and senior management		128
B. Compensation		136
C. Board practices		157
D. Employees		165
E. Share ownership		167
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		168
A. Major shareholders		168
B. Related party transactions		169
C. Interests of experts and counsel		170

	Page
ITEM 8. FINANCIAL INFORMATION		170
A. Consolidated statements and other financial information		170
B. Significant Changes		178
ITEM 9. THE OFFER AND LISTING		179
A. Offer and listing details		179
B. Plan of distribution		181
C. Markets		181
D. Selling shareholders		186
E. Dilution		186
F. Expense of the issue		186
ITEM 10. ADDITIONAL INFORMATION		186
A. Share capital		186
B. Memorandum and articles of association		186
C. Material contracts		195
D. Exchange controls		195
E. Taxation		196
F. Dividends and paying agents		200
G. Statement by experts		200
H. Documents on display		201
I. Subsidiary information		201
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		202
Introduction		202
Part 1. Corporate principles of risk management		202
Part 2. Corporate governance of the risks function		204
Part 3. Integral control of risk		205
Part 4. Credit risk		207
Part 5. Operational risk		235
Part 6. Reputational risk		241
Part 7. Adjustment to the new regulatory framework		243
Part 8. Economic capital		244
Part 9. Risk training activities		247
Part 10. Market risk		248

	Page
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		275
A. Debt Securities		275
B. Warrants and Rights		275
C. Other Securities		275
D. American Depositary Shares		275
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		277
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		277
ITEM 15. CONTROLS AND PROCEDURES		277
ITEM 16 [Reserved]		280
A. Audit committee financial expert		280
B. Code of Ethics		280
C. Principal Accountant Fees and Services		281
D. Exemptions from the Listing Standards for Audit Committees		282
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers		282
F. Changes in Registrant’s Certifying Accountant		282
G. Corporate Governance		282
PART III
ITEM 17. FINANCIAL STATEMENTS		286
ITEM 18. FINANCIAL STATEMENTS		286
ITEM 19. EXHIBITS		286
Exhibit 1.1
Exhibit 1.2
Exhibit 4.1
Exhibit 12.1
Exhibit 12.2
Exhibit 12.3
Exhibit 13.1
Exhibit 15.1

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Accounting Principles

Under Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements in conformity with the International Financial Reporting Standards previously adopted by the European Union (“EU-IFRS”). The Bank of Spain Circular 4/2004 of December 22, 2004 on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”) requires Spanish credit institutions to adapt their accounting systems to the principles derived from the adoption by the European Union of International Financial Reporting Standards. Therefore, Grupo Santander (“the Group” or “Santander”) is required to prepare its consolidated financial statements for the year ended December 31, 2009 in conformity with the EU-IFRS and Bank of Spain’s Circular 4/2004. Differences between EU-IFRS, Bank of Spain’s Circular 4/2004 and International Financial Reporting Standards as issued by the International Accounting Standard Board (IFRS-IASB) are not material for the periods subsequent to 2005. Therefore, we assert that the financial information contained in this annual report on Form 20-F complies with IFRS-IASB.

IFRS 8, Operating Segments, came into force in 2009, replacing IAS 14, and implemented a new approach to the financial reporting for business segments. Pursuant to IFRS 8, the segment information must be presented in the same format as that information is used internally by management to assess the performance of such segments and to allocate resources among them. Pursuant to IFRS 8, segment information for prior years that is reported as comparative information, must be restated in the initial year of application. Therefore, segment income statements for the years 2008 and 2007 contained herein differ from those presented in our previous annual reports on Form 20-F.

We have formatted our financial information according to the classification format for banks used in Spain. We have not reclassified the line items to comply with Article 9 of Regulation S-X. Article 9 is a regulation of the US Securities and Exchange Commission that contains formatting requirements for bank holding company financial statements.

Our auditors, Deloitte, S.L., an independent registered public accounting firm, have audited our consolidated financial statements in respect of the three years ended December 31, 2009, 2008 and 2007 in accordance with IFRS-IASB. See page F-1 to our consolidated financial statements for the 2009, 2008 and 2007 report prepared by Deloitte, S.L.

3

General Information

Our consolidated financial statements are in Euros, which are denoted “euro”, “euros”, “EUR” or “€” throughout this annual report. Also, throughout this annual report, when we refer to:

• “dollars”, “US$” or “$”, we mean United States dollars;

• “pounds” or “£”, we mean United Kingdom pounds; and

• “one billion”, we mean 1,000 million.

When we refer to “average balances” for a particular period, we mean the average of the month-end balances for that period, unless otherwise noted. We do not believe that monthly averages present trends that are materially different from trends that daily averages would show. In calculating our interest income, we include any interest payments we received on non-accruing loans if they were received in the period when due. We have not reflected consolidation adjustments in any financial information about our subsidiaries or other business units.

When we refer to “loans”, we mean loans, leases, discounted bills and accounts receivable, unless otherwise noted.

When we refer to “impaired balances” or “non-performing balances”, we mean impaired or non-performing loans and contingent liabilities (“NPL”), securities and other assets to collect.

When we refer to “allowances for credit losses”, we mean the specific allowances for credit losses, and unless otherwise noted, the general allowance for credit losses including any allowances for country-risk. See “Item 4. Information on the Company—B. Business Overview—Classified Assets—Bank of Spain Allowances for Credit Losses and Country-Risk Requirements”.

Where a translation of foreign exchange is given for any financial data, we use the exchange rates of the relevant period (as of the end of such period for balance sheet data and the average exchange rate of such period for income statement data) as published by the European Central Bank, unless otherwise noted.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains statements that constitute “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, information regarding:

• exposure to various types of market risks;

• management strategy;

• capital expenditures;

• earnings and other targets; and

• asset portfolios.

Forward-looking statements may be identified by words such as “expect,” “project,” “anticipate,” “should,” “intend,” “probability,” “risk,” “VaR,” “DCaR,” “ACaR,” “RORAC,” “target,” “goal,” “objective,” “estimate,” “future” and similar expressions. We include forward-looking statements in the “Operating and Financial Review and Prospects,” “Information on the Company,” and “Quantitative and Qualitative Disclosures About Market Risk” sections. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements.

You should understand that adverse changes in the following important factors, in addition to those discussed in “Key Information—Risk Factors”, “Operating and Financial Review and Prospects,” “Information on the Company” and elsewhere in this annual report, could affect our future results and could cause those results or other outcomes to differ materially from those anticipated in any forward-looking statement:

4

Economic and Industry Conditions

• exposure to various types of market risks, principally including interest rate risk, foreign exchange rate risk and equity price risk;

• general economic or industry conditions in Spain, the United Kingdom, the United States, other European countries, Latin America and the other areas in which we have significant business activities or investments;

• the sovereign debt rating for Spain and the other countries where we operate;

• continued deterioration in the global economy or in the economies of Spain, the United Kingdom, other European countries, Latin America, and the United States, and continued volatility in the capital markets;

• the effects of a continued decline in real estate prices, particularly in Spain, the UK and the US;

• monetary and interest rate policies of the European Central Bank and various central banks;

• inflation or deflation;

• the effects of non-linear market behavior that cannot be captured by linear statistical models, such as the VaR/DCaR/ACaR model we use;

• changes in competition and pricing environments;

• the inability to hedge some risks economically;

• the adequacy of loss reserves;

• acquisitions or restructurings of businesses that may not perform in accordance with our expectations;

• changes in demographics, consumer spending, investment or saving habits; and

• changes in competition and pricing environments as a result of the progressive adoption of the internet for conducting financial services and/or other factors.

Political and Governmental Factors

• political stability in Spain, the United Kingdom, other European countries, Latin America and the US;

• changes in Spanish, UK, EU, Latin American, US or foreign laws, regulations or taxes, and

• increased regulation in light of the global financial crisis.

Transaction and Commercial Factors

• damage to our reputation;

• our ability to integrate successfully our acquisitions and the challenges inherent in diverting management’s focus and resources from other strategic opportunities and from operational matters while we integrate these acquisitions; and

• the outcome of our negotiations with business partners and governments.

Operating Factors

• technical difficulties and the development and use of new technologies by us and our competitors;

• the occurrence of force majeure, such as natural disasters, that impact our operations or impair the asset quality of our loan portfolio;

• the impact of changes in the composition of our balance sheet on future net interest income; and

• potential losses associated with an increase in the level of substandard loans or non-performance by counterparties to other types of financial instruments.

The forward-looking statements contained in this annual report speak only as of the date of this annual report. We do not undertake to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

5

PART I

Item 1. Identity of Directors, Senior Management and Advisers

A. Directors and Senior Management

Not applicable.

B. Advisers

Not applicable.

C. Auditor

Not applicable.

Item 2. Offer Statistics and Expected Timetable

A. Offer Statistics

Not applicable.

B. Method and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected financial data

Selected Consolidated Financial Information

We have selected the following financial information from our consolidated financial statements. You should read this information in connection with, and it is qualified in its entirety by reference to, our consolidated financial statements.

In the F-pages of this Form 20-F, the audited financial statements for the years 2009, 2008 and 2007 are presented. The audited financial statements for 2006 and 2005 are not included in this document, but they can be found in our previous annual reports on Form 20-F. However, in annual reports on Form 20-F for years previous to 2008, the financial statements for 2005 were prepared under the EU-IFRS and Bank of Spain’s Circular 4/2004, and thus are not comparable to the financial data presented for that year in this Form 20-F.

Under IFRS-IASB, revenues and expenses of discontinued businesses must be reclassified from each income statement line item to “Profit from discontinued operations”. Revenues and expenses from prior years are also required to be reclassified for comparison purposes to present the same businesses as discontinued operations. This change in presentation does not affect “Consolidated profit for the year” (see Note 37 to our consolidated financial statements).

In addition, our consolidated income statement for the year ended December 31, 2009 is not entirely comparable to the income statement for the year ended December 31, 2008 due to the fact that the income statement for the year ended December 31, 2009 reflects the impact of the consolidation of Banco Real, Alliance & Leicester, Bradford & Bingley, Sovereign (since February 2009) and the consumer businesses acquired.

6

	Year Ended December 31,
	2009			2008			2007			2006			2005
	(in thousands of euros, except percentages and per share data)
Interest and similar income		53,173,004			55,043,546			45,512,258			36,669,337			33,343,659
Interest expense and similar charges		(26,874,462	)		(37,505,084	)		(31,069,486	)		(24,879,598	)		(23,258,149	)
Interest income / (charges)		26,298,542			17,538,462			14,442,772			11,789,739			10,085,510
Income from equity instruments		436,474			552,757			419,997			412,554			335,257
Income from companies accounting for by the equity method		(520	)		791,754			438,049			423,875			615,607
Fee and commission income		10,726,368			9,741,400			9,290,043			8,147,164			7,051,487
Fee and commission expense		(1,646,234	)		(1,475,105	)		(1,421,538	)		(1,251,132	)		(1,080,662	)
Gains/losses on financial assets and liabilities (net)		3,801,645			2,892,249			2,306,384			2,048,725			1,435,370
Exchange differences (net)		444,127			582,215			648,528			95,936			54,257
Other operating income		7,928,538			9,436,308			6,739,670			6,075,564			3,353,935
Other operating expenses		(7,784,621	)		(9,164,487	)		(6,449,120	)		(5,800,019	)		(3,025,586	)
Total income		40,204,319			30,895,553			26,414,785			21,942,406			18,825,175
Administrative expenses		(14,824,605	)		(11,665,857	)		(10,776,670	)		(9,783,902	)		(9,207,125	)
Personnel expenses		(8,450,283	)		(6,813,351	)		(6,434,343	)		(5,886,871	)		(5,542,192	)
Other general expenses		(6,374,322	)		(4,852,506	)		(4,342,327	)		(3,897,031	)		(3,664,933	)
Depreciation and amortization		(1,596,445	)		(1,239,590	)		(1,247,207	)		(1,130,159	)		(1,000,050	)
Provisions (net)		(1,792,123	)		(1,640,561	)		(895,552	)		(1,007,037	)		(1,791,355	)
Impairment losses on financial assets (net)		(11,578,322	)		(6,283,052	)		(3,430,122	)		(2,454,985	)		(1,913,890	)
Impairment losses on other assets (net)		(164,630	)		(1,049,226	)		(1,548,218	)		(20,066	)		(154,475	)
Gains/(loss) on disposal of assets not classified as non-current assets held for sale		1,565,013			101,156			1,810,428			348,199			1,373,508
Gains/(loss) on disposal of non-current assets held for sale not classified as discontinued operations		(1,225,407	)		1,730,902			643,050			959,318			1,063,606
Operating profit/(loss) before tax		10,587,800			10,849,325			10,970,494			8,853,774			7,195,394
Income tax		(1,206,610	)		(1,836,052	)		(2,322,107	)		(2,255,585	)		(1,132,220	)
Profit from continuing operations		9,381,190			9,013,273			8,648,387			6,598,189			6,063,174
Profit/(loss) from discontinued operations (net)		30,870			319,141			987,763			1,647,564			490,275
Consolidated profit for the year		9,412,060			9,332,414			9,636,150			8,245,753			6,553,449
Profit attributable to the Parent		8,942,538			8,876,414			9,060,258			7,595,947			6,023,783
Profit attributable to minority interests		469,522			456,000			575,892			649,806			529,666
Per share information:
Average number of shares (thousands) (1)		8,554,224			7,271,470			6,801,899			6,701,728			6,693,400
Basic earnings per share (in euros)		1.0454			1.2207			1.3320			1.1334			0.9000
Basic earnings per share continuing operation (in euros)		1.0422			1.1780			1.2003			0.9233			0.8422
Diluted earnings per share (in euros)		1.0382			1.2133			1.3191			1.1277			0.8968
Diluted earnings per share continuing operation (in euros)		1.0350			1.1709			1.1887			0.9186			0.8393
Dividends paid (in euros) (2)		0.6000			0.6325			0.6068			0.4854			0.3883
Dividends paid (in US$) (2)		0.8644			0.8802			0.8932			0.6393			0.4581

7

	Year Ended December 31,
	2009			2008			2007			2006			2005
	(in thousands of euros, except percentages and per share data)
Total assets		1,110,529,458			1,049,631,550			912,914,971			833,872,715			809,961,664
Loans and advances to credit institutions (net) (3)		79,836,607			78,792,277			57,642,604			69,757,056			66,127,043
Loans and advances to customers (net) (3)		682,550,926			626,888,435			571,098,513			527,035,514			439,964,442
Investment Securities (net) (4)		173,990,918			124,673,342			132,035,268			136,760,433			203,938,360
Investments: Associates		164,473			1,323,453			15,689,127			5,006,109			3,031,482
Contingent liabilities (net)		59,256,076			65,323,194			76,216,585			58,769,309			48,453,575
Liabilities
Deposits from central banks and credit institutions (5)		142,091,587			129,877,370			112,897,308			113,038,061			148,624,811
Customer deposits (5)		506,976,237			420,229,450			355,406,519			330,947,770			305,631,794
Debt securities (5)		211,963,173			236,403,290			233,286,688			203,742,817			148,829,300
Capitalization
Guaranteed Subordinated debt excluding preferred securities and preferred shares (6)		13,866,889			15,747,915			16,742,134			11,186,480			8,973,699
Secured Subordinated debt		—			—			—			—			—
Other Subordinated debt		15,192,269			14,452,488			11,666,663			12,399,771			13,016,989
Preferred securities (6)		7,315,291			7,621,575			7,261,382			6,836,570			6,772,768
Preferred shares (6)		430,152			1,051,272			522,558			668,328			1,308,847
Minority interest (including net income of the period)		5,204,058			2,414,606			2,358,269			2,220,743			2,848,223
Stockholders’ equity (7)		68,666,584			57,586,886			55,199,882			44,851,559			40,334,064
Total capitalization		110,675,243			98,874,742			93,750,888			78,163,451			73,254,590
Stockholders’ Equity per Share (7)		8.03			7.92			8.12			6.69			6.03
Other managed funds
Mutual funds		105,216,486			90,305,714			119,210,503			119,838,418			109,480,095
Pension funds		11,309,649			11,127,918			11,952,437			29,450,103			28,619,183
Managed portfolio		18,364,168			17,289,448			19,814,340			17,835,031			14,746,329
Savings -insurance policies		9,422,386			12,338,405			9,008,968			6,384,994			15,145,607
Total other managed funds		144,312,689			131,061,485			159,986,248			173,508,546			167,991,214
Consolidated Ratios
Profitability Ratios:
Net Yield (8)		2.62	%		2.05	%		1.80	%		1.68	%		1.63	%
Return on average total assets (ROA)		0.86	%		1.00	%		1.10	%		1.01	%		0.89	%
Return on average stockholders’ equity (ROE)		13.90	%		17.07	%		21.91	%		21.39	%		18.84	%
Capital Ratio:
Average stockholders’ equity to average total assets		5.85	%		5.55	%		4.71	%		4.36	%		4.32	%
Ratio of earnings to fixed charges (9)
Excluding interest on deposits		2.01	%		1.57	%		1.67	%		1.78	%		1.75	%
Including interest on deposits		1.40	%		1.27	%		1.35	%		1.36	%		1.30	%
Credit Quality Data (excluding country risk)
Allowances for impaired balances (*) (excluding country risk)		18,497,070			12,862,981			9,302,230			8,626,937			7,047,475
Allowances for impaired balances (*) as a percentage of total loans and contingent liabilities		2.44	%		1.83	%		1.42	%		1.45	%		1.43	%
Impaired balances (*) (10)		24,553,624			14,190,813			6,178,655			4,607,547			4,341,500
Impaired balances (*) as a percentage of total loans and contingent liabilities		3.24	%		2.02	%		0.94	%		0.78	%		0.88	%
Allowances for impaired balances (*) as a percentage of impaired balances (*)		75.33	%		90.64	%		150.55	%		187.23	%		162.33	%
Balances (*) charged-off as a percentage of total loans and contingent liabilities		1.17	%		0.55	%		0.41	%		0.31	%		0.21	%

8

Set forth below is a table showing our allowances for impaired balances broken down by various categories as disclosed and discussed throughout this annual report on Form 20-F:

	IFRS-IASB
	Year Ended December 31,
	2009			2008			2007			2006			2005
	(in thousands of euros)
Allowances refers to:
Allowances for impaired balances (*) (excluding country risk)		18,497,070			12,862,981			9,302,230			8,626,937			7,047,475
Allowances for contingent liabilities (excluding country risk)		(573,836	)		(603,372	)		(571,957	)		(541,519	)		(475,519	)
Allowances for Balances of Loans:		17,923,234			12,259,609			8,730,273			8,085,418			6,571,956
Allowances referred to country risk and other		142,120			641,192			157,851			293,032			409,969
Allowances for impaired balances (excluding contingent liabilities)		18,065,354			12,900,801			8,888,124			8,378,450			6,981,925
Of which:
Allowances for customers and Credit institutions and other financial assets:		17,898,632			12,719,623			8,796,371			8,288,128			6,901,925
Allowances for Customers		17,873,096			12,466,056			8,695,204			8,163,444			6,755,175
Allowances for Credit institutions and other financial assets		25,536			253,567			101,167			124,684			146,750
Allowances for investment securities		166,722			181,178			91,753			90,322			80,000

(*)	Balances of loans and contingent liabilities
(1)	Average number of shares has been calculated on the basis of the weighted average number of shares outstanding in the relevant year, net of treasury stock.
(2)	The shareholders at the annual shareholders’ meeting held on June 19, 2009 approved a dividend of €0.6508 per share to be paid out of our profits for 2008. In accordance with IAS 33, for comparative purposes, dividends per share paid, as disclosed in the table above, take into account the adjustment arising from the capital increase with pre-emptive subscription rights carried out in December 2008. As a result of this adjustment, the dividend per share for 2008 amounts to €0.6325. The shareholders also approved a new remuneration scheme (scrip dividend), whereby the Bank offered the shareholders the possibility to opt to receive an amount equivalent to the second interim dividend on account of the 2009 financial year in cash or new shares. The dividend per share for 2009 disclosed above, €0.60, is calculated assuming that the four dividends for the year were paid in cash.
(3)	Equals the sum of the amounts included under the headings “Financial assets held for trading”, “Other financial assets at fair value through profit or loss” and “Loans and receivables” as stated in our consolidated financial statements.
(4)	Equals the amounts included as “Debt instruments” and “Other equity instruments” under the headings “Financial assets held for trading”, “Other financial assets at fair value through profit or loss”, “Available-for-sale financial assets” and “Loans and receivables” as stated in our consolidated financial statements.
(5)	Equals the sum of the amounts included under the headings “Financial liabilities held for trading”, “Other financial liabilities at fair value through profit or loss” and “Financial liabilities at amortized cost” included in Notes 20, 21 and 22 to our consolidated financial statements.
(6)	In our consolidated financial statements, preferred securities and preferred shares are included under “Subordinated liabilities”.
(7)	Equals the sum of the amounts included at the end of each year as “Own funds” and “Valuation adjustments” as stated in our consolidated financial statements. We have deducted the book value of treasury stock from stockholders’ equity.
(8)	Net yield is the total of net interest income (including dividends on equity securities) divided by average earning assets. See “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Earning Assets—Yield Spread”.
(9)	For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of income from continuing operations before taxation and minority interests plus fixed charges and after deduction of the unremitted pre-tax income of companies accounted for by the equity method. Fixed charges consist of total interest expense, including or excluding interest on deposits as appropriate, and the proportion of rental expense deemed representative of the interest factor. Fixed charges include dividends and interest paid on preferred shares.
(10)	Impaired loans reflect Bank of Spain classifications. Such classifications differ from the classifications applied by U.S. banks in reporting loans as non-accrual, past due, restructured and potential problem loans. See “Item 4. Information on the Company—B. Business Overview—Classified Assets—Bank of Spain Classification Requirements”.

9

Exchange Rates

Fluctuations in the exchange rate between euros and dollars have affected the dollar equivalent of the share prices on Spanish stock exchanges and, as a result, are likely to affect the dollar market price of our American Depositary Shares, or ADSs, in the United States. In addition, dividends paid to the depositary of the ADSs are denominated in euros and fluctuations in the exchange rate affect the dollar conversion by the depositary of cash dividends paid on the shares to the holders of the ADSs. Fluctuations in the exchange rate of euros against other currencies may also affect the euro value of our non-euro denominated assets, liabilities, earnings and expenses.

The following tables set forth, for the periods and dates indicated, certain information concerning the exchange rate for euros and dollars (expressed in dollars per euro), based on the Noon Buying Rate as announced by the Federal Reserve Bank of New York for the dates and periods indicated.

The New York Federal Reserve Bank announced its decision to discontinue the publication of foreign exchange rates on December 31, 2008. From that date, the exchange rates shown are those published by the European Central Bank (“ECB”), and are based on the daily consultation procedures between central banks within and outside the European System of Central Banks, which normally takes place at 14:15 p.m. ECB time.

	Rate During Period
	Period End		Average Rate(1)
Calendar Period	($)		($)
2005		1.1842		1.2449
2006		1.3197		1.2661
2007		1.4603		1.3797
2008		1.3919		1.4695
2009		1.4406		1.3948

(1) The average of the Noon Buying Rates for euros on the last day of each month during the period.

	Rate During Period
Last six months	High $		Low $
2009
December		1.5120		1.4276
2010
January		1.4563		1.3966
February		1.3984		1.3489
March		1.3765		1.3338
April		1.3615		1.3245
May		1.3238		1.2223
June (through June 4)		1.2268		1.2060

On June 4, 2010, the exchange rate for euros and dollars (expressed in dollars per euro), as published by the ECB, was $1.206.

For a discussion of the accounting principles used in translation of foreign currency-denominated assets and liabilities to euros, see Note 2 (a) of our consolidated financial statements.

B. Capitalization and indebtedness

Not Applicable.

C. Reasons for the offer and use of proceeds

Not Applicable.

10

D. Risk factors

Risks Relating to Our Operations

Since our loan portfolio is concentrated in Continental Europe, the United Kingdom and Latin America, adverse changes affecting the Continental European, the United Kingdom or certain Latin American economies could adversely affect our financial condition.

Our loan portfolio is concentrated in Continental Europe (in particular, Spain), the United Kingdom and Latin America. At December 31, 2009, Continental Europe accounted for approximately 47% of our total loan portfolio (Spain accounted for 33% of our total loan portfolio), while the United Kingdom and Latin America accounted for 33% and 14%, respectively. Therefore, adverse changes affecting the economies of Continental Europe (in particular, Spain), the United Kingdom or the Latin American countries where we operate would likely have a significant adverse impact on our loan portfolio and, as a result, on our financial condition, cash flows and results of operations. See “Item 4. Information on the Company—B. Business Overview.”

Some of our business is cyclical and our income may decrease when demand for certain products or services is in a down cycle.

The level of income we derive from certain of our products and services depends on the strength of the economies in the regions where we operate and certain market trends prevailing in those areas. Therefore, negative cycles may adversely affect our income in the future.

Our business could be affected if our capital is not managed effectively.

Effective management of our capital position is important to our ability to operate our business, to continue to grow organically and to pursue our strategy. Any future change that limits our ability to manage our balance sheet and capital resources effectively or to access funding on commercially acceptable terms could have a material adverse effect on our financial condition and regulatory capital position.

A sudden shortage of funds could increase our cost of funding and have an adverse effect on our liquidity and funding.

Historically, our principal source of funds has been customer deposits (demand, time and notice deposits). At December 31, 2009, 21.4% of these customer deposits were time deposits in amounts greater than $100,000. Total time deposits represented 46.8%, 48.8% and 48.9% of total customer deposits at the end of 2009, 2008 and 2007, respectively. Large-denomination time deposits may be a less stable source of deposits than other type of deposits. The loss of market liquidity, triggered by the deterioration of the US sub-prime credit market, affected the supply and cost of liquidity and funding. The effects of the downturn spread to the global economy, in particular to issuances in wholesale markets (principally asset-backed securities) and to availability of liquid resources via the interbank markets. Although recent months have seen an improvement in market conditions, there can be no assurance that we will not incur materially higher funding costs or be required to liquidate certain assets.

We are vulnerable to disruptions and volatility in the global financial markets as well as to government action intended to alleviate the effects of the financial crisis.

Commencing in August 2007, the global financial system experienced difficult credit and liquidity conditions and disruptions leading to less liquidity, greater volatility, general widening of spreads and, in some cases, lack of price transparency on interbank lending rates. In September 2008, global financial markets deteriorated sharply following the bankruptcy filing by Lehman Brothers Holdings Inc. In the days that followed, it became apparent that a number of other major financial institutions, including some of the largest global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies, were experiencing significant difficulties.

Following the bankruptcy filing by Lehman Brothers Holdings Inc., there were runs on deposits at several financial institutions and numerous institutions sought additional capital. Central banks around the world coordinated efforts to increase liquidity in the financial markets by taking measures such as increasing the amounts they lend directly to financial institutions, lowering interest rates and significantly increasing temporary reciprocal currency arrangements (or “swap lines”).

11

In an attempt to prevent the failure of the financial system, the United States and European governments intervened on an unprecedented scale. In the United States, the federal government took equity stakes in several financial institutions, implemented a program to guarantee the short-term and certain medium-term debt of financial institutions, increased consumer deposit guarantees, and brokered the acquisitions of certain struggling financial institutions, among other measures. In the United Kingdom, the government effectively nationalized some of the country’s largest banks, provided a preferred equity program open to all financial institutions and a program to guarantee short-term and certain medium-term debt of financial institutions, among other measures. In Spain, the government increased consumer deposit guarantees, made available a program to guarantee the debt of certain financial institutions, created a fund to purchase assets from financial institutions and the Spanish Ministry of Economy and Finance was authorized, on an exceptional basis and until December 31, 2009, to acquire, at the request of credit institutions resident in Spain, shares and other capital instruments (including preferred shares) issued by such institutions.

Despite the extent of the aforementioned intervention, global investor confidence remains cautious. In addition, the world’s largest developed economies, including the United States and United Kingdom, although improving in recent months, ended 2009 under economic recessions. In addition, recent downgrades of the sovereign debt of Greece, Portugal and Spain have caused volatility in the capital markets. Continued or worsening disruption and volatility in the global financial markets could have a material adverse effect on our ability to access capital and liquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers. Any such increase in capital markets funding costs or deposit rates would entail a repricing of loans, which would result in a reduction of volumes, and may also have an adverse effect on our interest margins. A further economic downturn, especially in Spain, the United Kingdom, other European countries, the United States and certain Latin American countries, could also result in a further reduction in business activity and a consequent loss of income for us.

Risks concerning borrower credit quality and general economic conditions are inherent in our business.

Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of our businesses. Adverse changes in the credit quality of our borrowers and counterparties or a general deterioration in Spanish, United Kingdom, Latin American, United States or global economic conditions, or arising from systemic risks in the financial systems, could reduce the recoverability and value of our assets and require an increase in our level of allowances for credit losses. Deterioration in the economies in which we operate could reduce the profit margins for our banking and financial services businesses.

The financial problems faced by our customers could adversely affect us.

Market turmoil and economic recession, especially in Spain, the United Kingdom, the United States and certain Latin American countries, could materially and adversely affect the liquidity, businesses and/or financial conditions of our borrowers, which could in turn increase our non-performing loan ratios, impair our loan and other financial assets and result in decreased demand for borrowings in general. In the context of continued market turmoil, economic recession and increasing unemployment coupled with declining consumer spending, the value of assets collateralizing our secured loans, including homes and other real estate, could decline significantly, which could result in the impairment of the value of our loan assets. Moreover, in 2009 we experienced an increase in our non-performing ratios and a deterioration in asset quality as compared to 2008. In addition, our customers may further significantly decrease their risk tolerance to non-deposit investments such as stocks, bonds and mutual funds, which would adversely affect our fee and commission income. Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to risks faced by other financial institutions.

We routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Defaults by, and even rumors or questions about the solvency of, certain financial institutions and the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. These liquidity concerns have had, and may continue to have, a chilling effect on inter-institutional financial transactions in general. Many of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties. A default by a significant financial counterparty, or liquidity problems in the financial services industry in general, could have a material adverse effect on our business, financial condition and results of operations.

12

Our exposure to Spanish and UK real estate markets makes us more vulnerable to adverse developments in these markets.

As mortgage loans are one of our principal assets, comprising 53% of our loan portfolio as of December 31, 2009, we are currently highly exposed to developments in real estate markets, especially in Spain and the United Kingdom. In addition, we currently have exposure to certain real estate developers in Spain. From 2002 to 2007, demand for housing and mortgage financing in Spain increased significantly driven by, among other things, economic growth, declining unemployment rates, demographic and social trends, the desirability of Spain as a vacation destination and historically low interest rates in the Eurozone. The United Kingdom experienced a similar increase in housing and mortgage demand, driven by, among other things, economic growth, declining unemployment rates, demographic trends and the increasing prominence of London as an international financial center. During late 2007, the housing market began to adjust in Spain and the United Kingdom as a result of excess supply (particularly in Spain) and higher interest rates. Since 2008, as economic growth came to a halt in Spain and the United Kingdom, housing oversupply has persisted, unemployment has continued to increase, housing demand has continued to decrease and home prices have declined while mortgage delinquencies increased. As a result, our non-performing loan ratio increased from 0.94% at December 31, 2007, to 2.02% at December 31, 2008 and to 3.24% at December 31, 2009. These trends, especially higher unemployment rates coupled with declining real estate prices, could have a material adverse impact on our mortgage payment delinquency rates, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Portions of our loan portfolio are subject to risks relating to force majeure and any such event could materially adversely affect our operating results.

Our financial and operating performance may be adversely affected by force majeure, such as natural disasters, particularly in locations where a significant portion of our loan portfolio is composed of real estate loans. Natural disasters such as earthquakes and floods may cause widespread damage which could impair the asset quality of our loan portfolio or could have an adverse impact on the economy of the affected region.

In particular, our operations in Chile were adversely affected by the 8.8 magnitude earthquake that struck central Chile on February 27, 2010. Certain government officials have stated publicly that the Chilean gross domestic product may decline by approximately 1.5% in 2010 as a result of the earthquake. In addition, the earthquake has adversely affected many of our corporate and retail customers. Although it is premature to assess the extent of the adverse effect of the recent earthquake on the Chilean economy, our customers and our loan portfolio, it is likely that these events will adversely affect the asset quality of our Chilean loan portfolio and our results of operations in Chile.

We may generate lower revenues from brokerage and other commission- and fee-based businesses.

Market downturns are likely to lead to declines in the volume of transactions that we execute for our customers and, therefore, to declines in our non-interest revenues. In addition, because the fees that we charge for managing our clients’ portfolios are in many cases based on the value or performance of those portfolios, a market downturn that reduces the value of the our clients’ portfolios or increases the amount of withdrawals would reduce the revenues we receive from our asset management and private banking and custody businesses.

Even in the absence of a market downturn, below-market performance by our mutual funds may result in increased withdrawals and reduced inflows, which would reduce the revenue we receive from our asset management business.

Market risks associated with fluctuations in bond and equity prices and other market factors are inherent in our business. Protracted market declines can reduce liquidity in the markets, making it harder to sell assets and leading to material losses.

The performance of financial markets may cause changes in the value of our investment and trading portfolios. In some of our business, protracted adverse market movements, particularly asset price decline, can reduce the level of activity in the market or reduce market liquidity. These developments can lead to material losses if we cannot close out deteriorating positions in a timely way. This may especially be the case for assets of the Group for which there are less liquid markets to begin with. Assets that are not traded on stock exchanges or other public trading markets, such as derivative contracts between banks, may have values that we calculate using models other than publicly quoted prices. Monitoring the deterioration of prices of assets like these is difficult and could lead to losses that we did not anticipate.

13

The increasing volatility of world equity markets due to the recent economic uncertainty is having a particular impact on the financial sector. This may affect the value of our investments in entities in this sector and, depending on their fair value and future recovery expectations, could become a permanent impairment which would be subject to write-offs against our results.

Volatility in interest rates may negatively affect our net interest income and increase our non-performing loan portfolio.

Changes in market interest rates could affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income leading to a reduction in our net interest income. Income from treasury operations is particularly vulnerable to interest rate volatility. Since the majority of our loan portfolio reprices in less than one year, rising interest rates may also bring about an increasing non-performing loan portfolio. Interest rates are highly sensitive to many factors beyond our control, including deregulation of the financial sector, monetary policies, domestic and international economic and political conditions and other factors.

As of December 31, 2009, our interest rate risk measured in daily Value at Risk (“VaRD”) terms amounted to €211.4 million.

Foreign exchange rate fluctuations may negatively affect our earnings and the value of our assets and shares.

Fluctuations in the exchange rate between the euro and the US dollar will affect the US dollar equivalent of the price of our securities on the stock exchanges in which our shares and ADSs are traded. These fluctuations will also affect the conversion to US dollars of cash dividends paid in euros on our ADSs.

In the ordinary course of our business, we have a percentage of our assets and liabilities denominated in currencies other than the euro. Fluctuations in the value of the euro against other currencies may adversely affect our profitability. For example, the appreciation of the euro against some Latin American currencies and the US dollar will depress earnings from our Latin American and US operations, and the appreciation of the euro against the sterling will depress earnings from our UK operations. Additionally, while most of the governments of the countries in which we operate have not imposed prohibitions on the repatriation of dividends, capital investment or other distributions, no assurance can be given that these governments will not institute restrictive exchange control policies in the future. Moreover, fluctuations among the currencies in which our shares and ADSs trade could reduce the value of your investment.

As of December 31, 2009, our largest exposures on temporary positions (with a potential impact on the income statement) were concentrated, in descending order, on the pound sterling and the Chilean peso. On that day, our largest exposures on permanent positions (with a potential impact on equity) were concentrated, in descending order, on the Brazilian real, the pound sterling, the Mexican peso and the Chilean peso.

Despite our risk management policies, procedures and methods, we may nonetheless be exposed to unidentified or unanticipated risks.

Our risk management techniques and strategies may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we fail to identify or anticipate. Some of our qualitative tools and metrics for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could be significantly greater than the historical measures indicate. In addition, our quantified modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. If existing or potential customers believe our risk management is inadequate, they could take their business elsewhere. This could harm our reputation as well as our revenues and profits.

14

Our recent and future acquisitions may not be successful and may be disruptive to our business.

We have acquired controlling interests in various companies and have engaged in other strategic partnerships. See “Item 4. Information on the Company — A. History and development of the Company.” Additionally, we may consider other strategic acquisitions and partnerships from time to time. While we are optimistic about the acquisitions we have made, there can be no assurances that we will be successful in our plans regarding the operation of these or other acquisitions and strategic partnerships.

We can give no assurance that our recent and any future acquisition and partnership activities will perform in accordance with our expectations. We base our assessment of potential acquisitions and partnerships on limited and potentially inexact information and on assumptions with respect to operations, profitability and other matters that may prove to be incorrect. We can give no assurances that our expectations with regards to integration and synergies will materialize.

Increased competition in the countries where we operate may adversely affect our growth prospects and operations.

Most of the financial systems in which we operate are highly competitive. Financial sector reforms in the markets in which we operate have increased competition among both local and foreign financial institutions, and we believe that this trend will continue. In particular, price competition in Europe, Latin America and the US has increased recently. Our success in the European, Latin American and US markets will depend on our ability to remain competitive with other financial institutions. In addition, there has been a trend towards consolidation in the banking industry, which has created larger and stronger banks with which we must now compete. There can be no assurance that this increased competition will not adversely affect our growth prospects, and therefore our operations. We also face competition from non-bank competitors, such as brokerage companies, department stores (for some credit products), leasing and factoring companies, mutual fund and pension fund management companies and insurance companies.

Changes in the regulatory framework in the jurisdictions where we operate could adversely affect our business.

As a result of the current financial crisis and ensuing government intervention, it is widely anticipated that there will be a substantial increase in government regulation of the financial services industry, including the imposition of higher capital requirements, heightened disclosure standards and restrictions on certain types of transaction structures. In addition, novel proposals for new regulatory initiatives, abound in the current environment. If enacted, new regulations could require us to inject further capital into our business as well as in businesses we acquire, restrict the type or volume of transactions we enter into, or set limits on or require the modification of rates or fees that we charge on certain loan or other products, any of which could lower the return on our investments, assets and equity. We may also face increased compliance costs and limitations on our ability to pursue certain business opportunities. Changes in regulations, which are beyond our control, may have a material effect on our business and operations. As some of the banking laws and regulations have been recently adopted, the manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. Moreover, no assurance can be given generally that laws or regulations will be adopted, enforced or interpreted in a manner that will not have material adverse affect on our business.

Operational risks are inherent in our business.

Our businesses depend on the ability to process a large number of transactions efficiently and accurately. Losses can result from inadequate personnel, inadequate or failed internal control processes and systems, or from external events that interrupt normal business operations. We also face the risk that the design of our controls and procedures prove to be inadequate or are circumvented. We have suffered losses from operational risk in the past and there can be no assurance that we will not suffer material losses from operational risk in the future.

We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.

Our continued success depends in part on the continued service of key members of our management team. The ability to continue to attract, train, motivate and retain highly qualified professionals is a key element of our strategy. The successful implementation of our growth strategy depends on the availability of skilled management, both at our head office and at each of our business units. If we or one of our business units or other functions fails to staff our operations appropriately or loses one or more of our key senior executives and fails to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including control and operational risks, may be adversely affected. Likewise, if we fail to attract and appropriately train, motivate and retain qualified professionals, our business may also be affected.

15

Damage to our reputation could cause harm to our business prospects.

Maintaining a positive reputation is critical to our attracting and maintaining customers, investors and employees. Damage to our reputation can therefore cause significant harm to our business and prospects. Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, litigation or regulatory outcomes, failing to deliver minimum standards of service and quality, compliance failures, unethical behavior, and the activities of customers and counterparties. Further, negative publicity regarding us, whether or not true, may result in harm to our prospects.

Actions by the financial services industry generally or by certain members of or individuals in the industry can also affect our reputation. For example, the role played by financial services firms in the financial crisis has damaged the reputation of the industry as a whole.

We could suffer significant reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of potential conflicts of interest has become increasingly complex as we expand our business activities through more numerous transactions, obligations and interests with and among our clients. The failure to adequately address, or the perceived failure to adequately address, conflicts of interest could affect the willingness of clients to deal with us, or give rise to litigation or enforcement actions. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm to us.

Different disclosure and accounting principles between Spain and the US may provide you with different or less information about us than you expect.

There may be less publicly available information about us than is regularly published about companies in the United States. While we are subject to the periodic reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), the disclosure required from foreign private issuers under the Exchange Act is more limited than the disclosure required from US issuers. Additionally, we present our financial statements under IFRS-IASB which differs from U.S. GAAP.

We are exposed to risk of loss from legal and regulatory proceedings.

We face various issues that may give rise to risk of loss from legal and regulatory proceedings. These issues include appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, and conduct by companies in which we hold strategic investments or joint venture partners, could increase the number of litigation claims and the amount of damages asserted against the Group or subject the Group to regulatory enforcement actions, fines and penalties. Currently, the Bank and its subsidiaries are the subject of a number of legal proceedings and regulatory actions. An adverse result in one or more of these proceedings could have a material adverse effect on our operating results for any particular period. For information relating to the legal proceedings involving our businesses, see “Item 8. Financial Information—A. Consolidated statements and other financial information—Legal proceedings”.

Credit, market and liquidity risks may have an adverse effect on our credit ratings and our cost of funds. Any reduction in our credit rating could increase our cost of funding and adversely affect our interest margins.

Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies regularly evaluate us and their ratings of our long-term debt are based on a number of factors, including our financial strength as well as conditions affecting the financial services industry generally.

Any downgrade in our ratings could increase our borrowing costs, limit our access to capital markets and adversely affect the ability of our business to sell or market their products, engage in business transactions—particularly longer-term and derivatives transactions—and retain our customers. This, in turn, could reduce our liquidity and have an adverse effect on our operating results and financial condition.

16

The Group’s long-term debt is currently rated investment grade by the major rating agencies (Aa2 by Moody’s Investors Service España, S.A. and AA by each of Standard & Poor’s Ratings Services and Fitch Ratings Ltd., respectively). Standard & Poor’s maintains our outlook at negative reflecting continued and increased credit deterioration in most economies in which we are present. The downgrade of our rating by Moody’s expresses their concerns about the broad deterioration of the Spanish economy, to which we remain heavily exposed, as well as our recently increased exposure to the UK and the US, which both also faced severe economic disruptions, including decreased economic activity and increased unemployment. Moody’s expects that we will continue to face further asset quality pressures both from Sovereign and Alliance & Leicester as well as from our home market, and believes that this will lead to significant future provisioning requirements, which in turn would affect our earning power and ability to strengthen our capital levels internally. In light of the difficulties in the financial services industry and the financial markets, there can be no assurance that the rating agencies will maintain their current ratings or outlooks, or with regard to those rating agencies who have a negative outlook on the Group, there can be no assurances that such agencies will revise such outlooks upward. The Group’s failure to maintain favorable ratings and outlooks could increase the cost of its funding and adversely affect the Group’s interest margins.

Our Latin American subsidiaries’ growth, asset quality and profitability may be adversely affected by volatile macroeconomic and political conditions.

The economies of the eight Latin American countries where we operate have experienced significant volatility in recent decades, characterized, in some cases, by slow or regressive growth, declining investment and hyperinflation. This volatility has resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the economies to which we lend. Latin American banking activities (including Retail Banking, Global Wholesale Banking, Asset Management and Private Banking) accounted for €3,834 million of our profit attributable to the Parent for the year ended December 31, 2009 (an increase of 6% from €3,609 million for the year ended December 31, 2008). Negative and fluctuating economic conditions, such as a changing interest rate environment, impact our profitability by causing lending margins to decrease and leading to decreased demand for higher margin products and services. Negative and fluctuating economic conditions in some Latin American countries could also result in government defaults on public debt. This could affect us in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default in public debt could cause to the banking system as a whole, particularly since commercial banks’ exposure to government debt is high in several Latin American countries in which we operate.

In addition, revenues from our Latin American subsidiaries are subject to risk of loss from unfavorable political and diplomatic developments, social instability, and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps and tax policies.

No assurance can be given that our growth, asset quality and profitability will not be affected by volatile macroeconomic and political conditions in the Latin American countries in which we operate.

Latin American economies can be directly and negatively affected by adverse developments in other countries.

Financial and securities markets in the Latin American countries where we operate are, to varying degrees, influenced by economic and market conditions in other countries in Latin America and beyond. Negative developments in the economy or securities markets in one country, particularly in an emerging market, may have a negative impact on other emerging market economies. These developments may adversely affect the business, financial condition and operating results of our subsidiaries in Latin America.

17

Item 4. Information on the Company

A. History and development of the company

Introduction

Banco Santander, S.A. (“Santander”, the “Bank” or “Parent”) is the Parent bank of Grupo Santander. It was established on March 21, 1857 and incorporated in its present form by a public deed executed in Santander, Spain, on January 14, 1875.

On January 15, 1999, the boards of directors of Banco Santander, S.A. and Banco Central Hispanoamericano, S.A. agreed to merge Banco Central Hispanoamericano, S.A. into Banco Santander, S.A., and to change Banco Santander’s name to Banco Santander Central Hispano, S.A. The shareholders of Banco Santander, S.A. and Banco Central Hispanoamericano, S.A. approved the merger on March 6, 1999, at their respective general meetings. The merger and the name change were registered with the Mercantile Registry of Santander, Spain, by the filing of a merger deed. Effective April 17, 1999, Banco Central Hispanoamericano, S.A. shares were extinguished by operation of law and Banco Central Hispanoamericano, S.A. shareholders received new Banco Santander shares at a ratio of three shares of Banco Santander, S.A. for every five shares of Banco Central Hispanoamericano, S.A. formerly held. On the same day, Banco Santander, S.A. changed its legal name to Banco Santander Central Hispano, S.A.

The general shareholders’ meeting held on June 23, 2007 approved the proposal to change the name of the Bank to Banco Santander, S.A.

We are incorporated under, and governed by the laws of the Kingdom of Spain. We conduct business under the commercial name “Santander”. Our corporate offices are located in Ciudad Grupo Santander, Avda. de Cantabria s/n, 28660 Boadilla del Monte (Madrid), Spain. Telephone: (011) 34-91-259-6520.

Principal Capital Expenditures and Divestitures

Acquisitions, Dispositions, Reorganizations

Our principal acquisitions and dispositions in 2009, 2008 and 2007 are as follows:

Metrovacesa, S.A. (“Metrovacesa”)

On February 20, 2009, certain credit institutions, including Banco Santander, S.A. and Banco Español de Crédito, S.A., entered into an agreement for the restructuring of the debt of the Sanahuja Group, whereby they received shares representing 54.75% of the share capital of Metrovacesa in consideration for payment of the Sanahuja Group’s debt.

The agreement also included the acquisition by the creditor entities of an additional 10.77% of the share capital of Metrovacesa (shares for which the Sanahuja family was granted a call option for four years), which gave rise to an additional disbursement of €214 million for the Group, and other conditions concerning the administration of this company.

Following the execution of the agreement, Grupo Santander had an ownership interest of 23.63% in Metrovacesa, S.A., and 5.38% of the share capital was subject to the call option described above.

At June 30, 2009, the Group’s investment in Metrovacesa totaled €744 million, net of the impairment recognized under “Impairment losses on financial assets” amounting to €195 million.

At 2009 year-end, the Group measured this investment at €25 per share, which gave rise to additional write-downs and impairment losses of €269 million net of tax.

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Acquisition of Real Tokio Marine Vida e Previdencia

In March 2009, the Santander Brazil Group acquired the 50% of the insurance company Real Tokio Marine Vida e Previdencia that it did not already own from Tokio Marine for R$678 million (€225 million).

CEPSA

On March 31, 2009, we announced that we had reached an agreement with the International Petroleum Investment Company (“IPIC”) of the Emirate of Abu Dhabi for the sale of our 32.5% stake in CEPSA to IPIC, at a price of €33 per share, which would be reduced by the amount of any dividends paid, prior to the closing of the transaction, charged to the 2009 fiscal year. With this transaction, our historical annual return derived from our investment in CEPSA was of 13%. The sale had no impact on Grupo Santander’s earnings.

On July 30, 2009, we announced that we had transferred to IPIC our 32.5% stake in CEPSA at the agreed price of €33 per share. The acquirer applied to the National Securities Market Commission for exemption from the obligation to launch a tender offer, in accordance with the provisions of article 4.2 of Royal Decree 1066/2007, owing to the existence of a shareholder with a higher stake in the share capital, the denial of which would be cause for termination of the contract. On September 15, 2009, the National Securities Market Commission granted this exemption.

France Telecom España, S.A. (“France Telecom”)

On April 29, 2009, we announced that we had reached an agreement with the company Atlas Services Nederland BV (a 100%-owned affiliate of France Telecom) on the sale of the 5.01% share package held by Grupo Santander in France Telecom España, S.A. for an amount of €377.6 million. The sale had a negative impact on Grupo Santander’s earnings for an amount of €14 million.

Triad Financial Corporation

In June 2008, Banco Santander’s executive committee authorized the acquisition by Santander Consumer USA Inc. of the vehicle purchase loan portfolio and an internet-based direct loan platform (www.roadloans.com) belonging to the US group Triad Financial Corporation. The acquisition price, US$615 million, was determined on the basis of an analysis of each individual loan. In July 2009, Banco Santander’s executive committee authorized Santander Consumer USA Inc. to acquire Triad Financial SM LLC with its remaining portfolio for US$260 million.

Banco de Venezuela

On July 6, 2009, we announced that we had closed the sale of our stake in Banco de Venezuela to Bank for Economic and Social Development of Venezuela (Banco de Desarrollo Económico y Social de Venezuela), a public institution of the Bolivarian Republic of Venezuela for 1,050 million dollars, of which 630 million dollars were paid on that date, 210 million dollars were paid in October 2009 and the remainder was paid in December 2009. This sale did not have a material impact on the Group’s income statement.

Offers to exchange perpetual issues for other financial instruments

On July 9, 2009, Banco Santander S.A. and its subsidiary Santander Financial Exchanges Limited launched various offers to exchange 30 issues of securities eligible to be included in capital for a total nominal amount of approximately €9,100 million for securities to be issued by Santander and its subsidiaries. The exchange envisaged the delivery of new securities that meet the current market standards and regulatory requirements to be classified as equity at the consolidated Group level.

The purpose of these offers was to improve the efficiency of the Group’s capital structure and to strengthen Grupo Santander’s balance sheet. The Group’s annual borrowing costs were not increased as a result of exchange offers.

The acceptance level of the exchange offers reached 49.8% and the nominal amount of the new securities issued was €3,210 million.

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The capital gains generated by this transaction amounted to €724 million which were used to strengthen the Group’s balance sheet.

Purchase of securitizations

On August 24, 2009, Banco Santander invited holders of certain securitization bonds for a total nominal amount of €25,273 million to tender any or all of the bonds for purchase by Banco Santander for cash.

The aggregate outstanding nominal amount of securities accepted for purchase was €609 million. The capital gains generated amounted to €97 million which were used to strengthen the Group’s balance sheet.

Conversion of “Valores Santander”

With regard to the currently outstanding “Valores Santander”, which are securities mandatorily convertible into newly-issued ordinary shares of the Bank issued in 2007 to partially finance the takeover bid of ABN AMRO, on October 14, 2009, conversion of 754 of such “Valores Santander” was requested in the ordinary conversion period that ended on October 5, 2009. Pursuant to the terms of such securities, Banco Santander has issued 257,647 new shares in exchange for those “Valores Santander”. The public deed formalizing the capital increase was registered with the Commercial Registry of Cantabria on October 14, 2009.

After this increase, Banco Santander’s share capital was 4,077,931,685 euros, represented by 8,155,863,370 shares, par value €0.50 each.

Initial Public Offering of Banco Santander (Brasil) S.A.

On October 13, 2009, our subsidiary Banco Santander (Brasil) S.A. (“Santander Brasil”) closed its initial public offering of 525,000,000 units, each unit representing 55 common shares and 50 preferred shares, each without par value, of Santander Brasil. The units were offered in a global offering, which consisted of an international offering of units, including in the form of American depositary shares (“ADSs”), each of which represents one unit, in the United States and other countries outside of Brazil, and a concurrent offering of units in Brazil.

The initial public offering price in the global offering was R$23.50 per unit and U.S.$13.4033 per ADS.

The underwriters participating in the international offering were granted an option by Santander Brasil to purchase an additional 42,750,000 ADSs, exercisable by November 6, 2009, to cover over-allotments, if any, in connection with the international offering. The underwriters participating in the Brazilian offering were also granted an option by Santander Brasil to purchase up to an additional 32,250,000 units, exercisable within the same period, to cover over-allotments, if any, in connection with the Brazilian offering.

Following the global offering and after the exercise in full of the underwriters’ over-allotment options, the capital increase amounted to R$13,182 million (€5,092 million). Santander Brasil’s public float represents approximately 16.45% of its outstanding capital (an increase from approximately 2.0% prior to the offering). In connection with Santander Brasil’s listing on Level 2 of the BM&FBOVESPA S.A. — Bolsa de Valores, Mercadorias e Futuros (“BM&FBOVESPA”), Santander Brasil has agreed to meet the Level 2 minimum public float requirement of at least 25% of its outstanding capital stock within three years of the date of the offering in order to maintain its listing on such level of the BM&FBOVESPA. The ADSs are listed on the New York Stock Exchange.

The capital gain generated by this transaction for Grupo Santander amounted to €1,499 million.

Prior to the offering, on August 14, 2009, as a result of a series of share exchange transactions, 100% of the share capital of certain Brazilian asset management, insurance and banking companies (including Santander Seguros S.A. and Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A.), which were previously beneficially owned by Grupo Santander and certain minority shareholders, was transferred to Santander Brasil. The combined shareholders’ equity of the transferred businesses was R$2.5 billion. The purpose of these transactions was to consolidate Grupo Santander’s investments in Brazil, to simplify the current corporate structure and to consolidate Grupo Santander’s and the minority shareholders’ interests in such entities in Santander Brasil. As a result of these transactions, Santander Brasil’s capital stock was increased by approximately R$2.5 billion through the issuance of 14,410,886,181 shares, comprised of 7,710,342,899 common shares and 6,700,543,282 preferred shares. In addition, on September 17, 2009, Banco Santander sold to Santander Brasil a loan portfolio consisting of credits to Brazilian companies and their offshore affiliates for a purchase price of US$806.3 million.

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Santander Brasil has agreed with the underwriters, subject to certain exceptions, not to offer, sell or dispose of any shares of their share capital or securities convertible into or exchangeable or exercisable for any shares of their share capital during the 180-day period following the date of the prospectus of the offering. Banco Santander, members of Santander Brasil board of directors and its executive officers have agreed to substantially similar lock-up provisions, subject to certain exceptions.

Santander Brasil intends to use the net proceeds from the global offering to expand its business in Brazil by growing the bank’s physical presence and increasing its capital base. Santander Brasil also intends to improve its funding structure and, along with its traditional funding sources, increase its current credit transactions. In particular, Santander Brasil estimates that it will use (1) 70% of the net proceeds to expand its physical infrastructure, including by opening new branches and installing additional ATM’s and to fund increased credit transactions in the Commercial Banking and Global Wholesale Banking segments more effectively than it could do with ordinary funding sources; (2) 20% of the net proceeds to improve its funding structure; and (3) 10% of the net proceeds to increase its capital base, improving its Basel capital adequacy ratio.

Santander Brasil is the third largest non government-owned bank, the largest bank controlled by a major global financial group and the fourth largest bank overall in Brazil with a 10.2% market share in terms of assets, at March 31, 2009. Santander Brasil operations are located across the country and strategically concentrated in the South and Southeast, an area that accounted for approximately 73.1% of Brazil’s GDP in 2006, and where they have one of the largest branch networks of any Brazilian bank, according to the Central Bank. According to the consolidated financial statements prepared in accordance with IFRS, for the six months ended June 30, 2009, Santander Brasil generated profit before taxes of R$3.8 billion, and at that date had total assets of R$288.9 billion and shareholders’ equity of R$51.1 billion. Santander Brasil’s Basel II capital adequacy ratio was 17.0% as of June 30, 2009.

In August 2008, Santander Brasil acquired Banco Real which at the time was the fourth largest non government-owned Brazilian bank as measured by assets. At the time of the acquisition, Santander Brasil was the fifth largest non government-owned bank in Brazil as measured by assets. As a result of the acquisition of Banco Real and organic growth, Santander Brasil’s net credit portfolio increased from R$44.6 billion at June 30, 2008 to R$132.3 billion at December 31, 2008, and its total deposits increased from R$46.9 billion at June 30, 2008 to R$124.0 billion at December 31, 2008, in each case as reported in Santander Brasil’s Brazilian GAAP financial statements. In the same period, Santander Brasil’s active current account holder base increased from approximately 3.5 million to approximately 7.7 million and the distribution network of branches and on-site service units increased from 1,546 to 3,603. Banco Real’s operations are highly complementary to Santander Brasil’s pre-acquisition operations. Santander Brasil’s believes that the acquisition offers significant opportunities for the creation of operating, commercial and technological synergies by preserving the best practices of each bank. Banco Real’s strong presence in the states of Rio de Janeiro and Minas Gerais has further strengthened Santander Brasil’s position in the South and Southeast, complementing Santander Brasil’s strong footprint in the region, particularly in the state of São Paulo. The acquisition of Banco Real has further consolidated Santander Brasil’s position as a full-service bank with nationwide coverage and scale to compete effectively in Santander Brasil’s target markets.

Santander Brasil’s businesses consist of three operating segments:

• Commercial Banking: in which Santander Brasil provides a broad range of products and services and centralize banking transactions of its customers in order to increase the number of products used per customer. Deposit-taking activities, credit operations, retail lending, personal loans, credit card, account overdraft loans, consumer finance, mortgages, corporate lending, BNDES On-lending, agricultural lending, leasing and private banking are the main areas of this segment.

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• Global Wholesale Banking: Santander Brasil leads wholesale banking in Brazil and offer financial services and sophisticated and structured solutions to its customers. Santander Brasil maintains focus on four core pillars: (1) strengthening customer relationships, (2) emphasizing performance and productivity to ensure growth, (3) managing risk profiles and (4) solidifying the recognition of its global brand for product distribution. Santander Brasil’s wholesale business provides its customers with a wide range of domestic and international services, and seeks to provide solutions specifically tailored to the needs of each customer. The Global Wholesale Banking segment’s products and services are available not only to GB&M clients, but also to corporate and small and medium enterprise (“SME”) customers. Global transaction banking, credit markets, corporate finance, equities, rates, market making, proprietary trading and correspondent banking are the main areas of this segment.

• Asset Management and Insurance: Santander Brasil manages and administers third-party funds on a discretionary and non-discretionary basis, by means of mutual funds, pension funds and individual and corporate investment portfolios. In addition, it offers to its retail and SME customers various insurance products, including life and personal injury insurance, homeowner’s insurance, credit life insurance, credit card loss and theft insurance and private retirement plans.

Santander Brasil’s distribution network provides integrated financial services and products to its customers through a variety of channels, including branches and on-site service units (postos de atendimento bancário or PABs) and complementary distribution channels such as ATMs, call centers and other alternative direct sales distribution channels such as Internet banking. As a result of the acquisition of Banco Real, Santander Brasil expanded its distribution network.

Santander Brasil is from time to time subject to certain claims and party to certain legal proceedings incidental to the normal course of its business, including in connection with its lending activities, relationships with its employees and other commercial or tax matters. The main categories of lawsuits and administrative proceedings to which they are subject include: administrative and judicial actions relating to taxes; class actions involving agreements and settlement of debts with the public sector; suits brought by employees, former employees and unions relating to alleged labor rights violations; and civil suits, including from depositors relating to the alleged effects of their implementation of various government economic plans (seeking differences for monetary adjustments on remuneration of bank deposit certificates) and consumer law (i.e., breach of contract and foreign currency indexation, including administrative proceedings) and to the privatization of Banespa.

When there is a probable risk of loss, Santander Brasil usually settles. In such cases and where they litigate a claim, they record a provision for their estimate of the probable loss based on historical data for similar claims. They record provisions: (1) on a case-by-case basis based on the analysis and legal opinion of internal and external counsel and / or (2) considering the historical average amount of loss of such category of lawsuits. Due to the established provisions and the legal opinions provided, Santander Brasil believes that any future liabilities related to such lawsuits or proceedings will not have a material adverse effect on their financial condition or results of operations.

Santander Brasil does not record contingency provisions when the risk of loss is remote. In this connection, in December 2008, the Federal Revenue Service issued an infraction notice against Santander Brasil in the total amount of R$3,950.2 million (approximately €1,200 million at the exchange rate then prevailing) with respect to IRPJ and CSL related to 2002 and 2004. The tax authorities assert that Santander Brasil did not meet the legal requirements for deducting amortization of the goodwill arising from the acquisition of Banespa. Santander Brasil has filed an appeal to the Administrative Counsel of Tax Appeals (Conselho Administrativo de Recursos Fiscais) and a ruling is expected within approximately one year. Santander Brasil believes, in accordance with the advice of its external legal counsel, that the Federal Revenue Service’s position is incorrect, that the grounds to contest this claim are well-founded, and that the risk of loss is remote. Accordingly, they have not recorded any provisions for this matter since this issue should not have an impact on their financial statements.

Santander Brasil believes that they have made adequate reserves related to the costs anticipated to be incurred in connection with these various claims and legal proceedings and believe that liabilities related to such claims and proceedings should not have, in the aggregate, a material adverse effect on their business, financial condition, or results of operations. However, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by them; as a result, the outcome of a particular matter may be material to their operating results for a particular period, depending upon, among other factors, the size of the loss or liability imposed and their level of income for that period.

Santander Brasil share capital consisted of 158,154,602,751 preferred shares and 181,989,171,114 common shares. Santander Brasil did not have any shares in treasury. Immediately after the global offering, Santander Brasil had 212,841,731,754 common shares and 186,202,385,151 preferred shares outstanding. Following the offering, Banco Santander, owned, indirectly, 84.2% of Santander Brasil common shares, 82.8% of Santander Brasil preferred shares and 83.5% of Santander Brasil total capital.

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Santander Brasil intends to recommend to its shareholders a policy to distribute 50% of its yearly adjusted net income as dividends and/or interest attributed to shareholders’ equity, as required by the Brazilian corporate law and their bylaws. The amount of any distributions will depend on many factors, such as the results of operations, cash flow, financial condition (including capital position), cash requirements, investment plans, prospects, legal requirements, economic climate and other factors deemed relevant by the board of directors and shareholders.

Santander Brasil prospective investors had been advised on the risks and other matters before deciding to purchase Santander Brasil units and ADSs, including among others, risks related to Brazil, risks related to Santander Brasil and the Brazilian Financial Services Industry and risks relating to Santander Brasil units and ADSs, since one or more of these matters could negatively impact Santander Brasil business or financial performance and its ability to implement its business strategy successfully.

Sale of 10% of the share capital of Attijariwafa Bank

On December 28, 2009, we announced that we had sold to the Moroccan Société Nationale d’Investissement (SNI) 10% of the share capital of Attijariwafa Bank, at a price of Dirhams 4,149.4 million (approximately €367 million at the exchange rate on such date). The transaction generated for Grupo Santander a capital gain of approximately €218 million, which was recognized under Gains/(losses) on disposal of non-current assets held for sale in the consolidated income statement. Following the sale, Grupo Santander holds 4.55% of Attijariwafa Bank.

Acquisition of Sovereign

On October 13, 2008, we and Sovereign announced that we would acquire Sovereign through a share exchange. At the date of the announcement, we held 24.35% of the outstanding ordinary shares of Sovereign. The capital and finance committee of Sovereign, composed of independent directors, requested that Santander consider acquiring the 75.65% of the company that it did not own. The committee assessed the transaction and recommended it to the company’s board of directors.

Under the terms of the definitive transaction agreement, which was unanimously approved by the non-Santander directors of Sovereign and by the executive committee of Santander, Sovereign shareholders received 0.2924 Banco Santander American Depository Shares (ADSs) for every 1 ordinary Sovereign share they owned (or 1 Banco Santander ADS for every 3.42 Sovereign shares).

On January 26, 2009, Banco Santander held an extraordinary general meeting at which the shareholders approved the capital increase for the acquisition of 75.65% of Sovereign Bancorp Inc.

On January 28, 2009, the shareholders at the general meeting of Sovereign approved the acquisition.

On January 30, 2009, the acquisition of Sovereign was completed and Sovereign became a wholly-owned subsidiary of Grupo Santander. The transaction involved the issuance of 0.3206 ordinary shares of Banco Santander for each ordinary share of Sovereign (equivalent to the approved exchange of 0.2924 ADSs adjusted for the dilution arising from the capital increase carried out in December 2008). To this end, 161,546,320 ordinary shares were issued by Banco Santander for a cash amount (par value plus share premium) of €1.3 billion.

Acquisition of Alliance & Leicester plc

On July 14, 2008, Banco Santander, S.A. and Alliance & Leicester plc reached an agreement in relation to the terms of a recommended acquisition by Banco Santander, S.A. of the entire share capital of Alliance & Leicester plc.

As part of the transaction, the shareholders of Alliance & Leicester plc received a Banco Santander share for each three shares of Alliance & Leicester plc. Prior to the share exchange date, Alliance & Leicester plc approved (and paid) an interim dividend in cash amounting to 18 pence per share. The shareholders of the Bank, acting at the general shareholders’ meeting held on September 22, 2008, agreed to increase the Bank’s capital up to a nominal amount of €71,688,495 through the issuance of a maximum of 143,376,990 shares par value €0.50 in order to consummate the acquisition of Alliance & Leicester.

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The acquisition, which was completed by means of a scheme of arrangement, was approved by the shareholders of Banco Santander, S.A. (in relation to the capital increase) and of Alliance & Leicester plc. In addition, the scheme of arrangement was approved by the UK courts and was granted the relevant permits by the UK and Spanish regulatory bodies and the relevant anti-trust authorities.

The acquisition was completed on October 10, 2008. As of that date we issued 140,950,944 new shares of Banco Santander par value €0.50 each, with a share premium of €10.73 per share. The consideration for such shares was 422,852,832 shares of Alliance & Leicester plc, par value £0.50 each, representing all of its issued ordinary capital. The new shares represent 2.2% of the total share capital of the Bank after the capital increase.

Acquisition of Bradford & Bingley’s branch network and retail deposits

In September 2008, following the announcement by the UK’s HM Treasury (on September 29, 2008) to take Bradford & Bingley plc into public ownership, the retail deposits and branch network were transferred, under the provisions of the Banking (Special Provisions) Act 2008, to Santander UK.

As outlined in the HM Treasury statement, all of Bradford & Bingley’s customer loans and treasury assets, which included the £41 billion of mortgage assets, were placed under public ownership and were not transferred to Santander.

The transfer to Santander UK consisted of £20 billion retail deposit base with 2.7 million customers and Bradford & Bingley’s branch network, including 197 retail branches, 141 agencies (distribution outlets in third party premises) and related employees.

The acquisition price was £612 million, including the transfer of £208 million worth of capital relating to off-shore companies. The transaction was financed with the cash generated by the Group’s ordinary operations. Goodwill generated by this acquisition was £160 million (equivalent to €202 million at the exchange rate of the date of the transaction).

ABN AMRO Holding N.V. (“ABN AMRO”)

On July 20, 2007, having obtained the regulatory authorizations required to publish the documentation on the takeover bid for ABN AMRO, the Bank, together with the Royal Bank of Scotland Group plc, Fortis N.V. and Fortis S.A./N.V. (together, the “Banks”) formally launched, through RFS Holdings B.V., the offer for all the ordinary shares, ADSs and previously convertible preference shares of ABN AMRO. The initial acceptance period of this offer (the “Offer”) ended on October 5, 2007.

On October 10, 2007, the Banks declared the Offer to be unconditional. On that date, the owners of 86% of the ordinary share capital of ABN AMRO had accepted the Offer (including certain shares that the Banks already owned and had undertaken to contribute to RFS Holdings B.V.).

On the same date, the commencement of an additional offer period was announced, during which the holders of ordinary shares and ADSs of ABN AMRO could tender them, under the same terms and conditions as those of the Offer, until October 31, 2007.

Once the aforementioned additional offer period ended, the owners of 98.8% of the ordinary share capital of ABN AMRO (excluding its treasury shares) definitively accepted the Offer.

At December 31, 2007, the investment made by the Bank in ABN AMRO amounted to €20.6 billion and consisted of the Bank’s 27.9% ownership interest in the share capital of RFS Holdings B.V., the holding entity of the shares of ABN AMRO.

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Following all of these actions, the business lines were spun off from ABN AMRO with a view to subsequently integrate them into each of the Banks. The following business lines corresponded to Banco Santander: the Latin American Business Unit of ABN AMRO, which primarily consists of Banco ABN AMRO Real S.A. (“Banco Real”) in Brazil and the Banca Antoniana Popolare Veneta Spa Banking Group (“Antonveneta”), the cash relating to the sale of the consumer banking unit of ABN AMRO in the Netherlands, Interbank and DMC Consumer Finance, plus 27.9% of the assets that were not allocated to any of the Banks of the consortium and which we intend to dispose of. The spin-off process continued in 2008.

Accordingly, on March 4, 2008, the Dutch Central Bank expressed its acceptance of the overall spin-off plan, and in July 2008, it approved the individual spin-off plan for Banco Real and the business activities in Brazil. Subsequently, the Central Bank of Brazil approved the acquisition of Banco Real by Banco Santander, whereby it became effective.

The Group’s assets in Brazil also comprise those corresponding to the asset management business of ABN AMRO in Brazil, which were initially allocated to Fortis in the process of spinning off and integrating the assets of ABN AMRO, and which were acquired therefrom by the Bank in the first half of 2008 for €209 million.

As part of the assets that were spun off, in December 2008, Banco Santander Uruguay acquired the assets and liabilities of the Montevideo branch of ABN AMRO, and subsequently proceeded to merge the businesses.

Also, on May 30, 2008, Banco Santander and Banca Monte dei Paschi di Siena announced the completion of the purchase and sale of Antonveneta (excluding Interbank, its corporate banking subsidiary) for €9 billion and executed the agreement announced on November 8, 2007, which was only subject to approval by the competent authorities.

On June 2, 2008, Banco Santander entered into a definitive agreement with General Electric whereby a General Electric Group company would acquire Interbanca, and various Grupo Santander entities would acquire the GE Money units in Germany, Finland and Austria, GE’s card units in the UK and Ireland and its car finance unit in the UK. The base price agreed for the two transactions is €1 billion each, subject to various adjustments. These transactions were completed with the acquisition of GE Germany in the fourth quarter of 2008, and the acquisition of the remaining General Electric units and the sale of Interbanca in the first quarter of 2009.

In the third quarter of 2008, the Group sold 45% of ABN Amro Asset Management Italy SGR S.p.A. to Banca Monte di Paschi di Siena for €35 million as Banca Monte di Paschi di Siena had already acquired the remaining 55% through the acquisition of Antonveneta.

The businesses shared by the members of the consortium included subordinated liabilities issued by ABN AMRO. The portion of these liabilities relating to Santander was transferred to RBS and Fortis at market prices, giving rise to gains for Santander amounting to €741 million, which were recognized under “Gains/losses on financial assets and liabilities (net)” in the income statement for 2008.

On September 22, 2008, RFS Holdings B.V. completed the squeeze-out of the minority shareholders of ABN AMRO through the payment of €712 million to these shareholders. From that date onwards, RFS Holdings B.V. has been the sole shareholder of ABN AMRO. Banco Santander had to pay €200 million to complete this process, on the basis of its ownership interest in RFS. The Dutch State replaced Fortis’s position as a shareholder of RFS Holding B.V. in December 2008.

Banco Real was fully consolidated in the Group’s financial statements in the fourth quarter of 2008. Previously, it had been accounted for by the equity method through the ownership interest in RFS Holding. Accordingly, the Group’s income statement includes all the results contributed to the Group by this entity since January 1, 2008. The volume of assets that Banco Real contributed to the Group amounted to approximately €44 billion, based on the exchange rate at year-end. The amount of the assets, liabilities and contingent liabilities contributed to the Group by this entity are detailed in the related notes to our consolidated financial statements.

The goodwill at the date of acquisition assigned to Banco Real following all the aforementioned transactions amounted to €8 billion (which was equivalent to €6,446 million at the exchange rate prevailing at the end of 2008).

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In April 2009, ABN AMRO sold its branch in Asunción (Paraguay), after its conversion into a subsidiary, to Banco Regional (40% owned by the Rabobank group) for €42.2 million. This sale gave rise to a net gain of approximately €5 million.

On April 1, 2010, ABN AMRO was renamed The Royal Bank of Scotland Holding N.V.

On the same date, ABN AMRO Bank N.V., a newly established company with the purpose of holding most of the assets and liabilities belonging to the Dutch State became a wholly owned entity of The Royal Bank of Scotland Holding N.V. On the same date, we entered into a Restated Consortium and Shareholders Agreement, among the Royal Bank of Scotland Group plc, Banco Santander, S.A., The State of the Netherlands and RFS Holdings B.V.

At the date of this report on Form 20-F, Banco Santander still has a reduced economic interest in RFS Holdings B.V. as it owns a residual amount of the assets and liabilities shared with The Royal Bank of Scotland Group plc and the Dutch State.

Agreement between Santander and RBS’s European consumer finance unit

On April 4, 2008, Santander reached a preliminary agreement with RBS to acquire its continental European consumer finance business. The package includes activities in Germany, the Netherlands, Belgium and Austria. The acquisition was carried out by Santander Consumer Finance Germany GmbH.

The RBS European consumer finance business (RBS ECF) has 861 employees serving 2.3 million customers in Germany, the Netherlands, Belgium and Austria. Assets in 2007 averaged €2.2 billion. RBS ECF makes installment loans both directly and via partners. It has a strong presence in the credit card business both in terms of private and corporate customers, and provides consumer finance via retail chains.

The acquisition closed on July 1, 2008 for €306 million and gave rise to goodwill of €85 million.

Sale and leaseback of real estate assets

On November 14, 2007, we announced that we had sold ten real estate properties to two companies of Grupo Pontegadea for €458 million, obtaining a capital gain of €216 million. At the same time, we entered into a 40-year long lease contract in connection with these properties, with an option to repurchase those properties.

On November 23, 2007, we concluded the sale of 1,152 properties to a company belonging to the Pearl Group, whose main shareholder is Sun Capital. Simultaneously, Grupo Santander entered into a lease agreement for these properties for a period between 45 to 47 years, with an option to repurchase those properties. The transaction amounted to €2,040 million, generating an approximate net capital gain of €860 million for Grupo Santander.

On September 12, 2008, we announced that we had completed a transaction with the consortium led by the United Kingdom property investor Propinvest for the sale of Ciudad Grupo Santander (our principal executive offices in Madrid, Spain) and its simultaneous lease-back for a period of 40 years, with a right to repurchase this property at the end of such period.

The amount of the sale transaction was €1.9 billion, as initially contemplated. The capital gains obtained by Santander from this sale were close to €600 million.

With this transaction, Banco Santander concluded the process involving the sale of its own buildings in Spain which commenced in 2007 within the framework of the ABN AMRO acquisition. The amount of assets sold was €4.4 billion, with capital gains of approximately €1.7 billion.

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Sale of Porterbrook Leasing Company

In October 2008, Santander UK reached an agreement to sell 100% of Porterbrook Leasing Company to a consortium of investors including Antin Infrastructure Partners (the BNP Paribas sponsored infrastructure fund), Deutsche Bank and Lloyds TSB, which was completed on December 8, 2008. Santander UK received approximately £1.6 billion in cash. This sale gave rise to a gain of €50 million (£40 million) recognized under “Gains on disposal of assets not classified as non-current assets held for sale” in our consolidated income statement for 2008.

Banco BPI, S.A. (“BPI”)

Grupo Santander announced in January 2007 that it had entered into a firm agreement with Banco Comercial Portugués (“BCP”) for the sale to this bank of 44.6 million shares of Portuguese bank BPI, representing 5.87% of BPI’s share capital, at a price of €5.70 per share. The price is equal to that offered by BCP in the tender offer launched by it for BPI, or at a higher price should BCP revise its public offer bid upwards. The agreement was subject to regulatory approvals.

In May 2007, the tender offer failed since it did not obtain the minimum required support by BPI’s shareholders on which the bid was conditioned. The Bank of Portugal had set out a maximum level of ownership by BCP in BPI in the event that the tender offer did not succeed. Grupo Santander sold to BCP 35.5 million shares of BPI, with capital gains of €107 million. The ownership interest in BPI at December 31, 2009 was 1.7%.

Santander Consumer Chile, S.A.

Santander Consumer Finance and the Bergé Group, through its Chilean subsidiary SKBergé, a company formed by Sigdo Koppers and Bergé (“SKB”), reached a strategic agreement to set up a finance company in Chile. SKB will have an ownership interest of between 10% and 49%, with the remaining 90% to 51% to be held by Santander Consumer Finance. The new company, which will operate under the name of Santander Consumer Chile, will engage in consumer finance, focusing on both car and other durable consumer goods and credit cards. As of December 31, 2007, Santander Consumer Finance had acquired 89% of the capital stock of Santander Consumer Chile (at a cost of €13 million) and SKBergé the remaining 11%.

Financiera Alcanza S.A. de C.V. SOFOL (“Alcanza”)

On June 13, 2007, Santander Consumer Finance signed an agreement with the main shareholders of Alcanza to acquire and increase the capital base of Alcanza. As in its other markets, Santander Consumer’s business in Mexico focuses on consumer finance and auto financing as part of its growth strategy. Alcanza has 160 employees in 15 branches in Mexico. The total value of the acquisition together with the capital increase was US$39.5 million. The deal was closed in December 2007. At December 31, 2009, the Group controlled 85% of Alcanza.

Bolsas y Mercados Españoles, S.A. (“BME”)

On July 16, 2007, Santander Investment Bolsa, S.V., S.A. announced that it had carried out a private placement of shares in BME, for the account of Grupo Santander, among other institutional investors. A total of 2,842,929 shares of BME, representing 3.4% of the share capital of BME were placed, at a price of €42.90 per share. The transaction generated capital gains of €111 million for the Group.

Sale of Latin American pension fund management companies

In 2007, we sold our Latin American mandatory pension fund management companies (“AFPs”) to ING Group for US$1,314 million (€906 million), generating a capital gain of €747 million. The sale included fund management companies in Mexico (Afore Santander), Chile (AFP Bansander), Colombia (AFP and Cesantía Santander) and Uruguay (Afinidad AFAP).

During the fourth quarter 2007, we sold to ING Groep NV our stake in the pension fund manager Orígenes AFJP and in the annuity provider Orígenes Seguros de Retiro, in Argentina, for a total consideration of US$166 million (€112 million), generating a capital gain of €84 million for the Group.

CB Extrobank. (“Extrobank”)

In 2007, we acquired 100% of the Russian bank Extrobank for €48 million and generated goodwill of €37 million.

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Intesa Sanpaolo

On June 19, 2007, we announced that we had sold the final stake of 1.79% that we held in the share capital of the Italian bank Intesa Sanpaolo (the entity resulting from the merger of San Paolo-IMI and Intesa), for a total consideration of €1,206 million. The transaction generated a capital gain of €566 million for the Group.

Interbanco S.A. (“Interbanco”)

On September 14, 2005, we reached an agreement with Soluções Automóvel Globlais (“SAG”) of Portugal to form an alliance that will conduct consumer and vehicle financing operations in Portugal, as well as operational car leasing in Spain and Portugal. In January 2006, we paid €118 million to acquire 50.001% of Interbanco’s capital stock. At the close of this transaction, we combined our consumer and vehicle finance businesses in Portugal with those of SAG through the merger of Interbanco and Hispamer Portugal. Santander owns 60% of the capital stock of the combined company and SAG owns the remaining 40%.

In 2007, we acquired an additional 9.999% stake in Interbanco through Interbanco’s absorption of the branches in Portugal of Santander Consumer E.F.C, S.A. and Santander Consumer Finance, S.A. and consequently Interbanco changed its name to “Banco Santander Consumer Portugal, S.A.”. After this transaction, and subject to the original agreements, we acquired the remaining 40% for €138 million. These transactions generated goodwill of €74 million. Since December 31, 2007, we have owned 100% of Banco Santander Consumer Portugal.

Other Events

Lehman Brothers, Inc. (“Lehman”)

For information about the legal proceedings related to Lehman, see “Item 8. Financial Information—A. Consolidated statements and other financial information—Legal proceedings.”

Bernard L. Madoff Investment Securities (“Madoff Securities”)

For information about legal proceedings related to Madoff Securities, see “Item 8. Financial Information—A. Consolidated statements and other financial information—Legal proceedings.”

Capital Increases

As of December 31, 2006 and 2007, our capital stock consisted of 6,254,296,579 fully subscribed and paid shares of €0.50 par value each.

As of December 31, 2008, our capital had increased by 1,739,762,824 shares, or 27.82% of our total capital as of December 31, 2007, to 7,994,059,403 shares as a result of the following transactions:

• Alliance & Leicester plc acquisition: There was a capital increase of 140,950,944 new shares of €0.50 par value each in accordance with the resolutions adopted by the Bank’s extraordinary shareholder general meeting held on September 22, 2008. One new Santander share was issued for every three Alliance & Leicester plc shares. These shares were issued on October 10, 2008.

• Banco Santander rights offering: There was a capital increase of 1,598,811,880 new shares of €0.50 par value each at an issue price of €4.50 per share, which was fully paid on December 3, 2008, in connection with a right offering conducted by Banco Santander. The total amount of the issue was €7,194,653,460.

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As of December 31, 2009, our capital had increased by 234,766,732 shares, or 2.94% of our total capital as of December 31, 2008, to 8,228,826,135 shares as a result of the following transactions:

• Sovereign acquisition: The acquisition of Sovereign involved the issuance, on January 30, 2009, of 0.3206 ordinary shares of Banco Santander for each ordinary share of Sovereign. To this end, 161,546,320 ordinary shares were issued by Santander for a cash amount (par value plus share premium) of €1.3 billion.

• “Valores Santander”: Conversion of 754 “Valores Santander” was requested in the ordinary conversion period that ended on October 5, 2009. Pursuant to the terms of such securities, we issued 257,647 new shares in exchange for those “Valores Santander” which commenced trading in the Spanish Stock Exchanges on October 15, 2009.

• “Scrip Dividend Scheme”: On November 2, 2009 we issued 72,962,765 ordinary shares par value €0.5 in the free-of-charge capital increase, corresponding to 0.89% of our share capital. The amount of the capital increase was €36,481,382.50.

Recent Events

Tender offer for subordinated notes

On January 11, 2010, Banco Santander, S.A. offered to purchase for cash 13 series of subordinated notes issued by several entities of Grupo Santander for an aggregate nominal amount of €3.3 billion.

The acceptance level of the exchange offers reached 60% and the nominal amount of the securities accepted for purchase was approximately €2 billion.

Also, on February 17, 2010, Banco Santander, S.A. offered to purchase for cash perpetual subordinated notes issued by Santander Perpetual, S.A.U. for a total nominal amount of US$1.5 billion (of which Santander holds approximately US$350 million). The aggregate nominal amount of securities accepted for purchase was US$1,092.55 million, representing 95% of the outstanding notes not held by Santander.

Bolsas y Mercados Españoles (“BME”)

On February 22, 2010, we sold to institutional investors a stake of 2,099,762 shares of BME representing approximately 2.5% of its share capital, at a price of €20.0 per share, which amounts to a total of approximately €42 million. The capital gain for Grupo Santander was of €30.4 million. Grupo Santander maintains a stake of 2.5% in the capital of BME and will continue to be represented in its board of directors.

James Hay Holdings Limited

On March 10, 2010, Santander Private Banking UK Limited completed the sale of James Hay Holdings Limited (including its five subsidiaries) through the transfer of all the shares of James Hay Holdings Limited to IFG UK Holdings Limited, a subsidiary of the IFG Group, for a total of £39 million.

Companhia Brasileira de Soluções e Serviços (“CBSS”) and Cielo S.A.

On April 25, 2010, we announced that we had reached an agreement with Banco do Brasil S.A. and Banco Bradesco S.A. for the sale of the entire stake held by Grupo Santander in the companies Companhia Brasileira de Soluções e Serviços (15.33% of the capital), and Cielo S.A. – formerly Visanet – (7.20% of the capital).

The total sale price agreed was R$200 million (approximately €85.3 million) for the 15.33% of CBSS and R$1,464 million (approximately €624.3 million) for the 7.20% of Cielo.

The net capital gain generated for Grupo Santander is approximately €233 million.

The closing of the transactions is subject to final documentation.

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Downgrade of Greek and Spanish Sovereign Debt Ratings

On April 27, 2010, the Standard and Poor’s rating agency downgraded Greece’s long-term sovereign credit rating by three grades to “BB+”, or non-investment-grade status, and maintained its negative outlook. Greece is the first European country to fall below investment grade, and the downgrade set off a series of reactions including declines in European stock markets as well as in the value of the euro. The following day, the Standard and Poor’s rating agency downgraded Spain’s long-term sovereign credit rating by one grade to “AA”, down from “AA+”. As a result of the downgrade, Spanish stock markets and, in particular, Spanish banking stocks dropped sharply. On May 28, 2010, Fitch downgraded Spain’s rating to “AA+” from “AAA”, reflecting Fitch’s assessment that Spain’s adjustments would materially reduce the rate of growth of the economy. Moody’s Investors Service has maintained their “AAA” rating and stable outlook for the country’s sovereign debt. In addition, on May 5, 2010 Moody’s Investor Services warned it may downgrade Portugal’s “Aa2” sovereign debt rating within the following three months, a week after Standard & Poor’s cut its rating and a month and a half after Fitch downgraded Portugal’s credit rating from “AA” to “AA-”.

Although the Bank has negligible direct exposure to Greek sovereign or bank debt (0.6% of total country risk), the ratings downgrade of, and a possible default on, Greece’s sovereign debt heightened the market’s fears concerning Europe’s fiscal condition. The downgrade of the sovereign ratings for Spain and Portugal may (i) negatively impact the mark to market value of the Bank’s Spanish and Portuguese sovereign debt holdings, (ii) increase the Bank’s funding costs as the spread between Spanish and Portuguese sovereign debt and German sovereign debt (the benchmark for the eurozone) increased, although this would be partially offset by the related increase in mark to market value of the Bank’s German sovereign debt holdings, and (iii) negatively impact the trading price of the Bank’s common shares as a result of the increased risk premium and the related increase in the Bank’s cost of capital.

In response to the ratings downgrades of Greece and Spain, in addition to recent downgrades of Portugal and Ireland, and market fears of a widening sovereign debt crisis throughout the Eurozone, on May 10, 2010 the European Central Bank (“ECB”) announced the creation of a €750 billion fund to bail out countries in the Eurozone in debt trouble and to act in both government and corporate bond markets as a buyer of last resort. The ECB’s fund had an immediate positive impact as European stock exchanges and the euro rebounded from recent declines and market fears eased slightly, but questions remain as to the fund’s ultimate impact and implementation. No assurance can be given that the fund will prevent future downgrades in these or other European countries’ sovereign debt ratings, improve the Eurozone’s financial condition or improve the market’s perception of the Eurozone’s fiscal condition.

Acquisition of 24.9% of Banco Santander Mexico

On June 9, 2010, we announced that Banco Santander had reached an agreement with Bank of America to acquire the 24.9% stake held by the latter in Grupo Financiero Santander (“Banco Santander Mexico”) for an amount of 2,500 million dollars. Following this transaction, our holding in Banco Santander Mexico will amount to 99.9%.

In 2003, Bank of America acquired this 24.9% stake from Santander for an amount of 1,600 million dollars.

The transaction is subject to regulatory authorization and is expected to be completed in the third quarter of 2010.

B. Business overview

At December 31, 2009 we had a market capitalization of €95.0 billion, stockholders’ equity of €68.7 billion and total assets of €1,110.5 billion. We had an additional €134.9 billion in mutual funds, pension funds and other assets under management at that date. As of December 31, 2009, we had 49,870 employees and 5,871 branch offices in Continental Europe, 22,949 employees and 1,322 branches in the United Kingdom, 85,974 employees and 5,745 branches in Latin America, 8,847 employees and 722 branches in the United States (Sovereign Bancorp) and 1,820 employees in other geographic regions (for a full breakdown of employees by country, see Item 6 of Part I, “Directors, Senior Management and Employees—D. Employees”).

We are a financial group operating principally in Spain, the United Kingdom, Portugal, other European countries, Brazil and other Latin American countries and the United States, offering a wide range of financial products.

In Latin America, we have majority shareholdings in banks in Argentina, Brazil, Chile, Colombia, Mexico, Puerto Rico and Uruguay.

In accordance with the criteria established by the IFRS-IASB, the structure of the operating business areas has been segmented into two levels:

First (or geographic) level. The activity of our operating units is segmented by geographical areas. This coincides with our first level of management and reflects our positioning in the world’s main currency areas. The reported segments are:

• Continental Europe. This covers all retail banking business (including Banco Banif, S.A. (“Banif”), our specialized private bank), wholesale banking and asset management and insurance conducted in Europe, with the exception of the United Kingdom. This segment includes the following units: the Santander Branch Network, Banco Español de Crédito, S.A. (“Banesto”), Santander Consumer Finance (including Santander Consumer USA) and Portugal.

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• United Kingdom. This includes retail and wholesale banking, asset management and insurance conducted by the various units and branches of the Group in the UK.

• Latin America. This embraces all the financial activities conducted via our subsidiary banks and other subsidiaries in Latin America. It also includes the specialized units in Santander Private Banking, as an independent globally managed unit. Santander’s business in New York is also managed in this area.

• Sovereign. Sovereign’s figures are recorded on their own. Sovereign began to be consolidated in the first quarter of 2009, after its acquisition became effective.

Second (or business) level. This segments the activity of our operating units by type of business. The reported segments are:

• Retail Banking. This covers all customer banking businesses (except those of Corporate Banking, which are managed globally throughout the world).

• Global Wholesale Banking. This business reflects the returns from Global Corporate Banking, Investment Banking and Markets worldwide, including all treasury activities under global management, as well as our equities business.

• Asset Management and Insurance. This includes our units that design and manage mutual and pension funds and insurance.

In addition to these operating units, which cover everything by geographic area and business, we continue to maintain a separate Corporate Activities area. This area incorporates the centralized activities relating to equity stakes in industrial and financial companies, financial management of the structural exchange rate position and of the Parent Bank’s structural interest rate risk, as well as management of liquidity and of stockholders’ equity through issues and securitizations. As the Group’s holding entity, it manages all capital and reserves and allocations of capital and liquidity.

Except for the addition of Sovereign, which is disclosed as separate reporting segment in 2009, Grupo Santander maintained the same primary and secondary operating segments as it had in 2008.

In addition, and in line with the criteria established by IFRS-IASB, the results of businesses discontinued in 2009 (Banco de Venezuela) and 2007 (our Latin American pension management companies) which were consolidated by global integration, were eliminated from various lines of the income statement and included in “net profit from discontinued operations.”

First level (or geographic):

Continental Europe

This area covers the banking activities of the different networks and specialized units in Europe, principally with individual clients and SMEs, as well as private and public institutions. During 2009, there were four main units within this area: the Santander Branch Network, Banesto, Santander Consumer Finance and Portugal including retail banking, global wholesale banking and asset management and insurance.

Continental Europe is the largest business area of Grupo Santander. At the end of 2009, it accounted for 40.4% of total customer funds under management, 47.2% of total loans and credits and 46.4% of profit attributed to the Group of the Group’s main business areas.

The area had 5,871 branches and 49,870 employees (direct and assigned) at the end of 2009.

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In 2009, the Continental Europe segment’s profit attributable to the Parent increased 2.7% to €4,793 million. Return on equity (“ROE”) in 2009 was 17.9%, a 2.2% decrease from 2008.

The Santander Branch Network

Our retail banking activity in Spain is carried out mainly through the branch network of Santander, with support from an increasing number of automated cash dispensers, savings books updaters, telephone banking services, electronic and internet banking.

At the end of 2009, we had 2,934 branches and a total of 19,064 employees (direct and assigned), of which two employees were hired on a temporary basis, dedicated to retail banking in Spain. Compared to 2008, there was a net increase of one branch and a net decrease of 383 employees.

In 2009, profit attributable to the Parent from the Santander Branch Network was €2,012 million, 5.5% higher than 2008, while the ROE reached 26.6% (as compared to 23.0% in 2008).

In 2009, the Santander Branch Network decreased by approximately 5% in lending, customer funds under management grew by 4%, deposits increased 25%, mutual funds fell 16% and pension funds decreased 2%. The 5% decrease in lending in 2009 versus 2008 reflects that demand from individuals and companies was lower than normal because of the recession in Spain. The ratio of non-performing loans (“NPL”) grew to 3.4% from 1.9% in 2008.

Banesto

At the end of 2009, Banesto had 1,773 branches and 9,727 employees (direct and assigned), of which nine employees were temporary, a decrease of 142 branches and 713 employees as compared to the end of 2008.

For purposes of our financial statements and this annual report on Form 20-F, we have calculated Banesto’s results of operations using the criteria described before in this annual report on Form 20-F. As a result, the data set forth herein may not coincide with the data published independently by Banesto.

In 2009, profit attributable to the Parent from Banesto was €500 million, a 28.0% decrease from 2008, while the ROE reached 11.7% as compared to 17.3% in 2008.

At the end of 2009, the balance of loans was 2% lower than a year earlier, while customer funds increased 5% and off-balance sheet funds built on the recovery started in June 2009 to increase 12.5%. NPL grew to 3.0% in 2009, up 1.3 percentage points from 2008.

Santander Consumer Finance

Our consumer financing activities are conducted through our subsidiary Santander Consumer Finance and its group of companies. Most of the activity of Santander Consumer Finance relates to auto financing, personal loans, credit cards, insurance, and customer deposits. These consumer financing activities are mainly focused on Germany, Spain, Italy, Norway, Finland, Sweden and the US. We also conduct business in Poland, the UK, Portugal, Austria and the Netherlands, among others.

At the end of 2009, this unit had 311 branches (as compared to 290 at the end of 2008) and 9,362 employees (direct and assigned) (as compared to 8,052 employees at the end of 2008), of which 569 employees were temporary.

In 2009, this unit generated €632 million in profit attributable to the Parent, a 9.2% decrease from 2008, while the ROE reached 9.0% (as compared to 17.0% in 2008).

The results differed from country to country. Of note was Germany, which generated the largest profits, whose contribution to the Group was 9% higher than in 2008 because of the new acquisitions and good management of revenues and costs, which offset the higher provisions in the new entities. Santander Consumer USA registered the largest rise in attributable profit (41.2% in dollars) and became the unit’s second largest contributor due to an increase in revenues as a result of new commercial agreements, better cost control and experience and agility in recoveries of past-due loans. The Nordic countries’ contribution to the Group increased 12% in euros, and the UK, after quickly integrating the unit acquired from GE, became profitable and the second largest independent auto finance company in the country. Of note among the other countries was the weak performance of Spain, affected by the sector’s deterioration, which led to large provisions and flat revenues that could not be offset by lower costs.

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At the end of 2009, total lending at this unit amounted to €57 billion (a 5.6% increase as compared to 2008). New lending was 4% less than in 2008 due to the consumer downturn in the countries where we operate, the rigorous admission processes and the need to balance organic growth and acquisition of portfolios. NPL grew to 5.4% in 2009 from 4.2% a year earlier.

Customer funds under management increased 8.3% during 2009. Of note was the solid rise in customer deposits, particularly in Germany (32%) and the contribution of new units.

Portugal

Our main Portuguese operations are conducted by Banco Santander Totta, S.A. (“Santander Totta”), and our Portuguese investment banking operations are conducted by Banco Santander de Negocios Portugal, S.A.

At the end of 2009, Portugal operated 763 branches (as compared to 770 branches at the end of 2008) and had 6,294 employees (direct and assigned) (as compared to 6,584 employees at the end of 2008), of which 163 employees were temporary.

In 2009, profit attributable to the Parent was €531 million, a 0.1% increase from 2008, while ROE was 25.4%, as compared to 27.0% in 2008.

Against a backdrop of a sharp slowdown in lending, particularly mortgages, Santander Totta maintained a selective underwriting policy while continuing to support the country’s business sector. Lending was almost flat (-0.9%), but was 9% higher to businesses and SMEs. NPL increased in 2009 to 2.3% from 1.7% a year earlier.

After rising strongly in the first half of the year, deposit growth slowed in the second half and closed the year with a reduction of 3.6% due to the pressure on spreads from strong competition. Mutual funds and savings insurance, on the other hand, grew 31% and 29%, respectively.

Others

The rest of our businesses in the Continental Europe segment (Banif, Asset Management, Insurance and Global Wholesale Banking) generated profit attributable to the Parent of €1,118 million, 33.1% more than in 2008. This increase was mainly due to the strong increase in revenues from Wholesale Banking spurred by net interest income as a result of the improvement in spreads and the good evolution of costs.

United Kingdom

As of December 31, 2009, the United Kingdom accounted for 30.8% of the Group’s total customer funds under management, 33.4% of total loans and credits and 16.7% of profit attributed to the Group of the Group’s main business areas.

Grupo Santander’s UK businesses include Abbey (since 2004), the deposits and branches of Bradford & Bingley (acquired in September 2008) and Alliance & Leicester (acquired in October 2008). They are referred to as Santander UK.

Santander UK is a significant financial services provider in the United Kingdom, being the country’s second largest residential mortgage lender and the third largest savings brand measured by outstanding balances. Santander UK also provides a wide range of retail savings accounts, and operates across the full range of personal financial services.

At the end of 2009, the Group had 1,322 branches and a total of 22,949 employees (direct and assigned) of which 473 employees were temporary, in the United Kingdom. Compared to 2008, there was a net increase of 19 branches and a decrease of 1,430 employees due mainly to the acquisitions described above.

For purposes of our financial statements and this annual report on Form 20-F, we have calculated Santander UK’s results of operations using the criteria described before in this annual report on Form 20-F. As a result, the data set forth herein may not coincide with the data published independently by Santander UK.

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In 2009, Santander UK contributed €1,726 million profit attributable to the Parent (a 38.4% increase from 2008) which represents 16.7% of the Group’s total operating areas. Loans and advances increased by 12.4% and customer funds under management increased 7.2% during the same period. ROE was 29.6% (as compared to 28.6% in 2008). NPL at the end of 2009 increased to 1.7% from 1.0% at the end of 2008.

In January 2010, we completed the rebranding of Abbey and Bradford & Bingley’s savings businesses to Santander, and our customers in the UK are already benefiting from the increased number of Santander branches (now around 1,000). In addition, we have extended the range of our value-for-money products and services available to customers of Bradford & Bingley’s savings business.

The integration of Alliance & Leicester is on track and we expect to complete the transfer of its branches and customers onto Santander’s IT system by the end of 2010, which will coincide with the rebranding of Alliance & Leicester to Santander. By the end of the year our customers in the UK will have access to approximately 1,300 branches.

Latin America

At December 31, 2009, we had 5,745 offices and 85,974 employees (direct and assigned) in Latin America (as compared to 6,089 offices and 96,405 employees, respectively, at December 31, 2008), of which 78 were temporary employees. On that date, Latin America accounted for 23.2% of the total customer funds under management, 14.3% of total loans and credits and 37.1% of profit attributed to the Group of the Group’s main business areas.

Profit attributable to the Parent from Latin America was €3,834 million in 2009, a 6.2% increase from 2008, while the ROE reached 23.7% (as compared to 24.6% in 2008).

Our Latin American banking business is principally conducted by the following banking subsidiaries:

	Percentage Held
	at December 31, 2009
Banco Santander (Brasil), S.A.		83.55
Banco Santander Chile		76.74
Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander		74.95
Banco Santander Río, S.A. (Argentina)		99.30
Banco Santander, S.A. (Uruguay)		100.00
Banco Santander Colombia, S.A.		97.85
Banco Santander Puerto Rico		90.59
Banco Santander Perú, S.A.		100.00

We engage in a full range of retail banking activities in Latin America, although the range of our activities varies from country to country. We seek to take advantage of whatever particular business opportunities local conditions present.

Our significant position in Latin America is attributable to our financial strength, high degree of diversification (by countries, businesses, products, etc.), and the breadth and depth of our franchise.

Detailed below are the performance highlights of the main Latin American countries in which we operate (1):

Brazil. Santander Brazil Group, made up by Banco Santander in Brazil and Banco Real, is the third largest private financial institution in this country as of December 31, 2009. Santander Brazil Group had 3,593 branches, 50,961 employees and 22.5 million individual customers.

In 2009, total lending declined 5%, although performance varied by market segment. Loans to individuals increased 11% while those to companies declined 4%. Of note by product was the 21% growth in lending via credit cards, the 33% rise in payroll checks paid into accounts and the 31% increase in mortgages (all percentages are based on values in local currency).

Savings rose 1% in 2009, with demand deposits and mutual funds up 14% and 12% respectively, while the balance of time deposits dropped 14% (all variations in local currency).

(1) When we indicate “variations in local currency”, we calculate the variation of the balance sheet data in the currency of the country that is being described, eliminating the effect of exchange rates from the local currency to euros.

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Profit attributable to the Parent from Brazil in 2009 was €2,167 million, a 22.5% increase when compared with 2008 (+27.1% in local currency). For 2009 ROE was 25.6% and at the end of 2009, the NPL ratio was 5.3% and the NPL coverage ratio was 99%.

Mexico. Banco Santander (Mexico), S.A., Institución de Banca Múltiple, Grupo Financiero Santander, is one of the leading financial services companies in Mexico.  It leads the third largest banking group in Mexico in terms of business volume. As of December 31, 2009, the Group had a network of 1,093 branches, 12,466 employees and 8.7 million customers in Mexico.

During 2009, lending declined 11%. Consumer credit and credit cards declined 30%, in line with the market and more demanding risk admission policies. Mortgages, on the other hand, increased 7%. Savings rose 6%, as the drop in time deposits balances was offset by the increase in demand deposits and the strong rise (19%) in mutual funds (all variations in local currency).

Profit attributable to the Parent from Mexico in 2009 decreased 17.6% to €495 million (-4.8% in local currency). For 2009, ROE was 18.4% and at the end of 2009, the NPL ratio was 1.8% and the NPL coverage ratio was 264%.

Chile. Banco Santander Chile is the principal component of the largest financial group in Chile in terms of the number of customers, business and results with substantial business in loans, deposits and mutual funds and pension funds. As of December 31, 2009, the Group had 498 branches, 11,751 employees and 3.2 million customers.

During 2009, lending declined 6%, due to the fall in commercial credit in line with the market’s situation. Consumer credit and credit cards, after several years of expansion, remained virtually unchanged and lending to SMEs was also stagnant. Loans to individuals increased 6% (market share of 24.4%) and mortgage lending grew 5%. Savings declined 3%, with a differing performance by products: demand deposits increased 24% and mutual funds increased 43% while time deposits fell 24%.(All variations in local currency).

Profit attributable to the Parent from Chile increased 3.4% in 2009 to €563 million (a 5.9% increase as compared to 2008, in local currency). For 2009, ROE was 32.3% and at the end of 2009, the NPL ratio was 3.2% and the NPL coverage ratio was 89%.

Argentina. Banco Santander Río S.A. is one of Argentina’s leading banks, with 298 branches, 5,780 employees and 2.0 million banking customers as of December 31, 2009.

The Group’s strategy in 2009 was focused on lifting the return on its business franchise, with greater importance attached to customer linkage and transaction banking, selective growth in lending and carefully managing the entire risk cycle. Compared to 2008, in 2009 lending increased 2%, savings increased 13%,deposits grew 15% (+32% demand deposits and +2% time deposits) and mutual funds increased 1% (all variations in local currency).

Banco Santander Río made a positive contribution to the Group’s earnings, with profit attributable to the Parent of €226 million in 2009, a 4.9% increase as compared to 2008 (a 16.9% increase in local currency). At the end of 2009, the NPL ratio was 2.6% and the NPL coverage ratio was 141%.

Uruguay. After the consolidation of the acquired ABN businesses, Santander became the largest non government-owned bank in the country in terms of profits (€51 million), number of branches (42) and business (market share of 17.0% in lending and 17.4% in savings). The Group in Uruguay has 815 employees and 0.3 million banking customers.

Profit attributable to the Parent in 2009 was €51 million and the NPL ratio was 0.6% as of December 31, 2009.

Colombia. As of December 31, 2009, Banco Santander Colombia, S.A. had 77 branches, 1,330 employees and 0.4 million banking customers.

The Group focused on credit risk management, selective growth in lending, preserving adequate levels of liquidity, strengthening transactional businesses and, in particular, containment of costs.

Profit attributable to the Parent from Colombia was €33 million in 2009, 23.9% higher than in 2008 (a 29.0% increase in local currency). At the end of 2009, the NPL ratio was 1.8% and the NPL coverage ratio was 188%.

35

Puerto Rico. Banco Santander Puerto Rico is among the three largest financial institutions in Puerto Rico in terms of lending, deposits and mutual funds. As of December 31, 2009, Banco Santander Puerto Rico had 130 branches, 1,809 employees and 0.5 million customers.

Profit attributable to the Parent from Puerto Rico in 2009 was €33 million, compared to a loss of €19 million obtained in 2008. At the end of 2009, the NPL ratio stood at 9.6% and the NPL coverage ratio was 53%.

Peru. As of December 31, 2009, Banco Santander Colombia, S.A. had 1 branch, 33 employees and 0.1 million banking customers. The activity is focused on companies and on attending the Group’s global customers.

Profit attributable to the Parent from Perú was €4 million in 2009, 394% higher than in 2008 (a 384% increase in local currency).

Sovereign

On January 30, 2009, Banco Santander completed the acquisition of the 75.65% of Sovereign that it did not already own, making it a fully-owned subsidiary of Grupo Santander. Sovereign improves Grupo Santander’s geographic diversification as it enables it to operate in the US and specifically in the Northeast, one of the most attractive and stable areas, which is less prone to cyclical changes and where six of the 26 largest US cities are located.

At December 31, 2009, Sovereign had 722 branches, 2,359 ATMs, 8,847 employees and 1.7 million clients. On that date, Sovereign accounted for 5.6% of the total customer funds under management, and 5.1% of total loans and credits.

For purposes of our financial statements and this annual report on Form 20-F, we have calculated Sovereign’s results of operations using the criteria described before in this annual report on Form 20-F. As a result, the data set forth herein may not coincide with the data published independently by Sovereign.

In 2009, Sovereign contributed €25 million loss attributable to the Parent which represents - -0.2% of the Group’s total operating areas profit. Loans and advances were €34.6 billion and customer funds under management €44.6 billion. Non-performing loans at the end of 2009 were 5.3% and NPL coverage was 62%.

The priorities for Sovereign in 2010 are to complete the restructuring and integration plan and continue to implement the Santander model both in operations, technology and systems as well as in the commercial sphere, while maintaining strict management of risk.

Second (or business) level:

Retail Banking

The Group’s Retail Banking business generated 85% of the operating areas’ total income in 2009 and 69% of profit attributable to the Parent. In 2009, Retail Banking generated total income of €34,828 million, 32.4% higher than in 2008. Profit attributable to the Parent by Retail Banking was €7,159 million, 2.1% lower than in 2008. The year-on-year variations were positively impacted by the change in the scope of consolidation and negatively by the reduced volume of activity, the big increase in net loan-loss provisions and the impact of exchange rate fluctuations. This segment had 163,184 employees at the end of 2009.

Retail Banking in Continental Europe increased its net interest income by 23.3% and total income 12.1% while attributable profit decreased by 3.7%. The main drivers were moderate business volumes, good management of spreads in an environment of lower interest rates and control of costs (flat on a like-for-like basis).

The profit of Retail Banking in the United Kingdom was 34.0% higher, due to the good performance of Santander UK and the consolidation of Alliance & Leicester and Bradford & Bingley. The drivers were the same as for other units: higher revenues spurred by net interest income, lower growth in costs and higher loan-loss provisions.

The results of Retail Banking in Latin America were driven by growth in customer business, the good performance of net interest income given the region’s environment of lower economic growth, control of expenses compatible with our business development efforts and savings from synergies in Brazil. Net interest income rose 54.3%, total income was 37.8% higher and operating expenses grew 32.9% compared to 2008.

36

Global Private Banking includes institutions that specialize in financial advisory and asset management for high income clients (Banif in Spain, Santander Private Banking UK and Abbey International in the UK and Santander Private Banking in Latin America and Italy), as well as the units of domestic private banking in Portugal and Latin America, jointly managed with local retail banks. Allfunds Bank, a leading bank specialized in multi-brand distribution of investment funds to clients, is present in Spain, Italy, the UK and Latin America.

Private banking activity was lower in the first half of 2009 because of the developments in the second half of 2008. Total income declined 6.9%, due to the reduction in average volumes managed and the shift in customer preferences towards a more conservative mix of products. This was mitigated to some extent by the 9.9% decline in personnel and general administrative costs. Attributable profit was 1.6% higher at €330 million.

Global Wholesale Banking

This area covers our corporate banking, treasury and investment banking activities throughout the world.

This segment, managed by Santander Global Banking & Markets, contributed 12% of the operating areas’ total income and 27% of profit attributable to the Parent in 2009. Profit attributable to the Parent in 2009 by Global Wholesale Banking amounted to €2,765 million, a 58.8% increase from 2008. This segment had 2,898 employees as of December 31, 2009.

This performance was backed by a customer-focused business model, the area’s global reach and its connection with local units, and strict control of expenses and risks. Another important factor was the strength of the Group’s capital and liquidity positions which, within rigorous control of both variables, enabled us to maintain a high level of unrestricted activity and take on new operations.

The business model and the strong balance sheet were combined with a more favorable environment, higher spreads and volatility than in 2008 and many competitors focused on other aspects of their businesses. All of this enabled Santander to penetrate attractive business segments profitably and occupy spaces left by others without increasing risk levels.

The growth rates were achieved with strict management of volumes and risks. The area’s risk weighted asset levels at the end of 2009 were lower than in 2008.

Santander is present in global transaction banking (which includes cash management, trade finance and basic financing), in corporate finance (comprising mergers and acquisitions and asset and capital structuring), in credit markets (which include origination activities, risk management, distribution of structured products and debt), in rates (comprised of structuring and trading activities in financial markets of interest rate and exchange rate instruments) and in global equities (activities relating to the equity markets).

Asset Management and Insurance

This segment comprises all of our companies whose activity is the management of mutual and pension funds and insurance. At December 31, 2009, this segment accounted for 2.5% of total income and 3.9% of profit attributable to the Parent. Profit attributable to the Parent by Asset Management and Insurance was €404 million in 2009 or 14.2% lower than in 2008. This segment had 1,558 employees at the end of 2009.

Asset Management

Santander Asset Management generated total revenues of €1,178 million, 23.6% lower because of the preference for liquidity and deposits by financial agents and the impact of the market on portfolios, which led to lower average volumes under management as well as changes in their composition (more conservative and lower return).

Of note, however, was the trend of stabilization in revenues as of the second quarter, in contrast to the double digit falls at the end of 2008 and the start of 2009. This was due to the gradual recovery of mutual fund markets, first in Latin America and later spreading to Europe, which improved volumes.

Total managed assets stood at €116,500 million at the end of 2009, 15% more than a year earlier but still 6% below the average volume of 2008.

37

Attributable profit was €54 million, a 65.9% decrease from 2008, after deducting operating expenses and fees paid to the commercial networks (16.9 percentage points of the decrease resulted from structural adjustments).

Insurance

Santander Insurance generated attributable profit of €350 million, 12.2% more than in 2008. Higher net interest income and insurance activity, coupled with lower operating expenses, offset lower net fee income.

Total fees and commission income was €1,861 million in 2009, 6.0% higher as compared to 2008.

Santander Insurance continued to progress in its global business model and foster the development of new products via its distribution channels. It also consolidated its position with the acquisition of 50% of the insurer Real Tokio Marine Vida e Previdencia in Brazil and the integration of the insurance businesses of Alliance & Leicester, GE Money and Sovereign.

Premium income was 14% lower than in 2008, eroded by the Group’s reduced lending (which affected insurance products related to credits) and customers’ greater preference for liquidity, which reduced the demand for savings insurance.

Corporate Activities

At the end of 2009, this area had 1,820 employees (direct and assigned) (as compared to 1,710 employees at the end of 2008), of which 253 were temporary.

This area is responsible for a series of centralized activities and acts as the Group’s holding entity, managing all capital and reserves and assigning capital and liquidity to the other businesses. The cost of liquidity, via the transfer of funds to various businesses, is done at the short-term market rate.

The area had a loss of €1,385 million in 2009 due to the following:

• Dividends dropped from €229 million to €121 million, including those from the stakes in RBS and Fortis.

• Operating expenses increased by €177 million, mainly because of higher general expenses which were partly offset by lower amortizations. The sale of buildings and of Grupo Santander City in Spain meant greater spending on rentals and lower amortizations.

• Income accounted for by the equity method was €96 million in 2008 compared to a loss of €15 million in 2009. The difference was largely due to the sale of the stake in Cepsa.

With respect to the area’s sub segments:

• Equity Stakes: this sub-segment centralizes the management of equity stakes in financial and industrial companies.

In 2008 and 2009, the Equity Stakes line recorded a sharp fall to almost zero because of the full consolidation of Banco Real and Sovereign and the exit from CEPSA, all of which were previously accounted for in this sub-segment.

• Financial Management: this sub-segment carries out the global functions of managing the structural exchange rate position, the structural interest rate risk and the liquidity risk. The latter is conducted through issues and securitizations. It also manages the Group’s shareholders’ equity.

This sub-segment includes the cost of hedging the capital of the Group’s non-euro denominated subsidiaries, in the face of exchange-rate fluctuations. With respect to the book value, the current policy is aimed at covering the excess capital of each subsidiary on 7% of their risk weighted assets, either through direct term positions in most cases or through a strategy of option “tunnels” that limit the losses in scenarios of significant currency depreciation.

The year’s results in currencies other than the euro are also hedged, using in each case the aforementioned strategies. In 2008 and 2009, the main units with exchange-rate risk remained hedged.

38

The results of interest rate risk management, which is actively conducted by taking positions in the market, are also reflected. This management seeks to cushion the impact of changes in market interest rates on the bank’s net interest income and value, and is done via bonds and derivatives of high credit quality, high liquidity and low capital consumption.

With respect to liquidity risk, liquidity needs are below those in previous years, because in the current environment of decreased leverage, and in light of retail deposit growth outpacing that of loans, there was less need for recourse to the medium and long-term debt markets.

This sub-segment also manages shareholders’ equity, the allocation of capital to each business unit, and the cost of financing investments. As a result, the sub-segment contribution to earnings is usually negative.

Total Revenues by Activity and Geographic Location

For a breakdown of our total revenues by category of activity and geographic market, please see Note 52 to our consolidated financial statements.

Selected Statistical Information

The following tables show our selected statistical information.

Average Balance Sheets and Interest Rates

The following tables show, by domicile of customer, our average balances and interest rates for each of the past three years.

You should read the following tables and the tables included under “—Changes in Net Interest Income—Volume and Rate Analysis” and “—Assets—Earning Assets—Yield Spread” in conjunction with the following:

• We have included interest received on non-accruing assets in interest income only if we received such interest during the period in which it was due;

• We have included loan fees in interest income;

• We have not recalculated tax-exempt income on a tax-equivalent basis because the effect of doing so would not be significant;

• We have included income and expenses from interest-rate hedging transactions as a separate line item under interest income and expenses if these transactions qualify for hedge accounting under IFRS. If these transactions did not qualify for such treatment, we have included income and expenses on these transactions elsewhere in our income statement. See Note 2 to our consolidated financial statements for a discussion of our accounting policies for hedging activities;

• We have stated average balances on a gross basis, before netting our allowances for credit losses, except for the total average asset figures, which includes such netting; and

• All average data have been calculated using month-end balances, which is not significantly different from having used daily averages.

As stated above under “Presentation of Financial Information”, we have prepared our financial statements for 2005, 2006, 2007, 2008 and 2009 under IFRS.

39

Average Balance Sheet—Assets and Interest Income

	2009							2008							2007
ASSETS	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(in thousand of euros, except percentages)
Cash and due from central banks
Domestic		7,916,042		86,918		1.10	%		7,629,805		242,954		3.18	%		3,502,564		123,432		3.52	%
International		25,933,209		268,921		1.04	%		21,224,830		514,997		2.43	%		14,745,386		415,071		2.81	%
		33,849,251		355,839		1.05	%		28,854,635		757,951		2.63	%		18,247,950		538,503		2.95	%
Due from credit entities
Domestic		20,934,738		366,521		1.75	%		14,858,817		726,287		4.89	%		10,040,530		574,735		5.72	%
International		58,290,277		2,155,515		3.70	%		61,173,074		3,095,167		5.06	%		59,125,638		2,265,509		3.83	%
		79,225,015		2,522,036		3.18	%		76,031,891		3,821,454		5.03	%		69,166,168		2,840,244		4.11	%
Loans and credits
Domestic		230,641,779		10,297,581		4.46	%		235,002,141		13,968,547		5.94	%		215,521,349		11,437,122		5.31	%
International		436,857,260		31,784,344		7.28	%		340,938,627		27,397,524		8.04	%		330,253,241		23,144,396		7.01	%
		667,499,039		42,081,925		6.30	%		575,940,768		41,366,071		7.18	%		545,774,590		34,581,518		6.34	%
Debt securities
Domestic		40,146,418		1,157,953		2.88	%		24,948,203		951,353		3.81	%		20,222,647		747,248		3.70	%
International		92,776,382		4,428,624		4.77	%		73,645,946		3,555,521		4.83	%		91,880,249		3,259,557		3.55	%
		132,922,800		5,586,577		4.20	%		98,594,149		4,506,874		4.57	%		112,102,896		4,006,805		3.57	%
Income from hedging operations
Domestic				304,669							695,086							580,530
International				586,600							2,548,537							2,010,890
				891,269							3,243,623							2,591,420
Other interest-earning assets
Domestic		29,389,475		609,652		2.07	%		23,577,214		618,246		2.62	%		29,729,778		692,339		2.33	%
International		60,208,919		1,125,706		1.87	%		41,486,705		729,327		1.76	%		18,454,627		261,428		1.42	%
		89,598,394		1,735,358		1.94	%		65,063,919		1,347,573		2.07	%		48,184,405		953,767		1.98	%
Total interest-earning assets
Domestic		329,028,452		12,823,294		3.90	%		306,016,180		17,202,473		5.62	%		279,016,868		14,155,406		5.07	%
International		674,066,047		40,349,710		5.99	%		538,469,182		37,841,073		7.03	%		514,459,141		31,356,851		6.10	%
		1,003,094,499		53,173,004		5.30	%		844,485,362		55,043,546		6.52	%		793,476,009		45,512,257		5.74	%
Investments in affiliated companies
Domestic		152,893		—		0.00	%		2,576,136		—		0.00	%		2,547,829		—		0.00	%
International		708,988		—		0.00	%		10,044,991		—		0.00	%		6,194,828		—		0.00	%
		861,881		—		0.00	%		12,621,127		—		0.00	%		8,742,657		—		0.00	%
Total earning assets
Domestic		329,181,345		12,823,294		3.90	%		308,592,316		17,202,473		5.57	%		281,564,697		14,155,406		5.03	%
International		674,775,035		40,349,710		5.98	%		548,514,173		37,841,073		6.90	%		520,653,969		31,356,851		6.02	%
		1,003,956,380		53,173,004		5.30	%		857,106,489		55,043,546		6.42	%		802,218,666		45,512,257		5.67	%
Other assets		90,198,410							75,975,026							70,466,632
Assets from discontinued operations		4,980,696							8,024,216							4,996,980
Total average assets		1,099,135,486		53,173,004					941,105,731		55,043,546					877,682,278		45,512,257

40

Average Balance Sheet—Liabilities and Interest Expense

	Year Ended December 31,
	2009								2008							2007
LIABILITIES AND STOCKHOLDERS EQUITY	Average Balance		Interest			Average Rate			Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(in thousands of euros, except percentages)
Due to credit entities
Domestic		21,713,054		424,084			1.95	%		18,468,695		830,324		4.50	%		16,252,861		713,579		4.39	%
International		120,217,372		2,861,280			2.38	%		95,892,266		2,858,266		2.98	%		95,716,945		3,140,863		3.28	%
		141,930,426		3,285,364			2.31	%		114,360,961		3,688,590		3.23	%		111,969,806		3,854,442		3.44	%
Customers deposits
Domestic		130,580,883		2,694,867			2.06	%		119,381,247		3,830,610		3.21	%		111,160,325		2,974,509		2.68	%
International		333,021,416		9,115,847			2.74	%		234,812,668		11,169,783		4.76	%		221,517,887		9,097,691		4.11	%
		463,602,299		11,810,714			2.55	%		354,193,915		15,000,393		4.24	%		332,678,212		12,072,200		3.63	%
Marketable debt securities
Domestic		125,931,287		3,598,181			2.86	%		145,061,770		6,487,367		4.47	%		119,274,612		5,231,367		4.39	%
International		95,298,804		2,638,566			2.77	%		92,762,877		4,330,281		4.67	%		108,172,479		4,120,238		3.81	%
		221,230,091		6,236,747			2.82	%		237,824,647		10,817,648		4.55	%		227,447,091		9,351,605		4.11	%
Subordinated debt
Domestic		21,704,442		1,028,748			4.74	%		20,532,672		1,111,241		5.41	%		16,649,935		846,949		5.09	%
International		17,304,105		1,325,301			7.66	%		15,724,436		1,303,801		8.29	%		16,862,344		1,253,049		7.43	%
		39,008,547		2,354,049			6.03	%		36,257,108		2,415,042		6.66	%		33,512,279		2,099,998		6.27	%
Other interest-bearing liabilities
Domestic		37,347,808		1,128,882			3.02	%		36,605,703		876,041		2.39	%		28,510,083		1,001,797		3.51	%
International		70,461,483		1,241,760			1.76	%		52,981,507		573,773		1.08	%		47,882,027		197,244		0.41	%
		107,809,291		2,370,642			2.20	%		89,587,210		1,449,814		1.62	%		76,392,110		1,199,041		1.57	%
Expenses from hedging operations
Domestic				(622,758	)							1,402,069							480,014
International				1,439,704								2,731,528							2,012,186
				816,946								4,133,597							2,492,200
Total interest-bearing liabilities
Domestic		337,277,474		8,252,004			2.45	%		340,050,087		14,537,652		4.28	%		291,847,816		11,248,215		3.85	%
International		636,303,180		18,622,458			2.93	%		492,173,754		22,967,432		4.67	%		490,151,682		19,821,271		4.04	%
		973,580,654		26,874,462			2.76	%		832,223,841		37,505,084		4.51	%		781,999,498		31,069,486		3.97	%
Other liabilities		54,382,807								44,784,845							41,501,911
Minority interest		3,191,835								2,432,563							2,239,676
Stockholders’ Equity		63,393,172								54,149,565							47,147,854
Liabilities from discontinued operations		4,587,018								7,514,918							4,793,339
Total average Liabilities and Stockholders’ Equity		1,099,135,486		26,874,462						941,105,732		37,505,084					877,682,278		31,069,486

41

Changes in Net Interest Income—Volume and Rate Analysis

The following tables allocate, by domicile of customer, changes in our net interest income between changes in average volume and changes in average rate for 2009 compared to 2008 and 2008 compared to 2007. We have calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. You should read the following tables and the footnotes thereto in light of our observations noted in the preceding sub-section entitled “—Average Balance Sheets and Interest Rates”, and the footnotes thereto.

Volume and rate analysis

	IFRS-IASB
	2009/2008
	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in thousands of euros)
Interest income
Cash and due from central banks
Domestic		2,664			(158,700	)		(156,036	)
International		48,949			(295,025	)		(246,076	)
		51,613			(453,725	)		(402,112	)
Due from credit entities
Domestic		106,801			(466,567	)		(359,766	)
International		(107,698	)		(831,954	)		(939,652	)
		(897	)		(1,298,521	)		(1,299,418	)
Loans and credits
Domestic		(192,934	)		(3,478,032	)		(3,670,966	)
International		6,977,954			(2,591,134	)		4,386,820
		6,785,020			(6,069,166	)		715,854
Debt securities
Domestic		438,618			(232,018	)		206,600
International		917,291			(44,188	)		873,103
		1,355,909			(276,206	)		1,079,703
Other interest-earning assets
Domestic		121,081			(129,675	)		(8,594	)
International		350,744			45,635			396,379
		471,825			(84,040	)		387,785
Total interest-earning assets without hedging operations
Domestic		476,230			(4,464,992	)		(3,988,762	)
International		8,187,240			(3,716,666	)		4,470,574
		8,663,470			(8,181,658	)		481,812
Income from hedging operations
Domestic		(390,417	)		—			(390,417	)
International		(1,961,937	)		—			(1,961,937	)
		(2,352,354	)		—			(2,352,354	)
Total interest-earning assets
Domestic		85,813			(4,464,992	)		(4,379,179	)
International		6,225,303			(3,716,666	)		2,508,637
		6,311,116			(8,181,658	)		(1,870,542	)

42

Volume and rate analysis

	IFRS-IASB
	2008/2007
	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in thousands of euros)
Interest income
Cash and due from central banks
Domestic		131,431			(11,909	)		119,522
International		155,958			(56,032	)		99,926
		287,389			(67,941	)		219,448
Due from credit entities
Domestic		234,888			(83,336	)		151,552
International		102,413			727,245			829,658
		337,301			643,909			981,210
Loans and credits
Domestic		1,173,641			1,357,784			2,531,425
International		851,520			3,401,608			4,253,128
		2,025,161			4,759,392			6,784,553
Debt securities
Domestic		181,860			22,245			204,105
International		(880,103	)		1,176,067			295,964
		(698,243	)		1,198,312			500,069
Other interest-earning assets
Domestic		(160,309	)		86,216			(74,093	)
International		405,153			62,746			467,899
		244,844			148,962			393,806
Total interest-earning assets without hedging operations
Domestic		1,561,511			1,371,000			2,932,511
International		634,941			5,311,634			5,946,575
		2,196,452			6,682,634			8,879,086
Income from hedging operations
Domestic		114,556			—			114,556
International		537,647			—			537,647
		652,203			—			652,203
Total interest-earning assets
Domestic		1,676,067			1,371,000			3,047,067
International		1,172,588			5,311,634			6,484,222
		2,848,655			6,682,634			9,531,289

43

Volume and rate analysis

	IFRS-IASB
	2009/2008
	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in thousands of euros)
Interest charges
Due to credit entities
Domestic		64,712			(470,952	)		(406,240	)
International		578,368			(575,354	)		3,014
		643,080			(1,046,306	)		(403,226	)
Customers deposits
Domestic		237,141			(1,372,884	)		(1,135,743	)
International		2,689,280			(4,743,216	)		(2,053,936	)
		2,926,421			(6,116,100	)		(3,189,679	)
Marketable debt securities
Domestic		(553,692	)		(2,335,494	)		(2,889,186	)
International		70,780			(1,762,495	)		(1,691,715	)
		(482,912	)		(4,097,989	)		(4,580,901	)
Subordinated debt
Domestic		55,076			(137,569	)		(82,493	)
International		120,564			(99,064	)		21,500
		175,640			(236,633	)		(60,993	)
Other interest-bearing liabilities
Domestic		22,225			230,616			252,841
International		307,713			360,274			667,987
		329,938			590,890			920,828
Total interest-bearing liabilities without hedging operations
Domestic		(174,538	)		(4,086,283	)		(4,260,821	)
International		3,766,705			(6,819,855	)		(3,053,150	)
		3,592,167			(10,906,138	)		(7,313,971	)
Expenses from hedging operations
Domestic		(2,024,827	)		—			(2,024,827	)
International		(1,291,824	)		—			(1,291,824	)
		(3,316,651	)		—			(3,316,651	)
Total interest-bearing liabilities
Domestic		(2,199,365	)		(4,086,283	)		(6,285,648	)
International		2,474,881			(6,819,855	)		(4,344,974	)
		275,516			(10,906,138	)		(10,630,622	)

44

	IFRS-IASB
	2008/2007
	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in thousands of euros)
Interest charges
Due to credit entities
Domestic		98,867			17,878			116,745
International		4,554			(287,151	)		(282,597	)
		103,421			(269,273	)		(165,852	)
Customers deposits
Domestic		266,951			589,150			856,101
International		632,226			1,439,866			2,072,092
		899,177			2,029,016			2,928,193
Marketable debt securities
Domestic		1,160,580			95,420			1,256,000
International		(720,240	)		930,283			210,043
		440,340			1,025,703			1,466,043
Subordinated debt
Domestic		211,012			53,280			264,292
International		(94,264	)		145,016			50,752
		116,748			198,296			315,044
Other interest-bearing liabilities
Domestic		193,557			(319,313	)		(125,756	)
International		55,719			320,810			376,529
		249,276			1,497			250,773
Total interest-bearing liabilities without hedging operations
Domestic		1,930,967			436,415			2,367,382
International		(122,005	)		2,548,824			2,426,819
		1,808,962			2,985,239			4,794,201
Expenses from hedging operations
Domestic		922,055			—			922,055
International		719,342			—			719,342
		1,641,397			—			1,641,397
Total interest-bearing liabilities
Domestic		2,853,022			436,415			3,289,437
International		597,337			2,548,824			3,146,161
		3,450,359			2,985,239			6,435,598

45

Assets

Earning Assets—Yield Spread

The following table analyzes, by domicile of customer, our average earning assets, interest income and dividends on equity securities and net interest income and shows gross yields, net yields and yield spread for each of the years indicated. You should read this table and the footnotes thereto in light of our observations noted in the preceding sub-section entitled “—Average Balance Sheets and Interest Rates”, and the footnotes thereto.

Earning Assets — Yield Spread

	IFRS-IASB
	Year Ended December 31,
	2009			2008			2007
	(in thousands of euros, except percentages)
Average earning assets
Domestic		329,181,345			308,592,316			281,564,697
International		674,775,035			548,514,173			520,653,969
		1,003,956,380			857,106,489			802,218,666
Interest
Domestic		12,823,294			17,202,473			14,155,406
International		40,349,710			37,841,073			31,356,851
		53,173,004			55,043,546			45,512,257
Net interest income
Domestic		4,571,290			2,664,821			2,907,192
International		21,727,252			14,873,641			11,535,580
		26,298,542			17,538,462			14,442,772
Gross yield (1)
Domestic		3.90	%		5.57	%		5.03	%
International		5.98	%		6.90	%		6.02	%
		5.30	%		6.42	%		5.67	%
Net yield (2)
Domestic		1.39	%		0.86	%		1.03	%
International		3.22	%		2.71	%		2.22	%
		2.62	%		2.05	%		1.80	%
Yield spread (3)
Domestic		1.45	%		1.29	%		1.18	%
International		3.05	%		2.23	%		1.98	%
		2.54	%		1.91	%		1.70	%

(1)	Gross yield is the quotient of interest on equity securities divided by average earning assets.
(2)	Net yield is the quotient of net interest income divided by average earning assets.
(3)	Yield spread is the difference between gross yield on earning assets and the average cost of interest-bearing liabilities. For a discussion of the changes in yield spread over the periods presented, see “Item 5. Operating and Financial Review and Prospects—A. Operating results—Results of Operations for Santander—Interest Income / (Charges)”.

46

Return on Equity and Assets

The following table presents our selected financial ratios for the years indicated.

	Year Ended December 31,
	2009			2008			2007
ROA: Return on average total assets		0.86	%		1.00	%		1.10	%
ROE: Return on average stockholders’ equity		13.90	%		17.07	%		21.91	%
PAY-OUT: Dividends per average share as a percentage of net attributable income per average share		55.00	%		54.21	%		44.92	%
Average stockholders’ equity as a percentage of average total assets		5.85	%		5.55	%		4.71	%

Interest-Earning Assets

The following table shows, by domicile of customer, the percentage mix of our average interest-earning assets for the years indicated. You should read this table in light of our observations noted in the preceding sub-section entitled “—Average Balance Sheets and Interest Rates”, and the footnotes thereto.

Interest-earning assets

	IFRS-IASB
	Year Ended December 31,
	2009			2008			2007
Cash and due from Central Banks
Domestic		0.79	%		0.92	%		0.43	%
International		2.59	%		2.51	%		1.86	%
		3.38	%		3.43	%		2.29	%
Due from credit entities
Domestic		2.09	%		1.76	%		1.27	%
International		5.81	%		7.24	%		7.45	%
		7.90	%		9.00	%		8.72	%
Loans and credits
Domestic		22.99	%		27.83	%		27.16	%
International		43.55	%		40.37	%		41.62	%
		66.54	%		68.20	%		68.78	%
Debt securities
Domestic		4.00	%		2.95	%		2.55	%
International		9.25	%		8.72	%		11.58	%
		13.25	%		11.67	%		14.13	%
Other interest-earning assets
Domestic		2.93	%		2.79	%		3.75	%
International		6.00	%		4.91	%		2.33	%
		8.93	%		7.70	%		6.08	%
Total interest-earning assets
Domestic		32.80	%		36.25	%		35.16	%
International		67.20	%		63.75	%		64.84	%
		100.00	%		100.00	%		100.00	%

47

Loans and Advances to Credit Institutions

The Group’s financial information included in this annual report on Form 20-F has been prepared since 2008 under IFRS-IASB. In prior years, it was prepared according to the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. The financial information disclosed in this section of our annual report under IFRS-IASB, only differs from the financial information previously presented under EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 for 2005, since the differences are not material for subsequent periods. See “Item 3. Key information – A. Selected Financial Data” in our 2008 Form 20-F for additional information.

The following tables show our short-term funds deposited with other banks at each of the dates indicated.

	IFRS-IASB
	At December 31,
	2009			2008			2007			2006			2005
	(in thousands of euros)
Reciprocal accounts		712,503			663,230			417,438			503,299			345,104
Time deposits		21,382,542			25,455,903			13,569,362			16,842,601			21,962,477
Reverse repurchase agreements		29,489,895			18,568,747			30,276,080			37,010,008			33,634,326
Other accounts		28,251,667			34,104,397			13,379,724			15,401,148			10,185,136
		79,836,607			78,792,277			57,642,604			69,757,056			66,127,043
Of which Impairment allowances		(25,536	)		(253,567	)		(18,487	)		(12,727	)		(36,046	)

Investment Securities

At December 31, 2009, the book value of our investment securities was €174.0 billion (representing 15.7% of our total assets). These investment securities had a yield of 3.94% in 2009, compared with a yield of 4.31% in 2008, and a yield of 3.29% in 2007. Approximately €37.8 billion, or 21.7%, of our investment securities at December 31, 2009 consisted of Spanish Government and government agency securities. For a discussion of how we value our investment securities, see Note 2 to our consolidated financial statements.

48

The following tables show the book values of our investment securities by type and domicile of counterparty at each of the dates indicated.

	IFRS-IASB
	At December 31,
	2009			2008			2007
	(in thousands of euros)
Debt securities
Domestic-
Spanish Government		37,770,101			20,267,964			14,471,176
Other domestic issuer:
Public authorities		542,577			231,529			904,382
Other domestic issuer		8,124,835			9,076,564			9,988,780
Total domestic		46,437,513			29,576,057			25,364,338
International-
United States:
U.S. Treasury and other U.S. Government agencies		1,183,550			881,579			1,870,152
States and political subdivisions		1,714,940			1,260,494			281,453
Other securities		12,964,869			6,155,609			9,717,624
Total United States		15,863,359			8,297,682			11,869,229
Other:
Governments		41,108,209			20,990,003			19,465,853
Other securities		48,292,040			50,567,953			52,650,983
Total Other		89,400,249			71,557,956			72,116,836
Total International		105,263,608			79,855,638			83,986,065
Less- Allowance for credit losses		(166,722	)		(181,178	)		(91,753	)
Less- Price fluctuation allowance		—			—			—
Total Debt Securities		151,534,399			109,250,517			109,258,650
Equity securities
Domestic		6,070,228			4,447,197			8,283,198
International-
United States		1,489,681			938,265			1,629,755
Other		14,896,610			10,046,522			12,874,902
Total international		16,386,291			10,984,787			14,504,658
Less- Price fluctuation allowance		—			(9,159	)		(11,238	)
Total Equity Securities		22,456,519			15,422,825			22,776,618
Total Investment Securities		173,990,918			124,673,342			132,035,268

49

The following table analyzes the aggregate book value and aggregate market value of the securities of single issuers, other than the Government of the United States, which exceeded 10% of our stockholders’ equity as of December 31, 2009 (and other debt securities with aggregate values near to 10% of our stockholders’ equity).

	Aggregate as of December 31, 2009
	Book value		Market value
	(in thousands of euros)
Debt securities:
Exceed 10% of stockholders’ equity:
Spanish Government		38,312,678		38,312,678
Near 10% of stockholders’ equity:
Telefónica		4,940,425		4,940,425
República Federal do Brasil		4,621,989		4,621,989
ACS — Dragados		4,295,266		4,295,266

The following table analyzes the maturities and weighted average yields of our debt investment securities (before impairment allowances) at December 31, 2009. Yields on tax-exempt obligations have not been calculated on a tax-equivalent basis because we do not believe the effect of such a calculation would be material.

	At December 31, 2009
			Maturing		Maturing
	Maturing		Between		Between		Maturing
	Within		1 and		5 and		After
	1 Year		5 Years		10 Years		10 Years		Total
	(in thousands of euros)
DEBT SECURITIES
Domestic:
Spanish Government		8,761,922		14,342,993		10,814,302		3,850,884		37,770,101
Other domestic issuer:
Public authorities		4,588		155,103		270,547		112,339		542,577
Other domestic issuer		1,134,551		3,502,215		961,475		2,526,594		8,124,835
Total domestic		9,901,061		18,000,311		12,046,324		6,489,817		46,437,513
International:
United States:
U.S. Treasury and other U.S. Government agencies		546,799		337,297		269,200		30,253		1,183,550
States and political subdivisions		77,104		113,801		112,804		1,411,231		1,714,940
Other securities		2,265,756		5,228,793		2,969,823		2,500,498		12,964,869
Total United States		2,889,659		5,679,891		3,351,827		3,941,982		15,863,359
Other:
Governments		12,868,462		23,589,516		2,504,733		2,145,498		41,108,209
Other securities		13,401,128		22,901,979		4,029,869		7,959,064		48,292,040
Total Other		26,269,590		46,491,495		6,534,602		10,104,562		89,400,249
Total International		29,159,249		52,171,386		9,886,429		14,046,544		105,263,608
Total debt investment securities		39,060,310		70,171,697		21,932,753		20,536,361		151,701,121

50

Loan Portfolio

At December 31, 2009, our total loans and advances to customers equaled €700.4 billion (63.1% of our total assets). Net of allowances for credit losses, loans and advances to customers equaled €682.6 billion at December 31, 2009 (61.4% of our total assets). In addition to loans, we had outstanding at December 31, 2005, 2006, 2007, 2008 and 2009 €77.7 billion, €91.7 billion, €102.2 billion, €123.3 billion and €150.6 billion, respectively, of undrawn balances available to third parties.

Loans by Geographic Area and Type of Customer

The following tables analyze our loans and advances to customers (including securities purchased under agreement to resell), by domicile and type of customer, at each of the dates indicated.

	IFRS-IASB
	At December 31,
	2009			2008			2007			2006			2005
	(in thousands of euros)
Borrowers in Spain:
Spanish Government		9,802,511			7,668,408			5,633,422			5,328,526			5,242,938
Commercial, financial, agricultural and industrial		70,136,946			56,289,775			45,169,824			71,412,545			54,799,113
Real estate and construction		42,514,809			48,098,886			46,837,281			12,391,306			7,834,447
Other mortgages		68,865,914			59,784,116			59,268,463			81,718,186			65,940,697
Installment loans to individuals		20,070,626			21,505,725			21,533,074			20,058,666			14,343,281
Lease financing		7,533,857			9,252,949			9,643,516			8,668,599			7,276,200
Other		11,420,172			37,647,241			49,995,313			9,357,884			5,388,149
Total		230,344,835			240,247,100			238,080,893			208,935,712			160,824,825
Borrowers outside Spain (*):
Governments		2,860,902			3,029,373			2,295,763			4,969,713			6,608,103
Commercial and industrial		174,763,552			127,838,494			143,045,869			128,438,265			108,145,797
Mortgage loans		249,065,126			201,112,142			179,163,680			177,631,731			161,147,496
Other		43,389,607			67,127,381			17,207,512			15,223,537			9,993,396
Total		470,079,187			399,107,390			341,712,824			326,263,246			285,894,792
Total loans and leases, gross		700,424,022			639,354,490			579,793,717			535,198,958			446,719,617
Allowance for possible loan losses (**)		(17,873,096	)		(12,466,055	)		(8,695,204	)		(8,163,444	)		(6,755,175	)
Loans and leases, net of allowances		682,550,926			626,888,435			571,098,513			527,035,514			439,964,442

(*)	Credit of any nature in the name of credit institutions is included in the “Loans and advances to credit institutions” caption of our balance sheet.
(**)	Refers to loan losses of “Loans and Advances to customers”, excluding balances to credit institutions. See “Item 3. Key information — A. Selected Financial Data”.

At December 31, 2009, our loans and advances to associated companies and jointly controlled entities amounted to €149 million (see “Item 7. Major Shareholders and Related Party Transactions—B. Related party transactions”). Excluding government-related loans and advances, the largest outstanding exposure to a single counterparty at December 31, 2009 was €2.9 billion (0.4% of total loans and advances, including government-related loans), and the five next largest exposures totaled €11.2 billion (1.6% of total loans, including government-related loans).

51

Maturity

The following table sets forth an analysis by maturity of our loans and advances to customers by domicile and type of customer at December 31, 2009.

	Maturity
	Less than					One to five					Over five
	one year					years					years					Total
	Balance		% of Total			Balance		% of Total			Balance		% of Total			Balance		% of Total
	(in thousands of euros, except percentages)
Loans to borrowers in Spain:
Spanish Government		3,520,801		2.08	%		1,812,281		1.10	%		4,469,429		1.22	%		9,802,511		1.40	%
Commercial, financial, agriculture and industrial		32,292,736		19.12	%		21,750,921		13.22	%		16,093,289		4.39	%		70,136,946		10.01	%
Real estate and construction		1,628,732		0.96	%		3,728,295		2.27	%		37,157,782		10.12	%		42,514,809		6.07	%
Other mortgages		3,403,341		2.01	%		6,723,164		4.09	%		58,739,409		16.01	%		68,865,914		9.83	%
Installment loans to individuals		8,444,238		5.00	%		8,065,868		4.90	%		3,560,520		0.97	%		20,070,626		2.87	%
Lease financing		1,158,716		0.69	%		4,044,102		2.46	%		2,331,039		0.64	%		7,533,857		1.08	%
Other		2,101,010		1.24	%		2,326,763		1.41	%		6,992,399		1.91	%		11,420,172		1.63	%
Total borrowers in Spain		52,549,574		31.11	%		48,451,394		29.45	%		129,343,867		35.24	%		230,344,835		32.89	%
Loans to borrowers outside Spain (*)
Other Governments		1,196,193		0.71	%		941,372		0.57	%		723,337		0.20	%		2,860,902		0.41	%
Commercial and Industrial		73,658,231		43.61	%		76,907,628		46.74	%		24,197,693		6.59	%		174,763,552		24.95	%
Mortgage loans		14,115,583		8.36	%		30,753,706		18.69	%		204,195,837		55.64	%		249,065,126		35.56	%
Other		27,383,600		16.21	%		7,474,075		4.54	%		8,531,932		2.32	%		43,389,607		6.19	%
Total loans to borrowers outside Spain		116,353,607		68.89	%		116,076,781		70.55	%		237,648,799		64.76	%		470,079,187		67.11	%
Total loans and leases, gross		168,903,181		100.00	%		164,528,175		100.00	%		366,992,666		100.00	%		700,424,022		100.00	%

(*) Credit of any nature in the name of credit institutions is included in the “Loans and advances to credit institutions” caption of our balance sheet.

Fixed and Variable Rate Loans

The following table sets forth a breakdown of our fixed and variable rate loans having a maturity of more than one year at December 31, 2009.

	Fixed and variable rate loans
	having a maturity of more than one year
	Domestic		International		Total
	(in thousands of euros, except percentages)
Fixed rate		32,675,335		164,169,475		196,844,810
Variable rate		145,119,926		189,556,104		334,676,030
Total		177,795,261		353,725,579		531,520,840

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Cross-Border Outstandings

The following table sets forth, as of the end of the years indicated, the aggregate amount of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 0.75% of our total assets. Cross-border outstandings do not include local currency loans made by subsidiary banks in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans by Santander UK or our Latin American subsidiaries.

	IFRS-IASB
	2009					2008					2007
			% of					% of					% of
			total					total					total
			assets					assets					assets
	(in thousands of euros, except percentages)
OECD (1) Countries:
United Kingdom		3,119,719		0.28	%		3,546,946		0.34	%		10,553,863		1.16	%
Other OECD Countries (2)		11,207,465		1.01	%		9,384,789		0.90	%		13,371,250		1.46	%
Total OECD		14,327,184		1.29	%		12,931,735		1.24	%		23,925,113		2.62	%
Non-OECD Countries
Brazil		5,316,717		0.48	%		10,169,495		0.97	%		3,732,687		0.41	%
Other Latin American Countries (2) (3)		8,297,908		0.75	%		7,728,016		0.74	%		4,488,341		0.49	%
Other (2)		6,600,333		0.59	%		5,847,896		0.56	%		2,379,944		0.26	%
Total Non-OECD		20,214,958		1.82	%		23,745,407		2.27	%		10,600,972		1.16	%
Total		34,542,142		3.11	%		36,677,142		3.50	%		34,526,085		3.78	%

(1)	The Organization for Economic Cooperation and Development.
(2)	Aggregate outstandings in any single country in this category do not exceed 0.75% of our total assets.
(3)	With regards to these cross-border outstandings, at December 31, 2007, 2008 and 2009, we had allowances for country-risk equal to €105.0 million, €555.5 million and €30.3 million, respectively. Such allowances for country-risk exceeded the Bank of Spain’s minimum requirements at such dates.

The following table sets forth, as of December 31, 2009, 2008 and 2007, the amounts of our cross-border outstandings by type of borrower where outstandings in the borrower’s country exceeded 0.75% of total assets.

			Banks and other
			Financial		Commercial and
	Government		Institutions		Industrial		Total
	(in thousands of euros)
2007
United Kingdom		616		3,870,351		6,682,896		10,553,863
Total		616		3,870,351		6,682,896		10,553,863
2008
Brazil		193,734		3,939,252		6,036,509		10,169,495
Total		193,734		3,939,252		6,036,509		10,169,495
2009
N/A		—		—		—		—
Total		—		—		—		—

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Classified Assets

In the following pages, we describe Bank of Spain requirements for classification of non-performing assets. The Group establishes a credit loss recognition process that is independent of the process for balance sheet classification and removal of impaired loans from the balance sheet.

The description below sets forth the minimum requirements that are followed and applied by all of our subsidiaries. Nevertheless, if the regulatory authority of the country where a particular subsidiary is located imposes stricter or more conservative requirements for classification of the non performing balances, the more strict or conservative requirements are followed for classification purposes.

The classification described below applies to all debt instruments not measured at fair value through profit or loss, and to contingent liabilities.

Bank of Spain Classification Requirements

a) Standard Assets

Standard assets include loans, fixed-income securities, guarantees and certain other extensions of credit that are not classified in any other category. Under this category, assets that require special watch must be identified, including restructured loans and standard assets with clients that have other outstanding risks classified as Non-performing Past Due. Standard assets are subdivided as follows:

(i) Negligible risk	• All types of credits made to, or guaranteed by, any European Union country or certain other specified public entities of the countries classified in category 1 of the country-risk categories;
	• Advance payments for pensions or payrolls for the following month, when paid by any public entity and deposited at Santander;
	• Those credits guaranteed by public entities of the countries classified in category 1 of the country-risk categories whose principal activity is to provide guarantees;
	• Credits made to banks;
	• Credits personally, jointly and unconditionally guaranteed by banks or mutual guaranty companies payable on first demand;
	• Credits guaranteed under the name of the Fondo de Garantía de Depósitos if their credit risk quality is comparable with that of the European Union; or
	• All credits collateralized by cash or by money market and treasury funds or securities issued by the central administrations or credit entities of countries listed in category 1 for country-risk purposes when the outstanding exposure is 90% or less than the redemption value of the money market and treasury funds and of the market value of the securities given as collateral.
(ii) Low risk	Assets in this category include:
	• assets qualified as collateral for monetary policy transactions in the European System of Central Banks, except those included in (i) above;
	• fully-secured mortgages and financial leases on finished residential properties when outstanding risk is less than 80% of the appraised value of such property;
	• ordinary mortgage backed securities;

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	• assets from entities whose long term debt is rated “A” or better by a qualified rating agency; and
	• securities denominated in local currency and issued by government entities in countries other than those classified in category 1 of the country-risk categories, when such securities are registered in the books of the bank’s branch located in the issuer country.
(iii) Medium-low risk	Assets in this category include financial leases and mortgages and pledges on tangible assets that are not included in other categories, provided that the estimated value of the financial leases and the collateral totally covers the outstanding risk.
(iv) Medium risk	Assets in this category include those with Spanish residents or residents of countries classified in categories 1 or 2, provided that such assets are not included in other categories.
(v) Medium-high risk	Assets in this category include (unless these assets qualify as “high risk” assets) loans to individuals for the acquisition of durable consumption goods, other goods or current services not for professional use, except those registered in the Registry of Sales of Movable Assets (Registro de Ventas de Bienes Muebles); and risks with residents of countries classified in categories 3 to 6, to the extent not covered by country-risk allowances.
(vi) High risk	Assets in this category include credit card balances; current account overdrafts and excesses in credit accounts (except those included in categories (i) and (ii)).

b) Sub-standard Assets

This category includes all types of credits and off-balance sheet risks that cannot be classified as non performing or charged-off assets but that have certain weaknesses that may result in losses for the bank higher than those described in the previous category. Credits and off-balance sheet risks with insufficient documentation must also be classified under this category.

c) Non-Performing Past-Due Assets

The Bank of Spain requires Spanish banks to classify as non-performing the entire outstanding principal amount and accrued interest on any loan, fixed-income security, guarantee and certain other extensions of credit on which any payment of principal or interest or agreed cost is 90 days or more past due (“non-performing past-due assets”).

In relation to the aggregate risk exposure (including off-balance sheet risks) to a single obligor, if the amount of non-performing balances exceeds 25% of the total outstanding risks (excluding non-accrued interest on loans to such borrower), then the bank must classify all outstanding risks to such borrower as non-performing.

Once any portion of a loan is classified as non-performing, the entire loan is placed on a non-accrual status. Accordingly, even the portion of any such a loan which may still be identified as performing will be recorded on non-accrual status.

d) Other Non-Performing Assets

The Bank of Spain requires Spanish banks to classify any loan, fixed-income security, guarantee and certain other extensions of credit as non-performing if they have a reasonable doubt that these extensions of credit will be collected (“other non-performing assets”), even if any past due payments have been outstanding for less than 90 days or the asset is otherwise performing. When a bank classifies an asset as non-performing on this basis, it must classify the entire principal amount of the asset as non-performing.

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Once any such asset is classified as non-performing, it is placed on a non-accrual status.

e) Charged-off assets

Credit losses are generally recognized through provisions for allowances for credit losses, well before they are removed from the balance sheet. Under certain unusual circumstances (such as bankruptcy, insolvency, etc.), the loss is directly recognized through write-offs.

The Bank of Spain requires Spanish banks to charge-off immediately those non-performing assets that management believes will never be repaid. Otherwise, the Bank of Spain requires Spanish banks to charge-off non-performing assets four years after they were classified as non-performing. Accordingly, even if allowances have been established equal to 100% of a non-performing asset, the Spanish bank may maintain that non-performing asset, fully provisioned, on its balance sheet for the full four-year period if management believes based on objective factors that there is some possibility of recoverability of that asset.

Because the Bank of Spain does not permit partial write-offs of impaired loans, when a loan is deemed partially uncollectible, the credit loss is charged against earnings through provisions to credit allowances instead of through partial write-offs of the loan. If a loan becomes entirely uncollectible, its allowance is increased until it reaches 100% of the loan balance. The credit loss recognition process is independent of the process for the removal of impaired loans from the balance sheet. The entire loan balance is kept on the balance sheet until any portion of it has been classified as non-performing for 4 years, or up to 6 years for some secured mortgage loans (maximum period established in the Bank of Spain’s Circular 4/2004 depending on our management’s view as to the recoverability of the loan). After that period the loan balance and its 100% specific allowance are removed from the balance sheet and recorded in off-balance sheet accounts, with no resulting impact on net income at that time.

f) Country-Risk Outstandings

The Bank of Spain requires Spanish banks to classify as country-risk outstandings all loans, fixed-income securities and other outstandings to any countries, or residents of countries, that the Bank of Spain has identified as being subject to transfer risk or sovereign risk and the remaining risks derived from the international financial activity.

All outstandings must be assigned to the country of residence of the client except in the following cases:

• Outstandings guaranteed by residents in other countries in a better category should be classified in the category of the guarantor.

• Fully secured loans, when the security covers sufficiently the outstanding risk and can be enforced in Spain or in any other “category 1” country, should be classified as category 1.

• Outstanding risks with foreign branches of a bank should be classified according to the residence of the headquarters of those branches.

The Bank of Spain has established six categories to classify such countries, as shown in the following table:

Country-Risk Categories	Description
1	European Union, Norway, Switzerland, Iceland, USA, Canada, Japan, Australia and New Zealand
2	Low risk countries not included in 1
3	Countries with transitory difficulties
4	Countries with serious difficulties
5	Doubtful countries
6	Bankrupt countries

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The Bank of Spain allows each bank to decide how to classify the listed countries within this classification scheme, subject to the Bank of Spain’s oversight. The classification is made based on criteria such as the payment record (in particular, compliance with renegotiation agreements), the level of the outstanding debt and of the charges for debt services, the debt quotations in the international secondary markets and other indicators and factors of each country as well as all the criteria indicated by the Bank of Spain. All credit extensions and off-balance sheet risks included in country-risk categories 3 to 6, except the excluded cases described below, will be classified as follows:

• Sub-standard assets: All outstandings in categories 3 and 4 except when they should be classified as non-performing or charged-off assets due to credit risk attributable to the client.

• Non-performing assets: All outstandings in category 5 and off-balance sheet risks classified in category 6, except when they should be classified as non-performing or charged-off assets due to credit risk attributable to the client.

• Charged-off assets: All other outstandings in category 6 except when they should be classified as charged-off assets due to credit risk attributable to the client.

Among others, the Bank of Spain excludes from country-risk outstandings:

• regardless of the currency of denomination of the asset, risks with residents in a country registered in subsidiary companies or multigroup companies in the country of residence of the holder;

• any trade credits established by letter of credit or documentary credit with a due date of one year or less after the drawdown date;

• any interbank obligations of branches of foreign banks in the European Union and of the Spanish branches of foreign banks;

• private sector risks in countries included in the monetary zone of a currency issued by a country classified in category 1; and

• any negotiable financial assets purchased at market prices for placement with third parties within the framework of a portfolio separately managed for that purpose, held for less than six months by the company.

Non-Accrual of Interest Requirements

The Group stops accruing interest on the principal amount of any asset that is classified as an impaired asset and on category 5 (doubtful) and category 6 (bankrupt) country-risk outstandings. The bank accounts for such collected interest on a cash basis, recording interest payments as interest income when collected.

The following table shows the amount of interest owed on non-accruing assets and the amount of such interest that was received:

	IFRS-IASB
	At December 31,
	2009		2008		2007
	(in thousands of euros)
Interest owed on non-accruing assets
Domestic		765,101		231,486		80,133
International		1,829,676		489,241		291,987
Total		2,594,777		720,727		372,120
Interest received on non-accruing assets
Domestic		151,459		95,428		81,233
International		157,724		125,386		103,031
Total		309,183		220,814		184,264

The balances of the recorded investment in impaired loans as of December 31, 2009, 2008 and 2007 are as follows:

	Thousands of Euros
	2009		2008		2007
Other impaired loans (*)		3,283,860		2,417,529		1,260,497
Impaired loans more than ninety days past due		21,269,764		11,773,284		4,918,158
Total impaired loans		24,553,624		14,190,813		6,178,655

(*) See above “Bank of Spain Classification Requirements- d) Other Non-Performing Assets” for a detailed explanation of assets included under this category.

The roll-forward of allowances (under IFRS-IASB) is shown in Note 10 to our consolidated financial statements.

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Guarantees

The Bank of Spain requires some guarantees to be classified as non-performing in the following amounts:

• in cases involving past-due guaranteed debt: (i) for non-financial guarantees, the amount demanded by the beneficiary and outstanding under the guarantee; and (ii) for financial guarantees, at least the amount classified as non-performing of the guaranteed risk; and

• in all other cases, the entire amount of the guaranteed debt when the debtor has declared bankruptcy or has demonstrated serious solvency problems, even if the guaranteed beneficiary has not reclaimed payment.

Allowances for Credit Losses and Country-Risk Requirements

We calculate simultaneously the allowances required due to credit risk attributable to the client and to country-risk and apply the ones that are more demanding.

The Bank of Spain requires that we develop internal models to calculate the allowances for both credit risk and country-risk based on historical experience. As of July 2008, the Bank of Spain had approved for regulatory capital calculation purposes the Group’s internal models affecting the vast majority of the Group’s credit risk net exposure. Bank of Spain will continue to review the models for the purpose of calculating allowances for loan losses. The calculation obtained based on the output parameters of internal models is consistent with the best estimate of the Group as to the probable losses using possible scenarios which rely on the approved internally developed models, and which constitute an appropriate basis for determining loan loss allowances. While these models are not yet approved by the Bank of Spain for loan loss allowance calculation, we are required to calculate the allowances according to the instructions described below. The difference between loan loss provisions calculated using internal models and those calculated under Bank of Spain Guidance, was not material for any of the three years ending December 31, 2009.

The global allowances will be the sum of those corresponding to losses in specific transactions (Specific Allowances) and those not specifically assigned (General Allowance) due to credit risk, plus the Allowances for Country-Risk.

Specific and General Allowances for Credit Losses

The Group methodology for calculation of loan loss allowances is summarized as follows:

• Assets classified as doubtful due to counterparty arrears: debt instruments, whoever the obligor and whatever the guarantee or collateral, with amounts more than three months past due are assessed individually, taking into account the age of the past-due amounts, the guarantees or collateral provided and the financial situation of the counterparty and the guarantors. The allowance percentages applied, based on the age of the past-due amounts, are described in Note 2.g) to our consolidated financial statements.

• Assets classified as doubtful for reasons other than counterparty arrears: Debt instruments which are not classifiable as doubtful due to arrears but for which there are reasonable doubts as to their repayment under the contractual terms are assessed individually, and their allowance is the difference between the amount recognized in assets and the present value of the cash flows expected to be received.

• General allowance for inherent losses: The Group covers its losses inherent in debt instruments not measured at fair value through profit or loss and in contingent liabilities taking into account the historical experience of impairment and other circumstances known at the time of assessment. For these purposes, inherent losses are losses incurred at the reporting date, calculated using statistical methods that have not yet been allocated to specific transactions.

• Our methodology for determining the loans general allowance for incurred loan losses, intends to identify the amount of incurred losses as of the balance sheet date of loans that have not yet been identified as impaired, but that we estimate based on our past history and specific facts that will manifest within a one year lead time period from the balance sheet date. The above demonstrates those loans were having problems as of the balance sheet date. That is what we call inherent losses in the context of our internal models in which loan loss allowances are calculated.

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The Group has been using since 1993 its internal models for assigning solvency and internal ratings, which measure the degree of risk of a client or transaction. Each rating corresponds to a certain probability of default or non-payment, the result of the Group’s past experience, except for some designated low default portfolios. The Group has approximately 200 internal rating models for risk admission and monitoring (models for corporate, sovereign, financial institutions; medium and small companies, retail, etc).

The ratings accorded to customers are regularly reviewed, incorporating new financial information and the experience in the development of the banking relationship with the customer. The regularity of the reviews increases in the case of clients who reach certain levels in the automatic warning systems and for those classified as special watch. The rating tools are also reviewed so that Group’s accuracy can be fine-tuned.

In order to make the internal ratings of the various models comparable and to be able to make comparisons with the ratings of external rating agencies, the Group has a master ratings scale. The comparisons are established via the probability of default associated with each rating.

The process: credit rating and parameter estimation

The credit risk associated to each transaction is quantified by means of its incurred loss. Risk measurement quantification requires following two steps; the first one is the estimation, and the second one is the assignment of the parameters that define the credit risk: Probability of Default, Loss Given Default and Exposure at Default.

The Group covers its losses inherent in debt instruments not measured at fair value through profit or loss and in contingent liabilities taking into account the historical experience of impairment and other circumstances known at the time of assessment. For these purposes, inherent losses are losses incurred at the reporting date, calculated using statistical methods, that have not yet been allocated to specific transactions.

The Group uses the concept of incurred loss to quantify the cost of the credit risk and include it in the calculation of the risk-adjusted return of its transactions. The parameters necessary for its calculation are also used to calculate economic capital and to calculate BIS II regulatory capital under internal models.

Incurred loss is the cost of the credit risk of a transaction that will manifest within a one year lead time from the balance sheet date considering the characteristics of the counterparty and the guarantees and collateral associated with the transaction.

The loss is calculated using statistical models that consider the following three factors: “exposure at default”, “probability of default” and “loss given default”.

• Exposure at default (EaD) is the amount of risk exposure at the date of default by the counterparty.

• Probability of default (PD) is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The probability of default is associated with the rating/scoring of each counterparty/transaction.

• PD is measured using a time horizon of one year; i.e. it quantifies the probability of the counterparty defaulting in the coming year. The definition of default used includes past-dues by 90 days or more and cases in which there is no default but there are doubts as to the solvency of the counterparty (subjective doubtful assets).

• Loss given default (LGD) is the loss arising in the event of default. It depends mainly on the guarantees associated with the transaction.

Estimation is based on the Group’s own internal experience, i.e. the historical records of default for each rating as well as the recoveries experience regarding non performing loans:

• In portfolios where the internal experience of defaults is scant, such as banks, sovereigns or global wholesale banking, estimates of the parameters come from alternative sources: market prices or studies of outside agencies which draw on the shared experience of a sufficient number of institutions. These portfolios are called low default portfolios.

• For the rest of portfolios, estimates are based on the institution’s internal experience.

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The LGD calculation is based on the analysis of recoveries of past due transactions, considering not only revenues and costs associated with the collection process, but also the moment when these revenues and costs take place and all indirect costs linked to the collecting activity.

The estimation of the EaD comes from comparing the use of the lines committed at the moment of default and a normal situation, in order to identify the real consumption of the lines at the time of default.

Once estimated, the credit risk parameters are assigned to assets that are not past due and play an essential role in the risk management and decision taking processes. These parameters are used by several management tools such as (1) pre-classifications, (2) economic capital, (3) return on risk adjusted capital (RORAC) or (4) stress scenarios.

Control of the process

Internal validation is a prerequisite for supervisory validation and consists of a specialized and sufficiently independent unit obtaining a technical opinion on whether the internal model is appropriate for the purposes used (internal and regulatory) and concluding on its usefulness and effectiveness. Moreover, it must evaluate whether the risk management and control procedures are appropriate for the entity’s strategy and risk profile.

Grupo Santander’s corporate framework of internal validation is fully aligned with the criteria for internal validation of advanced models issued by the Bank of Spain. The criterion of separation of functions is maintained between Internal Validation and Internal Auditing which, as the last element of control in the Group, is responsible for reviewing the methodology, tools and work done by Internal Validation and to give its opinion on its degree of effective independence.

Other Non-Performing Assets. If a non-performing asset is an “other non-performing asset”, see “—Bank of Spain Classification Requirements—Other Non-Performing Assets”, the amount of the required allowance will be the difference between the amount outstanding and the current value of the expected collectable cash flows. The minimum allowance will be 25% and up to 100% of the amounts treated as non-performing, depending on management’s opinion of the loan recovery expectations. When the treatment of such asset as a non-performing asset is due to, in management’s opinion, an inadequate financial or economical condition of the borrower, and the amount estimated as non-collectible is less than 25% of the outstanding debt, the amount of the required allowance will be at least 10% of the outstanding debt.

Sub-standard Assets. The necessary allowance for assets classified in this category is determined as the difference between its outstanding balance and the current value of the expected collectable cash flows. In every case, the amount of the required allowance must be higher than the general allowance that would correspond in case of being classified as standard asset and lower than would correspond if classified as non-performing asset. When assets are classified as sub-standard due to insufficient documentation and have an outstanding balance higher than €25,000, the applicable allowance is 10%.

Allowances for Country-Risk

Country risk is considered to be the risk associated with counterparties resident in a given country due to circumstances other than normal commercial risk (sovereign risk, transfer risk and risks arising from international financial activity). Based on the countries’ economic performance, political situation, regulatory and institutional framework, and payment capacity and record, the Group classifies all the transactions performed with third parties into six different groups assigning to each group the credit loss allowance percentages.

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Guarantees

Allowances for non-performing guarantees will be equal to the amount that, using prudent criteria, is considered irrecoverable.

Bank of Spain Foreclosed Assets Requirements

If a Spanish bank eventually acquires the properties (residential or not) which secure loans or credits, the Bank of Spain requires that the credit risk allowances previously established be reversed, provided that the acquisition cost less the estimated selling costs (which shall be at least 30% of such value) exceeds the amount of the debt, disregarding allowances, unless the acquisition cost is greater than the mortgage value, in which case the latter shall be taken as the reference value.

Bank of Spain Charge-off Requirements

The Bank of Spain does not permit non-performing assets to be partially charged-off.

The Bank of Spain requires Spanish banks to charge-off immediately those non-performing assets that management believes will never be repaid or that were made to category 6 (“bankrupt”) countries or residents of such category 6 countries. See the above sub-section entitled “—Bank of Spain Classification Requirements—Country-Risk Outstandings”. Otherwise, the Bank of Spain requires Spanish banks to charge-off non-performing assets four years after they were classified as non-performing. Spanish banks may carry fully secured past-due mortgage loans beyond this four-year deadline for up to six years if there are objective factors that indicate an improved likelihood of recovery. Accordingly, even if allowances have been established equal to 100% of a non-performing asset (in accordance with the Bank of Spain criteria discussed above), the Spanish bank may maintain that non-performing asset, fully provisioned, on its balance sheet for the full four or six-year period if management believes based on objective factors that there is some possibility of recoverability of that asset.

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Movements in Allowances for Credit Losses

The following table analyzes movements in our allowances for credit losses and movements, by domicile of customer, for the years indicated. See “Presentation of Financial and Other Information”. For further discussion of movements in the allowances for credit losses, see “Item 5. Operating and Financial Review and Prospects—A. Operating results—Results of Operations for Santander—Impairment Losses (net)”.

	IFRS-IASB
	Year Ended December 31,
	2009			2008			2007			2006			2005
	(in thousands of euros)
Allowance for credit losses at beginning of year
Borrowers in Spain		5,948,950			4,512,000			4,318,320			2,809,599			1,679,781
Borrowers outside Spain		6,770,673			4,284,371			3,969,808			4,092,326			4,160,864
Total		12,719,623			8,796,371			8,288,128			6,901,925			5,840,645
Inclusion of acquired companies’ credit loss allowances
Borrowers in Spain		—			—			—			—			—
Borrowers outside Spain		1,426,104			2,310,095			7,356			164,530			4,006
Total		1,426,104			2,310,095			7,356			164,530			4,006
Recoveries of loans previously charged off (1)
Borrowers in Spain		115,069			129,660			148,849			123,566			105,800
Borrowers outside Spain		799,652			570,087			463,602			418,402			373,934
Total		914,721			699,747			612,451			541,968			479,734
Net provisions for credit losses (1)
Borrowers in Spain		2,499,843			928,236			658,990			793,898			1,048,552
Borrowers outside Spain		8,588,153			4,968,652			2,761,606			1,669,466			976,315
Total		11,087,996			5,896,888			3,420,596			2,463,364			2,024,867
Charge offs against credit loss allowance
Borrowers in Spain		(1,236,859	)		(731,588	)		(573,787	)		(269,559	)		(226,036	)
Borrowers outside Spain		(8,557,769	)		(3,820,805	)		(2,746,375	)		(2,100,306	)		(1,293,458	)
Total		(9,794,628	)		(4,552,393	)		(3,320,162	)		(2,369,865	)		(1,519,494	)
Other movements (2)		1,544,817			(431,084	)		(211,998	)		586,206			72,167
Allowance for credit losses at end of year (*)
Borrowers in Spain		6,992,818			5,948,950			4,512,000			4,318,320			2,809,599
Borrowers outside Spain		10,905,814			6,770,673			4,284,371			3,969,808			4,092,326
Total		17,898,632			12,719,623			8,796,371			8,288,128			6,901,925

(*)	Allowances for the impairment losses on the assets making up the balances of “Loans and receivables — Loans and advances to customers” and “Loans and receivables — Loans and advances to credit institutions”. See “Item 3. Key information — A. Selected Financial Data”.
(1)	We have not included separate line items for charge-offs of loans not previously provided for (loans charged-off against income) and recoveries of loans previously charged-off as these are not permitted under Spanish regulation.
(2)	The changes in “Other Movements” from 2005, to 2006, to 2007, to 2008 and to 2009 principally reflects foreign exchange differences.

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The table below shows a breakdown of recoveries, net provisions and charge-offs against credit loss allowance by type and domicile of borrower for the years indicated.

	Year Ended December 31,
	2009			2008			2007			2006			2005
	(in thousands of euros)
Recoveries of loans previously charged off-
Domestic:
Commercial, financial, agricultural, industrial		31,969			30,136			32,045			37,879			51,649
Real estate and construction		15,162			4,860			10,718			5,646			140
Other mortgages		24,340			11,480			17,644			11,249			5,226
Installment loans to individuals		42,946			74,974			70,082			59,726			32,303
Lease finance		621			6,198			4,517			5,023			2,903
Other		31			2,012			13,843			4,043			13,579
Total Borrowers in Spain		115,069			129,660			148,849			123,566			105,800
Borrowers outside Spain
Government and official institutions		34			—			8			1,126			1
Commercial and industrial		731,641			483,589			397,126			299,302			292,279
Mortgage loans		35,047			28,494			30,360			7,751			3,468
Other		32,930			58,004			36,108			110,223			78,186
Borrowers outside Spain		799,652			570,087			463,602			418,402			373,934
Total		914,721			699,747			612,451			541,968			479,734
Net provisions for credit losses-
Domestic:
Commercial, financial, agricultural, industrial		752,961			265,121			(278,355	)		405,914			416,993
Real estate and construction		528,124			(76,668	)		240,462			20,430			70,124
Other mortgages		263,700			276,578			298,645			96,209			87,823
Installment loans to individuals		848,450			399,651			383,582			278,223			226,177
Lease finance		73,055			26,619			16,038			55,894			27,864
Other		33,553			36,935			(1,382	)		(62,772	)		219,571
Total Borrowers in Spain		2,499,843			928,236			658,990			793,898			1,048,552
Borrowers outside Spain
Government and official institutions		14,218			(8,344	)		(1,797	)		2,035			16,836
Commercial and industrial		7,667,916			2,709,732			2,016,115			1,128,005			820,912
Mortgage loans		532,539			242,965			237,553			11,612			88,812
Other		373,480			2,024,299			509,735			527,814			49,755
Borrowers outside Spain		8,588,153			4,968,652			2,761,606			1,669,466			976,315
Total		11,087,996			5,896,888			3,420,596			2,463,364			2,024,867
Charge offs against credit loss allowance
Domestic:
Commercial, financial, agricultural, industrial		(355,554	)		(121,751	)		(140,715	)		(55,982	)		(113,357	)
Real estate and construction		(137,183	)		(34,429	)		(29,466	)		(18,911	)		(8	)
Other mortgages		(235,659	)		(61,618	)		(11,807	)		(7,284	)		(14,674	)
Installment loans to individuals		(481,164	)		(503,166	)		(356,532	)		(184,218	)		(67,554	)
Lease finance		(25,681	)		(2,693	)		(1,344	)		(1,775	)		(8,007	)
Other		(1,618	)		(7,931	)		(33,923	)		(1,389	)		(22,436	)
Total Borrowers in Spain		(1,236,859	)		(731,588	)		(573,787	)		(269,559	)		(226,036	)
Borrowers outside Spain
Government and official institutions		(213	)		—			—			(174	)		—
Commercial and industrial		(7,826,967	)		(2,807,232	)		(1,969,576	)		(1,333,617	)		(1,120,180	)
Mortgage loans		(393,104	)		(1,736	)		(6,693	)		(46,603	)		(30,562	)
Other		(337,485	)		(1,011,837	)		(770,106	)		(719,912	)		(142,716	)
Borrowers outside Spain		(8,557,769	)		(3,820,805	)		(2,746,375	)		(2,100,306	)		(1,293,458	)
Total		(9,794,628	)		(4,552,393	)		(3,320,162	)		(2,369,865	)		(1,519,494	)

63

Allowances for Credit Losses

	IFRS-IASB
	Year Ended December 31,
	2009		%		2008		%		2007		%		2006		%		2005		%
	(in thousands of euros, except percentages)
Borrowers in Spain:
Commercial, financial, agricultural, industrial		1,742,508		9.74		1,690,171		13.29		1,121,382		12.75		2,054,720		24.79		1,419,729		20.57
Real estate and construction		1,896,177		10.59		1,490,138		11.72		1,412,652		16.06		515,597		6.22		363,991		5.27
Other mortgages		1,375,447		7.68		1,271,684		10.00		805,437		9.16		457,132		5.52		186,574		2.70
Installment loans to individuals		1,673,557		9.35		1,182,274		9.29		926,917		10.53		889,283		10.73		469,677		6.81
Lease finance		215,785		1.21		112,874		0.89		162,405		1.85		166,542		2.01		75,777		1.10
Other		89,344		0.50		201,809		1.59		83,207		0.95		235,046		2.84		293,851		4.26
Total Borrowers in Spain		6,992,818		39.07		5,948,950		46.77		4,512,000		51.30		4,318,320		52.10		2,809,599		40.71
Borrowers outside Spain:
Government and official institutions		19,149		0.11		13,653		0.11		25,650		0.29		30,054		0.36		41,302		0.60
Commercial and industrial		8,529,010		47.65		4,517,625		35.52		2,762,325		31.40		2,670,075		32.22		3,413,736		49.46
Mortgage loans		1,555,212		8.69		1,615,112		12.70		1,354,866		15.40		831,972		10.04		363,980		5.27
Other		802,443		4.48		624,283		4.91		141,530		1.61		437,707		5.28		273,308		3.96
Total Borrowers outside Spain		10,905,814		60.93		6,770,673		53.23		4,284,371		48.70		3,969,808		47.90		4,092,326		59.29
Total		17,898,632		100.00		12,719,623		100.00		8,796,371		100.00		8,288,128		100.00		6,901,925		100.00

Impaired Balances

The following tables show our impaired assets (loans, securities and other assets to collect) and contingent liabilities, excluding country-risk. We do not keep records classifying balances as non-accrual, past due, restructured or potential problem loans, as those terms are defined by the SEC. However, we have estimated the amount of our balances that would have been so classified, to the extent possible, below.

	IFRS
	At December 31,
Non-performing balances	2009		2008		2007		2006		2005
	(in thousands of euros, except percentages)
Past-due and other non-performing balances (1) (2) (3):
Domestic		10,405,450		6,405,803		1,887,167		1,288,857		1,110,784
International		14,148,174		7,785,010		4,291,488		3,318,690		3,230,716
Total		24,553,624		14,190,813		6,178,655		4,607,547		4,341,500

(1)	We estimate that the total amount of our non-performing balances fully provisioned under IFRS and which under U.S. GAAP would have been charged-off from the balance sheet was €1,302.6 million, €1,206.5 million, €1,582.0 million, €2,877.6 million and €2,996,6 million at December 31, 2005, 2006, 2007, 2008 and 2009, respectively.
(2)	Non-performing balances due to country risk were €121.1 million, €83.0 million, €6.7 million, €2.6 million and €7.8 million at December 31, 2005, 2006, 2007, 2008 and 2009, respectively.
(3)	We estimate that at December 31, 2005, 2006, 2007, 2008 and 2009 (i) the total amount of our non-performing past-due balances was €3,367.1 million, €3,841.2 million, 4,918.2 million, €11,773.3 million and €21,269.8 million respectively, and (ii) the total amount of our other non-performing balances was €974.4 million, €766.3 million, €1,260.5 million, €2,417.5 million and €3,283,9 million, respectively.

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We do not believe that there is a material amount of assets not included in the foregoing table where known information about credit risk at December 31, 2009 (not related to transfer risk inherent in cross-border lending activities) gave rise to serious doubts as to the ability of the borrowers to comply with the loan repayment terms at such date.

Evolution of Impaired Balances

The following tables show the movement in our impaired assets and contingent liabilities (excluding country-risk, see “—Country-Risk Outstandings”).

	IFRS
	Quarter ended												Year ended			Year ended			Year ended			Year ended			Year ended
	Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
(in thousands of euros)	2009			2009			2009			2009			2009			2008			2007			2006			2005
Opening balance		14,190,813			18,967,529			21,751,606			22,666,379			14,190,813			6,178,655			4,607,547			4,341,500			4,114,691
Net additions		5,290,126			4,877,401			4,169,928			3,896,875			18,234,330			11,346,183			5,014,270			2,567,912			1,473,809
Increase in scope of consolidation		1,033,001			—			—			—			1,033,001			2,088,943			1,000			164,000			(33,000	)
Exchange differences		211,246			369,976			(301,581	)		610,468			890,109			(870,575	)		(124,000	)		(96,000	)		300,000
Writeoffs		(1,757,657	)		(2,463,300	)		(2,953,574	)		(2,620,098	)		(9,794,629	)		(4,552,393	)		(3,320,162	)		(2,369,865	)		(1,514,000	)
Closing balance		18,967,529			21,751,606			22,666,379			24,553,624			24,553,624			14,190,813			6,178,655			4,607,547			4,341,500

The Group’s non-performing balances have increased during 2008 and 2009, mainly due to (1) the rapid deterioration of the global macroeconomic environment and (2) the increase in the Bank’s scope of consolidation (due to the acquisitions of Alliance & Leicester, Sovereign, Banco Real, GE Money and RBS Europe). As shown in the table above, in 2008 and the first quarter of 2009, the Group’s non-performing balances increased by €2.09 billion and €1.03 billion, respectively, due to acquisitions. Other factors leading to the increase in the Group’s non-performing balances were the higher volumes of lending in recent years and the change of mix (principally in Latin America) toward more profitable but higher risk products. The principal geographic drivers of the increase in non-performing balances, other than through acquisitions, were Spain, the United Kingdom and Brazil.

The increase in non-performing balances is also aggravated through the classification as non-performing of the entire outstanding principal amount and accrued interest on any loan on which any payment of principal, interest or agreed cost is 90 days or more past due. We refer to this effect as the “individual loan drag effect”. An additional impact occurs by the so-called “client drag effect”, through which Spanish banking groups classify as non-performing the aggregate risk exposure (including off-balance sheet risks) to a single obligor, whenever the amount of non-performing balances of such obligor exceeds 25% of its total outstanding risks (excluding non-accrued interest on loans to such borrower). Both drag effects have a larger impact in the case of mortgages and corporate loans due to the greater average amount of these loans.

Notwithstanding the above, during the course of 2009, the previously increasing rate of growth of net additions to non-performing balances has reversed such that the rate of growth has decreased, consistent with what appears to be the start of the recovery from the current economic downturn.

65

Impaired Balances Ratios

The following table shows the total amount of our computable credit risk, the amount of our non-performing assets and contingent liabilities by category, our allowances for credit losses, the ratio of our impaired balances to total computable credit risk and our coverage ratio at the dates indicated.

	IFRS
	At December 31,
	2009			2008			2007			2006			2005
	(in thousands of euros, except percentages)
Computable credit risk (1)		758,346,873			697,199,713			649,342,484			588,372,837			489,662,040
Non-performing balances by segments:
Individuals		14,589,806			10,113,539			4,774,589			3,707,554			3,109,299
Mortgages		6,110,013			3,238,670			1,584,517			1,230,406			1,031,866
Consumer loans		6,164,477			5,711,326			2,695,997			2,093,490			1,755,682
Credit cards and others		2,315,316			1,163,543			494,075			383,658			321,751
Enterprises		7,811,870			2,860,333			1,309,738			843,807			1,165,851
Corporate Banking		2,127,493			1,130,459			62,224			38,300			63,758
Public sector		24,455			86,481			32,105			17,886			2,592
Total non performing balances		24,553,624			14,190,812			6,178,656			4,607,547			4,341,500
Allowances for non-performing balances		18,497,070			12,862,981			9,302,230			8,626,937			7,047,475
Ratios
Non-performing balances to computable credit risk		3.24	%		2.04	%		0.95	%		0.78	%		0.89	%
Coverage ratio (2)		75.33	%		90.64	%		150.55	%		187.23	%		162.33	%
Balances charged-off to total loans and contingent liabilities		1.17	%		0.55	%		0.41	%		0.31	%		0.21	%

(1)	Computable credit risk is the sum of the face amounts of loans and leases (including non-performing assets but excluding country risk loans), guarantees and documentary credits.
(2)	Allowances for non-performing balances as a percentage of non-performing balances.

The ratio of non-performing balances to computable credit risk was 0.89%, 0.78%, 0.95%, 2.04% and 3.24% for the Group as a whole as of December 31, 2005, 2006, 2007, 2008 and 2009, respectively. In the current economic downturn, the effect of which is exacerbated by the drag effects described above, our non-performing balances ratio increased, and we expect it will continue to do so although at a slower pace as highlighted by the recent quarterly trend of diminishing net additions to non-performing balances discussed above.

The coverage ratio fell to 91% in December 2008, and further to 75% in December 2009. This ratio is calculated as allowances for non-performing balances as a percentage of non-performing balances.

The main reasons for the increases in the non-performing balances ratio and the decreases in the coverage ratio are the following:

We establish our expectations of credit loss (and our corresponding allowances) for our entire loan portfolio, not just for our non-performing balances. Our expectations of credit loss for our entire portfolio typically increase at a slower rate than the rate at which our non-performing balances increase, particularly during an economic downturn, when non-performing loans grow quickly but the performing loan portfolio grows at a slower pace and with lower-risk loans, reflecting caution due to macroeconomic conditions. As a result, the ratio of our non-performing balances to computable credit risk typically increases since the numerator (non-performing balances) increases faster than the denominator (computable credit risk). Similarly, our coverage ratio typically decreases since, for the reasons discussed above, the numerator (allowances for credit losses) does not increase as fast as the denominator (non-performing balances).

To a lesser extent, the consolidation of Sovereign in the first quarter of 2009, with a coverage ratio of 62%, has also slightly decreased the Group’s average coverage ratio.

66

We are currently highly exposed to real estate markets, especially in Spain and the United Kingdom. Mortgage loans are one of our principal assets, comprising 53% of our loan portfolio as of December 31, 2009, and we are focused on first home mortgages. From 2002 to 2007, demand for housing and mortgage financing in Spain increased significantly driven by, among other things, economic growth, declining unemployment rates, demographic and social trends, and historically low interest rates in the Eurozone. The United Kingdom experienced a similar increase in housing and mortgage demand, driven by, among other things, economic growth, declining unemployment rates, demographic trends and the increasing prominence of London as an international financial center. In this favorable environment, the Group has maintained prudent risk management with a mortgage portfolio focused on first homes with average loan to values in Spain and the United Kingdom of 52% and 56%, respectively, as of December 31, 2009. As a result of the general macroeconomic deterioration in the second half of 2008, a percentage of these assets have become non-performing and, as a result of the quality of the collateral, the inexistence of both option adjustable rate mortgage (ARM) loans and of monthly payments below accrued interest, the requirements of allowances for these non-performing assets have remained low.

As a result of the factors described above (the increase in the scope of consolidation, the economic downturn, our higher lending volumes and the change of mix (principally in Latin America)), our net impairment for credit losses was €11,088.0 million for 2009, an 88.0% or €5,191.1 million increase from €5,896.9 million for 2008. This increase did not have a significant impact on the attributable profit for the period due to the positive evolution of income and the appropriate management of spreads.

Other Non-Accruing Balances

As described above under “—Bank of Spain Classification Requirements”, we do not classify our loans and contingent liabilities to borrowers in countries with transitory difficulties (category 3) and countries in serious difficulties (category 4) as impaired balances. Loans and contingent liabilities in these categories do not stop accruing interests. However, we treat category 5 (doubtful countries) country-risk outstandings as both a non-accruing and impaired balance.

	IFRS-IASB
	Year Ended December 31,
Summary of non-accrual balances	2009		2008		2007		2006		2005
	(in millions of euros)
Balances classified as Non-Performing Balances		24,553.6		14,190.8		6,178.7		4,607.5		4,341.5
Non-Performing Balances due to country risk		7.8		2.6		6.7		83.0		121.1
Total non-accruing balances		24,561.4		14,193.4		6,185.4		4,690.5		4,462.6

As of December 31, 2007, 2008 and 2009, the amounts of “restructured loans” were €465.2 million, €648.7 million and €3,829 million, respectively. Restructured loans are those which have been reclassified from non-performing loans to normal investment under certain conditions of payment and increase in guarantees. The strong increase in 2009 is directly related to the increase in non-performing loans explained above.

67

Foreclosed Assets

The tables below set forth the movements in our foreclosed assets for the periods shown.

	IFRS-IASB
													Year Ended
	Quarterly movements												December 31,
	Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,
	2009			2009			2009			2009			2009			2008			2007
	(in thousands of euros, except percentages)
Opening balance		1,309,989			1,800,682			2,211,633			2,472,401			1,309,989			494,567			408,450
Foreclosures		859,462			933,761			764,437			826,232			3,383,892			1,712,821			851,152
Sales		(368,769	)		(522,810	)		(503,669	)		(582,759	)		(1,978,007	)		(897,399	)		(765,035	)
Gross foreclosed assets		1,800,682			2,211,633			2,472,401			2,715,874			2,715,874			1,309,989			494,567
Allowances established		(185,163	)		(239,684	)		(276,178	)		(713,373	)		(713,373	)		(169,030	)		(111,026	)
Allowance as a percentage of foreclosed assets		10.28	%		10.84	%		11.17	%		26.27	%		26.27	%		12.90	%		22.45	%
Closing balance (net)		1,615,519			1,971,949			2,196,223			2,002,501			2,002,501			1,140,959			383,541

Liabilities

Deposits

The principal components of our deposits are customer demand, time and notice deposits, and international and domestic interbank deposits. Our retail customers are the principal source of our demand, time and notice deposits. For an analysis, by domicile of customer, of average domestic and international deposits by type for 2006, 2007, 2008 and 2009, see “—Average Balance Sheets and Interest Rates—Liabilities and Interest Expense”.

We compete actively with other commercial banks and with savings banks for domestic deposits. Our share of customer deposits in the Spanish banking system (including Cajas de Ahorros) was 16.2% at December 31, 2009, according to figures published by the Spanish Banking Association (AEB) and the Confederación Española de Cajas de Ahorros (“CECA”). See “—Competition”.

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The following tables analyze our year-end deposits.

Deposits (from central banks and credit institutions and customers) by type of deposit

	IFRS-IASB
	At December 31,
Deposits from central banks and credit institutions-	2009		2008		2007
	(in thousands of euros)
Reciprocal accounts		948,049		509,282		562,619
Time deposits		78,325,126		82,559,946		71,227,723
Other demand accounts		3,340,932		2,527,834		2,466,369
Repurchase agreements		56,818,092		41,651,446		36,615,910
Central bank credit account drawdowns		2,658,925		2,626,262		2,008,927
Other financial liabilities associated with transferred financial assets		—		—		—
Hybrid financial liabilities		463		2,600		15,760
Total		142,091,587		129,877,370		112,897,308
Customer deposits-
Demand deposits-
Current accounts		135,895,002		94,773,159		87,136,743
Savings accounts		127,940,647		115,673,794		90,727,525
Other demand deposits		3,570,326		3,035,757		3,593,720
Time deposits-
Fixed-term deposits		192,244,789		143,130,514		92,375,364
Home-purchase savings accounts		315,867		295,458		296,768
Discount deposits		448,432		11,625,840		9,933,139
Funds received under financial asset transfers		2		2		0
Hybrid financial liabilities		5,447,496		8,159,893		8,494,773
Other financial liabilities associated with transferred financial assets		—		—		—
Other time deposits		212,111		290,053		113,562
Notice deposits		2,208,116		1,764,954		283,301
Repurchase agreements		38,693,449		41,480,026		62,451,624
Total		506,976,237		420,229,450		355,406,519
Total deposits		649,067,824		550,106,820		468,303,827

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Deposits (from central banks and credit institutions and customers) by location of office

	IFRS-IASB
	At December 31,
Deposits from central banks and credit institutions-	2009		2008		2007
	(in thousands of euros)
Due to credit institutions
Offices in Spain		68,500,717		61,175,697		66,139,163
Offices outside Spain:
Other EU countries		56,157,152		55,594,532		31,782,431
United States		1,002,056		722,833		421,513
Other OECD countries (1)		38,669		38,067		44,136
Central and South America (1)		16,371,115		12,291,897		14,502,083
Other		21,878		54,344		7,982
Total offices outside Spain		73,590,870		68,701,673		46,758,145
Total		142,091,587		129,877,370		112,897,308
Customer deposits
Offices in Spain		170,760,231		142,376,596		131,833,844
Offices outside Spain:
Other EU countries		199,169,106		170,778,310		134,505,644
United States		37,851,345		8,440,893		17,881,211
Other OECD countries (1)		1,101,108		470,721		189,548
Central and South America (1)		96,804,592		96,103,045		69,360,898
Other		1,289,855		2,059,885		1,635,374
Total offices outside Spain		336,216,006		277,852,854		223,572,675
Total		506,976,237		420,229,450		355,406,519
Total deposits		649,067,824		550,106,820		468,303,827

(1) In this schedule Mexico is classified under “Central and South America”

The following table shows the maturity of time deposits (excluding inter-bank deposits) in denominations of $100,000 or more for the year ended December 31, 2009. Large denomination customer deposits may be a less stable source of funds than demand and savings deposits.

	December 31, 2009
	Domestic		International		Total
	(in thousands of euros)
Under 3 months		14,481,824		27,067,550		41,549,374
3 to 6 months		3,604,073		10,665,456		14,269,529
6 to 12 months		4,347,421		17,860,482		22,207,903
Over 12 months		4,081,087		26,264,353		30,345,440
Total		26,514,405		81,857,841		108,372,246

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The aggregate amount of deposits held by non-resident depositors (banks and customers) in our domestic branch network was €48.7 million, €52.8 million and €87.1 million, at December 31, 2007, 2008 and 2009, respectively.

Short-Term Borrowings

	IFRS-IASB
	At December 31,
	2009					2008					2007
			Average					Average					Average
Short-Term Borrowings	Amount		Rate			Amount		Rate			Amount		Rate
	(in thousands of euros, except percentages)
Securities sold under agreements to repurchase (principally Spanish Treasury notes and bills):
At December 31		95,511,541		1.85	%		83,531,515		4.12	%		99,067,534		3.66	%
Average during year		90,542,348		2.24	%		84,194,507		3.78	%		90,977,794		3.86	%
Maximum month-end balance		101,311,947					99,067,534					99,067,534
Other short-term borrowings:
At December 31		28,678,183		3.75	%		41,759,661		4.89	%		32,706,892		7.29	%
Average during year		34,032,816		2.65	%		45,106,644		5.13	%		27,071,238		5.42	%
Maximum month-end balance		41,759,661					49,522,970					44,052,354
Total short-term borrowings at year-end		124,189,724		2.29	%		125,291,176		4.37	%		131,774,426		4.56	%

Competition

We face strong competition in all of our principal areas of operation from other banks, savings banks, credit co-operatives, brokerage services, on-line banks, insurance companies and other financial services firms.

Banks

Two Spanish banking groups dominate the retail banking sector in Spain. These two groups are headed by Banco Bilbao Vizcaya Argentaria, S.A. and Santander.

At the end of December 2009, these two Spanish banking groups accounted for approximately 60.1% of loans and 63.9% of deposits of all Spanish banks, which in turn represented 28.8% of loans and 28.7% of deposits of the financial system, according to figures published by the Spanish Banking Association (AEB) and the Confederación Española de Cajas de Ahorro (“CECA”). These banking groups also hold significant investments in Spanish industry.

Foreign banks also have a presence in the Spanish banking system as a result of liberalization measures adopted by the Bank of Spain in 1978. At December 31, 2009, there were 88 foreign banks (of which 80 were from European Union countries) with branches in Spain. In addition, there were 18 Spanish subsidiary banks of foreign banks (of which 15 were from European Union countries).

Spanish law provides that any financial institution organized and licensed in another Member State of the European Union may conduct business in Spain from an office outside Spain. They do not need prior authorization from the Spanish authorities to do so. Once the Bank of Spain receives notice from the institution’s home country supervisory authority about the institution’s proposed activities in Spain, the institution is automatically registered and the proposed activities are automatically authorized.

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The opening of a branch of any financial institution authorized in another Member State of the European Union does not need prior authorization or specific allocation of resources. The opening is subject to the reception by the Bank of Spain of a notice from the institution’s home country supervisory authority containing, at least, the following information:

• Program of activities detailing the transactions to be made and the corporate structure of the branch;

• Address in Spain of the branch;

• Name and curriculum vitae of the branch’s managers;

• Stockholders’ equity and solvency ratio of the financial institution and its consolidated group; and

• Detailed information about any deposit guarantee scheme that assures the protection of the branch’s depositors.

Once the Bank of Spain receives the notice, it notifies the financial institution, thereby permitting the branch to be registered in the Mercantile Register and, then, in the Special Register of the Bank of Spain.

Spanish law requires prior approval by the Bank of Spain for a Spanish bank to acquire a significant interest in a bank organized outside the European Union, create a new bank outside the European Union or open a branch outside the European Union. Spanish banks must provide prior notice to the Bank of Spain to conduct any other business outside of Spain.

When a new bank is created by a Spanish bank outside of Spain, the following information has to be provided to the Bank of Spain:

• amount of the investment;

• percentage of the share capital and of the total voting rights;

• name of the companies through which the investment will be made;

• draft of the By-laws;

• program of activities, setting out the types of business envisaged, the administrative and accounting organization and the internal control procedures, including those established to prevent money laundering transactions;

• list of the persons who will be members of the first board of directors and of the senior management;

• list of partners with significant holdings, and

• detailed description of the banking, tax and anti-money laundering regulations of the country where it will be located.

The opening of branches outside Spain requires prior application to the Bank of Spain, including information about the country where the branch will be located, the address, program of activities and names and resumes of the branch’s managers. The opening of representative offices requires prior notice to the Bank of Spain detailing the activities to be performed.

In addition, we face strong competition outside Spain, particularly in Argentina, Brazil, Chile, Mexico, Portugal, the United Kingdom, Germany and the United States. In these corporate and institutional banking markets, we compete with the large domestic banks active in these markets and with the major international banks.

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The global banking crisis has reduced the capacity of many institutions to lend and has resulted in the withdrawal or disappearance of a number of market participants and significant consolidation of competitors, particularly in the US and UK. Competition for retail deposits has intensified significantly reflecting the difficulties in the wholesale money markets.

In a number of these markets there are regulatory barriers to entry or expansion, and the state ownership of banks. Competition is generally intensifying as more players enter markets that are perceived to be de-regulating and offer significant growth potential.

Competition for corporate and institutional customers in the UK is from UK banks and from large foreign financial institutions who are also active and offer combined investment and commercial banking capabilities. Santander UK’s main competitors are established UK banks, building societies and insurance companies and other financial services providers (such as supermarket chains and large retailers).

In the UK credit card market large retailers and specialist card issuers, including major US operators, are active in addition to the UK banks. In addition to physical distribution channels, providers compete through direct marketing activity and the internet.

In the United States, Sovereign competes in the Northeastern, New England and New York retail and mid-corporate banking markets with local and regional banks and other financial institutions. Sovereign also competes in the US in large corporate lending and specialized finance markets, and in fixed-income trading and sales. Competition is principally with the large US commercial and investment banks and international banks active in the US.

Savings Banks

Spanish savings banks (“Cajas de Ahorros”) are mutual organizations which engage in the same activities as banks, but primarily take deposits and make loans, principally to individual customers and small to medium-sized companies. The Spanish savings banks provide strong competition for the demand and savings deposits which form an important part of our deposit base. Spanish savings banks, which traditionally were regional institutions, are permitted to open branches and offices throughout Spain. In the last few years, mergers among savings banks increased. The Spanish savings banks’ share of domestic deposits and loans were 60.8% and 53.0%, at December 31, 2009.

Credit Co-operatives

Credit co-operatives are active principally in rural areas. They provide savings and loan services including financing of agricultural machinery and supplies. They are also a source of competition.

Brokerage Services

We face competition in our brokerage activities in Spain from brokerage houses of other financial institutions.

Spanish law provides that any investment services company authorized to operate in another Member State of the European Union may conduct business in Spain from an office outside Spain, once the National Securities Market Commission (Comisión Nacional del Mercado de Valores—“CNMV”) receives notice from the institution’s home country supervisory authority about the institution’s proposed activities in Spain.

Spanish law provides that credit entities have access, as members, to the Spanish stock exchanges, in accordance with the provisions established by the Investment Services Directive.

We also face strong competition in our mutual funds, pension funds and insurance activities from other banks, savings banks, insurance companies and other financial services firms.

On-line Banks and Insurance Companies

The entry of on-line banks into the Spanish banking system has increased competition, mainly in customer funds businesses such as deposits. Insurance companies and other financial service firms also compete for customer funds.

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SUPERVISION AND REGULATION

Bank of Spain and the European Central Bank

The Bank of Spain, which operates as Spain’s autonomous central bank, supervises all Spanish financial institutions, including us. Until January 1, 1999, the Bank of Spain was also the entity responsible for implementing Spanish monetary policy. As of that date, the start of Stage III of the European Monetary Union, the European System of Central Banks and the European Central Bank became jointly responsible for Spain’s monetary policy. The European System of Central Banks consists of the national central banks of the twenty seven Member States belonging to the European Union, whether they have adopted the euro or not, and the European Central Bank. The “Eurosystem” is the term used to refer to the European Central Bank and the national central banks of the Member States which have adopted the euro. The European Central Bank is responsible for the monetary policy of the European Union. The Bank of Spain, as a member of the European System of Central Banks, takes part in the development of the European System of Central Banks’ powers including the design of the European Union’s monetary policy.

The European System of Central Banks is made up of three decision-making bodies:

• the Governing Council, comprised of the members of the Executive Board of the European Central Bank and the governors of the national central banks of the 16 Member States which have adopted the euro;

• the Executive Board, comprised of the president, vice-president and four other members; and

• the General Council of the European Central Bank, comprised of the president and vice-president of the European Central Bank and the governors of the national central banks of the 27 European Union Member States.

The Governing Council is the body in charge of formulating monetary policy for the euro area and adopting the guidelines and decisions necessary to perform the Euro system’s tasks. The Executive Board is the body in charge of implementing the monetary policy for the euro area laid out by the Governing Council and providing the instructions necessary to carry out monetary policy to the euro area’s national central banks.

The European Central Bank has delegated the authority to issue the euro to the central banks of each country participating in Stage III. These central banks are also in charge of executing the European Union’s monetary policy in their respective countries. The countries that have not adopted the euro will have a seat in the European System of Central Banks, but will not have a say in the monetary policy or instructions laid out by the governing council to the national central banks.

Since January 1, 1999, the Bank of Spain has performed the following basic functions attributed to the European System of Central Banks:

• executing the European Union monetary policy;

• conducting currency exchange operations consistent with the provisions of Article 109 of the Treaty on European Union, and holding and managing the States’ official currency reserves;

• promoting the sound working of payment systems in the euro area; and

• issuing legal tender bank notes.

Notwithstanding the European Monetary Union, the Bank of Spain continues to be responsible for:

• maintaining, administering and managing the foreign exchange and precious metal reserves;

• promoting the sound working and stability of the financial system and, without prejudice to the functions of the European System of Central Banks, of national payment systems;

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• placing coins in circulation and the performance, on behalf of the State, of all such other functions entrusted to it in this connection;

• preparing and publishing statistics relating to its functions, and assisting the European Central Bank in the compilation of the necessary statistical information;

• rendering treasury services to the Spanish Treasury and to the regional governments, although the granting of loans or overdrafts in favor of the State, the regional governments or other bodies referred to in Article 104 of the European Union Treaty, is generally prohibited;

• rendering services related to public debt to the State and regional governments; and

• advising the Spanish Government and preparing the appropriate reports and studies.

The Bank of Spain has the following supervisory powers over Spanish banks, subject to applicable laws, rules and regulations issued by the Spanish Government and its Ministry of Economy and Finance:

• to conduct periodic inspections of Spanish banks to test compliance with current regulations concerning, among other matters, preparation of financial statements, account structure, credit policies and provisions and capital adequacy;

• to advise a bank’s board of directors and management when its dividend policy is deemed inconsistent with the bank’s financial results;

• to undertake extraordinary inspections of banks concerning any matters relating to their banking activities;

• to participate with, as the case may be, other authorities in appropriate cases in the imposition of penalties to banks for infringement or violation of applicable regulations; and

• to take control of credit entities and to replace directors of credit entities when a Spanish credit entity faces an exceptional situation that poses a risk to the financial status of the relevant entity.

Liquidity Ratio

European Central Bank regulations require credit institutions in each Member State that participates in the European Monetary Union, including us, to place a specific percentage of their “Qualifying Liabilities” with their respective central banks in the form of interest bearing deposits as specified below (the “Liquidity Ratio”).

The European Central Bank requires the maintenance of a minimum liquidity ratio by all credit institutions established in the Member States of the European Monetary Union. Branches located in the Eurozone of institutions not registered in this area are also subject to this ratio, while the branches located outside the Eurozone of institutions registered in the Eurozone are not subject to this ratio.

“Qualifying Liabilities” are broadly defined as deposits and debt securities issued. The Liquidity Ratio is 2% over Qualifying Liabilities except in relation to deposits with stated maturity greater than two years, deposits redeemable at notice after two years, repos and debt securities with a stated maturity greater than two years, for which the ratio is 0%.

Liabilities of institutions subject to the Liquidity Ratio and liabilities of the European Central Bank and national central banks of a participating Member State of the European Monetary Union are not included in the base of “Qualifying Liabilities”.

Investment Ratio

The Spanish Government has the power to require credit institutions to invest a portion of certain “Qualifying Liabilities” in certain kinds of public sector debt or public-interest financing (the “investment ratio”), and has exercised this power in the past. Although the investment ratio has been 0% since December 31, 1992, the law which authorizes it has not been abolished, and the Spanish Government could reimpose the ratio, subject to EU requirements.

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Capital Adequacy Requirements

During 2007, the Bank and its Spanish bank subsidiaries were subject to Bank of Spain Circular 5/1993 on capital adequacy requirements. Additionally, Spain forms part of the Basel Committee on Banking Regulations and Supervisory Practices since February 2001 and we calculate our capital requirements under this committee’s criteria (the Basel I Accord). In June 2006 the European Union adopted a new regulatory framework (recast of Directives 2006/48/EC and 2006/49/EC) that promotes more risk sensitive approaches to the determination of minimum regulatory capital requirements in accordance with the New Basel Accord (“Basel II” or “BIS II”). Finally, the Royal Decree 216/2008 published on February 16, 2008, the Law 36/2007 amending Law 13/1985, and Bank of Spain Circular 3/2008 published on June 10, 2008, introduced these European Directives into the Spanish regulatory framework, and BIS II was incorporated into the Spanish regulations, following its adoption by the European Union.

The Spanish capital adequacy requirements applicable until June 30, 2008 distinguished between “basic” and “complementary” capital and require certain ratios of basic and total capital to risk-weighted assets. Basic capital generally includes ordinary shares, non-cumulative preferred securities and most reserves, less interim dividends, goodwill and intangible assets, treasury stock and financing for the acquisition (by persons other than the issuer’s employees) of the issuer’s shares. Complementary capital generally includes cumulative preferred securities, revaluation and similar reserves, dated and perpetual subordinated debt, general credit allowances and capital gains. The Bank’s total capital was reduced by certain deductions that need to be made with respect to its investments in other financial institutions.

The computation of both basic and complementary capital was subject to provisions limiting the type of stockholding and the level of control which these stockholdings grant to a banking group. The level of dated subordinated debt taken into account for the calculation of complementary capital may not exceed 50% of basic capital, the level of non-cumulative preferred securities may not exceed 30% of basic capital, the level of step-up preferred securities may not exceed 15% of basic capital and the total amount of complementary capital admissible for computing total capital may not exceed the total amount of basic capital.

The consolidated total capital of a banking group calculated in the manner described above may not be less than 8% of the group’s risk-weighted assets net of specified provisions and amortizations. The calculation of total risk-weighted assets applies minimum multipliers of 0%, 10%, 20%, 50% and 100% to the group’s assets.

Spanish regulations provided that, if certain requirements are met, Spanish banks may include the net credit exposure arising from certain interest rate and foreign exchange related derivative contracts (rather than the entire notional amount of such contracts) in their total risk-adjusted assets for purposes of calculating their capital adequacy ratios.

Spanish banks were permitted to include the net credit exposure arising from interest rate and foreign exchange transactions related to derivative products provided that (i) all derivative related transactions between the parties form a single agreement; (ii) the incumbent bank has submitted to the Bank of Spain legal opinions with regard to the validity of the netting provisions; and (iii) the incumbent bank has implemented the appropriate procedures to revise the treatment of netting if there is an amendment of the regulations in force.

As a result of the new Basel capital accord issued by the Basel Committee (Basel II), a new regulatory framework (Directives 2006/48/EC and 2006/49/EC) was adopted in June 2006 by the European Union. Since then, each country has been going through the process of implementing the directives, firstly in national laws and secondly in the specific regulations of each national supervisor. This new framework is applicable to all Spanish banks. Law 36/2007 (November 17), which amends Law 13/1985 on investment ratios, capital and reporting requirements of financial intermediaries and Royal Decree 216/2008 (February 15), transposes Directive 2006/48/EC and Directive 2006/49/EC into the Spanish Law.

Bank of Spain Circular 3/2008 published on June 10, 2008 mandated Spanish entities to report capital ratios using the Basel II framework from June 30, 2008.

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Basel II introduces more emphasis on risk sensitivity, supervisory review and market discipline (through more extensive disclosures). Banks have minimum capital requirements in order to support credit, market and operational risk.

The capital requirements can be calculated through standard or advanced internal models. The standardized model uses an approach to risk weighted assets calculation based on the quality of the assets and the available external agency ratings. Depending on the ratings, different risk weights are applied (20%, 35%, 50%, 75%, 100% and 150%).

The Group has been using, from the outset, advanced internal models to calculate the capital requirements for credit risk of the units with the largest credit risk exposure (the Parent Bank and Banesto in Spain, Santander UK and Alliance & Leicester in the United Kingdom), and plans to extend these models to its other main units in the next few years (Santander Totta in Portugal already implemented these models in 2009). The use of advanced internal models is subject to stringent internal validation and supervisory approval requirements. Internal validation and supervisory review and approval of the models are not confined to the quantitative model, but also encompass qualitative requirements relating to the technological environment and the integration of the models into management. In the case of the Group, this has entailed review and approval by the Bank of Spain, the FSA and the Bank of Portugal of several credit risk models applicable to the various business segments. In June 2008, Bank of Spain authorized the use of internal models to determine the regulatory capital requirements of the above mentioned Group’s main units beginning as of June 30, 2008, except for Santander Totta which was authorized in June 2009.

The new regulatory standards positively affect the Group’s capital ratios, as the use of internal models reduces the risk weighted exposure and, consequently, the Group’s capital needs are lower. This improvement is partly offset by the higher penalization from including operational risk and, second, by the limitation of the inclusion of general provisions among second tier funds to 60%.

At December 31, 2009, our eligible capital exceeded the minimum required by the Bank of Spain by over €25 billion. Our Spanish subsidiary banks were, at December 31, 2009, each in compliance with these capital adequacy requirements, and all our foreign subsidiary banks were in compliance with their local regulations.

The calculation of the minimum capital requirements under the new regulations, referred to as Pillar I, is supplemented by an internal capital adequacy assessment process (“ICAAP”) and supervisory review, referred to as Pillar II. In the case of the Group, the ICAAP is based on an internal model which is used to quantify the economic capital required, given the Group’s global risk profile, to maintain a target AA rating. Lastly, Basel II regulations establish, through Pillar III, strict standards of transparency in the disclosure of risk information to the market.

Concentration of Risk

Spanish banks may not have exposure to a single person or group in excess of 25% (20% in the case of an affiliate) of the bank’s equity. Any exposure to a person or group exceeding 10% of a bank’s capital is deemed a concentration and the total amount of exposure represented by all of such concentrations must not exceed 800% of such capital (excluding exposures to the Spanish government, the Bank of Spain, the European Union and certain other exceptions).

Legal Reserve and Other Reserves

Spanish banks are subject to legal and other restricted reserves requirements. In addition, we must allocate profits to certain other reserves as described in Note 33 to our consolidated financial statements.

Allowances for Credit Losses and Country-Risk

For a discussion relating to allowances for credit losses and country-risk, see “—Classified Assets—Bank of Spain Classification Requirements”.

Employee Pension Plans

At December 31, 2009, our pension plans were all funded according to the criteria disclosed in Note 25 to our consolidated financial statements.

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Restrictions on Dividends

We may only pay dividends (including interim dividends) if such payment is in compliance with the Bank of Spain’s minimum capital requirement (described under “—Capital Adequacy Requirements”) and other requirements or, as described below, under certain circumstances when we have capital that is 20% or less below the Bank of Spain’s minimum capital requirements.

If a banking group meets this capital requirement, it may dedicate all of its net profits to the payment of dividends, although in practice Spanish banks normally consult with the Bank of Spain before declaring a dividend. Even if a banking group meets the capital requirement as a group, any consolidated Spanish credit entity that is a subsidiary that does not meet the capital requirement on its own will be subject to the limitations on dividends described below. If a banking group or any Spanish credit entity subsidiary of the group has capital that is 20% or less below the Bank of Spain’s minimum capital requirement, it must devote an amount of net profits determined by the Bank of Spain to reserves, and dividends may be paid out of the remainder only with the prior approval of the Bank of Spain. If the capital is 20% or more, or its basic capital is 50% or more, below the minimum requirement, it may not pay any dividends and must allocate all profits to reserves unless otherwise authorized by the Bank of Spain. In the case of a banking group failing to meet the capital requirement, however, the Bank of Spain can authorize that the consolidated subsidiaries in the group pay dividends without restriction, so long as they are at least 50% owned by group companies and, if they are credit entities, independently comply with the capital requirement.

If a bank has no net profits, its board of directors may propose at the general meeting of shareholders that a dividend be declared out of retained earnings. However, once the board of directors has proposed the dividend to be paid, it must submit the proposal to the Minister of Economy and Finance who, in consultation with the Bank of Spain, may in his discretion authorize or reject the proposal of the board.

Compliance with such requirements notwithstanding, the Bank of Spain is empowered to advise a bank against the payment of dividends on solvency and soundness grounds. If such advice is not followed, the Bank of Spain may require that notice of such advice be included in the bank’s annual report registered before the Mercantile Register. In no event may dividends be paid from certain legal reserves.

Interim dividends of any given year may not exceed the net profits for the period from the closing of the previous fiscal year to the date on which interim dividends are declared. In addition, the Bank of Spain recommends that interim dividends not exceed an amount equal to one-half of all net income from the beginning of the corresponding fiscal year. Although banks are not legally required to seek prior approval from the Bank of Spain before declaring interim dividends, the Bank of Spain has asked that banks consult with it on a voluntary basis before declaring interim dividends.

Limitations On Types Of Business

Spanish banks generally are not subject to any prohibitions on the types of businesses that they may conduct, although they are subject to certain limitations on the types of businesses they may conduct directly.

The activities that credit institutions authorized in another Member State of the European Union may conduct and which benefit from the mutual recognition within the European Union are detailed in article 52 of Law 26/1988 (July 29, 1988).

Deposit Guarantee Fund

The Deposit Guarantee Fund on Credit Institutions (“Fondo de Garantía de Depósitos”, or the “FGD”), which operates under the guidance of the Bank of Spain, guarantees in the case of the Bank and our Spanish banking subsidiaries: (i) bank deposits up to €100,000 per depositor; and (ii) securities and financial instruments which have been assigned to a credit institution for its deposit, register or for other such services, up to €100,000 per investor. Pursuant to regulations affecting the FGD, the FGD may purchase non-performing loans or may acquire, recapitalize and sell banks which experience difficulties.

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The FGD is funded by annual contributions from member banks. The amount of such bank’s contributions is currently 0.6 per thousand (0.4 per thousand for savings banks and 0.8 per thousand for credit cooperatives) of the year-end amount of deposits to which the guarantee extends. For that purpose, the calculation basis will take into consideration the bank deposits, plus 5% of the market quotation (or nominal value or redemption value in case the securities are not traded in any secondary market) of the guaranteed securities at the end of the financial year. Nevertheless, the Minister of Economy and Finance may reduce the member bank contributions once the capital of the FGD resources exceeds its requirements, and suspend further contributions when the FGD’s funds exceed the requirement by 1% or more of the calculation basis.

As of December 31, 2009, the Bank and its domestic bank subsidiaries were members of the FGD and thus were obligated to make annual contributions to it.

Data Protection

Law 15/1999, dated December 13, 1999, establishes the requirements relating to the treatment of customers’ personal data by credit entities. This law requires credit entities to notify the Spanish Data Protection Agency prior to creating files with a customer’s personal information. Furthermore, this law requires the credit entity to identify the persons who will be responsible for the files and the measures that will be taken to preserve the security of those files. The files must then be recorded in the Data Protection General Registry, once compliance with the relevant requirements has been confirmed. Credit entities that breach this law may be subject to claims by the interested parties before the Data Protection Agency. The Data Protection Agency, which has investigatory and sanctioning capabilities, is the Spanish Authority responsible for the control and supervision of the enforcement of this law.

Recent Legislation

Law 6/2007 (April 12) amending the Securities Market Law, in order to modify the rules for takeover bids and for issuers transparency. This law has been further developed by Royal Decree 1066/2007 (July 27) on rules applicable to takeover bids for securities and by Royal Decree 1362/2007 (October 19), on transparency requirements for issuers of listed securities (see Item 9 of Part I, “The Offer and Listing—C. Markets—Spanish Securities Market—Securities Market Legislation” and Item 10 of Part I, “Additional Information—B. Memorandum and Articles of Association—Tender Offers”).

Law 16/2007 (July 4) introduces a series of amendments to the Spanish mercantile legislation, Commercial Code and Companies Law, in order to adapt it to certain international accounting standards introduced by Regulation 1606/2002/EC of the European Union and of the Council with regard to international financial reporting standards.

Law 22/2007 (July 11) completes the incorporation into the Spanish legal system of Directive 2002/65/EC concerning the distance marketing of consumer financial services.

Law 36/2007 (November 17) introduces a series of amendments to Law 13/1985 (May 25), on investment ratios, capital and reporting requirements of financial intermediaries, in order to adapt it to Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions. The provisions of this Directive and the provisions in Directive 2006/49/EC on the minimum capital adequacy of investment firms and credit institutions, implements in the European Union the provisions of the 2004 New Basel Capital Accord (Basel II) which focuses on capital allocation as a primary means of controlling risk. Further implementation in Spain of the above mentioned Directives has been made by Royal Decree 216/2008 (February 15), on capital of financial institutions and by Bank of Spain Circular 3/2008, published on June 10, 2008 (see “Capital Adequacy Requirements” above).

Law 41/2007 (December 7) amends Law 2/1981 (March 25) on the mortgage market and regulations related to the mortgage and financial systems, by regulating reverse mortgages and long term care insurance and by setting out a specific tax rule. The purpose of this law is to provide the Spanish mortgage market with greater flexibility. A number of reforms have been introduced relating to (i) asset or financing transactions carried out by credit institutions; and (ii) liability transactions, i.e., those of moving mortgage loans and credits that credit institutions carried out as refinancing mechanisms (mortgage participations, mortgage bonds and covered bonds). A new Royal Decree 716/2009 of April 24, 2009 has been enacted implementing some of the reforms introduced by Law 41/2007 on the mortgage market.

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Law 47/2007 (December 19) amends the Securities Market Law in order to adapt it to (i) Directive 2004/39/EC on markets in financial instruments (MiFID), (ii) Directive 2006/73/EC implementing Directive 2004/39/EC with respect to the organizational requirements and operating conditions for investment firms and defined terms for the purpose of that Directive; and (iii) Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions. Further Directive 2006/49/EC and MiFID implementation have been introduced by Royal Decrees 216/2008 and 217/2008 (both of February 15), respectively (see Item 9 of Part I, “The Offer and Listing—C. Markets. —Spanish Securities Market—Securities Market Legislation”).

Law 4/2008 (December 23, 2008) abolishes wealth tax, brings into general use the monthly refund system for value added tax, and introduces other amendments to tax legislation.

Law 3/2009, of April 3, on structural modifications of commercial companies (Ley sobre modificaciones estructurales de las sociedades mercantiles), entails a profound reform of our legal system in various areas of corporate Law:

(i) cross-border mergers and international transfers of a corporation’s registered office are regulated;

(ii) rules applicable to corporate restructuring transactions of the different types of commercial companies are unified;

(iii) the quantitative limitations for the acquisition of treasury stock by public limited companies are extended (10% for listed companies and 20% for unlisted companies).

(iv) preemptive rights are abolished in the case of non-monetary contributions, preemptive rights of the holders of convertible debentures are eliminated, and the ability to exclude preemptive rights of the shareholders for the issuance of convertible debentures is expressly provided.

This law will enter into force within three months of the publication thereof in the Spanish Official Gazette, except for the provisions relating to intra-European Union cross-border mergers, which entered into force on the day following publication thereof.

Law 5/2009, of June 29, amending Securities Market Law 24/1988, of July 28, Law 26/1988 of July 26 on Discipline and Control of the Credit Institutions, and the Revised Private Insurance Regulation and Supervision Law, approved by Legislative Royal Decree 6/2004, of October 29, for the reform of the Regime on Significant Holdings in Investment Firms, Credit Institutions and Insurance Companies, which implements Directive 2007/44/EC of the European Parliament and of the Council, sets up the criteria and procedures used to assess the suitability of potential acquirers of qualifying holdings of credit institutions, investment firms and insurance companies.

Final provisions of the Law 5/2009 amend a wide and important range of Spanish laws which includes among others Law 35/2003 of November 4, on Collective Investment Schemes, Law 19/1992, of July 7, on the regime governing real estate investment companies and funds, mortgage securitization funds and the Spanish Corporations Law granting shareholders of listed companies, through a vote at the Annual Shareholder’s Meeting, the option of delegating to the Board of Directors the power of excluding the right of preemptive subscription in relation to convertible debenture issuances.

Law 11/2009 of October 26, regulating listed corporations investing in real estate (the so-called SOCIMIs), encourages investment in Spanish real estate during the economic recession by providing for specific tax advantages to companies meeting specific corporate, regulatory and tax requisites. Law 11/2009 also regulates income deriving from loans between related parties and clarifies the regime applicable for the offsetting of losses generated by companies within the same group at the level of the tax group when there are more than two levels of subsidiaries.

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Law 16/2009, of November 13, on Payment Services, which transposes into Spanish law Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007, regulates the manner in which payment services are rendered in Spain, entities authorized to provide the aforementioned services, and the duties of users and providers of these services, focusing on the following areas:

(i) Definition of the payment services, within a both positive and negative scope, and the restricted entities authorized to render such services;

(ii) Regulation of Payment Institutions, which shall be subject to the supervision of the Bank of Spain;

(iii) Transparency and information requirements of the payment services providers; and

(iv) Rights and obligations in relation to the provision and use of the payment services of both the payments services providers and the payment services users.

Law 16/2009 also regulates the penalties to which the Payment Institutions shall be subject, which also can be extended to those legal or individuals who have a significant holding in these entities, as well as transitional provisions regarding certain contracts entered into by credit institutions and their customers and those contracts entered into by currency exchange institutions and their clients, both for the rendering of payment services.

Law 26/2009 of December 23 on the 2010 General State Budgets, which was published in the State’s Official Newsletter on December 24, 2009, introduces in a series of measures dealing with main aspects of the tax systems. The most significant of these are:

a) Individual Income Tax rates applicable to “savings income” (dividends, interest, net worth gains) are increased to 19% or 21%;

b) Corporate Income Tax rates of withholding and on account payment of Corporate Tax is increased to 19%, and for small- and medium-sized businesses that create or maintain employment, two levels of reduced rates (20% or25%) have been established;

c) starting on July 1, 2010, general and reduced rates of Value Added Tax (VAT) are respectively increased from 16% and 7% to 18% and 8%; and

d) with respect to the Non-Resident Income Tax, the rate applicable to savings income is currently 19%.

* * * * * *

In an attempt to deal with the international financial crisis, due to the exceptional circumstances notably beginning in the second half of 2008, the following laws were approved in Spain:

• Royal Decree 1642/2008, of December 10, increased consumer deposit and investment guarantees up to €100,000 for each depositor or investor and Spanish entity.

• Royal Decree-Law 6/2008, of October 10, creates the Spanish Financial Asset Acquisition Fund, and Order EHA/3118/2008, dated October 31, enacts this Royal Decree. The purpose of the fund, which is managed by Spain’s Ministry of Economy and Finance and has an initial endowment of €30 billion that can be increased to €50 billion, is to acquire, with public financing and based on market criteria via auctions, financial instruments issued by credit institutions and securitization funds (which are backed by loans granted to individuals, companies and non-financial entities) as a measure to increase liquidity.

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• Royal Decree-Law 7/2008, of October 13, on Emergency Economic Measures in connection with the Concerted Euro Area Action Plan (“RD 7/2008”), and Order EHA/3364/2008, dated November 21, as amended by Order EHA/3748/2008 of December 23, enacting article 1 of the aforementioned Royal Decree, include the following measures:

• Article 1 of RD 7/2008, authorizes the granting of state guarantees for certain new financing transactions carried out by credit entities resident in Spain up to a maximum amount of €100 billion. The purpose of Order EHA/3364/2008, as amended by Order EHA/3748/2008 is to implement the provisions of RD 7/2008 and to specify certain essential aspects of the system for granting guarantees to credit entities, such as: (i) the characteristics of the guarantees to be granted; (ii) the requirements that the beneficiary entities and the transactions must fulfill; and (iii) the process to be followed in order to grant the guarantees. Debt issued under this state guarantee must form part of individual operations or issuance programs; not be subordinated or secured by any other class of guarantee; be traded on official Spanish secondary markets; mature within three months and three years (although this maturity can be extended to five years subject to prior notification to the Bank of Spain); be fixed or floating rate (subject to special conditions for floating-rate debt); be repaid in a single installment at maturity; not have any options or other derivatives attached to it; and, not be less than €10 million per issue. The deadline for issuing debt eligible for state guarantees is December 31, 2009 and the total amount of guarantees is €100 billion.

• Authorization, on an exceptional basis, until December 31, 2009, for the Spanish Ministry of Economy and Finance to acquire regulatory capital (including preferred securities and quotas) issued by credit entities resident in Spain that need to reinforce their capital and request such action. These acquisitions will require a report from the Bank of Spain.

• Royal Decree-law 3/2009, of March 27, on urgent measures for tax, financial and insolvency matters, amends the Spanish Insolvency Law (in force since 2004), and aims: (i) to facilitate restructuring outside insolvency proceedings for companies undergoing financial difficulties; (ii) to expedite insolvency proceedings for companies which either decide or are bound to restructure in an insolvency situation; and (iii) to settle certain discrepancies concerning credit subordinations. Additionally, it authorizes the Consorcio de Compensación de Seguros to participate in the reassurance of credit insurance transactions.

• Royal Decree-Law 9/2009, of June 26, on bank restructuring and credit institutions equity reinforcement, which also aims at maintaining confidence in the financial system and enhancing its strength and solvency so that the surviving institutions are sound and able to provide credit normally, proposes a bank restructuring model based on the three Credit Institution Deposit Guarantee Funds and the use of the “Fund for the Orderly Bank Restructuring”, which has three different stages: (i) the search of a private solution by the credit institution itself; (ii) the adoption of measures aimed at dealing with any weakness that affect the viability of credit institutions, with the participation of the Credit Institution Deposit Guarantee Funds and (iii) restructuring processes with the intervention of the Fund for Orderly Bank Restructuring.

This recapitalization scheme for credit institutions has been approved by the European Commission until 30 June 2010, concluding the scheme is compatible with article 107.3.b of the Treaty on the Functioning of the European Union (TFEU). A possible prolongation of the model beyond 30 June 2010 must be notified to the Commission together with a report on the functioning of the scheme.

United Kingdom Regulation

FSA

Both Santander UK and our London branch are regulated by the Financial Services Authority (“FSA”). The FSA is the single statutory regulator responsible for regulating deposit taking, mortgages, insurance and investment business pursuant to the Financial Services and Markets Act 2000 (“FSMA”). It is a criminal offense for any person to carry on any of the activities regulated under this Act in the United Kingdom by way of business unless that person is authorized by the FSA or falls under an exemption.

The FSA has authorized Santander UK, as well as some of its subsidiaries, to carry on certain regulated activities. The regulated activities they are authorized to engage in depend upon permissions granted by the FSA. The main permitted activities of Santander UK and its authorized subsidiaries are described below.

Mortgages

Lending secured on land, at least 40% of which is used as a dwelling by an individual borrower or relative, has been regulated by the FSA since October 31, 2004. Santander UK is authorized to enter into, advise and arrange regulated mortgage contracts.

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Banking

Deposit taking is a regulated activity that requires a firm to be authorized and supervised by the FSA. Santander UK has permission to carry on deposit taking as do several of its subsidiaries, including Alliance & Leicester plc, Abbey National Treasury Services plc and Cater Allen Limited.

Insurance

United Kingdom banking groups may provide insurance services through other group companies. Insurance business in the United Kingdom is divided between two main categories: Long-term Assurance (such as whole of life, endowments, life insurance investment bonds) and General Insurance (such as buildings and contents coverage, annually renewable life, health and travel protection coverage and motor insurance).

Under the FSMA, effecting or carrying out any contract of insurance, whether general or long-term, is a regulated activity requiring authorization. Life insurance mediation has been subject to regulation for many years. General insurance mediation has been subject to regulation by the FSA since January 14, 2005.

Santander UK is authorized by the FSA to sell both Long-term Assurance and General Insurance, and receives commissions for the policies arranged.

Investment business

Investment business such as dealing in, arranging deals in, managing and giving investment advice in respect of most types of securities and other investments, including options, futures and contracts for differences (which would include interest rate and currency swaps) and long-term assurance contracts are all regulated activities under the FSMA and require authorization by the FSA.

Santander UK and a number of its subsidiaries have permission to engage in a wide range of wholesale and retail investment businesses including selling investment-backed life assurance and pension products, unit trust products and individual savings accounts (tax exempt saving products) and providing certain retail equity products and services.

United States Supervision and Regulation

Our operations are subject to extensive federal and state banking and securities regulation and supervision in the United States. We engage in U.S. banking activities directly through our New York branch and indirectly through Banesto’s branch in New York, Santander UK’s branch in Connecticut, our subsidiary Edge Act corporation, Banco Santander International, in Miami, Banco Santander Puerto Rico (“Santander Puerto Rico”) in Puerto Rico and Sovereign Bank, a federally-chartered savings bank that is headquartered in Pennsylvania and has branches in various states.

Regulatory Authorities

We are a bank holding company under the U.S. Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), by virtue of our ownership of Santander Puerto Rico. As a result, we and our U.S. operations are subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).

Santander Puerto Rico is a Puerto Rico-chartered bank, and its deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”). As such, Santander Puerto Rico is subject to regulation, supervision and examination by the Puerto Rico Bureau of Financial Institutions and the FDIC. Sovereign Bank is a federally-chartered savings bank, the deposits of which are also insured by the FDIC. Sovereign Bank is subject to regulation, supervision and examination by the Office of Thrift Supervision and the FDIC. Our New York branch is supervised by the Federal Reserve Board and the New York State Banking Department, but its deposits are not insured (or eligible to be insured) by the FDIC. Banesto’s branch in New York is supervised by the Federal Reserve Board and the New York State Banking Department. Santander UK’s branch in Connecticut is supervised by the Federal Reserve Board and the Connecticut Department of Banking. Banco Santander International is supervised by the Federal Reserve Board.

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Restrictions on Activities

As described below, federal and state banking laws and regulations restrict our ability to engage, directly or indirectly through subsidiaries, in activities in the United States.

We are required to obtain the prior approval of the Federal Reserve Board before directly or indirectly acquiring the ownership or control of more than 5% of any class of voting shares of U.S. banks, certain other depository institutions, and bank or depository institution holding companies. Under the Bank Holding Company Act Federal Reserve Board regulations and the Home Owner’s Loan Act, our U.S. banking operations (including our New York branch and Santander Puerto Rico) are also restricted from engaging in certain “tying” arrangements involving products and services.

Santander Puerto Rico and Sovereign Bank are subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of these subsidiaries.

The Gramm-Leach Bliley Act of 1999 (the “GLB Act”) and Federal Reserve Board regulations contain provisions that could affect our operations and the operations of all financial institutions. One of these provisions requires our depository institution subsidiaries to disclose our privacy policy to consumers and to offer them the ability to opt out of having their non-public information disclosed to third parties. In addition, individual states are permitted to adopt more extensive privacy protections through legislation or regulation. In addition, the so-called “push-out” provisions of the GLB Act narrow the exclusion of banks (including U.S. branches of foreign banks, such as our New York branch) from the definitions of “broker” and “dealer” under the Securities Exchange Act of 1934.

In addition, under U.S. federal banking laws, state-chartered banks (such as Santander Puerto Rico) and state-licensed branches and agencies of foreign banks (such as our New York branch) may not, as a general matter, engage as a principal in any type of activity not permissible for their federally chartered or licensed counterparts, unless (i) in the case of state-chartered banks (such as Santander Puerto Rico), the FDIC determines that the additional activity would pose no significant risk to the FDIC’s Deposit Insurance Fund and is consistent with sound banking practices, and (ii) in the case of state licensed branches and agencies (such as our New York branch), the Federal Reserve Board determines that the additional activity is consistent with sound banking practices. United States federal banking laws also subject state branches and agencies to the same single-borrower lending limits that apply to federal branches or agencies, which are substantially similar to the lending limits applicable to national banks. These single-borrower lending limits are based on the worldwide capital of the entire foreign bank (i.e., Banco Santander, S.A. in the case of our New York branch).

Under the International Banking Act of 1978, as amended, the Federal Reserve Board may terminate the activities of any U.S. office of a foreign bank if it determines that the foreign bank is not subject to comprehensive supervision on a consolidated basis in its home country (unless the home country is making demonstrable progress toward establishing such supervision), or that there is reasonable cause to believe that such foreign bank or its affiliate has violated the law or engaged in an unsafe or unsound banking practice in the United States and, as a result of such violation or practice, the continued operation of the U.S. office would be inconsistent with the public interest or with the purposes of federal banking laws.

There are various legal restrictions on the extent to which we and our nonbank subsidiaries can borrow or otherwise obtain credit from our U.S. banking subsidiaries or engage in certain other transactions involving those subsidiaries. In general, these transactions must be on terms that would ordinarily be offered to unaffiliated entities and must be secured by designated amounts of specified collateral. In addition, certain transactions, such as certain extensions of credit by a U.S. bank subsidiary to, or purchases of assets by such a subsidiary from, us or our nonbank subsidiaries are subject to volume limitations. These restrictions also apply to certain transactions of our New York Branch with certain of our U.S. affiliates.

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Our New York Branch

Our New York branch is licensed by the New York Superintendent of Banks to conduct a commercial banking business. Under the New York State Banking Law and regulations, our New York branch is required to maintain eligible high-quality assets with banks in the State of New York, as security for the protection of depositors and certain other creditors.

The New York State Banking Law also empowers the Superintendent of Banks to establish asset maintenance requirements for branches of foreign banks, expressed as a percentage of each branch’s liabilities. The presently designated percentage is 0%, although the Superintendent may impose additional asset maintenance requirements upon individual branches on a case-by-case basis. No such requirement has been imposed upon our New York branch.

The New York State Banking Law authorizes the Superintendent of Banks to take possession of the business and property of a New York branch of a foreign bank under circumstances involving violation of law, conduct of business in an unsafe manner, impairment of capital, suspension of payment of obligations, or initiation of liquidation proceedings against the foreign bank at its domicile or elsewhere. In liquidating or dealing with a branch’s business after taking possession of a branch, only the claims of creditors which arose out of transactions with a branch are to be accepted by the Superintendent of Banks for payment out of the business and property of the foreign bank in the State of New York, without prejudice to the rights of the holders of such claims to be satisfied out of other assets of the foreign bank. After such claims are paid, the Superintendent of Banks will turn over the remaining assets, if any, to the foreign bank or its duly appointed liquidator or receiver.

Under the New York State Banking Law, our New York branch is generally subject to the same limits on lending to a single borrower, expressed as a ratio of capital, that apply to a New York state-chartered bank, except that for our New York branch such limits are based on our worldwide capital.

Our U.S. Depository Institution Subsidiaries

The Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”) provides for extensive regulation of depository institutions (such as Santander Puerto Rico and Sovereign Bank), including requiring federal banking regulators to take “prompt corrective action” with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. For this purpose, FDICIA establishes five tiers of institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” As an insured depository institution’s capital level declines and the depository institution falls into lower categories (or if it is placed in a lower category by the discretionary action of its supervisor), greater limits are placed on its activities and federal banking regulators are authorized (and, in many cases, required) to take increasingly more stringent supervisory actions, which could ultimately include the appointment of a conservator or receiver for the depository institution (even if it is solvent). In addition, FDICIA generally prohibits an FDIC-insured bank from making any capital distribution (including payment of a dividend) or payment of a management fee to its holding company if the bank would thereafter be undercapitalized. If an insured depository institution becomes “undercapitalized,” it is required to submit to federal regulators a capital restoration plan guaranteed by the depository institution’s holding company. The guarantee is limited to 5% of the depository institution’s assets at the time it becomes undercapitalized or, should the undercapitalized depository institution fail to comply with the plan, the amount of the capital deficiency at the time of failure, whichever is less. If an undercapitalized depository institution fails to submit an acceptable plan, it is treated as if it were “significantly undercapitalized.” Significantly undercapitalized depository institutions may be subject to a number of restrictions, including requirements to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and restrictions on accepting deposits from correspondent banks. “Critically undercapitalized” depository institutions are subject to appointment of a receiver or conservator.

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Monetary Policy and Exchange Controls

The decisions of the European System of Central Banks influence conditions in the money and credit markets, thereby affecting interest rates, the growth in lending, the distribution of lending among various industry sectors and the growth of deposits. Monetary policy has had a significant effect on the operations and profitability of Spanish banks in the past and this effect is expected to continue in the future. Similarly, the monetary policies of governments in other countries in which we have operations, particularly in Latin America, the United States and the United Kingdom, affect our operations and profitability in those countries. We cannot predict the effect which any changes in such policies may have upon our operations in the future, but we do not expect it to be material.

The European Monetary Union has had a significant effect upon foreign exchange and bond markets and has involved modification of the internal operations and systems of banks and of inter-bank payments systems. Since January 1, 1999, the start of Stage III, see “—Supervision and Regulation—Bank of Spain and the European Central Bank,” Spanish monetary policy has been affected in several ways. The euro has become the national currency of the fifteen participating countries and the exchange rates between the currencies of these countries were fixed to the euro. Additionally, the European System of Central Banks became the entity in charge of the European Union’s monetary policy.

C. Organizational structure

Banco Santander, S.A. is the parent company of the Group which was comprised at December 31, 2009 of 848 companies that consolidate by the global integration method. In addition, there are 142 companies that are accounted for by the equity method.

See Exhibits I, II and III to our consolidated financial statements included in this Form 20-F for details of our consolidated and non-consolidated companies.

D. Property, plant and equipment

During 2009, the Bank and its banking subsidiaries either leased or owned premises in Spain and abroad, which at December 31, 2009 included 4,865 branch offices in Spain and 8,795 abroad. These figures include traditional branches and banking services points but do not include electronic service points. See Item 4 of Part I, “Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations and Recent events” and Note 16 to our consolidated financial statements.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

Critical Accounting Policies

The preparation of the Group’s consolidated financial statements requires a significant amount of judgment involving estimates and assumptions which can be inherently uncertain at the time they are made (see Note 1-c to our consolidated financial statements). Changes in assumptions may have a significant impact on the financial statements in the periods in which they are changed. Judgments or changes in assumptions are submitted to the audit and compliance committee of the board of directors and/or to our regulatory authorities and are disclosed in the notes to our consolidated financial statements.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under current circumstances. Actual results may differ from these estimates if assumptions and conditions change.

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We believe that of our significant accounting policies, the following may involve a high degree of judgment:

Fair value of financial instruments

Trading assets or liabilities, financial instruments that are classified at fair value through profit or loss, available for sale securities, and all derivatives are recorded at fair value on the balance sheet. The fair value of a financial instrument is the value at which it could be bought or sold in a current transaction between willing parties. If a quoted price in an active market is available for an instrument, the fair value is calculated based on that price.

If there is no market price available for a financial instrument, its fair value is estimated on the basis of the price established in recent transactions involving the same or similar instruments and, in the absence thereof, on the basis of valuation techniques commonly used by the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it.

We use derivative financial instruments for both trading and non-trading activities. The principal types of derivatives used are interest rate swaps, future rate agreements, interest rate options and futures, foreign exchange forwards, foreign exchange futures, foreign exchange options, foreign exchange swaps, cross currency swaps, equity index futures and equity options. The fair value of standard derivatives is calculated based on published price quotations. The fair value of over-the-counter (“OTC”) derivatives is taken to be the sum of the expected future cash flows arising from the instrument, discounted to present value at the date of measurement (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets as follows:

• In the valuation of financial instruments permitting static hedging (principally, forwards and swaps), and in the valuation of loans and advances, the “present value” method is used. Expected future cash flows are discounted using the interest rate curves of the applicable currencies. The interest rate curves are generally observable market data.

• In the valuation of financial instruments requiring dynamic hedging (principally structured options and other structured instruments), the Black-Scholes model is generally used. Certain observable market inputs are used in the Black-Scholes model to generate variables such as the bid-offer spread, exchange rates, volatility, correlation between indexes and market liquidity, as appropriate.

• In the valuation of financial instruments exposed to interest rate risk (such as interest rate futures, caps and floors), the present value method (futures) and Black-Scholes model (plain vanilla options) are used. For more structured instruments that require dynamic hedging, the Heath-Jarrow-Morton model is used. The main inputs used in these models are principally observable market data, including appropriate interest rate curves, volatilities, correlations and exchange rates.

• In the case of linear instruments (such as bonds and fixed-income derivatives), credit risk is measured using dynamic models similar to those used in the measurement of interest rate risk. In the case of non-linear instruments, if they are exposed to portfolio credit risk (such as credit derivatives), the joint probability of default is determined using the Standard Gaussian Copula model. The main inputs used in the Standard Gaussian Copula model are generally data relating to individual issuers in the portfolio and correlations thereto. The main inputs used in determining the underlying cost of credit for credit risk derivatives are quoted credit spreads, and the correlation between individual issuers’ quoted credit derivatives.

The determination of fair value requires the use of estimates and certain assumptions. If quoted market prices are not available, fair value is calculated using widely accepted pricing models that consider contractual prices of the underlying financial instruments, yield curves, contract terms, observable market data, and other relevant factors. The use of different estimates or assumptions in these pricing models could lead to a different valuation being recorded in our consolidated financial statements.

In Note 2. d) iii. to our consolidated financial statements additional information can be found regarding valuation techniques used by the Group, along with details of the principal assumptions and estimates used in these models and the sensitivity of the valuation of financial instruments to changes in the principal assumptions used.

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Allowance for credit losses

Financial assets accounted for at amortized cost and contingent liabilities are assessed for objective evidence of impairment and any resulting allowances for credit losses are recognized and measured in accordance with IAS 39. Credit losses exist if the carrying amount of an asset or claim or a portfolio of assets or claims exceeds the present value of the estimated future cash flows.

Credit losses on these impaired assets and contingent liabilities are assessed as follows:

• Individually, for all significant debt instruments and for instruments which, although not material, are not susceptible to being classified in homogeneous groups of instruments with similar risk characteristics: instrument type, debtor’s industry and geographical location, type of guarantee or collateral, and age of past-due amounts, taking into account: (i) the present value of future cash flows, discounted at an appropriate discount rate; (ii) the debtor’s financial situation; and (iii) any guarantees in place.

• Collectively, in all other cases, we group transactions on the basis of the nature of the obligors, the conditions of the countries in which they reside, transaction status, type of collateral or guarantee, and age of past-due amounts. For each group, we establish the appropriate impairment losses (“identified losses”) that must be recognized.

Additionally, we recognize an impairment allowance for credit losses when it is probable that a loss has been incurred, taking into account the historical loss experience and other circumstances known at the time of assessment. For this type of allowance, credit losses are losses incurred at the reporting date, calculated using statistical methods, that have not yet been allocated to specific transactions.

We have implemented a methodology which complies with IFRS-IASB and is consistent with the Bank of Spain requirements for the determination of the level of provisions required to cover inherent losses. This methodology initially classifies portfolios considered normal risk (debt instruments not classified at fair value through profit or loss, contingent risks and contingent commitments) into the following groups, according to the associated level of risk:

(i) No appreciable risk.

(ii) Low risk.

(iii) Medium-low risk.

(iv) Medium risk.

(v) Medium-high risk.

(vi) High risk.

Once these portfolios have been classified, the Bank of Spain, based on experience and information available to it with respect to the Spanish banking sector, has determined the methodology and parameters that entities should apply in the calculation of the provisions for inherent losses in debt instruments and contingent risks and commitments classified as normal risk.

The calculation establishes that the charge for inherent losses to be made in each period will be equal to: (i) the sum of multiplying the value, positive or negative, of the variation in the period of the balance of each class of risk by the constant α corresponding to that class, plus (ii) the sum of multiplying the total amount of the operations included in each class at the end of the period by the relevant β, minus (iii) the amount of the net charge for the specific allowance made in the period.

The parameters α and β as determined by the Bank of Spain’s guidance take into account historic inherent losses and adjustments to reflect the current economic circumstances.

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The allowances for impaired balances recorded by Grupo Santander as at December 31, 2009, using the methodology outlined above, was €18,497 million.

Additionally, with the objective of ensuring that the provisions resulting from the application of the criteria required by the Bank of Spain are reasonable, the Group estimates the allowances for credit losses using models based on its own credit loss experience and management’s estimate of future credit losses. The Group has developed internal risk models, based on historical information available for each country and type of risk (homogenous portfolios); a full description of our credit risk management system is included in Item 11. Quantitative and Qualitative Disclosures about Market Risk Part 4. Credit Risk. These models produce a result that substantially the same as the level of provisions at which we arrive using the model established by the Bank of Spain, as explained below. These internal models may be applied in future periods, and although approved for regulatory capital calculations, they are currently subject to local regulatory approval by the Bank of Spain for purposes of loan loss provisions. In order for each internal model to be considered valid by the local regulator for use, the calculation should be methodologically correct, and be supported by historical information which covers at least one complete economic cycle and is stored in databases which are consistent with information that has been audited by both the group internal auditing function and external auditors.

Since 1993, the Group has employed its own models for assigning solvency and internal ratings, which aim to measure the degree of risk associated with a client or transaction. Each rating corresponds to a certain probability of default or non-payment, based on the Group’s past experience. The development of the internal models has led to the introduction of databases that can be used to estimate the risk parameters required in the calculation of capital and expected loss, following market best practices and the guidelines of the New Capital Accord (Basel II).

There is no substantial difference in the calculation of loan allowances between the EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and IFRS-IASB.

The estimates of a portfolio’s inherent risks and overall recovery vary with changes in the economy, individual industries, countries and individual borrowers’ or counterparties’ ability and willingness to repay their obligations. The degree to which any particular assumption affects the allowance for credit losses depends on the severity of the change and its relationship to the other assumptions.

Key judgments used in determining the allowance for loan losses include: (i) risk ratings for pools of commercial loans and leases, (ii) market and collateral values and discount rates for individually evaluated loans, (iii) product type classifications for consumer and commercial loans and leases, (iv) loss rates used for consumer and commercial loans and leases, (v) adjustments made for current events and conditions, (vi) domestic, global and individual countries economic uncertainty, and (vii) overall credit conditions.

Credit losses are generally recognized through allowances for credit losses. As a result of certain unusual circumstances (for example, bankruptcy or insolvency), the loss can be directly recognized through write-offs.

Specific allowances for credit losses come from the impairment process. Loans are identified as impaired and income no longer accrued when it is determined that collection of interest or principal is doubtful or when the interest or principal has been past due for 90 days or more, unless the loan is well secured and in the process of collection.

Globally managed clients, corporate, sovereign and other loans with significant balances are individually assessed based on the borrower’s overall financial condition, resources, guarantees and payment record. An impairment loss is recognized when there are doubts about collection, or when interest or principal is past due for 90 days or more.

Consumer mortgage, installment, revolving credit and other consumer loans are evaluated collectively, and an impairment loss is recognized when interest or principal is past due for 90 days or more.

According to Bank of Spain’s requirements, non-performing loans must be wholly provisioned (hence all the credit loss recognized) when they are more than 24 months overdue, or after more than 6 years for secured mortgage loans.

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When a loan is deemed partially uncollectible, the credit loss is charged against earnings through allowances for credit losses instead of through a partial write-off of the loan, as this is not permitted by the Bank of Spain. If a loan becomes entirely uncollectible, its allowance is increased until it reaches 100% of the loan balance.

The credit loss recognition process is independent of the process for the removal of impaired loans from the balance sheet. The entire loan balance is kept on the balance sheet until any portion of it has been classified as non-performing for 4 years, or up to 6 years for some secured mortgage loans (the maximum period established in the Bank of Spain regulations), depending on management’s view as to the recoverability of the loan. After that period the loan balance and its specific allowance are removed from the balance sheet and recorded in off-balance sheet accounts, with no resulting impact on net income attributable to the Group.

An additional allowance for credit losses attributed to the remaining portfolio is established via a process that considers the potential loss inherent in the portfolio. Also, an allowance is recorded for those exposures where the sovereign risk, transfer risk and risks arising from international financial activity add some doubts as to the collection of debts (the Country-risk Allowance).

Impairment

Certain assets, including goodwill, other intangible assets, equity method investments, financial assets not carried at fair value through profit or loss and other assets are subject to impairment review. We record impairment charges when we believe there is objective evidence of impairment, or that the cost of the assets may not be recoverable. Assessment of what constitutes impairment is a matter of significant judgment.

Goodwill and other intangible assets are tested for impairment on an annual basis, or more frequently if events or changes in circumstances, such as an adverse change in business climate or observable market data, indicate that these assets may be impaired. An impairment loss recognized for goodwill may not be reversed in a subsequent period. The fair value determination used in the impairment assessment requires estimates based on quoted market prices, prices of comparable businesses, present value or other valuation techniques, or a combination thereof, requiring management to make subjective judgments and assumptions. Events and factors that may significantly affect the estimates include, among others, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures and technology, and changes in discount rates and specific industry or market sector conditions.

In relation to goodwill, the first step of the impairment review process requires the identification of cash-generating units (“CGU”). These are the smallest identifiable group of assets that, as a result of continuing operations, generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill is then allocated to these CGUs; this allocation is reviewed following a business reorganization. The carrying value of the CGU, including the allocated goodwill, is compared to its fair value to determine whether an impairment exists. To calculate these fair values, management may use quoted prices, if available, appraisals made by independent external experts or internal estimations. Assumptions about expected future cash flows require management to make estimations and judgments. For this purpose, management analyzes the following: (i) certain macroeconomic variables that might affect its investments (including population data, the political and economic environment, as well as the banking system’s penetration level); (ii) various microeconomic variables comparing our investments with the financial industry of the country in which we carry on most of our business activities (breakdown of the balance sheet, total funds under management, results, efficiency ratio, capital ratio and return on equity, among others); and (iii) the price earnings (“P/E”) ratio of the investments as compared with the P/E ratio of the stock market in the country in which the investments are located and those of comparable local financial institutions.

Equity method investments are evaluated for impairment on an annually basis, or more frequently if events or changes in circumstances indicate that these assets are impaired. An equity method investment is impaired if its fair value is deemed to be less than its cost. Accordingly, we evaluate whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment.

All debt and equity securities (other than those carried at fair value through profit or loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred. Evaluation for impairment includes both quantitative and qualitative considerations. For debt securities, such considerations include actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may not pay amounts when due. Equity securities are impaired when management believes that, based on (the combination of) a significant or prolonged decline of fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. ‘Significant’ and ‘prolonged’ are interpreted on a case-by-case basis for specific equity securities; generally 40% and 18 months are used as triggers.

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Upon impairment, the full difference between amortized cost and fair value is removed from equity and recognized in net profit or loss. Impairments on debt securities may be reversed if there is a decrease in the amount of the impairment which can be objectively related to an observable event. Impairments on equity securities may not be reversed.

In 2009, the recovery in the securities markets and the positive effect that decreases in interest rates had on debt securities, resulted in a positive valuation adjustment in “Available-for-sale financial assets”. Additionally, impairment of goodwill and other intangible assets was €32 million.

As of December 31, 2009, none of our cash-generating units with significant goodwill is at risk of impairment.

In 2008, our impairment reviews resulted in impairment charges of €2,042 million related to the write-down of the ownership interests in Fortis and The Royal Bank of Scotland and €984 million related to goodwill and other intangible assets, mainly, due to the write-down of the intangible assets arising from the acquisition of Abbey in 2004.

Our impairment reviews in 2007 resulted in impairment charges of €1,053 million related principally to our equity method investment in Sovereign. Other than the impairment recognized by Sovereign itself, €586 million of the total impairment charges related to goodwill held by the Group and €104 million to exchange differences. Additionally, we recorded goodwill impairment of €15 million and other intangible asset impairments of €563 million.

Retirement Benefit Obligations

The Group provides pension plans in most parts of the world. For defined contribution plans, the pension cost recognized in the consolidated income statement represents the contribution payable to the scheme. For defined benefit plans, the pension cost is assessed in accordance with the advice of a qualified external actuary using the projected unit credit method. This cost is annually charged to the consolidated income statement.

The actuarial valuation is dependent upon a series of assumptions; the principal ones are set forth below:

• assumed interest rates;

• mortality tables;

• annual social security pension revision rate;

• price inflation;

• annual salary growth rate, and

• the method used to calculate vested commitments to current employees.

The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the balance sheet date, adjusted for any historic unrecognized actuarial gains or losses and past service cost, is recognized as a liability in the balance sheet.

Further information on retirement benefit obligations is set out in Notes 2 and 25 to our consolidated financial statements.

Business combinations and goodwill

Goodwill and intangible assets include the cost of acquired subsidiaries in excess of the fair value of the tangible net assets recorded in connection with acquisitions as well as acquired intangible assets which include core deposits, customer lists, brands and assets under management. Accounting for goodwill and acquired intangible assets requires management’s estimates regarding: (1) the fair value of the acquired intangible assets and the initial amount of goodwill to be recorded, (2) the amortization period (for identified intangible assets other than goodwill) and (3) the recoverability of the carrying value of acquired intangible assets.

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To determine the initial amount of goodwill to be recognized on an acquisition, we have to determine the fair value of the consideration and the fair value of the net assets acquired. We use independent appraisers and our internal analysis, generally based on discounted cash flow techniques, to determine the fair value of the net assets acquired and non-cash components of the consideration paid. The actual fair value of net assets acquired could differ from the fair value determined, resulting in an under- or over-statement of goodwill.

We test goodwill for impairment at the reporting unit level. We identify our reporting units as one level below our business segments, based on our management structure. We keep those reporting units unchanged unless business segment reorganization occurs.

The useful lives of acquired intangible assets are estimated based on the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the acquired entity.

For acquired intangible assets, the amortization period is reviewed annually. In making these assumptions, we consider historical results, adjusted to reflect current and anticipated operating conditions. Because a change in these assumptions can result in a significant change in the recorded amount of acquired intangible assets, we believe the accounting for business combinations is one of our critical accounting estimates.

As a result of the first consolidation of the acquired subsidiaries Santander UK (2004), Santander Consumer USA (2006), Banco Real (2008), Sovereign (2009) and Santander Cards UK (2009), a significant amount of goodwill was recorded (see Note 17 to our consolidated financial statements). Management made this determination, based in part upon independent appraisals of intangible assets, which is initially estimated and subsequently revised within the one year time period allowed by IFRS-IASB.

Investment Securities

Under IFRS-IASB when there is evidence that a reduction in the fair value of a debt security classified as available for sale or loans and receivables is due to impairment, the unrealized loss is charged to net income but, if it subsequently recovers its value, the impairment losses are reversed. The process is similar in the case of equity securities except that any recovery in the value of the equity security is registered as a positive valuation adjustment in equity.

We conduct reviews to assess whether an other-than-temporary impairment exists. These reviews consist of: (i) the identification of securities that have been impaired during the last six months, and (ii) the calculation of the value of the impairment that is not expected to be recovered. Changing global and regional conditions and conditions related to specific issuers or industries could adversely affect these values. Changes in the fair values of trading securities are recognized in earnings.

A. Operating results

We have based the following discussion on our consolidated financial statements. You should read it along with these financial statements, and it is qualified in its entirety by reference to them.

In a number of places in this report, in order to analyze changes in our business from period to period, we have isolated the effects of foreign exchange rates on our results of operations and financial position. In particular, we have isolated the effects of depreciation of local currencies against the euro because we believe that doing so is useful in understanding the development of our business. For these purposes, we calculate the effect of movements in the exchange rates by multiplying the previous period balances in local currencies by the difference between the exchange rate to the euro of the current and the previous period.

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General

We are a financial group whose main business focus is retail banking, complemented by global wholesale banking, asset management and insurance businesses.

Our main source of income is the interest that we earn from our lending activities, by borrowing funds from customers and money markets at certain rates and lending them to other customers at different rates. We also derive income from the interest and dividends that we receive from our investments in fixed/variable income and equity securities and from our trading activities in such securities and derivatives, by buying and selling them to take advantage of current and/or expected differences between purchase and sale prices.

Another source of income are the commissions that we earn from the different banking and other financial services that we provide (credit and debit cards, insurance, account management, bill discounting, guarantees and other contingent liabilities, advisory and custody services, etc.) and from our mutual and pension funds management services.

In addition, from time to time, we derive income from the capital gains we make from the sale of our holdings in Group companies.

2009 Overview

We believe that the following factors had a significant impact on our results of operations and financial condition as of and for the year ended December 31, 2009.

The global economy suffered its worst recession in recent history in 2009. Global GDP shrank 2.4% compared to growth of 2.2% in 2008. The recession, which hit developed economies particularly hard, was especially intense during the first months of the year. The various monetary, fiscal and financial recovery measures began to take effect in the second half of the year, and most countries registered positive growth in the fourth quarter. Of note was the strong recovery of emerging economies, most notably China, which was reflected in the recovery in trade and higher prices of commodities. The global economy ended 2009 in an upturn, although it is still fragile and of moderate intensity.

The US economy declined 2.4% in 2009, but ended the year with positive growth, thanks to firm fiscal, monetary and financial measures and the easing of the real estate slump. Negative inflation for most of the year enabled the Federal Reserve to hold its key rate at 0-0.25%, while the budget deficit was more than 10% largely because of the fiscal stimulus.

Latin America withstood the international economic and financial crisis well. Unlike previous recessions, the region’s greater strength enabled anti-cyclical policies to be applied, banking crises to be avoided and maintained relatively stable interest rates. The economic downturn was not as intense as in developed countries and growth was positive at the end of the year.

Brazil was the best example. The reforms undertaken in the last few years made the economy more resilient, thereby increasing its international credibility and providing leeway to apply expansive policies (for example, increasing lending via state banks and setting interest rates at historic lows of 8.75%). GDP growth for the whole year was flat, following a fourth quarter with growth of around 5% year-on-year, and inflation was 4.5%, within the central bank’s target range. The real remained strong and ended the year at $1=BRL 1.74, in line with the periods of greatest strength in 2007 and 2008.

The Chilean economy shrank 1.5%, a moderate decline given its high degree of openness to the international economy, thanks to large cuts in official interest rates to 0.5%. Negative inflation enabled the central bank to maintain its very expansive monetary policy. The Chilean peso, after several months of instability, recovered to $1=CLP 507, stronger even than in 2007.

Mexico was the hardest hit (GDP: -6.5%), largely because of its strong links with the neighboring US economy and with the most affected sectors. At the end of the year, the improvement in the US economy and the decline in official Mexican interest rates to 4.5% (inflation above 5% for several quarters prevented deeper cuts) laid the foundations for a moderate recovery. The Mexican peso depreciated against the dollar to approximately $1=MXN 13.1.

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The euro zone’s GDP declined 4.0%, with a profile similar to that of the US but more adverse: a larger reduction in the first quarter and less intense recovery. The measures implemented by governments and the European Central Bank, including lowering the repo rate to 1% in the second quarter, helped the economy grow in the third and fourth quarters. Contained inflation (negative rates after the summer) facilitated the expansive monetary policy, while the euro remained strong throughout the year (€1=$1.44).

Germany, the strongest economy of the euro zone, shrank 5% as a result of the worsening of the global economy and its impact on exports and investment. The progressive recovery combined with fiscal stimulus programs and the relative stability of the labor market, which underpinned consumption, pushed the German economy out of recession in the last quarter of 2009.

The Spanish economy declined 3.6%, slightly less than the euro zone due to a less intense recession at the onset. The recovery underway in the rest of the world also began to be felt in Spain. The pace of decline in the economy slowed in the second half and quarter-on-quarter growth moved close to positive rates. However, the slump in the property sector continued to damage the recovery, which will be slower than in the euro zone as a whole.

The UK economy, with a growth profile similar to that of the euro zone, contracted 4.7%, due to the weakness of its financial system and the high level of household indebtedness. Unlike the rest of Europe, inflation remained at more than 2% for most of the year, mainly due to the weakness of sterling (€1=£0.90 compared to €1=£0.65 at the start of the crisis). The fall in the UK base rate to 0.5% at the beginning of 2009 and the fiscal and financial recovery measures enabled quarter-on-quarter growth to be positive in the fourth quarter.

Results of Operations for Santander

Summary

Profit attributable to the Parent as reported in our consolidated financial statements for the year ended December 31, 2009 was €8,942.5 million, a 0.7% or €66.1 million increase from €8,876.4 million in 2008, which was a 2.0% or €183.8 million decrease from €9,060.3 million in 2007. The 2009 growth was mainly due to an increase in interest income/ (charges) partially offset by increases in administrative expenses and impairment losses. Additionally, there is a positive effect in most line items of the income statement from the increased scope of consolidation as a result of the businesses acquired in the UK (Alliance & Leicester and Bradford & Bingley), Santander Consumer Finance, the consolidation of Sovereign by global integration (as of February 2009) and the consolidation of Banco Real by global integration for the whole of 2009 (as compared to 3 months in 2008). These effects were partially offset by the impact of exchange rate fluctuations.

Interest Income / (Charges)

Interest income was €26,298.5 million in 2009, a 49.9% or €8,760.1 million increase from €17,538.5 million in 2008, which was a 21.4% or €3,095.7 million increase from €14,442.8 million in 2007.

2009 compared to 2008

The €8,760.1 million increase in interest income in 2009 was due to an improvement of customer spreads (which rose by €2,724.4 million) together with a increase of €6,035.6 million in business volumes. International net interest income grew by €6,853.6 million while domestic net interest income grew by €1,906.5 million. Spreads on loans were notably better (for the whole Group they increased from 265 basis points to 329 basis points), although they began to ease in the second quarter, while spreads on deposits were negatively affected by lower interest rates. Volumes benefited from the acquisitions, basically Sovereign, Alliance & Leicester and specialized consumer credit companies. On the other hand, exchange rate movements reduced growth by 4 percentage points.

Average total earning assets were €1,003,956.4 million for the year ended December 31, 2009, a 17.1% or €146,849.9 million increase from €857,106.5 million for the same period in 2008. This was due to an increase of €20,589.0 million in the average balances of our domestic total earning assets (mainly due to an increase of €15,198.2 million in the average balances of debt securities and an increase of €6,075.9 million in the average balances due from credit entities partially offset by a decrease of €4,360.4 million in the average balances of our domestic loan and credit portfolio) and an increase of €126,260.9 million in the average balance of our international total earning assets (mainly due to an increase of €95,918.6 million in the average balances of our international loan and credit portfolio, an increase of €18,722.2 million in the average balances of other interest earning assets (mainly derivatives) and an increase of €19,130.4 million in the average balances of our debt securities portfolio).

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The Group’s net lending amounted to €682,551 million, 9% higher than in 2008. Excluding the perimeter effects and in local currencies, there was a decrease in net lending of 2%. Lending to the public sector increased 28% and loans to other resident sectors dropped 4%, in line with the deceleration in the market. Secured loans, the main component, increased by 1%, while the commercial portfolio dropped 25%, as a result of shorter maturities and more direct impact from reduced business activity. Other loans declined 7%. Loans to the non-resident sector rose 17%, affected by perimeter changes and exchange rates.

Continental Europe’s balance of total lending decreased 1%. In Spain, the combined lending of the Santander Branch Network and Banesto dropped 4%, following the pattern in the resident sector.

Santander Consumer Finance increased its lending 6%, because of the integration of the assets acquired from Royal Bank of Scotland and GE, while lending in Portugal was 1% lower due to the 8% decrease in loans to companies as credit to individuals and SMEs grew 2% and 9%, respectively.

In the United Kingdom, lending grew 5% on a local currency basis. Mortgage loans rose 5%, lifting their share of new gross lending to 19% (+5 percentage points in 2009), credit to companies increased 3% and personal loans, with a small relative share in total lending, dropped 24%, in line with the Group’s strategy.

Lending in Latin America declined 8%, excluding the impact of exchange rates and the sale of Banco de Venezuela. Of note was the decline of 5% in Brazil (driven primarily by corporate lending), while lending in Chile and Mexico decreased 6% and 11%, respectively, the latter negatively affected by the reduction in the credit card business.

Sovereign recorded total loans of €34,605 million, with a downward trend in the balances of non-strategic segments and already showing in the fourth quarter the first increases in attractive segments (multifamily and residential mortgages).

At the end of 2009, Continental Europe accounted for 47% of total lending (35% Spain), the UK 33%, Latin America 15% (8% Brazil) and Sovereign 5%. The respective figures a year earlier were 52% for Continental Europe, 33% for the UK and 15% for Latin America.

Our overall net yield spread increased from 1.91% in 2008 to 2.54% in 2009. Domestic net yield spread increased from 1.29% in 2008 to 1.45% in 2009. International net yield spreads increased from 2.23% in 2008 to 3.05% in 2009. In general, spreads improved during the period in most areas due to the focus on profitability rather than volume.

2008 compared to 2007

The €3,095.7 million increase in interest income in 2008 was due to an improvement of customer spreads (which rose by €3,697.4 million) partially offset by a reduction of €601.7 million in business volumes, mainly in Spain. International net interest income grew more significantly than domestic net interest income. Of note was the growth of the Santander Branch Network, Santander Consumer Finance, United Kingdom and the businesses in Brazil and Chile. This was due to moderate growth in business volumes in most units (except Spain), which was higher in Latin America, as well as better customer spreads in the main units. Net interest income benefited from the consolidation of Banco Real in the fourth quarter.

Average total earning assets were €857,106.5 million for the year ended December 31, 2008, a 6.8% or €54,887.8 million increase from €802,218.7 million for the same period in 2007. This was due to an increase of €27,027.6 million in the average balances of our domestic total earning assets (mainly due to an increase of €19,480.8 million in the average balances of our domestic loans and credits portfolio partially offset by a decrease of €6,152.6 million in the average balances of other interest earning assets (mainly derivatives)) and an increase of €27,860.2 million in the average balance of our international total earning assets (mainly due to an increase of €10,685.4 million in the average balances of our international loan and credit portfolio and an increase of €23,032.1 million in the average balances of other interest earning assets (mainly derivatives), partially offset by a decrease of €18,234.3 million in the average balances of our debt securities portfolio).

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The Group’s gross lending amounted to €639,354 million, 10.3% higher than in 2007. Lending to resident sectors increased by €5,306 million (reflecting an increase of 2.3%), with that to the public sector up 36.1%, secured loans 0.2% and other credits 7.5% (reflecting the better performance of balances with SMEs). Credit to the nonresident sector rose 15.9%, affected by perimeter changes and exchange rates.

Continental Europe’s total lending increased 4%. In Spain, the Santander Branch Network’s and Banesto’s lending increased 4%, with lower growth in mortgages and a better performance in SMEs.

Santander Consumer Finance increased its lending 18%, partly because of the integration of the assets acquired from Royal Bank of Scotland, while Portugal’s was 8% higher, with lending to individuals up 4% and those to SMEs 16%.

Santander UK’s balances, excluding repos, were 13% lower in euros, hit by sterling’s slide of 23%. In sterling, mortgages rose 10% and personal loans, with a small relative share in total lending in line with the Group’s strategy, dropped 17%. Including Alliance & Leicester, lending in the UK in sterling at the end of 2008 was 43% higher than a year earlier.

Lastly, excluding Banco Real, Latin America’s lending was flat in euros, also hit by the depreciation of currencies. Growth in local currency was 15% on average (as Brazil’s growth in reais was 19%, Mexico’s growth in Mexican pesos was 8% and Chile’s growth in Chilean pesos was 20%). Including Banco Real and in local currency, total lending increased 51% (in Brazil it was 2.4 times higher than at the end of 2007).

Our overall net yield spread increased from 1.70% in 2007 to 1.91% in 2008. Domestic net yield spread increased from 1.18% in 2007 to 1.29% in 2008. International net yield spreads increased from 1.98% in 2007 to 2.23% in 2008. In general, spreads improved during the period in most areas due to the focus on profitability rather than volume.

Income from Equity Instruments

Income from equity instruments was €436.5 million in 2009, a 21.0% or €116.3 million decrease from €552.8 million in 2008, which was a 31.6% or €132.8 million increase from €420.0 million in 2007.

While in 2008 income from equity instruments increased as compared to 2007 due to an increase of dividends from available for sale financial assets, in particular from RBS and Fortis, in 2009 we did not obtain dividends from these companies.

Income from Companies Accounted for by the Equity Method

Income from companies accounted for by the equity method decreased €792.3 million during 2009, to €-0.5 million as a result of the full consolidation or disposition of its primary contributors. During 2008 these entities contributed €791.8 million to our net income, which was an increase of 80.7% or €353.7 million from the €438.0 million earned in 2007.

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The entities providing the largest portions of the contributions in 2009 and 2008 include the following:

	Contributions to Net Income (1)
Investment	December 31, 2009			December 31, 2008
	(in thousands of euros)
Grupo Real (2)		15,341			711,146
CEPSA (3)		—			130,932
Sovereign (4)		(15,691	)		(110,251	)
Attijariwafa Bank Société Anonyme (5)		—			27,560

(1)	Contributions to income from companies accounted for by the equity method include dividends.
(2)	Banco Real was fully consolidated in the Group’s consolidated financial statements in the fourth quarter of 2008. Until then, Banco Real had been accounted for using the equity method through ownership interest. The amount of €15,341 thousand corresponds to 3 companies that were still accounted for by the equity method during 2009.
(3)	CEPSA was classified on December 31, 2008 as a “non-current asset held for sale” and was finally sold during 2009.
(4)	Sovereign’s contribution to net income was accounted for by the equity method until February 2009 when it was fully consolidated. The losses disclosed above for 2009 correspond only to January (prior to our full consolidation of Sovereign).
(5)	Reclassified to available-for-sale in the second half of 2008.

Fee and Commission Income

Fee and commission income was €9,080.1 million in 2009, representing 9.8% growth compared to €8,266.3 million in 2008. During 2008, fee and commission income increased by 5.1% over the €7,868.5 million obtained in 2007.

2009 compared to 2008

Fee and commission income for 2009 and 2008 was as follows:

					Amount			%
	2009		2008		Change			Change
	(in thousands of euros, except percentages)
Mutual and pension funds		1,177,934		1,542,470		(364,536	)		(23.63	)
Insurance		1,861,169		1,755,336		105,833			6.03
Securities services		774,296		704,525		69,771			9.90
Commissions for services		5,266,735		4,263,964		1,002,771			23.52
Credit and debit cards		1,033,383		856,642		176,741			20.63
Account management		858,696		570,446		288,250			50.53
Bill discounting		318,750		300,042		18,708			6.24
Contingent liabilities		422,065		384,254		37,811			9.84
Other operations		2,633,841		2,152,580		481,261			22.36
Total fee and commission income		9,080,134		8,266,295		813,839			9.85

Fee and commission income rose 9.8% to €9,080.1 million in 2009 compared to 2008. The increase is explained by the full consolidation of Banco Real in 2009 while in 2008 this entity was accounted for by the equity method for all but three months. Eliminating this effect, fee income was flat mainly due to higher revenues from fee income from services, which were partially offset by lower revenues from mutual and pension funds.

Average balances of mutual funds under management in Spain decreased 26.3% from €49.5 billion in 2008 to €36.5 billion in 2009. This decrease was due to customer preference for time deposits and the deterioration in market conditions during 2009. Average balances of mutual funds abroad increased by 5.0% from €57.1 billion in 2008 to €60.0 billion in 2009, mainly due to increased activity in Brazil, Chile and the United Kingdom, partially offset by a decrease in Mexico, Switzerland and Portugal.

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Average balances of pension funds in Spain decreased by 4.2% from €10.0 billion in 2008 to €9.6 billion in 2009. Since we sold our pension funds businesses in Latin America, our remaining business abroad is in Portugal. Average balances of pension funds in Portugal decreased 5.1% from €1.4 billion in 2008 to €1.3 billion in 2009.

2008 compared to 2007

Fee and commission income for 2008 and 2007 was as follows:

					Amount			%
	2008		2007		Change			Change
	(in thousands of euros, except percentages)
Mutual and pension funds		1,542,470		1,891,417		(348,947	)		(18.45	)
Insurance		1,755,336		1,414,796		340,540			24.07
Securities services		704,525		970,639		(266,114	)		(27.42	)
Commissions for services		4,263,964		3,591,653		672,311			18.72
Credit and debit cards		856,642		775,134		81,508			10.52
Account management		570,446		555,902		14,544			2.62
Bill discounting		300,042		222,835		77,207			34.65
Contingent liabilities		384,254		341,956		42,298			12.37
Other operations		2,152,580		1,695,826		456,754			26.93
Total fee and commission income		8,266,295		7,868,505		397,790			5.06

Fee and commission income rose 5.1% to €8,266.3 million in 2008 compared to 2007 due to the net difference between higher revenues from fee income from services and lower revenues from mutual and pension funds and from securities.

Fee and commission income in Latin America grew significantly while Continental Europe was in line with 2007 as it was more affected by the decrease in fee income from managed funds, the lower revenues in some wholesale banking businesses and the impact of regulatory changes in Portugal.

Average balances of mutual funds under management in Spain decreased 28.4% from €69.2 billion in 2007 to €49.5 billion in 2008. This decrease was due to customer preference for time deposits and the deterioration in market conditions during 2008. Average balances of mutual funds abroad decreased by 2.4% from €58.5 billion in 2007 to €57.1 billion in 2008, mainly due to decreased activity in Portugal, the United Kingdom and Switzerland, partially offset by the increase in Brazil due to the consolidation of Banco Real.

Average balances of pension funds in Spain decreased by 1.0% from €10.1 billion in 2007 to €10.0 billion in 2008. Since we sold our pension funds businesses in Latin America, our remaining business abroad is in Portugal. Average balances of pension funds in Portugal decreased 4.4% from €1.5 billion in 2007 to €1.4 billion in 2008.

Gains (Losses) on Financial Assets and Liabilities (net)

Net gains on financial assets and liabilities in 2009 were €3,801.6 million, a 31.4% growth from €2,892.2 million in 2008. During 2008, net gains on financial assets and liabilities increased by 25.4% over the €2,306.4 million earned in 2007. Gains (losses) on financial assets and liabilities include gains and losses arising from the following: marking to market our trading portfolio and derivative instruments, including spot market foreign exchange transactions, sales of investment securities and liquidation of our corresponding hedge or other derivative positions. For further details, see Note 44 to our consolidated financial statements.

2009 compared to 2008

Net gains on financial assets and liabilities rose 31.4% to €3,801.6 million largely due to the improved performance of revenues from wholesale businesses, mostly originating in customer operations.

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2008 compared to 2007

Net gains on financial assets and liabilities rose 25.4% to €2,892.2 million principally due to the gains of €741 million obtained from the sale of subordinated liabilities from ABN AMRO, which were partially offset by the €643 million losses from the fund created for Grupo Santander customers, who suffered losses due to the collapse of Lehman and the Bernard L. Madoff fraud.

Other operating income / expenses

Net other operating income in 2009 was €143.9 million with a 47.1% decrease from €271.8 million in 2008. During 2008, net other operating income decreased by 6.4% from the €290.6 million earned in 2007. Under this line item we include income and expenses from insurance activity, from non-financial services, other commissions and charges to the Fondo de Garantía de Depósitos.

In 2009, the increase in insurance activity and in income from non-financial services was offset by higher charges to the Fondo de Garantía de Depósitos that increased to €317.7 million from €179.0 million a year earlier.

In 2008, the 9.4% increase in insurance activity was offset by lower income from non-financial services and higher charges to the Fondo de Garantía de Depósitos.

Administrative Expenses

Administrative expenses were €14,824.6 million in 2009, a 27.1% or €3,158.7 million increase from €11,665.9 million in 2008, which was a 8.3% or €889.2 million increase from €10,776.7 million in 2007.

2009 compared to 2008

Administrative expenses for 2009 and 2008 were as follows:

					Amount		%
	2009		2008		Change		Change
	(in thousands of euros, except percentages)
Personnel expenses		8,450,283		6,813,351		1,636,932		24.03
Other general expenses		6,374,322		4,852,506		1,521,816		31.36
Building and premises		1,613,675		1,206,895		406,780		33.70
Other expenses		1,435,743		1,048,392		387,351		36.95
Information technology		785,504		504,196		281,308		55.79
Advertising		594,432		534,876		59,556		11.13
Communications		631,806		452,900		178,906		39.50
Technical reports		359,753		298,037		61,716		20.71
Per diems and travel expenses		262,097		257,079		5,018		1.95
Taxes (other than income tax)		312,994		279,250		33,744		12.08
Guard and cash courier services		331,220		235,207		96,013		40.82
Insurance premiums		47,098		35,674		11,424		32.02
Total administrative expenses		14,824,605		11,665,857		3,158,748		27.08

The 27.1% increase in administrative expenses in 2009 reflected a 24.0% increase in personnel expenses and a 31.4% increase in other general expenses.

99

The full consolidation of Banco Real for the whole of 2009 as compared to only three months in 2008 together with the consolidation of Sovereign and the acquisitions of Alliance & Leicester and Bradford & Bingley in UK and General Electric Money in Continental Europe, account for the vast majority of the increase. Excluding these acquisitions and the effects of exchange rate fluctuations, administrative expenses were flat or reflect very moderate changes consistent with the objective of expense control. Of note were Brazil and Mexico with reductions of 3.7% and 3.4%, respectively.

2008 compared to 2007

Administrative expenses for 2008 and 2007 were as follows:

					Amount			%
	2008		2007		Change			Change
	(in thousands of euros, except percentages)
Personnel expenses		6,813,351		6,434,343		379,008			5.89
Other general expenses		4,852,506		4,342,327		510,179			11.75
Building and premises		1,206,895		965,937		240,958			24.95
Other expenses		1,048,392		897,877		150,515			16.76
Information technology		504,196		468,273		35,923			7.67
Advertising		534,876		553,967		(19,091	)		(3.45	)
Communications		452,900		401,057		51,843			12.93
Technical reports		298,037		294,058		3,979			1.35
Per diems and travel expenses		257,079		271,842		(14,763	)		(5.43	)
Taxes (other than income tax)		279,250		265,542		13,708			5.16
Guard and cash courier services		235,207		188,717		46,490			24.63
Insurance premiums		35,674		35,057		617			1.76
Total administrative expenses		11,665,857		10,776,670		889,187			8.25

The 8.3% increase in administrative expenses in 2008 reflected a 5.9% increase in personnel expenses and a 11.7% increase in other general expenses.

If Banco Real had been accounted for by the equity method in the fourth quarter of 2008, expenses would have increased at a notably slower pace than the equivalent rates in previous quarters. The current environment of lower revenue growth requires even stricter management of costs. All geographic as well as global units registered growth in administrative expenses that was in accord with the Group’s cost control and with ongoing business development plans. The Group’s targets of efficiency were met in 2008.

Depreciation and Amortization

Depreciation and amortization was €1,596.4 million in 2009, a 28.8% or €356.9 million increase from €1,239.6 million in 2008, which was a 0.6% or €7.6 million decrease from €1,247.2 million in 2007. The full consolidation of Banco Real and Sovereign and the acquisitions of Alliance & Leicester and Bradford & Bingley account for the majority of this increase.

Provisions (net)

Net provisions were €1,792.1 million in 2009, a 9.2% or €151.6 million increase from €1,640.6 million in 2008, which was an 83.2% or €745.0 million increase from €895.6 million in 2007. This item includes additions charged to the income statement in relation to provisions for pensions and similar obligations, provisions for contingent liabilities and commitments and other provisions (mainly provisions for restructuring costs and tax and legal litigation). The 9.2% increase in 2009 is mainly due to an increase in tax and legal litigation provisions partially offset by a decrease in provisions for pensions. See Note 25 to our consolidated financial statements.

100

Impairment Losses (net)

Impairment losses (net) were €11,743.0 million in 2009, a 60.2% or €4,410.7 million increase from €7,332.3 million in 2008, which was a 47.3% or €2,353.9 million increase from €4,978.3 million in 2007.

Impairment losses are divided in the income statement as follows:

	2009		2008		2007
	(in thousands of euros)
Impairment losses on financial assets:		11,578,322		6,283,053		3,430,122
Loans and receivables		11,087,996		5,896,888		3,420,596
Other financial assets not measured at fair value through profit and loss		490,326		386,165		9,526
Impairment losses on other assets:		164,630		1,049,226		1,548,218
Goodwill and other intangible assets		31,249		983,929		1,162,872
Other assets		133,381		65,297		385,346
Total impairment losses (net)		11,742,952		7,332,279		4,978,340

2009 compared to 2008

The €5,191.1 million increase in net impairment losses for loans and receivables in 2009 compared to 2008 (which amounted to an increase of 88.0%) reflected a €5,341.5 million net increase in allowances (€11,928.6 million in 2009 compared to €6,587.1 million in 2008), a €215.9 million increase in recoveries of loans previously charged-off (€914.7 million in 2009 compared to €698.8 million in 2008) and a €65.5 million increase in impairment losses of other assets.

These sharp year-on-year increases reflect the impact of the consolidation of new units and the organic increase in most of the business units. The primary cause of the increase was the macroeconomic environment that deteriorated significantly. A secondary cause was the change of mix of the portfolio in previous years toward more profitable products but with a higher risk premium.

Our total allowances for credit losses (excluding country-risk) increased by €5,634.1 million to €18,497.1 million at December 31, 2009, from €12,863.0 million at December 31, 2008.

Non-performing balances (excluding country-risk) increased by €10,362.8 million to €24,553.6 million at December 31, 2009, compared to €14,190.8 million at December 31, 2008. Our coverage ratio was 75.3% at December 31, 2009, and 90.6% at December 31, 2008. See Item 4 of Part I, “Information on the Company—B. Business Overview—Selected Statistical Information—Impaired Balances Ratios”.

The €952.7 million decrease in impairment losses on other assets, goodwill and other intangible assets was due to the impairment of the brand and other intangible assets of Santander UK in 2008 that did not recur in 2009.

2008 compared to 2007

The €2,476.3 million increase in net impairment losses for loans and receivables in 2008 compared to 2007 (which amounted to an increase of 72.4%) reflected a €2,557.5 million net increase in allowances (€6,587.1 million in 2008 compared to €4,029.6 million in 2007), a €86.4 million increase in recoveries of loans previously charged-off (€698.8 million in 2008 compared to €612.4 million in 2007) and a €5.2 million increase in impairment losses of other assets.

Impairment losses increased in 2008 compared to 2007 in most business units for various reasons: firstly, and most importantly, the faster than expected deterioration in the macroeconomic environment; secondly, the growth in lending, which in some units was still 20%; thirdly, the change in the portfolio mix in previous years and lastly the integration in the fourth quarter of Banco Real.

101

Our total allowances for credit losses (excluding country-risk) increased by €3,560.8 million to €12,863.0 million at December 31, 2008, from €9,302.2 million at December 31, 2007.

Non-performing balances (excluding country-risk) increased by €8,012.2 million to €14,190.8 million at December 31, 2008, compared to €6,178.7 million at December 31, 2007. Our coverage ratio was 90.6% at December 31, 2008, and 150.5% at December 31, 2007. See Item 4 of Part I, “Information on the Company—B. Business Overview—Selected Statistical Information—Impaired Balances Ratios”.

Net gains / (losses) on other assets

Net gains on other assets were €339.6 million in 2009, a 81.5% or €1,492.5 million decrease from €1,832.1 million in 2008, which was a 25.3% or €621.4 million decrease from €2,453.5 million in 2007.

2009 compared to 2008

							Amount			%
	2009			2008			Change			Change
	(in thousands of euros, except percentages)
Gains / (losses) on disposal of assets not classified as non-current assets held for sale		1,565,013			101,156			1,463,857			1,447.1
Of which:
Disposal of investments (1)		1,527,734			49,967			1,477,767			2,957.5
Gains / (losses) on disposal of non-current assets held for sale not classified as discontinued operations		(1,225,407	)		1,730,902			(2,956,309	)		(170.8	)
Of which:
Sale of Grupo Santander City		—			836,742			(836,742	)		—
Antonveneta		—			3,045,647			(3,045,647	)		—
Impairment and sale of RBS and Fortis		—			(2,042,695	)		2,042,695			—
Sale of Attijariwafa Bank		218,223			—			218,223			—
Losses on impairment of tangible assets (2)		(1,350,592	)		(70,027	)		(1,280,565	)		1,828.7

(1)	€1,498.9 million refer to the sale of shares in Santander Brasil as part of the initial public offering (see Item 4 “Information on the Company—A. History and Development of the Company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations—Initial Public Offering of Banco Santander (Brasil), S.A.”).
(2)	In 2009 includes impairment due to assets acquired for a gross amount of €814 million (€554 million net of taxes). For additional information, see note 50 to our consolidated financial statements.

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2008 compared to 2007

						Amount			%
	2008			2007		Change			Change
	(in thousands of euros, except percentages)
Gains / (losses) on disposal of assets not classified as non-current assets held for sale		101,156			1,810,428		(1,709,272	)		(94.4	)
Of which:
Disposal of investments		49,967			16,388		33,579			204.9
Sale of real state assets		51,189			1,794,040		(1,742,851	)		(97.1	)
Gains / (losses) on disposal of non-current assets held for sale not classified as discontinued operations		1,730,902			643,050		1,087,852			169.2
Of which:
Sale of Grupo Santander City		836,742			—		836,742			—
Antonveneta		3,045,647			—		3,045,647			—
Intesa San Paolo		—			566,090		(566,090	)		—
Impairment and sale of RBS and Fortis (*)		(2,042,695	)		—		(2,042,695	)		—

(*) Write-down recognized in the income statement of ownership interests in RBS and Fortis. See note 50 to our consolidated financial statements.

Income Tax

The provision for corporate income tax was €1,206.6 million in 2009, a 34.3% or €629.4 million decrease from €1,836.1 million in 2008, which was a 20.9% or €486.1 million decrease from €2,322.1 million in 2007. The effective tax rate was 11.5% in 2009, 16.8% in 2008 and 20.7% in 2007. For information about factors affecting effective tax rates, see Note 27 to our consolidated financial statements.

Profit / (losses) from discontinued operations

Profit from discontinued operations were €30.9 million in 2009, a 90.3% or €288.3 million decrease from profits of €319.1 million in 2008. In 2008, profits from discontinued operations decreased 67.7% or €668.6 million from the €987.8 million earned in 2007.

The 2009 divestment relates to the sale of our subsidiary in Venezuela to the Bank of Economic and Social Development of Venezuela (see Item 4 of Part I, “Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations—Banco de Venezuela”).

During 2008, the Group did not discontinue any significant operation.

Profit attributable to minority interests

Profit attributable to minority interests was €469.5 million, a 3.0% or €13.5 million increase from €456.0 million in 2008, which was a 20.8% or €119.9 million decrease from €575.9 million in 2007. For further details, see Note 28 to our consolidated financial statements.

2009 compared to 2008

The €13.5 million increase in profit attributable to minority shareholders in 2009 was principally due to the increase in net income of Grupo Santander Brazil partially offset by a decrease of Grupo Financiero Santander, S.A. de C.V. and Banesto.

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2008 compared to 2007

The €119.9 million decrease in profit attributable to minority shareholders in 2008 is principally due to the reduced net income of the consolidated company Grupo Financiero Santander, S.A. de C.V.

Results of Operations by Business Areas

IFRS 8, Operating Segments, came into force in 2009, replacing IAS 14, and implemented a new approach to business segments financial reporting. Pursuant to IFRS 8, the segment information must be presented in the same format as that information is used internally by management to assess the performance of such segments and to allocate resources among them. Pursuant to IFRS 8, segment information for prior years that is reported as comparative information, must be restated in the initial year of application. Segment income statements for the years 2008 and 2007 contained herein differ from those presented in our previous annual reports on Form 20-F.

Our results of operations by business areas can be summarized as follows (see Item 4 of Part I, “Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations”):

First level (geographic):

Continental Europe

										Variations
	2009			2008			2007			2009/2008			2008/2007
	(in millions of euros, except percentages)
INTEREST INCOME / (CHARGES)		11,456			9,259			7,742			23.7	%		19.6	%
Income from equity instruments		218			266			202			(18.0	%)		31.7	%
Income from companies accounted for by the equity method		7			15			9			(53.3	%)		66.7	%
Net fees and commissions		3,787			4,074			4,137			(7.0	%)		(1.5	%)
Gains/losses on financial assets and liabilities (net)		687			764			732			(10.1	%)		4.4	%
Other operating income/(expenses) (net)		139			181			133			(23.2	%)		36.1	%
TOTAL INCOME		16,294			14,559			12,955			11.9	%		12.4	%
Administrative expenses		(5,334	)		(4,956	)		(4,564	)		7.6	%		8.6	%
Personnel expenses		(3,306	)		(3,123	)		(3,037	)		5.9	%		2.8	%
Other general expenses		(2,028	)		(1,833	)		(1,527	)		10.6	%		20.0	%
Depreciation and amortization		(570	)		(500	)		(559	)		14.0	%		(10.6	%)
Impairment losses on financial assets (net)		(3,286	)		(2,476	)		(1,557	)		32.7	%		59.0	%
Provisions (net)		(311	)		(89	)		45			249.4	%		(297.8	%)
Impairment losses on other assets (net)		(41	)		(16	)		(8	)		156.3	%		100.0	%
Gains/(losses) on other assets (net)		(81	)		(38	)		11			113.2	%		(445.5	%)
OPERATING PROFIT/(LOSS) BEFORE TAX		6,671			6,484			6,323			2.9	%		2.5	%
Income tax		(1,768	)		(1,686	)		(1,777	)		4.9	%		(5.1	%)
PROFIT FROM CONTINUING OPERATIONS		4,903			4,798			4,546			2.2	%		5.5	%
Profit/(loss) from discontinued operations (net)		(45	)		(21	)		—			114.3	%		n/a
CONSOLIDATED PROFIT FOR THE YEAR		4,858			4,777			4,546			1.7	%		5.1	%
Profit attributable to minority interests		65			109			107			(40.4	%)		1.9	%
Profit attributable to the Parent		4,793			4,668			4,439			2.7	%		5.2	%

104

2009 compared to 2008

In 2009, Continental Europe contributed 46.4% of the profit attributable to the Group’s operating areas. The main driver of growth in Continental Europe was the rise in interest income.

Growth reflected some perimeter effect, mainly in total income from the consolidation of the acquired consumer businesses (primarily, GE Money in the first quarter of 2009).

Interest income was €11,456 million in 2009, which is a 23.7% or €2,197 million increase from the €9,259 million obtained in 2008. The increase was largely driven by active management of spreads that offset the slowdown in volumes, in line with the market trend. Interest income from the Santander Branch Network rose 16.0%, Santander Consumer Finance, aided by the latest acquisitions increased 31.8%and Global Wholesale Banking increased due to a sharp rise in spreads. Revenues from insurance increased 15.3% to €122 million.

Net fees and commissions were €3,787 million in 2009, a 7.0% decrease from €4,074 million in 2008 because of lower activity and lower demand for some products, especially mutual funds. Fees also decreased because of the Bank’s commitment of Zero services fees from the Queremos ser tu Banco (We want to be your Bank) policy.

Gains/(losses) on financial assets and liabilities were €687 million in 2009, a 10.1% decrease from €764 million in 2008 due to hedging of interest rates and exchange rates.

Total income grew 11.9%, a strong pace in the current environment, in line with growth from 2007 to 2008.

Administrative expenses were €5,334 million in 2009, a 7.6% increase from €4,956 million in 2008. This growth was mainly due to the consolidation of the units acquired from GE Money. Excluding these acquisitions, costs were almost flat, in line with the cost to income target ratio.

Impairment losses on financial assets were €3,286 million in 2009, a 32.7% increase from €2,476 million in 2008. Impairment losses grew due to new acquisitions, economic deterioration and the mix of the portfolio (more profitable but higher risk). NPL ratio increased from 2.3% in 2008 to 3.6% in 2009, while NPL coverage decreased from 90% in 2008 to 77% in 2009.

Profit attributable to the Parent was €4,793 million in 2009, a 2.7% increase from €4,668 million in 2008. Income growth absorbed the increase in loan-loss provisions due to increased profits of the Santander Branch Network, Portugal and Global Wholesale Banking. Profits for Banesto decreased 28.0% (mainly due to higher impairment losses) and for Santander Consumer Finance declined 9.2% (mainly because of Spain and discontinued operations, although its evolution gradually improved during the second half of the year).

2008 compared to 2007

In 2008, Continental Europe contributed 49.0% of the profit attributable to the Group’s operating areas. The main drivers of growth in Continental Europe were the rise in interest income together with the selective control of costs.

Interest income was €9,259 million in 2008, which is a 19.6% or €1,517 million increase from the €7,742 million obtained in 2007 due in part, to the active management of spreads which partly offset the slowdown in volumes.

Net fees and commissions were €4,074 million in 2008, a 1.5% decrease from €4,137 million in 2007 because of the decrease in such income from Global Wholesale Banking while the retail units increased. Among the retail units there was a significant increase in Santander Consumer Finance due to the improved conditions in the marketing of products while the other main units decreased slightly.

Gains/(losses) on financial assets and liabilities were €764 million in 2008, a 4.4% increase from €732 million in 2007 reflecting a higher growth from Global Wholesale Banking with a moderate or negative performance by the retail units reflecting the volatility of the markets on the selling of customer products.

105

Administrative expenses were €4,956 million in 2008, an 8.6% increase from €4,564 million in 2007. Santander Branch Network increased 16.6% and Portugal and Banesto remained flat reflecting the strict control on expenses. Administrative expenses for Santander Consumer Finance increased by 12.1% after consolidating the new units of Netherlands and Germany.

Impairment losses on financial assets were €2,476 million in 2008, a 59% increase from €1,557 million in 2007. Impairment losses grew significantly in all units due to the increase in non-performing loans as a result of the intensified economic downturn. NPL ratio increased from 0.9% in 2007 to 2.3% in 2008 while NPL coverage decreased from 188% in 2007 to 90% a year later.

Profit attributable to the Parent was €4,668 million in 2008, a 5.2% increase from €4,439 million in 2007. This increase was largely due to the units in Spain while Portugal’s and Santander Consumer Finance’s profits were nearly flat.

United Kingdom

										Variations
	2009			2008			2007			2009/2008			2008/2007
	(in millions of euros, except percentages)
INTEREST INCOME / (CHARGES)		3,934			2,411			2,334			63.2	%		3.3	%
Income from equity instruments		—			—			1			n/a			n/a
Income from companies accounted for by the equity method		—			1			2			n/a			(50.0	%)
Net fees and commissions		993			926			1,007			7.2	%		(8.0	%)
Gains/losses on financial assets and liabilities (net)		506			500			436			1.2	%		14.7	%
Other operating income/(expenses) (net)		27			49			65			(44.9	%)		(24.6	%)
TOTAL INCOME		5,460			3,887			3,845			40.5	%		1.1	%
Administrative expenses		(1,997	)		(1,603	)		(1,829	)		24.6	%		(12.4	%)
Personnel expenses		(1,170	)		(986	)		(1,045	)		18.7	%		(5.6	%)
Other general expenses		(827	)		(617	)		(784	)		34.0	%		(21.3	%)
Depreciation and amortization		(231	)		(158	)		(101	)		46.2	%		56.4	%
Impairment losses on financial assets (net)		(881	)		(457	)		(312	)		92.8	%		46.5	%
Provisions (net)		16			(29	)		5			(155.2	%)		(680.0	%)
Impairment losses on other assets (net)		—			—			(1	)		n/a			n/a
Gains/(losses) on other assets (net)		—			32			15			n/a			113.3	%
OPERATING PROFIT/(LOSS) BEFORE TAX		2,367			1,672			1,622			41.6	%		3.1	%
Income tax		(641	)		(425	)		(421	)		50.8	%		1.0	%
PROFIT FROM CONTINUING OPERATIONS		1,726			1,247			1,201			38.4	%		3.8	%
Profit/(loss) from discontinued operations (net)		—			—			—			n/a			n/a
CONSOLIDATED PROFIT FOR THE YEAR		1,726			1,247			1,201			38.4	%		3.8	%
Profit attributable to minority interests		—			—			—			n/a			n/a
Profit attributable to the Parent		1,726			1,247			1,201			38.4	%		3.8	%

2009 compared to 2008

In 2009, United Kingdom contributed 16.7% of the profit attributable to the Parent’s total operating areas. The 2009 results were driven by strong income growth across all businesses, which exceeded the increase in impairment losses, as well as continued cost control.

106

Interest income was €3,934 million in 2009, a 63.2% or €1,523 million increase from €2,411 million in 2008. Of the total increase, €930 million represented the inclusion of the net interest income in 2009 of Alliance & Leicester. The remaining increase of €593 million was driven by strong income growth across all businesses. Net interest income grew because of active management of spreads, mortgage spreads were higher in new loans and, the impact of the reduction of spreads in deposits was offset by a balanced mix of products and proactive hedging strategies.

Net fees and commissions were €993 million in 2009, a 7.2% or €67 million increase from €926 million in 2008. Of the total increase, €302 million represented the inclusion of the fee income in 2009 of Alliance & Leicester. The remaining decrease of €234 million was largely due to lower fees on unsecured lending products, as part of our strategy to reduce unsecured lending exposures, and lower fees from current accounts due to repricing. In addition, mortgage fees were adversely impacted by a reduction in the volume of mortgage redemptions given decreased activity in the market as a result of declining house prices and lower levels of supply.

Gains / losses on financial assets and liabilities were €506 million in 2009, a 1.2% or €6 million increase from €500 million in 2008. Alliance & Leicester contributed a loss of €33 million, however, this was more than offset by an increase of €39 million in the rest of Santander UK, reflecting strong performances in the equity business of Santander Global Banking & Markets (due to sales of retail products through the branch network) and the short term markets business, which benefited from a favorable trading environment caused by wider spreads in an illiquid market.

Administrative expenses were €1,997 million in 2009, a 24.6% or €394 million increase from €1,603 million in 2008. Of the total increase, €564 million represented the inclusion of the administrative expenses in 2009 of Alliance & Leicester. An additional €67 million was due to costs related to Bradford & Bingley’s savings business for which only four months were included in 2008. The remaining administrative expenses decrease was largely due to the removal of duplications across back office and support functions due to the integration of Alliance & Leicester and Bradford & Bingley. Synergies of some £100 million were obtained, higher than the forecast for the year, and work continues in order to eliminate overlapping in back office and support functions in all businesses and achieve the additional savings envisaged for 2011.

Impairment losses on financial assets were €881 million in 2009, a 92.8% or €424 million increase from €457 million in 2008. Of the total increase, €237 million represented the inclusion of Alliance & Leicester’s impairment losses in 2009. The remaining increase of €187 million was distributed across all products with the largest increase relating to mortgages, as the impact of falling house prices and the lagged effect of unemployment, as anticipated, started to emerge. Most of the impact losses occurred in the first half of the year, with second half performance stabilizing and in some areas improving. With respect to mortgages, the second half of the year saw a slower rate of growth in arrearages, with fewer losses than observed earlier in the year, in part as a result of collection activities and mitigating actions, but also due to the low interest rate environment and the slight upturn in housing prices. The improvement in performance across all portfolios in the second half of the year exceeded set expectations. A strong mortgage coverage ratio of close to 21% has been preserved.

The NPL ratio was 1.7% at the end of 2009 (compared to 1.6% at September 2009 and 1.0% at December 2008). The NPL ratio in mortgages rose by a smaller extent, ending the year at 1.4% (compared to 1.3% at September 2009 and 0.9% at December 2008). This ratio compares favorably with the rest of the sector, which, according to the Council of Mortgage Lenders (the “CML”), was 2.4% at the end of 2009. The stock of properties in possession dropped to only 0.05% of the total portfolio compared to 0.14% to the CML.

NPL coverage was 44% (compared to 48% at September 2009 and 69% at December 2008). This decline was due to a significant extent to the lower share in total unsecured loans, whose coverage is much higher, as secured loans’ coverage only declined three percentage points (December 2009: 21%; December 2008: 24%). Moreover, this coverage continues to be higher than the average of our competitors in the UK. Coverage of unsecured loans remained at more than 100%.

Profit attributable to the Parent was €1,726 million in 2009, a 38.4% or €479 million increase from €1,247 million in 2008. The comparison with 2008 reflects the inclusion of the results in 2009 of Alliance & Leicester (€308 million).

107

2008 compared to 2007

In 2008, United Kingdom contributed 13.1% of the profit attributable to the Parent’s total operating areas. The 2008 results were affected by the challenging financial environment and by the sterling’s depreciation in the fourth quarter.

Interest income was €2,411 million in 2008, a 3.3% or €77 million increase from €2,334 million in 2007. In local currency, the increase was 20% reflecting the solid increase in assets and liabilities, as well as active management of spreads on capturing and retaining funds.

Net fees and commissions were €926 million in 2008, a 8.0% or €81 million decrease from €1,007 million in 2007. In local currency, net fees and commissions increased 6.7% due to greater activity. Despite difficult market conditions, Retail Banking continued in the UK to broaden its cross-selling activity, with increased commission from credit cards and investments. Growth in these areas was offset by lower mortgage redemption volumes, lower unsecured lending and continued pressure on current account charges.

Gains / losses on financial assets and liabilities were €500 million in 2008, a 14.7% or €64 million increase from €436 million in 2007. In local currency, gains on financial transactions rose 33.2% backed by the good developments in markets’ business in the second half of the year.

Administrative expenses were €1,603 million in 2008, a 12.4% or €226 million decrease from €1,829 million in 2007. In local currency, administrative expenses increased by 1.9% due to continuing cost reduction activity partially offset by costs relating to the Bradford & Bingley savings business and branch network.

Impairment losses on financial assets were €457 million in 2008, a 46.5% or €145 million increase from €312 million in 2007. In local currency, the increase was 69.5%, largely because of the release of general provisions in 2007 as specific provisions only increased by 8.5%. The increase in specific provisions was low as compared with other units because, despite the deterioration in economic conditions, credit quality remained strong due to a continued reduction in the size of the unsecured personal lending book. The NPL ratio for the UK segment rose from 0.60% to 1.04% at the end of 2008, while coverage increased from 66% to 69%.

Profit attributable to the Parent was €1,247 million in 2008, a 3.8% or €46 million increase from €1,201 million in 2007. The comparison with 2007 is affected by the sterling’s depreciation; in local currency profit attributable to the Parent increased by 20.5%.

108

Latin America

										Variations
	2009			2008			2007			2009/2008			2008/2007
	(in millions of euros, except percentages)
INTEREST INCOME / (CHARGES)		11,959			8,025			6,144			49.0	%		30.6	%
Income from equity instruments		96			58			34			65.5	%		70.6	%
Income from companies accounted for by the equity method		10			680			—			(98.5	%)		n/a
Net fees and commissions		3,925			3,208			2,694			22.4	%		19.1	%
Gains/losses on financial assets and liabilities (net)		1,663			857			674			94.0	%		27.2	%
Other operating income/(expenses) (net)		15			10			49			50.0	%		(79.6	%)
TOTAL INCOME		17,668			12,838			9,595			37.6	%		33.8	%
Administrative expenses		(6,032	)		(4,651	)		(3,847	)		29.7	%		20.9	%
Personnel expenses		(3,210	)		(2,504	)		(2,105	)		28.2	%		19.0	%
Other general expenses		(2,822	)		(2,147	)		(1,742	)		31.4	%		23.2	%
Depreciation and amortization		(566	)		(404	)		(328	)		40.1	%		23.2	%
Impairment losses on financial assets (net)		(4,979	)		(3,020	)		(1,546	)		64.9	%		95.3	%
Provisions (net)		(681	)		(533	)		(437	)		27.8	%		22.0	%
Impairment losses on other assets (net)		(22	)		(6	)		(30	)		266.7	%		(80.0	%)
Gains/(losses) on other assets (net)		40			54			169			(25.9	%)		(68.0	%)
OPERATING PROFIT/(LOSS) BEFORE TAX		5,428			4,278			3,576			26.9	%		19.6	%
Income tax		(1,257	)		(663	)		(809	)		89.6	%		(18.0	%)
PROFIT FROM CONTINUING OPERATIONS		4,171			3,615			2,767			15.4	%		30.6	%
Profit/(loss) from discontinued operations (net)		91			340			303			(73.2	%)		12.2	%
CONSOLIDATED PROFIT FOR THE YEAR		4,262			3,955			3,070			7.8	%		28.8	%
Profit attributable to minority interests		428			346			404			23.7	%		(14.4	%)
Profit attributable to the Parent		3,834			3,609			2,666			6.2	%		35.4	%

2009 compared to 2008

In 2009, Latin America contributed 37.1% of the profit attributable to the Parent’s total operating areas. This was due to a growth in all the countries in the region, with the exception of Mexico.

Interest income was €11,959 million in 2009, a 49% or €3,934 million increase from €8,025 million in 2008. Most of the increase represented the inclusion of Banco Real for all of 2009. Interest income also increased due to effective spread management and volumes. The rise in spreads on loans was due to the measures taken to increase entry prices and try to offset the higher cost of financing in the markets and the higher risk premium. Spreads on loans (with differences between countries) were higher than in 2008. After falling, spreads on deposits stabilized to some extent (decreases in year-end spreads compared to 2008 were 375 basis points in Mexico, 500 basis points in Brazil, 600 basis points in Colombia and 775 basis points in Chile).

Income from companies accounted for by the equity method was €10 million in 2009 compared to €680 million in 2008. This difference was due to the contribution from RFS Holdings, B.V. (essentially, Banco Real) which in 2008 consolidated nine months of profit after tax in this line, while in 2009 Banco Real results were consolidated in the appropriate income statement line items.

109

Net fees and commissions were €3,925 million in 2009, 22.4% or €717 million increase from €3,208 million in 2008, mostly due to the inclusion of Banco Real for the entire year. Of note was fee income growth in Chile (4% in local currency) as a result of increases in international trade (+50.0%), insurance (+20.5%) and credit cards (+19.4%). In other areas, fees decreased slightly due to regulatory pressures.

Gains / losses on financial assets and liabilities were €1,663 million in 2009, a 94% or €806 million increase from €857 million in 2008, due to inclusion of Banco Real together with higher customer activity and benefits from lower interest rates.

Administrative expenses were €6,032 million in 2009, a 29.7% or €1,381 million increase from €4,651 million in 2008, affected by the consolidation of Banco Real for all of 2009.

Impairment losses on financial assets were €4,979 million in 2009, a 64.9% or €1,959 million increase from €3,020 million in 2008. This increase was due both to the consolidation of Banco Real for the whole year and, equally, to increased provisions across the region. The economic downturn generally eroded credit quality. Most of the impact was felt in the first half of the year, second half performance stabilized in some countries and improved in others as a result of risk management activities. The NPL ratio was 4.2% at the end of 2009 (2.9% in December 2008), while coverage was 105% (108% in December 2008).

Profit attributable to the Parent was €3,834 million in 2009, a 6.2% or €225 million increase from €3,609 million in 2008. Retail Banking’s attributable profit declined 9.3%, impacted by the sale of Banco de Venezuela and higher minority interests in Brazil. Global Wholesale Banking’s attributable profit increased 77.9%, due to 31.2% growth in total income, lower costs and reduced provisions for loan losses, and the attributable profit of Asset Management and Insurance rose 17.4%.

2008 compared to 2007

In 2008, Latin America contributed 37.9% of the profit attributable to the Parent’s total operating areas after consolidating the fourth quarter results of Banco Real in Brazil (previously, Banco Real was accounted for by the equity method). Economic growth in the main countries slowed down significantly in the second half of 2008, especially in the fourth quarter, reflecting the adverse impact of the global financial crisis and the downturn or recession in developed economies, particularly the US. The most visible and immediate impact of the financial crisis on Latin America is the sharp depreciation of currencies against the dollar (around 20% for some) as of the middle of September in 2008. Particularly, the Brazilian real and the Chilean peso appreciated against the dollar until the third quarter of 2008 and then slid sharply in the fourth quarter. The dollar, the currency used to manage business in Latin America, depreciated 7% against the euro in 2008 (annual average). The Chilean peso depreciated against the euro from 715 to 757, the Mexican peso from 15.0 to 16.3 and the Brazilian real remained virtually unchanged.

Interest income was €8,025 million in 2008, a 30.6% or €1,881 million increase from €6,144 million in 2007. Spreads on loans (varying from country to country) dropped 22 basis points in the fourth quarter (due to lower growth in consumer credit and cards). Spreads on deposits raised 30 basis points between the third and fourth quarters.

Income from companies accounted for by the equity method was €680 million in 2008, due to the contribution from RFS Holdings, B.V. (essentially, Banco Real) which in 2008 consolidated nine months in this line.

Net fees and commissions were €3,208 million in 2008, a 19.1% or €514 million increase from €2,694 million in 2007 due to the focus on recurring revenues and, specifically, on developing fee-generating products and services. Of note was the strong increase of fees from insurance and credit cards. In light of the global economic downturn, the Group is placing less emphasis on market share in retail lending and, in wholesale businesses, focusing on the provision of services and the generation of fee income.

Gains / losses on financial assets and liabilities were €857 million in 2008, a 27.2% or €183 million increase from €674 million in 2007 due to customer activity and capital gains in portfolios.

110

Administrative expenses were €4,651 million in 2008, a 20.9% or €804 million increase from €3,847 million in 2007, affected by the consolidation of Banco Real in the fourth quarter.

Impairment losses on financial assets were €3,020 million in 2008, a 95.3% or €1,474 million increase from €1,546 million in 2007 because of the growth in lending and the greater focus, until recently, on the more profitable segments, but also with a higher risk premium, and the consolidation of Banco Real. The NPL ratio for Latin America was 2.9% at the end of 2008 (1.9% in 2007), while coverage was 108% (134% in 2007).

Profit attributable to the Parent was €3,609 million in 2008, a 35.4% or €943 million increase from €2,666 million in 2007.

Sovereign

(in millions of euros)	2009 (1)
INTEREST INCOME / (CHARGES)		1,160
Income from equity instruments		1
Income from companies accounted for by the equity method		(3	)
Net fees and commissions		380
Gains/losses on financial assets and liabilities (net)		14
Other operating income/(expenses) (net)		(89	)
TOTAL INCOME		1,463
Administrative expenses		(766	)
Personnel expenses		(457	)
Other general expenses		(309	)
Depreciation and amortization		(115	)
Impairment losses on financial assets (net)		(571	)
Provisions (net)		(55	)
Impairment losses on other assets (net)		(1	)
Gains/(losses) on other assets (net)		(2	)
OPERATING PROFIT/(LOSS) BEFORE TAX		(47	)
Income tax		22
PROFIT FROM CONTINUING OPERATIONS		(25	)
Profit/(loss) from discontinued operations (net)		—
CONSOLIDATED PROFIT FOR THE YEAR		(25	)
Profit attributable to minority interests		—
Profit attributable to the Parent		(25	)

(1) As Sovereign was fully acquired on January 30, 2009, only 11 months for 2009 are presented here.

111

2009

In 2009, Sovereign pursued the integration and alignment with the business model of Grupo Santander and a series of steps were taken to inject stability into corporate governance and solidify the balance sheet and income statement: (1) creation of a solid corporate governance structure under the direct supervision of the highest executive bodies (management committee and the Board, supported by the audit committee) and committees to oversee the bank’s main functions (risks, ALCO, marketing, etc); (2) adapting the bank’s management to the Group’s standards, with the appointment of a new team and centralization of key areas (management control, human resources, risks, etc); (3) the Group’s risk model was put into effect, with weekly reviews by a risk committee whose members include independent directors and technological and human resources were boosted, with a special focus on loan recoveries; (4) optimization of the management structure and strengthening of the balance sheet by updating the policies regarding control of interest rate risk, levels of capitalization, liquidity management and contingency plans; (5) a cost-cutting plan was implemented which streamlined headcount and reduced general, technological and operating expenses. The elimination of redundant functions, business reorganization and leverage in the global scope of Santander’s operations, IT model and cost structure enabled Sovereign to end 2009 with monthly expenses 20% lower than that in the fourth quarter of 2008 and close to the medium-term target; and (6) review and reorganization of the business lines under a customer banking focus. Sovereign’s products have been segmented and cataloged into four large areas: Retail Banking, SMEs, Large Companies and Specialized Businesses. The structure of wholesale banking also began to be defined.

Sovereign’s performance since becoming part of the Group has been impacted by its integration activities and, above all, by the economic recession. Its performance improved in the third and fourth quarters when growth was positive.

Net interest income for 2009 was €1,160 million, representing 79% of the total income, with a good growth quarter on quarter. This was due to repricing of loans, the lower cost of customer deposits (which cost decreased 91 basis points between the first and fourth quarters) and ALCO management that offset the lower volume of lending.

In an environment of low short-term interest rates, management focused on improving spreads on new loans and renewal of credits in order to incorporate the higher cost of liquidity and the greater risk. This limited the impact of the decrease in interest rates on the return on basic loans, while continuing to reduce lending in non-core segments and businesses. In deposits, there was a sharp drop in prices, particularly in higher cost products. This occurred with only a 8% loss of volume as the 35% reduction on the balances of high cost products, such as retail time deposits and wholesale deposits was partly offset by the 15% increase in retail demand deposits.

Administrative expenses were €766 million in 2009 and recent months saw a cost reduction trend largely due to the removal of duplications and higher synergies. This, together with a higher income growth, positively impacted the efficiency ratio, which decreased from 74.5% in the first quarter to 53.9% in the fourth quarter.

Impairment losses on financial assets were €571 million in 2009. Performance has stabilized in recent months, once the target level of provisions as a percentage of loans stated in the acquisition was surpassed (3.6% of gross lending at the end of 2009). As of December 2009, the NPL ratio was 5.3% and coverage ratio was 62%, with 74% of loans covered by collateral or guarantees.

Positive developments during 2009, with gradual increases in revenues, cost reductions and control of loan-loss provisions, made operating profit positive in the third and fourth quarters.

112

Corporate Activities

										Variations
	2009			2008			2007			2009/2008			2008/2007
	(in millions of euros, except percentages)
INTEREST INCOME / (CHARGES)		(2,210	)		(2,157	)		(1,777	)		2.5	%		21.4	%
Income from equity instruments		121			229			183			(47.2	%)		25.1	%
Income from companies accounted for by the equity method		(15	)		96			427			(115.6	%)		(77.5	%)
Net fees and commissions		(5	)		59			30			(108.5	%)		96.7	%
Gains/losses on financial assets and liabilities (net)		1,376			1,353			1,113			1.7	%		21.6	%
Other operating income/(expenses) (net)		52			32			43			62.5	%		(25.6	%)
TOTAL INCOME		(681	)		(388	)		19			75.5	%		n/a
Administrative expenses		(695	)		(455	)		(536	)		52.7	%		(15.1	%)
Personnel expenses		(307	)		(200	)		(247	)		53.5	%		(19.0	%)
Other general expenses		(388	)		(255	)		(289	)		52.2	%		(11.8	%)
Depreciation and amortization		(114	)		(177	)		(259	)		(35.6	%)		(31.7	%)
Impairment losses on financial assets (net)		(1,861	)		(331	)		(14	)		462.2	%		2,264.3	%
Provisions (net)		(762	)		(989	)		(509	)		(23.0	%)		94.3	%
Impairment losses on other assets (net)		(100	)		(1,027	)		(1,510	)		(90.3	%)		(32.0	%)
Gains/(losses) on other assets (net)		382			1,783			2,259			(78.6	%)		(21.1	%)
OPERATING PROFIT/(LOSS) BEFORE TAX		(3,831	)		(1,584	)		(550	)		141.9	%		188.0	%
Income tax		2,437			938			684			159.8	%		37.1	%
PROFIT FROM CONTINUING OPERATIONS		(1,394	)		(646	)		134			115.8	%		(582.1	%)
Profit/(loss) from discontinued operations (net)		(15	)		—			685			n/a			n/a
CONSOLIDATED PROFIT FOR THE YEAR		(1,409	)		(646	)		819			118.1	%		(178.9	%)
Profit attributable to minority interests		(24	)		1			65			n/a			(98.5	%)
Profit attributable to the Parent		(1,385	)		(647	)		754			114.1	%		(185.8	%)

2009 compared to 2008

Net interest income for Corporate Activities was a loss of €2,210 million in 2009 in line with 2008.

Income from equity instruments was €121 million in 2009, a 47.2% decrease from 2008 due to lower dividends from Royal Bank of Scotland and Fortis (€436 million in 2009 versus €553 million in 2008).

Income from companies accounted for by the equity method was a loss of €15 million in 2009 compared to a gain of €96 million in 2008 due to the sale of the stake in CEPSA.

Gains / losses on financial assets and liabilities were €1,376 million in 2009, in line with €1,353 million in 2008. This includes results from centralized management of interest rate and currency risk of the Parent as well as from equities.

Administrative expenses were €695 million in 2009, a 52.7% increase as compared to 2008, partly offset by lower depreciation charges. The sale of Santander Financial City in Spain, together with the disposal of other buildings, generated higher administrative costs (higher rent) and lower amortizations.

In 2009, net provisions were €762 million, impairment losses were €1,861 million and gains on other assets were €382 million. These line items include the following: gains of €1,499 million from the initial public offering of Santander Brasil and gains of €218 million from the sale of Attijariwafa Bank. This was offset by loan loss provisions of €1,500 million (€1,041 million net of taxes), provisions for real estate acquired of €814 million (€554 million net of taxes), an additional provision for Metrovacesa for €269 million, a restructuring fund for GE and Sovereign for €260 million and other funds for €463 million, including early retirements.

113

Loss attributable to the Parent amounted to €1,385 million in 2009 because of lower income (due to the sale of the stake in CEPSA and lower dividends from RBS and Fortis), higher costs (the sale of Santander Financial City in Spain which generated higher administrative costs) and higher provisions (mainly related to Metrovacesa).

2008 compared to 2007

Interest income decreased by €380 million in 2008, a 21.4% decrease as compared to 2007, due to the higher cost of financing the assets of ABN AMRO.

Income from equity instruments was €229 million in 2008, a 25.1% increase from 2007. This figure is the net result of the increase in the dividends from Royal Bank of Scotland and Fortis and the lower dividends from Intesa Sanpaolo (sold in 2007).

Income from companies accounted for by the equity method was €96 million in 2008 compared to €427 million in 2007. CEPSA’s contribution was lower because as of October 1, 2008 its profits ceased to be recorded by the equity method as the stake was transferred to non-current assets held for sale.

Gains / losses on financial assets and liabilities were €1,353 million in 2008, a 21.6% increase from €1,113 million in 2007. A major factor here was the creation of a €643 million fund (€450 million net of tax) for Grupo Santander customers who suffered losses due to the collapse of Lehman Brothers and to the Bernard L. Madoff fraud which was offset by the €741 million capital gains from the sale of ABN’s liabilities.

Administrative expenses were €455 million in 2008, a 15.1% decrease as compared to 2007.

In 2008, net provisions were €989 million, impairment losses on other assets were €1,027 million and gains / losses on other assets were €1,783 million. These line items include the capital gains generated from the sale of Grupo Santander City €586 million) and from the sale of the businesses in Italy acquired from ABN (€2,245 million) partially offset by €386 million from a fund for restructuring costs, €382 million from an early retirement fund, and €175 million from other funds. Additionally, €1,430 million to write down the stakes in Fortis and Royal Bank of Scotland, €904 million to amortize the intangibles of Santander UK and €295 million to amortize the goodwill of Santander Consumer Finance and writedowns in other portfolios (all figures net of taxes).

Loss attributable to the Parent was €647 million in 2008 as a result of the increase in impairments and provisions registered during the period.

114

Second level (business):

Retail Banking

										Variations
	2009			2008			2007			2009/2008			2008/2007
	(in millions of euros, except percentages)
INTEREST INCOME / (CHARGES)		25,942			17,613			14,771			47.3	%		19.2	%
Income from equity instruments		127			154			77			(17.5	%)		100.0	%
Income from companies accounted for by the equity method		12			556			9			(97.8	%)		6,077.8	%
Net fees and commissions		7,523			6,861			6,432			9.6	%		6.7	%
Gains/losses on financial assets and liabilities (net)		1,454			1,100			957			32.2	%		14.9	%
Other operating income/(expenses) (net)		(230	)		31			47			(841.9	%)		(34.0	%)
TOTAL INCOME		34,828			26,315			22,293			32.4	%		18.0	%
Administrative expenses		(12,734	)		(9,857	)		(8,942	)		29.2	%		10.2	%
Personnel expenses		(7,280	)		(5,806	)		(5,430	)		25.4	%		6.9	%
Other general expenses		(5,454	)		(4,051	)		(3,512	)		34.6	%		15.3	%
Depreciation and amortization		(1,367	)		(946	)		(878	)		44.5	%		7.7	%
Impairment losses on financial assets (net)		(9,744	)		(5,672	)		(3,357	)		71.8	%		69.0	%
Provisions (net)		(1,001	)		(607	)		(423	)		64.9	%		43.5	%
Impairment losses on other assets (net)		(61	)		(24	)		(38	)		154.2	%		(36.8	%)
Gains/(losses) on other assets (net)		(43	)		43			289			(200.0	%)		(85.1	%)
OPERATING PROFIT/(LOSS) BEFORE TAX		9,878			9,252			8,944			6.8	%		3.4	%
Income tax		(2,300	)		(1,825	)		(2,347	)		26.0	%		(22.2	%)
PROFIT FROM CONTINUING OPERATIONS		7,578			7,427			6,597			2.0	%		12.6	%
Profit/(loss) from discontinued operations (net)		46			319			151			(85.6	%)		111.3	%
CONSOLIDATED PROFIT FOR THE YEAR		7,624			7,746			6,748			(1.6	%)		14.8	%
Profit attributable to minority interests		465			434			457			7.1	%		(5.0	%)
Profit attributable to the Parent		7,159			7,312			6,291			(2.1	%)		16.2	%

2009 compared to 2008

The Group’s Retail Banking segment generated 69.3% of the operating areas’ total profit attributable to the Parent.

Interest income increased 47.3 % to €25,942 million, due to the impact of new acquisitions (including Banco Real, Alliance & Leicester, Bradford & Bingley and GE Money) and effective margin management in all the regions. Loans grew 11% in 2009, while deposits experienced a growth of 23%, more positively impacted by the new acquisitions.

Net fees and commissions were €7,523 million in 2009, a 9.6% increase from €6,861 million in 2008, favorably influenced by the new acquisitions.

Gains / losses on financial assets and liabilities were €1,454 million in 2009, a 32.2% increase from €1,100 million in 2008.

Administrative expenses were €12,734 million in 2009, a 29.2% increase from €9,857 million in 2008. This increase was due to the inclusion of the administrative expenses of the new acquisitions. The underlying administrative expenses (excluding exchange rate effects and acquisitions) remained flat, largely due to the streamlining of back-office operations and support functions due to the integration synergies. This had a positive effect on our cost income ratio.

115

Impairment losses on financial assets were €9,744 million in 2009, a 71.8% or €4,072 million increase from €5,672 million in 2008. This increase was due to the new acquisitions and a higher charge distributed across all products with the largest increase relating to mortgages, as the impact of falling housing prices and the lagging effect of unemployment, as anticipated, started to emerge in some countries. Most of the impact came through in the first half of the year, with second half performance stabilizing and in some areas improving.

Profit attributable to the Parent was €7,159 million in 2009, a 2.1% decrease from €7,312 million in 2008.

Retail Banking in Continental Europe increased its net interest income by 23.3% while attributable profit decreased by 3.7%. The main drivers were moderate business volumes, good management of spreads in an environment of lower interest rates, control of costs (flat on a like-for-like basis) and increase of impairment losses.

The profit of Retail Banking in the United Kingdom was 34.0% higher (+50.1% in sterling), due to the good performance of Santander UK and the consolidation of Alliance & Leicester and Bradford & Bingley. The drivers were the same as for other units: higher revenues spurred by net interest income and lower growth in costs offset by higher loan-loss provisions.

The results of Retail Banking in Latin America are explained by the full consolidation of Banco Real for the all of 2009 together with growth in customer business, good net interest income performance within the region’s environment of lower economic growth, effective control of expenses compatible with business development and savings from synergies in Brazil. Net interest income rose 54.3%, compared to 2008 and total income was 37.8% higher compared to 2008 while operating expenses grew at a slightly slower pace (+32.9%) improving the efficiency ratio. However, as a result of the big increase loss provisions, attributable profit was 12.8% lower, although on an improving trend.

Private banking activity was lower in the first half of 2009 because of the economic developments in the second half of 2008. Total income declined 6.9%, due to the reduction in average volumes managed and the shift in customer preferences towards a more conservative mix of products. This was mitigated to some extent by the 9.9% decline in personnel and general costs. Attributable profit was 1.6% higher at €330 million.

2008 compared to 2007

The Group’s Retail Banking segment generated 76.8% of the operating areas’ total profit attributable to the Parent. This result was conditioned by two factors: on the one hand, the performance in euro terms in the UK and Latin America reflects the negative impact of exchange rates, which absorbed the growth in local currencies. On the other, the full consolidation of one quarter of Banco Real has a positive impact of 3 percentage points on profits.

Interest income increased 19.2 % to €17,613 million, due to the impact of increased business (including the entry of Banco Real) and better customer spreads.

Net fees and commissions were €6,861 million in 2008, a 6.7% increase from €6,432 million in 2007.

Gains / losses on financial assets and liabilities were €1,100 million in 2008, a 14.9% increase from €957 million in 2007.

Administrative expenses were €9,857 million in 2008, a 10.2% increase from €8,942 million in 2007. This increase is well below growth of total income and it is affected by the consolidation of Banco Real in the fourth quarter.

Impairment losses on financial assets were €5,672 million in 2008, a 69% or €2,315 million increase from €3,357 million in 2007. This increase was due to the deterioration of the market together with the greater volume of lending and the greater risk premium caused by the entry into more profitable segments and products, as well as the consolidation of Banco Real.

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Profit attributable to the Parent was €7,312 million in 2008, a 16.2% increase from €6,291 million in 2007.

Retail Banking in Continental Europe continued the growth trends in volumes and earnings of the last two years. The main units of growth were the Santander Branch Network and Banesto Retail and the main drivers were: (1) the good evolution of business, that performed better than the market, although quarter-on-quarter growth eased; (2) the careful management of prices in a changing environment of interest rates; and (3) selective control of expenses.

Retail Banking in the UK in euro terms was strongly affected by the negative impact of exchange rates. Operating profit before tax in 2008 in sterling was 12.1% higher than in 2007 but it was 3.5% lower in 2007 in euros.

The results of Retail Banking in Latin America came from growth in customer business, the good performance of interest income and net fees, and control of costs compatible with ongoing business development. The factors behind this growth were the rise in the number of individual customers and SMEs, and development of loyalty products. Growth was partly offset by a large rise in net loan-loss provisions (partly due to the deterioration of the economic environment and partly due to regulatory changes in Mexico and the unification of criteria in Brazil after the integration of Banco Real), together with a decrease of gains/losses on other assets.

Global Wholesale Banking

										Variations
	2009			2008			2007			2009/2008			2008/2007
	(in millions of euros, except percentages)
INTEREST INCOME / (CHARGES)		2,366			1,892			1,303			25.1	%		45.2	%
Income from equity instruments		188			164			148			14.6	%		10.8	%
Income from companies accounted for by the equity method		2			87			2			(97.7	%)		4,250.0	%
Net fees and commissions		1,131			883			911			28.1	%		(3.1	%)
Gains/losses on financial assets and liabilities (net)		1,382			995			855			38.9	%		16.4	%
Other operating income/(expenses) (net)		(16	)		(45	)		(29	)		(64.4	%)		55.2	%
TOTAL INCOME		5,053			3,976			3,190			27.1	%		24.6	%
Administrative expenses		(1,117	)		(1,060	)		(1,012	)		5.4	%		4.7	%
Personnel expenses		(725	)		(672	)		(625	)		7.9	%		7.5	%
Other general expenses		(392	)		(388	)		(387	)		1.0	%		0.3	%
Depreciation and amortization		(86	)		(98	)		(90	)		(12.2	%)		8.9	%
Impairment losses on financial assets (net)		37			(281	)		(58	)		(113.2	%)		384.5	%
Provisions (net)		6			(26	)		58			(123.1	%)		(144.8	%)
Impairment losses on other assets (net)		(3	)		—			—			n/a			n/a
Gains/(losses) on other assets (net)		—			4			(94	)		n/a			(104.3	%)
OPERATING PROFIT/(LOSS) BEFORE TAX		3,890			2,515			1,994			54.7	%		26.1	%
Income tax		(1,125	)		(775	)		(486	)		45.2	%		59.5	%
PROFIT FROM CONTINUING OPERATIONS		2,765			1,740			1,508			58.9	%		15.4	%
Profit/(loss) from discontinued operations (net)		—			—			40			n/a			n/a
CONSOLIDATED PROFIT FOR THE YEAR		2,765			1,740			1,548			58.9	%		12.4	%
Profit attributable to minority interests		—			(1	)		9			n/a			n/a
Profit attributable to the Parent		2,765			1,741			1,539			58.8	%		13.1	%

2009 compared to 2008

Global Wholesale Banking generated 26.8% of the operating areas’ profit attributable to the Parent in 2009. Growth was generated by clients in our core markets and was positively influenced by our diversified portfolio.

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This performance was backed by a customer-focused business model, the area’s global reach and its connection with local units, and strict control of expenses and risks. Another decisive factor is the strength of the Group’s capital and liquidity which, within rigorous control of both variables, enabled us to maintain a high level of unrestricted activity and take on new operations.

The business model and the strong balance sheet were combined with a more favorable environment, higher spreads and volatilities than in 2008 and many competitors focused on aspects other than pure business. All of this enabled Santander to penetrate attractive business segments profitably and occupy spaces left by others without increasing risk levels.

Interest income was €2,366 million in 2009, a 25.1% or €474 million increase from €1,892 million in 2008. Net fees and gains on financial assets and liabilities increased 28.1% and 39%, respectively, due to increased transaction volumes and margin improvements.

Administrative expenses were €1,117 million in 2009, a 5.4% increase from €1,060 million in 2008. This increase, much lower than that of total income (+27.1%), was due to strict control of expenses and allowed for improvement in the efficiency ratio.

Impairment losses on financial assets were a gain of €37 million in 2009 versus a loss of €281 million in 2008. The main reason is a decrease in provisions, which had increased in 2008 due to certain large operations that took place in the second half of 2008.

Profit attributable to the Parent was €2,765 million in 2009, a 58.8% increase from €1,741 million in 2008. All geographic areas increased their revenues: Continental Europe (+27%), United Kingdom (+7%) and Latin America (+26%). These growth rates were achieved with strict management of volumes and risks. The area’s risk weighted asset levels at the end of 2009 were lower than in 2008.

The product areas also made progress in their increasingly global business vision, which is adapted to the changing needs of markets and customers. Their performance was as follows:

Global Transaction Banking: increased its customer revenues 34%, backed by solid market position, where it provides local and regional solutions for corporate and institutional customers.

Corporate Finance: reduced its customer revenues by 41%, due to the decline in the number and size of corporate operations and the impact on year-on-year comparisons of the high revenues from a particular operation in 2008. Excluding this operation, and backed by the strong performance of the asset & capital structuring business, revenues were almost in line with those in 2008.

Credit Markets: increased their customer revenues by 76%, backed by all products and countries, particularly Spain and Latin America. In loans, Santander enjoyed a good year and participated in several large operations that contributed to the total with more than €25 billion.

Rates: increased their customer revenues by 14%, backed by all countries and business lines, although with slowing growth (+64% in the first half and +41% in the first nine months). The strong growth at the start of the year, based on higher spreads because of the lack of depth of the market, greater penetration and good credit management, was reduced in the last part of 2009 following a trend toward normalization of market conditions.

2008 compared to 2007

Global Wholesale Banking generated 18.3% of the operating areas’ profit attributable to the Parent in 2008. The area’s growth was due to a customer-focused business model, the area’s global capacities and connection with local units, and the strength of the Group’s capital and liquidity which made it possible to increase profit.

Interest income was €1,892 million in 2008, a 45.2% or €589 million increase from €1,303 million in 2007. The strong growth in customer revenues accounted for more than 85% of the area’s total revenues. Almost all segments of business and countries grew throughout the year especially in the fourth quarter, partly due to the improved spreads and the acceleration of revenues in hedging the positions of our clients.

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Net fees and commissions were €883 million in 2008, a 3.1% decrease from €911 million in 2007, affected by the strong decrease in the results of trading activity due to the instability of the markets.

Total income was €3,976 million in 2008, a 24.6% increase from €3,190 million in 2007.

Administrative expenses were €1,060 million in 2008, a 4.7% increase from €1,012 million in 2007 due to a strict adjustment of expenses and structures to the new environment.

Impairment losses on financial assets were €281 million in 2008, a €223 million increase from €58 million in 2007. The main reason is the increase in general provisions because of large operations in the second half of the year, particularly in the fourth quarter.

Asset Management and Insurance

										Variations
	2009			2008			2007			2009/2008			2008/2007
	(in millions of euros, except percentages)
INTEREST INCOME / (CHARGES)		201			190			146			5.8	%		30.1	%
Income from equity instruments		—			6			12			n/a			(50.0	%)
Income from companies accounted for by the equity method		—			53			—			n/a			n/a
Net fees and commissions		431			464			495			(7.1	%)		(6.3	%)
Gains/losses on financial assets and liabilities (net)		34			26			30			30.8	%		(13.3	%)
Other operating income/(expenses) (net)		338			254			229			33.1	%		10.9	%
TOTAL INCOME		1,004			993			912			1.1	%		8.9	%
Administrative expenses		(278	)		(293	)		(286	)		(5.1	%)		2.4	%
Personnel expenses		(138	)		(135	)		(132	)		2.2	%		2.3	%
Other general expenses		(140	)		(158	)		(154	)		(11.4	%)		2.6	%
Depreciation and amortization		(29	)		(18	)		(20	)		61.1	%		(10.0	%)
Impairment losses on financial assets (net)		(10	)		—			—			n/a			n/a
Provisions (net)		(36	)		(18	)		(22	)		100.0	%		(18.2	%)
Impairment losses on other assets (net)		—			2			(1	)		n/a			n/a
Gains/(losses) on other assets (net)		—			1			—			n/a			n/a
OPERATING PROFIT/(LOSS) BEFORE TAX		651			667			583			(2.4	%)		14.4	%
Income tax		(219	)		(174	)		(174	)		25.9	%		0.0	%
PROFIT FROM CONTINUING OPERATIONS		432			493			409			(12.4	%)		20.5	%
Profit/(loss) from discontinued operations (net)		—			—			112			n/a			n/a
CONSOLIDATED PROFIT FOR THE YEAR		432			493			521			(12.4	%)		(5.4	%)
Profit attributable to minority interests		28			22			45			27.3	%		(51.1	%)
Profit attributable to the Parent		404			471			476			(14.2	%)		(1.1	%)

2009 compared to 2008

This segment accounted for 3.9% of profit attributable to the Parent in 2009.

Total income increased slightly in 2009 (+1.1%) as a result of higher revenues from insurance partly offset by a decrease in asset management, particularly fee income. A key factor was the sharp decline in the managed volumes of mutual funds, mainly in Spain.

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Administrative expenses were €278 million in 2009, a 5.1% decrease from €293 million in 2008 reflecting continuous efforts to adapt the structures to the new revenue environment.

Profit attributable to the Parent was €404 million, a 14.2% decrease due to higher impairment losses on assets, provisions and tax rate.

Santander Asset Management generated fee and commission income in 2009 of €1,178 million, 23.6% lower than in 2008 because of the preference for liquidity and deposits by financial agents and the impact of the markets on portfolios, both in lower average volumes under management as well as their composition (more conservative and lower return).

Of note, however, was the trend towards stabilization of revenues as of the second quarter, in contrast to the double digit falls at the end of 2008 and the start of 2009. This was due to the gradual recovery of mutual fund markets, begun in Latin America and now spreading to Europe, which improved volumes.

Total managed assets stood at €116,500 million at the end of 2009, 15% more than a year earlier but still 6% below the average volume of 2008.

Attributable profit was €54 million (-65.9%), after deducting operating expenses and fees paid to the commercial networks.

Santander Insurance generated fee and commission income in 2009 of €1,861 million, a 6.0% increase as compared to 2008.

Total income in this area amounted to €728.7 million, a 21.5% increase as compared to the previous year. This increase together with moderate growth of general administrative expenses (+3.8) lead to attributable profit of €350 million, 12.2% more than in 2008.

Santander Insurance continued to progress in its global business model and foster the development of new products via its distribution channels. It also consolidated its position with the acquisition of the 50% of the insurer Real Tokio Marine Vida e Previdencia in Brazil that the Group did not own and the integration of the businesses of Alliance & Leicester, GE Money and Sovereign.

Premium income was 14% lower, eroded by the Group’s reduced lending (which affected insurance products related to credits) and customers’ greater preference for liquidity, which reduced the demand for savings insurance.

2008 compared to 2007

This segment accounted for 4.9% of profit attributable to the Parent in 2008.

Total income was €993 million in 2008, an 8.9% or €81 million from €912 million in 2007 as the higher revenues from insurance did not offset the fall in fee income. The latter was hit by the decline in the volume of mutual funds in the main countries where the Group operates, particularly Spain. In this market, customer demand and the focus of retail networks shifted to traditional and/or structured deposits.

Administrative expenses were €293 million in 2008, a 2.4% or €7 million increase from €286 million in 2007 reflecting the area’s efforts to adapt its structures to the new environment of revenues, while absorbing the investments made to generate global businesses.

Asset Management. Santander Asset Management’s global business generated €1,542.5 million of fees in 2008 reflecting a drop of 18.4% as compared to 2007. General administrative expenses were €157.4 million (-1.1%) and profit attributable to the Parent was €159.3 million. Total managed pension and mutual funds amounted to €100 billion.

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Insurance. The global business of Santander Insurance generated fee income of €1,755 million (reflecting an increase of 24.0%). Total income in this area was €599.9 million (+20.6%), general administrative expenses were €136.1 million (+6.9%) and profit attributable to the Parent was €311.8 million (+35.6%).

Financial Condition

Assets and Liabilities

Our total assets were €1,110,529.5 million at December 31, 2009, a 5.8% or €60,897.9 million increase from total assets of €1,049,631.5 million at December 31, 2008. Our gross loans and advances to corporate clients, individual clients and government and public entities, including the trading portfolio, other financial assets at fair value and loans, increased by 9.6% to €700,424.0 million at December 31, 2009 from €639,354.5 million at December 31, 2008. The increase in our total assets was due, to a net perimeter rise from the consolidation of Sovereign and the consumer business units acquired, which more than offset the reduction in balances from the sale of our bank in Venezuela. In addition, the appreciation against the euro on the basis of period-end exchange rates of 29% for the Brazilian real, 7% for sterling, 2% for the Mexican peso and 21% for the Chilean peso also contributed to the increase. The dollar, however, depreciated 3%.

Customer deposits, which comprise deposits from clients and securities sold to clients under agreements to repurchase, increased by 20.6% from €420,229.4 million at December 31, 2008, to €506,976.2 million at December 31, 2009. This increase was also affected by both the exchange-rate impact and the consolidation effect described above. Other managed funds, including mutual funds, pension funds, managed portfolios and savings-insurance policies, decreased by 10.1% from €131,061.5 million at December 31, 2008, to €144,312.7 million at December 31, 2009.

In addition, and as part of the global financing strategy, during 2009 the Group issued €60,999 million of senior debt (including Santander UK’s medium term program), of which €7,077 million was mortgage bonds (cédulas hipotecarias) and €6,874 million was subordinated debt.

During 2009, €75,614 million of senior debt (including Santander UK’s medium term program), of which €727 million was mortgage bonds (cédulas hipotecarias) and €9,316 million was subordinated debt matured.

In order to improve its capital structure and strengthen the balance sheet, Grupo Santander made a series of exchange offers for securities of a nominal amount of approximately €9,100 million. The exchange offers were made with new securities that met current standards and regulatory requirements for their calculation as equity at the consolidated level. As a result of these exchange offers, subordinated debt with a value of €1,617 million was issued and preferred shares with a value of €1,593 million were issued.

Goodwill was €22,865 million at the end of 2009, a €4,029 million increase from €18,836 million at the end of 2008. This increase is the net difference between the entry into consolidation of the businesses acquired (Sovereign and GE Money) and the impact of exchange rates, mainly the appreciation of sterling and the Brazilian currency against the euro.

Capital

Stockholders’ equity, net of treasury stock, at December 31, 2009, was €68,666.6 million, an increase of €11,079.7 million or 19.2% from €57,586.9 million at December 31, 2008, mainly due to the decrease of negative valuation adjustments and the increase of capital and reserves.

Our eligible stockholders’ equity was €69,731 million at December 31, 2009. The surplus over the minimum required by the Bank of Spain was €25,026 million. In accordance with the Basel II Accord criteria (which provide the framework under which Spanish entities must report capital ratios as of June 30, 2008), at December 31, 2009 the BIS II ratio was 14.2% (as compared to 13.3% at December 31, 2008), Tier I Capital was 10.1% (9.1% a year earlier) and core capital was 8.6% (7.5% in December 2008). See Item 4 of Part I, “Information on the Company—B. Business Overview—Supervision and Regulation—Capital Adequacy Requirements”.

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B. Liquidity and capital resources

Management of liquidity

For information about our liquidity risk management process, see Item 11 of Part I, “Quantitative and Qualitative Disclosures About Market Risk—Part. 10 Market Risk—Statistical Tools for Measuring and Managing Market Risk—Non Trading activity—Liquidity Risk” and “—Quantitative analysis—B. Non Trading Activity—Asset and liability management— Management of structural liquidity”.

Sources of funding

As a financial group, a principal source of our liquidity is our customer deposits which consist primarily of demand, time and notice deposits. In addition, we complement the liquidity generated by our customer deposits through access to the domestic and international capital markets and to the interbank market (overnight and time deposits). For this purpose, we have in place a series of domestic and international programs for the issuance of commercial paper and medium and long- term debt. We also maintain a diversified portfolio of liquid and securitized assets throughout the year. In addition, another source of liquidity is the generation of cash flow.

At December 31, 2009, we had outstanding €212.0 billion of senior debt, of which €81.5 billion were mortgage bonds and €28.7 billion were promissory notes. Additionally, we had €36.8 billion in outstanding subordinated debt (which includes €7.3 billion preferred securities and €0.4 billion in preferred shares).

The following table shows the average balances during the years 2009, 2008 and 2007 of our principal sources of funds:

	2009		2008		2007
	(in thousands of euros)
Due to credit entities		141,930,426		114,360,961		111,969,806
Customer deposits		463,602,299		354,193,915		332,678,212
Marketable debt securities		221,230,091		237,824,647		227,447,091
Subordinated debt		39,008,547		36,257,108		33,512,279
Total		865,771,363		742,636,631		705,607,388

The average maturity of our outstanding debt as of December 31, 2009 is as follows:

(1) Senior debt	3.0 years
(2) Mortgage debt	11.8 years
(3) Dated subordinated debt	7.5 years

For more information see Notes 22.b, 23.a and 51.a to our consolidated financial statements.

The cost and availability of debt financing are influenced by our credit ratings. A reduction in these ratings could increase the cost of, and reduce our market access to debt financing. Our credit ratings are as follows:

	Long-Term	Short-Term	Financial Strength
Standard & Poor’s	AA	A1+
Fitch	AA	F1+	A/B
Moody’s	Aa2	P1	B-
DBRS	AA	R1 (high)

Our total customer deposits, excluding assets sold under repurchase agreements, totaled €468.3 billion at December 31, 2009. Loans and advances to customers (gross) totaled €700.4 billion at the same date.

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We remain well placed to access various wholesale funding sources from a wide range of counterparties and markets, and the changing mix between customer deposits and repos, deposits by banks and debt securities in issue primarily reflects comparative pricing, maturity considerations and investor counterparty demand rather than any material perceived trend.

We use our liquidity to fund our lending and investment securities activities, for the payment of interest expense, for dividends paid to shareholders and the repayment of debt.

We, Grupo Santander, are a European, Latin American and North American financial group. Although, at this moment we are not aware of any legal or economic restrictions on the ability of our subsidiaries to transfer funds to the Bank (the Parent company) in the form of cash dividends, loans or advances, capital repatriation and other forms, or to have access to foreign currency at the official exchange rate, there is no assurance that in the future such restrictions will not be adopted or how they would affect our business. Nevertheless, the geographic diversification of our businesses limits the effect of any restrictions that could be adopted in any given country.

We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.

As of December 31, 2009, and to the present date, we did not, and presently do not, have any material commitments for capital expenditures.

C. Research and development, patents and licenses, etc.

We do not currently conduct any significant research and development activities.

D. Trend information

The global financial services sector is likely to remain competitive with a large number of financial service providers and alternative distribution channels. Additionally, consolidation in the sector (through mergers, acquisitions or alliances) is likely to occur as the other major banks look to increase their market share, combine with complementary businesses or strengthen their balance sheets. In addition, regulatory changes will take place in the future that we expect will increase the overall level of regulation in the markets.

The following are the most important trends, uncertainties and events that are reasonably likely to have a material adverse effect on the Bank or that would cause the disclosed financial information not to be indicative of our future operating results or our financial condition:

• a continued downturn in the Spanish and the United Kingdom real estate markets, and a corresponding increase in mortgage defaults, which could impact our NPL and decrease consumer confidence and disposable income;

• uncertainty regarding interest rates in the United States and other countries;

• uncertainties relating to economic growth expectations and interest rates cycles, especially in the United States, Spain, the United Kingdom, other European countries and Latin America, and the impact they may have over the yield curve and exchange rates;

• the resulting effect of the global economic slowdown on Europe, the US and Latin America and fluctuations in local interest and exchange rates;

• continued changes in the macroeconomic environment, such as sustained unemployment above historical levels, could further deteriorate the quality of our customers’ credit;

• increases in our cost of funding, partially as a result of the fragility of the Greek economy, could adversely affect our net interest margin as a consequence of timing differences in the repricing of our assets and liabilities;

• the effects of withdrawal of significant monetary and fiscal stimulus programs and uncertainty over government responses to growing public deficits;

• continued instability and volatility in the financial markets;

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• a drop in the value of the euro relative to the US dollar, the Sterling pound or Latin American currencies;

• inflationary pressures, because of the effect they may have in relation to increases of interest rates and decreases of growth;

• increased consolidation of the global financial services sector, which could further reduce our spreads;

• although it is foreseeable that entry barriers to domestic markets in Europe will eventually be lowered, our possible plans of expansion into other markets could be affected by regulatory requirements of the national authorities of these countries;

• acquisitions or restructurings of businesses that do not perform in accordance with our expectations or that subject us to previously unknown risks;

• increased regulation, government intervention and new laws prompted by the recent turmoil in global financial markets which could change our industry and require us to modify our businesses or operations;

• the risk of further reductions in liquidity and increases of credit spreads as a consequence of the crisis in the financial markets, which could affect not only our cost of funding but also the value of our proprietary portfolios and our assets under management; and

• future regulatory changes that may increase the overall level of regulation in the markets.

E. Off-balance sheet arrangements

As of December 31, 2009, 2008 and 2007, we had outstanding the following contingent liabilities and commitments:

	2009		2008		2007
	(in thousands of euros)
Contingent liabilities:
Financial guarantees and other sureties		20,974,258		15,614,342		17,172,878
Irrevocable documentary credits		2,636,618		3,590,454		5,803,088
Other guarantees		35,192,187		45,613,498		52,632,118
Other contingent liabilities		453,013		504,900		608,501
		59,256,076		65,323,194		76,216,585
Commitments:
Balances drawable by third parties		150,562,786		123,329,168		102,215,927
Other commitments		12,967,970		8,395,838		12,460,636
		163,530,756		131,725,006		114,676,563
		222,786,832		197,048,200		190,893,148

For more information see Note 35 to our consolidated financial statements.

In addition to the contingent liabilities and commitments described above, the following table provides information regarding off-balance sheet funds managed by us as of December 31, 2009, 2008 and 2007:

	2009		2008		2007
	(in thousands of euros)
Off-balance sheet funds:
Mutual funds		105,216,486		90,305,714		119,210,503
Pension funds		11,309,649		11,127,918		11,952,437
Other managed funds		18,364,168		17,289,448		19,814,340
		134,890,303		118,723,080		150,977,280

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Relationship with unconsolidated companies

We have holdings in companies over which we are in a position to exercise significant influence, but that we do not control or jointly control. According to IFRS-IASB, these investments in associated companies are accounted for using the equity method (see further details of these companies in Exhibit II to our consolidated financial statements).

Transactions with these companies are made under market conditions and are closely monitored by our regulatory authorities. See Note 53 to our consolidated financial statements for further information.

Also, we use special purpose vehicles (fondos de titulización) in our securitization activity. According to the IFRS, only those vehicles that meet certain requirements are consolidated in the Group’s financial statements. We are not required to repurchase assets from or contribute additional assets to any of these special purpose vehicles. We do, however, provide in the ordinary course of business certain loans (amounting to €251.6 million to fondos de titulización in Spain as of December 31, 2009) to some of these special purpose vehicles, which are provided for in accordance with the risks involved. In 2009, the Group securitized €16 billion of medium and long-term assets. Given the difficulties in the securitization market since August 2007, all the issues were retained by the Group’s various units.

In addition, €2 billion AAA securitization bonds were repurchased in the secondary market by Group issuers.

In the ordinary course of business, Santander UK enters into securitization transactions using special purpose securitization companies which are consolidated and included in Santander UK’s financial statements. Santander UK is under no obligation to support any losses that may be incurred by the securitization companies or the holders of the securities, and has no right or obligation to repurchase any securitized loan. Santander UK has made some interest-bearing subordinated loans to these securitization companies.

We do not have any further transactions with unconsolidated entities other than those mentioned above.

We have no other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

F. Tabular disclosure of contractual obligations

The following table summarizes our contractual obligations by remaining maturity at December 31, 2009:

			More than		More than
Contractual obligations	Less than		1 year but		3 years but		More than
(in millions of euros)	1 year		less than 3 years		less than 5 years		5 years		Total
Deposits from credit institutions		39,003		5,238		4,962		1,578		50,781
Customer deposits		418,115		34,147		30,571		4,848		487,681
Marketable debt securities		67,366		50,302		31,498		57,324		206,490
Subordinated debt		6,039		1,714		3,097		25,955		36,805
Operating lease obligations		318		701		428		2,293		3,740
Purchase obligations		2		2		1		—		5
Other long-term liabilities (1)		—		—		—		10,629		10,629
Total		530,843		92,104		70,557		102,627		796,131

(1) Other long-term liabilities relate to pensions and similar obligations

For a description of our trading and hedging derivatives, which are not reflected in the above table, see Note 36 to our consolidated financial statements.

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For more information on our marketable debt securities and subordinated debt, see Notes 22 and 23 to our consolidated financial statements.

G. Other disclosures

Higher-Risk Loans

Grupo Santander does not have any significant exposure to higher-risk loans. Our credit profile is focused on retail banking with a medium-low risk profile and with broad diversification both by geography and segment and nearly 59% of the Group’s total loan portfolio is secured and, in most cases, by real estate.

Mortgages to individuals represent approximately 42% of the Group’s total lending. These mortgages are focused on our core markets, Spain and the UK, and are principal residence mortgages with a low risk profile, low non-performing ratios (below the ratios of our peers) and an acceptable coverage ratio. This low risk profile allows us to envisage a relatively minor impact at Group level and a low final estimated loss.

In Spain, at December 31, 2009, the loan portfolio and thus its risk profile mainly comprises primary residence loans, with an average loan to value ratio (LTV) of 52.4% and an affordability rate of 30.8%. Residential mortgages account for 25.8% of the total portfolio in Spain, of which 85% has a LTV under 80%.

The UK’s mortgage portfolio is focused on primary residence mortgages, with high quality risk in terms of LTV (56.2% as of December, 31, 2009). The mortgages with the highest risk profile (buy-to-let) account for a small percentage of the total (slightly more than 1%).

Due to the economic downturn, the portfolio of loans to real estate developers has been significantly reduced, especially in Spain. At December 31, 2009, it accounted for 1.6% of the Group’s total portfolio. The Group’s risk policies stipulate that these loans should be granted not just based on the quality of the projects but also on the credit quality of the clients.

Changes in Practices

There have not been any significant changes in policies and practices in response to the effects of the current economic environment that might affect the quality of the credit information presented. This is due to the fact that the following policies and practices already formed part of our normal course of business:

a) Medium-low risk profile of the portfolio

Our risk profile is characterized by the prevalence of primary residence loans and a low effort rate of loan approval, which leads to a medium-low risk profile for the mortgage portfolio. This is due to the establishment of risk management frameworks and policies that reflect our risk management principles.

In addition to the tasks performed by the internal audit division, the risk unit has a specific risk monitoring function for adequate credit quality control with local and global teams.

b) Suspended accrual interest of non-performing past-due assets

Balances are deemed to be impaired, and the interest accrual suspended, when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts and on the dates initially agreed upon, after taking into account the guarantees received to secure (fully or partially) collection of the related balances. For all non-performing past-due assets, any collections relating to impaired loans and advances are used to recognize the accrued interest and the remainder, if any, is applied to reduce the principal amount outstanding. The amount of the financial assets that would be deemed to be impaired had the conditions thereof not been renegotiated, is not material with respect to the Group’s financial statements taken as a whole.

When the recovery of any recognized amount is considered unlikely, the amount is written off, without prejudice to any actions that we may initiate to seek collection.

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c) Allowances for credit losses and internal model

As of July 2008, the Bank of Spain had approved for regulatory capital calculation purposes the Group’s internal models affecting the vast majority of the Group’s credit risk net exposure. The Bank of Spain will continue to review the models for the purpose of calculating allowances for loan losses. The calculation obtained based on the output parameters of internal models is consistent with the best estimate of the Group as to the probable losses using possible scenarios which rely on the approved internally developed models, and which constitute an appropriate basis for determining loan loss allowances. While these models are not yet approved by the Bank of Spain for loan loss allowance calculation, we are required to calculate the allowances according to the instructions described in Item 4 in our annual report on Form 20-F for the year ended December 31, 2009, and are subject to continuing review by Bank of Spain, and subsequent continuous improvement of the processes within our internal model. The difference between loan loss provisions calculated using internal models and those calculated under Bank of Spain guidance, was not material for each one of the three years ending December 31, 2009.

Declines in Collateral Value

Declines in collateral value are not relevant in our portfolio given that residential mortgages with LTV up to 90% amount to only 6% of the total Group’s lending as of December 31, 2009. When a mortgage with these characteristics is authorized, the Group’s polices establish that the client must provide additional guarantees such as more properties, insurance coverage or others.

Other

During 2009, the general deterioration of the economic environment had a negative effect on the evolution of non-performing loans and the cost of credit. This effect was softened by prudent risk management which kept non-performing loan and coverage ratios at reasonable levels. Both ratios compare well with those of our competitors.

The Group uses credit derivatives to cover loans and trading transactions. The volume of this activity is small compared to that of our peers and is subject to strict internal controls that minimize operational risk. Risk in these activities is controlled via a series of limits such as VaR, nominal by rating, sensitivity to the spread by rating and name, and sensitivity to the rate of recovery and to correlation. Jump-to-default limits are also set by geographic area, sector and liquidity.

Exposures related to complex structured assets

The Group has a very limited exposure to complex structured assets. See “Item 11. Quantitative and Qualitative Analysis About Market Risk—Part 10. Market Risk—Quantitative analysis—C.Exposures related to complex structured assets”.

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Item 6. Directors, senior management and employees

A. Directors and senior management

We are managed by our board of directors, which currently consists of 19 members. In accordance with our By-laws (Estatutos), the board shall consist of at least 14 and not more than 22 members. Each member of the board is elected to a five-year term by our shareholders at a general meeting. Approximately one-fifth of the members are elected each year and members may be re-elected.

The 2010 annual general meeting will be held on June 11, 2010. At that meeting, Ángel Jado will be nominated for appointment as a new director. If he is approved, the board will increase to 20 members.

Our board of directors meets approximately nine times per year; however, in 2009 it met 11 times. Our board of directors elects our chairman, vice chairmen and chief executive officer from among its members. Between board meetings, lending and other board powers reside with the executive committee (comisión ejecutiva) and with the risk committee (comisión delegada de riesgos). The chairman is the Bank’s most senior officer and, as a result, all powers as may be delegated under Spanish law, our By-laws and the Rules and Regulations of the Board of Directors have been delegated to him¹. The chairman leads the Bank’s management team, in accordance with the decisions made and the criteria set by our shareholders at the general shareholders’ meeting and by the board.

By delegation and under the direction of the board and of the chairman, the chief executive officer leads the business and assumes the Bank’s highest executive functions.

Our board has ultimate lending authority and it delegates such authority to the risk committee, which generally meets twice a week.

Members of our senior management are appointed and removed by the board.

¹ The Rules and Regulations of the Board are available on the Group’s website, which does not form part of this annual report on Form 20-F, at www.santander.com under the heading “Information for shareholders and investors—Corporate governance—Board of directors—Rules and Regulations of the Board of Directors”.

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The current members of our board of directors are:

Name	Position with Santander	Director Since
Emilio Botín (1)	Chairman		1960
Fernando de Asúa	First vice chairman		1999
Alfredo Sáenz	Second vice chairman and chief executive officer		1994
Matías R. Inciarte (2)	Third vice chairman		1988
Manuel Soto	Fourth vice chairman		1999
Assicurazioni Generali, S.p.A.	Director		1999
Antonio Basagoiti	Director		1999
Ana P. Botín (1)	Director		1989
Javier Botín (1)	Director		2004
Lord Burns	Director		2004
Guillermo de la Dehesa	Director		2002
Rodrigo Echenique	Director		1988
Antonio Escámez	Director		1999
Francisco Luzón	Director		1997
Abel Matutes	Director		2002
Juan R. Inciarte (2)	Director		2008
Luis Ángel Rojo	Director		2005
Luis Alberto Salazar-Simpson	Director		1999
Isabel Tocino	Director		2007

(1)	Ana P. Botín and Javier Botín are daughter and son, respectively, of Emilio Botín.
(2)	Matías R. Inciarte and Juan R. Inciarte are brothers.

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Our current executive officers are:

Name	Position with Banco Santander
Emilio Botín	Chairman of the board of directors and of the executive committee
Alfredo Sáenz	Second vice chairman of the board of directors and chief executive officer
Matías R. Inciarte	Third vice chairman of the board of directors and chairman of the risk committee
Ana P. Botín	Chairwoman, Banesto
Francisco Luzón	Director, executive vice president, America
Juan R. Inciarte	Director, executive vice president, strategy
José A. Alvarez	Executive vice president, financial management and investor relations
Nuno Amado	Executive vice president, Santander Totta
Ignacio Benjumea	Executive vice president, general secretariat
Juan Manuel Cendoya	Executive vice president, communications, corporate marketing and research
José María Espí	Executive vice president, risk
José María Fuster	Executive vice president, technology and operations
José Luis G. Alciturri	Executive vice president, human resources
Enrique G. Candelas	Executive vice president, Santander branch network — Spain
Juan Guitard	Executive vice president, internal auditing
Antonio H. Osorio	Chief executive officer, Santander UK
Adolfo Lagos	Executive vice president, global wholesale banking
Jorge Maortua	Executive vice president, global wholesale banking
Javier Marín	Executive vice president, global private banking and asset management
Jorge Morán	Executive vice president, insurance and global direct banking
César Ortega	Executive vice president, general secretariat
Javier Peralta	Executive vice president, risk
Jaime P. Renovales	Executive vice president, general secretariat
Marcial Portela	Executive vice president, America
Magda Salarich	Executive vice president, Santander Consumer Finance
José Tejón	Executive vice president, financial accounting and control
Jesús Ma Zabalza	Executive vice president, America

The following is a summary of the relevant business experience and principal business activities of our current directors and executive officers:

Emilio Botín (chairman of the board of directors and of the executive committee)

Born in 1934. He joined the board of directors of Banco Santander in 1960 and was appointed chairman of the board in 1986.

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Fernando de Asúa (first vice chairman of the board of directors and chairman of the appointments and remuneration committee)

Born in 1932. Former vice chairman of Banco Central Hispanoamericano from 1991 to 1999. He was appointed director in April 1999 and first vice chairman in July 2004. He is a former chairman of IBM España, S.A. and he is currently the honorary chairman. In addition, he is a non-executive vice chairman of Técnicas Reunidas, S.A. and non-executive vice chairman of Constuctora Inmobiliaria Vasco-Atagonesa, S.A.

Alfredo Sáenz (second vice chairman of the board of directors and chief executive officer)

Born in 1942. Former chief executive officer and vice chairman of Banco Bilbao Vizcaya and chairman of Banca Catalana until 1993. In 1994, he was appointed chairman of Banesto and in February 2002, second vice chairman and chief executive officer of Santander.

Matías R. Inciarte (third vice chairman of the board of directors and chairman of the risk committee)

Born in 1948. He joined Banco Santander in 1984 and was appointed executive vice president and chief financial officer in 1986. He was appointed director in 1988 and second vice chairman in 1994. He is a non-executive director of Banesto, Sanitas, S.A. de Seguros and Financiera Ponferrada, S.A., SICAV and since 2008, president of the Fundación Príncipe de Asturias. Prior to joining Banco Santander, he was minister of the presidency of the Spanish Government from 1981 to 1982.

Manuel Soto (fourth vice chairman of the board of directors)

Born in 1940. He was appointed director in April 1999. He is a non-executive vice chairman of Indra Sistemas, S.A. and a non-executive director of Corporación Financiera Alba, S.A and Cartera Industrial REA, S.A. In addition, he was formerly chairman of Arthur Andersen’s Global Board and manager for EMEA (Europe Middle East and Africa) and India.

Assicurazioni Generali, S.p.A. (“Assicurazioni”)

An Italian insurance company represented on our board by its chairman, Antoine Bernheim. Assicurazioni is a former director of Banco Central Hispanoamericano from 1994 to 1999. Assicurazioni was appointed director in April 1999.

Antoine Bernheim (Representative of the company director Assicurazioni)

Born in 1924. He joined the board of directors of Assicurazioni Generali in 1973, becoming the company’s vice chairman in 1990 and chairman from 1995 to 1999. He was re-elected chairman in 2002. He is vice chairman of the supervisory board of Intesa Sanpaolo S.p.A., vice chairman of the Assicurazioni group’s subsidiary Alleanza Toro S.p.A., member of the board of Mediobanca, vice chairman of LVMH and of Bolloré Investissement. Antoine Bernheim is also a director of Generali France, Generali Deutchland AG, Generali España Holding Entidades de Seguros S.A., BSI, Generali Holding Vienna and Christian Dior S.A. Finally, he is a member of the supervisory board of Eurazeo.

Antonio Basagoiti

Born in 1942. Former executive vice president of Banco Central Hispanoamericano. He was appointed director in July 1999. He is a non-executive proprietary vice chairman of Faes Farma, S.A., a non-executive director of Pescanova, S.A. and member of the external advisory committee of A.T. Kearney. He is a former chairman of Unión Fenosa, S.A.

Ana P. Botín

Born in 1960. Former executive vice president of Banco Santander, S.A. and former chief executive officer of Banco Santander de Negocios from 1994 to 1999. In February 2002, she was appointed executive chairwoman of Banesto. She is also a non-executive director of Assicurazioni Generali, S.p.A. She is also a member of the International Advisory Board of the New York Stock Exchange, INSEAD, and Georgetown University.

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Javier Botín

Born in 1973. He was appointed director in July 2004. He is chairman and chief executive officer of JB Capital Markets, Sociedad de Valores, S.A.

Lord Burns

Born in 1944. He was appointed director in December 2004. He is also a non-executive chairman of Santander UK plc and Alliance & Leicester plc. In addition, he is chairman of Channel Four Television Corporation, a non-executive chairman of Glas Cymru (Welsh Water) and a non-executive director of Pearson Group plc. He was Permanent Secretary to the UK Treasury and chaired the UK Parliamentary Financial Services and Markets Bill Joint Committee and was a non-executive chairman of Marks & Spencer Group plc and a non-executive director of British Land plc and Legal & General Group plc.

Guillermo de la Dehesa

Born in 1941. Former secretary of state of economy and secretary general of commerce of the Spanish Government and chief executive officer of Banco Pastor. He is a state economist and Bank of Spain’s office manager (on leave). He was appointed director in June 2002. He is an international advisor of Goldman Sachs International, and a non-executive director of Campofrío Food Group, S.A. and Amadeus IT Holding, S.A. He is also chairman of the Centre for Economic Policy Research (CEPR) in London, member of the Group of Thirty of Washington, chairman of the board of trustees of the IE Business School and non-executive chairman of Aviva Grupo Corporativo, S.L. and Aviva Vida y Pensiones, S.A. de Seguros y Reaseguros.

Rodrigo Echenique

Born in 1946. Former director and chief executive officer of Banco Santander, S.A. from 1988 to 1994.

Antonio Escámez

Born in 1951. Former director and executive vice president of Banco Central Hispanoamericano from 1988 to 1999. He was appointed director in April 1999. He is also a non-executive chairman of Santander Consumer Finance, S.A., Open Bank, S.A. and Arena Communications Network, S.L., and a non-executive vice chairman of Attijariwafa Bank.

Francisco Luzón

Born in 1948. He joined Banco Santander in 1996 as executive vice president, adjunct to the chairman. Former chairman of Banco Exterior de España (from 1988 to 1996), Caja Postal (from 1991 to 1996), Corporación Bancaria de España (from 1991 to 1996) and of Argentaria (1996). He is also a non-executive director of Industria de Diseño Textil, S.A., world vice chairman of Universia and vice-chairman of the Spanish National Library.

Abel Matutes

Born in 1941. He joined Banco Santander in 2002 as member of the board. Former foreign minister of the Spanish Government and EU commissioner for the portfolios of Loans and Investment, Financial Engineering and Policy for Small and Medium-sized Companies (1989); North-South Relations, Mediterranean Policy and Relations with Latin America and Asia (1989) and of the Transport and Energy and Supply Agency of Euroatom (1993). He is also a chairman of Grupo de Empresas Matutes, and director of FCC Construcción, S.A. and TUI AG.

Juan R. Inciarte

Born in 1952. He joined Banco Santander in 1985 as director and executive vice president of Banco Santander de Negocios. He was appointed executive vice president in 1989 and was a director of Banco Santander from 1991 to 1999. He was appointed director in January 2008. He is also a non-executive vice chairman of Santander UK plc and a director of Santander Consumer Finance, S.A., Alliance & Leicester plc and RFS Holdings.

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Luis Ángel Rojo (chairman of the audit and compliance committee)

Born in 1934. He joined Banco Santander in 2005 as a member of the board. Former head of economics, Statistics and Research Department, deputy governor and governor of the Bank of Spain. He has been a member of the Governing Council of the European Central Bank, vice chairman of the European Monetary Institute, member of United Nations’ Development Planning Committee and treasurer of the International Association of Economy. He is a member of the Royal Academy of Moral and Political Sciences and of the Royal Academy of the Spanish Language.

Luis Alberto Salazar-Simpson

Born in 1940. He joined Banco Santander in 1999 as a member of the board. He is chairman of France Telecom España, S.A.

Isabel Tocino

Born in 1949. She joined Banco Santander in 2007 as a member of the board. Former minister for environment of the Spanish Government, former chairwoman of the European Affairs and of the Foreign Affairs Committees of Spanish Congress. She is currently an elected member of the Spanish State Council, a professor of the Complutense University of Madrid, a non-executive director of Televisión Autonómica de Madrid, S.A. (Telemadrid), Diagonal Gest and Climate Change Capital and a member of the Royal Academy of Doctors.

José A. Alvarez

Born in 1960. He joined the Bank in 2002. In 2004, he was appointed executive vice president, Financial Management and Investor Relations.

Nuno Amado

Born in 1959. He joined the Bank in 1997 as a member of the executive committee of BCI/Banco Santander Portugal. In December 2004, he was appointed director and vice chairman of Santander Totta’s executive committee. In July 2006, he was appointed executive vice president. Also in 2006, he was appointed Santander Totta’s chief executive officer.

Ignacio Benjumea

Born in 1952. He joined Banco Santander in 1987 as general secretary of Banco Santander de Negocios. In 1994 he was appointed executive vice president and general secretary and secretary of the board of Banco Santander. He is also a director of Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A., Sociedad Rectora de la Bolsa de Madrid, S.A. and La Unión Resinera Española, S.A.

Juan Manuel Cendoya

Born in 1967. Former manager of the Legal and Tax Department of Bankinter, S.A. from 1999 to 2001. He joined the Bank in July 2001 as executive vice president, communications, corporate marketing and research.

José María Espí

Born in 1944. He joined the Bank in 1985 and, in 1988, was appointed executive vice president, human resources. In 1999 he was appointed executive vice president, risk. He is also chairman of Unión de Crédito Inmobiliario, S.A., E.F.C. and director of UCI, S.A.

José María Fuster

Born in 1958. He joined the Group in 1988. In 2004, he was appointed chief information officer of Grupo Santander. In the same year, he was also named member of the board of Abbey National plc and the board of Advisors of IBM Corporation. In 2006, he was appointed executive director of Banesto and, in 2007, executive vice president of technology and operations at Banco Santander. Presently, José María Fuster is also a director of Ingeniería de Software Bancario, S.A. (ISBAN).

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José Luis G. Alciturri

Born in 1949. He joined the Bank in 1996. Since November 2003, he has been responsible for the Group’s human resources. In 2007, he was appointed executive vice president.

Enrique G. Candelas

Born in 1953. He joined Banco Santander in 1975 and was appointed senior vice president in 1993. He was appointed executive vice president, Santander Branch Network Spain in January 1999.

Juan Guitard

Born in 1960. Former general secretary of the board of Banco Santander de Negocios (from 1994 to 1999) and manager of the investment banking department of the Bank (from 1999 to 2000). He rejoined the Bank in 2002, being appointed executive vice president, vice-secretary general of the board. On March 15, 2009, he was appointed head of internal auditing.

Antonio H. Osorio

Born in 1964. He joined Banco Santander in 1993 and was appointed executive vice president, Portugal, in January 2000 having previously been CEO of Banco Santander in Brazil. He was chairman of the executive committee of Banco Santander Totta, S.A., chairman of the executive committee of Banco Santander de Negocios Portugal, S.A. and non-executive director of Santander UK. In 2006, he was appointed chief executive officer of Santander UK and in 2008 he was appointed chief executive officer of Alliance & Leicester. In 2009, he was appointed non-executive director to the Court of the Bank of England.

Adolfo Lagos

Born in 1948. Former chief executive officer of Grupo Financiero Serfin since 1996. He was appointed executive vice president, America, in October 2002 and executive vice president, global wholesale banking, in April 2003.

Jorge Maortua

Born in 1961. Former executive vice president of Banesto since 2001. He joined the Bank in 2003 as head of global treasury and was appointed executive vice president, global wholesale banking, in 2004.

Javier Marín

Born in 1966. He joined the Bank in 1991. After serving in various positions within the Group, he was appointed executive vice president of the global private banking division in 2007. In November 2009, he was appointed head of the asset management and global private banking division.

Jorge Morán

Born in 1964. He joined the Bank in 2002. He was appointed executive vice president, asset management and insurance, in 2004. In December 2005, he was appointed executive vice president and chief operating officer of Santander UK and, in 2006, executive vice president in charge of insurance and global direct banking.

César Ortega

Born in 1954. He joined the Bank in 2000 and was appointed executive vice president, general secretariat, in 2006. He is also a non-executive director of Fomento de Construcciones y Contratas, S.A.

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Javier Peralta

Born in 1950. He joined the Bank in 1989 and was appointed executive vice president in 1993. In 2002, he was appointed executive vice president, risk.

Jaime P. Renovales

Born in 1968. He joined the Group in 2003 as secretary of the board of Banco Español de Crédito (Banesto). In March 2009, he was appointed executive vice president of Banco Santander, vice-secretary general and vice-secretary of the board.

Marcial Portela

Born in 1945. He joined the Bank in 1998 as executive vice president. In 1999, he was appointed executive vice president, America. He is also a director of Best Global, S.A.

Magda Salarich

Born in 1956. She joined the Bank in 2008 as executive vice president responsible for Santander’s Consumer Finance Division. Previously, she has held several positions in the automobile industry, including the position of director and executive vice president of Citroën España and head of commerce and marketing for Europe of Citroën Automobiles.

José Tejón

Born in 1951. He joined the Bank in 1989. In 2002, he was appointed executive vice president, financial accounting and control.

Jesús M^a Zabalza

Born in 1958. Former executive vice president of La Caixa (from 1996 to 2002). He joined the Bank in 2002, being appointed executive vice president, America.

* * * * * *

In addition, Ramón Tellaeche, an adjunct to executive vice president of the Bank, is the head of the payment means division, and José A. Villasante, an adjunct to executive vice president of the Bank, is the head of the Santander Universidades division.

The following is a description of arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any person referred to above was appointed.

There is one director that is an international financial institution that holds shares in the Bank: Assicurazioni Generali S.p.A. (represented by Antoine Bernheim).

See also Item 7 of Part I, “Major Shareholders and Related Party Transactions — A. Major Shareholders– Shareholders’ agreements”.

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B. Compensation

Directors’ compensation

By-law stipulated fees

Article 58 of the Bank’s current Bylaws was approved at the annual shareholders’ meeting held on June 21, 2008 and provides that the directors will be entitled to receive 1% of the Bank’s net profit for such year for discharging their duties as members of the board of directors, including annual retainer and attendance fees. However, the board of directors may resolve to reduce this percentage. Previously, the 1% limit applied only with respect to the annual retainer and did not include attendance fees.

The amount set by the board of directors for 2009, calculated pursuant to the aforementioned Article 58 of the Bylaws, was 0.144% of the Bank’s profit for 2009, compared to 0.124% and 0.157% in 2008 and 2007, respectively, in like-for-like terms. At the proposal of the appointments and remuneration committee, on December 21, 2009 the board resolved to leave the annual retainer for 2009 unchanged from 2008.

Previously, at the board meeting held on December 22, 2008, the directors resolved to reduce the annual retainer corresponding to the directors for 2008 by 10% compared to 2007, and established the following retainer amounts (the respective proportional amounts were allocated to any directors who did not sit on the board for the whole year): €106,300 gross retainer per director in 2009 and 2008 (2007: €118,100) and each member of the following board committees received the following gross retainers in 2009 and 2008: executive committee, €213,200 (2007: €236,900); audit and compliance committee, €50,000 (2007: €55,000); appointments and remuneration committee, €30,000 (2007: €33,000). Also, the first vice chairman and the fourth vice chairman received a gross amount of €36,000 each in 2009 and 2008 (2007: €40,000).

Furthermore, the directors receive fees for attending board and committee meetings, excluding executive committee meetings.

The amounts of the fees for attending the meetings of the board of directors and of the board committees (excluding the executive committee) were the same in 2009 and 2008 and will remain unchanged for 2010, as resolved by the board on December 21, 2009. These attendance fees were approved by the directors at the board meeting held on December 17, 2009 in the following amounts:

• Board of directors: €2,540 for resident directors and €2,057 for non-resident directors.

• Risk committee and audit and compliance committee: €1,650 for resident directors and €1,335 for non-resident directors.

• Other committees: €1,270 for resident directors and €1,028 for non-resident directors.

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Salary compensation

Following is the detail of the salaries received by the Bank’s executive directors: Emilio Botín, Alfredo Sáenz, Matías R. Inciarte, Ana P. Botín, Francisco Luzón and Juan R. Inciarte, who took office as member of the board of directors on March 24, 2008.

	Thousands of Euros
	2009		2008		2007 (*)
Total salaries		25,784		25,489		24,315
Of which: variable remuneration in cash (or bonus)		15,240		15,240		16,088

(*) The balances for 2007 do not include the remuneration for Juan R. Inciarte and, therefore, are not comparable.

The amounts of fixed salary remuneration received by the executive directors in 2009 were approved at the board meeting held on December 22, 2008, at the proposal of the appointments and remuneration committee, with the exception of the fixed salary remuneration of Ana P. Botín, which was approved by the directors at the board meeting held on January 26, 2009, also at the proposal of the appointments and remuneration committee.

At the meeting held on December 17, 2009, the appointments and remuneration committee proposed to the board of directors that the variable salary remuneration to be received in cash (or bonus) by all the executive directors in 2009 be maintained at the same amounts as in 2008. This proposal was approved by the directors at the board meeting held on December 21, 2009. Previously, at the board meetings of December 22, 2008 and January 26, 2009, the directors resolved to reduce these amounts by 15% as compared to 2007 (10% in the case of Ana P. Botín).

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The detail, by director, of the remuneration earned by the Bank’s directors in 2009 is as follows:

	Thousands of Euros
	2009																								2008		2007
	Bylaw-Stipulated Retainers
																			Other
	Annual Retainer								Attendance Fees				Salary of Executive Directors (1)						Remuneration
															Variable
							Appointments								Remuneration
					Audit and		and								in Cash (or				Share
			Executive		Compliance		Remuneration				Other		Fixed		Bonus)				Plan
Directors	Board		Committee		Committee		Committee		Board		Fees		Remuneration		(a)		Total		(b)		Other		Total		Total		Total
Emilio Botín		106		213		—		—		25		5		1,344		1,987		3,331		310		1		3,992		5,420		3,910
Fernando de Asúa		142		213		50		30		25		188		—		—		—		—		—		647		642		677
Alfredo Sáenz		106		213		—		—		25		5		3,703		4,745		8,447		837		602		10,237		9,295		9,604
Matías R. Inciarte		106		213		—		—		25		162		1,710		2,503		4,213		398		221		5,339		6,541		5,154
Manuel Soto		142		—		50		30		25		31		—		—		—		—		—		277		274		306
Assicurazioni Generali, SpA.		123		—		—		—		10		—		—		—		—		—		—		134		140		143
Antonio Basagoiti		106		213		—		—		25		158		—		—		—		—		7		510		517		523
Ana P. Botín		106		213		—		—		25		5		1,294		1,786		3,081		203		13		3,647		4,021		3,517
Javier Botín (2)		106		—		—		—		23		—		—		—		—		—		—		129		129		143
Lord Terence Burns		106		—		—		—		19		—		—		—		—		—		—		125		123		135
Guillermo de la Dehesa		106		213		—		30		25		11		—		—		—		—		—		386		384		427
Rodrigo Echenique (**)		106		213		—		30		25		10		—		—		—		—		33		418		443		562
Antonio Escámez		106		213		—		—		23		157		—		—		—		—		38		537		535		550
Francisco Luzón		106		213		—		—		25		3		1,505		2,753		4,258		333		872		5,811		6,851		5,620
Abel Matutes		106		—		50		—		20		16		—		—		—		—		—		192		194		213
Juan R. Inciarte (*)		106		—		—		—		25		106		987		1,466		2,453		322		108		3,121		3,830		—
Luis Ángel Rojo		106		—		50		30		15		24		—		—		—		—		—		225		229		249
Luis Alberto Salazar-Simpson		106		—		50		—		25		21		—		—		—		—		—		202		198		214
Isabel Tocino (***)		106		—		—		—		25		—		—		—		—		—		—		132		129		103
Mutua Madrileña Automovilística (3)		—		—		—		—		—		—		—		—		—		—		—		—		—		153
Total 2009		2,108		2,132		248		149		440		900		10,544		15,240		25,784		2,403		1,897		36,061		—		—
Total 2008		2,084		2,132		248		149		411		942		10,249		15,240		25,489		6,612		1,827		—		39,894		—
Total 2007		2,324		2,370		275		165		424		813		8,227		16,088		24,315		—		1,517		—		—		32,203

(*)	Appointed as member of the Bank’s board of directors on January 28, 2008, Juan R. Inciarte took office and was appointed as a member of the risk committee on March 24, 2008.
(**)	Ceased to be a member of the risk committee on March 24, 2008.
(***)	Appointed by co-optation by the board of directors at its meeting on March 26, 2007, Isabel Tocino took office at the meeting held on April 23, 2007. Her appointment was ratified by the shareholders at the annual shareholders’ meeting held on June 23, 2007.
(a)	Relating to 2009.
(b)	Amounts received in 2009 in respect of the variable remuneration in shares granted through the I-09 plan approved by the shareholders at the general meeting held on June 23, 2007.
(1)	Recognized under personnel expenses in the income statement of the Bank, except for the salary of Ana P. Botín, which is recognized at Banco Español de Crédito, S.A.
(2)	Amounts contributed to Marcelino Botín foundation.
(3)	Ceased to be a director on December 19, 2007.

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Other remuneration

The total amount recorded under “Other remuneration — share plan” as of December 31, 2009 in the foregoing table of €2.4 million relates to the variable remuneration received in the form of Banco Santander, S.A. shares in 2009 under the I-09 incentive plan (I-09 plan) for directors approved at the general shareholders’ meeting on June 23, 2007. The total amount of €6.6 million as of December 31, 2008 relates to the variable share-based remuneration received in 2008 by the Bank’s directors through the exercise of Banco Santander, S.A. share options granted under the I-06 incentive plan (I-06 plan) approved at the annual shareholders’ meeting of Banco Santander, S.A. held on June 18, 2005 and, in the case of Ana P. Botín, through the delivery of shares of Banco Español de Crédito, S.A. under an incentive plan for executives of that entity approved at its annual shareholders’ meeting held on February 28, 2006.

The amounts recorded under “Other remuneration — Other” include, among others, the life and medical insurance costs borne by the Group relating to the Bank’s directors.

Compensation to the board members as representatives of the Bank and to senior management

Representation on other boards

By resolution of the executive committee, all the remuneration received by the Bank’s directors who represent the Bank on the boards of directors of listed companies in which the Bank has a stake (at the expense of those companies) and which relates to appointments made after March 18, 2002, will accrue to the Group. The remuneration received by such directors was as follows:

		Thousands of Euros
	Company	2009		2008		2007
Emilio Botín	Shinsei Bank, Ltd.		30.1		53.0		50.1
Fernando de Asúa	CEPSA		100.2		97.2		97.2
Antonio Escámez	Attijariwafa Bank Société Anonyme		5.0		14.8		9.9
			135.3		165.0		157.2

Emilio Botín ceased to discharge his duties as director of Shinsei Bank, Ltd. on June 23, 2009 and received compensation of €73,100.

Also, in each year from 2005 through 2008, Emilio Botín received options to acquire shares of Shinsei Bank, Ltd. (Shinsei) as follows: 10,000 shares at a price of JPY 416 per share in 2008; 10,000 shares at a price of JPY 555 per share in 2007; 25,000 shares at a price of JPY 825 per share in 2006; and 25,000 shares at a price of JPY 601 per share in 2005. At December 31, 2009, the market price of the Shinsei share was JPY 101 and, therefore, regardless of the stipulated exercise periods, the options granted in each of those years would not have given rise to any gains had they been exercised.

Fernando Asúa ceased to discharge his duties as director of CEPSA on October 1, 2009 after the Group sold its ownership interest in that company.

Furthermore, the other directors of the Bank earned a total of €663,000 in 2009 as members of the boards of directors of Group companies (2008: €729,000; 2007: €750,000), the detail being as follows: Lord Burns (Santander UK Plc), €585,000; Rodrigo Echenique (Banco Banif, S.A.), €36,000; and Matías R. Inciarte (U.C.I., S.A.), €42,000.

Senior management

The following table details the remuneration paid to the Bank’s executive vice presidents, excluding executive directors’ remuneration, in 2009, 2008 and 2007:

			Thousands of Euros
	Number of		Salary						Other
Year	Managers (1)		Fixed		Variable		Total		Remuneration		Total
2007		26		19,504		42,768		62,272		10,092		72,364
2008		24		21,219		34,674		55,893		27,598		83,491
2009		24		21,512		36,468		57,980		16,745		74,725

(1) At some point in the year they occupied the position of executive vice president. The amounts reflect the annual remuneration regardless of the number of months in which the position of executive vice president was occupied.

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The foregoing table includes all the items of remuneration paid to the senior managers, including life insurance premiums (€1,148,000 in 2009 and €1,029,000 in 2008), termination or retirement benefits, and share-based remuneration systems. The variable share-based remuneration, which totaled €5,982,000 in 2009, related to the 746,756 Banco Santander, S.A. shares received by the executive vice presidents under the I-09 plan. Also in 2008, €22,410,000 was allocated due to the exercise by the executive vice presidents of 5,317,978 Santander share options under the I-06 plan and the delivery of Banesto shares under the incentive plan for executives approved at Banesto’s general shareholders’ meeting held on February 28, 2006. No remuneration of this kind was paid in 2007.

Pension commitments, other insurance and other items

The total balance of supplementary pension obligations assumed by the Group over the years to its current and retired employees (covered mostly by in-house provisions which amounted to €10,629 million at December 31, 2009), includes the obligations to those who have been directors of the Bank during the year and who discharge (or have discharged) executive functions. The total pension obligations to these directors, together with the total sum insured under life insurance policies and other items, amounted to €292 million at December 31, 2009 (December 31, 2008: €311 million; December 31, 2007: €264 million).

The following table provides information on: (i) the pension obligations assumed and covered by the Group; and (ii) other insurance, which includes premiums that are paid by the Group and the related cost which is included in the Other remuneration column in the table of page 138 above, in both cases in respect of the Bank’s executive directors:

	Thousands of Euros
	2009				2008				2007
	Accrued				Accrued				Accrued
	Pension		Other		Pension		Other		Pension		Other
	Obligations		Insurance		Obligations		Insurance		Obligations		Insurance
Emilio Botín		24,642		—		25,579		—		22,926		—
Alfredo Sáenz		85,740		11,108		80,049		10,785		68,070		9,378
Matías R. Inciarte		52,536		5,131		50,894		4,982		44,226		4,529
Ana P. Botín		23,775		1,403		21,737		1,403		17,975		1,403
Francisco Luzón		53,513		9,031		53,083		7,624		45,468		7,624
Juan R. Inciarte		10,969		2,961		9,918		2,875		—		—
		251,175		29,634		241,260		27,669		198,665		22,934

The amounts in the “Accrued Pension Obligations” column in the foregoing table relate to the accrued present value of the future annual payments to be made by the Group. These amounts were obtained using actuarial calculations and cover the obligations to pay the respective calculated pension supplements. In the case of Emilio Botín, Alfredo Sáenz, Matías R. Inciarte and Ana P. Botín, these supplements were calculated as 100% of the sum of the fixed annual salary received at the date of effective retirement plus 30% of the arithmetical mean of the last three variable salary payments received. In the case of Francisco Luzón, added to the amount calculated above are the amounts received by him in the year before retirement or early retirement in his capacity as a member of the board of directors or the committees of the Bank or of other Group companies and, in addition, in the case of Juan R. Inciarte, 100% of the gross fixed annual salary received at the date of effective retirement.

On December 17, 2007, March 24, 2008, July 21, 2008 and April 28, 2009, the board of directors of the Bank resolved to authorize a change in the contracts of the executive directors and the other members of the Bank’s senior management -the senior executives- granting them the right, on the date of retirement -or pre-retirement, as appropriate- to opt to receive their accrued pensions in full but not in part -or amounts similar thereto- in the form of an annuity or a lump sum. In order to be financially neutral for the Group, the amount to be received in the form of a lump sum by the beneficiary at the date of retirement must be the aliquot part of the market value of the assets assigned to cover the mathematical provisions of the policy instrumenting these commitments to senior executives. The senior executives who are still in service on reaching the age of retirement -or who at the date of the contract entered into have passed the age of retirement- must state whether they wish to opt for this form of benefit. Should the senior executive subsequently die while still in service and prior to retirement, the lump sum of the pension will be paid to his/her heirs. Also, by virtue of the aforementioned resolutions of the board of directors, these contracts were adapted to the current Bylaws (Articles 49.2 and 58.4) and to the new pensions regime.

In 2009, Emilio Botín and Alfredo Sáenz, who have passed the age of retirement, exercised the option to receive their respective accrued pensions as a lump sum on the date of their respective effective retirement. The amounts included in the foregoing table in respect of the pensions accruing to these directors are those relating to the aforementioned lump sums, and no further amounts will accrue in respect of pensions after the retirement dates. The lump sums will be increased at an agreed-upon interest rate.

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Furthermore, at the board meeting held on December 21, 2009, the Bank’s directors resolved that the executive directors -and other members of senior management who are beneficiaries or defined benefit plans and have not reached the age of retirement- may opt, upon reaching the age of 60 and on each of their following birthdays until they are 64 years of age, to receive their accrued pensions as a lump sum, which will be determined at the exercise date of this option and which they (or their heirs in the event of death) will be entitled to receive when they retire or are declared to be disabled. Upon exercise of this option, no further pension benefit will accrue and the lump sum to be received, which will be increased at an agreed-upon interest rate, will be fixed. Also, any person who exercises this option must undertake not to retire early or to retire, in both cases at his/her own request, within two years from the exercise date.

Lastly, the board of directors resolution referred to in the preceding paragraph also regulates the impact of the deferral of the computable variable remuneration on the determination of the pension obligations (or similar amounts), in the form of an annuity or a lump sum, for pre-retirement, early retirement or normal retirement.

Pension provisions recognized and reversed in 2009 amounted to €5,703,000 and €4,000, respectively (2008: €26,974,000 and €11,000, respectively; 2007: €21,615,000 and €580,000, respectively).

Additionally, other directors have life insurance policies whose cost is borne by the Group, the related insured sum being €3 million at December 31, 2009 (2008 and 2007: €3 million). Also, payments made in 2009 to board members entitled to post-employment benefits totaled €2.6 million.

Share-based payments

Pursuant to Spanish law and our By-laws, the decision to grant compensation linked to the Bank’s common shares must be made by the shareholders acting at a general shareholders’ meeting, at the proposal of the board of directors, following receipt of a report from the appointments and remuneration committee. Our policy provides that only executive directors may be beneficiaries of compensation systems consisting of the delivery of shares or rights thereto.

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The details of these plans granted to directors (see Note 47 to our financial statements) are as follows:

i) I-06 plan

In 2004, a long-term incentive plan (I-06) was designed which, consists of options on shares of the Bank and is tied to the achievement of two targets which have been achieved. The exercise period was from January 15, 2008 to January 15, 2009. The executive directors are beneficiaries of this plan; the number of Bank share options held by them is indicated below:

	Options						Options Exercised
	at									Number				Market		Remuneration		Options					Options				Date of		Date of
	December 31,		Exercise		Options		Number of			of Shares		Exercise		Price		Allocated		at		Number of			at		Exercise		Commencement		Expiry of
	2005,		Price		Granted		Options			Acquired		Price		Applied		(Thousands		December 31,		Options			December 31,		Price		of Exercise		Exercise
	2006 and 2007		(Euros)		Number		Exercised			(***)		(Euros)		(Euros)		of Euros)		2008		Cancelled			2009		(Euros)		Period		Period
I-06 plan
Emilio Botín		541,400		9.09		—		(541,400	)		541,400		9.09		12.40		1,780		—		—			—		—		—		—
Alfredo Sáenz		1,209,100		9.09		—		—					—		—		—		1,209,100		(1,209,100	)		—		9.09		01/15/08		01/15/09
Matías R. Inciarte		665,200		9.09		—		(332,600	)		67,901		9.09		14.12		1,661		332,600		(332,600	)		—		9.09		01/15/08		01/15/09
Ana P. Botín (*)		293,692		9.09		—		—					—		—		—		293,692		(293,692	)		—		9.09		01/15/08		01/15/09
Francisco Luzón		639,400		9.09		—		(300,000	)		60,656		9.09		14.04		1,473		339,400		(339,400	)		—		9.09		01/15/08		01/15/09
Juan R. Inciarte (**)		419,000		9.09		—		(419,000	)		419,000		9.09		11.72		1,090		—		—			—		—		—		—
		3,767,792		9.09				(1,593,000	)								6,004		2,174,792		(2,174,792	)		—		9.09

(*)	Approved by Banesto’s shareholders at its annual shareholders’ meeting on February 28, 2006.
(**)	Juan R. Inciarte was appointed as member of the board of directors in 2008. The data on his options for prior dates relate to the options granted to him as an executive prior to his appointment as director.
(***)	Under the three-year I-06 incentive plan (see Note 47 to our consolidated financial statements), each purchase option granted entitles the beneficiary to acquire one Bank share at a price of €9.09, and the number of shares acquired on the exercise of the options is determined on the basis of the settlement method used, which can be cash for stock or cashless for cash. In the case of cash-for-stock settlements, the number of shares granted as consideration for the payment in cash of the exercise price is equal to the number of options exercised.

As detailed in the foregoing table, the remuneration allocated to executive directors due to the exercise of Banco Santander, S.A. share options under the I-06 incentive plan (see Note 47 to our consolidated financial statements) amounted to €6,004,000 in 2008. Additionally, the remuneration allocated to Ana P. Botín due to the delivery of Banesto shares under the incentive plan for executives approved by the shareholders at the annual shareholders’ meeting of this entity on February 28, 2006 amounted to €608,000. The share options under I-06 plan that had not been exercised at December 31, 2008 expired on January 15, 2009.

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ii) Performance share plan

This plan, which provides for deferred variable remuneration in shares of the Bank, will involve successive three-year cycles of share deliveries to the beneficiaries, so that each year one cycle will begin and, from 2009 onwards, another cycle will also end.

The table below shows the maximum number of options granted to each executive director in each cycle and the number of shares received under the I-09 plan. As established under this plan, the number of shares received was determined by the degree of achievement of the targets to which the plan was tied, and fell short of the maximum number.

	Rights		Rights		Shares			Rights			Rights				Share
	at December		Granted		Delivered			Cancelled			at December		Grant		Delivery
	31, 2008		(Number)		(Number)			(Number)			31, 2009		Date		Deadline
I-09 plan:
Emilio Botín		41,785		—		(37,937	)		(3,848	)		—		06/23/07		07/31/09
Alfredo Sáenz		110,084		—		(99,945	)		(10,139	)		—		06/23/07		07/31/09
Matías R. Inciarte		53,160		—		(48,264	)		(4,896	)		—		06/23/07		07/31/09
Ana P. Botín (*)		27,929		—		(25,357	)		(2,572	)		—		06/23/07		07/31/09
Francisco Luzón		44,749		—		(40,628	)		(4,121	)		—		06/23/07		07/31/09
Juan R. Inciarte (**)		43,322		—		(39,332	)		(3,990	)		—		06/23/07		07/31/09
		321,029		—		(291,463	)		(29,566	)		—
I-10 plan:
Emilio Botín		62,589		—		—			—			62,589		06/23/07		07/31/10
Alfredo Sáenz		164,894		—		—			—			164,894		06/23/07		07/31/10
Matías R. Inciarte		79,627		—		—			—			79,627		06/23/07		07/31/10
Ana P. Botín (*)		41,835		—		—			—			41,835		06/23/07		07/31/10
Francisco Luzón		67,029		—		—			—			67,029		06/23/07		07/31/10
Juan R. Inciarte (**)		64,983		—		—			—			64,983		06/23/07		07/31/10
		480,957		—		—			—			480,957
I-11 plan:
Emilio Botín		68,848		—		—			—			68,848		06/21/08		07/31/11
Alfredo Sáenz		189,628		—		—			—			189,628		06/21/08		07/31/11
Matías R. Inciarte		87,590		—		—			—			87,590		06/21/08		07/31/11
Ana P. Botín (***)		46,855		—		—			—			46,855		06/21/08		07/31/11
Francisco Luzón		77,083		—		—			—			77,083		06/21/08		07/31/11
Juan R. Inciarte		50,555		—		—			—			50,555		06/21/08		07/31/11
		520,559		—		—			—			520,559
I-12 plan:
Emilio Botín		—		82,941		—			—			82,941		06/19/09		07/31/12
Alfredo Sáenz		—		228,445		—			—			228,445		06/19/09		07/31/12
Matías R. Inciarte		—		105,520		—			—			105,520		06/19/09		07/31/12
Ana P. Botín		—		56,447		—			—			56,447		06/19/09		07/31/12
Francisco Luzón		—		92,862		—			—			92,862		06/19/09		07/31/12
Juan R. Inciarte		—		60,904		—			—			60,904		06/19/09		07/31/12
		—		627,119		—			—			627,119

(*) Without prejudice to the Banesto shares relating to Ana P. Botín by virtue of the Banesto Share-Based Payment Incentive Plan approved by the shareholders at the annual shareholders’ meeting of Banesto held on June 27, 2007, the maximum number of shares shown in the foregoing table relates to the aforementioned executive director, based on the resolution adopted at the aforementioned annual shareholders’ meeting.

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(**)

Juan R. Inciarte was appointed as member of the board of directors in 2008. The data on his options include the options granted to him as an executive prior to his appointment as director.

(***)

Without prejudice to the Banesto shares that might correspond to Ana P. Botín by virtue of the Banesto Share-Based Incentive Plan approved by the shareholders at the annual shareholders’ meeting of Banesto held on February 24, 2010, the maximum number of shares shown in the foregoing table relates to the aforementioned executive director in accordance with the resolution adopted at Banesto’s general shareholders’meeting.

iii) Obligatory investment share plan

Pursuant to the Obligatory investment share plan (see Note 47 to our consolidated financial statements), prior to February 29, 2008, February 28, 2009 and February 28, 2010, the current executive directors acquired as deferred share-based variable remuneration the number of Bank shares shown in the table below, which represented a cost of €1.5 million in 2008, €0.8 million in 2009 and €1.5 million in 2010. Executive directors who hold the shares acquired through the Obligatory investment and remain in the Group’s employ for three years from the date on which the Obligatory investment is made will be entitled to receive the same number of Bank shares as that composing their initial Obligatory investment.

The annual shareholders’ meeting of June 19, 2009 introduced, for the third cycle, an additional requirement to that of remaining in the Bank’s employ, namely, that in the three-year period from the investment in the shares none of the following circumstances may arise: (i) poor financial performance of the Group; (ii) breach by the beneficiary of the codes of conduct or other internal regulations (including, in particular, risk regulations) applicable to the executive in question; or (iii) a material restatement of the Bank’s financial statements, except if required pursuant to a change in accounting standards.

	3rd Cycle		2nd Cycle		1st Cycle
Executive Directors	2010-2012		2009-2011		2008-2010
Emilio Botín		20,515		19,968		16,306
Alfredo Sáenz		49,000		47,692		37,324
Matías R. Inciarte		25,849		25,159		20,195
Ana P. Botín (*)		18,446		16,956		13,610
Francisco Luzón		28,434		27,675		22,214
Juan R. Inciarte		15,142		14,738		14,617
		157,386		152,188		124,266

(*) In accordance with the resolution adopted by the shareholders at the annual shareholders’ meeting of Banco Santander held on June 23, 2007, the maximum number of shares relating to Ana P. Botín for the 2008-2010 cycle is that shown in the foregoing table, as approved by the annual shareholders’ meeting of Banesto held on June 27, 2007. Also, the maximum number of shares relating to Ana P. Botín for the 2009-2011 and 2010-2012 cycles as beneficiary of this plan is in line with the resolution adopted at the annual shareholders’ meeting of Banco Santander held on June 21, 2008 and by the shareholders at the annual shareholders’ meeting of Banesto held on February 24, 2010.

144

Description of long term incentive plan, restricted shares plan and share ownership guidelines

Executive directors and the other members of the Bank’s senior management may also participate in the following plans:

1.	Performance shares plan;
2.	Obligatory investment plan with matched deferred bonus in shares or matched deferred bonus plan;
3.	Restricted shares plan; and
4.	Share ownership guidelines.

In addition, the Bank had a long-term incentive plan (I-06 plan) which expired on January 15, 2009.

Under Spanish law and our By-laws, the implementation of the first three plans, as well as the I-06 share option plan, requires specific resolutions of shareholders adopted at general shareholders’ meetings, which, to date, have been the following:

The shareholders acting at the general shareholders meeting of June 18, 2005, authorized a share option plan of the Bank (I-06 plan) tied to certain targets.

At the general shareholders’ meeting of June 23, 2007, the shareholders authorized the first two cycles of the performance shares plan (the I-09 and I-10 plans), the first cycle of the matched deferred bonus plan and the restricted shares plan, in the case of the latter for a 12-month period and up to a maximum of 2,189,004 shares. The maximum amount of all shares to be delivered by application of these programs was fixed at 28,144,334 shares (the 2007 Total Limit).

At the general shareholders’ meeting of June 21, 2008, the shareholders authorized the third cycle of the performance shares plan (the I-11 plan), the second cycle of the matched deferred bonus plan and the restricted shares plan, in the case of the latter for a 12-month period and up to a maximum of 1,900,000 shares. The maximum amount of all shares to be delivered by application of these programs was fixed at 19,960,000 shares (the 2008 Total Limit).

At the general shareholders’ meeting held on June 19, 2009, the shareholders authorized the fourth cycle of the performance shares plan (the I-12 plan), the third cycle of the matched deferred bonus plan and the restricted shares plan, in the case of the latter for a 12-month period and up to a maximum of 2,478,000 shares. The aggregate maximum amount of shares to be delivered pursuant to these programs was fixed at 26,027,580 shares (the 2009 Total Limit).

I-06 Plan

During 2004, a long-term incentive plan (the I-06 plan) for, executive directors, which consisted of options on shares of the Bank and was tied to two targets (increase in the trading price of the Bank’s shares and growth in earnings per share — in both cases above a sampling of comparable banks), was approved at the general shareholders’ meeting of June 18, 2005. The appointments and remuneration committee and the board of directors, at their meetings on March 26, 2007, each took note of compliance with the conditions to which the plan was subject, which gave participants therein the right to exercise options to purchase shares of the Bank during the period between January 15, 2008 and January 15, 2009.

Options not exercised as of January 15, 2009 expired without value and this plan was cancelled at December 31, 2009.

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1. Performance shares plan

This is variable remuneration payable in shares and is deferred for three years.

Each year, shares are granted to each participant which vest on a contingent basis based on the achievement of specified targets and compliance within the conditions thereof.

The targets for the first three cycles of this plan (I-09, I-10 and I-11 plans) are tied to the Bank’s total shareholder return and increase in earnings per share as compared to a group of reference banks, although the second metric was eliminated in the fourth cycle (I-12 plan) and changes were subsequently made to the reference group during the successive cycles. Companies which were the target of corporate transactions and the most affected by recapitalization efforts, which distort the comparison, have been removed, and new ones have been included, with the objective of better reflecting the comparable peer group at the moment when the shareholders acting at the general meeting approved each cycle.

At December 31, 2009, there were three cycles in effect, called I-10, I-11 and I-12 plans. The I-09 plan was cancelled at December 31, 2009. The table below describes the changes therein as regards the number of participants and the maximum number of shares to be distributed.

	Number of		Year		Number of			Deadline for
	shares		granted		persons		Date granted	delivery of shares
Plans in effect at December 31, 2009		51,726,420
Of which:
I-10 plan		15,736,843		2007		5,507	June 23, 2007	July 31, 2010
I-11 plan		17,122,650		2008		5,771	June 21, 2008	July 31, 2011
I-12 plan		18,866,927		2009		6,510	June 19, 2009	July 31, 2012

1.1. Second cycle (I-10 plan)

A detailed description of the terms of this cycle (I-10 plan) is contained in our 2008 annual report on Form 20-F.

As of the date of this report, the results of the I-10 plan are known, although the shares have not yet vested. The level of achievement of the set objectives was 90.79%.

The number of shares that each executive director will receive is as follows:

I-10 plan	Earned		Maximum
Emilio Botín		56,825		62,589
Alfredo Sáenz		149,707		164,894
Matías R. Inciarte		72,293		79,627
Ana P. Botín		37,982		41,835
Francisco Luzón		60,856		67,029
Juan R. Inciarte		58,998		64,983

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1.2. Third cycle (I-11 plan)

A detailed description of the terms of this cycle (I-11 plan) is contained our 2008 annual report on Form 20-F.

1.3. Fourth cycle (I-12 plan)

The fourth cycle (I-12 plan) was approved at the annual general meeting of June 19, 2009, upon a proposal made by the board at its meeting of April 28, 2009, after a report of the appointment and remuneration committee of April 27, 2009.

The fourth cycle (I-12 plan) is subject to the following rules:

(i) Beneficiaries: The beneficiaries are the executive directors, other members of senior management and such other managers of Grupo Santander (excluding Banesto) as determined by the board of directors or the executive committee by delegation therefrom. At December 31, 2009, there were a total of 6,510 participants.

(ii) Objectives: The objectives used to determine the number of shares to be distributed are tied to total shareholder return (TSR). TSR is deemed to be the difference (expressed as a percentage) between the final value of an investment in ordinary shares in each of the compared institutions and the initial value of that same investment, taking into account that dividends or other similar items received by the shareholder for such investment during the corresponding period of time will be considered for the calculation of such final value as if they had been invested in more shares of the same kind on the first date that the dividend was due to the shareholders and at the average weighted listing price on such date. The determination of such initial and final values will be calculated based on the listing prices indicated in paragraph (iii) below.

At the end of the cycle, the TSR for Santander and each of the institutions within the group identified below (the Reference Group) will be calculated and listed in decreasing order. The percentage of shares that will vest will be determined based on the following scale and on the relative position of Santander within the Reference Group:

Santander’s position in the	Percentage shares earned of
TSR ranking	the maximum
1st to 5th	100.0%
6th	82.5%
7th	65.0%
8th	47.5%
9th	30.0%
10th or lower	0%

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The Reference Group comprises the following 16 institutions:

Bank	Country
Itaú Unibanco Banco Múltiplo	Brazil
BBVA	Spain
BNP Paribas	France
Credit Suisse	Switzerland
HSBC Holdings	United Kingdom
ING Group	The Netherlands
Intesa Sanpaolo	Italy
JP Morgan Chase & Co.	United States
Mitsubishi UFJ Financial Group	Japan
Nordea Bank	Sweden
Royal Bank of Canada	Canada
Société Générale	France
Standard Chartered	United Kingdom
UBS	Switzerland
UniCredit	Italy
Wells Fargo & Co.	United States

After a report of the appointments and remuneration committee, the board, or the executive committee by delegation therefrom, may adjust the composition of the Reference Group as required in view of unforeseen circumstances affecting the entities initially comprised therein. In such cases of adjustment of the composition of the Reference Group, no shares will vest if Santander falls below the Reference Group median (50^th percentile); the maximum percentage of the shares will vest if Santander falls within the top quartile (including the 25^th percentile) of the Reference Group; a maximum of 30% of the shares will be earned at the median (50^th percentile); and at positions above the 50^th percentile but below the 25^th percentile, the shares earned will be calculated by linear interpolation.

(iii) Duration: The fourth cycle (I-12 plan) will cover the years 2009, 2010 and 2011. The calculation of TSR will be based on the daily average weighted volume of the average weighted listing prices for the fifteen trading sessions prior to April 1, 2009 (exclusive) to calculate the initial value, and the fifteen trading sessions prior to April 1, 2012 (exclusive) to calculate the final value. To receive shares, those qualified must continue to be actively employed by the Group, except in the event of death or disability, through June 30, 2012.

Any distribution of shares will be made on the date established by the board of directors or by the executive committee by delegation therefrom, but not later than July 31, 2012.

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The shares will be delivered by the Bank or another Group company, as applicable.

(iv) Maximum number of shares to be distributed to each executive director:

	Maximum
Executive directors	number of shares
Emilio Botín		82,941
Alfredo Sáenz		228,445
Matías R. Inciarte		105,520
Ana P. Botín		56,447
Francisco Luzón		92,862
Juan R. Inciarte		60,904

The number of shares to which the director Ana P. Botín is entitled as beneficiary under this plan is consistent with the number approved by the shareholders at the general shareholders’ meeting of Banco Santander held on June 19, 2009, and at that of Banesto, held on February 24, 2010.

At its meeting of December 17, 2009, the appointments and remuneration committee reported favorably on the regulations for the fourth cycle of the performance shares plan, which was approved by the executive committee of the Bank on December 21, 2009.

1.4. Fifth cycle (I-13 plan).

The board, pursuant to a proposal of the appointments and remuneration committee, has submitted for the approval of our shareholders at the 2010 annual general meeting a new cycle (I-13 plan), the features of which are similar to those of previous cycles and are summarized below:

(i) Beneficiaries: The beneficiaries are the executive directors, other members of senior management and such other managers of Grupo Santander (excluding Banesto) as determined by the board of directors, or the executive committee by delegation therefrom. The overall number of participants is expected to be approximately 6,500, although the board of directors, or the executive committee by delegation therefrom, may decide to include (by promotion or addition to the Group) or exclude other participants, without changing the maximum overall number of shares that is authorized to be delivered at any time.

(ii) Objectives: The objectives used to determine the number of shares for distribution are tied to Total Shareholder Return (TSR). The determination of such initial and final values will be calculated based on the listing prices indicated in sub-section (iii) below.

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At the end of the respective cycle, the TSR for Santander and each of the entities of the group identified below (the Reference Group) will be calculated and will be listed in descending order. The application of the TSR indicator will determine the percentage of shares to vest, based on the following scale and on the relative position of Santander within the Reference Group:

Santander’s position in the	Percentage shares earned of
TSR ranking	the maximum
1st to 5th	100.0%
6th	82.5%
7th	65.0%
8th	47.5%
9th	30.0%
10th onwards	0%

The Reference Group will be made up of the following 16 entities:

Bank	Country
Itaú Unibanco Banco Múltiplo	Brazil
BBVA	Spain
BNP Paribas	France
Credit Suisse	Switzerland
HSBC Holdings	United Kingdom
ING Group	The Netherlands
Intesa Sanpaolo	Italy
JP Morgan Chase & Co.	United States
Mitsubishi UFJ Financial Group	Japan
Nordea Bank	Sweden
Royal Bank of Canada	Canada
Société Générale	France
Standard Chartered	United Kingdom
UBS	Switzerland
UniCredit	Italy
Wells Fargo & Co.	United States

After a report from the appointments and remuneration committee, the board or the executive committee by delegation therefrom, will have the power to adapt, if appropriate, the composition of the Reference Group in the event of unforeseen circumstances that may affect the entities initially comprised in such Group. In such cases, no shares will be earned if Santander ranks below the mean (50^th percentile) of the Reference Group; the maximum percentage of shares will be earned if Santander is included in the first quartile (including the 25^th percentile) of the Reference Group; 30% of the maximum number of shares will be earned at the mean (50^th percentile); and, for intermediate positions below the 50^th percentile but above the 25^th percentile, it will be calculated by linear interpolation.

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(iii) Duration: This fifth cycle will cover 2010, 2011 and 2012. In order to calculate TSR, the average weighted by daily volume of the average weighted listing prices of the fifteen trading sessions immediately preceding (but not including) April 1, 2010 will be taken into account (to calculate the value at the beginning of the period) and that of the fifteen trading sessions immediately preceding (but not including) April 1, 2013 (to calculate the value at the end of the period). To receive shares, those qualified must continue to be actively employed by the Group, except in the event of death or disability, through June 30, 2012. Delivery of the shares, if appropriate, will be made on the date determined by the board of directors, or by the executive committee by delegation therefrom but not later than July 31, 2013.

The shares will be delivered by the Bank or by another company of the Group, as the case may be.

(iv) Maximum number of shares to be delivered to each executive director:

Executive directors	Maximum no. of shares
Emilio Botín		82,941
Alfredo Sáenz		228,445
Matías R. Inciarte		105,520
Ana P. Botín		56,447
Francisco Luzón		92,862
Juan R. Inciarte		60,904

Without prejudice to the Banesto shares that might correspond to the director Ana P. Botín under the plans that might be approved at Banesto’s general shareholders’ meeting, the maximum number of shares referred to in the preceding table corresponding to such executive director must be submitted for approval at such meeting.

2. Obligatory investment plan with matched deferred bonus in shares or matched deferred bonus plan

This is variable deferred remuneration payable in shares, which is implemented by means of the mandatory investment by the executive director of 10% of gross variable remuneration in cash (or bonus) for financial years 2007, 2008 and 2009 in shares of the Bank, within the limits approved at the general shareholders’ meetings.

The holding of such shares and continuity of the participant with the Group for a period of three years entitles the participant to receive the same number of shares as that initially purchased on an obligatory basis (one share for each share purchased).

At the annual general meeting of June 19, 2009, an additional requirement to that of continuity was added for the third cycle, which consists of not being involved in any of the following circumstances for a period of three years from the date of investment: (i) poor financial performance of the Group; (ii) breach by the beneficiary of internal rules or regulations, particularly those relating to risks; or (iii) material re-statement of the financial statements of the Bank, except when pursuant to a change in accounting standards.

The board, after a report of the appointments and remuneration committee, shall determine: (i) whether the aforementioned circumstances have occurred and, if they have, (ii) their effect on the number of shares to which each beneficiary is entitled, with the power to adjust such number based on the prevailing circumstances.

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As of the date of this annual report on Form 20-F, the mandatory investment of each executive director, for each of the first three cycles of this plan, has been as follows:

	2009		2008		2007
Executive directors	Third Cycle		Second Cycle		First Cycle
	(No. of shares)
Emilio Botín		20,515		19,968		16,306
Alfredo Sáenz		49,000		47,692		37,324
Matías R. Inciarte		25,849		25,159		20,195
Ana P. Botín		18,446		16,956		13,610
Francisco Luzón		28,434		27,675		22,214
Juan R. Inciarte		15,142		14,738		14,617

2.1. First Cycle (2008-2010) of the matched deferred bonus plan

A detailed description of the terms of the first cycle of this plan is contained in our 2008 annual report on Form 20-F.

2.2. Second Cycle (2009-2011) of the matched deferred bonus plan

A detailed description of the terms of the second cycle of this plan is contained in our 2008 annual report on Form 20-F.

2.3. Third cycle (2010-2012) of the matched deferred bonus plan

This cycle was approved at the annual general shareholders’ meeting of June 19, 2009, upon a proposal made by the board of directors at its meeting of April 28, 2009, after a report of the appointments and remuneration committee of April 27, 2009.

The third cycle of this plan is subject to the following rules:

(i) Beneficiaries: At its meeting of February 1, 2010, the executive committee determined, by delegation of the board of directors, the 32 beneficiaries of this plan, who are executive directors and other members of the Bank’s senior management, as well as other executives of Grupo Santander (excluding Banesto).

(ii) Operation: Beneficiaries must use 10% of their gross variable annual remuneration (or bonus) for 2009 to purchase shares of the Bank on the market (the Obligatory Investment). Pursuant to the resolution adopted at the annual general shareholders’ meeting, the Obligatory Investment was made prior to February 28, 2010.

The beneficiaries of the plan will be entitled to receive from the Bank, or from another company within the Group, as the case may be, the same number of Santander shares that they have acquired initially on an obligatory basis, i.e., one share for each share acquired in the Obligatory Investment, provided always that, during a period of three years after the Obligatory Investment is made, the following conditions are met:

a) the shares acquired in the Obligatory Investment continue to be held by the participant;

b) the participant continues with Grupo Santander; and

c) none of the following circumstances occur:

• poor financial performance of the Group;

• breach by the beneficiary of the codes of conduct and other internal regulations (including, specifically, regulations regarding risks) which apply to the manager; or

• material re-statement of the financial statements of the Bank, except where applicable pursuant to changes in accounting regulations.

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The board of directors, after a report of the appointments and remuneration committee, shall determine: (i) whether the aforementioned circumstances have occurred and, if they have, (ii) their effect on the number of shares to which each beneficiary is entitled, with the power to adjust such number based on the prevailing circumstances.

(iii) Duration: This third cycle covers the years 2010 through 2012. The Bank will deliver the shares, if applicable, between January 1 and April 1, 2013, on the specific date that is determined by the board, or by the executive committee by delegation therefrom, but in any event within one month of the third anniversary of the Obligatory Investment.

The Obligatory Investment of each executive director has been as follows:

Executive directors	No. of shares
Emilio Botín		20,515
Alfredo Sáenz		49,000
Matías R. Inciarte		25,849
Ana P. Botín		18,446
Francisco Luzón		28,434
Juan R. Inciarte		15,142

The number of shares to which the director Ana P. Botín is entitled was approved by the shareholders at the general shareholders’ meeting of Banesto held on February 24, 2010.

Deferred and Conditional Share Plan

At the 2010 annual general shareholders’ meeting, a new cycle of the matched deferred bonus plan was not proposed to our shareholders for approval, although this fact does not affect those cycles already approved. Instead, following a proposal of the appointments and remuneration committee, and in order to maintain and strengthen the deferred variable remuneration mechanisms², the board is seeking the approval of our shareholders at the 2010 annual general shareholders’ meeting for the first cycle of the deferred and conditional share plan (Plan de acciones de entrega diferida y condicionada).

This new plan’s purpose is to ensure that part of the variable remuneration or bonus (approved by the board or by the proper body) that, until now, was received entirely in cash by the executive directors, officers or employees of Grupo Santander is deferred for payment in Santander shares over a three-year period, with one-third vesting each year.

The proposed first cycle of the deferred and conditional share plan is subject to the following terms and conditions:

(i) Purpose and beneficiaries: The first cycle of the deferred and conditional share plan shall be applied in relation to the variable remuneration in cash or bonus for financial year 2010 of the executive directors of the Bank and those officers or employees of Grupo Santander whose variable remuneration or annual bonus for 2010 is generally above the gross amount of €300,000, and consists in the deferral of a portion of said variable remuneration or bonus for a three-year period for its payment, where applicable, in Santander shares, in accordance with the rules set forth below.

2 The new model includes the value of the additional 10% bonus (in shares) to which the directors were entitled under the obligatory investment plan (matched deferred bonus), which disappears.

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(ii) Operation: In addition to the beneficiary remaining with Grupo Santander, the accrual of deferred remuneration in the form of shares is conditioned upon none of the following circumstances existing during the three-year period prior to each of the deliveries, in the opinion of the board of directors, and following a review by the appointments and remuneration committee:

a) poor financial performance of the Group;

b) breach by the beneficiary of the internal regulations, including in particular those related to risks;

c) material re-statement of the Bank’s financial statements, except when pursuant to a change in the accounting standards; or

d) significant changes in financial capital and the qualitative assessment of the risks.

The deferral of the bonus will last for a period of three years and will be paid, where applicable, in three equal parts from the first year on.

The amount to be deferred shall generally be calculated in accordance with the following scale established by the board, based on the gross amount of variable remuneration in cash or annual bonus corresponding to financial year 2010:

Reference bonus
(thousands of euros)	% deferred
Less than or equal to 300	0%
More than 300 to 600 (inclusive)	20%
More than 600 to 1,200 (inclusive)	30%
More than 1,200 to 2,400 (inclusive)	40%
More than 2,400	50%

(iii) Maximum number of shares to be delivered: Taking into account that the estimate of the board by virtue of the previous scale of the overall maximum amount to be deferred in shares of the global bonus for executive directors, officers and employees covered by this plan for year 2010 totals €100 million (the Maximum Amount Distributable in Shares), the maximum number of Santander shares that may be delivered under this cycle of the plan (the Deferred and Conditional Share Plan Limit) will be determined by applying the following formula:

Deferred and Conditional Share Plan Limit = Maximum Amount Distributable in Shares   Santander Share Price

where Santander Share Price is the daily weighted average weighted volume of the average weighted listing prices for the 15 trading sessions prior to the date on which the board of directors approves the 2010 bonus for executive directors.

The estimate of the maximum amount deferrable in shares for all of the executive directors of the Bank, which amounts to a total of €10 million (Maximum Amount Distributable in Shares for Executive Directors) is included within the Maximum Amount Distributable in Shares. The maximum number of Santander shares that may be delivered under this cycle of the plan to all of the executive directors (the Executive Directors Share Limit), which in turn comes within the Deferred and Conditional Share Plan Limit, will be determined by applying the following formula:

Executive Directors Share Limit = Maximum Amount Distributable in Shares for Executive Directors   Santander Share Price

Without prejudice to the Banesto shares that the director Ana P. Botín may be entitled to by virtue of a similar resolution that may be approved at the general shareholders’ meeting of Banesto, the number of shares to which the aforementioned executive director is entitled must be approved by the shareholders at such general shareholders’ meeting.

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3. Restricted shares plan

This plan consists of the delivery of shares without charge subject to mandatory continuity with the Group for a period of three to four years. After completion of the required minimum period established in each case, the participant will have the right to receive the shares.

The Bank intends to use this plan selectively as an instrument to retain or hire managers or employees (with the exception of executive directors) of the Bank and other companies of the Group. The board of directors, or the executive committee by delegation therefrom, has the power to decide on the use of this instrument.

The limits authorized at the annual general shareholders’ meetings of June 23, 2007 and June 21, 2008 expired without any share delivery commitment having been assumed.

At December 31, 2009, the authorized limit was 2,478,000 shares as approved at the annual general shareholders’ meeting of June 19, 2009. As of the date of this report on Form 20-F, no delivery commitment has been assumed under such authorization.

The use of such limit must also take into account the 2009 Total Limit mentioned above in this section.

The board, at the proposal of the appointments and remuneration committee, has requested shareholders acting at the 2010 annual general meeting to authorize delivery of Bank shares up to a maximum of 2,500,247 shares to be used selectively as an instrument to retain or hire managers or employees (with the exception of executive directors) of the Bank or of other companies of the Group. A minimum continuity period will be required of each participant of three to four years with the Group. Once the participant completes the minimum period set for each participant, he or she will have the right to delivery of shares.

4. Share ownership guidelines

The Group’s principal executives, including executive directors, must own a specific number of Santander shares on a permanent basis while serving at the Bank.

This obligation currently affects the Group’s 32 highest-ranking executives, including the Bank’s executive directors, and requires that they have invested in a number of Santander shares equivalent to one year’s fixed remuneration, and that they comply with this obligation within a five-year period that began on March 26, 2007.

The table below shows the number of shares that the executive directors of the Bank owned at December 31, 2009, which significantly exceeds the minimum amounts required under the share ownership guidelines:

							% of Bank’s
Executive directors	Direct		Indirect		Total		share capital
Emilio Botín		8,137,775		40,936,473		49,074,248		0.596	%
Alfredo Sáenz		805,747		1,243,532		2,049,279		0.025	%
Matías R. Inciarte		887,710		82,521		970,231		0.012	%
Ana P. Botín		5,036,774		4,024,136		9,060,910		0.110	%
Francisco Luzón		1,132,264		26,964		1,159,228		0.014	%
Juan R. Inciarte		1,318,267		—		1,318,267		0.016	%
Total		17,318,537		46,313,626		63,632,163		0.773	%

The market value of such shares on the Automated Quotation System (Electronic Market) of the Spanish Stock Exchanges was €735 million at year-end 2009.

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In addition, the members of senior management who are not directors owned a total of 3.9 million shares of Santander stock at December 31, 2009 which was valued at €45.5 million.

5. Santander UK

The long-term incentive plans on shares of the Bank originally granted by management of Santander UK to its employees (consisting of Santander UK shares) are as follows:

				Pounds							Date of	Date of
				sterling (*)							commencement	expiry
	Number			Exercise			Employee	Number			of exercise	of exercise
	of shares			price		Year granted	group	of persons			period	period
Plans outstanding at 01/01/07		10,354,232			4.32
Options exercised		(1,535,325	)		3.81
Of which:
Executive Options		(33,904	)		3.96
Sharesave		(1,501,421	)		3.81
Options cancelled (net) or not exercised		(770,595	)		—
Plans outstanding at 12/31/07		8,048,312			5.34
Options granted (Sharesave)		5,196,807			7.69	2008	Employees		6,556	(**)	01/11/08 01/11/08	01/11/11 01/11/13
Options exercised		(6,829,255	)		4.91
Of which:
Executive Options		(132,107	)		4.11
Sharesave		(4,506,307	)		3.07
MTIP		(2,190,841	)		8.73
Options cancelled (net) or not exercised		(262,868	)		4.87
Of which:
Sharesave		(233,859	)		4.13
MTIP		(29,009	)		10.88
Plans outstanding at 12/31/08		6,152,996			7.00
Options granted (Sharesave)		4,527,576			7.26	2009	Employees		7,066	(**)	01/11/09 01/11/09	01/11/12 01/11/14
Options exercised		(678,453	)
Of which:
Sharesave		(678,453	)		3.85
Options cancelled (net) or not exercised		(1,277,590	)
Of which:
Sharesave		(1,277,590	)		7.48
Plans outstanding at 12/31/09		8,724,529
Of which:
Executive Options		12,015			4.54	2003-2004	Managers		2		26/03/06	24/03/13
Sharesave		8,712,514			7.24	2004-2008-2009	Employees		11,919	(**)	01/04/06	01/11/14

(*)	At December 31, 2009, 2008 and 2007 the euro/pound sterling exchange rate was €1.12600/GBP 1, €1.04987/GBP 1 and €1.36360/GBP 1, respectively.
(**)	Number of accounts/contracts. A single employee may have more than one account/contract. On September 30, 2008, 4,493 contracts were delivered with an execution date three years thereafter and 2,063 contracts with an execution date five years thereafter. The date of commencement of all these contracts is November 1, 2008.

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In 2005, the Group designed a Medium-Term Incentive Plan (MTIP) involving the delivery of Bank shares to Santander UK executives. Under the plan, effective allocation of the shares in 2008 was tied to the achievement of business targets by Santander UK (in terms of net profit and income). This plan was approved by the shareholders at the general shareholders’ meeting on June 17, 2006. Subsequently, it was considered necessary to amend the conditions of the plan in order to reflect the impact of the sale of Santander UK’s life insurance business to Resolution on the income targets of Santander UK for 2007. The board of directors, after obtaining a favorable report from the appointments and remuneration committee, submitted this amendment for ratification by the shareholders at the general shareholders’ meeting held on June 23, 2007. The amendment was approved thereat. In the first half of 2008, all the shares under this plan were delivered, and the plan was cancelled on June 30, 2008.

In 2008, the Group launched a voluntary savings scheme for Santander UK employees (Sharesave Scheme) whereby employees who join the scheme will have between GBP 5 and GBP 250 deducted from their net monthly pay over a period of three or five years. When this period has ended, the employees may use the amount saved to exercise options on shares of the Bank at an exercise price calculated by reducing by up to 20% the average purchase and sale prices of the Bank shares in the first three trading days of September 2008. This scheme, which commenced in September 2009, was approved at the general shareholders’ meeting held on June 21, 2008 and is authorized by the UK tax authorities (HMRC). At the general shareholders’ meeting on June 19, 2009, the shareholders approved a new plan with similar features to the plan approved in 2008.

C. Board practices

Date of expiration of the current term of office of the directors and the period during which the directors have served in that office:

The period during which the directors have served in their office is shown in the table under Section A of this Item 6.

The date of expiration of the current term of office is shown in the table below:

	Date of
Name	expiration (1)
Emilio Botín	1st half 2013
Fernando de Asúa	1st half 2011
Alfredo Sáenz	1st half 2011
Matías R. Inciarte	1st half 2014
Manuel Soto	1st half 2014
Assicurazioni Generali, S.p.A	1st half 2012
Antonio Basagoiti	1st half 2012
Ana P. Botín	1st half 2011
Javier Botín	1st half 2010
Lord Burns	1st half 2011
Guillermo de la Dehesa	1st half 2014
Rodrigo Echenique	1st half 2011
Antonio Escámez	1st half 2012
Francisco Luzón	1st half 2012
Abel Matutes	1st half 2014
Juan R. Inciarte	1st half 2013
Luis Ángel Rojo	1st half 2013
Luis Alberto Salazar-Simpson	1st half 2013
Isabel Tocino	1st half 2011

(1) Pursuant to the provisions of our By-laws, one-fifth of the board will be renewed every year, based on length of service and according to the date and order of their respective appointments.

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The principal terms and conditions of the contracts entered into by the Bank with its executive directors are as follows:

(i) Exclusivity and non-competition

Executive directors may not enter into other service contracts with other companies or entities, unless express prior authorization is obtained from the board of directors. In addition, executive director’s contracts contain non-compete provisions, which prohibit executive directors from providing services to companies engaged in activities of a nature similar to that of the Bank or the consolidated Group.

(ii) Code of conduct

Executive directors are required to strictly observe the provisions contained in the Rules and Regulations of the Board. They also must observe the provisions of Grupo Santander’s General Code of Conduct and the Code of Conduct in the Securities Market, specifically with respect to rules of confidentiality, professional ethics and conflicts of interest.

(iii) Remuneration

The remuneration for undertaking their executive responsibilities is compatible with the joint participation in the year’s profits (annual retainer and attendance fees) to which directors are entitled, as it is expressly stated by the By-laws and the Rules and Regulations of the Board.

a. Fixed remuneration of executive directors

The Group’s remuneration policy has been characterized by the development of long-term professional careers, for which reason a conservative remunerative mix has been applied in which the fixed remuneration represents a significant proportion of total remuneration.

The fixed remuneration received by the executive directors during the last three fiscal years was as follows:

			Change
Thousands of euros	2009		(%)			2008		2007
Emilio Botín		1,344		3.0	%		1,305		1,187
Alfredo Sáenz		3,703		3.0	%		3,595		3,126
Matías R. Inciarte		1,710		3.0	%		1,661		1,510
Ana P. Botín		1,294		2.0	%		1,269		1,133
Francisco Luzón		1,505		3.0	%		1,461		1,271
Juan R. Inciarte(*)		987		3.0	%		958		—
Total		10,543		2.9	%		10,249		8,227

(*) Juan R. Inciarte was appointed as a director in 2008 and as such his 2007 information is not included.

b. Variable remuneration of executive directors

The variable remuneration for financial year 2009 had a cash component and another deferred component made up entirely of shares:

i) The variable remuneration in cash (or bonus) for executive directors was set taking into account compliance with the targets for operating profit before tax and the quality of the results obtained. The latter is assessed with respect to the recurrence thereof (eliminating special or extraordinary transactions), the appropriate management of risk, and the efficient consumption of capital.

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ii) Variable deferred remuneration in shares is implemented through a performance shares plan (plan de acciones vinculado a objetivos) and an obligatory investment plan with matched deferred bonus in shares (plan de acciones vinculado a inversión obligatoria), both of which are described above. The deferral is for three years and is linked to the creation of value for the shareholders, as accrual thereof is subject to meeting measurable financial targets and to compliance with other conditions during the effective period of the plans.

Under the Spanish law and our By-laws, the decision to grant remuneration linked to the Bank’s shares must be made by the shareholders acting at a general shareholders’ meeting, at the proposal of the board of directors, following receipt of a report from the appointments and remuneration committee. The Group’s policy provides that only executive directors may be beneficiaries of remuneration systems consisting of the delivery of shares or rights thereto.

The board approved the proposal of the appointments and remuneration committee to maintain variable remuneration in cash (or bonus) in 2009 for all executive directors at the same amounts accrued thereby for the prior financial year.

Set forth below is an individual breakdown of the changes therein during the last three financial years.

			Change
Thousands of euros	2009		(%)			2008		2007
Emilio Botín		1,987		0.0	%		1,987		2,337
Alfredo Sáenz		4,745		0.0	%		4,745		5,582
Matías R. Inciarte		2,503		0.0	%		2,503		2,945
Ana P. Botín		1,786		0.0	%		1,786		1,985
Francisco Luzón		2,753		0.0	%		2,753		3,239
Juan R. Inciarte(1)		1,466		0.0	%		1,466		—
Total		15,240		0.0	%		15,240		16,088

⁽¹⁾ Juan R. Inciarte was appointed as a director in 2008 and as such his 2007 information is not included.

c. Pension rights

Executive directors are entitled to receive a pension supplement upon retirement or early retirement, which the Bank may cause to be externally funded.

The Bank may request the early retirement of executive directors, provided that they are over 50 years of age and have more than 10 years’ service with the Bank and/or other companies of the Group. Executive directors may also request early retirement themselves if they are over 55 years of age and have 10 years’ service with the Bank and/or other companies of the Group. Notice of the decision to retire or to take early retirement must in any event be given 60 days in advance.

Pension rights are also recognized in the event of incapacity, and in case of death of the executive director, in favor of the spouse (widow benefits) and children (orphan benefits).

Generally, the amount of the pension supplement consists of the amount necessary to reach an annual gross amount equal to 100% of the fixed salary received by the director at the time the director actually ceased working, plus 30% of the average of the last three variable remuneration amounts received. In certain cases, if early retirement occurs at the request of the director, the amount resulting from the application of the method described above would be reduced by percentages ranging from 20% to 4%, depending on the age of the director at the time of early retirement.

For further details, see “B. Compensation — Compensation to the board members as representatives of the Bank and to Senior Management — Pension commitments, other insurance and other items”.

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(iv) Termination

The Bank’s executive directors have indefinite-term employment contracts.

Executive directors whose contracts are terminated voluntarily or due to breach of duties are not entitled to receive any economic compensation. If the contracts are terminated for reasons attributable to the Bank or due to certain objective circumstances (such as those affecting the executive directors’ functional and organic statute), the directors will be entitled, at the date of termination of their employment relationships with the Bank, to the following:

• In the cases of Emilio Botín and Alfredo Sáenz, on proceeding to retired status, to receive the amounts corresponding to accrued pension (€24.6 million and €85.7 million, respectively), in the form of capital, with no additional amount accruing by way of pension in the future, after the exercising by each of the directors of the consolidation option referred to under “B. Compensation — Compensation to the board members as representatives of the Bank and to Senior Management — Pension commitments, other insurance and other items”.

If termination of the contract with Alfredo Sáenz had occurred in 2009, he could have chosen to proceed to retired status or to receive a severance compensation equivalent to 40% of his annual fixed salary, multiplied by the number of years of his service at the Bank, up to a maximum of 10 times his annual fixed salary. However, Alfredo Sáenz has waived his right to receive such severance compensation.

• In the cases of Matías R. Inciarte and Francisco Luzón, to take early retirement and to accrue pension supplements which, as of December 31, 2009, would amount to €2,507,000 for Matías R. Inciarte and €2,701,000 for Francisco Luzón.

• In the case of Ana P. Botín, to receive a termination benefit amounting to five years’ annual fixed salary at the date of termination, which, as of December 31, 2009, would amount to €6,472,000. In the event of termination attributable to the Bank, Ana P. Botín may opt to take early retirement and accrue an annual retainer. At December 31, 2009, this retainer would amount to €1,841,000 per year. The two alternatives are mutually exclusive and, therefore, if Ana P. Botín were to opt to receive the termination benefit she would not receive any retainer.

• In the case of Juan R. Inciarte, to receive a termination benefit amounting to five years’ annual fixed salary at the date of termination, which, as of December 31, 2009, would amount to €4,936,000. In the event of termination attributable to the Bank, Juan R. Inciarte may opt to take early retirement and accrue an annual retainer. At December 31, 2009, this retainer would amount to €869,000 per year. The two alternatives are mutually exclusive and, therefore, if Juan R. Inciarte were to opt to receive the termination benefit he would not receive any retainer.

In the event of Matías R. Inciarte, Francisco Luzón, Ana P. Botín or Juan R. Inciarte proceeding to pre-retired or retired status, they would be entitled to choose between receiving their accrued pensions (or amounts equivalent thereto) in the form of income or capital (i.e. as a lump sum consideration) in whole but not in part. Such right is independent of the option to which they are entitled, beginning from the age of 60 years (see “B. Compensation — Compensation to the board members as representatives of the Bank and to Senior Management — Pension commitments, other insurance and other items”).

(v) Insurance

The Bank provides to its executive directors life insurance, the premium for which is included in the column Other remuneration in the table of page 138 above, accident insurance, whose coverage varies in each cases on the basis of the policy set by the Bank for its senior executives, and a reimbursement healthcare insurance.

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(vi) Confidentiality and return of documents

The contracts contain confidentiality agreements, which cover the periods during and after the termination of the employment relationship.

(vii) Other conditions

The contracts provide for the following advance notice periods for termination of the executive officers’ position by the Bank or resignation by the executive officer.

	Date of current contract		By decision of the			By decision of the
Advance notice period	(month/day/year)(*)		Bank (months)			director (months)
Emilio Botín		04/29/2009		(**	)		(**	)
Alfredo Sáenz		04/29/2009		4			4
Matías R. Inciarte		04/29/2009		4			4
Ana P. Botín		04/29/2009		4			4
Francisco Luzón		04/29/2009		6			4
Juan R. Inciarte		04/29/2009		4			4

(*)	The board at its December 21, 2009 meeting authorized an amendment to the contracts with the executive directors Matías R. Inciarte, Ana P. Botín, Francisco Luzón and Juan R. Inciarte.
(**)	It is not contractually established.

Audit and compliance committee and appointments and remuneration committee

An audit and compliance committee as well as an appointments and remuneration committee operate as part of the board of directors. The audit and compliance committee consists exclusively of 5 external directors (all of whom are independent in accordance with the principles set forth in Article 6.2(c) of the Rules and Regulations of the Board). The appointments and remuneration committee consists of 5 external directors (all of whom are independent in accordance with the principles set forth in Article 6.2(c) of the Rules and Regulations of the Board). These independence standards may not necessarily be consistent with, or as stringent as, the director independence standards established by the NYSE.

The audit and compliance committee

The audit and compliance committee was created to provide support and specialization for the tasks of controlling and reviewing the Bank’s accounts and compliance function. Its mission, which has been defined and approved by the board, is established in the By-laws and in the Rules and Regulations of the Board.

Only non-executive directors can be members of this committee with independent directors (as defined in the Rules and Regulations of the Board) having a majority representation. Its chairman must always be an independent director (as defined in the Rules and Regulations of the Board) and someone who has the necessary knowledge and experience in matters of accounting, auditing or risk management. Currently, the chairman of the audit and compliance committee is Luis Ángel Rojo.

The members of the audit and compliance committee are appointed by the board of directors, taking into account the directors’ knowledge, aptitude and experience in the areas of accounting, auditing or risk management.

Functions of the audit and compliance committee:

a) Have its chairman and/or secretary report to the general shareholders’ meeting with respect to matters raised therein by shareholders regarding its powers.

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b) Propose the appointment of the auditor, as well as the conditions in which such auditor will be hired, the scope of its professional duties and, if applicable, the revocation or non-renewal of its appointment. The committee shall favor the Group’s auditor also assuming responsibility for auditing the companies which comprise the Group.

c) Review the accounts of the Company and the Group, monitor compliance with legal requirements and the proper application of generally accepted accounting principles, and report on the proposals for alterations to the accounting principles and standards suggested by management.

d) Supervise the Bank’s internal audit services, and particularly:

(i) Propose the selection, appointment and withdrawal of the party responsible for internal audit;

(ii) Review the annual working plan for internal audit and the annual activities report;

(iii) Ensure the independence and effectiveness of the internal audit function;

(iv) Propose the budget for this service;

(v) Receive periodic information regarding the activities thereof; and

(vi) Verify that senior management takes into account the conclusions and recommendations of its reports.

e) Know the process for gathering financial information and the internal control systems. In particular, the audit and compliance committee shall:

(i) Supervise the process of preparing, and the integrity of, the financial information relating to the Company and the Group, reviewing compliance with regulatory requirements, the proper demarcation of group consolidation and the correct application of accounting standards; and

(ii) Periodically review the systems for the internal monitoring and management of risks, so that the principal risks are identified, managed and properly disclosed.

f) Report on, review and supervise the risk control policy established in accordance with the provisions of the Rules and Regulations of the Board.

g) Serve as a channel of communication between the board and the auditor, assess the results of each audit and the response of the management team to its recommendations, and act as a mediator in the event of disagreement between the board and the auditor regarding the principles and standards to be applied in the preparation of the financial statements. Specifically, it shall endeavor to ensure that the statements ultimately drawn up by the board are submitted to the general shareholders’ meeting without any qualifications or reservations in the auditor’s report.

h) Supervise the fulfillment of the audit contract, endeavoring to ensure that the opinion on the annual financial statements and the main contents of the auditor’s report are set forth in a clear and accurate fashion.

i) Ensure the independence of the auditor, by taking notice of those circumstances or issues that might risk such independence and any others related to the development of the auditing procedure, as well as receive information and maintain such communication with the auditor as is provided for in legislation regarding the auditing of financial statements and in technical auditing regulations. And, specifically, verify the percentage represented by the fees paid for any and all reasons of the total income of the audit firm, and the length of service of the partner who leads the audit team in the provision of such services to the Company. The annual report shall set forth the fees paid to the audit firm, including information relating to fees paid for professional services other than audit work. Furthermore, the committee shall ensure that the Company publicly communicates a change of auditor and accompanies such communication with a declaration regarding the possible existence of disagreements with the outgoing auditor and, if any, regarding the content thereof and, in the event of the resignation of the auditor, the committee shall examine the circumstances leading to such resignation.

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j) Report to the board, in advance of its adoption of the corresponding decisions, regarding:

(i) The financial information that the Company must periodically make public, ensuring that such information is prepared in accordance with the same principles and practices applicable to the annual financial statements.

(ii) The creation or acquisition of equity interests in special purpose entities or entities domiciled in countries or territories that are considered to be tax havens.

k) Supervise the observance of the code of conduct of the Group in the securities markets, the manuals and procedures for the prevention of money laundering and, in general, the rules of governance and compliance in effect in the Company, and make such proposals as are deemed necessary for the improvement thereof. In particular, the committee shall have the duty to receive information and, if applicable, issue a report on disciplinary penalties to be imposed upon members of the senior management.

l) Review compliance with such courses of action and measures as result from reports issued or inspection proceedings carried out by administrative authorities having functions of supervision and control.

m) Know and, if applicable, respond to the initiatives, suggestions or complaints put forward or raised by the shareholders regarding the area of authority of this committee and which are submitted to it by the office of the general secretary of the Company. The committee shall also:

(i) Receive, deal with and keep a record of the complaints received by the Bank on matters related to the process of gathering financial information, auditing and internal controls.

(ii) Receive on a confidential and anonymous basis communications from Group employees who express their concern on possible questionable practices in the areas of accounting or auditing.

n) Report on any proposed amendments to the Rules and Regulations of the Board prior to the approval thereof by the board of directors.

o) Evaluate, at least once a year, the committee’s operation and the quality of its work.

p) And the others specifically provided for in the Rules and Regulations of the Board.

The Group’s 2009 audit and compliance committee report is available on the Group’s website, which does not form part of this annual report on Form 20-F, at www.santander.com under the heading “Information for shareholders and investors—Corporate governance—Committees report”.

The following are the current members of the audit and compliance committee:

Name	Position
Luis Ángel Rojo	Chairman
Fernando de Asúa	Member
Manuel Soto	Member
Abel Matutes	Member
Luis Alberto Salazar-Simpson	Member

Ignacio Benjumea also acts as secretary to the audit and compliance committee but is classified as a non-member.

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The appointments and remuneration committee:

The Rules and Regulations of the Board state that the members of this committee must all be non-executive directors with independent directors (as defined in the Rules and Regulations of the Board) having a majority representation including an independent director as chairman (as defined in the Rules and Regulations of the Board).

Currently, the chairman of the appointments and remuneration committee is Fernando de Asúa, the first vice chairman of the board of directors.

The members of the appointments and remuneration committee are appointed by the board of directors, taking into account the directors’ knowledge, aptitudes and experience and the goals of the committee.

Functions of the appointments and remuneration committee:

a) Establish and review the standards to be followed in order to determine the composition of the board and select those persons who will be proposed for election to serve as directors. In particular, the appointments and remuneration committee:

(i) Shall evaluate the competencies, knowledge and experience required of the director;

(ii) Shall specify the duties and the aptitudes needed of the candidates to fill each vacancy, evaluating the time and dedication needed for them to properly carry out their commitments; and

(iii) Shall receive for consideration the proposals of potential candidates to fill vacancies that might be made by the directors.

b) Prepare the proposals for appointment, re-election and ratification of directors provided for the Rules and Regulations of the Board, as well as the proposals for appointment of the members of each of the committees of the board of directors. Likewise, it shall prepare, the proposals for the appointment of positions on the board of directors and its committees.

c) Annually verify the classification of each director (as executive, proprietary, independent or other) for the purpose of their confirmation or review at the ordinary general meeting and in the annual corporate governance report.

d) Report on proposals for appointment or withdrawal of the secretary of the board, prior to submission thereof to the board.

e) Report on appointments and withdrawals of the members of senior management.

f) Propose to the board:

(i) The policy for compensation of directors and the corresponding report.

(ii) The policy for compensation of the members of senior management.

(iii) The individual compensation of the directors.

(iv) The individual compensation of the executive directors and, if applicable, external directors, for the performance of duties other than those of a mere director, and other terms of their contracts.

(v) The basic terms of the contracts and compensation of the members of senior management.

(vi) The remuneration of those other officers who, though not members of senior management, receive significant compensation, particularly variable compensation and whose activities may have a significant impact on the assumption of risk by the Group.

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g) Ensure compliance with the policy established by the Company for compensation of the directors and the members of senior management.

h) Periodically review the compensation programs, assessing the appropriateness and yield thereof and endeavoring to ensure that the compensation of directors shall conform to standards of moderation and correspond to the earnings of the Company.

i) Ensure the transparency of such compensation and the inclusion in the annual report and in the annual corporate governance report of information regarding the compensation of directors and, for such purposes, submit to the board any and all information that may be appropriate.

j) Ensure compliance by the directors with the duties prescribed the Rules and Regulations of the Board, prepare the reports provided for therein and receive information, and, if applicable, prepare a report on the measures to be adopted with respect to the directors in the event of non-compliance with the above mentioned duties or with the Code of Conduct of the Group in the Securities Markets.

k) Examine the information sent by the directors regarding their other professional obligations and assess whether such obligations might interfere with the dedication required of directors for the effective performance of their work.

l) Evaluate, at least once a year, its operation and the quality of its work.

m) Report on the process of evaluation of the committee and of the members thereof.

n) And others specifically provided for in the Rules and Regulations of the Board.

The Group’s 2009 appointments and remuneration committee report is available on the Group’s website, which does not form part of this annual report on Form 20-F, at www.santander.com under the heading “Information for shareholders and investors—Corporate governance—Committees report”.

The following are the members of the appointments and remuneration committee:

Name	Position
Fernando de Asúa	Chairman
Manuel Soto	Member
Guillermo de la Dehesa	Member
Rodrigo Echenique	Member
Luis Ángel Rojo	Member

Ignacio Benjumea also acts as secretary to the appointments and remuneration committee but is classified as a non-member.

D. Employees

As of December 31, 2009, we had 169,460 employees (as compared to 170,961 in 2008 and 131,819 employees in 2007) of which 35,076 were employed in Spain (as compared to 36,376 in 2008 and 36,558 in 2007) and 134,384 were employed outside Spain (as compared to 134,585 in 2008 and 95,261 in 2007). The terms and conditions of employment in the non-government-owned banks in Spain are negotiated on an industry-wide basis with the trade unions. This process has historically produced collective agreements binding upon all the private banks and their employees. A new agreement was signed on June 21, 2007 which will expire on December 31, 2010. The terms and conditions of employment in many of our subsidiaries outside Spain (including in Argentina, Portugal, Italy, Uruguay, Puerto Rico, Colombia, Chile, Mexico, Germany, the UK, Brazil and Poland) are negotiated either directly or indirectly (on an industry-wide basis) with the trade unions.

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The table below shows our employees by geographic area:

	Number of employees
	2009		2008		2007
SPAIN		35,076		36,376		36,558
LATIN AMERICA		84,976		95,375		64,899
Argentina		5,753		6,313		6,621
Brazil		50,904		53,198		21,876
Chile		11,850		12,081		13,025
Colombia		1,304		1,415		1,312
Mexico		12,509		13,924		14,053
Peru		47		52		43
Puerto Rico		1,796		1,885		2,227
Uruguay		757		847		302
Venezuela		56		5,659		5,439
EUROPE		37,871		36,778		28,060
Austria		467		—		—
Czech Republic		166		205		195
Germany		2,852		2,431		1,846
Belgium		13		12		12
Finland		89		28		29
France		32		51		32
Greece		19		21		20
Hungary		47		84		90
Ireland		7		7		4
Italy		931		879		798
Luxembourg		3		3		—
Norway		385		361		330
Poland		867		852		638
Portugal		6,522		6,839		6,759
Russia		85		—		—
Slovakia		—		—		10
Switzerland		178		198		203
The Netherlands		423		289		51
United Kingdom		24,785		24,518		17,043
USA		11,355		2,051		1,978
ASIA		103		82		17
Hong Kong		72		75		13
China		23		—		—
Japan		5		5		4
Others		3		2		—
OTHERS		79		299		307
Bahamas		56		55		56
Others		23		244		251
Total		169,460		170,961		131,819

In those cases where an employee is working from one country but is technically employed by a Group company located in a different country, we designate that employee as working from his/her country of residence.

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The table below shows our employees by type of business:

	Number of employees
	2009		2008		2007
Retail Banking		163,184		165,244		126,119
Asset Management and Insurance		1,558		1,435		1,585
Global Wholesale Banking		2,898		2,572		2,589
Corporate Activities		1,820		1,710		1,526
Total		169,460		170,961		131,819

As of December 31, 2009, we had 1,577 temporary employees (as compared to 1,814 as of December 31, 2008 and 1,754 as of December 31, 2007). In 2009, the average number of temporary employees working for the Group was 1,694 employees.

E. Share ownership

As of May 28, 2010, the direct, indirect and represented holdings of our current directors were as follows:

	Direct		Indirect stake and				% of
Directors	Stake		represented		Total shares		Capital stock
Emilio Botín (1)		8,158,290		149,942,027		158,100,317		2.146	%
Fernando de Asúa		59,604		50,000		109,604		0.001	%
Alfredo Sáenz		854,747		1,243,532		2,098,279		0.025	%
Matías R. Inciarte (3)		913,559		160,657		1,074,216		0.013	%
Manuel Soto		60,659		360,109		420,768		0.005	%
Assicurazioni Generali S.p.A		1,072,277		92,690,958		93,763,235		1.139	%
Antonio Basagoiti		704,400		—		704,400		0.009	%
Ana P. Botín (1)		5,055,220		4,024,136		9,079,356		0.000	%
Javier Botín (1)(2)		4,793,481		4,652,747		9,446,228		0.000	%
Lord Burns (Terence)		30,101		27,001		57,102		0.001	%
Guillermo de la Dehesa		101		—		101		0.000	%
Rodrigo Echenique		658,758		9,280		668,038		0.008	%
Antonio Escámez		757,593		—		757,593		0.009	%
Francisco Luzón		1,171,933		39,864		1,211,797		0.015	%
Abel Matutes		123,388		2,590,104		2,713,492		0.033	%
Juan R. Inciarte		1,333,409		—		1,333,409		0.016	%
Luis Ángel Rojo		1		—		1		0.000	%
Luis Alberto Salazar-Simpson		250,000		5,641		255,641		0.003	%
Isabel Tocino		36,394		—		36,394		0.000	%
		26,033,915		255,796,056		281,829,971		3.516	%

(1)	Emilio Botín has attributed the right of vote in a general shareholders’ meeting of 91,866,035 shares (1.12% of the capital stock) held by the Marcelino Botín Foundation, of 8,096,742 shares held by Jaime Botín, of 9,042,777 shares held by Emilio Botín O., of 9,079,356 shares held by Ana P. Botín and of 9,446,228 shares held by Javier Botín. This table shows the direct and indirect shareholding of the two latter who are directors, but in the column showing the percentage of capital stock, these shareholdings are presented together with those that belong or are also represented by Emilio Botín.
(2)	Javier Botín is a proprietary non-executive director as he represents in the board of directors a 2.146% of the Bank’s capital stock which corresponds to the holdings of the Marcelino Botín Foundation, Emilio Botín, Ana P. Botín, Emilio Botín O., Jaime Botín, Paloma O’Shea and his own.
(3)	Matías R. Inciarte has the right to vote 78,136 shares owned by two of his children.

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Santander’s capital is comprised of only one class of shares, all of which are ordinary and have the same rights.

As of May 28, 2010 our current executive officers (not directors) referred to above under Section A of this Item 6 as a group beneficially owned, directly or indirectly, 4,286,803 ordinary shares, or 0.05% of our issued and outstanding share capital as of that date. Together with the options granted, no individual executive officer beneficially owns, directly or indirectly, one percent or more of the outstanding share capital as of that date.

Item 7. Major Shareholders and Related Party Transactions

A. Major shareholders

As of December 31, 2009, to our knowledge no person beneficially owned, directly or indirectly, 5% or more of our shares.

At December 31, 2009 a total of 1,214,210,311 shares, or 14.76% of our share capital, were held by 1,045 registered holders with registered addresses in the United States and Puerto Rico, including JPMorgan Chase, as depositary of our American Depositary Share Program. These ADS’s were held by 20,712 record holders. Since certain of such shares and ADSs are held by nominees, the foregoing figures are not representative of the number of beneficial holders. Our directors and executive officers did not own any ADSs as of December 31, 2009.

To our knowledge, we are not controlled directly or indirectly, by any other corporation, government or any other natural or legal person. We do not know of any arrangements which would result in a change in our control.

Shareholders’ agreements

The Bank was informed in February 2006 of an agreement among certain shareholders. The agreement was also communicated to the CNMV, following the filing of the agreement both with the CNMV and in the Mercantile Registry of Cantabria.

The agreement was entered into by Emilio Botín, Ana P. Botín, Emilio Botín O., Javier Botín, Simancas, S.A., Puente San Miguel, S.A., Puentepumar, S.L., Latimer Inversiones, S.L. and Cronje, S.L. Unipersonal and relates to the shares of the Bank held by them or those over which they have voting rights.

Under this agreement and through the establishment of restrictions on the free transferability of their shares and the regulation of the exercise of the voting rights inherent in them, these shareholders have agreed to act in a coordinated manner, in order to develop a common, lasting and stable policy and an effective and unified presence and representation in the Bank’s governing bodies.

The agreement comprises a total of 44,396,513 shares of the Bank (0.540% of its share capital at the end of the year 2009). In addition, and in accordance with the first clause of the shareholders’ agreement, the agreement will be extended only in terms of the exercising of voting rights to other shares of the Bank that are subsequently held, directly or indirectly, by the signatories or those over which they have voting rights. As a result, as of December 31, 2009, another 32,227,650 shares (0.392% of the Bank’s share capital at the end of the year 2009) are also included in the syndicate of shareholders.

The chairman of the syndicate of shareholders is the person who is at any time the chairman of the Marcelino Botín Foundation, which is currently Emilio Botín.

Members of the syndicate are obliged to group together the voting rights and other political rights inherent in the syndicated shares, so that the exercising of such rights and, in general, the conduct of the members of the syndicate before the Bank, is done in a coordinated and unified fashion. For such purpose, the representation of such shares is attributed to the chairman of the syndicate as the common representative of the members of the syndicate.

Except for the transfers made to other members of the syndicate or the Marcelino Botín Foundation, the prior authorization of the syndicate is required before any proposed transfer of shares and it can freely authorize or deny any such proposed transfer.

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B. Related party transactions

Loans made to members of our board of directors and to our executive officers

The Group’s direct risk exposure to the Bank’s directors and the guarantees provided for them are detailed below.

	Thousands of Euros
	2009						2008						2007
	Loans						Loans						Loans
	and						and						and
	Credits		Guarantees		Total		Credits		Guarantees		Total		Credits		Guarantees		Total
Alfredo Sáenz		16		—		16		25		—		25		6		—		6
Matías R. Inciarte		7		10		17		20		10		30		18		10		28
Manuel Soto		—		—		—		5		—		5		4		—		4
Antonio Basagoiti		47		1		48		66		1		67		94		1		95
Ana P. Botín		3		—		3		5		—		5		—		—		—
Javier Botín		2		—		2		—		—		—		—		—		—
Rodrigo Echenique		9		—		9		12		—		12		7		—		7
Antonio Escámez		1,488		—		1,488		1,474		—		1,474		309		—		309
Francisco Luzón		5,004		—		5,004		1,649		—		1,649		722		—		722
Juan R. Inciarte		421		—		421		465		—		465		—		—		—
Luis Alberto Salazar-Simpson		434		—		434		461		—		461		—		—		—
Isabel Tocino		40		—		40		49		—		49		—		—		—
		7,471		11		7,482		4,231		11		4,242		1,160		11		1,171

Additionally, the total amount of loans and credits made by us to our executive officers who are not directors, as of December 31, 2009, amounted to €24 million (see Note 53 to our consolidated financial statements).

Loans extended to related parties were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than normal risk of collectibility or present other unfavorable features.

Loans made to other Related Parties

The companies of the Group engage, on a regular and routine basis, in a number of customary transactions among Group members, including:

• overnight call deposits;

• foreign exchange purchases and sales;

• derivative transactions, such as forward purchases and sales;

• money market fund transfers;

• letters of credit for imports and exports;

and others within the scope of the ordinary course of the banking business, such as loans and other banking services to our shareholders, to employees of all levels, and the associates and the members of the families of all these persons, as well as those other businesses conducted by the companies of the Group. All these transactions are made:

• in the ordinary course of business;

• on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons; and

• did not involve more than the normal risk of collectibility or other unfavorable features.

169

As of December 31, 2009 our loans and credits to associated and jointly controlled entities, amounted to €149 million. Those loans and credits represented 0.02% of our total net loans and credits and 0.2% of our total stockholders’ equity as of December 31, 2009.

For more information, see Notes 3 and 53 to our consolidated financial statements.

C. Interests of experts and counsel

Not Applicable.

Item 8. Financial Information

A. Consolidated statements and other financial information

Financial Statements

See Item 18 for our consolidated financial statements.

(a) Index to consolidated financial statements of Santander

	Page
Report of Deloitte, S.L.		F-1
Consolidated Balance Sheets as of December 31, 2009, 2008 and 2007		F-2
Consolidated Income Statements for the Years Ended December 31, 2009, 2008 and 2007		F-3
Consolidated Statements of Recognized Income and Expense for the Years Ended December 31, 2009, 2008 and 2007		F-4
Consolidated Statements of Changes in Total Equity for the Years Ended December 31, 2009, 2008 and 2007		F-5
Consolidated Statement of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007		F-8
Notes to the Consolidated Financial Statements		F-9

Legal Proceedings

i. Tax disputes

As of the date hereof, the main tax disputes concerning the Group are as follows:

• The “Mandados de Segurança” filed by Banco Santander Brasil, S.A. and other Group companies in Brazil challenging the increase in the rate of Brazilian Social Contribution tax on net income from 9% to 15% stipulated by Interim Measure 413/2008, ratified by Law 11,727/2008.

• The “Mandados de Segurança” filed by Group companies in Brazil claiming their right to pay the Brazilian Social Contribution tax on net income at a rate of 8%.

• The “Mandados de Segurança” filed by Banco Santander, S.A. and other Group entities claiming their right to pay the Brazilian PIS and COFINS Social Contributions only on the income from the provision of services. In the case of Banco Santander, S.A., the “Mandado de Segurança” was declared unwarranted and an appeal was filed at the Federal Regional Court. On September 13, 2007, the Federal Regional Court found in favor of Banco Santander, S.A. The Brazilian authorities have filed an appeal against this judgment at a higher court. In the case of Banco ABN AMRO Real, S.A., on March 9, 2007 the court found in its favor although the Brazilian authorities have also filed an appeal against this judgment at a higher court. On September 29, 2009 a resolution was issued whereby it partially admitted the appeal.

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• Real Leasing S.A. Arrendamiento Mercantil and Banco ABN AMRO Real S.A. have filed various administrative and legal claims in connection with the deductibility of the provision for doubtful debts for 1995.

• Banco Santander Brasil, S.A. and other Group companies in Brazil are involved in several administrative and legal proceedings against various municipalities that demand payment of the Service Tax on certain items of income from transactions not classified as provisions of services.

• In November 2009 Banco Santander Brasil, S.A. and certain of its subsidiaries availed themselves of the program for the deferral and payment in cash of tax and Social Security debts established in Law 11,941/2009. The main processes included in this program, which were reported in prior years, refer to litigation related to: (i) the right to consider the Social Contribution tax on net income as deductible in the calculation of Brazilian Legal Entities Income Tax, (ii) the right to pay the Brazilian Social Contribution tax on net income at a rate of 8%, and (iii) the deductibility for Income tax purposes of the depreciation and amortization expense in the same period as that in which lease Income is recognized in finance lease companies. The participation in this program entails payment of the disputed amounts and the discontinuance before the end of February 2010 of the related court proceedings.

• A claim was filed against Abbey National Treasury Services plc by tax authorities abroad in relation to the refund of certain tax credits and other associated amounts. The legal advisers of Abbey National Treasury Services plc considered that the grounds to contest this claim were well-founded, proof of which is that a favorable judgment was handed down at first instance in September 2006, although the judgment was appealed against by the tax authorities in January 2007. However, in December 2006 an unfavorable judgment for another taxpayer was handed down on another proceeding which might affect this case.

• Legal action filed by Sovereign Bancorp Inc. claiming entitlement to an international double taxation tax credit in connection with taxes paid outside of the United States in fiscal years 2003 to 2005 in relation to financial transactions carried out with an international bank.

ii. Legal litigation

As of the date hereof, the principal legal litigation proceeding concerning the Group is as follows:

• Misselling: claims associated with the sale by Abbey of certain financial products to its customers.

The provisions recorded by Abbey in this respect were calculated on the basis of the best estimate of the number of claims that will be received, of the percentage of claims that will be upheld and of the related amounts.

• LANETRO, S.A.: claim (Ordinary Lawsuit no. 558/2002) filed by LANETRO, S.A. against Banco Santander, S.A. at Madrid Court of First Instance no. 34, requesting that the Bank comply with the obligation to subscribe to €30.05 million of a capital increase of the complainant.

On December 16, 2003, a judgment was handed down dismissing the plaintiff’s request. The subsequent appeal filed by LANETRO was upheld by a decision of the Madrid Provincial Appellate Court on October 27, 2006. On March 30, 2010, the Spanish Supreme Court dismissed the extraordinary appeal on the grounds of procedural infringements, and partially admitted the appeal in cassation, which were both filed by the Bank against the decision of the Madrid Provincial Appellate Court.

• Ordinary proceedings filed by Galesa de Promociones, S.A., against the Bank, at Elche Court of First Instance no. 5, Alicante (Ordinary Lawsuit no. 1946/2008). The claim sought damages amounting to €51,396,971.43 as a result of a judgment handed down by the Supreme Court on November 24, 2004 setting aside a summary mortgage proceeding filed by the Bank against the complainant company, which concluded in the foreclosure by the Bank of the mortgaged properties and their subsequent sale by the Bank to third-party buyers. The judgment of the Supreme Court ordered the reversal of the court foreclosure proceeding prior to the date on which the auctions were held, a circumstance impossible to comply with due to the sale by the Bank of the properties to the aforementioned third parties, which therefore prevented the reincorporation of the properties into the debtor company’s assets and their re-auction.

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The damages claimed are broken down as follows: (i) €18,428,076.43 relating to the value of the property auctioned; (ii) €32,608,895 relating to the loss of profit on the properties lost by the complainant, which was prevented from continuing its business activity as a property developer; and (iii) €360,000 relating to the loss of rental income.

On October 31, 2008, a summons to respond to and oppose the claim was served on the Bank, which responded to the complainant’s requests on a timely basis and, at the same time, filed a counterclaim against Galesa de Promociones, S.A. for the amount owed to the Bank, basing its calculation on the difference between the value of the properties and the amount of the loan.

Galesa de Promociones, S.A. replied to the counterclaim on January 12, 2009 and the preliminary hearings took place on April 7, 2009 and September 30, 2009.

On March 2, 2010, the Court of First Instance handed down a judgment partially upholding both the claim and the counterclaim, ordering the Bank to pay the claimant an amount of €4,458,960.61, and Galesa Promociones, S.A. to pay the Bank an amount of €1,428,075.70, giving rise to a total loss of €3,030,874.91 for the Bank. Appeals have been prepared by Galesa and the Bank. The Bank filed its appeal on May 31, 2010.

• Declaratory large claims action brought at Madrid Court of First Instance no. 19 (Ordinary Lawsuit no. 87/2001) in connection with a claim filed by Inversión Hogar, S.A. against the Bank. This claim sought the termination of a settlement agreement entered into between the Bank and the complainant on December 11, 1992.

On May 19, 2006, a judgment was handed down at first instance, whereby the agreement was declared to be terminated and the Bank was ordered to pay €1.8 million, plus the related legal interest since February 1997, to return a property that was given in payment under the aforementioned agreement, to pay an additional €72.9 million relating to the replacement value of the assets foreclosed, and subsequently sold, by the Bank, and to pay all the related court costs. The Bank and Inversión Hogar, S.A. filed appeals against the judgment.

On July 30, 2007, the Madrid Provincial Appellate Court handed down a decision upholding in full the appeal filed by the Bank, reversing the judgment issued at first instance and dismissing the appeal filed by Inversión Hogar, S.A. On completion of the clarification procedure, as it had announced previously, Inversión Hogar, S.A. filed a cassation appeal against the aforementioned decision and an extraordinary appeal on the grounds of procedural infringements at the Civil Division of the Supreme Court, which issued an order on December 1, 2009 admitting for consideration the appeals filed by Inversión Hogar, S.A. and its subsidiaries, with a summons to the Bank to present the related notice of opposition to these appeals, which was carried out on January 21, 2010.

• Claim in an ordinary proceeding filed by Inés Arias Domínguez and a further 17 persons against Santander Investment, S.A. at Madrid Court of First Instance no. 13 (Ordinary Lawsuit no. 928/2007), seeking damages of approximately €43 million, plus interest and costs. The complainants, who are former shareholders of Yesocentro, S.A. (Yesos y Prefabricados del Centro, S.A.), allege that Santander Investment, S.A. breached the advisory services agreement entered into on October 19, 1989 between the former Banco Santander de Negocios, S.A. and the complainants, the purpose of which was the sale of shares owned by the complainants to another company called Invercámara, S.A.

This claim was duly contested by Santander Investment, S.A. on November 5, 2007. The preliminary hearing was set for April 28, 2008 although it was subsequently postponed until the application for a resolution on a preliminary civil issue filed by the Bank was resolved.

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In the order issued by Madrid Court of First Instance no. 13 on September 11, 2008, the proceedings were stayed due to a preliminary civil issue. The complainants appealed the decision and the Bank responded to and opposed the complainant’s appeal on December 16, 2008.

In a decision issued by the Madrid Provincial Appellate Court on March 24, 2010 the plaintiffs’ appeal was dismissed, maintaining the stay of proceedings on the basis of the civil preliminary ruling until a ruling is issued in the proceeding filed by other shareholders of Yesocentro (Mr. Siro Díaz Díaz and his wife), filed at the Madrid Court of First Instance nº 47 (Ordinary Lawsuit no. 1051/2004).

• On February 6, 2008, Banco Santander, S.A. filed a request for arbitration with the Secretary of the Spanish Arbitration Court against Gaesco Bolsa, Sociedad de Valores, S.A., in respect of the claim for €66,418,077.27 that the latter owes Banco Santander, S.A. as a result of the early termination of the financial transaction framework agreement entered into with Banco Santander, S.A. and of the financial transactions performed under the agreement. In the same proceedings Gaesco filed a counterclaim against the Bank. On May 12, 2009, an arbitral award was issued upholding all the claims of Banco Santander, S.A. and dismissing the counterclaim filed by Gaesco. Gaesco has filed for the annulment of the arbitral award at the Madrid Provincial Appellate Court.

Additionally, Mobilaria Monesa, S.L. (parent of the former Gaesco) has filed a claim against Banco Santander, S.A. at Santander Court of First Instance no. 5, on the same grounds as previously mentioned, and which were resolved in arbitration, a circumstance that has been brought to the Court’s attention in the notice of opposition thereto prepared by the Bank.

• Former Banco do Estado de São Paulo S.A. — “Banespa” — employees: a claim was filed in 1998 by the association of retired Banespa employees (AFABESP) on behalf of its members, requesting the payment of a half-yearly bonus initially envisaged in the entity’s bylaws in the event that the entity obtained a profit and that the distribution of this profit, in the form of bonus, were approved by the board of directors. The bonus was not paid in 1994 and 1995 since the bank did not make a profit and partial payments were made from 1996 to 2000 in variable percentages as agreed by the board of directors, and the aforementioned clause was eliminated from the bylaws in 2001. After the Regional Labor Court ordered Banco Santander Banespa, S.A. (currently Banco Santander (Brasil), S.A.) to pay the half-yearly bonus in September 2005, the Bank filed an appeal at the High Labor Court which handed down a decision on June 25, 2008, ordering the Bank to pay the half-yearly bonus from 1996 onwards for a maximum amount equivalent to the share in the profits. Appeals against this decision were filed at the High Labor Court and at the Federal Supreme Court, and are currently in process.

• Padrão Comércio e Incorporacão de Imóveis Ltda: Claim for BRL 87 million against Banco Santander Brasil, S.A. for purported wrongful charges made by its predecessor, Banco do Estado de São Paulo, S.A. (Banespa), since the opening of a current account in the city of Recife in 1994 to 1996. In 2006, the Pernambuco Court of Justice handed down a decision at first instance against Banespa for not having submitted all the relevant documentation. Banespa then filed an appeal, dismissed in 2009, in which a new expert’s report was requested and additional documentation was provided which evidenced that at least a portion of the funds under dispute were used by the complainant. Banco Santander Brasil requested clarification of this decision and a decision has yet to be handed down. Subsequently, Banco Santander Brasil intends to appeal to the High Court.

• The bankruptcy of various Lehman Group companies was made public on September 15, 2008. Various customers of Santander Group were affected by this situation since they had invested in securities issued by Lehman or in other products which had such assets as their underlying security.

On November 12, 2008, the Group announced the implementation of a solution (which was of a strictly commercial, exceptional nature and did not imply any admission of misselling) for holders of one of the products sold -Seguro Banif Estructurado- issued by the insurance company Axa Aurora Vida, which had as its underlying security a bond issued and guaranteed by Lehman. The solution involved replacing the Lehman issuer risk with the issuer risk of Grupo Santander subsidiaries. The exchange period ended on December 23, 2008. As a result of the exchange, at 2008 year-end a loss was recognized under “Gains/losses on financial assets and liabilities (net)” in the consolidated income statement for the difference of €46 million (€33 million after tax) between the fair value of the bonds received and the bonds delivered in the exchange.

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In February 2009, the Group offered a similar solution to other customers affected by the Lehman bankruptcy. The cost of this transaction, before tax, was €143 million (€100 million after tax), which were recognized under “Gains/losses on financial assets and liabilities (net)” in the consolidated income statement for 2008.

At the date of this report on Form 20-F, certain lawsuits against the Group have been filed in relation to this matter. The Bank’s directors and its legal advisers consider that the various Lehman products were sold in accordance with the applicable legal regulations in force at the time of each sale or subscription and that the fact that the Group acted as intermediary would not give rise to any liability in relation to the insolvency of Lehman. Accordingly, it has not been necessary to recognize any liability in this connection in the consolidated financial statements for 2009.

• The investigation by the US Securities and Exchange Commission (“SEC”) into the alleged fraud of Bernard L. Madoff Investment Securities LLC (“Madoff Securities”) took place in December 2008. The exposure of customers of the Group through the subfund Optimal Strategic US Equity (Optimal Strategic) was €2,330 million, of which €2,010 million related to institutional investors and international private banking customers, and the remaining €320 million were in the investment portfolios of the Group’s private banking customers in Spain.

On January 27, 2009, the Group announced its decision to offer a solution to those of its private banking customers who had invested in Optimal Strategic and had been affected by the alleged fraud. This solution, which was applied to the principal amount invested, net of redemptions, totaled €1,380 million. It consisted of a replacement of assets whereby the private banking customers could exchange their investments in Optimal Strategic for preference shares (participaciones preferentes) to be issued by the Group for the aforementioned amount of €1,380 million, with an annual coupon of 2% and a call option that can be exercised by the issuer in year ten. At December 31, 2008, the Group determined that these events should be classified as “adjusting events after the reporting period”, as defined in IAS 10.3, since they provided evidence of conditions that existed at the end of the reporting period and, accordingly, in accordance with IAS 37.14, it recognized the pre-tax cost of this transaction for the Group (€500 million or €350 million after tax) under Gains/losses on financial assets and liabilities (net) in the consolidated income statement for 2008.

The Group believes it has at all times exercised due diligence in the management of its customers’ investments in the Optimal Strategic fund. These products have always been sold in a transparent way pursuant to applicable legislation and established Group procedures and, accordingly, the decision to offer a solution was taken in view of the exceptional circumstances attaching to this case and based on solely commercial reasons, due to the interest the Group has in maintaining its business relationship with these customers.

At the date of this report on Form 20-F, certain lawsuits have been filed against the Group in relation to this matter in various different jurisdictions, including a class action lawsuit in the United States. The claims have been initiated by investors with investments with exposure to Madoff Securities, including holders of shares in Optimal Strategic, holders of financial structured products whose value and profitability were linked to the evolution of some Optimal funds (among them, Optimal Strategic) and holders of life insurance products which had as its underlying security a bond whose value and profitability was linked to the evolution of Optimal funds (among them, Optimal Strategic). All these proceedings are ongoing.

On March 18, 2009, the Group issued the preference shares earmarked for the replacement of assets offered to the private banking customers affected by the fraud perpetrated by Madoff Securities and those affected by the Lehman bankruptcy who were not able to participate in the exchange made on December 23, 2008 (referred to above). The preference shares have been listed on the London Stock Exchange since March 23, 2009. The level of acceptance of the exchange proposal is close to 97%.

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On May 26, 2009, two funds managed by Optimal Investment Services, S.A. a subsidiary indirectly owned by Banco Santander, S.A., announced that they had entered into an agreement with Irving H. Picard, the court-appointed Trustee for the liquidation of Madoff Securities. Under the agreement, the Trustee will allow the funds’ claims in the liquidation proceeding and reduce his clawback demands on the funds by the amounts withdrawn by the latter from Madoff Securities, in the 90 days prior to bankruptcy, which American legislation allows him to claim, in exchange for the partial payment of those demands by the funds. The funds are Optimal Strategic U.S. Equity Limited and Optimal Arbitrage Limited. These are the only Optimal funds that had accounts at Madoff Securities.

Pursuant to the agreement, the funds’ claims against Madoff Securities were allowed in their full amounts, calculated on a cash-in, cash-out basis, of $ 1,540,141,277.60 and $ 9,807,768.40, respectively, and the funds were entitled to Securities Investor Protection Corporation advances of $ 500,000 each. The funds have paid 85% of the clawback claims asserted by the Trustee. The payments totaled $ 129,057,094.60 for Optimal Strategic and $ 106,323,953.40 for Arbitrage.

The funds agreed not to file any other claims against Madoff Securities’ estate. The agreement also contains an “equal treatment” provision, so that if the Trustee settled similar clawback claims for less than 85%, the funds would receive a rebate of a portion of their payments to equalize the percentages applied to the funds with respect to other comparable investors.

The agreement followed the Trustee’s investigation of Optimal and its affiliates’ conduct in dealing with Madoff Securities, including a review of Optimal and its affiliates’ documents relating to their due diligence, in which the Trustee concluded that their conduct does not provide grounds to assert any claim against the Optimal companies or any entity of Santander Group (other than the clawback claims described above, which did not arise from any inappropriate conduct by the funds).

The agreement contains releases of all clawback and other claims the Trustee may have against the funds for any matters arising out of the funds’ investments with Madoff Securities. The Trustee’s release applies to all potential claims against other Optimal companies, Santander Group companies and their investors, directors, officers and employees who agree to release the Trustee and the Madoff Securities estate, to the extent the claims arose out of the funds’ dealings with Madoff Securities. It also releases both funds from potential clawback liability for any other withdrawals made by them.

The agreement between the Trustee and the aforementioned Optimal funds was approved by the United States Bankruptcy Court of the Southern District of New York on June 16, 2009.

Madoff Securities is currently in liquidation in accordance with the Securities Investor Protection Act of 1970 in the United States Bankruptcy Court of the Southern District of New York. Bernard L. Madoff, the chief executive of Madoff Securities, has pleaded guilty to perpetrating what was probably the largest pyramid fraud in history and has been sentenced to 150 years imprisonment.

Disposition of previously reported litigation

Following is a description of the developments in 2009 in relation to three claims arising from the absorption of Banco Santander Noroeste S.A. — “Banco Noroeste” by Banco Santander Brasil, S.A.:

• Three claims filed by minority shareholders of Banco Noroeste requesting, in addition to compensation for damage and losses, the annulment of the general shareholders’ meeting that approved the merger between Banco Noroeste and Banco Santander Brasil, S.A., arguing that when the merger took place Banco Noroeste shareholders should have been offered a market value that would have enabled them to decide whether or not to sell their shares at that value.

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In the three cases, judgments were handed down at first instance, one of which found in favor of Banco Santander Brasil, S.A. and the other two against it. In the latter two cases the general shareholders’ meeting was not declared null and void but rather Banco Santander Brasil, S.A. was ordered to pay compensation. Appeals were filed against these judgments by Banco Santander Brasil, S.A.

The São Paulo Court of Justice recently handed down a joint judgment on the three appeals at second instance, finding that Banco Santander Brasil, S.A. should have duly prepared a valuation report using the disposal value method, thereby concluding that the minority shareholders be indemnified.

In the case of the shareholders that sold their shares, the Court indicated that they should receive the difference between the value at which they sold their shares (equity value) and market value (calculated as the disposal value) at that time, plus interest. In the case of the shareholders that did not sell, the Court considered that they should receive the market value at that time plus interest, less the present value of their shares. Unlike the judgments handed down at first instance, lost profits and damages were excluded and the amount of lawyers’ fees was reduced. Banco Santander Brasil plans to file appeals against this judgment at higher courts.

In August 2009, an agreement was reached with the minority shareholders of the former Banco Noroeste by virtue of which Banco Santander (Brasil) S.A. made a payment of BRL 106 million as compensation for damages related to the absorption of Banco Noroeste by Banco Santander (Brasil) S.A. Such compensation included the repurchase from the shareholders of the shares of Banco Santander (Brasil) S.A. that they held and payment of all other expenses. Based on the agreement, the minority shareholders accepted the annulment of all actions against Banco Santander (Brasil) S.A. and agreed not to file any further claims for the same reasons.

Other Litigation

In addition to the matters described above, the Bank and its subsidiaries are from time to time subject to certain claims and parties to certain legal proceedings incidental to the normal course of our business, including in connection with the Group’s lending activities, relationships with the Group’s employees and other commercial or tax matters. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in early stages of discovery, the Bank cannot state with confidence what the eventual outcome of these pending matters will be, what the timing of the ultimate resolution of these matters will be or what the eventual loss, fines or penalties related to each pending matter may be. The Bank believes that it has made adequate reserves related to the costs anticipated to be incurred in connection with these various claims and legal proceedings and believes that liabilities related to such claims and proceedings should not have, in the aggregate, a material adverse effect on the Group’s business, financial condition, or results of operations. However, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by the Bank; as a result, the outcome of a particular matter may be material to the Bank’s operating results for a particular period, depending upon, among other factors, the size of the loss or liability imposed and the level of the Bank’s income for that period.

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Dividend Policy

We have normally paid an annual dividend in quarterly installments. The table below sets forth the historical per share and per ADS (each of which represents the right to receive one of our shares) amounts of interim and total dividends in respect of each fiscal year indicated.

	Euro per Share Interim										Dollars per ADS Interim
	First		Second		Third		Fourth		Total		First		Second		Third		Fourth		Total
2004		0.0830		0.0830		0.0830		0.0842		0.3332		0.08484		0.08971		0.09175		0.09191		0.35821
2005		0.09296		0.09296		0.09296		0.13762		0.4165		0.09591		0.09466		0.09523		0.147016		0.432816
2006		0.106904		0.106904		0.106904		0.199913		0.5206		0.11582		0.11593		0.11400		0.222418		0.568168
2007		0.122940		0.122940		0.122940		0.281961		0.650781		0.137526		0.145308		0.149199		0.355829		0.787862
2008		0.135234		0.135234		0.122940		0.257373		0.650781		0.172148		0.137700		0.126043		0.266604		0.702495
2009		0.135234		0.12		0.12294		0.221826		0.60		0.156275		0.142827		0.136266		0.239545		0.674913

The board of directors has submitted for approval of our shareholders acting at the 2010 annual general meeting the proposal of distribution of profits earned by the Bank during 2009, which amount up to €4,151 million, as follows:

• Distribution of dividends already paid prior to the general shareholders’ meeting (€3,939.9 million) and acquisition of free-of-charge allotment rights, with a waiver of the exercise, of those shareholders who chose to receive cash remuneration, equivalent to the second interim dividend (€182.0 million) under the Santander Scrip Dividend program.

• €29 million to voluntary reserves.

In addition, a further €797 million were allocated to the remuneration of shareholders under the Santander Scrip Dividend program approved by the shareholders at the annual general meeting held on June 19, 2009, whereby the Bank offered shareholders the possibility to opt to receive an amount equivalent to the second interim dividend out of 2009 profit in cash or new shares. The other three interim dividends were paid in cash. For these purposes, the executive committee of Banco Santander, at its meeting held on October 13, 2009, resolved to carry out a capital increase with a charge to voluntary reserves as approved by the shareholders at the annual general meeting of June 19, 2009.

For a discussion of regulatory and legal restrictions on our payments of dividends, see “Item 4. Information on the Company—B. Business Overview—Supervision and Regulation—Restrictions on Dividends”.

For a discussion of Spanish taxation of dividends, see “Item 10. Additional Information—E. Taxation—Spanish tax considerations—Taxation of dividends”.

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The dividends paid on the guaranteed non-cumulative preference stock of certain of our subsidiaries are limited by our Distributable Profits in the fiscal year preceding a dividend payment. “Distributable Profits” with respect to any year means our reported net profits after tax and extraordinary items for such year as derived from the Parent Bank’s non-consolidated audited profit and loss account prepared in accordance with Bank of Spain requirements and guidelines in effect at the time of such preparation. Such requirements and guidelines may be expected to reflect the Bank of Spain regulatory policies applicable to us, including without limitation those relating to the maintenance of minimum levels of capital. See “Item 4. Information on the Company—B. Business Overview—Supervision and Regulation—Capital Adequacy Requirements” and “—Restrictions on Dividends”. According to our interpretation of the relevant Bank of Spain requirements and guidelines, Distributable Profits during the preceding five years were:

Year Ended December 31,
IFRS-IASB
2005	2006	2007	2008	2009
(in thousands of euros)
2,605,009	3,256,190	4,070,247	4,826,218	4,150,813

The portion of our net income attributable to our subsidiaries has increased steadily in recent years as our subsidiaries have grown and we have acquired new subsidiaries. Such profits are available to us only in the form of dividends from our subsidiaries and we are dependent to a certain extent upon such dividends in order to have Distributable Profits sufficient to allow payment of dividends on our guaranteed preferred stock of our subsidiaries as well as dividends on our shares (although the payment of dividends on the shares is limited in the event of the non-payment of preference share dividends). We generally control a sufficient proportion of our consolidated subsidiaries’ voting capital to enable us to require such subsidiaries to pay dividends to the extent permitted under the applicable law. As a result of our growth, the Bank, as the holding entity of the shares of our various companies, has added investments in our subsidiaries, the financial costs of which are borne by us.

B. Significant Changes

For significant changes that have occurred since December 31, 2009, see our Form 6-K relating to our first quarter 2010 results filed with the Securities and Exchange Commission on May 3, 2010.

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Item 9. The Offer and Listing

A. Offer and listing details

Market Price and Volume Information

Santander’s Shares

During 2009, our shares were the shares with the highest trading volume on the Spanish stock exchanges. At December 31, 2009, our shares represented 22.30% of the IBEX 35 Stock Exchange Index, the highest percentage among all Spanish issuers represented in this index. Our market capitalization of €95,043 million at 2009 year-end was the largest of any Spanish company, according to information published by the Sociedad de Bolsas, S.A. (“Sociedad de Bolsas”).

At December 31, 2009, we had 3,062,633 registered holders of our shares and, as of such date, a total of 1,214,210,311 of our shares or 14.76% were held by 1,045 registered holders with registered addresses in the United States and Puerto Rico, including JP Morgan Chase, as depositary of our American Depositary Share program.

Our shares are traded on Spain’s automated “continuous market”, the national, centralized market which integrates by computer quotations originating in the four Spanish stock exchanges (Madrid, Barcelona, Valencia and Bilbao) (the “Automated Quotation Systems”). Our shares are also listed on the New York (in the form of American Depositary Shares), London, Milan, Lisbon, Buenos Aires and Mexico Stock Exchanges. At December 31, 2009, 67.62% of our shares were held of record by non-residents of Spain.

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The table below sets forth the high, low and last daily sales prices in euros for our shares on the continuous market for the periods indicated.

	Euros per Share
	High		Low		Last
2005 Annual		11.18		8.92		11.15
2006 Annual		14.37		10.54		14.14
2007 Annual		15.00		12.56		14.79
2008 Annual		14.59		5.11		6.75
First Quarter		14.59		11.17		12.62
Second Quarter		14.22		11.67		11.67
Third Quarter		12.48		9.95		10.50
Fourth Quarter		11.69		5.11		6.75
2009 Annual		11.96		4.00		11.55
First Quarter		7.24		4.00		5.19
Second Quarter		8.60		5.39		8.56
Third Quarter		11.22		8.12		11.00
Fourth Quarter		11.96		10.42		11.55
Last six months
2009
December		11.96		11.17		11.55
2010
January		11.98		10.03		10.30
February		10.62		9.24		9.55
March		10.48		9.66		9.84
April		10.79		9.10		9.55
May		9.50		7.71		8.33
June (through June 4, 2010)		8.20		7.55		7.55

On June 4, 2010, the reported last sale price of our shares on the continuous market was €7.55.

American Depositary Shares (ADSs)

Our ADSs have been listed and traded on the New York Stock Exchange since July 30, 1987. Each ADS represents one of our shares and is evidenced by an American Depositary Receipt, or ADR. The deposit agreement, pursuant to which ADRs have been issued, is among us, JP Morgan Chase, as depositary, and the holders from time to time of ADRs. At December 31, 2009, a total of 242,347,903 of our ADSs were held by 20,712 registered holders. Since certain of such of our shares and our ADSs are held by nominees, the number of record holders may not be representative of the number of beneficial owners.

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The table below sets forth the reported high, low and last sale prices for our ADSs on the New York Stock Exchange for the periods indicated.

	Dollars Per ADS
	High		Low		Last
2005 Annual		13.27		11.37		13.19
2006 Annual		18.73		13.16		18.66
2007 Annual		22.14		17.29		21.54
2008 Annual		22.24		6.06		9.49
First Quarter		21.35		16.52		19.94
Second Quarter		22.24		18.19		18.19
Third Quarter		19.25		13.91		15.02
Fourth Quarter		16.44		6.06		9.49
2009 Annual		17.83		4.90		16.44
First Quarter		9.86		4.90		6.90
Second Quarter		12.17		7.15		12.10
Third Quarter		16.50		11.34		16.15
Fourth Quarter		17.83		15.22		16.44
Last six months
2009
December		17.70		16.05		16.44
2010
January		17.50		14.02		14.08
February		14.96		12.65		13.04
March		14.30		12.99		13.27
April		14.77		11.99		12.34
May		12.22		9.83		10.15
June (through June 4, 2010)		10.03		8.92		8.92

On June 4, 2010, the reported last sale price of our ADSs on the New York Stock Exchange was $8.92.

B. Plan of distribution

Not Applicable.

C. Markets

General

Spanish Securities Market

The Spanish securities market for equity securities (the “Spanish Stock Exchanges”) consists of four stock exchanges located in Madrid, Barcelona, Bilbao and Valencia (the “local exchanges”). The majority of the transactions conducted on them are done through the Automated Quotation System (Sistema Interbancario Bursátil Español or “S.I.B.E.”). During the year ended December 31, 2009, the Automated Quotation System accounted for the majority of the total trading volume of equity securities on the Spanish Stock Exchanges.

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Automated Quotation System

The Automated Quotation System was introduced in 1989 and links the four local exchanges, providing those securities listed on it with a uniform continuous market that eliminates most of the differences among the local exchanges. The principal feature of the system is the computerized matching of buy and sell orders at the time of entry of the order. Each order is executed as soon as a matching order is entered, but can be modified or canceled until executed. The activity of the market can be continuously monitored by investors and brokers. The Automated Quotation System is operated and regulated by the Sociedad de Bolsas, a corporation owned by the companies that manage the local exchanges. All trades on the Automated Quotation System must be placed through a bank, brokerage firm, an official stock broker or a dealer firm member of a Spanish stock exchange directly.

There is a pre-opening session held from 8:30 a.m. to 9:00 a.m. each trading day on which orders are placed at that time. The computerized trading hours are from 9:00 a.m. to 5:30 p.m. Each session will end with a 5 minute auction, between 5:30 and 5:35 p.m., with a random closedown of 30 seconds. The price resulting from each auction will be the closing price of the session.

From May 14, 2001, new rules came into effect regarding the maximum price fluctuations in the price of stocks. Under the new rules, each stock in the continuous market is assigned a static and a dynamic range within which the price of stocks can fluctuate. The price of a stock may rise or fall by its static range (which is published once a month and is calculated according to the stock’s average historic price volatility) above or below its opening price (which shall be the closing price of the previous session). When the stock trades outside of this range, the trading of the stock is suspended for 5 minutes, during which an auction takes place. After this auction, the price of the stock can once again rise or fall by its static range above or below its last auction price (which will be considered as the new static price before triggering another auction). Furthermore, the price of a stock cannot rise or fall by more than its dynamic price range (which is fixed and published once a month and is calculated according to the stock’s average intra-day volatility), from the last price at which it has traded. If the price variation exceeds the stock’s dynamic range a five minute auction is triggered.

Moreover, there is a block market (el mercado de bloques) allowing for block trades between buyers and sellers from 9:00 a.m. to 5:30 p.m. during the trading session. Under certain conditions, this market allows cross-transactions of trades at prices different from prevailing market prices. Trading in the block market is subject to certain limits with regard to price deviations and volumes.

Between 5:30 p.m. and 8:00 p.m., trades may occur outside the computerized matching system without prior authorization of the Sociedad de Bolsas, at a price within the range of 5% above the higher of the average price and closing price for the day and 5% below the lower of the average price and closing price for the day, if there are no outstanding bids or offers, as the case may be, on the system matching or bettering the terms of the proposed off-system transaction, and if the trade involves more than €300,000 and more than 20% of the average daily trading volume of the stock during the preceding quarter. At any time before 8:00 p.m., trades may take place (with the prior authorization of the Sociedad de Bolsas) at any price if:

• the trade involves more than €1.5 million and more than 40% of average daily trading volume of the stock during the preceding quarter;

• relates to a merger or spin-off of a listed company;

• relates to the reorganization of a business group;

• the transaction is executed for the purposes of settling litigation;

• involves certain types of contracts or complex transactions; or

• the Sociedad de Bolsas finds other justifiable cause.

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Information with respect to computerized trades between 9:00 a.m. and 5:30 p.m. is made public immediately, and information with respect to trades outside the computerized matching system is reported to the Sociedad de Bolsas and published in the Boletín de Cotización and in the computer system by the next trading day.

Clearance and Settlement System

Until April 1, 2003, transactions carried out on the regional Spanish stock exchanges and the continuous market were cleared and settled through the Servicio de Compensación y Liquidación de Valores, S.A. (the “SCL”). Since April 1, 2003, the settlement and clearance of all trades on the Spanish stock exchanges, the Public Debt Market (Mercado de Deuda Pública), the AIAF Fixed Income Market (Mercado AIAF de Renta Fija) and Latibex — the Latin American stock exchange denominated in euros, are made through the Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A. (“Iberclear”), which was formed as a result of a merger between SCL and Central de Anotaciones del Mercado de Deuda Pública (CADE), which was managed by the Bank of Spain.

Book-Entry System

Ownership of shares listed on any Spanish stock exchange is required to be represented by entries in a register maintained by Iberclear, and transfers or changes in ownership are effected by entries in such register. The securities register system is structured in two levels: the central registry managed by Iberclear which keeps the securities balances of the participants, and a detailed registry managed by the participants where securities are listed by holder’s name.

Securities Market Legislation

The Spanish Securities Markets Act, which came into effect in 1989, among other things:

• established an independent regulatory authority, the CNMV, to supervise the securities markets;

• established a framework for the regulation of trading practices, tender offers and insider trading;

• required stock exchange members to be corporate entities;

• required companies listed on a Spanish stock exchange to file annual audited financial statements and to make public quarterly financial information;

• established a framework for integrating quotations on the four Spanish stock exchanges by computer;

• exempted the sale of securities from transfer and value added taxes;

• deregulated brokerage commissions as of 1992; and

• provided for transfer of shares by book-entry or by delivery of evidence of title.

The Securities Markets Act was amended by Law 37/1998, which implemented two European Union directives into Spanish law. The first is Directive 93/22/CE, relating to investment services within securities, later amended by Directive 95/26/CE of the European Parliament and Council. The second is Directive 97/9/CE of the European Parliament and Council, relating to indemnity systems.

Law 37/1998 introduced some innovations to the Securities Markets Act. The first was the recognition that both Spanish and other European Union Member State companies authorized to provide investment services have full access to the official secondary markets, with full capacity to operate, thereby enabling the direct admission of banking entities into the stock exchange area. The second innovation was that the scope of the Securities Markets Act was enlarged to include a list of financial instruments, such as financial exchange contracts, or installment financial contracts, which expanded the categories of securities included.

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The Securities Markets Act has been further amended by Law 44/2002 (November 22, 2002) on reform measures of the financial system, which introduced certain modifications to the laws governing financial markets and corporations, generally, including:

• provisions regarding market transparency such as: requiring listed companies to establish an audit committee, redefining the reporting requirements for relevant events, rules relating to the treatment of confidential and insider information and related party transactions, and prevention of manipulative and fraudulent practices with respect to market prices;

• the establishment of Iberclear; and

• the authorization of the Minister of Economy and Finance to regulate financial services electronic contracts.

On July 17, 2003, the Securities Market law was amended by Law 26/2003 in order to reinforce the transparency of listed companies. It introduced:

• information and transparency obligations including detailed requirements of the contents of the corporate website of listed companies and the obligation to file with the CNMV an annual corporate governance report; and

• the obligation to implement a series of corporate governance rules including, among others, regulations regarding the boards of directors and the general shareholders’ meeting.

On March 11, 2005, Royal Decree Law 5/2005 was approved, modifying the Securities Market Law in order to implement the Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading. The Directive: (i) harmonizes the requirements for the process of approval of prospectuses, which enables a prospectus to be valid throughout the European Union; and (ii) incorporates the application of the country of origin principle.

On April 22, 2005, the Securities Market Law was amended by Law 5/2005 on supervision of financial conglomerates in order to make the sectoral rules applicable to investment firms more consistent with other sectoral rules applicable to other groups with similar financial activities, such as credit institutions and insurance undertakings.

On November 14, 2005, the Securities Market Law was further amended by Law 19/2005, which refers to the European public limited-liability companies with registered offices in Spain and, on November 24, 2005, by Law 25/2005, of November 24, 2005, which regulates the capital risk entities.

Royal Decree 1310/2005 (November 4) partially developed the Securities Market Law 24/1988, in relation to the admission to trading of securities in the official secondary markets, the sale or subscription public offers and the prospectus required to those effects.

Royal Decree 1333/2005 (November 11), which developed the Securities Market Law 24/1988, in relation to market abuse.

Law 12/2006 (May 16) amended the Securities Market Law by (i) introducing a new article relating to notifications to the CNMV of transactions that might constitute insider dealing or market manipulation, (ii) completing the regulation of Bolsas y Mercados Españoles, and (iii) clarifying the regulation of significant participations on the entities which manage the clearing and settlement of securities and the Spanish secondary markets.

Law 36/2006 (November 30), relating to measures to prevent the tax fraud, among others, amends article 108 of the Securities Market Law.

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Law 6/2007 (April 12) amends the Securities Market Law, in order to modify the rules for takeover bids and for issuers transparency. This Law came into effect on August 13, 2007, and partially integrates into the Spanish legal system Directive 2004/25/EC of the European Parliament and of the Council of April 21, 2004 on takeover bids and Directive 2004/109/EC of the European Parliament and of the Council of December 15, 2004 on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC. This Law has been further developed by Royal Decree 1066/2007 (July 27) on rules applicable to takeover bids for securities and by Royal Decree 1362/2007 (October 19) on transparency requirements for issuers of listed securities. For a brief description of the provisions of Law 6/2007 as regards the rules applicable to takeover bids see “Item 10. Additional Information—B. Memorandum and Articles of Association—Tender Offers”.

Law 6/2007 (i) introduces several changes to the periodical financial information, annual, biannual and quarterly, to be published by issuers of listed securities; and (ii) introduces new developments to the system which establishes the duty to notify significant stakes in an enterprise, such as:

• Anyone with a right to acquire, transfer or exercise voting rights granted by the shares, regardless of the actual ownership of the shares; and anyone owing, acquiring or transferring other securities or financial instruments which grant a right to acquire shares with voting rights, will also have to notify the holding of a significant stake in accordance with the developing regulations;

• Directors of listed companies, in addition to notifying any transaction concerning the shares or other securities or financial instruments of the issuer which are linked to these shares, will have to inform the CNMV of their stake upon appointment or resignation;

• Listed companies will be required to notify transactions concerning their treasury shares in certain cases, which will be established in the developing regulations.

Law 47/2007 (December 19) amends the Securities Market Law in order to adapt it to Directive 2004/39/EC on markets in financial instruments (MiFID), Directive 2006/73/EC implementing Directive 2004/39/EC with respect to the organizational requirements and operating conditions for investment firms and defining terms for the purpose of that Directive, and Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions. The amendments introduced by Law 47/2007 represent important reforms of the Securities Market Law and serve to (i) increase the number of investment services that can be performed by the entities; (ii) reinforce the measures for the protection of investors; (iii) establish new organizational procedures for investment firms; and (iv) reinforce the supervisory powers of the CNMV, establishing cooperation mechanisms among supervisory authorities. Directive 2006/49/EC and MiFID implementation have been introduced by Royal Decrees 216/2008 and 217/2008 (both of February 15), respectively.

Trading by Santander’s Subsidiaries in the Shares

Some of our subsidiaries, in accordance with customary practice in Spain, and as permitted under Spanish law, have regularly purchased and sold our shares both for their own account and for the accounts of customers. Our subsidiaries have intervened in the market for our shares primarily in connection with customer transactions and, occasionally, in connection with transactions by non-customers that are undertaken for commercial purposes or to supply liquidity to the market when it is reasonable to do so. Such trading activity also has provided a mechanism for accumulating shares that were used to meet conversions into our shares, of bonds issued by us and other affiliated companies and to make offerings of shares. We expect that our subsidiaries may continue to purchase and sell our shares from time to time.

Our trading activities in our shares are limited to those set forth above. No affiliated company acts as a “market maker” as that term is understood in the United States securities markets. The continuous market is driven by orders, which are matched by the market’s computer system according to price and time entered. Santander and Banesto’s broker subsidiaries, Santander Investment Bolsa, S.V., S.A., and Banesto Bolsa, S.A., S.V.B., and the other brokers authorized to trade on the continuous market (“Member Firms”) are not required to and do not serve as market makers maintaining independently established bid and ask prices. Rather, Member Firms place orders for their customers, or for their own account, into the market’s computer system. If an adequate counterparty order is not available on the continuous market at that time, the Member Firm may solicit counterparty orders from among its own clients and/or may accommodate the client by filling the client’s order as principal.

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Under the Companies Law of Spain, a company and its subsidiaries are prohibited from purchasing shares of the company in the primary market. However, purchase of the shares is permitted in the secondary market provided that: (1) the aggregate nominal value of such purchases (referred to as “treasury stock” or “autocartera”) and of the shares previously held by the company and its subsidiaries does not exceed 10% of the total outstanding capital stock of the company, (2) the purchases are authorized at a meeting of the shareholders of the acquiring company and, if the acquisition relates to shares in the parent company, the acquiring company’s parent, and (3) such purchases, together with the shares previously held by the company and its subsidiaries, do not result in a net equity less than the company’s stock and its legal or by-laws undisposable reserves.

The law requires that the CNMV be notified each time the acquisition of treasury stock made since the last notification reaches 1% of the voting rights of the company, regardless of any other preceding sales. The Companies Law establishes, in relation to the treasury stock shares (held by us and our affiliates), that the exercise of the right to vote and other non-financial rights attached to them shall be suspended. Financial rights arising from treasury stock held directly by us, with the exception of the right to allotment of new bonus shares, shall be attributed proportionately to the rest of the shares.

The portion of trading volume in the shares represented by purchases by our subsidiaries has varied widely from day to day and from month to month and may be expected to do so in the future. In 2009, 9.8% of the volume traded of the shares was effected not as principal by Santander Investment Bolsa, S.V., S.A. and 2.72% was effected not as principal by Banesto Bolsa, S.A., S.V.B. The portion of trading volume in shares allocable to purchases and sales as principal by our companies was approximately 9.2% in the same period. The monthly average percentage of outstanding shares held by our subsidiaries ranged from 0.413% to 2.820% in 2009. At December 31, 2009, the Parent Bank and our subsidiaries held 2,584,249 of our shares (0.031% of our total capital stock as of that date).

D. Selling shareholders

Not Applicable.

E. Dilution

Not Applicable.

F. Expense of the issue

Not Applicable.

Item 10. Additional Information

A. Share capital

Not Applicable.

B. Memorandum and articles of association

The following summary of the material terms of our By-laws is not meant to be complete and is qualified in its entirety by reference to our By-laws. Because this is a summary, it does not contain all the information that may be important to you. You should read our By-laws carefully before you decide to invest. Copies of our By-laws are incorporated by reference.

The current By-laws for Banco Santander, S.A., except for subsections 1 and 2 of Article 5 regarding the Bank’s share capital, were approved by our shareholders acting at the general shareholders’ meeting held on June 21, 2008.

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Subsections 1 and 2 of Article 5 of the By-Laws show the current figure of the Bank’s share capital and the number of shares which was most recently amended by the share capital increase carried out on November 2, 2009 and filed with the office of the Mercantile Registry on the same day.

The current By-laws are included in Exhibit 1.1. The By-laws are also available on the Group’s website, which does not form part of this annual report on Form 20-F, at www.santander.com under the heading “Information for shareholders and investors — General information — By-laws”.

In connection with the amendment of our By-laws, the board of directors, at its meeting held on March 23, 2009, resolved to approve new Rules and Regulations of the Board in order to bring some aspects of its internal regulations into line with the By-laws approved by the shareholders at the general shareholders’ meeting held on June 21, 2008.

At its meeting held on April 21, 2009, the audit and compliance committee and the appointments and remuneration committee reported favorably on a proposed amendment of the Rules and Regulations of the Board, which is intended to reserve within the scope of powers of the appointments and remuneration committee and of the board, the responsibility to propose and decide, respectively, upon the remuneration of those managers who not belonging to senior management receive significant remuneration, especially variable remuneration, and whose activities might have a significant impact on the assumption of risks by the Group, as well as to include among the items comprising the report on remuneration policy those relating to the weight of variable deferred remuneration compared to total variable remuneration for executive directors. This amendment was approved by the board at its meeting held on April 26, 2010.

All references to the Rules and Regulations of the Board in this annual report on Form 20-F are references to the new text.

The Rules and Regulations of the Board are available on the Group’s website, which does not form part of this annual report on Form 20-F, at www.santander.com under the heading “Information for shareholders and investors—Corporate governance—Board of directors—Rules and Regulations of the Board of Directors”.

General

As of December 31, 2009, the Bank’s share capital was €4,114,413,067.50, represented by a single class of 8,228,826,135 book-entry Santander shares with a nominal value of €0.50 each.

All of our shares are fully paid and non-assessable. Spanish law requires that bank-listed equity securities be issued in book-entry form only.

Register

Santander is registered with the Commercial Registry of Santander (Finance Section). The Bank is also recorded in the Special Registry of Banks and Bankers with registration number 0049, and its fiscal identification number is A-39000013.

Corporate Object and Purpose

Article 2 of our By-laws states that the corporate objective and purpose of Santander consists of carrying-out all types of activities, operations and services specific to the banking business in general and which are permitted under current legislation and the acquisition, holding and disposal of all types of securities.

Certain Provisions Regarding Shareholder Rights

As of the date of the filing of this report, Santander’s capital is comprised of only one class of shares, all of which are ordinary shares and have the same rights. Santander may issue non-voting shares for a nominal amount of not more than one-half of the paid-up share capital, and redeemable shares for a nominal amount of not more than one-fourth of its share capital.

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Our By-laws do not contain any provisions relating to sinking funds.

Our By-laws do not specify what actions or quorums are required to change the rights of holders of our stock. Under Spanish law, the rights of holders of stock may only be changed by an amendment to the By-laws of the company that complies with the requirements explained below under “—Meetings and Voting Rights.”

Meetings and Voting Rights

We hold our annual general shareholders’ meeting during the first six months of each fiscal year on a date fixed by the board of directors. Extraordinary meetings may be called from time to time by the board of directors whenever the board considers it advisable for corporate interests, and whenever so requested by shareholders representing at least 5% of the outstanding share capital of Santander. Notices of all meetings are published, at least one month prior to the date set for the meeting, in the Official Gazette of the Mercantile Register and in one of the local newspapers having the largest circulation in the province where the registered office of Santander is located. In addition, under Spanish law, the agenda of the meeting must be sent to the CNMV and the Spanish Stock Exchanges and published on the company’s website. Our last ordinary general meeting of shareholders was held on June 19, 2009 and our last extraordinary general meeting of shareholders was held on January 26, 2009. The 2010 annual general meeting will be held on June 11, 2010.

Each Santander share entitles the holder to one vote. Registered holders of any number of shares who are current in the payment of capital calls will be entitled to attend shareholders’ meetings. Our By-laws do not contain provisions regarding cumulative voting.

Any Santander share may be voted by proxy. Subject to the limitations imposed by Spanish law, proxies may be given to any individual or legal person, must be in writing or by remote means of communication and are valid only for a single meeting except where the representative is the spouse or an ascendant or descendant of the shareholder giving the proxy, or where the proxy-holder holds a general power of attorney executed as a public instrument with powers to manage the assets of the represented party in the Spanish territory. According to Spanish law, if a director or another person solicits a proxy for a director thus obtaining more than three proxies and the director is subject to a conflict of interest, the director holding the proxies may not exercise the voting rights attaching to the represented shares in connection with decisions relating to:

• his appointment or ratification, removal, dismissal or withdrawal as director;

• the institution of a derivative action against him; or

• the approval or ratification of transactions between Santander and the director in question, companies controlled or represented by him, or persons acting for his account.

In accordance with the Rules and Regulations for the General Shareholders’ Meeting and in the manner established by such Rules and Regulations, the Group’s website includes from the date when the call of the general shareholders’ meeting is published, the text of all resolutions proposed by the board of directors with respect to the agenda items and the details regarding the manner and procedures for shareholders to follow to confer representation on any individual or legal entity. The manner and procedures for electronic delegation and voting via the Internet are also indicated.

At both general shareholders’ meetings held in 2004 (the annual shareholders’ meeting of June 19, 2004 and the extraordinary general meeting of October 21, 2004) our shareholders could exercise their voting and representation rights prior to the meetings by electronic means (via the Internet). In addition, at the extraordinary general shareholders’ meeting of October 21, 2004, our shareholders could vote by mail and in the annual shareholders’ meetings held on June 18, 2005, June 17, 2006, June 23, 2007, June 21, 2008 and June 19, 2009, and in the extraordinary general shareholders’ meeting of October 23, 2006, July 27, 2007 and January 26, 2009 our shareholders, besides exercising their voting and representation rights prior to the meeting by mail or via the Internet, were able to attend (besides attending and voting in person) via the Internet and were also able to vote in real time on the Internet on the resolutions considered at the meeting.

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Only registered holders of Santander shares of record at least five days prior to the day on which a meeting is scheduled to be held may attend and vote at shareholders’ meetings. As a registered shareholder, the depositary will be entitled to vote the Santander shares underlying the Santander ADSs. The deposit agreement requires the depositary to accept voting instructions from holders of Santander ADSs and to execute such instructions to the extent permitted by law.

In general, resolutions passed by a general meeting are binding upon all shareholders. In certain circumstances, Spanish law gives dissenting or absent shareholders the right to have their Santander shares redeemed by us at prices determined in accordance with established formulae or criteria. Santander shares held by the Bank or its affiliates are counted for purposes of determining quorums but may not be voted by the Bank or by its affiliates.

Resolutions at general meetings are passed provided that, regarding the voting capital present or represented at the meeting, the number of votes in favor is higher than the number of votes against or blank and abstentions.

In accordance with Spanish law, a quorum on first call for a duly constituted ordinary or extraordinary general meeting of shareholders requires the presence in person or by proxy of shareholders representing 25% of our subscribed voting capital. On second call there is no quorum requirement. Notwithstanding the above, a quorum of 50% of our subscribed voting capital is required on the first call to approve any of the following actions:

• issuance of bonds;

• increase or reduction of share capital;

• rescission or limitation of the preferential right to subscribe new issuance of shares;

• change of the registered address of Santander to a foreign country;

• transformation of Santander (change in corporate nature) or merger, novation, split or spin-off; and

• any other amendment of our By-laws.

A quorum of 25% of the subscribed voting capital is required to vote on such actions on the second call. A two-third majority of the present or represented voting capital is required to approve all of the above listed actions when the shareholders’ meeting is held on second call and less than 50% of the subscribed voting capital is present.

For purposes of determining the quorum, those shareholders who vote by mail or through the Internet are counted as being present at the meeting, as provided by the Rules and Regulations of the Bank’s general shareholders’ meetings.

Changes in Capital

Any increase or reduction in share capital must be approved at the general meeting in accordance with the procedures explained above in the section entitled “Meetings and Voting Rights”. However, the shareholders acting at the general shareholders’ meeting may delegate to the board of directors the power to increase share capital.

The capital increase may be effected by issuing new shares or by increasing the par value of existing shares. Capital reduction may be effected by reducing the par value of existing shares, by repurchasing them, or dividing them into groups for exchange.

Unpaid subscription amounts on partially paid-up shares must be paid by the shareholders at the time determined by the board of directors, within five years of the date of the resolution providing for the capital increase.

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At the Bank’s annual meeting of shareholders held on June 19, 2009, the shareholders passed resolutions which, among other things, grant the Bank the authority to increase the Bank’s capital by up to €2,038,901,430.5 and also permits the Bank to issue bonds convertible or exchangeable into the Bank’s common stock in an amount up to €7 billion aggregate principal amount.

Dividends

We normally pay an annual dividend in advance in quarterly installments in August and November of the current year and February and generally in May, of the following year. We and our domestic banking subsidiaries are subject to certain restrictions on dividend payments, as prescribed by the Ministry of Economy and Finance and the Bank of Spain. See “Item 4. Information on the Company—B. Business Overview—Supervision and Regulation—Restrictions on Dividends”.

Once the annual accounts have been approved, the shareholders at the general shareholders’ meeting will resolve on the allocation of the results for the fiscal year. Dividends may only be distributed out of the earnings for the fiscal year or with a charge to unappropriated reserves, after the payments required by the law and the By-laws have been made, provided that the stockholders’ equity disclosed in the accounts is not reduced, to less than the share capital as a result of the distribution. If there are any losses from prior fiscal years that reduce the Bank’s stockholders’ equity below the amount of the share capital, the earnings must be used to offset such losses.

The amount, time and form of payment of the dividends, to be distributed among the shareholders in proportion to their paid-in capital will be established by resolutions adopted at the general meeting. The shareholders at the general shareholders’ meeting and the board of directors may make resolutions as to the distribution of interim dividends, subject to limitations and in compliance with the requirements established by the law.

A shareholder’s dividend entitlement lapses five (5) years after the dividend payment date.

The shareholders at the general shareholders’ meeting may resolve that dividends in kind can be paid, provided that:

• the property or securities to be distributed are of the same nature;

• the property or securities have been admitted to listing on an official market as of the effective date of the resolution, or liquidity is guaranteed by Santander within a maximum period of one year; and

• the property or securities are not distributed for a value that is lower than the value at which they are recorded on Santander’s balance sheet.

Preemptive Rights

In the event of a capital increase each shareholder has a preferential right by operation of law to subscribe for shares in proportion to its shareholding in each new issue of Santander shares. The same right is vested on shareholders upon the issuance of convertible debt. Holders of convertible debt also have preemptive rights. However, preemptive rights of shareholders and holders of convertible debt may be excluded under certain circumstances by specific approval at the shareholders’ meeting (or upon its delegation by the board of directors) and preemptive rights are deemed excluded by operation of law in the relevant capital increase when the shareholders approve:

• capital increases following conversion of convertible bonds into Santander shares;

• capital increases due to the absorption of another company or of part of the spun-off assets of another company, when the new shares are issued in exchange for the new assets received; or

• capital increases due to Santander’s tender offer for securities using Santander’s shares as all or part of the consideration.

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If capital is increased by the issuance of new shares in return for capital from certain reserves, the resulting new Santander shares will be distributed pro rata to existing shareholders.

Redemption

Our By-laws do not contain any provisions relating to redemption of shares except as set forth in connection with capital reductions. Nevertheless, pursuant to Spanish law, redemption rights may be created at a duly held general shareholders’ meeting. Such meeting will establish the specific terms of any redemption rights created.

Registration and Transfers

The Santander shares are in book-entry form in the Iberclear system. We maintain a registry of shareholders. We do not recognize, at any given time, more than one person as the person entitled to vote each share in the shareholders meeting.

Under Spanish law and regulations, transfers of shares quoted on a stock exchange are normally made through a Sociedad o Agencia de Valores, credit entities and investment services companies, that are members of the Spanish stock exchange.

Transfers executed through stock exchange systems are implemented pursuant to the stock exchange clearing and settlement procedures of Iberclear. Transfers executed “over the counter” are implemented pursuant to the general legal regime for book entry transfer, including registration by Iberclear.

New shares may not be transferred until the capital increase is registered with the Commercial Registry.

Liquidation Rights

Upon a liquidation of Santander, our shareholders would be entitled to receive pro-rata any assets remaining after the payment of our debts, taxes and expenses of the liquidation. Holders of non-voting shares, if any, are entitled to receive reimbursement of the amount paid before any amount is distributed to the holders of voting shares.

Change of Control

Our By-laws do not contain any provisions that would have an effect of delaying, deferring or preventing a change in control of the company and that would operate only with respect to a merger, acquisition or corporate restructuring involving Santander or any of our subsidiaries. Nonetheless, certain aspects of Spanish law described in the following section may delay, defer or prevent a change of control of the Bank or any of our subsidiaries in the event of a merger, acquisition or corporate restructuring.

Legal Restrictions on Acquisitions of Shares in Spanish Banks

Certain provisions of Spanish law require notice to the Bank of Spain prior to the acquisition by any individual or corporation of a substantial number of shares of a Spanish bank.

Any individual or corporation that wishes to acquire, directly or indirectly, a significant holding (participación significativa) in a Spanish bank must give advance notice to the Bank of Spain describing the size of such participation, its terms and conditions, and the anticipated closing date of the acquisition. “Significant participation” is defined as 5% of the outstanding share capital or voting rights of the bank or any lesser participation that gives the acquirer effective influence or control over the target bank.

In addition, prior notice must be given to the Bank of Spain of any increase, direct or indirect, in any significant holding resulting in percentage equity interest or voting rights reaching or surpassing one of the following percentages: 20%, 30% or 50%. Notice to the Bank of Spain is also required from anyone who, as a result of the contemplated acquisition, may attain sufficient power to control the credit entity.

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Any acquisition mentioned in the preceding sentence to which the required notice was not given or even if given, a three month period after receipt of notice has not yet elapsed, or that is opposed by the Bank of Spain will have the following effects: (1) the acquired shares will have no voting rights, (2) the Bank of Spain may seize control of the bank or replace its board of directors, and (3) a fine may be levied on the acquirer.

The Bank of Spain has sixty business days after the receipt of notice to object to a proposed transaction. Such objection may be based on finding the acquirer unsuitable on the basis, inter alia, of its commercial or professional reputation, its solvency or the transparency of its corporate structure. If sixty business days elapse without any word from the Bank of Spain, its authorization is deemed granted. However, absent objection by the Bank of Spain, it may set forth a different maximum period for closing the proposed transaction.

Any individual or institution that plans to sell its significant holding, or reduce it to one of the above-mentioned levels of ownership, or because of any sale will lose control of the entity, must provide advance notice to the Bank of Spain indicating the amount of the transaction and its anticipated closing date. Failure to comply with these requirements may subject the offending party to penalties.

Credit entities must notify the Bank of Spain as soon as they become aware of any acquisition or transfer of significant shares of its capital stock that exceeds the above-mentioned percentages. Furthermore, banks are required to inform the Bank of Spain as soon as they become aware, and in any case not later than 15 days after, any acquisition by a person or a group of at least 1% of such a bank’s total equity. The Bank of Spain also requires each bank to notify the Bank of Spain of a list, dated on the last day of each quarter and during April, July, October and January of all its shareholders that are financial institutions and all other shareholders that own at least 0.25% of the bank’s total equity.

If the Bank of Spain determines at any time that the influence of a person who owns a significant participation of a bank may adversely affect that bank’s financial situation, it may request that the Ministry of Economy and Finance: (1) suspend the voting rights of such person’s shares for a period not exceeding 3 years; (2) seize control of the bank or replace its board of directors; or (3) revoke the bank’s license in exceptional circumstances. A fine may also be levied on the relevant person.

Tender Offers

Law 6/2007, of April 12, which amends the Securities Market Law, has modified the rules for takeover bids. This Law, which came into effect on August 13, 2007, partially transposes into the Spanish legal system Directive 2004/25/EC of the European Parliament and of the Council of April 21, 2004 on takeover bids.

The new rules replace the traditional system where launching a takeover bid was compulsory prior to acquiring a significant shareholding in the target company and partial bids were permitted for a regime where takeover bids must be made for all the share capital after obtaining the control of a listed company (i.e. 30% of the voting rights or appointment of more than one-half of the members of the company’s board of directors) whether such control is obtained by means of an acquisition of securities or an agreement with other holders of securities.

The above does not prevent parties from making voluntary bids for a number that is less than the totality of securities in a listed company.

Law 6/2007 also regulates, among other things, (i) new obligations for the board of directors of the offeree company in terms of preventing the takeover bid (passivity rule); and (ii) the squeeze-out and sell-out rights when the offeror is a holder of securities representing at least 90% of the voting capital of the offeree company and the prior takeover bid has been accepted by holders of securities representing at least 90% of the voting rights covered by the bid.

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Royal Decree 1066/2007 on rules applicable to takeover bids for securities further developed the regulations on takeover bids established by Law 6/2007, completing the amendments introduced by Law 6/2007, in order to ensure that takeover bids are carried out within a comprehensive legal framework and with absolute legal certainty. The Royal Decree contains provisions regarding: (i) the scope and application to all takeover bids, whether voluntary or mandatory, for a listed company; (ii) the rules applicable to mandatory takeover bids when control of a company is obtained; (iii) other cases of takeover bids, such as bids for de-listing of securities and bids that must be made when a company wishes to reduce capital through the acquisition of its own shares for subsequent redemption thereof; (iv) the consideration and guarantees offered in a bid; (v) stages of the procedure that must be followed in a takeover bid; (vi) the mandatory duty of passivity of the offeree company’s board of directors and the optional regime of neutralization of other preventive measures against bids; (vii) changes to, withdrawal of, and cessation of effects of the bid; (viii) the acceptance period, the calculation of the acceptances received and the settlement of the bid; (ix) the procedures applicable to competing offers; (x) the rules for squeeze-outs and sell-outs; and (xi) certain rules on supervision, inspection and sanctions applicable with respect to the regulations on takeover bids.

Reporting Requirements

Royal Decree 1362/2007 requires that any entity which acquires or transfers shares and as a consequence the number of voting rights held exceeds, reaches or is below the threshold of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 60%, 70%, 75%, 80% or 90%, of the voting rights of a company, for which Spain is the member state of origin, listed on a Spanish stock exchange or on any other regulated market in the European Union, must, within 4 days after that acquisition or transfer, report it to such company, and to the CNMV. This duty to report the holding of a significant stake is applicable not only to the acquisitions and transfers in the terms described above, but also to those cases in which in the absence of an acquisition or transfer of shares, the percentage of an individual’s voting rights exceeds, reaches or is below the thresholds that trigger the duty to report, as a consequence of an alteration in the total number of voting rights of an issuer. Similar disclosure obligations apply, among others, in the event of: (i) the acquisition or disposal of any financial instruments entitling the holder to acquire the company’s shares (such as options, futures, swaps, etc.); (ii) certain voting, deposit, temporary transfer or other agreements regarding the relevant shares; or (iii) custodians or proxy-holders who can exercise with discretion the voting rights attached to the relevant shares. The above mentioned threshold percentage will be 1% or any multiple of 1% whenever the person who has the duty to notify is a resident of a tax haven or of a country or territory where there is no taxation or where there is no obligation to exchange tax information (in accordance with Spanish law).

In addition, any Spanish company listed on the Spanish stock exchanges must report any acquisition by such company (or a subsidiary) of the company’s own shares if the acquisition, together with any acquisitions since the date of the last report and without deducting sales of its own shares by the company or by its subsidiaries, causes the company’s ownership of its own shares to exceed 1% of its voting rights. See “Item 9. The Offer and Listing—C. Markets—Trading by Santander’s Subsidiaries in the Shares.”

Members of the board of directors of listed companies, in addition to notifying the CNMV of any transaction concerning the shares or other securities or financial instruments of the issuer which are linked to these shares, are required to inform the CNMV of their ratio of voting rights upon appointment or resignation.

In addition, top managers of any listed company must report to the CNMV the acquisition or disposal of shares or other securities or financial instruments of the issuer which are linked to these shares.

Board of Directors

Our board of directors may be made up of a minimum of 14 and a maximum of 22 members, appointed by the shareholders acting at the general meeting of shareholders.

Members of the board of directors are elected for an initial term of five years but can be re-elected. One fifth of the members of the board are elected each year.

A director could serve for a term shorter than the one for which he or she has been initially elected if the shareholders acting at a duly called general meeting decide that that director be replaced before completing his or her term.

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Although there is no provision in Spanish law regarding the composition of a board of directors, the Rules and Regulations of the Board provide that in exercising its powers to make proposals at the general shareholders’ meeting and to designate directors by interim appointment to fill vacancies (co-option), the board shall endeavor to ensure that the external or non-executive directors represent a wide majority over the executive directors and that the former include a reasonable number of independent directors. In addition, in all events, the board of directors shall endeavor such that the number of independent directors represent at least one-third of all directors.

Article 42.1 of our By-laws also provides that the shareholders at the general shareholders’ meeting shall endeavor to ensure that external or non-executive directors represent a large majority of the board of directors, and that a reasonable number of the board of directors are independent directors. In addition, the shareholders at the general shareholders’ meeting shall likewise endeavor to ensure that independent directors represent at least one-third of the total number of directors.

These independence standards may not necessarily be consistent with, or as stringent as, the director independence standards established by the NYSE. See Item 16G of Part II, “Corporate Governance—Independence of the directors on the board of directors”. The Bank currently complies with this requirement.

Certain Powers of the Board of Directors

The actions of the members of the board are limited by Spanish law and certain general provisions contained in our By-laws. For instance, Article 57 of our By-laws states that the directors will be liable to Santander, to our shareholders and to our corporate creditors for any damages that they may cause by acts or omissions which are contrary to law or to the By-laws or by acts or omissions contrary to the duties inherent in the exercise of their office.

A director’s power to vote on a proposal, arrangement or contract in which such director is materially interested is not regulated by our By-laws. Conflicts of interest are regulated by Article 30 of the Rules and Regulations of the Board. Under Article 30, a director is obliged to inform the board of any direct or indirect conflict of interest which may exist with the Bank. If such a conflict relates to a particular transaction, then the director (i) may not undertake the transaction without the board’s authorization (such authorization can only be granted following a report of the appointments and remuneration committee); and (ii) the director may not take part in the discussion or voting regarding the transaction to which the conflict relates.

According to our By-laws, unpaid subscription amounts on partially paid-up shares shall be paid up by the shareholders at the time determined by the board of directors, within five years of the date of the resolution providing for the capital increase. The manner and other details of such payment shall be determined by the resolution providing for the capital increase. Without prejudice to the effects of default as set forth by law, any late payment of unpaid subscription amounts shall bear, for the benefit of the Bank, such interest as is provided by law in respect of late payments, starting from the day when payment is due and without any judicial or extra-judicial demand being required. In addition, the Bank shall be entitled to bring such legal actions as may be permitted by law in these cases.

Our current By-laws provide that the members of the board of directors are entitled to receive compensation for performing the duties entrusted to them by reason of their appointment, to be paid as a share in profits and by-law mandated compensation. This compensation has two components: an annual retainer and attendance fees. Attendance fees must be paid in advance on account of the profits for the fiscal year. The specific amount payable to each of the directors will be determined by the board of directors, taking into consideration the positions held by each director on the board and their membership in and attendance at the meetings of the various committees. The aggregate amount of the compensation for performing the duties entrusted to the directors by reason of their appointment is equal to one percent of Santander’s profit for the fiscal year, provided, however, that the board may resolve that such percentage be reduced in those years in which the board deems it justified.

Directors may also receive compensation in the form of shares of the Bank or options over the shares, or other remuneration linked to share value following a resolution adopted by the shareholders at the general shareholders’ meeting (conducted in accordance with our By-laws and applicable Spanish legislation).

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Regardless of the limit set above, the directors are entitled to receive compensation (salaries, incentives, bonuses, pension, insurance and severance payments) that the board of directors consider appropriate, for the performance of duties in Santander other than the duties of supervision and collective decision-making that the directors perform as members of the board.

The board of directors must, on an annual basis, prepare a report, which sets forth the standards and basis used to determine the compensation of the directors and the compensation received by each director.

Board of Directors Qualification

There are no mandatory retirement provisions due to age for board members in our By-laws or in the regulations of our board of directors. These regulations contain provisions relating to the cessation of directorship for other reasons.

C. Material contracts

During the past two years, the Bank was not a party to any contract outside its ordinary course of business that was material to the Group as a whole, except as disclosed in “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations—Sovereign Bancorp, Inc. (“Sovereign”)” and in “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations—ABN AMRO Holding N.V. (“ABN AMRO”).”

D. Exchange controls

Restrictions on Foreign Investments

Under present regulations, foreign investors may transfer invested capital, capital gains and dividends out of Spain without limitation on the amount other than applicable taxes. See “—Taxation”. On July 4, 2003, Law 19/2003 was approved which updates Spanish exchange control and money laundering prevention provisions, by recognizing the principle of freedom of the movement of capital between Spanish residents and non residents. The law establishes procedures for the declaration of capital movements for purposes of administrative or statistical information and authorizes the Spanish Government to take measures which are justified on grounds of public policy or public security. It also provides the mechanism to take exceptional measures with regard to third countries if such measures have been approved by the European Union or by an international organization to which Spain is a party. The Spanish stock exchanges and securities markets are open to foreign investors. Royal Decree 664/1999, on Foreign Investments (April 23, 1999), established a new framework for the regulation of foreign investments in Spain which, on a general basis, will no longer require any prior consents or authorizations from authorities in Spain (without prejudice to specific regulations for several specific sectors, such as television, radio, mining, telecommunications, etc.). Royal Decree 664/1999 requires notification of all foreign investments in Spain and liquidations of such investments upon completion of such investments to the Investments Registry of the Ministry of Economy and Finance, strictly for administrative statistical and economical purposes. Only investments from “tax haven” countries (as they are defined in Royal Decree 1080/1991), shall require notice before and after performance of the investment, except that no prior notice shall be required for: (1) investments in securities or participations in collective investment schemes that are registered with the CNMV, and (2) investments that do not increase the foreign ownership of the capital stock of a Spanish company to over 50%. In specific instances, the Counsel of Ministers may agree to suspend, all or part of, Royal Decree 664/1999 following a proposal of the Minister of Economy and Finance, or, in some cases, a proposal by the head of the government department with authority for such matters and a report of the Foreign Investment Body. These specific instances include a determination that the investments, due to their nature, form or condition, affect activities, or may potentially affect activities relating to the exercise of public powers, national security or public health. Royal Decree 664/1999 is currently suspended for investments relating to national defense. Whenever Royal Decree 664/1999 is suspended, the affected investor must obtain prior administrative authorization in order to carry out the investment.

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E. Taxation

The following is a discussion of the material Spanish and US federal income tax consequences to you of the ownership and disposition of ADSs or shares.

The discussion of Spanish tax consequences below applies to you only if you are a non-resident of Spain and your ownership of ADSs or shares is not effectively connected with a permanent establishment or fiscal base in Spain and only if you are a US resident entitled to the benefits of the Convention Between the United States of America and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “Treaty”).

You should consult your own tax adviser as to the particular tax consequences to you of owning the shares or ADSs including your eligibility for the benefits of any treaty between Spain and the country of your residence for the avoidance of double taxation, the applicability or effect of any special rules to which you may be subject, and the applicability and effect of state, local, foreign and other tax laws and possible changes in tax law.

Spanish tax considerations

The following is a summary of material Spanish tax matters and is not exhaustive of all the possible tax consequences to you of the acquisition, ownership and disposition of ADSs or shares. This discussion is based upon the tax laws of Spain and regulations thereunder, which are subject to change, possibly with retroactive effect.

Taxation of dividends

Under Spanish law, dividends paid by a Spanish resident company to a holder of ordinary shares or ADSs not residing in Spain for tax purposes and not operating through a permanent establishment in Spain are subject to Spanish Non-Resident Income Tax at an 19% rate. Prior to January 1, 2010 the rate was 18%.

In addition, according to the Spanish Non Resident Income Tax Law, if you are resident in the European Union or in a country with which there is an effective exchange of information for tax purposes as defined in Spanish Law 36/2006 and you do not operate in Spain through a permanent establishment, dividends up to 1,500 euros, considering all Spanish-source dividends you may obtain in the calendar year, are exempt from Spanish taxation. However, Spanish withholding tax will nevertheless be required to be deducted from the gross amount of the dividends, and you will have to seek a refund of such withholding taxes from the Spanish tax authorities, following the standard refund procedure described below.

As of January 1, 2010, we levied an initial withholding tax on the gross amount of dividends at a 19% tax rate (prior to this date the rate was 18%), following the procedures set forth by the Order of April 13, 2000. However, under the Treaty and subject to the fulfillment of certain requirements, you may be entitled to a reduced rate of 15%.

To benefit from the Treaty’s reduced rate of 15%, you must provide our depositary, JPMorgan Chase, with a certificate from the United States Internal Revenue Service (the “IRS”) stating that to the knowledge of the IRS, you are a resident of the United States within the meaning of the Treaty. The IRS certificate is valid for a period of one year.

According to the Order of April 13, 2000, to get a direct application of the Treaty-reduced rate of 15%, the certificate referred to above must be provided to our depositary before the tenth day following the end of the month in which the dividends were distributable by us. If you fail to timely provide our depositary with the required documentation, you may obtain a refund of the 4% in excess withholding that would result from the Spanish tax authorities in accordance with the procedures below.

Spanish refund procedure

According to Spanish Regulations on Non-Resident Income Tax, approved by Royal Decree 1776/2004, dated July 30, 2004, as amended, a refund of the amount withheld in excess of the rate provided by the Treaty can be obtained from the relevant Spanish tax authorities. To pursue the refund claim, if you are a US resident entitled to the benefits of the Treaty, you are required to file all of the following:

• a Spanish 210 Form,

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• the certificate referred to in the preceding section, and

• evidence that Spanish non-resident income tax was withheld with respect to you.

The refund claim must be filed within four years of the date on which the withheld tax was collected by the Spanish tax authorities. You are urged to consult your own tax adviser regarding refund procedures and any US tax implications of refund procedures.

Taxation of capital gains

Under Spanish law, any capital gains derived from securities issued by persons residing in Spain for tax purposes are considered to be Spanish source income and, therefore, are taxable in Spain. If you are a US resident, income from the sale of ADSs or shares will be treated as capital gains for Spanish tax purposes. As of January 1, 2010, Spanish non-resident income tax is levied at a 19% rate on capital gains realized by persons not residing in Spain for tax purposes who are not entitled to the benefit of any applicable treaty for the avoidance of double taxation. Prior to this date the rate was 18%.

Notwithstanding the above, capital gains derived from the transfer of shares on an official Spanish secondary stock market by any holder who is a resident of a country that has entered into a treaty for the avoidance of double taxation with Spain containing an “exchange of information” clause will be exempt from taxation in Spain. In addition, under the Treaty, capital gains realized by you upon the disposition of ADSs or shares will not be taxed in Spain provided you have not held, directly or indirectly, 25% or more of our stock during the twelve months preceding the disposition of the stock. You are required to establish that you are entitled to this exemption by providing to the relevant Spanish tax authorities an IRS certificate of residence in the United States, together with the appropriate Spanish tax form, not later than 30 days after the capital gain was realized.

Spanish wealth tax

Individuals not residing in Spain who hold shares or ADSs located in Spain are subject to the Spanish wealth tax (Spanish Law 19/1991), which imposes a tax on property located in Spain on the last day of any year. The Spanish tax authorities may take the view that all shares of Spanish corporations and all ADSs representing such shares are located in Spain for Spanish tax purposes. However, Law 4/2008, dated December 23, 2008, has amended the Spanish wealth tax law, introducing a 100% tax rebate and eliminating the obligation to file any form for tax periods starting as of January 1, 2008. Consequently, no obligation for this tax arises for non resident individuals holding shares or ADSs on December 31, 2008 or after.

Spanish inheritance and gift taxes

Transfers of shares or ADSs upon death or by gift are subject to Spanish inheritance and gift taxes (Spanish Law 29/1987) if the transferee is a resident of Spain for tax purposes, or if the shares or ADSs are located in Spain at the time of gift or death, or the rights attached thereto could be exercised or have to be fulfilled in the Spanish territory, regardless of the residence of the beneficiary. In this regard, the Spanish tax authorities may determine that all shares of Spanish corporations and all ADSs representing such shares are located in Spain for Spanish tax purposes. The applicable tax rate, after applying all relevant factors, ranges between 0% and 81.6% for individuals.

Gifts granted to corporations non-resident in Spain are subject to Spanish Non-Resident Income Tax at an 19% tax rate on the fair market value of the shares as a capital gain. Prior to January 1, 2010, the rate was 18%. If the donee is a United States corporation, the exclusions available under the Treaty described in the section “—Taxation of capital gains” above will be applicable.

Expenses of transfer

Transfers of ADSs or shares will be exempt from any Spanish transfer tax or value-added tax. Additionally, no Spanish stamp tax will be levied on such transfers.

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US Tax Considerations

The following summary describes the material US federal income tax consequences of the ownership and disposition of ADSs or shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire such securities. The summary applies only to US Holders (as defined below) that hold ADSs or shares as capital assets for tax purposes and does not address special classes of holders, such as:

• certain financial institutions;

• insurance companies;

• dealers and traders in securities that use a mark-to-market method of tax accounting;

• holders holding ADSs or shares as part of a hedge, “straddle”, conversion transaction or integrated transaction;

• holders whose “functional currency” is not the US dollar;

• holders liable for the alternative minimum tax;

• tax exempt entities, including “individual retirement accounts” and “Roth IRAs”;

• partnerships or other entities classified as partnerships for US federal income tax purposes;

• holders that own or are deemed to own 10% or more of our voting shares;

• holders that acquired our ADSs or shares pursuant to the exercise of an employee stock option or otherwise as compensation;

• holders holding ADSs or shares in connection with a trade or business outside the United States.

If an entity that is classified as a partnership for US federal income tax purposes holds shares or ADSs, the US federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular US federal income tax consequences of owning and disposing of the shares or ADSs.

The summary is based upon tax laws of the United States including the Internal Revenue Code of 1986, as amended to the date hereof (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as of the date hereof, changes to any of which may affect the tax consequences described herein, possibly with retroactive effect. In addition, the summary is based on the Treaty and is based in part on representations of the depositary and assumes that each obligation provided for in or otherwise contemplated by the deposit agreement or any other related document will be performed in accordance with its terms. US Holders are urged to consult their own tax advisers as to the US, Spanish or other tax consequences of the ownership and disposition of ADSs or shares in their particular circumstances.

As used herein, a “US Holder” is, for US federal income tax purposes, a beneficial owner of ADSs or shares that is:

(i) a citizen or resident of the United States;

(ii) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or of any political subdivision thereof; or

(iii) an estate or trust the income of which is subject to US federal income taxation regardless of its source.

In general, for US federal income tax purposes, US Holders of ADSs will be treated as the owners of the underlying shares represented by those ADSs. Accordingly, no gain or loss will be recognized if a US Holder exchanges ADSs for the underlying shares represented by those ADSs.

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The US Treasury has expressed concerns that parties to whom American depositary shares are released before delivery of shares to the depositary (“pre-release”), or intermediaries in the chain of ownership between US holders and the issuer of the security underlying the American depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by US holders of American depositary shares. These actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of Spanish taxes and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by actions taken by these parties or intermediaries.

Taxation of Distributions

Subject to the discussion of the passive foreign investment company rules below, to the extent paid out of our current or accumulated earnings and profits (as determined in accordance with US federal income tax principles), distributions, including the amount of any Spanish withholding tax, made with respect to ADSs or shares (other than certain pro rata distributions of our capital stock or rights to subscribe for shares of our capital stock) will be includible in the income of a US Holder as foreign-source ordinary dividend income. Because we do not maintain calculations of our earnings and profits under US federal income tax principles, it is expected that distributions generally will be reported to US Holders as dividends. These dividends will be included in a US Holder’s income on the date of the US Holder’s (or in the case of ADSs, the depositary’s) receipt of the dividend, and will not be eligible for the “dividends-received deduction” generally allowed to corporations receiving dividends from domestic corporations under the Code. The amount of the distribution will equal the US dollar value of the euros received, calculated by reference to the exchange rate in effect on the date that distribution is received (which, for US Holders of ADSs, will be the date that distribution is received by the depositary), whether or not the depositary or US Holder in fact converts any euros received into US dollars at that time. If the dividend is converted into US dollars on the date of receipt, a US Holder generally will not be required to recognize foreign currency gain or loss in respect thereof. A US Holder may have foreign currency gain or loss if the euros are converted into US dollars after the date of receipt. Any gains or losses resulting from the conversion of euros into US dollars will be treated as ordinary income or loss, as the case may be, of the US Holder and will be US-source.

Subject to applicable limitations and the discussion above regarding concerns expressed by the US Treasury, under current law, dividends paid to certain non-corporate US holders in taxable years beginning before January 1, 2011 will be taxed at favorable rates, up to a maximum rate of 15%. Non-corporate holders should consult their own tax advisers to determine the implications of the rules regarding this favorable rate in their particular circumstances.

Subject to certain generally applicable limitations that may vary depending upon your circumstances and subject to the discussion above regarding concerns expressed by the US Treasury, a US Holder will be entitled to a credit against its US federal income tax liability for Spanish income taxes withheld at the rate provided by the Treaty. Spanish income taxes withheld in excess of the rate applicable under the Treaty will not be eligible for credit against a U.S Holder’s federal income tax liability. See “Spanish tax considerations — Spanish refund procedure —” for a discussion of how to obtain amounts withheld in excess of the applicable Treaty rate. The limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. Instead of claiming a credit, a US Holder may, at its election, deduct such otherwise creditable Spanish taxes in computing taxable income, subject to generally applicable limitations under US law.

A US Holder must satisfy minimum holding period requirements in order to be eligible to claim a foreign tax credit for foreign taxes withheld on dividends. The rules governing foreign tax credits are complex and, therefore, US Holders are urged to consult their own tax advisers to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits.

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Sale or Exchange of ADSs or Shares

Subject to the discussion of the passive foreign investment company rules below, gain or loss realized by a US Holder on the sale or exchange of ADSs or shares will be subject to US federal income tax as capital gain or loss (and will be long-term capital gain or loss if the US Holder held the ADSs or shares for more than one year) in an amount equal to the difference between the US Holder’s tax basis in the ADSs or shares and the amount realized on the disposition, in each case as determined in US dollars. Gain or loss, if any, will be US-source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations. Long-term capital gain of a non-corporate US holder is generally taxed at a preferential rate.

Passive Foreign Investment Company Rules

We believe that we were not a “passive foreign investment company” (“PFIC”) for US federal income tax purposes for the 2009 taxable year. However, because our PFIC status depends upon the composition of our income and assets and the fair market value of our assets (including, among others, less than 25% owned equity investments) from time to time, and upon certain proposed Treasury Regulations that are not yet in effect but are proposed to become effective for taxable years after December 31, 1994, there can be no assurance that we will not be a PFIC for any taxable year.

If we are a PFIC for any taxable year, any gain recognized by a US Holder on a sale or other disposition of ADSs or shares would be allocated ratably over the US Holder’s holding period for the ADSs or shares. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to all other taxable years would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the amount allocated to those taxable years. Further, any distribution in respect of ADSs or shares in excess of 125% of the average of the annual distributions on ADSs or shares received by the US Holder during the preceding three years or the US Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the ADSs or shares.

In addition, if we are a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the 15% dividend rate discussed above with respect to dividends paid to non-corporate holders would not apply.

Information Reporting and Backup Withholding

Payment of dividends and sales proceeds that are made within the United States or through certain US-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the US Holder is an exempt recipient or (ii) in the case of backup withholding, the US Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a US Holder will be allowed as a credit against the US Holder’s US federal income tax liability and may entitle the US Holder to a refund, provided that the required information is timely furnished to the IRS.

F. Dividends and paying agents

Not Applicable.

G. Statement by experts

Not Applicable.

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H. Documents on display

We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549, and at the SEC’s regional offices at 233 Broadway, New York, New York 10279 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. In addition, the SEC maintains a website that contains information filed electronically with the SEC, which can be accessed over the internet at http://www.sec.gov. The information contained on this website does not form part of the present paper.

I. Subsidiary information

Not Applicable.

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Item 11. Quantitative and Qualitative Disclosures About Market Risk

Introduction

Our risk management activities involve the integrated qualification and quantification of the different types of risk (credit risk, operational risk, reputational risk and market risk) which are assumed by our business units in their activities.

We have divided this section into the following ten parts:

• Corporate principles of risk management;

• Corporate governance of the risk function;

• Integral control of risk;

• Credit risk;

• Operational risk;

• Reputational risk;

• Adjustment to the new regulatory framework;

• Economic capital;

• Risk training activities; and

• Market risk.

Part 1. Corporate principles of risk management

The vital importance for banks to have appropriate risk management was highlighted in 2009.

Our risk policy is focused on maintaining a low-medium and predictive risk profile.

Quality management of risk is one of our hallmarks and thus a priority in our business. For 150 years, we believe we have combined prudence in risk management with use of advanced risk management techniques, which have proven to be decisive in generating recurrent and balanced earnings and creating shareholder value.

The turmoil affecting financial markets since July 2007 has put the effectiveness of our risk management policies to the test.

Our risk management is based on the following principles:

• Involvement of senior management. The board’s risk committee, the senior management committees and the Group’s units are structured in such a way as to involve management in global supervision of risk taking.

• Independence from the business areas. Matías R. Inciarte, the Group’s third vice-chairman and chairman of the board’s risk committee, reports directly to the board of directors. The establishment of separate functions between the business areas (risk takers) and the areas responsible for risk measurement, analysis, control and information provides independence and autonomy to control risks.

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• Collective decision-making (including at the branch level) ensures a variety of opinions are heard and does not make results dependent on decisions solely taken by individuals.

• Joint responsibility for decisions on credit operations between risk and business areas.

• Defining functions. Each risk taker unit and, where appropriate, risk manager has clearly defined the types of activities, segments, risks they could incur and decisions they might make in the sphere of risks, in accordance with delegated powers. How risk is contracted, managed and where operations are recorded is also defined.

• Risk measurement. This considers all the risk positions taken throughout the business perimeter and uses the basic measures in the components and dimensions of risk, in the whole life cycle, for the management at each moment.

• This qualitative approach is based on the use of a series of integrating metrics, primarily consumption of risk capital and RORAC (risk adjusted return).

• Limiting risks. The aim is to limit, efficiently and comprehensively, the maximum risk levels for the various risk measures, so that the risks incurred are known and the necessary infrastructure exists for their management, control and information, so as to prevent undesired types or levels of risk from being incurred and exposures and the losses therefrom, exceeding the maximum levels approved.

• Setting policies and risk procedures. The policies and procedures constitute the basic regulatory framework, articulated through circulars and operating rules which regulate risk activities and processes.

• Defining and assessing risk methodologies. The methodologies provide the definitions of internal risk models, applied by the Group, and, so, require risk measures, methods for evaluating products, methods for constructing interest rate curves and market data series, calculations of capital consumption on the basis of risk and other risk analysis methods, as well as respective calibration and testing.

Management and control of risks at Santander is structured around the following phases:

• Establishment of risk management policies which reflect the principles and standards for the general functioning of risk activities in Grupo Santander, based on a corporate risk management framework which embraces the organizational model and the management model, as well as a series of more specific corporate frameworks for regulating the functions of the directorate general of risk. At the local level, the risk units incorporate the corporate rules to their internal policies and develop the corresponding procedures in order to:

• Identify risks by constantly reviewing and monitoring exposures, assessing new products and analyzing particular transactions.

• Measure risks using methodologies and models that have been put in use after a process of validation and approval.

• Formulate our appetite for risks by setting global and specific limits for the different types of risks, products, customers, groups, sectors and geographic areas.

• Prepare and distribute a complete series of reports, which are reviewed on a daily basis by those responsible for the management of Santander at all levels.

• Implement a system of risks control, which verifies every day the extent to which our risks profile is in line with the risk policies approved and the limits established.

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We have been using a series of techniques and tools for many years. They are mentioned in other parts of this report. Of note among them, given that we implemented them ahead of time and in line with the New Basel Capital Accord (BIS II), are:

• Internal rating and scoring models which, by assessing the various qualitative and quantitative components by client and operation, enable the probability of failure to be estimated first and then, on the basis of estimates of losses, the expected loss.

• Economic capital, as the homogeneous metric of the risk assumed and the basis for measuring management.

• Return on Risk Adjusted Capital (RORAC), for pricing operations (bottom up) and analysis of portfolios and units (top down).

• Value at Risk (VaR) as an element of control and for setting the market risk limits of the different trading portfolios.

• Analysis of scenarios and stress testing to complement the analysis of market and credit risk, in order to assess the impact of alternative scenarios, including on provisions and on capital.

For these reasons, we are in accord with BIS II, which recognizes and supports the banking industry’s most advanced practices which the Group has been anticipating.

We calculate the minimum regulatory capital in accordance with Bank of Spain circular 3/2008 on determining and controlling the minimum equity of credit institutions. This regulation completed the transfer to Spanish banking legislation of the Directives (2006/48EC and 2006/49/EC) which incorporate to EU regulations the new Basel Capital Accord (BIS II).

Part 2. Corporate governance of the risk function

The risk committee is responsible for proposing to the board the Group’s risk policy. The board is responsible for approving the policy under its powers of administration and supervision. The committee also ensures that the Group’s activities are consistent with its risk tolerance level and establishes the global limits for the main risk exposures, reviewing them systematically and resolving those transactions that exceed the powers delegated in bodies further down the hierarchy.

The committee is of an executive nature and takes decisions in the sphere of the powers delegated to it by the board. It is chaired by the third vice- chairman of Grupo Santander and contains four other board members.

The committee met 99 times during 2009, underscoring the importance that we give to risk management.

The main responsibilities of the board’s risk committee are to:

• Propose to the board the risk policy for the Group, which must, in particular, identify:

– The different types of risk (financial, operational, technological, legal and reputational, among others) facing it;

– The information and internal control systems used to control and manage these risks;

– The level of risk considered acceptable; and

– The measures envisaged to mitigate the impact of identified risks, in the event that they materialize;

• Systematically review exposures with the main customers, economic sectors, geographic areas and types of risk.

• Authorize the management tools and risk models, as well as be familiar with the results of the internal validation.

• Ensure that the Group’s actions are consistent with the previously decided risk tolerance level.

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• Know, assess and monitor the observations and recommendations periodically formulated by the supervisory authorities in the exercise of their function.

• Resolve transactions that are beyond the powers delegated to bodies further down the hierarchy, as well as the global limits of pre-classification of economic groups or in relation to exposures by classes of risk.

The board’s risk committee delegates some of its powers to other risk committees which are structured by geographic area, business and types of risk.

Our risks function is conducted via two supervising bodies for risks which are independent of the business areas, both from the hierarchical and functional standpoint. Both of them are directly linked to the board via the risk committee and the third vice-chairman (the most senior executive responsible for the Group’s risk management).

In order to meet the requirements of Basel II and reinforce the capacity to tend to the Group’s business growth, the organizational and functional framework of its two directorates-general is as follows:

• Directorate general of integral control and internal validation of risk, with responsibilities of global scope and corporate nature and support for the Group’s organs of governance, which are:

– To assess the suitability and appropriateness of the classification systems, internal processes and treatment of data, in accordance with Basel II.

– To ensure that the management and control systems of the various risks are in line with the Bank’s global risk profile.

• Directorate general of risk, with functions in the following blocks:

– A corporate structure, with global scope responsibilities (“all risks, all countries”), which establishes the policies, methodologies and control: solvency, market and methodology.

– A business structure, centered on the execution and integration in management of the risks function in the Group’s retail, global and local businesses. In this structure, the corporate area of Brazil’s risk was created in 2009, within the Group’s risk division. This area’s objectives include: improving the relation with and joint work between the global areas of risk and the local unit in Brazil, foster globalization of the risk models and obtain and systemize risk management information.

Part 3. Integral control of risks

In 2008 we created the function of integral control of risks, anticipating the new regulatory requirements, then being discussed in numerous organizations and forums, including the Basel Committee, CEBS and FSF, as well as the recommendations on best risk management practices formulated by various public and private bodies.

In July 2009, the Basel Committee required banks to put the integral control of risks function into effect immediately.

Organization, mission and features of internal control of risks

The organization of this function is part of the directorate general of integral control and internal validation of risk. This function supports the Group’s governance bodies in risk management and control.

Particular attention is paid to credit risk (including concentration and counterparty risks); market risk (including liquidity risk, interest rate and exchange rate risk); operational and technology risks; and compliance and reputational risk.

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Integral control of risks aims to:

• Module 1) Ensure that the management and control systems of the various risks inherent in Grupo Santander’s activity meet the most demanding criteria and the best practices observed in the industry and/or required by regulators.

• Module 2) Ensure that senior management has at its disposal an integral vision of the profile of the various risks assumed and that these risks are in line with the previously agreed appetite for risks.

• Module 3) Supervise compliance in time and form with the recommendations drawn up for risk management matters following inspections by internal auditing and by the supervisors to whom Santander is subject.

Internal control of risk supports the work of the risk committee, providing it with the best practices in risk management.

The main features of this function are:

• Global and corporate scope: all risks, all businesses, all countries;

• A third layer of control, following the one by the person responsible for managing and controlling each risk in the sphere of each business or functional unit (first layer of control) and the corporate control of each risk (second layer). This ensures the vision and thus integral control of all risks incurred during the year.

• Special attention is paid to the development of best practices in the sphere of the financial industry, in order to be able to incorporate quickly any advances deemed opportune.

• Optimizing the information available and the resources that Grupo Santander assigns to controlling the various risks.

Methodology and tools

In order to systemize the function and adjust it to Santander’s specific needs, the necessary methodology and tools to support it were developed. This makes application of the methodology traceable. The methodology and the tools are articulated through the three modules previously referred to for all risks treated:

• Module 1) A guide of tests or reviews exists for each risk. It consists of more than 650 tests (for all the risks), divided in spheres of control (for example, corporate governance, organizational structure, management systems, integration in management, technology environment, contingency plans and business continuity, etc).

Applying the tests and obtaining the relevant evidence which is assessed and enables the parameters of control of the various risks to be homogenized is done every six months. New tests are incorporated as needed. The support tool is the risk control monitor, which is a repository of the results of each test and of their work papers.

• Module 2) A synthetic control panel is being designed, along with the corresponding tool, to enable senior management to monitor the various risks assumed and their degree of adjustment to the previously formulated risk appetites.

• Module 3) The SEGRE tool is used to track the recommendations made by internal auditing and by the supervisors regarding risk control and management and it also includes the recommendations by integral control. Use of this tool is coordinated with the relevant risk control areas so that monitoring is optimized.

The Bank of Spain can access these tools if it so wishes.

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Main advances in 2009

In deploying the internal control of risks, the following stages were covered:

(a) The first cycle of reviewing the various risks was completed in close contact with the corporate areas of control, contrasting and assessing the control and management systems of these risks. Improvements were identified and turned into recommendations -with their corresponding schedule for implementation agreed with the areas- so that progress could be monitored.

(b) The corporate model of integral control of risks was presented, as well as the first diagnostic report on the auditing and compliance committee, the risk committee and the board which approved the model.

(c) The process of informing the board and giving them an integral vision of all risks was begun.

(d) The first steps were taken to extend the integral control of risks model to the Group’s main units.

Part 4. Credit risk

4.1 Introduction to the treatment of credit risk

Credit risk is the possibility of losses stemming from the failure of clients or counterparties to meet their financial obligations with the Group.

The Group’s risks function is organized on the basis of the type of customer in order to distinguish, for risk management purposes, between companies under individualized management and standardized customers:

• Those under individualized management are assigned, mainly because of the risk assumed, a risk analyst. This category includes the companies of wholesale banking, financial institutions and some of the companies of retail banking. Risk management is conducted through expert analysis backed up by tools to support decision making based on internal models of risk assessment.

• Standardized: customers refer to those who have not been specifically assigned a risk analyst. This category includes individuals, individual businessmen and retail banking companies that are not segmented. Management of these risks is based on internal models of assessment and automatic decisions, complemented -where the model does not go far enough or is not sufficiently precise- by teams of analysts specialized in this type of risk.

4.2 Main magnitudes and evolution

The Group’s credit risk profile is characterized by diversified geographic distribution and predominantly retail banking activity.

A. Global map of credit risk in 2009

The table below sets out the global credit risk exposure in nominal amounts (except for derivatives and repos exposure which is expressed in equivalent credit) at December 31, 2009.

Growth in lending was moderate, due to reduced demand (a very significant part of the growth was due to the change in perimeter with the incorporation of Sovereign). The nominal exposure to credit risk increased 8.8%, particularly due to customers and commitments to customers. Excluding Sovereign, growth was 3.3%.

Spain is the most relevant unit with respect to exposure to credit risk (7% lower in absolute terms). Of note in the rest of Europe, which accounts for more than one third of the credit exposure, is the presence in the UK. Overall, Europe accounts for 75% of the credit exposure.

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In Latin America investment grade countries accounted for 96% of the region’s exposure.

With the incorporation of Sovereign Bank, the US accounted for 6% of credit exposure at the end of 2009.

Grupo Santander Gross exposure to credit risk
Million euros

							Sovereign fixed			Private fixed			Outstanding			Drawable			Commitments
	Outstanding			Commitments			income			income			to credit			credit			to credit
	to customers			to customers			(exc trading.)			(exc trading.)			entitles			entities			entities			Total			%			%/dec. 08
Spain		281,621			57,179			29,602			11,835			28,440			1,113			27,911			437,700			39.6	%		(7.1	%)
Parent bank		170,692			39,716			20,769			8,049			19,038			736			19,053			278,053			25.2	%		(8.6	%)
Bonesto		80,109			11,167			6,204			2,003			6,696			225			8,701			115,104			10.4	%		3.2	%
Others		30,819			6,296			2,629			1,784			2,706			152			157			44,543			4.0	%		(19.4	%)
Rest of Europe		305,831			36,827			3,844			16,025			9,025			155			18,877			390,583			35.3	%		10.8	%
Germany		22,256			9			—			159			432			—			5			22,861			2.1	%		(5.0	%)
Portugal		22,143			8,276			2,734			1,410			2,425			—			1,519			38,507			3.5	%		6.9	%
United Kingdom		228,044			26,484			464			14,136			5,172			155			17,132			291,587			26.4	%		12.9	%
Others		33,387			2,058			646			320			996			—			220			37,627			3.4	%		10.6	%
Latin America		104,965			45,537			24,280			1,821			20,684			19			10,648			207,953			18.8	%		15.4	%
Brazil		62,952			30,996			16,719			1,212			14,535			—			5,564			131,978			11.9	%		38.3	%
Chile		20,200			6,300			2,220			502			1,812			19			3,209			34,261			3.1	%		22.0	%
Mexico		11,611			6,724			4,252			—			2,220			—			1,573			26,379			2.4	%		(7.3	%)
Others		10,202			1,516			1,089			108			2,118			—			303			15,335			1.4	%		(45.6	%)
United States		43,814			9,395			1,742			9,157			2,970			77			105			67,260			6.1	%
Rest of the world		1,017			262			80			1			167			—			—			1,526			0.1	%
Total Group		737,246			149,200			59,547			38,839			61,287			1,363			57,540			1,105,022			100.00	%		8.8	%
% of total		66.7	%		13.5	%		5.4	%		3.5	%		5.5	%		0.1	%		5.2	%		100	%
% change/dec. 08		6.5	%		27.2	%		68.5	%		45.3	%		(30.8	%)		(77.3	%)		16.9	%		8.8	%

Data at December 31, 2009, drawn up on the basis of legal company criteria.

ECR (equivalent credit risk net value or replacement plus the maximum potential value, includes mitigants)

Derivatives and repos exclude Sovereign and Alliance & Leicester.

Balances with customers exclude repos (EUR 13,439 million) and other customer create assets (EUR 7,661 million)

Balances with credit entities (excluding repos and trading) include EUR 29,718 million of deposits in central banks.

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B. Evolution of the magnitudes in 2009

The evolution of non-performing loans and the cost of credit reflect the impact of the deterioration of the economic environment softened by prudent risk management which generally enabled these figures to remain lower than those of our competitors. As a result, we maintain a significant level of coverage and general provisions.

Our ratio of non-performing loans (NPLs) was 3.24% at the end of 2009, after an increase of 120 basis points during the year. NPL coverage was 75.3% compared to 90.6% at the end of 2008.

Specific provisions for loan losses, net of recoveries, amounted to €11,760 million, 1.57% of the average credit exposure with customers (the year’s average lending plus financial guarantees), up from 1.16% in 2008.

Grupo Santander’s credit risk management

	Credit risk												Spec, prov net of
	with customers*				NPL ratio				Coverage				recovered write-offs**				Credit cost
	(million euros)				%				%				(million euros)				(% of risk)
	2009		2008		2009		2008		2009		2008		2009		2008		2009		2008
Continental Europe		366,970		368,512		3.64		2.31		76.6		90.0		5,084		3,201		1.39		0.89
Santander Branch network		129,099		135,508		4.38		2.58		64.9		74.9		1,851		1,204		1.41		0.91
Banesto		86,681		87,925		2.97		1.64		64.1		106.5		737		450		0.89		0,53
Santander Consumer Finance		60,245		56,245		5.39		4.18		96.8		85.5		2,005		1,402		3.38		2.71
Portugal		34,501		34,760		2.27		1.72		64.6		77.2		95		6		0.27		0.02
United Kingdom		238,215		217,063		1.71		1.04		43.8		68.5		1,018		442		0.43		0.23
Latin America		117,146		112,040		4.25		2.95		105.2		108.3		5,053		3,965		4.44		3.44
Brazil		65,611		53,764		5.27		3.58		99.2		102.4		3,537		2,493		5.88		4.30
Mexico		12,676		13,482		1.84		2.41		264.4		132.1		824		879		6.13		5.44
Chile		21,384		18,848		3.20		2.64		89.0		102.4		402		350		1.98		1.73
Puerto Rico		4,132		4,810		9.60		6.92		53,3		61.0		89		138		1.99		2.84
Colombia		1,719		1,464		1.83		1.79		187.5		204.1		31		44		1.94		2.83
Argentina		2,936		3,271		2.60		1.83		141.0		178.6		91		49		2.99		1.54
Sovereign		38,770				5.35				62.5				578
Total Group		758,347		697,200		3.24		2.04		75.3		90.6		11,760		7,659		1.57		1.16
Memo item:
Spain		284,307		300,524		3.41		1.95		73.4		98.5		3,497		2,150		1.20		0.71

Data drawn up on the basis of management criteria, Memo item, on the basis of accounting criterion — Financial Control

The figures for 2008 have been restated, consolidating Banco Real by global integration for the year

(*) Includes gross loans to customers, guarantees and documentary credits

(**) Bad debts recovered

C. Distribution of credit risk

The charts below show the diversification of our loans by countries and customer segments both for our total credit portfolio and for our massive or standardized portfolio. We are geographically diversified and focused on our core markets.

Our profile is essentially retail (86.3% retail banking), and most portfolios are products with a real guarantee (e.g. mortgages).

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4.3 Metrics and measurement tools

A. Rating tools

Since 1993, we have been using our own models for assigning solvency and internal ratings, which measure the degree of risk of a client or transaction. Each rating corresponds to a certain probability of default or non-payment, the result of past experience, except for some termed “low default portfolios”. We have around 200 internal rating models for risk admission and monitoring.

Global rating tools are used for the segments of sovereign risk, financial institutions and global wholesale banking. Their management is centralized in the Group, both for determining their rating as well as for monitoring the risk. These tools assign a rating for each customer, based on balance sheet ratios or macroeconomic variables, and supplemented by the expert view of an analyst.

In the case of companies and institutions under individualized management, the Parent company of our Group has defined a single methodology for formulating a rating in each country. The rating is determined by an automatic model which reflects a first intervention by the analyst and which may later be complemented. The automatic model determines the rating in two phases, one quantitative and the other qualitative based on a corrective questionnaire which enables the analyst to modify the automatic scoring by a maximum of ±2 points of rating. The quantitative rating is determined by analyzing the credit performance of a sample of customers and the correlation with their financial statements. The questionnaire has 24 questions divided into six areas of assessment. The automatic rating can be changed by an analyst by overriding it or by using a manual assessment model.

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The ratings accorded to customers are regularly reviewed, incorporating any new financial information available and the experience in the development of the banking relation. The regularity of the reviews increases in the case of clients who reach certain levels in the automatic warning systems and for those classified as “special watch”. The rating tools are also reviewed so that their accuracy can be fine-tuned.

In the case of standardized risks, both for transactions with companies as well as individuals, there are scoring tools which automatically assess the operations.

These admission systems are complemented by performance assessment models which enable the risk assumed to be better predicted. They are used for both preventative activities as well as sales.

B. Parameters of credit risk

The assessment of a customer or transaction, through ratings or scorings, constitutes a judgment of the credit quality, which is quantified via probability of default (PD).

As well as evaluating the customer, quantifying credit risk requires other parameters to be estimated such as exposure at default (EaD) and the percentage of EaD that might not be recovered (loss given default or LGD). Other aspects are also included such as quantifying off-balance sheet exposures, which depend on the type of product, or analysis of expected recoveries, related to the guarantees existing.

These factors comprise the main credit risk parameters. Their combination enables the probable or expected loss (EL) to be calculated. This loss is considered as one more cost of the activity as it reflects the risk premium and should be incorporated into the price of operations.

The following charts show the distribution of failed consumer loans and mortgages since 2001 on the basis of the percentage recovered after discounting all the costs –including the financial or opportunity– from the recovery process.

The risk parameters also calculate the regulatory capital in accordance with the rules of the new Basel Capital Accord (BIS II). The regulatory capital is the difference between the unexpected and the expected loss.

The unexpected loss is the basis for calculating the capital and makes reference to a very high level of loss. But the loss is not very probable, not considered recurrent and must be tackled with equity.

Estimates of the risk parameters (PD, LGD and EaD) should be based on internal experience – i.e. on observations of defaults and experience in recovering these transactions.

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In portfolios where the internal experience of defaults is scant, such as banks, sovereigns or global wholesale banking, estimates of the parameters come from alternative sources: market prices or studies by external agencies which draw on the shared experience of a sufficient number of institutions. These portfolios are called low default portfolios.

For other portfolios, estimates are based on the institution’s internal experience. The PD is calculated by observing the NPL entries and putting them in relation to the final rating assigned to the customer or with the scoring assigned to the operations.

The LGD calculation is based on observing the recovery process of transactions not fulfilled, taking into account not only the revenues and costs associated with this process, but also the moment when they are produced and the indirect costs incurred in recovery activity.

The estimation of the EaD comes from comparing the use of the lines committed at the moment of default and a normal situation, in order to identify the real consumption of the lines at the time of default.

The parameters estimated for global portfolios are the same for all the Group’s units. A financial institution with a rating of 8.5 will have the same PD regardless of the unit in which its exposure is recorded. On the other hand, retail portfolios have specific scoring systems in each unit of the Group. This requires separate estimates and specific assignment in each case.

The parameters are then assigned to the transactions present in the balance sheet in order to calculate the expected losses and the capital requirements associated with such exposure.

C. Master scale of global ratings

The models committee approved the following relation between internal rating and probability of default (PD) for the global portfolios of banks and global wholesale banking.

Probability of default

Internal rating	PD Wholesale Banking			PD Banks
9.3		0.018	%		0.013	%
9.2		0.020	%		0.014	%
9.0		0.024	%		0.018	%
8.5		0.037	%		0.029	%
8.0		0.060	%		0.049	%
7.5		0.095	%		0.083	%
7.0		0.151	%		0.139	%
6.5		0.240	%		0.232	%
6.0		0.382	%		0.390	%
5.5		0.607	%		0.653	%
5.0		0.965	%		1.095	%
4.5		1.535	%		1.835	%
4.0		2.442	%		3.076	%
3.5		3.884	%		5.157	%
3.0		6.178	%		8.645	%
2.5		9.826	%		14.492	%
2.0		15.627	%		24.294	%
1.5		24.855	%		40.725	%
1.0		39.532	%		68.268	%

These PDs are applied uniformly throughout the Group in accordance with the global management of these portfolios. As can be seen, the PD assigned to the internal rating is not exactly equal for a same rating in both portfolios, although it is very similar in the tranches where most of the exposure is concentrated (i.e. in tranches of rating of more than six).

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D. Distribution of EaD and expected loss (EL) associated

The table below sets out the distribution by segments of the outstanding credit exposure to customers in terms of EaD, PD, LGD and EL. Approximately 83% of total risk with clients (excluding sovereign, and counterparty risks and other assets) corresponds to companies, SMEs and loans to individuals, underlining the retail focus of Santander’s business and risks. The expected loss from customer exposure is 1.09% (0.90% for the Group’s total credit exposure), which can be considered as a mediumtolow risk profile.

Segmentation of credit risk exposure

						Average			Average
	EaD1		%			PD			LGD			EL
Sovereign debt		104,457		11.0	%		0.23	%		14.54	%		0.03	%
Counterparty		76,888		8.1	%		0.29	%		70.34	%		0.21	%
Public sector		3,129		0.3	%		0.70	%		21.32	%		0.15	%
Corporate		131,703		13.8	%		0.51	%		39.68	%		0.20	%
SMEs		186,321		19.5	%		4.65	%		28.11	%		1.31	%
Mortgages (individuals)		302,395		31.7	%		3.30	%		7.04	%		0.23	%
Consumer loans (individuals)		111,452		11.7	%		6.51	%		52.42	%		3.41	%
Credit cards of individuals		24,297		2.5	%		6.73	%		64.94	%		4.37	%
Other assets		13,066		1.4	%		2.47	%		29.73	%		0.74	%
Memorandum item customers2		759,296		79.6	%		3.72	%		29.32	%		1.09	%
Total		953,707		100.00	%		3.04	%		29.52	%		0.90	%

Data at December 09
(1)	Excluding doubtful loans.
(2)	Excluding sovereign, counterparty and other assets.

4.4. Loss observed: measurements of credit cost

As well as using these advanced models, other usual measures are employed which provide prudent and effective management of credit risk on the basis of the loss observed.

Our cost of credit is measured by various means: change in net entries (final doubtful loans – initial doubtful loans + write offs – recovered write offs); net loan-loss provisions (specific provisions – recovered write-offs); and net write-offs (write offs – recovered write-offs).

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The three approaches measure the same reality and, consequently, converge in the long term although they represent successive moments in credit cost measurement: flows of non-performing loans (non-performing loans management variation, NPLMV), coverage of doubtful loans (net loan-loss provisions, NLLPs) and becoming write-offs (net write-offs), respectively. However in the long term and within the same economic cycle, the three show differences at certain times which are particularly significant at the start of a change of cycle. These differences are due to the different moments at which the losses are calculated, which are basically determined by accounting rules (for example, mortgages have a calendar of coverage and become write-offs more “slowly” than consumer loans). In addition, the analysis can be complicated by changes in the policy of coverage and entry into write-offs, composition of the portfolio, doubtful loans of entities acquired, changes in accounting rules, sale of portfolios, etc.

The following charts reflect the cost of our credit risk in its main areas of activity in 2009 and prior years, measured in various ways:

The year-on-year change includes the exchange-rate impact which for Latin America was around 31.8% in net write offs, 3.2% in net provisions and 14.6% in net entries.

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The general trend over the past few years has been to maintain the cost of our credit at low levels. In 2009, there was a rise in the cost of credit due to the economic downturn and growth in retail profiles which, with a higher expected loss, have higher levels of direct return (financial margin less cost of provisions) and indirect return (induced business) and greater attractiveness because of the more predictable nature of this type of risk.

4.5 Credit risk cycle

Risk management consists of identifying, measuring, analyzing, controlling, negotiating and acting on the risks incurred by the Group’s operations. The process involves risk takers and senior management, as well as the risk areas.

The process emanates from senior management, via the board of directors, the executive committee and the risk committee; they set the risk policies and procedures, the limits and delegating of powers, and approve and supervise the framework of the risks function.

The risk cycle has three phases: pre-sale, sale and after sale:

• Pre-sale: this includes the planning and setting of objectives, determining the appetite for risk, approving new products, studying the risk and rating loans, and establishing limits.

• Sale: this covers the phase of decision-making both for operations under pre-classification as well as one-off transactions.

• After sale: monitoring, measurement, control and recovery management.

A. Planning and setting limits

Setting limits is a dynamic process which identifies the Group’s risk appetite by discussing business proposals and the opinion of risks.

The Global Plan of Limits, the document drawn up on the basis of consensus which provides complete management of the balance sheet and of the inherent risks, establishes the risk appetite in the various factors.

The limits are based on two structures: customers/segments and products.

The most basic level is the customer and when certain features are present –generally of relative importance– an individual limit (pre-classification) is set.

A pre-classification model based on a system for measuring and monitoring economic capital is used for large corporate groups. A more simplified version is used for those companies who meet certain requirements (high knowledge, rating, etc).

In the sphere of standardized risk, the planning and setting of limits is done through Credit Management Programs (CMPs), a document reached by consensus between the business and risk areas and approved by the risk committee or committees delegated by it. The CMPs set out the expected results of business in terms of risk and return, as well as the limits to which activity is subject and management of the associated risks.

B. Risk study and process of credit rating

The study of risk is obviously a prior requirement for authorizing customer operations. It consists of analyzing the capacity of the customer to meet their contractual obligations with the Bank. This entails analyzing the customer’s credit quality, risk transactions, solvency and return in accordance with the risk assumed.

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The risk study is carried out every time there is a new customer or transaction or with a pre-established regularity, depending on the segment. In addition, the rating is studied and reviewed every time there is an alert or something that affects the customer/operation.

C. Decisions on operations

The purpose of the decision-making process is to analyze and resolve transactions, taking into consideration both the risk appetite as well as those elements of the operation that are relevant in the search for the appropriate balance between risk and return.

We have been using RORAC methodology (return on risk adjusted capital) since 1993 to analyze and set prices for operations and businesses.

D. Monitoring and control

As well as the tasks carried out by the internal auditing division, the risk division, through local and global teams, controls credit quality by monitoring the risks and has the resources and specific people dedicated to it.

The monitoring is based on a continuous process of permanent observation, which enables incidents to be detected in advance in the evolution of risk, transactions, customers, and their environment in order to take steps to mitigate them. The monitoring is conducted on the basis of customer segmentation.

We have a system called Companies in Special Watch (FEVE) which identifies four levels on the basis of the degree of concern arising from the circumstances observed (extinguish, secure, reduce, monitor). The inclusion of a company in FEVE does not mean there have been defaults, but rather the advisability of adopting a specific policy toward that company and establishing the period for it. Clients in FEVE are reviewed at least every six months, and every quarter for the most serious cases. A company can end up in special watch as a result of monitoring, a review conducted by internal auditing, a decision of the person responsible for the company or the entry into functioning of the system established for automatic warnings.

Ratings of risk balances according
to the FEVE monitoring system
Million euros at December 2009

	Extinguish		Secure		Reduce		Monitor		Total FEVE
Retail Banking Spain		4,425		1,065		11,956		12,137		29,583
Banesto		9,230		1,290		2,582		11,447		24,549
Portugal		425		130		787		1,690		3,031
UK		1,225		86		387		3,259		4,957
Latin America		480		93		818		2,377		3,768
Total		15,785		2,664		16,531		30,908		65,888

Note:	excluding Sovereign.
The risk classifications in FEVE are independent in each institution and respond to the different criteria for rating these risks and the management of them on the basis of the category in which they are classfied.

Ratings are reviewed at least every year, but if weaknesses are detected, or on the basis of the rating, it is done more regularly.

As regards the risks of standardized clients, the main indicators are monitored in order to detect shifts in the performance of the loan portfolio with respect to the forecasts made in the credit management programs.

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Spain’s credit portfolio

General view of the portfolio

At the end of 2009, Spanish credit risk amounted to €284,307 million (37.49% of the Group’s total).

This exposure has a high degree of diversification, both by product as well as by customer segment. The aggregate branch network of Banco Santander and Banesto have 48% of their credit portfolio in companies under individualized management, 32% in the residential mortgage portfolio and 6% in public institutions.

In accordance with the Bank of Spain’s rules, the Group regards as doubtful loans those which have not been serviced for more than 90 days and includes the total debt of the customer when the unpaid part represents more than 25% of it or when pre-judicial actions are taken. Also considered as doubtful loans are those which, without entering into non-compliance, have reasonable doubts of being fully repaid.

Under this definition, the non-performing loan (NPL) ratio in Spain was 3.41%, well below the aggregate of commercial banks as a whole, according to the Bank of Spain, and with a more moderate growth trend.

NPL coverage was 73.4%.

In addition, and in line with the Bank of Spain’s rules and indications, loans classified as substandard are those which, while being up to date on payments and with no reason to be classified as doubtful, show some weakness which could lead to non-payments and losses, as they involve the weakest customers from certain collectives or sectors affected by extraordinary circumstances of greater risk. This category has €6,724 million of classified risks.

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Analysis of the mortgage portfolio of individual customers

Of note, within standardized risks because of their importance in the Group’s total lending in Spain, is the portfolio of mortgage loans to individuals.

This portfolio has been affected by the gradual downturn in the real economy, which caused demand for loans to drop in 2008 and in 2009. The following charts, however, show that in the retail networks in Spain the number of mortgage loan requests showed signs of picking up in the fourth quarter of 2009. In this context, Santander continued to apply its established admission criteria and policies (the authorization rate remained at average levels of around 70%).

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The measures taken in admission improved the credit quality and maintained the authorization rates. For new loans between 2007 and 2009, the quarterly maturity of vintages was as follows.

At the end of 2009, the non-performing loan ratio of the Group’s residential mortgage portfolio in Spain was 2.46%, higher than at December 2008, but below the average rates in the Spanish financial system.

In the face of the deterioration in the scenario, the medium low risk profile of this portfolio enables one to estimate a small impact at Group level and a low estimated final loss, thanks to real guarantees. The portfolio, and thus its risk profile, is characterized by a predominance of first homes, an average loan-to-value (LTV) of 52% (with values updated on the basis of the house price index of the Housing Ministry) and an affordability rate in admission of 31%.

Residential mortgage loans account for 31.8% of the total credit risk of Santander Retail Banking and Banesto, with a LTV below 80% for 85% of the portfolio of residential mortgages.

Santander Spain: Portfolio
Million euros

	Dec. 09
	Portfolio		%
Residential mortgages		68,601		31.8
First home		64,403		93.9
Second home and others		4,198		6.1

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Lending to the construction and real estate activity sectors in Spain

These two sectors are among the most affected by the downturn.

Lending to these sectors in Spain (Banco Santander and Banesto) amounted to €42,256 million. This portfolio includes the financing of activities as diverse as the tourism sector, sale and leaseback operations, development of companies that depend on local and regional governments and insurance firms, among others.

The non-performing loan ratio of this portfolio, on the basis of the criteria already indicated, was 6.2%, higher than the Group’s average ratio. Coverage stood at 45%.

In addition, and in accordance with Bank of Spain guidelines, there is €4,332 million of risks classified as sub-standard.

A particularly important product in the real estate portfolio is mortgage loans to real estate developers. At the end of 2009, this amounted to €12,207 million and represented around 1.6% of Grupo Santander’s global credit portfolio. The exposure to this product was 9.3% less than in 2008 and 13.8% lower than in 2007.

At the end of 2009, this portfolio of loans to real estate developers had a large number of customers, with a low degree of concentration and an appropriate level of guarantees and coverage.

The distribution was as follows:

• Developments completed and with the final certificate of work: 66.7% of outstanding risk.

• Developments more than 80% completed: 14.5% of outstanding risk.

• Developments between 50% and 80% completed: 8.9% of outstanding risk.

• Developments less than 50% completed: 9.8%.

These figures show that this portfolio has a high degree of completion progress, with 81.2% of buildings underway with the construction risk already surpassed or close to it.

In addition to the constant control by our monitoring teams, there is a technical unit specialized in monitoring and controlling this portfolio in relation to building progress, fulfillment of plans and controlling sales, as well as validation and control of disbursements by certifications.

This portfolio of credit to the construction sector and real estate development has been submitted to the Group’s usual stress testing exercises, the results of which are set out on page 223 of this report.

Acquisition of property assets (Spain)

One of the mechanisms used in Spain to manage risk more efficiently is to acquire real estate assets. The volume of acquisitions was reduced significantly in 2009 and the net balance of property acquired at the end the year was €2,935 million. The net initial balance was €3,768 million and during 2009 purchases amounted to €908 million, mostly in the first half of the year, and provisions and writedowns amounted to €947 million.

The reasons for this option as opposed to initiating legal proceedings are as follows:

• The length of legal proceedings as against the immediate availability of these assets.

• Cost savings.

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• It facilitates the viability of companies as liquidity is injected into their activity.

• Reduction in the possible loss of value in the loans of these clients.

• Reduction in exposure and in expected loss.

Furthermore, and as part of normal banking practice in risk management, we were awarded properties during 2009 for a gross amount of €1,357 million. The net balance of the awarded assets is €1,595 million.

At the end of 2009, the gross amount of acquired properties was €4,304 million and those awarded €2,217 million.

It should also be noted that this process is conducted with a policy of provisions that follows the Group’s usual criteria. The value of these assets is assessed regularly in order to guarantee an appropriate level of provisions (31% coverage at the end of 2009, clearly above the regulatory requirements).

As well as the usual structure for management of these assets, there are specialized firms to manage and sell the properties so that the acquired and awarded assets can be treated more efficiently.

Analysis of the potentially problematic exposure

Given the economic circumstances affecting these sectors and the need for adjustments in them, and taking as a basis the aforementioned figures, the potentially problematic exposure –the combined figure of doubtful and sub-standard assets plus the total assets acquired and awarded plus write-offs– in the construction and real estate development sectors is €13,961 million.

The specific provisions for this portfolio amount to €4,024 million (coverage of 29%), in line with the banking sector’s average as they are regulatory provisions. If we add to these provisions the general ones available in Spain coverage is 50%.

Coverage would be 93% if we take into account the Group’s net operating income in Spain (Banco Santander plus Banesto) at the end of 2009(1).

These coverage levels are higher than the sector’s average, given the higher amount of both available general provisions as well as our net operating income in Spain.

(1) This information is given in order to follow the systematics of the Bank of Spain’s March 2010 Financial Stability Report. For the whole system, this report puts coverage at 71%.

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Exposure and coverage of the construction and real estate development sectors. December 2009

	Total System					Grupo Santander Spain
	Million euros		%			Million euros			%
Exposure		445,000					48,299	1
Non-performing loans		42,800		9.6			2,972			6.2
Sub-standard		59,000		13.3			4,332			9.0
Acquired and awarded (gross)		59,700		11.8	2		6,521			11.9	2
Write-offs		4,000		0.9			137	3		0.3
Potentially problematic exposure		165,500		33	2		13,961			25	2
Coverage
Specific provisions		42,300		26			4,024			29
Non-performing loans		17,700		41			1.323			45
Sub-standard		7,600		13			573			13
Acquired and awarded (gross)		13,000		22			1,991			31
Write-offs4		4,000					137
Specific plus generic				35						50

(1)	Consolidated figure of EUR 42,256 million.
(2)	The percentage is calculated over total non-consolidated investment+acquired and awarded assets.
(3)	Data for 2009.
(4)	Fully covered with provisions.

Refinancing

Refinancing is one of the management tools used to adjust maturity structures of principal and interest payments to the new payment capacity of customers.

At Grupo Santander, these transactions are restricted, on the basis of rigorous and selective criteria, to:

• viable transactions,

• where the customer intends to pay,

• which improve the Bank’s position in terms of expected loss, and

• where the refinancing does not discourage additional effort by the customer.

The Corporate Policy of Restructurings ensures homogeneous and rigorous application of these criteria in the various units:

• The customer’s risk is assessed overall, irrespective of the situation of each individual contract, and all the risks are provided with the highest possible level of guarantees.

• As a general rule, the risk with the customer is not increased.

• All the alternatives to the refinancing and its effects are evaluated, ensuring that the results of it are better than what might have been obtained if nothing was done.

• Particular attention is paid to collateral and the possible future evolution of its value.

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• Its use is restricted, giving precedence to the renewal of risks with additional efforts by the customer and avoiding situations that only postpone the problem.

• The refinanced transactions are put under special watch.

These criteria are mainly aimed at those situations of low impact on the customer’s payment capacity, which are estimated to be of medium/long duration. On a more restrictive basis, more serious cases where the payment difficulty is estimated to not last long can also be considered. The severest cases are not susceptible to refinancing and other solutions to recover the appropriate amount are sought.

In addition to close monitoring of these portfolios by our risk management teams, the various supervisory authorities to which the Group is subject as well as internal auditing pay particular attention to controlling and assessing the refinanced portfolios.

Refinancing does not mean the release of provisions or the classification of these loans as normal, unless:

• They meet the criteria in the regulations based on Bank of Spain circulars (payment of ordinary interest pending and new effective guarantees or reasonable certainty of payment capacity).

• They fulfill the precautions which under prudent criteria are set out in the Group’s Corporate Policy (sustained payment for between 3 and 12 months, on the basis of the operation’s features and the type of guarantees).

In the case of Spain (Santander branch network plus Banesto), the balance of refinancing at the end of 2009 was €1,449 million, of which €950 million were company operations and €499 million were with individuals.

Of the total refinancing, €1,028 million met the requirements set by the Bank of Spain in appendix IX of its Circular 4/2004 for being regularized to the normal situation at the time of formalization. At the end of 2009, the non-performing loan ratio of these operations was 8.2%.

The remaining €421 million is refinancing which, following the conditions defined by the Bank of Spain, was maintained as non-performing loans at formalization.

The chart above shows the monthly volume of refinancing in 2009, mostly concentrated in the first half, as well as the evolution of the non-performing loan ratio of this portfolio.

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Stress testing exercises

Grupo Santander regularly conducts stress testing exercises on its main credit portfolios (see further on). These theoretical exercises, required by the regulator, simulate the effect on the Bank’s credit portfolios of the different scenarios of a country’s main economic and financial variables. In the case of Spain, the exercise affects all credit portfolios.

Among the hypotheses handled, the severest one assumes an intense shrinkage of the Spanish economy in 2010 and 2011 and slight growth in 2012, with decreases in housing prices, in addition to those already seen (41% cumulative). In this scenario, very far from any historical experience and assigned a very small chance of happening, the expected loss in 2010, 2011 or 2012 for the portfolios of Santander and Banesto would not surpass 80% of recurrent net operating income in 2009. The net operating income of the Santander Branch Network and Banesto in 2009 was €4,803 million.

Of this figure, €4,208 million of expected loss would correspond to the construction and real estate development sectors for the next three years.

In addition, Grupo Santander had general provisions of €6,727 million at the end of 2009.

Analysis of the UK’s mortgage portfolio

As well as the risk portfolio in Spain, of note in standardized risks and because of its importance in Grupo Santander’s total lending is the UK mortgage portfolio.

This portfolio is focused on first home mortgages, with a high quality of risk in terms of Loan to Value (average value of 56%). The mortgages with the highest risk profile (buy-to-let) account for a small percentage of the total (barely 1%).

The following table shows the distribution by type of loan:

Mortgage portfolio United Kingdom	Dec. 09
Million euros	Portfolio		% of loans
Residential mortgages		180,694		75.9	*
First home buyer		26,540		14.7
Mover		66,171		36.6
Remortgage		87,983		48.7

(*)	the total UK portfolio.
First time buyer: customers who buys home for the first time.
Mover: customers who change home with or without changing the bank that granted the mortgage.
Remortgage: customers who Transfer their mortgage from another bank.

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E. Control function

The management process is also aided during the various phases of the risk cycle by the control function. This provides a global vision of our portfolio of loans with the sufficient level of detail, enabling the current risk position and its evolution to be assessed.

The evolution of risk with regard to budgets, limits and standards of reference is constantly and systematically controlled and the impact in the face of future situations, both exogenous and arising from strategic decisions, assessed in order to establish measures that put the profile and volume of the portfolio of risks within the parameters set by the Group.

The control function is conducted by assessing risks from various perspectives and establishing as the main elements control by countries, business areas, management models, products and processes. This facilitates detection and focuses specific attention for decision-making.

In the context of 2009, one of the focuses of the function was to ensure compliance with the corporate criteria for classifying refinanced portfolios, as well as to monitor the volumes of new lending and their performance.

In 2006, under the corporate framework established in the Group for complying with the Sarbanes-Oxley Act of 2002, a tool was created in the Group’s intranet to document and certify all sub processes, operational risks and controls that mitigate them. The risk division, as part of the Group, evaluates every year the efficiency of internal control of its activities.

Analysis of scenarios

As part of its continuous monitoring and control, we conduct simulations of our portfolio using adverse scenarios and stress testing in order to assess our solvency in the face of certain situations in the future. These simulations cover all of the Group’s most relevant portfolios and are done systematically using a corporate methodology which:

• Determines the sensitivity of risk factors (PD and LGD) in the face of certain macroeconomic variables.

• Defines reference scenarios (at the global level as well as for each of the Group’s units).

• Identifies “rupture scenarios” (levels as of which the sensitivity of risk factors to macroeconomic variables is more accentuated) and the distance of these scenarios from the current situation and the reference scenarios.

• Estimates the expected loss of each scenario and the evolution of the risk profile of each portfolio in the face of movements in certain macroeconomic variables.

The simulation models use the data of a complete economic cycle to measure the performance of risk factors in the face of changes in macroeconomic variables.

In the wholesale sphere, as they are low default portfolios, there is not sufficient data on defaults to conduct this measurement and expert criteria are used.

The scenarios take into account the vision of each unit as well as the global outlook. The variables include:

• The unemployment rate

• Property prices

• GDP

• Interest rates

• Inflation

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The analysis of scenarios enables senior management to better understand the foreseeable evolution of the portfolio in the face of market conditions and changing situations, and it is a key tool for assessing the sufficiency of the provisions established for stress scenarios.

The analysis of the baseline and acid scenarios for the whole Group and for each unit, with a time frame of five years, shows the strength of the balance sheet in the face of different market and macroeconomic situations.

F. Recovery activity

Santander’s recovery management is a strategic, integral and business activity.

We have a global model which is applied and executed locally and takes into account the business features in each sphere.

The purpose of recovery activity is to:

• Obtain payment and regularization of the pending balances so that an account returns to its normal state; if this is not possible the objective is total or partial recovery of debts, in any of the accounting or management situations in which they find themselves.

• Maintain and strengthen our relations with the customer and nurture the payment performance.

Recovery activity is part of business and is based on the relation with the customer and on the contribution to results. Santander has created its own management model, associating and exploiting management capacities and commercial and risk intelligence in order to improve results and maintain our traditional culture regarding quality and sensitivity to risk.

This model operates in all phases of management: both before default, through preventative management which helps the customer or detects early on possible problems, as well as in the subsequent phases of the recovery process: management of irregular loans, of non-performing loans and of write-offs.

Clients in this process are segmented (massive or standardized and those under individualized management with specific management models in each case), in accordance with basic specialization criteria. Recovery management is shared with other business areas.

The segment for individualized management is managed by specialized managers who, as they have a limited number of clients in their portfolios, provide tailored treatment, define strategies, action plans and special ways of recovery (as appropriate) in order to receive payment. There is also a regular review of the issues to assess their handling, the recovery periods and the envisaged amounts to be recovered, on the basis of the greater or lesser recovery capacity (total or partial).

Management of standardized customers is articulated by defining in each unit rules by segment/product from which are derived management circuits with pre-determined activity times, players or structures and differentiated management strategies. Management takes advantage of the capacities of the multi-channel systems (recovery centers, letters, text messages, pre-recorded messages left on answering machines, messages in commercial documents, ATMs, web page, etc) where new strategies with identified elements (score, guarantees, products, market, etc) are applied.

In the next phase and depending on the recovery capacity, there is individualized or massive management.

In the first case, matters are treated by internal or external managers, and in the second externally and maintaining the methodology of the aforementioned management and accompanied by supervisors dedicated to effectiveness and quality of management.

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In those cases where it is deemed opportune judicial actions are started and at the same time non-judicial processes continued in order to always try to resolve the situation on a friendly and negotiated basis.

This model also includes the possibility of selling a portfolio, thereby establishing an exit point.

The recovery managers at Santander are the key element. Quality, training and incentives are the pillars that sustain the management model. Every year a specific training plan for all levels of the management structure is designed in order to increase skills and foment professional development. A system of objectives and incentives at all levels (including externally) is also being put into place.

Santander’s recoveries model encourages the identification, transfer and implementation of best practices, taking advantage of our knowledge and experience acquired in the many markets and businesses in which we operate. This privileged situation has enabled management models previously tested in other units to be transferred, problems to be detected early on, and effective solutions anticipated.

The recovery business area, part of the Spain Retail Banking Division and using the criteria, policies and guidelines of Santander in risks and recovery matters, which emanate from the corresponding governance bodies, and from the Risks Division, focuses integrally on managing bad loans in all customer segments and combines commercial and risk skills.

In 2009, the area oversaw the installation of the recoveries model in Santander Consumer Spain.

Recovery management in Spain resulted in notably more recoveries, both in absolute terms, as well as in a higher relative share of gross entries of bad loans (64% against 53% in 2008) for all activity in Spain.

The model was also applied in Brazil, Mexico and Chile, taking into account each country’s features.

4.6. Other standpoints of credit risk

There are spheres and/or specific points in credit risk that deserve specialized attention and which complement global management.

A. Risk of concentration

Control of risk concentration is a vital part of management. We continuously track the degree of concentration of our credit risk portfolios using various criteria: geographic areas and countries, economic sectors, products and groups of clients.

The board’s risk committee establishes the policies and reviews the appropriate exposure limits for appropriate management of the degree of concentration of credit risk portfolios.

The Group is subject to the Bank of Spain regulation on large risks. In accordance with Circular 3/2008, no individual or economic group exposure, including all types of credit risks and equities, can exceed 25% of the Group’s shareholders’ equity. The total of large risks (those that exceed 10% of eligible equity) cannot be more than eight times higher than equity (excluded from this are exposures to OECD governments and central banks).

At December 31, 2009, there was only one economic group classified as a large risk (11.15% of equity) and it corresponded to a British financial group with an internal rating equivalent to A. After applying risk mitigation techniques and the rules for large risks, the percentage came down to 1.67% of eligible equity (consumption of 6.7% of the limit of 25% established by the Bank of Spain).

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At December 31, 2009, the 20 largest economic and financial groups, excluding AAA governments and sovereign securities denominated in local currency, represented 6.7% of the outstanding credit risk of the Group’s clients (lending plus guarantees).

The distribution of the portfolio of companies by sectors is adequately diversified. The chart below shows the distribution of the credit exposure in the Group’s main units (excluding Sovereign).

Our risk division works closely with the financial division to actively manage credit portfolios. Its activities include reducing the concentration of exposures through various techniques such as using credit derivatives and securitization to optimize the risk-return relation of the whole portfolio.

B. Credit risk by activities in financial markets

This section covers credit risk generated in treasury activities with clients, mainly credit institutions. This is developed through financing products in the money market with different financial institutions, as well as derivatives with our clients.

Risk is controlled through an integrated system and in real time, which enables us to know at any moment the exposure limit available with any counterparty, in any product and maturity and in all of our units.

Risk is measured by its prevailing market as well as potential value (value of risk positions taking into account the future variation of underlying market factors in contracts). The equivalent credit risk (ECR) is the net replacement value plus the maximum potential value of these contracts in the future. The capital at risk or unexpected loss is also calculated (i.e. the loss which, once the expected loss is subtracted, constitutes the economic capital, net of guarantees and recovery).

The total exposure to credit risk from activities in the financial markets was 70.1% with credit institutions. By product type, the exposure to derivatives was 48.6%, mainly products without options, and 51.4% to liquidity products and traditional financing.

Derivative operations are concentrated in high credit quality counterparties; 68.4% of risk with counterparties has a rating equal to or more than A–. The total exposure in 2009 in terms of equivalent credit risk amounted to €38,704 million.

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OTC derivatives distribution by net replacement value and equivalent credit risk*
Million euros at December 31, 2009

	Total ECR								Total net replacement value
	Trading		Hedging			Total			Trading			Hedging			Total
CDS protection acquired		812		822			1,634			462			614			1,076
CDS protection sold		95		71			166			(679	)		33			(646	)
TRS total return swap		—		142			142			—			511			511
CDS options		—		—			—			—			—			—
Total credit derivatives		907		1,034			1,941			(217	)		1,159			942
Equity forwards		2		55			57			—			(163	)		(163	)
Equity options		407		1,524			1,931			(195	)		(208	)		(403	)
Equity swaps		—		816			816			—			208			208
Equity spot		—		—			—			—			—			—
Total equity derivative		409		2,396			2,805			(195	)		(163	)		(358	)
Fixed-income forwards		6		24			29			1			—			1
Fixed-income options		1		—			1			—			—			—
Fixed-income spot		—		—			—			—			—			—
Total fixed income derivatives		6		24			30			1			—			1
Asset swaps		1,011		2,812			3,822			(752	)		486			(266	)
Exchange-rate options		240		159			399			1			(37	)		(36	)
Exchange-rate swaps		5,222		12,079			17,301			1,257			2,834			4,092
Other exchange-rate derivative		—		3			3			—			1			1
Total exchange rates		6,473		15,053			21,525			506			3,285			3,791
Asset swaps		—		279			279			—			(40	)		(40	)
Call money swaps		176		31			207			(160	)		(60	)		(220	)
IRS		8,367		8,379			16,746			(865	)		3,032			2,167
Forward interest rates		2		13			15			(25	)		(10	)		(35	)
Other interest-rate derivatives		580		1,193			1,772			412			(798	)		(386	)
Interest rate structures		75		620			695			46			(79	)		(33	)
Total interest-rate derivatives		9,199		10,514			19,714			(593	)		2,047			1,454
Commodities		103		35			138			202			9			211
Total commodity derivatives		103		35			138			202			9			211
Total OTC derivatives		17,097		29,055			46,153			(296	)		6,337			6,041
Collateral		—		(7,449	)		(7,449	)
Total		17,097		21,606			38,704

(*) Excluding A&L and Sovereign.

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Notional OTC derivative products by maturity*
Million euros at December 31, 2009

	1 year						1-5 years						5-10 years						over 10 years						total rec
	Trading		Hedging		Total		Trading		Hedging		Total		Trading		Hedging		Total		Trading		Hedging		Total		Trading		Hedging			Total
CDS protection acquired		3		13		16		123		65		188		41		52		94		645		692		1,337		812		822			1,634
CDS protection sold		5		2		7		77		1		78		13		—		13		—		67		67		95		71			166
TRS total return swap		—		—		—		—		1		1		—		5		5		—		136		136		—		142			142
CDS options		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—
Total credit derivatives		8		15		23		200		68		267		54		57		111		645		894		1,540		907		1,034			1,941
Equity forwards		2		55		57		—		—		—		—		—		—		—		—		—		2		55			57
Equity options		193		363		555		192		1,050		1,242		22		105		127		—		6		6		407		1,524			1,931
Equity swaps		—		80		80		—		364		364		—		315		315		—		58		58		—		816			816
Equity spot		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—
Total equity derivative		195		498		692		192		1,414		1,606		22		420		442		—		64		64		409		2,396			2,805
Fixed-income towards		6		1		7		—		22		22		—		—		—		—		—		—		6		24			29
Fixed-income options		1		—		1		—		—		—		—		—		—		—		—		—		1		—			1
Fixed-income spot		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—
Total fixed income derivatives		6		1		7		—		22		22		—		—		—		—		—		—		6		24			30
Asset swaps		605		2,647		3,252		313		165		478		37		—		37		55		—		55		1.011		2,812			3,822
Exchange-rate options		157		148		306		82		11		93		—		—		—		—		—		—		240		159			399
Exchange-rate swaps		2,299		3,195		5,495		1,787		4,833		6,620		1,136		2,935		4,071		1		1,116		1,116		5,222		12,079			17,301
Other exchange-rate derivative		—		3		3		—		—		—		—		—		—		—		—		—		—		3			3
Total exchange rates		3,062		5,994		9,055		2,182		5,009		7,191		1,174		2,935		4,108		55		1,116		1,171		6,473		15,053			21,525
Asset swaps		—		5		5		—		22		22		—		27		27		—		225		225		—		279			279
Call money swaps		55		30		85		118		1		118		3		—		3		1		—		1		176		31			207
IRS		299		1,022		1,320		2,220		3,400		5,621		1,520		2,101		3,621		4,328		2,324		6,652		8,367		8,846			17,213
Forward interest rates		2		13		15		—		—		—		—		—		—		—		—		—		2		13			15
Other interest-rate derivatives		1		287		288		30		548		579		94		130		225		454		227		681		580		1,193			1,772
Interest rate structures		4		2		7		49		11		60		19		23		42		2		120		122		75		156			231
Total interest-rate derivatives		361		1,358		1,719		2,418		3,982		6,400		1,636		2,281		3,917		4,785		2,896		7,681		9,199		10,518			19,718
Commodities		37		5		42		42		26		68		24		—		24		—		—		—		103		31			134
Total commodity derivatives		37		5		42		42		26		68		24		—		24		—		—		—		103		31			134
Total OTC derivatives		3,669		7,870		11,539		5,033		10,522		15,554		2,911		5,693		8,604		5,485		4,970		10,456		17,097		22,055			46,153
Collateral																										—		(7,449	)		(7,449	)
Total																										17,097		21,606			38,704

(*) Excluding A&L and Sovereign.

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Distribution of risk in OTC derivatives by type of counterparty

Rating	%
AAA		4.6
AA		12.6
A		51.2
BBB		21.3
BB		5.3
B		2.2
Rest		2.8

The distribution of risk in derivatives by type of counterparty was 52% with banks, 37% with large companies and 5% with SMEs.

Activity in credit derivatives

Grupo Santander uses credit derivatives to cover loans, customer business in financial markets and, to a lesser extent, within trading operations. The volume of this activity is small compared to that of our peers and, moreover, is subject to a solid environment of internal controls and minimizing operational risk.

The risk of these activities is controlled via a broad series of limits such as VaR, nominal by rating, sensitivity to the spread by rating and name, sensitivity to the rate of recovery and to correlation. Jump-to-default limits are also set by individual name, geographic area, sector and liquidity.

At December 31, 2009, for the Group’s trading activity, the sensitivity of lending to increases in spreads of one basis point was €1.9 million, and the average VaR during the year was €12.3 million.

In notional terms, the position in CDS incorporates €83,791 million of acquired protection and €73,684 million of sold protection.

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C. Country risk

Country risk is a credit risk component in all cross-border credit transactions for circumstances different to the usual commercial risk. Its main elements are sovereign risk, the risk of transfer and other risks which could affect international financial activity (such as wars, natural disasters, balance of payments crisis, etc).

The exposure susceptible to country-risk provisions at the end of 2009 was €444 million, of which €37 million corresponded to intragroup operations. At the end of 2008, the total country risk in need of provisions was €5,422 million. Total provisions in 2009 stood at €65 million compared with €612 million in 2008.

The decline was largely due to Brazil where transactions stopped being considered as risk in need of provisions. This did not mean relevant changes in our level of exposure in Brazil.

The principles of country risk management continued to follow criteria of maximum prudence; country risk is assumed very selectively in operations that are clearly profitable for the Bank and which enhance the global relation with customers.

D. Sovereign risk

As a general criterion, sovereign risk is that contracted in transactions with a central bank (including the regulatory cash reserve requirement), the issuer risk of the Treasury or the Republic (portfolio of state debt) and that arising from transactions with public institutions with the following features: their funds only come from institutions directly integrated into the state sector; and their activities are of a noncommercial nature.

At December 31, 2009, Europe accounted for 58.5% of total risk, Latin America 36.9%, the US 4.1% and others 0.5%. Of note were Spain (31.4% of the total), the UK (21.2%), Brazil (23.3%) and Mexico (7.0%). It was higher than in 2008, mainly as a result of increased positions in the UK, Brazil, Spain and Chile and the incorporation of Miami and Sovereign to the perimeter of consolidation, which was partly offset by the reduction in the perimeter as a result of Santander’s exit from Venezuela.

Latin America’s exposure to sovereign risk mainly comes from the obligations to which our subsidiary banks are subject for constituting certain deposits in the corresponding central banks as well as from fixed-income portfolios maintained as part of the structural interest rate risk management strategy. These exposures are in local currency and are financed on the basis of locally captured customer deposits, also denominated in local currency. The exposure to sovereign risk of Latin American issuers denominated in currencies other than the official one of the country of issue amounted to €2,595 million (5.5% of total sovereign risk with Latin American issuers).

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E. Environmental risk

Analysis of the environmental risk of credit transactions is one of the main aspects of the strategic plan of corporate social responsibility. It revolves around the following two large points:

• Equator principles: this is an initiative of the World Bank’s International Finance Corporation. It is an international standard for analyzing the social and environmental impact of project finance operations. By assuming these principles Santander commits itself to assessing, using a sequential methodology, the social and environmental risks of projects it finances in developing countries. All project financing transactions include filling out a questionnaire designed to determine their sensitivity to social and environmental issues and the degree of compliance with them.

• VIDA tool: used since 2004, its main purpose is to assess the environmental risk of corporate clients, both current and potential, through a system that classifies in seven categories each of the companies on the basis of the environmental risk contracted. In 2009, 38,510 companies were assessed by this tool in Spain.

Part 5. Operational risk

Definition and objectives

We define operational risk (OR) as the risk of losses from defects or failures in our internal processes, employees or systems, or those arising from unforeseen circumstances. They are, in general, purely operational events, which makes them different from market or credit risks, although they also include external risks, such as natural disasters.

The objective in control and management of operational risk is to identify, measure/valuate, control/mitigate and monitor this risk.

Our priority is to identify and eliminate risk focuses, regardless of whether they produce losses or not. Measurement also helps to establish priorities in management of operational risk.

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We opted, in principle, to use the standard method for calculating regulatory capital by operational risk, envisaged in the BIS II rules. We are weighing up the best moment to adopt the focus of Advanced Models (AMs), bearing in mind that: a) the short-term priority in management of operational risk centers on its mitigation; and b) most of the regulatory requirements established for being able to adopt the AMs must already be incorporated into the standard model (already achieved in the case of Grupo Santander’s operational risk management model).

Management model

The organizational model for controlling and managing risks is the result of adapting to the new BIS II environment, which establishes three levels of control:

• First level: control functions conducted by the Group’s units.

• Second level: functions carried out by the corporate areas.

• Third level: integral control functions by the risk division-integral control area and internal validation of risk.

The technology and operations division is responsible for management and control of operational risk. Within this division, the corporate area of technological and operational risk, established in 2008, defines policies as well as managing and controlling these risks. The implementation, integration and local adjustment of the policies and guidelines established by this area is the responsibility of local executives in each unit.

This structure for operational risk management is based on the knowledge and experience of executives and professionals of our various units. Particular importance is attached to the role of local executives.

Management is based on the following elements:

The different phases of the technological and operational risk management model entail:

• Identifying the operational risk inherent in all activities, products, processes and banking systems.

• Measuring and assessing the operational risk objectively, continuously and in line with the regulatory standards (Basel II, Bank of Spain) and the banking industry, establishing risk tolerance levels.

• Continuously monitoring the exposure of operational risk in order to detect the levels of unassumed risk, implement control procedures, improve internal knowledge and mitigate losses.

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• Establishing mitigation measures that eliminate or minimize operational risk.

• Producing regular reports on the exposure to operational risk and the level of control for senior management and the Group’s areas/units, as well as inform the market and regulatory bodies.

• Defining and implementing systems that enable operational risk exposures to be watched over and controlled and integrated into the Group’s daily management, taking advantage of existing technology and seeking the maximum computerization of applications.

• Defining and documenting operational risk management policies, and establishing methodologies for managing this risk in accordance with regulations and best practices.

Our operational risk management model contributes the following advantages:

• Integral and effective management of operational risk (identification, measurement/assessment, control/mitigation and information).

• Better knowledge of existing and potential operational risks and assigning responsibility for them to the business and support lines.

• Operational risk information helps to improve the processes and controls, reduce losses and the volatility of revenues.

Implementing the model: global initiatives and results

The corporate function for management and control of operational risk, part of the risk division, has been operating since 2001. Its main functions, activities and global initiatives are to:

• Designate coordinators and create operational risk departments.

• Training and interchange of experiences: continuation of best practices within the Group.

• Foster mitigation plans: ensure implementation of corrective measures as well as ongoing projects.

The corporate function has strengthened management of technological risk since 2008, including the following aspects:

• The security of the information systems.

• The contingency and business continuity plans.

• Management of risk associated with the use of technologies (development and maintenance of applications, design, implementation and maintenance of technology platforms, output of computer processes, etc).

The management model for operational risk began to be installed in our different entities in 2002. Almost all these units have been incorporated to the project with a high degree of uniformity. However, due to the different paces of implementation, phases, schedules and the historical depth of the respective data bases, the degree of progress varies from country to country.

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On a general basis:

• Data bases of operational incidents that are classified are received every month. The capturing of events related to operational risk are not truncated (i.e. without exclusions for reasons of amount and with both the accounting impact –including positive effects– as well as the non-accounting impact).

• Self-assessment questionnaires filled out by almost all the Group’s units are received and analyzed.

• A corporate system of operational risk indicators is in place.

• The main events are identified and analyzed, and mitigation measures taken which, in significant cases, are disseminated to the Group’s other units as a Best Practices guide.

• Processes are conducted to reconcile data bases with accounting data.

By consolidating the total information received, the Group’s operational risk profile is reflected in the following charts:

There was an increase in the third and fourth categories in 2009, mainly due to the incorporation of Banco Real’s operational events as well as the greater information available on legal risk. As regards the latter, most were civil actions (complaints by employees) in Brazil, a very frequent practice in that country.

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Below, as an example of Grupo Santander’s practice, are self assessment questionnaires regarding coverage of operational risk consolidated in 2009.

In addition to this risk profile, the Group, via approval in the risk committee, formalized for 2010 the establishment of operational risk profiles, appetite and limits. A risk appetite is also established which must be in low and medium-low profiles on the basis of the measurement of various ratios. During 2010 limits will come into force by country and limits for the Group on the basis of the gross loss/gross income ratio and the percentage of coverage of risk on the basis of self-evaluation exercises. The limits for the Group must not exceed 2% for the first ratio and coverage has to be no lower than 75%, both of which represent a threshold higher than the profile defined as medium-low.

Analysis and monitoring of controls in market operations

The complexity of financial instruments makes it necessary for the Group to continuously strengthen operating control of this activity, enhancing the very demanding and conservative risk and operating principles that we have been regularly applying.

Over and above regular tracking of all aspects regarding operating control, all of the Group’s units paid more attention to the following aspects, so that the review is validated every month by each unit’s management committee. Of note are the following:

• Review of the valuation models and in general the valuation of portfolios.

• Capturing processes and independent validation of prices.

• Appropriate confirmation of operations with counterparties.

• Reviewing cancellations/modifications of transactions.

• Reviewing and monitoring the effectiveness of guarantees, collateral and mitigation of risks.

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Corporate Information

The corporate area of operational risk has a system for integral management of operational risk information, which every quarter consolidates the information available from each country/unit in the operational risk sphere and gives a global vision with the following features:

• Two levels of information: one corporate and the other individualized for each country/unit.

• Dissemination of the best practices among countries/units of Grupo Santander, obtained from the combined study of the results of qualitative and quantitative analysis of operational risk.

Information is also prepared on the following aspects:

• Grupo Santander’s management model for operational risk

• Human resources and perimeter of action

• Analysis of the data base of errors and events

• Operational risk cost and accounting reconciliation

• Self-assessment questionnaires

• Indicators

• Mitigating measures/asset management

• Contingency plans

• Regulatory framework: BIS II

• Insurance

This information acts as the basis for meeting the needs of reporting to the board’s risk committee, senior management, regulators, rating agencies, etc.

Insurance in the management of operational risk

Grupo Santander regards insurance as a key element in the management of operational risk. The area responsible for operational risk has been closely cooperating with the Group’s insurance area since 2004 in all those activities that entail improvements in both areas. For example:

• Cooperation in the exposure of the Group’s operational risk control and management model with insurance and reinsurance companies.

• Analysis and monitoring of recommendations and suggestions to improve operational risks made by insurance companies, via prior audits conducted by specialized companies, as well as their subsequent implementation.

• Exchange of information generated in both areas in order to strengthen the quality of the data bases of errors and the perimeter of coverage of the insurance policies for the various operational risks.

• Close cooperation between local operational risk executives and local coordinators of insurance to strengthen mitigation of operational risk.

• Regular meetings on specific activities, states of situation and projects in both areas.

• Active participation of both areas in global sourcing of insurance, the Group’s maximum technical body for defining coverage strategies and contracting insurance.

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Part 6. Reputational risk

We define reputational risk as that linked to the perception of the Bank by our various stakeholders, both internal and external, of our activity, and which could have an adverse impact on results, capital or business development expectations. This risk relates to legal, economic-financial, ethical, social and environmental aspects, among others.

The board, as part of its supervisory function, is responsible for defining the Group’s risk policies. In the case of reputational risk, its assessment corresponds to the risk committee as the body responsible for the Group’s global risk management.

Various of the Group’s governance structures are involved in reputational risk management, depending on where the risk comes from. The audit and compliance committee helps the board to supervise compliance with the Group’s code of conduct in the securities markets, the manuals and the procedures to prevent money-laundering and, in general, the Bank’s rules of governance and compliance. It formulates the proposals needed for their improvement.

This section deals with the reputational risk that could come from inadequate sale of products or incorrect provision of services.

Corporate project of marketing products and services

Under the new corporate framework for the compliance function, a corporate project of marketing was launched in 2009, which will lead to reinforce in the Group: (1) the marketing policies; (ii) the map of governance for authorizing and tracking products; and (iii) the systems and processes, strengthening in all of them the customer’s vision.

i) Marketing policies

The policies for marketing products and services which cover all phases (admission, pre-sale, sale and monitoring) are being reviewed and with a corporate scope.

ii) Governance bodies

The global committee of new products (GCNP) was redefined and a corporate committee of marketing (CCM) was created, which has been assigned powers of approval as well as those for monitoring of products after their sale.

A global consultative committee (GCC) was established comprising representatives of areas that contribute vision of regulatory and market risks. The GCC can recommend the review of products which are affected by changes in markets, deterioration of solvency (country, sectors and companies) or by changes in the Group’s vision of markets in the medium and long term.

The review of the map of corporate control in the sphere of marketing led to the creation in 2009 of the office for reputational risk management. The purpose of this office is to facilitate to the corresponding governance bodies the information needed to: (1) adequately analyze risk in the approval stage, with a two-pronged approach: impact on the Bank and on the customer; and (ii) monitor products during their life cycle.

In its first three months, this office tracked derivatives, mutual funds and funds with a certain level of risk or complexity.

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iii) Systems and processes

The improved systems and processes will facilitate adapting some marketing processes to the new commercial policies and also enable automated monitoring and in remote of their compliance.

The global committee of new products and the manual of procedures for selling financial products in 2009

Global Committee of New Products (GCNP)

The committee held 15 meetings in 2009 at which 170 products or families of products were analyzed.

In 2009, the areas that participated in the GCNP, chaired by the secretary general, were: tax advice, legal advice, customer service, internal auditing, retail banking, global corporate banking, integral control of risks, compliance, financial control and management control, technology and global business operations, technology and ECB operations, global wholesale banking risks management, corporate risks and IFIs, credit risks, market risks, risks-methodology, solvency risk, corporate technology risk and operational risk, Santander private banking, technology, global treasury, universities and, lastly, the unit proposing the new product or a representative of the local committee of new products.

Before a new product or service can be launched, these areas, as well as, where applicable, other independent experts needed to evaluate the risks incurred, exhaustively analyze the aspects that could affect the process, stating their opinion on each product or service.

The GCNP, in light of the documentation received, and after checking that all the requirements for approving the new product or service have been met and bearing in mind the risk guidelines set by the board’s risk committee approves, rejects or sets conditions for the new product or service.

The GCNP gives particular consideration to the suitability of the new product or service to the framework where it is going to be marketed. Particular importance is attached to ensuring that:

• Each product or service is sold by those who know how to sell it.

• The client knows what he or she is investing in and the risk of each product or service and this can be accredited with the relevant documents.

• The product or service fits the customer’s risk profile.

• Each product or service is sold where it can be, not only for legal or tax reasons (i.e. it fits into the legal and tax regime of each country), but also on the basis of the prevailing financial culture.

• When a product or service is approved the maximum limits for placement are set.

Manual of Procedures for the Sale of Financial Products

The manual, which has been used by Banco Santander since 2004 for the retail marketing of financial products in Spain, covers investment services for financial products including securities and other fixed-income or equity instruments, money market instruments, participations in collective investment institutions, savings and investment insurance, traded derivatives and OTC and atypical financial contracts. The GCNP can also include other instruments in the sphere of the manual of procedures, as has been the case with structured deposits, savings insurance and pension plans.

In 2009, 115 products subject to the manual were submitted for approval. Of them, 38 were new products submitted to the GCNP and 77 were products that were not new and were submitted to the office of the manual (specifically created to vouch for the manual’s implementation and integrated into the corporate area of compliance).

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Part 7. Adjustment to the new regulatory framework

Santander has been firmly committed right from the start to the principles that inspired the Basel II rules. This framework enables institutions to make internal estimates of capital to ensure solvency in the event of circumstances caused by different types of risk. As a result of this commitment, Grupo Santander has assigned all the human and material resources needed to ensure Basel II is successfully implemented. Several years ago a Basel II team was formed from the Group’s different areas: financial controller, risks, technology and operations, financial management and internal auditing. Grupo Santander’s senior management actively participates in monitoring the progress in implementing Basel II at the corporate level, and fostering the measures needed to extend the new culture and its implications for everyone. Both for credit and market risk, Basel II means recognizing, for regulatory capital purposes, the internal models that have been used for management purposes.

Grupo Santander has proposed adopting, during the next few years, the advanced internal ratings based (AIRB) models of Basel II for almost all its banks (covering close to 100% of net exposure of the credit portfolio under these models). Santander continued during 2009 to gradually install the technological platforms and methodological developments in order to allow it to progressively apply the advanced internal models for calculating regulatory capital in the rest of the Group’s units.

Grupo Santander has been authorized to use the advanced models for calculating regulatory capital requirements by credit risk for the parent Bank and the main subsidiaries in Spain, the UK and Portugal (two thirds of its total exposure at the end of 2009). The strategy of implementing Basel II in the Group will be focused as of now on the main institutions in the Americas and consumer banking in Europe.

Given the medium-low risk profile characteristic of Santander’s businesses, very focused on retail banking (SMEs and individual customers), the Bank of Spain’s authorization has enabled, on the basis of the Group’s real profile of risk, optimization of the capital required in Pillar I. Equally, the significant diversification of the Group’s risk profile and businesses enabled additional requirements of capital arising from the process of self-assessment of capital (which develops Pillar II) to be offset. This takes into account the impact of the risks not considered in Pillar I, as well as the benefits related to diversification by risks, businesses and geographic areas.

As regards the rest of risks explicitly envisaged in Pillar I of Basel II, market risk obtained authorization to use its internal model for treasury trading activity in Madrid, and like credit risk a plan for gradual implementation for the rest of units was presented to the Bank of Spain.

In operational risk, we decided for the moment to adopt the standard focus for calculating regulatory capital. The advanced focus (Advanced Measurement Approaches) may be adopted in the medium term.

Pillar II is another important line of work of the Basel II corporate project. Grupo Santander worked during 2009 on applying the proposed improvements as a result of the reviews made by an international team of supervisors of the committee of European banking supervisors (CEBS) at the end of 2008, and by internal auditing and validation teams on the corporate model of economic capital.

In addition, utilization of the technology platform supporting Pillar I was completed. This will enable the units with internal models authorized in Pillar I to use an integrated and robust information system to cover both regulatory and economic capital needs.

Grupo Santander, in accordance with the capital requirements set out in the European Directive and the regulations of the Bank of Spain, published for the second time the Report with Prudential Relevance at December 31, 2009. This report, published for the first time in June 2009 with data at December 31, 2008, clearly shows the transparency requirements requested by the Bank of Spain regarding Pillar III. With its publication, Grupo Santander meets the requirements of providing the market with information which is particularly relevant to Basel II and serves as a reference so that market agents can assess the capital sufficiency of banks.

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Internal validation of internal risk models

Internal validation is a prerequisite for supervisory validation. A specialized unit of Santander, with complete independence, obtains a technical opinion on whether the internal model is appropriate for the purposes used (internal and regulatory) and concludes on its usefulness and effectiveness.

As well as the regulatory requirement, internal validation also provides fundamental support for the board’s risk committee and local committees of risks in their responsibilities of authorizing the use (management and regulatory) of models and their periodic review.

Santander’s internal validation covers both credit and market risk models and those that set the prices of financial assets as well as the economic capital model. The scope of validation includes not only the most theoretical or methodological aspects but also the technology systems and the quality of data that make implementation effective and, in general, all relevant aspects for management of risk (controls, reporting, uses, involvement of senior management, etc).

The function of internal validation is located, at the corporate level, within the area of integral control and Internal Validation of risk which reports directly to the Group’s third vice-chairman and chairman of the board’s risk committee. The function is global and corporate in order to ensure homogeneous application. This is done via three regional centers in Madrid, London and Sao Paulo. These centers report to the corporate centre, which ensures uniformity in the development of their activities. This facilitates application of a common methodology supported by a series of tools developed internally which provide a robust corporate framework for use in all the Group’s units and which automate certain verifications in order to ensure the reviews are conducted efficiently.

Moreover, Grupo Santander’s corporate framework of internal validation is fully aligned with the criteria for internal validation of advanced models issued by the Bank of Spain. The criterion of separation of functions is maintained between the units of internal validation and internal auditing which, as the last element of control in the Group, is responsible for reviewing the methodology, tools and work done by internal validation and to give its opinion on its degree of effective independence.

Part 8. Economic capital

The concept of economic capital has traditionally been contrasted with that of regulatory capital, as this is the one required for the regulation of solvency. The new Basel II capital framework clearly brings both concepts closer together. While Pillar I determines the minimum regulatory capital requirements, Pillar II quantifies, via economic capital, our global solvency position.

Our model of economic capital quantifies the consolidated risk profile taking into account all the significant risks of activity, as well as the substantial diversification effect on a multinational and multi-business group like Santander. This economic capital model serves as the Group’s base for preparing its proposal of self-assessment of capital in accordance with Bank of Spain regulations under the Basel II Pillar II framework.

The concept of diversification is fundamental for appropriately measuring the risk profile of a global activity group. Although it is an intuitive concept and one present in risk management since banking began, we can also explain diversification as the fact that the correlation between various risks is imperfect and so the largest events of losses do not happen simultaneously in all portfolios or by types of risk. The sum of the economic capital of the different portfolios and types of risk, considered in isolation, is more than the Group’s total economic capital. In other words, the Group’s overall risk is less than the sum of its parts considered separately.

In addition, within the framework of the model for measurement and aggregation of economic capital, the risk of concentration for wholesale portfolios (large companies, banks and sovereigns) is also considered both in its dimension of exposure as well as concentration by sectors and countries. The existence of concentration in a country or a product in retail portfolios is captured by applying an appropriate model of correlations.

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Global risk analysis profile

The Group’s risk profile at December 31, 2009, measured in terms of economic capital, is distributed by types of risk and the main business units, is reflected below:

The distribution of economic capital among the main business units reflects the diversification of the Group’s activity and risk, something which increased in 2009 after the acquisition of Sovereign in the US (5% of the Group’s capital).

Continental Europe and Latin America each account for around one third of risk, the UK for 8%, while financial management and equity stakes, which assumes the risk from the structural exchange-rate position (derived from stakes in subsidiaries abroad denominated in non-euro currencies) and most of the equity stakes account for 19%.

The economic capital at December 31, 2009 was €43,045 million, including minority interests.

The Group’s geographic diversification, understood as the difference between the ratio of the sum of the capital of the business units taken on their own and the Group’s total diversified capital, is 21.6%.

The Group also conducts capital planning with the main objective of obtaining future projections of economic and regulatory capital and so be able to assess situations of capital sufficiency in various scenarios. Each scenario incorporates the forecasts of results in a coherent way, both with their strategic objectives (organic growth, M&A, pay-out ratio, etc) as well as with the evolution of the economic situation and in the face of stress situations. Possible capital management strategies are identified that enable the Bank’s solvency situation to be optimized as well as the return on capital.

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Return on risk adjusted capital (RORAC) and creation of value

Grupo Santander has been using RORAC methodology in its credit risk management since 1993 in order to:

• Calculate the consumption of economic capital and the return on it of our business units, as well as segments, portfolios and customers, in order to facilitate optimum assigning of economic capital.

• Budget the capital consumption and RORAC of our business units, including them in their remuneration plans.

• Analyze and set prices during the decision-taking process for operations (admission) and clients (monitoring).

RORAC methodology enables one to compare, on a like-for-like basis, the return on operations, customers, portfolios and businesses, identifying those that obtain a risk adjusted return higher than the cost of the Group’s capital, aligning management of risk and business with the intention to maximize the creation of value, the ultimate aim of senior management.

We regularly assess the level and evolution of value creation (VC) and the risk adjusted return (RORAC) of its main business units. The VC is the profit generated above the cost of the economic capital (EC) employed, and is calculated as follows:

Value creation =profit – (average EC x cost of capital)

The economic profit is obtained by making the necessary adjustments to attributable profit so as to extract just the recurrent profit that each unit generates in the year of its activity.

The minimum return on capital that an operation must attain is determined by the cost of capital, which is the minimum required by shareholders. It is calculated objectively by adding to the risk-free return, the premium that shareholders demand to invest in our Group. This premium depends essentially on the degree of volatility in the price of our shares in relation to the market’s performance. The cost of capital in 2009 applied to the Group’s various units was 12.03%.

A positive return from an operation or portfolio means it is contributing to the Group’s profits, but it is not really creating shareholder value unless that return exceeds the cost of capital.

All the main business units obtained in 2009 a RORAC higher than the cost of capital. The creation of value and the RORAC for the Group’s main business areas are shown below:

Million euros
Main segments	RORAC			Creation of value
Continental Europe		32.3	%		3,243
United Kingdom		37.2	%		1,168
Latin America		29.7	%		2,479
Sovereign		-1.5	%		(225	)
Subtotal of operating areas		30.4	%		6,665
Financial management & equity stakes		-22.2	%		(2,484	)
Group total		21.6	%		4,180

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The Group’s RORAC comfortably exceeded the cost of capital estimated for 2009 and stood at 21.6%. The creation of value (i.e. the economic profit less the average cost of capital used to achieve it) amounted to €4,180 million.

Part 9. Risk training activities

Santander has a corporate school of risks. Its purpose is to help to consolidate the risk management culture in Santander and ensure that all employees in the risks area are trained and developed with the same criteria.

The school, which gave a total of 21,479 hours of training to 3,067 employees in 2009, is the base for strengthening Santander’s leadership in this sphere and continuously enhancing the skills of its staff.

It also trains staff in other business segments, particularly in the retail banking area, and aligns the requirements of risk management with business goals.

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Part 10. Market Risk

Generally

The perimeter for measuring, controlling and monitoring the area of Market Risks covers those operations where equity risk is assumed. This risk comes from the change in risk factors – interest rates, exchange rates, shares, the credit spread, raw material prices and the volatility of these elements– as well as the liquidity risk of the various products and markets in which the Group operates. Two new factors are given differentiated treatment in 2009 compared to 2008: the credit spread (previously integrated partly in interest rates) and the price of commodities (previously integrated in equities, with a small relative share compared to the rest of factors).

We are exposed to market risk mainly as a result of the following activities:

• Trading in financial instruments, which involves interest rate, foreign exchange rate, equity price, commodity price and volatility risks.

• Engaging in retail banking activities, which involves interest rate risk since a change in interest rates affects interest income, interest expense and customer behavior. This interest rate risk arises from the gap (maturity and repricing) between assets and liabilities.

• Investing in assets (including subsidiaries) whose returns or accounts are denominated in currencies other than the Euro, which involves foreign exchange rate risk between the Euro and such other currencies.

• Investing in subsidiaries and other companies, which subject us to equity price risk; and

• Trading and non-trading activities which entail liquidity risk.

Primary Market Risks and How They Arise

The primary market risks to which we are exposed are interest rate risk, foreign exchange rate risk, equity price risk, volatility risk and liquidity risk. We are exposed to interest rate risk whenever there is a mismatch between interest rate sensitive assets and liabilities, subject to any hedging with interest rate swaps or other off-balance sheet derivative instruments. Interest rate risk arises in connection with both our trading and non-trading activities.

We are exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities, and off-balance sheet items denominated in different currencies, either as a result of trading or in the normal course of business. We maintain non-trading open currency positions arising from our investments in overseas subsidiaries, affiliates and their currency funding. The principal non-trading currency exposures are the euro to the US dollar and the British pound and the euro to the main Latin American currencies. Trading foreign exchange rate open risk is not material compared to non-trading foreign exchange risk.

We are exposed to equity price risk in connection with both our trading and non-trading investments in equity securities.

We are also exposed to liquidity risk. Market depth is the main liquidity driver in our trading portfolio, even though our policy is to trade the most liquid assets. Our liquidity risk also arises in non-trading activity due to the maturity gap between assets and liabilities in the retail banking business.

We use derivatives for both trading and non-trading activities. Trading derivatives are used to eliminate, to reduce or to modify risk in trading portfolios (interest rate, foreign exchange and equity), and to provide financial services to clients. Our principal counterparties for this activity are financial institutions. The principal types of derivatives used are: interest rate swaps, future rate agreements, interest rate options and futures, foreign exchange forwards, foreign exchange futures, foreign exchange options, foreign exchange swaps, cross currency swaps, equity index futures and equity options. The Group also has an incipient activity in commodity derivatives.

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Derivatives are also used in non-trading activity in order to manage the interest rate risk and foreign exchange risk arising from asset and liability management activity. Interest rate and foreign exchange non-optional derivatives are used in non-trading activity.

The Group also uses credit derivatives both to hedge credit risk in fixed income portfolios and to provide financial services to clients. To a lesser extent, they are used in proprietary trading and to diversify the global credit portfolio. Most of the activity is made in credit default swaps on individual names or indices.

Procedures for Measuring and Managing Market Risk

Our board, through its risk committee, is responsible for establishing our policies, procedures and limits with respect to market risks, including which businesses to enter and maintain. The committee also monitors our overall performance in light of the risks assumed. Together with the local and global assets and liabilities committees (“ALCO”), each Market Risk Unit measures and monitors our market risks, and provides figures to ALCO to use in managing such risks, as well as liquidity risk.

Our market risk policy is to maintain a medium to low risk profile in business units. The risk activity is regulated and controlled through certain policies, documented in our Market and Liquidity Risk Management Policies Manual (as described below), and through a limit structure on our exposure to these market and liquidity risks which includes global limits for the entire Group (total risk limit unit) to specific portfolio limits; in addition, authorized products are listed and reviewed periodically.

These policies, procedures and limits on market risk are applicable to all units, businesses or portfolios susceptible to market risk.

1. Market and Liquidity Risk Management Policies Manual

The Market and Liquidity Risk Management Policies Manual is a compilation of policies that describe the control framework used by our Group to identify, measure and manage market risk exposures inherent to our activities in the financial markets. The Manual is employed for market risk management purposes at all involved levels in the Group and subsidiaries, providing a general and global action framework and establishing risk rules for all levels.

The Manual’s main objective is to describe and report all risk policies and controls that our board of directors has established as well as its risk predisposition.

All Group managers must ensure that each business activity is performed in accordance with the policies established in the Manual. The Manual is applied to all business units and activities, directly or indirectly, related to market risk decision-making.

2. Market Risk Management Procedures

All the functions developed by a risk manager are documented and regulated by different procedures, including measurement, control and reporting responsibilities. Internal and external auditors audit the compliance with this internal regulation control in order to ensure that our market risk policies are being followed.

3. Market Risk Limit Structure

The market risk limit structure can be defined as the board of director’s risk “appetite” and is managed by the Global Market Risk Function that accounts for all Group business units.

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Its main functions are to:

• Identify and define the main types of risk incurred efficiently and comprehensively to be consistent with the management and strategy of the business.

• Quantify and inform the business areas of the risk levels and profile that senior management believes can be assumed, in order to avoid undesired risks.

• Give flexibility to the business areas to build risk positions efficiently and on a timely basis according to changes in the market and in the business strategies, and always within the risk levels regarded as acceptable by the Group.

• Allow the generators of business to take prudent risks which are sufficient to attain budgeted results.

• Establish investment alternatives by limiting equity consumption.

• Define the range of products and underlying assets with which each unit of Treasury can operate, taking into consideration features such as the model and valuation systems, the liquidity of the tools used, etc. This will help to constrain all market risk within the business management and defined risk strategy.

The Global Market Risk Function defines the limit structure while the risk committee reviews and approves it. Business managers then administer their activities within these limits. The limit structure covers both our trading and non-trading portfolios and it includes limits on fixed income instruments, equity securities, foreign exchange and other derivative instruments.

Limits considered to be global limits refer to the business unit level. Local business managers set lower level limits, such as portfolio or trader limits. To date, system restrictions prevent intra-day limits.

Business units must always comply with approved limits. Potential excesses will require a range of actions carried out by the Global Market Risk Function unit including:

• Providing risk reducing levels suggestions and controls. These actions are the result of breaking “alarm” limits.

• Taking executive actions that require risk takers to close out positions to reduce risk levels.

Statistical Tools for Measuring and Managing Market Risk

1. Trading activity

The Trading Portfolio is defined as proprietary positions in financial instruments held for resale and/or bought to take advantage of current and/or expected differences between purchase and sale prices. These portfolios also include positions in financial instruments deriving from market-making, sale and brokering activity.

As a result of trading fixed income securities, equity securities and foreign exchange, we are exposed to interest rate, equity price and foreign exchange rate risks. We are also exposed to volatility when derivatives (options) are used.

Market risk arising from proprietary trading and market-making activities is actively managed through the use of cash and derivative financial instruments traded in OTC and organized markets.

Interest rate risk derived from market-making is typically hedged by buying or selling very liquid cash securities such as government bonds, or futures contracts listed in organized markets like Liffe, Eurex, Meff and CBOT.

Foreign exchange rate risk is managed through spot transactions executed in the global foreign exchange inter-bank market, as well as through forward foreign exchange, cross currency swaps and foreign exchange options.

Equity price risk is hedged by buying or selling the underlying individual stocks in the organized equity markets in which they are traded or futures contracts on individual stocks listed in organized markets like Meff and Liffe.

In the case of equity indexes such as S&P 500, Euro STOXX 50, or IBEX 35, the hedging is done through futures contracts listed in the aforementioned organized markets.

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Volatility risk arising from market-making in options and option-related products is hedged by, either buying and selling option contracts listed in organized markets like Eurex, Meff, and CBOT, or entering risk reversal transactions in the inter-bank OTC market.

Credit risk is managed through the use of credit derivatives.

We use Value at Risk (“VaR”) to measure our market risk associated with all our trading activity.

1.1 VaR Model

We use a variety of mathematical and statistical models, including VaR models, historical simulations, stress testing and evaluations of Return on Risk Adjusted Capital (“RORAC”) to measure, monitor, report and manage market risk. We call our VaR figures daily or annual “capital at risk” figures (“DCaR” or “ACaR”), depending on their time horizon, since we use them to allocate economic capital to various activities in order to evaluate the RORAC of such activities.

As calculated by us, DCaR is an estimate of the expected maximum loss in the market value of a given portfolio over a one-day time horizon at a 99% confidence interval. It is the maximum one-day loss that we estimate we would suffer on a given portfolio 99% of the time, subject to certain assumptions and limitations discussed below. Conversely, it is the figure that we would expect to exceed only 1% of the time, or approximately three days per year. DCaR provides a single estimate of market risk that is comparable from one market risk to the other.

The standard methodology used is based on historical simulation (520 days). In order to capture recent market volatility in the model, our DCaR figure is the maximum between the 1% percentile and the 1% weighted percentile of the simulated profit and loss distribution. This loss distribution is calculated by applying an exponential decline factor, which accords less weight to the observations furthest away in time.

We use DCaR estimates to alert senior management whenever the statistically estimated losses in our portfolios exceed prudent levels. Limits on DCaR are used to control exposure on a portfolio-by-portfolio basis. DCaR is also used to calculate the RORAC for a particular activity in order to make risk-adjusted performance evaluations.

Finally, in order to control derivative activities and credit management, because of their atypical nature, specific measures are evaluated daily. First, we look at the sensitivity to price movements of the underlying asset (delta and gamma), volatility (vega) and time (theta) and then measures are enacted such as the spread sensitivity, jump-to-default, and concentration of positions by rating levels.

To address the credit risk inherent in trading portfolios in accord with the recommendations of the Basel Committee on Banking Supervision, we also calculate an additional measurement (incremental default risk, IDR), in order to cover the risk of default that is not adequately captured in the VaR, via changes in lending spreads. The instruments affected are basically fixed-rate bonds, both public and private sector, derivatives on bonds (forwards, options, etc) and credit derivatives (credit default swaps, asset backed securities, etc). The method for calculating the IDR, in essence similar to that of the credit risk of positions outside trading, is based on direct measurements of the tails of the distribution of losses to the appropriate percentile (99.9%). The “saddle point” model is used, which provides estimates of total risk and the contributions of each counterparty to it. The calculations are also supplemented and calibrated with Monte Carlo simulations.

1.2 Assumptions and Limitations

Our DCaR and VaR methodology should be interpreted in light of the limitations of our model, which include:

• A one-day time horizon may not fully capture the market risk of positions that cannot be liquidated or hedged within one day.

• At present, we compute DCaR at the close of business and trading positions may change substantially during the course of the trading day.

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1.3 Scenario Analysis and Calibration Measures

Because of these limitations in DCaR and VaR methodology, in addition to historical simulation, we use stress testing to analyze the impact of extreme market movements and to adopt policies and procedures in an effort to protect our capital and results of operation against such contingencies.

In order to calibrate our VaR model, we use back testing processes. Back testing is a comparative analysis between VaR estimates and the daily clean P&L (theoretical result generated assuming the Mark-to-Market daily variation of the portfolio only considering the movement of the market variables). The purpose of these tests is to verify and measure the precision of the models used to calculate VaR.

The analyses of our back testing comply, at a minimum, with the BIS recommendations regarding the verification of the internal systems used to measure and manage market risks.

2. Non Trading activity

2.1 Foreign Exchange Risk and Equity Price Risk

Due to its nature, changes in strategic positions have to be approved by local/global functions in ALCO committee. Position limits with respect to these investments are established, although they will be measured under VaR and other methods that attempt to implement immediate action plans if a particular loss level is reached.

Our foreign exchange rate risk with respect to our non-trading activity can be either permanent or temporary. The permanent risk reflects the book value of investments net of the initial goodwill, while the temporary risk basically stems from purchase/sale operations made to hedge the exchange rate risk derived from dividend flows and expected results. The exchange rate differences generated for each position are recorded in reserves and in profit and loss account respectively.

In order to manage the exchange rate risk of the book value of permanent investments, our general policy is to finance the investment in local currency, provided there is a deep market which allows it and that the cost of doing so is justified by the expected depreciation. If local markets were not deep enough, our investments in foreign currency would be financed in euros and so would generate an exchange-rate risk. Certain one-off hedges of permanent investments are made when it is believed that a local currency could weaken against the euro more quickly than the market is discounting. In addition, operations are carried out to hedge the currency risk of the Group’s results and dividends in Latin America.

Our equity price risk arises from our portfolio of investments in industrial and strategic shareholdings. However, in the last few years the Group’s equity price risk has decreased due to divestments in the industrial and strategic equity portfolio.

2.2 Interest Rate Risk

The Group analyzes the sensitivity of net interest margin and market value of equity to changes in interest rates. This sensitivity arises from gaps in maturity dates and review of interest rates in the different asset and liability accounts. Certain re-pricing hypotheses are used for products without explicit contractual maturities based on the economic environment (financial and commercial).

On the basis of the positioning of balance sheet interest rates, as well as the market situation and outlook, the financial measures are agreed to adjust the positioning to levels desired by the Group. These measures range from taking positions in markets to defining the interest rate features of commercial products. We manage investments by determining a target range for each sensitivity and providing the appropriate hedge (mainly with government debt, interest rate swaps and interest rate options) in order to maintain these sensitivities within that range.

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The measures used to control interest rate risk are the interest rate gap and the sensitivity of net interest margin and market value to changes in interest rates, VaR and analysis of scenarios.

a) Interest rate gap of assets and liabilities

Interest rate gap analysis focuses on lags or mismatches between changes in the value of asset, liability and off-balance sheet items. Gap analysis provides a basic representation of the balance sheet structure and allows for the detection of interest rate risk by concentration of maturities. It is also a useful tool for estimating the impact of eventual interest rate movements on net interest margin or equity.

All on- and off-balance sheet items must be broken down by their flows and analyzed at in terms of repricing and maturity. In the case of those items that do not have a contractual maturity, an internal model of analysis is used and estimates are made of their duration and sensitivity.

b) Net interest margin sensitivity (NIM)

The sensitivity of net interest margin measures the change in the short/medium term in the accruals expected over a particular period (12 months), in response to a shift in the yield curve.

It is calculated by simulating the net interest margin, both for a scenario of a shift in the yield curve as well as for the current scenario. The sensitivity is the difference between the two margins calculated.

c) Market value of equity sensitivity (MVE)

Net worth sensitivity measures in the long term (the whole life of the operation) the interest risk implicit in net worth (equity) on the basis of the effect that a change in interest rates has on the current values of financial assets and liabilities. This is an additional measure to the sensitivity of the net interest margin.

d) Value at Risk (VaR)

The Value at Risk for balance sheet activity and investment portfolios is calculated with the same standard as for trading, historical simulation with a confidence level of 99% and a time frame of one day. Statistical adjustments are made, which effectively and quickly incorporates the latest developments that condition the risk levels assumed.

e) Analysis of scenarios

Two scenarios for the performance of interest rates are established: maximum volatility and sudden crisis. These scenarios are applied to the balance sheet, obtaining the impact on net worth as well as the projections of net interest revenue for the year.

2.3 Liquidity risk

Liquidity risk is associated with our capacity to finance our commitments, at reasonable market prices, as well as to carry out our business plans with stable sources of funding. We permanently monitor maximum gap profiles.

We have a diversified portfolio of assets that are liquid or can be made so in the short term. We also have an active presence in a wide and diversified series of financing and securitization markets, limiting our dependence on specific markets and keeping open the capacity of recourse to alternative markets.

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The measures used to control liquidity risk are the liquidity gap, liquidity ratio, stress scenarios and contingency plans.

a) Liquidity gap

The liquidity gap provides information on contractual and expected cash inflows and outflows for a certain period of time, for each of the currencies in which we operate. The gap measures the net need or excess of funds at a particular date, and reflects the level of liquidity maintained under normal market conditions.

b) Liquidity ratios

The liquidity coefficient compares liquid assets available for sale (after applying the relevant discounts and adjustments) with total liabilities to be settled, including contingencies. This coefficient shows, for currencies that cannot be consolidated, the level of immediate response of the entity to firm commitments.

Net accumulated liquidity is defined as the 30-day accumulated gap obtained from the modified liquidity gap. The modified contractual liquidity gap is calculated on the basis of the contractual liquidity gap and by placing liquid assets or repos at the point of settlement and not at their point of maturity.

In addition, we use the following other ratios or metrics regarding the structural liquidity position:

• Loans / net assets

• Customer deposits, insurance and medium and long-term financing / lending

• Customer deposits, insurance and medium and long-term financing, shareholders’ funds and other liabilities / sum of credits and fixed assets.

• Short-term financing / net liabilities.

c) Analysis of scenarios/contingency plan

Our liquidity management focuses on preventing a crisis. Liquidity crises, and their immediate causes, cannot always be predicted. Consequently, our contingency plan concentrates on creating models of potential crises by analyzing different scenarios, identifying crisis types, internal and external communications and individual responsibilities.

As a crisis can occur locally or globally, each local unit must prepare a plan of contingency financing. Each unit must inform the central unit of its plan at least every six months so that it can be reviewed and updated. These plans, however, must be updated more frequently if market circumstances make it advisable.

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Lastly, Grupo Santander is actively participating in the process opened by the Basel Committee to strengthen bank liquidity¹, with a two-pronged approach: participating in the analysis of the impact of the regulatory changes raised — including, the introduction of two new ratios: Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) – and, participating in various forums (European Banking Federation, etc.), to discuss and comment on the issue, maintaining in both cases close co-operation with the Bank of Spain.

Quantitative analysis

A. Trading activity²

Quantitative analysis of daily VaR in 2009

Our risk performance regarding trading activity in financial markets during 2009, measured by daily Value at Risk “VaR”, is shown in the following graph.

VaR during 2009 fluctuated more than 95% of the time in a range of between €20 million and €40 million. The exception was March when it was temporarily higher, because of the increased positions in the treasuries of Brazil (fixed income and equities) and Mexico (fixed income and exchange rates). It reached a high of €45.2 million in the middle of March. It then declined, mainly due to the reduced positions in Brazil and Mexico

The average VaR of the Group’s trading portfolio in 2009 (€30.2 million) was lower than in 2008. This was due to the increased global volatility in financial markets in 2008 following the collapse of Lehman Brothers rather than to reduced risk taking. Compared to other financial groups, Grupo Santander has a low trading risk profile. Its dynamic management enables the Group to adopt changes of strategy in order to exploit opportunities in an environment of uncertainty.

VaR risk histogram

The histogram below shows the distribution of average risk in terms of VaR during 2009. It was between €25 million and €34 million on 70.2% of days. Of note were the levels of more than €40 million, due to the increased positions in Brazil and Mexico.

1.	The “International framework for liquidity risk measurement, standards and monitoring” (Basel Committee on Banking Supervision, Consultative Document, December 2009)
2.	Including Banesto and Sovereign. Venezuela was excluded from the perimeter as of April 1.

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Risk by factor³

For enhanced presentation, two new factors are given differentiated treatment in 2009 compared to 2008: the credit spread (previously integrated partly in interest rates) and the price of commodities (previously integrated in equities, with a small relative share compared to the rest of factors). The minimum, maximum, average and year-end 2009 risk values in VaR terms were as follows:

³. Total Trading VaR includes operations that are not assigned to any particular country, such as Active Credit Portfolio Management and Non-core Legacy Portfolio

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		Minimum			Average			Maximum			Last
TOTAL TRADING	Total VaR		21.9			30.2			45.1			27.5
	Diversification effect		(19.2	)		(24.8	)		(31.4	)		(29.2	)
	Fixed-Income VaR		11.3			20.0			31.9			18.3
	Equity VaR		4.2			6.9			11.6			5.9
	FX VaR		10.5			15.5			23.1			16.1
	Credit Spread VaR		8.2			11.9			15.8			15.0
	Commodities VaR		0.1			0.8			1.6			1.4
LATIN AMERICA	VaR Total		9.0			19.6			33.8			16.6
	Diversification effect		(6.3	)		(12.3	)		(16.8	)		(7.7	)
	Fixed-Income VaR		8.9			16.6			29.2			16.0
	Equity VaR		0.7			3.9			10.3			2.8
	FX VaR		1.7			7.1			16.7			6.0
USA and Asia	VaR Total		1.0			3.3			11.0			1.2
	Diversification effect		(0.0	)		(1.0	)		(2.6	)		(0.3	)
	Fixed-Income VaR		0.7			3.1			11.2			0.9
	Equity VaR		0.0			0.3			2.1			0.0
	FX VaR		0.3			0.9			5.9			0.6
EUROPE	VaR Total		11.2			14.6			23.9			13.5
	Diversification effect		(10.3	)		(16.5	)		(23.2	)		(18.1	)
	Fixed-Income VaR		5.2			8.6			19.1			6.6
	Equity VaR		3.2			5.5			8.8			5.2
	FX VaR		6.1			11.6			18.7			13.8
	Credit Spread VaR		1.9			4.6			8.3			4.7
	Commodities VaR		0.1			0.8			1.6			1.4

This report includes for the first time a more detailed breakdown by factors, including the credit spread VaR and the commodities VaR. Until now, the risk of these factors was included in fixed income and equities, respectively. In Latin America, the US and Asia these factors are not shown separately because they are immaterial.

The average VaR was €9.8 million lower than in 2008, due to the lower volatility in markets. The reduction was mainly in fixed income/credit spread, which dropped from €34.4 million to €23.3 million (taking the joint VaR of both factors in 2009).

The average levels of VaR in currency and equities remained virtually unchanged: the first remained at €15.5 million and the second increased slightly (from €6.4 million to €6.9 million). The decline in fixed income risk, considering the combined VaR of both fixed income and credit spread factors, was divided between Latin America (from €26.2 million to €16.6 million) and Europe (from €24.7 million to €9.8 million).

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The VaR performance during 2009 underlined the Group’s flexibility and agility in adapting its risk profile on the basis of changes in strategy caused by a different perception of expectations in the markets. Unlike in 2008, when there were three exceptions of VaR at 99% (days when the gross loss was higher than the VaR), in 2009 there were none. This was due to the significant decline in volatility.

Distribution of risks and results

• Geographic distribution

Latin America contributed on average 45.1% of the Group’s total VaR in trading activity and 27.1% in economic results. Europe, with 25.0% of global risk, contributed 60.6% of results, as most of its treasury activity focused on professional and institutional clients.

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Monthly distribution of risks and results

The following chart shows that both the risk assumption profile (in terms of VaR) and the results followed a relatively downward path, particularly in the case of the latter. The result in the first half of the year was higher than in the second, which also corresponds to somewhat higher risk levels.

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Histogram of daily Marked-to-Market (“MtM”) results

The following histogram of frequencies shows the distribution of daily economic results on the basis of size. The daily yield⁴ was between -€5 and +€15 million on 78% of trading days.

Risk management of structured derivatives

Our structured derivatives activity (non-organized markets) is mainly focused on structuring investment and hedging products for clients. These transactions include options on equities, currencies and fixed-income instruments.

Test and calibration measures

In accordance with the BIS recommendations for gauging and monitoring the effectiveness of internal market risk measurement and management systems, in 2009 we carried out regular analysis and contrasting measures which confirmed the reliability of the model.

⁴ Yields “clean” of commissions and results of intraday operations

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Unlike in 2008, when there were three exceptions of VaR at 99% (days when the gross loss was higher than the VaR), in 2009 there were none. This was due to the significant decline in volatility.

Scenario analysis

Different stress test scenarios were analyzed during 2009. A scenario of maximum volatility, which applies six standard deviations to different market factors as of December 31, 2009, generated results that are presented below.

Maximum volatility scenario

The table below shows, at December 31, 2009, the results of each product (fixed income, equities, exchange rates, spreads on loans and the volatility of each one of them), in a scenario in which a volatility equivalent to six standard deviations in a normal distribution is applied. This scenario is based on taking for each risk factor the movement that represents a greater potential loss in the global portfolio. For 2009 this scenario involved rises in interest rates in Latin American markets and falls in core markets (“flight into quality”), declines in stock markets, the dollar’s slide against all currencies except the euro, greater volatility and spreads on loans.

Maximum volatility Stress Test

€ million	Interest rate			Equities			Exchange rate			Credit Spread			Commodities			Total
Total Trading		(52.6	)		4.8			(62.1	)		(122.0	)		(2.2	)		(234.0	)
Europe		(10.2	)		20.3			(51.5	)		(64.4	)		(2.2	)		(136.7	)
Latin America		(40.2	)		(15.4	)		(10.5	)		0.0			0.0			(66.1	)
USA (New York)		(1.0	)		(0.1	)		0.0			0.0			0.0			(1.1	)
Global Activities		(1.2	)		0.0			(0.1	)		(57.6	)		0.0			(58.9	)

The stress test shows that the economic loss suffered by the Group in its trading portfolios, in terms of the Mark to Market (MtM) result would be €234.0 million if the stress movements defined in the scenario materialized. The loss would be distributed between Europe (exchange rates and spreads on loans), Latin America (fixed income) and global activities (spreads on loans).

B. Non-Trading Activity

B.1. Asset and liability management

We actively manage the market risks inherent in retail banking. Management addresses the structural risks of interest rates, liquidity, exchange rates and credit.

The purpose of financial management is to make net interest revenue from our commercial activities more stable and recurrent, maintaining adequate levels of liquidity and solvency.

The Financial Management Area analyzes structural interest rate risk derived from mismatches in maturity and revision dates for assets and liabilities in each of the currencies in which we operate. For each currency, the risk measured is the interest gap, the sensitivity of net interest revenue, the economic value and the duration of equity.

The Financial Management Area manages structural risk on a centralized basis. This allows the use of homogenous methodologies, adapted to each local market where we operate.

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In the euro-dollar area, the Financial Management Area directly manages the risks of the Parent Bank and coordinates management of the rest of the units that operate in convertible currencies. There are local teams in the banks in Latin America that manage balance sheet risks under the same frameworks, in coordination with the global Financial Management Area.

The Asset and Liability Committees (ALCOs) of each country and, where necessary, the markets committee of the Parent Bank, are responsible for the risk management decisions.

B.1.1. Quantitative analysis of interest rate risk in 2009

a) Convertible currencies

At the end of 2009, the sensitivity of net interest margin at one year to parallel rises of 100 basis points was concentrated in the euro interest rate curve (€209.7 million), with the Parent Bank contributing the most, and in the sterling interest rate curve (£34.1 million negative). The sensitivity of the rest of convertible currencies was not very significant.

At the same date, the sensitivity of equity to parallel rises in the yield curve of 100 basis points in the euro interest rate curve was €743.4 million, most of it in the Parent Bank. As regards the curve in sterling it was £11.2 million negative.

Sovereign is included within the perimeter in 2009, with no considerable impact on the sensitivity of the interest rate curve in dollars.

In accordance with the current environment of low interest rates, the Bank maintains as lightly positive sensitivity, both in net interest margin (NIM) and market value equity (MVE), to interest rate rises.

Structural Gap. Santander Parent Company (December 31, 2009)

				Up to 1								More than 5
€million	Not sensitive			year		1-3 years			3-5 years			years			TOTAL
Money and securities market					40,570		9,101			1,093			12,104			62,868
Loans		112			117,973		10,833			1,498			1,758			132,174
Permanent equity stakes		58,783														58,783
Other assets		15,847			49,367		51			52			120			65,437
Total assets		74,742			207,910		19,985			2,643			13,982			319,262
Money market		—			34,081		125			1,500			300			36,006
Customer deposits		—			32,917		10,318			8,099			13,016			64,350
Debt Issues and securitizations		—			85,021		18,761			11,979			11,150			126,911
Stockholders’ equity and other liabilities		77,502			39,923		1,100			830			1,370			120,725
Total liabilities		77,502			191,942		30,304			22,408			25,836			347,992
Balance sheet Gap		(2,761	)		15,968		(10,320	)		(19,765	)		(11,854	)		(28,732	)
Off-balance sheet structural Gap		—			645		17,041			9,808			4,333			31,827
Total structural Gap		(2,761	)		16,613		6,721			(9,957	)		(7,521	)		3,095
Accumulated Gap		—			16,613		23,334			13,378			5,857			—

b) Latin America

The interest rate risk of Latin America’s balance sheet management portfolios, measured by the sensitivity of market value of the net interest margin (NIM) to a parallel movement of 100 basis points, remained during 2009 at low levels and within a narrow band (maximum of €96 million in September). In terms of equity sensitivity, it fluctuated in a wider range of €250 million to €750 million, and increased in the second half of the year, mainly because of purchases in Brazil to cover the interest rate risk of the balance sheet.

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At the end of 2009, the region’s risk consumption, measured by the market value of equity sensitivity to a parallel movement of 100 basis points, was €704 million (€430 million in 2008), while that of the net interest margin at one year, measured by its sensitivity to a parallel movement of 100 basis points, was €64 million (€27 million in 2008).

Interest rate risk profile at December 31, 2009

The tables below show the distribution of risk by maturity in Latin America as of December 31, 2009 (figures in millions of euros).

Gaps in Local	Not
Currency	sensitive			0-6 months			6-12 months			1-3 years			> 3 years			TOTAL
Assets		42,421			74,918			18,703			21,685			21,661			179,467
Liabilities		57,326			83,356			14,585			14,353			6,469			176,090
Off-balance Sheet		2			1,894			(2,590	)		(1,109	)		(783	)		(2,586	)
Gap		(14,626	)		(6,828	)		2,384			5,692			14,169			792

Gaps in Foreign	Not
Currency	sensitive		0-6 months			6-12 months			1-3 years		> 3 years		TOTAL
Assets		2,591		21,752			2,229			2,359		3,767		32,698
Liabilities		1,466		24,461			3,404			3,625		3,119		36,075
Off-balance Sheet		0		(2,221	)		704			1,951		2,152		2,586
Gap		1,125		(4,930	)		(471	)		685		2,800		(792	)

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Net Interest Margin (NIM) sensitivity

For the whole of Latin America, the consumption at the end of 2009 was €64 million (sensitivity of the financial margin at one year to a parallel rises of 100 basis points). The geographic distribution is shown below.

More than 80% of the risk was concentrated in three countries: Brazil, Chile and Mexico.

NIM Sensitivity by countries

Others: Colombia, Panama, Santander Overseas and Uruguay

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Market Value of Equity (MVE) sensitivity

For the whole of Latin America, the consumption at the end of 2009 was €704 million (sensitivity of MVE to rises of 100 basis points in interest rates). The geographic distribution is shown below.

More than 90% of risk is concentrated in three countries: Brazil, Chile and Mexico.

MVE Sensitivity by countries

Others: Colombia, Panama, Santander Overseas and Uruguay

B.1.2. Structural management of credit risk

The purpose of structural management of credit risk is to reduce the credit risk concentrations that can naturally occur as a result of business activity through the sale of assets. These operations are offset by acquiring other assets that diversify the credit portfolio. The Financial Management Area analyzes these strategies and makes proposals to the ALCO to minimize the exposure to credit risk and help create value.

During 2009:

• € 16 billion of assets were securitized. Given the difficulties of the securitization market since August 2007, all the issues were retained by the Group’s various units. These securitizations significantly increased the Group’s liquidity position through its discounting capacity in central banks, and

• Repurchases were made in the secondary market of AAA securitization bonds by Group issuers (€ 2 billion).

B.1.3. Management of structural liquidity

Management of financing and liquidity risk, fully consolidated before the onset of the financial turbulence, has been one of the main pillars behind the success of Banco Santander’s business model during this critical period.

This framework of liquidity management has not required changes to make it function correctly and has given Santander a significant competitive advantage. Specifically, it has enabled the Group and its subsidiaries to successfully tackle the business liquidity needs during the worst moments of the crisis and take advantage of growth opportunities that the market has offered.

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On the one hand, the lack of liquidity restrictions made it possible to finance the organic growth of existing units and businesses to surpass many of our competitors. This produced gains in market share in businesses as demanding as mortgage lending in the UK and wholesale business in Europe.

On the other hand, the acquisition of new units in the last few years was made possible by the Group’s excellent access to liquidity. This also helped to boost the Bank’s capacity to create value, while further diversifying the sources of financing and achieving a better positioning in attracting deposits.

The liquidity management framework in the Group and its situation at the end of 2009 is set out below.

B.1.3.1. Management framework

Liquidity management is based on three fundamental pillars:

• Organizational and governance model: a solid model of governance that ensures the involvement of senior management and the board in taking decisions and facilitating their integration with the Group’s global strategy.

• Management: adapted to each business’s liquidity needs, in accordance with the decentralized organizational model.

• Balance sheet analysis and liquidity risk management: profound analysis of the balance sheet and its evolution in order to support decisions.

a. Organizational and governance model

Decision-taking regarding structural risks is done by local ALCO committees in coordination with the markets committee. The latter is the highest decision-making body and coordinates all global decisions that influence measurement, management and control of liquidity risk.

The markets committee is headed by the chairman of the Bank, and is composed of the second vice-chairman and CEO, the third vice-chairman, the chief financial officer and the executive vice-president of risk and those responsible for the business and analysis units.

The financial management and global market risk areas manage and control the structural and liquidity risks, respectively, and they support the ALCO committees, presenting analysis and proposals and ensuring compliance with the established limits.

In line with the best governance practices, the Group establishes a clear division between executing the financial management strategy (the responsibility of the financial management area) and monitoring and control (the responsibility of market risk).

b. Management

Structural liquidity management aims to finance the Group’s recurring activity in optimum conditions of maturity and cost and avoid assuming undesired liquidity risks.

Liquidity and financing management is based on the following principles:

• Broad and stable base of customer deposits: more than 90% are retail and are captured in the Group’s core markets by various units.

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• Financing via medium and long-term issues to cover the balance sheet’s liquidity needs (the gap between loans and deposits), establishing a surplus of structural financing in order to be able to meet possible adverse situations.

• Diversification of financing sources to reduce the risk in relation to:

• instruments/investors

• markets/currencies

• maturities

• Strict control of short-term financing needs, within the Group’s policy of minimizing the degree of recourse to short-term funds.

• Autonomy and responsibility of subsidiaries in managing the financing of liquidity, with no structural support from the Parent bank (except for a small part of consumer business, whose financing is done at the market price).

In practice, and applying these principles, our liquidity management consists of:

• Drawing up every year the liquidity plan based on the financing needs derived from the budgets of each business. On the basis of these needs and bearing in mind prudent limits on recourse to short-term markets, the year’s issuance and securitization plan is established by Financial Management.

• During the year the evolution of the balance sheet and financing needs is regularly monitored, giving rise to changes to the plan.

• An active presence is maintained in a broad and diversified series of financing markets. The Group has eight significant and independent issuance units, which are not dependent on any one market and maintain available a wide capacity of issuance in various markets.

In addition, the Group has an adequate structure of medium and long-term issues, well diversified by products (senior debt, subordinated, preferred shares, bonds, securitization) with a moderately conservative maturity (4.5 years at the end of 2009).

All of this results in moderate needs of recourse to short-term wholesale financing at the Group level, which, as reflected in the balance of liquidity, only represented 5% of net funds in 2009, down from 7% in 2008.

The subsidiaries have a large degree of autonomy to manage their liquidity within Grupo Santander’s decentralized financing model. Each one must budget their liquidity needs and assess their own capacity of recourse to the wholesale markets in order to establish the issuance and securitization plan in coordination with the Parent bank.

Only in the case of Santander Consumer Finance does the parent Bank provide the necessary liquidity and always at the market price taking into account the maturity of the financing and the rating of the relevant unit.

c. Analysis of the balance sheet and measurement of liquidity risk

Decisions on financing and liquidity are based on a deep understanding of the Group’s current situation (environment, strategy, balance sheet and liquidity), the future liquidity needs of businesses (projection of liquidity), as well as access to and the situation of financing sources in the wholesale markets.

The objective is to ensure the Group maintains optimum levels of liquidity to cover its short and long-term financing needs, optimizing the impact of its cost on the income statement.

This requires monitoring of the structure of balance sheets, forecasting short and medium-term liquidity needs and establishing the basic metrics, in line with those reported in the next section.

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Stress testing is also conducted taking into account the additional needs that could arise from various extreme, although possible, events. These could affect the various items of the balance sheet and/or sources of financing differently (degree of renewal of wholesale financing, deposit outflows, deterioration in the value of liquid assets, etc), whether for global market reasons or specific ones of the Group.

All of this enables the Group to respond to a spectrum of potential, adverse circumstances, anticipating the corresponding contingency plans.

These actions are in line with the framework of principles and metrics being developed by the Basel Committee to strengthen Banks’ liquidity.

B.1.3.2. Current state of liquidity

The Group has an excellent structural liquidity position, with the capacity to meet the new conditions of stress in the markets. This is underscored by the robust balance sheet and the dynamics of financing.

a. Robust balance sheet

The balance sheet at the end of 2009 was solid, as befits the Group’s retail nature. Lending, which accounted for 79% of net assets, was entirely financed by customer deposits and medium and long-term financing. Equally, the structural needs of liquidity, represented by loans and fixed assets, were also totally financed by structural funds (deposits, medium and long-term financing and capital).

As regards financing in wholesale markets, the Group’s structure is largely based on medium and long-term instruments (81% of the total). Short-term financing is a marginal part of the structure (5% of total funds) and is amply covered by liquid assets. Of note is that the parent Bank, probably the unit most demanding of liquidity, comfortably meets the recommendations of liquidity horizons pointed out by CEBS.

Lastly, the Bank has significant availability of recourse to central banks to obtain immediate liquidity. At the end of 2009, total eligible assets which could be discounted in the various central banks to which the Group has access via its subsidiaries amounted to more than €100 billion, more than double the short term financing outstanding at the time.

We now set out the framework of the balance of liquidity, consolidated as the main metrics for monitoring the structural position of liquidity:

Monitoring metrics

Metrics	2009			2008
Loans/net assets		79	%		79	%
Customer deposits, insurance and medium and long-term financing/loans		106	%		104	%
Customer deposits, insurance and medium and long-term financing, shareholders’ funds and other liabilities/total loans and fixed assets		110	%		103	%
Short-term financing/net liabilities		5	%		7	%

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As in the Group, the balance sheets of the units of convertible currencies and of Latin America maintain the same principles, within the philosophy of independence and responsibility in their financing.

b. Dynamics of financing

The evolution of 2009 enabled Santander to continue to improve its structural liquidity position, backed by two drivers which proved to be very effective in the recession.

The first one was that the Group was able to increase its customer deposit base very significantly -by more than €170 billion since the onset of the crisis in June 2007 (+52%).

This growth was due to two effects. On the one hand, the effort made to attract deposits via the branch networks benefited from the customers’ confidence in the Group’s liquidity and solvency, which made Santander the brand chosen by depositors in many markets during the crisis: the so called flight to quality effect.

On the other hand, growth also benefited from the acquisitions made in the last few years: the assets from ABN AMRO (basically, Banco Real in Brazil and Uruguay), Alliance & Leicester, the deposits of Bradford & Bingley and Sovereign. Overall, these acquisitions produced a substantial rise in the Group’s base of stable deposits and improved financing ratios.

This increase occurred in an environment of deleveraging in which deposits were spurred by the higher rate of household and corporate savings, while lending slowed, reflecting the lower rates of consumption and investment in various countries.

As a result, in 2009 the Group’s deposits grew 8% and lending declined 2%, both excluding the perimeter and exchange-rate effects. Furthermore, it is likely that this will continue in coming years in the mature markets where the Group operates, given the deleveraging in these markets.

The second driver was the high capacity of access to wholesale financing markets. This was well shown during the worst moments of the financial crisis when Santander played a leadership role in “opening” some markets to other domestic issuers.

As a result, the Group during 2009 issued €18 billion in medium and long-term senior debt and mortgage bonds. This capacity is backed by the Group’s excellent credit quality (AA from Standard & Poor’s and Aa2 from Moody’s). Moreover, in all cases the appetite for securities by investors is adjusted to placement prices that recognize the superior credit quality of the Group and its subsidiaries.

In short, a big rise in deposits, good access to medium and long-term wholesale markets and the generation of liquidity by businesses in scenarios such as today’s explain the improvement in the Group’s structural liquidity in the last 12 months.

B.2. Exchange rate risk; Portfolio of industrial and strategic shareholdings

B.2.1. Exchange rate risk

Structural exchange rate risk arises from our operations in currencies, mainly permanent financial investments, results and the dividends of these investments.

This exchange rate risk management is dynamic and seeks to limit the impact on equity of currency depreciations and to optimize the financial cost of hedging.

As regards the exchange-rate risk of permanent investments, the general policy is to finance them in the currency of the investment provided the depth of the market allows it and the cost is justified by the expected depreciation. One-off hedging is also done when a local currency could weaken against the euro beyond what the market estimates.

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At the end of 2009, the largest exposures of a permanent nature (with potential impact on net worth) were concentrated in Brazilian reais, followed by sterling, Mexican pesos and Chilean pesos. The Group covers part of these positions of a permanent nature with exchange-rate derivatives.

In addition, Financial Management at the consolidated level is responsible for exchange-rate management of the Group’s expected results and dividends in those units whose currency is not the euro.

B.2.2. Portfolio of industrial and strategic shareholdings

In 2009, our exposure in industrial and strategic equity portfolios decreased 48% in mark to market terms, mainly due to the sale of some significant positions, such as that of the Spanish utility CEPSA (Santander previously owned 31.6%) and Interbanca, and to the integration of Sovereign, after acquiring the remaining part of it in the beginning of 2009. All in all, the risk of the structural equity portfolio, measured in terms of VaR, decreased €152.1 million as compared to the end of 2008, to €369.4 million.

The average daily VaR for the structural equity portfolio for the year 2009 was €358.4 million, with a minimum of €322.6 million and a maximum of €399 million, occurring in November and March 2009, respectively.

C. Exposures related to complex structured assets

Grupo Santander continued to have highly limited exposure to complex structured instruments or vehicles, reflecting a management culture in which prudent risk management is one of the main identifying features. Specifically, at 2009 year-end, the Group had:

• CDOs/CLOs: exposure amounting to €637 million, mainly as a result of the integration of the Alliance&Leicester portfolio in 2008. 56% of this portfolio was rated AAA and 85% had a rating of A or above.

• Non-Agency CMOs and pass-throughs with underlying mortgage alt-A⁵: exposure of €730 million at 2009 year-end.

• Hedge funds: the total exposure was not material (€549 million at 2009 year-end) and consisted largely of the financing provided to these funds (€342 million), the remainder being direct portfolio investment. This exposure involved low levels of loan-to-value risk -around 50% (collateral of €1,095 million at year-end). The risk exposure to this type of counterparty is analyzed on a case-by-case basis, and the percentages of collateral are established according to the features and assets of each fund. Exposure decreased significantly -by 52%-with respect to the previous year.

• Conduits: the only exposure resulted from the acquisition of Alliance&Leicester, which gave rise to the integration of a conduit, with assets amounting to €657 million at 2009 year-end, of which 42% had an AAA rating and 83% a rating of A or above.

• Monolines: Santander’s exposure to monoline insurers amounted to €396 million⁶ in December 2009, and related mainly to indirect exposure, totaling €191 million, by virtue of the guarantee provided by entities of this kind for various traditional financing or securitization transactions. The exposure was to double-default risk in this case. The primary underlying aspects had high credit ratings, mostly “AA”. The small remainder was direct exposure (e.g. through the purchase of a credit default swap to protect it against the risk of default of these insurance companies).

5	Alternative A-paper: mortgages originated in the US market which for various reasons are considered as having an intermediate risk level between prime and subprime mortgages (not having all the necessary information, loan-to-value levels higher than usual, etc).
6	Guarantees provided by monolines for bonds issued by US states (municipal bonds) are not considered as exposure. As a result of the acquisition of Sovereign Bank, the Group integrated a €1,260 million portfolio of these bonds.

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Overall, it can be asserted that the exposure to these instruments arising from the Group’s ordinary operations has decreased. The only increases are due to the integration of exposures at entities acquired by the Group, such as Alliance&Leicester and Sovereign (in 2008 and 2009, respectively). These exposures were known at the time of the purchase and adequate provisions were recognized.

Santander’s policy for the approval of new transactions in these products continues to be very prudent and conservative, and is subject to strict supervision by the Group’s senior management. Before approval is given for a new transaction, product or underlying asset, the risk division checks:

• whether there is an adequate valuation model (mark-to-market, mark-to-model or mark-to-liquidity) to monitor the value of each exposure.

• whether the inputs enabling application of this valuation model are observable in the market.

Provided the two aforementioned conditions are met, the risk division ascertains:

• the availability of adequate systems duly adapted for the calculation and daily monitoring of the results, positions and risks of the new transactions.

• the degree of liquidity of the product or underlying asset, with a view to arranging the related hedge on a timely basis.

E. Internal model

The Bank of Spain approved at the end of 2008 the use of our internal market risk model for calculating regulatory capital. Although the approval was first effective for treasury trading activity of the Parent bank, the Group’s objective is to gradually increase approval to the rest of the units.

As a result of this approval, the regulatory capital of trading activity is now calculated via advanced methods instead of the previous standard methods. The VaR calculated for the Market Risks Area is the fundamental metric and incorporates an incremental default risk.

We closely co-operate with the Bank of Spain in order to advance in the perimeter permitted to utilize the Internal Model (at the geographic and operational levels), as well as analysis of the impact of possible future changes, in line with the consultative documents published by the Basel Committee in December 2009 to strengthen the capital of banks⁷.

F. Structured financing transactions

In its usual operations, Grupo Santander’s exposure is low and its activity is diversified by product, sector and number of operations. The committed exposure at the end of 2009 was €13,983 million corresponding to 422 transactions, broken down as follows: €8,138 million (296 transactions) in project finance; €3,712 million (39 transactions) in acquisition finance and the rest leveraged buy-outs (LBOs) and other forms (87 transactions). No writedowns were considered necessary in the investment portfolio, beyond €79 million of loan-loss provisions. There were no significant LBOs during 2009. The Group’s exposure to structured finance operations was 28.7% lower than in 2008.

As a result of integrating Alliance & Leicester into the group in 2008, a portfolio of structured operations is maintained. It is a diversified portfolio of specialized financing operations. The exposure at the end of 2009 was 20.1% lower than in 2008 at £5,872 million (€6,621 million).

Of note in December was an operation of €308 million which should reach €850 million within two years.

⁷ “Strengthening the resilience of the banking sector” and “International framework for liquidity risk measurement, standards and monitoring.”

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G. Capital Management

The objective of capital management is to optimize its structure and its cost, from the regulatory and economic perspectives. Therefore, different tools and policies are utilized, such as capital increases and computable issuances (preferred and subordinated), results, dividend policy and securitizations.

At December 31, 2009, our eligible stockholders’ equity was €69,731 million and exceeded the minimum required by the Bank of Spain by over €25,026 million. Our capital ratios remained at comfortable levels. The BIS II ratio was 14.2%, Tier I Capital was 10.1% and core capital was 8.6%.

As regards rating agencies, Fitch Ratings confirmed in June 2009 its AA rating and moved from negative rating watch to stable outlook. This was due to the good management of integrating the acquisitions in Brazil, the UK, Europe and the US, which generated revenue and cost synergies. Another factor was core capital of 7.3% at the end of the first quarter. Fitch also highlighted the Group’s good position in the current complex environment due to the diversification of its businesses, its capacity to generate recurring commercial revenues and its strict cost control policy.

Although S&P positively assessed Banco Santander’s overcoming of the crisis, in April 2009 it changed its outlook from stable to negative because of the deteriorating credit conditions in some of the markets where the Group does business.

Moody’s, as part of a general revision of countries, gave us a long-term rating of Aa2, with negative outlook and B- for financial strength. The reasons for the revision were Santander’s exposure to the Spanish, UK and US markets, although it stated that in the long term the UK and the US would provide profits. Moody’s said in its note that Santander remained among the global banks with the best ratings.

Lastly, DBRS confirmed in February 2010 its AA rating, based on the strength of Santander’s franchise and the capacity to generate recurring profits, which are expected to enable Santander to cope with the weak economic conditions and the still unstable global financial markets.

H. Market Risk: VaR Consolidated Analysis

Our total daily VaR as of December 31, 2008, and December 31, 2009, broken down by trading and structural (non-trading) portfolios, were as set forth below.

Figures in millions of EUR

				December 31, 2009
	December 31, 2008			Low			Average			High			Period End
TOTAL		782.0			612.5			785.9			983.6			983.6
Trading		31.9			21.9			30.2			45.1			27.5
Non-Trading		807.4			614.7			783.4			1,015.0			1,015.0
Diversification Effect		(57.3	)		(24.0	)		(27.7	)		(76.6	)		(58.9	)

Our daily VaR estimates of interest rate risk, foreign exchange rate risk and equity price risk, were as set forth below⁸.

⁸ Risk factors such as credit spread and commodities are not shown in this table because they are not relevant in comparative terms and affect only to the trading portfolio. They will be shown in a table below along with the rest of the trading factors.

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Interest Rate Risk

Figures in millions of EUR

				December 31, 2009
	December 31, 2008			Low			Average			High			Period End
Interest Rate Risk
Trading		29.8			11.3			20.0			31.9			18.3
Non-Trading		154.9			151.6			187.5			242.8			210.6
Diversification Effect		(26.9	)		(10.8	)		(18.9	)		(29.8	)		(17.5	)
TOTAL		157.7			152.0			188.6			244.9			211.4

Foreign Exchange Rate Risk

Figures in millions of EUR

				December 31, 2009
	December 31, 2008			Low			Average			High			Period End
Exchange Rate Risk
Trading		12.4			10.5			15.5			23.1			16.1
Non-Trading		382.5			356.8			493.8			619.9			579.8
Diversification Effect		(12.2	)		(10.3	)		(15.3	)		(22.6	)		(15.9	)
TOTAL		382.7			357.0			494.1			620.4			580.0

Figures in millions of EUR

				December 31, 2009
	December 31, 2008			Low			Average			High			Period End
Equity Price Risk
Trading		4.9			4.2			6.9			11.6			5.9
Non-Trading		521.5			322.6			358.4			399.0			369.4
Diversification Effect		(4.9	)		(4.2	)		(6.8	)		(11.5	)		(5.8	)
TOTAL		521.5			322.7			358.4			399.1			369.5

Equity Price Risk

Our daily VaR estimates by activity, were as set forth below⁹.

⁹ Two new factors in Trading are given differentiated treatment in 2009 compared to 2008: the credit spread (previously integrated partly in interest rates) and the price of commodities (previously integrated in equities, with a small relative share compared to the rest of factors).

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Figures in millions of EUR

			December 31, 2009
	December 31, 2008		Low		Average		High		Period End
Trading
Interest Rate		29.8		11.3		20.0		31.9		18.3
Exchange Rate		12.4		10.5		15.5		23.1		16.1
Equity		4.9		4.2		6.9		11.6		5.9
Credit Spread				8.2		11.9		15.8		15.0
Commodities				0.1		0.8		1.6		1.4
TOTAL		31.9		21.9		30.2		45.1		27.5
Non-Trading Interest Rate
Interest Rate		154.9		151.6		187.5		242.8		210.6
Non-Trading Foreign Exchange
Exchange Rate		382.5		356.8		493.8		619.9		579.8
Non-Trading Equity
Equity		521.5		322.6		358.4		399.0		369.4
TOTAL		782.0		612.5		785.9		983.6		983.6
Interest Rate		157.7		152.0		188.6		244.9		211.4
Exchange Rate		382.7		357.0		494.1		620.4		580.0
Equity		521.5		322.7		358.4		399.1		369.5

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Item 12. Description of Securities Other than Equity Securities.

A. Debt Securities

Not Applicable

B. Warrants and Rights

Not Applicable

C. Other Securities

Not Applicable

D. American Depositary Shares

Our Depositary is J.P. Morgan Chase & Co., with its principal executive office located at 270 Park Avenue, New York, NY 10017-2070.

Each ADS represents the right to receive one share of Capital Stock of Banco Santander, S.A., par value €0.50 each.

• Fees charged to investors as outlined in the deposit agreement are the following:

Category of Service	Depositary Actions	Associated Fee
(a) Deposit or substituting the underlying shares	Each person to whom ADSs are issued against deposits of shares, including deposits in respect of share distributions, rights and other distributions. 1 Each person surrendering ADRs for the withdrawal of deposited securities.	$5.00 for each 100 ADSs (or portion thereof) delivered or surrendered.
(b) Receiving or distributing dividends	Distribution of dividends.	$0.01 per ADS.
(c) Selling or Exercising Rights	Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities.	$5.00 for each 100 ADSs (or portion thereof).
(d) Withdrawing an underlying security	Acceptance of ADRs surrendered for withdrawal of deposited securities.	$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered.
(d) Expenses of the Depositary	Expenses incurred on behalf of Holders in connection with: i) Stock transfer or other taxes and other governmental charges. ii) Cable, telex and facsimile transmission and delivery. iii) Expenses of the Depositary in connection with the conversion of foreign currency into US dollars (which are paid out of such foreign currency). iv) Such fees and expenses as are incurred by the Depositary (including without limitation expenses incurred on behalf of Holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in delivery of deposited securities or otherwise in connection with the Depositary’s or its Custodian’s compliance with applicable law, rule or regulation.	Expenses payable at the sole discretion of the depositary.

¹ The Depositary may sell (by public or private sale) sufficient securities and property received in respect of such share distributions, rights and other distributions prior to such deposit to cover such charge.

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• Fees received from our depositary in connection with the ADR program are the following:

Contracted contribution:

Fixed: $1.9 million fixed
Dividend fees collected that Santander gets as per 90% revenue share: $1,674,219.71
Total: $3,574,219.71

Actually paid:

Fixed: $1.2 million — ($700,000 written down as part of negotiations)
Dividend fees collected: $1,674,219.71
Total: $2,874,219.71

Waived fees:

Ongoing program maintenance per contract year: $150,000
Annual meeting services: $15,000
Investor Relations advisory services: $185,000
Total: $350,000

Our depositary is not allowed to collect fees and charges by offsetting them against dividends and deposited securities.

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not Applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

A. Not Applicable

B. Not Applicable

C. Not Applicable

D. Not Applicable

E. Not Applicable

Item 15. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of December 31, 2009, Banco Santander, S.A., under the supervision and with the participation of its management, including its disclosure committee, its chief executive officer, chief financial officer, and chief accounting officer, performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15 (e) under the Exchange Act). There are, as described below, inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.

Based on such evaluation, Banco Santander, S.A’s chief executive officer, chief financial officer and chief accounting officer concluded that Banco Santander, S.A.’s disclosure controls and procedures are effective in ensuring that information Banco Santander, S.A. is required to disclose in the reports it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to Banco Santander, S.A.’s management, including its disclosure committee, chief executive officer, chief financial officer and the chief accounting officer, as appropriate to allow timely decisions regarding required disclosures.

(b) Management’s Report on Internal Control over Financial Reporting

The management of Banco Santander, S.A. is responsible for establishing and maintaining an adequate internal control over financial reporting as defined in Rule 13a-15 (f) under the Exchange Act.

Our internal control over financial reporting is a process designed by, or under the supervision of, the Bank’s principal executive and principal financial officers and effected by the Bank’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with generally accepted accounting principles. For Banco Santander, S.A., generally accepted accounting principles refer to the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).

277

Our internal control over financial reporting includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have adapted our internal control over financial reporting to the most rigorous international standards and comply with the guidelines set by the Committee of Sponsoring Organizations of the Treadway Commission in its Enterprise Risk Management Integrated Framework. These guidelines have been extended and installed in our Group companies, applying a common methodology and standardizing the procedures for identifying processes, risks and controls, based on the Enterprise Risk Management Integrated Framework.

The documentation process in the Group’s companies has been constantly directed and monitored by a global coordination team, which set the guidelines for its development and supervised its execution at the unit level.

The general framework is consistent, as it assigns to management specific responsibilities regarding the structure and effectiveness of the processes related directly and indirectly with the production of consolidated financial statements, as well as the controls needed to mitigate the risks inherent in these processes.

Under the supervision and with the participation of the management of the Group, including our chief executive officer, our chief financial officer and our chief accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Enterprise Risk Management — Integrated Framework. Based on this assessment, management believes that, as of December 31, 2009, its internal control over financial reporting was effective based on those criteria.

Our independent registered public accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2009. This report follows below.

(c) Attestation report of the registered public accounting firm

278

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Banco Santander, S.A.:

We have audited the internal control over financial reporting of Banco Santander, S.A. (the “Bank”) and Companies composing, together with the Bank, the Santander Group (the “Group”) as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), the consolidated financial statements as of and for the year ended December 31, 2009 of the Group and our report dated June 10, 2010 expressed an unqualified opinion on those consolidated financial statements.

/s/ Deloitte, S.L.

DELOITTE, S.L.

Madrid — Spain
June 10, 2010

(d) Changes in internal controls over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 16. [Reserved]

Item 16A. Audit committee financial expert

The audit and compliance committee has five members, all of whom are non-executive independent directors (as defined by Article 6.2 c) of the Rules and Regulations of the Board). All members of the audit and compliance committee also meet the independence criteria set by the NYSE for foreign private issuers. Our Rules and Regulations of the Board provide that all members of the audit and compliance must have knowledge, aptitude and experience in the areas of accounting, auditing or risk management. Currently, the chairman of the audit and compliance committee is Luis Ángel Rojo. Our standards for director independence may not necessarily be consistent with, or as stringent as, the standards for director independence established by the NYSE.

Our board of directors has determined that Manuel Soto is an “Audit Committee Financial Expert” in accordance with SEC rules and regulations.

Item 16B. Code of Ethics

We have adopted a code of ethics (the “General Code of Conduct”) that is applicable to all members of the boards of the companies of the Group, to all employees subject to the Code of Conduct of the Securities Market, including the Bank’s chairman, chief executive officer, chief financial officer and chief accounting officer, and to all those employees designated by the Human Resources Division that have been specifically informed of their subjection to this General Code of Conduct. This Code establishes the principles that guide these officers’ and directors’ respective actions: ethical conduct, professional standards and confidentiality. It also establishes the limitations and defines the conflicts of interest arising from their status as senior executives or directors.

At its meeting of November 18, 2009, the audit and compliance committee was informed of and approved the corresponding proposal for amendment of the Group’s General Code of Conduct. The amendment primarily provided for the addition of a new Section II, which sets forth the ethical principles of the organization that must govern all acts by the employees. At its meeting of December 21, 2009, the board approved the proposed amendment submitted by the audit and compliance committee.

This Code is available on our website, which does not form part of this annual report on Form 20-F, at www.santander.com under the heading “Information for shareholders and investors—corporate governance—internal code of conduct”.

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Item 16C. Principal Accountant Fees and Services

Amounts paid to the firms belonging to the Deloitte worldwide organization, the Group’s principal auditor, for statutory audit and other services were as follows:

	2009		2008		2007
	(in millions of euros)
Audit fees (1)		19.6		18.3		15.9
Audit related fees (2)		11.0		10.4		9.9
Non-audit related fees (excluding tax services) (3)		1.5		3.4		2.8
Tax fees (4)		3.2		1.9		2.5
Other fees paid (5)		3.7		3.8		3.7
		39.0		37.8		34.8

(1)	In 2009, €14.6 million was paid for the audit of annual financial statements considering that the Group had the same composition as in the previous year, and €5.0 million was paid for the annual audit of the companies that became part of the Group in this year.
(2)	Comprising €4.7 million in 2009, €5.9 million in 2008 and €6.2 million in 2007 for the audit of internal control pursuant to the requirements of the Sarbanes-Oxley Act and the calculation of regulatory capital (Basel) and €6.3 million in 2009, €4.5 million in 2008 and €3.7 million in 2007 for other reports required by legal regulations issuing from the national supervisory bodies of the countries where the Group does business, notably the semi-annual audits and the reports prepared in compliance with the requirements of the US securities market (other than those required by the Sarbanes-Oxley Act).
(3)	The amounts invoiced for services other than audit which, during the past fiscal year, were principally those relating to securitization processes and preparation of financial studies.
(4)	All tax services have been approved by the audit and compliance committee of the board of directors.
(5)	Amounts invoiced for audits on purchases and other corporate transactions (due diligence).

The services commissioned from the Group’s auditors meet the independence requirements stipulated by Law 44/2002, of November, 22 on Financial System Reform Measures and by the Sarbanes-Oxley Act of 2002, and they did not involve the performance of any work that is incompatible with the audit function.

The audit and compliance committee proposes to the board the fees to be paid to the external auditor and the scope of its professional mandate.

The audit and compliance committee is required to pre-approve the main audit contract of the Bank or of any other company of the Group with its principal auditing firm. This main contract sets forth the scope of the audit services and audit-related services to be provided by the auditing firm, the term (typically, three years), the fees to be paid and the Group companies to which it will be applied. Once the term of the first contract expires, it can be rolled over by subsequent periods of one year upon approval by the audit and compliance committee.

If a new Group company is required to engage an auditing firm for audit and audit-related services, those services have to be pre-approved by the audit and compliance committee.

All non-audit services provided by the Group’s principal auditing firm or other auditing firms in 2009 were approved by the audit and compliance committee, and all such non-audit services to be provided in the future will also require approval from the audit and compliance committee.

The audit and compliance committee is regularly informed of all fees paid to the auditing firms by the Group companies.

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Item 16D. Exemption from the Listing Standards for Audit Companies

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table shows the repurchases of shares made by the Bank or any of its Affiliated Purchasers during 2009:

					(c) Total number of		(d) Maximum number (or
					shares (or units)		approximate dollar value) of
	(a) Total number of		(b) Average		purchased as part of		shares (or units) that may yet be
	shares (or units)		price paid per		publicly announced		purchased under the plans or
2009	purchased		share (or unit) in euros		plans or programs		programs
January		106,770,816		6.36		—		—
February		75,465,757		5.49		—		—
March		76,056,976		4.72		—		—
April		342,956,241		6.17		—		—
May		126,408,973		7.14		—		—
June		140,328,484		8.16		—		—
July		86,770,535		9.51		—		—
August		88,740,880		10.12		—		—
September		37,489,370		9.45		—		—
October		71,689,779		10.35		—		—
November		47,593,919		9.05		—		—
December		40,287,486		9.89		—		—
Total		1,240,559,216		7.47

During 2009, all purchases and sales of equity securities were made in open-market transactions.

Item 16F. Changes in Registrant’s Certifying Accountant

Not applicable.

Item 16G. Corporate Governance

The following is a summary of the significant differences between our corporate governance practices and those applicable to domestic issuers under the New York Stock Exchange (“NYSE”) listing standards.

Independence of the directors on the board of directors

Under the NYSE corporate governance rules, a majority of the board of directors must be composed of independent directors, the independence of whom is determined in accordance with highly detailed rules promulgated by the NYSE. Spanish law does not contain any such requirements although there is a non-binding recommendation for listed companies in Spain that the number of independent directors be at least one third of the total size of the Board. Article 42.1 of our By-laws establishes that the shareholders at the general shareholders’ meeting shall endeavor to ensure that independent directors represent at least one-third of the total number of directors. Article 6.1 of the Rules and Regulations of the Board of Directors establishes

282

likewise that the board shall endeavor that the number of independent directors represent at least one-third of all directors. The board of directors of Santander has ten independent directors (out of nineteen directors total), as defined in Article 6.2. c) of the Rules and Regulations of the Board. We have not determined whether or not the directors on the Santander Board would be considered independent under the NYSE rules except in the case of the members of our audit and compliance committee where we have determined that all of them meet the NYSE independence criteria for foreign private issuers. Article 6.2. c) of the Rules and Regulations of the Board defines the concept of an independent director as follows:

“External or non-executive Directors who have been appointed based on their personal or professional status and who perform duties not conditioned by relationships with the Company, or with the significant shareholders or management thereof shall be considered independent directors.

In no event may there be a classification as independent directors of those who:

a) Have been employees or executive directors of the Group’s companies, except after the passage of 3 or 5 years, respectively, since the cessation of such relationship.

b) Receive from the Company, or from another Group company, any amount or benefit for something other than director compensation, unless it is immaterial. For purposes of the provisions of this sub-section, neither dividends nor pension supplements that a director receives by reason of the director’s prior professional or employment relationship shall be taken into account, provided that such supplements are unconditional and therefore, the Company paying them may not suspend, modify or revoke the accrual thereof without breaching its obligations.

c) Are, or have been during the preceding 3 years, a partner of the external auditor or the party responsible for auditing the Company or any other Group company during such period.

d) Are executive directors or senior managers of another company in which an executive director or senior manager of the Company is an external director.

e) Maintain, or have maintained during the last year, a significant business relationship with the Company or with any Group company, whether in their own name or as a significant shareholder, director or senior manager of an entity that maintains or has maintained such relationship. Business relationships shall be considered the relationships of a provider of goods or services, including financial, advisory or consulting services.

f) Are significant shareholders, executive directors or senior managers of an entity that receives, or has received during the preceding 3 years, significant donations from the Company or the Group. Those who are merely members of the board of a foundation that receives donations shall not be considered included in this letter.

g) Are spouses, persons connected by a similar relationship of affection, or relatives to the second degree of an executive director or senior manager of the Company.

h) Have not been proposed, whether for appointment or for renewal, by the appointments and remuneration committee.

i) Are, as regards a significant shareholder or shareholder represented on the board, in one of the circumstances set forth in letters (i), (v), (vi) or (vii) of this sub-section 2(c). In the event of a kinship relationship set forth in item (vii), the limitation shall apply not only with respect to the shareholder, but also with respect to the related proprietary directors thereof in the affiliate company”.

283

The above independence criteria are the same as those set forth by the Unified Code of Good Governance, which is a non-binding code approved by the Spanish CNMV in 2006.

The 2010 annual general meeting will be held on June 11, 2010. At that meeting, a new director, Ángel Jado, is proposed for appointment as independent director. If approved, the board size will increase from 19 to 20 members and the number of independent directors from ten to eleven.

Independence of the directors on the audit and compliance committee

Under the NYSE corporate governance rules, all members of the audit committee must be independent. Independence is determined in accordance with highly detailed rules promulgated by the NYSE. Such independence criteria are met by all members of our audit and compliance committee.

The audit and compliance committee of the board of directors of Santander is composed of five directors. All members are non-executive independent directors and its chairman is independent in accordance with the standards set forth in the previously mentioned Article 6.2. c) of the Rules and Regulations of the Board. These independence standards may not necessarily be consistent with, or as stringent as, the director independence standards established by the NYSE. Under Spanish law, a majority of the members and the chairman of the audit committee must be non-executive. The composition of the audit and compliance committee is described under “—Audit and compliance committee and appointments and remuneration committee”.

Independence of the directors on the appointments and remuneration committee

In accordance with the NYSE corporate governance rules, all US companies listed on the NYSE must have a compensation committee and a nominating and corporate governance committee and all members of such committees must be independent in accordance with highly detailed rules promulgated by the NYSE. Under Spanish law, these committees are not required, though there is a non-binding recommendation for listed companies in Spain to have these committees and for them to be composed of non-executive directors and chaired by a non-executive independent director. Santander satisfies this non-binding recommendation. The appointments and remuneration committee of the board of directors of Santander is composed of five directors. All members are non-executive independent directors and its chairman is independent in accordance with the standards set forth in the previously mentioned Article 6.2. c) of the Rules and Regulations of the Board. These independence standards may not necessarily be consistent with, or as stringent as, the director independence standards established by the NYSE. The composition of the appointments and remuneration committee is described under “—Audit and compliance committee and appointments and remuneration committee”.

During the fiscal year 2009, none of the members of the appointments and remuneration committee was an executive director, member of senior management or a Bank employee, and no executive director or member of senior management has held a position on the board (or its remuneration committee) of companies that employ members of the appointments and remuneration committee.

Separate meetings for non-management directors

In accordance with the NYSE corporate governance rules, non-management directors must meet periodically outside of the presence of management. Under Spanish law, this practice is not required and as such, the non-management directors on the board of directors of Santander do not meet outside of the presence of the directors who also serve in a management capacity.

The audit and compliance committee and the appointments and remuneration committee of the Bank’s board of directors consist entirely of non-management independent directors.

284

The audit and compliance committee and the appointments and remuneration committee met 11 and 8 times, respectively, in 2009.

Code of ethics

Under the NYSE corporate governance rules, all US companies listed on the NYSE must adopt a Code of Business Conduct and Ethics which contains certain required topics. In March 2000, Santander adopted a General Code of Conduct, which applies to all members of the boards of the companies of the Group, to all employees subject to the Code of Conduct in the Securities Market, including the Bank’s chairman, chief executive officer, chief financial officer and chief accounting officer, and to all those employees designated by the human resources division that have been specifically informed of their subjection to this General Code of Conduct. On July 28, 2003, the board approved amendments to the General Code of Conduct to conform it to the requirements of Law 44/2002 (November 2, 2002) on reform measures of the financial system. The new Code came into force on August 1, 2003 and replaced the previous one. The General Code of Conduct establishes the principles that guide the actions of officers and directors including ethical conduct, professional standards and confidentiality.

At its meeting of November 18, 2009, the audit and compliance committee was informed of and approved the corresponding proposal for amendment of the Group’s General Code of Conduct. The amendment primarily provided for the addition of a new Section II, which sets forth the ethical principles of the organization that must govern all acts by the employees. At its meeting of December 21, 2009, the board approved the proposed amendment submitted by the audit and compliance committee.

The obligations of directors and the regulations concerning their conflict of interests are governed by the Rules and Regulations of the Board.

As of December 31, 2009, no waivers with respect to the General Code of Conduct had been applied for or granted.

In addition, the Group abides by a Code of Conduct in the Securities Market, which was also updated on July 28, 2003. This code establishes standards and obligations in relation to securities trading, conflicts of interest and the treatment of price sensitive information.

Both codes are available to the public on our website, which does not form part of this annual report on Form 20-F, at www.santander.com under the heading “Information for shareholders and investors—Corporate governance—Internal code of conduct”.

285

PART III

Item 17. Financial Statements

We have responded to Item 18 in lieu of this item.

Item 18. Financial Statements

Reference is made to Item 19 for a list of all financial statements filed as part of this Form 20-F.

Item 19. Exhibits

(a) Index to Financial Statements

	Page
Report of Deloitte, S.L.		F-1
Consolidated Balance Sheets as of December 31, 2009, 2008 and 2007		F-2
Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007		F-3
Consolidated Statements Of Changes In Stockholders’ Equity for the Years Ended December 31, 2009, 2008 and 2007		F-5
Consolidated Cash Flow Statement for the Years Ended December 31, 2009, 2008 and 2007		F-8
Notes to the Consolidated Financial Statements		F-9

(b) List of Exhibits.

Exhibit
Number			Description
	1.1		By-laws (Estatutos) of Banco Santander, S.A.
	1.2		By-laws (Estatutos) of Banco Santander, S.A., (English translation of By-laws set forth in Exhibit 1.1 hereto).
	4.1	*	Restated Consortium and Shareholders Agreement dated April 1, 2010, among the Royal Bank of Scotland Group plc, Banco Santander, S.A., the State of the Netherlands and RFS Holdings B.V.
	4.2		Transaction Agreement dated as of October 13, 2008 by and between Sovereign Bancorp, Inc. and Banco Santander, S.A. (incorporated by reference to Exhibit 2.1 to our Registration Statement on Form F-4, filed with the Securities and Exchange Commission on November 17, 2008).
	8.1		List of Subsidiaries (incorporated by reference as Exhibits I, II and III of our Financial Statements filed with this Form 20-F).
	12.1		Section 302 Certification by the chief executive officer.
	12.2		Section 302 Certification by the chief financial officer.
	12.3		Section 302 Certification by the chief accounting officer.
	13.1		Section 906 Certification by the chief executive officer, the chief financial officer and the chief accounting officer.
	15.1		Consent of Deloitte, S.L.

* Pursuant to a request for confidential treatment filed with the Security and Exchange Commission, the confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission.

We will furnish to the Securities and Exchange Commission, upon request, copies of any unfiled instruments that define the rights of holders of long-term debt of Banco Santander, S.A.

286

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

BANCO SANTANDER, S.A.
By:	/s/ José Antonio Álvarez
	Name:	José Antonio Álvarez
	Title:	Chief financial officer

Date: June 10, 2010

INDEX TO FINANCIAL STATEMENTS

(a) Index to Financial Statements

	Page
Report of Deloitte, S.L.		F-1
Consolidated Balance Sheets as of December 31, 2009, 2008, and 2007		F-2
Consolidated Income Statements for the Years Ended December 31, 2009, 2008 and 2007		F-3
Consolidated Statements of Recognized Income and Expense for the Years Ended December 31, 2009, 2008 and 2007		F-4
Consolidated Statements of Changes in Total Equity for the Years Ended December 31, 2009, 2008 and 2007		F-5
Consolidated Statement of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007		F-8
Notes to the Consolidated Financial Statements		F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Banco Santander, S.A.:

We have audited the accompanying consolidated balance sheets of Banco Santander, S.A. (the “Bank”) and Companies composing, together with the Bank, the Santander Group (the “Group”), as of December 31, 2009, 2008 and 2007, and the related consolidated income statements, statements of recognized income and expense, changes in total equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Bank’s directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banco Santander, S.A. and Companies composing, together with the Bank, the Santander Group as of December 31, 2009, 2008 and 2007, and the results of their operations, their changes in equity, and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS-IASB”).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), the Group’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 10, 2010 expressed an unqualified opinion on the Group’s internal control over financial reporting.

/s/ Deloitte, S.L.

DELOITTE, S.L.

Madrid-Spain
June 10, 2010

SANTANDER GROUP

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2009, 2008 AND 2007 (NOTES 1 TO 4)
(Thousands of euros)

	Note		2009			2008			2007
ASSETS
CASH AND BALANCES WITH CENTRAL BANKS				34,889,413			45,781,345			31,062,775
FINANCIAL ASSETS HELD FOR TRADING:				135,054,321			151,817,192			158,806,860
Loans and advances to credit institutions		6		5,952,956			5,149,584			12,294,559
Loans and advances to customers		10		10,076,412			684,348			23,704,481
Debt instruments		7		49,920,518			43,895,548			66,330,811
Equity instruments		8		9,248,022			6,272,403			9,744,466
Trading derivatives		9		59,856,413			95,815,309			46,732,543
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS:				37,813,669			25,817,138			24,829,441
Loans and advances to credit institutions		6		16,242,609			8,911,906			6,865,073
Loans and advances to customers		10		8,328,516			8,972,707			8,021,623
Debt instruments		7		7,365,213			5,154,732			7,072,423
Equity instruments		8		5,877,331			2,777,793			2,870,322
AVAILABLE-FOR-SALE FINANCIAL ASSETS:				86,620,503			48,920,306			44,348,907
Debt instruments		7		79,289,337			42,547,677			34,187,077
Equity instruments		8		7,331,166			6,372,629			10,161,830
LOANS AND RECEIVABLES:				736,746,371			699,614,727			579,523,720
Loans and advances to credit institutions		6		57,641,042			64,730,787			38,482,972
Loans and advances to customers		10		664,145,998			617,231,380			539,372,409
Debt instruments		7		14,959,331			17,652,560			1,668,339
HELD-TO-MATURITY INVESTMENTS				—			—			—
CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK		36		1,419,841			2,402,736			297,131
HEDGING DERIVATIVES		11		7,833,850			9,698,132			3,063,169
NON-CURRENT ASSETS HELD FOR SALE		12		5,789,189			9,267,486			10,156,429
INVESTMENTS:				164,473			1,323,453			15,689,127
Associates		13		164,473			1,323,453			15,689,127
Jointly controlled entities				—			—			—
INSURANCE CONTRACTS LINKED TO PENSIONS		14		2,356,151			2,446,989			2,525,550
REINSURANCE ASSETS		15		416,822			458,388			309,774
TANGIBLE ASSETS:				8,995,735			8,501,552			9,459,033
Property, plant and equipment-				7,904,819			7,630,935			8,998,308
For own use		16		6,202,162			5,664,616			4,287,612
Leased out under an operating lease		16		1,702,657			1,966,319			4,710,696
Investment property		16		1,090,916			870,617			460,725
INTANGIBLE ASSETS:				25,643,414			20,623,267			16,033,042
Goodwill		17		22,865,056			18,836,199			13,830,708
Other intangible assets		18		2,778,358			1,787,068			2,202,334
TAX ASSETS:				20,654,815			16,953,613			12,698,072
Current				4,827,554			2,309,465			1,845,310
Deferred		27		15,827,261			14,644,148			10,852,762
OTHER ASSETS:		19		6,130,891			6,005,226			4,111,941
Inventories				518,833			620,774			231,734
Other				5,612,058			5,384,452			3,880,207
TOTAL ASSETS				1,110,529,458			1,049,631,550			912,914,971
LIABILITIES AND EQUITY
FINANCIAL LIABILITIES HELD FOR TRADING:				115,516,474			136,620,235			123,398,293
Deposits from central banks		20		2,985,488			9,109,857			—
Deposits from credit institutions		20		43,131,718			26,841,854			23,254,111
Customer deposits		21		4,658,372			4,896,065			27,992,480
Marketable debt securities		22		586,022			3,569,795			17,090,935
Trading derivatives		9		58,712,624			89,167,433			49,447,533
Short positions		9		5,139,730			3,035,231			5,613,234
Other financial liabilities		24		302,520			—			—
OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS:				42,371,301			28,639,359			39,718,002
Deposits from central banks		20		10,103,147			4,396,901			6,562,328
Deposits from credit institutions		20		12,744,848			9,733,268			12,207,579
Customer deposits		21		14,636,466			9,318,117			10,669,058
Marketable debt securities		22		4,886,840			5,191,073			10,279,037
Subordinated liabilities				—			—			—
Other financial liabilities				—			—			—
FINANCIAL LIABILITIES AT AMORTIZED COST:				823,402,745			770,007,599			646,411,202
Deposits from central banks		20		22,345,110			9,211,957			22,185,751
Deposits from credit institutions		20		50,781,276			70,583,533			48,687,539
Customer deposits		21		487,681,399			406,015,268			316,744,981
Marketable debt securities		22		206,490,311			227,642,422			205,916,716
Subordinated liabilities		23		36,804,601			38,873,250			36,192,737
Other financial liabilities		24		19,300,048			17,681,169			16,683,478
CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK		36		806,418			440,136			(516,725	)
HEDGING DERIVATIVES		11		5,191,077			5,957,611			4,134,571
LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE				293,512			49,688			63,420
LIABILITIES UNDER INSURANCE CONTRACTS		15		16,916,446			16,849,511			13,033,617
PROVISIONS:				17,532,739			17,736,259			16,570,899
Provisions for pensions and similar obligations		25		10,628,684			11,198,117			11,819,748
Provisions for taxes and other legal contingencies		25		3,283,339			2,363,706			1,715,967
Provisions for contingent liabilities and commitments		25		641,620			678,584			636,316
Other provisions		25		2,979,096			3,495,852			2,398,868
TAX LIABILITIES:				7,003,945			5,768,665			6,156,365
Current				3,337,444			2,304,599			2,412,133
Deferred		27		3,666,501			3,464,066			3,744,232
OTHER LIABILITIES		26		7,624,159			7,560,995			6,387,176
TOTAL LIABILITIES				1,036,658,816			989,630,058			855,356,820
EQUITY
SHAREHOLDERS’ EQUITY:		30		71,831,688			65,886,582			54,477,846
Share capital		31		4,114,413			3,997,030			3,127,148
Registered				4,114,413			3,997,030			3,127,148
Less: Uncalled capital				—			—			—
Share premium		32		29,305,257			28,103,802			20,370,128
Reserves		33		24,607,287			20,868,406			16,371,430
Accumulated reserves (losses)		33		24,539,624			21,158,869			15,475,993
Reserves (losses) of entities accounted for using the equity method		33		67,663			(290,463	)		895,437
Other equity instruments		34		7,188,465			7,155,566			7,086,881
Equity component of compound financial instruments				—			—			—
Other				7,188,465			7,155,566			7,086,881
Less: Treasury shares		34		(29,755	)		(421,198	)		(192	)
Profit for the year attributable to the Parent				8,942,538			8,876,414			9,060,258
Less: Dividends and remuneration		4		(2,296,517	)		(2,693,438	)		(1,537,807	)
VALUATION ADJUSTMENTS:				(3,165,104	)		(8,299,696	)		722,036
Available-for-sale financial assets		29		645,345			79,293			1,393,202
Cash flow hedges		11		(255,498	)		(309,883	)		(31,051	)
Hedges of net investments in foreign operations		29		296,686			1,467,289			638,474
Exchange differences		29		(3,851,826	)		(9,424,871	)		(1,276,749	)
Non-current assets held for sale				189			36,878			—
Entities accounted for using the equity method		29		—			(148,402	)		(1,840	)
Other valuation adjustments				—			—			—
MINORITY INTERESTS:		28		5,204,058			2,414,606			2,358,269
Valuation adjustments				45,228			(371,310	)		(73,622	)
Other				5,158,830			2,785,916			2,431,891
TOTAL EQUITY				73,870,642			60,001,492			57,558,151
TOTAL LIABILITIES AND EQUITY				1,110,529,458			1,049,631,550			912,914,971
MEMORANDUM ITEMS:
CONTINGENT LIABILITIES		35		59,256,076			65,323,194			76,216,585
CONTINGENT COMMITMENTS		35		163,530,756			131,725,006			114,676,563

The accompanying Notes 1 to 54 and Appendices are an integral part of the consolidated balance sheet at December 31, 2009.

F-2

SANTANDER GROUP

CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (NOTES 1 TO 4)
(Thousands of euros)

			(Debit) Credit
	Notes		2009			2008			2007
Interest and similar income		38		53,173,004			55,043,546			45,512,258
Interest expense and similar charges		39		(26,874,462	)		(37,505,084	)		(31,069,486	)
INTEREST INCOME / (CHARGES)				26,298,542			17,538,462			14,442,772
Income from equity instruments		40		436,474			552,757			419,997
Income from companies accounted for using the equity method		41		(520	)		791,754			438,049
Fee and commission income		42		10,726,368			9,741,400			9,290,043
Fee and commission expense		43		(1,646,234	)		(1,475,105	)		(1,421,538	)
Gains/losses on financial assets and liabilities (net)		44		3,801,645			2,892,249			2,306,384
Held for trading				2,098,449			566,828			1,407,938
Other financial instruments at fair value through profit or loss				197,993			607,309			125,774
Financial instruments not measured at fair value through profit or loss				1,630,858			1,722,651			873,018
Other				(125,655	)		(4,539	)		(100,346	)
Exchange differences (net)		45		444,127			582,215			648,528
Other operating income				7,928,538			9,436,308			6,739,670
Income from insurance and reinsurance contracts issued		46		7,112,856			8,385,788			5,529,987
Sales and income from the provision of non-financial services		46		377,800			586,872			771,027
Other		46		437,882			463,648			438,656
Other operating expenses				(7,784,621	)		(9,164,487	)		(6,449,120	)
Expenses of insurance and reinsurance contracts		46		(6,773,996	)		(8,134,199	)		(5,300,054	)
Changes in inventories		46		(237,396	)		(469,154	)		(618,955	)
Other		46		(773,229	)		(561,134	)		(530,111	)
TOTAL INCOME				40,204,319			30,895,553			26,414,785
Administrative expenses				(14,824,605	)		(11,665,857	)		(10,776,670	)
Personnel expenses		47		(8,450,283	)		(6,813,351	)		(6,434,343	)
Other general administrative expenses		48		(6,374,322	)		(4,852,506	)		(4,342,327	)
Depreciation and amortization	16 and 18			(1,596,445	)		(1,239,590	)		(1,247,207	)
Provisions (net)		25		(1,792,123	)		(1,640,561	)		(895,552	)
Impairment losses on financial assets (net)				(11,578,322	)		(6,283,052	)		(3,430,122	)
Loans and receivables		10		(11,087,996	)		(5,896,888	)		(3,420,596	)
Other financial instruments not measured at fair value through profit or loss		8		(490,326	)		(386,164	)		(9,526	)
Impairment losses on other assets (net)				(164,630	)		(1,049,226	)		(1,548,218	)
Goodwill and other intangible assets	17 and 18			(31,249	)		(983,929	)		(1,162,872	)
Other assets				(133,381	)		(65,297	)		(385,346	)
Gains/(losses) on disposal of assets not classified as non-current assets held for sale		49		1,565,013			101,156			1,810,428
Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations		50		(1,225,407	)		1,730,902			643,050
OPERATING PROFIT / (LOSS) BEFORE TAX				10,587,800			10,849,325			10,970,494
Income tax		27		(1,206,610	)		(1,836,052	)		(2,322,107	)
PROFIT FROM CONTINUING OPERATIONS				9,381,190			9,013,273			8,648,387
PROFIT / (LOSS) FROM DISCONTINUED OPERATIONS (Net)		37		30,870			319,141			987,763
CONSOLIDATED PROFIT FOR THE YEAR				9,412,060			9,332,414			9,636,150
Profit attributable to the Parent				8,942,538			8,876,414			9,060,258
Profit attributable to minority interests		28		469,522			456,000			575,892
EARNINGS PER SHARE
From continuing and discontinued operations
Basic earnings per share (euros)		4		1.0454			1.2207			1.3320
Diluted earnings per share (euros)		4		1.0382			1.2133			1.3191
From continuing operations
Basic earnings per share (euros)		4		1.0422			1.1780			1.2003
Diluted earnings per share (euros)		4		1.0350			1.1709			1.1887

The accompanying Notes 1 to 54 and Appendices are an integral part of the consolidated income statement
for the year ended December 31, 2009.

F-3

SANTANDER GROUP

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (NOTES 1 TO 4)
(Thousands of euros)

	2009			2008			2007
CONSOLIDATED PROFIT FOR THE YEAR		9,412,060			9,332,414			9,636,150
OTHER RECOGNIZED INCOME AND EXPENSE		5,551,130			(9,319,420	)		(2,285,213	)
Available-for-sale financial assets:		1,253,709			(2,043,666	)		(766,544	)
Revaluation gains/(losses)		2,132,897			(3,539,079	)		851,460
Amounts transferred to income statement		(777,149	)		1,571,044			(1,618,004	)
Other reclassifications		(102,039	)		(75,631	)		—
Cash flow hedges:		73,172			(374,700	)		(185,603	)
Revaluation gains/(losses)		160,387			(479,905	)		(170,537	)
Amounts transferred to income statement		(40,852	)		15,060			(15,066	)
Amounts transferred to initial carrying amount of hedged items		—			—			—
Other reclassifications		(46,363	)		90,145			—
Hedges of net investments in foreign operations:		(1,170,603	)		828,815			811,977
Revaluation gains/(losses)		(1,221,590	)		828,815			811,977
Amounts transferred to income statement		50,987			—			—
Other reclassifications		—			—			—
Exchange differences:		5,914,974			(8,423,459	)		(2,062,211	)
Revaluation gains/(losses)		5,943,755			(8,640,444	)		(2,122,207	)
Amounts transferred to income statement		(28,781	)		216,985			59,996
Other reclassifications		—			—			—
Non-current assets held for sale:		(36,830	)		36,878			—
Revaluation gains/(losses)		(36,830	)		—			—
Amounts transferred to income statement		—			—			—
Other reclassifications		—			36,878			—
Actuarial gains/(losses) on pension plans		—			—			—
Entities accounted for using the equity method:		148,402			(146,562	)		(59,277	)
Revaluation gains/(losses)		—			(149,073	)		(59,277	)
Amounts transferred to income statement		—			43,728			—
Other reclassifications		148,402			(41,217	)		—
Other recognized income and expense		—			—			—
Income tax		(631,694	)		803,274			(23,555	)
TOTAL RECOGNIZED INCOME AND EXPENSE		14,963,190			12,994			7,350,937
Attributable to the Parent		14,077,130			(145,318	)		6,911,537
Attributable to minority interests		886,060			158,312			439,400

The accompanying Notes 1 to 54 and Appendices are an integral part of the consolidated statement of recognized income and expense for the year ended December 31, 2009.

F-4

SANTANDER GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (NOTES 1 TO 4)
(Thousands of euros)

	Equity Attributable to the Parent
	Shareholders’ Equity
						Reserves
									Reserves
									(Losses) of
									Entities									Profit
							Accumulated		Accounted for			Other			Less:			for the Year			Less:			Total									Non-
	Share		Share			Reserves			Using the Equity			Equity			Treasury			Attributable to			Dividends and			Shareholders’			Valuation						Controlling			Total
	Capital		Premium			(Losses)			Method			Instruments			Shares			the Parent			Remuneration			Equity			Adjustments			Total			Interests			Equity
Ending balance at 12/31/08		3,997,030		28,103,802			21,158,869			(290,463	)		7,155,566			(421,198	)		8,876,414			(2,693,438	)		65,886,582			(8,299,696	)		57,586,886			2,414,606			60,001,492
Adjustments due to changes in accounting policies		—		—			—			—			—			—			—			—			—			—			—			—			—
Adjustments due to errors		—		—			—			—			—			—			—			—			—			—			—			—			—
Adjusted beginning balance		3,997,030		28,103,802			21,158,869			(290,463	)		7,155,566			(421,198	)		8,876,414			(2,693,438	)		65,886,582			(8,299,696	)		57,586,886			2,414,606			60,001,492
Total recognized income and expense		—		—			—			—			—			—			8,942,538			—			8,942,538			5,134,592			14,077,130			886,060			14,963,190
Other changes in equity		117,383		1,201,455			3,380,755			358,126			32,899			391,443			(8,876,414	)		396,921			(2,997,432	)		—			(2,997,432	)		1,903,392			(1,094,040	)
Capital increases		117,383		1,224,930			(88,431	)		—			(3,769	)		—			—			—			1,250,113			—			1,250,113			2,187,547			3,437,660
Capital reductions		—		—			—			—			—			—			—			—			—			—			—			—			—
Conversion of financial liabilities into equity		—		—			—			—			—			—			—			—			—			—			—			—			—
Increases in other equity instruments		—		—			—			—			147,805			—			—			—			147,805			—			147,805			—			147,805
Reclassification of financial liabilities to other equity instruments		—		—			—			—			—			—			—			—			—			—			—			—			—
Reclassification of other equity instruments to financial liabilities		—		—			—			—			—			—			—			—			—			—			—			—			—
Distribution of dividends		—		—			(2,118,895	)		—			—			—			—			(2,296,517	)		(4,415,412	)		—			(4,415,412	)		(232,948	)		(4,648,360	)
Transactions involving own equity instruments (net)		—		—			320,761			—			—			391,443			—			—			712,204			—			712,204			—			712,204
Transfers between equity items		—		(23,475	)		5,890,770			358,126			(42,445	)		—			(8,876,414	)		2,693,438			—			—			—			—			—
Increases (decreases) due to business combinations		—		—			—			—			—			—			—			—			—			—			—			(10,330	)		(10,330	)
Equity-instrument-based payments		—		—			—			—			(76,252	)		—			—			—			(76,252	)		—			(76,252	)		—			(76,252	)
Other increases/(decreases) in equity		—		—			(623,450	)		—			7,560			—			—			—			(615,890	)		—			(615,890	)		(40,877	)		(656,767	)
Ending balance at 12/31/09		4,114,413		29,305,257			24,539,624			67,663			7,188,465			(29,755	)		8,942,538			(2,296,517	)		71,831,688			(3,165,104	)		68,666,584			5,204,058			73,870,642

The accompanying Notes 1 to 54 and Appendices are an integral part of the consolidated statement of changes in total equity for the year ended December 31, 2009.

F-5

SANTANDER GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (NOTES 1 TO 4) (Continued)
(Thousands of euros)

	Equity Attributable to the Parent
	Shareholders’ Equity
						Reserves
									Reserves
									(Losses) of
									Entities									Profit															Non-
						Accumulated			Accounted for			Other			Less:			for the Year			Less:			Total									Controlling			Total
	Share		Share			Reserves			Using the Equity			Equity			Treasury			Attributable to			Dividends and			Shareholders’			Valuation						Interests			Equity
	Capital		Premium			(Losses)			Method			Instruments			Shares			the Parent			Remuneration			Equity			Adjustments			Total			(*)			(*)
Ending balance at 12/31/07		3,127,148		20,370,128			15,475,993			895,437			7,086,881			(192	)		9,060,258			(1,537,807	)		54,477,846			722,036			55,199,882			2,358,269			57,558,151
Adjustments due to changes in accounting policies		—		—			—			—			—			—			—			—			—			—			—			—			—
Adjustments due to errors		—		—			—			—			—			—			—			—			—			—			—			—			—
Adjusted beginning balance		3,127,148		20,370,128			15,475,993			895,437			7,086,881			(192	)		9,060,258			(1,537,807	)		54,477,846			722,036			55,199,882			2,358,269			57,558,151
Total recognized income and expense		—		—			—			—			—			—			8,876,414			—			8,876,414			(9,021,732	)		(145,318	)		158,312			12,994
Other changes in equity		869,882		7,733,674			5,682,876			(1,185,900	)		68,685			(421,006	)		(9,060,258	)		(1,155,631	)		2,532,322			—			2,532,322			(101,975	)		2,430,347
Capital increases		869,882		7,907,651			(134,197	)		—			—			—			—			—			8,643,336			—			8,643,336			73,975			8,717,311
Capital reductions		—		—			—			—			—			—			—			—			—			—			—			—			—
Conversion of financial liabilities into equity		—		—			—			—			—			—			—			—			—			—			—			—			—
Increases in other equity instruments		—		—			—			—			107,644			—			—			—			107,644			—			107,644			—			107,644
Reclassification of financial liabilities to other equity instruments		—		—			—			—			—			—			—			—			—			—			—			—			—
Reclassification of other equity instruments to financial liabilities		—		—			—			—			—			—			—			—			—			—			—			—			—
Distribution of dividends		—		—			(4,070,179	)		—			—			—			—			(1,155,631	)		(5,225,810	)		—			(5,225,810	)		(240,620	)		(5,466,430	)
Transactions involving own equity instruments (net)		—		—			12,249			—			—			(421,006	)		—			—			(408,757	)		—			(408,757	)		—			(408,757	)
Transfers between equity items		—		(173,977	)		10,421,154			(1,185,900	)		(1,019	)		—			(9,060,258	)		—			—			—			—			—			—
Increases (decreases) due to business combinations		—		—			—			—			—			—			—			—			—			—			—			—			—
Equity-instrument-based payments		—		—			—			—			(37,940	)		—			—			—			(37,940	)		—			(37,940	)		—			(37,940	)
Other increases/(decreases) in equity		—		—			(546,151	)		—			—			—			—			—			(546,151	)		—			(546,151	)		64,670			(481,481	)
Ending balance at 12/31/08		3,997,030		28,103,802			21,158,869			(290,463	)		7,155,566			(421,198	)		8,876,414			(2,693,438	)		65,886,582			(8,299,696	)		57,586,886			2,414,606			60,001,492

The accompanying Notes 1 to 54 and Appendices are an integral part of the consolidated statement of changes in total equity for the year ended December 31, 2009.

F-6

SANTANDER GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (NOTES 1 TO 4) (Continued)
(Thousands of euros)

	Equity Attributable to the Parent
	Shareholders’ Equity
					Reserves
								(Losses) of
								Entities									Profit															Non-
					Accumulated			Accounted for			Other			Less:			for the Year			Less:			Total									Controlling			Total
	Share		Share		Reserves			Using the Equity			Equity			Treasury			Attributable to			Dividends and			Shareholders’			Valuation						Interests			Equity
	Capital		Premium		(Losses)			Method			Instruments			Shares			the Parent			Remuneration			Equity			Adjustments			Total			(*)			(*)
Ending balance at 12/31/06		3,127,148		20,370,128		11,491,670			797,810			62,118			(126,801	)		7,595,947			(1,337,218	)		41,980,802			2,870,757			44,851,559			2,220,743			47,072,302
Adjustments due to changes in accounting policies		—		—		—			—			—			—			—			—			—			—			—			—			—
Adjustments due to errors		—		—		—			—			—			—			—			—			—			—			—			—			—
Adjusted beginning balance		3,127,148		20,370,128		11,491,670			797,810			62,118			(126,801	)		7,595,947			(1,337,218	)		41,980,802			2,870,757			44,851,559			2,220,743			47,072,302
Total recognized income and expense		—		—		—			—			—			—			9,060,258			—			9,060,258			(2,148,721	)		6,911,537			439,400			7,350,937
Other changes in equity		—		—		3,984,323			97,627			7,024,763			126,609			(7,595,947	)		(200,589	)		3,436,786			—			3,436,786			(301,874	)		3,134,912
Capital increases		—		—		—			—			—			—			—			—			—			—			—			220,356			220,356
Capital reductions		—		—		—			—			—			—			—			—			—			—			—			—			—
Conversion of financial liabilities into equity		—		—		—			—			—			—			—			—			—			—			—			—			—
Increases in other equity instruments		—		—		—			—			7,048,548			—			—			—			7,048,548			—			7,048,548			—			7,048,548
Reclassification of financial liabilities to other equity instruments		—		—		—			—			—			—			—			—			—			—			—			—			—
Reclassification of other equity instruments to financial liabilities		—		—		—			—			—			—			—			—			—			—			—			—			—
Distribution of dividends		—		—		(3,117,057	)		(139,086	)		—			—			—			(200,589	)		(3,456,732	)		—			(3,456,732	)		(360,478	)		(3,817,210	)
Transactions involving own equity instruments (net)		—		—		4,575			—			—			126,609			—			—			131,184			—			131,184			—			131,184
Transfers between equity items		—		—		7,376,694			231,371			(12,118	)		—			(7,595,947	)		—			—			—			—			—			—
Increases (decreases) due to business combinations		—		—		—			—			—			—			—			—			—			—			—			—			—
Equity-instrument-based payments		—		—		—			—			—			—			—			—			—			—			—			—			—
Other increases/(decreases) in equity		—		—		(279,889	)		5,342			(11,667	)		—			—			—			(286,214	)		—			(286,214	)		(161,752	)		(447,966	)
Ending balance at 12/31/07		3,127,148		20,370,128		15,475,993			895,437			7,086,881			(192	)		9,060,258			(1,537,807	)		54,477,846			722,036			55,199,882			2,358,269			57,558,151

The accompanying Notes 1 to 54 and Appendices are an integral part of the consolidated statement of changes in total equity for the year ended December 31, 2009.

F-7

SANTANDER GROUP

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 (NOTES 1 TO 4)
(Thousands of euros)

	2009			2008			2007
A. CASH FLOWS FROM OPERATING ACTIVITIES		(18,035,526	)		15,827,165			31,645,675
Consolidated profit for the year		9,412,060			9,332,414			9,636,150
Adjustments made to obtain the cash flows from operating activities:		15,558,115			10,254,304			9,603,413
Depreciation and amortization charge		1,596,445			1,269,527			1,267,880
Other adjustments		13,961,670			8,984,777			8,335,533
Net increase/decrease in operating assets:		23,749,168			70,560,851			47,926,000
Financial assets held for trading		(10,145,789	)		(8,175,164	)		(11,285,918	)
Other financial assets at fair value through profit or loss		11,553,038			(453,996	)		(3,578,501	)
Available-for-sale financial assets		30,417,303			(3,249,597	)		6,392,745
Loans and receivables		(11,195,718	)		79,907,831			53,841,742
Other operating assets		3,120,334			2,531,777			2,555,932
Net increase/decrease in operating liabilities:		(17,729,540	)		68,246,416			63,513,210
Financial liabilities held for trading		(14,436,807	)		11,080,000			(1,197,432	)
Other financial liabilities at fair value through profit or loss		6,729,640			(11,078,643	)		1,682,061
Financial liabilities at amortized cost		(10,206,053	)		70,455,437			61,529,461
Other operating liabilities		183,680			(2,210,378	)		1,499,120
Income tax recovered/paid		(1,526,993	)		(1,445,118	)		(3,181,098	)
B. CASH FLOWS FROM INVESTING ACTIVITIES		7,968,968			950,026			(21,144,056	)
Payments:		5,340,862			4,241,797			26,303,306
Tangible assets		1,879,565			2,737,784			2,797,760
Intangible assets		3,222,774			750,440			1,862,422
Investments		13,523			753,573			12,285,132
Subsidiaries and other business units		225,000			—			—
Non-current assets held for sale and associated liabilities		—			—			9,357,992
Held-to-maturity investments		—			—			—
Other payments related to investing activities		—			—			—
Proceeds:		13,309,830			5,191,823			5,159,250
Tangible assets		1,175,834			1,509,291			3,496,430
Intangible assets		1,320,677			—			—
Investments		13,888			44,607			978,584
Subsidiaries and other business units		5,840,956			828,346			—
Non-current assets held for sale and associated liabilities		4,958,475			2,809,579			684,236
Held-to-maturity investments		—			—			—
Other proceeds related to investing activities		—			—			—
C. CASH FLOWS FROM FINANCING ACTIVITIES		(4,651,696	)		432,327			6,897,537
Payments:		18,281,063			14,321,999			17,056,690
Dividends		4,386,550			4,243,021			3,456,732
Subordinated liabilities		4,245,272			1,315,190			2,434,893
Redemption of own equity instruments		—			—			—
Acquisition of own equity instruments		9,263,615			7,842,820			8,473,038
Other payments related to financing activities		385,626			920,968			2,692,027
Proceeds:		13,629,367			14,754,326			23,954,227
Subordinated liabilities		3,653,548			311,835			8,329,817
Issuance of own equity instruments		—			7,020,677			—
Disposal of own equity instruments		9,975,819			7,421,814			8,599,647
Other proceeds related to financing activities		—			—			7,024,763
D. EFFECT OF FOREIGN EXCHANGE RATE CHANGES		3,826,322			(2,490,948	)		(171,530	)
E. NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		(10,891,932	)		14,718,570			17,227,626
F. CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		45,781,345			31,062,775			13,835,149
G. CASH AND CASH EQUIVALENTS AT END OF YEAR		34,889,413			45,781,345			31,062,775
COMPONENTS OF CASH AND CASH EQUIVALENTS AT END OF YEAR
Cash		5,171,858			4,407,124			3,292,536
Cash equivalents at central banks		29,717,555			41,374,221			27,770,239
Other financial assets		—			—			—
Less: Bank overdrafts refundable on demand		—			—			—
TOTAL CASH AND CASH EQUIVALENTS AT END OF YEAR		34,889,413			45,781,345			31,062,775

The accompanying Notes 1 to 54 and Appendices are an integral part of the consolidated statement of cash flows
for the year ended December 31, 2009.

F-8

Notes to the consolidated financial statements
for the year ended December 31, 2009

1. Introduction, basis of presentation of the consolidated financial statements and other information

a) Introduction

Banco Santander, S.A. (the Bank or Banco Santander) is a private-law entity subject to the rules and regulations applicable to banks operating in Spain. The Bylaws and other public information on the Bank can be consulted on the website of the Bank www.santander.com and at its registered office at Paseo de Pereda 9-12, Santander.

In addition to the operations carried on directly by it, the Bank is the head of a group of subsidiaries that engage in various business activities and which compose, together with it, Santander Group (the Group or Santander Group). Therefore, the Bank is obliged to prepare, in addition to its own separate financial statements, the Group’s consolidated financial statements, which also include the interests in joint ventures and investments in associates.

The Group’s consolidated financial statements for 2007 were approved by the shareholders at the Bank’s general shareholders’ meeting on June 21, 2008. The Group’s consolidated financial statements for 2008 were approved by the shareholders at the Bank’s general shareholders’ meeting on June 19, 2009. The 2009 consolidated financial statements of the Group and the 2009 financial statements of the Bank and of substantially all the Group companies have not yet been approved by their shareholders at the respective general shareholder’s meetings. However, the Bank’s board of directors considers that the aforementioned financial statements will be approved without any material changes.

b) Basis of presentation of the consolidated financial statements

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the Law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with the International Financial Reporting Standards (IFRSs) previously adopted by the European Union.

In order to adapt the accounting system of Spanish credit institutions to the new standards, the Bank of Spain issued Circular 4/2004, of 22 December, on Public and Confidential Financial Reporting Rules and Formats.

The Group’s consolidated financial statements for 2009, 2008 and 2007 were formally prepared by the Bank’s directors (at the board meeting on March 22, 2010) in accordance with International Financial Reporting Standards as adopted by the European Union and with Bank of Spain Circular 4/2004 and in compliance with IFRS as issued by the International Accounting Standards Board (“IFRS-IASB” and together with IFRS adopted by the European Union, “IFRS”), using the basis of consolidation, accounting policies and measurement bases set forth in Note 2 to these consolidated financial statements and, accordingly, they present fairly the Group’s equity and financial position at December 31, 2009, 2008 and 2007 and the consolidated results of its operations, the changes in the consolidated equity and the consolidated cash flows in 2009, 2008 and 2007. These consolidated financial statements were prepared from the separate accounting records of the Bank and of each of the companies composing the Group, and include the adjustments and reclassifications required to unify the accounting policies and measurement bases applied by the Group.

The notes to the consolidated financial statements contain supplementary information to that presented in the consolidated balance sheet, consolidated income statement, consolidated statement of recognized income and expense, consolidated statement of changes in total equity and consolidated statement of cash flows. The notes provide, in a clear, relevant, reliable and comparable manner, narrative descriptions and breakdowns of these financial statements.

All accounting policies and measurement bases with a material effect on the consolidated financial statements were applied in their preparation.

F-9

Adoption of new standards and interpretations issued

• The following standards and interpretations, which were adopted in full by the European Union, came into force in 2009:

• IFRS 8, Operating Segments: this standard replaces IAS 14. A management approach is adopted for reporting on the financial performance of the business segments. The information to be reported will be that used internally by management to assess the performance of the segments and to allocate resources among them.

• Revision of IAS 23, Borrowing Costs: the option of the immediate recognition as an expense of the borrowing costs relating to assets that take a substantial period of time to get ready for use or sale is eliminated and, therefore, these borrowing costs must be capitalized.

• Revision of IAS 1, Presentation of Financial Statements: introduces certain changes in the presentation of financial statements. The statement of changes in equity will only include changes in equity arising from transactions with owners acting in their capacity as owners. As regards non-owner changes (e.g. transactions with third parties or income and expenses recognized directly in equity), the revised standard provides the option of presenting income and expense items and components of other comprehensive income either in a single statement of comprehensive income with subtotals or in two separate statements. IAS 1 also introduces new reporting requirements when the entity applies a change in accounting policy retrospectively, makes a restatement or reclassifies items in previously issued statements.

Paragraph 10 of the revised IAS 1 establishes the possibility of changing the titles of the financial statements. The new terminology for referring to the financial statements would be as follows:

• The balance sheet becomes the statement of financial position.

• The income statement becomes the separate income statement.

• The statement of recognized income and expense becomes the statement of comprehensive income.

• The statement of changes in total equity becomes the statement of changes in equity.

• The title of the statement of cash flows remains unchanged.

In the preparation of these consolidated financial statements the Group has maintained the titles of the financial statements that it has been using to date in order to facilitate their comprehension.

• Amendment to IFRS 2, Share-based Payment: the objective of the amendment is basically to clarify the concepts of vesting conditions and cancellations in share-based payments.

• Amendments to IAS 32, Financial Instruments: Presentation and IAS 1, Presentation of Financial Statements: the amendments will permit certain financial instruments, whose features include that of being redeemable, to be classified as equity, provided that they meet certain criteria including that of being the most subordinated class, and provided that they evidence a residual interest in the net assets of the entity.

• Amendments to IFRS 7, Financial Instruments — Disclosures: the objective of these amendments is basically to enhance the disclosure requirements with respect to fair value measurements and liquidity risk.

• Amendments to IAS 39 and IFRIC 9, clarifying the treatment of embedded derivatives for companies that have applied the amendment to IAS 39 on reclassifications. These amendments clarify that when a financial asset is reclassified out of the fair value through profit or loss category, all the embedded derivatives must be assessed and, if necessary, accounted for separately in the financial statements. The Group did not apply these amendments, since it has not performed any such reclassifications.

F-10

• IFRIC 14 IAS 19, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction: this interpretation provides general guidance on how to ascertain the limit in IAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset. It also explains how pension assets or liabilities can be affected when there is a statutory or contractual minimum funding requirement and establishes that the entity needs to recognize an additional liability if it has a contractual obligation to make additional contributions to the plan and its capacity to recover them is restricted. The interpretation standardizes the practice and ensures that the entities recognize an asset in relation to a surplus on a consistent basis.

• IFRIC 15, Agreements for the Construction of Real Estate: this interpretation clarifies the recognition of revenue and expenses associated with the construction of real estate.

• IFRIC 16, Hedges of a Net Investment in a Foreign Operation: this interpretation clarifies the following matters: firstly, the exposure to foreign exchange differences between the functional currency of the foreign operation and the presentation currency of the parent cannot be designated as a hedged risk, and only the foreign currency exposure arising between the functional currency of the parent and that of its foreign operation qualifies for hedge accounting; secondly, the hedging instrument used to hedge the net investment may be held by any entity within the group, not necessarily by the parent of the foreign operation; and, lastly, it addresses how an entity should determine the amounts to be reclassified from equity to profit or loss on disposal of the foreign operation.

The application of these accounting standards and interpretations did not have a material effect on the Group’s consolidated financial statements.

• Also, at the date of preparation of these consolidated financial statements the following standards and interpretations with effective dates subsequent to December 31, 2009 were in force:

• Amendments to IFRS 2, Share-based Payment: these amendments relate to the recognition of share-based payment transactions among group entities. The main change is that the amendments supersede IFRIC 8 and IFRIC 11 and, accordingly, these interpretations will be repealed since their content is included in the main body of the standard. It is clarified that an entity that receives services from employees or suppliers should account for the transaction even if another group entity settles the arrangement and irrespective of whether it is cash-settled or equity-settled.

• Revision of IFRS 3, Business Combinations and Amendment to IAS 27, Consolidated and Separate Financial Statements (obligatory for years beginning on or after July 1, 2009): introduce significant changes in several matters relating to accounting for business combinations. These changes include most notably the following: acquisition costs must be expensed, rather than recognized as an increase in the cost of the business combination; in step acquisitions the acquirer must remeasure at fair value the investment held prior to the date that control is obtained; and there is an option to measure at fair value the non-controlling interests of the acquire, as opposed to the single current treatment of measuring them as the proportionate share of the fair value of the net assets acquired. Since the standard will be applied prospectively, and is applicable from January 1, 2010, in general the directors do not expect it to have a significant effect on the business combinations performed.

• Amendment to IAS 39, Eligible Hedged Items (obligatory for years beginning on or after July 1, 2009): this amendment establishes that inflation may only be designated as a hedged item if it is a contractually specified portion of the cash flows to be hedged. Only the intrinsic value and not the time value of a purchased option may be used as a hedging instrument.

• Amendment to IAS 32, Classification of Rights Issues (obligatory for years beginning on or after February 1, 2010): this amendment relates to the classification of foreign currency denominated rights issues (rights, options or warrants). Pursuant to this amendment, when these rights are to acquire a fixed number of shares in exchange for a fixed amount, they are equity instruments, irrespective of the currency in which that fixed amount is denominated and provided that other requirements of the standard are fulfilled.

• IFRIC 12, Service Concession Arrangements (obligatory following its adoption by the European Union for years beginning on or after April 1, 2009): owing to the nature of this interpretation, its application does not affect the consolidated financial statements.

• IFRIC 17, Distributions of Non-cash Assets to Owners (obligatory for years beginning on or after July 1, 2009): this interpretation addresses the accounting treatment of the distribution of non-cash assets to owners (dividends payable), although its scope does not include distributions of assets within a group or between entities under common control. The interpretation requires an entity to measure such liabilities at the fair value of the asset to be distributed and to recognize any difference between the carrying amount of the dividend payable and the carrying amount of the asset distributed in profit or loss.

• IFRIC 18, Transfers of Assets from Customers (obligatory for years beginning on or after July 1, 2009): this interpretation clarifies the requirements for agreements in which an entity receives from customers items of property, plant or equipment (or cash to construct such items) that must be used to connect those customers to a network (e.g. electricity, gas or water supply).

F-11

• At the date of preparation of these consolidated financial statements, the following standards and interpretations had not yet been adopted by the European Union:

• Revision of IAS 24, Related Party Disclosures: the revised IAS 24 addresses related party disclosures in financial statements. There are two new basic features. Firstly, it provides a partial exemption from certain disclosure requirements when the transactions are between State-controlled entities or government-related entities (or equivalent government institution) and, secondly, it simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition.

• Amendments to IFRIC 14, Prepayments of a Minimum Funding Requirement: these amendments remedy the fact that in some circumstances entities could not recognize certain voluntary prepayments as assets.

• IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments: this interpretation addresses the accounting by a debtor when all or part of a financial liability is extinguished through the issue of equity instruments to the creditor. The interpretation does not apply to transactions in situations where the counterparties in question are shareholders or related parties, acting in their capacity as such, or where extinguishing the financial liability by issuing equity instruments is in accordance with the original terms of the financial liability. In this case, the equity instruments issued are measured at fair value at the date the liability is extinguished and any difference between this value and the carrying amount of the liability is recognized in profit or loss.

• Lastly, it should be noted that the adoption of IFRS 9, Financial Instruments: Classification and Measurement, which will in the future replace the part of the current IAS 39 relating to the classification and measurement of financial assets, has been postponed by the European Union. IFRS 9 presents significant differences with respect to the current standard, including the approval of a new classification model based on only two categories, namely instruments measured at amortized cost and those measured at fair value, the disappearance of the current Held-to-maturity investments and Available-for-sale financial assets categories, impairment analyses only for assets measured at amortized cost and the non-separation of embedded derivatives in financial contracts.

In light of the exceptional circumstances that arose in the financial markets, mainly in the second half of 2008, European governments undertook to preserve the stability of the international financial system. The main objectives of these measures were as follows: to ensure the appropriate liquidity conditions for the operation of financial institutions; to facilitate financial institutions’ access to financing; to establish the mechanisms required to permit, where appropriate, the provision of additional capital resources to the financial institutions in order to ensure the proper performance of the economy; to guarantee that accounting regulations are sufficiently flexible so as to take into account the exceptional circumstances in the market; and to strengthen and improve the mechanisms for coordination among European countries. Within this general framework, in the last quarter of 2008 the following measures were approved in Spain:

• Royal Decree-Law 6/2008, of 10 October, creating the Fund for the Acquisition of Financial Assets (FAAF), and Ministry of Economy and Finance Order EHA/3118/2008, of 31 October, implementing the aforementioned Royal Decree-Law. The purpose of the FAAF is to use Public Treasury money and market criteria to acquire, by means of the auction procedure, financial instruments issued by Spanish credit institutions and securitization special-purpose vehicles, backed by loans granted to individuals, companies and non-financial entities.

F-12

• Royal Decree-Law 7/2008, of 13 October, on Urgent Economic Measures in relation to the Concerted European Action Plan of the Euro Area Countries, and Ministry of Economy and Finance Order EHA/3364/2008, of 21 November, implementing Article 1 of the aforementioned Royal Decree-Law, which includes the following measures, applicable until December 31, 2009. Firstly, the grant of State guarantees for the issues of promissory notes, bonds and debentures launched by credit institutions resident in Spain which meet certain requirements; and, secondly, the exceptional authorization for the Ministry of Economy and Finance to acquire securities, including preferred participating securities and non-voting equity units, issued by credit institutions resident in Spain which need to strengthen their capital and request such acquisition.

Other regulatory changes

On November 26, 2008, the Bank of Spain approved Circular 6/2008, amending Bank of Spain Circular 4/2004, of 22 December, on Public and Confidential Financial Reporting Rules and Formats. The most significant amendment introduced by Bank of Spain Circular 6/2008 relates to the formats of the statements to be presented. Accordingly, the consolidated balance sheet, consolidated income statement, consolidated statement of recognized income and expense, consolidated statement of changes in total equity and consolidated statement of cash flows for 2007 presented in these consolidated financial statements differ, solely as regards the basis of presentation of certain items and margins, from those presented in the statutory consolidated financial statements of the Group for that year, since they were prepared using the formats contained in the aforementioned Bank of Spain Circular 6/2008.

The main differences between the financial statement formats presented with respect to the formats included in the statutory consolidated financial statements of the Group for 2007 are as follows:

Consolidated balance sheet

• Other assets and Other liabilities group together the balance sheet line items Prepayments and accrued income and Other assets, and Accrued expenses and deferred income and Other liabilities, respectively, included in the Group’s consolidated financial statements for 2007.

• The balance of Equity having the substance of a financial liability (because it is not refundable on demand) was transferred to financial liabilities at amortized cost on the liability side of the consolidated balance sheet.

• A new item included in the valuation adjustments in consolidated equity entitled Entities accounted for using the equity method was created, which includes separately the valuation adjustments recognized in equity originating from associates accounted for using the equity method.

• Balances with central banks are classified in the corresponding portfolios.

Consolidated income statement

• A new Interest income margin is introduced which is calculated as the difference between Interest and similar income and Interest expense and similar charges. The aforementioned interest currently also includes financial income and expenses from insurance activities and other non-financial activities that used to be presented separately.

• Income and expenses from the Group’s insurance activity are no longer grouped together as a separate item and are recognized, according to their nature, under the various consolidated income statement items, with the consequent effect on each margin and item in this statement.

• A new margin entitled Total income is presented which is similar to the former Gross income (now eliminated), except, basically, for the fact that it includes other operating income and expenses, which formerly were not part of total income, and for the effect of including the interest expenses and financial charges from non-financial activities according to their nature.

• Sales and income from the provision of non-financial services and Cost of sales are excluded and these items are recognized mainly under Other operating income and Other operating expenses, respectively.

F-13

• The balance of Impairment losses (net) is split into two line items: Impairment losses on financial assets (net), which includes net impairment losses on financial assets other than equity instruments classified as Investments; and Impairment losses on other assets (net), which includes the net impairment losses on equity instruments classified as Investments and on other non-financial assets.

• Net operating income is eliminated and Profit from operations is created. The difference between the two margins is basically that the latter includes the finance income and costs from the Group’s non-financial activities, the net charge to impairment losses on financial instruments and the net charge to provisions.

• The line items Other gains and Other losses are eliminated. They are replaced by the line items: Gains/(losses) on disposal of assets not classified as non-current assets held for sale and Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations, which include mainly the balances of the excluded line items mentioned above. The remaining gains or losses which were recognized in the two eliminated line items and are not now included in the aforementioned two new line items have been classified according to their nature in the consolidated income statement.

Consolidated statement of changes in equity

The consolidated statement of changes in equity consists of two parts: the consolidated statement of recognized income and expense, which was already presented as a statement under the previous formats, and the consolidated statement of changes in total equity, which includes all the changes in equity previously disclosed in the notes to the financial statements.

Statement of recognized income and expense: the main change affecting the Group is the separate presentation under Income tax of the tax effect of the changes in the items recognized directly in equity, except for Entities accounted for using the equity method, which is presented net of the related tax effect. Previously, all the items were presented net of the related tax effect.

All accounting policies and measurement bases with a material effect on the 2009 consolidated financial statements were applied in their preparation.

c) Use of estimates

The consolidated results and the determination of consolidated equity are sensitive to the accounting policies, measurement bases and estimates used by the directors of the Bank in preparing the consolidated financial statements. The main accounting policies and measurement bases are set forth in Note 2.

In the consolidated financial statements estimates were occasionally made by the senior management of the Bank and of the consolidated entities in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein. These estimates, which were made on the basis of the best information available, relate basically to the following:

• The impairment losses on certain assets (see Notes 6, 7, 8, 10, 12, 13, 16, 17 and 18);

• The assumptions used in the actuarial calculation of the post-employment benefit liabilities and commitments and other obligations (see Note 25);

• The useful life of the tangible and intangible assets (see Notes 16 and 18);

• The measurement of goodwill arising on consolidation (see Note 17); and

• The fair value of certain unquoted assets (see Notes 7, 8, 9 and 11).

d) Other matters

i. Disputed corporate resolutions

The directors of the Bank and their legal advisers consider that the objection to certain resolutions adopted by the Bank’s shareholders at the general shareholders’ meetings on January 18, 2000, March 4, 2000, March 10, 2001, February 9, 2002, June 24, 2002, June 21, 2003, June 19, 2004 and June 18, 2005 will have no effect on the financial statements of the Bank and the Group.

F-14

The status of these matters at the date of preparation of the consolidated financial statements is detailed below:

On April 25, 2002, the Santander Court of First Instance number 1 dismissed in full the claim contesting the resolutions adopted by the shareholders at the general shareholders’ meeting on January 18, 2000. The plaintiff filed an appeal against the judgment. On December 2, 2002, the Cantabria Provincial Appellate Court dismissed the appeal. The Bank appeared as a party to the cassation appeal and filed pleadings with respect to the inadmissibility of the appeal. In the order dated November 4, 2008 the Supreme Court considered the appeal to have been withdrawn in view of the decease of the appellant and the failure to appear of his heirs.

On November 29, 2002, the Santander Court of First Instance number 2 dismissed in full the claims contesting the resolutions adopted at the general shareholders’ meeting on March 4, 2000. The plaintiffs filed an appeal against the judgment. On July 5, 2004, the Cantabria Provincial Appellate Court dismissed the appeal. One of the appellants prepared and filed an extraordinary appeal on grounds of procedural infringements and a cassation appeal against the judgment, which were not given leave to proceed by order of the Supreme Court of July 31, 2007.

On March 12, 2002, the Santander Court of First Instance number 4 dismissed in full the claims contesting the resolutions adopted at the general shareholders’ meeting on March 10, 2001. The plaintiffs filed an appeal against the judgment. On April 13, 2004, the Cantabria Provincial Appellate Court dismissed the appeals. One of the appellants prepared and filed an extraordinary appeal on grounds of procedural infringements and a cassation appeal against the judgment, which were not given leave to proceed by order of the Supreme Court of November 6, 2007.

On September 9, 2002, the Santander Court of First Instance number 5 dismissed in full the claim contesting the resolutions adopted by the shareholders at the general shareholders’ meeting on February 9, 2002. The plaintiff filed an appeal against the judgment. On January 14, 2004, the Cantabria Provincial Appellate Court dismissed the appeal. The appellant prepared and filed an extraordinary appeal on grounds of procedural infringements and a cassation appeal against the judgment, which were not given leave to proceed by order of the Supreme Court of May 8, 2007.

On May 29, 2003, the Santander Court of First Instance number 6 dismissed in full the claim contesting the resolutions adopted by the shareholders at the general shareholders’ meeting on June 24, 2002. The plaintiffs filed an appeal against the judgment. On November 15, 2005, the Cantabria Provincial Appellate Court dismissed the appeal in full. The appellants filed an extraordinary appeal on grounds of procedural infringements and a cassation appeal against the judgment. The Bank appeared as a party to the two appeals and filed pleadings with respect to the inadmissibility thereof. In the order dated September 23, 2008 the Supreme Court refused leave to proceed with the aforementioned appeals.

On November 23, 2007, the Santander Court of First Instance number 7 dismissed in full the claims contesting the resolutions adopted at the general shareholders’ meeting on June 21, 2003. The plaintiffs filed an appeal against the judgment. The court was notified of the decease of one of the appellants and the court considered his appeal to have been withdrawn on the grounds of his decease and the failure to appear of his heirs. The other three appeals filed were dismissed in full by the Cantabria Provincial Appellate Court on June 30, 2009. The appellants filed an extraordinary appeal on grounds of procedural infringements and a cassation appeal against this judgment, and the appeal filed by one of the three appellants was refused leave to proceed by the Provincial Appellate Court. The appeals filed by other two appellants are still being processed at the Supreme Court.

On October 28, 2005, the Santander Court of First Instance number 8 dismissed in full the claims contesting the resolutions adopted at the general shareholders’ meeting on June 19, 2004. The plaintiffs filed an appeal against the judgment. In a Judgment dated June 28, 2007 the Cantabria Provincial Appellate Court dismissed the appeals in full. Against this judgment the plaintiffs prepared and filed a cassation appeal and an extraordinary appeal on the grounds of procedural infringements. The cassation appeal and extraordinary appeal for procedural infringement filed by one of the appellants were refused leave to proceed due to the decease of the appellant and the failure to appear of his heirs. The other two appeals were refused leave to proceed by the Supreme Court on October 27, 2009.

On July 13, 2007, the Santander Court of First Instance number 10 dismissed in full the claims contesting the resolutions adopted at the general shareholders’ meeting on June 18, 2005. The plaintiffs filed an appeal against the judgment. In a Judgment dated May 14, 2009 the Cantabria Provincial Appellate Court dismissed the appeals in full. Against this judgment the plaintiffs prepared and filed a cassation appeal and an extraordinary appeal on the grounds of procedural infringements, and these appeals are still being processed at the Supreme Court.

F-15

ii. Credit assignment transactions

Following the prolonged investigations carried out since 1992 by the Madrid Central Examining Court number 3, and the repeated applications by the Public Prosecutor’s Office and the Government Lawyer, as the representative of the Public Treasury, to have the case against the Bank and its executives dismissed and struck out, the trial commenced at Panel One of the Criminal Chamber of the National Appellate Court and after the debate on preliminary issues was held at the end of November 2006, without the appearance of the Government Lawyer, in which the Public Prosecutor’s Office reiterated its appeal to set aside the trial and interrupt the proceedings, on December 20, 2006, the Criminal Chamber of the National Appellate Court ordered the dismissal of the proceedings, as requested by the Public Prosecutor’s Office and the private prosecution.

A cassation appeal was filed against the aforementioned order by the Association for the Defense of Investors and Customers and Iniciativa per Catalunya Verds and, following the opposition by the Public Prosecutor’s Office, the Government Lawyer and the remaining appearing parties, it was dismissed by a Supreme Court Decision handed down on December 17, 2007.

In an interlocutory order of April 15, 2008, the Supreme Court dismissed the request filed by the Association for the Defense of Investors and Customers for the decision handed down in the judgment of December 17, 2007 to be set aside.

e) Capital management

The Group’s capital management is performed at regulatory and economic levels.

Regulatory capital management is based on the analysis of the capital base and the capital ratios using the criteria of Bank of Spain Circular 3/2008. The aim is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, issues of equity instruments (preference shares and subordinated debt) and hybrid instruments.

From an economic standpoint, capital management seeks to optimize value creation at the Group and at its different business units. To this end, the economic capital, RORAC and value creation data for each business unit are generated, analyzed and reported to the management committee on a quarterly basis. Within the framework of the internal capital adequacy assessment process (Pillar 2 of the Basel Capital Accord), the Group uses an economic capital measurement model with the objective of ensuring that there is sufficient capital available to support all the risks of its activity in different economic scenarios, with the solvency levels agreed upon by the Group.

In order to adequately manage the Group’s capital, it is essential to estimate and analyze future needs, in anticipation of the various phases of the business cycle. Projections of regulatory and economic capital are made based on reference to the budgetary information (balance sheet, income statement, etc.) and on macroeconomic scenarios defined by the Group’s economic research and public policy service. These estimates are used by the Group as a reference to plan the management actions (issues, securitizations, etc.) required to achieve its capital targets.

In addition, certain stress scenarios are simulated in order to assess the availability of capital in adverse situations. These scenarios are based on sharp fluctuations in macroeconomic variables, GDP, interest rates, stock market indexes, etc. that mirror historical crises that could happen again.

With respect to minimum capital requirements for credit institutions, Bank of Spain Circular 3/2008 on the calculation and control of minimum capital requirements came into force on June 11, 2008. This circular completes the transposition into Spanish legislation of the guidelines on capital requirements established by the Basel Committee on Banking Supervision (BIS II), after their adoption by the European Union.

F-16

The new circular included new developments as regards capital requirements (Pillar 1) relating to the possibility of using internal ratings and models (IRB approach) to calculate the risk-weighted exposures, and to the inclusion of operational risk in these exposures. The objective is to render the regulatory requirements more sensitive to the risks actually borne by the entities in the performance of their business activities. Also, the new circular established a supervisory review system to improve internal risk management and internal capital adequacy assessment (Pillar 2), and incorporates elements relating to disclosures and market discipline (Pillar 3).

In this connection, on June 25, 2008 Santander Group obtained authorization from the Bank of Spain to adopt the internal ratings-based approach (IRB) for calculating the capital requirements for credit risk of Banco Santander (the Parent), Banesto and Abbey, in conjunction with the UK Financial Services Authority (FSA) in the case of Abbey. Additionally, the acquisition of Alliance & Leicester by Santander Group led to the inclusion of new portfolios under the advanced approach, since prior to the acquisition this entity had obtained the related supervisory approval for the use of internal risk models. Also, on June 30, 2009 the Group obtained the approval of the advanced approaches of its Portuguese subsidiary Santander Totta.

At year-end these entities represented a substantial portion of the significant net credit risk exposure at consolidated level. Santander Group has undertaken with the Bank of Spain to gradually apply, in the coming years, the internal models for determining capital for credit risk at substantially all the Group’s banks, until it reaches coverage levels of close to 100% of net loan portfolio exposure under IRB models. This entire process will be validated in a coordinated manner between the Bank of Spain and the supervisors of each country in which the Group has an international presence, mainly Europe and the US.

The Bank of Spain valued particularly highly the efforts made in the implementation of advanced approaches, and indicated that this implementation had been possible due both to the robust and consistent technological platforms, advanced internal model methodologies and risk information systems that the Group has had in place for several years and to the high level of integration in management.

The implementation of the new regulatory standards has a positive impact on Santander Group’s capital ratios, since as a result of the application of internal models the risk-weighted exposure better reflects the levels of capital required on the basis of the risks assumed.

In short, Santander Group’s eligible capital at 2009 and 2008 year-end exceeded the minimum requirements.

f)	Environmental impact
	In view of the business activities carried on by the Group entities, the Group does not have any environmental liability, expenses, assets, provisions or contingencies that might be material with respect to its consolidated equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the consolidated financial statements.
g)	Events after the reporting period

It should be noted that from December 31, 2009 to the date on which these financial statements were authorized for issue, the following significant events occurred in Santander Group:

On January 11, 2010, Banco Santander, S.A. invited the holders of subordinated bonds relating to 13 different series issued by various Santander Group entities, with a combined outstanding principal amount of approximately €3,300 million, to submit offers for the sale of all or part of their securities for their purchase in cash by Banco Santander. The invitation acceptance rate was approximately 60% and the total face value of the securities accepted for purchase was approximately €2 billion.

Also, on February 17, 2010, Banco Santander, S.A. invited the holders of subordinated perpetual bonds issued by Santander Perpetual, S.A.U., with a combined outstanding principal amount of approximately USD 1,500 million (of which Santander holds approximately USD 350 million), to submit offers for the sale of all or part of their securities for their purchase in cash by Banco Santander. The face value accepted was USD 1,093 million, i.e. 95% of the total targeted by the invitation.

On February 22, 2010, Banco Santander, S.A. placed among institutional investors a package of shares of Bolsas y Mercados Españoles (BME) representing approximately 2.5% of that company’s share capital at a price of €20 per share, resulting in total proceeds of €42 million. This transaction gave rise to a gain of €30.4 million for the Group. Following this placement, the Group holds an ownership interest of 2.5% in the share capital of BME and will continue to be represented on its board of directors.

F-17

On March 10, 2010, Santander Private Banking UK Limited completed the sale of James Hay Holdings Limited (including its five subsidiaries) through the transfer of all the shares of James Hay Holdings Limited to IFG UK Holdings Limited, a subsidiary of the IFG Group, for a total of GBP 39 million.

On April 25, 2010, we announced that we had reached an agreement with Banco do Brasil S.A. and Banco Bradesco S.A. for the sale of the entire stake held by Grupo Santander in the companies Companhia Brasileira de Soluções e Serviços (15.33% of the capital), and Cielo S.A. — formerly Visanet — (7.20% of the capital). The total sale price agreed was R$200 million (approximately €85.3 million) for the 15.33% of CBSS and R$1,464 million (approximately €624.3 million) for the 7.20% of Cielo. The net capital gain generated for Grupo Santander is approximately €233 million. The closing of the transactions is subject to final documentation.

On June 9, 2010, we announced that Banco Santander had reached an agreement with Bank of America to acquire the 24.9% stake held by the latter in Grupo Financiero Santander (“Banco Santander Mexico”) for an amount of 2,500 million dollars Following this transaction, our holding in Banco Santander Mexico will amount to 99.9%. In 2003, Bank of America acquired this 24.9% stake from Santander for an amount of 1.600 million dollars. The transaction is subject to regulatory authorization and is expected to be completed in the third quarter of 2010.

h)	Comparative information
	As indicated in Note 1-b above, the comparative information for 2007 was modified in 2008 to adapt its presentation to the presentation formats of the main financial statements established in Bank of Spain Circular 6/2008, of 26 November.
	Also, the consolidated income statements for 2008 and 2007 included in these consolidated financial statements differ from those published in the statutory consolidated financial statements for those years, since, as a result of the Group’s divestment of the business in Venezuela through the sale of Banco de Venezuela, S.A., Banco Universal (see Note 3), the results arising from the consolidation of this company (€332 million and €191 million in 2008 and 2007, respectively) were reclassified, pursuant to current accounting regulations, from each of the line items in which they were previously recognized to Profit from discontinued operations.

Additionally, in order to facilitate the comparison of information, mention should be made of the following:

• Banco Real has been fully consolidated in the Group’s consolidated financial statements since the fourth quarter of 2008; until then, it had been accounted for using the equity method through the ownership interest in RFS Holdings. Also, in the second half of 2008 the Group acquired, inter alia, Alliance & Leicester and the distribution channels and retail deposits of Bradford & Bingley, and in the first half of 2009 it acquired various companies (see Note 3), including most notably Sovereign Bancorp (which changed its name to Santander Holdings USA, Inc. on February 1, 2010), all of which have been fully consolidated since their respective acquisition dates.

• In 2009 the Group obtained extraordinary gains totaling €2,587 million, net of tax, which were allocated in full to extraordinary write-downs. Accordingly, the net gains arising from the public offering of Banco Santander Brasil (€1,499 million, recognized under Gains/(losses) on disposal of assets not classified as non-current assets held for sale — see Note 49) and from the exchange of issues (€724 million — see Note 44), and other gains on the sale of 10% of Attijariwafa Bank and other transactions (€364 million) were allocated to provisions to credit loss allowances (€1,041 million), to the write-down of assets acquired (€554 million — see Note 50), to the write-down of the ownership interest held in Metrovacesa (€269 million — see Note 8), to additions to provisions for restructuring costs (€260 million, recognized under Provisions (net)) and to other provisions and write-downs (€463 million, including provisions for early retirement benefits recognized under Provisions (net)), all net of taxes and minority interests.

• In 2008 the Group obtained extraordinary gains totaling €3,572 million, net of tax, which were allocated in full to extraordinary write-downs. Accordingly, the net gains arising from the sale of the Business Campus (€586 million, recognized gross under Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations — see Note 50), ABN’s liabilities (€741 million, recognized under Gains/losses on financial assets and liabilities (net) — see Note 44) and the Italian businesses acquired from ABN (€2,245 million, recognized gross under Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations - see Note 50) were allocated to the write-down of the ownership interests in Fortis and The Royal Bank of Scotland (€1,430 million, recognized gross under Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations — see Note 50), to the write-down of the intangible assets of Abbey (€904 million, recognized under Impairment losses on other assets (net) — see Note 18), to additions to provisions for restructuring costs and for early retirement benefits (€386 million and €382 million, respectively, recognized under Provisions (net)), to the amortization of goodwill at the Santander Consumer Finance Group and portfolio write-downs (€295 million) and to other period provisions (€175 million).

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• The gains arising in 2007 on the disposal of the investment in Intesa Sanpaolo and of the properties in Spain (€566 million and €1,620 million, respectively, recognized under Gains on disposal of non-current assets held for sale not classified as discontinued operations and Gains on disposal of assets not classified as non-current assets held for sale — see Notes 50 and 49), the proceeds from the divestment of the pensions business in Latin America (€831 million, recognized under Profit/loss from discontinued operations - see Note 37) and the gains on the disposal of the investment in Banco Português do Investimento (€107 million, recognized under Gains/losses on financial assets and liabilities — see Note 44) were allocated to the write-down of the investment in Sovereign (€1,053 million — see Note 13.c), to the write-down of intangible assets (€542 million — see Note 18), to the recognition of special provisions for retirement and pension plans (€317 million — see Note 25) and to other provisions and write-downs (€117 million). Therefore, the gross gains obtained in 2007 (€3,124 million) contributed €950 million, after the aforementioned allocations and net of tax and non-controlling interests, to Profit attributable to the Parent.

2. Accounting policies and measurement bases

The accounting policies and measurement bases applied in preparing the consolidated financial statements were as follows:

a) Foreign currency transactions

i. Functional currency

The Group’s functional currency is the euro. Therefore, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in foreign currency.

ii. Translation of foreign currency balances

Foreign currency balances are translated to euros in two consecutive stages:

• Translation of foreign currency to the functional currency (currency of the main economic environment in which the Group operates), and

• Translation to euros of the balances held in the functional currencies of entities whose functional currency is not the euro.

Translation of foreign currency to the functional currency

Foreign currency transactions performed by consolidated entities (or entities accounted for using the equity method) not located in EMU countries are initially recognized in their respective currencies. Monetary items in foreign currency are subsequently translated to their functional currencies using the closing rate.

Furthermore:

• Non-monetary items measured at historical cost are translated to the functional currency at the exchange rate at the date of acquisition.

• Non-monetary items measured at fair value are translated at the exchange rate at the date when the fair value was determined.

• Income and expenses are translated at the average exchange rates for the period for all the transactions performed during the year. When applying this criterion, the Group considers whether there have been significant changes in the exchange rates in the year which, in view of their materiality with respect to the consolidated financial statements taken as a whole, would make it necessary to use the exchange rates at the transaction date rather than the aforementioned average exchange rates.

• The balances arising from non-hedging forward foreign currency/foreign currency and foreign currency/euro purchase and sale transactions are translated at the closing rates prevailing in the forward foreign currency market for the related maturity.

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Translation of functional currencies to euros

If the functional currency is not the euro, the balances in the financial statements of the consolidated entities (or entities accounted for using the equity method) are translated to euros as follows:

• Assets and liabilities, at the closing rates.

• Income and expenses, at the average exchange rates for the year.

• Equity items, at the historical exchange rates.

iii. Recognition of exchange differences

The exchange differences arising on the translation of foreign currency balances to the functional currency are generally recognized at their net amount under Exchange differences in the consolidated income statement, except for exchange differences arising on financial instruments at fair value through profit or loss, which are recognized in the consolidated income statement without distinguishing them from other changes in fair value, and for exchange differences arising on non-monetary items measured at fair value through equity, which are recognized under Valuation adjustments — Exchange differences.

The exchange differences arising on the translation to euros of the financial statements denominated in functional currencies other than the euro are recognized under Valuation adjustments — Exchange differences in the consolidated balance sheet, whereas those arising on the translation to euros of the financial statements of entities accounted for using the equity method are recognized under Valuation adjustments — Entities accounted for using the equity method, until the related item is derecognized, at which time they are recognized in the consolidated income statement.

iv. Entities located in hyperinflationary economies

As indicated in Note 3, in 2009 the Group sold substantially all its businesses in Venezuela and at December 31, 2009 its net assets in that country amounted to only €27 million.

In view of the foregoing, at December 31, 2009, 2008 and 2007 none of the functional currencies of the consolidated entities and associates located abroad related to hyperinflationary economies as defined by International Financial Reporting Standards as adopted by the European Union. Accordingly, at 2009, 2008 and 2007 year-end it was not necessary to adjust the financial statements of any of the consolidated entities or associates to correct for the effect of inflation.

v. Exposure to foreign currency risk

At December 31, 2009, the Group’s largest exposures on temporary positions (with a potential impact on the income statement) were concentrated, in descending order, on the pound sterling and the Chilean peso. At that date, its largest exposures on permanent positions (with a potential impact on equity) were concentrated, in descending order, on the Brazilian real, the pound sterling, the Mexican peso and the Chilean peso. The Group hedges a portion of these permanent positions using foreign exchange derivative financial instruments (see Note 36.a).

At December 31, 2008, the Group’s largest exposures on temporary positions (with a potential impact on the income statement) were concentrated, in descending order, on the pound sterling and the Brazilian real. At that date, its largest exposures on permanent positions (with a potential impact on equity) were concentrated, in descending order, on the Brazilian real, the pound sterling, the Mexican peso and the Chilean peso. The Group hedges a portion of these permanent positions using foreign exchange derivative financial instruments (see Note 36.a).

At December 31, 2007, the Group’s largest exposures on temporary positions (with a potential impact on the income statement) were concentrated, in descending order, on the US dollar and the pound sterling. At that date, its largest exposures on permanent positions (with a potential impact on equity) were concentrated, in descending order, on the Brazilian real, the pound sterling, the Mexican peso and the Chilean peso. The Group hedges a portion of these permanent positions using foreign exchange derivative financial instruments (see Note 36.a).

F-20

The following tables show the sensitivity of consolidated profit and consolidated equity to changes in the Group’s foreign currency positions due to 1% variations in the various foreign currencies in which the Group has material balances.

The estimated effect on the Group’s consolidated equity and consolidated profit of a 1% appreciation of the euro against the related currency is as follows:

	Millions of euros
	Effect on consolidated equity									Effect on consolidated profit
Currency	2009			2008			2007			2009		2008		2007
US dollar		—			—			—			2.8		3.9		20.1
Chilean peso		(12.7	)		(12.4	)		(13.7	)		7.0		3.1		—
Pound sterling		(21.5	)		(5.2	)		(4.3	)		16.2		14.4		12.2
Mexican peso		(20.5	)		(23.1	)		(16.3	)		4.7		3.6		—
Brazilian real		(111.4	)		(60.1	)		(68.5	)		—		13.6		—

Similarly, the estimated effect on the Group’s consolidated equity and consolidated profit of a 1% depreciation of the euro against the related currency is as follows:

	Millions of euros
	Effect on consolidated equity						Effect on consolidated profit
Currency	2009		2008		2007		2009			2008			2007
US dollar		—		—		—		(2.8	)		(4.0	)		(20.5	)
Chilean peso		12.9		12.6		14.6		(7.2	)		(3.0	)		—
Pound sterling		21.9		5.3		8.5		(16.5	)		(14.7	)		(12.5	)
Mexican peso		16.5		26.8		16.5		(4.8	)		(3.6	)		—
Brazilian real		81.9		65.2		69.4		—			(13.4	)		—

The foregoing data were obtained by calculating the possible effect of a variation in the exchange rates on the various asset and liability items, excluding the foreign exchange positions arising from goodwill, and on other foreign currency-denominated items, such as the Group’s derivative instruments, considering the offsetting effect of the various hedging transactions on these items. This effect was estimated using the exchange difference recognition methods set forth in Note 2.a.iii above.

Also, the estimated effect on the Group’s consolidated equity of a 1% appreciation or depreciation of the euro against the foreign currencies in which goodwill is denominated at December 31, 2009 would be a decrease or increase, respectively, in equity due to valuation adjustments of €82.8 million and €84.5 million in the case of the pound sterling (2008: €68.5 million and €69.9 million), €76.3 million and €77.8 million in the case of the Brazilian real (2008: €67.8 million and €69.2 million), and €31.3 million and €32 million for the other currencies (2008: €15.9 million and €16.2 million). These changes are offset by a decrease or increase, respectively, in the balance of goodwill at that date and, therefore, they have no impact on the calculation of the Group’s equity.

The estimates used to obtain the foregoing data were performed taking into account the effects of the exchange rate fluctuations isolated from the effect of the performance of other variables, the changes in which would affect equity and profit, such as variations in the interest rates of the reference currencies or other market factors. Accordingly, all variables other than the exchange rate fluctuations remained unchanged with respect to their positions at December 31, 2009, 2008 and 2007.

F-21

b) Basis of consolidation

i. Subsidiaries

Subsidiaries are defined as entities over which the Bank has the capacity to exercise control; this capacity is, in general but not exclusively, presumed to exist when the Parent owns directly or indirectly half or more of the voting power of the investee or, even if this percentage is lower or zero, when, as in the case of agreements with shareholders of the investee, the Bank is granted control. Control is the power to govern the financial and operating policies of an entity, as stipulated by the law, the Bylaws or agreement, so as to obtain benefits from its activities.

The financial statements of the subsidiaries are fully consolidated with those of the Bank. Accordingly, all balances and transactions between consolidated entities are eliminated on consolidation.

On acquisition of a subsidiary, its assets, liabilities and contingent liabilities are recognized at fair value at the date of acquisition. Any positive differences between the acquisition cost and the fair values of the identifiable net assets acquired are recognized as goodwill (see Note 17). Negative differences are charged to income on the date of acquisition.

Additionally, the share of third parties of the Group’s equity is presented under minority interests in the consolidated balance sheet (see Note 28). Their share of the profit for the year is presented under Profit attributable to minority interests in the consolidated income statement.

The results of subsidiaries acquired during the year are included in the consolidated income statement from the date of acquisition to year-end. Similarly, the results of subsidiaries disposed of during the year are included in the consolidated income statement from the beginning of the year to the date of disposal.

The Appendices contain significant information on these entities.

ii. Interests in joint ventures (jointly controlled entities)

Joint ventures are deemed to be ventures that are not subsidiaries but which are jointly controlled by two or more unrelated entities. This is evidenced by contractual arrangements whereby two or more entities (ventures) acquire interests in entities (jointly controlled entities) or undertake operations or hold assets so that strategic financial and operating decisions affecting the joint venture require the unanimous consent of the ventures.

The financial statements of investees classified as joint ventures are proportionately consolidated with those of the Bank and, therefore, the aggregation of balances and subsequent eliminations are made only in proportion to the Group’s ownership interest in the capital of these entities.

The Appendices contain significant information on these entities.

iii. Associates

Associates are entities over which the Bank is in a position to exercise significant influence, but not control or joint control, usually because it holds 20% or more of the voting power of the investee.

In the consolidated financial statements, investments in associates are accounted for using the equity method, i.e. at the Group’s share of net assets of the investee, after taking into account the dividends received therefrom and other equity eliminations. The profits and losses resulting from transactions with an associate are eliminated to the extent of the Group’s interest in the associate.

The Appendices contain significant information on these entities.

F-22

iv. Special purpose entities

When the Group incorporates special purpose entities, or holds ownership interests therein, to enable its customers to access certain investments, or for the transfer of risks or other purposes, it determines, using internal criteria and procedures, and taking into consideration the applicable legislation, whether control (as defined above) exists and, therefore, whether these entities should be consolidated. These criteria and procedures take into account, inter alia, the risks and rewards retained by the Group and, accordingly, all relevant matters are taken into consideration, including any guarantees granted or any losses associated with the collection of the related assets retained by the Group. These entities include the securitization special purpose vehicles, which are fully consolidated in the case of the SPVs over which, based on the aforementioned analysis, it is considered that the Group continues to exercise control.

v. Other matters

The companies less than 50% owned by the Group that constituted a decision-making unit at December 31, 2009 and which, therefore, were accounted for as subsidiaries are: (i) Luri 1, S.A., (ii) Luri 2, S.A., (iii) Luri 3, S.A. and (iv) Luri Land, S.A., in which the Group held ownership interests of 5.58%, 4.81%, 9.62% and 5.15%, respectively, at that date (see Appendix I).

vi. Business Combinations

A business combination is the bringing together of two or more separate entities or economic units into one single entity or group of entities.

Business combinations performed on or after January 1, 2004 whereby the Group obtains control over an entity are recognized for accounting purposes as follows:

• The Group measures the cost of the business combination, defined as the fair value of the assets given, the liabilities incurred and the equity instruments issued, if any, by the entity, plus any cost directly attributable to the business combinations, including the fees paid to the auditors, legal advisers, investment banks and other consultants. In 2009 €5.7 million were paid to the auditors for the half-yearly audits required by the Group (in 2008 €6.2 million were recognized as an increase in the cost of the business combinations effected in that year).

• The fair values of the assets, liabilities and contingent liabilities of the acquired entity or business, including any intangible assets which might not have been recognized by the acquired, are estimated and recognized in the consolidated balance sheet.

• Any negative difference between the net fair value of the assets, liabilities and contingent liabilities of the acquired and the cost of the business combination is recognized as discussed in Note 2-m; any positive difference is recognized in Negative goodwill on business combinations in the consolidated income statement.

vii. Acquisitions and disposals

Note 3 provide information on the most significant acquisitions and disposals in 2009, 2008 and 2007.

c) Definitions and classification of financial instruments

i. Definitions

A financial instrument is any contract that gives rise to a financial asset of one entity and, simultaneously, to a financial liability or equity instrument of another entity.

An equity instrument is any agreement that evidences a residual interest in the assets of the issuing entity after deducting all of its liabilities.

F-23

A financial derivative is a financial instrument whose value changes in response to the change in an observable market variable (such as an interest rate, foreign exchange rate, financial instrument price, market index or credit rating), whose initial investment is very small compared with other financial instruments with a similar response to changes in market factors, and which is generally settled at a future date.

Hybrid financial instruments are contracts that simultaneously include a non-derivative host contract together with a derivative, known as an embedded derivative, that is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative.

Compound financial instruments are contracts that simultaneously create for their issuer a financial liability and an own equity instrument (such as convertible bonds, which entitle their holders to convert them into equity instruments of the issuer).

The following transactions are not treated for accounting purposes as financial instruments:

• Investments in subsidiaries, jointly controlled entities and associates (see Note 13).

• Rights and obligations under employee benefit plans (see Note 25).

• Rights and obligations under insurance contracts (see Note 15).

• Contracts and obligations relating to employee remuneration based on own equity instruments (see Note 34).

ii. Classification of financial assets for measurement purposes

Financial assets are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as Non-current assets held for sale or they relate to Cash and balances with central banks, Changes in the fair value of hedged items in portfolio hedges of interest rate risk (asset side), Hedging derivatives and Investments, which are reported separately.

Financial assets are included for measurement purposes in one of the following categories:

• Financial assets held for trading (at fair value through profit or loss): this category includes the financial assets acquired for the purpose of generating a profit in the near term from fluctuations in their prices and financial derivatives that are not designated as hedging instruments.

• Other financial assets at fair value through profit or loss: this category includes hybrid financial assets not held for trading that are measured entirely at fair value and financial assets not held for trading that are included in this category in order to obtain more relevant information, either because this eliminates or significantly reduces recognition or measurement inconsistencies (accounting mismatches) that would arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases, or because a group of financial assets or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Group’s key management personnel. Financial assets may only be included in this category on the date they are acquired or originated.

• Available-for-sale financial assets: this category includes debt instruments not classified as Held-to-maturity investments, Loans and receivables or Financial assets at fair value through profit or loss, and equity instruments issued by entities other than subsidiaries, associates and jointly controlled entities, provided that such instruments have not been classified as Financial assets held for trading or as Other financial assets at fair value through profit or loss.

• Loans and receivables; this category includes the investment arising from ordinary lending activities, such as the cash amounts of loans drawn down and not yet repaid by customers or the deposits placed with other institutions, whatever the legal instrument, unquoted debt securities and the debt incurred by the purchasers of goods, or the users of services, constituting part of the Group’s business.

The consolidated entities generally intend to hold the loans and credits granted by them until their final maturity and, therefore, they are presented in the consolidated balance sheet at their amortized cost (which includes any reductions required to reflect the estimated losses on their recovery).

F-24

• Held-to-maturity investments: this category includes debt instruments traded in an active market, with fixed maturity and with fixed or determinable payments, for which the Group has both the intention and proven ability to hold to maturity.

iii. Classification of financial assets for presentation purposes

Financial assets are classified by nature into the following items in the consolidated balance sheet:

• Cash and balances with central banks: cash balances and balances receivable on demand relating to deposits with the Bank of Spain and other central banks.

• Loans and advances: includes the debit balances of all credit and loans granted by the Group, other than those represented by securities, as well as finance lease receivables and other debit balances of a financial nature in favor of the Group, such as cheques drawn on credit institutions, balances receivable from clearing houses and settlement agencies for transactions on the stock exchange and organized markets, bonds given in cash, capital calls, fees and commissions receivable for financial guarantees and debit balances arising from transactions not originating in banking transactions and services, such as the collection of rentals and similar items. They are classified, depending on the institutional sector to which the borrower belongs, under:

• Loans and advances to credit institutions: credit of any nature, including credit received and money market operations in the name of credit institutions.

• Loans and advances to customers: includes the debit balances of all the remaining credit and loans granted by the Group, other than those represented by securities, including money market operations through central counterparties.

• Debt instruments: bonds and other securities that represent a debt for their issuer, that generate an interest return, and that are in the form of certificates or book entries.

• Other equity instruments: financial instruments issued by other entities, such as shares, which have the nature of equity instruments for the issuer, unless they are investments in subsidiaries, jointly controlled entities or associates. Investment fund units are included in this item.

• Trading derivatives: includes the fair value in favor of the Group of derivatives which do not form part of hedge accounting, including embedded derivatives separated from hybrid financial instruments.

• Changes in the fair value of hedged items in portfolio hedges of interest rate risk: this item is the balancing entry for the amounts credited to the consolidated income statement in respect of the measurement of the portfolios of financial instruments which are efficiently hedged against interest rate risk through fair value hedging derivatives.

• Hedging derivatives: includes the fair value in favor of the Group of derivatives designated as hedging instruments in hedge accounting, including the embedded derivatives separated from hybrid financial instruments designated as hedging instruments in hedge accounting.

• Investments: includes the investments in the share capital of associates.

iv. Classification of financial liabilities for measurement purposes

Financial liabilities are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as Liabilities associated with non-current assets held for sale or they relate to Hedging derivatives or Changes in the fair value of hedged items in portfolio hedges of interest rate risk (liability side), which are reported separately.

Financial liabilities are classified for measurement purposes into one of the following categories:

• Financial liabilities held for trading (at fair value through profit or loss): this category includes the financial liabilities issued for the purpose of generating a profit in the near term from fluctuations in their prices, financial derivatives not considered to qualify for hedge accounting and financial liabilities arising from the outright sale of financial assets purchased under resale agreements or borrowed (short positions).

F-25

• Other financial liabilities at fair value through profit or loss: financial liabilities are included in this category when more relevant information is obtained, either because this eliminates or significantly reduces recognition or measurement inconsistencies (accounting mismatches) that would arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases, or because a group of financial liabilities or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Group’s key management personnel.

• Financial liabilities at amortized cost: financial liabilities, irrespective of their instrumentation and maturity, not included in any of the above-mentioned categories which arise from the funding-taking activities carried on by financial institutions.

v. Classification of financial liabilities for presentation purposes

Financial liabilities are classified by nature into the following items in the consolidated balance sheet:

• Deposits: includes all repayable balances received in cash by the Group, other than instruments such as renegotiable securities and those having the substance of subordinated liabilities. This item also includes cash bonds and cash consignments the amount of which may be invested without restriction. Deposits are classified on the basis of the creditor’s institutional sector into:

• Deposits from central banks: deposits of any nature, including credit received and money market operations received from the Bank of Spain or other central banks.

• Deposits from credit institutions: deposits of any nature, including credit received and money market operations in the name of credit institutions.

• Customer deposits: includes all repayable balances received in cash by the Group, other than those represented by marketable securities, money market operations through central counterparties, subordinated liabilities and deposits from central banks and credit institutions.

• Marketable debt securities: includes the amount of bonds and other debt represented by marketable securities, other than subordinated liabilities. This item includes the component considered to be a financial liability of issued securities that are compound financial instruments.

• Trading derivatives: includes the fair value, with a negative balance for the Group, of derivatives, including embedded derivatives separated from the host contract, which do not form part of hedge accounting.

• Short positions: includes the amount of financial liabilities arising from the outright sale of financial assets purchased under reverse repurchase agreements or borrowed.

• Subordinated liabilities: amount of financing received which, for the purposes of payment priority, ranks behind ordinary debt. This category also includes the financial instruments issued by the Group which, although equity for legal purposes, do not meet the requirements for classification as equity, such as certain preference shares issued.

• Other financial liabilities: includes the amount of payment obligations having the nature of financial liabilities not included in other items, and liabilities under financial guarantee contracts, unless they have been classified as doubtful.

• Changes in the fair value of hedged items in portfolio hedges of interest rate risk: this item is the balancing entry for the amounts charged to the consolidated income statement in respect of the measurement of the portfolios of financial instruments which are efficiently hedged against interest rate risk through fair value hedging derivatives.

• Hedging derivatives: includes the fair value of the Group’s liability in respect of derivatives, including embedded derivatives separated from hybrid financial instruments, designated as hedging instruments in hedge accounting.

F-26

d) Measurement of financial assets and liabilities and recognition of fair value changes

In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments not measured at fair value through profit or loss are adjusted by the transaction costs. Financial assets and liabilities are subsequently measured at each period-end as follows:

i. Measurement of financial assets

Financial assets are measured at fair value, without deducting any transaction costs that may be incurred on their disposal, except for loans and receivables, held-to-maturity investments, equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those equity instruments as their underlying and are settled by delivery of those instruments.

The fair value of a financial instrument on a given date is taken to be the amount for which it could be bought or sold on that date by two knowledgeable, willing parties in an arm’s length transaction acting prudently. The most objective and common reference for the fair value of a financial instrument is the price that would be paid for it on an organized, transparent and deep market (quoted price or market price).

If there is no market price for a given financial instrument, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, of valuation techniques commonly used by the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it.

All derivatives are recognized in the balance sheet at fair value from the trade date. If the fair value is positive, they are recognized as an asset and if the fair value is negative, they are recognized as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recognized in Gains/losses on financial assets and liabilities in the consolidated income statement. Specifically, the fair value of standard financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price and if, for exceptional reasons, the quoted price cannot be determined on a given date, these financial derivatives are measured using methods similar to those used to measure OTC derivatives.

The fair value of OTC derivatives is taken to be the sum of the future cash flows arising from the instrument, discounted to present value at the date of measurement (present value or theoretical close) using valuation techniques commonly used by the financial markets: net present value (NPV), option pricing models and other methods.

Loans and receivables and Held-to-maturity investments are measured at amortized cost using the effective interest method. Amortized cost is understood to be the acquisition cost of a financial asset or liability plus or minus, as appropriate, the principal repayments and the cumulative amortization (taken to the income statement) of the difference between the initial cost and the maturity amount. In the case of financial assets, amortized cost furthermore includes any reductions for impairment or uncollectibility. In the case of loans and receivables hedged in fair value hedges, the changes in the fair value of these assets related to the risk or risks being hedged are recognized.

The effective interest rate is the discount rate that exactly matches the carrying amount of a financial instrument to all its estimated cash flows of all kinds over its remaining life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that, because of their nature, form part of their financial return. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the next benchmark interest reset date.

Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying and are settled by delivery of those instruments are measured at acquisition cost adjusted, where appropriate, by any related impairment loss.

F-27

The amounts at which the financial assets are recognized represent, in all material respects, the Group’s maximum exposure to credit risk at each reporting date. Also, the Group has received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, cash collateral, equity instruments and personal security, assets leased out under leasing and renting agreements, assets acquired under repurchase agreements, securities loans and credit derivatives.

ii. Measurement of financial liabilities

In general, financial liabilities are measured at amortized cost, as defined above, except for those included under Financial liabilities held for trading and Other financial liabilities at fair value through profit or loss and financial liabilities designated as hedged items (or hedging instruments) in fair value hedges, which are measured at fair value.

iii. Valuation techniques

The following table shows a summary of the fair values, at 2009, 2008 and 2007 year-end, of the financial assets and liabilities indicated below, classified on the basis of the various measurement methods used by the Group to determine their fair value:

	Millions of euros
	2009						2008						2007
	Published						Published						Published
	price						price						price
	quotations						quotations						quotations
	in active		Internal				in active		Internal				in active		Internal
	markets		models		Total		markets		models		Total		markets		models		Total
Financial assets held for trading		61,056		73,998		135,054		51,947		99,870		151,817		76,310		82,497		158,807
Other financial assets at fair value through profit or loss		8,938		28,876		37,814		6,137		19,680		25,817		6,945		17,884		24,829
Available-for-sale financial assets		75,469		11,152		86,621		43,747		5,173		48,920		37,908		6,441		44,349
Hedging derivatives (assets)		1,226		6,608		7,834		244		9,454		9,698		—		3,063		3,063
Financial liabilities held for trading		12,013		103,503		115,516		12,265		124,355		136,620		24,447		98,951		123,398
Other financial liabilities at fair value through profit or loss		—		42,371		42,371		—		28,639		28,639		117		39,601		39,718
Hedging derivatives (liabilities)		318		4,873		5,191		261		5,697		5,958		111		4,024		4,135
Liabilities under insurance contracts		5,006		11,910		16,916		5,286		11,564		16,850		5,678		7,356		13,034

Financial instruments at fair value, determined on the basis of public price quotations in active markets (Level 1), include government debt securities, private-sector debt securities, securitized assets, shares, short positions and fixed-income securities issued.

In cases where price quotations cannot be observed, management makes its best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs (Level 2) and, in very specific cases, they use significant inputs not observable in market data (Level 3). In order to make these estimates, various techniques are employed, including the extrapolation of observable market data. The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, unless the fair value of the instrument can be obtained from other market transactions performed with the same or similar instruments or can be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates. In accordance with the standards in force (IFRSs), any difference between the transaction price and the fair value based on valuation techniques is not initially recognized in the income statement.

The Group did not make any material transfers of financial instruments between one measurement method and another in 2009.

F-28

The main techniques used at December 31, 2009 by the Group’s internal models to determine the fair value of the financial instruments detailed in the foregoing table are as follows:

• In the valuation of financial instruments permitting static hedging (basically forwards and swaps) and in the valuation of loans and advances to customers, the present value method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data.

• In the valuation of financial instruments requiring dynamic hedging (basically structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation between indices and market liquidity. In certain very specific cases, unobservable market inputs can be used, such as the volatility of the UK Halifax House Price Index (HPI), the estimated future HPI growth, the HPI spot rate, and mortality.

• In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used; in the case of more structured instruments requiring dynamic hedging, the Heath-Jarrow-Morton and Hull-White models are used. The main inputs used in these models are basically observable market data, including the related interest rate curves, volatilities, correlations and exchange rates. In certain very specific cases, unobservable market inputs can be used, such as the volatility of the UK Halifax House Price Index (HPI), the estimated future HPI growth, the HPI spot rate, mortality, and the credit spread for the specific financial instrument.

• In the case of linear instruments (e.g. credit risk and fixed-income derivatives), credit risk is measured using dynamic models similar to those used in the measurement of interest rate risk. In the case of non-linear instruments, if the portfolio is exposed to credit risk (e.g. credit derivatives), the joint probability of default is determined using the Standard Gaussian Copula model. The main inputs used to determine the underlying cost of credit of credit derivatives are quoted credit risk premiums and the correlation between the quoted credit derivatives of various issuers.

The fair value of the financial instruments that are not traded on active markets arising from the aforementioned internal models takes into account, inter alia, the contract terms and observable market data, which include interest rates, credit risk, exchange rates, the quoted market price of raw materials and shares, volatility and prepayments. The valuation models are not significantly subjective, since these methodologies can be adjusted and gauged, as appropriate, through the internal calculation of the fair value of actively traded instruments and the subsequent comparison with the related price observable on the market.

F-29

Set forth below are the financial instruments at fair value whose measurement was based on internal models (Levels 2 and 3) at December 31, 2009, 2008 and 2007 and the potential effect on their measurement at December 31, 2009 of a shift towards other reasonably probable scenarios in the main assumptions that are not based on observable market data:

	Figures in millions of euros
	Fair values		Fair values		Fair values
	calculated		calculated		calculated				Effect of reasonable
	using		using		using				assumptions on fair
	internal		internal		internal				values at 12/31/09
	models at		models at		models at				More			Less
	12/31/09		12/31/08		12/31/07		Valuation techniques	Main assumptions	favorable			favorable
ASSETS:
Financial assets held for trading		73,998		99,870		82,490
Loans and advances to credit institutions		5,953		5,150		12,295	Present Value Method	Observable market data		352			(255	)
Loans and advances to customers (b)		10,076		684		23,704	Present Value Method	Observable market data		—			—
Debt and equity interests		4,898		6,074		2,087	Present Value Method	Observable market data, HPI		1			(1	)
Trading derivatives		53,070		87,962		44,404				350			(253	)
Swaps		26,390		72,693		28,312	Present Value Method, Gaussian Copula (c)	Observable market data, liquidity		17	(e)		(17	)(e)
Exchange rate options		818		3,524		375	Black-Scholes Model	Observable market data, liquidity		3	(e)		(3	)(e)
Interest rate options		17,185		4,926		8,683	Black-Scholes Model Heath-Jarrow-Morton Model	Observable market data, liquidity, correlation		130	(e)		(122	)(e)
Interest rate futures		2,109		339		1,039	Present Value Method	Observable market data		—			—
Index and securities options		3,849		6,127		3,799	Black-Scholes Model	Observable market data, dividends, correlation, liquidity, HPI		83			(65	)
Equity futures		—		—		28	Present Value Method	Observable market data		—			—
Other		2,720		353		2,168	N/A	N/A		117			(47	)
Hedging derivatives		6,608		9,454		3,063
Swaps		6,465		9,029		2,614	Present Value Method	Observable market data		—			—
Exchange rate options		47		265		359	Black-Scholes Model	Observable market data		—			—
Interest rate options		56		157		86	Black-Scholes Model	Observable market data		—			—
Other		40		3		4	N/A	N/A		—			—
Other financial assets at fair value through profit or loss		28,876		19,681		17,884
Loans and advances to credit institutions		16,243		8,912		6,865	Present Value Method	Observable market data		—			—
Loans and advances to customers (d)		8,329		8,973		8,022	Present Value Method	Observable market data, HPI		—			—
Debt and equity interests		4,304		1,796		2,997	Present Value Method	Observable market data		—			—
Available-for-sale financial assets		11,152		5,173		6,441				154			(154	)
Debt and equity interests		11,152		5,173		6,441	Present Value Method	Observable market data		154			154
LIABILITIES:
Financial liabilities held for trading		103,503		124,355		98,307				68			(40	)
Deposits from central banks		2,985		9,110		—	Present Value Method	Observable market data		—			—
Deposits from credit institutions		43,132		26,842		23,254	Present Value Method	Observable market data		—			—
Customer deposits		4,658		4,896		27,992	Present Value Method	Observable market data		—			—
Debt and equity interests		586		1,075		—	Present Value Method	Observable market data, liquidity			(a)			(a)
Trading derivatives		52,141		82,432		47,061				68			(40	)
Swaps		35,916		67,288		39,204	Present Value Method, Gaussian Copula (c)	Observable market data, liquidity, HPI			(e)			(e)
Exchange rate options		898		3,515		907	Black-Scholes Model	Observable market data, liquidity			(e)			(e)
Interest rate options		3,974		5,402		1,325	Black-Scholes Model, Heath-Jarrow-Morton Model	Observable market data, liquidity, correlation			(e)			(e)
Index and securities options		4,518		4,694		2,527	Black-Scholes Model	Observable market data, dividends, correlation, liquidity, HPI		68			(40	)
Forward purchase and sale contracts		—		—		1,411	N/A	N/A		—			—
Interest rate and equity futures		2,596		1,189		1,100	Present Value Method	Observable market data		—			—
Other		4,239		344		587	N/A	N/A		—			—
Hedging derivatives		4,873		5,697		4,024
Swaps		4,558		5,586		3,924	Present Value Method	Observable market data		—			—
Exchange rate options		175		20		27	Black-Scholes Model	Observable market data		—			—
Interest rate options		67		91		73	Black-Scholes Model	Observable market data		—			—
Other		72		—		—	N/A	N/A
Other financial liabilities at fair value through profit or loss		42,371		28,639		33,039	Present Value Method	Observable market data		—			—
Liabilities under insurance contracts		11,910		11,564		7,356	Note 15
TOTAL		283,290		304,433		252,604				574			(449	)

(a)	The sensitivity of the issued debt and equity instruments in liabilities calculated using HPI assumptions is not detailed, since these instruments are perfectly hedged. Consequently, any change in the valuation of these issued instruments would be offset exactly by an equal and opposite change in the valuation of the associated foreign currency derivatives.
(b)	Includes mainly short-term loans and reverse repurchase agreements with corporate customers (mainly brokerage and investment companies).
(c)	Includes credit risk derivatives with a positive net fair value of €1,165 million recognized in the consolidated balance sheet (December 31, 2008: €900 million). These assets and liabilities are measured using the aforementioned Standard Gaussian Copula Model.
(d)	Includes home mortgage loans to financial institutions in the UK (which are regulated and partly financed by the Government). The fair value of these loans was obtained using observable market variables, including current market transactions with similar amounts and collateral facilitated by the UK Housing Association. Since the Government is involved in these financial institutions, the credit risk spreads have remained stable and are homogenous in this sector. The results arising from the valuation model are checked against current market transactions.
(e)	The Group calculates the potential impact on the measurement of each instrument on a joint basis, regardless of whether the individual value is positive (assets) or negative (liabilities), disclosing the joint effect associated with the related instruments classified on the asset side of the consolidated balance sheet.

F-30

The use of observable market data assumes that the markets in which the Group operates are functioning efficiently and, therefore, that these data are representative. The main assumptions used in the measurement of the financial instruments included in the foregoing table that were valued by means of internal models employing unobservable market data are as follows:

•	Correlation: the assumptions relating to the correlation between the value of quoted and unquoted assets are based on historical correlations between the impact of adverse changes in market variables and the corresponding valuation of the associated unquoted assets. The measurement of the assets will vary depending on whether a more or less conservative scenario is selected.
•	Dividends: the estimates of the dividends used as inputs in the internal models are based on the expected dividend payments of the issuers. Since the dividend expectations can change or vary depending on the source of the price (normally historical data or market consensus for the measurement of options) and the companies’ dividend policies can vary, the valuation is adjusted to the best estimate of the reasonable dividend level expected in more or less conservative scenarios.
•	Liquidity: the assumptions include estimates in response to market liquidity. For example, they take market liquidity into consideration when very long-term estimates of exchange rates or interest rates are used, or when the instrument is part of a new or developing market where, due to the absence of market prices that reflect a reasonable price for these products, the standard valuation methods and the estimates available might give rise to less precise results in the measurement of these instruments at that time.
•	Halifax House Price Index (HPI): the assumptions include estimates of the future growth and the volatility of the HPI, mortality and the credit spreads of the specific financial instruments in relation to home mortgage loans to financial institutions in the UK (which are regulated and partially financed by the Government), credit derivatives and property asset derivatives.
	The unobservable market data that constitute significant inputs of the internal models (Level 3) are, basically, those related to the House Price Index. The detail of the financial assets and liabilities measured using these models, included in the foregoing table, is as follows:

	Fair values calculated using
	internal models
	Millions of euros
	2009		2008
ASSETS:
Level 2		118,001		132,861
Level 3		2,632		1,316
		120,633		134,177
LIABILITIES:
Level 2		162,179		169,630
Level 3		477		626
		162,656		170,256
		283,290		304,433

The measurements obtained using the internal models might have been different had other methods or assumptions been used with respect to interest rate risk, to credit risk, market risk and foreign currency risk spreads, or to their related correlations and volatilities. Nevertheless, Group management considers that the fair value of the financial assets and liabilities recognized in the consolidated balance sheet and the gains and losses arising from these financial instruments are reasonable.

The increase in 2009 in the assets classified as Level 3 arose as a result of the inclusion of Santander Holdings USA, Inc (formerly Sovereign Bancorp, Inc) as a Group company. This subsidiary contributes certain mortgage securitization SPV units not traded on deep markets and, accordingly, the Group determines their fair value by analyzing the prices obtained from various sources, such as prices given by third parties (brokers, rating agencies, etc.). In order to analyze the reasonableness of these valuations, they are compared with the quoted price of other securities with similar characteristics that are traded on more active markets. The fair value ultimately assigned by the Group to these assets assumes the orderly settlement of these assets in normal circumstances. Given the current situation in the credit and liquidity markets, the market value of these assets is sensitive to changes in market assumptions and volatility.

F-31

As detailed in the foregoing tables, at December 31, 2009 the potential effect on the measurement of the financial instruments of a change in the main assumptions (liquidity, correlations, dividends and HPI) to less favorable reasonably probable assumptions, taking the lowest value within the range that is considered probable, would be to reduce gains or increase losses by €449 million (December 31, 2008: €169 million; December 31, 2007: €178 million). The effect of using other more favorable reasonably probable assumptions, taking the highest value within the range that is considered probable, would be to increase gains or reduce losses by €574 million (December 31, 2008: €218 million; December 31, 2007: €211 million).

The net gain recognized in the consolidated income statement for 2009 arising from the aforementioned valuation models amounted to €1,133 million (2008: net loss of €1,624 million; 2007: net loss of €479 million), of which a gain of €102 million related to models whose significant inputs are unobservable market data.

iv. Recognition of fair value changes

As a general rule, changes in the carrying amount of financial assets and liabilities are recognized in the consolidated income statement, distinguishing between those arising from the accrual of interest and similar items -which are recognized under Interest and similar income or Interest expense and similar charges, as appropriate- and those arising for other reasons, which are recognized at their net amount under Gains/losses on financial assets and liabilities.

Adjustments due to changes in fair value arising from:

• Available-for-sale financial assets are recognized temporarily in equity under Valuation adjustments — Available-for-sale financial assets, unless they relate to exchange differences, in which case they are recognized in Valuation adjustments — Exchange differences (exchange differences arising on monetary financial assets are recognized in Exchange differences in the consolidated income statement).

• Items charged or credited to Valuation adjustments — Available-for-sale financial assets and Valuation adjustments — Exchange differences remain in the Group’s consolidated equity until the related assets are derecognized, whereupon they are charged to the consolidated income statement.

• Unrealized gains on available-for-sale financial assets classified as Non-current assets held for sale because they form part of a disposal group or a discontinued operation are recognized in Valuation adjustments — Non-current assets held for sale.

v. Hedging transactions

The consolidated entities use financial derivatives for the following purposes: i) to facilitate these instruments to customers who request them in the management of their market and credit risks; ii) to use these derivatives in the management of the risks of the Group entities’ own positions and assets and liabilities (hedging derivatives); and iii) to obtain gains from changes in the prices of these derivatives (trading derivatives).

Financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as trading derivatives.

A derivative qualifies for hedge accounting if all the following conditions are met:

1. The derivative hedges one of the following three types of exposure:

a.	Changes in the fair value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (fair value hedge);
b.	Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecast transactions (cash flow hedge);
c.	The net investment in a foreign operation (hedge of a net investment in a foreign operation).

F-32

2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:

a.	At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (prospective effectiveness).
b.	There is sufficient evidence that the hedge was actually effective during the whole life of the hedged item or position (retrospective effectiveness).

3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Group’s management of own risks.

The changes in value of financial instruments qualifying for hedge accounting are recognized as follows:

a.	In fair value hedges, the gains or losses arising on both the hedging instruments and the hedged items attributable to the type of risk being hedged are recognized directly in the consolidated income statement.
	In fair value hedges of interest rate risk on a portfolio of financial instruments, the gains or losses that arise on measuring the hedging instruments are recognized directly in the consolidated income statement, whereas the gains or losses due to changes in the fair value of the hedged amount (attributable to the hedged risk) are recognized in the consolidated income statement with a balancing entry under Changes in the fair value of hedged items in portfolio hedges of interest rate risk on the asset or liability side of the balance sheet, as appropriate.
b.	In cash flow hedges, the effective portion of the change in value of the hedging instrument is recognized temporarily in equity under Valuation adjustments — Cash flow hedges until the forecast transactions occur, when it is recognized in the consolidated income statement, unless, if the forecast transactions result in the recognition of non-financial assets or liabilities, it is included in the cost of the non-financial asset or liability.
c.	In hedges of a net investment in a foreign operation, the gains and losses attributable to the portion of the hedging instruments qualifying as an effective hedge are recognized temporarily in equity under Valuation adjustments — Hedges of net investments in foreign operations until the gains or losses on the hedged item are recognized in the consolidated income statement.
d.	The ineffective portion of the gains and losses on the hedging instruments of cash flow hedges and hedges of a net investment in a foreign operation are recognized directly under Gains/losses on financial assets and liabilities in the consolidated income statement.

If a derivative designated as a hedge no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, the derivative is classified as a trading derivative.

When fair value hedge accounting is discontinued, the adjustments previously recognized on the hedged item are transferred to profit or loss at the effective interest rate re-calculated at the date of hedge discontinuation. The adjustments must be fully amortized at maturity.

When cash flow hedges are discontinued, any cumulative gain or loss on the hedging instrument recognized in equity under Valuation adjustments (from the period when the hedge was effective) remains recognized in equity until the forecast transaction occurs at which time it is recognized in profit or loss, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recognized immediately in profit or loss.

vi. Derivatives embedded in hybrid financial instruments

Derivatives embedded in other financial instruments or in other host contracts are accounted for separately as derivatives if their risks and characteristics are not closely related to those of the host contracts, provided that the host contracts are not classified as Other financial assets/liabilities at fair value through profit or loss or as Financial assets/liabilities held for trading.

F-33

e) Derecognizing of financial assets and liabilities

The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties:

1. If the Group transfers substantially all the risks and rewards to third parties - -unconditional sale of financial assets, sale of financial assets under an agreement to repurchase them at their fair value at the date of repurchase, sale of financial assets with a purchased call option or written put option that is deeply out of the money, securitization of assets in which the transferor does not retain a subordinated debt or grant any credit enhancement to the new holders, and other similar cases-, the transferred financial asset is derecognized and any rights or obligations retained or created in the transfer are recognized simultaneously.

2. If the Group retains substantially all the risks and rewards associated with the transferred financial asset -sale of financial assets under an agreement to repurchase them at a fixed price or at the sale price plus interest, a securities lending agreement in which the borrower undertakes to return the same or similar assets, and other similar cases-, the transferred financial asset is not derecognized and continues to be measured by the same criteria as those used before the transfer. However, the following items are recognized:

a.	An associated financial liability, which is recognized for an amount equal to the consideration received and is subsequently measured at amortized cost, unless it meets the requirements for classification under Other financial liabilities at fair value through profit or loss.
b.	The income from the transferred financial asset not derecognized and any expense incurred on the new financial liability, without offsetting.

3. If the Group neither transfers nor retains substantially all the risks and rewards associated with the transferred financial asset -sale of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases- the following distinction is made:

a.

If the transferor does not retain control of the transferred financial asset, the asset is derecognized and any rights or obligations retained or created in the transfer are recognized.

b.

If the transferor retains control of the transferred financial asset, it continues to recognize it for an amount equal to its exposure to changes in value and recognizes a financial liability associated with the transferred financial asset. The carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.

Accordingly, financial assets are only derecognized when the rights on the cash flows they generate have been extinguished or when substantially all the inherent risks and rewards have been transferred to third parties. Similarly, financial liabilities are only derecognized when the obligations they generate have been extinguished or when they are acquired, with the intention either to cancel them or to resell them.

f) Offsetting of financial instruments

Financial asset and liability balances are offset, i.e. reported in the consolidated balance sheet at their net amount, only if the subsidiaries currently have a legally enforceable right to set off the recognized amounts and intend either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

F-34

g) Impairment of financial assets

i. Definition

A financial asset is considered to be impaired -and therefore its carrying amount is adjusted to reflect the effect of impairment- when there is objective evidence that events have occurred which:

• In the case of debt instruments (loans and debt securities), give rise to an adverse impact on the future cash flows that were estimated at the transaction date.

• In the case of equity instruments, mean that their carrying amount may not be fully recovered.

As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the consolidated income statement for the period in which the impairment becomes evident, and the reversal, if any, of previously recognized impairment losses is recognized in the consolidated income statement for the period in which the impairment is reversed or reduced.

Balances are deemed to be impaired, and the interest accrual is suspended, when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts and on the dates initially agreed upon, after taking into account the guarantees received by the consolidated entities to secure (fully or partially) collection of the related balances. Collections relating to impaired loans and advances are used to recognize the accrued interest and the remainder, if any, to reduce the principal amount outstanding. The amount of the financial assets that would be deemed to be impaired had the conditions thereof not been renegotiated is not material with respect to the Group’s financial statements taken as a whole.

When the recovery of any recognized amount is considered unlikely, the amount is written off, without prejudice to any actions that the consolidated entities may initiate to seek collection until their contractual rights are extinguished due to expiry of the statute-of-limitations period, forgiveness or any other cause.

ii. Debt instruments carried at amortized cost

The amount of an impairment loss incurred on a debt instrument measured at amortized cost is equal to the difference between its carrying amount and the present value of its estimated future cash flows, and is presented as a reduction of the balance of the asset adjusted.

In estimating the future cash flows of debt instruments the following factors are taken into account:

• All the amounts that are expected to be obtained over the remaining life of the instrument; including, where appropriate, those which may result from the collateral provided for the instrument (less the costs for obtaining and subsequently selling the collateral). The impairment loss takes into account the likelihood of collecting accrued past-due interest receivable;

• The various types of risk to which each instrument is subject; and

• The circumstances in which collections will foreseeable be made.

These cash flows are subsequently discounted using the instrument’s effective interest rate (if its contractual rate is fixed) or the effective contractual rate at the discount date (if it is variable).

Specifically as regards impairment losses resulting from materialization of the insolvency risk of the obligors (credit risk), a debt instrument is impaired due to insolvency:

• When there is evidence of a deterioration of the obligor’s ability to pay, either because it is in arrears or for other reasons; and/or

• When country risk materializes: country risk is considered to be the risk associated with debtors resident in a given country due to circumstances other than normal commercial risk.

*      *       *      *       *

The Group has certain policies, methods and procedures for covering its credit risk arising both from insolvency allocable to counterparties and from country risk.

These policies, methods and procedures are applied in the granting, examination and documentation of debt instruments, and contingent liabilities and commitments, the identification of their impairment and the calculation of the amounts necessary to cover the related credit risk.

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The Bank of Spain requires that we develop internal models to calculate the allowances for both credit risk and country-risk based on historical experience. As of July 2008, the Bank of Spain had approved for regulatory capital calculation purposes the Group’s internal models affecting the vast majority of the Group’s credit risk net exposure. Bank of Spain will continue to review the models for the purpose of calculating allowances for loan losses. The calculation obtained based on the output parameters of internal models is consistent with the best estimate of the Group as to the probable losses using possible scenarios which rely on the approved internally developed models, and which constitute an appropriate basis for determining loan loss allowances. While these models are not yet approved by the Bank of Spain for loan loss allowance calculation, we are required to calculate the allowances according to the instructions described below. The difference between loan loss provisions calculated using internal models and those calculated under Bank of Spain Guidance, was not material for any of the three years ending December 31, 2009.

With respect to the allowance for loss arising from credit risk, the Group makes the following distinction:

1. Specific credit risk allowance:

a.	Specific allowance:
	The impairment of debt instruments not measured at fair value through profit or loss that are classified as doubtful are generally recognized in accordance with the criteria set forth below:

i.	Assets classified as doubtful due to counterparty arrears:
	Debt instruments, whoever the obligor and whatever the guarantee or collateral, with amounts more than three months past due are assessed individually, taking into account the age of the past-due amounts, the guarantees or collateral provided and the financial situation of the counterparty and the guarantors.
ii.	Assets classified as doubtful for reasons other than counterparty arrears:
	Debt instruments which are not classifiable as doubtful due to arrears but for which there are reasonable doubts as to their repayment under the contractual terms are assessed individually, and their allowance is the difference between the amount recognized in assets and the present value of the cash flows expected to be received.

b. General allowance for inherent losses:

The Group covers its losses inherent in debt instruments not measured at fair value through profit or loss and in contingent liabilities taking into account the historical experience of impairment and other circumstances known at the time of assessment. For these purposes, inherent losses are losses incurred at the reporting date, calculated using statistical methods, that have not yet been allocated to specific transactions.

The Group uses the concept of incurred loss to quantify the cost of the credit risk and include it in the calculation of the risk-adjusted return of its transactions. The parameters necessary for its calculation are also used to calculate economic capital and to calculate BIS II regulatory capital under internal models (see Note 1.f).

The incurred loss is the expected cost of the credit risk of a transaction, considering the characteristics of the counterparty and the guarantees and collateral associated with the transaction.

The loss is calculated by multiplying three factors: exposure at default, probability of default and loss given default.

• Exposure at default (EAD) is the amount of risk exposure at the date of default by the counterparty.

• Probability of default (PD) is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The probability of default is associated with the rating/scoring of each counterparty/transaction.

PD is measured using a time horizon of one year; i.e. it quantifies the probability of the counterparty defaulting in the coming year. The definition of default used includes past-dues by 90 days or more and cases in which there is no default but there are doubts as to the solvency of the counterparty (subjective doubtful assets).

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• Loss given default (LGD) is the loss arising in the event of default. It depends mainly on the guarantees associated with the transaction.

The calculation of the expected loss also takes into account the adjustment to the cycle of the aforementioned factors, especially PD and LGD.

The methodology for determining the general allowance for incurred loan losses seeks to identify the amounts of incurred losses as of the balance sheet date of loans have not yet been identified as impaired, but that we estimate based on our past history and specific facts that will manifest whitin a one year lead time period from the balance sheet date. The above demonstrates those loans were having problems as of the balance sheet date. That is what we call inherent losses in the context of our internal models in which loan loss allowances are calculated.

The approach described above is used as a general rule. However, in certain cases, as a result of its particular characteristics, this approach is not applied and alternative approaches are used.

1. Low default portfolios

In certain portfolios (sovereign risk, credit institutions or large corporations) the number of defaults observed is very small or zero. In these cases, the Group opted to use the data contained in the credit derivative spreads to estimate the expected loss discounted by the market and break it down into PD and LGD.

2. Top-down units

In the exceptional cases in which the Group does not have sufficient data to construct a sufficiently robust credit risk measurement model, the expected loss on the loan portfolios is estimated based on a top-down approximation in which the historically observed average cost of the loan portfolios is used as the best estimate of the expected loss. As the credit models are developed and bottom-up measurements are obtained, the top-down measurements used for these units are gradually replaced.

*       *       *       *       *

However, as required by the Bank of Spain, until the Spanish regulatory authority has verified and approved these internal models for the calculation of the general allowance for inherent losses (to date it has only approved the internal models to be used to calculate regulatory capital), the inherent losses must be calculated as set forth below.

In 2009 there were no significant changes in the policies, methods and procedures followed by the Group to determine the credit risk coverage.

2. Country risk allowance:

Country risk is considered to be the risk associated with counterparties resident in a given country due to circumstances other than normal commercial risk (sovereign risk, transfer risk and risks arising from international financial activity). Based on the countries’ economic performance, political situation, regulatory and institutional framework, and payment capacity and record, the Group classifies all the transactions performed with third parties into six different groups, from group 1 (transactions with ultimate obligors resident in European Union countries, Norway, Switzerland, Iceland, the United States, Canada, Japan, Australia and New Zealand) to group 6 (transactions the recovery of which is considered remote due to circumstances attributable to the country), assigning to each group the credit loss allowance percentages resulting from the aforementioned analyses.

However, due to the size of the Group and to the proactive management of its country risk exposure, the allowances recognized in this connection are not material with respect to the credit loss allowances recognized.

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iii. Debt or equity instruments classified as available for sale

The amount of the impairment losses on these instruments is the positive difference between their acquisition cost (net of any principal repayment or amortization in the case of debt instruments) and their fair value, less any impairment loss previously recognized in the consolidated income statement.

When there is objective evidence at the date of measurement of these instruments that the aforementioned differences are due to permanent impairment, they are no longer recognized in equity under Valuation adjustments — Available-for-sale financial assets and are reclassified, for the cumulative amount at that date, to the consolidated income statement.

If all or part of the impairment losses are subsequently reversed, the reversed amount is recognized, in the case of debt instruments, in the consolidated income statement for the year in which the reversal occurred (or in equity under Valuation adjustments — Available-for-sale financial assets in the case of equity instruments).

iv. Equity instruments measured at cost

The impairment loss on equity instruments measured at cost is the difference between the carrying amount and the present value of the expected future cash flows discounted at the market rate of return for similar securities.

Impairment losses are recognized in the consolidated income statement for the period in which they arise as a direct reduction of the cost of the instrument. These losses can only be reversed subsequently if the related assets are sold.

h) Repurchase agreements and reverse repurchase agreements

Purchases (sales) of financial assets under a non-optional resale (repurchase) agreement at a fixed price (repos) are recognized in the consolidated balance sheet as financing granted (received), based on the nature of the debtor (creditor), under Balances with central banks, Loans and advances to credit institutions or Loans and advances to customers (Deposits from central banks, Deposits from credit institutions or Customer deposits).

Differences between the purchase and sale prices are recognized as interest over the contract term.

i) Non-current assets held for sale and Liabilities associated with non-current assets held for sale

Non-current assets held for sale includes the carrying amount of individual items or disposal groups or items forming part of a business unit earmarked for disposal (Discontinued operations), whose sale in their present condition is highly probable and is expected to occur within one year from the reporting date. Therefore, the carrying amount of these items -which can be of a financial nature or otherwise- will foreseeable be recovered through the proceeds from their disposal. Specifically, property or other non-current assets received by the consolidated entities as total or partial settlement of their debtors’ payment obligations to them are deemed to be non-current assets held for sale, unless the consolidated entities have decided to make continuing use of these assets.

Liabilities associated with non-current assets include the credit balances arising from assets or disposal groups and from discontinued operations.

Non-current assets held for sale are generally measured at the lower of fair value less costs to sell and their carrying amount at the date of classification in this category. Non-current assets held for sale are not depreciated as long as they remain in this category.

Impairment losses on an asset or disposal group arising from a reduction in its carrying amount to its fair value (less costs to sell) are recognized under Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations in the consolidated income statement. The gains on a non-current asset held for sale resulting from subsequent increases in fair value (less costs to sell) increase its carrying amount and are recognized in the consolidated income statement up to an amount equal to the impairment losses previously recognized.

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j) Reinsurance assets and Liabilities under insurance contracts

Insurance contracts involve the transfer of a certain quantifiable risk in exchange for a periodic or one-off premium. The effects on the Group’s cash flow will arise from a deviation in the payments forecast and/or an insufficiency in the premium set.

The Group controls its insurance risk as follows:

• By applying of a strict methodology in the launch of products and in the assignment of value thereto.

• By using deterministic and stochastic models for measuring commitments.

• By using reinsurance as a risk mitigation technique as part of the credit quality guidelines in line with the Group’s general risk policy.

• By establishing an operating framework for credit risks.

• By actively managing asset and liability matching.

• By applying security measures in processes.

Reinsurance assets includes the amounts that the consolidated entities are entitled to receive for reinsurance contracts with third parties and, specifically, the reinsurer’s share of the technical provisions recorded by the consolidated insurance entities.

At least once a year these assets are reviewed for impairment (if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the Group may not receive all amounts due to it under the terms of the contract and the amount that will not be received can be reliably measured), and any impairment loss is recognized in the consolidated income statement and the assets are derecognized.

Liabilities under insurance contracts include the technical provisions recorded by the consolidated entities to cover claims arising from insurance contracts in force at year-end.

Insurers’ results relating to their insurance business are recognized, according to their nature, under the related consolidated income statement items.

In accordance with standard accounting practice in the insurance industry, the consolidated insurance entities credit to the income statement the amounts of the premiums written and charge to income the cost of the claims incurred on final settlement thereof. Insurance entities are therefore required to accrue at period-end the unearned revenues credited to their income statements and the accrued costs not charged to income.

At least at each reporting date the Group assesses whether the insurance contract liabilities recognized in the consolidated balance sheet are adequately measured. For this purpose, it calculates the difference between the following amounts:

• Current estimates of future cash flows under the insurance contracts of the consolidated entities. These estimates include all contractual cash flows and any related cash flows, such as claims handling costs; and

• The value recognized in the consolidated balance sheet for insurance liabilities (see Note 15), net of any related deferred acquisition costs or related intangible assets, such as the amount paid to acquire, in the event of purchase by the entity, the economic rights held by a broker deriving from policies in the entity’s portfolio.

If the calculation results in a positive amount, this deficiency is charged to the consolidated income statement. When unrealized gains or losses on assets of the Group’s insurance companies affect the measurement of liabilities under insurance contracts and/or the related deferred acquisition costs and/or the related intangible assets, these gains or losses are recognized directly in equity. The corresponding adjustment in the liabilities under insurance contracts (or in the deferred acquisition costs or in intangible assets) is also recognized in equity.

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k) Tangible assets

Tangible assets includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the consolidated entities or acquired under finance leases. Tangible assets are classified by use as follows:

i. Property, plant and equipment for own use

Property, plant and equipment for own use -including tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing receivables from third parties which are intended to be held for continuing use and tangible assets acquired under finance leases- are presented at acquisition cost, less the related accumulated depreciation and any impairment losses (carrying amount higher than recoverable amount).

Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value. The land on which the buildings and other structures stand has an indefinite life and, therefore, is not depreciated.

The period tangible asset depreciation charge is recognized in the consolidated income statement and is calculated using the following depreciation rates (based on the average years of estimated useful life of the various assets):

	Annual
	rate
Buildings for own use		2
Furniture		7.5 to 10
Fixtures		6 to 10
Office and IT equipment		10 to 25
Leasehold improvements		5 to 10

The consolidated entities assess at the reporting date whether there is any indication that an asset may be impaired (i.e. its carrying amount exceeds its recoverable amount). If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life (if the useful life has to be re-estimated).

Similarly, if there is an indication of a recovery in the value of a tangible asset, the consolidated entities recognize the reversal of the impairment loss recognized in prior periods and adjust the future depreciation charges accordingly. In no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognized in prior years.

The estimated useful lives of the items of property, plant and equipment for own use are reviewed at least at the end of the reporting period with a view to detecting significant changes therein. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recognized in the consolidated income statement in future years on the basis of the new useful lives.

Upkeep and maintenance expenses relating to property, plant and equipment for own use are recognized as an expense in the period in which they are incurred, since they do not increase the useful lives of the assets.

ii. Investment property

Investment property reflects the net values of the land, buildings and other structures held either to earn rentals or for capital appreciation.

The criteria used to recognize the acquisition cost of investment property, to calculate its depreciation and its estimated useful life and to recognize any impairment losses thereon are consistent with those described in relation to property, plant and equipment for own use.

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iii. Assets leased out under an operating lease

Property, plant and equipment — Leased out under an operating lease reflects the amount of the tangible assets, other than land and buildings, leased out by the Group under an operating lease.

The criteria used to recognize the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to recognize the impairment losses thereon are consistent with those described in relation to property, plant and equipment for own use.

l) Accounting for leases

i. Finance leases

Finance leases are leases that transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee.

When the consolidated entities act as the lessors of an asset, the sum of the present value of the lease payments receivable from the lessee plus the guaranteed residual value -which is generally the exercise price of the purchase option of the lessee at the end of the lease term- is recognized as lending to third parties and is therefore included under Loans and receivables in the consolidated balance sheet.

When the consolidated entities act as the lessees, they present the cost of the leased assets in the consolidated balance sheet, based on the nature of the leased asset, and, simultaneously, recognize a liability for the same amount (which is the lower of the fair value of the leased asset and the sum of the present value of the lease payments payable to the lessor plus, if appropriate, the exercise price of the purchase option). The depreciation policy for these assets is consistent with that for property, plant and equipment for own use.

In both cases, the finance income and finance expense arising from these contracts is credited and debited, respectively, to Interest and similar income and Interest expense and similar charges in the consolidated income statement so as to achieve a constant rate of return over the lease term.

ii. Operating leases

In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.

When the consolidated entities act as the lessors, they present the acquisition cost of the leased assets under Tangible assets (see Note 16). The depreciation policy for these assets is consistent with that for similar items of property, plant and equipment for own use and income from operating leases is recognized on a straight-line basis under Other operating income in the consolidated income statement.

When the consolidated entities act as the lessees, the lease expenses, including any incentives granted by the lessor, are charged on a straight-line basis to Other general administrative expenses in their consolidated income statements.

iii. Sale and leaseback transactions

In the case of sale at fair value and operating leasebacks, the profit or loss generated is recognized at the time of sale. In the case of finance leasebacks, the profit or loss generated is amortized over the lease term.

In accordance with IFRSs (IAS 17), in determining whether a sale and leaseback transaction results in an operating lease, the Group should analyze, inter alia, whether at the inception of the lease there are purchase options whose terms and conditions make it reasonably certain that they will be exercised, and to whom the gains or losses from the fluctuations in the fair value of the residual value of the related asset will accrue. In this connection, when the Group performed the transactions described in Note 16, it carried out the aforementioned analysis and concluded that there was no reasonable certainty that the related options would be exercised, since their exercise price was linked to fair value and there were no other indicators that could force the Group to exercise these options; therefore, under IFRSs, it was required to recognize the gain or loss on the sale.

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m) Intangible assets

Intangible assets are identifiable non-monetary assets (separable from other assets) without physical substance which arise as a result of a legal transaction or which are developed internally by the consolidated entities. Only assets whose cost can be estimated reliably and from which the consolidated entities consider it probable that future economic benefits will be generated are recognized.

Intangible assets are recognized initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.

i. Goodwill

Any excess of the cost of the investments in the consolidated entities and entities accounted for using the equity method over the corresponding underlying carrying amounts acquired, adjusted at the date of first-time consolidation, is allocated as follows:

• If it is attributable to specific assets and liabilities of the companies acquired, by increasing the value of the assets (or reducing the value of the liabilities) whose fair values were higher (lower) than the carrying amounts at which they had been recognized in the acquired entities’ balance sheets.

• If it is attributable to specific intangible assets, by recognizing it explicitly in the consolidated balance sheet provided that the fair value of these assets within 12 months following the date of acquisition can be measured reliably.

• The remaining amount is recognized as goodwill, which is allocated to one or more specific cash-generating units (a cash generating unit is the smallest identifiable group of assets that, as a result of continuing operation, generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets). The cash-generating units represent the Group’s geographical and/or business segments.

Goodwill is only recognized when it has been acquired for consideration and represents, therefore, a payment made by the acquirer in anticipation of future economic benefits from assets of the acquired entity that are not capable of being individually identified and separately recognized.

At the end of each reporting period or whenever there is any indication of impairment goodwill is reviewed for impairment (i.e. a reduction in its recoverable amount to below its carrying amount) and, if there is any impairment, the goodwill is written down with a charge to Impairment losses on other assets (net) — Goodwill and other intangible assets in the consolidated income statement.

An impairment loss recognized for goodwill is not reversed in a subsequent period.

ii. Other intangible assets

Other intangible assets includes the amount of identifiable intangible assets (such as purchased customer lists and computer software).

Other intangible assets can have an indefinite useful life -when, based on an analysis of all the relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the consolidated entities- or a finite useful life, in all other cases.

Intangible assets with indefinite useful lives are not amortized, but rather at the end of each reporting period or whenever there is any indication of impairment the consolidated entities review the remaining useful lives of the assets in order to determine whether they continue to be indefinite and, if this is not the case, to take the appropriate steps.

Intangible assets with finite useful lives are amortized over those useful lives using methods similar to those used to depreciate tangible assets.

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The intangible asset amortization charge is recognized under Depreciation and amortization charge in the consolidated income statement.

In both cases the consolidated entities recognize any impairment loss on the carrying amount of these assets with a charge to Impairment losses on other assets in the consolidated income statement. The criteria used to recognize the impairment losses on these assets and, where applicable, the reversal of impairment losses recognized in prior years are similar to those used for tangible assets (see Note 2.k).

Internally developed computer software

Internally developed computer software is recognized as an intangible asset if, among other requisites (basically the Group’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated.

Expenditure on research activities is recognized as an expense in the year in which it is incurred and cannot be subsequently capitalized.

n) Other assets

Other assets in the consolidated balance sheet includes the amount of assets not recorded in other items, the breakdown being as follows:

• Inventories: this item includes the amount of assets, other than financial instruments, that are held for sale in the ordinary course of business, that are in the process of production, construction or development for such purpose, or that are to be consumed in the production process or in the provision of services. Inventories includes land and other property held for sale in the property development business.

Inventories are measured at the lower of cost and net realizable value, which is the estimated selling price of the inventories in the ordinary course of business, less the estimated costs of completion and the estimated costs required to make the sale.

Any write-downs of inventories -such as those due to damage, obsolescence or reduction of selling price- to net realizable value and other impairment losses are recognized as expenses for the year in which the impairment or loss occurs. Subsequent reversals are recognized in the consolidated income statement for the year in which they occur.

The carrying amount of inventories is derecognized and recognized as an expense in the period in which the revenue from their sale is recognized.

• Other: this item includes the balance of all prepayments and accrued income (excluding accrued interest), the net amount of the difference between pension plan obligations and the value of the plan assets with a balance in the entity’s favor, when this net amount is to be reported in the consolidated balance sheet, and the amount of any other assets not included in other items.

ñ)	Other liabilities
	Other liabilities includes the balance of all accrued expenses and deferred income, excluding accrued interest, and the amount of any other liabilities not included in other categories.

o) Provisions and contingent assets and liabilities

When preparing the financial statements of the consolidated entities, their respective directors made a distinction between:

• Provisions: credit balances covering present obligations at the reporting date arising from past events which could give rise to a loss for the entities, which is considered to be likely to occur and certain as to its nature but uncertain as to its amount and/or timing; and

• Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the control of the consolidated entities. They include the present obligations of the consolidated entities when it is not probable that an outflow of resources embodying economic benefits will be required to settle them.

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• Contingent assets: possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of events beyond the control of the Group. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement, but rather are disclosed in the notes, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.

The Group’s consolidated financial statements include all the material provisions with respect to which it is considered that it is more likely than not that the obligation will have to be settled. In accordance with accounting standards, contingent liabilities must not be recognized in the consolidated financial statements, but must rather be disclosed in the notes. In this respect, the financial statements of Santander UK, plc disclose the developments arising from the claims made by the customers of the main UK financial institutions in relation to certain fees and commissions charged by them.

Provisions, which are quantified on the basis of the best information available on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year, are used to cater for the specific obligations for which they were originally recognized. Provisions are fully or partially reversed when such obligations cease to exist or are reduced.

Provisions are classified according to the obligations covered as follows:

• Provisions for pensions and similar obligations: includes the amount of all the provisions made to cover post-employment benefits, including obligations to early retirees and similar obligations.

• Provisions for contingent liabilities and commitments: includes the amount of the provisions made to cover contingent liabilities -defined as those transactions in which the Group guarantees the obligations of a third party, arising as a result of financial guarantees granted or contracts of another kind- and contingent commitments -defined as irrevocable commitments that may give rise to the recognition of financial assets.

• Provisions for taxes and other legal contingencies and Other provisions: include the amount of the provisions recognized to cover tax and legal contingencies and litigation and the other provisions recognized by the consolidated entities. Other provisions includes, inter alia, any provisions for restructuring costs and environmental measures (see Note 25).

p) Litigation and/or claims in process

In addition to the disclosures made in Note 1, at the end of 2009 certain litigation and claims were in process against the consolidated entities arising from the ordinary course of their operations (see Note 25).

q) Own equity instruments

Own equity instruments are those meeting both of the following conditions:

• The instruments do not include any contractual obligation for the issuer: (i) to deliver cash or another financial asset to a third party; or (ii) to exchange financial assets or financial liabilities with a third party under conditions that are potentially unfavorable to the issuer.

• The instruments will or may be settled in the issuer’s own equity instruments and are: (i) a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or (ii) a derivative that will be settled by the issuer through the exchange of a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.

Transactions involving own equity instruments, including their issuance and cancellation, are deducted from equity.

Changes in the value of instruments classified as own equity instruments are not recognized in the consolidated financial statements. Consideration received or paid in exchange for such instruments is directly added to or deducted from equity.

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r) Equity-instrument-based employee remuneration

Equity instruments delivered to employees in consideration for their services, if the instruments are delivered once the specific period of service has ended, are recognized as an expense for services (with the corresponding increase in equity) as the services are rendered by employees during the service period. At the grant date the services received (and the related increase in equity) are measured at the fair value of the equity instruments granted. If the equity instruments granted are vested immediately, the Group recognizes in full, at the grant date, the expense for the services received.

When the requirements stipulated in the remuneration agreement include external market conditions (such as equity instruments reaching a certain quoted price), the amount ultimately to be recognized in equity will depend on the other conditions being met by the employees (normally length of service requirements), irrespective of whether the market conditions are satisfied. If the conditions of the agreement are met but the external market conditions are not satisfied, the amounts previously recognized in equity are not reversed, even if the employees do not exercise their right to receive the equity instruments.

s) Recognition of income and expenses

The most significant criteria used by the Group to recognize its income and expenses are summarized as follows:

i. Interest income, interest expenses and similar items

Interest income, interest expenses and similar items are generally recognized on an accrual basis using the effective interest method. Dividends received from other companies are recognized as income when the consolidated entities’ right to receive them arises.

However, the recognition of accrued interest in the consolidated income statement is suspended for debt instruments individually classified as impaired and for the instruments for which impairment losses have been assessed collectively because they have payments more than three months past due. This interest is recognized as income, when collected, as a reversal of the related impairment losses.

ii. Commissions, fees and similar items

Fee and commission income and expenses are recognized in the consolidated income statement using criteria that vary according to their nature. The main criteria are:

• Fee and commission income and expenses relating to financial assets and financial liabilities measured at fair value through profit or loss are recognized when paid.

• Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services.

• Those relating to services provided in a single act are recognized when the single act is carried out.

iii. Non-finance income and expenses

These are recognized for accounting purposes on an accrual basis.

iv. Deferred collections and payments

These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.

v. Loan arrangement fees

Loan arrangement fees, mainly loan origination, application and information fees, are accrued and recognized in income over the term of the loan. In the case of loan origination fees, the portion relating to the associated direct costs incurred in the loan arrangement is recognized immediately in the consolidated income statement.

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t) Financial guarantees

Financial guarantees are defined as contracts whereby an entity undertakes to make specific payments on behalf of a third party if the latter fails to do so, irrespective of the various legal forms they may have, such as guarantees, insurance policies or credit derivatives.

The Group initially recognizes the financial guarantees provided on the liability side of the consolidated balance sheet at fair value, which is generally the present value of the fees, commissions and similar interest receivable from these contracts over the term thereof, and simultaneously the Group recognizes a credit on the asset side of the consolidated balance sheet for the amount of the fees, commissions and interest received at the start of the transactions and the amounts receivable at the present value of the fees, commissions and interest outstanding.

Financial guarantees, regardless of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments carried at amortized cost (described in Note 2.g above).

The provisions made for these transactions are recognized under Provisions — Provisions for contingent liabilities and commitments in the consolidated balance sheet (see Note 25). These provisions are recognized and reversed with a charge or credit, respectively, to Provisions (net) in the consolidated income statement.

If a specific provision is required for financial guarantees, the related unearned commissions recognized under Financial liabilities at amortized cost — Other financial liabilities in the consolidated balance sheet are reclassified to the appropriate provision.

u) Assets under management and investment and pension funds managed by the Group

Assets owned by third parties and managed by the consolidated entities are not presented on the face of the consolidated balance sheet. Management fees are included in Fee and commission income in the consolidated income statement. Note 36.b contains information on the third-party assets managed by the Group.

The investment funds and pension funds managed by the consolidated entities are not presented on the face of the Group’s consolidated balance sheet since the related assets are owned by third parties. The fees and commissions earned in the year for the services rendered by the Group entities to these funds (asset management and custody services) are recognized under Fee and commission income in the consolidated income statement.

v) Post-employment benefits

Under the collective agreements currently in force and other arrangements, the Spanish banks included in the Group and certain other Spanish and foreign consolidated entities have undertaken to supplement the public social security system benefits accruing to certain employees, and to their beneficiary right holders, for retirement, permanent disability or death, the benefits and indemnity payments payable, the contributions to employee welfare systems for early retirees and the post-employment welfare benefits.

The Group’s post-employment obligations to its employees are deemed to be defined contribution plans when the Group makes pre-determined contributions (recognized in Personnel expenses in the consolidated income statement) to a separate entity and will have no legal or effective obligation to make further contributions if the separate entity cannot pay the employee benefits relating to the service rendered in the current and prior periods. Post-employment obligations that do not meet the aforementioned conditions are classified as defined benefit plans (see Note 25).

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Defined contribution plans

The contributions made in this connection in each year are recognized under Personnel expenses in the consolidated income statement. The amounts not yet contributed at each year-end are recognized, at their present value, under Provisions — Provisions for pensions and similar obligations on the liability side of the consolidated balance sheet.

Defined benefit plans

The Group recognizes under Provisions — Provisions for pensions and similar obligations on the liability side of the consolidated balance sheet (or under Other assets on the asset side, as appropriate) the present value of its defined benefit post-employment obligations, net of the fair value of the plan assets and of the net unrecognized cumulative actuarial gains and/or losses disclosed in the valuation of these obligations, which are deferred using a corridor approach, and net of the past service cost, which is deferred over time, as explained below.

Plan assets are defined as those that will be directly used to settle obligations and that meet the following conditions:

• They are not owned by the consolidated entities, but by a legally separate third party that is not a party related to the Group.

• They can only be used to pay or finance post-employment benefits and cannot be returned to the consolidated entities unless the assets remaining in the plan are sufficient to meet all obligations of the plan and of the entity relating to current or former employee benefits, or to reimburse employee benefits already paid by the Group.

If the Group can look to an insurer to pay part or all of the expenditure required to settle a defined benefit obligation, and it is practically certain that said insurer will reimburse some or all of the expenditure required to settle that obligation, but the insurance policy does not qualify as a plan asset, the Group recognizes its right to reimbursement as an asset item in the consolidated balance sheet under Insurance contracts linked to pensions, which, in all other respects, is treated as a plan asset.

Actuarial gains and losses are defined as those arising from differences between the previous actuarial assumptions and what has actually occurred and from the effects of changes in actuarial assumptions. The Group uses, on a plan-by-plan basis, the corridor method and recognizes in the consolidated income statement the amount resulting from dividing by five the net amount of the cumulative actuarial gains and/or losses not recognized at the beginning of each year which exceeds 10% of the present value of the obligations or 10% of the fair value of the plan assets at the beginning of the year, whichever amount is higher. The maximum five-year allocation period, which is required by the Bank of Spain for all Spanish financial institutions, is shorter than the average number of remaining years of active service relating to the employees participating in the plans, and is applied systematically.

The past service cost -which arises from changes to current post-employment benefits or from the introduction of new benefits- is recognized on a straight-line basis in the consolidated income statement over the period from the time the new commitments arise to the date on which the employee has an irrevocable right to receive the new benefits.

Post-employment benefits are recognized in the consolidated income statement as follows:

• Current service cost -defined as the increase in the present value of the obligations resulting from employee service in the current period-, under Personnel expenses.

• Interest cost -defined as the increase during the year in the present value of the obligations as a result of the passage of time-, under Interest expense and similar charges. When obligations are presented on the liability side of the consolidated balance sheet, net of the plan assets, the cost of the liabilities recognized in the income statement relates exclusively to the obligations recognized as liabilities.

• The expected return on plan assets and the gains or losses on the value of the plan assets under Interest and similar income.

• The actuarial gains and losses calculated using the corridor approach and the unrecognized past service cost, under Provisions (net) in the consolidated income statement.

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w) Other long-term employee benefits

Other long-term employee benefits, defined as obligations to early retirees -taken to be those who have ceased to render services at the entity but who, without being legally retired, continue to have economic rights vis-à-vis the entity until they acquire the legal status of retiree-, long-service bonuses, obligations for death of spouse or disability before retirement that depend on the employee’s length of service at the entity and other similar items, are treated for accounting purposes, where applicable, as established above for defined benefit post-employment plans, except that all past service costs and actuarial gains and losses are recognized immediately (see Note 25).

x) Termination benefits

Termination benefits are recognized when there is a detailed formal plan identifying the basic changes to be made, provided that implementation of the plan has begun, its main features have been publicly announced or objective facts concerning its implementation have been disclosed.

y) Income tax

The expense for Spanish corporation tax and other similar taxes applicable to the foreign consolidated entities is recognized in the consolidated income statement, except when it results from a transaction recognized directly in equity, in which case the tax effect is also recognized in equity.

The current income tax expense is calculated as the sum of the current tax resulting from application of the appropriate tax rate to the taxable profit for the year (net of any deductions allowable for tax purposes), and of the changes in deferred tax assets and liabilities recognized in the consolidated income statement.

Deferred tax assets and liabilities include temporary differences, which are identified as the amounts expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their related tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled.

Tax assets includes the amount of all tax assets, which are broken down into current -amounts of tax to be recovered within the next twelve months- and deferred -amounts of tax to be recovered in future years, including those arising from unused tax losses or tax credits.

Tax liabilities includes the amount of all tax liabilities (except provisions for taxes), which are broken down into current -the amount payable in respect of the income tax on the taxable profit for the year and other taxes in the next twelve months- and deferred -the amount of income tax payable in future years.

Deferred tax liabilities are recognized in respect of taxable temporary differences associated with investments in subsidiaries, associates or joint ventures, except when the Group is able to control the timing of the reversal of the temporary difference and, in addition, it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are only recognized for temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets can be utilized, and the deferred tax assets do not arise from the initial recognition (except in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit or accounting profit. Other deferred tax assets (tax loss and tax credit carry forwards) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable profits against which they can be utilized.

Income and expenses recognized directly in equity are accounted for as temporary differences.

The deferred tax assets and liabilities recognized are reassessed at each reporting date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed.

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z)	Residual maturity periods and average interest rates
	The analysis of the maturities of the balances of certain items in the consolidated balance sheets and the average interest rates at 2009, 2008 and 2007 year-end is provided in Note 51.
aa)	Consolidated statements of cash flows
	The following terms are used in the consolidated statements of cash flows with the meanings specified:

• Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value, irrespective of the portfolio in which they are classified.

The Group classifies as cash and cash equivalents the balances recognized under Cash and balances with central banks in the consolidated balance sheet.

• Operating activities: the principal revenue-producing activities of credit institutions and other activities that are not investing or financing activities.

• Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

• Financing activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.

ab)	Consolidated statement of recognized income and expense
	This statement presents the income and expenses generated by the Group as a result of its business activity in the year, and a distinction is made between the income and expenses recognized in the consolidated income statement for the year and the other income and expenses recognized directly in consolidated equity.

Accordingly, this statement presents:

a. Consolidated profit/loss for the year.

b. The net amount of the income and expenses recognized temporarily in consolidated equity under Valuation adjustments.

c. The net amount of the income and expenses recognized definitively in consolidated equity.

d. The income tax incurred in respect of the items indicated in b) and c) above, except for the valuation adjustments arising from investments in associates or jointly controlled entities accounted for using the equity method, which are presented net.

e. Total consolidated recognized income and expense, calculated as the sum of a) to d) above, presenting separately the amount attributable to the Parent and the amount relating to minority interests.

The amount of the income and expenses relating to entities accounted for using the equity method recognized directly in equity is presented in this statement, irrespective of the nature of the related items, under Entities accounted for using the equity method.

ac)	Consolidated statement of changes in total equity
	This statement presents all the changes in equity, including those arising from changes in accounting policies and from the correction of errors. Accordingly, this statement presents a reconciliation of the carrying amount at the beginning and end of the year of all the consolidated equity items, and the changes are grouped together on the basis of their nature into the following items:

a. Adjustments due to changes in accounting policies and to errors: include the changes in consolidated equity arising as a result of the retrospective restatement of the balances in the consolidated financial statements, distinguishing between those resulting from changes in accounting policies and those relating to the correction of errors.

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b. Income and expense recognized in the year: includes, in aggregate form, the total of the aforementioned items recognized in the consolidated statement of recognized income and expense.

c. Other changes in equity: includes the remaining items recognized in equity, including, inter alia, increases and decreases in capital, distribution of profit, transactions involving own equity instruments, equity-instrument-based payments, transfers between equity items and any other increases or decreases in consolidated equity.

3. Santander Group

a) Banco Santander, S.A. and international Group structure

The growth of the Group in the last decade has led the Bank to also act, in practice, as a holding entity of the shares of the various companies in its Group, and its results are becoming progressively less representative of the performance and earnings of the Group. Therefore, each year the Bank determines the amount of the dividends to be distributed to its shareholders on the basis of the consolidated net profit, while maintaining the Group’s traditionally high level of capitalization and taking into account that the transactions of the Bank and of the rest of the Group are managed on a consolidated basis (notwithstanding the allocation to each company of the related net worth effect).

At international level, the various banks and other subsidiaries, jointly controlled entities and associates of the Group are integrated in a corporate structure comprising various holding companies which are the ultimate shareholders of the banks and subsidiaries abroad.

The purpose of this structure, all of which is controlled by the Bank, is to optimize the international organization from the strategic, economic, financial and tax standpoints, since it makes it possible to define the most appropriate units to be entrusted with acquiring, selling or holding stakes in other international entities, the most appropriate financing method for these transactions and the most appropriate means of remitting the profits obtained by the Group’s various operating units to Spain.

The Appendices provide relevant data on the consolidated Group companies and on the companies accounted for using the equity method.

b) Acquisitions and disposals

Following is a summary of the main acquisitions and disposals of ownership interests in the share capital of other entities and other significant corporate transactions performed by the Group in the last three years:

i. ABN AMRO Holding N.V. (ABN AMRO)

On July 20, 2007, having obtained the regulatory authorizations required to publish the documentation on the takeover bid for ABN AMRO, the Bank, together with the Royal Bank of Scotland Group plc, Fortis N.V. and Fortis S.A./N.V. (together, the Banks) formally launched, through RFS Holdings B.V., the offer for all the ordinary shares, ADSs and previously convertible preference shares of ABN AMRO. The initial acceptance period of this offer (the Offer) ended on October 5, 2007.

On October 10, 2007, the Banks declared the Offer to be unconditional. At that date, the owners of 86% of the ordinary share capital of ABN AMRO had accepted the Offer (including certain shares that the Banks already owned and had undertaken to contribute to RFS Holdings B.V.).

On this same date the commencement of an additional offer period was announced, during which the holders of ordinary shares and ADSs of ABN AMRO could sell them, under the same terms and conditions as those of the Offer, until October 31, 2007.

Once the aforementioned additional offer period had ended, the owners of 98.8% of the ordinary share capital of ABN AMRO (excluding its treasury shares) had definitively accepted the Offer.

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At December 31, 2007, the investment made by the Bank amounted to €20,615 million and consisted of the Bank’s 27.9% ownership interest in the share capital of RFS Holdings B.V., the holding entity of the shares of ABN AMRO.

Following all these actions, the spin-off of the business lines of ABN AMRO commenced with a view to their subsequent integration into each of the Banks. The following correspond to Banco Santander: the Latin American Business Unit of ABN AMRO -basically Banco ABN AMRO Real S.A. (Banco Real) in Brazil-, the Banca Antoniana Popolare Veneta Spa Banking Group (Antonveneta), the cash relating to the sale of the consumer banking unit of ABN AMRO in the Netherlands - -Interbank and DMC Consumer Finance, plus 27.9% of the assets that were not allocated to any of the Banks of the consortium and which are intended to be disposed of. The spin-off process continued in 2008.

Accordingly, on March 4, 2008 the Dutch Central Bank expressed its acceptance of the overall spin-off plan, and in July 2008 it approved the individual spin-off plan for Banco Real and the business activities in Brazil. Subsequently, the Central Bank of Brazil approved the acquisition by Banco Santander, whereby it became effective.

The Group’s assets in Brazil also comprise those corresponding to the asset management business of ABN AMRO in Brazil, which were initially allocated to Fortis in the process of spinning off and integrating the assets of ABN AMRO and which were acquired therefrom by the Bank in the first half of 2008 for €209 million.

As part of the asset spin-off, in December 2008 Banco Santander Uruguay acquired the assets and liabilities of the Montevideo branch of ABN AMRO, and subsequently proceeded to merge the businesses.

Also, on May 30, 2008 Banco Santander and Banca Monte dei Paschi di Siena announced the completion of the purchase and sale of Antonveneta (excluding Interbanca, its corporate banking subsidiary) for €9 billion, in execution of the agreement announced on November 8, 2007 which was only subject to approval by the competent authorities.

On June 2, 2008, Banco Santander entered into a definitive agreement with General Electric whereby a General Electric Group company would acquire Interbanca and various Santander Group entities would acquire the GE Money units in Germany, Finland and Austria, GE’s card units in the UK and Ireland and its car finance unit in the UK. The base price agreed for the two transactions is €1 billion each, subject to various adjustments. These transactions were completed with the acquisition of GE Germany in the fourth quarter of 2008 and the acquisition of the remaining GE units and the sale of Interbanca in the first quarter of 2009 (see Note 3.b.xv below).

In the third quarter of 2008 the Group sold 45% of ABN Amro Asset Management Italy SGR S.p.A. to Banca Monte di Paschi di Siena for €35 million; Banca Monte di Paschi di Siena had already acquired the remaining 55% through the acquisition of Antonveneta.

The businesses shared by the members of the consortium included subordinated liabilities issued by ABN AMRO. The portion of these liabilities relating to Santander was transferred to RBS and Fortis at market prices, giving rise to gains for the Bank amounting to €741 million which were recognized under Gains/losses on financial assets and liabilities (net) in the income statement for 2008.

On September 22, 2008, RFS completed the squeeze-out of the minority shareholders of ABN AMRO through the payment of €712 million to these shareholders. Consequently, from that date RFS has been the sole shareholder of ABN AMRO. Banco Santander had to pay €200 million to complete this process, on the basis of its ownership interest in RFS.

Banco Real was fully consolidated in the Group’s financial statements in the fourth quarter of 2008; previously it had been accounted for using the equity method through the ownership interest in RFS Holdings. Accordingly, the Group’s income statement for 2008 included all the results contributed to the Group by this entity from January 1, 2008. The volume of assets that Banco Real contributed to the Group amounted to approximately €44 billion, based on the exchange rate ruling at 2008 year-end. The amounts of the main assets, liabilities and contingent liabilities contributed to the Group by this entity are detailed in the related notes to these consolidated financial statements.

The goodwill at the date of acquisition assigned to Banco Real following all the aforementioned transactions amounted to €8 billion (€6,446 million at the exchange rate prevailing at 2008 year-end).

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In April 2009, ABN AMRO sold its branch in Asunción (Paraguay), after converting it into a subsidiary, to Banco Regional (40%-owned by the Rabobank group) for €42.2 million, giving rise to a net gain of approximately €5 million.

ii. Interbanco, S.A. (Interbanco)

In September 2005 the Group and the Portuguese company SAG (Soluções Automóvel Globais) reached an agreement to jointly provide consumer finance and vehicle financing services in Portugal and operate the vehicle full-service lease (renting) business in Spain and Portugal.

In January 2006 the Group paid €118 million for a 50.001% interest in the share capital of Interbanco.

At the beginning of 2007 the Group acquired an additional 9.999% of Interbanco through the integration in the latter of the branches of Santander Consumer EFC, S.A. and Santander Consumer Finance, S.A. located in Portugal. As a result, Interbanco changed its name to Banco Santander Consumer Portugal, S.A. Following this transaction, by virtue of the initial purchase agreements, the Group acquired the remaining 40% of this entity for €138 million. These transactions gave rise to goodwill of €74 million. At December 31, 2007, the Group owned all the shares of Banco Santander Consumer Portugal, S.A.

iii. Compañía Española de Petróleos, S.A. (Cepsa)

In 2003 the Bank launched a takeover bid for up to 42,811,991 Cepsa shares, and the offer was accepted for 32,461,948 shares, representing an investment of €909 million.

Total, S.A. considered that the takeover bid breached historical shareholder agreements between it (or its subsidiary, Elf Aquitaine, S.A.-Elf) and the Bank in relation to Cepsa and, accordingly, filed a request for arbitration at the Netherlands Court of Arbitration.

On April 3, 2006, the partial award rendered by the Arbitral Tribunal which, in the framework of the Netherlands Arbitration Institute, resolved the request for arbitration filed by Total, S.A. against the Bank was notified to the parties. The Tribunal considered that the shareholder agreements contained in the agreements relating to Cepsa between the Bank and Total, S.A. (or its subsidiary, Elf) were rendered invalid by application of Transitional Provision Three of Law 26/2003, of 17 July. However, the fact that the Bank launched the aforementioned takeover bid without prior consultation with Total, S.A. caused, in the opinion of the Tribunal, an insurmountable disagreement between the two parties which, in application of the part of the agreements that was not rendered invalid, entitled Total, S.A. to repurchase from the Bank a 4.35% ownership interest in Cepsa at the price established in the agreements.

Also, the aforementioned partial award ordered the dissolution of Somaen-Dos, S.L. (Sole-Shareholder Company), the sole company object of which was the holding of ownership interests in Cepsa, with a view to each shareholder recovering direct ownership of their respective Cepsa shares, in accordance with the agreements entered into between the Bank and Total, S.A. (or its subsidiary, Elf). To this end, on August 2, 2006, Banco Santander, S.A. and Riyal, S.L. entered into two agreements with Elf Aquitaine, S.A. and Odival, S.A., on the one hand, and with Unión Fenosa, S.A., on the other, to enforce the partial award and separate the ownership interests that they each held in Cepsa through Somaen-Dos, S.L.

On October 13, 2006, Elf received notification from the European Commission communicating the authorization of the concentration resulting from the acquisition by Elf of shares representing 4.35% of the share capital of Cepsa. Consequently, the Group sold 11,650,893 Cepsa shares to Elf for €53 million. This disposal gave rise to a loss of €158 million which was covered by a provision recognized for this purpose.

At December 31, 2008, the directors of the Bank classified the 32.5% ownership interest held in Compañía Española de Petróleos, S.A. (Cepsa) as a non-current asset held for sale, since it intended to recover the value of the investment through the sale thereof in the short term. This ownership interest was sold in 2009 (see Note 12).

iv. Drive Consumer USA, Inc. (Drive) (Santander Consumer USA)

In 2006 the Group entered into an agreement to acquire 90% of Drive for USD 637 million in cash (approximately €494 million), which is 6.8 times the estimated profit for 2006.

The transaction gave rise to goodwill of USD 544 million.

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The agreement established that the price paid by the Group could be increased by up to USD 175 million if the company meets certain profit targets for 2007 and 2008. In July 2007, an agreement was reached for this payment to be made early in exchange for a reduction in its amount from USD 175 million to USD 135 million (€97 million), giving rise to additional goodwill for the amount disbursed.

Drive was previously 64.5%-owned by HBOS plc and 35.5%-owned by management. Following the acquisition, the then chairman and COO of Drive has been acting as CEO, maintaining an ownership interest in the company of 9%, a percentage on which there are certain purchase and sale options which could lead to the Group acquiring this 9% stake between 2009 and 2013 at prices linked to the company’s earnings performance. In 2009 the Group acquired a further 0.5% stake.

v. Santander Consumer Chile, S.A.

Santander Consumer Finance and the Bergé Group, through its Chilean subsidiary SKBergé, a company formed by Sigdo Koppers and Bergé (SKB), reached a strategic agreement to set up a finance company in Chile, whereby Santander Consumer Finance will subscribe to between 90% and 51% of the share capital and SKBergé will subscribe to between 10% and 49% of the share capital. The new company, which operates under the name of Santander Consumer Chile, engages in consumer finance, focusing both on the automotive and other durable consumer goods industry and on the credit cards business. At December 31, 2007, Santander Consumer Finance had subscribed to 89% of the share capital of Santander Consumer Chile S.A. (with a disbursement of €13 million), the remaining 11% corresponding to SKBergé.

vi. Orígenes AFJP, S.A. and Orígenes Seguros de Retiro, S.A.

In 2007 the Group entered into an agreement with ING Groep NV for the sale to the latter of the Group’s ownership interests in the pension fund manager Orígenes AFJP, S.A. and in Orígenes Seguros de Retiro, S.A., in Argentina, for USD 166 million (€112 million), giving rise to gross gains of €84 million for the Group (see Note 37).

vii. Pension fund managers

In 2007 the Group completed the sale of its obligatory pension fund managers in Latin America to ING Groep NV for USD 1,314 million (€906 million), giving rise to a gross gain of €747 million (see Note 37). This transaction included the pension fund managers in Mexico (Afore Santander, S.A. de C.V.), Chile (AFP Bansander, S.A.), Colombia (AFP, Administradora de Fondos de Pensiones y Cesantías Santander, S.A.) and Uruguay (Afinidad AFAP, S.A.).

viii. CB Extrobank

In 2007 the Group acquired all the shares of the Russian bank CB Extrobank (currently JSC Santander Consumer Bank) for €48 million, giving rise to goodwill of €37 million.

ix. Acquisition of the European consumer finance business from The Royal Bank of Scotland (RBS)

On July 1, 2008, the Group completed the acquisition (announced in the first quarter of 2008) of the consumer finance business of The Royal Bank of Scotland (RBS) in continental Europe, including its business activities in Germany, the Netherlands, Belgium and Austria. The price of this transaction amounted to €306 million, giving rise to goodwill of €85 million.

At the time of the acquisition, the RBS consumer finance unit in Europe (RBS ECF) provided services to 2.3 million customers. RBS ECF facilitated installment sales directly and through its partners. It had a significant presence in the credit card business in terms of both individual and corporate customers, and provided consumer finance through various distribution channels. The business acquired in Germany was included in Santander Consumer Bank in December 2008.

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x. Alliance & Leicester plc

On July 14, 2008, Banco Santander, S.A. and Alliance & Leicester plc entered into an agreement in relation to the terms of a recommended acquisition by Banco Santander, S.A. of the entire share capital, whether issued or yet to be issued, of Alliance & Leicester plc.

Under the aforementioned terms, the shareholders of Alliance & Leicester plc received one Banco Santander share for every three shares of Alliance & Leicester plc. Prior to the share exchange date, Alliance & Leicester approved and paid an interim dividend in cash amounting to 18 pence per share.

Key features of the acquisition

• At the time of the announcement each Alliance & Leicester plc share was worth 299 pence, and the total issued share capital, approximately GBP 1,259 million, whereby the proposed exchange represented a premium of approximately 36.4% on the closing price at July 11, 2008. Considering the above interim dividend, the premium amounted to approximately 44.6% on the aforementioned closing price.

• The acquisition affords the integration of the ancillary businesses of Alliance & Leicester and Abbey, thereby strengthening the competitive positioning of the products and services offered by the Group and benefiting its customers. It can be expected that the combined group will also benefit in terms of increased efficiency and that the borrowing costs relating to Alliance & Leicester may be reduced over time from the current high levels.

• It will increase the critical mass of the Group’s business in the UK market, as part of our vertical strategy.

• In-market cost synergies through the Group’s presence in the UK, estimated at GBP 180 million per year (before tax) at the end of 2011.

• Complementary geographical nature of both distribution networks (Alliance & Leicester has a major presence in the Midlands and Abbey in the London area).

• Abbey’s expansion process in the SMEs and retail business will be speeded up two to three years.

• This transaction complies with Santander Group’s financial requirements.

The acquisition was completed on October 10, 2008 through the issuance of 140,950,944 new Banco Santander shares of €0.50 par value each, with a share premium of €10.73 per share, and the capital increase amounted to €1,583 million (share capital: €70 million; share premium: €1,513 million), giving rise to initial goodwill of GBP 442 million (€554 million based on the exchange rate at the acquisition date).

This acquisition was performed by means of a scheme of arrangement and was approved by the shareholders of Banco Santander, S.A. (with respect to the capital increase) and of Alliance & Leicester plc. Additionally, the scheme of arrangement through which the acquisition was performed was approved by the competent UK court and the appropriate authorizations were obtained from the UK Financial Services Authority and the Bank of Spain.

Alliance & Leicester contributed total assets of approximately €79 billion at 2008 year-end. The amounts of the main assets, liabilities and contingent liabilities contributed to the Group by this entity are detailed in the related notes to these consolidated financial statements.

In 2008 Alliance & Leicester did not contribute any results to the Group. The information on the results that this entity would have contributed to the Group had it been acquired on January 1, 2008 is not considered to be representative and, therefore, is not disclosed in these notes to the financial statements.

xi. Acquisition of the distribution channels and retail deposits of Bradford & Bingley

On September 29, 2008, further to the notification by the UK Treasury that Bradford & Bingley plc (B&B) would be taken into public ownership, the Group announced that the retail deposits, the branch network and the related employees would be acquired by Abbey National plc, under the terms and conditions of the Banking (Special Provisions) Act 2008.

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According to the statements made by the UK Treasury, all the loans and advances to customers and treasury assets of B&B, including mortgage assets of GBP 41 billion, have been taken into public ownership.

The following were transferred to Abbey:

• Retail deposits totaling GBP 20 billion; and

• The direct distribution channels, including 197 commercial branches, 141 agencies (distribution points in third-party premises) and the related employees.

The acquisition price was GBP 612 million, including the transfer of GBP 208 million of capital relating to off-shore companies. The goodwill initially assigned to this business amounted to GBP 160 million (€202 million based on the exchange rate at the transaction date).

xii. Sale of Porterbrook Leasing Company

On December 8, 2008, Abbey National plc completed the disposal of Porterbrook, its leasing business, through the sale of all the shares of Porterbrook Leasing Company and its subsidiaries to a consortium of investors including Antin Infrastructure Partners (the infrastructure fund sponsored by BNP Paribas), Deutsche Bank and Lloyds TSB, and received approximately GBP 1,600 million in cash. This disposal gave rise to a gain of €50 million (GBP 40 million) recognized under Gains/(losses) on disposal of assets not classified as non-current assets held for sale in the consolidated income statement for 2008 (see Note 49).

xiii. Sovereign Bancorp Inc. (Sovereign)

In October 2005 the Group reached an agreement with Sovereign, an entity located in the United States, for the acquisition of a 19.8% stake in the US bank.

Under this agreement the Group subscribed to a USD 1,931 million capital increase and purchased treasury shares amounting to approximately USD 464 million, in both cases at USD 27 per share, giving rise to a total investment of USD 2,395 million (approximately €1,883 million) and goodwill amounting to USD 760 million.

This agreement entitled the Group to increase its ownership interest to 24.99% through the purchase of shares in the market, but, unless expressly authorized otherwise by the shareholders of Sovereign at a general shareholders’ meeting, the shares purchased for the purpose of this increase had to be deposited in a voting trust and its votes exercised in the same proportion as the votes of the shareholders of Sovereign other than Santander and its shareholders. On May 3, 2007, Sovereign’s shareholders approved an amendment to the entity’s Bylaws which, inter alia, authorizes Santander to exercise the vote relating to the shares held in the voting trust and any other Sovereign shares that Santander might acquire in the future. On May 16, 2007, the voting trust held 4.9% of the voting shares of Sovereign. Santander and Sovereign took the appropriate steps to terminate the voting trust and to transfer the shares held therein to Santander. As from June 6, 2007, Santander could exercise the voting power on 24.7% of Sovereign shares. Except with the consent of the board of directors of Sovereign or through the procedures described below, Santander could not increase its percentage of ownership to over 24.99% until the end of the period established by the Investment Agreement (June 1, 2010, unless a takeover bid is launched by the Group or by a third party before that date).

In 2007 the Group measured its ownership interest in Sovereign and adjusted its value by €1,053 million (see Note 13).

In May 2008 the Group participated in the capital increase carried out by Sovereign through the subscription of shares amounting to USD 312 million and, subsequently, in June 2008 the Bank acquired shares amounting to USD 43 million under the green shoe option.

On October 13, 2008, Banco Santander, S.A. (Santander) and Sovereign Bancorp Inc., the parent of Sovereign Bank, announced that Santander would acquire Sovereign through a share exchange. At the date of the announcement Santander held 24.35% of the outstanding ordinary shares of Sovereign, which were classified as Investments in the 2008 consolidated balance sheet (see Note 13). The capital and finance committee of Sovereign, composed of independent directors, requested that Santander consider acquiring the 75.65% of the company that it did not own. The committee assessed the transaction and recommended it to the company’s board of directors.

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Under the terms of the definitive transaction agreement, which was unanimously approved by the non-Santander directors of Sovereign and by the executive committee of Santander, Sovereign shareholders will receive 0.2924 Banco Santander American Depository Shares (ADSs) for every 1 ordinary Sovereign share they own (or 1 Banco Santander ADS for every 3.42 Sovereign shares). Based on the closing price of Santander ADSs on Friday, October 10, 2008, the transaction had an aggregate value of approximately USD 1,900 million (€1,400 million), or USD 3.81 per share, and met Santander’s criteria for acquisitions, both strategically, by significantly enhancing the geographical diversification of the Group, and financially, with a projected net profit for Sovereign of USD 750 million in 2011.

On January 26, 2009, Banco Santander held an extraordinary general meeting at which the shareholders approved the capital increase to cater for the acquisition of 75.65% of the US entity Sovereign Bancorp Inc., which was agreed upon in October 2008. The resolution was agreed with the vote of 96.9% of the capital present in person or by proxy.

On January 28, 2009, the shareholders at the general shareholders’ meeting of Sovereign approved the acquisition.

On January 30, 2009, the acquisition of Sovereign was completed and Sovereign became a wholly-owned subsidiary of Santander Group. The transaction involved the issue of 0.3206 ordinary shares of Banco Santander for each ordinary share of Sovereign (equivalent to the approved exchange of 0.2924 ADSs adjusted for the dilution arising from the capital increase carried out in December 2008). To this end, 161,546,320 ordinary shares were issued for a cash amount (par value plus share premium) of €1,302,063,339.20.

The volume of assets contributed by the Sovereign business unit to the Group amounts to approximately €48,791 million at the 2009 closing exchange rate, of which approximately €9,568 million relate to Available-for-sale financial assets and €34,605 million to loans and receivables. Also, at December 31, 2009 Sovereign contributed to the Group financial liabilities amounting to approximately €45,364 million and Provisions amounting to €401 million. In the process of allocation of the purchase price, the Group recognized initial goodwill of USD 2,053 million (€1,601 million at the exchange rate at the date of acquisition; €1,425 million at the 2009 closing exchange rate). Additionally, various notes to these consolidated financial statements disclose the amounts of the main assets, liabilities and contingent liabilities contributed to the Group by this entity.

Since the Group obtained control over Sovereign at the end of January 2009, the Group’s income statement for 2009 includes substantially all the losses generated by Sovereign in the year (€25 million).

xiv. Acquisition of Real Tokio Marine Vida e Previdência

In March 2009 the Santander Brasil Group acquired the 50% of the insurance company Real Tokio Marine Vida e Previdência that it did not already own from Tokio Marine for BRL 678 million (€225 million).

xv. General Electric Money and Interbanca

The first quarter of 2009 saw the completion of the agreement reached by Banco Santander and GE in March 2008 (see Note 3.b.i above) whereby Banco Santander would acquire the units of GE Money in Germany (already acquired in the fourth quarter of 2008), Finland and Austria and its card (Santander Cards UK Limited) and vehicle financing units in the UK, and GE Commercial Finance would acquire Interbanca, an entity specializing in wholesale banking which was assigned to Banco Santander in the distribution of ABN AMRO’s assets. The initial goodwill arising from the acquisition of the GE business amounted to €558 million at December 2009. The assets contributed by these units consist mainly of loans and advances to customers and represent approximately 1% of the Group’s lending.

xvi. Banco de Venezuela

On May 22, 2009, Banco Santander announced that it had reached an agreement in principle for the sale of its stake in Banco de Venezuela to the Bolivarian Republic of Venezuela. On July 6, 2009 Banco Santander announced that it had closed the sale of the stake in Banco de Venezuela to Banco de Desarrollo Económico y Social de Venezuela, a public institution of the Bolivarian Republic of Venezuela, for USD 1,050 million, of which USD 630 million were received in cash on that date and the remainder was received before year-end. This sale did not have a material impact on the Group’s consolidated income statement.

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xvii. Triad Financial Corporation

In June 2008 Banco Santander’s executive committee authorized the acquisition by Santander Consumer USA Inc. of the vehicle purchase loan portfolio and an Internet-based direct loan platform (roadloans.com) belonging to the US group Triad Financial Corporation. The acquisition price, USD 615 million, was determined on the basis of an analysis of each individual loan. In July 2009 the aforementioned executive committee authorized Santander Consumer USA Inc. to acquire Triad Financial SM LLC with its remaining portfolio for USD 260 million.

xviii. Initial public offering of Banco Santander (Brasil) S.A.

On October 13, 2009, the Group subsidiary Banco Santander (Brasil) S.A. (Santander Brasil) closed its initial public offering of 525,000,000 units, each unit representing 55 ordinary shares and 50 preference shares, without par value. The offered securities (units) are share deposit certificates. The units were offered in a global offering consisting of an international tranche in the United States and in other countries other than Brazil, in the form of American depositary shares (ADSs), in which each ADS represented a unit, and a domestic tranche of units in Brazil.

The initial public offering price was BRL 23.50 per unit and USD 13.4033 per ADS.

Additionally, Santander Brasil granted the international underwriters an option, exercisable before November 6, 2009, to purchase an additional 42,750,000 ADSs to cover any over-allotments in connection with the international tranche. Santander Brasil also granted the domestic underwriters an option, exercisable during the same period, to purchase an additional 32,250,000 units to cover any over-allotments in connection with the Brazilian tranche.

Once the global offering was completed and after the underwriters exercised their options, the capital increase amount was BRL 13,182 million (€5,092 million). The free float of Santander Brasil is approximately 16.45% of its share capital, as compared with only 2.0% before the IPO. Santander Brasil undertook to raise the free float to at least 25% of its share capital within three years from the date of the initial public offering in order to maintain its listing on Level 2 of the Bolsa de Valores, Mercadorias e Futuros (BM&FBOVESPA). The ADSs are listed on the New York Stock Exchange.

Santander Group’s net gains from the placement amounted to €1,499 million (see Note 1.h).

Prior to the public offering, on August 14, 2009, the Group transferred to Santander Brasil, through share exchange transactions, all the share capital of certain Brazilian asset management, insurance and banking companies (including Santander Seguros S.A. and Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A.) which were owned by Santander Group and certain minority shareholders. The total equity of the transferred businesses was valued at BRL 2,500 million. The purpose of these transactions was to consolidate in a single entity Santander Group’s investments in Brazil, thus streamlining the current corporate structure and grouping the ownership interests held by Santander Group and by the minority shareholders in those entities in the share capital of Santander Brasil. As a result of these transactions, the share capital of Santander Brasil was increased by approximately BRL 2,500 million through the issuance of 14,410,886,181 shares, of which 7,710,342,899 were ordinary shares and 6,700,543,282 were preference shares. Additionally, on September 17, 2009, Banco Santander sold to Santander Brasil a loan portfolio consisting of loans to Brazilian companies and their associates abroad for USD 806.3 million.

Santander Brasil agreed with the underwriters, subject to certain exceptions, not to offer, sell or dispose of any of its own shares or securities convertible into or exchangeable for its shares for a 180-day period from the date of the prospectus. Also, Banco Santander and the board members and senior management of Santander Brasil undertook to accept substantially similar lock-up provisions, subject to certain exceptions.

Santander Brasil intends to use the net proceeds from the global offering to expand its business in Brazil by growing its physical presence and increasing its capital base. Santander Brasil also intends to improve its funding structure and, along with its traditional funding sources, increase its credit transactions. In particular, Santander Brasil estimates that it will use the net proceeds from the public offering as follows: (i) 70% to expand its physical infrastructure, which will include the opening of new branches and the installation of additional ATMs, and to fund increased credit transactions in its retail and wholesale banking businesses more efficiently; (ii) 20% to improve its funding structure; and (iii) the remaining 10% to increase its capital base, improving its BIS capital ratio.

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Santander Brasil is the third largest private-sector bank in Brazil, the largest bank controlled by an international financial group and the fourth largest bank overall in the country, with a 10.2% market share in terms of assets. Santander Brasil carries on its business activity across the country, although it concentrates its presence in the Southern and South Eastern regions, which accounted for approximately 73.1% of Brazil’s GDP in 2006, where it has one of the largest branch networks, according to the Central Bank of Brazil. Per the consolidated financial statements of Santander Brasil, prepared in accordance with IFRSs, the entity obtained pre-tax profit of BRL 3,800 million in the six-month period ended June 30, 2009, its total assets amounted to BRL 288,900 million at that date and its equity to BRL 51,100 million. Santander Brasil’s BIS ratio was 17.0% at June 30, 2009.

In August 2008, Santander Brasil acquired Banco Real, which was then the fourth largest private-sector Brazilian bank in terms of assets. At the time of the purchase, Santander Brasil was the fifth largest private-sector bank in Brazil in terms of assets. As a result of the acquisition of Banco Real and organic growth, Santander Brasil’s net loan portfolio increased from BRL 44,600 million at June 30, 2008 to BRL 132,300 million at December 31, 2008, and total deposits rose from BRL 46,900 million at June 30, 2008 to BRL 124 billion at December 31, 2008, in both cases as reported in the financial statements of Santander Brasil, prepared in accordance with Brazilian GAAP. In the same period, the active current account holder base of Santander Brasil increased from approximately 3.5 million to around 7.7 million and the distribution channels (branches and on-site customer service units) rose from 1,546 to 3,603 units. The businesses of Banco Real and Santander Brasil were highly complementary before the acquisition. Santander Brasil considers that the acquisition provides considerable opportunities in terms of operational, commercial and technology synergies, building on the best practices of each bank. Banco Real’s strong representation in the states of Rio de Janeiro and Minas Gerais has further enhanced Santander Brasil’s position in the Southern and South Eastern regions of the country, adding to this entity’s already significant presence in those regions, particularly in the State of São Paulo. The acquisition of Banco Real consolidated Santander Brasil’s position as a full-service bank with nationwide coverage, whose size enables it to compete efficiently in its target markets.

The business segments in which Santander Brasil operates are as follows:

• Commercial Banking, in which Santander Brasil provides a broad range of products and services and centralizes the banking operations of its customers in order to increase cross-selling. The main areas of this business segment are deposit-taking activities, lending, personal loans, credit cards, account overdraft loans, consumer finance, mortgages, corporate lending, BNDES on-lending facilities, agricultural lending, leasing and private banking.

• Global Wholesale Banking: Santander Brasil is the wholesale banking leader in Brazil and offers financial services and sophisticated structured solutions to its customers. Santander Brasil is based on four core pillars: (1) strengthening customer relationships, (2) emphasis on performance and productivity as a means to ensure growth, (3) risk management and (4) consolidating the global recognition of its brand for product distribution. Santander Brasil’s wholesale banking business provides its customers with a broad range of domestic and international services as well as solutions tailored to the needs of each customer. The products and services of the Global Wholesale Banking segment are offered not only to GB&M (Global Banking & Markets) customers, but also to other corporate and SME customers. The main areas of this segment are global transaction banking, credit markets, corporate finance, equities, rates, market making, proprietary trading and correspondent banking.

• Asset management and insurance: Santander Brasil engages in the discretionary and non-discretionary management and administration of third-party funds structured in investment funds, pension funds and individual and corporate investment portfolios. Additionally, Santander Brasil offers to its retail and SME customers insurance products, including life and personal injury insurance, homeowner’s insurance, credit insurance, credit card loss and theft insurance, and private retirement plans.

Santander Brasil’s distribution network provides integrated financial products and services to its customers through a variety of channels, including branches and on-site service units (postos de atendimento bancário or PABs) and complementary distribution channels such as ATMs, call centers and direct sales distribution channels like Internet banking. As a result of the acquisition of Banco Real, Santander Brasil expanded its distribution network.

Santander Brasil is subject to certain claims and party to certain legal proceedings incidental to the normal course of its business (including those in connection with its lending activities, relationships with its employees and other commercial or tax matters). The main categories of lawsuits and administrative proceedings to which Santander Brasil is subject include: administrative and judicial actions relating to taxes; class actions involving agreements and settlement of debts with the public sector; suits brought by current or former employees and unions relating to alleged labor rights violations; and civil suits, including suits filed by depositors, relating to the alleged effects of the implementation of various government plans (due to differences regarding monetary adjustments to the remuneration of bank certificates of deposit, which affect the whole system) and consumer law (breach of contract and foreign currency indexation, including administrative proceedings) and to the privatization of Banespa.

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When there is a risk of possible loss, Santander Brasil usually settles. In such cases and where litigation arises from a claim, it recognizes a provision for the estimated probable loss based on historical experience for similar claims. Provisions are recognized (1) on a case-by-case basis based on the analysis and legal opinion of internal and external counsel and/or (2) considering the historical average amount of loss for such type of claims. Taking into account the provisions recognized and the legal opinions received, Santander Brasil believes that any liabilities arising from such lawsuits or legal proceedings will not have a material adverse effect on its financial position or results of operations.

Santander Brasil does not recognize contingency provisions when the risk of loss is remote. In this connection, in December 2008 the Brazilian tax authorities issued an infraction notice against Santander Brasil for a total amount of BRL 3,950.2 million (approximately €1,200 million at the exchange rate then prevailing) with respect to income taxes (IRPJ and CSL) for 2002 to 2004. The tax authorities assert that Santander Brasil did not meet the legal requirements for deducting amortization of the goodwill arising from the acquisition of Banespa. Santander Brasil has filed an appeal to the Administrative Council of Tax Appeals (Conselho Administrativo de Recursos Fiscais) against the infraction notice and a ruling is expected within approximately one year. Santander Brasil believes, in accordance with the advice of its external legal counsel, that the Brazilian tax authorities’ position is incorrect, that the grounds to contest this infraction notice are well-founded, and, therefore, that the risk of loss is remote. Accordingly, Santander Brasil has not recognized any provisions in this connection since this issue should not have an impact on its financial statements.

Santander Brasil believes that adequate provisions have been recognized to cater for the costs that will foreseeable be incurred in connection with these various claims and legal proceedings. It also believes that any liability arising from such claims and proceedings will not have, overall, a material adverse effect on its business, financial position or results of operations. However, since the outcome of such claims and proceedings is uncertain, there is no assurance that the final judgments on these matters will not significantly exceed the provisions recognized. As a result, these final judgments might significantly affect the results for a particular period, depending, among other factors, upon the amount of the penalty imposed and the level of income for that period.

Santander Brasil’s share capital consists of 158,154,602,751 preference shares and 181,989,171,114 ordinary shares. At the time of the public offering, Santander Brasil did not have any treasury shares. Immediately after the offering, Santander Brasil had 212,841,731,754 ordinary shares and 186,202,385,151 preference shares. Following the offering, Banco Santander continues to own, indirectly, 84.2% of Santander Brasil ordinary shares, 82.8% of Santander Brasil preference shares and 83.5% of Santander Brasil’s total share capital.

Santander Brasil intends to recommend to its shareholders a policy to distribute 50% of its adjusted net profit for the year as dividends and/or interest attributed to shareholders’ equity, as required by the Brazilian Companies Law and its Bylaws. The amount of any distributions will depend on many factors, such as the results of operations, cash flow, financial position (including capital position), cash requirements, investment plans, prospects, legal requirements, economic climate and other factors deemed relevant by the board of directors and shareholders.

Before they decided to purchase Santander Brasil units and ADSs, potential investors in Santander Brasil were warned of the risks and other issues, including, among others, the risks relating to Brazil, to Santander Brasil and the Brazilian financial services industry and the risks relating to the units and ADSs themselves, since one or more of these matters could negatively impact Santander Brasil’s business or financial performance and its ability to implement its business strategy successfully.

*       *       *       *       *

The cost, total assets and total income of the other consolidated companies acquired and disposed of in the last three years were not material with respect to the related consolidated totals.

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c) Off-shore entities

The Group currently has 23 subsidiaries resident in off-shore territories, including the remaining entities of Santander UK (formerly Abbey, Alliance & Leicester and Bradford & Bingley) and the entities included in the Group as a result of the acquisition of Santander Holding USA (formerly Sovereign Bank).

At present five of these subsidiaries are in liquidation, of which three are merely awaiting derecognizing, and the liquidation of a further four subsidiaries is expected to commence in 2010.

Following the above-mentioned planned disposals, the Group will have a total of 14 off-shore subsidiaries. These entities have 173 employees, located mainly in Jersey and the Isle of Man, and are classified by activity as detailed below:

i. Operating subsidiaries engaging in banking or financial activities or in services:

• Santander Trade Services Limited (Hong Kong), an intermediary in export documentary credits.

• Abbey National International Limited in Jersey, which engages in remote banking for British customers not resident in the UK, to whom it offers traditional savings products.

• Alliance & Leicester International Limited and Bradford & Bingley International Limited, two banks located in the Isle of Man which focus on attracting funds through savings accounts and deposits.

ii. Scantly active, inactive or mere asset holding subsidiaries:

• Alliance & Leicester International Holdings Limited, in the Isle of Man, whose only assets are the shares of Alliance & Leicester International Limited.

• Banco Santander (Panamá), S.A., which conducts a scant banking activity.

• Serfin International Bank and Trust, Limited (Cayman Islands), a bank which is virtually inactive.

• Baker Street Risk and Insurance (Guernsey) Limited, an insurance company located in Guernsey which has a residual portfolio and is expected to be liquidated in the medium term.

• Whitewick Limited, an inactive company located in Jersey.

iii. Issuing companies

The Group has five issuing companies located in the following jurisdictions:

Issuers of preferred participating securities:

• Banesto Holdings, Ltd. (Guernsey)

• Totta & Açores Financing, Limited (Cayman Islands)

Issuers of debt:

• Santander Central Hispano Financial Services, Ltd. (Cayman Islands)

• Santander Central Hispano International, Ltd. (Cayman Islands)

• Santander Central Hispano Issuances, Ltd. (Cayman Islands)

The preference share and subordinated debt issues launched by the aforementioned issuers were authorized by the Bank of Spain or the Bank of Portugal as computable for eligible capital calculation purposes. Once the issues launched by these issuers have been redeemed, these entities will be liquidated.

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The individual results of these subsidiaries, calculated in accordance with local accounting principles, are shown in the Appendixes to these notes to the consolidated financial statements together with other data thereon.

It should be noted that the individual results include transactions performed with other Group companies, such as dividend collection, recognition and reversal of provisions and corporate restructuring results which, in accordance with accounting standards, are eliminated on consolidation in order to avoid the duplication of profit or the recognition of intra-Group results. Individual results also include the profit attributable to the holders of preference shares securities. Therefore, they are not representative of the Group’s operations in these countries or of the results contributed to Santander Group.

The main banks and companies, whose activities are detailed above, contributed a profit of approximately €24 million to the Group’s consolidated profit in 2009.

Additionally, the Group has seven branches, one located in Hong Kong, three in the Cayman Islands and three in the Isle of Man. Two of these branches are expected to be dissolved in 2010. These branches report to, and consolidate their balance sheets and income statements with, their respective parents, and have 81 employees.

Spain is expected to enter into information exchange agreements with the Cayman Islands, Hong Kong and Panama, as a result of which these countries and territories would cease to be considered tax havens for the purposes of Spanish legislation. Once these agreements become effective, the Group will have eight units (seven subsidiaries and one branch) resident for tax purposes in off-shore territories, namely the Isle of Man, Jersey and Guernsey. Although it is possible that agreements will also be entered into with these last-mentioned jurisdictions, it should be noted that, according to the list published by the OECD, none of these three jurisdictions is considered a tax haven.

Also, the Group controls, from Brazil, a securitization special-purpose vehicle in the Cayman Islands, called Brazil Foreign Diversified Payment Rights Finance Company, and it manages a protected cell company in Guernsey, called Guaranteed Investment Product 1 PCC, Ltd. Additionally, the Group has, directly or indirectly, various financial investments located in tax havens including, inter alia, Asiabridge Fund I LLC in Mauritius (21.14%), The HSH Coinvest (Cayman) Trust B in the Cayman Islands, Olivant Limited in Guernsey (9.00%), Algebris Global Financials Fund in the Cayman Islands (9.15%) and JC Flowers III in the Cayman Islands, and it holds a 7.2% ownership interest in the Cayman Islands branch of Companhia Brasileira de Meios de Pagamento S.A. (now Cielo S.A.).

The Group has 13 subsidiaries domiciled in off-shore territories that are not considered to be off-shore entities since they are resident for tax purposes in, and operate exclusively from, the UK. The Group also has six subsidiaries and one branch located in the Bahamas (three of which engage in banking activities) and it has financial investments in this country, which ceased to be considered a tax haven for the purposes of Spanish legislation as a result of the information exchange agreement entered into between the Kingdom of Spain and the Commonwealth of The Bahamas.

*       *       *       *       *

The Group has established the proper procedures and controls (risk management, supervision, verification and review plans and periodic reports) to prevent reputation and legal risk arising at these entities. Also, the Group has continued to implement its policy to reduce the number of off-shore units, as illustrated above. The financial statements of the Group’s off-shore units are audited by member firms of Deloitte.

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4. Distribution of the Bank’s profit and Earnings per share

a) Distribution of the Bank’s profit

The distribution of the Bank’s net profit for 2009 that the board of directors will propose for approval by the shareholders at the general shareholders’ meeting is as follows:

	Millions
	of euros
Distribution of dividends already paid prior to the general shareholders’ meeting (€3,939.9 million) and acquisition of bonus share rights from the shareholders which, under the Santander Dividendo Elección program, opted to receive in cash remuneration equivalent to the second interim dividend (€182.0 million)		4,122
Of which:
Distributed at December 31, 2009 (*)		1,285
Third interim dividend -declared in December 2009- (*)		1,012
Fourth interim dividend		1,825
To voluntary reserves		29
Net profit for the year		4,151

(*) Recognized under Shareholders’ equity — Dividends and remuneration.

In addition to the €4,122 million indicated above, a further €797 million were allocated to the remuneration of shareholders under the new shareholder remuneration scheme (Santander Dividendo Elección) approved by the shareholders at the annual general meeting held on June 19, 2009, whereby the Bank offered shareholders the possibility to opt to receive an amount equivalent to the second interim dividend out of 2009 profit in cash or new shares. The other three interim dividends will be paid in cash. For these purposes, the executive committee of Banco Santander, at its meeting held on October 13, 2009, resolved to carry out a capital increase with a charge to voluntary reserves as approved by the shareholders at the annual general meeting of June 19, 2009 (see Note 31.a).

The provisional accounting statements prepared by the Bank pursuant to legal requirements evidencing the existence of sufficient funds for the distribution of the interim dividends were as follows:

	Millions of euros
	05/31/09		09/30/09			12/31/09			12/31/09
	First		Second			Third (*)			Fourth (*)
Profit after tax		1,630		3,328			4,151			4,151
Dividends paid		—		(1,103	)		(1,285	)		(2,297	)
		1,630		2,225			2,866			1,854
Interim dividends in cash		1,103		182			1,012			1,825
Accumulated interim dividends		1,103		1,285			2,297			4,122
Gross dividend per share (euros)		0.13523		0.12			0.12294			0.22183
Date of payment		08/01/09		11/01/09			02/01/10			05/01/10

(*) Dividends not distributed at December 31, 2009.

The board of directors will propose to the shareholders at the general shareholders’ meeting that remuneration of €0.60 per share be paid out of 2009 profit.

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b) Earnings per share in ordinary activities and discontinued operations

i. Basic earnings per share

Basic earnings per share are calculated by dividing the net profit attributable to the Group by the weighted average number of ordinary shares outstanding during the year, excluding the average number of treasury shares held in the year.

Accordingly:

	12/31/09		12/31/08		12/31/07
Profit attributable to the Group (thousands of euros)		8,942,538		8,876,414		9,060,258
Profit from discontinued operations (net of minority interests) (thousands of euros)		27,431		310,804		896,222
Profit from continuing operations (net of minority interests) (thousands of euros)		8,915,107		8,565,610		8,164,036
Weighted average number of shares outstanding		8,075,814,950		6,802,545,788		6,693,869,621
Assumed conversion of convertible debt		478,409,443		468,923,871		108,029,643
Adjusted number of shares		8,554,224,393		7,271,469,659		6,801,899,264
Basic earnings per share (euros)		1.0454		1.2207		1.3320
Basic earnings per share from discontinued operations (euros)		0.0032		0.0427		0.1318
Basic earnings per share from continuing operations (euros)		1.0422		1.1780		1.2003

ii. Diluted earnings per share

In calculating diluted earnings per share, the amount of profit attributable to ordinary shareholders and the weighted average number of shares outstanding, net of treasury shares, are adjusted to take into account all the dilutive effects inherent to potential ordinary shares (share options, warrants and convertible debt instruments).

Accordingly, diluted earnings per share were determined as follows:

	12/31/2009		12/31/2008		12/31/2007
Profit attributable to the Group (thousands of euros)		8,942,538		8,876,414		9,060,258
Profit from discontinued operations (net of minority interests) (thousands of euros)		27,431		310,804		896,222
Profit from continuing operations (net of minority interests) (thousands of euros)		8,915,107		8,565,610		8,164,036
Dilutive effect of changes in profit for the year arising from potential conversion of ordinary shares		—		—		—
Weighted average number of shares outstanding		8,075,814,950		6,802,545,788		6,693,869,621
Assumed conversion of convertible debt		478,409,443		468,923,871		108,029,643
Dilutive effect of options		59,108,134		44,244,806		66,362,931
Adjusted number of shares		8,613,332,527		7,315,714,465		6,868,262,195
Diluted earnings per share (euros)		1.0382		1.2133		1.3191
Diluted earnings per share from discontinued operations (euros)		0.0032		0.0425		0.1305
Diluted earnings per share from continuing operations (euros)		1.0350		1.1709		1.1887

The calculation of the weighted average number of shares outstanding for 2008 included the adjustment arising from the capital increase with pre-emptive subscription rights carried out in December 2008 (see Note 31).

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5. Remuneration and other benefits paid to the Bank’s directors and senior managers

a) Remuneration of directors

i. Bylaw-stipulated directors’ emoluments and attendance fees

Article 58 of the Bank’s current Bylaws approved by the shareholders at the general shareholders’ meeting held on June 21, 2008 provides that the share in the Bank’s profit for each year that the directors will be entitled to receive for discharging their duties as members of the board of directors -annual emolument and attendance fees- will be equal to 1% of the Bank’s net profit for the year. However, the board of directors may resolve to reduce this percentage. In the previous Bylaws, this percentage represented the limit only with respect to the annual emolument and did not include attendance fees.

The amount set by the board of directors for 2009, calculated pursuant to the aforementioned Article 58 of the Bylaws, was 0.144% of the Bank’s profit for 2009 (2008: 0.124% in like-for-like terms; 2007: 0.157% in like-for-like terms).

At the proposal of the appointments and remuneration committee, the directors at the board meeting held on December 21, 2009 resolved to set the annual emolument for 2009 at the same amounts as those paid out of the 2008 profit.

Previously, at the board meeting held on December 22, 2008, under the powers conferred on them, the directors had resolved to reduce by 10% the annual emolument corresponding to the directors for 2008, and established the following amounts in this connection (the respective proportional amounts were allocated to any directors who did not sit on the board for the whole year): each board member received a gross emolument of €106.3 thousand in 2009 and 2008 (2007: €118.1 thousand) and, additionally, each member of the following board committees received the following gross emoluments in 2009 and 2008: executive committee, €213.2 thousand (2007: €236.9 thousand); audit and compliance committee, €50 thousand (2007: €55 thousand); appointments and remuneration committee, €30 thousand (2007: €33 thousand). Also, the first deputy chairman and the fourth deputy chairman received a gross amount of €36 thousand each in 2009 and 2008 (2007: €40 thousand).

Furthermore, the directors receive fees for attending board and committee meetings, excluding executive committee meetings, since no attendance fees are received for this committee.

The amounts of the fees for attending the meetings of the board of directors and of the board committees (excluding the executive committee) were the same in 2009 and 2008 and will remain unchanged as from January 1, 2010, in accordance with the proposal made by the appointments and remuneration committee at its meeting on December 17, 2009 and approved by the directors at the board meeting on December 21, 2009. These attendance fees were approved by the directors at the board meeting held on December 17, 2007 in the following amounts:

• Board of directors: €2,540 for resident directors and €2,057 for non-resident directors.

• Risk committee and audit and compliance committee: €1,650 for resident directors and €1,335 for non-resident directors.

• Other committees: €1,270 for resident directors and €1,028 for non-resident directors.

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ii. Salaries

Following is the detail of the salaries received by the Bank’s executive directors: Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos, Mr. Alfredo Sáenz Abad, Mr. Matías Rodríguez Inciarte, Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea, Mr. Francisco Luzón López and Mr. Juan Rodríguez Inciarte, who took office as member of the board of directors on March 24, 2008.

	Thousands of euros
	2009		2008		2007 (*)
Total salaries		25,784		25,489		24,315
Of which: variable remuneration in cash (or bonus)		15,240		15,240		16,088

(*) The balances for 2007 do not include the remuneration for Mr. Juan Rodríguez Inciarte and, therefore, they are not comparable.

The amounts of fixed salary remuneration received by the executive directors in 2009 were approved by the directors at the board meeting held on December 22, 2008, at the proposal of the appointments and remuneration committee, with the exception of the fixed salary remuneration of Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea, which was approved by the directors at the board meeting held on January 26, 2009, at the proposal of the appointments and remuneration committee.

Also, at the meeting held on December 17, 2009, the appointments and remuneration committee proposed to the board of directors that the variable salary remuneration to be received in cash (or bonus) by all the executive directors in 2009 be maintained at the same amounts as in 2008. This proposal was approved by the directors at the board meeting held on December 21, 2009. Previously, at the board meetings of December 22, 2008 and January 26, 2009, the directors had resolved to reduce these amounts by 15% with respect to 2007 (10% in the case of Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea).

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iii. Detail by director

The detail, by director, of the remuneration earned by the Bank’s directors in 2009 is as follows:

	Thousands of euros
	2009																								2008		2007
	Bylaw-stipulated emoluments
																			Other
	Annual emolument								Attendance fees				Salary of executive directors (1)						remuneration
															Variable
							Appointments								remuneration
					Audit and		and								in cash (or				Share
			Executive		compliance		remuneration				Other		Fixed		bonus)				plan
Directors	Board		committee		committee		committee		Board		fees		remuneration		(a)		Total		(b)		Other		Total		Total		Total
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		106		213		—		—		25		5		1,344		1,987		3,331		310		1		3,992		5,420		3,910
Mr. Fernando de Asúa Álvarez		142		213		50		30		25		188		—		—		—		—		—		647		642		677
Mr. Alfredo Sáenz Abad		106		213		—		—		25		5		3,703		4,745		8,447		837		602		10,237		9,295		9,604
Mr. Matías Rodríguez Inciarte		106		213		—		—		25		162		1,710		2,503		4,213		398		221		5,339		6,541		5,154
Mr. Manuel Soto Serrano		142		—		50		30		25		31		—		—		—		—		—		277		274		306
Assicurazioni Generali, SpA.		123		—		—		—		10		—		—		—		—		—		—		134		140		143
Mr. Antonio Basagoiti García-Tuñón		106		213		—		—		25		158		—		—		—		—		7		510		517		523
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea		106		213		—		—		25		5		1,294		1,786		3,081		203		13		3,647		4,021		3,517
Mr. Francisco Javier Botín-Sanz de Sautuola y O’Shea (2)		106		—		—		—		23		—		—		—		—		—		—		129		129		143
Lord Terence Burns		106		—		—		—		19		—		—		—		—		—		—		125		123		135
Mr. Guillermo de la Dehesa Romero		106		213		—		30		25		11		—		—		—		—		—		386		384		427
Mr. Rodrigo Echenique Gordillo (**)		106		213		—		30		25		10		—		—		—		—		33		418		443		562
Mr. Antonio Escámez Torres		106		213		—		—		23		157		—		—		—		—		38		537		535		550
Mr. Francisco Luzón López		106		213		—		—		25		3		1,505		2,753		4,258		333		872		5,811		6,851		5,620
Mr. Abel Matutes Juan		106		—		50		—		20		16		—		—		—		—		—		192		194		213
Mr. Juan Rodríguez Inciarte (*)		106		—		—		—		25		106		987		1,466		2,453		322		108		3,121		3,830		—
Mr. Luis Ángel Rojo Duque		106		—		50		30		15		24		—		—		—		—		—		225		229		249
Mr. Luis Alberto Salazar-Simpson Bos		106		—		50		—		25		21		—		—		—		—		—		202		198		214
Ms. Isabel Tocino Biscarolasaga (***)		106		—		—		—		25		—		—		—		—		—		—		132		129		103
Mutua Madrileña Automovilística (3)		—		—		—		—		—		—		—		—		—		—		—		—		—		153
Total 2009		2,108		2,132		248		149		440		900		10,544		15,240		25,784		2,403		1,897		36,061		—		—
Total 2008		2,084		2,132		248		149		411		942		10,249		15,240		25,489		6,612		1,827		—		39,894		—
Total 2007		2,324		2,370		275		165		424		813		8,227		16,088		24,315		—		1,517		—		—		32,203

(*)	Appointed as member of the Bank’s board of directors on January 28, 2008, Mr. Juan Rodríguez Inciarte took office on March 24, 2008. He was appointed as a member of the risk committee on March 24, 2008.
(**)	Ceased to be a member of the risk committee on March 24, 2008.
(***)	Appointed by co-optation by the board of directors at its meeting on March 26, 2007, Ms. Isabel Tocino Biscarolasaga took office at the meeting held on April 23, 2007. Her appointment was ratified by the shareholders at the annual general meeting held on June 23, 2007.
(a)	Relating to 2009.
(b)	Amounts received in 2009 in respect of the variable remuneration in shares granted through the Plan I09 approved by the shareholders at the general shareholders’ meeting held on June 23, 2007.
(1)	Recognized under Personnel expenses in the income statement of the Bank, except for the salary of Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea, which is recognized at Banco Español de Crédito, S.A.
(2)	Amounts contributed to Marcelino Botín Foundation.
(3)	Ceased to be a director on December 19, 2007.

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iv. Other remuneration

Remuneration under the share plan

The amount at December 31, 2009 relates to the variable remuneration received in the form of Banco Santander, S.A. shares by the Bank’s directors in 2009 under the I09 incentive plan (Plan I09) approved by the shareholders at the general shareholders’ meeting on June 23, 2007. As established in the aforementioned plan, the number of shares to be received was determined by the degree of achievement of the targets to which it was tied, and fell short of the maximum number established (see Note 5.d.ii).

Also, the amount at December 31, 2008 relates to the variable share-based remuneration received in 2008 by the Bank’s directors through the exercise of Banco Santander, S.A. share options granted under the I06 incentive plan (Plan I06) approved by the shareholders at the annual general meeting of Banco Santander, S.A. held on June 18, 2005 and, in the case of Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea, through the delivery of shares of Banco Español de Crédito, S.A. under an incentive plan for executives of this entity approved by the shareholders at its annual general meeting held on February 28, 2006, for a total of €6,612 thousand (see Note 5.d.i).

Other

The amounts recorded under Other remuneration — Other in the foregoing table include, inter alia, the life and medical insurance costs borne by the Group relating to the Bank’s directors.

b) Remuneration of the board members as representatives of the Bank

By resolution of the executive committee, all the remuneration received by the Bank’s directors who represent the Bank on the boards of directors of listed companies in which the Bank has a stake (at the expense of those companies) and which relates to appointments made after March 18, 2002, will accrue to the Group. The remuneration received in respect of representation duties of this kind, relating to appointments agreed upon before March 18, 2002, was as follows:

		Thousands of euros
	Company	2009		2008		2007
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos	Shinsei Bank, Ltd.		30.1		53.0		50.1
Mr. Fernando de Asúa Álvarez	Cepsa		100.2		97.2		97.2
Mr. Antonio Escámez Torres	Attijariwafa Bank Société Anonyme		5.0		14.8		9.9
			135.3		165.0		157.2

Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos ceased to discharge his duties as director of Shinsei Bank, Ltd. on June 23, 2009 and received compensation of €73.1 thousand.

Also, in 2008, 2007, 2006 and 2005 Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos had received, in each year, options to acquire shares of Shinsei Bank, Ltd. (Shinsei), the detail being as follows: 10,000 shares at a price of JPY 416 each in 2008; 10,000 shares at a price of JPY 555 each in 2007; 25,000 shares at a price of JPY 825 each in 2006; and JPY 601 each in 2005. At December 31, 2009, the market price of the Shinsei share was JPY 101 and, therefore, regardless of the stipulated exercise periods, the options granted in those years would not have given rise to any gains had they been exercised.

Mr. Fernando de Asúa ceased to discharge his duties as director of Cepsa on October 1, 2009 after the Group sold its ownership interest in that company.

Furthermore, other directors of the Bank earned a total of €663 thousand in 2009 as members of the boards of directors of Group companies (2008: €729 thousand; 2007: €750 thousand), the detail being as follows: Lord Burns (Santander UK Plc), €585 thousand; Mr. Rodrigo Echenique (Banco Banif, S.A.), €36 thousand; and Mr. Matías Rodríguez Inciarte (U.C.I., S.A.), €42 thousand.

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c) Post-employment and other long-term benefits

The total balance of supplementary pension obligations assumed by the Group over the years to its current and retired employees (covered mostly by in-house provisions which amounted to €10,629 million at December 31, 2009), includes the obligations to those who have been directors of the Bank during the year and who discharge (or have discharged) executive functions. The total pension obligations to these directors, together with the total sum insured under life insurance policies and other items, amounted to €292 million at December 31, 2009 (December 31, 2008: €311 million; December 31, 2007: €264 million).

The following table provides information on: (i) the pension obligations assumed and covered by the Group; and (ii) other insurance -the premiums of which are paid by the Group, the related cost being included in the Other remuneration column in the table in Note 5.a.iii-, in both cases in respect of the Bank’s executive directors:

	Thousands of euros
	2009				2008				2007
	Accrued				Accrued				Accrued
	pension		Other		pension		Other		pension		Other
	obligations		insurance		obligations		insurance		obligations		insurance
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		24,642		—		25,579		—		22,926		—
Mr. Alfredo Sáenz Abad		85,740		11,108		80,049		10,785		68,070		9,378
Mr. Matías Rodríguez Inciarte		52,536		5,131		50,894		4,982		44,226		4,529
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea		23,775		1,403		21,737		1,403		17,975		1,403
Mr. Francisco Luzón López		53,513		9,031		53,083		7,624		45,468		7,624
Mr. Juan Rodríguez Inciarte		10,969		2,961		9,918		2,875		—		—
		251,175		29,634		241,260		27,669		198,665		22,934

The amounts in the Accrued pension obligations column in the foregoing table relate to the accrued present actuarial value of the future annual payments to be made by the Group. These amounts were obtained using actuarial calculations and cover the obligations to pay the respective calculated pension supplements. In the case of Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos, Mr. Alfredo Sáenz Abad, Mr. Matías Rodríguez Inciarte and Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea, these supplements were calculated as 100% of the sum of the fixed annual salary received at the date of effective retirement plus 30% of the arithmetical mean of the last three variable remuneration payments received. In addition, in the case of Mr. Francisco Luzón López, to the amount thus calculated will be added the amounts received by him in the year before retirement or early retirement in his capacity as a member of the board of directors or the committees of the Bank or of other consolidable Group companies and, in the case of Mr. Juan Rodríguez Inciarte, 100% of the gross fixed annual salary received at the date of effective retirement.

On December 17, 2007, March 24, 2008, July 21, 2008 and April 28, 2009, the board of directors of the Bank resolved to authorize a change in the contracts of the executive directors and the other members of the Bank’s senior management -the senior management- granting them the right, on the date of retirement -or pre-retirement, as appropriate- to opt to receive their accrued pensions -or amounts similar thereto- in the form of an annuity or a lump sum i.e. in one single payment, in full but not in part. In order to maintain the financial neutrality for the Group, the amount to be received in the form of a lump sum by the commitment beneficiary at the date of retirement must be the aliquot part of the market value of the assets assigned to cover the mathematical provisions of the policy instrumenting these commitments to senior management. The senior management who are still in service on reaching the age of retirement -or who at the date of the contract entered into have passed the age of retirement- must state whether they wish to opt for this form of benefit. Should the senior management subsequently die whilst still in service and prior to retirement, the lump sum of the pension will correspond to his/her heirs. Also, by virtue of the aforementioned resolutions of the board of directors, these contracts were adapted to the current Bylaws (Articles 49.2 and 58.4) and to the new pensions regime.

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In 2009, Mr. Emilio Botín Sanz de Sautuola y García de los Ríos and Mr. Alfredo Sáenz Abad, who have passed the age of retirement, exercised the option to receive their respective accrued pensions as a lump sum on the date of effective retirement. The amounts included in the foregoing table in respect of the pensions accruing to these directors are those relating to the aforementioned lump sums, and no further amounts will accrue in respect of pensions after the retirement dates. The lump sums will be updated at the agreed-upon interest rate.

Furthermore, at the board meeting held on December 21, 2009, the Bank’s directors resolved that the executive directors -and other members of senior management who are beneficiaries or defined benefit plans and have not reached the age of retirement- may opt, upon reaching the age of 60 and on each of their following birthdays until they are 64 years of age, to receive their accrued pensions as a lump sum, which will be determined at the exercise date of this option and which they (or their heirs in the event of death) will be entitled to receive when they retire or are declared to be disabled. The exercise of this option will mean that no further pension benefit will accrue and the lump sum to be received, which will be updated at the agreed- upon interest rate, will be fixed. Also, any person who exercises this option must undertake not to retire early or to retire, in both cases at his/her own request, within two years from the exercise date.

Lastly, the board of directors resolution referred to in the preceding paragraph also regulated the impact of the deferral of the computable variable remuneration on the determination of the pension obligations (or similar amounts), in the form of an annuity or a lump sum, for pre-retirement, early retirement or normal retirement.

Pension provisions recognized and reversed in 2009 amounted to €5,703 thousand and €4 thousand, respectively (2008: €26,974 thousand and €11 thousand, respectively; 2007: €21,615 thousand and €580 thousand, respectively).

Additionally, other directors have life insurance policies the cost of which is borne by the Group, the related insured sum being €3 million at December 31, 2009 (2008 and 2007: €3 million each year). Also, the payments made in 2009 to the members of the board entitled to post-employment benefits amounted to €2.6 million.

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d) Deferred variable share-based remuneration systems

The detail of these plans granted to directors (see Note 47) is as follows:

i) Plan I06 (see Note 47)

In 2004 a long-term incentive plan (I06) was designed which, consisting of options on shares of the Bank, is tied to the achievement of two targets which were achieved. The exercise period was from January 15, 2008 to January 15, 2009. The executive directors are beneficiaries of this plan; the number of Bank share options held by them is indicated below:

	Rights				Rights granted		Rights exercised
	at									Number				Market		Remuneration		Rights					Rights				Date of		Date of
	December 31,		Exercise				Number of			of shares		Exercise		price		allocated		at		Number of			at		Exercise		commencement		expiry of
	2005,		price				rights			acquired		price		applied		(thousands		December 31,		rights			December 31,		price		of exercise		exercise
	2006 and 2007		(euros)		Number		exercised			(***)		(euros)		(euros)		of euros)		2008		cancelled			2009		(euros)		period		period
Plan I06
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		541,400		9.09		—		(541,400	)		541,400		9.09		12.40		1,780		—		—			—		—		—		—
Mr. Alfredo Sáenz Abad		1,209,100		9.09		—		—					—		—		—		1,209,100		(1,209,100	)		—		9.09		01/15/08		01/15/09
Mr. Matías Rodríguez Inciarte		665,200		9.09		—		(332,600	)		67,901		9.09		14.12		1,661		332,600		(332,600	)		—		9.09		01/15/08		01/15/09
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea (*)		293,692		9.09		—		—					—		—		—		293,692		(293,692	)		—		9.09		01/15/08		01/15/09
Mr. Francisco Luzón López		639,400		9.09		—		(300,000	)		60,656		9.09		14.04		1,473		339,400		(339,400	)		—		9.09		01/15/08		01/15/09
Mr. Juan Rodríguez Inciarte (**)		419,000		9.09		—		(419,000	)		419,000		9.09		11.72		1,090		—		—			—		—		—		—
		3,767,792		9.09				(1,593,000	)								6,004		2,174,792		(2,174,792	)		—		9.09

(*)	Approved by Banesto’s shareholders at its general shareholders’ meeting on February 28, 2006.
(**)	Mr. Juan Rodríguez Inciarte was appointed as member of the board of directors in 2008. The data on his options for prior dates relate to the options granted to him as an executive prior to his appointment as director.
(***)	Under the three-year I06 incentive plan (see Note 47), each purchase option granted entitles the beneficiary to acquire one Bank share at a price of €9.09, and the number of shares acquired on the exercise of the options is determined on the basis of the settlement method used, which can be cash for stock or cashless for cash. In the case of cash-for-stock settlements, the number of shares granted as consideration for the payment in cash of the exercise price is equal to the number of options exercised.

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As detailed in the foregoing table, the remuneration allocated to executive directors due to the exercise of Banco Santander, S.A. share options under the I06 incentive plan (see Note 47) amounted to €6,004 thousand in 2008. Additionally, the remuneration allocated to Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea due to the delivery of Banesto shares under the incentive plan for executives approved by the shareholders at the general shareholders’ meeting of this entity on February 28, 2006 amounted to €608 thousand. The share options under Plan I06 that had not been exercised at December 31, 2008 expired on January 15, 2009.

ii) Performance share plan (see Note 47)

This plan, which provides for deferred variable remuneration in shares of the Bank, will involve successive three-year cycles of share deliveries to the beneficiaries, so that each year one cycle will begin and, from 2009 onwards, another cycle will also end.

The table below shows the maximum number of rights granted to each executive director in each cycle and the number of shares received under the I09 incentive plan (Plan I09). As established in this plan, the number of shares received was determined by the degree of achievement of the targets to which the plan was tied, and fell short of the maximum number.

	Rights		Rights		Shares			Rights			Rights
	at December 31,		granted		delivered			cancelled			at December 31,		Grant		Share delivery
	2008		(number)		(number)			(number)			2009		date		deadline
Plan I09:
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		41,785		—		(37,937	)		(3,848	)		—		06/23/07		07/31/09
Mr. Alfredo Sáenz Abad		110,084		—		(99,945	)		(10,139	)		—		06/23/07		07/31/09
Mr. Matías Rodríguez Inciarte		53,160		—		(48,264	)		(4,896	)		—		06/23/07		07/31/09
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea (*)		27,929		—		(25,357	)		(2,572	)		—		06/23/07		07/31/09
Mr. Francisco Luzón López		44,749		—		(40,628	)		(4,121	)		—		06/23/07		07/31/09
Mr. Juan Rodríguez Inciarte (**)		43,322		—		(39,332	)		(3,990	)		—		06/23/07		07/31/09
		321,029		—		(291,463	)		(29,566	)		—
Plan I10:
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		62,589		—		—			—			62,589		06/23/07		07/31/10
Mr. Alfredo Sáenz Abad		164,894		—		—			—			164,894		06/23/07		07/31/10
Mr. Matías Rodríguez Inciarte		79,627		—		—			—			79,627		06/23/07		07/31/10
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea (*)		41,835		—		—			—			41,835		06/23/07		07/31/10
Mr. Francisco Luzón López		67,029		—		—			—			67,029		06/23/07		07/31/10
Mr. Juan Rodríguez Inciarte (**)		64,983		—		—			—			64,983		06/23/07		07/31/10
		480,957		—		—			—			480,957
Plan I11:
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		68,848		—		—			—			68,848		06/21/08		07/31/11
Mr. Alfredo Sáenz Abad		189,628		—		—			—			189,628		06/21/08		07/31/11
Mr. Matías Rodríguez Inciarte		87,590		—		—			—			87,590		06/21/08		07/31/11
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea (***)		46,855		—		—			—			46,855		06/21/08		07/31/11
Mr. Francisco Luzón López		77,083		—		—			—			77,083		06/21/08		07/31/11
Mr. Juan Rodríguez Inciarte		50,555		—		—			—			50,555		06/21/08		07/31/11
		520,559		—		—			—			520,559
Plan I12:
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		—		82,941		—			—			82,941		06/19/09		07/31/12
Mr. Alfredo Sáenz Abad		—		228,445		—			—			228,445		06/19/09		07/31/12
Mr. Matías Rodríguez Inciarte		—		105,520		—			—			105,520		06/19/09		07/31/12
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea		—		56,447		—			—			56,447		06/19/09		07/31/12
Mr. Francisco Luzón López		—		92,862		—			—			92,862		06/19/09		07/31/12
Mr. Juan Rodríguez Inciarte		—		60,904		—			—			60,904		06/19/09		07/31/12
		—		627,119		—			—			627,119

(*) Without prejudice to the Banesto shares relating to Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea by virtue of the Banesto Share-Based Payment Incentive Plan approved by the shareholders at the general shareholders’ meeting of Banesto held on June 27, 2007, the maximum number of shares shown in the foregoing table relates to the aforementioned executive director, based on the resolution adopted at the aforementioned general shareholders’ meeting.

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(**)

Mr. Juan Rodríguez Inciarte was appointed as member of the board of directors in 2008. The data on his rights include the rights granted to him as an executive prior to his appointment as director.

(***)

Without prejudice to the Banesto shares that might correspond to Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea by virtue of the Banesto Share-Based Incentive Plan approved by the shareholders at the general shareholders’ meeting of Banesto held on February 24, 2010, the maximum number of shares shown in the foregoing table relates to the aforementioned executive director in accordance with the resolution adopted at Banesto’s general shareholders’ meeting.

iii) Obligatory investment share plan

Pursuant to the obligatory investment share plan (see Note 47), the current executive directors also acquired as deferred share-based variable remuneration, prior to February 29, 2008, February 28, 2009 and February 28, 2010, the number of Bank shares shown in the table below, which involved an investment of €1.5 million in 2008, €0.8 million in 2009 and €1.5 million in 2010. Executive directors who hold the shares acquired through the obligatory investment and remain in the Group’s employ for three years from the date on which the obligatory investment is made will be entitled to receive the same number of Bank shares as that composing their initial obligatory investment.

The general shareholders’ meeting of June 19, 2009 introduced, for the third cycle, a requirement additional to that of remaining in the Bank’s employ, i.e. that in the three-year period from the investment in the shares none of the following circumstances should arise: (i) poor financial performance of the Group; (ii) breach by the beneficiary of the codes of conduct or other internal regulations (including, in particular, risks regulations) applicable to the executive in question; or (iii) a material restatement of the Entity’s financial statements, except when it is required pursuant to a change in accounting standards.

	3rd cycle		2nd cycle		1st cycle
Executive directors	2010-2012		2009-2011		2008-2010
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		20,515		19,968		16,306
Mr. Alfredo Sáenz Abad		49,000		47,692		37,324
Mr. Matías Rodríguez Inciarte		25,849		25,159		20,195
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea (*)		18,446		16,956		13,610
Mr. Francisco Luzón López		28,434		27,675		22,214
Mr. Juan Rodríguez Inciarte		15,142		14,738		14,617
		157,386		152,188		124,266

(*) In accordance with the resolution adopted by the shareholders at the general shareholders’ meeting of Banco Santander held on June 23, 2007, the maximum number of shares relating to Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea for the 2008-2010 cycle is that shown in the foregoing table, as approved by the general shareholders’ meeting of Banesto held on June 27, 2007. Also, the maximum number of shares relating to Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea for the 2009-2011 and 2010-2012 cycles as beneficiary of this plan is in line with the resolution adopted by the shareholders at the general shareholders’ meeting of Banco Santander held on June 21, 2008 and by the shareholders at the general shareholders’ meeting of Banesto held on February 24, 2010.

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e) Loans

The Group’s direct risk exposure to the Bank’s directors and the guarantees provided for them are detailed below. These transactions were made on an arm’s-length basis or the related compensation in kind was charged:

	Thousands of euros
	2009						2008						2007
	Loans and						Loans and						Loans and
	credits		Guarantees		Total		credits		Guarantees		Total		credits		Guarantees		Total
Mr. Alfredo Sáenz Abad		16		—		16		25		—		25		6		—		6
Mr. Matías Rodríguez Inciarte		7		10		17		20		10		30		18		10		28
Mr. Manuel Soto Serrano		—		—		—		5		—		5		4		—		4
Mr. Antonio Basagoiti García-Tuñón		47		1		48		66		1		67		94		1		95
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea		3		—		3		5		—		5		—		—		—
Mr. Javier Botín-Sanz de Sautuola y O’Shea		2		—		2		—		—		—		—		—		—
Mr. Rodrigo Echenique Gordillo		9		—		9		12		—		12		7		—		7
Mr. Antonio Escámez Torres		1,488		—		1,488		1,473		—		1,473		309		—		309
Mr. Francisco Luzón López		5,004		—		5,004		1,649		—		1,649		722		—		722
Mr. Juan Rodríguez Inciarte		421		—		421		465		—		465		—		—		—
Mr. Luis Alberto Salazar-Simpson Bos		434		—		434		461		—		461		—		—		—
Ms. Isabel Tocino Biscarolasaga		40		—		40		49		—		49		—		—		—
		7,471		11		7,482		4,231		11		4,242		1,160		11		1,171

f) Senior managers

Following is a detail of the remuneration paid to the Bank’s executive vice presidents (*) in 2009, 2008 and 2007:

			Thousands of euros
	Number of		Salary						Other
Year	managers (1)		Fixed		Variable		Total		remuneration		Total
2007		26		19,504		42,768		62,272		10,092		72,364
2008		24		21,219		34,674		55,893		27,598		83,491
2009		24		21,512		36,468		57,980		16,745		74,725

(*)	Excluding executive directors’ remuneration, which is detailed above.
(1)	At some point in the year they occupied the position of executive vice president. The amounts reflect the annual remuneration regardless of the number of months in which the position of executive vice president was occupied.

The foregoing table includes all the items of remuneration paid to the senior managers, including the life insurance premiums (€1,148 thousand in 2009 and €1,029 thousand in 2008), the termination or retirement benefits, and the share-based remuneration systems. The variable share-based remuneration, which amounted to €5,982 thousand in 2009, related to the remuneration received by the executive vice presidents in the form of 746,756 Banco Santander, S.A. shares arising from the I09 incentive plan (see Note 47) approved by the shareholders at the general shareholders’ meeting held on June 23, 2007. Also, in 2008 €22,410 thousand were allocated due to the exercise by the executive vice presidents of 5,317,978 Santander share options under the I06 incentive plan (see Note 47) and the delivery of Banesto shares under the incentive plan for executives approved by the shareholders at the general shareholders’ meeting of this entity held on February 28, 2006. No remuneration was paid in this connection in 2007.

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Following is a detail of the maximum number of options or rights that the Bank’s executive vice presidents (excluding executive directors) were entitled to receive at December 31, 2009, 2008 and 2007 under the various plans then in force.

Maximum number of options/rights	12/31/09		12/31/08		12/31/07
Plan I06 (*)		—		1,499,010		7,235,988
Plan I09		—		822,508		889,109
Plan I10		1,154,158		1,280,124		1,333,465
Plan I11		1,312,214		1,446,259		—
Plan I12		1,562,227		—		—

(*) The exercise period was from January 15, 2008 to January 15, 2009.

Additionally, with respect to the obligatory investment share plan, the annual investment made in February 2010, 2009 and 2008 by the executive vice presidents (excluding current executive directors) amounted to €3.2 million (equal to 330,104 shares), €2.9 million (equal to 508,764 shares) and €3.4 million (equal to 261,681 shares), respectively.

The actuarial liability recognized in respect of post-employment benefits earned by the Bank’s senior managers totaled €245 million at December 31, 2009 (December 31, 2008: €240 million; December 31, 2007: €202 million). The charge to the consolidated income statement in this connection amounted to €40 million in 2009 (2008: €41 million; 2007: €24 million). Additionally, the total sum insured under life and accident insurance policies relating to this group amounted to €63 million at December 31, 2009 (December 31, 2008: €59 million; December 31, 2007: €56 million).

g) Post-employment benefits to former directors and former executive vice presidents

The post-employment benefits paid in 2009 to former directors of the Bank and former executive vice presidents amounted to €7.9 million and €40 million, respectively (2008: €7.7 million and €19.1 million, respectively; 2007: €7.9 million and €8.7 million, respectively).

The amounts recognized in the consolidated income statement for 2009 in connection with the Group’s pension and similar obligations to former directors of the Bank and former executive vice presidents were a release of €1,258 thousand and a period provision of €7,460 thousand, respectively (2008: period provision of €1,064 thousand and €570 thousand, respectively; 2007: period provision of €308 million and 99 million, respectively).

Furthermore, Provisions — Provisions for pensions and similar obligations in the consolidated balance sheet at December 31, 2009 included €84.9 million and €146 million in respect of the post-employment benefit obligations to former directors of the Bank and former executive vice presidents, respectively (2008: €88.8 million and €132.2 million, respectively; 2007: €89.2 million and €142.9 million, respectively).

h) Termination benefits

The Bank has signed contracts with all its executive directors.

The Bank’s executive directors have indefinite-term employment contracts. Executive directors whose contracts are terminated voluntarily or due to breach of duties are not entitled to receive any economic compensation. Under current conditions, if the contracts are terminated for reasons attributable to the Bank or due to objective circumstances (such as those affecting the executive directors’ functional and organic statute), the directors are entitled, at the date of termination of their employment relationship with the Bank, to the following:

• In the cases of Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos and Mr. Alfredo Sáenz Abad, to retire and to receive the amounts relating to the accrued pensions in the form of capital (€24,642 thousand and €85,740 thousand, respectively), without any additional amounts accruing in respect of pensions in the future in both cases, once the consolidation option referred to in Note 5.c has been exercised by both executive directors.

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Had Mr. Alfredo Sáenz Abad’s contract been terminated in 2009, he would have been able to choose between retiring or receiving severance pay equivalent to 40% of his fixed annual salary multiplied by the number of years’ service in banking, up to a maximum of 10 times his fixed annual salary. However, Mr. Alfredo Sáenz Abad has waived his right to receive this severance.

• In the cases of Mr. Matías Rodríguez Inciarte and Mr. Francisco Luzón López, to take early retirement and to accrue pension supplements. At December 31, 2009, the annual pension supplements would amount to €2,507 thousand for Mr. Matías Rodríguez Inciarte and €2,701 thousand for Mr. Francisco Luzón López (2008: €2,416 thousand and €2,648 thousand, respectively; 2007: €2,146 thousand and €2,293 thousand, respectively).

• In the case of Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea, to receive a termination benefit amounting to five years’ annual fixed salary at the date of termination. At December 31, 2009, this benefit would amount to €6,472 thousand (December 31, 2008: €6,345 thousand; December 31, 2007: €3,399 thousand). In the event of termination due to withdrawal at the will of the Bank, Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea may opt to take early retirement and accrue an annual emolument. At December 31, 2009, this emolument would amount to €1,841 thousand per year. The two alternatives are mutually exclusive and, therefore, if Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea were to opt to receive the termination benefit she would not receive any emolument.

• In the case of Mr. Juan Rodríguez Inciarte, to receive a termination benefit amounting to five years’ annual fixed salary at the date of termination. At December 31, 2009, this benefit would amount to €4,936 thousand (December 31, 2008: €4,792 thousand; December 31, 2007: €4,652 thousand). In the event of termination due to withdrawal at the will of the Bank, Mr. Juan Rodríguez Inciarte may opt to take early retirement and accrue an annual emolument. At December 31, 2009, this emolument would amount to €869 thousand per year (December 31, 2008: €958 thousand per year; December 31, 2007: €930 thousand per year). The two alternatives are mutually exclusive and, therefore, if Mr. Juan Rodríguez Inciarte were to opt to receive the termination benefit he would not receive any emolument.

If Mr. Matías Rodríguez Inciarte, Mr. Francisco Luzón López, Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea or Mr. Juan Rodríguez Inciarte retire or take early retirement, they have the right to opt to receive the pensions accrued -or similar amounts- in the form of income or capital -i.e. in a single payment- in full but not in part, without prejudice to the right to exercise their respective options, after reaching the age of 60 (see Note 5.c).

Additionally, other members of the Group’s senior management have contracts which entitle them to receive benefits in the event of termination for reasons other than voluntary redundancy, retirement, disability or serious breach of duties. These benefits are recognized as a provision for pensions and similar obligations and as a personnel expense only when the employment relationship between the Bank and its managers is terminated before the normal retirement date.

F-75

i) Detail of the directors’ investments in companies with similar business activities and performance by directors, as independent professionals or as employees, of similar activities

In accordance with the requirements of Article 127 ter.4 of the Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas), in order to enhance the transparency of listed companies, following is a detail of the directors’ investments in the share capital of entities engaging in banking, financing or lending; and of the management or governing functions, if any, that the directors discharge thereat:

	Corporate	Number
Director	name	of shares	Functions
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos	Bankinter, S.A.	3,295,300	—
	Bank of America Corporation	560	—
	Santander Investment, S.A.	—	Chairman (1)
Mr. Alfredo Sáenz Abad	Banco Bilbao Vizcaya Argentaria, S.A.	25,000	—
	HSBC Holdings	13,074	—
	Lloyds TSB	522	—
	Banco Banif, S.A.	—	Chairman (1)
	Santander Private Banking S.p.A.	—	Chairman (1)
Mr. Matías Rodríguez Inciarte	Banesto	27,575	Director (1)
	Banco Santander Totta, S.A.	—	Deputy Chairman (1)
Mr. Manuel Soto Serrano	Intesa Sanpaolo	108,483	—
	UniCredito Italiano S.p.A.	150,000	—
	Istituto per le Opere di Religione (IOR)	—	Director (2)
Assicurazioni Generali S.p.A. (3)	Commerzbank, AG	66,531,286	—
	Intesa Sanpaolo	617,113,776	—
	Mediobanca — Banca di Credito Finanziario S.p.A.	16,381,963	—
	Bank Leumi le-Israel B.M.	19,711,333	—
	Erste Group Bank AG	3,796,516	—
	UniCredito Italiano S.p.A.	117,276,064	—
	Banca Monte dei Paschi di Siena S.p.A.	26,431,550	—
	Crédit Agricole, S.A.	5,114,340	—
	Société Générale	1,207,129	—
	Banco Bilbao Vizcaya Argentaria, S.A.	6,805,838	—
	Deustche Bank, A.G.	772,452	—
	Banesto	753,429	—
Mr. Antonio Basagoiti García-Tuñón	Banco Popular Español, S.A.	510	—
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea	Banesto	560,214	Chairman
	Santander Investment, S.A.	—	Director (1)
	BSN - Banco Santander de Negocios Portugal, S.A.	—	Director (1)

F-76

	Corporate	Number
Director	name	of shares	Functions
Lord Burns (Terence)	Santander UK plc	—	Chairman (1)
	Alliance & Leicester plc	—	Chairman (1)
Mr. Guillermo de la Dehesa Romero	Goldman Sachs & Co.	19,546	—
	Banco Pastor, S.A.	11,088	—
Mr. Rodrigo Echenique Gordillo	JP Morgan Chase	3,000	—
	Mitsubishi UFJ Financial Group, Inc.	6,000	—
	Mizuho Financial Group, Inc.	5,000	—
	HSBC	11,000	—
	Banco Banif, S.A.	—	2nd Deputy Chairman (1)
	Santander Investment, S.A.	—	Director (1)
	Allfunds Bank, S.A.	—	Deputy Chairman (1)
	Banco Santander International	—	Director (1)
Mr. Antonio Escámez Torres	Attijariwafa Bank Societé Anonyme	10	Deputy Chairman (1)
	Banco de Valencia, S.A.	349	—
	Santander Consumer Finance, S.A.	—	Chairman (1)
	Open Bank, S.A.	—	Chairman (1)
Mr. Francisco Luzón López	Banco Bilbao Vizcaya Argentaria, S.A.	24,658	—
	UBS, AG	42,460	—
	Bank of America	27,100	—
	Goldman Sachs & Co.	460	—
	Morgan Stanley	2,490	—
	Citigroup Inc.	139,411	—
	Wells Fargo	15,361	—
	Barclays	185,441	—
	HSBC	39,019	—
	Lloyds Bank	3,307,838	—
	Royal Bank of Scotland	2,626,919
	Banco Santander (México), S.A., Institución de Banca Múltiple. Grupo Financiero Santander	—	Director (1)
	Banco Santander International	—	Director (1)
	Santander Consumo, S.A. de C.V., SOFOM, E.R.	—	Director (1)

F-77

	Corporate	Number
Director	name	of shares	Functions
Mr. Abel Matutes Juan	Intesa Sanpaolo	3,619,665	—
	Banco Bilbao Vizcaya Argentaria, S.A.	563,708	—
	Banesto	11,980	—
Mr. Juan Rodríguez Inciarte	Banco Bilbao Vizcaya Argentaria, S.A.	1,016	—
	Wachovia	540	—
	Santander UK plc	—	Deputy Chairman (1)
	Alliance & Leicester plc	—	Director (1)
	Banco Banif, S.A.	—	Director (1)
	Santander Consumer Finance, S.A.	—	Director (1)
	RFS Holding NV	—	Director
	ABN AMRO Holding NV	—	Director (4)
	ABN AMRO Bank NV	—	Director (4)
Ms. Isabel Tocino Biscarolasaga	Banco Bilbao Vizcaya Argentaria, S.A.	1,000	—
	Citigroup Inc.	10,000	—
Mr. Antoine Bernheim (5)	Credit Suisse	40,900	—
	BNP Paribas	16,179	—
	UBS	82,863	—
	Intesa Sanpaolo	398,533	Deputy Chairman (6)
	Mediobanca — Banca di Credito Finanziario S.p.A.	63,000	Director (1)
	UniCredito Italiano S.p.A.	149,519	—
	Royal Bank of Scotland Group plc	12,298	—
	Bank of New York Mellon	10,000	—
	BSI SA	—	Director (1)

(1)	Non-executive.
(2)	Non-executive member of the control committee.
(3)	More detailed information on the ownership interests held by Assicurazioni Generali, S.p.A. can be consulted in the notes to the financial statements of this company or on its website (www.generali.com).
(4)	Non-executive member of the supervisory board.
(5)	Representative on the Bank’s board of directors of the non-executive proprietary director Assicurazioni Generali S.p.A.
(6)	(Non-executive) deputy chairman of the supervisory board.
(7)	Non-executive director of Shinsei Bank, Limited until June 23, 2009.

None of the members of the board of directors perform, as independent professionals or as employees, any activities of the kind indicated in the foregoing table.

F-78

6. Loans and advances to credit institutions

The detail, by classification, type and currency, of Loans and advances to credit institutions in the consolidated balance sheets is as follows:

	Thousands of euros
	2009			2008			2007
Classification:
Financial assets held for trading		5,952,956			5,149,584			12,294,559
Other financial assets at fair value through profit or loss		16,242,609			8,911,906			6,865,073
Loans and receivables		57,641,042			64,730,787			38,482,972
		79,836,607			78,792,277			57,642,604
Type:
Reciprocal accounts		712,503			663,230			417,438
Term deposits		21,382,542			25,455,903			13,569,362
Reverse repurchase agreements		29,489,895			18,568,747			30,276,080
Other accounts		28,251,667			34,104,397			13,379,724
		79,836,607			78,792,277			57,642,604
Currency:
Euro		50,346,410			44,157,708			32,327,552
Pound sterling		4,631,696			8,094,238			6,952,096
US dollar		11,209,610			13,079,671			13,007,374
Other currencies		13,674,427			13,714,227			5,374,069
Impairment losses		(25,536	)		(253,567	)		(18,487	)
Of which: Country risk		(8,460	)		(250,024	)		(16,748	)
		79,836,607			78,792,277			57,642,604

The impairment losses on financial assets classified as loans and receivables are disclosed in Note 10.

Note 51 contains a detail of the residual maturity periods of loans and receivables and of the related average interest rates.

7. Debt instruments

The detail, by classification, type and currency, of Debt instruments is as follows:

	Thousands of euros
	2009			2008			2007
Classification:
Financial assets held for trading		49,920,518			43,895,548			66,330,811
Other financial assets at fair value through profit or loss		7,365,213			5,154,732			7,072,423
Available-for-sale financial assets		79,289,337			42,547,677			34,187,077
Loans and receivables		14,959,331			17,652,560			1,668,339
		151,534,399			109,250,517			109,258,650
Type:
Spanish government debt securities
Treasury bills		8,256,207			5,544,658			5,558,420
Government bonds		2,649,096			419,083			376,393
Other book-entry debt securities		27,407,375			14,535,752			9,440,746
Foreign government debt securities		44,006,698			23,132,075			21,617,457
Issued by financial institutions		39,853,240			39,096,714			43,443,566
Other fixed-income securities		29,528,505			26,703,413			28,913,821
Impairment losses		(166,722	)		(181,178	)		(91,753	)
		151,534,399			109,250,517			109,258,650
Currency:
Euro		72,745,088			51,577,517			55,013,063
Pound sterling		11,882,570			16,345,483			16,164,296
US dollar		25,744,623			15,396,510			13,341,949
Other currencies		41,328,840			26,112,185			24,831,095
Impairment losses		(166,722	)		(181,178	)		(91,753	)
		151,534,399			109,250,517			109,258,650

F-79

At December 31, 2009, the nominal amount of Spanish government debt securities assigned to certain own or third-party commitments amounted to €16,509 million (December 31, 2008: €2,674 million; December 31, 2007: €695 million).

Additionally, at December 31, 2009 other debt securities totaling €23,152 million had been assigned to own obligations (December 31, 2008: 22,487 million; December 31, 2007: 16,171 million), mainly as security for credit facilities received by the Group.

The impairment losses on available-for-sale financial assets are disclosed in Note 8.

Note 51 contains a detail of the residual maturity periods of available-for-sale financial assets and of loans and receivables and of the related average interest rates.

8. Other equity instruments

a) Breakdown

The detail, by classification and type, of Other equity instruments is as follows:

	Thousands of euros
	2009		2008			2007
Classification:
Financial assets held for trading		9,248,022		6,272,403			9,744,466
Other financial assets at fair value through profit or loss		5,877,331		2,777,793			2,870,322
Available-for-sale financial assets		7,331,166		6,372,629			10,161,830
Of which:
Disregarding allowances for impairment losses		7,331,166		6,381,788			10,173,068
Allowances for impairment losses		—		(9,159	)		(11,238	)
		22,456,519		15,422,825			22,776,618
Type:
Shares of Spanish companies		4,981,812		3,219,901			6,375,891
Shares of foreign companies		7,526,087		5,897,681			9,787,139
Investment fund units and shares		4,254,774		3,614,329			4,068,215
Other securities		5,693,846		2,700,073			2,556,611
Of which: unit linked		5,693,846		2,700,073			2,556,611
Impairment losses		—		(9,159	)		(11,238	)
		22,456,519		15,422,825			22,776,618

F-80

b) Changes

The changes in Available-for-sale financial assets, disregarding the allowances for impairment losses, were as follows:

	Millions of euros
	2009			2008			2007
Balance at beginning of year		6,382			10,173			5,985
Changes in the scope of consolidation		467			366			—
Transfers (Note 13)		53			204			—
Net additions /disposals		(192	)		(454	)		3,096
Of which:
Shinsei		—			322			—
Metrovacesa		938			—			—
France Telecom		(378	)		—			—
Attijariwafa Bank		(367	)		—			—
Royal Bank of Scotland Group, plc		—			—			1,368
Fortis SA/NV		—			—			892
Iberdrola, S.A.		—			(846	)		1,503
BPI		—			—			(229	)
Intesa Sanpaolo		—			—			(1,206	)
Valuation adjustments (*)		621			(3,907	)		1,092
Balance at end of year		7,331			6,382			10,173

(*) The valuation adjustments in 2008 included the write-downs of the ownership interests held in that year in The Royal Bank of Scotland (€1,293 million) and Fortis Bank (€749 million).

The main acquisitions and disposals made in 2009, 2008 and 2007 were as follows:

i. Metrovacesa, S.A. (Metrovacesa)

On February 20, 2009, certain credit institutions, including Banco Santander, S.A. and Banco Español de Crédito, S.A., entered into an agreement for the restructuring of the debt of the Sanahuja Group, whereby they received shares representing 54.75% of the share capital of Metrovacesa in payment of the Sanahuja Group’s debt.

The aforementioned agreement also envisages the acquisition by the creditor entities of an additional 10.77% of the share capital of Metrovacesa (shares on which the Sanahuja family was granted a call option for four years), which gave rise to an additional disbursement of €214 million for the Group, and other conditions concerning the administration of this company.

Following the execution of the agreement, Santander Group had an ownership interest of 23.63% in Metrovacesa, S.A., and 5.38% of the share capital was subject to the aforementioned option.

At June 30, 2009, the Group’s investment in Metrovacesa totaled €744 million, net of the impairment recognized under Impairment losses on financial assets amounting to €195 million.

At 2009 year-end, the Group measured this investment at €25 per share, which gave rise to additional write-downs and impairment losses of €269 million net of tax (see Note 1.i).

ii. France Telecom España, S.A. (France Telecom)

On April 29, 2009, the Group announced it had entered into an agreement with Atlas Services Nederland BV (a wholly-owned subsidiary of France Telecom) to sell the Group’s 5.01% ownership interest in France Telecom España, S.A. for €378 million. This transaction generated a loss for the Group of €14 million.

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iii. Attijariwafa Bank (Attijari)

On December 28, 2009, the Group sold to the Moroccan company Société Nationale d’Investissement (SNI) 10% of the share capital of Attijariwafa Bank for MAD 4,149.4 million (approximately €367 million at the closing exchange rate). This transaction gave rise to a gain of €218 million for Santander Group (see Note 1.i), which was recognized under Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations in the consolidated income statement (see Note 50). After the sale, Santander Group has a 4.55% ownership interest in Attijariwafa Bank.

iv. Intesa Sanpaolo

In 2007 the Group sold its 1.79% ownership interest in the share capital of the Italian entity Intesa Sanpaolo, for a total amount of €1,206 million. This transaction gave rise to a gain of €566 million which was recognized under Gains on non-current assets held for sale not classified as discontinued operations (see Note 50).

v. Banco BPI, S.A. (BPI)

Santander Group announced in January 2007 that it had entered into a definitive agreement with Banco Comercial Português (BCP) for the sale to this bank of 44.6 million shares of the Portuguese bank BPI, representing 5.87% of its share capital, at €5.70 per share, equal to that offered by BCP in the takeover bid launched by it on BPI, or at the higher price resulting from any upward revision of the offer price. The transaction was conditional upon the relevant regulatory authorizations being obtained.

The takeover bid was closed in May 2007 and was unsuccessful since the minimum acceptance level upon which it was conditional was not reached. The Bank of Portugal had established certain limits on BCP’s ownership interest in BPI in the event that the takeover bid failed. Ultimately, in 2007 35.5 million shares of BPI were sold to BCP for a total of €228 million, giving rise to a gain of €107 million for the Group (see Note 44). The ownership interest in BPI at December 31, 2009 was 1.7%.

vi. The Royal Bank of Scotland Group Plc (RBS)

In 2007 the Group acquired a 2.3% stake in the share capital of RBS. In 2008 this investment fell by 1.4% due basically to the dilutive effect of the capital contributions made by the UK Government. Following the disposals performed in the first quarter of 2009, this investment fell to 0.38%.

vii. Other holdings

In 2007 the Group acquired ownership interests in Iberdrola, S.A. and Fortis, N.V. At December 31, 2007, it had stakes of 3.3% and 2.1%, respectively, in the share capital of these companies. In 2008 and 2009 the Group reduced its ownership interests in Iberdrola and Fortis to 1.3% and 0.6%, respectively, at December 31, 2009 (December 31, 2008: 1.3% and 1.9%, respectively).

c) Notifications of acquisitions of investments

The notifications made by the Bank in 2009, in compliance with Article 86 of the Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas) and Article 53 of Securities Market Law 24/1998 (Ley del Mercado de Valores), of the acquisitions and disposals of holdings in investees are listed in Appendix IV.

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d) Allowances for impairment losses

Following is a summary of the changes in the impairment losses on these items and on debt instruments classified as Available-for-sale financial assets (see Note 7):

	Thousands of euros
	2009			2008			2007
Balance at beginning of year		190,337			102,991			104,181
Net impairment losses for the year		490,326			386,164			9,526
Of which:
Impairment losses charged to income		536,567			400,858			37,321
Impairment losses reversed with a credit to income		(46,241	)		(14,694	)		(27,795	)
Net changes in the scope of consolidation		—			19,654			(6,737	)
Write-off of assets due to impairment		(505,017	)		(370,498	)		(97	)
Exchange differences and other items		(8,924	)		52,026			(3,882	)
Balance at end of year		166,722			190,337			102,991
Of which:
By geographical location of risk:
Spain		97,746			144,796			57,931
Rest of Europe		—			1,271			6,964
Latin America		68,976			44,270			38,096
By type of asset covered:
Debt instruments — Available-for-sale financial assets (Note 7)		166,722			181,178			91,753
Other equity instruments — Available-for-sale financial assets		—			9,159			11,238

9. Trading derivatives (assets and liabilities) and Short positions

a) Trading derivatives

The detail, by type of inherent risk, of the fair value of the trading derivatives arranged by the Group is as follows (see Note 36):

	Thousands of euros
	2009				2008				2007
	Debit		Credit		Debit		Credit		Debit		Credit
	balance		balance		balance		balance		balance		balance
Interest rate risk		43,413,018		43,135,683		68,145,560		67,005,552		33,298,794		35,195,843
Currency risk		11,364,400		9,892,032		19,001,043		14,381,752		4,369,032		6,809,887
Price risk		3,995,032		5,075,830		8,129,606		7,237,843		6,365,243		6,589,179
Other risks		1,083,963		609,079		539,100		542,286		2,699,474		852,624
		59,856,413		58,712,624		95,815,309		89,167,433		46,732,543		49,447,533

b) Short positions

Following is a breakdown of the short positions:

	Thousands of euros
	2009		2008		2007
Borrowed securities:
Debt instruments		1,536,689		1,054,527		2,424,447
Of which, Santander UK		896,439		775,094		1,783,832
Equity instruments		106,199		57,263		1,596,775
Of which, Santander UK		6,784		13,670		1,285,989
Short sales:
Debt instruments		3,496,842		1,912,854		1,582,052
Of which: the Bank		2,529,586		1,903,554		1,485,173
Equity instruments		—		10,587		9,960
		5,139,730		3,035,231		5,613,234

F-83

10. Loans and advances to customers

a) Breakdown

The detail, by classification, of Loans and advances to customers in the consolidated balance sheets is as follows:

	Thousands of euros
	2009			2008			2007
Financial assets held for trading		10,076,412			684,348			23,704,481
Other financial assets at fair value through profit or loss		8,328,516			8,972,707			8,021,623
Loans and receivables		664,145,998			617,231,380			539,372,409
Of which:
Disregarding impairment losses		682,019,094			629,697,436			548,067,613
Impairment losses		(17,873,096	)		(12,466,056	)		(8,695,204	)
Of which, Country risk		(37,234	)		(304,207	)		(51,522	)
		682,550,926			626,888,435			571,098,513
Loans and advances to customers disregarding impairment losses		700,424,022			639,354,490			579,793,717

Note 51 contains a detail of the residual maturity periods of loans and receivables and of the related average interest rates.

There are no loans and advances to customers for material amounts without fixed maturity dates.

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b) Breakdown

Following is a detail, by loan type and status, borrower sector, geographical area of residence and interest rate formula, of the loans and advances to customers, which reflect the Group’s exposure to credit risk in its core business, disregarding impairment losses:

	Millions of euros
	2009		2008		2007
By loan type and status:
Commercial credit		17,454		22,250		22,364
Secured loans		411,778		351,609		322,269
Reverse repurchase agreements		13,958		5,228		29,089
Other term loans		204,224		216,690		177,553
Finance leases		20,873		21,011		15,727
Receivable on demand		8,088		8,572		6,722
Impaired assets		24,049		13,994		6,070
		700,424		639,354		579,794
By borrower sector:
Public sector — Spain		9,802		7,668		5,633
Public sector — Other countries		2,861		3,029		2,296
Individuals		379,297		347,201		316,129
Energy		11,521		10,476		7,820
Construction		22,696		24,341		21,137
Manufacturing		40,534		43,993		31,839
Services		134,638		123,895		98,548
Other sectors		99,074		78,751		96,392
		700,424		639,354		579,794
Geographical area:
Spain		230,345		240,247		238,081
European Union (excluding Spain)		311,776		279,664		237,535
United States and Puerto Rico		49,501		15,096		32,071
Other OECD countries		5,256		8,104		6,633
Latin America		96,470		88,720		60,753
Rest of the world		7,075		7,523		4,721
		700,424		639,354		579,794
By interest rate formula:
Fixed interest rate		286,445		256,506		228,434
Floating rate		413,979		382,848		351,360
		700,424		639,354		579,794

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c) Impairment losses

The changes in the allowances for the impairment losses on the assets included under Loans and receivables — Loans and advances to customers and Loans and receivables — Loans and advances to credit institutions (see Note 6) were as follows:

	Thousands of euros
	2009			2008			2007
Balance at beginning of year		12,719,623			8,796,371			8,288,128
Impairment losses charged to income for the year:		12,002,717			6,596,635			4,033,047
Of which:
Individually assessed		13,948,358			7,683,692			4,177,811
Collectively assessed		2,205,598			640,424			1,027,495
Impairment losses reversed with a credit to income		(4,151,239	)		(1,727,481	)		(1,172,259	)
Inclusion of entities in the Group in the year (Note 3)		1,426,104			2,310,095			7,356
Write-off of impaired balances against recorded impairment allowance		(9,794,628	)		(4,552,393	)		(3,320,162	)
Exchange differences and other changes		1,332,362			(532,847	)		(228,938	)
Transfers between allowances		212,453			101,762			16,940
Balance at end of year		17,898,632			12,719,623			8,796,371
Of which:
By method of assessment:
Individually		11,627,929			7,183,237			3,356,264
Of which: country risk (Note 2.g)		45,694			554,230			75,171
Collectively		6,270,703			5,536,386			5,440,107
By geographical location of risk:
Spain		6,992,818			5,948,950			4,512,000
Rest of Europe		4,435,269			3,307,313			2,250,127
Americas		6,470,545			3,463,360			2,034,244

Previously written-off assets recovered in 2009, 2008 and 2007 amounted to €914,721 thousand, €699,747 thousand and €612,451 thousand, respectively. Taking into account these amounts and those recognized in Impairment losses charged to income for the year in the foregoing table, impairment losses on Loans and receivables amounted to €11,087,996 thousand in 2009, €5,896,888 thousand in 2008 and €3,420,596 thousand in 2007.

The increase in the impairment losses charged to income in 2009 is due to various factors: the scope effect resulting from the new inclusions in the Group, the full consolidation of Banco Real for the whole year, the substantial deterioration of the macroeconomic situation and, to a lesser extent, the shift in preceding years in the mix of the Group’s portfolio towards more profitable products albeit with higher risk premiums.

d) Impaired assets

The detail of the changes in the balance of the financial assets classified as Loans and receivables — loans and advances to customers and considered to be impaired due to credit risk is as follows:

	Millions of euros
	2009			2008			2007
Balance at beginning of year		13,994			6,070			4,613
Net additions		18,046			11,200			4,898
Written-off assets		(9,795	)		(4,552	)		(3,320	)
Increase in scope of consolidation		1,006			1,945			1
Exchange differences and other		798			(669	)		(122	)
Balance at end of year		24,049			13,994			6,070

This amount, after deducting the related allowances, represents the Group’s best estimate of the fair value of the impaired assets.

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Following is a detail of the financial assets classified as loans and receivables and considered to be impaired due to credit risk at December 31, 2009, classified by geographical location of risk and by age of the oldest past-due amount:

	Millions of euros
	With no
	past-due
	balances or
	less than 3		With balances past due by
	months		3 to 6		6 to 12		12 to 18		18 to 24		More than
	past-due		months		months		months		months		24 months		Total
Spain		2,171		1,431		2,311		2,831		1,164		292		10,201
European Union (excluding Spain)		276		3,343		1,666		751		231		436		6,703
United States and Puerto Rico		361		1,024		600		331		150		91		2,557
Other OECD countries		5		35		40		23		—		—		102
Latin America		398		1,893		1,665		341		91		84		4,472
Rest of the world		—		4		5		2		—		2		13
		3,212		7,730		6,287		4,279		1,636		905		24,049

The detail at December 31, 2008 is as follows:

	Millions of euros
	With no
	past-due
	balances or
	less than 3		With balances past due by
	months		3 to 6		6 to 12		12 to 18		18 to 24		More than
	past-due		months		months		months		months		24 months		Total
Spain		637		2,461		1,678		981		211		294		6,262
European Union (excluding Spain)		38		2,447		938		306		174		336		4,239
United States and Puerto Rico		102		261		106		55		10		20		554
Other OECD countries		28		284		5		3		1		—		321
Latin America		274		1,359		780		94		50		56		2,613
Rest of the world		2		1		1		—		—		1		5
		1,081		6,813		3,508		1,439		446		707		13,994

The detail at December 31, 2007 is as follows:

	Millions of euros
	With no
	past-due
	balances or
	less than 3		With balances past due by
	months		3 to 6		6 to 12		12 to 18		18 to 24		More than
	past-due		months		months		months		months		24 months		Total
Spain		209		708		524		206		71		64		1,782
European Union (excluding Spain)		121		1,422		530		172		115		244		2,604
United States and Puerto Rico		32		168		22		15		8		35		279
Other OECD countries		15		146		14		2		1		1		178
Latin America		53		350		348		42		17		409		1,219
Rest of the world		—		6		1		—		—		—		7
		429		2,799		1,440		436		212		754		6,070

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e) Securitization

Loans and advances to customers includes, inter alia, the securitized loans transferred to third parties on which the Group has retained risks, albeit partially, and which therefore, in accordance with the applicable accounting standards, cannot be derecognized. The breakdown of the securitized loans, by type of financial instrument, and of the securitized loans derecognized because the stipulated requirements were met (see Note 2.e) is shown below. Note 22 details the liabilities associated with these securitization transactions.

	Millions of euros
	2009		2008		2007
Derecognized		10,836		2,882		3,742
Of which
Mortgage assets (*)		10,232		2,088		2,479
Other securitized assets		604		794		1,263
Retained on the balance sheet		123,706		126,497		92,023
Of which
Securitized mortgage assets		90,182		90,264		60,056
Of which: the UK		64,592		66,615		40,216
Other securitized assets		33,524		36,233		31,967
Total		134,542		129,380		95,765

(*) The amount relating to 2009 includes assets of Sovereign amounting to €8,538 million that were sold, prior to this company’s inclusion in the Group, on the secondary market for multifamily loans, and over which control was transferred and substantially all the associated risks and rewards were not retained.

The growth in securitization in 2008 was the result of its use as a tool for the management of regulatory capital and as a means of diversifying the Group’s liquidity sources. In 2007, 2008 and 2009 the Group did not derecognize any of the securitizations performed, and the balance derecognized in those years relates to securitizations performed in prior years.

11. Hedging derivatives

The detail, by type of risk hedged, of the fair value of the derivatives qualifying for hedge accounting is as follows (see Note 36):

	Thousands of euros
	2009				2008				2007
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Fair value hedges		7,585,383		4,296,012		8,553,353		5,213,389		2,662,762		3,862,500
Of which: Portfolio hedges		1,552,732		2,820,008		971,284		2,956,415		398,143		826,178
Cash flow hedges		201,626		719,726		879,230		694,328		101,629		238,277
Of which: Recognized in equity (Note 29)		—		363,600		—		436,772		—		62,073
Hedges of net investments in foreign operations		46,841		175,339		265,549		49,894		298,778		33,794
		7,833,850		5,191,077		9,698,132		5,957,611		3,063,169		4,134,571

Note 36 contains a description of the Group’s main hedges.

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12. Non-current assets held for sale

The detail of Non-current assets held for sale is as follows:

	Thousands of euros
	2009		2008		2007
Equity instruments		4,014		3,890,215		9,025,936
Of which:
Cepsa		—		2,846,300		—
Interbanca (Note 3-b)		—		1,000,000		—
Tangible assets		5,110,723		5,265,868		1,061,743
Of which:
Foreclosed assets		2,002,501		1,113,006		364,345
Other tangible assets held for sale (*)		3,108,222		4,152,862		697,398
Of which: Ciudad Financiera business campus		—		—		625,124
Other assets		674,452		111,403		68,750
		5,789,189		9,267,486		10,156,429

(*) Includes land and buildings acquired from borrowers in payment of their debts in 2009 and 2008 amounting to €2,936 million and €3,768 million, respectively, net of impairment losses and costs to sell.

Impairment losses of €2,090,126 thousand, €178,495 thousand and €112,030 thousand were deducted from the balance of this item at December 31, 2009, 2008 and 2007, respectively. The net charges recorded in those years amounted to €1,350,592 thousand, €70,027 thousand and €27,223 thousand, respectively.

The most significant transactions relating to non-current assets held for sale were as follows:

Sale of Santander Business Campus

In the first half of 2008 Banco Santander entered into an agreement with the consortium led by Propinvest in relation to the sale of the Ciudad Financiera Santander business campus and the subsequent leaseback thereof for a term of 40 years, with the Bank reserving the right to a purchase option at market price at the end of the aforementioned term. This transaction, which was completed on September 12, 2008, was performed within the framework of the restricted private competition organized by Banco Santander for the sale and subsequent leaseback of a portfolio of properties owned by it in Spain, of which the business campus was the last part. The price agreed upon for the Santander Business Campus was €1,900 million. The gains obtained by Banco Santander on this sale were recognized under Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations in the consolidated income statement and amounted to €586 million, net (€836 million, gross — see Note 50). Other relevant information on this transaction is provided in Note 16.

Cepsa

At December 31, 2008, the Bank’s directors classified the ownership interest held in Compañía Española de Petróleos, S.A. (Cepsa) as a non-current asset held for sale, since it intended to recover the value of the investment through the sale thereof in the short term. The Cepsa shares were previously recognized under Investments in the consolidated balance sheet, since the entity was deemed to be an associate, and the investment was accounted for using the equity method. The balance at which this asset was recognized related basically to the carrying amount of the ownership interest when the decision to sell it was taken; this amount was lower than the fair value of the ownership interest less costs to sell at 2008 year-end.

On March 31, 2009, Santander Group announced the agreement with the International Petroleum Investment Company of the Emirate of Abu Dhabi for the sale to it of the 32.5% ownership interest held by the Group in Cepsa for €33 per share, which would be reduced by the amount of any dividends paid out of 2009 profit prior to completion of the transaction. This transaction was completed in 2009 and did not give rise to any gain or loss for the Group.

Foreclosed assets and assets acquired from borrowers in payment of their debts

In 2009 the Group recognized €1,350 million under Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations relating to impairment losses on foreclosed assets and acquired assets (see Note 50). At December 31, 2009, the allowance that covers the value of the foreclosed assets and acquired assets amounted to €713 million and €1,367 million, respectively, which represents a coverage ratio of 26.3% and 31.8% of the gross value of the portfolio.

F-89

13. Investments — Associates

a) Breakdown

The detail, by company, of Investments — Associates (see Note 2.c) is as follows:

	Thousands of euros
	2009		2008		2007
Sovereign (Note 3)		—		1,103,623		1,026,826
RFS Holdings B.V. (Note 3)		—		—		11,778,624
Cepsa (Note 12)		—		—		2,548,035
Other companies		164,473		219,830		335,642
		164,473		1,323,453		15,689,127
Of which:
Euros		72,755		130,079		14,431,945
Listed		—		1,103,623		3,763,010

At December 31, 2007, the unrealized gains on the Group’s portfolio of investments in associates amounted to €3,771 million.

At December 31, 2009, the cost of the investments detailed in the foregoing table included €9 million relating to goodwill (December 31, 2008: €9 million; December 31, 2007: €8,943 million). The most significant amount in 2007 related to Banco Real, which was transferred in 2008 to Goodwill (see Note 17), since this entity was fully consolidated.

b) Changes

The changes in Investments — Associates were as follows:

	Millions of euros
	2009			2008			2007
Balance at beginning of year		1,323			15,689			5,006
Acquisitions and capital increases (Note 3)		13			754			11,774
Of which:
Sovereign		—			228			—
RFS Holdings B.V.		—			408			11,615
Disposals and capital reductions (Note 3)		(14	)		(41	)		(27	)
Of which:
RFS Holdings B.V.		—			(36	)		—
Transfers		(53	)		(3,955	)		—
Of which:
Interbanca (Note 12)		—			(800	)		—
Cepsa (Note 12)		—			(2,736	)		—
Attijariwafa (Note 8)		—			(204	)		—
Effect of equity accounting		—			792			441
Impairment losses		—			(8	)		(1,053	)
Dividends paid		(5	)		(550	)		(148	)
Change in consolidation method (Note 3)		(1,346	)		(10,658	)		(13	)
Exchange differences and other changes (*)		246			(700	)		(291	)
Balance at end of year		164			1,323			15,689

(*) In 2008 Exchange differences and other changes included €723 million relating to the exchange losses incurred on RFS Holdings B.V.

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c) Impairment losses

No significant impairment was disclosed with respect to investments in associates in 2009 and 2008. In 2007 the Group adjusted the value of its ownership interest in Sovereign by €1,053 million. Of this amount, €586 million relate to goodwill inherent in Sovereign and are recognized under Impairment losses on other assets (net) — Goodwill and other intangible assets, €363 million are recognized under Impairment losses on other assets (net) — Other assets and €104 million relate to exchange differences and are recognized under Exchange differences in the consolidated income statement.

d) Other disclosures

Following is a summary of the financial information on the associates (obtained from the information available at the reporting date):

	Millions of euros
	2009			2008			2007
Total assets		2,604			59,915			168,320
Total liabilities		(2,160	)		(54,643	)		(151,891	)
Minority interests		—			(196	)		(355	)
Net assets		444			5,076			16,074
Group’s share of the net assets of associates		155			1,314			6,746
Goodwill		9			9			8,943
Total Group share		164			1,323			15,689
Total income		311			21,849			16,058
Total profit		77			1,050			1,211
Group’s share of the profit of associates		—			792			438

14. Insurance contracts linked to pensions

The detail of the balance of Insurance contracts linked to pensions (see Note 25.c) is as follows:

	Thousands of euros
	2009		2008		2007
Assets relating to insurance contracts covering post-employment benefit plan obligations:
Bank		2,094,039		2,159,707		2,220,638
Banesto		227,609		248,025		257,633
Other Spanish companies		31,159		32,035		33,286
Assets relating to insurance contracts covering other similar obligations:
Bank		1,791		4,794		10,663
Other Spanish companies		1,553		2,428		3,330
		2,356,151		2,446,989		2,525,550

F-91

15. Liabilities under insurance contracts and Reinsurance assets

The detail of Liabilities under insurance contracts and Reinsurance assets in the consolidated balance sheets (see Note 2.j) is as follows:

	Thousands of euros
	2009							2008							2007
	Direct							Direct							Direct
	insurance and					Total		insurance and					Total		insurance and					Total
	reinsurance		Reinsurance			(balance		reinsurance		Reinsurance			(balance		reinsurance		Reinsurance			(balance
Technical Provisions for:	assumed		ceded			payable)		assumed		ceded			payable)		assumed		ceded			payable)
Unearned premiums and unexpired risks		455,181		(195,688	)		259,493		409,187		(194,646	)		214,541		351,799		(128,663	)		223,136
Life insurance:
Unearned premiums and risks		555,597		(55,891	)		499,706		332,507		(25,401	)		307,106		120,747		(23,580	)		97,167
Mathematical provisions		4,189,032		—			4,189,032		3,798,070		(26,244	)		3,771,826		2,885,581		(17,727	)		2,867,854
Claims outstanding		483,234		(52,529	)		430,705		407,121		(46,856	)		360,265		364,878		(29,213	)		335,665
Bonuses and rebates		18,605		—			18,605		17,440		(5,937	)		11,503		15,957		(13,359	)		2,598
Equalization		—		—			—		—		—			—		—		—			—
Life insurance policies where the investment risk is borne by the policyholders		10,939,477		(50	)		10,939,427		11,713,993		(135,854	)		11,578,139		9,097,620		(90,395	)		9,007,225
Other technical provisions		275,320		(112,664	)		162,656		171,193		(23,450	)		147,743		197,035		(6,837	)		190,198
		16,916,446		(416,822	)		16,499,624		16,849,511		(458,388	)		16,391,123		13,033,617		(309,774	)		12,723,843

F-92

16. Tangible assets

a)	Changes
	The changes in Tangible assets in the consolidated balance sheets were as follows:

	Thousands of euros
	Property,
	plant and			Leased out
	equipment			under an			Investment
	for own use			operating lease			property			Total
Cost:
Balances at January 1, 2007		9,841,308			6,618,326			400,994			16,860,629
Additions/Disposals (net) due to change in the scope of consolidation		(43,055	)		—			—			(43,055	)
Additions/Disposals (net)		(1,156,036	)		545,769			77,285			(532,982	)
Transfers and other changes		(713,511	)		86,768			9,680			(617,063	)
Exchange differences (net)		(97,641	)		(411,297	)		(511	)		(509,449	)
Balances at December 31, 2007		7,831,065			6,839,566			487,448			15,158,079
Additions/Disposals (net) due to change in the scope of consolidation (*)		1,569,298			(3,634,372	)		190,232			(1,874,842	)
Additions/Disposals (net)		1,168,177			(38,474	)		98,790			1,228,493
Transfers and other changes		(126,811	)		(140,635	)		130,857			(136,589	)
Exchange differences (net)		(535,316	)		(551,757	)		5			(1,087,068	)
Balances at December 31, 2008		9,906,413			2,474,328			907,332			13,288,073
Additions/Disposals (net) due to change in the scope of consolidation		463,730			62,695			(19	)		526,406
Additions/Disposals (net)		263,707			(187,545	)		38,474			114,635
Transfers and other changes		(188,297	)		12,962			279,498			104,163
Exchange differences (net)		793,761			36,906			(2,086	)		828,581
Balances at December 31, 2009		11,239,314			2,399,346			1,223,199			14,861,859
Accumulated depreciation:
Balances at January 1, 2007		(4,546,051	)		(2,094,670	)		(15,999	)		(6,656,720	)
Additions/Disposals (net) due to change in the scope of consolidation		21,681			—			—			21,681
Disposals		1,440,435			202,503			14,363			1,657,301
Transfers and other changes		110,941			(304,805	)		(12,629	)		(206,493	)
Charge for the year		(589,153	)		(17,256	)		(3,561	)		(609,970	)
Exchange differences and other items		29,547			156,020			1,451			187,018
Balances at December 31, 2007		(3,532,600	)		(2,058,208	)		(16,375	)		(5,607,183	)
Additions/Disposals (net) due to change in the scope of consolidation (*)		(816,487	)		1,529,887			(4,206	)		709,194
Disposals		347,031			56,819			2,402			406,252
Transfers and other changes		99,030			(233,015	)		(3,220	)		(137,205	)
Charge for the year		(577,291	)		(3,091	)		(3,997	)		(584,379	)
Exchange differences and other items		250,977			199,599			(2	)		450,573
Balances at December 31, 2008		(4,229,340	)		(508,009	)		(25,399	)		(4,762,748	)
Additions/Disposals (net) due to change in the scope of consolidation		(256,214	)		(14,794	)		(851	)		(271,860	)
Disposals		583,508			40,089			2,777			626,374
Transfers and other changes		8,883			(194,196	)		(5,111	)		(190,423	)
Charge for the year		(762,387	)		(276	)		(7,643	)		(770,306	)
Exchange differences and other items		(353,229	)		(9,760	)		50			(362,939	)
Balances at December 31, 2009		(5,008,779	)		(686,946	)		(36,177	)		(5,731,902	)

F-93

	Thousands of euros
	Property,			Leased out
	plant and			under an
	equipment			operating			Investment
	for own use			lease			property			Total
Impairment losses:
Balances at January 1, 2007		(11,080	)		(71,385	)		(10,448	)		(92,913	)
Impairment charge for the year		(1,060	)		—			8			(1,052	)
Additions/Disposals (net) due to change in the scope of consolidation		549			—			—			549
Exchange differences		738			723			92			1,553
Balances at December 31, 2007		(10,853	)		(70,662	)		(10,348	)		(91,863	)
Impairment charge for the year		(16,699	)		—			(1,801	)		(18,500	)
Additions/Disposals (net) due to change in the scope of consolidation (*)		(2,406	)		54,404			—			51,998
Exchange differences and other		17,501			16,258			833			34,592
Balances at December 31, 2008		(12,457	)		—			(11,316	)		(23,773	)
Impairment charge for the year		(29,683	)		(1,554	)		(84,856	)		(116,093	)
Additions/Disposals (net) due to change in the scope of consolidation		(22,597	)		—			—			(22,597	)
Exchange differences and other		36,364			(8,189	)		66			28,241
Balances at December 31, 2009		(28,373	)		(9,743	)		(96,106	)		(134,222	)
Tangible assets, net:
Balances at December 31, 2007		4,287,612			4,710,696			460,725			9,459,033
Balances at December 31, 2008		5,664,616			1,966,319			870,617			8,501,552
Balances at December 31, 2009		6,202,162			1,702,657			1,090,916			8,995,735

(*) The additions relate mainly to the acquisition of Banco Real and the reductions relate mainly to the disposal of Porterbrook.

b)	Property, plant and equipment for own use
	The detail, by class of asset, of Property, plant and equipment — For own use in the consolidated balance sheets is as follows:

	Millions of euros
			Accumulated			Impairment			Carrying
	Cost		depreciation			losses			amount
Land and buildings		2,632		(682	)		(11	)		1,939
IT equipment and fixtures		1,903		(1,303	)		—			601
Furniture and vehicles		3,019		(1,460	)		—			1,559
Construction in progress and other items		277		(88	)		—			189
Balances at December 31, 2007		7,831		(3,533	)		(11	)		4,288
Land and buildings		3,767		(923	)		(12	)		2,832
IT equipment and fixtures		2,093		(1,410	)		—			683
Furniture and vehicles		3,705		(1,814	)		—			1,891
Construction in progress and other items		341		(82	)		—			259
Balances at December 31, 2008		9,906		(4,229	)		(12	)		5,665
Land and buildings		4,431		(1,116	)		(28	)		3,287
IT equipment and fixtures		2,525		(1,754	)		—			772
Furniture and vehicles		4,118		(2,081	)		—			2,037
Construction in progress and other items		165		(58	)		—			106
Balances at December 31, 2009		11,239		(5,009	)		(28	)		6,202

F-94

The carrying amount at December 31, 2009 in the foregoing table includes the following approximate amounts:

• €4,717 million relating to property, plant and equipment owned by Group entities and branches located abroad (December 31, 2008: €4,063 million; December 31, 2007: €5,335 million).

• €196 million relating to property, plant and equipment being acquired under finance leases by the consolidated entities (December 31, 2008: €118 million; December 31, 2007: €394 million) (Note 2.l discloses additional information on these items).

c) Investment property

The comparison of the fair value of the investment property at December 31, 2009 with the carrying amount at that date results in unrealized gains of €9 million (December 31, 2008: €18 million; December 31, 2007: €127 million).

The rental income earned from investment property and the direct costs related both to investment properties that generated rental income in 2009, 2008 and 2007 and to investment properties that did not generate rental income in those years are not material in the context of the consolidated financial statements.

d) Sale of properties

On November 14, 2007, the Group sold ten singular properties to two companies in the Pontegadea Group for €458 million and recognized a net gain of €216 million. At the same time, an operating lease agreement for the aforementioned properties (with maintenance, insurance and taxes payable by the Group) was entered into with these companies, with compulsory terms of between 12 and 15 years, during which the rent (currently set at €1,722 thousand per month) will be reviewed annually on the date of completion of each year of the lease term, based on the percentage variation in the Spanish Consumer Price Index (CPI) in the preceding twelve months, except in the fifth year (effective from the sixth year), in which the rent for nine of the ten properties will be reviewed on the basis of the CPI plus three percentage points. In nine of the ten lease agreements, the agreement is renewable for five additional five-year periods and a last three-year renewal period, up to a total of 40 years. In one of the ten lease agreements, the agreement is renewable for five additional five-year periods up to a total of 40 years. Nine of the ten lease agreements provide for adjustment of the rent to market in each renewal period. One of the ten lease agreements provides for adjustment of the rent to market in 2017, with subsequent adjustments to market taking place every five years from 2017 onwards. Also, the lease agreements include a purchase option exercisable by the Group on final expiry of the agreements (2047), with the exception of one of the leases, which envisages the possibility of exercising the purchase option in March 2023, March 2028, March 2033, March 2038, March 2043 and March 2047. In all the lease agreements, the value of the properties in the event that the purchase option is exercised shall be the market value of the properties on the related dates; this market value will be determined, if appropriate, by independent experts.

Also, on November 23, 2007 the Group sold 1,152 of its branch offices to the Pearl Group for €2,040 million and recognized a net gain of €860 million. Simultaneously, an operating lease agreement for the aforementioned branch offices (with maintenance, insurance and taxes payable by the Group) was entered into with the Pearl Group, with compulsory terms of 24, 25 or 26 years (depending on the property), during which the rent (currently set at €8,417 thousand per month, payable quarterly) will be reviewed annually on the date of completion of each year of the lease term: (i) during the first ten years of the agreement, based on the percentage variation in the Spanish CPI in the preceding twelve months, plus 215 basis points; and (ii) from the eleventh year onwards, based on variations in the CPI. The agreement is renewable for a maximum of three additional seven-year periods, up to a total of 45, 46 or 47 years (depending on the property), the rent being adjusted to market at the end of the compulsory term and of each renewal period, and includes an option, exercisable by the Group on final expiry of the lease (45, 46 or 47 years, depending on the property) to purchase the properties at their market value on the expiry date; this market value will be determined, if appropriate, by independent experts.

F-95

Lastly, on September 12, 2008 the Group completed the sale of its head offices (the Santander Business Campus) to Marme Inversiones 2007, S.L. for €1,904 million and recognized a net gain of €586 million (not including any net gains relating to certain projects in progress that the Group undertook to complete, which were completed in 2009, as a result of which the Group recognized gains of €73 million). Simultaneously, an operating lease agreement for the aforementioned offices (with maintenance, insurance and taxes payable by the Group) was entered into with Marme Inversiones 2007, S.L., with a compulsory term of 40 years, during which the rent (currently set at €6,891 thousand per month, payable quarterly) will be reviewed annually based on the variation in the preceding twelve months in the Harmonized Consumer Price Index of the euro zone multiplied by 1.74, with a minimum of 2.20% during the first ten years and a maximum of 6% throughout the lease term. The agreement includes an option exercisable by the Group on final expiry of the lease to purchase the Business Campus at its market value on the expiry date -the market value will be determined, if appropriate, by independent experts-, and a right of first refusal if the lessor should wish to sell the Business Campus. In addition to the two aforementioned agreements, the Group entered into a third additional promotion agreement, whereby during the first 20 years of the lease term it can request Marme Inversiones 2007, S.L. to construct buildings additional to those already existing at the Business Campus or to acquire additional land (from the third year onwards) to be included in the Business Campus, all under certain terms and conditions and with a maximum total cost of approximately €296 million, which would subsequently be included in the lease agreement.

The most noteworthy feature of the other agreed terms and conditions, all of which are customary market conditions for operating lease agreements, is that none of the aforementioned lease agreements provides for the transfer of ownership of the properties to the Group on expiry thereof, and the Group is entitled not to renew the rentals beyond the minimum compulsory term. Furthermore, the Group has not granted any guarantee to the buyers for any losses that might arise from the early termination of the agreements or for possible fluctuations in the residual value of the aforementioned properties.

The Group was advised in the above-mentioned transactions by independent advisors, who estimated the economic lives of the transferred properties at the transaction date, which in all cases were more than 60 years (more than 80 years in the case of the Business Campus). These advisors also analyzed both the selling prices of the properties and the agreed subsequent rental payments and, on the basis of this analysis, concluded that they had been set at fair market values at that date.

The rental expense recognized by the Group in 2009 in connection with these agreements amounted to €208 million (December 31, 2008: €144 million; December 31, 2007: €10 million). At December 31, 2009, the present value of the minimum future payments that the Group will incur during the compulsory term (since it is considered that the agreements will not be renewed and the existing purchase options will not be exercised) amounted to €189 million payable within one year (December 31, 2008: €208 million; December 31, 2007: €122 million), €697 million payable at between one and five years (December 31, 2008: €835 million; December 31, 2007: €443 million) - -€183 million in the second year (December 31, 2008: €208 million; December 31, 2007: €117 million), €177 million in the third year (December 31, 2008: €209 million; December 31, 2007: €113 million), €172 million in the fourth year (December 31, 2008: €180 million; December 31, 2007: €109 million) and €166 million in the fifth year (December 31, 2008: €210 million; December 31, 2007: €105 million)-, and €1,764 million payable at more than five years (December 31, 2008: €1,906 million; December 31, 2007: €1,253 million).

F-96

17. Intangible assets — Goodwill

The detail of Goodwill, based on the companies giving rise thereto (see Note 3.c), is as follows:

	Millions of euros
	2009		2008		2007
Santander Brasil		7,706		6,850		501
Santander UK Group (formerly Abbey) (United Kingdom) (*)		7,996		6,921		8,168
Totta Group (Portugal)		1,641		1,641		1,641
Sovereign Bancorp (Note 3)		1,425		—		—
Santander Consumer Bank AG (formerly CC-Holding) (Germany)		878		875		824
Banco Santander Chile		683		563		681
Drive Group		493		484		419
Grupo Financiero Santander Serfin (Mexico)		423		416		498
Banco Español de Crédito, S.A.		369		369		373
Santander Cards UK Limited (Note 3)		365		—		—
Santander Consumer Bank, A.S. (Norway)		129		112		134
Interbanco, S.A.		122		122		163
Finconsumo Banca S.p.A. (Italy)		106		106		106
GE Money Bank, GmbH (Austria)		98		—		—
Other companies		431		377		323
		22,865		18,836		13,831

(*) Including Abbey, Alliance & Leicester and Bradford & Bingley.

At least once per year (or whenever there is any indication of impairment), the Group reviews goodwill for impairment (i.e. a potential reduction in its recoverable value to below its carrying amount). For this purpose, it analyses the following: (i) certain macroeconomic variables that might affect its investments (population data, political situation, economic situation including bankarization, among others); (ii) various microeconomic variables comparing the investments of the Group with the financial services industry of the country in which the Group carries on most of its business activities (balance sheet composition, total funds under management, results, efficiency ratio, capital ratio, return on equity, among others); and (iii) the price earnings (P/E) ratio of the investments as compared with the P/E ratio of the stock market in the country in which the investments are located and that of comparable local financial institutions.

Based on the foregoing, and in accordance with the estimates, projections and measurements available to the Bank’s directors in 2009, the Group recognized impairment losses on goodwill totaling €3 million (2008: €73 million; 2007: €15 million) under Impairment losses on other assets — Goodwill and other intangible assets.

F-97

The changes in Goodwill were as follows:

	Millions of euros
	2009			2008			2007
Balance at beginning of year		18,836			13,831			14,513
Transfer of goodwill from Investments (Note 3)		—			8,000			—
Additions (Note 3)		2,300			941			252
Of which:
Sovereign Bancorp		1,601			—			—
Santander UK Group (Bradford & Bingley)		—			202			—
Santander UK Group (Alliance & Leicester)		—			554			—
Santander Consumer USA Group (formerly Drive)		26			42			97
Santander Cards UK Limited		359			—			—
Real Tokio Marine		152			—			—
GE Money Bank GmbH (Austria)		98			—			—
GE Money Oy (Finland)		42			—			—
Banco Santander Consumer Portugal, S.A.		—			—			74
CB Extrobank		—			—			38
Adjustments to initial acquisition price allocation		628			(413	)		(50	)
Of which, transfer to other intangible assets		—			(447	)		—
Impairment losses		(3	)		(73	)		(15	)
Disposals		(1,288	)		(3	)		(6	)
Of which:
Banco Santander Brasil, S.A. (Note 3)		(1,286	)		—			—
Exchange differences and other items		2,392			(3,447	)		(863	)
Balance at end of year		22,865			18,836			13,831

The changes in goodwill in 2008 relate mostly to the goodwill that arose on the full consolidation of Banco Real (see Note 3.b), to the acquisition of Alliance & Leicester and to the exchange differences arising on the translation to euros, at the closing rates, of the amount of the goodwill expressed in foreign currency, mainly that resulting from the purchases of Abbey and Banco Real. In accordance with current regulations, these exchange differences were recognized with a charge to Valuation adjustments — Exchange differences in equity and a credit to Goodwill in assets. The change in the balance of this heading is disclosed in the consolidated statement of recognized income and expense.

Also, the changes in 2009 relate mainly to the acquisitions made in the year (Sovereign and GE units in Europe — see Note 3), the partial derecognizing of the goodwill of Banco Santander Brasil associated with the placement among minority shareholders of 14.47% of its share capital and the exchange differences arising on the translation to euros, at the closing rates, of the amount of the goodwill expressed in foreign currency, mainly that resulting from the purchases of Abbey and Banco Real, the trend in the balance reflecting the recovery of these currencies in 2009.

F-98

18. Intangible assets — Other intangible assets

The detail of Intangible assets — Other intangible assets and of the changes therein in 2009, 2008 and 2007 is as follows:

					Net								Application of
					additions		Change in			Amortization			amortization			Exchange
Thousands	Estimated	December			and		scope of			and			and			differences			December 31,
of euros	useful life	31, 2008			disposals		consolidation			impairment			impairment			and other			2009
With indefinite useful life:
Other brand names			41,011			1,388		—			—			—			(1,525	)		40,874
With finite useful life:
Credit cards (Abbey)	5 years		25,197			—		—			—			—			1,827			27,024
IT developments	3 years		2,174,528			856,169		24,910			—			(501,904	)		388,168			2,941,871
Other			885,577			487,153		160,316			—			(35,513	)		199,284			1,696,817
Accumulated amortization			(1,332,187	)		—		(40,774	)		(826,139	)		515,036			(236,436	)		(1,920,500	)
Impairment losses			(7,058	)		—					(28,618	)		22,382			5,666			(7,728	)
			1,787,068			1,344,711		144,452			(854,757	)		—			356,884			2,778,358

					Net								Application of
					additions		Change in			Amortization			amortization			Exchange
Thousands	Estimated	December 31,			and		scope of			and			and			differences			December 31,
of euros	useful life	2007			disposals		consolidation			impairment			impairment			and other			2008
With indefinite useful life:
Brand name (Abbey)			429,536			—		—			—			(331,829	)		(97,707	)		—
Other brand names			16,639			—		—			—			—			24,372			41,011
With finite useful life:
Customer deposits (Abbey)	10 years		1,175,428			—		—			—			(903,867	)		(271,561	)		—
Credit cards (Abbey)	5 years		32,727			—		—			—			—			(7,530	)		25,197
IT developments	3 years		1,574,969			726,322		209,873			—			(159,527	)		(177,108	)		2,174,528
Other			233,352			24,118		183,391			—			(11,571	)		456,287			885,577
Accumulated amortization			(1,234,838	)		—		(171,372	)		(655,211	)		482,266			246,968			(1,332,187	)
Impairment losses			(25,479	)		—		—			(911,203	)		924,528			5,096			(7,058	)
			2,202,334			750,440		221,892			(1,566,414	)		—			178,816			1,787,068

					Net							Application of
					additions		Change in		Amortization			amortization			Exchange
Thousands	Estimated	December			and		scope of		and			and			differences			December
of euros	useful life	31, 2006			disposals		consolidation		impairment			impairment			and other			31, 2007
With indefinite useful life:
Brand name (Abbey)			469,099			—		—		—			—			(39,563	)		429,536
Other brand names			18,078			—		—		—			—			(1,439	)		16,639
With finite useful life:
Customer deposits (Abbey)	10 years		1,283,693			—		—		—			—			(108,265	)		1,175,428
Credit cards (Abbey)	5 years		35,741			—		—		—			—			(3,014	)		32,727
IT developments	3 years		1,309,678			624,178		—		—			(470,219	)		111,333			1,574,969
Other			323,026			449,418		—		—			(555,587	)		16,495			233,352
Accumulated amortization			(980,530	)		—		—		(637,237	)		470,219			(87,290	)		(1,234,838	)
Impairment losses			(14,679	)		—		—		(562,883	)		555,587			(3,504	)		(25,479	)
Total			2,444,106			1,073,594		—		(1,200,120	)		—			(115,246	)		2,202,334

At December 31, 2009, 2008 and 2007, the Group reviewed the useful lives of its intangible assets and adjusted the carrying amounts of these assets on the basis of the estimated economic benefits currently expected to be obtained therefrom. As a result of this review, in 2008 the Group recognized under Impairment losses on other assets — Goodwill and other intangible assets impairment losses amounting to €911 million relating substantially in full to intangible assets arising from the acquisition of Abbey in 2004 (see Note 1-h).

F-99

19. Other assets

The detail of Other assets is as follows:

	Thousands of euros
	2009		2008		2007
Transactions in transit		439,739		204,780		147,392
Net pension plan assets (Note 25)		502,041		510,028		239,392
Prepayments and accrued income		2,259,262		1,952,843		1,749,193
Other		2,411,016		2,716,801		1,744,230
Inventories		518,833		620,774		231,734
		6,130,891		6,005,226		4,111,941

20. Deposits from central banks and Deposits from credit institutions

The detail, by classification, counterparty, type and currency, of Deposits from central banks and Deposits from credit institutions is as follows:

	Thousands of euros
	2009		2008		2007
Classification:
Financial liabilities held for trading		46,117,206		35,951,711		23,254,111
Of which:
Deposits from central banks		2,985,488		9,109,857		—
Deposits from credit institutions		43,131,718		26,841,854		23,254,111
Other financial liabilities at fair value through profit or loss		22,847,995		14,130,169		18,769,907
Of which:
Deposits from central banks		10,103,147		4,396,901		6,562,328
Deposits from credit institutions		12,744,848		9,733,268		12,207,579
Financial liabilities at amortized cost		73,126,386		79,795,490		70,873,290
Of which:
Deposits from central banks		22,345,110		9,211,957		22,185,751
Deposits from credit institutions		50,781,276		70,583,533		48,687,539
		142,091,587		129,877,370		112,897,308
Type:
Reciprocal accounts		948,049		509,282		562,619
Term deposits		78,325,126		82,559,946		71,227,723
Other demand accounts		3,340,932		2,527,834		2,466,369
Repurchase agreements		56,818,092		41,651,446		36,615,910
Central bank credit account drawdowns		2,658,925		2,626,262		2,008,927
Hybrid financial liabilities		463		2,600		15,760
		142,091,587		129,877,370		112,897,308
Currency:
Euro		58,457,951		59,833,384		58,327,694
Pound sterling		34,719,824		27,275,168		14,948,909
US dollar		37,066,057		33,490,478		28,930,017
Other currencies		11,847,756		9,278,340		10,690,688
		142,091,587		129,877,370		112,897,308

Note 51 contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates.

F-100

21. Customer deposits

The detail, by classification, geographical area and type, of Customer deposits is as follows:

	Thousands of euros
	2009		2008		2007
Classification:
Financial liabilities held for trading		4,658,372		4,896,065		27,992,480
Other financial liabilities at fair value through profit or loss		14,636,466		9,318,117		10,669,058
Financial liabilities at amortized cost		487,681,399		406,015,268		316,744,981
		506,976,237		420,229,450		355,406,519
Geographical area:
Spain		170,760,231		142,376,596		131,833,844
European Union (excluding Spain)		199,169,106		170,778,310		134,505,644
United States and Puerto Rico		37,851,345		8,440,893		17,881,211
Other OECD countries		1,101,108		470,721		189,548
Latin America		96,804,592		96,103,045		69,360,898
Rest of the world		1,289,855		2,059,885		1,635,374
		506,976,237		420,229,450		355,406,519
Type:
On demand-
Current accounts		135,895,002		94,773,159		87,136,743
Savings accounts		127,940,647		115,673,794		90,727,525
Other demand deposits		3,570,326		3,035,757		3,593,720
Term deposits-
Fixed-term deposits		192,244,789		143,130,514		92,375,364
Home-purchase savings accounts		315,867		295,458		296,768
Discount deposits		448,432		11,625,840		9,933,139
Hybrid financial liabilities		5,447,496		8,159,893		8,494,773
Other term deposits		212,113		290,055		113,562
Notice deposits		2,208,116		1,764,954		283,301
Repurchase agreements		38,693,449		41,480,026		62,451,624
		506,976,237		420,229,450		355,406,519

Note 51 contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates.

22. Marketable debt securities

a) Breakdown

The detail, by classification and type, of Marketable debt securities is as follows:

	Thousands of euros
	2009		2008		2007
Classification:
Financial liabilities held for trading		586,022		3,569,795		17,090,935
Other financial liabilities at fair value through profit or loss		4,886,840		5,191,073		10,279,037
Financial liabilities at amortized cost		206,490,311		227,642,422		205,916,716
		211,963,173		236,403,290		233,286,688
Type:
Bonds and debentures outstanding		183,250,197		194,291,014		200,557,274
Notes and other securities		28,712,976		42,112,276		32,729,414
		211,963,173		236,403,290		233,286,688

F-101

At December 31, 2009, 2008 and 2007, none of these issues was convertible into Bank shares or granted privileges or rights which, in certain circumstances, make them convertible into shares (except for the Santander Securities (Valores Santander)), which are described in Note 34.a.

At December 31, 2009, asset-backed securities amounted to €37,945 million (December 31, 2008: €50,153 million). In 2009 asset-backed securities amounting to €1,220 million were issued, of which €1,143 million were issued by Santander Consumer Bank AG and €69 million by Brazil Foreign Diversified Payment Rights Finance Company.

Additionally, total mortgage-backed securities at December 31, 2009 amounted to €53,994 million. In 2009 the Bank and Banesto issued mortgage-backed bonds (cédulas hipotecarias) amounting to €1,500 million and €2,807 million, respectively. The registered mortgage-backed bonds outstanding in connection with these issues totaled €42,204 million at December 31, 2009 (December 31, 2008: €37,726 million).

At December 31, 2008, asset-backed securities amounted to €50,153 million (December 31, 2007: €63,172 million). In 2008 asset-backed securities amounting to €1,539 million were issued, of which €677 million were issued by Santander Consumer Bank AG, €507 million by the Alliance & Leicester Group and €352 million by Brazil Foreign Diversified Payment Rights Finance Company.

Additionally, total mortgage-backed securities at December 31, 2008 amounted to €47,758 million. In 2008 the Bank did not issue any mortgage-backed bonds and Banesto issued €100 million in this connection. The mortgage-backed bonds outstanding in connection with these issues totaled €37,726 million at December 31, 2008 (December 31, 2007: €39,264 million).

Note 51 contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates in each year.

b) Bonds and debentures outstanding

The detail, by currency of issue, of Bonds and debentures outstanding is as follows:

							December 31, 2009
							Outstanding
							issue amount in
							foreign		Annual
	Millions of euros						currency		interest
Currency of issue	2009		2008		2007		(Millions)		rate (%)
Euro		122,454		135,330		131,684		122,454		2.90	%
US dollar		36,535		27,459		38,864		52,632		2.15	%
Pound sterling		13,829		21,493		23,154		12,281		2.72	%
Chilean peso		3,180		2,380		2,239		2,323,523		3.99	%
Other currencies		7,252		7,629		4,616
Ending balance		183,250		194,291		200,557

F-102

The changes in Bonds and debentures outstanding were as follows:

	Millions of euros
	2009			2008			2007
Balance at beginning of year		194,291			200,557			168,335
Net inclusion of entities in the Group		10,760			20,333			36
Of which, Alliance & Leicester Group		—			18,676			—
Sovereign Bancorp, Inc.		10,759			—			—
Issues		60,999			76,786			122,530
Banco Santander, S.A.-
Mortgage-backed bonds — fixed rate		1,500			—			4,500
Banesto-
Mortgage-backed bonds — fixed rate		2,807			100			1,708
Bonds		4,556			3,818			5,006
Santander International Debt, S.A., Sole-Shareholder Company-
Bonds — floating rate		2,928			16,007			10,059
Santander UK (formerly Abbey)-
Holmes Master Issuer plc		—			—			15,924
Bonds in pound sterling		4,945			21,667			26,613
Bonds in other currencies		33,257			29,599			41,122
Santander US Debt, S.A. Sole-Shareholder Company-
Debentures — floating rate		1,032			—			2,038
Santander Consumer Bank AG-
Asset-backed securities		—			677			2,585
Banco Santander Totta, S.A.-
Bonds		1,520			1,496			890
Mortgage debentures		1,000			1,000			—
Totta (Ireland) Plc — floating rate bonds		3,380			849			—
Banco Santander S.A. (Brasil)
Agricultural letters of credit		458			—			—
Real estate letters of credit		2,311			663			—
Bonds		80			556
Banco Santander, S.A. (Chile)
Bonds		859			—			—
Banco Santander, S.A. (Mexico)
Bonds		164			—			—
Redemptions and repurchases		(75,614	)		(93,872	)		(85,674	)
Of which:
Banco Santander, S.A.		(1,545	)		(1,783	)		(3,987	)
Banesto		(4,971	)		(7,407	)		(2,358	)
Santander Consumer Bank S.p.A.		—			(217	)		(26	)
Santander UK (formerly Abbey)-		(41,401	)		(65,039	)		(70,535	)
Banco Santander S.A. (formerly Banespa)		(2,278	)		(555	)		—
Santander Consumer Bank AG		(149	)		(203	)		—
Santander Central Hispano International Limited		(46	)		(979	)		—
Banco Santander Totta, S.A.		(1,430	)		(2,637	)		—
Totta (Ireland) Plc		(849	)		(1,189	)		—
Santander US Debt, S.A. Sole-Shareholder Company		(13,156	)		(4,178	)		(1,329	)
Santander International Debt, S.A. Sole-Shareholder Company		(2,672	)		(6,239	)		(3,037	)
Drive Group		(155	)		(960	)		—
Fondo de Titulización de Activos Santander Empresas 1		—			(468	)		—
Fondo de Titulización de Activos Santander Empresas 2		—			(691	)		—
Fondo de Titulización de Activos Santander Empresas 3		—			(883	)		—
Exchange differences		1,459			(5,806	)		(2,864	)
Other changes		(8,645	)		(3,707	)		(1,806	)
Balance at end of year		183,250			194,291			200,557

c) Notes and other securities

These notes were issued mainly by the following: Santander Commercial Paper, S.A. (Sole-Shareholder Company); Abbey National North America LLC; Abbey National Treasury Services plc; Abbey National plc., Santander Central Hispano Finance (Delaware) Inc.; Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander; Banco Santander Puerto Rico; Banesto and Santander S.A. Agente de Valores.

F-103

d) Guarantees

The detail of liabilities and contingent liabilities secured by financial assets is as follows:

	Millions of euros
	2009		2008		2007
Commercial paper (promissory notes)		—		—		183
Asset-backed securities		37,945		50,153		63,172
Other mortgage securities		53,994		47,758		45,664
Of which: mortgage-backed bonds		42,204		37,726		39,264
		91,939		97,911		109,019

The mortgage-backed securities and other mortgage securities are secured by mortgage loans with average maturities of more than ten years. The main terms and conditions of these loans are listed below:

1. Transactions securing mortgage-backed securities:

• First mortgage for acquisition and/or refurbishment of principal or second residence, which at the date of securitization must not have any amounts more than 30 days past due. For these purposes, financing granted to property developers is excluded.

• Appraisal conducted by specialist valuer.

• The amount of the loan must not exceed 80% of the appraised value, unless additional guarantees are provided (bank guarantee given by a credit institution other than the creditor bank or credit insurance on the terms established in Legislative Royal Decree 6/2004, of 29 October), in which case this limit may be extended up to a maximum of 95%.

• Each of the mortgaged properties must have at least one liability insurance policy in force. The capital insured must not be lower than either the appraised value (excluding the land) or the amount of the loan.

2. With respect to issues of mortgage-backed bonds (cédulas hipotecarias), in order to calculate the amount of the qualifying assets, the following transactions are excluded from the total base of the unsecuritized mortgage portfolio:

• Transactions classified as non-performing, at pre-action stage and at procedural stage.

• Transactions without appraisal by a specialist valuer.

• Transactions exceeding 80% of the appraised value in residential financing and 60% in the case of other assets.

• Second mortgages or mortgages with insufficient collateral.

• Transactions without insurance or with insufficient insurance.

The other securitizations, including asset-backed securities and notes issued by special-purpose vehicles (SPVs), are secured by:

• Mortgage loans to individuals to finance the acquisition and refurbishment of homes with an average maturity of over ten years.

• Personal consumer finance loans with no specific guarantee and unsecured loans with an average maturity of five years.

• Loans to SMEs (non-financial small and medium-sized enterprises) secured by State guarantees, and loans to companies (micro companies, SMEs, companies and large companies) secured by property mortgages, the borrower’s personal guarantee, guarantees and other collateral other than property mortgages, with an average maturity of seven years.

F-104

• Mortgage and non-mortgage loans to finance municipalities, autonomous communities and subsidiaries with an average maturity of over ten years.

• Asset-backed securities issued by various European special-purpose vehicles backed by loans for the purchase of German and Italian vehicles and Italian personal loans with an average maturity of eight years.

• Commercial credit of Banco Santander (ordinary invoice discounting, occasional discounting and advances to customers on legitimate receivables) with an average maturity of 45 days.

The fair value of the guarantees received by the Group (financial and non-financial assets) which the Group is authorized to sell or pledge even if the owner of the guarantee has not defaulted is scantly material taking into account the Group’s financial statements as a whole.

23. Subordinated liabilities

a) Breakdown

The detail, by currency of issue, of Subordinated liabilities is as follows:

	Thousands of euros						December 31, 2009
							Outstanding
							issue amount
							in foreign		Annual
							currency		interest rate
Currency of issue	2009		2008		2007		(Millions)		(%)
Euro		16,598,441		19,660,053		19,224,529		16,598		4.22	%
US dollar		9,297,611		7,877,340		7,412,454		13,394		6.27	%
Pound sterling		6,440,827		7,952,179		7,387,191		5,720		7.14	%
Other currencies		4,467,722		3,383,678		2,168,563
Balance at end of year		36,804,601		38,873,250		36,192,737
Of which, preference shares		430,152		1,051,272		522,558

Note 51 contains a detail of the residual maturity periods of subordinated liabilities at each year-end and of the related average interest rates in each year.

F-105

b) Changes

The changes in Subordinated liabilities were as follows:

	Millions of euros
	2009			2008			2007
Balance at beginning of year		38,873			36,193			31,091
Net inclusion of entities in the Group		1,598			2,776			—
Of which:
Sovereign Bancorp, Inc.		1,598			—			—
Alliance & Leicester Group		—			1,648			—
Banco Real S.A.		—			1,128			—
Issues		6,874			312			8,330
Of which:
Santander Finance Capital, S.A., Sole-Shareholder Company		2,463			—			—
Santander Finance Preferred, S.A., Sole-Shareholder Company		1,576			—			1,072
Santander Issuances, S.A.		1,544			—			—
Santander International Preferred, S.A., Sole-Shareholder Company		690			—			—
Banesto		497			—			—
Santander Central Hispano Issuances Limited		—			—			5,908
Santander Perpetual, S.A., Sole-Shareholder Company		—			—			1,019
Redemptions		(9,316	)		(1,315	)		(2,340	)
Of which:
Santander UK (formerly Abbey National plc)		(2,775	)		(409	)		(944	)
Santander Finance Capital, S.A., Sole-Shareholder Company		(2,280	)		—			—
Santander Finance Preferred, S.A., Sole-Shareholder Company		(1,174	)		—			—
Santander Central Hispano Issuances Limited		(1,027	)		(153	)		(1,188	)
Alliance & Leicester		(693	)		—			—
Santander Perpetual, S.A., Sole-Shareholder Company		(588	)		—			—
Santander Issuances, S.A.		(500	)		—			—
Banesto		(131	)		(500	)		—
Exchange differences		708			(2,066	)		(1,353	)
Other changes		(1,932	)		2,973			465
Balance at end of year		36,805			38,873			36,193

c) Other disclosures

This item includes the preference shares (participaciones preferentes) securities and other financial instruments issued by the consolidated companies which, although equity for legal purposes, do not meet the requirements for classification as equity (preference shares).

The preference shares do not carry any voting rights and are non-cumulative. They were subscribed to by non-Group third parties and, except for the shares of Abbey referred to below, are redeemable at the discretion of the issuer, based on the terms and conditions of each issue.

For the purposes of payment priority, preference shares (participaciones preferentes) are junior to all general creditors and to subordinated deposits. The remuneration of these securities, which have no voting rights, is conditional upon the obtainment of sufficient distributable profit and upon the limits imposed by Spanish banking regulations on equity.

The other issues are subordinated and, therefore, rank junior to all general creditors of the issuers. The issues launched by Santander Central Hispano Issuances Limited, Santander Central Hispano Financial Services Limited, Santander Issuances, S.A. (Sole-Shareholder Company), Santander Perpetual, S.A. (Sole-Shareholder Company), Santander Finance Capital, S.A. (Sole-Shareholder Company), Santander International Preferred, S.A. (Sole-Shareholder Company) and Santander Finance Preferred S.A. (Sole-Shareholder Company) are guaranteed by the Bank or by restricted deposits arranged by the Bank for this purpose.

Except for those described in Note 34.a, at December 31, 2009 none of these issues was convertible into Bank shares or granted privileges or rights which, in certain circumstances, make it convertible into shares.

F-106

Abbey has a GBP 200 million subordinated debt issue which is convertible, at Abbey’s option, into preference shares of Abbey, at a price of GBP 1 per share. Banco Santander (México), S.A. Institución de Banca Múltiple, Grupo Financiero Santander has two USD 150 million issues of unguaranteed subordinated preference debentures that are voluntarily convertible into ordinary shares of Banco Santander (México), S.A. Institución de Banca Múltiple, Grupo Financiero Santander.

The accrued interest on the subordinated liabilities amounted to €2,354 million in 2009 (2008: €2,415 million).

24. Other financial liabilities

The detail of Other financial liabilities is as follows:

	Thousands of euros
	2009		2008		2007
Trade payables		1,902,249		2,282,759		3,350,422
Clearing houses		734,873		761,534		1,106,714
Tax collection accounts:
Tax payables		1,915,373		2,066,685		2,040,547
Factoring accounts payable		448,985		283,478		326,107
Unsettled financial transactions		2,753,781		3,628,473		2,994,299
Other financial liabilities		11,847,307		8,658,240		6,865,389
Of which: recognized in financial liabilities held for trading		302,520		—		—
		19,602,568		17,681,169		16,683,478

Note 51 contains a detail of the residual maturity periods of other financial assets and liabilities at each year-end.

25. Provisions

a) Breakdown

The detail of Provisions is as follows:

	Thousands of euros
	2009		2008		2007
Provisions for pensions and similar obligations		10,628,684		11,198,117		11,819,748
Provisions for taxes and other legal contingencies		3,283,339		2,363,706		1,715,967
Provisions for contingent liabilities and commitments (Note 2):		641,620		678,584		636,316
Of which: country risk		18,418		56,254		48,831
Other provisions		2,979,096		3,495,852		2,398,868
Provisions		17,532,739		17,736,259		16,570,899

F-107

b) Changes

The changes in Provisions were as follows:

	Millions of euros
	2009												2008												2007
				Contingent												Contingent												Contingent
				liabilities and			Other									liabilities and			Other									liabilities and			Other
	Pensions			commitments			provisions			Total			Pensions			commitments			provisions			Total			Pensions			commitments			provisions			Total
Balances at beginning of year		11,198			679			5,860			17,737			11,820			636			4,115			16,571			14,014			599			4,614			19,227
Net inclusion of entities in the Group		44			125			(26	)		143			175			73			2,816			3,064			(2	)					(35	)		(37	)
Additions charged to income:
Interest expense and similar charges (Note 39)		482			—			—			482			454			—			—			454			487			—			—			487
Personnel expenses (Note 47)		176			—			—			176			184			—			—			184			209			—			—			209
Period provisions		339			46			1,407			1,792			598			(3	)		1,045			1,640			431			95			369			895
Other additions arising from insurance contracts linked to pensions		(30	)		—			—			(30	)		(17	)		—			—			(17	)		(17	)		—			—			(17	)
Payments to pensioners and early retirees with a charge to internal provisions		(1,191	)		—			—			(1,191	)		(1,086	)		—			—			(1,086	)		(1,109	)		—			—			(1,109	)
Insurance premiums paid		(1	)		—			—			(1	)		(8	)		—			—			(8	)		(6	)		—			—			(6	)
Payments to external funds		(594	)		—			—			(594	)		(563	)		—			—			(563	)		(2,168	)		—			—			(2,168	)
Amount used		—			—			(1,412	)		(1,412	)		—			—			(1,523	)		(1,523	)		—			—			(921	)		(921	)
Transfers, exchange differences and other changes		206			(208	)		433			431			(359	)		(27	)		(594	)		(980	)		(19	)		(58	)		88			11
Balances at end of year		10,629			642			6,262			17,533			11,198			679			5,860			17,736			11,820			636			4,115			16,571

F-108

c) Provisions for pensions and similar obligations

The detail of Provisions for pensions and similar obligations is as follows:

	Millions of euros
	2009		2008		2007
Provisions for post-employment plans — Spanish entities		5,443		5,596		5,723
Of which: defined benefit		5,439		5,593		5,626
Provisions for other similar obligations — Spanish entities		3,851		4,166		4,001
Of which: early retirements		3,842		4,158		3,950
Provisions for post-employment plans — Abbey		496		744		1,275
Provisions for post-employment plans and other similar obligations — Other foreign subsidiaries		839		692		821
Of which: defined benefit		829		688		821
Provisions for pensions and similar obligations		10,629		11,198		11,820

i. Spanish entities — Post-employment plans and other similar obligations

At each year-end, the consolidated Spanish entities had post-employment benefit obligations under defined benefit plans. On July 25, 2006, the Bank entered into an agreement with the employee representatives to promote a defined contribution plan aimed at all current personnel. Subsequently, at its meeting on December 17, 2007, the Bank’s board of directors approved the implementation of a defined contribution retirement plan for executives of the Bank. In 2008, in accordance with the aforementioned plan, an extraordinary contribution totaling €111 million was made for past service, together with a current contribution which amounted to €19 million (2009: €16.8 million). Lastly, in various years some of the consolidated entities offered certain of their employees the possibility of taking early retirement and, therefore, provisions were recognized in those years for the obligations to employees taking early retirement -in terms of salaries and other employee welfare costs- from the date of their early retirement to the date of effective retirement.

At each year-end, the Spanish entities had post-employment benefit obligations under defined contribution and defined benefit plans. The expenses incurred in respect of contributions to defined contribution plans amounted to €44 million in 2009 (2008: €40 million; 2007: €14 million).

The amount of the defined benefit obligations was determined on the basis of the work performed by independent actuaries using the following actuarial techniques:

1.	Valuation method: projected unit credit method, which sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.
2.	Actuarial assumptions used: unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in the calculations were as follows:

	Post-employment plans			Other similar obligations
	2009	2008	2007	2009	2008	2007
Annual discount rate	4.0%	4.0%	4.0%	4.0%	4.0%	4.0%
Mortality tables	GRM/F-95 (PERM/F-2000 in the case of Banesto)	GRM/F-95 (PERM/F-2000 in the case of Banesto)	GRM/F-95 (PERM/F-2000 in the case of Banesto)	GRM/F-95 (PERM/F-2000 in the case of Banesto)	GRM/F-95 (PERM/F-2000 in the case of Banesto)	GRM/F-95 (PERM/F-2000 in the case of Banesto)
Cumulative annual CPI growth	1.5%	1.5%	1.5%	1.5%	1.5%	1.5%
Annual salary increase rate	2.50% (2.9% in the case of Banesto)	2.50% (2.9% in the case of Banesto)	2.50% (2.9% in the case of Banesto)	n/a	n/a	n/a
Annual social security pension increase rate	1.5%	1.5%	1.5%	n/a	n/a	n/a
Annual benefit increase rate	n/a	n/a	n/a	0% to 1.5%	0% to 1.5%	0% to 1.5%

F-109

The discount rate used is that required by Spanish legislation for measuring similar obligations, which is published annually by the Directorate-General of Insurance (Resolution of January 21, 2009). The maximum rate to be used in 2009 was set at 4.32%. This figure relates to 100% of the average interest rates of Government bonds for the last quarter of the year prior to that in which the rate is applicable.

3. The estimated retirement age of each employee is the first at which the employee is entitled to retire or the agreed-upon age, as appropriate.

The fair value of insurance contracts was determined as the present value of the related payment obligations, taking into account the following assumptions:

	Post-employment plans									Other similar obligations
	2009			2008			2007			2009			2008			2007
Expected rate of return on plan assets		4.0	%		4.0	%		4.0	%		—			—			—
Expected rate of return on reimbursement rights		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%

The funding status of the defined benefit obligations in 2009 and the four preceding years is as follows:

	Millions of euros
	Post-employment plans										Other similar obligations
	2009		2008		2007		2006		2005		2009		2008		2007		2006		2005
Present value of the obligations:
To current employees		1,200		1,273		1,259		1,215		1,207		—		—		—		—		—
Vested obligations to retired employees		4,708		4,828		4,876		4,958		4,942		—		—		—		—		—
To early retirees		—		—		—		—		—		3,842		4,158		3,950		4,481		4,215
Long-service bonuses and other obligations		—		—		—		—		—		9		8		50		46		54
Other		183		181		174		164		225		—		—		1		—		—
		6,091		6,282		6,309		6,337		6,374		3,851		4,166		4,001		4,527		4,269
Less-
Fair value of plan assets		184		193		192		203		211		—		—		—		—		—
Unrecognized actuarial (gains)/losses		462		489		487		482		506		—		—		—		—		—
Unrecognized past service cost		6		7		4		5		—		—		—		—		—		—
Provisions — Provisions for pensions		5,439		5,593		5,626		5,647		5,657		3,851		4,166		4,001		4,527		4,269
Of which:
Internal provisions for pensions		3,086		3,153		3,114		3,065		3,015		3,848		4,159		3,987		4,504		4,235
Insurance contracts linked to pensions (Note 14)		2,353		2,440		2,512		2,582		2,642		3		7		14		23		34

The amounts recognized in the consolidated income statement in relation to the aforementioned defined benefit obligations are as follows:

	Millions of euros
	Post-employment plans									Other similar obligations
	2009			2008			2007			2009		2008			2007
Current service cost		55			56			56			1		5			5
Interest cost		226			240			242			153		145			166
Expected return on plan assets		(7	)		(8	)		(8	)		—		—			—
Expected return on insurance contracts linked to pensions		(95	)		(95	)		(102	)		—		—			(1	)
Extraordinary charges-
Actuarial (gains)/losses recognized in the year		10			6			6			38		4			13
Past service cost		29			63			58			—		—			—
Early retirement cost		(19	)		(23	)		2			257		587			40
Other		(51	)		(20	)		(16	)		—		(53	)		(22	)
Total		148			219			238			449		688			201

F-110

The changes in the present value of the accrued defined benefit obligations were as follows:

	Millions of euros
	Post-employment plans									Other similar obligations
	2009			2008			2007			2009			2008			2007
Present value of the obligations at beginning of year		6,282			6,309			6,337			4,166			4,001			4,527
Net inclusion of entities in the Group		—			—			—						—			—
Current service cost		55			56			56			1			5			5
Interest cost		226			240			242			153			145			166
Early retirement cost		(19	)		(23	)		2			257			587			39
Effect of curtailment/settlement		(51	)		(21	)		(16	)		—			(54	)		(22	)
Benefits paid		(383	)		(334	)		(350	)		(765	)		(726	)		(729	)
Past service cost		29			66			58			—			—			1
Actuarial (gains)/losses		(52	)		(11	)		(19	)		38			4			13
Other		4						(1	)		1			204			1
Present value of the obligations at end of year		6,091			6,282			6,309			3,851			4,166			4,001

The changes in the fair value of plan assets and of insurance contracts linked to pensions were as follows:

Plan assets

	Millions of euros
	Post-employment plans
	2009			2008			2007
Fair value of plan assets at beginning of year		193			192			203
Expected return on plan assets		7			8			8
Actuarial gains/(losses)		(4	)		(2	)		(12	)
Contributions		(1	)		8			6
Benefits paid		(11	)		(13	)		(13	)
Fair value of plan assets at end of year		184			193			192

Insurance contracts linked to pensions

	Millions of euros
	Post-employment plans									Other similar obligations
	2009			2008			2007			2009			2008			2007
Fair value of insurance contracts linked to pensions at beginning of year		2,440			2,512			2,582			7			14			23
Expected return on insurance contracts (Note 38)		95			95			102			—			—			1
Actuarial gains/(losses)		(31	)		(17	)		(17	)		—			—			—
Premiums paid		7			11			12			—			—			—
Benefits paid		(158	)		(161	)		(165	)		(4	)		(7	)		(10	)
Exchange differences		—			—			(2	)		—			—			—
Fair value of insurance contracts linked to pensions at end of year		2,353			2,440			2,512			3			7			14

In 2010 the Group expects to make contributions in Spain to fund its defined benefit pension obligations for amounts similar to those made in 2009.

The plan assets and the insurance contracts linked to pensions are instrumented through insurance policies.

F-111

The following table shows the estimated benefits payable at December 31, 2009 for the next ten years:

	Millions
	of euros
2010		1,091
2011		1,031
2012		958
2013		896
2014		824
2015 to 2019		2,775
		7,575

ii. United Kingdom

At the end of each of the last three years, the businesses in the UK (basically Abbey and Alliance & Leicester in 2008 and Abbey in 2007) had post-employment benefit obligations under defined contribution and defined benefit plans. The expenses incurred in respect of contributions to defined contribution plans amounted to €22 million in 2009 (2008 and 2007: €10 million).

The amount of the defined benefit obligations was determined on the basis of the work performed by independent actuaries using the following actuarial techniques:

1.	Valuation method: projected unit credit method, which sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.
2.	Actuarial assumptions used: unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in the calculations were as follows:

	2009		2008		2007
Annual discount rate		5.75%		6.40%		5.30%
Mortality tables		PX92MC C2009		PX92MC C2008		PA92MC C2006
Cumulative annual CPI growth		3.4%		3.0%		3.0%
Annual salary increase rate		3.4%		3.5%		4.0%
Annual pension increase rate		3.3%		3.0%		3.0%

The funding status of the defined benefit obligations in 2009 and the four preceding years is as follows:

	Millions of euros
	2009			2008			2007		2006			2005
Present value of the obligations		7,116			5,445			6,248		6,350			6,337
Less-
Fair value of plan assets		5,910			4,591			4,913		4,810			4,326
Unrecognized actuarial (gains)/losses		787			202			60		(102	)		223
Provisions — Provisions for pensions		419			652			1,275		1,642			1,788
Of which:
Internal provisions for pensions		496			744			1,275		1,642			1,788
Net assets for pensions		(77	)		(92	)		—		—			—

F-112

The amounts recognized in the consolidated income statement in relation to the aforementioned defined benefit obligations are as follows:

	Millions of euros
	2009			2008			2007
Current service cost		72			69			97
Interest cost		367			331			322
Expected return on plan assets		(320	)		(298	)		(284	)
Extraordinary charges:
Actuarial gains/losses recognized in the year		—			(1	)		(1	)
Past service cost		(1	)		—			—
Total		118			101			134

The changes in the present value of the accrued defined benefit obligations were as follows:

	Millions of euros
	2009			2008			2007
Present value of the obligations at beginning of year		5,445			6,248			6,350
Net inclusion of entities in the Group		—			1,252			—
Current service cost		72			69			97
Interest cost		367			331			322
Past service cost		(1	)		—			—
Benefits paid		(261	)		(199	)		(175	)
Actuarial (gains)/losses		1,050			(802	)		200
Exchange differences and other items		444			(1,454	)		(546	)
Present value of the obligations at end of year		7,116			5,445			6,248

The net inclusion of entities in the Group in 2008 relates mainly to Alliance & Leicester.

The changes in the fair value of the plan assets were as follows:

	Millions of euros
	2009			2008			2007
Fair value of plan assets at beginning of year		4,591			4,913			4,810
Net inclusion of entities in the Group		—			1,335			—
Expected return on plan assets		320			298			284
Actuarial gains/losses		364			(954	)		45
Contributions		564			413			387
Benefits paid		(261	)		(199	)		(175	)
Exchange differences		333			(1,215	)		(438	)
Fair value of plan assets at end of year		5,910			4,591			4,913

The net inclusion of entities in the Group in 2008 relates mainly to Alliance & Leicester.

In 2010 the Group expects to make contributions in Spain to fund these obligations for amounts similar to those made in 2009.

The main categories of plan assets as a percentage of total plan assets are as follows:

	2009			2008			2007
Equity instruments		39	%		41	%		46	%
Debt instruments		54	%		56	%		52	%
Properties		1	%		2	%		—
Other		6	%		1	%		2	%

The expected return on plan assets was determined on the basis of the market expectations for returns over the duration of the related obligations.

F-113

The following table shows the estimated benefits payable at December 31, 2009 for the next ten years:

	Millions
	of euros
2010		279
2011		298
2012		318
2013		340
2014		363
2015 to 2019		2,234
		3,832

iii. Other foreign subsidiaries

Certain of the consolidated foreign entities have acquired obligations to their employees similar to post-employment benefits.

At December 31, 2009, 2008 and 2007, these entities had post-employment benefit obligations under defined contribution and defined benefit plans. The expenses incurred in respect of contributions to defined contribution plans amounted to €48 million in 2009 (2008: €28 million; 2007: €23 million).

The actuarial assumptions used by these entities (discount rates, mortality tables and cumulative annual CPI growth) are consistent with the economic and social conditions prevailing in the countries in which they are located.

The funding status of the obligations similar to post-employment benefits and other long-term benefits in 2009 and the four preceding years is as follows:

	Millions of euros
	2009			2008			2007			2006			2005
Present value of the obligations		9,078			6,735			7,264			6,198			5,481
Less-
Fair value of plan assets		8,497			6,307			6,725			3,917			2,523
Unrecognized actuarial (gains)/losses		632			386			134			517			760
Unrecognized past service cost		3			—			—			—			2
Provisions — Provisions for pensions		(54	)		42			405			1,764			2,196
Of which:
Internal provisions for pensions		829			688			821			2,198			2,459
Net assets for pensions		(425	)		(418	)		(239	)		(224	)		(55	)
Unrecognized net assets for pensions		(458	)		(228	)		(177	)		(210	)		(208	)

In January 2007 Banco do Estado de São Paulo, S.A.- Banespa (which merged with Banco Santander Banespa, S.A. on August 31, 2006) externalized a portion of the pension obligations to employees for which it still recognized an internal provision and for this purpose arranged an external plan or fund managed by Banesprev. As a result of this externalization, the related assets and liabilities were transferred to Banesprev, and Provisions — Provisions for pensions and similar obligations at December 31, 2007 included the present value of the aforementioned obligations, net of the fair value of the related plan assets and the net unrecognized cumulative actuarial gains and/or losses.

F-114

The amounts recognized in the consolidated income statement in relation to these obligations are as follows:

	Millions of euros
	2009			2008			2007
Current service cost		49			54			50
Interest cost		736			670			607
Expected return on plan assets		(672	)		(627	)		(559	)
Extraordinary charges:
Actuarial gains/losses recognized in the year		73			31			22
Early retirement cost		9			5			16
Other		(10	)		(2	)		216
Total		185			131			352

The changes in the present value of the accrued obligations were as follows:

	Millions of euros
	2009			2008			2007
Present value of the obligations at beginning of year		6,735			7,264			6,198
Net inclusion of entities in the Group		68			673			—
Current service cost		49			54			50
Interest cost		736			670			607
Early retirement cost		9			5			16
Effect of curtailment/settlement		(209	)		(2	)		(4	)
Benefits paid		(587	)		(535	)		(492	)
Past service cost		3			—			—
Actuarial (gains)/losses		830			(10	)		707
Exchange differences and other items		1,444			(1,384	)		182
Present value of the obligations at end of year		9,078			6,735			7,264

The net inclusion of entities in the Group in 2008 relates mainly to Banco Real.

The changes in the fair value of the plan assets were as follows:

	Millions of euros
	2009			2008			2007
Fair value of plan assets at beginning of year		6,307			6,725			3,917
Net inclusion of entities in the Group		49			618			—
Expected return on plan assets		672			627			559
Actuarial gains/(losses)		449			(351	)		586
Contributions		158			285			1,863
Benefits paid		(533	)		(495	)		(452	)
Exchange differences and other items		1,395			(1,102	)		252
Fair value of plan assets at end of year		8,497			6,307			6,725

The net inclusion of entities in the Group in 2008 relates mainly to Banco Real.

In 2010 the Group expects to make contributions to fund these obligations for amounts similar to those made in 2009.

F-115

The main categories of plan assets as a percentage of total plan assets are as follows:

	2009			2008			2007
Equity instruments		12	%		12	%		27	%
Debt instruments		83	%		83	%		66	%
Properties		1	%		2	%		2	%
Other		4	%		3	%		5	%

The expected return on plan assets was determined on the basis of the market expectations for returns over the duration of the related obligations.

The following table shows the estimated benefits payable at December 31, 2009 for the next ten years:

	Millions
	of euros
2010		625
2011		644
2012		667
2013		689
2014		714
2015 to 2019		4,119
		7,458

d)

Provisions for taxes and other legal contingencies and Other provisions

The balance of Provisions — Provisions for taxes and other legal contingencies and Provisions — Other provisions, which includes, inter alia, provisions for restructuring costs and tax and legal litigation, was estimated using prudent calculation procedures in keeping with the uncertainty inherent in the obligations covered. The definitive date of the outflow of resources embodying economic benefits for the Group depends on each obligation; in certain cases, these obligations have no fixed settlement period and, in other cases, are based on litigation in progress.

The detail of Provisions for taxes and other legal contingencies and Other provisions is as follows:

	Millions of euros
	2009		2008		2007
Recognized by Spanish companies		828		1,061		814
Recognized by other EU companies		537		721		886
Recognized by other companies		4,897		4,078		2,415
Of which:
Brazil		3,428		2,920		1,989
		6,262		5,860		4,115

F-116

e) Litigation

i. Tax litigation

At December 31, 2009, the main tax litigation concerning the Group was as follows:

• The Mandados de Segurança filed by Banco Santander Brasil, S.A. and other Group companies in Brazil challenging the increase in the rate of Brazilian Social Contribution tax on net income from 9% to 15% stipulated by Interim Measure 413/2008, ratified by Law 11,727/2008.

• The Mandados de Segurança filed by Group companies in Brazil claiming their right to pay the Brazilian Social Contribution tax on net income at a rate of 8%.

• The Mandados de Segurança filed by Banco Santander, S.A. and other Group entities claiming their right to pay the Brazilian PIS and COFINS Social Contributions only on the income from the provision of services. In the case of Banco Santander, S.A., the “Mandado de Segurança” was declared unwarranted and an appeal was filed at the Federal Regional Court. On September 13, 2007, the Federal Regional Court found in favor of Banco Santander, S.A. The Brazilian authorities have filed an appeal against this judgment at a higher court. In the case of Banco ABN AMRO Real, S.A., on March 9, 2007 the court found in its favor although the Brazilian authorities have also filed an appeal against this judgment at a higher court. On September 29, 2009 a resolution was issued whereby it partially admitted the appeal.

• Real Leasing S.A. Arrendamiento Mercantil and Banco ABN AMRO Real S.A. have filed various administrative and legal claims in connection with the deductibility of the provision for doubtful debts for 1995.

• Banco Santander Brasil, S.A. and other Group companies in Brazil are involved in several administrative and legal proceedings against various municipalities that demand payment of the Service Tax on certain items of income from transactions not classified as provisions of services.

• In November 2009 Banco Santander Brasil, S.A. and certain of its subsidiaries availed themselves of the program for the deferral and payment in cash of tax and Social Security debts established in Law 11,941/2009. The main processes included in this program, which were reported in prior years, refer to litigation related to (i) the right to consider the Social Contribution tax on net income as deductible in the calculation of Brazilian Legal Entities Income Tax, (ii) the right to pay the Brazilian Social Contribution tax on net income at a rate of 8%, and (iii) the deductibility for Income tax purposes of the depreciation and amortization expense in the same period as that in which lease Income is recognized in finance lease companies. The participation in this program entails payment of the disputed amounts and the discontinuance before the end of February 2010 of the related court proceedings.

• A claim was filed against Abbey National Treasury Services plc by tax authorities abroad in relation to the refund of certain tax credits and other associated amounts. The legal advisers of Abbey National Treasury Services plc considered that the grounds to contest this claim were well-founded, proof of which is that a favorable judgment was handed down at first instance in September 2006, although the judgment was appealed against by the tax authorities in January 2007. However, in December 2006 an unfavorable judgment for another taxpayer was handed down on another proceeding which might affect this case.

• Legal action filed by Sovereign Bancorp Inc. claiming entitlement to an international double taxation tax credit in connection with taxes paid outside of the United States in fiscal years 2003 to 2005 in relation to financial transactions carried out with an international bank.

F-117

ii. Non-tax-related proceedings

At December 31, 2009, the main non-tax-related proceedings concerning the Group were as follows:

•	Misselling: claims associated with the sale by Abbey of certain financial products to its customers.
	The provisions recorded by Abbey in this respect were calculated on the basis of the best estimate of the number of claims that will be received, of the percentage of claims that will be upheld and of the related amounts.
•	LANETRO, S.A.: claim (Ordinary Lawsuit no. 558/2002) filed by LANETRO, S.A. against Banco Santander, S.A. at Madrid Court of First Instance no. 34, requesting that the Bank comply with the obligation to subscribe to €30.05 million of a capital increase at the complainant.
	On December 16, 2003, a judgment was handed down dismissing the plaintiff’s request. The subsequent appeal filed by LANETRO was upheld by a decision of the Madrid Provincial Appellate Court on October 27, 2006. On March 30, 2010, the Spanish Supreme Court dismissed the extraordinary appeal on the grounds of procedural infringements, and partially admitted the appeal in cassation, which were both filed by the Bank against the decision of the Madrid Provincial Appellate Court.
•	Ordinary proceedings filed by Galesa de Promociones, S.A., against the Bank, at Elche Court of First Instance no. 5, Alicante (Ordinary Lawsuit no. 1946/2008). The claim sought damages amounting to €51,396,971.43 as a result of a judgment handed down by the Supreme Court on November 24, 2004 setting aside a summary mortgage proceeding filed by the Bank against the complainant company, which concluded in the foreclosure by the Bank of the mortgaged properties and their subsequent sale by the Bank to third-party buyers. The judgment of the Supreme Court ordered the reversal of the court foreclosure proceeding prior to the date on which the auctions were held, a circumstance impossible to comply with due to the sale by the Bank of the properties to the aforementioned third parties, which therefore prevented the reincorporation of the properties into the debtor company’s assets and their re-auction.
	The damages claimed are broken down as follows: (i) €18,428,076.43 relating to the value of the property auctioned; (ii) €32,608,895 relating to the loss of profit on the properties lost by the complainant, which was prevented from continuing its business activity as a property developer; and (iii) €360,000 relating to rental income.
	On October 31, 2008, a summons to respond to and oppose the claim was served on the Bank, which responded to the complainant’s requests on a timely basis and, at the same time, filed a counterclaim against Galesa de Promociones, S.A. for the amount owed to the Bank, basing its calculation on the difference between the value of the properties and the amount of the loan.
	Galesa de Promociones, S.A. replied to the counterclaim on January 12, 2009 and the preliminary hearings took place on April 7, 2009 and September 30, 2009.
	On March 2, 2010 the Court of First Instance handed down a judgment partially upholding both the claim and the counterclaim, ordering the Bank to pay the claimant an amount of €4,458,960.61, and Galesa Promociones, S.A. to pay the Bank an amount of €1,428,075.70, giving rise to a total loss of €3,030,874.91 for the Bank. Appeals have been prepared by Galesa and the Bank. The Bank filed its appeal on May 31, 2010.
•	Declaratory large claims action brought at Madrid Court of First Instance no. 19 (Ordinary Lawsuit no. 87/2001) in connection with a claim filed by Inversión Hogar, S.A. against the Bank. This claim sought the termination of a settlement agreement entered into between the Bank and the complainant on December 11, 1992.
	On May 19, 2006, a judgment was handed down at first instance, whereby the agreement was declared to be terminated and the Bank was ordered to pay €1.8 million, plus the related legal interest since February 1997, to return a property that was given in payment under the aforementioned agreement, to pay an additional €72.9 million relating to the replacement value of the assets foreclosed, and subsequently sold, by the Bank, and to pay all the related court costs. The Bank and Inversión Hogar, S.A. filed appeals against the judgment.

F-118

	On July 30, 2007, the Madrid Provincial Appellate Court handed down a decision upholding in full the appeal filed by the Bank, reversing the judgment issued at first instance and dismissing the appeal filed by Inversión Hogar, S.A. On completion of the clarification procedure, as it had announced previously, Inversión Hogar, S.A. filed a cassation appeal against the aforementioned decision and an extraordinary appeal on the grounds of procedural infringements at the Civil Division of the Supreme Court, which issued an order on December 1, 2009, admitting for consideration the appeals filed by Inversión Hogar, S.A. and its subsidiaries, with a summons to the Bank to present the related notice of opposition to these appeals, which was carried out on January 21, 2010.
•	Claim in an ordinary proceeding filed by Inés Arias Domínguez and a further 17 persons against Santander Investment, S.A. at Madrid Court of First Instance no. 13 (Ordinary Lawsuit no. 928/2007), seeking damages of approximately €43 million, plus interest and costs. The complainants, who are former shareholders of Yesocentro, S.A. (Yesos y Prefabricados del Centro, S.A.), allege that Santander Investment, S.A. breached the advisory services agreement entered into on October 19, 1989 between the former Banco Santander de Negocios, S.A. and the complainants, the purpose of which was the sale of shares owned by the complainants to another company called Invercámara, S.A.
	This claim was duly contested by Santander Investment, S.A. on November 5, 2007. The preliminary hearing was set for April 28, 2008 although it was subsequently postponed until the application for a resolution on a preliminary civil issue filed by the Bank was resolved.
	In the order issued by Madrid Court of First Instance no. 13 on September 11, 2008 the proceedings were stayed due to a preliminary civil issue. The complainants appealed the decision and the Bank responded to and opposed the complainant’s appeal on December 16, 2008.
	In a decision issued by the Madrid Provincial Appellate Court on March 24, 2010 the plaintiffs’ appeal was dismissed, maintaining the stay of proceedings on the basis of the civil preliminary ruling until a ruling is issued in the proceeding filed by other shareholders of Yesocentro (Mr. Siro Díaz Díaz and his wife), filed at the Madrid Court of First Instance nº 47 (Ordinary Lawsuit no. 1051/2004).
•	On February 6, 2008, Banco Santander, S.A. filed a request for arbitration with the Secretary of the Spanish Arbitration Court against Gaesco Bolsa, Sociedad de Valores, S.A., in respect of the claim for €66,418,077.27 that the latter owes Banco Santander, S.A. as a result of the early termination of the financial transaction framework agreement entered into with Banco Santander, S.A. and of the financial transactions performed under the agreement. In the same proceedings Gaesco filed a counterclaim against the Bank. On May 12, 2009, an arbitral award was issued upholding all the claims of Banco Santander, S.A. and dismissing the counterclaim filed by Gaesco. Gaesco has filed for the annulment of the arbitral award at the Madrid Provincial Appellate Court.
	Additionally, Mobilaria Monesa, S.L. (parent of the former Gaesco) has filed a claim against Banco Santander, S.A. at Santander Court of First Instance no. 5, on the same grounds as previously mentioned, and which were resolved in arbitration, a circumstance that has been brought to the Court’s attention in the notice of opposition thereto prepared by the Bank.
•	Former Banco do Estado de São Paulo S.A. — Banespa — employees: a claim was filed in 1998 by the association of retired Banespa employees (AFABESP) on behalf of its members, requesting the payment of a half-yearly bonus initially envisaged in the entity’s bylaws in the event that the entity obtained a profit and that the distribution of this profit, in the form of bonus, were approved by the board of directors. The bonus was not paid in 1994 and 1995 since the bank did not make a profit and partial payments were made from 1996 to 2000 in variable percentages as agreed by the board of directors, and the aforementioned clause was eliminated from the bylaws in 2001. After the Regional Labor Court ordered Banco Santander Banespa, S.A. (currently Banco Santander (Brasil), S.A.) to pay the half-yearly bonus in September 2005, the Bank filed an appeal at the High Labor Court which handed down a decision on June 25, 2008, ordering the Bank to pay the half-yearly bonus from 1996 onwards for a maximum amount equivalent to the share in the profits. Appeals against this decision were filed at the High Labor Court and at the Federal Supreme Court, and are currently in process.

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•	Padrão Comércio e Incorporacão de Imóveis Ltda: Claim for BRL 87 million against Banco Santander Brasil, S.A. for purported wrongful charges made by its predecessor, Banco do Estado de São Paulo, S.A. (Banespa), since the opening of a current account in the city of Recife in 1994 to 1996. In 2006, the Pernambuco Court of Justice handed down a decision at first instance against Banespa for not having submitted all the relevant documentation. Banespa then filed an appeal, dismissed in 2009, in which a new expert’s report was requested and additional documentation was provided which evidenced that at least a portion of the funds under dispute were used by the complainant. Banco Santander Brasil requested clarification of this decision and a decision has yet to be handed down. Subsequently, Banco Santander Brasil intends to appeal to the High Court.
•	The bankruptcy of various Lehman Group companies was made public on September 15, 2008. Various customers of Santander Group were affected by this situation since they had invested in securities issued by Lehman or in other products which had such assets as their underlying security.
	On November 12, 2008, the Group announced the implementation of a solution (which was of a strictly commercial, exceptional nature and did not imply any admission of misselling) for holders of one of the products sold -Seguro Banif Estructurado- issued by the insurance company Axa Aurora Vida, which had as its underlying security a bond issued and guaranteed by Lehman. The solution involved replacing the Lehman issuer risk with the issuer risk of Grupo Santander subsidiaries. The exchange period ended on December 23, 2008. As a result of the exchange, at 2008 year-end a loss was recognized under Gains/losses on financial assets and liabilities (net) in the consolidated income statement for the difference of €46 million (€33 million after tax) between the fair value of the bonds received and the bonds delivered in the exchange.
	In February 2009 the Group offered a similar solution to other customers affected by the Lehman bankruptcy. The cost of this transaction, before tax, was €143 million (€100 million after tax), which were recognized under Gains/losses on financial assets and liabilities (net) in the consolidated income statement for 2008.
	At the date of preparation of these consolidated financial statements, it was known that certain claims had been filed in relation to this matter. The Bank’s directors and its legal advisers consider that the various Lehman products were sold in accordance with the applicable legal regulations in force at the time of each sale or subscription and that the fact that the Group acted as intermediary would not give rise to any liability in relation to the insolvency of Lehman. Accordingly, it has not been necessary to recognize any liability in this connection in the consolidated financial statements for 2009.
•	The investigation by the US Securities and Exchange Commission (“SEC”) into the alleged fraud of Bernard L. Madoff Investment Securities LLC (“Madoff Securities”) took place in December 2008. The exposure of customers of the Group through the subfund Optimal Strategic US Equity (“Optimal Strategic”) was €2,330 million, of which €2,010 million related to institutional investors and international private banking customers, and the remaining €320 million were in the investment portfolios of the Group’s private banking customers in Spain.
•	On January 27, 2009, the Group announced its decision to offer a solution to those of its private banking customers who had invested in Optimal Strategic and had been affected by the alleged fraud. This solution, which was applied to the principal amount invested, net of redemptions, totaled €1,380 million. It consisted of a replacement of assets whereby the private banking customers could exchange their investments in Optimal Strategic for preference shares (participaciones preferentes) to be issued by the Group for the aforementioned amount of €1,380 million, with an annual coupon of 2% and a call option that can be exercised by the issuer in year ten. At December 31, 2008, the Group determined that these events should be classified as “adjusting events after the reporting period”, as defined in IAS 10.3, since they provided evidence of conditions that existed at the end of the reporting period and, accordingly, in accordance with IAS 37.14, it recognized the pre-tax cost of this transaction for the Group (€500 million or €350 million after tax) under Gains/losses on financial assets and liabilities (net) in the consolidated income statement for 2008.
	The Group believes it has at all times exercised due diligence in the management of its customers’ investments in the Optimal Strategic fund. These products have always been sold in a transparent way pursuant to applicable legislation and established Group procedures and, accordingly, the decision to offer a solution was taken in view of the exceptional circumstances attaching to this case and based on solely commercial reasons, due to the interest the Group has in maintaining its business relationship with these customers.

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At the time of the intervention, Madoff Securities was a broker-dealer authorized, registered and supervised by the SEC and was also authorized as an investment advisor by the US Financial Industry Regulatory Authority (FINRA).

At the date of these consolidated financial statements, it was known that certain claims have been filed in relation to this matter. Some of the claims have been submitted in several forums and jurisdictions. The claims have been initiated by investors with investments with exposure to Madoff Securities, including holders of shares in Optimal Strategic, holders of financial structured products whose value and profitability were linked to the evolution of some Optimal funds (among them, Optimal Strategic) and holders of life insurance products which had as its underlying security a bond whose value and profitability was linked to the evolution of Optimal funds (among them, Optimal Strategic). All these proceedings are ongoing.

On March 18, 2009, the Group issued the preference shares earmarked for the replacement of assets offered to the private banking customers affected by the intervention of Madoff Securities and those affected by the Lehman bankruptcy who were not able to participate in the exchange made on December 23, 2008 (referred to above). The preference shares have been listed on the London Stock Exchange since March 23, 2009. The level of acceptance of the exchange proposal is close to 97%.

On May 26, 2009, two funds managed by Optimal Investment Services, S.A., a subsidiary indirectly owned by Banco Santander, S.A., announced that they had entered into an agreement with Irving H. Picard, the court-appointed Trustee for the liquidation of Madoff Securities. Under the agreement, the Trustee will allow the funds’ claims in the liquidation proceeding and reduce his clawback demands on the funds by the amounts withdrawn by the latter from Madoff Securities, in the 90 days prior to bankruptcy, which American legislation allows him to claim, in exchange for the partial payment of those demands by the funds. The funds are Optimal Strategic U.S. Equity Limited and Optimal Arbitrage Limited. These are the only Optimal funds that had accounts at Madoff Securities.

Pursuant to the agreement, the funds’ claims against Madoff Securities were allowed in their full amounts, calculated on a cash-in, cash-out basis, of $1,540,141,277.60 and $9,807,768.40, respectively, and the funds were entitled to Securities Investor Protection Corporation advances of $500,000 each. The funds have paid 85% of the clawback claims asserted by the Trustee. The payments totaled $129,057,094.60 for Optimal Strategic and USD 106,323,953.40 for Arbitrage.

The funds agreed not to file any other claims against Madoff Securities’ estate. The agreement also contains an “equal treatment” provision, so that if the Trustee settled similar clawback claims for less than 85%, the funds would receive a rebate of a portion of their payments to equalize the percentages applied to the funds with respect to other comparable investors.

The agreement followed the Trustee’s investigation of Optimal companies and affiliates’ conduct in dealing with Madoff Securities, including a review of Optimal companies and affiliates’ documents relating to its due diligence, in which the Trustee concluded that their conduct does not provide grounds to assert any claim against the Optimal companies or any entity of Santander Group (other than the clawback claims described above, which did not arise from any inappropriate conduct by the funds).

The agreement contains releases of all clawback and other claims the Trustee may have against the funds for any matters arising out of the funds’ investments with Madoff Securities. The Trustee’s release applies to all potential claims against other Optimal companies, Santander Group companies and their investors, directors, officers and employees who agree to release the Trustee and the Madoff Securities estate, to the extent the claims arose out of the funds’ dealings with Madoff Securities. It also releases both funds from potential clawback liability for any other withdrawals made by them.

The agreement between the Trustee and the aforementioned Optimal funds was approved by the United States Bankruptcy Court of the Southern District of New York on June 16, 2009.

Madoff Securities is currently in liquidation in accordance with the Securities Investor Protection Act of 1970 in the United States Bankruptcy Court of the Southern District of New York. Bernard L. Madoff, the chief executive of Madoff Securities, has pleaded guilty to perpetrating what was probably the largest pyramid fraud in history and has been sentenced to 150 years imprisonment.

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Additionally, the development of the litigation in 2009 arising from the absorption of Banco Santander Noroeste S.A. — “Banco Noroeste” by Banco Santander Brasil, S.A. is detailed below:

•	Three claims filed by minority shareholders of Banco Noroeste requesting, in addition to compensation for damage and losses, the annulment of the general shareholders’ meeting that approved the merger between Banco Noroeste and Banco Santander Brasil, S.A. arguing that when the merger took place Banco Noroeste shareholders should have been offered a market value that would have enabled them to decide whether or not to sell their shares at that value.
	In the three cases, judgments were handed down at first instance, one of which found in favor of Banco Santander (Brasil), S.A. and the other two against it. In the latter two cases the general shareholders’ meeting was not declared null and void but rather Banco Santander (Brasil), S.A. was ordered to pay compensation. Appeals were filed against these judgments by Banco Santander (Brasil), S.A.
	The São Paulo Court of Justice recently handed down a joint judgment on the three appeals at second instance, finding that Banco Santander (Brasil), S.A. should have duly prepared a valuation report using the disposal value method, thereby concluding that the minority shareholders be indemnified.
	In the case of the shareholders that sold their shares, the Court indicated that they should receive the difference between the value at which they sold their shares (equity value) and market value (calculated as the disposal value) at that time, plus interest. In the case of the shareholders that did not sell, the Court considered that they should receive the market value at that time plus interest, less the present value of their shares. Unlike the judgments handed down at first instance, lost profits and damages were excluded and the amount of lawyers’ fees was reduced. Banco Santander (Brasil), S.A. plans to file appeals against this judgment at higher courts.
	In August 2009, an agreement was reached with the minority shareholders of the former Banco Noroeste by virtue of which Banco Santander (Brasil) S.A. made a payment of BRL 106 million as compensation for damages related to the absorption of Banco Noroeste by Banco Santander (Brasil) S.A. Such compensation included the repurchase from the shareholders of the shares of Banco Santander (Brasil) S.A. that they held and payment of all other expenses. Based on the agreement, the minority shareholders accepted the annulment of all actions against Banco Santander (Brasil) S.A. and agreed not to file any further claims for the same reasons.
	The total amount of payments made by the Group arising from litigation in 2009, 2008 and 2007 is not material with respect to these consolidated financial statements.

**********************

At 2009, 2008 and 2007 year-end the Group had recognized provisions that reasonably cover any contingencies that might arise from these tax-related and non-tax-related proceedings.

26. Other liabilities

The detail of Other Liabilities is as follows:

	Thousands of euros
	2009		2008		2007
Transactions in transit		325,987		401,977		150,609
Accrued expenses and deferred income		5,438,831		4,593,557		3,907,719
Other		1,859,341		2,565,461		2,328,848
		7,624,159		7,560,995		6,387,176

27. Tax matters

a)	Consolidated tax group
	Pursuant to current legislation, the Consolidated Tax Group includes Banco Santander, S.A. (as the Parent) and the Spanish subsidiaries that meet the requirements provided for in Spanish legislation regulating the taxation of the consolidated profits of corporate groups (as the controlled entities).
	The other Group companies file income tax returns in accordance with the tax regulations applicable to them.

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b)	Years open for review by the tax authorities
	At December 31, 2009, the Consolidated Tax Group had the years from 2003 to 2009 open for review in relation to the main taxes applicable to it.
	The other entities have the corresponding years open for review, pursuant to their respective tax regulations.
	The tax audit of 2001 and 2002 for the main taxes applicable to the Consolidated Tax Group was completed in March 2007. Most of the tax assessments issued were signed on a contested basis.
	In 2009 there were no significant developments in connection with the tax disputes at the different instances, which were pending resolution at December 31, 2008.
	Because of the possible different interpretations which can be made of the tax regulations, the outcome of the tax audits of the years reviewed and of the open years might give rise to contingent tax liabilities which cannot be objectively quantified. However, the Group’s tax advisers consider that it is unlikely that such contingent liabilities will become actual liabilities, and that in any event the tax charge which might arise therefrom would not materially affect the consolidated financial statements of the Group.
c)	Reconciliation
	The reconciliation of the income tax expense calculated at the standard tax rate to the income tax expense and the detail of the effective tax rate are as follows:

	Millions of euros
	2009			2008			2007
Consolidated Operating profit before tax:
From ordinary activities		10,588			10,849			10,970
From discontinued operations		46			372			1,178
		10,634			11,221			12,148
Income tax at 30% (*)		3,190			3,366			3,948
Decreases due to permanent differences		(1,460	)		(1,419	)		(1,062	)
Of which:
Due to effect of different tax rates		(1,180	)		(1,039	)		(851	)
Income tax of Group companies, per local books		1,730			1,947			2,886
Net increases (decreases) due to other permanent differences		(556	)		(346	)		(577	)
Other, net		48			287			204
Current income tax		1,222			1,888			2,513
Effective tax rate		11.49	%		16.83	%		20.69	%
Of which:
Ordinary activities		1,207			1,836			2,322
Discontinued operations		15			52			191
Of which:
Current tax		2,082			2,689			2,805
Deferred taxes		(860	)		(801	)		(292	)
Taxes paid in the year		1,527			1,445			3,181

(*) 32.5% for 2007.

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d) Tax recognized in equity

In addition to the income tax recognized in the consolidated income statement, the Group recognized the following amounts in consolidated equity:

	Millions of euros
	2009			2008			2007
Tax charged to equity:
Measurement of non-current assets held for sale		—			(16	)		—
Measurement of available-for-sale fixed-income securities		(373	)		—			(104	)
Measurement of available-for-sale equity securities		—			—			(393	)
		(373	)		(16	)		(497	)
Tax credited to equity:
Measurement of available-for-sale fixed-income securities		—			30			—
Measurement of available-for-sale equity securities		35			247			—
Measurement of cash flow hedges		106			163			20
		141			440			20
Total		(232	)		424			(477	)

e)	Deferred taxes
	Tax assets in the consolidated balance sheets includes debit balances with the Spanish Public Treasury relating to deferred tax assets. Tax liabilities includes the liability for the Group’s various deferred tax liabilities.
	The detail of Tax assets — Deferred and Tax liabilities — Deferred is as follows:

	Millions of euros
	2009		2008		2007
Tax assets:
Of which:
Banco Santander (Brasil) S.A.		3,410		1,775		1,905
Banco ABN AMRO Real S.A. (*)		—		2,191		—
Sovereign Bancorp		1,925		—		—
Grupo Santander UK (**)		909		1,303		1,257
Early retirements		989		1,242		1,167
Other pensions		910		1,084		1,167
Prepaid taxes- Investments		—		965		965
		15,827		14,644		10,853
Tax liabilities:
Of which:
Banco Santander (Brasil) S.A.		553		472		253
Banco ABN AMRO Real S.A. (*).		—		376		—
Sovereign Bancorp		107		—		—
Grupo Santander UK (**)		405		418		741
Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander		65		113		101
Santander Consumer Bank AG		92		89		104
Valuation adjustments		744		341		534
		3,667		3,464		3,744

(*)	Merged into Banco Santander (Brazil), S.A. in 2009.
(**)	Including Alliance & Leicester in 2009 and 2008.

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The detail of the deferred tax assets and liabilities at December 31, 2009, on the basis of their expected recovery/payment, is as follows:

	Millions
	of euros
Deferred tax assets		15,827
That do not depend on the Group’s ability to generate future profit		11,624
That depend on the Group’s ability to generate future profit		4,203
Deferred tax liabilities		(3,667	)
Net		536

The changes in Tax Assets — Deferred and Tax Liabilities — Deferred in the last three years were as follows:

	Millions of euros
										(Charge)/
							Foreign currency			credit to
							balance			asset and
	Balances at			(Charge)/			translation			liability					Acquisitions			Balances at
	December 31,			credit to			differences and			revaluation			Prepaid		for the			December 31,
	2008			income			other items			reserve			taxes		year (net)			2009
Deferred tax assets		14,644			895			(1,736	)		(165	)		—		2,189			15,827
Deferred tax liabilities		(3,464	)		(35	)		246			(307	)		—		(107	)		(3,667	)
Total		11,180			860			(1,490	)		(472	)		—		2,082			12,160

	Millions of euros
							Foreign
							currency			(Charge)/
							balance			credit to
							translation			asset and
	Balances at			(Charge)/			differences			liability				Acquisitions for			Balances at
	December 31,			credit to			and other			revaluation		Prepaid		the			December 31,
	2007			income			items			reserve		taxes		year (net)			2008
Deferred tax assets		10,853			837			(374	)		696		—		2,632			14,644
Deferred tax liabilities		(3,744	)		(36	)		461			107		—		(252	)		(3,464	)
Total		7,109			801			87			803		—		2,380			11,180

	Millions of euros
							Foreign
							currency		(Charge)/
							balance		credit to
							translation		asset and
	Balances at			(Charge)/			differences		liability					Acquisitions for			Balances at
	December 31,			credit to			and other		revaluation			Prepaid		the			December 31,
	2006			income			items		reserve			taxes		year (net)			2007
Deferred tax assets		9,156			419			230		110			965		(27	)		10,853
Deferred tax liabilities		(3,778	)		(127	)		252		(128	)		—		37			(3,744	)
Total		5,378			292			482		(18	)		965		10			7,109

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f)

Other disclosures

In conformity with the Listing Rules Instrument 2005 published by the UK Financial Services Authority, it is hereby stated that shareholders of the Bank resident in the United Kingdom will be entitled to a tax credit in respect of the withholdings the Bank is required to make from the dividends to be paid to them. The shareholders of the Bank resident in the United Kingdom who hold their ownership interest in the Bank through Grupo Santander Nominee Service and Santander UK Nominee will be informed directly of the amount thus withheld and of any other data they may require to complete their tax returns in the United Kingdom. The other shareholders of the Bank resident in the United Kingdom should contact their bank or securities broker.

28.	Minority interests
	Minority interests include the net amount of the equity of subsidiaries attributable to equity instruments that do not belong, directly or indirectly, to the Bank, including the portion attributed to them of profit for the year.

a)	Breakdown
	The detail, by Group company, of Equity — Minority interests is as follows:

	Thousands of euros
	2009		2008		2007
Grupo Financiero Santander, S.A. de C.V.		787,351		707,603		649,291
Banesto		555,368		495,021		476,152
Banco Santander Chile		383,191		245,229		241,726
Santander Brasil		2,571,235		122,067		56,062
Santander BanCorp		35,340		34,751		30,701
Other companies		402,051		353,935		328,445
		4,734,536		1,958,606		1,782,377
Profit for the year attributable to minority interests		469,522		456,000		575,892
Of which:
Banesto Group		26,773		75,294		81,467
Grupo Financiero Santander, S.A. de C.V.		160,478		182,927		281,186
Banco Santander Chile		134,913		129,758		138,781
Santander Brasil		114,151		22,042		7,005
Santander BanCorp		3,178		2,434		1,626
		5,204,058		2,414,606		2,358,269

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b)	Changes
	The changes in Minority interests are summarized as follows:

	Millions of euros
	2009			2008			2007
Balance at beginning of year		2,415			2,358			2,221
Change in consolidation method		—			105			—
(Net) inclusion of companies in the Group and changes in scope of consolidation		(12	)		13			(9	)
Change in proportion of ownership interest		(2	)		(41	)		(117	)
Valuation adjustments		75			(26	)		(57	)
Dividends paid to minority interests		(233	)		(241	)		(360	)
Changes in share capital (*)		2,187			74			220
Exchange differences and other items		305			(283	)		(116	)
Profit for the year attributable to minority interests		469			456			576
Balance at end of year		5,204			2,415			2,358

(*) In 2009 including mainly the minority interests arising from the initial public offering of Santander Brasil launched by the Group amounting to €2,360 million at the closing exchange rate (see Note 3). This change is also shown as a capital increase in the consolidated statement of changes in total equity for 2009.

29.	Valuation adjustments
	The balances of Valuation adjustments include the amounts, net of the related tax effect, of the adjustments to assets and liabilities recognized temporarily in equity through the statement of changes in equity (recognized income and expense) until they are extinguished or realized, when they are recognized definitively as shareholders’ equity through the consolidated income statement. The amounts arising from subsidiaries and jointly controlled entities are presented, on a line by line basis, in the appropriate items according to their nature.
	It should be noted that the consolidated statement of recognized income and expense includes the changes to “Valuation adjustments” as follows:

• Revaluation gains (losses): includes the amount of the income, net of the expenses incurred in the year, recognized directly in equity. The amounts recognized in equity in the year remain under this item, even if in the same year they are transferred to the income statement or to the initial carrying amount of the assets or liabilities or are reclassified to another line item.

• Amounts transferred to income statement: includes the amount of the revaluation gains and losses previously recognized in equity, even in the same year, which are recognized in the income statement.

• Amounts transferred to initial carrying amount of hedged items: includes the amount of the revaluation gains and losses previously recognized in equity, even in the same year, which are recognized in the initial carrying amount of assets or liabilities as a result of cash flow hedges.

• Other reclassifications: includes the amount of the transfers made in the year between the various valuation adjustment items.

The amounts of these items are recognized gross, including the amount of the valuation adjustments relating to minority interests, and the corresponding tax effect is presented under a separate item, except in the case of entities accounted for using the equity method, the amounts for which are presented net of the tax effect.

a)	Available-for-sale financial assets
	“Valuation adjustments — Available-for-sale financial assets” includes the net amount of unrealized changes in the fair value of assets classified as available-for-sale financial assets.
	At December 31, 2008, the consolidated statement of recognized income and expense included €2,042 million, the result of the negative balance of revaluation gains/losses and the positive balance of amounts transferred to the income statement, relating to the write-down recognized in income of the ownership interests in Royal Bank of Scotland and Fortis (see Notes 1.i and 50).

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	The remaining changes in the balance at December 31, 2008 with respect to the previous year related mainly to the reduction arising from the loss of unrealized gains that were recognized in equity at 2007 year-end.
	The changes in 2009 reflect the recovery in the equities markets and the positive effect that falls in interest rates had on debt securities.
b)	Cash flow hedges
	Valuation adjustments — Cash flow hedges includes the gains or losses attributable to hedging instruments that qualify as effective hedges. These amounts will remain under this heading until they are recognized in the consolidated income statement in the periods in which the hedged items affect it (see Note 11).
	Accordingly, amounts representing valuation losses will be offset in the future by gains generated by the hedged instruments.
c)	Hedges of net investments in foreign operations and Exchange differences
	Valuation adjustments — Hedges of net investments in foreign operations includes the net amount of changes in the value of hedging instruments in hedges of net investments in foreign operations, for the portion of these changes considered as effective hedges (see Note 11).
	Valuation adjustments — Exchange differences includes the net amount of exchange differences arising on non-monetary items whose fair value is adjusted against equity and the differences arising on the translation to euros of the balances of the consolidated entities whose functional currency is not the euro (see Note 2.a).
	The net changes in these two headings in the consolidated statement of recognized income and expense include the valuation gain or loss relating to the exchange difference arising from the goodwill held by the Group in foreign currency. At December 31, 2008, the balance recognized in the consolidated statement of recognized income and expense in this connection represented a loss of approximately €3,500 million. This change was offset by a negative change in the balance of goodwill at the corresponding date and, accordingly, it did not affect the Group’s equity (see Note 17).
	The changes in 2009 reflect the positive effect of the fluctuations in exchange rates, mainly the pound sterling and the Brazilian real, giving rise to a gain of approximately €2,390 million with regard to the measurement of goodwill.
	The detail, by country, of Valuation adjustments — Hedges of net investments in foreign operations and Valuation adjustments — Exchange differences is as follows:

	Thousands of euros
	2009			2008			2007
Net balance at end of year		(3,555,140	)		(7,957,582	)		(638,275	)
Of which:
Arising on consolidation:
Subsidiaries:		(3,558,042	)		(7,949,868	)		(663,779	)
Brazil Group		1,124,699			(2,819,871	)		696,462
Chile Group		(89,222	)		(475,525	)		(130,186	)
Mexico Group		(1,010,852	)		(977,254	)		(508,264	)
Abbey Group		(2,964,878	)		(3,280,445	)		(562,990	)
Other		(617,789	)		(396,773	)		(158,801	)
Associates		2,902			(7,714	)		25,504

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d)	Entities accounted for using the equity method
	Valuation adjustments — Entities accounted for using the equity method includes the amounts of valuation adjustments recognized in equity arising from associates.
	The net changes in Valuation adjustments — Entities accounted for using the equity method were as follows:

	Thousands of euros
	2009			2008			2007
Balance at beginning of year		(148,402	)		(1,840	)		57,437
Revaluation gains (losses)		—			(149,073	)		(59,277	)
Amounts transferred to income		—			43,728			—
Transfers		148,402			(41,217	)		—
Balance at end of year		—			(148,402	)		(1,840	)
Of which:
Sovereign		—			(148,402	)		(27,068	)
Cepsa		—			—			25,213

30.	Shareholders’ equity
	Shareholders’ equity includes the amounts of equity contributions from shareholders, accumulated profit or loss recognized through the consolidated income statement, and components of compound financial instruments having the substance of permanent equity. Amounts arising from subsidiaries and jointly controlled entities are presented in the appropriate items based on their nature.
	The changes in Shareholders’ equity are presented in the consolidated statement of changes in total equity. Significant information on certain items of Shareholders’ equity and the changes therein in 2009 is set forth below.

31. Issued capital

a)	Changes
	At December 31, 2008, the share capital consisted of 7,994,059,403 shares with a total par value of €3,997,029,701.50.
	On January 28, 2009 the shareholders at the general shareholders’ meeting of Sovereign approved its acquisition by the Bank and on January 30, 2009 the Bank increased capital through the issue of 161,546,320 ordinary shares for an effective amount (par value plus premium) of €1,302,063,339.
	Additionally, after completion on October 5, 2009 of the period for the voluntary conversion of Valores Santander into shares, and in accordance with the terms established in the related prospectus, on October 13, 2009, 257,647 new shares were issued to cater for this exchange.
	Lastly, on November 2, 2009 the bonus issue through which the Santander Dividendo Elección program (see Note 4) is instrumented took place, whereby 72,962,765 shares (0.89% of the share capital) relating to bonus share rights were issued in the proportion of one new share for 91 existing shares, for an amount of €36,481,382.5.
	Following these transactions, at December 31, 2009 the Bank’s share capital consisted of 8,228,826,135 shares with a par value of €4,114,413,067.5.
	The Bank’s shares are listed on the computerized trading system of the Spanish Stock Exchanges and on the New York, London, Milan, Lisbon, Buenos Aires and Mexico Stock Exchanges, and all of them have the same features and rights. At December 31, 2009, the only shareholders with an ownership interest in the Bank’s share capital of over 3% were Chase Nominees Ltd. (with a 12.51% holding), State Street Bank & Trust (with a 9.06% holding), EC Nominees Ltd. (with a 6.91% holding), Bank of New York Mellon (with a 5.57% holding), Société Generale (with a 3.59% holding) and Caceis Bank (with a 3.42% holding). These ownership interests are held on behalf of customers, and the Bank is not aware of any of these shareholders individually holding a stake of 3% or more.

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b)	Other considerations
	The additional share capital authorized by the shareholders at the annual general meeting of June 19, 2009 was €2,038,901,430.50. The Bank’s directors have until June 19, 2012 to carry out capital increases up to this limit. The resolution empowers the board to fully or partially disapply the pre-emption right in accordance with the terms of Article 159.2 of the Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas). At December 31, 2009, this power had not been exercised.
	The shareholders at the annual general meeting of 2009 resolved to increase the Bank’s capital by a par value of €500 million and granted the board the broadest powers to set the date and establish the terms and conditions of this capital increase within one year from the date of the aforementioned general shareholders’ meeting. If the board does not exercise the powers delegated to it within the period established by the general shareholders’ meeting, these powers will be rendered null and void.
	In addition, the aforementioned general shareholders’ meeting authorized the board to issue fixed-income securities, convertible into or exchangeable for shares of the Bank, for up to a total of €7,000 million or the equivalent amount in another currency. The Bank’s directors have until June 19, 2014 to execute this resolution.
	At December 31, 2009, the shares of the following companies were listed on official stock markets: Banco Santander Río S.A.; Banco Universal; Banco Santander Colombia, S.A.; Santander BanCorp (Puerto Rico); Grupo Financiero Santander, S.A. de C.V.; Banco Santander Chile; Cartera Mobiliaria, S.A., S.I.C.A.V.; Santander Chile Holding, S.A.; Banco Santander (Brazil), S.A. and Banco Español de Crédito.
	At December 31, 2009, the number of Bank shares owned by third parties and managed by Group management companies (mainly portfolio, collective investment undertaking and pension fund managers) was 21,770,053, which represented 0.26% of the Bank’s share capital. In addition, the number of Bank shares owned by third parties and received as security was 42.5 million (equal to 0.52% of the Bank’s share capital).
	At December 31, 2009, the capital increases in progress at Group companies and the additional capital authorized by their shareholders at the respective general shareholders’ meetings were not material at Group level.

32.	Share premium
	Share premium includes the amount paid up by the Bank’s shareholders in capital issues in excess of the par value.
	The Consolidated Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas) expressly permits the use of the Share premium account balance to increase capital at the entities at which it is recognized and does not establish any specific restrictions as to its use.
	The increase in the balance of the Share premium in 2009 relates to the capital increases detailed in Note 31.a. Also in 2009, an amount of €23 million was transferred from the Share premium account to the Legal reserve (see Note 33.b.i).

33. Reserves

a)	Definitions
	Shareholders’ equity — Reserves — Accumulated reserves includes the net amount of the accumulated profit or loss recognized in previous years through the consolidated income statement that, in the distribution of profit, was appropriated to equity, and the own equity instrument issuance expenses and the differences between the selling price of treasury shares and the cost of acquisition thereof.

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	Shareholders’ equity — Reserves of entities accounted for using the equity method includes the net amount of the accumulated profit or loss generated in previous years by entities accounted for using the equity method, recognized through the consolidated income statement.
b)	Breakdown
	The detail of Accumulated reserves and Reserves of entities accounted for using the equity method is as follows:

	Thousands of euros
	2009		2008			2007
Accumulated reserves:
Restricted reserves-
Legal reserve		822,883		799,406			625,430
Reserve for treasury shares		531,695		871,994			218,603
Revaluation reserve Royal Decree-Law 7/1996		42,666		42,666			42,666
Reserve for retired capital		10,610		10,610			10,610
Voluntary reserves (*)		2,282,098		2,479,352			3,668,316
Consolidation reserves attributed to the Bank		6,752,138		5,591,045			3,131,239
Reserves at subsidiaries		14,097,534		11,363,796			7,779,129
		24,539,624		21,158,869			15,475,993
Reserves of entities accounted for using the equity method:
Associates		67,663		(290,463	)		895,437
Of which:
Sovereign		—		(352,986	)		3,357
Cepsa		—		—			734,719
Attijariwafa Bank		—		—			126,626
		24,607,298		20,868,406			16,371,430

(*) Include the reserves stipulated by Article 81 of the Consolidated Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas) for an amount equal to the loans granted by Group companies to third parties for the acquisition of treasury shares.

i. Legal reserve

Pursuant to the Consolidated Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas), 10% of net profit for each year must be transferred to the legal reserve until the balance of this reserve reaches 20% of the share capital. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount.

In 2009 the Bank transferred €23 million from the share Premium account to the Legal reserve so that, once again, after the capital increases described in Note 31 had been carried out, the balance of the Legal reserve reached 20% of the share capital, and at December 31, 2009 the Legal reserve was at the stipulated level.

ii. Reserve for treasury shares

Pursuant to the Consolidated Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas), a restricted reserve has been recognized for an amount equal to the carrying amount of the Bank shares owned by subsidiaries. The balance of this reserve will become unrestricted when the circumstances that made it necessary to recognize it cease to exist. Additionally, this reserve covers the outstanding balance of the loans granted by the Group secured by Bank shares.

iii. Revaluation reserve Royal Decree Law 7/1996, of 7 June:

The balance of Revaluation reserve Royal Decree-Law 7/1996 can be used, free of tax, to increase share capital. From January 1, 2007, the balance of this account can be taken to unrestricted reserves, provided that the monetary surplus has been realized. The surplus will be deemed to have been realized in respect of the portion on which depreciation has been taken for accounting purposes or when the revalued assets have been transferred or derecognized.

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If the balance of this reserve were used in a manner other than that provided for in Royal Decree-Law 7/1996, of 7 June, it would be subject to taxation.

iv. Reserves at subsidiaries and jointly controlled entities

The detail, by company, of Reserves at subsidiaries and jointly controlled entities, based on the companies’ contribution to the Group (considering the effect of consolidation adjustments) is as follows:

	Millions of euros
	2009			2008			2007
Banco Español de Crédito, S.A. (Banesto) (Consolidated Group)		4,031			3,703			3,319
Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander (Consolidated Group)		1,623			1,630			1,819
Abbey Group		2,689			2,040			1,419
Banco Santander, S.A. (Banespa) (Consolidated Group)		1,940			1,596			1,036
Banco Santander Totta, S.A. (Consolidated Group)		1,589			1,273			939
Banco Santander Chile (Consolidated Group)		1,598			1,031			589
Banco de Venezuela, S.A., Banco Universal (Consolidated Group)		—			663			502
Grupo Santander Consumer Finance, S.A.		723			559			323
Cartera Mobiliaria, S.A., S.I.C.A.V.		315			324			298
Santander Investment, S.A.		230			207			181
Banco Santander International (United States)		241			203			178
Banco Banif, S.A.		210			188			133
Banco Santander (Suisse) SA		151			175			139
Santander Seguros y Reaseguros, Compañía Aseguradora, S.A.		237			149			72
BSN — Banco Santander de Negocios Portugal, S.A.		94			116			78
Banco Santander Río, S.A.		(412	)		(449	)		(525	)
Exchange differences, consolidation adjustments and other companies (*)		(1,161	)		(2,044	)		(2,721	)
Total		14,098			11,364			7,779
Of which: restricted		1,271			1,466			925

(*) Includes the charge relating to cumulative exchange differences in the transition to International Financial Reporting Standards.

34. Other equity instruments and Treasury shares

a)	Other equity instruments
	Other equity instruments includes the equity component of compound financial instruments, the increase in equity due to personnel remuneration, and other items not recognized in other Shareholders’ equity items.
	Valores Santander
	In 2007, in order to partially finance the takeover bid launched on ABN AMRO, Santander Emisora 150, S.A.U. issued securities mandatorily convertible into newly-issued ordinary shares of the Bank (Valores Santander) amounting to €7 billion. These securities can be voluntarily exchanged for Bank shares on October 4, 2010 and 2011, and must be mandatorily exchanged on October 4, 2012.
	The reference price of the Bank’s share for conversion purposes was set at €16.04 per share, and the conversion ratio of the bonds -i.e. the number of Bank shares corresponding to each Valor Santander for conversion purposes- is 311.76 shares for each Valor Santander. The nominal interest rate on these securities was 7.30% until October 4, 2008 and Euribor plus 2.75% thereafter until the securities are exchanged for shares.

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	Subsequent to issue, Banco Santander resolved in several occasions, in accordance with the prospectus, to change the conversion ratio of these securities. The latest revision was carried out in view of the bonus share issue performed by Banco Santander, through which the Santander Dividendo Elección program was put into effect, and the new reference price of the shares of Banco Santander for conversion purposes was set at €14.48 per share. Consequently, the new conversion ratio applicable to the Valores Santander is 345.30 shares of Banco Santander for each Valor Santander, the result of dividing the face value of each Valor Santander (€5,000) by the aforementioned reference price (€14.48).
b)	Treasury shares
	Shareholders’ equity — Treasury shares includes the amount of own equity instruments held by all the Group entities.
	Transactions involving own equity instruments, including their issuance and cancellation, are recognized directly in equity, and no profit or loss may be recognized on these transactions. The costs of any transaction involving own equity instruments are deducted directly from equity, net of any related tax effect.
	The shareholders at the Bank’s annual general meeting on June 21, 2008 set the maximum number of Bank shares that the Bank and/or any Group subsidiary are authorized to acquire at a number equivalent to 5% of the fully paid share capital amount, at a minimum share price not lower than par value and a maximum share price of up to 3% higher than the latest quoted price with respect to which the Bank did not trade for its own account in the Spanish Stock Market Interconnection System (including the block market) on the acquisition date concerned.
	The Bank’s shares owned by the consolidated companies accounted for 0.031% of issued share capital at December 31, 2009 (December 31, 2008: 0.81%; December 31, 2007: less than 0.01%).
	The average purchase price of the Bank’s shares in 2009 was €7.5 per share and the average selling price was €7.79 per share.
	The effect on equity arising from transactions involving Bank shares (gains of €321 million in 2009, gains of €12 million in 2008 and gains of €5 million in 2007) was recognized in equity.

35.	Memorandum items
	Memorandum items relates to balances representing rights, obligations and other legal situations that in the future may have an impact on net assets, as well as any other balances needed to reflect all transactions performed by the consolidated entities although they may not impinge on their net assets.

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a)	Contingent liabilities
	Contingent liabilities includes all transactions under which an entity guarantees the obligations of a third party and which result from financial guarantees granted by the entity or from other types of contract. The detail is as follows:

	Thousands of euros
	2009		2008		2007
Financial guarantees		20,974,258		15,614,342		17,172,878
Financial bank guarantees		19,725,382		14,514,126		16,386,413
Doubtful guarantees		489,367		196,862		77,815
Credit derivatives sold		759,224		903,067		708,250
Other financial guarantees		285		287		400
Irrevocable documentary credits		2,636,618		3,590,454		5,803,088
Other bank guarantees and indemnities provided		35,192,187		45,613,498		52,632,118
Other guarantees		28,025,392		38,905,912		34,657,158
Undertakings to provide bank guarantees		7,166,795		6,707,586		17,974,960
Other contingent liabilities		453,013		504,900		608,501
Assets earmarked for third-party obligations		3		4		3
Other doubtful contingent liabilities		6		—		112
Other contingent liabilities		453,004		504,896		608,386
		59,256,076		65,323,194		76,216,585

A significant portion of these guarantees will expire without any payment obligation materializing for the consolidated entities and, therefore, the aggregate balance of these commitments cannot be considered as an actual future need for financing or liquidity to be provided by the Group to third parties.

Income from guarantee instruments is recognized under Fee and commission income in the consolidated income statements and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee.

At December 31, 2009, the Group had recognized provisions of €641,620 thousand to cover contingent liabilities (December 31, 2008: €678,584 thousand; December 31, 2007: €636,316 thousand) (see Note 25).

i. Financial guarantees

Financial guarantees includes, inter alia, financial guarantee contracts such as financial bank guarantees, credit derivatives sold, and risks arising from derivatives arranged for the account of third parties.

ii. Other bank guarantees and indemnities provided

Other bank guarantees and indemnities provided includes guarantees other than those classified as financial, such as technical guarantees, guarantees covering the import and export of goods and services, irrevocable formal undertakings to provide bank guarantees, legally enforceable letters of guarantee and other guarantees of any kind.

iii. Other contingent liabilities

Other contingent liabilities includes the amount of any contingent liability not included in other items.

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b)	Contingent commitments
	“Contingent commitments” includes those irrevocable commitments that could give rise to the recognition of financial assets.
	The detail is as follows:

	Thousands of euros
	2009		2008		2007
Drawable by third parties		150,562,786		123,329,168		102,215,927
Financial asset forward purchase commitments		3,302,484		856,212		1,439,956
Regular way financial asset purchase contracts		3,446,834		1,626,097		4,181,396
Securities subscribed but not paid		29,141		42,467		107,244
Securities placement and underwriting commitments		11		50,006		33,032
Documents delivered to clearing houses		4,764,584		5,348,689		5,987,879
Other contingent commitments		1,424,916		472,367		711,129
		163,530,756		131,725,006		114,676,563

36. Other disclosures

a)	Notional amounts and market values of trading and hedging derivatives
	The detail of the notional and/or contractual amounts and the market values of the trading and hedging derivatives held by the Group is as follows:

	Millions of euros
	2009					2008					2007
	Notional		Market			Notional		Market			Notional		Market
	amount		value			amount		value			amount		value
Trading derivatives:
Interest rate risk-
Forward rate agreements		150,906		(1,177	)		328,743		(31	)		330,315		(995	)
Interest rate swaps		1,693,804		918			1,742,448		2,424			1,923,372		(455	)
Options and futures		1,001,660		537			848,479		(1,252	)		953,315		(463	)
Foreign currency risk-
Foreign currency purchases and sales		108,031		(525	)		110,049		(1,261	)		117,868		(505	)
Foreign currency options		45,983		(81	)		71,114		9			62,723		(566	)
Currency swaps		112,361		2,079			82,080		5,871			75,090		(1,020	)
Securities and commodities derivatives		160,867		(606	)		156,094		889			157,807		1,288
		3,273,612		1,144			3,339,007		6,648			3,620,490		(2,716	)
Hedging derivatives:
Interest rate risk-
Forward rate agreements		—		—			653		1			—		—
Interest rate swaps		218,539		1,751			164,800		2,205			120,822		(1,159	)
Options and futures		21,144		(26	)		27,140		33			10,660		(112	)
Foreign currency risk-
Foreign currency purchases and sales		1,714		(14	)		8,329		(69	)		29		6
Foreign currency options		21,784		(128	)		4,209		246			16,630		292
Currency swaps		14,715		1,091			12,889		1,595			16,372		(99	)
Securities and commodities derivatives		1,007		(32	)		3,593		(270	)		155		1
		278,903		2,643			221,613		3,741			164,667		(1,071	)
Total		3,552,515		3,787			3,560,620		10,389			3,785,156		(3,788	)

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The notional and/or contractual amounts of the contracts entered into do not reflect the actual risk assumed by the Group, since the net position in these financial instruments is the result of offsetting and/or combining them. This net position is used by the Group basically to hedge the interest rate, underlying asset price or foreign currency risk; the results on these financial instruments are recognized under Gains/losses on financial assets and liabilities (net) in the consolidated income statements and increase or offset, as appropriate, the gains or losses on the investments hedged (see Note 11).

Additionally, in order to interpret correctly the results on the Securities and commodities derivatives shown in the foregoing table, it should be considered that these items relate mostly to securities options for which a premium has been received which offsets their negative market value. Also, this market value is offset by positive market values generated by symmetrical positions in the Group’s held-for-trading portfolio.

The Group manages the credit risk exposure of these contracts through netting arrangements with its main counterparties and by receiving assets as collateral for its risk positions.

The detail of the cumulative credit risk exposure, by financial derivative, is as follows:

	Millions of euros
	2009			2008			2007
Credit derivatives		1,942			3,186			1,008
Securities derivatives		2,763			4,322			3,227
Fixed-income derivatives		343			345			405
Currency derivatives		21,568			15,277			7,990
Interest rate derivatives		23,438			25,117			17,507
Commodities derivatives		138			138			23
Collateral received		(7,430	)		(9,366	)		(3,084	)
Total		42,761			39,019			27,076

The notional amounts and fair values of the hedging derivatives, by type of hedge, is as follows:

	Millions of euros
	2009					2008				2007
	Notional		Fair			Notional		Fair		Notional		Fair
	amount		value			amount		value		amount		value
Fair value hedges		203,975		3,289			169,623		3,340		126,388		(1,199	)
Cash flow hedges		66,194		(518	)		45,162		185		10,696		(137	)
Hedges of net investments in foreign operations		8,735		(128	)		6,828		216		27,583		265
		278,904		2,643			221,613		3,741		164,667		(1,071	)

Following is the description of the main hedges (including the results of the hedging instrument and the hedged item attributable to the hedged risk):

i. Fair value and cash flow hedges

Micro-hedges

The Group hedges the interest rate risk of the issues guaranteed by the Parent Bank. At 2009 year-end, the Group held derivative contracts to hedge the interest rate risk of issues, with an equivalent euro nominal value of €50,477 million, of which €41,590 million were denominated in euros, €4,159 million in US dollars and €3,659 million in pounds sterling. The fair value of these transactions at that date represented a gain of €1,958.5 million, which was offset by the loss on the hedged items, giving rise to a net loss of €23.1 million. In addition, there was an unrealized loss of €15.6 million relating to cash flow hedges.

At 2008 year-end, the Group held derivative contracts to hedge the interest rate risk of issues, with an equivalent euro nominal value of €52,369 million, of which €41,180 million were denominated in euros, €5,263 million in US dollars and €4,263 million in pounds sterling. The fair value of these transactions at that date represented a gain of €2,305.5 million, which was offset by the loss on the hedged items, giving rise to a net loss of €150.9 million. In addition, there was an unrealized gain of €4.2 million relating to a cash flow hedge on a floating rate issue.

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Interest rate risk hedges of portfolios of financial instruments

The main hedges of portfolios of financial instruments in the Group are described below:

• Hedges for the purpose of eliminating exposure to the interest rate risk of mortgage loan portfolios

• Hedges for the purpose of covering the interest rate risk of issued liabilities -issues of subordinated debt and mortgage-backed bonds (cédulas hipotecarias)

• Hedges for the purpose of covering the interest rate risk of fixed-rate consumer loans

These hedges are mainly recognized in the financial statements of Abbey, Alliance & Leicester, Banesto and the Santander Consumer Finance Group.

In the case of fair value hedges of interest rate risk on financial instrument portfolios, the gain or loss on the hedged items is recognized in assets or liabilities under Changes in the fair value of hedged items in portfolio hedges of interest rate risk. At December 31, 2009, there were gains of €1,420 million and losses of €806 million, associated with assets and liabilities thus hedged, respectively (December 31, 2008: gains of €2,403 million and losses of €440 million, respectively).

In 2009 a revenue of €8 million and an expense of €146 million, attributable to the hedged risk, were recognized in profit or loss (see Note 44) on the hedging instruments and on the hedged items, respectively (2008: a revenue of €4,685 million and an expense of €4,776 million, respectively).

The fair value of the cash flow hedges, net of the related tax effect, is recognized against the Group’s equity under Valuation adjustments — Cash flow hedges. The detail of the terms, from December 31, 2009, within which it is expected that the amounts recognized in consolidated equity under Valuation adjustments — Cash flow hedges at that date will be recognized in future consolidated income statements is as follows:

	Millions of euros
	Less than			1 to 5			More than
2009	1 Year			Years			5 years			Total
Debit balances (loss)		(197	)		(238	)		(83	)		(518	)

ii. Foreign currency hedges (net investments in foreign operations)

As part of its financial strategy, the Group hedges the foreign currency risk arising from its investments in non-euro-zone countries. To this end, it arranges foreign currency derivatives in order to take a long position in euros vis-à-vis the local currency of the investment. At 2009 year-end, the Group held foreign currency options in this connection with an equivalent euro nominal value of €9,404 million, of which €7,461 million were denominated in Brazilian reais and €1,943 million in Mexican pesos. In 2009 losses amounting to €292 million arising from the settlement of options that were exercised in the year were taken to reserves. At 2009 year-end, the market value of the options not yet exercised represented an unrealized loss of €153 million. In addition to these options, the Group arranged other derivatives hedging the exposure to Chilean pesos with an equivalent euro value of €1,478 million, which gave rise to a loss of €107 million in 2009. The hedge, through short currency positions, of the underlying carrying amount in pounds sterling, for a notional amount of GBP 4,485 million, recorded a loss of €339 million in 2009. The overall losses incurred by the hedging derivatives are offset from an equity position by the appreciation in euros of the value of the Group’s investments in the related entities.

At 2008 year-end, the Group held foreign currency options in this connection with an equivalent euro nominal value of €3,438 million, of which €1,151 million were denominated in Brazilian reais, €1,520 million in Mexican pesos and €767 million in Chilean pesos. In addition to these options, the underlying carrying amount in pounds sterling was hedged through short positions for a notional amount of GBP 4,832 million. In 2008 gains amounting to €499.8 million arising from the settlement of options that were exercised in the year were taken to reserves. At December 31, 2008, the market value of the options not yet exercised represented an unrealized gain of €379 million, which was supplemented by the gain of €306 million on the sterling hedge.

F-137

At 2007 year-end, the Group held foreign currency options in this connection with an equivalent euro nominal value of €12,878 million, of which €5,046 million were denominated in pounds sterling, €3,592 million in Brazilian reais, €2,560 million in Mexican pesos and €1,320 million in Chilean pesos. In 2007 gains amounting to €37.6 million arising from the settlement of options that matured in the year were taken to reserves. At 2007 year-end, the unrealized gain on the options not yet exercised amounted to €256 million.

b)	Off-balance-sheet funds under management
	The detail of off-balance-sheet funds managed by the Group is as follows:

	Millions of euros
	2009		2008		2007
Investment funds		105,216		90,305		119,211
Pension funds		11,310		11,128		11,952
Assets under management		18,364		17,289		19,814
		134,890		118,722		150,977

c)	Third-party securities held in custody
	At December 31, 2009, the Group held in custody debt securities and equity instruments totaling €935,343 million entrusted to it by third parties.

37. Discontinued operations

a) Description of divestments (see Note 3)

i. Banco de Venezuela

On July 6, 2009, Banco Santander announced that it had closed the sale of the stake in Banco de Venezuela to Banco de Desarrollo Económico y Social de Venezuela, a public institution of the Bolivarian Republic of Venezuela, for USD 1,050 million, of which USD 630 million were received in cash on that date and the remainder was received before year-end. This sale did not have a material impact on the Group’s consolidated income statement.

ii. Pension fund managers (AFPs)

The agreement to sell the obligatory pension fund managers in Latin America (AFPs) to ING Groep NV for €906 million was executed in December 2007. The agreement covered the AFPs in Chile (AFP Bansander, S.A.), Colombia (AFP Cesantías Santander), Mexico (Afore Santander, S.A. de C.V.) and Uruguay (Afinidad AFAP, S.A.). These disposals gave rise to gross gains totaling €747 million.

Also, an agreement was entered into for the sale of the Argentine companies Orígenes AFJP, S.A. and Orígenes Seguro de Retiro, S.A. to ING Groep NV. The agreement was executed in December 2007 for €112 million, giving rise to a pre-tax gain of €84 million.

No significant operations were discontinued in 2008.

F-138

b)	Profit and net cash flows from discontinued operations
	The detail of the profit from discontinued operations is set forth below.
	The comparative figures for 2008 and 2007 were restated in order to include the operations classified as discontinued in 2009.

	Millions of euros
	2009			2008			2007
Interest income / (Charges)		248			645			516
Income from equity instruments		—			—			3
Income from entities accounted for using the equity method		1			6			3
Net fee and commission income		48			184			350
Gains/losses on financial assets and liabilities		10			63			43
Exchange differences		(1	)		(1	)		2
Other operating income (net)		(8	)		(52	)		19
Total income		298			845			936
Personnel expenses		(59	)		(162	)		(191	)
Other general administrative expenses		(61	)		(170	)		(170	)
Depreciation and amortization charge		(11	)		(33	)		(25	)
Provisions		(19	)		(62	)		(136	)
Impairment losses on financial assets		(104	)		(63	)		(72	)
Profit from operations		44			355			342
Gains (losses) on disposal of assets not classified as non-current assets held for sale		2			17			5
Operating Profit / (Loss) before tax		46			372			347
Income tax		(15	)		(53	)		(43	)
Gains on divestments (Note 1.i)		—			—			831
Income tax on gains on divestments		—			—			(147	)
Profit from discontinued operations		31			319			988

Additionally, following is a detail of the net cash flows attributable to the operating, investing and financing activities of discontinued operations.

The comparative figures for 2008 and 2007 were restated in order to include the operations classified as discontinued in 2009.

	Millions of euros
	2009			2008			2007
Cash and cash equivalents at beginning of year		2,623			1,807			1,322
Cash flows from operating activities		(2,043	)		751			523
Cash flows from investing activities		143			(30	)		(25	)
Cash flows from financing activities		(723	)		94			(12	)
Cash and cash equivalents at end of year		—			2,623			1,807

F-139

c)	Consideration received
	The detail of the assets and liabilities associated with the operations discontinued in 2009 and 2007 is as follows:

	Millions of euros
	2009			2007
ASSETS:		8,839			1,081
Cash and balances with central banks		2,832			—
Financial assets held for trading		7			426
Other financial assets at fair value through profit or loss		—			110
Available-for-sale financial assets		544			43
Loans and receivables		5,125			422
Investments		7			—
Tangible assets and intangible assets		132			18
Tax assets		128			—
Other assets		63			62
LIABILITIES:		(8,089	)		(880	)
Financial liabilities at amortized cost		(7,619	)		(68	)
Liabilities under insurance contracts		—			(640	)
Provisions		(309	)		(55	)
Tax liabilities		(12	)		—
Other liabilities		(149	)		(117	)
Carrying amount		750			201
Goodwill		2			5
Minority interests		(12	)		(19	)
Net amount		740			187
Gains on divestments		—			831
Consideration received		740			1,018
Of which: in cash		740			1,018

d)	Earnings per share relating to discontinued operations
	The earnings per share relating to discontinued operations were as follows:

	2009		2008		2007
Basic earnings per share (euros)		0.0032		0.0427		0.1318
Diluted earnings per share (euros)		0.0032		0.0425		0.1305

38.

Interest and similar income

Interest and similar income in the consolidated income statement comprises the interest accruing in the year on all financial assets with an implicit or explicit return, calculated by applying the effective interest method, irrespective of measurement at fair value; and the rectifications of income as a result of hedge accounting. Interest is recognized gross, without deducting any tax withheld at source.

F-140

The detail of the main interest and similar income items earned in 2009, 2008 and 2007 is as follows:

	Thousands of euros
	2009		2008		2007
Balances with the Bank of Spain and other central banks		357,017		759,952		541,813
Loans and advances to credit institutions		2,520,858		3,819,453		2,836,935
Debt instruments		5,586,577		4,506,874		4,006,805
Loans and advances to customers		42,081,922		41,366,071		34,581,518
Insurance contracts linked to pensions (Note 25)		94,626		95,319		102,604
Other interest		2,532,004		4,495,877		3,442,583
Total		53,173,004		55,043,546		45,512,258

39.	Interest expense and similar charges
	Interest expense and similar charges in the consolidated income statement includes the interest accruing in the year on all financial liabilities with an implicit or explicit return, including remuneration in kind, calculated by applying the effective interest method, irrespective of measurement at fair value; the rectifications of cost as a result of hedge accounting; and the interest cost attributable to pension funds.
	The detail of the main items of interest expense and similar charges accrued in 2009, 2008 and 2007 is as follows:

	Thousands of euros
	2009		2008		2007
Deposits from the Bank of Spain and other central banks		296,449		422,265		279,624
Deposits from credit institutions		2,988,915		3,266,323		3,574,818
Customer deposits		11,810,713		15,000,393		12,072,200
Marketable debt securities and subordinated liabilities		8,590,796		13,232,690		11,451,605
Marketable debt securities		6,236,747		10,817,648		9,351,606
Subordinated liabilities (Note 23)		2,354,049		2,415,042		2,099,999
Provisions for pensions (Note 25)		481,771		453,852		487,165
Other interest		2,705,818		5,129,561		3,204,074
Total		26,874,462		37,505,084		31,069,486

40.	Income from equity instruments
	Income from equity instruments includes the dividends and payments on equity instruments out of profits generated by investees after the acquisition of the equity interest.
	The detail of Income from equity instruments is as follows:

	Thousands of euros
	2009		2008		2007
Equity instruments classified as:
Financial assets held for trading		238,209		222,795		210,562
Available-for-sale financial assets		198,265		329,962		209,435
Of which:
San Paolo IMI, S.p.A.		—		—		80,500
Royal Bank of Scotland		—		74,575		—
		436,474		552,757		419,997

F-141

41.	Income from entities accounted for using the equity method — Associates
	Share of results of entities accounted for using the equity method — Associates comprises the amount of profit or loss attributable to the Group generated during the year by associates.
	The detail of this item is as follows:

	Thousands of euros
	2009			2008			2007
Cepsa (Note 12)		—			130,932			206,706
Attijariwafa (Note 8)		—			27,560			25,700
Sovereign Bancorp (**)		(15,691	)		(110,251	)		43,355
RFS Holdings B.V. (*)		—			711,146			141,348
Other companies		15,171			32,367			20,940
		(520	)		791,754			438,049

(*)	Of the 2008 result of entities accounted for using the equity method relating to RFS Holdings B.V., €675 million correspond to Banco Real, an entity which was accounted for using the equity method in the first three quarters of 2008 and was fully consolidated in the last quarter of that year (see Note 3).
(**)	Fully consolidated from February 2009.

42.	Fee and commission income
	Fee and commission income comprises the amount of all fees and commissions accruing in favor of the Group in the year, except those that form an integral part of the effective interest rate on financial instruments.
	The detail of Fee and commission income is as follows:

	Thousands of euros
	2009		2008		2007
Collection and payment services:
Bills		326,974		313,312		238,460
Demand accounts		858,696		570,404		555,826
Cards		1,761,868		1,566,972		1,428,820
Cheques and other		279,882		347,879		403,204
Orders		309,582		247,502		231,596
		3,537,002		3,046,069		2,857,906
Marketing of non-banking financial products:
Investment funds		1,070,672		1,458,148		1,812,975
Pension funds		148,986		160,331		171,935
Insurance		1,963,847		1,864,109		1,459,122
		3,183,505		3,482,588		3,444,032
Securities services:
Securities underwriting and placement		254,298		102,199		260,641
Securities trading		324,672		353,603		434,182
Administration and custody		242,665		247,612		266,084
Asset management		67,490		79,100		87,152
		889,125		782,514		1,048,059
Other:
Foreign exchange		154,847		96,187		56,594
Financial guarantees		485,149		391,280		352,971
Commitment fees		199,563		265,807		166,374
Other fees and commissions		2,277,177		1,676,955		1,364,107
		3,116,736		2,430,229		1,940,046
		10,726,368		9,741,400		9,290,043

F-142

43.	Fee and commission expense
	Fee and commission expense shows the amount of all fees and commissions paid or payable by the Group in the year, except those that form an integral part of the effective interest rate on financial instruments.
	The detail of Fee and commission expense is as follows:

	Thousands of euros
	2009		2008		2007
Fees and commissions assigned to third parties		1,050,665		936,713		906,831
Of which: Cards		728,485		710,330		653,686
Brokerage fees on lending and deposit transactions		29,591		26,925		21,882
Other fees and commissions		565,978		511,467		492,825
		1,646,234		1,475,105		1,421,538

44.	Gains/losses on financial assets and liabilities
	Gains/losses on financial assets and liabilities includes the amount of the valuation adjustments of financial instruments, except those attributable to interest accrued as a result of application of the effective interest method and to allowances, and the gains or losses obtained from the sale and purchase thereof.

a)	Breakdown
	The detail, by origin, of Gains/losses on financial assets and liabilities is as follows:

	Thousands of euros
	2009			2008			2007
Other financial instruments at fair value through profit or loss (*)		197,993			607,309			125,774
Financial instruments not measured at fair value through profit or loss		1,630,858			1,722,651			873,018
Of which: Available-for-sale financial assets		861,901			767,131			1,015,013
Of which:
Debt instruments		439,633			397,213			311,761
Equity instruments		422,268			369,918			703,252
Bolsas y Mercados Españoles		—			—			110,587
BPI (Note 1.i)		—			—			107,000
Telefónica, S.A.		—			—			138,410
Of which: Other		768,957			955,520			(141,995	)
Of which:
Due to exchange of shares (Note 1.i)		723,917			—			—
Due to repurchase of securitizations		97,459			—			—
Disposal of ABN liabilities (Note 1.i)		—			741,100			—
Hedging derivatives and other		(125,655	)		(4,539	)		(100,346	)
Losses on assets to be delivered to Madoff/Lehman victims (Note 25)		—			(643,000	)		—
Other financial assets and liabilities held for trading (*)		2,098,449			1,209,828			1,407,938
		3,801,645			2,892,249			2,306,384

(*) Includes the net gain or loss arising from transactions involving debt securities, equity instruments and derivatives included in this portfolio, since the Group manages its risk in these instruments on a global basis.

F-143

	Gains/losses due to exchange of shares and repurchase of securitizations
	In July 2009 the Group offered the holders of certain securities issued by various Group companies (with a total nominal amount of approximately €9,100 million) the possibility of exchanging these securities for newly-issued Group securities plus a cash premium. Holders of securities with a cumulative nominal amount of €4,527 million subscribed to this exchange. Since the characteristics of the securities received and delivered in the exchange differ substantially, the Group wrote down the original financial liability and recognized a new financial liability for the securities delivered, and recognized with a credit to income an amount of €724 million relating to the difference between the carrying amount of the financial liability written down and the value of the consideration delivered.
	Additionally, in August 2009 the Group invited the holders of securitization bonds to submit offers for the sale of their securities. The end nominal amount of bonds repurchased by the Group amounted to €609 million, and the Group recognized with a credit to income an amount of €97 million relating to the difference between the carrying amount of the financial liability written down and the value of the consideration delivered in cash.
b)	Financial assets and liabilities at fair value through profit or loss
	The detail of the amount of the asset balances is as follows:

	Millions of euros
	2009		2008		2007
Loans and advances to credit institutions		22,196		14,061		19,160
Loans and advances to customers		18,405		9,657		31,726
Debt instruments		57,286		49,050		73,403
Other equity instruments		15,125		9,051		12,614
Derivatives		59,856		95,815		46,733
		172,868		177,634		183,636

The foregoing table shows the maximum credit risk exposure of these assets. The Group mitigates and reduces this exposure as explained below.

With respect to derivatives, the Group has entered into framework agreements with a large number of credit institutions and customers for the netting-off of asset positions and the provision of collateral for non-payment. For derivatives arranged with customers, the Group applies a risk premium accrual policy. At December 31, 2009, the actual credit risk exposure of the derivatives was €42,761 million (December 31, 2008: €39,019 million) (see Note 36).

Loans and advances to credit institutions and Loans and advances to customers included repos amounting to €28,298 million at December 31, 2009 (December 31, 2008: €9,028 million). Also, mortgage-backed assets totaled €6,828 million (December 31, 2008: €7,020 million).

Debt instruments included €27,909 million of Spanish and foreign government debt securities at December 31, 2009 (December 31, 2008: €17,049 million).

At December 31, 2009 and 2008, the amount of the change in the year in the fair value of financial assets at fair value through profit or loss attributable to variations in their credit risk (spread) was not material, taking into account the Group’s management of these risks by purchasing protection through credit derivatives.

F-144

The detail of the amount of the liability balances is as follows:

	Millions of euros
	2009			2008			2007
Derivatives		(58,713	)		(89,167	)		(49,448	)
Other liabilities		(99,175	)		(76,093	)		(113,668	)
		(157,888	)		(165,260	)		(163,116	)

The difference between the amount recognized as liabilities at fair value and the amount which the Group would contractually be required to pay to the holders of the related obligations at maturity, in other than derivative transactions, was €352 million at December 31, 2009 (December 31, 2008: €605 million).

45.	Exchange differences
	Exchange differences shows basically the gains or losses on currency dealings, the differences that arise on translations of monetary items in foreign currencies to the functional currency, and those disclosed on non-monetary assets in foreign currency at the time of their disposal.

46.	Other operating income and Other operating expenses
	Other operating income and Other operating expenses in the consolidated income statement include:

	Thousands of euros
	2009			2008			2007
Insurance activity income		338,860			251,589			229,933
Income from insurance and reinsurance contracts issued		7,112,856			8,385,788			5,529,987
Of which:
Insurance and reinsurance premium income		6,950,140			8,150,685			5,377,949
Reinsurance income		162,716			235,103			152,038
Expenses of insurance and reinsurance contracts		(6,773,996	)		(8,134,199	)		(5,300,054	)
Of which:
Claims paid and other insurance-related expenses		(3,015,508	)		(3,480,255	)		(2,862,786	)
Net provisions for insurance contract liabilities		(3,540,038	)		(4,381,487	)		(2,239,778	)
Reinsurance premiums paid		(218,450	)		(272,457	)		(197,490	)
Non-financial services		140,404			117,718			152,072
Sales and income from the provision of non-financial services		377,800			586,872			771,027
Cost of sales		(237,396	)		(469,154	)		(618,955	)
Other operating income and expenses		(335,347	)		(97,486	)		(91,455	)
Other operating income		437,882			463,648			438,656
Of which, fees and commissions offsetting direct costs		116,851			155,785			195,272
Other operating expenses		(773,229	)		(561,134	)		(530,111	)
Of which, Deposit Guarantee Fund		(317,708	)		(179,023	)		(144,988	)
		143,917			271,821			290,550

Most of the Bank’s insurance activity is carried on in life insurance.

F-145

47. Personnel expenses

a)	Breakdown
	The detail of Personnel expenses is as follows:

	Thousands of euros
	2009		2008		2007
Wages and salaries		6,060,541		4,941,871		4,762,049
Social security costs		1,054,906		815,864		724,882
Additions to provisions for defined benefit pension plans (Note 25)		175,810		184,072		208,648
Contributions to defined contribution pension funds (Note 25)		114,080		77,703		47,485
Share-based payment costs		147,805		107,644		48,546
Of which:
Payments granted to the Bank’s directors		5,724		3,560		1,424
Other personnel expenses		897,141		686,197		642,733
		8,450,283		6,813,351		6,434,343

b)	Headcount
	The average number of employees in the Group, by professional category, was as follows:

	Average number of employees (**)
	2009		2008		2007
The Bank:
Senior management (*)		87		90		93
Other line personnel		16,292		16,364		16,153
Clerical staff		3,625		3,816		4,147
General services personnel		33		36		42
		20,037		20,306		20,435
Banesto		9,678		10,330		10,524
Rest of Spain		5,970		5,940		5,582
Santander UK		20,809		15,593		15,771
Other companies (**)		113,582		82,168		71,751
		170,076		134,337		124,063

(*)	Categories of deputy assistant executive vice presidents and above, including senior management.
(**)	Excluding personnel assigned to discontinued operations.

The functional breakdown, by gender, at December 31, 2009 is as follows:

	Functional breakdown by gender
	Managers				Other line personnel				Clerical staff
	Men		Women		Men		Women		Men		Women
Continental Europe		2,659		651		18,413		13,735		6,920		5,784
United Kingdom		369		108		4,058		4,234		4,881		11,135
Latin America		1,926		667		16,343		13,329		24,180		40,068
Total		4,954		1,426		38,814		31,298		35,981		56,987

The same information, expressed in percentage terms at December 31, 2009, is as follows:

	Functional breakdown by gender
	Managers						Other line personnel						Clerical staff
	Men			Women			Men			Women			Men			Women
Continental Europe		80	%		20	%		57	%		43	%		54	%		46	%
United Kingdom		77	%		23	%		49	%		51	%		30	%		70	%
Latin America		74	%		26	%		55	%		45	%		38	%		62	%
Total		78	%		22	%		55	%		45	%		39	%		61	%

F-146

	The labor relations between employees and the various Group companies are governed by the related collective labor agreements or similar regulations.
c)	Share-based payments

i. The Bank

In recent years, as part of the deferred variable remuneration, the Group has set up remuneration systems tied to the performance of the stock market price of the shares of the Bank, based on the achievement of certain targets indicated below:

											Date of	Date of
				Euros							commencement	expiry of
	Number			Exercise		Year	Employee	Number			of exercise	exercise
	of shares			price		granted	group	of persons			period	period
Plans outstanding at 01/01/07		96,251,390
Rights granted (Plan I09)		10,448,480			—	2007	Managers		5,476		06/23/07	07/31/09
Rights granted (Plan I10)		15,690,283			—	2007	Managers		5,506		06/23/07	07/31/10
Options cancelled, net (Plan I06)		(1,195,371	)		9.09		Managers		(45	)	01/15/08	01/15/09
Plans outstanding at 12/31/07		121,194,782
Options exercised (Plan I06)		(65,983,402	)		9.09	—	Managers		(1,555	)	01/15/08	01/15/09
Rights granted (Plan I10)		46,560			—	2008	Managers		1		06/23/07	07/31/10
Rights granted (Plan I11)		17,122,650			—	2008	Managers		5,771		06/21/08	07/31/11
Plans outstanding at 12/31/08		72,380,590
Shares delivered (Plan I09)		(8,978,865	)		—	2007	Managers		(5,066	)	06/23/07	07/31/09
Options cancelled, net (Plan I06)		(29,072,617	)		9.09	—	Managers		(957	)	01/15/08	01/15/09
Rights cancelled, net (Plan I09)		(1,469,615	)		—	2007	Managers		(410	)	06/23/07	07/31/09
Rights granted (Plan I12)		18,866,927			—	2009	Managers		6,510		06/19/09	07/31/12
Plans outstanding at 12/31/09		51,726,420
Of which:
Plan I10		15,736,843			—	2007	Managers		5,507		06/23/07	07/31/10
Plan I11		17,122,650			—	2008	Managers		5,771		06/21/08	07/31/11
Plan I12		18,866,927			—	2009	Managers		6,510		06/19/09	07/31/12

Plan I06

In 2004 a long-term incentive plan (I06) was designed which, consisting of options on shares of the Bank, was tied to the achievement of two targets: appreciation of the Bank’s share price and growth in earnings per share, in both cases above a sample of comparable banks. These targets were achieved. The exercise period was from January 15, 2008 to January 15, 2009. This Plan was approved by the shareholders at the general shareholders’ meeting on June 18, 2005 and was cancelled at December 31, 2009.

The fair value of the equity instruments granted (€57.5 million) was charged to income (see Note 47.a), with a credit to equity, in the specific period in which the beneficiaries provided their services to the Group.

The executive directors were beneficiaries under this plan; the number of Bank share options held by them is indicated in Note 5.d.

Long-term incentive policy

At the board meeting on March 26, 2007, following the report of the appointments and remuneration committee, the Bank’s directors approved a long-term incentive policy aimed at the Bank’s executive directors and certain executive personnel of the Bank and of other Santander Group companies. This policy, through which the deferred share-based variable remuneration is paid, includes Bank share-based payments, and its implementation requires, in conformity with the law and the Bank’s Bylaws, specific resolutions to be adopted by the general shareholders’ meeting.

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Were it necessary or advisable for legal, regulatory or other similar reasons, the delivery mechanisms described below may be adapted in specific cases without altering the maximum number of shares linked to the plan or the essential conditions to which the delivery thereof is subject. These adaptations may involve replacing the delivery of shares with the delivery of cash amounts of an equal value.

The plans shaping the aforementioned incentive policy are as follows: (i) performance share plan; (ii) obligatory investment share plan; (iii) selective delivery share plan; and (iv) minimum investment program. The characteristics of the plans are set forth below:

(i) Performance share plan

The deferred share-based variable remuneration is instrumented through a multiannual incentive plan, which is payable in shares of the Bank. The beneficiaries of the plan are the executive directors and other members of senior management, together with any other Group executives determined by the board of directors or, when delegated by it, the executive committee.

This plan involves successive three-year cycles of share deliveries to the beneficiaries, so that each year one cycle will begin and, from 2009 onwards, another cycle will also end. The aim is to establish an adequate sequence between the end of the incentive program linked to the previous Plan I06 and the successive cycles of this plan. Thus, the first two cycles commenced in July 2007, the first cycle having a duration of two years (PI09) and the second cycle having a standard three-year term (PI10). The first cycle (PI09) was cancelled on July 31, 2009. In June 2008 and June 2009 the third and fourth cycles of the performance share plan (PI11 and PI12, respectively), both of which were to run for three years, were approved.

For each cycle a maximum number of shares is established for each beneficiary who remains in the Group’s employ for the duration of the plan. The targets, which, if met, will determine the number of shares to be delivered with respect to the cycles approved until June 2008, were defined by comparing the Group’s performance with that of a benchmark group of financial institutions and were linked to two parameters, namely Total Shareholder Return (TSR) and growth in Earnings per Share (EPS). The targets, which, if met, will determine the number of shares to be delivered under Plan PI12, are defined by comparing the Group’s performance with that of a benchmark group of financial institutions and are linked to only one parameter, namely Total Shareholder Return (TSR).

The ultimate number of shares to be delivered will be determined in each of the cycles by the degree of achievement of the targets on the third anniversary of commencement of each cycle (with the exception of the first cycle, for which the second anniversary was considered), and the shares will be delivered within a maximum period of seven months from the end of the cycle.

At the end of the cycles of Plan PI10 and Plan PI11, the TSR and the EPS growth will be calculated for Santander and each of the benchmark entities and the results will be ranked from first to last. Each of the two criteria (TSR and EPS growth) will be weighted at 50% in the calculation of the percentage of shares to be delivered, based on the following scale and in accordance with Santander’s relative position among the group of benchmark financial institutions:

	Percentage of		Santander’s place	Percentage of
Santander’s place	maximum shares		in the EPS	maximum shares
in the TSR ranking	to be delivered		growth ranking	to be delivered
1st to 6th	50	%	1st to 6th	50	%
7th	43	%	7th	43	%
8th	36	%	8th	36	%
9th	29	%	9th	29	%
10th	22	%	10th	22	%
11th	15	%	11th	15	%
12th and below	0	%	12th and below	0	%

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In the case of Plan PI12 the TSR criterion will determine the percentage of shares to be delivered, based on the following scale and in accordance with Santander’s relative position among the group of benchmark financial institutions:

	Percentage of
Santander’s place	maximum shares
in the TSR ranking	to be delivered
1st to 5th		100.0	%
6th		82.5	%
7th		65.0	%
8th		47.5	%
9th		30.0	%
10th and below		0	%

Any benchmark group entity that is acquired by another company, whose shares cease trading or that ceases to exist will be excluded from the benchmark group. In an event of this or any similar nature, the comparison with the benchmark group will be performed in such a way that, for each of the measures considered (TSR and EPS growth, as appropriate), the maximum percentage of shares will be delivered if Santander ranks within the first quartile (including the 25th percentile) of the benchmark group; no shares will be delivered if Santander ranks below the median (50th percentile); 30% of the maximum amount of shares will be delivered if Santander is placed at the median (50th percentile). The linear interpolation method will be used for calculating the corresponding percentage for positions between the median and the first quartile (25th percentile) (neither included).

The fair value of the equity instruments granted under these plans is €268 million (of which €85 million correspond to PI12), and this amount is being charged to Personnel expenses, with a credit to equity, over the specific period in which the beneficiaries provide their services to the Group.

Plan I09 matured in 2009. As established in the aforementioned plan, the number of shares received by each beneficiary was determined by the degree of achievement of the targets to which Plan I09 was tied and, since it fell short of the maximum number established, the unearned options were cancelled.

(ii) Obligatory investment share plan

The deferred share-based variable remuneration is instrumented through this multiannual incentive plan, which is payable in shares of the Bank and is conditional upon compliance with certain investment and continued service requirements.

The current beneficiaries of the plan are the Group’s top 32 executives, who include the executive directors, non-director members of senior management and other executives (see Note 5).

This plan is structured in three-year cycles which start each year. The beneficiaries of the plan must use 10% of their gross annual variable cash-based remuneration (or bonus) to acquire shares of the Bank in the market (the Obligatory Investment). As resolved by the shareholders at the relevant general shareholders’ meeting, the Obligatory Investments were made before February 29, 2008, February 28, 2009 and February 28, 2010, respectively.

Participants who hold the shares acquired through the Obligatory Investment and remain in the Group’s employ for three years from the date on which the Obligatory Investment is made will be entitled to receive the same number of Bank shares as that composing their initial Obligatory Investment.

The shares will be delivered within a maximum period of one month from the third anniversary of the date on which the Obligatory Investment was made.

The shareholders at the general shareholders’ meeting of June 19, 2009 introduced, for the third cycle, a requirement additional to that of remaining in the Group’s employ, which is that in the three-year period from the investment in the shares, none of the following circumstances should concur: (i) poor financial performance of the Group; (ii) breach by the beneficiary of the codes of conduct or other internal regulations, including, in particular, that relating to risks that is applicable to the executive in question; or (iii) a material restatement of the Bank’s financial statements, except when it is required pursuant to a change in accounting standards.

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(iii) Selective delivery share plan

This plan envisages the selective delivery of shares in special circumstances relating to the hiring or retention of executives or employees of the Bank or other Group entities, except for executive directors. The board of directors, or by delegation thereof, the executive committee, shall decide when this instrument is to be used.

Each participant must have completed a minimum of three to four years of service at the Group. Each participant will be entitled to receive the shares upon completion of the minimum period of service.

The authorization may be used to assume share delivery obligations in the twelve months following the date it was granted. At the general shareholders’ meeting on June 19, 2009, the shareholders approved the delivery of shares of the Bank up to a maximum of 2,478,000 shares to be used selectively.

(iv) Minimum investment program

This program consists of the obligation of the Group’s top 32 executives (including executive directors) to hold Bank shares equal to one year’s fixed remuneration. This amount must be reached within a maximum period of five years from March 26, 2007.

ii. Abbey

The long-term incentive plans on shares of the Bank originally granted by management of Abbey to its employees (on Abbey shares) are as follows:

				Pounds							Date of	Date of
				sterling (*)							commencement	expiry of
	Number			Exercise			Employee	Number			of exercise	exercise
	of shares			price		Year granted	group	of persons			period	period
Plans outstanding at 01/01/07		10,354,232			4.32
Options exercised		(1,535,325	)		3.81
Of which:
Executive Options		(33,904	)		3.96
Sharesave		(1,501,421	)		3.81
Options cancelled (net) or not exercised		(770,595	)		—
Plans outstanding at 12/31/07		8,048,312			5.34
Options granted (Sharesave)		5,196,807			7.69	2008	Employees		6,556	(**)	11/01/08	11/01/11
											11/01/08	11/01/13
Options exercised		(6,829,255	)		4.91
Of which:
Executive Options		(132,107	)		4.11
Sharesave		(4,506,307	)		3.07
MTIP		(2,190,841	)		8.73
Options cancelled (net) or not exercised		(262,868	)		4.87
Of which:
Sharesave		(233,859	)		4.13
MTIP		(29,009	)		10.88
Plans outstanding at 12/31/08		6,152,996			7.00
Options granted (Sharesave)		4,527,576			7.26	2009	Employees		7,066	(**)	11/01/09	11/01/12
											11/01/09	11/01/14
Options exercised		(678,453	)
Of which:
Sharesave		(678,453	)		3.85
Options cancelled (net) or not exercised		(1,277,590	)
Of which:
Sharesave		(1,277,590	)		7.48
Plans outstanding at 12/31/09		8,724,529			7.24
Of which:
Executive Options		12,015			4.54	2003-2004	Managers		2		03/26/06	03/24/13
Sharesave		8,712,514			7.24	2004-2008-2009	Employees		11,919	(**)	04/01/06	11/01/14

(*)	At December 31, 2009, 2008 and 2007 the euro/pound sterling exchange rate was €1.12600/GBP 1, €1.04987/GBP 1 and €1.36360/GBP 1, respectively.
(**)	Number of accounts/contracts. A single employee may have more than one account/contract. On September 30, 2008, 4,493 contracts were delivered with an execution date three years thereafter and 2,063 contracts with an execution date five years thereafter. The date of commencement of all these contracts is November 1, 2008.

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In 2005 the Group designed a Medium-Term Incentive Plan (MTIP) involving the delivery of Bank shares to Abbey executives. Under the plan, effective allocation of the shares in 2008 was tied to the achievement of business targets by Abbey (in terms of net profit and income). This plan was approved by the shareholders at the general shareholders’ meeting on June 17, 2006. Subsequently, it was considered necessary to amend the conditions of the plan in order to reflect the impact of the sale of Abbey’s life insurance business to Resolution on the income targets of Abbey for 2007. The board of directors, after obtaining a favorable report from the appointments and remuneration committee, submitted this amendment for ratification by the shareholders at the general shareholders’ meeting held on June 23, 2007. The amendment was approved thereat. In the first half of 2008, all the shares under this plan were delivered, and the plan was cancelled on June 30, 2008.

In 2008 the Group launched a voluntary savings scheme for Abbey employees (Sharesave Scheme) whereby employees who join the scheme will have between GBP 5 and GBP 250 deducted from their net monthly pay over a period of three or five years. When this period has ended, the employees may use the amount saved to exercise options on shares of the Bank at an exercise price calculated by reducing by up to 20% the average purchase and sale prices of the Bank shares in the first three trading days of September 2008. This scheme, which commenced in September 2009, was approved by the shareholders at the general shareholders’ meeting held on June 21, 2008 and is authorized by the UK tax authorities (HMRC). At the general shareholders’ meeting on June 19, 2009, the shareholders approved a new plan with similar features to the plan approved in 2008.

iii. Fair value

The fair value of each option granted by the Group is calculated at the grant date. In order to value Plan I06 two valuation reports were performed by two multinational investment banks. These experts used the Black-Scholes equity option pricing model considering the following parameters: the expected life of the options, interest rates, volatility, exercise price, market price and dividends of the Bank shares and the shares of comparable banks. The fair value of the options granted was calculated by the Group on the basis of the two valuations.

With the exception of the share option plans which include terms relating to market conditions, the transfer terms included in the vesting conditions are not taken into account to estimate fair value. The transfer terms that are not based on market conditions are taken into account by adjusting the number of shares or share options included in the measurement of the service cost of the employee so that, ultimately, the amount recognized in the consolidated income statement is based on the number of shares or share options transferred. When the transfer terms are related to market conditions, the charge for the services received is recognized regardless of whether the market conditions for the transfer are met, although the non-market transfer terms must be satisfied. The share price volatility is based on the implicit volatility scale for the Bank’s shares at the exercise prices and the duration corresponding to most of the sensitivities.

The fair value of the performance share plans was calculated as follows:

• It was assumed that the beneficiaries will not leave the Group’s employ during the term of each plan.

• The fair value of the 50% linked to the Bank’s relative TSR position (100% in the case of PI12) was calculated, on the grant date, on the basis of the report of an independent expert whose assessment was carried out using a Monte Carlo valuation model, performing 10,000 simulations to determine the TSR of each of the companies in the benchmark group, taking into account the variables set forth below. The results (each of which represents the delivery of a number of shares) are classified in decreasing order by calculating the weighted average and discounting the amount at the risk-free interest rate.

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	PI09			PI10			PI11			PI12
Expected volatility (*)		16.25	%		15.67	%		19.31	%		42.36	%
Annual dividend yield based on last few years		3.23	%		3.24	%		3.47	%		4.88	%
Risk-free interest rate (Treasury Bond yield — zero coupon) over the period of the plan		4.473	%		4.497	%		4.835	%		2.040	%

(*) Calculated on the basis of historical volatility over the corresponding period (two or three years).

The application of the simulation model results in percentage values of 42.7% for the I-09 plan, 42.3% for the I-10 plan and 44.9% for the I-11 plan, which are applied to 50% of the value of the options granted in order to determine the cost per books of the TSR-based portion of the incentive, and a percentage value of 55.42% for the I-12 plan. Since this valuation refers to a market condition, it cannot be adjusted after the grant date.

• In view of the high correlation between TSR and EPS, it was considered feasible to extrapolate that, in a high percentage of cases, the TSR value is also valid for EPS. Therefore, it was initially determined that the fair value of the portion of the plans linked to the Bank’s relative EPS position, i.e. of the remaining 50% of the options granted, was the same as that of the 50% corresponding to the TSR. Since this valuation refers to a non-market condition, it is reviewed and adjusted on a yearly basis.

The fair value of each option granted by Abbey was estimated at the grant date using a European/American Partial Differential Equation model with the following assumptions:

	2009	2008	2007
Risk-free interest rate	2.5%-3.5%	2.9%-6.5%	5.0%-5.8%
Dividend increase, based solely on the average increase since 1989	10%	10%	10%
Volatility of underlying shares based on historical volatility over 5 years	29.0%-34.4%	20.2%-29.6%	19.8%-26.9%
Expected life of options granted under:
Employee Sharesave Plan	3, 5 and 7 years	3, 5 and 7 years	3, 5 and 7 years
Executive Share Option Plan	10 years	10 years	10 years
Medium-Term Incentive Plan	—	—	3 years

48. Other general administrative expenses

a)	Breakdown
	The detail of Other general administrative expenses is as follows:

	Thousands of euros
	2009		2008		2007
Property, fixtures and supplies		1,613,675		1,206,895		965,937
Other administrative expenses		1,435,743		1,048,392		897,877
Technology and systems		785,504		504,196		468,273
Advertising		594,432		534,876		553,967
Communications		631,806		452,900		401,057
Technical reports		359,753		298,037		294,058
Per diems and travel expenses		262,097		257,079		271,842
Taxes other than income tax		312,994		279,250		265,542
Surveillance and cash courier services		331,220		235,207		188,717
Insurance premiums		47,098		35,674		35,057
		6,374,322		4,852,506		4,342,327

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b)	Other information
	Technical reports includes the fees paid by the various Group companies (detailed in the accompanying Appendices) to their respective auditors, the detail being as follows:

	Millions of euros
	2009		2008		2007
Audit of the annual financial statements of the companies audited by Deloitte (constant scope of consolidation)		14.6		18.3		15.9
Of which:
Abbey		2.7		3.3		4.1
Santander Brasil		1.5		2.4		0.8
Audit of the Bank’s separate and consolidated financial statements		1.0		1.0		1.0
Audit of the annual financial statements of the companies included in the Group in 2009		5.0
Of which:
Sovereign		2.3
Alliance & Leicester, Bradford & Bingley		1.0

In recent years, in addition to the audits of financial statements, the internal control audit (Sarbanes-Oxley) and the regulatory capital audit (BIS) were performed (for €4.7 million in 2009, €5.9 million in 2008 and €6.2 million in 2007) and other reports were prepared in accordance with the requirements of the legal and tax regulations issued by the national supervisory authorities of the countries in which the Group operates, totaling €3.6 million, €4.5 million and €3.7 million in 2009, 2008 and 2007, respectively (€2.7 million relate to companies included in the Group in 2009).

The detail of the other services provided to the various Group companies is as follows:

1. Due diligence review and other corporate transaction services: €3.7 million (2008: €3.8 million; 2007: €3.7 million). Additionally, the Group’s auditors provided other non-attest services to various Group companies for €4.7 million in 2009, €5.3 million in 2008 and €5.3 million in 2007.

The services commissioned from the Group’s auditors meet the independence requirements stipulated by Law 44/2002, of 22 November, on Financial System Reform Measures and by the Sarbanes-Oxley Act of 2002, and they did not involve the performance of any work that is incompatible with the audit function.

2. Services provided by audit firms other than Deloitte: €14.0 million (2008: €13.9 million; 2007: €12.5 million).

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49. Gains/(losses) on disposal of assets not classified as non-current assets held for sale

The detail of Gains/(losses) on disposal of assets not classified as non-current assets held for sale is as follows:

	Millions of euros
	2009			2008			2007
Gains
On disposal of tangible assets		51			115			1,849
Of which:
Disposal of properties (Note 16)		—			—			1,620
On disposal of investments		1,531			53			17
Of which:
Banco Santander Brasil (Note 3)		1,499			—			—
Disposal of Porterbrook (Note 3)		—			50			—
		1,582			168			1,866
Losses
On disposal of tangible assets		(14	)		(64	)		(55	)
On disposal of investments		(4	)		(3	)		(1	)
		(18	)		(67	)		(56	)
		1,565			101			1,810

50. Gains/(losses) on disposal of non-current assets held for sale not classified as discontinued operations

The detail of Gains/(losses) on non-current assets held for sale not classified as discontinued operations is as follows:

	Millions of euros
Net Balance	2009			2008			2007
Tangible assets		(1,362	)		799			(23	)
Impairment (Note 12) (*)		(1,350	)		(70	)		(27	)
Gain on disposals		(12	)		868			5
Of which, on disposal of the Ciudad Financiera business campus (Note 1.i)		—			836			—
Other gains		243			3,046			666
Of which:
Antonveneta (Note 1.i)		—			3,046			—
Intesa San Paolo (Note 1.i)		—			—			566
Attijariwafa Bank (Note 1.i)		218			—			—
Other losses		(106	)		(2,113	)		—
Of which, write-down of ownership interests in Royal Bank of Scotland and Fortis (Note 1.i)		—			(2,043	)		—
Total		(1,225	)		1,731			643

(*) Including in 2009 the write-downs performed at year-end of €814 million (€554 million net of tax) (see Note 1.i).

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51. Other disclosures

a)	Residual maturity periods and average interest rates
	The detail, by maturity, of the balances of certain items in the consolidated balance sheets is as follows:

	December 31, 2009
	Millions of euros																				Average
	On			Less than			1 to 3			3 to 12			1 to 3		3 to 5		More than				Interest
	Demand			1 Month			Months			Months			Years		Years		5 Years		Total		Rate
Assets:
Cash and balances with central banks		19,998			10,585			521			3,310			475		—		—		34,889		4.07	%
Available-for-sale financial assets:
Debt instruments		67			5,180			1,082			4,163			10,224		28,967		29,606		79,289		5.01	%
Loans and receivables:
Loans and advances to credit institutions		9,834			22,660			5,893			6,893			1,692		2,190		8,479		57,641		3.15	%
Loans and advances to customers		12,401			35,749			33,408			69,955			82,397		82,769		347,467		664,146		6.08	%
Debt instruments		70			321			506			1,738			2,387		4,297		5,640		14,959		4.57	%
		42,370			74,495			41,410			86,059			97,175		118,223		391,192		850,924		5.67	%
Liabilities:
Financial liabilities at amortized cost:
Deposits from central banks		383			7,359			258			14,109			6		227		3		22,345		1.69	%
Deposits from credit institutions		7,978			13,161			2,611			15,253			5,238		4,962		1,578		50,781		2.68	%
Customer deposits		235,974			69,839			47,546			64,755			34,148		30,571		4,848		487,681		2.70	%
Marketable debt securities (*)		1,079			16,545			12,709			37,033			50,302		31,498		57,324		206,490		2.38	%
Subordinated liabilities		3,412			752			34			1,841			1,714		3,097		25,955		36,805		5.69	%
Other financial liabilities		6,765			5,992			1,680			2,072			1,675		646		470		19,300		N/A
		255,591			113,648			64,838			135,063			93,083		71,001		90,178		823,402		2.73	%
Difference (assets less liabilities)		(213,221	)		(39,153	)		(23,428	)		(49,004	)		4,092		47,222		301,014		27,522

(*) Includes promissory notes, certificates of deposit and other short-term debt issues.

	December 31, 2008
	Millions of euros																			Average
	On			Less than			1 to 3			3 to 12		1 to 3		3 to 5		More than				interest
	demand			1 month			months			months		years		years		5 years		Total		rate
Assets:
Cash and balances with central banks		20,920			22,121			846			621		—		—		1,272		45,781		4.51	%
Available-for-sale financial assets:
Debt instruments		21			4,630			385			5,123		9,534		6,522		16,333		42,548		5.13	%
Loans and receivables:
Loans and advances to credit institutions		16,111			15,394			6,448			20,947		367		2,598		2,865		64,731		4.98	%
Loans and advances to customers		35,010			29,706			51,500			64,061		103,164		72,172		261,619		617,231		7.56	%
Debt instruments		38			—			600			6,071		30		173		10,741		17,652		3.15	%
		72,100			71,851			59,779			96,824		113,096		81,464		292,829		787,944		6.94	%
Liabilities:
Financial liabilities at amortized cost:
Deposits from central banks		1,681			366			2,427			4,720		—		14		4		9,212		4.38	%
Deposits from credit institutions		10,411			16,243			24,200			10,550		4,006		3,740		1,432		70,584		3.20	%
Customer deposits		182,475			64,213			70,655			49,707		20,349		9,602		9,014		406,015		5.08	%
Marketable debt securities (*)		7,250			22,168			26,241			25,125		42,132		23,509		81,218		227,642		4.21	%
Subordinated liabilities		190			571			41			1,103		3,506		1,283		32,179		38,873		5.69	%
Other financial liabilities		9,453			2,646			1,760			1,209		461		1,873		278		17,681
		211,461			106,208			125,324			92,415		70,453		40,022		124,124		770,008		4.66	%
Difference (assets less liabilities)		(139,361	)		(34,356	)		(65,545	)		4,409		42,642		41,442		168,705		17,936

(*) Includes promissory notes, certificates of deposit and other short-term debt issues.

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	December 31, 2007
	Millions of euros																				Average
	On			Less than			1 to 3			3 to 12		1 to 3		3 to 5		More than					interest
	demand			1 month			months			months		years		years		5 years		Total			rate
Assets:
Cash and balances with central banks		14,102			10,278			5			10		1,265		4,295		1,108		31,063			5.93	%
Available-for-sale financial assets:
Debt instruments		31			953			1,070			2,060		5,837		6,450		17,786		34,187			5.11	%
Loans and receivables:
Loans and advances to credit institutions		8,227			13,147			6,333			4,113		884		759		5,021		38,483			4.53	%
Loans and advances to customers		9,848			29,446			34,228			65,696		58,124		62,048		279,982		539,372			6.75	%
Debt instruments		1			4			—			5		634		65		959		1,668			4.55	%
		32,209			53,828			41,636			71,884		66,744		73,617		304,856		644,773			6.51	%
Liabilities:
Financial liabilities at amortized cost:
Deposits from central banks		2,727			16,387			2,917			155		—		—		—		22,186			4.45	%
Deposits from credit institutions		5,706			22,412			6,504			6,197		3,002		3,111		1,756		48,688			4.55	%
Customer deposits		178,240			55,381			27,839			28,959		13,141		11,145		2,040		316,745			4.12	%
Marketable debt securities		520			13,310			17,600			24,198		35,294		26,745		88,250		205,917			4.61	%
Subordinated liabilities		88			8			61			569		4,065		2,357		29,045		36,193			5.69	%
Other financial liabilities		11,393			931			1,343			1,034		79		1,780		123		16,683			—
		198,674			108,429			56,264			61,112		55,581		45,138		121,214		646,412			4.41	%
Difference (assets less liabilities)		(166,466	)		(54,602	)		(14,628	)		10,772		11,163		28,479		183,642		(1,639	)

b)	Equivalent euro value of assets and liabilities
	The detail of the main foreign currency balances in the consolidated balance sheet, based on the nature of the related items, is as follows:

	Equivalent value in millions of euros
	2009				2008				2007
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Cash and balances with central banks		28,198		—		26,685		—		16,155		—
Financial assets/liabilities held for trading		94,069		87,066		104,429		96,666		124,409		100,719
Other financial instruments at fair value		18,407		27,195		14,478		22,025		15,815		28,553
Available-for-sale financial assets		43,048		—		25,338		—		15,395		—
Loans and receivables		408,161		—		351,302		—		260,435		—
Investments		92		—		1,169		—		13,036		—
Tangible assets		3,918		—		3,286		—		4,665		—
Intangible assets		21,659		—		16,940		—		12,557		—
Financial liabilities at amortized cost		—		456,697		—		406,270		—		308,166
Liabilities under insurance contracts		—		6,675		—		2,985		—		2,139
Other		20,864		32,207		18,945		25,230		8,388		19,120
		638,416		609,840		562,572		553,176		470,855		458,697

F-156

c)	Fair value of financial assets and liabilities not measured at fair value
	The financial assets owned by the Group are measured at fair value in the accompanying consolidated balance sheet, except for loans and receivables, equity instruments whose market value cannot be estimated reliably and derivatives that have these instruments as their underlyings and are settled by delivery thereof.
	Similarly, the Group’s financial liabilities -except for financial liabilities held for trading, those measured at fair value and derivatives other than those having as their underlyings equity instruments whose market value cannot be estimated reliably- are measured at amortized cost in the accompanying consolidated balance sheet.

i) Financial assets measured at other than fair value

Following is a comparison of the carrying amounts of the Group’s financial assets measured at other than fair value and their respective fair values at year-end:

	Millions of euros
	2009				2008				2007
	Carrying		Fair		Carrying		Fair		Carrying		Fair
Assets	amount		value		amount		value		amount		value
Loans and receivables:
Loans and advances to credit institutions		57,641		58,121		64,731		65,059		38,483		38,482
Loans and advances to customers		664,146		676,218		617,231		627,006		539,372		541,129
Debt instruments		14,959		13,718		17,653		17,645		1,668		1,668
		736,746		748,057		699,615		709,710		579,524		581,280

ii) Financial liabilities measured at other than fair value    

Following is a comparison of the carrying amounts of the Group’s financial liabilities measured at other than fair value and their respective fair values at year-end:

	Millions of euros
	2009				2008				2007
	Carrying		Fair		Carrying		Fair		Carrying		Fair
Liabilities	amount		value		amount		value		amount		value
Financial liabilities at amortized cost:
Deposits from central banks		22,345		22,349		9,212		9,212		22,186		22,186
Deposits from credit institutions		50,781		50,905		70,583		70,740		48,687		48,728
Customer deposits		487,681		488,675		406,015		407,537		316,745		316,886
Marketable debt securities		206,490		206,765		227,642		227,413		205,917		206,132
Subordinated liabilities		36,805		37,685		38,873		36,705		36,193		36,808
Other financial liabilities		19,300		19,636		17,681		17,677		16,683		16,681
		823,403		826,015		770,007		769,285		646,411		647,422

F-157

52. Geographical and business segment reporting

a) Geographical segments

This first level of segmentation, which is based on the Group’s management structure, comprises five segments: four operating areas plus the Financial Management and Holdings Unit. The operating areas, which include all the business activities carried on therein by the Group, are Continental Europe, the United Kingdom (Santander UK), Latin America and Sovereign, based on the location of the Group’s assets.

The Continental Europe area encompasses all the Commercial Banking (including the Private Banking entity Banif), Wholesale Banking and Asset Management and Insurance business activities carried on in Europe with the exception of the United Kingdom. Latin America includes all the financial activities carried on by the Group through its banks and subsidiaries, as well as the specialized units of Santander Private Banking, which is treated as a globally managed independent unit, and the New York business. Sovereign includes the businesses of the Sovereign unit that was acquired in 2009.

The Financial Management and Holdings segment includes the centralized management business relating to financial and industrial investments, the financial management of the Parent’s structural currency position and its structural interest rate risk position and the management of liquidity and equity through issues and securitizations. As the Group’s holding unit, this segment handles the total capital and reserves, capital allocations and liquidity with the other businesses.

The financial statements of each operating segment are prepared by aggregating the figures for the Group’s various business units. The basic information used for segment reporting comprises the accounting data of the legal units composing each segment and the data available from the management information systems. All segment financial statements have been prepared on a basis consistent with the accounting policies used by the Group.

Consequently, the sum of the figures in the income statements of the various segments is equal to those in the consolidated income statement. With regard to the balance sheet, due to the required segregation of the various business units (included in a single consolidated balance sheet), the amounts lent and borrowed between the units are shown as increases in the assets and liabilities of each business. These amounts relating to intra-Group liquidity are eliminated and are shown in the Intra-Group eliminations column in the table below in order to reconcile the amounts contributed by each business unit to the consolidated Group’s balance sheet.

There are no customers located in areas other than those in which the Group’s assets are located that generate income exceeding 10% of total income.

F-158

The condensed balance sheets and income statements of the various geographical segments are as follows:

	Millions of euros
	2009
									Financial
	Continental								management and		Intra-Group
(Condensed) Balance sheet	Europe		United Kingdom		Latin America		Sovereign		holdings		eliminations			Total
Loans and advances to customers		322,026		277,713		97,901		34,605		306		—			682,551
Financial assets held for trading (excluding loans and advances)		50,764		41,245		22,521		163		4,331		—			119,024
Available-for-sale financial assets		20,132		897		29,154		9,568		26,870		—			86,621
Loans and advances to credit institutions		88,508		28,745		22,146		496		43,550		(103,608	)		79,837
Non-current assets		5,054		1,424		3,926		391		979		—			11,774
Other asset accounts		21,955		24,522		38,105		3,568		144,697		(102,125	)		130,722
Total assets/liabilities		508,439		324,546		213,753		48,791		220,733		(205,733	)		1,110,529
Customer deposits		198,144		166,607		108,122		30,888		3,216		—			506,977
Marketable debt securities		50,610		58,611		8,411		11,236		83,094		—			211,962
Subordinated liabilities		2,079		8,577		4,888		2,129		19,131		—			36,804
Liabilities under insurance contracts		10,287		3		6,627		—		—		—			16,917
Deposits from central banks and credit institutions		115,487		57,879		32,765		736		38,832		(103,608	)		142,091
Other liability accounts		105,366		26,946		34,994		1,689		11,274		(49,677	)		130,592
Equity (share capital + reserves)		26,466		5,923		17,946		2,113		65,186		(52,448	)		65,186
Other customer funds under management		70,289		10,937		62,759		327		—		—			144,312
Investment funds		44,598		10,937		49,681		—		—		—			105,216
Pension funds		11,310		—		—		—		—		—			11,310
Assets under management		5,499		—		12,538		327		—		—			18,364
Savings insurance		8,882		—		540		—		—		—			9,422
Customer funds under management		321,122		244,732		184,180		44,580		105,441		—			900,055

F-159

	Millions of euros
	2008
									Financial
	Continental								management and		Intra-Group
(Condensed) Balance sheet	Europe		United Kingdom		Latin America		Sovereign		holdings		eliminations			Total
Loans and advances to customers		325,378		202,622		96,054		—		2,836		—			626,890
Financial assets held for trading (excluding loans and advances)		72,303		50,029		20,965		—		2,686		—			145,983
Available-for-sale financial assets		12,806		2,785		19,208		—		14,122		—			48,921
Loans and advances to credit institutions		63,296		31,518		19,946		—		48,222		(84,189	)		78,793
Non-current assets		4,612		1,210		3,272		—		1,195		—			10,289
Other asset accounts		17,644		30,626		30,496		—		178,563		(118,573	)		138,756
Total assets/liabilities		496,039		318,790		189,941		—		247,624		(202,762	)		1,049,632
Customer deposits		165,762		143,200		108,257		—		3,010		—			420,229
Marketable debt securities		52,077		67,996		8,674		—		107,657		—			236,404
Subordinated liabilities		1,752		9,890		3,847		—		23,384		—			38,873
Liabilities under insurance contracts		13,889		3		2,958		—		—		—			16,850
Deposits from central banks and credit institutions		85,232		60,063		29,331		—		39,434		(84,183	)		129,877
Other liability accounts		153,674		32,306		24,291		—		14,435		(77,011	)		147,695
Equity (share capital + reserves)		23,653		5,332		12,583		—		59,704		(41,568	)		59,704
Other customer funds under management		75,473		7,180		48,408		—		—		—			131,061
Investment funds		47,725		7,180		35,400		—		—		—			90,305
Pension funds		11,128		—		—		—		—		—			11,128
Assets under management		4,479		—		12,810		—		—		—			17,289
Savings insurance		12,141		—		198		—		—		—			12,339
Customer funds under management		295,064		228,266		169,186		—		134,051		—			826,567

F-160

	Millions of euros
	2007
									Financial
	Continental								management and			Intra-Group
(Condensed) Balance sheet	Europe		United Kingdom		Latin America		Sovereign		holdings			eliminations			Total
Loans and advances to customers		314,715		184,080		70,228		—		2,076			—			571,099
Financial assets held for trading (excluding loans and advances)		44,847		53,787		22,846		—		1,328			—			122,808
Available-for-sale financial assets		10,149		44		12,628		—		21,528			—			44,349
Loans and advances to credit institutions		54,798		22,166		12,847		—		26,502			(58,670	)		57,643
Non-current assets		5,373		4,685		1,805		—		(202	)		—			11,661
Other asset accounts		20,185		7,103		21,631		—		168,924			(112,488	)		103,355
Total assets/liabilities		450,067		271,865		141,985		—		220,156			(171,158	)		912,915
Customer deposits		149,061		122,500		82,046		—		1,800			—			355,407
Marketable debt securities		70,004		76,056		5,031		—		82,196			—			233,287
Subordinated liabilities		2,433		8,345		2,540		—		22,875			—			36,193
Liabilities under insurance contracts		10,907		6		2,121		—		—			—			13,034
Deposits from central banks and credit institutions		66,027		38,687		19,064		—		47,789			(58,670	)		112,897
Other liability accounts		131,362		23,094		22,595		—		18,541			(80,450	)		115,142
Equity (share capital + reserves)		20,273		3,177		8,588		—		46,955			(32,038	)		46,955
Other customer funds under management		101,713		10,225		48,048		—		—			—			159,986
Investment funds		72,945		10,225		36,041		—		—			—			119,211
Pension funds		11,952		—		—		—		—			—			11,952
Assets under management		7,865		—		11,949		—		—			—			19,814
Savings insurance		8,951		—		58		—		—			—			9,009
Customer funds under management		323,211		217,126		137,665		—		106,871			—			784,873

F-161

	Millions of euros
	2009
													Financial
	Continental												management and
(Condensed) Income statement	Europe			United Kingdom			Latin America			Sovereign			holdings			Total
INTEREST INCOME / (CHARGES)		11,456			3,934			11,959			1,160			(2,210	)		26,299
Income from equity instruments		218			—			96			1			121			436
Income from companiess accounted for using the equity method		7			—			10			(3	)		(15	)		(1	)
Net fee and commission income		3,787			993			3,925			380			(5	)		9,080
Gains/losses on financial assets and liabilities		687			506			1,663			14			1,376			4,246
Other operating income/(expenses)		139			27			15			(89	)		52			144
TOTAL INCOME		16,294			5,460			17,668			1,463			(681	)		40,204
Personnel expenses		(3,306	)		(1,170	)		(3,210	)		(457	)		(307	)		(8,450	)
Other administrative expenses		(2,028	)		(827	)		(2,822	)		(309	)		(388	)		(6,374	)
Depreciation and amortization of tangible and intangible assets		(570	)		(231	)		(566	)		(115	)		(114	)		(1,596	)
Net impairment losses on financial assets		(3,286	)		(881	)		(4,979	)		(571	)		(1,861	)		(11,578	)
Provisions (net)		(311	)		16			(681	)		(55	)		(762	)		(1,793	)
Net impairment losses on non-financial assets		(41	)		—			(22	)		(1	)		(100	)		(164	)
Other non-financial gains/(losses)		(81	)		—			40			(2	)		382			339
OPERATING PROFIT (LOSS) BEFORE TAX		6,671			2,367			5,428			(47	)		(3,831	)		10,588
Income tax		(1,768	)		(641	)		(1,257	)		22			2,437			(1,207	)
PROFIT (LOSS) FROM CONTINUING OPERATIONS		4,903			1,726			4,171			(25	)		(1,394	)		9,381
Profit (loss) from discontinued operations		(45	)		—			91			—			(15	)		31
CONSOLIDATED PROFIT (LOSS) FOR THE YEAR		4,858			1,726			4,262			(25	)		(1,409	)		9,412
Attributable to minority interests		65			—			428			—			(24	)		469
PROFIT ATTRIBUTABLE TO THE PARENT		4,793			1,726			3,834			(25	)		(1,385	)		8,943

F-162

	Millions of euros
	2008																	2007
												Financial																	Financial
	Continental			United								management and						Continental			United								management and
(Condensed) Income statement	Europe			Kingdom			Latin America			Sovereign		holdings			Total			Europe			Kingdom			Latin America			Sovereign		holdings			Total
INTEREST INCOME / (CHARGES)		9,259			2,411			8,025			—		(2,157	)		17,538			7,742			2,334			6,144			—		(1,777	)		14,443
Income from equity instruments		266			—			58			—		229			553			202			1			34			—		183			420
Income from companies accounted for using the equity method		15			1			680			—		96			792			9			2			—			—		427			438
Net fee and commission income		4,074			926			3,208			—		59			8,267			4,137			1,007			2,694			—		30			7,868
Gains/losses on financial assets and liabilities		764			500			857			—		1,353			3,474			732			436			674			—		1,113			2,955
Other operating income/(expenses)		181			49			10			—		32			272			133			65			49			—		43			290
TOTAL INCOME		14,559			3,887			12,838			—		(388	)		30,896			12,955			3,845			9,595			—		19			26,414
Personnel expenses		(3,123	)		(986	)		(2,504	)		—		(200	)		(6,813	)		(3,037	)		(1,045	)		(2,105	)		—		(247	)		(6,434	)
Other administrative expenses		(1,833	)		(617	)		(2,147	)		—		(255	)		(4,852	)		(1,527	)		(784	)		(1,742	)		—		(289	)		(4,342	)
Depreciation and amortization of tangible and intangible assets		(500	)		(158	)		(404	)		—		(177	)		(1,239	)		(559	)		(101	)		(328	)		—		(259	)		(1,247	)
Net impairment losses on financial assets		(2,476	)		(457	)		(3,020	)		—		(331	)		(6,284	)		(1,557	)		(312	)		(1,546	)		—		(14	)		(3,429	)
Provisions (net)		(89	)		(29	)		(533	)		—		(989	)		(1,640	)		45			5			(437	)		—		(509	)		(896	)
Net impairment losses on non-financial assets		(16	)		—			(6	)		—		(1,027	)		(1,049	)		(8	)		(1	)		(30	)		—		(1,510	)		(1,549	)
Other non-financial gains/(losses)		(38	)		32			54			—		1,783			1,831			11			15			169			—		2,259			2,454
OPERATING PROFIT(LOSS) BEFORE TAX		6,484			1,672			4,278			—		(1,584	)		10,850			6,323			1,622			3,576			—		(550	)		10,971
Income tax		(1,686	)		(425	)		(663	)		—		938			(1,836	)		(1,777	)		(421	)		(809	)		—		684			(2,323	)
PROFIT (LOSS) FROM CONTINUING OPERATIONS		4,798			1,247			3,615			—		(646	)		9,014			4,546			1,201			2,767			—		134			8,648
Profit (loss) from discontinued operations		(21	)		—			340			—		—			319			—			—			303			—		685			988
CONSOLIDATED PROFIT (LOSS) FOR THE YEAR		4,777			1,247			3,955			—		(646	)		9,333			4,546			1,201			3,070			—		819			9,636
Attributable to minority interests		109			—			346			—		1			456			107			—			404			—		65			576
PROFIT ATTRIBUTABLE TO THE PARENT		4,668			1,247			3,609			—		(647	)		8,877			4,439			1,201			2,666			—		754			9,060

(*) Presented for comparison purposes only.

F-163

Following is the detail of revenue by the geographical segments used by the Group. For the purposes of the table below, revenue is deemed to be that recognized under Interest and similar income, Income from equity instruments, Fee and commission income, Gains/losses on financial assets and liabilities (net) and Other operating income in the accompanying consolidated income statements for 2009, 2008 and 2007.

	Revenue (Millions of euros)
	Revenue from external
	customers						Inter-segment revenue									Total revenue
Segment	2009		2008		2007		2009			2008			2007			2009			2008			2007
Continental Europe		31,968		40,396		33,364		1,297			1,108			1,245			33,265			41,504			34,609
United Kingdom		10,595		13,621		12,602		1,287			2,099			389			11,882			15,721			12,991
Latin America		30,101		23,184		18,194		480			1,169			1,375			30,581			24,353			19,570
Sovereign		2,496		—		—		(19	)		—			—			2,477			—			—
Financial management and holdings		906		464		107		5,206			9,378			5,988			6,112			9,843			6,095
Inter-segment revenue adjustments and eliminations		—		—		—		(8,251	)		(13,755	)		(8,998	)		(8,251	)		(13,755	)		(8,998	)
TOTAL		76,066		77,666		64,268		—			—			—			76,066			77,666			64,268

b)	Business segments
	At this second level of segment reporting, the Group is structured into commercial banking, asset management and insurance and global wholesale banking; the sum of these three segments is equal to that of the primary operating geographical segments. Total figures for the Group are obtained by adding to the business segments the data for the financial management and holdings segment.
	The commercial banking segment encompasses the entire commercial banking business (except for the corporate banking business managed globally using the global relationship model). The asset management and insurance segment includes the contribution to the Group arising from the design and management of the investment fund, pension and insurance businesses of the various units. The global wholesale banking segment reflects the returns on the global corporate banking business, those on investment banking and markets worldwide, including all the globally managed treasury departments and the equities business.

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The condensed income statements and other significant data are as follows:

	Millions of euros
	2009															2008															2007
				Global			Asset			Financial									Global			Asset			Financial									Global			Asset			Financial
	Commercial			wholesale			management			management						Commercial			wholesale			management			management						Commercial			wholesale			management			management
(Condensed) Income statement	banking			banking			and insurance			and holdings			Total			banking			banking			and insurance			and holdings			Total			banking			banking			and insurance			and holdings			Total
INTEREST INCOME / (CHARGES)		25,942			2,366			201			(2,210	)		26,299			17,613			1,892			190			(2,157	)		17,538			14,771			1,303			146			(1,777	)		14,443
Income from equity instruments		127			188			—			121			436			154			164			6			229			553			77			148			12			183			420
Income from companies accounted for using the equity method		12			2			—			(15	)		(1	)		556			87			53			96			792			9			2			—			427			438
Net fee and commission income		7,523			1,131			431			(5	)		9,080			6,861			883			464			59			8,267			6,432			911			495			30			7,868
Gains/losses on financial assets and liabilities		1,454			1,382			34			1,376			4,246			1,100			995			26			1,353			3,474			957			855			30			1,113			2,955
Other operating income/(expenses)		(230	)		(16	)		338			52			144			31			(45	)		254			32			272			47			(29	)		229			43			290
TOTAL INCOME		34,828			5,053			1,004			(681	)		40,204			26,315			3,976			993			(388	)		30,896			22,293			3,190			912			19			26,414
Personnel expenses		(7,280	)		(725	)		(138	)		(307	)		(8,450	)		(5,806	)		(672	)		(135	)		(200	)		(6,813	)		(5,430	)		(625	)		(132	)		(247	)		(6,434	)
Other administrative expenses		(5,454	)		(392	)		(140	)		(388	)		(6,374	)		(4,051	)		(388	)		(158	)		(255	)		(4,852	)		(3,512	)		(387	)		(154	)		(289	)		(4,342	)
Depreciation and amortization of tangible and intangible assets		(1,367	)		(86	)		(29	)		(114	)		(1,596	)		(946	)		(98	)		(18	)		(177	)		(1,239	)		(878	)		(90	)		(20	)		(259	)		(1,247	)
Net impairment losses on financial assets		(9,744	)		37			(10	)		(1,861	)		(11,578	)		(5,672	)		(281	)		—			(331	)		(6,284	)		(3,357	)		(58	)		—			(14	)		(3,429	)
Provisions (net)		(1,001	)		6			(36	)		(762	)		(1,793	)		(607	)		(26	)		(18	)		(989	)		(1,640	)		(423	)		58			(22	)		(509	)		(896	)
Net impairment losses on non-financial assets		(61	)		(3	)		—			(100	)		(164	)		(24	)		—			2			(1,027	)		(1,049	)		(38	)		—			(1	)		(1,510	)		(1,549	)
Other non-financial gains/(losses)		(43	)		—			—			382			339			43			4			1			1,783			1,831			289			(94	)		—			2,259			2,454
OPERATING PROFIT (LOSS) BEFORE TAX		9,878			3,890			651			(3,831	)		10,588			9,252			2,515			667			(1,584	)		10,850			8,944			1,994			583			(550	)		10,971
Income tax		(2,300	)		(1,125	)		(219	)		2,437			(1,207	)		(1,825	)		(775	)		(174	)		938			(1,836	)		(2,347	)		(486	)		(174	)		684			(2,323	)
PROFIT (LOSS) FROM CONTINUING OPERATIONS		7,578			2,765			432			(1,394	)		9,381			7,427			1,740			493			(646	)		9,014			6,597			1,508			409			134			8,648
Profit (loss) from discontinued operations		46			—			—			(15	)		31			319			—			—			—			319			151			40			112			685			988
CONSOLIDATED PROFIT (LOSS) FOR THE YEAR		7,624			2,765			432			(1,409	)		9,412			7,746			1,740			493			(646	)		9,333			6,748			1,548			521			819			9,636
Attributable to minority interests		465			—			28			(24	)		469			434			(1	)		22			1			456			457			9			45			65			576
PROFIT ATTRIBUTABLE TO THE PARENT		7,159			2,765			404			(1,385	)		8,943			7,312			1,741			471			(647	)		8,877			6,291			1,539			476			754			9,060

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53. Related parties

The parties related to the Group are deemed to include, in addition to its subsidiaries, associates and jointly controlled entities, the Bank’s key management personnel (the members of its board of directors and the executive vice presidents, together with their close family members) and the entities over which the key management personnel may exercise significant influence or control.

Following is a detail of the ordinary business transactions performed by the Group with its related parties, distinguishing between associates and jointly controlled entities, members of the Bank’s board of directors, the Bank’s executive vice presidents, and other related parties. Related-party transactions were made on terms equivalent to those prevailing in arm’s-length transactions or, when this was not the case, the related compensation in kind was recognized.

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	Millions of euros
	2009												2008												2007
	Associates												Associates												Associates
	and jointly			Members of			Executive			Other			and jointly			Members of			Executive						and jointly			Members of			Executive			Other
	controlled			the board of			vice			related			controlled			the board of			vice			Other related			controlled			the board of			vice			related
	entities			directors			presidents			parties			entities			directors			presidents			parties			entities			directors			presidents			parties
Assets:
Loans and advances to credit institutions		3,990			—			—			—			4,019			—			—			—			3,169			—			—			136
Loans and advances to customers		149			7			24			1,664			221			4			21			1,728			262			1			14			2,040
Debt instruments		609			—			—			117			510			—			—			464			—			—			—			293
Liabilities:
Deposits from credit institutions		(204	)		—			—			—			(136	)		—			—			—			(284	)		—			—			—
Customer deposits		(217	)		(8	)		(41	)		(551	)		(143	)		(11	)		(22	)		(405	)		(4	)		(7	)		(18	)		(265	)
Income statement:
Interest and similar income		96			—			1			111			203			—			1			83			110			—			—			117
Interest expense and similar charges		(9	)		—			(1	)		(31	)		(25	)		—			(1	)		(10	)		(11	)		—			—			(6	)
Gains/losses on financial assets and liabilities		57			—			—			8			3			—			1			32			6			—			—			21
Fee and commission income		22			—			—			10			28			—			—			25			48			—			—			15
Fee and commission expense		(11	)		—			—			—			(23	)		—			—			—			(16	)		—			—			—
Other:
Contingent liabilities		—			—			—			491			293			—			—			479			365			—			2			968
Contingent commitments		137			1			3			3			164			1			7			13			358			1			1			280
Derivative financial instruments		6,868			—			—			3,153			7,074			—			—			1,314			7,823			—			4			831

In addition to the detail provided above, there were insurance contracts linked to pensions amounting to €2,356 million at December 31, 2009 (December 31, 2008: €2,447 million) and marketable debt securities held by Other related parties for €1,007 million at December 31, 2009.

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54.	Risk management
	Risk management at Santander is based on the following principles:

• Involvement of senior management. Banco Santander’s risk committee and the Group units’ senior management committees are structured so as to involve senior management in the overall risk oversight process.

• Independence of the risk function with respect to the business. The head of the Group’s risk division, Mr. Matías Rodríguez Inciarte, as third deputy chairman and in his capacity as chairman of the risk committee, reports directly to the board of directors. The segregation of functions between the business areas (which assume risk) and the risk areas entrusted with risk measurement, analysis, control and reporting provides sufficient independence and autonomy for proper risk control.

• Decisions by consensus (even at branch level), which ensure that different opinions are taken into account and avoid individual decision making.

• Decisions on credit transactions taken jointly by the risk and commercial areas.

• Definition of powers. The type of activities to be performed, segments, risks to be assumed and risk decisions to be made are clearly defined for each risk taking unit and, if appropriate, for each risk management unit, based on their delegated powers. How transactions should be arranged and managed and where they should be accounted for is also defined.

• Risk measurement. Risk measurement takes into account all risk exposures assumed across the business spectrum and uses measures based on risk components and dimensions, over the entire risk cycle, for the management of risk at any given time.

• From a qualitative standpoint, this integrated vision translates into the use of certain integrating measures, which are mainly the risk capital requirement and return on risk-adjusted capital (RORAC).

• Limitation of risk. The limitation of risk is intended to limit, in an efficient and comprehensive manner, the maximum levels of risk for the various risk measures, based on a knowledge of the risks incurred and supported by the necessary infrastructure for risk management, control and reporting, and to ensure that no undesired risks are assumed and that the risk-based-capital charge, risk exposures and losses do not exceed, in any case, the approved maximum levels.

• Establishment of risk policies and procedures. The risk policies and procedures represent the basic regulatory framework, consisting of circulars, frameworks and operating rules, through which risk activities and processes are regulated.

• Definition and assessment of risk methodologies. Risk methodologies provide the definitions of the internal risk models applicable by the Group and, therefore, stipulate the risk measures, product valuation methods, yield curve and market data series building methods, calculation of risk-based capital requirements and other risk analysis methods, and the respective calibration and testing processes.

The risk management and control process at Santander Group is structured into the following phases:

• Establishment of risk management frameworks and policies that reflect the principles and standards governing the general modus operandi of Santander Group’s risk activities, based on a corporate risk management framework, which comprises the organizational model and the management model, and on a series of more specific corporate frameworks of the functions reporting to the risk unit. Local risk units transpose corporate risk regulations into their internal policies and develop the procedures required to implement them.

• Identification of risks, through the constant review and monitoring of exposures, the assessment of new products and businesses and the specific analysis of singular transactions.

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• Measurement of risks using methodologies and models implemented subject to a validation and approval process.

• Definition of the Group’s risk appetite by setting overall and specific limits for the various types of risks, products, customers, groups, sectors and geographical locations.

• Preparation and distribution of a complete set of reports that are reviewed daily by the heads at all levels of Santander management.

• Implementation of a risk control system which checks, on a daily basis, the degree to which Santander’s risk profile matches the risk policies approved and the risk limits set.

For many years Santander Group has managed risk using a number of techniques and tools which are described in detail in various sections of this note. The most noteworthy of these techniques and tools, due to the foresight with which Santander implemented them at the time and their current significance in light of the new Basel Capital Accord (BIS II), are as follows:

• Internal ratings- and scorings-based models which, by assessing the various qualitative and quantitative risk components by customer and transaction, make it possible to estimate, firstly, the probability of default and, subsequently, the expected loss, based on LGD estimates.

• Economic capital, as a homogeneous measure of the risk assumed and a basis for the measurement of the management performed.

• RORAC, which is used both as a transaction pricing tool (bottom-up approach) and in the analysis of portfolios and units (top-down approach).

• VaR, which is used for controlling market risk and setting the market risk limits for the various trading portfolios.

• Scenario analysis and stress testing to supplement market and credit risk analyses in order to assess the impact of alternative scenarios, even on provisions and capital.

Consequently, Santander’s risk management fully identifies with BIS II principles, insofar as it recognizes and supports the leading-edge industry practices that the Group has implemented in advance.

Santander Group calculates the minimum regulatory capital in conformity with Bank of Spain Circular 3/2008 on the determination and control of minimum capital requirements for credit institutions. This Circular completed the transposition into Spanish banking legislation of Directives 2006/48/EC and 2006/49/EC that incorporate the new Basel Capital Accord (BIS II) into EU regulations.

1. CORPORATE GOVERNANCE OF THE RISK FUNCTION

The risk committee is responsible for proposing the Group’s risk policy for approval by the board within its governing and supervisory powers. Furthermore, the committee ensures that the Group’s activities are consistent with its risk tolerance level and, in this regard, it sets global limits for the main risk exposures, which it reviews systematically, and decides upon any transactions that exceed the powers delegated to lower-ranking bodies.

The risk committee, an executive body that adopts decisions within the scope of the powers delegated by the board, is presided over by the third deputy chairman of Santander Group and also comprises a further four members of the Bank’s board of directors.

In 2009 the risk committee held 99 meetings, evidencing the importance that Santander Group attaches to the proper management of its risks.

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The responsibilities assigned to the risk committee are essentially as follows:

• To propose to the board the Group’s risk policy, which will identify, in particular:

• The various types of risk (financial, operational, technological, legal and reputational, inter alia) facing the Group;

• The information and internal control systems to be used to control and manage these risks;

• The level of risk deemed acceptable by the Group;

• The measures envisaged to mitigate the impact of the identified risks in the event that they materialize.

• To conduct systematic reviews of the Group’s exposure to its main customers, economic activity sectors, geographical areas and types of risk.

• To authorize the management tools and risk models and ascertain the result of their internal validation.

• To ensure that the Group’s actions are consistent with the level of risk tolerance previously defined.

• To be informed of, assess and follow any remarks and recommendations that may be periodically made by the supervisory authorities in discharging their function.

• To resolve transactions outside the powers delegated to lower-ranking bodies and the overall limits for pre-classified risk categories for economic groups or in relation to exposure by type of risk.

The risk committee has delegated certain of its powers to risk subcommittees which are structured by geographical area, business line and type of risk, all of which are defined in the corporate governance model.

The risk function at Santander Group is performed through two risk units, which are independent from the business areas from both a hierarchical and a functional standpoint. The two risk units are directly linked to the board of directors through the risk committee and the third deputy chairman of the Group, who is the person ultimately responsible for the Group’s risk management.

In order to meet the requirements of Basel II and to enhance the Group’s capacity to cater for its business growth, the organizational and functional structure of the two risk units was defined as follows:

• The integrated risk control and internal risk validation unit, with global-reaching corporate responsibilities, which provide support to the Group’s governing bodies, namely:

• Validation of the internal risk models in order to assess the appropriateness and adequacy of the rating systems, internal processes and data processing systems, in conformity with Basel II.

• Integrated risk control in order to ensure that the risk management and control systems are consistent with the Bank’s global risk profile.

• The risk unit, whose functions are divided into two blocks:

• A corporate structure, with global-reaching responsibilities (all risks, all geographical areas), which establishes the risk policies, methodologies and control systems: solvency, market and methodology.

• A business structure, centred on the performance and management integration of the risk function in the Group’s commercial, global and local businesses. Within this structure, the Brazil corporate risk area was created in 2009 as part of the Group’s risk division. The objectives of this area include enhancing the relationship and cooperation between the global risk areas and the local unit in Brazil; boosting the globalization of the risk models; and obtaining and systematizing risk management information.

2. INTEGRATED RISK CONTROL

In 2008 Santander Group launched the integrated risk control function, which meant the early adoption of the new regulatory requirements then under discussion by the main bodies and forums (Basel Committee, CEBS, FSF, etc.) and of the recommendations on best risk management practices made by various public and private organizations.

In July 2009 the Basel Committee required credit institutions to implement this function immediately.

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Organization, mission and features of the function

The integrated risk control function is located in the integrated risk control and internal risk validation unit. This function provides risk control and management support to the Group’s governing bodies.

A special focus is placed on credit risk (including concentration and counterparty risks); market risk (including liquidity and structural interest rate and foreign currency risks); operational and technology risk; and compliance and reputational risk.

The integrated control mission is based on three modules:

Module 1) To guarantee that the management and control systems for the various risks inherent in Santander Group’s activities comply with the most stringent criteria and the best practices observed in the industry and/or established by regulators;

Module 2) To ensure that senior management has an all-embracing view of the profiles of the various risks assumed at any time and that these profiles are consistent with the pre-determined risk appetite; and

Module 3) To supervise adequate compliance, in due time and form, with any recommendations on risk management and control made as a result of inspections conducted by internal audit and by the competent supervisory authorities.

The integrated risk control function supports the risk committee by providing it with the best risk management practices.

The main features of the function are as follows:

• Global and corporate approach: all risks, all businesses, all geographical areas.

• It is a third layer of control, which follows the control performed in the first instance by the officer responsible for managing and controlling each risk at each business or functional unit (first layer of control) and by the officer responsible for the control of each risk at corporate level (second layer of control). This system ensures a vision and, therefore, the integrated control of all the risks incurred as a result of Santander Group’s business activities.

• Special attention is paid to the development of best practices in the financial services industry, so that the Group is in a position to promptly incorporate any relevant advance.

• The available information and the resources assigned by Santander Group to the control of the various risks are optimized in order to avoid overlaps.

Methodology and tools

Santander Group has developed internally, tailored to its specific needs, a methodology to systematize this function, together with the related proprietary supporting tools to formalize implementation of the methodology, making it traceable and objectifiable. The methodology and tools are articulated through the three modules described above for all the addressed risks:

Module 1) Testing or review guidelines have been defined for each risk. These guidelines consist of over 650 tests, considering all the risks referred to above, and are divided in control areas (e.g. corporate governance, organizational structure, management systems, management integration, technology environment, contingency plans and business continuity, etc.).

The Group performs the tests and gathers the relevant evidence assessed in the process —which enables it to standardize the control parameters of the various risks— on a half-yearly basis, with the inclusion of new tests if required. The supporting tool is the risk control monitor, serving as a repository for the findings of each test and of the related working papers.

Module 2) A combined balanced scorecard is being designed, together with the related tool, so as to make it easier for senior management to monitor, with an integrated approach, the various risks assumed and their consistency with the previously-established risk appetite.

Module 3) In order to follow up the recommendations on risk management and control made by internal audit and by the supervisory authorities, the Group uses SEGRE, a tool which also enables it to include the recommendations made by the integrated risk control function itself. The use of this tool is coordinated with the risk control areas involved so as to optimize the follow-up process.

The Bank of Spain can access these tools if it deems it appropriate.

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Main achievements in 2009

The main milestones achieved in 2009 were as follows:

(a) The first review cycle of the various risks was completed in close cooperation with the corporate risk control areas, testing and assessing the management and control systems in place for these risks. Areas for improvement were identified, giving rise to recommendations, with the related implementation schedule agreed upon with the areas involved, which will facilitate the subsequent follow-up of any progress made in this connection;

(b) The corporate integrated risk control model was submitted, together with the first diagnostic report, to the audit and compliance committee, to the risk committee and to the board of directors, which approved the model;

(c) The process of reporting to the board of directors with an integrated view of all risks was initiated; and

(d) The first steps were taken to extend the integrated risk control model to the Group’s main units.

Following is an analysis of the Group’s main types of risk: credit, market, operational and reputational risks.

3. CREDIT RISK

3.1 Introduction to the treatment of credit risk

Credit risk is the possibility of loss stemming from the total or partial failure of our customers or counterparties to meet their financial obligations to the Group.

The specialization of Santander Group’s risk function is based on the type of customer and, accordingly, a distinction is made between individualized customers and standardized customers in the risk management process:

• Individualized customers are defined as those to which a risk analyst has been assigned, basically because of the risk assumed. This category includes wholesale banking customers, financial institutions and certain enterprises belonging to retail banking. Risk management is performed through expert analysis supplemented by decision-making support tools based on internal risk assessment models.

• Standardized customers are those which have not been expressly assigned a risk analyst. This category generally includes individuals, individual entrepreneurs, and retail banking enterprises not classified as individualized customers. Management of these risks is based on internal risk assessment and automatic decision-making models, supplemented subsidiarily, when the model is not comprehensive enough or is not sufficiently accurate, by teams of analysts specializing in this type of risk.

3.2 Main aggregates and variations

The profile of the credit risk assumed by the Group is characterized by a diversified geographical distribution and the prevalence of retail banking operations.

A. Global map of credit risk — 2009

The following table shows the global map of the credit risk, expressed in nominal amounts (with the exception of exposure in derivatives and repos, which is expressed in credit risk equivalent), to which the Group was exposed at December 31, 2009.

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Data in millions of euros

SANTANDER GROUP — GROSS CREDIT RISK EXPOSURE

							Sovereign			Private
	Customer			Drawable			Fixed-			Fixed-			Credit			Drawable by			Derivatives
	Draw-			by			Income			Income			Institution			Credit			and Repos									Change/
	Downs			Customers			(Excl. Trad.)			(Excl. Trad.)			Drawdowns			Institutions			(CRE)			Total			%			Dec-08
SPAIN		281,621			57,179			29,602			11,835			28,440			1,113			27,911			437,700			39.6	%		-7.1	%
Parent bank		170,692			39,716			20,769			8,049			19,038			736			19,053			278,053			25.2	%		-8.6	%
Banesto		80,109			11,167			6,204			2,003			6,696			225			8,701			115,104			10.4	%		3.2	%
Other		30,819			6,296			2,629			1,784			2,706			152			157			44,543			4.0	%		-19.4	%
OTHER EUROPEAN COUNTRIES		305,831			36,827			3,844			16,025			9,025			155			18,877			390,583			35.3	%		10.8	%
Germany		22,256			9			0			159			432			0			5			22,861			2.1	%		-5.0	%
Portugal		22,143			8,276			2,734			1,410			2,425			0			1,519			38,507			3.5	%		6.9	%
United Kingdom		228,044			26,484			464			14,136			5,172			155			17,132			291,587			26.4	%		12.9	%
Other		33,387			2,058			646			320			996			0			220			37,627			3.4	%		10.6	%
LATIN AMERICA		104,965			45,537			24,280			1,821			20,684			19			10,648			207,953			18.8	%		15.4	%
Brazil		62,952			30,996			16,719			1,212			14,535			0			5,564			131,978			11.9	%		38.3	%
Chile		20,200			6,300			2,220			502			1,812			19			3,209			34,261			3.1	%		22.0	%
Mexico		11,611			6,724			4,252			0			2,220			0			1,573			26,379			2.4	%		-7.3	%
Other		10,202			1,516			1,089			108			2,118			0			303			15,335			1.4	%		-45.6	%
UNITED STATES		43,814			9,395			1,742			9,157			2,970			77			105			67,260			6.1	%
REST OF THE WORLD		1,017			262			80			1			167			0			0			1,526			0.1	%
TOTAL GROUP		737,246			149,200			59,547			38,839			61,287			1,363			57,540			1,105,022			100	%		8.8	%
% /Total		66.7	%		13.5	%		5.4	%		3.5	%		5.5	%		0.1	%		5.2	%		100.0	%
% Change/Dec-08		6.5	%		27.2	%		68.5	%		45.3	%		-30.8	%		-77.3	%		16.9	%		8.8	%

Data at 31/12/09, prepared on the basis of legal-entity criteria.

CRE (Credit Risk Equivalent: net replacement value plus maximum potential value. Includes credit risk mitigants).

Derivatives and repos do not include Sovereign or Alliance & Leicester.

Balances drawn down by customers exclude repos (EUR 13,439 million) and Other financial assets — Customer loans (EUR 7,661 million).

Balances with credit institutions (excluding repos and trading portfolio) include EUR 29,718 million of deposits at central banks.

2009 was characterized by moderate lending growth, reflecting the lower demand for credit (a very significant portion of the growth observed was due to the change in the scope of consolidation as a result of the inclusion of Sovereign Bank). The credit risk exposure increased by 8.8% year-on-year, owing particularly to the balances drawn down and drawable by customers. Annual growth excluding Sovereign Bank was 3.3%.

Spain continues to be the most significant unit as regards credit risk exposure, albeit with a decline of 7% on December 2008. Other European countries represent more than one third of credit risk exposure. Particularly noteworthy in this respect is the presence in the United Kingdom. Taken as a whole, Europe represents 75% of credit risk exposure.

In Latin America, 96% of credit risk exposure is rated investment-grade.

With the inclusion of Sovereign Bank, the United States accounted for 6% of credit risk exposure at December 2009.

B. Variations in main aggregates in 2009

The changes in non-performing loans and the cost of credit reflect the impact of the deterioration of the economic environment, mitigated by prudent risk management, which generally enabled the Group to hold these data at levels lower than those of its competitors. As a result, the Group has a significant NPL coverage ratio.

The non-performing loans ratio stood at 3.24% in December 2009, an increase of 120 b.p. in the year. The NPL coverage ratio was 75.3%, as compared with a coverage ratio of 90.6% at 2008 year-end.

Specific credit loss provisions, net of recoveries of written-off assets, amounted to €11,760 million, i.e. 1.57% of average credit risk exposure to customers (average lending plus off-balance-sheet exposures for the year), as compared with 1.16% in 2008.

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	Credit Risk Exposure to				Non-Performing Loans								Specific Credit Loss
	Customers *				Ratio				Coverage Ratio				Provisions, Net of RAWO **				Cost of Credit(1)
	(Millions of Euros)				(%)				(%)				(Millions of Euros)				(% of Risk)
	2009		2008		2009		2008		2009		2008		2009		2008		2009		2008
Continental Europe		366,970		368,512		3.64		2.31		76.6		90.0		5,084		3,201		1.39		0.89
Santander Network		129,099		135,508		4.38		2.58		64.9		74.9		1,851		1,204		1.41		0.91
Banesto		86,681		87,925		2.97		1.64		64.1		106.5		737		450		0.89		0.53
Santander Consumer Finance		60,245		56,245		5.39		4.18		96.8		85.5		2,005		1,402		3.38		2.71
Portugal		34,501		34,760		2.27		1.72		64.6		77.2		95		6		0.27		0.02
United Kingdom		238,215		217,063		1.71		1.04		43.8		68.5		1,018		442		0.43		0.23
Latin America		117,146		112,040		4.25		2.95		105.2		108.3		5,053		3,965		4.44		3.44
Brazil		65,611		53,764		5.27		3.58		99.2		102.4		3,537		2,493		5.88		4.30
Mexico		12,676		13,482		1.84		2.41		264.4		132.1		824		879		6.13		5.44
Chile		21,384		18,848		3.20		2.64		89.0		102.4		402		350		1.98		1.73
Puerto Rico		4,132		4,810		9.60		6.92		53.3		61.0		89		138		1.99		2.84
Colombia		1,719		1,464		1.83		1.79		187.5		204.1		31		44		1.94		2.83
Argentina		2,936		3,271		2.60		1.83		141.0		178.6		91		49		2.99		1.54
Sovereign		38,770				5.35				62.5				578
Total Group		758,347		697,200		3.24		2.04		75.3		90.6		11,760		7,659		1.57		1.16
Memorandum item:
Spain		284,307		300,524		3.41		1.95		73.4		98.5		3,497		2,150		1.20		0.71

Data prepared on the basis of management criteria. Memorandum item Spain, on the basis of controller’s unit accounting criteria.
Data for 2008 have been restated including the full consolidation of Banco Real throughout the year.
*	Includes gross loans and advances to customers, guarantees and documentary credits.
**	RAWO = Recoveries of Assets Written Off.
(1)	Excludes Sovereign

C. Distribution of credit risk

Santander Group has a mainly retail profile (commercial banking represents 86.3%) and its main portfolios consist of products secured with collateral (mortgages).

3.3 Measures and measurement tools

A. Rating tools

Since 1993 the Group has used proprietary internal rating models to measure the credit quality of a given customer or transaction. Each rating relates to a certain probability of default or non-payment, determined on the basis of the Entity’s historical experience, with the exception of certain portfolios classified as low default portfolios. More than 200 internal rating models are used in the Group’s loan approval and risk monitoring process.

Global rating tools are applied to the sovereign risk, financial institution and global wholesale banking segments. Management of these segments is centralized at Group level, for both rating calculation and risk monitoring purposes. These tools assign a rating to each customer, which is obtained from a quantitative or automatic module, based on balance sheet ratios or macroeconomic variables, supplemented by the analyst’s expert judgement.

For individualized corporates and institutions, the parent of Santander Group has defined a single methodology for the construction of a rating in each country, based on an automatic module which includes an initial participation of the analyst that can be supplemented subsequently if required. The automatic module determines the rating in two phases, a quantitative phase and a qualitative phase. The latter is based on a corrective questionnaire which enables the analyst to modify the automatic score by up to ±2 rating points. The quantitative rating is determined by analyzing the credit performance of a sample of customers and the correlation with their financial statements. The corrective questionnaire consists of 24 questions divided into 6 assessment areas. The automatic rating (quantitative + corrective questionnaire) may in turn be modified by the analyst by overwriting it or using a manual scoring module.

Ratings assigned to customers are reviewed periodically to include any new financial information available and the experience in the banking relationship. The frequency of the reviews is increased in the case of customers that reach certain levels in the automatic warning systems and of customers classified as requiring special monitoring. The rating tools themselves are also reviewed in order to progressively fine-tune the ratings they provide.

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For standardized customers, both legal entities and individuals, the Group has scoring tools that automatically assign a score to the proposed transactions.

These loan approval systems are supplemented by performance rating models. These tools provide enhanced predictability of the risk assumed and are used for preventive and marketing activities.

B. Credit risk parameters

The assessment of customers or transactions using rating or scoring systems constitutes a judgement of their credit quality, which is quantified through the probability of default (PD), in accordance with Basel II terminology.

In addition to customer assessment, the quantification of credit risk requires the estimation of other parameters, such as exposure at default (EAD) and the percentage of EAD that will not be recovered (loss given default or LGD). Therefore, other relevant factors are taken into account in estimating the risk involved in transactions, such as the quantification of off-balance-sheet exposures, which depends on the type of product, or the analysis of expected recoveries, which is related to existing guarantees.

These factors are the main credit risk parameters. Their combination facilitates calculation of the probable loss or expected loss (EL). This loss is considered to be an additional cost of the activity which is reflected in the risk premium and must be charged in the transaction price.

These risk parameters also make it possible to calculate the regulatory capital in accordance with the regulations deriving from the new Basel Capital Accord (BIS II). Regulatory capital is determined as the difference between unexpected loss and expected loss.

Unexpected loss is the basis for the capital calculation and refers to a very high, albeit scantly probable, level of loss, which is not deemed to be recurring and must be catered for using capital.

The estimates of the risk parameters (PD, LGD and EAD) should be based on internal experience, i.e. on default observations and on the experience in defaulted loan recoveries.

For portfolios with scant internal default experience, such as banks, sovereign risk or global wholesale banking, parameter estimates are based on alternative sources: market prices or studies conducted by external agencies gathering the shared experience of a sufficient number of entities. These portfolios are known as low default portfolios.

For all other portfolios, parameter estimates are based on the entity’s internal experience. The PD is calculated by observing the cases of new arrears in relation to the final rating assigned to customers or to the scoring assigned to the related transactions.

LGD calculation is based on the observation of the recoveries of defaulted loans, taking into account not only the income and expenses associated with the recovery process, but also the timing thereof and the indirect costs arising from the recovery process.

EAD is estimated by comparing the use of committed facilities at the time of default and their use under normal (performing) circumstances, so as to identify the actual use of the facilities at the time of default.

The parameters estimated for global portfolios are the same for all the Group’s units. Therefore, a financial institution with an 8.5 rating will have the same PD, regardless of the Group unit in which its exposure is accounted for. By contrast, the retail portfolios have specific scoring systems in each of the Group’s units, which require separate estimates and specific assignment of parameters in each case.

The parameters are then assigned to the units’ on-balance-sheet transactions in order to calculate the expected losses and the capital requirements associated with their exposure.

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C. Global rating scales

The models committee approved the following relationship between internal ratings and PDs for the global banks and global wholesale banking portfolios.

Wholesale Banking

Internal Rating	PD
9.3		0.018	%
9.2		0.020	%
9.0		0.024	%
8.5		0.037	%
8.0		0.060	%
7.5		0.095	%
7.0		0.151	%
6.5		0.240	%
6.0		0.382	%
5.5		0.607	%
5.0		0.965	%
4.5		1.535	%
4.0		2.442	%
3.5		3.884	%
3.0		6.178	%
2.5		9.826	%
2.0		15.627	%
1.5		24.855	%
1.0		39.532	%

Banks

Internal Rating	PD
9.3		0.013	%
9.2		0.014	%
9.0		0.018	%
8.5		0.029	%
8.0		0.049	%
7.5		0.083	%
7.0		0.139	%
6.5		0.232	%
6.0		0.390	%
5.5		0.653	%
5.0		1.095	%
4.5		1.835	%
4.0		3.076	%
3.5		5.157	%
3.0		8.645	%
2.5		14.492	%
2.0		24.294	%
1.5		40.725	%
1.0		68.268	%

These PDs are applied consistently across the Group in keeping with the global management of these portfolios. As can be seen, although the PD assigned to the internal rating is not exactly the same for the same rating in both portfolios, it is very similar in the tranches where most exposure is concentrated, i.e. in the rating tranches above 6.

D. Distribution of EAD and associated EL

The table below details the distribution, by segment, of the outstanding credit risk exposure in terms of EAD, PD, LGD and EL. Approximately 83% of total risk exposure to customers (excluding sovereign and counterparty risks and other assets) relates to the corporate, SME and individuals segments, which reflects the commercial orientation of Santander Group’s business and risks. The expected loss arising from customer exposure is 1.09%, as compared with 0.90% for the Group’s total credit risk exposure, and, accordingly, the profile of the credit risk assumed can be classified as medium-low.

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	Segmentation of Credit Risk Exposure
						Average			Average
	EAD (1)		%			PD			LGD			EL
Sovereign debt		104,457		11.0	%		0.23	%		14.54	%		0.03	%
Counterparty		76,888		8.1	%		0.29	%		70.34	%		0.21	%
Public sector		3,129		0.3	%		0.70	%		21.32	%		0.15	%
Corporate		131,703		13.8	%		0.51	%		39.68	%		0.20	%
SMEs		186,321		19.5	%		4.65	%		28.11	%		1.31	%
Mortgage loans to individuals		302,395		31.7	%		3.30	%		7.04	%		0.23	%
Consumer loans to individuals		111,452		11.7	%		6.51	%		52.42	%		3.41	%
Credit cards — individuals		24,297		2.5	%		6.73	%		64.94	%		4.37	%
Other assets		13,066		1.4	%		2.47	%		29.73	%		0.74	%
Memorandum item — customers (2)		759,296		79.6	%		3.72	%		29.32	%		1.09	%
Total		953,707		100.00	%		3.04	%		29.52	%		0.90	%

Data at December 2009
(1)	Excluding doubtful assets
(2)	Excluding sovereign, counterparty and other assets

3.4 Observed loss: measures of cost of credit

To supplement the use of the advanced models described above, other habitual measures are used to facilitate prudent and effective management of credit risk based on observed loss.

The cost of credit risk at Santander Group is measured using different approaches: variation in non-performing loans in the recovery process (ending doubtful assets — beginning doubtful assets + assets written off — recovery of assets written off), net credit loss provisions (provisions to specific allowances — recovery of assets written off); and net assets written off (assets written off — recovery of assets written off).

3.5 Credit risk cycle

The risk management process consists of identifying, measuring, analyzing, controlling, negotiating and deciding on, as appropriate, the risks incurred in the Group’s operations. The parties involved in this process are the risk taking areas, senior management and the risk units.

The process begins at senior management level, through the board of directors, the executive committee and the risk committee, which establishes the risk policies and procedures, and the limits and delegations of powers, and approves and supervises the scope of action of the risk function.

The risk cycle comprises three different phases: pre-sale, sale and post-sale:

• Pre-sale: this phase includes the risk planning and target setting processes, determination of the Group’s risk appetite, approval of new products, risk analysis and credit rating process, and limit setting.

• Sale: this is the decision-making phase for both pre-classified and specific transactions.

• Post-sale: this phase comprises the risk monitoring, measurement and control processes and the recovery process.

A. Risk limit planning and setting

Risk limit setting is a dynamic process that identifies the Group’s risk appetite through the discussion of business proposals and the attitude to risk.

This process is defined in the global risk limit plan, an agreed-upon comprehensive document for the integrated management of the balance sheet and the inherent risks, which establishes risk appetite on the basis of the various factors involved.

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The risk limits are founded on two basic structures: customers/segments and products.

For individualized risks, customers represent the most basic level, and individual limits are established (pre-classification) when certain features, generally materiality, concur.

For large corporate groups a pre-classification model, based on an economic capital measurement and monitoring system, is used. As regards the corporate segment, a simplified pre-classification model is applied for customers meeting certain requirements (thorough knowledge, rating, etc.).

In the case of standardized risks, the risk limits are planned and set using the credit management programs (PGC, using the Spanish acronym), a document agreed upon by the business areas and the risk units and approved by the risk committee or its delegated committees, which contains the expected results of transactions in terms of risk and return, as well as the limits applicable to the activity and the related risk management.

B. Risk analysis and credit rating process

Risk analysis is a pre-requisite for the approval of loans to customers by the Group.

This analysis consists of examining the customer’s ability to meet its contractual obligations to the Bank, which involves analyzing the customer’s credit quality, its risk transactions, its solvency and the return to be obtained in view of the risk assumed.

The risk analysis is conducted every time a new customer or transaction arises or with a pre-established frequency, depending on the segment involved. Additionally, the credit rating is examined and reviewed whenever a warning system is triggered or an event affecting the customer/transaction occurs.

C. Transaction decision-making

The purpose of the transaction decision-making process is to analyze transactions and adopt resolutions thereon, taking into account the risk appetite and any transaction elements that are important in achieving a balance between risk and return.

Since 1993 the Group has been using, among others, the RORAC (return on risk-adjusted capital) methodology for risk analysis and pricing in the decision-making process on transactions and deals.

D. Risk monitoring and control

In order to ensure adequate credit quality control in addition to the tasks performed by the internal audit division, the risk unit has a specific risk monitoring function, consisting of local and global teams, to which specific resources and persons in charge have been assigned.

This monitoring function is based on an ongoing process of permanent observation to enable early detection of any incidents that might arise in the evolution of the risk, the transactions, the customers and their environment, with a view to adopt mitigating actions. The risk monitoring function is specialized by customer segment.

For this purpose a system called “companies under special surveillance” (FEVE, using the Spanish acronym) has been designed that distinguishes four categories based on the degree of concern raised by the circumstances observed (extinguish, secure, reduce and monitor). The inclusion of a company in the FEVE system does not mean that there has been a default, but rather that it is deemed advisable to adopt a specific policy for this company, to place a person in charge and to set the policy implementation period. Customers classified as FEVE are reviewed at least every six months, or every three months for those classified in the most severe categories. A company can be classified as FEVE as a result of the monitoring process itself, a review performed by internal audit, a decision made by the sales manager responsible for that company or the triggering of the automatic warning system.

Assigned ratings are reviewed at least annually, but should any weakness be detected, or depending on the rating itself, more frequent reviews are performed.

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For exposures to standardized customers, the key indicators are monitored in order to detect any variance in the performance of the loan portfolio with respect to the forecasts contained in the credit management programs.

Loan portfolio — Spain

Portfolio overview

The total credit risk exposure of the loan portfolio in Spain amounted to €284,307 million at 2009 year-end, 37.49% of the Group’s total credit risk.

This exposure in Spain shows a high degree of diversification, both at product and at customer segment levels. The risk exposure of the aggregate commercial networks of Santander and Banesto is distributed as follows: 48% to individualized companies, 32% to residential mortgage loans, and 6% to public institutions, as the most significant portfolios.

In accordance with Bank of Spain regulations, the Group considers as doubtful the total contractual debt more than 90 days past due and also includes the total amount of customer’s debt when the unpaid portion represents more than 25% of the customer’s debt or when preliminary legal proceedings have been initiated. All customer loans which, although performing, present reasonable doubts as to their total repayment, are also treated as doubtful.

Based on this definition, the NPL ratio of the loan portfolio in Spain was 3.41% at 2009 year-end, much lower than the aggregate total for banks (per data published by the Bank of Spain) and showing a more moderate growth trend.

The total allowances available for the possible losses arising from these loans represent a coverage ratio of 73.4%.

Additionally, in accordance with Bank of Spain regulations and instructions, the Group classifies as substandard any performing loans for which there is no reason to classify them as doubtful, but which exhibit a weakness which might give rise to defaults and losses in the future, because the customers concerned are the weakest of a certain group or sector that has been affected by extraordinary higher-risk circumstances. The loans classified in this category total €6,724 million.

Analysis of the mortgage loans to individuals

As regards standardized risks, the mortgage loans to individuals are particularly noteworthy due to their importance with respect to the Group’s total loans and receivables in Spain.

The performance of this portfolio was affected by the situation of the real economy and its progressive deterioration during the year, which gave rise to a contraction in the demand for credit in the system in 2008, which continued in 2009. However, the number of applications for mortgage loans showed signs of a slight recovery in the last quarter of 2009.

The NPL ratio of the residential mortgage loan portfolio of the Group in Spain was 2.46% at 2009 year-end, which was lower than the average ratios of the financial system.

In view of the impaired scenario and taking into account the medium-low risk profile of this portfolio, the estimated impact at Group level is limited and the estimated final loss is low, due to the outstanding collateral for the loans. The mortgage portfolio and, therefore, its risk profile, is characterized by the prevalence of principal residence loans, an average LTV ratio of 52% (with values updated on the basis of the house price index published by the Ministry of Housing) and an effort ratio of 31% in loan approval.

Residential mortgage loans account for 31.8% of total credit risk of Santander and Banesto commercial banking, with 85% of the residential mortgage portfolio having an LTV ratio lower than 80%.

Loans to the construction and real estate sectors in Spain

These two sectors are among the industries most affected by the deterioration of the business cycle.

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Aggregate lending to the construction and real estate sectors in Spain (Banco Santander and Banesto) amounted to €42,256 million. This portfolio includes financing for a wide array of activities such as the tourism industry, lease-back transactions, developments of subsidiaries of local and autonomous community governments, insurance companies, etc.

The NPL ratio for this portfolio, using the aforementioned criteria, stood at 6.2% at 2009 year-end, which is above the average for the Group, and specific provisions cover 45% thereof.

In addition, in accordance with Bank of Spain guidelines, risks amounting to €4,332 million were classified as substandard.

A product of special relevance in the real estate portfolio is the housing developer mortgage loan totaling €12,207 million at 2009 year-end, approximately 1.6% of Santander Group’s total lending.

At year-end, this portfolio had a high level of customer granularity, low concentration and an adequate level of collateral and provisions.

The analysis of the portfolio distribution, by stage of the work in progress of the financed developments, is as follows:

• Developments with completed work / certificate of final completion obtained: 66.7% of outstanding risk.

• Developments with a percentage of completion of more than 80%: 14.5% of outstanding risk.

• Developments with a percentage of completion of between 50% and 80%: 8.9% of outstanding risk.

• Percentage of completion of less than 50%: only 9.8%.

The percentages of completion detailed above show that the stage of completion of the developments included in this portfolio is high, with 81.2% of transactions outstanding having overcome, or almost overcome, the construction risk.

In addition to the permanent control performed by its risk monitoring teams, the Group has a specialist technical unit that monitors and controls this portfolio with regard to the stage of completion of construction work, planning compliance and sales control, and validates and controls progress billing payments.

The Group conducted its ordinary stress-testing exercises on this portfolio of loans to the construction and property development sectors.

Purchase of real estate assets (Spain)

The measures adopted in Spain to achieve more efficient risk management included the purchase of real estate assets. In 2009 the volume of such purchases fell significantly and the net balance of properties acquired amounted to €2,935 million at 2009 year-end. In 2009 the beginning balance was €3,768 million, purchases amounted to €908 million (substantially all of them were made in the first half of the year) and provisions and write-downs totaled €947 million.

The Group still considers the reasons for giving priority to this option over the legal proceedings route to be as follows:

• Longer duration of legal proceedings as compared with the immediate availability of the assets.

• Cost saving.

• Enhanced viability of companies as a result of the injection of liquidity for their business activity

• Reduction of potential loss in value of the loans to these customers.

• Reduced exposure and expected loss.

Additionally, in line with habitual banking practice in risk management, the Group in Spain foreclosed properties amounting to €1,357 million (gross) in 2009. The net balance of foreclosed assets is €1,595 million.

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At 2009 year-end, the gross amount of properties acquired and foreclosed was €4,304 million and €2,217 million, respectively.

It should be noted that this process was implemented by applying a provisioning policy which was in keeping with the Group’s habitual principles of prudence, with the assets being reassessed regularly in order to ensure an adequate level of provisions. At 2009 year-end, the coverage of all these assets was 31%.

In addition to the habitual structure already in place for managing these assets, there are companies specialized in property management and disposals in order to provide a more efficient treatment of the properties acquired or foreclosed.

Analysis of potentially problematic exposure

Given the current economic circumstances of these sectors and the need for adjustments therein, on the basis of the figures shown in the above sections, the potentially problematic exposure -the sum of doubtful and substandard assets plus total acquired and foreclosed assets plus written-off assets- in the construction and property development sectors would amount to €13,961 million.

Specific allowances were recognized for this portfolio amounting to €4,024 million, which represents coverage of 29%. If the allowances determined collectively for Spain were included together with these specific allowances, the coverage would be 50%.

Refinancing

Refinancing is one of the management tools established to adapt the maturity structure of loan principal and interest to the new customer payment capacity.

At Santander Group, refinancing is confined, with stringent and selective criteria, to:

• Viable transactions,

• In which customers have a willingness to pay,

• That improve the Bank’s position in terms of expected loss, and

• In which refinancing does not discourage an additional effort by customers.

The Group’s corporate refinancing policy ensures uniform and strict application of these criteria across the various units:

• The overall customer risk is assessed, regardless of the situation of each individual contract, and the highest possible level of guarantees is assigned to all customer risks.

• As a general rule, the customer exposure is not increased.

• All the alternatives to refinancing and their impacts are assessed, making sure that the results of this solution exceed those which would foreseeable be obtained if no refinancing were performed.

• Special attention is paid to the guarantees and the possible future changes in their value.

• Its use is restricted, and priority is given to the restructuring of loans that requires an additional effort from customers, and actions that only postpone the problem are avoided.

• Refinanced transactions are subject to special monitoring.

Refinancing is used mainly to address situations having a low impact on customer payment capacity and which are expected to last for a medium/long period of time. With greater restrictions, it can also be used for more serious cases in which the payment difficulty is estimated to be of short duration. No refinancing is applied to the most severe cases, in which other solutions are sought to recover the amount owed.

In addition to the close monitoring of these portfolios by the Group’s risk management teams, the competent supervisory authorities and the Group’s internal audit pay special attention to the control and appropriate assessment of refinanced portfolios.

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Refinancing does not entail the release of provisions or the classification of the related transactions as performing, unless:

• The criteria established in the regulations based on Bank of Spain circulars are met (i.e. collection of ordinary interest outstanding and new efficient guarantees or reasonable assurance of payment capacity);

• The precautionary provisions included, using the principle of prudence, in the Group’s corporate policy (sustained payment for a period of between three and twelve months, depending on the transaction features and the type of guarantee) are met.

In the case of Spain (commercial networks of Santander plus Banesto), at 2009 year-end the balance of transactions refinancing exposures previously recognized as doubtful assets amounted to €1,449 million, of which €950 million related to corporate transactions and €499 million to individuals.

Of the total refinanced amount, €1,028 million met the requirements defined by the Bank of Spain to be reclassified as performing at the date of arrangement. At 2009 year-end, the NPL ratio of these transactions was 8.2%.

The remaining €421 million related to refinancing transactions which, in conformity with the conditions established by the Bank of Spain, were maintained as non-performing at the date of arrangement.

Stress-testing exercises

Santander Group periodically performs stress-testing exercises on its main loan portfolios. These are theoretical exercises, required by the regulatory authorities, in which the effect on the Bank’s loan portfolios of different scenarios of a country’s main economic and financial variables is simulated. In the case of Spain, the exercise covered all the loan portfolios.

Analysis of the mortgage portfolio in the United Kingdom

With regard to standardized exposures, in addition to the loan portfolio in Spain, the mortgage loan portfolio in the United Kingdom is particularly noteworthy because of its significance with respect to Santander Group’s total loans and receivables.

This mortgage portfolio is focused on principal residence mortgages, showing a high risk quality in terms of the LTV ratio, which stands at 56% on average. The mortgage loans with the highest risk profile (buy-to-let) represent a scant percentage (barely 1%) of the total portfolio amount.

E. Risk control function

Supplementing the management process, the risk control function obtains a global view of the Group’s loan portfolio, through the various phases of the risk cycle, with a sufficient level of detail to permit the assessment of the current risk position and any changes therein.

Any changes in the Group’s risk position are controlled on an ongoing and systematic basis against budgets, limits and benchmarks, and the impacts of these changes in future situations, both of an exogenous nature and those arising from strategic decisions, are assessed in order to establish measures that place the profile and amount of the loan portfolio within the parameters set by the Group.

The risk control function is performed by assessing risks from various complementary perspectives, the main pillar being control by geographical location, business area, management model, product and process, thus facilitating the detection of specific areas of action requiring decision-making.

In 2009 one of the focus points of the risk control function was to ensure compliance with the corporate criteria for the classification of refinanced portfolios and to monitor production volumes and their performance.

In 2006, within the corporate framework established in the Group for compliance with the Sarbanes-Oxley Act, a corporate tool was made available on the Group’s intranet for the documentation and certification of all the subprocesses, operational risks and related mitigating controls. The risk division assesses annually the efficiency of the internal control of its activities.

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Scenario analysis

As part of the ongoing risk monitoring and control management process, the Group performs simulations of the portfolio performance in different adverse and stress scenarios (stress testing) which enable it to assess the Group’s capital adequacy in certain future situations. These simulations cover the Group’s main portfolios and are conducted systematically using a corporate methodology with the following features:

• It determines the sensitivity of risk factors (PD, LGD) to certain macroeconomic variables.

• It characterizes benchmark scenarios (globally and for each Group unit).

• It identifies “break-off scenarios” (the levels above which the sensitivity of the risk factors to macroeconomic variables is more accentuated) and the distance of these break-off scenarios from the current situation and the benchmark scenarios.

• It estimates the expected loss associated with each scenario and the changes in the risk profile of each portfolio arising from variations in certain macroeconomic variables.

The simulation models used by the Group use data of a full business cycle to calibrate the performance of risk factors given certain movements in macroeconomic variables.

In the wholesale banking area, since low-default portfolios are involved, there is not sufficient historical default data available to perform the calibration and, therefore, expert judgment is used.

Scenarios are constructed including the view of each unit and the global view. The main macroeconomic variables contained in these scenarios are as follows:

• Unemployment rate

• Housing price

• GDP

• Interest rate

• Inflation

The scenario analysis enables senior management to better understand the foreseeable performance of the portfolio given certain changing market conditions and situations, and is an essential tool to assess the sufficiency of the provisions held in the event of stress scenarios.

The analyses performed, both in base and in acid scenarios, for the Group as a whole and for each unit, with a time horizon of five years, show the strength of the balance sheet against the various market and macroeconomic situations simulated.

F. Recovery process

Recovery management at Santander is defined as a strategic, integrated business activity.

Santander has a global model which is applied and implemented locally, considering the specific features of the business in each area of activity.

The specific objectives of the recovery process are as follows:

• To achieve collection or regularization of unpaid balances, so that accounts can return to the performing status; if this is not possible, the aim is to fully or partially recover debts, regardless of their status for accounting or management purposes.

• To maintain and strengthen the relationship with customers, paying attention to customer payment behavior.

The recovery process is part of the business and is based on the customer relationship and on the contribution to profit. Therefore, Santander has developed a proprietary management model which links and capitalizes on management capabilities and commercial and risk expertise to improve results and maintain the Group’s traditional culture with respect to quality and risk sensitiveness.

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This model is employed in all phases of management, both prior to default, through a preventive management that assists the customer or detects possible difficulties in advance, and in the subsequent phases of the recovery process (management of impaired loans, defaults and written-off assets.

3.6 Credit risk from other standpoints

Certain areas and/or specific views of credit risk deserve specialist attention, complementary to global risk management.

A. Concentration risk

Concentration risk control is key to the risk management process. The Group continuously monitors the degree of credit risk concentration, by geographical area/country, economic sector, product and customer group.

The risk committee establishes the risk policies and reviews the exposure limits required to ensure adequate management of credit risk concentration.

The Group is subject to Bank of Spain regulations on large exposures. In accordance with Bank of Spain Circular 3/2008, no exposure to a single individual or economic group, including all types of credit and equity risks, should exceed 25% of the Group’s capital. Also, the total amount of large exposures (defined as those exceeding 10% of eligible capital) may not exceed eight times the Group’s capital. Exposures to governments and central banks belonging to the OECD are excluded from this treatment.

At December 31, 2009, there was only one economic group —a UK financial group with an internal rating equal to “A”—, the exposure to which should be classified as a large exposure since it represented 11.15% of capital. Following the application of risk mitigation techniques and the regulations applicable to large exposures, the percentage stood at 1.67% of eligible capital (use of 6.7% of the 25% limit established by Bank of Spain regulations).

At December 31, 2009, the Group’s credit exposure to the top 20 borrower financial groups, excluding AAA rated governments and sovereign bonds denominated in local currency, accounted for 6.7% of the credit risk exposure to customers (lending plus off-balance-sheet exposures).

From the sectorial standpoint, the distribution of the corporate portfolio is adequately diversified.

The Group’s risk division works closely with the finance division in the active management of credit portfolios, which includes reducing the concentration of exposures through several techniques, such as the arrangement of credit derivatives for hedging purposes or the performance of securitization transactions, in order to optimize the risk/return ratio of the total portfolio.

B. Credit risk from financial market operations

This concept includes the credit risk arising in treasury operations with customers, mainly credit institutions. These operations are performed both via money market financing products with different financial institutions and via derivative instruments arranged for the purpose of serving our customers.

Risk control is performed using an integrated, real-time system that enables the Group to know at any time the unused exposure limit with respect to any counterparty, any product and maturity and at any Group unit.

Credit risk is measured at its current market value and its potential value (exposure value considering the future variation in the underlying market factors). Therefore, the credit risk equivalent (CRE) is defined as the sum of net replacement value plus the maximum potential value of the contracts in the future. The capital at risk or unexpected loss, i.e. the loss that, after deducting the expected loss, constitutes the economic capital, net of guarantees and recoveries, is also calculated.

The total credit risk exposure to credit institutions from financial market operations stands at 70.1%. By type of product, 48.6% relates to derivative transactions, mainly products without optionality, and the remaining 51.4% to liquidity and traditional financing products.

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Derivative transactions are concentrated on counterparties with high credit ratings and, therefore, 68.4% of the risk exposure is to counterparties with a credit rating of A- or above. In 2009 the total exposure arising from these transactions in terms of credit risk equivalent was €38,704 million.

Distribution of OTC-derivative credit risk exposure by counterparty rating

RATING	%
AAA		4.6	%
AA		12.6	%
A		51.2	%
BBB		21.3	%
BB		5.3	%
B		2.2	%
Other		2.8	%

The distribution of the credit risk exposure arising from derivatives, by counterparty, is as follows: 52% to banks, 37% to large corporations and 5% to SMEs.

With respect to the geographical distribution of the risk exposure, 15% is to Spanish counterparties, 21% to UK counterparties (operations performed mainly by Abbey) and 28% to other European countries, 10% to the United States and 20% to Latin America.

Credit derivative transactions

Santander Group uses credit derivatives to hedge credit transactions, to conduct customer business in financial markets and, to a lesser extent, as part of its trading operations. Credit derivatives represent a small portion of the Group’s operations as compared with other similar banks and are subject to strict internal controls and to sound operational risk minimization policies.

The risk inherent in these transactions is controlled using a broad set of limits such as VaR, nominal value per rating, sensitivity to spread by rating and name, sensitivity to recovery rate and sensitivity to correlation. Jump-to-default limits are also set by individual name, geographical area, sector and liquidity.

At December 31, 2009, for the Group’s trading operations, the sensitivity of credit transactions to increases of 1 basis point in spreads was €1.9 million and the average annual VaR amounted to €12.3 million.

In notional terms, the position in CDSs includes protection purchased for €83,791 million and protection sold for €73,684 million.

C. Country risk

Country risk is a credit risk component inherent in all cross-border credit transactions due to circumstances other than ordinary commercial risk. Its main elements are sovereign risk, transfer risk and other risks that can affect cross-border financial operations (war, natural disasters, balance of payments crises, etc.).

At December 31, 2009, the country risk exposure for which allowances must be recorded amounted to €444 million, €37 million of which related to intra-Group transactions. At 2008 year-end, the total regulatory country risk exposure amounted to €5,422 million. The allowance recognized in this connection at 2009 year-end amounted to €65 million, as compared with €612 million at 2008 year-end.

This decrease arose basically from the fact that transactions with Brazil are no longer considered to give rise to country risk for which provisions must be recognized. This circumstance did not entail significant changes in the level of the Group’s credit risk exposure to Brazil.

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D. Sovereign risk

As a general rule, sovereign risk is the risk assumed in transactions with the central bank (including the regulatory cash reserve requirement), the issuer risk of the Treasury or Republic (government debt securities) and the risk arising from transactions with public entities with the following features: their funds are obtained only from fiscal income; they are legally recognized as entities directly included in the government sector; and their activities are of a non-commercial nature.

At December 31, 2009, the sovereign risk was distributed among Europe (58.5%), Latin America (36.9%), United States (4.1%) and other regions (0.5%). Noteworthy were the contributions from Spain (31.4%) and the United Kingdom (21.2%) in Europe and of Brazil (23.3%) and Mexico (7.0%) in Latin America. The rise in this risk with respect to the figure at 2008 year-end reflected mainly the increase in the risk exposures in the United Kingdom, Brazil, Spain, Chile and Miami and the inclusion of the risk exposures of Sovereign in the scope of consolidation, which was partially offset by the reduction arising from the exclusion of Venezuela from consolidation.

As regards Latin America as a whole, the sovereign risk exposure arose mainly from the subsidiary banks’ obligations to make certain deposits at the related central banks and from the fixed-income portfolios held as part of the structural interest rate risk management strategy. These exposures are taken in local currency and are financed out of local customer deposits, also denominated in local currency. The exposures to the sovereign risk of Latin American issuers denominated in currencies other than the official currency of the issuer country totaled €2,595 million, which accounts for 5.5% of the total sovereign risk exposure to Latin American issuers.

E. Environmental risk

The environmental risk analysis of credit transactions is one of the main features of the strategic corporate social responsibility plan. The analysis is founded on two major cornerstones:

• The Equator Principles: an initiative of the International Finance Corporation of the World Bank. These principles constitute an international standard for the analysis of the social and environmental implications of project finance transactions. The adoption of these principles involves the commitment to assess the social and environmental risks of projects financed in developing countries, using a sequential methodology. For this purpose, a questionnaire must be completed for all project finance transactions. This questionnaire has been designed to determine the sensitivity of the related transactions to social and environmental issues and their degree of compliance with the principles.

• The VIDA tool: implemented since 2004, the main aim of this tool is to assess the environmental risk of both current and potential customer companies, using a system that classifies each of the companies into one of seven categories, depending on the degree of environmental risk incurred. In 2009, 38,510 companies in Spain were assessed using this tool.

4.	MARKET RISK
4.1	Activities subject to market risk

The measurement, control and monitoring of the market risk area comprises all operations in which net worth risk is assumed. This risk arises from changes in the risk factors¹ —interest rate, exchange rate, equities, credit spread, commodity prices and the volatility thereof— and from the liquidity risk of the various products and markets in which the Group operates.

¹ Unlike in 2008, in 2009 two new factors are treated separately: the credit spread (previously included partially in interest rate) and commodity prices (previously included in equities, with a very low weight with respect to other factors).

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The activities are segmented by risk type as follows:

a)	Trading: this item includes financial services for customers, trading operations and positioning mainly in fixed-income, equity and foreign currency products.
b)	Balance sheet management: interest rate risk and liquidity risk arising as a result of the maturity and repricing gaps of all assets and liabilities. This item also includes the active management of the credit risk inherent in the Group’s balance sheet.
c)	Structural risks:

• Structural foreign currency risk/hedges of results: foreign currency risk arising from the currency in which investments in consolidable and non-consolidable companies are made (structural exchange rate). This item also includes the positions taken to hedge the foreign currency risk on future results generated in currencies other than the euro (hedges of results).

• Structural equities risk: this item includes equity investments in non-consolidated financial and non-financial companies that give rise to equities risk.

The treasury area is responsible for managing the positions taken in the trading activity.

The financial management area is responsible for managing the balance sheet management risk and structural risks centrally through the application of uniform methodologies adapted to the situation of each market in which the Group operates. Thus, in the convertible currencies area, financial management directly manages the parent’s risks and coordinates the management of the other units operating in these currencies. Decisions affecting the management of these risks are taken through the ALCO committees in the respective countries and, ultimately, by the parent’s markets committee.

The aim pursued by financial management is to ensure the stability and recurring nature of both the net interest margin of the commercial activity and the Group’s economic value, whilst maintaining adequate liquidity and solvency levels.

Each of these activities is measured and analyzed using different tools in order to reflect their risk profiles as accurately as possible.

4.2 Methodologies

Trading

The standard methodology applied to trading activities by Santander Group in 2009 was value at risk (VaR), which measures the maximum expected loss with a given confidence level and time horizon. This methodology was based on a standard historical simulation with a 99% confidence level and a one-day time horizon. Statistical adjustments were made to enable the swift and efficient incorporation of the most recent events that condition the level of risk assumed. Specifically, the Group uses a time window of two years or 520 daily data obtained retrospectively from the reference date of the VaR calculation. Two figures are calculated each day, one by applying an exponential decline factor which gives a lesser weighting to more distant observations in time, and another with uniform weightings for all observations. The VaR reported is the higher of these two figures.

VaR is not the only measure. It is used because it is easy to calculate and because it provides a good reference of the level of risk incurred by the Group. However, other measures are simultaneously being taken to enable the Group to exercise greater risk control in all the markets in which it operates.

One of these measures is scenario analysis, which consists of defining behavior scenarios for various financial variables and determining the impact on results of applying them to the Group’s activities. These scenarios can replicate past events (such as crises) or, conversely, determine plausible scenarios that are unrelated to past events. A minimum of three types of scenarios are defined (plausible, severe and extreme) which, together with VaR, make it possible to obtain a much more complete spectrum of the risk profile.

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Also, the market risk area, in accordance with the principle of independence of the business units, monitors daily the positions of each unit and the global positions, through an exhaustive control of changes in the portfolios, the aim being to detect possible incidents and correct them immediately. The daily preparation of an income statement is an excellent risk indicator, insofar as it allows us to identify the impact of changes in financial variables on the portfolios.

Lastly, due to their atypical nature, derivatives and credit management activities are controlled daily using specific measures. In the case of derivatives, a control is conducted of sensitivities to fluctuations in the price of the underlying (delta and gamma), in volatility (vega) and in time (theta). For credit management activities, measures such as sensitivity to spread, jump-to-default and risk concentrations by rating level are reviewed systematically.

With respect to the credit risk inherent in the trading portfolios, and in keeping with the recommendations made by the Basel Committee on Banking Supervision and with current regulations, an additional measure is calculated, the incremental default risk (IDR), in order to cover the default risk which is not properly captured in the VaR, through the variation of the related credit spreads. The instruments subject to control are basically fixed-income government and corporate bonds, derivatives on bonds (forwards, options, etc.) and credit derivatives (credit default swaps, asset-backed securities, etc.). The method used to calculate the IDR, which in essence is similar to that applied to the credit risk on non-trading positions, is based on direct measurements on the loss distribution tails at the appropriate percentile (99.9%). The Monte Carlo methodology is used and one million simulations are applied.

Balance-sheet management

Interest rate risk

The Group analyses the sensitivity of the net interest margin and market value of equity to changes in interest rates. This sensitivity arises from maturity and interest rate repricing gaps in the various balance sheet items.

On the basis of the balance-sheet interest rate position, and considering the market situation and outlook, the necessary financial measures are adopted to align this position with that desired by the Bank. These measures can range from the taking of positions on markets to the definition of the interest rate features of commercial products.

The measures used by the Group to control interest rate risk in these activities are the interest rate gap, the sensitivity of net interest margin and market value of equity to changes in interest rates, the duration of capital, value at risk (VaR) and scenario analysis.

a) Interest rate gap of assets and liabilities

The interest rate gap analysis focuses on the mismatches between the interest reset periods of on-balance-sheet assets and liabilities and of off-balance-sheet items. This analysis facilitates a basic snapshot of the balance sheet structure and enables concentrations of interest rate risk in the various maturity buckets to be detected. Additionally, it is a useful tool for estimating the possible impact of potential changes in interest rates on the entity’s net interest margin and market value of equity.

The flows of all the on- and off-balance-sheet aggregates must be broken down and placed at the point of repricing or maturity. The duration and sensitivity of aggregates that do not have a contractual maturity date are analyzed and estimated using an internal model.

b) Net interest margin (NIM) sensitivity

The sensitivity of the net interest margin measures the change in the expected interest income for a specific period (twelve months) given a shift in the yield curve.

The sensitivity of the net interest margin is calculated by simulating the margin both for a scenario of changes in the yield curve and for the current scenario, the sensitivity being the difference between the two margins so calculated.

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c) Market value of equity (MVE) sensitivity

The sensitivity of the market value of equity is a complementary measure to the sensitivity of the net interest margin.

This sensitivity measures the interest rate risk implicit in the market value of equity based on the effect of changes in interest rates on the present values of financial assets and liabilities.

d) Value at risk (VaR)

The value at risk for balance sheet aggregates and investment portfolios is calculated by applying the same standard as that used for trading: historical simulation with a confidence level of 99% and a one-day time horizon. Statistical adjustments were made to enable the swift and efficient incorporation of the most recent events that condition the level of risk assumed.

e) Scenario analysis

Two interest rate performance scenarios are established: maximum volatility and sudden crisis. These scenarios are applied to the activities under analysis, thus obtaining the impact on the market value of equity and the net interest margin projections for the year.

Liquidity risk

Liquidity risk is associated with the Group’s ability to fund its commitments at reasonable market prices and to carry out its business plans with stable sources of funding. The Group permanently monitors maximum gap profiles.

The measures used to control liquidity risk in balance sheet management are the liquidity gap, liquidity ratios, stress scenarios and contingency plans.

a) Liquidity gap

The liquidity gap provides information on contractual and expected cash inflows and outflows for a given period for each currency in which the Group operates. The gap measures net cash requirements or surpluses at a given date and reflects the liquidity level maintained under normal market conditions.

The Group conducts two types of liquidity gap analyses, depending on the balance sheet item in question:

1.- Contractual liquidity gap: all cash-flow generating on- and off-balance-sheet items are analyzed and placed at the point of contractual maturity. For assets and liabilities without contractual maturities, an internal analysis model is used based on a statistical study of the time series of the products, and the so-called stable or instable balance for liquidity purposes is determined.

2.- Operational liquidity gap: this is a scenario for normal liquidity profile conditions, since the cash flows of the on-balance-sheet items are placed at the point of probable liquidity rather than at the point of contractual maturity. In this analysis, the definition of the behavior scenario (renewal of liabilities, discounts in portfolio disposals, renewal of assets, etc.) is the fundamental point.

b) Liquidity ratios

The liquidity ratio compares liquid assets available for sale or transfer (after the relevant discounts and adjustments have been applied) with the total amount of liabilities (including contingencies). This ratio shows, by non-consolidable currency, the Entity’s capacity to immediately respond to its commitments.

Cumulative net liquidity is defined as the 30-day cumulative gap obtained from the modified liquidity gap. The modified contractual liquidity gap is calculated on the basis of the contractual liquidity gap, and places liquid assets at the point of settlement or transfer rather than at the point of maturity.

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Additionally, other ratios or measures relating to the structural liquidity position are used:

• Loans to net assets

• Customer deposits, insurance and medium/long-term financing to loans

• Customer deposits, insurance and medium/long-term financing, equity and other liabilities to total loans and fixed assets

• Short-term funding to net liabilities

c) Scenario analysis/Contingency plan

Santander Group’s liquidity management focuses on adopting all the measures required to prevent a crisis. It is not always possible to predict the causes of a liquidity crisis and, therefore, contingency plans focus on the modeling of potential crises by analyzing various scenarios, the identification of crisis types, internal and external communications, and individual responsibilities.

The contingency plan spans management activity from local unit to head office level. At the first sign of a crisis, it specifies clear lines of communication and suggests a wide range of responses to different levels of crisis.

Since a crisis can occur locally or globally, each local unit must prepare a contingency funding plan. Each local unit must inform headquarters of its contingency plan at least every six months so that it can be reviewed and updated. However, these plans must be updated more frequently if market conditions make this advisable.

Lastly, Santander Group is actively involved in the process initiated by the Basel Committee to strengthen the liquidity of financial institutions², through two channels: on the one hand, by participating in the impact analysis of the regulatory changes proposed — basically the introduction of two new ratios: liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) — and, on the other, by being present at the various forums created to discuss and make suggestions on the issue (European Banking Federation, etc.), in both cases in close cooperation with the Bank of Spain.

Structural foreign currency risk / Hedges of results / Structural equities risk

These activities are monitored by measuring positions, VaR and results.

Complementary measures

Calibration and test measures

Back-testing consists of performing a comparative analysis between VaR estimates and daily clean results (i.e. profit or loss on the portfolios at the end of the preceding day valued at following-day prices). The aim of these tests is to verify and provide a measure of the accuracy of the models used to calculate VaR.

Back-testing analyses performed at Santander Group comply, at the very least, with the BIS recommendations regarding the verification of the internal systems used to measure and manage financial risks. Additionally, Santander Group also conducts hypothesis tests: excess tests, normality tests, Spearman’s rank correlation, average excess measures, etc.

The assessment models are regularly calibrated and tested by a specialized unit.

Coordination with other areas

Joint efforts are made daily with other areas to mitigate operational risk. This coordination work comprises mainly the reconciliation of positions, risks and results.

² International framework for liquidity risk measurement, standards and monitoring (Basel Committee on Banking Supervision, Consultative Document, December 2009)

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4.3.	Control system
A.	Limit setting

The limit setting process is performed together with the budgeting activity and is the tool used to establish the assets and liabilities of each business activity. Limit setting is a dynamic process that responds to the level of risk appetite considered acceptable by senior management.

Objectives of the limits structure

The limits structure requires a process to be performed that pursues, inter alia, the following objectives:

• To identify and delimit, in an efficient and comprehensive manner, the main types of financial risk incurred, so that they are consistent with business management and the defined strategy.

• To quantify and communicate to the business areas the risk levels and profile deemed acceptable by senior management so as to avoid undesired risks.

• To give flexibility to the business areas for the efficient and timely assumption of financial risks, depending on market changes, and for the implementation of the business strategies, provided that the acceptable levels of risk are not exceeded.

• To allow business makers to assume risks which, although prudent, are sufficient to obtain the budgeted results.

• To delimit the range of products and underlyings with which each treasury unit can operate, taking into account features such as assessment model and systems, liquidity of the instruments involved, etc.

4.4.	Risks and results in 2009
A.	Trading

Changes in VaR in 2009

The average VaR of the Group’s market trading operations in 2009, at €30.2 million, was lower than that for 2008, reflecting the rise in global financial market volatility as a result of the collapse of Lehman Brothers, rather than an increase in the level of risk assumed. Also, in comparison with other similar financial groups, the Group’s trading risk profile can be classified as low. The dynamic management of this profile enables the Group to change its strategy in order to capitalize on the opportunities offered by an environment of uncertainty.

B.	Balance sheet management3
B1. Interest rate risk

Convertible currencies

At 2009 year-end, the sensitivity of the net interest margin at one year to parallel increases of 100 basis points was concentrated on the euro yield curve (€209.7 million), the Parent bank being the main contributor, and on the sterling yield curve (negative by GBP 34.1 million). The sensitivity of the margin for other convertible currencies is scantly material.

Also at 2009 year-end, the equity value sensitivity to parallel increases of 100 basis points in the euro yield curve was €743.4 million and was mostly concentrated on the Parent bank. With respect to the sterling curve, the sensitivity was GBP 11.2 million.

The inclusion of Sovereign in the scope of consolidation in 2009 had no significant impact on the sensitivities of the dollar yield curve.

In the current environment of low interest rates, the Bank’s sensitivity to rate increases, in terms of net interest margin and equity value, is slightly positive.

³ Includes the total balance sheet, except for financial assets and liabilities held for trading.

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Latin America

Quantitative risk analysis

The interest rate risk in balance sheet management portfolios in Latin America, measured in terms of sensitivity of the net interest margin (NIM) at one year to a parallel increase of 100 b.p. in the yield curve, remained at low levels throughout 2009, fluctuating within a narrow band and reaching a high of €96 million in September. Measured in terms of equity value sensitivity, it fluctuated within a wider range, between €250 million and €750 million, showing an increase in the second half of the year, mainly as a result of the portfolio purchases in Brazil to hedge the on-balance sheet interest rate risk.

At 2009 year-end, the risk consumption for the region, measured in terms of 100 b.p. sensitivity of the MVE, stood at €704 million (December 2008: €430 million), while the net interest margin risk at one year, measured in terms of 100 b.p. sensitivity of this margin, was €64 million (December 2008: €27 million).

Geographical distribution

Net interest margin sensitivity

For Latin America taken as a whole, the consumption at December 2009 was €64 million (sensitivity of the net interest margin at one year to increases of 100 basis points). Over 80% of the risk is concentrated in three countries: Brazil, Chile and Mexico.

Market value of equity sensitivity

For Latin America taken as a whole, the consumption at December 2009 was €704 million (sensitivity of the market value of equity to a parallel increase of 100 basis points in interest rates). Over 90% of the market value of equity risk is concentrated in three countries: Brazil, Chile and Mexico.

B2. Structural credit risk management

The aim of structural credit risk management is to reduce, through the sale of assets, the concentrations that arise naturally as a result of commercial activity. These sales are offset by the acquisition of other assets which permit diversification of the loan portfolio as a whole. The financial management area analyses these strategies and submits management proposals to the ALCO with a view to optimizing credit risk exposure and contributing to the creation of value.

In 2009:

• Assets amounting to €16 billion were securitized. In view of the difficulties experienced by the securitization market since August 2007, all the issues were retained by the Group’s various units. These securitization transactions increase the Group’s liquidity position since they can be discounted at central banks.

• AAA asset-backed bonds issued by Group companies were repurchased in the secondary market (€2 billion).

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B3. Funding and liquidity risk management

The Group’s liquidity management framework and the liquidity position at 2009 year-end are described below.

1. Liquidity management framework

Liquidity management is based on three basic pillars:

A) Organizational governance and board model — a sound governance model that ensures the participation of senior management and of the board in the decision-making process, thus facilitating integration with the Group’s global strategy.

B) Management — adapted to the liquidity needs of each business, in accordance with the decentralized organizational model.

C) Balance sheet analysis and liquidity risk measurement — thorough analysis of the balance sheet and of the changes therein in order to support decision-making.

A. Organizational and governance model

Decisions relating to all structural risks are made through local ALCO committees, in coordination with the markets committee, which is the senior decision-making body responsible for coordinating all the global decisions affecting liquidity risk measurement, management and control.

The markets committee is presided over by the Entity’s chairman and consists of the second deputy chairman and managing director, the third deputy chairman (who, in turn is ultimately responsible for the Group’s risk management), the finance executive vice president and risk executive vice president and the heads of the business and analysis units.

The management and control functions for structural risks, including liquidity risk, are performed by the financial management and global market risk areas, respectively, which provide support to the ALCOs by submitting management analyses and proposals and controlling compliance with the limits set.

In keeping with best governance practices, the Group establishes a clear division between the implementation of the financial management strategy (for which the financial management area is responsible) and its monitoring and control (which is the responsibility of the market risk area).

B. Management

Structural liquidity management seeks to finance the Group’s recurring business with optimal maturity and cost conditions, avoiding the need to assume undesired liquidity risks.

Funding and liquidity management is based on the following principles:

• Broad base of highly stable customer deposits: more than 90% are retail customer deposits captured by the various commercial units in the Group’s main markets.

• Financing of stable on-balance-sheet liquidity needs (commercial gap or difference between lending and deposits) through medium- and long-term issues, establishing a surplus of structural financing in order to cope with possible adverse situations.

• Diversification of funding sources to reduce concentration risk with respect to:

• Instruments/investors

• Markets/currencies

• Terms

• Strict control of short-term funding needs, in keeping with the Group’s policy of minimizing the raising of short-term financing.

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• Autonomy and responsibility of subsidiaries in the management of liquidity, with no structural support from the parent.

In practice, based on the aforementioned principles, the liquidity management performed by the Group consists of the following:

• Preparation of a liquidity plan each year on the basis of the funding needs arising from the budgets of each business and the methodology described in section B. Based on these liquidity requirements and taking into account certain prudential limits on the raising of short-term market financing, financial management establishes an issue and securitization plan for the year.

• Year-round monitoring of the actual changes in the balance sheet and in the financing requirements, which results in the relevant updates of the plan.

• Maintaining an active presence in a broad and diversified set of funding markets. In particular, the Group has 8 major independent issuer units which avoid any dependence on a specific market and endow it with significant issuance capabilities in the various markets.

• Supported by the foregoing, the Group has an adequate structure of medium- and long-term issues, well diversified by product (senior, subordinate, preference, mortgage-backed bonds, securitizations), with a conservative average term (4.5 years at 2009 year-end).

• All this translates into a moderate need for short-term wholesale financing at Group level which represented only 5% of net liabilities in 2009, as compared with 7% in 2008.

Subsidiaries have a high degree of autonomy in their liquidity management, in keeping with Santander Group’s decentralized funding model. Specifically, each subsidiary must budget its liquidity requirements and assess its own ability to raise funding in the wholesale markets so that it can establish the issue and securitization plan in cooperation with the parent.

Only in the case of Santander Consumer Finance, the parent (Banco Santander S.A.) provides the required liquidity, always at market prices considering the financing term and the rating of the liquidity taker.

C. Balance sheet analysis and liquidity risk measurement

Funding and liquidity decision-making is based on a thorough understanding of the Group’s current situation (environment, strategy, balance sheet and liquidity position), of the future liquidity needs of the businesses (liquidity projection) and of the accessibility and situation of the funding sources in wholesale markets.

Its aim is to ensure that the Group maintains optimum liquidity levels to cover its short- and long-term funding requirements, optimizing the impact of the funding cost on the income statement.

This requires the monitoring of the balance sheet structure, the preparation of short- and medium-term liquidity projections and the establishment of basic measures, consistent with those described in the following section.

Simultaneously, various scenario analyses are conducted considering the additional liquidity needs that could arise if certain extreme but plausible events occur. These events might have a varying effect on the various balance sheet items and/or funding sources (extent of roll-over of wholesale financing, run-off of deposits, impairment of liquid assets,...), due either to the global market conditions or to the Group’s specific situation.

All this enables the Group to respond to a broad-range of potential adverse situations and to implement early, if necessary, the related contingency plans.

2. Current liquidity position

The Group maintains an excellent structural liquidity position and has the ability to cope with further stress market conditions, as reflected by the following factors:

A) Robust balance sheet

B) Funding dynamics

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A. Robust balance sheet

The balance sheet at 2009 year-end had a sound structure consistent with the Group’s commercial nature. The loan portfolio, which accounted for 79% of net assets, was fully funded by customer deposits and medium- and long-term financing. Similarly, structural liquidity needs, i.e. loans and fixed assets, were also fully funded by structural funds (deposits, medium- and long-term financing and equity).

As regards wholesale market funding, the Group’s structure is based mainly on medium- and long-term instruments, which in aggregate account for 81% of total wholesale market funding.

Short-term funding is a residual portion of the structure (5% of total liabilities) and is amply covered by liquid assets. Noteworthy in this connection is the fact that the parent bank, the unit with the highest liquidity requirements, comfortably meets the liquidity horizon recommendations made by the CEBS (Committee of European Banking Supervisors).

Finally, it should be noted that the Bank has ample capacity to call on central banks to obtain immediate liquidity. At 2009 year-end, total eligible assets available for discounting at the various central banks to which the Group has access through its subsidiaries amounted to more than €100 billion.

B. Funding dynamics

Developments in 2009 enabled Santander to continue to improve its structural liquidity position based on two management levers, which proved highly effective in the current environment of economic downturn.

As a first lever, the Group was able to significantly increase its customer deposit base: by more than €170 billion from the beginning of the crisis in June 2007 (+52%).

This increase was driven by two factors. On the one hand, the effort made to capture new deposits through the commercial networks, which was fostered by the customers’ confidence in the Group’s liquidity and capital adequacy. On the other, growth was also fuelled by the acquisitions made in recent years, specifically the assets from ABN Amro (basically Banco Real in Brazil and Uruguay), Alliance & Leicester, the deposits of Bradford & Bingley and Sovereign. Overall, these additions significantly increased the Group’s stable deposit base and improved its funding ratios.

The second lever is the high capacity to access wholesale funding markets, as was clearly demonstrated in the worst times of the financial crisis, when Santander took a leading role in the “opening” of certain markets to other domestic issuers.

C. Structural foreign currency risk/hedges of results

Structural foreign currency risk arises from the Group’s operations in foreign currencies, and relates mainly to long-term investments, and the results and hedges of those investments.

Foreign currency risk is managed dynamically in order to limit the impact on capital of currency depreciations and optimize the financial cost of hedges.

The Group’s general policy for managing the foreign currency risk on long-term investments is to finance these investments in the currency in which they are denominated, provided that the market is sufficiently deep and the cost is justified by the expected currency depreciation. Also, hedges are arranged on an as-needed basis when it is considered that a local currency may weaken against the euro considerably faster than it is being discounted in the market.

At 2009 year-end, the largest long-term exposures (with their potential impact on equity) were concentrated, in descending order, on the Brazilian real, the pound sterling, the Mexican peso and the Chilean peso. The Group hedges a portion of these long-term exposures through foreign exchange derivatives.

Additionally, the financial management division at consolidated level is responsible for managing the foreign currency risk inherent in the expected results and dividends of the Group at the units whose base currency is not the euro.

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D. Structured financing operations

Santander Group’s ordinary operations are subject to low exposure and are diversified by product type, sector and number of transactions. The committed exposure at 2009 year-end amounted to €13,983 million relating to 422 transactions. The breakdown is as follows: €8,138 million (296 transactions) in project finance operations; €3,712 million (39 transactions) in acquisition finance operations; and the remainder in LBOs and other modalities (87 transactions). No writedowns of the investment portfolio, in addition to the credit loss allowances amounting to €79 million, are considered necessary. No significant leveraged buy-outs (LBOs) were carried out in 2009. Overall, the Group’s exposure in structured financing operations, resulting from its ordinary business transactions, decreased by 28.7% with respect to 2008 year-end.

A structured operations portfolio is also held as a result of the integration of the UK Alliance & Leicester group in 2008. This is a diversified portfolio consisting entirely of specialized lending transactions. The committed exposure at 2009 year-end amounted to GBP 5,872 million (€6,621 million) relating to 258 transactions. This exposure was reduced by 20.1% with respect to 2008 year-end.

Additionally, it should be noted that a partial securitization of the Group’s project finance portfolio amounting to €308 million, extendable to €850 million within two years, was formally executed in December 2009. This transaction releases regulatory capital as a result of the reduction in the related risk assets.

E. Exposures related to complex structured assets

Santander Group continued to have highly limited exposure to complex structured instruments or vehicles, reflecting a management culture in which prudent risk management is one of the main identifying features. Specifically, at 2009 year-end, the Group had:

• CDOs/CLOs: exposure amounting to €637 million, mainly as a result of the integration of the Alliance & Leicester portfolio in 2008. 56% of this portfolio was rated AAA and 85% had a rating of A or above.

• Non-Agency CMOs and pass-throughs with alt-A⁴ mortgage underlying: exposure of €730 million at 2009 year-end.

• Hedge funds: the total exposure was not material (€549 million at 2009 year-end) and consisted largely of the financing provided to these funds (€342 million), the remainder being direct portfolio investment. This exposure involved low levels of loan-to-value risk -around 50% (collateral of €1,095 million at year-end). The risk exposure to this type of counterparty is analyzed on a case-by-case basis, and the percentages of collateral are established according to the features and assets of each fund. Exposure decreased significantly -by 52%-with respect to the previous year.

• Conduits: the only exposure resulted from the acquisition of Alliance&Leicester, which gave rise to the integration of a conduit, with assets amounting to €657 million at 2009 year-end, of which 42% had an AAA rating and 83% a rating of A or above.

• Monolines: Santander’s exposure to monoline insurers amounted to €396 million in December 2009⁵, and related mainly to indirect exposure, totaling €191 million, by virtue of the guarantee provided by entities of this kind for various traditional financing or securitization transactions. The exposure was to double-default risk in this case. The primary underlyings had high credit ratings, mostly “AA”. The small remainder was direct exposure (e.g. through the purchase of a credit default swap to protect it against the risk of default of these insurance companies).

Overall, it can be asserted that the exposure to these instruments arising from the Group’s ordinary operations has decreased. The only increases are due to the integration of exposures at entities acquired by the Group, such as Alliance&Leicester or Sovereign (in 2008 and 2009, respectively). All these exposures were known at the time of the purchase and adequate provisions were recognized.

4	Alternative A-paper: mortgages arising in the US market which, for various reasons, are deemed to have an intermediate level of risk, between prime and subprime mortgages (not all the required information is available, loan-to-value levels above standard levels, etc.).
5	The guarantees provided by monoline insurers in US Municipal Bonds are not treated as exposure. As a result of the purchase of Sovereign Bank, the Group included a portfolio of US municipal bonds amounting to €1,260 million.

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Santander’s policy for the approval of new transactions in these products continues to be very prudent and conservative, and is subject to strict supervision by the Group’s senior management. Before approval is given for a new transaction, product or underlying, the risk division checks:

• whether there is an adequate valuation model (mark-to-market, mark-to-model or mark-to-liquidity) to monitor the value of each exposure.

• whether the inputs enabling application of this valuation model are observable in the market.

Provided the two aforementioned conditions are met, the risk division ascertains:

• the availability of adequate systems duly adapted for the calculation and daily monitoring of the results, positions and risks of the new transactions envisaged.

• the degree of liquidity of the product or underlying, with a view to arranging the related hedge on a timely basis.

4.5. Internal model

The Bank of Spain approved the use of the internal market risk model for the calculation of regulatory capital at 2008 year-end. Although this approval was initially effective for the parent’s trading activities, the Group intends to progressively extend the approval to its other units.

Following this approval, the regulatory capital of the trading activities for the above-mentioned scope has since been calculated using advanced approaches, applying as a fundamental measure the VaR calculated by the market risk area and, additionally, capturing an incremental charge for default risk (incremental default risk).

The Group cooperates closely with the Bank of Spain to make further progress in the scope of application of the internal model (at geographical and operational levels) and in the impact analysis of possible future changes, in line with the consultative documents issued by the Basel Committee in December 2009 to strengthen the capital of financial institutions⁶.

5. OPERATIONAL RISK

Definition and objectives

Santander Group defines operational risk as “the risk of loss resulting from inadequate or failed internal processes, human resources or systems or from external events”. Unlike other risks, this is a risk that is not associated with products or businesses, which is found in processes and/or assets and is generated internally (people, systems, processes) or as a result of external risks, such as natural disasters.

The basic aim pursued by the Group in operational risk control and management is to identify, measure/assess, control/mitigate and inform about this risk.

The Group’s priority, therefore, is to identify and eliminate any clusters of operational risk, irrespective of whether losses have been incurred. Measurement of this risk also contributes to the establishment of priorities in operational risk management.

For the purpose of calculating regulatory capital for operational risk, Santander Group decided to opt initially for the standardized approach provided for under Basel II standards. The Group is assessing the most appropriate time to shift to advanced measurement approaches (AMA) taking into account, however, that: a) the short-term priority in operational risk management is focused on mitigation; and b) most of the regulatory requirements established for use of the AMA must be incorporated in the standardized approach and, at the present time, these requirements have already been included in the operational risk management approach used by Santander Group.

⁶ Strengthening the resilience of the banking sector and International framework for liquidity risk measurement, standards and monitoring

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Management model

The organizational model for risk management and control is the result of the adaptation to the new Basel II environment implemented by the Group, which establishes three levels of control:

• First level: control functions performed by the Group’s units

• Second level: functions performed by the corporate areas

• Third level: integrated control functions performed by the risk division — integrated risk control and internal risk validation area (CIVIR, using the Spanish acronym).

Operational risk management and control are conducted by the technology and operations division. Within this division, the corporate technology and operational risk area, created in 2008, is responsible for the definition of policies and methodology and for the management and control of technology and operational risks. The implementation, integration and local adaptation of the policies and guidelines established by the area are entrusted to the local operational risk officers identified in each unit.

This operational risk management structure is based on the knowledge and experience of the executives and professionals of the various Group units, with particular importance being attached to the role of the local operational risk officers.

The technology and operational risk management model includes the following phases:

• Identification of the operational risk inherent in all the Bank’s activities, products, processes and systems.

• Objective and continued measurement and assessment of operational risk, consistent with the industry and regulatory standards (Basel II, Bank of Spain,...), and setting of risk appetite limits.

• Continuous monitoring of operational risk exposures in order to detect unassumed levels of risk, implement control procedures, improve internal awareness and mitigate losses.

• Establishment of mitigation measures to eliminate or minimize operational risk.

• Generation of periodic reports on the exposure to operational risk and the level of control for senior management and the Group’s areas/units, and reporting to the market and the regulatory authorities.

• Definition and implementation of systems enabling the Group to monitor and control operational risk exposures. These systems are integrated into the Group’s daily management, using the current technology and maximizing the automation of applications.

• Definition and documentation of operational risk management policies and implementation of the related methodologies consistent with current regulations and best practices.

The benefits of Santander Group’s operational risk management model are as follows:

• Integrated and effective management of operational risk (identification, measurement / assessment, control / mitigation and information).

• Improved knowledge of actual and potential operational risks and better assignment to business and support lines.

• The information on operational risk helps improve processes and controls and reduce losses and income volatility.

Model implementation: global initiatives and results

The corporate function for operational risk management and control was created in 2001 and has been operating since then. The main duties and activities performed and global initiatives adopted by this function are summarized as follows:

• Designation of head coordinators and creation of operational risk departments.

• Training and experience sharing: communication of best practices within the Group.

• Fostering of mitigation plans: control of both the implementation of corrective measures and projects under development.

Since 2008 the corporate function has strengthened technology risk management and fostered the following aspects, inter alia:

• Security of information systems.

• Promotion of contingency and business continuity plans.

• Management of technology risk (risk associated with the use of technology -development and maintenance of applications, design, implementation and maintenance of technology platforms, production of computer processes, etc.).

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Analysis and monitoring of controls in market operations

In view of the specific features and complexity of financial markets, the Group considers it necessary to steadily strengthen the operational control of its financial market activities, thus bolstering the highly stringent and conservative risk and operational principles already applied on a regular basis by Santander Group.

In addition to monitoring all operational control-related matters, in all its units the Group placed greater emphasis on a number of aspects, the reviews conducted being validated on a monthly basis by the management committee of each unit. The most noteworthy of these aspects are as follows:

• Review of the valuation models and, in general, of the values of the portfolios.

• Processes for the capture and independent validation of prices.

• Adequate confirmation of transactions with counterparties.

• Review of transaction cancellations/modifications.

• Review and monitoring of the effectiveness of guarantees, collateral and risk mitigators.

The role of insurance in operational risk management

Santander Group considers insurance as a key factor in operational risk management. Since 2004 the operational risk area has worked closely with the insurance area in Santander Group in all activities leading to improvements in the two areas. Some notable examples are as follows:

• Cooperation in the presentation of Santander Group’s operational risk management and control model to insurers and reinsurers.

• Analysis and follow-up of the recommendations and suggestions for improving operational risks made by insurance companies, through previous audits performed by specialized companies, and of the subsequent implementation thereof.

• Sharing of the information generated in the two areas in order to strengthen the quality of error bases and the cover of insurance policies for the various operational risks.

• Close cooperation between local operational risk officers and local insurance coordinators in order to enhance operational risk mitigation.

• Regular meetings to report on specific activities, statements of position and projects in the two areas.

• Active participation of the two areas in the global insurance sourcing desk, the highest technical body in the Group responsible for the definition of insurance coverage and arrangement strategies.

6. REPUTATIONAL RISK

Santander Group defines reputational risk as the risk associated with the perception of the Bank held by the various internal and external stakeholders with which it is related as a result of its business activities, which may have an adverse impact on results, capital or business expectations. This risk includes legal, economic, financial, ethical, social and environmental aspects.

As part of its supervisory function, the board is responsible for defining the Group’s risk policy and the assessment of reputational risk is entrusted to the risk committee, in its capacity as the body responsible for global risk management at the Group.

Various Group governance structures are involved in the management of reputational risk, depending on the sources thereof. Thus, the audit and compliance committee provides support to the board in this connection and supervises compliance with the Group’s code of conduct in securities markets, the manuals and procedures for the prevention of money laundering and, in general, the Bank’s governance and compliance rules, and makes any required proposals for improvement.

This section addresses the reputational risk that may arise from an inadequate sale of products or an improper provision of services by the Group.

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Corporate project for the marketing of products and services

As part of the new corporate framework of the compliance function, a corporate marketing project was launched in 2009 which will further reinforce (i) marketing policies, (ii) procedures for product authorization and monitoring, and (iii) systems and processes, all with special emphasis on the customer view.

i) Marketing policies

The product and service marketing policies encompass all the marketing phases at corporate level (approval, pre-sale, sale and post-sale).

ii) Governing bodies

The global new products committee (CGNP, using the Spanish acronym) -whose activities in 2009 are summarized below— was reinforced and its name was changed to the corporate marketing committee (CCC, using the Spanish acronym). This committee has the powers to approve and monitor products, once they have been marketed.

A global consultative committee (CGC, using the Spanish acronym) was created, consisting of area representatives who provide an insight to risks, regulations and markets. The CGC may recommend the review of products affected by market changes, impaired creditworthiness (country, sectors or companies) or changes in the Group’s market perception at medium and long term.

In 2009 the reputational risk management office became operational. The purpose of this office is to provide the relevant governing bodies with the appropriate information enabling them: (i) to conduct an appropriate analysis of risk in the approval phase, with a twofold focus: impact on the Bank and impact on customers; and (ii) to monitor products over their life cycle.

In the first three months of operations, the reputational risk management office monitored certain types of product, such as derivatives, investment insurance or funds with a certain level of risk or complexity.

iii) Systems and processes

The improvement of systems and processes will facilitate the adaptation of certain marketing processes to the new commercial policies and will also enable automated, remote compliance monitoring.

The global new products committee and the procedures manual for the sale of financial products in 2009

Global new products committee (CGNP)

In 2009 the committee held 15 meetings, at which a total of 170 products or product families were analyzed.

In 2009 the areas that were represented on the CGNP, chaired by the general secretary, were as follows: tax advisory, legal advisory, customer care, internal audit, commercial banking, global corporate banking, CIVIR/integrated risk control, compliance, the controller’s unit, global business technology and operations, ECB technology and operations, global wholesale banking risks management, corporate risks and IFIs, credit risk, market risks, risks — systems, solvency risk, corporate technology and operational risk, Santander private banking, technology, global treasury, universities and, lastly, the unit proposing the new product or a representative of the local new products committee.

Before a new product or service is launched, the areas represented on the CGNP, together, if required, with other independent experts, conduct an exhaustive analysis of all the matters involved and express their opinion as to whether the product or service should be marketed.

On the basis of the documentation received, the CGNP, after checking that all requirements for the approval of the new product or service have been met and considering the risk guidelines established by the risk committee, either approves, rejects or sets conditions for the proposed new product or service.

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The CGNP pays particular attention to the suitability of the new product or service for the environment in which it is to be marketed, placing particular emphasis on ensuring that:

• Each product or service is sold by people who know how to sell it.

• Customers know what they are investing in and are aware of the risk involved in the particular product or service, and this can be evidenced by supporting documentation.

• The product or service fits the customer’s risk profile.

• Each product or service is sold where its sale is possible, not only from a legal or tax standpoint (i.e. it complies with the legal or tax regime of the country in question), but also with regard to the local financial culture.

• When a given product or service is approved, maximum placement limits are set.

Procedures manual for the sale of financial products

This manual, which has been used at Banco Santander since 2004 in the retail sale of financial products in Spain, is applied to investment services for financial products, including: fixed-income or equity securities or other financial instruments, money market instruments, shares or units in collective investment undertakings, traded and OTC derivatives and atypical financial contracts. Nevertheless, the CGNP may opt to include other financial products within the scope of the procedures manual, as was the case with structured deposits, savings and investment insurance, and pension plans.

In 2009, 115 products subject to this manual were submitted for approval. Of these products, 38 were new products submitted to the CGNP and 77 were existing products submitted to the office for the manual (a specific body which was created to oversee implementation of the manual and forms part of the corporate compliance area).

7. COMPLIANCE WITH THE NEW REGULATORY FRAMEWORK

Santander Group has assumed from the outset a firm commitment to the principles underlying the Basel II regulations. The Basel II framework allows entities to make internal estimates of the regulatory capital required to ensure their capital adequacy when faced by events caused by various types of risk. As a result of this commitment, Santander Group has devoted all the human and material resources required for the successful performance of the Basel II implementation plan. For this purpose, a Basel II team was created in the past, consisting of qualified professionals from the Group’s different areas: the controller’s unit, risks, technology and operations, financial management and internal audit. Santander Group senior management participates actively in monitoring progress in the implementation of Basel II at corporate level and fosters the measures required to extend the new culture and its implications across the organization. In the case of credit and market risks, the implementation of Basel II entails the recognition, for regulatory capital purposes, of the internal models that have been used for management purposes.

Santander Group intends to adopt, over the next few years, the advanced internal ratings-based (AIRB) approach under Basel II for substantially all its banks, until the percentage of net exposure of the loan portfolio covered by this approach is close to 100%. Accordingly, Santander Group continued in 2009 with the project for the progressive implementation of the technology platforms and methodological developments required for the roll-out of the AIRB approaches for regulatory capital calculation purposes at the remaining Group units.

Santander Group has obtained authorization from the supervisory authorities to use advanced approaches for the calculation of regulatory capital requirements for credit risk for the parent and the main subsidiaries in Spain, the United Kingdom and Portugal, which represents almost two thirds of its total exposure at 2009 year-end. From now on, the Group’s Basel II implementation strategy will focus on the main entities in the Americas and on consumer banking in Europe.

Given the medium-low risk profile characterizing Santander’s business activities, strongly focused on commercial banking (corporations, SMEs and individuals), the authorization granted by the Bank of Spain enabled the Group, based on its actual risk profile, to optimize the capital requirements under the so-called Pillar 1. Similarly, the significant diversification of the Group’s risk and business profiles enabled it to offset the additional capital requirements arising from the Internal Capital Adequacy Assessment Process (treated under Pillar 2), which takes into account the impact of risks not addressed under Pillar 1 and the benefits arising from the diversification among risks, businesses and geographical locations.

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As regards the other risks explicitly addressed under Pillar 1 of Basel II, Santander Group was authorized to use its internal model for market risk with respect to the treasury area’s trading activities in Madrid and, as for credit risk, it has submitted a roll-out plan for the other units to the Bank of Spain.

As far as operational risk is concerned, the Group has decided, for the time being, to use the standardized approach for regulatory capital calculation purposes and is considering the possibility of adopting AMA approaches in the medium term.

Pillar 2 is another significant line of action under the Basel II corporate framework. In 2009 Santander Group worked on the implementation in the corporate economic capital model of the improvements proposed as a result of reviews conducted on the corporate economic capital model by an international team of CEBS supervisors at the end of 2008 and by the internal audit and internal validation teams.

Additionally, the methodology of the economic capital model was consolidated and utilization of the technology platform supporting Pillar 1 was completed. This will enable the Group to use an integrated and robust information system for the units with internal models authorized under Pillar 1, which will cover regulatory capital and economic capital requirements.

Internal validation of risk models

Internal validation is a pre-requisite for the supervisory validation process. A fully-independent specialized unit of the Entity obtains a technical opinion on the adequacy of the internal models for the intended internal or regulatory purposes, and concludes on their usefulness and effectiveness.

In addition to complying with the regulatory requirement, the internal validation function provides essential support to the risk committee and the local risk committees in the performance of their duties to authorize the use of the models (for management and regulatory purposes) and to review them regularly.

Internal model validation at Santander Group encompasses credit risk models, market risk models, financial asset pricing models and the economic capital model. The scope of the validation includes not only the more theoretical or methodological aspects, but also the technology systems and the quality of the data the models provide, on which their effective operation relies, and, in general, all the relevant aspects of risk management (controls, reporting, uses, involvement of senior management, etc.).

The internal validation function is located, at corporate level, within the integrated risk control and internal risk validation area (CIVIR) and reports directly to the third deputy chairman of the Group and to the chairman of the risk committee. This function is performed at a global and corporate level in order to ensure uniformity of application, and is implemented through three regional centres located in Madrid, London and Sao Paulo. From a functional and hierarchical standpoint, these centres are fully accountable to the corporate centre, thus ensuring consistency in the performance of their activities. This system facilitates the application of a corporate methodology that is supported by a set of tools developed internally by Santander Group which provide a robust corporate framework for application at all the Group’s units and which automate certain verifications to ensure efficient reviews.

It should be noted that Santander Group’s corporate internal validation framework is fully consistent with the internal validation standards for advanced approaches issued by the Bank of Spain. Accordingly, the Group maintains the segregation of functions between internal validation and internal audit, which, in its role as the last layer of control at the Group, is responsible for reviewing the methodology, tools and work performed by internal validation and for giving its opinion on the degree of effective independence.

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8. ECONOMIC CAPITAL

The concept of economic capital has traditionally been contrasted with that of regulatory capital, the latter being the capital required by capital adequacy regulations. The new Basel II capital framework has without doubt brought the two concepts closer together. While Pillar 1 determines the minimum regulatory capital requirements, Pillar 2 quantifies, through economic capital, the Group’s overall capital adequacy.

The Group’s economic capital model enables it to quantify the consolidated risk profile taking into account all the significant risks of the business, as well as the diversification effect inherent in a multi-national, multi-business group such as Santander. The Group used this model to prepare its internal capital adequacy assessment report in accordance with Bank of Spain regulations within the framework of Pillar 2 of Basel II.

The concept of diversification is fundamental to the proper measurement of the risk profile of a group with global operations. Although it is an intuitive concept that has been a part of risk management since the very beginnings of the banking business, diversification can also be explained in terms of the imperfect correlation between the various risks, which means that the largest loss events do not occur simultaneously in all portfolios or for all types of risk. Consequently, the sum of the economic capital of the various portfolios and types of risk, taken separately, is higher than the Group’s total economic capital. In other words, the risk borne by the Group as a whole is less than the risk arising from the sum of its various components considered separately.

Additionally, the economic capital measurement and aggregation model also considers the concentration risk for wholesale portfolios (large corporations, banks and sovereigns), in terms of both the size of their exposure and their sectoral or geographical concentration. Any geographical or product concentration in retail portfolios is captured through the application of an appropriate correlation model.

Analysis of the global risk profile

The distribution of the economic capital among the main business areas reflects the diversified nature of the Group’s activity and risk. This diversification increased in 2009 following the acquisition of Sovereign in the US, which accounts for 5% of the Group’s capital.

Continental Europe and Latin America each account for approximately one third of total risk, and the United Kingdom 8%, while the corporate financial management and holdings area, which assumes the risk stemming from exposure to structural foreign currency risk (risk arising from holding investments in foreign subsidiaries denominated in currencies other than the euro) and most of the equity investments, represents 19%.

At December 31, 2009, the Group’s total economic capital, including the portion relating to minority interests, amounted to €43,045 million.

The Group’s geographical diversification, understood as the difference between the sum of the capital of each individual business unit and the Group’s total diversified capital, stood at 21.6%.

Additionally, the main purpose of the Group’s capital planning is to obtain future economic and regulatory capital projections so as to assess the adequacy of capital in various scenarios. For each scenario, capital planning incorporates the Entity’s profit forecasts, in keeping with its strategic targets (organic and inorganic growth, pay-out ratio, etc.) and with economic developments, and simulating stress situations, and identifies possible capital management strategies enabling the Group to optimize the Bank’s capital adequacy and the return on capital.

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RORAC and value creation

Santander Group has used RORAC methodology in its credit risk management since 1993, with the following objectives:

• Calculation of economic capital requirement and of the return thereon for the Group’s business units and for business segments, portfolios or customers, in order to facilitate an optimal allocation of economic capital.

• Budgeting of capital requirement and RORAC of the Group’s business units and inclusion thereof in their compensation plans.

• Analysis and setting of prices in the decision-making process for transactions (loan approval) and customers (monitoring).

The RORAC methodology facilitates the comparison, on a consistent basis, of the performance of transactions, customers, portfolios and businesses, and identifies those which achieve a risk-adjusted return higher than the Group’s cost of capital, thus aligning risk management and business management with the aim of maximizing value creation, which is the ultimate objective of Group senior management.

The Group periodically assesses the level and evolution of the value creation (VC) and return on risk-adjusted capital (RORAC) of its main business units. The VC is the profit generated over and above the cost of the economic capital (EC) used, and is calculated using the following formula:

VC = Profit – (average EC x cost of capital)

The profit used is obtained by making the required adjustments to accounting profit in order to reflect only each unit’s recurring profit or loss from its business activity.

The minimum rate of return on capital that a transaction should achieve is determined by the cost of capital, which is the minimum remuneration required by shareholders. In order to objectively calculate this rate, the premium that shareholders demand for investing in the Group is added to the risk-free return. This premium depends essentially on the degree of volatility of the market price of the Santander share in relation to the market trend. The cost of capital for 2009 applied to the various Group units was 12.03%.

If a transaction or portfolio yields a positive return, it will be contributing to the Group’s profit, although it will not actually create shareholder value unless this return exceeds the cost of capital.

The Group’s return on risk-adjusted capital (RORAC) amply exceeded the estimated cost of capital for 2009, standing at 21.6%. Value creation, i.e. economic profit less the cost of capital used to obtain it, amounted to €4,180 million.

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55. Other Disclosures

This Note includes relevant information about additional disclosure requirements.

55.1 Consolidated financial statements

Following are the consolidated balance sheets and consolidated statements of income of the Group under the IFRS reformatted to conform to the presentation guidelines for bank holding companies set forth in Regulation S-X of the Securities and Exchange Commission of the United States of America.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts and allocations of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

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CONSOLIDATED BALANCE SHEET

	Thousands of Euros
	2009			2008			2007
Assets
Cash and due from banks		28,231,681			41,131,292			25,341,083
Interest earning deposits in other banks		29,288,269			43,553,958			16,766,716
Securities purchased under agreements to resell		21,288,275			19,391,367			26,147,541
Trading account assets		172,867,988			177,451,940			183,629,876
Banks		22,714,580			13,998,287			19,159,632
Loans		17,885,911			9,537,868			31,726,104
Derivatives		59,856,413			95,815,309			46,726,118
Debt securities		57,285,731			49,050,280			73,403,234
Equity securities		15,125,353			9,050,196			12,614,788
Investment securities		101,579,834			66,572,866			46,017,246
Available-for-sale		101,579,834			66,572,866			46,017,246
Net Loans and leases		653,348,725			607,424,343			528,318,209
Loans and leases, net of unearned income		671,184,116			619,890,400			537,013,413
Less-Allowance for loan losses		(17,835,391	)		(12,466,057	)		(8,695,204	)
Premises and equipment, net		11,499,449			11,953,856			9,272,962
Investment in affiliated companies		164,473			1,323,452			15,689,127
Other assets		89,904,613			78,381,486			59,206,661
Intangible Assets		2,778,358			1,787,068			2,202,334
Goodwill in consolidation		22,865,056			18,836,199			13,830,708
Accrual Accounts		2,259,262			1,952,843			1,749,193
Hedge derivatives		7,833,850			9,698,132			3,063,169
Others		54,168,087			46,107,244			38,361,257
Total assets		1,108,173,307			1,047,184,560			910,389,421
Liabilities
Deposits		554,133,789			468,641,990			371,573,338
Non interest deposits		5,393,916			4,608,242			4,507,057
Interest bearing		548,739,873			464,033,748			367,066,281
Demand deposits		142,483,882			99,670,268			91,576,243
Savings deposits		127,940,647			115,673,794			90,727,525
Time deposits		278,315,344			248,689,686			184,762,513
Certificates of deposit		—			—			—
Short-term debt		124,189,724			125,291,176			131,774,426
Long-term debt		220,089,591			233,516,879			237,120,341
Other liabilities		135,889,561			159,733,023			112,363,165
Taxes Payable		7,003,945			5,768,665			6,156,365
Accounts Payable		7,859,466			8,738,047			7,656,262
Accrual Accounts		5,502,958			4,669,160			4,050,992
Pension Allowance		8,272,533			8,751,128			9,294,198
Stock borrowing liabilities		—			—			—
Derivatives		63,903,701			95,125,044			52,937,798
Liabilities under insurance contracts		16,916,446			16,849,511			13,033,617
Other Provisions		6,904,055			6,538,142			4,751,151
Short securities positions		5,139,730			3,035,231			5,613,234
Others		14,386,727			10,258,095			8,869,548
Total liabilities		1,034,302,665			987,183,068			852,831,270
Minority interest		5,204,058			2,414,606			2,358,269
Stockholders’ equity
Capital stock		4,114,413			3,997,030			3,127,148
Additional paid-in-capital		29,305,257			28,103,802			20,370,128
Other additional capital		(2,326,272	)		(3,114,636	)		(1,537,999	)
Current year earnings		8,942,538			8,876,414			9,060,258
Other reserves		28,630,648			19,724,276			24,180,347
Total stockholders’ equity		68,666,584			57,586,886			55,199,882
Total liabilities and Stockholders’ equity		1,108,173,307			1,047,184,560			910,389,421

The Group has issued Mortgage backed securities, called Cédulas Hipotecarias. These securities issued pursuant the Mortgage Market law amount as a maximum 90% of the amount of the mortgage loans assigned as guarantee of them. As of December 31, 2009, 2008 and 2007, the amount of Mortgage backed securities was €55,032 million, €48,682 million and €48,017 million, respectively.

Additionally, as of December 31, 2009, 2008 and 2007, the investment debt securities assigned to certain Group or third-party commitments amounted to €39,661 million, €25,161 million and €16,866 million, respectively.

F-206

CONSOLIDATED STATEMENTS OF INCOME

	Thousands of Euros
	2009			2008			2007
Interest income:
Interest and fees on loans and leases		42,707,534			42,574,139			35,615,053
Interest on deposits in other banks		3,362,476			5,561,810			3,336,520
Interest on securities purchased under agreements to resell		1,155,892			1,788,147			1,952,621
Interest on investment securities		6,285,097			5,567,274			5,004,275
Dividends		5,350			92,017			145,323
Total interest income		53,516,349			55,583,387			46,053,792
Interest expenses:
Interest on deposits		(15,852,047	)		(18,814,100	)		(14,356,301	)
Interest on short-term borrowings		(2,929,118	)		(5,437,822	)		(4,924,638	)
Interest on long-term debt		(6,561,801	)		(12,174,778	)		(10,864,167	)
Total interest expense		(25,342,966	)		(36,426,700	)		(30,145,106	)
Interest income / (Charges)		28,173,383			19,156,687			15,908,686
Provision for credit losses		(11,010,021	)		(5,909,252	)		(3,426,746	)
Interest income / (Charges) after provision for credit losses		17,163,362			13,247,435			12,481,940
Non interest income:
Commissions and fees from fiduciary activities		1,219,658			1,618,479			1,984,910
Commissions and fees from securities activities, net		774,296			704,525			970,639
Fees and commissions from insurance activities		8,858,253			9,977,441			6,791,619
Other Fees and commissions, net		5,122,333			4,079,182			3,453,834
Gains (losses) from:
Affiliated companies’ securities		1,521,863			3,791,479			307,789
Investment securities		4,551,719			(6,767,774	)		792,727
Foreign exchange, derivatives and other, net		(811,761	)		7,757,144			1,168,599
Sale of premises		37,279			887,931			1,798,669
Income from non financial entities		381,653			591,177			775,644
Gains on sale of non-current assets / liabilities held for sale not classified as discontinued operations		414,802			36,419			—
Other income		485,908			558,812			1,769,689
Total non interest income		22,556,003			23,234,815			19,814,119
Non interest expense:
Salaries and employee benefits		(9,176,648	)		(7,774,565	)		(7,261,755	)
Occupancy expense of premises, depreciation and maintenance, net		(2,254,891	)		(1,665,057	)		(1,462,414	)
General and administrative expenses		(4,889,737	)		(3,771,527	)		(3,489,649	)
Impairment of goodwill		(2,631	)		(72,726	)		(599,989	)
Impairment / amortization of intangible assets		(854,757	)		(1,566,414	)		(1,200,173	)
Impairment of tangible assets		(1,503,048	)		(111,114	)		(74,522	)
Provisions for specific allowances		(1,444,074	)		(1,034,102	)		(458,649	)
Payments to Deposit Guarantee Fund		(317,708	)		(179,023	)		(144,988	)
Insurance claims		(7,604,807	)		(8,472,523	)		(5,601,487	)
Expenses of non financial entities		(244,083	)		(489,283	)		(622,280	)
Losses on sale of non-current assets / liabilities held for sale not classified as discontinued operations		(289,617	)		(75,184	)		—
Other expenses		(549,564	)		(421,407	)		(409,659	)
Total non interest expense		(29,131,565	)		(25,632,925	)		(21,325,565	)
Income before income taxes		10,587,800			10,849,325			10,970,494
Income tax expense		(1,206,610	)		(1,836,052	)		(2,322,107	)
Net consolidated income for the year		9,381,190			9,013,273			8,648,387
Net income attributed to minority interest		466,083			447,662			484,351
Income from discontinued operation, net of taxes		27,431			310,803			896,222
NET INCOME ATTRIBUTED TO THE GROUP		8,942,538			8,876,414			9,060,258

F-207

Following are the summarized balance sheets of Banco Santander, S.A. as of December 31, 2009, 2008 and 2007.

CONDENSED BALANCE SHEETS (Parent company only)	2009		2008		2007
	(Thousands of Euros)
Assets
Cash and due from banks		70,922,607		78,827,627		52,548,200
Trading account assets		57,262,358		79,641,722		51,349,204
Investment securities		34,033,734		16,061,930		17,074,175
Net Loans and leases		174,645,173		183,754,083		163,903,007
Investment in affiliated companies		67,430,284		62,232,929		59,256,377
Premises and equipment, net		1,338,600		728,588		714,212
Other assets		10,436,136		13,943,826		18,543,369
Total assets		416,068,892		435,190,705		363,388,544
Liabilities
Deposits		236,833,251		213,464,786		173,660,916
Short-term debt		13,597,783		34,337,021		35,077,018
Long-term debt		59,884,683		57,769,675		57,005,977
Other liabilities		59,571,695		84,257,494		59,762,058
Total liabilities		369,887,412		389,828,976		325,505,969
Stockholders’ equity
Capital stock		4,114,413		3,997,030		3,127,148
Retained earnings and other reserves		42,067,067		41,364,699		34,755,427
Total stockholders’ equity		46,181,480		45,361,729		37,882,575
Total liabilities and Stockholders’ equity		416,068,892		435,190,705		363,388,544

Following are the summarized statements of income of Banco Santander, S.A. for the years ended December 31, 2009, 2008 and 2007.

CONDENSED STATEMENTS OF INCOME (Parent company only)	2009			2008			2007
	(Thousands of Euros)
Interest income
Interest from earning assets		11,410,345			15,233,869			11,766,647
Dividends from affiliated companies		2,456,785			4,541,565			2,863,829
		13,867,130			19,775,434			14,630,476
Interest expense		(7,117,004	)		(13,318,953	)		(10,028,500	)
Interest income / (Charges)		6,750,126			6,456,481			4,601,976
Provision for credit losses		(331,241	)		(1,387,505	)		(288,386	)
Interest income / (Charges) after provision for credit losses		6,418,885			5,068,976			4,313,590
Non interest income:		1,483,843			4,369,576			2,996,666
Non interest expense:		(3,688,492	)		(4,555,202	)		(3,231,707	)
Income before income taxes		4,214,236			4,883,350			4,078,549
Income tax expense		(63,423	)		(57,132	)		(8,302	)
Net income		4,150,813			4,826,218			4,070,247

F-208

Following are the summarized cash flow statements of Banco Santander, S.A. for the years ended December 31, 2009, 2008 and 2007.

CONDENSED CASH FLOW STATEMENTS (Parent company only)	2009			2008			2007
	(Thousands of Euros)
1. Cash flows from operating activities
Consolidated profit		4,150,813			4,826,218			4,070,247
Adjustments to profit		1,305,971			2,895,285			164,914
Net increase/decrease in operating assets		(12,900,811	)		63,231,280			49,949,432
Net increase/decrease in operating liabilities		(26,129,154	)		61,252,781			56,657,110
Reimbusements/payments of income tax		254,105			57,132			8,302
Total net cash flows from operating activities (1)		(7,517,454	)		5,800,136			10,951,141
2. Cash flows from investing activities
Investments (-)		(3,641,824	)		(3,686,280	)		(22,068,312	)
Divestments (+)		2,026,980			524,116			3,438,200
Total net cash flows from investment activities (2)		(1,614,844	)		(3,162,164	)		(18,630,112	)
3. Cash flows from financing activities
Disposal of own equity instruments		32,345			—			21,640
Acquisition of own equity instruments		(61,059	)		(61,471	)		—
Issuance of debt securities		1,945,877			200,039			13,132,494
Dividends paid		(4,386,550	)		(4,243,021	)		(3,456,731	)
Issuance/Redemption of equity instruments		—			7,020,677			—
Other collections/payments related to financing activities		(438,283	)		1,162,017			7,560,549
Total net cash flows from financing activities (3)		(2,907,670	)		4,078,241			17,257,952
4. Effect of exchange rate changes on cash and cash equivalents (4)		112,740			(468,668	)		445,697
5. Net increase/decrease in cash and cash equivalents (1+2+3+4)		(11,927,228	)		6,247,545			10,024,676
Cash and cash equivalents at beginning of period		18,554,099			12,306,554			2,281,878
Cash and cash equivalents at end of period		6,626,871			18,554,099			12,306,554

F-209

55.2 Preference Shares and Preferred Securities

The following table shows the balance of the preference shares and preferred securities as of December 31, 2009, 2008 and 2007:

	2009		2008		2007
	(Thousands of Euros)
Preference shares		430,152		1,051,272		522,558
Preferred securities		7,315,291		7,621,575		7,261,382
Total at year-end		7,745,443		8,672,847		7,783,940

Both Preference Shares and Preferred Securities are recorded under the “Financial liabilities at amortized cost – Subordinated Liabilities” caption in the consolidated balance sheet as of December 31, 2009, 2008 and 2007.

Preference Shares include the financial instruments issued by the consolidated companies which, although equity for legal purposes, do not meet the requirements for classification as equity in the financial statements. These shares do not carry any voting rights and are non-cumulative. They were subscribed to by non-Group third parties except for the shares of Abbey amounting to GBP 160.6 million, are redeemable at the discretion of the issuer, based on the conditions of the issuer. None of these issues are convertible into Bank shares or granted privileges or right which, in certain circumstances, make them convertibles into shares.

This category includes non-cumulative preferred non-voting shares issued by Banesto Holdings, Abbey National plc, Alliance & Leicester plc and Santander Holding USA, Inc.

For the purposes of payment priority, Preferred Securities are junior to all general creditors and to subordinated deposits. The payment of dividends on these securities, which have no voting rights, is conditional upon the obtainment of sufficient distributable profit and upon the limits imposed by Spanish banking regulations on equity.

This category includes non-cumulative preferred non-voting securities issued by Santander Finance Capital, S.A. (Unipersonal), Santander Finance Preferred, S.A. (Unipersonal), and Santander International Preferred, S.A. (Sociedad Unipersonal), guaranteed by the Bank. It also includes non-cumulative preferred non-voting securities issued by Banesto Preferentes, S.A, Banco Español de Crédito, S.A., Santander PR Capital Trust and Abbey Group.

Except the issues of Santander PR Capital Trust I, which redeems in 2036, all preference shares and preferred securities are perpetual securities and there is no obligation that requires the Group to redeem them. All securities have been fully subscribed by third parties outside the Group. In the consolidated balance sheets, these securities are shown net of any temporary operations relating to liquidity guarantees (see Note 23 and Exhibit III), and are described in the table below:

F-210

	Outstanding at December 31, 2009
		Amount in
Preference Shares		currency
Issuer/Date of issue	Currency	(million)		Interest rate			Redemption Option (1)
Banesto Holding, Ltd, December 1992	US Dollar		77.3		10.500	%	June 30, 2012
Abbey National plc, October 1995	Pounds Sterling		80.3		10.375	%	No option
Abbey National plc, February 1996	Pounds Sterling		80.3		10.375	%	No option
Alliance & Leicester plc, March 2004	Pounds Sterling		21.1		5.827	%	March 22, 2016
Alliance & Leicester plc, May 2006	Pounds Sterling		21.1		6.222	%(2)	May 24, 2019
Santander Holding USA, Inc, August 2000	US Dollar		147.9		12.000	%	May 16, 2020
Santander Holding USA, Inc, May 2006	US Dollar		73.7		7.300	%	May 15, 2011

	Outstanding at December 31, 2009
		Amount in
Preferred Securities		currency
Issuer/Date of issue	Currency	(million)		Interest rate	Maturity date
Banesto Group
Banco Español de Crédito, October 2004	Euro		110.8	€CMS 10 + 0.125%	Perpetuity
Banco Español de Crédito (1), November 2004	Euro		161.3	5.5%	Perpetuity
Banco Español de Crédito, June 2009	Euro		497.5	6.0%	Perpetuity
Santander Finance Capital, S.A. (Unipersonal)
April 2005	Euro		1,000	Euribor (3M) + 0.1%	Perpetuity
March 2009	US Dollar		18.2	2.0%	Perpetuity
March 2009	US Dollar		25.0	2.0%	Perpetuity
March 2009	Euro		313.8	2.0%	Perpetuity
March 2009	Euro		153.7	2.0%	Perpetuity
June 2009	Euro		1,965.6	Euribor (3M) + 2.2%	Perpetuity
Santander Finance Preferred, S.A. (Unipersonal)
March 2004	US Dollar		89.3	6.41%	Perpetuity
September 2004	Euro		174.38	€CMS 10 +0.05% subject to a maximum distribution of 8% per annum	Perpetuity
October 2004	Euro		165.1	5.75%	Perpetuity
November 2006	US Dollar		161.8	6.80%	Perpetuity
January 2007	US Dollar		109.5	6.50%	Perpetuity
March 2007	US Dollar		210.4	US3M + 0.52%	Perpetuity
July 2007	Pounds Sterling		9.0	7.01%	Perpetuity
July 2009	Pounds Sterling		679.4	Libor (3M) + 7.66%	Perpetuity
July 2009	Euro		125.7	Euribor (3M) + 7.66%	Perpetuity
September 2009	US Dollar		161.6	USD Libor (3M) + 7.67%	Perpetuity
September 2009	US Dollar		825.1	10.50%	Perpetuity
Santander International Preferred S.A. (Sociedad Unipersonal)
March 2009	US Dollar		981.0	2.00%	Perpetuity
March 2009	Euro		8.6	2.00%	Perpetuity
Abbey Group
Abbey National Capital Trust I, February 2000	US Dollar		621.2	Fixed to 8.963% until June 30, 2030, and from this date, 2.825% + Libor USD (3M)	Perpetuity
Abbey National Plc, February 2001(3)	Pounds Sterling		104.8	7.037%	Perpetuity
Abbey National Plc, August 2002	Pounds Sterling		15.9	Fixed to 6.984% until February 9, 2018, and thereafter, at a rate reset semi-annually of 1.86% per annum + Libor GBP (6M)	Perpetuity
Santander PR Capital Trust I
February 2006	US Dollar		125	6.750%	July 2036

F-211

(1)	From these date the issuer can redeem the shares, subject to prior authorization by the national supervisor.
(2)	That issuance is a Fixed/Floating Rate Non-Cumulative Callable Preference Shares. Dividends will accrue on a principal amount equal to £1,000 per Preference Share at a rate of 6.222 per cent. per annum in respect of the period from (and including) May 24, 2006 (the Issue Date) to (but excluding) May 24, 2019 (the First Call Date) and thereafter at a rate reset quarterly equal to 1.13 per cent. per annum above the London interbank offered rate for three-month sterling deposits. From (and including) the Issue Date to (but excluding) the First Call Date, dividends, if declared, will be paid annually in arrear on May 24, in each year. Subject as provided herein, the first such dividend payment date will be May 24, 2007 and the last such dividend payment date will be the First Call Date. From (and including) the First Call Date, dividends, if declared, will be paid quarterly in arrear on May 24, August 24, November 24 and February 24, in each year. Subject as provided herein, the first such dividend payment date will be August 24, 2019.
(3)	From February 14, 2026, this issue will bear interest at a rate, reset every five years, of 3.75% per annum above the gross redemption yield on a five-year specified United Kingdom government security.

In accordance with Reg. S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered, Santander Finance Capital, S.A. (Unipersonal), Santander Finance Preferred, S.A. (Unipersonal) and Santander International Preferred, S.A. (Unipersonal) - issuers of registered preferred securities guaranteed by Banco Santander, S.A. — do not file the financial statements required for a registrant by Regulation S-X as:

• Santander Finance Preferred, S.A. (Unipersonal) is 100% owned finance subsidiary of Banco Santander, S.A. who fully and unconditionally guarantees the preferred securities (Series 1, 4, 5, 6, 10 and 11 are listed in the United States). No other subsidiary of the Bank guarantees such securities.

• Santander Finance Capital, S.A. (Unipersonal) is 100% owned finance subsidiary of Banco Santander, S.A. that fully and unconditionally guarantees the preferred securities (not listed in United States). No other subsidiary of the Bank guarantees such securities.

• Santander International Preferred, S.A. (Unipersonal) is 100% owned finance subsidiary of Banco Santander, S.A. that fully and unconditionally guarantees the preferred securities (not listed in United States). No other subsidiary of the Bank guarantees such securities.

The condensed financial statements of Santander Finance Capital, S.A. (Unipersonal), Santander Finance Preferred, S.A. (Unipersonal) and Santander International Preferred, S.A. (Sociedad Unipersonal) for the years ended December 31, 2009 and 2008 are the following:

SANTANDER FINANCE CAPITAL, S.A. (UNIPERSONAL)

Santander Finance Capital, S.A. (Unipersonal) was established in Spain on July 8, 2003.

The common stock of the company is wholly owned by Banco Santander, S.A.

Presented below are the condensed balance sheet, condensed statements of income and statements of changes in the stockholders’ equity for Santander Finance Capital, S.A. (Unipersonal), prepared in conformity with IFRS.

Balance sheets

	Thousands of Euros
SANTANDER FINANCE CAPITAL, S.A. (UNIPERSONAL)	2009			2008
Assets:
Cash		22,965			56,490
Deposits with Parent Bank		3,442,226			3,214,769
Accrual accounts		11,201			27,756
Other assets					—
Total Assets		3,476,392			3,299,015
Liabilities and stockholders’ equity:
LIABILITIES:
Public entities		4,409			1,567
Accrual accounts		10,043			26,153
Non-commercial debts		—			—
Commercial debts		74			40
Debts with Group companies		69			18
Provisions for taxes		—			—
Preferred securities		3,461,648			3,270,842
Total Liabilities		3,476,243			3,298,620
STOCKHOLDERS’ EQUITY:
Capital stock		151			151
Retained earnings		243			123
Net income		(245	)		121
Total Stockholders’ Equity		149			395
Total Liabilities and Stockholders’ Equity		3,476,392			3,299,015

F-212

Statement of income

	Thousands of Euros
SANTANDER FINANCE CAPITAL, S.A. (UNIPERSONAL)	2009			2008
Interest income		118,253			175,020
Interest expenses		(118,236	)		(174,770	)
Non interest expenses		(262	)		(77	)
Corporate income tax		—			(52	)
Net income / (loss)		(245	)		121

Statement of changes in stockholders’ equity

										Total
					Retained					Stockholders’
	Capital stock				Earnings		Net income			Equity
Changes in Stockholders’	Common
Equity	Shares		Thousands of Euros
Balance at January 1, 2008		1,505		151		70		53			274
2007 Income allocation		—		—		53
Net income 2008		—		—		—		121			121
Balance at December 31, 2008		1,505		151		123		121			395
2008 Income allocation		—		—		120		(121	)		(1	)
Net income 2009		—		—		—		(245	)		(245	)
Balance at December 31, 2009		1,505		151		243		(245	)		149

In October 2005, the board of directors authorized a capital increase of 903 shares of common stock with a €100 par value. This capital increase was fully subscribed and paid by Banco Santander, S.A.

After this capital increase, the capital stock of Santander Finance Capital S.A. (Unipersonal), as of December 31, 2005, amounted to 1,505 shares of common stock with a €100 par value, fully subscribed and paid by Banco Santander, S.A. (wholly owner of this company).

Preferred Securities

			Thousands of
Issuances	Issue Date		Euros at 12/31/09
Series V		04/12/2005		1,000,000
Series VI		03/18/2009		12,622
Series VII		03/18/2009		17,336
Series VIII		03/18/2009		313,745
Series IX		03/18/2009		153,700
Series X		06/30/2009		1,965,616
Total				3,463,019
Issuances expenses
Series V				(1,100	)
Series VI				(4	)
Series VII				(27	)
Series VIII				(103	)
Series IX				(50	)
Series X				(87	)
Total				(1,371	)
Total				3,461,648

F-213

• Series I: on October 3, 2003, Santander Finance Capital, S.A. (Unipersonal) issued 18,000,000 preference securities, at €25 par value. On April 7, 2009 the company redeemed the whole series.

• Series II: on February 18, 2004, Santander Finance Capital, S.A. (Unipersonal) issued 16,000,000 preference securities, at €25 par value. On March 31, 2009 the company redeemed the whole series.

• Series III: on July 30, 2004, Santander Finance Capital, S.A. (Unipersonal) issued 30,000,000 preference securities, at €25 par value. On August 17, 2009 the company redeemed the whole series.

• Series IV: on September 30, 2004, Santander Finance Capital, S.A. (Unipersonal) issued 27,200,000 preference securities, at €25 par value. On August 17, 2009 the company redeemed the whole series.

• Series V: on April 12, 2005, Santander Finance Capital, S.A. (Unipersonal) issued 40,000,000 preference securities, at €25 par value.

• Series VI: on March 18, 2009, Santander Finance Capital, S.A. (Unipersonal) issued 12,122 preference securities, at €1,500 par value.

• Series VII: on March 18, 2009, Santander Finance Capital, S.A. (Unipersonal) issued 333 preference securities, at €75,000 par value.

• Series VIII: on March 18, 2009, Santander Finance Capital, S.A. (Unipersonal) issued 313,745 preference securities, at €1,000 par value.

• Series IX: on March 18, 2009, Santander Finance Capital, S.A. (Unipersonal) issued 3,074 preference securities, at €50,000 par value.

• Series X: on June 30, 2009, Santander Finance Capital, S.A. (Unipersonal) issued 78,624,629 preference securities, at €25 par value.

• These issues are perpetual and can be redeemable at the option of the issuer, subject to the consent of the Bank of Spain, in whole or in part, at any time after five years from the issue date.

• All the issues of Santander Finance Capital, S.A. (Unipersonal) are guaranteed by Banco Santander, S.A.

SANTANDER FINANCE PREFERRED, S.A. (UNIPERSONAL)

Santander Finance Preferred, S.A. (Unipersonal) was established in Spain on February 27, 2004.

The common stock of the company is wholly owned by Banco Santander, S.A.

Presented below are the condensed balance sheet, condensed statements of income and statements of changes in the stockholders’ equity for Santander Finance Preferred, S.A. (Unipersonal), prepared in conformity with IFRS.

Balance sheets

	Thousands of Euros
SANTANDER FINANCE PREFERRED, S.A. (UNIPERSONAL)	2009		2008
Assets:
Cash		24,917		16,086
Deposits with Parent Bank		3,626,360		1,912,206
Accrual accounts		69,304		26,735
Total Assets		3,720,581		1,955,027
Liabilities and stockholders’ equity:
LIABILITIES:
Public entities		254		153
Accrual accounts		69,017		23,485
Commercial debts		25		36
Non-commercial debts		—		—
Deferred income		—		863
Debts with group companies		928,206		9
Provisions for taxes		—		—
Preferred securities		2,720,256		1,928,990
Total Liabilities		3,717,758		1,953,536
STOCKHOLDERS’ EQUITY:
Capital stock		151		151
Retained earnings		1,340		2,084
Net income		1,332		(744	)
Total Stockholders’ Equity		2,823		1,491
Total Liabilities and Stockholders’ Equity		3,720,581		1,955,027

F-214

Statement of income

	Thousands of Euros
SANTANDER FINANCE PREFERRED, S.A. (UNIPERSONAL)	2009			2008
Interest income		182,125			123,313
Interest expenses		(179,748	)		(122,172	)
Non interest income		—			—
Non interest expensive		(1,042	)		(1,885	)
Corporate income tax		(3	)		—
Net income / (loss)		1,332			(744	)

Statement of changes in stockholders’ equity

											Total
					Retained						Stockholders’
	Capital stock				Earnings			Net income			Equity
Changes in Stockholders’	Common
Equity	Shares		Thousands of Euros
Balance at January 1, 2008		1,505		151		421			1,663			2,235
2007 Income allocation		—		—		1,663			(1,663	)		—
Net income 2008		—		—		—			(744	)		(744	)
Balance at December 31, 2008		1,505		151		2,084			(744	)		1,491
2008 Income allocation		—		—		(744	)		744			—
Net income 2009		—		—		—			1,332			1,332
Balance at December 31, 2009		1,505		151		1,340			1,332			2,823

F-215

In October 2005, the board of directors authorized a capital increase of 903 shares of common stock with a €100 par value. This capital increase was fully subscribed and paid by Banco Santander, S.A.

After this capital increase, the capital stock of Santander Finance Preferred, S.A. (Unipersonal), as of December 31, 2005, amounted to 1,505 shares of common stock with a €100 par value, fully subscribed and paid by Banco Santander, S.A. (wholly owner of this company).

Preferred Securities

			Thousands of
	Issue Date		Euros at 12/31/09
Issuances
Series 1- $190,000		03/11/2004		131,889
Series 2- €300,000		09/30/2004		300,000
Series 3- €200,000		10/08/2004		200,000
Series 4- $500,000		11/21/2006		347,078
Series 5- $600,000		31/01/2007		416,493
Series 6- $350,000		05/03/2007		242,954
Series 7- £250,000		07/10/2007		281,500
Series 8- £679,400		07/27/2009		765,004
Series 9- €125,700		07/27/2009		125,700
Series 10- $825,110		09/29/2009		572,754
Series 11- $161,587		09/29/2009		112,166
				3,495,538
Issuances expenses
Series 1		—		—
Series 2		—		—
Series 3		—		—
Series 4		—		(2.988	)
Series 5		—		(3.792	)
Series 6		—		(109	)
Series 7		—		(45	)
Series 8		—		(114	)
Series 9		—		(114	)
Series 10		—		(119	)
Series 11		—		(119	)
				(7,400	)
Total				3,488,138

• Series 1: on March 11, 2004, Santander Finance Preferred, S.A. (Unipersonal) issued 7,600,000 preferred securities, at $25 par value.

• Series 2: on September 30, 2004, Santander Finance Preferred, S.A. (Unipersonal) issued 300,000 preferred securities, at €1,000 par value.

• Series 3: on October 8, 2004, Santander Finance Preferred, S.A. (Unipersonal) issued 200,000 preferred securities, at €1,000 par value.

• Series 4: on November 21, 2006 Santander Finance Preferred, S.A. (Unipersonal) issued 20,000,000 preferred securities, at €25 par value.

• Series 5: on January 31, 2007 Santander Finance Preferred, S.A. (Unipersonal) issued 24,000,000 preferred securities, at $25 par value.

• Series 6: on March 5, 2007 Santander Finance Preferred, S.A. (Unipersonal) issued 14,000,000 preferred securities, at $25 par value.

• Series 7: on July 10, 2007 Santander Finance Preferred, S.A. (Unipersonal) issued 5,000 preferred securities, at £50,000 par value.

• Series 8: on July 27, 2009, Santander Finance Preferred, S.A. (Unipersonal) issued 13,588 preferred securities, at £50,000 par value.

• Series 9: on July 27, 2009, Santander Finance Preferred, S.A. (Unipersonal) issued 2,514 preferred securities, at €50,000 par value.

• Series 10: on September 29, 2009, Santander Finance Preferred, S.A. (Unipersonal) issued 33,004,383 preferred securities, at $25 par value.

• Series 11: on September 29, 2009, Santander Finance Preferred, S.A. (Unipersonal) issued 161,587 preferred securities, at $1,000 par value.

• These issues are perpetual and can be redeemable at the option of the issuer, subject to the consent of the Bank of Spain, in whole or in part, at any time after five years from the issue date.

• All the issues of Santander Finance Preferred, S.A. (Unipersonal) are guaranteed by Banco Santander, S.A.

• On July 9, 2009, we published on the international markets offers to exchange issues of securities eligible to be included in capital issued by Santander and its subsidiaries. The exchange envisaged the delivery of new securities that meet the current market standards and regulatory requirements to be classified as equity at the consolidated Group level. For this purpose Santander Finance Preferred, S.A. (Unipersonal) issued Series 8, 9, 10 and 11 above.

F-216

SANTANDER INTERNATIONAL PREFERRED, S.A. (SOCIEDAD UNIPERSONAL)

Santander International Preferred, S.A. (Sociedad Unipersonal) was established in Spain on February 17, 2009.

The common stock of the company is wholly owned by Banco Santander, S.A.

Presented below are the condensed balance sheet, condensed statements of income and statements of changes in the stockholders’ equity for Santander International Preferred, S.A. (Sociedad Unipersonal), prepared in conformity with IFRS.

Balance sheets

	Thousands of Euros
SANTANDER INTERNATIONAL PREFERRED, S.A. (SOCIEDAD UNIPERSONAL)	2009
Assets:
Cash		225
Deposits with Parent Bank		689,271
Accrual accounts		10,904
Other current assets		4
Total Assets		700,404
Liabilities and stockholders’ equity:
LIABILITIES:
Public entities		7
Commercial debts		71
Accrual accounts		10,882
Preferred securities		689,401
Total Liabilities		700,361
STOCKHOLDERS’ EQUITY:
Capital stock		60
Net income		(17	)
Total Stockholders’ Equity		43
Total Liabilities and Stockholders’ Equity		700,404

Statement of income

	Thousands of Euros
SANTANDER INTERNATIONAL PREFERRED, S.A. (SOCIEDAD UNIPERSONAL)	2009
Interest income		11,078
Interest expenses		(11,066	)
Non interest income		2
Non interest expensive		(31	)
Corporate income tax		—
Net income / (loss)		(17	)

Statement of changes in stockholders’ equity

										Total
					Retained					Stockholders’
	Capital stock				Earnings		Net income			Equity
Changes in Stockholders’	Common
Equity	Shares		Thousands of Euros
Balance at February 17, 2009		—		—		—		—			—
Capital increase		—		60		—		—			60
Net income 2009		—		—		—		(17	)		(17	)
Balance at December 31, 2009		602		60		—		(17	)		43

F-217

At December 31, 2009, the capital stock of Santander International Preferred, S.A. (Sociedad Unipersonal) amounted to 602 shares of common stock with a €100 par value, fully subscribed and paid by Banco Santander, S.A. (wholly owner of this company).

Preferred Securities

			Thousands of
	Issue Date		Euros at 12/31/09
Issuances
Series 1 ($)		03/19/2009		680,961
Series 2 (€)		03/19/2009		8,582
				689,543
Issuances expenses				(142	)
Total				689,401

• Series 1: on March 19, 2009, Santander International Preferred, S.A. (Sociedad Unipersonal) issued 653,995 preferred securities, at $1,500 par value.

• Series 2: on March 19, 2009, Santander International Preferred, S.A. (Sociedad Unipersonal) issued 8,582 preferred securities, at €1,000 par value.

• These issues are perpetual and can be redeemable at the option of the issuer, subject to the consent of the Bank of Spain, in whole or in part, at any time after ten years from the issue date.

• All the issues of Santander Finance Preferred, S.A. (Sociedad Unipersonal) are guaranteed by Banco Santander, S.A.

55.3 Acquisition of Sovereign Bancorp, Inc (“Sovereign”).

On May 31, 2006, Santander acquired shares of common stock of Sovereign equal to 19.8% of Sovereign’s outstanding shares after giving effect to such purchase. The purchase price was $27 per share ($25.65 post-stock dividend), for an aggregate purchase price of $2.4 billion and generated goodwill of $760 million.

On October 13, 2008, Banco Santander, S.A. (Santander) and Sovereign Bancorp Inc., the parent of Sovereign Bank, announced that Santander would acquire Sovereign through a share exchange. At the date of the announcement Santander held 24.35% of the outstanding ordinary shares of Sovereign.

Under the terms of the definitive transaction agreement, which was unanimously approved by the non-Santander directors of Sovereign and by the Executive Committee of Santander, Sovereign shareholders will receive 0.2924 Banco Santander American Depository Shares (ADSs) for every 1 ordinary Sovereign share they own (or 1 Banco Santander ADS for every 3.42 Sovereign shares). Based on the closing price of Santander ADSs on Friday, October 10, 2008, the transaction had an aggregate value of approximately USD 1,900 million (€1,400 million), or USD 3.81 per share, and met Santander’s criteria for acquisitions, both strategically, by significantly enhancing the geographical diversification of the Group, and financially, with a projected net profit for Sovereign of USD 750 million in 2011.

On January 26, 2009, Banco Santander held an Extraordinary General Meeting at which the shareholders approved the capital increase to cater for the acquisition of 75.65% of the US entity Sovereign Bancorp Inc., which was agreed upon in October 2008. The resolution was adopted with the vote of 96.9% of the capital present in person or by proxy.

On January 28, 2009, the shareholders at the General Meeting of Sovereign approved the acquisition.

On January 30, 2009, the acquisition of Sovereign was completed and Sovereign became a wholly-owned subsidiary of the Santander Group. The transaction involved the issue of 0.3206 ordinary shares of Banco Santander for each ordinary share of Sovereign (equivalent to the approved exchange of 0.2924 ADSs adjusted for the dilution arising from the capital increase carried out in December 2008). To this end, 161,546,320 ordinary shares were issued for a cash amount (par value plus share premium) of €1,302,063,339.20.

Under SEC Regulation S-X, Sovereign was an equity method investee significant to the Group in 2008 and thus we present below its summarized balance sheets as of December 31, 2008 and 2007 and income statements for the fiscal years ended December 31, 2008 and 2007. At December 31, 2009 Sovereign was fully consolidated in Santander Group.

On February 1, 2010 Sovereign Bancorp changed its name to Santander Holdings USA, Inc.

The financial information for 2008 and 2007 disclosed below, differs for those years from that included in our 2008 Form 20F due to reclassifications for comparative purposes reported in Sovereign’s form 10-K as of December 31, 2009. Such reclassifications bear no impact on our financial statements for any of the years 2007 and 2008.

F-218

CONSOLIDATED BALANCE SHEET — SOVEREIGN BANCORP, INC.	2008			2007
	(Thousands of euros)
Assets
Cash and amounts due from depository institutions		2,697,796			2,126,737
Investment securities available for sale		6,683,437			9,470,720
Investment securities held to maturity		—			—
Other investments		516,470			815,532
Net loans held for investment		39,117,012			38,536,772
Loans held for sale		235,203			372,094
Premises and equipment		395,308			381,993
Accrued interest receivable		180,795			238,118
Goodwill		2,465,676			2,327,455
Core deposits and other intangibles		192,909			252,779
Bank owned life insurance		1,327,648			1,218,734
Other assets		1,583,067			1,827,435
Total assets		55,395,321			57,568,369
Liabilities
Deposits and other customer accounts		34,805,327			33,907,958
Borrowings and other debt obligations		15,063,724			17,846,961
Advance payments by borrowers for taxes and insurance		66,986			56,444
Other liabilities		1,437,789			1,007,108
Total liabilities		51,373,826			52,818,471
Minority interest-preferred securities of subsidiaries		—			—
Stockholders’ Equity
Preferred stock		140,436			132,766
Common stock		5,546,289			4,276,593
Warrants and employee stock options issued		251,902			236,645
Unallocated common stock held by Employee Stock Ownership Plan		—			—
Treasury stock		(6,739	)		(13,486	)
Accumulated other comprehensive loss		(564,642	)		(221,543	)
Retained earnings		(1,345,751	)		338,923
Total Stockholders’ Equity		4,021,495			4,749,898
Total Liabilities and Stockholders’ Equity		55,395,321			57,568,369

CONSOLIDATED INCOME STATEMENT — SOVEREIGN BANCORP, INC.	2008			2007
	(Thousands of euros)
Interest income		2,679,882			3,402,988
Interest expense		(1,394,001	)		(2,055,868	)
Provision for credit losses		(622,297	)		(297,958	)
Interest income / (Charges) after provision for credit losses		663,584			1,049,161
Fees and other income		434,746			387,895
Net (loss)/gain on investment securities		(994,022	)		(128,888	)
Non-interest income		(559,277	)		259,008
General and administrative expenses		(1,013,917	)		(977,037	)
Other expenses		(206,312	)		(1,361,408	)
Income before income taxes		(1,115,922	)		(1,030,277	)
Income tax benefit/(provision)		(494,269	)		44,179
Net income		(1,610,191	)		(986,098	)

F-219

Exhibit I
Subsidiaries of Banco Santander, S.A. (1)

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
2 & 3 Triton Limited (m)	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		125			7			12
A & L CF (Guernsey) Limited (n)	Guernsey		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF (Jersey) Limited (n)	Jersey		0.00	%		100.00	%		100.00	%	LEASING		88			1			85
A & L CF (Jersey) No.2 Limited (n)	Jersey		0.00	%		100.00	%		100.00	%	LEASING		93			11			89
A & L CF December (1) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		13			0			0
A & L CF December (10) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		35			0			32
A & L CF December (11) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		12			0			10
A & L CF December (2) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		1			(2	)		0
A & L CF June (1) Limited (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		3			0			1
A & L CF June (2) Limited (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		1			0			0
A & L CF June (3) Limited (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		(1	)		0			0
A & L CF June (4) Limited (j) (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF June (5) Limited (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF June (6) Limited (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF June (7) Limited (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF June (8) Limited (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF March (1) Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		(1	)		1			0
A & L CF March (3) Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF March (4) Limited (j) (d)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		5			0			3
A & L CF March (5) Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF March (6) Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF March (7) Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF March (8) Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF March (9) Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF September (1) Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		3			0			0
A & L CF September (2) Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF September (3) Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
A & L CF September (4) Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		(3	)		0			0
A & L CF September (5) Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		2			0			0
A & L Direct Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
A & L Insurance Services plc (j)	United Kingdom		0.00	%		100.00	%		100.00	%	INSURANCE		0			0			0
A & L Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
A N (123) plc	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		960			16			964
Abbey Business Services (India) Private Limited (d)	India		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		1			0			0
Abbey Covered Bonds (Holdings) Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Abbey Covered Bonds (LM) Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Abbey Covered Bonds LLP	United Kingdom		—			(b	)		—		SECURITIZATION		(548	)		(33	)		0
Abbey National (America) Holdings Inc.	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		31			0			31
Abbey National (America) Holdings Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		31			0			26
Abbey National (CF Trustee) Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		0			0			0
Abbey National (Gibraltar) Limited	Gibraltar		0.00	%		100.00	%		100.00	%	BROKER-DEALER		6			0			5
Abbey National (Holdings) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		21			0			18
Abbey National 1986 Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		7			0			5

F-220

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Abbey National Alpha Investments (d)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		2			0			1
Abbey National American Investments Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		291			2			285
Abbey National Baker Street Investments	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		4			0			4
Abbey National Beta Investments Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		130			(1	)		96
Abbey National Business Cashflow Finance Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FACTORING		6			0			5
Abbey National Business Equipment Leasing Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		1			0			6
Abbey National Business Office Equipment Leasing Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		5			0			0
Abbey National Capital LP I	United States		—			(b	)		—		FINANCE		0			0			0
Abbey National Charitable Trust Limited	United Kingdom		—			(b	)		—		SECURITIZATION		10			1			0
Abbey National Financial Investments 3 B.V.	Netherlands		0.00	%		100.00	%		100.00	%	FINANCE		5			(1	)		1
Abbey National Financial Investments 4 B.V.	Netherlands		0.00	%		100.00	%		100.00	%	FINANCE		298			3			282
Abbey National General Insurance Services Limited	United Kingdom		0.00	%		100.00	%		100.00	%	ADVISORY SERVICES		(43	)		0			0
Abbey National GP (Jersey) Limited	Jersey		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Abbey National Group Pension Schemes Trustees Limited (d)	United Kingdom		0.00	%		100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		0			0			0
Abbey National Guarantee Company	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		4			0			3
Abbey National Homes Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		(43	)		0			0
Abbey National International Limited	Jersey		0.00	%		100.00	%		100.00	%	BANKING		293			23			168
Abbey National Investments	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		144			1			120
Abbey National Legacy Holdings Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		152			(6	)		0
Abbey National Legacy Leasing Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		85			0			0
Abbey National Legacy Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		310			2			0
Abbey National Nominees Limited	United Kingdom		0.00	%		100.00	%		100.00	%	BROKER-DEALER		0			0			0
Abbey National North America Holdings Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		0			0			0
Abbey National North America LLC	United States		0.00	%		100.00	%		100.00	%	FINANCE		1			(1	)		0
Abbey National Pension (Escrow Services) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	PENSION FUND MANAGEMENT COMPANY		7			11			0
Abbey National PEP & ISA Managers Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FUND AND PORTFOLIO MANAGER		45			2			12
Abbey National Personal Pensions Trustee Limited	United Kingdom		0.00	%		100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		0			0			0
Abbey National plc	United Kingdom		100.00	%		0.00	%		100.00	%	BANKING		6,642			818			14,968
Abbey National PLP (UK) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Abbey National Property Investments	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		368			14			156
Abbey National Property Services Limited	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		(15	)		0			0
Abbey National Secretariat Services Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FUND AND PORTFOLIO MANAGER		0			0			0
Abbey National Securities Inc.	United States		0.00	%		100.00	%		100.00	%	BROKER-DEALER		40			0			31
Abbey National September Leasing (3) Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		(9	)		0			0
Abbey National Shelf Co. (4) Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	INACTIVE		0			0			0
Abbey National Sterling Capital plc	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		3			0			0
Abbey National Treasury International (IOM) Limited (j)	Isle of Man		0.00	%		100.00	%		100.00	%	BANKING		4			0			0
Abbey National Treasury Investments	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		307			2			207
Abbey National Treasury Services (Transport Holdings) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		0			0			0
Abbey National Treasury Services Investments Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		951			3			845
Abbey National Treasury Services Overseas Holdings	United Kingdom		0.00	%		99.99	%		99.99	%	HOLDING COMPANY		1,389			252			1,148
Abbey National Treasury Services plc	United Kingdom		0.00	%		100.00	%		100.00	%	BANKING		3,272			621			3,208
Abbey National UK Investments	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		811			15			683
Abbey Stockbrokers (Nominees) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	BROKER-DEALER		0			0			0
Abbey Stockbrokers Limited	United Kingdom		0.00	%		100.00	%		100.00	%	BROKER-DEALER		6			0			7
ABN AMRO Administradora de Cartões de Crédito Ltda. (l)	Brazil		0.00	%		0.00	%		0.00	%	CARDS		—			—			—

F-221

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
ABN AMRO Brasil dois Participações S.A. (l)	Brazil		0.00	%		0.00	%		0.00	%	HOLDING COMPANY		—			—			—
ABN AMRO Brasil Partipações e Investimentos S.A. (l)	Brazil		0.00	%		0.00	%		0.00	%	HOLDING COMPANY		—			—			—
ABN AMRO Real Corretora de Câmbio e Valores Mobiliários S.A.	Brazil		0.00	%		83.55	%		100.00	%	BROKER-DEALER		15			1			14
ABN AMRO Securities (Brasil) Corretora de Valores Mobiliários S.A.	Brazil		0.00	%		83.55	%		100.00	%	BROKER-DEALER		25			2			21
Administración de Bancos Latinoamericanos Santander, S.L.	Spain		24.11	%		75.89	%		100.00	%	HOLDING COMPANY		541			10			156
AEH Purchasing, Ltd.	Ireland		—			(b	)		—		SECURITIZATION		0			0			0
Afisa S.A.	Chile		0.00	%		100.00	%		100.00	%	FUND MANAGEMENT COMPANY		7			1			3
Agencia de Seguros Santander, Ltda.	Colombia		0.00	%		100.00	%		100.00	%	INSURANCE		1			0			2
Agrícola Tabaibal, S.A.	Spain		0.00	%		66.56	%		100.00	%	AGRICULTURE AND LIVESTOCK		0			0			0
Agropecuaria Tapirapé S.A.	Brazil		0.00	%		82.77	%		99.07	%	AGRICULTURE AND LIVESTOCK		3			0			0
Aguas Araucanía S.A.	Chile		0.00	%		100.00	%		100.00	%	WATER TREATMENT AND DISTRIBUTION		54			7			32
Aguas del Altiplano S.A.	Chile		0.00	%		100.00	%		100.00	%	WATER TREATMENT AND DISTRIBUTION		37			11			38
Aguas Magallanes S.A.	Chile		0.00	%		100.00	%		100.00	%	WATER TREATMENT AND DISTRIBUTION		17			6			18
Aguas Nuevas S.A.	Chile		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		75			23			302
AKB Marketing Services Sp. Z.o.o.	Poland		0.00	%		100.00	%		100.00	%	MARKETING		6			0			0
Aktúa Soluciones Financieras, S.A.	Spain		0.00	%		89.72	%		100.00	%	FINANCIAL SERVICES		1			6			0
Alcaidesa Golf, S.L.	Spain		0.00	%		44.87	%		50.01	%	SPORTS OPERATIONS		5			(1	)		3
Alcaidesa Holding, S.A. (consolidated)	Spain		0.00	%		44.87	%		50.01	%	PROPERTY		71			(4	)		28
Alcaidesa Inmobiliaria, S.A.	Spain		0.00	%		44.87	%		50.01	%	PROPERTY		64			(2	)		15
Alcaidesa Servicios, S.A.	Spain		0.00	%		44.87	%		50.01	%	SERVICES		9			0			4
Alce Tenedora, S.L.	Spain		99.99	%		0.01	%		100.00	%	SECURITIES INVESTMENT		(22	)		1			0
ALCF Investments Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Aljarafe Golf, S.A.	Spain		0.00	%		80.22	%		89.41	%	PROPERTY		14			0			1
Aljardi SGPS, Lda.	Portugal		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		1,382			4			1,148
Alliance & Leicester (Europe) Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester (Holdings) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		0			0			0
Alliance & Leicester (Isle of Man) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	BANKING		6			0			6
Alliance & Leicester (Jersey) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		9			0			0
Alliance & Leicester Cash Solutions Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		(23	)		0			0
Alliance & Leicester Commercial Bank plc	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		25			0			25
Alliance & Leicester Commercial Finance (Holdings) plc	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		44			0			77
Alliance & Leicester Commercial Finance plc	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		79			24			163
Alliance & Leicester Covered Bonds LLP	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Alliance & Leicester Covered Bonds (LM) Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Alliance & Leicester Direct Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Employee Share Scheme Trustees Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Equity Investments (Guarantee) Limited	United Kingdom		—			(b	)		—		FINANCE		0			0			0
Alliance & Leicester Estate Agents (Holdings) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		0			0			0
Alliance & Leicester Estate Agents (Mortgage & Finance) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Estates Limited	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		6			0			0
Alliance & Leicester Finance Company Limited (j) (n)	Cayman Islands		0.00	%		100.00	%		100.00	%	FINANCE		14			(8	)		0
Alliance & Leicester Financing plc (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		7			0			7
Alliance & Leicester Independent Financial Advisers Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester International Holdings Limited	Isle of Man		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		29			56			29
Alliance & Leicester International Limited	Isle of Man		0.00	%		100.00	%		100.00	%	BANKING		204			(9	)		29

F-222

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Alliance & Leicester Investment (Derivatives No 3) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		21			1			16
Alliance & Leicester Investment (Derivatives) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Investment (No 3) LLP	United Kingdom		—			(b	)		—		FINANCE		24			0			0
Alliance & Leicester Investment (No 4) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		10			(1	)		11
Alliance & Leicester Investments (Derivatives No.2) Limited (j) (n)	Jersey		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Investments (Jersey) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Investments (No 2) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		260			1			254
Alliance & Leicester Investments Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		486			10			450
Alliance & Leicester LM Holdings Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Alliance & Leicester Mortgage Loans Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester North America (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Personal Finance Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		(59	)		(189	)		0
Alliance & Leicester plc	United Kingdom		0.00	%		100.00	%		100.00	%	BANKING		1,345			(128	)		2,210
Alliance & Leicester Print Services Limited	United Kingdom		0.00	%		100.00	%		100.00	%	SERVICES		3			0			0
Alliance & Leicester QUEST Trustee Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Share Incentive Plan Trustee Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Share Ownership Trust Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Syndicated Loans Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance & Leicester Trade Services Limited (f) (j)	Hong Kong		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
Alliance & Leicester Unit Trust Managers Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FUND AND PORTFOLIO MANAGER		9			0			5
Alliance Bank (U.K) Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Bank Limited	United Kingdom		100.00	%		0.00	%		100.00	%	FINANCE		0			0			0
Alliance Business Bank Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Business Banking Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Business Finance Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Cash Solutions Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Commercial Bank Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Commercial Banking Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Corporate Banking Services Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Corporate Services Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		9			0			0
Alliance Estate Agents Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		0			0			0
Alliance Group Public Limited Company (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Life Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Alliance Mutual plc (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Almacenadora Serfin, S.A. De C.V.	Mexico		0.00	%		73.99	%		98.71	%	WAREHOUSING		1			0			1
Almacenadora Somex, S.A. De C.V.	Mexico		0.00	%		72.88	%		97.24	%	WAREHOUSING		7			0			1
Altamira Santander Real Estate, S.A.	Spain		93.62	%		6.38	%		100.00	%	PROPERTY		20			(425	)		0
Andaluza de Inversiones, S.A.	Spain		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		44			1			27
ANDSH Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		3			0			2
ANFP (US) LLC	United States		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
ANITCO Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		0			0			0
Aquanima Brasil Ltda.	Brazil		0.00	%		99.43	%		100.00	%	e-COMMERCE		0			1			0
Aquanima Chile S.A.	Chile		0.00	%		99.43	%		100.00	%	e-COMMERCE		1			0			0
Aquanima México S. de R.L. de C.V.	Mexico		0.00	%		99.43	%		100.00	%	e-COMMERCE		1			0			1
Aquanima S.A.	Argentina		0.00	%		99.43	%		100.00	%	SERVICES		0			0			0
Argenline, S.A.	Uruguay		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Asesoría Estratega, S.C.	Mexico		0.00	%		85.00	%		100.00	%	SERVICES		0			0			0
Aurum S.A.	Chile		0.72	%		99.28	%		100.00	%	HOLDING COMPANY		2			3			68
Ausant Holding Gesellschaft m.b.H.	Austria		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		9			0			10

F-223

												Millions of euros (a)
								% of									Amount of
		% of Ownership Held by the Bank						Voting				Capital and		Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves		for the Year			Interest
Aviación Intercontinental, A.I.E.	Spain		99.99	%		0.01	%		100.00	%	LEASING		16		0			16
Aviación Real, A.I.E.	Spain		99.99	%		0.01	%		100.00	%	LEASING		7		(1	)		11
Aviación Regional Cántabra, A.I.E.	Spain		73.58	%		0.00	%		73.58	%	LEASING		29		2			22
Aviación Tritón, A.I.E.	Spain		99.99	%		0.01	%		100.00	%	LEASING		9		0			9
Aymoré Crédito, Financiamento e Investimento S.A.	Brazil		0.00	%		83.55	%		100.00	%	FINANCE		248		25			252
Bajondillo, S.A.	Spain		0.00	%		89.72	%		100.00	%	PROPERTY		0		0			0
Baker Street Risk and Insurance (Guernsey) Limited (e)	Guernsey		0.00	%		100.00	%		100.00	%	INSURANCE		14		2			2
Banbou S.A.R.L.	France		0.00	%		90.00	%		100.00	%	HOLDING COMPANY		0		0			0
BANBY PRO S.C.I.	France		0.00	%		90.00	%		100.00	%	PROPERTY		54		(4	)		43
BANBY S.A.S.	France		0.00	%		90.00	%		90.00	%	PROPERTY		52		(4	)		47
Banco ABN AMRO Real S.A. (l)	Brazil		0.00	%		0.00	%		0.00	%	BANKING		—		—			—
Banco Alicantino de Comercio, S.A.	Spain		0.00	%		89.72	%		100.00	%	BANKING		9		0			8
Banco Bandepe S.A.	Brazil		0.00	%		83.55	%		100.00	%	BANKING		1,460		139			1,131
Banco Banif, S.A.	Spain		100.00	%		0.00	%		100.00	%	BANKING		377		35			184
Banco Comercial e de Investimento Sudameris S.A. (l)	Brazil		0.00	%		0.00	%		0.00	%	BANKING		—		—			—
Banco de Albacete, S.A.	Spain		100.00	%		0.00	%		100.00	%	BANKING		12		0			9
Banco de Asunción, S.A. (j)	Paraguay		0.00	%		99.33	%		99.33	%	BANKING		1		0			33
Banco Español de Crédito, S.A.	Spain		88.65	%		1.07	%		89.72	%	BANKING		4,619		504			1,289
Banco Madesant — Sociedade Unipessoal, S.A.	Portugal		0.00	%		100.00	%		100.00	%	BANKING		1,287		52			1,159
Banco Santander — Chile	Chile		0.00	%		76.74	%		76.91	%	BANKING		1,856		590			1,159
Banco Santander (Brasil) S.A.	Brazil		0.00	%		83.55	%		83.55	%	BANKING		25,306		389			9,995
Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander	Mexico		0.00	%		74.95	%		99.99	%	BANKING		3,164		591			1,586
Banco Santander (Panamá), S.A.	Panama		0.00	%		100.00	%		100.00	%	BANKING		7		0			7
Banco Santander (Suisse) SA	Switzerland		0.00	%		100.00	%		100.00	%	BANKING		480		(310	)		325
Banco Santander Bahamas International Limited	Bahamas		0.00	%		100.00	%		100.00	%	BANKING		1,233		61			785
Banco Santander Colombia, S.A.	Colombia		0.00	%		97.85	%		97.85	%	BANKING		191		28			481
Banco Santander Consumer Portugal, S.A.	Portugal		0.00	%		100.00	%		100.00	%	BANKING		110		10			240
Banco Santander International	United States		95.88	%		4.12	%		100.00	%	BANKING		507		(143	)		383
Banco Santander Perú S.A.	Peru		99.00	%		1.00	%		100.00	%	BANKING		19		0			18
Banco Santander Puerto Rico	Puerto Rico		0.00	%		90.59	%		100.00	%	BANKING		427		18			351
Banco Santander Río S.A.	Argentina		8.23	%		91.07	%		99.30	%	BANKING		349		213			275
Banco Santander Totta, S.A.	Portugal		0.00	%		99.72	%		99.86	%	BANKING		1,650		439			2,343
Banco Santander, S.A.	Uruguay		90.93	%		9.07	%		100.00	%	BANKING		250		41			203
Banesto Banca Privada Gestión, S.A. S.G.I.I.C.	Spain		0.00	%		89.72	%		100.00	%	FUND MANAGEMENT COMPANY		2		0			2
Banesto Banca Privada Inversiones SICAV, S.A.	Spain		0.00	%		61.44	%		68.48	%	OPEN-END INVESTMENT COMPANY		8		0			3
Banesto Banco de Emisiones, S.A.	Spain		0.00	%		89.72	%		100.00	%	BANKING		101		1			87
Banesto Bolsa, S.A., Sdad. Valores y Bolsa	Spain		0.00	%		89.72	%		100.00	%	BROKER-DEALER		110		2			31
Banesto Financial Products, Plc.	Ireland		0.00	%		89.72	%		100.00	%	FINANCE		0		0			0
Banesto Renting, S.A.	Spain		0.00	%		89.72	%		100.00	%	FINANCE		10		0			2
Banesto Securities, Inc.	United States		0.00	%		89.72	%		100.00	%	FINANCE		3		0			2
Banif Gestión, S.A., S.G.I.I.C.	Spain		0.00	%		97.94	%		100.00	%	FUND MANAGEMENT COMPANY		25		0			15
Bansa Santander, S.A.	Chile		0.00	%		100.00	%		100.00	%	PROPERTY		4		(1	)		30
Bansamex, S.A.	Spain		50.00	%		0.00	%		50.00	%	CARDS		5		1			1
Beacon Abstract, L.P.	United States		0.00	%		70.00	%		70.00	%	INSURANCE		0		1			0
Bel Canto SICAV Erodiade (c)	Luxembourg		0.00	%		100.00	%		100.00	%	OPEN-END INVESTMENT COMPANY		1		0			1
Beta Cero, S.A.	Spain		0.00	%		78.95	%		88.00	%	FINANCE		0		0			0

F-224

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Billpay Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Bracken Securities Holdings Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Bracken Securities Option Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Bracken Securities plc	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Bradford & Bingley International Limited	Isle of Man		0.00	%		100.00	%		100.00	%	BANKING		242			14			236
Brazil Foreign Diversified Payment Rights Finance Company	Cayman Islands		—			(b	)		—		SECURITIZATION		0			0			0
Brettwood Limited (j)	Jersey		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
BRS Investments, S.A.	Argentina		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		24			6			77
BSN — Banco Santander de Negocios Portugal, S.A.	Portugal		0.00	%		99.86	%		100.00	%	BANKING		84			18			28
BST International Bank, Inc.	Puerto Rico		0.00	%		99.72	%		100.00	%	BANKING		5			16			3
CA Premier Banking Limited	United Kingdom		0.00	%		100.00	%		100.00	%	BANKING		5			0			5
Caja de Emisiones con Garantía de Anualidades Debidas por el Estado, S.A.	Spain		0.00	%		56.41	%		62.87	%	FINANCE		0			0			0
Cántabra de Inversiones, S.A.	Spain		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		53			(71	)		170
Cantabric Financing LLC.	United States		—			(b	)		—		SECURITIZATION		0			0			0
Cantabric Financing, Plc.	Ireland		—			(b	)		—		SECURITIZATION		0			0			0
Cántabro Catalana de Inversiones, S.A.	Spain		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		187			2			140
Capital Riesgo Global, SCR de Régimen Simplificado, S.A.	Spain		91.77	%		8.23	%		100.00	%	VENTURE CAPITAL COMPANY		532			6			482
Capital Street GP	Cayman Islands		—			(b	)		—		HOLDING COMPANY		0			0			0
Capital Street LP (o)	Cayman Islands		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		15			38			0
Capital Street S.A.	Luxembourg		0.00	%		100.00	%		100.00	%	FINANCE		(1	)		0			0
Carfax (Guernsey) Limited (n)	Guernsey		0.00	%		100.00	%		100.00	%	INSURANCE BROKERAGE		25			0			23
Carlton Park Developments Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		0			0			0
Carlton Park Properties Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		0			0			0
Carlton Park Property (Holdings) Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		0			0			0
Carpe Diem Salud, S.L.	Spain		100.00	%		0.00	%		100.00	%	SECURITIES INVESTMENT		0			0			0
Cartera Mobiliaria, S.A., SICAV	Spain		0.00	%		80.05	%		92.46	%	SECURITIES INVESTMENT		617			26			224
Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander	Mexico		0.00	%		74.94	%		99.97	%	BROKER-DEALER		38			12			24
Cater Allen Holdings Limited	United Kingdom		0.00	%		99.99	%		100.00	%	HOLDING COMPANY		119			223			97
Cater Allen International Limited	United Kingdom		0.00	%		99.99	%		100.00	%	BROKER-DEALER		446			155			133
Cater Allen Limited	United Kingdom		0.00	%		100.00	%		100.00	%	BANKING		245			26			251
Cater Allen Lloyd’s Holdings Limited	United Kingdom		0.00	%		99.99	%		100.00	%	HOLDING COMPANY		(10	)		0			0
Cater Allen Pensions Limited	United Kingdom		0.00	%		100.00	%		100.00	%	PENSION FUND MANAGEMENT COMPANY		0			0			0
Cater Allen Syndicate Management Limited	United Kingdom		0.00	%		99.99	%		100.00	%	ADVISORY SERVICES		2			0			0
Cater Tyndall Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		32			(1	)		150
Catmoll, S.L.	Spain		100.00	%		0.00	%		100.00	%	CONCESSION HOLDER		9			0			6
Certidesa, S.L.	Spain		0.00	%		100.00	%		100.00	%	LEASE OF AIRCRAFT		(13	)		(5	)		0
Chatsworth Securities (LM) Holdings Limited (j) (g)	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Chatsworth Securities (LM) Limited (j) (g)	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Chatsworth Securities LLP (j) (g)	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Clínica Sear, S.A.	Spain		0.00	%		45.38	%		50.58	%	HEALTHCARE		5			0			1
Club Zaudin Golf, S.A.	Spain		0.00	%		76.30	%		95.11	%	SERVICES		15			0			12
Comercializadora Al-fin, S.A. de C.V.	Mexico		0.00	%		85.00	%		100.00	%	RETAIL TRADE		0			0			0
Companhia Real de Valores Distribuidora de Títulos e Valores Mobiliários S.A.	Brazil		0.00	%		83.55	%		100.00	%	ASSET MANAGEMENT		30			3			25
Costa Canaria de Veneguera, S.A.	Spain		0.00	%		66.56	%		74.19	%	PROPERTY		14			0			9
Crawfall, S.A.	Uruguay		100.00	%		0.00	%		100.00	%	SERVICES		5			(8	)		0
Credicenter Empreendimentos e Promoçôes Ltda. (l)	Brazil		0.00	%		0.00	%		0.00	%	FINANCIAL SERVICES		—			—			—

F-225

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Credisol, S.A.	Uruguay		0.00	%		100.00	%		100.00	%	CARDS		0			0			6
Crefisa, Inc.	Puerto Rico		100.00	%		0.00	%		100.00	%	FINANCE		428			(19	)		387
Cruzeiro Factoring Sociedade de Fomento Comercial Ltda. (l)	Brazil		0.00	%		0.00	%		0.00	%	FACTORING		—			—			—
Darep Limited	Ireland		0.00	%		100.00	%		100.00	%	REINSURANCE		5			0			4
Depósitos Portuarios, S.A.	Spain		0.00	%		89.72	%		100.00	%	SERVICES		0			0			0
Digital Procurement Holdings N.V.	Netherlands		0.00	%		99.43	%		100.00	%	HOLDING COMPANY		4			(1	)		1
Diners Club Spain, S.A.	Spain		75.00	%		0.00	%		75.00	%	CARDS		9			1			9
Dirección Estratega, S.C.	Mexico		0.00	%		85.00	%		100.00	%	SERVICES		0			0			0
Drive Auto Receivables Trust 2006-1	United States		—			(b	)		—		SECURITIZATION		0			0			0
Drive Auto Receivables Trust 2006-2	United States		—			(b	)		—		SECURITIZATION		0			0			0
Drive Consumer GP LLC	United States		0.00	%		91.50	%		100.00	%	INACTIVE		0			0			0
Drive Consumer LP	United States		0.00	%		91.50	%		100.00	%	INACTIVE		25			0			25
Drive Receivables Corp. 11	United States		0.00	%		91.50	%		100.00	%	SECURITIZATION		0			0			0
Drive Receivables Corp. 12	United States		0.00	%		91.50	%		100.00	%	SECURITIZATION		0			0			0
Drive Residual Holdings GP LLC	United States		0.00	%		91.50	%		100.00	%	HOLDING COMPANY		0			0			0
Drive Residual Holdings LP	United States		0.00	%		91.50	%		100.00	%	AUXILIARY		0			0			0
Drive Trademark Holdings LP	United States		0.00	%		91.50	%		100.00	%	AUXILIARY		0			0			0
Drive Warehouse GP LLC	United States		0.00	%		91.50	%		100.00	%	HOLDING COMPANY		0			0			0
Drive Warehouse LP	United States		0.00	%		91.50	%		100.00	%	AUXILIARY		136			324			0
Dudebasa, S.A.	Spain		0.00	%		89.72	%		100.00	%	FINANCE		32			0			22
Efearvi, S.A.	Spain		0.00	%		89.72	%		100.00	%	PROPERTY		(1	)		0			0
Elerco, S.A.	Spain		0.00	%		89.72	%		100.00	%	PROPERTY		206			(1	)		192
Empresas Banesto 1, Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Empresas Banesto 2, Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Empresas Banesto 3, Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Empresas Banesto 4, Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Enernuevas S.A.	Chile		0.00	%		99.90	%		99.90	%	ELECTRICITY		0			0			0
Euro Alliance Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Eurobank Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Eurogiro Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Evansgrove Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Fábricas Agrupadas de Muñecas de Onil, S.A. (consolidated) (g)	Spain		0.00	%		95.05	%		95.05	%	HOLDING COMPANY		9			(27	)		0
FFB — Participaçoes e Serviços, Sociedade Unipessoal, S.A.	Portugal		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		3,869			(202	)		1,020
Fideicomiso 100740 SLPT	Mexico		0.00	%		74.95	%		100.00	%	FINANCE		43			4			23
Fideicomiso Financiero Río Personales I	Argentina		—			(b	)		—		SECURITIES		5			1			0
Fideicomiso GFSSLPT Banca Serfín, S.A.	Mexico		0.00	%		74.95	%		100.00	%	FINANCE		40			2			19
Fideicomiso Super Letras Hipotecarias Clase I	Argentina		—			(b	)		—		SECURITIES		1			0			0
Fideicomiso Super Letras Hipotecarias Clase II	Argentina		—			(b	)		—		SECURITIES		3			0			0
Financiación Banesto 1, Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Financiera Alcanza, S.A. de C.V., Sociedad Financiera de Objeto Múltiple, Entidad Regulada	Mexico		0.00	%		85.00	%		100.00	%	FINANCE		11			(11	)		0
First Essex Capital Trust I	United States		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
First National Motor Business Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
First National Motor Contracts Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
First National Motor Facilities Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
First National Motor Finance Limited	United Kingdom		0.00	%		100.00	%		100.00	%	ADVISORY SERVICES		0			0			0
First National Motor Leasing Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
First National Motor plc	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		(5	)		5			0
First National Tricity Finance Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		206			1			115
Fomento e Inversiones, S.A.	Spain		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		44			(9	)		17
Fondo de Titulización de Activos Santander 1	Spain		—			(b	)		—		SECURITIZATION		0			0			0

F-226

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Fondo de Titulización de Activos Santander 2	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización de Activos Santander Empresas 1	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización de Activos Santander Empresas 2	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización de Activos Santander Empresas 3	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización de Activos Santander Empresas 4	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización de Activos Santander Empresas 5	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización de Activos Santander Empresas 6	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización de Activos Santander Empresas 7	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización de Activos Santander Público 1	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización Santander Financiación 1	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización Santander Financiación 2	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización Santander Financiación 3	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondo de Titulización Santander Financiación 4	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Fondos Santander, S.A. Administradora de Fondos de Inversión	Uruguay		0.00	%		100.00	%		100.00	%	FUND MANAGEMENT COMPANY		0			0			0
Formación Integral, S.A.	Spain		0.00	%		89.72	%		100.00	%	TRAINING		1			0			1
Fortensky Trading, Ltd.	Ireland		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Fosse (Master Issuer) Holdings Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Fosse Funding (No.1) Limited	United Kingdom		—			(b	)		—		SECURITIZATION		(84	)		134			0
Fosse Master Issuer PLC	United Kingdom		—			(b	)		—		SECURITIZATION		(2	)		7			0
Fosse PECOH Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Fosse Trustee Limited	Jersey		—			(b	)		—		SECURITIZATION		0			0			0
FTA Santander Consumer Spain 09-1	Spain		—			(b	)		—		SECURITIZATION		0			0			0
FTA Santander Consumer Spain Auto 06	Spain		—			(b	)		—		SECURITIZATION		0			0			0
FTA Santander Consumer Spain Auto 08-1	Spain		—			(b	)		—		SECURITIZATION		0			0			0
FTPYME Banesto 2 Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
FTPYME Santander 2 Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
GE Money Services GmbH	Germany		0.00	%		100.00	%		100.00	%	SERVICES		1			(1	)		0
Geoban UK Limited	United Kingdom		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
Geoban, S.A.	Spain		100.00	%		0.00	%		100.00	%	SERVICES		17			0			24
Gesban México Servicios Administrativos Globales, S.A. De C.V.	Mexico		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
Gesban Santander Servicios Profesionales Contable Limitada	Chile		0.00	%		100.00	%		100.00	%	INTERNET		0			0			0
Gesban Servicios Administrativos Globales, S.L.	Spain		99.99	%		0.01	%		100.00	%	SERVICES		0			0			1
Gesban UK Limited	United Kingdom		0.00	%		100.00	%		100.00	%	COLLECTION AND PAYMENT SERVICES		0			0			0
Gescoban Soluciones, S.A.	Spain		0.00	%		89.72	%		100.00	%	FINANCE		5			1			1
Gestión de Instalaciones Fotovoltáicas, S.L., Sole-Shareholder Company	Spain		0.00	%		100.00	%		100.00	%	ELECTRICITY		0			0			0
Gestión Industrial Hispamer, S.A.	Spain		99.99	%		0.01	%		100.00	%	SECURITIES INVESTMENT		(37	)		(7	)		0
Gestión Santander, S.A. de C.V., Sociedad Operadora de Sociedades de Inversión, Grupo Financiero Santander	Mexico		0.00	%		74.96	%		100.00	%	FINANCE		5			3			0
Gestora de Procesos S.A., in liquidation (j)	Peru		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		1			0			1
Gire S.A.	Argentina		0.00	%		57.92	%		58.33	%	COLLECTION AND PAYMENT SERVICES		8			4			1
Giro Investments (Jersey) Limited (j) (n)	Jersey		0.00	%		100.00	%		100.00	%	FINANCE		1			2			0
Giro Investments Limited (j) (n)	Cayman Islands		0.00	%		100.00	%		100.00	%	FINANCE		0			3			0
Girobank Carlton Investments Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		113			34			113
Girobank Investments Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		1			0			0
Girobank Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Global Debt Management Services Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	COLLECTION AND PAYMENT SERVICES		0			0			0
Golden Bar (SECURITIZATION) S.r.l.	Italy		—			(b	)		—		SECURITIZATION		0			0			0

F-227

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Golden Bar Securitization Programme I	Italy		—			(b	)		—		SECURITIZATION		0			0			0
Golden Bar Securitization Programme II	Italy		—			(b	)		—		SECURITIZATION		0			0			0
Golden Bar Securitization Programme III	Italy		—			(b	)		—		SECURITIZATION		0			0			0
Golden Bar Securitization Programme IV	Italy		—			(b	)		—		SECURITIZATION		0			0			0
Grupo Alcanza, S.A. de C.V.	Mexico		85.00	%		0.00	%		85.00	%	HOLDING COMPANY		12			(11	)		11
Grupo Empresarial Santander, S.L.	Spain		99.11	%		0.89	%		100.00	%	HOLDING COMPANY		3,186			255			3,770
Grupo Financiero Santander, S.A. B de C.V.	Mexico		74.75	%		0.21	%		74.96	%	HOLDING COMPANY		3,284			625			1,789
Guaranty Car, S.A., Sole-Shareholder Company	Spain		0.00	%		100.00	%		100.00	%	AUTOMOTIVE		3			0			1
Hansar Finance Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		8			0			1
HBF Aluguer e Comercio de Viaturas, S.A. (j)	Portugal		0.00	%		100.00	%		100.00	%	FULL-SERVICE LEASE		0			0			0
Hipototta No. 10 FTC	Portugal		—			(b	)		—		SECURITIZATION		0			0			0
Hipototta No 10 Plc	Ireland		—			(b	)		—		SECURITIZATION		0			0			0
Hipototta No. 1 FTC	Portugal		—			(b	)		—		SECURITIZATION		3			(1	)		0
Hipototta No. 1 plc	Ireland		—			(b	)		—		SECURITIZATION		(3	)		0			0
Hipototta No. 2 FTC	Portugal		—			(b	)		—		SECURITIZATION		10			(4	)		0
Hipototta No. 2 plc	Ireland		—			(b	)		—		SECURITIZATION		(10	)		(2	)		0
Hipototta No. 3 FTC	Portugal		—			(b	)		—		SECURITIZATION		13			(7	)		0
Hipototta No. 3 plc	Ireland		—			(b	)		—		SECURITIZATION		(16	)		(5	)		0
Hipototta No. 4 FTC	Portugal		—			(b	)		—		SECURITIZATION		12			(6	)		0
Hipototta No. 4 plc	Ireland		—			(b	)		—		SECURITIZATION		(15	)		(3	)		0
Hipototta No. 5 FTC	Portugal		—			(b	)		—		SECURITIZATION		5			(4	)		0
Hipototta No. 5 plc	Ireland		—			(b	)		—		SECURITIZATION		(6	)		(2	)		0
Hipototta No. 6 FTC	Portugal		—			(b	)		—		SECURITIZATION		5			(4	)		0
Hipototta No. 6 plc	Ireland		—			(b	)		—		SECURITIZATION		(7	)		(2	)		0
Hipototta No. 7 FTC	Portugal		—			(b	)		—		SECURITIZATION		5			(3	)		0
Hipototta No. 7 plc	Ireland		—			(b	)		—		SECURITIZATION		(7	)		(2	)		0
Hipototta No. 8 FTC	Portugal		—			(b	)		—		SECURITIZATION		3			1			0
Hipototta No. 8 plc	Ireland		—			(b	)		—		SECURITIZATION		(4	)		(1	)		0
Hispamer Renting, S.A.U.	Spain		0.00	%		100.00	%		100.00	%	FULL-SERVICE LEASE		13			(1	)		1
Holbah II Limited	Bahamas		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		985			1			1,243
Holbah Limited	Bahamas		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		32			402			0
Holmes Financing (Nº1) plc	United Kingdom		—			(b	)		—		SECURITIZATION		0			8			0
Holmes Financing (Nº10) plc	United Kingdom		—			(b	)		—		SECURITIZATION		1			(2	)		0
Holmes Financing (Nº8) plc (j)	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Holmes Financing (Nº9) plc	United Kingdom		—			(b	)		—		SECURITIZATION		0			1			0
Holmes Funding 2 Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			(267	)		0
Holmes Funding Limited	United Kingdom		—			(b	)		—		SECURITIZATION		7			(104	)		0
Holmes Holdings Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Holmes Master Issuer 2 PLC	United Kingdom		—			(b	)		—		SECURITIZATION		0			141			0
Holmes Master Issuer plc	United Kingdom		—			(b	)		—		SECURITIZATION		308			(308	)		0
Holmes Trustees Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Holneth B.V.	Netherlands		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		46			(3	)		10
Honeycomb SB Limited	United Kingdom		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
HRE Investment Holdings II-A S.à.r.l. (c)	Luxembourg		0.00	%		73.70	%		0.00	%	HOLDING COMPANY		0			0			0
HSH Delaware L.P. (c)	United States		0.00	%		69.20	%		0.00	%	HOLDING COMPANY		83			(70	)		5
Hualle, S.A.	Spain		0.00	%		89.72	%		100.00	%	SECURITIES INVESTMENT		73			1			5
Ibérica de Compras Corporativas, S.L.	Spain		91.63	%		7.80	%		100.00	%	e-COMMERCE		10			4			5
IEM (Holland) Aircraft Lease B.V.	Netherlands		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
IEM 757 Leasing I B.V.	Netherlands		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
IEM Airfinance B.V.	Netherlands		0.00	%		100.00	%		100.00	%	LEASING		(1	)		0			0

F-228

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
IEM Lease Aircraft B.V.	Netherlands		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Independence Community Bank Corp.	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		2,400			(8	)		2,424
Independence Community Commercial Reinvestment Corp.	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		93			0			96
Infraestructuras Americanas, S.L.	Spain		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		64			(19	)		65
Ingeniería de Software Bancario, S.L.	Spain		100.00	%		0.00	%		100.00	%	IT SERVICES		70			6			86
Inmo Francia 2, S.A.	Spain		0.00	%		100.00	%		100.00	%	PROPERTY		47			0			48
Instituto Santander Serfin, A.C.	Mexico		0.00	%		74.95	%		100.00	%	NOT-FOR-PROFIT INSTITUTE		1			0			0
Insurance Funding Solutions Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		(7	)		0			0
Integritas (Canada) Trustee Corporation Ltd.	Canada		100.00	%		0.00	%		100.00	%	ASSET MANAGEMENT COMPANY		1			0			0
Integritas New Zealand Ltd.	New Zealand		0.00	%		100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		0			0			0
Integritas Trust SA	Switzerland		0.00	%		100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		3			1			0
Internacional Compañía de Seguros de Vida S.A.	Argentina		0.00	%		59.22	%		59.22	%	INSURANCE		25			2			0
Intursa, S.A.	Spain		0.00	%		89.72	%		100.00	%	PROPERTY		(16	)		(92	)		0
Inversiones ASP S.A.	Chile		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		294			16			310
Inversiones AyS Cuatro Limitada	Chile		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		294			16			310
Inversiones AyS Dos Limitada	Chile		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		155			(2	)		154
Inversiones AyS Tres Limitada	Chile		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		155			(2	)		153
Inversiones AyS Uno Limitada	Chile		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		58			(14	)		53
Inversiones Marítimas del Mediterráneo, S.A.	Spain		100.00	%		0.00	%		100.00	%	INACTIVE		12			(8	)		3
Isban Argentina S.A.	Argentina		87.42	%		12.58	%		100.00	%	FINANCIAL SERVICES		2			0			2
Isban Brasil S.A.	Brazil		0.00	%		100.00	%		100.00	%	SERVICES		16			0			22
Isban Chile S.A.	Chile		0.00	%		100.00	%		100.00	%	IT SERVICES		11			0			20
Isban DE GmbH	Germany		0.00	%		100.00	%		100.00	%	IT SERVICES		0			1			0
Isban México, S.A. De C.V.	Mexico		100.00	%		0.00	%		100.00	%	IT SERVICES		66			2			48
ISBAN PT — Engenheria e Software Bancário, S.A.	Portugal		0.00	%		99.93	%		100.00	%	IT SERVICES		1			0			0
Isban U.K., Ltd.	United Kingdom		0.00	%		100.00	%		100.00	%	IT SERVICES		4			2			0
Island Insurance Corporation	Puerto Rico		0.00	%		90.59	%		100.00	%	INSURANCE		3			0			4
Itasant — Sociedade Gestora de Participações Sociais Sociedade Unipessoal, Lda.	Portugal		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		253			(22	)		92
J.C. Flowers II-A L.P. (c)	Canada		0.00	%		69.90	%		4.43	%	HOLDING COMPANY		68			(19	)		54
James Hay Administration Company Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FUND AND PORTFOLIO MANAGER		16			16			10
James Hay Holdings Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		(5	)		18			43
James Hay Insurance Company Limited (n)	Jersey		0.00	%		100.00	%		100.00	%	INSURANCE BROKERAGE		16			10			13
James Hay Pension Trustees Limited	United Kingdom		0.00	%		100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		2			0			2
James Hay Wrap Managers Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FUND AND PORTFOLIO MANAGER		4			2			17
JCF BIN II-A (p)	Mauritania		0.00	%		69.53	%		4.43	%	HOLDING COMPANY		4			0			3
JCF II-A AIV K L.P. (c)	Canada		0.00	%		69.54	%		0.00	%	HOLDING COMPANY		4			(1	)		4
JCF II-A Special AIV K L.P. (c)	Canada		0.00	%		72.29	%		4.99	%	HOLDING COMPANY		4			(1	)		4
JSC Santander Consumer Bank	Russia		0.00	%		100.00	%		100.00	%	BANKING		35			(4	)		32
Jupiter JCF AIV II A C.V. (c)	Netherlands		0.00	%		69.41	%		4.99	%	HOLDING COMPANY		61			(37	)		42
Jupiter III C.V. (c)	Netherlands		0.00	%		72.75	%		4.99	%	HOLDING COMPANY		362			(241	)		278
La Unión Resinera Española, S.A. (consolidated)	Spain		74.87	%		21.29	%		96.25	%	CHEMICALS		48			0			28
Laboratorios Indas, S.A. (e)	Spain		0.00	%		73.22	%		100.00	%	HEALTH PRODUCTS		63			27			266
Langton Funding (No.1) Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0

F-229

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Langton Mortgages Trustee Limited	Jersey		—			(b	)		—		SECURITIZATION		0			0			0
Langton PECOH Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Langton Securities (2008-1) plc	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Langton Securities (2008-2) plc	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Langton Securities (2008-3) plc	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Langton Securities Holdings Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Laparanza, S.A.	Spain		61.59	%		0.00	%		61.59	%	AGRICULTURE AND LIVESTOCK		30			1			16
Larix Chile Inversiones Limitada	Chile		0.00	%		89.72	%		100.00	%	PROPERTY		0			0			0
Lease Totta No. 1 FTC	Portugal		—			(b	)		—		SECURITIZATION		0			0			0
Lease Totta No. 1 Limited	Ireland		—			(b	)		—		SECURITIZATION		0			0			0
Legal Debt Recovery Services Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	COLLECTION AND PAYMENT SERVICES		0			0			0
Liquidity Import Finance Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	FACTORING		0			0			0
Liquidity Limited (f)	United Kingdom		0.00	%		100.00	%		100.00	%	FACTORING		(1	)		(1	)		1
Luresa Inmobiliaria, S.A.	Spain		0.00	%		96.16	%		100.00	%	PROPERTY		21			1			9
Luri 1, S.A.	Spain		0.00	%		5.58	%		100.00	%	PROPERTY		101			1			6
Luri 2, S.A.	Spain		0.00	%		4.81	%		100.00	%	PROPERTY		97			0			5
Luri 3, S.A.	Spain		0.00	%		9.62	%		10.00	%	PROPERTY		30			1			3
Luri Land, S.A.	Belgium		0.00	%		5.15	%		100.00	%	PROPERTY		6			0			0
MAC No. 1 Limited (i)	United Kingdom		—			(b	)		—		MORTGAGE LOAN COMPANY		0			0			0
Magnolia Termosolar, S.L.	Spain		0.00	%		65.00	%		65.00	%	ELECTRICITY		0			0			0
Marylebone Road CBO 3 BV	Netherlands		—			(b	)		—		SECURITIZATION		0			0			0
Mata Alta, S.L.	Spain		0.00	%		61.59	%		100.00	%	PROPERTY		0			0			0
Merciver, S.L.	Spain		0.00	%		89.72	%		100.00	%	SHIPPING COMPANY		0			0			0
Mesena Servicios de Gestión Inmobiliaria, S.A.	Spain		0.00	%		89.72	%		100.00	%	SECURITIES INVESTMENT		(17	)		(114	)		0
Mitre Capital Partners Limited	United Kingdom		0.00	%		100.00	%		100.00	%	MORTGAGE LOAN COMPANY		(44	)		(17	)		0
Money Card (Holdings) Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		2			0			10
Money Card Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCIAL SERVICES		20			0			0
Money Movers Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Mortgage Alliance Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Mugo Termosolar, S.L.	Spain		0.00	%		65.00	%		65.00	%	ELECTRICITY		0			0			0
Multinegocios S.A.	Chile		0.00	%		99.53	%		100.00	%	ADVISORY SERVICES		0			0			0
Multirent — Aluguer e Comércio de Automóveis, S.A.	Portugal		0.00	%		60.00	%		100.00	%	FULL-SERVICE LEASE		18			(3	)		17
Multiservicios de Negocios Limitada	Chile		0.00	%		100.00	%		100.00	%	FINANCIAL SERVICES		0			0			0
N&P (B.E.S.) Loans Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		3			0			4
National Alliance Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Naviera Mirambel, S.L.	Spain		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Naviera Trans Gas, A.I.E.	Spain		99.99	%		0.01	%		100.00	%	SHIPPING COMPANY		10			(2	)		33
Netbank Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
NIB Special Investors IV-A LP (c)	Canada		0.00	%		99.70	%		4.99	%	HOLDING COMPANY		57			(21	)		66
NIB Special Investors IV-B LP (c)	Canada		0.00	%		95.86	%		4.99	%	HOLDING COMPANY		22			(9	)		29
Norbest AS	Norway		7.94	%		92.06	%		100.00	%	SECURITIES INVESTMENT		246			(213	)		954
NW Services CO.	United States		0.00	%		99.43	%		100.00	%	e-COMMERCE		1			0			2
Oil-Dor, S.A.	Spain		0.00	%		89.72	%		100.00	%	FINANCE		155			3			110
Open Bank, S.A.	Spain		100.00	%		0.00	%		100.00	%	BANKING		85			2			62
Optimal Alternative Investments, S.G.I.I.C., S.A.	Spain		0.00	%		99.99	%		100.00	%	FUND MANAGEMENT COMPANY		1			0			1

F-230

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Optimal Investment Services (Asia) Pte. Ltd. (j)	Singapore		0.00	%		99.96	%		100.00	%	FUND MANAGEMENT COMPANY		0			0			0
Optimal Investment Services SA	Switzerland		0.00	%		99.96	%		99.96	%	FUND MANAGEMENT COMPANY		42			(5	)		5
Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland €Fund	Ireland		73.24	%		7.94	%		79.69	%	FUND MANAGEMENT COMPANY		27			0			0
Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland USD Fund	Ireland		2.98	%		90.22	%		93.09	%	FUND MANAGEMENT COMPANY		2			0			0
Optimal Multiadvisors Ltd — Strategic US Equity Series (consolidated)	Bahamas		0.00	%		72.56	%		67.57	%	FUND MANAGEMENT COMPANY		26			1			0
Pan American Bank Limited (j)	Bahamas		0.00	%		100.00	%		100.00	%	BANKING		0			0			0
Parasant SA	Switzerland		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		1,288			0			1,214
Patagon Euro, S.L.	Spain		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		689			5			590
PBE Companies, LLC	United States		0.00	%		100.00	%		100.00	%	PROPERTY		49			0			64
PECOH Limited	United Kingdom		—			(b	)		—		SECURITIZATION		0			0			0
Pereda Gestión, S.A.	Spain		99.99	%		0.01	%		100.00	%	HOLDING COMPANY		74			308			4
Pingham International, S.A.	Uruguay		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
Plus Direct Insurance Services Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Plus Direct Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Plus Insurance Services Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Plus Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0			0
Polskie Towarzystwo Finansowe S.A.	Poland		0.00	%		100.00	%		100.00	%	SERVICES		3			0			35
Portada S.A., in liquidation (j)	Chile		0.00	%		96.17	%		96.17	%	FINANCE		0			0			0
Portal Universia Argentina S.A.	Argentina		0.00	%		96.50	%		96.50	%	INTERNET		1			0			0
Portal Universia Portugal, Prestaçao de Serviços de Informática, S.A.	Portugal		0.00	%		100.00	%		100.00	%	INTERNET		1			(1	)		0
Portal Universia, S.A.	Spain		0.00	%		67.77	%		67.77	%	INTERNET		2			0			2
Préstamos de Consumo S.A.	Argentina		0.00	%		99.97	%		100.00	%	FINANCE		0			0			4
Procura Digital de Venezuela, S.A.	Venezuela		0.00	%		99.43	%		100.00	%	e-COMMERCE		1			(1	)		0
Produban Servicios Informáticos Generales, S.L.	Spain		98.44	%		1.56	%		100.00	%	SERVICES		(12	)		13			0
Produban Serviços de Informática S.A.	Brazil		0.00	%		100.00	%		100.00	%	IT		3			4			5
Programa Hogar Montigalá, S.A.	Spain		0.00	%		89.72	%		100.00	%	PROPERTY		(21	)		(75	)		0
Promociones y Servicios Monterrey, S.A. de C.V.	Mexico		0.00	%		100.00	%		100.00	%	PROPERTY		6			0			6
Promociones y Servicios Polanco, S.A. de C.V.	Mexico		0.00	%		100.00	%		100.00	%	PROPERTY		58			0			58
Promociones y Servicios Santiago, S.A. de C.V.	Mexico		0.00	%		100.00	%		100.00	%	SERVICES		62			1			64
Promodomus Desarrollo de Activos, S.L.	Spain		0.00	%		45.76	%		51.00	%	PROPERTY		2			(4	)		0
PSB Inmobilien GmbH	Germany		0.00	%		100.00	%		100.00	%	PROPERTY		0			0			0
Real Argentina S.A.	Argentina		0.00	%		82.71	%		99.00	%	PROPERTY		0			0			0
Real Capitalização, S.A. (l)	Brazil		0.00	%		0.00	%		0.00	%	INSURANCE		—			—			—
Real CHP, S.A.	Brazil		0.00	%		77.51	%		92.78	%	ASSET MANAGEMENT		0			1			1
Real Corretora de Seguros, S.A.	Brazil		0.00	%		83.55	%		100.00	%	INSURANCE BROKERAGE		7			19			17
Real Microcrédito Assessoria Financeira, S.A.	Brazil		0.00	%		83.55	%		100.00	%	FINANCIAL SERVICES		3			1			1
REB Empreendimentos e Administradora de Bens, S.A.	Brazil		0.00	%		100.00	%		100.00	%	PROPERTY		(9	)		9			0
Redes y Procesos, S.A.	Spain		52.17	%		13.19	%		66.87	%	CARDS		1			1			1
Retail Financial Services Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		(45	)		1			0
Riobank International (Uruguay) SAIFE (j)	Uruguay		0.00	%		100.00	%		100.00	%	BANKING		0			0			0
Ruevilliot 26, S.L.	Spain		0.00	%		70.00	%		70.00	%	PROPERTY		25			0			18
S C Servicios y Cobranzas S.A. (j)	Colombia		0.00	%		97.96	%		100.00	%	COLLECTION AND PAYMENT SERVICES		0			0			0
SAG International Finance Company Limited	Ireland		0.00	%		60.00	%		100.00	%	SECURITIZATION		1			0			0
Sánchez Ramade Santander Financiera, S.L.	Spain		0.00	%		50.00	%		50.00	%	FINANCIAL SERVICES		0			0			0
Sandgate S.á.r.l.	Luxembourg		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		0			(18	)		1
Saninv Gestao e Investimentos, S.A.	Portugal		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		66			(47	)		19

F-231

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Sansol S.r.l.	Italy		0.00	%		100.00	%		100.00	%	ELECTRICITY PRODUCTION		0			0			0
Saniso S.r.l.	Italy		0.00	%		100.00	%		100.00	%	ELECTRICITY PRODUCTION		0			0			0
Santander Administradora de Consórcios Ltda.	Brazil		0.00	%		83.55	%		100.00	%	FINANCE		1			0			1
Santander Advisory Services S.A.	Brazil		0.00	%		83.55	%		100.00	%	ADVISORY SERVICES		47			6			39
Santander Ahorro Inmobiliario 2 S.I.I., S.A.	Spain		69.11	%		0.01	%		69.12	%	PROPERTY		60			(1	)		41
Santander Airplus Corporate Payment Solutions, S.A.	Spain		75.00	%		0.00	%		75.00	%	PAYMENT SYSTEMS		0			0			0
Santander AM Holding, S.L.	Spain		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		105			(13	)		29
Santander Asset Management — Sociedade Gestora de Fundos de Investimento Mobiliário, S.A.	Portugal		0.00	%		99.86	%		100.00	%	FUND MANAGEMENT COMPANY		16			5			7
Santander Asset Management Chile S.A.	Chile		0.01	%		99.83	%		100.00	%	SECURITIES INVESTMENT		1			0			9
Santander Asset Management Corporation	Puerto Rico		0.00	%		90.59	%		100.00	%	ASSET MANAGEMENT		(2	)		8			2
Santander Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda. (l)	Brazil		0.00	%		0.00	%		0.00	%	ASSET MANAGEMENT		—			—			—
Santander Asset Management Ireland, Ltd.	Ireland		0.00	%		100.00	%		100.00	%	FUND MANAGEMENT COMPANY		16			1			0
Santander Asset Management Luxembourg, S.A.	Luxembourg		0.00	%		97.94	%		100.00	%	FUND MANAGEMENT COMPANY		6			4			0
Santander Asset Management S.A. Administradora General de Fondos	Chile		0.00	%		76.75	%		100.00	%	FUND MANAGEMENT COMPANY		46			29			8
Santander Asset Management UK Holdings Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		106			0			106
Santander Asset Management UK Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FUND AND PORTFOLIO MANAGER		12			1			7
Santander Asset Management, S.A., S.G.I.I.C.	Spain		28.30	%		69.64	%		100.00	%	FUND MANAGEMENT COMPANY		96			(2	)		33
Santander Back-Offices Globales Mayoristas, S.A.	Spain		100.00	%		0.00	%		100.00	%	SERVICES		1			0			1
Santander BanCorp	Puerto Rico		0.00	%		90.59	%		90.59	%	HOLDING COMPANY		433			28			202
Santander Bank Limited	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		(3	)		0			0
Santander Bank & Trust Ltd.	Bahamas		0.00	%		100.00	%		100.00	%	BANKING		1,454			34			1,102
Santander Benelux, S.A./N.V.	Belgium		100.00	%		0.00	%		100.00	%	BANKING		946			64			925
Santander Brasil Administradora de Consórcio Ltda.	Brazil		0.00	%		83.55	%		100.00	%	SERVICES		22			15			7
Santander Brasil Arrendamento Mercantil S.A. (l)	Brazil		0.00	%		0.00	%		0.00	%	LEASING		—			—			—
Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A.	Brazil		0.00	%		83.55	%		100.00	%	ASSET MANAGEMENT		82			12			61
Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários (l)	Brazil		0.00	%		0.00	%		0.00	%	BROKER-DEALER		—			—			—
Santander Brasil Seguros S.A.	Brazil		0.00	%		83.55	%		100.00	%	INSURANCE		52			6			39
Santander Capital Desarrollo, SGECR, S.A.	Spain		100.00	%		0.00	%		100.00	%	VENTURE CAPITAL COMPANY		2			0			0
Santander Capitalização S.A.	Brazil		0.00	%		83.55	%		100.00	%	INSURANCE		99			55			91
Santander Carbón Finance, S.A.	Spain		99.98	%		0.02	%		100.00	%	SECURITIES INVESTMENT		(19	)		0			0
Santander Cards Ireland Limited	Ireland		100.00	%		0.00	%		100.00	%	CARDS		0			(4	)		0
Santander Cards Limited	United Kingdom		100.00	%		0.00	%		100.00	%	FINANCIAL SERVICES		107			(20	)		254
Santander Cards UK Limited	United Kingdom		100.00	%		0.00	%		100.00	%	FINANCE		680			(149	)		1,041
Santander Carteras, S.G.C., S.A.	Spain		0.00	%		100.00	%		100.00	%	FUND MANAGEMENT COMPANY		20			0			8
Santander Central Hispano Finance (Delaware) Inc.	United States		100.00	%		0.00	%		100.00	%	FINANCE		2			0			0
Santander Central Hispano Financial Services Limited	Cayman Islands		100.00	%		0.00	%		100.00	%	FINANCE		2			1			0
Santander Central Hispano International Limited	Cayman Islands		100.00	%		0.00	%		100.00	%	FINANCE		3			(1	)		0
Santander Central Hispano Issuances Limited	Cayman Islands		100.00	%		0.00	%		100.00	%	FINANCE		2			0			0

F-232

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Santander Chile Holding S.A.	Chile		22.11	%		77.42	%		99.53	%	HOLDING COMPANY		808			229			280
Santander Commercial Paper, S.A., Sole-Shareholder Company	Spain		100.00	%		0.00	%		100.00	%	FINANCE		0			0			0
Santander Consumer (UK) plc	United Kingdom		0.00	%		100.00	%		100.00	%	ADVISORY SERVICES		153			12			181
Santander Consumer autoboerse.de AG	Germany		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		1			0			1
Santander Consumer Bank AG	Germany		0.00	%		100.00	%		100.00	%	BANKING		1,366			407			1,449
Santander Consumer Bank AS	Norway		0.00	%		100.00	%		100.00	%	FINANCE		411			57			468
Santander Consumer Bank GmbH	Austria		0.00	%		100.00	%		100.00	%	FINANCE		836			(11	)		856
Santander Consumer Bank S.p.A.	Italy		0.00	%		100.00	%		100.00	%	FINANCE		224			1			397
Santander Consumer Bank Spólka Akcyjna	Poland		0.00	%		100.00	%		100.00	%	BANKING		205			6			210
Santander Consumer Chile S.A.	Chile		89.00	%		0.00	%		89.00	%	FINANCE		14			(1	)		11
Santander Consumer Credit Services Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		(27	)		(8	)		0
Santander Consumer Debit GmbH	Germany		0.00	%		100.00	%		100.00	%	SERVICES		0			11			0
Santander Consumer Finance a.s.	Czech Republic		0.00	%		100.00	%		100.00	%	LEASING		48			(14	)		36
Santander Consumer Finance Benelux B.V.	Netherlands		0.00	%		100.00	%		100.00	%	FINANCE		35			(20	)		33
Santander Consumer Finance Correduría de Seguros, S.A.	Spain		0.00	%		100.00	%		100.00	%	INSURANCE BROKERAGE		2			1			0
Santander Consumer Finance Media S.r.l.	Italy		0.00	%		65.00	%		65.00	%	FINANCE		7			1			5
Santander Consumer Finance Oy	Finland		0.00	%		100.00	%		100.00	%	FINANCE		46			1			52
Santander Consumer Finance Zrt.	Hungary		0.00	%		100.00	%		100.00	%	FINANCE		14			(12	)		0
Santander Consumer Finance, S.A.	Spain		63.19	%		36.81	%		100.00	%	BANKING		6,021			467			4,333
Santander Consumer Finanzia S.r.l.	Italy		0.00	%		100.00	%		100.00	%	FACTORING		31			3			31
Santander Consumer France (j)	France		0.00	%		100.00	%		100.00	%	FINANCE		14			(11	)		2
Santander Consumer Holding GmbH	Germany		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		838			193			1,891
Santander Consumer Iber-Rent, S.L.	Spain		0.00	%		60.00	%		60.00	%	FULL-SERVICE LEASE		63			(3	)		18
Santander Consumer Leasing Austria GmbH	Austria		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		863			0			863
Santander Consumer Leasing GmbH	Germany		0.00	%		100.00	%		100.00	%	LEASING		6			15			6
Santander Consumer Leasing s.r.o.	Czech Republic		0.00	%		100.00	%		100.00	%	FINANCE		1			0			1
Santander Consumer Multirent Spólka z ograniczoną odpowiedzialnością	Poland		0.00	%		60.00	%		60.00	%	LEASING		6			(1	)		4
Santander Consumer Receivables 2 LLC	United States		0.00	%		91.50	%		100.00	%	AUXILIARY		0			0			0
Santander Consumer Receivables LLC	United States		0.00	%		91.50	%		100.00	%	AUXILIARY		0			0			0
Santander Consumer Services GmbH	Austria		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
Santander Consumer Spain Auto 07-1	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Santander Consumer Spain Auto 07-2	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Santander Consumer USA Inc.	United States		0.00	%		91.50	%		91.50	%	FINANCE		191			(179	)		790
Santander Consumer, EFC, S.A.	Spain		0.00	%		100.00	%		100.00	%	FINANCE		444			(227	)		415
Santander Consumo, S.A. de C.V., SOFOM, E.R.	Mexico		0.00	%		74.95	%		100.00	%	CARDS		405			(9	)		582
Santander Corredora de Seguros Limitada	Chile		0.00	%		76.80	%		100.00	%	INSURANCE BROKERAGE		59			10			49
Santander de Desarrollos Inmobiliarios, S.A.	Spain		98.39	%		1.61	%		100.00	%	PROPERTY		0			0			0
Santander de Leasing, S.A., E.F.C.	Spain		70.00	%		30.00	%		100.00	%	LEASING		63			14			35
Santander de Titulización S.G.F.T., S.A.	Spain		81.00	%		19.00	%		100.00	%	FUND MANAGEMENT COMPANY		1			3			1
Santander Drive Auto Receivables LLC	United States		0.00	%		91.50	%		100.00	%	AUXILIARY		0			0			0
Santander Drive Auto Receivables Trust 2007-1	United States		—			(b	)		—		SECURITIZATION		0			0			0
Santander Drive Auto Receivables Trust 2007-2	United States		—			(b	)		—		SECURITIZATION		0			0			0
Santander Drive Auto Receivables Trust 2007-3	United States		—			(b	)		—		SECURITIZATION		0			0			0
Santander Energías Renovables I, SCR de Régimen Simplificado, S.A.	Spain		56.76	%		0.00	%		56.76	%	VENTURE CAPITAL COMPANY		9			(1	)		6
Santander Envíos, S.A.	Spain		100.00	%		0.00	%		100.00	%	TRANSFER OF FUNDS FOR IMMIGRANTS		1			0			1
Santander Factoring S.A.	Chile		0.00	%		99.53	%		100.00	%	FACTORING		28			2			6
Santander Factoring y Confirming, S.A., E.F.C.	Spain		100.00	%		0.00	%		100.00	%	FACTORING		161			47			126
Santander Financial Exchanges Limited	United Kingdom		100.00	%		0.00	%		100.00	%	FINANCE		300			4			300

F-233

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Santander Financial Products plc	Ireland		0.00	%		100.00	%		100.00	%	FINANCE		190			1			162
Santander Financial Services, Inc.	Puerto Rico		0.00	%		90.59	%		100.00	%	LENDING COMPANY		60			11			86
Santander Gestâo de Activos, SGPS, S.A.	Portugal		0.00	%		99.86	%		100.00	%	HOLDING COMPANY		13			22			7
Santander Gestión de Recaudación y Cobranzas Ltda.	Chile		0.00	%		99.53	%		100.00	%	FINANCIAL SERVICES		2			2			2
Santander Gestión Inmobiliaria, S.A.	Spain		0.01	%		99.99	%		100.00	%	PROPERTY		2			0			0
Santander Global Consumer Finance Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		113			12			49
Santander Global Facilities, S.A.	Spain		99.94	%		0.06	%		100.00	%	SERVICES		2			1			1
Santander Global Facilities, S.A. de C.V.	Mexico		100.00	%		0.00	%		100.00	%	PROPERTY MANAGEMENT		108			(4	)		114
Santander Global Property Alemania GmbH	Germany		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
Santander Global Property México, S.A. de C.V.	Mexico		0.00	%		100.00	%		100.00	%	PROPERTY		0			0			0
Santander Global Property USA Inc.	United States		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
Santander Global Property, S.L.	Spain		97.21	%		2.79	%		100.00	%	SECURITIES INVESTMENT		239			5			227
Santander Global Services, S.A.	Uruguay		0.00	%		100.00	%		100.00	%	SERVICES		1			1			0
Santander Global Sport, S.A.	Spain		100.00	%		0.00	%		100.00	%	SPORTS OPERATIONS		37			0			32
Santander Hipotecario 1 Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Santander Hipotecario 2 Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Santander Hipotecario 3 Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Santander Hipotecario 4 Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Santander Hipotecario 5 Fondo de Titulización de Activos	Spain		—			(b	)		—		SECURITIZATION		0			0			0
Santander Holanda B.V.	Netherlands		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		12			0			0
Santander Holding Gestión, S.L.	Spain		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		(79	)		0			0
Santander Holding Internacional, S.A.	Spain		99.95	%		0.05	%		100.00	%	HOLDING COMPANY		28			19			0
Santander Infrastructure Capital Limited	United Kingdom		100.00	%		0.00	%		100.00	%	LEASING		0			0			0
Santander Infrastructure Capital Management Limited	United Kingdom		100.00	%		0.00	%		100.00	%	LEASING		2			(1	)		1
Santander Insurance Agency, Inc.	Puerto Rico		0.00	%		90.59	%		100.00	%	INSURANCE BROKERAGE		2			1			3
Santander Insurance Holding, S.L.	Spain		99.99	%		0.01	%		100.00	%	HOLDING COMPANY		377			0			357
Santander Insurance Services UK Limited	United Kingdom		0.00	%		100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		25			2			35
Santander International Bank of Puerto Rico, Inc.	Puerto Rico		0.00	%		90.59	%		100.00	%	BANKING		110			3			64
Santander International Debt, S.A., Sole-Shareholder Company	Spain		100.00	%		0.00	%		100.00	%	FINANCE		0			1			0
Santander Inversiones Limitada	Chile		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		922			83			577
Santander Investimentos em Participações S.A. (l)	Brazil		0.00	%		0.00	%		0.00	%	COLLECTION AND PAYMENT SERVICES		—			—			—
Santander Investment Bank Limited	Bahamas		0.00	%		100.00	%		100.00	%	BANKING		91			0			91
Santander Investment Bolsa, S.V., S.A.	Spain		0.00	%		100.00	%		100.00	%	BROKER-DEALER		126			33			104
Santander Investment Chile Limitada	Chile		0.00	%		100.00	%		100.00	%	FINANCE		226			22			126
Santander Investment Colombia S.A.	Colombia		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		6			0			48
Santander Investment I, S.A.	Spain		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		(1,520	)		33			0
Santander Investment Limited	Bahamas		0.00	%		100.00	%		100.00	%	BROKER-DEALER		(52	)		10			0
Santander Investment Securities Inc.	United States		0.00	%		100.00	%		100.00	%	BROKER-DEALER		54			29			295
Santander Investment Trust Colombia S.A., Sociedad Fiduciaria	Colombia		0.00	%		100.00	%		100.00	%	FUND MANAGEMENT COMPANY		9			3			12
Santander Investment Valores Colombia S.A., Comisionista de Bolsa Comercial	Colombia		0.00	%		97.96	%		100.00	%	BROKER-DEALER		5			1			1
Santander Investment, S.A.	Spain		100.00	%		0.00	%		100.00	%	BANKING		233			109			14
Santander Issuances, S.A., Sole-Shareholder Company	Spain		100.00	%		0.00	%		100.00	%	FINANCE		0			0			0
Santander Leasing S.A. Arrendamento Mercantil	Brazil		0.00	%		83.54	%		99.99	%	LEASING		4,246			421			3,335
Santander Limited	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		(19	)		20			0
Santander Mediación Operador de Banca-Seguros Vinculado, S.A.	Spain		21.00	%		75.06	%		100.00	%	ADVISORY SERVICES		2			0			1
Santander Merchant Bank Limited (j)	Bahamas		0.00	%		100.00	%		100.00	%	BANKING		0			0			0

F-234

												Millions of euros (a)
								% of									Amount of
		% of Ownership Held by the Bank						Voting				Capital and		Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves		for the Year			Interest
Santander Merchant S.A.	Argentina		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		1		0			3
Santander Overseas Bank, Inc. (h)	Puerto Rico		0.00	%		100.00	%		100.00	%	BANKING		396		21			192
Santander PB UK (Holdings) Limited	United Kingdom		100.00	%		0.00	%		100.00	%	FINANCE		154		0			219
Santander Pensiones, S.A., E.G.F.P.	Spain		21.20	%		76.75	%		100.00	%	PENSION FUND MANAGEMENT COMPANY		45		11			50
Santander Pensôes — Sociedade Gestora de Fundos de Pensôes, S.A.	Portugal		0.00	%		99.86	%		100.00	%	PENSION FUND MANAGEMENT COMPANY		4		1			1
Santander Perpetual, S.A., Sole-Shareholder Company	Spain		100.00	%		0.00	%		100.00	%	FINANCE		1		0			0
Santander Portfolio Management UK Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		33		(2	)		12
Santander PR Capital Trust I	Puerto Rico		0.00	%		90.59	%		100.00	%	FINANCE		9		(6	)		3
Santander Private Advisors, Ltd.	United States		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		1		1			0
Santander Private Banking s.p.a.	Italy		100.00	%		0.00	%		100.00	%	BANKING		39		(16	)		73
Santander Private Banking UK Limited	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		301		0			307
Santander Private Equity, S.A., S.G.E.C.R.	Spain		90.00	%		9.97	%		100.00	%	VENTURE CAPITAL MANAGEMENT COMPANY		3		1			4
Santander Private Real Estate Advisory, S.A. Sole-Shareholder Company	Spain		0.00	%		100.00	%		100.00	%	PROPERTY		3		0			0
Santander Professional Services, S.A.	Spain		0.00	%		100.00	%		100.00	%	SPORTS OPERATIONS		0		0			0
Santander Real Estate, S.G.I.I.C., S.A.	Spain		0.00	%		99.18	%		100.00	%	FUND MANAGEMENT COMPANY		101		6			6
Santander Río Asset Management Gerente de Fondos Comunes de Inversión S.A.	Argentina		0.00	%		100.00	%		100.00	%	FUND MANAGEMENT COMPANY		3		1			0
Santander Río Seguros S.A.	Argentina		0.00	%		100.00	%		100.00	%	INSURANCE		7		4			8
Santander Río Servicios S.A.	Argentina		0.00	%		99.97	%		100.00	%	ADVISORY SERVICES		0		1			0
Santander Río Sociedad de Bolsa S.A.	Argentina		0.00	%		99.34	%		100.00	%	BROKER-DEALER		3		1			2
Santander Río Trust S.A.	Argentina		0.00	%		99.97	%		100.00	%	FINANCIAL SERVICES		0		0			0
Santander S.A. — Corretora de Câmbio e Títulos	Brazil		0.00	%		83.55	%		100.00	%	BROKER-DEALER		76		22			29
Santander S.A. — Serviços Técnicos, Administrativos e de Corretagem de Seguros	Brazil		0.00	%		83.55	%		100.00	%	INSURANCE BROKERAGE		21		4			34
Santander S.A. Agente de Valores	Chile		0.00	%		76.96	%		100.00	%	BROKER-DEALER		50		12			20
Santander S.A. Corredores de Bolsa	Chile		0.00	%		88.14	%		100.00	%	BROKER-DEALER		54		10			28
Santander S.A. Sociedad Securitizadora	Chile		0.00	%		76.83	%		100.00	%	FUND MANAGEMENT COMPANY		1		0			0
Santander Securities Corporation	Puerto Rico		0.00	%		90.59	%		100.00	%	BROKER-DEALER		36		9			15
Santander Seguros de Vida S.A.	Chile		0.00	%		100.00	%		100.00	%	INSURANCE		135		42			9
Santander Seguros Generales S.A.	Chile		99.51	%		0.49	%		100.00	%	INSURANCE		12		(3	)		11
Santander Seguros S.A.	Brazil		0.00	%		83.55	%		100.00	%	INSURANCE		835		105			794
Santander Seguros y Reaseguros, Compañía Aseguradora, S.A.	Spain		0.00	%		95.99	%		100.00	%	INSURANCE		463		98			246
Santander Seguros, S.A.	Uruguay		0.00	%		100.00	%		100.00	%	INSURANCE		3		1			4
Santander Service GmbH	Germany		0.00	%		100.00	%		100.00	%	SERVICES		0		2			0
Santander Servicios de Recaudación y Pagos Limitada	Chile		0.00	%		76.74	%		100.00	%	SERVICES		6		0			4
Santander Totta Seguros, Companhia de Seguros de Vida, S.A.	Portugal		0.00	%		99.86	%		100.00	%	INSURANCE		93		20			132
Santander Totta, SGPS, S.A.	Portugal		0.00	%		99.86	%		99.86	%	HOLDING COMPANY		2,781		266			3,321
Santander Trade Services, Limited	Hong Kong		0.00	%		100.00	%		100.00	%	SERVICES		15		1			15
Santander UK Investments	United Kingdom		100.00	%		0.00	%		100.00	%	LEASING		51		(3	)		45
Santander UK Loans Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		155		8			1
Santander UK Nominee Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0		0			0
Santander Unit Trust Managers UK Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FUND AND PORTFOLIO MANAGER		19		(2	)		17
Santander US Debt, S.A., Sole-Shareholder Company	Spain		100.00	%		0.00	%		100.00	%	FINANCE		1		0			0

F-235

												Millions of euros (a)
								% of									Amount of
		% of Ownership Held by the Bank						Voting				Capital and		Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves		for the Year			Interest
Santander Venezuela Sociedad Administradora de Entidades de Inversión Colectiva, C.A.	Venezuela		0.00	%		90.00	%		100.00	%	FUND MANAGEMENT COMPANY		1		0			0
Santander Warehouse LLC	United States		0.00	%		91.50	%		100.00	%	AUXILIARY		0		0			0
Santotta-Internacional, SGPS, Sociedade Unipessoal, Lda. (Zona Franca da Madeira)	Portugal		0.00	%		99.72	%		100.00	%	HOLDING COMPANY		54		13			14
Santusa Holding, S.L.	Spain		69.64	%		30.36	%		100.00	%	HOLDING COMPANY		9,388		660			9,158
Sarum Trustees Limited	United Kingdom		0.00	%		100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		0		0			0
Saturn Japan II Sub C.V. (c)	Netherlands		0.00	%		69.30	%		0.00	%	HOLDING COMPANY		1		0			42
Saturn Japan III Sub C.V. (c)	Netherlands		0.00	%		72.71	%		0.00	%	HOLDING COMPANY		354		(236	)		278
Saturn Japan V C.V. (c)	Netherlands		0.00	%		100.00	%		99.99	%	HOLDING COMPANY		210		(135	)		112
SC Germany Auto 08-02 Limited	Ireland		—			(b	)		—		SECURITIZATION		0		(4	)		0
SC Germany Auto 09-1 Limited	Ireland		—			(b	)		—		SECURITIZATION		0		0			0
SC Germany Consumer 08-01 Limited	Ireland		—			(b	)		—		SECURITIZATION		0		0			0
SC Germany Consumer 09-1 Limited	Ireland		—			(b	)		—		SECURITIZATION		0		0			0
SCF Rahoitus Oy	Finland		0.00	%		100.00	%		100.00	%	FINANCE		62		(4	)		80
Scottish Mutual Pensions Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		6		0			99
Seacoast Capital Trust II	United States		0.00	%		100.00	%		100.00	%	FINANCE		0		0			0
Seguros Santander, S.A., Grupo Financiero Santander	Mexico		0.00	%		74.96	%		100.00	%	INSURANCE		51		25			21
Sercoban, Gestión Administrativa de Empresas, S.A.	Spain		0.00	%		100.00	%		100.00	%	SERVICES		10		0			10
Serfin International Bank and Trust, Limited	Cayman Islands		0.00	%		99.72	%		100.00	%	BANKING		30		0			23
Services and Promotions Delaware Corporation	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		80		0			72
Services and Promotions Miami LLC	United States		0.00	%		100.00	%		100.00	%	PROPERTY		79		0			80
Servicio de Alarmas Controladas por Ordenador, S.A.	Spain		99.99	%		0.01	%		100.00	%	SECURITY		2		0			1
Servicios Administrativos y Financieros Ltda.	Chile		0.00	%		100.00	%		100.00	%	SERVICES		0		1			0
Servicios Corporativos Seguros Serfin, S.A. De C.V.	Mexico		0.00	%		75.46	%		100.00	%	SERVICES		0		0			0
Servicios de Cobranza, Recuperación y Seguimiento, S.A. De C.V.	Mexico		0.00	%		100.00	%		100.00	%	SERVICES		4		5			1
Servicios de Cobranzas Fiscalex Ltda.	Chile		0.00	%		99.53	%		100.00	%	SERVICES		0		0			0
Servicios Universia Venezuela S.U.V., S.A.	Venezuela		0.00	%		82.99	%		82.99	%	INTERNET		1		(1	)		0
Sheppards Moneybrokers Limited	United Kingdom		0.00	%		99.99	%		100.00	%	ADVISORY SERVICES		18		0			17
Silk Finance No. 3 Limited	Ireland		—			(b	)		—		SECURITIZATION		0		(10	)		0
Sinvest Inversiones y Asesorías Limitada	Chile		0.00	%		100.00	%		100.00	%	FINANCE		70		6			2
Sistema 4B, S.A.	Spain		52.17	%		13.19	%		66.87	%	CARDS		38		4			9
SK Charter Hire (No.2) Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		7		(7	)		0
SK Marine Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0		0			0
Sociedad Integral de Valoraciones Automatizadas, S.A.	Spain		100.00	%		0.00	%		100.00	%	APPRAISALS		1		1			1
Sodepro, S.A.	Spain		0.00	%		89.72	%		100.00	%	FINANCE		16		0			12
Solarlaser Limited	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		54		0			45
Southern Cone Water Management Ltd.	United Kingdom		100.00	%		0.00	%		100.00	%	FINANCE		0		0			0
SOV APEX, LLC	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		26,762		8			22,302
SOV Charter LTD (UK)	United Kingdom		0.00	%		100.00	%		100.00	%	BROKER-DEALER		1		0			1
Sovereign Agency Massachusetts, LLC	United States		0.00	%		100.00	%		100.00	%	INSURANCE		0		0			0
Sovereign Bancorp, Inc.	United States		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		6,379		(47	)		6,379
Sovereign Bank	United States		0.00	%		100.00	%		100.00	%	BANKING		6,586		(37	)		8,255
Sovereign Capital Trust IV	United States		0.00	%		100.00	%		100.00	%	FINANCE		163		0			163
Sovereign Capital Trust IX	United States		0.00	%		100.00	%		100.00	%	FINANCE		3		0			3
Sovereign Capital Trust V	United States		0.00	%		100.00	%		100.00	%	FINANCE		4		0			4
Sovereign Capital Trust VI	United States		0.00	%		100.00	%		100.00	%	FINANCE		7		0			7
Sovereign Community Development Company	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		33		0			31
Sovereign Delaware Investment Corporation	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		111		0			68
Sovereign Finance (Northern) Limited (j) (g)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		1		0			0

F-236

												Millions of euros (a)
								% of										Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss			Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year			Interest
Sovereign Finance (Scotland) Limited (j) (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Sovereign Finance Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Sovereign Freeze Limited (n)	Bermuda		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Sovereign Gimi Limited (n)	Bermuda		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Sovereign Hilli Limited (n)	Bermuda		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Sovereign Holdings Limited (j)	United Kingdom		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		0			0			0
Sovereign Khannur Limited (n)	Bermuda		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Sovereign Leasing (Scotland) Limited (j) (e)	United Kingdom		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Sovereign Leasing LLC	United States		0.00	%		100.00	%		100.00	%	LEASING		1			0			0
Sovereign Precious Metals, LLC	United States		0.00	%		100.00	%		100.00	%	TRADING OF PRECIOUS METALS		78			4			10
Sovereign REIT Holdings, Inc.	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		5,129			8			3,739
Sovereign Securities Corporation, LLC	United States		0.00	%		100.00	%		100.00	%	BROKER-DEALER		39			0			37
Sovereign Spirit Limited (n)	Bermuda		0.00	%		100.00	%		100.00	%	LEASING		0			0			0
Sovereign Trade Services (HK) Limited	Hong Kong		0.00	%		100.00	%		100.00	%	FINANCIAL SERVICES		0			0			0
Sterrebeeck B.V.	Netherlands		100.00	%		0.00	%		100.00	%	HOLDING COMPANY		5,185			305			15,309
Suleyado 2003, S.L.	Spain		0.00	%		100.00	%		100.00	%	SECURITIES INVESTMENT		7			(7	)		0
Suzuki Servicios Financieros, S.L.	Spain		0.00	%		51.00	%		51.00	%	INTERMEDIATION		0			2			0
Swesant SA	Switzerland		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		280			346			0
Task Moraza, S.L. (e)	Spain		0.00	%		73.22	%		73.22	%	HOLDING COMPANY		16			1			27
Taxagest Sociedade Gestora de Participações Sociais, S.A.	Portugal		0.00	%		99.86	%		100.00	%	HOLDING COMPANY		59			8			0
Teatinos Siglo XXI Inversiones Limitada	Chile		50.00	%		50.00	%		100.00	%	HOLDING COMPANY		795			278			457
Teylada, S.A. in liquidation (j)	Spain		11.11	%		88.89	%		100.00	%	SECURITIES INVESTMENT		0			0			0
The Alliance & Leicester Corporation Limited	United Kingdom		0.00	%		100.00	%		100.00	%	PROPERTY		14			0			16
The HSH AIV 4 Trust (c)	United States		0.00	%		69.20	%		4.99	%	HOLDING COMPANY		83			(71	)		5
The JCF HRE AIV II-A Trust (c)	United States		0.00	%		73.70	%		4.99	%	HOLDING COMPANY		46			(39	)		0
The National & Provincial Building Society Pension Fund Trustees Limited (d)	United Kingdom		—			(b	)		—		ASSET MANAGEMENT COMPANY		0			0			0
The Prepaid Card Company Limited	United Kingdom		0.00	%		80.00	%		80.00	%	FINANCE		(22	)		(4	)		10
The WF Company Limited	United Kingdom		0.00	%		100.00	%		100.00	%	ADVISORY SERVICES		1			0			0
Time Finance Limited	United Kingdom		0.00	%		100.00	%		100.00	%	SERVICES		0			0			0
Time Retail Finance Limited	United Kingdom		0.00	%		100.00	%		100.00	%	SERVICES		22			0			2
Títulos de Renta Fija, S.A.	Spain		100.00	%		0.00	%		100.00	%	SECURITIES INVESTMENT		0			0			0
Tornquist Asesores de Seguros S.A. (j)	Argentina		0.00	%		99.99	%		99.99	%	ADVISORY SERVICES		0			0			0
Totta & Açores Financing, Limited	Cayman Islands		0.00	%		99.72	%		100.00	%	FINANCE		(1	)		12			0
Totta & Açores Inc. Newark	United States		0.00	%		99.72	%		100.00	%	BANKING		1			0			0
Totta (Ireland), PLC (h)	Ireland		0.00	%		99.72	%		100.00	%	FINANCE		352			106			341
Totta Crédito Especializado, Instituiçao Financeira de Crédito, S.A. (IFIC)	Portugal		0.00	%		99.84	%		100.00	%	LEASING		118			16			42
Totta Urbe — Empresa de Administraçâo e Construçôes, S.A.	Portugal		0.00	%		99.72	%		100.00	%	PROPERTY		111			5			148
Tuttle & Son Limited	United Kingdom		0.00	%		100.00	%		100.00	%	COLLECTION AND PAYMENT SERVICES		1			0			1
UNIFIN S.p.A.	Italy		0.00	%		100.00	%		100.00	%	FINANCE		39			9			82
Universia Brasil S.A.	Brazil		0.00	%		100.00	%		100.00	%	INTERNET		3			(2	)		1
Universia Chile S.A.	Chile		0.00	%		84.32	%		84.32	%	INTERNET		1			(1	)		0
Universia Colombia, S.A.	Colombia		0.00	%		99.92	%		99.92	%	INTERNET		0			0			0
Universia Holding, S.L.	Spain		99.97	%		0.03	%		100.00	%	HOLDING COMPANY		27			(17	)		14
Universia México, S.A. De C.V.	Mexico		0.00	%		100.00	%		100.00	%	INTERNET		1			(1	)		0
Universia Perú, S.A.	Peru		0.00	%		82.82	%		82.82	%	INTERNET		1			(1	)		0
Universia Puerto Rico, Inc.	Puerto Rico		0.00	%		100.00	%		100.00	%	INTERNET		1			0			1

F-237

												Millions of euros (a)
								% of									Amount of
		% of Ownership Held by the Bank						Voting				Capital and			Net Profit/Loss		Ownership
Entity	Location	Direct			Indirect			Power (k)			Line of Business	Reserves			for the Year		Interest
Valores Santander Casa de Bolsa, C.A.	Venezuela		0.00	%		90.00	%		90.00	%	BROKER-DEALER		22			3		7
Viking Collections Services Limited	United Kingdom		0.00	%		100.00	%		100.00	%	FINANCE		0			0		0
Vista Capital de Expansión, S.A. SGECR	Spain		0.00	%		50.00	%		50.00	%	VENTURE CAPITAL MANAGEMENT COMPANY		3			1		0
Vista Desarrollo, S.A. SCR de Régimen Simplificado	Spain		100.00	%		0.00	%		100.00	%	VENTURE CAPITAL COMPANY		250			11		158
W.N.P.H. Gestao e Investimentos Sociedade Unipessoal, S.A.	Portugal		0.00	%		100.00	%		100.00	%	SECURITIES INVESTMENT		36			0		0
Wallcesa, S.A.	Spain		100.00	%		0.00	%		100.00	%	SECURITIES INVESTMENT		(784	)		105		0
Waypoint Capital Trust I	United States		0.00	%		100.00	%		100.00	%	FINANCE		0			0		0
Waypoint Capital Trust II	United States		0.00	%		100.00	%		100.00	%	FINANCE		0			0		0
Waypoint Insurance Group, Inc.	United States		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		3			0		13
Waypoint Settlement Services, LLC	United States		0.00	%		90.00	%		90.00	%	INSURANCE		0			0		0
Waypoint Statutory Trust III	United States		0.00	%		100.00	%		100.00	%	FINANCE		0			0		0
Webmotors S.A.	Brazil		0.00	%		83.55	%		100.00	%	SERVICES		12			5		6
Wex Point España, S.L.	Spain		0.00	%		89.72	%		100.00	%	SERVICES		1			0		1
Whitewick Limited	Jersey		0.00	%		100.00	%		100.00	%	HOLDING COMPANY		2			0		0
WIM Servicios Corporativos, S.A. de C.V.	Mexico		0.00	%		100.00	%		100.00	%	ADVISORY SERVICES		0			0		0

(a)	Amount per books of each company at December 31, 2009, disregarding, where appropriate, any interim dividends paid in the year. The amount of the ownership interest (net of allowances) is the figure per the books of each holding company multiplied by the Group’s percentage of ownership, disregarding impairment of goodwill on consolidation. The data on foreign companies were translated to euros at the year-end exchange rates.
(b)	Companies over which effective control is exercised.
(c)	Data from the latest approved financial statements at December 31, 2008.
(d)	Data from the latest approved financial statements at March 31, 2009.

F-238

(e)	Data from the latest approved financial statements at June 30, 2009.
(f)	Data from the latest approved financial statements at September 30, 2009.
(g)	Data from the latest approved financial statements at April 30, 2009.
(h)	Data from the latest approved financial statements at November 30, 2009.
(i)	Data from the latest approved financial statements at August 31, 2009.
(j)	Company in liquidation at December 31, 2009.
(k)	Pursuant to Article 3 of Royal Decree 1815/1991, of 20 December, approving the rules for the preparation of consolidated financial statements, in order to determine voting power, the voting power relating to subsidiaries or to other parties acting in their own name but on behalf of Group companies were added to the voting power directly held by the Parent. Accordingly, the number of votes corresponding to the Parent in relation to companies over which it exercises indirect control is the number corresponding to each subsidiary holding a direct ownership interest in such companies.
(l)	Company in merger process with another Group company. Awaiting registration at Mercantile Registry.
(m)	Data from the latest approved financial statements at April 2, 2009.
(n)	Company resident in the UK for tax purposes.
(o)	Company moved its residence to the US in February 2010.
(p)	Data from the latest available approved financial statements at September 30, 2008.
(1)	The preference share and security issuer companies are detailed in Appendix III, together with other relevant information.

F-239

Exhibit II

Listed companies in which the Santander Group has ownership interests of more than 5% (g), Associates of the Santander Group and Jointly Controlled Entities

												Millions of euros (a)
								% of									Net
		% of Ownership Held by the Bank						Voting						Capital and			Profit/Loss
Entity	Location	Direct			Indirect			Power (f)			Line of Business	Assets		Reserves			for the Year
26 Rue Villiot S.A.S.	France		0.00	%		35.00	%		50.00	%	PROPERTY		138		49			2
ABSLine Multimedia, S.L.	Spain		0.00	%		47.50	%		47.50	%	MARKETING		1		1			0
Accordfin España, E.F.C., S.A.	Spain		0.00	%		49.00	%		49.00	%	FINANCE		369		36			(22	)
ACI Soluciones, S.L.	Spain		0.00	%		32.03	%		49.00	%	SERVICES		3		2			0
Administrador Financiero de Transantiago S.A.	Chile		0.00	%		15.35	%		20.00	%	COLLECTION AND PAYMENT SERVICES		588		9			(4	)
Affirmative Insurance Holdings Inc. (b)	United States		0.00	%		5.00	%		0.00	%	INSURANCE		557		149			1
Affirmative Investment LLC (b)	United States		0.00	%		9.86	%		4.99	%	HOLDING COMPANY		8		56			(48	)
Agres, Agrupación Restauradores, S.L.	Spain		0.00	%		38.59	%		43.01	%	RESTAURANTS		3		2			0
Aguas de Fuensanta, S.A.	Spain		0.00	%		37.87	%		42.21	%	FOOD		33		10			0
Alcover AG (m)	Switzerland		0.00	%		27.91	%		27.91	%	INSURANCE		179		127			1
Algebris Global Financials Fund (b)	Cayman Islands		9.15	%		0.00	%		9.15	%	HOLDING COMPANY		929		982			(202	)
Allfunds Alternative, S.V., S.A. (Sole-Shareholder Company)	Spain		0.00	%		50.00	%		50.00	%	BROKER-DEALER		5		5			(1	)
Allfunds Bank, S.A.	Spain		50.00	%		0.00	%		50.00	%	BANKING		207		96			3
Allfunds International S.A.	Luxembourg		0.00	%		50.00	%		50.00	%	FINANCIAL SERVICES		4		4			(2	)
Allfunds Nominee Limited	United Kingdom		0.00	%		50.00	%		50.00	%	HOLDING COMPANY		0		0			0
Andalucarthage Holding Société Holding Offshore S.A. (b)	Morocco		0.00	%		20.11	%		20.11	%	HOLDING COMPANY		149		126			0
Anekis, S.A.	Spain		24.75	%		24.75	%		49.50	%	ADVERTISING		3		3			0
Arena Communications Network, S.L.	Spain		20.00	%		0.00	%		20.00	%	ADVERTISING		44		3			0
Asajanet Servicios Agropecuarios, S.L. (b)	Spain		30.00	%		0.00	%		30.00	%	MARKETING		0		0			0
Attijari Bank Société Anonyme (consolidated) (b)	Tunisia		0.00	%		10.97	%		10.97	%	BANKING		1,517		69			17
Attijari Factoring Maroc, S.A.	Morocco		0.00	%		28.41	%		28.41	%	FACTORING		99		4			2
Attijari International Bank Société Anonymé (b)	Morocco		50.00	%		0.00	%		50.00	%	BANKING		719		7			3
Autopistas del Sol S.A. (b)	Argentina		0.00	%		14.17	%		14.17	%	MOTORWAY CONCESSIONS		260		59			(27	)
Baie Placements S.à.r.l. (b)	Luxembourg		0.00	%		24.93	%		25.00	%	HOLDING COMPANY		0		0			0
Banco Caixa Geral Totta de Angola, S.A.	Angola		0.00	%		25.43	%		25.50	%	BANKING		535		135			32
Banco Internacional da Guiné-Bissau, S.A. (d)	Guinea Bissau		0.00	%		48.86	%		49.00	%	BANKING		12		(30	)		(1	)
Base Central — Rede Serviços Imobiliarios, S.A.	Portugal		0.00	%		49.80	%		49.80	%	PROPERTY SERVICES		2		0			0
Benim — Sociedade Imobiliária, S.A. (consolidated) (b)	Portugal		0.00	%		24.93	%		25.00	%	PROPERTY		12		8			(1	)
Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. (consolidated) (b)	Spain		2.76	%		2.34	%		5.10	%	FINANCIAL SERVICES		5,798		367			191
Cantabria Capital, SGECR, S.A.	Spain		50.00	%		0.00	%		50.00	%	VENTURE CAPITAL MANAGEMENT COMPANY		0		0			0
Carnes Estellés, S.A.	Spain		0.00	%		19.21	%		21.41	%	FOOD		29		10			0
Cartera del Norte, S.A.	Spain		0.00	%		32.39	%		36.10	%	FINANCE		1		1			0
Celta Holding S.A.	Brazil		0.00	%		21.72	%		26.00	%	HOLDING COMPANY		127		106			(5	)
Centradia Group, Ltd. (b) (l)	United Kingdom		30.45	%		0.00	%		30.45	%	ADVISORY SERVICES		0		0			0
Centro de Compensación Automatizado S.A.	Chile		0.00	%		25.58	%		33.33	%	COLLECTION AND PAYMENT SERVICES		2		1			0
Centro para el Desarrollo, Investigación y Aplicación de Nuevas Tecnologías, S.A.	Spain		0.00	%		43.96	%		49.00	%	TECHNOLOGY		1		1			0
Charta Leasing No.1 Limited (j)	United Kingdom		0.00	%		50.00	%		50.00	%	LEASING		108		(4	)		(5	)
Charta Leasing No.2 Limited	United Kingdom		0.00	%		50.00	%		50.00	%	LEASING		56		(5	)		(4	)
Companhia Brasileira de Meios de Pagamento (consolidated)	Brazil		0.00	%		7.20	%		7.20	%	CARDS		999		(268	)		611
Companhia Brasileira de Soluções e Serviços	Brazil		0.00	%		15.32	%		15.32	%	SERVICES		481		26			29

F-240

												Millions of euros (a)
								% of									Net
		% of Ownership Held by the Bank						Voting						Capital and			Profit/Loss
Entity	Location	Direct			Indirect			Power (f)			Line of Business	Assets		Reserves			for the Year
Companhia de Arrendamento Mercantil RCI Brasil	Brazil		0.00	%		33.32	%		39.88	%	LEASING		236		176			13
Companhia de Crédito, Financiamento e Investimento RCI Brasil	Brazil		0.00	%		33.12	%		39.64	%	FINANCE		800		85			17
Compañía Concesionaria del Túnel de Sóller, S.A.	Spain		0.00	%		29.34	%		32.70	%	CONSTRUCTION		42		15			2
Compañía Española de Seguros de Crédito a la Exportación, S.A., Compañía de Seguros y Reaseguros (b)	Spain		13.95	%		6.45	%		21.08	%	CREDIT INSURANCE		645		184			(53	)
Comprarcasa Servicios Inmobiliarios, S.A.	Spain		0.00	%		47.50	%		47.50	%	PROPERTY SERVICES		2		1			0
Dirgenfin, S.L.	Spain		0.00	%		35.89	%		40.00	%	REAL ESTATE DEVELOPMENT		56		0			0
Ensafeca Holding Empresarial, S.L.	Spain		0.00	%		31.82	%		31.82	%	SECURITIES INVESTMENT		11		10			0
Espais Promocat, S.L.	Spain		0.00	%		44.86	%		50.00	%	PROPERTY		27		1			(1	)
FC2Egestión, S.L.	Spain		0.00	%		50.00	%		50.00	%	ENVIRONMENTAL MANAGEMENT		1		0			1
Federal Home Loan Bank of Pittsburgh (b)	United States		0.00	%		16.00	%		16.00	%	BANKING		63,033		2,870			13
Fondo de Titulización de Activos UCI 11	Spain		—			(h	)		—		SECURITIZATION		324		0			0
Fondo de Titulización de Activos UCI 14	Spain		—			(h	)		—		SECURITIZATION		825		0			0
Fondo de Titulización de Activos UCI 15	Spain		—			(h	)		—		SECURITIZATION		939		0			0
Fondo de Titulización de Activos UCI 18	Spain		—			(h	)		—		SECURITIZATION		1,514		0			0
Fondo de Titulización de Activos UCI 19	Spain		—			(h	)		—		SECURITIZATION		1,030		0			0
Fondo de Titulización Hipotecaria UCI 10	Spain		—			(h	)		—		SECURITIZATION		228		0			0
Fondo de Titulización Hipotecaria UCI 12	Spain		—			(h	)		—		SECURITIZATION		431		0			0
Fondo de Titulización Hipotecaria UCI 16	Spain		—			(h	)		—		SECURITIZATION		1,357		0			0
Fondo de Titulización Hipotecaria UCI 17	Spain		—			(h	)		—		SECURITIZATION		1,153		0			0
Friedrichstrasse, S.L.	Spain		0.00	%		35.68	%		35.68	%	PROPERTY		43		43			0
Granoller’s Broker, S.L.	Spain		0.00	%		12.50	%		25.00	%	FINANCE		0		0			0
Grupo Alimentario de Exclusivas, S.A.	Spain		0.00	%		36.30	%		40.46	%	FOOD		6		0			0
Grupo Financiero Galicia (consolidated) (b)	Argentina		0.00	%		6.67	%		3.50	%	FINANCE		4,517		305			32
Grupo Konecta Centros Especiales de Empleo, S.L.	Spain		0.00	%		48.21	%		48.21	%	TELEMARKETING		0		0			0
Grupo Konecta Maroc S.A.R.L. à associé unique	Morocco		0.00	%		48.21	%		48.21	%	TELEMARKETING		0		(1	)		0
Grupo Konecta UK Limited	United Kingdom		0.00	%		48.16	%		48.16	%	FINANCE		0		(1	)		0
Grupo Konectanet México, S.A. de C.V.	Mexico		0.00	%		48.21	%		48.21	%	TELEMARKETING		0		0			0
Grupo Konectanet, S.L.	Spain		0.00	%		48.21	%		48.21	%	HOLDING COMPANY		18		5			0
HLC — Centrais de Cogeraçao, S.A. (c)	Portugal		0.00	%		24.46	%		24.49	%	ELECTRICITY		2		(2	)		(2	)
Hyundai Capital Germany GmbH	Germany		0.00	%		49.99	%		49.99	%	SERVICES		2		2			0
Imperial Holding S.C.A. (i)	Luxembourg		0.00	%		36.36	%		36.36	%	SECURITIES INVESTMENT		161		39			0
Inmo Alemania Gestión de Activos Inmobiliarios, S.A.	Spain		0.00	%		16.82	%		17.52	%	HOLDING COMPANY		99		99			0
Inmobiliaria Sitio de Baldeazores, S.A.	Spain		0.00	%		44.86	%		50.00	%	PROPERTY		0		(5	)		0
J.C. Flowers I L.P. (b)	United States		16.80	%		0.00	%		4.99	%	HOLDING COMPANY		73		171			(98	)
JC Flowers AIV II L.P. (b)	United States		0.00	%		9.80	%		4.99	%	HOLDING COMPANY		9		8			1
JC Flowers AIV P L.P. (b)	Canada		0.00	%		6.90	%		4.99	%	HOLDING COMPANY		123		129			(8	)
Kapitalia Credit House Global, S.L.	Spain		0.00	%		48.21	%		48.21	%	SERVICES		0		0			0
Kassadesign 2005, S.L.	Spain		0.00	%		44.86	%		50.00	%	PROPERTY		57		10			(7	)
Kepler Weber S.A. (b)	Brazil		0.00	%		5.43	%		6.50	%	STORAGE SYSTEMS		166		71			(1	)
Konecta Activos Inmobiliarios, S.L.	Spain		0.00	%		49.08	%		49.08	%	PROPERTY		8		0			0
Konecta Brazil Outsourcing Ltda.	Brazil		0.00	%		48.20	%		48.20	%	SERVICES		0		0			0
Konecta Broker, S.L.	Spain		0.00	%		48.21	%		48.21	%	SERVICES		1		0			1
Konecta Bto, S.L.	Spain		0.00	%		48.21	%		48.21	%	TELECOMMUNICATIONS		36		37			0
Konecta Chile S.A.	Chile		0.00	%		35.67	%		35.67	%	SERVICES		4		3			1
Konecta Colombia Grupo Konecta Colombia Ltda	Colombia		0.00	%		48.21	%		48.21	%	TELEMARKETING		0		0			0
Konecta Field Marketing, S.A.	Spain		0.00	%		48.21	%		48.21	%	MARKETING		0		0			0
Konecta Portugal, Lda.	Portugal		0.00	%		48.21	%		48.21	%	MARKETING		1		0			0
Konecta Servicios Administrativos y Tecnológicos, S.L.	Spain		0.00	%		48.21	%		48.21	%	SERVICES		0		0			0
Konecta Servicios Auxiliares, S.L.	Spain		0.00	%		48.21	%		48.21	%	SERVICES		0		(1	)		0
Konecta Servicios de Empleo ETT, S.A.	Spain		0.00	%		48.21	%		48.21	%	TEMPORARY EMPLOYMENT AGENCY		0		0			(1	)

F-241

												Millions of euros (a)
								% of								Net
		% of Ownership Held by the Bank						Voting						Capital and		Profit/Loss
Entity	Location	Direct			Indirect			Power (f)			Line of Business	Assets		Reserves		for the Year
Konecta Servicios Integrales de Consultoría, S.L.	Spain		0.00	%		12.04	%		24.98	%	ADVERTISING		0		0		0
Konectanet Andalucía, S.L.	Spain		0.00	%		48.21	%		48.21	%	SERVICES		0		0		0
Konectanet Comercialización, S.L.	Spain		0.00	%		48.21	%		48.21	%	MARKETING		1		0		0
Kontacta Comunicaciones, S.A.	Spain		0.00	%		36.16	%		36.16	%	SERVICES		1		1		0
Kontacta Top Ten, S.L.	Spain		0.00	%		36.16	%		36.16	%	SERVICES		0		0		0
Maxamcorp Holding, S.L. (consolidated) (e)	Spain		0.00	%		22.62	%		22.62	%	HOLDING COMPANY		1,017		166		56
Medimobiliario Ediçoes Period. e Multimedia, S.A.	Portugal		0.00	%		29.38	%		29.38	%	PROPERTY SERVICES		0		0		0
Metrovacesa, S.A. (consolidated) (b)	Spain		14.51	%		8.19	%		23.63	%	PROPERTY		9,527		2,529		(731	)
New Affirmative LLC (b)	United States		0.00	%		9.86	%		0.00	%	HOLDING COMPANY		8		56		(48	)
New PEL S.a.r.l. (b)	Luxembourg		0.00	%		6.90	%		0.00	%	HOLDING COMPANY		46		24		10
Norchem Holdings e Negócios S.A.	Brazil		0.00	%		18.17	%		21.75	%	HOLDING COMPANY		91		39		5
Norchem Participações e Consultoria S.A.	Brazil		0.00	%		41.78	%		50.00	%	BROKER-DEALER		52		22		1
Olivant Investments Switzerland S.A. (b)	Luxembourg		0,00	%		34,97	%		34,97	%	HOLDING COMPANY		5		16		(1,555	)
Olivant Limited (consolidated) (b)	Guernsey		0.00	%		9.00	%		9.00	%	HOLDING COMPANY		237		232		(229	)
Omega Financial Services GmbH	Germany		0.00	%		50.00	%		50.00	%	SERVICES		2		0		1
Operadora de Activos Alfa, S.A. De C.V.	Mexico		0.00	%		49.98	%		49.98	%	FINANCE		1		1		0
Operadora de Activos Beta, S.A. de C.V.	Mexico		0.00	%		49.99	%		49.99	%	FINANCE		2		2		0
Partang, SGPS, S.A.	Portugal		0.00	%		49.86	%		50.00	%	HOLDING COMPANY		87		22		0
Private Estate Life S.A. (b)	Luxembourg		0.00	%		5.87	%		0.00	%	INSURANCE		2,662		53		14
Prodesur Mediterráneo, S.L.	Spain		0.00	%		44.86	%		50.00	%	PROPERTY		58		19		(1	)
Programa Multi Sponsor PMS, S.A.	Spain		24.75	%		24.75	%		49.50	%	ADVERTISING		22		4		0
Proinsur Mediterráneo, S.L.	Spain		0.00	%		44.86	%		50.00	%	PROPERTY		68		25		(2	)
Promoreras Desarrollo de Activos, S.L.	Spain		0.00	%		31.40	%		35.00	%	PROPERTY		166		14		0
PSA Finance PLC	United Kingdom		0.00	%		50.00	%		50.00	%	LEASING		5		5		0
Puntoform, S.L.	Spain		0.00	%		48.21	%		48.21	%	TRAINING		0		0		0
Q 205 Real Estate GmbH	Germany		0.00	%		17.84	%		17.84	%	PROPERTY		255		61		2
Quiero Televisión, S.A., Sole-Shareholder Company	Spain		0.00	%		31.82	%		31.82	%	TELECOMMUNICATIONS		7		6		0
Real Estate Investment Society España, S.A.	Spain		31.80	%		0.00	%		31.80	%	PROPERTY		89		89		0
Real Seguros Vida e Previdência S.A. (k)	Brazil		0.00	%		0.00	%		0.00	%	INSURANCE		—		—		—
Redbanc S.A.	Chile		0.00	%		25.65	%		33.43	%	SERVICES		15		6		1
Reintegra Contact Center, S.L.U.	Spain		0.00	%		45.00	%		45.00	%	SERVICES		0		0		0
Reintegra, S.A.	Spain		0.00	%		45.00	%		45.00	%	COLLECTION AND PAYMENT SERVICES		6		4		1
RFS Holdings B.V.	Netherlands		27.91	%		0.00	%		27.91	%	HOLDING COMPANY		24,519		21,500		(127	)
Saudi Hollandi Bank (consolidated) (b) (m)	Saudi Arabia		0.00	%		11.16	%		11.16	%	BANKING		11,370		831		226
Servicio Pan Americano de Protección, S.A. de C.V.	Mexico		0.00	%		15.78	%		21.05	%	SECURITY		143		67		4
Servicios Financieros Enlace S.A. de C.V. (b)	El Salvador		21.48	%		0.00	%		21.48	%	NOT-FOR-PROFIT COMPANY		6		2		0
Shinsei Bank, Ltd. (consolidated) (e)	Japan		0.00	%		8.46	%		0.00	%	BANKING		89,735		6,837		(1,074	)
Sistarbanc S.R.L. (b)	Uruguay		0.00	%		20.00	%		20.00	%	CARDS		2		2		(1	)
Sociedad Interbancaria de Depósitos de Valores S.A.	Chile		0.00	%		22.48	%		29.29	%	SECURITIES DEPOSITORY INSTITUTION		2		1		0
Sociedad Promotora Bilbao Plaza Financiera, S.A. (b)	Spain		7.74	%		25.00	%		33.91	%	ADVISORY SERVICES		2		2		0
Solar Energy Capital Europe S.à.r.l.	Luxembourg		0.00	%		33.33	%		33.33	%	HOLDING COMPANY		6		1		0
Tecnologia Bancária S.A.	Brazil		0.00	%		20.69	%		20.69	%	ATMs		163		62		1
Teka Industrial, S.A. (consolidated) (b)	Spain		0.00	%		10.00	%		10.00	%	DOMESTIC APPLIANCES		766		291		3
Trabajando.com Chile S.A.	Chile		0.00	%		33.33	%		33.33	%	SERVICES		5		5		(1	)
Transbank S.A.	Chile		0.00	%		25.11	%		32.71	%	CARDS		273		8		1
Transolver Finance EFC, S.A.	Spain		0.00	%		50.00	%		50.00	%	LEASING		251		29		(14	)
Turyocio Viajes y Fidelización, S.A.	Spain		0.00	%		32.21	%		32.21	%	TRAVEL		0		0		0
U.C.I., S.A.	Spain		50.00	%		0.00	%		50.00	%	HOLDING COMPANY		218		115		(7	)
UCI Servicios Inmobiliarios y Profesionales, S.L.	Spain		0.00	%		50.00	%		50.00	%	SERVICES		33		4		(4	)
UFI Servizi S.r.l. (b)	Italy		0.00	%		23.17	%		23.17	%	SERVICES		0		0		0
Unión de Créditos Inmobiliarios, S.A., EFC	Spain		0.00	%		50.00	%		50.00	%	MORTGAGE LOAN COMPANY		7,980		191		30

F-242

												Millions of euros (a)
								% of								Net
		% of Ownership Held by the Bank						Voting						Capital and		Profit/Loss
Entity	Location	Direct			Indirect			Power (f)			Line of Business	Assets		Reserves		for the Year
Vector Software Factory, S.L.	Spain		0.00	%		19.20	%		19.20	%	IT		7		2		0
Viking Consortium Holdings Limited (consolidated)	United Kingdom		0.00	%		24.99	%		24.99	%	HOLDING COMPANY		1,076		197		(28	)
Wtorre Empreendimentos Imobiliários S.A. (consolidated) (b)	Brazil		0.00	%		7.14	%		8.55	%	PROPERTY		1,255		303		(66	)

(a)	Amounts per the books of each company generally at December 31, 2009, unless otherwise stated, because the financial statements have not yet been authorised for issue. The data on foreign companies were translated to euros at the year-end exchange rates.
(b)	Data from the latest approved financial statements at December 31, 2008.
(c)	Data from the latest approved financial statements at December 31, 2003.
(d)	Data from the latest approved financial statements at April 30, 2002.
(e)	Data at March 31, 2009, this entity’s year-end.
(f)	Pursuant to Article 3 of Royal Decree 1815/1991, of 20 December, approving the rules for the preparation of consolidated financial statements, in order to determine voting power, the voting power relating to subsidiaries or to other parties acting in their own name but on behalf of Group companies were added to the voting power directly held by the Parent. Accordingly, the number of votes corresponding to the Parent in relation to companies over which it exercises indirect control is the number corresponding to each subsidiary holding a direct ownership interest in such companies.
(g)	Excluding the Group companies listed in Appendix I and those the interest of which with respect to the fair presentation that the consolidated financial statements must express (pursuant to Article 48 of the Spanish Commercial Code and Article 200 of the Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas)) is not material.
(h)	Companies over which effective control is exercised.
(i)	Data from the latest approved financial statements at July 31, 2009.
(j)	Data from the latest approved financial statements at September 30, 2009.
(k)	Company in merger process with another Group company. Awaiting registration at Mercantile Registry.
(l)	Company in liquidation at December 31, 2009.
(m)	Ownership interests held through RFS Holdings B.V.

F-243

Exhibit III

Subsidiaries issuing preference shares and preferred participating securities

									Millions of euros (a)
		% of Ownership Held by the Bank							Share					Preference		Net Profit/Loss
Entity	Location	Direct			Indirect			Line of Business	Capital		Reserves			Share Cost		for the Year
Abbey National Capital Trust I	United States		—			(b	)	FINANCE		0		0			0		0
Banesto Holdings, Ltd.	Guernsey		0.00	%		89.72	%	SECURITIES INVESTMENT		0		47			6		1
Banesto Preferentes, S.A.	Spain		0.00	%		89.72	%	FINANCE		0		0			2		0
Santander Emisora 150, S.A., Sole-Shareholder Company	Spain		100.00	%		0.00	%	FINANCE		0		0			381		0
Santander Finance Capital, S.A. Sole-Shareholder Company	Spain		100.00	%		0.00	%	FINANCE		0		0			156		0
Santander Finance Preferred, S.A. Sole-Shareholder Company	Spain		100.00	%		0.00	%	FINANCE		0		1			131		1
Santander International Preferred, S.A. Sole-Shareholder Company	Spain		100.00	%		0.00	%	FINANCE		0		0			0		0
Sovereign Real Estate Investment Trust	United States		0.00	%		100.00	%	FINANCE		2,828		(2,228	)		57		2

(a)	Amounts per the books of each company at December 31, 2009, translated to euros (in the case of foreign companies) at the year-end exchange rates.
(b)	Companies over which effective control is exercised.

F-244

Exhibit IV

Notifications of acquisitions and disposals of investments in 2009

(Article 86 of the Consolidated Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas) and Article 53 of Securities Market Law 24/1998):

On February 26, 2009, the CNMV registered a notification from Banco Santander which disclosed that, at Group level, its ownership interest in METROVACESA, S.A. had reached 23.634%.

On June 19, 2009, the CNMV registered a notification from Banco Santander which disclosed that it held a significant ownership interest of 3.045% in the share capital of GRUPO FERROVIAL, S.A.

On June 19, 2009, the CNMV registered a notification from Banco Santander which disclosed that its ownership interest in GRUPO FERROVIAL, S.A. had fallen below 3%.

On August 5, 2009, the CNMV registered a notification from Banco Santander which disclosed that its ownership interest in CEPSA, S.A. had fallen below 30%.

On August 13, 2009, the CNMV registered a notification from Banco Santander which disclosed that Santander Group held a significant ownership interest of 3.019% in REPSOL YPF, S.A.

On August 13, 2009, the CNMV registered a notification from Banco Santander which disclosed that Santander Group’s ownership interest in REPSOL YPF, S.A. had fallen below 3%.

On December 24, 2009, the CNMV registered a notification from Banco Santander which disclosed that Santander Group held a significant ownership interest of 3.868% in GRUPO FERROVIAL, S.A.

F-245

Exhibit V

Other information on the share capital of the Group’s banks

Following is certain information on the share capital of the Group’s banks.

1)	Banco Santander (Brasil) S.A.
a)	Number of equity instruments held by the Group

Santander Group holds 179,246,632,022 ordinary shares and 154,159,678,130 preference shares through its subsidiaries Sterrebeeck B.V., Grupo Empresarial Santander, S.L., Santander Insurance Holding, S.L. and Santander Seguros, S.A.

The shares composing the share capital of Banco Santander (Brasil) S.A. have no par value and there are no capital payments payable.

In accordance with current bylaws, the preference shares are not convertible into ordinary shares and do not confer voting rights on their holders, except under the following circumstances:

a)	In the event of the transformation, merger, consolidation or spin-off of the company.
b)	In the event of approval of agreements between the company and the shareholders, either directly, through third parties or other companies in which the shareholders hold a stake, provided that, due to legal or bylaw provisions, they are submitted to a general meeting.
c)	In the event of an assessment of the assets used to increase the company’s share capital.
d)	The selection of an institution or specialized company to determine the economic value of the company.

However, they do have the following advantages:

a)	Their dividends are 10% higher than those on ordinary shares.
b)	Priority in the distribution of dividends.
c)	Participation, on the same terms as ordinary shares, in capital increases resulting from the capitalization of reserves and profits and in the distribution of bonus shares arising from the capitalization of retained earnings, reserves or any other funds.
d)	Priority in the reimbursement of capital in the event of the dissolution of the company.
e)	In the event of a public offering due to a change in control of the company, the holders of the preference shares are guaranteed the right to sell at least 80% of the price paid for the block of shares that changed hands as part of the change of control, i.e. they are treated the same as shareholders with voting rights.
b)	Capital increases in progress

No approved capital increases are in progress.

c) Capital authorized by the shareholders at the general shareholders’ meeting

The company is authorized to increase share capital, subject to approval by the board of directors but without the need to amend the bylaws, up to a limit of 500,000,000,000 ordinary shares or preference shares, and without the need to maintain any ratio between any of the different classes of shares, provided they remain within the limits of the maximum number of preference shares established by Law.

At present the share capital consists of 399,044,116,905 shares (212,841,731,754 ordinary shares and 186,202,385,151 preference shares).

d) Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights

There are no rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights.

e) Specific circumstances that restrict the availability of reserves

The only restriction on the availability of Banco Santander (Brasil) S.A.’s reserves relates to the legal reserve (restricted reserves), which can only be used to offset losses or to increase capital.

F-246

f) Non-Group entities which hold, directly or through subsidiaries, 10% or more of equity

Not applicable.

g) Listed equity instruments

All the shares are listed on the São Paulo Stock Exchange (BM&F BOVESPA S.A. Bolsa de Valores, Mercaderías e Futuros) and the share deposit certificates (Units) are listed on the New York Stock Exchange (NYSE).

2)	Banco Español de Crédito, S.A. (Banesto)
a)	Number of equity instruments held by the Group

The share capital of Banco Español de Crédito, S.A. consists of 687,386,798 fully subscribed and paid shares of €0.79 par value each, all with identical voting and dividend rights.

At December 31, 2009, the Parent and its subsidiaries held 89.72% of the share capital (613,696,098 ordinary shares), of which Banco Santander held 606,345,555 shares (88.65%) and Cantabro Catalana de Inversiones held 7,350,543 shares (1.07%). At that date the Banesto Group held 3,382,126 treasury shares previously acquired under authorization of the general shareholders’ meeting, within the limits set forth in Articles 75 et seq.

b) Capital increases in progress

No approved capital increases are in progress.

c) Capital authorized by the shareholders at the general shareholders’ meeting

The annual general meeting of Banco Español de Crédito, S.A. held at first call on February 26, 2008 authorized the board of directors to increase capital at one or several times and at any time, within five years from the date of the annual general meeting, by an amount (par value) of up to half the share capital of the Bank at the date of the meeting, through the issuance of new shares, with or without share premium and with or without voting rights; the consideration for the new shares to be issued will be monetary contributions, and the Board may set the terms and conditions of the capital increase. Also, the Board was empowered to disapply preemptive subscription rights, fully or partially, in accordance with Article 159.2 of the Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas).

d) Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights

At December 31, 2009, no shares with these characteristics had been issued.

e) Specific circumstances that restrict the availability of reserves

The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount (10% of any net profit reported each year must be transferred to the legal reserve until the balance of this reserve reaches 20% of share capital). Pursuant to the Spanish Public Limited Liability Companies Law, (Ley de Sociedades Anónimas), a restricted reserve has been recorded for an amount equal to the carrying amount of the Banesto shares owned by subsidiaries.

The revaluation reserve recorded pursuant to Royal Decree-Law 7/1996, of 7 June, can be used to increase capital. On February 26, 2008, the shareholders at the general shareholders’ meeting resolved to reduce capital with a charge to voluntary reserves and the corresponding amount was deducted from the restricted reserve to which Article 79.3 of the Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas) refers and a reserve for retired capital of €5,485,207 (the same amount as the par value of the retired shares) was recorded. This reserve will be unrestricted under the same conditions as for the share capital reduction, in accordance with Article 167.3 of the Spanish Public Limited Liability Companies Law (Ley de Sociedades Anónimas).

f) Non-Group entities which hold, directly or through subsidiaries, 10% or more of equity

Not applicable.

g) Listed equity instruments

All the shares are listed on the Spanish Stock Exchanges.

F-247

3)	Banco Santander Totta, S.A. (Totta)
a)	Number of equity instruments held by the Group

The Group holds 574,356,881 ordinary shares through Santander Totta, SGPS, S.A. and 14,593,315 ordinary shares through Taxagest Sociedade Gestora de Participaçoes Sociais, S.A. and Banco Santander Totta, S.A. The Group also holds 52,763 treasury shares, all of which have a par value of €1 each, are fully subscribed and paid and carry the same voting and dividend rights.

b) Capital increases in progress

No approved capital increases are in progress.

c) Capital authorized by the shareholders at the general shareholders’ meeting

Not applicable.

d) Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights

At December 31, 2009, no shares with these characteristics had been issued.

e) Specific circumstances that restrict the availability of reserves

Under Article 296 of the Portuguese Companies’ Code, the legal and merger reserves can only be used to offset losses or to increase capital.

Non-current asset revaluation reserves are regulated by Decree-Law 31/1998, under which losses can be offset or capital increased by the amounts for which the underlying asset is depreciated, amortized or sold.

f) Non-Group entities which hold, directly or through subsidiaries, 10% or more of equity

Not applicable.

g) Listed equity instruments

The shares of Banco Santander Totta, S.A. are not listed.

4)	Banco Santander- Chile
a)	Number of equity instruments held by the Group

The Group holds 66,822,519,695 ordinary shares through Santander Chile Holding, S.A., 78,108,391,607 ordinary shares through Teatinos Siglo XXI Inversiones Limitada and 16,577 ordinary shares through Santander Inversiones Limitada (Chile), all of which have no par value, are fully subscribed and paid and carry the same voting and dividend rights.

b) Capital increases in progress

No approved capital increases are in progress.

c) Capital authorized by the shareholders at the general shareholders’ meeting

Share capital amounted to CLP 891,302,881,691 at December 31, 2009. However, each year the annual general meeting must approve the balance sheet at December 31, of the previous year and, therefore, approve the share capital amount.

d) Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights

At December 31, 2009, no shares with these characteristics had been issued.

F-248

e) Specific circumstances that restrict the availability of reserves

Remittances to foreign investors in relation to investments made under the Statute of Foreign Investment (Decree-Law 600/1974) and the amendments thereto require the prior authorization of the foreign investment committee.

f) Non-Group entities which hold, directly or through subsidiaries, 10% or more of equity

Not applicable.

g) Listed equity instruments

All the shares are listed on the Chilean Stock Exchanges and, through American Depositary Receipts (ADRs), on the New York Stock Exchange (NYSE).

5)	Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander
a)	Number of equity instruments held by the Group

At December 31, 2009, Santander Group holds 78,284,357,776 ordinary shares through Grupo Financiero Santander, S.A. B de C.V., 99.99% of the share capital of Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander.

b) Capital increases in progress

No approved capital increases are in progress.

c) Capital authorized by the shareholders at the general shareholders’ meeting

The shareholders at the extraordinary and annual general meeting held on August 18, 2008 resolved to set the authorized share capital of Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander at MXN 7,829,149,572, represented by a total of 78,291,495,726 fully subscribed and paid shares of €0.1 par value each.

d) Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights

In previous years, the entity issued unsecured subordinated preference debentures of USD 300 million that are voluntarily convertible into ordinary shares by their holders. These issues are private and the entire issue was bought by current shareholders of the Grupo Financiero. The ten-year issue matures in 2014, at which time the debentures will be converted into shares.

The shareholders at the extraordinary general meeting held on March 17, 2009 resolved to approve the arrangement of a group loan of USD 1,100,000,000 from the shareholders through the placement of unsecured subordinated non-preferential debentures which are not convertible into shares. It should be noted that although approved by the general meeting, this issue had not yet been launched at the reporting date.

e) Specific circumstances that restrict the availability of reserves

Pursuant to the Mexican Credit Institutions Law and the general provisions applicable to credit institutions, to Mexican Companies Law and to the institutions’ own bylaws, universal banking institutions are required to constitute or increase capital reserves for the purposes of ensuring solvency and protecting payment systems and savers.

• The Entity increases its legal reserve annually directly from the profit obtained in the year. The legal reserve can be used for any purpose but the balance must be replenished.

• The Entity must recognize the various reserves as stipulated in the legal provisions applicable to credit institutions. Credit loss reserves are calculated on the basis of the credit rating assigned to each loan and are released when the rating of the related loan improves or when the loan is settled.

f) Non-Group entities which hold, directly or through subsidiaries, 10% or more of equity

Not applicable.

F-249

g) Listed equity instruments

The company does not have any equity instruments listed on a stock exchange.

6)	Abbey National plc (now Santander UK plc)
a)	Number of equity instruments held by the Group

The Group holds 24,117,268,865 fully subscribed and paid ordinary shares of GBP 0.10 par value each, all with the same voting and dividend rights.

b) Capital increases in progress

No approved capital increases are in progress.

c) Capital authorized by the shareholders at the general shareholders’ meeting

The shareholders at the annual general meeting held on June 18, 2009 resolved to authorize an increase in share capital, subject to approval by the board of directors, with the following limits, the amounts used of which are as follows: GBP 2,475,000,000 (24,750,000,000 ordinary shares); GBP 1,000,000,000 (1,000,000,000 preference shares); USD 10,080,000 (1,008,000,000 preference shares) and €10,000,000 (1,000,000,000 preference shares).

Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights

Abbey issued GBP 200 million of subordinated bonds with a 10.06% coupon convertible into preference shares with a par value of €1 each at the issuer’s discretion. The exchange can be made at any time, provided the holders are given between 30 and 60 days’ notice.

Specific circumstances that restrict the availability of reserves

Not applicable.

d) Non-Group entities which hold, directly or through subsidiaries, 10% or more of equity

Not applicable.

e) Listed equity instruments

Not applicable.

F-250

7)	Sovereign Group (now Santander Holdings USA, Inc.)
a)	Number of equity instruments held by the Group

The Group holds 511,107,043 ordinary shares, all of which carry the same voting and dividend rights.

b) Capital increases in progress

On January 20, 2010, the board of directors authorized a capital increase of USD 1,500,000,000.

This capital increase was carried out on March 2, 2010 in two tranches: USD 750,000,000 through the acquisition of subordinated debt and USD 750,000,000 through a direct capital increase.

c) Capital authorized by the shareholders at the general shareholders’ meeting

Not applicable.

d) Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights

Not applicable.

e) Specific circumstances that restrict the availability of reserves

Not applicable.

f) Non-Group entities which hold, directly or through subsidiaries, 10% or more of equity

Not applicable.

g) Listed equity instruments

Class C preference shares and equity securities are listed on the New York Stock Exchange (NYSE).

F-251

Exhibit VI

	Year end December 31,
	2009						2008				2007				2006				2005
	Including			Excluding			Including		Excluding		Including		Excluding		Including		Excluding		Including		Excluding
	interest on			interest on			interest on		interest on		interest on		interest on		interest on		interest on		interest on		interest on
IFRS:	deposits			deposits			deposits		deposits		deposits		deposits		deposits		deposits		deposits		deposits
FIXED CHARGES:
Fixed charges		26,392,227			10,540,180			37,041,015		17,756,819		30,569,963		15,980,396		24,143,967		11,033,379		22,604,978		8,956,326
Preferred dividends		92,294			92,294			37,374		37,374		47,290		47,290		85,229		85,229		118,389		118,389
Fixed charges less Preferred dividends		26,299,933			10,447,886			37,003,641		17,719,445		30,522,673		15,933,106		24,058,738		10,948,150		22,486,589		8,837,937
EARNINGS:
Income from continuing operations before taxes and extraordinary items		10,587,800			10,587,800			10,849,325		10,849,325		10,970,494		10,970,494		8,853,774		8,853,774		7,195,394		7,195,394
Distributed earnings from associated companies		(5,870	)		(5,870	)		695,880		695,880		291,401		291,401		259,269		259,269		434,428		434,428
Fixed charges		26,392,227			10,540,180			37,041,015		17,756,819		30,569,963		15,980,396		24,143,967		11,033,379		22,604,978		8,956,326
Total earnings		36,985,897			21,133,850			47,194,460		27,910,264		41,249,056		26,659,489		32,738,472		19,627,884		29,365,944		15,717,292
Less: Preferred dividends		92,294			92,294			37,374		37,374		47,290		47,290		85,229		85,229		118,389		118,389
Total earnings less preferred stock dividends		36,893,603			21,041,556			47,157,086		27,872,890		41,201,766		26,612,199		32,653,243		19,542,655		29,247,555		15,598,903
Ratio of earnings to fixed charges		1.40			2.01			1.27		1.57		1.35		1.67		1.36		1.78		1.30		1.75
Ratio of earnings to fixed charges less preferred stock dividends		1.40			2.01			1.27		1.57		1.35		1.67		1.36		1.79		1.30		1.76

F-252

EX-1.1

Exhibit 1.1

ESTATUTOS DE BANCO SANTANDER, S.A.

CAPITULO I. LA SOCIEDAD Y SU CAPITAL

Sección 1^a. Identificación de la Sociedad

Artículo 1. Denominación social

La Sociedad se denomina BANCO SANTANDER, S.A. (en adelante, el “Banco” o la “Sociedad”).

El Banco fue fundado en la ciudad de su nombre mediante escritura pública otorgada el tres de marzo de 1856 ante el escribano don José Dou Martínez, ratificada y parcialmente modificada por otra de fecha veintiuno de marzo del siguiente año 1857 ante el escribano de la misma capital don José María Olarán.

Al promulgarse en fecha diecinueve de marzo de 1.874 el Decreto-Ley en cuya virtud se estableció en España la circulación fiduciaria única, caducando entonces en su consecuencia el privilegio de emitir papel moneda que tuvo y que ejercitó desde la fecha en que había iniciado sus operaciones, el Banco se transformó en sociedad anónima de crédito con arreglo a lo dispuesto en la Ley de 19 de octubre de 1869, la cual se hizo cargo del activo y pasivo del que hasta entonces había sido Banco de emisión, todo lo cual quedó solemnizado mediante escritura pública otorgada el 14 de enero de 1875 ante el notario de Santander don Ignacio Pérez, la cual quedó inscrita en el libro de Registro de Comercio de la Sección de Fomento del Gobierno de la Provincia de Santander.

Artículo 2. Objeto social

1. Constituye el objeto social de la Sociedad:

a)	La realización de toda clase de actividades, operaciones y servicios propios del negocio de banca en general y que le estén permitidas por la legislación vigente.
b)	La adquisición, tenencia, disfrute y enajenación de toda clase de valores mobiliarios.

2. Las actividades que integran el objeto social podrán ser desarrolladas total o parcialmente de modo indirecto, en cualquiera de las formas admitidas en Derecho y, en particular, a través de la titularidad de acciones o de participación en sociedades cuyo objeto sea idéntico o análogo, accesorio o complementario de tales actividades.

Artículo 3. Domicilio social y delegaciones

1. El Banco tiene su domicilio social en la ciudad de Santander, Paseo de Pereda, números 9 al 12.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

2. El consejo de administración podrá acordar el cambio de domicilio social dentro del mismo término municipal.

Artículo 4. Inicio de actividades y duración

1.	La Sociedad inició sus operaciones el día veinte de agosto de 1857.
2.	La Sociedad ha sido constituida por tiempo indefinido.

Sección 2^a. El capital social y las acciones

Artículo 5. Capital social

1. El capital social es de 4.114.413.067,50 euros.

2.	El capital social se halla representado por 8.228.826.135 acciones, de cincuenta céntimos de euro de valor nominal cada una, todas ellas pertenecientes a la misma clase y serie.
3.	Todas las acciones se encuentran totalmente desembolsadas.

Artículo 6. Representación de las acciones

1. Las acciones estarán representadas por medio de anotaciones en cuenta y se regirán por la Ley del Mercado de Valores y demás disposiciones que le sean aplicables.

2.	La llevanza del registro contable de anotaciones en cuenta de la Sociedad corresponderá a la entidad o entidades a las que, de acuerdo con la ley, corresponda dicha función.
	La entidad encargada de la llevanza del registro contable de anotaciones en cuenta comunicará al Banco las operaciones relativas a las acciones y el Banco llevará su propio registro con la identidad de los accionistas.

3. La persona que aparezca legitimada en los asientos de los registros de la entidad encargada de la llevanza del registro contable de anotaciones en cuenta se presumirá titular legítimo y, en consecuencia, podrá exigir del Banco que realice a su favor las prestaciones a que dé derecho la acción.

4. Para el supuesto de que la condición formal de accionista corresponda a personas o entidades que ejerzan dicha condición en concepto de fiducia, fideicomiso o cualquier otro título análogo, el Banco podrá requerir de las mismas que le faciliten los datos correspondientes de los titulares reales de las acciones, así como de los actos de transmisión y gravamen de éstas.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Artículo 7. Derechos del accionista

1. La acción confiere a su titular legítimo la condición de socio y le atribuye los derechos previstos en la ley y en estos estatutos y, en particular, los siguientes:

a)	El de participar en el reparto de las ganancias sociales y en el patrimonio resultante de la liquidación.
b)	El de suscripción preferente en la emisión de nuevas acciones o de obligaciones convertibles en acciones.
c)	El de asistir y votar en las juntas generales y el de impugnar los acuerdos sociales.
d)	El de información.

2. El accionista ejercitará sus derechos frente a la Sociedad con lealtad y de conformidad con las exigencias de la buena fe.

3. La Sociedad, en la forma que regulen las disposiciones legales y administrativas, no reconocerá el ejercicio de los derechos políticos derivados de su participación a aquéllos que, infringiendo normas jurídicas imperativas, del tipo y grado que sean, adquieran acciones de ella. De igual modo, la Sociedad hará pública, en la forma que se determine por normas de tal índole, la participación de los socios en su capital, cuando se den las circunstancias exigibles para ello.

Artículo 8. Dividendos pasivos

1. Cuando existan acciones parcialmente desembolsadas, el accionista deberá proceder al desembolso en el momento que determine el consejo de administración en el plazo máximo de cinco años contados desde la fecha del acuerdo de aumento de capital. En cuanto a la forma y demás pormenores del desembolso, se estará a lo dispuesto en el acuerdo de aumento de capital.

2. Sin perjuicio de los efectos de la mora legalmente previstos, todo retraso en el pago de los dividendos pasivos devengará a favor del Banco el interés legal de demora a contar desde el día del vencimiento y sin necesidad de interpelación judicial o extrajudicial, pudiendo aquél, además, ejercitar las acciones que las leyes autoricen para este supuesto.

Artículo 9. Acciones sin voto

1. La Sociedad podrá emitir acciones sin voto por un importe nominal no superior a la mitad del capital social desembolsado.

2. Las acciones sin voto atribuirán a sus titulares los derechos que establezca el acuerdo de emisión, de conformidad con la ley y mediante la oportuna modificación estatutaria.

Artículo 10. Acciones rescatables

1. En los términos legalmente establecidos, la Sociedad podrá emitir acciones rescatables por un importe nominal no superior a la cuarta parte del capital social.

2. Las acciones rescatables atribuirán a sus titulares los derechos que establezca el acuerdo de emisión, de conformidad con la ley y mediante la oportuna modificación estatutaria.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Artículo 11. Titularidad múltiple

1. Cada acción es indivisible.

2.	Las acciones en copropiedad se inscribirán en el correspondiente registro contable a nombre de todos los cotitulares. No obstante, los copropietarios de una acción habrán de designar una sola persona para el ejercicio de los derechos de socio y responderán solidariamente frente a la Sociedad de cuantas obligaciones se deriven de la condición de accionistas.
	La misma regla se aplicará a los demás supuestos de cotitularidad de derechos sobre las acciones.

3.	En el caso de usufructo de las acciones, la cualidad de socio reside en el nudo propietario, pero el usufructuario tendrá derecho en todo caso a los dividendos acordados por la Sociedad durante el usufructo. El ejercicio de los demás derechos de socio corresponde al nudo propietario.
	El usufructuario queda obligado a facilitar al nudo propietario el ejercicio de estos derechos.

4.	En el caso de prenda de acciones corresponderá al propietario de éstas el ejercicio de los derechos de accionista. El acreedor pignoraticio queda obligado a facilitar el ejercicio de estos derechos.
	Si el propietario incumpliese la obligación de desembolsar los dividendos pasivos, el acreedor pignoraticio podrá cumplir por sí esta obligación o proceder a la realización de la prenda.

5. En el caso de otros derechos reales limitados sobre las acciones, el ejercicio de los derechos políticos corresponde al titular del dominio directo.

Artículo 12. Transmisión de las acciones

1. Las acciones y los derechos económicos que derivan de ellas, incluido el de suscripción preferente, son transmisibles por todos los medios admitidos en Derecho.

2.	Las transmisiones de acciones nuevas no podrán hacerse efectivas antes de que se haya practicado la inscripción del aumento de capital en el Registro Mercantil.
3.	La transmisión de las acciones tendrá lugar por transferencia contable.

4. La inscripción de la transmisión a favor del adquirente producirá los mismos efectos que la tradición de los títulos.

5. La constitución de derechos reales limitados u otra clase de gravámenes sobre las acciones deberá inscribirse en la cuenta correspondiente del registro contable.

6. La inscripción de la prenda equivale al desplazamiento posesorio del título.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Sección 3^a. Aumento y reducción del capital

Artículo 13. Aumento de capital

El aumento de capital puede realizarse por emisión de nuevas acciones o por elevación del valor nominal de las antiguas y, en ambos casos, el contravalor puede consistir en aportaciones no dinerarias o dinerarias, incluida la compensación de créditos, o en la transformación de beneficios o reservas disponibles. El aumento de capital podrá efectuarse en parte con cargo a nuevas aportaciones y en parte con cargo a beneficios o reservas disponibles.

Artículo 14. Capital autorizado

1. La junta general podrá delegar en el consejo de administración la facultad de acordar, en una o varias veces, el aumento del capital social hasta una cifra determinada, en la oportunidad y cuantía que decida y dentro de las limitaciones que establece la ley. La delegación podrá incluir la facultad de excluir el derecho de suscripción preferente.

2. La junta general podrá asimismo delegar en el consejo de administración la facultad de determinar la fecha en que el acuerdo ya adoptado de aumentar el capital deba llevarse a efecto y de fijar sus condiciones en todo lo no previsto por la junta.

Artículo 15. Supresión del derecho de suscripción preferente

1. La junta general o, en su caso, el consejo de administración que acuerde el aumento de capital podrán acordar la supresión, total o parcial, del derecho de suscripción preferente de accionistas y titulares de obligaciones convertibles por razones de interés social.

2. No habrá lugar al derecho de suscripción preferente para los antiguos accionistas y titulares de obligaciones convertibles cuando el aumento de capital se deba a la conversión de obligaciones en acciones, a la absorción de otra Sociedad o parte del patrimonio escindido de otra Sociedad, o cuando la Sociedad hubiere formulado una oferta pública de adquisición de valores cuya contraprestación consista, en todo o en parte, en valores a emitir por la Sociedad.

Artículo 16. Reducción de capital

1. La reducción de capital podrá realizarse mediante la disminución del valor nominal de las acciones o mediante su amortización o agrupación para canjearlas. La reducción de capital podrá tener por finalidad la devolución de aportaciones, la condonación de dividendos pasivos, la constitución o incremento de las reservas o el restablecimiento del equilibrio entre el capital y el patrimonio social.

2. En el caso de reducción de capital por devolución de aportaciones, el pago a los accionistas podrá efectuarse, total o parcialmente, en especie, siempre y cuando se cumplan simultáneamente las tres condiciones previstas en el artículo 64.

Sección 4^a. Emisión de obligaciones y otros valores

Artículo 17. Emisión de obligaciones

La Sociedad puede emitir obligaciones en los términos y con los límites legalmente previstos.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Artículo 18. Obligaciones convertibles y canjeables

1. Las obligaciones convertibles y/o canjeables podrán emitirse con relación de cambio fija (determinada o determinable) o variable.

2. El derecho de suscripción preferente de las obligaciones convertibles podrá ser suprimido, en cuyo caso serán de aplicación las reglas legales y estatutarias aplicables a la supresión del derecho de suscripción preferente de las acciones.

3. La junta general podrá delegar en el consejo de administración la facultad de emitir obligaciones simples o convertibles y/o canjeables incluyendo en su caso la facultad de excluir el derecho de suscripción preferente. El consejo de administración podrá hacer uso de dicha delegación en una o varias veces y durante un plazo máximo de cinco años. Asimismo, la junta general podrá autorizar al consejo de administración para determinar el momento en que deba llevarse a efecto la emisión acordada y fijar las demás condiciones no previstas en el acuerdo de la junta.

Artículo 19. Emisión de otros valores

1. La Sociedad podrá emitir pagarés, warrants, participaciones preferentes u otros valores negociables distintos de los previstos en los artículos anteriores.

2. La junta general podrá delegar en el consejo de administración la facultad de emitir dichos valores. El consejo de administración podrá hacer uso de dicha delegación en una o varias veces y durante un plazo máximo de cinco años.

3. La junta general podrá asimismo autorizar al consejo de administración para determinar el momento en que deba llevarse a efecto la emisión acordada, así como para fijar las demás condiciones no previstas en el acuerdo de la junta general, en los términos legalmente previstos.

CAPITULO II. EL GOBIERNO DE LA SOCIEDAD

Sección 1^a. Órganos de la Sociedad

Artículo 20. Distribución de competencias

1. Los órganos de gobierno de la Sociedad son la junta general de accionistas y el consejo de administración.

2. La junta general tiene competencia para decidir sobre todas las materias que le hayan sido atribuidas legal o estatutariamente. En particular y a título meramente ejemplificativo, le compete:

(i)	Nombrar y separar a los consejeros, así como ratificar o revocar los nombramientos provisionales de tales consejeros efectuados por el propio consejo, y examinar y aprobar su gestión;
(ii)	Nombrar y separar a los auditores de cuentas;

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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(iii)	Aprobar, en su caso, las cuentas anuales y resolver sobre la aplicación del resultado, así como aprobar, también en su caso, las cuentas anuales consolidadas;
(iv)	Acordar la emisión de obligaciones u otros títulos de renta fija, el aumento o reducción de capital, la transformación, fusión, escisión o disolución de la Sociedad y, en general, cualquier modificación de los estatutos sociales;
(v)	Autorizar al consejo de administración para aumentar el capital social, conforme a lo previsto en la Ley de Sociedades Anónimas y en estos estatutos;
(vi)	Autorizar la adquisición de acciones propias;
(vii)	Decidir sobre los asuntos que le sean sometidos por acuerdo del consejo de administración;
(viii)	Decidir acerca de la aplicación de sistemas de retribución consistentes en la entrega de acciones o de derechos sobre ellas, así como de cualquier otro sistema de retribución que esté referenciado al valor de las acciones, con independencia de quién resulte ser beneficiario de tales sistemas de retribución;
(ix)	Acordar la filialización o aportación a sociedades dependientes de los activos operativos de la Sociedad convirtiendo a ésta en una pura holding;
(x)	Aprobar, en su caso, la adquisición o la enajenación de activos cuando, por su calidad y volumen, impliquen una modificación efectiva del objeto social; y
(xi)	Acordar las operaciones cuyo efecto sea equivalente a la liquidación de la Sociedad.

3. Las competencias que no se hallen legal o estatutariamente atribuidas a la junta general corresponden al consejo de administración.

Sección 2^a. La junta general de accionistas

Artículo 21. Regulación de la junta general

1. La junta general es el órgano soberano de la Sociedad y sus acuerdos obligan a la totalidad de los accionistas, incluso a los ausentes, los disidentes, los que se abstengan de votar y los que no dispongan de derecho de voto, todo ello sin perjuicio de los derechos y acciones que la ley les reconoce.

2. La junta general se rige por lo dispuesto en los estatutos y en la ley. La regulación legal y estatutaria de la junta deberá desarrollarse y completarse mediante el reglamento de la junta general que detallará el régimen de convocatoria, preparación, información, concurrencia, desarrollo y ejercicio en la junta de los derechos políticos por los accionistas. El reglamento se aprobará por la junta a propuesta del consejo de administración.

Artículo 22. Clases de juntas generales

1. Las juntas generales podrán ser ordinarias o extraordinarias.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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2. La junta general ordinaria se reunirá necesariamente dentro del primer semestre de cada ejercicio social para censurar la gestión social, aprobar, en su caso, las cuentas del ejercicio anterior y resolver sobre la aplicación del resultado, así como para aprobar, en su caso, las cuentas consolidadas, sin perjuicio de su competencia para tratar y decidir sobre cualquier otro asunto que figure en el orden del día. La junta general ordinaria será no obstante válida aunque haya sido convocada o se celebre fuera de plazo.

3. Toda junta que no sea la prevista en el apartado anterior tendrá la consideración de junta general extraordinaria.

4. Todas las juntas, sean ordinarias o extraordinarias, están sujetas a las mismas reglas de procedimiento y competencia.

Artículo 23. Facultad y obligación de convocar

1. El consejo de administración convocará la junta general:

(a)	Cuando proceda de conformidad con lo previsto en el artículo anterior para la junta general ordinaria.
(b)	Cuando lo solicite un número de accionistas titular de, al menos, un cinco por ciento del capital social, expresando en la solicitud los asuntos a tratar en la junta; en este caso, el consejo de administración dispondrá como máximo de quince días, contados desde que hubiere sido requerido notarialmente al efecto, para convocar la reunión con la antelación mínima legalmente exigible.
(c)	Siempre que lo estime conveniente para los intereses sociales.

2. El consejo de administración confeccionará el orden del día, incluyendo necesariamente los asuntos que hubiesen sido objeto de solicitud.

3. Si la junta general ordinaria no fuere convocada dentro del plazo legal, podrá serlo, a petición de los socios y con la audiencia de los administradores, por el juez del domicilio social, quien además designará la persona que habrá de presidirla.

Artículo 24. Convocatoria de la junta general

1. La convocatoria de toda clase de juntas se hará mediante anuncio publicado en el Boletín Oficial del Registro Mercantil y en uno de los periódicos locales de mayor circulación en la provincia del domicilio social, por lo menos un mes antes de la fecha fijada para su celebración.

2. Los accionistas que representen, al menos, el cinco por ciento del capital social podrán solicitar que se publique un complemento de la convocatoria de la junta incluyendo uno o más puntos en el orden del día. A estos efectos, el accionista deberá indicar el número de acciones de las que es titular o que representa. El ejercicio de este derecho deberá hacerse mediante notificación fehaciente que habrá de recibirse en el domicilio social dentro de los cinco días siguientes a la publicación de la convocatoria. El complemento de la convocatoria deberá publicarse con quince días de antelación como mínimo a la fecha establecida para la reunión de la junta.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Artículo 25. Constitución de la junta general

1.	La junta general quedará válidamente constituida en primera convocatoria cuando los accionistas presentes o representados posean, al menos, el veinticinco por ciento del capital social suscrito con derecho de voto. En segunda convocatoria, será válida la constitución de la junta cualquiera que sea el capital concurrente a la misma.
	No obstante, si la junta está llamada a deliberar sobre modificaciones estatutarias, incluidos el aumento y la reducción del capital, sobre la transformación, fusión o escisión de la Sociedad o sobre la emisión de obligaciones, será necesaria, en primera convocatoria, la concurrencia de accionistas que representen, al menos, el cincuenta por ciento del capital social suscrito con derecho de voto. De no concurrir quórum suficiente, la junta general se celebrará en segunda convocatoria.
	Cuando concurran accionistas que representen menos del cincuenta por ciento del capital suscrito con derecho a voto, los acuerdos a que se refiere el párrafo anterior sólo podrán adoptarse válidamente con el voto favorable de los dos tercios del capital, presente o representado, en la junta.

2. Los accionistas que emitan sus votos a distancia deberán ser tenidos en cuenta a efectos de la constitución de la junta como presentes.

3. Si para adoptar válidamente un acuerdo respecto de alguno, o varios, de los puntos de orden del día de la junta general, fuera necesario, de conformidad con la normativa aplicable o estos estatutos, la asistencia de un determinado quórum y dicho quórum no se consiguiera, quedará el orden del día reducido al resto de los puntos del mismo que no requieren el indicado quórum para adoptar válidamente acuerdos.

Artículo 26. Derecho de asistencia

1.	Tendrán derecho de asistencia a las juntas generales los titulares de cualquier número de acciones inscritas a su nombre en el correspondiente registro contable con cinco días de antelación a aquél en que haya de celebrarse la junta y que se hallen al corriente en el pago de los dividendos pasivos.
	Para concurrir a la junta general será indispensable utilizar la correspondiente tarjeta nominativa de asistencia, que se expedirá con referencia a la lista de accionistas que tengan aquel derecho.

2. Los consejeros deberán asistir a las juntas generales, sin perjuicio de que, para la válida constitución de la junta, no será precisa su asistencia.

3. El presidente de la junta general podrá facilitar el acceso a la junta a la prensa económica y a los analistas financieros y, en general, podrá autorizar la asistencia de cualquier persona que juzgue conveniente. La junta, no obstante, podrá revocar dicha autorización.

4. Los accionistas con derecho de asistencia podrán emitir su voto sobre las propuestas relativas a puntos comprendidos en el orden del día de cualquier clase de junta general de conformidad con lo dispuesto en los artículos 33 y 34 de los estatutos.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Artículo 27. Representación en la junta general

1. Todo accionista que tenga derecho de asistencia podrá hacerse representar en la junta general por medio de otra persona, aunque no sea accionista. La representación se conferirá por escrito o por medios electrónicos.

2. La representación se conferirá con carácter especial para cada junta, salvo cuando el representante sea el cónyuge, ascendiente o descendiente del representado, o cuando aquél ostente poder general conferido en documento público con facultades para administrar el patrimonio que tuviere el representado en territorio nacional.

3.

En el caso de que los administradores u otra persona hubieran formulado solicitud pública de representación, el administrador o la persona que la obtenga no podrá ejercitar el derecho de voto correspondiente a las acciones representadas en aquellos puntos del orden del día en los que se encuentre en conflicto de intereses y, en todo caso, respecto a las decisiones relativas a (i) su nombramiento o ratificación, destitución, separación o cese como administrador, (ii) el ejercicio de la acción social de responsabilidad dirigida contra él y (iii) la aprobación o ratificación de operaciones de la Sociedad con el administrador de que se trate, sociedades controladas por él o a las que represente o personas que actúen por su cuenta.

En previsión de la posibilidad de que exista conflicto, la representación podrá conferirse subsidiariamente en favor de otra persona.

4. Si la representación se ha obtenido mediante solicitud pública, el documento en que conste el poder deberá contener o llevar anejo el orden del día, la solicitud de instrucciones para el ejercicio del derecho de voto y la indicación del sentido en que votará el representante en caso de que no se impartan instrucciones precisas, sujeto, en su caso, a lo previsto en la ley.

5. Cuando la representación se confiera o notifique a la Sociedad mediante medios de comunicación a distancia, sólo se reputará válida si se realiza:

a)

mediante entrega o correspondencia postal, haciendo llegar a la Sociedad la tarjeta de asistencia y delegación debidamente firmada y cumplimentada, u otro medio escrito que, a juicio del consejo de administración en acuerdo previo adoptado al efecto, permita verificar debidamente la identidad del accionista que confiere su representación y la del delegado que designa, o

b)

mediante correspondencia o comunicación electrónica con la Sociedad, a la que se acompañará copia en formato electrónico de la tarjeta de asistencia y delegación, en la que se detalle la representación atribuida y la identidad del representado, y que incorpore la firma electrónica u otra clase de identificación del accionista representado, en los términos que fije el consejo de administración en acuerdo adoptado al efecto para dotar a este sistema de representación de las adecuadas garantías de autenticidad y de identificación del accionista representado.

6. Para su validez, la representación conferida o notificada por cualquiera de los citados medios de comunicación a distancia habrá de recibirse por la Sociedad antes de las veinticuatro horas del tercer día anterior al previsto para la celebración de la junta en primera convocatoria. En el acuerdo de convocatoria de la junta de que se trate, el consejo de administración podrá reducir esa antelación exigida, dándole la misma publicidad que se dé al anuncio de convocatoria. Asimismo, el consejo podrá desarrollar las previsiones anteriores referidas a la representación otorgada a través de medios de comunicación a distancia, de conformidad con lo previsto en el artículo 34.5 siguiente.

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7. La representación es siempre revocable. La asistencia a la junta del representado, ya sea personalmente o por haber emitido el voto a distancia, supone la revocación de cualquier delegación, sea cual sea la fecha de aquélla. La representación quedará igualmente sin efecto por la enajenación de las acciones de que tenga conocimiento la Sociedad.

8. La representación podrá incluir aquellos puntos que, aun no estando previstos en el orden del día de la convocatoria, puedan ser tratados en la junta por permitirlo la ley. Si la delegación no los incluyera, se entenderá que el accionista representado instruye a su representante para abstenerse en la votación de esos puntos.

Artículo 28. Lugar y tiempo de celebración

1. La junta general se celebrará en el lugar que indique la convocatoria dentro del municipio en que tenga su domicilio la Sociedad.

2. La asistencia a la junta general podrá realizarse bien acudiendo al lugar en que vaya a realizarse la reunión, bien en su caso a otros lugares que haya dispuesto la Sociedad, indicándolo así en la convocatoria, y que se hallen conectados con aquél por sistemas de videoconferencia que permitan el reconocimiento e identificación de los asistentes, la permanente comunicación entre los concurrentes independientemente del lugar en que se encuentren, así como la intervención y emisión del voto. El lugar principal deberá estar situado en el término municipal del domicilio social, no siendo ello necesario para los lugares accesorios. Los asistentes a cualquiera de los lugares se considerarán, a todos los efectos relativos a la junta general, como asistentes a la misma y única reunión. La reunión se entenderá celebrada en donde radique el lugar principal.

3. Si en la convocatoria no figurase el lugar de celebración, se entenderá que la reunión tendrá lugar en el domicilio social.

Artículo 29. Mesa de la junta general

1. La mesa de la junta general estará compuesta por su presidente y su secretario.

2. La junta general será presidida por el presidente del consejo de administración o, en su defecto, por el vicepresidente que lo sustituya según el artículo 44, y a falta de presidente y vicepresidente, por el consejero que designe el consejo de administración.

3. El presidente estará asistido por el secretario de la junta. Será secretario de la junta general el secretario del consejo de administración, siendo sustituido, en los casos de ausencia, imposibilidad o vacante, por el vicesecretario, y a falta de éste, por el consejero que designe el propio consejo.

4. Corresponde al presidente declarar la junta válidamente constituida, dirigir las deliberaciones, resolver las dudas que se susciten en el orden del día, poner término a los debates cuando estime suficientemente discutido el asunto y, en general, todas las facultades que sean necesarias para la mejor organización y funcionamiento de la junta general.

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Artículo 30. Lista de asistentes

1.	Antes de entrar en el orden del día, se formará la lista de asistentes, en la que se hará constar el nombre de los accionistas presentes y el de los accionistas representados y sus representaciones, así como el número de acciones con que concurren.
	A efectos de quórum, las acciones sin voto solo se computarán en los supuestos específicos establecidos en la Ley de Sociedades Anónimas.

2. La lista de asistentes podrá formarse también mediante fichero o incorporarse a un soporte informático. En tales casos se consignará en la propia acta el medio utilizado y se extenderá en la cubierta precintada del fichero o del soporte la oportuna diligencia de identificación firmada por el secretario con el visto bueno del presidente.

3. Al final de la lista se determinará el número de accionistas presentes, indicando separadamente los que hayan emitido su voto a distancia, y representados así como el importe del capital del que sean titulares, especificando el que corresponde a los accionistas con derecho a voto.

4. La lista de asistentes podrá ser consultada en el acto de la junta por cualquier accionista con derecho de asistencia, sin que su pretensión al respecto obligue a demorar o aplazar el normal desarrollo del acto, una vez que el presidente haya declarado la junta legalmente constituida, y sin que sea obligatoria la lectura de la referida lista o la entrega de copia de la misma.

Artículo 31. Derecho de información

1.	Desde el mismo día de publicación de la convocatoria de la junta general y hasta el séptimo día anterior, inclusive, al previsto para su celebración en primera convocatoria, los accionistas podrán solicitar por escrito las informaciones o aclaraciones que estimen precisas o formular por escrito las preguntas que consideren pertinentes acerca de los asuntos comprendidos en el orden del día.
	Además, con el mismo plazo y forma, los accionistas podrán solicitar informaciones o aclaraciones o formular preguntas por escrito acerca de la información accesible al público que se hubiera facilitado por la Sociedad a la Comisión Nacional del Mercado de Valores desde la celebración de la última junta general.
	En el caso de junta general ordinaria y en los demás supuestos establecidos por la ley, el anuncio de convocatoria indicará lo que proceda respecto del derecho a examinar en el domicilio social y a obtener, de forma inmediata y gratuita, los documentos que han de ser sometidos a la aprobación de la junta y, en su caso, el informe o informes determinados por la ley.

2. Durante la celebración de la junta general, todo accionista podrá solicitar verbalmente las informaciones o aclaraciones que estime precisas acerca de los asuntos comprendidos en el orden del día.

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3. Los consejeros estarán obligados a facilitar la información solicitada conforme a los dos apartados anteriores en la forma y dentro de los plazos previstos por la ley, salvo en los casos en que resulte legalmente improcedente y, en particular, cuando, a juicio del presidente, la publicidad de esa información perjudique los intereses sociales. Esta última excepción no procederá cuando la solicitud esté apoyada por accionistas que representen, al menos, la cuarta parte del capital.

Artículo 32. Deliberación de la junta general

1. Una vez confeccionada la lista de asistentes, el presidente, en su caso, declarará válidamente constituida la junta general y determinará si ésta puede entrar en la consideración de todos los asuntos comprendidos en el orden del día o si, por el contrario, ha de limitarse a algunos de ellos.

2. El presidente declarará abierta la sesión, someterá a deliberación los asuntos incluidos en el orden del día y dirigirá los debates con el fin de que la reunión se desarrolle de forma ordenada, de acuerdo con lo previsto en el reglamento de la junta y demás normativa aplicable.

3. Una vez que el asunto se halle suficientemente debatido, el presidente lo someterá a votación.

Artículo 33. Votación

1. Cada uno de los puntos del orden del día se someterá individualmente a votación.

2. Por regla general y sin perjuicio de que, a juicio del presidente, puedan emplearse otros sistemas alternativos, la votación de las propuestas de acuerdos a que se refiere el apartado precedente se realizará conforme al procedimiento de votación previsto en el reglamento de la junta y demás normativa aplicable.

Artículo 34. Emisión del voto a distancia

1. Los accionistas con derecho de asistencia y voto podrán emitir su voto sobre las propuestas relativas a puntos comprendidos en el orden del día de cualquier junta mediante:

(i)

entrega o correspondencia postal, haciendo llegar a la Sociedad la tarjeta de asistencia y voto, debidamente firmada y cumplimentada (en su caso junto con el formulario de voto que al efecto disponga la sociedad) u otro medio escrito que, a juicio del consejo de administración en acuerdo adoptado al efecto, permita verificar debidamente la identidad del accionista que ejerce su derecho al voto; o

(ii)

correspondencia o comunicación electrónica con la Sociedad, a la que se acompañará copia en formato electrónico de la tarjeta de asistencia y voto (en su caso junto con el formulario de voto que al efecto disponga la Sociedad) y en la que figurará la firma electrónica u otra clase de identificación del accionista, en los términos que fije el consejo de administración en acuerdo adoptado al efecto para dotar a este sistema de emisión del voto de las adecuadas garantías de autenticidad y de identificación del accionista que ejercita su voto.

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2. Para su validez, el voto emitido por cualquiera de los citados medios habrá de recibirse por la Sociedad antes de las veinticuatro horas del tercer día anterior al previsto para la celebración de la junta en primera convocatoria. En caso contrario, el voto se tendrá por no emitido. El consejo de administración podrá reducir esa antelación exigida, dándole la misma publicidad que se dé al anuncio de convocatoria.

3. Los accionistas que emitan su voto a distancia en los términos indicados en este artículo serán considerados como presentes a los efectos de la constitución de la junta general de que se trate. En consecuencia, las delegaciones realizadas con anterioridad a la emisión de este voto se entenderán revocadas y las conferidas con posterioridad se tendrán por no efectuadas.

4. El voto emitido a distancia a que se refiere este artículo quedará sin efecto por la asistencia física a la reunión del accionista que lo hubiera emitido o por la enajenación de las acciones de que tenga conocimiento la Sociedad.

5.	El consejo de administración podrá desarrollar las previsiones anteriores estableciendo las instrucciones, reglas, medios y procedimientos para instrumentar la emisión del voto y el otorgamiento de la representación por medios de comunicación a distancia, con adecuación al estado de la técnica y ajustándose en su caso a las normas que se dicten al efecto y a lo previsto en estos estatutos.
	Asimismo, el consejo de administración, para evitar posibles duplicidades, podrá adoptar las medidas precisas para asegurar que quien ha emitido el voto a distancia o delegado la representación está debidamente legitimado para ello con arreglo a lo dispuesto en estos estatutos.
	Las reglas de desarrollo que adopte el consejo de administración al amparo de lo dispuesto en el presente apartado se publicarán en la página web de la Sociedad.

6.

La asistencia remota a la junta por vía telemática y simultánea y la emisión del voto electrónico a distancia durante la celebración de la junta se regirán por lo establecido en el reglamento de la junta general.

El reglamento de la junta general podrá atribuir al consejo de administración la regulación, con respeto a la ley, los estatutos y el reglamento de la junta, de todos los aspectos procedimentales necesarios, incluyendo, entre otras cuestiones, la antelación mínima con la que se deberá realizar la conexión para considerar al accionista presente, el procedimiento y reglas aplicables para que los accionistas que asistan a distancia puedan ejercitar sus derechos, los requisitos de identificación exigibles para los asistentes a distancia y su influencia en el sistema de formación de la lista de asistentes.

Artículo 35. Adopción de acuerdos

1. La mayoría necesaria para aprobar un acuerdo requerirá el voto favorable de la mitad más uno de las acciones con derecho a voto presentes o representadas en la junta general. Quedan a salvo los supuestos en los que la ley o estos estatutos sociales estipulen una mayoría superior.

2. Los asistentes a la junta general tendrán un voto por cada acción que posean o representen. Las acciones sin voto tendrán este derecho en los supuestos específicos de la Ley de Sociedades Anónimas.

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Artículo 36. Acta de la junta

1. El secretario de la junta levantará acta de la sesión, la cual, una vez aprobada, será recogida en el correspondiente libro de actas.

2. El acta de la junta podrá ser aprobada por la propia junta a continuación de haberse celebrado ésta o, en su defecto y dentro del plazo de quince días, por el presidente y dos interventores, uno en representación de la mayoría y otro de la minoría.

3.	El consejo de administración podrá requerir la presencia de notario para que levante el acta de la junta.
4.	El reglamento de la junta podrá exigir que en todo caso el acta de la junta sea notarial.

5. La facultad de expedir las certificaciones de las actas y acuerdos de las juntas corresponde al secretario y, en su caso, al vicesecretario, con el visto bueno del presidente o, en su caso, del vicepresidente que le sustituya.

6. Cualquier accionista que hubiera votado en contra de un determinado acuerdo tiene derecho a que conste en el acta de la junta general su oposición al acuerdo adoptado.

Sección 3^a.— El consejo de administración

Artículo 37. Estructura del consejo de administración

1. La Sociedad estará administrada por un consejo de administración.

2. El consejo de administración se regirá por las normas legales que le sean de aplicación y por los presentes estatutos. Asimismo, el consejo aprobará un reglamento del consejo de administración que contendrá normas de funcionamiento y régimen interno en desarrollo de dichas previsiones legales y estatutarias. De la aprobación del reglamento del consejo de administración y de sus modificaciones posteriores se informará a la junta general.

Artículo 38. Facultades de administración y supervisión

1. El consejo de administración dispone de las más amplias atribuciones para la administración de la Sociedad y, salvo en las materias reservadas a la competencia de la junta general, es el máximo órgano de decisión de la Sociedad.

2. En todo caso, el consejo asumirá con carácter indelegable aquellas facultades legalmente reservadas a su conocimiento directo, así como aquellas otras necesarias para un responsable ejercicio de la función general de supervisión.

3. El reglamento del consejo detallará el contenido específico de las funciones reservadas al consejo de administración.

Artículo 39. Facultades de representación

1. El poder de representación de la Sociedad, en juicio y fuera de él, corresponde al consejo de administración, que actuará colegiadamente.

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2. Asimismo, ostenta el poder de representación de la Sociedad el presidente del consejo.

3. El secretario del consejo y, en su caso, el vicesecretario, tienen las facultades representativas necesarias para elevar a público y solicitar la inscripción registral de los acuerdos de la junta general y del consejo de administración.

4. Lo dispuesto en este artículo se entiende sin perjuicio de cualesquiera otros apoderamientos que se puedan realizar, tanto generales como especiales.

Artículo 40. Creación de valor para el accionista

1. El consejo de administración y sus órganos delegados ejercitarán sus facultades y, en general, desempeñaran sus cargos con el fin de maximizar el valor de la empresa en interés de los accionistas.

2. El consejo de administración velará, asimismo, para que la sociedad cumpla fielmente la legalidad vigente, respete los usos y buenas prácticas de los sectores o países donde ejerza su actividad y observe los principios de responsabilidad social que hubiera aceptado voluntariamente.

Artículo 41. Composición cuantitativa del consejo

1. El consejo de administración estará integrado por un mínimo de catorce y un máximo de veintidós miembros nombrados por la junta general.

2. Corresponde a la junta general determinar, dentro del rango establecido en el apartado anterior, el número de miembros del consejo. Dicho número podrá quedar fijado también indirectamente, en virtud de los propios acuerdos de nombramiento o revocación de consejeros de la junta general.

Artículo 42. Composición cualitativa del consejo

1. La junta general procurará que el consejo de administración quede conformado de manera tal que los consejeros externos o no ejecutivos representen una amplia mayoría sobre los consejeros ejecutivos y que dentro de aquéllos haya un número razonable de consejeros independientes. Asimismo, la junta general procurará que el número de consejeros independientes represente al menos un tercio del total de consejeros.

2. Lo dispuesto en el apartado anterior no afecta a la soberanía de la junta general, ni merma la eficacia del sistema proporcional, que será de obligada observancia cuando se produzca la agrupación de acciones con arreglo a lo previsto en la Ley de Sociedades Anónimas.

3. A efectos de lo previsto en estos estatutos, los términos consejero externo, consejero dominical, consejero independiente y consejero ejecutivo tendrán el significado que se les atribuya en estos estatutos o que precise el reglamento del consejo de administración.

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Artículo 43. El presidente del consejo

1.	El presidente del consejo de administración será elegido entre los miembros del órgano de administración.
2.	Corresponde al presidente convocar el consejo de administración y dirigir los debates.

Artículo 44. El vicepresidente del consejo

1. El consejo de administración designará de entre sus miembros, por tiempo indefinido, uno o varios vicepresidentes, que serán correlativamente numerados.

2. El vicepresidente o vicepresidentes, por el orden correlativo establecido, y en su defecto, el consejero que corresponda por el orden de numeración establecido por el consejo sustituirá al presidente en caso de ausencia, imposibilidad o indisposición.

Artículo 45. El secretario del consejo

1. El secretario del consejo de administración será siempre el secretario general de la sociedad.

2. Corresponde al secretario cuidar de la legalidad formal y material de las actuaciones del consejo, velar por la observancia de las recomendaciones de buen gobierno asumidas por la Sociedad y garantizar que los procedimientos y reglas de gobierno sean respetados y regularmente revisados.

3. El consejo de administración podrá nombrar un vicesecretario para que asista al secretario del consejo y lo sustituya en el desempeño de sus funciones en caso de ausencia, imposibilidad o indisposición.

4. En caso de ausencia o imposibilidad, el secretario y vicesecretario del consejo podrán ser sustituidos por el consejero que, entre los asistentes a la correspondiente sesión, designe el propio consejo. El consejo podrá también acordar que tal sustituto accidental sea cualquier empleado de la Sociedad.

5. El secretario general desempeñará igualmente la secretaría de todas las comisiones del consejo.

Artículo 46. Reuniones del consejo de administración

1. El consejo se reunirá con la periodicidad necesaria para el adecuado desempeño de sus funciones, previa convocatoria del presidente. El presidente deberá convocar el consejo a iniciativa propia o a petición de, al menos, tres consejeros.

2. El orden del día se aprobará por el consejo en la propia reunión. Todo miembro del consejo podrá proponer la inclusión de cualquier otro punto no incluido en el proyecto de orden del día que el presidente proponga al consejo.

3. A las reuniones del consejo podrá asistir cualquier persona invitada por el presidente.

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Artículo 47. Desarrollo de las sesiones

1. El consejo quedará válidamente constituido cuando concurran, presentes o representados, más de la mitad de sus miembros.

2. Cuando los consejeros no puedan asistir personalmente, podrán delegar para cada sesión y por escrito en cualquier otro consejero para que les represente en aquélla a todos los efectos.

3. El consejo podrá celebrarse en varias salas simultáneamente, siempre y cuando se asegure por medios audiovisuales o telefónicos la interactividad e intercomunicación entre ellas en tiempo real y, por tanto, la unidad de acto. En este caso, se hará constar en la convocatoria el sistema de conexión y, de resultar aplicable, los lugares en que están disponibles los medios técnicos necesarios para asistir y participar en la reunión. Los acuerdos se considerarán adoptados en el lugar donde esté la presidencia.

4. Excepcionalmente, si ningún consejero se opone a ello, podrá celebrarse el consejo por escrito y sin sesión. En este último caso, los consejeros podrán remitir sus votos y las consideraciones que deseen hacer constar en el acta por correo electrónico.

5. Salvo en los casos en que específicamente se requiera una mayoría superior por disposición legal, estatutaria o del reglamento del consejo, los acuerdos se adoptarán por mayoría absoluta de los consejeros asistentes, presentes y representados. El presidente tendrá voto de calidad para decidir los empates.

6. Los acuerdos que adopte el consejo se consignarán en actas firmadas por el presidente y el secretario. Los acuerdos del consejo se acreditarán mediante certificación expedida por el secretario del consejo o, en su caso, por el vicesecretario, con el visto bueno del presidente o, en su caso, del vicepresidente.

7. Estarán facultados permanentemente, de manera solidaria e indistinta, para elevar a documento público los acuerdos del consejo de administración el presidente, el o los vicepresidentes, el o los consejeros delegados, y el secretario del consejo, todo ello sin perjuicio de las autorizaciones expresas previstas en la normativa aplicable.

Sección 4^a. Delegación de facultades del consejo

Artículo 48. El presidente ejecutivo

1. El presidente del consejo de administración tendrá la condición de presidente ejecutivo del Banco y será considerado como superior jerárquico de la Sociedad, investido de las atribuciones necesarias para el ejercicio de esta autoridad. En atención a su particular condición, al presidente ejecutivo le corresponderán, entre otras que se establezcan en los presentes estatutos o en el reglamento del consejo, las siguientes funciones:

a)	Velar por que se cumplan los estatutos sociales y se ejecuten fielmente los acuerdos de la junta general y del consejo de administración.
b)	Ejercer la alta inspección del Banco y de todos sus servicios.
c)	Despachar con el consejero delegado y con la dirección general para informarse de la marcha de los negocios.

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2. El consejo de administración delegará en el presidente todas sus facultades, salvo las que sean legalmente indelegables o las que no puedan ser delegadas en virtud de lo dispuesto en los presentes estatutos o en el reglamento del consejo.

3. La designación del presidente se hará por tiempo indefinido y requerirá el voto favorable de dos tercios de los componentes del consejo.

Artículo 49. Otros consejeros delegados

1. Con independencia de lo previsto en el artículo anterior, el consejo podrá designar de su seno otro u otros consejeros delegados, otorgándoles las facultades que estime convenientes. En ningún caso podrán ser objeto de delegación las facultades que la ley, los presentes estatutos o el reglamento del consejo reserven al conocimiento del consejo en pleno.

2.

La atribución al presidente y a cualquier otro miembro del consejo de facultades ejecutivas permanentes, generales o sectoriales, distintas de las de supervisión y decisión colegiada propias del mero consejero, podrá realizarse en virtud de delegación orgánica, por medio de apoderamientos generales o a través de otros títulos contractuales y se acordará por una mayoría de dos tercios del consejo. Los miembros del consejo destinatarios de dichas facultades tendrán la consideración de consejeros ejecutivos.

El acuerdo de atribución o delegación determinará la extensión de las facultades que se confieren al consejero ejecutivo, las retribuciones que le corresponden por este concepto y los demás términos y condiciones de la relación, que se incorporarán al oportuno contrato.

Artículo 50. Comisiones del consejo de administración

1. Sin perjuicio de las delegaciones de facultades que se realicen a título individual al presidente o a cualquier otro consejero y de la facultad que le asiste para constituir comisiones delegadas por áreas específicas de actividad, el consejo de administración constituirá en todo caso una comisión ejecutiva, con delegación de facultades decisorias generales, y una comisión delegada de riesgos, con facultades delegadas básicamente en materia de riesgos.

2. El consejo podrá asimismo constituir comisiones con funciones de supervisión, información, asesoramiento y propuesta en las materias propias de su competencia, debiendo en todo caso constituir una comisión de auditoría y cumplimiento y una comisión de nombramientos y retribuciones.

3. El funcionamiento de las comisiones del consejo se regirá, en lo no previsto en estos estatutos, por lo previsto en el reglamento del consejo.

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Sección 5^a. Comisiones del consejo de administración

Artículo 51. La comisión ejecutiva

1. La comisión ejecutiva estará compuesta por un mínimo de cinco y un máximo de doce consejeros. El presidente del consejo de administración será, asimismo, presidente de la comisión ejecutiva.

2. La delegación permanente de facultades en la comisión ejecutiva y los acuerdos de nombramiento de sus miembros requerirán el voto favorable de al menos dos tercios de los componentes del consejo de administración.

3. La delegación permanente de facultades del consejo de administración a favor de la comisión ejecutiva comprenderá todas las facultades del consejo, salvo las que sean legalmente indelegables o las que no puedan ser delegadas en virtud de lo dispuesto en los presentes estatutos o en el reglamento del consejo.

4. La comisión ejecutiva se reunirá cuantas veces sea convocada por su presidente o vicepresidente que le sustituya.

5. La comisión ejecutiva informará al consejo de administración de los asuntos y decisiones adoptadas en sus sesiones y pondrá a disposición de los miembros del consejo copia de las actas de dichas sesiones.

Artículo 52. La comisión delegada de riesgos

1. El consejo de administración constituirá una comisión delegada de riesgos, que tendrá carácter ejecutivo, a la que se encomendarán facultades relativas a la gestión de riesgos.

2. La comisión delegada de riesgos estará compuesta por un mínimo de cuatro y un máximo de seis consejeros.

3. El reglamento del consejo regulará la composición, el funcionamiento y las competencias de la comisión delegada de riesgos.

4. La delegación de facultades en la comisión delegada de riesgos y los acuerdos de nombramiento de sus miembros requerirán el voto favorable de, al menos, dos tercios de los componentes del consejo.

Artículo 53. La comisión de auditoría y cumplimiento

1. La comisión de auditoría y cumplimiento estará formada por un mínimo de tres y un máximo de siete consejeros, todos externos o no ejecutivos, con una mayoritaria representación de consejeros independientes.

2. Los integrantes de la comisión de auditoría y cumplimiento serán designados por el consejo de administración teniendo presentes los conocimientos, aptitudes y experiencia en materia de contabilidad, auditoría o gestión de riesgos de los consejeros.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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3.

La comisión de auditoría y cumplimiento deberá estar, en todo caso, presidida por un consejero independiente en el que, además, concurran conocimientos y experiencia en materia de contabilidad, auditoría o gestión de riesgos. El presidente de la comisión de auditoría y cumplimiento deberá ser sustituido cada cuatro años, pudiendo ser reelegido una vez transcurrido el plazo de un año desde su cese.

4.

Las competencias de la comisión de auditoría y cumplimiento serán, como mínimo:

(i)	Informar, a través de su presidente y/o su secretario, en la junta general de accionistas sobre las cuestiones que en ella planteen los accionistas en materias de su competencia.
(ii)	Proponer al consejo de administración, para su sometimiento a la junta general, la designación del auditor de cuentas.
(iii)	Supervisar los servicios de auditoría interna.
(iv)	Conocer el proceso de información financiera y de los sistemas internos de control.
(v)	Mantener las relaciones con el auditor de cuentas para recibir información sobre aquellas cuestiones que puedan poner en riesgo la independencia de éste, y cualesquiera otras relacionadas con el proceso de desarrollo de la auditoría de cuentas, así como mantener con el auditor de cuentas aquellas otras comunicaciones previstas en la legislación de auditoría de cuentas y en las normas técnicas de auditoría.

5. La comisión de auditoría y cumplimiento se reunirá cuantas veces sea convocada por acuerdo de la propia comisión o de su presidente y, al menos, cuatro veces al año, estando obligado a asistir a sus reuniones y a prestarle su colaboración y acceso a la información de que disponga cualquier miembro del equipo directivo o del personal de la Sociedad que sea requerido a tal fin, y pudiendo requerir también la asistencia del auditor de cuentas. Una de sus reuniones estará destinada necesariamente a evaluar la eficiencia y el cumplimiento de las reglas y procedimientos de gobierno de la Sociedad y a preparar la información que el consejo ha de aprobar e incluir dentro de la documentación pública anual.

6. La comisión de auditoría y cumplimiento quedará válidamente constituida con la asistencia, presentes o representados, de, al menos, la mitad de sus miembros; y adoptará sus acuerdos por mayoría de los asistentes, presentes o representados, siendo de calidad el voto de su presidente. Los miembros de la comisión podrán delegar su representación en otro de ellos. Los acuerdos de la comisión de auditoría y cumplimiento se llevarán en un libro de actas, que será firmado, para cada una de ellas, por el presidente y el secretario.

7. El reglamento del consejo desarrollará el régimen de la comisión de auditoría y cumplimiento previsto en este artículo.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Artículo 54. La comisión de nombramientos y retribuciones

1. Se constituirá una comisión de nombramientos y retribuciones, a la que se encomendarán facultades generales de propuesta e informe en materia retributiva y de nombramientos y ceses de consejeros.

2. La comisión de nombramientos y retribuciones estará formada por un mínimo de tres y un máximo de siete consejeros, todos externos o no ejecutivos, con una mayoritaria representación de consejeros independientes.

3. Los integrantes de la comisión de nombramientos y retribuciones serán designados por el consejo de administración, teniendo presentes los conocimientos, aptitudes y experiencia de los consejeros y los cometidos de la comisión.

4. La comisión de nombramientos y retribuciones deberá estar en todo caso presidida por un consejero independiente.

5. El reglamento del consejo regulará la composición, el funcionamiento y las competencias de la comisión de nombramientos y retribuciones.

Sección 6^a. Estatuto del consejero

Artículo 55. Duración del cargo

1. Los cargos se renovarán anualmente por quintas partes, siguiéndose para ello el turno determinado por la antigüedad en aquéllos, según la fecha y orden del respectivo nombramiento. Es decir, la duración del cargo de consejero será de cinco años. Los consejeros cesantes podrán ser reelegidos.

2. Los consejeros designados por cooptación podrán ser ratificados en su cargo en la primera junta general que se celebre con posterioridad a su designación.

3.	El consejero que termine su mandato o por cualquier otra causa cese en el desempeño de su cargo no podrá prestar servicios en otra entidad competidora durante el plazo de dos años.
	El consejo de administración, si lo considera oportuno, podrá dispensar al consejero saliente de esta obligación o acortar el periodo de su duración.

Artículo 56. Cese de los consejeros

1. Los consejeros cesarán en el cargo cuando haya transcurrido el periodo para el que fueron nombrados, y cuando lo decida la junta general en uso de las atribuciones que tiene conferidas. En el primer caso, el cese será efectivo el día en que se reúna la primera junta general posterior a la fecha de vencimiento del periodo de su nombramiento, o hubiese transcurrido el término legal para la convocatoria de la junta que hubiese de resolver sobre la aprobación de cuentas del ejercicio anterior.

2. Los consejeros deberán poner su cargo a disposición del consejo de administración y formalizar la correspondiente dimisión si éste, previo informe de la comisión de nombramientos y retribuciones, lo considera conveniente, en los casos que puedan afectar negativamente al funcionamiento del consejo o al crédito y reputación de la Sociedad y, en particular, cuando se hallen incursos en alguno de los supuestos de incompatibilidad o prohibición legalmente previstos.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Artículo 57. Responsabilidad del consejero

1. Los consejeros responderán frente a la Sociedad, frente a los accionistas y frente a los acreedores sociales del daño que causen por actos u omisiones contrarios a la ley o a estos estatutos o por los realizados incumpliendo los deberes inherentes al desempeño del cargo.

2. Responderán solidariamente todos los miembros del consejo de administración que realizó el acto o adoptó el acuerdo lesivo, menos los que prueben que, no habiendo intervenido en su adopción y ejecución, desconocían su existencia o, conociéndola, hicieron todo lo conveniente para evitar el daño o, al menos, se opusieron expresamente a aquél.

3. En ningún caso exonerará de responsabilidad la circunstancia de que el acto o acuerdo lesivo haya sido adoptado, autorizado o ratificado por la junta general.

Artículo 58. Retribución de los consejeros

1. Los consejeros tendrán derecho a percibir una retribución por el ejercicio de las funciones que les corresponde desarrollar en virtud de su designación como meros miembros del consejo de administración, sea por la junta general de accionistas o sea por el propio consejo en virtud de sus facultades de cooptación.

2.	La retribución a que se refiere el apartado anterior se abonará en concepto de participación en el beneficio y como atención estatutaria. Dicha retribución tendrá dos componentes: (a) una asignación anual y (b) dietas de asistencia. Las dietas de asistencia se abonarán anticipadamente a cuenta del beneficio del ejercicio.
	La determinación concreta del importe que corresponda por los conceptos anteriores a cada uno de los consejeros será hecha por el consejo de administración. A tal efecto, tendrá en cuenta los cargos desempeñados por cada consejero en el propio órgano colegiado y su pertenencia y asistencia a las distintas comisiones.
	El importe conjunto de las retribuciones comprendidas en este apartado será equivalente al uno por ciento del beneficio del ejercicio de la Sociedad, si bien el propio consejo podrá acordar reducir dicho porcentaje de participación en los años en que así lo estime justificado.

3. Además del sistema de retribución previsto en los apartados anteriores, los consejeros tendrán derecho a ser retribuidos mediante la entrega de acciones, o mediante la entrega de derechos de opción sobre las mismas o mediante retribución referenciada al valor de las acciones, siempre y cuando la aplicación de alguno de estos sistemas de retribución sea acordada previamente por la junta general de accionistas. Dicho acuerdo determinará, en su caso, el número de acciones a entregar, el precio de ejercicio de los derechos de opción, el valor de las acciones que se tome como referencia y el plazo de duración del sistema de retribución.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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4. Con independencia de lo previsto en los apartados anteriores, los consejeros tendrán derecho a percibir las remuneraciones (sueldos, incentivos, bonuses, pensiones, seguros y compensaciones por cese) que, previa propuesta de la comisión de nombramientos y retribuciones y por acuerdo del consejo de administración, se consideren procedentes por el desempeño en la Sociedad de otras funciones, sean de consejero ejecutivo o de otro tipo, distintas de las de supervisión y decisión colegiada que desarrollan como meros miembros del consejo.

5. La Sociedad contratará un seguro de responsabilidad civil para sus consejeros en las condiciones usuales y proporcionadas a las circunstancias de la propia Sociedad.

Artículo 59. Transparencia del régimen retributivo

1. El consejo de administración aprobará anualmente un informe sobre la política de retribuciones en el que expondrá los criterios y fundamentos para determinar las remuneraciones de los consejeros correspondientes al último ejercicio y al que se halla en curso, poniéndolo a disposición de los accionistas con ocasión de la convocatoria de la junta general ordinaria. El contenido del informe se regulará en el reglamento del consejo.

2. En la memoria anual se informará de forma individualizada de las retribuciones percibidas por cada consejero, con expresión de las cantidades correspondientes a cada concepto retributivo. También se harán constar en la memoria, de forma individualizada y por cada uno de los conceptos, las retribuciones que correspondan, de conformidad con los artículos 49 y 58.4, a las funciones ejecutivas encomendadas a los consejeros ejecutivos de la Sociedad.

Sección 7^a. Informe sobre gobierno corporativo y página web

Artículo 60. Informe anual de gobierno corporativo

1. El consejo de administración elaborará un informe anual de gobierno corporativo que prestará especial atención (i) al grado de seguimiento de las recomendaciones en materia de buen gobierno contenidas en los informes oficiales; (ii) al funcionamiento de la junta general y desarrollo de las sesiones; (iii) a las operaciones vinculadas y a las operaciones intragrupo; (iv) a la estructura de propiedad de la Sociedad; (v) a la estructura de la administración de la Sociedad; y (vi) a los sistemas de control del riesgo.

2. El informe anual de gobierno corporativo será puesto a disposición de los accionistas en la página web de la Sociedad no más tarde de la fecha de publicación de la convocatoria de la junta general ordinaria que haya de resolver sobre las cuentas anuales correspondientes al ejercicio al que se refiera el indicado informe.

Artículo 61. Página web

1. La Sociedad tendrá una página web a través de la cual se informará a sus accionistas, inversores y al mercado en general de los hechos de carácter relevante o significativo que se produzcan en relación con la Sociedad.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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2. Sin perjuicio de cuanta documentación adicional venga exigida por la normativa aplicable, la página web de la Sociedad incluirá, como mínimo, la información y documentos que se recojan en el reglamento del consejo.

CAPITULO III. OTRAS DISPOSICIONES

Sección 1^a. Las cuentas anuales

Artículo 62. Formulación de las cuentas anuales

1. El ejercicio social corresponderá al año natural, comenzando el 1 de enero y terminando el 31 de diciembre de cada año.

2. En el plazo máximo de tres meses, contados a partir del cierre de cada ejercicio social, el consejo de administración formulará las cuentas anuales, que incluyen el balance, la cuenta de pérdidas y ganancias, la memoria, el estado de cambios en el patrimonio y el estado de flujo de efectivo, el informe de gestión, la propuesta de aplicación del resultado así como, en su caso, las cuentas y el informe de gestión consolidados.

3. El consejo de administración procurará formular las cuentas de manera tal que no haya lugar a salvedades por parte del auditor de cuentas. No obstante, cuando el consejo considere que debe mantener su criterio, explicará públicamente, a través del presidente de la comisión de auditoría y cumplimiento, el contenido y el alcance de la discrepancia y procurará, asimismo, que el auditor de cuentas dé igualmente cuenta de sus consideraciones al respecto.

4. Las cuentas anuales y el informe de gestión de la Sociedad deberán ser revisados por los auditores de cuentas, designados por la junta general antes de que finalice el ejercicio por auditar, por un periodo determinado que no podrá ser inferior a tres años ni superior a nueve, a contar desde la fecha en que se inicie el primer ejercicio a auditar, pudiendo ser reelegidos por la junta general anualmente un vez finalizado el período inicial.

Artículo 63. Aprobación de las cuentas y distribución del resultado

1. Las cuentas anuales se someterán a la aprobación de la junta general de accionistas.

2. Una vez aprobadas las cuentas anuales, la junta general resolverá sobre la aplicación del resultado del ejercicio.

3. Sólo podrán repartirse dividendos con cargo al beneficio del ejercicio, o a reservas de libre disposición, si se han cubierto las atenciones previstas por la ley y estos estatutos y el valor del patrimonio neto contable no es o, a consecuencia del reparto, no resulta ser inferior al capital social. Si existiesen pérdidas de ejercicios anteriores que hiciesen que ese valor del patrimonio neto de la Sociedad fuese inferior a la cifra del capital social, el beneficio se destinará a compensar las pérdidas.

4. La junta general acordará la cuantía, momento y forma de pago de los dividendos, que se distribuirán a los accionistas en proporción al capital que hayan desembolsado.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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5. La junta general y el consejo de administración podrán acordar la distribución de cantidades a cuenta de dividendos, con las limitaciones y cumpliendo con los requisitos establecidos por la ley.

Artículo 64. Dividendo en especie

La junta general podrá acordar que el dividendo sea satisfecho total o parcialmente en especie, siempre y cuando:

(i)	los bienes o valores objeto de distribución sean homogéneos;
(ii)	estén admitidos a cotización en un mercado oficial -en el momento de la efectividad del acuerdo- o quede debidamente garantizada por la Sociedad la obtención de liquidez en el plazo máximo de un año; y
(iii)	no se distribuyan por un valor inferior al que tienen en el balance de la Sociedad.

Artículo 65. Depósito de las cuentas anuales

Dentro del mes siguiente a la aprobación de las cuentas anuales, el consejo de administración presentará, para su depósito en el registro mercantil del domicilio social del Banco, certificación de los acuerdos de la junta general de aprobación de las cuentas anuales y de aplicación del resultado. A la certificación acompañará un ejemplar de cada una de dichas cuentas, así como, en su caso, del informe de gestión y del informe de los auditores de cuentas.

Sección 2^a. Disolución y liquidación de la Sociedad

Artículo 66. Disolución de la Sociedad

La Sociedad se disolverá en los casos y con los requisitos previstos en la legislación vigente.

Artículo 67. Liquidadores

1. Disuelta la Sociedad, todos los miembros del consejo de administración con nombramiento vigente e inscrito en el Registro Mercantil quedarán de Derecho convertidos en liquidadores, salvo que la junta general hubiese designado otros liquidadores en el acuerdo de disolución.

2. En el supuesto de que el número de los consejeros no fuera impar, el consejero de menor edad no asumirá la condición de liquidador.

Artículo 68. Representación de la sociedad disuelta

En caso de disolución de la Sociedad, el poder de representación corresponderá solidariamente a cada uno de los liquidadores.

Artículo 69. Activo y pasivo sobrevenidos

1. Cancelados los asientos relativos a la Sociedad, si aparecieran bienes sociales los liquidadores deberán adjudicar a los antiguos socios la cuota adicional que les corresponda, previa conversión de los bienes en dinero cuando fuere necesario.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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Transcurridos seis meses desde que los liquidadores fueren requeridos para dar cumplimiento a lo establecido en el inciso anterior sin que hubieren adjudicado a los antiguos socios la cuota adicional, o en caso de defecto de liquidadores, cualquier interesado podrá solicitar del juez del último domicilio social el nombramiento de persona que los sustituya en el cumplimiento de sus funciones.

2. Los antiguos socios responderán solidariamente de las deudas sociales no satisfechas hasta el límite de lo que hubieran recibido como cuota de liquidación, sin perjuicio de la responsabilidad de los liquidadores en caso de dolo o culpa.

3. Para el cumplimiento de requisitos de forma relativos a actos jurídicos anteriores a la cancelación de los asientos de la Sociedad, o cuando fuere necesario, los antiguos liquidadores podrán formalizar actos jurídicos en nombre de la sociedad extinguida con posterioridad a la cancelación registral de ésta. En defecto de liquidadores, cualquier interesado podrá solicitar la formalización por el juez del domicilio que hubiere tenido la Sociedad.

Sección 3^a. Disposiciones generales

Artículo 70. Fuero

Los accionistas, con renuncia de su fuero propio, quedan expresamente sometidos al fuero judicial del domicilio del Banco.

Artículo 71. Comunicaciones

Sin perjuicio de lo establecido en estos estatutos respecto de la representación, el voto a distancia y la asistencia telemática simultánea a la junta, los actos de comunicación e información, preceptivos o voluntarios, entre la Sociedad, los accionistas y los consejeros, cualquiera que sea el emisor y el destinatario de los mismos, se podrán realizar por medios electrónicos y telemáticos, salvo en los casos expresamente exceptuados por la ley y respetando, en todo caso, las garantías de seguridad y los derechos de los accionistas, a cuyo fin el consejo de administración podrá establecer los mecanismos técnicos y procedimientos oportunos, a los que dará publicidad a través de la página web.

Banco Santander, S.A. — Domicilio Social: Paseo de Pereda, 9-12. 39004 SANTANDER — R. M. de Santander, Hoja 286, Folio 64, Libro 5º de Sociedades, Inscripción 1^a. C.I.F. A-39000013

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EX-1.2

Exhibit 1.2

BYLAWS OF BANCO SANTANDER, S.A.

CHAPTER I. THE COMPANY AND ITS CAPITAL

Section 1. Name of the Company

Article 1. Corporate name

The name of the Company is BANCO SANTANDER, S.A. (hereinafter, the “Bank” or the “Company”).

The Bank was founded in the city for which it was named, by means of a public instrument executed on 3 March 1856 before notary public Mr. José Dou Martínez; such public instrument was ratified and partially amended by another one dated 21 March 1857 and executed before notary public Mr. José María Olarán, of the above-mentioned capital city.

As a result of the enactment of the Decree-Law dated 19 March 1874, whereby the circulation of a single paper currency was established in Spain, the privilege of issuing paper money which the Bank had and which it had exercised from the date it commenced operations expired. Thus, the Bank became a credit company [“sociedad anónima de crédito”] pursuant to the provisions of the Law dated 19 October 1869. Such credit company took over the assets and liabilities of what had been, until that time, an issuing Bank. All of the foregoing was formalized by public instrument executed on 14 January 1875 before notary public Mr. Ignacio Pérez, of the City of Santander, which public instrument was recorded in the Commercial Registry book of the Trade Promotion Section of the Government of the Province of Santander.

Article 2. Corporate purpose

1. The corporate purpose of the Company consists of:

a)	The conduct of activities and operations and the provision of services of any kind which are typical of the banking business in general and which are permitted under current law.
b)	The acquisition, possession, enjoyment and disposition of all types of securities.

2. The activities that make up the corporate purpose may be carried out totally or partially in an indirect manner, in any of the manners permitted by Law and, in particular, through the ownership of shares or the holding of interests in Companies whose purpose is identical, similar, incidental or supplemental to such activities.

Article 3. Registered office and other offices

1. The registered office of the Bank is located in the city of Santander, Paseo de Pereda, numbers 9-12.

2. The board of directors may resolve to change the location of the registered office within the same municipal area.

Article 4. Commencement of activities and duration

1.	The Company commenced its activities on 20 August 1857.
2.	The duration of the Company is indefinite.

Section 2. Share capital and shares

Article 5. Share capital

1. The share capital is 4,114,413,067.50 euros.

2.	The share capital is represented by 8,228,826,135 shares having a nominal value of fifty euro cents each, all of which belong to the same class and series.
3.	All the shares have been fully paid-up.

Article 6. Form of the shares

1. The shares are represented in book-entry form and are governed by the Securities Market Law [Ley del Mercado de Valores] and such other provisions as may be applicable.

2.	The book-entry registry of the Company shall be maintained by the entity or entities charged by the law with such duty.
	The entity in charge of the book-entry registry shall notify the Bank of transactions involving the shares and the Bank shall keep its own stock ledger with the name of the shareholders.

3. The person whose name appears as the holder in the entries in the records of the entity in charge of the book-entry registry shall be deemed the legitimate holder thereof, and therefore, such person may request from the Bank the benefits to which the shares entitle them.

4. In the event of persons or entities formally acting as shareholders under a fiduciary agreement, trust, or any other similar title, the Bank may require such persons to provide the particulars of the beneficial owners of the shares, as well as information regarding all acts entailing the transfer of such shares or the creation of liens thereon.

Article 7. Shareholders’ rights

1. Shares confer on the lawful holders thereof the status of shareholder and give them the rights set forth in the law and in these bylaws and, specifically, the following:

a)	The right to share in the distribution of corporate earnings and in the net assets resulting from liquidation.
b)	The pre-emptive right to subscribe to the issuance of new shares or debentures convertible into shares.
c)	The right to attend and vote at the General Shareholders’ Meetings and to challenge corporate resolutions.
d)	The right to receive information.

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2. Shareholders shall exercise their rights vis-à-vis the Company with loyalty and good faith.

3. In such manner as is set forth in legal and administrative provisions, the Company shall not acknowledge the exercise of voting and related rights arising from interests in the Company held by persons who acquire shares thereof in violation of mandatory legal rules of any type or rank. Likewise, the Company shall make public, in such manner as determined by the above-mentioned regulations, the interest held by the shareholders in the capital of the Company, whenever the circumstances requiring such publication arise.

Article 8. Capital calls

1. Unpaid subscription amounts on partially paid-up shares shall be paid up by the shareholders at the time determined by the board of directors, within five years of the date of the resolution providing for the capital increase. The manner and other details of such payment shall be determined by the resolution providing for the capital increase.

2. Without prejudice to the effects of default as set forth by law, any late payment of unpaid subscription amounts shall bear, for the benefit of the Bank, such interest as is provided by law in respect of late payments, starting from the day when payment is due and without any judicial or extra-judicial demand being required. In addition, the Bank shall be entitled to bring such legal actions as may be permitted by law in these cases.

Article 9. Non-voting shares

1. The Company may issue non-voting shares for a nominal amount of not more than one-half of the paid-up share capital.

2. Non-voting shares shall attribute to the holders thereof the rights established in the resolution for the issuance thereof, in accordance with law and by means of an appropriate amendment of the bylaws.

Article 10. Redeemable shares

1. The Company may, on the terms established by law, issue redeemable shares for a nominal amount not to exceed one-fourth of its share capital.

2. Redeemable shares shall give the holders thereof the rights that are established in the resolution providing for the issuance thereof, in accordance with law and by means of the appropriate bylaw amendment.

Article 11. Co-ownership

1. Each share is indivisible.

2.	Shares that are jointly owned shall be registered in the respective book-entry registry in the name of all co-owners. However, the co-owners of a share shall appoint a single person to exercise shareholder rights and shall be jointly and severally liable to the Company for all obligations entailed by the status of shareholders.
	The same rule shall apply in all other instances of co-ownership of rights over shares.

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3.	In the case of usufruct of shares, the status of shareholder lies with the bare owner, but the usufructuary shall in every case be entitled to receive the dividends the Company resolves to distribute during the usufruct. The bare owner shall exercise all other shareholder rights.
	The usufructuary has the obligation to facilitate the exercise of such rights by the bare owner.

4.	If the shares are pledged, the owner thereof shall be entitled to exercise shareholder rights. The pledgee shall have the obligation to facilitate the exercise of such rights.
	In the event that the owner fails to comply with his obligation to pay capital calls, the pledgee may perform such obligation himself or foreclose on the pledge.

5. In all other cases of limited in rem rights on shares, voting and related rights shall be exercised by the direct owner thereof.

Article 12. Transfer of shares

1. Shares and the economic rights attaching thereto, including pre-emptive rights, may be transferred by any means permitted by Law.

2.	New shares may not be transferred until the capital increase is registered with the Commercial Registry.
3.	Shares shall be transferred by means of book-entries.

4. The registration of the transfer in favor of the transferee shall have the same effect as the delivery of the securities.

5.	The creation of limited in rem rights or other liens on shares shall be registered in the respective account of the book-entry registry.
6	Registration of the pledge is equivalent to transfer of title

Section 3. Capital increase and reduction

Article 13. Capital increase

Capital increases may be effected by issuing new shares or by increasing the par value of existing shares and, in both cases, the consideration therefore may consist of non monetary or -monetary contributions, including the set-off of receivables, or of the transformation of available profits or reserves. Capital increases may be made partly with a charge to new contributions and partly with a charge to unappropriated profits or reserves.

Article 14. Authorized capital

1. The shareholders acting at the general shareholders’ meeting may delegate to the board of directors the power to resolve, on one or more occasions, to increase the share capital up to a specified amount, at the time and in the amount it may decide and within the limits established by the law. Such delegation may include the power to exclude pre-emptive rights.

2. The shareholders at the general shareholders’ meeting may also delegate to the board of directors the power to determine the date on which the adopted resolution to increase the share capital is to be implemented and to set the terms thereof regarding all matters not specified by the shareholders at the general shareholders’ meeting.

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Article 15. Exclusion of pre-emptive rights

1. The shareholders acting at the general shareholders’ meeting or the board of directors approving an increase in share capital, as the case may be, may resolve to exclude the pre-emptive rights of shareholders and convertible debenture holders in whole or in part, to further the best interests of the Company.

2. The pre-emptive rights of existing shareholders and convertible debentures holders shall be excluded when the capital increase is due to the conversion of debentures into shares, the merger of another company into the Company or of part of the assets split off from another company, or when the Company has made a tender offer for securities the consideration for which consists, in whole or in part, of securities to be issued by the Company.

Article 16. Capital reduction

1. Capital reductions may be effected by reducing the par value of the shares or by repurchasing them or dividing them into groups for exchange. Capital reductions may be effected in order to return contributions, to release unpaid capital calls, establish or increase reserves or to restore the balance between the share capital and the shareholders’ equity.

2. In the event of a capital reduction to return contributions, payment to shareholders may be made in kind in whole or in part, provided the three conditions set forth in Article 64 are concurrently met.

Section 4. Issuance of debentures and other securities

Article 17. Issuance of debentures

The Company may issue debentures on the terms and with the limits established by law.

Article 18. Convertible and exchangeable debentures

1. Convertible and/or exchangeable debentures may be issued at a fixed (determined or determinable) or variable exchange ratio.

2. The pre-emptive rights attaching to convertible debentures may be excluded, in which case the rules of the law and the bylaws governing the exclusion of the pre-emptive rights of shares shall apply.

3. The shareholders acting at a general shareholders’ meeting may delegate to the board of directors the power to issue simple or convertible and/or exchangeable debentures, including, if applicable, the power to exclude preemptive rights. The board of directors may make use of this delegation on one or more occasions within a maximum period of five years. The shareholders acting at a general shareholders’ meeting may also authorize the board of directors to determine the time when the issuance approved is to be carried out and to set the other terms not specified in the resolution of the shareholders.

Article 19. Issuance of other securities

1. The Company may issue notes, warrants, preferred stock or other negotiable securities other than those described in the preceding articles.

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2. The shareholders acting at a general shareholders’ meeting may delegate to the board of directors the power to issue such securities. The board of directors may exercise such delegated power on one or more occasions and during a maximum period of five years.

3. The shareholders at a general shareholders’ meeting may likewise authorize the board of directors to determine the time when the issuance approved is to be effected, and to set all other terms not specified in the resolution adopted at the general shareholders’ meeting, on the terms established by law.

CHAPTER II. GOVERNANCE OF THE COMPANY

Section 1. Corporate decision-making bodies

Article 20. Distribution of powers

1. The corporate decision-making bodies of the Company are the shareholders acting at a general shareholders’ meeting and the board of directors.

2. The general shareholders’ meeting has the power to decide on all matters assigned to it by the law or the bylaws. Specifically and merely by way of example, it has the following powers:

(i)	To appoint and remove the directors and to ratify or revoke the interim appointments of such directors made by the board itself, as well as to examine and approve their performance;
(ii)	To appoint and remove the auditors;
(iii)	To approve the annual accounts, if appropriate, and adopt resolutions on the allocation of results, as well as to approve, also if appropriate, the consolidated annual accounts;
(iv)	To adopt resolutions on the issuance of debentures or other fixed-income securities, any capital increase or reduction, the transformation, merger, split-off or dissolution of the Company and, in general, any amendment of the bylaws;
(v)	To authorize the board of directors to increase the share capital, pursuant to the provisions of the Business Corporations Law and of these bylaws;
(vi)	Authorize the acquisition of the Company’s own stock;
(vii)	To decide upon matters submitted to the shareholders at the general shareholders’ meeting by resolution of the board of directors;
(viii)	To decide on the application of compensation systems consisting of the delivery of shares or rights thereto, as well as any other compensation system referenced to the value of the shares, regardless of who the beneficiary of such compensation systems may be;
(ix)	To approve the subsidiarization or contribution to subsidiaries of the operating assets of the Company, thus turning the Company into a mere holding company;
(x)	To approve, if applicable, the acquisition or disposition of assets whenever, because of the quality and volume thereof, they entail an actual change of the corporate purpose; and
(xi)	To approve transactions whose effect is tantamount to the liquidation of the Company.

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3. The powers not assigned by law or the bylaws to the shareholders acting at a general shareholders’ meeting shall be exercised by the board of directors.

Section 2. General shareholders’ meeting

Article 21. Regulations applicable to the general shareholders’ meeting

1. The shareholders acting at the general shareholders’ meeting are the sovereign decision-making body of the Company, and the resolutions adopted thereat bind all of the shareholders, including those who are absent, dissent, abstain from voting or do not have the right to vote, all without prejudice to the rights and actions granted to them by the law.

2. The general shareholders’ meeting shall be governed by the provisions of the bylaws and the law. The legal and bylaw regulation of the meeting shall be further developed and supplemented by the Rules and regulations for the general shareholders’ meeting, which shall contain detailed provisions regarding the call to meeting, the preparation of, provision of information prior to, attendance at and progress of the Meeting and the exercise of political rights by the shareholders thereat. The rules and regulations shall be approved by the shareholders at a meeting at the proposal of the board of directors.

Article 22. Types of general shareholders’ meetings

1. General shareholders’ meetings may be ordinary or extraordinary.

2. The ordinary general shareholders’ meeting must be held within the first six months of each fiscal year in order for the shareholders to review corporate management, approve the annual accounts from the prior fiscal year, if appropriate, and resolve upon the allocation of profits or losses from such fiscal year, to approve, if appropriate, the consolidated annual accounts, without prejudice to their competence to deliberate and resolve on any other matter included in the agenda. An ordinary general shareholders’ meeting shall still be valid even if called or held outside of the applicable time period.

3. Any general shareholders’ meeting not provided for in the foregoing sub-section shall be deemed an extraordinary general shareholders’ meeting.

4. All general shareholders’ meetings, whether ordinary or extraordinary, shall be subject to the same rules regarding procedure and powers of the shareholders thereat.

Article 23. Power and duty to call a meeting

1. The board of directors must call a general shareholders’ meeting:

(a)	When required pursuant to the provisions applicable to the ordinary general shareholders’ meeting as set forth in the preceding article.
(b)	When so requested by shareholders holding at least five percent of share capital, and such request sets forth the matters to be addressed at the meeting; in such case, the board of directors shall have a maximum period of fifteen days, following the date on which a notarial request for such purpose is submitted to the board, within which to call the meeting as much in advance as required by law.
(c)	When it deems it appropriate in the interest of the Company.

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2. The board of directors shall prepare the agenda, which shall necessarily include the matters requested to be addressed.

3. If the ordinary general shareholders’ meeting is not called within the statutory time period, it may be called, at the request of the shareholders and upon notice thereof being given to the directors, by a judge of the place where the registered office is located, who shall also designate the person who is to preside over such Meeting.

Article 24. Call of a general shareholders’ meeting

1. Notice of all types of meetings shall be given by means of a public announcement in the Official Bulletin of the Commercial Registry and in one of the local newspapers of largest circulation in the province where the registered office is located, at least one month prior to the date set for the Meeting.

2. Shareholders representing at least five percent of the share capital may request the publication of a supplement to the call to meeting including one or more items in the agenda. For such purposes, shareholders shall indicate the number of shares held or represented by them. This right must be exercised by means of verifiable notice that must be received at the registered office within five days of the publication of the call to Meeting. The supplement to the call shall be published at least fifteen days in advance of the date set for the meeting.

Article 25. Establishment of the general shareholders’ meeting

1.	The general shareholders’ meeting shall be validly established on first call if the shareholders present in person or by proxy hold at least twenty-five percent of the subscribed share capital carrying the right to vote. On second call, the meeting shall be validly established regardless of the capital in attendance.
	However, if the shareholders are called upon to deliberate on amendments to the bylaws, including the increase and reduction of share capital, on the transformation, merger or split-off of the Company, or on the issuance of debentures, the required quorum on first call shall be met by the attendance of shareholders representing at least fifty percent of the subscribed share capital with the right to vote. If a sufficient quorum is not available, the general meeting shall be held upon second call.
	When shareholders representing less than fifty percent of the subscribed share capital with the right to vote are in attendance, the resolutions mentioned in the preceding paragraph may only be validly adopted with the favorable vote of two-thirds of the share capital present or represented at the meeting.

2. Shareholders casting their vote from a distance shall be deemed present for the purposes of constituting a quorum for the meeting in question.

3. In the event that, in order to validly adopt a resolution regarding one or more of the items on the agenda for the general shareholders’ meeting, applicable law or these bylaws require the presence of a particular quorum and such quorum is not met, the agenda shall be reduced to such other items thereon as do not require such quorum in order for resolutions to be validly adopted.

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Article 26. Right to attend the Meeting

1. The holders of any number of shares registered in their name in the respective book-entry registry five days prior to the date on which the general shareholders’ meeting is to be held and who are current in the payment of capital calls shall be entitled to attend general shareholders’ meetings.

In order to attend the general shareholders’ meeting, one must obtain the corresponding name-bearing attendance card to be issued with reference to the list of shareholders having such right.

2. The directors must attend general shareholders’ meetings, but their attendance shall not be required for the meeting to be validly established.

3. The Chairman of the general shareholders’ meeting may give economic journalists and financial analysts access to the Meeting and, in general, may authorize the attendance of any person he deems fit. However, the shareholders may revoke any such authorization.

4. Shareholders having the right to attend may cast their vote regarding proposals relating to items included in the agenda for any kind of general shareholders’ meeting, pursuant to the provisions of Articles 33 and 34 of these bylaws.

Article 27. Attendance at the general shareholders’ meeting by proxy

1. All shareholders having the right to attend the meeting may be represented at a general shareholders’ meeting by giving their proxy to another person, even if such person is not a shareholder. The proxy shall be granted in writing or by electronic means.

2. Proxies shall be granted specially for each meeting, except where the representative is the spouse or an ascendant or descendant of the shareholder giving the proxy, or where the proxy-holder holds a general power of attorney executed as a public instrument with powers to manage the assets of the represented party in the Spanish territory.

3.

If the directors or another person have made a public solicitation for proxies, the director or other person obtaining such proxy may not exercise the voting rights attaching to the represented shares in connection with any items on the agenda in respect of which the director or such other person is subject to a conflict of interest, and in any event in connection with decisions relating to (i) his appointment or ratification, removal, dismissal or withdrawal as director, (ii) the institution of a derivative action [acción social de responsabilidad] against him, or (iii) the approval or ratification of transactions between the Company and the director in question, companies controlled or represented by him, or persons acting for his account.

In contemplation of the possibility that a conflict arises, a proxy may be granted to another person in the alternative.

4. If the proxy has been obtained by means of public solicitation, the document evidencing the proxy must contain or have the agenda attached thereto, as well as the solicitation of instructions for the exercise of voting rights and the way in which the proxy-holder will vote in the event that specific instructions are not given, subject in all cases to the provisions of the law.

5. When a proxy is granted or notified to the Company by remote means of communication, it shall only be deemed valid if the grant is made:

a) by hand-delivery or postal correspondence, sending the Company the duly signed and completed attendance and proxy card, or by other written means that, in the judgment of the board of directors recorded in a resolution adopted for such purpose, allows for due confirmation of the identity of the shareholder granting the proxy and of the representative being appointed, or

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b) by electronic correspondence or communication with the Company, including an electronic copy of the attendance and proxy card; such electronic copy shall specify the representation being granted and the identity of the party represented, and shall include the electronic signature or other form of identification of the shareholder being represented, in accordance with the conditions set by the board of directors recorded in a resolution adopted for such purpose in order to ensure that this system of representation includes adequate assurances regarding authenticity and the identity of the shareholder represented.

6. In order to be valid, a proxy granted or notified by any of the foregoing means of remote communication must be received by the Company before midnight of the third day prior to the date the shareholders’ meeting is to be held on first call. In the resolution approving the call to the meeting in question, the board of directors may reduce the required notice period, disseminating this information in the same manner as it disseminates the announcement of the call to meeting. Pursuant to the provisions of Article 34.5 below, the board may further develop the foregoing provisions regarding proxies granted by remote means of communication.

7. A proxy is always revocable. Attendance at the shareholders’ meeting, whether physically or by casting a distance vote, shall entail the revocation of any proxy that may have been granted, regardless of the date thereof. A proxy shall also be rendered void by any transfer of shares of which the Company becomes aware.

8. The proxy may include items which, even if not included in the agenda, may be discussed at the shareholders’ meeting because the law so permits. If the proxy does not include such items, it shall be deemed that the shareholder granting the proxy instructs his representative to abstain when such items are put to the vote.

Article 28. Place and time of the Meeting

1. The general shareholders’ meeting shall be held at the place indicated in the call to meeting, within the municipal area where the Company’s registered office is located.

2. The general shareholders’ meeting may be attended by going to the place where the meeting is to be held or, if applicable, to other places provided by the Company and indicated in the call to meeting, and which are connected therewith by video conference systems that allow recognition and identification of the parties attending, permanent communication among the attendees regardless of their location, and participation and voting. The principal place of the meeting must be located in the municipal area of the Company’s registered office, but supplemental locations need not be so located. For all purposes relating to the general shareholders’ meeting, attendees at any of the sites shall be deemed attendees at the same individual meeting. The meeting shall be deemed to be held at the principal location thereof.

3. If the place of the meeting is not specified in the call to meeting, it shall be deemed that it will be held at the registered office.

Article 29. Presiding committee of the general shareholders’ meeting

1. The Presiding Committee (Mesa) of the general shareholders’ meeting shall be comprised of its chairman and secretary.

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2. The chairman of the board of directors or, in his absence, the vice chairman serving in his stead pursuant to Article 44, and in the absence of both the chairman and the vice chairman, the director designated by the board of directors, shall preside over general shareholders’ meetings.

3. The chairman shall be assisted by the secretary for the meeting. The secretary of the board of directors shall serve as secretary for the general shareholders’ meeting. In the event of absence, impossibility to act or vacancy of the secretary, the vice secretary shall serve in his stead, and in the absence of the vice secretary, the director designated by the board itself shall act as secretary.

4. The chairman shall declare the existence of a valid quorum for the shareholders’ meeting, direct the debate, resolve any questions that may arise in connection with the agenda, end the debate when he deems that an issue has been sufficiently discussed, and in general, exercise all powers necessary for the proper organization and progress of the general shareholders’ meeting.

Article 30. List of attendees

1.	Before the agenda is taken up, the list of attendees shall be prepared, setting forth the name of the shareholders present and that of the shareholders represented and their proxies, as well as the number of shares they hold.
	For purposes of a quorum, non-voting shares shall only be counted in the specific cases established in the Business Corporations Law.

2. The list of attendees may also be prepared by means of a file or be supported by computer media. In such cases, the means used shall be set forth in the minutes, and the sealed cover of the file or media shall show the appropriate identification procedure signed by the secretary with the approval of the chairman.

3. At the end of the list, the number of shareholders present in person and by proxy shall be determined, indicating separately those who have voted from a distance, as well as the amount of share capital they hold, specifying the capital represented by shareholders with voting rights.

4. During the meeting, any shareholder entitled to attend the shareholders’ meeting may consult the list of attendees, provided, however, that such request shall not require delaying or postponing the meeting once the chairman has called it to order and that the chairman shall not be required to read the list or provide copies thereof.

Article 31. Right to receive information

1.	From the same date of publication of the call to the general shareholders’ meeting through and including the seventh day prior to the date provided for the Meeting to be held on first call, the shareholders may request in writing such information or clarifications as they deem are required, or ask written questions that they deem pertinent, regarding the matters contained in the agenda.
	In addition, upon the same prior notice and in the same manner, the shareholders may request information or clarifications or ask written questions regarding information accessible to the public which has been provided by the Company to the National Securities Market Commission since the holding of the last General Shareholders’ Meeting.

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In the case of the ordinary general shareholders’ meeting and in such other cases as are established by law, the notice of the call to meeting shall contain appropriate information with respect to the right to examine at the Bank’s registered office, and to obtain immediately and free of charge, the documents to be submitted for approval by the shareholders acting at the meeting and any reports required by the law.

2. During the course of the general shareholders’ meeting, all shareholders may verbally request information or clarifications that they deem are necessary regarding the matters contained in the agenda.

3. The directors shall be required to provide the information requested under the provisions of the two preceding sub-sections in the manner and within the periods provided by the law, except in those cases in which it is legally inadmissible and, in particular, when the chairman believes that the publication of such information may prejudice the corporate interest. This latter exception shall not apply when the request is supported by shareholders representing at least one-fourth of the share capital.

Article 32. Deliberations at the general shareholders’ meeting

1. Once the list of attendees has been prepared, the chairman shall, if appropriate, declare the general shareholders’ meeting to be validly established and shall determine whether the shareholders at the Meeting may address all of the matters included in the agenda or should instead limit themselves to addressing some of them.

2.	The chairman shall call the meeting to order, submit to a debate the matters included in the agenda, and direct the debate in a manner such that the meeting progresses in an orderly fashion, pursuant to the provisions of the rules and regulations for the general shareholders’ meeting and other applicable regulations.
3.	Once a matter has been sufficiently debated, the chairman shall submit it to a vote.

Article 33. Voting

1. Each item on the agenda shall be separately submitted to a vote.

2. As a general rule, and without prejudice to the possibility of using other alternative means as determined by the chairman, the voting on the proposed resolutions referred to in the preceding sub-section shall be carried out in accordance with the voting procedure contemplated in the rules and regulations for the general shareholders’ meeting and other applicable regulations.

Article 34. Distance voting

1. Shareholders entitled to attend and to vote may cast their vote on proposals relating to items on the agenda for any general shareholders’ meeting by the following means:

(i) by hand-delivery or postal correspondence, sending the Company the duly signed attendance and voting card (together with the ballot form, if any, provided by the company), or other written means that, in the judgment of the board of directors recorded in a resolution adopted for such purpose, allows for the due verification of the identity of the shareholder exercising his voting rights; or

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(ii) by electronic correspondence or communication with the Company, which shall include an electronic copy of the attendance and voting card (together with the ballot form, if any, provided by the Company); such electronic copy shall include the shareholder’s electronic signature or other form of identification of the shareholder, in accordance with the conditions set by the board of directors recorded in a resolution adopted for such purpose to ensure that this voting system includes adequate assurances regarding authenticity and the identity of the shareholder exercising his vote.

2. In order to be valid, a vote cast by any of the aforementioned means must be received by the Company before midnight on the third day prior to the date the shareholders’ meeting is to be held on first call. Otherwise, the vote shall be deemed not to have been cast. The board of directors may reduce the required notice period, disseminating this information in the same manner as it disseminates the announcement of the call to meeting.

3. Shareholders casting their vote from a distance pursuant to the provisions of this article shall be deemed present for the purposes of constituting a quorum for the general shareholders’ meeting in question. Therefore, any proxies granted prior to the casting of such vote shall be deemed revoked and any such proxies thereafter granted shall be deemed not to have been granted.

4. Any vote cast from a distance as set forth in this article shall be rendered void by physical attendance at the Meeting by the shareholder who cast such vote or by a transfer of shares of which the Company becomes aware.

5.	The board of directors may expand upon the foregoing provisions, establishing such instructions, rules, means and procedures to document the casting of votes and grant of proxies by remote means of communication as may be appropriate, in accordance with the state of technology and conforming to any regulations issued in this regard and to the provisions of these bylaws.
	Furthermore, in order to prevent potential deception, the board of directors may take any measures required to ensure that anyone who has cast a distance vote or granted a proxy is duly empowered to do so pursuant to the provisions of these bylaws.
	Any implementing rules adopted by the board of directors pursuant to the provisions hereof shall be published on the Company’s website.

6.

Remote attendance at the shareholders’ meeting via simultaneous teleconference and the casting of a remote, electronic vote shall be governed by the rules and regulations for the general meeting.

The rules and regulations for the general meeting may give the board of directors the power to set regulations regarding all required procedural aspects, including, among other issues, how early a shareholder must connect in order to be deemed present, the procedure and rules applicable for shareholders attending remotely to exercise their rights, the identification that may be required of remote attendees, and their impact on how the list of attendees is compiled, all in compliance with the Law, the bylaws and the rules and regulations for the general shareholders’ meeting.

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Article 35. Approval of resolutions

1. The majority required to approve a resolution shall be obtained with the favorable vote of one-half plus one of the voting shares present or represented at the general shareholders’ meeting. Excepted from the foregoing shall be those instances in which the law or these bylaws require a greater majority.

2. The attendees at the general shareholders’ meeting shall have one vote for each share which they hold or represent. Non-voting shares shall have the right to vote in the specific cases laid down in the Business Corporations Law.

Article 36. Minutes of the meeting

1. The secretary for the meeting shall draw up the minutes of the meeting, which, once approved, shall be recorded in the corresponding minute book.

2. The minutes of the meeting may be approved by the shareholders after the meeting has been held, or otherwise within a period of fifteen days by the chairman and two inspectors, one on behalf of the majority and the other on behalf of the minority.

3. The board of directors may request the presence of a notary to draw up minutes of the meeting.

4. The rules and regulations for the general shareholders’ meeting may require that the minutes of the general shareholders’ meeting be notarized in all cases.

5. The secretary, and if applicable, the vice secretary, with the approval of the chairman, or if applicable, of the vice chairman acting in his stead, shall have the power to issue certifications of the minutes of the meetings and of the resolutions adopted by the shareholders thereat.

6. Any shareholder that has voted against a particular resolution shall be entitled to have its opposition to the resolution adopted recorded in the minutes of the general shareholders’ meeting.

Section 3. The board of directors

Article 37. Structure of the board of directors

1. The Company shall be managed by a board of directors.

2. The board of directors shall be governed by such legal provisions as are applicable thereto and by these bylaws. In addition, the board shall approve a set of rules and regulations of the board of directors, which shall contain rules of operation and internal organization by way of further development of the aforementioned legal and bylaw provisions. The shareholders at a general shareholders’ meeting shall be informed of the approval of the rules and regulations of the board of directors and of any subsequent amendments thereto.

Article 38. Management and supervisory powers

1. The board of directors has the widest powers to manage the company, and except for those matters exclusively within the purview of the shareholders at a general shareholders’ meeting, is the highest decision-making body of the company.

2. Notwithstanding the foregoing, the board shall exercise, without the power of delegation, such powers as are reserved for it by law, as well as such other powers as are required for a responsible discharge of the general duty of supervision.

3. The rules and regulations of the board shall set forth a detailed description of the responsibilities reserved for the board of directors.

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Article 39. Powers of representation

1.	The power to represent the company, in court and out of court, is vested in the board of directors acting collectively.
2.	The chairman of the board also has the power to represent the company.

3. The secretary of the board and the vice secretary, if any, have the necessary representative powers to convert into public instruments the resolutions adopted by the shareholders at a general shareholders’ meeting and the resolutions of the board and to apply for registration thereof.

4. The provisions of this article are without prejudice to any other powers of attorney, whether general or special, that may be granted.

Article 40. Creation of shareholder value

1. The board of directors and its representative decision-making bodies shall exercise their powers and, in general, perform their duties with a view to maximizing the value of the company in the interest of the shareholders.

2. Additionally, the board shall ensure that the Company faithfully complies with applicable law, respects the uses and good practices of the industries or countries where it carries out its activities and observes the additional principles of social responsibility that it has voluntarily accepted.

Article 41. Quantitative composition of the board

1. The board of directors shall be composed of not less than fourteen and not more than twenty-two members, appointed by the shareholders acting at a general shareholders’ meeting.

2. It falls upon the shareholders at a general shareholders’ meeting to set the number of members of the board within the aforementioned range. Such number may be set indirectly by the resolutions adopted by the shareholders at a general shareholders’ meeting whereby directors are appointed or their appointment is revoked.

Article 42. Qualitative composition of the board

1. The shareholders at the general shareholders’ meeting shall endeavor to ensure that the board of directors is made up such that external or non-executive directors represent a large majority over executive directors, and that a reasonable number of the former are independent directors. The shareholders at the general shareholders’ meeting shall likewise endeavor to ensure that independent directors represent at least one-third of the total number of directors.

2. The provisions of the preceding paragraph do not affect the sovereignty of the shareholders acting at the general shareholders’ meeting or detract from the effectiveness of the proportional system, which shall be mandatory whenever there is a voting trust pursuant to the provisions of the Business Corporations Law.

3. For purposes of these bylaws, the terms external director, proprietary director, independent director and executive director shall have the meaning ascribed to such terms in these bylaws or in the rules and regulations of the board of directors.

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Article 43. Chairman of the board

1. The chairman of the board shall be chosen from among its members.

2. The chairman of the board shall call board of directors’ meetings and direct debate thereat.

Article 44. Vice chairman of the board

1. The board shall also designate one or more vice chairmen who, if more than one, shall be numbered consecutively.

2. The vice chairman or vice chairmen, in the established numerical sequence, and in the their absence, the appropriate director according to a numerical sequence established by the board of directors, shall replace the chairman in the event of absence or impossibility to act or illness.

Article 45. Secretary of the board

1. The secretary of the board of directors shall always be the general secretary of the company.

2. The secretary shall ensure the formal and substantive legality of all action taken by the board, ensure observance of the good governance recommendations adopted by the company and ensure that governance procedures and rules are observed and regularly reviewed.

3. The board of directors may appoint a vice secretary in order that he shall assist the secretary of the board of directors or replace him in the event of absence, impossibility to act or illness.

4.	In the event of absence or impossibility to act, the secretary and the vice secretary of the board may be replaced by the director appointed by the board itself from among the directors present at the meeting in question. The board may also resolve that any employee of the company act as such interim replacement.
5.	The general secretary shall also be the secretary of all the committees of the board.

Article 46. Meetings of the board of directors

1. The board shall meet with the frequency required for the proper performance of its duties, and shall be called to meeting by the chairman. The chairman shall call board meetings on his own initiative or at the request of at least three directors.

2.	The agenda shall be approved by the board at the meeting itself. Any board member may propose the inclusion of any other item not included in the draft agenda proposed by the chairman to the board.
3.	Any person invited by the chairman may attend board meetings.

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Article 47. Conduct of the meetings

1. Meetings of the board shall be validly held when more than one-half of its members are present in person or by proxy.

2. When unable to attend in person, the directors may grant a proxy to another director, for each meeting and in writing, in order that the latter shall represent them at the meeting for all purposes.

3. Board meetings may be held in several rooms at the same time, provided interactivity and intercommunication among them in real time is ensured by audiovisual means or by telephone and the concurrent holding of the meeting at all such rooms is thereby ensured. In such case, the connection system and, if applicable, the places where the technical means required to attend and participate in the meeting are available shall be set forth in the call to meeting. Resolutions shall be deemed to have been adopted at the place where the chairman is.

4. On an exceptional basis, and provided no director is opposed thereto, the board may also act in writing and without a meeting. In this latter case, the directors may cast their votes and make such comments as they wish to have recorded in the minutes by e-mail.

5. Except in those cases in which a greater majority is specifically required pursuant to a provision of the law, the bylaws or the rules and regulations of the board, resolutions shall be adopted by an absolute majority of the directors present in person or by proxy. The chairman shall have a tie-breaking vote.

6. All resolutions adopted by the board of directors shall be recorded in minutes authorized under the signature of the chairman and the secretary. Board of directors’ resolutions shall be evidenced by means of a certificate issued by the secretary of the board or by the vice secretary, as the case may be, with the approval of the chairman or the vice chairman, as applicable.

7. Any of the chairman, the vice chairman or vice chairmen, the managing director(s) and the secretary of the board, acting severally, shall have standing powers to have the resolutions of the board of directors converted into a public instrument, all without prejudice to the express authorizations established in applicable laws and regulations.

Section 4. Delegation of the powers by the board

Article 48. The executive chairman

1. The chairman of the board of directors shall have the status of executive chairman of the Bank and shall be considered as the highest executive in the Company, vested with such powers as are required to hold office in such capacity. Considering his particular status, the executive chairman shall have the following powers and duties, among others set forth in these bylaws or in the rules and regulations of the board:

a)	To ensure that the bylaws are fully complied with and that the resolutions adopted at the general shareholders’ meeting and by the board of directors are duly carried out.
b)	To be responsible for the overall inspection of the Bank and all services thereof.
c)	To hold discussions with the managing director and the general managers in order to inform himself of the progress of the business.

2. The board of directors shall delegate to the chairman all its powers, except for those that are legally non-delegable or that may not be delegated pursuant to the provisions of these bylaws or the rules and regulations of the board.

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3. The chairman shall be appointed to hold office for an indefinite period and shall require the favorable vote of two-thirds of the members of the board.

Article 49. Other managing directors

1. Regardless of the provisions of the preceding article, the board may appoint from among its members one or more managing directors, granting them such powers as it deems appropriate. The powers which the law, these bylaws or the rules and regulations of the board reserve for the board sitting as a full body may under no circumstances be delegated.

2.

The assignment to the chairman and to any other member of the board of executive standing powers, either general or relating to an specific sector, other than the supervisory and collective decision-making powers inherent in the position of director may be made by organic delegation, by means of general powers of attorney or through other types of agreements and shall be approved by a two-thirds majority of the board. The members of the board to whom such powers are delegated shall be deemed to be executive directors.

The resolution whereby such powers are assigned or delegated shall determine the scope of the powers granted to the executive director, the compensation he is to receive and all other terms and conditions of the relationship, which shall be included in the respective contract.

Article 50. Committees of the board of directors

1. Without prejudice to such powers as may be delegated individually to the chairman or any other director and to the power of the board of directors to establish committees for each specific area of business, the board of directors shall establish an executive committee, to which general decision-making powers shall be delegated, and a risk committee, to which powers shall be delegated primarily in connection with risks.

2. The board may also establish committees with supervisory, reporting, advisory and proposal-making powers in connection with the matters within their scope of authority, and must in any event establish an audit and compliance committee and an appointments and remuneration committee.

3. To the extent not provided for in these bylaws, the operation of the committees of the board shall be governed by the provisions of the rules and regulations of the board.

Section 5. Committees of the board of directors

Article 51. Executive committee

1. The executive committee shall consist of a minimum of five and a maximum of twelve directors. The chairman of the board of directors shall also be the chairman of the executive committee.

2. Any permanent delegation of powers to the executive committee and all resolutions adopted for the appointment of its members shall require the favorable vote of not less than two-thirds of the members of the board of directors.

3. The permanent delegation of powers by the board of directors to the executive committee shall include all of the powers of the board, except for those which cannot legally be delegated or which may not be delegated pursuant to the provisions of these bylaws or of the rules and regulations of the board.

18

4. The executive committee shall meet as many times as it is called to meeting by its chairman or by the vice chairman replacing him.

5. The executive committee shall report to the board of directors on the affairs discussed and the decisions made at its meetings and shall make available to the members of the board a copy of the minutes of such meetings.

Article 52. Risk committee

1.	The board of directors shall establish a risk committee, which shall be executive in nature, to which risk management powers shall be entrusted.
2.	The risk committee shall be composed of a minimum of four and a maximum of six directors.

3. The rules and regulations of the board shall govern the composition, operation and powers of the risk committee.

4. The delegation of powers to the risk committee and the resolutions appointing the members thereof shall require the affirmative vote of not less than two-thirds of the members of the board.

Article 53. Audit and compliance committee

1. The audit and compliance committee shall consist of a minimum of three directors and a maximum of seven, all of whom shall be external or non-executive, with independent directors having majority representation.

2. The members of the audit and compliance committee shall be appointed by the board of directors, taking into account the directors’ knowledge, skills and experience in the areas of accounting, auditing or risk management.

3.

The audit and compliance committee must in all events be presided over by an independent director, who shall also be knowledgeable about and experienced in matters of accounting, auditing or risk management. The chairman of the audit and compliance committee shall be replaced every four years, and may be re-elected once after the passage of one year from the date on which his term of office expired.

4.

The audit and compliance committee shall have at least the following powers and duties:

(i)	Have its chairman and/or secretary report to the general shareholders’ meeting with respect to matters raised therein by shareholders regarding its powers.
(ii)	Propose to the board of directors, for submission by it to the shareholders at the general shareholders’ meeting, the appointment of the auditor.
(iii)	Supervise the internal audit services.
(iv)	Know the process for gathering financial information and the internal control systems.
(v)	Establish a relationship with the auditor to receive information on those issues that might jeopardize his independence and any other issues related to the development of the auditing procedure, as well maintain such communication with the auditor as is provided for in legislation regarding the auditing of financial statements and in technical auditing regulations.

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5. The audit and compliance committee shall meet as many times as it is called to meeting upon resolution made by the committee itself or by the chairman thereof, and at least four times per year. Any member of the management team or of the Company’s personnel shall, when so required, attend the meetings of the audit and compliance committee, provide it with his cooperation and make available to it such information as he may have in his possession. The audit and compliance committee may also require that the auditor attend such meetings. One of its meetings shall be devoted to evaluating the efficiency of and compliance with the rules and procedures for governance of the Company and preparing the information that the board is to approve and include in the annual public documents.

6. Meetings of the audit and compliance committee shall be validly held when at least one-half of its members are present in person or by proxy. The committee shall adopt its resolutions upon a majority vote of those present in person or by proxy. In the event of a tie, the chairman of the committee shall have a tie-breaking vote. The committee members may grant a proxy to another member. The resolutions of the audit and compliance committee shall be recorded in a minute book, and every one of such minutes shall be signed by the chairman and the secretary.

7. The rules and regulations of the board shall further develop the rules applicable to the audit and compliance committee established in this article.

Article 54. Appointments and remuneration committee

1. An appointments and remuneration committee shall be established and entrusted with general proposal-making and reporting powers on matters relating to compensation, appointment and withdrawal of directors.

2. The appointments and remuneration committee shall be composed of a minimum of three directors and a maximum of seven, all of whom shall be external or non-executive directors, with independent directors having majority representation.

3. The members of the appointments and remuneration committee shall be appointed by the board of directors taking into account the directors’ knowledge, skills and experience and the responsibilities of the committee.

4. The appointments and remuneration committee must in all events be presided over by an independent director.

5. The rules and regulations of the board of directors shall govern the composition, operation and powers and duties of the appointments and remuneration committee.

Section 6. Status of Directors

Article 55. Term of office

1. One-fifth of the board shall be renewed every year, following the order established by the length of service on the board, according to the date and order of the respective appointment. This means that the term of office of directors shall be of five years. Outgoing directors may be re-elected.

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2. The directors who have been designated by interim appointment to fill vacancies may be ratified in their position at the first general shareholders’ meeting that is held following such designation.

3.	A director who ends his term of office or, for any other reason, ceases to act as such, shall, for a term of two years, be barred from serving in another entity that is a competitor of the company.
	The board of directors, may, if it deems it appropriate, relieve the outgoing director from this restriction or reduce it to a lesser period.

Article 56. Withdrawal of directors

1.

Directors shall cease to hold office upon the expiration of the term of office for which they have been appointed, and when it is so resolved by the shareholders at the general shareholders’ meeting in the exercise of the powers granted to them. In the first case, such withdrawal from office shall take effect on the date of the first general shareholders’ meeting following the date of expiration of the term of office for which they were appointed, or upon expiration of the statutory period for calling the general shareholders’ meeting that is to resolve on the approval of the financial statements for the prior fiscal year.

2.

The directors shall tender their resignation to the board of directors and formally resign from their position if the board, upon the prior report of the appointments and remuneration committee, deems it appropriate, in those cases that might adversely affect the operation of the board or the credit and reputation of the Company and, particularly, when they are prevented by any legal prohibition against or incompatibility with holding such office.

Article 57. Liability of directors

1. The directors shall be liable to the Company, to the shareholders, and to the Company’s creditors for any damage they may cause by acts or omissions contrary to law or to the bylaws or by any acts or omissions contrary to the duties inherent in the exercise of their office.

2. All the members of the board of directors that carried out such act or adopted the prejudicial resolution shall be jointly and severally liable, except for those members who can prove that, not having participated in the adoption and execution of such act or resolution, they were unaware of its existence, or, if aware of it, did all that was appropriate to avoid the damage caused, or at least expressly opposed it.

3. Under no circumstances shall the fact that the prejudicial act or resolution was approved, authorized or ratified by the shareholders at the general shareholders’ meeting be considered grounds for a release from liability.

Article 58. Compensation of directors

1.	The directors shall be entitled to receive compensation for performing the duties entrusted to them by reason of their appointment as mere members of the board of directors by the shareholders at the general shareholders’ meeting or by the board itself exercising its power to make interim appointments to fill vacancies.
2.	The compensation referred to in the preceding paragraph shall be paid as a share in profits and bylaw-mandated compensation, and shall have two components: (a) an annual amount and (b) attendance fees. Attendance fees shall be paid in advance on account of the profits for the fiscal year.

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The specific amount payable for the above-mentioned items to each of the directors shall be determined by the board of directors. For such purpose, it shall take into consideration the positions held by each director on the board and their membership in and attendance at the meetings of the various committees.

The aggregate amount of the compensation established in this sub-section shall be equal to one percent of the profit of the Company for the fiscal year, provided, however, that the board may resolve that such percentage be reduced in those years in which it so deems justified.

3. In addition to the compensation systems set forth in the preceding paragraphs, the directors shall be entitled to receive compensation by means of the delivery of shares or option rights thereon, or by any other compensation system referenced to the value of shares, provided the application of such compensation systems is previously approved by the shareholders at the general shareholders’ meeting. Such resolution shall determine, as the case may be, the number of shares to be delivered, the exercise price of the options, the value of the shares used as a reference and the duration of such compensation system.

4. Independently of the provisions of the preceding paragraphs, the directors shall also be entitled to receive such other compensation (salaries, incentives, bonuses, pensions, insurance and severance payments) as, following a proposal made by the appointments and remuneration committee and upon resolution by the board of directors, may be considered appropriate in consideration for the performance of other duties in the Company, whether they are the duties of an executive director or otherwise, other than the duties of supervision and collective decision-making that they discharge in their capacity as members of the board.

5. The Company shall take out liability insurance for its directors on such terms as are customary and commensurate with the circumstances of the Company itself.

Article 59. Transparency of the compensation system.

1. The board of directors shall, on an annual basis, prepare a report on the compensation policy where it shall set forth the standards and basis used to determine the compensation of the directors for the last current fiscal year and the current fiscal year, and shall make it available to the shareholders when the ordinary general shareholders’ meeting is called. The contents of the report shall be governed by the provisions of the rules and regulations of the board.

2. In the annual report, the board shall set forth, on an individual basis, the compensation received by each director, specifying the amounts corresponding to each compensation item. It shall also set forth therein, on an individual basis and for each item of compensation, the compensation payable, pursuant to Articles 49 and 58.4, for the performance of executive duties entrusted to the executive directors of the Company.

Section 7. Corporate governance report and website

Article 60. Annual corporate governance report

1. The board of directors shall prepare an annual corporate governance report which shall specifically focus on (i) the level of compliance with the good governance recommendations set forth in the official reports; (ii) the conduct of the general shareholders’ meeting and proceedings therein; (iii) related-party transactions and intra-group transactions; (iv) the ownership structure of the Company; (v) the management structure of the Company; and (vi) risk control systems.

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2. The annual corporate governance report shall be made available to the shareholders on the Company’s website no later than the date of publication of the call to the ordinary general shareholders’ meeting that is to review the annual accounts for the fiscal year to which such report refers.

Article 61. Website.

1. The Company shall have a website through which it shall report to its shareholders, investors and the market at large the relevant or significant events that occur in connection with the Company.

2. Without prejudice to any additional documentation required by applicable regulations, the Company’s website shall include at least the information and documents set forth in the rules and regulations of the board.

CHAPTER III. OTHER PROVISIONS

Section 1. Annual accounts

Article 62. Submission of the annual accounts

1. The company’s fiscal year shall coincide with the calendar year, commencing on 1 January and ending on 31 December of each year.

2. Within a maximum period of three months from the closing date of each fiscal year, the board of directors shall draft the annual accounts, which shall include the balance sheet, the profit and loss statement, the annual report to the accounts, the statement of changes in the shareholders’ equity and the statement of cash flows, the management report and the proposed allocation of profits or losses, and, if applicable, the consolidated accounts and management report.

3. The board of directors shall use its best efforts to prepare the accounts such that there is no room for qualifications by the auditor. However, when the board believes that its opinion must prevail, it shall provide a public explanation, through the chairman of the audit and compliance committee, of the content and scope of the discrepancy, and shall also endeavor to ensure that the auditor likewise discloses its considerations in this regard.

4. The annual accounts and the management report of the Company shall be reviewed by the auditors appointed by the shareholders at the general shareholders’ meeting prior to the end of the fiscal year to be audited, for a specified term which may not be less than three years or greater than nine, from the date of the beginning of the first fiscal year to be audited. The auditors may be re-elected by the shareholders at the general shareholders’ meeting every year following the expiration of the original term.

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Article 63. Approval of the accounts and allocation of results

1. The annual accounts shall be submitted to the shareholders for approval at the general shareholders’ meeting.

2. Once the annual accounts have been approved, the shareholders at the general shareholders’ meeting shall resolve on the allocation of the results for the fiscal year.

3. Dividends may only be distributed out of the earnings for the fiscal year or with a charge to unappropriated reserves, once the payments required by the law and these bylaws have been made and provided the shareholders’ equity disclosed in the accounts is not or, as a result of the distribution, is not reduced to less than the share capital. If there are any losses from prior fiscal years that reduce the Company’s shareholders’ equity below the amount of the share capital, the earnings shall be used to offset such losses.

4. The shareholders at the general shareholders’ meeting shall decide the amount, time and form of payment of the dividends, which shall be distributed among the shareholders in proportion to their paid-up capital.

5. The shareholders at the general shareholders’ meeting and the board of directors may make resolutions as to the distribution of interim dividends, subject to such limitations and in compliance with such requirements as are established by the law.

Article 64. Dividends in kind

The shareholders at the general shareholders’ meeting may resolve that dividends be paid in kind in whole or in part, provided that:

(i)	the property or securities to be distributed are of the same nature;
(ii)	they have been admitted to listing on an official market as of the effective date of the resolution, or liquidity is duly guaranteed by the Company within a maximum period of one year; and
(iii)	they are not distributed for a value that is lower than the value at which they are recorded on the Company’s balance sheet.

Article 65. Deposit of the annual accounts

Within the month following the approval of the annual accounts, the board of directors shall file with the commercial registry of the place where the registered office of the Bank is located, for deposit, a certificate setting forth the resolutions adopted at the general shareholders’ meeting approving the annual accounts and setting forth the allocation of results. It shall also attach to such certificate a copy of each of such accounts as well as of the management report, if applicable, and of the auditors’ report.

Section 2. Dissolution and liquidation of the Company

Article 66. Dissolution of the Company

The Company shall be dissolved in the instances and subject to the requirements established by applicable law.

Article 67. Liquidators

1. Once the Company has been dissolved, all of the members of the board of directors whose appointment is current and registered with the commercial registry shall become liquidators by operation of law, unless the shareholders acting at a general shareholders’ meeting have appointed other liquidators in the resolution providing for the dissolution of the Company.

2. If there is not an odd number of directors, the youngest director shall not act as liquidator.

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Article 68. Representation of the dissolved Company

In the event of dissolution of the Company, each of the liquidators acting jointly and severally shall have the power to represent it.

Article 69. Supervening assets and liabilities

1.

If corporate property appears after the entries relating to the Company have been cancelled, the liquidators shall assign to the former shareholders the additional share to which they may be entitled, for which purpose such property shall be first converted into cash where necessary.

After the passage of six months from the date on which the liquidators were required to comply with the provisions of the foregoing, without the former shareholders having been assigned the additional share, or in the absence of liquidators, any interested party may file a petition with the court of the place where the company’s last registered office was located for the appointment of a person to replace the liquidators in the performance of their duties.

2. The former shareholders shall be jointly and severally liable for all unpaid corporate liabilities up to the amount of what they may have received as their share in liquidation, without prejudice to the liability of the liquidators in the event of fraudulent or negligent conduct.

3. In order to comply with formal requirements relating to legal acts performed prior to the cancellation of the entries of the Company, or whenever necessary, the former liquidators may formalize legal acts in the name of the defunct company following its cancellation in the registry. in the absence of liquidators, any interested party may file a petition for formalization by the court of the place where the last registered office of the Company was located.

Section 3. General provisions

Article 70. Forum

The shareholders hereby waive the jurisdiction otherwise applicable to them and expressly submit to the jurisdiction of the courts sitting in the place where the registered office of the Bank is located.

Article 71. Communications

Without prejudice to the provisions of these bylaws with respect to proxy-granting, distance voting, and attendance at shareholders’ meetings via teleconference, any required or voluntary communications and information among the company, its shareholders, and the directors, regardless of the party issuing or receiving them, may be effected by electronic or data-transmission means, except in the cases expressly excluded by the law and respecting at all times the guarantees of security and the rights of shareholders, to which end the board of directors may establish appropriate technical mechanisms and procedures, which it shall publish on the Company’s website.

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EX-4.1

Exhibit 4.1

Dated 1 April 2010

THE ROYAL BANK OF SCOTLAND GROUP PLC

and

BANCO SANTANDER, S.A.

and

THE STATE OF THE NETHERLANDS

and

RFS HOLDINGS B.V.

RESTATED CONSORTIUM AND SHAREHOLDERS’ AGREEMENT

LINKLATERS LLP
One Silk Street
London EC2Y 8HQ

Telephone (44-20) 7456 2000
Facsimile (44-20) 7456 2222

Ref M. Middleditch

Table of Contents

Contents	Page
1 Definitions and Interpretation		4
2 Restatement		15
3 Conditions and Effectiveness		15
4 Share Capital of the Company		16
5 Acquired Business Transfers		19
6 The Retained Group		24
7 Governance		24
8 Termination		27
9 Determinations		28
10 Representations and Warranties		30
11 Provision of Information and Preparation of Accounts		30
12 Transfer Restrictions for the Investors		31
13 Further Capital and Funding		32
14 New Shareholders		39
15 Distributions and Repurchases		40
16 Confidentiality and Announcements		41
17 Advisers and Costs		41
18 Supremacy of this Agreement		41
19 Entire Agreement and Non Reliance		42
20 General		43
21 Notices		46
22 Choice of law and arbitration		46
Schedule 1 – Part 1 Transfer of the Acquired Businesses		48
Schedule 1 – Part 2 The Acquired Businesses		60
Schedule 1 – Part 3 The Retained Businesses		63

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Contents	Page
Schedule 1 – Part 4 Employment		67
Schedule 1 – Part 5 Pensions		72
Schedule 1 – Part 6 Intellectual Property		76
Schedule 1 – Part 7 Real Estate		78
Schedule 1 – Part 8 Regulatory Matters		81
Schedule 1 – Part 9 Tax Matters		83
Schedule 2 The Retained Business		91
Schedule 3 Corporate Governance		100
Schedule 4 Representations and Warranties		108
Schedule 5 Form of Deed of Accession		109
Schedule 6 Permitted Disclosure		112
Schedule 7 Governance Clearances		113
Schedule 8 Other State Acquired Businesses		117
Schedule 9 Charging Basis for Management of the Retained Business		120
Schedule 10 4.95% Term Sheet		122
Schedule 11 Operation of ID&J India		127
Schedule 12 Worked Example for the purposes of Clause 13		136

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This Agreement is made on 1 April 2010 between:

(1) THE ROYAL BANK OF SCOTLAND GROUP PLC, a company incorporated in Scotland (registered no. SC45551), whose registered office is at 36 St Andrew Square, Edinburgh, EH2 2YE (“RBS”);

(2) BANCO SANTANDER, S.A., a company incorporated in Spain (registered at the Cantabria Commercial Registry), whose registered office is at Paseo de Pereda 9-12, Santander, Spain (“Santander”);

(3) THE STATE OF THE NETHERLANDS (De Staat der Nederlanden) having its seat at The Hague, The Netherlands, represented by the Minister of Finance, Korte Voorhout 7, The Hague, The Netherlands (the “State”); and

(4) RFS HOLDINGS B.V., a company incorporated in the Netherlands (registered no. 34273228), whose registered office is at Strawinskylaan 3105, 1077 ZX Amsterdam, The Netherlands (the “Company”).

Recitals:

(A) In October 2007, the Investors invested in the Company, a limited company that was newly incorporated for the purpose of making an offer to acquire the whole of the issued share capital of RBS Holdings (which was at the time named ABN AMRO Holding N.V.). The Offer was declared unconditional on 10 October 2007 and, following completion of the squeeze out procedure, the Company now owns 100 per cent. of RBS Holdings.

(B) The Original CSA regulated the relationship between the Investors and between the Investors and the Company, set out the terms on which the Investors were willing to acquire Shares in the Company and on which the Investors and the Company effected the Offer, and governed the ongoing management of the Company, before and after 10 October 2007.

(C) Since 10 October 2007, when the Offer was declared unconditional, many of the Acquired Businesses have been transferred to the Investors as contemplated by the Original CSA. The Investors have also reached agreements in relation to various aspects of the assets and liabilities of the RBS Holdings Group, how they will be managed and how they will be shared between the Investors.

(D) In particular, the parties have agreed that RBS shall ultimately be the sole owner of the Company and that RBS shall acquire its Acquired Businesses either by the transfer of such businesses to RBS (or a member of its Group), or to a third party at RBS’ discretion or by becoming the sole shareholder of the Company following the Final Completion Date.

(E) Accordingly, the parties have agreed to amend and restate the Original CSA in the form of this Agreement to reflect the restructuring of the RBS Holdings Group since 10 October 2007. Therefore this Agreement regulates the relationship between the Investors and between the Investors and the Company, sets out the terms on which the remaining Acquired Businesses will be managed and ultimately transferred to the Investors.

(F) This Agreement also provides for certain amendments to the share capital and governance of the Company, such changes to take effect upon obtaining the requisite regulatory and other approvals.

3

It is agreed as follows:

1	Definitions and Interpretation
1.1	Definitions

“ABN AMRO Bank” means ABN AMRO Bank N.V. (formerly named ABN AMRO II N.V.) a company incorporated in the Netherlands (registered no. 34334259), whose registered office is at Gustav Mahlerlaan 10, 1082 PP Amsterdam, The Netherlands);

“Acquired Business(es)” in the case of each Investor, means the businesses which were to be or which have been acquired directly or indirectly by that Investor or a member of its Group pursuant to the Original CSA (unless otherwise reallocated to another Investor with the consent of the relevant Investors), or which are to be acquired directly or indirectly by that Investor or a member of its Group pursuant to this Agreement, as described in Part 2 of Schedule 1, in each case including the Acquired Business Assets relevant to that business but subject to the Liabilities, to the extent that such Liabilities relate to such business;

“Acquired Business Assets” in the case of each Acquired Business, means the Business Assets of that business;

“Acquired Business Transfers” means the transfers of Acquired Businesses contemplated pursuant to Clause 5.1 or 5.3, but excluding any transfer of the Assigned IP;

“Acquired Companies” in the case of each Investor, means the members of the RBS Holdings Group which were to be or which have been acquired by that Investor or a member of its Group pursuant to the Original CSA (unless otherwise reallocated to another Investor with the consent of the relevant Investors), or which are to be acquired by that Investor or a member of its Group pursuant to this Agreement, including any companies established within the RBS Holdings Group for the purposes of acquiring Acquired Business Assets prior to their transfer to an Investor or a member of the relevant Investor’s Group, and “Acquired Company” shall mean any one of such members;

“Acquired Company Shares” means such of the shares in the Acquired Companies as are held by any member of the RBS Holdings Group or in which any member of the RBS Holdings Group is interested;

“Adjusted Consortium Proportions” means:

(a)	with respect to RBS, 53.0988%; and
(b)	with respect to the State, 46.9012%,

subject to adjustment in the event that there is an adjustment to the Consortium Proportions;

“Affiliate” means in relation to any person, its connected persons and any company which is its subsidiary or holding company or another subsidiary of any such holding company from time to time;

“Articles” means the current articles of association of the Company or, following their adoption in accordance with Clause 4.2, the New Articles or as the articles of association of the Company may be subsequently altered from time to time in accordance with this Agreement, and references in this Agreement to an “Article” shall be construed accordingly;

“Assigned IP” has the meaning given to it in Clause 5.3.6;

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“Bank of Spain” means Banco de Espana;

“Board” means the board of directors of the Company;

“Board Reserved Matters” means those matters listed in Schedule 3 Part E;

“Business Assets” means, in the case of any Acquired Business or the Retained Business, that business and the assets, rights, benefits and other property owned by any member of the RBS Holdings Group which were exclusively or principally used, and accounted for, by that business as at 10 October 2007 (including the goodwill attached to such business and including the shares of each member of the RBS Holdings Group the activities of which exclusively or principally involve the carrying on of that business) and any other assets, rights, benefits and other property which have been exclusively or principally used, and accounted for, by that business since 10 October 2007;

“Business Employees” means, in the case of each Acquired Business or the Retained Business and at any particular time, those employees of members of the RBS Holdings Group who are exclusively or principally engaged in that business at the relevant time;

“Business Day” means a day (other than a Saturday, Sunday or a public holiday) on which banks generally are open for business in London, Amsterdam and Madrid;

“Business Unit” means a business unit through which the RBS Holdings Group carried or carries on business, as described in the RBS Holdings Accounts;

“Capital Buffer” has the meaning given to it in Clause 13.4.1(i);

“Challenge” has the meaning given to it in Clause 12.1.4(i);

“Cohabitation Agreements” means the cohabitation agreements between RBS NV and ABN AMRO Bank dated 1 April 2010 in respect of the international diamond and jewellery business in Hong Kong and 1 April 2010 in respect of the international diamond and jewellery business in United Arab Emirates, each of which sets out certain principles for the management of the relevant State Acquired Business whilst it is part of the RBS Holdings Group;

“Companies Act” means the Companies Act 2006;

“Completed Restructuring” means the transactions carried out pursuant to Clause 5 and Schedule 3 of the Original CSA prior to the date of this Agreement pursuant to which certain State Acquired Businesses or Santander Acquired Businesses or assets and liabilities attributable thereto have been acquired directly or indirectly by the State or Santander, or parties nominated by them (as applicable) and any related transactions;

“Completion” means, in the case of each transfer of all or part of an Acquired Business or Acquired Company hereunder, Completion of that transfer pursuant to the provisions of paragraph 4 of Schedule 1 – Part 1;

“Completion Date” means, in respect of any Completion, the date on which such Completion takes place, being the effective date of any Legal Demerger or, in the case of a transfer of all or part of any Acquired Business by way of sale and purchase, the date agreed between the parties for such completion;

5

“Consortium Proportions” means:

(a)	with respect to RBS, 38.2780%;
(b)	with respect to Santander, 27.9117%; and
(c)	with respect to the State, 33.8103%.

“Deed of Accession” means a deed substantially in the form set out in Schedule 5;

“Default Interest Rate” means a rate equal to 3-month EURIBOR plus 250 basis points;

“Defaulting Investor” has the meaning given to it in Clause 13.2.2;

“Deferred Tax Assets” means the State Deferred Tax Assets, the Santander Deferred Tax Assets and/or the Retained Business Deferred Tax Assets;

“Director” means a director of the Company;

“DNB” means De Nederlandsche Bank (the Netherlands Central Bank);

“D Shares” means the unissued D Shares in the Company, the rights of which are as set out in the Articles and which will be as set out in the New Articles, which as at the date of this document are owned by the Company (having been repurchased);

“Effective Notice” has the meaning given in Clause 3.2.1;

“Encumbrance” means a mortgage, charge, pledge, lien, option, restriction, right of first refusal, right of pre-emption, third party right or interest, other encumbrance or security interest of any kind or another type of agreement or arrangement having similar effect;

“EURIBOR” means:

(a) the percentage rate per annum determined by the Banking Federation of the European Union for the relevant period; or

(b) (if no such rate is available for the relevant currency or relevant period) the rate as supplied to the parties at their request quoted by Barclays Bank plc to leading banks in the European interbank market,

in either case, calculated on a daily basis;

“F Shares” means the F Shares in the Company, the rights of which are as set out in the Articles and which as will be set out in the New Articles, and which as at the date of this Agreement are owned by the State;

“Final Completion Date” has the meaning given in Clause 4.3.1;

“FSA” means the Financial Services Authority;

“Further Restructuring” means Legal Separation and the transactions to be carried out pursuant to this Agreement, including the Acquired Business Transfers, the Retained Business Wind Down, the final transfers and the reorganisation of the share capital of the Company pursuant to Clause 4, by virtue of which the State shall acquire directly or indirectly the State Acquired Businesses, Santander shall acquire directly or indirectly the Santander Acquired Businesses, RBS shall acquire 100 per cent. ownership of the Company and therefore the RBS Acquired Businesses, and the Retained Business shall be sold or wound down, and any transactions ancillary thereto;

“Governance Amendments” means the amendments to the share capital of the Company, the amendment of the Articles (by adopting the New Articles) and the changes to the management of the Company as contemplated by Clauses 4.1, 4.2 and 7.2, respectively;

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“Governance Clearances” means the anti-trust and regulatory consents, notifications and approvals which must be obtained in connection with the Governance Amendments, as set out in Schedule 7 ;

“Group” means, in relation to any company, its holding companies, subsidiaries and subsidiary undertakings and subsidiaries or subsidiary undertakings of such holding companies from time to time (but, in the case of RBS, shall exclude the Company and its subsidiaries and subsidiary undertakings and, in the case of the Company, shall exclude RBS and its Group, and in the case of the State, shall mean the State, ABN AMRO Bank and its holding companies, subsidiaries and subsidiary undertakings from time to time);

“holding company” means a holding company as defined in section 1159 of the Companies Act;

“ICC” means the International Chamber of Commerce;

“ID&J India” has the meaning given in Clause 5.1.2(i);

“ID&J SPAs” means the substantially agreed form sale and purchase agreements pursuant to which the State Acquired Businesses listed in Clause 5.1.2 will be transferred to the State (or a member of its Group);

“Independent Accountants” has the meaning given in Clause 9.1;

“Independent Tax Advisers” has the meaning given in Clause 9.1;

“Investor” means any one of RBS, Santander and the State (which pursuant to the deed of accession dated 24 December 2008 assumed the obligations of Fortis under the Original CSA with effect as if it had been an Investor from the date of the Original CSA) and “Investors” means two or more of them as the context requires;

“Investor Group” means, in relation to an Investor, that Investor and the members of its Group and “member of an Investor Group” shall be construed accordingly;

“L Shares” means the L Shares in the Company, the rights of which are set out in the Articles, and which will be as set out in the New Articles, which as at the date of this Agreement are owned by RBS;

“Leasing Principles and Treatment of Property Stranded Costs Principles” means the document agreed by the parties entitled “Leasing Principles and Treatment of Property Stranded Costs Principles” version 12 dated 9 June 2008;

“Legal Demerger” means a division by acquisition in accordance with Article 2 and/or 25 of the Sixth Company Law Directive;

“Legal Demerger Agreement” means the agreement dated 5 February 2010 pursuant to which, inter alia, RBS NV agreed to transfer certain of the State Acquired Businesses to ABN AMRO Bank;

“Legal Separation” means the transfer of ABN AMRO Bank to ABN AMRO Group N.V. which took place on or around the date hereof in accordance with the sale and purchase agreement between RBS Holding N.V. and ABN AMRO Group N.V.;

“Liabilities” means losses, liabilities, costs, charges, actions, proceedings, claims, demands, duties and obligations of every description, including fines and penalties, whether deriving from contract, common law, statute or otherwise, whether present or future, actual or contingent, known or unknown, ascertained or unascertained, claimed or unclaimed, disputed or acknowledged and whether related to contracts or other obligations which have been wholly or partly completed or performed and whether owed or incurred severally or jointly and whether owed as principal or surety and, in each case, whether incurred before or after Completion (including, without limitation, accrued tax liabilities and regulatory fines);

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“LIBOR” means:

(a) the British Bankers Association Interest Settlement Rate for Sterling and for a period most closely approximating the period for which a LIBOR rate is required displayed on the appropriate page of the Telerate screen, provided that if such page is replaced or the Telerate service ceases to be available, the parties may agree another page or service displaying the appropriate rate; or

(b) (if no such rate is available for the relevant currency or relevant period) the rate as supplied to the parties at their request quoted by Barclays Bank plc to leading banks in the London interbank market;

“Litigation Management Agreement” means the agreement dated 5 February 2010 between RBS, Santander, the State, RBS Holdings, RBS NV, ABN AMRO Bank and the Company relating to, inter alia, how litigation pertaining to the RBS Holdings Group will be managed;

“Minimum Equity Ratio” has the meaning given to it in Clause 13.4.1(i);

“Minimum Funding Requirement” has the meaning given to it in Clause 13.4.1(iii);

“Minimum Ratios” has the meaning given to it in Clause 13.4.1;

“Net Funding Shortfall” has the meaning given to it in Clause 13.2.4;

“Net Funding Surplus” has the meaning given to it in Clause 13.2.5;;

“New Articles” means the articles of association of the Company proposed to be adopted in accordance with Clause 4.2;

“New Company” means the Company and any company formed as part of or pursuant to the Acquired Business Transfers or the Retained Business Wind Down or (where the context requires) as part of or pursuant to the Completed Restructuring;

“New Shareholder” has the meaning given to it in Clause 14.1;

“Non Defaulting Investors” has the meaning given to it in Clause 13.2.2;

“O Shares” means the O Shares in the capital of the Company, the rights of which are as set out in the Articles and which will be as set out in the New Articles, and which as at the date of this Agreement are owned by RBS, the State and Santander in the Consortium Proportions;

“Offer” means the offer which was made by the Company for all of the issued and to be issued shares in the capital of RBS Holdings (which at the time was named ABN AMRO Holding N.V.) as contemplated by the Original CSA;

“Original CSA” means the consortium and shareholders’ agreement originally dated 27 May 2007 (as supplemented and amended by the supplemental consortium and shareholders’ agreement dated 17 September 2007, the amendment agreement dated 26 August 2008 and the deed of accession dated 24 December 2008) which has been amended and restated by this Agreement;

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“Overfunded Business” has the meaning given to it in Clause 13.6.1;

“Paraguayan Escrow Amount” means the US$753,891.98 currently held in an escrow account with HSBC in the name of RBS NV and which relates to the sale of the Paraguayan branch of RBS NV to Banco Regional S.A.;

“Paraguayan Tax Amounts” means any amounts which are received by RBS NV in respect of tax credits sold to Banco Regional S.A. as purchaser of the RBS NV Paraguayan branch;

“Permitted Disclosure” means any disclosure set out in Schedule 6;

“Proceeding” means any proceeding, suit or action arising out of or in connection with this Agreement or any other Transaction Document;

“Purchaser” means an Investor or any member of an Investor Group which that Investor nominates to be the company which is to acquire all or any part of any Acquired Business to be acquired pursuant to this Agreement by such Investor (or a member of its Group);

“R Shares” means the R Shares in the capital of the Company, the rights of which are set out in the Articles and will be as set out in the New Articles, and which owned by RBS;

“RBI” has the meaning given to it in Clause 5.3.3(i);

“RBS Acquired Businesses” means the Acquired Businesses, as set out in Part 2 of Schedule 1 which (i) have prior to the date of this Agreement been acquired by RBS, a member of its Group or a third party; (ii) RBS, a member of its Group or a third party will directly or indirectly acquire, or (iii) RBS will indirectly own through its ownership of the Company;

“RBS Acquired Companies” means the companies forming part of the RBS Acquired Business which RBS or a member of its Group (i) has acquired; (ii) has sold to a third party (including any sale by the RBS Holdings Group on behalf of RBS); (iii) will acquire directly or indirectly hereunder, or (iv) will indirectly acquire through its 100 per cent. ownership of the Company;

“RBS Holdings” means RBS Holdings N.V. (formerly named ABN AMRO Holding N.V.);

“RBS Holdings Accounts” means the audited consolidated accounts of the RBS Holdings Group for the year ended 31 December 2006;

“RBS Holdings Combined Group” means the RBS Holdings Group and any former subsidiaries or subsidiary undertakings of RBS Holdings which have been transferred directly or indirectly to the State or Santander pursuant to the Completed Restructuring and “RBS Holdings Combined Group Company” shall be construed accordingly;

“RBS Holdings Group” means RBS Holdings and its subsidiaries and subsidiary undertakings and “RBS Holdings Group Company” shall be construed accordingly;

“RBS NV” means The Royal Bank of Scotland N.V. (formerly ABN AMRO Bank N.V.);

“Regulators” means DNB, Bank of Spain, FSA and any other central bank or regulatory authority having the responsibility for regulatory oversight over any member of the RBS Holdings Group or an Investor;

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“Residual Acquired Business” means any State Acquired Business or Santander Acquired Business which is part of the RBS Holdings Group as at 30 June 2011;

“Retained Business” means, as described in Part 3 of Schedule 1, the assets and Liabilities of RBS Holdings and each member of the RBS Holdings Group other than the assets and Liabilities which form part of the Acquired Businesses, including shares in the members of the Retained Group, but subject to such Liabilities as relate to such assets or undertakings;

“Retained Business Blue Book” means the monthly management financial information that is provided by RBS NV to Investors and relating to the Retained Business, to be provided in the form as provided for the month ended 28 February 2010 unless otherwise agreed by each of the Retained Business Representatives;

“Retained Business Deferred Tax Assets” means Tax Reliefs within Clause 5.3 and 5.4 of the Separation Tax Agreement which have been agreed by the parties as forming part of the Retained Business;

“Retained Business Net Funding Shortfall Proportion” has the meaning given to it in Clause 13.2.4;

“Retained Business Tier 2 Shortfall Proportion” has the meaning given to it in Clause 13.2.3;

“Retained Business Representatives” means the persons nominated pursuant to paragraph 14.1 of Schedule 2;

“Retained Business Wind Down” means the process of selling, winding down or liquidating all of the assets forming part of the Retained Business, the reduction of any unallocated costs forming part of the Retained Business to zero and the full satisfaction of all Liabilities forming part of the Retained Business, each as contemplated by Schedule 2;

“Retained Group” means the RBS Holdings Group, excluding the Acquired Companies;

“S Shares” means the S Shares in the capital of the Company, the rights of which are as set out in the Articles and which will be as set out in the New Articles, and which as at the date of this Agreement are owned by Santander;

“Santander Acquired Businesses” means the Acquired Businesses, as set out in Part 2 of Schedule 1, which (i) have prior to the date of this Agreement been acquired by Santander, a member of its Group or a third party; or (ii) Santander, a member of its Group will acquire directly or indirectly hereunder;

“Santander Acquired Companies” means the companies forming part of the Santander Acquired Business which Santander or a member of its Group (i) has acquired; (ii) has sold to a third party (including any sale by the RBS Holdings Group on behalf of Santander); or (iii) will directly or indirectly acquire hereunder;

“Santander Deferred Tax Assets” means Tax Reliefs in respect of Dutch corporate income tax within Clause 5.3 of the Separation Tax Agreement which have been agreed by the parties as forming part of the Santander Acquired Businesses;

“SEC” means the US Securities and Exchange Commission;

“Separation Tax Agreement” means the tax agreement dated on or around the date hereof between RBS, Santander, the State, the Company, RBS Holdings, RBS NV and ABN AMRO Bank relating to the allocation of certain tax liabilities related to the Dutch businesses and certain other matters in relation thereto;

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“Shareholder” means a holder of Shares from time to time;

“Shares” means the F Shares, R Shares, S Shares, O Shares, L Shares and/or D Shares, as the context may require;

“Solution Agreement” means the solution agreement between ABN AMRO Bank and RBS NV dated 29 March 2010;

“State Acquired Businesses” means the Acquired Businesses, as set out in Part 2 of Schedule 1, which (i) have prior to the date of this Agreement been acquired by the State, a member of its Group or a third party; or (ii) the State, a member of its Group will acquire directly or indirectly hereunder;

“State Acquired Companies” means the companies forming part of the State Acquired Business which the State or a member of its Group (i) has acquired; (ii) has sold to a third party (including any sale by the RBS Holdings Group on behalf of the State); or (iii) will acquire directly or indirectly hereunder, ;

“State Deferred Tax Assets” means Tax Reliefs in respect of Dutch corporate income tax within Clause 5.4 of the Separation Tax Agreement which have been agreed by the parties as forming part of the State Acquired Businesses and Tax Reliefs in respect of any Tax in any other jurisdiction which are agreed between RBS and the State as forming part of the State Acquired Businesses;

“subsidiary” means a subsidiary as defined in section 1159 of the Companies Act;

“subsidiary undertaking” means a subsidiary undertaking as defined in section 1162 of the Companies Act;

“Super Board Majority” means in respect of a meeting of the Board or a committee of the Board held prior to the date of the Effective Notice, a decision agreed by at least one Director appointed by RBS, one Director appointed by Santander and one Director appointed by the State;

“Support” has the meaning given to it in Clause 13.4.1;

“Support Notification” has the meaning given to it in Clause 13.4.2;

“Taxation” or “Tax” means all forms of taxation whether direct or indirect and whether levied by reference to income, profits, gains, net wealth, asset values, turnover, added value or other reference and statutory, governmental, state, provincial, local governmental or municipal impositions, duties, contributions, rates and levies (including without limitation social security contributions and any other payroll taxes), whenever and wherever imposed (whether imposed by way of a withholding or deduction for or on account of tax or otherwise) and in respect of any person and all penalties, charges, costs and interest relating thereto;

“Tax Agreements” means the Separation Tax Agreement, the Tax Segregation Agreement and the other agreements relating to Tax entered into or to be entered into as referred to in Schedule 1 Part 9 some of which agreements may contain provisions relating to the Tax affairs of State Acquired Businesses which remain part of the RBS Holdings Group following the date of this Agreement;

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“Tax Audit” means any audit or investigation of a similar nature carried out by a Tax Authority;

“Tax Authority” means any taxing or other authority competent to impose any liability in respect of Tax or responsible for the administration and/or collection of Tax or enforcement of any law in relation to Taxation;

“Tax Correspondence” means computations and returns relating to Taxation, claims, elections, surrenders, disclaimers, notices and consents for Taxation purposes and any correspondence with any Tax authority in relation thereto;

“Tax Dispute” means any contention by a Tax authority (including by way of the issuance of any assessment or correspondence) that a liability to Tax may arise or that a Tax Relief may not be available;

“Tax Documents” means claims, elections, surrenders, disclosures, notices and consents for Tax purposes;

“Tax Relief” includes any relief, loss, allowance, exemption, set-off, deduction or credit in computing or against profits or Taxation and any right to repayment of Taxation;

“Tax Returns” means computations, returns and documents of a similar nature relating to any Tax;

“Tax Segregation Agreement” means the tax agreement dated on or around the date hereof between RBS, the State, ABN AMRO Bank, RBS NV, RBS Holdings and the Company relating to the allocation of certain tax assets and liabilities related to the segregation of the Dutch businesses and certain other matters in relation thereto;

“Tier 2 Shortfall” has the meaning given to it in Clause 13.2.3;

“Total Capital Ratio” has the meaning given to it in Clause 13.2.3;

“Transaction” means the Governance Amendments, the Acquired Business Transfers and the Retained Business Wind Down pursuant to this Agreement;

“Transaction Documents” means this Agreement, the Articles, the Tax Agreements, the Trade Mark Licenses, the Legal Demerger Agreement, the Litigation Management Agreement, the ID&J SPAs, the Cohabitation Agreements and any other agreements entered into pursuant to such Agreements;

“Transitional Plan” means the plan ordered by the Managing Board of RBS NV for (i) the reorganisation of the RBS Holdings Group to achieve the allocation of businesses as intended by the Investors, (ii) the Acquired Business Transfers and (iii) the Retained Business Wind Down;

“Transfer” means, in relation to any share, loan note or other security or any legal or beneficial interest in any share, to:

(a)	sell, assign, transfer or otherwise dispose of it;
(b)	create or permit to subsist any Encumbrance over it;

(c) direct (by way of renunciation or otherwise) that another person should, or assign any right to, receive it;

(d)	enter into any agreement in respect of the votes or any other rights attached to the share other than by way of proxy for a particular shareholder meeting; or
(e)	agree, whether or not subject to any condition precedent or subsequent, to do any of the foregoing,

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and “Transferred”, “Transferor” and “Transferee” shall be construed accordingly;

“Transfer Conditions” means the conditions set out in paragraph 1 of Part 1 of Schedule 1, being the conditions precedent to the Acquired Business Transfers;

“Transfer Taxes” means stamp duties and taxes, stamp duty reserve tax, real estate transfer taxes, registration duties and taxes and duties of a similar nature payable in respect of a direct or indirect transfer of assets or shares;

“Undercapitalised or Underfunded Business” has the meaning given to it in Clause 13.4.1;

“Valuation Range” means the range for the fair market value of a business as determined in accordance with paragraph 13 of Schedule 2;

“Valuer” has the meaning given to it in paragraph 13 of Schedule 2;

“VAT” means within the European Community such tax as may be levied in accordance with (but subject to derogations from) the Directive 2006/112/EC and outside the European Community any tax levied by reference to added value or sales;

“Wider RBS Group” means, in relation to RBS, its holding companies, subsidiaries and subsidiary undertakings and subsidiaries or subsidiary undertakings of such holding companies from time to time; and

“Wrong Box Asset or Liability” means a Business Asset or Liability which is indentified in accordance with paragraph 7.3 of Part 1 of Schedule 1 by the parties at any time following the date of this Agreement but prior to 30 June 2011 as being owned by a member of the Retained Group but which is an asset or liability which is exclusively or principally used, and accounted for, by an Acquired Business (and accordingly should be an Acquired Business Asset) or which is so indentified as being owned by an Acquired Company acquired or to be acquired by one Investor but which is exclusively or principally used, and accounted for, by an Acquired Business of another Investor or by the Retained Business (and accordingly should be an asset of such Acquired Business or the Retained Business as the case may be) or which is newly identified and which prior to its identification had never been allocated to or accounted for by an Acquired Business or the Retained Business.

1.2 Interpretation

In this Agreement, save where the context otherwise requires:

1.2.1	the singular includes the plural and vice versa and reference to any gender includes a reference to all other genders;
1.2.2	headings and the use of bold typeface shall be ignored;

1.2.3 references to any enactment shall include references to such enactment as it may, after the date of this Agreement, from time to time be amended, supplemented or re-enacted save where any amendment or modification to such enactment increases any liability under this Agreement or imposes obligations which are additional hereto;

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1.2.4 unless otherwise expressly provided, expressions defined in the Companies Act have the meanings there given to them;

1.2.5 a reference to a “party” is to a party to this Agreement for the time being and a reference to the “parties” is, unless otherwise stated to the contrary, a reference to all parties to this Agreement for the time being;

1.2.6 “including” and similar expressions are not to be construed as words of limitation;

1.2.7 references to times of the day are to London time (unless otherwise specified);

1.2.8 a person shall be deemed to be connected with another if that person is connected with another within the meaning of Section 839 ICTA 1988;

1.2.9 if a period of time is specified as from a given day, or from the day of an act or event, it shall be calculated exclusive of that day;

1.2.10 any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing shall in respect of any jurisdiction other than England be deemed to include what most nearly approximates in that jurisdiction to the English legal term and a reference to any English statute shall be construed so as to include equivalent or analogous laws of any other jurisdiction;

1.2.11 a specific Transaction Document is a reference to that document as amended, varied, novated, supplemented or replaced from time to time (other than in breach of the provisions of this Agreement) or the relevant Transaction Document;

1.2.12 a document in the “agreed form” is a reference to a document in a form approved and for the purposes of identification initialled by or on behalf of the Investors and the Company;

1.2.13 in this Agreement, the terms “Group”, “holding company” and other terms of similar import, when used in connection with the State, shall be construed as if the State were a company;

1.2.14 for the purposes of this Agreement, De Nederlandsche Bank and the Dutch tax authorities do not form part of the State. Accordingly, obligations assumed by the State in this Agreement are not also assumed by De Nederlandsche Bank and/or the Dutch tax authorities. In addition, where the State undertakes a procurement obligation, such obligation does not imply a requirement to cause De Nederlandsche Bank or the Dutch tax authorities to take, or omit to take, any particular action, and requires the State to use only its powers as shareholder in the Company and not its legislative or other powers; and

1.2.15 any reference in this Agreement to RBS as an Investor acquiring an RBS Acquired Business shall include RBS acquiring ownership of that Acquired Business by becoming the sole shareholder of the Company as contemplated by Clause 4.

1.3 The Schedules are part of this Agreement and shall have effect accordingly, and terms defined therein and not in the main body of this Agreement shall have the meanings given to them in such Schedules.

1.4 References to this Agreement are to this Agreement as varied or supplemented from time to time.

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2 Restatement

This Agreement amends and restates the Original CSA with effect from the date hereof in accordance with the terms of this Agreement. Unless otherwise stated herein, the amendment and restatement of the Original CSA shall be without prejudice to any rights or obligations accrued or incurred by any of the parties prior to the date of this Agreement.

3	Conditions and Effectiveness
3.1	Regulatory Approvals for Governance Amendments

The parties shall cooperate and consult together to the extent necessary in seeking the Governance Clearances and shall use their respective reasonable endeavours to ensure that the Governance Clearances are obtained and/or made so as to enable the Governance Amendments to be implemented as soon as reasonably practicable following the date of this Agreement. In such connection, each of the Investors will:

3.1.1 promptly provide each other Investor and the Company with such information (which shall be complete and accurate in all material respects) as is required to complete any application for a Governance Clearance or to make any necessary filing in connection with the Governance Amendments (such information to be provided on a confidential basis and on a lawyer to lawyer basis if necessary);

3.1.2 ensure by sharing required information that all applications for Governance Clearances and all necessary filings are made on a consistent basis;

3.1.3 cooperate in responding to any enquiries made by any relevant government, anti-trust, tax or regulatory authority or any relevant stock exchange or listing authority, in particular so as to ensure that such responses are made on a consistent basis; and

3.1.4 notify the other Investors and the Company as soon each Governance Clearance is obtained.

No Investor shall be required to share or otherwise provide information to the other Investors that it reasonably believes is competitively sensitive or proprietary but such information shall if relevant for any Governance Clearance be supplied to the relevant authority on a confidential basis.

The parties agree that RBS shall be responsible for managing the process of seeking the Governance Clearances and that all costs incurred in relation to obtaining the Governance Clearances shall be borne by the Company and shall be borne indirectly by the Investors in the Consortium Proportions.

3.2 Notification of all Governance Clearances

3.2.1 Immediately following receipt of all Governance Clearances set out in Part A of Schedule 7, RBS shall be entitled to serve written notice on the other Investors and the Company that all necessary Governance Clearances have been received (or waived in accordance with Clause 3.2.2) (the “Effective Notice”) and the Governance Amendments shall take effect with effect from the date of such notice.

3.2.2 If each of the Investors agrees, any Governance Clearance that is required as a condition to implementing the Governance Amendments may be waived by the Investors.

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4	Share Capital of the Company
4.1	Initial alterations of the share capital of the Company

4.1.1 The parties agree that, conditional only on the issue of the Effective Notice in accordance with Clause 3.2.1, their intention is to amend and reduce the share capital of the Company such that:

(i)	Santander owns 100 S Shares;
(ii)	the State owns 100 F Shares;

(iii)	the number of O Shares in issue is the minimum required to ensure that the Investors hold the O Shares in the Consortium Proportions; and
(iv)	the L Shares are reclassified as R Shares.

4.1.2 The parties agree that RBS will continue to own the R Shares.

4.1.3 To achieve the objective set out in Clause 4.1.1, each of the Investors and the Company severally agree to take such actions and execute such documents as are reasonably necessary to cancel such number of F Shares and S Shares as would result in Santander owning 100 S Shares and the State owning 100 F Shares and such number of O Shares such that the remaining number of O Shares in issue would be the minimum required to ensure that the Investors hold O Shares in the Consortium Proportions, including without limitation:

(i) passing a resolution of the Shareholders to cancel all the F Shares save for 100 F Shares and all the S Shares save for 100 S Shares;

(ii) passing a resolution of the holders of the F Shares approving the proposed cancellation of the F Shares as contemplated by Clause 4.1.1(ii) above;

(iii) passing a resolution of the holders of the S Shares approving the proposed cancellation of the S Shares as contemplated by Clause 4.1.1(i) above;

(iv) passing a resolution of the Shareholders to cancel such number of the O Shares such that, following the cancellation, RBS will hold 382,780 O Shares, Santander will hold 279,117 O Shares and the State will hold 338,103 O Shares;

(v) passing a resolution of the holders of the O Shares approving the proposed cancellation of the O Shares as contemplated by Clause 4.1.1(iii) above;

(vi) passing a resolution of the shareholders to adopt the New Articles, including a re-classification of the L Shares as R Shares;

(vii) filing each of the resolutions referred to in (i) to (vi) above with the Dutch Trade Register, to the extent required under Dutch law; and

(viii) announcing the proposed cancellations of F Shares, S Shares and O Shares in a Dutch national newspaper.

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4.1.4 For the avoidance of doubt, the parties hereby confirm that Santander is and remains entitled to the contribution of EUR138,345,000 effected by Santander on or around 31 March 2010 — as share premium O and in payment of the nominal value of EUR 0.01 of one new O share issued to Santander — in order to maintain the minimum equity that Santander is required to leave in RBS NV to fund (its part of) the Retained Business. Such part of this amount will not be repaid to Santander upon the cancellation of a number of its O shares referred to in this Clause as is, at the time of such cancellation, required for funding of Santander’s part of the Retained Business. To the extent required and unless otherwise agreed, RBS and the State waive any rights to (the amount of) such contribution for the purposes of this Clause 4.1.

4.1.5 The Investors and the Company agree that any resolutions passed pursuant to Clause 4.1.3 shall be conditional upon obtaining the Governance Clearances set out in Part A of Schedule 7 and that any cancellation proposed pursuant to Clause 4.1.3 shall not become effective until the New Articles become effective.

4.2 Adoption of the New Articles

4.2.1 Following the date of this Agreement the parties shall negotiate in good faith and use all reasonable endeavours to agree the form of the New Articles such that they reflect the terms of this Agreement.

4.2.2 The parties agree that the New Articles shall be substantially the same as the Articles save for any amendments as are necessary to reflect the terms of this Agreement, in particular Clauses 4 and 7. The parties agree that Santander and the State shall under the New Articles continue to have rights afforded to them pursuant to article 27.3 of the Articles.

4.2.3 The Investors shall procure that all Shareholders adopt a written resolution to amend the Articles and execute a deed of amendment of the Articles before a Dutch civil law notary, implementing the agreed form of the New Articles conditional only upon RBS serving the Effective Notice. Such written resolution shall include a power of attorney to employees of that Dutch civil law notary to have the deed of amendment of the New Articles executed. On the date that Effective Notice is served, the Investors shall take such action (including filing any documents with the Dutch Trade Register) as is necessary to give effect to the New Articles.

4.3 Subsequent alterations of the share capital of the Company

4.3.1 The Investors have agreed that, as soon as reasonably practicable following completion of the Acquired Business Transfers (excluding any transfer or use of or payment for any Deferred Tax Assets) and the Retained Business Wind Down (excluding any transfer or use of or payment for any Retained Business Deferred Tax Assets) (the “Final Completion Date”), RBS will become the sole owner of the Company, RBS Holdings and RBS NV.

4.3.2 Accordingly, and subject to applicable law and regulation (including obtaining all necessary anti-trust and regulatory approvals), the parties agree as soon as reasonably practicable following the Final Completion Date to take such actions and execute such documents as are necessary to:

(i) cancel or have the Company repurchase or to transfer the S Shares, the F Shares and the O Shares; or

(ii) otherwise ensure that RBS is the sole shareholder of the Company,

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provided that (i) if O Shares are repurchased or cancelled, each Investor shall have its Consortium Proportion of O Shares cancelled or repurchased and (ii) the parties shall negotiate in good faith to agree a process which is as efficient for all parties and the RBS Holdings Group as is reasonably practicable from a Tax, regulatory, financial and timing perspective, taking into account (in the case of Tax) the principles in Part 9 of Schedule 1. If agreement cannot be reached under this Clause 4.3.2, the matter shall be resolved by the respective Chief Financial Officers of the Investors (which shall be the Minister of Finance in the case of the State) (or such persons as they each may nominate).

4.3.3 Notwithstanding Clause 4.3.2, the parties agree that if prior to the Final Completion Date:

(i) the State Acquired Businesses (excluding for this purpose any State Deferred Tax Assets) have been transferred in accordance with this Agreement, if so requested by RBS and subject to any anti-trust or other regulatory approvals, as soon as reasonably practicable after such transfer the parties shall take such steps as are necessary to remove the F Shares from the capital of the Company, by cancellation or otherwise, or to transfer for nil consideration such Shares to the Company or RBS;

(ii) the Santander Acquired Businesses have been transferred in accordance with this Agreement, if so requested by RBS and subject to any anti-trust or other regulatory approvals, as soon as reasonably practicable after such transfer the parties shall take such steps as are necessary to remove the S Shares from the capital of the Company, by cancellation or otherwise, or to transfer for nil consideration such Shares to the Company or RBS; or

(iii) the Retained Business Wind Down has been completed (excluding for this purpose any use or transfer of or payment for any Retained Business Deferred Tax Assets), if so requested by RBS and subject to any anti-trust or other regulatory approvals, as soon as reasonably practicable after such completion the parties shall take such steps as are necessary to remove the O Shares from the capital of the Company, by cancellation or otherwise, or to transfer for nil consideration such Shares to the Company or RBS.

4.3.4 Without prejudice to Clause 5.3.1 and paragraphs 10.1.1 and 10.2 of Schedule 2, the cancellation or repurchase of the S Shares, F Shares and O Shares or the removal of such Shares from the capital of the Company as referred to in Clauses 4.3.2 and 4.3.3 shall be effected for no consideration or, to the extent applicable, for no consideration other than for any amounts due to the relevant holders of such Shares in respect of their entitlement to any part of the State Acquired Business, the Santander Acquired Business or the Retained Business and taking into account Clause 4.1.4.

4.3.5 The cancellation or repurchase of S Shares, F Shares and O Shares or the removal of such Shares from the capital of the Company as referred to in Clauses 4.3.2 and 4.3.3 shall be without prejudice to Clause 5.3.5.

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4.4 No Opposition

Each of the Investors severally undertakes that it shall not exercise its rights as a shareholder or creditor of the Company or through its nominee directors of the Company to prevent any Investor or the Company from exercising its rights to enforce the obligations of the Investors and/or the Company to alter the share capital of the Company as set out in this Agreement. Notwithstanding any other provision of this Agreement or any agreement or document to be entered into in connection with it, the parties agree that: (i) upon RBS issuing the Effective Notice in accordance with Clause 3.2.1 their respective obligations under Clauses 4.1 and 4.2 shall be unconditional and irrevocable; and (ii) from the Final Completion Date their respective obligations under Clause 4.3 shall be unconditional (subject to any anti-trust, regulatory or other approvals that are required) and irrevocable.

5	Acquired Business Transfers
5.1	Acquired Business Transfers Terms and Intentions

5.1.1 This Clause 5 and Schedule 1 set out the principles and terms on which those Acquired Businesses which have not already been transferred to the relevant Investor are proposed to be acquired from the RBS Holdings Group directly or indirectly by Santander and the State or members of their respective Groups. The parties acknowledge that the overriding principle of this Agreement and the basis on which the shareholdings in the Company of each Investor have been determined is that each Investor shall acquire the assets and Liabilities attributable to its Acquired Businesses as described in Part 2 of Schedule 1. The provisions of this Agreement shall be construed in accordance with this overriding principle.

5.1.2 The parties agree that as of the date of this Agreement the following businesses have been identified as State Acquired Businesses which shall transfer to ABN AMRO (as the entity nominated by the State to be the transferee of the relevant State Acquired Businesses) in accordance with this Agreement and the ID&J SPAs (provided that where there is an inconsistency between this Agreement and the relevant ID&J SPA, the relevant ID&J SPA shall prevail) as soon as reasonably practicable following the date of this Agreement, taking into account the intention to maximise the efficiency of the Acquired Business Transfers from a Tax, regulatory, human resources, financial and operational point of view, while minimising the impact on any other Investor or its Acquired Business or the Retained Group, as well as with the aim to maximise so far as reasonably practicable value to each Investor and its shareholders:

(i) the international diamond and jewellery business in India which forms part of BU Private Clients (“ID&J India”);

(ii) the international diamond and jewellery business in Hong Kong which forms part of BU Private Clients;

(iii) the international diamond and jewellery business in Japan which forms part of BU Private Clients; and

(iv) the international diamond and jewellery business in United Arab Emirates which forms part of BU Private Clients.

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5.1.3 In addition to those assets and liabilities set out at clause 5.1.2, the parties have agreed that the assets and liabilities set out in Schedule 8 are assets and liabilities forming part of the State Acquired Business. The parties have agreed that in relation to each of these assets and liabilities the actions set out in Schedule 8 shall be taken with a view to transferring such assets and liabilities to the State (or a member of its Group) prior to 30 June 2011 and that the assets and liabilities shall remain within RBS NV until the relevant Completion on the basis set out in Schedule 8. The parties have also agreed that if such transfers do not take place prior to 30 June 2011, the actions set out in column 5 of Schedule 8 shall be taken in relation to such assets and liabilities. The parties agree that as at the date of this Agreement the assets of the RBS Holdings Group which have been identified as assets forming part of the State Acquired Businesses include the State Deferred Tax Assets. The parties acknowledge that ABN AMRO Bank shall receive payments in respect thereof in accordance with Clause 5 of the Separation Tax Agreement (or the equivalent provisions of any other applicable Tax Agreement in the case of Tax Reliefs other than Tax Reliefs in respect of Dutch corporate income tax).

5.1.4 Subject to 5.1.2, pursuant to the Legal Demerger Agreement, RBS NV, ABN AMRO Bank and RBS Holdings have agreed that certain specified State Acquired Businesses (referred to in the Legal Demerger Agreement as the “Identified Non-Transferring Assets and Liabilities”) will transfer to ABN AMRO Bank in accordance with Clause 5.9 of the Legal Demerger Agreement. Such transfers will take place in accordance in with the terms of the Legal Demerger Agreement and the principles set out in this Agreement (in particular this Clause 5 and Schedule 1), provided that prior to 30 June 2011 to the extent that there is any inconsistency between the terms of this Agreement and the Legal Demerger Agreement, the terms of the Legal Demerger Agreement shall prevail.

5.1.5 The parties agree that as of the date of this Agreement the following assets of RBS Holding Group have been identified as assets forming part of the Santander Acquired Businesses:

(i)	the Santander Deferred Tax Assets, in respect of which the parties acknowledge Santander shall receive payment in accordance with Clause 5 of the Separation Tax Agreement;
(ii)	the Paraguayan Escrow Amount; and
(iii)	the Paraguayan Tax Amounts.

5.1.6 The parties agree that the client relationship and loans made to Amsterdam Office B.V., which as at the date of this Agreement are owned by ABN AMRO Bank, will be transferred to RBS NV pending receipt of the requisite client consents and agreement between RBS NV and ABN AMRO as to the level of compensation payable to RBS NV if losses arise in relation to such loans. The parties agree that the transfer is expected to take place by 30 June 2010.

5.1.7 The parties acknowledge and agree that they will negotiate in good faith, and will use commercially reasonable efforts to apply the principles set out in this Agreement (and in particular this Clause 5.1), to resolve all issues between them arising out of or in connection with the Acquired Business Transfers.

5.1.8 The intention of the parties is that the acquisition by the individual Investors or members of their respective Groups of the Acquired Businesses (which have not already been acquired) should be implemented in a manner that is:

(i) consistent with the principles set out in Schedule 1; and

(ii) as efficient for all parties and the RBS Holdings Group as is reasonably practicable from a Tax, regulatory, human resources, financial and operational point of view taking into account (in the case of Tax) the principles in Part 9 of Schedule 1.

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5.2 Definitive Documents for the Acquired Business Transfers

Pursuant to the agreement, acknowledgments and intentions set out in or contemplated by Clause 5.1, the applicable parties shall:

5.2.1 as soon as reasonably practicable after the date of this Agreement and subject to Clause 5.3 below, negotiate in good faith to finalise definitive agreements for:

(i) the Acquired Business Transfers;

(ii) (to the extent not already agreed by the parties) the provision of transitional or ongoing services between all or any of the Acquired Businesses and the Retained Business or between two or more Acquired Businesses (including, without limitation, information technology, operations and infrastructure support services) which are reasonably necessary to conduct the Acquired Businesses and the Retained Business on terms and in a manner which is in accordance with Clause 5.5 and Schedule 1;

(iii) if so required, the allocation of Taxes and Tax Relief and dealing with Tax Correspondence and Tax Disputes, as provided for in Part 9 of Schedule 1, to the extent not already finalised prior to the date of this Agreement or otherwise agreed by the parties; and

(iv) the implementation of such other matters as the parties consider appropriate,

in each case on terms which are consistent with the intention and principles set out in this Clause 5 and Schedule 1.

5.3 Failure to complete the Acquired Business Transfers

5.3.1 If any Acquired Business Transfer has not been completed by 30 June 2011, RBS shall have the right at its discretion:

(i) by written notice to the relevant Investor, to deem that the Transfer Conditions in relation to any Residual Acquired Business cannot be satisfied such that paragraph 1.4.1 of Schedule 1 Part 1 shall apply to that Residual Acquired Business(es); or

(ii) subject to payment to the State and/or Santander (as the case may be) of the fair market value of the relevant businesses (as determined below), to determine that any Residual Acquired Businesses shall not be acquired by the State or Santander (as the case may be) but shall be acquired by the Wider RBS Group (either by reallocating such businesses as RBS Acquired Businesses, save for the purposes of paragraph 7.1 of Schedule 1 of this Agreement, or by purchasing such businesses, in each case for consideration which is greater than or equal to the lowest point of the Valuation Range as determined by the Valuer in accordance with the principles set out in paragraph 13 of Schedule 2 mutatis mutandis. RBS may only acquire a Residual Acquired Business of the State for a consideration of less than the lowest point of the Valuation Range with the consent of the State. RBS may only acquire a Residual Acquired Business of Santander for a consideration of less than the lowest point of the Valuation Range with the consent of Santander.

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5.3.2	If RBS exercises its rights under Clause 5.3.1, for the purposes of Clause 4.3.1 the completion of the Acquired Business Transfers shall be the date that the final Residual Acquired Business is sold in accordance with paragraph 1.4 of Schedule 1 Part 1 or allocated to or purchased by RBS (or a member of the Wider RBS Group) in accordance with Clause 5.3.1(ii).
5.3.3	Notwithstanding Clause 5.3.1, in relation to ID&J India, if:

(i) on or immediately prior to 30 June 2011 the State produces to RBS written evidence from the Reserve Bank of India (the “RBI”) confirming that the RBI is considering the licence application(s) made by ABN AMRO Bank in respect of the transfer of ID&J India; or

(ii) the RBI has on or shortly prior to 30 June 2011 confirmed in a meeting with RBS NV and ABN AMRO Bank that it is considering the licence application(s) made by ABN AMRO Bank in respect of the transfer of ID&J India,

the time period for transfer of ID&J India shall be extended to the earlier of (i) 30 June 2012 or (ii) the date that the RBI informs ABN AMRO Bank, the Company, RBS NV or any Investor that it will not grant the requisite licence(s). If the requisite licence(s) is granted prior to 30 June 2012, the timeframe for the transfer of ID&J India shall be extended by RBS to permit the transfer to the State or a member of its Group provided that the Completion must take place prior to 31 December 2012. If on or immediately prior to 30 June 2012 the RBI has not granted the requisite licence(s) but has confirmed in writing to ABN AMRO Bank (as evidenced by ABN AMRO Bank to RBS NV) that it will do so within six months, RBS shall grant a further extension to ABN AMRO Bank to 31 December 2012. If any extension is granted in accordance with this Clause 5.3.3, the provisions of Clause 5.3.1 shall not apply to ID&J India until the end of the time period granted by RBS in accordance with this Clause. Any extension granted pursuant to this Clause 5.3.3 in relation to ID&J India shall not affect the rights of RBS under Clause 5.3.1 in relation to any other Residual Acquired Business.

5.3.4 If the Transfer of ID&J India has not taken place by the end of the time period set by RBS in accordance with the Clause 5.3.3, Clause 5.3.1 shall apply to ID&J India mutatis mutandis.

5.3.5 Notwithstanding Clauses 5.3.1 and 5.3.2, the parties acknowledge that pursuant to the provisions of Clause 5 of the Separation Tax Agreement (and/or, in the case of the State, the equivalent provisions of any other applicable Tax Agreement), Santander and/or ABN AMRO Bank may not have become entitled to receive payment in respect of all or part of the relevant Deferred Tax Assets by 30 June 2011 (or in the case of ID&J India, 30 June 2012 or 31 December 2012 as applicable). The parties also acknowledge that the Tax affairs of members of the RBS Holdings Group in respect of periods covered by a Tax Agreement or by Part 9 of Schedule 1 to this Agreement may not be finalised by 30 June 2011 (or in the case of ID&J India, 30 June 2012 or 31 December 2012 as applicable) such that certain Tax-related Liabilities attributable to a State Acquired Business or a Santander Acquired Business may remain in the relevant member of the RBS Holdings Group after 30 June 2011 (or in the case of ID&J India, 30 June 2012 or 31 December 2012 as applicable). The parties therefore acknowledge that

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completion may not have occurred in relation to such Assets and Liabilities attributable to the State Acquired Businesses and Santander Acquired Businesses by 30 June 2011 (or in the case of ID&J India, 30 June 2012 or 31 December 2012 as applicable) and the provisions of the Tax Agreements and Part 9 of Schedule 1 to this Agreement may remain in force in respect of such Assets and Liabilities after 30 June 2011 (or in the case of ID&J India, 30 June 2012 or 31 December 2012 as applicable). For the avoidance of doubt, the fact that any Deferred Tax Assets may not have been utilised prior to 30 June 2011 (or in the case of ID&J India, 30 June 2012 or 31 December 2012 as applicable) shall not prevent the Final Completion Date from occurring for the purpose of Clause 4.3.

5.3.6 Notwithstanding Clause 5.3.1, in respect any intellectual property which has been allocated by the Investors to an Acquired Business and for which an assignment of such Intellectual Property has been signed prior to 30 June 2011, the provisions of Clause 5.3.1 shall not apply to such intellectual property (the “Assigned IP”). The Assigned IP shall transfer to the relevant Investor (or member of its Group, or in the case of RBS, the Wider RBS Group) in accordance with the relevant assignment.

5.4 Accounting between the Parties

The parties acknowledge that the operation of this Clause 5 and Schedule 1 may lead to a number of adjustments and payments between the parties which, in the absence of agreement between the Investors, shall be determined in accordance with Clause 9. The parties will put in place reasonable arrangements to record such adjustments and the liability to make such payments on the basis that, in order to avoid numerous de minimis matters having to be dealt with, the Investors will settle such Liabilities between themselves on a monthly basis (unless otherwise agreed). Paragraph 1.1.8 of Schedule 1 Part 9 shall apply as regards the manner of making such payments and adjustments.

5.5 Intra Group Arrangements

5.5.1 Subject to Clause 5.5.2, if following the date of this Agreement any Acquired Company or any of the Acquired Businesses to be acquired by any one Investor (or a member of its Group) is found to be using any assets, facilities or services (including the management and allocation of credit default swaps and other derivatives exposure) of any member of the Retained Group or any Acquired Company or Acquired Business to be acquired by any other Investor (or a member of its Group) or if any member of the Retained Group uses any assets, facilities or services (including as aforesaid) of any Acquired Company or Acquired Business the Investors shall, and the Company shall procure that the Retained Group shall use their respective reasonable endeavours to procure that such arrangements are continued on the same basis as prevailing at the time the need for further arrangements is identified (or otherwise on such terms as the Investors agree) to the extent necessary to enable the relevant companies or businesses using such assets, facilities or services (including as aforesaid) to carry on their business in the manner in which it is carried on at the time that the need for further arrangements contemplated by this Clause 5.5 is identified.

5.5.2 Save with the written consent of all parties, no arrangement may be entered into pursuant to Clause 5.5.1 if to do so would be inconsistent with intra group arrangements that have as at the date of this document been agreed by the parties.

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5.6 Allocation of Capital

For the avoidance of doubt and notwithstanding Clause 2, the parties agree that all discussion and agreements on the allocation of capital of the RBS Holdings Group have been completed and recorded in the term sheet and covering letter agreed by the respective Chief Financial Officers of the Investors on 28 September 2009 in Appendix 7 of the document entitled “ABN AMRO Restructuring: Agreed Package of Solutions for pre-NL Demerger Filing Issues” (the “4.95 Term Sheet” as set out in Schedule 10 to this Agreement). Accordingly, the provisions of Part 11 of Schedule 3 of the Original CSA shall terminate and shall have no further effect in accordance with the 4.95 Term Sheet. Once so terminated no party shall have any claim under those provisions, whether such claim purportedly relates to events prior to or following the date of this Agreement.

6 The Retained Group

Each of the parties agrees that, with respect to the Retained Group and the Retained Business, the terms of Schedule 2 shall apply.

7	Governance
7.1	Appointment of Directors of the Company prior to the Effective Notice

7.1.1 Until the New Articles become effective in accordance with Clause 4.2, the Board shall comprise four Directors, who shall, subject to Clause 7.7, be nominated for appointment by the Investors as follows:

(i)	RBS — two Directors (including the Chairman);
(ii)	Santander — one Director; and
(iii)	the State — one Director.

7.1.2 Until the New Articles become effective in accordance with Clause 4.2, any Director may be proposed for appointment, suspension or removal by the relevant Investor by written notice served on the Company and the other Investors. In such event, the Investors and the Company shall promptly take such steps as may be necessary to effect any such appointment, suspension or removal, including but not limited to procuring that all Shareholders shall (i) exercise their voting rights in a general meeting of Shareholders of the Company or adopt a resolution in writing to appoint, suspend or remove the relevant Investor Director and (ii) abstain from exercising their voting rights in the general meeting of Shareholders of the Company or adopt a resolution in writing in respect of the appointment, suspension or removal of an Investor Director other than in accordance with a proposal to that effect in accordance with this Clause 7 by the relevant Investor.

7.1.3 A Director may appoint another Director as his proxy for any specified meeting of the Board. In the case of the Directors appointed by the State and Santander, such proxy shall not be resident for Tax purposes in the United Kingdom. Such proxy may attend the specified meeting and exercise the votes of the Director who has appointed him and such appointing Director may direct his replacement on how to exercise such votes.

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7.1.4 The parties agree that:

(i) no Director appointed upon nomination of the State shall be resident for Tax purposes in the United Kingdom; and

(ii) no Director appointed upon nomination of Santander shall be resident for Tax purposes in the United Kingdom.

7.1.5 Until the New Articles become effective in accordance with Clause 4.2, the parties agree that, subject always to the need to comply with all applicable legal and regulatory requirements and with the fiduciary obligations of each Director and of the Board of the Company, unless otherwise provided in this Agreement, Board decisions shall be taken by majority vote and so as to be consistent with the provisions of this Agreement.

7.2 Appointment of Directors of the Company following the Effective Notice

7.2.1 From the time that the New Articles become effective, the Board shall comprise such number of Directors as may be determined by RBS, who shall each be nominated for appointment by RBS.

7.2.2 The Investors and the Company shall promptly take such steps as may be necessary to effect any appointment, suspension or removal of a Director required in order to implement Clause 7.2.1, including but not limited to procuring that all Shareholders shall exercise their voting rights in a general meeting of Shareholders of the Company or adopt a resolution in writing to appoint any persons nominated for appointment by RBS or to suspend or remove any Director appointed upon nomination by the State or Santander. A Director appointed upon nomination of the State or Santander that is removed shall be granted a release from liability for his management of the Company both upon removal and upon adoption of the annual accounts of the financial year during which the removal occurred, insofar as the exercise of his duties is reflected in the financial statements which have been made available to the general meeting or otherwise disclosed to the general meeting, unless release from liability cannot reasonably be expected to be granted for reasons of improper exercise of duties.

7.2.3 From the time that RBS provides the Effective Notice in accordance with Clause 3.2, the parties agree that, subject to Clause 7.7, RBS shall in its absolute discretion determine the governance policies and practices of the Company and the RBS Holdings Group.

7.3 Appointment of the Chairman

The Chairman shall be appointed by RBS from amongst the Directors appointed by RBS. The Chairman shall have a casting vote.

7.4 Agreements in relation the Acquired Businesses

7.4.1 Pursuant to the Cohabitation Agreements and ID&J SPAs, RBS NV and ABN AMRO Bank have agreed certain matters in relation to the State Acquired Businesses set out in Clause 5.1.2 that are owned by RBS NV at the date of this Agreement until such time as they are transferred to the State (or such member of the State’s Group as is nominated by the State). RBS and the State agree to take such action as is required to give effect to the Cohabitation Agreements and ID&J SPAs in relation to the operation of such State Acquired Businesses. Upon the reasonable request by RBS and the State, Santander shall take such action is required to give effect to the Cohabitation Agreements and ID&J SPAs in relation to the management of such State Acquired Business.

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7.4.2 Pursuant to the Legal Demerger Agreement, RBS NV and ABN AMRO Bank have agreed certain matters in relation to the State Acquired Businesses that are identified prior to or following the date of this Agreement until such time as they are transferred to the State (or such member of the State’s Group as is nominated by the State), such businesses being referred to in the Legal Demerger Agreement as “Non-Transferring Assets and Liabilities”. RBS and the State agree to take such action as is required to give effect to the Legal Demerger Agreement in relation to the operation of such State Acquired Businesses. Upon the reasonable request by RBS and the State, Santander shall take such action as is required to give effect to the Legal Demerger Agreement in relation to the management of such State Acquired Businesses.

7.4.3 RBS and the State have agreed that ID&J India shall be governed in accordance with Schedule 11. RBS shall take such action as is required to procure that RBS NV shall adhere to the provisions of Schedule 11.

7.4.4 Subject to Clause 5.3, the parties agree that any State Acquired Businesses and any Santander Acquired Businesses may only be sold by RBS NV if the prior written consent of the State or Santander, respectively, is provided to RBS.

7.5 Regulation of Board Meetings

7.5.1 Until the New Articles become effective in accordance with Clause 4.2, Board meetings of the Company shall be conducted in accordance with the provisions in Part A and Part C of Schedule 3 and other matters relating to the Board shall be regulated in accordance with Part D of Schedule 3.

7.5.2 From the time that the New Articles become effective, subject only to Clause 7.7, RBS shall in its absolute discretion determine the conduct of Board meetings of the Company and Parts A, C and D of Schedule 3 shall have no effect in relation to Board meetings of the Company.

7.5.3 Until the New Articles become effective in accordance with Clause 4.2, the Company undertakes for the benefit of each Investor that none of the Board Reserved Matters shall be carried out without the approval of the Super Board Majority. Following the date of the Effective Notice, the Board Reserved Matters and Super Board Majority shall have no effect for the purposes of this Agreement.

7.6 Regulation of Shareholder Meetings

General meetings shall be conducted in accordance with the provisions in Part B and Part C of Schedule 3.

7.7 Tax Matters

The Investors agree that they will use all reasonable endeavours to ensure that the Company is resident for Tax purposes in the Netherlands and not in any other jurisdiction.

7.8 Conduct of Directors

Each Investor shall procure that the Directors nominated by it shall act in accordance and in a manner consistent with the terms of this Agreement (subject only to them not being in breach of their fiduciary duties as a result), including but not limited to exercising their voting rights in meetings of the Board or otherwise.

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7.9 Voting Trust

The parties shall procure that the Shareholders shall at all times exercise their voting rights in the general meeting of Shareholders of the Company so as to ensure, or shall otherwise procure, that full effect is given to the terms of this Agreement.

7.10 Accounting Policies

The accounting policies of the Company and its Group for use in the Company’s own accounts and in its Group consolidated accounts shall be determined by the Board.

7.11 Waiver of certain rights

7.11.1 RBS hereby unconditionally and irrevocably waives any and all of its rights as shareholder of the Company to initiate:

(i) statutory squeeze out procedures pursuant to Section 2:201a of the Dutch civil code against the State and Santander for the purpose of obtaining 100% of the issued and outstanding shares in the capital of the Company; and

(ii) statutory dispute settlement proceedings pursuant to Section 2:336 of the Dutch civil code against the State and/or Santander for the purpose of requesting that the State and/or Santander transfer their Shares to RBS.

7.11.2 In addition, each of RBS, the State and Santander hereby unconditionally and irrevocably vis-a-vis each other waive any and all of their rights to initiate statutory dispute settlement proceedings pursuant to Section 2:343 of the Dutch civil code against each other for the purpose of requesting that their Shares are taken over by one or both of the other Shareholders.

8 Termination

Save as specified in this Agreement, this Agreement shall terminate only:

(i) with the unanimous written consent of the Investors;

(ii) with respect to Santander with immediate effect without notice if all the S Shares and O Shares held by Santander are cancelled, repurchased, acquired by RBS (or a member of its Group) or otherwise such that Santander no longer holds any Shares;

(iii) with respect to the State with immediate effect without notice if all the F Shares and O Shares held by the State are cancelled, repurchased, acquired by RBS (or a member of its Group) or otherwise such that the State no longer holds any Shares; or

(iv) with immediate effect without notice if all of the Shares are legally owned by one Investor or members of its Group.

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The following provisions of this Agreement shall survive termination of this Agreement: Clause 1, Clause 2, Clause 11 (but only to the extent required by Investors for their regulatory compliance, tax and other legal requirements relating to (i) the Financial Year in which this Agreement is terminated or (ii) the Financial Year prior to the Financial Year in which this Agreement is terminated), Clauses 18 to 22 and paragraph 7 of Part 1 of Schedule 1 and Part 9 of Schedule 1 (save to the extent otherwise agreed). The provisions of the Tax Agreements shall also survive termination of this Agreement save to the extent otherwise agreed. Termination shall not affect a party’s rights and obligations which have accrued as at the date of such termination.

9 Determinations

9.1 Any matter which this Agreement expressly states shall be determined in accordance with this Clause 9 shall first be referred for agreement to the Chief Executive of each Investor (or such persons as they may nominate for the purpose). If agreement is not reached within 40 Business Days of such referral the matter will, on the application of any Investor, be determined by the Independent Accountants or, in the case of any dispute relating to Schedule 1 Part 9, by independent tax advisers. For the purposes of this Agreement, the Independent Accountants shall be a firm of independent chartered accountants of international repute, selected as soon as reasonably practicable by a unanimous decision of the Investors (acting reasonably and without delay) for the purposes of this Clause 9, or failing such agreement within 10 Business Days, nominated on the application of any Investor by the President for the time being of the Institute of Chartered Accountants in England and Wales (the “Independent Accountants”). For the purposes of this Agreement, the independent tax advisers shall be a firm of independent tax advisers of international repute, selected as soon as reasonably practicable by a unanimous decision of the Investors (acting reasonably and without delay) for the purposes of this Clause 9, or failing such agreement within 10 Business Days, nominated on the application of any Investor by the President for the time being of the Institute of Taxation (the “Independent Tax Advisers”).

9.2 The Independent Accountants or the Independent Tax Advisers (as the case may be) shall be fully briefed by the Investors as to their intended role as soon as reasonably practicable after their appointment and shall be engaged by the Company to deal with all matters referred to them in accordance with this Clause 9. The parties shall use all reasonable endeavours to agree the terms of engagement of the Independent Accountants or the Independent Tax Advisers (as the case may be) and shall not unreasonably withhold consent to the entry into by the Company of an engagement letter with the Independent Accountants or the Independent Tax Advisers (as the case may be) on normal market terms, (including provisions relating to the indemnification by the Company of the Independent Accountants or the Independent Tax Advisers (as the case may be) against Liabilities arising out of their engagement and the exclusion of liability of the Independent Accountants or the Independent Tax Advisers (as the case may be) for their acts or omissions, subject in both cases to exceptions).

9.3 In making any determination pursuant to this Agreement, the Independent Accountants or the Independent Tax Advisers (as the case may be) shall act as experts and not arbitrators and their determination shall be final and binding in the absence of manifest error. The fees and costs of the Independent Accountants or the Independent Tax Advisers (as the case may be) incurred in connection with this Agreement shall be borne as they shall direct or, failing such direction, equally between the Investors which are parties to the determination.

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9.4 For the purpose of the Company and the Investors (including any matter between two or more Investors) agreeing any matter pursuant to this Agreement or for the purposes of any determination of any matter by the Independent Accountants or the Independent Tax Advisers (as the case may be), each Investor and the Company shall procure that the other(s), its/their advisers and (where applicable) the Independent Accountants or the Independent Tax Advisers (as the case may be) shall be given reasonable access at reasonable times to the books and records relating to such matter which are in its possession or control, or the possession or control of any of its subsidiaries, and shall procure that the other(s), its/their advisers and (where applicable) the Independent Accountants or the Independent Tax Advisers (as the case may be) are allowed to take copies of such books and records and the Company shall procure that RBS NV takes such actions as are necessary for the Company or an Investor to comply with its obligations under this Clause 9.4.

9.5 Except to the extent that the parties agree otherwise, the Independent Accountants or the Independent Tax Advisers (as the case may be) shall determine their own procedure, but:

9.5.1 shall make their determination pursuant to the provision of this Agreement as soon as is reasonably practicable;

9.5.2 the procedure of the Independent Accountants or the Independent Tax Advisers (as the case may be) shall:

(i) give the relevant parties a reasonable opportunity to make written and oral representations to them;

(ii) require that the relevant parties supply each other with a copy of any written representations at the same time as they are made to the Independent Accountants or the Independent Tax Advisers (as the case may be); and

(iii) permit each relevant party to be present while oral submissions are being made by any other party (save to the extent that the Independent Accountants or the Independent Tax Advisers (as the case may be) determine that this would lead to a breach of confidence or the divulging of business secrets by any party).

9.6 The determination of the Independent Accountants or the Independent Tax Advisers (as the case may be) pursuant to Clause 9.1 shall be made in writing and made available for collection by the parties at the offices of the Independent Accountants at such time as they shall determine and, unless otherwise agreed by the parties, include reasons for each relevant determination.

9.7 The parties shall co-operate with the Independent Accountants or the Independent Tax Advisers (as the case may be) and comply with their reasonable requests made in connection with the carrying out of their duties under this Agreement.

9.8 Subject to Clause 9.9, nothing in this Clause 9 shall entitle a party or the Independent Accountants or the Independent Tax Advisers (as the case may be) access to any information or document which is protected by legal professional privilege, or which has been prepared by the other party or its accountants and other professional advisers with a view to assessing the merits of any claim or argument.

9.9 A party shall not be entitled by reason of Clause 9.8 to refuse to supply such part or parts of documents as contain only the facts on which the relevant claim or argument is based.

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9.10 Each party and the Independent Accountants or the Independent Tax Advisers (as the case may be) shall, and shall procure that its and their advisers shall, keep all information and documents provided to them pursuant to this Clause 9 confidential and shall not use the same for any purpose, except for use in connection with the proceedings of the Independent Accountants or the Independent Tax Advisers (as the case may be) or another matter arising out of this Agreement or in defending any claim or argument or alleged claim or argument relating to this Agreement or its subject matter.

9.11 The Independent Accountants or the Independent Tax Advisers (as the case may be) shall be entitled to obtain financial, legal, actuarial or other specialist advice as they may consider necessary or desirable for the purpose of fulfilling their obligations hereunder and the costs of obtaining such advice shall be met as provided in Clause 9.3.

9.12 Any challenge to a determination by Independent Accountants or the Independent Tax Advisers (as the case may be) on the basis of manifest error shall be resolved by arbitration in accordance with Clause 22.

10 Representations and Warranties

10.1 Each of the Investors represents and warrants to each of the other parties on the terms set out in Schedule 4 as at the date of this Agreement.

10.2 RBS hereby represents and warrants to the State, ABN AMRO Bank and Santander (and not to any other person) that, so far as it is aware and based on the facts, and circumstances known as at the date of this Agreement and on the applicable law and other regulation as at the date of this Agreement, the distributions or repurchases of Shares by the Company as contemplated by Clauses 4.3.2(i) and 15 do not contravene any agreement between RBS and the EC Commission.

11 Provision of Information and Preparation of Accounts

11.1 Pursuant to the Cohabitation Agreements, RBS NV and ABN AMRO Bank have agreed that certain information relating to the State Acquired Businesses the subject thereof shall be provided by RBS NV to ABN AMRO Bank. RBS and the State shall procure that such information is provided in accordance with the Cohabitation Agreements.

11.2 RBS shall procure that information relating to the Retained Business is provided in accordance with Schedule 2.

11.3 An Investor may pass information on to those persons to whom the Investors are entitled to pass information under Clause 16.

11.4 Each of the Investors shall ensure that information provided to it relating to any Acquired Business (other than the Acquired Businesses to be acquired by it) is used only for the purpose of implementing the provisions of this Agreement (including Clause 5 and Schedule 1) or for compliance with applicable legal or regulatory obligations.

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11.5 The Company shall prepare such audited consolidated financial information in relation to the Company and its Group as is determined by the Board to be required for the purposes of complying with RBS’, the Company’s and the Company’s Group’s obligations to prepare statutory accounts in accordance with Dutch generally accepted accounting principles and/or International Financial Reporting Standards (with the latter in any event being applied in relation to the Company’s Group’s audited consolidated financial information) and for the purposes of the accounts of the Company and its Group being consolidated into the consolidated accounts of RBS. In addition, the Company shall prepare such financial information as the Investors require for their consolidated accounts as set out in Clause 11.6 below.

11.6 The Board shall procure the production and distribution to the Investors of such accounting information relating to the affairs of the Company and its Group as Investors may reasonably request for their own regulatory compliance, tax and other legal requirements, provided that the Company shall be reimbursed by the relevant Investor in respect of any costs in producing such information.

11.7 Notwithstanding any other provision of this Clause 11, the rights of the Investors under this Clause shall be subject to the duties of the Managing Board of RBS Holdings and shall not be exercised so as to cause any interruption in the business of the RBS Holdings Group or any breach of applicable law or regulation by the Wider RBS Group.

11.8 Provided that the Company or its Group provides an invoice in respect of such costs, to the extent that any reasonable costs are incurred by the Company or its Group in producing information for Santander or the State under this Clause 11 which would not otherwise have been incurred by the Company or its Group, such costs shall be charged to the Santander Acquired Business or the State Acquired Business, respectively.

11.9 Pursuant to the Tax Agreements, certain of the parties thereto have agreed to provide to certain other parties information relating to the Tax affairs of certain companies. RBS, the State and (in the case of the Separation Tax Agreement only) Santander shall procure that such information is provided in accordance with the Tax Agreements.

12	Transfer Restrictions for the Investors
12.1	General Restrictions

12.1.1 Notwithstanding any provision to the contrary in this Agreement or the Articles, each Investor undertakes to each of the other Investors and to the Company that it shall not at any time during the life of this Agreement Transfer Shares, unless:

(i) the Transfer is permitted by Clause 12.1.2 or has been approved by the Investors in writing (such approval not to be unreasonably withheld);

(ii) the proposed Transferee has entered into a Deed of Accession to this Agreement, in the form required by this Agreement and delivered this to the Company;

(iii) the Company and the Investors have received from the proposed Transferee a legal opinion addressed to each of them in a form approved by the Board confirming that the Transferee has capacity and authority to enter into the document referred to in Clause 12.1.1(ii) and that such document, this Agreement and the Articles will constitute legal, valid and binding obligations on the Transferee (or their successors and assigns), which are enforceable in accordance with their terms; and

(iv) it (or the Transferee, as the case may be) has obtained any necessary third party and regulatory consents.

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12.1.2 Notwithstanding Clause 12.1.1(i), an Investor may transfer Shares to a wholly owned member of its Group provided that the Transferee undertakes to the Company that if the Transferee is to cease to be a wholly-owned member of its Group of the relevant Investor, all its Shares in the Company will, before the cessation, be Transferred to the original Investor (but only if such Investor would not have been in breach of this clause had that Investor continued to hold the Shares) or one of its wholly-owned Group members. Each of the Investors shall procure that its Investor Directors shall exercise their voting rights in meetings of the Board or otherwise to approve any Transfer of Shares in accordance with this Clause 12.1.2.

12.1.3	Following a transfer of Shares under this Clause 12.1, the original transferring Investor (but not a subsequent Transferor in a series of transfers to wholly-owned Group members) shall remain party to this Agreement and shall be jointly and severally liable with the Transferee under this Agreement as a Shareholder in respect of the transferred Shares.
12.1.4	Each Investor acknowledges and undertakes as follows:

(i) it shall not challenge the validity or enforceability of the restrictions in this Clause 12 either as a matter of law or otherwise (“Challenge”); and

(ii) in the event of a Challenge, the Investor making such Challenge shall indemnify and keep indemnified each other Investor and the Company against each loss, liability and cost which such other Investor or the Company may incur arising out of or in connection with a Challenge including each loss, liability and cost reasonably incurred as a result of settling or defending a Challenge.

12.2 Intermediate Changes of Control

Except as otherwise expressly provided in this Agreement:

12.2.1 RBS undertakes to procure that the Shares owned by it at the date of this Agreement and any further Shares issued to it or to one of its wholly-owned Group members are, subject to Clause 4, at all times held and beneficially owned by a wholly-owned member of its Group;

12.2.2 Santander undertakes to procure that the Shares owned by it at the date of this Agreement and any further Shares issued to it or one of its wholly-owned Group members are, subject to Clause 4, at all times held and beneficially owned by a wholly-owned member of its Group; and

12.2.3 the State undertakes to procure that the Shares owned by it at the date of this Agreement and any further Shares issued to it or one of its wholly-owned Group members are, subject to Clause 4, at all times held and beneficially owned by a wholly-owned member of its Group.

13	Further Capital and Funding
13.1	General

Subject to the remainder of this Clause 13 and the provisions of any Tax Agreement, the Investors shall not have any obligation to provide any capital, funding or liquidity to either the Company or any member of the RBS Holdings Group, nor any guarantee, collateral or security in respect thereof.

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13.2 Agreed principles relating to further Capital and Funding

13.2.1 The Investors have agreed that any regulatory Tier 1 capital requirements (including an appropriate Capital Buffer (as defined below)) of the RBS Holdings Group shall be satisfied by the Investors providing ordinary equity share capital to the Company or, in the case of the State Acquired Business only, the State may satisfy its obligation by procuring the provision of a perpetual loan (which, in either case, the Company shall contribute to RBS Holdings in the form of ordinary equity share capital).

13.2.2 In the event that any capital, liquidity, funding requirement or guarantee, collateral or security, or any other related cost is due to be contributed by an Investor (the “Defaulting Investor”) pursuant to Clause 13.3, but such Investor does not meet such obligation on time or at all, then the remaining Investors (the “Non Defaulting Investors”) shall be entitled, at their sole discretion and upon receiving any request from the Board in accordance with Clause 13.3, to fulfil such obligation on behalf of the Defaulting Investor, and the Defaulting Investor shall (i) indemnify and keep indemnified the Non Defaulting Investors in respect thereof and (ii) make compensatory contributions as set out in Clause 13.5.

13.2.3 The Investors have agreed that to the extent that any State Acquired Business, Santander Acquired Business and/or Retained Business does not meet the total capital ratio set by a Regulator (the ”Total Capital Ratio” and the deficit to the Total Capital Ratio being a “Tier 2 Shortfall”), RBS shall satisfy the Tier 2 Shortfall on behalf of the relevant Investor, provided that:

(i) the relevant Investor(s) will pay interest to RBS (or the RBS Acquired Business if so requested by RBS) on (a) the Tier 2 Shortfall in relation to a Tier 2 Shortfall on its Acquired Business and (b) on its Retained Business Tier 2 Shortfall Proportion in relation to a Tier 2 Shortfall on the Retained Business, in each case calculated at a rate of *** for the period that the Tier 2 Shortfall exists or until RBS issues a Support Notification in respect of the Tier 2 Shortfall; and

(ii) upon the issue of a Support Notification in respect of the Tier 2 Shortfall, the relevant Investor(s) shall provide Support in respect of the Tier 2 Shortfall in accordance with Clause 13.4.

The relevant Investor(s) for the purposes of any Tier 2 Shortfall in the Retained Business shall be (i) the State if and to the extent that the total capital in the Retained Business that is attributable to the State is less than the State’s Consortium Proportion of the total capital required to ensure the Retained Business meets the Total Capital Ratio for the Retained Business and/or (ii) Santander if and to the extent that the total capital in the Retained Business that is attributable to Santander is less than Santander’s Consortium Proportion of the total capital required to ensure the Retained Business meets the Total Capital Ratio for the Retained Business. The amount by which the total capital in the Retained Business that is attributable to an Investor is less than that Investor’s Consortium Proportion of the total capital required to ensure the Retained Business meets the Total Capital Ratio for the Retained Business shall be the “Retained Business Tier 2 Shortfall Proportion” for that Investor.

^*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

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13.2.4 The Investors have agreed that to the extent that total assets less intracompany funding receivables (“Third Party Assets”) attributable to any State Acquired Business, Santander Acquired Business and/or Retained Business are greater than the equity capital and total liabilities excluding intracompany funding payables (“Third Party Liabilities”) attributable to that Business (the “Net Funding Shortfall”) RBS shall satisfy the Net Funding Shortfall on behalf of the relevant underfunded Investor, provided that:

(i) the relevant Investor(s) will pay interest to RBS (or the RBS Acquired Business if so requested by RBS) on (a) the Net Funding Shortfall in relation to a Net Funding Shortfall on its Acquired Business and (b) on its Retained Business Net Funding Shortfall Proportion in relation to a Net Funding Shortfall on the Retained Business, in each case calculated at *** for the period that the Net Funding Shortfall exists or until RBS issues a Support Notification in respect of the Net Funding Shortfall; and

(ii) upon the issue of a Support Notification in respect of the Net Funding Shortfall, the relevant Investor(s) shall provide Support in respect of the Net Funding Shortfall in accordance with Clause 13.5.

The relevant underfunded Investor(s) for the purposes of any Net Funding Shortfall in the Retained Business shall be (i) the State if and to the extent that the Funding of the State (as defined in clause 13.4.1) in the Retained Business is less than the State’s corresponding Minimum Funding Requirement (as defined in clause 13.4.1) and/or (ii) Santander if and to the extent that the Funding of Santander in the Retained Business is less than Santander’s corresponding Minimum Funding Requirement. Such Funding shortfalls shall be the “Retained Business Net Funding Shortfall Proportion” for that Investor.

13.2.5 Subject to Clause 13.6, the Investors have agreed that to the extent that in relation to any Acquired Business or the Retained Business the Funding attributable to an Investor exceeds that Investor’s Minimum Funding Requirement (the “Net Funding Surplus”) RBS shall pay interest (or will procure that interest is paid) to the relevant Acquired Business or in the case of the Retained Business for the benefit of the relevant Investor (as the case may be) on the Net Funding Surplus calculated at *** for the period that the Net Funding Surplus exists.

13.2.6 RBS shall ensure that the RBS Acquired Business meets the applicable Minimum Ratios and will ensure that it maintains capital and funding in the Retained Business equal to at least the RBS Consortium Proportion of the capital and funding required for the Retained Business to meet the Minimum Ratios.

13.2.7 For such time as the US$250 million Tier 2 Instrument (as referred to in Schedule 8) remains part of the State Acquired Business, such instrument shall be counted as Tier 2 capital of the State Acquired Business for the purposes of this Clause 13.

13.2.8 The Investors have agreed that as from the date of this Agreement, in respect of the Retained Businesses, cash shall be provided by the Investors in the form of equity capital or debt finance that is at least equal to the Investor’s share (expressed in Consortium Proportions) of all third party liabilities. A worked example of the principles set out in this Clause 13 is set out at Schedule 12.

^*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

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13.3 Determinations by Regulators

13.3.1 Notwithstanding Clauses 13.2 and 13.4, in the event that any relevant Regulator requires the Company or any part of the RBS Holdings Group to be provided with further capital, liquidity or other funding, or for any guarantee, collateral or security to be provided in respect thereof, the Board shall notify the Investors of full details of the requirement as soon as possible after the Company becomes aware of the requirement.

13.3.2 To the extent that, prior to Completion, any further capital, liquidity, funding, guarantee, collateral or security requirement notified to the Investors by the Board under Clause 13.3.1 concerns or arises in respect of an Acquired Business, the relevant Investor which is to acquire that business shall either:

(i) contribute to the relevant Acquired Business such funding, capital or liquidity, or provide such guarantee, collateral or security as is required by the relevant Regulator on the terms required by such Regulator (such capital, funding, liquidity, guarantee, collateral or security to be provided directly for the benefit of the relevant Acquired Business); or

(ii) with the written consent of RBS (such consent not to be unreasonably withheld), co-operate with the Board and the other Investors in taking or ensuring that such action is taken (at the cost of the relevant Investor, and including such action as may be required to limit the scope of operations of the relevant Acquired Business) as is required in order to reverse the requirement for such additional funding, capital, liquidity, guarantee, collateral or security,

in either case provided that the capital, liquidity, funding, guarantee, collateral or security is provided, or the requisite action is taken (as the case may be) by no later than the earlier of (i) the date specified by the relevant Regulator or (ii) 60 Business Days following the date on which the Board notifies the Investors pursuant to Clause 13.3.1.

13.3.3 To the extent that any further capital, funding, liquidity, guarantee, collateral or security requirement notified to the Investors by the Board under Clause 13.3.1 concerns or arises in respect of the Retained Business Assets, each of the Investors undertakes to work with each other Investor and with the Board in order to either:

(i) contribute such capital, funding, liquidity or provide such guarantee, collateral or security as is required by the relevant Regulator on the terms required by such Regulator; or

(ii) take or ensure that such action is taken (including such action as may be required to limit the scope of the operations that have resulted in the additional requirement) as is required in order to reverse the requirement for such additional capital, liquidity, funding, guarantee, collateral or security, as may be agreed between the Investors (acting reasonably) in any such case.

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Any capital, liquidity or funding requirement or other directly attributable cost incurred or any guarantee, collateral or security provided by the Investors pursuant to this Clause 13.3.3 shall be met by the Investors in the Consortium Proportions by no later than the earlier of (i) the date specified by the relevant Regulator or (ii) 60 Business Days following the date on which the Board notifies the Investors pursuant to Clause 13.3.1.

13.3.4 If the DNB or any other Regulator increases the capital, liquidity or other funding requirement of RBS, or requires an additional guarantee, collateral or security to be provided in respect thereof and such requirement arises in whole or in part in relation to a State Acquired Business or Santander Acquired Business, RBS and the State or Santander, respectively, will in good faith and acting reasonably consider what actions should be taken to meet the DNB or other Regulator’s requirement or otherwise alleviate the problem. Such actions could include the provision of additional capital, liquidity or other funding by the State to the State Acquired Business, by Santander to the Santander Acquired Business or, subject to the agreement of terms including as to the return of such capital, liquidity or other funding (such agreement not to be unreasonably withheld), the provision by the relevant Investor of additional capital, liquidity or other funding to RBS.

13.4 Minimum Ratios and Capital and Funding Requirements

13.4.1 If at any time (i) an Investor’s interest in the Retained Business or (ii) any Acquired Business (the “Undercapitalised or Underfunded Business”) does not, or is expected, on the basis of then current capital, funding and/or other projections, in the foreseeable future not to exceed the Minimum Ratios (as defined below), RBS shall notify the State (if the Undercapitalised or Underfunded Business is a State Acquired Business), Santander (if the Undercapitalised or Underfunded Business is a Santander Acquired Business) and/or the State and Santander (if the Undercapitalised or Underfunded Business is the Retained Business) and provide details of the funding, capital or liquidity that must be provided (the “Support”) to ensure that the Undercapitalised or Underfunded Business is in compliance with the Minimum Ratios. In the case of the Retained Business, compliance with the Minimum Ratios shall be determined for each Investor on the basis of that Investor’s share of the total assets, liabilities, and risk weighted assets of the Retained Business (determined in Consortium Proportions) and the equity capital and funding provided by the Investor. The Minimum Ratios are defined as follows:

(i) in the case of Tier 1 equity capital, satisfies the Tier 1 capital ratio set by the relevant Regulator (the “Minimum Equity Ratio”) plus 25 per cent. of the Tier 1 equity capital required under the Minimum Equity Ratio for the Undercapitalised or Underfunded Business (the “Capital Buffer”);

(ii) in the case of Tier 2 capital, satisfies the Total Capital Ratio, provided that if the Undercapitalised or Underfunded Business has sufficient Tier 1 equity capital in excess of the Minimum Equity Ratio to meet the Total Capital Ratio, no further Support shall be required; and

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(iii) has Funding, defined as the sum of equity capital and Third Party Liabilities, that is at least equal to the Third Party Assets attributable to that Underfunded or Undercapitalised Business (the “Minimum Funding Requirement”). For the avoidance of doubt, in the case of the Retained Business, the Minimum Funding Requirement of each Investor shall be determined based on the Funding position of each Investor and that Investor’s share (based on Consortium Proportions) of the Third Party Assets of the Retained Business.

the Minimum Equity Ratio, the Total Capital Ratio and the Minimum Funding Requirement being together the “Minimum Ratios”. In the case of any Support in respect of the Retained Business, the notice shall set out the Support that is required from each Investor to ensure that the aggregate requirements of the Retained Business as to capital, funding and liquidity are shared in the Consortium Proportions.

13.4.2 At the time of or following notification under Clause 13.4.1, RBS may, if it determines that the prevailing circumstances are such that it cannot provide the Support in accordance with the principles set out in Clauses 13.2.3 and 13.2.4, by giving notice to the relevant Investor(s) (such notice being a “Support Notification”), require the Investor that is required to acquire the Undercapitalised or Underfunded Business (if the Undercapitalised or Underfunded Business is an Acquired Business) or each Investor in the Consortium Proportions (if the Undercapitalised or Underfunded Business is part of the Retained Business) to contribute Support directly or indirectly, in a form that qualifies as regulatory capital as determined by the Regulators in the case of Support required in connection with the Minimum Equity Ratio, to the Undercapitalised or Underfunded Business to enable it to meet the relevant Minimum Ratios.

13.4.3 In respect of any additional Support to be provided to an Undercapitalised or Underfunded Business pursuant to Clause 13.4, such Support shall be provided by the relevant Investor within 60 Business Days of receipt of the Support Notification unless otherwise agreed by the relevant Investor and RBS.

13.5 Terms on which Further Capital and / or Funding will be provided

If an Investor is required to provide further funding, capital or liquidity pursuant to Clause 13.3 or 13.4, the relevant Investor shall be required to contribute or provide the following amounts in addition to any funding, liquidity or capital to be provided pursuant to Clauses 13.3 or 13.4, such additional funding, liquidity or capital to be provided to the RBS Acquired Business:

13.5.1	in respect of ordinary equity share capital, interest on the amount to be provided calculated at a rate of *** for the first 60 days from the notification of the equity capital requirement (either pursuant to Clause 13.3.1 or by a Support Notification) and at a rate of *** for any period thereafter, in each case to the date that the capital is provided;
13.5.2	in respect of Tier 2 capital:

(i) interest on the amount to be provided calculated at a rate of *** from the notification of the Tier 2 requirement (either pursuant to Clause 13.3.1 or by a Support Notification) to the date that the Tier 2 capital is provided; plus

(ii) any interest due under Clause 13.2.3(i); and

^*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

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13.5.3 in respect of funding or liquidity:

(i)	interest on the amount to be provided calculated at *** from the notification of the funding or liquidity requirement (either pursuant to Clause 13.3.1 or by a Support Notification) to the date that the funding or liquidity is provided; plus
(ii)	any interest due under Clause 13.2.4(i).

13.6 Repatriations of Funding, Capital and Liquidity

13.6.1 RBS will inform Santander and the State on a monthly basis whether their respective Acquired Businesses or the Retained Business has liquidity, capital or funding that exceeds the Minimum Ratios (an “Overfunded Business”). If the Overfunded Business exceeds:

(i) the Minimum Equity Ratio plus the Capital Buffer by €1,000,000 or more, the Company and the Investors shall use their reasonable endeavours to repatriate any excess equity capital to the State (after settlement of the Company’s obligations under any perpetual loan advanced to the Company by ABN AMRO Bank as contemplated in clause 13.2.1) if the Overfunded Business is a State Acquired Business, to Santander if the Overfunded Business is a Santander Acquired Business or the State and Santander in their respective Consortium Proportions if the Overfunded Business is the Retained Business, as soon as reasonably practicable after such notification and subject to applicable law and regulation, provided that such repatriation does not result in a breach of the Minimum Funding Requirement; and

(ii) the Minimum Funding Requirement by €1,000,000 or more, the Company and the Investors shall use their reasonable endeavours to repay any excess funding to the State if the Overfunded Business is a State Acquired Business, Santander if the Overfunded Business is a Santander Acquired Business or the State and Santander in their respective Consortium Proportions if the Overfunded Business is the Retained Business, as soon as reasonably practicable after such notification and subject to applicable law and regulation, provided that such repayment does not result in a breach of the Minimum Equity Ratio or Total Capital Ratio.

13.6.2 The amount repatriated to the State and/or Santander shall be increased as follows:

(i) in respect of equity capital, interest on the amount to be repatriated calculated at a rate of *** for the first 60 days from the date the amount of equity capital exceeded the Minimum Equity Ratio plus the Capital Buffer by €1,000,000 or more and at a rate of *** for any period thereafter, in each case to the date that the Tier 1 equity capital is repatriated; and

(ii) in respect of funding or liquidity, interest on the amount to be repaid calculated at *** from the date the level of funding exceeded the Minimum Funding Requirement to the date that the funding or liquidity is repaid, provided that interest payable in respect of any excess shall only be payable pursuant to this Clause 13.6.2(ii) or 13.2.5, not both.

^*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

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13.6.3 For the purposes of this Clause 13.6, references to “repatriations” shall include distributions and/or dividends to Investors directly or indirectly in accordance with Clause 15 or and references to “repayments” shall include repayment of loans as may be appropriate.

13.6.4 In relation to any repatriation for the purposes of this Clause 13.6 and only to the extent that RBS Holdings is unable or not permitted by law or regulation to provide the Company with the requisite funds to meet its obligations of this Clause 13.6, RBS undertakes to use reasonable endeavours to procure that the Company is funded such that it can make repatriations as contemplated by this Clause 13.6, provided that:

(i) if RBS provides the Company with the requisite capital, liquidity or funding, the corresponding excess liquidity, funding or capital in the RBS Holdings Group is reallocated from the Overfunded Business to the RBS Acquired Business;

(ii) RBS shall not be required to take any action pursuant to this Clause 13.6 which would give rise to any obligation on RBS to seek approval of its shareholders for the proposed transaction in accordance with the Listing Rules made by the FSA under Part VI of the Financial Services and Markets Act 2000 (as amended from time to time); and

(iii) RBS shall not be required to take any action if such action would be contrary to any applicable regulation, law, or directions from Regulators.

13.6.5 For the avoidance of doubt, an Investor’s entitlement to any excess equity or funding under this Clause 13.6 shall not expire until such excess no longer exists or repatriation of such excess has been effected.

13.7 Discussions with Investors

In event of request for additional funding or capital (or likewise) under this Clause 13, RBS shall, immediately after it or the Company notifies the Investors of the request in accordance with this Clause 13, arrange a meeting of the relevant representatives of the Investors to discuss the background to the need for such funding.

14 New Shareholders

14.1 Each of the parties undertakes to procure that no shares in the capital of the Company shall be allotted, issued or Transferred to or otherwise acquired by a person who is not already a party to this Agreement (a “New Shareholder”) unless the New Shareholder has executed and delivered a deed of accession in the form set out in Schedule 6. The Company will, to the extent permitted by law, not enter the New Shareholder in the register of members unless this Clause 14 has been complied with in all respects.

14.2 The form of the deeds of accession set out in Schedule 6 and the requirements of this Clause 14 may be varied in a manner approved in writing by the Shareholders.

14.3 All executed deeds of accession shall be delivered to and held by the Company (for both itself and the other parties to this Agreement).

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14.4 Subject to Clause 14.5, no party may assign, Transfer or create any trust in respect of, or purport to assign, Transfer, or create any trust in respect of, any of its rights or obligations under this Agreement without having first obtained the consent of the Shareholders, together with all relevant third party and regulatory consents.

14.5 An Investor may assign all or any proportionate part of its rights under this Agreement (including its proportionate part of the benefit of the warranties) to a person to whom it Transfers Shares in the capital of the Company in accordance with this Agreement, and any other Transaction Document as appropriate. No such assignment shall release any such Investor of its obligations hereunder for which it shall be jointly and severally liable with such assignee and provided that if such assignee ceases to be a wholly owned member of its Group of the relevant Investor such Investor shall procure that such assignee immediately reassigns such rights and obligations to it or to another of its wholly owned Group members (such further assignee being itself subject to the provisions of this clause).

14.6 Subject to Clauses 14.5 and 14.7, a person who has entered into a Deed of Accession pursuant to this Agreement shall have the benefit of and be subject to the burden of all the provisions and continuing obligations of this Agreement as if it had been an original party in the capacity designated in the deed of accession and this Agreement shall be interpreted accordingly. Without limiting the general nature of this Clause 14.6, where the person is designated as an Investor in a Deed of Accession, it shall be entitled to the benefit of all representations, covenants, warranties and undertakings which this Agreement contemplates are given to the Investors, and “Investors” shall be construed accordingly.

14.7 Nothing in this Clause 14 shall affect a party’s accrued rights and obligations under this Agreement or shall be construed as requiring any party to perform again any obligation or discharge again any liability already performed or discharged, or as entitling any party to receive again any benefit already enjoyed.

15	Distributions and Repurchases
15.1	Power of Board to pay dividends

Subject to any additional legal requirements, the payment or declaration of any dividend or other distribution on account of shares in the capital of the Company (including the timing and amounts of any such payments) shall be decided by the Board provided that no dividend or other distribution shall be paid on any class of Shares without the consent of the Investor(s) holding such Shares and that if any decision to pay or make a dividend or other distribution is made it shall be made in accordance with the rights attaching to the Shares.

15.2 Repurchases of Shares

Subject to any legal requirements, the Investors may agree that, rather than returning any Business Assets of Acquired Businesses or the Retained Businesses to the relevant Investor by way of dividends, any Business Assets (or cash equal to the value of the Business Assets) shall be returned to Investors by the repurchase by the Company of Shares or the purchase of Shares by RBS (or a member of the RBS Group), in either case for consideration equal to the value of the Business Assets to be returned to the relevant Investor.

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16	Confidentiality and Announcements
16.1	General Restrictions

None of the parties shall, at any time, whether before or after the termination of this Agreement, divulge or permit its officers, employees, agents, advisers or contractors to divulge to any person (other than to any respective officers or employees of a party or a person to whom, in each case, disclosure of information is permitted by this Agreement and who require the same to enable them properly to carry out their duties):

16.1.1 any of the contents of any of the Transaction Documents or the Investors’ shared strategy with respect to the Transaction;

16.1.2 any information which it may have or acquire (whether before or after the date of this Agreement) relating to the business and/or any customers of or suppliers to the business, or otherwise to the business, assets or affairs of the Acquired Businesses which have been or which are to be acquired by any other party hereunder or, in each case, of the Retained Group;

16.1.3 any information which, in consequence of the negotiations relating to this Agreement or of being a party being involved in the business in any manner whatsoever (including as an Investor and as a nominator of a Director) or performing or exercising its rights and obligations under this Agreement, any party may have acquired (whether before or after the date of this Agreement) with respect to the customers, business, assets or affairs of any other party.

16.2 Excluded Information

The restrictions imposed by Clause 16.1 shall be subject to Schedule 6 and shall not apply in respect of any information:

16.2.1 which now or hereafter comes into the public domain otherwise than as a result of a breach of such undertaking of confidentiality;

16.2.2 which is obtained by the receiving party from a person who is not party to this Agreement (other than any Investor’s Group member) and who is not subject to a confidentiality obligation to any other party to this Agreement in respect of the information being provided; or

16.2.3 which is obtained or transmitted by any party by virtue of a Permitted Disclosure.

17 Advisers and Costs

Subject to the provisions of each Tax Agreement, each Investor shall pay its own costs incurred in connection with the Transaction and the preparation, execution and implementation of the Transaction Documents, save the extent that the Investors agree that such costs should be borne by the Company.

18 Supremacy of this Agreement

18.1 If there is any conflict or inconsistency between the provisions of this Agreement and the Articles then for the purposes of giving effect to the letter or spirit of this Agreement, this Agreement shall prevail to the extent legally permitted. Each Investor shall use its rights and powers to procure that the Articles are amended, to the extent legally permitted, so as to accord with and give effect to the provisions of this Agreement.

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18.2 In relation to the subject matter of the Litigation Management Agreement, to the extent there is any conflict or inconsistency between the provisions of this Agreement and the Litigation Management Agreement, the provisions of the Litigation Management Agreement shall prevail to the extent legally permitted.

18.3 In relation to the subject matter of any Tax Agreement, paragraph 1.3 of Part 9 of Schedule 1 shall apply in the case of any conflict or inconsistency between the provisions of this Agreement and the relevant Tax Agreement.

19	Entire Agreement and Non Reliance
19.1	Entire Agreement

This Agreement and each Transaction Document constitute the entire agreement and, subject to Clause 2, supersede any previous agreements between the parties relating to the subject matter of this Agreement.

19.2 Non Reliance

Each party acknowledges and represents that it has not relied on or been induced to enter into this Agreement by a representation, warranty or undertaking (whether contractual or otherwise) given by any other party other than those set out in Clause 10 and Schedule 4, or otherwise as expressly set out in this Agreement or in a Transaction Document.

19.3 Exclusion of Liability

Save as provided in Clause 10, no party is liable to another party (in equity, contract or tort (including negligence) for a representation, warranty or undertaking that is not set out expressly in this Agreement or in a Transaction Document.

19.4 Further acknowledgements

Each of the Investors acknowledges, represents and agrees that:

19.4.1 (i) other than as set out in this Agreement, it has not relied on or been induced to enter into this Agreement by any representation, warranty, recommendation, advice or undertaking (whether contractual or otherwise) given by any member of another Investor Group and (ii) no member of an Investor Group shall have any liability to any other Investor or to any member of an Investor Group (in equity, contract or tort (including negligence)) for a representation, warranty or undertaking that is not expressly set out in this Agreement or in any other Transaction Document;

19.4.2 it has made its own investigations into, and appraisals and assessment of, the Company, each member of the RBS Holdings Group and the business of the RBS Holdings Group and will continue to do so for so long as it is the holder of, or otherwise interested in, Shares, and no other Investor and no member of that Investor Group shall have any liability to it in connection with its decision to enter into the transactions contemplated by this Agreement and the other Transaction Documents (as applicable);

19.4.3 save to the extent otherwise agreed in writing by any other Investor or by a member of that Investor Group, it is owed no duty of care or other obligation by any other Investor or by any member of that Investor Group in connection with its decision to enter into the transactions contemplated by this Agreement and the other Transaction Documents (as applicable);

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19.5 Fraud etc.

Nothing in this Clause 19 shall have the effect of restricting or limiting any liability arising as a result of any fraud, wilful misconduct or wilful concealment.

20	General
20.1	Counterparts

This Agreement may be executed in any number of counterparts, each of which when executed and delivered is an original and all of which together evidence the same agreement.

20.2 Variations

A variation of this Agreement is only valid if it is in writing and signed by or on behalf of each of the Investors and the Company.

20.3 Waiver

The failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not impair or constitute a waiver of the right or remedy or an impairment of or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy. The rights provided in this Agreement are cumulative and not exclusive of any other rights (whether provided by law or otherwise). Any express waiver of any breach of this Agreement shall not be deemed to be a waiver of any subsequent breach.

20.4 Release

Any liability to any party under this Agreement may in whole or in part be released, compounded or compromised or time or indulgence given by that party in its absolute discretion as regards any party under such liability without in any way prejudicing or affecting its rights against any other party under the same or a like liability, whether joint and several or otherwise.

20.5 Continuing Obligations

Except to the extent that they have been performed and except where this Agreement provides otherwise, the warranties, representations, obligations and undertakings contained in this Agreement remain in force after Completion.

20.6 No Partnership

Nothing contained in this Agreement (and no action taken by a party pursuant to its terms) is to be construed as creating a partnership or (unless expressly stated otherwise) agency relationship between any of the parties.

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20.7 Illegality

If any provision in this Agreement shall be held to be illegal, invalid or unenforceable, in whole or in part, under the law of any jurisdiction, the legality, validity or enforceability of such provision or part under the law of any other jurisdiction and the legality, validity and enforceability of the remainder of this Agreement shall not be affected.

20.8 Successors and Permitted Assigns

The provisions of this Agreement shall be binding upon the parties’ respective successors and permitted assigns, but such persons shall not be entitled to the benefit of its provisions unless they have entered into a deed of accession.

20.9 Several and not joint or joint and several obligations

Except where expressly stated otherwise in this Agreement, all obligations, undertakings and statements in this Agreement are several and not joint or joint and several.

20.10 Further Assurance

20.10.1 Each of the parties (subject to applicable laws and regulation) agrees to take all such action or procure that all such action is taken as is reasonable in order to implement the terms of this Agreement or any transaction, matter or thing contemplated by this Agreement. Every representation, warranty, undertaking or indemnity in this Agreement which is expressed to be given to the Investors is given to each Investor separately and each Investor shall have a separate claim and right of action in respect of every breach.

20.10.2 Each Investor shall exercise its respective voting rights in a general meeting of the Company in such a manner so as to be consistent with the intentions of the parties set out in this Agreement or with any provision of this Agreement including, without limitation, to procure that all resolutions required to facilitate the declaration or payment by any Group Company of dividends consistent with Clause 15.1 are duly passed.

20.10.3 Notwithstanding any other provision of this Agreement, none of the parties or any members of their respective Groups shall be required to take any action or do or omit to do anything which causes any of the other parties, any member of their respective Groups or any member of the RBS Holdings Group to breach any applicable law or regulatory requirement. Each party will and shall procure that each member of its Group shall co-operate with each other party with a view to ensuring (insofar as it is reasonably able and subject to applicable law and regulations and the provisions of this Agreement) that for as long as any Acquired Business, Retained Business and/or RBS Holdings Group Company is the subject of clauses 5 and 6 of this Agreement, such business and/or company will conduct its affairs in compliance with the applicable regulatory requirements of each relevant Regulator.

20.11 Third Party Rights

20.11.1 The obligations of each Investor under the terms of this Agreement expressed to be owed to any member of the Retained Group may be enforced by each relevant member of the Retained Group whilst such member remains part of the Retained Group from time to time.

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20.11.2 Obligations of the Company under the terms of this Agreement expressed to be owed to an Investor (or members of its Group and in the case of RBS, the Wider RBS Group) may be enforced by that Investor or members of its Group (including, with effect from 10 October 2007, its Acquired Companies whilst such Acquired Companies remain part of the RBS Holdings Group or the relevant Investor’s Group and, in the case of RBS, the Wider RBS Group).

20.11.3 The obligations of each Investor expressed to be owed to another Investor (or members of its Group and in the case of RBS, the Wider RBS Group) may be enforced by the relevant Investor or by members of its Group (including, with effect from 10 October 2007, its Acquired Companies whilst such Acquired Companies remain part of the RBS Holdings Group or the relevant Investor’s Group and, in the case of RBS, the Wider RBS Group).

20.11.4 Except where expressly provided otherwise in this Agreement, a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

20.11.5 Where, pursuant to the terms of this Agreement, a third party has been expressly granted rights under the Contracts (Rights of Third Parties) Act 1999, the consent of such third party shall not be required for the variation of this Agreement or the waiver of any provision in it.

20.11.6 Enforcement of third party rights in relation to this Agreement shall be in accordance with the provisions of Clause 22.2.

20.12 Unlawful fetters

The Company shall not be bound by any provision of this Agreement to the extent that it would constitute an unlawful fetter on any of its statutory powers, but that provision shall remain valid and binding as regards the other parties to this Agreement to which it is expressed to apply.

20.13 Default Interest

If any party fails to pay any amount due and payable by it under this Agreement or under any judgment in connection with this Agreement (save for any payments due under Clause 13, for which the provisions of Clause 13.4 shall apply), such party shall pay to the party or parties to whom the same was due, interest on such overdue amount from the due date until the date of actual payment, both before and after a judgment, at the Default Interest Rate.

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21 Notices

21.1 Save as set out in paragraph 14 of Schedule 2, any notice or other document to be given under this Agreement shall be in writing in English and shall be deemed duly given if delivered to the recipient as its fax number or address set out below or any other fax number or address notified to the parties for the purposes of this Agreement, if left at or sent by (i) airmail or express or other fast postal service or (ii) facsimile transmission or other means of telecommunication in permanent written form to the following address or number:

21.1.1 RBS

Address	House G
	RBS Gogarburn
	Edinburgh
	EH12 1HQ
Fax No.	+44 131 626 2997

For the attention of Group General Counsel

21.1.2 Santander

Address	Cuidad Grupo Santander
	28660 Boadilla del Monte
	Madrid
	Spain
Fax No.	+34 91 257 1524

For the attention of General Counsel

21.1.3 the State

Address	Ministry of Finance
	Korte Voorhout 7/P.O. Box 20201
	2500 EE The Hague
Fax No.	+31 70342 79 33

For the attention of the Director of Financieringen (at the time of this Agreement, Wouter Raab) and the Director of Bureau Financiele Instellingen (at the time of this Agreement, Rens Bröcheler)

21.1.4 Company

Address	Strawinskylaan 3105
	1077ZX Amsterdam
	The Netherlands

21.2 Any notice shall be delivered by hand or sent by fax or by express or other fast means of postal service. Any notice shall be deemed to have been received on the next working day in the place to which it is sent if sent by fax or 72 hours from the time of posting if sent by post.

22	Choice of law and arbitration
22.1	Governing Law

This Agreement and the documents to be entered into pursuant to it, save as expressly referred to therein, and any non-contractual obligations arising out of or in connection with this Agreement, shall be governed by and construed in accordance with English law.

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22.2 Arbitration

22.2.1 Subject to Clause 9 (as varied where applicable in accordance with the Schedules to this Agreement), any dispute arising out of or connected with this Agreement, including a dispute as to the validity or existence of this Agreement and/or this Clause 22.2, shall be resolved by arbitration in Paris, France conducted in English by three arbitrators pursuant to the rules of the ICC, save that, unless the parties agree otherwise, the third arbitrator, who shall act as chairman of the tribunal, shall be chosen by the two arbitrators appointed by or on behalf of the parties. If he is not chosen and nominated to the ICC for appointment within 30 days of the date of confirmation by the ICC of the later of the two party-appointed arbitrators to be confirmed, he shall be chosen by the ICC.

22.2.2 All the parties irrevocably submit to the non-exclusive jurisdiction of the courts of England to support and assist the arbitration process pursuant to Clause 22, including if necessary the grant of interlocutory relief pending the outcome of that process.

22.2.3 The substantive law of the arbitration shall be English law.

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Schedule 1 – Part 1
Transfer of the Acquired Businesses

Introduction

1 The Transfer Conditions

1.1 Completion of the transfer of any Acquired Business under this Agreement shall in all respects be conditional on the fulfilment of the following conditions:

1.1.1 all authorisations, orders, grants, recognitions, confirmations, consents, clearances, certificates, licences, permissions and approvals necessary or reasonably considered by the relevant Investor and any other affected Investor to be necessary or appropriate for or in respect of the relevant transfer having been obtained, in terms and in a form reasonably satisfactory to that Investor and to any other affected Investor;

1.1.2 no order having been issued (and remaining in effect) by any court or other governmental authority, and no statute, rule, regulation, executive order, decree or other order of any kind existing or having been enacted, entered or enforced by any governmental or regulatory authority, which (in any such case to an extent which is material in the context of the relevant sale and purchase) prohibits, restrains or restricts Completion of the sale of the relevant Acquired Business;

1.1.3 to the extent reasonably necessary for the transfer of such Acquired Business, negotiation or determination of any relevant definitive agreements as referred to in Clauses 5.2 and 9.

1.2 Each of the parties shall use its reasonable endeavours to procure the fulfilment of the Transfer Conditions as soon as possible.

1.3 Each Investor may waive in whole or in part any of the Transfer Conditions set out in paragraphs 1.1.2 to 1.1.4 provided that such waiver does not:

1.3.1 result in any breach by any other Investor, the Company or any member of their respective Groups of any legal or regulatory requirement; or

1.3.2 result in any material financial detriment to any other Investor, the Company or any member of their respective Groups unless such persons are indemnified to their reasonable satisfaction against all Liabilities arising out of or in connection with such waiver; or

1.3.3 result in any material non financial detriment to any other Investor, the Company or any member of their respective Groups.

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1.4 If any of the Transfer Conditions attaching to the transfer of an Acquired Business becomes incapable of being satisfied (and, if the Transfer Condition is capable of being waived, the relevant party or parties refuse, when they are entitled to do so, to waive the Transfer Condition), all obligations of the parties under this Agreement in respect of such transfer shall terminate and the parties shall not have any claim against the others in respect thereof except for any prior breach of paragraph 1.2. To the extent that any asset is incapable of being transferred to an Investor (the “Relevant Investor”) or a member of its Group as a result of a Transfer Condition failing to be satisfied, the following provisions shall apply:

1.4.1 unless paragraph 1.4.2 applies such asset shall be sold on terms that:

(i) RBS NV shall obtain a Valuation Range for the Acquired Business in accordance with the principles set out in paragraph 13 of Schedule 2, mutatis mutandis;

(ii) such sale shall be conducted (which shall include the negotiation of any terms of such sale) by the Managing (and, if appropriate, Supervisory) Board(s) of RBS NV unless otherwise required by any relevant regulatory or anti trust authority (in which event such sale shall be conducted in accordance with such requirements);

(iii) the net proceeds of sale shall be applied for the benefit of, and the Liabilities arising out of or in connection with such sale (including, without limitation, professional costs, Taxation and any Liabilities associated with any warranties or indemnities given in connection with such sale) shall be for the account of the Relevant Investor; and

(iv) the Investors (other than the Relevant Investor) shall be entitled to match any third party offer for the relevant Acquired Business on the terms of paragraph 11 of Schedule 2 mutatis mutandis;

(v) RBS NV shall not sell the relevant Acquired Business for consideration which is less than the lowest point of the Valuation Range less 7.5 per cent. without the prior written consent of the Relevant Investor (such consent not to be unreasonably withheld taking into account, inter alia, the number of potential purchasers for the Acquired Business, any restrictions on the transfer of the relevant business imposed by a Regulator and any other applicable impediments to transfer); or

1.4.2 if all of the Investors so agree (and on such terms as they may agree), such asset shall be treated as and deemed part of the Retained Business.

2 Transfer of the Acquired Businesses

2.1 Subject to the Transfer Conditions being satisfied or waived in accordance with paragraph 1, and in each case as at Completion of the relevant transfer, the Company shall procure that RBS Holdings or the relevant members of its Group shall transfer and each of the State and Santander shall directly or indirectly acquire (or procure the acquisition by a member of its Group of):

2.1.1	in the case of the State, the State Acquired Businesses; and
2.1.2	in the case of Santander, the Santander Acquired Businesses.

2.2 The intention of the parties is that RBS will either acquire the RBS Acquired Businesses in accordance with the principles of Clause 5 and Schedule 1, that it will sell the RBS Acquired Businesses to third parties or that it will acquire indirect ownership of the RBS Acquired Businesses by becoming the sole owner of the Company in accordance with Clause 4.

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2.3 Each Investor shall accept without enquiry, requisition or objection such title in the Acquired Business to be acquired by it (or a member of its Group), as RBS Holdings or the relevant member of the RBS Holdings Group may have and the Acquired Business Assets shall be transferred without the benefit of any undertakings, warranties, representations or other assurances whatsoever except insofar as they are contained in this Agreement, the Tax Agreements or as otherwise agreed by the Investors.

2.4 All companies, businesses and assets the transfer of which is required to be procured hereunder shall be transferred in the condition, in the place in which or to which they are situate and subject to all benefits, burdens, rights and restrictions to which they are subject at the time when the obligation to effect the transfer shall have become unconditional (subject to any other provisions of this Agreement).

2.5	No representation or warranty is given by any party as to the nature, condition, fitness for purpose, merchantability or suitability of any company, business or asset.
2.6	The provisions of:

2.6.1	Part 4 of this Schedule shall have effect in relation to employment matters;
2.6.2	Part 5 of this Schedule shall have effect in relation to pensions matters;
2.6.3	Part 6 of this Schedule shall have effect in relation to intellectual property;
2.6.4	Part 7 of this Schedule shall have effect in relation to real estate;
2.6.5	Part 8 of this Schedule shall have effect in relation to regulatory matters; and

2.6.6 Part 9 of this Schedule and any Tax Agreements entered into between the parties shall have effect in relation to tax matters.

3 Consideration for Acquired Business Transfers

3.1 Unless otherwise agreed, the consideration for the sale and purchase of the relevant assets shall be the payment by the relevant Investor, or such persons as it may procure, in cash (unless otherwise agreed by the Investors) on Completion of the appropriate proportion (determined in accordance with paragraph 3.2 below) of the fair market value of its Acquired Business (subject to adjustment as provided in this Schedule) to RBS Holdings or such persons as the Company may direct.

3.2 The Investors shall endeavour to agree in good faith the fair market value among the Acquired Business Assets of their respective Acquired Businesses that are to be transferred in accordance with Clause 5, in the period following execution of this Agreement, failing which such apportionment of the fair market value shall be determined in accordance with Clause 9 of this Agreement. If any cash consideration is received hereunder by RBS Holdings in respect of any of the Acquired Businesses, it shall be received by RBS Holdings on behalf of the Investor or members of the RBS Holdings Group who are the beneficial owners of the shares or assets to which it relates.

3.3 Payment of the appropriate proportion of any fair market value pursuant to paragraph 3.1 shall be a good discharge of each Investor’s obligations to pay the consideration due in respect of all and any of the Acquired Business Assets to be acquired by it and the Investors shall have no obligation to enquire into the application thereof.

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4 Completion

4.1 Subject as provided in paragraph 6, Completion of any transfer of any Acquired Business or part thereof, shall take place at such location outside the United Kingdom as the parties shall agree (taking into account the possible imposition of Transfer Taxes) on the Completion Date applicable to that Completion when the parties shall do such things and execute such documents as may reasonably be required by any other party to complete the relevant transfer including complying with the terms of any agreement relating to the implementation of any Legal Demerger or if the transfer is taking place by means of a sale and purchase by implementation of the following:

4.1.1 the Company shall procure that at Completion the RBS Holdings Group will procure the delivery to the relevant Investor, at such location or locations as each Investor may reasonably specify not later than 2 Business Days prior to the Completion Date, of:

(i) undated transfers (to the extent required) in respect of such of the relevant Acquired Company Shares as are registered, duly executed by or on behalf of the registered holder and completed in favour of the relevant Investor or as it may direct, together with any certificates in respect of such Acquired Company Shares (to the extent required, duly endorsed in blank or in the name of the relevant Investor);

(ii) share warrants to bearer in respect of such of the relevant Acquired Company Shares as are not in registered certificated form; and

(iii) such other documents, notarial deeds or certificates, transfers or written consents as may be required to give a good title to such Acquired Company Shares or of the relevant Acquired Business Assets and (where appropriate) to enable the relevant transferee to become the registered holders thereof;

4.1.2 the Company shall procure that any transfers referred to above be duly registered to the extent required (subject only to their being duly stamped where applicable);

4.1.3 the Company shall procure the RBS Holdings Group to make available for collection at the normal location at which they are held, used or stored and give physical possession to each Investor or as it may direct of such of the Acquired Business Assets as are transferable by delivery and deliver to the transferee company under the relevant Legal Demerger or, on a sale and purchase, to the relevant Investor or as it may direct such documents of title or other records establishing title to the relevant Acquired Business Assets as are within its possession or control;

4.1.4 if the transfer is being effected by means of a sale and purchase, the relevant Investor shall pay, or procure the payment by electronic funds transfer (for value on the day of transfer) to such bank account or accounts as the Company may specify, not later than 2 Business Days prior to the relevant Completion Date the relevant proportion of the fair market value applicable to the assets being transferred on the relevant Completion (determined in accordance with paragraph 3.2).

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5 Third Party consents and approvals and pre-emption rights

5.1 Where any consent, approval or agreement of any third party is required prior to the acquisition by a Purchaser of shares in any Acquired Company or any of the Acquired Business Assets to be transferred to it pursuant to this Agreement and such consent, approval or agreement has not been obtained at or before the due date for Completion of the transfer, the relevant shares or assets shall not be transferred to a Purchaser, notwithstanding Completion, until the consent, approval or agreement has been unconditionally obtained and the parties shall, and shall procure that their subsidiaries shall, use their respective reasonable endeavours to obtain such consent, approval or agreement and shall provide each other with all such assistance and co-operation as may reasonably be required in seeking any such consent, approval or agreement, provided that no person shall be under any obligation to make any payments (in money or moneys worth) to, or release any right against, any other party for the purpose of obtaining any such consent, approval or agreement.

5.2 Subject to Clause 5.3, if any such consent, approval or agreement as is referred to in paragraph 5.1 which is required prior to the acquisition by a Purchaser of any shares in any Acquired Company or any of the Acquired Business Assets hereunder has not been obtained within 12 months of Completion, unless the parties otherwise agree, the relevant shares or assets shall be excluded from the transfer, and paragraph 1.4 shall apply to the relevant assets as if the Transfer Conditions are incapable of being satisfied.

5.3 Save in relation to transfers under the Legal Demerger Agreement (to which the provisions of the Legal Demerger Agreement shall apply and subject to Part 9 of Schedule 1, pending the receipt of such consent, approval or agreement as is required for the transfer to the relevant Investor, or as it may direct, of any of the Acquired Business Assets as provided in paragraph 5.1:

5.3.1 the Company shall procure that RBS Holdings shall, or shall procure that the member of the Retained Group holding the relevant assets shall, in each case to the extent permissible under any relevant law and subject to the requirements of any relevant Regulator:

(i) hold all such assets as agent for the relevant Investor, at all times deal therewith in accordance with that Investor’s instructions and not take any step or do anything in relation thereto without that Investor’s prior consent;

(ii) promptly account to that Investor, or as it may direct, for all amounts received by it in respect of or relating to such assets;

(iii) to the extent that the relevant asset comprises one or more companies or businesses, deliver to that Investor at the end of each month unaudited management accounts comprising a profit and loss account, cash flow statement and balance sheet showing the results of such Acquired Company or Business for the month to which they relate and, on a cumulative basis, for the period since Completion, prepared as if the Acquired Company or Business was a separately incorporated member of the RBS Holdings Group and complying with generally accepted accounting principles in the jurisdiction in which the relevant Acquired Company or Acquired Business operates; and

5.3.2 the relevant Investor shall promptly reimburse each member of the Retained Group all costs and expenses and shall indemnify each member of the Retained Group against all Liabilities incurred by it in relation to such Acquired Company or Acquired Business Assets or in relation to any of the Business Employees (or any persons who would have been Business Employees if the relevant Acquired Business had been transferred at Completion) other than any costs, expenses or Liabilities incurred as a result, direct or indirect, of any step, act or omission in breach of paragraph 5.1 which was not consented to or caused (directly or indirectly) by the Investor and other than Tax which shall be dealt with in accordance with Part 9 of this Schedule 1 or the relevant Tax Agreement.

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5.4 Where any third party is entitled to be offered or to elect to acquire any shares of any Acquired Company or any Acquired Business Assets before such shares or assets may be transferred to an Investor or as it may direct (and has not waived that right) then, unless the relevant procedures by which such third party is entitled to be offered or to elect to acquire all or any of such shares or assets have been completed and the relevant offer period or periods have expired prior to Completion, such shares or assets shall not be transferred, notwithstanding Completion, until the relevant procedures have been completed and the relevant periods have expired.

5.5 If any such third party as is referred to in paragraph 5.3 exercises its right to acquire all or any shares in an Acquired Company or Acquired Business Assets then such shares or assets shall be excluded from the relevant sale and, within 3 Business Days of receipt thereof, the Company shall procure that the relevant member of the RBS Holdings Group shall, pay or procure payment to the relevant Investor, or as it may direct, by way of repayment of the appropriate proportion of the fair market value, an amount equal to the amount actually received from such third party as consideration for the acquisition of such shares or assets less any third party costs incurred by RBS Holdings or any member of the RBS Holdings Group in connection therewith. Any Taxation incurred in connection with such sale shall be dealt with in accordance with Part 9 of this Schedule 1 or the relevant Tax Agreement.

5.6 Notwithstanding paragraphs 5.1 to 5.4 above, an Investor may elect to proceed with a transfer of an Acquired Business Asset notwithstanding that any required consents, approvals or agreements have not been received or that any third party is entitled to be offered or to elect to acquire such asset as referred to in paragraph 5.4, subject to the conditions set out in paragraphs 1.3.1 to 1.3.3 of this Part 1 (which shall apply mutatis mutandis as if such an election were a waiver of a Transfer Condition) being satisfied.

5.7 Any amount payable to an Investor, or as it may direct, pursuant to paragraphs 5.2 or 5.5 shall be paid together with interest thereon at the rate per annum equal to LIBOR from time to time, calculated on a daily basis in respect of the period from and including the date of receipt of the relevant payment from the third party to and including the date of payment.

6 Post-Completion obligations, further assurances

6.1 Save in relation to any transfer pursuant to the ID&J SPAs or the Legal Demerger Agreement, for which transfers the relevant provisions of the ID&J SPAs or the Legal Demerger Agreement, respectively, shall apply, both before and after (and notwithstanding) Completion, each Investor shall, and the Company shall procure that RBS Holdings shall, at each Investor’s own expense use reasonable endeavours to ensure the smooth transition into new ownership of the Acquired Businesses as agreed by the relevant Investors.

6.2 The Company shall procure that RBS Holdings shall, subject to all applicable regulations, use all reasonable endeavours to secure as soon as practicable after the date of this Agreement the release of each Acquired Company to be acquired by any Investor, without cost to it, from all guarantees and other contingent Liabilities given or undertaken by it to secure or support the obligations of any member of the Retained Group and pending such release shall procure that RBS Holdings or such member of the Retained Group shall indemnify and keep indemnified the relevant Acquired Company against all actions, proceedings, losses, costs, claims, damages, Liabilities and expenses which any of them may suffer or incur in respect of any claim made under any such guarantees or other contingent Liabilities after 10 October 2007.

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6.3 Each Investor shall, subject to all applicable regulations, use all reasonable endeavours to secure as soon as practicable after the date of this Agreement the release of each member of the Retained Group, and each Acquired Company to be acquired by any other Investor, without cost to them, from all guarantees or other contingent Liabilities given or undertaken by them to serve or support the obligations of any Acquired Company or Acquired Business to be acquired by such Investor (including, if required, offering its own guarantee or liability on the same terms, mutatis mutandis, as and in substitution for the existing guarantee or other liability) and pending such release shall indemnify the Retained Group and each such Acquired Company and keep them indemnified against all actions, proceedings, losses, costs, claims, damages, Liabilities and expenses which any of them may suffer or incur in respect of any claim made under or in respect of any such guarantees or other contingent Liabilities after 10 October 2007.

6.4 Without prejudice to any other provision of this Agreement, each of the parties shall in good faith, and so far as is permitted by applicable law (and subject to the requirements of any relevant Regulator):

6.4.1 use all reasonable endeavours to secure the carrying out of the transactions contemplated by this Agreement in accordance with the terms and the spirit of this Agreement; and

6.4.2 co-operate with one another to that end and negotiate with a view to resolving any issues which may arise in connection with the implementation of the terms and spirit of this Agreement.

7 Indemnification and Wrong Box Assets or Liabilities

7.1 Each Investor shall indemnify each member of the Retained Group (whilst such member remains part of the Retained Group) and each of the other Investors and members of their respective Groups (being, for this purpose, in the case of RBS, the Wider RBS Group) (including, for this purpose, with effect from 10 October 2007, their Acquired Companies whilst such Acquired Companies are members of the RBS Holdings Group or the relevant Investor’s Group); against all Liabilities whensoever incurred, including, without limitation, Liabilities incurred:

7.1.1	prior to 10 October 2007 and remaining outstanding at 10 October 2007;
7.1.2	after 10 October 2007; or
7.1.3	otherwise,

to the extent that the same relate to any of the first named Investor’s Acquired Business Assets and not to the Retained Business or to the Acquired Business Assets of any other Investor.

For the avoidance of doubt, the terms of this paragraph 7.1 of Schedule 1 – Part 1 shall not prevent any member of the Retained Group (whilst such member remains part of the Retained Group), an Investor or any member of its Group — being, for this purpose, in the case of RBS, the Wider RBS Group — from making a claim under this paragraph 7.1 of Schedule 1 – Part 1 in circumstances where it has disposed of a member of the Retained Group or part of the Retained Business or of an Acquired Company or any Acquired Business Assets to a third party and suffers a Liability under the terms of that disposal to the extent that the same relates to the Acquired Business Assets of another Investor.

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7.2 Each Investor shall, save to the extent that there is/are sufficient cash in or assets (which can be immediately realised) of the Retained Business in order to meet such Liabilities, severally indemnify each member of the Retained Group (whilst such member remains part of the Retained Group and the Wider RBS Group) and each of the other Investors and members of their respective Groups — being for this purpose, in the case of RBS, the Wider RBS Group - (including, for this purpose, with effect from 10 October 2007, their Acquired Companies whilst such Acquired Companies are members of the RBS Holdings Group or the relevant Investor’s Group) in their Consortium Proportions against all Liabilities whensoever incurred, including, without limitation, Liabilities incurred:

7.2.1	prior to 10 October 2007 and remaining outstanding at 10 October 2007;
7.2.2	after 10 October 2007; or
7.2.3	otherwise,

to the extent that the same relate to the Retained Business.

For the avoidance of doubt, the terms of this paragraph 7.2 of Schedule 1 – Part 1 shall not prevent any member of the Retained Group (whilst such member remains part of the Retained Group and the Wider RBS Group), an Investor or any member of its Group — being, for this purpose, in the case of RBS, the Wider RBS Group — from making a claim under this paragraph 7.2 of Schedule 1 – Part 1 in circumstances where it has disposed of a member of the Retained Group or part of the Retained Business or an Acquired Company or any Acquired Business Assets to a third party and suffers a Liability under the terms of that disposal to the extent that the same relates to the Retained Business.

7.3 At any time prior to 30 June 2011 an Investor may (i) contend that an Acquired Business or the Retained Business contains a Wrong Box Asset or Liability, or (ii) identify a new asset or Liability which has never been allocated to or accounted for by an Acquired Business or the Retained Business, and, in default of agreement as to the classification of any such asset company or Liability, the matter shall be determined in accordance with Clause 9 of this Agreement. So far as permitted by law and subject to the receipt of all relevant regulatory approvals, any such asset or Liability in an Acquired Business shall be reallocated to another Acquired Business or to the Retained Business and vice versa, as the case may be, and, if necessary and if completion of the transfer of such asset or Liability shall have taken place, transferred to a member of the Retained Group or to the relevant Investor or, in either case, as it may direct and any such asset or Liability in the Retained Group shall be transferred to the relevant Investor or as it may direct. The consideration for the reallocation or transfer shall be nil unless otherwise agreed in connection with the Legal Demerger Agreement (if applicable). The tax consequences of the operation of this paragraph 7.3 will be dealt with in accordance with Part 9 of this Schedule 1. RBS and the State acknowledge that RBS NV and ABN AMRO have agreed in the Legal Demerger Agreement that certain wrong box transfers may take place at any point prior to 5 February 2012. Without prejudice to any transfers that may take place under the Legal Demerger Agreement between 1 July 2011 and 5 February 2012, no reallocation under this paragraph 7.3 shall be permitted after 30 June 2011.

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8 Conduct of Claims

8.1 The provisions of this paragraph 8 shall apply in respect of all indemnities expressed to be given under this Agreement and to the conduct of negotiations and proceedings where any party hereto has a claim against any other under such an indemnity or otherwise under this Agreement, provided that:

8.1.1 they shall not apply to matters relating to any Third Party Claim (as defined in paragraph 8.3) where such Third Party Claim is or may be covered by a policy of insurance and the relevant insurer requires the Indemnified Party or the Indemnifying Party to act in a manner contrary to the provisions of this clause;

8.1.2 if RBS or the State is the Principal Indemnifying Party, this paragraph 8 shall not apply if the Third Party Claim is “Relevant Litigation” for the purposes of the Solution Agreement and Schedule 4 of the Solution Agreement shall apply instead; and

8.1.3 to the extent that any provisions of this paragraph 8 are inconsistent with the Litigation Management Agreement or the Tax Agreements, the provisions of the Litigation Management Agreement or the relevant Tax Agreement shall prevail.

8.2 Definitions

In this paragraph 8:

8.2.1 Indemnified Party means any party (or other person pursuant to Clause 20.11) who has any claim under an indemnity or otherwise under this Agreement;

8.2.2 Indemnifying Party means the party against whom any such claim is made; and

8.2.3 Principal Indemnifying Party means, in respect of any Third Party Claim (as defined below) the Indemnifying Party or in the event that there is more than one Indemnifying Party in respect of a particular Third Party Claim, the Indemnifying Party with the largest allocation in respect of that particular Third Party Claim (as determined under the Litigation Management Agreement).

8.3 Third Party Claim

8.3.1 If an Indemnified Party becomes aware of any third party claim, potential claim, matter or event (a “Third Party Claim”) which might lead to a claim being made under this Agreement against the Principal Indemnifying Party, the Indemnified Party shall procure that notice of such Third Party Claim is given as soon as reasonably practicable to the Principal Indemnifying Party and, subject to being fully indemnified (on an after tax basis if appropriate in accordance with the principles in Schedule 1, Part 9) to its reasonable satisfaction by the Principal Indemnifying Party against all reasonable out-of-pocket costs and expenses incurred by the Indemnified Party, and otherwise subject at all times to this paragraph 8:

(i) shall not make and shall procure that is not made any admission of liability, agreement or compromise with any person, body or authority nor consent to the entry of any judgement or final order in relation to any such Third Party Claim except with prior consultation with, and the prior agreement (not to be unreasonably withheld or delayed) of, the Principal Indemnifying Party;

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(ii) shall take such action as the Principal Indemnifying Party may reasonably request after consultation with the Indemnified Party to avoid, dispute, resist, appeal, compromise or defend such Third Party Claim or any adjudication in respect of that Third Party Claim; and

(iii) if so required by the Principal Indemnifying Party in writing shall ensure that the Principal Indemnifying Party is placed in a position to take on or take over the day-to-day conduct of all proceedings or negotiations of whatever nature arising in connection with the Third Party Claim in question (by transferring the proceedings to the Principal Indemnifying Party if so required and where reasonably possible to do so, subject as set out below, through the provision of a power of attorney, or otherwise) and provide (or, if relevant, procure that there is provided) such information and assistance as the Principal Indemnifying Party may reasonably require in connection with the preparation for and conduct of such proceedings or negotiations provided that the Principal Indemnifying Party shall keep the Indemnified Party informed of the progress of any proceedings and shall consult with the Indemnified Party prior to taking any action which may affect the Indemnified Party, or any business or asset of the Indemnified Party.

Nothing in this paragraph 8.3.1 shall oblige the Indemnified Party to grant a power of attorney to the Principal Indemnifying Party in respect of the Third Party Claim.

8.3.2 The Indemnified Party shall be at liberty, without reference to the Principal Indemnifying Party and without prejudice to its rights against the Principal Indemnifying Party or against any other Indemnifying Party, to admit, compromise, settle, discharge or otherwise deal with any Third Party Claim:

(i) if no response is received from the Principal Indemnifying Party within a reasonable period (in respect of the situation) in relation to any communication from the Indemnified Party notifying the Principal Indemnifying Party that the Indemnified Party intends to admit, compromise, settle, discharge or otherwise deal with that Litigation; or

(ii) if the Indemnified Party is not indemnified as required by paragraphs 7 and 8.3.1 above.

8.3.3 The Principal Indemnifying Party, or RBS (on behalf of the Investors) (should the largest allocation of the Third Party Claim in question be to the Retained Business), shall keep any other Indemnifying Party or Parties to whom the Third Party Claim in question has been allocated informed of significant developments in the Third Party Claim and shall provide updates as reasonably requested by such other Indemnifying Party or Parties.

8.3.4 In the event that there is more than one Indemnifying Party in respect of a particular Third Party Claim:

(i) the Indemnifying Parties shall be severally, but not jointly, liable to indemnify the Indemnified Party in the proportions in which the Third Party Claim has been allocated to their respective Acquired Businesses; and

(ii) to the extent that the Third Party Claim is allocated to the Retained Business, the Investors shall severally indemnify the Indemnified Party in their Consortium Proportions.

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8.4 Upon any claim under this Agreement being made, or notification pursuant to paragraph 8.1 above of any Third Party Claim which might lead to such a claim being made, the Indemnified Party shall, subject to being fully indemnified (on an after-tax basis if appropriate in accordance with the principles in Schedule 1, Part 9) to its reasonable satisfaction by the Indemnifying Parties against all reasonable out-of-pocket costs and expenses incurred by such Indemnified Party:

8.4.1 make available to accountants and other professional advisers appointed by the Principal Indemnifying Party such access to the personnel of the Indemnified Party and to any relevant records and information as the Principal Indemnifying Party reasonably requests in connection with such claim or Third Party Claim;

8.4.2 use reasonable endeavours to procure that the auditors (both past and current) of the Indemnified Party make available their audit working papers in respect of audits of the Indemnified Party’s accounts for any relevant accounting period in connection with such claim or Third Party Claim.

8.5 Where any Indemnified Party is entitled (whether by reason of insurance or payment discount or otherwise) to recover from some other person any sum in respect of any Liability which is or could be the subject of a claim under this Agreement (and whether before or after the Indemnifying Parties have made payment thereunder), the Indemnified Party shall (or, as appropriate, shall procure that the other Indemnified Party shall) unless the Indemnified Party shall waive its claim against the Indemnifying Parties and refund any amounts repaid:

8.5.1 promptly notify the Principal Indemnifying Party and provide such information as the Principal Indemnifying Party may reasonably require relating to such Liability or dispute and steps taken or to be taken by the Indemnifying Party in connection with it;

8.5.2 if so required by the Principal Indemnifying Party (subject to each Indemnified Party being fully indemnified on an after-tax basis (if appropriate in accordance with the principles in Schedule 1 Part 9) to its reasonable satisfaction by the Indemnifying Parties against all reasonable out-of-pocket costs and expenses incurred by such Indemnified Party) take all steps (whether by way of a claim against its insurance or otherwise, including but without limitation, proceedings) as the Principal Indemnifying Party may reasonably require to enforce such recovery including rights equivalent to those in paragraph 8.3.1; and

8.5.3 keep the Principal Indemnifying Party informed of the progress of any action taken.

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8.6 Notwithstanding any other provision of this Agreement where any Indemnified Party may have a right to claim (in respect of any Liability in respect of which it is indemnified by the Indemnifying Party) against any third party, the obligation of the Indemnifying Parties shall be limited (in addition to any other limitations on the liability of the Indemnifying Parties referred to in this Agreement) to the amount by which the loss or damage suffered by the Indemnified Party as a result of such matter shall exceed any amounts recovered by the Indemnified Party from a third party and the reasonable out-of-pocket costs and expenses and Taxation incurred by the Indemnified Party in obtaining such recovery. If any amounts shall be recovered by an Indemnified Party from a third party following the payment of any amount or amounts hereunder by the Indemnifying Parties in respect of the same Liability, the Indemnified Party shall forthwith return to the Indemnifying Parties, an amount equal to the lesser of:

8.6.1 the amount recovered from the third party less the reasonable out-of-pocket costs and expenses of such recovery and any Taxation incurred in connection with such recovery; and

8.6.2 the amount or amounts previously paid to the Indemnified Party by the Indemnifying Parties in respect of such Liability.

8.7 Where any indemnity contained in this Agreement is expressed to be “on an after-tax basis”, then in calculating the liability of the Indemnifying Parties there shall be taken into account:

8.7.1 the amount by which any liability to Taxation of the Indemnified Party or the relevant Acquired Company or member of the Retained Group (as the case may be) is actually reduced or extinguished as a result of the matter giving rise to the indemnity claim; and

8.7.2 the amount by which any liability to Taxation of the Indemnified Party or the relevant Acquired Company or member of the Retained Group (as the case may be) is actually increased as a result of the payment by the Indemnifying Parties in respect of the matter giving rise to the indemnity claim.

8.8 In a Third Party Claim in respect of which it is entitled to be indemnified pursuant to paragraphs 7 and 8.3.1, the Indemnified Party:

8.8.1 is not required to seek, or comply with, the requirements of the Principal Indemnifying Party under this paragraph 8 to the extent necessary to avoid the Indemnified Party or the relevant Investor breaching any criminal or regulatory laws, orders, regulations or equivalent;

8.8.2 may instead conduct that Third Party Claim (including any negotiations of whatsoever nature arising in connection with it) in such manner as it considers appropriate so as to avoid breaching any criminal or regulatory laws, orders, regulations or equivalent; and

8.8.3 shall remain entitled to be indemnified pursuant to paragraph 7 provided that (subject to paragraph 8.9) the Indemnified Party or the relevant Investor provides immediate written notice to the Principal Indemnifying Party of relying on this paragraph, such notice to specify all relevant details of the Third Party Claim and the manner in which this paragraph is being relied upon.

8.9 If the giving of notice pursuant to paragraph 8.8.3 would, in the reasonable opinion of the Indemnified Party or its relevant Investor, involve the Indemnified Party or relevant Investor breaching any criminal or regulatory laws, orders, regulations or equivalent in respect of that Third Party Claim, such notification may be made as soon as it would no longer involve such breach, and the liability of the Indemnifying Parties to indemnify the Indemnified Party in respect of that Third Party Claim shall be unaffected.

8.10 Where the Indemnified Party is a member of the Retained Group, RBS (on behalf of the Investors) shall be considered to be its relevant Investor for the purposes of paragraphs 8.8 to 8.10.

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Schedule 1 – Part 2
The Acquired Businesses

The assets of, and Liabilities attributable to, Business Units or any business comprise, subject to Clause 5 and the remaining provisions of this Schedule 2, those Business Assets and Liabilities reflected in the RBS Holdings Accounts as being assets and Liabilities of such Business Unit or business.

1. RBS Acquired Businesses

The Business Assets of the following businesses and Business Units of the RBS Holdings Group:

BU North America (pages 111 to 113 of the RBS Holdings Accounts)

BU Global Clients (pages 53, 117 to 119 and 158 of the RBS Holdings Accounts, excluding the Brazil Global Clients Business).

BU Asia (pages 115 to 117 of the RBS Holdings Accounts) excluding the interest in Saudi Hollandi

BU Europe (excluding Antonveneta) (pages 109 to 111 of the ABN AMRO Accounts, excluding the Antonveneta profit and loss account and balance sheet)

Former Dutch Wholesale Clients (reported under BU Netherlands, pages 107 to 109 of the RBS Holdings Accounts, in the RBS Holdings Accounts, as explained on page 106 of the RBS Holdings Accounts and the RBS Holdings press release of 7 April 2006).

Former WCS Clients outside Brazil within BU Latin America (reported under BU Latin America, pages 113 to 115 of the RBS Holdings Accounts, as explained in the RBS Holdings press release of 7 April 2006).

Private Clients India and Private Clients Indonesia

Interest in Prime Bank, Pakistan

Where:

“Brazil Global Clients Business” means the RBS BU Global Clients business (as defined above) as carried on in Brazil, to the extent that such business is comprised of:

(a) the domestic revenues generated and booked in Brazil by Brazilian-domiciled global clients;

(b) the off-shore booked revenues generated in Brazil by Brazilian-domiciled global clients and by Brazilian-domiciled subsidiaries of non-Brazilian-domiciled global clients; and

(c) the domestic revenues generated and booked in Brazil by Brazilian-domiciled subsidiaries of non-Brazilian-domiciled global clients,

but for the avoidance of doubt does not include BU Global Clients business revenues generated outside Brazil by Brazilian-domiciled global clients or Brazilian-domiciled subsidiaries of non-Brazilian-domiciled global clients.

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2. Santander Acquired Businesses

The Business Assets of the following businesses and Business Units of the RBS Holdings Group:

BU Latin America (excluding all former WCS Clients outside of Brazil) (pages 113 to 115 of RBS Holdings Accounts)

BU Antonveneta (pages 109 to 111 of RBS Holdings Accounts, excluding everything but the Antonveneta accounts)

Interbank and DMC Consumer Finance, Netherlands (reported under BU Netherlands in pages 107 to 109 of the RBS Holdings Accounts).

Brazil Global Clients Business

Asset Management Brazil

Where:

“Asset Management Brazil” means ABN AMRO Asset Management Distibuidora de Titulos e Valores Mobiliarios S.A. less the Carve-out Assets (as defined in a Heads of Agreement between Santander and Fortis dated 26 February 2008).

3. State Acquired Businesses

The Business Assets of the following businesses and Business Units of the RBS Holdings Group:

BU Private clients (excluding Latin America) (pages 119 to 120 of the RBS Holdings Accounts, excluding the private banking business LatAM and excluding Private Clients India and Private Clients Indonesia)

BU Netherlands (excluding former Dutch Wholesale Clients and Interbank and DMC Consumer Finance) (pages 107 to 109 of RBS Holdings Accounts, excluding former Dutch Wholesale Clients and Interbank Consumer Finance)

BU Asset Management (excluding Asset Management Brazil) (pages 121 to 122 of RBS Holdings Accounts)

The ABN AMRO Trade Marks (as defined in paragraph 1 of Part 6 of this Schedule 2)

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Part 4. Re- Allocations

The following list of Business Assets which are reflected in the Acquired Businesses have been re-allocated from the different Acquired Businesses and the Retained Businesses respectively with an effective date for the purpose of the allocation as set out below. The parties agree that this list of reallocations is a non-exhaustive list:

Business Asset	From	To	Effective date
Private Clients India and Indonesia	State Acquired Business	RBS Acquired Business	1 January 2008
Interest in Prime Bank	Retained Business	RBS Acquired Business	10 October 2007
Brazil Global Clients	RBS Acquired Business	Santander Acquired Business	10 October 2007
Asset Management Brazil	State Acquired Business	Santander Acquired Business	10 October 2007
Infrastructure Capital Management	RBS Acquired Business	State Acquired Business	1 April 2008
AA Interfinance	State Acquired Business	Santander Acquired Business	The Completion date of the transfer
Sterrebeeck B.V.	State Acquired Business	Santander Acquired Business	1 January 2008

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Schedule 1 – Part 3
The Retained Businesses

1. Retained Businesses

RBS Holdings interest in Capitalia

BU Private Equity

RBS Holdings interest in Saudi Hollandi

The costs of eliminating central group functions and, if any, unallocated property and unallocated costs

Unallocated pension fund deficit or surplus, to the extent not otherwise allocated to an Acquired Business under Part 5 of Schedule 2

Other unallocated assets and Liabilities (including unallocated contingent Liabilities)

For the effective date of certain re-allocations of Business Assets out of the Retained Businesses to certain Acquired Businesses a reference is made to Schedule 1 – Part 2.

2. Agreed course of action in relation to certain assets forming part of the Retained Business

As at the date of this document, and following the sale of certain assets comprising the Retained Business, the parties have agreed that the following actions will be taken in relation to the following assets which form part of the Retained Business, provided that following 30 June 2011 RBS NV shall be free, subject to the provisions of Schedule 2 and Clause 5.3.5, to take such actions in relation to the Retained Business as it determines in its absolute discretion:

	Proposed action to be taken as
	part of the Retained Business
Name of asset within the Retained Business	Wind Down
AA Capital Nordic Fund II B.V.	Awaiting Liquidation
AA PE Fund LP	Awaiting Liquidation
AAB Media & Telecom 2005 B.V.	Awaiting Liquidation
AAC Capital NEBO NL Feeder B.V.	Awaiting Liquidation
AAC Spanish BOF 2005 B.V.	Shared Asset held for sale
AACBOF Italy B.V.	In liquidation
AACBOF NEBO B.V.	Shared Asset held for sale
AAV Italy B.V.	In liquidation
AAV NEBO B.V.	Shared Asset held for sale

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	Proposed action to be taken as
	part of the Retained Business
Name of asset within the Retained Business	Wind Down
ABN AMRO Asia Capital Investment Limited	Awaiting Liquidation
ABN AMRO Capital (Belgium) N.V.	Awaiting Liquidation
ABN AMRO Capital BO Funds II B.V.	Awaiting Liquidation
ABN AMRO Capital Limited	Awaiting Liquidation
ABN AMRO Capital Management (Australia) Pty Limited	In liquidation
ABN AMRO Capital S.p.A.	In liquidation
ABN AMRO Corporate Investments Management B.V.	Awaiting Liquidation
ABN AMRO Danube Ventures B.V.	Awaiting Liquidation
ABN AMRO Participaties B.V.	Awaiting Liquidation
ABN AMRO Private Equity B.V.	Awaiting Liquidation
ABN AMRO Ventures (Jersey) Limited	Awaiting Liquidation
ABN AMRO Ventures II B.V.	Awaiting Liquidation
Achmea Holding N.V.	Awaiting Liquidation
Alcover A.G.	Awaiting Liquidation
Alsecure Insurance PCC Limited Transcred 1 Cell	Awaiting Liquidation
B2 Seller Agent Pty Limited	Awaiting Liquidation
Benedenwindse Offshore Bouw-en Exploitatie Maatschappiij	Awaiting Liquidation
Bodycare International Group B.V.	Under investigation
C.C.M. Central Commercial Management N.V.	Awaiting Liquidation
Closenes SL	In liquidation
DIBU Administratie & Consultancy B.V.	Awaiting Liquidation
Escaline sarl	Sale process
Euroclear plc	Pending confirmation
Exody E-business Intelligence GmbH	In liquidation
Expomedia Group Plc	In liquidation
Forbion Capital Fund II C.V.	Split among R, N and S in process
Fourth Channel, Inc	Under investigation
Future Ventures B.V.	In liquidation
Gesytas 2005 S.L.	In liquidation
Global Intranet B.V.	Sale process
I2C S.A.	In liquidation

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	Proposed action to be taken as
	part of the Retained Business
Name of asset within the Retained Business	Wind Down
Impulsora del Fondo Mexico SA de CV	Sale process
IMX, Inc	Under investigation
Jan Everaers Beheer B.V. (in liquidation)	To be liquidated
Jill Equity Participation B.V.	To be liquidated
Lange Voorhout Investments B.V.	Awaiting Liquidation
Mandrakeoft SA	Shared Asset held for sale
Multi M.Retirement N.V.	Awaiting Liquidation
Nexwave Inc.	In liquidation
Nicator / Nicator New Holding AB	In liquidation
Niksun, Inc.	Loan note, not for sale
Nortel Inversora S.A.	Listed, but B-share not trade able
Nueva Terrain S.L.	Shared Asset held for sale
PGAM Advanced Technologies AG	In liquidation
RBS Capital (USA) LLC	Awaiting Liquidation
Retained Business Deferred Tax Assets	To be paid for in accordance with the Separation Tax Agreement if utilised by an RBS Acquired Company
Silita S.L.	In liquidation
Swyx Solutions GmbH	In liquidation
Tavve Software Company Inc.	Sale process
Telesystems International Wireless Inc	Sale process
The second ABN AMRO LBO Fund	Awaiting Liquidation
Saudi Hollandi Bank	Held for sale
Saudi Hollandi Capital	Held for sale
Viking Strip Finance Limited	In liquidation
Westchester Holdings Limited (in liquidation)	In liquidation
Wielkamp B.V.	In liquidation
Yellowbrix Inc	Sale process

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3. Certain assets of the Retained Business which have been sold

The parties agree that as at the date of this document, the following entities forming part of the Retained Business have been sold:

Name of entity which have been sold

ABN AMRO Capital Australia Fund II (ABN AMRO) B.V.

Acer IP Fund One LP

Corpfin Capital Fund II B.V.

F.V.E. II LP

Favonius Ventures Europe LP

Freecom Technologies B.V.

Integral Development Corporation

iRex Technologies B.V.

Monash IVF Pty Limited

Monash IVF Pty Limited

Siam Investment Fund II L.P.

Siennax International B.V.

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Schedule 1 – Part 4
Employment

1 Prior to the date of this Agreement, the parties agreed the allocation of employees to each of the Acquired Businesses which have been transferred to a relevant Investor and how liabilities relating to those employees would be borne by the relevant Investors. Such agreements are reflected in, inter alia, the Co-habitation Agreements and the Legal Demerger Agreement.

2 In respect of any of the Acquired Businesses which have not, as at the date of this Agreement, been transferred to a relevant Investor, the principles set out below in Part 4 of this Schedule determine how any employees relating to any such business (and any associated Liabilities, including but not limited to retention and termination costs) will be allocated as between Investors.

3 The parties will each nominate appropriate representative(s) to agree the matters which are required to be agreed pursuant to Part 4 of this Schedule 1, including determining how employees who do not work exclusively or principally in one of the Acquired Businesses or the Retained Business should be allocated between the RBS Acquired Business, the Santander Acquired Business, the State Acquired Business and the Retained Business (as the case may be). The parties will use reasonable endeavours to provide to the other parties information in their possession which might reasonably help facilitate this process through to the Final Completion Date.

Once appropriate allocations to a particular business have been made then no Appropriate Steps shall be taken in relation to the affected employee(s) without the agreement of the relevant Investor or the Company (as the case may be), such agreement not to be unreasonably withheld or delayed.

Where any intra-group services are provided by any part of an Acquired Business to part of another Acquired Business or by any part of an Acquired Business to part of the Retained Business (or vice versa) the parties will take into account any continuing requirements to provide such services in making any necessary determinations in accordance with this part 4 of Schedule 1.

4 The parties shall use their respective reasonable endeavours to ensure that employees who are engaged exclusively or principally in the RBS Acquired Business, the Santander Acquired Business, the State Acquired Business or the Retained Business (as the case may be) shall continue to be so engaged immediately after the relevant Completion and shall take such Appropriate Steps as are necessary in the circumstances.

In this Schedule 1, part 4, “Appropriate Steps” may include, but shall not be limited to:

• taking such steps, if any as are necessary to move the employee to the relevant Acquired Business or Retained Group, as appropriate, which may be the making of an offer of employment or a transfer of their employment under any relevant local law;

• undertaking appropriate consultation with employees and/or bodies representing employees;

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• ensuring that an employee is released from any obligations to his current employer in order to facilitate the change of employer proposed; and

• taking such steps as are reasonable in the circumstances to mitigate any Liability associated with, as the case may be, the termination or change of employer (for example, moving the employee immediately prior to the relevant Completion rather than after that Completion).

5 Where:

5.1 an employee who is exclusively or principally engaged in one of the RBS Acquired Business, Santander Acquired Business or State Acquired Business (as the case may be) is a director or employee of a member of the Retained Group or of an Acquired Company acquired by another Investor; or

5.2 an employee who is exclusively or principally engaged in the Retained Business is a director or employee of an Acquired Company, subject to there being no adverse effect upon the ability of any relevant company to maintain any regulatory approval, the relevant employee shall cease as soon as reasonably practicable after the relevant Completion to be a director or employee of the relevant company and the parties shall take Appropriate Steps to offer such employee employment by a company carrying on part of the Acquired Business or Retained Business in which he is engaged provided that the relevant Investor in respect of whose business the employee is principally or exclusively engaged (or the Company as the case may be) has approved the Appropriate Steps (such approval not to be unreasonably withheld or delayed). The parties shall use reasonable endeavours including taking any of the approved Appropriate Steps to minimise any Liabilities which may arise as a result of such cessation. If any Liabilities do arise then such Liabilities shall, in respect of an employee engaged exclusively or principally in the RBS, Santander or State Acquired Business (as the case may be) be borne by the relevant Investor (which Investor shall indemnify the Retained Group, the Company and the other Investors accordingly) and, in respect of an employee engaged exclusively or principally in the Retained Business, shall be borne by the Retained Group (and, accordingly, indirectly by the Investors in the Consortium Proportions).

6 The parties acknowledge that as a consequence of the transactions contemplated by this agreement, the requirements of the Retained Business and the Acquired Businesses in relation to employees may change or diminish and, as a consequence, it may be necessary to terminate the employment of certain employees. In effecting any such terminations, the parties will use reasonable endeavours, including taking the Appropriate Steps, to minimise any Liabilities which arise as a consequence.

Where the employment of an employee of a member of the Retained Group is terminated where that person is exclusively or principally engaged in an Acquired Business, the relevant Investor which is to buy that Acquired Business will bear the cost (if any) of such termination and will indemnify the appropriate member of the Retained Group against any Liability accordingly. Such termination will not be effected without the prior approval of the relevant Investor who will bear the cost (such approval not to be unreasonably withheld or delayed).

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Where the employment of an employee of an Acquired Company acquired by one Investor is terminated where that person is exclusively or principally engaged in the Acquired Business acquired by another Investor, that other Investor will bear the cost (if any) of such termination and will indemnify the first-mentioned Investor against any Liability accordingly. Such termination will not be effected without the prior approval of the relevant Investor who will bear the cost (such approval not to be unreasonably withheld or delayed).

Where the employment of an employee of an Acquired Company is terminated where that person is exclusively or principally engaged in the Retained Business, then the Retained Group (that is, indirectly, the Investors in the Consortium Proportions) will bear the cost (if any) of such termination and shall indemnify the Acquired Company against any Liability accordingly. Such termination will not be effected without the prior approval of the Company (such approval not to be unreasonably withheld or delayed).

Where any employee whose employment would otherwise have been terminated (because the further requirement for his or her services has changed or diminished) becomes employed by a “mobility organisation” or some other local equivalent (such that the employee becomes engaged by an employer other than a company in either one of the Acquired Businesses or the Retained Business) the principles set out above shall continue to apply in respect of any Liabilities relating to that employee’s employment by the mobility organisation or the termination of his or her employment by such organisation notwithstanding that such termination may occur at a later date.

7 Where an employee is seconded from an Acquired Business to the Retained Business or vice versa the parties shall consult with a view to agreeing when the secondment shall end having regard to their respective business needs and whether or not an offer should be made to that employee so that he or she should cease to be an employee of an Acquired Company or (as the case may be) a member of the Retained Group and become an employee of a member of the Retained Group or (as the case may be) of an Acquired Company. Where the relevant parties agree such an offer is to be made, the parties will take such of the Appropriate Steps as are reasonably necessary to effect the change of employer of the employee concerned and to minimise any Liabilities associated with the termination of any such secondment arrangements. Any such Liabilities will be allocated according to the principles set out in paragraph 5 of this Part 4.

8 Where an employee is seconded from one Acquired Business to an Acquired Business to be bought by another Investor the relevant Investors shall consult with a view to agreeing when the secondment shall end having regard to their respective business needs and whether or not an offer should be made to that employee so that he or she should cease to be an employee of one Acquired Company and become an employee of a different Acquired Company. Where the relevant parties agree such an offer is to be made, the parties will take such of the Appropriate Steps as are reasonably necessary to effect the change of employer of the employee concerned and to minimise any Liabilities associated with the termination of any such secondment arrangements. Any such Liabilities will be allocated according to the principles set out in paragraph 5 of this Part 4.

9 Where the parties are unable to agree a resolution under paragraph 7 or 8, the employee will continue to be governed by the terms of his or her secondment agreement and shall return to the company by which he or she is employed at the end of the secondment agreement or otherwise in accordance with its terms.

10 In the case of those employees not covered by paragraphs 4, 5, 6, 7 and 8 of this Part 4 the parties shall consult with each other as required, with a view to determining (as soon as reasonably practicable):

10.1 whether or not all or any of such employees should become employees of an Acquired Company or a member of the Retained Group; and

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10.2 what arrangements should be made to ensure that an Investor or the Retained Group, as the case may be, does not suffer as a result of certain employees not becoming its employees,

and the parties shall use their reasonable endeavours to give effect to such determination.

Once the parties have determined which employees should be employed by a member of an Acquired Group or the Retained Group (as the case may be), each Investor (in relation to its Acquired Group) and the Company (in relation to the Retained Group) shall procure that such Appropriate Steps as are agreed (such agreement not to be unreasonably withheld or delayed) are taken in relation to each relevant employee and the other parties shall procure a release of such employee’s obligations in order that the employee is able to accept such an offer of employment made to him as an Appropriate Step.

11 It is the intention of the parties, save (i) as provided otherwise in this Part 4; and (ii) as otherwise agreed between the parties; that all Liabilities in respect of an employee (whether relating to their employment prior to the relevant Completion, to steps taken to move their employment to a company carrying on the appropriate Acquired Business or to a company in the Retained Group or to the termination of their employment) shall be borne:

11.1 in respect of employees exclusively or principally engaged in the RBS, the State or Santander Acquired Businesses, as the case may be, by RBS, the State or Santander (respectively); and

11.2 in respect of employees exclusively or principally engaged in the Retained Business, by the Retained Group; and

11.3 where it is not possible to determine in accordance with the procedure set out in paragraph 3 above where such employees were engaged, between the Retained Group and the relevant Investor(s) or between the relevant Investors (as the case may be) having regard to (i) the proportion of the employee’s duties prior to the relevant Completion which related to each such entity; or (ii) to such other principles as the parties, acting reasonably, agree.

12 If the sale and purchase of any Acquired Business, or any act or omission after the relevant Completion by an Investor or a member of its Group or by a member of the Retained Group shall entitle any employee to treat his or her employment as terminated or otherwise to bring an action against any Acquired Company or any member of the Retained Group (as the case may be) in respect of his or her employment, the parties shall consult with a view to reducing or mitigating any Liabilities. To the extent that such Liabilities do arise, the costs in respect of an employee exclusively or principally engaged in the RBS, the State or Santander Acquired Businesses, as the case may be, shall be borne by RBS, the State or Santander (respectively) and the costs in respect of an employee exclusively or principally engaged in the Retained Business shall be borne by the Retained Group.

If it is not possible to determine that the relevant employee is exclusively or principally engaged in one or more of the RBS, the State or Santander Acquired Businesses or the Retained Business, the Liabilities shall be borne between the Retained Group, and the relevant Investor(s) or between the relevant Investors (as the case may be) having regard to (i) the proportion of the employee’s duties prior to any relevant Completion which relate to each such entity; or (ii) such other principles as the parties, acting reasonably agree.

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13 Without prejudice to Clause 5.5 of this Agreement, prior to any relevant Completion, any Investor may provide management and other services to one or more of the other Acquired Businesses and/or the Retained Business on such terms (including appropriate charges) as may be agreed between the parties.

14 For the avoidance of doubt, all pension Liabilities in relation to employees and former employees of the Acquired Businesses and Retained Business will be dealt with in accordance with Part 5 of Schedule 1. Hence, this Part 4 relates only to non-pension Liabilities in respect of such employees.

15 Where an employee is allocated to an Investor in accordance with the terms of Part 4 of this Schedule 1, that Investor shall, in relation to employees allocated to it, take custody of (or if appropriate, retain custody of) any data which is held by the employer for the purpose of the employment relationship (“HR Data”) and will at all times treat such data in accordance with that Investor’s internal data protection policies and any applicable laws. Similarly, any Liability for failure to comply with any relevant data protection laws will fall on the Investor to whom that employee is allocated.

16 If the parties cannot, acting reasonably, determine (i) that an employee is exclusively or principally engaged in a particular Acquired Business or the Retained Business; or (ii) how Liabilities for any employee are allocated pursuant to this Part 4; any party affected by such failure to make a determination can escalate the issue in question, via its normal internal governance routes, to such party’s Head of HR, who will raise that issue with any other affected party/parties. For these purposes, the relevant Heads of HR are Tony Williams in respect of RBS, Alexandra Philippi in respect of State and Sinead O’Connor in respect of Santander and references to the relevant Head of HR shall include their successors from time to time.

17 Any dispute not covered by paragraph 16 shall if not resolved by agreement between the parties within 60 business days of such dispute arising, be determined in accordance with Clause 9 of the Agreement.

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Schedule 1 – Part 5
Pensions

1	As soon as reasonably practicable and subject to applicable legal and regulatory provisions, the Investors will in relation to each pension plan negotiate in good faith and enter into detailed agreements consistent with the following principles.
2	The Investors acknowledge that the general principles in respect of pensions are that:

(a) all pension Liabilities and pension costs in respect of employees will be borne by the appropriate Acquired Businesses or Retained Business on the same basis as all Liabilities of an employee will be allocated under paragraph 9 of Schedule 2 – Part 4 (Employment) of this Agreement; and

(b) the pension Liabilities and pension costs in respect of former employees will be borne by the appropriate Acquired Businesses or Retained Business by applying, to the extent possible and having regard to paragraphs 11 and 12 of this Part of this Schedule, the principles of allocation of Liabilities under paragraph 9 of Schedule 2 – Part 4 (Employment) of this Agreement but with reference to the employment those former employees had at the time of termination of their employment agreement.

3 The Investors will, subject to applicable legal and regulatory provisions and having regard to the history and circumstances of the plan, agree whether following Completion each plan should continue as:

(a)	a multi-employer plan; or
(b)	a single employer plan.

Multi-employer plans

4 Where the Investors agree that following the relevant date of Completion a current plan should continue as a multi-employer plan, the relevant companies within the Acquired Businesses and the Retained Business will continue to participate in the plan on such other terms and conditions as are agreed by the Investors from time to time, provided that those terms and conditions, together with, where appropriate, any compensations agreed between the Acquired Businesses and the Retained Business, accord with the general principles stated in paragraph 2 of this Part of this Schedule.

Single employer plans

5 Where the Investors agree that following the relevant date of Completion a plan should continue as or be converted to a single employer plan, subject to applicable legal and regulatory provisions, the Investors will agree who will be the principal sponsoring employer. This could be a company within one of the Acquired Businesses or the Retained Business. This will normally be the company which is currently the principal sponsoring employer, but may be changed by agreement if the current membership of the plan is inconsistent with this. To the extent that this results in one Acquired Business or the Retained Business taking responsibility for Liabilities for former employees of another Acquired Business or the Retained Business (as the case may be), a valuation adjustment amongst the involved Acquired Business(es) and/or the Retained Business will be made in accordance with the financial position of the plan on an IAS19 basis (including allowance for discretionary benefits where this has been incorporated previously in the IAS19 valuation).

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Cessation of participation

6 If a company within the Acquired Businesses or the Retained Business ceases to participate in a plan, the Investors will use reasonable endeavours to procure that a transfer value is paid from that plan to a new plan for employees of that Acquired Business or Retained Business or company within that business (in respect of current employees and/or former employees). The Investors will agree a proposed transfer value basis to be put to the trustees or managers of the plan.

7 To the extent that the transfer value actually paid differs from the value of the Liabilities transferred on an IAS19 basis multiplied by the funding level of the plan on the IAS19 basis, a cash adjustment will be due between the Acquired Businesses and/or Retained Business which accords with the general principles stated in paragraph 2 of this Part of this Schedule. The Investors will cooperate to ensure that any adjustments are applied in as tax efficient manner as possible.

8 The Investor which either is or owns the continuing principal sponsoring employer of any pension plan will indemnify and hold harmless in full each member of the Retained Group (whilst such member remains part of the Retained Group) and each of the other Investors and members of their respective Groups — being, for this purpose, in the case of RBS, the Wider RBS Group — (including, for this purpose their Acquired Companies whilst such Acquired Companies are members of the ABN AMRO Group or the relevant Investor’s Group in respect of any actions, proceedings, costs, claims and demands, incurred by any of those other Investors and members of their Groups (including their Acquired Companies), in relation to any liability arising in respect of that pension plan. The Investors agree that any liability incurred as a result of the indemnity in this paragraph 8 will not constitute a liability that is recoverable under paragraph 7.1 of Part 1 of Schedule 1 in respect of pension liabilities relating to any of the pension plans and each such Investor undertakes not to seek to rely on the indemnity under paragraph 7.1 of Part 1 of Schedule 1 in respect of such liabilities.

9 Where a company within the Acquired Business or Retained Business ceases to participate in a plan, it will procure alternative pension provision for future service if it is required to do so by applicable legal or regulatory provisions.

Defined contribution plans and unfunded pension liabilities

10 The principles stated in this Part of this Schedule will be modified as appropriate as follows:

(c) the general principles stated above apply mutatis mutandis to defined contribution plans and, where possible, unfunded pension Liabilities;

(d) to the extent that any unfunded pension Liabilities or any excess of funding in any plan cannot be allocated to any Acquired Businesses and/or the Retained Business by applying the foregoing principles, such unfunded pension Liabilities or any excess of funding will be allocated to the Retained Business and shared by the Investors in accordance with their participation in the Retained Business; and

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(e) to the extent that the Investors agree that defined contribution and unfunded pension Liabilities will be transferred under such general principles, the Investors will agree the appropriate transfer amount to be paid within a reasonable period.

General

11 The Investors acknowledge that attributing Liabilities precisely for former employees to each Investor may be difficult or impossible and will use suitable approximations where appropriate, having regard to cost.

12 The Investors acknowledge that transfers of former employees between plans may be contentious or potentially contentious in some cases, and will cooperate to ensure that former employees may remain in their existing plan where this is appropriate and accords with the general principles stated in paragraph 2 of this Part of this Schedule.

13 The Investors agree that if any dispute arises in respect of pensions then it shall be determined in accordance with Clause 9 of this Agreement save that the Investors may agree that the dispute will be determined by an independent actuary instead of an Independent Accountant, in which case references in Clause 9 to Independent Accountants shall be read as references to an independent actuary and references in Clause 9 to the President of the Institute of Chartered Accountants shall be read as references to the President of the Institute of Actuaries.

14 This paragraph 14 of this Part of this Schedule applies in respect of all pension plans in relation to which payments had not yet been made in accordance with paragraph 5 and (where applicable) paragraph 7 of this Part of this Schedule before the effective date of the Dutch legal demerger (afsplitsing) of certain assets and liabilities of RBS NV to ABN AMRO Bank, which occurred on 6 February 2010 (such pension plans the “Outstanding Plans”). The provisions in paragraphs 1 to 13 of this Part 5 of this Schedule 1 apply to the Outstanding Plans with the following exceptions:

14.1 In respect of the Outstanding Plans, no valuation adjustment shall be carried out in accordance with paragraph 5 of this Part of this Schedule and no cash adjustment will be due in accordance with paragraph 7 of this Part of this Schedule. Instead, in accordance with and pursuant to a “Pensions Unbundling and Settlement Deed” entered into by RBS, Santander, the State, the Company, ABN AMRO Bank and Fortis Investment Management N.V. dated 1 April 2010 (the “Pensions Unbundling and Settlement Deed”), RBS and Santander shall each make the following one-off payments to ABN AMRO Bank:

14.1.1 a compensation payment in respect of future administration expenses of the Dutch Outstanding Plans equal to the following amounts:

(i)	RBS: EUR 14.1 million; and
(ii)	Santander: EUR 1.5 million;

14.1.2 a compensation payment in respect of the future cost of purchasing annuities in respect of liabilities relating to the Dutch Outstanding Plans equal to the following amounts:

(i)	RBS: EUR 21.1 million; and
(ii)	Santander: EUR 1.8 million.

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14.2 In respect of the Dutch Outstanding Plans, where the Investors or any of members of their Groups (including their Acquired Companies) cease participating in such pension plans, the relevant party will use reasonable endeavours to procure that a transfer value is paid from that Dutch Outstanding Plan to a new plan for relevant employees who participated in the Dutch Outstanding Plan (in respect of current employees and/or former employees) and that the relevant Investor or member of its Group (including their Acquired Companies) will apply the “opt-out mechanism” in respect of the Dutch Outstanding Plans, so that all relevant individual members will be informed that their accrued pension will be transferred to the new plan, unless they object within a certain specified period.

14.3 The policy of the trustees of the Dutch Outstanding Plans in the case of a transfer value basis referred to under paragraph 6 of this Part of this Schedule is to transfer assets that are the multiplication of the liabilities on an FTK-basis (Financieel ToetsingsKader) with, as a minimum, the lower of its funding ratio (calculated on the same FTK- basis) and the funding ratio of the receiving fund. In any event, the minimum transfer value will be at least as great as that which is required under the Decree on the implementation of the Pension Act and the Act on Compulsory Membership of an Occupational Pension Scheme (both Acts in the Netherlands, “Besluit uitvoering Pensioenwet en Wet verplichte beroepspensioenregeling”). If the transfer value calculated by the trustees of the Dutch Outstanding Plans is lower than the minimum transfer value set out in this paragraph 14.3 of this Part of this Schedule, notwithstanding the obligation on RBS under paragraph 6 of this Part of this Schedule, RBS may refuse to accept a transfer from the relevant Dutch Outstanding Plan. For the avoidance of doubt, a refusal by RBS to accept a transfer in accordance with this paragraph 14.3 of this Part of this Schedule will not lead to an obligation to pay compensation in excess of the compensation referred to in paragraph 14.1.1 and 14.1.2 of this Part of this Schedule.

14.4 With the exception of the payment obligations under the Pensions Unbundling and Settlement Deed and payment of any transfer value in accordance with paragraph 6 of this Part of this Schedule, the Investors agree that none of the Investors or members of their Groups (including their Acquired Companies) shall have any further liability to make any payment, valuation adjustment or cash adjustments to any other Investor or members of their respective Groups (including their Acquired Companies) in respect of any of the Outstanding Plans.

14.5 To the extent that there is any conflict between this Agreement and the Pensions Unbundling and Settlement Deed then the wording in the Pensions Unbundling and Settlement Deed shall prevail over this Agreement. For the avoidance of doubt, to the extent that the provisions of the Pensions Unbundling and Settlement Deed do not relate in any way to any provision of this Agreement, the Pensions Unbundling and Settlement Deed and this Agreement shall not be deemed to conflict.

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Schedule 1 – Part 6
Intellectual Property

1 In this Agreement:

“ABN AMRO Trade Marks” shall have the meaning given to it in the RBS Transitional Trade Mark Licence;

“ABN AMRO Device Trademark” shall have the meaning given to it in the Santander Transitional Trade Mark Licence;

“Intellectual Property” means trade marks, service marks, trade names, logos, domain names, get-up, patents, inventions, design rights, copyrights, neighbouring rights and moral rights, know-how, semi-conductor topography rights, database rights and all other similar rights which may subsist in any part of the world, whether or not such rights are registered, including, without limitation, any registrations of such rights and applications and rights to apply for such registrations;

“RBS Transitional Trade Mark Licence” means the transitional trade mark licence entered into between RBS NV and ABN AMRO Bank on 5 February 2010, as amended from time to time; and

“Santander Transitional Trade Mark Licence” means the transitional trade mark licence entered into between Santander, Banco Santander (Brasil) S.A. and ABN AMRO Bank on 5 February 2010.

2 The parties recognise that as part of the transfer of the Acquired Businesses to the Investors the Acquired Business Assets for each Acquired Business shall include the Intellectual Property assets and related contracts which are exclusively or principally used by that Acquired Business. Nothing in this Part of this Schedule shall affect the ownership of these assets or the validity of the related contracts.

3 At any time a party may make a written request for a licence to use a particular item of Intellectual Property owned by another party and in existence as at 10 October 2007 (other than the ABN AMRO Trade Marks to which the RBS Transitional Trade Mark Licence shall apply and the ABN AMRO Device Trademark to which the Santander Transitional Trade Mark Licence shall apply) and the relevant parties agree that within 90 days following such notice that they shall negotiate in good faith and use their best endeavours to agree any such request — with consent not being unreasonably withheld — with the intention that each of the RBS, Santander and State Acquired Businesses and the Retained Business shall be able to continue to operate without hindrance and for no additional consideration in the manner in which they operated immediately prior to the relevant Completion Date. Unless agreed otherwise the licence shall be non-exclusive, royalty-free, world-wide and perpetual, so far as the licensor is able to grant such a licence at no additional cost.

4 The parties acknowledge that much of the know-how owned or used by the RBS Holdings Group and Acquired Businesses is and will remain of a confidential nature and agree to take reasonable and appropriate steps to ensure that confidentiality is preserved following the transfer of the Acquired Business Assets and in the future conduct of the businesses to be carried on by the Acquired Group and the Retained Group.

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5 Any dispute in respect of the matters in this Part of this Schedule which is not resolved by agreement between the parties within 60 Business Days of such dispute arising (such 60 Business Days to commence, for the purposes of any dispute pursuant to paragraph 4 of this Part of this Schedule, on expiry of the 90-day period referred to in that paragraph) shall be determined in accordance with Clause 9 of this Agreement save that:

(a) references in Clause 9 to the Independent Accountants shall, for the purposes of this Schedule, be read as references to a single QC who is an expert in Intellectual Property in London, England, or, if the relevant parties jointly consider it to be more appropriate, an expert of equivalent seniority in the jurisdiction in which the Intellectual Property asset in question subsists; and

(b) references in Clause 9 to the President of the Institute of Chartered Accountants shall be read as references to the President of the Law Society.

The objective of the expert determination pursuant to this paragraph, (i) in the case of a Wrong Box Asset claim relating to Intellectual Property, shall be to determine which business has the strongest claim to ownership of the relevant Intellectual Property on a worldwide basis, taking into account which business has invested the most in creating, developing and promoting the relevant Intellectual Property to date, and, (ii) in the case of a request for a licence under paragraph 4 of this Part of this Schedule, shall be to determine fair and reasonable terms for such licence.

6 Without prejudice to Clause 20.10 of this Agreement, each party shall, and the Company shall use its reasonable endeavours to procure that any relevant third party shall, do all such things and execute all such documents as may reasonably be requested by any other party for the purposes of giving full legal effect to the provisions of this Part of this Schedule, including in order to vest or perfect title to any Intellectual Property, to record such title with any relevant registry or to apply for registration in respect of any new Intellectual Property at any registry.

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Schedule 1 – Part 7
Real Estate

1 The parties shall use their reasonable endeavours to agree that the rights transferred pursuant to Clause 5 and the remaining provisions of this Schedule relating to real estate (including licenses, easements, rights of way and other similar rights) are sufficient to enable each of the Acquired Businesses and the Retained Business to be carried on in the ordinary course.

2 Until such time as specific real estate is allocated between the Acquired Businesses and/or to the extent that premises or real estate rights are shared between Acquired Businesses or between one or more Acquired Businesses and the Retained Business, both the costs and the benefits of such premises, or rights of such premises, shall be shared or allocated between the relevant Investors or members of the RBS Holdings Group in accordance with the principles set out in Clause 5 of this Agreement and in the Leasing Principles and Treatment of Property Stranded Costs Principles.

3 Without limitation, the parties shall use their reasonable endeavours to agree the following in addition to but following the general principles set out in paragraphs 1 and 2 of this Schedule 1 Part 7:

3.1 where premises are shared, which Acquired Business will retain ownership of the property or relevant lease and the basis of occupation of the other Acquired Businesses including any rent or licence fee to be paid for such occupation by the other Acquired Businesses, how long such occupation will last and the other terms of such occupation;

3.2 where premises are shared, how existing services provided in respect of the relevant property are to be provided to all the relevant Acquired Businesses;

3.3 if any properties are held by a specific real estate holding company, which Acquired Business will own such entity and how the other Acquired Businesses will continue to occupy;

3.4 how guarantees already in place from one Acquired Business in respect of the occupation of real estate by another Acquired Business are to be dealt with;

3.5 which Acquired Business will be responsible for historic liabilities (including, but not limited to, environmental and regulatory liabilities) in respect of which properties;

3.6 that transfers of any properties or interests in any properties are carried out in the most tax efficient way for the Acquired Businesses involved; and

3.7 where the Acquired Businesses are controlled by, or consolidated into, any of the Investors, or otherwise leave the RBS Holdings Group, and this results in breaches of existing leases or licences, or adversely affects any ongoing occupations or ongoing disposals (by termination or otherwise), how this is to be dealt with.

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4 Subject to paragraph 5 of this Schedule 2 Part 8, any dispute in respect of the matters in this Part of this Schedule which is not resolved by agreement between the parties within 60 Business Days of such dispute arising shall be determined in accordance with Clause 9 of the Agreement, but for the purposes of determining disputes where real estate assets are the primary disputed assets:

4.1

in England and Wales, the relevant parties shall appoint a chartered surveyor in the relevant jurisdiction or (in relation to legal issues) a single QC well versed in real estate law who shall determine any dispute arising as an expert and not as an arbitrator and in the absence of any agreement as to such a chartered surveyor or QC, the parties shall refer that appointment to the President of the Royal Institution of Chartered Surveyors or the President of the Law Society in London (as the case may be) who shall be substituted for the reference in Clause 9 of the Agreement to the “Independent Accountants”;

4.2

in a jurisdiction other than England and Wales, the relevant parties shall appoint the local (national) nearest equivalent to either a chartered surveyor in the relevant jurisdiction or (in relation to legal issues) a single QC well versed in real estate law in the relevant jurisdiction who shall determine any dispute arising as an expert and not as an arbitrator and in the absence of any agreement as to such a equivalent to a chartered surveyor or QC, the parties shall refer that appointment to the local national equivalent to the president or chairman of the Royal Institution of Chartered Surveyors or the president or chairman of the Law Society (by way of example:

4.2.1 equivalents to the Law Society of England and Wales are:

(i)	in Spain, the Colegio de Abogados de Madrid;
(ii)	in Italy, the Consiglio Nazionale Forense;
(iii)	in Brazil, the Ordem dos Advogados do Brasil; and
(iv)	in the Netherlands, the Nederlandse Orde van Advocaten;

and

4.2.2 an equivalent to the Royal Institute of Chartered Surveyors in London in Spain is the Colegio Oficial de Aparejadores y Arquitectores Tecnicos de Madrid)

who shall be substituted for the reference in Clause 9 of the Agreement to the “Independent Accountants”; or

4.3 across more than one jurisdiction, this shall be determined in accordance with Clause 9 of this Agreement.

5 Any dispute where real estate assets are the primary subject matter of the dispute, and the circumstances involve operations from one or more real estate assets being significantly adversely affected; and/or may result in any Investor being seriously reputationally adversely affected; shall be dealt with as follows:

5.1 immediately an Investor is aware of a dispute or the potential of a dispute, it shall notify the other Investors of all relevant facts of the dispute of which it is aware (acting in good faith), such notice to be served following the requirements of Clause 21;

5.2 following service of notice on all Investors under paragraph 5.1 of this Schedule 2 Part 8, the Investors shall use all reasonable endeavours to resolve the dispute within 2 Business Days in a just and equitable manner;

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5.3 failing agreement being reached under paragraph 5.2 of this Schedule 2 Part 8, the dispute shall be immediately referred to:

5.3.1	in the case of RBS, the Chief Administrative Officer of the RBS Group;
5.3.2	in the case of State, the Director of Financieringen; and

5.3.3 in the case of Santander, Chief Technology and Operations Officer, reporting directly to the Chief Executive of Santander;

which shall use all reasonable endeavours to resolve the dispute within 2 Business Days in a just and equitable manner;

5.4 failing agreement being reached under paragraph 5.3 of this Schedule 2 Part 8, the dispute shall be immediately referred to the Chief Executive of each Investor which shall use all reasonable endeavours to resolve the dispute within 2 Business Days in a just and equitable manner.

5.5 if agreement is still not reached under paragraph 5.4 of this Schedule 2 Part 8, then the dispute shall be resolved in accordance with paragraph 4 of this Schedule 2 part 8 in all respects, except that the first part of paragraph 4 shall be replaced with the following words

“any dispute in respect of the matters in this Part of this Schedule shall be determined in accordance with Clause 9 of the Agreement, but for the purposes of determining disputes where real estate assets are the primary disputed assets:

[and the remainder of paragraph 4, being 4.1 ...4.3, are read in full, unchanged]”

and for the avoidance of doubt the parties shall in this circumstance not wait 60 Business Days before referring the matter for determination under Clause 9 (with the amended references to Clause 9 provided for under paragraph 4 of this Schedule 2 Part 8).

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Schedule 1 – Part 8
Regulatory Matters

1 The parties agree that RBS will take lead responsibility for running the RBS Holdings Group.

2 For the avoidance of doubt and notwithstanding any other provision of this Agreement (other than Clause 13), each of the Investors acknowledges that (subject to paragraph 3 below) the Company shall be governed and operated in accordance with the governance, risk management and systems and controls policies and procedures reasonably determined by RBS from time to time to be necessary or desirable to ensure that the Company, RBS Holdings Group and each RBS Holdings Group Company are managed in accordance with the regulatory requirements applying under applicable laws and regulations (including, in particular that RBS Holdings, RBS NV and ABN AMRO Bank are Dutch companies regulated by DNB).

3 Without prejudice to the provision of paragraph 2 above and to the extent acceptable to the DNB and any other Regulator and solely to the extent applicable to any State Acquired Businesses or Santander Businesses that are owned by the RBS Holdings Group, RBS shall have regard to the governance, risk management and systems and controls requirements which apply to the Investors and their respective Groups under applicable laws and regulations and which are notified from time to time in writing to RBS by the State and Santander, respectively. In addition, the Investors acknowledge that groups of Regulators may from time to time reach understandings in relation to the management of the Company and the RBS Holdings Group. The Investors agree to use all reasonable endeavours to ensure that all such understandings communicated to the Company are properly implemented.

4 In exercising its rights and fulfilling its duties under or pursuant to this Agreement with respect to the RBS Holdings Group, the Company will act, and the Investors shall procure that the Company shall act, in accordance with the policies and procedures determined by RBS pursuant to paragraph 2 above.

5 None of the parties shall do or omit to do anything which causes any of the other parties, any member of their respective Groups or any member of the RBS Holdings Group to breach any applicable law or regulatory requirement. Each party will co-operate with each other party with a view to ensuring (insofar as it is reasonably able and subject to applicable law and regulations and the provisions of this Agreement) that for as long as any Acquired Business, Retained Business and/or RBS Holdings Group Company is the subject of clauses 5 and 6 of the Agreement, such company will conduct its affairs in compliance with the applicable regulatory requirements of each relevant Regulator.

6 Each party will co-operate with each other party with a view to ensuring (insofar as it is reasonably able and subject to applicable law and regulations and the provisions of this Agreement) that any information relating to the Company or any RBS Holdings Group Company which is required under applicable laws and regulations, or is requested by a relevant Regulator, to be provided by an Investor or a member of its Group to a relevant Regulator is made available to that Investor for it or the relevant member of its Group to provide to that Regulator.

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7 Subject to applicable laws and regulations and the following provisions of this paragraph 7:

7.1 the Company shall notify each of the Investors of any communication received by it from any relevant Regulator in relation to the latter’s regulation of the RBS Holdings Group as soon as reasonably practicable after receipt thereof;

7.2 each of the Investors shall be entitled to make representations to the Company to assist it in responding to any such communication; and

7.3 none of the Investors shall object to the other Investors (or their representatives) attending at any meeting or on any call between the Company and a relevant Regulator.

8 Notwithstanding the foregoing, each Investor acknowledges that it shall not be entitled to receive notice of any communication under paragraph 7.1 above, or to make representations pursuant to paragraph 7.2 above, or to attend or participate at any meeting or on any call between the Company and any Regulator, if (i) that Regulator objects (for whatever reason), or (ii) the Investor has no material interest in the specific subject matter which is the subject of the communication, meeting or call.

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Schedule 1 – Part 9
Tax Matters

1 Tax Agreements

1.1 The parties acknowledge that the following Tax Agreements have been or will be entered into between the parties and that certain matters that would otherwise fall within the scope of the provisions of this Schedule 1 — Part 9 may be covered by such Tax Agreements:

(i)	the Separation Tax Agreement;
(ii)	the Tax Segregation Agreement;

(iii) the Global Tax Agreement between RBS, the State, RBS NV and ABN AMRO Bank relating to the allocation of certain tax liabilities related to certain relevant Acquired Businesses and certain other Tax matters in relation thereto; and

(iv) other Tax Agreements relating to the allocation of Tax liabilities related to Acquired Businesses in particular jurisdictions (including Luxembourg, Belgium, Singapore, Germany, Hong Kong, Japan and the USA) and certain other Tax matters in relation thereto.

The parties further acknowledge that further Tax Agreements may be entered into following the date of this Agreement.

1.2 The parties acknowledge that in relation to the Completed Restructuring, the provisions of the Original CSA applied in respect thereof (subject to the provisions of any Tax Agreement where relevant) and that the amendment and restatement of the Original CSA is without prejudice to the rights and obligations of the parties under the Original CSA or any Tax Agreement in relation to the Completed Restructuring.

1.3 In the case of conflict between the relevant provisions of any Tax Agreement and the relevant provisions of this Agreement (or the Original CSA where applicable), the relevant Tax Agreement shall prevail in respect of matters covered by the relevant Tax Agreement, unless explicitly agreed otherwise in this Agreement or the relevant Tax Agreement. In the case of any matter which has not been agreed for the purpose of a Tax Agreement, the principles in this Part 9 shall apply.

2 Tax efficiency

2.1 The parties acknowledge that Clause 5 requires the Further Restructuring to be implemented in a manner that is as efficient for all parties and the RBS Holdings Group as is reasonably practicable from a tax point of view (subject to other non-Tax constraints and considerations) and the parties also acknowledge that the same principles applied to the Completed Restructuring. The parties acknowledge that this shall involve using all reasonable endeavours to:

2.1.1 minimise the total Taxes (including not incurring such Taxes) which may arise on the Further Restructuring (including Transfer Taxes);

2.1.2 subject to Clause 2.1.1, maximise the availability and benefit of Tax Reliefs (taking into account the ability of the parties to utilise such Tax Reliefs and any other benefits which may be available);

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2.1.3 subject to Clause 2.1.1, procure that transfers of businesses pursuant to the Further Restructuring are not subject to VAT (for example by endeavouring to ensure that any applicable conditions for such transfers to be treated as transfers of going concerns for VAT purposes are satisfied);

2.1.4 facilitate the distribution of cash (in the case of assets that have been sold for cash pursuant to the Further Restructuring) from the Company and RBS Holdings Group Companies in a tax-efficient manner;

2.1.5 facilitate the making of distributions pursuant to clause 15 of this Agreement in a tax efficient manner;

2.1.6 to the extent possible and consistent with the other principles in this Agreement, maximise deductions for costs attributable to the Retained Business (in particular head office costs), including by way of recharging such costs where appropriate;

2.1.7 procure that indemnity payments, adjustments and allocations in connection with this Agreement and the Tax Agreements are structured in a tax-efficient manner to the extent possible.

3 Allocation of Taxes

The cost of the following Taxes shall be allocated between the Investors as follows, subject to any agreement between the parties to the contrary:

3.1 Taxes payable or suffered by a RBS Holdings Group Company or a New Company in connection with the direct or indirect transfer of any Retained Company or Retained Business or part thereof pursuant to the Further Restructuring, and any distribution of proceeds in connection with any cash sale of a Retained Business or Retained Company shall be allocated in Consortium Proportions.

3.2 Taxes payable or suffered by a RBS Holdings Group Company or a New Company in connection with the direct or indirect transfer of any Santander Acquired Company or Santander Acquired Business to Santander or a member of its Group or to a New Company to be acquired by Santander pursuant to the Further Restructuring, and any distribution of proceeds in connection with any cash sale of a Santander Acquired Business or Santander Acquired Company shall be allocated to Santander.

3.3 Taxes payable or suffered by a RBS Holdings Combined Group Company or a New Company in connection with the direct or indirect transfer of any State Acquired Company or State Acquired Business to the State or a member of its Group or to a New Company to be acquired by the State pursuant to the Acquired Business Further Restructuring, and any distribution of proceeds in connection with any cash sale of a State Acquired Business or State Acquired Company shall be apportioned between the State and RBS in the Adjusted Consortium Proportions subject to adjustment to reflect any breach by the State or RBS of their obligations under Clause 2 above.

3.4 Taxes payable or suffered by an RBS Holdings Group Company or a New Company in connection with the direct or indirect transfer of any RBS Acquired Company or RBS Acquired Business to RBS or a member of its Group or to a New Company to be acquired by RBS pursuant to the Further Restructuring, and any distribution of proceeds in connection with any cash sale of a RBS Acquired Business or RBS Acquired Company shall be apportioned between the State and RBS in the Adjusted Consortium Proportions subject to adjustment to reflect any breach by RBS or the State of their obligations under Clause 2 above.

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3.5 Tax payable or suffered by an RBS Holdings Group Company or a New Company in connection with any transfer of assets contemplated by paragraph 7.3 of Schedule 1 Part 1 shall be allocated to the transferee.

3.6 Subject to Paragraph 3.7, Taxes payable by an Investor or a member of the Investor’s Group (excluding for the avoidance of doubt any RBS Holdings Combined Group Company or any New Company) in the jurisdiction in which such person is resident for Tax purposes (including Taxes payable in respect of the Further Restructuring including the distribution of assets or cash to them pursuant to Clause 15 of this Agreement or the Further Restructuring) shall be borne by the relevant Investor (or Group member).

3.7

Taxes arising in connection with payments pursuant to indemnity and adjustment provisions in this Agreement (including paragraph 7 of Schedule 1 Part 1 other than paragraph 7.3 in respect of which paragraph 2.6 applies) or pursuant to the Tax Agreement shall be allocated to the party making the payment where such payment is made pursuant to Paragraph 7.1 of Schedule 1 Part 1 or under the Tax Agreement or otherwise relates to a Liability of the paying party or is attributable to a breach or other default of such party. In other cases, such Taxes shall be allocated on a basis which it is agreed or determined produces a fair and reasonable result in accordance with the general principles in this Agreement.

3.8

Other Taxes shall be allocated as follows:-

• in the case of Taxes that relate solely to the RBS Acquired Business, to RBS;

• in the case of Taxes that relate solely to the State Acquired Business, to the State;

• in the case of Taxes that relate solely to the Santander Acquired Business, to Santander;

• in the case of Taxes that relate solely to the Retained Business (which the parties agree shall include Taxes that relate to activities which have been terminated but which cannot be attributed to the Acquired Business of one or more Investors), in the Consortium Proportions;

• in the case of Taxes payable or suffered by a company which has carried on more than one Acquired Business or an Acquired Business and Retained Business, where such Taxes cannot be attributed solely to one Acquired Business or Retained Business, to the relevant Investors in appropriate proportions determined by reference to the extent to which the relevant company carried on each business;

• in the case of Taxes which cannot be attributed to any Acquired Business or Retained Business (the parties having used best efforts to so attribute such Taxes), in the Consortium Proportions.

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Unless otherwise agreed, it shall be assumed that Taxes payable in respect of transactions which are taken into account in the profit and loss account of a particular business relate to that business, save in the case of transactions effected on non-arm’s length terms between businesses acquired by different Investors. In the case of Dutch corporate income tax, the parties acknowledge that, except as already agreed in a Tax Agreement, the relevant profit and loss account is the segmental profit and loss account maintained for the RBS Holding corporate income tax fiscal unity adjusted for Dutch corporate income tax purposes for each relevant taxable period and that such profit and loss account will be used to determine whether there are any Taxes for the relevant period that relate to the Acquired Businesses of the respective Investors which form part of the fiscal unity.

3.9 In relation to certain Taxes within Clause 3.8 above and certain Reliefs within Clause 5 below, the parties acknowledge that certain specific principles and agreements for allocating certain Taxes and Tax Reliefs have been agreed between the Investors (including allocations of specific Taxes and Tax risks which have been identified prior to the date hereof and agreed in accordance with the procedure in Clause 9 of this Agreement). The parties acknowledge that Clause 3.5 above and the provisions of any relevant Tax Agreement shall be interpreted in accordance with such principles and agreements. The parties also acknowledge that the provisions of paragraph 3.8 and paragraph 4 below shall apply only in the case of Taxes and Tax Reliefs which are not covered by a Tax Agreement.

3.10 For the avoidance of doubt, to the extent that any RBS Acquired Company is subject to Tax on any profits attributable to a State Acquired Company (such that the relevant Tax falls to be allocated to the State in accordance with Paragraph 3.8) in circumstances where (i) no Tax Reliefs attributable to a State Acquired Business are available to the relevant RBS Acquired Company to eliminate or reduce such liability to Tax and (ii) no Tax Reliefs attributable to a RBS Acquired Business can be used to eliminate or reduce such liability to Tax in accordance with the provisions of Paragraph 4 below, the State shall fund, or procure the funding of, the relevant liability to Tax by procuring that there is paid to the relevant RBS Acquired Company (or otherwise at RBS’s direction), an amount equal to the profits in question multiplied by the relevant statutory Tax rate applicable to those profits.

3.11 Interest shall be dealt with on the following basis (unless otherwise agreed for the purpose of a specific Tax Agreement):

3.11.1 where a cash payment is made to the relevant Tax Authority which has included Interest, such interest will be allocated on the same basis as the Tax to which it relates.

3.11.2 where an Investor or any of its Acquired Companies or members of its Group settles a liability to Tax by way of payment to the relevant Tax Authority and such Tax falls to be allocated to another Investor in accordance with the principles above, the former Investor shall notify the latter Investor accordingly and the adjustments to be made between the Investors shall include interest on the amount paid at 3-month EURIBOR on a daily compounding basis from the date of payment of the Tax liability (or the date of notification in accordance with this paragraph 3.10.2 in a case where such notification is not made within 10 Business Days of payment) until such time as settlement between the Investors has occurred.

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3.11.3 Any interest that is received from a Tax Authority shall be allocated on the same basis as the Tax repayment to which it relates.

3.12 The parties acknowledge that any payment of interest on Capital and interest on GALM between the Investors shall be made net of Dutch tax at the agreed rate.

4 Tax Reliefs

4.1 It is acknowledged that the Further Restructuring may give rise to Tax Reliefs for an Investor (the “Relevant Investor”) or member of its Group or New Company or RBS Holdings Group Company which it is to acquire. Such Tax Reliefs shall be for the benefit of the Relevant Investor, save to the extent that the transaction giving rise to the Tax Relief also resulted in a Tax Liability which is to be borne or shared by another Investor in accordance with paragraph 3 hereof. In the latter case, the amount to be allocated in accordance with paragraph 3 shall be the amount by which the Tax liability exceeds the net present value of the Tax Relief and the balance shall be borne by the Relevant Investor. For the avoidance of doubt, any step up in the base cost of an asset which a party obtains as a result of the Further Restructuring shall not constitute a Tax Relief for this purpose. Further, any Tax Reliefs which arise as a result of any transaction effected by an Investor or a member of its Group after the acquisition by it of the relevant Acquired Business shall not fall within this paragraph but shall be for the benefit of such Investor.

4.2 Subject to paragraph 4.3 below, any Tax Reliefs arising to any RBS Holdings Group Company in respect of periods beginning on or before the date of completion of the Further Restructuring (other than Tax Reliefs falling within Clause 4.1 above) shall be dealt with as follows:-

4.2.1 To the extent any such Tax Relief can be used to reduce Tax liabilities which would otherwise arise on the Further Restructuring (in circumstances where the use of such Tax Relief for this purpose is in accordance with the principles in Clause 2 above), such Tax Relief shall first be used for that purpose. As between RBS and the State and in the case of any Tax Relief within paragraph 4.2.6 below, no adjustments shall be made in respect thereof. As between Santander on the one hand and the State and RBS on the other hand, save in the case of Tax Reliefs within Paragraph 4.2.6 below, adjustments shall be made between the parties to compensate the party that would otherwise have been entitled to the Tax Relief (or the value thereof) in accordance with paragraphs 4.2.2 to 4.2.5 below (the “Affected Party”) for the loss of such Tax Relief. The amount of the payment shall equal the value of the Tax Relief to the Affected Party. The remaining provisions of this paragraph shall apply to Tax Reliefs which are not used in this way.

4.2.2 To the extent that any such Tax Relief relates to a particular Acquired Business and such Tax Relief can be transferred with the relevant Acquired Business pursuant to the Further Restructuring or otherwise made available to the Relevant Investor (or any member of its Group or RBS Holdings Group Company acquired by it) without increased Tax costs, such Tax Relief shall be so transferred or made available.

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4.2.3 To the extent that any such Tax Relief relates to a particular Acquired Business and such Tax Relief cannot be transferred with the relevant Acquired Business pursuant to the Further Restructuring or otherwise made available to the Relevant Investor (or any member of its Group or RBS Holdings Group Company acquired by it) but can be used by another Investor or member of its Group or RBS Holdings Group Company acquired by it, except as already agreed in a Tax Agreement, the relevant Investors shall, prior to the relevant Tax Relief being utilised, discuss in good faith with a view to agreeing the fair and reasonable amount to be paid for the utilisation of such Tax Relief. Absent agreement, no party shall be entitled or required to use any Tax Relief or tax capacity attributable to another Investor. The parties acknowledge that specific agreement has been reached in respect of the amount to be paid for the use of Tax Reliefs in certain jurisdictions and this is reflected in the relevant Tax Agreement.

4.2.4 To the extent that any such Tax Relief is lost as a result of the acquisition of RBS NV by the Company or as a result of the Further Restructuring, no payments or adjustments shall be made between the Investors.

4.2.5 To the extent that any such Tax Relief relates to more than one Acquired Business, it shall be allocated between the relevant Investors in appropriate proportions and paragraphs 4.2.2 and 4.2.3 shall apply accordingly.

4.2.6 To the extent that any such Tax Relief does not relate to a particular Acquired Business (and cannot be allocated as described at paragraph 4.2.5, the parties having used best efforts to so allocate it) it shall be treated as an asset of the Retained Business. In the event that such Tax Relief can be used by an Investor or a member of its Group (whether the Investor which acquires the relevant RBS Holdings Group Company or any other Investor to whom such Tax Relief is made available pursuant to Clause 4.2.7),the principles in Clause 4,2,3 shall apply to determine the adjustments to be made between the Investors for the use of such Tax Reliefs, with any such adjustments being made on the basis of the Consortium Proportions.

4.2.7 In the event that a Tax Relief arises or has arisen to a RBS Holdings Combined Group Company acquired or to be acquired directly or indirectly by one Investor (the “Former Investor”) or a member of its Group and such Tax Relief can be made available to an RBS Holdings Combined Group Company acquired or to be acquired directly or indirectly by another Investor (the “Latter Investor”) or a member of its Group or vice versa, the Latter Investor shall be entitled to procure that such Tax Relief is so made available to it in priority to any third party (and the Investors will co-operate in completing any procedural formalities to facilitate this). Subject to paragraph 4.2.6, the principles in Clause 4.2.3 shall apply to determine the amount to be paid for such Tax Reliefs.

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4.2.8 In the event that a transaction has been entered into between a RBS Holdings Combined Group Company acquired or to be acquired directly or indirectly by one Investor (the “Former Investor”) or a member of its Group and a RBS Holdings Combined Group Company acquired or to be acquired directly or indirectly by another Investor (the “Latter Investor”) or a member of its Group (other than a transaction falling within paragraph 5.2.9 below) and it is subsequently determined that for any Tax purpose such transaction was not regarded as having been effected on arm’s length terms such that the Former Investor or a member of its Group is subject to Tax (or is subject to an increased amount of Tax) or is denied a Tax Relief (or is entitled to a reduced Tax Relief) in respect of such transaction, the Latter Investor shall procure that, where possible, a corresponding Tax Relief is claimed. Where such Tax Relief is claimed and can be made available to the Former Investor or a member of its Group, such Tax Relief shall be so made available. Where the Tax Relief is obtained but cannot be made available, the Latter Investor shall indemnify the Former Investor in respect of such Tax liability up to an amount equal to the net present value of the Tax Relief to the Latter Investor. Where no Tax Relief can be claimed or where the Tax liability exceeds the amount of Tax Relief that is made available or the net present value of any Tax Relief that is claimed (as appropriate), the excess shall be dealt with in accordance with the principles in paragraph 2.

4.2.9 Where under this Agreement or (prior to the date hereof) the Original CSA, it is contemplated that any member of the Retained Group or any Acquired Company or Acquired Business to be acquired by any one Investor or a member of its Group (the “Recipient”) should be supplied or should use or continue to be supplied or use assets, facilities or services of any member of the Retained Group or any Acquired Company or Acquired Business to be acquired by any other Investor or member of its Group (the “Provider”) and it is determined by any Tax authority that such provision is not made on arm’s length terms such that the Provider is subject to Tax (or to an Increased amount of Tax) or the Recipient is denied a Tax Relief (or is entitled to reduced Tax Relief) in respect thereof or vice versa such adjustments shall be made between the affected Investors to compensate for such Tax or loss of Tax Relief as is determined to be fair and reasonable.

5 Withholding Tax and VAT

5.1 All payments to be made under any indemnity, adjustment or allocation provision shall be made without deduction or withholding for or on account of Tax unless required by law. If any deductions or withholding are required by law, the party making the payment shall be obliged to pay to the other party such sum as will after such deduction or withholding has been made leave the other party with the same amount as it would have been entitled to receive in the absence of any such requirement to make a withholding or deduction, but only in circumstances where the party making such payment would be required to bear the cost of any tax payable by the recipient on receipt of the payment in accordance with paragraph 3.7. In other cases no additional amount shall be payable and the cost of the withholding tax shall be allocated in accordance with the principles in paragraph 3.7.

5.2 In a case where an additional amount is paid pursuant to paragraph 6.1 and the recipient of the relevant payment receives a credit for or refund of any Tax payable by it or similar benefit by reason of any deduction or withholding for or on account of Tax then it shall reimburse to the other party such part of such additional amounts paid to it pursuant to paragraph 6.1 above as the recipient of the payment certifies to the other party will leave it (after such reimbursement) in no better and no worse position than it would have been if the other party had not been required to make such deduction or withholding.

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5.3 Where under the terms of this Agreement one party is liable to indemnify or reimburse another party in respect of any costs, charges or expenses, the payment shall include an amount equal to any VAT thereon not otherwise recoverable by the other party in respect of which it is reasonable to conclude that the other party is not entitled to credit or repayment in respect of such VAT from the relevant Tax Authority, subject to that party using all reasonable endeavours to recover such amount of VAT as may be practicable.

5.4 If any payment under or contemplated by this Agreement constitutes the consideration for a taxable supply for VAT purposes, then in addition to that payment the payer shall pay any VAT due.

6 Tax Correspondence and Tax Disputes

The parties acknowledge that each Tax Agreement will contain provisions for dealing with Tax Correspondence and Tax Disputes in relation to Taxes within the scope of the relevant Tax Agreement. In the case of Taxes not covered by a specific Tax Agreement (and save in the case of India in respect of which Schedule 11 to this Agreement shall apply), Clause 6 of the Separation Tax Agreement shall apply (with appropriate modifications) for dealing with Tax Correspondence and Tax Disputes in relation to such Taxes.

7 Disputes

Any requirement in this Schedule for any matter to be determined between the parties shall be determined in accordance with Clause 9 of this Agreement unless otherwise agreed.

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Schedule 2
The Retained Business

1 The Company shall procure that the Retained Business shall be managed by RBS NV for the benefit of all the Investors. Save as otherwise expressly provided in this Agreement (including in particular Clause 5.5 of this Agreement), all transactions and dealings between the Retained Business and any Acquired Business shall be on arm’s length terms. The parties have agreed that in relation to the assets listed in paragraph 2 of Schedule 1 Part 3, the management of the Retained Business by RBS NV prior to 30 June 2011 shall involve taking the actions set out in the table in relation to each of the relevant assets.

2 Reasonable costs incurred by RBS NV through the performance of its duties to manage the Retained Business shall be charged to the Retained Business in accordance with Part B of Schedule 9, unless otherwise approved by the Investors (such approval not to be unreasonably withheld). Any costs charged to the Retained Business pursuant to this paragraph 2 shall be Liabilities of the Retained Business for the purposes of paragraph 6 below.

3 Having regard to the prevailing market conditions and subject always to all applicable legal or other regulatory requirements, the Board shall use reasonable endeavours to sell, liquidate or otherwise manage all assets forming part of the Retained Business to maximise the value realised on the sale or liquidation of or other process relating to such assets including, in relation to the assets listed in paragraph 2 of Part 3 of Schedule 1, taking such action as is set out in paragraph 2 of Schedule 1 Part 3. Subject to the foregoing and the further provisions of this Schedule 2, RBS NV shall determine the timing and manner of any sale, liquidation or other process. Prior to 30 June 2011, Investors shall be entitled to participate in any auctions of assets to be sold in the manner contemplated in this Schedule 2. Following 30 June 2011, Investors shall be entitled to participate in any auctions of assets to be sold in accordance with paragraphs 11 and 12.

4 Direct costs borne centrally in accordance with Part A of Schedule 9 shall be borne by RBS NV and shall be accounted for as part of the Retained Business. The paragraph shall have effect subject to the provisions of Schedule 1 to the extent that they provide for the bearing of costs in a different manner.

5 The intention of the parties is to complete the actions set out in paragraph 3 above by 30 June 2011.

6 Without prejudice to paragraph 7.2 of Part 1 of Schedule 1, Liabilities (including, without limitation, any direct costs borne by the RBS NV in accordance with paragraph 4 and any charged under paragraph 2 above) of the Retained Business shall be borne by the Retained Group (and therefore, indirectly, by the Investors in their respective Consortium Proportions). If and to the extent that additional funding is required to meet the Liabilities of the Retained Business, the Company shall procure, to the greatest extent possible, that Liabilities of the Retained Business are funded first by available cash accounted for as part of the Retained Business, and if insufficient, by further funding provided by RBS, Santander and the State in accordance with Clause 13.

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7 The Board shall procure that Santander, the State and RBS are notified promptly of all material and relevant events relating to the Retained Business, including (without limitation):

7.1	any request from Saudi Hollandi Bank for further funding;
7.2	any decision by Saudi Hollandi Bank to cease trading;
7.3	any insolvency proceedings being threatened against Saudi Hollandi Bank;
7.4	any funding requests or commitments relating to the Retained Business;

7.5 the identification of any previously unidentified material liabilities within the Retained Business, and any material increase in the liabilities identified within the Retained Business as at the date of this Agreement;

7.6 any other event or information relating to the Retained Business, which the Company or RBS NV considers (in their respective reasonable discretions, but taking into account any matters notified to the Company and RBS NV as being relevant for this paragraph 7.6) to be material in the context of Retained Business; and

7.7 such other information as may reasonably be requested by an Investor, provided that the Investor pays any additional reasonable costs incurred by the Company and/or RBS NV in producing such information which not otherwise have been incurred,

provided that the rights of the Investors under this paragraph 7 shall be subject to the duties of the Managing Board of RBS Holdings and shall not be exercised so as to cause any disruption in the business of the RBS Holdings Group or any breach of applicable law or regulation by the RBS Holdings Group.

8 Notwithstanding paragraph 1 of this Schedule 2 but subject always to any applicable law, regulation and Clause 13, the Company undertakes for the benefit of each Investor to procure that RBS NV shall not carry out any of the following in relation to the Retained Business without the approval of all of the Retained Business Representatives (such approval not to be unreasonably withheld):

8.1 the taking of steps in respect of any member of the Company’s Group which is a member of the Retained Group to:

8.1.1	wind up or dissolve such Group Company;
8.1.2	obtain an administration order in respect of such Group Company;
8.1.3	invite any person to appoint a receiver or receiver and manager of the whole or any part of the business or assets of such Group Company;

8.1.4 make a proposal for a creditors’ voluntary arrangement in respect of such Group Company; and

8.1.5 do anything similar or analogous to those steps referred to in paragraphs 8.1.1 to 8.1.4 above, in any other jurisdiction;

8.2 any capital expenditure in excess of *** (in respect of an individual item or a series of related items);

8.3 the entry into, termination or variation of any material contract or arrangement between any member of the Retained Business and an Investor or an Investor Group member, other than (i) as expressly provided for in this Agreement; or (ii) a contract on arm’s length terms in the ordinary course of business;

^*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

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8.4 the entry into of any joint venture, partnership, consortium or other similar arrangement other than in the ordinary course of business;

8.5 save as provided in the Litigation Management Agreement, or the Separation Tax Agreement, the commencement or settlement of any single litigation, arbitration or other proceedings with an individual value or expected value of greater than or equal to €250,000 (excluding costs) or the commencement or settlement of any series of related litigations, arbitrations or other proceedings with an aggregate value or expected value of greater than or equal to €500,000 (excluding costs) or such other litigation if an Investor has notified the Company and the other Investors that the litigation is of material importance to that Investor as a result of reputational or political sensitivities;

8.6 the acquisition of any individual company or undertaking for consideration in excess of €250,000 or any series of related acquisitions where the aggregate consideration is in excess of €500,000, provided that if such acquisition is in the ordinary course of business for the relevant Retained Business and would not require approval by RBS NV as part of the internal management and risk policies of the RBS Holdings Group, no consent shall be required pursuant to this paragraph 8. Where such acquisition is a transaction with an Investor or a member of an Investor’s Group, the approval of each Shareholder will be required irrespective of the consideration;

8.7 (i) the sale or disposal of any individual company or undertaking for consideration or with a book value in excess of €250,000 or any series of related disposals where the aggregate consideration is in excess of €500,000, provided that if such sale or disposal is in the ordinary course of business for the relevant Retained Business, and the internal management and risks policies of the RBS Holdings Group would not require RBS NV to approve the disposal, no consent shall be required pursuant to this paragraph 8 or (ii) the sale or disposal of any individual company or undertaking to an Investor or a member of an Investor’s Group;

8.8 save as provided in the Litigation Management Agreement, or the Separation Tax Agreement, any agreement, settlement or other compromise of any liability in the Retained Business, except where the agreement, settlement or other compromise is equal to or less than a provision made in the accounts of the Retained Business and where such provision has been previously approved by the board of RBS NV;

8.9 any decision of RBS NV which would give rise to a requirement for further capital, liquidity, funding, guarantee, collateral or security in relation to the Retained Business; and

8.10 the entry into any contract which is (i) outside the course of the Retained Business Wind Down; (ii) not on arm’s length terms; or (iii) material in the context of the Retained Business. For the purposes of this paragraph 8.10, “material” shall mean any individual contract the value of which is greater than or equal to €250,000 per annum or any series of related contracts the value of which is greater than or equal to €500,000 in aggregate and any contract which has a term of more than one year,

provided that in relation to any proposed action which has been agreed by the parties as set out in paragraph 2 of Schedule 1 Part 3 in respect of the assets specified therein (excluding any proposed sales which are not, as at the date of this Agreement, agreed by RBS NV with a third party), no approval of the Retained Business Representatives under this paragraph 8 shall be required prior to RBS taking such action and provided that if consent is granted in relation to any matter in accordance with this Schedule, only one consent shall be required notwithstanding that more than one sub-paragraph of this paragraph 8 may apply to that matter;

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9	In relation to the Retained Business, and subject to any regulatory or other legal requirements, the information to be provided pursuant to Clause 11.2 shall comprise:
9.1	the Retained Business Blue Book;

9.2 a comprehensive overview of the capital and funding position of each Investor in relation to the Retained Business, as contemplated by Clause 13; and

9.3 update packs that are prepared from time-to-time by RBS NV for the purposes of updating the Managing Board of RBS NV or delegates of that board on the progress of unwinding the Retained Business Wind Down.

10 If the Retained Business Wind Down has not completed by 30 June 2011, paragraph 8 of this Schedule shall cease to have effect to the extent necessary (as determined by RBS NV acting reasonably) to implement the Retained Business Wind Down and RBS NV shall be entitled to conduct the Retained Business Wind Down as it sees fit, including without limitation taking the actions set out in paragraphs 10.1 and 10.2, but subject always to paragraphs 10.3, 10.4 and 10.5:

10.1 to sell all or part of the Retained Business to one or more third parties, provided that, subject to applicable law and regulations:

10.1.1

RBS NV accounts for any net proceeds of sales of assets forming part of the Retained Business (after satisfying any Liabilities of the Retained Business, including any arising out of or in connection with such sales, including, without limitation, professional costs and any Liabilities associated with any warranties or indemnities given in connection with such sale) to the Investors in the Consortium Proportions in accordance with Clause 15 and any Tax liabilities arising on such sales shall be dealt with in accordance with Part 9 of Schedule 1; and

10.1.2

the provisions of paragraph 11 are adhered to;

10.2 to determine that all or part of the Retained Businesses shall not be sold for value to a third party but shall be acquired by the Wider RBS Group (either by reallocating the Retained Business as RBS Acquired Businesses, save for the purposes of paragraphs 7.1 and 7.2 of Schedule 1 Part 1 of this Agreement or by purchasing all or part of the Retained Business), provided that:

10.2.1 RBS obtains a Valuation Range for the Retained Business (or part thereof) in accordance with paragraph 13;

10.2.2 either RBS (i) offers a price greater than the lowest point of the Valuation Range or (ii) with the consent of the State and Santander (such consent not to be unreasonably withheld taking into account, inter alia, the number of potential purchasers for the Retained Business (or part thereof), any restrictions on the transfer of the relevant business imposed by a Regulator and any other applicable impediments to transfer), offers a price less than the lowest point of the Valuation Range; and

10.2.3 RBS pays to the State and Santander their respective Consortium Proportions of the consideration offered pursuant to paragraph 10.2.2;

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10.3 in relation to Saudi Hollandi Bank, RBS NV shall only be entitled to sell its interest in Saudi Hollandi with the prior written consent of the other Investors, such consent not to be unreasonably withheld taking into account, inter alia:

10.3.1 the number of third parties that have expressed an interest in acquiring Saudi Hollandi Bank since 10 October 2007;

10.3.2 any restrictions that the local regulator of Saudi Hollandi Bank is likely to place on the sale of Saudi Hollandi Bank; and

10.3.3 any impediments to the transfer of the interest in Saudi Hollandi Bank as a result of the other shareholders in Saudi Hollandi Bank;

10.4 RBS NV may only carry out any matter which would fall under paragraphs 8.3, 8.8, 8.9 or 8.10(ii) with the consent of the Retained Business Representatives, save that any action which is carried out in accordance with paragraphs 10.1, 10.2, 11 and/or 12 of this Schedule shall not require consent from the Retained Business Representatives under this paragraph, provided however that the consent of the State’s Retained Business Representative shall be required in the circumstances contemplated in paragraph 10.5 below; and

10.5 if RBS NV proposes to carry out any action in accordance with paragraphs 10.1, 10.2, 11 and/or 12 of this Schedule, to the extent that such action would give rise to a requirement for the State to provide further capital, liquidity, funding, guarantee, collateral or security in relation to the Retained Business the amount of which is in excess of the aggregate of:

10.5.1	the capital, funding or liquidity in the Retained Business attributable to the State that is in excess of the State’s Consortium Proportion of the capital, funding or liquidity required pursuant to the Minimum Ratios;
10.5.2	€150,000,000; and

10.5.3 the aggregate amount of any repatriations made to the State in respect of the Retained Business pursuant to Clause 13.6,

(the aggregate of 10.5.1, 10.5.2 and 10.5.3 from time to time being the “Consent Threshold”) the prior consent of the State’s Retained Business Representative will be required. For the avoidance of doubt, any action in accordance with paragraphs 10.1, 10.2, 11 or 12 of this Schedule which gives rise to a requirement for the State to provide further funding, capital, liquidity, guarantee, collateral of security in relation to the Retained Business the amount of which is less than or equal to the Consent Threshold shall not require the approval of the State’s Retained Business Representative.

11 In exercising its right pursuant to paragraph 10.1 to sell all or part of the Retained Business to a third party (the “Sale Business”):

11.1 RBS NV shall keep Santander and the State informed of material developments relating to the sale process of the Sale Business, including any indications from third parties that may be interested in acquiring the Sale Business;

11.2 prior to any sale, RBS shall obtain a Valuation Range for the Sale Business in accordance with paragraph 13. RBS may not, without the prior written consent of the Investors (such consent not to be unreasonably withheld) sell the Sale Business for a consideration which is less than the lowest point of the Valuation Range less 7.5 per cent.;

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11.3 if at any point prior to the sale of the Sale Business, Santander or the State wish to acquire the Sale Business, they shall be entitled to make an offer to RBS NV for the acquisition of the Sale Business (an “Investor Offer”). An Investor Offer shall be irrevocable once made;

11.4 if RBS NV considers (to its reasonable satisfaction) that the Investor Offer can be completed within a reasonable time period (which shall be no greater than 6 months from the date of the Investor Offer) and provided that:

11.4.1 the Investor Offer is at a consideration that is greater than or equal to the higher of (i) any third party offers or indicative offers received by RBS NV for the Sale Business and (ii) the lowest point of the Valuation Range less 7.5 per cent.; and

11.4.2 otherwise on substantially the same terms and conditions as any third party offer that has been received,

RBS NV shall sell the Sale Business to the relevant Investor on the terms of the Investor Offer and otherwise in accordance with paragraph 10.1 above; and

11.5 if RBS NV determines that the Investor is incapable of completion within 6 months or that a higher consideration for the Retained Business can be achieved from a third party purchaser (in the latter case having discussed the Investor Offer with the Investor and concluded that the relevant Investor is not prepared to increase its Investor Offer), RBS NV shall be entitled to sell the Retained Business to a third party in accordance with paragraph 10.1 above. Without prejudice to the first sentence of this paragraph 11.5, if a third party indicative offer as contemplated by paragraph 11.4 does not result in a binding agreement for the Sale Business at a consideration higher than an Investor Offer, RBS NV shall sell the Sale Business to the relevant Investor at the consideration in the Investor Offer, provided such consideration is greater than the lowest point of the Valuation Range less 7.5 per cent. and provided further that RBS NV considers (to its reasonable satisfaction) that the Investor Offer can be completed within a reasonable time period (which shall be no greater than 6 months from the date of the Investor Offer). If RBS NV considers that the Investor Offer cannot be so completed, it shall be entitled to conduct the Retained Business Wind Down in relation to the Sale Business in accordance with paragraph 10.

12 If RBS exercises its right pursuant to paragraph 10.2 to acquire all or part of the Retained Businesses:

12.1 RBS shall provide a written notice to each of Santander and the State (the “Buy Out Notice”) setting out the identity of the Retained Business (or part thereof) that RBS is prepared to acquire (the “Auction Business”), the consideration that RBS is prepared to pay for the Auction Business and the determination of fair market value in accordance with paragraph 13 of the Auction Business (including, if applicable, the breakdown of the values of its relevant constituent businesses in accordance with paragraph 13.3);

12.2 Santander and/or the State shall be entitled within 5 Business Days of the date of the Buy Out Notice to elect to notify RBS, the Company and the other Investor that it wishes to bid for the Auction Business (or part thereof) by serving written notice on the Company and the other Investors (a “Buy Out Counter Notice”) setting out the business to which the Buy Out Counter Notice relates (which may be all of the Auction Business or any one or more of its constituent businesses (the “Buy Out Business”). Once served, a Buy Out Counter Notice shall be irrevocable;

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12.3 If:

12.3.1 RBS and the Company have not received a Buy Out Counter Notice within 5 Business Days of the Buy Out Notice; or

12.3.2 if RBS and the Company have received written notices from each of Santander and the State that they will not be exercising their respective rights under paragraph 12.2; or

12.3.3 the Buy Out Counter Notice is in relation to part only of the Auction Business,

RBS shall be entitled to acquire or reallocate the Auction Business (if a Buy Out Counter Notice is not given) or that part of the Auction Business which is not Buy Out Business (if a Buy Out Counter Notice is given in respect of less than all of the Auction Business), in accordance with paragraph 10.2;

12.4 if a Buy Out Counter Notice is served, each of RBS, Santander and the State shall be entitled to make a sealed bid for the Buy Out Business by sending their sealed bid to the Valuer appointed under paragraph 13 within 10 Business Days of the last received Buy Out Counter Notice (the “Auction Period”), provided that a sealed bid will only be valid if the consideration to be offered is greater than the lowest point of the Valuation Range. The Valuer shall notify the Company and the Investors in writing of the Investor that has offered the highest consideration for the Buy Out Business (the “Successful Investor”) immediately following the end of the Auction Period or, if earlier, within 1 Business Day of the last received sealed bid. The Successful Investor (or such person as is nominated by it) shall be obliged to acquire the Buy Out Businesses as soon as reasonably practicable following such notification, provided RBS NV considers (to its reasonable satisfaction) that the Successful Investor (or such person as is nominated by it) will be capable of completing the acquisition of the Buy Out Business within a reasonable time period (which shall be no greater than 6 months);

12.5 if RBS NV does not consider (to its reasonable satisfaction) that the Successful Investor (or such person as is nominated by it) will be capable of acquiring the Buy Out Business within 6 months, RBS NV shall be entitled:

12.5.1 to sell the Buy Out Business to the Investor that provided the next highest sealed bid pursuant to paragraph 12.4 (as confirmed by the Valuer), provided that RBS NV considers (to its reasonable satisfaction) that Investor will be capable of completing the acquisition of the Buy Out Businesses within a reasonable time period (which shall be no greater than 6 months); or

12.5.2 failing that, to sell or reallocate the Buy Out Business to RBS in accordance with paragraph 10.2 (or at the price offered by RBS in its sealed bid (if applicable)).

13 For the purposes of determining the fair market value of all or part of the Retained Business, RBS NV shall appoint an independent investment bank of international repute or an independent firm of chartered accountants of international repute (the “Valuer”), provided that no appointment can be made without the consent of Santander and the State, such consent not to be unreasonably withheld. If the Investors cannot agree on a Valuer within 10 Business Days, the matter shall be resolved by the respective Chief Financial Officers of the

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Investors (or such person as they nominate). If the Valuer is still not agreed after a further 5 Business Days, the President for the time being of the Institute of Chartered Accounts in England and Wales shall select the Valuer to be appointed. Such decision shall be final and binding on the Investors. Any cost incurred in association with the appointment of the Valuer shall be borne by the Retained Business and allocated to the Investors in Consortium Proportions. In determining fair market value, each Valuer shall make its determination of fair market value on the basis of the following:

13.1 an assumption that the Retained Business (or relevant part thereof) is to be sold on an arm’s length sale between a willing seller and a willing buyer who are acting knowledgeably, prudently and without compulsion;

13.2 if the Retained Business (or a part thereof) is then carrying on business as a going concern, on the assumption that it will continue to do so;

13.3 if one or more constituent businesses of the Retained Business is being valued, the Valuer shall include in their valuation a breakdown of the values of each of the constituent businesses;

13.4 a Valuer may take into account any other factors which it reasonably believes may affect the fair market value; and

13.5 if a Valuer encounters any difficulty in applying any of the assumptions or bases set out in this paragraph 13 then it shall resolve that difficulty in such manner as it shall in its absolute discretion think fit.

The range of values for the fair market value, as determined by the Valuer, shall be the “Valuation Range”.

14 For the purposes of consenting to any matter as required by paragraphs 8, 10.4 or 10.5 of this Schedule 2:

14.1 Each Investor shall nominate one representative to be its “Retained Business Representative” by notifying the other Investors, RBS NV and the Company of its proposed representative, together with fax and/or email contact details of such person. Each Investor may from time to time nominate a new Retained Business Representative by providing notice to the other Investors, RBS NV and the Company;

14.2 if the consent of the Retained Business Representatives is required pursuant to paragraphs 8, 10.4 or 10.5, RBS NV shall notify the Retained Business Representatives of summary details of the proposed transaction (the “Consent Matter”) together with a notice requesting approval for the Consent Matter. Such information shall be sent to the contact details notified by the Investors in accordance with paragraph 14.1. Any notice sent by fax or by email shall be deemed to have been received on the next Business Day in the place to which it is sent;

14.3 no Retained Business Representative shall unreasonably withhold its approval to any Consent Matter, taking into account the intentions of the parties in relation to the Retained Business as set out in paragraphs 3 and 5;

14.4 subject to paragraph 14.6, if any Retained Business Representative wishes to withhold its approval it shall, within 10 Business Days of receiving the notice under paragraph 14.2 send a notice to the Company and RBS NV (by sending notice in accordance with Clause 21 to RBS NV’s registered office) confirming such;

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14.5 if RBS NV and the Company do not receive a notice from any of the Retained Business Representatives pursuant to paragraph 14.3 within the specified timeframe, the approval of all the Retained Business Representatives shall be deemed to have been given for the purposes of paragraph 8, 10.4 and 10.5. If each Retained Business Representative approves the Consent Matter by notifying the Company and RBS NV of its approval, or if such consent is deemed to have been given in accordance with this paragraph 14, RBS NV may proceed with the Consent Matter; and

14.6 if the Consent Matter, in the discretion of RBS NV acting reasonably, is a matter which, for legal or regulatory reasons, requires an urgent response (a “Critical Consent Matter”), RBS NV shall notify the Investors of that fact in the notice provided pursuant to Clause paragraph 14.2. For the purposes of any Critical Consent Matter, the relevant time period for the purposes of paragraph 14.4 above shall be three Business Days.

15 Notwithstanding any provision of paragraphs 10 to 13 of this Schedule 2, RBS shall not be required to take any action which would give rise to any obligation on RBS to seek approval of its shareholders for the proposed transaction in accordance with the Listing Rules made by the FSA under Part VI of the Financial Services and Markets Act 2000 (as amended from time to time).

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Schedule 3
Corporate Governance

Part A
Proceedings at Board Meetings until the date of the Effective Notice

1 Convening a Meeting

The Chairman of the Board shall procure that a Board meeting is convened and held when reasonably requested by any Director.

2 Quorum

2.1 No business shall be transacted at any meeting of the Board unless a quorum of eligible Directors is present at the time when the meeting proceeds to business and remains present during the transaction of business. The quorum necessary for the transaction of the business of the Board shall be the presence of three Directors or their duly appointed proxies, including at least one Director appointed by RBS, one Director appointed by Santander and one Director appointed by the State (or their respective proxies). A meeting of the Board shall not be quorate if a majority of the Directors present are resident for tax purposes in the United Kingdom.

2.2 Should a quorum not be constituted at a Board meeting, the relevant meeting shall be adjourned for not less than 3 Business Days and upon resumption the quorum shall be the presence of three Directors (or their respective proxies), including at least one Director appointed by RBS (or his proxy).

3 Notice

Not less than 2 Business Days’ notice of any (including an adjourned) meeting shall be given to all Directors.

4 Voting

At any meeting of the Directors or of a committee of Directors, each Director (or his proxy) shall be entitled to one vote and in the case of an equality of votes, the Chairman of the Board shall have a second or casting vote.

5 Delegation to committees

5.1 The Board may appoint standing and/or ad hoc committees from among its members, which are charged with tasks specified by and shall be composed as determined by the Boards from time to time, provided that:

(i) such committee comprises (unless otherwise agreed) one Director appointed by RBS, one Director appointed by Santander and one Director appointed by the State (or their respective proxies);

(ii) the Director appointed by RBS or his proxy, shall be the chairman of such committee and shall have a casting vote;

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(iii) no more than half of the members of such a committee shall be resident for tax purposes in the United Kingdom; and

(iv) the proceedings of such a committee shall be conducted in accordance with Schedule 5 Part C.

5.2 The Board remains collectively responsible for decisions made by committees. A committee may only exercise such powers as are explicitly attributed or delegated to it and may never exercise powers beyond those exercisable by the Board as a whole.

5.3 Each committee must inform the Board in a clear and timely way of the manner in which it has used delegated authority and of any major development in the area of its responsibilities. All Board members have unrestricted access to all committee meetings and records. The Board shall receive a report from each committee of its deliberations and findings.

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Part B
Proceedings at General Meetings

1 Convening a Meeting

1.1 The Board shall, and any of the Directors shall be authorised to, immediately following notice from an Investor, procure:

1.1.1 the convening and holding of a general meeting of Shareholders of the Company at such place and time as such Investor shall reasonably determine subject to paragraphs 2 and 3 of Part C of this Schedule; and

1.1.2 that any resolution required by such Investor shall be proposed at that meeting.

2 Quorum

2.1

No business shall be transacted at any general meeting of Shareholders unless a quorum of Shareholders is present at the time when the meeting proceeds to business and remains present during the transaction of business. The quorum necessary for the transaction of business at a general meeting of Shareholders shall be three Shareholders (including at least one member of the RBS Group, one member of the Santander Group and one member of the State Group), present in person or by proxy or a representative duly authorised.

2.2

If there is a tie in voting, the proposal shall be deemed to have been rejected.

2.3 If within half an hour of the time appointed for a meeting a quorum is not present, a second meeting may be convened and, subject to paragraph 3 of Part C of this Schedule, held no earlier than 15 days after and no later than 30 days later than the first meeting. In this second meeting, the items tabled for the first meeting can be adopted by a simple majority of the votes cast and the quorum for such second meeting shall be any one Shareholder. In the notice of the new meeting it must be stated that this concerns a second meeting as referred to in this paragraph 2.3 and explained that a resolution can be adopted with a quorum of one Shareholder.

3 Voting

3.1	All voting shall take place orally. The chairperson of the general meeting of Shareholders is, however, entitled to decide that votes be cast by a secret ballot. If it concerns the holding of a vote on persons, anyone present at the meeting with voting rights may demand a vote by a secret ballot. Votes by secret ballot shall be cast by means of secret, unsigned ballot papers.
3.2	Blank and invalid votes shall not be counted as votes

3.3 Resolutions may be adopted by acclamation if none of the persons with voting rights present at the meeting objects.

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3.4 The Chairman’s decision at the meeting on the result of a vote shall be final and conclusive. The same shall apply to the contents of an adopted resolution if a vote is taken on an unwritten proposal. However, if the correctness of such decision is challenged immediately after it is pronounced, a new vote shall be taken if either the majority of the persons with voting rights present at the meeting or, where the original vote was not taken by roll call or in writing, any person with voting rights present at the meeting, so demands. The legal consequences of the original vote shall be made null and void by the new vote.

3.5	The Chairman of any meeting of the Company shall not be entitled in any circumstances to a second or casting vote in addition to any other vote he, if any, may have.
3.6	Notwithstanding the forgoing the Investors agree to procure that:

3.6.1 no resolution shall be proposed or voted in favour of by any Shareholder that is part of their Group at any Shareholders meeting of the Company without the prior written consent of RBS; and

3.6.2 no resolution relating to a Board Reserved Matter shall be passed at any Shareholders meeting of the Company without the unanimous approval of all Shareholders.

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Part C
Administration of Board until the date of the Effective Notice and Shareholder Meetings

1 All meetings of the Board, the Board Committees and the Shareholders shall be held in the Netherlands.

2 A minimum of 5 Business Days’ notice of meetings of the Board and a minimum of 15 days’ notice of meetings of the general meeting of Shareholders, accompanied by details of the venue for such meeting (taking into account the requirements of paragraph 1 and an agenda of the business to be transacted (together with, where practicable, all papers to be circulated or presented to the same), shall be given to all the Directors or Shareholders(as appropriate). Where either (i) the Chairman of the Board or any Shareholder determines (acting reasonably) that urgent business has arisen, or (ii) with the prior consent of any two Investors, notice of meetings of the Board may be reduced to 2 Business Days.

3 A meeting of the Board or of the general meeting of Shareholders may be held at shorter notice than set out above or without notice with the unanimous consent of the Directors or the Shareholders (as appropriate), provided that in case of a general meeting of Shareholders, valid resolutions of the General Meeting may only be adopted if all of the Company’s issued capital is represented.

4	Subject to paragraph 1, a meeting of the Directors may consist of a conference call between Directors some or all of whom are in different places provided that each Director who participates in the meeting is able:
4.1	to hear each of the other participating Directors addressing the meeting; and
4.2	if he so wishes, to address each of the other participating Directors simultaneously,

whether directly, by conference telephone or by any other form of communication equipment or by a combination of such methods and provided that the majority of the Directors present is physically present in the Netherlands and resident for tax purposes outside the United Kingdom. A quorum shall be deemed to be present if those conditions are satisfied in respect of at least the number and designation of Directors required to form a quorum. Subject to paragraph 1, a meeting held in this way shall be deemed to take place at the place in the Netherlands where the largest group of Directors is assembled or, if no such group is readily identifiable, at the place in the Netherlands from where the chairman of the meeting participates at the start of the relevant meeting.

Notwithstanding the foregoing, no Director shall be entitled to participate in any conference call or other form of communication equipment as aforesaid from the United Kingdom.

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Part D
Other Board Matters until the date of the Effective Notice

1 Directors’ Insurance

Each Investor shall, for and on behalf of the Company, at all times maintain or procure the maintenance of indemnity insurance in respect of any Directors appointed by that Investor to the Board or to the board of directors of any other member of the Group pursuant to this Agreement, on ordinary commercial terms.

2 Remuneration

No Director shall be entitled to remuneration from, or reimbursement of expenses by, the Company unless otherwise determined and agreed by each of the Shareholders.

3 Interested Parties

3.1 Subject to the provisions of applicable law and save as notified to the contrary by a majority of the other Directors present at a meeting of the Board, provided that he has disclosed to the Board the nature and extent of any material interest of his, a Director notwithstanding his office:

(i) may be a party to, or otherwise interested in, any transaction or arrangement with the Company or a member of the Group, or in which the Company or a member of its Group is otherwise interested; and

(ii) may be a director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or a member of the Group or in which the Company or a member of its Group is otherwise interested; and

(iii) shall not, by reason of his office, be accountable to the Company or a member of the Group for any benefit which he derives from any such office or employment or from any such transaction or arrangement or from any interest in any such body corporate and no such transaction or arrangement shall be liable to be avoided on the ground of any such interest or benefit.

3.2	Subject to the provisions of applicable law, provided that it has disclosed to the Investors the nature and extent of any material interest, an Investor may exercise its rights as a shareholder (including its voting rights) in respect of any transaction or arrangement which both the Investor and the Company or a member of their Groups may be a party to, or otherwise interested.
3.3	For the purposes of paragraphs 3.1 and 3.2:

(i) a general notice given to the Board or the Investors that a Director or Investor, respectively, is to be regarded as having an interest of the nature and extent specified in the notice in any transaction or arrangement in which a specified person or class of persons is interested shall be deemed to be a disclosure that the Director or Investor has an interest in any such transaction of the nature and extent so specified; and

(ii) an interest of which a Director or Investor has no actual knowledge shall not be treated as his or its interest.

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Part E
Board Reserved Matters until the date of the Effective Notice

For the purposes of this Schedule 3 Part E, any reference to the “Group” shall be construed as a reference to the Company and its Group.

1 Share Capital

1.1 Any variation, creation, increase, re-organisation, consolidation, sub division, conversion, reduction, redemption, repurchase, re-designation or other alteration of the authorised or issued share or loan capital of the Company or any member of its Group or the variation, modification, abrogation or grant of any rights attaching to any such share or loan capital except, in each case, as may be required by or permitted under this Agreement.

1.2 The entry into or creation by the Company or any member of its Group of any agreement, arrangement or obligation requiring the creation, allotment, issue, Transfer, redemption or repayment of, or the grant to a person of the right (conditional or not) to require the creation, allotment, issue, Transfer, redemption or repayment of, a share in the capital of any member of the Company’s Group (including an option or right of pre emption or conversion) except, in each case, to a member of the Company’s Group or as may be required by or permitted under this Agreement or as provided for or contemplated in the Business Plan.

1.3

Other than as expressly required by the Articles, the reduction, capitalisation, repayment or distribution of any amount standing to the credit of the share capital, any share premium account, capital redemption reserve or any other reserve of any member of the Company’s Group (other than a wholly-owned subsidiary undertaking of the Company), or the reduction of any uncalled liability in respect of partly paid shares of any member of the Company’s Group.

1.4

Any amendment to the Articles.

2 Winding Up

2.1 To the extent within the powers of the board, the taking of steps in respect of any member of the Company’s Group to:

2.1.1	wind up or dissolve such Group Company;
2.1.2	obtain an administration order in respect of such Group Company;

2.1.3 invite any person to appoint a receiver or receiver and manager of the whole or any part of the business or assets of such Group Company;

2.1.4 make a proposal for a creditors’ voluntary arrangement in respect of such Group Company;

2.1.5 do anything similar or analogous to those steps referred to in paragraphs 2.1.1 to 2.1.4 above, in any other jurisdiction.

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3 Capital Expenditure

Any capital expenditure in excess of *** (in respect of an individual item or a series of related items).

4 Related Party Contracts

The entry into, termination or variation of any material contract or arrangement between any member of the Group and an Investor or an Investor Group member, other than (i) as expressly provided for in this Agreement; or (ii) a contract on arm’s length terms in the ordinary course of business.

5 Joint Venture Agreements

The entry into of any joint venture, partnership, consortium or other similar arrangement other than in the ordinary course of business.

6	Acquired Businesses and Retained Business
	Any material change in the nature of any Acquired Business or the Retained Business.
7	Litigation

The commencement or settlement of any litigation, arbitration or other proceedings which are material in the context of the RBS Acquired Business, the Fortis Acquired Business, the Santander Acquired Business or the Retained Business (as the case may be).

8	Acquisitions
	The acquisition of any company or undertaking.
9	Contracts

The entering into or termination of any contract which is not in the ordinary course of business and which is material in the context of the RBS Acquired Business, the Fortis Acquired Business, the Santander Acquired Business or the Retained Business (as the case may be).

^*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

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Schedule 4
Representations and Warranties

1 Capacity

The Investor has capacity and power to carry on its activities as now carried on and as proposed to be carried on, to own its property and other assets and sue and be sued in its own name and to execute, deliver and perform its obligations under this Agreement, the Transaction Documents (as applicable) and the transactions contemplated by this Agreement.

2 Authority

Except as provided in Clause 8.2, the Investor has taken all necessary action to authorise the execution, delivery and performance of its obligations under this Agreement and the Transaction Documents (as applicable).

3 Legal, Valid and Binding

3.1 The Agreement and the Transaction Documents (as applicable) once executed by the Investor will constitute legal, valid and binding obligations of such party enforceable in accordance with their terms.

3.2 No authorisation, approvals or consents from any governmental or other authorities is necessary for the execution and delivery by the Investor of this Agreement or the Transaction Documents (as applicable) or, except to the extent set out in Clause 8.2 and/or reflected in the conditions to the Offer, the exercise of its rights and the performance of its obligations under this Agreement and the Transaction Documents (as applicable) including, the making of all payments due or to become due from it and to render the same legal, valid, enforceable and admissible in evidence. The execution, delivery and performance by it of this Agreement, the Transaction Documents (as applicable) and the transactions contemplated by this Agreement will not contravene any existing law, regulation, ordinance, decree or authorisation to which it is subject, or contravene any provision of its memorandum and articles of association or any equivalent documents in any jurisdiction where it is formed.

4 No Encumbrances

Neither the Investor’s execution nor its performance of this Agreement will result in the creation of, or oblige it to create or permit to subsist, an Encumbrance over any of its present or future assets or revenues.

108

Schedule 5
Form of Deed of Accession

THIS DEED is made on [•] 20[•]

BY [•], a company incorporated under the laws of [•] having its [registered] office at [•] (“New Shareholder”).

Whereas:

(A) The New Shareholder has agreed to [purchase] [subscribe for] Shares in the capital of the Company in the capital of the Company as described in the Schedule (the “[Transferred] [Issued] Interest”) subject to and in accordance with the terms and conditions of [an agreement] [a notarial deed of [transfer] [issuance]] to be dated [date of Transfer/Subscription Agreement or Deed of Transfer/Issuance] and made between [ ] (the “[Transferor] [Company]”) and the New Shareholder (the “[Transfer Agreement] [Subscription Agreement [Deed of Transfer] [Deed of Issuance]”) and the Amended and Restated Consortium and Shareholders’ Agreement dated [•] 20010 as amended, amended and restated or otherwise modified from time to time between, amongst others, the Company and the Investors (the “Shareholders’ Agreement”).

Now this Deed witnesseth and it is hereby agreed with and for the benefit of each party to the Shareholders’ Agreement and each party who becomes a party to the Shareholders’ Agreement after the date of this Deed:

1	Definitions and Interpretations
1.1	Definitions

In this Deed (including the Recitals and Schedule hereto), unless the subject or context otherwise requires, words defined in the Shareholders’ Agreement shall have the same meanings when used herein and:

“Closing” means the closing of the [Sale and Transfer] [Issuance] of the [Transferred] [Issued] Interest to take place at the offices of [•] on [date];

“Closing Date” has the meaning ascribed thereto in Clause 2.

1.2 Interpretation

The provisions of Clause 1 of the Shareholders’ Agreement shall apply to this Deed mutatis mutandis.

1.3	Headings
	Headings shall be ignored in the construction of this Deed.

109

2 Undertakings of the New Shareholder

In consideration of the agreement of the [Transferor to Transfer the Transferred Interest] [Company to issue the Issued Interest] to the New Shareholder, the New Shareholder undertakes, for the benefit of each party to the Shareholders’ Agreement, that it will with effect from the date of Transfer by the Transferor] [issue by the Company] to the New Shareholder of the [Transferred] [Issued] Interest (the “Closing Date”) and without prejudice to or assuming any liability of the Transferor in respect of any breach by it of obligations under the Shareholders’ Agreement prior to the Closing Date], assume, perform and comply with each of the obligations of [the Transferor] [an Investor] under the Shareholders’ Agreement as if it had been a party to the Shareholders’ Agreement at the date of execution thereof and been named in it as an Investor. Each other party to the Shareholders’ Agreement may enforce the terms of this Clause 2.

3 Rights of the New Shareholder

There shall be accorded to the New Shareholder with effect from the Closing Date all the rights [of the Transferor] [of a Shareholder] with respect to the [Transferred Interest (in each case without prejudice to the accrued rights of the Transferor under the Shareholders’ Agreement in respect of any breach by any other party thereto of its obligations thereunder at any time prior to the Transfer Date)] [Issued Interest] as if the New Shareholder had been a party to the Shareholders’ Agreement at the date of execution thereof and had been named in it as an Investor and, with effect from the Closing Date, the Transferor shall cease to be entitled to those rights.

4 Notices

The address and facsimile number designated by the New Shareholder for the purposes of Clause 21 (Notices) of the Shareholders’ Agreement are:

Address:

Fax:

For the attention of:

5 Assignment and Transfer

The New Shareholder hereby acknowledges and agrees that it shall have no right to assign, transfer or in any way dispose of the benefit (or any part thereof) or the burden (or any part thereof) of this Deed without the prior consent of all the other parties to the Shareholders’ Agreement.

6 Third Party Rights

Except where expressly stated otherwise in this Deed, other than by any party to the Shareholders Agreement and by any person that is entitled from time to time to enforce from the Shareholders Agreement pursuant to Clause 20.11 of the Shareholders Agreement, no term of this Deed is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Deed.

110

7 General Provisions

The provisions of Clauses [10 (representations and warranties)], 16 (Confidentiality and Announcements), [19 Entire Agreement and Non Reliance], 20 (General) and 22 (Governing Law and Arbitration) of the Shareholders’ Agreement shall apply (mutatis mutandis) to this Deed as if expressly set out herein.

In witness whereof this Deed has been entered into the day and year first before written.

111

Schedule 6
Permitted Disclosure

Clause 16.1 shall not prevent:

1 any disclosure which is required by law or regulation to be disclosed to any person who is authorised by law or regulation to receive the same;

2 any disclosure which is required by the regulations of any exchange upon which the share capital of the disclosing party is or is proposed to be from time to time listed or dealt in provided that such disclosure is, where practicable, discussed with the other relevant parties hereto before being made;

3 any disclosure which is made to a court, arbitrator or administrative tribunal in the course of proceedings before it to which the disclosing party is a party in a case where such disclosure is required by such proceedings or is necessary in connection with enforcing any right, power or remedy it may have under a document to which it is a party;

4 any disclosure which is made to any professional advisers of the disclosing party who are bound to the disclosing party by a duty of confidence which applies to any information disclosed;

5 any disclosure which is made to an Affiliate who is bound to the disclosing party by a duty of confidence which applies to any information disclosed;

6 any disclosure which is made to any person appointed as an Investor Director or Alternate Director; or

7 any disclosure which is made to an Investor’s or the Group’s bankers and financiers or proposed bankers and financiers from time to time;

8	any disclosure required by law, a governmental, taxation or other authority with relevant powers or professional standards body to which the party making the disclosure is subject or submits;
9	any disclosure which is made pursuant to the terms of this Agreement.

112

Schedule 7
Governance Clearances

Part A

Regulatory Approvals

No.	Jurisdiction	Regulator
1.	Australia	Federal Reserve via Foreign Investment Review Board
2.	Chile	Superinten-dencia de Bancos e Instituciones Financieras
3.	Finland	Finnish Financial Supervision Authority
4.	Italy	Bank of Italy
5.	Malaysia	Minister of Finance
6.	Netherlands	De Nederlandsche Bank
7.	New Zealand	Overseas Investment Office
8.	Romania	National Bank of Romania
9.	Russia	Governmental Commission
10.	Russia	Central Credit Institutions Licensing & Financial Rehabilitation Department
11.	Singapore	Monetary Authority of Singapore
12.	Singapore	Singapore Exchange Securities Trading Limited
13.	Thailand	Ministry of Finance and Bank of Thailand
14.	UK	Financial Services Authority
15.	Uzbekistan	Central Bank of Uzbekistan

113

Regulatory Pre-completion Notifications

No.	Jurisdiction	Regulator
1.	Venezuela	Superintendencia de Bancos y Otras Instituciones Financieras
2.	Singapore	Monetary Authority of Singapore
3.	Canada	Ontario Securities Commission
4.	UAE	Dubai Financial Services Authority
5.	Ireland	Irish Stock Exchange
6.	Indonesia	Employees of local entity
7.	Australia	Australian Prudential Regulation Authority
8.	Belgium	Works Council
9.	Canada	Investment Industry Regulatory Organization of Canada
10.	Cayman Islands	Cayman Islands Monetary Authority
11.	Finland	Finnish Financial Supervision Authority
12.	India	Reserve Bank of India
13.	Italy	Bank of Italy
14.	Malaysia	Bank Negara Malaysia

114

No.	Jurisdiction	Regulator
15.	Malaysia	Securities Commission
16.	Netherlands	De Nederlandsche Bank
17.	South Africa	Registrar of Banks
18.	South Africa	Registrar of Financial Service Providers
19.	South Africa	South African Reserve Bank
20.	Switzerland	FINMA
21.	UK	Financial Services Authority

Anti-trust Approvals

No.	Jurisdiction
1.	Indonesia
2.	Japan
3.	Russia
4.	USA

115

Part B

Post-completion notifications

No.	Jurisdiction	Regulator
1.	Argentina	Central Bank of the Republic of Argentina
2.	Argentina	Argentine Securities Commission and MAE
3.	Canada	Office of the Superintendent of Financial Institutions Canada
4.	Canada	Ontario Securities Commission.
5.	Columbia	Superintendency of Finance
6.	Finland	Finnish Financial Supervision Authority
7.	Hong Kong	Securities and Futures Commission
8.	Indonesia	Bank Indonesia
9.	Indonesia	Indonesian Stock Exchange
10.	Italy	Bank of Italy
11.	Italy	Commissione Nazionale per le Società e la Borsa
12.	Malaysia	Minister of Finance
13.	Malaysia	Bank Negara Malaysia
14.	Malaysia	Securities Commission
15.	New Zealand	Overseas Investment Office
16.	Singapore	Monetary Authority of Singapore
17.	Singapore	Singapore Exchange Securities Trading Limited
18.	South Korea	Financial Supervisory Service of Korea
19.	UK	Financial Services Authority
20.	USA	The Board of Governors of the Federal Reserve System
21.	Vietnam	State Bank of Vietnam (Central Bank)

116

Schedule 8
Other State Acquired Businesses

		(3)
		Estimated
	(2)	fair market	(4)	(5)
	Proposed	value at the	Proposed Transfer	Proposed Mechanism	(6)
(1)	Transfer	date of this	Mechanism prior to 30	following 30 June	Other agreed actions or comments in relation to
Asset/Liability	Date	Agreement	June 2011	2011	the Asset / Liability
USD250 million 7.75% subordinated lower tier 2 notes 2023 ISIN: US00077TAA25	As soon as possible following the date of this Agreement	Face value of USD250m	***	***	The instrument shall remain as a State Acquired Business All risks and rewards, including litigation risk, in respect of the instrument remain with ABN AMRO Bank and the State Acquired Businesses (as previously agreed by the CFOs in agreement #2). As such, any costs (including any reasonable costs incurred by RBS NV), liability and litigation risk that occurs as a result of ***.
CDS 2003 with AIG and Radion	AIG: Mid-April 2010 Radion: End of April 2010		Novation	In accordance with Clause 5.3	AIG and Radian are reviewing latest drafts of novation agreement and transfer agreement. RBS awaits outcome of Portfolio & Investment Committee on 30 March 2010. Following that a further approval of the Asset Protection Agency is required, which will take 5 working days.
Natixis interest rate swaps	1 May 2010	EUR 850,000	SWAP needs to be novated from RBS N.V. to ABN AMRO Bank N.V.	In accordance with Clause 5.3	N/A

^*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

117

		(3)
		Estimated
	(2)	fair market	(4)	(5)
	Proposed	value at the	Proposed Transfer	Proposed Mechanism	(6)
(1)	Transfer	date of this	Mechanism prior to 30	following 30 June	Other agreed actions or comments in relation to
Asset/Liability	Date	Agreement	June 2011	2011	the Asset / Liability
Trades to be novated (with 12 counter parties)	1 May 2010	SGD 11.3 million HKD 394 million	By client’s signing of the novation agreement the contract is legally binding and are trades novated.	In accordance with Clause 5.3	ABN AMRO Bank and RBS have both signed the 12 novation agreements. The counter parties of the agreements still need to sign. Operational execution may take till 30 June 2010.
Collateral of N-Share client Stichting Mooiland	15 April 2010	EUR 9,420,000	Collateral needs to be transferred from RBS N.V. London branch to ABN AMRO Bank N.V.	In accordance with Clause 5.3	N/A
RALs	Within 3 months after separation	EUR 150-220 million	Replacement by external bank guarantee or refinancing	In accordance with Clause 5.3	The total amount in column (3) may vary depending on the solution agreed in individual cases with respect to continuation of facilities by RBS for its own account. The number of RALs left is as at 31 March 2010 approximately 90. No risk for RBS NV as the existing RAL will stay in place as agreed in the Partnerbank Agreement.
Security rights under foreign law	Within 3 months after separation	EUR 10 million	Transfer of security rights via assignment or transfer documentation. Note that the exact transfer mechanism may vary per country.	In accordance with Clause 5.3	In case ABN AMRO Bank identifies a security right under foreign law after 30 June 2010 that has not been identified and transferred at an earlier stage, RBS NV will cooperate to transfer such security rights and finalise the assignment or transfer documentation. Currently 8 remaining files (Belgium, Denmark, Ireland, Malta, Slovakia, UK, USA, Sweden).

118

		(3)
		Estimated
	(2)	fair market	(4)	(5)
	Proposed	value at the	Proposed Transfer	Proposed Mechanism	(6)
(1)	Transfer	date of this	Mechanism prior to 30	following 30 June	Other agreed actions or comments in relation to
Asset/Liability	Date	Agreement	June 2011	2011	the Asset / Liability
Shares held by RBS NV in Visa, Inc.	30 June 2010		Transfer of shares to ABN AMRO Bank	In accordance with Clause 5.3	The transfer cannot take place until ABN AMRO Bank has appropriate arrangements to settle and trade the shares.
International Diamond & Jewellery business Taiwan	17 April 2010	Approximately $4,000,000	SPA	In accordance with Clause 5.3	Business is to be sold to a third party purchaser. SPA is agreed.
Germany Residential Fund Managing Director BV, Germany Residential Fund II Managing Director BV and Germany Residential Fund III Managing Director BV	By 30 June 2011	Approximately €5,000 in aggregate	Transfer by SPA	In accordance with Clause 5.3	Transfer was delayed pending agreement on valuation.

119

Schedule 9
Charging Basis for Management of the Retained Business

RBS NV, as part of its fiduciary responsibility to control and consolidate the Retained Business, will incur costs to perform this duty and therefore is entitled to reimbursement of these costs. The following sets forth a distinction to be made between the direct costs of the Retained Business, in so far those services will be provided by RBS NV or other outside service providers, and the costs to be considered a general “Management Fee”.

Part A: Direct Costs

RBS NV shall use its best endeavours to accrue specific costs related to operating, liquidating or distributing the Retained Business directly to the Retained Business. This would include out of pocket professional fees (e.g. legal, external audit, investment banking, insurance etc.) as well as services provided by other Investors under service level agreements agreed between the Investors or members of their respective Groups.

It may be required for legal services to be provided and sourced from RBS in-house counsel when considered more effective and efficient to external counsel. Similarly there maybe in-house internal audit preferred to external audit. When sourced in-house the charge will be settled with the Retained Business for its total absorbed cost plus 25%.

Costs shall be settled quarterly with a specification from RBS NV subject to pre-approval and review by the business manager responsible for the Retained Business .

The parties acknowledge that the Retained Business currently has €1.7 million budgeted for legal fees in 2010.

Part B: General Management Fee

The following table reflects the current best estimate of the components of an Annual General Management Fee:

Component	Description of Fully Absorbed Cost	Cost (€)
Business Management	50% of the time of the fully loaded costs of one senior member of the RBS NV management team. Includes consultative time spent from other senior members of the RBS NV management team.	400,000
Treasury & Funding Administration	25% of the time of one experienced staff member and 10% supervisory time.	200,000
Accounting and administration	1.5 FTE to perform the monthly financial accounting and administration. Results in delivery of the monthly management information package (e.g. Blue Book).	200,000
Subtotal		800,000
Cost plus factor 25%		200,000
Annual General Management Fee		1,000,000

120

The Annual General Management Fee will be settled quarterly (by charging the Retained Business) and reviewed annually. No costs charged under Part A as Direct Costs shall be charged as part of the Annual General Management Fee. The parties acknowledge that, as at the date of this Agreement, the Investors have provided in aggregate €24,327,000 to the Retained Business in Consortium Proportions to meet the future costs of the Retained Business.

121

Schedule 10
4.95% Term Sheet

[LETTERHEAD OF THE STATE OF THE NETHERLANDS]

Mr Miller McLean
General Counsel
The Royal Bank of Scotland Group PLC
House G
RBS Gogarburn
Edinburgh
EH12 1HQ

Mr Ignacio Benjumea Cabeza de Vaca
General Counsel
Banco Santander S.A.
Ciudad Grupo Santander
28660 Boadilla del Monte
Madrid
Spain

Mr Peter Goes
Secretary
RFS Holdings B.V.
Strawinskylaan 3105
1077 ZX Amsterdam
The Netherlands

[•] 2009

Dear Sirs,

Allocation of Capital: Notice in relation to the Consortium and Shareholders Agreement — Schedule 3 Part 11 and Clause 2.9 of the Deed of Accession

We refer to the consortium and shareholders agreement between RBS, Santander, Fortis N.V. and Fortis SA/NV (together “Fortis”) and RFS Holdings B.V. dated 28 May 2007. That agreement was acceded to by Fortis Bank Nederland (Holding) N.V. (“FBNH”) on 26 July 2007, and was amended on 17 September 2007 and further amended on 26 August 2008.

Pursuant to a deed of accession dated 24 December 2008 as between RBS, Santander, the State, FBNH and RFS Holdings B.V. (the “Deed of Accession”), the State agreed to assume the rights and obligations of Fortis and FBNH under the consortium and shareholders agreement as amended, including as amended by the Deed of Accession itself.

For the purpose of this Letter, the terms of the aforementioned agreements, as between RBS, Santander, the State, FBNH and RFS Holdings B.V., shall be referred to as the “Consortium and Shareholders Agreement.”

Save as otherwise defined in this letter, capitalised terms shall have the meanings given to them in the Consortium and Shareholders Agreement (as defined above).

122

Under Schedule 3 — Part 11 of the Consortium and Shareholders Agreement (“Schedule 3 — Part 11”), certain agreements were reached as to the allocation of core tier 1 capital of the ABN AMRO Group as between the Investors.

Under Clause 2.9 of the Deed of Accession (“Clause 2.9”), it was further acknowledged and agreed that in relation to the State’s rights under Schedule 3 — Part 11, the parties would apply the principles established out of discussions amongst the Chief Financial Officers of the State, RBS and Santander and/or their delegates as recorded in the minutes of the meetings amongst the Chief Financial Officers and/or their delegates dated 6 November 2008, 12 November 2008, 27 November 2008, 4 December 2008, 11 December 2008 and 17 December 2008.

Further to Clause 2.9, the State, RBS and Santander have now agreed a term sheet attached at Appendix 1 to this Letter (the “Term Sheet”), which is intended to form the basis of an underwriting agreement to be entered into by (a) relevant member(s) of the Wider RBS Group on behalf of RBS, (a) relevant member(s) of the Santander Group on behalf of Santander and, as relevant, one or more of the State’s Acquired Companies (which, for the avoidance of any doubt, shall be defined in this Letter as per clause 5.1 of the Deed of Accession and shall include all successors in title from time to time) (the “Underwriting Agreement”).

The State hereby specifically acknowledges and agrees, on behalf of both itself and its Acquired Companies, that:

(A) the terms of the Term Sheet shall apply with effect from (and not before) the Commencement Date (as defined below);

(B)

with effect from and including the Cutoff Date (as defined below), irrespective of whether or not an Underwriting Agreement has been entered into, all of the rights and obligations of the Investors pursuant to Schedule 3 — Part 11 and Clause 2.9 and the Term Sheet shall terminate (and have no further effect), and none of the Investors thereafter shall have any further rights or obligations of any kind pursuant to Schedule 3 — Part 11 and Clause 2.9 and the Term Sheet,

SAVE and EXCEPT that if the State gives written notice to the Investors not less than one calendar month prior to the Cutoff Date (as defined below) that the relevant parties should enter into an Underwriting Agreement on the basis of the Term Sheet, then:

(i) the parties shall negotiate in good faith such Underwriting Agreement on the basis of the Term Sheet with the intention of executing the Underwriting Agreement within 3 months of such notice (the “Negotiation Period”) and if the parties (acting reasonably and in good faith) fail to execute the Underwriting Agreement within the Negotiation Period, any Investor may, by giving written notice to the Investors, refer the matter to an independent Investment Bank of international repute selected by unanimous decision of the Investors (and in the event of a failure by the Investors to agree, appointed by the Chairman of the International Chamber of Commerce from time to time) (a “Qualifying Expert”) to assist the parties in reaching agreement on the terms of the Underwriting Agreement; and

(ii) if no agreement is reached on the terms of the Underwriting Agreement within 3 months of the appointment of the Qualifying Expert, the Qualifying Expert himself will decide on the items that are still outstanding; and

(ii) subject to (C) below, Schedule 3 – Part 11 and Clause 2.9 and the Term Sheet will continue to apply; and

123

(C) upon the execution of such Underwriting Agreement as agreed (at any time) all of the rights and obligations of the Investors pursuant to Schedule 3 — Part 11 and Clause 2.9 and the Term Sheet shall terminate (and have no further effect), and thereafter none of the Investors shall have any further rights or obligations of any kind pursuant to Schedule 3 – Part 11, Clause 2.9 and the Term Sheet.

For the purposes of this letter:

“Commencement Date” means the date upon which the later of the following Restructuring steps are completed:

(a) the State has acquired (directly or indirectly) ownership of the shares in ABN AMRO II N.V. (or such other entity which may own the BU NL business of ABN AMRO); and

(b) a capital repatriation or repatriations are made to Santander of an amount equal to (i) the capital in ABN AMRO relating to the S-Shares as adjusted for necessary retentions for Santander’s share of the Retained Business¹, plus (ii) the amounts relating to Santander in RFS Holdings B.V. with respect to GALM pursuant to the Deed of Accession² as adjusted for Appendix 6 (GALM and other Treasury Issues) to the Agreed Package dated 28 September 2009 and for the necessary agreements between the Investors in the outstanding discussions in relation to taxes.

“Cutoff Date” means the date falling two years after the Commencement Date.

The provisions of Clauses 16 (Confidentiality and Announcements), 19 (Entire Agreement and Non Reliance), 20 (General) and 22 (Governing Law and Arbitration) of the Consortium and Shareholders Agreement (in each case, for the avoidance of all doubt, as amended by the terms of the Deed of Accession) shall apply (mutatis mutandis) to this letter as if expressly set out herein.

Yours faithfully,

[•]

The State of the Netherlands acting by its duly authorised signatories

Acknowledged and Agreed:

[•]

The Royal Bank of Scotland Group PLC acting by its duly authorised signatories

[•]

Banco Santander S.A. acting by its duly authorised signatories

[•]

RFS Holdings B.V. acting by its duly authorised signatories

1	In accordance with the “Shared Assets capital – proposal for discussion” memo from Ms Hofste to the CFOs Investors and CFO delegates dated 21 September 2009, amount was equal to €8,902 m.
2	In accordance with the “Unwinding shared assets – GALM DTA effect” memo from Mr de Mik to the Tax Working Group and CFO delegates dated 14 September 2009 this was equal to an amount of €744m

124

Appendix 1

N shall have the right but not the obligation to avail itself of the underwriting commitment described below.

Issuer:	[Aurora]3
Listing:	[Luxembourg Stock Exchange / Dublin Stock Exchange / London Stock Exchange / Euronext Amsterdam]
Lead managers:	[Aurora] The Royal Bank of Scotland Banco Santander
Underwriter(s):	The Royal Bank of Scotland 60% of the placement and Banco Santander 40% of the placement.
Status:	Subordinated, Other Tier 1 (Hybrid) Must meet debt accounting requirements Must be tax deductible Must meet DNB / CEBS draft and current requirements Tier 1 treatment at the time of issue
Currency:	EUR
Amount:	Up to ***
Pricing Date:	Settlement date — 2
Settlement Date:	No later than the Cutoff Date as defined in the letter from the Dutch State relating to this termsheet
Maturity Date:	Perpetual
Call:	5 years after settlement and annually thereafter. Step up in line with the market and regulations for Tier 1.
Coupon:	Determined by reference to a corresponding benchmark4 publicly or privately placed, preference share transaction by Aurora, or a publicly or privately placed proportion of this transaction.
Coupon Payments:	Annual based on an ACT/ACT basis until 3 October 2019, quarterly based on an ACT/365 thereafter
Non cumulative:	Non cumulative. Subject to regulatory approval and to ratios below minimum levels agreed with or required by regulator
Voting Rights:	None
Coupon Deferral / Dividend Pusher	Coupons must be paid in the event that regulatory ratios are above prescribed minimum levels (specified in the transaction documentation in line with Aurora’a publicly announced target and specified capital ratios).
Coupon Payment Dates:	Quarterly
Issue / Reoffer Price:	[tba]
Benchmark Reference Price:	[   ] %
Benchmark Reference Yield:	[   ]
Underwriting fees:	Nil

3	Aurora is a working name given to the legal entity in which the asset and liabilities of N-share will be demerged. The legal entity name will be determined prior to legal segregation.
***	Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.
4	“Benchmark” will mean a minimum size of €200 — 250m and distribution to be agreed between the Issuer and the Underwriters (both parties acting reasonably)

125

Lead Management Fees	Nil
All-in Price:	[tba]
Net Proceeds	Up to ***
Redemption:	100.00%
Transaction Expenses:	For the account of the Issuer
Business Days:	TARGET, Amsterdam
Governing Law:	Dutch Law
Denominations:	EUR 1,000, 10,000, 100,000
Lock up period:	Transferability restricted as follows:

Period after
settlement date	Maximum Transferability
6 months		50	%
1 year		75	%
18 months	no restriction
on the amount allotted to each of The Royal Bank of Scotland and Banco Santander

Minimum Credit Rating:	The securities will have a minimum rating by Moodys and S&P the same as or higher than RBS equivalent debt capital securities.
Optional redemption date	Tax change and regulatory change, subject to approval of regulator.
Optional Issuance:	Aurora is under no obligation to issue this instrument.

^*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

126

Schedule 11
Operation of ID&J India

The purpose of this Schedule is to document the allocation of the ID&JG business conducted by RBS NV in India to the State and the intention of the State for such business to be transferred to ABN AMRO Bank, subject to all regulatory approvals needed to establish a branch and obtain local licences in India and to complete all such other arrangements as are necessary (including technical separation) to acquire the ID&JG business in India from RBS NV. Such requirements for licenses and arrangements for ABN AMRO Bank to acquire the ID&JG Business in India from RBS NV being hereinafter referred to as the “Acquisition Requirements”.

In this Schedule, “parties” means RBS, the State and the Company. Santander shall have no obligation arising out of or in respect of this Schedule. However, upon the reasonable request by RBS and the State, Santander shall take such action is required to give effect to this Schedule.

Until ABN AMRO Bank has completed the Acquisition Requirements, the parties have agreed to put in place arrangements to enable the ID&JG business in India to continue to operate as part of RBS NV while protecting all commercial, legal and regulatory interests of ABN AMRO Bank in the ID&JG business in India, subject to the terms of this Schedule.

Definitions and Interpretation

1 Definitions

1.1 In this Schedule, unless the subject or context otherwise requires, words defined in the CSA shall have the same meanings when used herein and:

“Business Head” means the person specified in paragraph 3.1 of this Schedule;

“Completion” means the date on which the ID&JG Business is transferred from RBS NV to the Purchaser in accordance with the CSA;

“CSA” means the restated Consortium and Shareholders Agreement dated 1 April 2010 (as supplemented and amended from time to time);

“Expert” has the meaning given to it in paragraph 12.3 of this Schedule;

“Legal Separation Date” means the date on which the shares in ABN AMRO Bank are transferred by AAH to ABN AMRO Group N.V. being an entity directly owned by the State;

“Ordinary Course” means the conduct of the ID&JG Business in accordance with normal day-to-day customs, practices and procedures and consistent with past practice but subject to compliance with all Regulatory Requirements;

“ID&JG” means the international diamond and jewellery business group;

“ID&JG Business” means the ID&JG business in India which has been allocated to the State under the CSA and which will remain in the RBS NV branch in India until Completion;

“ID&JG Cost Centre” means in relation to the ID&JG Business the cost centre assigned to the ID&JG Business and recorded in Magnitude consolidation system;

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“Regulatory Requirements” means all requirements applicable in relation to the arrangements detailed in this Agreement and activities of ABN AMRO Bank and/or RBS NV, as the case may be, arising from any law, enactment, order, regulation, regulatory policy, guideline or industry code, in any applicable jurisdiction including but not limited to those of a Regulator in India and in particular but without limitation the Basel II capital adequacy requirements in relation to Pillar 1, Pillar 2 and Pillar 3 as outlined by the RBI from time to time; and

“Relevant Employee” means the employees working exclusively or principally within the ID&JG Business.

2 CSA and Effect of the Schedule

2.1 If the provisions of this Schedule do not specifically provide for or govern any matter relating to the management of the ID&JG Business, the parties agree to apply the principles set out in the CSA. In the event that this Schedule conflicts with any provision of the CSA (other than Part 9 of Schedule 1 in relation to Tax matters) this Schedule shall prevail.

2.2 ABN AMRO Bank and RBS NV agree that in the event that the CSA is amended (including but not limited to any amendment to the operative provisions relating to the governance and management of the AAH Group or the provision of information and preparation of accounts), and any such amendment has an impact on the governance, management or operations of the ID&JG Business within RBS NV, they will negotiate, in good faith, an amendment to this Schedule to ensure that the principles of the CSA as at the date of this Schedule and the specific provisions of this Schedule continue to apply to the ID&JG Business until Completion.

2.3 In the event that either RBS NV or ABN AMRO Bank is required to obtain the approval of a Regulator with respect to the arrangements detailed in this Schedule (or any part thereof), the parties agree to co-operate and take all reasonable measures in good faith to achieve such requisite approval, provided, however, that no party shall be bound to take any action that is, in the reasonable opinion of a party, likely to breach its Regulatory Requirements. Should any Regulator (including but not limited to the Reserve Bank of India) require any change to be made to this Schedule or the principles expressed herein, the parties shall procure that this Schedule is amended in order to reflect such requirements.

2.4 Nothing in this Schedule shall be construed as in any way excluding, limiting or overriding the Regulatory Requirements or the respective obligations and responsibilities of RBS NV or ABN AMRO Bank there under.

3 Business Head

3.1 ABN AMRO Bank shall designate a Business Head, being Biju Patnaik, or such alternative person assigned by ABN AMRO Bank with the agreement of RBS NV, such consent not to be unreasonably withheld or delayed. The Business Head shall be an employee of RBS NV working within the ID&JG Business. The parties agree that if the Business Head is replaced under an agreement between the same parties relating to other international diamond and jewellery businesses remaining in RBS NV then the Business Head will be deemed to be replaced under this Schedule.

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3.2 Subject to paragraph 6 of this Schedule in relation to Tax matters, the parties agree that the Business Head shall be responsible for the management and oversight of the ID&JG Business from the Legal Separation Date to Completion, including but not limited to:

(i)	managing the ID&JG Business on a day-to-day basis;
(ii)	developing the ID&JG Business plan within the boundaries of the overall strategy of ABN AMRO Bank;

(iii)	driving revenues and growth for the ID&JG Business as well as setting the budget for the ID&JG Business and ensuring costs are maintained under control;
(iv)	approving any expenditure (which is to be recharged to the ID&JG Cost Centre);
(v)	approving any credit and/or market risk limits for the ID&JG Business;
(vi)	approving the entry into any contract or agreement exclusively or principally supporting the ID&JG Business;

(vii)	settling any claims, actions, arbitrations, disputes or other proceedings relating to the ID&JG Business;
(viii)	managing the ID&JG Business relationship managers and commercial support teams;
(ix)	the hiring of any new employees or contractors to support the ID&JG Business;
(x)	the dismissal of any Relevant Employee; and

(xi) the setting of remuneration or the payment of any bonus for Relevant Employees and/or any changes to the terms and conditions of employment of any Relevant Employee (including but not limited to benefit plans),

in each case in accordance with AIM and the Regulatory Requirements of RBS NV.

3.3 Unless prohibited by Regulatory Requirements and subject to paragraph 3.5 of this Schedule, where the ID&JG Business has its own dedicated control functions and services support, including but not limited to risk management, finance, compliance, human resources, legal, audit, IT and operations (“Functions and Services”), the heads of such Functions and Services shall have a direct reporting line to the Business Head as well as a functional reporting line to the relevant RBS NV line management.

3.4 The Business Head shall have a direct reporting line to the Chairman of the RBS NV Managing Board, in addition to the in country reporting line to the country executive of RBS NV in India.

3.5 The general risk framework, including the authorities for approving general risk limits, for the AAB business (including the ID&JG Business) will be reviewed and approved by the relevant risk and control committees of RBS NV. The Business Head will be jointly responsible for the risk framework for the ID&JG Business. Any decisions taken by the relevant risk and control committees of RBS NV impacting the ID&JG Business will also need the approval of the Business Head.

4 Operation of the ID&JG Business

4.1 RBS NV undertakes that during the period from the Legal Separation Date to Completion, RBS NV shall operate the ID&JG Business in the Ordinary Course under the management and direction of the Business Head (save insofar as agreed in writing by ABN AMRO Bank, such consent not to be unreasonably withheld or delayed).

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4.2 RBS NV agrees to record all revenues and costs relating to the ID&JG Business separately in the ID&JG Cost Centre such that the ID&JG Business remains clearly identifiable from RBS NV’s other businesses consistent with past practice.

4.3 RBS NV will continue to apply the policies and procedures currently in place as at the date of this Schedule, in relation to the operation of the ID&JG Business, including but not limited to the ID&JG CAAML policies. In the event that RBS NV wishes to change a policy such changes shall, save where a change is necessary to comply with Regulatory Requirements, be agreed between RBS NV and the Business Head before implementation.

4.4 The parties agree that in the event that the ID&JG Business is supported by hardware, equipment, software and/or other electronics, computer and telecommunications devices and equipment (“System”) which have already transferred from RBS NV to ABN AMRO Bank, that (subject to obtaining any necessary consents) a transitional service level agreement will be entered into between RBS NV and ABN AMRO Bank to ensure the continued support by such System to the ID&JG Business. RBS NV shall not be liable for any failure by ABN AMRO Bank to provide such on-going support. In the event that either RBS NV or ABN AMRO Bank is required to obtain the approval of a Regulator with respect to such service level arrangements, the parties agree to co-operate and take all reasonable measures in good faith to achieve such requisite approval.

4.5 From the Legal Separation Date until the Completion, RBS NV shall to the extent that it is lawfully able to do so without breaching any Regulatory Requirement:

(i) provide ABN AMRO Bank with a copy of any internal or external audit reports relating to the ID&JG Business;

(ii) notify ABN AMRO Bank of any adverse findings relating to the ID&JG Business or the functions and services supporting the ID&JG Business highlighted during any internal or external audit of the RBS NV branch in India; and

(iii) if requested by ABN AMRO Bank, conduct, at the cost of ABN AMRO Bank, an internal audit of the ID&JG Business and provide the findings of such audit to ABN AMRO Bank.

5 Provision of Financial Information and Reporting

Subject to paragraph 6 of this Schedule in relation to Tax matters, RBS NV shall supply ABN AMRO Bank, at the reasonable cost of ABN AMRO Bank, with such information relating to, and such access to, the ID&JG Business (including, for the avoidance of doubt, information relating to the capital, liquidity and funding requirements of the ID&JG Business) as it may reasonably require but not to the extent that any such sharing of such information is in breach of any Regulatory Requirement.

Either at or shortly before Completion, RBS NV undertakes to provide ABN AMRO Bank with the following systems and materials necessary for ABN AMRO Bank to maintain Basel II host compliance in India post Completion:

• complete (and updated) documentation on Basel II regulations in India;

• complete set of RBI reporting templates with any accompanying explanations provided by RBI;

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• a copy of the Centralized Standardized Solution (CSS) for India host reporting (incl. calculator software, defined Business Objects reports, thorough and up-to-date technical documentation on the sourcing and the functionality of the calculator, and specifications of the Business Objects reports), reflecting all the updates in India host reporting regulations up to date;

• documentation reflecting the implementation choices for the host RWA calculation and the relation between the regulatory requirements and the implemented functionality (if the documentation of the CSS solution does not sufficiently reflect them);

• a copy of the data used during the last run month for India including booking system extracts (SAFEGATE/CUID files), log files (specifying enrichments, defaulting rules, etc), CSS inbound and outbound data, reference data domains and other datasets used for enrichment of CSS input data (including but not limited to reference data domains and extracts from credit offer approval systems RAPID-IRD) and produced Business Objects reports;

• local ICAAP and/or any other Pillar 2 documentation, if required by and submitted to RBI. RBS shall also inform ABN AMRO Bank of the feedback received from RBI on local ICAAP and SREP, where such feedback is relevant for ABN AMRO Bank;

• Information relating to any upcoming changes in India Basel II related regulations, of which RBS are aware.

6 Tax Matters

6.1 The parties acknowledge that for Indian Tax purposes the ID&JG Business forms part of RBS NV’s Indian operations and no separate Tax Returns are required to be or can be filed in respect of it. The parties acknowledge that Part 9 of Schedule 1 to the CSA shall apply for the purpose of allocating Tax liabilities of RBS NV to the ID&JG Business. The parties also acknowledge that RBS NV or its duly authorised agents shall be responsible for preparing, submitting and dealing with all Tax Returns relating to the Indian Tax affairs of RBS NV together with all associated Tax Documents and correspondence, enquiries disputes, negotiations and settlements in relation thereto, and that it shall not be required to act under the direction of the Business Head in this regard. The parties acknowledge that the Indian Tax affairs of RBS NV shall be dealt with under the direction of the Head of Tax of RBS NV and that neither the State nor ABN AMRO Bank nor the Business Head shall be entitled to review any such Tax Return or related Tax Documents and correspondence, subject to Paragraph 6.2 below.

6.2 In the event that RBS NV becomes aware of any Tax Audit or other informal request or investigation which relates specifically and predominantly to the ID&JG Business it shall ensure that the Business Head and the Head of Tax of RBS NV are informed and consulted in respect thereof. In respect of any such matter, RBS NV shall take such action as may be reasonably requested by the Business Head in consultation with the Head of Tax of RBS NV to deal with such matter, save that RBS NV shall not be obliged to take any action consisting of contesting any matter before a court or tribunal which will be heard in public or the judgment in respect of which may be published and available to the public otherwise than on an anonymous basis unless an opinion is obtained from a leading tax adviser to the effect that, in his or her opinion, it is more likely than not that the outcome will be successful and (if required by RBS NV) that such action should not be materially prejudicial to the business interests or reputation of RBS NV, RBS or any other member of the RBS Group. Further, if RBS reasonably considers that any action that RBS NV is requested to take pursuant hereto could be materially prejudicial to its business interests or reputation or those of RBS NV or any other member of the RBS Group,

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it will notify the Business Head of such concern. If the Business Head nevertheless wishes RBS NV to proceed with such action, the matter shall immediately be referred to the State CFO and RBS CFO, who shall have 21 Business Days, or such longer period as unanimously agreed by the CFOs, to agree whether such action could be materially prejudicial and, if so, whether such action shall be taken, which agreement shall be final and binding, save in the case of fraud or manifest error. If no agreement can be reached, the procedure in Clause 9 of this Agreement shall apply to determine whether such action should be taken.

6.3 The parties acknowledge that the costs to be debited to the ID& JG Cost Centre shall include a contribution of €3,500 per accounting period towards the costs of dealing with RBS NV’s Tax Returns and other Tax affairs. In the event that the Business Head requests any action to be taken under paragraph 6.2 of this Schedule, any associated external costs will also be debited to the ID&JG Cost Centre.

7 Funding for ID&JG Business

ABN AMRO Bank shall undertake all and any measures necessary to ensure that the ID&JG Business (including assets, liabilities, contingent liabilities and off balance sheet items) that remain in RBS NV comply with all internal and regulatory requirements in respect of capital, liquidity and funding on a segmental basis (where any internal requirements will be determined in accordance with current AAH Group practice as amended by migration to Basel II (or other arrangements in relation to Basel II agreed with the relevant regulator(s)) and shall correct any breaches thereof within seven days of becoming aware of or having received a formal notification of any such breach. Such measures shall be taken at the level of RFS Holdings B.V.

8 Liability

RBS NV will not be liable for any loss of revenue, profits, business, goodwill or loss of value relating to the ID&JG Business as a result of its continued operation of the ID&JG Business in the RBS NV branch in India during the term of this Schedule, except to the extent such losses arise from fraud, wilful misconduct or gross negligence of RBS NV but only where such losses are not caused by the ID&JG Business, any State Acquired Business , any Relevant Employee or any employee, contractor, officer or agent of any State Acquired Business. ABN AMRO Bank also agrees that, save in the case of fraud, wilful misconduct or gross negligence of RBS NV other than fraud or wilful misconduct of the ID&JG Business, any State Acquired Business, any Relevant Employee or any employee, contractor, officer or agent of any State Acquired Business, RBS NV will not be liable for any breach of this Schedule by RBS NV other than any breach of paragraph 10.1 or paragraph 14 of this Schedule.

9 Intellectual Property

All Intellectual Property rights belonging to a party prior to the signing of this Schedule will remain vested in that party.

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10 Non-Solicitation

10.1 RBS NV agrees that during the period of this Schedule and for a period of one year after the Completion, it will not, and will ensure that no member of its Group knowingly solicit the customers of the ID&JG Business for the purpose of offering services which may be considered similar to the services offered by ID&JG Business to such customers.

10.2 ABN AMRO Bank agrees that during the period of this Schedule and for a period of one year after Completion, it will not, and will ensure that no member of its Group knowingly solicit the customers of the RBS NV branch in India who are not customers of the ID&JG Business for the purpose of offering services which may be considered similar to the services offered by RBS NV to such customers.

10.3 RBS NV shall not at any time during the term of this Schedule, induce or seek to induce or entice or seek to entice away from being employed or hired by ABN AMRO Bank upon Completion, any Relevant Employee. The placement of an advertisement in the public domain and the recruitment of a person through an employment agency shall not constitute a breach of this paragraph 10.3 provided that no member of RBS NV encourages or advises such agency to approach any Relevant Employee. Appointments to such role will be on terms and conditions of employment as appropriate to that role and that bank and terms and conditions will not be protected, and protection of continuity of service is at the discretion of RBS NV.

10.4 ABN AMRO Bank shall not at any time during the term of this Schedule, induce or seek to induce or entice or seek to entice away from RBS NV any employee of RBS NV (other than a Relevant Employee at Completion). The placement of an advertisement in the public domain and the recruitment of a person through an employment agency shall not constitute a breach of this paragraph 10.4 provided that no member of ABN AMRO Bank encourages or advises such agency to approach any such employees. Appointments to such role will be on terms and conditions of employment as appropriate to that role and that bank and terms and conditions will not be protected, and protection of continuity of service is at the discretion of ABN AMRO Bank.

11 Term and Termination

Subject to earlier termination in accordance with its terms this Schedule shall terminate on Completion.

12 Completion

Upon fulfilment of Acquisition Requirements the ID&JG Business will be transferred to ABN AMRO Bank in accordance with the CSA provisions.

13 Escalation and Dispute Resolution

13.1 In the event that there is a dispute in relation to any aspect of, or failure to agree any matter arising in relation to the conduct or operation of the ID&JG Business between RBS NV and the Business Head with respect to cannot be resolved at a local level, the Business Head will escalate the matter to the Chairman of the Managing Board of RBS NV. If the Business Head and the Chairman of the Managing Board of RBS NV cannot resolve the matter within ten Business Days of the matter being referred to the Chairman of the Managing Board of RBS NV, then the Chairman of the Managing Board of RBS NV will attempt to resolve the matter informally through discussion with the Chairman of the Managing Board of ABN AMRO Bank.

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13.2 In the event that there is a dispute between RBS NV and ABN AMRO Bank in relation to any aspect of, or failure to agree any matter arising in relation to, this Schedule or any document agreed or contemplated as being agreed pursuant to this Schedule by the parties first attempting to resolve any dispute informally through discussion by the following individuals:

(a) the Chief Administrative Officer of RBS NV on behalf of RBS NV and the Chief Executive Officer of the International Diamond & Jewellery Group on behalf of ABN AMRO Bank, who will meet to resolve the dispute and if they cannot resolve the dispute unanimously within five Business Days of the dispute being referred to them then;

(b) the dispute shall promptly be referred to the Chairman of the Managing Board of RBS NV and the Chairman of the Managing Board of ABN AMRO Bank.

13.3 Any dispute or any matter which is not resolved by agreement between the parties in accordance with Clauses 13.1 or 13.2 above, within 10 Business Days of such dispute being referred to the Chairman of the Managing Board of RBS NV and the Chairman of the Managing Board of ABN AMRO Bank, shall be determined in accordance with Clause 9 of the CSA, save that references in Clause 9 of the CSA to Independent Accountants shall be read as references to a relevant Expert and references to the President of the Institute of Chartered Accountants shall be read as references to the President of the relevant governing body to which such expert is a member.

For the purpose of this Schedule “Expert” shall mean a person agreed by RBS NV and ABN AMRO Bank as a suitably qualified person as they determine appropriate having regard to the nature of the dispute. Failing such agreement within ten Business Days of the expiry of the period set out above, the Expert shall be the person nominated on the application of either RBS NV or ABN AMRO Bank (as the case may be) by the President for the time being of the Institute of Chartered Accountants in England and Wales.

14 Confidentiality

In the event that RBS NV elects to sell all or any part of its business and assets, RBS NV undertakes that it will not, without the written consent of ABN AMRO Bank, such consent not to be unreasonably withheld or delayed, disclose confidential information relating to the ID&JG Business or ABN AMRO Bank to any potential buyer notwithstanding that any such potential buyer may have signed a confidentiality agreement.

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15 Notices

15.1 Any notice or other document to be given under this Schedule shall be in writing in English and shall be deemed duly given if delivered to the recipient at its fax number, email or address set out below or any other fax number, email or address notified to the parties for the purposes of this Schedule, if left at or sent by (i) airmail or express or other fast postal service or (ii) facsimile transmission or other means of telecommunication in permanent written form to the following address or number:

RBS NV

Address	Head Office
	Gustav Mahlerlaan 10
	1082 PP Amsterdam
Fax No.	+ 31 206292163

For the attention of General Counsel

With a copy to:

The Royal Bank of Scotland Group plc

Address:	Cutlers Exchange
	123 Houndsditch
	London EC3A 7BU
	United Kingdom
Fax No:	+44 (0) 20 7857 9795

For the attention of Deputy Director, Group Legal

ABN AMRO Bank N.V.

Address	Gustav Maherlaan 10
	1082PP Amsterdam
	The Netherlands
Fax No.	+ 31 20 3830710

For the attention of: General Counsel

With a copy to:

Address	ABN AMRO Bank N.V
	International Diamonds & Jewellery Group
	Gustav Maherlaan 10
	1082PP Amsterdam
	The Netherlands

For the attention of: CEO, International Diamonds & Jewellery Group

Fax No. + 31 20 6290867

Email: victor.van.de.kwast@nl.abnamro.com

15.2	Any notice shall be delivered by hand or sent by fax or by express or other fast means of postal service. Any notice shall be deemed to have been received on the next working day in the place to which it is sent if sent by fax or 72 hours from the time of posting if sent by post.
16	Amendments

This Schedule may be amended by agreement between RBS NV and ABN AMRO Bank, without the consent of the Investors provided that any change shall only be effective if made in writing and signed by or on behalf of each of RBS NV and ABN AMRO Bank.

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Schedule 12
Worked Example for the purposes of Clause 13

Consolidated balance sheet (assuming all “divisible” assets/liabilities transferred at separation)

EUR million			R		MoF		S			Total			R			MoF			S			Total
Retained assets				307		271		224			802	Retained liabilities		205			181			149			535
Intracompany receivable				183		129		106			418	Tier 1 (equity)		190			219			139			548
												Tier 2		95			85			70			250
												Equity offset to tier 2					(85	)		(28	)		(113	)
Total				490		400		330			1,220	Total		490			400			330			1,220
Memo: overfunding position at Separation												Equity injection		190			219			139			548
Intracompany receivable						129		106
Less: ‘rented’ Tier 2						—		(42	)			Basel II equity tier 1 support		152			134			111			397
Adjusted intracompany receivable						129		64				Buffer @ 25%		38			34			28			100
												Minimum equity required		190			168			139			497
Indicative annualised P&L:	Base		Margin											25	%		25	%		25	%		25	%
Adjusted Intra group depo @ ***		***		***		***		***				Rented tier 2:
Rented’ tier 2 @ ***		***		***		***		***				Tier 2 requirement					85			70
Total interest credit/(charge)						***		***				Less: equity buffer					(34	)		(28	)
												Less: excess equity over buffer					(51	)		—
												‘Rented’ tier 2 capital					—			42

Note: MoF benefits from offset for qualifying tier 2 capital (USD250 million subordinated debt 2023) until exchange offer transfers this out of RBS NV when a rental requirement may be triggered

*** Indicates omission of material, which has been separately filed, pursuant to a request for confidential treatment.

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In witness whereof this Agreement has been entered into the day and year first above written.

SIGNED by                      on behalf of THE ROYAL BANK OF SCOTLAND GROUP PLC	ü ý þ
SIGNED by                      on behalf of BANCO SANTANDER, S.A.	ü ý þ
SIGNED by                      on behalf of THE STATE OF THE NETHERLANDS	ü ý þ
SIGNED by                      on behalf of RFS HOLDINGS B.V.	ü ý þ

EX-12.1

Exhibit 12.1

Section 302 Certification

I, Alfredo Sáenz, certify that:

1. I have reviewed this annual report on Form 20-F of Banco Santander, S.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: June 10, 2010

/s/ Alfredo Sáenz
Name:	Alfredo Sáenz
Title:	Second Vice Chairman and
	Chief Executive Officer

EX-12.2

Exhibit 12.2

Section 302 Certification

I, José Antonio Alvarez, certify that:

1. I have reviewed this annual report on Form 20-F of Banco Santander, S.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: June 10, 2010

/s/ José Antonio Alvarez
Name:	José Antonio Alvarez
Title:	Chief Financial Officer

EX-12.3

Exhibit 12.3

Section 302 Certification

I, José Tejón, certify that:

1. I have reviewed this annual report on Form 20-F of Banco Santander, S.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: June 10, 2010

/s/ José Tejón
Name:	José Tejón
Title:	Chief Accounting Officer

EX-13.1

Exhibit 13.1

Section 906 Certification

The certification set forth below is being submitted in connection with the Annual Report on Form 20-F for the year ended December 31, 2009 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Alfredo Sáenz, the Second Vice Chairman and Chief Executive Officer, José Antonio Alvarez, the Chief Financial Officer and José Tejón, the Chief Accounting Officer of Banco Santander, S.A., each certifies that, to the best of his knowledge:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Banco Santander, S.A.

Date: June 10, 2010

/s/ Alfredo Sáenz
Name:	Alfredo Sáenz
Title:	Second Vice Chairman and
	Chief Executive Officer
/s/ José Antonio Alvarez
Name:	José Antonio Alvarez
Title:	Chief Financial Officer
/s/ José Tejón
Name:	José Tejón
Title:	Chief Accounting Officer

EX-15.1

Exhibit 15.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-155247 on Form F-3 of our report dated June 10, 2010 relating to the consolidated financial statements of Banco Santander, S.A. (the “Bank”) and Companies composing, together with the Bank, the Santander Group (the “Group”), and of our report dated June 10, 2010, relating to the effectiveness of the Group's internal control over financial reporting, appearing in this Annual Report on Form 20-F of the Group for the year ended December 31, 2009.

/s/ Deloitte, S.L.

DELOITTE, S.L.

Madrid, Spain

June 10, 2010