Filed by Bowne Pure Compliance

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


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

For the fiscal year ended December 31, 2007


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

for the transition period from to

Commission file number 001-12518


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

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


		Name of each exchange
Title of each class		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
Non-cumulative Guaranteed Preferred Stock of Santander Finance Preferred, S.A. Unipersonal, Series 1, 4, 5 and 6		New York Stock Exchange
Guarantee of Non-cumulative Guaranteed Preferred Stock of Santander Finance Preferred, S.A. Unipersonal, Series 1,4,5 and 6


*		Banco Santander Shares are not listed for trading, but only in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange.

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)

The number of outstanding shares of each class of Stock of Banco Santander, S.A. at December 31, 2007 was:
Shares par value Euro 0.50 each: 6,254,296,579

The number of outstanding shares of each class of stock of Santander Finance Preferred, S.A. Unipersonal benefiting from a guarantee of Banco Santander, S.A. at December 31, 2007 was:


Non-cumulative Preferred Securities, Series 1			7,600,000
Non-cumulative Preferred Securities, Series 4			20,000,000
Non-cumulative Preferred Securities, Series 5			24,000,000
Non-cumulative Preferred Securities, Series 6			14,000,000

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 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 o Other þ

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

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, 2007 in conformity with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

Except where noted otherwise, the financial information contained in this report has been prepared according to the International Financial Reporting Standards as adopted by the European Union required to be applied under Bank of Spain’s Circular 4/2004. Our financial statements for the fiscal year ended December 31, 2005 were the first to be prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and the financial statements for the fiscal year ended December 31, 2004 were restated using the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 standards. Financial information for fiscal years ended on or prior to December 31, 2003, was prepared according to Bank of Spain Circular 4/91 (“previous Spanish GAAP”) and is not comparable with that prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. Note 57 to the consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2006 contains a description of the significant differences between these accounting standards. Note 57 in our Annual Report on Form 20-F for the year ended December 31, 2007 contains a description of significant differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and Generally Accepted Accounting Principals in the United States (“U.S. GAAP”).

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 U.S. Securities and Exchange Commission that contains formatting requirements for bank holding company financial statements. We have, however, included summary financial information that reflects the required reclassifications in Note 57 to our consolidated financial statements.

The information prepared under EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 for 2004 differs from the information contained in the statutory consolidated financial statements for that year, as approved at the Annual General Meeting on June 18, 2005, which were prepared in accordance with previous Spanish GAAP.

Additionally, the information contained in the consolidated income statements for the years ended December 31, 2006, 2005 and 2004 differs from the consolidated income statement data for such periods included in our Annual Report on Form 20-F for the year ended December 31, 2006 due to the reclassification of amounts relating to operations that were discontinued in 2007, such as the sale of our Latin American pension management companies. (See “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations”). Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, revenues and expenses of discontinued businesses must be reclassified from each income statement line item to “Profit from discontinued operations”. Revenue 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 “Profit attributed to the Group” (see Note 37 to our consolidated financial statements).

Our auditors, Deloitte, S.L., have audited our consolidated financial statements in respect of the three years ended December 31, 2007, 2006 and 2005 in accordance with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. See page F-1 to our consolidated financial statements for the 2007, 2006 and 2005 report prepared by our independent registered public accounting firm.

Acquisition of Abbey National plc

In November 2004, we acquired 100% of the capital of Abbey National plc (“Abbey”). Our acquisition of Abbey was reflected on our financial statements as if the acquisition had occurred on December 31, 2004. Accordingly, Abbey’s assets and liabilities were consolidated into our balance sheet as of December 31, 2004, but Abbey’s results of operations had no impact on our income statement for the year ended December 31, 2004. Therefore, the income statement for the year ended December 31, 2005 is the first to reflect the acquisition of Abbey.

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. We included in interest income 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 units.

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

When we refer to impaired assets, we mean impaired loans, securities and other assets to collect.

When we refer to the 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—Financial Management and Equity Stakes—Classified Assets—Bank of Spain Allowances for Credit Losses and Country-Risk Requirements”.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include 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 “Qualitative and Quantitative 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:

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, other European countries, Latin America and the other areas in which we have significant business activities or investments;

•

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

•

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 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 and Latin America; and

•

changes in Spanish, UK, EU or foreign laws, regulations or taxes.

Transaction and Commercial Factors

•

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 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.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

A. Directors and Senior Management.

Not applicable.

B. Advisers.

Not applicable.

C. Auditors.

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.

Except where noted otherwise, the financial information contained in this report has been prepared according to the International Financial Reporting Standards as adopted by the European Union (“EU-IFRS”) required to be applied under Bank of Spain’s Circular 4/2004. Our financial statements for the fiscal year ended December 31, 2005 were the first to be prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and the financial statements for the fiscal year ended December 31, 2004 were restated using the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. Financial information for fiscal years ended on or prior to December 31, 2003 was prepared according to Bank of Spain Circular 4/91 (“previous Spanish GAAP”) and is not comparable with that prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. Note 57 to the consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2006 contains a description of the significant differences between these accounting standards. Note 57 to the 2007 consolidated financial statements contains a description of significant differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP. In addition, our financial information is presented according to the classification format for banks used in Spain.

In the F-pages of this Form 20-F, audited financial statements for the years 2007, 2006 and 2005 are presented. Audited financial statements for the year 2004 are not included in this document, but they can be found in our previous annual reports on Form 20-F.

In November 2004, we acquired 100% of the capital of Abbey. Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, our acquisition of Abbey was reflected on our financial statements as if the acquisition had occurred on December 31, 2004. Accordingly, Abbey’s assets and liabilities were consolidated into our balance sheet as of December 31, 2004, but Abbey’s results of operations had no impact on our income statement for the year ended December 31, 2004. Therefore, the income statement for the year ended December 31, 2005 is the first to reflect the acquisition of Abbey.

The information contained in the consolidated income statements for the years ended December 31, 2006, 2005 and 2004 differs from the consolidated income statement data for such periods included in our Annual Report on Form 20-F for the year ended December 31, 2006 due to the reclassification of amounts relating to operations that were discontinued in 2007, such as the sale of our Latin American pension management companies (see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations”). Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, revenues and expenses of discontinued businesses must be reclassified from each income statement line item to “Profit from discontinued operations”. This presentation requirement came into effect in the fiscal year ended December 31, 2006. 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 “Profit attributed to the Group” (see Note 37 to our consolidated financial statements).


	Year Ended December 31,
	2007			2006			2005			2004
	(in thousands of euros, except percentages and per share data)

Interest and similar income		45,803,354			36,832,823			33,088,647			17,438,432
Interest expense and similar charges		(30,921,470	)		(24,757,027	)		(22,764,846	)		(10,271,876	)
Income from equity instruments		413,242			404,000			335,576			388,876

Net interest income		15,295,126			12,479,796			10,659,377			7,555,432
Share of results from entities accounted for by the equity method		441,457			426,921			619,157			448,220
Net fees and commissions (1)		8,040,175			7,024,195			6,061,196			4,550,753
Insurance activity income		319,353			253,084			201,466			144,529
Gains on financial transactions (2)		2,972,358			2,149,174			1,534,360			1,090,343

Gross income		27,068,469			22,333,170			19,075,556			13,789,277
Net income from non-financial activities (3)		152,072			118,913			156,178			118,308
Other operating expenses (4)		(118,639	)		(118,625	)		(88,706	)		(61,064	)
General administrative expenses		(11,018,329	)		(9,969,171	)		(9,364,408	)		(6,683,623	)
Personnel		(6,551,201	)		(5,967,873	)		(5,611,308	)		(4,232,981	)
Other general and administrative expenses		(4,467,128	)		(4,001,298	)		(3,753,100	)		(2,450,642	)
Depreciation and amortization		(1,267,880	)		(1,146,547	)		(1,013,943	)		(830,621	)

Net operating income		14,815,693			11,217,740			8,764,677			6,332,277
Impairment losses (net)		(5,078,513	)		(2,550,570	)		(1,801,934	)		(1,787,871	)
Net gains on disposal of investments in associates (5)		16,388			271,961			1,298,935			30,891
Net results on other disposals, provisions, and other income (6)		1,421,673			56,255			(600,781	)		(219,573	)

Profit before tax		11,175,241			8,995,386			7,660,897			4,355,724
Income tax		(2,335,686	)		(2,254,598	)		(1,241,830	)		(491,922	)

Profit from continuing operations		8,839,555			6,740,788			6,419,067			3,863,802
Profit from discontinued operations		796,595			1,504,965			330,703			132,432

Consolidated profit for the year		9,636,150			8,245,753			6,749,770			3,996,234
Profit attributed to minority interests		575,892			649,806			529,666			390,364

Profit attributed to the Group		9,060,258			7,595,947			6,220,104			3,605,870

Per Share Information:
Average number of shares (thousands) (7)		6,341,771			6,248,376			6,240,611			4,950,498
Basic earnings per share (in euros)		1.4287			1.2157			0.9967			0.7284
Basic earnings per share – continued operations (in euros)		1.3170			1.0127			0.9599			0.7142
Diluted earnings per share (in euros)		1.4139			1.2091			0.9930			0.7271
Dividends paid (in euros)		0.25			0.52			0.42			0.33
Dividends paid (in US$)		0.36			0.65			0.49			0.39


	Year ended December 31,
	2007			2006			2005			2004
	(in thousands of euros, except percentages and per share data)

Total assets		912,914,971			833,872,715			809,106,914			664,486,300
Loans and advances to credit institutions (8)		50,919,499			60,174,538			59,773,022			58,379,774
Loans and advances to customers (net) (8)		565,477,011			523,345,864			435,828,795			369,350,064
Investment Securities (9)		132,035,268			136,760,433			203,938,360			138,753,764
Investments: Associates		15,689,127			5,006,109			3,031,482			3,747,564

Liabilities
Deposits from central banks and credit institutions (10)		112,896,023			113,035,937			148,622,407			83,750,339
Customer deposits (10)		355,704,302			331,222,601			305,765,280			283,211,616
Debt securities (10)		233,634,496			204,069,390			148,840,346			113,838,603

Capitalization
Guaranteed Subordinated debt excluding preferred securities (11)		16,742,134			11,186,480			8,973,699			9,369,939
Secured Subordinated debt		—			—			—			508,039
Other Subordinated debt		11,666,663			12,399,771			13,016,989			12,300,178
Preferred securities (11)		7,261,382			6,836,570			6,772,768			5,292,016
Preferred shares (11)		522,558			668,328			1,308,847			2,124,222
Minority interest (including net income of the period)		2,358,269			2,220,743			2,848,223			2,085,316
Stockholders’ equity (12)		55,199,882			44,851,559			39,778,476			34,414,942
Total capitalization		93,750,888			78,163,451			72,699,002			66,094,652
Stockholders’ Equity per Share (12)		8.70			7.18			6.37			6.95

Other managed funds
Mutual funds		119,210,503			119,838,418			109,480,095			97,837,724
Pension funds		11,952,437			29,450,103			28,619,183			21,678,522
Managed portfolio		19,814,340			17,835,031			14,746,329			8,998,388
Savings–insurance policies		9,008,968			6,384,994			15,145,607			16,843,995
Total other managed funds		159,986,248			173,508,546			167,991,214			145,358,629

Consolidated Ratios
Profitability Ratios:
Net Yield (13)		1.84	%		1.67	%		1.68	%		2.21	%
Efficiency ratio (14)		44.26	%		48.53	%		52.82	%		53.18	%
Return on average total assets (ROA)		1.10	%		1.00	%		0.91	%		1.01	%
Return on average stockholders’ equity (ROE)		21.91	%		21.39	%		19.86	%		19.74	%
Capital Ratio:
Average stockholders’ equity to average total assets		4.71	%		4.36	%		4.24	%		4.62	%
Ratio of earnings to fixed charges (15)
Excluding interest on deposits		1.66	%		1.76	%		1.80	%		1.90	%
Including interest on deposits		1.34	%		1.35	%		1.31	%		1.39	%

Credit Quality Data
Allowances for impaired assets (excluding country risk)		9,302,230			8,626,937			7,902,225			6,813,354
Allowances for impaired assets as a percentage of total loans		1.62	%		1.62	%		1.78	%		1.81	%
Impaired assets (16)		6,178,655			4,607,547			4,341,500			4,114,691
Impaired assets as a percentage of total loans		1.07	%		0.87	%		0.98	%		1.09	%
Allowances for impaired assets as a percentage of impaired assets		150.55	%		187.23	%		182.02	%		165.59	%
Net loan charge-offs as a percentage of total loans		0.47	%		0.34	%		0.23	%		0.16	%


(1)		Equals “Fee and commission income” less “Fee and commission expense” as stated in our consolidated financial statements.

(2)		Equals the sum of “Gains/losses on financial assets and liabilities (net)” and “Exchange differences (net)” as stated in our consolidated financial statements.

(3)		Equals the sum of “Sales and income from the provision of non-financial services” and “Cost of sales” as stated in our consolidated financial statements.

(4)		Equals the sum of “Other operating income” and “Other operating expenses” as stated in our consolidated financial statements.

(5)		Equals the sum of “Other gains: Gains on disposal of investments in associates” and “Other losses: Losses on disposal of investments in associates” as stated in our consolidated financial statements.

(6)		Includes “Provisions (net)”, “Finance income from non-financial activities”, “Finance expense from non-financial activities”, “Other gains: Gains on disposal of tangible assets”, “Other gains: Other”, “Other losses: Losses on disposal of tangible assets” and “Other losses: Other” as stated in our consolidated financial statements.

(7)		Average number of shares have been calculated on the basis of the weighted average number of shares outstanding in the relevant year, net of treasury stock.

(8)		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.

(9)		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.

(10)		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.

(11)		In our consolidated financial statements preferred securities are included under “Subordinated liabilities” and preferred shares are stated as “Equity having the substance of a financial liability”.

(12)		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.

(13)		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—Financial Management and Equity Stakes—Assets—Earning Assets—Yield Spread”.

(14)		Efficiency ratio equals the sum of “General administrative expenses from financial activities”, “Depreciation and amortization costs” less “Offsetting fees” (see Note 48 to our consolidated financial statements), divided by the sum of “Gross income” and “Net income from non-financial activities” less “General administrative expenses from non-financial activities”.

(15)		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.

(16)		Impaired assets 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—Financial Management and Equity Stakes—Classified Assets—Bank of Spain Classification Requirements”.

The following table shows net income, stockholders’ equity, total assets and certain ratios on a U.S. GAAP basis.

U.S. GAAP


	As of and for the year ended December 31,
	2007		2006		2005		2004		2003
	(in thousands of euros, except ratios and per share data)
Net income (1)		7,296,817		7,414,571		6,318,460		3,940,866		2,264,332
Of which:
Continuing operations		6,724,962		6,305,470		6,088,760		3,870,587		2,264,332
Discontinued operations		571,855		1,109,101		229,700		70,279		—
Stockholders’ equity (1)(2)		57,393,597		48,703,540		43,784,335		38,671,623		25,093,234
Total assets		899,911,121		841,939,558		845,345,463		604,084,270		350,662,064
Basic earnings per share (3)		1.15		1.19		1.01		0.80		0.47
Basic earnings per share – continued operations		1.06		1.01		0.98		0.78		0.47
Stockholders’ equity per share (2)(3)		9.05		7.79		7.02		7.81		5.26
Ratio of earnings to fixed charges: (4)
Excluding interest on deposits		1.47		1.66		1.81		1.94		1.79
Including interest on deposits		1.24		1.30		1.31		1.39		1.30
Ratio of earnings to combined fixed charges and preferred stock dividends: (5)
Excluding interest on deposits		1.46		1.65		1.79		1.86		1.64
Including interest on deposits		1.24		1.30		1.30		1.37		1.26


(1)		For information concerning the reconciliation between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP and a discussion of the significant U.S. GAAP adjustments to net income and stockholders’ equity, see Note 57 to our consolidated financial statements.

(2)		As of the end of each period. The book value of our treasury stock has been deducted from stockholders’ equity.

(3)		Per share data have been calculated on the basis of the weighted average number of our shares outstanding in the relevant year, deducting treasury stock.

(4)		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.

(5)		For the purpose of calculating the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income from continuing operations before taxation and minority interest, 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, preferred stock dividend requirements (corresponding to minority interest participation and, accordingly, not eliminated in consolidation), and the proportion of rental expense deemed representative of the interest factor. Preferred stock dividends for any year represent the amount of pre-tax earnings required to pay dividends on preferred stock outstanding during such year. Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 all payments from preferred securities are accounted for as interest expenses and consequently this ratio is not necessary. (For details of the different accounting treatment given to preferred securities under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP see Notes 57.2, 57.5 and 57.6 to our consolidated financial statements).

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.


	Rate During Period
	Period End		Average Rate(1)
Calendar Period	($)		($)
2003		1.2597		1.411
2004		1.3538		1.2478
2005		1.1842		1.2449
2006		1.3197		1.2661
2007		1.4603		1.3797


(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 $
2007
December		1.4759		1.4344
2008
January		1.4877		1.4574
February		1.5187		1.4495
March		1.5805		1.5195
April		1.6010		1.5568
May		1.5784		1.5370
June (through June 19, 2008)		1.5731		1.5368

On June 19, 2008, the exchange rate for euros and dollars (expressed in dollars per euro), based on the Noon Buying Rate, was $1.5502.

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.

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 mainly concentrated in Continental Europe (in particular, Spain), the United Kingdom and Latin America. At December 31, 2007, Continental Europe accounted for approximately 55% of our total loan portfolio (Spain accounted for 34% of our total loan portfolio), while the United Kingdom and Latin America accounted for 33% and 12%, 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.

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, 2007, 17.4% of these customer deposits were time deposits in amounts greater than $100,000. Time deposits represented 48.9%, 44.2% and 43.5% of total customer deposits at the end of 2007, 2006 and 2005, 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 U.S. sub-prime credit market, continues to affect the supply and cost of liquidity and funding. The effects of the downturn have 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. In this context, there can be no assurance that we will not incur materially higher funding costs or be required to liquidate certain assets.

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 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 provisions for credit losses. Deterioration in the economies in which we operate could reduce the profit margins for our banking and financial services businesses.

Increased exposure to real estate makes us more vulnerable to developments in this market.

From 2003 to 2006, historically low interest rates in the Eurozone caused an increase in the demand for mortgage loans. This had repercussions in housing prices, which also rose significantly. During 2007 and 2008 the housing market, both supply and demand, has adjusted sharply and interest rates have increased strongly in the Eurozone. As a consequence, our impaired assets as a percentage of total loans increased from 0.87% at December 31, 2006 to 1.07% at December 31, 2007. At March 31, 2008, our impaired assets as a percentage of total loans increased further to 1.29%. As real estate mortgages are one of our main assets, comprising 50% of our loan portfolio at December 31, 2007, we are currently highly exposed to developments in real estate markets. Interest rate increases from today’s levels could have a significant negative impact on our mortgage payment delinquency rates. An increase in such delinquency rates could have a material adverse effect on our business, financial condition and results of operations.

The Group 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 the Group executes for its customers and, therefore, to declines in the Group’s non-interest revenues. In addition, because the fees that the Group charges for managing its clients’ portfolios are in many cases based on the value or performance of those portfolios, a market downturn that reduces the value of the Group’s clients’ portfolios or increases the amount of withdrawals would reduce the revenues the Group receives from its asset management and private banking and custody businesses.

Even in the absence of a market downturn, below-market performance by the Group’s mutual funds may result in increased withdrawals and reduced inflows, which would reduce the revenue the Group receives from its asset management business.

Market risks associated with fluctuations in bond and equity prices and other market factors are inherent in the Group’s 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 the Group’s investment and trading portfolios. In some of the Group’s 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 the Group 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 the Group calculates using models other than publicly quoted prices. Monitoring the deterioration of prices of assets like these is difficult and could lead to losses that the Group did not anticipate.

Despite the Group’s risk management policies, procedures and methods, the Group may nonetheless be exposed to unidentified or unanticipated risks.

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

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

We have historically acquired controlling interests in various companies, and have engaged in other strategic partnerships. Additionally, we may consider other strategic acquisitions and partnerships from time to time. There can be no assurances that we will be successful in our plans regarding the operation of future acquisitions and strategic partnerships.

We can give you no assurance that our 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.

Proposals for the restructuring of the businesses we acquired from ABN AMRO are complex and may not realize the anticipated benefits for the Group

The restructuring plan in place for the integration and separation of ABN AMRO into and among the businesses and operations of the Group is complex and involves substantial reorganization of ABN AMRO’s operations and legal structure. In addition, it contemplates activities taking place simultaneously in a number of businesses and jurisdictions. Implementation of the reorganization and the realization of the forecast benefits within the planned timetable may be challenging. Execution of the restructuring requires management resources previously devoted to the Group’s businesses and the retention of appropriately skilled ABN AMRO staff. The Group may not realize the benefits of the acquisition or the restructuring when expected or to the extent projected. See “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”)”.

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 and Latin America has increased recently. Our success in the European and Latin American 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.

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, 2007, the Group’s interest rate risk measured in daily Value at Risk (“VaRD”) terms amounted to €75.4 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 U.S. dollar will affect the U.S. 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 U.S. 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 U.S. dollar will depress earnings from our Latin American 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, 2007, our largest exposures on temporary positions (with a potential impact on the income statement) were concentrated on the U.S. dollar and the pound sterling. 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.

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

A number of banking regulations designed to maintain the safety and soundness of banks and limit their exposure to risk apply in the different jurisdictions in which our subsidiaries operate. 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 an 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.

Different disclosure and accounting principles between Spain and the U.S. 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 U.S. issuers. Additionally, we present our financial statements under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 which differs from U.S. GAAP. See Note 57 to our consolidated financial statements.

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

The Group faces 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; money laundering laws; and conduct by companies in which we hold strategic investments or joint venture partners. Failure to address these issues appropriately 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 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.

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 €2,666 million of our profit attributed to the Group for the year ended December 31, 2007 (an increase of 17% from €2,287 million for the year ended December 31, 2006). 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 Latin American subsidiaries’ growth, asset quality and profitability will not be affected by volatile macroeconomic and political conditions in the Latin American countries in which we operate.

Our Venezuelan subsidiary is exposed to the risk of potential nationalization.

Several recent political developments in Venezuela present an increased risk that the Venezuelan government could nationalize or otherwise seek to intervene in the operations of our Venezuelan subsidiary, which could negatively affect our operations in Venezuela.

The profit attributed to the Group obtained from Venezuela in 2007 amounted to €179 million, which accounted for 2% of the total profit attributed to the Group during the year.

Significant competition in some Latin American countries could intensify price competition and limit our ability to increase our market share in those markets.

Because some of the Latin American countries in which we operate (i) only have limited regulatory barriers to market entry, (ii) generally do not differentiate between locally or foreign-owned banks, (iii) have permitted consolidation of their banks, and (iv) do not restrict capital movements, we face significant competition in Latin America from both domestic and foreign commercial and investment banks.

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.

Item 4. Information on the Company

A. History and development of the company

Introduction

Banco Santander, S.A. (“Santander” or “the Bank”) 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 current 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 2005, 2006 and 2007 are as follows:

ABN AMRO Holding N.V. (“ABN AMRO”).

On July 20, 2007, after having obtained the regulatory authorizations required to publish the documentation for 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 “Bidders”) formally launched, through RFS Holdings B.V., an 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.

The Bidders and RFS Holdings B.V., a company newly incorporated for the purpose of making the proposed offer, entered into an agreement relating to the Offer, dated as of May 28, 2007 (the “Consortium Agreement”). The Consortium Agreement sets forth the terms on which the Offer was made and provides for the management of ABN AMRO after completion of the Offer. This includes the allocation of the ABN AMRO businesses among the Bidders and the sale of non-core assets of ABN AMRO.

On October 10, 2007, the Bidders declared the Offer to be unconditional. As of that date, the owners of 86% of the ordinary share capital of ABN AMRO had accepted the Offer (including certain shares that the Bidders 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.

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

The investment made by the Bank in ABN AMRO amounted to €20,615 million and, at December 31, 2007, 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 of these actions, the Bidders began the spin-off of the business lines of ABN AMRO in order to subsequently integrate each of the spun-off businesses into the Bidders. The following business lines correspond to 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 Bidders of the consortium and which are intended to be disposed of. The finalization of the asset spin-off and integration process is subject to approval, among other regulators, by the Dutch Central Bank.

On November 15, 2007, ABN AMRO sold the consumer finance units located in the Netherlands for €98 million. Additionally, on November 8, 2007, the Bank entered into an agreement with Monte dei Paschi di Siena for the sale, at the earliest possible date and no later than September 2008, of Antonveneta (excluding Interbanca, the corporate banking division of Antonveneta, whose net investment value amounts to approximately €800 million) for €9 billion. The transaction was completed on May 30, 2008.

Accordingly, after the sale of Antonveneta to Monte dei Paschi di Siena, the net investment made by the Bank, basically in Banco Real and Interbanca, amounted to approximately €11,615 million (see more information about Interbanca in “Recent events – Agreement between Santander and General Electric (“GE”)”).

Banco Real

Banco Real is the fourth-largest bank in Brazil in terms of volume of loans, deposits and income. It has an extensive distribution network (1,900 branches and 8,700 ATMs), which enables it to carry on full retail and wholesale banking activities throughout Brazil, currently serving over 13 million customers. It also has entities specializing in private banking and vehicle financing.

The combination of the Group’s historical business in Brazil through Santander Brazil with Banco Real positions the combined entity with a market share and an infrastructure equal to those of the two leading private banks in Brazil, and creates the second-largest bank in Brazil in terms of deposits, the third-largest in terms of lending and network size, and the fourth-largest in terms of income.

At December 31, 2006, Banco Real had assets amounting to BRL120.83 billion (€50 billion), equity amounting to BRL9.78 billion (€4 billion) and attributed profit amounting to BRL2.48 billion (€1 billion).

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 case that the tender offer did not succeed. Grupo Santander sold to BCP 35.5 million shares of BPI, with capital gains of €107 million. As of December 31, 2007, the Group held 1.2% of BPI.

Santander Consumer Chile. 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 has 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 of Alcanza. After the transaction, Santander Consumer will control 85% of Alcanza. As in its other markets, Santander Consumer’s business in Mexico will focus 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 is an estimated US$39.5 million. The deal was closed in December 2007.

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. On July 27, 2007 we announced that we had agreed to sell 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 includes fund management companies in Mexico (Afore Santander), Chile (AFP Bansander), Colombia (AFP and Cesantía Santander) and Uruguay (Afinidad AFAP).

On November 14, 2007 we announced that we had reached an agreement with ING Groep NV for the sale of 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.

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 of these properties, with an option to repurchase such 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 of between 45 to 47 years, with an option to repurchase such properties. The transaction amounts to €2,040 million, generating an approximate net capital gain of €860 million for Grupo Santander.

CB Extrobank. (“Extrobank”). In 2007 we acquired 100% of the Russian bank Extrobank for €48 million and generated goodwill of €37 million.

Drive Consumer USA Inc. (formerly, Drive Financial Services LP) (“Drive”). On September 25, 2006, we reached an agreement to acquire 90% of Drive in the U.S. for $637 million in cash, representing a multiple of 6.8 times the estimated earnings for 2006. The transaction closed in 2006 and generated goodwill of $544 million. As of June 10, 2008, Grupo Santander has bought an additional 1% stake in Drive for $17 million.

Under the agreement, the total purchase price paid by Santander could increase by a maximum of $175 million, if Drive meets certain earning targets in 2007 and 2008.

Drive is one of the leading auto financing companies in the “subprime” customer segment in the United States. Based in Dallas, Texas, it is present in 35 states, with approximately 50% of its activity concentrated in Texas, California, Florida and Georgia. Drive has around 600 employees and its products are distributed through more than 10,000 auto dealer partnerships.

Until our acquisition, 64.5% of Drive was owned by HBOS plc and 35.5% by its management team. Following the acquisition by Santander, the present Chairman and COO of Drive is acting as Chief Executive Officer, maintaining ownership of 9% of Drive, a percentage on which the parties have signed a series of options which could enable Grupo Santander to buy this 9% between 2009 and 2013 at prices linked to the Drive’s earnings performance.

Abbey National plc (“Abbey”). On July 25, 2004, our Board of Directors and the Board of Directors of Abbey announced that they had reached an agreement on the terms of a recommended acquisition by us of all the ordinary shares of Abbey by means of a scheme of arrangement under the United Kingdom Companies Act.

After the approval of shareholders at the respective shareholders’ meetings of both companies, held in October 2004, and once all conditions of the transaction were met, on November 12, 2004, the acquisition was completed through the delivery of one new share of Santander for every Abbey share. The capital increase amounted to €12,540.9 million, representing 1,485,893,636 new Santander shares of €0.50 par value each and a share premium of €7.94 each.

On September 1, 2006, Abbey sold its entire life insurance business to Resolution plc (“Resolution”) for a fixed cash consideration of €5.3 billion (£3.6 billion). This represents 97% of the embedded value of the businesses sold as reported by Abbey as of December 31, 2005, and did not generate capital gains for Grupo Santander.

The life insurance businesses sold were Scottish Mutual Assurance plc, Scottish Provident Limited and Abbey National Life plc, as well as the two offshore life insurance companies, Scottish Mutual International plc and Scottish Provident International Life Assurance Limited. Abbey retained its entire branch based investment and asset management business and James Hay, its self-invested personal pension company, and its wrap business.

Separately, in order to provide continuity of product supply and service to its customers, Abbey entered into two distribution agreements with Resolution under which (i) Abbey would distribute through its retail network Abbey-branded life and pensions products created by Resolution; and (ii) Abbey would continue to be the exclusive distributor of Scottish Provident protection products to intermediaries.

In addition, Abbey secured exclusive access to provide retail banking products to Resolution’s five million policyholders.

Approximately 2,000 Abbey employees were transferred to Resolution as part of the transaction. Resolution continues to operate the life operations from the Abbey premises in Glasgow and also maintains the operations in Dublin, the Isle of Man and Hong Kong.

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. The proceeds of the sale were used by Sovereign to finance a portion of the $3.6 billion cash purchase price that Sovereign paid to acquire Independence Community Bank Corp. (‘‘Independence’’).

Sovereign’s Board of Directors elected three Santander designees to its Board of Directors, and at Santander’s Annual General Meeting of Shareholders held on June 17, 2006, the chief executive officer of Sovereign at that time was elected to Santander’s Board of Directors. Effective as of the beginning of 2007, the Sovereign Board of Directors decided to appoint a new chief executive officer and the former chief executive officer resigned from Santander’s Board of Directors. No representative of Sovereign currently serves on our Board.

Under the Investment Agreement dated October 24, 2005 between Santander and Sovereign, as amended (the ‘‘Investment Agreement’’), Santander had the right to increase its stake to 24.99% of Sovereign’s outstanding shares at market prices but, unless otherwise approved by Sovereign’s shareholders, any such shares purchased had to be placed in a voting trust and voted in proportion to the votes of Sovereign’s shareholders other than Santander and its affiliates. On May 3, 2007, Sovereign’s shareholders approved an amendment to Sovereign’s articles of incorporation that, among other effects, authorizes Santander to vote the shares then held in the voting trust and any additional Sovereign shares that Santander might acquire in the future. After shareholder approval of the amendment to Sovereign’s articles of incorporation, Santander and Sovereign took the necessary steps to terminate the voting trust and transfer the shares held by the trust to Santander. Upon completion of these steps, and since June 6, 2007, Santander has had the right to vote all of the 23,593,724 Sovereign shares previously held in the voting trust.

The Investment Agreement provides that, except with the consent of Sovereign’s Board of Directors or pursuant to the procedures described below, Santander may not increase its ownership stake in Sovereign to more than 24.99% until the end of the standstill period under the Investment Agreement. The Investment Agreement also provides that, Santander has certain rights to acquire additional Sovereign shares as necessary to allow it to maintain its 24.99% ownership interest.

From time to time, since May 31, 2006, Sovereign has issued shares in the ordinary course of business pursuant to the exercise of employee stock options, resulting in dilution of Santander’s ownership interest. From time to time, Santander has made purchases of additional shares from Sovereign or in open market transactions to offset, or partially offset, this dilution. In addition, to prevent further dilution of our holding, in May 2008, we invested $312 million to subscribe to a $1.25 billion common stock offering completed by Sovereign.

As of December 31, 2007, we had acquired 24.43% of Sovereign at a cost of €2.3 billion. During 2007, we made an appraisal of our investment in Sovereign and we reduced the value of our holding by €1,053 million as of December 31, 2007 (see Note 13 to our consolidated financial statements).

The Investment Agreement provides that, until May 31, 2011, Santander will have the option to make an offer to acquire 100% of Sovereign, subject to certain conditions and limitations agreed between the parties. If such an offer is made by Santander and the offer is the highest offer resulting from an auction of Sovereign or at least equal to a full and fair price for Sovereign as determined pursuant to a competitive valuation procedure agreed by the parties, the Sovereign board must accept the offer, provided that until May 31, 2009, any offer made by Santander must be at a price of at least $38 per share. Even if the Sovereign board accepts the offer, Santander will not be permitted to complete an acquisition of Sovereign unless a majority of the non-Santander shareholders who vote at the relevant Sovereign shareholder meeting approve the acquisition. In addition, until May 31, 2011, Santander will have a right of first negotiation and a matching right with respect to third party offers to acquire Sovereign. Finally, with certain exceptions, Santander has agreed that, until May 31, 2011, it will not sell or otherwise dispose of its Sovereign shares.

Santander has several options with respect to its investment in Sovereign. Santander can hold its investment in Sovereign indefinitely, seek to acquire 100% of Sovereign or, subject to the terms of the Investment Agreement, sell or otherwise dispose of its investment.

Intesa Sanpaolo. On December 29, 2006, we announced that we had sold shares representing 4.8% of the share capital of San Paolo-IMI, S.p.A. for a total consideration of €1,585 million. This transaction generated a capital gain of €705 million for Santander.

On June 19, 2007 we announced that we had sold our 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.

Banco Santander Chile. On November 27, 2006 Santander announced its intention to offer up to 7.23% of Banco Santander Chile’s common stock through a public offering registered with the Securities and Exchange Commission in the United States of America.

Banco Santander Chile is Chile’s largest bank, in terms of total loans and total deposits, and is a key element in Santander’s strategy in Latin America. Santander’s current policy is to maintain ownership of at least 75% of Banco Santander Chile’s common stock as part of its long term investment strategy in Latin America.

The public offering was completed in December 2006 and generated gross capital gains for Grupo Santander of €270 million.

Fumagalli Soldan. On November 8, 2006, Santander reached an agreement with KBL Group to acquire via its specialized subsidiary, Banif, the Italian private bank, KBL Fumagalli Soldan, a subsidiary of the KBL Group. The deal is valued at €44 million. Fumagalli Soldan has offices in Rome and Milan and has assets under management of €400 million. Santander plans to integrate Fumagalli Soldan with Banif and offer its Italian customers a wider range of banking products and services. Santander already has a consumer credit activity in Italy via Santander Consumer Finance.

Antena 3 de Televisión, S.A. (“Antena 3TV”). On October 25, 2006 Antena 3TV announced that it would repurchase a 10% interest in itself which was held directly or indirectly by Santander. The transaction, approved at the shareholders’ general meeting held in November 2006 by Antena 3TV, resulted in the acquisition by Antena 3TV of shares representing 5% of its share capital and a capital reduction through amortization of another 5%, in both cases at a price of €18 per share.

The acquisition was completed during 2006 and generated a capital gain of €294 million for Santander.

Merger of Banco Santander, S.A. and Riyal, S.L.(“Riyal”), Lodares Inversiones, S.L. Sociedad Unipersonal (“Lodares”), Somaen-Dos, S.L. Sociedad Unipersonal (“Somaen”), Gessinest Consulting, S.A. Sociedad Unipersonal (“Gessinest”) and Carvasa Inversiones, S.L. Sociedad Unipersonal (“Carvasa”). On October 23, 2006, the Bank held an Extraordinary General Shareholders’ Meeting that approved the merger by absorption of Riyal, Lodares, Somaen, Gessinest and Carvasa, into Banco Santander. As a result, Banco Santander absorbed all of the other five companies mentioned above, which were wholly-owned, directly or indirectly, by Banco Santander. The absorbed companies have been terminated and all of their net corporate assets have been transferred to Banco Santander which has acquired, as universal successor, all of the rights and obligations making up the net assets of the absorbed companies.

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 Bank’s takeover bid breached historical side 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 side agreements contained in the agreements relating to Cepsa between the Bank and Total, S.A. (or Elf) were rendered invalid by application of Transitional Provision Three of Law 26/2003, of July 17. 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 purpose of which was to hold 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 “Elf”). To this end, on August 2, 2006, the Bank and Riyal, S.L. entered into two agreements, one with Elf Aquitaine, S.A. and Odival, S.A. and the other with Unión Fenosa, S.A. to enforce the partial award and separate the ownership interests that they each held through Somaen-Dos, S.L.

On October 13, 2006, Elf received notification from the European Commission communicating the authorization of the share ownership 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 sale gave rise to a loss of €158 million which was covered by a provision recognized for this purpose.

Banco Santander, S.A.’s holding in Cepsa was 31.64% of Cepsa’s share capital at December 31, 2007.

AFP Unión Vida. On July 25, 2006, Grupo Santander reached an agreement with Banco de Crédito Perú to sell to the latter the Peruvian pension company AFP Unión Vida for an amount, subject to adjustment, of $142 million. The transaction was completed on August 25, 2006 and generated for Santander capital gains of approximately $100 million.

Inmobiliaria Urbis, S.A (“Urbis”). In July 2006, the Group and Construcciones Reyal, S.A.U. (“Reyal”) entered into an agreement whereby Reyal undertook to launch a takeover bid for all the share capital of Urbis, at a price of €26 per share, provided that at least 50.267% of the share capital of Urbis was accepted. The Group undertook to transfer to Reyal all its ownership interest in Urbis and not to accept any competing offers. Upon completion of the terms stipulated by current legislation, on December 15, 2006, the CNMV announced that the takeover bid was valid, since it had been accepted by 96.40% of the shares of Urbis. The transaction was definitively settled on December 21, 2006 and gave rise to pre-tax gains of €1,218 million.

Both Reyal and URBIS are among the largest real estate companies in Spain.

Unifin S.p.A. (“Unifin”). In May 2006 the Group acquired 70% of the Italian consumer finance entity Unifin for €44 million, giving rise to goodwill of €37 million.

Banco Santa Cruz S.A. (“Banco Santa Cruz”). On April 18, 2006 we sold our entire stake in the capital stock of our subsidiary in Bolivia, Banco Santa Cruz.

Island Finance. On January 23, 2006, our subsidiary in Puerto Rico, Santander BanCorp, and Wells Fargo & Company reached an agreement through which we would acquire the assets and business operations in Puerto Rico of Island Finance, a consumer finance company, from Wells Fargo for $742 million. The transaction closed in the first quarter of 2006 and generated goodwill of $114 million. In 2007, we assessed our ownership interest in Island Finance and adjusted the value of the investment by €14 million. Island Finance provides consumer financing and mortgages to 205,000 customers through its 70 branches in Puerto Rico.

Interbanco S.A. (“Interbanco”). On September 14, 2005 we reached an agreement with SAG (Soluções Automóvel Globlais) 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”. After this transaction, and subject to the original agreements, we acquired the remaining 40% for €138 million. These transactions generated goodwill of €74 million. At December 31, 2007 we owned 100% of Banco Santander Consumer Portugal.

ELCON Finans A.S. (“Elcon”) and Bankia Bank A.S.A. (“Bankia”). In September 2004, we acquired 100% of the capital stock of Elcon, a leading Norwegian vehicle finance company, for 3.44 billion Norwegian Kroners (approximately €400 million). Subsequently, we agreed to sell Elcon’s equipment leasing and factoring businesses for approximately €160 million. This transaction generated goodwill of €120 million.

In March 2005, we launched a tender offer for Bankia (a Norwegian bank). In May 2005, we acquired 100% of Bankia’s capital stock for a total price of €54 million. This transaction generated goodwill of €45 million.

In December 2005, Elcon and Bankia were merged to form Santander Consumer Bank A.S.

The Royal Bank of Scotland Group, plc. (“RBS”). In September 2004, we sold 79 million of our RBS shares, representing 2.51% of our holding, at a capital gain of approximately €472 million. In January 2005, we sold our entire holding in RBS for €2,007 million at a capital gain of €717 million. In 2007, we acquired a 2.3% stake in the capital stock of RBS as a financial investment.

Unión Eléctrica Fenosa, S.A. (“Unión Fenosa”). In 2002, we acquired several holdings in the capital stock of Unión Fenosa for a total amount of €465 million. In 2004, we sold 1% of our holding that as of December 31, 2004, was 22.02%.

In September 2005, we agreed to sell our entire stake in Unión Fenosa, equivalent to 22.07% of its capital stock, to ACS Actividades de Construcción y Servicios, S.A. (ACS) for a price of €2,219 million. As a result of this sale, we realized capital gains of €1,157 million.

Auna Operadores de Telecomunicaciones, S.A. (“Auna”). In 2002, we acquired a 12.62% stake in Auna for €939 million, thus increasing to 23.49% our total holding in this company. This stake was increased by an additional 2.5% in 2004, for approximately €217 million. Furthermore, during 2004, we made purchases for an additional 1.5% stake in Auna for approximately €120 million. As of December 31, 2004, we had a 27.34% holding in the capital stock of Auna, with an investment of €2,031 million.

In January 2005, we acquired an additional 4.74% stake in Auna for €422 million, thus increasing to 32.08% our total holding in this company.

In November 2005, we sold 27.07% of our holding in Auna to France Télécom at a capital gain of €355 million. As of December 31, 2005, we had a 5.01% holding in the capital stock of Auna.

Shinsei Bank, Ltd (“Shinsei”). In 2003, we increased our holding in the capital stock of the Japanese bank Shinsei from 6.5% as of December 31, 2002, to 11.4% as of December 31, 2003. The total cost of the investment at that date was approximately €144 million. During 2004, we sold 4.0% of our holding at a capital gain of approximately €118 million. After this transaction, we held 7.4% of the capital stock of Shinsei. In the first quarter of 2005, we sold 2.7% of our holding at a capital gain of €49 million. As of December 31, 2007, we held 4.23% of the capital stock of Shinsei.

Commerzbank AG (“Commerzbank”). During 2005 we sold our 3.38% holding in Commerzbank at a capital gain of €24 million.

In addition to expanding our existing operations, we continually review possible acquisitions of, and investments in, businesses in markets in which we believe we have particular advantages.

Capital Increases

As of December 31, 2005, 2006 and 2007 our capital stock consisted of 6,254,296,579 fully subscribed and paid shares of €0.5 par value each.

Recent Events

Sale and leaseback of real estate assets.

On January 25, 2008, we announced that we had reached an agreement with a consortium led by the United Kingdom property investor Propinvest for the sale of Ciudad Grupo Santander (our corporate headquarters) 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 price agreed for Ciudad Grupo Santander was €1.9 billion, generating capital gains of approximately €605 million.

Including other sale and leaseback operations we have conducted of our real estate assets in Spain, we have sold properties (always with simultaneous lease-back and re-purchase option) for a total amount of €4,398 million, generating capital gains totaling approximately €1,681 million. The transaction related to Ciudad Grupo Santander was the final part of the sale of our Spanish real estate property portfolio.

Agreement between Santander and Fortis

On February 27, 2008 Santander and Fortis reached an agreement under which Santander will purchase from Fortis ABN AMRO’s asset management business in Brazil, which was acquired by Fortis as part of the purchase of ABN AMRO by a consortium of Royal Bank of Scotland (“RBS”), Fortis and Santander. For more information see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganization—ABN AMRO Holding N.V. (“ABN AMRO”)”.

The transaction, valued at €209 million, was completed on March 12, 2008.

Agreement between Santander and General Electric (“GE”).

On March 27, 2008, Banco Santander and GE, through its GE Money and Commercial Finance business units, reached a preliminary agreement on the acquisition of certain businesses from each other valued at €1 billion.

Under the terms of the preliminary agreement, Banco Santander will acquire GE Money’s units in Germany, Finland and Austria, and its card and auto businesses in the UK, while GE Commercial Finance will acquire Interbanca, the Italian commercial bank assigned to Santander as part of the distribution of assets following the acquisition, together with RBS and Fortis, of ABN AMRO.

Banco Santander expects to integrate the GE Money units acquired, with total assets of €9 billion, into Santander Consumer Finance and Santander Cards. Interbanca would become part of GE Commercial Finance, providing GE with an enhanced capability to service midmarket banking businesses in Italy.

On June 2, 2008, we announced that we had reached a final agreement with GE and that the agreed base price for both transactions amounted to €1 billion each, subject to several adjustments.

These transactions are expected to close during the fourth quarter of 2008.

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 for €336 million. The package includes activities in Germany, the Netherlands, Belgium and Austria. The acquisition will be 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 of RBS ECF in 2007 averaged €2.2 billion. RBS ECF makes installment loans both directly and via partners. It is strongly represented in the credit card business both in terms of private and corporate customers, and provides consumer finance via retail chains.

The acquisition is conditional upon a definitive agreement and the relevant approval from various national authorities.

B. Business overview.

We are a financial group operating principally in Spain, the United Kingdom, Portugal, other European countries and Latin America, offering a wide range of financial products. At December 31, 2007, we were one of the eight largest banking groups in the world by market capitalization and the largest banking group in the Eurozone with a stock market capitalization of €92.5 billion, stockholders’ equity of €55.2 billion and total assets of €912.9 billion. We had an additional €151.0 billion in mutual funds, pension funds and other assets under management at that date. As of December 31, 2007, we had 47,838 employees and 5,976 branch offices in Continental Europe, 16,827 employees and 704 branches in the United Kingdom (Abbey), 65,628 employees and 4,498 branches in Latin America and 1,526 employees in other geographic areas (For a full breakdown of employees by country, see “Item 6. Directors, Senior Management and Employees — D. Employees”).

Our principal operations are in Spain, the United Kingdom, Portugal, Germany, Italy and Latin America. We also have significant operations in New York as well as financial investments in RFS Holdings B.V., Sovereign and Attijariwafa Bank Société Anonyme (“Attijariwafa Bank”). In Latin America, we have majority shareholdings in banks in Argentina, Brazil, Chile, Colombia, Mexico, Puerto Rico, Uruguay and Venezuela.

In accordance with the criteria established by the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, the structure of the operating business areas has been segmented into two levels:

Principal level (or geographic). 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 three main currency areas. The reported segments are:

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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 Abbey. This segment includes the following units: the Santander Branch Network, Banco Español de Crédito, S.A. (“Banesto”), Santander Consumer Finance and Portugal.

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United Kingdom (Abbey). This covers only Abbey’s business, mainly focused on retail banking in the UK.

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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 International Private Banking, as an independent globally managed unit. Our business in New York is also managed in this area.

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

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

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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.

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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 Financial Management and Equity Stakes 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 shareholders’ equity through issues and securitizations. As the Group’s holding entity, it manages all capital and reserves and allocations of capital and liquidity.

In 2007, Grupo Santander maintained the same primary and secondary operating segments as it had in 2006.

In addition, and in line with the criteria established in the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, the results of businesses discontinued in 2007 (our Latin American pension management companies) and 2006 (Abbey’s insurance businesses, Urbis, Peru and Bolivia) and which were consolidated by global integration were eliminated from various lines of the income statement and included in “net profit from discontinued operations.”

The figures for 2006 and 2005 have been restated and include the changes, at both the consolidated and business segment levels .

Principal 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 small and medium sized companies (“SMEs”), as well as private and public institutions. During 2007, 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 2007, it accounted for 48% of total customer and funds under management, 55% of total loans and credits and 53% of profit attributed to the Group of the Group’s main business areas.

The area had 5,976 branches and 47,838 employees (direct and assigned) at the end of 2007.

In 2007, the Continental Europe segment’s efficiency ratio improved by 2% to 38.8% (from 40.8% in 2006). Profit attributed to the Group from this segment increased 27.4% to €4,423 million. Return on equity, (“ROE”), in 2007 was 21.3%, a 0.9% increase from 2006.

The Santander Branch Network

Our retail banking activity in Spain is carried out 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 2007, we had 2,887 branches and a total of 19,392 employees (direct and assigned), of which 87 employees were temporary, dedicated to retail banking in Spain. Compared to 2006, there was a net increase of 55 branches and a net increase of 365 employees.

In 2007, the Santander Branch Network grew by approximately 10.7% in lending, 17.9% in net operating income and 19.9% in profit attributed to the Group. It also improved its efficiency ratio from 40.9% in 2006 to 38.7% in 2007.

Gross income from the Santander Branch Network was €4,747 million in 2007, a 13.5% increase from 2006.

In 2007, profit attributed to the Group from the Santander Branch Network was €1,806 million, 19.9% higher than 2006, while the ROE reached 21.3% (as compared to 22.8% in 2006).

The 10.7% growth in lending in 2007 versus 2006 came from loans to SMEs (an 18% increase) and from mortgages (a 10% increase).

Customer funds under management experienced a reduction of 5.4% during 2007, which came principally from a decrease of 14.2% in mutual funds and 2.7% in customers deposits.

Banesto

At the end of 2007, Banesto had 1,946 branches and 10,776 employees (direct and assigned), of which 161 employees were temporary, an increase of 102 branches and 231 employees as compared to the end of 2006.

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 on page 25 of 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 2007, Banesto grew by approximately 21.2% in lending, 17.2% in customer deposits and decreased 16.5% in off-balance sheet customer funds.

In 2007, gross income from Banesto was €2,282 million, a 14.8% increase from 2006. Profit attributed to the Group from Banesto was €668 million, a 46.9% decrease from 2006, while the ROE reached 18.3% as compared to 44.4% in 2006 (20.6% in 2006 excluding extraordinary capital gains and allowances), and the efficiency ratio improved to 41.2% (as compared to 45.3% in 2006).

Santander Consumer Finance

Our consumer financing activities are conducted through our subsidiary Santander Consumer Finance S.A. 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 Spain, Portugal, Germany and Italy (through Santander Consumer Bank S.p.A.). We also conduct business in the UK, Hungary, the Czech Republic, the Netherlands, Norway, Poland and Sweden. Our operations in the U.S. (through Drive) are included as part of this segment.

At the end of 2007, this unit had 285 branches (as compared to 282 at the end of 2006) and 7,221 employees (direct and assigned) (as compared to 5,401 employees at the end of 2006), of which 255 employees were temporary.

In 2007, this unit generated gross income of €2,638 million, a 44.5% increase from 2006. Profit attributed to the Group was €719 million, a 27.1% increase from 2006, while the ROE reached 34.1% (as compared to 35.6% in 2006) and the efficiency ratio improved to 29.6% (as compared to 34.7% in 2006).

At the end of 2007, total lending at this subsidiary amounted to more than €45 billion (a 15.9% increase as compared to 2006), including securitizations. Two-thirds of the lending is in auto finance, with a greater share of new vehicles (38% vs. 28% for used vehicles), and the combined share of consumer loans via dealers, cards and direct credit represent 17% of the total portfolio. Three countries account for 76% of the portfolio: Germany (36%), Spain (28%) and Italy (12%). If we include the U.S. (Drive) and the Netherlands (with each one accounting for 7% of the portfolio) the total volume represented by these five countries is 90%.

The main reasons for the growth in Santander Consumer Finance have been:

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moderate growth in its traditional European businesses;

•

successful integration of Drive, which performed better than its initial established goals. Drive has had a significant positive impact on the performance of Santander Consumer Finance; and

•

expansion of new business areas to stimulate the future growth of the Group’s consumer business.

Portugal

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

At the end of 2007, Portugal operated 763 branches (as compared to 727 branches at the end of 2006) and had 6,405 employees (direct and assigned) (as compared to 6,114 employees at the end of 2006), of which 427 employees were temporary.

In 2007, gross income from our activities in Portugal was €1,214 million, a 10.1% increase from 2006. Profit attributed to the Group was €527 million, 24.6% higher than in 2006, while the ROE reached 28.6% (24.1% in 2006) and the efficiency ratio improved to 44% (from 47.3% in 2006).

Others

The rest of our businesses in the Continental Europe segment (Banif, Asset Management, Insurance and Global Wholesale Banking) generated profit attributed to the Group of €719 million, 83.4% more than in 2006.

United Kingdom (Abbey)

Abbey became part of Grupo Santander on November 12, 2004 and as of December 31, 2004, only its balance sheet was consolidated. Its results of operations were consolidated with the Group’s for the first time in 2005.

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

At the end of 2007, Abbey had 704 branches and a total of 16,827 employees (direct and assigned) of which 193 employees were temporary. Compared to 2006, there was a net reduction of 8 branches and 319 employees.

For purposes of our financial statements and this annual report on Form 20-F, we have calculated Abbey’s results of operations using the criteria described on page 25 of this annual report on Form 20-F. As a result, the data set forth herein may not coincide with the data published independently by Abbey.

In 2007, Abbey contributed gross income of €3,780 million (a 6.2% increase from 2006), net operating income of €1,913 million (a 18.1% increase from 2006) and €1,201 million of profit attributed to the Group (a 19.8% increase from 2006) which represents 15% of the Group’s total operating areas. Loans and advances experienced a reduction of 3.4% and customer funds under management increased 5.3% during the same period. ROE was 32.26% (as compared to 32.79% in 2006) and the efficiency ratio was 50.1% (as compared to 55.1% in 2006).

Operating expenses were 3.2% lower, due to reduced personnel expense derived from the personnel reductions carried out during 2006.

The non-performing loans ratio during 2006 and 2007 was 0.60%, and the coverage ratio declined from 86% to 66%.

Latin America

At December 31, 2007, we had 4,498 offices and 65,628 employees (direct and assigned) in Latin America (as compared to 4,368 offices and 60,871 employees, respectively, at December 31, 2006), of which 353 were temporary employees.

Profit attributed to the Group from Latin America was €2,666 million, a 16.6% increase from 2006, while the ROE reached 29.1% (as compared to 26.6% in 2006) and the efficiency ratio improved to 41.8% (as compared to 47% in 2006). At the end of 2007, Latin America accounted for 32% of the Group’s total profits.

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


	Percentage Held
	at December 31, 2007
Banco Santander Río, S.A. (Argentina)		99.30
Banco Santander, S.A. (Brazil)		98.08
Banco Santander Chile		76.73
Banco Santander Colombia, S.A.		97.64
Banco Santander, S.A. (Mexico)		74.95
Banco Santander Puerto Rico		90.59
Banco Santander, S.A. (Uruguay)		100.00
Banco de Venezuela, S.A. Banco Universal		98.42

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.), breadth and depth of our franchise.

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

Brazil. Banco Santander Brazil is one of the main financial franchises in Brazil. The data set forth herein relating to Brazil does not include information relating to Banco Real which we acquired in 2007 (see —A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations—ABN AMRO Holding N.V. (“ABN AMRO”) —Banco Real). Banco Santander Brazil has 2,104 branches and 8.3 million individual customers.

The Group continues to focus on expanding retail businesses. During the year, 800,000 individuals became new clients.

Lending rose 32%, driven by (all percentages in local currency): (1) a 28% growth in lending to individual customers (55% increase from credit cards, 30% increase in loans linked to payroll deposits and 26% increase in auto finance) and (2) a 41% growth in lending to SMEs and companies.

Deposits increased 30% and mutual funds grew 36%.

Profit attributed to the Group from Brazil in 2007 was €905 million, a 20.5% increase when compared with 2006 (a 17.6% increase in local currency). At the end of 2007 the efficiency ratio was 39.6%, ROE was 28.5%, the ratio of non-performing loans (“NPL”) was 2.7% and the NPL coverage was 101%.

Mexico. Banco Santander, S.A. (Mexico), is one of the leading financial services companies in Mexico. It leads the third largest banking group in Mexico in terms of business volume. The Group has a network of 1,088 branches and 8.5 million customers in Mexico.

Loans and credits increased in 2007 by 24%. Of note were the growth of consumer credits and lending to SMEs (30% and 64% above the market, respectively).

Profit attributed to the Group from Mexico increased 23.8% to €654 million (an increase of 35.6% in local currency). The efficiency ratio was 37.7%, ROE was 26.5%, the ratio of non-performing loans was 1.2% at the end of 2007 and the NPL coverage was 192%.

Chile. Banco Santander Chile leads the largest financial group in the country with substantial business in loans, deposits and mutual funds and pension funds. The Group has 494 branches and 2.8 million customers.

In 2007, lending to individuals and SMEs grew by 15% and 19%, respectively, while deposits increased by 18%.

Profit attributed to the Group from Chile increased 11% to €543 million (a 19.3% increase in local currency). The efficiency ratio improved to 39.2%, ROE was 43.81%, the ratio of non-performing loans was 2.1% and the NPL coverage was 118%.

Puerto Rico. Banco Santander Puerto Rico is one of the largest financial institutions in Puerto Rico. The Group has 137 branches and 0.5 million customers.

In 2007, Santander Puerto Rico continued its strategy of developing business with individual customers (consumer loans and mortgages) and companies, in an environment of economic recession that has slowed down the growth of the financial system in Puerto Rico. Lending and savings increased by 4% and 5%, respectively.

Profit attributed to the Group from Puerto Rico was €1 million, compared to the €26 million obtained in 2006 due to higher net loan-loss provisions in 2007 as well as the impairment of the investment in Island Finance (€14 million). The efficiency ratio was 64.6%, the ratio of non-performing loans stood at 3.2% and the NPL coverage was 102%.

Venezuela. Banco de Venezuela, S.A. Banco Universal is one of the country’s largest banks with 283 branches and 3 million banking customers.

The main focus of management in 2007 was to maximize the profitability of business and increase recurrent revenues, through growth in lending, especially to individuals, transactional deposits and fee-generating services. Lending and deposits, in local currency, increased 56% and 8% respectively.

Profit attributed to the Group from Venezuela grew 22.6% to €179 million (a 33.8% increase in local currency). The efficiency ratio was 40.2%, ROE stood at 44%, the ratio of non-performing loans was 1.0% and the NPL coverage was 371%.

Colombia. In a favorable environment of economic and financial stability, the Group focused in 2007 on developing its franchise and on selective business growth, particularly in the retail segments. Lending to individual customers and SMEs rose by 60% and deposits by 4%.

Profit attributed to the Group from Colombia was €15 million, 39.3% lower than in 2006 in local currency.

Argentina. Banco Santander Río S.A. is one of Argentina’s leading banks, with a market share of 9.6% in lending and 9.4% in deposits.

Argentina continued its economic recovery during 2007 and Banco Santander Río made a positive contribution to the Group’s earnings, with profit attributed to the Group of €188 million in 2007, a 41% increase in local currency.

Lending rose 32% and was especially focused on SMEs and individuals, while deposits increased by 18%.

Others

In 2007 Uruguay generated profit attributed to the Group of €23 million.

Santander Private Banking performed well, with an increase in profit attributed to the Group of 27.9% during 2007 to US$223 million. Assets under management totaled US$42 billion, representing 28% growth over 2006. This is mainly attributable to the integration of a portfolio of customers acquired from Bank of America.

Secondary level (or business):

Retail Banking

The Group’s Retail Banking business generated 86% of the operating areas’ total gross income in 2007 and 80% of profit before tax. In 2007, Retail Banking generated gross income of €23,371 million, 20.9% higher than in 2006. Profit before tax was €9,358 million, 31.3% higher than in 2006. This segment had 126,118 employees at the end of 2007.

Retail Banking in Continental Europe continued the growth trends of the last two years in volume and earnings. Net interest income rose 26.9%, net operating income increased 26.7% and profit before tax grew 27.7%. All units (the Santander Branch Network, Banesto, Santander Consumer Finance, Portugal and Banif) grew strongly. As in 2006, the drivers in 2007 continued to be business growth, with lending up 15% and deposits up 7% (due to the issue of securities mandatorily convertible into newly-issued ordinary shares of the Bank (“Valores Santander”) amounting to €7 billion). Good management of prices in an environment of rising interest rates and selective control of costs also contributed to the growth in Retail Banking. The efficiency ratio improved from 42.2% in 2006 to 39.3% in 2007.

Net operating income generated by Abbey’s Retail Banking was 18.2% higher, partly because of the 7.2% rise in gross income and a 1.7% reduction in operating expenses. The combined effect was an improvement in the efficiency ratio of 4.7 percentage points to 49.9%.

The continued strong earnings performance of Retail Banking in Latin America was due to strong growth in customer business, the good performance in net interest income and net fees, and control of costs compatible with business development. Net operating income increased 50.5% and profit before tax grew 37.2% compared to 2006. The efficiency ratio was 7.6% better at 44.7%. In local currency, net operating income increased 32%, profit before tax increased 57.3%, and the efficiency ratio increased to 45.6%. The growth strategies were based on increasing the number of individual customers and SMEs, developing loyalty products, such as payroll and credit cards, and focusing on more profitable products in all countries.

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 11% of the operating areas’ total gross income and 16% of profit before tax. Profit before tax amounted to €1,832 million a 28.6% increase from 2006). This segment had 2,589 employees at the end of 2007.

These results were due to three factors:

• First, customer revenues grew strongly by 24%, which accounted for more than 77% of total revenues earned by this segment, as a result of the increasing contribution of greater value-added businesses (markets, investment banking and cash management).

• Second, a smaller contribution from the results of trading activity, which was affected in the second half of the year by instability in the financial markets, compared with the excellent results in the first half of the year. Revenues for the whole of 2007 were lower than in 2006.

• Third, lower generic provisions in 2007 compared with large allocations in 2006, generated by certain large transactions.

These factors were reflected in the income statement. Gross income grew by 12.6%, while gains on financial transactions were 28.9% lower because of the lower contribution from trading activities. Operating expenses (+23.1%) continued to reflect the investment made in developing markets and global transactional banking. The efficiency ratio was 32.5%.

The business model is structured as a double (customer-product) sector model in the countries where it operates. With regards to the customer sectors, the Global Customer Relationship Model, which manages the main corporate and institutional customers, continued to be used. The incorporation of 121 new clients (mostly from Latin America) in 2007, the restructuring of the coverage area and the development of specialized units, as well as stronger links with product areas, particularly global investment banking in a period of strong corporate activity, pushed up the Model’s revenues to €1,243 million, 27% more than in 2006.

The product sector’s three areas also made significant progress in line with its strategic priorities:

1. Global Transaction Banking.

In this area, which comprises various corporate products (global cash management, trade finance, basic finance and global securities – custody), the Group continued to strive to attain leadership in its markets. Gross income for Global Transaction Banking grew 16% for the whole year.

Cash management performed well. This area covers the range of transactional products (payments to and by suppliers, payroll, etc.), financing (discounting, advances, factoring, confirming) and funds. Cash management’s gross income, which accounted for more than one-third of the total, increased 20%, driven by operations in Brazil and Argentina (with increases of 38% and 46%, respectively).

2. Global Investment Banking.

This area covers corporate finance (mergers and acquisitions and equity capital markets), structured finance (project finance, acquisition finance and syndicated loans) and asset and capital structuring. Its objective is to consolidate our leadership in Spain and Portugal and in Latin America and to continue to work with our clients in other markets. Total revenues for these businesses were 66% higher in 2007 than in 2006.

In Corporate Finance, Santander participated in intermediation and advisory services for 150 operations, 53% of them outside of Spain.

In Equity Capital Markets, there was a great deal of activity in primary markets in Europe and Latin America, particularly in Brazil.

In Asset & Capital Structuring, the Group strengthened its international position with specialized units in Brazil, Mexico and Chile, where the focus was on innovation and the design of structures for financing assets and optimization of capital.

3. Markets.

This area, which covers the Group’s treasury activities and distribution of equities, made progress in its two objectives: firstly to leverage the Group’s commercial networks to distribute risk management solutions for companies and individuals; and secondly to develop additional product capacities in order to expand the franchise with corporate and institutional clients in core markets. Revenues generated by customers grew by 14% (including the equities business), which partly offset the weak performance of markets in the second half of the year. For 2007 as a whole, the revenue of the markets area was 5% lower than in 2006.

Revenues in the global treasury business with customers increased 9%. This business, which already accounts for two-thirds of the total, produced a good relative performance, as it limited the impact of instability in the financial markets and enabled us to take advantage of opportunities arising from this environment.

The two main revenue generators are Santander Global Markets and Santander Global Connect. Santander Global Markets, for corporate and institutional clients, leveraged its performance on increasing participation in operations with wholesale clients and more value-added solutions together with the synergies of crossed transactions between treasuries in Europe and Latin America. Santander Global Connect, for retail customers in cooperation with the retail banks of various countries, increased its gross revenues (including those recorded by the networks) as a result of the extension of its products to other Group treasuries and the strength of the market in Spain.

In Spain and Portugal, Santander Global Markets’ revenue from sales to clients registered high double digit growth, backed by participation in major operations with wholesale clients. Santander Global Connect’s contribution remained solid, with stronger growth in Portugal. The increased volatility in the markets in the second half of the year, however, meant a reduced performance in management of flows and books associated with customer activity.

In Latin America, customer revenues grew by 21%, due to Santander Global Connect entering new markets, and its increasing participation in wholesale operations. However, tensions in trading positions in the financial markets negatively impacted market activity.

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, 2007, this segment accounted for 3% of total gross income and 4% of profit before tax. Profit before tax was €535 million or 13.3% higher than in 2006. This segment had 1,585 employees at the end of 2007.

Gross income rose 13.1%, mainly driven by insurance activity which increased 24.3%. Fee income was virtually unchanged mainly because of the slowdown in the mutual funds business in Spain and the strong impact of exchange rates on Latin America’s gross income. Operating expenses, which reflect the investment in building up these global businesses, increased 12.4%, below the growth in gross income. Net operating income rose 13.5% and the efficiency ratio improved slightly to 32.0%.

The sale in 2007 of our pensions businesses in Colombia, Uruguay, Mexico, Chile and Argentina, as a result of a strategic review, generated net capital gains of €622 million (recorded in the Financial Management and Equity Stakes segment). For more information see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganization— Sale of Latin American pension fund management companies”.

Asset Management

Santander Asset Management’s global business generated €1,891 million of fees in 2007, a 5.9% increase. Profit before tax, after deducting operating expenses and fees paid to the networks was €243 million, an 8.1% increase. Total managed assets amounted to €130 billion.

Business was conducted in the second half of the year in an environment of strong preference for on-balance sheet funds and a widespread lack of confidence in the markets, particularly in mortgage-backed structured products.

The strategy continued to focus on developing platforms for transnational investment, improving the product mix, creating innovative products and optimizing efficiency in order to improve operating margins.

We streamlined and concentrated our UK structures by creating a single fund management institution under the brand of Santander Asset Management UK, enabling it to assume direct management of UK mutual funds and improve their return. In Santander Asset Management UK’s first year, we met our commercial and business targets and are laying the foundation for significant improvements in operational efficiency.

In an environment of strong growth in Latin America and a downturn in Europe, we continued to streamline our range of products and gradually use the platform in Luxembourg to unify products that can be distributed in the two continents.

In 2007, the Group sold its pension fund management businesses in Latin America.

These results and strict management of costs enabled Santander Asset Management to absorb the investment in developing its global platform and it ended the year with the sector’s best efficiency levels at the international level: operating expenses represented only 0.13% of assets under management.

Asset Management consists of traditional management and alternative management. Their respective performances were as follows:

Traditional management of assets

This covers mutual funds and pension plans, but not alternative investment funds. At December 31, 2007, assets stood at €120 billion (92% of the total assets under management).

In Spain, assets under traditional management in mutual funds and investment companies amounted to €55 billion at December 31, 2007, consolidating our position as the sector’s leader with a market share of 22% according to Inverco.

Their development in 2007 was determined by the financial markets’ greater liquidity needs which gave rise to very aggressive offers to attract bank deposits. This tougher competition for deposits, coupled with putting them on the same tax level as mutual funds, reduced the relative attractiveness of funds for savers.

In addition, and also affecting the Santander Branch Network, the launch of “Valores Santander” reduced the attractiveness of mutual funds compared with this new product.

Growth in pension plans in Spain was lower at both the Group and market level because of tax changes to the year’s contributions. At the end of 2007, Santander Asset Management managed €10.5 billion (a 5% increase), 87% of which was individual plans.

In Portugal, management of mutual and pension funds continued the policy of improving the mix of products, which pushed up the average commission further. Managed assets amounted to €7.2 billion at December 31, 2007.

The UK benefited from the restructuring within the global model and Abbey’s drive in structured products. Managed assets amounted to more than €10 billion (a 34% increase in sterling) at December 31, 2007.

Latin America’s mutual funds under management rose 29%, in local currency, to €36 billion at December 31, 2007.

Alternative management

Santander Asset Management also strengthened its presence in various segments of alternative management, where it manages assets of more than €11 billion at December 31, 2007.

• In hedge funds, Optimal managed a volume close to €6 billion at December 31, 2007, a 16% increase (in local currency).

• In real estate funds and investment companies, Santander Asset Management administered €4.7 billion at December 31, 2007.

• In venture capital funds, we launched a new infrastructure fund. Santander Private Equity managed €317 million at December 31, 2007.

Insurance

The global business of Santander Insurance generated gross income (fees and revenues from insurance) of €1,751 million (a 21.8% increase), 6.5% of the operating areas’ total. Its total contribution to the Group’s results, the sum of profit before tax of the insurance companies and brokers (€294 million) and fees received by networks, was €1,674 million (a 21.5% increase).

Santander Insurance made further progress in installing the global business model in all the Group’s insurance units. It launched a new commercial structure which integrates the various geographic areas and distribution channels.

Its objective is to achieve global management of the business at the level of product development and linkage (lending products, structured savings) as well as developing basic capacities (marketing-CRM, retaining customers, transfers and local application of best practices in processes and distribution channels).

Spain’s contribution was 24.6% higher at €465 million, due to the broadening and improvement of the range of products and intensive marketing. Of note was the good performance of new products, particularly insurance savings products in the Santander Branch Network, and the extension of the coverage of death, incapacity and unemployment insurance to include products with features such as direct deposit of payroll cheques and direct debits. Premium income rose strongly (to around €2.9 billion).

In Portugal, insurance linked to loans and capitalization-savings products grew strongly. The total contribution to the Group was 32.8% higher at €102 million.

Santander Consumer Finance kept up a strong pace of growth in credit-linked insurance. Its contribution increased 21.0% to €381 million.

The UK’s total contribution was €286 million, virtually unchanged in sterling. This was due to the reduction in the pace of business in the last part of 2007 and the cancellation of the distribution agreement with intermediaries, in contrast with the positive impact of new life-protection products sold via Abbey’s branches.

Latin America generated 26% (€441 million) of the area’s total contribution, with the fastest growth (+40.8% without the exchange-rate impact). The drive in marketing products via banking networks and other channels such as telemarketing, together with development of streamlined and transparent life-risk products, increased the results of the region by more than 30%. Of note was Mexico, which doubled its contribution, and Brazil, which contributed almost half the region’s total. Its solid growth resulted from the sale of more products.

Financial Management and Equity Stakes

At the end of 2007, this area had 1,526 employees (direct and assigned) (1,498 employees at the end of 2006), of which 193 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, which was 4.06% in 2007 (2.96% in 2006).

The area made a profit of €754 million, including ABN AMRO’s net contribution of €60 million and a net figure for extraordinary capital gains and allowances of €934 million.

ABN AMRO’s incorporation in the Group’s financial statements had the following effects: revenue of €141 million (recorded in share of results from entities accounted for by the equity method) and financing costs of €121 million (recorded in net interest income) which, net of tax, was €81 million, making the total net contribution €60 million.

Excluding capital gains and ABN AMRO’s net contribution, this area, as is usual, had a loss of €239 million (€178 million in 2006).

The main positive impact was on trading gains, which increased €803 million to €1,217 million (€414 million in 2006). This increase was principally due to the positive effect of the euro/dollar and euro/sterling positions (which offset the negative impact of the depreciation of the respective currencies on the results in Latin America and the UK), and the larger contribution of the portfolios of interest rate risk hedging. Interest rate risk hedging in 2007 made a slightly positive contribution, whereas it recorded losses in 2006 due to write-downs.

The negative effects were the impact on net interest income that the rise in interest rates had on the cost of financing, the higher cost from a larger volume of securitizations and a reduction in profits from Cepsa (part of this decline was offset in minority interests).

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

The main events in 2006 and 2007 were the sale of 4.8% of Sanpaolo IMI at the end of 2006 and of 1.79% of Intesa Sanpaolo in the second quarter of 2007 (the latter generating a capital gain of €566 million).

Financial Investments

We have financial investments in a number of banking companies, principally in Europe. The following summarizes our most important financial investments:

RFS Holdings B.V. As of December 31, 2007, we had a 27.91% stake in RFS Holdings (the holding company of the ABN AMRO Group). (See Acquisitions, Dispositions, Reorganizations—ABN AMRO Holding N.V. (“ABN AMRO”)).

Sovereign Bancorp. As of December 31, 2007, we had a 24.43% stake in Sovereign.

Attijariwafa Bank. As of December 31, 2007, we had a 14.5% interest in Attijariwafa Bank, which engages mainly in trade finance and foreign investment activities. Together with Attijariwafa Bank we have a 50% joint venture in Attijari International Bank Société Anonyme, which specializes in trade finance in Tangier’s free trade zone.

Industrial Portfolio

The majority of our industrial holdings portfolio consists of investments in strategic sectors related to the growth of the Spanish economy. Through our investments in these areas, we aim to contribute to the Group’s consolidated results.

The following table summarizes our main industrial holdings at December 31, 2007:


		Percentage Held
Company	Business	At December 31, 2007
France Telecom España, S.A.	Telecommunications		5.01
CEPSA	Oil and Petrochemicals		31.64
Grupo Corporativo ONO, S.A.	Telecommunications		4.47

At the end of 2007, our unrealized capital gains in listed financial and industrial stakes were estimated at around €4 billion.

Financial Management: this area manages the Group’s structural exchange rate position, the structural interest rate risk of the parent bank and liquidity risk. The management of liquidity risk is conducted through debt issuance and securitization.

The cost of hedging the capital of the Group’s non-euro denominated investments is another activity. The current hedging policy is aimed at protecting the capital invested and the year’s results through various instruments that are considered appropriate for their management. The main units that have exchange rate risk continued to be hedged in 2006 and 2007.

This sub segment also manages shareholders’ equity, the allocation of capital to each business unit, and the cost of financing investments, with the result that the 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 54 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 the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. 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 “—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganization”, on November 12, 2004, we completed the acquisition of Abbey. For consolidation purposes, Abbey’s assets and liabilities were consolidated into our balance sheet as of December 31, 2004, but Abbey’s results of operations had no impact on our income statement for 2004. Therefore, 2005 is the first year to reflect the full impact of the acquisition of Abbey.

As stated above under “Presentation of Financial Information”, we have prepared our financial statements for 2004, 2005, 2006 and 2007 under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. 2003 data has been prepared under previous Spanish GAAP, which is not comparable to data prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

Average Balance Sheet—Assets and Interest Income


	2007							2006							2005
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(in thousand of Euros, except percentages)
ASSETS

Cash and due from central banks
Domestic		3,502,564		123,432		3.52	%		1,974,832		68,969		3.49	%		3,133,279		44,121		1.41	%
International		15,546,087		506,675		3.26	%		12,436,361		405,884		3.26	%		8,487,516		227,184		2.68	%

		19,048,651		630,107		3.31	%		14,411,193		474,853		3.30	%		11,620,795		271,305		2.33	%

Due from credit entities
Domestic		8,928,024		578,484		6.48	%		11,519,832		460,640		4.00	%		13,674,911		340,950		2.49	%
International		56,819,791		2,306,065		4.06	%		48,664,439		2,044,393		4.20	%		51,572,888		2,032,703		3.94	%

		65,747,815		2,884,549		4.39	%		60,184,271		2,505,033		4.16	%		65,247,799		2,373,653		3.64	%

Loans and credits
Domestic		213,315,709		11,437,122		5.36	%		177,426,121		7,678,628		4.33	%		141,048,015		5,291,967		3.75	%
International		331,569,337		23,765,799		7.17	%		297,802,187		18,819,786		6.32	%		249,372,127		16,122,945		6.47	%

		544,885,046		35,202,921		6.46	%		475,228,308		26,498,414		5.58	%		390,420,142		21,414,912		5.49	%

Debt securities
Domestic		20,222,647		747,248		3.70	%		20,025,278		762,274		3.81	%		23,461,682		778,971		3.32	%
International		92,293,671		3,302,693		3.58	%		105,609,655		3,805,616		3.60	%		91,140,722		3,693,715		4.05	%

		112,516,318		4,049,941		3.60	%		125,634,933		4,567,890		3.64	%		114,602,404		4,472,686		3.90	%

Income from hedging operations
Domestic				580,530							225,696							2,404,944
International				2,010,890							2,017,358							1,709,334

				2,591,420							2,243,054							4,114,278

Other interest-earning assets
Domestic		34,107,718		182,987		0.54	%		23,798,216		190,253		0.80	%		16,092,704		172,307		1.07	%
International		21,172,214		261,428		1.23	%		19,471,268		353,326		1.81	%		21,332,189		269,506		1.26	%

		55,279,932		444,415		0.80	%		43,269,484		543,579		1.26	%		37,424,893		441,813		1.18	%

Total interest-earning assets
Domestic		280,076,662		13,649,803		4.87	%		234,744,279		9,386,460		4.00	%		197,410,591		9,033,260		4.58	%
International		517,401,100		32,153,550		6.21	%		483,983,910		27,446,363		5.67	%		421,905,442		24,055,387		5.70	%

		797,477,762		45,803,353		5.74	%		718,728,189		36,832,823		5.12	%		619,316,033		33,088,647		5.34	%

Investments in equity securities
Domestic		8,277,045		200,880		2.43	%		6,778,956		233,975		3.45	%		5,823,044		196,263		3.37	%
International		15,198,137		212,362		1.40	%		16,308,238		170,025		1.04	%		5,425,764		139,313		2.57	%

		23,475,182		413,242		1.76	%		23,087,194		404,000		1.75	%		11,248,808		335,576		2.98	%

Investments in affiliated companies
Domestic		2,547,829		—		0.00	%		3,125,583		—		—			3,581,100		—		—
International		6,201,797		—		0.00	%		1,561,780		—		—			391,543		—		—

		8,749,626		—		0.00	%		4,687,363		—		—			3,972,643		—		—

Total earning assets
Domestic		290,901,536		13,850,683		4.76	%		244,648,818		9,620,435		3.93	%		206,814,735		9,229,523		4.46	%
International		538,801,034		32,365,912		6.01	%		501,853,928		27,616,388		5.50	%		427,722,749		24,194,700		5.66	%

		829,702,570		46,216,595		5.57	%		746,502,746		37,236,823		4.99	%		634,537,484		33,424,223		5.27	%

Other assets		47,046,528							43,465,098							45,200,837

Assets from discontinued operations		933,182							24,264,613							41,160,945


Total average assets		877,682,280							814,232,457							720,899,266

Average Balance Sheet—Liabilities and Interest Expense


	Year Ended December 31,
	2007							2006								2005
	Average Balance		Interest		Average Rate			Average Balance		Interest			Average Rate			Average Balance		Interest		Average Rate
	(in thousands of Euros, except percentages)
LIABILITIES AND STOCKHOLDERS EQUITY

Due to credit entities
Domestic		16,252,916		713,601		4.39	%		15,450,460		452,377			2.93	%		15,781,853		410,174		2.60	%
International		95,768,411		3,147,350		3.29	%		108,302,721		3,145,329			2.90	%		100,192,474		3,182,489		3.18	%

		112,021,327		3,860,951		3.45	%		123,753,181		3,597,706			2.91	%		115,974,327		3,592,663		3.10	%

Customers deposits
Domestic		111,318,636		2,974,509		2.67	%		104,310,458		2,479,998			2.38	%		98,165,752		1,653,302		1.68	%
International		225,121,982		9,370,167		4.16	%		211,167,728		8,603,441			4.07	%		187,806,588		7,742,070		4.12	%

		336,440,618		12,344,676		3.67	%		315,478,186		11,083,439			3.51	%		285,972,340		9,395,372		3.29	%

Marketable debt securities
Domestic		119,308,485		5,231,367		4.38	%		87,819,976		2,862,427			3.26	%		56,259,922		1,507,745		2.68	%
International		108,319,384		4,120,238		3.80	%		86,557,319		2,966,498			3.43	%		67,925,712		2,718,923		4.00	%

		227,627,869		9,351,605		4.11	%		174,377,295		5,828,925			3.34	%		124,185,634		4,226,668		3.40	%

Subordinated debt
Domestic		16,620,042		841,017		5.06	%		10,264,689		466,520			4.54	%		7,457,156		329,883		4.42	%
International		16,282,109		1,212,360		7.45	%		19,289,808		1,227,217			6.36	%		19,829,925		1,261,618		6.36	%

		32,902,151		2,053,377		6.24	%		29,554,497		1,693,737			5.73	%		27,287,081		1,591,501		5.83	%

Equity having the substance of a financial liability
Domestic		—		5,932		—			—		—			—			—		—		—
International		619,048		41,357		6.68	%		1,161,537		85,229			7.34	%		1,614,121		118,389		7.33	%

		619,048		47,289		7.64	%		1,161,537		85,229			7.34	%		1,614,121		118,389		7.33	%

Other interest-bearing liabilities
Domestic		46,303,178		563,849		1.22	%		31,366,911		530,095			1.69	%		24,394,377		525,585		2.15	%
International		29,728,313		207,522		0.70	%		33,980,821		530,565			1.56	%		32,336,733		350,390		1.08	%

		76,031,491		771,371		1.01	%		65,347,732		1,060,660			1.62	%		56,731,110		875,975		1.54	%

Expenses from hedging operations
Domestic				480,014							(298,065	)							1,638,632
International				2,012,186							1,705,396								1,325,646

				2,492,200							1,407,331								2,964,278

Total interest-bearing liabilities
Domestic		309,803,257		10,810,289		3.49	%		249,212,494		6,493,352			2.61	%		202,059,060		6,065,321		3.00	%
International		475,839,247		20,111,180		4.23	%		460,459,934		18,263,675			3.97	%		409,705,553		16,699,525		4.08	%

		785,642,504		30,921,469		3.94	%		709,672,428		24,757,027			3.49	%		611,764,613		22,764,846		3.72	%

Other liabilities		41,719,064							38,792,532								34,089,787

Minority interest		2,239,676							2,264,300								2,056,087

Stockholders’ Equity		47,147,854							39,308,194								31,827,833

Liabilities from discontinued operations		933,182							24,195,003								41,160,946


Total average Liabilities and Stockholders’ Equity		877,682,280		30,921,469					814,232,457								720,899,266

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 2007 compared to 2006 and 2006 compared to 2005. 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.


	*EU – IFRS ()**
	2007/2006
Volume and rate analysis	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in thousands of euros)
Interest and similar revenues

Cash and due from central banks
Domestic		53,871			592			54,463
International		100,791			—			100,791

		154,662			592			155,254

Due from credit entities
Domestic		(167,848	)		285,692			117,844
International		329,802			(68,130	)		261,672

		161,954			217,562			379,516

Loans and credits
Domestic		1,931,005			1,827,489			3,758,494
International		2,414,694			2,531,319			4,946,013

		4,345,699			4,358,808			8,704,507

Debt securities
Domestic		7,002			(22,028	)		(15,026	)
International		(481,801	)		(21,122	)		(502,923	)

		(474,799	)		(43,150	)		(517,949	)

Other interest-earning assets
Domestic		54,609			(61,875	)		(7,266	)
International		21,035			(112,933	)		(91,898	)

		75,644			(174,808	)		(99,164	)

Total interest-earning assets
Domestic		1,878,639			2,029,870			3,908,509
International		2,384,521			2,329,134			4,713,655

		4,263,160			4,359,004			8,622,164

Investments in equity securities
Domestic		36,050			(69,145	)		(33,095	)
International		(16,373	)		58,710			42,337

		19,677			(10,435	)		9,242

Total earning assets without hedging operations
Domestic		1,914,689			1,960,725			3,875,414
International		2,368,148			2,387,844			4,755,992

		4,282,837			4,348,569			8,631,406

Income from hedging operations
Domestic		354,834			—			354,834
International		(6,468	)		—			(6,468	)

		348,366			—			348,366

Total earning assets
Domestic		2,269,523			1,960,725			4,230,248
International		2,361,680			2,387,844			4,749,524

		4,631,203			4,348,569			8,979,772


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004


	*EU – IFRS ()**
	2006/2005
Volume and rate analysis	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in thousands of euros)
Interest and similar revenues

Cash and due from central banks
Domestic		(40,324	)		65,172			24,848
International		129,472			49,228			178,700

		89,148			114,400			203,548

Due from credit entities
Domestic		(86,801	)		206,491			119,690
International		(122,400	)		134,090			11,690

		(209,201	)		340,581			131,380

Loans and credits
Domestic		1,568,583			818,078			2,386,661
International		3,070,899			(374,058	)		2,696,841

		4,639,482			444,020			5,083,502

Debt securities
Domestic		(131,659	)		114,962			(16,697	)
International		522,034			(410,133	)		111,901

		390,375			(295,171	)		95,204

Other interest-earning assets
Domestic		61,396			(43,450	)		17,946
International		(33,507	)		117,327			83,820

		27,889			73,877			101,766

Total interest-earning assets
Domestic		1,371,195			1,161,253			2,532,448
International		3,566,498			(483,546	)		3,082,952

		4,937,693			677,707			5,615,400

Investments in equity securities
Domestic		33,054			4,658			37,712
International		113,726			(83,014	)		30,712

		146,780			(78,356	)		68,424

Total earning assets without hedging operations
Domestic		1,404,249			1,165,911			2,570,160
International		3,680,224			(566,560	)		3,113,664

		5,084,473			599,351			5,683,824

Income from hedging operations
Domestic		(2,179,248	)		—			(2,179,248	)
International		308,024			—			308,024

		(1,871,224	)		—			(1,871,224	)

Total earning assets
Domestic		(774,999	)		1,165,911			390,912
International		3,988,248			(566,560	)		3,421,688

		3,213,249			599,351			3,812,600


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004


	*EU – IFRS ()**
	2007/2006
Volume and rate analysis	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in thousands of euros)
Interest and similar expenses

Due to credit entities
Domestic		35,647			225,577			261,224
International		(420,360	)		422,381			2,021

		(384,713	)		647,958			263,245

Customers deposits
Domestic		192,011			302,500			494,511
International		576,675			190,051			766,726

		768,686			492,551			1,261,237

Marketable debt securities
Domestic		1,385,356			983,584			2,368,940
International		833,478			320,262			1,153,740

		2,218,834			1,303,846			3,522,680

Subordinated debt
Domestic		321,121			53,376			374,497
International		(225,116	)		210,259			(14,857	)

		96,005			263,635			359,640

Equity having the substance of a financial liability
Domestic		5,932			—			5,932
International		(36,206	)		(7,666	)		(43,872	)

		(30,274	)		(7,666	)		(37,940	)

Other interest-bearing liabilities
Domestic		181,178			(147,424	)		33,754
International		(30,808	)		(292,235	)		(323,043	)

		150,370			(439,659	)		(289,289	)

Total interest-bearing liabilities without hedging operations
Domestic		2,121,245			1,417,613			3,538,858
International		697,663			843,052			1,540,715

		2,818,908			2,260,665			5,079,573

Expenses from hedging operations
Domestic		778,079			—			778,079
International		306,790			—			306,790

		1,084,869			—			1,084,869

Total interest-bearing liabilities
Domestic		2,899,324			1,417,613			4,316,937
International		1,004,453			843,052			1,847,505

		3,903,777			2,260,665			6,164,442


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004


	*EU – IFRS ()**
	2006/2005
Volume and rate analysis	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in thousands of euros)
Interest and similar expenses

Due to credit entities
Domestic		(9,877	)		52,080			42,203
International		243,379			(280,539	)		(37,160	)

		233,502			(228,459	)		5,043

Customers deposits
Domestic		139,536			687,160			826,696
International		955,274			(93,903	)		861,371

		1,094,810			593,257			1,688,067

Marketable debt securities
Domestic		1,028,374			326,308			1,354,682
International		634,752			(387,177	)		247,575

		1,663,126			(60,869	)		1,602,257

Subordinated debt
Domestic		127,688			8,949			136,637
International		(34,401	)		—			(34,401	)

		93,287			8,949			102,236

Equity having the substance of a financial liability
Domestic		—			—			—
International		(33,321	)		161			(33,160	)

		(33,321	)		161			(33,160	)

Other interest-bearing liabilities
Domestic		116,724			(112,214	)		4,510
International		24,959			155,216			180,175

		141,683			43,002			184,685

Total interest-bearing liabilities without hedging operations
Domestic		1,402,445			962,283			2,364,728
International		1,790,642			(606,242	)		1,184,400

		3,193,087			356,041	)		3,549,128

Expenses from hedging operations
Domestic		(1,936,697	)		—			(1,936,697	)
International		379,750			—			379,750

		(1,556,947	)		—			(1,556,947	)

Total interest-bearing liabilities
Domestic		(534,252	)		962,283			428,031
International		2,170,392			(606,242	)		1,564,150

		1,636,140			356,041			1,992,181


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

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.


	*EU – IFRS ()**
Earning Assets — Yield Spread	Year Ended December 31,
	2007			2006			2005
	(in thousands of euros, except percentages)
Average earning assets
Domestic		290,901,536			244,648,818			206,814,735
International		538,801,034			501,853,928			427,722,749

		829,702,570			746,502,746			634,537,484

Interest and dividends on equity securities (1)
Domestic		13,850,683			9,620,435			9,229,523
International		32,365,912			27,616,388			24,194,700

		46,216,595			37,236,823			33,424,223

Net interest income
Domestic		3,040,394			3,127,083			3,164,202
International		12,254,732			9,352,713			7,495,175

		15,295,126			12,479,796			10,659,377

Gross yield (2)
Domestic		4.76	%		3.93	%		4.46	%
International		6.01	%		5.50	%		5.66	%

		5.57	%		4.99	%		5.27	%
Net yield (3)
Domestic		1.05	%		1.28	%		1.53	%
International		2.27	%		1.86	%		1.75	%

		1.84	%		1.67	%		1.68	%

Yield spread (4)
Domestic		1.27	%		1.32	%		1.46	%
International		1.78	%		1.53	%		1.58	%

		1.63	%		1.50	%		1.55	%


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

(1)		Dividends on equity securities include dividends from companies accounted for by the equity method.

(2)		Gross yield is the quotient of interest and dividends on equity securities divided by average earning assets.

(3)		Net yield is the quotient of net interest income (that includes dividends on equity securities) divided by average earning assets.

(4)		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—Net Interest Income”.

Return on Equity and Assets

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


	*EU – IFRS ()**
	Year Ended December 31,
	2007			2006			2005

ROA: Return on average total assets		1.10	%		1.00	%		0.91	%
ROE: Return on average stockholders’ equity		21.91	%		21.39	%		19.86	%
PAY-OUT: Dividends per average share as a percentage of net attributable income per average share		44.92	%		42.87	%		41.88	%
Average stockholders’ equity as a percentage of average total assets		4.71	%		4.36	%		4.24	%


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

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.


	*EU – IFRS ()**
Interest earning assets	Year Ended December 31,
	2007			2006			2005

Cash and due from Central Banks
Domestic		0.44	%		0.28	%		0.50	%
International		1.95	%		1.73	%		1.37	%

		2.39	%		2.01	%		1.87	%

Due from credit entities
Domestic		1.12	%		1.60	%		2.21	%
International		7.12	%		6.77	%		8.33	%

		8.24	%		8.37	%		10.54	%

Loans and credits
Domestic		26.75	%		24.69	%		22.77	%
International		41.58	%		41.43	%		40.27	%

		68.33	%		66.12	%		63.04	%

Debt securities
Domestic		2.54	%		2.79	%		3.79	%
International		11.57	%		14.69	%		14.72	%

		14.11	%		17.48	%		18.51	%

Other interest earning assets
Domestic		4.28	%		3.31	%		2.60	%
International		2.65	%		2.71	%		3.44	%

		6.93	%		6.02	%		6.04	%

Total interest-earning assets
Domestic		35.13	%		32.67	%		31.87	%
International		64.87	%		67.33	%		68.13	%

		100.00	%		100.00	%		100.00	%


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

Loans and Advances to Credit Institutions

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


	*EU – IFRS ()**
	At December 31,
	2007			2006			2005			2004
	(in thousands of euros)
Reciprocal accounts		417,438			503,299			345,104			118,536
Time deposits		13,569,362			16,842,601			21,962,472			23,204,031
Reverse repurchase agreements		30,276,080			37,010,008			33,634,326			31,495,786
Other accounts		6,656,619			5,818,630			3,831,120			3,561,421

		50,919,499			60,174,538			59,773,022			58,379,774

Less- Impairment allowances		(18,487	)		(12,727	)		(36,046	)		(53,879	)

		50,901,012			60,161,811			59,736,976			58,325,895


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

For a description of the differences between these accounting standards, see Note 57 to the consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2006.


	Previous Spanish GAAP
	At December 31,
	2003
	(in thousands of euros)

Demand deposits-
Current accounts		103,734
Clearing House		—
Other accounts		1,599,804

		1,703,538

Other deposits-
Deposits in credit entities		14,635,787
Securities purchased under agreements to resell		21,390,247

		36,026,034

Less- Allowance for credit losses(1)		(111,735	)

		37,617,837


(1)		The purpose of the allowance for credit losses was to recognize the loss related to the collectibility of these balances due to transfer risk and credit risk. This allowance was determined, in accordance with Bank of Spain requirements, based on debt servicing, on debtor credit rating, and on the outstanding settlement and transfer risks of the country in which the debtor is located.

		The allowance for credit losses reduces the fair value of the balances included in Due from Credit Institutions after evaluating their collectibility. All estimated losses considered in the calculation of this allowance are related to claims due from non-OECD financial institutions.

Investment Securities

At December 31, 2007, the book value of our investment securities was €132.0 billion (representing 14.5% of our total assets). These investment securities had a yield of 3.28% in 2007, compared with a yield of 3.33% in 2006, and a yield of 2.98% earned during 2005. €15.1 billion, or 11.4%, of our investment securities at December 31, 2007 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.

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


	*EU – IFRS ()**
	At December 31,
	2007			2006			2005
	(in thousands of euros)
Debt securities
Domestic-
Spanish Government		14,471,176			12,596,984			19,595,333
Other domestic issuer:
Public authorities		904,382			179,317			121,328
Other domestic issuer		9,988,780			5,900,637			6,569,398

Total domestic		25,364,338			18,676,938			26,286,059
International-
United States:
U.S. Treasury and other U.S. Government agencies		1,870,152			1,073,246			874,569
States and political subdivisions		281,453			50,218			95,167
Other securities		9,717,623			5,707,115			5,331,903

Total United States		11,869,229			6,830,579			6,301,639
Other:
Governments		19,465,853			21,127,122			70,913,815
Other securities		52,650,983			68,042,118			56,244,892

Total Other		72,116,836			89,169,240			127,158,707

Total International		83,986,065			95,999,820			133,460,346
Less- Allowance for credit losses		(91,753	)		(90,322	)		(80,000	)
Less- Price fluctuation allowance					—			—

Total Debt Securities		109,258,650			114,586,436			159,666,405

Equity securities
Domestic		8,283,198			7,312,113			7,556,389
International-
United States		1,629,755			604,922			247,711
Other		12,874,902			14,270,821			36,485,513

Total international		14,504,658			14,875,743			36,733,224
Less- Price fluctuation allowance		(11,238	)		(13,859	)		(17,658	)

Total Equity Securities		22,776,618			22,173,997			44,271,955

Total Investment Securities		132,035,268			136,760,433			203,938,360


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

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, that exceeded 10% of our stockholders’ equity as of December 31, 2007 (and other debt securities with aggregate values near to 10% of our stockholders’ equity).


	Aggregate as of December 31, 2007
	Book value		Market value
	(in thousands of euros)
Debt securities:
Exceed 10% of stockholders’ equity:
Spanish Government		15,375,559		15,375,559
RFS Holdings B.V.		12,784,749		12,784,749
Mexican Government		9,530,990		9,530,990
Brazilian Government		7,364,333		7,364,333
Near 10% of stockholders’ equity:
RBS		4,161,652		4,161,652
Barclays Bank plc		3,614,181		3,614,181

The following table analyzes the maturities and weighted average yields of our debt investment securities (before impairment allowances) at December 31, 2007. 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, 2007
			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		5,796,762		3,152,995		5,250,094		271,326		14,471,176
Other domestic issuer:
Public authorities		151,035		478,898		230,066		44,382		904,382
Other domestic issuer		2,120,076		3,672,580		1,859,355		2,336,769		9,988,780

Total domestic		8,067,873		7,304,474		7,339,515		2,652,477		25,364,338

International:
United States:
U.S. Treasury and other U.S. Government agencies		1,675,438		61,250		3,958		129,506		1,870,152
States and political subdivisions		160,154		73,305		11,364		36,630		281,453

Other securities		3,024,707		2,986,962		2,686,005		1,019,949		9,717,623

Total United States		4,860,299		3,121,517		2,701,327		1,186,085		11,869,229

Other:
Governments		2,598,448		6,991,497		8,584,700		1,291,208		19,465,853
Other securities		23,162,446		15,822,795		5,059,630		8,606,113		52,650,983

Total Other		25,760,894		22,814,291		13,644,330		9,897,321		72,116,836

Total International		30,621,193		25,935,809		16,345,657		11,083,406		83,986,065


Total debt investment securities		38,689,066		33,240,283		23,685,171		13,735,883		109,350,403

Loan Portfolio

At December 31, 2007, our total loans and advances to customers equaled €574.2 billion (62.9% of our total assets). Net of allowances for credit losses, loans and advances to customers equaled €565.5 billion at December 31, 2007 (61.9% of our total assets). In addition to loans, we had outstanding at December 31, 2003, 2004, 2005, 2006 and 2007, €48.6 billion, €63.1 billion, €77.7 billion, €91.7 billion and €102.2 billion, respectively, of undrawn balances available to third parties (2003 calculated under previous Spanish GAAP).

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 (as prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004).


	*EU – IFRS ()**
	At December 31,
	2007			2006			2005			2004
	(in thousands of euros)
Borrowers in Spain:
Spanish Government		5,633,422			5,328,526			5,242,938			5,741,016
Commercial, financial, agricultural and industrial		45,169,824			71,412,545			54,799,113			48,110,367
Real estate-construction		46,837,281			12,391,306			7,834,447			5,417,473
Real estate-mortgage		59,268,463			81,718,186			65,940,697			53,456,477
Installment loans to individuals		21,533,074			20,058,666			14,343,281			11,295,350
Lease financing		9,643,516			8,668,599			7,276,200			6,097,620
Other		46,060,262			5,668,234			3,345,467			2,764,974

Total		234,145,842			205,246,062			158,782,143			132,883,277
Borrowers outside Spain:
Governments		2,295,763			4,969,713			6,608,103			5,713,770
Banks and other financial institutions		1,951,381			767,765			2,109,420			17,681,264
Commercial and industrial		143,045,869			128,438,265			108,145,797			55,500,956
Mortgage loans		179,163,680			177,631,731			161,147,496			144,827,500
Other		13,569,679			14,455,772			6,645,761			19,588,512

Total		340,026,373			326,263,246			284,656,577			243,312,002

Total loans and leases, gross		574,172,215			531,509,308			443,438,720			376,195,279

Allowance for possible loan losses		(8,695,204	)		(8,163,444	)		(7,609,925	)		(6,845,215	)


Loans and leases, net of allowances		565,477,011			523,345,864			435,828,795			369,350,064


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

The table below contains information prepared under previous Spanish GAAP, which is not comparable to information prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. See main differences between both accounting standards in Note 57 to the consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2006.


	Previous Spanish GAAP
	At December 31,
	2003
	(in thousands of euros)
Borrowers in Spain:
Spanish Government		5,487,358
Commercial, financial, agricultural and industrial		40,082,919
Real estate-construction		4,048,386
Real estate-mortgage		41,091,269
Installment loans to individuals		8,894,956
Lease financing		5,198,113
Other		4,199,954

Total		109,002,955

Borrowers outside Spain:
Governments		5,824,432
Banks and other financial institutions		1,398,685
Commercial and industrial		37,915,142
Other (1)		23,479,482

Total		68,617,741

Total loans and leases, gross		177,620,696

Allowance for possible loan losses		(5,116,683	)


Loans and leases, net of allowances		172,504,013


(1)		Of which €11.9 billion are real-estate mortgages. The remaining amount corresponds to other types of customers, with no “loan concentration” as defined by Item III-C of Industry Guide 3.

At December 31, 2007, our loans and advances to associated companies and jointly controlled entities amounted to €262 million (see “Item 7. Major Shareholders and Related Party Transactions—B. Related party transactions”). Excluding government-related loans and advances, the largest outstanding exposure at December 31, 2007 was €4.2 billion (0.7% of total loans and advances, including government-related loans), and the five next largest exposures totaled €8.8 billion (1.5% of total loans, including government-related loans).

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, 2007.


	Maturity
	Less than					One to five					Over five
	one year					years					years					Total
			% of					% of					% of					% of
	Balance		Total			Balance		Total			Balance		Total			Balance		Total
						(in thousands of euros, except percentages)
Loans to borrowers in Spain:
Spanish Government		2,269,084		1.36	%		829,170		0.71	%		2,535,169		0.87	%		5,633,422		0.98	%
Commercial, financial, agriculture and industrial		23,343,645		13.95	%		14,638,719		12.60	%		7,187,461		2.47	%		45,169,824		7.87	%
Real estate:
Construction		1,335,290		0.80	%		2,346,159		2.02	%		43,155,831		14.85	%		46,837,281		8.16	%
Mortgage		4,040,988		2.41	%		5,390,272		4.64	%		49,837,203		17.15	%		59,268,463		10.32	%
Installment loans to individuals		5,561,216		3.32	%		7,199,475		6.20	%		8,772,383		3.02	%		21,533,074		3.75	%
Lease financing		3,586,992		2.14	%		4,727,445		4.07	%		1,329,079		0.46	%		9,643,516		1.68	%
Other		26,885,768		16.06	%		13,582,450		11.69	%		5,592,044		1.92	%		46,060,262		8.02	%

Total borrowers in Spain		67,022,983		40.04	%		48,713,690		41.94	%		118,409,170		40.74	%		234,145,842		40.78	%

Loans to borrowers outside Spain
Other Governments		858,747		0.51	%		900,986		0.78	%		536,030		0.18	%		2,295,763		0.40	%
Financial		556,527		0.33	%		1,254,964		1.08	%		139,890		0.05	%		1,951,381		0.34	%
Commercial and Industrial		77,834,291		46.50	%		47,609,423		40.99	%		17,602,155		6.06	%		143,045,869		24.91	%
Mortgage loans		14,467,328		8.64	%		12,086,934		10.41	%		152,609,418		52.51	%		179,163,680		31.20	%
Other		6,631,752		3.96	%		5,591,497		4.81	%		1,346,430		0.46	%		13,569,679		2.36	%

Total loans to borrowers outside Spain		100,348,645		59.96	%		67,443,804		58.06	%		172,233,924		59.26	%		340,026,373		59.22	%


Total loans and leases, gross		167,371,628		100.00	%		116,157,494		100.00	%		290,643,093		100.00	%		574,172,215		100.00	%

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, 2007.

Fixed and variable rate loans

having a maturity of more than one year

Domestic

International

Total

(in thousands of euros, except percentages)

Fixed rate

29,820,420

118,583,356

148,403,776

Variable rate

137,302,440

121,094,372

258,396,811

Total

167,122,860

239,677,728

406,800,588

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 Abbey or our Latin American subsidiaries.


	*EU — IFRS ()**
	2007					2006					2005
			% of					% of					% of
			total					total					total
			assets					assets					assets
	(in thousands of euros, except percentages)
OECD Countries: (1)
United Kingdom		10,553,863		1.16	%		8,504,530		1.02	%		9,563,816		1.18	%
United States		7,139,888		0.78	%		3,643,184		0.44	%		4,791,568		0.59	%
Other OECD Countries (2)		5,396,045		0.59	%		9,799,540		1.18	%		8,028,563		0.99	%

Total OECD		23,925,113		2.62	%		26,094,738		3.13	%		28,953,330		3.58	%

Non-OECD Countries
Latin American Countries (2) (3)		8,221,028		0.90	%		10,106,062		1.21	%		8,059,507		1.00	%
Other (2)		2,379,944		0.26	%		2,028,035		0.24	%		2,439,866		0.30	%

Total Non-OECD		10,600,972		1.16	%		12,134,097		1.46	%		10,499,373		1.30	%


Total		34,526,085		3.78	%		38,228,835		4.58	%		39,452,702		4.88	%


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

(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, 2005, 2006 and 2007, we had allowances for country-risk equal to €161.5 million, €151.0 million and €105.0 million, respectively. Such allowances for country-risk exceeded the Bank of Spain’s minimum requirements at such dates.

The following table sets forth the amounts of our cross-border outstandings as of December 31 of each year 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)

2005

United Kingdom

8,095,155

1,468,572

9,563,816

Total

8,095,155

1,468,572

9,563,816

2006

United Kingdom

2,796

5,626,606

2,875,127

8,504,530

Total

2,796

5,626,606

2,875,127

8,504,530

2007

United Kingdom

616

3,870,351

6,682,896

10,553,863

United States

483,863

3,203,901

3,452,125

7,139,888

Total

484,479

7,074,252

10,135,020

17,693,751

Classified Assets

In the following pages, we describe Bank of Spain requirements for classification of non-performing assets and credit loss recognition. Unlike under U.S. GAAP, Bank of Spain’s Circular 4/2004 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. In Notes 57.2 and 57.3 to our consolidated financial statements, we include a summary of significant valuation and income recognition differences under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP and a net income and stockholders’ equity reconciliation.

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, the more strict or conservative requirements are followed.

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;

	•	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.

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 (in accordance with the Bank of Spain criteria discussed below), 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.

These classification criteria differ from U.S. GAAP requirements, but do not generate balance sheet presentation differences, since loans are always presented net of their allowances.

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. Generally, credit loss recognition under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 is similar in amounts and in time to credit loss recognition under U.S. GAAP.

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. Under U.S. GAAP, this loan would be removed from the balance sheet earlier.

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

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

According to the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, we stop accruing interest on the entire principal amount of any asset that is classified as an impaired asset and on category 3 (transitory difficulties), category 4 (serious difficulties), category 5 (doubtful) and category 6 (bankrupt) country-risk outstandings, whether or not they are classified as impaired. The banks must account 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:


	*EU — IFRS ()**
	At December 31,
	2007		2006		2005
	(in thousands of euros)
Interest owed on non-accruing assets
Domestic		80,133		49,537		38,751
International		291,987		218,216		273,834
Total		372,120		267,754		312,585
Interest received on non-accruing assets
Domestic		81,233		86,370		79,183
International		110,015		70,435		77,602
Total		191,248		156,805		156,785


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

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.

Bank of Spain Allowances for Credit Losses and Country-Risk Requirements

The Bank of Spain requires that 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. While these models are not yet approved by the Bank of Spain, we are required to calculate the allowances according to the instructions described below.

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 Allowances for Credit Losses

The specific allowance is calculated based on the loan recovery expectations and, at a minimum, by application of the coefficients stipulated in the following tables.

Non-Performing Past-Due Assets. Except for fully secured past-due mortgage assets and financial leases on certain types of properties, the Bank of Spain requires Spanish banks to set aside specific allowances for non-performing past-due assets. The minimum required allowance is the product of the amount of the asset treated as non-performing (see “—Bank of Spain Classification Requirements—Non-Performing Past-Due Assets” above) times the percentages set forth in the following table. The allowance must be maintained for so long as the non-performing portion of the asset is carried as an asset on the banks’ balance sheets.


	Allowance
Period Overdue	Companies			Other clients
3-6 months		5.3	%		4.5	%
6-12 months		27.8	%		27.4	%
12-18 months		65.1	%		60.5	%
18-24 months		95.8	%		93.3	%
More than 24 months		100	%		100	%

Fully-Secured Non-Performing Past-Due Mortgage Assets and financial leases on certain types of properties. If a non-performing asset is a fully secured non-performing past-due mortgage or a financial lease and certain conditions are met, the amount of the required allowance is the product of the amount of such asset times the percentages set forth in the following table. Such asset must satisfy three conditions: first, the asset is secured by a mortgage or a right of ownership (in case of a financial lease) on a finished residential property; second, such mortgage or right of ownership was placed on the property at the time the extension of credit was made; and third, the outstanding risk does not exceed 80% of the appraisal value of such mortgaged or leased property.


Period Overdue	Allowance
3 months-3 years		2	%
3-4 years		25	%
4-5 years		50	%
5-6 years		75	%
More than 6 years		100	%

The only exception to these requirements is that when a bank treats otherwise performing assets to a single borrower as non-performing because non-performing assets exceed 25% of the bank’s total exposure to the borrower as set forth in “—Bank of Spain Classification Requirements—Non-Performing Past-Due Assets” above, the Bank of Spain requires the bank to carry an allowance of 1% against any asset that has no overdue principal or interest payments.

Other Fully-Secured Non-Performing Past-Due Assets. For Non-Performing Past-Due Assets fully secured with properties other than those described in the previous paragraphs, the amount of the required allowance is the product of the amount of such asset times the percentages set forth in the following table:


	Allowance
Period Overdue	Companies			Other clients
3-6 months		4.5	%		3.8	%
6-12 months		23.6	%		23.3	%
12-18 months		55.3	%		47.2	%
18-24 months		81.4	%		79.3	%
More than 24 months		100	%		100	%

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%.

General Allowance

In addition to the Bank of Spain’s specific allowance requirements, the Bank of Spain requires Spanish banks to set aside a general allowance for the coverage of all types of credits and off-balance sheet risks classified as standard, calculated with statistical methods based on the experience of deterioration of the portfolio.

Allowances for Country-Risk

The Bank of Spain requires Spanish banks to set aside an allowance for country-risk on all country-risk outstandings. See the above sub-section entitled “—Bank of Spain Classification Requirements—Country-Risk Outstandings”. The amount of the required provision is the product of the amount of the outstanding loans and credits and off-balance sheet risks times the percentages set forth in the following table.


	Minimum percentage of
Categories:	coverage

Category 3		10.1	%
Category 4		22.8	%
Category 5		83.5	%
Category 6		100	%

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.

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)”.


	*EU – IFRS ()**
	Year Ended December 31,
	2007			2006			2005			2004
	(in thousands of euros)
Allowance for credit losses at beginning of year
Borrowers in Spain		4,318,320			3,664,349			2,836,564			1,849,001
Borrowers outside Spain		3,969,808			4,092,326			4,160,864			3,172,452

Total		8,288,128			7,756,675			6,997,428			5,021,453

Inclusion of acquired companies’ credit loss allowances
Borrowers in Spain		—			—			—			1,972
Borrowers outside Spain		7,356			164,530			4,006			1,044,042

Total		7,356			164,530			4,006			1,046,014

Recoveries of loans previously charged off (1)
Borrowers in Spain		148,849			123,566			105,800			145,591
Borrowers outside Spain		475,371			428,040			381,217			259,777

Total		624,220			551,606			487,017			405,368

Net provisions for credit losses (1)
Borrowers in Spain		658,989			793,898			746,519			868,520
Borrowers outside Spain		2,837,069			1,689,964			1,001,381			713,220

Total		3,496,058			2,483,862			1,747,900			1,581,740

Charge offs against credit loss allowance
Borrowers in Spain		(573,787	)		(269,559	)		(226,036	)		(344,392	)
Borrowers outside Spain		(2,746,375	)		(2,100,306	)		(1,293,458	)		(681,036	)

Total		(3,320,162	)		(2,369,865	)		(1,519,494	)		(1,025,428	)

Other movements (2)		(299,229	)		(298,680	)		39,818			(31,719	)

Allowance for credit losses at end of year
Borrowers in Spain		4,512,000			4,318,320			3,664,349			2,836,564
Borrowers outside Spain		4,284,371			3,969,808			4,092,326			4,160,864

Total		8,796,371			8,288,128			7,756,675			6,997,428


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

	•		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 the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

	•		The shift in “Other Movements” from 2004 to 2005, to 2006, and to 2007 principally reflects foreign exchange differences.

Movements in Allowances for Credit Losses


	Previous Spanish GAAP
	Year Ended December 31,
	2003
	(in thousands of euros)
Allowance for credit losses at beginning of year
Borrowers in Spain		1,725,606
Borrowers outside Spain		3,438,672

Total		5,164,278

Inclusion of acquired companies’ credit loss allowances
Borrowers in Spain		—
Borrowers outside Spain		—

Total		—

Loans charged off against income (1)
Borrowers in Spain		(12,729	)
Borrowers outside Spain		(91,110	)

Total		(103,839	)

Recoveries of loans previously charged off (1)
Borrowers in Spain		108,722
Borrowers outside Spain		248,765

Total		357,487

Net provisions for credit losses (1)
Borrowers in Spain		681,234
Borrowers outside Spain		814,453

Total		1,495,687

Charge offs against credit loss allowance
Borrowers in Spain		(259,366	)
Borrowers outside Spain		(811,719	)

Total		(1,071,085	)

Other movements		(428,132	)

Allowance for credit losses at end of year
Borrowers in Spain		1,681,017
Borrowers outside Spain		3,733,379

Total		5,414,396


(1)		We have 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 in order to satisfy the SEC’s requirement to show all charge-offs and recoveries in this table. We have increased provisions for credit losses for the purposes of this table by the amount of charge-offs of loans not previously provided for and decreased it by the amount of recoveries of loans previously provided for to produce the line item “net provisions for credit losses”. This has also allowed the figures for net provisions for credit losses in this table to match the amounts recorded under “Write-offs and credit loss provisions (net)” in our Consolidated Income Statement.

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.


	*EU — IFRS ()**
	Year Ended December 31,
	2007			2006			2005			2004
	(in thousands of euros)
Recoveries of loans previously charged off-
Domestic:
Commercial, financial, agricultural, industrial		32,045			37,879			51,649			60,113
Real estate-construction		10,718			5,646			140			2,488
Real estate-mortgage		17,644			11,249			5,226			24,799
Installment loans to individuals		70,082			59,726			32,303			44,340
Lease finance		4,517			5,023			2,903			4,050
Other		13,844			4,043			13,579			9,800

Total Borrowers in Spain		148,849			123,566			105,800			145,591
Borrowers outside Spain
Government and official institutions		8			1,126			1			1,958
Bank and other financial institutions		2,735			21			1,691			10,373
Commercial and industrial		397,126			299,302			292,279			141,324
Mortgage loans		30,360			7,751			3,468			8,288
Other		45,141			119,840			83,778			97,834
Borrowers outside Spain		475,371			428,040			381,217			259,777

Total		624,220			551,606			487,017			405,368
Net provisions for credit losses-
Domestic:
Commercial, financial, agricultural, industrial		(278,356	)		405,914			296,879			333,801
Real estate-construction		240,462			20,430			49,925			(621	)
Real estate-mortgage		298,645			96,209			62,526			46,016
Installment loans to individuals		383,582			278,223			161,027			121,574
Lease finance		16,038			55,894			19,838			22,977
Other		(1,383	)		(62,772	)		156,324			344,774

Total Borrowers in Spain		658,989			793,898			746,519			868,520
Borrowers outside Spain
Government and official institutions		(1,797	)		2,035			16,836			(5,085	)
Bank and other financial institutions		(35,598	)		72,479			1,698			46,117
Commercial and industrial		2,016,115			1,128,005			820,912			472,200
Mortgage loans		237,553			11,612			88,812			64,375
Other		620,796			475,833			73,123			135,613
Borrowers outside Spain		2,837,069			1,689,964			1,001,381			713,220

Total		3,496,058			2,483,862			1,747,900			1,581,740
Charge offs against credit loss allowance
Domestic:
Commercial, financial, agricultural, industrial		(140,715	)		(55,982	)		(113,357	)		(158,248	)
Real estate-construction		(29,466	)		(18,911	)		(8	)		(667	)
Real estate-mortgage		(11,807	)		(7,284	)		(14,674	)		(36,253	)
Installment loans to individuals		(356,532	)		(184,218	)		(67,554	)		(113,652	)
Lease finance		(1,344	)		(1,775	)		(8,007	)		(2,249	)
Other		(33,924	)		(1,389	)		(22,436	)		(33,323	)

Total Borrowers in Spain		(573,787	)		(269,559	)		(226,036	)		(344,392	)
Borrowers outside Spain
Government and official institutions		—			(174	)		—			(1,706	)
Bank and other financial institutions		(2,432	)		(12,189	)		(86	)		(85,339	)
Commercial and industrial		(1,969,576	)		(1,333,617	)		(1,120,180	)		(551,804	)
Mortgage loans		(6,693	)		(46,603	)		(30,562	)		(4,923	)
Other		(767,674	)		(707,723	)		(142,630	)		(37,265	)
Borrowers outside Spain		(2,746,375	)		(2,100,306	)		(1,293,458	)		(681,036	)

Total		(3,320,162	)		(2,369,865	)		(1,519,494	)		(1,025,428	)


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004


	Previous Spanish GAAP
	Year Ended December 31,
	2003
	(in thousands of euros)
Loans charged off against income-
Borrowers in Spain:
Commercial, financial, agricultural, industrial		(2,917	)
Real estate-construction		(3	)
Real estate-mortgage		(1,042	)
Installment loans to individuals		(7,763	)
Lease finance		(992	)
Other		(12	)

Total Borrowers in Spain		(12,729	)
Borrowers outside Spain
Government and official institutions		—
Bank and other financial institutions		(2,762	)
Commercial and industrial		(15,384	)
Other		(72,964	)
Total borrowers outside Spain		(91,110	)

Total		(103,839	)
Recoveries of loans previously charged off-
Domestic:
Commercial, financial, agricultural, industrial		47,069
Real estate-construction		425
Real estate-mortgage		15,164
Installment loans to individuals		35,389
Lease finance		1,644
Other		9,031

Total Borrowers in Spain		108,722
Borrowers outside Spain
Government and official institutions		1,766
Bank and other financial institutions		13,485
Commercial and industrial		109,577
Other		123,937
Borrowers outside Spain		248,765

Total		357,487
Provisions for credit losses-
Domestic:
Commercial, financial, agricultural, industrial		318,538
Real estate-construction		759
Real estate-mortgage		18,973
Installment loans to individuals		91,799
Lease finance		36,267
Other		214,898

Total Borrowers in Spain		681,234
Borrowers outside Spain
Government and official institutions		(3,350	)
Bank and other financial institutions		(19,983	)
Commercial and industrial		434,725
Other		403,061
Borrowers outside Spain		814,453

Total		1,495,687
Charge offs against credit loss allowance
Domestic:
Commercial, financial, agricultural, industrial		(154,360	)
Real estate-construction		(811	)
Real estate-mortgage		(19,109	)
Installment loans to individuals		(59,334	)
Lease finance		(1,885	)
Other		(23,867	)

Total Borrowers in Spain		(259,366	)
Borrowers outside Spain
Government and official institutions		(451	)
Bank and other financial institutions		(196,662	)
Commercial and industrial		(288,151	)
Other		(326,455	)
Borrowers outside Spain		(811,719	)

Total		(1,071,085	)

Allowances for Credit Losses


	*EU – IFRS ()**
	December 31,
	2007		%		2006		%		2005		%		2004		%
	(in thousands of euros, except percentages)

Borrowers in Spain:
Commercial, financial, agricultural, industrial		2,058,128		23.40		2,302,546		27.78		2,056,003		26.51		1,494,605		21.36
Real estate-construction		475,907		5.41		267,771		3.23		270,369		3.49		7,929		0.11
Real estate-mortgage		805,437		9.16		457,132		5.52		243,335		3.14		206,461		2.95
Installment loans to individuals		926,917		10.53		889,283		10.73		612,564		7.90		491,698		7.03
Lease finance		162,405		1.85		166,542		2.01		98,830		1.27		105,101		1.50
Other		83,207		0.95		235,046		2.84		383,248		4.94		530,771		7.59

Total Borrowers in Spain		4,512,000		51.30		4,318,320		52.10		3,664,349		47.24		2,836,564		40.54
Borrowers outside Spain:
Government and official institutions		25,650		0.29		30,054		0.36		41,302		0.53		53,966		0.77
Bank and other financial institutions		101,387		1.15		149,729		1.81		68,122		0.88		176,115		2.52
Commercial and industrial		2,762,325		31.40		2,670,075		32.22		3,413,736		44.01		3,551,929		50.76
Mortgage loans		1,354,866		15.40		831,972		10.04		363,980		4.69		199,022		2.84
Other		40,142		0.46		287,978		3.47		205,186		2.65		179,832		2.57

Total Borrowers outside Spain		4,284,371		48.70		3,969,808		47.90		4,092,326		52.76		4,160,864		59.46

Total		8,796,371		100.00		8,288,128		100.00		7,756,675		100.00		6,997,428		100.00


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

Allowances for Credit Losses


	Previous Spanish GAAP
	At December 31,
(in thousands of euros, except percentages)	2003		%
Borrowers in Spain:
Commercial, financial, agricultural, industrial		738,291		13.64
Real estate-construction		5,673		0.10
Real estate-mortgage		187,635		3.47
Installment loans to individuals		250,750		4.63
Lease finance		57,686		1.07
Other		440,982		8.14

Total Borrowers in Spain		1,681,017		31.05
Borrowers outside Spain:
Government and official institutions		23,688		0.44
Bank and other financial institutions		152,958		2.83
Commercial and industrial		3,131,665		57.83
Other		425,068		7.85

Total Borrowers outside Spain		3,733,379		68.95

Total		5,414,396		100.00

Impaired Assets

The following tables show our impaired assets, excluding country-risk. We do not keep records classifying assets 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 assets that would have been so classified, to the extent possible, below.


	*EU – IFRS ()**
	At December 31,
Non-performing assets	2007			2006			2005			2004
	(in thousands of euros, except percentages)
Past-due and other non-performing assets (1) (2) (3):
Domestic		1,887,167			1,288,857			1,110,784			1,018,088
International		4,291,488			3,318,690			3,230,716			3,096,603

Total		6,178,655			4,607,547			4,341,500			4,114,691

Non-performing loans as a percentage of total loans		1.07	%		0.87	%		0.98	%		1.09	%

Net loan charge-offs as a percentage of total loans		0.47	%		0.34	%		0.23	%		0.16	%


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

(1)		We estimate that the total amount of our non-performing assets fully provisioned under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and which under U.S. GAAP would have been charged-off from the balance sheet was €1,567.0 million, €1,302.6 million, €1,206.5 million and €1,582.0 million at December 31, 2004, 2005, 2006 and 2007 respectively.

(2)		Non-performing assets due to country risk were €122.4 million, €121.1 million, €83.0 million and €6.7 million at December 31, 2004, 2005, 2006 and 2007, respectively.

(3)		We estimate that at December 31, 2004, 2005, 2006 and 2007, (i) the total amount of our non-performing past-due assets was €3,501.0 million, €3,367.1 million, €3,841.2 million and €4,918.2 million, respectively, and (ii) the total amount of our other non-performing assets was €613.7 million, €974.4 million, €766.3 million and €1,260.5 million, respectively.

The table below contains information prepared under previous Spanish GAAP which is not comparable to information prepared under EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.


	Previous Spanish GAAP
	At December 31,
	2003
	(in thousands of euros,
	except percentages)
Past-due and other non-performing assets (1) (2) (3):
Domestic		931,583
International		2,290,921

Total		3,222,504

Non-performing loans as a percentage of total loans		1.81	%

Net loan charge-offs as a percentage of total loans		0.46	%


(1)		The figures in this table do not reflect the entire principal amount of loans having payments 90 days or more past due unless the entire principal amount of the loan is classified as non-performing under Bank of Spain regulations as described above under “—Bank of Spain Classification Requirements”. We estimate that the entire principal amount of such loans would have been €3,823.4 million at December 31, 2003.

(2)		We estimate that at December 31, 2003, (i) the total amount of our non-performing past-due assets was €2,327.3 million and (ii) the total amount of our other non-performing assets was €895.2 million.

(3)		We estimate that the total amount of our non-performing assets fully provisioned under Spanish GAAP and which under U.S. GAAP would have been charged-off from the balance sheet was €341.8 million at December 31, 2003.

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, 2007 (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 Assets

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


	*EU – IFRS ()**
	Quarter 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,
(in thousands of euros)	2007			2007			2007			2007			2007			2006			2005			2004

Opening balance		4,607,547			4,936,052			5,353,641			5,737,934			4,607,547			4,341,500			4,114,691			3,512,727
Net additions		1,058,004			1,046,786			1,255,895			1,530,586			4,891,270			2,635,912			1,737,692			1,627,392
Writeoffs		(729,499	)		(629,197	)		(871,602	)		(1,089,865	)		(3,320,162	)		(2,369,865	)		(1,510,833	)		(1,025,428	)

Closing balance (1)		4,936,052			5,353,641			5,737,934			6,178,655			6,178,655			4,607,547			4,341,500			4,114,691


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

(1)		Non-performing assets due to country-risk were €6.7 million, €83.0 million and €121.1 million at December 31, 2007, 2006 and 2005, respectively.


	Previous Spanish GAAP
	Year ended December 31,
	2003
	(in thousands of euros)
Opening balance		3,676,467
Net additions		720,500
Writeoffs		(1,174,463	)

Closing balance		3,222,504

Impaired Asset Ratios

The following tables show the ratio of our impaired assets to total computable credit risk and our coverage ratio at December 31, 2007, 2006, 2005 and 2004.


	*EU – IFRS ()**
	At December 31,
	2007			2006			2005			2004
	(in thousands of euros, except percentages)

Computable credit risk (1)		649,342,484			588,372,837			489,662,040			411,482,598

Non-performing assets
Mortgage loans		1,843,628			1,364,317			1,209,137			1,352,564
Other		4,335,027			3,243,230			3,132,363			2,762,127

Total non performing assets		6,178,655			4,607,547			4,341,500			4,114,691

Allowances for non-performing assets		9,302,230			8,626,937			7,902,225			6,813,354

Ratios
Non-performing assets to computable credit risk		0.95	%		0.78	%		0.89	%		1.00	%
Coverage ratio (2)		150.55	%		187.23	%		182.02	%		165.59	%


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

(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 assets as a percentage of non-performing assets.


	Previous Spanish GAAP
	At December 31, 2003
	(in thousands of euros,
	except percentages)

Computable credit risk (1)		207,979,474

Non-performing assets
Mortgage loans		510,265
Other		2,712,239

Total non performing assets		3,222,504

Allowances for non-performing assets		5,323,127

Ratios
Non-performing assets to computable credit risk		1.55	%
Coverage ratio (2)		165.19	%


(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 assets as a percentage of non-performing assets.

Country-Risk Outstandings

The following tables set forth our country-risk outstandings with third parties belonging to countries classified in groups 3, 4, 5 and 6 for the years shown (See “—Bank of Spain Classification Requirements—Country-Risk Outstandings”).

EU – IFRS (*)

Year ended December 31,

2007

2006

2005

2004

(in millions of euros)

Risk (gross)

844.5

899.1

668.1

1,063.7

Provisions

124.0

233.5

313.0

275.0

Risk (net)

720.5

665.6

355.1

788.8


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004


	Previous Spanish GAAP
	Year ended December 31,
	2003
	(in millions of euros)
Risk (gross)		497.0
Provisions		406.0

Risk (net)		91.0


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

Other Non-Accruing Assets

As described above under “—Bank of Spain Classification Requirements”, we do not classify our loans to borrowers in countries with transitory difficulties (category 3) and countries in serious difficulties (category 4) as impaired assets. However, as described above under “—Bank of Spain Allowances for Credit Losses and Country-Risk Requirements—Allowances for Country-Risk” and “—Non-Accrual of Interest Requirements”, the Bank of Spain requires us to account for such loans on a cash basis (non-accruing) and to set aside certain allowances for such loans. We treat category 5 (doubtful countries) country-risk outstandings as both a non-accruing and impaired asset. Total other non-accruing assets at December 31, 2003, 2004, 2005, 2006 and 2007 were €249.7 million, €717.5 million, €626.5 million, €874.5 million and €893.6 million, respectively (2003 calculated under previous Spanish GAAP).


	*EU – IFRS ()**
Summary of non-accrual assets	Year Ended December 31,
	2007		2006		2005		2004
	(in millions of euros)
Assets classified as Non Performing Assets		6,178.7		4,607.5		4,341.5		4,114.7
Non Performing Assets due to country risk		6.7		23.7		40.3		117.1
Other assets on non-accrual status due to country risk		893.6		874.5		626.5		717.5

Total non-accruing assets		7,078.9		5,505.7		5,008.3		4,949.3


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

The table below contains information prepared under previous Spanish GAAP which is not comparable to information prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. As described in our 2004 Form 20-F under “Financial Management and Equity Stakes—Classified Assets—Bank of Spain Classification Requirements”, under previous Spanish GAAP loans could be partially classified as performing and non-performing. As a result, this table includes an additional line for the performing portion of loans that are partially classified as non-performing.


	Previous Spanish GAAP
	Year Ended December 31,
Summary of non-accrual assets	2003
	(in millions of euros)
Assets classified as Non Performing Assets		3,222.5
Outstanding balances of loans partially classified as non-performing		600.9
Other assets on non-accrual status due to country risk		249.7

Total non-accruing assets		4,073.1

Both under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and previous Spanish GAAP we do not have any loans past-due 90 days or more that are accruing interest, in accordance with the Bank of Spain’s requirements.

As of December 31, 2005, 2006 and 2007, the amounts of “restructured loans”, none of which were classified as non-performing, were €322.4 million, €403.0 million and €465.2 million.

Foreclosed Assets

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


	*EU – IFRS ()**
													Year ended
	Quarterly movements												December 31,
	Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,
	2007			2007			2007			2007			2007			2006			2005
	(in thousands of euros, except percentages)
Opening balance		408,450			410,830			414,016			428,805			408,450			408,042			372,519
Foreclosures		182,050			185,446			199,069			284,587			851,152			639,808			442,458
Sales		(179,670	)		(182,260	)		(184,280	)		(218,825	)		(765,035	)		(639,400	)		(406,935	)
Gross foreclosed assets		410,830			414,016			428,805			494,567			494,567			408,450			408,042
Allowances established		129,447			117,926			116,501			111,026			111,026			(129,611	)		(115,683	)
Allowance as a percentage of foreclosed assets		31.51	%		28.48	%		27.17	%		22.45	%		22.45	%		31.73	%		28.35	%
Closing balance (net)		281,383			296,090			312,304			383,541			383,541			278,839			292,359


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

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 2005, 2006 and 2007, 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 15.6% at December 31, 2007, according to figures published by the Spanish Banking Association (AEB) and the Confederación Española de Cajas de Ahorros (“CECA”). See “—Competition”.

The following tables analyze our year-end deposits.

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


	*EU – IFRS ()**
	At December 31,
Deposits from central banks and credit institutions-	2007		2006		2005
	(in thousands of euros)
Reciprocal accounts		562,619		411,314		190,885
Time deposits		71,226,437		63,589,635		47,224,471
Other demand accounts		2,466,370		2,225,037		7,383,695
Repurchase agreements		36,615,910		45,417,839		91,399,196
Central bank credit account drawdowns		2,008,927		1,348,815		2,369,406
Other financial liabilities associated with transferred financial assets		—		8,445		7,170
Hybrid financial liabilities		15,760		34,852		47,584

Total		112,896,023		113,035,937		148,622,407

Customer deposits-
Demand deposits-
Current accounts		87,136,743		89,151,030		80,631,188
Savings accounts		90,727,525		93,717,633		90,471,827
Other demand deposits		3,593,720		2,025,095		1,747,720
Time deposits-
Fixed-term deposits		92,673,147		86,345,788		77,166,817
Home-purchase savings accounts		296,768		324,262		269,706
Discount deposits		9,933,139		7,132,341		16,128,577
Funds received under financial asset transfers		—		—		1
Hybrid financial liabilities		8,494,773		4,994,535		4,141,071
Other financial liabilities associated with transferred financial assets		—		—		20,346
Other time deposits		113,562		470,140		351,620
Notice deposits		283,301		45,849		33,713
Repurchase agreements		62,451,624		47,015,928		34,802,694

Total		355,704,302		331,222,601		305,765,280


Total deposits		468,600,325		444,258,538		454,387,687


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

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


	*EU – IFRS ()**
	At December 31,
Deposits from central banks and credit institutions-	2007		2006		2005
	(in thousands of euros)
Due to credit institutions
Offices in Spain		66,137,878		45,786,284		76,504,500
Offices outside Spain:
Other EU countries		31,782,431		47,733,849		9,647,389
United States		421,513		300,336		1,439,643
Other OECD countries (1)		44,136		24,509		36,905,723
Central and South America (1)		14,502,083		19,146,367		23,926,745
Other		7,982		44,592		198,407
Total offices outside Spain		46,758,145		67,249,653		72,117,907

Total		112,896,023		113,035,937		148,622,407

Customer deposits
Offices in Spain		132,008,374		120,485,991		107,117,818
Offices outside Spain:
Other EU countries		134,620,750		136,730,342		133,274,597
United States		17,888,682		7,512,963		7,578,598
Other OECD countries (1)		189,548		79,117		106,151
Central and South America (1)		69,361,574		64,984,913		56,395,157
Other		1,635,374		1,429,275		1,292,959
Total offices outside Spain		223,695,928		210,736,610		198,647,462

Total		355,704,302		331,222,601		305,765,280

Total deposits		468,600,325		444,258,538		454,387,687


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

(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, 2007. Large denomination customer deposits may be a less stable source of funds than demand and savings deposits.


	December 31, 2007
	Domestic		International		Total
	(in thousands of euros)

Under 3 months		12,802,297		21,430,235		34,232,532
3 to 6 months		2,581,027		4,650,391		7,231,418
6 to 12 months		2,897,014		4,798,172		7,695,187
Over 12 months		1,243,727		11,604,655		12,848,382

Total		19,524,066		42,483,453		62,007,519

The aggregate amount of deposits held by non-resident depositors (banks and customers) in our domestic branch network was €64.4 million, €37.9 million and €48.7 million at December 31, 2005, 2006 and 2007.

Short-Term Borrowings


	*EU – IFRS ()**
Short-Term Borrowings	At December 31,
	2007					2006					2005
			Average					Average					Average
	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		99,067,534		3.66	%		92,433,767		4.39	%		126,201,890		3.55	%
Average during year		90,977,794		3.86	%		101,682,243		3.74	%		91,458,502		3.65	%
Maximum month-end balance		99,067,534					129,816,503					129,563,533
Other short-term borrowings:
At December 31		32,706,892		7.29	%		35,385,525		2.50	%		25,157,976		2.34	%
Average during year		27,071,238		5.42	%		25,501,630		2.66	%		21,249,880		4.23	%
Maximum month-end balance		44,052,354					35,385,525					26,688,044


Total short-term borrowings at year-end		131,774,426		4.56	%		127,819,292		3.87	%		151,359,866		3.35	%


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

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 2007, these two Spanish banking groups accounted for approximately 60.9% of loans and 63.4% of deposits of all Spanish banks, which in turn represented 29.0% of loans and 28.9% 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, 2007, there were 80 foreign banks (of which 72 were from European Union countries) with branches in Spain. In addition, there were 18 Spanish subsidiary banks of foreign banks (of which 13 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.

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.

	•		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 and the United Kingdom.

Abbey’s main competitors are established United Kingdom banks, building societies and insurance companies and other financial services providers (such as supermarket chains and large retailers). In recent years, customer access, choice and mobility have increased.

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 61.9% and 52.6%, at December 31, 2007.

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.

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 15 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;

• 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.

Capital Adequacy Requirements

During 2007, the Bank and its Spanish bank subsidiaries were subject to Bank of Spain’s 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’s Circular 3/2008 published on June 10, 2008, introduced these European Directives into the Spanish regulatory framework.

The Spanish capital adequacy requirements applicable until June 30, 2008 distinguish 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, generic credit allowances and capital gains.

The Bank’s total capital is 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 is 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 provide 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 are 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.

At December 31, 2007, our eligible capital exceeded the minimum required by the Bank of Spain by approximately €14.5 billion. Our Spanish subsidiary banks were, at December 31, 2007, each in compliance with these capital adequacy requirements, and all our foreign subsidiary banks were in compliance with their local regulations.

Banks or consolidated banking groups are required to communicate immediately to the Bank of Spain if they fail to satisfy minimum capital requirements, and within the next month are required to present a plan to recover their solvency. This plan could be modified by the Bank of Spain. While the deficit persists, the payment of dividends by any of the entities of the banking group must be approved by the Bank of Spain. The payment of dividends is forbidden (other than by subsidiaries in which the entity holds at least 50% of the voting rights and capital) if the deficit of capital is greater than 20% or if the deficit in basic capital is greater than 50% of the minimum capital requirements, unless otherwise authorized by the Bank of Spain. See “—Restrictions on Dividends” below.

The Basel Committee on Banking Regulations and Supervisory Practices, which includes the supervisory authorities of thirteen major industrial countries, adopted in 1988 an international framework (the “Basel Accord”) for capital measurement and capital standards of banking institutions. The capital requirements imposed by the Basel Accord are in many respects similar to those imposed by European Union directives, Spanish law and the Bank of Spain.

Based purely on the Basel I Accord capital framework, and making assumptions that we consider appropriate, we estimate that, at December 31, 2007, we had (1) a total capital to risk-weighted assets ratio of 12.66%, and (2) a Tier 1 capital to risk-weighted assets ratio of 7.71%.

The Basel Committee on Banking Supervision on June 26, 2004 published the Basel II Accord which amends the Basel I 1988 Accord. Basel II promotes a more risk sensitive approach to the determination of minimum regulatory capital requirements which would further strengthen the soundness and stability of the international banking system. To ensure that the most appropriate approaches are being used, banks are encouraged to move to the more sophisticated methods by a reduction in the regulatory capital charge.

As a result of the new Basel capital accord issued by the Basel Committee, 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 will be 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), transpose Directive 2006/48/EC and Directive 2006/49/EC into the Spanish Law.

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

Basel II introduces more emphasis on risk sensitivity, supervisory review and market discipline (through more extensive disclosures). Banks will have minimum capital requirements in order to support credit, market and operational risk. The impact of the new regulation is not expected to increase the capital requirements, but could increase their volatility.

The Group intends to use, 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 Banco Español de Crédito -Banesto- in Spain and Abbey in the UK), and plans to extend these models to its other main units in the next few years. 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 and the FSA of 36 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.

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.

We believe that the new regulations will give rise to significant savings with respect to the regulatory capital requirements beginning with their effective implementation.

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 of Bank of Spain’s Circular 4/2004 relating to allowances for credit losses and country-risk, see “—Classified Assets—Bank of Spain Classification Requirements”.

Employee Pension Plans

At December 31, 2007, our pension plans were all funded according to Bank of Spain requirements. See Note 25 to our consolidated financial statements.

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 security 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 €20,000 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 €20,000 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.

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, 2007, 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 12/2006 (May 16), among others, amends the Securities Market Law 24/1988 by (i) implementing Article 6(9) of Directive 2003/6/EC of the European Parliament and of the Council on insider dealing and market manipulation (market abuse) and articles 7 to 11 of the Commission Directive 2004/72/EC, by introducing a new article to the Securities Market Law requiring that any person professionally arranging transactions in financial instruments who reasonably suspects that a transaction might constitute insider dealing or market manipulation shall notify the CNMV; (ii) completing the regulation of Bolsas y Mercados Españoles, or of any other entity which in the future could be in the same position, to provide it with more flexibility in its operation; and (iii) finally, it clarifies and homogenizes the regulation of significant participations on the entities which manage the accounting records and the clearing and settlement of securities and the Spanish secondary markets.

Law 35/2006 (November 28), which approved a new personal income tax law and abolished existing law on the subject, including Royal Decree 3/2004 which was the primary source of regulation. Additionally it partially modified the corporate income tax, the non resident individuals and corporate income tax and the net worth tax.

Law 36/2006 (November 29), relating to measures to prevent tax fraud, among others, amends article 108 of the Securities Market Law.

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. The Offer and Listing—C. Markets—Spanish Securities Market—Securities Market Legislation” and “Item 10. 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 (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).

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. The Offer and Listing—C. Markets. —Spanish Securities Market—Securities Market Legislation”).

United Kingdom Regulation

FSA

Both Abbey and our branch in the United Kingdom 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 Abbey, 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 Abbey and its 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. Abbey is authorized to enter into, advise and arrange regulated mortgage contracts.

Banking

Deposit taking is a regulated activity that requires a firm to be authorized and supervised by the FSA. Abbey has permission to carry on deposit taking as do several of its subsidiaries, including 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.

Abbey 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.

Abbey 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 Regulation

By virtue of the operation of our branch in New York City, our agency in Miami and Banesto’s branch in New York City, as well as our ownership of a bank in Puerto Rico, we are subject to the U.S. Bank Holding Company Act of 1956, as amended, and the U.S. International Banking Act of 1978, as amended. These statutes impose limitations on the types of business conducted by us in the United States and on the location and expansion of our banking business in the United States. We are subject to supervision and regulation by the Board of Governors of the Federal Reserve System. In addition, our branch and agency offices are subject to supervision and regulation by state banking departments in the states in which they operate, and Sovereign is subject to supervision and regulation as a savings-and-loan holding company by the Office of Thrift Supervision.

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 and, following the acquisition of Abbey, in 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, 2007 of 636 companies that consolidate by the global integration method. In addition, there are 120 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 2007, the Bank and its bank subsidiaries either leased or owned premises in Spain and abroad, which at December 31, 2007 included 5,014 branch offices in Spain and 6,164 abroad. See "—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 Group’s consolidated financial statements for the years ended December 31, 2007, 2006 and 2005 were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“EU-IFRS”) required to be applied under Bank of Spain’s Circular 4/2004. A more detailed description of our significant accounting policies is shown in Notes 1 and 2 to our consolidated financial statements.

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 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.

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.

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.

The Group has implemented a methodology which complies with EU-IFRS 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 a 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 a, minus (iii) the amount of the net charge for the specific allowance made in the period.

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

The allowances for credit losses recorded by Santander as at December 31, 2007, using the methodology outlined above, was €9,302 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 2. Credit Risk. These models produce a range of results that comprise 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 but are currently subject to local regulatory review by the Bank of Spain. 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).

Although there should be no substantial difference in the calculation of loan allowances between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP the Group has included in the reconciliation of stockholders’ equity and net income a difference between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP related to the determination of credit losses not allocated to specific loans.

Under U.S. GAAP, the loan loss allowance should represent the best estimate of probable losses using possible scenarios. Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, the Group has additionally applied the statistical percentages obtained from historical trends as determined by the Bank of Spain’s guidance (Circular 4/2004). As a result, the loan loss allowances not allocated to specific loans, as determined by the Circular, are higher than those calculated under U.S. GAAP.

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.

CLASSIFICATION DIFFERENCES BETWEEN THE EU-IFRS REQUIRED TO BE APPLIED UNDER BANK OF SPAIN’S CIRCULAR 4/2004 AND U.S. GAAP

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.

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. Generally speaking, the requirements for credit loss recognition under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP are similar.

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. Under U.S. GAAP, this loan would be removed from the balance sheet earlier.

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).

Given that loans are presented on the balance sheet net of their credit allowances, there are no significant differences of presentation in the amounts disclosed on the balance sheet under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 or U.S. GAAP. However, our non-performing loans under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 include balances that would have been removed from the balance sheet under U.S. GAAP. This classification difference represents the specific allowance for credit losses, a concept which does not exist under U.S. GAAP.

Impairment

Certain assets, including goodwill, other intangible assets, equity method investments, 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.

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. In 2006, equity method investments, goodwill and other intangible assets impairment losses amounted to €380 thousand, €13 million and €15 million respectively. In 2005, impairment losses of €208 million relating to other intangible assets were recognized.

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.

Significant accounting policies with respect to our reconciliation from the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 to U.S. GAAP

We include a reconciliation of net income and stockholders’ equity between our consolidated financial statements under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP in Note 57 to the consolidated financial statements. The preparation of this reconciliation requires management to consider accounting policies under U.S. GAAP to determine whether or not a difference in GAAP exists, and to quantify the amount of that difference where appropriate. A number of these policies may require difficult or subjective judgments, estimates based on past experience and assumptions determined to be reasonable and realistic based on current circumstances.

Unless indicated otherwise, all of the accounting policies identified above, are equally critical to the preparation of the U.S. GAAP reconciliation, and involve similar judgments and assumptions by management.

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.

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 under U.S. GAAP 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.

In 2004, we acquired Abbey. As a result of this transaction a significant amount of goodwill was recorded (see Note 17 to the consolidated financial statements). As the business combination was performed close to the end of the year and because of the complexity of the process, the determination of goodwill for U.S. GAAP purposes as well as the identification and recognition of intangible assets was not concluded at that time. Management required an independent appraisal for the intangible assets identification and valuation. In 2005, as a result of these appraisals, we revised our allocation of the goodwill resulting from the Abbey acquisition. Details of the revision can be found in Note 58 to the consolidated financial statements.

Investment Securities

Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 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.

Under U.S. GAAP, impairment losses recognized cannot be reversed. Investment securities classified as available for sale under U.S. GAAP (those securities that have not been classified as trading or held to maturity) have to be assessed to determine whether their fair value has declined below amortized cost and therefore if there has been an other-than-temporary impairment.

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.

Variable Interest Entities

FIN 46-R defines a “Variable Interest Entity” (“VIE”) as an entity that has (1) insufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, (2) equity investors that cannot make significant decisions about the entity’s operations, or that do not absorb the expected losses or receive the expected returns of the entity or (3) equity investors that have voting rights that are not proportionate to their economic interests and substantially all the activities of the entity involved, or are conducted on behalf of, an investor with a disproportionately small voting interest. A VIE is consolidated by its primary beneficiary, which is the interest holder that bears the majority of its expected losses or receives the majority of the expected residual returns or both. FIN 46-R requires the evaluation of many potential VIEs and judgment, at times, to determine whether a VIE should be consolidated.

Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, these companies are consolidated by using the global integration method or the proportional consolidation method. The use of one method instead of the other has no impact on the consolidated stockholders’ equity or on the consolidated net income attributable to shareholders. The adoption of FIN 46-R had no effect on stockholders’ equity or net income, but changed the consolidation perimeter under U.S. GAAP, requiring the consolidation of some entities that previously were not consolidated (such as some securitization vehicles) and excluding others that were previously consolidated. The majority of these changes in the consolidation perimeter were the same as those arising upon transition to the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

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.

The amounts included in the consolidated income statement for the years ended December 31, 2005 and 2006 in this Annual Report differ from the amounts included in the consolidated income statement for these periods which were included in our Annual Report on Form 20-F for the year ended December 31, 2006 due to the reclassification of amounts relating to operations that were discontinued in 2007, such as the sale of our Latin American pension management companies (see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations”). Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, revenue and expenses of discontinued businesses must be reclassified from each income statement line item to “Profit from discontinued operations”. This presentation requirement came into effect in the fiscal year ended December 31, 2006. Revenues and expenses from prior years are also required to be reclassified for comparison purposes to present the same business as discontinued operations. This change in presentation does not affect “Profit attributed to the Group” (see Note 37 to our consolidated financial statements).

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.

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.

2007 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, 2007.

We conducted our business against a background of strong growth in the global economy (+5.2%), but the year ended with greater uncertainty. The instability of financial markets, coupled with higher oil prices and the downturn in the U.S. economy, reduced the pace of world growth in the fourth quarter of 2007. However, the buoyancy of emerging economies enabled their growth to be more than 4% and offset the weakening of the more developed economies, particularly the U.S.

The U.S. economy slowed down considerably at the end of 2007 (with annualized growth of 0.6% in the fourth quarter). The U.S. economy remains affected by the crisis in the real estate sector which has led to an increase in the U.S. of non-performing loans, particularly sub-prime mortgages, thereby further intensifying financial instability. Forecasts pointing to recession in the first half of 2008 led the Federal Reserve to cut its effective funds rate during the first quarter from 4.25% to 2.25% despite core inflation levels of slightly above 2%. This reduction, coupled with injections of liquidity and the U.S. Government’s fiscal package, could stimulate activity in the second half of 2008.

Latin America largely escaped the crisis in the markets thanks to its solid financial position, high prices for its raw materials, links with Asian economies and strong domestic demand. Its GDP growth remained slightly above 5% in 2007. The rise in inflation, which reduces the margin for maneuver in monetary policies, and the slowdown in developed economies could affect the region’s growth in 2008, but the Latin American economy is expected to continue to grow by more than 4% in 2008.

Latin America’s three main economies (Brazil, Mexico and Chile) continued to grow strongly in 2007. Only Mexico’s growth eased (to 3%) because of the U.S. influence, but its domestic demand is solid and rising. The faster pace of growth in Brazil and Chile (more than 5%) intensified inflationary pressures, particularly in Chile, and led its central bank to raise its key rate to 6%. Exchange rates, however, remained strong.

The Eurozone grew 2.7% and decelerated in the fourth quarter (+2.3%). The private sector’s more solid financial position made the Eurozone more resistant to the financial turbulence in the U.S. Inflation rose to 3.1%, above the 2% target, limiting the leeway of the European Central Bank, which has held its rate at 4% since the middle of 2007. In this context, the euro remained strong (at $1.47).

Spain’s economy continued to grow strongly (+3.8%) with a lower last quarter (+3.5%). The main driver remained domestic demand although this is slowing down, principally in investment in construction, although growth in the external sector did not decline as much. Inflation increased in the last part of 2007 and ended the year at more than 4%.

The UK economy grew 3.1%, above its expected growth rate, despite easing in the fourth quarter (+2.9%). The reduction in the Bank of England’s base rate in December 2007 and January 2008 (to 5.25%) sought to counter this fall. However, inflation is above the 2% target however, and could limit room to maneuver in monetary policy.

In this environment, sterling weakened and fell 8% against the euro (to £0.73). Movements in the dollar, sterling and the other currencies in which we operate had a slight negative impact on our revenues and expenses of around 2-3 percentage points. The impact on the balance sheet was also negative (around 5 percentage points).

Results of Operations for Santander

Summary

Profit attributed to the Group as reported in our consolidated financial statements for the year ended December 31, 2007 was €9,060.3 million, a 19.28% or €1,464.3 million increase from €7,595.9 million in 2006, which was a 22.1% or €1,375.8 million increase from €6,220.1 million in 2005. The 2007 increase was mainly due to increases in net interest income, net fees and commissions, exchange differences and gains on disposal of tangible assets, all of which were partially offset by increases in operating expenses, general administrative expenses and impairment losses.

Capital gains from the sale of real estate assets amounted to €1,620 million.

Net Interest Income

Net interest income was €15,295.1 million in 2007, a 22.6% or €2,815.3 million increase from €12,479.8 million in 2006, which was a 17.1% or €1,820.4 million increase from €10,659.4 million in 2005. Excluding dividends, this figure would have been €14,881.9 million in 2007, a 23.2% or €2,806.1 million increase from €12,075.8 million in 2006, which was a 17.0% or €1,752.0 million increase from €10,323.8 million in 2005.

2007 compared to 2006

The €2,815.3 million increase in net interest income was due to continued expansion of business volumes (€727.4 million) and the improvement of customer spreads (€2,087.9 million). International net interest income grew more significantly than domestic net interest income. Net interest income grew most significantly in Brazil, Mexico and Chile and to a lesser extent in the Santander Branch Network and Banesto, due to larger business volumes, as well as the improvement in customer spreads in some of our main units.

Average total earning assets were €829,702.6 million for the year ended December 31, 2007, a 11.1% or €83,199.8 million increase from €746,502.7 million for the same period in 2006. This was due to an increase of €46,252.7 million in the average balances of our domestic total earning assets (mainly due to an increase of €35,889.6 million in the average balances of our domestic loans and credits portfolio and an increase of €10,309.5 million in the average balances of other interest earning assets (mainly derivatives), partially offset by a decrease of €2,591.8 million in the average balances due from credit entities) and an increase of €36,947.1 million in the average balance of our international total earning assets (mainly due to an increase of €33,767.1 million in the average balances of our international loan and credit portfolio, partially offset by a decrease of €13,316.0 million in the average balances of our debt securities portfolio). The growth rates of loans and credits in Spain slowed during the year (mainly mortgages) despite the increase in loans to SMEs and companies. Our loans and credits overseas grew in Latin America, most significantly in Brazil and Chile, grew less in Portugal because of the fall in the balances of wholesale banking which was offset by an increase in loans to individuals of 9% and to SMEs of 21%, and decreased in Abbey due to the high impact of exchange rates.

Our overall net yield spread increased from 1.50% in 2006 to 1.63% in 2007. Domestic net yield spread decreased from 1.32% in 2006 to 1.27% in 2007. This change reflects the increasing pressure on spreads in Spain from higher interest rates and tougher competition. International net yield spreads increased from 1.53% in 2006 to 1.78% in 2007 due to the focus on profitability rather than on volume in Abbey and the decrease in interest rates in Latin America.

2006 compared to 2005

The €1,820.4 million increase in net interest income was due both to continued expansion of business volumes (€1,577.1 million) and the improvement in customer spreads (€243.3 million). Domestic net interest income decreased €397.1 million and international net interest income grew €1,423.3 million. Most of the international increase is due to increased volume in Latin America (mainly Brazil, Mexico and Chile). In Spain, the impact of the strategic plan “We want to be your Bank” has increased the number of new customers by 50% compared to 2005. Nevertheless, the net interest income increase was mainly due to improvement in customer spreads.

Average total earning assets were €746,502.7 million for the year ended December 31, 2006, a 17.6% or €111,965.2 million increase from €634,537.5 million for the same period in 2005. This was due to an increase of €37,834.1 million in the average balances of our domestic total earning assets (mainly due to an increase of €36,378.1 million in the average balances of our domestic loans and credits portfolio and an increase of €7,705.5 million in the average balances of other interest earning assets (mainly derivatives) partially offset by a decrease of €3,436.4 million in the average balances of our debt securities portfolio) and an increase of €74,131.2 million in the average balances of our international total earning assets (mainly due to an increase of €48,430.1 million in the average balances of our international loan and credit portfolio and an increase of €14,468.9 million in the average balances of our debt securities portfolio). Our loans and credits balance grew in Spain principally because of increased secured loans (mainly mortgage lending), loans to companies and the impact of certain large corporate operations. Our loans and credits abroad grew in all areas, most significantly in Brazil and Mexico.

Our overall net yield spread decreased from 1.55% in 2005 to 1.50% in 2006. Domestic net yield spread decreased from 1.46% in 2005 to 1.32% in 2006. This change reflects a better mix of more profitable products in Spain, offset by continued pressure on margins due to the continued effects of competition and increasing interest rates. International net yield spreads decreased from 1.58% in 2005 to 1.53% in 2006 because of the pressure on margins and the decrease in interest rates in some Latin American countries (Brazil and Mexico).

Share of Results of Entities Accounted for using the Equity Method

Share of results of entities accounted for using the equity method increased 3.4% or €14.5 million during 2007, to €441.5 million. During 2006 these entities contributed €426.9 million to our net income, which was a decrease of 31.0% or €192.2 million less than the €619.2 million earned in 2005.

2007 compared to 2006

The increase in 2007 is mainly attributable to our new stake in RFS Holdings (see “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”)”) and a greater contribution to net income from Sovereign Bancorp compared to the previous year. Together these entities contributed €184.7 million, which mitigated a reduction of €163.5 million in the share of results from our holding in CEPSA.

The entities which provided the main contributions in 2007 included the following:


	Percent Owned			Contributions to Net Income (1)
Investment	Dec. 31, 2007			2007
	(in millions of euros, except percentages)
CEPSA		31.6	%		206.7
RFS Holdings		27.9	%		141.3
Sovereign Bancorp		24.4	%		43.4
Attijariwafa Bank Société Anonyme		14.5	%		25.7


(1)		Contributions to income from companies accounted for by the equity method include dividends.

2006 compared to 2005

The €192.2 million decrease in 2006 is mainly due to the lower contribution of CEPSA and the sale of Unión Fenosa.

The entities which provided the main contributions in 2006 included the following:


	Percent Owned			Contributions to Net Income (1)
Investment	Dec. 31, 2006			2006
	(in millions of euros, except percentages)
CEPSA		30.0	%		370.2
Attijariwafa Bank Société Anonyme		14.5	%		24.2
Sovereign Bancorp		24.8	%		9.2


(1)		Contributions to income from companies accounted for by the equity method include dividends.

Net Fees and Commissions

Net fees and commissions were €8,040.2 million in 2007, representing 14.5% growth compared to €7,024.2 million in 2006. During 2006, net fees and commissions increased by 15.9% over the €6,061.2 million obtained in 2005.

2007 compared to 2006

Net fees and commissions for 2007 and 2006 were as follows:


						Amount			%
	2007		2006		Change			Change
	(in thousands of euros, except percentages)
Commissions for services		5,168,366		4,461,041		707,325			15.86
Credit and debit cards		853,084		663,717		189,367			28.53
Insurance		1,431,876		1,184,723		247,153			20.86
Account management		571,394		554,882		16,512			2.98
Bill discounting		225,134		231,585		(6,451	)		(2.79	)
Contingent liabilities		349,878		302,033		47,845			15.84
Other operations		1,737,000		1,524,101		212,899			13.97
Mutual and pension funds		1,891,417		1,785,467		96,012			5.87
Securities services		980,392		777,687		202,705			26.07

Total net fees and commissions		8,040,175		7,024,195		1,015,980			14.46

Net fees rose 14.5% to €8,040.2 million in 2007 compared to 2006. Particularly noteworthy was the 21.6% rise in Latin America, due to the focus on strengthening the most recurrent revenues and, specifically, developing fee-generating products and services (credit cards, cash management, foreign trade, mutual funds and insurance). Net fees increased modestly by 13.3% in Continental Europe, which was strongly affected by the impact on fees from the Santander Branch Network as a result of new initiatives in the “We Want to be your Bank” campaign and the launch in Portugal of the “Comissões Zero” strategy to increase customer capturing and linkage. An increased growth in fees was reported by Santander Consumer Finance, Global Wholesale Banking, and Banif. Meanwhile, Abbey’s fee income dropped by 1.8% because of reduced revenue from commissions related to current accounts (due to the influence of regulatory aspects currently affecting the UK financial system). Nevertheless, this decrease in fees was almost fully offset by a increased range of products and improvements in cross-selling.

Fees from cards, securities and insurance increased significantly (with increases of 28.5%, 26.1% and 20.9%, respectively). Additionally there was growth in fees from guarantees and other contingent liabilities.

Average balances of mutual funds under management in Spain decreased -2.7% from €71.1 billion in 2006 to €69.2 billion in 2007. This decrease was due to customer preference for time deposits during 2007 and by the issue of “Valores Santander”. Average balances of mutual funds abroad increased by 32.9% from €44.0 billion in 2006 to €58.5 billion in 2007, mainly due to increased activity in Brazil, the United Kingdom, Mexico, Switzerland, and Chile.

Average balances of pension funds in Spain increased by 10.5% from €9.1 billion in 2006 to €10.1 billion in 2007, mainly due to increased activity in individual pension funds. Since we sold our pension funds businesses in Latin America, our remaining business abroad is in Portugal. Average balances of pension funds in Portugal grew 19.1% from €1.2 billion in 2006 to €1.5 billion in 2007.

2006 compared to 2005

Net fees and commissions for 2006 and 2005 were as follows:


					Amount		%
	2006		2005		Change		Change
	(in thousands of euros, except percentages)
Commissions for services		4,461,041		3,779,188		681,853		18.04
Credit and debit cards		663,717		619,919		43,798		7.07
Insurance		1,184,723		924,121		260,602		28.20
Account management		554,882		544,629		10,253		1.88
Bill discounting		231,585		218,464		13,121		6.01
Contingent liabilities		302,033		253,868		49,165		19.44
Other operations		1,524,101		1,219,187		304,914		25.01
Mutual and pension funds		1,785,467		1,644,983		140,484		8.54
Securities services		777,687		637,025		140,662		22.08

Total net fees and commissions		7,024,195		6,061,196		962,999		15.89

The €963 million increase in 2006 resulted mainly from: a €260.6 million or 28.2% increase in fees from insurance due to increased activity (mainly in the Santander Branch Network and Abbey), a €304.9 million or 25% increase in fees from other operations (principally checks) also due to increased activity, and a €140.5 million or 8.5% increase in fees from mutual and pension funds and securities services due to higher volumes.

Average balances of mutual funds under management in Spain rose 2.3% from €69.5 billion in 2005 to €71.1 billion in 2006. Average balances of mutual funds abroad increased by 33.3% from €33.0 billion in 2005 to €44.0 billion in 2006, mainly due to increased activity in the United Kingdom, Mexico, Brazil and Switzerland.

Average balances of pension funds in Spain increased by 15.2% from €7.9 billion in 2005 to €9.1 billion in 2006, mainly due to increased activity in individual pension funds. Average balances of pension funds abroad increased by 24.9% from €1 billion in 2005 to €1.2 billion.

Insurance activity income

Net income from the insurance business was €319.4 million in 2007, a 26.2% or €66.3 million increase from €253.1 million in 2006, which was a 25.6% or €51.6 million increase from €201.5 million in 2005.

2007 compared to 2006

The 26.2% increase in 2007 was due to a €713.1 million or 15.3% increase in insurance and reinsurance premium income, a €209.8 million or 95.8% and €209.4 million or 7.1% reduction in finance expense and provision for insurance contract liabilities, respectively. This was partially offset by a €813.2 million, or 39.7% increase in claims paid and other insurance related expenses, and a €243.3 million or 28.9% decrease in finance income. Of note was Latin America, with 42.6% growth.

2006 compared to 2005

The 25.6% increase in 2006 was due to a €2,450.5 million or 110.7% increase in insurance and reinsurance premium income and a €105.0 million growth in finance income. Partially offsetting this was a €1,749.0 million or 145.9% increase in net provisions for insurance contract liabilities, a €64.3 million increase in benefits paid and other insurance-related expenses and a €87.9 million increase in finance expense.

Gains (Losses) on Financial Transactions

Net gains on financial transactions in 2007 stood at €2,972.4 million with a 38.3% growth from €2,149.2 million in 2006. During 2006, net gains on financial transactions increased by 40.1% over the €1,534.4 million earned in 2005. Gains (losses) on financial transactions 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, and exchange differences. For further details, see Notes 45 and 46 to our consolidated financial statements.

2007 compared to 2006

Net gains on financial transactions rose 38.3% to €2,972.4 million, principally, due to the €554.1 million or 573.4% increase in net currency exchange differences, which benefited from euro/dollar and euro/sterling positions. Further boosting the net gains on financial transactions in 2007 was the improvement of the performance of the available for sale financial assets compared to the negative impact in 2006 of the write-down of portfolios of structural interest rate risk hedging.

2006 compared to 2005

In local currency, net gains on financial transactions in 2006 include net gains of €77.7 million on fixed-income securities (net gains of €793.5 million in 2005); net gains of €1,974.8 million on equity securities, financial derivatives, and others (net gains of €664.3 million in 2005). These increases are largely due to the positive trend in revenues from the distribution of treasury products to customers and to the performance of the securities market. Net exchange differences in 2006 produced gains of €96.6 million in 2006 as compared to €76.5 million in 2005.

Net Income from Non-financial Activities

Net income from non-financial services generated gains of €152.1 million in 2007, a 27.9% or €33.2 million increase from €118.3 million in 2006. During 2006, there was a decrease of 23.9% or €37.3 million from €156.2 million in 2005. Net income from non-financial services consists mainly of sales of goods and income from services rendered by non-financial companies that are consolidated by the Group.

2007 compared to 2006

Revenue from sales of assets and income from the provision of services and the related costs of sales for 2007 and 2006 were as follows:


	2007					2006
	Sales/		Cost of			Sales/		Cost of
	Income		Sales			Income		Sales
	(in thousands of euros)
Property		40,368		(12,232	)		45,875		(17,531	)
Rail transport (*)		251,545		(188,514	)		240,411		(190,236	)
Other		479,114		(418,209	)		448,316		(407,922	)

		771,027		(618,955	)		734,602		(615,689	)


(*)		Porterbrook (part of the Abbey Group) leases rail transport stock to UK railway operators.

2006 compared to 2005

Revenue from sales of assets and income from the provision of services and the related costs of sales for 2006 and 2005 were as follows:


	2006					2005
	Sales/		Cost of			Sales/		Cost of
	Income		Sales			Income		Sales
	(in thousands of euros)
Property		45,875		(17,531	)		80,464		(55,789	)
Rail transport (*)		240,411		(190,236	)		285,207		(233,085	)
Other		448,316		(407,922	)		199,854		(120,473	)

		734,602		(615,689	)		565,525		(409,347	)


(*)		Porterbrook (part of the Abbey Group) leases rail transport stock to UK railway operators.

General Administrative Expenses

General administrative expenses were €11,018.3 million in 2007, a 10.5% or €1,049.2 million increase from €9,969.2 million in 2006, which was a 6.5% or €604.8 million increase from €9,364.4 million in 2005.

2007 compared to 2006

General administrative expenses for 2007 and 2006 were as follows:


					Amount		%
	2007		2006		Change		Change
	(in thousands of euros, except percentages)
Personnel expenses		6,551,201		5,967,873		583,328		9.77
Other administrative expenses		4,467,128		4,001,298		465,830		11.51
Building and premises		989,663		972,933		16,730		1.72
Other expenses		912,621		835,554		77,067		9.22
Information technology		488,741		417,977		70,764		16.93
Advertising		563,986		474,290		89,696		18.91
Communications		417,587		346,854		70,733		20.39
Technical reports		298,175		258,349		39,826		15.42
Per diems and travel expenses		279,298		242,444		36,854		15.20
Taxes (other than income tax)		279,093		227,835		51,258		22.50
Guard and cash courier services		201,532		189,474		12,058		6.36
Insurance premiums		36,432		35,588		844		2.37

Total general administrative expenses		11,018,329		9,969,171		1,049,158		10.52

The 10.5% increase in general administrative expenses in 2007 reflected a 9.8% increase in personnel expenses and an 11.5% increase in other administrative expenses.

In Continental Europe, expenses increased by 13.6%, with the commercial networks recording moderate growth while absorbing the expansion of the business. The Santander Branch Network, Banesto and Portugal opened 193 branches in net terms, with limited or zero real growth in expenses. The rise in Santander Consumer Finance’s costs was largely due to the consolidation of Drive in 2007 (although its impact on the Group’s increase in expenses was less than 1 percentage point but represents an increase of 12 percentage points for Santander Consumer Finance) and the launch of expansion projects, particularly in France, Denmark and Russia. Abbey continued to streamline its expenses (-3.2% in euros).

Finally, Latin America’s expenses rose 10.8% (+15.0% in local currency) and, as in Europe, growth was due to expansion plans and the launch of new products. At the end of 2007 we had 292 additional branches and 1,618 additional ATMs than in 2006.

The rise in expenses incurred in the Financial Management and Equity Stakes segment was due to spending on corporate projects, investment in technology and our single brand, as well as expenses related to the Bank’s 150th anniversary celebration.

Appropriate management of revenues and expenses improved the Group’s efficiency ratio to 44.2%, 4.4 percentage points better than in 2006 (a year in which it improved by more than 4 percentage points). All geographic areas improved their efficiency ratios: Continental Europe by 2.0 percentage points, Abbey by 5.0 percentage points and Latin America by 5.2 percentage points.

2006 compared to 2005

General administrative expenses for 2006 and 2005 were as follows:


					Amount			%
	2006		2005		Change			Change
	(in thousands of euros, except percentages)
Personnel expenses		5,967,873		5,611,308		356,565			6.35
Other administrative expenses		4,001,298		3,753,100		248,198			6.61
Building and premises		972,933		880,117		92,816			10.55
Other expenses		835,554		821,405		14,149			1.72
Information technology		417,977		419,116		(1,139	)		(0.27	)
Advertising		474,290		390,202		84,088			21.55
Communications		346,854		390,668		(43,814	)		(11.22	)
Technical reports		258,349		270,282		(11,933	)		(4.42	)
Per diems and travel expenses		242,444		214,553		27,891			13.00
Taxes (other than income tax)		227,835		179,889		47,946			26.65
Guard and cash courier services		189,474		158,566		30,908			19.49
Insurance premiums		35,588		28,302		7,286			25.74

Total general administrative expenses		9,969,171		9,364,408		604,763			6.46

The 6.5% increase in general administrative expenses in 2006 reflected a 6.3% increase in personnel expenses and a 6.6% increase in other administrative expenses.

The growth in costs in Continental Europe’s retail networks was very contained; the savings achieved and the gains in productivity financed the opening of a large number of branches during the year. The Santander Branch Network, Banesto and Portugal added 319 branches in net terms, with almost flat growth in costs in real terms. Santander Consumer Finance’s costs grew because of its investment in expansion projects.

Abbey, meanwhile, continued to cut its costs. Streamlining and cost discipline measures resulted in a 6.7% decline in costs.

The growth in Latin America’s operating costs was 11.9% and 7.8% in local currency. Brazil’s costs were flat and Mexico’s and Chile’s grew in line with their business expansion plans.

The rise in costs in the Financial Management and Equity Stakes segment was due to the spending on corporate projects and the higher impairment of intangibles (partly Abbey’s) and investment in information technology.

The management of revenues and costs produced a further significant gain in the Group’s efficiency ratio. The ratio (including depreciation and amortization) was 48.5%, 4.3% better than in 2005. All areas improved: 2.7% in Continental Europe, 7.1% at Abbey and 5.8% in Latin America.

Depreciation and Amortization

Depreciation and amortization was €1,267.9 million in 2007, a 10.6% or €121.3 million increase from €1,146.5 million in 2006, which was a 13.0% or €132.6 million increase from €1,013.9 million in 2005.

Impairment Losses (net)

Impairment losses (net) were €5,078.5 million in 2007, a 99.1% or €2,527.9 million increase from €2,550.6 million in 2006, which was a 41.5% or €748.6 million increase from €1,801.9 million in 2005.

2007 compared to 2006

Impairment losses (net) include the following items:


							Amount
	2007			2006			Change
	(in thousands of euros)
Loans and receivables		(3,496,058	)		(2,483,862	)		(1,012,196	)
Investments		(363,637	)		(380	)		(363,257	)
Goodwill		(599,982	)		(12,811	)		(587,178	)
Other intangible assets		(562,883	)		—			(562,883	)
Other		(55,953	)		(53,517	)		(2,429	)

Total impairment losses (net)		(5,078,513	)		(2,550,570	)		(2,527,943	)

Impairment losses in investments and goodwill reflect the loss in our investment in Sovereign.

The €1,012.2 million increase in net impairment losses for loans and receivables reflected a €1,511.6 million increase in specific allowances (€3,759.6 million in 2007 compared to €2,248.0 million in 2006), a €425.6 million decrease in general allowances (€446.4 million in 2007 compared to €872.1 million in 2006), a €13.1 million decrease in releases of allowances for country-risk ((€91.5) million in 2007 compared to (€104.6) million in 2006), a €72.9 million increase in recoveries of loans previously charged-off (€624.2 million in 2007 compared to €551.3 million in 2006) and a €14 million decrease in impairment losses of other assets. See “Item 4. Information on the Company—B. Business Overview—Classified Assets—Bank of Spain Classification Requirements”.

This increase was largely due to the net difference between increased provisions for Latin America (+€760 million), the impact of the consolidation of Drive (+€407 million) and a reduced volume of generic provisions compared to 2006, mostly relating to Global Wholesale Banking.

Our total allowances for credit losses (excluding country-risk) increased by €675.3 million to €9,302.2 million at December 31, 2007, from €8,626.9 million at December 31, 2006.

Non-performing loans (excluding country-risk) increased by €1,571.2 million to €6,178.7 million at December 31, 2007, compared to €4,607.5 million at December 31, 2006. Our coverage ratio was 150.5% at December 31, 2007, and 187.2% at December 31, 2006. See “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Impaired Asset Ratios”.

2006 compared to 2005

Impairment losses (net) in 2006 include principally a net loss of €2,483.9 million on loans (€1,747.9 million loss in 2005).

Our net provisions for credit losses (including loans and advances, debt securities and other financial assets) were €2,483.6 million in 2006, a 42.1% or €735.7 million increase from €1,747.9 million in 2005. This increase was concentrated in the Santander Branch Network and in Brazil.

The €735.7 million increase in net provisions for credit losses reflected a €1,063.9 million increase in gross provisions for credit losses (€3,139.9 million in 2006 compared to €2,076.0 million in 2005), a €261.3 million decrease in provisions for country-risk (€-104.6 million in 2006 compared to €156.7 million in 2005), and a €66.9 million increase in recoveries of loans previously charged-off (€551.6 million in 2006 compared to €484.7 million in 2005).

The €1,063.9 million increase in gross provisions for credit losses was due to an increase of €786.3 million in specific provisions and an increase of €277.6 million in general provisions (see “Item 4. Information on the Company—B. Business Overview—Classified Assets—Bank of Spain Classification Requirements”). The change of business mix into activities that are more profitable but with a higher risk premium was a factor behind the growth in specific provisions.

Our total allowances for credit losses (excluding country-risk) increased by €724.7 million to €8,626.9 million at December 31, 2006, from €7,902.2 million at December 31, 2005.

Non-performing loans (excluding country-risk) increased by €266.0 million to €4,607.5 million at December 31, 2006, compared to €4,341.5 million at December 31, 2005. Our coverage ratio was 187.2% at December 31, 2006, and 182.0% at December 31, 2005. See “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Impaired Asset Ratios”.

Net gains on disposal of investments in associates

Net gains on disposal of investments in associates were €16.4 million in 2007, a €255.6 million decrease from €272.0 million in 2006, which was a €1,027.0 million increase from €1,298.9 million in 2005.

2007 compared to 2006


					Amount			%
	2007		2006		Change			Change
	(in millions of euros, except percentages)
On disposal of investments		16.4		272.0		(255.6	)		(93.97	)
Of which: ADRs (Banco Santander Chile)		—		269.8		(269.8	)		—

2006 compared to 2005


					Amount			%
	2006		2005		Change			Change
	(in millions of euros, except percentages)
On disposal of investments		272.0		1,298.9		(1,027.0	)		(79.06	)
Of which: Unión Fenosa		—		1,156.6		(1,156.6	)		—

Net results on other disposals, provisions and other income

Net results on other disposals, provisions and other income was €1,421.7 million in 2007, a €1,365.4 million increase from €56.3 million in 2006, which was a €657.0 million increase from (€600.8) million in 2005.

2007 compared to 2006

Results on other disposals include gains and losses, not included in other items, obtained from non-ordinary activities.


					Amount			%
Results on other disposals	2007		2006		Change			Change
	(in millions of euros, except percentages)
On disposal of tangible assets		1,804.1		88.9		1,715.2			1,929.5	%

Other		322.8		1,044.9		(722.1	)		(69.1	)%
Of which, obtained on the disposal of:
Antena 3 TV		—		294.3		(294.3	)
Intesa Sanpaolo()*		566.1		704.9		(138.8	)


Net gains		2,126.9		1,133.8		993.1			87.6	%


(*)		Entity resulting from the merger of San Paolo-IMI and Intesa

Gains on the disposal of tangible assets were €1,804.1 million in 2007, an increase of €1,715.2 from €88.9 in 2006. The majority of this gain was due to the sale of real estate which is subsequently being leased back to the Group. See Note 16 to our consolidated financial statements.

Net provisions were €706.6 million in 2007, a 34.5% or €372.7 million decrease from €1,079.3 million in 2006. 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). See Note 25 to our consolidated financial statements.

In other income, we include net income from non-financial activities. In 2007, we had net gains of €1.4 million as compared to net losses of €1.8 million in 2006.

2006 compared to 2005


					Amount			%
Results on other disposals	2006		2005		Change			Change
	(in millions of euros, except percentages)
On disposal of tangible assets		88.9		80.6		8.3			10.3	%

Other		1,044.9		1,133.8		(89.0	)		(7.8	%)
Of which, obtained on the disposal of:
Antena 3 TV		294.3		—		294.3
San Paolo IMI		704.9		—		704.9
RBS		—		717.4		(717.4	)
Auna		—		354.8		(354.8	)


Net gains		1,133.8		1,214.4		(80.6	)		(6.6	%)

Net provisions were €1,079.3 million in 2006, a 40.3% or €728.0 million decrease from €1,807.4 million in 2005.

In other income, we include net income from non-financial activities. In 2006, we had net gains of €1.8 million as compared to net losses of €7.9 million in 2005.

Income Tax

The provision for corporate income tax was €2,335.7 million in 2007, a 3.6% or €81.1 million increase from €2,254.6 million in 2006, which was a 81.5% or €1,012.8 million increase from €1,241.8 million in 2005. The effective tax rate was 20.7% in 2007, 23.9% in 2006 and 17.1% in 2005. For information about factors affecting effective tax rates, see Note 27 to our consolidated financial statements.

Profit from discontinued operations

Profit from discontinued operations was €796.6 million in 2007, a 47.1% or €708.4 million decrease from €1,505.0 million in 2006. In 2006, profits from discontinued operations increased 355.1% or €1,174.3 million from the €330.7 million earned in 2005.

The 2007 divestment relates to the sale of our pension fund management businesses in Latin America to ING Groep NV (see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations—Sale of Latin American pension fund management companies”).

The majority of the results in 2006 related to the sale of Abbey’s insurance businesses and the investment in Urbis, and, to a lesser extent, the sales of Banco de Santa Cruz in Bolivia and AFP Unión Vida in Peru. For further details, see Note 37 to our consolidated financial statements.

Profit attributed to minority interests

Profit attributed to minority interests was €575.9 million in 2007, an 11.4% or €73.9 million decrease from €649.8 million in 2006. The 2006 result was a 22.7% or €120.1 million increase from €529.7 million in 2005. For further details, see Note 28 to our consolidated financial statements.

2007 compared to 2006

The €73.9 million decrease in profit attributed to minority shareholders in 2007 is principally the result of the reduced net income of two consolidated companies: Banesto and Somaen-Dos S.L, which was partially offset by increased income from Grupo Financiero Santander, S.A. de C.V.

2006 compared to 2005

The €120.1 million increase in profit attributed to minority shareholders in 2006 is principally the result of increases in the net income of the consolidated companies Banesto and our subsidiaries in Mexico and Chile partially offset by a decrease in the net income of Somaen-Dos S.L.

Net Income Information on U.S. GAAP Basis

Our consolidated financial statements have been prepared in accordance with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 differs in certain significant respects from U.S. GAAP. For a summary of the most significant adjustments required to arrive at net income on U.S. GAAP basis, see Note 57 to our consolidated financial statements.


	Year ended December 31,
	2007		2006		2005
As Reported	(in thousands of euros, except per share data)
Profit attributed to the Group		9,060,258		7,595,947		6,220,104
Profit attributed to the Group per average share (1)		1.43		1.22		1.00
U.S. GAAP
Net income		7,296,817		7,414,571		6,318,460
Net income per average share (1)		1.15		1.19		1.01


(1)		Based on the average number of shares outstanding in the relevant year.

Results of Operations by Business Areas

Our results of operations by business areas can be summarized as follows (see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations”):

Principal level (geographic):

Continental Europe


	Continental Europe									Variations
	2007			2006			2005			07/06 (%)			06/05 (%)
	(in millions of euros, except percentages)
Net interest income		7,894			6,206			5,366			27.20			15.65
Share of results of entities accounted for using the equity method		9			6			26			50.00			(76.92	)
Net fee and commission income		4,137			3,653			3,291			13.25			11.01
Insurance activity income		148			137			115			8.03			19.13
Gains/losses on financial assets and liabilities and Exchange differences		732			708			505			3.40			40.20
Gross income		12,921			10,710			9,302			20.63			15.12
Sales and income from the provision of non-financial services (net) and Other operating income/expense		30			39			55			(23.08	)		(29.09	)
General administrative expenses:		(4,529	)		(3,957	)		(3,663	)		14.44			8.01
Personnel expenses		(3,014	)		(2,684	)		(2,510	)		12.30			6.93
Other administrative expenses		(1,513	)		(1,272	)		(1,154	)		18.95			10.23
Depreciation and amortization		(559	)		(523	)		(489	)		6.88			6.95
Net operating income		7,864			6,270			5,205			25.41			20.46

Net impairment losses		(1,580	)		(1,355	)		(977	)		16.61			38.69
Other gains/losses		39			(245	)		(18	)		(115.92	)		1,261.11
Profit before tax		6,323			4,670			4,210			35.40			10.93
Profit from continuing operations		4,546			3,269			3,020			39.06			8.25
Profit from discontinued operations		—			1,147			111			(100.00	)		933.33
Consolidated profit for the year		4,546			4,416			3,131			2.94			41.04
Profit attributed to the Group		4,439			4,144			2,980			7.12			39.06

2007 compared to 2006

In 2007, Continental Europe contributed 49.0% of the profit attributed to the Group’s operating areas. The main drivers of growth in Continental Europe were the rise in net interest income and net fee and commission income, together with the selective control of costs.

Net interest income was €7,894 million in 2007, which is a 27.2% or €1,688 million increase from the €6,206 million obtained in 2006 (after rising for 11 consecutive quarters). This was due to the integration of Drive, increased business volumes, and the improvement in the customer spreads of the Santander Branch Network and Banesto. The Santander Branch Network’s net interest income increased by 21.7%, while Banesto’s rose 17.9% in the year as a whole. Portugal, a more difficult environment, rose 8.8% in 2007 and Santander Consumer Finance rose 51.2%, now strongly supported by Drive. As mentioned on page 27, although a U.S. company, Drive is consolidated into Santander Consumer Finance due to its consumer financing activity.

Net fee and commission income increased €484 million or 13.25% during 2007 to €4,137 million when compared to €3,653 million in the previous year. The main drivers of growth were: (i) a 37.0% rise at Santander Consumer Finance, because of greater focus on cross-selling; (ii) 22.2% growth at Banif; (iii) a 9.2% increase at Asset Management and Insurance; and (iv) a 59.1% rise at Global Wholesale Banking due to greater activity with clients. The performance of the Santander Branch Network was almost flat because of the inclusion of other initiatives in the “We Want to be your Bank” campaign and the launch of the “Comissões Zero” strategy in Portugal.

100

Gains/losses on financial assets and liabilities were €732 million in 2007, a 3.4% or €24 million decrease from €708 million in 2006. The reduction in gains on financial transactions was largely due to reduced revenue from proprietary trading, which in 2006 benefited from a more positive environment than in 2007.

Gross income increased €2,211 million or 20.63% in 2007 to €12,921 million from gross income of €10,710 million in 2006.

General administrative expenses were €4,529 million in 2007, a €572 million or 14.4% increase from €3,957 million in 2006. The increase was due to increases in spending on development projects by global areas, expenses related to the opening of 204 branches and those linked to the launch of start-ups in consumer business.

Net operating income increased by 25.41% or €1,594 million to €7,864 million as a result of the revenue and expenses performance. The four larger units in this area (the Santander Branch Network, Banesto, Santander Consumer Finance -including Drive- and Portugal) registered growth in net operating income of around 18% or more.

Net impairment losses were €1,580 million in 2007, a 16.6% or €225 million increase from €1,355 million in 2006. The increase is principally due to the consolidation of Drive (which was not consolidated in 2006) which resulted in additional provisions of €407 million in 2007. However, offsetting this was a €288 million reduction in 2007 in the generic provision expense in the Global Wholesale Banking business. Excluding these effects, the provision expense has increased by less than 10%. Credit quality is still strong, with a NPL ratio of 0.90% and a coverage ratio of 188%.

Profit attributed to the Group was €4,439 million, a 7.1% or €295 million increase from €4,144 million in 2006. Excluding the €1,147 million profits from discontinued operations in 2006 (mainly gains from the sale of Urbis), the increase was 39%. Excluding Drive (which was consolidated with the results of Santander Consumer Finance in 2007), the rise was 24.3%. This growth was due to the rise in commercial revenues and selective control of costs.

The efficiency ratio improved by 2 percentage points to 38.8%. The four larger units in this area (the Santander Branch Network, Banesto, Santander Consumer Finance -including Drive- and Portugal) improved their efficiency ratios between 2.3 and 5.1 percentage points.

2006 compared to 2005

In 2006, Continental Europe contributed 54.6% of the profit attributed to the Group’s operating areas.

Net interest income was €6,206 million in 2006, a 15.7% or €840 million increase from €5,366 million in 2005. This was due to increased business volumes in all units and the improvement in the customer spreads of the Santander Branch Network and Banesto.

Net fee and commission income was €3,653 million in 2006, an 11.0% or €362 million increase from €3,291 million in 2005. Of note were the increases at Santander Consumer Finance, Portugal and Banif and, in contrast, the initial impact of the elimination in 2006 of fees and commissions linked to the strategic plan of the Santander Branch Network, “We Want to be your Bank”. This plan affected commissions for services and therefore, most of the growth came from business commissions (mutual and pension funds, insurance, securities and guarantees).

Gains/losses on financial assets and liabilities were €708 million in 2006, a 40.2% or €203 million increase from €505 million in 2005. The higher gains on financial transactions reflect the stronger demand by customers for treasury products and the better performance of gains from markets.

Gross income was €10,710 million in 2006, a 15.1% or €1,407 million increase from €9,303 million in 2005.

101

General administrative expenses were €3,956 million in 2006, an 8% or €293 million increase from €3,664 million in 2005. This increase is partially explained by an increase in the perimeter of consolidation, projects to develop new products and the opening of 383 new branches during 2006.

Net operating income increased by 20.5% or €1,065 million to €6,270 million because of the revenue and expenses performance. The four larger units in this area (the Santander Branch Network, Banesto, Santander Consumer Finance and Portugal) registered growth in net operating income of around 15% or more.

The efficiency ratio improved by 2.7 percentage points to 40.8%. All units improved significantly, except for Santander Consumer Finance, which was reduced because of the inclusion of less efficient businesses (the consumer lending unit in the United Kingdom and Interbanco in Portugal) although the area’s result at 34.7% was 0.4% higher.

Net impairment losses were €1,355 million in 2006, a 38.7% or €378 million increase from €977 million in 2005. This increase was due to generic provisions reflecting the growth in lending, as credit quality continued to be excellent (NPL ratio of 0.73%). After excluding tax on profit (+19.1%), discontinued operations (+29.2%) and minority interests (+21.5%), ordinary attributable profit rose 16.5%.

Profit attributed to the Group was €4,144 million, a 39.1% or €1,164 million increase from €2,980 million in 2005. These results include the capital gains from the sale of Urbis. Excluding them, profit attributed to the Group would have been €3,471 million (16.5% more than in 2005). The main drivers behind these results (excluding the capital gains) were the rise in commercial revenues, control of costs with selective growth and a diverse increase in business.


United Kingdom (Abbey)	Abbey									Variation
	2007			2006			2005			07/06 (%)			06/05 (%)
	(in millions of euros, except percentages)
Net interest income		2,335			2,108			2,083			10.77			1.20
Share of results of entities accounted for using the equity method		2			3			2			(33.33	)		50.00
Net fee and commission income		1,007			1,025			947			(1.76	)		8.24
Insurance activity income		—			—			—			—			—
Gains/losses on financial assets and liabilities and Exchange differences		436			424			345			2.83			22.90
Gross income		3,780			3,560			3,377			6.18			5.42
Sales and income from the provision of non-financial services (net) and Other operating income/expense		51			42			36			21.43			16.67
General administrative expenses:		(1,816	)		(1,877	)		(2,007	)		(3.25	)		(6.47	)
Personnel expenses		(1,037	)		(1,062	)		(1,119	)		(2.35	)		(5.09	)
Other administrative expenses		(780	)		(815	)		(888	)		(4.29	)		(8.22	)
Depreciation and amortization		(102	)		(105	)		(117	)		(2.86	)		(10.26	)
Net operating income		1,912			1,620			1,289			18.02			25.68
Net impairment losses		(312	)		(387	)		(318	)		(19.38	)		21.70
Other gains/losses		22			—			76			—			(100.58	)
Profit before tax		1,622			1,233			1,047			31.55			17.77
Profit from continuing operations		1,201			889			725			35.10			22.62
Profit from discontinued operations		—			114			86			(100.00	)		32.56
Consolidated profit for the year		1,201			1,003			811			19.74			23.67
Profit attributed to the Group		1,201			1,003			811			19.74			23.67

102

2007 compared to 2006

In 2007, Abbey contributed 13.3% of the profit attributed to the Group’s total operating areas. Of particular note in the 19.7% increase in Abbey’s profits was the growth in gross operating income in a worse than envisaged economic environment.

Net interest income was €2,335 million in 2007, a 10.77% or €227 million increase from €2,108 million in 2006. This reflected the increase in business volumes and, above all, very active management of spreads, the main focus in 2007. This management was applied to loans, where the decrease in spreads on mortgages was limited and in personal loans they rose strongly, as well as customer deposits and investment products.

Net fee and commission income and Gains/losses on financial assets and liabilities and Exchange differences were €1,007 million. Net fees and commissions showed a positive trend in the sale of investment and protection products and in new business from cards. Offsetting this was the reduced revenue from fees related to current accounts and mortgages, which resulted in an overall decrease of 1.8%.

Gains/losses on financial assets and liabilities and Exchange differences grew by 2.8% to €436 million. Less favorable conditions in financial markets in the second half of 2007 affected these items.

Gross income was €3,780 million in 2007, a 6.2% or €220 million increase from €3,560 million in 2005.

General administrative expenses continued their downward trend to €1,816 million. For the third consecutive year, the synergies contemplated at the time of acquisition were exceeded. Costs were 3.6% lower in 2007, largely due to the savings resulting from the reduction of headcount in 2006.

Lower costs and higher revenues produced a significant improvement in the efficiency ratio from 55.1% in 2006 to 50.1% in 2007. This ratio is 20 percentage points better than when Santander acquired Abbey (70%).

Depreciation and amortization of €102 million decreased by 2.86%, compared to €105 million in 2005.

Net operating income was €1,912 million in 2007, an 18% or €292 million increase from €1,620 million in 2006.

Net impairment losses were 19.4% lower than in 2006. This reflected the continued good quality of mortgages and lower exposure to unsecured personal loans (“UPLs”), especially those generated via the Internet.

The NPL ratio remained virtually unchanged at 0.60%, while coverage dropped from 86% to 66%. This reduction was mainly due to the change of mix in NPLs, as the strategy of lower activity in UPLs (which have higher coverage) produced a decline in their relative share of total lending, while the share of mortgage loans increased (lower coverage as mortgages have greater security).

2006 compared to 2005

In 2006, Abbey contributed 13.2% of the profit attributed to the Group’s total operating areas.

Net interest income was €2,108 million in 2006, a 1.2% or €25 million increase from €2,083 million in 2005. The increase relates in part to earnings on the proceeds from the sale of the life businesses in 2006. The remaining movement was largely due to higher Retail Banking income driven by growth in retail lending assets and stable retail spreads being offset by the reduction in income from asset financing operations and other businesses, which are being run-down.

Net fee and commission income and Gains/losses on financial assets and liabilities and Exchange differences were €1,025 million and €424 million respectively in 2006, an 8.2% and 22.9% growth from 2005 respectively. The increase relates primarily to the increase in revenues within the financial markets area due to the benefits of favorable market conditions and increased external business.

Gross income was €3,560 million in 2006, a 5.4% or €183 million increase from €3,377 million in 2005. This represented a change of trend after several years of declining revenues and almost flat growth in 2005. All business units made positive contributions to gross income.

General administrative expenses were €1,877 million in 2006, a 6.5% or €130 million decrease from €2,007 million in 2005. The reduction largely reflects the benefits of the cost reduction program employed by Abbey with the majority of the savings relating to employment costs driven by a headcount reduction of approximately 2,000 in 2006 (excluding the reduction reflecting the impact of the sale of the life insurance businesses).

103

Lower costs and higher revenues produced a further improvement in the efficiency ratio to 55.1% from 62.2% in 2005.

Depreciation and amortization of €105 million decreased by 10.3%, compared to €117 million in 2005.

Net operating income was €1,620 million in 2006, a 25.7% or €331 million increase from €1,289 million in 2005.

Net impairment losses were €387 million in 2006, a 21.7% or €69 million increase from €318 million in 2005. The growth was partly driven by strengthening of the coverage ratio and in part by the maturing nature of the unsecured personal loan portfolio, including portfolios that are no longer open to new business, with some deterioration in quality. The remaining increase was mainly due to mortgage-related charges increasing modestly from a very low base relative to the overall book.

The NPL ratio dropped 7 basis points to 0.60% at the end of 2006 and coverage rose from 78% to 86%.

Profit from discontinued operations of €114 million (2005: €86 million) comprises the profit of the life insurance businesses that were sold in the third quarter of 2006.


Latin America	Latin America									Variations
	2007			2006			2005			07/06 (%)			06/05 (%)
	(in millions of euros, except percentages)
Net interest income		6,654			5,272			3,950			26.19			33.48
Share of results of entities accounted for using the equity method		4			7			7			(45.69	)		6.81
Net fee and commission income		2,866			2,357			1,842			21.59			27.98
Insurance activity income		171			120			734			42.62			(17.75	)
Gains/losses on financial assets and liabilities and Exchange differences		691			604			84			14.52			42.69
Gross income		10,386			8,360			6,616			24.23			26.36
Sales and income from the provision of non-financial services (net) and Other operating income/expense		(141	)		(118	)		(89	)		19.49			32.58
General administrative expenses:		(4,089	)		(3,701	)		(3,249	)		10.50			13.85
Personnel expenses		(2,222	)		(1,975	)		(1,743	)		12.51			13.38
Other administrative expenses		(1,867	)		(1,726	)		(1,507	)		8.17			14.53
Depreciation and amortization		(348	)		(305	)		(335	)		14.10			(8.68	)
Net operating income		5,808			4,236			2,943			37.11			43.89
Net impairment losses		(1,660	)		(886	)		(433	)		87.36			104.62
Other gains/losses		(368	)		(230	)		(213	)		60.00			7.98
Profit before tax		3,780			3,120			2,297			21.15			35.77
Profit from continuing operations		2,958			2,451			1,876			20.69			30.65
Profit from discontinued operations		112			124			134			(9.68	)		(7.09	)
Consolidated profit for the year		3,070			2,575			2,010			19.22			28.11
Profit attributed to the Group		2,666			2,287			1,779			16.57			28.56

2007 compared to 2006

In 2007, Latin America contributed 29.4% of the profit attributed to the Group’s total operating areas. The 16.6% growth in profits attributed to Latin America was affected by the sale of pension fund management companies AFP Unión Vida in Peru and Banco Santa Cruz in Bolivia, and a 7.23% interest in Banco Santander Chile. Furthermore, in 2007 we sold our pension fund management companies in Chile, Argentina, Colombia, Mexico and Uruguay (see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations -Sale of Latin American pension fund management companies”). Excluding this, net profit from ordinary activities increased 20.7% (+26.7% without the exchange rate effect). Retail Banking continued to be the engine of the Group’s growth in the region with a rise in profit before tax of 37.2% (+45.6% excluding the exchange rate effect). This performance reflected the strategic focus on developing banking with individuals, SMEs and companies.

104

Net interest income experienced a 26.2% growth, backed by the strong expansion of retail business, particularly loans to individuals and SMEs. Spreads behaved differently among individual countries, but ended the year slightly higher as a whole, both in loans and savings (spreads in deposits plus commissions in mutual funds). In those countries where sharp falls in interest rates compressed spreads (for example, Brazil), the impact was offset by the reduction in the cost of financing portfolios of securities.

Net fee and commission income increased from 21.6% to €2,866 million as we focused on strengthening the most recurrent revenues. Specifically, we developed fee-generating products like credit cards, cash management, foreign trade, mutual funds and insurance. The growth in fees from credit cards (+39.6%) and insurance (+34.6%) and the rise in fees from investment banking (+36.8%) was also noteworthy.

Gains/losses on financial assets and liabilities and exchange differences increased 14.5% because of customer activity and capital gains in portfolios, improved by an increase in value due to a fall in interest rates, particularly in Brazil.

Gross income grew 24.2% to €10,386 million in 2007 (29.2% in local currency).

General administrative expenses grew 10.5% (with an average inflation of 5%) to €4,089 million, due to investment and spending incurred in specific business expansion programs (increasing capacity, technology expenditure, installing Santander’s single brand, and promotions).

The efficiency ratio improved by 5.2 percentage points to 41.8%.

Net impairment losses grew 87.4%, because of the growth in lending and the greater focus on more profitable business which also attracted a higher risk premium. The NPL ratio was 1.87% at the end of 2007 (1.38% in 2006), while coverage was 134% (167% in 2006).

Profit attributed to the Group in euros was negatively affected by exchange rates. The negative impact of exchange rates becomes evident when comparing the 16.6% growth in profits in euros to 22.1% growth excluding the exchange rate impact. Latin American currencies, overall, appreciated against the dollar (the Brazilian real significantly and the Chilean peso less so, while the Mexican peso remained stable overall). Meanwhile, the U.S. dollar, which is the currency used to manage the businesses in Latin America, depreciated 9% against the euro in 2007. The average exchange rate of the Brazilian real strengthened against the euro from 2.73 to 2.66, while the Chilean peso depreciated from 665 to 715 and the Mexican peso from 13.7 to 15.0.

2006 compared to 2005

In 2006, Latin America contributed 30.1% of the profit attributed to Group’s total operating areas.

Net interest income was €5,272 million in 2006, a 33.5% (28.6% in local currency) or €1,322 million increase from €3,960 million in 2005. The main positive exchange-rate impact was due to the Brazilian real (€167 million). Depending on the interest rate performance of these countries, spreads remained virtually flat as a whole. In general, the decrease in short-term interest rates tended to reduce spreads in Mexico (offset by the improved mix) and, to a lesser extent, Brazil. The spreads of portfolios of securities, however, tended to improve because of the lower cost of financing.

Net fee and commission income was €2,357 million in 2006, a 28% increase that resulted from the strategy of strengthening the most recurrent revenues and, specifically, developing products and services that generate fees (credit cards, cash management, foreign trade, mutual funds and insurance). Fees from credit cards grew by 41.2%, fuelled by both the region’s sharp rise in consumption as well as the Group’s strategy of developing and defending its customer base through this loyalty product.

Gains/losses on financial assets and liabilities and exchange differences were €604 million, 17.6% lower due to the impact of the capital gains in 2005 from the sale of the stake of AES Tietê in Brazil.

Gross income grew 26.4% to €8,360 million in 2006 (21.0% in local currency).

General administrative expenses were €3,701 million in 2006, a 13.9% or €452 million increase from €3,249 million in 2005. In local currency, operating expenses increased 7.8% (average inflation of 5.1%). This increase included investments and costs, primarily technology and promotion, which related to our subsidiaries’ specific business expansion programs.

105

The efficiency ratio improved by 5.8 percentage points to 47.0% and net operating income was 36.4% higher.

Net impairment losses were €886 million in 2006, a 104.6% or €453 million increase from €433 million in 2005. This increase was due to the strong rise in lending and the change of business mix (with the focus more on products and segments with a higher return, but which also attract a greater risk premium). The ratio of non-performing loans was 1.38% at the end of 2006, 44 basis points lower than in 2005, and NPL coverage was 167% (187% in 2005).

Profit attributed to the Group was €2,287 million in 2006, a 28.6% (+24.2% in local currency) or €508 million increase from 1,779 million in 2005. Retail Banking continued to be the driving force of the Group’s growth in the region, reflecting the strategic focus of increasing business and earnings from customers, particularly individuals, SMEs and companies. As a result, profit before tax from retail banking rose 43.9% (+39.5% in local currency).

The exchange rate positively affected the earnings performance in euros. However, the impact diminished as the year advanced. The dollar, the currency used to manage the area, depreciated 0.8% against the euro, based on average exchange rates. In addition, all Latin American currencies strengthened against the dollar, notably the Brazilian real and the Chilean peso while the Mexican peso remained stable. The average exchange rate of the Brazilian real appreciated from 3.01 to 2.73 per euro; the Chilean peso from 694 to 665 and the Mexican peso depreciated from 13.5 to 13.7.

Financial Management and Equity Stakes


	Financial Management and
	Equity Stakes									Variations
	2007			2006			2005			07/06 (%)			06/05 (%)
	(in millions of euros)
Net interest income		(1,588	)		(1,106	)		(740	)		43.58			49.46
Share of results of entities accounted for using the equity method		427			411			584			3.89			(29.62	)
Net fee and commission income		30			(11	)		(19	)		(372.73	)		(42.11	)
Insurance activity income		—			(4	)		3			(100.00	)		(233.33	)
Gains/losses on financial assets and liabilities and Exchange differences		1,113			413			(48	)		169.49			(960.42	)
Gross income		18			(297	)		(220	)		(93.94	)		35.00
Sales and income from the provision of non-financial services (net) and Other operating income/expense		15			(33	)		(26	)		(145.45	)		26.92
General administrative expenses:		(506	)		(364	)		(353	)		38.95			3.25
Personnel expenses		(236	)		(204	)		(183	)		15.69			11.48
Other administrative expenses		(270	)		(160	)		(170	)		68.75			(5.88	)
Depreciation and amortization		(259	)		(214	)		(74	)		21.03			189.18
Net operating income		(768	)		(908	)		(673	)		(15.42	)		34.92
Net impairment losses		(1,527	)		77			(74	)		(2,083.12	)		(204.05	)
Other gains/losses		1,745			803			853			117.31			(5.86	)
Profit before tax		(550	)		(28	)		106			1,864.29			(126.42	)
Profit from continuing operations		134			132			798			1.52			(83.33	)
Profit from discontinued operations		685			120			—			470.83			n/a
Consolidated profit for the year		819			252			798			225.00			(68.42	)
Profit attributed to the Group		754			162			650			365.43			(75.08	)

2007 compared to 2006

The Financial Management and Equity Stakes segment contributed 8.3% of the profit attributed to the Group’s primary segment. The main contributors to the growth in profit from this area were the sale of properties, 1.79% of Intesa Sanpaolo, our pensions businesses in Latin America, and the positive effect of the euro/dollar and euro/sterling position (which offsets the negative impact of the depreciation of the respective currencies on the results in Latin America and the United Kingdom).

106

Net interest income declined €482 million to a €1,588 million loss. This negative performance was mainly due to the impact that the rise in interest rates had on the cost of financing, with increased costs from the increased volume of securitizations.

Share of results of entities accounted for using the equity method increased 3.8%, principally as a result of the €141 million additional revenue from RFS Holding’s (ABN AMRO) inclusion in the Group’s financial statements. A reduction in profits from CEPSA partially offset this increase.

Gains/losses on financial assets and liabilities and exchange differences increased by €700 million or 169.5%. This growth was principally due to the positive effect of the euro/dollar and euro/sterling position (which offsets the negative impact of the depreciation of the respective currencies on the results in Latin America and the United Kingdom), and the larger contribution from the portfolios of interest rate risk hedging. Due to write-downs, interest rate risk hedging recorded losses in 2006, whereas in 2007 made a slightly positive contribution.

General administrative expenses increased due to the increased expenses incurred in the development of the single brand and costs associated with sponsorship and Santander’s 150th anniversary.

Depreciation and amortization costs increased by €45 million due to increased amortization of intangible assets.

Net impairment losses increased to €1,604 million due to a valuation adjustment made to the investment in Sovereign of €737 million, a write-down of €351 million on intangible assets (customer lists in Brazil), and a €242 million increase in special allowances for retirement plans.

Other gains/losses experienced a growth of 117.3% to €1,748 million. This is mainly due to capital gains from the sale of property (€1,076 million) and 1.79% of Intesa Sanpaolo (€566 million).

Profits from discontinued operations included gains of €622 million, principally related to the sale of our pensions business in Latin America.

2006 compared to 2005

Net interest income for the Financial Management and Equity Stakes segment was a €1,106 million loss in 2006, a 49.5% or €366 million decrease from €740 million in 2005.

Share of results of entities accounted for using the equity method was €411 million in 2006, a 29.6% or €173 million decrease from €584 million in 2005. This decrease is explained by lower income from CEPSA and the sale of the stake in 2005 in Unión Fenosa (both accounted for by the equity method).

Gains/losses on financial assets and liabilities and exchange differences were €413 million, a €461 million increase from a €48 million loss in 2005. This variation reflects a rise in revenues from the positive impact of the exchange-rate position and from results obtained in capital-risk operations. The gains on financial transactions include the positive impact of the position for earnings from hedging in dollars and the cleaning up in the first quarter of 2006 of the structural interest rate risk hedging portfolios. The impact of the exchange rate position in 2005 was negative.

Gross income was €297 million, which is €77 million lower than in 2005. This decrease was due to the negative impact of higher interest rates on the cost of financing and on the spread of portfolios.

General administrative expenses were €364 million in 2006, a 3.1% increase from 2005 because of greater expenses incurred in corporate projects.

Depreciation and amortization costs were €214 million in 2006, a 189.2% increase from 2005 due to greater amortization of intangibles, mostly from Abbey, and investments in IT development.

Net impairment losses were positive (€77 million) in 2006 because of the release of country-risk provisions (€52 million allocation in 2005).

107

Other gains/losses were positive because of the release of funds established for possible contingencies that were resolved in the Bank’s favor.

Profit attributed to the Group was €162 million, and included €340 million net from the difference between capital gains and extraordinary allowances (excluding the capital gain from the sale of Urbis and Banesto’s allocation for an early retirement fund, which was recorded in Banesto).

The main movements in equity stakes in 2006 were: the acquisition of 24.8% of Sovereign Bancorp for US$2,921 million, the sales of 4.8% of San Paolo IMI for €1,585 million (gross capital gain of €705 million) and the 10% stake in Antena 3TV (gross capital gain of €294 million). At the end of 2006, the capital gains from stakes in listed financial and industrial companies maintained in the portfolio equaled approximately €4 billion.

Secondary level (business):

Retail Banking


	Retail Banking									Variations
	2007			2006			2005			07/06 (%)			06/05 (%)
	(in millions of euros)
Net interest income		15,339			12,310			10,640			24.61			15.70
Share of results of entities accounted for using the equity method		15			16			35			(6.25	)		(54.29	)
Net fee and commission income		6,668			5,966			5,196			11.77			14.82
Gains/losses on financial assets and liabilities and Exchange differences		1,349			1,042			927			29.46			12.41
Gross income		23,371			19,334			16,798			20.88			15.10
Sales and income from the provision of non-financial services (net) and Other operating income/expense		(30	)		(4	)		25			650.00			(116.00	)
General administrative expenses:		(9,340	)		(8,620	)		(8,126	)		8.33			6.10
Personnel expenses		(5,603	)		(5,165	)		(4,907	)		8.48			5.26
Other administrative expenses		(3,737	)		(3,455	)		(3,219	)		8.16			7.33
Depreciation and amortization		(899	)		(848	)		(868	)		6.01			(2.30	)
Net operating income		13,102			9,862			7,829			32.85			25.97
Net impairment losses		(3,488	)		(2,324	)		(1,659	)		50.09			40.08
Other gains/losses		(256	)		(412	)		(176	)		37.86			134.09
Profit before tax		9,358			7,126			5,994			31.32			18.89

2007 compared to 2006

The Group’s Retail Banking segment generated 86% of the operating areas’ total gross operating income in 2007 and 84% of profit before tax. This increase was principally due to the growth in net interest income combined with a moderate increase in costs.

Net interest income increased 24.6% to €15,339 million, due to the impact of increased business and better customer spreads.

Net fee and commission income was €6,668 million in 2007, an 11.8% or €702 million increase from €5,966 million in 2006, reflecting the Group’s strategy of targeting the most recurrent revenues.

Gains/losses on financial assets and liabilities and exchange differences were €1,349 million in 2007, a 29.5% or €307 million increase from €1,042 million in 2006.

General administrative expenses grew 8.3%, well below the rise in gross operating income of 20.9%. As a result, the efficiency ratio for the whole of Retail Banking improved by 4.9 percentage points to 43.0%.

Net impairment losses were 50.1% higher than in 2006 because of the greater volume of lending and the entry into more profitable segments and products, which attract a greater risk premium, as well as the incorporation of the results of Drive which, given its business structure, has a proportionally greater impact on this item than on others.

108

Profit before tax increased 31.3% to €9,358 million, with good performance in Continental Europe as well as at Abbey and in Latin America.

The drivers of growth in Retail Banking in Continental Europe continued to be: business expansion, with lending up 15% and deposits 7% (affected by the issue of “Valores Santander”), good management of prices in an environment of rising interest rates and selective control of costs. The efficiency ratio improved from 42.2% in 2006 to 39.3% in 2007.

Net operating income generated by Abbey’s Retail Banking was 18.2% higher, partly due to the 7.2% rise in gross operating income and control of operating expenses (-1.7%). The combined effect was an improvement in the efficiency ratio of 4.7 percentage points to 49.9%. As a result of a reduction in net loan-loss provisions (-19.9%), profit before tax was 31.6% higher (+32.1% in sterling).

Retail Banking in Latin America experienced an increase in net operating income of 50.5% and profit before tax of 37.2% in euro terms. The efficiency ratio was 7.6 percentage points better at 44.7%. The respective increases, excluding the exchange rate impact, were 57.3% and 45.6%. We based our growth strategy on increasing the number of individual customers and SMEs, developing loyalty products such as payroll and credit cards, and focusing on the more profitable products in all countries.

The performance of the three main countries (Brazil, Mexico and Chile) was very good. Net operating income (in euros) grew 54.3%, growth that reached 45.3% in profit before tax. Excluding the exchange rate impact, the growth rates were 59.6% and 52.9% respectively.

2006 compared to 2005

The Group’s Retail Banking generated 86.6% of the operating areas’ total gross operating income in 2006 and 79% of profit before tax. The previously consolidated results of Urbis were excluded from the lines of the income statement and its net profit included as a discontinued operation. The income statements for 2006 and 2005 were drawn up, again using the same criterion.

Net interest income was €12,310 million in 2006, a 15.7% or €1,670 million increase from €10,640 million in 2005 driven by an increase in business and better customer spreads.

Net fee and commission income was €5,966 million in 2006, a 14.8% or €770 million increase from €5,196 million in 2005 reflecting the Group’s strategy of boosting the most recurrent revenues.

Gains/losses on financial assets and liabilities and exchange differences were €1,042 million in 2006, a 12.4% or €115 million increase from €927 million in 2005.

Gross income was 15.1% higher at €19,334 million.

General administrative expenses were €8,620 million in 2006, a 6% or €494 million increase from €8,126 million in 2005. The 3.7% growth of operating expenses in local currency together with the faster growth of gross income enabled net operating income to rise 26.0% to €9,862 million.

The efficiency ratio for the entire Retail Banking segment improved by 4.6 percentage points to 47.7%, compared to 52.3% in 2005.

Net impairment losses grew 40.1% due to increase in lending in more profitable segments and products, but which attract a greater risk premium.

Profit before tax increased 18.9% to €7,126 million, with a good performance in Continental Europe as well as in Abbey and Latin America.

In Continental Europe the three main drivers were business growth (+24% in lending and +15% in deposits), good management of prices in an environment of rising interest rates and selective growth in expenses. The efficiency ratio was only 42.0% (44.0% in 2005).

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In Abbey, the two elements behind the increase in profit before tax were a good performance in net interest income and net fees, and the 7.4% reduction in operating expenses. The combined effect was an improvement in the efficiency ratio of 7.4 percentage points (from 62.4% in 2005 to 55.0% in 2006).

The earnings performance of Retail Banking in Latin America was based on strong growth in customer business, the good performance in net interest income and net fees, and the control of expenses, which was compatible with business development. These increases generally reflected the growing proportion of customer business in all countries, due to strong development. The performance of the three main countries (Brazil, Mexico and Chile) was very good. Their commercial revenue (in euros) grew 33.6%, growth that reached 46.5% in net operating income and 40.7% in profit before tax. In local currency, the growth rates were 26.8%, 38.3% and 33.3% respectively.


Global Wholesale Banking	Global Wholesale Banking									Variations
	2007			2006			2005			07/06 (%)			06/05 (%)
	(in millions of euros)
Net interest income		1,492			1,241			724			20.23			71.41
Share of results of entities accounted for using the equity method		—			—			—			—			—
Net fee and commission income		919			646			488			42.26			32.38
Gains/losses on financial assets and liabilities and Exchange differences		491			690			654			(28.84	)		5.47
Gross income		2,902			2,577			1,866			12.61			38.10
Sales and income from the provision of non-financial services (net) and Other operating income/expense		(29	)		(33	)		(24	)		(12.12	)		37.50
General administrative expenses:		(852	)		(699	)		(569	)		22.17			22.68
Personnel expenses		(542	)		(447	)		(351	)		21.25			27.71
Other administrative expenses		(310	)		(252	)		(219	)		23.02			15.07
Depreciation and amortization		(91	)		(68	)		(59	)		32.82			15.25
Net operating income		1,930			1,777			1,214			8.61			46.38
Net impairment losses		(63	)		(304	)		(69	)		(79.28	)		340.58
Other gains/losses		(35	)		(48	)		12			(27.08	)		(500.00	)
Profit before tax		1,832			1,425			1,157			28.56			23.16

2007 compared to 2006

Global Wholesale Banking generated 10.7% of the operating areas’ total gross income in 2007 and 16.4% of their profit before tax. This growth was due to higher customer revenue and lower generic provisions.

Gross income was 12.6% higher, due to strong growth in customer revenues (+24%), which accounted for more than 77% of total revenues, and because of the increased contribution of value-added businesses (markets, investment banking and cash management). Net fee and commission income rose 42.3%, driven by corporate finance activities, structured financing and the trading of securities.

The increased revenues were the result of the investments made to strengthen the global management capacities of the product and business areas, applied to markets very active in corporate operations particularly in the first half of the year, as well as the extension of Santander Global Connect.

Gains on financial transactions decreased by 28.8% due to the reduction in contribution from trading activity in the second half of the year, which was affected by instability in markets, compared to excellent results in the first half of the year.

General administrative expenses increased by 22.2%, which continued to reflect the investment made in developing markets and global transactional banking. The efficiency ratio was 32.5%.

Net impairment losses were 79.3% lower compared with substantial allocations in 2006, generated by certain large operations.

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2006 compared to 2005

Global Wholesale Banking generated 11.5% of the operating areas’ total gross income in 2006 and 15.8% of profit before tax.

Gross income was 38.1% higher, driven by an increase in net interest income (+71.4%) which reflected the sharp rise in lending (+49%) and a slight improvement in spreads. Another factor was the 32.4% rise in net fee and commission income, underscoring increased advisory activity.

Gains on financial transactions only grew by 45.5% because of the sale of stakes and portfolios in 2005.

General administrative expenses were €699 million in 2006, a 22.7% increase from €569 million in 2005, well below the rise in revenues and in line with the development of new capacities and the year’s good performance.

Net operating income was 46.4% higher at €1,777 million.

Net impairment losses were €304 million in 2006, three times more than in 2005. All of these provisions were generic and due to the strong rise in lending which increased the area’s portfolio, including guarantees, to €66 billion (+40% year-on-year). Operations that had not reached their definitive structure at the end of 2006 generated a large proportion of the provisions.

Profit before tax was 23.2% higher at €1,425 million, largely due to the investment banking and markets areas. The growth registered was of quality, driven by the 39.7% rise in revenues from clients and a further improvement in the efficiency ratio to below 30% (29.9%, 3.8% better than in 2005).


Asset Management and Insurance	Asset Management and Insurance									Variations
	2007			2006			2005			07/06 (%)		06/05 (%)
	(in millions of euros)
Net interest income		52			35			35			49.57		—
Share of results of entities accounted for using the equity method		—			—			—			—		—
Net fee and commission income		423			423			396			—		6.82
Insurance activity income		319			257			199			24.12		29.15
Gains/losses on financial assets and liabilities and Exchange differences		19			4			2			375.00		100.00
Gross income		813			719			632			13.07		13.77
Sales and income from the provision of non-financial services (net) and Other operating income/expense		(1	)		—			1			—		(100.00	)
General administrative expenses:		(241	)		(215	)		(225	)		12.27		(4.89	)
Personnel expenses		(128	)		(109	)		(114	)		17.43		(4.39	)
Other administrative expenses		(113	)		(106	)		(111	)		6.60		(4.50	)
Depreciation and amortization		(19	)		(17	)		(13	)		11.76		30.77
Net operating income		552			487			395			13.35		23.29
Net impairment losses		(1	)		—			—			—		—
Other gains/losses		(16	)		(15	)		9			6.67		(266.67	)
Profit before tax		535			472			404			13.35		16.83

2007 compared to 2006

This segment accounted for 3% of gross income and 4.8% of profit before tax. These figures, like the others in this section, do not include the contribution of our pensions businesses in Latin America, which were sold in 2007. The sale of these businesses in Colombia, Uruguay, Mexico, Chile and Argentina was the result of a strategic review and generated net capital gains of €622 million (recorded in the Financial Management and Equity Stakes segment).

Gross operating income rose 13.8%, mainly driven by insurance activity (+24.3%). Net fee and commission income was virtually unchanged because of the slowdown in the mutual funds business in Spain and the strong impact of exchange rates on Latin America’s gross operating income (in Chile and Mexico growth was between 8 and 12 percentage points lower when converted into euros).

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General administrative expenses, which reflect the investment in building up these global businesses, increased 12.4%, below the growth in gross operating income.

The efficiency ratio improved slightly to 32.0%.

Asset Management

Santander Asset Management’s global business generated €1,891 million in fees in 2007 (+5.9%). Profit before tax, after deducting operating expenses and fees paid to the networks, was 8.1% higher at €243 million. Excluding the assets of the pension units that we sold, total managed assets amounted to €130 billion.

Insurance

The global business of Santander Insurance generated gross operating income (fees and revenues from insurance) of €1,751 million (+21.8%), 6.5% of the operating areas’ total. Its total contribution to the Group’s results, the sum of profit before tax of the insurance companies and brokers (€294 million) and fees received by networks, was €1,674 million (+21.5%).

2006 compared to 2005

This segment accounted for 3.2% of gross income and 5.3% of profit before tax.

The growth in profit before tax was backed by a 16.8% rise in gross income, with solid contributions from all components, particularly Net fee and commission income (+6.8%) and, above all, Insurance activity income (+29.2%). General administrative expenses decreased 4.9% further increasing net operating income by 23.3%.

The efficiency ratio was 32.3%.

Asset Management

Santander Asset Management’s global business generated €1,786 million of fees in 2006. Profit before tax, after deducting operating expenses and fees paid to the networks, was €225 million.

Insurance

The global business of Santander Insurance generated gross operating income (fees and revenues from insurance) of €1,438 million. Its total contribution to the Group’s results, the sum of profit before tax of the insurance companies and brokers and fees received by networks, was €1,378 million.

Financial Condition

Assets and Liabilities

Our total assets were €912,915.0 million at December 31, 2007, a 9.5% or €79,042.3 million increase from total assets of €833,872.7 million at December 31, 2006. 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 8.0% to €574,172.2 million at December 31, 2007 from €531,509.3 million at December 31, 2006. This was due to increased business in most areas, mainly in Spain and Latin America (principally Brazil, Mexico, and Chile). In Spain, the Santander Branch Network’s loans grew by 11% and Banesto’s by 21%, with lower growth in mortgages and the good performance of loans to SMEs and shops. In Latin America the growth was particularly high in loans to individual customers, mainly consumer credit and credit cards, and to SMEs.

Customer deposits, which comprise deposits from clients and securities sold to clients under agreements to repurchase, increased by 7.4% from €331,222.6 million at December 31, 2006, to €355,704.3 million at December 31, 2007. Other managed funds, including mutual funds, pension funds, managed portfolios and savings-insurance policies, decreased by 7.8% from €173,508.5 million at December 31, 2006, to €159,986.2 million at December 31, 2007. These percentages were affected by both the exchange-rate impact and, by the sale of pension fund management businesses in Latin America and, in addition, by the placement of a €7 billion issue of “Valores Santander”, which came from customer funds and are incorporated as shareholders’ equity.

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In addition, and as part of the global financing strategy, during 2007 the Group issued €6,800 million of mortgage and other covered bonds (including securitizations), as well as €23,067 million of senior debt (including Abbey’s medium term program) and €7,357 million of subordinated debt (excluding transactions with related parties). A total of €1,100 million of preferred securities were also issued.

During 2007, €14,557 million of senior debt, €3,865 million of mortgage bonds and €1,950 million of subordinated debt matured. The Group exercised the option of early redemption of preferred shares totaling €444 million.

Goodwill was €13,831 million at the end of 2007, of which €1,773 million corresponded to Latin America and €11,594 million to Europe. During 2007, goodwill decreased by €682 million, mainly due to exchange rate differences relating to Abbey’s goodwill.

Capital

Stockholders’ equity, net of treasury stock, at December 31, 2007, was €55,199.9 million, an increase of €10,348.3 million or 23.1% from €44,851.6 million at December 31, 2006, mainly due to the increase of reserves and net attributable income.

At December 31, 2007, our eligible capital exceeded the minimum required by the Bank of Spain by approximately €14.5 billion. See “Item 4. Information on the Company—B. Business Overview—Supervision and Regulation—Capital Adequacy Requirements”.

We estimate that our Tier 1 capital ratios, calculated in accordance with Basel Committee guidelines, and our total capital ratios, which include Tier 1 and Tier 2 capital, at December 31, 2007 and 2006 were as follows:


	December 31,
	2007			2006
Tier 1 Capital Ratio		7.71	%		7.42	%
Total Capital Ratio—Tier 1 and Tier 2		12.66	%		12.49	%

B. Liquidity and capital resources

Management of liquidity

For information about our liquidity risk management process, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Part. 8 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, our main source of 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 assets and securitized assets throughout the year. In addition, another source of liquidity is the generation of cash flow.

At December 31, 2007, we had €233.6 billion of senior debt outstanding, of which €91.3 billion were mortgage bonds and €32.7 billion promissory notes. Additionally, we had €35.7 billion in subordinated debt (which includes €7.3 billion preferred securities) and €0.5 billion in preferred shares.

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The following table shows the average balances during the years 2007, 2006 and 2005 of our principal sources of funds:


	2007		2006		2005
	(in thousands of euros)
Due to credit entities		112,021,327		123,753,200		115,974,336
Customer deposits		336,440,618		315,478,695		285,972,387
Marketable debt securities		227,627,869		174,377,295		124,185,634
Subordinated debt		32,902,151		29,554,497		27,287,081

Total		708,991,965		643,163,687		553,419,438

The average maturity of our outstanding debt as of December 31, 2007 is as follows:


(1) Senior debt		4.4 years
(2) Mortgage debt		15.5 years
(3) Dated subordinated debt		8.2 years

Exhibits VI and VII to our consolidated financial statements included herein show details of our senior and subordinated long-term debt, including their maturity dates.

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

Moody’s

Aa1

Standard & Poor’s

A1+

Fitch

F1+

A/B

Our total customer deposits, excluding assets sold under repurchase agreements, totaled €293.3 billion at December 31, 2007. Loans and advances to customers (gross) totaled €574.2 billion at the same date.

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, except for Argentina and Venezuela, 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, 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.

In prevailing economic conditions and with interest rates rising from historically low levels in Spain, the United Kingdom and the rest of Europe, it is anticipated that the growth in demand for further borrowing by customers may slow down and in the medium term, our dependence on the wholesale market for funding may be reduced as a result of an anticipated increase in our customer deposits.

We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.

As of December 31, 2007, and to the present date, we did not, and presently do not, have any material commitments for capital expenditures.

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C. Research and development, patents and licenses, etc.

We do not currently conduct any significant research and development activities.

D. Trend information

The European financial services sector is likely to remain competitive with an increasing 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 or combine with complementary businesses. It is foreseeable that regulatory changes will take place in the future that will diminish barriers 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 U.K. real estate markets, and a corresponding increase in mortgage defaults;

•		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 effect that an economic slowdown may have over Latin America and fluctuations in local interest and exchange rates;

•		the chance that changes in the macroeconomic environment will deteriorate the quality of our customers’ credit;

•		increases in our cost of funding could adversely affect our net interest margin as a consequence of timing differences in the repricing of our assets and liabilities;

•		a continued downturn in capital markets;

•		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 European financial services sector, which could further reduce our spreads;

•		although it is foreseeable that entry barriers to domestic markets in Europe will 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; and

•		the risk of further reductions in liquidity and increases of credit spreads as a consequence of the crisis in the financial markets arising from the U.S. sub-prime mortgage market, which could affect not only our cost of funding but also the value of our proprietary portfolios and our assets under management.

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E. Off-balance sheet arrangements

As of December 31, 2007, 2006 and 2005, we had outstanding the following contingent liabilities and commitments:


	2007		2006		2005
	(in thousands of euros)
Contingent liabilities:
Guarantees and other sureties		76,316,446		58,205,412		48,199,671
Bank guarantees and other indemnities provided		69,804,708		52,697,242		44,251,411
Credit derivatives sold		708,250		478,250		180,000
Irrevocable documentary credits		5,803,088		5,029,484		3,767,022
Other financial guarantees		400		436		1,238
Assets assigned to sundry obligations		3		4		24
Other contingent liabilities		608,386		563,893		253,880

		76,924,835		58,769,309		48,453,575


Commitments:
Balances drawable by third parties		102,215,927		91,690,396		77,678,333
Other commitments		12,460,636		11,559,034		18,584,929

		114,676,563		103,249,430		96,263,262

		191,601,398		162,018,739		144,716,837

For more information see Note 58.6 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, 2007, 2006 and 2005:


	2007		2006		2005
	(in thousands of euros)
Contingent liabilities:
Mutual funds		119,210,503		119,838,418		109,480,095
Pension funds		11,952,437		29,450,103		28,619,183
Other managed funds		19,814,340		17,835,031		14,746,000

		150,977,280		167,123,552		152,845,278

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 the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, 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 55 to our consolidated financial statements for further information.

Also, we use special purpose vehicles (“fondos de titulización”) in our securitization activity. According to the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, 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 €237.9 million to “fondos de titulización” in Spain) to some of these special purpose vehicles, which are provided for in accordance with the risks involved. In 2007, the Group securitized €44.5 billion of medium and long-term assets.

In the ordinary course of business, Abbey enters into securitization transactions using special purpose securitization companies which are consolidated and included in Abbey’s financial statements. Abbey 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. Abbey has made some interest-bearing subordinated loans to these securitization companies.

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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 stockholders at a general meeting, with approximately one-fifth of the members being elected each year, and may be re-elected.

Our Board of Directors meets approximately nine times per year. In 2007, it met 13 times. Our Board of Directors elects our Chairman and Vice Chairmen from among its members, as well as the Chief Executive Officer. 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, has delegated to him all such powers as may be delegated under Spanish Law, our By-laws and the Rules and Regulations of the Board of Directors. 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.

The Chief Executive Officer by delegation and under the direction of the Board and of the Chairman (as the Bank’s most senior officer) leads the business and assumes the Bank’s highest executive functions.

Our Board holds 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.

The current members of our Board of Directors are:


		Director
Name	Position with Santander	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
David Arce		Executive Vice President, Internal Auditing
Ignacio Benjumea		Executive Vice President, General Secretariat
Juan Manuel Cendoya		Executive Vice President, Communications, Corporate Marketing and Research
Fermín Colomés		Executive Vice President, Technology and Operations
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
Joan-David Grimà		Executive Vice President, Asset Management
Juan Guitard		Executive Vice President, General Secretariat
Gonzalo de las Heras		Executive Vice President, Global Wholesale Banking
Antonio H. Osorio		Chief Executive Officer, Abbey
Adolfo Lagos		Executive Vice President, Global Wholesale Banking
Jorge Maortua		Executive Vice President, Global Wholesale Banking
Javier Marín		Executive Vice President, Global Private Banking
Jorge Morán		Executive Vice President, Insurance
César Ortega		Executive Vice President, General Secretariat
Javier Peralta		Executive Vice President, Risk
Marcial Portela		Executive Vice President, America
Magda Salarich		Executive Vice President, Santander Consumer Finance
José Manuel Tejón		Executive Vice President, Financial Accounting and Control
Jesús M^a Zabalza		Executive Vice President, America

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Following is a summary description of the relevant business experience and principal business activities of our current Directors and Executive Officers performed both within and outside Santander:

Emilio Botín (Chairman of the Board of Directors and of the Executive Committee)

Born in 1934. He joined Banco Santander in 1958 and in 1986 he was appointed Chairman of the Board. He is also a non-executive Director of Shinsei Bank, Limited.

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 Director of CEPSA, Técnicas Reunidas, S.A., Air Liquide España, S.A. and Constructora Inmobiliaria Urbanizadora Vasco-Aragonesa, 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. He is also non-executive Vice Chairman of CEPSA and a non-executive Director of France Telecom España, S.A.

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. In 1988 he was appointed Director and in 1994 Second Vice Chairman. He is also Chairman of UCI, S.A., Second Vice Chairman of Grupo Corporativo Ono, S.A. and Director of Banesto, Financiera Ponferrada, S.A. and Operador del Mercado Ibérico de Energía Polo Español, S.A., and since 2008 President of the Fundación Príncipe de Asturias. During the period 1981-1982, he was Minister of the Presidency of the Spanish Government (1981-1982).

Manuel Soto (Fourth Vice Chairman of the Board of Directors)

Born in 1940. He was appointed Director in April 1999. He is non-executive Vice Chairman of Indra Sistemas, S.A. and a Director of Inversiones Inmobiliarias Lar, S.A. and Corporación Financiera Alba, S.A. He is also Chairman of the Advisory Board of Mercapital, S.L. 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 Assicurazioni S.p.A., member of the Board of Mediobanca, Vice-Chairman of LVMH Moët Hennessy-Louis Vuitton and of Bolloré Investissement. Antoine Bernheim is also a Director of Generali France, AMB Generali Holding 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 non-executive 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.

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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 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.

Javier Botín

Born in 1973. He was appointed Director in July 2004. He is also an executive Director and Partner of M&B Capital Advisers, 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 Abbey and Marks and Spencer Group plc. In addition, he is 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 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, Chairman of AVIVA Vida y Pensiones, S.A. and a Director of Campofrío Alimentación, S.A., Goldman Sachs Europe Ltd. and AVIVA plc. He is also Chairman of the Centre for Economic Policy Research (CEPR) in London, member of the Group of Thirty of Washington, and Chairman of the Board of Trustees of the Instituto de Empresa.

Rodrigo Echenique

Born in 1946. Former Director and Chief Executive Officer of Banco Santander, S.A. from 1988 to 1994. He is Chairman of the Social Economic Council of the Carlos III University (Madrid) and a non-executive Director of Inversiones Inmobiliarias Lar, S.A.

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 Santander Consumer, S.A. and Arena Communications España, S.A., and a non-executive Vice Chairman of Attijariwafa Bank.

Francisco Luzón

Born in 1948. He joined Banco Santander in 1996 as Executive Vice President, Adjoint 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. and Chairman of the Social Council of the University of Castilla-La Mancha.

Abel Matutes

Born in 1941. 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 a Director of Eurizon Financial Group, FCC Construcción, S.A. and TUI AG.

121

Juan R. Inciarte

Born in 1952. He joined Banco Santander in 1985 as Director and Executive Vice President of Banco Santander de Negocios. In 1989 he was appointed Executive Vice President and from 1991 to 1999 he was a Director of Banco Santander. He is also a non-executive Vice Chairman of Abbey National plc. and a Director of Santander Consumer Finance and of Sovereign Bancorp, Inc. He is also a Director of CEPSA and RFS Holdings. Juan R. Inciarte was appointed Director by co-option by the Board at its meeting held on January 28, 2008, and ratified by the shareholders acting at the General Shareholders’ Meeting held on June 21, 2008.

Luis Ángel Rojo (Chairman of the Audit and Compliance Committee)

Born in 1934. 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 Group of Wise Men appointed by the ECOFIN Council for the study of integration of the European financial markets, 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 is Chairman of France Telecom España and Constructora Inmobiliaria Urbanizadora Vasco-Aragonesa, S.A. and a non-executive Director of Mutua Madrileña Automovilista and Saint Gobain Cristalería, S.A.

Isabel Tocino

Born in 1949. Former Minister for Environment of the Spanish Government, former Chairwoman of the European Affairs and of the Foreign Affairs Committees of Spanish Congress and former Chairwoman for Spain and Portugal and former Vice-Chairwoman for Europe of Siebel Systems. She is currently an elected member of the Spanish State Council, a professor of the Complutense University of Madrid, non-executive Director of Climate Change Capital, Vice-Chairwoman of the International Association of Women Lawyers and the Federal Congress of the European Movement and 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. In 1997 he joined the Bank 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. He was appointed Executive Vice President in July 2006. Also in 2006 he was appointed Santander Totta’s Chief Executive Officer.

David Arce

Born in 1943. He joined Banco Santander in 1964. In 1994, he was appointed Executive Vice President, Internal Auditing of Banco Santander and Banesto. He is also a Director of Banesto.

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 Departament of Bankinter, S.A. from 1999 to 2001. He joined the Bank on July 23, 2001 as Executive Vice President, Communications, Corporate Marketing and Research.

122

Fermín Colomés

Born in 1949. He was appointed Senior Vice President of Banesto in 1999. In 2002, he joined the Bank and in December 2006 was appointed Executive Vice President, Technology and Operations. At present, he is a Director of Open Bank Santander Consumer, S.A. and Santander de Titulización, S.G.F.T., S.A. and Chairman of Geobán, S.A. and Sercobán, Administración de Empresas, S.L.

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 of 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. At present, José María Fuster is also a Director of Ingeniería de Software Bancario, S.A. (ISBAN).

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.

Joan-David Grimà

Born in 1953. He joined Banco Central Hispanoamericano in 1993. In June 2001 he was appointed Executive Vice President, Industrial Portfolio and in December 2005 he was appointed Executive Vice President, Asset Management. He was formerly Vice Chairman and Chief Executive Officer of Auna Operadores de Telecomunicaciones, S.A. from January 2002 to November 2005. He is also a Director of Teka Industrial, S.A. and ACS Actividades de Construcción y Servicios, S.A.

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.

Gonzalo de las Heras

Born in 1940. He joined the Bank in 1990. He was appointed Executive Vice President in 1991 and supervises the North American business of the Group. He is also a non-executive Director of Sovereign Bancorp, Inc.

Antonio H. Osorio

Born in 1964. He joined Banco Santander in 1993 and was appointed Executive Vice President, Portugal, in January 2000. 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 Abbey. In 2006 he was appointed Chief Executive Officer of Abbey.

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.

123

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.

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 Abbey and in 2006 Executive Vice President in charge of the Global Insurance Division.

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.

Javier Peralta

Born in 1950. He joined the Bank in 1989 and in 1993 was appointed Executive Vice President. In 2002, he was appointed Executive Vice President, Risk.

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 General Manager 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.

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 has a holding in the Bank: Assicurazioni Generali S.p.A. (represented by Antoine Bernheim).

See also “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders – Shareholders’ agreements”.

124

B. Compensation

Directors’ compensation

By-law stipulated fees

Article 38 of the Bank’s By-laws provides that the share in the Bank’s profit for each year to be received by the members of the Board of Directors for discharging their duties and for attending Board and committee meetings will be up to 1% of the Bank’s net profit for the year.

Our shareholders acting at the General Shareholders’ Meeting held on June 21, 2008 approved, under item six of the agenda, new By-laws for Banco Santander, S.A., and abrogated the existing ones. The new By-laws will become effective upon the granting of the necessary authorization by the Spanish Minister of Economy and Finance. The new By-laws will subsequently be filed with the office of the Mercantile Registry. We expect this authorization and filing to occur during the third quarter of 2008. See more information under “Item 10. Additional information — B. Memorandum and articles of association”.

Articles 58 and 59 of the new By-laws are intended to govern the compensation for directors in accordance with the Bank’s current practices as set forth in the existing By-laws and in the Rules and Regulations of the Board of Directors.

Our 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 amount and attendance fees.

According to Article 58 of the new By-laws, the aggregate amount of the compensation is equal to one percent of the profit of Santander 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.

The new By-laws are included in Exhibit 1.2.

The Board of Directors, making use of the powers conferred on it, set the related amount at 0.126% of the Bank’s net profit for 2007 (2006: 0.143%; 2005: 0.152%).

The Board of Directors, also under the powers conferred on it, resolved to allocate this amount as follows (assigning the respective proportional amounts to any directors who did not sit on the Board for the whole year): each Board member received a gross payment of €118,100 (2006: €107,400; 2005: €89,500) and, additionally, each member of the following Board Committees received the following gross payments: Executive Committee, €236,900 (2006: €215,400; 2005: €179,500); Audit and Compliance Committee, €55,000 (2006 and 2005: €50,000); Appointments and Remuneration Committee, €33,000 (2006 and 2005: €30,000). Also, the First Deputy Chairman and the Fourth Deputy Chairman received a gross amount of €39,600 each (2006 and 2005: €36,000).

Furthermore, in 2007 the Directors received fees for attending Board and Committee meetings (excluding Executive Committee meetings).

The gross amounts for attending Board meetings in 2007, are as follows: Board meetings: €2,310 for resident directors and €1,870 for non-resident directors (€2,310 and €1,870, respectively, in both 2006 and 2005).

At the meeting held on December 18, 2006, the Board of Directors approved the proposal of the Appointments and Remuneration Committee made at its meeting on December 13, 2006, to modify the amount of fees received for attending the meetings of the Risk Committee and the Audit and Compliance Committee, which it set at €1,500 effective from January 1, 2007, without changing the amounts received in connection by members of the Board of Directors and the other Committees including the Appointments and Remuneration Committee, the International Committee and the Technology, Productivity and Quality Committee, but excluding the Executive Committee, since no attendance fees are received for this Committee. The agreed-upon gross amounts are as follows:

• Risk Committee and Audit and Compliance Committee: €1,500 for resident directors and €1,212 for non-resident directors in each case per meeting.

• Other Committees: €1,155 for resident directors and €935 for non-resident directors in each case per meeting.

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The remuneration and other compensation granted to the directors in 2007 is as follows:


	In Thousands of Euros
	2007																						2006			2005
	By-law Stipulated Compensation								Attendance Fees				Salary of executive Directors (1)
							Appointments
					Audit and		and
			Executive		Compliance		Remuneration								Variable				Other
Directors	Board		Committee		Committee		Committee		Board		Other Fees		Fixed		(2)		Total		Remuneration		Total		Total			Total

Emilio Botín		118		237		—		—		25		5		1,187		2,337		3,524		1		3,910		3,459			3,035
Fernando de Asúa		158		237		55		33		25		169		—		—		—		—		677		590			519
Alfredo Sáenz		118		237		—		—		25		5		3,126		5,582		8,708		511		9,604		8,099			7,161
Matías R. Inciarte		118		237		—		—		25		141		1,510		2,945		4,455		178		5,154		4,501			3,970
Manuel Soto		158		—		55		33		25		35		—		—		—		—		306		271			246
Assicurazioni Generali, Spa.		137		—		—		—		6		—		—		—		—		—		143		136			110
Antonio Basagoiti		118		237		—		—		25		133		—		—		—		10		523		3,477	(6)		414
Ana P. Botín		118		237		—		—		25		2		1,133		1,985		3,118		17		3,517		3,084			2,733
Javier Botín (3)		118		—		—		—		25		—		—		—		—		—		143		128			106
Lord Terence Burns (***)		118		—		—		—		17		—		—		—		—		—		135		122			105
Guillermo de la Dehesa		118		237		—		33		25		14		—		—		—		—		427		381			326
Rodrigo Echenique		118		237		—		33		25		119		—		—		—		30		562		1,388			1,329
Antonio Escámez		118		237		—		—		25		128		—		—		—		42		550		1,329			1,337
Francisco Luzón		118		237		—		—		25		2		1,271		3,239		4,510		728		5,620		4,601			4,003
Luís Ángel Rojo (****)		118		—		55		33		14		29		—		—		—		—		249		232			113
Abel Matutes		118		—		55		—		25		15		—		—		—		—		213		189			172
Mutua Madrileña Automovilista (4)		137		—		—		—		16		—		—		—		—		—		153		148			122
Luis Alberto Salazar-Simpson		118		—		55		—		25		16		—		—		—		—		214		192			173
Jay S. Sidhu (5)				—		—		—		—		—		—		—		—		—		—		58			—
Emilio Botín (**)		—		—		—		—		—		—		—		—		—		—		—		—			98
Elías Masaveu (**)		—		—		—		—		—		—		—		—		—		—		—		—			47
Isabel Tocino (*)		82		—		—		—		21		—		—		—		—		—		103		—			—

Total 2007		2,324		2,370		275		165		424		813		8,227		16,088		24,315		1,517		32,203		—			—

Total 2006		2,092		2,150		250		150		386		630		7,304		13,666		20,970		5,757		—		32,385			—

Total 2005		1,795		1,800		256		148		315		607		7,082		11,412		18,494		2,704		—		—			26,119


(*)		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 General Meeting held on June 23, 2007.

(**)		Directors who were Board members for some months in 2005 but ceased to be directors prior to December 31, 2005.

(***)		Appointed as member of the Bank’s Board of Directors on December 20, 2004 and subsequently ratified by the shareholders at the Annual General Meeting on June 18, 2005.

(****)		Appointed as member of the Bank’s Board of Directors on April 25, 2005 and subsequently ratified by the shareholders at the Annual General Meeting on June 18, 2005.

(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)		Accrued in 2007.

(3)		Amounts contributed to Fundación Marcelino Botín.

(4)		Ceased to be a Director on December 19, 2007.

(5)		Appointed by the shareholders at the Annual General Meeting on June 17, 2006 and ceased to discharge his duties on December 31, 2006.

(6)		Includes €3 million for duties discharged on the Board of Directors of Unión Fenosa during the period in which he belonged to this Board at the proposal of the Bank. At the proposal of the Appointments and Remuneration Committee, this remuneration was approved by the Bank’s Board of Directors at its meeting on February 6, 2006.

127

The amounts recorded under “Other remuneration” in the foregoing table include, inter alia, the life and medical insurance costs borne by the Group.

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 compensation received with respect to representation duties of this kind, relating to appointments agreed upon before March 18, 2002, was as follows:

Thousands of euros

Company

2007

2006

2005

Emilio Botín

Shinsei

50.1

59.9

58.7

Fernando de Asúa

CEPSA

97.2

95.6

89.9

Antonio Escámez

Attijariwafa Bank

9.9

5.0

5.1

157.2

160.5

153.7

In 2007 Emilio Botín also received options to acquire 10,000 shares of Shinsei Bank, Ltd. (“Shinsei”) at a price of JPY555 each. Previously, in 2006 and 2005, Emilio Botín had received options to acquire 25,000 Shinsei shares in each year at a price of JPY825 each for those received in 2006 and JPY601 each for those received in 2005. At December 31, 2007, the market price of the Shinsei share was JPY408 and, therefore, regardless of the stipulated exercise periods, the options granted in 2007, 2006 and 2005 would not have given rise to any gains had they been exercised.

Furthermore, other directors of the Bank earned a total of €750,000 in 2007 as members of the Boards of Directors of Group companies (2006: €732,000; 2005: €739,000), the detail being as follows: Lord Burns (Abbey), €682,000; Rodrigo Echenique (Banco Banif, S.A.), €36,000; and Matías R. Inciarte (U.C.I., S.A.), €32,000.

Senior management

Below are the details of the aggregate compensation paid to the Bank’s Executive Officers (*) in 2007, 2006 and 2005:


	Number		In thousands of euros
	of		Salary Compensation						Other
Year	People (1)		Fixed		Variable		Total		Compensation		Total
2005		24		16,450		27,010		43,460		2,708		46,168
2006		26		19,119		34,594		53,713		11,054		64,767
2007		26		19,504		42,768		62,272		10,092		72,394


(*)		Excluding executive Directors’ compensation, which is detailed above.

(1)		The amounts reflect the annual compensation regardless of the number of months in which the position of Executive Vice President was occupied.

128

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, which amounted to €11,820 million (covered mostly by in-house provisions) at December 31, 2007, 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 €264 million at December 31, 2007 (December 31, 2006: €234 million; December 31, 2005: €182 million).

The following table provides information on the obligations undertaken and covered by the Group relating to pension commitments and other insurance for the Bank’s executive Directors:


	In thousands of euros
	2007				2006				2005
	Total Accrued				Total Accrued				Total Accrued
	Pension		Other		Pension		Other		Pension		Other
	Obligations		Insurance		Obligations		Insurance		Obligations		Insurance
Emilio Botín		22,926		—		21,068		—		11,785		—
Alfredo Sáenz		68,070		9,378		55,537		8,155		45,444		7,917
Matías R. Inciarte		44,226		4,529		39,390		4,117		28,953		3,997
Ana P. Botín		17,975		1,403		15,045		1,402		12,232		1,373
Francisco Luzón		45,468		7,624		39,187		6,571		39,188		6,380

Total		198,665		22,934		170,227		20,245		137,602		19,667

The amounts in the “Total Accrued Pension Obligations” column in the foregoing table relate to the present actuarial value of the accrued 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 arithmetic mean of the last three variable salary payments received. In addition, in the case of Francisco Luzón, 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 consolidated Group companies.

On December 17, 2007 and March 24, 2008, 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 accrued pensions -or amounts similar thereto- in the form of income or capital -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 capital by the commitment beneficiary at the date of the retirement must be the aliquot part of the market value of the assets assigned to cover the mathematical provisions to cater 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 whilst still in service and prior to retirement, the capital of the pension will correspond to his/her heirs.

Pension charges recognized and reversed in 2007 amounted to €21,615,000 and €580,000, respectively (2006: €44,819,000 and €629,000, respectively; 2005: €4,414,000 and €4,449,000, respectively).

Additionally, other directors have life insurance policies at the Group’s expense, the related insured sum being €3 million at December 31, 2007 (2006 and 2005: €3 million). Also, the payments made in 2007 to the members of the Board entitled to post-employment benefits amounted to €2.6 million.

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The detail of the Bank’s share options granted to directors is as follows (See Note 49 to our consolidated financial statements):


			Options													Options		Exercised
			Granted		Exercised Options											Granted		Options						Concessions Granted				Exercised Options
										Market																						Market				Date of		Date of
	Options at							Exercise		Price		Options at		Exercise						Options at		Exercise				Exercise				Exercise		Price		Options at		Commencement		Expiry of
	January 1,							Price		Applied		December		Price						December		Price				Price				Price		Applied		December		of Exercise		Exercise
	2005		Number		Number			(Euros)		(Euros)		31, 2005		(Euros)		Number		Number		31, 2006		(Euros)		Number		(Euros)		Number		(Euros)		(Euros)		31, 2007		Period		Period

Managers Plan 2000:
Emilio Botín		150,000		—		(150,000	)		10.545		11.12		—		—		—		—		—		—		—		—		—		—		—		—		12/30/03		12/29/05
Alfredo Sáenz		100,000		—		(100,000	)		10.545		11.14		—		—		—		—		—		—		—		—		—		—		—		—		12/30/03		12/29/05
Matías R. Inciarte		125,000		—		(125,000	)		10.545		11.14		—		—		—		—		—		—		—		—		—		—		—		—		12/30/03		12/29/05
Antonio Escámez		100,000		—		(100,000	)		10.545		11.07		—		—		—		—		—		—		—		—		—		—		—		—		12/30/03		12/29/05
Francisco Luzón		100,000		—		(100,000	)		10.545		11.14		—		—		—		—		—																12/30/03		12/29/05

		575,000		—		(575,000	)		10.545		11.12		—		—		—		—		—		—		—		—		—		—		—		—

Long-Term Incentive Plan (I06):
Emilio Botín		541,400		—		—			—		—		541,400		9.09		—		—		541,400		9.09		—		—		—		—		—		541,400		01/15/08		01/15/09
Alfredo Sáenz		1,209,100		—		—			—		—		1,209,100		9.09		—		—		1,209,100		9.09		—		—		—		—		—		1,209,100		01/15/08		01/15/09
Matías R. Inciarte		665,200		—		—			—		—		665,200		9.09		—		—		665,200		9.09		—		—		—		—		—		665,200		01/15/08		01/15/09
Ana P. Botín (*)		293,692		—		—			—		—		293,692		9.09		—		—		293,692		9.09		—		—		—		—		—		293,692		01/15/08		01/15/09
Francisco Luzón		639,400		—		—			—		—		639,400		9.09		—		—		639,400		9.09		—		—		—		—		—		639,400		01/15/08		01/15/09

		3,348,792		—		—			—		—		3,348,792		9.09		—		—		3,348,792		9.09		—		—		—		—		—		3,348,792

Long-Term Incentive Plan (I09):
Emilio Botín		—		—		—			—		—		—		—		—		—		—		—		41,785		—		—		—		—		41,785		06/23/07		07/31/09
Alfredo Sáenz		—		—		—			—		—		—		—		—		—		—		—		110,084		—		—		—		—		110,084		06/23/07		07/31/09
Matías R. Inciarte		—		—		—			—		—		—		—		—		—		—		—		53,160		—		—		—		—		53,160		06/23/07		07/31/09
Ana P. Botín (**)		—		—		—			—		—		—		—		—		—		—		—		27,929		—		—		—		—		27,929		06/23/07		07/31/09
Francisco Luzón		—		—		—			—		—		—		—		—		—		—		—		44,749		—		—		—		—		44,749		06/23/07		07/31/09

		—		—		—			—		—		—		—		—		—		—		—		277,707		—		—		—		—		277,707

Long-Term Incentive Plan (I10)
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

		—		—		—			—		—		—		—		—		—		—		—		415,974		—		—		—		—		415,974


(*)		Approved by Banesto’s shareholders at its Annual General Meeting on February 28, 2006.

(**)		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 General 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 General Meeting.

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Additionally, the maximum limits to the Matched Deferred Bonus Plan (or Mandatory Investment Shares Plan) of each executive Director is as follows (See Note 49 to our consolidated financial statements):


Executive Directors	Maximum Number of Shares

Emilio Botín		16,306
Alfredo Sáenz		37,324
Matías R. Inciarte		20,195
Ana P. Botín (*)		13,610
Francisco Luzón		22,214
Juan R. Inciarte		14,617

		124,266


(*)		The number of shares acquired by Ana P. Botín as beneficiary of this plan is consistent with the resolutions agreed to by the shareholders acting at the General Shareholders’ Meeting of Banco Santander and Banesto held on June 23, 2007 and June 27, 2007, respectively.

Description of Stock Option Plans and Other Share-based Compensation Plans

In recent years, the Bank has put in place compensation systems for its managers and employees linked to the market performance of the Bank’s shares based on the achievement of certain objectives.

Additionally, on June 23, 2007, the General Shareholders’ Meeting approved 100 free shares of Banco Santander, S.A. to each active employee of Santander, to celebrate the 150th Anniversary of Banco Santander.

After a report from the Appointments and Remuneration Committee, and within the framework of approval by the Bank’s Board of Directors of a long-term incentive policy and of the plans making up such policy, the General Shareholders’ Meeting held on June 23, 2007 approved the first and second cycles of the Performance Shares Plan, the first cycle of the Matched Deferred Bonus Plan and the Restricted Shares Plan. The main characteristics of these plans are set forth below.

1. First and second cycle (2007-2009) of the Performance Shares Plan — I09 and I10 Plans

The first and second cycles of this plan are subject to the following rules:

(i) Beneficiaries: The executive directors, the remaining members of Senior Management, and such other executives of Santander (excluding Banesto) as are determined by the Board of Directors, or the Executive Committee by delegation thereof. As of December 31, 2007, the number of participants under the first cycle was 5,476 and under the second cycle 5,506, although the Board of Directors, or the Executive Committee by delegation thereof, may include (by promotion or admission to the Group) or exclude other persons, without changing the total number of shares authorized for distribution at any time.

(ii) Objectives: The objectives used to determine the number of shares for distribution (the “Objectives”) are based on two parameters:

a) Total Shareholder Return (“TSR”); and

b) Growth in Earnings per Share (“EPS”).

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 institutions compared and the initial value of the same investment, bearing in mind that any calculation of the final value must take into account dividends or similar items received by the shareholder for this investment during the corresponding period of time as if an investment was made in more shares of the same kind on the first date on which the dividend was payable to shareholders and the average weighted share price on that date. In order to determine the aforementioned initial and final value, the share prices established in item (iii) below will be adopted.

132

Growth in EPS is deemed to be the percentage difference between earnings per ordinary share reported in the annual and consolidated financial statements at the beginning and the end of the comparison period, as established in item (iii) below.

At the end of the respective cycle, the TSR and the growth in EPS for Santander and each of the group institutions identified below (the “Reference Group”) will be calculated and listed in decreasing order. Each of these parameters (TSR and EPS growth) will have a 50% weighting in determining the percentage of shares to distribute, based on the following scale and Santander’s relative position within the Reference Group.


Santander’s position in	Percentage of shares to be	Santander’s position in	Percentage of shares to be
the TSR ranking	delivered over maximum	the EPS growth ranking	delivered over maximum
1^st to 6^th	50%	1^st to 6^th	50%
7^th	43%	7^th	43%
8^th	36%	8^th	36%
9^th	29%	9^th	29%
10^th	22%	10^th	22%
11^th	15%	11^th	15%
12^th or more	0%	12^th or more	0%

The Reference Group will initially be composed of the following 21 entities:


Bank		Country

ABN AMRO Holding		The Netherlands
Banco Itau		Brazil
Bank of America		United States
Barclays		United Kingdom
BBVA		Spain
BNP Paribas		France
Citigroup		United States
Credit Agricole		France
HBOS		United Kingdom
HSBC Holdings		United Kingdom
Intesa Sanpaolo		Italy
JP Morgan Chase & Co.		United States
Lloyds TSB Group		United Kingdom
Mitsubishi		Japan
Nordea Bank		Sweden
Royal Bank of Canada		Canada
Royal Bank of Scotland Group		United Kingdom
Société Générale		France
UBS		Switzerland
Unicredito Italiano		Italy
Wells Fargo & Co.		United States

If any of the Reference Group institutions are acquired by another company, cease to list their shares or are liquidated, they will be excluded from the Reference Group. In this case and any similar cases, comparison with the Reference Group will be conducted in a manner which, for each of the parameters studied (TSR and EPS growth), the maximum percentage of the shares will be earned if Santander falls within the first quartile (including the 25th percentile) of the Reference Group; no shares will be earned if Santander falls below the Reference Group median (50th percentile); a maximum of 30% of the shares will be earned at the median (50th percentile) and, at positions between (but not including) the median and the first quartile (25th percentile), the shares earned will be calculated by linear interpolation.

133

(iii) Duration: The first cycle will cover the years 2007 and 2008. Therefore, the objectives linked to TSR will use the daily average weighted volume of the average weighted listing prices for the 15 trading sessions immediately preceding but not including April 1, 2007 to calculate the initial value and the 15 trading sessions immediately preceding but not including April 1, 2009 to calculate the final value; the objectives linked to EPS growth will use the consolidated financial statements for the year ended December 31, 2006 and the consolidated financial statements for the year ended December 31, 2008. 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, 2009. Any distribution of shares will be made no later than July 31, 2009, on the date established by the Board of Directors, or the Executive Committee by delegation thereof.

The second cycle will cover the years 2007, 2008 and 2009. Therefore, the objectives linked to TSR will use the daily average weighted volume of the average weighted listing prices for the 15 trading sessions prior to April 1, 2007 to calculate the initial value and the 15 trading sessions immediately preceding but not including April 1, 2010 to calculate the final value; the objectives linked to EPS growth will use the consolidated financial statements for the year ended December 31, 2006 and the consolidated financial statements for the year ended December 31, 2009. 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, 2010. Any distribution of shares will be made no later than July 31, 2010, on the date established by the Board of Directors, or the Executive Committee by delegation thereof.

The shares will be distributed by the Bank or another Group company, as applicable.

(iv) Maximum number of shares to be distributed:

The maximum number of shares to be distributed to each of the beneficiaries will, subject to other limitations, be the product of dividing a percentage of the beneficiary’s fixed annual remuneration on the date of adoption of this resolution, by the daily average weighted volume of the average weighted listing prices of the Bank’s shares during the 15 trading sessions immediately preceding May 7, 2007, rounded up to the second decimal point, which was €13.46 per share.

For executive Directors, the annual fixed compensation percentage will be 47.4% for the first cycle and 71% for the second cycle, except for Ana P. Botín, to whom 70% of these percentages shall apply.

Therefore, the maximum number of shares distributed to each of the executive Directors will be the following:


Executive Directors	First Cycle		Second Cycle

Emilio Botín		41,785		62,589
Alfredo Sáenz		110,084		164,894
Matías R. Inciarte		53,160		79,627
Francisco Luzón		44,749		67,029
Ana P. Botín		27,929		41,835

Without prejudice to the Banesto shares which correspond to Ana P. Botín pursuant to the “Banesto share distribution Incentive Plan” approved by the shareholders at a General Shareholders’ Meeting of Banesto on June 27, 2007, the maximum number of shares attributable to this executive Director is the number stated in the preceding table, pursuant to the resolution adopted at the General Shareholder Meeting mentioned in this paragraph.

134

Following approval of the first and second cycles of the Performance Share Plan (2007 — 2009) at the General Shareholders’ Meeting of Santander held on June 23, 2007, the Board of Directors, at its meeting of January 28, 2008, approved the interim appointment of the Executive Vice President Juan R. Inciarte to the position of Director at its meeting on January 28, 2008.

The maximum number of shares distributable to Juan R. Inciarte was approved by the Executive Committee at its meeting on December 3, 2007, after a report issued by the Appointments and Remuneration Committee on November 26, 2007, and with the approval of the Board of Directors at its meeting on December 17, 2007, in the following amounts:


	First Cycle		Second Cycle

Juan R. Inciarte		43,322		64,983

Shares distributed to the remaining members of Senior Management are limited to a maximum of 845,787 shares (representing 0.014% of the Bank’s capital) in the first cycle and 1,268,482 shares in the second cycle, equivalent to 0.020% of the Bank’s capital.

Finally, at the aforementioned meeting on November 26, 2007, the Committee reported favorably on the Regulations for the First and Second Cycles of the Performance Shares Plan, which was approved by the Executive Committee on December 3, 2007.

2. First Cycle (2008-2010) of the Matched Deferred Bonus Plan

The first cycle of the plan is subject to the following rules:

(i) Beneficiaries: The Executive Committee, on its meeting of January 28, 2008, determined, by delegation of the Board of Directors, the 32 persons who are currently the beneficiaries. This group is comprised of the executive Directors and other members of the Bank’s Senior Management as well as other main executives of Grupo Santander (excluding Banesto).

Without prejudice to the foregoing, new participants may be included in the plan following promotion, admission into the Group or for other reasons, without modifying its terms and conditions, at the discretion of the Board of Directors, or the Executive Committee acting under powers delegated to it by the board.

(ii) Operation: Beneficiaries must set aside 10% of their 2007 gross annual variable compensation (or bonus) to acquire Bank shares on the market (the “Mandatory Investment”). Pursuant to the resolution of the shareholders, the Mandatory Investment was made prior to February 29, 2008.

Retention of shares acquired by Mandatory Investment and participants’ continued service within Santander for a period of three years following the Mandatory Investment will entitle the participant to receive from the Bank or, as applicable, another Group company, a number of Santander shares equal to those initially acquired, i.e., based on a ratio of one share for each share acquired through the Mandatory Investment.

(iii) Duration: This first cycle corresponds to 2008-2010. The Bank will distribute shares, as applicable, between January 1 and April 1, 2011, on the date specified by the Board, or the Executive Committee acting under powers delegated to it by the board, within a period of one month from the third anniversary of the Mandatory Investment.

The Mandatory Investment of each executive Director is as follows:


Executive Directors	Maximum No. of shares
Emilio Botín		16,306
Alfredo Sáenz		37,324
Matías R. Inciarte		20,195
Francisco Luzón		22,214
Ana P. Botín		13,610

The number of shares acquired by Ana P. Botín as beneficiary of this plan is consistent with the resolutions agreed to by the shareholders acting at the General Shareholders’ Meeting of Banco Santander and Banesto held on June 23, 2007 and June 27, 2007, respectively.

The number of shares purchased by Juan R. Inciarte is 14,617.

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In order to set the number of shares acquired by the executive Directors in execution of this Mandatory Investment Plan, it has been taken into account the maximum number of shares agreed to by the shareholders acting at the General Shareholders’ Meeting held on June 23, 2007 under resolution twelve.

3. Restricted Shares Plan

For a period of 12 months from implementation thereof, commitments may be undertaken to deliver up to a maximum of 2,189,004 shares of the Bank (representing 0.035% of the Bank’s current capital) to be used selectively as a tool for retaining or hiring executives or employees of the Bank or other Group companies, other than executive Directors. The Board of Directors, or the Executive Committee acting under powers delegated to it by the Board, will decide when to use this tool. Furthermore, the plan must comply with the Total Limit as defined below.

Each participant in the Restricted Shares Plan will be required to remain with the Group for a minimum period of 3 to 4 years. After meeting the minimum period established in each case, the participant will be entitled to distribution of the shares.

Within the framework of the long-term incentives policy described in the section above, the shareholders at the General Shareholders’ Meeting of June 23, 2007 authorized the deployment of the first two cycles of the Performance Shares Plan (2007-2009 period), the first cycle (2008-2010 period) of the Matched Deferred Bonus Plan, and the selective grant of up to 2,189,004 shares (representing 0.035% of the Bank’s capital), establishing a maximum total limit of 28,144,334 shares for distribution in these programs, equivalent to 0.45% of the Bank’s capital (the “Total Limit”).

As of December 31, 2007, the Bank was not obliged to distribute any shares as set forth under this heading “3. Restricted Shares Plan”.

Below is a summary of the I06 Plan, which was the only plan in effect during 2007:

I06 Plan

On December 20, 2004, the Board of Directors decided to implement, subject to the approval of our General Shareholders’ Meeting held on June 18, 2005, a long-term incentive plan (“I06”) in the form of stock options tied to the achievement of two objectives: a revaluation of the Bank’s share price and growth in earnings per share, in both cases above a sample of comparable banks. Both objectives have already been achieved. 2,512 officers are covered by this plan with a total of 95,056,019 options of Bank shares already granted at an exercise price of €9.09. The exercise period is from January 15, 2008 to January 15, 2009. This plan was approved by our shareholders at the General Shareholders’ Meeting on June 18, 2005.

The table on page 131 above indicates the number of Santander share options held by our Directors under this plan.

Additionally, the following plans were cancelled during 2005:

Plan Four

Five of our officers participated in an option plan known as “Plan Four”. Each option received under this plan granted its holder the right to receive one share of Santander ordinary common stock, par value €0.50. The exercise price of the shares subject to this plan was €7.84, and plan participants could exercise these options until December 30, 2005. Plan participants must hold the shares acquired through this plan for a period of twelve months following the date of exercise of the options. During 2005, 228,000 options were exercised and the plan expired.

136

Young Executives Plan

111 of our officers participated in an option plan known as the “Young Executives Plan”. Each option received under this plan granted its holder the right to receive one share of Santander ordinary common stock, par value €0.50. The exercise price of the shares subject to this plan was €2.29, and plan participants could have exercised the first 50% of the options granted from July 1, 2003 until June 30, 2005 and the remaining 50% from July 1, 2004 until June 30, 2005. Plan participants must hold the shares acquired through this plan for a period of twelve months following the date of exercise of the options. During 2005, 329,000 options were exercised and the plan expired.

Managers Plan 2000

970 of our officers participated in an option plan known as the “Managers Plan 2000”. Each option received under this plan granted its holder the right to receive one share of Santander ordinary common stock, par value €0.50. The exercise price of the options subject to this plan is €10.55, and plan participants could exercise these options from December 30, 2003 until December 29, 2005. Plan participants must hold the shares acquired through this plan for a period of twelve months following the date of exercise of the options. During 2005, 12,389,000 options were exercised and the plan expired.

European Branches Plan

27 of our officers participated in an incentive plan known as the “European Branches Plan”. Subject to the achievement of certain objectives, the beneficiaries of this plan received a payment in cash or in shares of Santander. For purposes of the calculation of the number of shares to be delivered, the share price was calculated at the average quoted price of the month previous to the incorporation to the branch and plan participants could exercise 1,615,000 of the options granted from July 1, 2004 until July 15, 2004, and could exercise the remaining options granted from July 1, 2005 until July 15, 2005. During 2005, 2,660,000 options were exercised and the plan expired.

137

Stock Option Plans and Other Share-based Compensation Plans

Euros

Date of

Number of

Exercise

Year

Employee

Number

Commencement

Expiry of

Price

Granted

Group

of Persons

of Exercise Period

Exercise Period

Plans outstanding at January 1, 2005

21,126,750

9.94

Options granted (Plan I06)

99,900,000

9.09

(**)

Managers

2,601

01/15/2008

01/15/2009

Options exercised

(15,606,000

)

(9.83

)

Of which:

Plan Four

(228,000

)

7.84

Young Executives Plan

(329,000

)

2.29

Managers Plan 2000

(12,389,000

)

10.545

European Branches Plan

(2,660,000

)

7.60

(*)

Options cancelled or not exercised

(5,520,750

)

—

Plans outstanding at December 31, 2005

99,900,000

9.09

Options exercised

—

Options cancelled, net (Plan I06)

(3,648,610

)

9.09

Managers

(44

)

01/15/2008

01/15/2009

Plans outstanding at December 31, 2006

96,251,390

9.09

Options granted (Plan I09)

10,448,480

—

Managers

5,476

06/23/2007

07/31/2009

Options granted (Plan I10)

15,690,283

—

Managers

5,506

06/23/2007

07/31/2010

Options cancelled, net (Plan I06)

(1,195,371

)

9.09

Managers

(45

)

01/15/2008

01/15/2009

Plans outstanding at December 31, 2007

121,194,782

—

Of which:

Plan I06

95,056,019

9.09

Plan I09

10,448,480

—

Plan I10

15,690,283

—


(*)		The average exercise price ranges from €5.65 to €10.15 per share.

(**)		The exercise price of the options under Plan I06 is €9.09 per share, which is the weighted average of the daily average market price of the Bank shares on the continuous market in the first 15 trading days of January 2005. This was the criterion established in the resolution approving Plan I06 adopted at the Annual General Meeting held on June 18, 2005. The documentation on the aforementioned resolution stated correctly the method to be used to set the exercise price but, by mistake, an amount of €9.07 per share was mentioned rather than the correct amount of €9.09 per share.

138

The option plans on shares of the Bank originally granted by management of Abbey to its employees (on Abbey shares) are as follows:

Pounds

Sterling (*)

Date of

Number of

Exercise

Year

Employee

Number

Commencement

Expiry of

Price (*)

Granted

Group

of Persons

of Exercise Period

Exercise Period

Plans outstanding at December 31, 2005

17,675,567

3.58

Options exercised

(1,769,216

)

4.45

Of which:

Executive Options

(89,305

)

4.43

Employee Options

(2,550

)

5.90

Sharesave

(1,677,361

)

4.45

Options cancelled or not exercised

(1,783,670

)

—

Plans outstanding at December 31, 2005

14,122,681

3.41

Of which:

Executive Options

269,539

4.07

Employee Options

54,000

5.90

Sharesave

13,799,142

3.38

Plans outstanding at December 31, 2005

14,122,681

3.41

Options granted (MTIP)

2,825,123

7.50

2005 and 2006

Managers

174

First half of 2008

Options exercised

(5,214,171

)

3.41

Of which:

Executive Options

(87,659

)

4.07

Employee Options

(33,000

)

5.90

Sharesave

(5,093,512

)

3.38

Options cancelled or not exercised

(1,379,401

)

—

Plans outstanding at December 31, 2006

10,354,232

4.32

Of which:

Executive Options

178,026

4.11

2003-2004

Managers

03/26/06

03/24/13

Employee Options

—

Sharesave

7,638,791

3.32

1998-2004

Employees

4.512

(**)

04/01/06

09/01/11

MTIP

2,537,415

9.39

2005 and 2006

Managers

170

First half of 2008

Options granted (MTIP)

—

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 December 31, 2007

8,048,312

5.32

Of which:

Executive Options

144,122

4.15

2003-2004

Managers

03/26/06

03/24/13

Sharesave

5,684,340

3.18

1998-2004

Employees

2.239

(**)

04/01/06

09/01/11

MTIP

2,219,850

10.88

2005 and 2006

Managers

157

First half of 2008


(*)		At December 31, 2007, 2006 and 2005, the euro/pound sterling exchange rate was €1.36360/GBP1; €1.4892/GBP1 and €1.4592/GBP1, respectively.

(**)		Number of accounts/contracts. A single employee may have more than one account/contract.

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 is 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. The amendment was ratified at the General Shareholders’ Meeting held on June 23, 2007. At December 31, 2007, the plan had 157 beneficiaries and involved the delivery of up to a maximum of 2,219,850 shares of Santander. Effective delivery of the shares is scheduled for 2008, provided the related targets are met.

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After a report from the Appointments and Remuneration Committee, and within the framework of approval by the Bank’s Board of Directors of a long-term incentive policy and of the plans making up such policy, the following resolutions were adopted at the General Shareholders’ Meeting held on June 21, 2008, in connection with the matters requiring a decision of the shareholders acting at the General Shareholders’ Meeting:

A) Third cycle of the Performance Shares Plan, second cycle (2009-2011) of the Shares Related to Mandatory Investment Plan and maximum limit of shares of the Selective Share Delivery Plan.

a) Third cycle of the Performance Shares Plan

The third share delivery cycle linked to the attainment of objectives is subject to the following rules:

(i) Beneficiaries: The executive directors and other members of the Senior Management, as well as such other managers of Santander (excluding Banesto) as the Board of Directors or the Executive Committee, acting under powers delegated to it by the Board of Directors, may determine the beneficiaries. The overall number of participants is expected to be approximately 6,000, although the Board of Directors, or the Executive Committee by delegation thereof, may decide to include (by promotion or addition to the Group) or exclude other participants, without changing the maximum overall number of shares to be delivered that are authorized at any time.

(ii) Objectives: The objectives, which will determine the number of shares to be delivered (the “Objectives”), are linked to two indicators:

(1) Total Shareholder Return (“TSR”); and

(2) Growth in Earnings per Share (“EPS”).

For these purposes, TSR means the difference (stated as a percentage ratio) between the value of an investment in common shares in each of the Reference Group (as defined below) institutions at the end of the period and the value of the same investment at the beginning of the period. For the purpose of the calculation of the value at the end of the period, dividends or similar items received by the shareholders for such investment during the respective period of time will be considered as if they had been invested in additional shares of the same type on the first date on which the dividend is due to the shareholders and at the average weighted listing price on such date. The listing prices set forth in paragraph (iii) below shall be used to determine such values at the beginning and at the end of the period.

For the same purposes, EPS growth means the percentage ratio between the earnings per common share as disclosed in the consolidated annual financial statements at the beginning and at the end of the comparison period, as determined in paragraph (iii) below.

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At the end of the respective cycle, the TSR and EPS growth of Santander and of each of the entities of the group defined below (the “Reference Group”) will be calculated and will be ranked in descending order. Each of the two indicators (TSR and EPS growth) will separately be given a 50% weighting in the determination of the percentage of shares to be delivered, on the basis of the following scale and according to Santander’s relative position within the Reference Group:


Santander’s position in the	Percentage of shares	Santander’s position in	Percentage of shares
TSR ranking	earned over maximum	the EPS growth ranking	earned over maximum
1^st to 6^th	50%	1^st to 6^th	50%
7^th	43%	7^th	43%
8^th	36%	8^th	36%
9^th	29%	9^th	29%
10^th	22%	10^th	22%
11^th	15%	11^th	15%
12^th onwards	0%	12^th onwards	0%

The Reference Group will initially be composed of the following 21 entities:


Bank		Country
Banco Itaú		Brazil
Bank of America		United States
Barclays		United Kingdom
BBVA		Spain
BNP Paribas		France
Citigroup		United States
Crédit Agricole		France
Deutsche Bank		Germany
HBOS		United Kingdom
HSBC Holdings		United Kingdom
Intesa Sanpaolo		Italy
JP Morgan Chase & Co.		United States
Lloyds TSB Group		United Kingdom
Mitsubishi		Japan
Nordea Bank		Sweden
Royal Bank of Canada		Canada
Royal Bank of Scotland Group		United Kingdom
Société Générale		France
UBS		Switzerland
Unicredito Italiano		Italy
Wells Fargo & Co.		United States

If any of the entities of the Reference Group is acquired by another company, is delisted or disappears, it will be removed from the Reference Group. In such case, and in any other similar case, the comparison to the Reference Group will be made in such a way that, for each of the indicators considered (TSR and EPS growth), the maximum percentage of shares will be earned if Santander is included in the first quartile (including the 25th percentile) of the Reference Group; no shares will be earned if Santander is below the mean (50th percentile) of the Reference Group; 30% of the maximum number of shares will be earned in the mean (50th percentile) and, for intermediate positions between (but not including) the mean and the first quartile (not including the 25th percentile), the number of shares earned will be calculated by linear interpolation.

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(iii) Term: This third cycle will be comprised of 2008, 2009 and 2010. Accordingly, for purposes of the objective related to TSR, the daily average weighted volume of the average weighted listing prices of the fifteen trading sessions immediately preceding (but not including) April 1, 2008 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, 2011 will be used to calculate the value at the end of the period. For purposes of the objective linked to EPS growth, taking into account the distorting effect that the extraordinary circumstances affecting the financial markets have had on the results of some of the entities within the Reference Group in 2007, the consolidated financial statements for the period ended December 31, 2006 and the consolidated financial statements for the period ended December 31, 2010 will be taken into account. To receive the shares, a beneficiary will be required to have been in active service with the Group, except in the event of death or disability, through June 30, 2011. Delivery of the shares, will be made no later than July 31, 2011, on the date determined by the Board of Directors, or by the Executive Committee by delegation thereof.

The shares will be delivered by the Bank or by another company of the Group.

(iv) Maximum number of shares to be delivered:

Subject to the Total Limit defined under “Other rules” below, the maximum number of shares to be delivered to each beneficiary will be the result of dividing a percentage of the beneficiary’s fixed annual compensation on the date of adoption of this resolution by 13.46 euros per share, which is the same amount provided for such purposes for the two cycles approved in 2007.

For the executive Directors, such percentage of their fixed annual compensation will be 71%, except for Ana P. Botín, for whom 70% of such percentage will be applied.

Accordingly, the number of shares to be delivered to each executive Director will not exceed the following:


Executive Directors	Third Cycle
Emilio Botín		68,848
Alfredo Sáenz		189,628
Matías R. Inciarte		87,590
Francisco Luzón		77,083
Ana P. Botín		46,855
Juan R. Inciarte		50,555

Without affecting the number of Banesto shares that might be earned by Ana P. Botín under the plans that may be approved at Banesto’s General Shareholders’ Meeting, the maximum number of shares referred to in the preceding table corresponding to Ana P. Botín must be submitted for approval at such Meeting.

b) Second cycle (2009-2011) of the Shares Related to Mandatory Investment Plan.

The second cycle of delivery of shares related to mandatory investment of variable compensation is subject to the following rules:

(i) Beneficiaries: The executive Directors and other members of the Senior Management of the Bank, as well as the other principal managers of Santander (excluding Banesto), as determined by the Board of Directors, or the Executive Committee by delegation (a total of approximately 36 beneficiaries). However, such new participants may be added to the Plan as a result of promotion, joining the Group or other reasons, in the opinion of the Board of Directors or of the Executive Committee by delegation, without modifying the other terms and conditions.

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(ii) Operation: The beneficiaries will mandatorily use 10% of their 2008 gross variable annual compensation (or bonus) to purchase Bank shares in the market (the “Mandatory Investment”). The Mandatory Investment must be made not later than February 28, 2009. The Board of Directors, or the Executive Committee by delegation, may reduce this period.

Maintaining ownership of the shares acquired in the Mandatory Investment and continued employment of the participant at Santander for a period of three years from the date of the Mandatory Investment shall entitle the participant to receive from Santander or from another company of the Group, the same number of Santander shares as that initially purchased on a mandatory basis (i.e., at the rate of one share for each share acquired in the Mandatory Investment).

In the event that the sum of 10% of the annual variable compensation (bonus) for 2008 of plan beneficiaries, when invested in Santander shares, results in the Mandatory Investment of all beneficiaries exceeding the aggregate maximum number of shares set by the Board of Directors, or the Executive Committee by delegation, within the Total Limit, as defined below, the amount to be invested by each beneficiary shall be reduced proportionately so as not to exceed the Total Limit.

(iii) Term: This second cycle comprises 2009-2011. The delivery of shares by Santander will be made, if appropriate, between January 1 and April 1, 2012, on a specific date to be determined by the Board of Directors, or the Executive Committee by delegation, within one month of the third anniversary of the date on which the Mandatory Investment was made.

The Mandatory Investment of each executive Director will be the result of applying sub-paragraph (ii) above, with the following maximum limits:


Executive Directors	Maximum no. of shares
Emilio Botín		19,968
Alfredo Sáenz		47,692
Matías R. Inciarte		25,159
Francisco Luzón		27,675
Ana P. Botín		16,956
Juan R. Inciarte		14,738

The maximum number of shares for Ana P. Botín will also be submitted to the shareholders at the Banesto General Shareholders’ Meeting for approval.

c) Maximum limit of shares of the Selective Share Delivery Plan.

The delivery of Santander shares up to a maximum of 1,900,000 shares (representing 0.03% of the current share capital) can be used selectively as an instrument to retain or hire managers or employees of Santander or of other companies of the Group, with the exception of the executive directors. The Board of Directors, or the Executive Committee by delegation, will make all decisions regarding the use of the Selective Share Delivery Plan subject to the overall limit (see “Total Limit” below).

A minimum period of employment with the Group of 3 to 4 years will be required of each participant. At the end of the minimum period established in each case, the participant will be entitled to delivery of the shares.

The authorization granted may be used to make commitments to deliver shares for 12 months following the date on which such authorization is granted.

Other rules.

The aggregate maximum number of shares to be delivered will be 19,960,000, representing 0.32% of the share capital as of June 21, 2008 (the “Total Limit”).

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In the event of a change in the number of shares due to a decrease or increase in the par value of the shares or a transaction with an equivalent effect, the number of shares to be delivered will be modified so as to maintain the percentage of the total share capital represented by them and the corresponding adjustments will be made in order for the calculation of TSR and EPS growth to be correct.

Information from the stock exchange with the largest trading volume or, in case of doubt, from the stock exchange of the place where the registered office is located will be used to determine the listing price of each share.

If necessary or appropriate for legal, regulatory or similar reasons, the delivery mechanisms described above may be adapted in specific cases without altering the maximum number of shares linked to the plan or the basic conditions to which the delivery is made. Such adaptations may include the substitution of delivery of equivalent amounts in cash for the delivery of shares.

The shares to be delivered may be owned by Santander or by any of its subsidiaries, be newly-issued shares, or be obtained from third parties that have signed agreements to ensure that the commitments made will be met.

B) Savings plan for employees of Abbey and other companies of the Group in the United Kingdom.

The shareholders acting at the General Shareholders’ Meeting held on June 21, 2008 also approved a voluntary savings plan, by decision of Abbey, applicable to employees of Abbey, companies within the Abbey subgroup, companies belonging to Santander in which Abbey has an interest of at least 25% and employees of Santander Cards Limited as of April 21, 2008. The characteristics of this plan are as follows:

Between 5 and 250 pounds Sterling may be deducted each month from the employee’s net salary, as chosen by the employee, who may, at the end of a chosen period (3, 5 or 7 years) choose among collecting the amount contributed, without interest, or exercising options for shares of Banco Santander, S.A. in the amount saved, without interest, at a fixed price. In both cases, a participating employee will receive a tax-exempt bonus from the British Inland Revenue (currently 4%~5% annually), the amount of which may be applied by the employee to the exercise of the options that have been granted. In case of voluntary resignation, the employee will recover the amount contributed to that time, without interest, and will receive a slightly reduced bonus, but will forfeit the right to exercise the options.

The exercise price in pounds Sterling will be the result of reducing by up to 20% the average of the purchase and sale prices at the close of trading in London for the 3 trading days prior to the reference date. In the event that these listing prices are unavailable for any reason, this reduction will be applied to the average price, weighted by average traded volumes on the Spanish Continuous Market for the 15 trading days prior to the reference date. This amount shall be converted into pounds Sterling for each day of listing at the average exchange rate for that day as published in the Financial Times, London edition, on the following day. The reference day shall be set in the final approval by the British Inland Revenue (the “invitation date”) and shall occur between 21 and 41 days following the date of publication of the consolidated results of Banco Santander, S.A. for the first half of 2008.

The employees must decide upon their participation in the plan within the period between 42 and 63 days following the publication of the consolidated results of Banco Santander, S.A. for the first half of 2008.

The maximum monthly savings for all contracts signed by each employee (whether for the plan referred to in this resolution or other future plans) is 250 pounds Sterling.

The maximum number of shares of Banco Santander, S.A. to deliver in this plan that are approved for 2008 is 8,200,000, equal to 0.13% of the share capital as of this date.

The plan is subject to the approval of the British Inland Revenue.

For more information on the resolutions adopted by the Shareholders’ Meeting held on June 21, 2008, see our Form 6-K filed with the Securities and Exchange Commission on June 23, 2008.

144

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:


Name		Date of expiration (1)
Emilio Botín		1^st half 2013
Fernando de Asúa		1^st half 2011
Alfredo Sáenz		1^st half 2011
Matías R. Inciarte		1^st half 2010
Manuel Soto		1^st half 2010
Assicurazioni Generali, S.p.A.		1^st half 2012
Antonio Basagoiti		1^st half 2012
Ana P. Botín		1^st half 2011
Javier Botín		1^st half 2010
Lord Burns		1^st half 2011
Guillermo de la Dehesa		1^st half 2010
Rodrigo Echenique		1^st half 2011
Antonio Escámez		1^st half 2012
Francisco Luzón		1^st half 2012
Abel Matutes		1^st half 2010
Juan R. Inciarte (2)		1^st half 2013
Luis Ángel Rojo		1^st half 2013
Luis Alberto Salazar-Simpson		1^st half 2013
Isabel Tocino		1^st 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.

(2)		The Board of Directors of the Bank, at its meeting of January 28, 2008, agreed to designate Juan R. Inciarte as Director of the Bank. This appointment has been ratified by the shareholders acting at the General Shareholders’ Meeting held on June 21, 2008. At the same meeting the shareholders resolved to re-elect Juan R. Inciarte for a period of 5 years.

The principal terms and conditions of the contracts subscribed 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 institutions, unless prior authorization is obtained from the Board of Directors. In addition, the contracts contain non-compete provisions, prohibiting 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 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 conflict of interests.

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(iii) Remuneration

The remuneration for undertaking their executive responsibilities is compatible with the joint participation in the year’s profits 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 of Directors.

a. Fixed remuneration

The amount of fixed remuneration should be in line with the markets. Under ordinary circumstances, fixed remuneration should represent no more than 50% of combined annual fixed and variable (or bonus) remuneration.

In 2005, 2006 and 2007, the respective percentages were, on average, 38.3%, 34.8% and 33.8%.

b. Annual variable remuneration (or bonus)

The bonus for executive directors is principally linked to achieving a target profit before tax (“PBT”), taking into account market references when the target amount is set. Variable remuneration for executive directors with general management duties within the Group is principally calculated using PBT objectives for the Group as a whole, while remuneration for executive directors with management duties more closely focused on a specific business division will be influenced to a greater extent by the PBT goals for that division. Based on these objectives, the total range of variable remuneration for executive directors is estimated at the beginning of the fiscal year.

c. Pension rights

Similarly, executive directors are entitled to receive a pension supplement upon retirement or early retirement, which may be contracted out by the Bank.

The Bank may request executive directors who reach 50 years of age and who have spent more than 10 years with the Bank and/or other Group companies to take early retirement. Executive directors may also take early retirement upon reaching 55 years of age and who have spent 10 years at the Bank and/or other Group companies. Any decision regarding retirement or early retirement shall, in all cases, be preceded by a 60-day notice period.

Pension rights are also recognized in case of disability and in favor of the spouse (widow) and children (orphans) in case of death of an executive director.

Generally, the amount of the pension supplement consists of the amount necessary to reach an annual gross amount equivalent to 100% of the fixed salary received by the director in question prior to ceasing work, 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 after applying the above standard would be reduced by percentages ranging from 20% to 4% based on the age of the director at the time of early retirement.

On December 17, 2007 and March 24, 2008, 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 accrued pensions -or amounts similar thereto- in the form of income or capital -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 capital by the commitment beneficiary at the date of the retirement must be the aliquot part of the market value of the assets assigned to cover the mathematical provisions to cater 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 whilst still in service and prior to retirement, the capital of the pension will correspond to his/her heirs.

The receipt of pension complements will be incompatible with the rendering of services to institutions which are competitors of the Bank or its Group, unless express authorization is given by the Bank.

146

d. Remuneration linked to the Company’s shares

Lastly, there are also remuneration plans involving the grant of shares, stock options or amounts linked to the performance of the trading price of Santander shares.

Pursuant to law and the Bylaws, the shareholders acting at a General Meeting are empowered to grant remuneration linked to the Bank’s shares, subject to a proposal submitted by the Board of Directors and prior report from the Appointments and Remuneration Committee. Article 28.3 of the Rules and Regulations of the Board provides that only executive Directors may be beneficiaries of remuneration plans involving the grant of shares or rights thereto.

(iv) Termination

The contracts are of indefinite duration. The termination of the relationship because of an executive director’s non-fulfillment of obligations or voluntarily stepping down will not give rise to the right to any economic compensation. If termination occurs for reasons attributable to the Bank or for objective circumstances, such as those which affect the functional and organic statute of the executive director, the director will have, at the termination of the relationship with the Bank, the right to:

	1.		In the case of Emilio Botín, to acquire the status of retiree and to accrue a pension supplement. At December 31, 2007, the annual pension supplement would amount to €1,706,000 (2006: €1,529,000).

	2.		In the cases of Matías R. Inciarte and Francisco Luzón, to acquire the status of early retirees and to accrue pension supplements. At December 31, 2007, the annual pension supplements would amount to €2,146,000 for Matías R. Inciarte and €2,293,000 for Francisco Luzón (2006: €1,916,000 and €1,972,000, respectively; 2005: €1,801,000 and €1,938,000, respectively).

	3.		In the case of Ana P. Botín, to receive a termination benefit amounting to up to five years’ annual fixed salary payments, as established in the related contract, based on the date on which the contract is terminated. At December 31, 2007, this benefit would amount to €3,399,000 (2006: €4,120,000; 2005: €4,000,000). Receipt of this termination benefit would preclude Ms. Botín from receiving a pension supplement.

	4.		In the case of Alfredo Sáenz, to acquire the status of retiree or, alternatively, to receive a termination benefit equal to 40% of his annual fixed salary multiplied by the number of years of service at the Bank, up to a maximum of ten times his annual fixed salary. At December 31, 2007, the amount relating to the first option would be €4,257,000 per year and that relating to the second option would be €31.3 million. The two alternatives are mutually exclusive and, therefore, if Alfredo Sáenz opted to receive the termination benefit, he would not receive any pension supplement (2006: €3,657,000 per year and €27.2 million, respectively; 2005: €3,421,000 per year and €26.4 million, respectively).

	5.		In the case of. Juan R. Inciarte, to acquire the status of special early retiree, early retiree or retiree and to accrue a pension supplement. At December 31, 2007 the annual pension supplement would amount to €930,000.

(v) Insurance

The Bank provides to its executive directors life insurance, included in the column “Other Insurance” in the table of page 129 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.

(vi) Confidentiality and return of documents

There is a rigorous duty of confidentiality during the employment relationship and also after it ends. Upon such ending, all documents and objects related to Bank activity and in the hands of an executive Director must be returned to the Bank.

147

(vii) Other conditions


			By decision of
	Date of current contract	By decision of the	the Director
Advance notice period	(month/day/year)	Bank (months)	(months)
Emilio Botín	01/02/2007	(*)	(*)
Alfredo Sáenz	12/09/1997 and 02/13/2002	4	4
Matías R. Inciarte	10/07/2002	4	4
Ana P. Botín	02/13/2002	4	4
Francisco Luzón	01/12/2004	6	4
Juan R. Inciarte	11/14/2002	4	4


(*)		It is not contractually established.

Compliance with NYSE Listing Standards on 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 the newly approved By-laws establishes that the shareholders at the general shareholders’ meeting must ensure that independent directors represent at least one-third of the total number of directors. Article 5.1 of the Rules and Regulations of the Board of Directors establishes 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 nine independent directors (out of nineteen directors total), as defined in Article 5.4 of the Rules and Regulations of the Board of Directors. 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 5.4 of the Rules and Regulations of the Board of Directors 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 paragraph, 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.

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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 a), e), f) or g) of this paragraph 4. In the event of a kinship relationship set forth in letter g), 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”.

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.

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 5.4 of the Rules and Regulations of the Board of Directors. 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 U.S. companies listed on the NYSE must have a compensation committee and a nominations 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 composition of the Appointments and Remuneration Committee is described under "—Audit and Compliance Committee and Appointments and Remuneration Committee”.

During the fiscal year 2007, 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.

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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.

Code of Ethics

Under the NYSE corporate governance rules, all U.S. 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.

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, 2007, 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”.

Audit and Compliance Committee and Appointments and Remuneration Committee

An Audit and Compliance Committee and 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 5.4 of the Rules and Regulations of the Board). The Appointments and Remuneration Committee consists of 5 external directors (4 of whom are independent in accordance with the principles set forth in Article 5.4 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 accounts and compliance. 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.

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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.

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 internal audit services, and particularly:

(i) Proposing the selection, appointment and withdrawal of the party responsible for internal audit;

(ii) Reviewing the annual working plan for internal audit and the annual activities report;

(iii) Ensuring the independence and effectiveness of the internal audit function;

(iv) Proposing the budget for this service;

(v) Receiving periodic information regarding the activities thereof; and

(vi) Verifying 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.

(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 these Rules of Procedure.

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 causing it.

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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 the reports issued or the inspection proceedings carried out by the 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 claims received by the Bank on matters related to the process for 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 of Directors prior to the approval thereof by the Board of Directors.

o) Evaluate, at least one a year, its operation and the quality of its work.

p) And the others specifically provided for in the Rules and Regulations of the Board of Directors.

The Group’s 2007 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.

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 and 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 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, by following standards of objectiveness and conformance to the corporate interests, the proposals for appointment, re-election and ratification of directors provided for in Article 20, section 2 of 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, by following the same aforementioned standards, 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 Annual 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.

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f) Propose to the Board:

(i) The policy for compensation of directors and the corresponding report, upon the terms of Article 27 of the Rules and Regulations of the Board.

(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.

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 in Article 30 of 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 Appointments and Remuneration Committee issued a report which was distributed together with the Group’s 2007 annual report and which comprised a detailed account of the following points:

	•		The Committee’s regulation, duties, composition and attendance at its meetings in 2007 and operation.

	•		Report on the remuneration policy for directors.

	•		Report on the activities of the Appointment and Remuneration Committee.

	•		Changes in the composition of the Board and its Committees.

	•		Annual verification of the status of the directors.

	•		Participation in the Board’s self-assessment process.

	•		Adjustment to the Unified Code. Amendments to internal rules and regulations.

	•		Appointment and remuneration of the members of Senior Management who are not directors.

	•		New benefit policy for Bank’s Executives.

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	•		Training.

	•		Civil liability insurance.

	•		Related-party transactions.

	•		Institutional documentation.

	•		Self-assessment.

•

Conclusion.

The Group’s 2007 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.

Finally, one of the most important amendments made by the newly approved By-laws is the inclusion of the Article 54 regarding the functioning and responsibilities of the already existing Appointments Remuneration Committee, which was formerly regulated only by Article 16 of the Rules and Regulations of the Board of Directors.

The new By-laws are included in Exhibit 1.2.

D. Employees

At December 31, 2007, we had 131,819 employees (as compared to 129,749 employees in 2006 and 129,196 in 2005) of which 36,558 were employed in Spain (as compared to 35,781 in 2006 and 34,813 in 2005) and 95,261 were employed outside Spain (as compared to 93,968 in 2006 and 94,383 in 2005), of which 17,043 in the United Kingdom (as compared to 16,942 in 2006 and 21,080 in 2005). The terms and conditions of employment in the private sector 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.

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The table below shows our employees by geographic area:


	Number of employees
	2007		2006 (*)		2005 (*)
SPAIN		36,558		35,781		34,813

LATIN AMERICA		64,899		65,967		62,161
Argentina		6,621		6,566		5,975
Bolivia		—		—		328
Brazil		21,876		21,599		20,489
Chile		13,025		12,533		11,408
Colombia		1,312		1,893		1,730
Mexico		14,053		15,820		14,562
Peru		43		29		1,492
Puerto Rico		2,227		2,249		1,611
Uruguay		302		304		251
Venezuela		5,439		4,974		4,315

EUROPE		28,060		27,171		31,474
Czech Republic		195		179		192
Germany		1,846		1,845		1,875
Belgium		12		11		27
Finland		29		—		—
France		32		18		17
Greece		20		—		—
Hungary		90		77		76
Ireland		4		5		5
Italy		798		780		720
Norway		330		285		269
Poland		638		588		646
Portugal		6,759		6,190		6,317
Slovakia		10		—		—
Switzerland		203		194		188
The Netherlands		51		57		62
United Kingdom		17,043		16,942		21,080

USA		1,978		734		649

ASIA		17		11		11
Hong Kong		13		7		7
Japan		4		4		4

OTHERS		307		85		88
Bahamas		56		57		65
Others		251		28		23

Total		131,819		129,749		129,196


(*)		Figures for 2006 and 2005 differ from those presented in our Annual Report. In the Annual Report, for comparison purposes, we do not include employees working for the companies that were discontinued during 2007 and 2006, such as our Latin American pension management companies or Abbey’s life insurance business. In this Annual Report on Form 20-F we include the total number of employees at those dates.

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
	2007		2006		2005
Retail Banking		126,119		119,346		117,655
Asset Management and Insurance		1,585		7,132		7,902
Global Wholesale Banking		2,589		1,774		2,177
Financial Management and Equity Stakes		1,526		1,498		1,462

Total		131,819		129,749		129,196

As of December 31, 2007, we had 1,754 temporary employees (as compared to 3,159 as of December 31, 2006 and 3,795 as of December 31, 2005). In 2007, the average number of temporary employees working for the Group was 2,690 employees.

E. Share ownership

As of June 25, 2008, the direct, indirect and represented holdings of our current Directors were as follows:


	Direct		Indirect stake				% of
Directors	Stake		and represented		Total shares		Capital stock
Emilio Botín (1)		2,196,518		134,992,890		137,189,408		2.500	%
Fernando de Asúa		26,806		44,500		71,306		0.001	%
Alfredo Sáenz		402,487		1,243,532		1,646,019		0.026	%
Matías R. Inciarte (3)		643,713		126,744		770,457		0.012	%
Manuel Soto		45,000		235,000		280,000		0.004	%
Assicurazioni Generali S.p.A		9,805,471		62,828,343		72,633,814		1.161	%
Antonio Basagoiti		640,000		—		640,000		0.010	%
Ana P. Botín (1)		4,991,033		4,024,306		9,015,339		0.000	%
Javier Botín (1) (2)		4,793,481		5,350,000		10,143,481		0.000	%
Lord Burns (Terence)		100		27,001		27,101		0.000	%
Guillermo de la Dehesa		100		—		100		0.000	%
Rodrigo Echenique		651,598		7,344		658,942		0.011	%
Antonio Escámez		559,508		—		559,508		0.009	%
Francisco Luzón		144,685		1,298,544		1,443,229		0.023	%
Abel Matutes		99,809		2,080,150		2,179,959		0.035	%
Juan R. Inciarte		1,011,357		—		1,011,357		0.016	%
Luis Ángel Rojo		1		—		1		0.000	%
Luis Alberto Salazar-Simpson		131,312		4,464		135,776		0.002	%
Isabel Tocino		6,495		—		6,495		0.000	%

		26,149,474		212,262,818		238,412,292		3.812	%


(1)		Emilio Botín has attributed the right of vote in a General Shareholders’ Meeting of 90,715,628 shares (1.45% of the capital stock) held by the Marcelino Botín Foundation, of 8,096,742 shares held by Jaime Botín, of 96,047 shares held by Paloma O’Shea, of 9,041,480 shares held by Emilio Botín O., of 9,001,559 shares held by Ana P. Botín and of 11,093,481 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 the capital these shareholdings are calculated together with those that belong or are also represented by Emilio Botín.

(2)		Javier Botín is a proprietary Director as he represents in the Board of Directors a 2.506% 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 61,444 shares owned by two of his children.

The options granted to the Bank’s Directors, managers and employees are described in the table under “—B. Compensation” above.

Santander’s capital is comprised of only one class of shares, all of which are ordinary and have the same rights.

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As of June 23, 2008 our current Executive Officers (not directors) referred to above under Section A of this Item 6 as a group beneficially owned, directly or indirectly, 3,875,987 ordinary shares, or 0.06% 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, 2007, to our knowledge no person beneficially owned, directly or indirectly, 5% or more of our shares.

At December 31, 2007 a total of 898,777,790 shares, or 14.37% of our share capital, were held by 796 registered holders with registered addresses in the United States and Puerto Rico, including JPMorgan Chase, as depositary of our American Depositary Share Program. These shares were held by 2,206 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, 2007.

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 relevant document both with the mentioned supervisory body 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 exercising 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 (0.710% of its share capital). 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, 2007, another 19,875,320 shares (0.318% of the Bank’s share capital) 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 in favor of other members of the syndicate or the Marcelino Botín Foundation, the prior authorization of the syndicate is required and it can freely authorize or deny any proposed transfer.

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B. Related party transactions

Loans made to members of our Board of Directors and to our Executive Officers

Our direct risk exposure to the Bank’s Directors as of December 31, 2007, equaled €1.2 million (€1.5 million as of December 31, 2006) of loans and credits to such Directors and €0.01 million (€0.1 as of December 31, 2006) of guarantees provided to them.

The detail by Director as of December 31, 2007, is as follows:


	In thousands of euros
	Loans and
	Credits		Guarantees		Total
Alfredo Sáenz		6		—		6
Matías R. Inciarte		18		10		28
Manuel Soto		4		—		4
Antonio Basagoiti		94		1		95
Rodrigo Echenique		7		—		7
Antonio Escámez		309		—		309
Francisco Luzón		722		—		722

		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, 2007, amounted to €14 million (see Note 55 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 the above-mentioned, 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.

As of December 31, 2007 our loans and credits to associated and jointly controlled entities, amounted to €262 million. Those loans and credits represented 0.05% of our total net loans and credits and 0.5% of our total stockholders’ equity as of December 31, 2007.

For more information, see Notes 3 and 55 to our consolidated financial statements.

C. Interests of experts and counsel

Not Applicable.

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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, 2007, 2006 and 2005		F-2

Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005		F-3

Notes to the Consolidated Financial Statements		F-7

Legal Proceedings

i. Tax disputes

As of the date hereof, the main tax disputes concerning the Group are as follows:

• The “Mandado de Segurança” filed by Banco Santander Banespa, S.A. claiming its right to pay the Brazilian social contribution tax on net income at a rate of 8%. On January 14, 2008, an unfavorable judgment was handed down against Banespa by the Federal Regional Court, against which the directors of Banco Santander S.A. (Brazil) filed, on June 9, 2008, an appeal at a higher court.

• The “Mandado de Segurança” filed by Banco Santander Banespa, S.A. claiming its right to consider the social contribution tax on net income as deductible in the calculation of Brazilian corporation tax. This action was declared unwarranted and an appeal was filed at the Federal Regional Court, requesting to have the claimability of the tax credit stayed and obtaining permission to deposit with the courts the disputed amounts. On October 1, 2007, an unfavorable judgment was handed down by the Federal Regional Court, which was appealed by Banco Santander S.A. (Brazil) through the presentation of “Embargos de Declaraçao” on October 8, 2007.On March 6, 2008, the Federal Regional Court dismissed the “Embargos de Declaraçao”, and rejected an appeal filed subsequently. The directors of Banco Santander S.A. (Brazil) intend to file an appeal at a higher court.

• The “Mandado 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. The “Mandado de Segurança” was declared unwarranted and an appeal was filed at the Federal Regional Court. On 13 September 2007, this Court handed down a favorable judgment. Unión Federal has filed an appeal against this judgment at a higher court.

• 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.

ii. Legal litigation

As of the date hereof, the principal legal litigation proceeding concerning the Group is as follows:

• In 1997 Casa de Bolsa Santander, S.A. de C.V. Grupo Financiero Santander (“Casa de Bolsa”) was sued for an alleged breach of various stock brokerage contracts. On July 6, 1999, Civil Court number thirty-one of the Federal District handed down a judgment ordering Casa de Bolsa to return to the plaintiff 2,401,588 shares of México 1 and 11,219,730 shares of México 4 at their market value and to pay MXP 15 million, plus interest calculated at the average percentage borrowing cost (C.P.P.) multiplied by four.

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After numerous appeals were filed concerning the method used for calculating this interest, a final judgment was handed down ruling that the interest should not be capitalized.

Following this judgment, the amount owed was paid in full and there are currently no claims outstanding in this connection.

• 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 EUR 30.05 million of a capital increase of the plaintiff.

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.

The Bank has filed extraordinary appeals on grounds of procedural infringements and an extraordinary cassation appeal against this decision.

• Galesa de Promociones, S.A.: small claims proceeding at Elche Court of First Instance no. 4 (case no. 419/1994), in connection with the claim filed by Galesa de Promociones, S.A. (Galesa) requesting the Court to annul a previous legal foreclosure proceeding brought by the Bank against the plaintiff in 1992, which culminated in the foreclosure of certain properties that were subsequently sold by auction.

The judgments handed down at first and second instance were in the Bank’s favor. The cassation appeal filed by Galesa at the Supreme Court was upheld by virtue of a decision on 24 November 2004 which ordered the reversal of the legal foreclosure proceeding to before the date on which the auctions were held. On June 8, 2006, Galesa filed a claim for the enforcement of the decision handed down by the Supreme Court, requesting that the Bank be ordered to pay EUR 56 million, the estimated value of the properties, plus a further EUR 33 million for loss of profit. The Bank challenged this claim on the grounds that the Supreme Court decision could not be enforced -since no order had been pronounced against the Bank, but rather a proceeding had merely been annulled- and it also argued that the damages requested would have to be ruled upon by an express court decision, which had not been pronounced.

The Elche Court of First Instance, by virtue of an order dated September 18, 2006, found in favor of the Bank, and referred the plaintiff to the appropriate ordinary proceeding for the valuation of the aforementioned damages.

Galesa filed an appeal for reconsideration, which was dismissed by a resolution on November 11, 2006. Galesa filed an appeal against this resolution at the Alicante Provincial Appellate Court. This appeal was in turn contested by the Bank and a favorable judgment was handed down.

• Declaratory large claims action brought at Madrid Court of First Instance no. 19 (case 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 plaintiff 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 EUR 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 EUR 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, revoking the ruling issued at first instance and dismissing the appeal filed by Inversión Hogar, S.A. Inversión Hogar, S.A. has announced that, on completion of the clarification procedure, it has filed a cassation appeal and an extraordinary appeal on grounds of procedural infringements against the aforementioned decision at the Civil Chamber of the Supreme Court.

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• Complaint in an ordinary proceeding filed by Inés Arias Domínguez and a 17 other persons against Santander Investment, S.A. at Madrid Court of First Instance no. 13 (case no. 928/2007), seeking damages of approximately EUR 43 million, plus interest and costs. The plaintiffs, 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 plaintiffs, the purpose of which was the sale of shares owned by the plaintiffs to another company called Invercámara, S.A.

This complaint was duly contested by Santander Investment, S.A. on November 5, 2007. The hearing to be held prior to the court proceeding will not take place until it is decided upon an appeal filed by the Bank.

• On February 6, 2008, Banco Santander, S.A. filed with the Spanish Arbitral Court (Secretaria de la Corte Española de Arbitraje) a request for arbirtal proceedings seeking a payment of €66,418,077.27 from GAESCO BOLSA, SOCIEDAD DE VALORES, S.A. (“GAESCO”), a Spanish brokerage firm. GAESCO owes such amount to Banco Santander, S.A. as a result of the early termination of a framework agreement for financial transactions entered by GAESCO and the Bank and of the financial transactions undertaken under such agreement. The arbitral ruling is pending.

See the discussion of certain litigation in Note 1.d.i and ii to our consolidated financial statements.

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.

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
2002		0.0775		0.07513		0.07513		0.06073		0.2885		0.0754		0.0612		0.0804		0.0680		0.2850
2003		0.0775		0.0775		0.0775		0.0704		0.3029		0.08602		0.0899		0.0842		0.08801		0.36235
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

On August 1, 2008, we will pay the first dividend on account of the earnings for the 2008 financial year for a gross amount of €0.135234 per share.

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,

Previous Spanish GAAP

EU-IFRS (*)

2003

2004 (**)

2004

2005

2006

2007

(in thousands of euros)

1,445,033

1,837,424

1,935,992

2,605,009

3,256,190

4,070,247


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

(**)		Statutory Distributable Profits

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 preference 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, 2007, see our Form 6-K relating to our first quarter 2008 results filed with the Securities and Exchange Commission on April 30, 2008.

Item 9. The Offer and Listing.

A. Offer and listing details

Market Price and Volume Information

Santander’s Shares

During 2007, our shares were the shares with the highest trading volume on the Spanish stock exchanges. At December 31, 2007, our shares represented 17.53% of the IBEX 35 Stock Exchange Index, the second highest percentage among all Spanish issuers represented in this index. Our market capitalization of €92,501 million at 2007 year-end was the second largest of any Spanish company, according to information published by the Sociedad de Bolsas, S.A. (“Sociedad de Bolsas”).

At December 31, 2007, we had 2,278,321 registered holders of our shares and, as of such date, a total of 898,777,790 of our shares or 14.37% were held by 796 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. In 2001, we delisted our shares from the Tokyo Stock Exchange and in 2003 we delisted our shares from the London, Paris, Frankfurt and Swiss Exchanges. At December 31, 2007, 62.4% 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
2003 Annual		9.44		5.01		9.39

2004 Annual		9.77		7.70		9.13

2005 Annual		11.18		8.92		11.15

2006 Annual		14.37		10.54		14.14
First Quarter		12.40		11.00		12.05
Second Quarter		12.29		10.54		11.42
Third Quarter		12.49		11.00		12.47
Fourth Quarter		14.37		12.38		14.14

2007 Annual		15.00		12.56		14.79
First Quarter		14.65		12.83		13.36
Second Quarter		14.50		13.06		13.69
Third Quarter		14.34		12.56		13.63
Fourth Quarter		15.00		13.64		14.79

Last six months
2007
December		15.00		14.35		14.79
2008
January		14.59		11.27		11.83
February		12.32		11.35		11.93
March		12.76		11.17		12.62
April		13.85		12.73		13.85
May		14.22		13.08		13.39
June (through June 19, 2008)		13.08		12.02		12.02

On June 19, 2008, the reported last sale price of our shares on the continuous market was €12.02.

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, 2007, a total of 155,335,794 of our ADSs were held by 2,206 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.

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
2003 Annual		12.01		5.68		12.01
2004 Annual		12.47		9.43		12.37
2005 Annual		13.27		11.37		13.19

2006
Annual		18.73		13.16		18.66
First Quarter		14.79		13.30		14.61
Second Quarter		15.62		13.16		14.62
Third Quarter		15.88		13.81		15.79
Fourth Quarter		18.73		15.83		18.66

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	Dollars Per ADS
	High		Low		Last

2007
Annual		22.14		17.29		21.54
First Quarter		19.34		17.29		17.83
Second Quarter		19.46		17.67		18.38
Third Quarter		19.79		17.38		19.31
Fourth Quarter		22.14		19.24		21.54

Last six months
2007
December		22.14		20.51		21.54
2008
January		21.35		17.21		17.52
February		18.63		16.52		17.78
March		19.94		17.19		19.94
April		21.73		20.15		21.09
May		22.22		20.66		20.90
June (through June 19, 2008)	20.39		18.70		18.84

On June 19, 2008, the reported last sale price of our ADSs on the New York Stock Exchange was $18.84.

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, 2007, the Automated Quotation System accounted for the majority of the total trading volume of equity securities on the Spanish Stock Exchanges.

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.

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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.

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.

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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.

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 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.

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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 (see “Item 4. Information on the Company—B. Business Overview—Supervision and Regulation—Recent Legislation”).

Law 36/2006 (November 30), relating to measures to prevent the tax fraud, among others, amends article 108 of the Securities Market Law.

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 21 April 2004 on takeover bids and Directive 2004/109/EC of the European Parliament and of the Council of 15 December 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.

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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.

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 of such purchases (referred to as “treasury stock” or “autocartera”) and the shares previously held by the company and its subsidiaries does not exceed 5% of the total 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) the acquiring company and its parent may create reserves equal to the book value of the parent company’s stock included in its assets.

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 2007, 11.25% of the volume traded of the shares was effected not as principal by Santander Investment Bolsa, S.V., S.A. and 2.75% 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 5.7% in the same period. The monthly average percentage of outstanding shares held by our subsidiaries ranged from 0.06% to 0.39% in 2007. Our subsidiaries held 212,822 of our shares (0.003% of our total capital stock) at December 31, 2007.

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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.

Our shareholders acting at the General Shareholders’ Meeting held on June 21, 2008 approved, under item six of the agenda, new By-laws for Banco Santander, S.A., and abrogated the existing ones. The description set forth below reflects the new By-laws, which will become effective upon the granting of the necessary authorization from the Spanish Minister of Economy and Finance. The new By-laws will subsequently be filed with the office of the Mercantile Registry. We expect this filing to occur during the third quarter of 2008.

The amendment of the By-laws has three basic purposes: (i) to set out in the By-laws the basic principles that incorporate the most recent corporate governance recommendations for listed companies and, particularly, those of the Unified Good Governance Code approved by resolution of the Board of the Spanish National Securities Market Commission (Consejo de la Comisión Nacional del Mercado de Valores) on May 22, 2006, many of which were already included in the Rules and Regulations of the Board of Directors and in the Rules and Regulations for the General Shareholders’ Meeting; (ii) to include in the By-laws certain mechanisms which are necessary to give the Bank more flexible organization and management procedures, with a view to facilitating operations of potential interest and to incorporate technological developments; and (iii) to update and improve the text of the current By-laws, by supplementing and clarifying regulations on some matters.

Exhibit 15.2 to this Annual Report on Form 20-F contains the report submitted by the Board of Directors to the General Shareholders’ Meeting for purposes of compliance with the provisions of Section 144.1 a) of the Business Corporations Law (Ley de Sociedades Anónimas), in order to provide the rationale for the proposal of amendment of the By-laws of Banco Santander, S.A.

The new By-laws are included in Exhibit 1.2 and are still pending authorization from the Spanish Minister of Economy and Finance and subsequent registration in the office of the Mercantile Registry of Santander.

For more information on the resolutions adopted by the Shareholders’ Meeting held on June 21, 2008, see our Form 6-K filed with the Securities and Exchange Commission on June 23, 2008.

General

As of December 31, 2007, the Bank’s share capital was €3,127,148,289.50, represented by a single class of 6,254,296,579 book-entry Santander shares with a nominal value of €0.50 each. Since that date, our share capital has not changed. 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.

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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.

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 stockholders 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 21, 2008 and our last extraordinary general meeting of shareholders was held on July 27, 2007.

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.

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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 General 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 General Meetings held on June 18, 2005, June 17, 2006, June 23, 2007 and June 21, 2008, and in the Extraordinary General Shareholders’ Meeting of October 23, 2006 and July 27, 2007 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.

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;

	•		transformation of Santander (change in corporate nature);

	•		merger, split or spin-off;

	•		any other amendment of our By-laws; and

	•		dissolution.

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.

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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.

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 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 unappropriate reserves, after the payments required by the law and the By-laws have been made, provided that the shareholders’ 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 shareholders’ 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 Board of Directors is entitled to distribute sums for future dividends; these distributions must be eventually approved by the general meeting.

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.

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.

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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. 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 participation (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, advance notice must be given to the Bank of Spain of any increase, direct or indirect, in any significant participation at each of the following levels of ownership: 10%; 15%; 20%; 25%; 33%; 40%; 50%; 66% and 75%. 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 three months 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 three months 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 participation, 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 stock capital that exceeds the above-mentioned percentages. In addition, credit entities are required to provide periodic reports to the Bank of Spain describing the composition of and significant alterations to the ownership of the capital stock of the credit entity. This information must also provide the level of ownership, regardless of the amount, of any other financial entities in the capital stock of the credit entity.

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.

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. Furthermore, banks are required to inform the Bank of Spain as soon as they become aware, and in any case not later than in 15 days after, of each acquisition by a person or a group of at least 1% of such a bank’s total equity.

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 securites 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 three percent or any multiple of five percent, of the capital stock 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 ratio 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. The above mentioned threshold percentage will be 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 addition, any Spanish company listed on a stock exchange 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, 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 at the time of 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.

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, the Board shall endeavor to ensure that the external or non-executive Directors represent a wide majority over the executive Directors and that in all events, the Board of Directors shall endeavor the number of independent directors to represent at least one-third of all directors.

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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 6. Directors, Senior Management and Employees—C. Board practices—Compliance with NYSE Listing Standards on 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 new 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.

The Board of Directors may pass resolutions in order to establish the amount of each payment of any capital call with respect to partially paid-in shares. The Board will also establish the period within which the payments must be made and other details, all of which must be published in the “Boletín Oficial del Registro Mercantil” (the Official Gazette of the Mercantile Register). Any delays in the payment of capital calls will bear interest starting from the day when the payment is due and without the need for any judicial or extra-judicial summons. We will also be able to take any action authorized by law to collect such sums.

Our new 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 amount 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).

Article 28.3 of the Rules and Regulations of the Board of Directors states that only executive directors can benefit from remuneration systems involving delivery of shares or rights on them.

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.

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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.

Subject to legal limitations, any person will be eligible to serve as a director of Santander without having to be a shareholder of the Bank.

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—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, 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, 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.

E. Taxation

The following is a discussion of the material Spanish and U.S. federal income tax consequences to you of the ownership and disposition of the ADSs or shares.

The discussion of Spanish tax consequences below applies to you only if you are a non-resident of Spain and ownership of ADSs or shares is not effectively connected with a permanent establishment or fiscal base in Spain and only to U.S. residents entitled to the benefits of the Convention Between the United States 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”).

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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 18% rate since January 1, 2007. Prior to this date the rate was 15% which is also the rate to which you may be entitled to under the Treaty.

In addition, according to Spanish Non Resident Income Tax Law, if you are resident in the European Union or at a country with which there is an effective exchange of information for tax purposes as defined in Spanish Law 36/2006 and 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.

We will levy an initial withholding tax on the gross amount of dividends at an 18% tax rate, following the procedures set forth by the Order of April 13, 2000. However, under the Spanish-U.S. income tax treaty and subject to the fulfillment of certain requirements, you may be entitled to a reduced rate of 15%.

To benefit from the Spanish-U.S. income tax treaty reduced rate of 15%, you must provide our depositary, JP Morgan 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 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 us with the required documentation, you may obtain a refund of the 3% 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 U.S. resident entitled to the benefits of the Treaty, you are required to file all of the following:

	•		a Spanish 210 Form,

	•		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 advisor regarding refund procedures and any U.S. 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. For Spanish tax purposes, income obtained by you if you are a U.S. resident from the sale of ADSs or shares will be treated as capital gains. As of January 1, 2007, Spanish non-resident income tax is currently levied at an 18% tax rate on capital gains obtained 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 January 1, 2007 the rate was 35%.

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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 at 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. If such a view were to prevail, non-residents of Spain who held shares or ADSs on the last day of any year would be subject to the Spanish wealth tax for such year at marginal rates varying between 0.2% and 2.5% of the average market value of such shares or ADSs during the last quarter of such year.

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 in 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 18% tax rate on the fair market value of the shares as a capital gain. Prior to January 1, 2007 the rate was 35%. 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 transfer tax or value-added tax. Additionally, no stamp tax will be levied on such transfers.

U.S. Tax Considerations

The following summary describes the material U.S. 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 U.S. 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 or foreign currencies;

	•		holders holding ADSs or shares as part of a hedge, “straddle”, conversion transaction or integrated transaction;

	•		holders whose “functional currency” is not the U.S. dollar;

	•		holders liable for alternative minimum tax;

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	•		tax exempt organizations;

	•		partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

	•		holders that own 10% or more of our voting shares; or

	•		persons who acquired our ADSs or shares pursuant to the exercise of any employee stock option or otherwise as compensation.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Partnerships holding shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding 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, 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. U.S. Holders are urged to consult their own tax advisers as to the U.S., Spanish or other tax consequences of the acquisition, ownership and disposition of ADSs or shares in their particular circumstances.

As used herein, a “U.S. Holder” is a beneficial owner of ADSs or shares that is, for U.S. federal income tax purposes:

(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 U.S. federal income taxation regardless of its source.

In general, for U.S. federal income tax purposes, U.S. Holders of ADSs will be treated as the holders of the underlying shares represented by those ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.

The U.S. Treasury has expressed concerns that parties to whom American Depositary Receipts are released before delivery of shares to the depositary (“pre-release”), or intermediaries in the chain of ownership between U.S. holders and the issuer of the security underlying the American Depositary Receipts may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of American Depositary Receipts. 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 U.S. federal income tax principles), distributions, including 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 U.S. Holder as foreign source ordinary dividend income. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. These dividends 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 U.S. dollar value of the euros received, calculated by reference to the exchange rate in effect on the date that distribution is received (which, for U.S. Holders of ADSs, will be the date that distribution is received by the Depositary), whether or not the Depositary or U.S. Holder in fact converts any euros received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Any gains or losses resulting from the conversion of euros into U.S. dollars will be treated as ordinary income or loss, as the case may be, of the U.S. Holder and will be U.S. source.

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Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, under current law, dividends paid to certain non-corporate U.S. holders in taxable years beginning before January 1, 2011 will be taxed at 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. The amount of dividend will include any amounts withheld by us or our paying agent in respect of Spanish taxes.

Subject to certain generally applicable limitations that may vary depending upon your circumstances and subject to the discussion above regarding concerns expressed by the U.S. Treasury, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability for Spanish withholding taxes at the rate provided by the Treaty. The limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. Instead of claiming a credit, a U.S. Holder may, at its election, deduct such otherwise creditable Spanish taxes in computing taxable income, subject to generally applicable limitations under U.S. law.

A U.S. 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, U.S. 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.

Sale and Other Disposition of ADSs or Shares

Subject to the discussion of the passive foreign investment company rules below, gain or loss realized by a U.S. Holder on the sale or exchange of ADSs or shares will be subject to U.S. federal income tax as capital gain or loss (and will be long-term capital gain or loss if the U.S. Holder held the shares or ADSs for more than one year) in an amount equal to the difference between the U.S. Holder’s tax basis in the ADSs or shares and the amount realized on the disposition in each case as determined in U.S. dollars. Gain or loss, if any, will be U.S. source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations. Long-term capital gain of a non-corporate U.S. 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 U.S. federal income tax purposes for the taxable year 2007. However, since our PFIC status depends upon the composition of our income and assets and the market value of our assets (including, among others, less than 25 percent 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 considered a PFIC for any taxable year.

If we are treated as a PFIC for any taxable year, any gain recognized by a U.S. Holder on a sale or other disposition of ADSs or shares would be allocated ratably over the U.S. 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, and an interest charge would be imposed on the amount allocated to such taxable years. Further, any distribution in respect of ADSs or ordinary shares in excess of 125 percent of the average of the annual distributions on ADSs or ordinary shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available (including a mark to market election) to U.S. persons that may mitigate the adverse consequences resulting from PFIC status.

In addition, if we were to be treated as 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.

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Information Reporting and Backup Withholding

Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding unless (i) you are a corporation or other exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

F. Dividends and paying agents

Not Applicable.

G. Statement by experts

Not Applicable.

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.

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 in the following eight parts:

	•		Organization of Risk Management;

	•		Credit Risk;

	•		Operational Risk;

	•		Basel II Corporate project;

	•		Economic Capital;

	•		Reputational Risk;

	•		Risk Training Activities; and

	•		Market Risk.

For us, quality management of risk is one of our hallmarks and thus a priority in our activity. Throughout its 150 years, Santander has combined prudence in risk management with use of advanced risk management techniques, which have been proven to be decisive in generating recurrent and balanced earnings and, in short, the creation of shareholder value.

The importance attached to the quality of risk is a hallmark of our corporate culture and management style.

The turmoil affecting financial markets since July 2007 has put the effectiveness of Santander’s risk management policies to the test. Applying these policies has resulted in a very limited exposure to the instruments and operations that are most affected by the ongoing financial crisis. Grupo Santander has zero risk in the subprime segment of mortgages and little activity in structured products. Its exposure to hedge funds, asset-backed securities, monolines, conduits, and so forth is also very limited. In conclusion, Santander’s risk management policy has meant there has been no negative impact on the Group’s results related to these types of risks.

In this complicated environment, the Group’s management of structural liquidity has been conducted with the utmost care. In the same way, the turmoil and the increasing complexity of financial instruments make it necessary to continuously strengthen the efforts regarding analysis and monitoring control of operations in the financial markets, thereby enhancing the demanding principles of risk which the Group has been regularly applying.

Our risk management is based on the following principles:

•

Autonomy in each business area. Matías R. Inciarte, the Group’s third Vice-Chairman and Chairman of the Board’s Risk Committee, reports directly to the Executive Committee and to the Board.

•

Support for business, without eroding the principle of independence, in achieving commercial goals by maintaining the quality of risk. Consequently, the organizational structure is adapted to the commercial structure and business and risk managers cooperate.

•

Collective decisions (including at the branch) which ensures different opinions and does not make results dependent on decisions by individuals.

•

Longstanding tradition of using tools for internal rating and scoring, such as return on risk adjusted capital (“RORAC”), Value at Risk (“VaR”), economic capital, analysis of extreme scenarios, and so forth.

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	•		Global focus, through integral treatment of all risk factors in all business units and using economic capital as the homogeneous metric of the risk assumed and the basis for measuring management.

	•		Desire to maintain medium-low risk profiles as a target, accentuating their low volatility and predictable nature through:

	•		the search for a high degree of diversification of risk, limiting concentrations in customers, groups, sectors, products and geographic areas;

	•		maintaining a low degree of complexity in market activity;

	•		continuous tracking of risks to prevent sufficiently far ahead possible deterioration of portfolios.

			Our risk management and control is structured around the following phases:

	•		Risk policies are set that reflect Santander’s risk management principles.

	•		Risks are identified by continually reviewing and monitoring exposures, assessing new products and analyzing particular operations.

	•		Risks are measured using methodologies and models that have been widely tested and proven.

	•		The Group’s appetite for risk is quantified by setting global and specific limits for different types of risks, products, customers, groups, sectors and geographic areas.

	•		A complete series of reports is drawn up and distributed, which are reviewed on a daily basis by those responsible for the management of Santander at all levels.

	•		A system of risk control is executed, which verifies every day the extent to which Santander’s risk profile is in line with the approved risk policies and established limits.

We have been using a series of techniques and tools for many years. The techniques and tools that Santander implemented ahead of time and in line with BIS II are:

	•		Internal qualitative and quantitative ratings and scorings, with valuation of the different components which, by client and facility, enable the probability of failure to be estimated and then the expected loss on the basis of historical data.

	•		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.

	•		Stress testing to complement the analysis of market and credit risk, in order to assess the impact of alternative scenarios, including on provisions and capital.

For these reasons, Santander fully identifies with BIS II, as it recognizes from the regulatory sphere the banking industry’s most advanced practices, which Santander has been anticipating. The entry into effect of the Capital Accord will enable Santander to reflect its strength in this field and enable the Advanced Internal Ratings Based (AIRB) approaches in global management of the Group to be quickly applied.

As the entry into force of the new BIS II regulatory framework was on the horizon, 2007 was characterized by reviews conducted by the Bank of Spain and the Financial Services Authority (FSA) of the AIRB models of Santander, Banesto and Abbey, whose portfolios account for around 70% of the Group’s total exposure. The publication on June 10, 2008 of Bank of Spain’s Circular 3/2008 makes it possible to use these internal models for determining regulatory capital. Given the medium-low risk profile of our businesses, very focused on retail banking (SMEs and individual customers), Bank of Spain authorization is expected to generate significant capital savings in Pillar I, which establishes the capital requirements for covering credit, market and operational risks. The global savings which will materialize for Santander from implementing Basel II will depend on the result of the Capital Self-assessment Proposal (which develops Pillar II), in which the impact of the risks considered in Pillar II is taken into account as well as the benefits related to diversification by risks, businesses and geographic areas.

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We will continue to make the necessary efforts in human and technological resources to be able to satisfy the demanding requirements of the new capital agreement in a reasonable period, with a clear commitment to continue dedicating the necessary resources for its continuation in the security of the beneficial results it will bring.

Part 1. Organization of 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 (operational, technological, financial, legal and reputational, among others) facing the Bank;

	•		The internal information and control systems used to control and manage these risks;

	•		Set 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 our actions are consistent with the previously decided risk tolerance level.

	•		Resolve operations beyond the powers delegated to bodies immediately below, 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 in Risk Committees which are structured by geographic area, business and types of risk. Banesto, which is autonomously managed within Grupo Santander, manages its risks in coordination with the Group’s policies as defined in the Executive Committee.

The Board’s Risk Committee is headed by Grupo Santander’s third Vice-Chairman and has a minimum of four and a maximum of six members of the Board. It usually meets twice a week.

The principal types of risk facing the Group are credit, market, operational and reputational.

Part 2. Credit Risk

Credit risk is the possibility of financial losses stemming from the failure of our clients or counterparties to meet their financial obligations to us.

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, 2007.

Spain accounts for 50% of the nominal credit risk exposure, similar to the figure in 2006 (+16% in absolute terms). The sharp rise in customer business in Spain (+12% in the balance sheet) was accompanied by a decrease in the portfolio of sovereign fixed income. Of particular note in the rest of Europe, which represents more than one-third of the Group’s credit exposure, was the presence in the UK, via Abbey (22% of the exposure). Overall, Europe represents 84% of our credit exposure.

Latin America contributed 15% of our credit exposure, also similar to 2006. Investment-grade countries accounted for more than half of the exposure in the region, while countries with a lower rating only accounted for 5% of the Group’s exposure.

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GRUPO SANTANDER. GROSS EXPOSURE TO CREDIT RISK


							Sovereign			Private
							fixed			fixed			Out-
	Outstanding			Commitments			income			income			standing			Commitments			Derivatives
	to			to			(excluding			(excluding			to credit			to credit			and									Var. vs.
	customers			customers			trading)			trading)			entities			entities			Repos			Total			%			Dec-06
SPAIN		298,281			56,290			14,460			8,334			24,092			1,008			13,135			415,600			49.6	%		15.9	%
Parent bank		179,476			38,604			10,895			3,613			18,142			670			9,545			260,945			31.1	%		20.6	%
Banesto		83,648			11,100			3,002			2,302			2,903			136			3,422			106,514			12.7	%		6.4	%
Others		35,157			6,586			563			2,419			3,047			201			168			48,141			5.7	%		14.4	%
Rest of Europe		246,283			20,342			1,021			3,870			3,723			1			10,142			285,382			34.0	%		8.8	%
Germany		17,195			2,181			100			60			388			0			5			19,931			2.4	%		13.6	%
Portugal		23,017			6,431			794			290			1,046			1			1,845			33,423			4.0	%		1.9	%
UK		165,158			6,961			0			3,227			975			0			8,199			185,521			22.0	%		2.2	%
Others		40,913			4,769			127			293			1,313			0			93			47,508			5.5	%		50.6	%
Latin America		70,858			22,130			8,330			1,841			16,704			2,001			5,710			127,574			15.2	%		9.0	%
Brazil		22,653			7,537			2,334			418			9,036			0			2,031			44,010			5.2	%		41.8	%
Chile		18,291			3,448			704			550			936			1			2,027			25,959			3.1	%		12.2	%
Mexico		14,134			7,384			4,165			0			3,123			2,000			1,440			32,444			3.8	%		-17.1	%
Others		15,780			3,761			1,126			872			3,609			0			212			25,361			3.0	%		6.0	%
Rest of world*		4,967			444			327			1,412			2,954			0			46			10,151			1.2	%		30.2	%
TOTAL GROUP		620,389			99,206			24,138			15,458			47,473			3,009			23,093			838,708			100	%		12.5	%
% of Total		74.0	%		11.8	%		2.9	%		1.8	%		5.7	%		0.4	%		3.5	%		100.0	%
%Change, vs. Dec-06		11.9	%		10.3	%		-4.0	%		61.0	%		49.9	%		75.8	%		-13.1	%		12.5	%

Data at December 31, 2007 based on the jurisdiction of incorporation of the Group company that has the exposure to the specified credit risk on its books

Derivatives and repos expressed in equivalent credit risk (ECR),

Balances with customers exclude repos (EUR 28,960 million),

Balances with credit entities (excluding repos and trading) include EUR 27,770 million of deposits in central banks,


*		It includes Drive’s assets (Santander Consumer Finance), among others.

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GRUPO SANTANDER: RISK, NPLS, COVERAGE, PROVISIONS AND COST OF CREDIT


	Credit risk													Spec, prov net of
	with customers*					NPL ratio				Coverage				recovered write-offs						Credit cost
	(million euros)					(%)				(%)				(million euros)						(% of risk)
	2007		2006			2007		2006		2007		2006		2007			2006			2007		2006
Continental Europe		358,933		319,861			0.90		0.73		188.1		244.9		1,042			388			0.30		0.13
Santander Branch Network		131,676		120,161			0.65		0.57		248.1		295.8		116			58			0.09		0.05
Banesto		86,601		72,714			0.47		0.42		332.9		396.1		72			3			0.09		0.00
Santander Consumer Finance		32,178		30,417			2.84		2.57		95.7		114.1		837			312			1.88		0.87
Portugal		47,556		40,742			1.25		0.53		117.4		305.1		(12	)		16			0.04		0.06
UK (Abbey)		203,225		203,554			0.60		0.60		65.8		85.9		474			379			0.23		0.20
Latin America		84,073		70,582			1.87		1.38		134.4		167.3		1,527			934			1.99		1.47
Brazil		26,414		17,998			2.74		2.38		101.5		102.8		787			532			3.78		3.49
Mexico		15,012		16,598			1.20		0.64		192.3		279.2		452			182			2.91		1.26
Chile		19,198		16,741			2.11		1.59		118.5		152.6		121			182			0.67		1.07
Puerto Rico		5,067		5,467			3.17		1.67		101.7		161.7		111			46			2.08		0.85
Venezuela		4,452		3,238			0.98		0.98		371.3		435.5		21			6			0.53		0.24
Colombia		1,464		1,431			1.21		0.58		217.1		396.4		12			4			0.80		0.31
Argentina		2,898		2,565			1.24		1.25		235.9		258.2		20			(10	)		0.68		(0.44	)
Rest		3,110		(5,625	)										90			(1	)
Total Group		649,342		588,372			0.95		0.78		150.6		187.2		3,132			1,700			0.50		0.32
Memo item:
Spain		276,313		249,072			0.63		0.53		264.5		328.4		335			149			0.12		0.07


*		Includes gross loans to customers, guarantees and documentary credits.

Data segmented based on the location of the Group company that manages the portfolio of the specified customers with credit risk

Evolution in 2007

Our ratio of non-performing loans stood at 0.95% at the end of 2007, 17 basis points higher than a year earlier. Coverage was 150.6%, down from 187.2% at the end of 2006.

Specific provisions for loan losses, net of recoveries, amounted to €3,132 million, 0.50% of the average credit exposure with customers (the year’s average lending plus financial guarantees), up from 0.32% in 2006.

Lending

The Group’s risk function organization is customer-focused. Customers are classified for the purposes of risk management into two large groups or segments: firms under individualized management and standardized firms.

	•		Firms under individualized management are those customers who have been assigned, explicitly or implicitly, a risk analyst (attached to a Company Analysis Unit, Corporate Banking Risks or Risks with Financial Institutions). This category includes the segments of corporate banking, financial institutions, sovereigns and part of retail banking companies.

	•		Standardized firms are the customers who have not been assigned a specific risk analyst and whose actual or potential risk is less than a pre-determined amount. These customers include individuals, individual businessmen and retail banking companies that are not segmented.

The Wholesale Banking and Companies Risks Area treats customers on a global basis (large corporates and multinational financial groups).

There is a pre-classification model for large corporates (setting of a maximum internal risk limit), based on a system of measurement and monitoring of economic capital.

188

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 monitoring the risk. These tools provide a rating for each customer, which is a combination of the results of a quantitative or automatic model, a qualitative model or one of expert adjustment by an analyst, and a series of final adjustments:

	•		The quantitative rating is calibrated with the market price of credit derivatives, specifically credit default swaps, and with balance sheet information, giving rise to a statistical model based on the financial statements, which can also be used for institutions that do not have a liquid price in these instruments.

	•		There is then a review of the rating which has been automatically calculated by the analysts, producing a final rating.

	•		Lastly, in the case of global wholesale banking the rating is adjusted when the customer belongs to a group from whom explicit support is received.

In the case of Financial Institutions and Global Wholesale Banking, ratings can be changed on the basis of the country where the transaction is conducted, so that there is a local rating and a cross-border rating for each customer.

With respect to Private Companies and Institutions under Individualized Management, the parent Bank of Grupo Santander has defined a single methodology for formulating a rating in each country, based on the same models as the previous ratings: quantitative or automatic (in this case analyzing the credit performance of a selection of customers and the correlation with their financial statements), qualitative or review by the analyst, and final adjustments. Each unit contributes their own customer data, the financial statements of these customers, and examines the most statistically representative ratios. Once the specific rating for each country is created, its application is decentralized in each country, and there are various groups of analysts distributed to ensure their proximity to the customer.

In all cases, during the monitoring phase, the ratings are regularly reviewed, at least once a year, and new financial information and the experience in the development of the banking relationship taken into account. The regularity of the reviews increases in the case of clients who reach certain levels in the automatic warning systems and in 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 (micro firm, businesses) as well as individuals, there are different scoring systems which automatically assess the proposals on the basis of the segment, product and channel.

These admission systems for new transactions are complemented by performance assessment models which are predictive, on the basis of the available information in the Group on the performance of clients in their banking relationship (balances maintained, movements, fulfillment of quotas, etc.). The information from these scorings plays a key role in risk management. Of note is their use in pre-authorized commercial campaigns.

The following charts show the distribution of exposure at December 31, 2007, once adjusted in terms of Exposure at Default (“EaD”), (i.e. which is after applying conversion factors to the off-balance sheet exposures), according to the rating and expected loss for each of the main groupings of credit risk: customers, counterparty (including positions with financial institutions and fixed-income positions, derivatives and repos with all types of counterparties), and sovereigns.

The rating distribution in the portfolio of clients corresponds to a typical profile of commercial banking. Most of the ratings below BBB are the portfolios of SMEs, consumer loans, cards and part of the Group’s mortgage portfolios. They have a high degree of granularity, lower proportional consumption of capital and levels of expected loss comfortably covered by the spread on the transactions.

192

In the international sphere, the new Basel Capital Accord (BIS II) also uses the expected loss concept. Regulatory capital is determined by the difference between the unexpected and the expected loss. Meanwhile, the expected loss is compared with the loan-loss provisions that have actually been made, and if the result is higher than these then the difference must be removed from eligible shareholders’ funds. On the other hand, if the provisions are higher than the expected loss, then the difference can, with certain limits, be included as shareholders’ funds.

Master scale of ratings

In order to make the internal ratings of the various models – corporate, sovereign, financial institutions, etc. – comparable and 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. These internally estimated probabilities are compared with the rates of default associated with external ratings, which are regularly published by rating agencies.

MASTER SCALE OF RATINGS


				Equivalence with:
Internal	Probability of			Standard &
Rating	default			Poor’s	Moody’s
9.3		0.017	%	AAA	Aaa
9.2		0.018	%	AA+	Aa1
9.0		0.022	%	AA	Aa2
8.5		0.035	%	AA-	Aa3
8.0		0.06	%	A+	A1
7.5		0.09	%	A	A2
7.0		0.14	%	A-	A3
6.5		0.23	%	BBB+	Baa1
6.0		0.36	%	BBB	Baa2
5.5		0.57	%	BBB-	Baa3
5.0		0.92	%	BB+	Ba1
4.5		1.46	%	BB	Ba2
4.0		2.33	%	BB/BB-	Ba2/Ba3
3.5		3.71	%	BB-/B+	Ba3/B1
3.0		5.92	%	B+/B	B1/B2
2.5		9.44	%	B	B2
2.0		15.05	%	B-	B3
1.5		24.00	%	CCC	Caa1
1.0		38.26	%	CC/C	Caa1/Caa2

The following table shows Santander Spain’s portfolio of companies by rating:

194

2.2. Customer segmentation for credit risk management

The table below sets out the distribution by segments of the credit exposure to customers in terms of EaD. Approximately 83% of total risk with clients (excluding sovereign and counterparty risks) pertains to SMEs and loans to individuals, underlining the commercial focus of our business and of our risks. The expected loss from customer exposure is 0.81%, or 0.68% of our total loan exposure, which can be considered as a medium-to-low risk profile.

SEGMENTATION OF CREDIT RISK EXPOSURE

BY SEGMENTS. Million euros


	EAD		%			PD Average			LGD Average			EL
Sovereign		56,827		7.6	%		0.03	%		25.3	%		0.01	%
Counterparty		69,887		9.4	%		0.19	%		41.2	%		0.08	%
Public sector		1,635		0.2	%		0.65	%		21.3	%		0.14	%
Corporate		101,383		13.6	%		0.67	%		40.4	%		0.27	%
Companies		154,076		20.6	%		2.27	%		29.3	%		0.67	%
Mortgages		257,001		34.4	%		2.72	%		7.1	%		0.19	%
Consumer		89,072		11.9	%		6.10	%		45.1	%		2.75	%
Cards		13,553		1.8	%		8.30	%		62.1	%		5.15	%
Rest		3,302		0.4	%		2.40	%		57.0	%		1.37	%
Memo item customers		620,022		83.0	%		2.88	%		28.0	%		0.81	%
Total Group		746,737		100.0	%		2.41	%		28.1	%		0.68	%

SEGMENTATION OF THE CREDIT RISK EXPOSURE

BY BUSINESS UNIT. Million euros


	EAD		%			PD Average			LGD Average			EL
Santander Branch Network Spain		146,117		19.6	%		2.25	%		18.2	%		0.41	%
Banesto		80,489		10.8	%		1.23	%		22.3	%		0.28	%
Abbey		213,275		28.6	%		2.61	%		14.0	%		0.37	%
Portugal		38,390		5.1	%		1.71	%		26.9	%		0.46	%
SCF		48,596		6.5	%		4.58	%		40.1	%		1.83	%
Latin America		130,663		17.5	%		3.63	%		47.1	%		1.71	%
Others (vertical)		89,205		11.9	%		0.56	%		29.9	%		0.17	%
Global Wholesale*		94,352		12.6	%		0.51	%		42.4	%		0.22	%
Total Group		746,737		100.0	%		2.41	%		28.1	%		0.68	%


*		Transversal measurment: some clients of Global Wholesale Banking are in other segments of the portfolio.

Measurements of expected loss by credit risk

Our expected credit risk loss (average of the economic cycle) at the end of 2007 was 0.68% of the credit exposure (0.63% in 2006 with figures adjusted by methodological changes to make them comparable with those of 2007), measured in terms of adjusted exposure (EaD). Our retail portfolios grew particularly strongly in 2007, in line with the objective of strengthening the predictable nature of our risk. This meant a small rise in expected loss, which, however, was offset by a higher financial margin and produced a higher risk adjusted return (RORAC).

When estimating expected loss and the economic capital needed, our methodology makes an adjustment to the economic cycle of losses observed, with very a rigorous criterion, taking into account the losses produced in the worst years of the cycle.

2.3 Test of reasonableness in expected loss of the parent bank

To test the calculation model for the expected loss of the parent Bank in Spain, the following table compares the specific provisions, net of recoveries, allocated on the average portfolio of customers with the estimated expected loss.

Loan-loss provisions fell substantially during 1995-99, grew again in the following years as a result of the slowdown in the Spanish economy, thereby reflecting their cyclical nature, and declined again as of 2003. The average losses must be adjusted to the effect of the economic cycle; the corrected average for the cycle of 0.35% is close to the 0.39% envisaged in the internal model in the case of the parent Bank.

195

The following charts reflect the cost of Grupo Santander’s credit and in its main areas of activity in 2007 and prior years, measured in various ways:

The general trend over the past few years has been to maintain the cost of Santander’s credit at historically very low levels — ones difficult to repeat in the future. In 2007, there was a rise in the cost of credit due to stronger growth in retail portfolios which, with a higher expected loss, have higher levels of direct return (financial margin less cost of provisions) and indirect return (induced business) and are more attractive because of the more predictable nature of this type of risk. This strategy explains the rise in the cost of credit, particularly in Latin America.

2.5 Monitoring and control systems

A solid environment of control is paramount in order to ensure appropriate management of credit risk and maintain the Entity’s risk profile within the parameters set by the Board and senior management. At the same time, from the regulatory standpoint, financial institutions are required to have a control system that is adequate for the dimension and complexity of each organization.

During 2006, within the corporate framework established in the Group for complying with the Sarbanes-Oxley Act, a corporate tool was developed on the Group’s intranet to document, manage and certify all the sub-processes, operational risks and controls for mitigating them. The Risks Division, as part of the Group, assessed the efficiency of the internal control of activities.

197

As a result, these assessments represent a constant strengthening of the elements of control and discipline of already existing processes.

2.6 Risk concentration

Risk concentration, within the sphere of credit risk, is a fundamental element of management. We continuously track the degree of concentration of its 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” (those that exceed 10% of eligible shareholders’ equity). In accordance with Circular 5/93, no individual exposure, including all types of credit risks and equities, can exceed 25% of the Group’s shareholders’ equity. Also, the total of “large risks” cannot be more than eight times higher than equity (excluding exposures to OECD governments). At December 31, 2007, the client with the largest risk, 17.4% of eligible shareholders’ equity in accordance with the regulatory criteria, was a Spanish company with an internal rating equivalent to “A-”. Another four groups, as well as this company, reached the large risk classification. Within this group were two Spanish companies with a rating equivalent to “A-” and two European banks with a rating equivalent to “AA”.

At December 31, 2007, the 20 largest economic and financial groups, excluding AAA government and sovereign securities denominated in local currency, represented 5.0% of the outstanding credit risk of the Group’s clients (lending plus guarantees).

The Group’s Risks 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 securitizations in order to optimize the risk-return relation of the whole portfolio.

2.7 Counterparty risk

Counterparty risk is a variant of credit risk. This area includes all types of exposure with credit entities as well as the risk of solvency in treasury operations (bonds and derivatives) with other types of clients.

Control is carried out in real time through an integrated system which provides information on the available credit line of any counterparty, in any product and maturity and at any branch of the Group.

Risk is measured by both the current as well as potential market value (value of risk positions taking into account the future variation of the underlying market factors in contracts). The Equivalent Credit Risk (“ERC”) is the sum of the Net Replacement Value plus the Maximum Potential Value of these contracts in the future. In 2007, it amounted to €20,269 million.

Derivatives transactions continued to be carried out with counterparties that enjoy excellent credit quality: 75.8% of counterparty risk has a rating equal to or superior to A-.

With regard to the geographic distribution of counterparty risk, 27.0% is with Spanish counterparties, 23.9% with UK counterparties (mainly transactions by Abbey), 16.6% within the rest of Europe, 12.7% within the US and 19.0% within Latin America.

The distribution of the risk by type of counterparty shows 54% in banks, 30% in large corporations and 16% in SMEs.

The notional and/or contractual value of the contracts in the table below are net positions in these instruments, the result of both compensations as well as combinations among them, according to risk criteria.

198

NOTIONAL OTC DERIVATIVE PRODUCTS BY MATURITY*

Million euros at Decembers 31, 2007


									Notional values
	< 1 year		1-5 years		5-10 years		>10 years		Trade		Hedge		Total
CDS protection acquired		5,706		85,472		12,555		5		100,199		3,539		103,738
CDS protection sold		4,601		73,564		11,471		0		85,259		4,377		89,636
CDS options		0		0		0		0		0		0		0
TOTAL CREDIT DERIVATIVES		10,307		159,036		24,026		5		185,458		7,916		193,374
Equity forwards		2,256		97		0		0		323		2,030		2,353
Equity options		11,379		11,380		3,413		11		21,611		4,574		26,184
Equity swaps		2,721		7,784		4,268		0		12,767		2,006		14,773
TOTAL EQUITY DERIVATIVES		16,356		19,261		7,681		11		34,700		8,610		43,310
Fixed-income forwards		809		65		0		0		565		310		874
Fixed-income options		973		0		0		0		68		905		973
Fixed-income spot		1,236		0		0		0		294		942		1,236
TOTAL FIXED INCOME DERIVATIVES		3,018		65		0		0		927		2,157		3,083
Asset swaps		31,973		4,362		277		189		488		36,312		36,801
Exchange-rate options		41,609		4,296		633		11		25,312		21,237		46,548
Exchange-rate swaps		61,950		27,534		22,300		5,139		22,286		94,637		116,923
Other exchange-rate derivatives		171		82		0		0		211		41		253
TOTAL EXCHANGE RATES		135,703		36,274		23,209		5,339		48,297		152,227		200,525
Asset swaps		131		551		230		1,740		0		2,652		2,652
Call money swaps		40,821		4,472		2,686		0		45,240		2,740		47,980
IRS		474,211		678,418		302,562		125,459		1,053,906		526,745		1,580,651
Forward interest rates		324,302		250		281		0		324,833		0		324,833
Other interest-rate derivatives		80,629		114,309		35,170		53,692		68,824		214,976		283,800
Interest rate structures		1,551		16,664		417		346		18,763		215		18,977
TOTAL INTEREST-RATE DERIVATIVES		921,646		814,664		341,347		181,237		1,511,565		747,328		2,258,893
Commodities		245		602		638		0		654		832		1,486
TOTAL COMMODITY DERIVATIVES		245		602		638		0		654		832		1,486
TOTAL OTC DERIVATIVES		1,087,275		1,029,903		396,901		186,592		1,781,601		919,070		2,700,671

* Banesto not included

Activity in credit derivatives

Grupo Santander mainly uses credit derivatives to cover lending transactions and, to a limited extent, as part of trading.

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 sensitivity to correlation. Jump-to-default limits are also set by geographic area, sector and liquidity.

At December 31, 2007, for the Group’s trading activity, the sensitivity of net positions of credit derivatives to increases in the spread of one basis point was only €710,000 euros and the average VaR in the year in these instruments was €9.5 million.

DISTRIBUTION OF RISK IN OTC DERIVATIVES BY TYPE OF COUNTERPARTY


	%
Banks		53.7
Corporates		30.0
SMEs		15.6
Public bodies		0.7

199

OTC DERIVATIVES DISTRIBUTION BY NET REPLACEMENT VALUE AND EQUIVALENT CREDIT RISK*

Million euros, December 31, 2007


	TOTAL NET NRV						TOTAL ECR
	Trade		Hedge		Total		Trade		Hedge		Total
CDS protection acquired		742		6		748		793		-19		774
CDS protection sold		127		9		136		-697		33		-663
CDS options		0		0		0		0		0		0
TOTAL CREDIT DERIVATIVES		868		15		883		97		14		111
Equity forwards		0		27		27		0		-33		-33
Equity options		947		1,258		2,205		-104		276		173
Equity swaps		0		252		252		0		60		60
TOTAL EQUITY DERIVATIVES		947		1,537		2,485		-104		303		200
Fixed-income forwards		4		0		4		0		1		1
Fixed- income options		2		0		2		0		0		0
Fixed- income spot		0		0		0		0		0		0
TOTAL FIXED INCOME DERIVATIVES		6		0		6		1		1		2
Asset swaps		33		1,789		1,823		5		127		131
Exchange-rate options		209		232		441		32		293		325
Exchange-rate swaps		1,739		3,037		4,776		274		-1,654		-1,380
Other exchange-rate derivatives		44		1		45		25		0		26
TOTAL EXCHANGE RATES		2,025		5,060		7,085		336		-1,234		-898
Asset swaps		0		304		304		0		-9		-9
Call money swaps		62		25		87		-38		0		-38
IRS		6,609		2,382		8,990		-723		-298		-1,022
Forward interest rates		117		0		117		114		0		114
Other interest-rate derivatives		1,576		738		2,313		880		-721		159
Interest rate structures		989		5		994		332		1		333
TOTAL INTEREST-RATE DERIVATIVES		9,353		3,454		12,807		565		-1,028		-463
Commodities		6		17		23		0		7		7
TOTAL COMMODITY DERIVATIVES		6		17		23		0		7		7
TOTAL OTC DERIVATIVES		13,206		10,083		23,288		895		-1,937		-1,041
CASH COLLATERAL		-1,853		-1,136		-2,989
BOND COLLATERAL		0		-30		-30
EQUITY COLLATERAL		0		0		0
COLLATERALS		-1,853		-1,166		-3,019
TOTAL		11,353		8,916		20,269


*		Banesto not included

DISTRIBUTION OF RISK IN OTC DERIVATIVES BY COUNTERPARTY RATING

Data at December 31, 2007


	%
AAA		0.9
AA		46.8
A		28.1
BBB		16.8
BB		3.9
B		0.2
Without rating		3.4

DISTRIBUTION OF RISK IN OTC DERIVATIVES BY GEOGRAPHIC AREAS


	%
Spain		27.0%
UK		23.9%
Rest of Europe		16.6%
Latin America		19.0%
US		12.7%
Others		0.8%

200

2.8 Country-risk

Country-risk is a credit risk component in all cross-border credit transactions. Its main elements are sovereign risk, transfer risk and the risk of sharp fluctuation of local currencies.

Our regulatory country-risk exposure stood at €916 million at the end of 2007, €55 million lower than in 2006. Allowances assigned at the end of 2007 amounted to €124 million (€233.5 million in 2006). This decline was mainly due to the change of composition in the country-risk position.

The principles of country-risk management continued to follow prudent criteria; country-risk is assumed very selectively.

2.9 Sovereign risk

As a general criterion, sovereign risk is contracted in transactions with a central bank (including the regulatory cash reserve requirement), the issuer risk of the Treasury (portfolio of state debt) and that the risk 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 non-commercial nature.

At December 31, 2007, Latin America accounted for 56% of total risk (Brazil and Mexico represented 45% of the total). The rest was mainly in the Eurozone (43% of the total), mostly in Spain (30% of the total). The increase over the end of 2006 was around 24%, as a result of the rise in positions in the Eurozone.

Latin America’s exposure to sovereign risk mainly comes from the obligations to which our subsidiary banks are subject to, for constituting certain deposits in the corresponding central banks, as well as from fixed-income portfolios maintained within the structural interest rate risk management strategy. These exposures are in local currency and are financed by locally captured customer deposits, also denominated in local currency. The exposures to sovereign risk of Latin American issuers denominated in currencies other than the official one of the country of issue amounted to €3,110 million (less than 10% of total sovereign risk with issuers).

2.10 Environmental risk

Analysis of the environmental risk of credit transactions is one of the commitments of the Strategic Plan of Corporate Social Responsibility.

Since the beginning of 2004, we have been using an Environmental Risks Valuation System (“VIDA”), developed in cooperation with the Spanish Export Credit Insurance Company (“CESCE”) and Garrigues Medioambiental. It evaluates the environmental risk inherent in each company, whether they are current or future clients.

This system gives us an environmental risk map of the portfolio of evaluated companies (very low, low, medium and high) which, if necessary, provides the option of new and more in-depth specific reviews.

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Part 3. 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 purely operational events, which makes them different from market or credit risks. The objective is to identify, valuate, mitigate and monitor this risk.

Our greatest need, therefore, is to identify and eliminate operational risk focuses, regardless of whether they produce losses or not. Measurement also helps management to establish priorities and to create a decision-making hierarchy.

We opted, in principle, to use the standardized method for calculating regulatory capital by operational risk, envisaged in the BIS II rules. We are weighing the best moment to adopt the focus of Advanced Models (“AM”), bearing in mind that (i) the short-term priority centres on its mitigation; and (ii) most of the regulatory requirements established to adopt the AM must be incorporated into the Standard Model and this has already been done in the case of Grupo Santander’s operational risk management model.

Management model

The Central Unit, which supervises operational risks and is responsible for the Group’s global corporate program, assesses and controls this type of risk.

The management structure of operational risk is based on the knowledge and experience of executives and experts in the different areas and units. Particular importance is attached to the role of operational risk coordinators, who are the key figures in the organizational framework.

We have adopted the following framework for the phases of the process for managing operational risk:

The main advantages of our management structure are:

	•		Integral and effective management of operational risk (identification, evaluation, monitoring, control/mitigation and reporting).

	•		Providing better knowledge of existing and potential operational risks and the allocation of responsibility for them by managers of the business and support lines.

	•		Drawing up of data on losses, enabling operational risk to be quantified for calculating both the economic and the regulatory capital.

	•		Operational risk information helps to improve the processes and controls, reduce losses and the volatility of revenues.

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Implementing the model: global initiatives and results

The Corporate Department of Management and Control of Operational Risk, part of the Risk Division, has been operating since 2001. Its main functions, activities developed and global initiatives can be summarised as follows:

	•		Fostering mitigation plans: controlling implementation of corrective measures as well as projects underway.

	•		Presentations to senior management and development of internal rules.

	•		Designation of coordinators and the creation of operational risk departments.

	•		Training and exchange of experiences to communicate the best practices within the Group.

	•		Design and putting into effect qualitative and quantitative operational risk tools.

	•		Conciliation of databases of losses — accounting.

	•		Developments for the automatic capturing of events through accounting systems.

	•		Development of the corporate operational risk tool in a web-based environment.

	•		Collaboration with the procurement area regarding its function in managing banking insurance related to operational risk (BBB policies, damage, civil responsibility and life).

	•		Fostering contingency and business continuity plans.

The project began to be installed in the Group’s different entities in 2002. Almost all the Group’s units are already incorporated to the project with a high degree of uniformity.

Nonetheless, due to different paces of adoption, stages, schedules and the historical depth of the relevant data bases, the degree of implementation varies from country to country.

On a general basis:

	•		Databases of losses classified by errors and operational types are received every month. The Group’s data base shows events (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 in by almost all of our units are received and analyzed.

	•		Operational risk indicators are available, regularly defined and updated by the main management units.

	•		There are always a sufficient number of coordinators in the business and back-up areas.

	•		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 conciliate data bases with accounting.

Analysis and monitoring of controls in market operations

The turbulence in financial markets during 2007 and the increase in operational risk derived from the increasing complexity of financial instruments make it necessary to continuously strengthen the operating control efforts of activity in financial markets in the Group, enhancing the very demanding and conservative risk and operating principles that Grupo Santander already regularly applied.

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Over and above regular tracking of all aspects regarding operating control, all of our units paid more attention to the following areas, and the following areas, among others, are reviewed every month by the Management Committee of each unit:

	•		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 and modifications of operations

	•		Reviewing and monitoring the effectiveness of guarantees, collateral and risk mitigation.

Corporate Reporting

During 2005, the Corporate Department of Operational Risk developed a system for Integral Management of Operational Risk Information, updated every quarter, which consolidates the information available from each country/unit in the operational risk sphere, so that there is an integral vision with the following features:

	•		Two levels of information: one corporate and the other individualized for each country/unit.

	•		It enables, via maintaining a data base of events and mitigating measures, the best practices to be disseminated among countries/Grupo Santander units.

This tool collects information on:

	•		Our 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 base for meeting the reporting needs to the Board’s Risk Committee, senior management, regulators, rating agencies, etc.

Insurance in the management of operational risk

Grupo Santander has been a pioneer in using insurance as a key element in management of operational risk. The area responsible for operational risk has been closely cooperating with the Group’s insurance area since 2004 in all activities that entail improvements in both areas. For example:

	•		Cooperation in presenting our operational risk control and management model to 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, and the subsequent implementation of these recommendations and suggestions.

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	•		Exchange of information generated in both areas in order to strengthen the quality of databases of errors and the perimeter of coverage of insurance policies on different operational risks.

	•		Close cooperation between local coordinators of operational risk and local coordinators of insurance, in order to enhance mitigation of operational risk.

	•		Regular meetings on specific activities, status updates and projects in both areas.

	•		Active participation of both areas in the unit for Global Sourcing of Insurance, our highest technical body for setting coverage strategies and contracting insurance.

As a result of this cooperation, we have insurance policies catalogued by type of operational risk according to internal and BIS II classification. At the end of 2007, 90% of banking business was catalogued.

GRUPO SANTANDER: TYPES OF COVERAGE


Object of protection	Type of coverage / BIS II category covered	Policy
Protection of the activity	Financial / I Internal fraud and II external fraud	Integral Banking Policy (BBB)
		Cash and securities
		Safes
	Assets/ V Material damages	Material damages
		Cars
	Civil responsibility /	Civil responsibility
	IV Practices with clients, products and business and	Professional indemnity
	V Damage to physical assets	Directors & Officers
Protection of employees	Employees / III Employment practices, health	Life and personal accident
	and safety at work	Health
Product support	Products/I Internal fraud and II external fraud	Cards
		Current accounts

The BBB policy protects us, for example, from disasters such as internal fraud, theft, electronic crime, forgery and fraudulent mortgages,

Part 4. Basel II Corporate Project

Santander has been firmly committed right from the start to the principles behind the Revised Framework of International Convergence of Capital Measures and Rules (“Basel II”). This framework will enable institutions to conduct 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 of the resources needed to ensure Basel II is successfully implemented. Several years ago, a Basel II team was formed from the Group’s different areas (Risk, Technology, Financial Control, Operations, Finance and Business. Internal Auditing verifies the whole process, as the last element of control of the entity, and Business deals with everything relating to advanced integration of internal models in management. Furthermore, specific teams have been put together to tackle various specific events so that the project’s most complex aspects are appropriately managed.

As well as this Basel II operational team, senior management has been very involved from the outset. The Corporate Supervision Committee, chaired by the Group’s third Vice-Chairman and head of the Risk Division, supervises at the highest level the launch of initiatives in the Basel II corporate project, controlling their milestones of compliance, assigning staff and approving budgets, as well as assuming institutional representation of the Group for these purposes. The Management Committee and the Board were also informed of the progress made in the project and the implications for the Group of the New Capital Accord.

In the specific case of credit risk, Basel II means recognizing, for regulatory capital purposes, the internal models that have been used for management purposes for some time, and which led, in their day, to their approval, by our regulator, for calculating statistical provisions (“FONCEI”) in certain segments of risk.

Santander has proposed adhering to the Advanced Internal Ratings Based (“AIRB”) models of Basel II for exposures which represent close to 95% of the Group’s total. The institutions which plan to install this new system for calculating regulatory capital as of January 2008 (the first year allowed by the Bank of Spain) are Santander (parent Bank), Banesto and Abbey whose portfolios account for around 70% of exposure. The rest of the most significant units will gradually adopt the AIRB focus in accordance with the schedule sent to the Bank of Spain and to the various local regulators.

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During 2007, supervisory validation was conducted by both the Bank of Spain as well as the Financial Services Authority (FSA). At the end of 2007 the FSA authorized local use of Abbey’s models for the requested segments (portfolios of financial institutions, social housing, retail, including mortgages). In the case of Santander (parent Bank) and Banesto, the decision is pending for the entry into force of the relevant regulation which will empower the Spanish supervisor to grant this kind of authorization.

Given the medium-low risk profile characteristic of Santander’s businesses, with a focus on retail banking (SMEs and individual customers), Bank of Spain authorization is expected to generate significant capital savings in Pillar I, which establishes the capital requirements for covering credit, market and operational risks. The global savings that will materialize for Santander from implementing Basel II will depend on the result of the Proposal of Self-Assessment of Capital (which develops Pillar II), which 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.

Aside from the supervisory validation process, Santander also completed in 2007 the necessary internal technological developments which contemplate for all business units, a common structure of data bases and calculation engine supporting the processes for estimating the parameters (PD, LGD and EaD) and calculating capital at the local and corporate levels. This focus achieved the three objectives of installing in each unit the corporate criteria established, covering the existing local requirements and attaining synergies in costs through global definitions and developments.

In addition, although the internal models of risk have been actively deployed for some time in many of the Group’s processes (setting limits, admission, tracking, pricing and/or calculating risk adjusted returns, according to portfolios), work continued on various initiatives identified for advancing in integrating these models into active management of the Group in order to extend this practice to all portfolios and further their effects.

With regards to the rest of risks explicitly contemplated in Pillar I of Basel II, in Market Risk we continued the lines of work defined some time ago in the Group for authorization of the internal model — based on calculating VaR — for regulatory purposes (note that Basel I includes recognition of the internal model of Market Risk). In Operational Risk, the Group decided to adopt the standard focus for calculating regulatory capital insofar as the objective of mitigation of this risk is appropriately articulated through all the requirements of this focus. Taking this objective into consideration, work continued on identifying and mitigating this risk throughout the Group, progress was made in developing corporate tools for self-assessment, setting and tracking of indicators, capturing events and so forth.

Pillar II is another important line of work of the Basel II Corporate Project. As well as reviewing the methodology of the Economic Capital model (supported by the Integral Framework of Risks tool), a technological approach to the platform supporting Pillar I is being made, so that all the information related to Credit Risk comes from the same source. The Group’s Economic Capital model has already been presented to the European regulators in the countries where Santander conducts activity (Supervisory College). The model will be thoroughly reviewed by regulators during 2008.

Internal validation of internal risk model

Internal validation is an unavoidable prerequisite for authorization from the supervisory body, and consists of a specialized and sufficiently independent unit within the institution to obtain 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.

Internal validation also constitutes a fundamental support for the Board’s Risk Committee and Local Committees of Risk in their responsibilities of authorizing the use (management and regulatory) of models and their periodic review, as senior management must ensure the Group has the appropriate procedures and systems for monitoring and controlling credit risk.

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The model covers systems and strategies for classifying clients and operations, estimating the parameters of risk (PD, LGD and EaD), technological systems that make implementation effective and, in general, all relevant aspects for the advanced management of risk (controls, reporting, uses, involvement of senior management, etc.). The purpose of internal validation is thus to review quantitative, qualitative and technological aspects and those related to corporate governance.

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. This global function in the Group requires the internal validation of around 160 internal models of Credit Risk, in 13 different units and with nine local regulators. This makes it necessary to apply a common methodology for internal validation, ensuring coherence and consistency in the use of IRB models for calculating capital, both from the internal standpoint as well as the Bank of Spain’s. The common methodology is applied independent of the degree of decentralization of its execution, to meet the requirements of local regulators or because of the very nature of the tests.

This corporate methodology is supported by a series of tools developed internally in Santander, which provide a robust framework for its application in all the Group’s units and automates some verifications so that the revisions are done effectively and efficiently.

Our corporate framework of internal validation is fully aligned with the criteria for internal validation of advanced models recently issued by the Bank of Spain. The criterion for 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.

All the models of Spain-parent Bank, Banesto and Abbey UK (36 in all) were internally validated during 2007 so that they could be authorized for regulatory use during 2008.

Part 5. Economic Capital

Traditionally, the concept of economic capital has been contrasted with that of regulatory capital, as economic capital is the one required for the regulation of solvency which, until formal adoption of the new Basel II capital regulations, has been suffering from an insufficient sensitivity to risk. The new Basel II capital framework is undoubtedly going to bring both concepts closer together.

When calculating economic capital, the Bank must decide the level of losses it wants to cover with economic capital (i.e. the level of confidence with which it wants to ensure the continuation of its business). In our case, the desired confidence level to be attained with economic capital is 99.97%, above the 99.90% assumed by the regulatory capital formulas proposed in the New Basel Capital Accord. The difference between the two levels means assuming a default probability for the Group of 0.03% instead of 0.1%, three times lower than the default probability proposed by BIS II.

In terms of external rating, given the higher probability of default associated, a confidence level of 99.97% requires having sufficient capital to attain a solvency level equivalent to an AA rating, while 99.90% would only allow a rating of A-.

The Group’s 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 such as Santander. This economic capital model serves as the Group’s base for preparing its Proposal of Self-assessment of Capital in accordance with the Bank of Spain’s regulations under the Basel II Pillar II framework.

Within the framework of the model for the measurement and aggregation of economic capital, the risk of concentration for wholesale portfolios (large companies, banks and sovereigns) is particularly considered.

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Global risk analysis profile

The Group’s risk profile at December 31, 2007, measured in terms of economic capital, is distributed by types of risk and the main business units, and is reflected below.

Credit activity, which required 48% of the Group’s economic capital, continued to be the main source of risk. This was followed by the market risk of the equity portfolio which increased significantly at the end of 2007 because of the inclusion of our stake in RFS Holdings (Banco Real).

The distribution of economic capital among the main business units reflects the diversification of the Group’s business. Latin America’s share (25.5%) was lower than in 2006.

The Group’s geographic diversification represents a profit of 23% on the consolidated economic capital and 18% for the diversification between different types of risk.

The Group’s risk-adjusted return in 2007 was 28.9%. Some methodological aspects of the internal model of economic capital were reviewed during 2007. Taking into consideration these changes, the net variation over 2006 in the global RORAC was an increase of 4.6 percentage points.

The Group periodically assesses the level and evolution of the creation of value (“CV”) and the RORAC of its main business units. The CV is the profit generated above the cost of capital employed, and is calculated using the following formula:

Creation of value = Economic 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 recurring profit that each unit generates in the year of its activity. The cost of capital, which is the minimum remuneration required by shareholders, can be calculated objectively by adding to the risk-free return the premium that shareholders require to invest in our Group. This premium will essentially depend on the degree of volatility in the price of our shares in relation to the market’s performance. The cost of capital calculated is 9.7% for 2007.

In 2007, all of the main business units obtained a RORAC higher than the cost of capital. The relative share of each business unit in the total value created (as previously defined, the value created represents the economic profit that exceeds the cost of capital) by the Group at December 31, 2007 is shown below.

We also conduct capital planning with the main objective of obtaining future projections of economic and regulatory capital, to assess sufficiency of capital. Results forecasts for the Group are incorporated into the various scenarios in a coherent way, including their strategic objectives (organic growth, M&A, pay-out ratio, etc.), and the economic picture in the face of stress situations. Possible capital management strategies are identified to enable the Bank’s solvency and return on capital to be optimized.

Our capital planning framework gives a global vision of the capital sufficiency situation for various time periods and stress scenarios, which, in turn, complement some aspects in the PAC guide, compiled by the Bank of Spain in compliance with the objectives set in Pillar II of Basel II.

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Comparing the economic capital results with available capital, it can be concluded that the Group is sufficiently capitalized to support the risk of its activity with a confidence level equivalent to an objective rating of AA.

Return on risk adjusted capital methodology (“RORAC”)

We have been using RORAC methodology in its credit risk management since 1993, with the following purposes:

	•		to analyze and set prices during the decision-taking process for operations (admission) and clients (monitoring);

	•		to estimate the capital consumption of each client, portfolio or business segment, in order to facilitate the optimal allocation of economic capital; and

	•		to calculate the level of provisions that correspond to average expected losses.

With regards to each transaction, the economic capital calculation is based on the same variables needed to calculate the expected loss (i.e. the client’s rating, the maturity and the guarantees of the transaction). By aggregation, the economic capital of the rest of the transactions with this client can be calculated. In addition, taking into consideration the appropriate factors of diversification and correlation, the economic capital of a portfolio of clients, a business unit and the Bank as a whole can be calculated.

The spread on these transactions must not only cover costs, including the expected loss or the cost of risk, but also be sufficient for an adequate return on the economic capital consumed by these operations.

As a result, RORAC methodology enables assessment of whether the return on a transaction covers costs of the risk, the expected loss, and the cost of the capital invested in the transaction.

The minimum return on capital which a transaction must obtain is determined by the cost of capital. If an transaction or portfolio obtains a positive return, it is contributing to the Group’s profits, but it is not really creating value for the shareholder if the return does not cover the cost of capital.

RORAC methodology enables the return on transactions, clients, portfolios and businesses to be made on a homogeneous basis, identifying those that obtain a risk adjusted return higher than the cost of the Group’s capital, thus aligning risk and business management with the overall objective to maximize the creation of value.

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Part 6. Reputational risk

The General Secretariat Division is responsible for managing reputational risks and compliance in Banco Santander.

As part of the General Secretariat Division, Compliance Management is entrusted with managing compliance and reputational risks. Compliance risk is understood as the possibility of failing to comply with legal regulations, rules, standards of conduct adopted by the institution, or codes of conduct applicable to Santander’s activities which could give rise to sanctions (regulatory risk). Reputational risk emanates from the perception that stakeholders, both internal and external, have of the Bank in the development of its activity. It includes legal, economic, financial, ethical, social and environmental aspects, among others. Both risks may produce a material adverse impact on results, capital or the expectations of development of Santander’s businesses.

We have established a Compliance Policy, which sets out the organization, mechanisms and existing procedures to: (i) minimize the probability of irregularities; (ii) identify, report and quickly resolve the irregularities that might occur; and (iii) justify, when necessary, that the Bank has the appropriate organization, procedures and resources to comply with the aforementioned purposes.

The specific areas where Compliance activity is particularly concentrated are:

•		Own account transactions

•		Related party transactions

•		Conflicts of interest

•		Treatment of sensitive information (confidential, reserved or privileged)

•		Prevention of money-laundering

•		Approval and marketing of financial products

•		Preparation and dissemination of information and documents for markets (material facts, periodic public information, prospectus, etc.)

•		Protection of personal data

•		Institutional relations with regulatory bodies

•		Handling of customers’ complaints

•		Verifying specific aspects related to the Markets in Financial Instruments Directive (“MiFID”)

The Compliance function is developed with various levels of responsibility and different tasks by the Board of Directors, which approves the general policy and receives information on how it is implemented by the Audit and Compliance Committee. The Audit and Compliance Committee supervises compliance with both the Code of Conduct in the Securities Markets and the manuals and procedures to prevent money-laundering. The Audit and Compliance Committee also reviews the compliance of actions and measures that are the result of reports or measures of supervisors, and of Senior Management, which fosters compliance with the policy in its respective areas of responsibility.

Compliance Management carries out the policy of compliance together with other areas or units which, for operational or specialization reasons, do not organically form part of Compliance Management, but help Compliance Management to execute the policy. In addition to ensuring that the policy is appropriately executed, Compliance Management must: (i) advise on how to resolve doubts regarding the policy; (ii) keep the General Secretary, the Audit and Compliance Committee and the Board informed of the state of execution of the policy; and (iii) promote the creation of a corporate culture of compliance.

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Compliance Management reports on an ongoing basis to the Board via the Audit and Compliance Committee. The Chief Compliance Officer took part in 10 of the 13 meetings held during 2007. The Compliance Committee, which monitors the Compliance Policy, held four meetings in 2007.

Adapting to MiFID and marketing of financial products

During 2007, Compliance Management participated in the process of adapting to MiFID (2004/39) (see “Item 4. Information on the Company— B. Business Review-Recent Legislation”), mainly regarding the marketing of financial products. The new requirements introduced by MiFID demand greater information from customers and from new categories of customers and types of products and made it necessary to reform the former Procedures Manual for selling financial products to retail clients. The former Procedures Manual had been used since 2004 and was replaced by the current Manual of Procedures for Marketing Financial Products, approved by the Executive Committee on October 29, 2007.

We also made a great effort to prepare employees affected by the new Directive by implementing a training plan structured in three levels: an introduction course (basic concepts) in which 20,448 employees participated; a basic level (specific actions in certain units) attended by 18,546 employees and; an advanced level (modules differentiated by subject matter) attended by 2,275 people.

Our Compliance area, via the Global Committee of New Products, develops all the processes related to approving new products and services offered to customers. This committee held 14 meetings in 2007 at which 186 products or families of products were reviewed.

Relations with supervisory authorities and dissemination of information in the markets

Compliance Management is responsible for responding to the information requirements of the regulatory and supervisory bodies in Spain and in other countries where the Group operates. In addition, it monitors the implementation of measures resulting from reports or inspection activities of these supervisory bodies. Finally, Compliance Management supervises the way in which the Group disseminates institutional information in the markets, ensuring it is done transparently and in accordance with the requirements of regulators.

Compliance Management received and replied to a total of 103 information requirements during 2007 and informed the Audit and Compliance Committee of the most significant ones.

The Bank made public 119 relevant facts, both in Spain and in the rest of the markets where its shares are traded.

Off-shore centers

In accordance with the recommendations of the Bank of Spain in the 2003 Report of Banking Supervision in Spain regarding subsidiaries and branches in tax havens, Compliance Management reports every year on these establishments. The report for 2007 concluded that control of them from the standpoint of money-laundering was adequate and that the phase of implementing the policy for consolidated risk management of knowledge of customers was being satisfactorily concluded.

Anti-money laundering

Santander is aware of the importance to advanced societies of fighting money-laundering and the financing of terrorism and is keeping its commitment to cooperate with governments and authorities in all countries where it operates. Santander is strengthening its policies and procedures at the global level and applying them in all its units and subsidiaries, in line with the strictest guidelines and mandates of the Financial Action Task Force (“FATF”), the Basle Banking Supervision Committee, the EU Directive on Money-Laundering and the US Patriot Act. The prevention of money-laundering is a very important part of our culture.

The organization for prevention is a pyramid-shaped structure involving the whole Group. At the top is the Analysis and Resolution Committee, which defines the policies and general objectives. The Central Department for the Prevention of Money-laundering is responsible for implementing, coordinating and globally supervising the system. Below it is staff responsible for prevention systems in their respective areas (business areas, units, branches and accounts). This central organization is replicated in all countries. The prevention system at Santander throughout the world is subject to the policies, control and direct supervision of the parent Bank in Spain.

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The prevention organization covers 232 units in 40 countries. In 2007, 413 Group employees were involved in fighting money-laundering and the financing of terrorism, two-thirds of which were full time.

Our policies are set forth in Corporate Manuals, approved by the Board of Directors of Banco Santander (universal, private and correspondent banking). These internal regulations were last updated in December 2007. They regulate all aspects related to the prevention of money-laundering and the financing of terrorism and are implemented in all the Group’s units.

Our website, www.santander.com, contains the Group’s policies and procedures for the prevention of money-laundering. The information on our website is not incorpored by reference into this Annual Report.

Our model is based on “Customer Acceptance Policies”, which establish rigorous filters, such as a ban on operating with certain people or risk sectors and, in other cases a strict regime of authorization. The business areas with the highest risk have specific and much more demanding regulations. Forms must be filled out regarding identification, activities, origin of the capital, references, and so forth.

In order to control and analyze risk transactions, we have installed a mixed model in all units, which covers all transactions and involves everyone in the Group. The model, unique in banks of our size, combines decentralized software in business areas with centralized applications in money-laundering prevention departments. BlanCa II, the corporate tool of centralized control, enables us to increase the scope of reviews by incorporating the profiles of each customer, whose breaches are analyzed on a centralized basis. This complements the decentralized analysis by each business unit and allows an operation susceptible of being linked to money-laundering or the financing of terrorism to be analyzed, identified and monitored.

These tools cover not only the transactions of the branch network, but also those in the securities markets, correspondent and direct banking.

One of the obligations in the regulations of all countries is to train employees in techniques that enable them to detect and prevent potential money-laundering transactions. The staff in all units receive training by experts. Specialized training has also been developed for certain areas, such as private and correspondent banking.

In 2007, 79,948 employees received training in all the different levels of prevention of money-laundering, including awareness, strengthening and updating and specialization (8,019 in Spain and 71,839 in other countries).

Our prevention system is under constant review. The Central Department for the Prevention of Money-laundering, whose main function is to implement policies and procedures globally, also directly supervises activities. During 2007 it reviewed 147 units, 26 of them in Spain and the rest abroad, and issued reports on the steps to be taken to improve or strengthen systems.

In addition, the Internal Auditing Division has regular review programs in branches and throughout the organization responsible for money-laundering prevention. It conducted thorough review during 2007.

Lastly, many units undergo regular reviews by external auditors. In 2007, Deloitte conducted a full review of the parent Bank’s global system for the prevention of money-laundering and in the rest of the units in Spain. Deloitte stated in its report that the review showed no deficiency in the prevention model.

All units have procedures for communicating suspicious transactions to authorities, ensuring the strictest confidentiality. The Group opened and investigated 26,694 cases in 2007 on customers and transactions which showed signs of links to criminal activities, of which 6,923 were reported to authorities of the respective countries.

Santander is a founding member of the Wolfsberg Group (www.wolfsberg-principles.com) along with 11 other large international banks. The Group’s objective is to establish international standards that increase the effectiveness of programmes to fight money-laundering and the financing of terrorism. Various initiatives have been developed on the prevention of money-laundering in private and correspondent banking and the financing of terrorism, among others. All regulators in the world and experts in this area believe that the principles and guidelines set by this Group are a major reference in the fight against money-laundering, corruption, terrorism and other serious dangers. At the beginning of 2007, the Group, together with Transparency International and the Basel Institute on Governance, published a Declaration Against Corruption.

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Part 8. Market Risk

Generally

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 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.

	•		Liquidity risk is embedded in all activities, trading and non-trading.

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.

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 has an incipient activity in credit derivatives. These derivatives are used 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.

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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.

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.

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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.

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.

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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.

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.

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.

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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.

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.

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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.

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 illiquidity 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.

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.

The Contingency Plan covers the activity of a local unit and of central headquarters. Each local unit must prepare a Plan of Contingency Financing, indicating the amount it would potentially require as aid or financing from headquarters during a crisis. Each unit must inform headquarters (Madrid) 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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Quantitative analysis¹

A. Trading activity²

Quantitative analysis of daily VaR in 2007

Our risk performance with regard to trading activity in financial markets during 2007, measured by daily Value at Risk “VaR”, is shown in the following graph.

VaR during 2007 fluctuated 90% of the time in a range between €20 million and €35 million, with two exceptions. The first, at the end of July, was due to the greater volatility in Brazilian markets. The subsequent decline in VaR was because of reduced positions, particularly fixed income and currency in Brazil. The temporary rise at the end of August was due to the increased volatility in all financial markets, which particularly affected Brazil. The minimum VaR for the year of €19.6 million was reached on November 19, as a result of the reduced positions in the treasuries of Madrid and Mexico.

As the VaR calculation is affected by market volatility, which increased significantly during the second half of 2007, the average assumption of risk (i.e., the taking of net open positions) was considerably lower in that period than in the first half of the year.

The average VaR of the Group’s trading portfolio in 2007 (€28.9 million) was lower than in 2006, despite higher volatility. Compared to other financial groups, the Group has a medium/low trading risk profile. The dynamic management of VaR enables the Group to adopt changes of strategy in order to exploit opportunities in an environment of uncertainty.


1		All figures in this report are measured in euros. The exchange rate used is the one quoted in the market on the reference date.

2		Banesto is not included in the Group’s VaR for trading activity.

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Histogram of daily Marked-to-Market (“MtM”) results

The following histogram of frequencies shows the distribution of daily MtM results on the basis of size. The daily yield was between €-7 and €+7 million on 258 days (69% of the days of the market).

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.

The units where this activity mainly takes place are: Madrid, London, Brazil and Mexico and, to a lesser extent, Chile and Portugal.

Most of the time, risk moved in a range between €5 and €11 million. The main exception was between the end of July and the end of September, because of the rise in risk resulting from the general increase in volatility in global financial markets. The maximum risk, for these reasons, was reached on August 20 (€20.5 million) and the minimum on February 12 (€4.1 million), in a context of low volatility.

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 2007 we carried out regular analysis and contrasting measures which confirmed the reliability of the model.

Scenario Analysis

Different stress test scenarios were analyzed during 2007. A scenario of maximum volatility, which applies six standard deviations to different market factors as of December 31, 2007, generated results that are presented below.

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Maximum volatility scenario

The table below shows, at December 31, 2007, the maximum losses for each product (fixed-income, equities and currencies), in a scenario in which volatility equivalent to six standard deviations in a normal distribution is applied (interest rate rises, falls in stock markets, the dollar’s slide and the rise in volatility).

Maximum volatility Stress Test


€ million	Fixed income		Equities		Exchange rate		Volatility		Total
Total Trading		-19.2		-5.7		-35.4		7.4		-52.9
Europe		14.9		0.4		-2.6		7.3		20.0
Latin America		-36.2		-5.5		-34.1		0.1		-75.7
USA (New York)		2.0		-0.5		1.4		0.0		2.9

The stress test shows that the economic loss suffered by the Group in the MtM result would be, if this scenario materialized in the market, €52.9 million, and would be concentrated in Latin American fixed income.

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.

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 (ALCO’s) 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 2007

a) Convertible currencies

At the end of 2007, the sensitivity of net interest margin at one year, to a parallel rise of 100 basis points in the euro yield curve, was negative €362 million, almost all corresponding to the parent Bank. The sensitivity of the net interest margin of other convertible currencies was insignificant.

In addition, at the end of 2007, the sensitivity of net worth to parallel rises of 100 basis points in the most relevant yield curves was concentrated in the euro curve (-€161 million) and in the sterling curve (-£197 million).

Generally speaking, during the second half of 2007, balances were positioned to protect them from a scenario of interest rate cuts.


3.		Includes the total balance sheet except for trading portfolios

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Structural Gap. Santander Parent Company (December 31, 2007)


	Not		Up to 1									More than 5
€million	sensitive		year			1-3 years			3-5 years			years			TOTAL
Money and securities market		—		28,444			111			2,723			8,824			40,102
Loans		—		114,366			24,309			3,048			2,380			144,103
Permanent equity stakes		71,956		—			—			—			—			71,956
Other assets		6,120		33,105			—			—			—			39,225
Total assets		78,076		175,915			24,420			5,771			11,204			295,386
Money market		—		28,253			10			2			—			28,266
Customer deposits		—		16,601			10,139			12,562			13,121			52,423
Debt Issues and securitizations		—		120,565			113			1,107			245			122,231
Shareholders’ equity and other liabilities		59,931		38,527			1,089			831			1,695			102,074
Total liabilities		59,931		203,946			11,552			14,502			15,062			304,994
Balance sheet Gap		18,144		(28,032	)		12,869			(8,732	)		(3,858	)		(9,608	)
Off-balance sheet structural Gap		—		10,172			2,465			731			(494	)		12,873
Total structural Gap		18,144		(17,859	)		15,333			(8,001	)		(4,352	)		3,265
Accumulated Gap		—		(17,859	)		(2,526	)		(10,527	)		(14,879	)		—

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 at low levels during 2007 and moved within a narrow band (maximum of €54 million in October). In terms of equity sensitivity, it fluctuated in a wider range of between €300 million and €400 million, with a downward path in the second half of the year mainly because of reduced positions of the portfolio in Mexico. The aim of this portfolio of government securities in local currencies and interest rate swaps is to cover possible losses in net interest margin.

At the end of 2007, the risk consumption for the region, measured by the market value of equity sensitivity to 100 basis points, was €326 million (€377 million in 2006), while that of the net interest margin at one year, measured by its sensitivity to 100 basis points, was €21 million (€20 million in 2006).

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Market Value of Equity (MVE) sensitivity

For the whole of Latin America, the risk consumption at the end of 2007 was €326 million (MVE sensitivity to a parallel movement of 100 basis points in the yield curve). The geographic distribution is shown in the graph below.

More than 90% of the risk is concentrated in four countries: Chile, Brazil, Puerto Rico and Mexico.

MVE Sensitivity by countries

Others: Colombia, Panama, Santander Overseas and Uruguay

B.1.2. Structural management of credit risk

Structural management of credit risk aims to reduce the concentrations which naturally occur as a result of commercial activity through the sale of assets. These operations are financed by the acquisition of other assets, which enables the diversification of the lending portfolio as a whole. The Financial Management Area analyzes these strategies and makes management proposals to the Assets and Liabilities Committee in order to optimize exposure to credit risk and to create value.

During 2007:

	•		€44,500 million of loans were securitized, of which €30,250 million were placed in the market. In the secondary market €1,000 million of securitization bonds (AAA and AA), €96.5 million (BBB) and €14.6 million (BB) were sold;

	•		hedging of securitization bonds took place (€2,400 million); and

	•		in the second half of 2007, due to the deterioration in the credit market, €2,500 million of AAA securitization bonds were re-purchased, as the high spreads did not justify their underlying risk.

B.1.3. Management of structural liquidity

Structural liquidity management aims to finance the Group’s recurring activity in optimum conditions of maturity and cost and avoid assuming undesired risks.

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Santander manages its liquidity on the basis of a comfortable structural liquidity position because of its retail banking nature. Its management principles are based on prudence and anticipation as follows:

	•		Comfortable structural liquidity position. Santander is fundamentally a retail bank, therefore customer deposits are the main source in its financing structure of liquidity. These deposits added to capital and the rest of similar instruments enable us to cover most of the Group’s liquidity needs, making financing from the wholesale markets small.

	•		In Latin America, deposits are larger in volume than loans which means that financing in the wholesale markets is in practice residual, and principally for reasons of presence and diversification. For the rest of the Group (denominated as “area of convertible currencies”), the deposits added to the permanent funds in the balance sheet (capital and similar liabilities) cover around three-quarters of loans net of securitizations. In convertible currencies, only one-quarter of unsecuritized loans are financed via the wholesale markets with medium- and long-term debt with an adequate structure.

	•		Ample access to the wholesale liquidity markets on the basis of high short-term and long-term ratings. In the last two years, all of the rating agencies have upgraded Santander’s long-term rating, bringing it to AA or higher (Moody’s rating is Aa1, equivalent to AA+; the other three put it at AA) at the end of 2007 and each with stable outlook.

	•		Diversification of markets and instruments to obtain liquidity. The Group has an active presence in a broad and diversified series of financing markets, limiting dependence on specific markets and maintaining available a comfortable capacity of recourse to the markets. This enables us to have an adequate structure of medium-term and long-term issues, with reduced recourse to short-term wholesale financing. At the end of 2007, commercial paper and notes only accounted for 7% of total wholesale financing. This structure is based on securitizations (around one-third of the total) and a portfolio of medium-term and long-term issues (around 60% of the total), well diversified by products and with an average maturity of 4.4 years.

	•		High capacity to obtain liquidity on the balance sheet. The Group maintains on its balance sheet a diversified portfolio of liquid assets, or those that can become so in the short term appropriate to their positions. In addition, the Group has a large amount of assets available in the European Central Bank that can be discounted (around €30 billion on average in the first quarter of 2008).

	•		Independence of the subsidiaries in financing within a centralized management. The most important subsidiaries, except for Santander Consumer Finance, must obtain their financing in wholesale markets in accordance with their needs, establishing their own liquidity plans and contingencies, without recourse to lines from the parent Bank to finance their activity.

The Group, as a holding company, carries out the functions of control and management, which means planning the funding needs, structuring the financing sources, optimizing their diversification by maturities, instruments and markets, as well as defining the contingency plans.

In practice, the Group’s liquidity management consists of the following:

	•		A liquidity plan is drawn up every year, based on the financing needs resulting from the business budgets. On the basis of these needs, and bearing in mind the limits on recourse to short-term markets, the annual issuance and securitization plan is established.

	•		During the year the evolution of financing needs is regularly monitored, giving rise to changes to the plan.

	•		Control and analysis of liquidity risk is also very important. Its first objective is to ensure that the Group maintains acceptable levels of liquidity to cover its financing needs in the short and long-term under normal market situations. Various measures are used to control the balance sheet such as the liquidity gap and liquidity ratios.

Various scenarios, such as stress scenarios, are also analyzed, in which additional needs are considered because of different rare but possible events. By doing this, all eventualities that could affect the Group, with a greater or lesser probability are covered, which enable it to prepare the corresponding contingency plans.

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The analysis conducted in the last four months of 2007 showed that the Group, even in a scenario of minimal demand for medium-term and long-term issues, maintained a comfortable liquidity situation.

In 2007, the Group’s units in convertible currency areas captured €44,000 million in medium-term and long-term issues in the wholesale markets, and securitized assets of another €44,500 million.

The Group was particularly active in the first half of 2007 in capturing medium- and long-term funds in the capital markets, at a time when these markets reflected a very positive situation in terms of liquidity and costs. This enabled us to face the deterioration in the markets in the second half of the year in a very comfortable position.

As of the summer of 2007, the Group completed some one-off operations, mainly to finance the acquisition of ABN AMRO, through transactions which were placed at a very reasonable cost taking into consideration the general situation of the markets.

We also took advantage of the second half of 2007 to develop short-term financing markets such as commercial paper and CDs. Due to our conservative liquidity management policies, the Group maintained a very small recourse to short-term institutional financing, enabling us to go to these sources when there are tensions in the longer maturity markets.

Our structural liquidity situation (with 75% of its needs covered via deposits and permanent funds of the balance sheet in the area of convertible currencies and more than 100% in the Latin American banks) and the quantity and quality of our liquid assets have and continue to enable us to maintain normal lending activity.

B.2. Exchange rate risk; Portfolio of industrial and strategic shareholdings

B.2.1. Exchange rate risk

Structural exchange rate risk arises from Group 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 devaluations 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 significantly more quickly than the market is discounting.

At the end of 2007, the Group had hedged, through options structures, all of its significant stakes in its foreign subsidiaries (including Banco Real). This protected the Group from the impact of a certain level of currency depreciation on its capital.

In addition, we manage the expected exchange rate risk of the Group’s results and dividends in those units whose base currency is not the euro. In Latin America, local units manage the exchange rate risk between the local currency and the dollar, the currency used to manage the region. Financial Management at the consolidated level is responsible for its part of the risk management between the euro and the rest of convertible currencies.

B.2.2. Portfolio of industrial and strategic shareholdings

In 2007 the Group’s exposure in industrial and strategic equity portfolios increased 30% in MtM terms, partly due to the positive revaluation of the market prices (for instance, Cepsa, the greatest position in the portfolio, rose 18% in the year) and partly due to the entrance of new positions. All in all, the risk of the structural equity portfolio, measured in terms of VaR, increased €133.7 million compared to the end of 2006, up to €411.3 million, partly due to the increase in market volatility.

The average daily VaR for the year 2007 was €396.7 million, with a minimum of €297.8 million and a maximum of €469.8 million, in January and August 2007, respectively.

230

C. Exposures related to assets or special businesses

Grupo Santander’s exposure to instruments and complex structured vehicles is very limited with: no exposure to subprime mortgages, no material exposure subject to Mark-to-Model, and limited exposure to hedge funds, asset backed securities, monolines, conduits, etc.

This policy meant that this type of activity had no negative impact on our 2007 results.

Santander’s policy regarding the approval of new transactions has traditionally been very prudent and conservative, as it is subject to strict supervision by the Group’s senior management. Before giving the green light to a new transaction, product or underlying asset, the Risk Division verifies the following:

	•		The existence of an appropriate valuation model to monitor the value of each exposure: Mark-to-Market, Mark-to-Model or Mark-to-Liquidity;

	•		The availability in the market of the necessary inputs to apply this valuation model;

	•		The availability of duly adapted and appropriate systems to calculate and monitor each day the results, positions and risks of the new operations raised; and

	•		The degree of liquidity of the product or underlying assets, in order to make their coverage possible when deemed necessary.

Note that the first two points must always be met.

Without detriment to the Group’s limited exposure to businesses or special vehicles, the Group’s exposure to the various instruments are as follows:

	•		CDOs and other complex credit instruments: the Group’s total exposure to these instruments is small (less than €25 million).

	•		Hedge funds: the main exposure is via the financing to these funds (counterparty risk). This exposure, however, is not significant (€1,906 million at the end of the year, of which €101 million was in trading portfolios and the rest in investment portfolios) and with low levels of Loan-to-Value of around 45% (collateral of €4,227 million at the end of the year).The risk with this type of counterparty is analyzed case-by-case, establishing the percentages of collateral on the basis of the features and assets of each fund.

	•		Investments in structured investment vehicles, SIV-Lites and other investment vehicles with high leverage: no exposure.

	•		Conduits: at the end of 2007, the Group had two conduits promoted in the past, which have always been in the Group’s perimeter of consolidation:

• Altamira: at the end of 2007 it had total assets of €276 million, none of them related to mortgage operations. At that date, it was in the process of being wound down and integrated into the Group’s standard structure.

• Cantabric: at the end of 2007 total assets amounted to €183 million. The underlying asset is short-term commercial paper generated by retail banking activity in Spain, with a high degree of diversification and small nominal amounts.

•

Monolines: Santander’s exposure to these bond insurance companies at the end of 2007 was less than €350 million, mainly concentrated in the indirect exposure (€342 million), by virtue of the guarantee provided for this type of entity to various financing operations or traditional securitization. The exposure in this case is double default; the primary underlying assets are of high credit quality (mostly AA). The small remainder is direct exposure, for example, via purchase of protection against the risk of non-payment by some of these insurers via a credit default swap.

231

D. Structured financing transactions

In this area, Grupo Santander has a low exposure and its activities are diversified by products, sector and number of transactions. The exposure at the end of 2007 for 351 transactions was €16,926 million, broken down as follows: €10,060 million (103 transactions) in acquisition finance; €5,524 million (213 transactions) in project finance; and the rest in leveraged buy-outs (LBOs) and other modalities. Writedowns were not necessary in the investment portfolio. There has been no significant LBO since July 2007.

E. Capital Management

Capital management’s objective 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.

In accordance with the criteria of the Bank for International Settlements (“BIS”), our shareholders’ equity amounted to €65,225 million, €5,448 million more than at the end of 2006 (+9.1%). The surplus over the minimum requirement was €24,021 million.

Our capital ratios remain at comfortable levels. The BIS ratio was 12.66%, Tier I 7.71% and core capital 6.25% (an increase of 34 basis points over 2006). During 2007, Standard and Poor’s improved the ratings of the Group and its main subsidiaries to AA and Moody’s confirmed them. This makes us one of the European banks with the best long-term rating.

We are progressively incorporating the creation of value as a tool to (i) measure the contribution of the different units that are part of the portfolio of business and (ii) assess the management of each unit.

F. Market Risk: VaR Consolidated Analysis

Our total daily VaR as of December 31, 2006, and December 31, 2007, broken down by trading and structural (non-trading) portfolios, were as set forth below. The Trading VaR data do not include the trading activities of Banesto, whose VaR trading amount is immaterial to the Group.

Figures in millions of EUR


				Dec-07
	*Dec-06*			Low			Average			High			*Period End*
TOTAL		353.3			397.1			484.0			586.5			586.5

Trading		36.8			23.9			30.7			36.4			25.2
Non-Trading		351.3			395.8			483.1			585.8			585.8
Diversification Effect		(34.9	)		(22.6	)		(29.8	)		(35.7	)		(24.5	)

Our daily VaR estimates of interest rate risk, foreign exchange rate risk and equity price risk, were as set forth below. The Trading VaR data do not reflect the trading activities of Banesto, whose VaR trading amount is immaterial to the Group.

Interest Rate Risk

Figures in millions of EUR


				Dec-07
	*Dec-06*			Low			Average			High			*Period End*
Interest Rate Risk
Trading		29.7			20.0			25.9			30.7			22.2
Non-Trading		114.4			68.3			81.4			96.7			72.1
Diversification Effect		(25.9	)		(17.1	)		(21.9	)		(26.0	)		(18.8	)

TOTAL		118.2			71.2			85.5			101.5			75.4

232

Foreign Exchange Rate Risk

Figures in millions of EUR


				Dec-07
	*Dec-06*			Low			Average			High			*Period End*
Exchange Rate Risk
Trading		14.7			5.4			10.3			14.8			10.6
Non-Trading		90.3			89.2			102.7			157.8			157.8
Diversification Effect		(13.5	)		(5.3	)		(9.7	)		(14.1	)		(10.3	)

TOTAL		91.5			89.3			103.2			158.5			158.1

Equity Price Risk

Figures in millions of EUR


				Dec-07
	*Dec-06*			Low			Average			High			*Period End*
Equity Price Risk
Trading		5.0			3.7			5.8			12.4			5.1
Non-Trading		277.6			297.8			394.3			469.7			411.3
Diversification Effect		(5.0	)		(3.7	)		(5.8	)		(12.2	)		(5.0	)

TOTAL		277.7			297.8			394.4			469.9			411.3

Our daily VaR estimates by activity, were as set forth below. The Trading VaR data do not reflect the trading activities of Banesto, whose VaR trading amount is immaterial to the Group.


			Dec-07
	*Dec-06*		Low		Average		High		*Period End*
Trading
Interest Rate		29.7		20.0		25.9		30.7		22.2
Exchange Rate		14.7		5.4		10.3		14.8		10.6
Equity		5.0		3.7		5.8		12.4		5.1

TOTAL		36.8		23.9		30.7		36.4		25.2

Non-Trading Interest Rate
Interest Rate		114.4		68.3		81.4		96.7		72.1


Non-Trading Foreign Exchange
Exchange Rate		90.3		89.2		102.7		157.8		157.8


Non-Trading Equity
Equity		277.6		297.8		394.3		469.7		411.3


TOTAL		353.3		397.1		484.0		586.5		586.5

Interest Rate		118.2		71.2		85.5		101.5		75.4
Exchange Rate		91.5		89.3		103.2		158.5		158.1
Equity		277.7		297.8		394.4		469.9		411.3

233

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. Use of proceeds.

Not Applicable

Item 15. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

As of December 31, 2007, Banco Santander, S.A., under the supervision and with the participation of the Bank’s management, including its Disclosure Committee, our Chief Executive Officer, our Chief Financial Officer, and our Chief Accounting Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 (f) 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, the Bank’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and (2) gathered and communicated to the Bank’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 refers to the International Financial Reporting Standards as adopted by the European Union (“EU-IFRS”) required to be applied under Bank of Spain’s Circular 4/2004 as well as the accounting principles generally accepted in the United States of America (“U.S. GAAP”) relating to the reconciliation of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 to U.S. GAAP and the information presented in Notes 57 and 58 to our consolidated financial statements relating to the nature and effect of such differences.

235

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, 2007, 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, 2007, its internal control over financial reporting was effective based on those criteria.

236

Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2007. This report follows below.

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, 2007, 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, 2007, 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), the consolidated financial statements as of and for the year ended December 31, 2007 of the Group and our report dated June 27, 2008 expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph stating that the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 vary in certain significant respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”), and that the information relating to the nature and effect of such differences is presented in Notes 57 and 58 to the Consolidated Financial Statements of the Group.

/s/ DELOITTE, S.L.

Deloitte, S.L.
Madrid — Spain
June 27, 2008

(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.

237

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 5.4 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 the chairman of the Audit and Compliance Committee must be an independent director (as defined by Article 5.4 of 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. 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.

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”.

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:


	2007		2006		2005
	(in millions of euros)

Audit Fees (1)		15.9		15.6		15.8
Audit Related Fees (2)		11.1		11.9		8.5
Tax Fees (3)		2.5		1.9		1.4
All Other Fees (4)		5.3		5.5		4.5

		34.8		34.9		30.2


(1)		Fees for annual company audits of the Group.

(2)		In recent years, in addition to the audits of financial statements, the internal control audit was performed in accordance with the requirements of the US Sarbanes-Oxley Act (for €4.8 million in 2007, €5.6 million in 2006 and €5.4 million in 2005) 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, including most notably the six-monthly audit reports and those which comply with the US SEC requirements (other than Sarbanes-Oxley Act) totaling €3.7 million, €3.9 million and €3.9 million in 2007, 2006 and 2005, respectively. Additionally, in 2007 €1.4 million were paid in connection with the work relating to the Group’s adaptation to the new capital regulations (Basel — 2006: €1.0 million); while due diligence review and other corporate transaction services totaled €3.7 million (2006: €3.3 million; 2005: €0.6 million).

(3)		Fees for professional services rendered for tax compliance, tax advice, and tax planning in the countries in which the Group operates.

(4)		Other non-attest services provided by the Group’s auditors to various Group companies for €5.3 million in 2007, €5.5 million in 2006 and €4.5 million in 2005.

238

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 2007 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.

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 2006:


							(d) Maximum number (or
			(b) Average		(c) Total number of shares (or		approximate dollar value) of
	(a) Total number of		price paid per		units) purchased as part of		shares (or units) that may yet
	shares (or units)		share (or		publicly announced plans or		be purchased under the plans
2007	purchased		unit)		programs		or programs
January		57,718,813		€14.37		—		—
February		39,452,454		€14.37		—		—
March		30,707,371		€13.23		—		—
April		59,184,061		€13.41		—		—
May		51,948,497		€13.27		—		—
June		48,706,259		€13.83		—		—
July		73,672,787		€13.73		—		—
August		50,672,621		€13.49		—		—
September		43,275,561		€13.18		—		—
October		50,234,083		€14.12		—		—
November		57,722,035		€14.58		—		—
December		47,844,360		€14.59		—		—
Total		611,138,902

During 2007, all purchases and sales of equity securities were made in open-market transactions.

239

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, 2007, 2006 and 2005		F-2

Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005		F-3

Consolidated Statements Of Changes In Shareholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005		F-4

Consolidated Cash Flow Statement for the Years Ended December 31, 2007, 2006 and 2005		F-5

Notes to the Consolidated Financial Statements		F-7

(b) List of Exhibits.


Exhibit
Number		Description
1.1		By-laws (Estatutos) of Banco Santander, S.A., as amended.

1.2 *		By-laws (Estatutos) of Banco Santander, S.A., as amended.

1.3		By-laws (Estatutos) of Banco Santander, S.A., as amended (English translation of By-laws set forth in Exhibit 1.1 hereto).

1.4		By-laws (Estatutos) of Banco Santander, S.A., as amended (English translation of the By-laws set forth in Exhibit 1.2 hereto).

4.1 **		Consortium and Shareholders’ Agreement dated May 28, 2007, among the Royal Bank of Scotland Group plc, Banco Santander Central Hispano, S.A., Fortis SA/N.V. and RFS Holdings B.V. (incorporated by reference to Exhibit 4.1 to our Annual Report on Form 20-F for the year ended December 31, 2006, filed with the Securities and Exchange Commission on July 2, 2007).

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 Acounting Officer

15.1		Consent of Deloitte, S.L.

15.2		Report submitted by the Board of Directors to the General Shareholders’ Meeting describing the By-laws amendments

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.


*		These By-laws will go into effect (and replace the By-laws set forth in Exhibit 1.1) upon the granting of the necessary authorization by the Spanish Minister of Economy and Finance and their subsequent filing with the office of the Mercantile Registry in Santander.

**		Pursuant to a request for confidential treatment filed with the Securities and Exchange Commission, the confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission.

240

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, 2007, 2006 and 2005, and the related consolidated income statements, statements of changes in equity (recognized income and expense), and cash flow statements 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). 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 the Santander Group as of December 31, 2007, 2006 and 2005, and the results of their operations and their cash flows for the years then ended, in conformity with International Financial Reporting Standards, as adopted by the European Union (“EU-IFRS”) required to be applied under Bank of Spain’s Circular 4/2004 (Note 1.b).

The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 vary in certain significant respects from accounting principles generally accepted in the United States of America (U.S. GAAP). Information relating to the nature and effect of such differences is presented in Notes 57 and 58 to the consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group’s internal control over financial reporting as of December 31, 2007, 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 27, 2008 expressed an unqualified opinion on the Group’s internal control over financial reporting.

/s/ DELOITTE, S.L.

Deloitte, S.L.
Madrid-Spain
June 27, 2008

F-1

SANTANDER GROUP
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2007, 2006 AND 2005 (NOTES 1 to 4)
(Thousands of Euros)

Note

2007

2006

2005

ASSETS

CASH AND BALANCES WITH CENTRAL BANKS

31,062,775

13,835,149

16,086,458

FINANCIAL ASSETS HELD FOR TRADING:

158,800,435

170,422,722

154,207,859

Loans and advances to credit institutions

12,294,559

14,627,738

10,278,858

Loans and advances to customers

23,704,481

30,582,982

26,479,996

Debt instruments

66,330,811

76,736,992

81,741,944

Other equity instruments

9,744,466

13,490,719

8,077,867

Trading derivatives

46,726,118

34,984,291

27,629,194

OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS:

24,829,441

15,370,682

48,862,267

Loans and advances to credit institutions

6,865,073

185,485

2,428,663

Loans and advances to customers

8,021,623

7,972,544

6,431,197

Debt instruments

7,072,423

4,500,220

9,699,237

Other equity instruments

2,870,322

2,712,433

30,303,170

AVAILABLE-FOR-SALE FINANCIAL ASSETS:

44,348,907

38,698,299

73,944,939

Debt instruments

34,187,077

32,727,454

68,054,021

Other equity instruments

10,161,830

5,970,845

5,890,918

LOANS AND RECEIVABLES:

579,530,145

544,048,823

459,783,749

Loans and advances to credit institutions

31,759,867

45,361,315

47,065,501

Money market operations through counterparties

—

200,055

—

Loans and advances to customers

533,750,907

484,790,338

402,917,602

Debt instruments

1,668,339

621,770

171,203

Other financial assets

12,351,032

13,075,345

9,629,443

HELD-TO-MATURITY INVESTMENTS

—

CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK

297,131

(259,254

)

—

HEDGING DERIVATIVES

3,063,169

2,987,964

4,126,104

NON-CURRENT ASSETS HELD FOR SALE:

10,156,429

327,384

336,324

Loans and advances to credit institutions

5,596

—

Loans and advances to customers

14,499

—

Debt instruments

20,321

—

Equity instruments

9,025,936

—

Tangible assets

1,061,743

327,384

336,324

Other assets

28,334

—

INVESTMENTS:

15,689,127

5,006,109

3,031,482

Associates

15,689,127

5,006,109

3,031,482

INSURANCE CONTRACTS LINKED TO PENSIONS

2,525,550

2,604,535

2,676,365

REINSURANCE ASSETS

309,774

261,873

2,387,701

TANGIBLE ASSETS:

9,459,033

10,110,996

9,993,207

Property, plant and equipment for own use

4,287,612

5,284,177

5,204,931

Investment property

460,725

374,547

667,449

Other assets leased out under an operating lease

4,710,696

4,452,272

4,120,827

Memorandum item: Acquired under a finance lease

394,187

200,838

83,459

INTANGIBLE ASSETS:

16,033,042

16,956,841

16,229,271

Goodwill

13,830,708

14,512,735

14,018,245

Other intangible assets

2,202,334

2,444,106

2,211,026

TAX ASSETS:

12,698,072

9,856,053

10,127,059

Current

1,845,310

699,746

1,217,646

Deferred

10,852,762

9,156,307

8,909,413

PREPAYMENTS AND ACCRUED INCOME

1,749,193

1,581,843

2,969,219

OTHER ASSETS:

2,362,748

2,062,696

4,344,910

Inventories

231,734

143,354

2,457,842

Other

2,131,014

1,919,342

1,887,068

TOTAL ASSETS

912,914,971

833,872,715

809,106,914

MEMORANDUM ACCOUNTS:

CONTINGENT LIABILITIES:

76,924,835

58,769,309

48,453,575

Financial guarantees

76,316,446

58,205,412

48,199,671

Assets earmarked for third-party obligations

Other contingent liabilities

608,386

563,893

253,880

CONTINGENT COMMITMENTS:

114,676,563

103,249,430

96,263,262

Drawable by third parties

102,215,927

91,690,396

77,678,333

Other commitments

12,460,636

11,559,034

18,584,929

LIABILITIES AND EQUITY

FINANCIAL LIABILITIES HELD FOR TRADING

122,753,987

123,996,445

112,466,429

Deposits from credit institutions

23,254,111

39,690,713

31,962,919

Customer deposits

27,992,480

16,572,444

14,038,543

Marketable debt securities

17,090,935

17,522,108

19,821,087

Trading derivatives

48,803,227

38,738,118

29,228,080

Short positions

5,613,234

11,473,062

17,415,800

OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

33,155,674

12,411,328

11,809,874

Deposits from credit institutions

12,207,579

—

Marketable debt securities

10,279,037

12,138,249

11,809,874

Customer deposits

10,669,058

273,079

—

FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY

—

FINANCIAL LIABILITIES AT AMORTISED COST:

652,952,005

605,302,821

565,651,643

Deposits from central banks

28,748,079

16,529,557

22,431,194

Deposits from credit institutions

48,686,254

56,815,667

94,228,294

Money market operations through counterparties

—

Customer deposits

317,042,764

314,377,078

291,726,737

Marketable debt securities

206,264,524

174,409,033

117,209,385

Subordinated liabilities

35,670,179

30,422,821

28,763,456

Other financial liabilities

16,540,205

12,748,665

11,292,577

CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK

(516,725

)

—

HEDGING DERIVATIVES

4,134,571

3,493,849

2,310,729

LIABILITIES ASSOCIATED WITH NON- CURRENT ASSETS HELD FOR SALE:

63,420

—

7,967

Other liabilities

63,420

—

7,967

LIABILITIES UNDER INSURANCE CONTRACTS

13,033,617

10,704,258

44,672,300

PROVISIONS:

16,570,899

19,226,513

19,822,990

Provisions for pensions and similar obligations

11,819,748

14,014,305

14,172,961

Provisions for contingent liabilities and commitments

636,316

598,735

487,048

Other provisions

4,114,835

4,613,473

5,162,981

TAX LIABILITIES:

6,156,365

4,539,051

3,867,795

Current

2,412,133

761,529

1,100,567

Deferred

3,744,232

3,777,522

2,767,228

ACCRUED EXPENSES AND DEFERRED INCOME

4,050,992

2,999,080

3,048,733

OTHER LIABILITIES:

2,479,457

3,458,740

1,512,908

Other

2,479,457

3,458,740

1,512,908

EQUITY HAVING THE SUBSTANCE OF A FINANCIAL LIABILITY

522,558

668,328

1,308,847

TOTAL LIABILITIES

855,356,820

786,800,413

766,480,215

MINORITY INTERESTS

2,358,269

2,220,743

2,848,223

VALUATION ADJUSTMENTS:

722,036

2,870,757

3,077,096

Available-for-sale financial assets

1,418,966

2,283,323

1,941,690

Cash flow hedges

(58,655

)

49,252

70,406

Hedges of net investments in foreign operations

638,474

(173,503

)

(384,606

)

Exchange differences

(1,276,749

)

711,685

1,449,606

SHAREHOLDERS’ EQUITY:

54,477,846

41,980,802

36,701,380

Issued capital

3,127,148

Share premium

20,370,128

Reserves

16,371,430

12,289,480

8,703,789

Accumulated reserves

15,475,993

11,491,670

8,100,140

Reserves of entities accounted for using the equity method:

895,437

797,810

603,649

Associates

895,437

797,810

603,649

Other equity instruments:

7,086,881

62,118

77,478

Equity component of compound financial instruments

—

12,118

34,977

Other

7,086,881

50,000

42,501

Treasury shares

(192

)

(126,801

)

(53,068

)

Profit attributed to the Group

9,060,258

7,595,947

6,220,104

Dividends and remuneration

(1,537,807

)

(1,337,218

)

(1,744,199

)

TOTAL EQUITY

57,558,151

47,072,302

42,626,699

TOTAL LIABILITIES AND EQUITY

912,914,971

833,872,715

809,106,914

The accompanying Notes 1 to 58 and Exhibits are an integral part of the consolidated balance sheet at December 31, 2007.

F-2

SANTANDER GROUP

CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (NOTES 1 to 4)
(Thousands of Euros)


			(Debit) Credit
	Note		2007			2006 (*)			2005 (*)

INTEREST AND SIMILAR INCOME		38		45,803,354			36,832,823			33,088,647
INTEREST EXPENSE AND SIMILAR CHARGES:		39		(30,921,470	)		(24,757,027	)		(22,764,846	)
Return on equity having the substance of a financial liability				(47,290	)		(85,229	)		(118,389	)
Other				(30,874,180	)		(24,671,798	)		(22,646,457	)
INCOME FROM EQUITY INSTRUMENTS		40		413,242			404,000			335,576
NET INTEREST INCOME				15,295,126			12,479,796			10,659,377
SHARE OF RESULTS OF ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD:		41		441,457			426,921			619,157
Associates				441,457			426,921			619,157

FEE AND COMMISSION INCOME		42		9,479,986			8,288,580			7,153,947
FEE AND COMMISSION EXPENSE		43		(1,439,811	)		(1,264,385	)		(1,092,751	)
INSURANCE ACTIVITY INCOME		44		319,353			253,084			201,466
Insurance and reinsurance premium income				5,377,949			4,664,812			2,214,344
Reinsurance premiums paid				(197,490	)		(137,129	)		(98,610	)
Claims paid and other insurance-related expenses				(2,862,786	)		(2,049,620	)		(1,408,361	)
Reinsurance income				152,038			101,229			88,452
Net provisions for insurance contract liabilities				(2,738,701	)		(2,948,083	)		(1,199,112	)
Finance income				597,503			840,838			735,830
Finance expense				(9,160	)		(218,963	)		(131,077	)
GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES (Net):		45		2,321,624			2,052,539			1,457,847
Held for trading				1,396,349			1,807,380			990,722
Other financial instruments at fair value through profit or loss				115,702			(119,860	)		6,879
Available-for-sale financial assets				1,051,914			338,263			532,310
Loans and receivables				(141,995	)		78,519			70,645
Other				(100,346	)		(51,763	)		(142,709	)
EXCHANGE DIFFERENCES (net)		46		650,734			96,635			76,513
GROSS INCOME				27,068,469			22,333,170			19,075,556
SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES		47		771,027			734,602			565,525
COST OF SALES		47		(618,955	)		(615,689	)		(409,347	)
OTHER OPERATING INCOME		48		351,097			323,900			256,123
PERSONNEL EXPENSES		49		(6,551,201	)		(5,967,873	)		(5,611,308	)
OTHER GENERAL ADMINISTRATIVE EXPENSES		50		(4,467,128	)		(4,001,298	)		(3,753,100	)
DEPRECIATION AND AMORTISATION:				(1,267,880	)		(1,146,547	)		(1,013,943	)
Tangible assets		16		(621,271	)		(628,537	)		(618,109	)
Intangible assets		17		(646,609	)		(518,010	)		(395,834	)
OTHER OPERATING EXPENSES		51		(469,736	)		(442,525	)		(344,829	)
NET OPERATING INCOME				14,815,693			11,217,740			8,764,677
IMPAIRMENT LOSSES (net):				(5,078,513	)		(2,550,570	)		(1,801,934	)
Available-for-sale financial assets		8		(6,546	)		2,869			110,977
Loans and receivables		10		(3,496,058	)		(2,483,862	)		(1,747,900	)
Non-current assets held for sale		12		(27,299	)		(48,796	)		(10,536	)
Investments		13		(363,637	)		(380	)		—
Tangible assets		16		(1,444	)		(6,457	)		(15,090	)
Goodwill	13 and 17			(599,989	)		(12,811	)		—
Other intangible assets		17		(562,883	)		—			(130,977	)
Other assets				(20,657	)		(1,133	)		(8,408	)
PROVISIONS (net)		25		(706,621	)		(1,079,337	)		(1,807,381	)
FINANCE INCOME FROM NON-FINANCIAL ACTIVITIES				4,617			7,386			2,846
FINANCE EXPENSES OF NON-FINANCIAL ACTIVITIES				(3,184	)		(5,553	)		(10,709	)
OTHER GAINS:		52		2,631,570			1,672,944			2,760,566
Gains on disposal of tangible assets				1,859,383			147,763			151,043
Gains on disposal of investments				17,408			273,656			1,306,357
Other				754,779			1,251,525			1,303,166
OTHER LOSSES:		52		(488,321	)		(267,224	)		(247,168	)
Losses on disposal of tangible assets				(55,275	)		(58,869	)		(70,424	)
Losses on disposal of investments				(1,020	)		(1,695	)		(7,422	)
Other				(432,026	)		(206,660	)		(169,322	)
PROFIT BEFORE TAX				11,175,241			8,995,386			7,660,897
INCOME TAX		27		(2,335,686	)		(2,254,598	)		(1,241,830	)
PROFIT FROM CONTINUING OPERATIONS				8,839,555			6,740,788			6,419,067
PROFIT FROM DISCONTINUED OPERATIONS (Net)		37		796,595			1,504,965			330,703
CONSOLIDATED PROFIT FOR THE YEAR				9,636,150			8,245,753			6,749,770
PROFIT ATTRIBUTED TO MINORITY INTERESTS		28		(575,892	)		(649,806	)		(529,666	)
PROFIT ATTRIBUTED TO THE GROUP				9,060,258			7,595,947			6,220,104

EARNINGS PER SHARE:
From continuing operations and discontinued operations
Basic earnings per share (euros)				1.4287			1.2157			0.9967
Diluted earnings per share (euros)				1.4139			1.2091			0.9930
From continuing operations
Basic earnings per share (euros)				1.3170			1.0127			0.9599
Diluted earnings per share (euros)				1.3033			1.0072			0.9563


(*)		Reclassified in order to reflect the operations classified as discontinued in 2007 (see Note 37).

The accompanying Notes 1 to 58 and Exhibits are an integral part of the consolidated income statement for the year ended December 31, 2007.

F-3

SANTANDER GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE)

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (NOTES 1 to 4)
(Thousands of Euros)


	2007			2006			2005

NET INCOME RECOGNISED DIRECTLY IN EQUITY:		(2,148,721	)		(206,339	)		1,299,532
Available-for-sale financial assets-		(864,357	)		341,633			4,872
Revaluation gains/losses		825,812			1,663,713			911,814
Amounts transferred to income statement		(1,583,126	)		(1,177,308	)		(883,474	)
Income tax		(107,043	)		(144,772	)		(23,468	)

Cash flow hedges-		(107,907	)		(21,154	)		72,193
Revaluation gains/losses		(156,313	)		9,087			83,216
Amounts transferred to income statement		(14,227	)		—			—
Income tax		62,633			(30,241	)		(11,023	)

Hedges of net investments in foreign operations-		811,977			211,103			(1,022,833	)
Revaluation gains/losses		811,977			211,103			(1,022,833	)

Exchange differences-		(1,988,434	)		(737,921	)		2,245,300
Translation gains/losses		(2,048,430	)		(741,085	)		2,411,831
Amounts transferred to income statement		59,996			3,164			(166,531	)

CONSOLIDATED PROFIT FOR THE YEAR:		9,636,150			8,245,753			6,749,770
Published consolidated profit for the year		9,636,150			8,245,753			6,749,770

		7,487,429			8,039,414			8,049,302

TOTAL INCOME AND EXPENSE FOR THE YEAR:
Parent		6,911,537			7,389,608			7,519,636
Minority interests (*)		575,892			649,806			529,666

*TOTAL ()**		7,487,429			8,039,414			8,049,302


(*)		In addition, in 2007 and 2006 the net revenue recognized directly in equity relating to minority interests amounted to (€175) million and (€121) million, respectively.

The accompanying Notes 1 to 58 and Exhibits are an integral part of the consolidated statement of changes in equity
(consolidated statement of recognized income and expense) for the year ended December 31, 2007.

F-4

SANTANDER GROUP
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (NOTES 1 to 4)
(Thousands of Euros)

2007

2006 (*)

2005 (*)

1. CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated profit for the year

9,636,150

8,245,753

6,749,770

Adjustments to profit-

9,952,115

8,183,303

5,065,489

Depreciation of tangible assets

621,271

628,537

618,109

Amortization of intangible assets

646,609

518,010

395,834

Impairment losses (net)

5,702,733

2,550,570

1,801,934

Net provisions for insurance contract liabilities

2,738,701

2,948,083

1,199,112

Provisions (net)

706,621

1,079,337

1,807,381

Gains/losses on disposal of tangible assets

(1,804,108

)

(88,894

)

(80,619

)

Gains/losses on disposal of investments

(16,388

)

(271,961

)

(1,298,935

)

Share of results of entities accounted for using the equity method

(294,809

)

(426,921

)

(619,157

)

Other non-monetary items(and monetary items related to discontinuous operations)

(684,201

)

(1,008,056

)

—

Taxes

2,335,686

2,254,598

1,241,830

Of which paid

3,181,098

949,050

1,036,379

19,588,265

16,429,056

11,815,259

Net increase/decrease in operating assets:

(48,589,631

)

(72,431,214

)

(142,040,315

)

Financial assets held for trading-

11,289,111

(17,673,307

)

(42,451,923

)

Loans and advances to credit institutions

2,333,179

(4,346,626

)

2,599,313

Loans and advances to customers

6,878,501

(4,120,763

)

(8,972,411

)

Debt instruments

10,180,799

5,004,952

(25,872,315

)

Other equity instruments

3,640,211

(5,412,852

)

(3,658,529

)

Trading derivatives

(11,743,579

)

(8,798,018

)

(6,547,981

)

Other financial assets at fair value through profit or loss-

3,578,501

(1,385,171

)

(3,103,172

)

Loans and advances to credit institutions

6,471,028

(662,145

)

4,095,407

Loans and advances to customers

(49,079

)

(1,541,615

)

(1,139,646

)

Debt instruments

(2,572,203

)

(1,487,469

)

9,933,721

Other equity instruments

(271,245

)

2,306,058

(15,992,654

)

Available-for-sale financial assets-

(6,424,418

)

35,824,761

(28,558,595

)

Debt instruments

(1,507,435

)

35,324,083

(31,237,853

)

Other equity instruments

(4,916,983

)

500,678

2,679,258

Loans and receivables-

(53,673,405

)

(85,625,778

)

(67,542,207

)

Loans and advances to credit institutions

357,129

1,063,273

(8,087,968

)

Money market operations through counterparties

200,055

(200,055

)

3,907,905

Loans and advances to customers

(53,908,199

)

(82,610,198

)

(58,557,032

)

Debt instruments

(1,046,569

)

(461,403

)

(171,203

)

Other financial assets

724,179

(3,417,395

)

(4,633,909

)

Other operating assets

(3,359,420

)

(3,571,719

)

(384,418

)

Net increase/decrease in operating liabilities:

23,791,209

3,861,319

95,919,375

Financial liabilities held for trading-

(9,059,282

)

15,327,711

14,736,090

Deposits from credit institutions

(16,436,602

)

7,727,794

6,738,176

Customer deposits

11,420,036

2,533,901

(6,502,682

)

Marketable debt securities

(8,247,997

)

1,498,716

1,825,604

Trading derivatives

10,065,109

9,510,038

3,984,312

Short positions

(5,859,828

)

(5,942,738

)

8,690,680

Other financial liabilities at fair value through profit or loss-

(3,021,055

)

(5,381,405

)

555,299

Deposits from credit institutions

(6,071,507

)

822,550

—

Customer deposits

3,050,452

282,806

—

Marketable debt securities

—

(6,486,761

)

555,299

Financial liabilities at amortized cost-

41,805,727

(4,453,117

)

82,195,979

Deposits from central banks

12,218,526

(5,901,637

)

14,363,334

Deposits from credit institutions

10,149,673

(36,075,478

)

43,770,558

Money market operations through counterparties

—

(2,499,000

)

Customer deposits

10,011,213

22,733,508

29,056,346

Marketable debt securities

5,619,970

13,337,020

(7,925,063

)

Other financial liabilities

3,806,345

1,453,470

5,429,804

Other operating liabilities

(5,934,181

)

(1,631,870

)

(1,567,993

)

Total net cash flows from operating activities (1)

(5,210,157

)

(52,140,839

)

(34,305,681

)

Of which:

Interest and similar income collected (Note 38)

45,237,669

36,412,213

31,326,727

Interest expense and similar charges paid (Note 39)

(29,436,256

)

(23,915,708

)

(18,819,373

)

F-5

SANTANDER GROUP
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (NOTES 1 to 4)
(Thousands of Euros)


	2007			2006 (*)			2005 (*)

2. CASH FLOWS FROM INVESTING ACTIVITIES
Investments-		(26,303,306	)		(7,546,963	)		(2,465,956	)
Subsidiaries, jointly controlled entities and associates (Note 13)		(12,285,132	)		(2,693,849	)		(18,479	)
Tangible assets (Note 16)		(2,797,760	)		(3,380,790	)		(1,986,595	)
Intangible assets (Note 17)		(1,862,422	)		(1,472,324	)		(451,089	)
Other financial assets (Note 12)		(9,066,352	)		—			—
Other assets		(291,640	)		—			(9,793	)

Divestments-		5,159,250			10,050,174			6,613,439
Subsidiaries, jointly controlled entities and associates (Note 13)		978,584			7,477,594			1,750,126
Tangible assets (Note 16)		3,496,430			1,957,246			2,479,579
Other financial assets		—			—			1,814,418
Other assets		684,236			615,334			569,316

Total net cash flows from investing activities (2)		(21,144,056	)		2,503,211			4,147,483


3. CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of own equity instruments (**)		(8,473,038	)		(73,733	)		—
Disposal of own equity instruments (**)		8,599,647			—			73,432
Issuance/Redemption of other equity instruments (Note 34)		7,024,763			(15,360	)		(16,089	)
Redemption of equity having the substance of a financial liability		(94,912	)		(472,925	)		(944,968	)
Issuance of subordinated liabilities (Note 23)		8,329,817			5,896,301			2,507,872
Redemption of subordinated liabilities (Note 23)		(2,339,981	)		(2,739,743	)		(2,410,288	)
Issuance of other long-term liabilities (Note 22)		122,530,232			78,851,479			52,669,694
Redemption of other long-term liabilities (Note 22)		(85,674,400	)		(30,510,388	)		(14,269,479	)
Increase/Decrease in minority interests		(438,366	)		(124,026	)		233,241
Dividends paid (Note 30)		(3,456,732	)		(2,779,334	)		(2,208,518	)
Other items related to financing activities		(2,253,661	)		(767,419	)		1,500,947

Total net cash flows from financing activities (3)		43,753,369			47,264,852			37,135,844


4. EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (4)		(171,530	)		121,467			307,400


5. NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (1+2+3+4)		17,227,626			(2,251,309	)		7,285,046


Cash and cash equivalents at beginning of year		13,835,149			16,086,458			8,801,412

Cash and cash equivalents at end of year		31,062,775			13,835,149			16,086,458


(*)		Restated in order to include the operations classified as discontinued in 2007 (see Note 37).

(**)		The acquisitions and disposals of own equity instruments were presented at their net amount in 2006 and 2005. The acquisitions made in 2006 and 2005 amounted to €5,723 million and €5,073 million, respectively, and the disposals amounted to €5,649 million and €5,146 million, respectively.

The accompanying Notes 1 to 58 and Exhibits are an integral part of the consolidated cash flow statement for the year ended December 31, 2007.

F-6

Santander Group

Notes to the consolidated financial statements
for the years ended December 31, 2007, 2006 and 2005

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, the Santander Group (“the Group” or “the Santander Group”). Therefore, the Bank is obliged to prepare, in addition to its own individual 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 2005 were approved by the shareholders at the Bank’s Annual General Meeting on June 17, 2006. The Group’s consolidated financial statements for 2006 were approved by the shareholders at the Bank’s Annual General Meeting on June 23, 2007. The 2007 consolidated financial statements of the Group and the 2007 financial statements of the Bank and of substantially all the Group companies have not yet been approved by their shareholders at the respective Annual General Meetings. However, the Bank’s Board of Directors considers that the aforementioned financial statements will be approved without any 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 in conformity with the International Financial Reporting Standards previously adopted by the European Union (“EU-IFRS”). 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, the Group is required to prepare its consolidated financial statements for the year ended December 31, 2007 in conformity with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, which profit and loss account mandatory presentation excludes certain operating expenses, including various impairment and provision charges from “Net Operating Income”, and reduces “Gross Income” by certain expenses.

			Under EU-IFRS financial institutions that have entity specific historical loss experience should evaluate impairment in future cash flows in a group of financial assets on the basis of such historical loss experience for assets with similar credit risk characteristics. The Group has such entity-specific historical loss experience.

			The Group, in recognizing the inherent losses in such financial assets, and in contingent exposures classified as standard, has developed internal models that take into account our historical experience of impairment adjusted as appropriate for other objective observable data known at the time of assessment.

			We utilize the inherent loss concept to quantify the cost of our credit risk in order to be able to incorporate such risk in the calculation of our risk adjusted return of operations. Additionally, the parameters necessary to calculate such return are used in the calculation of economic capital and, in the future, in the calculation of regulatory capital under the internal models of Basel II.

F-7

			The Bank of Spain’s Circular 4/2004 requires that the internal valuation allowance methodology described above shall be tested and validated by the Bank of Spain. The Bank of Spain has not yet verified such internal models (although it is in the process of reviewing them). The Bank of Spain’s Circular 4/2004 requires that until our internal models are so validated, the ratio of the allowance for loan losses to insolvencies incurred but not specifically identified for our Spanish operations must not be lower than would result under the application of the methodology established by the Bank of Spain, under Circular 4/2004, which is based on historical statistical data relating to the Spanish financial sector as a whole, as opposed to our specific historical loss experience (see Note 2-g).

			The risk categories and the ranges of loan loss percentages that we must use to calculate the amounts needed to cover the impairment losses inherent in debt instruments and contingent exposures classified as standard, in each case for our Spanish operations, as of the balance sheet date are described in Note 2-g.

			The Group’s consolidated financial statements for 2007 were prepared by the Bank’s directors (at the Board Meeting on March 24, 2008) in accordance with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, and applying the basis of consolidation, accounting policies and measurement bases set forth in Note 2 and, accordingly, they present fairly the Group’s equity and financial position at December 31, 2007, and the consolidated results of its operations, the changes in consolidated recognized income and expense and the consolidated cash flows in 2007. These consolidated financial statements were prepared from the individual 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 and consolidated cash flow statement, and 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.

Adoption of new standards and interpretations

			*Standards and interpretations in force in 2007*

			In 2007 the Group adopted IFRS 7 Financial Instruments: Disclosure, which entered into force on January 1, 2007 for years beginning on or after that date, and the amendments to IAS 1 Presentation of Financial Statements in relation to capital disclosures.

			Additionally, four IFRIC Interpretations became effective for the first time this year: IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies; IFRIC 8 Scope of IFRS 2; IFRIC 9 Reassessment of Embedded Derivatives; and IFRIC 10 Interim Financial Reporting and Impairment. The adoption of these interpretations did not have an impact on the consolidated financial statements.

			*Standards and interpretations issued but not in force*

			At the date of preparation of these consolidated financial statements, the following standards and interpretations had been published by the IASB but had not yet entered into force, either because their effective date is subsequent to the date of the consolidated financial statements or because they had not yet been adopted by the European Union. The entry into force of these standards and interpretations will not have a material effect on the consolidated financial statements.

F-8


		Obligatory Application in
		the Years Beginning on
Standards		or after:

IFRS 8	Operating Segments	January 1, 2009
Revision of IAS 23 (*)	Borrowing Costs	January 1, 2009
Revision of IAS 1 (*)	Presentation of Financial Statements	January 1, 2009
Revision of IFRS 3 (*)	Business Combinations	July 1, 2009
Amendment to IAS 27 (*)	Consolidated and Separate Financial Statements	July 1, 2009
Amendment to IFRS 2 (*)	Share-based Payments	January 1, 2009
IFRIC 11	IFRS 2 — Group and Treasure Share Transactions	March 1, 2007
IFRIC 12 (*)	Service Concession Arrangements	January 1, 2008
IFRIC 13 (*)	Customer Loyalty Programmes	July 1, 2009
IFRIC 14 (*)	IAS 19 — Defined Benefit Asset	January 1, 2008


(*)		Standards and interpretations not adopted by the European Union at the date of preparation of these consolidated financial statements.

			IFRS 8 Operating Segments

			This standard replaces IAS 14. It requires an entity to disclose information on the financial performance of its business segments on the basis of the information used internally by management to assess the profit or loss of these segments.

			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.

			Review of IAS 1 Presentation of Financial Statements

			This review affects mainly the presentation and disclosure requirements.

			Revision of IFRS 3 Business Combinations and Amendment to IAS 27 Consolidated and Separate Financial Statements

			The revised IFRS 3 and the amendments to IAS 27 give rise to significant changes in several matters relating to the accounting for business combinations, which generally place more emphasis on the use of fair value. Since the changes are significant, set forth below are certain of these changes, merely for illustration purposes: acquisition costs, which will be expensed rather than be considered as an increase in the cost of the business combination as per the current accounting treatment; step acquisitions, in which the acquirer revalues the investment at fair value on the date on which control is obtained; or the option to measure at fair value the minority interests of the acquiree rather than measure them as the proportional part of the fair value of the net assets acquired as per the current accounting treatment. Since the standard will be applied prospectively, the business combinations already effected will not have any impact.

			Amendment to IFRS 2 Share-based Payment

			The objective of the amendment is to clarify the concepts of vesting conditions and cancellations in share-based payments.

			IFRIC 11 IFRS 2 Group and Treasure Share Transactions

			Treasury or group share-based payment transactions will be accounted for as equity-settled, regardless of how the equity instruments needed are obtained.

			IFRIC 12 Service Concession Arrangements and IFRIC 13 Customer Loyalty Programmes

			Given the nature of these interpretations, their entry into force will not have any impact on the consolidated financial statements.

F-9

			IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

			IFRIC 14 provides general guidance on how to assess 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 will standardize the practice and ensure that the entities recognize an asset in relation to a surplus on a consistent basis.

	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 executives 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 (Notes 6, 7, 8, 10, 12, 13, 16 and 17);

	•		The assumptions used in the actuarial calculation of the post-employment benefit liabilities and commitments and other obligations (Note 25);

	•		The useful life of the tangible and intangible assets (Notes 16 and 17);

	•		The measurement of goodwill arising on consolidation (Note 17); and

	•		The fair value of certain unquoted assets (Notes 8, 9 and 11).

Other matters

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 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.

			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 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. A cassation appeal has been filed against the judgment of the Cantabria Provincial Appellate Court.

			On November 29, 2002, the Santander Court of First Instance number 2 dismissed in full the claims contesting the resolutions adopted at the General 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 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 at the General 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.

F-10

			On May 29, 2003, the Santander Court of First Instance number 6 dismissed in full the claim contesting the resolutions adopted at the General 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 have prepared and filed an extraordinary appeal on grounds of procedural infringements and a cassation appeal against the judgment.

			On November 23, 2007, the Santander Court of First Instance number 7 dismissed in full the claims contesting the resolutions adopted at the General Meeting on June 21, 2003. An appeal has been filed against the judgment. The Court has been notified of the recent death of one of the appellants and the appeals are currently being held in abeyance until his heirs have been identified.

			On October 28, 2005, the Santander Court of First Instance number 8 dismissed in full the claims contesting the resolutions adopted at the General Meeting on June 19, 2004. The plaintiffs filed an appeal against the judgment, but the appeal was dismissed in full by the Cantabria Provincial Appellate Court. Against this judgment the plaintiffs have prepared and filed a cassation appeal and an extraordinary appeal on the grounds of procedural infringements. The cassation and extraordinary appeals for procedural infringement filed by one of the appellants were not given leave to proceed due to the death of the appellant and then non-appearance of his heirs. However, this decision has been appealed against by the legal representative of the late appellant.

			On July 13, 2007, the Santander Court of First Instance number 10 dismissed in full the claims contesting the resolutions adopted at the General Meeting on June 18, 2005. An appeal has been filed against the judgment.

ii.

Credit assignment transactions

			Following the investigations carried out since 1992 by the Madrid Central Examining Court number 3, and despite the fact that the Government Lawyer, as the representative of the Public Treasury, and the Public Prosecutor’s Office have repeatedly applied to have the case against the Bank and its executives dismissed and struck out, a decision was rendered on June 27, 2002 to turn the preliminary court proceedings into an “abbreviated” proceeding. The Public Prosecutor’s Office, the Bank and its executives have appealed against this decision.

			On June 23, 2003, Panel Two of the Criminal Chamber of the National Appellate Court partially upheld these appeals, and explicitly recognized that the assignments of naked credit ownership were lawfully marketed and reduced the proceedings from 138 to 38 customer transactions (it should be noted that the Government Lawyer and the Public Prosecutor’s Office had also requested dismissal and strike-out of the case on grounds that no offence had been committed) with respect to which the Bank’s possible involvement continued to be alleged.

			Following the submissions phase, in which the Public Prosecutor’s Office and the Government Lawyer reiterated their petition to have the proceedings dismissed and struck out, based on the class accusation filed by the Association for the Defence of Investors and Customers, on October 6, 2004 the Court ordered commencement of a trial against the Chairman of the Bank and three executives.

			Once the trial had 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 Defence 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.

			A decision has not yet been handed down by the Supreme Court on the ancillary suit for nullity of proceedings filed by the Association for the Defence of Investors and Customers.

	e)		*Information relating to 2006 and 2005*

			The information relating to 2006 and 2005 contained in these notes to the consolidated financial statements does not constitute the Group’s statutory consolidated financial statements for those years.

F-11

	f)		*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 (core capital, TIER 1, etc.) using Basel (“BIS”) and Bank of Spain criteria. 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, and preference and subordinated issues of equity securities 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, return on risk adjusted capital (RORAC) and value creation data for each business unit are generated, analyzed and reported to the Management Committee on a quarterly basis.

			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 Economic Research 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.

			It should be noted that the regulations governing compliance with minimum capital requirements for credit institutions, both as individual entities and as consolidated groups, came into force through the publication of Law 13/1992, of June 1, and of Bank of Spain Circular 5/1993 and subsequent amendments thereto.

			At December 31, 2007, the Group’s eligible capital exceeded the minimum requirements by €14,517 million (December 31, 2006: €11,172 million; December 31, 2005: €10,384 million).

			Royal Decree 216/2008, of February 15, on the capital of financial institutions was published on February 16, 2008. Also, a series of amendments were introduced to Law 13/1985, of May 25, on investment ratios, capital and reporting requirements of financial intermediaries. The main purpose of these new regulations is to transpose into Spanish law Directive 2006/48/EC and Directive 2006/49/EC which, in turn, transpose into Community law the New Basel Capital Accord (“Basel II”- BIS II).

			Accordingly, in 2008 the Bank and its Group must calculate their capital requirements in accordance with the aforementioned regulations, which change the way entities must calculate their minimum capital, including new risks that require the use of capital, such as operational risk, and introduce new calculation methodologies and models to be applied by the entities, and new requirements in terms of validation mechanisms and public information to be disclosed to the market.

			The new regulations permit the use of internal parameters for the calculation of minimum capital requirements, which will become effective from June 30, 2008.

			The Group intends to use, 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 Banco Español de Crédito -Banesto- in Spain and Abbey in the UK), and plans to extend these models to its other main units in the next few years. 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 the review and approval by the Bank of Spain and the Financial Services Authority (FSA) of 36 credit risk models applicable to the various business segments.

			The calculation of the minimum capital requirements under the new regulations, the so-called Pillar 1, is supplemented by an internal capital adequacy assessment process (ICAAP) and supervisory review, also referred to as Pillar 2. In the case of the Group, this 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, BIS II regulations establish, through the so-called Pillar 3, strict standards of transparency in the disclosure of risk information to the market.

			We consider that the new regulations will give rise to significant savings with respect to the regulatory capital requirements as from their effective implementation on June 30, 2008.

F-12

	g)		*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.

	h)		*Events after the balance sheet date*

			It should be noted that from January 1, 2008 to the date on which these financial statements were authorized for issue, the following significant events occurred in the Santander Group:

	•		Banco Santander entered into an agreement with the consortium led by Propinvest for the sale of the Santander business campus and the subsequent leaseback thereof for a period of 40 years, whereby the Bank also reserves a purchase option at the end of this period.

			This transaction is performed within the framework of the restricted private bid organized by Banco Santander for the sale and subsequent leaseback of a portfolio of properties owned by it in Spain, of which it is the last part. The price agreed upon for the Santander business campus is €1,900 million (Note 12).

	•		Santander and Fortis entered into an agreement whereby Santander will acquire from Fortis the asset management activities of ABN AMRO in Brazil, which Fortis purchased as part of the ABN AMRO acquisition performed by the Consortium (RBS, Fortis and Santander).

			This transaction, which is valued at €209 million, is expected to be closed in the second quarter of 2008 and will be subject to the normal closing conditions and to the relevant regulatory approvals.

	i)		*Comparative information*

			The accompanying consolidated income statement for 2006 differs from the consolidated income statement approved by the Bank’s Annual General Meeting in that, as a result of the Group’s divestment of the pensions business in Latin America, the results arising from the consolidation of these companies (€116 million) were reclassified for comparison purposes, as stipulated by the accounting standards, from the headings under which they were recorded in the approved consolidated financial statements for 2005 to “Profit from discontinued operations” in the accompanying consolidated income statement for 2006 (Note 37).

			Also, the results arising from the consolidation of the divested companies in the pensions business in Latin America (€106 million) and the results relating to the investments disposed of in 2006 –most notably Inmobiliaria Urbis, S.A. (Urbis) and Abbey’s insurance business (€238 million)- were reclassified in 2005 from the related headings in the consolidated income statement to “Profit from discontinued operations” in the accompanying consolidated income statement (Note 37).

			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 “Other gains” — Note 52), the proceeds from the divestment of the pensions business in Latin America (€831 million, recognized under “Discontinued operations” — Note 37) and the gains on the disposal of the investment in Banco Portugués do Investimento (€107 million, recognized under “Gains/losses on financial assets and liabilities” — Note 45) were used to write down the investment in Sovereign (€1,053 million — Note 13-c), to write down intangible assets (€542 million — Note 17), to recognize special provisions for retirement and pension plans (€317 million — Note 52) and to recognize other provisions and write-downs (€117 million). Therefore, the gross gains realized in 2007 (€3,124 million) contributed €950 million, after the aforementioned uses and net of tax and minority interests, to “Profit attributed to the Group”.

			The gains arising in 2006 on the disposal of the investments in Banco Santander Chile, San Paolo ImI, S.p.A. (San Paolo) and Antena 3 (€270 million, €705 million and €294 million, respectively, recognized under “Other gains” — Note 52) and on the divestment of Urbis (€1,218 million recognized under “Discontinued operations” — Note 37) were used to fund a significant portion of the retirement plans detailed in Note 25-c (€716 million), to re-estimate the deferred tax assets and liabilities detailed in Note 2-y as a result of the reduction in the statutory tax rate for income tax purposes in Spain (€491 million) and to recognize the expense relating to the delivery of 100 Bank shares to each Group employee (€179 million). Accordingly, the gains realized in 2006 (€2,487 million, before tax) contributed €1,014 million, after the aforementioned uses and net of tax and minority interests, to the profit attributable to the Group.

F-13

In 2005, the gains on the disposal of the investments in Unión Fenosa, S.A., Royal Bank of Scotland Group Plc and Auna Operadores de Telecomunicaciones, S.A. (€1,157 million, €717 million and €355 million, respectively, recognized under “Other gains” — Note 52) were partially used to fund early retirement plans and to amortize early restructuring costs. Therefore, the realized gains (€2,229 million before tax) contributed €1,008 million, after the aforementioned uses and net of tax, to the profit attributed to the Group for 2005.

2.		Accounting policies and measurement bases

		The accounting policies and measurement bases applied in preparing the consolidated financial statements were as follows:

Foreign currency transactions

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.

	•		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.

			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.

F-14

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 in functional currencies other than the euro are recognized under “Valuation adjustments — Exchange differences” in the consolidated balance sheet until the related item is derecognized, when they are recognized in the consolidated income statement.

iv.

Entities located in hyperinflationary economies

None of the functional currencies of the consolidated entities and associates located abroad relate to hyperinflationary economies as defined by the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 as adopted by the European Union. Accordingly, at 2007, 2006 and 2005 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.

Exposure to foreign currency risk

			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 (Note 36-a).

			At December 31, 2006, 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, the pound sterling and the Chilean peso. At that date, its largest exposure on permanent positions (with a potential impact on equity) were concentrated, in descending order, on the pound sterling, the Brazilian real, the Mexican peso and the Chilean peso. The Group hedges a portion of these permanent positions using foreign exchange derivative financial instruments (Note 36-a).

			At December 31, 2005, the Group’s largest exposures on more temporary positions (with a potential impact on the income statement) were concentrated, in descending order, on the US dollar, the Chilean peso, the pound sterling and the Mexican peso. At that date, its largest exposures on more 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 US dollar. The Group hedges a portion of these permanent positions using foreign exchange derivative financial instruments (Note 36-a).

			The following tables show the sensitivity of consolidated profit and consolidated equity to changes in the Group’s financial instruments due to 1% variations in the various foreign currencies in which the Group had 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	2007			2006			2005			2007		2006		2005

US dollar		—			0.1			(10.1	)		20.1		30.2		18.7
Chilean peso		(13.7	)		(9.8	)		(1.0	)		—		2.2		—
Pound sterling		(4.3	)		(49.0	)		(32.6	)		12.2		23.2		13.4
Mexican peso		(16.3	)		(20.5	)		(19.5	)		—		5.2		1.9
Brazilian real		(68.5	)		(25.4	)		(27.5	)		—		—		—

F-15

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	2007		2006			2005		2007			2006			2005

US dollar		—		(0.1	)		10.3		(20.5	)		(30.8	)		(19.1	)
Chilean peso		14.5		10.9			1.0		—			(6.0	)		—
Pound sterling		8.5		33.1			30.3		(12.5	)		(16.7	)		(0.5	)
Mexican peso		16.5		24.7			18.3		—			(7.3	)		(1.3	)
Brazilian real		69.4		26.0			28.0		—			—			—

			The foregoing data were obtained by calculating the possible effect of a variation in the exchange rates on the various asset and liability items 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.

			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, 2007, 2006 and 2005.

Basis of consolidation

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 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 (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 (Note 28) and their share of the profit for the year is presented under “Profit attributed 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 Exhibits 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 (“venturers”) 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 venturers.

F-16

			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 Exhibits 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 Exhibits contain significant information on these entities.

iv.

Other matters

			The companies less than 50% owned by the Group that constituted a decision-making unit at December 31, 2007 and which, therefore, were accounted for as subsidiaries are: (i) Inmuebles B de V 1985 C.A., (ii) Luri 1, S.A. and (iii) Luri 2, S.A. and (iv) Luri Land, S.A., in which the Group held ownership interests of 35.63%, 5.58%, 4.81% and 5.15%, respectively, at that date (Exhibit I).

			The companies less than 20% owned by the Group over which it exercises significant influence and which, therefore, were accounted for as associates at December 31, 2007 are: (i) Attijariwafa Bank Société Anonyme and (ii) Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor, S.A., in which the Group held ownership interests of 14.55% and 13.94%, respectively, at that date (Exhibit II).

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. The amount recognized as an increase in the cost of the business combinations effected in 2007 (see the transaction described in Note 3-b), which required auditor’s reports to be issued by our auditors, amounted to €5.8 million.

	•		The fair values of the assets, liabilities and contingent liabilities of the acquiree, including any intangible assets which might have not been recognized by the acquiree, 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 acquiree and the business combination cost is recognized as discussed in Note 2-m; any positive difference is recognized in “Other gains” in the consolidated income statement.

vi.

Acquisitions and disposals

Note 3 provides information on the most significant acquisitions and disposals in 2007, 2006 and 2005.

F-17

Definitions and classification of financial instruments

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.

			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 (Note 13).

	•		Rights and obligations under employee benefit plans (Note 25).

	•		Rights and obligations under insurance contracts (Note 15).

	•		Contracts and obligations relating to employee remuneration based on own equity instruments (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 managed jointly with “Liabilities under insurance contracts” measured at fair value or with derivative financial instruments whose purpose and effect is to significantly reduce exposure to variations in fair value, or that are managed jointly with financial liabilities and derivatives for the purpose of significantly reducing overall exposure to interest rate risk.

			Financial instruments included in this category (and “Other financial liabilities at fair value through profit or loss”) are permanently subject to an integrated and consistent system of measuring, managing and controlling risks and returns that enables all the financial instruments involved to be monitored and identified and allows the effective reduction of risk to be checked.

	•		Available-for-sale financial assets: this category includes debt instruments not classified as “Held-to-maturity investments” or as “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”.

F-18

	•		Loans and receivables: this category includes financing granted to third parties, based on their nature, irrespective of the type of borrower and the form of financing, including finance lease transactions in which the consolidated entities act as lessors.

			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).

	•		Held-to-maturity investments: this category includes debt instruments with fixed maturity and with fixed or determinable payments.

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 to credit institutions: credit of any nature in the name of credit institutions.

	•		Money market operations through counterparties: amount of the money market operations conducted through central counterparties.

	•		Loans and advances to customers: all credit granted by the Group, other than that represented by marketable securities, money market operations through central counterparties, finance lease receivables and loans and advances to credit institutions.

	•		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 and non-voting equity units, which have the nature of equity instruments for the issuer, unless they are investments in subsidiaries, jointly controlled entities or associates. Investment fund units and shares 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.

	•		Other financial assets: other debit balances in favor of the Group in respect of transactions which do not have the nature of credit (such as cheques drawn on credit institutions, the amounts receivable from clearing houses and settlement agencies for transactions on the stock exchange and organized markets, bonds given in cash, capital calls, and fees and commissions receivable for financial guarantees).

	•		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.

	•		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”, “Changes in the fair value of hedged items in portfolio hedges of interest rate risk” (liability side) and “Equity having the substance of a financial liability”, which are reported separately.

F-19

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”).

	•		Other financial liabilities at fair value through profit or loss: this category includes all hybrid financial liabilities not held for trading that have to be measured entirely at fair value, including life insurance linked to investment funds that does not expose the issuer of the contract to a significant insurance risk, when the financial assets to which they are linked are also measured at fair value through profit or loss.

	•		Financial liabilities at fair value through equity: financial liabilities associated with available-for-sale financial assets arising as a result of transfers of assets in which the consolidated entities as transferors neither transfer nor retain substantially all the risks and rewards of ownership of the assets.

	•		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.

Classification of financial liabilities for presentation purposes

Financial liabilities are classified by nature into the following items in the consolidated balance sheet:

	•		Deposits from credit institutions: deposits of any nature, including credit and money market operations received in the name of credit institutions.

	•		Money market operations through counterparties: amount of the money market operations conducted through central counterparties.

	•		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 of the Group’s liability in respect of derivatives which do not form part of hedge accounting.

	•		Deposits from central banks: deposits of any nature received from the Bank of Spain or other central banks.

	•		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.

	•		Other financial liabilities: includes the amount of payment obligations having the nature of financial liabilities not included in other items.

	•		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 designated as hedging instruments in hedge accounting.

	•		Equity having the substance of a financial liability: amount of the financial instruments issued by the consolidated entities that, although equity for legal purposes, do not meet the requirements for classification as equity.

F-20

	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, and are subsequently measured at each period-end as follows:

Measurement of financial assets

			Financial assets are measured at fair value, 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 uncollectability. 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 initial 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.

			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 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”, “Other financial liabilities at fair value through profit or loss” and “Financial liabilities at fair value through equity” and financial liabilities designated as hedged items (or hedging instruments) in fair value hedges, which are measured at fair value.

F-21

iii.

Valuation techniques

The following table summarizes the recorded fair values at each of the dates set forth for the asset and liability classes below, broken down by valuation methodology used by the Group to determine their fair value:


	December 31,
	2007						2006						2005
	(in millions of euros)
	Published						Published						Published
	Price						Price						Price
	Quotations in						Quotations in						Quotations in
	Active		Internal				Active		Internal				Active		Internal
	Markets		Models (*)		Total		Markets		Models (*)		Total		Markets		Models (*)		Total

Financial assets held for trading		76,310		82,490		158,800		84,009		86,414		170,423		85,558		68,650		154,208
Other financial assets at fair value through profit or loss		6,945		17,884		24,829		4,543		10,828		15,371		39,020		9,842		48,862
Available-for-sale financial assets		37,908		6,441		44,349		32,111		6,587		38,698		72,909		1,036		73,945
Hedging derivatives (assets)		—		3,063		3,063		—		2,988		2,988		—		4,126		4,126
Financial liabilities held for trading		24,447		98,307		122,754		30,657		93,339		123,996		35,156		77,310		112,466
Other financial liabilities at fair value through profit or loss		117		33,039		33,156		259		12,152		12,411		—		11,810		11,810
Hedging derivatives (liabilities)		110		4,024		4,135		—		3,494		3,494		—		2,311		2,311
Liabilities under insurance contracts		5,678		7,356		13,034		5,760		4,944		10,704		13,076		31,596		44,672


(*)		In substantially all cases, the principal variables that are input into these models are derived from observable market data.

			Financial instruments carried at fair value and determined on the basis of published price quotations in active markets include government debt securities, private-sector debt securities, asset-backed securities, equity securities, short securities positions and fixed-income securities issued.

			In the absence of published price quotations for a particular financial instrument, management uses internal models to make its best estimate of the price that the market would set for that financial instrument. In order to make these estimates, various techniques are employed, including extrapolation from observable market data. The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, unless the value of the instrument can be evidenced by comparison with other observable market transactions involving the same or similar instruments or measured by using a valuation technique where variables include only observable market data, mainly interest rates. Under EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, any difference between the transaction price and the fair value based on valuation techniques is not initially recognized in the income statement.

			Set forth below are the main valuation techniques employed in our internal models to measure the fair value of the financial instruments disclosed above at December 31, 2007:

	•		In the valuation of financial instruments permitting static hedging (basically, 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.

F-22

	•		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 employed. 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 (for example, 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 (for example, 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 estimates thus obtained could vary if other methods or assumptions were used for interest rate risk, credit risk, market risk and foreign currency risk spreads, or for their related correlations and volatilities. Nevertheless, management considers that the financial assets and liabilities recognized at fair value in the consolidated balance sheet and the gains and losses arising from these financial instruments are reasonable.

			The fair values of the financial instruments arising from the aforementioned internal models take into account, among other things, contract terms and observable market data, which include interest rates, credit risk, exchange rates, the quoted market price of raw materials and equity securities, volatility and prepayments. The valuation models are not significantly subjective, because they can be tested and, if necessary, recalibrated by the internal calculation of and

F-23

subsequent comparison to market prices of actively traded securities. Set forth below are the financial instruments at fair value where measurement is based on internal models at December 31, 2007, and the potential effect on fair value as of such date to changes to other reasonably likely assumptions that are not based on observable market data:

In Millions of Euros

Fair Value

Calculated

Other reasonably likely

Using

assumptions

Internal

Less

Models

Valuation Techniques

Main Assumptions (*)

Favorable

ASSETS:

Financial assets held for trading

82,490

103

(88

)

Loans and advances to credit institutions (Note 6)

12,295

Present Value Method

Observable market data

—

Loans and advances to customers (**) (Note 10)

23,704

Present Value Method

Observable market data

—

Debt and equity interests

2,087

Present Value Method

Observable market data

—

Trading derivatives

44,404

103

(88

)

Swaps (***)

28,312

Present Value Method

Observable market data, Liquidity

(46

)

Exchange rate options

375

Black-Scholes Model

Observable market

)

data, Liquidity

Interest rate options

8,683

Black-Scholes Model

Observable market

(16

)

HJM Model

data, Liquidity,

Correlation

Interest rate futures

1,039

Present Value Method

Observable market data

—

Index and securities options

3,799

Black-Scholes Model

Observable market

(25

)

data, Dividend,

Correlation,

Liquidity

Investment futures

Present Value Method

Observable market data

—

Other

2,168

N/A

—

Hedging derivatives

3,063

—

Swaps

2,614

Present Value Method

Observable market data

—

Exchange rate options

359

Black-Scholes Model

Observable market data

—

Interest rate options

Black-Scholes Model

Observable market data

—

Other

N/A

—

Other financial assets at fair value Through profit or loss

17,884

Loans and advances to credit institutions (Note 6)

6,865

Present Value Method

Observable market data

—

Loans and advances to customers (****) (Note 10)

8,022

Present Value Method

Observable market data

—

Debt and equity interests

2,997

Present Value Method

Observable market data

—

Available-for-sale financial assets

6,441

Debt and equity interests

6,441

Present Value Method

Observable market data

—

LIABILITIES:

Financial liabilities held for trading

98,307

108

(90

)

Deposits from credit institutions

23,254

Present Value Method

Observable market data

—

Customer deposits

27,992

Present Value Method

Observable market data

—

Trading derivatives

47,061

108

(90

)

Swaps (***)

39,204

Present Value Method

Observable market

(69

)

data, Liquidity

Exchange rate options

907

Black-Scholes Model

Observable market

)

data, Liquidity

Interest rate options

1,325

Black-Scholes Model

Observable market

)

HJM Model

data, Liquidity,

Correlation

Index and securities options

2,527

Black-Scholes Model

Observable market

(17

)

data, Dividend,

Correlation,

Liquidity

Forward purchase and sale contracts

1,411

N/A

—

Interest rate and investment futures

1,100

Present Value Method

Observable market data

—

Other

587

N/A

—

Hedging derivatives

4,024

—

Swaps

3,924

Present Value Method

Observable market data

—

Exchange rate options

Black-Scholes Model

Observable market data

—

Interest rate options

Black-Scholes Model

Observable market data

—

Other financial liabilities at fair value Through profit or loss

33,039

Present Value Method

Observable market data

—

Liabilities under insurance contracts

7,356

Note 15

—

TOTAL

252,604

211

(178

)


(*)		The use of observable market data assumes that the markets in which the Group operates are operationally efficient and, hence that such data is meaningful. The following are the principal assumptions used in the valuation of the financial instruments listed in the table above that are measured by means of internal models in which non-observable market data is utilized:

F-24

	•		Correlation: assumptions regarding the correlation between the value of market-traded assets and those non-traded assets are based on the historical correlation between the impact of adverse movements in market data and the corresponding valuation of the associated non-traded assets. The valuation will vary depending on whether a more or less conservative degree of correlation scenario is selected.

	•		Dividend: estimates of the dividends used as inputs in internal models are based on the expected dividend distributions from the issuer companies. Since the expected dividend may change or differ depending on the source of the dividend data (generally either historic data or market consensus for option pricing), and the dividend policy of companies may vary, the measurement is adapted to arrive at the best estimate of a reasonable level of expected dividend within more or less conservative scenarios.

	•		Liquidity: assumptions include estimates in response to market liquidity. For example to take into account market liquidity or where the financial instrument is part of a new or developing market where, due to lack of market prices that reflect a reasonable price for those products, the standard calculation methodology and estimates available may result in a less accurate valuation of the instrument at that time.


(**)		Principally includes short-term loans and repurchase agreements with corporate non-bank customers (mainly brokerage and investment firms).

(***)		Includes credit risk derivatives with a fair value of €2.5 million (for assets) and €3.3 million (for liabilities) recognized on the consolidated balance sheet. These are measured by means of the Standard Gaussian Copula model, discussed above.

(****)		Includes loans to Housing Associations in the United Kingdom (which are regulated and part Government-funded) secured by UK residential property. The fair values of the loans are modelled using observable market inputs, including current market transactions for UK Housing Associations of similar size and security structure. Due to the Government involvement with these entities, credit spreads have remained stable and are homogeneous across the industry. Model output values are benchmarked against current market transaction prices.

As detailed in the table above, the potential effect on the valuation of financial instruments of a change in the principal assumptions (models, correlations and dividends) to other reasonably likely assumptions that are less favorable in the lower end of the reasonably likely range would be to decrease gains, or increase losses, by €178 million (2006: €141 million; 2005: €140 million). The effect of the use of reasonable assumptions that are more favorable than those used by the Group, in the top end of the reasonably likely range, would increase gains, or decrease losses, by €211 million (2006: €183 million; 2005: €155 million).

The total loss recognized in the consolidated income statement for 2007 arising from the aforementioned valuation models amounted to €479 million (2006: total loss of €1,005 million; 2005: total gain of €762 million).

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”.

	•		“Financial liabilities at fair value through equity” are recognized in “Valuation adjustments — Financial liabilities at fair value through equity”.

	v.		Hedging transactions

			The consolidated entities use financial derivatives for the purpose of trading with customers who request these instruments in order to manage their own market and credit risks and for investment purposes; for the purpose of managing the risks of the Group entities’ own positions and assets and liabilities (“hedging derivatives”); or for the purpose of obtaining gains from changes in the prices of these derivatives.

			Financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as trading derivatives.

F-25

A derivative qualifies for hedge accounting if all the following conditions are met:

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”).

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. The ineffective portion of the change in value of hedging derivatives is recognized directly in the consolidated income statement.

	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.

F-26

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”.

	e)		*Derecognition 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, for an amount equal to the consideration received; this liability is subsequently measured at amortized cost.

	b.		The income from the transferred financial asset not derecognized and any expense incurred on the new financial liability.

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 net 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 intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

F-27

Impairment of financial assets

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 measured 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 interest receivable.

	•		The various types of risk to which each instrument is subject, and

	•		The circumstances in which collections will foreseeably 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.

F-28

With respect to the allowance for loss arising from credit risk, the Group makes the following distinction:

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.

			The allowance percentages applied to unsecured transactions, based on the age of the past-due amounts, are as follows:

	•		Less than 6 months: between 4.5% and 5.3%

	•		More than 6 months and less than 12 months: between 27.4% and 27.8%

	•		More than 12 months and less than 18 months: between 60.5% and 65.1%

	•		More than 18 months and less than 24 months: between 93.3% and 95.8%

	•		More than 24 months: 100%

The allowance percentages applied to loans secured by mortgage on completed homes, based on the age of the past-due amounts, are as follows:

	•		Less than 3 years, provided that the outstanding loan does not exceed 80% of the appraisal value of the home: 2%

	•		More than 3 years and less than 4 years: 25%

	•		More than 4 years and less than 5 years: 50%

	•		More than 5 years and less than 6 years: 75%

	•		More than 6 years: 100%

The allowance percentages applied to loans secured by real property, when the Group has initiated procedures to foreclose such assets, based on the age of the past-due amounts, are as follows:

	•		Less than 6 months: between 3.8% and 4.5%

	•		More than 6 months and less than 12 months: between 23.3% and 23.6%

	•		More than 12 months and less than 18 months: between 47.2% and 55.3%

	•		More than 18 months and less than 24 months: between 79.3% and 81.4%

	•		More than 24 months: 100%

	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 expected loss concept 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 this calculation are also used to calculate economic capital and, in the future, to calculate BIS II regulatory capital under internal models (Note 1-f).

			Expected loss is the expected cost, on average in a complete business cycle, of the credit risk of a transaction, considering the characteristics of the counterparty and the guarantees and collateral associated with the transaction.

			The expected loss is calculated by multiplying three factors: “exposure at default”, “probability of default” and “loss given default”.

F-29

	•		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.

The calculation of the expected loss also takes into account the adjustment to the cycle of the aforementioned factors, especially PD and LGD.

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 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, by express requirement of the Bank of Spain, until the Spanish regulatory authority has verified and approved these internal models (which are currently under review), the general allowance must be calculated as set forth below.

Based on its experience and on the information available to it on the Spanish banking industry, the Bank of Spain has established various categories of debt instruments and contingent liabilities, classified as standard risk, which are recognized at Spanish entities or relate to transactions performed on behalf of residents in Spain which are recognized in the accounting records of foreign subsidiaries, and has applied a range of required allowances to each category.

	•		Negligible risk: 0%

	•		Low risk: 0.20% — 0.75%

	•		Medium-low risk: 0.50% — 1.88%

	•		Medium risk: 0.59% — 2.25%

	•		Medium-high risk: 0.66 — 2.50%

	•		High risk: 0.83% — 3.13%

Our internal models produce a range of allowances that include the allowances required by the Bank of Spain.

	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.

F-30

			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.

	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 “Loans and advances to credit institutions” or “Loans and advances to customers” (“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 foreseeably 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” includes 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 “Impairment losses — Non-current assets held for sale” 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.

F-31

	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” includes 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 under “Insurance activity income” in the consolidated income statement.

In accordance with standard accounting practice in the insurance industry, the consolidated insurance entities credit to the consolidated 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 (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.

F-32

	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:

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 (net carrying amount higher than recoverable amount).

For this purpose, the acquisition cost of foreclosed assets is the carrying amount of the financial assets settled through foreclosure.

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 tangible asset depreciation charge is recognized in the consolidated income statement and is calculated basically 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 – 10
Fixtures		6 – 10
Office and IT equipment		10 – 25
Leasehold improvements		5 – 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.

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.

Other assets leased out under an operating lease

“Other assets leased out under an operating lease” reflects the net values 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.

Accounting for leases

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” (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.

	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.

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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 balance sheets of the acquirees.

	•		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 -which is only recognized when it has been acquired for consideration- 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 goodwill is reviewed for impairment (i.e. a reduction in its recoverable amount to below its carrying amount) and any impairment is written down with a charge to “Impairment losses — Goodwill” 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 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.

The intangible asset amortization charge is recognized under “Depreciation and amortization - Intangible assets” 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 — Other intangible 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 (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.

F-35

	n)		*Prepayments and accrued income and Accrued expenses and deferred income*

			These items include all the balances of prepayments and accrued income and of accrued expenses and deferred income, excluding accrued interest.

	ñ)		*Other assets and Other liabilities*

			“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. This expense is included under “Cost of sales” in the accompanying consolidated income statements (Note 47) when it relates to activities of the non-financial entities that do not form part of the consolidable group of credit institutions or under “Other operating expenses” in all other cases.

	•		Other: this item includes the amount of the difference between pension plan obligations and the value of the plan assets with a debit balance for the entity, when the net amount is to be reported in the consolidated balance sheet, and the amount of any other assets not included in other items.

“Other liabilities” includes the payment obligations having the substance of liabilities and not included in any other category.

	o)		*Provisions and contingent assets and liabilities*

			The directors of the consolidated entities, in preparing their respective financial statements, made a distinction between:

	•		Provisions: credit balances covering present obligations at the balance sheet date arising from past events which could give rise to a loss for the consolidated 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.

	•		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 Abbey disclose the contingent liability arising from the claims made by the customers of the main UK financial institutions in relation to certain fees and commissions charged by them.

F-36

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 taxes: includes the amount of the provisions made to cover tax contingencies.

	•		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.

	•		Other provisions: includes the amount of other provisions made by the consolidated entities. This item includes, inter alia, provisions for restructuring costs and litigation (Note 25).

	p)		*Litigation and/or claims in process*

			In addition to the disclosures made in Note 1, at the end of 2007 certain litigation and claims were in process against the consolidated entities arising from the ordinary course of their operations (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 are directly added to or deducted from equity.

	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, 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.

F-37

	s)		*Recognition of income and expenses*

			The most significant criteria used by the Group to recognize its income and expenses are summarized as follows:

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 as follows:

	•		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.

Loan arrangement fees

Loan arrangement fees, mainly loan origination and application fees, are accrued and recognized in income over the term of the loan. The related direct costs can be deducted from this amount.

	t)		*Financial guarantees*

			“Financial guarantees” are defined as contracts whereby an entity undertakes to make specific payments for a third party if the latter does not do so, irrespective of the various legal forms they may have, such as guarantees, irrevocable documentary credits issued or confirmed by the entity, insurance and 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, on the asset side of the consolidated balance sheet, 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 receivable.

			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 measured at amortized cost as described in section g) above.

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			The provisions made for these transactions are recognized under “Provisions — Provisions for contingent liabilities and commitments” in the consolidated balance sheet (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 “Accrued expenses and deferred income” 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 labor 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” (Note 25).

			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 — Other” 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.

F-39

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, less any plan administration costs and less any applicable taxes, 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.

	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 (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.

F-40

			“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 carryforwards) 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 balance sheet 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.

			Law 35/2006, of 28 November, on personal income tax and partially amending the Spanish Corporation Tax, Non-resident Income Tax and Wealth Tax Laws, establishes, inter alia, a reduction over two years of the standard tax rate for Spanish corporation tax purposes, which until December 31, 2006 was 35%, as follows:


Tax Periods
Beginning on or after	Tax Rate

January 1, 2007		32.5	%
January 1, 2008		30.0	%

Accordingly, in 2006 the Group estimated the deferred tax assets and liabilities and the tax credit and tax loss carryforwards recognized in the consolidated balance sheet, taking into account the year in which the related reversal will foreseeably take place. As a result, a net charge of €491 million relating to 2006 was recognized under “Income tax” in the consolidated income statement (Note 27).

	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 2007, 2006 and 2005 year-end is provided in Note 53.

	*aa)*		*Consolidated cash flow statements*

			The following terms are used in the consolidated cash flow statements 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.

	•		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.

F-41

In preparing the consolidated cash flow statement, short-term highly liquid investments that are subject to an insignificant risk of changes in value were classified as “Cash and cash equivalents”. Accordingly, the Group classifies as cash and cash equivalents the balances recognized under “Cash and balances with central banks” in the consolidated balance sheet.

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 Exhibits provide relevant data on the consolidated Group companies and on the companies accounted for using the equity method.

	b)		*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.

			The investment made by the Bank amounts to €20,615 million and, at December 31, 2007, 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 finalization of the asset spin-off and integration process is subject to approval, among other regulators, by the Dutch Central Bank, which is expected to be obtained in 2008.

F-42

			On November 15, 2007, ABN AMRO sold the aforementioned consumer finance units located in the Netherlands for €98 million. Additionally, on November 8, 2007, the Bank entered into an agreement with Monte dei Paschi di Siena for the sale, at the earliest possible date and no later than September 2008, of Antonveneta (excluding Interbanca, the corporate banking division of Antonveneta, whose net investment value amounts to approximately €800 million) for €9,000 million. The transaction is subject to the approval of the competent authorities (Note 12).

			Accordingly, once the sale of Antonveneta to Monte dei Paschi di Siena has been authorized, the net investment made by the Bank, basically in Banco Real and Interbanca, will amount to approximately €11,615 million (Note 13).

			Banco Real

			Banco Real is the fourth-largest bank in Brazil in terms of volume of loans, deposits and income. It has an extensive distribution network (1,900 branches and 8,700 ATMs), which enables it to carry on in full the retail and wholesale banking activities throughout Brazil, catering for over 13 million customers. It also has entities specializing in private banking and vehicle financing, the last-mentioned business activity being related to more than 15,000 car dealers.

			Owing to the potential and the geographical and business complementarity of Santander Brazil and Banco Real, their combination grants them a banking leadership in all of Brazil, with a market share and an infrastructure equal to those of the two leading private banks, and gives rise to the second-largest bank in terms of deposits, the third-largest in terms of lending and network size, and the fourth-largest in terms of income.

			At December 31, 2006, Banco Real had assets amounting to BRL 120,830 million (€50,000 million), equity amounting to BRL 9,779 million (€4,000 million) and attributed profit amounting to BRL 2,480 million (€1,000 million).

	c)		*Acquisitions and disposals*

			The other main equity investments acquired and sold by the Group in 2007, 2006 and 2005 and other significant corporate transactions were as follows:

Abbey National plc (Abbey)

On July 25, 2004, the respective Boards of Directors of the Bank and Abbey approved the terms on which the Board of Directors of Abbey recommended to its shareholders the takeover bid launched by Banco Santander for all the ordinary share capital of Abbey under a Scheme of Arrangement subject to the UK Companies Act. After the related Annual General Meetings of Abbey and the Bank were held in October 2004, and the other conditions of the transaction were met, on November 12, 2004 the acquisition was completed through the delivery of one new Banco Santander share for every Abbey ordinary share. The capital increase performed to cater for the purchase amounted to €12,541 million, equal to 1,485,893,636 new shares of €0.5 par value each and a share premium of €7.94 each.

ii.

Abbey’s insurance business

In June 2006 Abbey entered into an agreement with Resolution plc (“Resolution”) to sell its life insurance business to the latter for €5,340 million (GBP 3,600 million). The transaction did not give rise to any gains for the Group.

The main insurance companies sold were Scottish Mutual Assurance plc, Scottish Provident Limited and Abbey National Life plc, including their subsidiaries Scottish Mutual International plc (Dublin) and Scottish Provident International Life Assurance Limited (Isle of Man).

iii.

Interbanco, S.A. (Interbanco)

In September 2005 the Group and the Portuguese company SAG (Soluções Automóvel Globlais) reached an agreement to jointly provide consumer finance and vehicle financing services in Portugal and operate the vehicle “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.

F-43

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 E.F.C., S.A. and Santander Consumer Finance, S.A. located in Portugal. As a result of this acquisition Interbanco changed its name to Banco Santander Consumer Portugal. 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.

iv.

Elcon Finans AS (Elcon) and Bankia Bank ASA (Bankia)

In September 2004 the Group acquired all the shares of Elcon (a leading Norwegian vehicle financing company) for NOK 3,440 million (€400 million). Subsequently, the Group resolved to sell Elcon’s leasing and factoring businesses for €160 million. The resulting goodwill amounted to €120 million.

In 2005 the Group acquired all the shares of the Norwegian bank Bankia for €54 million. The goodwill arising on this investment amounted to €45 million.

The merger of these two companies in 2005 gave rise to Santander Consumer Bank AS (Note 17).

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 side 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 side 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 July 17. 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, 2007, Banco Santander’s holding in Cepsa was 31.64%.

vi.

Unión Eléctrica Fenosa, S.A. (Unión Fenosa)

In 2002 several purchases of shares of Unión Fenosa were made for a total amount of €465 million. In 2004 the Group sold 1% of its holding in Unión Fenosa, leaving an ownership interest of 22.02% at December 31, 2004.

The investment in Unión Fenosa was sold in 2005 at a price of €2,219 million and the gain on this disposal, which amounted to €1,157 million, was recognized in “Other gains” (Note 52).

F-44

vii.

Sovereign Bancorp Inc. (Sovereign)

In October 2005 the Group reached an agreement with Sovereign, a US entity based in Philadelphia, 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 an Annual General 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 have taken the appropriate steps to terminate the voting trust and to transfer the shares held therein to Santander. As from June 6, 2007, Santander can exercise the voting right on 24.7% of Sovereign shares. Except with the consent of the Board of Directors of Sovereign or through the procedures described below, Santander cannot 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).

Additionally, from June 1, 2008 to May 31, 2011 Santander will have the option of launching an offer for all the shares of Sovereign, subject to compliance with certain conditions and limitations agreed upon by both parties. If such an offer is made by Santander, the Board of Directors of Sovereign could resist it by means of a bidding process or competitive valuation procedure. If these procedures determine that there is no higher offer, the Board of Directors of Sovereign must accept this offer, taking into account the fact that, from June 1, 2008 to May 31, 2009 any offer made by Santander must involve a price of, at least, USD 38 per share (the amount resulting from the application of adjustments to the figure of USD 40 per share established under the Investment Agreement to take account of the dilutive effect of a dividend paid by Sovereign in the form of shares). Even if the Board of Directors of Sovereign accepts the offer, Santander will not be permitted to complete the acquisition of Sovereign unless the majority of the shareholders, other than Santander itself, by means of a vote at Sovereign’s Annual General Meeting, approve the acquisition. Additionally, until May 31, 2011, Santander will have the pre-emptive right in any negotiation and may match any offer by third parties to acquire Sovereign. Lastly, with certain exceptions, Santander has agreed that, until May 31, 2011, it will not sell or dispose of in any manner the shares of Sovereign.

At December 31, 2007, the Group’s ownership interest in Sovereign stood at 24.43%. The acquisition cost of this holding amounted to €2,300 million. In 2007, the Group assessed its ownership interest in Sovereign and adjusted the value of the investment by €1,053 million (Note 13).

viii.

Island Finance

In January 2006 the Group’s subsidiary in Puerto Rico (Santander BanCorp) and Wells Fargo & Company entered into a definitive agreement for the acquisition from the latter of the assets and operations of Island Finance in Puerto Rico. At December 31, 2005, Island Finance’s loans in Puerto Rico amounted to approximately USD 627 million.

The deal provided for the acquisition by the Group of all the operations of Island Finance, except for its debt and the remaining liabilities.

The deal was completed in the first quarter of 2006 for USD 742 million, giving rise to goodwill of USD 114 million (Note 17-a). In 2007, the Group assessed its ownership interest in Island Finance and adjusted the value of the investment by €14 million (Note 17).

Island Finance provides consumer and mortgage lending to approximately 205,000 customers through its 70 branch offices in Puerto Rico, as well as installment sales through retail businesses. Island Finance belongs to Wells Fargo Financial, the consumer finance subsidiary of Wells Fargo & Company.

ix.

Drive Consumer USA, Inc. (Drive)

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.

F-45

The transaction gave rise to goodwill of USD 544 million.

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 entered into to advance this payment in exchange for a reduction from USD 175 million to USD 135 million (€97 million), giving rise to additional goodwill for the amount disbursed (Note 17-q).

Drive is one of the leading vehicle financing entities in the subprime segment in the United States. Its headquarters are located in Dallas (Texas), it is present in 35 states and close to 50% of its business activities are concentrated in the states of Texas, California, Florida and Georgia. It has approximately 600 employees and its products are distributed through more than 10,000 car dealers with which it has commercial agreements.

Drive was 64.5%-owned by HBOS and 35.5%-owned by management. Following the acquisition, the current Chairman and COO of Drive will perform the functions of CEO and hold an ownership interest in the company of 10%, a percentage on which there are certain purchase and sale options which might lead to the Group acquiring a further 10% stake between 2009 and 2013 at prices linked to the performance of the company’s profit.

Banco Santander Chile

In 2006 the Group placed 7.23% of the share capital of Banco Santander Chile through a takeover bid registered with the US Securities and Exchange Commission, giving rise to gross gains of €270 million (Note 52) which are recognized under “Other gains”.

xi.

Merger

At the Extraordinary General Meeting of Banco Santander, S.A. held on October 23, 2006, the shareholders approved the merger of Riyal, S.L., Lodares Inversiones, S.L., Sole-Shareholder Company, Somaen-Dos, S.L., Sole-Shareholder Company, Gessinest Consulting, S.A., Sole-Shareholder Company, and Carvasa Inversiones, S.L., Sole-Shareholder Company (the absorbed entities) into Banco Santander, S.A. (the absorbing entity), through the dissolution without liquidation of the five absorbed entities and the transfer en bloc, by universal succession, of their assets and liabilities to Banco Santander, S.A.

xii.

Inmobiliaria Urbis, S.A. (Urbis)

On July 27, 2006, the Group and Construcciones Reyal, S.A.U. (Reyal) entered into an agreement whereby Reyal undertook to launch a takeover bid for all the share capital of Urbis, at a price of €26 per share, provided that at least 50.267% of the share capital of Urbis was accepted. The Group undertook to transfer to Reyal all its ownership interest in Urbis and not to accept any competing offers. Upon completion of the terms stipulated by current legislation, on December 15, 2006, the Spanish National Securities Market Commission (CNMV) announced that the takeover bid was valid, since it had been accepted by 96.40% of the shares of Urbis. The transaction was definitively settled on December 21, 2006 and gave rise to pre-tax gains of €1,218 million (Note 37).

xiii.

Unifin S.p.A. (Unifin)

In May 2006 the Group acquired 70% of the Italian consumer finance entity Unifin for €44 million, giving rise to goodwill of €37 million.

xiv.

Banco Portugués de Investimento (BPI)

The Santander Group announced in January 2007 that it had entered into a definitive agreement with Banco Comercial Portugués (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, 35.5 million shares of BPI were sold to BCP, giving rise to gains of €107 million for the Group.

F-46

xv.

Santander Consumer Chile

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 will operate under the name of Santander Consumer Chile, will engage in consumer finance, focussing 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 (with a disbursement of €13 million), the remaining 11% corresponding to SKBergé.

xvi.

Orígenes AFJP and Orígenes Seguros de Retiro

In 2007 the Group entered into an agreement with ING Groep NV for the sale to the latter of the Group’s ownership interest in the pension fund manager Orígenes AFJP and in Orígenes Seguros de Retiro, in Argentina, for USD 166 million (€112 million), giving rise to gross gains of €84 million for the Group (Note 37-b).

xvii.

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 (Note 37-b). This transaction includes the pension fund managers in Mexico (Afore Santander), Chile (AFP Bansander), Colombia (AFP Cesantías Santander) and Uruguay (Afinidad AFAP).

xviii.

CB Extrobank

In 2007, the Group acquired all the shares of the Russian bank CB Extrobank for €48 million, giving rise to goodwill of €37 million.

* * * * *

The cost, total assets and gross 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.

	d)		*Off-shore entities*

			At December 31, 2007, the Group had ownership interests in the share capital of 19 subsidiaries resident in tax havens, excluding Abbey subsidiaries, which are dealt with at the end of this note.

			The individual results of these subsidiaries, calculated in accordance with local accounting principles, are shown in the Exhibits to these 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. Therefore, they are not representative of the Group’s operations in these countries or of the results contributed to the Santander Group.

			These banks and companies, whose activities are detailed below, contributed €146 million to the Group’s consolidated profit.

			These Group entities operate mainly in the Bahamas and have a total of 137 employees.

			The business activities of these entities are classified into four categories, namely:

F-47

Operating subsidiaries engaging in banking or financial activities

The subsidiaries engaging in banking or financial activities at 2007 year-end were as follows:

	•		Santander Bank and Trust, Ltd., a bank resident in the Bahamas which engages mainly in international private banking for foreign customers. It also handles investments in bonds and equities and financing transactions.

	•		Banco Santander Bahamas International, Ltd., an entity resident in the Bahamas which engages mainly in financing transactions and equities trading.

	•		Santander Investment Limited, a company resident in the Bahamas which is managed from the New York branch. It performs brokerage and investment activities in the US market, mainly related to Latin American fixed-income securities.

	•		Santander Trade Services, Ltd. (Hong Kong), an intermediary in export documentary credits

	•		Banco Santander (Panamá), S.A. performs a limited banking activity.

	ii.		Inactive or mere asset holding subsidiaries

At 2007 year-end, the following companies were inactive, mere asset holding companies or in liquidation:

	•		Santander Merchant Bank, Ltd., (Bahamas), inactive.

	•		Santander Investment Bank, Ltd., (Bahamas), a mere asset holding company.

	•		Pan American Bank, Ltd., a Bahamas-resident bank which is inactive.

	•		Serfin International Bank and Trust, Ltd. (Cayman Islands), a bank which is virtually inactive.

	•		Larix Limited, an Isle of Man-resident property and marketable securities holding company.

	iii.		Holding companies

The two holding companies (Holbah, Ltd. and Holbah II, Ltd.), which are resident in the Bahamas, are mainly holders of investments in other Group companies abroad.

These companies do not perform any kind of business activity other than equity investment management. Their assets consist mainly of permanent equity investments, cash and accounts receivable from other Group companies. They are funded through their own funds and Group loans.

F-48

iv.

Issuing companies

The Group has seven issuing companies located in the following jurisdictions:

Issuers of preferred securities:

	•		Banesto Holdings, Ltd. (Guernsey)

	•		Totta & Açores Financing, Limited (Cayman Islands)

	•		Pinto Totta International Finance, Limited (Cayman Islands): its last issue expired in August 2007 and, accordingly, it is expected to be liquidated in 2008.

Issuers of debt:

	•		Banesto Issuances, Ltd. (Cayman Islands)

	•		Santander Central Hispano Financial Services, Ltd. (Cayman Islands)

	•		Santander Central Hispano International, Ltd. (Cayman Islands)

	•		Santander Central Hispano Issuances, Ltd. (Cayman Islands)

The preferred securities 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.

The results contributed to the Group in 2007 by the main subsidiaries described above, including those arising from their financial position, are detailed below:


		Millions
Unit	Location	of Euros

Santander Bank & Trust, Ltd.	Bahamas		219
Santander Investment Limited	Bahamas		(30	)
Banco Santander Bahamas International, Ltd.	Bahamas		45
Santander Trade Services, Ltd.	Hong Kong		7
Holbah, Ltd.	Bahamas		(87	)
Holbah II, Ltd.	Bahamas		(13	)

Additionally, the Santander Group, excluding Abbey subsidiaries, has three financial investments in which it has no voting rights: The HSH Coinvest in the Cayman Islands, Asiabridge Fund I LLC in Mauritius and Olivant Limited in Guernsey. It also has an ownership interest in Algebris Global Financials Fund and control over a securitization vehicle, both in the Cayman Islands.

The Group also has three branches, one located in the Bahamas, one in the Netherlands Antilles and one in the Cayman Islands. In 2007 the Bank of Spain and the local supervisors approved the opening of a branch in Hong Kong, which will commence operations in 2008. These branches report to, and consolidate their balance sheets and income statements with, their respective parents.

As a result of the acquisition of the Portuguese Interbanco Group by Consumer Finance, in 2006 the Group acquired a holding in two entities located in Malta which are currently in liquidation.

Also, at 2007 year-end Abbey had 19 subsidiaries resident in tax havens. These companies contributed an aggregate amount of €53 million to the Group’s consolidated profit. The individual results of these entities are shown in the Exhibits to these consolidated financial statements.

These Abbey entities operate mainly in Jersey and have a total of 141 employees.

F-49

Their grouping by line of business is as follows:

	•		Insurance, carried on by two subsidiaries: James Hay Insurance Company Limited in Jersey and Baker Street Risk and Insurance (Guernsey) Limited in Guernsey.

	•		Issuance, carried on by two subsidiaries in Jersey: Abbey National GP (Jersey) Limited and AN Structured Issues Limited.

	•		Banking, performed by one subsidiary in Jersey: Abbey National International Limited.

	•		Four portfolio or asset holding companies, of which three are located in Jersey –Abbey National Offshore Holdings Limited, Abbey National Jersey International Limited and Brettwood Limited– and one in Gibraltar –Abbey National (Gibraltar) Limited (which was virtually inactive at year-end).

	•		US equities trading, performed by Abbey National Financial and Investment Services (Jersey) Limited.

	•		Services, mainly administrative services, performed by Abbey National Secretariat Services (Jersey) Limited.

	•		Also, eight subsidiaries continued to be inactive at 2007 year-end and their possible liquidation is being assessed. Six are located in Jersey –Whitewick Limited, Cater Allen Trust Company (Jersey) Limited, Sandywick Limited, Cater Allen Nominees (Jersey) Limited, Cater Allen Registrars Limited and Abbey National Financial Investments No. 2 Limited–, one in the Isle of Man –Abbey National Treasury International (IOM) Limited–, and one in Guernsey –Carfax (Guernsey) Limited.

Additionally, Abbey has two financial investments in Guernsey (Guaranteed Investment Product 1 PCC, Ltd and FTSE Commercial Property Index Fund) and three branches –one located in the Cayman Islands and two in the Isle of Man–, one of which ceased operations in 2006 but has not yet been deregistered. The balance sheets and income statements of these branches are consolidated with those of their respective parents.

* * * * *

The Group has established the proper procedures and controls (risk management, supervision, verification and review plans and periodic reports) to prevent reputational and legal risk arising at these entities. Also, the Group has continued to implement its policy, as in recent years, to reduce the number of off-shore units. The financial statements of the Group’s off-shore units are audited by member firms of the Deloitte worldwide organization.

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 2007 that the Board of Directors will propose for approval by the shareholders at the Annual General Meeting is as follows:


	Thousands
	of Euros

Interim dividends		4,070,179
Of which:
Distributed at December 31, 2007 ()*		1,537,807
Third interim dividend		768,903
Fourth interim dividend		1,763,469
Voluntary reserves		68

Net profit for the year		4,070,247


(*)		Recognized under “Shareholders’ equity — Dividends and remuneration”.

F-50

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
	31/05/07		30/09/07			31/12/07			31/12/07
	First		Second			Third (*)			Fourth (*)

Profit after tax		1,252		2,600			4,070			4,070
Dividends paid		—		(769	)		(1,538	)		(2,307	)

		1,252		1,831			2,532			1,763

Interim dividends		769		769			769			1,763


Accumulated interim dividends		769		1,538			2,307			4,070
Gross dividend per share (euros)		0.12294		0.12294			0.12294			0.28196
Date of payment		01/08/07		01/11/07			01/02/08			01/05/08


(*)		Dividends not distributed at December 31, 2007.

Earnings per share in continuing operations and discontinued operations

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:

2007

2006

2005

Profit attributable to the Group (thousands of euros)

9,060,258

7,595,947

6,220,104

Weighted average number of shares outstanding

6,241,049,030

6,248,375,663

6,240,611,051

Assumed conversion of convertible debt

100,721,755

—

Adjusted number of shares

6,341,770,785

6,248,375,663

6,240,611,051

Basic earnings per share (euros)

1.4287

1.2157

0.9967

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).

F-51

Accordingly, diluted earnings per share were determined as follows:


	Thousands of Euros
	2007		2006		2005

Profit attributable to the Group		9,060,258		7,595,947		6,220,104
Dilutive effect of changes in profit for the year arising from potential conversion of ordinary shares		—		—		—

		9,060,258		7,595,947		6,220,104


Weighted average number of shares outstanding		6,241,049,030		6,248,375,663		6,240,611,051
Dilutive effect of:
Assumed conversion of convertible debt (Note 34)		100,721,755		—		—
Options		66,362,931		34,052,536		23,325,614

Adjusted number of shares		6,408,133,716		6,282,428,199		6,263,936,665

Diluted earnings per share (euros)		1.4139		1.2091		0.9930

Remuneration and other benefits paid to the Bank’s directors and senior managers

Remuneration of directors

Bylaw-stipulated directors’ emoluments and attendance fees

Article 38 of the Bank’s bylaws provides that the share in the Bank’s profit for each year to be received by the members of the Board of Directors for discharging their duties will be up to 1% of the Bank’s net profit for the year.

The Board of Directors, making use of the powers conferred on it, set the related amount at 0.126% of the Bank’s net profit for 2007 (2006: 0.143%; 2005: 0.152%).

The Board of Directors, also under the powers conferred on it, resolved to allocate this amount as follows (assigning the respective proportional amounts to any directors who did not sit on the Board for the whole year): each Board member received a gross emolument of €118.1 thousand (2006: €107.4 thousand; 2005: €89.5 thousand) and, additionally, each member of the following Board Committees received the following gross emoluments: Executive Committee, €236.9 thousand (2006: €215.4 thousand; 2005: €179.5 thousand); Audit and Compliance Committee, €55 thousand (2006 and 2005: €50 thousand); Appointments and Remuneration Committee, €33 thousand (2006 and 2005: €30 thousand). Also, the First Deputy Chairman and the Fourth Deputy Chairman received a gross amount of €39.6 thousand each (2006 and 2005: €36 thousand).

Furthermore, in 2007 the directors received fees for attending Board and Committee meetings (excluding Executive Committee meetings).

The gross amounts for attending Board meetings, which were agreed upon by the directors at the Board meeting held on December 15, 2004, are as follows: Board meetings: €2,310 for resident directors and €1,870 for non-resident directors (€2,310 thousand and €1,870 thousand, respectively, in both 2006 and 2005).

At the meeting held on December 18, 2006, the Board of Directors approved the proposal of the Appointments and Remuneration Committee made at its meeting on December 31, 2006 to modify the amount of fees received for attending the meetings of the Risk Committee and the Audit and Compliance Committee, which it set at €1,500 effective from January 1, 2007, without changing the amounts received in this connection by members of the Board of Directors and the other Committees –the Appointments and Remuneration Committee, the International Committee and the Technology, Productivity and Quality Committee-, excluding the Executive Committee, since no attendance fees are received for this Committee. The agreed-upon gross amounts are as follows:

	•		Risk Committee and Audit and Compliance Committee: €1,500 for resident directors and €1,212 for non-resident directors.

	•		Other Committees: €1,155 for resident directors and €935 for non-resident directors.

F-52

iii.

Detail by director

The detail, by director, of the remuneration earned by the Bank’s directors in 2007 is as follows:


	Thousands of Euros
	2007																						2006			2005
	Bylaw-Stipulated Emoluments								Attendance Fees				Salary of Executive Directors (1)
							Appointments
					Audit and		and
			Executive		Compliance		Remuneration				Other				Variable				Other
	Board		Committee		Committee		Committee		Board		Fees		Fixed		(a)		Total		Remuneration		Total		Total			Total

Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		118		237		—		—		25		5		1,187		2,337		3,524		1		3,910		3,459			3,035
Mr. Fernando de Asúa Álvarez		158		237		55		33		25		169		—		—		—		—		677		590			519
Mr. Alfredo Sáenz Abad		118		237		—		—		25		5		3,126		5,582		8,708		511		9,604		8,099			7,161
Mr. Matías Rodríguez Inciarte		118		237		—		—		25		141		1,510		2,945		4,455		178		5,154		4,501			3,970
Mr. Manuel Soto Serrano		158		—		55		33		25		35		—		—		—		—		306		271			246
Assicurazioni Generali, Spa.		137		—		—		—		6		—		—		—		—		—		143		136			110
Mr. Antonio Basagoiti García Tuñón		118		237		—		—		25		133		—		—		—		10		523		3,477	(4)		414
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea		118		237		—		—		25		2		1,133		1,985		3,118		17		3,517		3,084			2,733
Mr. Francisco Javier Botín-Sanz de Sautuola y O’Shea (2)		118		—		—		—		25		—		—		—		—		—		143		128			106
Lord Terence Burns (***)		118		—		—		—		17		—		—		—		—		—		135		122			105
Mr. Guillermo de la Dehesa Romero		118		237		—		33		25		14		—		—		—		—		427		381			326
Mr. Rodrigo Echenique Gordillo		118		237		—		33		25		119		—		—		—		30		562		1,388			1,329
Mr. Antonio Escámez Torres		118		237		—		—		25		128		—		—		—		42		550		1,329			1,337
Mr. Francisco Luzón López		118		237		—		—		25		2		1,271		3,239		4,510		728		5,620		4,601			4,003
Mr. Luís Ángel Rojo Duque (****)		118		—		55		33		14		29		—		—		—		—		249		232			113
Mr. Abel Matutes Juan		118		—		55		—		25		15		—		—		—		—		213		189			172
Mutua Madrileña Automovilista (3)		137		—		—		—		16		—		—		—		—		—		153		148			122
Mr. Luis Alberto Salazar-Simpson Bos		118		—		55		—		25		16		—		—		—		—		214		192			173
Mr. Jay S. Sidhu (b)		—		—		—		—		—				—		—		—		—		—		58			—
Mr. Emilio Botín-Sanz de Sautuola y O’Shea (**)		—		—		—		—		—		—		—		—		—		—		—		—			98
Mr. Elías Masaveu Alonso del Campo (**)		—		—		—		—		—		—		—		—		—		—		—		—			47
Ms. Isabel Tocino Biscarolasaga (*)		82		—		—		—		21		—		—		—		—		—		103		—			—

Total 2007		2,324		2,370		275		165		424		813		8,227		16,088		24,315		1,517		32,203		—			—

Total 2006		2,092		2,150		250		150		386		630		7,304		13,666		20,970		5,757		—		32,385			—

Total 2005		1,795		1,800		256		148		315		607		7,082		11,412		18,494		2,704		—		—			26,119


(*)		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.

(**)		Directors who were Board members for some months in 2005 but ceased to be directors prior to December 31, 2005.

(***)		Appointed as member of the Bank’s Board of Directors on December 20, 2004 and subsequently ratified by the shareholders at the Annual General Meeting on June 18, 2005.

(****)		Appointed as member of the Bank’s Board of Directors on April 25, 2005 and subsequently ratified by the shareholders at the Annual General Meeting on June 18, 2005.

(a)		Accrued in 2007.

(b)		Appointed by the shareholders at the Annual General Meeting on June 17, 2006 and ceased to discharge his duties on December 31, 2006.

(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 Fundación Marcelino Botín.

(3)		Ceased to be a director on December 19, 2007.

(4)		Includes €3 million for duties discharged on the Board of Directors of Unión Fenosa during the period in which he belonged to this Board at the proposal of the Bank. At the proposal of the Appointments and Remuneration Committee, this remuneration was approved by the Bank’s Board of Directors at its meeting on February 6, 2006.

F-54

iv.

Other remuneration

The amounts recorded under “Other remuneration” in the foregoing table include, inter alia, the life and medical insurance costs borne by the Group.

	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	2007		2006		2005

Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos	Shinsei Bank, Ltd.		50.1		59.9		58.7
Mr. Fernando de Asúa Álvarez	Cepsa		97.2		95.6		89.9
Mr. Antonio Escámez Torres	Attijariwafa Bank Société Anonyme		9.9		5.0		5.1
			157.2		160.5		153.7

In 2007 Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos also received options to acquire 10,000 shares of Shinsei Bank, Ltd. (Shinsei) at a price of JPY 555 each. Previously, in 2006 and 2005, Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos had received options to acquire 25,000 Shinsei shares in each year at a price of JPY 825 each for those received in 2006 and JPY 601 each for those received in 2005. At December 31, 2007, the market price of the Shinsei share was JPY 408 and, therefore, regardless of the stipulated exercise periods, the options granted in 2007, 2006 and 2005 would not have given rise to any gains had they been exercised.

Furthermore, other directors of the Bank earned a total of €750 thousand in 2007 as members of the Boards of Directors of Group companies (2006: €732 thousand; 2005: €739 thousand), the detail being as follows: Lord Burns (Abbey), €682 thousand; Mr. Rodrigo Echenique (Banco Banif, S.A.), €36 thousand; and Mr. Matías Rodríguez Inciarte (U.C.I., S.A.), €32 thousand.

	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, which amounted to €11,820 million (covered mostly by in-house provisions) at December 31, 2007, 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 €264 million at December 31, 2007 (December 31, 2006: €234 million; December 31, 2005: €182 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
	2007				2006				2005
	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		22,926		—		21,068		—		11,785		—
Mr. Alfredo Sáenz Abad		68,070		9,378		55,537		8,155		45,444		7,917
Mr. Matías Rodríguez Inciarte		44,226		4,529		39,390		4,117		28,953		3,997
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea		17,975		1,403		15,045		1,402		12,232		1,373
Mr. Francisco Luzón López		45,468		7,624		39,187		6,571		39,188		6,380
		198,665		22,934		170,227		20,245		137,602		19,667

F-55

The amounts in the “Accrued pension obligations” column in the foregoing table relate to the present actuarial value of the accrued 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 salary 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.

Pension charges recognized and reversed in 2007 amounted to €21,615 thousand and €580 thousand, respectively (2006: €44,819 thousand and €629 thousand, respectively; 2005: €4,414 thousand and €4,449 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, 2007 (2006 and 2005: €3 million). Also, the payments made in 2007 to the members of the Board entitled to post-employment benefits amounted to €2.6 million.

F-56

Share option plans granted to directors

The detail of the Bank’s share options granted to directors (Note 49) is as follows:


			Options													Options		Exercised
			Granted		Exercised Options											Granted		Options						Concessions Granted				Exercised Options								Date of		Date of
	Options at							Exercise		Market		Options at		Exercise						Options at		Exercise				Exercise				Exercise		Market		Options at		Commencement		Expiry of
	1 January							Price		Price		December		Price						December		Price				Price				Price		Price		December 31,		of Exercise		Exercise
	2005		Number		Number			(Euros)		Applied (Euros)		31, 2005		(Euros)		Number		Number		31, 2006		(Euros)		Number		(Euros)		Number		(Euros)		Applied (Euros)		2007		Period		Period
Managers Plan 2000:
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		150,000		—		(150,000	)		10.545		11.12		—		—		—		—		—		—		—		—		—		—		—		—		30/12/03		29/12/05
Mr. Alfredo Sáenz Abad		100,000		—		(100,000	)		10.545		11.14		—		—		—		—		—		—		—		—		—		—		—		—		30/12/03		29/12/05
Mr. Matías Rodríguez Inciarte		125,000		—		(125,000	)		10.545		11.14		—		—		—		—		—		—		—		—		—		—		—		—		30/12/03		29/12/05
Mr. Antonio Escámez Torres		100,000		—		(100,000	)		10.545		11.07		—		—		—		—		—		—		—		—		—		—		—		—		30/12/03		29/12/05
Mr. Francisco Luzón López		100,000		—		(100,000	)		10.545		11.14		—		—		—		—		—																30/12/03		29/12/05

		575,000		—		(575,000	)		10.545		11.12		—		—		—		—		—		—		—		—		—		—		—		—

Long-Term Incentive Plan (I06) (Note 49):
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		541,400		—		—			—		—		541,400		9.09		—		—		541,400		9.09		—		—		—		—		—		541,400		15/01/08		15/01/09
Mr. Alfredo Sáenz Abad		1,209,100		—		—			—		—		1,209,100		9.09		—		—		1,209,100		9.09		—		—		—		—		—		1,209,100		15/01/08		15/01/09
Mr. Matías Rodríguez Inciarte		665,200		—		—			—		—		665,200		9.09		—		—		665,200		9.09		—		—		—		—		—		665,200		15/01/08		15/01/09
Ms. Ana Patricia Botín-Sanz de
Sautuola y O’Shea (*)		293,692		—		—			—		—		293,692		9.09		—		—		293,692		9.09		—		—		—		—		—		293,692		15/01/08		15/01/09
Mr. Francisco Luzón López		639,400		—		—			—		—		639,400		9.09		—		—		639,400		9.09		—		—		—		—		—		639,400		15/01/08		15/01/09

		3,348,792		—		—			—		—		3,348,792		9.09		—		—		3,348,792		9.09		—		—		—		—		—		3,348,792

Long-Term Incentive Plan (I09) (Note 49):
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		—		—		—			—		—		—		—		—		—		—		—		41,785		—		—		—		—		41,785		23/06707		31/07/09
Mr. Alfredo Sáenz Abad		—		—		—			—		—		—		—		—		—		—		—		110,084		—		—		—		—		110,084		23/06/07		31/07/09
Mr. Matías Rodríguez Inciarte		—		—		—			—		—		—		—		—		—		—		—		53,160		—		—		—		—		53,160		23/06/07		31/07/09
Ms. Ana Patricia Botín-Sanz
de Sautuola y O’Shea (**)		—		—		—			—		—		—		—		—		—		—		—		27,929		—		—		—		—		27,929		23/06/07		31/07/09
Mr. Francisco Luzón López		—		—		—			—		—		—		—		—		—		—		—		44,749		—		—		—		—		44,749		23/06/07		31/07/09

		—		—		—			—		—		—		—		—		—		—		—		277,707		—		—		—		—		277,707

Long-Term Incentive Plan (I10) (Note 49):
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		—		—		—			—		—		—		—		—		—		—		—		62,589		—		—		—		—		62,589		23/06/07		31/07/10
Mr. Alfredo Sáenz Abad		—		—		—			—		—		—		—		—		—		—		—		164,894		—		—		—		—		164,894		23/06/07		31/07/10
Mr. Matías Rodríguez Inciarte		—		—		—			—		—		—		—		—		—		—		—		79,627		—		—		—		—		79,627		23/06/07		31/07/10
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea (**)		—		—		—			—		—		—		—		—		—		—		—		41,835		—		—		—		—		41,835		23/06/07		31/07/10
Mr. Francisco Luzón López		—		—		—			—		—		—		—		—		—		—		—		67,029		—		—		—		—		67,029		23/06/07		31/07/10

		—		—		—			—		—		—		—		—		—		—		—		415,974		—		—		—		—		415,974


(*)		Approved by Banesto’s shareholders at its Annual General Meeting on February 28, 2006.

(**)		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 Annual General Meeting of Banesto held on June 27, 2007, the maximum number of shares shown in the foregoing table relate to the aforementioned executive director, based on the resolution adopted at the aforementioned Annual General Meeting.

F-57

Additionally, the maximum limits to the Matched Deferred Bonus Plan (Note 49) are as follows:


	Maximum
	Number of
Executive Directors	Shares

Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		16,306
Mr. Alfredo Sáenz Abad		37,324
Mr. Matías Rodríguez Inciarte		20,195
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea (*)		13,610
Mr. Francisco Luzón López		22,214

		109,649


(*)		In accordance with the resolution adopted by the shareholders at the Annual General 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 is that shown in the foregoing table, in accordance with the resolution adopted by the shareholders at the Annual General Meeting of Banesto held on June 27, 2007.

	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
	2007						2006						2005
	Loans and						Loans and						Loans and
	Credits		Guarantees		Total		Credits		Guarantees		Total		Credits		Guarantees		Total

Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos		—		—		—		—		—		—		2		—		2
Mr. Fernando de Asúa Álvarez		—		—		—		—		—		—		4		—		4
Mr. Alfredo Sáenz Abad		6		—		6		21		—		21		16		—		16
Mr. Matías Rodríguez Inciarte		18		10		28		—		—		—		8		10		18
Mr. Manuel Soto Serrano		4		—		4		4		—		4		3		—		3
Mr. Antonio Basagoiti García Tuñón		94		1		95		125		1		126		145		1		146
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea		—		—		—		2		—		2		—		—		—
Mr. Francisco Javier Botín-Sanz de Sautuola y O’Shea		—		—		—		—		—		—		60		—		60
Mr. Rodrigo Echenique Gordillo		7		—		7		33		—		33		5		—		5
Mr. Antonio Escámez Torres		309		—		309		289		—		289		295		—		295
Mr. Francisco Luzón López		722		—		722		875		—		875		1,026		—		1,026

		1,160		11		1,171		1,489		64		1,553		1,569		58		1,627

	f)		*Senior managers*

			Following is a detail of the remuneration paid to the Bank’s General Managers (*) in 2007, 2006 and 2005:


	Number of		Thousands of Euros
	Managers		Salary						Other
Year	(1)		Fixed		Variable		Total		Remuneration		Total

2005		24		16,450		27,010		43,460		2,708		46,168
2006		26		19,119		34,594		53,713		11,054		64,767
2007		26		19,504		42,768		62,272		10,092		72,364


(*)		Excluding executive directors’ remuneration, which is detailed above.

(1)		At some point in the year they occupied the position of General Manager. The amounts reflect the annual remuneration regardless of the number of months in which the position of General Manager was occupied.

F-58

The actuarial liability recognized in respect of post-employment benefits earned by the Bank’s senior managers totaled €202 million at December 31, 2007 €December 31, 2006: €186 thousand; December 31, 2005: €150 million). The charge to the consolidated income statement in this connection amounted to €24 million in 2007 €2006: €46 million; 2005: €24 million). Additionally, the total sum insured under life and accident insurance policies relating to this group amounted to €56 million at December 31, 2007 €December 31, 2006: €52 million; December 31, 2005: €43 million).

The 912,000 share options granted to the Bank’s General Managers €excluding executive directors) under the Managers Plan 2000 €Note 49), the exercise price of which was €10.545 per share, were exercised in 2005 at an average market price of €11.06 per share. Also, the Bank’s General Managers €excluding executive directors) held 7,235,988 options on the Bank’s shares under Plan I06 at December 31, 2007 €December 31, 2006: 7,268,572 options — Note 49). The Bank’s General Managers €excluding executive directors) had the right to receive a maximum number of 889,109 and 1,333,465 shares under Plan I09 and Plan I010, respectively €Note 49). Additionally, with respect to the Matched Deferred Bonus Plan, the maximum amount relating to the general managers is €3.7 million.

The remuneration in kind paid to the Bank’s General Managers €excluding executive directors), mainly in respect of life insurance, totaled €1,094 thousand in 2007 €2006: €909 thousand; 2005: €777 thousand).

	g)		*Post-employment benefits to former directors and former general managers*

			The post-employment benefits paid in 2007 to former directors of the Bank and former general managers amounted to €7.9 million and €8.7 million, respectively €2006: €7.6 million and €6.7 million, respectively; 2005: €7.3 million and €6.3 million, respectively).

			The expense recognized in the consolidated income statement for 2007 in connection with pension and similar obligations assumed by the Group to former directors of the Bank and former general managers amounted to €308 thousand and €99 thousand, respectively €2006: €2.8 million and €0.3 million, respectively; 2005: €2.4 million and 9.6 million, respectively.

			Furthermore, “Provisions — Provisions for pensions and similar obligations” in the consolidated balance sheet at December 31, 2007 included €89.2 million and €142.9 million in respect of the post-employment benefit obligations to former directors of the Bank and former general managers, respectively €2006: €91.7 million and €95.9 million, respectively; 2005: €91.5 million and €110.3 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. However, 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 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 case of Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos, to acquire the status of retiree and to accrue a pension supplement. At December 31, 2007, the annual pension supplement would amount to €1,706 thousand €December 31, 2006: €1,529 thousand).

	•		In the cases of Mr. Matías Rodríguez Inciarte and Mr. Francisco Luzón López, to acquire the status of early retirees and to accrue pension supplements. At December 31, 2007, the annual pension supplements would amount to €2,146 thousand for Mr. Matías Rodríguez Inciarte and €2,293 thousand for Mr. Francisco Luzón López €2006: €1,916 thousand and €1,972 thousand, respectively; 2005: €1,801 thousand and €1,938 thousand, respectively).

	•		In the case of Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea, to receive a termination benefit amounting to up to five years’ annual fixed salary payments, as established in the related contract, based on the date on which the contract is terminated. At December 31, 2007, this benefit would amount to €3,399 thousand €December 31, 2006: €4,120 thousand; December 31, 2005: €4,000 thousand). Receipt of this termination benefit is incompatible with that of a pension supplement.

	•		In the case of Mr. Alfredo Sáenz Abad, to acquire the status of retiree or, alternatively, to receive a termination benefit equal to 40% of his annual fixed salary multiplied by the number of years of service at the Bank, up to a maximum of ten times his annual fixed salary. At December 31, 2007, the amount relating to the first option would be €4,257 thousand per year and that relating to the second option would be €31.3 million. The two alternatives are mutually exclusive and, therefore, if Mr. Alfredo Sáenz Abad opted to receive the termination benefit, he would not receive any pension supplement €December 31, 2006: €3,657 thousand per year and €27.2 million, respectively; December 31, 2005: €3,421 thousand per year and €26.4 million, respectively).

	•		In the case of Mr. Juan Rodríguez Inciarte, to acquire the status of special early retiree, early retiree or retiree and to accrue a pension supplement. At December 31, 2007 the annual pension supplement would amount to €930 thousand.

F-59

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.

	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 Companies Law, 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:


		Number of
Director	Corporate Name	Shares		Functions

Mr. Emilio Botín-Sanz de Sautuola	Bankinter, S.A.		3,300,395	—
y García de los Ríos	Royal Bank of Scotland Group plc		8,230,000	—
	Shinsei Bank, Limited		—	Director (1)
	Bank of America Corporation		560	—
	Santander Investment, S.A.		—	Chairman (1)

Mr. Fernando de Asúa Álvarez	Banco Bilbao Vizcaya Argentaria, S.A.		16,905	—
	Commerzbank, AG		5,000	—
	UBS		950	—
	Unibanco		630	—

Mr. Alfredo Sáenz Abad	Banco Bilbao Vizcaya Argentaria, S.A.		25,000	—
	HSBC Holdings		8,298	—
	Lloyds TSB		218	—
	Banco Banif, S.A.		—	Chairman (1)
	Santander Investment, S.A.		—	Deputy Chairman (1)

Mr. Matías Rodríguez Inciarte	Banesto		27,575	Director (1)
	Banco Santander Totta, S.A.		—	Deputy Chairman (1)

Mr. Manuel Soto Serrano	Banco Bilbao Vizcaya Argentaria, S.A.		72,000	—
	BNP Paribas		13,000	—
	Istituto per le Opere di Religione (IOR)		—	Director (2)
	UniCredito Italiano S.p.A.		294,000	—

F-60


		Number of
Director	Corporate Name	Shares		Functions

Assicurazioni Generali S.p.A. (3)	BSI SA		4,400,000	—
	Commerzbank, AG		57,480,386	—
	Intesa Sanpaolo		623,154,355	—
	Mediobanca - Banca di Credito Finanziario S.p.A.		16,381,963	—
	Bank Leumi le-Israel B.M.		19,711,333	—
	Erste Bank AG		3,248,964	—
	Banca Monte dei Paschi di Siena S.p.A.		22,062,700	—
	UniCredito Italiano S.p.A.		105,996,338	—
	Société Générale		1,841,117	—
	Deustche Bank, A.G.		920,619	—
	Banesto		760,000	—

Mr. Antonio Basagoiti García-Tuñón	Banco Popular Español, S.A.		800	—
	Banco Bilbao Vizcaya Argentaria, S.A.		850	—

Ms. Ana Patricia Botín-Sanz	Banesto		356,848	Chairman
de Sautuola y O’Shea	Santander Investment, S.A.		—	Director (1)
	BSN-Banco Santander de Negocios Portugal, S.A.		—	Director (1)
	Bankinter, S.A.		5	—

Lord Burns (Terence)	Abbey National plc		—	Chairman (1)

Mr. Guillermo de la Dehesa Romero	Goldman Sachs & Co.		12,888	—
	Goldman Sachs Europe Ltd.		—	Director (1)
	Banco Pastor, S.A.		11,088	—

Mr. Rodrigo Echenique Gordillo	Banco Popular Español, S.A.		12,600	—
	Banco Bilbao Vizcaya Argentaria, S.A.		13,580	—
	Mitsubishi UFJ FIN		6,000	—
	Royal Bank of Scotland Group plc		5,975	—
	Mizuho Financial Group, Inc.		5	—
	Banco Banif, S.A.		—	Second Deputy
				Chairman (1)
	Santander Investment, S.A.		—	Director (1)
	Allfunds Bank, S.A.		—	Chairman (1)
	Banco Santander International		—	Director(1)

Mr. Antonio Escámez Torres	Attijariwafa Bank		10	Deputy Chairman (1)
	Banco de Valencia, S.A.		349	—
	Santander Consumer Finance, S.A.		—	Chairman (1)
	Open Bank Santander Consumer, S.A.		—	Chairman (1)

Mr. Francisco Luzón López	Banco Santander, S.A. (4)		—	Director (1)
	Banco Santander International		—	Director (1)

F-61


		Number of
Director	Corporate Name	Shares		Functions

Mr. Abel Matutes Juan	Intesa Sanpaolo		2,359,665	—
	Eurizon Financial Group		—	Director (1)
	Banco Bilbao Vizcaya Argentaria, S.A.		554,366	—
	Banesto		11,980	—

Mr. Luis Alberto Salazar-Simpson Bos	Bankinter, S.A.		2,798	—

Ms. Isabel Tocino Biscarolasaga	Banco Banif, S.A.		—	Director (5)

Mr. Antoine Bernheim (6)	BNP Paribas		14,400	—
	UBS		40,164	—
	Crédit Suisse		35,200	—
	Intesa Sanpaolo		398,533	Deputy Chairman (7)
	Mediobanca - Banca di Credito Finanziario S.p.A.		60,000	Director (1)
	UniCredito Italiano S.p.A.		126,455	—
	Royal Bank of Scotland Group plc		11,998	—
	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.it).

(4)		Formerly Banco Santander Serfin, S.A.

(5)		Ceased to be non-executive director of Banco Banif, S.A., since he was appointed as director of Banco Banif, S.A.

(6)		Representative on the Bank’s Board of Directors of the non-executive nominee director Assicurazioni Generali S.p.A.

(7)		(Non-executive) Deputy Chairman of the Supervisory Board.

None of the members of the Board of Directors perform, as independent professionals or as employees, activities of the nature detailed in the foregoing table.

6.		Loans and advances to credit institutions

		The breakdown, by classification, type and currency, of the balances of “Loans and advances to credit institutions” in the consolidated balance sheets is as follows:

F-62


	Thousands of Euros
	2007			2006			2005

Classification:
Financial assets held for trading		66,330,811			76,736,992			81,741,944
Other financial assets at fair value through profit or loss		7,072,423			4,500,220			9,699,237
Available-for-sale financial assets		34,187,077			32,727,454			68,054,021
Loans and receivables		1,668,339			621,770			171,203

		109,258,650			114,586,436			159,666,405

Type:
Spanish government debt securities- Treasury bills		5,558,420			3,160,674			3,948,045
Government bonds		376,393			535,584			3,287,406
Other book-entry debt securities		9,440,746			9,080,043			12,481,210
Foreign government debt securities		21,617,457			22,250,587			48,120,701
Issued by financial institutions		43,443,566			56,063,543			61,080,306
Other fixed-income securities		28,913,821			23,586,327			30,828,737
Impairment losses		(91,753	)		(90,322	)		(80,000	)
Of which: on available-for-sale financial assets		(91,753	)		(90,322	)		(80,000	)

		109,258,650			114,586,436			159,666,405

Currency:
Euro		55,013,063			43,708,401			79,195,677
Pound sterling		16,164,296			22,488,577			32,983,211
US dollar		13,341,949			12,483,749			12,591,314
Other currencies		24,831,095			35,996,031			34,976,203
Impairment losses		(91,753	)		(90,322	)		(80,000	)

		109,258,650			114,586,436			159,666,405

At December 31, 2007, the nominal amount of Spanish government debt securities assigned to certain Group or third-party commitments amounted to €695 million (December 31, 2006: €695 million; December 31, 2005: €70 million).

Additionally, at December 31, 2007, other debt securities totaling €16,171 million had been assigned to own obligations.

The impairment losses on available-for-sale financial assets are disclosed in Note 8.

Note 53 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.

Other equity instruments

	a)		*Breakdown*

			The breakdown, by classification and type, of the balances of “Other equity instruments” is as follows:

F-64


	Thousands of Euros
	2007			2006			2005

Classification:
Financial assets held for trading		9,744,466			13,490,719			8,077,867
Other financial assets at fair value through profit or loss		2,870,322			2,712,433			30,303,170
Available-for-sale financial assets		10,161,830			5,970,845			5,890,918
Of which:
Disregarding impairment losses		10,173,068			5,984,704			5,908,576
Impairment losses		(11,238	)		(13,859	)		(17,658	)

		22,776,618			22,173,997			44,271,955

Type:
Shares of Spanish companies		6,375,891			5,185,206			5,707,494
Shares of foreign companies		9,787,139			11,138,458			8,256,086
Investment fund units and shares		4,068,215			3,410,494			18,563,343
Of which: Abbey		602,067			669,689			17,041,821

Pension fund units		—			144,320			133,918
Other securities		2,556,611			2,309,378			11,628,772
Of which: unit linked		2,556,611			2,309,378			11,628,772

Impairment losses		(11,238	)		(13,859	)		(17,658	)

		22,776,618			22,173,997			44,271,955

	b)		*Changes*

			The changes in the balance of “Available-for-sale financial assets”, disregarding impairment losses, were as follows:


	Millions of Euros
	2007			2006			2005

Balance at beginning of year		5,985			5,909			7,850
Net additions /disposals		3,096			(1,232	)		(2,984	)
Of which:
Antena 3 Televisión, S.A.		—			(398	)		—
San Paolo IMI, S.p.A.		—			(1,499	)		—
Assicurazioni Generali, S.p.A.		—			399			—
Royal Bank of Scotland Group, plc		1,368			—			(2,028	)
Commerzbank AG		—			—			(306	)
Shinsei Bank, Ltd.		—			—			(52	)
Fortis SA/NV		892			—			—
Iberdrola, S.A.		1,503			—			—
BPI		(229	)		—			—
Intesa Sanpaolo		(1,206	)		—			—
Transfers		—			—			396
Valuation adjustments		1,092			1,308			647
Of which:
San Paolo IMI, S.p.A.		—			607			414
Companhía Energética de Sao Paulo		331			—			—
Bovespa Holding, S.A.		330			—			—

Balance at end of year		10,173			5,985			5,909

F-65

The main acquisitions and disposals made in 2007, 2006 and 2005 were as follows:

Shinsei Bank, Ltd. (Shinsei)

In February 2004 the shareholders of Shinsei, which was 11.4%-owned by the Group, resolved to float on the stock exchange 35% of the bank’s shares, which gave rise to the sale of a 4% holding by the Santander Group, at a gain of €118 million. Following this sale, the Group’s holding in this bank was 7.4%. In the first quarter of 2005, the Group disposed of a further 2.7% of Shinsei Bank at a gain of €49 million.

At December 31, 2007, the Group had a 4.23% ownership interest in the share capital of Shinsei.

ii.

Royal Bank of Scotland Group Plc (RBS)

In 2004 the Group sold 79 million shares of RBS, representing 2.51% of its share capital, giving rise to a gain of approximately €472 million. In 2005 the Group sold all the ownership interest held by it in RBS (2.57%) for €2,007 million, giving rise to a consolidated gain of €717 million which was recognized in “Other gains — Other” (Note 52). In 2007 the Group acquired a 2.3% stake in the share capital of RBS.

iii.

Auna Operadores de Telecomunicaciones, S.A. (Auna)

In January 2004 the Bank exercised certain agreements in connection with this company, thereby increasing its holding by 2.5%, and subsequently made several acquisitions representing a further 1.5% ownership interest. The holding in Auna was 27.3% at December 31, 2004, representing a cost of €1,814 million.

In the first half of 2005, the Group increased its holding by 4.7%, at a cost of €422 million, to 32.08%. In November 2005, the Group sold part of its ownership interest in Auna (27.07%) at a gain of €355 million, which was recognized under “Other gains — Other” (Note 52).

iv.

Commerzbank AG

In 2005 the Group progressively sold its holding in Commerzbank AG (3.38%), giving rise to a total gain of €24 million.

Antena 3 Televisión, S.A. (“Antena 3”)

On October 25, 2006, Antena 3 announced its acquisition of a 10% stake owned by the Group, giving rise to a gain of €294 million for the Group which was recognized under “Other gains - Other” (Note 52).

vi.

San Paolo IMI, S.p.A. (“San Paolo”)

In December 2006, the Group sold 89.9 million shares of San Paolo, representing 4.8% of its share capital, giving rise to a gain of €705 million which was recognized under “Other gains — Other” (Note 52).

vii.

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, which gave rise to a gain of €566 million.

viii.

Banco BPI, S.A. (“BPI”)

In 2007 the Group sold 35.5 million shares of BPI, for a total amount of €228 million, giving rise to a gain of €107 million. The ownership interest in BPI at December 31, 2007 was 1.2%.

ix.

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.

F-66

	c)		*Notifications of acquisitions of investments*

			The notifications made by the Bank in 2007, in compliance with Article 86 of the Spanish Companies Law and Article 53 of Securities Market Law 24/1998, of the acquisitions and disposals of holdings in investees are listed in Exhibit IV.

	d)		*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” (Note 7):


	Thousands of Euros
	2007			2006			2005

Balance at beginning of year		104,181			97,658			250,560
Net impairment losses for the year		6,546			(2,869	)		(110,977	)
Of which:
Impairment losses charged to income		34,341			6,737			36,156
Impairment losses reversed with a credit to income		(27,795	)		(9,606	)		(147,133	)

Net changes in the scope of consolidation		(6,737	)		—			—
Write-off of impaired balances against recorded impairment allowance		(97	)		(4,009	)		(21,471	)
Transfers between allowances		(3,928	)		18,349			(26,402	)
Exchange differences and other items		3,026			(4,948	)		5,948

Balance at end of year		102,991			104,181			97,658


Of which:
By geographical location of risk:
Spain		57,931			52,225			31,868
Rest of Europe		6,964			3,122			2,553
Latin America		38,096			48,834			63,237

By type of asset covered:
Debt instruments — Available-for-sale financial assets (Note 7)		91,753			90,322			80,000
Other equity instruments — Available-for-sale financial assets		11,238			13,859			17,658

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 (Note 36):


	Thousands of Euros
	2007				2006				2005
	Debit		Credit		Debit		Credit		Debit		Credit
	Balance		Balance		Balance		Balance		Balance		Balance

Interest rate risk		33,298,794		35,195,843		24,522,311		24,785,804		23,944,965		23,733,558
Foreign currency risk		4,369,032		6,809,887		3,416,681		4,204,816		1,325,399		1,330,493
Price risk		6,365,243		6,068,122		5,121,227		7,938,554		1,949,054		3,695,552
Other risks		2,693,049		729,375		1,924,072		1,808,944		409,776		468,477

		46,726,118		48,803,227		34,984,291		38,738,118		27,629,194		29,228,080

F-67

	b)		*Short positions*

			Following is a breakdown of the short positions:

Thousands of Euros

2007

2006

2005

Borrowed securities:

Debt instruments

2,424,447

5,459,927

7,033,121

Of which: Abbey

1,783,832

4,574,639

6,156,838

Equity instruments

1,596,775

4,151,317

6,279,410

Of which:

Bank

277,595

8,800

1,193,790

Abbey

1,285,989

3,995,291

4,975,258

Short sales:

Debt instruments

1,582,052

1,842,729

4,051,078

Of which: the Bank

1,485,173

1,721,742

3,876,223

Equity instruments

9,960

19,089

52,191

5,613,234

11,473,062

17,415,800

10.

Loans and advances to customers

	a)		*Breakdown*

			The breakdown, by classification, of the balances of “Loans and advances to customers” in the consolidated balance sheets is as follows:


	Thousands of Euros
	2007			2006			2005

Financial assets held for trading (*) (Note 2.d.iii)		23,704,481			30,582,982			26,479,996
Other financial assets at fair value through profit or loss (*) (Note 2.d.iii)		8,021,623			7,972,544			6,431,197
Loans and receivables (**) (Note 53)		533,750,907			484,790,338			402,917,602
Of which:
Disregarding impairment losses		542,446,111			492,953,782			410,527,527
Impairment losses		(8,695,204	)		(8,163,444	)		(7,609,925	)

		565,477,011			523,345,864			435,828,795

*Loans and advances to customers disregarding impairment losses*		*574,172,215*			*531,509,308*			*443,438,720*


(*)		Relate to loans originated under wholesale banking operations.

(**)		Relate to the commercial banking loan portfolio.

Note 53 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.

F-68

	b)		*Detail*

			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
	2007		2006		2005

Loan type and status:
Commercial credit		22,364		21,565		16,931
Secured loans		322,269		302,361		255,041
Reverse repurchase agreements		29,089		30,502		27,581
Other term loans		171,931		148,110		119,179
Finance leases		15,727		13,991		11,899
Receivable on demand		6,722		10,367		8,452
Impaired assets		6,070		4,613		4,356

		574,172		531,509		443,439

Borrower sector:
Public sector — Spain		5,633		5,329		5,243
Public sector — Other countries		2,296		4,970		6,608
Households		316,129		302,451		248,615
Energy		7,820		4,616		5,583
Construction		21,137		19,659		13,694
Manufacturing		31,839		28,682		25,649
Services		98,548		91,592		63,585
Other sectors		90,770		74,210		74,462

		574,172		531,509		443,439

Geographical area:
Spain		234,146		205,246		158,782
European Union (excluding Spain)		235,849		231,445		203,111
United States and Puerto Rico		32,070		31,385		25,884
Other OECD countries		6,633		6,020		3,943
Latin America		60,753		54,274		49,227
Rest of the world		4,721		3,139		2,492

		574,172		531,509		443,439

Interest rate formula:
Fixed interest rate		228,434		178,423		143,316
Floating rate		345,738		353,086		300,123

		574,172		531,509		443,439

F-69

	c)		*Impairment losses*

			The changes in the impairment losses on the assets making up the balances of “Loans and receivables — Loans and advances to customers”, “Loans and receivables — Loans and advances to credit institutions” (Note 6) and “Other financial assets” (Note 24) were as follows:

Thousands of Euros

2007

2006

2005

Balance at beginning of year

8,288,128

7,756,675

6,997,428

Impairment losses charged to income for the year:

4,120,278

3,035,468

2,234,186

Of which:

Individually assessed

4,223,069

2,584,434

1,874,413

Collectively assessed

1,077,785

1,151,376

636,836

Impairment losses reversed with a credit to income

(1,180,576

)

(700,342

)

(277,063

)

Inclusion of entities in the Group in the year

7,356

164,530

4,006

Write-off of impaired balances against recorded impairment allowance

(3,320,162

)

(2,369,865

)

(1,519,494

)

Exchange differences and other changes

(316,169

)

(261,034

)

267,090

Transfers between allowances

16,940

(37,646

)

(226,541

)

Balance at end of year

8,796,371

8,288,128

7,756,675

Of which:

By method of assessment:

Individually assessed

3,356,264

3,190,220

3,520,985

Of which: country risk (Note 2-g)

51,522

159,024

281,389

Of which: on loans and advances to credit institutions (Note 6)

18,487

12,727

36,046

Of which: on other financial assets (Note 24)

82,680

111,957

110,704

Collectively assessed

5,440,107

5,097,908

4,235,690

By geographical location of risk:

Spain

4,512,000

4,318,320

3,664,349

Rest of Europe

2,250,127

2,358,448

2,153,620

Americas

2,034,244

1,611,360

1,938,706

Previously written-off assets recovered in 2007, 2006 and 2005 amounted to €624,220 thousand, €551,606 thousand and €486,286 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 €3,496,058 thousand in 2007, €2,483,862 thousand in 2006 and €1,747,900 thousand in 2005.

	d)		*Impaired assets*

			The detail of the changes in the balance of the financial assets classified as loans and receivables and considered to be impaired due to credit risk is as follows:


	Millions of Euros
	2007			2006			2005

Balance at beginning of year		4,613			4,356			4,208
Net additions		4,898			2,723			1,356
Written-off assets		(3,320	)		(2,370	)		(1,519	)
Exchange differences and other		(120	)		(96	)		311

Balance at end of year		6,070			4,613			4,356

This amount, after deducting the related allowances, represents the Group’s best estimate of the fair value of the impaired assets.

F-70

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, 2007, and of the assets which, although not considered to be impaired, include any past-due amount at that date, 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		With Balances Past Due by
	3 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		1782
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

The detail at December 31, 2006 is as follows:


	Millions of Euros
	With no
	Past-Due
	Balances or
	Less than		With Balances Past Due by
	3 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		159		491		210		370		73		98		1,401
European Union (excluding Spain)		15		515		275		1,060		87		173		2,125
United States and Puerto Rico		—		118		8		41		3		15		185
Other OECD countries		4		19		21		4		2		83		133
Latin America		40		180		177		103		10		252		762
Rest of the world		5		—		—		—		—		2		7

		223		1,323		691		1,578		175		623		4,613

	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 (Note 2-e) is shown below. Note 22 details the liabilities associated with these securitization transactions.

Millions of Euros

2007

2006

2005

Derecognized

3,742

4,901

6,065

Of which: mortgage-backed securities

2,479

2,981

2,897

Retained on the balance sheet

92,023

59,426

46,523

Of which: mortgage-backed securities

60,056

36,363

33,085

Total

95,765

64,327

52,588

The growth in securitization in 2007 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.

F-71

	f)		*Guarantees*

			At December 31, 2007, financial assets securing liabilities or contingent liabilities amounted to €109,019 million (Note 22), the detail being as follows:


	Millions
	of Euros

Commercial paper (promissory notes)		183
Asset-backed securities		63,172
Other mortgage securities		45,664
Of which: mortgage bonds (cédulas hipotecarias)		32,264

Total		109,019

The mortgage-backed securities (€46,164 million) 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 as follows:

	•		First mortgage on principal residence.

	•		Loans current in payment, with minimum experience of payments being honored.

	•		Appraisal conducted by specialist valuer.

	•		The amount of the loan must not exceed 80% of the appraised value.

	•		Arrangement of insurance contract for an amount not less than the appraised value.

The other securitizations are secured by SME and consumer loan portfolios with average maturities of seven and five years, respectively.

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.

11.		Hedging derivatives

		The detail, by type of risk hedged, of the fair value of the derivatives qualifying for hedge accounting is as follows (Note 36):


	Thousands of Euros
	2007					2006					2005
	Assets		Liabilities			Assets		Liabilities			Assets		Liabilities

Fair value hedges		2,662,762		(3,862,500	)		2,866,213		(3,340,480	)		3,757,503		(1,710,911	)
Of which: Portfolio hedges		398,143		826,178			—		—			—		—
Cash flow hedges		101,629		(238,277	)		98,220		(132,658	)		368,601		(344,717	)
Of which: Recognized in equity (Note 29)		—		58,655			—		(49,252	)		—		(70,406	)
Hedges of net investments in foreign operations		298,778		(33,794	)		23,531		(20,711	)		—		(255,101	)

		3,063,169		(4,134,571	)		2,987,964		(3,493,849	)		4,126,104		(2,310,729	)

In 2007 the Group implemented a fair value hedge of the interest rate risk of a portfolio of financial instruments. The aim of this hedge is to maintain the economic value of the hedged items, consisting of fixed-rate marketable debt securities originally maturing at long term which have been hedged with IRSs.

F-72

12.		Non-current assets held for sale

		The breakdown of “Non-current assets held for sale” is as follows:


	Thousands of Euros
	2007		2006		2005

Equity instruments:
Antonveneta (Note 3-b)		9,000,000		—		—
Other instruments		25,936		—		—

		9,025,936		—		—

Tangible assets:
Foreclosed assets		364,345		265,311		271,574
Assets recovered from finance leases		19,196		13,528		20,785
Other assets		678,202		48,545		43,965
Of which: Ciudad Financiera business campus		625,124		—		—

		1,061,743		327,384		336,324

In 2007 the Group organized a restricted, private competition for the sale and subsequent leaseback of a property portfolio owned by it in Spain. Certain of these properties were sold in the year (Note 16-d) and at 2007 year-end the sale of the “Ciudad Financiera” business campus in which the Bank’s head offices are located had not yet been completed (Note 1-h). The foregoing table shows the carrying amount of these properties in the Group’s balance sheet at December 31, 2007.

Impairment losses of €112,030 thousand, €138,246 thousand and €123,246 thousand were deducted from the balance of this item at December 31, 2007, 2006 and 2005, respectively. The net charges recorded in those years amounted to €27,299 thousand, €48,796 thousand and €10,536 thousand, respectively.

13.

Investments — Associates

	a)		*Breakdown*

			The breakdown, by company, of the balance of “Investments — Associates” (Note 2-c) is as follows:


	Thousands of Euros
	2007		2006		2005

RFS Holdings B.V. (Note 3-b)		11,778,624		—		—
Cepsa		2,548,035		2,291,599		2,619,264
Sovereign		1,026,826		2,246,824		—
Attijariwafa Bank Société Anonyme		188,149		177,048		166,225
Vaporeón, S.L.		41,050		35,985		—
Abbey companies		5,104		3,531		34,103
Other companies		101,339		251,122		211,890

		15,689,127		5,006,109		3,031,482

Of which:
Euros		14,431,945		2,544,864		2,793,030
Listed		3,763,010		4,715,471		2,785,489
Goodwill		8,942,799		1,502,441		664,768
Of which:
RFS Holdings B.V. (Note 3-b)		7,993,875		—		—
Cepsa		940,199		833,241		650,949
Sovereign		—		653,946		—

At December 31, 2007, the unrealized capital gains on investments in Group associates, based on the related market values, amounted to €3,771 million (December 31, 2006: €2,899 million; December 31, 2005: €1,056 million).

F-73

	b)		*Changes*

			The changes in the balance of this item were as follows:


	Thousands of Euros
	2007			2006			2005

Balance at beginning of year		5,006,109			3,031,482			3,747,564
Acquisitions and capital increases (Note 3)		11,773,567			2,618,196			18,470
Of which:
Sovereign		—			2,299,893			—
RFS Holdings B.V.		11,614,871			—			—
Disposals and capital reductions (Note 3)		(27,421	)		(753,071	)		(1,168,585	)
Of which:
Unión Fenosa		—			—			(1,083,305	)
Cepsa		—			(711,393	)		—
Effect of equity accounting		441,457			426,921			619,157
Impairment losses		(1,052,673	)		(380	)		—
Dividends paid		(147,820	)		(164,606	)		(181,179	)
Change in consolidation method		(13,389	)		(84,503	)		(39,608	)
Exchange differences and other changes		(290,703	)		(67,930	)		35,663

Balance at end of year		15,689,127			5,006,109			3,031,482

	c)		*Impairment losses*

			No impairment was detected with respect to investments in associates in 2005. In 2006 impairment losses amounting to €380 thousand were recognized and in 2007 an impairment of €1,053 million was recognized on the investment in Sovereign. Of this amount, €586 million relate to goodwill inherent in Sovereign and €104 million to exchange differences.

	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
	2007			2006

Total assets		168,320			91,987
Total liabilities		(151,891	)		(78,869	)
Minority interests		(355	)		(203	)
Net assets		16,074			12,915

Group’s share of the net assets of associates		6,746			3,504

Goodwill		8,943			1,502

Total Group share		15,689			5,006


Total income		16,058			16,195
Total profit		1,211			1,237

Group’s share of the profit of associates		441			427

F-74

14.		Insurance contracts linked to pensions

		The detail of the balance of “Insurance contracts linked to pensions” (Note 25-c) is as follows:


	Thousands of Euros
	2007		2006		2005

Assets relating to insurance contracts covering post-employment benefit plan obligations:
Bank		2,220,638		2,272,786		2,320,512
Banesto		257,633		274,400		285,573
Other Spanish companies		33,286		34,442		35,526
Assets relating to insurance contracts covering other similar obligations:
Bank		10,663		18,713		29,576
Other Spanish companies		3,330		4,194		5,178

		2,525,550		2,604,535		2,676,365

15.		Liabilities under insurance contracts and Reinsurance assets

		The breakdown of the balances of “Liabilities under insurance contracts” and “Reinsurance assets” in the consolidated balance sheets (Note 2-j) is as follows:


	Thousands of Euros
	2007							2006							2005
	Direct							Direct							Direct
	Insurance							Insurance							Insurance
	and					Total		and					Total		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		351,799		(128,663	)		223,136		172,226		(78,340	)		93,886		119,114		(39,376	)		79,738
Life insurance:
Unearned premiums and unexpired risks		120,747		(23,580	)		97,167		119,867		(11,031	)		108,836		113,381		(31,615	)		81,766
Mathematical provisions		2,885,581		(17,727	)		2,867,854		3,049,875		(10,496	)		3,039,379		28,523,561		(2,200,524	)		26,323,037
Claims outstanding		364,878		(29,213	)		335,665		162,484		(37,362	)		125,122		350,865		(15,798	)		335,067
Bonuses and rebates		15,957		(13,359	)		2,598		11,414		(5,399	)		6,015		579,895		(5,246	)		574,649
Equalization		—		—			—		—		—			—		25		—			25
Life insurance policies where the investment risk is borne by the Policyholders		9,097,620		(90,395	)		9,007,225		7,175,926		(118,993	)		7,056,933		14,855,872		(94,732	)		14,761,140
Other technical provisions		197,035		(6,837	)		190,198		12,466		(252	)		12,214		129,587		(410	)		129,177

		13,033,617		(309,774	)		12,723,843		10,704,258		(261,873	)		10,442,385		44,672,300		(2,387,701	)		42,284,599

F-75

16.

Tangible assets

	a)		*Changes*

			The changes in “Tangible assets” in the consolidated balance sheets were as follows:


	Thousands of Euros
	Property,						Other Assets
	Plant and						Leased out
	Equipment			Investment			under an
	for Own Use			Property			Operating Lease			Total

Cost:
Balances at January 1, 2005		9,541,389			2,148,841			5,398,778			17,089,008
Additions/Disposals (net)		315,027			(1,480,536)	(*)		441,162			(724,346	)
Exchange differences (net)		561,772			49,393			133,883			745,048

Balances at December 31, 2005		10,418,188			717,698			5,973,823			17,109,710
Additions/Derecognitions (net) due to change in the scope of consolidation		(3,938	)		(557,549	)		180,492			(380,995	)
Additions/Disposals (net)		(358,066	)		240,900			366,485			249,319
Transfers and other changes		(32,271	)		—			—			(32,271	)
Exchange differences		(182,605	)		(55	)		97,526			(85,134	)

Balances at December 31, 2006		9,841,308			400,994			6,618,326			16,860,629
Additions/Derecognitions (net) due to change in the scope of consolidation		(43,055	)		—			—			(43,055	)
Additions/Disposals (net)		(1,156,036	)		77,285			545,769			(532,982	)
Transfers and other changes		(713,511	)		9,680			86,768			(617,063	)
Exchange differences (net)		(97,641	)		(511	)		(411,297	)		(509,449	)

Balances at December 31, 2007		7,831,065			487,448			6,839,566			15,158,079

Accumulated depreciation:
Balances at January 1, 2005		(4,572,468	)		(33,018	)		(1,786,713	)		(6,392,199	)
Disposals		224,135			1,588			57,969			283,692
Charge for the year		(606,510	)		(2,007	)		(9,592	)		(618,109	)
Exchange differences and other items		(245,261	)		(5,745	)		(44,714	)		(295,720	)

Balances at December 31, 2005		(5,200,104	)		(39,182	)		(1,783,050	)		(7,022,336	)
Additions/Derecognitions (net) due to change in the scope of consolidation		8,421			24,743			(35,748	)		(2,584	)
Disposals		1,174,842			1,314			274,008			1,450,164
Transfers and other changes		7,624			—			(508,549	)		(500,925	)
Charge for the year		(618,135	)		(2,876	)		(7,526	)		(628,537	)
Exchange differences		81,301			2			(33,805	)		47,498

Balances at December 31, 2006		(4,546,051	)		(15,999	)		(2,094,670	)		(6,656,720	)
Additions/Derecognitions (net) due to change in the scope of consolidation		21,681			—			—			21,681
Disposals		1,440,435			14,363			202,503			1,657,301
Transfers and other changes		110,941			(12,629	)		(304,805	)		(206,493	)
Charge for the year		(600,454	)		(3,561	)		(17,256	)		(621,271	)
Exchange differences and other items		40,848			1,451			156,020			198,319

Balances at December 31, 2007		(3,532,600	)		(16,375	)		(2,058,208	)		(5,607,183	)

Impairment losses:
Balances at January 1, 2005		(43,689	)		—			(67,927	)		(111,616	)
Impairment charge for the year		(12,463	)		(2,564	)		(63	)		(15,090	)
Exchange differences		43,000			(8,504	)		(1,957	)		32,539

Balances at December 31, 2005		(13,152	)		(11,068	)		(69,947	)		(94,167	)
Additions/Derecognitions (net) due to change in the scope of consolidation		755			—			—			755
Net impairment charge		(7,091	)		634			—			(6,457	)
Exchange differences and other changes		8,408			(14	)		(1,438	)		6,956

Balances at December 31, 2006		(11,080	)		(10,448	)		(71,385	)		(92,913	)
Impairment charge for the year		(1,452	)		8			—			(1,444	)
Additions/Derecognitions (net) due to change in the scope of consolidation		549			—			—			549
Exchange differences		1,130			92			723			1,945

Balances at December 31, 2007		(10,853	)		(10,348	)		(70,662	)		(91,863	)

Tangible assets, net
Balances at December 31, 2005		5,204,931			667,449			4,120,827			9,993,207
Balances at December 31, 2006		5,284,177			374,547			4,452,272			10,110,996

Balances at December 31, 2007		4,287,612			460,725			4,710,696			9,459,033


(*)		Mainly Abbey.

F-76

	b)		*Property, plant and equipment for own use*

			The detail, by class of asset, of the balance of “Property, plant and equipment for own use” in the consolidated balance sheets is as follows:


	Millions of Euros
			Accumulated			Impairment			Net
	Cost		Depreciation			Losses			Balance

Land and buildings		3,835		(851	)		(13	)		2,971
IT equipment and fixtures		2,619		(1,957	)		—			662
Furniture and vehicles		3,786		(2,275	)		—			1,511
Construction in progress and other items		178		(117	)		—			61

Balances at December 31, 2005		10,418		(5,200	)		(13	)		5,205


Land and buildings		3,704		(848	)		(11	)		2,845
IT equipment and fixtures		2,059		(1,495	)		—			564
Furniture and vehicles		3,838		(2,114	)		—			1,724
Construction in progress and other items		240		(89	)		—			151

Balances at December 31, 2006		9,841		(4,546	)		(11	)		5,284


Land and buildings		2,632		(682	)		(11	)		1,939
IT equipment and fixtures		1,903		(1,303	)		—			600
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	)		4,287

The net balance at December 31, 2007 in the foregoing table includes the following amounts:

	•		Approximately €5,335 million relating to property, plant and equipment owned by Group entities and branches located abroad (December 31, 2006: €5,272 million; December 31, 2005: €5,171 million).

	•		Approximately €394 million relating to property, plant and equipment being acquired under finance leases by the consolidated entities (Note 2-l discloses additional information on these items — December 31, 2006: €183 million; December 31, 2005: €83 million).

	c)		*Investment property*

			The fair value of investment property at December 31, 2007, 2006 and 2005 amounted to €588 million, €425 million and €944 million, respectively.

			The rental income earned from investment property and the direct costs related both to investment properties that generated rental income in 2007, 2006 and 2005 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 appraisers.

F-77

			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 appraisers.

			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. These advisors also analyzed both the selling prices of the properties and the agreed subsequent rental payments, and concluded that they had been set at fair market values at that date.

			The rental expense recognized by the Group in 2007 in connection with these agreements amounted to €10 million, which related in full to the minimum contractual payments. 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) amounts to €122 million payable within one year, €443 million payable at between one and five years -€117 million in 2009, €113 million in 2010, €109 million in 2011 and €105 million in 2012-, and €1,253 million payable at more than five years.

17.

Intangible assets

	a)		*Goodwill*

			The breakdown of “Goodwill”, based on the companies giving rise thereto (Note 3-c), is as follows:


	Thousands of Euros
	2007		2006		2005

Abbey (UK)		8,167,868		8,920,188		8,740,560
Totta Group (Portugal)		1,640,746		1,640,746		1,639,560
CC Holding (AKB Germany)		824,483		824,483		824,483
Banco Santander Chile		680,937		717,957		908,879
Grupo Financiero Santander Serfin (Mexico)		498,074		560,327		633,638
Meridional Group (Brazil)		501,192		458,202		469,372
Drive Group		419,481		412,986		—
Banesto		372,655		373,562		380,008
Santander Consumer Bank AS (Norway)		133,742		116,568		120,262
Finconsumo (Italy)		105,921		105,921		105,921
Banco Santander Consumer Portugal, S.A.		163,438		89,743		—
Bansander Leasing, Corp. (Island Finance)		58,888		80,873		—
Banco Santander Internacional		38,384		42,905		47,899
CB Extrobank		36,767		—		—
Unifin		36,437		37,490		—
PTF (Poland)		23,956		22,471		22,303
Other entities		127,739		108,313		125,360

		13,830,708		14,512,735		14,018,245

F-78

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, except for the impairment losses reflected in the following table, these assets were not impaired in the last three years, and the projected income attributable to the Group is at least equal to the amount recognized as goodwill.

The changes in “Goodwill” were as follows:


	Millions of Euros
	2007			2006			2005

Balance at beginning of year		14,513			14,018			15,090
Additions (Note 3)		252			650			62
Of which:
Drive Group		97			422			—
Santander Central Hispano Inc. (Island Finance)		—			96			—
Banco Santander Consumer Portugal, S.A.		74			90			—
Unifin		—			37			—
Santander BanCorp		—			—			11
CB Extrobank		38			—			—
Santander Consumer Bank AS (by Bankia)					—			45

Definitive assessment of acquisitions		(50	)		—			(1,856	)
Of which (transfer to other intangible assets):		—
Abbey		—			—			(1,753	)
Santander Consumer Bank AS (by Elcon)		—			—			(28	)
Santander Consumer Bank AS (by Bankia)		—			—			(22	)
PTF		—			—			(52	)
Of which other:		—
Drive Group		(49	)		—			—

Impairment losses		(15	)		(13	)		—
Of which:
Cambios Sol, S.A.		—			(7	)		—
Santander Financial Services Inc. (Island Finance)		(14	)		(6	)		—

Disposals		(6	)		(76	)		(2	)
Of which:
Banco Santander Chile		—			(67	)		—

Exchange differences and other items		(863	)		(66	)		724

Balance at end of year		13,831			14,513			14,018

F-79

	b)		*Other intangible assets*

			The breakdown of the balance of “Other intangible assets” is as follows:


	Estimated		Thousands of Euros
	Useful Life		2007			2006			2005

With indefinite useful life:
Brand name		—		446,175			487,177			459,680
Of which: Abbey		—		429,536			469,099			459,680
With finite useful life:
Customer deposits (Abbey)	10 years			1,175,428			1,283,693			1,257,843
Credit cards (Abbey)	5 years			32,727			35,741			35,021
IT developments	3 years			1,574,969			1,309,678			1,207,606
Other assets		—		233,352			323,026			163,199
Accumulated amortization				(1,234,838	)		(980,530	)		(704,345	)
Impairment losses				(25,479	)		(14,679	)		(207,978	)

				2,202,334			2,444,106			2,211,026

The changes in “Other intangible assets” were as follows:


	Millions of Euros
	2007			2006			2005

Balance at beginning of year		2,444			2,211			413
Additions/Disposals (net)		1,074			757			403
Exchange differences and other changes (net)		(107	)		(6	)		66
Impairment losses		(563	)		—			(131	)
Transfers from “Goodwill”		1			—			1,856
Amortization		(647	)		(518	)		(396	)

Balance at end of year		2,202			2,444			2,211

At 2007 year-end, the useful lives of certain intangible assets acquired during the year were revised, and the carrying amounts of these assets were adjusted on the basis of the estimated economic benefits that are expected to be obtained therefrom following the purchases described in Note 3.

18.		Prepayments and accrued income and Accrued expenses and deferred income

		The breakdown of the balances of “Prepayments and accrued income” and “Accrued expenses and deferred income” is as follows:


	Thousands of Euros
	Assets						Liabilities
	2007		2006		2005		2007			2006			2005

Prepayments (*)		594,506		521,246		1,792,886		—			—			—
Accrued expenses		—		—		—		(2,444,509	)		(2,197,921	)		(2,012,861	)
Other		1,154,687		1,060,597		1,176,333		(1,606,483	)		(801,159	)		(1,035,872	)

		1,749,193		1,581,843		2,969,219		(4,050,992	)		(2,999,080	)		(3,048,733	)


(*)		Of the amount for 2005, €1,160 million relate to Abbey’s insurance business.

F-80

19.		Other assets — Other and Other liabilities — Other

		The breakdown of the balances of these items is as follows:


	Thousands of Euros
	Assets						Liabilities
	2007		2006		2005		2007			2006			2005

Transactions in transit		147,392		163,655		122,316		(150,609	)		(311,283	)		(469,211	)
Net pension plan assets (Note 25)		239,392		223,851		54,693		—			—			—
Other		1,744,230		1,531,836		1,710,059		(2,328,848	)		(3,147,457	)		(1,043,697	)

		2,131,014		1,919,342		1,887,068		(2,479,457	)		(3,458,740	)		(1,512,908	)

20.		Deposits from central banks and Deposits from credit institutions

		The breakdown, by classification, counterparty, type and currency, of the balances of these items is as follows:


	Thousands of Euros
	2007		2006		2005

Classification:
Financial liabilities held for trading		23,254,111		39,690,713		31,962,919
Other financial liabilities at fair value through profit or loss		12,207,579		—		—
Financial liabilities at amortized cost		77,434,333		73,345,224		116,659,488
Of which:
Deposits from central banks		28,748,079		16,529,557		22,431,194
Deposits from credit institutions		48,686,254		56,815,667		94,228,294

		112,896,023		113,035,937		148,622,407

Type:
Reciprocal accounts		562,619		411,314		190,885
Time deposits		71,226,437		63,589,635		47,224,471
Other demand accounts		2,466,370		2,225,037		7,383,695
Repurchase agreements		36,615,910		45,417,839		91,399,196
Central bank credit account drawdowns		2,008,927		1,348,815		2,369,406
Other financial liabilities associated with transferred financial assets		—		8,445		7,170
Hybrid financial liabilities		15,760		34,852		47,584

		112,896,023		113,035,937		148,622,407

Currency:
Euro		58,327,694		43,828,306		79,664,528
Pound sterling		14,947,746		24,543,241		26,488,413
US dollar		28,930,017		27,883,219		20,307,158
Other currencies		10,690,566		16,781,171		22,162,308

		112,896,023		113,035,937		148,622,407

Note 53 contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates.

F-81

21.

Customer deposits

The breakdown, by classification, geographical area and type, of the balances of “Customer deposits” is as follows:


	Thousands of Euros
	2007		2006		2005

Classification:
Financial liabilities held for trading		27,992,480		16,572,444		14,038,543
Other financial liabilities at fair value through profit or loss		10,669,058		273,079		—
Financial liabilities at amortized cost		317,042,764		314,377,078		291,726,737

		355,704,302		331,222,601		305,765,280

Geographical area:
Spain		132,008,374		120,485,991		107,117,818
European Union (excluding Spain)		134,620,750		136,730,342		133,274,597
United States and Puerto Rico		17,888,682		7,512,963		7,578,598
Other OECD countries		189,548		79,117		106,151
Latin America		69,361,574		64,984,913		56,395,157
Rest of the world		1,635,374		1,429,275		1,292,959

		355,704,302		331,222,601		305,765,280

Type:
Demand deposits-
Current accounts		87,136,743		89,151,030		80,631,188
Savings accounts		90,727,525		93,717,633		90,471,827
Other demand deposits		3,593,720		2,025,095		1,747,720
Time deposits-
Fixed-term deposits		92,673,147		86,345,788		77,166,817
Home-purchase savings accounts		296,768		324,262		269,706
Discount deposits		9,933,139		7,132,341		16,128,577
Funds received under financial asset transfers		—		—		1
Hybrid financial liabilities		8,494,773		4,994,535		4,141,071
Other financial liabilities associated with transferred financial assets		—		—		20,346
Other time deposits		113,562		470,140		351,620
Notice deposits		283,301		45,849		33,713
Repurchase agreements		62,451,624		47,015,928		34,802,694

		355,704,302		331,222,601		305,765,280

		Note 53 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 breakdown, by classification and type, of the balances of “Marketable debt securities” is as follows:


	Thousands of Euros
	2007		2006		2005

Classification:
Financial liabilities held for trading		17,090,935		17,522,108		19,821,087
Other financial liabilities at fair value through profit or loss		10,279,037		12,138,249		11,809,874
Financial liabilities at amortized cost		206,264,524		174,409,033		117,209,385

		233,634,496		204,069,390		148,840,346

Type:
Bonds and debentures outstanding		200,905,082		168,661,356		123,566,864
Notes and other securities		32,729,414		35,408,034		25,273,482

		233,634,496		204,069,390		148,840,346

			At December 31, 2007, 2006 and 2005, 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, 2007, asset-backed securities amounted to €63,172 million. In 2007 asset-backed securities amounting to €28,520 million were issued, of which €15,924 million were issued by Abbey, €2,666 million by Fondo de Titulización de Activos Santander Empresas 3, €2,585 million by Santander Consumer Bank AG, €1,733 million by Hipototta No. 5 plc. and €1,659 million by Fondo de Titulización de Activos Santander Consumer Spain Auto 07 – 1.

F-82

			Additionally, total mortgage bonds at December 31, 2007 amounted to €45,664 million. In 2007 the Bank and Banesto issued mortgage bonds (cédulas hipotecarias) amounting to €4,500 million and €1,750 million, respectively. The mortgage bonds outstanding in connection with these issues totaled €39,264 million at December 31, 2007.

			At December 31, 2006, asset-backed securities amounted to €48,226 million (December 31, 2005: €27,997 million). In 2006 asset-backed securities amounting to €21,380 million were issued, of which €11,004 million were issued by Abbey, €4,374 million by the Bank and €1,769 million by Santander Consumer Bank AG.

			Additionally, total mortgage bonds at December 31, 2006 amounted to €42,425 million. In 2006 the Bank and Banesto issued mortgage bonds (cédulas hipotecarias) amounting to €7,500 million and €3,000 million, respectively. The mortgage bonds outstanding in connection with these issues totaled €36,224 million at December 31, 2006 (December 31, 2005: €27,250 million).

			Note 53 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 breakdown, by currency of issue, of the balance of this account is as follows:


							December 31, 2007
							Outstanding
							Issue Amount
							in Foreign		Annual
	Millions of Euros						Currency		Interest
Currency of Issue	2007		2006		2005		(Millions)		Rate (%)

Euro		132,031		112,622		78,499		132,032		4.39
US dollar		38,864		30,001		20,429		57,212		5.54
Pound sterling		23,154		21,128		19,274		16,980		6.24
Chilean peso		2,239		1,725		1,701		1,640,995		4.54
Other currencies		4,617		3,185		3,664		—		—

Balance at end of year		200,905		168,661		123,567

F-83

The changes in “Bonds and debentures outstanding” were as follows:

Millions of Euros

2007

2006

2005

Balance at beginning of year

168,661

123,567

83,021

Net inclusion of entities in the Group

1,895

—

Issues

122,530

76,956

52,670

Of which:

Banco Santander, S.A.-

Non-convertible debentures February and December — floating rate

—

4,374

—

Mortgage bonds — fixed rate

4,500

7,500

7,000

Banesto-

Mortgage bonds — fixed rate

1,708

3,000

4,000

Bonds

5,006

5,547

3,750

Santander International Debt, S.A., Sole-Shareholder Company-

Bonds — floating rate

10,059

11,709

10,169

Abbey-

Holmes Financing Series 10

—

5,581

—

Holmes Master Issuer plc

15,924

5,153

—

Holmes Financing Series 9

—

5,540

Bonds in pounds sterling

26,613

6,608

3,729

Bonds in other currencies

41,122

7,284

9,156

Santander US Debt, S.A., Sole-Shareholder Company-

Debentures — floating rate

2,038

3,785

5,086

Santander Consumer Bank AG-

Asset-backed securities

2,585

1,769

1,668

Banco Santander Totta, S.A.-

Asset-backed securities

890

3,808

736

FTA Santander Consumer Spain Auto 06-

Asset-backed securities

—

1,350

—

Redemptions

(85,674

)

(30,510

)

(14,269

)

Of which:

Banco Santander, S.A.

(3,987

)

(3,038

)

(1,000

)

Banesto

(2,358

)

(2,037

)

(2,000

)

Santander Consumer Bank S.p.A.

(26

)

(179

)

(102

)

Abbey

(70,535

)

(21,210

)

(7,503

)

Exchange differences

(2,864

)

(1,557

)

958

Other changes

(1,748

)

(1,690

)

1,187

Balance at end of year

200,905

168,661

123,567

	c)		*Notes and other securities*

			These notes were basically issued by Banco Santander, S.A.; Abbey National North America LLC; Abbey National Treasury Services, plc; Abbey National, plc; Santander Central Hispano Finance (Delaware) Inc.; Banco Santander, S.A.; Institución de Banca Múltiple, Grupo Financiero Santander; Santander Consumer Finance, S.A.; Banco Santander Puerto Rico; Banesto and CB Extrobank.

F-84

23.

Subordinated liabilities

	a)		*Breakdown*

			The detail, by currency of issue, of the balance of “Subordinated liabilities” is as follows:


	Thousands of Euros						December 31, 2007
							Outstanding
							Issue
							Amount
							in Foreign		Annual
							Currency		Interest Rate
Currency of Issue	2007		2006		2005		(Millions)		(%)

Euro		19,224,529		16,309,049		14,706,164		19,224		5.15
US dollar		7,358,576		6,898,455		7,843,846		10,832		7.11
Pound sterling		6,918,511		5,631,867		5,761,408		5,073		7.10
Other currencies		2,168,563		1,583,450		452,038		—		—

Balance at end of year		35,670,179		30,422,821		28,763,456

			Note 53 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.

	b)		*Changes*

			The changes in the balance of “Subordinated liabilities” were as follows:


	Millions of Euros
	2007			2006			2005

Balance at beginning of year		30,423			28,763			27,470
Net inclusion of entities in the Group		—			(459	)		—
Of which:
Scottish Pensions Limited		—			(292	)		—
Issues		8,330			5,881			2,507
Of which:
Santander Consumer Finance, S.A.
Banco do Estado de Sao Paulo, S.A. (Banespa)		—			995			420
Abbey		—			—			793
Santander Central Hispano Issuances, Limited		5,908			3,484			—
Santander Finance Capital, S.A., Sole-Shareholder Company		—			—			1,000
Santander Perpetual, S.A., Sole-Shareholder Company		1,019			—			—
Santander Finance Preferred, S.A., Sole-Shareholder Company		1,072			—			—
Redemptions		(2,340	)		(2,265	)		(2,410	)
Of which:
Abbey		(944	)		(763	)		(551	)
Santander Central Hispano Issuances, Limited		(1,188	)		(1,369	)		(1,189	)
Exchange differences		(1,353	)		(1,093	)		659
Other changes		610			(404	)		537

Balance at end of year		35,670			30,423			28,763

	c)		*Other information*

			For the purposes of payment priority preference shares are junior to all general creditors and to subordinated deposits. The payment of dividends on these shares, 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, 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.

F-85

Except for those described in Note 34-a), at December 31, 2007 none of these issues was convertible into Bank shares or granted privileges or rights which, in certain circumstances, make them convertible into shares. 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, 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, S.A. Institución de Banca Múltiple, Grupo Financiero Santander.

24.		Other financial assets and Other financial liabilities

		The breakdown of the balances of these items is as follows:


	Thousands of Euros
	2007					2006					2005
	Other		Other			Other		Other			Other		Other
	Financial		Financial			Financial		Financial			Financial		Financial
	Assets		Liabilities			Assets		Liabilities			Assets		Liabilities

Declared dividends payable		—		—			—		—			—		(581,400	)
Trade receivables (payables)		105,255		(3,350,422	)		104,281		(3,070,870	)		808,401		(2,907,828	)
Clearing houses		1,872,444		(1,106,714	)		760,839		(544,004	)		913,953		(408,700	)
Public agency revenue collection accounts		—		(2,040,547	)		—		(2,031,137	)		—		(1,758,574	)
Factoring accounts payable		—		(326,107	)		—		(284,331	)		—		(169,627	)
Bonds		5,582,063		(994,572	)		3,478,722		(41,447	)		2,639,426		(15,988	)
Unsettled financial transactions		2,455,085		(2,994,299	)		6,548,625		(1,978,120	)		3,653,275		(1,369,389	)
Other financial assets (liabilities)		2,336,185		(5,727,544	)		2,182,878		(4,798,756	)		1,614,388		(4,081,071	)

		12,351,032		(16,540,205	)		13,075,345		(12,748,665	)		9,629,443		(11,292,577	)

At December 31, 2007, 2006 and 2005, impairment losses amounted to €82,680 thousand, €111,957 thousand and €110,704 thousand, respectively (Note 10-c).

Note 53 contains a detail of the residual maturity periods of other financial assets and liabilities at each year-end.

25.

Provisions

	a)		*Breakdown*

			The breakdown of the balance of “Provisions” is as follows:


	Thousands of Euros
	2007		2006		2005

Provisions for pensions and similar obligations		11,819,748		14,014,305		14,172,961
Provisions for contingent liabilities and commitments (Note 2)		636,316		598,735		487,048
Of which: country risk		48,831		57,216		11,529
Other provisions		4,114,835		4,613,473		5,162,981

Total provisions		16,570,899		19,226,513		19,822,990

F-86

	b)		*Changes*

			The changes in “Provisions” were as follows:


	Millions of Euros
	2007												2006											2005
				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		14,014			599			4,614			19,227			14,173			487		5,163			19,823			13,441			361			4,222			18,024
Net inclusion of entities in the Group		(2	)		—			(35	)		(37	)		—			—		1			1			(1	)		—			—			(1	)
Additions charged to income:
Interest expense and similar charges (Note 39)		488			—			—			488			735			—		—			735			641			—			—			641
Personnel expenses (Note 49)		209			—			—			209			223			—		—			223			246			—			—			246
Additions to provisions		114			96			497			707			984			96		(1	)		1,079			776			20			1,011			1,807
Other additions (Note 52)		317			—			—			317			—			—		—			—			—			—			—			—
Other additions arising from insurance contracts linked to pensions		(17	)		—			—			(17	)		(6	)		—		—			(6	)		(10	)		—			—			(10	)
Payments to pensioners and early retirees with a charge to internal provisions		(1,109	)		—			—			(1,109	)		(1,422	)		—		—			(1,422	)		(1,258	)		—			—			(1,258	)
Insurance premiums paid		(6	)		—			—			(6	)		(2	)		—		—			(2	)		(8	)		—			—			(8	)
Payments to external funds		(2,168	)		—			—			(2,168	)		(743	)		—		—			(743	)		(212	)		—			—			(212	)
Amount used		—			—			(921	)		(921	)		—			—		(982	)		(982	)		—			(9	)		(560	)		(569	)
Transfers, exchange differences and other changes		(20	)		(59	)		(40	)		(119	)		72			16		433			521			558			115			491			1,164

Balances at end of year		11,820			636			4,115			16,571			14,014			599		4,614			19,227			14,173			487			5,164			19,823

F-87

	c)		*Provisions for pensions and similar obligations*

			The breakdown of the balance of “Provisions for pensions and similar obligations” is as follows:


	Millions of Euros
	2007		2006		2005

Provisions for post-employment plans — Spanish entities		5,723		5,647		5,657
Of which, defined benefit		5,626		5,647		5,657
Provisions for other similar obligations — Spanish entities		4,001		4,527		4,269
Of which: early retirements		3,950		4,481		4,215
Provisions for post-employment plans — Abbey		1,275		1,642		1,788
Provisions for post-employment plans and other similar obligations
— Other foreign subsidiaries		821		2,198		2,459

Provisions for pensions and similar obligations		11,820		14,014		14,173

Spanish entities — Post-employment plans and other similar obligations

			At each year-end, the Spanish consolidated entities had post-employment benefit obligations under defined benefit plans. 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. This plan recognizes an extraordinary contribution totaling €97 million for services rendered, and subsequent current contributions. 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. Also, in 2007, 2006 and 2005 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 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 €14 million in 2007, €13 million in 2006 and €2 million in 2005.

			The amount of defined benefit obligations was determined by independent actuaries using the following actuarial techniques:

	1.		Valuation method: projected unit credit method, which sees each year 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
	2007	2006	2005	2007	2006	2005

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)
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-88

	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
	2007			2006			2005			2007			2006			2005

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 is as follows:


	Millions of Euros
	Post-Employment Plans						Other Similar Obligations
	2007		2006		2005		2007		2006		2005

Present value of the obligations:
To current employees		1,259		1,215		1,207		—		—		—
Vested obligations to retired employees		4,876		4,958		4,942		—		—		—
To early retirees		—		—		—		3,950		4,481		4,215
Long-service bonuses and other obligations		—		—		—		50		46		54
Other		174		164		225		1		—		—

		6,309		6,337		6,374		4,001		4,527		4,269

Less:
Fair value of plan assets		192		203		211		—		—		—
Unrecognized actuarial (gains)/losses		487		482		506		—		—		—
Unrecognized past service cost		4		5		—		—		—		—

Provisions — Provisions for pensions		5,626		5,647		5,657		4,001		4,527		4,269


Of which:
Internal provisions for pensions		3,114		3,065		3,015		3,987		4,504		4,235
Insurance contracts linked to pensions (Note 14)		2,512		2,582		2,642		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
	2007			2006			2005			2007			2006			2005

Current service cost		56			55			54			5			3			6
Interest cost		242			239			255			166			156			150
Expected return on plan assets		(8	)		(8	)		(9	)		—			—			—
Expected return on insurance contracts linked to pensions		(102	)		(103	)		(105	)		(1	)		(1	)		(2	)
Extraordinary charges:
Actuarial (gains)/losses recognized in the year		6			8			13			13			16			14
Past service cost		58			151			35			—			—			—
Early retirement cost		2			(24	)		(13	)		39			799			671
Other		(16	)		(21	)		(38	)		(22	)		(10	)		(2	)

Total		238			297			192			201			963			837

F-89

The changes in the present value of the accrued defined benefit obligations were as follows:


	Millions of Euros
	Post-Employment Plans									Other Similar Obligations
	2007			2006			2005			2007			2006			2005

Present value of the obligations at beginning of year		6,337			6,374			6,433			4,527			4,269			4,099
Net inclusion of entities in the Group		—			—			—			—			—			—
Current service cost		56			55			54			5			3			6
Interest cost		242			239			255			166			156			150
Early retirement cost		2			(24	)		(13	)		39			799			671
Effect of curtailment/settlement		(16	)		(21	)		(38	)		(22	)		(10	)		(2	)
Benefits paid		(350	)		(415	)		(324	)		(729	)		(708	)		(673	)
Past service cost		58			156			35			1			—			—
Actuarial (gains)/losses		(19	)		(25	)		(26	)		13			16			14
Other		(1	)		(2	)		(2	)		1			2			4

Present value of the obligations at end of year		6,309			6,337			6,374			4,001			4,527			4,269

			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
	2007			2006			2005

Fair value of plan assets at beginning of year		203			211			212
Expected return on plan assets		8			8			9
Actuarial gains/(losses)		(12	)		(4	)		1
Contributions		6			2			8
Benefits paid		(13	)		(14	)		(19	)

Fair value of plan assets at end of year		192			203			211

Insurance contracts linked to pensions


	Millions of Euros
	Post-Employment Plans									Other Similar Obligations
	2007			2006			2005			2007			2006			2005

Fair value of insurance contracts linked to pensions at beginning of year		2,582			2,642			2,703			23			34			51
Expected return on insurance contracts (Note 38)		102			103			105			1			1			2
Actuarial gains/(losses)		(17	)		(6	)		(10	)		—			—			—
Premiums paid		12			11			12			—			—			—
Benefits paid		(165	)		(168	)		(168	)		(10	)		(12	)		(19	)
Exchange differences		(2	)		—			—			—			—			—

Fair value of insurance contracts linked to pensions at beginning of year		2,512			2,582			2,642			14			23			34

			In 2008 the Group expects to make contributions in Spain to fund its defined benefit pension obligations for amounts similar to those made in 2007.

			The plan assets and the insurance contracts linked to pensions are instrumented through insurance policies.

			The following table shows the estimated benefits payable at December 31, 2007 for the next ten years:


	Millions
	of Euros

2008		1,026
2009		969
2010		908
2011		844
2012		788
2013 to 2017		2,941

		7,476

F-90

ii.

Abbey

			At the end of each of the last three years, Abbey 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 €10 million in 2007, €5 million in 2006 and €6 million in 2005.

			The amount of the defined benefit obligations was determined by independent actuaries using the following actuarial techniques:

	1.		Valuation method: projected unit credit method, which sees each year 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:


	2007			2006			2005

Annual discount rate		5.30	%		5.20	%		4.85	%
Mortality tables	PA92MC C2006			PA92MC C2006			PA92MC C2005
Cumulative annual CPI growth		3.0	%		3.0	%		2.8	%
Annual salary increase rate		4.0	%		4.0	%		4.3	%
Annual pension increase rate		3.0	%		3.0	%		2.8	%

The funding status of the defined benefit obligations is as follows:


	Millions of Euros
	2007		2006			2005

Present value of the obligations		6,248		6,350			6,337

Less:
Fair value of plan assets		4,913		4,810			4,326
Unrecognized actuarial (gains)/losses		60		(102	)		223
Unrecognized past service cost		—		—			—

Provisions — Provisions for pensions		1,275		1,642			1,788

The amounts recognized in the consolidated income statement in relation to the aforementioned defined benefit obligations are as follows:


	Millions of Euros
	2007			2006			2005

Current service cost		97			119			131
Interest cost		322			309			294
Expected return on plan assets		(284	)		(263	)		(240	)
Extraordinary charges:
Actuarial gains/losses recognized in the year		(1	)		—			—
Past service cost		—			—			—
Early retirement cost		—			3			—

Total		134			168			185

The changes in the present value of the accrued defined benefit obligations were as follows:


	Millions of Euros
	2007			2006			2005

Present value of the obligations at beginning of year		6,350			6,337			5,232
Net inclusion of entities in the Group		—			—			—
Current service cost		97			119			131
Interest cost		322			309			294
Early retirement cost		—			3			—
Benefits paid		(175	)		(178	)		(102	)
Actuarial (gains)/losses		200			(342	)		570
Exchange differences and other items		(546	)		102			212

Present value of the obligations at end of year		6,248			6,350			6,337

F-91

The changes in the fair value of the plan assets were as follows:


	Millions of Euros
	2007			2006			2005

Fair value of plan assets at beginning of year		4,810			4,326			3,504
Net inclusion of entities in the Group		—			—			—
Expected return on plan assets		284			263			240
Actuarial gains/losses		45			(13	)		347
Contributions		387			303			238
Benefits paid		(175	)		(178	)		(102	)
Exchange differences		(438	)		109			99

Fair value of plan assets at end of year		4,913			4,810			4,326

			Through Abbey, the Group expects to make contributions in 2008 to fund these defined benefit pension obligations for amounts similar to those made in 2007.

			The main categories of plan assets as a percentage of total plan assets are as follows:


	2007			2006			2005

Equity instruments		46	%		46	%		51	%
Debt instruments		52	%		51	%		48	%
Other		1	%		3	%		1	%

			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, 2007 for the next ten years:


	Millions
	of Euros

2008		174
2009		187
2010		202
2011		217
2012		233
2013 to 2017		1,466

		2,479

iii.

Other foreign subsidiaries

			Certain of the consolidated foreign entities have acquired commitments to their employees similar to post-employment benefits.

			At December 31, 2007, 2006 and 2005, these entities had defined contribution and defined benefit post-employment benefit obligations. The expenses incurred in respect of contributions to defined contribution plans amounted to €23 million in 2007, €19 million in 2006 and €13 million in 2005.

			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.

F-92

The funding status of the obligations similar to post-employment benefits is as follows:


	Millions of Euros
	2007			2006			2005

Present value of the obligations		7,264			6,198			5,481

Less:
Fair value of plan assets		6,725			3,917			2,523
Unrecognized actuarial (gains)/losses		134			517			760
Unrecognized past service cost		—			—			2

21. Provisions — Provisions for pensions		405			1,764			2,196


Of which:
Internal provisions for pensions		821			2,198			2,459
Net assets for pensions		(239	)		(224	)		(55	)
Unrecognized net assets for pensions		(177	)		(210	)		(208	)

			In January 2007 Banco do Estado de Sao 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.

			The amounts recognized in the consolidated income statement in relation to these obligations are as follows:


	Millions of Euros
	2007			2006			2005

Current service cost		51			46			54
Interest cost		608			574			413
Expected return on plan assets		(559	)		(271	)		(222	)
Extraordinary charges:
Actuarial gains/losses recognized in the year		22			93			35
Past service cost		—			29			—
Early retirement cost		16			72			62
Other		216			(132	)		—

Total		354			411			342

The changes in the present value of the accrued obligations were as follows:


	Millions of Euros
	2007			2006			2005

Present value of the obligations at beginning of year		6,198			5,481			4,092
Current service cost		51			46			54
Interest cost		608			574			413
Early retirement cost		16			72			62
Effect of curtailment/settlement		(4	)		(132	)		—
Benefits paid		(492	)		(513	)		(423	)
Past service cost		—			27			2
Actuarial (gains)/losses		707			72			455
Exchange differences and other items		180			571			826

Present value of the obligations at end of year		7,264			6,198			5,481

F-93

	d)		*Other provisions*

			The balance of “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 breakdown of the balance of “Provisions — Other provisions” is as follows:

Millions of Euros

2007

2006

2005

Provisions for contingencies and commitments in operating units:

Recognized by Spanish companies

814

892

937

Of which:

Bank

326

400

376

Banesto

197

249

331

Recognized by other EU companies

886

1,230

1,876

Of which: Abbey

584

931

1,458

Recognized by other companies

2,415

2,492

2,350

Of which:

Brazil

1,989

1,795

1,318

Mexico

159

193

233

4,115

4,614

5,163

Litigation

Tax litigation

At December 31, 2007, the main tax litigation concerning the Group was as follows:

	•		The “Mandado de Segurança” filed by Banco Santander Banespa, S.A. claiming its right to pay the Brazilian social contribution tax on net income at a rate of 8%. On January 14, 2008, an unfavorable judgment was handed down by the Federal Regional Court, against which the directors of Banco Santander S.A. (Brazil) intend to file an appeal at a higher court.

	•		The “Mandado de Segurança” filed by Banco Santander Banespa, S.A. claiming its right to consider the social contribution tax on net income as deductible in the calculation of Brazilian corporation tax. This action was declared unwarranted and an appeal was filed at the Federal Regional Court, requesting to have the claimability of the tax credit stayed and obtaining permission to deposit with the courts the disputed amounts. On October 1, 2007, an unfavorable judgment was handed down by the Federal Regional Court, which was appealed against by Banco Santander S.A. (Brazil) through the presentation of “Embargos de Declaraçao” on October 8, 2007. A decision has not yet been handed down by the Court.

	•		The “Mandado 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. The “Mandado de Segurança” was declared unwarranted and an appeal was filed at the Federal Regional Court. On September 13, 2007, this Court handed down a favorable judgment. Unión Federal has filed an appeal against this judgment at a higher court.

	•		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.

At December 31, 2007, other less significant tax litigation was in progress.

F-95

ii.

Legal litigation

At December 31, 2007, the main legal litigation concerning the Group was as follows:

	•		Misselling: claims associated with the sale by Abbey of certain financial products to its customers.

			The provisions recorded by Abbey in this connection 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 plaintiff.

			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.

			The Bank has filed extraordinary appeals on grounds of procedural infringements and an extraordinary cassation appeal against the aforementioned decision.

	•		Galesa de Promociones, S.A.: small claims proceeding at Elche Court of First Instance no. 4 (case no. 419/1994), in connection with the claim filed by Galesa de Promociones, S.A. (Galesa) requesting the Court to annul a previous legal foreclosure proceeding brought by the Bank against the plaintiff in 1992, which culminated in the foreclosure of certain properties that were subsequently sold by auction.

			The judgments handed down at first and second instance were in the Bank’s favor. The cassation appeal filed by Galesa at the Supreme Court was upheld by virtue of a decision on November 24, 2004 which ordered the reversal of the legal foreclosure proceeding to before the date on which the auctions were held. On June 8, 2006, Galesa filed a claim for the enforcement of the decision handed down by the Supreme Court, requesting that the Bank be ordered to pay €56 million, the estimated value of the properties, plus a further €33 million for loss of profit. The Bank challenged this claim on the grounds that the Supreme Court decision could not be enforced —since no order had been pronounced against the Bank, but rather a proceeding had merely been annulled— and it also argued that the damages requested would have to be ruled upon by an express court decision, which had not been pronounced.

			The Elche Court of First Instance, by virtue of an order dated September 18, 2006, found in favor of the Bank, and referred the plaintiff to the appropriate ordinary proceeding for the valuation of the aforementioned damages.

			Galesa filed an appeal for reconsideration, which was dismissed by a resolution on 11 November 2006. Galesa lodged an appeal against this resolution at the Alicante Provincial Appellate Court. This appeal was in turn contested by the Bank and a favorable judgment was handed down.

	•		Declaratory large claims action brought at Madrid Court of First Instance no. 19 (case 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 plaintiff 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, revoking the ruling issued at first instance and dismissing the appeal lodged by Inversión Hogar, S.A. Inversión Hogar, S.A. has announced that, on completion of the clarification procedure, it will file a cassation appeal against the aforementioned decision at the Civil Chamber of the Supreme Court.

	•		Complaint 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 (case no. 928/2007), seeking damages of approximately €43 million, plus interest and costs. The plaintiffs, 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 plaintiffs, the purpose of which was the sale of shares owned by the plaintiffs to another company called Invercámara, S.A.

			This complaint was duly contested by Santander Investment, S.A. on November 5, 2007. The parties are currently awaiting notification of the hearing to be held prior to the court proceeding.

At December 31, 2007, other less significant legal litigation was in progress.

* * * * *

F-96

			At the end of each of the last three years, the Group had recorded provisions that reasonably cover any contingencies that might arise from the aforementioned tax and legal litigation.

			Following is a description of the developmemts in 2007 in the litigation against Casa de Bolsa Santander, S.A. de C.V. Grupo Financiero Santander (Casa de Bolsa):

	•		In 1997 Casa de Bolsa was sued for an alleged breach of various stock brokerage contracts. On July 6, 1999, Civil Court number thirty-one of the Federal District handed down a judgment ordering Casa de Bolsa to return to the plaintiff 2,401,588 shares of México 1 and 11,219,730 shares of México 4 at their market value and to pay MXP 15 million, plus interest calculated at the average percentage borrowing cost (C.P.P.) multiplied by four.

			After numerous appeals were filed concerning the method used for calculating this interest, a final judgment was handed down ruling that the interest should not be capitalized.

			Following this judgment, the amount owed was paid in full and there are currently no claims outstanding in this connection.

26.		Equity having the substance of a financial liability

		This category includes the financial instruments issued by the consolidated companies which, although equity for legal purposes, do not meet the requirements for classification as equity.

		These 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 amounting to GBP 325 million, are redeemable at the discretion of the issuer, based on the terms and conditions of each issue.

		The changes in the balance of “Equity having the substance of a financial liability” were as follows:


	Thousands of Euros
	2007			2006			2005

Balance at beginning of year		668,328			1,308,847			2,124,222
Redemptions		(94,912	)		(472,925	)		(944,968	)
Of which:
Totta & Açores Financing, Limited		—			(118,483	)		—
Abbey National, plc		—			(354,442	)		—
BSCH Finance, Ltd.		—			—			(754,774	)
BCH Capital, Ltd.		—			—			(190,194	)
Pinto Totta Internacional Finance, Limited		(94,912	)		—			—
Exchange differences and other changes		(50,858	)		(167,594	)		129,593

Balance at end of year		522,558			668,328			1,308,847

The detail of the issuers and of the most significant terms and conditions of the issues is as follows:


	Millions of Euros
	2007				2006				2005				Annual
	Equivalent		Foreign		Equivalent		Foreign		Equivalent		Foreign		Interest		Redemption
Issuer and Currency of Issue	Euro Value		Currency		Euro Value		Currency		Euro Value		Currency		Rate (%)		Option (1)

Banesto Holdings Ltd. (US dollar)		53		77		59		77		66		77		10.50%		30/06/12
Totta & Açores Financing, Limited (US dollar)		—		—		—		—		127		150		—		—
Pinto Totta International Finance, Limited (US dollar)		—		—		95		125		212		250		—		—
Abbey (US dollar)		—		—		—		—		381		450		—		—
Abbey (Pound sterling)		443		325		484		325		474		325	8.63% to 10.38%		No option
Valuation adjustments		27		—		30		—		49		—		—		—

Balance at end of year		523				668				1,309


(1)		From these dates, the issuer can redeem the shares, subject to prior authorization by the national supervisor.

F-97

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 banks and companies file income tax returns in accordance with the tax regulations applicable in each country.

	b)		*Years open for review by the tax authorities*

			At December 31, 2007, the consolidated tax group had, in addition to the two years mentioned below, 2003, 2004, 2005, 2006 and 2007 open for review in relation to the main taxes applicable to it.

			The other consolidated 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 2007 there were no significant developments in connection with the tax disputes at the different instances, which were pending resolution at December 31, 2006.

			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 the possibility of such contingent liabilities becoming actual liabilities is remote, 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 corporation tax expense calculated at the standard tax rate to the income tax expense recognized is as follows:


	Millions of Euros
	2007			2006			2005

Consolidated profit before tax:
From continuing operations		11,175			8,995			7,661
From discontinued operations		973			1,840			480

		12,148			10,835			8,141

Corporation tax at 32.5% (*)		3,948			3,792			2,849
Decreases due to permanent differences		(1,062	)		(1,022	)		(981	)
Of which:
Due to effect of different tax rates		(851	)		(1,364	)		(627	)
Due to effect on deferred taxes of change in Spanish tax rate		—			491			-

Income tax of Group companies, per local books		2,886			2,770			1,868

Net increases (decreases) due to other permanent differences		(577	)		(568	)		(539	)
Other, net		204			388			62

Current income tax		2,513			2,590			1,391


Of which:
Ordinary activities		2,336			2,255			1,242
Discontinued operations		177			335			149
Of which:
Current tax		2,805			2,003			837
Deferred taxes		(292	)		587			554
Taxes paid in the year		3,181			949			1,036


(*)		35% for 2006 and 2005.

F-98

The effective tax rate is as follows:


	Millions of Euros
	2007			2006			2005

Consolidated tax group		5,043			4,212			3,281
Other Spanish entities		50			1,518			389
Foreign entities		7,055			5,105			4,471

		12,148			10,835			8,141

Income tax		2,513			2,590			1,391

Effective tax rate		20.69	%		23.90	%		17.09	%

	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
	2007			2006			2005

Tax charged to equity		(497	)		(418	)		(438	)
Measurement of available-for-sale fixed-income securities		(104	)		(276	)		(184	)
Measurement of available-for-sale equity securities		(393	)		(99	)		(230	)
Measurement of cash flow hedges		—			(43	)		(24	)

Tax credited to equity		20			—			—
Measurement of cash flow hedges		20			—			—

Total		(477	)		(418	)		(438	)

	e)		*Deferred taxes*

			The balance of “Tax assets” in the consolidated balance sheets includes debit balances with the tax authorities relating to deferred tax assets. The balance of “Tax liabilities” includes the liability for the Group’s various deferred tax liabilities.

			The detail of the balances of “Deferred tax assets” and “Deferred tax liabilities” is as follows:

Millions of Euros

2007

2006

2005

Deferred tax assets

10,853

9,156

8,909

Of which:

Banespa

1,905

1,577

1,201

Abbey

1,257

1,517

1,390

Early retirements

1,167

1,482

1,286

Other pensions

1,167

966

1,225

Prepaid taxes- Investments

965

—

Deferred tax liabilities

3,744

3,778

2,767

Of which:

Abbey

741

799

957

Banespa

253

149

Banco Santander, S.A. Institución de Banca Múltiple Grupo Financiero Santander

101

159

Santander Consumer Bank Aktiengesellschaft

104

Valuation adjustments

534

425

560

F-99

The changes in the balances of “Deferred tax assets” and “Deferred tax liabilities” were as follows:


	Millions of Euros
							Foreign
							Currency			Charge/Credit
							Balance			to Asset
	Balances at						Translation			and Liability			Acquisitions			Balances at
	December 31,			(Charge)/Credit			Differences and			Revaluation			for the Year			December 31,
	2005			to Income			Other Items			Reserve			(Net)			2006

Deferred tax assets		8,909			148			225			(22	)		(104	)		9,156
Deferred tax liabilities		(2,767	)		(735	)		(252	)		112			(136	)		(3,778	)

Total		6,142			(587	)		(27	)		90			(240	)		5,378


	Millions of Euros
							Foreign
							Currency		Charge/Credit
							Balance		to Asset
	Balances at						Translation		and Liability					Acquisitions			Balances at
	December 31,			(Charge)/Credit			Differences and		Revaluation			Prepaid		for the Year			December 31,
	2006			to Income			Other Items		Reserve			Taxes		(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

	f)		*Other information*

			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 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.

F-100

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 the balance of “Equity — Minority interests” is as follows:


	Thousands of Euros
	2007		2006		2005

Grupo Financiero Santander, S.A. de C.V.		649,291		657,013		609,728
Banesto		476,152		303,889		767,833
Banco Santander Chile		241,726		234,726		146,192
Brazil Group		56,062		45,161		44,275
Santander BanCorp		30,701		31,311		29,539
Other companies		328,445		298,837		720,990

		1,782,377		1,570,937		2,318,557

Profit for the year attributed to minority interests		575,892		649,806		529,666

Of which:
Banesto Group		81,467		260,591		149,143
Grupo Financiero Santander, S.A. de C.V.		281,186		166,103		139,885
Banco Santander Chile		138,781		84,640		58,153
Somaen-Dos, S.L.		—		77,177		138,919
Brazil Group		7,005		10,568		11,559
Santander BanCorp		1,626		3,053		6,680

		2,358,269		2,220,743		2,848,223

	b)		*Changes*

			The changes in the balance of “Minority interests” are summarized as follows:


	Millions of Euros
	2007			2006			2005

Balance at beginning of year		2,221			2,848			2,085
(Net) inclusion of companies in the Group and changes in scope of consolidation		(9	)		(1,050	)		34
Change in proportion of ownership interest		(117	)		72			(1	)
Valuation adjustments		(57	)		15			49
Dividends paid to minority interests		(360	)		(160	)		(137	)
Changes in share capital		220			(29	)		(25	)
Exchange differences and other items		(116	)		(125	)		313
Profit for the year attributed to minority interests		576			650			530

Balance at end of year		2,358			2,221			2,848

F-101

29.		Valuation adjustments

		The balances of “Valuation adjustments” include the amounts, net of the related tax effect, of adjustments to the assets and liabilities recognized temporarily in equity through the statement of changes in equity until they are extinguished or realized, when they are recognized definitively as shareholders’ equity through the consolidated income statement. The amounts arising from subsidiaries, jointly controlled entities and associates are presented, on a line by line basis, in the appropriate items according to their nature.

		“Valuation adjustments” include the following items:

Available-for-sale financial assets

This item includes the net amount of unrealized changes in the fair value of assets classified as available-for-sale financial assets.

The changes in this item were as follows:


	Thousands of Euros
	2007			2006			2005

Balance at beginning of year		2,283,323			1,941,690			1,936,818
Revaluation gains		825,812			1,663,713			911,814
Income tax		(107,043	)		(144,772	)		(23,468	)
Amounts transferred to income		(1,583,126	)		(1,177,308	)		(883,474	)

Balance at end of year		1,418,966			2,283,323			1,941,690


Of which:
Fixed-income		157,698			594,719			407,084
Equities		1,261,268			1,688,604			1,534,606

	b)		*Cash flow hedges*

			This item includes the net amount of changes in the value of financial derivatives designated as hedging instruments in cash flow hedges, for the portion of these changes considered as effective hedges (Note 11).

			The changes in this item were as follows:


	Thousands of Euros
	2007			2006			2005

Balance at beginning of year		49,252			70,406			(1,787	)
Valuation gains/(losses)		(156,313	)		9,087			83,216
Income tax		62,633			(30,241	)		(11,023	)
Amounts transferred to income		(14,227	)		—			—

Balance at end of year		(58,655	)		49,252			70,406


Of which:
Spain		(53,294	)		(54,498	)		43,709
Mexico		16,863			83,608			17,439
Italy		20,393			17,825			—
United States		(36,987	)		—			—
Other countries		(5,630	)		2,317			9,258

F-102

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” were as follows:


	Thousands of Euros
								Reserves of
								Entities
								Accounted									Profit
								for Using			Other						Attributed
	Share		Share		Accumulated			the Equity			Equity			Treasury			to the			Dividends and
	Capital		Premium		Reserves			Method			Instruments			Shares			Group			Remuneration			Total

Balances at January 1, 2005		3,127,148		20,370,128		6,256,632			621,195			93,567			(126,500	)		3,605,870			(1,310,662	)		32,637,378
Profit attributable to the Group for the year		—		—		—			—			—			—			6,220,104			—			6,220,104
Appropriation of profit for the year		—		—		3,279,608			326,262			—			—			(3,605,870	)		—			—
Dividends/Remuneration		—		—		(1,721,691	)		(115,582	)		—			—			—			(433,537	)		(2,270,810	)
Issues (reductions)		—		—		(2,531	)		—			—			—			—			—			(2,531	)
Purchase and sale of own equity instruments		—		—		26,421			—			—			73,432			—			—			99,853
Payments with equity instruments		—		—		—			—			19,167			—			—			—			19,167
Transfers		—		—		267,052			(243,462	)		(23,590	)		—			—			—			—
Other		—		—		(5,351	)		15,236			(11,666	)		—			—			—			(1,781	)

Balances at December 31, 2005		3,127,148		20,370,128		8,100,140			603,649			77,478			(53,068	)		6,220,104			(1,744,199	)		36,701,380

Profit attributable to the Group for the year		—		—		—			—			—			—			7,595,947			—			7,595,947
Appropriation of profit for the year		—		—		5,828,922			391,182			—			—			(6,220,104	)		—			—
Dividends/Remuneration		—		—		(2,495,742	)		(109,173	)		—			—			—			406,981			(2,197,934	)
Issues (reductions)		—		—		(4,163	)		—			—			—			—			—			(4,163	)
Purchase and sale of own equity instruments		—		—		9,627			—			—			(73,733	)		—			—			(64,106	)
Payments with equity instruments		—		—		—			—			19,167			—			—			—			19,167
Transfers		—		—		79,346			(44,369	)		(34,977	)		—			—			—			—
Other		—		—		(26,460	)		(43,479	)		450			—			—			—			(69,489	)

Balances at December 31, 2006		3,127,148		20,370,128		11,491,670			797,810			62,118			(126,801	)		7,595,947			(1,337,218	)		41,980,802

Profit attributable to the Group for the year		—		—		—			—			—			—			9,060,258			—			9,060,258
Appropriation of profit for the year		—		—		7,169,330			426,617			—			—			(7,595,947	)		—			—
Dividends/Remuneration		—		—		(3,117,057	)		(139,086	)		—			—			—			(200,589	)		(3,456,732	)
Issues (reductions)		—		—		(1,704	)		—			7,000,000			—			—			—			6,998,296
Purchase and sale of own equity instruments		—		—		4,575			—			—			126,609			—			—			131,184
Payments with equity instruments		—		—		—			—			48,548			—			—			—			48,548
Transfers		—		—		207,364			(195,246	)		(12,118	)		—			—			—			—
Other		—		—		(278,185	)		5,342			(11,667	)		—			—			—			(284,510	)

Balances at December 31, 2007		3,127,148		20,370,128		15,475,993			895,437			7,086,881			(192	)		9,060,258			(1,537,807	)		54,477,846

Parent		3,127,148		20,370,128		7,696,864			—			7,078,622			—			4,070,247			(1,537,807	)		40,805,202
Subsidiaries		—		—		7,687,422			—			8,259			(192	)		4,501,609			—			12,197,098
Jointly controlled entities		—		—		91,707			—			—			—			46,945			—			138,652
Associates		—		—		—			895,437			—			—			441,457			—			1,336,894

31.

Issued capital

	a)		*Changes*

			At the end of each of the last three years, the share capital consisted of 6,254,296,579 shares and amounted to €3,127,148,290.

			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, 2007, the only shareholders with an ownership interest in the Bank’s share capital of over 3% were Chase Nominees Ltd. (with a 10.80% holding), State Street Bank & Trust (with an 8.13% holding) and EC Nominees Ltd. (with a 5.85% holding).

	b)		*Other considerations*

			At December 31, 2006, the additional share capital authorized by the shareholders at the Annual General Meeting of the Bank amounted to €1,564 million.

			The shareholders at the Annual General Meeting on June 23, 2007 resolved to increase capital by €375 million, and fully empowered the Board of Directors to set and establish, within a period of one year, the terms and conditions for this capital increase in all matters not already provided for by the Annual General Meeting. In exercising these powers, the Board of Directors must determine whether the capital increase is to be performed through the issuance of new shares or by increasing the par value of the shares outstanding.

F-104

			Also, the aforementioned Annual General Meeting authorized the Bank’s Board of Directors to issue fixed-income securities for up to a maximum amount of €35,000 million (or the equivalent amount in another currency) by any lawful means. The shareholders at the Annual General Meeting on June 21, 2003 authorized the Board to issue fixed-income securities, convertible into new shares or exchangeable for outstanding shares, for up to €4,000 million over a five-year period, and empowered the Bank’s Board of Directors to increase capital by the required amount to cater for the requests for conversion. Of the aforementioned amount, €2,000 million are still available for issue.

			At December 31, 2007, the shares of the following companies were listed on official stock markets: Banco Río, S.A.; Banco de Venezuela, 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.; Inversiones Tesoreras, S.I.C.A.V., S.A.; Santander Chile Holding, S.A.; Inmuebles B de V 1985 C.A.; Banco Santander, S.A. (Brazil); Banco Español de Crédito, S.A.; Portada, S.A. and Capital Variable S.I.C.A.V., S.A.

			At December 31, 2007, 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 31,899,321, which represented 0.51% of the Bank’s share capital. In addition, the number of Bank shares owned by third parties and received as security was 14,767,478 (equal to 0.236% of the Bank’s share capital).

			At December 31, 2007, the capital increases in progress at Group companies and the additional capital authorized by their shareholders at the respective Annual General 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 Companies Law 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.

33.

Reserves

	a)		*Definitions*

			The balance of “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.

			The balance of “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.

F-105

	b)		*Breakdown*

			The breakdown of the balances of these reserve accounts is as follows:


	Thousands of Euros
	2007		2006		2005

Accumulated reserves:
Restricted reserves-
Legal reserve		625,430		625,430		625,430
Reserve for treasury shares		218,603		378,700		173,103
Revaluation reserve Royal Decree-Law 7/1996		42,666		42,666		42,666
Reserve for retired capital		10,610		10,610		—
Voluntary reserves (*)		3,668,316		3,711,534		3,791,677
Consolidation reserves attributed to the Bank		3,131,239		1,831,093		992,066
Reserves at subsidiaries		7,779,129		4,891,637		2,475,198

		15,475,993		11,491,670		8,100,140

Reserves of entities accounted for using the equity method:
Associates		895,437		797,810		603,649

Of which:
Cepsa		734,719		662,172		469,763
Attijariwafa Bank		126,626		111,701		102,692

		16,371,430		12,289,480		8,703,789


(*)		Include the reserves stipulated by Article 81 of the Consolidated Spanish Companies Law for an amount equal to the loans granted by Group companies to third parties for the acquisition of treasury shares.

Legal reserve

Under the Consolidated Companies Law, Spanish entities must transfer 10% of net profit for each year to the legal reserve. These transfers must be made 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.

ii.

Reserve for treasury shares

Pursuant to the Consolidated Companies Law, a restricted reserve has been recorded 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 which gave rise to its mandatory recording cease to exist. Additionally, this reserve covers the outstanding balance of 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.

If the balance of this reserve were used in a manner other than that provided for in Royal Decree-Law 7/1996, of June 7, it would be subject to taxation.

F-106

iv.

Reserves at subsidiaries and jointly controlled entities

The detail, by company, of the balance of “Reserves at subsidiaries”, based on the subsidiaries’ contribution to the Group (considering the effect of consolidation adjustments) is as follows:


	Millions of Euros
	2007			2006			2005

Banco Español de Crédito, S.A. (Banesto) (Consolidated Group)		3,319			2,312			1,809
Banco Santander, S.A., Institución de Banca Múltiple, Grupo Financiero Santander (Consolidated Group)		1,819			1,336			998
Abbey Group		1,419			742			—
Banespa (Consolidated Group)		1,036			976			927
Banco Santander Totta, S.A. (Consolidated Group)		939			784			642
Banco Santander Chile (Consolidated Group)		589			473			215
Banco de Venezuela, S.A., Banco Universal (Consolidated Group)		502			402			272
Grupo Santander Consumer Finance, S.A.		323			304			302
Cartera Mobiliaria, S.A., S.I.C.A.V.		298			281			241
Santander Investment, S.A.		181			167			129
Banco Santander International (United States)		178			156			138
Banco Santander (Suisse), S.A.		139			110			90
BSN — Banco Santander de Negocios Portugal, S.A.		78			63			44
Banco Santander Río, S.A.		(525	)		(587	)		(379	)
Exchange differences		(3,167	)		(3,167	)		(3,167	)
Consolidation adjustments and other companies		652			540			214

Total		7,779			4,892			2,475


Of which: restricted		925			740			556

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 (Note 3), Santander Emisora 150, S.A.U. issued securities mandatorily convertible into newly-issued ordinary shares of the Bank (“Valores Santander") amounting to €7,000 million. These securities can be voluntarily exchanged for Bank shares on 4 October 2008, 2009, 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 is 7.30% until October 4, 2008 and Euribor plus 2.75% thereafter until the securities are exchanged for shares.

	b)		*Treasury shares*

			The balance of “Shareholders’ equity – Treasury shares” includes the amount of 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 23, 2007 set the maximum number of Bank shares that the Bank and/or any Group subsidiary are authorized to acquire at 5% of the fully paid share capital amount, at a minimum share price which cannot be lower than par value and a maximum share price of up to 3% higher than the quoted price on the computerized trading system of the Spanish stock exchanges at the date of acquisition.

F-107

			The Bank shares owned by the consolidated companies accounted for less than 0.01% of issued capital (also less than 0.01% including derivatives on own equity instruments) at December 31, 2007 (December 31, 2006: 0.15%; December 31, 2005: 0.08%).

			The average purchase price of the Bank’s shares in 2007 was €13.86 per share and the average selling price was €13.86 per share.

			The effect on equity arising from transactions involving Bank shares (gains of €5 million in 2007, gains of €10 million in 2006 and gains of €26 million in 2005) was recognized in equity.

35.		Off-balance-sheet items

		“Off-balance-sheet items” relate 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.

	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 breakdown is as follows:

Financial guarantees

Financial guarantees are the amounts that would be payable by the consolidated entities on behalf of third parties as a result of the commitments assumed by those entities in the course of their ordinary business, if the parties who are originally liable to pay failed to do so.

The breakdown of “Financial guarantees” is as follows:


	Millions of Euros
	2007		2006		2005

Bank guarantees and other indemnities provided		69,805		52,697		44,251
Credit derivatives sold		708		478		180
Irrevocable documentary credits		5,803		5,029		3,767
Other financial guarantees		—		1		2

		76,316		58,205		48,200

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.

ii.

Assets earmarked for third-party obligations

“Assets earmarked for third-party obligations” includes the carrying amount of the assets owned by the consolidated entities that have been earmarked for the full performance of customer transactions.

iii.

Other contingent liabilities

This item includes the amount of any contingent liability not included in other items.

F-108

	b)		*Contingent commitments*

			“Contingent commitments” includes those irrevocable commitments that could give rise to the recognition of financial assets.

The breakdown of “Contingent commitments” is as follows:


	Millions of Euros
	2007		2006		2005

Drawable by third parties		102,216		91,690		77,678
Financial asset forward purchase commitments		1,440		1,449		991
Regular way financial asset purchase contracts		4,181		3,202		9,886
Securities subscribed but not paid		107		83		196
Securities placement and underwriting commitments		33		3		16
Documents delivered to clearing houses		5,988		6,013		6,030
Other contingent commitments		711		809		1,466

		114,676		103,249		96,263

36.

Other disclosures

	a)		*Notional amounts and market values of trading and hedging derivatives*

			The breakdown 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
	2007					2006					2005
	Notional		Market			Notional		Market			Notional		Market
	Amount		Value			Amount		Value			Amount		Value

Trading derivatives:
Interest rate risk-
Forward rate agreements		330,315		(878	)		116,858		(267	)		16,332		3
Interest rate swaps		1,923,372		(455	)		1,466,880		761			1,156,681		(2,019	)
Options and futures		953,315		(463	)		825,795		(780	)		419,628		345
Foreign currency risk-
Foreign currency purchases and sales		117,868		(505	)		81,612		(142	)		63,203		108
Foreign currency options		62,723		(566	)		62,852		(464	)		39,091		(223	)
Currency swaps		75,090		(1,020	)		56,096		(366	)		45,458		(154	)
Securities and commodities derivatives		157,807		1,809			138,628		(2,496	)		90,547		341

		3,620,490		(2,078	)		2,748,721		(3,754	)		1,830,940		(1,599	)

Hedging derivatives:
Interest rate risk-
Forward rate agreements		—		—			1		—			737		(3	)
Interest rate swaps		120,822		(1,159	)		103,564		547			89,713		1,630
Futures and options		10,660		(112	)		9,793		(66	)		106,341		(28	)
Foreign currency risk-
Foreign currency purchases and sales		28		6			1,745		3			6,856		(25	)
Foreign currency options		16,630		292			15,266		6			110		—
Currency swaps		16,372		(99	)		26,372		(989	)		20,563		248
Securities and commodities derivatives		155		1			622		(7	)		2,307		(7	)

		164,667		(1,071	)		157,363		(506	)		226,627		1,815

Total		3,785,157		(3,149	)		2,906,084		(4,259	)		2,057,567		216

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 (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.

F-109

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
	2007			2006			2005

Credit derivatives		1,008			709			242
Securities derivatives		3,227			2,148			1,573
Fixed-income derivatives		405			9			67
Currency derivatives		7,990			7,498			7,386
Interest rate derivatives		17,507			18,084			19,319
Commodities derivatives		23			4			—
Collateral received		(3,084	)		(1,562	)		(2,496	)

Total		27,076			26,890			26,091

The fair value of hedging derivatives, by type of hedge, is as follows:


	Millions of Euros
	2007			2006			2005

Fair value hedges		(1,199	)		(474	)		2,046
Cash flow hedges		(137	)		(35	)		24
Hedges of net investments in foreign operations		265			3			(255	)

		(1,071	)		(506	)		1,815

Following is the description of the main hedges (including the results of the hedging instrument and the hedged item attributable to the hedged risk):

Fair value hedges

The Group hedges the interest rate risk of the issues secured by the Bank. At 2007 year-end the Group held IRS contracts with an equivalent euro nominal value of €49,593 million, of which €37,125 million were denominated in euros, €5,655 million in US dollars and €5,557 million in pounds sterling. The fair value of these transactions at that date represented a loss of €964.7 million, which was offset by the gain on the hedged items, giving rise to a net loss of €17.1 million. In addition, there was an unrealized gain of €18.9 million relating to a cash flow hedge on a floating rate issue.

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, 2007, the gains associated with assets and liabilities thus hedged amounted to €297 million and €517 million, respectively.

An expense of €1,274.9 million and a revenue of €1,196.4 million were recognized in profit or loss (Note 45) in 2007 on the hedging instruments and on the hedged items attributable to the hedged risk, respectively.

At 2006 year-end, the Group held IRS contracts with an equivalent euro nominal value of €43,026 million, of which €34,160 million were denominated in euros, €4,243 million in US dollars and €3,574 million in pounds sterling. The fair value of these transactions at that date represented a loss of €471.5 million, which was offset by the gain on the hedged items, giving rise to a net loss of €5.1 million.

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-area 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 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.

F-110

At 2006 year-end, the Group held foreign currency options in this connection with an equivalent euro nominal value of €8,900 million, of which €4,939 million were denominated in pounds sterling, €2,570 million in Mexican pesos and €1,390 million in Chilean pesos. In 2006 losses amounting to €45.9 million arising from the settlement of options that matured in the year were allocated to reserves. At 2006 year-end the unrealized gains on the options not yet exercised amounted to €15.2 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
	2007		2006		2005

Investment funds		119,211		119,838		109,480
Pension funds		11,952		29,450		28,619
Assets under management		19,814		17,836		14,746

		150,977		167,124		152,845

37.

Discontinued operations

Description of divestments

Abbey’s insurance business (Note 3-c.ii)

In the third quarter of 2006 an agreement was entered into with Resolution plc (“Resolution”) for the sale to the latter of Abbey’s life insurance business for €5,340 million (GBP 3,600 million). The transaction did not give rise to any gains for the Group.

ii.

Inmobiliaria Urbis (Note 3-c.xvi)

The agreement to sell the Group’s 53.62% ownership interest in Urbis to Construcciones Reyal for €1,776 million was executed in December 2006. This divestment gave rise to a pre-tax gain of €1,218 million.

Additionally, the Group made other less significant disposals totaling €128 million, giving rise to a gain of €89 million.

iii.

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), Colombia (AFP Cesantías Santander), Mexico (Afore Santander) and Uruguay (Afinidad AFAP). 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 and Orígenes Seguro de Retiro to ING Groep NV. The agreement was executed in December 2007 for €112 million, giving rise to a pre-tax gain of €84 million.

F-111

	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 2006 and 2005 were restated in order to reflect the operations classified as discontinued in 2007.


	Thousands of Euros
	2007			2006			2005

Net interest income		5,476			(74,950	)		(164,223	)
Share of results of entities accounted for using the equity method		—			123			9

Net fee and commission income		177,892			220,997			254,826
Insurance activity income		74,179			378,106			614,053
Gains/Losses on financial assets and liabilities		17,741			49,040			31,376
Exchange differences		(94	)		72			(168	)

Gross income		275,194			573,388			735,873

Sales and income from the provision of non-financial services		—			762,041			845,989
Cost of sales		—			(455,817	)		(576,135	)
Other operating income (Net)		(1,780	)		(4,920	)		(14,404	)
Personnel expenses		(73,552	)		(173,536	)		(208,638	)
Other general administrative expenses		(45,375	)		(131,743	)		(252,941	)
Depreciation and amortization		(4,530	)		(7,734	)		(7,268	)

Net operating income		149,957			561,679			522,476

Other gains (Net)		(7,703	)		(28,988	)		(42,427	)

Profit before tax		142,254			532,691			480,049

Income tax		(29,860	)		(152,056	)		(149,346	)

Profit from divestments		830,928			1,307,033			—
Income tax on profit from divestments		(146,727	)		(182,703	)		—

Profit from discontinued operations		796,595			1,504,965			330,703

Additionally, following is a detail of the net cash flows attributable to the operating, investing and financing activities of discontinued operations.


	Thousands of Euros
	2007			2006			2005

Cash and cash equivalents at beginning of year		59			78,701			76,625
Cash flows from operating activities		(28,849	)		180,407			(2,065,721	)
Cash flows from investing activities		65			(64,253	)		1,639,319
Cash flows from financing activities		28,780			(127,380	)		428,478

Cash and cash equivalents at end of year		55			67,475			78,701

F-112

	c)		*Consideration received*

			The breakdown of the assets and liabilities associated with discontinued operations is as follows:


	Millions of Euros
	2007			2006
ASSETS:
Cash and balances with central banks		—			68
Financial assets held for trading		426			1,495
Of which: Abbey Insurance		—			1,482
Orígenes Seguros de Retiro		348			—

Other financial assets at fair value through profit or loss		110			35,837
Of which: Abbey Insurance		—			35,812
Orígenes Seguros de Retiro

Available-for-sale financial assets		43			6
Loans and receivables		422			1,461
Of which: Abbey Insurance		—			1,105
Orígenes Seguros de Retiro		410			—

Non-current assets held for sale		—			8
Investments		—			10
Reinsurance assets		—			2,361
Of which: Abbey Insurance		—			2,361

Tangible assets		18			726
Intangible assets		—			31
Tax assets		—			89
Prepayments and accrued income		—			1,135
Of which: Abbey		—			1,134

Other assets		62			2,910
Of which: Urbis		—			2,904

LIABILITIES:
Other financial liabilities at fair value through profit or loss		—			(845	)
Financial liabilities at amortized cost		(68	)		(4,355	)
Of which: Urbis		—			(2,707	)

Liabilities under insurance contracts		(640	)		(34,355	)
Of which: Abbey Insurance		—			(34,355	)
Orígenes Seguro de Retiro		(640	)

Provisions		(55	)		(57	)
Tax liabilities		—			(147	)
Accrued expenses and deferred income		—			(16	)
Other liabilities		(117	)		(6	)

Net asset value		201			6,356
Goodwill		5			46
Minority interests		(19	)		(464	)

Net amount		187			5,938
Profit from divestments		831			1,307

Consideration received		1,018			7,245

Of which: in cash		1,018			7,245

	d)		*Earnings per share relating to discontinued operations*

			The earnings per share relating to discontinued operations were as follows:


	2007		2006		2005

Basic earnings per share (euros)		0.1117		0.2030		0.0368
Diluted earnings per share (euros)		0.1105		0.2019		0.0367

F-113

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.

		The breakdown of the main interest and similar income items earned in 2007, 2006 and 2005 is as follows:


	Thousands of Euros
	2007		2006		2005

Balances with the Bank of Spain and other central banks		633,417		616,125		404,506
Due from credit institutions		2,881,240		2,363,762		2,396,787
Debt instruments		4,049,941		4,567,889		4,332,376
Loans and advances to customers		35,202,921		26,498,414		21,398,898
Insurance contracts linked to pensions (Note 25)		102,604		103,821		106,617
Other interest		2,933,231		2,682,812		4,449,463

Total		45,803,354		36,832,823		33,088,647

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 breakdown of the main items of interest expense and similar charges accrued in 2007, 2006 and 2005 is as follows:


	Thousands of Euros
	2007		2006		2005

Deposits from the Bank of Spain and other central banks		279,624		300,374		485,725
Deposits from credit institutions		3,581,327		3,297,332		3,106,892
Customer deposits		12,408,001		11,083,439		9,382,865
Marketable debt securities		9,351,606		5,828,925		4,262,401
Subordinated liabilities (Note 23)		2,053,389		1,693,737		1,568,471
Pension funds (Note 25)		487,911		735,004		640,545
Equity having the substance of a financial liability		47,290		85,229		118,389
Other interest		2,712,322		1,732,987		3,199,558

Total		30,921,470		24,757,027		22,764,846

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 breakdown of the balance of “Income from equity instruments” is as follows:


	Thousands of Euros
	2007		2006		2005

Equity instruments classified as:
Financial assets held for trading		201,186		258,126		175,543
Available-for-sale financial assets		212,056		145,874		160,033
Of which: relating to San Paolo IMI S.p.A.		80,500		90,037		74,281

		413,242		404,000		335,576

F-114

41.		Share of results of 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 breakdown of the balance of this item is as follows:


	Thousands of Euros
	2007		2006		2005

Cepsa		206,706		370,169		476,191
Attijariwafa		25,700		24,230		16,707
Sovereign		43,355		9,199		—
RFS Holdings B.V.		141,348		—		—
Unión Fenosa		—		—		78,597
Técnicas Reunidas, S.A.		—		—		11,287
U.C.I., S.A.		—		—		19,850
Other companies		24,348		23,323		16,525

		441,457		426,921		619,157

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 breakdown of the balance of this item is as follows:


	Thousands of Euros
	2007		2006		2005

Collection and payment services:
Bills		240,976		247,129		233,503
Demand accounts		571,394		554,882		544,629
Cards		1,524,161		1,291,327		1,153,252
Cheques		411,256		455,194		270,867
Orders		252,052		213,982		214,184

		2,999,839		2,762,514		2,416,435

Marketing of non-banking financial products:
Investment funds		1,812,975		1,685,459		1,498,757
Pension funds		171,935		155,059		141,524
Insurance		1,476,202		1,207,905		924,121

		3,461,112		3,048,423		2,564,402

Securities services:
Securities underwriting and placement		262,645		113,712		71,562
Securities trading		434,182		350,801		258,364
Administration and custody		266,598		263,529		274,444
Asset management		94,594		76,613		58,574

		1,058,019		804,655		662,944

Other:
Foreign exchange		65,502		70,680		59,968
Financial guarantees		360,893		306,853		254,608
Commitment fees		166,374		106,412		58,380
Other fees and commissions		1,368,247		1,189,043		1,137,210

		1,961,016		1,672,988		1,510,166

		9,479,986		8,288,580		7,153,947

F-115

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 breakdown of the balance of this item is as follows:


	Thousands of Euros
	2007		2006		2005

Fees and commissions assigned to third parties		924,801		798,034		653,362
Of which: Cards		671,077		627,610		533,333

Brokerage fees on lending and deposit transactions		21,882		55,105		66,047
Other fees and commissions		493,128		411,246		373,342

		1,439,811		1,264,385		1,092,751

44.		Insurance activity income

		“Insurance activity income” includes the net amount of the contribution from consolidated insurance and reinsurance companies to the Group’s gross income.


	Thousands of Euros
	2007									2006									2005
	Life			Non-Life			Total			Life			Non-Life			Total			Life			Non-Life			Total

Net premiums collected		4,861,011			319,448			5,180,459			4,313,315			214,369			4,527,683			2,000,625			115,109			2,115,734
Claims paid and other insurance-related expenses		(2,601,011	)		(261,775	)		(2,862,786	)		(1,919,737	)		(129,884	)		(2,049,620	)		(1,336,851	)		(71,510	)		(1,408,361	)
Reinsurance income		58,853			93,185			152,038			44,302			56,927			101,229			52,712			35,740			88,452
Net charges to liabilities under insurance contracts		(2,632,133	)		(106,568	)		(2,738,701	)		(2,884,231	)		(63,852	)		(2,948,083	)		(1,149,586	)		(49,526	)		(1,199,112	)
Finance income		563,121			34,382			597,503			887,643			(46,805	)		840,838			724,697			11,133			735,830
Finance charges		(7,178	)		(1,982	)		(9,160	)		(216,671	)		(2,292	)		(218,963	)		(130,509	)		(568	)		(131,077	)

		242,663			76,690			319,353			224,621			28,463			253,084			161,088			40,378			201,466

F-116

45.		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 breakdown of the balance of this item, by type of instrument, is as follows:

Thousands of Euros

2007

2006

2005

Fixed-income

(402,884

)

77,724

793,527

Equities, financial derivatives and other

2,724,508

1,974,815

664,320

Of which:

Financial assets and liabilities held for trading and derivatives

2,019,787

1,549,486

317,608

Available-for-sale financial assets

704,721

374,150

345,561

Of which due to the sale of:

Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros

110,587

106,197

—

BPI

107,000

—

Telefónica, S.A.

138,410

—

Shinsei

—

49,332

Commerzbank

—

24,424

2,321,624

2,052,539

1,457,847

Of which:

Financial assets and liabilities classified as at fair value through profit or loss on initial recognition

1,411,705

1,635,757

854,892

	b)		*Financial assets and liabilities at fair value through profit or loss*

			The detail of the amount of the asset balances is as follows:


	Million of Euros
	2007		2006		2005

Loans and advances to credit institutions		19,160		14,813		12,708
Loans and advances to customers		31,726		38,556		32,911
Debt instruments		73,403		81,237		91,441
Other equity instruments		12,615		16,203		38,381
Derivatives		46,726		34,985		27,629

		183,630		185,794		203,070

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, 2007, the actual credit risk exposure of the derivatives was €27,076 million (Note 36).

“Loans and advances to credit institutions” and “Loans and advances to customers” included repos amounting to €38,809 million at December 31, 2007. Also, mortgage-backed assets totaled €7,773 million.

Debt instruments include €18,155 million of Spanish and foreign government securities.

At December 31, 2007, 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.

F-117

The detail of the amount of the liability balances is as follows:


	Millions of Euros
	2007			2006			2005

Derivatives		(48,803	)		(38,738	)		(29,228	)
Other liabilities		(107,107	)		(97,670	)		(95,048	)

		(155,910	)		(136,408	)		(124,276	)

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 €839 million at December 31, 2007.

46.		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.

47.		Sales and income from the provision of non-financial services and cost of sales

		These items in the consolidated income statements show, respectively, the amount of sales of goods and income from the provision of services that constitute the typical activity of the non-financial consolidated Group entities and the related cost of sales. The main lines of business of these entities are as follows:


	Thousands of Euros
	2007					2006					2005
	Sales/		Cost of			Sales/		Cost of			Sales/		Cost of
Line of Business	Income		Sales			Income		Sales			Income		Sales

Property		40,368		(12,232	)		45,875		(17,531	)		80,464		(55,789	)
Rail transport		251,545		(188,514	)		240,411		(190,236	)		285,207		(233,085	)
Other		479,114		(418,209	)		448,316		(407,922	)		199,854		(120,473	)

		771,027		(618,955	)		734,602		(615,689	)		565,525		(409,347	)

48.		Other operating income

		The breakdown of the balance of “Other operating income” is as follows:


	Thousands of Euros
	2007		2006		2005

Exploitation of investment property and operating leases		2,758		3,976		4,306
Commissions on financial instruments offsetting related direct costs		195,272		176,536		154,187
Other		153,067		143,388		97,630

		351,097		323,900		256,123

F-118

49.

Personnel expenses

	a)		*Breakdown*

			The breakdown of “Personnel expenses” is as follows:


	Thousands of Euros
	2007		2006		2005

Wages and salaries		4,819,751		4,364,858		4,032,728
Social security costs		729,496		673,338		638,674
Charges to defined benefit pension provisions (Note 25)		209,193		222,257		245,112
Contributions to defined contribution pension funds		47,485		36,653		20,126
Share-based payment costs		48,546		19,167		19,167
Of which:
Granted to the Bank’s directors		1,424		641		641

Other personnel expenses		696,730		651,600		655,501

		6,551,201		5,967,873		5,611,308

	b)		*Headcount*

			The average number of employees in the Group, by professional category, was as follows:


	Average Number of Employees (**)
	2007		2006		2005

The Bank:
Senior executives (*)		93		81		81
Other line personnel		16,153		15,729		15,731
Clerical staff		4,147		4,231		4,595
General services personnel		42		45		49

		20,435		20,086		20,456
Banesto		10,524		10,188		10,560
Rest of Spain		5,582		4,996		3,789
Abbey		15,771		17,461		19,904
Other companies		76,820		70,477		65,372

		129,132		123,208		120,081


(*)		Categories of Deputy Assistant General Manager and above, including senior management.

(**)		Excluding personnel assigned to discontinued operations.

The functional breakdown, by gender, at December 31, 2007 is as follows:


	Functional Breakdown by Gender
	Executives						Other Line Personnel						Clerical Staff
	Men			Women			Men			Women			Men			Women

Continental Europe		85	%		15	%		60	%		40	%		58	%		42	%
United Kingdom		79	%		21	%		47	%		53	%		31	%		69	%
Latin America		64	%		35	%		56	%		43	%		43	%		57	%

Total		76	%		24	%		58	%		42	%		44	%		56	%

F-119

The breakdown at December 31, 2006 is as follows:


	Functional Breakdown by Gender
	Executives						Other Line Personnel						Clerical Staff
	Men			Women			Men			Women			Men			Women

Continental Europe		85	%		15	%		61	%		39	%		62	%		38	%
United Kingdom		80	%		20	%		44	%		56	%		24	%		76	%
Latin America		72	%		28	%		60	%		40	%		44	%		56	%

Total		79	%		21	%		59	%		41	%		44	%		56	%

			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*

The Bank

In addition to the extraordinary allocation of 100 Bank shares to each Group employee, as discussed in Note 1-i, to celebrate the Bank’s 150^thAnniversary, in recent years the Bank 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:

Euros

Date of

Number of

Exercise

Year

Employee

Number

Commencement

Expiry of

Price

Granted

Group

of Persons

of Exercise Period

Exercise Period

Plans outstanding at 1 January 2005

21,126,750

9.94

Options granted (Plan I06)

99,900,000

9.09

(**)

Managers

2,601

15/01/2008

15/01/2009

Options exercised

(15,606,000

)

(9.83

)

Of which:

Plan Four

(228,000

)

7.84

Young Executives Plan

(329,000

)

2.29

Managers Plan 2000

(12,389,000

)

10.545

European Branches Plan

(2,660,000

)

7.60

(*)

Options cancelled or not exercised

(5,520,750

)

—

Plans outstanding at December 31, 2005

99,900,000

9.09

Options exercised

—

Options cancelled, net (Plan I06)

(3,648,610

)

9.09

Managers

(44

)

15/01/2008

15/01/2009

Plans outstanding at December 31, 2006

96,251,390

9.09

Options granted (Plan I09)

10,448,480

—

Managers

5,476

23/06/2007

31/07/2009

Options granted (Plan I10)

15,690,283

—

Managers

5,506

23/06/2007

31/07/2010

Options cancelled, net (Plan I06)

(1,195,371

)

9.09

Managers

(45

)

15/01/2008

15/01/2009

Plans outstanding at December 31, 2007

121,194,782

—

Of which:

Plan I06

95,056,019

9.09

Plan I09

10,448,480

—

Plan I10

15,690,283

—


(*)		The average exercise price ranges from €5.65 to €10.15 per share.

(**)		The exercise price of the options under Plan I06 is €9.09 per share, which is the weighted average of the daily average market price of the Bank shares on the continuous market in the first 15 trading days of January 2005. This was the criterion established in the resolution approving Plan I06 adopted at the Annual General Meeting held on June 18, 2005. The documentation on the aforementioned resolution stated correctly the method to be used to set the exercise price but, by mistake, an amount of €9.07 per share was mentioned rather than the correct amount of €9.09 per share.

F-120

Plan I06

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: 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. At December 31, 2007, 2,512 Group executives were included in Plan I06 and 95,056,019 options on Bank shares at a price of €9.09 correspond to them. The exercise period is from January 15, 2008 to January 15, 2009. This plan was approved by the shareholders at the Annual General Meeting on June 18, 2005.

The fair value of the equity instruments granted (€57.5 million) is charged to income (Note 49-a), with a credit to equity, in the specific period in which the beneficiaries provide their services to the Group.

The executive directors are beneficiaries under this plan; the number of Bank share options held by them is indicated in Note 5-d.

Long-term incentive policy

At its meeting on March 26, 2007, following the report of the Appointments and Remuneration Committee, the Bank’s Board of 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 (excluding Banesto). Implementation of this policy, which includes Bank share-based payments, requires, in conformity with the Law and the Bank’s bylaws, specific resolutions to be adopted by the Annual General Meeting.

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) Matched Deferred Bonus Plan; (iii) Restricted Shares Plan; and (iv) Minimum Investment Programme. The characteristics of the plans are set forth below:

(i)

Performance Share Plan

This multiannual incentive plan 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 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 aim is to establish an adequate sequence between the end of the incentive programme linked to the previous Plan I06 and the successive cycles of this plan. Thus, the first two cycles will commence in July 2007, the first cycle having a duration of two years (PI09) and the second cycle having a standard three-year term (PI10).

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, are defined by comparing the Group’s performance with that of a benchmark group of financial institutions and are linked to two parameters, namely Total Shareholder Return (TSR) and growth in Earnings per Share (EPS). These parameters each have a 50% weighting in determining the percentage of shares to be delivered.

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 will be considered), and the shares will be delivered within a maximum period of seven months from the end of the cycle. This number will range from the maximum percentage of shares, if Santander, for each of the measures considered (TSR and EPS growth), ranks within the third quartile of the Benchmark Group, including the 75^th percentile, to 30% of the maximum number of shares if it is placed at the median (50^th percentile). If Santander ranks below the median, all assignments of shares will be rendered null and void.

At December 31, 2007, the maximum number of shares to be delivered was 10,448,480 (for a total of 5,476 participants) for the first cycle (PI09) and 15,690,283 (5,506 participants) for the second cycle (PI10). The fair value of the equity instruments granted under these plans was €149 million, and this amount is charged to “Personnel expenses”, with a credit to equity, in the specific period in which the beneficiaries provide their services to the Group.

F-121

The fair value 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% relating to the Bank’s relative TSR position was determined on the basis of the report of an independent expert whose assessment was based, inter alia, on the following variables:

	•		Expected volatility: determined on the basis of the historical volatility over a two-year period for PI09 and a three-year period for PI10. In the case of the Bank, the average volatility used was 16.25% for PI09 and 15.67% for PI10.

	•		Annual dividend yield: based on the data for the last two/three years before July 1, 2007. In the case of the Bank, this yield stood at 3.23% for PI09 and 3.24% for PI10.

	•		Risk-free interest rate: return on Treasury Bonds (zero coupon) offered on July 1, 2007 for a period of two years for PI09 (4.473%) and three years for PI10 (4.497%)

	•		Monte Carlo valuation model: performance of 10,000 simulations to determine the TSR of each of the companies in the Benchmark Group, taking into account the aforementioned variables. 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. Application of the simulation model results in percentage values of 42.7% for PI09 and 42.3% for PI10 (second cycle), which are applied to 50% of the value of the shares granted, in order to determine the cost per books of the TSR-based portion of the incentive. 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 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 shares granted, was the same as that of the 50% corresponding to the TSR. Since this valuation refers to a non-market condition, it shall be reviewed and adjusted on a yearly basis.

(ii)

Matched Deferred Bonus Plan

This multiannual incentive plan is payable in shares of the Bank and is conditional upon compliance with certain investment and continued service requirements.

The beneficiaries of the plan, which currently total 32, are the executive directors and other members of the Bank’s senior management, together with other senior executives of the Santander Group (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 remuneration (or bonus) to acquire shares of the Bank in the market (the “Obligatory Investment”).

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.

(iii)

Restricted Shares Plan

This plan envisages the selective delivery of shares in special circumstances relating to the hiring or retention of employees. All employees and executives, except for the Bank’s executive directors, are eligible for this plan, provided that they 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.

(iv)

Minimum Investment Programme

This programme 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.

F-122

ii.

Abbey

The option plans on shares of the Bank originally granted by management of Abbey to its employees (on Abbey shares) are as follows:

Pounds

Sterling (*)

Date of

Number of

Exercise

Year

Employee

Number

Commencement

Expiry of

Price (*)

Granted

Group

of Persons

of Exercise Period

Exercise Period

Plans outstanding at January 1, 2005

17,675,567

3.58

Options exercised

(1,769,216

)

4.45

Of which:

Executive Options

(89,305

)

4.43

Employee Options

(2,550

)

5.90

Sharesave

(1,677,361

)

4.45

Options cancelled or not exercised

(1,783,670

)

—

Plans outstanding at December 31, 2005

14,122,681

3.41

Of which:

Executive Options

269,539

4.07

Employee Options

54,000

5.90

Sharesave

13,799,142

3.38

Plans outstanding at December 31, 2005

14,122,681

3.41

Options granted (MTIP)

2,825,123

7.50

2005 and 2006

Managers

174

First half of 2008

Options exercised

(5,214,171

)

3.41

Of which:

Executive Options

(87,659

)

4.07

Employee Options

(33,000

)

5.90

Sharesave

(5,093,512

)

3.38

Options cancelled or not exercised

(1,379,401

)

—

Plans outstanding at December 31, 2006

10,354,232

4.32

Of which:

Executive Options

178,026

4.11

2003-2004

Managers

26/03/06

24/03/13

Employee Options

—

Sharesave

7,638,791

3.32

1998-2004

Employees

4,512

(**)

01/04/06

01/09/11

MTIP

2,537,415

9.39

2005 and 2006

Managers

170

First half of 2008

Options granted (MTIP)

—

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 December 31, 2007

8,048,312

5.32

Of which:

Executive Options

144,122

4.15

2003-2004

Managers

26/03/06

24/03/13

Sharesave

5,684,340

3.18

1998-2004

Employees

2,239

(**)

01/04/06

01/09/11

MTIP

2,219,850

10.88

2005 and 2006

Managers

157

First half of 2008


(*)		At December 31, 2007, 2006 and 2005, the euro/pound sterling exchange rate was €1.36360/GBP 1; €1.4892/GBP 1 and €1.4592/GBP 1, respectively.

(**)		Number of accounts/contracts. A single employee may have more than one account/contract.

F-123

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 is 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 Annual General 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 Annual General Meeting held on June 23, 2007. The amendment was approved thereat.

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 investment banks 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 as the average value resulting from 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 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 each option granted by Abbey was estimated at the grant date using a European/American Partial Differential Equation model with the following assumptions:

2007

2006

2005

Risk-free interest rate

5.0%-5.8

4.5% to 5%

4.5% to 4.6%

Dividend increase, based solely on the average increase since 1989

10%

Volatility of underlying shares based on historical volatility over 5 years

19.80%-26.90

17.70% to 19.85%

16.96% to 17.58%

Expected life of options granted under:

Employee Sharesave Plan (*)

3, 5 and 7 years

Executive Share Option Plan

10 years

Employee Share Option Plan

10 years

Medium-Term Incentive Plan

3 years

F-124

50.

Other general administrative expenses

Breakdown

The breakdown of the balance of “Other general administrative expenses” is as follows


	Thousands of Euros
	2007		2006		2005

Property, fixtures and supplies		989,663		972,933		880,117
Other administrative expenses		912,621		835,554		821,405
Technology and systems		488,741		417,977		419,116
Advertising		563,986		474,290		390,202
Communications		417,587		346,854		390,668
Technical reports		298,175		258,349		270,282
Per diems and travel expenses		279,298		242,444		214,553
Taxes other than income tax		279,093		227,835		179,889
Surveillance and cash courier services		201,532		189,474		158,566
Insurance premiums		36,432		35,588		28,302

		4,467,128		4,001,298		3,753,100

Other information

The balance of “Technical reports” includes the fees paid by the various Group companies (detailed in the accompanying Exhibits) to their respective auditors, the detail being as follows:

Millions of Euros

2007

2006

2005

Audit of the annual financial statements of the companies audited by the Deloitte worldwide organization

15.9

15.6

15.8

Of which:

Abbey

4.1

4.9

Audit of the Bank’s individual and consolidated financial statements

1.0

In recent years, in addition to the audits of financial statements, the internal control audit was performed in accordance with the requirements of the US Sarbanes-Oxley Act (for €4.8 million in 2007, €5.6 million in 2006 and €5.4 million in 2005) 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, including most notably the six-monthly audit reports and those which comply with the US SEC requirements (other than Sarbanes-Oxley Act) totaling €3.7 million, €3.9 million and €3.9 million in 2007, 2006 and 2005, respectively. Additionally, in 2007 €1.4 million were paid in connection with the work relating to the Group’s adaptation to the new capital regulations (Basel — 2006: €1.0 million).

The detail of the other services provided to the various Group companies in 2007 is as follows:

	1.		Due diligence review and other corporate transaction services (see Notes 2-b and 3): €3.7 million (2006: €3.3 million; 2005: €0.6 million). Additionally, the Group’s auditors provided other non-attest services to various Group companies for €5.3 million in 2007, €5.5 million in 2006 and €4.5 million in 2005.

			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: €12.5 million (2006: €14.6 million; 2005: €21.4 million).

F-125

53.

Other disclosures

Residual maturity periods and Average interest rates

The breakdown, by maturity, of the balances of certain items in the consolidated balance sheets is as follows:


	December 31, 2007
	Millions of Euros																				Average
				Within 1			1 to 3			3 to 12		1 to 3		3 to 5		After 5					Interest
	Demand			Month			Months			Months		Years		Years		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		4,865			9,785			6,333			4,113		884		759		5,021		31,760			4.53	%
Loans and advances to customers		9,848			29,446			28,607			65,696		58,124		62,048		279,982		533,751			6.75	%
Debt instruments		1			4			—			5		634		65		959		1,668			4.55	%
Other financial assets		7,165			2,393			99			282		372		766		1,274		12,351			—

		36,012			52,859			36,114			72,166		67,116		74,383		306,130		644,780			6.51	%

Liabilities:
Financial liabilities at amortized cost-
Deposits from central banks		3,534			21,322			3,691			201		—		—		—		28,748			4.45	%
Deposits from credit institutions		5,704			22,412			6,504			6,197		3,002		3,111		1,756		48,686			4.55	%
Customer deposits		178,538			55,381			27,839			28,959		13,141		11,145		2,040		317,043			4.12	%
Marketable debt securities		868			13,310			17,600			24,198		35,294		26,745		88,250		206,265			4.61	%
Subordinated liabilities		88			8			61			569		4,065		2,357		28,522		35,670			5.69	%
Other financial liabilities		11,251			931			1,343			1,034		79		1,780		123		16,540			—

		199,983			113,364			57,038			61,158		55,581		45,138		120,691		652,952			4.41	%

Difference (assets less liabilities)		(163,970	)		(60,505	)		(20,924	)		11,008		11,535		29,245		185,439		(8,172	)


	December 31, 2006
	Millions of Euros																		Average
				Within 1			1 to 3			3 to 12		1 to 5		After 5					Interest
	Demand			Month			Months			Months		Years		Years		Total			Rate

Assets:
Cash and balances with central banks		9,725			3,281			—			1		—		828		13,835			3.99	%
Available-for-sale financial assets-
Debt instruments		26			2,260			2,501			3,771		9,599		14,570		32,727			5.96	%
Loans and receivables-
Loans and advances to credit institutions		5,668			20,073			6,459			6,118		4,002		3,041		45,361			3.85	%
Loans and advances to customers		10,291			19,607			30,625			56,311		112,644		255,312		484,790			5.86	%
Debt instruments		565			—			—			—		—		57		622			3.02	%
Other financial assets		7,330			2,356			184			693		1,411		1,101		13,075			—

		33,605			47,577			39,769			66,894		127,656		274,909		590,410			5.66	%

Liabilities:
Financial liabilities at amortized cost-
Deposits from central banks		2			14,366			1,657			503		2		—		16,530			5.25	%
Deposits from credit institutions		6,445			21,646			9,981			11,680		5,446		1,618		56,816			4.07	%
Customer deposits		198,606			54,331			24,976			22,199		12,594		1,671		314,377			3.90	%
Marketable debt securities		2,288			14,079			16,489			14,701		37,170		89,682		174,409			3.91	%
Subordinated liabilities		253			—			234			108		5,577		24,250		30,422			5.74	%
Other financial liabilities		6,797			1,653			1,161			2,378		266		494		12,749			—

		214,391			106,075			54,498			51,569		61,055		117,715		605,303			4.05	%

Difference (assets less liabilities)		(180,786	)		(58,498	)		(14,729	)		15,325		66,601		157,194		(14,893	)

F-127


	December 31, 2005
	Millions of Euros																		Average
				Within 1			1 to 3			3 to 12		1 to 5		After 5					Interest
	Demand			Month			Months			Months		Years		Years		Total			Rate

Assets:
Cash and balances with central banks		7,232			4,701			4,152			1		—		—		16,086			2.62	%
Available-for-sale financial assets-
Debt instruments		77			1,769			4,239			4,553		41,930		15,486		68,054			3.58	%
Loans and receivables-
Loans and advances to credit institutions		4,102			20,681			9,121			7,070		5,247		845		47,066			2.93	%
Loans and advances to customers		11,131			14,728			24,026			43,508		85,929		223,596		402,918			5.84	%
Debt instruments		—			—			—			17		46		108		171			2.49	%
Other financial assets		4,656			2,988			29			567		393		996		9,629			—

		27,198			44,867			41,567			55,716		133,545		241,031		543,924			5.10	%

Liabilities:
Financial liabilities at amortized cost-
Deposits from central banks		396			18,262			3,773			—		—		—		22,431			2.42	%
Deposits from credit institutions		3,709			50,254			20,781			11,593		6,195		1,696		94,228			2.91	%
Customer deposits		166,531			42,322			39,397			25,199		16,742		1,537		291,728			3.59	%
Marketable debt securities		—			7,128			13,613			9,124		46,826		40,518		117,209			3.91	%
Subordinated liabilities		—			48			175			1,437		4,240		22,863		28,763		Note 23
Other financial liabilities		7,815			971			396			1,184		893		34		11,293			—

		178,451			118,985			78,135			48,537		74,896		66,648		565,652			3.54	%

Difference (assets less liabilities)		(151,253	)		(74,118	)		(36,568	)		7,179		58,649		174,383		(21,728	)

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
	2007				2006				2005
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities

Cash and balances with central banks		16,155		—		10,042		—		11,749		—
Financial assets and liabilities held for trading		124,409		100,719		139,783		106,075		128,973		95,225
Other financial instruments at fair value		15,815		28,553		10,414		12,140		45,534		11,810
Available-for-sale financial assets		15,395		—		18,530		—		16,814		—
Loans and receivables		260,435		—		248,977		—		221,041		—
Investments		13,036		—		2,461		—		238		—
Tangible assets		4,665		—		4,696		—		4,745		—
Intangible assets		12,557		—		13,626		—		12,910		—
Financial liabilities at amortized cost		—		308,166		—		309,610		—		279,575
Liabilities under insurance contracts		—		2,139		—		2,157		—		38,247
Other		8,388		19,120		7,793		20,598		11,741		18,919

		470,855		458,697		456,322		450,580		453,745		443,776

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 and held-to-maturity investments, 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 consolidated balance sheet.

F-128

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
	2007				2006				2005
	Carrying				Carrying				Carrying
Assets	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value

Loans and receivables:
Loans and advances to credit institutions		31,760		31,765		45,361		45,359		47,066		46,560
Money market operations through counterparties		—		—		200		200		—		—
Loans and advances to customers (Note 10)		533,751		535,513		484,790		487,533		402,918		404,950
Debt instruments		1,668		1,668		622		622		171		171
Other financial assets		12,351		12,340		13,076		13,076		9,629		9,629

		579,530		581,286		544,049		546,790		459,784		461,310

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
	2007				2006				2005
	Carrying				Carrying				Carrying
Liabilities	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value

Financial liabilities at amortized cost:
Deposits from central banks		28,748		28,748		16,530		16,528		22,431		22,431
Deposits from credit institutions		48,686		48,727		56,816		56,826		94,228		94,221
Money market operations through counterparties		—		—		—		—		—		—
Customer deposits (*)		317,043		317,184		314,377		314,320		291,727		291,727
Marketable debt securities		206,265		206,480		174,409		174,878		117,209		117,117
Subordinated liabilities		35,670		36,286		30,423		31,822		28,763		29,278
Other financial liabilities		16,540		16,538		12,748		12,752		11,293		11,293

		652,952		653,963		605,303		607,126		565,651		566,067


(*)		For these purposes, the fair value of customer demand deposits is taken to be the same as their carrying amount.

54.

Geographical and business segment reporting

Geographical segments

This primary level of segmentation, which is based on the Group’s management structure, comprises four segments: three operating areas plus the Financial Management and Equity Stakes Unit. The operating areas, which include all the business activities carried on therein by the Group, are Continental Europe, the United Kingdom (Abbey) and Latin America, based on the location of our 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 Abbey. 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.

F-129

The Financial Management and Equity Stakes 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 classified under “Loans and advances to credit institutions/Deposits from credit institutions” and, therefore, the sum of these line items exceeds the figure for the consolidated Group.

Additionally, for segment presentation purposes, the equity of each geographical unit is that reflected in the related individual financial statements and is offset by a capital endowment made by the Financial Management and Equity Stakes Unit which, as explained earlier, acts as the holding unit for the other businesses and, therefore, reflects the Group’s total equity.

There are no customers located in areas other than those in which our assets are located that generate income exceeding 10% of gross income.

F-130

The summarized balance sheets and income statements of the various geographical segments are as follows:


	Millions of Euros
	2007															2006															2005
										Financial															Financial															Financial
										Management															Management															Management
	Continental						Latin			and Equity						Continental						Latin			and Equity						Continental						Latin			and Equity
(Summarized) Balance Sheet	Europe			Abbey			America			Stakes			Total			Europe			Abbey			America			Stakes			Total			Europe			Abbey			America			Stakes			Total

Loans and advances to customers		310,618			184,086			68,854			1,919			565,477			271,687			190,512			60,172			975			523,346			210,299			171,796			52,919			815			435,829
Financial assets held for trading (excluding loans and advances)		44,846			53,782			22,845			1,328			122,801			33,831			61,507			27,846			2,028			125,212			26,315			64,014			25,844			1,276			117,449
Available-for-sale financial assets		10,149			44			12,628			21,528			44,349			13,126			23			17,943			7,606			38,698			12,604			18			16,308			45,015			73,945
Loans and advances to credit institutions		53,205			19,810			11,146			25,429			109,590			67,061			18,185			20,311			22,956			128,513			69,621			13,070			24,436			15,718			122,845
Non-current assets		5,373			4,685			1,805			(202	)		11,661			4,558			5,059			1,695			1,243			12,555			4,219			5,197			1,392			1,396			12,204
Other asset accounts		25,876			9,458			24,707			170,154			230,195			18,583			8,691			16,842			126,028			170,144			15,709			47,420			17,194			94,342			174,665

Total assets/liabilities		450,067			271,865			141,985			220,156			1,084,073			408,846			283,977			144,809			160,836			998,468			338,767			301,515			138,093			158,562			936,937


Customer deposits		149,167			122,514			82,054			1,969			355,704			140,231			115,194			75,301			497			331,223			127,355			110,776			65,707			1,927			305,765
Marketable debt securities		70,344			76,055			5,039			82,196			233,634			47,633			72,858			5,258			78,320			204,069			27,011			62,462			6,213			53,154			148,840
Subordinated liabilities		2,379			7,876			2,540			22,875			35,670			2,362			9,430			2,383			16,248			30,423			2,241			11,428			1,130			13,964			28,763
Liabilities under insurance contracts		10,907			6			2,121			—			13,034			8,547			71			2,086			—			10,704			6,414			36,521			1,737			—			44,672
Deposits from credit institutions		66,027			38,688			19,017			47,834			171,566			89,016			51,020			32,403			8,935			181,374			90,341			40,761			42,208			38,385			211,695
Other liability accounts		130,970			23,549			22,626			18,326			195,471			103,090			32,076			19,530			21,137			175,833			70,527			37,259			13,033			18,907			139,726
Equity		20,274			3,177			8,588			46,955			78,994			17,967			3,328			7,847			35,700			64,842			14,878			2,307			8,066			32,225			57,476
Off-balance-sheet customer funds		92,761			10,225			47,991			—			150,977			102,465			8,307			56,352			—			167,124			97,141			6,000			49,705			—			152,846

Total funds under management		542,829			282,090			189,976			220,155			1,235,050			511,311			292,284			201,160			160,837			1,165,592			435,908			307,514			187,799			158,562			1,089,783


	Millions of Euros
	2007															2006															2005
										Financial															Financial															Financial
										Management															Management															Management
	Continental						Latin			and Equity						Continental						Latin			and Equity						Continental						Latin			and Equity
(Summarized) Income Statement	Europe			Abbey			America			Stakes			Total			Europe			Abbey			America			Stakes			Total			Europe			Abbey			America			Stakes			Total

NET INTEREST INCOME		7,894			2,335			6,654			(1,588	)		15,295			6,206			2,108			5,272			(1,106	)		12,480			5,366			2,083			3,950			(740	)		10,659
Share of results of entities accounted for using the equity method		9			2			4			427			442			6			3			7			411			427			26			2			7			584			619
Net fee and commission income		4,137			1,007			2,866			30			8,040			3,653			1,025			2,357			(11	)		7,024			3,291			947			1,842			(19	)		6,061
Insurance activity income		148			—			171			—			319			137			—			120			(4	)		253			115			—			84			3			202
Gains/losses on financial assets and liabilities and Exchange differences		732			436			691			1,113			2,972			708			424			604			413			2,149			505			345			733			(48	)		1,535

GROSS INCOME		12,920			3,780			10,386			(18	)		27,068			10,710			3,560			8,360			(297	)		22,333			9,303			3,377			6,616			(220	)		19,076

Sales and income from the provision of non-financial services (net of expenses) and Other operating income/expense		30			51			(141	)		15			(45	)		39			42			(118	)		(33	)		(70	)		55			36			(89	)		(26	)		(24	)
General administrative expenses:
Personnel expenses		(3,014	)		(1,037	)		(2,222	)		(236	)		(6,509	)		(2,684	)		(1,062	)		(1,975	)		(204	)		(5,925	)		(2,510	)		(1,119	)		(1,742	)		(183	)		(5,554	)
Other administrative expenses		(1,513	)		(780	)		(1,867	)		(270	)		(4,430	)		(1,272	)		(815	)		(1,726	)		(160	)		(3,973	)		(1,154	)		(888	)		(1,507	)		(170	)		(3,719	)
Depreciation and amortization		(559	)		(102	)		(348	)		(259	)		(1,268	)		(523	)		(105	)		(305	)		(214	)		(1,147	)		(489	)		(117	)		(334	)		(74	)		(1,014	)

NET OPERATING INCOME		7,864			1,912			5,808			(768	)		14,816			6,270			1,620			4,236			(908	)		11,218			5,205			1,289			2,944			(673	)		8,765
Net impairment losses		(1,580	)		(312	)		(1,660	)		(1,527	)		(5,079	)		(1,355	)		(387	)		(886	)		77			(2,551	)		(977	)		(318	)		(433	)		(74	)		(1,802	)
Other gains/losses		39			22			(368	)		1,745			1,438			(245	)		—			(230	)		803			328			(18	)		76			(213	)		853			698

PROFIT/(LOSS) BEFORE TAX		6,323			1,622			3,780			(550	)		11,175			4,670			1,233			3,120			(28	)		8,995			4,210			1,047			2,298			106			7,661

PROFIT FROM CONTINUING OPERATIONS		4,546			1,201			2,958			134			8,839			3,269			889			2,451			132			6,741			3,020			725			1,876			798			6,419
Profit from discontinued operations		—			—			112			685			797			1,147			114			124			120			1,505			111			86			134			—			331

CONSOLIDATED PROFIT FOR THE YEAR		4,546			1,201			3,070			819			9,636			4,416			1,003			2,575			252			8,246			3,131			811			2,010			798			6,750

PROFIT ATTRIBUTED TO THE GROUP		4,439			1,201			2,666			754			9,060			4,144			1,003			2,287			162			7,596			2,980			811			1,779			650			6,220

F-131

The summarized income statements and other significant data are as follows:


	Millions of Euros
	2007															2006															2005
							Asset			Financial												Asset			Financial												Asset			Financial
				Global			Management			Management									Global			Management			Management									Global			Management			Management
	Commercial			Wholesale			and			and Equity						Commercial			Wholesale			and			and Equity						Commercial			Wholesale			and			and Equity
(Summarized) Income Statement	Banking			Banking			Insurance			Stakes			Total			Banking			Banking			Insurance			Stakes			Total			Banking			Banking			Insurance			Stakes			Total

NET INTEREST INCOME		15,339			1,492			52			(1,588	)		15,295			12,310			1,241			35			(1,106	)		12,480			10,640			724			35			(740	)		10,659
Share of results of entities accounted for using the equity method		15			—			—			427			442			16			—			—			411			427			35			—			—			584			619
Net fee and commission income		6,668			919			423			30			8,040			5,966			646			423			(11	)		7,024			5,196			488			396			(19	)		6,061
Insurance activity income		—			—			319			—			319			—			—			257			(4	)		253			—			—			199			3			202
Gains/losses on financial assets and liabilities and exchange differences		1,349			491			19			1,113			2,972			1,042			690			4			413			2,149			927			654			2			(48	)		1,535

GROSS INCOME		23,371			2,902			813			(18	)		27,068			19,334			2,577			719			(297	)		22,333			16,798			1,866			632			(220	)		19,076

Sales and income from the provision of non-financial services (net of expenses) and Other operating income/expense		(30	)		(29	)		(1	)		15			(45	)		(4	)		(33	)		—			(33	)		(70	)		25			(24	)		1			(26	)		(24	)
General administrative expenses:
Personnel expenses		(5,603	)		(542	)		(128	)		(236	)		(6,509	)		(5,165	)		(447	)		(109	)		(204	)		(5,925	)		(4,907	)		(350	)		(114	)		(183	)		(5,554	)
Other administrative expenses		(3,737	)		(310	)		(113	)		(270	)		(4,430	)		(3,455	)		(252	)		(106	)		(160	)		(3,973	)		(3,219	)		(219	)		(111	)		(170	)		(3,719	)
Depreciation and amortization		(899	)		(91	)		(19	)		(259	)		(1,268	)		(848	)		(68	)		(17	)		(214	)		(1,147	)		(868	)		(59	)		(13	)		(74	)		(1,014	)

NET OPERATING INCOME		13,102			1,930			552			(768	)		14,816			9,862			1,777			487			(908	)		11,218			7,829			1,214			395			(673	)		8,765
Net impairment losses		(3,488	)		(63	)		(1	)		(1,527	)		(5,079	)		(2,324	)		(304	)		—			77			(2,551	)		(1,659	)		(69	)		—			(74	)		(1,802	)
Other gains/losses		(256	)		(35	)		(16	)		1,745			1,438			(412	)		(48	)		(15	)		803			328			(176	)		12			9			853			698

PROFIT/(LOSS) BEFORE TAX		9,358			1,832			535			(550	)		11,175			7,126			1,425			472			(28	)		8,995			5,994			1,157			404			106			7,661


Other aggregates:
Total assets		678,867			166,979			18,071			220,156			1,084,073			668,960			153,005			15,667			160,836			998,468			624,040			145,163			9,172			158,562			936,937
Loans and advances to customers		510,561			52,975			22			1,919			565,477			474,253			47,948			171			974			523,346			404,656			30,163			194			816			435,829
Customer deposits		308,652			45,082			1			1,969			355,704			288,533			42,194			—			496			331,223			268,225			35,592			21			1,927			305,765

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	Millions of Euros
	2007												2006												2005
	Associates			Members									Associates			Members									Associates			Members
	and Jointly			of the						Other			and Jointly			of the						Other			and Jointly			of the						Other
	Controlled			Board of			General			Related			Controlled			Board of			General			Related			Controlled			Board of			General			Related
	Entities			Directors			Managers			Parties			Entities			Directors			Managers			Parties			Entities			Directors			Managers			Parties

Assets:
Loans and advances to credit institutions		3,169			—			—			136			2,051			—			—			97			1,864			—			—			958
Loans and advances to customers		262			1			14			2,040			246			1			10			3,198			215			2			8			100
Debt instruments		—			—			—			293			103			—			—			51			—			—			—			—

Liabilities:
Deposits from credit institutions		(284	)		—			—			—			(115	)		—			—			(4	)		(64	)		—			—			(979	)
Customer deposits		(4	)		(7	)		(18	)		(265	)		(249	)		(63	)		(8	)		(133	)		(25	)		(98	)		(7	)		(68	)
Marketable debt securities		—			—			—			—			(98	)		—			—			—			—			—			—			—

Income statement:
Interest and similar income		110			—			—			117			80			—			—			35			19			—			—			29
Interest expense and similar charges		(11	)		—			—			(6	)		(25	)		(2	)		—			(3	)		(1	)		(3	)		—			(12	)
Gains/losses on financial assets and liabilities		6			—			—			21			—			—			—			22			—			—			—			—
Fee and commission income		48			—			—			15			30			1			—			36			10			1			—			1
Fee and commission expense		(16	)		—			—			—			(12	)		—			—			—			(1	)		—			—			—

Others:
Contingent liabilities		365			—			2			968			40			—			2			1,333			96			—			—			45
Contingent commitments		358			1			1			280			467			—			1			2			117			—			—			477
Derivative financial instruments		7,823			—			4			831			6,121			—			—			245			—			—			—			—

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56.

Risk management

Risk management at the Santander Group is based on the following principles:

	•		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 Board’s Risk Committee, reports directly to the Executive Committee and the Board.

	•		Commitment to supporting the business by contributing, without undermining the preceding principle, to the achievement of commercial objectives whilst maintaining risk quality. To this end, the organizational structure is adapted to the commercial structure so as to encourage cooperation between business and risk managers.

	•		Collective decisions (even at branch level), which ensure that different opinions are taken into account and avoid situations in which decisions are taken individually.

	•		Well-established tradition of using internal rating and scoring tools, return on risk-adjusted capital (RORAC), value-at-risk (VaR), economic capital, extreme scenario analyses, etc.

	•		Global approach, achieved by addressing in full all the risk factors in all the business units and using the concept of economic capital as a consistent measure of the risk assumed and as the basis for assessing the management performed.

	•		Desire to continue to target a medium-low risk profile, emphasizing its low volatility and its predictability, by:

	•		seeking to achieve a high degree of risk diversification, thus limiting risk concentration on particular customers, groups, sectors, products or geographical locations.

	•		maintaining a low level of complexity in Markets operations.

	•		paying ongoing attention to risk monitoring in order to prevent potential portfolio impairment sufficiently in advance.

At Santander, the risk management and control process is structured into the following phases:

	•		Establishment of risk policies that reflect Santander’s risk management principles;

	•		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;

	•		Measurement of risks using extensively tested methods and models;

	•		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 the Santander Group has managed risk using a number of techniques and tools which are described in detail in this section. 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 on qualitative and quantitative weighting of risk, which, by assessing the various risk components by customer and transaction, make it possible to estimate, firstly, probability of default and, subsequently, 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.

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	•		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.

	•		Extreme scenario analysis, used to supplement market and credit risk analyses in order to assess the impact of alternative scenarios, even on provisions and capital.

Consequently, Santander fully identifies with BIS II, insofar as it recognizes, from a regulatory standpoint, the leading-edge industry practices that the Group has implemented in advance. The entry into force of the aforementioned Capital Accord will enable Santander to once again demonstrate its strength in this field, which will entail the swift application of the advanced internal risk-based (AIRB) approach to the Group’s global management.

Due to the imminent implementation of the new regulatory framework (BIS II), 2007 was marked by the review conducted by the Bank of Spain and the Financial Services Authority (FSA) of the AIRB models of the Parent, Banesto and Abbey, whose portfolios represent approximately 70% of the Group’s total exposure. Once the Bank of Spain has issued the necessary rules, which are expected to be published in the near future, the Group will be able to use these internal models to calculate its regulatory capital.

CORPORATE GOVERNANCE OF THE RISK FUNCTION

The responsibilities assigned to the Board’s 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;

	•		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 resolve transactions outside the powers delegated to lower-ranking bodies and the overall limits for pre-classified risk categories in favor of economic groups or in relation to exposure by type of risk.

The Board’s Risk Committee has delegated certain of its powers to Risk Committees which are structured by geographical area, business line and type of risk. Although Banesto has been granted autonomous risk management powers within the Santander Group, the Executive Committee ensures that its risk management policy is consistent with the Group’s policies.

The Board’s Risk Committee, which is chaired by the third deputy chairman of the Santander Group and comprises a minimum of four and a maximum of six Group directors, normally meets twice a week.

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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 following table shows the global map of 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, 2007.


Santander Group — Gross Credit Risk Exposure
	Customer			Drawable			Sovereign			Private			Credit			Drawable			Derivatives
	Draw			by			Fixed-Income			Fixed-Income			Institutions			by Credit			and									Change/
	-downs			Customers			(Excl. Trad.)			(Excl. Trad.)			Drawdowns			Institutions			Repos (REC)			Total			%			Dec-06

Spain		298,281			56,290			14,460			8,334			24,092			1,008			13,135			415,600			49.6	%		15.9	%
Parent bank		179,476			38,604			10,895			3,613			18,142			670			9,545			260,945			31.1	%		20.6	%
Banesto		83,648			11,100			3,002			2,302			2,903			137			3,422			106,514			12.7	%		6.4	%
Other		35,157			6,586			563			2,419			3,047			201			168			48,141			5.8	%		14.4	%
*Other European countries ()**		246,283			20,342			1,021			3,870			3,723			1			10,142			285,382			34.0	%		8.8	%
Germany		17,196			2,181			100			60			388			—			5			19,931			2.4	%		13.6	%
Portugal		23,016			6,431			794			290			1,046			1			1,845			33,423			4.0	%		1.9	%
UK		165,159			6,961			—			3,227			975			—			8,199			184,521			22.0	%		2.2	%
Other		40,911			4,769			127			293			1,314			—			93			47,507			5.6	%		50.6	%
Latin America		70,858			22,130			8,330			1,842			16,704			2,000			5,710			127,574			15.2	%		9.0	%
Brazil		22,654			7,537			2,334			418			9,036			—			2,031			44,010			5.3	%		41.8	%
Chile		18,291			3,448			704			550			936			1			2,027			25,959			3.1	%		12.2	%
Mexico		14,133			7,384			4,165			—			3,123			1,999			1,440			32,244			3.8	%		(17.1	%)
Other		15,778			3,761			1,127			874			3,609			—			212			25,361			3.0	%		6.0	%
Rest of the world		4,967			445			327			1,412			2,954			—			46			10,151			1.2	%		30.2	%

Total Group		620,389			99,207			24,138			15,458			47,473			3,009			29,033			838,707			100	%		12.5	%

%/Total		74.0	%		11.8	%		2.9	%		1.8	%		5.7	%		0.3	%		3.5	%		100.0	%

% Change/Dec-06		11.9	%		10.3	%		(4.0	%)		61.0	%		49.9	%		75.8	%		(13.1	%)		12.5	%


		Data at 31/12/07, prepared on the basis of legal-entity criteria.

		Derivatives, including repos, expressed in credit risk equivalent.

		Balances drawn down by customers exclude repos (€28,980 million).

		Balances with credit institutions (excluding repos and trading portfolio) include €27,770 million of deposits at central banks.

(*)		Includes the assets of Santander Consumer Finance, including Drive.

Spain accounts for 50% of the nominal credit risk exposure, a similar percentage to 2006, with absolute growth of 16% on December. The strong growth in the customer business in Spain (drawn-down balance up 12%) was accompanied by a decrease in sovereign fixed-income securities. Other European countries represent more than one third of credit risk exposure. Particularly noteworthy in this respect is the presence in the United Kingdom through Abbey, which accounts for 22% of the exposure. Taken as a whole, Europe represents 84% of credit risk exposure.

Latin America accounts for 15% of credit risk exposure, a similar proportion to 2006. Countries with higher credit ratings (investment grade) represent more than half of the exposure in the region, whereas countries with lower credit ratings represent only 5% of the Group’s exposure.

The organization of the Group’s risk function is customer-centric. To this end, customers are classified for risk management purposes into two major groups or segments: individualized and standardized.

	•		Individualized risks: individualized customers are defined as those to which, either explicitly or implicitly, the Group has assigned a Risk Analyst (belonging to a Business Analysis Unit or to Corporate Banking Risks or Exposure to Financial Institutions). This category includes the following segments: Corporate Banking, Financial Institutions, Sovereigns and certain enterprises belonging to Commercial Banking.

	•		Standardized risks: standardized customers are those which have not been assigned a specific Risk Analyst and with respect to which the Group’s current or potential exposure does not exceed a pre-established amount. This category includes Individuals, Individual Entrepreneurs, and Commercial Banking enterprises not classified as individualized customers.

The Wholesale and Corporate Banking Risk Area deals with the Group’s global customers (Large Corporations and Multinational Financial Groups).

For large corporate groups, a pre-classification model is used (which sets a maximum internal risk limit), based on an economic capital measurement and monitoring system.

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B.1

Rating tools

Since 1993 the Group has used proprietary internal rating models to measure the degree of risk inherent in 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 Institutions and Global Wholesale Banking segments. Management of these segments is centralized at Group level, for both rating calculation and risk monitoring purposes. These tools furnish a rating for each customer, which combines the results provided by a quantitative or automatic module, a qualitative or expert analyst adjustment module, and a set of final adjustments.

B.2.

Customer segmentation for credit risk management

The table below details the distribution, by segment, of the credit risk exposure to customers in terms of EAD. Approximately 83% of total risk exposure to customers (excluding sovereign and counterparty risk) relates to the SME and individuals financing segments, which reflects the commercial orientation of the Santander Group’s business and risks. The expected loss arising from customer exposure is 0.81%, as compared with 0.68% for the Group’s total credit risk exposure, and, accordingly, the profile of the credit risk assumed can be classified as medium-low.


	Segmentation of Credit Risk Exposure
						Average			Average
	EAD		%			PD			LGD			EL

Sovereign		56,827		7.6	%		0.03	%		25.3	%		0.01	%
Counterparty		69,887		9.4	%		0.19	%		41.2	%		0.08	%
Public sector		1,635		0.2	%		0.65	%		21.3	%		0.14	%
Corporate		101,383		13.6	%		0.67	%		40.4	%		0.27	%
Businesses		154,076		20.6	%		2.27	%		29.3	%		0.67	%
Mortgages		257,001		34.4	%		2.72	%		7.1	%		0.19	%
Consumer loans		89,072		11.9	%		6.10	%		45.1	%		2.75	%
Cards		13,553		1.8	%		8.30	%		62.1	%		5.15	%
Other		3,302		0.4	%		2.40	%		57.0	%		1.37	%
Memorandum item — customers		620,022		83.0	%		2.88	%		28.0	%		0.81	%

Total		746,737		100.0	%		2.41	%		28.1	%		0.68	%

Source: Economic Capital Model — December 2007 (millions of euros).

B.3

Control and monitoring systems

A robust control environment is of vital importance in ensuring the adequate management of credit risk and in keeping the Entity’s risk profile in line with the parameters defined by the Board of Director and senior management. Also, from the regulatory standpoint (Sarbanes-Oxley, BIS II), financial institutions are required to have a control system that is commensurate with the size and complexity of each organization.

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, as a part of the Group, assessed the efficiency of the internal control of its activities in 2006, and is currently conducting the same assessment for 2007, in which no material shortcomings have been detected.

Prior to conducting these assessments at the Parent bank, the subprocesses were documented in keeping with established internal policies and procedures, and for each control a person was designated as responsible for performing the related assessment, in terms of design and operation, which was later ratified by the head of the corresponding subprocess, process and activity. This assessment was performed in accordance with the procedure, scope and documentation requirements established in the Group’s internal control model which, in turn, was based on the framework proposed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Consequently, these assessment exercises serve to steadily strengthen the components of process control and discipline with respect to those previously in place.

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B.4

Concentration risk

Concentration risk is an essential factor in the area of credit risk management. The Group constantly monitors the degree of concentration of its credit risk portfolios, by geographical area/country, economic sector, product and customer group.

The Board’s Risk Committee establishes the risk policies and reviews the exposure limits required to ensure adequate management of credit risk portfolio concentration.

MARKET RISK

C.1

ACTIVITIES SUBJECT TO MARKET RISK

The Financial Risks area measures, controls and monitors all operations in which net worth risk is assumed. This risk arises from changes in the risk factors —interest rate, exchange rate, equities and the volatility thereof— and from the solvency and liquidity risk of the various products and markets in which the Group operates.

The activities are segmented by risk type as follows:

	a)		Trading: this item includes financial services for customers, trading operations and positioning 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.

C.2

METHODOLOGIES

(C.2.1) Trading

The standard methodology applied to trading activities by the Santander Group in 2007 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 at least 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.

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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 implemented 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.

The positions are monitored daily 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 observe and detect the impact of changes in financial variables on the portfolios.

Lastly, due to their atypical nature, derivatives and credit management activities are controlled by assessing specific measures on a daily basis. In the case of derivatives, these measures are sensitivities to fluctuations in the price of the underlying (delta and gamma), in volatility (vega) and in time (theta). For credit management activities, the measures controlled include sensitivity to spread, jump-to-default and position concentrations by rating level.

(C.2.2) 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.

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 to be detected in the various maturities. 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.

Net interest margin (NIM) sensitivity

Net interest margin sensitivity measures the change in the expected accruals for a given period (12 months) in the event of a shift in the interest rate curve.

Net interest margin sensitivity is calculated by simulating the margin both for a scenario of changes in the interest rate curve and for the current scenario, the sensitivity being the difference between the two margins so calculated.

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Market value of equity (MVE) sensitivity

Market value of equity sensitivity is a supplementary measure to net interest margin sensitivity.

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.

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 interval 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.

Scenario analysis

Two interest rate behavior scenarios are established: maximum volatility and severe 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 finance 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.

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 the 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 illiquidity 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.

Scenario analysis/Contingency Plan

The 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.

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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, in which it indicates the amount of aid or funding that might be required from headquarters during a crisis. Each local unit must inform headquarters (Madrid) 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.

(C.2.3) Structural foreign currency risk / Hedges of results / Structural equities risk

These activities are monitored by measuring positions, VaR and results.

C.3

RISKS AND RESULTS IN 2007

(C.3.1) Trading

The average VaR of the Group’s trading portfolio in 2007, €28.9 million, was lower than that for 2006.

(C.3.2) Balance sheet management

	1.		*Interest rate risk*

	a)		Convertible currencies

At the end of December 2007, the sensitivity of the net interest margin at one year to parallel increases of 100 b.p. in the euro interest rate curve was negative by €362 million, substantially all the risk being concentrated on the Parent bank. The sensitivity of the margin for other convertible currencies is scantly material.

Also at 2007 year-end, the sensitivity of value to parallel increases of 100 b.p. in the main interest rate curves was concentrated on the euro and pound sterling curves, whose sensitivities were negative by €161 million and GBP 197 million, respectively.

Latin America

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 interest rate curve, remained at low levels throughout 2007, fluctuating within a narrow band and reaching a high of €54 million in October. Measured in terms of value sensitivity, it fluctuated between €300 million and €400 million, showing a downward trend in the second half of the year, due mainly to the reduction of the portfolio positions in Mexico. This portfolio, consisting of local-currency government securities and interest rate swaps, is intended to cover possible future margin losses.

At the end of December 2007, the risk consumption for the region, measured in terms of 100 b.p. sensitivity of the MVE, stood at €326 million (December 2006: €377 million), while the net interest margin risk at one year, measured in terms of 100 b.p sensitivity of this margin, was €21 million (December 2006: €20 million).

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 transactions are financed with 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.

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Structural liquidity 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.

The Group manages its liquidity on the basis of the ample structural liquidity resulting from its commercial banking activities and of the following management principles founded on prudence and anticipation:

	•		Ample structural liquidity position. Since Santander is basically a commercial bank, customer deposits constitute the main source of liquidity in its financing structure. These deposits, combined with capital and other similar instruments, enable the Group to cover most of its liquidity requirements and, as a result, reduce the need to seek financing in the wholesale markets.

	•		Thus, in Latin America the excess of deposits over loans means that in practice the raising of financing in wholesale markets is residual, corresponding basically to the need to maintain a presence and to achieve diversification. As regards the rest of the Group (referred to as the “convertible currencies area”), deposits plus long-term on-balance-sheet funds (capital and similar liabilities) cover approximately three quarters of loans (excluding securitizations).

	•		Broad access to wholesale liquidity markets based on high short- and long-term ratings.

	•		Obtainment of liquidity through diversification in markets and instruments. The Group is actively present in a wide, diverse range of financing markets, thus limiting its dependence on specific markets and ensuring the availability of ample market funding.

	•		This enables the Group to have an adequate structure of medium- and long-term issues, with reduced short-term wholesale financing (at 2007 year-end, commercial paper and notes represented only 7% of total wholesale financing). This structure is based on securitizations (accounting for around one third of the total) and a medium- and long-term issue portfolio (around 60% of the total) featuring high product diversification and an average maturity of 4.4 years.

	•		High capacity to obtain on-balance-sheet liquidity. The Group has on its balance sheet, aligned with its positions, a diversified portfolio of liquid assets and assets convertible into cash in the short term.

	•		Independent financing of subsidiaries within a centralized management structure. The main legal entities, with the exception of Santander Consumer Finance, must obtain financing in the wholesale markets based on their needs and establish their own liquidity and contingency plans, without resorting to credit facilities from the Parent to fund their activities.

	•		The Group, as a holding, performs control and management functions, which involves planning its funding requirements, structuring the sources of financing to achieve optimum diversification in terms of maturities, instruments and markets, and defining contingency plans.

In practice, the liquidity management performed by the Group consists of the following:

	•		Each year, a liquidity plan is prepared on the basis of the financing needs arising from the budgets of each business. Based on these liquidity requirements and taking into account certain prudential limits on the obtainment of short-term market financing, the Group establishes an issue and securitization plan for the year.

	•		Throughout the year the Group periodically monitors the actual changes in financing requirements and updates this plan accordingly.

	•		Another task of fundamental importance is the control and analysis of liquidity risk. The primary objective is to guarantee that the Group has sufficient liquidity to meet its short- and long-term financing requirements in normal market situations. To this end, the Group employs certain balance-sheet control measures, such as the liquidity gap and liquidity ratios.

			Simultaneously, various scenario (or stress-scenario) analyses are conducted which consider the additional requirements that could arise if certain extreme but plausible events occur. The aim pursued is to cover a broad spectrum of situations that are more or less likely to affect the Group, thus enabling it to prepare the related contingency plans.

The scenario analyses conducted in the last four months of 2007 evidenced how the Group, even in a scenario of scant demand for medium- and long-term issues, maintained ample liquidity conditions.

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Set forth below are certain highlights of structural liquidity management in 2007:

	•		Throughout the year, the Group’s units in the convertible currencies area obtained a total of €45,000 million through medium- and long-term issues in the wholesale markets, and securitized assets for a further €44,500 million.

	•		The Group’s structural liquidity position (long-term on-balance-sheet deposits and funds cater for 75% of its needs in the convertible currencies area and for more than 100% in the Latin American banks) and the quantity and quality of its liquid assets continue to enable Santander to conduct its lending business as usual.

(C.3.3) 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 at a significantly quicker pace than that at which it is being discounted in the market.

At 2007 year-end, the Group had hedged all its significant investments in foreign subsidiaries (including the foreign currency risk arising from the direct investment in Banco Real) through option structures. These hedges protect the Group’s capital against the impact of currency depreciation (exceeding a given level).

(C.3.4) Exposures relating to special assets and businesses

The Santander Group’s exposure to complex structured instruments and vehicles is highly limited:

	•		No exposure to sub-prime mortgages;

	•		Non-material exposure subject to mark-to-model;

	•		Limited exposure to hedge funds, asset-backed securities, monoliners, conduits, etc.;

The Santander Group’s policy with respect to the approval of new transactions has traditionally been very prudent and conservative, subject to strict supervision by senior Group management. Before approval is given for a new transaction, product or underlying, the Risk Division checks:

	•		whether there is an adequate valuation model to monitor the value of each exposure: mark-to-market, mark-to-model or mark-to-liquidity;

	•		whether the inputs enabling application of the valuation model are available in the market.

Provided the two aforementioned conditions are met, the 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.

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(C.3.5) Structured financing operations

The Santander Group’s structured financing operations are subject to low exposure and are diversified in terms of product type, sector and number of transactions.

OPERATIONAL RISK

The Santander Group defines operational risk as “the risk of loss resulting from deficiencies or failures of internal processes, human resources or systems or that arising due to external causes”. This risk relates to events of a purely operational nature, which differentiates it from market or credit risk.

The Group’s aim in operational risk control and management is to identify, prevent, measure, mitigate and monitor this risk.

The overriding requirement for the Group, therefore, is to identify and eliminate any clusters of operational risk, irrespective of whether losses have been incurred. Measurement of this risk also facilitates its management, since it enables priorities to be established and decisions to be hierarchized.

Analysis and monitoring of controls in market operations

The turmoil in the financial markets in 2007 and the increased operational risk arising from the growing complexity of financial instruments prompted the Group 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 the Santander Group.

In addition to specifically monitoring all operational control-related matters, in all its units the Group placed greater emphasis on the following 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.

Role of insurance in operational risk management

The Santander Group was a pioneer in considering insurance as a key factor in operational risk management. Since 2004 the Operational Risk area has worked closely with the Insurance area in the Santander Group in all activities leading to improvements in the two areas.

As a result of this cooperation, the Santander Group has classified its insurance policies by type of operational risk, based on internal and BIS classifications. At December 31, 2007, 90% of its banking business had been catalogued in this way.

The BBB policy provides protection against, for instance, the losses resulting from internal fraud, robbery, raids, electronic crime, forgery and fraudulent mortgages.

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ECONOMIC CAPITAL

In calculating economic capital, a bank must decide what level of losses it wishes to cover, i.e. with what confidence level it wishes to ensure the continuity of its business. The target confidence level that the Santander Group intends to achieve using economic capital is 99.97%, higher than the 99.90% assumed by the regulatory capital formulas proposed in the New Basel Capital Accord. The difference between the two levels means that the probability of failure assumed by the Group is 0.03%, instead of 0.1%, i.e. 3 times lower (3 times better) than the BIS proposal.

In external rating terms, a 99.97% confidence level requires the Group to have sufficient capital to achieve a degree of solvency equivalent to an AA rating, whereas the maximum rating attainable with a 99.90% confidence level would be A-, given the higher associated probability of failure.

The Group’s economic capital model enables it to quantify the consolidated risk profile taking into account all the significant risks of the business and the diversification effect inherent in a multinational, multibusiness group like Santander. The Group is using this model as a basis for its proposal in the Internal Capital Adequacy Assessment Process in accordance with Bank of Spain rules within the framework of Pillar 2 of Basel II.

The economic capital measurement and aggregation model pays particular attention to the concentration risk for wholesale portfolios (large corporations, banks and sovereigns).

Analysis of global risk profile

At December 31, 2007, the distribution, by type of risk and main business units, of the Group’s global risk profile measured in terms of economic capital, was as follows:


By business unit:

Latin America	25.5	%
Financial Management and Investments	31.6	%
Abbey	5.3	%
Santander Network Spain	8.1	%
Banesto	6.2	%
Wholesale Banking Spain	8.7	%
Portugal	3.3	%
Santander Consumer	5.7	%
Other	5.7	%


By type of risk:

Credit risk	48.2	%
Equities market risk	21.4	%
Other market risks	9.1	%
Structural interest rate risk	5.9	%
Business risk	3.9	%
Operational risk	6.6	%
Other risks	5.0	%

The lending business, which accounts for 48.2% of the Group’s economic capital, continues to be the main source of risk. It is followed in importance by equities market risk, which was heightened at 2007 year-end due to the treatment under the capital model of the investment in RFS Holding (Banco Real).

The distribution of the economic capital among the main units reflects the diversification of the Group’s business. Latin America, with 25.5%, accounts for a slightly lower proportion than in 2006.

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REPUTATIONAL RISK

The Santander Group considers the reputational risk function to be an essential feature of its activities in all areas of the Organization. Management of this risk is performed mainly through:

Global New Products Committee (CGNP)

Any new product or service that a Santander Group entity intends to market must be authorized by this Committee.

In 2007 the Committee held 14 meetings (two of which were conducted in writing without convening a formal meeting), at which a total of 186 products or product families were analyzed.

A Local New Products Committee is set up in each country in which a Santander Group entity is based. Once a new product or service has undergone the required procedures, this Committee must seek the approval of the Global New Products Committee. In Spain, the functions of the Local New Products Committee are discharged by the Global New Products Committee.

The areas represented on the Global New Products Committee, which is chaired by the General Secretary, are: Tax Advisory, Legal Advisory, Customer Care, Internal Audit, Commercial Banking, Global Corporate Banking, Santander Private Banking, Compliance, the Controller’s Unit, Financial Transactions and Markets, Operations and Services, Global Wholesale Banking Risks, Corporate Banking Risks and IFIs, Credit Risk, Financial Risks, Methodology, Processes and Infrastructure Risks, Operational Risk, 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 aforementioned areas, together with any independent experts required to correctly evaluate the risks incurred (such as, for example, Money Laundering Prevention), 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 Global New Products Committee, 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 Santander Group’s Risk Standing Committee, either approves, rejects or sets conditions for the proposed new product or service.

The Global New Products Committee pays particular attention to the suitability of the new product or service for the environment in which it is to be marketed. To this end, it places 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 for the amount that can be sold in each country.

Procedures Manual for the Marketing of Financial Products

This Manual, which has been used at Banco Santander since 2004 in the retail sale of financial products in Spain, was fully updated in 2007 as a result of the entry into force on 1 November of Directive 2004/39 on Markets in Financial Instruments (“MiFID”), which establishes new requirements governing the sale of financial products.

The objective of this Manual is to guarantee: (i) the appropriate valuation of financial products prior to their commercial use; (ii) the proper conduct of commercial activities, based on the characteristics of the service, the product and the customer; and (iii) compliance with the regulations applicable to the marketing of financial products, including MiFID.

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, savings and investment insurance, traded derivatives, OTC derivatives and atypical financial contracts, will be subject to this Manual. Nevertheless, the Global New Products Committee may opt to include other financial products within the scope of the Procedures Manual.

The Manual starts out with a segmentation of customers and products and establishes various categories of commercial treatment, which basically depend on the type of service to be provided. The combination of these elements (customer category, product type and commercial treatment) produces a matrix that determines the mechanism to be applied (advisability test, suitability test) in order to assess a customer’s suitability for a given product, and to establish the warnings that should be given to the customer.

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The customer and product segmentation is the result of uniting the internal classification used by Santander prior to MiFID with that established by the Directive, giving rise to a level of protection that surpasses the minimum required under MiFID.

The various types of commercial treatment, arranged on a scale of descending involvement of the Bank, are as follows: (i) advised sale, which includes, in turn, portfolio advice and management; and (ii) non-advised sale, which encompasses marketing and mere performance of the sale.

In 2007, 120 products subject to this Manual were submitted for approval. Although the vast majority of these products are investment funds, authorization was also granted for the marketing of other kinds of products, such as warrants, hedging products, preference shares and IPOs and secondary offerings.

Of these 120 products, 68 were new products submitted to the Global New Products Committee and 52 were existing products submitted to the Office of the Manual (this specific body created to oversee implementation of the Manual forms part of the Compliance Department). These 120 products were categorized as follows: 36 green products (30%), 49 yellow products (41%) and 32 red products (27%). Three products were not assigned any color: two of them because they are generic products to which a color will be assigned for each particular issue that it is intended to market, and the third because its approval is conditional upon a final review. The red, yellow and green colors are assigned, not only on the basis of the risk of loss involved, but also taking into account the difficulty experienced by the public in understanding the features of the related products.

Of the 28 products approved on or after 1 November, 19 were classified under MiFID as complex products and 9 as non-complex products.

Board’s Risk Committee

The Board’s Risk Committee, in its capacity as the body ultimately responsible for global risk management and for all banking operations, assesses, with the support of the General Secretary’s Division, the reputational risk within its scope of competence in areas for which it has decision-making powers.

Audit and Compliance Committee

The Audit and Compliance Committee is also responsible for the Group’s reputational risk. Amongst other functions, it 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.

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57.

Significant differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. generally accepted accounting principles

As described in Note 1, the accompanying Consolidated Financial Statements of the Santander Group are presented in the formats stipulated by the Bank of Spain Circular 4/2004, of 22 December, on Public and Confidential Financial Reporting Rules and Formats, and were prepared by applying the generally accepted accounting principles for the International Financial Reporting Standards, as adopted by the European Union pursuant to Regulation (EC) Nº 1606/2002 of the European Parliament of the Council of July 19, 2002. Such formats and accounting principles vary in certain respects from those generally accepted in the United States (“U.S. GAAP”). This Note includes relevant information about valuation differences, differences in Financial Statements presentation and additional disclosure requirements.

IFRS 1 “First-time Adoption of International Financial Reporting Standards” provides first-time adopters of the EU-IFRS with a number of exemptions and exceptions from full retrospective application, some of which were applicable to Santander Group. Had the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 been applied fully retrospectively, net income and shareholders’ equity under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 shown in the tables below would have been different and the reconciling items to U.S. GAAP shown below would also have been different.

The information included in this Note is classified as follows:


Note 57.1.		U.S. GAAP Recent Pronouncements

Note 57.2.		Significant valuation and income recognition principles under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP

Note 57.3.		Net Income and Stockholders’ Equity reconciliations between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP

Note 57.4.		Significant presentation differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP

Note 57.5.		Consolidated financial statements

Note 57.6.		Preference Shares and Preferred Securities

Note 57.7.		Business combinations: Goodwill and Other assets and liabilities

Note 57.8.		Earnings per Share

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57.1 U.S. GAAP Recent Pronouncements

A summary of the recent pronouncements that have been adopted by the Group as of December 31, 2007, is as follows:

In September 2005, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 05-1 “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts”. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS 97 “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments”. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. The adoption of SOP 05-1 did not have a material impact on the Group’s financial position or results of operations.

In March 2006, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 156 “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140”. SFAS 156 amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS 156 requires a company to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract principally in a transfer of the servicer’s financial assets that either meets the requirements for sale accounting, or is to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and permits a company to choose to subsequently measure each class of separately recognized servicing assets and servicing liabilities using either a specified amortization method or a specified fair value measurement method. At its initial adoption, SFAS 156 permits a one-time reclassification of available-for-sale securities to trading securities by companies with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under SFAS 115, provided that the available-for-sale securities are identified in some manner as offsetting the company’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value. SFAS 156 is applicable to all transactions entered into in fiscal years that begin after September 15, 2006. The adoption of this statement did not have a material impact on the Group’s financial position, results of operations or cash-flows.

In April 2006, the FASB issued FASB Interpretation (“FIN”) 46(R)-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)” (FSP FIN 46(R)-6). FSP FIN 46(R)-6 addresses the application of FIN 46(R), “Consolidation of Variable Interest Entities,” in determining whether certain contracts or arrangements with a variable interest entity (VIE) are variable interests by requiring companies to base such evaluations on an analysis of the VIE’s purpose and design, rather than its legal form or accounting classification. FSP FIN 46(R)-6 is required to be applied for all reporting periods beginning after June 15, 2006. The adoption of FSP FIN 46(R)-6 did not have a material impact on the Group’s financial position, results of operations or cash-flows.

In July 2006, the FASB issued a Staff Position, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leverage Lease Transaction” (FSP 13-2), which provides guidance regarding changes or projected changes in the timing of cash flows relating to income taxes generated by a leveraged lease transaction. Leveraged leases can provide significant tax benefits to the lessor. Since changes in the timing and/or amount of these tax benefits may have a material effect on the cash flows of a lease transaction, a lessor, in accordance with FSP 13-2, will be required to perform a recalculation of a leveraged lease when there is a change or projected change in the timing of the realization of tax benefits generated by that lease. FSP 13-2 is effective for fiscal years beginning after December 15, 2006 with early application permitted. The adoption of FSP 13-2 did not have a material impact on the Group’s financial position or results of operations.

On July 13, 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48). This statement was issued to provide additional guidance and clarification on accounting for uncertainty in income tax positions. The interpretation prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions, as well as increased disclosure requirements with regards to uncertain tax positions. This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more likely than not to be sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than fifty percent likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity’s tax reserves. The adoption by the Group of FIN 48 had no material effect on the retained earnings as of January 1, 2007.

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In May 2007, the FASB issued a Staff Position “Definition of Settlement in FASB Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 clarifies that a tax position can be considered “effectively settled” upon completion of an examination by a taxing authority without being legally extinguished. Where tax positions are considered effectively settled, an entity recognizes the full amount of tax benefit, even if (1) the position is not considered more likely than not to be sustained solely on the basis of its technical merits and (2) the statute of limitations remains open. FSP FIN 48-1 is effective on adoption of FIN 48. The adoption of FSP FIN 48-1 did not have a material effect on the Group’s financial position or results of operations.

Additionally, a summary of the recent pronouncements that have been issued but have not yet been adopted by the Group as of December 31, 2007, is as follows:

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). This Standard defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. In addition, SFAS No. 157 disallows the use of block discounts and supersedes the guidance in EITF 02-3, which prohibited the recognition of day-1 gains on certain derivative trades when determining the fair value of instruments traded in an active market. With the adoption of this Standard, these changes will be reflected as a cumulative effect adjustment to the opening balance of retained earnings. The Standard also requires reflecting its own credit standing when measuring the fair value of debt it has issued, including derivatives, prospectively from the date of adoption. SFAS No. 157 is effective for fiscal years beginning after January 1, 2008, with earlier adoption permitted. The Group continues to evaluate the potential impact of adopting this Statement.

In February 2008, the FASB issued a Staff Position “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13” (FSP FAS 157-1) which amends SFAS 157 “Fair value measurements”, where leases that fall under the scope of SFAS 13 “Accounting for leases” are excluded from the scope of SFAS 157. FSP FAS 157-1 is effective on the adoption of SFAS 157. The Group continues to evaluate the potencial impact of the adoption of FSP FAS 157-1.

In February 2008, the FASB issued a Staff Position “Effective Date of FASB Statement No. 157” (FSP FAS 157-2) which delays the effective date of SFAS 157 for non-recurring fair value measurements of non financial assets and liabilities until fiscal years beginning after November 15, 2008. Entities are encouraged to adopt SFAS 157 in its entirety. FSP FAS 157-2 is effective upon issuance. The Group continues to evaluate the potencial impact of the adoption of FSP FAS 157-2.

In February 2007, the FASB issued SFAS No. 159 ‘‘The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115’’. The fair value option established by SFAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates. Eligible items include a financial asset and financial liability, a firm commitment involving financial instruments that would not otherwise be recognized at fair value, a written loan commitment, certain rights and obligations under an insurance contract, and certain rights and obligations under a warranty. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. In accordance with SFAS 159, the fair value option (1) can be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method, (2) is irrevocable (unless a new election date occurs), and (3) cannot be applied to portions of instruments. SFAS 159 is effective for fiscal years beginning after November 15, 2007 with early adoption permitted provided the entity also elects to apply the provisions of SFAS 157,‘‘Fair Value Measurements’’. The Group continues to evaluate the potential impact of adopting this Standard.

In April 2007, the FASB issued a Staff Position “Amendment of FASB Interpretation No. 39 “(FSP FIN 39-1). FSP FIN 39-1 specifies the conditions that have to be met to enable an entity to offset amounts recognized in the balance sheet and clarifies when it is appropriate to offset amounts recognized for forwards, interest rate swaps, currency swaps, options and other conditional or exchange contracts. Offsetting of derivative contract fair values is permitted when executed with the same counterparty under a master netting agreement. FSP FIN 39-1 should be applied retrospectively for fiscal years beginning after November 15, 2007 with early adoption permitted. The adoption of FSP FIN 39-1 is not expected to have a material effect on the Group’s financial position, results of operations or cash-flows.

In July 2007, the AICPA issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (SOP 07-1). SOP 07-1 clarifies which entities are in the scope of the AICPA Audit and Accounting Guide “Investment Companies”. In addition, SOP 07-1 establishes new criteria for a parent company or equity method investor to retain investment company accounting in their consolidated financial statements. Investment companies record all their investments at fair value with changes in value reflected in earnings. SOP 07-1 was effective for fiscal years beginning on or after December 15, 2007, however in February 2008 the FASB issued a Staff Position “Effective date of AICPA Statement of Position 07-1” (FSP SOP 07-1-1) which, in the majority of circumstances, indefinitely defers the adoption of SOP 07-1 for companies that had not adopted the statement by December 15, 2007.

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In November 2007, the SEC issued Staff Accounting Bulletin No. 109 (SAB 109), “Written Loan Commitments Recorded at Fair Value Through Earnings” which requires that the fair value of a written loan commitment that is marked to market through earnings should include the future cash flows related to the loan’s servicing rights. However, the fair value measurement of a written loan commitment still must exclude the expected net cash flows related to internally-developed intangible assets (such as customer relationship intangible assets). SAB 109 applies to two types of loan commitments: (1) written mortgage loan commitments for loans that will be held-for-sale when funded that are marked to market as derivatives under FAS 133 (derivative loan commitments); and (2) other written loan commitments that are accounted for at fair value through earnings under Statement 159’s fair-value election. SAB 109 supersedes SAB 105, which applied only to derivative loan commitments and allowed the expected future cash flows related to the associated servicing of the loan to be recognized only after the servicing asset had been contractually separated from the underlying loan by sale or securitization of the loan with servicing retained. The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The Group is evaluating the impact, if any, that the adoption of SAB 109 may have on its consolidated financial statements and disclosures.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” which is a revision of SFAS 141. SFAS 141(R) defines the acquirer in a business combination as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. The scope of SFAS 141 has also been extended to include all business combinations and not just those where control is obtained by transferring consideration. Assets acquired, liabilities assumed and any noncontrolling interest at the acquisition date must be recognized at their fair value, with limited exceptions, and contingencies are also recognized at fair value if it is more likely than not that they meet the definition of an asset or a liability. Contingent consideration should be measured initially and at each subsequent accounting period at fair value and all acquisition related costs should be expensed in the period in which the costs were incurred or the services received. SFAS 141(R) applies prospectively to business combinations where the acquisition date is on or after December 15, 2008. As SFAS 141(R) will be prospectively applied, its adoption will have no effect on the business combinations already recognized in the financial statements at the adoption date.

In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements” an amendment of ARB No. 51 “Consolidated Financial Statements”. The Statement requires that minority interests are presented in equity and on the face of the income statement separately from equity and income attributable to the parent. Changes in ownership interests without a change in control are accounted for as equity transactions and no gain or loss recognized in the income statement. When a subsidiary is deconsolidated any remaining minority interest should be initially measured at fair value and any gain or loss based on that value. SFAS 160 should be applied prospectively for fiscal years and interim periods beginning on or after December 15, 2008 except for the presentation and disclosure requirements which should be applied retrospectively for all periods presented. As SFAS 160 will be prospectively applied, its adoption will have no effect on changes in ownership interests that have already been recognized in the financial statements at the adoption date.

10.

In February 2008, the FASB released a Staff Position “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (FSP FAS 140-3). FSP FAS 140-3 clarifies the accounting where a security is sold and is subsequently subject to a repurchase agreement which is linked to the initial sale. Where the sale and the repurchase agreement are linked, the transaction is either accounted for as a forward rate agreement or, if the transfer meets the SFAS 140 criteria, as a sale unless certain conditions are met. The FSP is effective for repurchase financing in which the initial transfer is entered into in fiscal years beginning after November 15, 2008. Early adoption or retrospective application is prohibited. The adoption of FSP FAS 140-3 is not expected to have a material impact on the Group’s financial position or results of operations.

11.

In March 2008, the FASB released SFAS No. 161 “Disclosures About Derivative Instruments and Hedging Activities” (SFAS 161), an amendment of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). SFAS 161 applies to all entities with derivative instruments subject to SFAS 133 as well as hedged items, bifurcated derivatives and non-derivative instruments that are designated and qualify as hedging instruments. The statement requires an entity to make certain qualitative disclosures about the derivative instruments it holds including, how and why they are used and the volume of activity, distinguishing between instruments used for risk management and those used for other purposes. There is also a requirement to disclose quantitative information regarding derivative instruments, in a tabular format, in order to highlight the effect that the use of these instruments has on the income statement, the balance sheet and the entity’s cashflows. An entity can elect not to disclose gains and losses on derivatives classified as trading, though alternative disclosures must be made. The effect of credit-risk-contingent features is also required to be disclosed. The adoption of SFAS 161 is not expected to have a material impact on the Group’s financial position, results of operations or cash-flows.

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12.

In April 2008, the FASB issued FSP FAS 142-3 “Determination of the Useful Life of Intangible Assets”. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142 “Goodwill and Other Intangible Assets”. The objective of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No.142 and the period of expected cash flows to measure the fair value of an asset under SFAS No. 141R “Business Combinations”, and other U.S. generally accepted accounting principle. The FSP FAS 142-3 is effective on January 1, 2009 and early adoption is prohibited. The Group is currently evaluating the impact of adopting FSP FAS 142-3 on its consolidated financial condition, operating results and cash flows.

13.

In May 2008, the FASB issued FASB Staff position No. APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”. This FASB Staff Position (FSP) clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14,“Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP nullifies EITF Issues No. 90-19 “Convertible Bonds with Issuer Option to Settle for Cash upon Conversion”, and No. 03-7 “Accounting for the Settlement of the Equity-Settled Portion of a Convertible Debt Instrument That Permits or Requires the Conversion Spread to Be Settled in Stock” (Instrument C of Issue No. 90-19). This FSP amends EITF Issues No. 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, No. 99-1 “Accounting for Debt Convertible into the Stock of a Consolidated Subsidiary”, No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”, No. 04-8 “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share”, No. 05- 1 “Accounting for the Conversion of an Instrument That Becomes Convertible upon the Issuer’s Exercise of a Call Option”, and No. 06-7 “Issuer’s Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133”. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP APB 14-1 is not expected to have a material effect on the Group’s financial position, results of operations or cash-flows.

14.

In May 2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles”. This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This Statement applies to financial statements of nongovernmental entities that are presented in conformity with GAAP. This Statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411 “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The Group will adopt this Statement, upon its effective date, for the preparation of its financial statements in future fiscal years.

57.2

Significant valuation and income recognition principles under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP

Following is a description of the most significant valuation and income recognition principles under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP, which differ among them, applicable to the financial statements of the Santander Group:

F-154


The EU-IFRS required to be applied under Bank of Spain’s
Circular 4/2004		U.S. GAAP
Business combinations, goodwill and intangible assets
(See Notes 2.b.v and 2.m)

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. • The fair values of the assets, liabilities and contingent liabilities of the acquiree, including any intangible assets which might have not been recognized by the acquiree, are estimated and recognized in the consolidated balance sheet. • Any positive difference between the net fair value of the assets, liabilities and contingent liabilities of the acquiree and the business combination cost is recognized in “Other Gains” in the consolidated income statement. 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 to: • specific assets and liabilities of the companies acquired, • to specific intangible assets, by recognizing it explicitly in the consolidated balance sheet provided that their fair value at the date of acquisition can be measured reliably, and • the remaining amount is recognized as goodwill, which is allocated to one or more specific cash-generating units. The cash generating units represent the Group’s geographical and/or business segments. At the end of each reporting period goodwill is reviewed for impairment at a cash-generating-unit level and any impairment is written down with a charge to “Impairment Losses — Goodwill” in the consolidated income statement. An impairment loss recognized for goodwill is not reversed in a subsequent period. In the first adoption of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, we have used the goodwill existing at January 1, 2004, recalculated from euros to local currency as of the date it arose.		SFAS 141 requires that all business combinations are accounted for using the purchase method. Business combinations are recognized as follows: • The Group measures the cost of the business combination as the fair value of the net assets at the time of acquisition. • Any excess of the acquisition cost over the value of the net assets is recognized as goodwill. • Any excess of the value of the net assets acquired over the acquisition cost is initially allocated to certain non-financial assets with any remaining amount being recognized in the income statement. • Income earned from the acquired company is recognized from the acquisition date. Intangible assets acquired in a business combination must be identified and recognized separately from goodwill. SFAS 142, requires that goodwill and intangible assets with indefinite useful lives are subject to an impairment test at a reporting unit level at least annually. These assets should be written-off to the extent that their carrying amount is not recoverable. An impairment loss recognized cannot be reversed in a subsequent period.

Consolidation procedures
(See Note 2.b)

i. Subsidiaries “Subsidiaries” are defined as entities over which the Bank has the capacity to exercise management 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 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. ii. “Joint ventures” are deemed to be ventures that are not subsidiaries but which are jointly controlled by two or more unrelated entities. The financial statements of investees classified as joint ventures are proportionately consolidated with those of the Bank. iii. Associates “Associates” are entities over which the Bank is in a position to exercise significant influence, but not control or jointly control, usually because it holds 20% or more of the voting power of the investee. Investments in associates are accounted for using the equity method. In the case of transactions with an associate, the related profits or losses are eliminated to the extent of the Group’s interest in the associate.		Generally, consolidation is required for, and limited to, all investments of greater than 50% of the outstanding voting rights, except when control does not rest with the majority owner. To determine whether certain entities should be consolidated, FIN 46-R introduces the concept of a “Variable Interest Entity” (VIE). A VIE is an entity which fulfills one of the following criteria: (1) It has equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. (2) The equity investor cannot make significant decisions about the entity’s operations, or although it could, it doesn’t absorb the expected losses or receive the expected returns of the entity. (3) The equity investors have voting rights that are not proportionate to their economic interests and substantially all the activities of the entity involved are conducted on behalf of an investor with a disproportionately small voting interest. A VIE is consolidated by its primary beneficiary, which is the party involved with the VIE that has a majority of the expected losses or a majority of the expected residual returns or both. US GAAP requires full consolidation of companies controlled by the parent company, whether as a result of voting rights or another mechanism after eliminating all intercompany transactions and recognizing minority interest. Proportional consolidation for Joint Ventures is not permitted. Joint ventures are accounted for using the equity method. The equity method is used to account for certain equity investments when the investor has significant influence over the investee (generally an investment of between 20% and 50% in the outstanding voting rights) but does not control the investee. Using the equity method, an investor adjusts the carrying amount of an investment for its share of the earnings or losses of the investee subsequent to the date of investment and reports the recognized earnings or losses in income. Dividends received from an investee reduce the carrying amount of the investment.

F-155


The EU-IFRS required to be applied under Bank of Spain’s
Circular 4/2004		U.S. GAAP
Post-employment benefits
(See Notes 2.v and 2.w)

The Group recognizes under “Provisions — Provisions for Pensions and Similar Obligations” the present value of its defined benefit pension obligations, net of the fair value of the plan assets and of the net unrecognized cumulative actuarial gains 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. “Plan assets” are defined as those that will be directly used to settle obligations and that meet specific conditions. “Actuarial gains and losses” are deemed to be those arising from differences between previous actuarial assumptions and what has actually occurred in the plan and from changes in the actuarial assumptions used. 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 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. “Other Long-Term Employee Benefits”, defined as commitments 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, commitments 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.		Under U.S. GAAP, the Group applies the provisions of SFAS No. 87, “Employers’ Accounting for Pensions”, SFAS No. 88, “Employers’ Accounting for Settlements and Curtailment of Defined Benefit Pension Plans and for Termination Benefits”, SFAS No. 106, “Employers Accounting for Postretirement Benefits Other Than Pensions” and SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)”, as applicable. Furthermore, the Group provides the required disclosures in accordance to SFAS No. 132(R) “Employers’ Disclosures about Pensions and Other Postretirement Benefits an amendment of FASB Statements No. 87, 88 and 106”. These Standards do no significantly differ from the provisions followed and applied in our primary financial statements under IFRS, IAS 19 “Employee Benefits”. A liability and a loss in net income are recognized for early retirement plans when the employees accept the offer and the amount can be reasonably estimated.

Financial instruments
(See Notes 2.c and 2.g)

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 managed jointly with “liabilities under insurance contracts” measured at fair value or with derivative financial instruments whose purpose and effect is to significantly reduce exposure to variations in fair value, or that are managed jointly with financial liabilities and derivatives for the purpose of significantly reducing overall exposure to interest rate risk. • Available-for-sale financial assets*: this category includes debt instruments not classified as “held-to-maturity investments” or as “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”.		Investments in equity securities with readily determinable market values and all debt securities are classified as trading securities, available-for-sale securities, or held to maturity securities in accordance with SFAS 115. Trading assets are debt and equity securities that are held principally for the purpose of sale in the near term. They are initially and subsequently recognized at fair value, with movements reported in the statement of income. Debt and equity securities classified as available-for-sale represent securities not classified as either held to maturity or trading securities. They are initially recognized at fair value including direct and incremental transaction costs and are subsequently measured at fair value. Unrealized gains and losses on available-for-sale securities arising from changes in fair value are included in “Other comprehensive income” as a separate component of equity until sale when the cumulative gain or loss is transferred to the income statement. Foreign exchange differences on available-for-sale securities denominated in foreign currency are also excluded from earnings and recorded as part of the same separate component of equity.

F-156


The EU-IFRS required to be applied under Bank of Spain’s
Circular 4/2004		U.S. GAAP
• *Loans and receivables: this category includes financing granted to third parties, based on their nature, irrespective of the type of borrower and the form of financing, including finance lease transactions in which the consolidated entities act as lessors. 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 the required adjustments to reflect estimated impairment losses). • The statistical percentages obtained from historical trends as determined by the Bank of Spain guidance (Circular) are applied, being the amounts determined within the range of possible estimated losses calculated internally. • Held-to-maturity investments*: this category includes debt instruments with fixed maturity and with fixed or determinable payments. 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 of previously recognized impairment losses, if any, is recognized in the consolidated income statement for the year in which the impairment ceases to exist or is reduced.		Securities classified as available-for-sale are required to be reviewed on an individual basis to identify whether their fair value has declined to a level below amortized cost and, if so, whether the decline is other-than-temporary. If it is probable that an investor will be unable to collect all amounts due according to the contractual terms of a debt security, an other-than-temporary impairment is considered to have occurred. An other-than-temporary impairment may be required as a result of a decline in a security’s value due to deterioration in the issuer’s creditworthiness, an increase in market interest rates or a change in foreign exchange rates since acquisition. Other circumstances in which a decline in the fair value of a debt security may be other-than-temporary include situations where the security will be disposed of before it matures or the investment is not realizable. Provision is reflected in earnings as a realized loss for any impairment that is considered to be other-than-temporary. The loan loss allowance should represent the best and most probable estimate of all possible scenarios, being the internally calculated amount determined within the range of possible estimated losses. If an other-than-temporary impairment is recognized, the cost basis of the individual security is written down to fair value as a new cost basis. The new cost basis is not increased for subsequent recoveries in fair value. Debt securities classified as held-to-maturity are securities that the group has the positive intent and ability to hold to maturity. These securities are stated at amortized cost. Under SFAS 155, financial assets and financial liabilities may be measured at fair value through the income statement where they contain substantive embedded derivatives that would otherwise require bifurcation under SFAS 133.

F-157


The EU-IFRS required to be applied under Bank of Spain’s
Circular 4/2004		U.S. GAAP
Preference Securities and Preference Shares
(See Notes 57.5 and 57.6)

Following the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 consolidation rules, special purpose entities used to issue preference shares are consolidated. Preference securities are classified as financial liabilities, and presented as “Subordinated Debt” or as “Equity Having The Substance of a Financial Liability” if they are shares. Preference securities and shares denominated in a foreign currency are retranslated at each balance sheet date. The dividends on preference securities and shares are recognized in the income statement as interest expense on an amortized cost basis using the effective interest method.		As a consequence of FIN 46-R certain special purpose entities which are used to issue preference shares are excluded from consolidation as the Group is no longer the primary beneficiary. These preference shares are recognized as subordinated deposits held by the Bank that act as a guarantee of the securities. All other preference shares are classified in equity if they are not mandatorily redeemable and do not have redemption features that are not solely within the control of the issuer. The dividends on preference securities and shares are accounted for as an appropriation of profit.

Securitized assets
(See Notes 2.e, 57.3.g and 58.1)

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 the transferred financial asset is derecognized and any right or obligation retained or created in the transfer is recognized simultaneously. 2. If the Group retains substantially all the rights and rewards associated with the transferred financial asset, the transferred financial asset is not derecognized and continues to be measured by the same criteria used before the transfer. However: a. An associated financial liability is recognized for an amount equal to the consideration received. b. The income from the transferred financial asset not derecognized and any expense incurred on the new financial liability are recognized in the consolidated income statement. 3. If the Group neither transfers nor retains substantially all the risks and rewards associated with the transferred financial asset, the following distinction must be made: a. If the transferor does not retain control, the transferred financial asset is derecognized and any right or obligation retained or created in the transfer is recognized. b. If the transferor retains control, it continues to recognize the transferred financial asset for an amount equal to its exposure to changes in value and recognizes a financial liability associated with the transferred financial asset. The net carrying amount of the transferred asset and the associated liability shall be 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.		U.S. GAAP SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, requires that after a transfer of financial assets an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. The statement contains rules for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” requires that a servicing asset or liability is recognized each time an entity undertakes an obligation to service a financial asset by entering into a servicing contract principally in a transfer of the servicer’s financial assets that either meets the requirements for sale accounting or is to a qualifying special-purpose entity in a guaranteed mortgage securitization. Certain mortgage securitization vehicles held by the Group were considered “qualifying special purpose entities” under U.S. GAAP and therefore were outside the scope of FIN 46(R). These securitizations were treated as sales and, where appropriate, a servicing asset and an interest-only security were recognized. Servicing assets are amortized over the periods in which the benefits are expected to be received and the interest-only security was accounted for as an available-for-sale security. Evaluation for impairment was conducted in accordance with EITF 99-20. If previously derecognized assets no longer meet the requirements of SFAS 140, the assets are deemed to have been repurchased by the transferor at fair value. The recognized assets are classified as loans and subsequently measured at amortized cost. On rerecognition of the transferred assets, any difference between fair value on transfer and the book value of the asset will be recognized in the income statement as part of the effective interest calculation in accordance with SFAS 91. Once an entity no longer meets the requirements for a qualifying special purpose entity it is no longer outside the scope of FIN 46(R) and will be subject to its provisions as described in the consolidation section above. See notes 57.3 g) and 58.1 for details.

F-158


The EU-IFRS required to be applied under Bank of Spain’s
Circular 4/2004		U.S. GAAP
Derivative instruments and hedging activities
(See Notes 2.d.v and 57.3.f)

All derivatives are recognized either as assets or liabilities on the balance sheet and measured at their fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation as Trading or Hedging (of Cash Flow, of Fair Value or of a foreign currency investment exposure). • Effectiveness testing: the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 allows prospective and retrospective effectiveness testing. • Macro hedging is permitted. • Dynamic portfolio hedging is permitted.		Accounting for derivatives under U.S. GAAP is similar to that of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. There are however differences in their detailed application. • Effectiveness testing: retrospective testing may not be required if the short cut and matched terms methods can be used • Macro hedging is not permitted • Non-dynamic portfolio hedging requires that the individual items respond in a “generally proportionate manner” to the overall change in fair value of the aggregate portfolio; and that all cash flows of the hedged items be included in the hedge relationship.

Sale — Leaseback transactions involving real estate
(See Notes 2.l and 57.3.e)

According to IAS 17 a lease is classified as a finance lease if it transfers substantially all risks and rewards incidental to ownership of the leased asset to the lessee;otherwise it is classified as an operating lease. Under IAS 17, if a sale-leaseback transaction that involves real estate includes a genuine repurchase option (that is, an option whose exercise is not almost certain), that transaction should be accounted for as a sale and lease-back transaction. Any gain would be recognized based on the classification of the leaseback, as either operating (at the time of the sale-leaseback) or finance leases (over the lease term).		According to SFAS No. 13 leased properties are also classified as either operating or capital leases based on certain criteria, and any sale-leaseback properties involving real estate are dealt with in SFAS No. 66 and SFAS No. 98. A sale- leaseback transaction that does not qualify for sale-leaseback accounting because of any form of continuing involvement (e.g. repurchase option at fair value under SFAS No. 98) by the seller-lessee other than a normal leaseback shall be accounted for by the deposit or financing method, whichever is appropriate under SFAS No. 98. If a sale-leaseback transaction has to be reported as a financing method, the seller-lessee reports the sales proceeds as a liability, continues to report the real estate or the real estate and equipment as an asset, and continues to depreciate the property. Lease payments are considered interest payments, are accounted in the income statement and do not reduce the liability (sales proceeds).

Fair value option
(See Note 2.c)

The Fair value option is permitted in accordance with IAS 39.		The Fair value option is not permitted as of December 31, 2007 unless SFAS 159 is early adopted. The Group has not early adopted SFAS No. 159.

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57.3		Net Income and Stockholders’ Equity reconciliations between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP

		Following is a summary of the adjustments to consolidated net income and to consolidated Stockholders’ Equity which would be required if U.S. GAAP had been applied to the accompanying consolidated financial statements.

		Our primary financial statements have been prepared in accordance with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. For this reason, reconciliation to U.S. GAAP starts from our EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 financial statements. These adjustments are explained in the following Notes a — j.

		After the reconciliation, the Comprehensive Income reporting required by SFAS 130 is disclosed. More information about it can be found in Note j.


			Thousands of Euros
			Increase (decrease)
			2007			2006			2005
NET INCOME
Net income in accordance with the EU-IFRS (*)				9,636,150			8,245,753			6,749,770
Less: Net income attributable to minority interest under the EU-IFRS () (*)				(575,892	)		(649,806	)		(529,666	)

*Net income attributable to the Group in accordance with the EU-IFRS ()**				9,060,258			7,595,947			6,220,104
Of which:
Continuing operations				8,351,941			6,327,643			5,990,404
Discontinued operations				708,317			1,268,304			229,700

Adjustments to conform to U.S. GAAP:
• Allowances for credit losses	(a	)		(347,155	)		(226,365	)		(302,033	)
• Investment securities	(b	)		15,215			161,268			82,052
• Goodwill and business combinations	(d	)		(83,249	)		(170,325	)		69,675
• Intangible assets	(d	)		—			—			(50,661	)
• Premises and equipment	(e	)		(1,636,780	)		9,507			7,669
• Hedge accounting: derivative instruments	(f	)		(711,599	)		(550,276	)		342,382
• Securitization	(g	)		293,869			174,237			72,961
• Pension liabilities and other post-employment benefits	(h	)		(97,206	)		412,085			—
• Income taxes	(i	)		803,464			8,493			(123,689	)

Total adjustments:				(1,763,441	)		(181,376	)		98,356

Net income attributable to the Group in accordance with U.S. GAAP				7,296,817			7,414,571			6,318,460
Of which:
Continuing operations				6,724,962			6,305,470			6,088,760
Discontinued operations				571,855			1,109,101			229,700




(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

(**)		Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 equity and net income includes the equity and net income corresponding to the shareholders of both the Parent and the minority interests. Under U.S. GAAP, shareholder’s equity and net income is made up only of the portion attributed to equity holders of the Parent. Therefore, an adjustment to reconcile to U.S. GAAP is recorded in order to exclude the Minority Interests portion of shareholder’s equity and net income.

The accompanying Notes are an integral part of reconciliation of consolidated net income and stockholders’ equity to U.S. GAAP as of December 31, 2007, 2006 and 2005 and for the years then ended.

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			Thousands of Euros
			Increase (decrease)
			2007			2006			2005
STOCKHOLDERS’ EQUITY
*Total Equity in accordance with the EU-IFRS ()**				57,558,151			47,072,302			42,626,699
Less: Minority Interest under the EU-IFRS () (*)				(2,358,269	)		(2,220,743	)		(2,848,223	)

*Stockholders’ Equity in accordance with the EU-IFRS ()**				55,199,882			44,851,559			39,778,476

Adjustments to conform to U.S. GAAP:
• Allowances for credit losses	(a	)		281,230			628,385			854,750
• Loans granted to purchase parent company shares	(c	)		(19,133	)		(25,875	)		(120,035	)
• Investment securities	(b	)		—			—			—
• Goodwill and business combinations	(d	)		3,115,032			3,113,896			2,972,556
• Intangible assets	(d	)		—			—			—
• Premises and equipment	(e	)		(1,890,253	)		(253,473	)		(262,980	)
• Hedge accounting: derivative instruments	(f	)		(899,347	)		(155,288	)		395,350
• Securitization	(g	)		906,462			640,357			494,674
• Pension liabilities and other post-employment benefits	(h	)		117,816			105,612			—
• Taxes	(i	)		581,908			(201,633	)		(328,456	)

Total adjustments:				2,193,715			3,851,981			4,005,859

Stockholders’ Equity in accordance with U.S. GAAP				57,393,597			48,703,540			43,784,335




(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

(**)		Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 equity and net income includes the equity and net income corresponding to the shareholders of both the Parent and the minority interests. Under U.S. GAAP, shareholder’s equity and net income is made up only of the portion attributed to equity holders of the Parent. Therefore, an adjustment to reconcile to U.S. GAAP is recorded in order to exclude the Minority Interests portion of shareholder’s equity and net income.

The accompanying Notes are an integral part of reconciliation of consolidated net income and stockholders’ equity to U.S. GAAP as of December 31, 2007, 2006 and 2005 and for the year then ended.

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Considering the adjustments included in the reconciliation, the Other Comprehensive Income information required by SFAS 130 is summarized in the table below:


	Thousands of Euros
	Increase (decrease)
	2007			2006			2005
CHANGES IN EQUITY FROM NON-OWNER SOURCES

Accumulated Other Comprehensive Income, net of tax:
• Unrealized gains (losses) on securities		1,275,349			2,163,558			1,954,932
• Net gains (losses) on derivative instruments		(58,655	)		49,252			70,406
• Foreign currency translation adjustment		(7,884,100	)		(6,747,605	)		(6,245,939	)
• Pension liabilities and other post-employment benefits		(137,944	)		(214,531	)		—

Total Accumulated Other Comprehensive Income		(6,805,350	)		(4,749,326	)		(4,220,601	)

COMPREHENSIVE INCOME

Net income attributable to the Group in accordance with U.S. GAAP		7,296,817			7,414,571			6,318,460

Other Comprehensive Income, net of tax:
• Unrealized gains (losses) on securities		(888,209	)		208,626			(82,458	)
• Net gains (losses) on derivative instruments		(107,907	)		(21,154	)		(268,660	)
• Foreign currency translation adjustment		(1,136,495	)		(501,666	)		1,112,333
• Pension liabilities and other post-employment benefits		76,587			(214,531	)		—

Other Comprehensive Income (see Note 57.3.j)		(2,056,024	)		(528,725	)		761,215

Comprehensive Income in accordance with U.S. GAAP		5,240,793			6,885,846			7,070,675

The accompanying Notes are an integral part of reconciliation of consolidated net income and stockholders’ equity to U.S. GAAP as of December 31, 2007, 2006 and 2005 and for the years then ended.

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NOTES TO THE NET INCOME AND TO THE STOCKHOLDERS’ RECONCILIATION

Upon the adoption of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, among other decisions permitted by the rules of adoption of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, the Bank decided to reclassify all held to maturity portfolio to the available-for-sale portfolio. Consequently, even though the decision was made in 2005, the Bank included the effect of this accounting change in its reconciliation to U.S. GAAP as of December 31, 2004.

Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, some companies are consolidated by using the proportional consolidation method, which is not allowed under U.S. GAAP. The use of this method instead of the global integration method has no impact on the consolidated Stockholders’ Equity or on the consolidated net income attributable to the Group. In our 2007 financial statements there were 14 entities (15 in 2006) consolidated by the proportional method which, on an aggregated basis, have assets of €3,092 million and net income of €99 million (€2,227 and €68 million in 2006, respectively), amounts that are not material, in light of the amounts involved as compared to our consolidated financial statements taken as a whole.

The adoption of FIN 46-R had no effect on stockholders’ equity or net income attributable to the Group, but changed the consolidation scope under U.S. GAAP, requiring the consolidation of some entities that previously were not consolidated (such as some securitization vehicles) and excluding others that previously were consolidated. As a result, most of our issuances of preference shares were classified as long term debt (€6,988,882 thousand, €6,665,166 thousand and €6,854,071 thousand at December 31, 2007, 2006 and 2005, respectively) and its share of net income considered as interest expense, while some issuances made from operating subsidiaries (i.e. Abbey and Banesto) were classified in Minority Interest (€795,058 thousand, €839,732 thousand and €1,227,544 thousand at December 31, 2007, 2006 and 2005, respectively), see Notes 57.2 and 57.6. Most of these changes in the consolidation scope were the same as those arising in the first adoption of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

The Group enters into transactions under which it lends and borrows stock using other stock as collateral, and these are accounted for as Off-Balance Sheet Commitments under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. Under SFAS 140, these transactions are grossed up on the balance sheet. At December 31, 2007, the Group has included assets of €24,058 million (December 31, 2006: €28,809 million and December 31, 2005: €27,493 million) as collateral received and liabilities of €24,058 million (December 31, 2006: €28,809 million and Decemeber 31, 2005: €27,493 million) as an obligation to return collateral received.

Following are the explanations of the reconciliation items.

a) Allowances for credit losses

Under IAS 39, as we described in Note 2.g) to the Consolidated Financial Statements, a debt instrument not measured at fair value through profit or loss and in contingent exposures classified as standard are considered to be impaired — and therefore its carrying amount is adjusted to reflect the effect of its impairment — when there is objective evidence that events have occurred which give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged.

As a general rule, the carrying amount of an impaired debt instrument not measured at fair value through profit or loss and in contingent exposures classified as standard are adjusted with a charge to the consolidated income statement for the year in which the impairment becomes known, and the recoveries of previously recognized impairment losses are recognized in the consolidated income statement for the year in which the impairment is reversed or reduced by collection.

Impairment exists if the book value of a claim or a portfolio of claims exceeds the present value of the cash flows actually expected in future periods.

Impairment 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.

Additionally, we recognize an impairment allowance for credit losses when it is probable that a loss has been incurred and taking into account the historical loss experience and other circumstances known at the time of assessment. For these purposes, inherent losses are the incurred but not specifically identified losses as at the date of the financial statements, calculated using statistical procedures.

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The Group, in recognizing the inherent losses in debt instruments measured at amortized cost and in contingent exposures classified as standard, takes into account its historical experience of impairment and the other circumstances known at the time of assessment and has developed internal risk models, based on historical information available for each country taking into account the influence of business cycles and type of risk (homogenous portfolios). Nonetheless, as an explicit requirement of the Bank of Spain, until the Spanish regulator and supervisory authority has not satisfactorily verified such internal models, the coverage of insolvencies incurred but not specifically identified calculated therein, must not result in a lower amount than those calculated under the criteria described in Note 2.g).

The allowance for credit losses recorded by the Santander Group as at December 31, 2007, under our internal models was €9,426 million (€8,865 million in 2006). Our internal models determine a range of provisions which comprise the amount as required by the Bank of Spain.

The Bank has included in the reconciliation of stockholders’ equity and net income a difference between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP related to the determination of allowance losses not allocated to specific loans, basically due to:

			• Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 we use “peer group” information as indicated in Note 2.g) in the calculation of allowances for inherent losses incurred but not yet identified, until the Bank’s internal risk models are reviewed and approved by the Bank of Spain.

			• Under U.S. GAAP, pursuant to SFAS 5, Accounting for Contingencies (SFAS 5) and paragraph 3 of Financial Accounting Standards Board (FASB) Interpretation No. 14 (FIN 14), Reasonable Estimation of the Amount of a Loss we calculate credit losses based on our internal risk models using the best estimates, after considering our experience, the information about debtors profiles and appraisal of the receivables in light of the current economic environment at the balance sheet date.

			• Under U.S. GAAP the methodology in developing our internal risk models is consistent with the guidance described in AICPA Accounting Guidance for Banking Industry for identified loans that are to be evaluated for collectibility.

			• Also considered are the view points included in EITF Topic D-80 Application of FASB Statement 5 and 114 to a loan portfolio which state in part:

	•		Arriving at an appropriate allowance involves a high degree of management judgment and results in a range of estimated losses.

	•		Institutions should maintain prudent, conservative, but not excessive, loan loss allowances that fall within an acceptable range of estimated losses. Consistent with GAAP, an institution should record its best estimate within the estimated range of credit losses, including when the best estimate is at the high end of the range.

	•		When determining the level for the allowance, management should always ensure that the overall allowance appropriately reflects a margin for the imprecision inherent in most estimates of inherent credit losses (footnote omitted).

	•		Simply because a portion of the allowance is designated as “unallocated,” it is not thereby inconsistent with GAAP. The important consideration is whether the allowance reflects an estimate of probable losses, determined in accordance with GAAP, and is appropriately supported.

	•		Allowance estimates should be based on a comprehensive, well-documented, and consistently applied analysis of the loan portfolio.

As described in the Note above our calculation under U.S. GAAP is based on the best estimate within the estimated range of credit losses. Moreover, paragraph 23 of SFAS 5 states the following:

“Whether the amount of loss can be reasonably estimated (the condition in paragraph 8(b)) will normally depend on, among other things, the experience of the enterprise, information about the ability of individual debtors to pay, and appraisal of the receivables in light of the current economic environment. In the case of an enterprise that has no experience of its own, reference to the experience of other enterprises in the same business may be appropriate.”

		Hence, the use of “peer group” statistical assumptions are not appropriate, even when the amount falls within an acceptable range of estimated losses, as the amount does not correspond with the best estimate of loan losses. Consequently, for U.S. GAAP purposes we have used our own appropriately adjusted experience in determining the allowance for loan losses.

		Accordingly, we have recorded an adjustment between U.S. GAAP and the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 which caused a decrease of €347,155, €226,365 and €302,033 thousand to our income statement in 2007, 2006 and 2005, respectively. The effect in shareholders’ equity under U.S. GAAP is an increase of €281,230 thousand, €628,385 thousand, €854,750 thousand as of December 31, 2007, 2006 and 2005, respectively.

F-164

b) Investment securities

In this item we consider the adjustments that arise from different cost in securities, either they arise from previous Spanish GAAP or from the different accounting treatment of impairment losses under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP (i.e. the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 permit to register as an income the recoveries in value of past impairments).

Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, the criteria for presentation, valuation and recognition of debt and equity instruments are those disclosed in Note 2.c) and 2.d).

During the first-time adoption of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, the recognition, measurement and disclosure criteria included in IAS 32 and 39, were applied retrospectively to January 1, 2004 (the date of transition to the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004).

1- Different cost in debt and equity securities:

Under previous Spanish GAAP, some investments in listed affiliated companies in which the Group held an ownership interest of more than 3% and less than 20% were accounted for by the equity method. Under U.S. GAAP, the Group’s investments in these companies were accounted for as indicated by SFAS No. 115. As a result of the first-time adoption of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, such investments were classified as “Available for sale financial assets” and valued in accordance to IAS 32 and 39, for which the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 accounting treatment of new and former investments in affiliated companies is identical to that under U.S. GAAP.

In previous years this adjustment reflected the changes in the valuation of these holdings from the equity accounting method to the lower of cost or market value (available-for-sale securities under previous Spanish GAAP classification). Subsequently, an additional adjustment was made to meet SFAS 115 requirements. Currently, this adjustment reflects the reversal of those impairments upon sale of the corresponding investments, recorded prior to January 1, 2004 (transition date); in determining other than temporary impairments realized in accordance to SFAS 115, for both debt and equity instruments.

In this regard, historical differences in the amortized cost of past investments in affiliated companies, debt securities and available for sale financial assets remain (the amortized cost is higher under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 than it is under U.S. GAAP) and therefore, at the time of their sale, the capital gains resulting will be lower under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 than under U.S. GAAP.

The 2007 reconciliation item reflects the adjustment to the profit on sale of the final stake of 1.79% that we held in Intesa Sanpaolo, S.p.A. (equivalent to the 3.6% stake in San Paolo, IMI before the merger with Intesa).

The 2006 reconciliation item reflects the adjustment to the profit on sale of the 4.8% stake on San Paolo IMI, S.p.A, and maintains the adjustment for the 3.6% holding that we keep on our books at December 31, 2006.

The 2005 reconciliation item reflects the adjustment to the profit on sale of our holdings in Royal Bank of Scotland Group plc and Commerzbank AG (2.57% and 3.38% of their capital respectively, see Note 8) and maintains differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP on the holdings recorded under previous Spanish GAAP, due to different valuation criteria used prior to January 1, 2004.

2- Different treatment of reversal of impairment in debt securities under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 or U.S. GAAP

The Group conducts reviews to assess whether other-than-temporary impairment exists. These reviews consist of (i) the identification of the securities that maintain impairments during the last six months, and (ii) the determination 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.

Additionally, under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 when there is evidence that a reduction in the fair value of a debt security is due to impairment, the unrealized loss is charged to net income but, if afterwards it recovers its value the impairment losses are subsequently reversed to net income.

Under U.S. GAAP impairment losses cannot be reversed and the criteria to determine if other-than-temporary impairment exists are different (see Note 58.3).

c) Loans granted to purchase parent company shares

Loans granted to employees for the acquisition of the Bank shares have been recorded under U.S. GAAP as a reduction of Stockholders’ Equity.

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d) Goodwill and business combinations

As disclosed in Note 57.2 to our financial statements, in the first adoption of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 we used the goodwill existing under our previous Spanish GAAP at January 1, 2004, recalculating its value from euros to local currency as of the date it arose.

Most of the goodwill differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP came from differences that already existed under previous Spanish GAAP. These differences only appear in net income when we sell our holding or when there is a different impairment write-off. In the meantime they are reflected as differences in our stockholders’ equity. For information about the main differences that remain unchanged in the reported periods, see Note 57.7. Business combinations: Goodwill and Other assets and liabilities.

The 2007 net income reconciliation adjustment reflects, mainly, the differences on the gains on sale of the pension fund managers in Latin America (see Note 3-c) due to the different cost basis for such subsidiaries under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP.

The 2006 net income reconciliation adjustment reflects differences on the profit on sale of our business in Perú and Bolivia and on the sale of 7.23% of Banco Santander Chile. In 1997, all the goodwill relating to our investments in Perú and in Chile was written-off under our previous Spanish GAAP but not under our U.S. GAAP reconciliation. From 1998 to 2001 the goodwill of our investments in Perú, Bolivia and Chile were amortized under U.S. GAAP but were booked in different currencies (euros under previous Spanish GAAP and local currency under U.S. GAAP), producing differences in the amounts recorded. Later, when SFAS 141 became effective (in June 2001), we faced two different goodwill impairment tests (U.S. GAAP and previous Spanish GAAP), producing even more differences. Finally, when we changed from our previous Spanish GAAP to the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, we recalculated our goodwill (from euros to local currency as of the date it arose) and performed impairment tests over the new values resulting in write-downs. Under U.S. GAAP no write-downs were needed.

The 2005 net income reconciliation adjustment reflects mainly the adjustment to the profit on sale of our holding in Unión Fenosa S.A. (see Note 3-c).

The net income differences from goodwill of our investment in Unión Fenosa S.A. also come from differences that arose years ago. Our holding in Unión Fenosa S.A. was acquired in 1999 through the purchase of Banco Central Hispano S.A. (under Previous Spanish GAAP this business combination was accounted for as a merger). Until the third quarter of 2002 our stake was lower than 20%, and it was accounted for by the equity method under previous Spanish GAAP and “as available for sale” in our reconciliation to U.S. GAAP. As a result of that different accounting treatment, net income from goodwill of our investment in Unión Fenosa S.A. was higher under previous Spanish GAAP than under U.S. GAAP. In 2002 we increased our stake above 20% and the investment was accounted for by the equity method under both GAAPs, but the goodwill was valued differently in each one. Finally, when we changed from previous Spanish GAAP to the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, we maintained the value of the goodwill from our previous Spanish GAAP. In 2005 when we sold our investment in Unión Fenosa S.A. we wrote-down its goodwill to calculate the profit in sale, which was higher under U.S. GAAP (by an amount similar to the net income anticipated under previous Spanish GAAP and recognized as retained earnings under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004).

For the purposes of the reconciliation to U.S. GAAP, the Group conducted a goodwill impairment test according to SFAS 142. The procedures followed to calculate are:

• First, cash-generating units (“CGU”) are determined.

• Second, goodwill is allocated to these CGUs. This criterion is different from the allocation criteria followed in the business segment information presented in Note 54, where all the goodwill is allocated to the non-operating segment (Financial Management and Equity Stakes segment). Impairment testing is not possible without this goodwill allocation. The carrying value of the CGU, including the allocated goodwill, is compared to its fair value in order to determine whether impairment exists.

• Finally, as the fair value of the CGUs was greater than their carrying amount, the Group did not proceed to perform step 2 under SFAS 142 for the goodwill impairment test under U.S. GAAP. As a result, there is no more impairment other than that recognized under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

e) Premises and equipment

In November 2007, the Group sold ten singular properties and 1,152 of its branch offices and, at the same time, entered into operating lease agreements with the buyers which include an option to repurchase the properties at fair values, exercisable by the Group on the agreed dates (mostly the final expiry date of each lease agreement).

Under US GAAP (SFAS 98 par 11) the transaction does not qualify as a sale and lease-back because the existence of a repurchase option of the properties at fair values implies a continuing involvement of the seller-lessee and, consequently, the transaction cannot be considered as a sale.

F-166

From an EU-IFRS (IAS 17) perspective, there is nothing that leads to such an automatic assumption. The repurchase option needs to be assessed to determine whether there is reasonable certainty at the beginning of the operating lease term that it will be exercised, and to whom the gains and losses in fluctuations of fair value of the residual value flow. After completing such assessment of the transaction, we concluded that there is no reasonable certainty that the repurchase option will be exercised, because it is at fair value, and there are no other indicators that we expect would economically force us to exercise the repurchase option; thus we concluded to use sale and lease-back accounting under EU-IFRS.

In addition, we completed an analysis of the other main factors of the transaction and concluded that the lease agreements had the characteristics of operating leases, the sale price and lease payments were at fair value so, in effect, there had been a normal sale transaction and the gain on the sale of the properties was recognized immediately in the statement of income in 2007.

Accordingly, in order to account for the transaction in conformity with the financing method under SFAS 98, we have made an adjustment to: (1) undo the sale, place the properties back in the accounting books (€755 million) and continue to depreciate them for the entire year (€6 million); (2) eliminate the profit on sale (€1,620 million) and create a liability for the total amount of the cash received and (3) record the operating leases rental payments incurred by the Group during November and December as interest expense (€10 million).

In addition, under IFRS 1, paragraph 16, IG8-IG9, we are allowed to use as deemed cost the revalued amount of fixed assets under previous Spanish GAAP, which is something that U.S. GAAP does not allow and thus creates the need for an adjustment.

Based on the above, the premises and equipment opening balance under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 is different from the balances carried under U.S. GAAP since some real estate properties were revalued under previous Spanish GAAP (but not U.S. GAAP), and thus their related depreciation would reverse through profit and loss and the fixed assets revaluation amount through equity. As a result, the depreciation of these fixed assets is calculated on the restated value (deemed cost) under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. This valuation is also considered when calculating profits on sale of fixed assets. Under U.S. GAAP these assets are valued at cost.

The adjustment to net income reflects the reversal of the additional depreciation on the revalued premises and equipment, corrections to profits on sale and, if necessary, corrections to the value of the premises. The related deferred tax asset is being recorded in income in the years in which the relevant deductions are allowed for income tax purposes. The adjustment to Stockholders’ Equity also reflects the reversal of all unamortized revaluation surpluses.

f) Hedge accounting: derivative instruments

The Group uses derivative financial instruments for trading purposes and to hedge risk exposures. Derivatives accounted for as hedging operations include instruments that meet specific criteria required by Bank of Spain’s Circular 4/2004 which are in accordance with IAS 39. Derivatives accounted for as trading operations include instruments held for trading purposes and those that do not meet our hedging requirements. A full description of the principles applied by the Group in accounting for derivative financial instruments is disclosed in Note 2.d.v to the financial statements.

For U.S. GAAP purposes, SFAS No. 133 establishes similar criteria to account for derivatives, including embedded derivatives, and derivative instruments used for hedging activities.

Nevertheless, the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP differ, in certain respects, in the requirements for hedge accounting for these transactions; accordingly, all hedge accounting will need to be separately considered under each GAAP to ensure that the respective rules under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP are satisfied. See Note 57.2 for a summary of the accounting criteria.

In the Group, the use of derivatives for trading purposes is subject to clearly defined limits (at all levels: trader, entity, business segment, country, etc.) and controlled using Value at Risk (VaR) methodology. Derivatives are also used for hedging purposes when a reduction of risk is desired. However, risk reduction is not in itself sufficient to qualify for hedge accounting.

We have procedures in place that ensure that the requirements with respect to the designation as a hedge or speculative transaction, the documentation of the hedging relationship, the identification of hedged items and the hedging instruments, and the assessment and testing of hedge effectiveness are met under both GAAPs (the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP).

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Accordingly, the Group’s policies require that an effectiveness test is performed for each hedge position at inception and on a monthly basis. The Group has established the following effectiveness tests to ensure the effectiveness of each hedging relationship:

• Prospective test: Upon designation of a hedging relationship (as well as on ongoing basis), the Group must be able to justify an expectation that the relationship will be highly effective over future periods in achieving offsetting changes in fair value or cash flows, and;

• Retrospective test: At least quarterly, the Group must determine whether the hedging relationship has been highly effective in having achieved offsetting changes in fair value or cash flows through the date of the periodic assessment.

Only if the hedge effectiveness percentages are between 80% and 125% is the hedge considered to be highly effective. If the calculated percentages are outside this range the hedge is not considered to be effective and hedge accounting is discontinued (the hedging instruments are accounted for as speculative derivatives).

Additional information is collected to identify those hedges under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 that do not fully comply with SFAS 133 requirements (i.e. adjustments to effectiveness tests that are not suitable for U.S. GAAP requirements). Accordingly, for U.S. GAAP reconciliation purposes, only those transactions which fully comply with SFAS 133 requirements are considered to be hedge transactions.

The main differences included in the reconciliation between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP relate to the following:

• Some transactions that qualify as hedging relationships under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 are adjusted to trading accounting under U.S. GAAP: i.e. the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, in accordance to IAS 39 F.2.17 “Partial term hedging”, allows us to designate a hedging instrument as hedging only a portion of the time period to maturity and therefore adjust the effectiveness test to comply with the hedging objective. Under U.S. GAAP such hedges are possible although in practice rare because of the difficulty to meet the effectiveness criteria in fair value partial term hedge due to the fact that the adjustment effectiveness is reversed.

• The hedge relationship files of certain dynamic portfolio hedges that relate to Abbey do not fulfill all the documentation requirements under SFAS 133. Therefore we reversed the effects of the hedge accounting claimed under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 in our U.S. GAAP reconciliation.

The variations registered in 2007 and 2006 in the net income adjustment are due to the interest rate increases during these periods. Most hedge relationships that qualify under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 but not under U.S. GAAP are fair value hedges related to long term debt. An interest rate increase has a positive impact in the income statement as a result of the valuation of the debt instrument and a negative impact from the valuation of the hedging derivative. If the hedge relationship is valid, both effects are reflected on the income statement, with a net impact that is equal to the ineffectiveness of the hedge. Under U.S GAAP, for those hedges that are not valid, the positive impact coming from the valuation of the debt instrument is not reflected on the income statement and therefore the profit under U.S. GAAP is lower.

For more information about derivatives, see Notes 9, 11, 36 and 58.4.

g) Securitizations

In accordance with SFAS 140, the assets that have been transferred to special purpose entities (securitized) and meet the criteria required under SFAS 140 for a sale are no longer retained on the balance sheet. In the years ended December 31, 2005 and 2006 certain securitized assets met these criteria and were derecognized. From the date of the issuance in December 2007 these transferred assets no longer met the SFAS 140 criteria for a sale (for further details see Note 58.1).

Due to the recognition of a retained interest under U.S. GAAP, gains of €290,945, €174,237 and €72,961 thousand have been recognized for the years ended December 31, 2007, 2006 and 2005, respectively. The remuneration received for servicing is considered to be adequate and therefore no servicing assets were recognized.

Under SFAS 140, a retained interest (interest-only strip) is recognized which represents the retained interest in the securitized assets. The fair value of the interest-only strip is calculated as the present value of the future income streams expected to be received discounted at market rates for these types of securities. In accordance with SFAS 140, the receivable is treated as an available-for-sale security that is revalued at the end of each reporting period. Increases and decreases in value of the retained interest are taken to the statement of comprehensive income, unless the value of the security falls below its original cost. In such circumstances, other-than-temporary losses are considered to have occurred and the impairment losses are taken to the income statement.

If previously derecognized assets no longer meet the requirements of SFAS 140, the assets are deemed to have been repurchased by the transferor at fair value. The recognized assets are classified as loans and subsequently measured at amortized cost. On rerecognition of the transferred assets, any difference between fair value on transfer and the book value of the asset (the interest only strip), will be recognized in the income statement as part of the effective interest calculation, in accordance with SFAS 91.

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An impairment loss of €51m was recognized in 2007. There was no impairment loss in any other period presented. Below is the mortgage asset securitization summary:

Mortgage assets securitization

Thousands of Euros

2007

2006

2005

Value of interest-only strip at inception ⁽¹⁾

903,538

798,213

621,626

Increase/(decrease) in value of interest only strip (recorded in Other Comprehensive Income, see Note 57.3.j)

—

(157,856

)

(126,952

)

Impairment

(51,171

)

Reclassify as net loans and leases

(852,367

)

—

Value of interest-only strip at December 31⁽¹⁾

—

640,357

494,674


(1)		The valuation of the interest-only strip asset is based on a key assumption of a discount rate of 8.2% (9.4% in 2006 and 8.4% in 2005). Interest-only strip assets purchased in Abbey’s business combination are valued at purchase price.

h) Pension liabilities and other post-employment benefits

Under U.S. GAAP, the Group applies the provisions of SFAS No. 87, “Employers’ Accounting for Pensions”, SFAS No. 88, “Employers’ Accounting for Settlements and Curtailment of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers Accounting for Postretirement Benefits Other Than Pensions”, as applicable.

These Standards do not significantly differ from the provisions followed and applied in our primary financial statements under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004; IAS 19 “Employee Benefits”.

Nevertheless, the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 pension allowance includes some liabilities that under U.S. GAAP are presented separately. This different balance sheet classification does not generate a net income or stockholders’ equity difference.

The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 “Defined Benefit Obligations” differ from its U.S. GAAP equivalent “Projected Benefit Obligation” (“PBO”) (as defined according to SFAS 87) because it includes other commitments such as those arising from employees taking early retirement or annuity contracts. The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 “Plan assets” also include annuity contracts which are not permitted to be included in SFAS 87 calculations. Total Accrued Commitments should be funded both under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 or U.S. GAAP, and the only difference is the classification as one liability under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and various liabilities under U.S. GAAP.

Difference in the date of recognizing of a “special termination benefit” under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP:

As indicated in Notes 1.i and 25.c, during 2006 and 2007 the Group offered early retirement benefits (special termination benefits) to its employees, which were accounted for under IAS 19 in the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. Under IAS 19, paragraphs 133 and 134, an entity can recognize an early retirement benefit as a liability and expense as long at it has committed to the early retirement benefit plan, has offered it to its employees and there is no realistic possibility of withdrawal. Thus, the Group has recorded such liability and expense for all the employees to whom the plan was offered, whether or not they had accepted the offer. However, under U.S. GAAP, SFAS No. 88 paragraph 15, a liability and expense can only be recognized for those employees that have accepted the early retirement benefit offer and the amount can be reasonably estimated as of December 31, 2007.

The 2007 net income reconciliation adjustment of €-97 million reflects the net amount of the early retirement benefits not accepted by some employees in 2007 and the reversal of the early retirement benefits fund as of December 31, 2007.

The stockholder’ equity adjustment of €118 million reflects principally the impact of SFAS 158 (explained below) and of undoing the early retirement benefits fund at December 31, 2007.

Additionally, on September 29, 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158), which requires the recognition of a plan’s over-funded or under-funded status as an asset or liability with an offsetting adjustment to Accumulated Other Comprehensive Income (OCI). SFAS 158 further requires the determination of the fair values of a plan’s assets at a company’s year-end and recognition of actuarial gains and losses, prior service costs or credits, and transition assets or obligations as a component of Accumulated OCI. This statement was effective as of December 31, 2006.

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As a consequence of the adoption of SFAS 158, the Group has recognized the over — or under-funded status of defined benefit pension plans and post retirement healthcare plans as an asset or a liability within its balance sheet. Actuarial losses and prior service costs (€137,944 thousands) at December 31, 2007 have been transferred to accumulated other comprehensive income.

Disclosures in Notes 2.v and 25 of our primary financial statements along with the following disclosures are substantially in accordance with the disclosure requirements established under U.S. GAAP, being the underlying assumptions used to calculate the projected benefit obligations and net period benefit costs the same under both the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP.

The following table shows the differences between the Defined Benefit Obligations registered under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and those that should be registered under U.S. GAAP:

Millions of Euros


	2007			2006			2005

Defined Benefit Obligation (see Note 25)		23,822			23,412			22,461
Commitments arising from employees retired early (Note 25.c)		(3,949	)		(4,481	)		(4,215	)
Other commitments		(312	)		(264	)		(330	)
Annuity contracts, total accrued commitments and other		(1,884	)		(1,973	)		(2,547	)

Projected Benefit Obligation under U.S. GAAP		17,677			16,694			15,369

The Group maintains adequate funding according to the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004; therefore, there is no need for minimum additional liabilities under U.S. GAAP. The differences between both regulations in terms of how to present the information are reconciled in the following table that summarizes the 2007 funded status of pension liabilities:


	Thousands of Euros
*Liability under the EU-IFRS ()**		11,819,748
Funds from employees taking early retirement		(3,949,388	)
Annuity contracts		(606,859	)
Other commitments		(312,091	)
Assets pledged		10,528,195
Plan Assets		(14,310,443	)
Liability under U.S. GAAP (before SFAS 158 adjustment)		3,169,162

SFAS 158 effect		197,063

Liability under U.S. GAAP (after SFAS 158 adjustment)		3,366,225


					Minimum
	ABO		Plan Assets		Liability
Spanish entities		5,155,288		3,815,248		1,340,040
Abbey		5,772,142		4,911,707		860,435
Other foreign subsidiaries		5,957,020		5,583,488		373,532


TOTAL		16,884,450		14,310,443		2,574,007


Liability (before FAS 158) in excess over Minimum Liability as per SFAS 87						595,155


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

The requirement within SFAS 158, effective for the year-ended December 31, 2008, to measure plan assets and benefit obligations as of the employer’s fiscal year end balance sheet date will not impact the Group’s financial statements, as plan assets and benefit obligations are currently measured as of the balance sheet date.

Amounts in Accumulated Other Comprehensive Income expected to be recognized as components of net periodic benefit cost in 2008 amount to €27.8 million.

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The following table summarizes the adjustment included in the reconciliation to U.S. GAAP at December 31, 2007:


							Other			Effect on
	Profit and						Comprehensive			Stockholders’
Thousands of Euros	Loss			Reserves			Income			Equity

Effect of adopting SFAS 158-
Actuarial losses & Prior service cost		—			—			(197,063	)		(197,063	)
Total effect of adopting SFAS 158		—			—			(197,063	)		(197,063	)

Effect of special termination benefits-
Reversal of early retirement plans not individually accepted		(97,206	)		412,085			—			314,879
Total effect of special termination benefits		(97,206	)		412,085			—			314,879


TOTAL BEFORE TAXES		(97,206	)		412,085			(197,063	)		117,816

Taxes		29,162			(123,626	)		59,119			(35,345	)

TOTAL AFTER TAXES		(68,044	)		288,460			(137,944	)		82,471

i) Income taxes (SFAS No. 109)

The previous adjustments to Net income and Stockholders’ Equity do not include their related effects on corporate income tax, which are disclosed under “Cumulative tax effect of adjustments” item on the reconciliation statements.

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.

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 carryforwards) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable profits against which they can be utilized.

The deferred tax assets and liabilities recognized are reassessed at year-end in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analysis performed.

Income and expenses recognized directly in equity are accounted for as temporary differences.

A reconciliation of the Group’s effective income tax expense to the Spanish statutory income tax expense has been disclosed in Note 27.

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Following is a summary of the deferred tax assets and liabilities that should be recorded under SFAS No. 109, in addition to timing differences recorded under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004:


	Thousands of Euros
	2007						2006						2005
	Deferred			Deferred			Deferred			Deferred			Deferred		Deferred
	Tax			Tax			Tax			Tax			Tax		Tax
	Assets			Liabilities			Assets			Liabilities			Assets		Liabilities
*Tax effect of EU-IFRS () to U.S. GAAP reconciliation adjustments:**

Premises and equipment		616,265			—			74,735			—			77,346		—
Effect of net unrealized gains on derivative instruments		269,803			—			66,679			—			—		138,373
Loan allowances		—			84,369			—			219,935			—		299,162
Pension Liabilities and other post-employment benefits		(35,345	)		—			(36,964	)		—			—		—
Securitization		—			114,360			—			55,079			—		(17,743	)
Other items		—			71,604			—			32,467			13,990		—
Effect on deferred taxes of change in tax rates		(12,985	)		(14,503	)		(25,488	)		(26,886	)		—		—

Total		837,738			255,830			78,962			280,595			91,336		419,792


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

The change in the Spanish tax rate accounts for the impacts in 2006 of both the equity adjustment effect under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, and the tax effects of the cumulative applicable reconciling adjustments to U.S. GAAP. Additionally, from April 2008 the UK corporation tax rate will change from 30% to 28%. Therefore, in 2007 the deferred tax effect adjustments to U.S. GAAP reflect the deferred tax to be recognized on Abbey’s effective tax rate.

Net deferred tax liability arising from Abbey’s acquisition with no impact on the reconciliation adjustments has been considered amounting €340,901 thousand, €356,838 thousand and €371,430 thousand in 2007, 2006 and 2005, respectively.

FIN 48 disclosures:

At December 31, 2007 and January 1, 2007, the Group’s unrecognized tax benefits, including related interest expense and penalties was €1,445 million and €1,326 million, respectively, of which €1,010 million, if recognized, would reduce the annual effective tax rate. As the Group is presently under audit by a number of tax authorities, it is reasonably possible that unrecognized tax benefits could change over the next 12 months. The Group does not expect that any such changes would have a material impact on its annual effective tax rate.

Due to the inherent complexities arising from the nature of the Group’s businesses, and from conducting businesses that are taxed in a substantial number of jurisdictions, significant judgements and estimates are required to be made. Agreement of tax liabilities between the Group and the many tax jurisdictions in which Group files tax returns may not be finalized for several years. Thus, the Group’s final tax-related assets and liabilities may ultimately be different from those currently reported.

The following is a roll-forward of the Company’s FIN 48 unrecognized tax benefits from January 1, 2007 to December 31, 2007:


Millions of euros
Total unrecognized tax benefits at January 1, 2007	1,326
Net amount of increases for current year’s tax positions	32
Gross amount of increases for prior years’ tax positions	78
Gross amount of decreases for prior years’ tax positions	(6	)
Foreign exchange and acquisitions	15

Total unrecognized tax benefits at December 31, 2007	1,445

The Group classifies interest as interest expense but penalties are classified as tax expense. During the year ended December 31, 2007, the Group recognized approximately €37 million in interest and penalties. The Group had approximately €424 million for the payment of interest and penalties accrued at December 31, 2007.

The following are the major tax jurisdictions in which the Bank and its affiliates operate and the earliest tax year subject to examination:


Jurisdiction			Tax year
Spain			2001-2007
United Kingdom			2003-2007
Brazil			2003-2007
Mexico			2002-2007
Chile			2004-2007

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j) Other Comprehensive Income (SFAS 130)

SFAS No. 130 establishes requirements for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The objective of the statement is to report a measure of all changes in Stockholders’ Equity that result from transactions and other economic events of the period from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

The accumulated balances of other comprehensive income for the years ended December 31, 2007, 2006 and 2005 were as follows:


										Pension
										liabilities
				Net Gains			Unrealized			and other
	Foreign			(Losses) on			Gains			post-			Other
	Currency			Derivative			(Losses) on			employment			Comprehensive
Thousands of Euros	Items			Instruments			Securities			benefits			Income (Loss)
Balance as of December 31, 2004		(7,358,272	)		339,066			2,037,390			—			(4,981,816	)
Changes in 2005		1,112,333			(268,660	)		(82,458	)		—			761,215

Balance as of December 31, 2005		(6,245,939	)		70,406			1,954,932			—			(4,220,601	)
Changes in 2006		(501,666	)		(21,154	)		208,626			(214,531	)		(528,725	)

Balance as of December 31, 2006		(6,747,605	)		49,252			2,163,558			(214,531	)		(4,749,326	)
Changes in 2007		(1,136,495	)		(107,907	)		(888,209	)		76,587			(2,056,024	)

Balance as of December 31, 2007		(7,884,100	)		(58,655	)		1,275,349			(137,944	)		(6,805,350	)

Taxes allocated to each component of Other Comprehensive Income in 2007, 2006 and 2005 were as follows:


	2007									2006									2005
				Tax									Tax									Tax
	Before Tax			expense or			Net of tax			Before Tax			expense or			Net of tax			Before Tax			expense or			Net of tax
Thousands of Euros	amount			benefit			amount			amount			benefit			amount			amount			benefit			amount

Foreign currency translation adjustments		(1,136,495	)		—			(1,136,495	)		(501,666	)		—			(501,666	)		1,112,333			—			1,112,333


Net Gains on Derivatives		(170,539	)		62,632			(107,907	)		9,087			(30,241	)		(21,154	)		(427,569	)		158,909			(268,660	)

Pension liabilities and other post-employment benefits		109,410			(32,823	)		76,587			(306,473	)		91,942			(214,531	)		—			—			—


Unrealized gains on securities:

Total holding gains arising during the period		823,396			(262,847	)		560,549			1,632,809			(487,179	)		1,145,630			1,114,565			(68,898	)		1,045,667
Less: reclassification adjustment for gains included in net income		(1,609,127	)		160,369			(1,448,758	)		(1,338,576	)		401,572			(937,004	)		(1,173,555	)		45,430			(1,128,125	)


Net unrealized gains(losses)		(785,731	)		(102,478	)		(888,209	)		294,233			(85,607	)		208,626			(58,990	)		(23,468	)		(82,458	)


Other Comprehensive Income (Loss)		(1,983,355	)		(72,669	)		(2,056,024	)		(504,819	)		(23,906	)		(528,725	)		625,774			135,441			761,215

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57.4		Significant presentation differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP

		In addition to the differences in valuation and income recognition principles disclosed in Note 57.2, other differences relating to the financial statements presentation exist between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 as applied by Spanish banks and U.S. GAAP presentation following the formatting guidelines in Regulation S-X of the Securities and Exchange Commission of the United States. Although these differences do not cause differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP reported Net income and/or Stockholders’ Equity, it may be useful to understand them to better interpret the Group’s financial statements presented in accordance with U.S. GAAP. Following is a summary of the significant classification differences that pertain to the basic financial statements.

		Balance Sheet-

	a.		The captions “Loans and advances to credit institutions”, “Cash and balances with central banks” and “Loans and advances to customers” (see Notes 6 and 10) include securities purchased under agreements to resell to financial institutions and other customers, respectively. Under U.S. GAAP, securities purchased under agreements to resell are presented as a separate item.

	b.		The assets classified under the main category of “Other financial assets at fair value through profit or loss”, are reclassified in the U.S. GAAP balance sheet to financial assets held for trading — Banks, Loans, Debt Securities or Equity Securities, according to their nature, as such designation doesn’t exist.

	c.		The caption “Insurance contracts linked to pensions” is presented netted with pension liabilities in the “Pension Allowance” caption of the U.S. GAAP balance sheet.

	d.		Assets acquired through foreclosure and waiting disposition, net of the related allowances, are included under “Non-current assets held for sale: Tangible assets” in the balance sheet (see Note 12). Under U.S. GAAP, such assets are presented under “Other assets”.

	e.		The “Total other assets” caption on the asset side of the U.S. GAAP balance sheet includes the followings captions of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 Balance Sheet: “Intangible assets”, “Other assets” and “Prepayments and accrued income”.

	f.		Deposits from credit institutions (see Note 20) and from customers (see Note 21), both including securities sold under agreements to repurchase and other short-term borrowings, are presented as separate items in the balance sheet. Under U.S. GAAP, such funds are presented under “Deposits” classified by nature, except securities sold under agreements to repurchase and other short-term borrowings, which are presented under the caption “Short-term debt”.

	g.		The liability captions “Debt securities” and “Subordinated debt” disclosed in the balance sheet (Notes 22 and 23 respectively) are presented under the caption “Long term debt” under U.S. GAAP, except the item “Promissory Notes” which is included under the “Short term debt” caption.

	h.		The following captions on the liability side of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 balance sheet are presented under the caption “Other liabilities-Others” on the U.S. GAAP balance sheet: “Other liabilities”, “Accrued expenses and Deferred Income” and “Provisions”.

	i.		The caption “Pension allowance” on the U.S. GAAP balance sheet is reported net of the amounts of pension commitments covered by contracts taken out with insurance companies; these amounts are presented on the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 balance sheet under the caption “Insurance contracts linked to pensions”.

Statement of Income-

	a.		The breakdown of interest income and interest expense under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP is determined by the classification of the assets and liabilities that generate such income and expenses. However, net interest income in our statement of income includes the interest cost assigned to the pension plan, which are classified as a part of “Salaries and employee benefits” in the U.S. GAAP statement of income.

	b.		Income and expenses of Insurance business in our statement of income is included under the “Insurance activity income” caption, while in the U.S. GAAP statements the revenue is classified under the “Interest Income” or “Non-Interest income” captions and the expenses under the “Interest expense” or “Non-interest Expense” captions.

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	c.		Commissions and fees received and paid by the Group are presented as separate items in our statement of income. Under U.S. GAAP, such commissions and fees are presented net and detailed by activity (together with insurance activity, see Note b) above).

	d.		“Gains/losses on financial assets and liabilities (net)” includes gains and losses from investment securities and from derivatives. Under U.S. GAAP, such gains and losses are disclosed separately under “Gains (losses) from investment securities” and “Gains (losses) from foreign exchange, derivatives and other, net”.

	e.		Occupancy and maintenance expenses of premises and equipment are included under the caption “Other general administrative expenses”. Under U.S. GAAP, such expenses are included as a part of “Occupancy expenses of premises, depreciation and maintenance, net”.

	f.		Amortization of intangible assets is included as a part of “Depreciation and amortization”. Under U.S. GAAP, such amortization is included under “Non-interest expense — Amortization of intangible assets”.

	g.		“Impairment losses” and “Provisions (net)” are excluded from the subtotals “Other operating expenses” and “Net operating income”, according to the formats prescribed by the Bank of Spain Circular and the CNMV Circular. Under IFRS and U.S. GAAP, impairment losses and provision expenses are to be recorded as components of the subtotals “Net operating income” and “Other operating expenses”.

57.5		Consolidated financial statements

		Following are the consolidated balance sheets and consolidated statements of income of the Group under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 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 but any differences should not be material.

F-175

CONSOLIDATED BALANCE SHEET


	Thousands of Euros
	2007			2006			2005
Assets
Cash and due from banks		25,341,083			12,092,021			12,778,288
Interest earning deposits in other banks		16,766,716			18,744,258			21,656,497
Securities purchased under agreements to resell		26,147,541			29,553,485			30,118,812
Trading account assets		183,629,876			185,793,404			203,070,126
Banks		19,159,632			14,813,223			12,707,521
Loans		31,726,104			38,555,526			32,911,193
Derivatives		46,726,118			34,984,291			27,629,194
Debt securities		73,403,234			81,237,212			91,441,181
Equity securities		12,614,788			16,203,152			38,381,037
Investment securities		46,017,246			39,320,069			74,116,142
Available-for-sale		46,017,246			39,320,069			74,116,142
Net Loans and leases		528,318,209			483,797,093			401,515,964
Loans and leases, net of unearned income		537,013,413			491,960,537			409,125,890
Less-Allowance for loan losses		(8,695,204	)		(8,163,444	)		(7,609,926	)
Premises and equipment, net		9,272,962			8,941,963			8,912,411
Investment in affiliated companies		15,689,127			5,006,109			3,031,482
Other assets		59,206,661			48,019,778			51,230,827
Intangible Assets		2,202,334			2,444,106			2,211,026
Goodwill in consolidation		13,830,708			14,512,735			14,018,245
Accrual Accounts		1,749,193			1,581,843			2,969,219
Hedge derivatives		3,063,169			2,987,964			4,126,104
Others		38,361,257			26,493,130			27,906,233

Total assets		910,389,421			831,268,180			806,430,549


Liabilities
Deposits		371,573,338			353,855,908			329,944,371
Non interest deposits		4,507,057			4,256,369			9,159,404
Interest bearing		367,066,281			349,599,539			320,784,967
Demand deposits		91,576,243			91,633,288			82,603,507
Savings deposits		90,727,525			93,717,633			90,471,827
Time deposits		184,762,513			164,248,618			147,709,633
Certificates of deposit		—			—			—
Short-term debt		131,774,426			127,819,292			151,359,866
Long-term debt		237,120,341			199,775,014			153,754,673
Other liabilities		112,363,165			102,745,664			128,744,940
Taxes Payable		6,156,365			4,539,051			3,867,795
Accounts Payable		7,656,262			6,405,232			5,202,654
Accrual Accounts		4,050,992			2,999,080			3,048,733
Pension Allowance		9,294,198			11,409,770			11,496,596
Stock borrowing liabilities		—			—			—
Derivatives		52,937,798			42,231,967			31,538,809
Liabilities under insurance contracts		13,033,617			10,704,258			44,672,300
Other Provisions		4,751,151			5,212,208			5,650,029
Short securities positions		5,613,234			11,473,062			17,415,800
Others		8,869,548			7,771,036			5,852,224

Total liabilities		852,831,270			784,195,878			763,803,850

Minority interest		2,358,269			2,220,743			2,848,223

Stockholders’ equity
Capital stock		3,127,148			3,127,148			3,127,148
Additional paid-in-capital		20,370,128			20,370,128			20,370,128
Other additional capital		(1,537,999	)		(1,442,379	)		(1,797,267	)
Current year earnings		9,060,258			7,595,947			6,220,104
Other reserves		24,180,347			15,200,715			11,858,363

Total stockholders’ equity		55,199,882			44,851,559			39,778,476

Total liabilities and Stockholders’ equity		910,389,421			831,268,180			806,430,549

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, 2007, 2006 and 2005, the minimum amount of mortgage loans allocated as guarantee of those securities was €48,017 million, €41,837 million and €30,152 million, respectively.

Additionally, as of December 31, 2007, 2006 and 2005, the investment debt securities assigned to certain Group or third-party commitments amounted to €16,866 million, €695 million and €70 million, respectively.

F-176

CONSOLIDATED STATEMENTS OF INCOME


	Thousands of Euros
	2007			2006			2005
Interest income:
Interest and fees on loans and leases		36,236,456			27,368,822			26,160,234
Interest on deposits in other banks		3,347,664			3,793,418			5,189,771
Interest on securities purchased under agreements to resell		2,077,343			1,349,838			1,123,269
Interest on investment securities		5,050,032			5,461,868			5,447,303
Dividends		146,648			164,606			176,319

Total interest income		46,858,143			38,138,552			38,096,896

Interest expenses:
Interest on deposits		(14,589,567	)		(13,110,588	)		(13,648,652	)
Interest on short-term borrowings		(4,979,889	)		(4,483,245	)		(4,240,167	)
Interest on long-term debt		(10,864,835	)		(6,652,185	)		(4,389,043	)

Total interest expense		(30,434,291	)		(24,246,018	)		(22,277,862	)

Net interest income		16,423,852			13,892,534			15,819,034
Provision for credit losses		(3,499,080	)		(2,467,297	)		(1,615,187	)

Net interest income after provision for credit losses		12,924,772			11,425,237			14,203,847

Non-interest income:
Commissions and fees from fiduciary activities		1,984,910			1,879,163			1,687,764
Commissions and fees from securities activities, net		980,392			777,687			640,137
Fees and commissions from insurance activities		6,808,699			5,836,817			4,241,733
Other Fees and commissions, net		3,598,671			3,159,440			2,808,780
Gains (losses) from:
Affiliated companies’ securities		311,197			534,276			1,741,850
Investment securities		818,288			3,518,449			2,531,017
Foreign exchange, derivatives and other, net		1,170,408			(2,977,281	)		114,565
Sale of premises		1,804,108			88,894			(85,914	)
Other income		2,547,144			3,978,476			1,785,422

Total noninterest income		20,023,817			16,795,921			15,465,354

Non interest expense:
Salaries and employee benefits		(7,379,582	)		(7,583,372	)		(6,934,961	)
Occupancy expense of premises, depreciation and maintenance, net		(1,490,461	)		(1,494,886	)		(1,413,183	)
General and administrative expenses		(3,597,938	)		(3,135,511	)		(2,950,999	)
Impairment of goodwill		(599,989	)		200,006			197,822
Impairment / amortization of intangible assets		(646,609	)		(519,950	)		(391,244	)
Provisions for specific allowances		(586,437	)		(94,352	)		(1,029,147	)
Payments to Deposit Guarantee Fund		(168,617	)		(178,274	)		(173,696	)
Insurance claims		(5,601,487	)		(5,196,701	)		(7,785,434	)
Other expenses		(1,702,228	)		(1,222,732	)		(1,527,462	)

Total non-interest expense		(21,773,348	)		(19,225,772	)		(22,008,304	)
Income before income taxes		11,175,241			8,995,386			7,660,897
Income tax expense		(2,335,686	)		(2,254,598	)		(1,241,830	)
Net consolidated income for the year		8,839,555			6,740,788			6,419,067
Net income attributed to minority interest		(487,614	)		(413,145	)		(428,663	)
Income from discontinued operation, net of taxes		708,317			1,268,304			229,700
NET INCOME ATTRIBUTED TO THE GROUP		9,060,258			7,595,947			6,220,104

F-177

Following are the summarized balance sheets of Banco Santander, S.A. as of December 31, 2007, 2006 and 2005.

CONDENSED BALANCE SHEETS (Parent company only)


	2007		2006		2005
	(Thousands of Euros)
Assets
Cash and due from banks		52,548,200		40,677,959		49,895,502
Trading account assets		51,349,204		35,657,947		24,060,091
Investment securities		17,074,175		10,149,175		49,942,815
Net Loans and leases		163,903,007		141,139,269		107,596,398
Investment in affiliated companies		59,256,377		39,339,174		34,682,610
Premises and equipment, net		714,212		1,503,788		1,551,160
Other assets		18,543,369		16,208,699		13,972,732

Total assets		363,388,544		284,676,011		281,701,308

Liabilities
Deposits		173,660,916		153,757,709		128,071,996
Short-term debt		35,077,018		16,823,769		54,544,358
Long-term debt		57,005,977		43,272,302		36,974,185
Other liabilities		59,762,058		40,452,656		33,089,300

Total liabilities		325,505,969		254,306,436		252,679,839

Stockholders’ equity
Capital stock		3,127,148		3,127,148		3,127,148
Retained earnings and other reserves		34,755,427		27,242,427		25,894,321

Total stockholders’ equity		37,882,575		30,369,575		29,021,469


Total liabilities and Stockholders’ equity		363,388,544		284,676,011		281,701,308

Following are the summarized statements of income of Banco Santander, S.A. for the years ended December 31, 2007, 2006 and 2005.

CONDENSED STATEMENTS OF INCOME (Parent company only)


	2007			2006			2005
	(Thousands of Euros)
Interest income
Interest from earning assets		11,766,647			8,380,873			8,181,987
Dividends from affiliated companies		2,863,829			3,630,403			1,900,353

		14,630,476			12,011,276			10,082,340
Interest expense		(10,028,500	)		(6,877,205	)		(6,852,627	)

Net interest income		4,601,976			5,134,071			3,229,713
Provision for credit losses		(288,386	)		(506,281	)		(126,450	)

Net interest income after provision for credit losses		4,313,590			4,627,790			3,103,263
Non-interest income:		2,996,666			1,968,709			2,552,860
Non interest expense:		(3,231,707	)		(3,337,769	)		(3,050,492	)

Income before income taxes		4,078,549			3,258,730			2,605,631
Income tax expense		(8,302	)		(2,540	)		(622	)

Net income		4,070,247			3,256,190			2,605,009

F-179

Following are the summarized cash flow statements of Banco Santander, S.A. for the years ended December 31, 2007, 2006 and 2005.

CONDENSED CASH FLOW STATEMENTS (Parent company only)


	2007			2006			2005
	(Thousands of Euros)
1. Cash flows from operating activities
Consolidated profit		4,070,247			3,256,190			2,605,009
Adjustments to profit		173,216			1,355,483			329,776
Net increase/decrease in operating assets		49,949,432			79,815			67,998,773
Net increase/decrease in operating liabilities		56,657,110			(4,701,176	)		63,697,055
Total net cash flows from operating activities (1)		10,951,141			(169,318	)		(1,366,933	)

2. Cash flows from investing activities
Investments (-)		(22,068,312	)		(5,334,303	)		(1,517,614	)
Divestments (+)		3,438,201			743,157			1,595,409
Total net cash flows from investment activities (2)		(18,630,111	)		(4,591,146	)		77,795

3. Cash flows from financing activities
Disposal of own equity instruments		21,640			—			—
Acquisition of own equity instruments		—			(21,640	)		—
Issuance of debt securities		18,813,221			11,613,661			7,838,230
Redemption of debt securities		(5,180,727	)		(4,357,781	)		(3,230,710	)
Dividends paid		(3,456,731	)		(2,779,334	)		(2,208,517	)
Issuance/Redemption of equity instruments		7,060,549			19,085			(301,034	)
Total net cash flows from financing activities (3)		17,257,952			4,473,991			2,097,969

4. Effect of exchange rate changes on cash and cash equivalents (4)		445,695			(88,802	)		75,827

5. Net increase/decrease in cash and cash equivalents (1+2+3+4)		10,024,677			(375,277	)		884,658
Cash and cash equivalents at beginning of period		2,281,877			2,657,154			1,772,496
Cash and cash equivalents at end of period		12,306,554			2,281,877			2,657,154

F-180

57.6

Preference Shares and Preferred Securities

The following table shows the balance of the preference shares and preferred securities as of December 31, 2007, 2006 and 2005:

2007

2006

2005

(Thousands of Euros)

Preference shares

522,558

668,328

1,308,847

Preferred securities

7,261,382

6,836,570

6,772,768

Total at year-end

7,783,940

7,504,898

8,081,615

Preference Shares are recorded under the “Equity having the substance of a financial liability” caption in the consolidated balance sheet as of December 31, 2007, 2006 and 2005.

This category includes 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 325 million, are redeemable at the discretion of the issuer, based on the conditions of he 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 and Abbey National plc.

Preferred Securities are recorded under the “Financial liabilities at amortized cost – Subordinated Liabilities” caption in the consolidated balance sheet as of December 31, 2007, 2006 and 2005.

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), and Santander Finance Preferred, S.A. (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 issue 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. None of these are mandatorily redeemable as defined in SFAS No. 150. 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 Notes 23, 26 and Exhibit III), and are described in the table below:

F-181

Outstanding at December 31, 2007

Amount in

Preference Shares

currency

Issuer/Date of issue

Currency

(million)

Interest rate

Redemption Option (3)

Banesto Holding, Ltd, (1) December 1992

US Dollar

77.3

10.50

June 30, 2012

Abbey National Plc (2), October 1995

Pounds Sterling

100

10,375

No option

Abbey National Plc (2), February 1996

Pounds Sterling

100

10,375

No option

Abbey National Plc (2), June 1997

Pounds Sterling

125

8,625

No option


	Outstanding at December 31, 2007
		Amount in
Preferred Securities		currency
Issuer/Date of issue	Currency	(million)		Interest rate	Maturity date
Banesto Group
Banesto Preferentes, S.A. (1) December 2003	Euro		131.14	Euribor (3M) + 0.2%	Perpetuity
Banco Español de Credito (2), October 2004	Euro		125	€CMS 10 + 0.125%	Perpetuity
Banco Español de Crédito (2), November 2004	Euro		200	5.5%	Perpetuity

Santander Finance Capital, S.A. (Unipersonal) (1)
October 2003	Euro		450	Euribor (3M) + 0.1%	Perpetuity
February 2004	Euro		400	Euribor (3M) + 0.1%	Perpetuity
July 2004	Euro		750	Euribor (3M) + 0.1%	Perpetuity
September 2004	Euro		680	Euribor (3M) + 0.1%	Perpetuity
April 2005	Euro		1,000	Euribor (3M) + 0.1%	Perpetuity

Santander Finance Preferred, S.A. (Unipersonal) (1)
March 2004	US Dollar		190	6.41%	Perpetuity
September 2004	Euro		300	€CMS 10 +0.05%	Perpetuity
				subject to a
				maximum
				distribution of 8%
				per annum
October 2004	Euro		200	5.75%	Perpetuity
November 2006	Euro		500	6.80%	Perpetuity
January 2007	US Dollar		600	6.50%	Perpetuity
March 2007	US Dollar		350	US3M + 0.52%	Perpetuity
July 2007	Pounds Sterling		250	7.01%	Perpetuity

Abbey Group
Abbey National Capital Trust I (1), February 2000	US Dollar		1,000	Fixed to 8.963%	Perpetuity
				until June 30,
				2030, and from this
				date, 2.825% +
				Libor USD (3M)
Abbey National Plc (1), February 2001(4)	Pounds Sterling		300	7.037%	Perpetuity
Abbey National Plc (1), August 2002	Pounds Sterling		175	Fixed to 6.984%	Perpetuity
				until February 9,
				2018, and
				thereafter, at a
				rate reset
				semi-annually of
				1.86% per annum +
				Libor GBP (6M)

Santander PR Capital Trust I
February 2006	US Dollar		125	6.750%	July 2036


(1)		Under U.S. GAAP, these entities have been designated “Variable Interest Entities” (VIEs) and they are not consolidated. Therefore, their issues have been excluded from the consolidated financial statements of the Group. Since that time the Group recognized the subordinated deposits related to these issues and their interests. Refer to Note 57.2 and 57.3 for more information.

(2)		See notes 57.2 and 57.3 for more information.

(3)		From these date the issuer can redeem the shares, subject to prior authorization by the national supervisor.

(4)		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.

F-182

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) and Santander Finance 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 and 6 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.

The condensed financial statements of Santander Finance Capital, S.A. (Unipersonal) and Santander Finance Preferred, S.A. (Unipersonal) for the years ended December 31, 2007, 2006 and 2005 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 EU-IFRS.

Balance sheets

SANTANDER FINANCE CAPITAL, S.A. (UNIPERSONAL)


	Thousands of Euros
	2007		2006		2005
Assets:
Cash		43,480		35,066		20,077
Loans, credits and other assets		21,664		34,504		47,268
Deposits with Parent Bank		3,214,769		3,214,769		3,214,769
Accrual accounts		25,901		19,967		15,099

Total Assets		3,305,814		3,304,306		3,297,213
Liabilities and stockholders’ equity:

LIABILITIES:
Public entities		1,436		21		571
Accrual accounts		24,037		23,965		13,205
Non-commercial debts		—		34		3,237
Commercial debts		37		—		—
Debts with Group companies		30		64		5
Provisions for taxes		—		—		12
Preferred securities		3,280,000		3,280,000		3,280,000

Total Liabilities		3,305,540		3,304,084		3,297,030
STOCKHOLDERS’ EQUITY:
Capital stock		151		151		151
Retained earnings		71		32		(99	)
Net income		52		39		131

Total Stockholders’ Equity		274		222		183

Total Liabilities and Stockholders’ Equity		3,305,814		3,304,306		3,297,213

F-183

Statement of income

SANTANDER FINANCE CAPITAL, S.A. (UNIPERSONAL)


	Thousands of Euros
	2007			2006			2005

Interest income		151,399			113,237			86,299
Interest expenses		(138,448	)		(100,320	)		(74,425	)
Operating expenses		(12,874	)		(12,857	)		(11,731	)
Corporate income tax		(25	)		(21	)		(12	)

Net income / (loss)		52			39			131

Statement of changes in stockholders’ equity


											Total
	Capital stock				Retained						Stockholders’
Changes in Stockholders’	Common				Earnings			Net income			Equity
Equity	Shares		Thousands of Euros
Balance at January 1, 2006		1,505		151		(99	)		131			183

2005 Income allocation		—		—		131			(131	)		—

Net income 2006		—		—		—			39			39
Balance at December 31, 2006		1,505		151		32			39			222

2006 Income allocation		—		—		39			(39	)		—
Net income 2007		—		—					52			52
Balance at December 31, 2007		1,505		151		71			52			274

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
	Issue Date		Euros
Serie I		10/3/2003		450,000
Serie II		02/18/2004		400,000
Serie III		07/30/2004		750,000
Serie IV		09/30/2004		680,000
Serie V		04/12/2005		1,000,000

Total				3,280,000

	•		On October 3, 2003, Santander Finance Capital, S.A. (Unipersonal) issued 18,000,000 preference securities, at €25 par value.

	•		On February 18, 2004, Santander Finance Capital, S.A. (Unipersonal) issued 16,000,000 preference securities, at €25 par value.

	•		On July 30, 2004, Santander Finance Capital, S.A. (Unipersonal) issued 30,000,000 preference securities, at €25 par value.

	•		On September 30, 2004, Santander Finance Capital, S.A. (Unipersonal) issued 27,200,000 preference securities, at €25 par value.

	•		On April 12, 2005, Santander Finance Capital, S.A. (Unipersonal) issued 40,000,000 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.

F-184

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 EU-IFRS.

Balance sheets

SANTANDER FINANCE PREFERRED, S.A. (UNIPERSONAL)


	Thousands of Euros
	2007		2006		2005
Assets:
Cash		11,416		6,399		3,761
Deposits with Parent Bank		1,927,344		1,003,976		648,718
Other assets		17,826		13,583		8,376
Accrual accounts		27,865		9,681		6,123

Total Assets		1,984,451		1,033,639		666,978
Liabilities and stockholders’ equity:

LIABILITIES:
Public entities		186		57		65
Accrual accounts		26,097		8,883		5,646
Commercial debts		8		—		—
Non-commercial debts		101		30		45
Deferred income		2,877		580		—
Debts with group companies		4		4		—
Provisions for taxes		—		—		4
Preferred securities		1,954,956		1,023,918		661,058

Total Liabilities		1,984,229		1,033,472		666,818
STOCKHOLDERS’ EQUITY:
Capital stock		151		151		151
Retained earnings		16		9		3
Net income		55		7		6

Total Stockholders’ Equity		222		167		160

Total Liabilities and Stockholders’ Equity		1,984,451		1,033,639		666,978

Statement of income

SANTANDER FINANCE PREFERRED, S.A. (UNIPERSONAL)


	Thousands of Euros
	2007			2006			2005

Interest income		116,498			38,335			35,345
Interest expenses and similar expenses		(115,856	)		(38,231	)		(35,167	)
Operating expenses		(561	)		(93	)		(168	)
Corporate income tax		(26	)		(4	)		(4	)

Net income / (loss)		55			7			6

F-185

Statement of changes in stockholders’ equity


										Total
	Capital stock				Retained					Stockholders’
Changes in Stockholders’	Common				Earnings		Net income			Equity
Equity	Shares		Thousands of Euros
Balance at January 1, 2006		1,505		151		3		6			160


2005 Income allocation		—		—		6		(6	)		—

Net income 2006		—		—		—		7			7

Balance at December 31, 2006		1,505		151		9		7			167


2006 Income allocation		—		—		7		(7	)		—
Net income 2007		—		—		—		55			55

Balance at December 31, 2007		1,505		151		16		55			222

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 12/31/07

Series 1- $190,000		03/11/2004		129,067
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		339,651
Series 5- $600,000		31/01/2007		407,581
Series 6- $350,000		05/03/2007		237,756
Series 7- £250,000		10/07/2007		340,901

				1,954,956

	•		On March 11, 2004, Santander Finance Preferred, S.A. (Unipersonal) issued 7,600,000 preferred securities, at $25 par value.

	•		On September 30, 2004, Santander Finance Preferred, S.A. (Unipersonal) issued 300,000 preferred securities, at €1,000 par value.

	•		On October 8, 2004, Santander Finance Preferred, S.A. (Unipersonal) issued 200,000 preferred securities, at €1,000 par value.

	•		On November 21, 2006 Santander Finance Preferred, S.A. (Unipersonal) issued 20,000,000 preferred securities, at €25,000 par value.

	•		On January 31, 2007 Santander Finance Preferred, S.A. (Unipersonal) issued 24,000,000 preferred securities, at $25,000 par value.

	•		On March 5, 2007 Santander Finance Preferred, S.A. (Unipersonal) issued 14,000,000 preferred securities, at $25,000 par value.

	•		On July 10, 2007 Santander Finance Preferred, S.A. (Unipersonal) issued 5,000,000 preferred securities, at £50,000 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.

F-186

57.7

Business combinations: Goodwill and Other assets and liabilities

The main differences that explain the goodwill reconciliation item are those that arose with the acquisition of Abbey (2004), the purchase of Banco Central Hispano (1999) and the acquisition of Banesto (1994 and 1996) but there are many others that date from several years ago. The quantification of the differences is shown below:

Summary of differences arising in business combinations between U.S. GAAP and the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, as of December 31, 2007


	U.S. GAAP		*EU-IFRS ()**		Difference

Purchase/merger of/with Banco Central Hispano		1,983,009		—		1,983,009

Acquisition of Banesto		2,023,924		372,655		1,651,269

Purchase of Abbey		7,311,949		8,167,868		(855,919	)

Others		5,626,858		5,290,185		336,673


Total		16,945,740		13,830,708		3,115,032


Of which:

Goodwill		16,428,757		13,830,708		2,598,049
Other assets and liabilities arisen in the business combinations reconciling adjustments to U.S. GAAP		516,983		—		516,983


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

Abbey: The initial goodwill generated by the acquisition of Abbey under U.S. GAAP was lower than that under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. The main differences between the final Goodwill in the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP arise from the different date of quotation used to value the acquisition price of Abbey (quotation of October 20, 2004, last business-day prior to the date of approval of the capital increase under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and, quotation of days around the agreement and announcement of the offer in July 2004, under U.S. GAAP) and differences arising from the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 reconciliation adjustments to U.S. GAAP including loan origination fees, other intangibles assets and other minor adjustments.

Additionally, after the initial calculation, certain intangible assets were valued and identified further reducing the goodwill.

Banco Central Hispano: In 1999 Banco Santander and Banco Central Hispano merged. Under previous Spanish GAAP at that date no goodwill was registered. Under U.S. GAAP this business combination was accounted for using the purchase method. The reconciliation adjustments made to change to purchase accounting included €2,812,262 thousand of goodwill on the purchase, of which €459,330 thousand were allocated to premises and equipment, €118,940 thousand to deferred taxes and €250,983 thousand were amortized on a straight-line basis until SFAS 142 became effective.

Banesto: In August 1994 Banco Santander acquired 73.45% of Banesto from the Deposits Guarantee Fund for €1,884 million with the obligation to offer tranche B at €2.4 per share to other shareholders of Banesto (13.27% of its capital) and with the obligation to keep a minimum of 30% at least during 4 years. The Bank’s stake in Banesto for the years 1995, 1996 and 1997 was 53.18%, 52.6% and 49.25% respectively.

On February 19, 1998, the Board of Directors of Banco Santander resolved to launch a tender offer to acquire shares of Banesto, in order to raise its holding to 100% of the capital stock. The goodwill that arose from the tender offer to purchase shares of Banesto (€2,544 million) was amortized under previous Spanish GAAP with a charge to the additional paid-in capital resulting from the capital increase carried out for that purpose. According to Bank of Spain’s authorization, the Bank was required to restore the reserves netted against goodwill if it sold its stake in Banesto. For U.S. GAAP purposes, this goodwill was amortized on a straight-line basis over a 20 year period, registering an expense of €127 million per year until SFAS 142 became effective.

In November 2002 Banesto made a capital increase which was not subscribed by the Bank. Instead the Bank sold its preemptive rights to the new shareholders, making a profit. Following the agreement with Bank of Spain, the Bank restored reserves by €271 million that were not included in Net Income under previous Spanish GAAP. Under U.S. GAAP both goodwill and profit on the sale of the preemptive rights were adjusted.

In summary, the difference between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP goodwill is mainly the €2,544 million which were netted against paid-in capital, less its amortization until December 2001, less the adjustment related to the sale of the preemptive rights.

Others: There are other transactions that have resulted in small differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP figures. Most of them arose many years ago, and were originated by differences between previous Spanish GAAP and U.S. GAAP.

F-187

The movements of our goodwill during 2007, 2006 and 2005 were as follows:

Changes in goodwill


Thousands of Euros	U.S. GAAP			*EU-IFRS ()**			Difference

2004 Year end balance		15,973,862			15,090,541			883,321

Acquisitions & sales		60,094			60,113			(19	)

Reclassifications		218,109			(1,856,227	)		2,074,336

Exchange differences		613,684			723,818			(110,134	)

2005 Year end balance		16,865,749			14,018,245			2,847,504

Acquisitions & sales		392,186			574,166			(181,981	)

Exchange differences		(125,228	)		(66,865	)		(58,363	)

Impairment		(12,811	)		(12,811	)		—

2006 Year end balance		17,119,896			14,512,735			2,607,161

Acquisitions & sales		133,779			195,857			(62,078	)

Exchange differences		(810,434	)		(863,400	)		52,966

Impairment		(14,484	)		(14,484	)		—

2007 Year end balance		16,428,757			13,830,708			2,598,049


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

The main difference between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP 2005 movements was due to the early assessment of Abbey’s intangibles assets made in U.S. GAAP in 2004. The main difference between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP 2006 and 2007 movements was due to the different amounts of goodwill related to sales of business.

The components of intangible assets other than goodwill were as follows:


					Additions &			Definitive
					Sales, net			assessment
	Estimated	December 31,			of exchange			of			Amortization			December 31,
Thousands of Euros	Useful Life	2004			differences			acquisitions			& Impairments			2005

With indefinite useful life:
Brand name (Abbey)			566,000			—			(106,320	)		—			459,680

With finite useful life:
Customer deposits (Abbey)	10 years		1,451,000			—			(193,157	)		—			1,257,843
Credit cards (Abbey)	5 years		33,000			—			2,021			—			35,021
Distribution channels (Abbey)			25,692			—			(25,692	)		—			—
IT developments	3 years		815,949			391,657			—			—			1,207,606
Other assets			77,724			(19,564	)		105,039			—			163,199
Accumulated amortization			(394,132	)		88,639			—			(398,852	)		(704,345	)
Impairment losses			(67,921	)		(9,080	)		—			(130,977	)		(207,978	)

Subtotal			2,507,312			451,652			(218,109	)		(529,829	)		2,211,026

Present value of future profits (Abbey)			642,308			18,511			569,520			—			1,230,339

Total			3,149,620			470,163			351,411			(529,829	)		3,441,365

F-188


					Additions &
					Sales, net of
	Estimated	December 31,			exchange			Amortization &			Impairments			December 31,
Thousands of Euros	Useful Life	2005			differences			Impairments			Applications			2006

With indefinite useful life:
Brand name (Abbey)			459,680			9,419			—			—			469,099
Other brand names			—			18,078			—			—			18,078
With finite useful life:
Customer deposits (Abbey)	10 years		1,257,843			25,850			—			—			1,283,693
Credit cards (Abbey)	5 years		35,021			720			—			—			35,741
IT developments	3 years		1,207,606			295,371			—			(193,299	)		1,309,678
Other assets			163,199			159,827			—			—			323,026
Accumulated amortization			(704,345	)		243,768			(519,953	)		—			(980,530	)
Impairment losses			(207,978	)		—			—			193,299			(14,679	)

Subtotal			2,211,026			753,033			(519,953	)		—			2,444,106

Present value of future profits (Abbey)			1,230,339			(1,230,339	)		—			—			—

Total			3,441,365			(477,306	)		(519,953	)		—			2,444,106


					Additions &
					Sales, net of						Impairments &
	Estimated	December 31,			exchange			Amortization &			Amortization			December 31,
Thousands of Euros	Useful Life	2006			differences			Impairments			Applications			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			657,592			—			(392,301	)		1,574,969
Other assets			323,026			465,913			—			(555,587	)		233,352
Accumulated amortization			(980,530	)		—			(646,609	)		392,301			(1,234,838	)
Impairment losses			(14,679	)		(3,504	)		(562,883	)		555,587			(25,479	)

Total			2,444,106			967,720			(1,209,492	)		—			2,202,334

Abbey was consolidated in Grupo Santander for the first time on December 31, 2004. Accordingly, the 2004 consolidated balance sheet includes the effect of the acquisition, whereas the 2004 consolidated statement of income does not include the results obtained by Abbey from the date of completion of the acquisition, which were not material. The acquisition of 100% of Abbey generated goodwill under previous Spanish GAAP of €10,263,893 thousand of the Santander Group’s total goodwill at 2004 year-end of €16,964,201 thousand (€15,090,541 thousand under IFRS) (Note 17). The goodwill arising from the acquisition included the adjustments and valuations required for it to be presented in conformity with the accounting principles and valuation methods described in Note 2.

Due to the complexity of the analysis, the Bank required evaluations from independent advisors. The goodwill and its allocation process was not considered definitive at the end of 2004 and was revised in 2005 after further work.

Goodwill initially calculated under U.S. GAAP was €1,411,386 thousand lower than the previous Spanish GAAP calculation. After some adjustments, the final goodwill under U.S. GAAP was €1,437,078 thousand lower than the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 calculation. The main differences arise from:

	•		The acquisition price: The purchase was made through the exchange of shares. To accomplish it the Bank issued 1,485,893,636 new ordinary shares. Under previous Spanish GAAP the value of the each of the shares issued was €8.44 (the quotation on October 20, 2004), while under U.S. GAAP the value was €8.03 (the quotation in days around the announcement of the offer, mid July), the difference amounting €609,216 thousand.

	•		Differences arising from EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 reconciliation to U.S. GAAP.

F-189

In 2005, after these calculations, some intangibles assets were valued and identified reducing the goodwill as shown in the table below. These include trademarks & trade names and core deposits among others:


	Initial						Final		Estimated
*(Thousands of Euros)*	*calculation ()**			Differences			*calculation ()**		useful life
Trademarks & trade names		566,000			(116,385	)		449,615	Indefinite
Core deposits		1,451,000			(220,626	)		1,230,374	10 years
Credit card relationship		33,000			1,256			34,256	5 years
Distribution channels		25,692			(25,692	)		—
Deferred tax liability		(717,500	)		717,500			—

Total Intangible assets:		1,358,192			356,053			1,714,245


()*		Amounts valued at acquisition exchange rate

The deferred tax liability has been excluded from the final goodwill calculation.

The value of trademarks and trade name, has been estimated following the income approach method by discounting the interest spread that customers are willing to pay in its operations with a well-known entity, after having been corrected for the expenses needed to support the trademark.

Core deposits are those deposits that are expected to remain with a savings institution for a relatively long period of time. Such deposits are attracted by the convenience and service offered by the institution rather than by interest rates paid. Its value has been estimated using the income approach, calculating the present value of the differential between the cost of the core deposits and the cost of alternative financing. It will be amortized in 10 years.

Credit card relationship value was initially calculated using profits to be collected in the next 14-16 years. However, the Company has decided to amortize it in 5 years.

The Bank finally decided not to recognize distribution channels as intangible assets, after having been impaired in Abbey’s books.

The definitive U.S. GAAP goodwill arising from the Abbey’s acquisition after the allocation process was €7,112,601 thousand (valued at acquisition exchange rate).

As explained in Note 3.c.ii and 37.a.i, in June 2006 Abbey entered into an agreement with Resolution plc (“Resolution”) to sell its life insurance business to the latter for €5,340 million (GBP 3,600 million). The transaction was completed in the third quarter of 2006 and did not give rise to any gains for the Group.

F-190

57.8

Earnings per Share

Basic EPS is computed by dividing net income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator), which may include contingently issuable shares where all necessary conditions for issuance have been satisfied.

Diluted EPS includes the determinants of basic EPS and, in addition, gives effect to the potential dilution that could occur if securities or other contract to issue common stock (including stock options) were exercised or converted into common stock and then shared in the earnings of the entity.

The Bank’s share option plans outstanding at December 31, 2007, 2006 and 2005 have a dilutive effect on the earnings per share equal to an increase of 66,362,931, 34,052,536, and 23,325,614 shares respectively, as explained in Notes 4.b.ii and 49.c. The effect of these stock options plans is included in the EPS calculation.

The computation of basic and diluted EPS for the years ended December 31, 2007, 2006 and 2005 is presented in the following table.


	Millions of Euros, except per share data
	*EU-IFRS ()**						U.S.GAAP
	2007		2006		2005		2007		2006		2005
NUMERATOR FOR BASIC AND DILUTED CALCULATION:

Net income from continuing operations attributable to the Group		8,352		6,328		5,990		6,725		6,305		6,089
Net income from discontinued operations attributable to the Group		708		1,268		230		572		1,109		230

Net income available to common stockholders for basic EPS		9,060		7,596		6,220		7,297		7,415		6,318
Effect of dilutive securities		—		—		—		—		—		—

Net income available to common stockholders for diluted EPS		9,060		7,596		6,220		7,297		7,415		6,318

DENOMINATOR FOR BASIC AND DILUTED CALCULATION:

Basic calculation weighted-average shares (**)		6,342		6,248		6,241		6,342		6,248		6,241
Effect of dilutive securities:
Stock options plans		66		34		23		66		34		23

Weighted-average shares for diluted calculation		6,408		6,282		6,264		6,408		6,282		6,264

EARNINGS PER SHARE RATIOS:

Basic earnings per share
Income from continuing operations		1.317		1.013		0.960		1.060		1.009		0.976
Income from discontinued operations		0.112		0.203		0.037		0.090		0.178		0.037
Net income		1.429		1.216		0.997		1.151		1.187		1.012

Diluted earnings per share
Income from continuing operations		1.303		1.007		0.956		1.049		1.004		0.972
Income from discontinued operations		0.111		0.202		0.037		0.089		0.177		0.037
Net income		1.414		1.209		0.993		1.139		1.180		1.009


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

(**)		Assumed conversion of convertible debt “Valores Santander” (see Note 34).

F-191

58.

Additional information required by U.S. GAAP

The information included in this Note is classified as follows:

Note 58.1. Securitization

Note 58.2. Allowance for Credit Losses

Note 58.3. Investment Securities

Note 58.4. Derivative Financial Instruments

Note 58.5. Short Term Borrowings

Note 58.6. Guarantees

Note 58.7. Additional disclosures about fair value

Note 58.8. Stock Option Plans

Note 58.9. Acquisition of Drive Consumer U.S.A. Inc.

Note 58.10. Significant Equity method investee: Sovereign Bancorp, Inc. (“Sovereign”).

Note 58.11. Additional relevant events

58.1

Securitization

Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, as disclosed in Notes 2.e). and 57.2, 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. Securitizations may result in continued recognition of the securitized assets; continued recognition of the assets to the extent of the Group’s continuing involvement in those assets; or derecognition of the assets. Under SIC-12 a Special Purpose Entity (“SPE”) is consolidated by the entity that is deemed to control it. Indicators of control include when the SPE conducts activities on behalf of another entity or where an entity is entitled to the majority of the benefits or exposed to the majority of the risks of the SPE.

Under U.S. GAAP, as disclosed in Notes 57.2 and 57.3, the accounting treatment is similar. Nevertheless, according to SFAS 140, assets securitized are derecognized when financial assets are transferred to a Qualifying Special Purpose Entity (satisfying the conditions to be accounted for as a sale) and are not required to be consolidated by FIN 46-R.

The Group securitized mortgages and other loans during 2007, the total amount of which was not accounted for as a sale under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

The balances of assets securitized at December 31, 2007, 2006 and 2005 under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP, were as follows:

EU-IFRS (*)

U.S. GAAP

Thousands of Euros

2007

2006

2005

2007

2006

2005

Accounted for as a sale

3,742,020

4,901,712

6,065,484

3,742,020

27,467,108

27,533,454

Mortgage loans

2,478,869

2,980,911

2,897,250

2,478,869

25,546,307

24,365,220

Of which Abbey

—

22,565,396

21,467,970

Other securitized assets

1,263,151

1,920,801

3,168,234

1,263,151

1,920,801

3,168,234

Continued recognition of the assets

92,022,693

59,425,910

46,523,076

92,022,693

36,860,514

25,055,106

Mortgage loans

60,055,842

36,363,009

33,085,261

60,055,842

13,797,613

11,617,291

Of which Abbey

40,216,503

22,565,396

21,467,970

40,216,503

—

Other securitized assets

31,966,851

23,062,901

13,437,815

31,966,851

23,062,901

13,437,815

TOTAL

95,764,713

64,327,622

52,588,560

95,764,713

64,327,622

52,588,560


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

Effective from December 2007, under U.S. GAAP, certain mortgage securitization vehicles (Abbey’s) were considered “qualifying special purpose entities” and fell outside the scope of consolidation as defined by FIN 46-R (see Note 57.3). Consequently, the Group treated these securitizations as sales and, where appropriate, recognized a servicing asset and an interest-only security (see Note 57.2). The interest-only security was accounted for as an available for sale security, and was evaluated for impairment in accordance with EITF 99-20. From December 2007 these mortgage securitization vehicles no longer meet the requirements to be considered qualifying special purpose entities and consequently the assets and liabilities of the vehicles are re-purchased.

F-192

Abbey Group

Loans and advances to customers include portfolios of residential mortgage loans, which are subject to non-recourse finance arrangements. These loans have been purchased by, or assigned to, special purpose Securitization companies (‘Securitization Companies’), and have been funded primarily through the issue of mortgage-backed securities (‘Securities’). Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, no gain or loss has been recognized as a result of these sales. These Securitization Companies are consolidated and included in the Group financial statements as subsidiaries.

Abbey National plc and its subsidiaries are under no obligation to support any losses that may be incurred by the Securitization Companies or holders of the Securities except as described below, and do not intend to provide such further support. Mortgage indemnity guarantee (“MIG”) insurance is an agreement between a lender and an insurance company to underwrite the amount of every mortgage advance that exceeds a certain loan-to-value ratio. Until and including December 31, 2001, Abbey required MIG policies for all mortgages that exceeded a loan-to-value ratio of 75%. Cover on all such policies was commuted effective from October 14, 2005. Holders of the Securities are only entitled to obtain payment of principal and interest to the extent that the resources of the Securitization Companies are sufficient to support such payments, and the holders of the Securities have agreed in writing not to seek recourse in any other form.

Abbey National plc receives payments from the Securitization Companies in respect of fees for administering the loans, and payment of deferred consideration for the sale of the loans. Abbey National plc has no right or obligation to repurchase the benefit of any securitized loan, except if certain representations and warranties given by Abbey National plc at the time of transfer are breached.

Abbey makes use of a type of securitization known as a master trust structure. In this structure, a pool of assets is assigned to a trust company by the asset originator, initially funded by the originator. A funding entity acquires beneficial interests in a share of the portfolios of assets with funds borrowed from qualifying special purpose entities, which at the same time issue asset-backed securities to third-party investors or Abbey. The purpose of the special purpose entities is to obtain diverse, low cost funding through the issue of asset-backed securities. The share of the pool of assets not purchased from the trust company by the funding entity is known as the beneficial interest of the originator. Using this structure, Abbey has assigned portfolios of residential mortgages and their related security to Holmes Trustees Limited, a trust company that holds the portfolios of mortgages on trust for Abbey and Holmes Funding Limited. Holmes Funding Limited acquires beneficial interests in the portfolios of mortgages with funds borrowed from the securitization companies, Holmes Financing No. s 1, 6-10plc and Holmes Master Issuer plc.

In March, June and December 2007, Holmes Funding Limited acquired, at book value, a beneficial interest in the trust property vested in Holmes Trustees Limited. This further beneficial interest of €25.6bn was acquired through borrowing from Holmes Master Issuer plc, which funded its advance to Holmes Funding Limited, through the issue of mortgage backed securities. The €9.9bn of mortgage backed securities issued in December were acquired by Abbey National plc. It is intended that any future issues will be made from Holmes Master Issuer plc. In October 2007 the remaining mortgage backed securities in issue in Holmes Financing (No. 2) plc were redeemed. The remaining share of the beneficial interest in residential mortgage loans held by Holmes Trustees Limited belongs to Abbey National plc, and remains on its balance sheet. This beneficial interest amounts to €10.8bn at December 31, 2007.

Prior to the issuance in December 2007 by Holmes Master Issuer (Holmes Master Issuer — 2007/3), the Securitization Companies met the criteria to be classified as qualifying special purpose entities in accordance with SFAS 140. The assets that had been transferred to qualifying special purpose entities (securitized) met the criteria required under SFAS 140 for a sale and were no longer retained on the balance sheet. The gain or loss on sale was allocated between the assets sold and the interests that continued to be held based on their relative fair value at the date of transfer. As a result of this sale, gains have been recognized (as shown in Note 57.3 g) for the years 2005, 2006 and 2007. Additionally, an impairment loss of €51m has been recognized in 2007. There were no impairment losses in 2006 or 2005.

From the issuance in December 2007 on, the Securitization Companies no longer met the criteria to be classified as qualifying special purpose entities due to the acquisition of the notes issued by Holmes Master Issuer plc — 2007/3 by Abbey, the transferor of the assets. As the transfers no longer meet the criteria for sale accounting under US GAAP, Abbey is deemed to have reacquired the assets transferred to the securitization companies. The retained interest (formerly known as the interest-only strip) was reclassified and combined with the reacquired mortgage assets. As the Securitization Companies are no longer qualifying special purpose vehicles the fall into the scope of FIN-46R, and therefore the Group is now required to consolidate these vehicles.

The remuneration received by Abbey for servicing is considered to be adequate and therefore no servicing assets were recognized in any of the years presented.

F-193

The balances of assets securitized and non-recourse finance as of December 31, 2007 were as follows:


	Closing date of	Gross assets		Non- recourse
Securitization company	Securitization	securitized		finance
		Millions of Euros
Holmes Financing (No.1) plc	July 26, 2000		375		375
Holmes Financing (No.6) plc	November 7, 2002		745		840
Holmes Financing (No.7) plc	March 26, 2003		897		897
Holmes Financing (No. 8) plc	April 1, 2004		2,731		2,731
Holmes Financing (No. 9) plc	December 8, 2005		3,789		3,789
Holmes Financing (No. 10) plc	August 8, 2006		4,364		4,364
Holmes Master Issuer plc - 2006/1	November 28, 2006		3,570		3,570
Holmes Master Issuer plc - 2007/1	March 28, 2007		5,865		7,734
Holmes Master Issuer plc - 2007/2	June 20, 2007		7,984		7,984
Holmes Master Issuer plc - 2007/3	December 21, 2007		9,898		9,898
Beneficial interest in Holmes Trustees Limited			10,846		—

			51,064		42,182

The gross assets securitized represent the interest in the trust property held by Holmes Funding Limited related to the debt issued by the Securitization companies. The retained interest in Holmes Trustees Limited represents the proportion of the funds required to be retained in the trust as part of the master structure trust agreement.

The Securitization vehicles have placed deposits totaling €1.9bn representing cash, which has been accumulated to finance the redemption of a number of securities issued by the Securitization companies. The Securitization companies’ contractual interest in advances secured on residential property is therefore reduced by this amount.

Abbey National plc does not own directly, or indirectly, any of the share capital of any of the above Securitization companies or their parents.

The contribution of the above companies to the Group’s Income Statement was €60m gain in 2007 (€88m gain in 2006 and €35m loss in 2005).

In 2007 no new issuances were made from Abbey’s €12.0 bn covered bond programme established in 2005, (2006: one issue of €1.5bn). The covered bonds are secured by a pool of ring-fenced residential mortgages and are not included in the tables above.

Spain

Securitization funds (the vehicles where securitized loans are transferred) are independent entities, managed by a “Sociedad Gestora” (Managing Society, a different legal entity usually controlled by the Bank), which are registered and regulated by the National Securities Market Commission (Comisión Nacional del Mercado de Valores — “CNMV”). The “Sociedad Gestora” is responsible of managing the transferred assets for a fixed fee. No gains or losses were registered in the income statement from the Bank’s securitizations because the selling price was equal to the book value of transferred loans. Therefore no adjustment was made in the reconciliation to U.S. GAAP.

A securitization fund may only hold:

	•		Financial assets transferred to it that are passive in nature (loans)

	•		Passive derivative financial instruments that pertain to beneficial interests (other than another derivative financial instrument) issued or sold to parties other than the transferor, its affiliates, or its agents.

	•		Financial assets (for example, guarantees or rights to collateral) that would reimburse it if others were to fail to adequately service financial assets transferred to it or to timely pay obligations due to it and that it entered into when it was established, when assets were transferred to it, or when beneficial interests (other than derivative financial instruments) were issued by the SPE. All the guarantees relating to the transferred loans are transferred to the securitization funds.

	•		Servicing rights related to financial assets that it holds.

	•		Temporarily, non-financial assets obtained in connection with the collection of financial assets that it holds.

	•		Cash collected from assets that it holds and investments purchased with that cash pending distribution to holders of beneficial interests that are appropriate for that purpose (that is, money-market or other relatively risk-free instruments without options and with maturities no later than the expected distribution date).

Portugal

As of December 31, 2007, Banco Santander Totta, S.A. has mortgage securitizations amounting to €10,541 million that are accounted for in the balance sheet.

On September 25, 2006 Santander Group reached an agreement to acquire 90% of Drive in the U.S.A. for $637 million in cash (€494 million approximately). As at December 31, 2007, Drive Financial has securitizations that amount to a total of €2,416 millions. These securitizations are not accounted for as a sale.

F-194

Other countries

The balances of assets securitized by other countries (mainly Germany and Italy) are not significant and their accounting treatment results in continued recognition in the balance sheet.

58.2

Allowance For Credit Losses

The balances of the recorded investment in impaired loans and of the related valuation allowance as of December 31, 2007, 2006 and 2005 are as follows:


	Thousands of Euros
	2007		2006		2005
Impaired loans requiring no reserve		1,260,497		766,255		974,418
Impaired loans requiring valuation allowance		4,850,557		3,865,005		3,407,355

Total impaired loans		6,111,054		4,631,260		4,381,773

Valuation allowance on impaired loans		3,240,398		2,922,495		3,130,929

The roll-forward of allowances (under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004) is shown in Note 10. The reconciliation item to U.S. GAAP is in Note 57.3.a.

Interest income on non-performing loans is recognized on a cash-received basis. An estimate of the effect of non-performing loans — net of charge-off — on interest income is presented in the following table:


	Year ended December 31,
	2007		2006		2005
	(Thousands of Euros)
Interest owed on non-accruing assets
Domestic		80,133		49,537		38,751
International		291,987		218,216		273,834

Total		372,120		267,753		312,585
Interest received on non-accruing assets
Domestic		81,233		86,370		79,183
International		110,015		70,435		77,602

Total		191,248		156,805		156,785

For the twelve months ended December 31, 2007, 2006 and 2005 the average recorded investments in non-performing loans were €1,495,023, €1,144,051 and €976,086 thousand from borrowers in Spain, and €4,072,346, €3,452,791 and €3,397,448 from borrowers outside Spain, respectively.

F-195

58.3		Investment Securities

		The following table shows a disclosure of the amortized cost, gross unrealized gains and losses, and fair value of available-for-sale fixed maturity securities and equity securities for 2007, 2006 and 2005:

		INVESTMENT SECURITIES


	December 31, 2007								December 31, 2006								December 31, 2005
			Gross		Gross						Gross		Gross						Gross		Gross
(U.S. GAAP presentation)	Amortized		unrealized		unrealized		Fair		Amortized		unrealized		unrealized		Fair		Amortized		unrealized		unrealized		Fair
Thousands of Euros	cost		gains		losses (2)		Value (1)		cost		gains		losses (2)		Value (1)		cost		gains		losses (2)		Value (1)
Available-for-sale securities
Debt securities:
United States-
US Treasury and other US Government Agencies		233,660		3,345		1,349		235,656		768,440		11		15,703		752,748		651,424		—		13,933		637,491
States and political subdivisions		246,175		2,309		445		248,039		41,648		—		589		41,059		90,881		—		390		90,491
Mortgage-backed securities		207,617		—		2,744		204,873		322,163		—		9,750		312,413		655,442		—		13,323		642,119
Corporate debt securities		12,462		—		215		12,247		—		—		—		—		—		—		—		—
Other securities		2,291,440		694		5,052		2,287,082		995,121		—		260		994,861		1,402,838		—		376		1,402,462

Spanish Government		8,107,355		92,669		350		8,199,674		7,745,231		123,738		2,011		7,866,958		12,787,831		291,095		43,531		13,035,395
Other Spanish public authorities		17,258		736		—		17,994		20,653		1,695		—		22,348		17,615		—		—		17,615
Securities of other foreign Governments		9,890,336		343,936		97,846		10,136,426		8,268,849		695,215		9,269		8,954,795		43,254,927		391,236		26,469		43,619,694

Other Corporate debt securities		1,311,054		115		10,543		1,300,626		490,852		1,087		527		491,412		1,367,372		78		856		1,366,594
Other Mortgage-backed securities		1,653,775		5,434		7,105		1,652,104		1,665,206		29,127		357		1,693,976		2,465,580		1,895		30,142		2,437,333
Other debt securities		11,654,363		52,913		146,582		11,560,694		12,159,113		62,103		2,562		12,218,654		4,939,894		36,487		351		4,976,030

		35,625,496		502,151		272,231		35,855,416		32,477,276		912,976		41,028		33,349,224		67,633,804		720,791		129,371		68,225,224

Equity securities:
Spanish securities		3,941,669		369.877		—		4,311,546		1,877,175		208,599		—		2,085,774		1,548,863		804,337		—		2,353,200
International securities		4,548,119		1.302.166		—		5,850,285		2,398,862		1,486,209		—		3,885,071		2,576,992		960,726		—		3,537,718
of which: United States:		196,416		46.467		—		242,883		144,956		—		—		144,956		57,476		—		—		57,476

		8,489,787		1.672.043		—		10,161,830		4,276,037		1,694,808		—		5,970,845		4,125,855		1,765,063		—		5,890,918


(1)		Fair values are determined based on year-end quoted market prices for listed securities and on management’s estimate for unlisted securities.

(2)		Gross unrealized losses under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 are higher than those under U.S. GAAP, due to the “Other than Temporary Adjustment” included in reconciliation to U.S.GAAP (see Notes 57.2 and 57.3.b). Additionally, the gross unrealized losses have mainly arisen in a period shorter than one year.

		We review all the unrealized losses of our debt securities portfolio at least quarterly to evaluate if they should be considered other than temporary impaired. Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, impairment losses are recorded in the income statement when the fair value of a debt security declines below its amortized cost and there is objective evidence of a reduction of the expected cash flows. Reversal of impairment losses is permitted if the impairment ceases or is reduced; however under U.S. GAAP, the reversal of impairment losses is not permitted (see Note 57.3.b). Additionally, for the remaining unrealized losses, we have evaluated their decline in fair value to determine whether it is other than temporary and we have not recognized any other than temporary impairment for these securities for the fiscal year ended December 31, 2007 as all of the unrealized losses have substantially arisen in a period shorter than one year.

F-196

		Gross gains of €18,689,786, €40,031,628 and €14,694,950 thousand and gross losses of €17,871,498, €36,484,698 and €12,132,446 thousand have been realized during 2007, 2006 and 2005 on the sales of trading and available-for-sale investment securities, which are included, net, under “Gains (losses) from Investment Securities” in the consolidated statement of income (see Note 57.5).

		The following table includes the detail of the available-for-sale portfolios excluding the allocation of the allowance for credit losses for 2007:

		AVAILABLE-FOR-SALE Classification by maturity


	Thousands of Euros
	2007
				Fair		Amortized
	Yield			Value		Value
Debt securities:
Due in one year or less		6.63	%		4,509,093		4,427,677
Due after one year through five years		5.95	%		12,244,459		12,174,509
Due after five years through ten years		4.45	%		14,635,854		14,586,205
Due after ten years		4.87	%		4,466,010		4,437,105

					35,855,416		35,625,496

		The details of the trading portfolio by type of security are set out below:

		TRADING PORTFOLIO


(U.S. GAAP presentation)	2007		2006		2005
Thousands of Euros	Fair value		Fair value		Fair value
Trading Portfolio Debt Securities:
United States:
U.S. Treasury and other U.S. Government agencies		1,634,497		320,498		237,079
States and Political subdivisions		33,414		9,159		4,676
Mortgage-backed securities		7		12,594		—
Corporate debt securities		416,284		462,219		2,425,250
Other Securities		6,705,377		3,925,028		862,072

Spanish Government		6,271,502		4,730,026		6,559,938
Other Spanish Public authorities		1,635,194		156,969		103,713
Securities of other foreign Governments		9,329,427		12,082,006		29,373,007

Other Corporate debt securities		1,490,988		1,691,454		14,569,752
Other Mortgage-backed securities		100,008		557,402		78,179
Other debt securities		45,786,536		57,289,857		37,227,515

Total debt securities		73,403,234		81,237,212		91,441,181

Trading Equity Securities
Spanish Securities		3,971,653		5,226,339		5,291,082
International Securities		8,643,135		10,976,813		33,089,955
Of which United States		1,386,872		459,966		190,235

Total equity securities		12,614,788		16,203,152		38,381,037

		The following table includes the detail of the debt securities trading portfolios for 2007:

		TRADING PORTFOLIO Classification by maturity


	Thousands of Euros
	2007
				Book		Fair
	Yield			Value		Value
Debt securities:
Due in one year or less		5.54	%		34,179,973		34,179,973
Due after one year through five years		5.93	%		20,995,824		20,995,824
Due after five years through ten years		4.99	%		8,957,564		8,957,564
Due after ten years		5.01	%		9,269,873		9,269,873

					73,403,234		73,403,234

F-197

58.4		Derivative Financial Instruments

		We use derivatives for both trading and non-trading activities.

		The Group uses derivatives to eliminate, reduce or modify risk in trading portfolios (interest rate, foreign exchange and equity prices), 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.

		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. Some of these non-trading transactions could be accounted for as accounting hedges if they meet specific criteria.

		The Group has established policies, procedures and limits in relation to market risk. These limits are defined as a structure which considers different levels from business segment or legal entity levels to portfolio or trader levels. Market risk is monitored by risk committees together with Assets and Liabilities Committees both at the local and global levels.

		More detailed information about market risks and control over them can be found in Note 56.

		Accounting principles-

		The Group enters into thousands of derivative transactions for trading purposes and to hedge asset and liability exposures. Only a limited amount of these hedging transactions receive hedge accounting treatment under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 due to the strict qualifying requirements. The general rule is that all derivatives are accounted for as trading operations, and only those derivatives that comply with the specific criteria required by the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 are accounted for as hedging operations. A full description of the principles applied by the Group in accounting for derivative financial instruments is disclosed in Note 2.d.v. The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP differ, in certain respects, in the accounting treatment of these transactions. See Note 57.2 for a summary of the accounting criteria, and Note 57.3.f) for the impact on the reconciliation of net income and stockholders’ equity from the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 to U.S. GAAP.

		The Bank of Spain’s Circular 4/2004 consider as hedging transactions only those that meet the following criteria (summarized):

The hedge relationship must be documented at inception. At that moment the objective and the hedge strategy must be assessed (all the documentation requirements are similar to those required by SFAS 133).

The hedge relationship should be highly effective during the entire estimated term to compensate the changes in the value or in the cash flows attributable to the identified risk, and in accordance with the hedging strategy documented at inception.

Forecasted transactions may be hedged only if it is highly probable that they will occur and when they are subject to any risk that could have an effect on cash flows that could affect the net income.

To qualify as highly effective, the hedge relationship should meet, both at the inception and in any moment, the following requirements:

Prospectively: it should be expected that the changes in the fair value or in the cash flows of the hedged financial instruments will almost be offset by the changes in the fair value or in the cash flows of the hedging instruments.

Retrospectively: The offsetting effects should be within 80% and 125% of the changes in the hedged item.

All the values should be reliably calculated.

Effectiveness should be tested quarterly and at least, each time that the financial statements are prepared.

		We have procedures in place that ensure that the requirements with respect to the designation as hedge or speculative, transaction documentation, identification of hedged items and hedging instrument, and the assessment and testing of hedge effectiveness are met.

		As explained in Note 57.3 f) and in Note 57.2, the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP differ, in certain respects, in the requirements for hedge accounting of these transactions. Given that U.S. GAAP does not allow certain types of hedges, derivative transactions accounted for as hedges under U.S. GAAP are only a portion of the hedge transactions under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

		Besides, there are differences in designation requirements and hedge accounting between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP, so many transactions accounted for as hedge under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 are reversed for U.S. GAAP purposes and designated as speculative transactions.

F-198

		For all the transactions that are considered as hedging both under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP, additional information is collected to adapt to the accounting treatment required. The adjustments are made in function of the hedge designation under SFAS 133 (i.e. cash flow, fair value or net investment in foreign operation). Only those transactions which fully comply with SFAS 133 requirements are considered to be hedge transactions.

		The vast majority of our hedges are simple hedges: the notional value of the hedging instruments is the same as the face value of the hedged item; the hedging instrument is tailored solely to the hedged risk (either benchmark rate of interest or foreign currency); the settlement methods are standard ones, with settlement periods similar to those for the item to be hedged; there are no pre-payable amounts on the item to be hedged, nor are there any options in the hedged items unless such options are completely offset with an opposite option in the hedging instruments.

		Among these transactions that are designated hedges under both the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP, the Group includes derivatives that hedge the foreign currency exposure of a net investment in a foreign subsidiary. The currency of these hedging derivatives is that of the country in which the foreign subsidiary is located, and the amounts to be hedged are closely watched by our risk committees.

		Our Group’s companies enter into intercompany derivative transactions for the purposes of managing their own risks.

		Usually, in each country in which our Group operates, there is a subsidiary (an individual entity) that acts as the treasury services provider or center for the Group’s financial activities in that country. The remaining subsidiaries operating in that country usually hedge their own risks through transactions entered into with that treasury services provider. In addition, some of our subsidiaries may enter into intercompany derivative transactions with subsidiaries located in other countries.

		For accounting purposes, these transactions are recorded as intercompany derivatives on the individual books and records of each company entering into such transactions, but are eliminated in the consolidation process.

		*Fair value methods-*

		The methods and assumptions used by the Group in estimating its fair value disclosures for derivative financial instruments are disclosed in Note 2.d.

		The following table shows a detail of our consolidated trading and hedging transactions broken down into notional amounts and their fair value in accordance with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 at the dates indicated:

December 31,

2007

2006

2005

Notional

Millions of Euros

Amount

Fair Value

Amount

Fair Value

Amount

Fair Value

• Trading

3,620,490.1

(2,077.6

)

2,748,721.0

(3,753.7

)

1,830,939.6

(1,598.9

)

• Hedging

164,666.9

(1,071.4

)

157,363.1

(505.9

)

226,627.4

1,815.4

Fair Value Hedges

126,388.3

(1,199.7

)

131,214.4

(474.3

)

204,820.6

2,046.6

Cash Flow Hedges

10,695.5

(136.7

)

9,472.8

(34.4

)

9,777.2

23.9

Hedges of the foreign currency of a net investment in a foreign subsidiary

27,583.1

265.0

16,675.9

2.8

12,029.7

(255.1

)

3,785,157.0

(3,149.0

)

2,906,084.1

(4,259.6

)

2,057,567.0

216.5

In our reconciliation to U.S.GAAP we made some adjustments that change the designation of some hedge relationships. We identify those hedges under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 that do not fully comply with FAS 133 requirements. Under U.S. GAAP accounting those transactions are considered to be speculative transactions and such derivatives are accounted for as trading derivatives.

F-199

The following table shows a detail of our consolidated trading and hedging transactions broken down into notional amounts and their fair value in accordance with U.S. GAAP at the dates indicated:


	December 31,					December 31,					December 31,
	2007					2006					2005
	Notional					Notional					Notional
Millions of Euros	Amount		Fair Value			Amount		Fair Value			Amount		Fair Value
• Trading		3,685,557.8		(1,482.7	)		2,820,182.0		(3,525.9	)		1,880,611.3		(1,446.7	)
• Hedging		99,599.2		(1,665.8	)		85,902.1		(733.7	)		176,955.6		1,663.1
Fair Value Hedges		61,320.6		(1,794.1	)		59,753.4		(702.1	)		155,148.8		1,894.4
Cash Flow Hedges		10,695.5		(136.7	)		9,472.8		(34.4	)		9,777.2		23.9
Hedges of the foreign currency of a net investment in a foreign subsidiary		27,583.1		265			16,675.9		2.8			12,029.7		(255.1	)

		3,785,157.0		(3,148.5	)		2,906,084.1		(4,259.6	)		2,057,567.0		216.5

The notional amounts of hedging transactions under U.S. GAAP are less than those under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 due to the fact that the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 allows certain hedge accounting that is not permitted under U.S. GAAP.

58.5		Short Term Borrowings

		Following is an analysis of the components of the “Short-term borrowings” caption for 2007, 2006 and 2005:


	2007					2006					2005
			Average					Average					Average
Thousands of Euros	Amount		Rate			Amount		Rate			Amount		Rate

Securities sold under agreements to repurchase:
At December 31		99,067,534		3.66	%		92,433,767		4.39	%		126,201,890		3.55	%
Average during year		90,977,794		3.86	%		101,682,243		3.74	%		91,458,502		3.65	%
Maximum month-end balance		99,067,534					129,816,503					129,563,533


Other short-term borrowings:
At December 31		32,706,892		7.29	%		35,385,525		2.50	%		25,157,976		2.34	%
Average during year		27,071,238		5.42	%		25,501,630		2.66	%		21,249,880		4.23	%
Maximum month-end balance		44,052,354					35,385,525					26,688,044


Total short-term borrowings at year-end		131,774,426		4.56	%		127,819,292		3.87	%		151,359,866		3.35	%

		This short-term indebtedness is denominated in different currencies, mostly Euro, US$, GBP and Latin-American currencies. Interest rates of these currencies have not followed the same trend.

58.6		Guarantees

		The Group provides a variety of guarantees to its customers to improve their credit standing and allow them to compete. The following table summarizes at December 31, 2007, 2006 and 2005 all of the guarantees.

		As required, the “maximum potential amount of future payments” represents the notional amounts that could be lost if there were a total default by the guaranteed parties, without consideration of possible recoveries from collateral held or pledged, or recoveries under recourse provisions. There is no relationship between these amounts and probable losses on these guarantees. In fact, maximum potential amount of future payments significantly exceeds inherent losses.

F-200

Guarantees disclosures


	*Maximum potential amount of future payments*
	2007		2006		2005
	(*Thousands of Euros)*
*Contingent liabilities:*
Assets earmarked for third-party obligations		3		4		24
Guarantees and other sureties		70,513,358		53,175,928		44,432,649
Guaranties promises		13,332,972		8,258,151		100,898
Performance guarantees		34,657,158		29,857,748		25,428,337
Financial standby letters of credit		21,740,424		14,522,186		18,642,647
Doubtful guarantees		74,154		59,157		79,529
Credit Default Swaps		708,250		478,250		180,000
Other		400		436		1,238
Other contingent exposures		6,411,474		5,593,377		4,020,902
Documentary Credits		5,803,088		5,029,484		3,767,022
Other contingent liabilities		608,274		563,731		252,541
Doubtful contingent liabilities		112		162		1,339

Total Contingent Liabilities		76,924,835		58,769,309		48,453,575
*Commitments*
Loan commitments drawable by third parties		102,215,927		91,690,396		77,678,333
Other commitments		12,460,636		11,559,034		18,584,929
Securities placement commitments		33,032		3,463		16,399
Securities subscribed and pending payment		107,244		83,368		195,610
Compensation room delivered bills		12,320,360		11,472,203		18,372,920

Total Commitments		114,676,563		103,249,430		96,263,262

		Performance guarantees are issued to guarantee customers obligations such as to make contractually specified investments, to supply specified products, commodities, or maintenance or warranty services to a third party, completion of projects in accordance with contract terms, etc. Financial standby letters of credit include guarantees of payment of loans, credit facilities, promissory notes and trade acceptances. The Group always requires collateral to grant this kind of financial guarantees. In Documentary Credits, the Group acts as a payment mediator between trading companies located in different countries (import-export transactions). Under a documentary credit transaction, the parties involved deal with the documents rather than the commodities to which the documents may relate. Usually the traded commodities are used as collateral to the transaction and the Bank may provide some credit facilities. Loan commitments drawable by third parties include mostly credit card lines and commercial commitments. Credit card lines are unconditionally cancelable by the issuer. Commercial commitments are mostly 1 year facilities subject to information requirements to be provided by our customers.

		In the UK it is normal to issue check guarantee cards to current account customers holding checkbooks, as retailers do not generally accept cheques without such form of guarantee. Accordingly, Abbey issues guaranteed cheques that represent its commitment to guarantee the cheques of some of its customers up to a certain limit, typically £50-£100. Bank account facilities to which guaranteed cheques relate are regularly assessed based on customers’ behavior, and amended where necessary. Prior notice of changes is given to customers. The maximum potential amount of future payments is €7,955 million on December 2007 (€7,696 million in 2006 and €5,952 in 2005) and there is no stated maturity.

		Also, Abbey, as is normal in such activity, gives representations and warranties on the sale of subsidiaries. The maximum potential amount of any claims made against these is significantly higher than actual settlements. The maximum potential amount of future payments is €5,354 million on December 31, 2007 (€6,849 million in 2006 and €4,077 in 2005).

		The risk criteria followed to issue all kinds of guarantees, financial standby letters of credit, documentary credits and any risks of signature are in general the same as those used for other products of credit risk, and therefore subject to the same admission and tracking standards. The guarantees granted on behalf of our customers are subject to the same credit quality review process as any other risk product. On a regular basis, at least once a year, the solvency of the mentioned customers is checked as well as the probability of those guarantees to be executed. In case that any doubt on the customer’s solvency may arise we create allowances with charge to net income, by the amount of the inherent losses even if there is no claim to us.

		As of December 31, 2007, the Group had allowances to cover inherent losses on guarantees of €636,316 thousands, (2006: €598,735 and 2005: €487,048).

		According to FIN 45, a guarantee that is accounted for as a derivative instrument at fair value under Statement 133 is not subject to the initial recognition and initial measurement provisions of this Interpretation but is subject to its disclosure requirements, see Notes 9, 11 and 36.

F-201

58.7		Additional disclosures about fair value

		Disclosures about fair value of financial instruments (SFAS 107)

		SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”) requires the disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Find the disclosures required by SFAS 107 in Note 2.d for those financial instruments recognized at fair value and Note 53.c. for those financial instruments measured at other than fair value.

		Disclosures about fair value of equity investments (APB 18)

		APB 18 “The Equity Method of Accounting for Investments in Common Stock”, requires for those investments in common stock for which a quoted market price is available the disclosure of the aggregate value of each identified investment based on the quoted market price (see also Note 13).

		The following table shows the market value of our holdings accounted for by using the equity method that has listed quotations:


	December 31,
Thousands of Euros	2007		2006		2005
RFS		11,778,624		—		—
Cepsa		5,896,826		4,766,317		3,337,438
Attijariwafa		761,893		579,295		319,369
Sovereign		875,406		2,267,762		—

58.8		Stock Option Plans

		SFAS No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123-R) eliminated the option to apply the intrinsic value measurement provisions of APB No. 25 “Accounting for Stock Issued to Employees”, to stock compensation awards issued to employees. SFAS 123-R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award the requisite service period (usually the vesting period).

		The Company adopted SFAS 123-R on January 1, 2005 by using the modified prospective approach, which requires recognizing expense for options granted prior to the adoption date equal to the fair value at the grant date of the unvested amounts over their remaining vesting period. The reason for this early adoption is to reduce differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP.

		Currently, all the Group’s stock options are accounted for following IFRS 2 which is similar to FAS 123-R. Disclosures are included in Note 49.c.

58.9		Acquisition of Drive Consumer U.S.A. Inc.

		In 2006, the Group acquired 90% of Drive in the U.S.A. for $637 million in cash (€494 million approximately). The operation generated goodwill of $544 million (€422 million, see Note 17).

		Under the agreement, the price paid by Santander could increase by a maximum of $175 million, if the company achieves certain earning targets set for years 2007 and 2008.

		Drive is one of the leading auto financing companies in “subprime” customer segment in the United States. Based in Dallas, Texas, it is present in 35 states, with approximately 50% of its activity concentrated in Texas, California, Florida and Georgia. Drive has around 600 employees and its products are distributed through more than 10,000 auto dealer partnerships.

		Until our acquisition, 64.5% of Drive was owned by HBOS plc and 35.5% by its management team. Following the acquisition by Santander, the present Chairman and COO of Drive will act as Chief Executive Officer, maintaining ownership of 10% of the company, a percentage on which the parties have signed a series of options which could enable Grupo Santander to buy the additional 10% between 2009 and 2013 at prices linked to the company’s earnings performance.

		The goodwill and its allocation process was finalized during 2007, which reduced the initial goodwill of Drive by €49 million at year end.

F-202

		The following is a Balance Sheet at the first-time consolidation date:

		Drive Group Balance Sheet


	Thousands of
	Euros
	2006
Assets
Interest earning deposits in other banks		129,736
Loans and leases, net of unearned income		2,230,256
Less-Allowance for credit losses		(110,365	)
Net Loans and leases		2,119,891
Premises and equipment, net		3,093
Other assets		19,491

Total assets		2,272,211

Liabilities
Deposits
Interest bearing
Time deposits		272,188
Total deposits		272,188
Long-term debt		1,894,308
Taxes Payable		3,043
Accounts Payable		15,132
Accrual Accounts		8,631
Others		501
Other liabilities		27,307

Total liabilities		2,193,803
Minority interest
Stockholders’ equity
Capital stock		63,456
Other reserves		14,952
Total stockholders’ equity		78,408

Total liabilities and Stockholders’ equity		2,272,211

58.10		Significant Equity method investee: Sovereign Bancorp, Inc (“Sovereign”).

		As of December 31, 2007, due to the market evolution and, in particular, the decline in Sovereign shares quoted market price, the Group analyzed whether an other-than-temporary impairment existed in its investment in Sovereign.

		The analysis was performed by comparing the determined fair value of Sovereign with its cost as of December 31, 2007. As the fair value was less than its cost over a relevant period of time, we concluded that an other-than-temporary impairment existed and recorded an impairment loss in the income statement for the difference between the fair value and its cost as of December 31, 2007, totaling €1.053 million.

		Additionally, under SEC Regulation S-X, Rule 4-08 (g), Sovereign, equity method investee, was significant to the Group in 2007 and thus we present below its summarized balance sheets as of December 31, 2007 and 2006 and income statements for the fiscal years ended December 31, 2007, 2006 and 2005.

F-203

CONSOLIDATED BALANCE SHEET — SOVEREIGN BANCORP, INC.


	2007			2006			2005
	(Thousands of euros)
Assets
Cash and amounts due from depository institutions		2,126,737			1,369,869			959,512
Investment securities available for sale		9,470,720			10,535,025			6,152,752
Investment securities held to maturity		—			—			3,939,669
Other investments		815,532			761,588			552,089
Net loans held for investment		38,395,880			41,386,215			36,511,545
Loans held for sale		372,094			5,779,743			264,116
Premises and equipment		381,993			459,914			349,256
Accrued interest receivable		238,118			321,109			242,689
Goodwill		2,327,455			3,800,444			2,302,980
Core deposits and other intangibles		252,779			378,451			181,381
Bank owned life insurance		1,218,734			1,309,964			863,037
Other assets		1,968,326			1,962,863			1,659,719
Total assets		57,568,369			68,065,185			53,978,745

Liabilities
Deposits and other customer accounts		33,907,958			39,775,667			32,192,681
Borrowings and other debt obligations		17,747,491			20,387,029			15,869,202
Advance payments by borrowers for taxes and insurance		56,444			74,443			41,801
Other liabilities		1,007,108			1,145,598			775,156
Total liabilities		52,719,001			61,382.737			48,878,840

Minority interest-preferred securities of subsidiaries		99,470			118,743			174,332

Stockholders’ Equity
Preferred stock		132,766			148,402			—
Common stock		4,276,593			4,694,974			3,100,401
Warrants and employee stock options issued		236,645			260,737			285,959
Unallocated common stock held by Employee Stock Ownership Plan		—			(14,441	)		(18,137	)
Treasury stock		(13,486	)		(37,227	)		(405,810	)
Accumulated other comprehensive loss		(221,543	)		(18,790	)		(144,781	)
Retained earnings		338,923			1,530,049			2,107,941
Total Stockholders’ Equity		4,749,898			6,563,705			4,925,573
Total Liabilities and Stockholders’ Equity		57,568,369			68,065,185			53,978,745

CONSOLIDATED INCOME STATEMENT — SOVEREIGN BANCORP, INC.


	2007			2006			2005
	(Thousands of euros)

Interest income		3,402,988			3,451,424			2,382,391
Interest expense		(2,040,682	)		1,998,269			1,069,932
Provision for credit losses		(297,958	)		(386,483	)		(72,374	)
Net interest income after provision for credit losses		1,064,347			1,066,672			1,240,085
Fees and other income		387,895			476,689			475,219
Net (loss)/gain on investment securities		(128,888	)		(248,870	)		(9,419	)
Non-interest income		259,008			227,819			484,638
General and administrative expenses		(983,595	)		(1,029,099	)		(875,893	)
Other expenses		(1,370,037	)		(250,130	)		(131,423	)
Income before income taxes		(1,030,277	)		15,262			717,406
Income tax benefit/(provision)		44,179			93,960			(173,666	)
Net income		(986,098	)		109,222			543,740

F-204

58.11		Additional relevant events

		Sale and leaseback of real estate assets

		On January 25, 2008, we announced that we had reached an agreement with a consortium led by the United Kingdom property investor Propinvest for the sale of Ciudad Grupo Santander (our corporate headquarters) 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 price agreed for Ciudad Grupo Santander was €1.9 billion. The capital gains of approximately €605 million will be reversed under U.S. GAAP in the same way as described in Note 57.3.e) for a similar transaction.

		Agreement between Santander and General Electric (“GE”)

		On March 27, 2008, Banco Santander and GE, through its GE Money and Commercial Finance business units, reached a preliminary agreement on the acquisition of certain businesses from each other valued at €1 billion.

		Under the terms of the preliminary agreement, Banco Santander will acquire GE Money’s units in Germany, Finland and Austria, and its card and auto businesses in the UK, while GE Commercial Finance will acquire Interbanca, the Italian commercial bank assigned to Santander as part of the distribution of assets following the acquisition, together with RBS and Fortis, of ABN Amro.

		Banco Santander expects to integrate the GE Money units acquired, with total assets of €9 billion, into Santander Consumer Finance and Santander Cards. Interbanca would become part of GE Commercial Finance, providing GE with an enhanced capability to service midmarket banking businesses in Italy.

		On June 2, 2008, we announced that we had reached a final agreement with GE and that the agreed base price for both transactions amounted to €1 billion each, subject to different adjustments.

		These operations are expected to close during the fourth quarter of 2008.

		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 for €336 million. The package includes activities in Germany, the Netherlands, Belgium and Austria. The acquisition will be 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 is strongly represented in the credit card business both in terms of private and corporate customers, and provides consumer finance via retail chains.

		The acquisition is conditional upon a definitive agreement and the relevant approval from various national authorities.

		Acquisition of additional shares of Sovereign

		In May 2008, Santander, to prevent dilution of its holding in Sovereign, invested $312 million to subscribe to a $1.25 billion common stock offering completed by the U.S. bank.

		Completion of the sale of Antonveneta to Banca Monte dei Paschi di Siena

		On May 30, 2008, Banca Monte dei Paschi di Siena and Banco Santander completed the sale of Antonveneta for €9 billion, executing the agreement announced on November 8, 2007.

		Under U.S. GAAP, the Group’s Investment in Antonveneta is classified as an Equity method investee as of December 31, 2007. In addition, according to SFAS No. 144. Accounting for the Impairment or Disposal of Long-lived Assets, an Equity method investee cannot be classified as held for sale or discontinued operations. This classification difference with EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 does not create an effect in the U.S. GAAP reconciliation for Net Income and Stockholder’s Equity, while the cash flows presentation difference for reclassifying Antonveneta from Other financial assets to Subsidiaries, jointly controlled entities and associates within the cash flows from investing activities is immaterial for U.S. GAAP purposes.

		Drive Cosumer USA Inc.

		In June 2008, Grupo Santander has bought an additional 1% stake in the company for $17 million.

		Grupo Santander could buy the 9% stake still owned by the Chief Executive Officer of Drive between 2009 and 2013 at prices linked to the company’s earnings performance.

		Santander internal models

		In June 2008, Bank of Spain authorized the use of internal models to determine the regulatory capital requirements of the Group’s main units covering over 70% of the Group credit risk exposure beginning as of June 30, 2008 (the other units’ internal models will be presented for approval during the roll out period agreed with Bank of Spain). As of such date, the Group’s eligible capital exceeds the minimum requirements established by the Bank of Spain’s Circular 3/2008, which introduces in the Spanish regulatory framework the EU Directives 2006/48/EC and 2006/49/EC in accordance with the New Basel Accord (“Basel II” or “BIS II”).

F-205

Exhibit I

Subsidiaries of Banco Santander, S.A. (1)


												Millions of Euros (a)
		% of Ownership Held						% of							Net Profit			Amount of
		by the Bank						Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

A N (123) plc	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		1,153			11			1,161
Abbey Business Services (India) Private Limited (d)	India		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—
Abbey Covered Bonds (Holdings) Limited	United Kingdom		—				(b)		—		FINANCE		—			—			—
Abbey Covered Bonds (LM) Limited	United Kingdom		—				(b)		—		FINANCE		—			—			—
Abbey Covered Bonds LLP	United Kingdom		—				(b)		—		FINANCE		39			99			—
Abbey National (America) Holdings Inc.	United States		—			100.00	%		100.00	%	HOLDING COMPANY		31			—			31
Abbey National (America) Holdings Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		31			—			32
Abbey National (Gibraltar) Limited	Gibraltar		—			100.00	%		100.00	%	BROKER-DEALER		7			—			6
Abbey National (Holdings) Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		26			—			22
Abbey National Alpha Investments (d)	United Kingdom		—			100.00	%		100.00	%	FINANCE		62			—			62
Abbey National American Investments Limited	United Kingdom		—			100.00	%		100.00	%	FINANCE		374			15			345
Abbey National Baker Street Investments	United Kingdom		—			100.00	%		100.00	%	FINANCE		168			—			168
Abbey National Beta Investments Limited	United Kingdom		—			100.00	%		100.00	%	FINANCE		145			6			116
Abbey National Business Asset Leasing Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		—			—			—
Abbey National Business Cashflow Finance Limited	United Kingdom		—			100.00	%		100.00	%	FACTORING		5			—			5
Abbey National Business Equipment Leasing Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		—			—			7
Abbey National Business Office Equipment Leasing Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		6			—			—
Abbey National Business Sales Aid Leasing Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		1			—			—
Abbey National Business Vendor Plan Leasing Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		—			—			—
Abbey National Capital LP I	United States		—				(b)		—		FINANCE		—			—			—
Abbey National Capital LP II	United States		—				(b)		—		FINANCE		—			—			—
Abbey National Charitable Trust Limited	United Kingdom		—			100.00	%		100.00	%	CHARITABLE SERVICES		—			—			—
Abbey National Employment Services Inc.	United States		—			100.00	%		100.00	%	EMPLOYMENT SERVICES		—			—			—
Abbey National Financial and Investment Services (Jersey) Limited	Jersey		—			100.00	%		100.00	%	HOLDING COMPANY		3			—			3
Abbey National Financial Investments 3 B.V.	Netherlands		—			100.00	%		100.00	%	FINANCE		3			1			1
Abbey National Financial Investments 4 B.V.	Netherlands		—			100.00	%		100.00	%	FINANCE		341			16			341
Abbey National Financial Investments No.2 Limited	Jersey		—			100.00	%		100.00	%	FINANCE		—			—			—
Abbey National Funded Unapproved Retirement Benefits Scheme Trustees Limited (d)	United Kingdom		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		—			—			—
Abbey National Funding plc	United Kingdom		—			100.00	%		100.00	%	FINANCE		—			—			—
Abbey National General Insurance Services Limited	United Kingdom		—			100.00	%		100.00	%	ADVISORY SERVICES		(52	)		—			—
Abbey National Gibraltar (1986) Limited	United Kingdom		—			100.00	%		100.00	%	FINANCE		8			—			7
Abbey National Global Investments	United Kingdom		—			100.00	%		100.00	%	FINANCE		—			—			—
Abbey National GP (Jersey) Limited	Jersey		—			100.00	%		100.00	%	FINANCE		—			—			—
Abbey National Group Pension Schemes Trustees Limited (d)	United Kingdom		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		—			—			—
Abbey National Guarantee Company	United Kingdom		—			100.00	%		100.00	%	LEASING		5			—			4
Abbey National Homes Limited	United Kingdom		—			100.00	%		100.00	%	FINANCE		(49	)		—			—
Abbey National International Limited	Jersey		—			100.00	%		100.00	%	BANKING		277			42			204
Abbey National Investments	United Kingdom		—			100.00	%		100.00	%	FINANCE		161			7			145
Abbey National Investments Holdings Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		(10	)		(6	)		—
Abbey National Jersey International Limited	Jersey		—			100.00	%		100.00	%	HOLDING COMPANY		287			3			252
Abbey National June Leasing (5) Limited	United Kingdom		100.00	%		—			100.00	%	LEASING		276			—			273
Abbey National March Leasing (4) Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		(24	)		2			—
Abbey National Mortgage Finance plc	United Kingdom		—			100.00	%		100.00	%	MORTGAGE LOAN COMPANY		—			—			—
Abbey National Nominees Limited	United Kingdom		—			100.00	%		100.00	%	BROKER-DEALER		—			—			—
Abbey National North America Corporation	United States		—			100.00	%		100.00	%	FINANCE		1			—			—
Abbey National North America Holdings Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—
Abbey National North America LLC	United States		—			100.00	%		100.00	%	FINANCE		—			—			—
Abbey National Offshore Holdings Limited	Jersey		—			100.00	%		100.00	%	HOLDING COMPANY		253			—			264
Abbey National PEP & ISA Managers Limited	United Kingdom		—			100.00	%		100.00	%	FUND AND PORTFOLIO MANAGEMENT		53			(1	)		50
Abbey National Personal Pensions Trustee Limited	United Kingdom		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		—			—			—
Abbey National plc	United Kingdom		100.00	%		—			100.00	%	BANKING		3,559			478			12,429
Abbey National PLP (UK) Limited	United Kingdom		—			100.00	%		100.00	%	FINANCE		—			—			—
Abbey National Properties (2) Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		(3	)		—			—
Abbey National Property Investments	United Kingdom		—			100.00	%		100.00	%	FINANCE		392			24			189
Abbey National Property Services Limited	United Kingdom		—			100.00	%		100.00	%	PROPERTY		(18	)		—			—
Abbey National Secretariat Services (Jersey) Limited	Jersey		—			100.00	%		100.00	%	SERVICES		—			—			—

F-206


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of							Net Profit			Amount of
								Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

Abbey National Secretariat Services Limited	United Kingdom		—			100.00	%		100.00	%	FUND AND PORTFOLIO MANAGEMENT		—			—			—
Abbey National Securities Inc.	United States		—			100.00	%		100.00	%	BROKER-DEALER		35			7			31
Abbey National September Leasing (3) Limited (f)	United Kingdom		—			100.00	%		100.00	%	LEASING		(10	)		—			—
Abbey National Shelf Co. (4) Limited	United Kingdom		—			100.00	%		100.00	%	INACTIVE		—			—			—
Abbey National Sterling Capital plc	United Kingdom		—			100.00	%		100.00	%	FINANCE		4			—			—
Abbey National Treasury International (IOM) Limited	Isle of Man		—			100.00	%		100.00	%	BANKING		11			1			8
Abbey National Treasury Investments	United Kingdom		—			100.00	%		100.00	%	FINANCE		331			22			251
Abbey National Treasury Services (Trains Holdings) Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		197			(7	)		205
Abbey National Treasury Services (Transport Holdings) Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—
Abbey National Treasury Services Investments Limited	United Kingdom		—			100.00	%		100.00	%	FINANCE		1,083			39			1,023
Abbey National Treasury Services Overseas Holdings	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		1,418			73			1,389
Abbey National Treasury Services plc	United Kingdom		—			100.00	%		100.00	%	BANKING		3,561			145			3,885
Abbey National UK Investments	United Kingdom		—			100.00	%		100.00	%	FINANCE		1,038			45			827
Abbey Stockbrokers (Nominees) Limited	United Kingdom		—			100.00	%		100.00	%	BROKER-DEALER		—			—			—
Abbey Stockbrokers Limited	United Kingdom		—			100.00	%		100.00	%	BROKER-DEALER		7			—			9
Administración de Bancos Latinoamericanos Santander, S.L.	Spain		24.11	%		75.89	%		100.00	%	HOLDING COMPANY		329			194			156
AEH Purchasing, Ltd.	Ireland		—				(b)		—		SECURITISATION		—			—			—
Afisa S.A.	Chile		—			99.99	%		99.99	%	FUND MANAGEMENT COMPANY		7			—			3
Agencia de Seguros Santander, Ltda.	Colombia		—			100.00	%		100.00	%	INSURANCE		—			—			—
Agrícola Tabaibal, S.A.	Spain		—			66.16	%		100.00	%	AGRICULTURE AND LIVESTOCK		1			(1	)		—
Agropecuaria Tapirapé S.A.	Brazil		—			97.16	%		99.07	%	AGRICULTURE AND LIVESTOCK		2			—			1
AKB Marketing Services Sp. Z.o.o.	Poland		—			100.00	%		100.00	%	MARKETING		4			3			—
Alcaidesa Holding, S.A. (consolidated)	Spain		—			44.60	%		50.01	%	PROPERTY		77			—			28
Alce Tenedora, S.L.	Spain		99.99	%		0.01	%		100.00	%	SECURITIES INVESTMENT		—			(9	)		—
Alhambra 2000, S.L.	Spain		—			89.19	%		100.00	%	VEHICLE CLEANING		3			—			3
Aljarafe Golf, S.A.	Spain		—			79.75	%		89.41	%	PROPERTY		14			—			1
Aljardi SGPS, Lda.	Portugal		—			100.00	%		100.00	%	HOLDING COMPANY		1,660			1			1,148
Almacenadora Serfin, S.A. De C.V.	Mexico		—			73.89	%		98.58	%	WAREHOUSING		1			—			1
Almacenadora Somex, S.A. De C.V.	Mexico		—			72.88	%		97.24	%	WAREHOUSING		7			—			1
Altair Finance, plc.	Ireland		—				(b)		—		SECURITISATION		1			(1	)		—
Altamira Funding LLC.	United States		—				(b)		—		SECURITISATION		—			—			—
Altec Brasil S.A.	Brazil		—			100.00	%		100.00	%	SERVICES		14			1			22
Altec S.A.	Chile		—			100.00	%		100.00	%	IT SERVICES		6			3			20
América Latina Tecnología de México, S.A. De C.V.	Mexico		100.00	%		—			100.00	%	IT SERVICES		72			(8	)		47
América Latina Tecnología S.A.	Argentina		87.42	%		12.58	%		100.00	%	HOLDING COMPANY		2			—			2
AN Structured Issues Limited	Jersey		—			100.00	%		100.00	%	FINANCE		—			—			—
Andaluza de Inversiones, S.A.	Spain		—			100.00	%		100.00	%	HOLDING COMPANY		28			13			27
ANDSH Limited.	United Kingdom		—			100.00	%		100.00	%	FINANCE		3			—			3
ANFP (US) LLC	United States		—			100.00	%		100.00	%	FINANCE		—			—			—
ANITCO Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—
Aquanima Brasil Ltda.	Brazil		—			88.40	%		100.00	%	e-COMMERCE		—			1			—
Aquanima Chile S.A.	Chile		—			88.40	%		100.00	%	e-COMMERCE		1			—			—
Argenline, S.A.	Uruguay		—			100.00	%		100.00	%	FINANCE		—			—			—
Asesora de Titulización, S.A., S.G.F.T.	Spain		70.00	%		29.58	%		100.00	%	ADVISORY SERVICES		2			—			2
Asesoría Estratega, S.C.	Mexico		—			85.00	%		100.00	%	SERVICES		—			—			—
Aurum, S.A.	Chile		0.80	%		99.20	%		100.00	%	HOLDING COMPANY		(1	)		3			68
Ausant Holding Gesellschaft m.b.H.	Austria		—			100.00	%		100.00	%	HOLDING COMPANY		9			—			9
Ausant Merchant Participations GMBH	Austria		—			100.00	%		100.00	%	HOLDING COMPANY		—			8			—
Aviación Regional Cántabra, A.I.E.	Spain		73.58	%		—			73.58	%	LEASING		27			5			22
Bajondillo, S.A.	Spain		—			89.19	%		100.00	%	PROPERTY		—			—			—
Baker Street Risk and Insurance (Guernsey) Limited (e)	Guernsey		—			100.00	%		100.00	%	INSURANCE BROKERAGE		11			4			3
Banco Alicantino de Comercio, S.A.	Spain		—			89.19	%		100.00	%	BANKING		9			—			8
Banco Banif, S.A.	Spain		100.00	%		—			100.00	%	BANKING		215			56			84
Banco de Albacete, S.A.	Spain		100.00	%		—			100.00	%	BANKING		12			—			9
Banco de Asunción, S.A.	Paraguay		—			99.33	%		99.33	%	BANKING		1			—			34
Banco de Venezuela, S.A., Banco Universal (j)	Venezuela		96.78	%		1.64	%		98.42	%	BANKING		385			221			119
Banco Español de Crédito, S.A.	Spain		88.12	%		1.07	%		89.19	%	BANKING		4,145			660			1,340
Banco Madesant — Sociedade Unipessoal, S.A.	Portugal		—			100.00	%		100.00	%	BANKING		1,383			63			1,159

F-207


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of						Net Profit			Amount of
								Voting				Capital and		(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves		the Year			Interest

Banco Santander (Panamá), S.A.	Panama		—			100.00	%		100.00	%	BANKING		7		1			55
Banco Santander (Suisse) SA	Switzerland		—			100.00	%		100.00	%	BANKING		148		36			15
Banco Santander Bahamas International Limited	Bahamas		—			100.00	%		100.00	%	BANKING		1,125		30			785
Banco Santander Chile	Chile		—			76.73	%		76.91	%	BANKING		1,541		421			1,156
Banco Santander Colombia, S.A.	Colombia		—			97.64	%		97.64	%	BANKING		139		6			444
Banco Santander Consumer Portugal S.A.	Portugal		—			100.00	%		100.00	%	BANKING		106		16			277
Banco Santander International	United States		95.89	%		4.11	%		100.00	%	BANKING		163		24			73
Banco Santander Perú S.A.	Peru		99.00	%		1.00	%		100.00	%	BANKING		22		(1	)		22
Banco Santander Puerto Rico	Puerto Rico		—			90.59	%		100.00	%	BANKING		402		16			306
Banco Santander Río S.A.	Argentina		8.23	%		91.07	%		99.30	%	BANKING		280		71			1,647
Banco Santander S.A.	Brazil		—			98.08	%		98.08	%	BANKING		3,078		505			3,771
Banco Santander Totta, S.A.	Portugal		—			99.72	%		99.86	%	BANKING		1,416		343			2,343
Banco Santander, S.A.	Uruguay		90.93	%		9.07	%		100.00	%	BANKING		43		12			48
Banco Santander, S.A., Institución de Banca Múltiple, Grupo Financiero Santander	Mexico		—			74.95	%		99.99	%	BANKING		3,150		683			1,647
Banco Totta de Angola, SARL	Angola		—			99.70	%		99.99	%	BANKING		54		14			19
Banesto B2B, S.L.	Spain		—			100.00	%		100.00	%	IT		2		—			1
Banesto Banca Privada Gestión, S.A. S.G.I.I.C.	Spain		—			89.19	%		100.00	%	FUND MANAGEMENT COMPANY		2		—			2
Banesto Banca Privada Global, SICAV, S.A.	Spain		—			81.07	%		90.89	%	OPEN-END INVESTMENT COMPANY		15		—			2
Banesto Banco de Emisiones, S.A.	Spain		—			89.19	%		100.00	%	BANKING		99		1			87
Banesto Bolsa, S.A., Sdad. Valores y Bolsa	Spain		—			89.19	%		100.00	%	BROKER-DEALER		93		9			31
Banesto Delaware Inc.	United States		—			89.19	%		100.00	%	FINANCE		—		—			—
Banesto Factoring, S.A. Establecimiento Financiero de Crédito	Spain		—			89.19	%		100.00	%	FACTORING		111		5			105
Banesto Financial Products, Plc.	Ireland		—			89.19	%		100.00	%	FINANCE		—		—			—
Banesto Issuances, Ltd.	Cayman Islands		—			89.19	%		100.00	%	FINANCE		1		—			—
Banesto Renting, S.A.	Spain		—			89.19	%		100.00	%	FINANCE		10		2			2
Banesto Securities, Inc.	United States		—			89.19	%		100.00	%	FINANCE		1		1			2
Banesto Servicios y Tecnología Aplicada, S.A.	Spain		—			100.00	%		100.00	%	SERVICES		4		—			4
Banesto, S.A.	Spain		—			89.19	%		100.00	%	FINANCE		—		—			—
Banif Gestión, S.A., S.G.I.I.C.	Spain		—			97.84	%		100.00	%	FUND MANAGEMENT COMPANY		23		2			15
Banif Inmobiliario, S.A., Sole-Shareholder Company	Spain		—			100.00	%		100.00	%	PROPERTY		1		2			—
Bansa Santander S. A.	Chile		—			99.99	%		99.99	%	PROPERTY		2		—			23
Bansalease, S.A., E.F.C.	Spain		100.00	%		—			100.00	%	LEASING		84		4			57
Bansamex, S.A.	Spain		50.00	%		—			50.00	%	CARDS		3		1			1
Bansander, S.A., Sole-Shareholder Company	Spain		100.00	%		—			100.00	%	SECURITIES INVESTMENT		—		—			—
Bel Canto SICAV Erodiade	Luxembourg		—			100.00	%		100.00	%	OPEN-END INVESTMENT COMPANY		1		—			1
Beta Cero, S.A.	Spain		—			78.49	%		88.00	%	FINANCE		—		—			—
Brazil Foreign Diversified Payment Rights Finance Company	Cayman Islands		—				(b)		—		SECURITISATION		—		—			—
Brettwood Limited	Jersey		—			100.00	%		100.00	%	SERVICES		—		—			—
BRS Investment, S.A.	Argentina		—			100.00	%		100.00	%	HOLDING COMPANY		19		1			237
BSN — Banco Santander de Negocios Portugal, S.A.	Portugal		—			99.86	%		100.00	%	BANKING		78		38			28
BST International Bank, Inc.	Puerto Rico		—			99.72	%		100.00	%	BANKING		232		17			3
Buhal Leasing, Ltd.	United Kingdom		100.00	%		—			100.00	%	LEASING		2		—			2
CA Premier Banking Limited	United Kingdom		—			100.00	%		100.00	%	BANKING		5		—			5
Caetra Iberia, S.L., Sole-Shareholder Company	Spain		—			100.00	%		100.00	%	HOLDING COMPANY		4		—			3
Caja de Emisiones con Garantía de Anualidades Debidas por el Estado, S.A.	Spain		—			56.08	%		62.87	%	FINANCE		—		—			—
Cambios Sol, S.A.	Spain		—			89.19	%		100.00	%	CURRENCY TRADING		—		—			4
Cántabra de Inversiones, S.A.	Spain		100.00	%		—			100.00	%	HOLDING COMPANY		204		(78	)		218
Cantabric Financing, Plc.	Ireland		—				(b)		—		SECURITISATION		—		—			—
Cántabro Catalana de Inversiones, S.A.	Spain		100.00	%		—			100.00	%	HOLDING COMPANY		169		15			140
Capital Riesgo Global, SCR de Régimen Simplificado, S.A.	Spain		87.09	%		12.91	%		100.00	%	VENTURE CAPITAL COMPANY		366		34			321
Capital Variable SICAV, S.A.	Spain		—			95.83	%		97.95	%	OPEN-END INVESTMENT COMPANY		7		—			7
Carfax (Guernsey) Limited	Guernsey		—			100.00	%		100.00	%	INSURANCE BROKERAGE		81		5			27
Carpe Diem Salud, S.L.	Spain		100.00	%		—			100.00	%	SECURITIES INVESTMENT		—		—			—
Cartera Mobiliaria, S.A., SICAV	Spain		—			74.49	%		89.63	%	SECURITIES INVESTMENT		598		15			201
Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander	Mexico		—			74.93	%		99.97	%	BROKER-DEALER		24		15			28
Cater Allen Holdings Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		142		—			117

F-208


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of							Net Profit			Amount of
								Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

Cater Allen International Limited	United Kingdom		—			100.00	%		100.00	%	BROKER-DEALER		337			50			161
Cater Allen Limited	United Kingdom		—			100.00	%		100.00	%	BANKING		240			25			303
Cater Allen Lloyd’s Holdings Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		(12	)		—			—
Cater Allen Nominees (Jersey) Limited	Jersey		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—
Cater Allen Pensions Limited	United Kingdom		—			100.00	%		100.00	%	PENSION FUND MANAGEMENT COMPANY		—			—			—
Cater Allen Registrars Limited	Jersey		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—
Cater Allen Syndicate Management Limited	United Kingdom		—			100.00	%		100.00	%	ADVISORY SERVICES		2			—			—
Cater Allen Trust Company (Jersey) Limited	Jersey		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		—			—			—
Cater Tyndall Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		31			(5	)		162
Catmoll, S.L.	Spain		100.00	%		—			100.00	%	CONCESSION HOLDER		8			—			6
CB Extrobank	Russia		—			100.00	%		100.00	%	BANKING		37			(3	)		44
Central Inmobiliaria de Santiago, S.A. de C.V.	Mexico		100.00	%		—			100.00	%	PROPERTY MANAGEMENT		68			(1	)		73
Centro de Equipamientos Zona Oeste, S.A.	Spain		93.62	%		6.38	%		100.00	%	PROPERTY		(21	)		(42	)		43
Certidesa, S.L.	Spain		—			100.00	%		100.00	%	LEASE OF AIRCRAFT		6			(13	)		—
Clínica Sear, S.A.	Spain		—			45.11	%		50.58	%	HEALTHCARE		6			(1	)		1
Club Zaudin Golf, S.A.	Spain		—			75.84	%		95.11	%	SERVICES		15			—			13
Comercializadora Al-fin, S.A. de C.V.	Mexico		—			85.00	%		100.00	%	RETAIL TRADE		—			—			—
Corpoban, S.A.	Spain		—			89.19	%		100.00	%	SECURITIES INVESTMENT		71			2			61
Costa Canaria de Veneguera, S.A.	Spain		—			66.16	%		74.18	%	PROPERTY		14			(1	)		9
Crawfall S.A.	Uruguay		100.00	%		—			100.00	%	SERVICES		19			(21	)		—
Credisol, S.A.	Uruguay		—			100.00	%		100.00	%	CARDS		—			—			6
Crefisa, Inc.	Puerto Rico		100.00	%		—			100.00	%	FINANCE		24			(2	)		17
Darep Limited	Ireland		—			100.00	%		100.00	%	REINSURANCE		4			—			4
Debt Management and Recovery Services Limited	United Kingdom		—			100.00	%		100.00	%	DEBT COLLECTION AND PAYMENT SERVICES		—			—			—
Depósitos Portuarios, S.A.	Spain		—			89.19	%		100.00	%	SERVICES		—			—			—
Desarrollo Informático, S.A.	Spain		—			89.19	%		100.00	%	IT		2			—			2
Digital Procurement Holdings N.V.	Netherlands		—			88.40	%		100.00	%	HOLDING COMPANY		3			2			1
Diners Club Spain, S.A.	Spain		90.00	%		—			90.00	%	CARDS		9			3			7
Dirección Estratega, S.C.	Mexico		—			85.00	%		100.00	%	SERVICES		—			—			—
Diseño e Integración de Soluciones, S.A.	Spain		—			89.19	%		100.00	%	IT		2			—			1
Drive ABS GP LLC	United States		—			90.00	%		100.00	%	INACTIVE		—			—			—
Drive ABS LP	United States		—			90.00	%		100.00	%	INACTIVE		32			—			7
Drive Auto Receivables Trust 2004-1	United States		—				(b)		—		SECURITISATION		—			—			—
Drive Auto Receivables Trust 2005-1	United States		—				(b)		—		SECURITISATION		—			—			—
Drive Auto Receivables Trust 2005-2	United States		—				(b)		—		SECURITISATION		—			—			—
Drive Auto Receivables Trust 2005-3	United States		—				(b)		—		SECURITISATION		—			—			—
Drive Auto Receivables Trust 2006-1	United States		—				(b)		—		SECURITISATION		—			—			—
Drive Auto Receivables Trust 2006-2	United States		—				(b)		—		SECURITISATION		—			—			—
Drive Consumer GP LLC	United States		—			90.00	%		100.00	%	INACTIVE		—			—			—
Drive Consumer LP	United States		—			90.00	%		100.00	%	INACTIVE		24			—			2
Drive Health & Welfare Benefit Plan	United States		—			90.00	%		100.00	%	SERVICES		—			1			—
Drive One LLC	United States		—			90.00	%		100.00	%	INACTIVE		—			—			—
Drive Receivables Corp. 10	United States		—			90.00	%		100.00	%	SECURITISATION		—			—			—
Drive Receivables Corp. 11	United States		—			90.00	%		100.00	%	SECURITISATION		—			—			—
Drive Receivables Corp. 12	United States		—			90.00	%		100.00	%	SECURITISATION		—			—			—
Drive Receivables Corp. 7	United States		—			90.00	%		100.00	%	SECURITISATION		—			—			—
Drive Receivables Corp. 8	United States		—			90.00	%		100.00	%	SECURITISATION		—			—			—
Drive Receivables Corp. 9	United States		—			90.00	%		100.00	%	SECURITISATION		—			—			—
Drive Residual Holdings GP LLC	United States		—			90.00	%		100.00	%	HOLDING COMPANY		—			—			—
Drive Residual Holdings LP	United States		—			90.00	%		100.00	%	AUXILIARY		—			—			—
Drive Trademark Holdings LP	United States		—			90.00	%		100.00	%	AUXILIARY		—			—			—
Drive VFC GP LLC	United States		—			90.00	%		100.00	%	INACTIVE		26			(78	)		—
Drive VFC LP	United States		—			90.00	%		100.00	%	INACTIVE		—			—			—
Drive Warehouse GP LLC	United States		—			90.00	%		100.00	%	HOLDING COMPANY		—			—			—
Drive Warehouse LP	United States		—			90.00	%		100.00	%	AUXILIARY		—			—			—
Duchess Parade Investments Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		2			—			1
Dudebasa, S.A.	Spain		—			89.19	%		100.00	%	FINANCE		44			1			22

F-209


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of							Net Profit			Amount of
								Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

Efearvi, S.A.	Spain		—			89.19	%		100.00	%	PROPERTY		—			—			—
Efectividad en Medios de Pago, S.A. de C.V.	Mexico		98.61	%		1.39	%		100.00	%	BROKER-DEALER		23			1			10
Elerco, S.A.	Spain		—			89.19	%		100.00	%	LEASING		270			13			124
Fábricas Agrupadas de Muñecas de Onil, S.A. (consolidated) (g)	Spain		—			74.86	%		74.86	%	HOLDING COMPANY		18			(6	)		16
FC Factor S.r.l.	Italy		—			100.00	%		100.00	%	FACTORING		2			(1	)		1
FFB — Participaçoes e Serviços, Sociedade Unipessoal, S.A.	Portugal		—			100.00	%		100.00	%	HOLDING COMPANY		3,586			147			1,020
Fideicomiso 100740 SLPT	Mexico		—			74.95	%		100.00	%	FINANCE		41			3			28
Fideicomiso Financiero Río Personales I	Argentina		—				(b)		—		SECURITIES		4			2			—
Fideicomiso GFSSLPT Banca Serfín, S.A.	Mexico		—			74.95	%		100.00	%	FINANCE		41			1			25
Fideicomiso Super Letras Hipotecarias Clase I	Argentina		—				(b)		—		SECURITIES		1			—			—
Fideicomiso Super Letras Hipotecarias Clase II	Argentina		—				(b)		—		SECURITIES		3			—			—
Financiación Banesto 1, F.T.A.	Spain		—				(b)		—		SECURITISATION		—			—			—
FINANCE Alcanza, S.A. de C.V., Sociedad FINANCE de Objeto Múltiple, Entidad Regulada	Mexico		—			85.00	%		100.00	%	FINANCE		6			(2	)		3
First National Motor Business Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		—			—			—
First National Motor Contracts Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		(1	)		—			—
First National Motor Facilities Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		—			—			—
First National Motor Finance Limited	United Kingdom		—			100.00	%		100.00	%	ADVISORY SERVICES		—			—			—
First National Motor Leasing Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		—			—			—
First National Motor plc	United Kingdom		—			100.00	%		100.00	%	LEASING		(49	)		32			—
Fomento e Inversiones, S.A.	Spain		100.00	%		—			100.00	%	HOLDING COMPANY		18			24			17
Fondo de Titulización de Activos Santander 1	Spain		—				(b)		—		SECURITISATION		—			—			—
Fondo de Titulización de Activos Santander Empresas 1	Spain		—				(b)		—		SECURITISATION		—			—			—
Fondo de Titulización de Activos Santander Empresas 2	Spain		—				(b)		—		SECURITISATION		—			—			—
Fondo de Titulización de Activos Santander Empresas 3	Spain		—				(b)		—		SECURITISATION		—			—			—
Fondo de Titulización de Activos Santander Empresas 4	Spain		—				(b)		—		SECURITISATION		—			—			—
Fondo de Titulización de Activos Santander Público 1	Spain		—				(b)		—		SECURITISATION		—			—			—
Fondo de Titulización Santander Financiación 1	Spain		—				(b)		—		SECURITISATION		—			—			—
Fondo de Titulización Santander Financiación 2	Spain		—				(b)		—		SECURITISATION		—			—			—
Fondos Santander, S.A. Administradora de Fondos de Inversión	Uruguay		—			100.00	%		100.00	%	FUND MANAGEMENT COMPANY		—			—			1
Formación Integral, S.A.	Spain		—			89.19	%		100.00	%	TRAINING		1			—			1
Fortensky Trading, Ltd.	Ireland		—			100.00	%		100.00	%	FINANCE		—			—			—
FTA Santander Consumer Spain Auto 06	Spain		—				(b)		—		SECURITISATION		4			(3	)		—
FTPYME Banesto 2 Fondo de Titulización de Activos	Spain		—				(b)		—		SECURITISATION		—			—			—
FTPYME Santander 2 Fondo de Titulización de Activos	Spain		—				(b)		—		SECURITISATION		—			—			—
Gamo Tenedora, S.L.	Spain		—			100.00	%		100.00	%	SERVICES		—			—			—
Gedinver e Inmuebles, S.A.	Spain		—			89.19	%		100.00	%	FINANCE		5			1			6
Geoban UK Limited	United Kingdom		—			100.00	%		100.00	%	SERVICES		—			—			—
Geoban, S.A.	Spain		99.99	%		0.01	%		100.00	%	SERVICES		9			(2	)		12
Gesban Servicios Administrativos Globales, S.L.	Spain		99.99	%		0.01	%		100.00	%	SERVICES		1			—			1
Gescoban Soluciones, S.A.	Spain		—			89.19	%		100.00	%	FINANCE		2			1			1
Gestión de Actividades Tecnológicas, S.A.	Spain		99.98	%		0.02	%		100.00	%	SECURITIES INVESTMENT		(20	)		1			—
Gestión de Instalaciones Fotovoltáicas, S.L., Sole-Shareholder Company	Spain		—			100.00	%		100.00	%	ELECTRICITY		—			—			—
Gestión Industrial Hispamer, S.A.	Spain		100.00	%		0.01	%		100.00	%	SECURITIES INVESTMENT		(37	)		—			—
Gestión Santander, S.A. de C.V., Sociedad Operadora de Sociedades de Inversión, Grupo Financiero Santander	Mexico		—			74.96	%		100.00	%	FINANCE		14			9			1
Gire, S.A.	Argentina		—			57.92	%		58.33	%	COLLECTION AND PAYMENT SERVICES		5			3			1
Golden Bar (Securitisation) S.r.l.	Italy		—				(b)		—		SECURITISATION		—			—			—
Grupo Alcanza, S.A. de C.V.	Mexico		—			85.00	%		85.00	%	HOLDING COMPANY		25			(2	)		29
Grupo Empresarial Santander, S.L.	Spain		99.11	%		0.89	%		100.00	%	HOLDING COMPANY		3,066			921			4,005
Grupo Eurociber, S.A.	Spain		—			100.00	%		100.00	%	SERVICES		—			—			—
Grupo Financiero Santander, S.A. de C.V.	Mexico		74.75	%		0.21	%		74.96	%	HOLDING COMPANY		3,264			720			1,883
Grupo Inmobiliario La Corporación Banesto, S.A.	Spain		—			89.19	%		100.00	%	SECURITIES INVESTMENT		11			1			22
Grupo Santander Perú, S.A.	Peru		—			100.00	%		100.00	%	HOLDING COMPANY		7			(3	)		328
Guaranty Car, S.A., Sole-Shareholder Company	Spain		—			100.00	%		100.00	%	AUTOMOTIVE		2			1			—
H.B.F. Aluguer e Comercio de Viaturas, S.A.	Portugal		—			100.00	%		100.00	%	FULL-SERVICE LEASE		—			—			—
H.B.F. Auto-Renting, S.A., Sole-Shareholder Company	Spain		—			100.00	%		100.00	%	HOLDING COMPANY		10			1			2
Hipotebansa EFC, S.A.	Spain		100.00	%		—			100.00	%	MORTGAGE LOAN COMPANY		46			4			36

F-210


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of							Net Profit			Amount of
								Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

Hipototta No. 1 FTC	Portugal		—				(b)		—		SECURITISATION		3			(1	)		—
Hipototta No. 1 plc	Ireland		—				(b)		—		SECURITISATION		(3	)		—			—
Hipototta No. 2 FTC	Portugal		—				(b)		—		SECURITISATION		1			(1	)		—
Hipototta No. 2 plc	Ireland		—				(b)		—		SECURITISATION		(9	)		—			—
Hipototta No. 3 FTC	Portugal		—				(b)		—		SECURITISATION		9			(2	)		—
Hipototta No. 3 plc	Ireland		—				(b)		—		SECURITISATION		(14	)		—			—
Hipototta No. 4 FTC	Portugal		—				(b)		—		SECURITISATION		7			(3	)		—
Hipototta No. 4 plc	Ireland		—				(b)		—		SECURITISATION		(12	)		(2	)		—
Hipototta No. 5 FTC	Portugal		—				(b)		—		SECURITISATION		—			—			—
Hipototta No. 5 plc	Ireland		—				(b)		—		SECURITISATION		—			—			—
Hipototta No. 6 FTC	Portugal		—				(b)		—		SECURITISATION		—			—			—
Hipototta No. 6 plc	Ireland		—				(b)		—		SECURITISATION		—			—			—
Hispamer Renting, S.A.	Spain		—			100.00	%		100.00	%	FULL-SERVICE LEASE		9			6			1
Holbah II Limited	Bahamas		—			100.00	%		100.00	%	HOLDING COMPANY		980			(8	)		1,115
Holbah Limited	Bahamas		—			100.00	%		100.00	%	HOLDING COMPANY		204			195			261
Holmes Financing (Nº1) plc	United Kingdom		—				(b)		—		FINANCE		1			—			—
Holmes Financing (Nº10) plc	United Kingdom		—				(b)		—		FINANCE		(1	)		(23	)		—
Holmes Financing (Nº2) plc	United Kingdom		—				(b)		—		FINANCE		—			—			—
Holmes Financing (Nº3) plc	United Kingdom		—				(b)		—		FINANCE		—			—			—
Holmes Financing (Nº4) plc	United Kingdom		—				(b)		—		FINANCE		—			—			—
Holmes Financing (Nº5) plc	United Kingdom		—				(b)		—		FINANCE		—			—			—
Holmes Financing (Nº6) plc	United Kingdom		—				(b)		—		FINANCE		—			—			—
Holmes Financing (Nº7) plc	United Kingdom		—				(b)		—		FINANCE		—			—			—
Holmes Financing (Nº8) plc	United Kingdom		—				(b)		—		FINANCE		(1	)		2			—
Holmes Financing (Nº9) plc	United Kingdom		—				(b)		—		FINANCE		—			—			—
Holmes Funding Limited	United Kingdom		—				(b)		—		FINANCE		58			97			—
Holmes Holdings Limited	United Kingdom		—				(b)		—		HOLDING COMPANY		—			—			—
Holmes Master Issuer plc	United Kingdom		—				(b)		—		FINANCE		—			(15	)		—
Holmes Trustees Limited	United Kingdom		—				(b)		—		FINANCE		—			—			—
Holneth B.V.	Netherlands		—			100.00	%		100.00	%	HOLDING COMPANY		196			147			9
HSH Delaware L.P. (c)	United States		—			69.25	%		—		HOLDING COMPANY		42			—			36
Hualle, S.A.	Spain		—			89.19	%		100.00	%	SECURITIES INVESTMENT		1			41			5
Ibérica de Compras Corporativas, S.L.	Spain		80.63	%		7.77	%		89.00	%	e-COMMERCE		3			2			4
IEM (Holland) Aircraft Lease B.V.	Netherlands		—			100.00	%		100.00	%	LEASING		—			—			—
IEM 757 Leasing I B.V.	Netherlands		—			100.00	%		100.00	%	LEASING		—			—			—
IEM Airfinance B.V.	Netherlands		—			100.00	%		100.00	%	LEASING		(1	)		—			—
IEM Lease Aircraft B.V.	Netherlands		—			100.00	%		100.00	%	LEASING		—			—			—
Infraestructuras Americanas, S.L.	Spain		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—
Ingeniería de Software Bancario, S.L.	Spain		100.00	%		—			100.00	%	IT SERVICES		83			(21	)		76
Inmobiliaria Lerma y Amazonas, S.A. De C.V.	Mexico		—			74.93	%		100.00	%	PROPERTY MANAGEMENT		18			1			11
Inmo Francia 2, S.A.	Spain		—			100.00	%		100.00	%	PROPERTY		8			—			8
Inmuebles B de V 1985 C.A.	Venezuela		—			35.63	%		100.00	%	PROPERTY MANAGEMENT		—			—			—
Instituto Santander Serfin, A.C.	Mexico		—			74.95	%		100.00	%	NOT-FOR-PROFIT INSTITUTE		2			—			—
Insurance Funding Solutions Limited	United Kingdom		—			100.00	%		100.00	%	FINANCE		(35	)		19			—
Integrated Securities Services, S.A.	Spain		—			100.00	%		100.00	%	SERVICES		1			—			1
Integritas (Canada) Trustee Corporation Ltd.	Canada		100.00	%		—			100.00	%	ASSET MANAGEMENT COMPANY		—			—			—
Integritas New Zealand Ltd.	New Zealand		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		—			—			—
Integritas Trust SA	Switzerland		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		1			—			—
Internacional Compañía Seguros de Vida, S.A.	Argentina		—			59.20	%		59.20	%	INSURANCE		18			19			10
Inversiones Marítimas del Mediterráneo, S.A.	Spain		100.00	%		—			100.00	%	HOLDING COMPANY		2			1			1
Inversiones Tesoreras SICAV, S.A.	Spain		—			76.32	%		76.32	%	OPEN-END INVESTMENT COMPANY		13			—			8
Inversiones Turísticas, S.A.	Spain		—			89.19	%		100.00	%	HOSPITALITY		34			1			32
Isban DE GmbH	Germany		—			100.00	%		100.00	%	IT SERVICES		—			9			—
Isban U.K., Ltd.	United Kingdom		—			100.00	%		100.00	%	IT SERVICES		2			2			—
ISBAN PT — Engenheria e Software Bancário, S.A.	Portugal		—			99.93	%		100.00	%	IT SERVICES		1			—			—
Island Insurance Corporation	Puerto Rico		—			90.59	%		100.00	%	INSURANCE		4			—			3
IT Car — Aluguer e Comércio de Automóveis, S.A.	Portugal		—			100.00	%		100.00	%	LEASING		3			—			2

F-211


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of							Net Profit			Amount of
								Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

Itasant Sociedade Gestora de Participaçoes Sociais Sociedade Unipessoal, Lda.	Portugal		—			100.00	%		100.00	%	HOLDING COMPANY		302			(20	)		92
J.C. Flowers II-A L.P. (c)	Canada		—			69.40	%		—		HOLDING COMPANY		16			(2	)		39
James Hay Administration Company Limited	United Kingdom		—			100.00	%		100.00	%	FUND AND PORTFOLIO MANAGEMENT		12			5			12
James Hay Holdings Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		(9	)		1			252
James Hay Insurance Company Limited	Jersey		—			100.00	%		100.00	%	INSURANCE BROKERAGE		17			1			16
James Hay Pension Trustees Limited	United Kingdom		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		3			—			3
James Hay Wrap Managers Limited	United Kingdom		—			100.00	%		100.00	%	FUND AND PORTFOLIO MANAGEMENT		4			—			4
JCF II-A Special AIV K L.P. (m)	Canada		—			69.53	%		—		HOLDING COMPANY		—			—			—
La Unión Resinera Española, S.A. (consolidated)	Spain		74.87	%		21.28	%		96.23	%	CHEMICALS		50			—			28
Laboratorios Indas, S.A. (e)	Spain		—			73.41	%		100.00	%	PHARMACEUTICALS		147			10			27
Laparanza, S.A. (c)	Spain		61.59	%		—			61.59	%	AGRICULTURE AND LIVESTOCK		28			1			16
Larix Chile Inversiones, Ltda.	Chile		—			89.19	%		100.00	%	PROPERTY		—			—			—
Larix Limited	Isle of Man		—			89.19	%		100.00	%	PROPERTY		2			—			1
Latinoenvíos, S.A.	Spain		100.00	%		—			100.00	%	IMMIGRANT REMITTANCES		1			—			1
LLC Amstoun	Russia		—			100.00	%		100.00	%	INACTIVE		1			—			8
LLC Finance Analize	Russia		—			100.00	%		100.00	%	INACTIVE		6			—			8
LLC Fincommerts	Russia		—			100.00	%		100.00	%	INACTIVE		1			—			8
LLC Firm Knommunlnz Stroi	Russia		—			100.00	%		100.00	%	INACTIVE		3			—			16
LLC Mark Strit	Russia		—			100.00	%		100.00	%	INACTIVE		1			—			8
Luresa Inmobiliaria, S.A.	Spain		—			96.14	%		100.00	%	PROPERTY		19			1			9
Luri 1, S.A.	Spain		—			5.58	%		100.00	%	PROPERTY		101			2			6
Luri 2, S.A.	Spain		—			4.81	%		100.00	%	PROPERTY		101			1			5
Luri Land, S.A.	Belgium		—			5.15	%		100.00	%	PROPERTY		6			—			—
MAC No. 1 Limited (i)	United Kingdom		—				(b)		—		MORTGAGE LOAN COMPANY		—			—			—
Madeisisa — SGPS Sociedade Unipessoal, Lda.	Portugal		—			99.72	%		100.00	%	HOLDING COMPANY		9			—			3
Marylebone Road CBO 3 BV	Netherlands		—				(b)		—		FINANCE		—			—			—
Mata Alta, S.L.	Spain		—			61.59	%		100.00	%	PROPERTY		—			—			—
Mercado de Dinero, S.A.	Spain		—			89.19	%		100.00	%	SECURITIES INVESTMENT		—			—			—
Merciver, S.L.	Spain		—			89.19	%		100.00	%	SHIPPING COMPANY		—			—			—
Moneda y Crédito, S.L.	Spain		50.00	%		—			100.00	%	ADVERTISING		—			—			—
Multifinance Corporation Limited (1)	Malta		—			99.00	%		99.00	%	HOLDING COMPANY		—			—			—
Multinegocios S.A.	Chile		—				(b)		—		ADVISORY SERVICES		—			—			—
MultiRent — Aluguer e Comércio de Automóveis, S.A.	Portugal		—			60.00	%		100.00	%	FULL-SERVICE LEASE		(4	)		—			17
Multiservicios de Negocios Limitada	Chile		—				(b)		—		FINANCIAL SERVICES		—			—			—
N&P (B.E.S.) Loans Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		148			6			132
Naviera Mirambel, S.L.	Spain		—			100.00	%		100.00	%	FINANCE		—			—			—
Naviera Trans Gas, A.I.E.	Spain		99.99	%		0.01	%		100.00	%	SHIPPING COMPANY		35			6			35
NIB Special Investors IV-A LP (c)	Canada		—			99.51	%		—		HOLDING COMPANY		43			12			49
NIB Special Investors IV-B LP (c)	Canada		—			96.00	%		—		HOLDING COMPANY		34			4			29
Norbest A.S.	Norway		7.94	%		92.06	%		100.00	%	SECURITIES INVESTMENT		506			(133	)		473
Nova Bostwick (Portugal) Fabrica de Portas Metalicas, Ltd. (c)	Portugal		—			99.72	%		100.00	%	DOOR MANUFACTURE		—			—			—
NW Services CO.	United States		—			88.40	%		100.00	%	e-COMMERCE		1			—			1
Oil-Dor, S.A.	Spain		—			89.19	%		100.00	%	FINANCE		147			2			109
Open Bank Santander Consumer, S.A.	Spain		—			100.00	%		100.00	%	BANKING		44			23			47
Operadora de Derivados Serfin, S.A. De C.V.	Mexico		—			74.95	%		100.00	%	FINANCE		—			—			—
OPQR s.r.o.	Slovakia		—			100.00	%		100.00	%	FINANCE		—			—			—
Optimal Alternative Investments, S.G.I.I.C., S.A.	Spain		—			100.00	%		100.00	%	FUND MANAGEMENT COMPANY		2			(1	)		2
Optimal Investment Services SA	Switzerland		—			99.99	%		99.99	%	FUND MANAGEMENT COMPANY		30			16			5
Pan American Bank Limited	Bahamas		—			100.00	%		100.00	%	BANKING		2			—			21
Parasant SA	Switzerland		100.00	%		—			100.00	%	HOLDING COMPANY		1,116			(1	)		1,089
Patagon Euro, S.L.	Spain		100.00	%		—			100.00	%	HOLDING COMPANY		672			26			587
PECOH Limited	United Kingdom		—				(b)		—		FINANCE		—			—			—
Peninsular, S.A.R.L.	France		99.99	%		—			99.99	%	PROPERTY		1			—			9
Pereda Gestión, S.A.	Spain		99.99	%		0.01	%		100.00	%	HOLDING COMPANY		(23	)		61			4
Pingham International, S.A.	Uruguay		—			100.00	%		100.00	%	SERVICES		—			—			—
Polskie Towarzystwo Finansowe S.A.	Poland		—			100.00	%		100.00	%	SERVICES		3			—			35
Polyfinances Holding Limited (1)	Malta		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—

F-212


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of							Net Profit			Amount of
								Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

Polyfinances, S.A.	Luxembourg		—			100.00	%		100.00	%	HOLDING COMPANY		—			—			—
Portada, S.A.	Chile		—			96.17	%		96.17	%	FINANCE		6			—			5
Portal Universia Argentina, S.A.	Argentina		—			94.50	%		94.50	%	INTERNET		1			(1	)		—
Portal Universia Portugal, Prestaçao de Serviços de Informática, S.A.	Portugal		—			100.00	%		100.00	%	INTERNET		1			—			—
Portal Universia, S.A.	Spain		—			67.77	%		67.77	%	INTERNET		5			(1	)		4
Porterbrook Leasing Company Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		625			93			420
Porterbrook Leasing Company MEBO Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		151			(4	)		678
Porterbrook Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		363			(14	)		407
Porterbrook Maintenance Limited	United Kingdom		—			100.00	%		100.00	%	MAINTENANCE SERVICES		153			7			—
Préstamos de Consumo, S.A.	Argentina		—			100.00	%		100.00	%	FINANCE		—			—			7
Procura Digital de Venezuela, S.A.	Venezuela		—			88.40	%		100.00	%	e-COMMERCE		1			—			2
Procuradigital S. de R.L. de C.V.	Mexico		—			88.40	%		100.00	%	e-COMMERCE		1			—			1
Produban Servicios Informáticos Generales, S.L.	Spain		98.00	%		2.00	%		100.00	%	SERVICES		(11	)		(2	)		—
Produban Serviços de Informática S.A.	Brazil		—			98.08	%		100.00	%	BROKER-DEALER		4			—			5
Programa Hogar Montigalá, S.A.	Spain		—			89.19	%		100.00	%	PROPERTY		7			—			7
Promoción de Servicios Integrales, S.A. De C.V.	Mexico		—			100.00	%		100.00	%	SERVICES		—			—			—
Promociones y Servicios Santiago, S.A. de C.V.	Mexico		—			100.00	%		100.00	%	SERVICES		—			—			—
Promotora AFR de Venezuela, S.A.	Venezuela		—			98.40	%		99.98	%	ADVISORY SERVICES		—			—			4
Promotora Herlosacantos, S.A. (c)	Spain		—			50.00	%		50.00	%	PROPERTY		—			—			—
Proyecto Europa, S.A.	Spain		—			89.19	%		100.00	%	ADVISORY SERVICES		—			—			—
Renting de Instalaciones Fotovoltáicas, S.A.	Spain		—			89.19	%		100.00	%	ELECTRICITY		—			—			—
Riobank International (Uruguay) SAIFE	Uruguay		—			100.00	%		100.00	%	BANKING		18			—			15
Rue Villot 26, S.L.	Spain		—			80.00	%		80.00	%	PROPERTY		26			—			24
S C Servicios y Cobranzas S.A.	Colombia		—			97.76	%		100.00	%	COLLECTION AND PAYMENT SERVICES		—			—			—
SAG International Finance Company Limited	Ireland		—			60.00	%		100.00	%	SECURITISATION		3			(1	)		1
Sánchez Ramade Santander FINANCE, S.L.	Spain		—			50.00	%		50.00	%	FINANCIAL SERVICES		—			—			—
Sandywick Limited	Jersey		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		2			—			—
Saninv Gestao e Investimentos, S.A.	Portugal		—			100.00	%		100.00	%	HOLDING COMPANY		114			(63	)		57
Santana Credit E.F.C., S.A.	Spain		—			100.00	%		100.00	%	FINANCE		8			—			5
Santander Administradora de Consórcios Ltda.	Brazil		—			98.08	%		100.00	%	FINANCE		1			—			1
Santander Airplus Corporate Payment Solutions, S.A.	Spain		75.00	%		—			75.00	%	PAYMENT SYSTEMS		—			—			—
Santander AM Holding, S.L.	Spain		100.00	%		—			100.00	%	HOLDING COMPANY		100			13			6
Santander Asset Management — Sociedade Gestora de Fundos de Investimento Mobiliário, S.A.	Portugal		—			99.86	%		100.00	%	FUND MANAGEMENT COMPANY		27			9			7
Santander Asset Management Chile S.A.	Chile		0.01	%		99.83	%		100.00	%	SECURITIES INVESTMENT		—			—			9
Santander Asset Management Corporation	Puerto Rico		—			90.59	%		100.00	%	ASSET MANAGEMENT		(3	)		6			2
Santander Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda.	Brazil		—			98.08	%		100.00	%	ASSET MANAGEMENT		22			6			22
Santander Asset Management Ireland, Ltd.	Ireland		—			100.00	%		100.00	%	FUND MANAGEMENT COMPANY		16			1			—
Santander Asset Management Luxembourg, S.A.	Luxembourg		—			97.84	%		100.00	%	FUND MANAGEMENT COMPANY		1			2			—
Santander Asset Management S.A. Administradora General de Fondos	Chile		—			76.74	%		100.00	%	FUND MANAGEMENT COMPANY		75			27			8
Santander Asset Management UK Holdings Limited	United Kingdom		—			100.00	%		100.00	%	HOLDING COMPANY		183			—			183
Santander Asset Management UK Limited	United Kingdom		—			100.00	%		100.00	%	FUND AND PORTFOLIO MANAGEMENT		13			1			11
Santander Asset Management, S.A., S.G.I.I.C.	Spain		28.30	%		69.54	%		100.00	%	FUND MANAGEMENT COMPANY		93			70			33
Santander BanCorp	Puerto Rico		—			90.59	%		91.34	%	HOLDING COMPANY		476			(20	)		198
Santander Bank & Trust Ltd.	Bahamas		—			100.00	%		100.00	%	BANKING		1,498			211			1,078
Santander Benelux, S.A./N.V.	Belgium		100.00	%		—			100.00	%	BANKING		940			43			925
Santander Brasil Arrendamento Mercantil S.A.	Brazil		—			98.08	%		100.00	%	LEASING		179			6			125
Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários	Brazil		—			98.08	%		100.00	%	BROKER-DEALER		26			41			19
Santander Brasil Seguros S.A.	Brazil		—			99.38	%		100.00	%	INSURANCE		4			16			14
Santander Capital Desarrollo, SGECR, S.A.	Spain		100.00	%		—			100.00	%	VENTURE CAPITAL COMPANY		1			1			—
Santander Capitalizaçao S.A.	Brazil		—			99.38	%		100.00	%	FINANCE		2			21			6
Santander Cards Limited	United Kingdom		100.00	%		—			100.00	%	FINANCIAL SERVICES		132			(50	)		149
Santander Carteras, S.G.C., S.A.	Spain		—			100.00	%		100.00	%	FUND MANAGEMENT COMPANY		18			3			8
Santander Central Hispano Finance (Delaware) Inc.	United States		100.00	%		—			100.00	%	FINANCE		2			—			—
Santander Central Hispano Finance B.V. (1)	Netherlands		100.00	%		—			100.00	%	FINANCE		1			—			—
Santander Central Hispano Financial Services Limited	Cayman Islands		100.00	%		—			100.00	%	FINANCE		1			1			—
Santander Central Hispano International Limited	Cayman Islands		100.00	%		—			100.00	%	FINANCE		3			—			—

F-213


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of							Net Profit			Amount of
								Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

Santander Central Hispano Issuances Limited	Cayman Islands		100.00	%		—			100.00	%	FINANCE		2			—			—
Santander Chile Holding, S.A.	Chile		22.11	%		77.40	%		99.51	%	HOLDING COMPANY		562			155			279
Santander Commercial Paper, S.A., Sole-Shareholder Company	Spain		100.00	%		—			100.00	%	FINANCE		—			—			—
Santander Consumer (UK) plc	United Kingdom		—			100.00	%		100.00	%	ADVISORY SERVICES		75			(7	)		89
Santander Consumer autoboerse.de AG	Germany		—			100.00	%		100.00	%	INTERNET		1			1			1
Santander Consumer Bank AS	Norway		—			100.00	%		100.00	%	FINANCE		257			39			370
Santander Consumer Bank AG	Germany		—			100.00	%		100.00	%	BANKING		872			385			884
Santander Consumer Bank S.p.A.	Italy		—			100.00	%		100.00	%	FINANCE		205			21			262
Santander Consumer Chile S.A.	Chile		—			89.00	%		89.00	%	FINANCE		15			—			14
Santander Consumer Debit GmbH	Germany		—			100.00	%		100.00	%	SERVICES		—			14			—
Santander Consumer Finance a.s.	Czech Republic		—			100.00	%		100.00	%	LEASING		38			3			33
Santander Consumer Finance B.V.	Netherlands		—			100.00	%		100.00	%	FINANCE		34			3			32
Santander Consumer Finance Correduría de Seguros, S.A.	Spain		—			100.00	%		100.00	%	INSURANCE BROKERAGE		1			3			—
Santander Consumer Finance Media S.r.l.	Italy		—			65.00	%		65.00	%	FINANCE		7			—			5
Santander Consumer Finance Oy	Finland		—			100.00	%		100.00	%	FINANCE		6			(2	)		6
Santander Consumer Finance Zrt.	Hungary		—			100.00	%		100.00	%	FINANCE		10			(4	)		4
Santander Consumer Finance, Germany GmbH	Germany		—			100.00	%		100.00	%	HOLDING COMPANY		2,726			—			2,726
Santander Consumer Finance, S.A.	Spain		63.19	%		36.81	%		100.00	%	BANKING		3,919			693			2,538
Santander Consumer France	France		—			70.00	%		70.00	%	FINANCE		20			(2	)		14
Santander Consumer Holding GmbH	Germany		—			100.00	%		100.00	%	HOLDING COMPANY		1,096			196			1,891
Santander Consumer Iber-Rent, S.L.	Spain		—			60.00	%		60.00	%	FULL-SERVICE LEASE		56			5			18
Santander Consumer Leasing Austria GmbH	Austria		—			100.00	%		100.00	%	LEASING		—			—			—
Santander Consumer Leasing GmbH	Germany		—			100.00	%		100.00	%	LEASING		6			11			6
Santander Consumer Multirent Spółka z ograniczoną odpowiedzialnością	Poland		—			60.00	%		60.00	%	LEASING		8			—			5
Santander Consumer Spain Auto 07-1	Spain		—				(b)		—		SECURITISATION		20			(41	)		—
Santander Consumer Spain Auto 07-2	Spain		—				(b)		—		SECURITISATION		(9	)		(20	)		—
Santander Consumer Spólka Akcyjna	Poland		—			100.00	%		100.00	%	BANKING		138			29			121
Santander Consumer USA Inc.	United States		90.00	%		—			90.00	%	FINANCE		33			187			583
Santander Consumer, EFC, S.A.	Spain		—			100.00	%		100.00	%	FINANCE		242			139			168
Santander Corredora de Seguros Limitada	Chile		—			76.73	%		100.00	%	INSURANCE BROKERAGE		34			10			1
Santander de Desarrollos Inmobiliarios, S.A.	Spain		98.39	%		1.61	%		100.00	%	PROPERTY		—			—			—
Santander de Leasing, S.A., E.F.C.	Spain		70.00	%		30.00	%		100.00	%	LEASING		41			7			35
Santander de Renting, S.A.	Spain		99.99	%		0.01	%		100.00	%	FULL-SERVICE LEASE		22			(1	)		18
Santander de Titulización S.G.F.T., S.A.	Spain		81.00	%		19.00	%		100.00	%	FUND MANAGEMENT COMPANY		1			4			1
Santander Drive Auto Receivables LLC	United States		—			90.00	%		100.00	%	AUXILIARY		—			—			—
Santander Drive Auto Receivables Trust 2007-1	United States		—				(b)		—		SECURITISATION		—			—			—
Santander Drive Auto Receivables Trust 2007-2	United States		—				(b)		—		SECURITISATION		—			—			—
Santander Drive Auto Receivables Trust 2007-3	United States		—				(b)		—		SECURITISATION		—			—			—
Santander Factoring y Confirming, S.A., E.F.C.	Spain		100.00	%		—			100.00	%	FACTORING		99			23			76
Santander Factoring, S.A.	Chile		—			99.51	%		100.00	%	FACTORING		22			2			6
Santander Financial Products, Ltd.	Ireland		—			100.00	%		100.00	%	FINANCE		178			6			162
Santander Financial Services, Inc.	Puerto Rico		—			90.59	%		100.00	%	LENDING COMPANY		94			(40	)		84
Santander Gestâo de Activos, SGPS, S.A.	Portugal		—			99.86	%		100.00	%	HOLDING COMPANY		15			—			7
Santander Gestión de Recaudación y Cobranzas, Ltda.	Chile		—			98.97	%		99.45	%	FINANCIAL SERVICES		3			(3	)		2
Santander Gestión Inmobiliaria, S.A.	Spain		0.01	%		99.99	%		100.00	%	PROPERTY		—			1			—
Santander Global Facility, S.A.	Spain		99.94	%		0.06	%		100.00	%	SERVICES		1			1			1
Santander Global Property, S.L.	Spain		94.44	%		5.56	%		100.00	%	SECURITIES INVESTMENT		138			—			128
Santander Global Services, S.A.	Uruguay		—			100.00	%		100.00	%	SERVICES		1			—			—
Santander Global Sport, S.A.	Spain		100.00	%		—			100.00	%	SPORTS OPERATIONS		3			4			3
Santander Hipotecario 1 Fondo de Titulización de Activos	Spain		—				(b)		—		SECURITISATION		—			—			—
Santander Hipotecario 2 Fondo de Titulización de Activos	Spain		—				(b)		—		SECURITISATION		—			—			—
Santander Hipotecario 3 Fondo de Titulización de Activos	Spain		—				(b)		—		SECURITISATION		—			—			—
Santander Hipotecario 4 Fondo de Titulización de Activos	Spain		—				(b)		—		SECURITISATION		—			—			—
Santander Holanda B.V.	Netherlands		100.00	%		—			100.00	%	HOLDING COMPANY		11			—			—
Santander Holding Gestión, S.L.	Spain		—			100.00	%		100.00	%	HOLDING COMPANY		(79	)		—			—
Santander Holding Internacional, S.A.	Spain		99.95	%		0.05	%		100.00	%	HOLDING COMPANY		28			—			—
Santander Infrastructure Capital Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		—			—			—
Santander Infrastructure Capital Management Limited	United Kingdom		—			100.00	%		100.00	%	LEASING		—			—			—

F-214


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of							Net Profit			Amount of
								Voting				Capital and			(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves			the Year			Interest

Santander Insurance Agency, Inc.	Puerto Rico		—			90.59	%		100.00	%	INSURANCE BROKERAGE		2			4			3
Santander Insurance Holding, S.L.	Spain		99.99	%		0.01	%		100.00	%	HOLDING COMPANY		382			1			357
Santander Insurance s.r.o.	Slovakia		—			100.00	%		100.00	%	PROPERTY		—			—			—
Santander Insurance Services UK Limited	United Kingdom		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		20			(5	)		21
Santander International Bank of Puerto Rico, Inc.	Puerto Rico		—			90.59	%		100.00	%	BANKING		97			2			63
Santander International Debt, S.A., Sole-Shareholder Company	Spain		100.00	%		—			100.00	%	FINANCE		—			—			—
Santander Inversiones Limitada	Chile		—			100.00	%		100.00	%	HOLDING COMPANY		688			47			599
Santander Investimentos em Participações S.A.	Brazil		—			98.08	%		100.00	%	COLLECTION AND PAYMENT SERVICES		56			60			100
Santander Investment Bank Limited	Bahamas		—			100.00	%		100.00	%	BANKING		88			1			171
Santander Investment Bolsa, S.V., S.A.	Spain		—			100.00	%		100.00	%	BROKER-DEALER		119			87			104
Santander Investment Chile, Limitada	Chile		—			100.00	%		100.00	%	FINANCE		170			8			126
Santander Investment Colombia S.A.	Colombia		—			100.00	%		100.00	%	HOLDING COMPANY		4			2			44
Santander Investment I, S.A.	Spain		100.00	%		—			100.00	%	HOLDING COMPANY		(1,603	)		100			—
Santander Investment Limited	Bahamas		—			100.00	%		100.00	%	BROKER-DEALER		(35	)		(17	)		—
Santander Investment Securities Inc.	United States		—			100.00	%		100.00	%	BROKER-DEALER		57			(1	)		295
Santander Investment Trust Colombia S.A., Sociedad Fiduciaria	Colombia		—			100.00	%		100.00	%	FUND MANAGEMENT COMPANY		8			1			8
Santander Investment Valores Colombia S.A., Comisionista de Bolsa Comercial	Colombia		—			97.76	%		100.00	%	BROKER-DEALER		5			1			1
Santander Investment, S.A.	Spain		100.00	%		—			100.00	%	BANKING		203			310			14
Santander Investment, S.A., Corredores de Bolsa	Chile		—			88.13	%		100.00	%	BROKER-DEALER		46			5			28
Santander IP UK Limited	United Kingdom		—			100.00	%		100.00	%	BROKER-DEALER		—			—			—
Santander Issuances, S.A., Sole-Shareholder Company	Spain		100.00	%		—			100.00	%	FINANCE		—			—			—
Santander Leasing S.A.	Chile		—			76.85	%		100.00	%	LEASING		42			1			48
Santander Mediación Operador de Banca-Seguros Vinculado, S.A.	Spain		20.00	%		76.41	%		100.00	%	ADVISORY SERVICES		1			—			1
Santander Merchant Bank Limited	Bahamas		—			100.00	%		100.00	%	BANKING		4			—			50
Santander Merchant, S.A.	Argentina		—			100.00	%		100.00	%	HOLDING COMPANY		2			—			19
Santander Mortgage Corp.	Puerto Rico		—			90.59	%		100.00	%	MORTGAGE LOAN COMPANY		19			—			15
Santander Multimedios, S.A.	Chile		—			100.00	%		100.00	%	INTERNET		1			—			1
Santander Overseas Bank, Inc. (h)	Puerto Rico		—			100.00	%		100.00	%	BANKING		343			25			187
Santander PB UK (Holdings) Limited	United Kingdom		100.00	%		—			100.00	%	FINANCE		277			—			282
Santander Pensiones, S.A., E.G.F.P.	Spain		21.20	%		76.64	%		100.00	%	PENSION FUND MANAGEMENT COMPANY		77			13			50
Santander Pensôes — Sociedade Gestora de Fundos de Pensôes, S.A.	Portugal		—			99.86	%		100.00	%	PENSION FUND MANAGEMENT COMPANY		5			2			1
Santander Perpetual, S.A., Sole-Shareholder Company	Spain		100.00	%		—			100.00	%	FINANCE		—			—			—
Santander Portfolio Management UK Limited	United Kingdom		—			100.00	%		100.00	%	FINANCE		40			—			31
Santander PR Capital Trust I	Puerto Rico		—			90.59	%		100.00	%	FINANCE		(3	)		6			2
Santander Private Advisors, Ltd.	United States		100.00	%		—			100.00	%	HOLDING COMPANY		—			—			—
Santander Private Banking s.p.a.	Italy		—			100.00	%		100.00	%	BANKING		29			(7	)		43
Santander Private Banking UK Limited	United Kingdom		—			100.00	%		100.00	%	PROPERTY		565			—			565
Santander Private Equity, S.A., S.G.E.C.R.	Spain		90.00	%		9.97	%		100.00	%	VENTURE CAPITAL MANAGEMENT		4			—			4
Santander Professional Services, S.A.	Spain		—			100.00	%		100.00	%	SPORTS OPERATIONS		—			—			—
Santander Real Estate, S.G.I.I.C., S.A.	Spain		—			99.14	%		100.00	%	FUND MANAGEMENT COMPANY		49			28			6
Santander Río Asset Management Gerente de Fondos Comunes de Inversión S.A.	Argentina		—			100.00	%		100.00	%	FUND MANAGEMENT COMPANY		4			2			1
Santander Río Seguros S.A.	Argentina		—			100.00	%		100.00	%	INSURANCE		6			5			6
Santander Río Servicios S.A.	Argentina		—			99.97	%		100.00	%	ADVISORY SERVICES		—			—			—
Santander Río Sociedad de Bolsa S.A.	Argentina		—			99.34	%		100.00	%	BROKER-DEALER		4			1			3
Santander Río Trust S.A.	Argentina		—			99.97	%		100.00	%	FINANCIAL SERVICES		—			—			—
Santander S.A. — Corretora de Câmbio e Títulos	Brazil		—			98.08	%		100.00	%	BROKER-DEALER		15			37			10
Santander S.A. — Serviços Técnicos, Administrativos e de Corretagem de Seguros	Brazil		—			98.08	%		100.00	%	INSURANCE BROKERAGE		5			13			36
Santander S.A. Agente de Valores	Chile		—			76.95	%		100.00	%	BROKER-DEALER		183			10			20
Santander S.A. Sociedad Securitizadora	Chile		—			76.82	%		100.00	%	FUND MANAGEMENT COMPANY		2			—			—
Santander Securities Corporation	Puerto Rico		—			90.59	%		100.00	%	BROKER-DEALER		24			7			15
Santander Seguros de Vida, S.A.	Chile		—			100.00	%		100.00	%	INSURANCE		63			34			9
Santander Seguros Generales S.A.	Chile		99.50	%		0.50	%		100.00	%	INSURANCE		12			1			12
Santander Seguros S.A.	Brazil		—			99.38	%		99.38	%	INSURANCE		125			48			100
Santander Seguros y Reaseguros, Compañía Aseguradora, S.A.	Spain		—			95.78	%		100.00	%	INSURANCE		287			81			215
Santander Seguros, S.A.	Uruguay		—			100.00	%		100.00	%	INSURANCE		2			(1	)		1

F-215


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of						Net Profit			Amount of
								Voting				Capital and		(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves		the Year			Interest

Santander Service GmbH	Germany		—			100.00	%		100.00	%	LEASING		—		—			—
Santander Servicios de Recaudación y Pagos Limitada	Chile		—			76.73	%		100.00	%	SERVICES		5		—			4
Santander Totta Seguros, Companhia de Seguros de Vida, S.A.	Portugal		—			99.86	%		100.00	%	INSURANCE		45		46			22
Santander Totta, SGPS, S.A.	Portugal		—			99.86	%		99.86	%	HOLDING COMPANY		2,597		269			3,321
Santander Trade Services, Ltd.	Hong-Kong		—			100.00	%		100.00	%	SERVICES		12		2			30
Santander Unit Trust Managers UK Limited	United Kingdom		—			100.00	%		100.00	%	FUND AND PORTFOLIO MANAGEMENT		22		2			20
Santander US Debt, S.A., Sole-Shareholder Company	Spain		100.00	%		—			100.00	%	FINANCE		—		—			—
Santander Venezuela Sociedad Administradora de Entidades de Inversión Colectiva, C.A.	Venezuela		—			90.00	%		100.00	%	FUND MANAGEMENT COMPANY		—		—			—
Santusa Holding, S.L.	Spain		69.64	%		30.36	%		100.00	%	HOLDING COMPANY		10,518		790			9,158
Sarum Trustees Limited	United Kingdom		—			100.00	%		100.00	%	ASSET MANAGEMENT COMPANY		—		—			—
Saturn Japan V C.V. (m)	Netherlands		—			100.00	%		—		HOLDING COMPANY		—		—			—
Scottish Mutual Pensions Limited	United Kingdom		—			100.00	%		100.00	%	INSURANCE		6		—			98
Seguros Santander, S.A., Grupo Financiero Santander	Mexico		—			74.96	%		100.00	%	INSURANCE		34		19			25
Sercoban, Administración de Empresas, S.L.	Spain		—			100.00	%		100.00	%	FINANCIAL SERVICES		—		—			—
Sercoban, Gestión Administrativa de Empresas, S.A.	Spain		100.00	%		—			100.00	%	SERVICES		18		(1	)		16
Serfin International Bank and Trust, Limited	Cayman Islands		—			99.72	%		100.00	%	BANKING		27		1			22
Servicio de Alarmas Controladas por Ordenador, S.A.	Spain		99.99	%		0.01	%		100.00	%	SECURITY		1		—			1
Servicios Administrativos y Financieros, Ltda.	Chile		—				(b)		—		SERVICES		—		—			—
Servicios Corporativos Seguros Serfin, S.A. De C.V.	Mexico		—			75.46	%		100.00	%	SERVICES		—		—			—
Servicios de Cobranza, Recuperación y Seguimiento, S.A. De C.V.	Mexico		—			100.00	%		100.00	%	SERVICES		8		1			8
Servicios de Cobranzas Fiscalex Ltda.	Chile		—				(b)		—		SERVICES		—		—			—
Servicios Universia Venezuela S.U.V., S.A.	Venezuela		—			75.00	%		75.00	%	INTERNET		1		—			1
Sheppards Moneybrokers Limited	United Kingdom		—			100.00	%		100.00	%	ADVISORY SERVICES		21		—			18
Sinvest Inversiones y Asesorías Limitada	Chile		—			100.00	%		100.00	%	FINANCE		58		2			2
Sistema 4B, S.A.	Spain		52.17	%		13.11	%		66.87	%	CARDS		13		7			10
Sociedad Integral de Valoraciones Automatizadas, S.A.	Spain		—			100.00	%		100.00	%	APPRAISALS		1		1			1
Sodepro, S.A.	Spain		—			89.19	%		100.00	%	FINANCE		15		—			12
Solarlaser Limited	United Kingdom		—			100.00	%		100.00	%	PROPERTY		60		3			54
Suleyado 2003, S.L.	Spain		—			100.00	%		100.00	%	SECURITIES INVESTMENT		7		—			7
Suzuki Servicios Financieros, S.L.	Spain		—			51.00	%		51.00	%	INTERMEDIATION		—		—			—
Swesant Merchant SA, en liquidation (l)	Switzerland		—			100.00	%		100.00	%	HOLDING COMPANY		1		364			2
Swesant SA	Switzerland		—			100.00	%		100.00	%	HOLDING COMPANY		216		100			—
Task Moraza, S.L. (e)	Spain		—			73.41	%		73.41	%	HOLDING COMPANY		37		(1	)		27
Taxagest Sociedade Gestora de Participaçoes Sociais, S.A.	Portugal		—			99.86	%		100.00	%	HOLDING COMPANY		50		8			—
Teatinos Siglo XXI Inversiones Limitada	Chile		50.00	%		50.00	%		100.00	%	HOLDING COMPANY		446		170			397
Teylada, S.A.	Spain		11.11	%		88.89	%		100.00	%	SECURITIES INVESTMENT		—		—			—
The HSH AIV 4 Trust (c)	United States		—			69.25	%		—		HOLDING COMPANY		42		—			36
The National & Provincial Building Society Pension Fund Trustees Limited	United Kingdom		—				(b)		—		ASSET MANAGEMENT COMPANY		—		—			—
The WF Company Limited	United Kingdom		—			100.00	%		100.00	%	ADVISORY SERVICES		1		—			—
Títulos de Renta Fija, S.A.	Spain		100.00	%		—			100.00	%	SECURITIES INVESTMENT		—		—			—
Tornquist Asesores de Seguros, S.A. (1)	Argentina		—			99.99	%		99.99	%	ADVISORY SERVICES		—		—			—
Totta & Açores Inc. Newark	United States		—			99.72	%		100.00	%	BANKING		1		—			—
Totta (Ireland), PLC (h)	Ireland		—			99.72	%		100.00	%	FINANCE		342		89			341
Totta Crédito Especializado, Instituiçao Financeira de Crédito, S.A. (IFIC)	Portugal		—			99.83	%		100.00	%	LEASING		102		23			42
Totta Urbe — Empresa de Administraçâo e Construçôes, S.A.	Portugal		—			99.72	%		100.00	%	PROPERTY		104		4			148
UNIFIN S.p.A.	Italy		—			70.00	%		70.00	%	FINANCE		14		5			44
Universia Brasil S.A.	Brazil		—			100.00	%		100.00	%	INTERNET		2		(2	)		—
Universia Chile S.A.	Chile		—			93.74	%		93.74	%	INTERNET		2		(2	)		—
Universia Colombia, S.A.	Colombia		—			99.89	%		99.89	%	INTERNET		1		(1	)		—
Universia Holding, S.L.	Spain		99.91	%		0.09	%		100.00	%	HOLDING COMPANY		24		(17	)		11
Universia México, S.A. De C.V.	Mexico		—			100.00	%		100.00	%	INTERNET		1		(1	)		—
Universia Perú, S.A.	Peru		—			97.00	%		97.00	%	INTERNET		1		(1	)		—
Universia Puerto Rico, Inc.	Puerto Rico		—			100.00	%		100.00	%	INTERNET		1		—			—
Valores Santander Casa de Bolsa, C.A.	Venezuela		—			90.00	%		90.00	%	BROKER-DEALER		10		6			7
Virtual Payments, S.L.	Spain		—			100.00	%		100.00	%	TECHNOLOGY		—		—			—

F-216


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of						Net Profit			Amount of
								Voting				Capital and		(Loss) for			Ownership
Entity	Location	Direct			Indirect			Rights (k)			Line of Business	Reserves		the Year			Interest

Vista Capital de Expansión, S.A. SGECR	Spain		—			50.00	%		50.00	%	VENTURE CAPITAL MANAGEMENT		1		1			—
Vista Desarrollo, S.A. SCR	Spain		100.00	%		—			100.00	%	VENTURE CAPITAL COMPANY		246		15			133
W.N.P.H. Gestao e Investimentos Sociedade Unipessoal, S.A.	Portugal		—			100.00	%		100.00	%	SECURITIES INVESTMENT		33		1			—
Wallcesa, S.A.	Spain		100.00	%		—			100.00	%	SECURITIES INVESTMENT		25		(47	)		—
Wex Point España, S.L.	Spain		—			89.19	%		100.00	%	SERVICES		2		—			1
Whitewick Limited	Jersey		—			100.00	%		100.00	%	HOLDING COMPANY		—		—			—
WIM Servicios Corporativos, S.A. de C.V.	Mexico		—			100.00	%		100.00	%	ADVISORY SERVICES		—		—			—


(a)		Amount per books of each company at December 31, 2007, 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, 2006.

(d)		Data from the latest approved financial statements at March 31, 2007.

(e)		Data from the latest approved financial statements at June 30, 2007.

(f)		Data from the latest approved financial statements at September 30, 2007.

(g)		Data from the latest approved financial statements at April 30, 2007.

(h)		Data from the latest approved financial statements at November 30, 2007.

(i)		Data from the latest approved financial statements at August 31, 2007.

(j)		Data uniform with 2007 calendar year.

(k)		Pursuant to Article 3 of Royal Decree 1815/1991, of December 20, approving the rules for the preparation of consolidated financial statements, in order to determine voting rights, the voting rights relating to subsidiaries or to other parties acting in their own name but on behalf of Group companies were added to the voting rights 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 liquidation at December 31, 2007.

(m)		Company newly incorporated in 2007 for which no approved financial statements are available.

(1)		The preference share and security issuer companies are detailed in Exhibit III, together with other relevant information.

F-217

Exhibit II

Listed companies in which the Santander Group has ownership interests of more than 3% (g), Associates of the Santander Group and Jointly Controlled Entities


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of									Net Profit
								Voting						Capital and			(Loss) for
Entity	Location	Direct			Indirect			Rights (f)			Line of Business	Assets		Reserves			the Year

ABSLine Multimedia, S.L.	Spain		—			47.50	%		47.50	%	MARKETING		1		1			—
Accordfin España, E.F.C., S.A.	Spain		—			49.00	%		49.00	%	FINANCE		437		21			5
Administrador Financiero de Transantiago S.A.	Chile		—			15.35	%		20.00	%	COLLECTION AND PAYMENT SERVICES		235		23			(17	)
Affirmative Insurance Holdings Inc. (b)	United States		—			5.61	%		—		INSURANCE		379		134			7
Agres, Agrupación Restauradores, S.L.	Spain		—			38.36	%		43.01	%	RESTAURANTS		4		2			—
Aguas de Fuensanta, S.A.	Spain		—			37.65	%		42.21	%	FOOD		29		9			—
Alcaidesa Golf, S.L.	Spain		—			44.60	%		44.60	%	SPORTS OPERATIONS		7		6			(1	)
Alcaidesa Inmobiliaria, S.A.	Spain		—			44.60	%		44.60	%	PROPERTY		106		68			(1	)
Alcaidesa Servicios, S.A.	Spain		—			44.60	%		44.60	%	SERVICES		1		1			—
Allfunds Bank, S.A.	Spain		—			50.00	%		50.00	%	BANKING		134		55			23
Allfunds International S.A.	Luxembourg		—			50.00	%		50.00	%	FINANCIAL SERVICES		—		—			—
Americredit Corp. (consolidated) (k)	United States		—			4.38	%		4.38	%	FINANCE		12,099		1,165			245
Anekis, S.A.	Spain		24.75	%		24.75	%		49.50	%	ADVERTISING		4		2			—
Arena Communications Network, S.L. (b)	Spain		20.00	%		—			20.00	%	ADVERTISING		26		1			—
Asajanet Servicios Agropecuarios, S.L. (b)	Spain		30.00	%		—			30.00	%	MARKETING		1		1			—
Asia Bridge Fund I LLC (i)	Mauricio Island		—			25.00	%		25.00	%	HOLDING COMPANY		—		—			—
Attijari Factoring Maroc, S.A. (b)	Morocco		—			25.00	%		25.00	%	FACTORING		33		5			1
Attijari International Bank Société Anonymé (b)	Morocco		50.00	%		—			50.00	%	BANKING		315		4			1
Attijariwafa Bank Société Anonyme (consolidated) (b)	Morocco		—			14.55	%		14.55	%	BANKING		12,574		1,019			170
Autopistas del Sol, S.A. (b)	Argentina		—			14.17	%		14.17	%	MOTORWAY CONCESSIONS		332		77			(6	)
Banco Internacional da Guiné-Bissau, S.A. (d)	Guinea Bissau		—			48.86	%		49.00	%	BANKING		12		(30	)		(1	)
Base Central — Rede Serviços Imobiliarios, S.A.	Portugal		—			49.80	%		49.80	%	PROPERTY SERVICES		1		2			(1	)
Benim — Sociedade Imobiliária, S.A. (b)	Portugal		—			24.93	%		25.00	%	PROPERTY		12		8			—
Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. (consolidated) (b)	Spain		1.22	%		6.69	%		8.07	%	FINANCIAL SERVICES		4,385		347			131
Bovespa Holding S.A.	Brazil		—			3.82	%		3.89	%	HOLDING COMPANY		626		528			66
Cantabria Capital, SGECR, S.A.	Spain		50.00	%		—			50.00	%	VENTURE CAPITAL MANAGEMENT COMPANY		—		—			—
Carnes Estellés, S.A.	Spain		—			19.10	%		21.41	%	FOOD		37		9			—
Cartera del Norte, S.A.	Spain		—			32.20	%		36.10	%	FINANCE		1		1			—
Centradia Group, Ltd. (b)	United Kingdom		30.45	%		—			30.45	%	ADVISORY SERVICES		1		1			—
Centro de Compensación Automatizado, S.A.	Chile		—			25.58	%		33.33	%	COLLECTION AND PAYMENT SERVICES		2		1			—
Centro para el Desarrollo, Investigación y Aplicación de Nuevas Tecnologías, S.A.	Spain		—			43.70	%		49.00	%	TECHNOLOGY		1		1			—
Companhia Energética de São Paulo	Brazil		—			7.42	%		7.57	%	ENERGY		7,567		3,908			69
Compañía Concesionaria del Túnel de Soller, S.A.	Spain		—			29.17	%		32.70	%	CONSTRUCTION		67		17			1
Compañía Española de Petróleos, S.A. (consolidated) (b)	Spain		28.71	%		2.93	%		31.64	%	OIL REFINING		8,724		4,159			826
Compañía Española de Seguros de Crédito a la Exportación, S.A., Compañía de Seguros y Reaseguros (b)	Spain		13.95	%		6.41	%		21.08	%	CREDIT INSURANCE		999		165			15
Comprarcasa Servicios Inmobiliarios, S.A.	Spain		—			47.50	%		47.50	%	PROPERTY SERVICES		1		1			—
Consorcio Credicard, C.A.	Venezuela		—			32.80	%		33.33	%	CARDS		84		11			10
Corporación Suiche 7B, C.A.	Venezuela		—			31.75	%		32.26	%	SERVICES		5		4			1
Ensafeca Holding Empresarial, S.L.	Spain		—			31.82	%		31.82	%	SECURITIES INVESTMENT		24		23			1
Espais Promocat, S.L.	Spain		—			44.60	%		50.00	%	PROPERTY		28		2			—
FC2Egestión, S.L.	Spain		—			50.00	%		50.00	%	ENVIROMENTAL MANAGEMENT		1		—			1
Fidelización de Consumidores, S.A.	Spain		—			39.60	%		39.60	%	HOLDING COMPANY		—		—			—
Fondo de Titulización de Activos UCI 11	Spain		—				(h)		—		SECURITISATION		—		—			—
Fondo de Titulización de Activos UCI 14	Spain		—				(h)		—		SECURITISATION		—		—			—
Fondo de Titulización de Activos UCI 15	Spain		—				(h)		—		SECURITISATION		—		—			—
Fondo de Titulización Hipotecaria UCI 10	Spain		—				(h)		—		SECURITISATION		—		—			—
Fondo de Titulización Hipotecaria UCI 12	Spain		—				(h)		—		SECURITISATION		—		—			—
Fondo de Titulización Hipotecaria UCI 16	Spain		—				(h)		—		SECURITISATION		—		—			—
Fondo de Titulización Hipotecaria UCI 17	Spain		—				(h)		—		SECURITISATION		—		—			—
Friedrichstrasse, S.L.	Spain		—			45.00	%		45.00	%	PROPERTY		44		44			—

F-218


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of									Net Profit
								Voting						Capital and			(Loss) for
Entity	Location	Direct			Indirect			Rights (f)			Line of Business	Assets		Reserves			the Year

Granoller’s Broker, S.L.	Spain		—			12.50	%		25.00	%	FINANCE		3		2			—
Grupo Alimentario de Exclusivas, S.A.	Spain		—			36.09	%		40.46	%	FOOD		6		—			—
Grupo Financiero Galicia, S.A. (consolidated) (b)	Argentina		—			6.67	%		3.50	%	BANKING		5,063		349			(4	)
Grupo Konecta Maroc S.A.R.L. à associé unique	Morocco		—			44.25	%		44.25	%	TELEMARKETING		—		—			—
Grupo Konecta Net, S.L.	Spain		—			44.25	%		44.25	%	HOLDING COMPANY		16		2			3
Habitat Elpi, S.L.	Spain		—			44.60	%		50.00	%	PROPERTY		31		4			—
Hipoteca Internet, S.L.	Spain		—			50.00	%		50.00	%	SERVICES		—		—			—
HLC — Centrais de Cogeraçao, S.A. (c)	Portugal		—			24.45	%		24.49	%	ELECTRICITY		2		(2	)		(2	)
HSH Coinvest Luxembourg S.à.r.l. (b)	Luxembourg		—			24.20	%		—		HOLDING COMPANY		79		79			(2	)
Iberdrola, S.A. (consolidated) (b)	Spain		0.70	%		2.58	%		3.29	%	ELECTRICITY		33,061		8,907			1,660
Imperial Holding S.C.A. (j)	Luxembourg		—			36.67	%		36.67	%	SECURITIES INVESTMENT		184		38			—
Inmobiliaria Sitio de Baldeazores, S.A.	Spain		—			44.60	%		50.00	%	PROPERTY		13		2			—
Kapitalia Credit House Global, S.L.	Spain		—			22.13	%		22.13	%	SERVICES		—		—			—
Kassadesign 2005, S.L.	Spain		—			44.60	%		50.00	%	PROPERTY		41		12			1
Kepler Weber S.A. (b)	Brazil		—			5.57	%		5.68	%	STORAGE SYSTEMS		59		28			(96	)
Konecta Activos Inmobiliarios, S.L.	Spain		—			45.62	%		45.62	%	PROPERTY		—		—			—
Konecta Broker, S.L.	Spain		—			44.25	%		44.25	%	SERVICES		—		—			—
Konecta Bto, S.L.	Spain		—			44.25	%		44.25	%	TELECOMMUNICATIONS		20		19			1
Konecta Canarias, S.A.	Spain		—			44.25	%		44.25	%	MARKETING		8		5			3
Konecta Centro Especial de Empleo Madrid, S.L.	Spain		—			44.25	%		44.25	%	TELEMARKETING		—		—			—
Konecta Centro Especial de Empleo, S.A.	Spain		—			44.25	%		44.25	%	TELEMARKETING		5		3			2
Konecta Colombia Grupo Konecta Colombia Ltda	Colombia		—			44.25	%		44.25	%	TELEMARKETING		—		—			—
Konecta Chile, S.A.	Chile		—			32.75	%		32.75	%	SERVICES		1		—			1
Konecta Field Marketing, S.A.	Spain		—			44.25	%		44.25	%	MARKETING		—		—			—
Konecta Portugal, Lda.	Portugal		—			44.25	%		44.25	%	MARKETING		1		—			—
Konecta Servicios Administrativos y Tecnológicos, S.L.	Spain		—			44.25	%		44.25	%	SERVICES		1		—			—
Konecta Servicios de Empleo ETT, S.A.	Spain		—			35.40	%		35.40	%	TEMPORARY EMPLOYMENT AGENCY		1		(1	)		1
Konecta Servicios Integrales de Consultoría, S.L.	Spain		—			33.62	%		33.62	%	ADVERTISING		—		—			—
Konecta Servicios Integrales de Marketing, S.L.	Spain		—			44.25	%		44.25	%	SERVICES		—		—			—
Konectanet Andalucía, S.L.	Spain		—			44.25	%		44.25	%	SERVICES		—		—			—
Konectanet Comercialización, S.L.	Spain		—			44.22	%		44.22	%	MARKETING		1		—			1
Kontacta Comunicaciones, S.A.	Spain		—			33.19	%		33.19	%	SERVICES		1		—			1
Kontacta Top Ten, S.L.	Spain		—			33.18	%		33.18	%	TELEMARKETING		—		—			—
Maxamcorp Holding, S.L. (e)	Spain		—			22.62	%		22.62	%	HOLDING COMPANY		171		131			19
Medimobiliario Ediçoes Period. e Multimedia, S.A	Portugal		—			29.38	%		29.38	%	PROPERTY SERVICES		—		—			—
Norchem Holdings e Negocios S.A.	Brazil		—			21.33	%		21.75	%	HOLDING COMPANY		85		29			5
Norchem Participaçoes e Consultoria S.A.	Brazil		—			49.04	%		50.00	%	BROKER-DEALER		23		16			3
Omega Financial Services GmbH	Germany		—			50.00	%		50.00	%	SERVICES		1		—			2
Operadora de Activos Alfa, S.A. De C.V.	Mexico		—			49.98	%		49.98	%	FINANCE		2		2			—
Operadora de Activos Beta, S.A. de C.V.	Mexico		—			49.99	%		49.99	%	FINANCE		2		3			—
Oportunity Center, S.L.	Spain		—			44.25	%		44.25	%	SERVICES		1		—			1
Petroquímica União S.A. (consolidated) (b)	Brazil		—			9.89	%		10.08	%	CHEMICALS		680		248			57
Prodesur Mediterráneo, S.L.	Spain		—			44.60	%		50.00	%	PROPERTY		78		22			(2	)
Programa Multi Sponsor PMS, S.A. (b)	Spain		24.75	%		24.75	%		49.50	%	ADVERTISING		23		4			—
Proinsur Mediterráneo, S.L.	Spain		—			44.60	%		50.00	%	PROPERTY		82		28			(1	)
PSA Finance PLC	United Kingdom		—			50.00	%		50.00	%	LEASING		11		6			4
Puntoform, S.L.	Spain		—			44.22	%		44.22	%	TRAINING		—		—			—
Quiero Televisión, S.A., Sole-Shareholder Company	Spain		—			31.82	%		31.82	%	TELECOMMUNICATIONS		7		6			—
Real Estate Investment Society España, S.A.	Spain		31.80	%		—			31.80	%	PROPERTY		100		100			—
Redbanc, S.A.	Chile		—			25.65	%		33.43	%	SERVICES		11		5			1
Reintegra, S.A.	Spain		—			45.00	%		45.00	%	COLLECTION AND PAYMENT SERVICES		4		3			1
RFS Holdings B.V.	Netherlands		27.91	%		—			27.91	%	HOLDING COMPANY		69,826		69,814			5
Servicio Pan Americano de Protección, S.A. de C.V.	Mexico		—			15.78	%		21.05	%	SECURITY		145		84			(5	)
Servicios Financieros Enlace S.A. de C.V. (b)	El Salvador		21.48	%		—			21.48	%	NOT-FOR-PROFIT COMPANY		2		1			—
Shinsei Bank, Ltd. (consolidated) (e)	Japan		—			4.23	%		4.23	%	BANKING		65,711		6,028			(369	)
Sociedad Interbancaria de Depósitos de Valores, S.A.	Chile		—			22.48	%		29.29	%	SECURITIES DEPOSITORY INSTITUTION		2		1			—

F-219


		% of Ownership Held
		by the Bank										Millions of Euros (a)
								% of								Net Profit
								Voting						Capital and		(Loss) for
Entity	Location	Direct			Indirect			Rights (f)			Line of Business	Assets		Reserves		the Year

Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor, S.A.	Chile		—			13.94	%		18.16	%	SERVICES		5		4		1
Sos Cuétara, S.A. (consolidated) (b)	Spain		2.18	%		2.61	%		5.09	%	PASTRY MANUFACTURER		1,744		590		13
Sovereign Bancorp, Inc. (consolidated) (b)	United States		24.43	%		—			24.43	%	BANKING		60,894		5,779		93
The HSH Coinvest (Cayman) Trust-B (b)	Cayman Islands		—			24.20	%		—		HOLDING COMPANY		79		79		(2	)
Tramitación Externa, S.A.	Spain		—			25.00	%		25.00	%	SERVICES		—		1		—
Transbank, S.A.	Chile		—			25.10	%		32.71	%	CARDS		180		7		1
Transolver Finance EFC, S.A.	Spain		—			50.00	%		50.00	%	LEASING		224		29		1
Turyocio Viajes y Fidelización, S.A.	Spain		—			32.21	%		32.21	%	TRAVEL		1		—		—
U.C.I., S.A.	Spain		50.00	%		—			50.00	%	HOLDING COMPANY		116		112		27
UCI Servicios Inmobiliarios y Profesionales, S.L.	Spain		—			50.00	%		50.00	%	SERVICES		—		—		—
UFI Servizi S.r.l. (b)	Italy		—			16.22	%		23.17	%	SERVICES		—		—		—
Unión de Créditos Inmobiliarios, S.A., EFC	Spain		—			50.00	%		50.00	%	MORTGAGE LOAN COMPANY		3,020		161		48
Vector Software Factory, S.L.	Spain		—			21.60	%		21.60	%	IT		7		1		—
Viking Consortium Holdings Limited (consolidated)	United Kingdom		—			24.99	%		24.99	%	HOLDING COMPANY		873		354		(37	)


(a)		Amounts per the books of each company generally at December 31, 2007, unless otherwise stated, because the financial statements have not yet been authorized 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, 2006.

(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, 2007, the closing date of this entity.

(f)		Pursuant to Article 3 of Royal Decree 1815/1991, of December 20, approving the rules for the preparation of consolidated financial statements, in order to determine voting rights, the voting rights relating to subsidiaries or to other parties acting in their own name but on behalf of Group companies were added to the voting rights 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 Exhibit I.

(h)		Companies over which effective control is exercised.

(i)		Company newly incorporated in 2007 for which no approved financial statements are available.

(j)		Data from the latest approved financial statements at July 31, 2007.

(k)		Data from the latest approved financial statements at June 30, 2007.

F-220

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.

Banco Santander S.A. (formerly Banco Santander Banespa S.A.)

	a)		*Number of equity instruments held by the Group*

			The Santander Group holds 70,532,121,965 ordinary shares and 59,683,197,827 preference shares through its subsidiaries Grupo Empresarial Santander, S.L. and Santander Seguros, S.A. The shares composing the share capital of Banespa have no par value.

			The preference shares have no voting rights and are not convertible into ordinary shares. However, they have the following advantages:

	1.		Their dividends are 10% higher than those on ordinary shares.

	2.		Priority in the distribution of dividends.

	3.		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.

	4.		Priority in the reimbursement of capital in the event of the dissolution of the company.

			There is no unpaid capital.

	b)		*Capital increases in progress*

			No approved capital increases are in progress.

	c)		*Capital authorized by the shareholders at the Annual General 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 250,000,000,000 shares (125,000,000,000 ordinary shares and 125,000,000,000 preference shares). At present the share capital consists of 132,768,478,951 shares (71,035,922,637 ordinary shares and 61,732,556,314 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, S.A.’s reserves relates to the legal reserve (restricted reserves), which can only be used to offset losses or to increase capital.

	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 (Bovespa).

F-223

Banco Español de Crédito, S.A. (Banesto)

	a)		*Number of equity instruments held by the Group*

			At December 31, 2007, the Parent and its subsidiaries held 613,696,098 fully subscribed and paid ordinary shares of €0.79 par value each, all of which carry the same voting and dividend rights.

			The Annual General Meeting of Banco Español de Crédito S.A. held at first call on February 26, 2008 resolved to reduce the entity’s share capital by €5,485,207 through the retirement of 6,943,300 treasury shares, previously acquired under authorization of the Annual General Meeting, within the limits envisaged 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 Annual General 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, 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 Companies Law.

	d)		*Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights*

			At December 31, 2007, 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 the share capital). Pursuant to the Spanish Companies Law, 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 June 7, can be used to increase capital.

	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.

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 and 14,593,315 ordinary shares through Taxagest Sociedade Gestora de Participaçoes Sociais, S.A., 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.

F-224


	c)		*Capital authorized by the shareholders at the Annual General Meeting*

			Not applicable.

	d)		*Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights*

			At December 31, 2007, no shares with these characteristics had been issued.

	e)		*Specific circumstances that restrict the availability of reserves*

			Under Article 296 of the 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*

			Totta’s shares are not listed.

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 Annual General Meeting*

			Due to the effect of the monetary adjustment, share capital amounted to CLP 818,535,110,378 at December 31, 2007. 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, 2007, no shares with these characteristics had been issued.

	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-225

	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.

Banco Santander, S.A., Institución de Banca Múltiple, Grupo Financiero Santander.

	a)		*Number of equity instruments held by the Group*

			The Santander Group holds 62,308,710,973 ordinary shares of Grupo Financiero Santander, S.A. de C.V.

	b)		*Capital increases in progress*

			No approved capital increases are in progress.

	c)		*Capital authorized by the shareholders at the Annual General Meeting*

			The shareholders at the Extraordinary and Annual General Meeting held on 3 December 2007 resolved to set the authorized share capital of Banco Santander, S.A., Institución de Banca Múltiple, Grupo Financiero Santander at MXN 14,619,490,617, represented by a total of 146,194,906,170 shares. Of this share capital, MXN 7,309,748,223 have been fully subscribed and paid, represented by a total of 73,097,482,230 shares.

	d)		*Rights on founder’s shares, “rights” bonds, convertible debentures and similar securities or rights*

			At December 31, 2007, the entity had issued MXN 300 million of unsecured preferred subordinated debentures, subscribed by Bank of America and the Bank. These debentures have not been registered in the National Securities Register and, therefore, they cannot be included in a public offering.

	e)		*Specific circumstances that restrict the availability of reserves*

			The institution is subject to a legal requirement that at least 10% of net profit for the year be transferred to a capital reserve fund until the balance of the fund reaches the paid-in share capital amount. The capital reserve fund can only be distributed to shareholders as dividends in the form of shares.

	f)		*Non-Group entities which hold, directly or through subsidiaries, 10% or more of equity*

			Not applicable.

	g)		*Listed equity instruments*

			The company does not have any equity instruments listed on a stock exchange.

F-226

Exhibit VI

List of Bonds and Debentures outstanding as of December 31, 2007, 2006 and 2005.


	Euro thousand										Outstanding amount in million						Annual
Issuer	2007			2006			2005			Currency	2007		2006		2005		Interest rate	Maturity Date
Banco Santander, S.A.-
Debentures — October 1993		117.798			117,798			117,798		Euro		—		—		—	8.75%	October 2008
Debentures — November 1993		173.973			173,973			180,304		Euro		—		—		—	8.25%	December 2008
Debentures — March 1994		47.091			47,091			60,251		Euro		—		—		—	7.63%	September 2009
Territorial Bonds — July 2003		1.992.320			1,992,320			2,000,000		Euro		—		—		—	4.00%	July 2013
Territorial Bonds — February 2004		—			—			1,500,000		Euro		—		—		—	Floating	February 2006
Territorial Bonds — March 2004		1.000.000			1,000,000			1,000,000		Euro		—		—		—	Floating	March 2009
Territorial Bonds — April 2004		—			999,760			1,000,000		Euro		—		—		—	Floating	April 2007
Mortgage backed securities — October 2002		—			2,964,750			3,000,000		Euro		—		—		—	4.00%	October 2007
Mortgage backed securities — March 2003		—			—			1,500,000		Euro		—		—		—	2.75%	March 2006
Mortgage backed securities — September 2003		1.976.300			1,976,300			2,000,000		Euro		—		—		—	4.00%	September 2010
Mortgage backed securities — December 2003		1.497.600			1,497,600			1,500,000		Euro		—		—		—	4.00%	December 2008
Mortgage backed securities — March 2004		498.140			498,140			500,000		Euro		—		—		—	3.00%	March 2009
Mortgage backed securities — July 2004		1.484.235			1,484,235			1,500,000		Euro		—		—		—	5.00%	July 2016
Mortgage backed securities — February 2005		1,978,018			1,978,028			2,000,000		Euro		—		—		—	3.00%	February 2012
Mortgage backed securities — April 2005		987.860			987,860			1,000,000		Euro		—		—		—	4.00%	May 2020
Mortgage backed securities — September 2005		1.480.800			1,480,800			1,500,000		Euro		—		—		—	3.00%	January 2011
Mortgage backed securities — September 2005		2.467.825			2,467,825			2,500,000		Euro		—		—		—	3.00%	September 2015
Mortgage backed securities — February 2006		2.990.940			2,990,940			—		Euro		—		—		—	4.00%	February 2014
Mortgage backed securities — February 2006		1.485.045			1,485,045			—		Euro		—		—		—	4.00%	February 2026
Mortgage backed securities — September 2006		1.492.830			1,492,830			—		Euro		—		—		—	4.00%	September 2011
Mortgage backed securities — September 2006		1.492.453			1,498,170			—		Euro		—		—		—	4.00%	January 2017
Mortgage backed securities -2007		4.473.687			—			—		Euro		—		—		—	From 4.00% to 5.00%	From May 2012 to May 2027
Securitization bonds — 2004		2.165.744			3,260,484			1,568,566		Euro		—		—		—	Floating	From 2037 to 2042
Securitization bonds — 2005		1.185.072			1,280,577			1,104,277		Euro		—		—		—	Floating	November 2038
Securitization bonds — 2006		4.581.640			4,373,740			—		Euro		—		—		—	From 3.87% to 8.75%	From 2035 to 2050
Securitization bonds — 2007		771.332			—			—		Euro		—		—		—	From 4.90% to 4.95%	From January to October 2050
Securitization bonds — 2007		4.316.403			—			—		Euro		—		—		—	Floating	From December 2014 to October 2050
Own securities held and paid — in surplus		(6.277	)		(96,841	)		(395,815	)	Euro		—		—		—	—	September 2015

Santander Central Hispano International, Ltd.

Issued December 1998		206.582			206,583			206,584		Euro		—		—		—	Floating	April 2008
Issued in June 1998		18.076			18,076			18,076		Euro		—		—		—	Floating	March 2013
Issued in April 1998		—			153,388			153,388		Euro		—		—		—	Floating	February 2007
Issued in December 1998		255.646			255,646			255,646		Euro		—		—		—	5.40%	February 2008
Issued in February 1998		181.512			181,512			181,512		Euro		—		—		—	5.38%	February 2008
From December 1997 to March 1998		45.735			396,368			701,266		Euro		—		—		—	Floating	February 2009
Issued February 1998		304.898			304,898			—		Euro		—		—		—	5.38%	February 2008
Issued in February 2002		—			31,700			31,700		Euro		—		—		—	Floating	January 2007

F-228


	Euro thousand							Outstanding amount in million						Annual
Issuer	2007		2006		2005		Currency	2007		2006		2005		Interest rate	Maturity Date
Issued from April 1998 to May 1998		30.218		31,116		32,152	Swiss Francs				50		50	From 3.51% to 3.54%	From April 2008 to May 2008
March 1994		—		—		335,611	Pounds Sterling				—		230	7.90%	March 2019

Banesto Group
Euro		—		14,000		25,000	Euro		—		—		—	4.55%	August 2007
Euro		3.308.814		4,284,535		163,100	Euro		—		—		—	Floating	From January 2008 to June 2036
Euro		—		260,593		104,000	Euro		—		—		—	From 4.00% to 6.00%	From February 2007 to August 2011
Euro		—		—		—	Euro		—		—		—	Floating	October 2005
Euro		1.000.000		1,000,000		1,000,000	Euro		—		—		—	Floating	June 2010
Euro		—		—		2,000,000	Euro		—		—		—	Floating	October 2006
Euro		1.000.000		1,041,100		1,000,000	Euro		—		—		—	Floating	June 2009
Euro		—		1,250,000		1,250,000	Euro		—		—		—	2.20%	October 2007
Euro		1.500.000		1,500,000		1,500,000	Euro		—		—		—	2.25%	October 2008
Euro issued 2007		1.533.558		—		—	Euro		—		—		—	Floating	From February 2008 to November 2037
Issued 2007		49.442		—		—	Yens		8,100		—		—	Floating	From April 2012 to December 2017
Issued 2006		35.070		39,826		—	Yens				6,250		—	Floating	November 2008
Issued 2006		17.674		18,669		—	Swiss Francs		25		30		—	Floating	From May 2009 to September 2016
Issued 2007		6.030		—		—	Swiss Francs		10		—		—	Floating	July 2014
Issued 2006		72.971		74,460		—	Sterling Pounds		50		50		—	Floating	February 2009
Issued 2007		96.770		—		—	Sterling Pounds		76.8		—		—	Floating	From March 2010 to December 2013
Issued 2006		27.660		105,847		—	U.S. Dollar		35.4		139.4		—	Floating	From May 2010 to December 2016
Issued 2006		—		7,593		—	U.S. Dollar				10		—	6.00%	June 2011
Issued 2007		2.286.204		—		—	U.S. Dollar		3,364.7		—		—	Floating	From March 2010 to December 2022
Issued 2007		23.174		—		—	Czech Crown		660		—		—	Floating	June 2017
Mortgage backed securities 2002		1,000,000		1,000,000		1,000,000	Euro		—		—		—	5.75%	March 2017
Mortgage backed securities 2003		1,500,000		1,500,000		1,500,000	Euro		—		—		—	4.00%	May 2010
Mortgage backed securities 2004		2,000,000		2,000,000		2,000,000	Euro		—		—		—	3.75%	February 2011
Mortgage backed securities 2004		1,750,000		1,750,000		1,750,000	Euro		—		—		—	4.25%	September 2014
Mortgage backed securities 2005		4,000,000		4,000,000		4,000,000	Euro		—		—		—	From 2.75% to 3.50%	From September 2012 to January 2015
Mortgage backed securities 2006		3,000,000		3,000,000		—	Euro		—		—		—	From 2.50% to 4.25%	From July 2013 to January 2016
Mortgage backed securities 2007		1.807.326		—		—	Euro		—		—		—	4.25%	February 2014
Securitisation bonds 2006		1.298.597		951,321		—	Euro		—		—		—	Floating	December 2025
Securitization bonds 2007		367.057		—		—	Euro		—		—		—	3.80%	December 2031

Banco Santander Chile
Bonds		108.306		127,134		176,228	Chilean Pesos				89,672		143,511	From 7.52% to 7.92%	From October 2019 to July 2021
Bonds		—		—		—	Chilean Pesos				—		616,423	6.35%	Various maturities
Mortgage backed securities		572.475		732,207		1,018,767	Chilean Pesos				536,249		734,688	From 6.02 to 6.26%	From May 2013 to July 2016
Bonds September 2004		—		13,245		—	Chilean Pesos		—		9,309		—	From 6.34% to 6.36%	Various maturities
Bonds December 2004		270.953		305,251		317,758	Chilean Pesos				213,772		232,019	Floating	December 2009
Bonds November 2005		208.214		204,787		182,803	Chilean Pesos				146,691		107,354	3.00%	March 2010
Bonds May / August 2006		164.508		145,349		—	Chilean Pesos				102,317		—	From 3.75% to 4.57%	From March 2016 to June 2012
Bonds 2007		898.775		—		—	Chilean Pesos				—		—	From 2.97% to 4.15%	From February 2011 to February 2037

Banco Santander Puerto Rico-
Debentures- February 2004		3.271		22,779		26,096	U.S. Dollar		4.8		30		31	3%	January 2010
Debentures- May 2004		4.755		—		5,934	U.S. Dollar		7		—		7	2.5%	May 2011
Debentures- May 2005		7.012		7,594		8,476	U.S. Dollar		10		10		10	From 4.00% to 4.20%	From January 2008 to May 2012

F-229


	Euro thousand							Outstanding amount in million						Annual
Issuer	2007		2006		2005		Currency	2007		2006		2005		Interest rate	Maturity Date
Debentures- Dec 2006		—		5,776		—	U.S. Dollar		—		7		—	2.5%	January 2007

Banco Río de la Plata S.A.-
Debentures -2003		39.654		68,236		104,393	U.S. Dollar		131.8		142		131	From 4.00% to 6.00%	December 2009
Pesos 2007		86.707		—		—	Argentinean Pesos		450		—		—	11.38%	May 2010
Banco Rio Float
Fideicomiso Super Letras Hipotecarias clase I		6.003		—		—	Argentinean Pesos		70.8		—		—	Floating	August 2010
Fideicomiso Super Letras Hipotecarias clase I		127		—		—	Argentinean Pesos		6		—		—	11.77%	August 2012
Fideicomiso Super Letras Hipotecarias clase II		15.077		—		—	Argentinean Pesos		93.5		—		—	Floating	December 2013
Fideicomiso Financiero Río Personales I		14.885		—		—	Argentinean Pesos		16,477		—		—	Floating	September 2009
Banco Santander Totta, S.A.
Debentures- from June 1998 to October 1998		6.584		6,584		6,562	Euro		—		—		—	4.22%	July 2008
Debentures 1999		3.171		3,219		3,261	Euro		—		—		—	Floating	February 2009
Debentures 2002		—		—		21,665	Euro		—		—		—	Floating	January 2006
Debentures 2003		254.043		404,698		574,880	Euro		—		—		—	Floating	From November 2008 to December 2008
Debentures 2004		216.440		389,395		477,258	Euro		—		—		—	Floating	From June 2008 to September 2012
Debentures 2004		19.893		34,054		9,649	Euro		—		—		—	0.70%	June 2008
Debentures 2005		534.920		727,847		735,846	Euro		—		—		—	Floating	From June 2010 to January 2013
Debentures 2006		1.599.499		2,639,051		—	Euro		—		—		—	Floating	From January 2009 to June 2012
Debentures 2006		20.768		29,981		—	Euro		—		—		—	2.50%	December 2011
Debentures 2006		—		1,138,952		—	U.S. Dollar		—		1,500		—	5.35%	July 2011
Debentures 2007		2.615.444		—		—	Euro		—		—		—	Floating	From November 2008 to May 2012

Totta Crédito Especializado, Instituiçao Financeira de Crédito, S.A. (IFIC)
Bonds 2007		1.188.778		—		—	U.S. Dollar		—		—		—	Floating	March 2012

Totta Crédito Especializado, Instituiçao Financeira de Crédito, S.A. (IFIC)
Debentures 1997 and 1998		—		—		—	Euro		—		—		—	Floating	From July 2004 to October 2005

Banco Santander Banespa, S.A.
Eurobonds 2005		166.094		167,696		166,051	U.S. Dollar		410		456		456	Floating	From April 2008 to May 2009
Eurobonds 2005		42.891		41,588		44,817	U.S. Dollar		75		55		53	5.00%	July 2008
Eurobonds 2006		—		8,744		—	U.S. Dollar		—		12		—	10.00%	June 2007
Eurobonds 2006		—		119,547		—	U.S. Dollar		—		157		—	Floating	From May 2009 to August 2024
Eurobonds 2007		30.877		—		—	U.S. Dollar		5		—		—	6.00%	February 2008
Debentures 2004		—		—		85,285	U.S. Dollar		—		—		101	4.05%	July 2006
Debentures 2005		—		—		57,780	U.S. Dollar		—		—		67	1.02%	From January to February 2006
Bonds 2006		143.355		125,344		—	U.S. Dollar		349		165		—	Floating	From May 2009 to August 2024
Bonds 2007		11.946		—		—	U.S. Dollar		30		—		—	Floating	May 2017
Mortgage backed securities 2006		9.193		51,733		—	Brazilian Real		24		145		—	Floating	From March to May 2008
Mortgage backed securities 2007		149.437		—		—	Brazilian Real		388		—		—	Floating	From January to December 2008
Bonds 2007		230.256		—		—	Brazilian Real		1,224		—		—	Floating	From January 2008 to February 2009
Bonds 2007		44.796		—		—	Brazilian Real		116		—		—	From 10.00% to 11.00%	From April 2008 to January 2014

Banco Santander Colombia S.A.
Debentures 2005		38.290		38,496		42,419	Colombian Pesos		104		104		114	Floating	February 2012

F-230


	Euro thousand							Outstanding amount in million						Annual
Issuer	2007		2006		2005		Currency	2007		2006		2005		Interest rate	Maturity Date
Santander Consumer Bank S.p.A.
Debentures		—		—		172,500	Euro		—		—		—	Floating	January to July 2006
Debentures		—		—		6,000	Euro		—		—		—	10.10%	April 2006
Securitisation Bonds (Golden Bar Program)		1.815.853		1,184,114		813,553	Euro		—		—		—	Floating	From October 2020 to November 2022

Santander BanCorp
Debentures June 2004		—		—		63,575	U.S. Dollar		—		75		63	6.30%	June 2032
Debentures October 2005		—		—		42,384	U.S. Dollar		—		50		—	6.10%	June 2032

Santander Consumer Bank Aktiengesellschaft
Bonds		—		—		6,109	Euro		—		—		—	From 3.00% to 4.00%	From March to September 2006
Securitization bonds		736.894		1,002,114		1,667,978	Euro		—		—		—	Floating	From June 2010 to July 2013
Issued 2006		1.632.362		1,768,788		—	Euro		—		—		—	Floating	From July 2013 to March 2014
Issued 2007		2.505.798		—		—	Euro		—		—		—	Floating	From February to March 2012

Santander International Debt, S.A.
Senior Debt 2004		—		1,500,000		3,500,000	Euro		—		—		—	Floating	December 2007
Senior Debt 2004		—		—		42,384	U.S. Dollar				—		50	Floating	December 2006
Senior Debt 2004		—		372,301		364,804	Pounds Sterling				250		250	Floating	December 2007
Senior Debt 2005		8.096.113		8,052,305		8,995,000	Euro				—		—	Floating	From February 2008 to September 2035
Senior Debt 2005		819.385		893,521		955,786	Pounds Sterling				600		655	Floating	From April 2008 to October 2010
Senior Debt 2005		—		196,322		218,579	Canadian Dollar				300		300	Floating	September 2010
Senior Debt 2006		9.019.000		9,919,000		—	Euro				—		—	Floating	From July 2008 to October 2029
Senior Debt 2006		1.022.704		1,162,404		—	Pounds Sterling				750		—	Floating	From February 2009 to July 2011
Senior Debt 2006		—		68,864		—	Mexican Pesos				1,000		—	Floating	January 2007
Senior Debt 2006		108.689		121,489		—	U.S. Dollar				160		—	Floating	From October 2009 to August 2011
Senior Debt 2006		26.288		25,468		—	Czech Crown				700		—	Floating	February 2010
Senior Debt 2006		84.885		89,212		—	Yens				14,000		—	Floating	From February 2008 to December 2016
Senior Debt 2006		61.609		60,694		—	Norwegian Kroners				500		—	Floating	July 2016
Senior Debt 2006		276.836		261,763		—	Canadian Dollar				400		—	Floating	November 2009
Senior Debt 2007		68.433		—		—	Mexican Pesos		1,100		—		—	Floating	July 2022
Senior Debt 2007		67.930		—		—	U.S. Dollar		100		—		—	5.28%	February 2008
Senior Debt 2007		810.000		—		—	Euro		1,100		—		—	From 4.13% to 4.74%	From December 2008 to April 2011
Senior Debt 2007		8.304.998		—		—	Euro		—		—		—	Floating	From September 2008 to May 2022
Senior Debt 2007		346.045		—		—	Canadian Dollar		500		—		—	Floating	February 2010
Senior Debt 2007		443.172		—		—	Pounds Sterling		325		—		—	Floating	From July 2009 to March 2012
Senior Debt 2007		18.190		—		—	Yens		3,000		—		—	Floating	December 2016

Brasil Foreign Diversified Payment Right Finance Company
Medium Term Notes		244.700		303,721		341,138	U.S. Dollar		400		400		402	6.00%	September 2011

Santander US Debt, S.A.U.							º
Senior Debt 2005		2.139.800		4,542,458		5,086,039	U.S. Dollar		3,150		5,500		6,000	Floating	From September to October 2008
Senior Debt 2006		4.137.229		3,785,383		—	U.S. Dollar		6,100		5,000		—	Floating	November 2009
Senior Debt 2007		2.037.905		—		—	U.S. Dollar		3,000		—		—	Floating	July 2010

F-231


	Euro thousand							Outstanding amount in million						Annual
Issuer	2007		2006		2005		Currency	2007		2006		2005		Interest rate	Maturity Date
Santander Consumer Finance, S.A.
Mortgage backed securities		1.189.985		1,193,952		—	Euro		—		—		—	2.54%	March 2016

Abbey National plc

Securitization Bonds (Holmes Funding)
Swiss Francs		—		—		699,300	Swiss Francs		—		—		1,150	From 4.92% to 4.82%	October 2009
Issued 2007		2.886.271		—		—	Pounds Sterling		2,117				—	Floating	From July 2020 to July 2040
Issued 2006		2.132.680		2,329,114		—	Pounds Sterling		1,564		1,564		—	Floating	July 2040
Issued 2005		1.363.606		1,489,203		1,459,215	Pounds Sterling		1,000		1,000		1,000	Floating	From January 2016 to January 2021
2000-2004		340.901		372,301		364,804	Pounds Sterling		250		250		250	5.41%	July 2013
2000-2004		2.493.899		3,392,435		5,533,197	Pounds Sterling		1,804		2,293		3,917	Floating	From July 2010 to July 2040
Issued 2007		8.130.208		—		—	U.S. Dollar		11,952		—		—	Floating	From March 2008 to July 2040
Issued 2006		3.738.002		6,717,724		—	U.S. Dollar		3,305		8,439		—	Floating	From January 2021 to July 2040
2000-2005		1.893.831		5,155,086		8,330,586	U.S. Dollar		5,774		5,922		9,412	Floating	From July 2013 to July 2040
Issued 2007		416.202		—		—	Canadian Dollar		600		—		—	Floating	July 2020
Issued 2007		4.491.476		—		—	Euro		—		—		—	Floating	From July 2021 to July 2040
Issued 2006		1.930.568		1,957,659		—	Euro		—		—		—	Floating	From July 2021 to July 2040
Issued 2005		740.986		754,326		739,136	Euro		—		—		740	Floating	January 2021
Issued 2000 to 2004		—		—		1,262,221	Euro		—		—		1,400	From 4.82% to 4.87%	From July 2008 to October 2008
Issued 2000 to 2004		1.680.737		3,532,849		4,434,450	Euro		—		—		4,753	Floating	From October 2008 to July 2040

Securitization Bonds (Hipototta)
Hipototta Nº1 plc		141.078		224,694		—	Euro		—		—		—	Floating	From November 2034 to September 2048
Hipototta Nº4 plc		1.634.991		2,345,112		—	Euro		—		—		—	Floating	September 2048
Hipototta Nº5 plc		1.734.441		—		—	Euro		—		—		—	Floating	February 2060

Securitization Bonds (Marylebond)
Sythetic Collateralised Debt Obligation		86.046		101,875		—	Euro		—		—		—	4.69%	November 2011

Bonds
Issued 2006		17.926		17,970		—	Australian Dollar		30		—		—	7.29%	December 2008
Issued 2004		29.876		29,950		—	Australian Dollar				50		—	Floating	January 2009
Issued 2007		34.683		—		—	Canadian Dollar		50,120		—		—	4.767%	June 2010
Issued 2006		208.101		196,218		—	Canadian Dollar				300		—	Floating	January 2008
Issued 2004-2005		—		376,084		768,029	Canadian Dollar				575		1,050	Floating	From June 2007 to August 2007
Issued 2004		9.018		8,503		9,826	Canadian Dollar				13		13	4.00%	January 2009
2000-2004		—		—		13,545	Swiss Francs				—		21	Floating	November 2007
2005		—		—		52,068	Swiss Francs				—		80	Floating	February 2007
Issued 2007		225.032		—		—	Hong Kong Dollar		2,583		—		—	From 3.73% to 4.75%	From March 2008 to January 20017
Issued 2007		17.444		—		—	Hong Kong Dollar		200		—		—	Floating	July 2009
Issued 2006		4.710		18,915		—	Hong Kong Dollar				194		—	Floating	October 2008
Issued 2006		374.676		430,177		—	Hong Kong Dollar				4,412		—	From 4.13% to 5.33%	From April 2008 to August 2016
Issued 2005		193.459		351,494		395,881	Hong Kong Dollar				3,605		860	From 0.10% to 5.04%	From August 2008 to December 2014
Issued 2005		47.099		56,551		94,630	Hong Kong Dollar				580		3,593	Floating	From March 2008 to May 2010
Issued 1998-2004		—		40,951		128,916	Hong Kong Dollar				420		1,170	Floating	From January 2008 to October 2011

F-232


	Euro thousand							Outstanding amount in million						Annual
Issuer	2007		2006		2005		Currency	2007		2006		2005		Interest rate	Maturity Date
Issued 1998-2004		116.617		196,661		263,592	Hong Kong Dollar				2,017		2,358	From 0.10% to 6.64%	From January 2008 to May 2012
Issued 2002		125.678		121.275		127,780	Norwegian Kroners		1,000		1,000		1,000	6.52%	September 2012
Issued 1999		47.345		49,427		51,558	Singapore Dollar		100		100		100	5.00%	October 2009
Issued 2007		94.691		—		—	Singapore Dollar		1,087		—		—	2.56%	January 2009
Issued 2005		—		53,374		58,123	New Zealand Dollar				100		100	Floating	November 2007
Issued 2004		—		—		31,449	Argentinean Pesos				—		50	Floating	January 2009
2007		4.057		—		—	Mexican Pesos		46		—		—	8.00%	July 2008
2007		166.287		—		—	Chilean Pesos		122,270		—		—	5.86%	July 2010
1995-2001		—		—		91,303	Yens				—		12,593	From 0.01% to 3.79%	From April 2007 to September 2013
1995-2001		63.480		97,210		125,060	Yens				16,250		17,133	Floating	From July 2008 to December 2031
2002		—		—		140,595	Yens				—		19,000	0.20%	December 2006
2002		24.296		33,148		30,521	Yens				5,200		4,140	Floating	From September 2015 to September 2032
2003		31.586		36,332		58,054	Yens				5,200		7,976	Floating	From April 2013 to September 2033
2004		—		3,186		3,621	Yens				—		502	Floating	July 2034
2005		4.860		5,100		5,768	Yens				800		800	0.01%	April 2008
2006		124.533		147,253		—	Yens				23,100		—	Floating	From January to May 2008
2006		129.392		135,779		—	Yens				21,300		—	From 0.64% to 2.15%	From November 2009 to August 2016
2007		547.158		—		—	Yens		90,290		—		—	From 1.00% to 6.36%	From October 2008 to May 2013
Issued from 1995 to 2001		—		—		346,525	U.S. Dollar				—		408	Floating	December 2007
Issued from 1995 to 2001		16.006		69,053		34,260	U.S. Dollar				91		40	4.97%	March 2011
2002		—		11,372		12,372	U.S. Dollar				15		14	Floating	May 2012
2002		—		—		20,927	U.S. Dollar				—		24	From 0.00% to 2.00%	June 2007
2003		59.050		178,361		207,959	U.S. Dollar				235		244	Floating	From March 2008 to November 2013
2003		20.671		62,256		223,091	U.S. Dollar				82		263	From 2.57% to 5.34%	From June to September 2008
2004		73.012		705,499		2,442,807	U.S. Dollar				181		2,860	Floating	From July 2008 to November 2014
2004		—		11,372		224,050	U.S. Dollar				15		263	3.250%	October 2007
2005		200.487		1,898,965		2,233,209	U.S. Dollar				2,505		2,601	Floating	From January 2008 to June 2015
2005		50.204		122,063		666,627	U.S. Dollar				161		784	From 4.16% to 4.96%	From April 2008 to February 2015
2006		795.217		2,610,002		—	U.S. Dollar				3,283		—	Floating	From February 2008 to December 2016
2006		—		483,368		—	U.S. Dollar				638		—	From 1.00 % to 5.5%	From February 2008 to August 2017
2007		7.697.258		—		—	U.S. Dollar				—		—	Floating	From January 2008 to November 2017
2007		15.646		—		—	U.S. Dollar				—		—	4.96%	From August 2012 to August 2017
1993-2001		742.682		1,400,611		1,191,871	Pounds Sterling				169		862	From 5.37% to 6.36%	From April 2008 to June 2038
1993-2001		—		19,360		61,970	Pounds Sterling				13		42	Floating	From July 2007 to December 2007
2002		34.090		192,450		107,573	Pounds Sterling				300		74	From 5.10% to 5.67%	June 2012
2002		—		40,119		48,417	Pounds Sterling				27		33	Floating	From February 2007 to June 2007
2003		—		—		174,329	Pounds Sterling				—		119	Floating	From July 2006 to December 2009
2003		100.768		134,981		1,122,027	Pounds Sterling				91		769	From 5.72% to 6.36%	From May 2008 to December 2009
2004		84.942		541,626		563,679	Pounds Sterling				64		386	From 5.65% to 6.36%	From July 2009 to November 2010
2004		—		—		240,749	Pounds Sterling				—		165	Floating	From January 2006 to November 2010
2005		—		258,302		4,766,767	Pounds Sterling				173		3,267	From 4.41% to 4.75%	From June 2007 to November 2007
2005		1.289.144		1,936,550		1,942,491	Pounds Sterling				700		1,331	Floating	From September 2010 to November 2015
2006		861.064		4,986,821		—	Pounds Sterling				3,349		—	From 0.10% to 5.53%	From February 2008 to April 2011
2006		1.456.919		1,620,897		—	Pounds Sterling				688		—	Floating	From January 2008 to September 2011
2007		7.120.744		—		—	Pounds Sterling		5,222,013		—		—	From 4.25% to 6.61%	From January 2008 to June 2010

F-233


	Euro thousand							Outstanding amount in million						Annual
Issuer	2007		2006		2005		Currency	2007		2006		2005		Interest rate	Maturity Date
1996-2001		703.514		817,766		1,624,070	Euro		—		—		—	From 0.81% to 9.88%	From February 2008 to November 2041
1995-2001		457.956		499,622		1,203,053	Euro		—		—		—	Floating	From February 2009 to March 2009
2002		55.846		166,353		127,759	Euro		—		—		—	Floating	June 2012
2002		—		121,275		81,128	Euro		—		—		—	From 0.01% to 6.52%	From March 2006 to September 2012
2003		1.028.368		1,026,734		1,764,313	Euro		—		—		—	Floating	From May 2008 to March 2013
2003		—		—		96,198	Euro		—		—		—	From 0.01% to 2.45%	From January 2006 to March 2013
2004		—		—		29,944	Euro		—		—		—	From 0.01% to 2.00%	From March 2005 to June 2007
2004		1.001.332		1,012,805		1,836,746	Euro		—		—		—	Floating	May 2009
2005		2.009.875		2,049,248		2,102,464	Euro		—		—		—	From 2.15% to 5.40%	From February 2012 to June 2015
2005		11.575		320,117		328,598	Euro		—		—		—	Floating	From April 2012 to June 2015
2006		1.695.756		1,594,806		—	Euro		—		—		—	From 3.74% to 3.89%	From February 2008 to April 2021
2006		1.386.845		1,649,242		—	Euro		—		—		—	Floating	From January 2008 to September 2014
2007		23.631		—		—	Euro		—		—		—	Floating	August 2010
2007		2.072.013		—		—	Euro		—		—		—	From 3.75% to 4.78%	From January 2008 to April 2016

AN Structured Issues Limited
Issued 2002		—		10,000		—	Euro		—		—		—	Floating	July 2007
Issued 2001-2004		9.111		12,744		—	Yens		1,500		2,000		—	Floating	From July 2031 to July 2034

Abbey National Funding plc
Issued 2002		1.663		1,816		—	Pounds Sterling		1		1		—	5.115%	August 2008

ANDSH Limited
Issued 1989		2.014		2,414		—	Pounds Sterling		2		2		—	Floating	December 2008

Securitization Bonds

F.T.H. UCI 10		131.636		168,099		—	Euro		—		—		—	Floating	December 2014
F.T.H. UCI 11		186.006		234,708		—	Euro		—		—		—	3.00%	February 2015
F.T.H. UCI 12		229.549		292,890		—	Euro		—		—		—	Floating	December 2017
F.T.H. UCI 14		364.097		553,836		—	Euro		—		—		—	3.70%	March 2019
F.T.H. UCI 15		494.740		584,494		—	Euro		—		—		—	3.68%	March 2020
F.T.H. UCI 16		731.599		863,242		—	Euro		—		—		—	3.70%	June 2016
F.T.H. UCI 17		269.730		—		—	Euro		—		—		—	Floating	October 2019
F.T.A. Santander Consumer Spain Auto 06		1.276.029		1,350,000		—	Euro		—		—		—	Floating	October 2016
Altair Finance p.l.c.				13,124		—	Euro		—		—		—	Floating	August 2014

Grupo Drive
2005/2006		998.121		1,894,777		—	U.S. Dollar		3,000		2,495		—	From 4.01% to 5.52%	From January 2012 to April 2014
2007		1.328.185		—		—	U.S. Dollar		2,300		—		—	From 5.00% to 5.59%	From August 2014 to October 2014

Total Valuation Adjustments		224.016		88,739		1,777,945
TOTAL		200,905,082		168,661,356		123,566,864

F-234

Exhibit VII

List of Subordinated Debt outstanding as of December 31, 2007, 2006 and 2005 (includes preferred securities).


								Outstanding
								Amount in
	Euro thousand							Currency
Issuer	2007		2006		2005		Currency	(Million)		Annual Interest Rate	Maturity Date
Banco Santander, S.A.:

May 1991		288,440		298,890		298,890	Euro		—	Floating (1)	May 2011
April 1995		—		—		—	Euro		—	Floating	April 2005
June 1995		60,101		60,101		60,101	Euro		—	12.70%	December 2010
December 1995		73,516		75,286		75,286	Euro		—	10.75%	December 2010
March 1997		60,101		60,101		60,101	Euro		—	7.38%	December 2012
June 1997		59,295		60,101		60,101	Euro		—	7.65%	December 2015

Santander Central Hispano Issuances, Ltd. :
April 1994		28,121		28,121		28,121	Euro		—	Floating	April 2009
June 1998		151,162		151,162		153,388	Euro		—	5.00%	June 2008
July 1999		490,510		490,510		500,000	Euro		—	5.00%	July 2009
March 2000		434,840		439,840		500,000	Euro		—	6.00%	July 2010
March 2001		500,000		500,000		500,000	Euro		—	Floating	March 2011
March 2001		453,542		453,542		500,000	Euro		—	6.00%	March 2011
September 2001										From fixed to floating
		—		—		500,000	Euro		—	(3) & (25)	September 2011
April 2002		—		350,000		350,000	Euro		—	Floating (33)	April 2012
April 2002		—		643,750		650,000	Euro		—	From fixed to floating (4) & (33)	April 2012
April 1990		—		—		—	U.S. Dollars		—	Floating (2)	Perpetual
July 1990		—		—		—	U.S. Dollars		—	Floating (2)	Perpetual
October 1990		—		—		—	U.S. Dollars		—	Floating (2)	Perpetual
April 1995		—		—		—	U.S. Dollars		—	7.088%	April 2005
May 1995		—		—		—	U.S. Dollars		—	7.75%	May 2005
June 1995		—		—		—	U.S. Dollars		—	7.50%	June 2005
July 1995		—		—		—	U.S. Dollars		—	6.80%	July 2005
August 1995		—		—		—	U.S. Dollars		—	Floating	August 2005
November 1995		135,860		151,860		169,535	U.S. Dollars		200	7.00%	November 2015
February 1996		—		—		169,535	U.S. Dollars		—	6.50%	February 2006
February 1996		203,791		227,790		254,302	U.S. Dollars		300	6.00%	February 2011
April 1996		—		—		211,918	U.S. Dollars		—	7.00%	April 2006
May 1996		—		—		169,535	U.S. Dollars		—	7,25%	May 2006
July 1996		—		—		190,726	U.S. Dollars		—	7,70%	July 2006
October 1996		—		—		127,151	U.S. Dollars		—	Floating	October 2006
February 1997		—		113,895		127,151	U.S. Dollars		—	Floating	February 2007
November 1999		424,564		474,563		529,796	U.S. Dollars		625	8.00%	March 2009
September 2000		679,302		759,301		847,673	U.S. Dollars		1,000	7.00%	September 2010
May 2002		—		37,965		42,384	U.S. Dollars		—	Floating (34)	May 2012
May 2002		—		37,965		42,384	U.S. Dollars		—	Floating (34)	May 2012
June 2000		70,883		74,250		76,421	Singapore Dollars		150	5.00%	June 2010
November 2000		272,721		297,841		291,836	Pounds Sterling		200	6.00%	November 2010

Santander Consumer Bank Aktiengelsellschaft
Sundry issues		54,577		78,875		86,989	Euro		—	From 5.84% to 8.25%	From August 2006 to January 2016

Banco Santander Chile: (merged with Banco Santiago)
October 1996		—		—		51,706	Chilean Pesos		—	Floating	October 2016
January 1992 - October 1999		40,162		44,136		5,379	Chilean Pesos		30,908	7.63% - 7.75%	October 2016
May 1996		23,520		25,248		31,073	Chilean Pesos		17,682	7.12%	December 2015
September 1996		18,536		19,571		23,761	Chilean Pesos		13,706	6.88%	March 2016
September 1996		23,358		24,556		29,466	Chilean Pesos		17,196	6.93%	March 2011
August 2006		133,846		130,979		—	Chilean Pesos		91,726	4.40%-4.50%	September 2026
November 1998		—		—		—	U.S. Dollars		—	6.50%	November 2005
July 1997		—		59,255		66,353	U.S. Dollars		—	8.47%	July 2007

F-235


								Outstanding
								Amount in
	Euro thousand							Currency
Issuer	2007		2006		2005		Currency	(Million)		Annual Interest Rate	Maturity Date
January 2003		150,727		168,535		189,217	U.S. Dollars		222	8.64%	July 2012
December 2004		203,721		227,790		255,076	U.S. Dollars		300	5.67%	December 2014
November 2007		53,802		—		—	Chilean Pesos		2,000	4.40%	November 2032
December 2007		19,669		—		—	Chilean Pesos		2,000	4.40%	December 2032

Totta-Credito Especializado, IFIC, S.A. (formerly McLeasing Sdad. Loc.Fin):
June 1997		—		4,988		4,988	Euro		—	Floating	June 2007

Banco Santander Banespa, S.A.:
September 2005		341,114		380,184		419,603	U.S. Dollars		500	9.00%	Perpetual
2006		1,077,092		994,560		—	Brazilian Real		2,797	Floating	From July 2016 to September 2016

Banco Santander Totta, S.A.:
February 2001		—		—		19,924	Euro		—	Floating (31)	Perpetual
May 1995		—		—		—	Euro		—	Floating	May 2005
July 1996		—		—		74,820	Euro		—	Floating	July 2006
September 1987		—		—		—	Euro		—	Floating (5)	September 2007
April 2001		—		—		16,337	Euro		—	5.00% (26)	April 2009
December 2000		—		—		13,868	Euro		—	Floating (31)	Perpetual
November 1997		27,353		27,764		28,881	Euro		—	Floating	Perpetual
December 1997		8,886		9,497		13,321	Euro		—	Floating	Perpetual
December 1998		—		—		—	Euro		—	Floating (6)	December 2008
December 1999		—		—		—	Euro		—	Floating (7)	November 2009
February 2001		—		—		9,961	Euro		—	Floating	Perpetual
April 2001		—		—		19,402	Euro		—	5.00% (26)	April 2009
May 2001		—		9,466		9,484	Euro		—	Floating	May 2007
December 2002		15,050		15,050		15,025	Euro		—	Floating	December 2008
December 2005		300,000		300,000		300,000	Euro		—	5.20%	December 2015

Banesto Group:
October 1990		—		—		—	U.S. Dollars		—	Floating (8)	Perpetual
March 1997		—		113,895		127,151	U.S. Dollars		—	7.50%	March 2007
September 2003		500,000		500,000		500,000	Euro		—	Floating	September 2013
March 2004		500,000		500,000		500,000	Euro		—	From fixed to floating (9)	March 2016

Santander Central Hispano Financial Services, Ltd.:
February 1990		—		—		—	U.S. Dollars		—	Floating (10)	Perpetual
June 2001		272,721		297,841		291,836	Pounds Sterling		200	From fixed to floating (11)	Perpetual

Santander Issuances, S.A.
September 2004		500,000		500,000		500,000	Euro		—	From fixed to floating (12)	September 2019
September 2004		500,000		500,000		500,000	Euro		—	Floating (13)	September 2014
March 2006 - July 2006		1,550,000		1,550,000		—	Euro		—	Floating	March 2016 - July 2017
May 2006		500,000		500,000		—	Euro		—	4.25% (27)	May 2018
May 2006		272,721		297,841		—	Pounds Sterling		200	5.38% (28)	May 2016
July 2006		409,082		446,761		—	Pounds Sterling		300	5.38% (29)	July 2017
June 2006		543,442		607,441		—	U.S. Dollars		800	5.80% - 5..90%	June 2016
June 2006		339,651		379,651		—	U.S. Dollars		500	Floating	June 2016
January 2007		409,082		—		—	Pounds Sterling		300	Floating	January 2018
February 2007		200,000		—		—	Euro		—	Floating	February 2019
March 2007		235,000		—		—	Euro		—	Floating	February 2019
March 2007		1,500,000		—		—	Euro		—	Floating	February 2017
May 2007		650,000		—		—	Euro		—	Floating	From February 2019 to May 2019
July 2007		139,000		—		—	Euro		—	Floating	July 2022
July 2007		102,000		—		—	Euro		—	Floating	July 2028
October 2007		1,489,708		—		—	Euro		—	Floating	October 2017
October 2007		1,090,884		—		—	Pounds Sterling		800	Floating	October 2017
October 2007		290,967		—		—	New Mexican Pesos		4,677	Floating	October 2017

F-236


								Outstanding
								Amount in
	Euro thousand							Currency
Issuer	2007		2006		2005		Currency	(Million)		Annual Interest Rate	Maturity Date
Banco Santander, S.A., Institución de Banca Múltiple, Grupo Financiero Santander
November 2004		25,443		28,777		21,199	U.S. Dollars		150	Floating (15)	From January 2014 to November 2018
February 2005		25,399		28,659		42,068	U.S. Dollars		150	Floating	March 2015

Santander Perpetual, S.A. Unipersonal
December 2004		750,000		750,000		750,000	Euro		—	From fixed to floating (14)	Perpetual
October 2007		1,018,953		—		—	U.S. Dollars		1,500	6.67%	Perpetual

Abbey Group
December 1991		202,308		223,380		218,882	Pounds Sterling		150	11.50%	April 2017
June 1992		—		—		145,921	Pounds Sterling		—	10.75%	December 2006
February 1993		204,541		223,380		218,882	Pounds Sterling		150	10.13%	April 2023
October 1999		204,541		223,380		218,882	Pounds Sterling		150	6.50%	October 2030
September 2000		443,172		483,991		474,245	Pounds Sterling		325	7.50%	Perpetual
September 2000		579,532		632,911		620,166	Pounds Sterling		425	7.50%	Perpetual
September 2000		238,631		260,611		255,363	Pounds Sterling		175	7.38%	Perpetual
September 2000		374,991		409,531		401,284	Pounds Sterling		275	7.13%	Perpetual
October 1995		272,721		297,841		291,843	Pounds Sterling		200	10.06%	Perpetual
April 2005		272,721		297,841		291,843	Pounds Sterling		200	From fixed to floating (22)	April 2015
July 2001 (20)		—		—		291,843	Pounds Sterling		—	7.25%	Perpetual
May 1997 (20)		—		—		182,397	Pounds Sterling		—	8.75%	Perpetual
September 1994		91,122		95,584		108,142	Yens		15,000	5.56%	Perpetual
February 1995		30,374		31,861		36,047	Yens		5,000	5.50%	Perpetual
December 1996		30,374		31,861		36,047	Yens		5,000	From fixed to floating (17)	Perpetual
October 1995		—		—		—	U.S. Dollars		—	6.69%	October 2005
October 1996		—		—		423,882	U.S. Dollars		—	7.35% (30)	Perpetual
June 1998		340,128		379,651		423,882	U.S. Dollars		500	6.70%	Perpetual
October 1999		680,255		759,301		847,765	U.S. Dollars		1,000	7.95%	October 2029
August 2001		—		—		339,106	U.S. Dollars		—	7.25% (30)	Perpetual
May 2002		—		37,965		42,388	U.S. Dollars		—	Floating (34)	May 2012
May 2002		—		37,965		42,388	U.S. Dollars		—	Floating (34)	May 2012
April 2005		458,501		500,000		501,014	Euro		—	Floating (21)	April 2015
December 1998		511,973		511,292		512,328	Euro		—	5.00%	January 2009
February 1999		500,666		500,000		501,014	Euro		—	4.63%	February 2011
April 1999 (18)		—		—		—	Euro		—	5.75%	Perpetual
June 2002		—		500,000		501,014	Euro		—	Floating (35)	June 2012
September 2000		400,533		400,000		400,811	Euro		—	From fixed to floating (19)	Perpetual

Santander Consumer Finance, S.A.
September 2006		499,540		499,540		—	Euro		—	Floating	September 2016

Santander Factoring y Confirming, S.A., E.F.C.
June 1999 - December 2005		50,040		50,040		—	Euro		—	Floating (32)	From June 2011 to December 2015

Santander BanCorp
October 2004 - October 2005		84,913		94,913		—	U.S. Dollars		254	From 5.00% to 6.00%	June 2032

BS Venezuela
January 2007		15,963		—		—	Bolivar		700	Floating	February 2008

Total Valuation adjustments		1,229,042		795,258		1,260,086
Subtotal subordinated debt		28,408,797		23,586,251		21,990,688

F-237


								Outstanding
								Amount in
	Euro thousand							Currency
Issuer	2007		2006		2005		Currency	(Million)		Annual Interest Rate	Maturity Date
PREFERRED SECURITIES

Banesto Group
Banesto Preferentes S,A, December 2003		131,144		131,144		131,144	Euro		—	Floating	Perpetual
Banesto S,A, November 2004		200,000		200,000		200,000	Euro		—	5.50%	Perpetual
Banesto S,A, October 2004		125,000		125,000		125,000	Euro		—	From fixed to floating (23)	Perpetual

Santander Finance Capital, S.A.
October 2003		450,000		450,000		450,000	Euro		—	Floating	Perpetual
February 2004		400,000		400,000		400,000	Euro		—	Floating	Perpetual
July 2004		750,000		750,000		750,000	Euro		—	Floating	Perpetual
September 2004		680,000		680,000		680,000	Euro		—	Floating	Perpetual
April 2005		1,000,000		1,000,000		952,744	Euro		—	From fixed to floating (24)	Perpetual

Santander Finance Preferred, S.A. Unipersonal
March 2004		129,067		144,267		161,058	U.S. Dollars		—	6.40%	Perpetual
November 2006		339,651		379,651		—	U.S. Dollars		500	6.80%	Perpetual
September 2004		300,000		300,000		300,000	Euro		—	Floating	Perpetual
October 2004		200,000		200,000		200,000	Euro		—	5.70%	Perpetual
January 2007		407,581		—		—	U.S. Dollars		600	6.70%	Perpetual
March 2007		237,756		—		—	U.S. Dollars		350	5.60%	Perpetual
July 2007		340,901		—		—	Pounds Sterling		250	7.00%	Perpetual

Abbey Group
February 2000		679,302		759,302		847,673	U.S. Dollars		1,000	9.00%	Perpetual
August 2002		—		379,651		423,837	U.S. Dollars		500	7.38% (36)	Perpetual
February 2001		409,082		446,760		437,764	Pounds Sterling		300	7.04%	Perpetual
August 2002		238,631		260,038		255,363	Pounds Sterling		175	6.98%	Perpetual

Santander PR Capital Trust I
February 2006		84,913		94,913		—	Euro		—	6.75%	July 2036

Total valuation adjustments		158,354		135,844		458,185	—		—	—	—
Subtotal preferred securities		7,261,382		6,836,570		6,772,768

TOTAL SUBORDINATED DEBT		35,670,179		30,422,821		28,763,456

These are subordinated issues and, therefore, for debt seniority purposes they are junior to all general creditors of the issuers. The issues of Santander Central Hispano Financial Services, Ltd., Santander Issuances, S.A., Santander Perpetual S.A. Unipersonal, Santander Finance Capital S.A.U. and Santander Finance Preferred S.A.U. are guaranteed by the Bank on a subordinated basis or are secured by restricted deposits at the Bank.


(1)		Interest on the May 1991 issue of the Bank is revised annually, being tied to MIBOR less two percentage points, with a maximum of 14% per annum and a minimum of 10%. These securities are redeemable at par in 2011, but the holders can redeem them early at 6, 12 and 18 years from the issue date.

(2)		The 1990 issues of SCH Issuances, Ltd, have been redeemed during March and April 2005 at the Bank’s option, after obtaining authorization from the Bank of Spain.

(3)		This issuance has a fixed interest rate for the first 5 years of 5.250% and from September 2006 it is Euribor 3M plus 1.22%.

(4)		This issuance has a fixed interest rate for the first 5 years of 5.750% and from April 2007 it is Euribor 3M plus 1.24%.

(5)		This issuance has been cancelled in June 2005.

(6)		This issuance has been cancelled in October 2005.

(7)		This issuance has been cancelled in June 2005.

(8)		The perpetual issuance of Banesto Group has been redeemed in February 2005.

F-238


(9)		This issue has a fixed interest rate of 4% for the first seven years, and from March 2011, the interest rate is Euribor 3M plus 0.95%.

(10)		The February 1990 issue of SCH Financial Services, Ltd, has been redeemed in February 2005 at the Bank’s option, after obtaining authorization from the Bank of Spain.

(11)		This issuance has a fixed interest rate of 7.25% until December 2011, and from this date the interest is Libor 3M plus 285 b.p.

(12)		This issue has a fixed rate of 4.5% until September 2014, and from this date, the interest is Euribor 3M plus 0.86%.

(13)		This issue has a floating rate of Euribor 3M plus 0.25% for the first five years, and from this date, the interest is Euribor 3M plus 0.75%.

(14)		This issue has a fixed rate of 4.375% for the first ten years, and from December 2014, the interest is Euribor 3M plus 1.6%.

(15)		This issue has a floating rate of Libor 6M plus 1.1% for the first five years, and from this date, the interest is Libor 6M plus 2.2%.

(16)		This issue can be exchangeable, at the option of Abbey, for fully paid 10 ³/4 per cent non-cumulative sterling preference shares of 1 sterling pound nominal value each of Abbey National, at the rate of one new sterling preference share for every 1 sterling pound principal amount of the issue.

(17)		This issue has a fixed rate of 4% until December 2016, and from this date, it is Libor 3M plus 1.5%.

(18)		This issuance has been cancelled in April 2005.

(19)		This issue has a fixed rate of 7.125% until September 2010, and from this date, the interest is Euribor 3M plus 2.3%.

(20)		These issuances have been included as a consequence of the application of the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, since they have been issued by Abbey’s Group insurance companies.

(21)		The rate of this issue is Libor 3M plus 0.25% until April 2010 (call date). From that date, it is Libor 3M plus 0.75%.

(22)		This issue has a fixed rate of 5.25% until the call date (April 2010). Then it is Euribor 3M plus 0.75%.

(23)		This issuance had a fixed rate of 6% until October 2005. Now it is Euribor CMS 10 plus 0.125%.

(24)		This issue has a fixed rate of 3% until April 2006. From this date, the rate is Euribor 3M plus 0.10%.

(25)		This issuance has been cancelled in September 2006.

(26)		This issuance has been cancelled in April 2006.

(27)		This issue has a fixed rate of 4.25% until May 2013. From this date, the rate is Euribor 3M plus 0,82%.

(28)		This issue has a fixed rate of 5.375% until May 2011. From this date, the rate is Euribor 3M plus 0,69%.

(29)		This issue has a fixed rate of 5.375% for the first five years, and from June 2011, the interest rate is Libor 3M Euribor 3M plus 0,86%.

(30)		This issuance has been cancelled in October 2006.

(31)		These issuances have been purchased by Santander’s Group.

(32)		In previous years, issuances between Santander Factoring & Confirming and Santander’s Group were net, so the result of them was zero.

(33)		These issuances have been cancelled in April 2007.

(34)		These issuances have been cancelled in May 2007.

(35)		This issuance has been cancelled in June 2007.

(36)		This issuance has been cancelled in September 2007.

F-239

Exhibit VIII

EU-IFRS (*):


	Year end December 31,
	2007						2006						2005
	Including			Excluding			Including			Excluding			Including			Excluding
	interest on			interest on			interest on			interest on			interest on			interest on
	deposits			deposits			deposits			deposits			deposits			deposits
FIXED CHARGES:
Fixed charges		30,421,947			15,832,380			24,021,396			10,910,808			22,111,675			8,463,023

EARNINGS:
Income from continuing operations before taxes, minority interest and extraordinary items		10,687,627			10,687,627			8,582,241			8,582,241			7,232,234			7,232,234
Distributed earnings from associated companies		(294,809	)		(294,809	)		(262,315	)		(262,315	)		(437,978	)		(437,978	)
Fixed charges		30,421,947			15,832,380			24,021,396			10,910,808			22,111,675			8,463,023

Total earnings for ratio calculation		40,814,765			26,225,198			32,341,322			19,230,734			28,905,931			15,257,279

Ratio of earnings to fixed charges		1.34			1.66			1.35			1.76			1.31			1.80

U.S. GAAP:


	Year end December 31,
	2007						2006						2005						2004						2003
	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
	deposits			deposits			deposits			deposits			deposits			deposits			deposits			deposits			deposits			deposits
FIXED CHARGES:
Fixed charges		30,362,088			15,772,521			23,931,889			10,821,301			22,037,564			8,388,912			9,472,947			3,920,904			9,136,028			3,505,885
Preferred dividends		59,859			59,859			89,507			89,507			74,111			74,111			151,952			151,952			311,317			311,317

Total fixed charges + preferred dividends		30,421,947			15,832,380			24,021,396			10,910,808			22,111,675			8,463,023			9,624,899			4,072,856			9,447,345			3,817,202

EARNINGS:
Income from continuing operations before taxes, minority interest and extraordinary items		7,681,764			7,681,764			7,442,474			7,442,474			7,224,611			7,224,611			3,944,897			3,944,897			3,140,200			3,140,200
Distributed earnings from associated companies		(294,809	)		(294,809	)		(262,315	)		(262,315	)		(437,978	)		(437,978	)		(271,816	)		(271,816	)		(380,922	)		(380,922	)
Fixed charges		30,362,088			15,772,521			23,931,889			10,821,301			22,037,564			8,388,912			9,472,947			3,920,904			9,136,028			3,505,885

Total earnings for ratio calculation		37,749,043			23,159,476			31,112,048			18,001,460			28,824,197			15,175,545			13,146,028			7,593,985			11,895,306			6,265,163

Ratio of earnings to fixed charges		1.24			1.47			1.30			1.66			1.31			1.81			1.39			1.94			1.30			1.79
Ratio of earnings to combined fixed charges and preferred stock dividends		1.24			1.46			1.30			1.65			1.30			1.79			1.37			1.86			1.26			1.64


(*)		The EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004

F-240

EXHIBIT INDEX


Exhibit
Number		Description
1.1		By-laws (Estatutos) of Banco Santander, S.A., as amended.

1.2 *		By-laws (Estatutos) of Banco Santander, S.A., as amended.

1.3		By-laws (Estatutos) of Banco Santander, S.A., as amended (English translation of By-laws set forth in Exhibit 1.1 hereto).

1.4		By-laws (Estatutos) of Banco Santander, S.A., as amended (English translation of the By-laws set forth in Exhibit 1.2 hereto).

4.1 **		Consortium and Shareholders’ Agreement dated May 28, 2007, among the Royal Bank of Scotland Group plc, Banco Santander Central Hispano, S.A., Fortis SA/N.V. and RFS Holdings B.V. (incorporated by reference to Exhibit 4.1 to our Annual Report on Form 20-F for the year ended December 31, 2006, filed with the Securities and Exchange Commission on July 2, 2007).

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 Acounting Officer

15.1		Consent of Deloitte, S.L.

15.2		Report submitted by the Board of Directors to the General Shareholders’ Meeting describing the By-laws amendments

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.


*		These By-laws will go into effect (and replace the By-laws set forth in Exhibit 1.1) upon the granting of the necessary authorization by the Spanish Minister of Economy and Finance and their subsequent filing with the office of the Mercantile Registry in Santander.

**		Pursuant to a request for confidential treatment filed with the Securities and Exchange Commission, the confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission.


	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		11
C. Reasons for the offer and use of proceeds		11
D. Risk factors		11

ITEM 4. INFORMATION ON THE COMPANY		16

A. History and development of the company		16
B. Business overview		25
C. Organizational structure		81
D. Property, plants and equipment		81

ITEM 4A. UNRESOLVED STAFF COMMENTS		81

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		81

A. Operating results		87
B. Liquidity and capital resources		113
C. Research and development, patents and licenses, etc.		115
D. Trend information		115
E. Off-balance sheet arrangements		116
F. Tabular disclosure of contractual obligations		117

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		118

A. Directors and senior management		118
B. Compensation		125
C. Board practices		145
D. Employees		155
E. Share ownership		157

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		158

A. Major shareholders		158
B. Related party transactions		159
C. Interests of experts and counsel		159

ITEM 8. FINANCIAL INFORMATION		160

A. Consolidated statements and other financial information		160
B. Significant changes		163


	Page

ITEM 9. THE OFFER AND LISTING		163

A. Offer and listing details		163
B. Plan of distribution		165
C. Markets		165
D. Selling shareholders		170
E. Dilution		170
F. Expense of the issue		170

ITEM 10. ADDITIONAL INFORMATION		170

A. Share capital		170
B. Memorandum and articles of association		170
C. Material contracts		178
D. Exchange controls		178
E. Taxation		178
F. Dividends and paying agents		183
G. Statement by experts		183
H. Documents on display		183
I. Subsidiary information		183

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		184

Introduction.		184

Part 1. Organization of risk management		186
Part 2. Credit risk		186
Part 3. Operational risk		202
Part 4. Basel II Corporate Project		205
Part 5. Economic Capital		207
Part 6. Reputational risk		210
Part 7. Risk training activities		213
Part 8. Market risk		214

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		234

A. Debt securities		234
B. Warrants and rights		234
C. Other securities		234
D. American Depositary Shares		234

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		235

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		235

E. Use of proceeds		235

ITEM 15. CONTROLS AND PROCEDURES		235

ITEM 16. A. Audit committee financial expert		238
B. Code of ethics		238
C. Principal accountant fees and services		238
D. Exemptions from the listing standards for audit committees		239
E. Purchases of equity securities by the issuer and affiliated purchasers		239

PART III

ITEM 17. FINANCIAL STATEMENTS		240

ITEM 18. FINANCIAL STATEMENTS		240

ITEM 19. EXHIBITS		240

Exhibit 1.1
Exhibit 1.2
Exhibit 1.3
Exhibit 1.4
Exhibit 12.1
Exhibit 12.2
Exhibit 12.3
Exhibit 13.1
Exhibit 15.1
Exhibit 15.2


Contractual obligations			More than		More than
			1 year but		3 years but
	Less than		less than 3		less than 5		More than
(in millions of euros)	1 year		years		years		5 years		Total
Deposits from credit institutions		40,817		3,002		3,111		1,756		48,686
Customer deposits		290,717		13,141		11,145		2,040		317,043
Marketable debt securities		55,976		35,294		26,745		88,250		206,265
Subordinated debt		726		4,065		2,357		28,522		35,670
Operating lease obligations		260		499		484		2,127		3,370
Purchase obligations		156		6		1		—		163
Other long-term liabilities (1)		—		—		—		11,820		11,820

Total		388,652		56,007		43,843		134,515		623,017


(1)		Other long-term liabilities relate to pensions and similar obligations.

	•		The Committee’s regulation, duties, composition and attendance at its meetings in 2007 and operation.

	•		Activity in 2007, grouped on the basis of the Committee’s various functions:


	Extinguish		Secure		Reduce		Monitor		Total FEVE
Spain-parent bank		635		263		2,716		7,570		11,184
Portugal		154		54		203		1,337		1,748
Latin America		287		48		496		2,472		3,303


			% of
	Portfolio		loans
Mortgages for homes		66,737		27.9	%
First residence		63,818		95.6	%
Second residence		2,920		4.4	%
Real estate development loans		16,569		6.9	%
Total		83,306		34.9	%


		Minimum			Average			Maximum			Last
TOTAL TRADING	Total VaR		19.6			28.9			56.1			27.7
	Diversification effect		(3.1	)		(11.1	)		(17.3	)		(10.5	)
	Fixed-Income VaR		15.4			24.3			44.1			26.0
	Equity VaR		3.7			5.8			12.1			4.6
	FX VaR		5.4			9.8			17.4			7.6

LATIN AMERICA	VaR Total		12.9			22.3			48.4			15.2
	Diversification effect		(0.1	)		(8.6	)		(15.1	)		(10.0	)
	Fixed-Income VaR		11.2			20.1			38.9			16.9
	Equity VaR		2.0			4.0			11.3			3.5
	FX VaR		3.4			6.8			13.7			4.7

USA	VaR Total		0.6			1.7			3.3			0.9
	Diversification effect		0.0			(0.6	)		(2.6	)		(0.8	)
	Fixed-Income VaR		0.5			1.5			3.3			0.8
	Equity VaR		0.0			0.2			1.6			0.3
	FX VaR		0.1			0.5			2.5			0.5

EUROPE	VaR Total		6.3			12.0			23.2			18.3
	Diversification effect		(3.1	)		(6.0	)		(13.1	)		(4.6	)
	Fixed-Income VaR		4.7			9.3			18.0			15.6
	Equity VaR		2.7			4.1			7.2			3.0
	FX VaR		1.0			4.7			14.9			4.2


Gaps in Local Currency	TOTAL			0-6 months			6-12 months		1-3 years			> 3 years		Not sensitive
Assets		104,788			57,014			3,957		14,557			14,937		14,208
Liabilities		105,690			66,334			4,285		12,320			2,841		19,910
Off-balance Sheet		77			(806	)		6,047		(7,125	)		1,435		526
Gap		(825	)		(10,232	)		7,096		(5,381	)		12,967		(5,274	)


Gaps in Foreign Currency	TOTAL			0-6 months			6-12 months			1-3 years		> 3 years		Not sensitive
Assets		23,636			13,984			2,165			1,985		3,504		1,998
Liabilities		22,734			14,041			3,497			1,807		2,680		708
Off-balance Sheet		(77	)		(1,330	)		(11	)		221		1,262		(219	)
Gap		825			(1,387	)		(1,343	)		399		2,086		1,071


BANCO SANTANDER, S.A.
By:	/s/ José Antonio Álvarez
	Name:	José Antonio Álvarez
	Title:	Chief Financial Officer

7.		Debt instruments

		The breakdown, by classification, type and currency, of the balances of “Debt instruments” is as follows:

	c)		*Hedges of net investments in foreign operations and Exchange differences*

			“Hedges of net investments in foreign operations” include 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 (Note 11).

			“Exchange differences” include 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 (Note 2-a).


	Thousands of Euros
Net Balance	2007			2006		2005

On disposal of tangible assets		1,804,108			88,894		80,619
Of which, on sale of properties (Note 16-d)		1,620,119			—		—

On disposal of investments		16,388			271,961		1,298,935
Of which:
Unión Fenosa (Note 3-c)		—			—		1,156,648
Sale of ADRs (Chile) (Note 3-c)		—			269,768		—

Other		322,753			1,044,865		1,133,844
Of which: gains obtained on the disposal of:
Antena 3		—			294,287		—
San Paolo		566,086			704,936		—
Royal Bank of Scotland Group, plc		—			—		717,394
Auna		—			—		354,838
Of which, extraordinary retirement plans (Note 25)		(316,942	)		—		—

Net gains		2,143,249			1,405,720		2,513,398


*()**		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. (See Note 34).


		% of Ownership
		Held by the Bank							Millions of Euros (a)
													Net Profit
													(Loss)
													for the		Preference
Entity	Location	Direct			Indirect			Line of Business	Capital		Reserves		Year		Dividends
Abbey National Capital Trust I	United States		—			(b	)	FINANCE		—		—		—		—
Abbey National Capital Trust II	United States		—			(b	)	FINANCE		—		—		—		—
Banesto Holdings, Ltd.	Guernsey		—			89.19	%	SECURITIES INVESTMENT		—		45		6		6
Banesto Preferentes, S.A.	Spain		—			88.98	%	FINANCE		—		—		6		6
Pinto Totta International Finance, Limited	Cayman Islands		—			49.86	%	FINANCE		—		—		13		13
Santander Emisora 150, S.A., Sole-Shareholder Company	Spain		100.00	%		—		FINANCE		—		—		—		—
Santander Finance Capital, S.A., Sole-Shareholder Company	Spain		100.00	%		—		FINANCE		—		—		138		138
Santander Finance Preferred, S.A., Sole-Shareholder Company	Spain		100.00	%		—		FINANCE		—		—		109		109
Totta & Açores Financing, Limited	Cayman Islands		—			99.72	%	FINANCE		—		—		12		12


(a)		Amounts per the books of each company at December 31, 2007, translated to euros (in the case of foreign companies) at the year-end exchange rates.

(b)		Companies over which effective control is exercised.

	a)		*Number of equity instruments held by the Group*

			The Group holds 1,485,893,636 fully subscribed and paid ordinary shares of GBP 0.10 par value each, all of which carry the same voting and dividend rights.