SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

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

OR

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

For the fiscal year ended December 31, 2011

OR

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

for the transition period from                      to                     

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

Date of event requiring this shell company report                     

Commission file number 001-12518

BANCO SANTANDER, S.A.

(Exact name of Registrant as specified in its charter)

Kingdom of Spain

(Jurisdiction of incorporation)

Ciudad Grupo Santander

28660 Boadilla del Monte (Madrid), Spain

(address of principal executive offices)

José Antonio Álvarez

Banco Santander, S.A.

Ciudad Grupo Santander

28660 Boadilla del Monte

Madrid, Spain

Tel: +34 91 289 32 80

Fax: +34 91 257 12 82

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

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

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

** The guarantee is not listed for trading, but is listed only in connection with the registration of the corresponding Non-cumulative Guaranteed Preferred Stock of Santander Finance Preferred, S.A. Unipersonal (a wholly owned subsidiary of Banco Santander, S.A.)

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

None.

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

None.

(Title of Class)

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

Yes   x     No  ¨

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   ¨    No  x

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   x     No   ¨

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

Yes  ¨     No   ¨

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  x                     Accelerated filer  ¨                     Non-accelerated filer  ¨

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

US GAAP  ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board  x Other   ¨

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  ¨     Item 18  ¨

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  ¨     No  x

Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close

of business covered by the annual report.

9,076,853,400 shares

BANCO SANTANDER, S.A.

	Page
Presentation of Financial and Other Information		4
Cautionary Statement Regarding Forward-Looking Statements		5
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		7
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		7
ITEM 3. KEY INFORMATION		7
A. Selected financial data		7
B. Capitalization and indebtedness		12
C. Reasons for the offer and use of proceeds		12
D. Risk factors		12
ITEM 4. INFORMATION ON THE COMPANY		22
A. History and development of the company		22
B. Business overview		37
C. Organizational structure		100
D. Property, plant and equipment		100
ITEM 4A. UNRESOLVED STAFF COMMENTS		100
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		100
A. Operating results		107
B. Liquidity and capital resources		139
C. Research and development, patents and licenses, etc.		140
D. Trend information		140
E. Off-balance sheet arrangements		141
F. Tabular disclosure of contractual obligations		142
G. Other disclosures		143
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		145
A. Directors and senior management		145
B. Compensation		152
C. Board practices		177
D. Employees		185
E. Share ownership		187
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		188
A. Major shareholders		188
B. Related party transactions		189
C. Interests of experts and counsel		189
ITEM 8. FINANCIAL INFORMATION		190
A. Consolidated statements and other financial information		190
B. Significant Changes		200

ITEM 9. THE OFFER AND LISTING	201
A. Offer and listing details	201
B. Plan of distribution	203
C. Markets	203
D. Selling shareholders	208
E. Dilution	208
F. Expense of the issue	208
ITEM 10. ADDITIONAL INFORMATION	208
A. Share capital	208
B. Memorandum and articles of association	208
C. Material contracts	217
D. Exchange controls	217
E. Taxation	218
F. Dividends and paying agents	222
G. Statement by experts	223
H. Documents on display	223
I. Subsidiary information	223
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	224
Introduction	224
Part 1. Corporate principles of risk management, control and risk appetite	224
Part 2. Corporate governance of the risks function	230
Part 3. Integral control of risk	232
Part 4. Credit risk	234
Part 5. Operational risk	267
Part 6. Reputational risk	272
Part 7. Adjustment to the new regulatory framework	275
Part 8. Economic capital	277
Part 9. Risk training activities	280
Part 10. Market risk	280
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	307
A. Debt Securities	307
B. Warrants and Rights	307
C. Other Securities	307
D. American Depositary Shares	307
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	309
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	309
ITEM 15. CONTROLS AND PROCEDURES	309
ITEM 16 [Reserved].	312
A. Audit committee financial expert	312
B. Code of Ethics	312
C. Principal Accountant Fees and Services	313
D. Exemptions from the Listing Standards for Audit Committees	314
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers	314
F. Changes in Registrant’s Certifying Accountant	314
G. Corporate Governance	314
H. Mine Safety Disclosure	317
PART III
ITEM 17. FINANCIAL STATEMENTS	318
ITEM 18. FINANCIAL STATEMENTS	318
ITEM 19. EXHIBITS	318

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, 2011 in conformity with the EU-IFRS and Bank of Spain’s Circular 4/2004. Differences between EU-IFRS, Bank of Spain’s Circular 4/2004 and International Financial Reporting Standards as issued by the International Accounting Standard Board (IFRS-IASB) are not material. Therefore, we assert that the financial information contained in this annual report on Form 20-F complies with IFRS-IASB.

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

Our auditors, Deloitte, S.L., an independent registered public accounting firm, have audited our consolidated financial statements in respect of the three years ended December 31, 2011, 2010 and 2009 in accordance with IFRS-IASB. See page F-1 to our consolidated financial statements for the 2011, 2010 and 2009 report prepared by Deloitte, S.L.

General Information

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

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

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

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

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

When we refer to “loans”, we mean loans, leases, discounted bills and accounts receivable, unless otherwise noted. The loan to value “LTV” ratios disclosed in this report refer to LTV ratios upon origination unless otherwise noted. Additionally, if a debt is approaching a doubtful status, we update the appraisals which are then used to estimate allowances for loan losses.

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

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

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

4

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

• exposure to various types of market risks;

• management strategy;

• capital expenditures;

• earnings and other targets; and

• asset portfolios.

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

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

Economic and Industry Conditions

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

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

• a default on, or a ratings downgrade of, the sovereign debt of Spain, and the other countries where we operate;

• a worsening of the economic environment in the United Kingdom, other European countries, Brazil, other Latin American countries, and the United States, and an increase of the volatility in the capital markets;

• a further deterioration of the Spanish economy;

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

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

• inflation or deflation;

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

• changes in competition and pricing environments;

• the inability to hedge some risks economically;

• the adequacy of loss reserves;

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

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

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

5

Political and Governmental Factors

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

• changes in Spanish, UK, EU, Latin American, US or other jurisdictions’ laws, regulations or taxes; and

• increased regulation in light of the global financial crisis.

Transaction and Commercial Factors

• damage to our reputation;

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

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

Operating Factors

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

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

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

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

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.

6

PART I

Item 1. Identity of Directors, Senior Management and Advisers

A. Directors and Senior Management

Not applicable.

B. Advisers

Not applicable.

C. Auditor

Not applicable.

Item 2. Offer Statistics and Expected Timetable

A. Offer Statistics

Not applicable.

B. Method and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected financial data

Selected Consolidated Financial Information

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

In the F-pages of this Form 20-F, the audited financial statements for the years 2011, 2010 and 2009 are presented. The audited financial statements for 2008 and 2007 are not included in this document, but they can be found in our previous annual reports on Form 20-F.

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

In addition, the income statement for the year ended December, 31, 2011 reflects the impact of the consolidation of Bank Zachodni WBK, S.A. and the income statement for the year ended December, 31, 2009 reflects the impact of the consolidation of Banco Real, Alliance & Leicester, Bradford & Bingley’s branch network and retail deposits, Sovereign and other consumer businesses.

7

	Year ended December 31,
	2011			2010			2009			2008			2007
	(in millions of euros, except percentages and per share data)
Interest and similar income		60,856			52,907			53,173			55,044			45,512
Interest expense and similar charges		(30,035	)		(23,683	)		(26,874	)		(37,506	)		(31,069	)
Interest income / (charges)		30,821			29,224			26,299			17,538			14,443
Income from equity instruments		394			362			436			553			420
Income from companies accounted for using the equity method		57			17			(1	)		792			438
Fee and commission income		12,749			11,681			10,726			9,741			9,290
Fee and commission expense		(2,277	)		(1,946	)		(1,646	)		(1,475	)		(1,422	)
Gains/losses on financial assets and liabilities (net)		2,838			2,164			3,802			2,892			2,306
Exchange differences (net)		(522	)		441			444			582			649
Other operating income		8,050			8,195			7,929			9,436			6,740
Other operating expenses		(8,032	)		(8,089	)		(7,785	)		(9,163	)		(6,449	)
Total income		44,078			42,049			40,204			30,896			26,415
Administrative expenses		(17,781	)		(16,255	)		(14,825	)		(11,666	)		(10,777	)
Personnel expenses		(10,326	)		(9,329	)		(8,451	)		(6,813	)		(6,435	)
Other general administrative expenses		(7,455	)		(6,926	)		(6,374	)		(4,853	)		(4,342	)
Depreciation and amortization		(2,109	)		(1,940	)		(1,596	)		(1,240	)		(1,247	)
Provisions (net)		(2,601	)		(1,133	)		(1,792	)		(1,641	)		(896	)
Impairment losses on financial assets (net)		(11,868	)		(10,443	)		(11,578	)		(6,283	)		(3,430	)
Impairment losses on other assets (net)		(1,517	)		(286	)		(165	)		(1,049	)		(1,548	)
Gains/(losses) on disposal of assets not classified as non-current assets held for sale		1,846			350			1,565			101			1,810
Gains/(losses) on non-current assets held for sale not classified as discontinued operations		(2,109	)		(290	)		(1,225	)		1,731			643
Operating profit/(loss) before tax		7,939			12,052			10,588			10,849			10,970
Income tax		(1,776	)		(2,923	)		(1,207	)		(1,836	)		(2,322	)
Profit from continuing operations		6,163			9,129			9,381			9,013			8,648
Profit/(loss) from discontinued operations (net)		(24	)		(27	)		31			319			988
Consolidated profit for the year		6,139			9,102			9,412			9,332			9,636
Profit attributable to the Parent		5,351			8,181			8,942			8,876			9,060
Profit attributable to non-controlling interest		788			921			470			456			576
Per share information:
Average number of shares (thousands) (1)		8,892,033			8,686,522			8,554,224			7,271,470			6,801,899
Basic earnings per share (euros)		0.60			0.94			1.05			1.22			1.33
Basic earnings per share continuing operation (euros)		0.60			0.94			1.04			1.18			1.20
Diluted earnings per share (euros)		0.60			0.94			1.04			1.21			1.32
Diluted earnings per share continuing operation (euros)		0.60			0.94			1.04			1.17			1.19
Remuneration paid (euros) (2)		0.60			0.60			0.60			0.63			0.61
Remuneration paid (US$) (2)		0.78			0.80			0.86			0.88			0.89

8

	Year ended December 31,
	2011			2010			2009			2008			2007
	(in millions of euros, except percentages and per share data)
Total assets		1,251,526			1,217,501			1,110,529			1,049,632			912,915
Loans and advances to credit institutions (net) (3)		51,726			79,855			79,837			78,792			57,643
Loans and advances to customers (net) (3)		750,100			724,153			682,551			626,888			571,099
Investment securities (net) (4)		154,015			174,258			173,990			124,673			132,035
Investments: Associates and joint venture		4,155			273			164			1,323			15,689
Contingent liabilities (net)		48,042			59,795			59,256			65,323			76,217
Liabilities
Deposits from central banks and credit institutions (5)		143,138			140,112			142,091			129,877			112,897
Customer deposits (5)		632,533			616,376			506,975			420,229			355,407
Debt securities (5)		197,372			192,873			211,963			236,403			233,287
Capitalization
Guaranteed subordinated debt excluding preferred securities and preferred shares (6)		6,619			10,934			13,867			15,748			16,742
Other subordinated debt		10,477			12,189			15,193			14,452			11,667
Preferred securities (6)		5,447			6,917			7,315			7,622			7,261
Preferred shares (6)		449			435			430			1,051			523
Non-controlling interest (including net income of the period)		6,445			5,897			5,203			2,415			2,358
Stockholders’ equity (7)		76,414			75,018			68,667			57,587			55,200
Total capitalization		105,851			111,390			110,675			98,875			93,751
Stockholders’ equity per share (7)		8.59			8.64			8.03			7.92			8.12
Other managed funds
Mutual funds		102,611			113,510			105,216			90,306			119,211
Pension funds		9,645			10,965			11,310			11,128			11,952
Managed portfolio		19,200			20,314			18,364			17,289			19,814
Total other managed funds		131,456			144,789			134,890			118,723			150,977
Consolidated ratios
Profitability ratios:
Net yield (8)		2.74	%		2.68	%		2.62	%		2.05	%		1.80	%
Return on average total assets (ROA)		0.50	%		0.76	%		0.86	%		1.00	%		1.10	%
Return on average stockholders’ equity (ROE)		7.14	%		11.80	%		13.90	%		17.07	%		21.91	%
Capital ratio:
Average stockholders’ equity to average total assets		6.10	%		5.82	%		5.85	%		5.55	%		4.71	%
Ratio of earnings to fixed charges (9)
Excluding interest on deposits		1.63	%		2.28	%		2.01	%		1.57	%		1.67	%
Including interest on deposits		1.27	%		1.52	%		1.40	%		1.27	%		1.35	%
Credit quality data
Loans and advances to customers
Allowances for impaired balances including country risk and excluding contingent liabilities as a percentage of total gross loans		2.46	%		2.65	%		2.55	%		1.95	%		1.50	%
Impaired balances as a percentage of total gross loans		4.07	%		3.75	%		3.43	%		2.19	%		1.05	%
Allowances for impaired balances as a percentage of impaired balances		60.52	%		70.58	%		74.32	%		89.08	%		143.24	%
Net loan charge-offs as a percentage of total gross loans		1.38	%		1.31	%		1.27	%		0.60	%		0.46	%
Ratios adding contingent liabilities to loans and advances to customers and excluding country risk (*)
Allowances for impaired balances (**) as a percentage of total loans and contingent liabilities		2.39	%		2.58	%		2.44	%		1.83	%		1.42	%
Impaired balances (**) (10) as a percentage of total loans and contingent liabilities		3.89	%		3.55	%		3.24	%		2.02	%		0.94	%
Allowances for impaired balances (**) as a percentage of impaired balances (**)		61.37	%		72.74	%		75.33	%		90.64	%		150.55	%
Net loan and contingent liabilities charge-offs as a percentage of total loans and contingent liabilities		1.29	%		1.21	%		1.17	%		0.55	%		0.41	%

(*) We disclose these ratios because our credit risk exposure comprises loans and advances to customers as well as contingent liabilities, all of which are subject to impairment and, therefore, allowances are taken in respect thereof.

(**) Impaired or non-performing loans and contingent liabilities, securities and other assets to collect.

9

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

(2) The shareholders at the annual shareholders’ meeting held on June 19, 2009 approved a dividend of €0.6508 per share to be paid out of our profits for 2008. In accordance with IAS 33, for comparative purposes, dividends per share paid, as disclosed in the table above, take into account the adjustment arising from the capital increase with pre-emptive subscription rights carried out in December 2008. As a result of this adjustment, the dividend per share for 2008 amounts to €0.6325. The shareholders also approved a new remuneration scheme (scrip dividend), whereby the Bank offered the shareholders the possibility to opt to receive an amount equivalent to the second interim dividend on account of the 2009 financial year in cash or new shares. In light of the acceptance of this remuneration program (81% of the capital opted to receive shares instead of cash), at the general shareholders’ meetings held in June 2010 and 2011, the shareholders approved to offer again this option to the shareholders as payment for the second and third interim dividends on account of 2010 and 2011. The remuneration per share for 2009, 2010 and 2011 disclosed above, €0.60, is calculated assuming that the four dividends for these years were paid in cash. In 2010 and 2011, 85% and 80% of the capital, respectively, opted to receive the second and third interim dividends in the form of shares instead of cash. Additionally, at its meeting on December 19, 2011, the board of directors resolved to apply the scrip dividend program on the dates on which the fourth interim dividend is traditionally paid, and offered shareholders the option of receiving an amount equal to this dividend of €0.220 per share, to be paid in shares or cash. This resolution was approved by the annual general shareholders’ meeting held on March 30, 2012.

(3) Equals the sum of the amounts included under the headings “Financial assets held for trading”, “Other financial assets at fair value through profit or loss” and “Loans and receivables” as stated in our consolidated financial statements.

(4) Equals the amounts included as “Debt instruments” and “Equity instruments” under the headings “Financial assets held for trading”, “Other financial assets at fair value through profit or loss”, “Available-for-sale financial assets” and “Loans and receivables” as stated in our consolidated financial statements.

(5) Equals the sum of the amounts included under the headings “Financial liabilities held for trading”, “Other financial liabilities at fair value through profit or loss” and “Financial liabilities at amortized cost” included in Notes 20, 21 and 22 to our consolidated financial statements.

(6) In our consolidated financial statements, preferred securities and preferred shares are included under “Subordinated liabilities”.

(7) Equals the sum of the amounts included at the end of each year as “Own funds” and “Valuation adjustments” as stated in our consolidated financial statements. We have deducted the book value of treasury stock from stockholders’ equity.

(8) Net yield is the total of net interest income (including dividends on equity securities) divided by average earning assets. See “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Assets—Earning Assets—Yield Spread”.

(9) For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of pre-tax income from continuing operations before adjustment for income or loss from equity investees plus fixed charges. Fixed charges consist of total interest expense (including or excluding interest on deposits as appropriate) and the interest expense portion of rental expense.

(10) Impaired loans reflect Bank of Spain classifications. These classifications differ from the classifications applied by U.S. banks in reporting loans as non-accrual, past due, restructured and potential problem loans. See “Item 4. Information on the Company—B. Business Overview—Classified Assets—Bank of Spain Classification Requirements”.

10

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

	IFRS-IASB
	Year Ended December 31,
	2011			2010			2009			2008			2007
Allowances refers to:	(in millions of euros)
Allowances for impaired balances (*) (excluding country risk)		19,661			20,748			18,497			12,863			9,302
Allowances for contingent liabilities and commitments (excluding country risk)		(648	)		(1,011	)		(623	)		(622	)		(587	)
Allowances for impaired balances of loans (excluding country risk):		19,013			19,737			17,874			12,241			8,715
Allowances referred to country risk and other		210			121			192			660			173
Allowances for impaired balances (excluding contingent liabilities)		19,223			19,858			18,066			12,901			8,888
Of which:
Allowances for Loans and receivables:		18,988			19,739			17,899			12,720			8,796
Allowances for Customers		18,936			19,697			17,873			12,466			8,695
Allowances for Credit institutions and other financial assets		36			17			26			254			101
Allowances for Debt Instruments		16			25			0			0			0
Allowances for Debt Instruments available for sale		235			119			167			181			92

(*) Impaired or non-performing loans and contingent liabilities, securities and other assets to collect.

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 dividends paid on the shares to the holders of the ADSs. Fluctuations in the exchange rate of euros against other currencies may also affect the euro value of our non-euro denominated assets, liabilities, earnings and expenses.

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

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

	Rate During Period
Calendar Period	Period End ($)		Average Rate ($)
2007		1.46		1.38
2008		1.39		1.47
2009		1.44		1.39
2010		1.34		1.33
2011		1.29		1.39

11

	Rate During Period
Last six months	High $		Low $
2011
October		1.42		1.32
November		1.38		1.32
December		1.35		1.29
2012
January		1.32		1.27
February		1.35		1.30
March		1.34		1.31
April (through April 26)		1.33		1.30

On April 26, 2012, the exchange rate for euros and dollars (expressed in dollars per euro), as published by the ECB, was $1.32.

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.

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

Our loan portfolio is concentrated in Continental Europe (in particular, Spain), the United Kingdom and Latin America. At December 31, 2011, Continental Europe accounted for 42% of our total loan portfolio (Spain accounted for 29% of our total loan portfolio), while the United Kingdom and Latin America accounted for 34% and 19%, respectively. Continued recessionary economic conditions in the economies of Continental Europe (in particular, Spain), or a return to recessionary conditions in the United Kingdom or the Latin American countries in which 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 market trends prevailing in those regions. Customer loans and deposits, which collectively account for most of our earnings, are particularly sensitive to economic conditions. In 2011, Continental Europe, the United Kingdom, Latin America and Sovereign (US) represented 31%, 12%, 51% and 6%, respectively, of the profit attributable to the Group’s operating areas for the year. However, many of the economies of Continental Europe, including Spain and Portugal, are forecast to have flat or weakening economies in 2012. If the business environment in any of our geographic segments does not improve or worsens, our results of operations could be materially adversely affected.

Our business could be affected if our capital is not managed effectively or if changes limiting our ability to manage our capital position are adopted.

Effective management of our capital position is important to our ability to operate our business, to continue to grow organically and to pursue our business strategy. However, in response to the recent financial crisis, a number of changes to the regulatory capital framework have been adopted or are being considered. For example, on December 16, 2010 and January 13, 2011, the Basel Committee on Banking Supervision issued its final guidance on a number of regulatory reforms to the regulatory capital framework in order to strengthen minimum capital requirements, including the phasing out of Innovative Tier 1 Capital instruments with incentives to redeem and implementing a leverage ratio on institutions in addition to current risk-based regulatory requirements. As these and other changes are implemented or future changes are considered or adopted that limit our ability to manage our balance sheet and capital resources effectively or to access funding on commercially acceptable terms, we may experience a material adverse effect on our financial condition and regulatory capital position.

12

Reduced access to financing or increases in our cost of funding could have an adverse effect on our liquidity and results of operations.

Historically, our principal source of funds has been customer deposits (demand, time and notice deposits). Total time deposits (including repurchase agreements) represented 52.5%, 53.0% and 46.8% of total customer deposits at the end of 2011, 2010 and 2009, respectively. Large-denomination time deposits may be a less stable source of deposits than other type of deposits and, at December 31, 2011, 21.5% of total customer deposits were time deposits in amounts greater than $100,000. The ongoing availability of deposits as a source of funding is sensitive to a variety of factors outside our control, such as general economic conditions and the confidence of retail depositors in the economy and the financial services industry, in general, and in our creditworthiness, in particular, and the availability and extent of deposit guarantees, as well as competition between banks for deposits. In the event deposit levels decrease, we may be forced to raise the rates we pay on deposits, with a view to attracting more customers, and/or to increase our reliance on capital markets financing, which may be more expensive or unavailable.

We also fund our operations through the capital markets by issuing long-term debt, by issuing promissory notes and commercial paper or by obtaining bank loans or lines of credit. The cost and availability of capital markets financing generally are dependent on our short-term and long-term credit ratings and the market’s perception of the risks inherent in European banks and Spain. Factors that are important to the determination of our credit ratings include the level and quality of our earnings, capital adequacy, liquidity, risk appetite and management, asset quality, business mix and actual and perceived levels of government support. Banco Santander S.A.’s rating, together with that of the other main Spanish banks, was downgraded by all three rating agencies in October 2011 and by Standard & Poor’s and Fitch in February 2012. Any further downgrade in our ratings would likely increase our borrowing costs and could limit our access to capital markets and adversely affect our commercial business. See “—Credit, market and liquidity risks may have an adverse effect on our credit ratings and our cost of funds. Any reduction in our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our derivative contracts and adversely affect our interest margins and results of operations.”

The effects of the widespread crisis in investor confidence and resulting liquidity crisis experienced in 2008 and early 2009, and to some extent in 2011, have resulted in increased costs of funding and limited access to some of our traditional sources of liquidity, such as domestic and international capital markets and the interbank market, which has adversely affected our results of operations and financial condition. Further or continued reductions in our access to financing or increases in our cost of funding may make it harder and more expensive to obtain funding for our businesses. If our available funding is limited or we are forced to fund our operations at a higher cost, we may experience further adverse effects on our results of operations and financial condition.

The possibility of the moderate economic recovery returning to recessionary conditions or of turmoil or volatility in the financial markets would likely have an adverse effect on our business, financial position and results of operations.

In 2011, the global economy began to recover from the severe recessionary conditions of mid-2009, and certain regions (such as Latin America, the US and the UK) experienced a moderate economic recovery. However, the sustainability of this partial recovery has been dependent on a number of factors that are not within our control, such as a return of job growth and investment in the private sector, strengthening of housing sales and construction and timing of the exit from government credit easing policies. In addition, the modest economic recovery that had been experienced in Continental Europe has been tempered by adverse financial conditions in Europe, triggered by high sovereign budget deficits, austerity measures and rising sovereign debt levels in Greece, Ireland, Italy and Portugal, and is projected to slow or, in some cases, reverse in 2012. We continue to face risks resulting from the aftermath of the severe recession and the uneven and fragile recovery. A slowing or failing of the economic recovery or a deterioration in the economy of Continental Europe, especially in Spain, could result in a return of some or all of the adverse effects of the earlier recessionary conditions.

Since the middle of 2007, there has been disruption and turmoil in financial markets around the world. Throughout many of our largest markets, including Spain, there have been dramatic declines in the housing market, with falling home prices and increasing foreclosures, high levels of unemployment and underemployment, and reduced earnings, or, in some cases, losses, for businesses across many industries, with reduced investments in growth.

13

This overall environment resulted in significant stress for the financial services industry, led to distress in credit markets, reduced liquidity for many types of financial assets, including loans and securities and caused concerns regarding the financial strength and adequacy of the capitalization of financial institutions. Some financial institutions around the world have failed, some have needed significant additional capital, and others have been forced to seek acquisition partners.

Concerned about the stability of the financial markets generally, the strength of counterparties and about their own capital and liquidity positions, many lenders and institutional investors reduced or ceased providing funding to borrowers. The resulting economic pressure on consumers and businesses and the lack of confidence in the financial markets exacerbated the state of economic distress and hampered, and to some extent continues to hamper, efforts to bring about sustained economic recovery. While certain segments of the global economy are currently experiencing a moderate recovery, we expect these conditions to continue to have an ongoing negative impact on our business and results of operations. A slowing or failing of the economic recovery would likely aggravate the adverse effects of these difficult economic and market conditions on us and on others in the financial services industry.

In an attempt to prevent the failure of the financial system, Spain, the United States and other European governments intervened on an unprecedented scale. In Spain, the government increased consumer deposit guarantees, made available a program to guarantee the debt of certain financial institutions, created a fund to purchase assets from financial institutions and the Spanish Ministry of Economy and Finance was authorized, on an exceptional basis and until December 31, 2009, to acquire, at the request of credit institutions resident in Spain, shares and other capital instruments (including preferred shares) issued by such institutions. Additionally, in 2009 the Spanish government created the Orderly Banking Restructuring Fund (FROB) to manage the restructuring processes of credit institutions and reinforce the equity of institutions undergoing integration. In the United States, the federal government took equity stakes in several financial institutions, implemented a program to guarantee the short-term and certain medium-term debt of financial institutions, increased consumer deposit guarantees, and brokered the acquisitions of certain struggling financial institutions, among other measures. In the United Kingdom, the government effectively nationalized some of the country’s largest banks, provided a preferred equity program open to all financial institutions and a program to guarantee short-term and certain medium-term debt of financial institutions, among other measures. For more information on recent regulatory changes, see “—Changes in the regulatory framework in the jurisdictions where we operate could adversely affect our business.”

Despite the extent of the aforementioned intervention, global investor confidence remains cautious. The economies of the United States, United Kingdom, Brazil and other Latin American countries grew during 2011, although, in most cases, still at a slow pace. Spain, however, continued to suffer from a recession. In addition, recent downgrades of the sovereign debt of Ireland, Greece, Portugal, Italy and Spain have caused volatility in the capital markets. Our exposure to the sovereign debt of Greece, Portugal, Italy and Spain as of December 31, 2011 was €0.1, €1.8, €0.7 and €39.3 billion, respectively, and we had no exposure to the sovereign debt of Ireland.

Risks and ongoing concerns about the debt crisis in Europe could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European financial institutions, including us, and international financial institutions with exposure to the region. Market and economic disruptions have affected, and may continue to affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and residential mortgages, and housing prices, among other factors. There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will not continue, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding the European economic recovery continues to negatively impact consumer confidence and consumer credit factors, or should the EU enter a deep recession, our business and results of operations could be materially adversely affected.

Continued or worsening disruption and volatility in the global financial markets could have a material adverse effect on our ability to access capital and liquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers. Any such increase in capital markets funding costs or deposit rates would entail a repricing of loans, which would result in a reduction of volume, and may also have an adverse effect on our interest margins.

14

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

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

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

Market turmoil and economic recession, especially in Spain, the United Kingdom, the United States and certain Latin American countries, could materially and adversely affect the liquidity, businesses and/or financial conditions of our borrowers, which could in turn increase our non-performing loan (“NPL”) ratios, impair our loan and other financial assets and result in decreased demand for borrowings in general. The uneven global recovery from the recent market turmoil and economic recession and the possibility of renewed economic contraction in Continental Europe, combined with continued high unemployment and low consumer spending, could cause the value of assets collateralizing our secured loans, including homes and other real estate, to decline significantly, which could result in the impairment of the value of our loan assets. Accordingly, in 2011 we experienced an increase in our non-performing ratios and a deterioration in asset quality as compared to 2010. In addition, our customers may further significantly decrease their risk tolerance to non-deposit investments such as stocks, bonds and mutual funds, which would adversely affect our fee and commission income. Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to risks faced by other financial institutions.

We routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual funds, hedge funds and other institutional clients. Defaults by, and even rumors or questions about the solvency of, certain financial institutions and the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. Many of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties. In 2011, the financial health of a number of European governments was shaken by the European sovereign debt crisis, contributing to volatility of the capital and credit markets, and the risk of contagion throughout and beyond the Eurozone remains, as a significant number of financial institutions throughout Europe have substantial exposures to sovereign debt issued by nations which are under considerable financial pressure. These liquidity concerns have had, and may continue to have, an adverse effect on interbank financial transactions in general. Should any of those nations default on their debt, or experience a significant widening of credit spreads, major financial institutions and banking systems throughout Europe could be destabilized. A default by a significant financial counterparty, or liquidity problems in the financial services industry generally, could have a material adverse effect on our business, financial condition and results of operations.

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

Mortgage loans are one of our principal assets, comprising 52% of our loan portfolio as of December 31, 2011. As a result, we are highly exposed to developments in real estate markets, especially in Spain and the United Kingdom. In addition, we have exposure to a number of large real estate developers in Spain. From 2002 to 2007, demand for housing and mortgage financing in Spain increased significantly driven by, among other things, economic growth, declining unemployment rates, demographic and social trends, the desirability of Spain as a vacation destination and historically low interest rates in the Eurozone. The United Kingdom experienced an increase in housing and mortgage demand driven by, among other things, economic growth, declining unemployment rates, demographic trends and the increasing prominence of London as an international financial center. During late 2007, the housing market began to adjust in Spain and the United Kingdom as a result of excess supply (particularly in Spain) and higher interest rates. Since 2008, as economic growth stalled in Spain and the United Kingdom, persistent housing oversupply, decreased housing demand, rising unemployment, subdued earnings growth, greater pressure on disposable income, a decline in the availability of mortgage finance and the continued effect of global market volatility have caused home prices to decline, while mortgage delinquencies increased. As a result, our NPL ratio increased from 0.94% at December 31, 2007, to 2.02% at December 31, 2008, to 3.24% at December 31, 2009 and to 3.55% at December 31, 2010. At December 31, 2011, our NPL ratio was 3.89%. These trends, especially higher unemployment rates coupled with declining real estate prices, could have a material adverse impact on our mortgage payment delinquency rates, which in turn could have a material adverse effect on our business, financial condition and results of operations.

15

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

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

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

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

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

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

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

The volatility of world equity markets due to the continued economic uncertainty and sovereign debt crisis has had a particularly strong impact on the financial sector. Continued volatility may affect the value of our investments in entities in this sector and, depending on their fair value and future recovery expectations, could become a permanent impairment which would be subject to write-offs against our results.

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

Changes in market interest rates could affect the interest rates charged on our interest-earning assets differently than the interest rates paid on our 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. Because the majority of our loan portfolio reprices in less than one year, rising interest rates may also lead to 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, 2011, our interest rate risk measured in daily Value at Risk (“VaRD”) terms amounted to €328.5 million.

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

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

In the ordinary course of our business, we have a percentage of our assets and liabilities denominated in currencies other than the euro. Fluctuations in the value of the euro against other currencies may adversely affect our profitability. For example, the appreciation of the euro against some Latin American currencies and the US dollar will depress earnings from our Latin American and US operations, and the appreciation of the euro against the sterling will depress earnings from our UK operations. Additionally, while most of the governments of the countries in which we operate have not imposed material 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.

16

As of December 31, 2011, our largest exposures on temporary positions (with a potential impact on the income statement) were concentrated on, in descending order, the pound sterling, the Mexican peso, the Chilean peso the Polish zloty (PLN) and the US dollar. At December 31, 2011, our largest exposures on permanent positions (with a potential impact on equity) were concentrated on, in descending order, the Brazilian real, the pound sterling, the US dollar, the Mexican peso, and the Polish zloty.

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

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

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

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

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

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

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

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

Extensive legislation affecting the financial services industry has recently been adopted in Spain, the United States, the European Union and other jurisdictions, and regulations are in the process of being implemented. In Spain, the Bank of Spain issued Circular 9/2010 on December 22, 2010, which amends certain rules in order to establish more restrictive conditions regarding capital requirements for credit risk, credit risk mitigation techniques, securitization and treatment of counterparty and trading book risk. This Circular has not had and it is not expected that it will have a quantifiable material impact on our business. The Circular was issued following the passage of two EU Directives on risk management (Directive 2009/27/CE and Directive 2009/83/CE).

17

The European Union has created a European Systemic Risk Board to monitor financial stability and has implemented rules that will increase capital requirements for certain trading instruments or exposures and impose compensation limits on certain employees located in affected countries. In addition, the European Union Commission is considering a wide array of other initiatives, including new legislation that will affect derivatives trading, impose surcharges on “globally” systemically important firms and possibly impose new levies on bank balance sheets.

In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that was adopted in 2010 will result in significant structural reforms affecting the financial services industry. This legislation provides for, among other things: the establishment of a Consumer Financial Protection Bureau which will have broad authority to regulate the credit, savings, payment and other consumer financial products and services that we offer; the creation of a structure to regulate systemically important financial companies; more comprehensive regulation of the over-the-counter derivatives market; prohibitions on our engaging in certain proprietary trading activities and restricting our ownership of, investment in or sponsorship of, hedge funds and private equity funds; restrictions on the interchange fees that we earn on debit card transactions; and a requirement that bank regulators phase out the treatment of trust preferred capital debt securities as Tier 1 capital for regulatory capital purposes.

Regulators in the UK have produced a range of proposals for future legislative and regulatory changes, which could force us to comply with certain operational restrictions or take steps to raise further capital, or could increase our expenses or otherwise adversely affect our results of operations and financial condition. These proposals include: (i) the introduction of recovery and resolution planning requirements (popularly known as ‘living wills’) for banks and other financial institutions as contingency planning for the failure of a financial institution that may affect the stability of the financial system; (ii) the implementation of the Financial Services Act 2010, which enhances the FSA’s disciplinary and enforcement powers; (iii) the introduction of more regular and detailed reporting obligations; and (iv) a requirement for large UK retail banks to hold a minimum Core Tier 1 to risk-weighted assets ratio of at least 10%, which is approximately 3% higher than the minimum capital levels required under Basel III.

In December 2010, the Basel Committee on Banking Supervision announced revisions to its Capital Accord, which will require higher capital ratio requirements for banks, narrow the definition of capital, and introduce short term liquidity and term funding standards, among other things. The Basel Committee is also proposing to consider the imposition of a bank surcharge on institutions that are determined to be “globally significant financial institutions,” a liquidity coverage ratio and a net stable funding ratio. Compliance with these requirements could increase our funding and operational costs.

During the last few months of 2011 the European Banking Authority (EBA) established new requirements to strengthen capital ratios. These requirements are part of a series of measures adopted by the European Council in the second half of 2011, which aim to restore stability and confidence in the European markets. These capital requirements are expected to be exceptional and temporary.

The selected banks are required to have a core capital Tier 1 ratio of at least 9% by June 30, 2012, in accordance with the EBA’s rules. Each bank was required to present by January 20, 2012 their capitalization plan to reach the requirement by June 30, 2012. In the beginning of December 2011, the EBA disclosed its capital requirements for the main European banks. According to the EBA, our additional capital needs amounted to €15,302 million.

During the last few months of 2011 we have carried out a series of measures which allowed us, at the beginning of 2012, to achieve a core capital ratio of 9% ahead of the EBA deadline of June 30, 2012.

On February 3, 2012 the Ministry of Economy and Competitiveness approved the Royal Decree-Law 2/2012 on the clean-up of the financial sector (see Item 4. Information on the Company—A. History and Development of the Company – Recent Events)

These and any additional legislative or regulatory actions in Spain, the European Union, the United States, the UK or other countries, and any required changes to our business operations resulting from such legislation and regulations, could result in significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging, affect the value of assets that we hold, require us to increase our prices and therefore reduce demand for our products, impose additional costs on us or otherwise adversely affect our businesses. Accordingly, we cannot provide assurance that any such new legislation or regulations would not have an adverse effect on our business, results of operations or financial condition in the future.

18

We may also face increased compliance costs and limitations on our ability to pursue certain business opportunities and provide certain products and services. 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, to the extent these recently adopted regulations are implemented inconsistently in the various jurisdictions in which we operate, we may face higher compliance costs. No assurance can be given generally that laws or regulations will be adopted, enforced or interpreted in a manner that will not have material adverse effect on our business and results of operations.

Operational risks are inherent in our business.

Our businesses depend on the ability to process a large number of transactions efficiently and accurately, and on our ability to rely on our digital technologies, computer and email services, software and networks, as well as on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. 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. Although we work with our clients, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities and prevent against cyber attacks, we routinely exchange personal, confidential and proprietary information by electronic means, and we may be the target of attempted cyber attacks. We take protective measures and continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption, but our systems, software and networks nevertheless may be vulnerable to unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact. An interception, misuse or mishandling of personal, confidential or proprietary information sent to or received from a client, vendor, service provider, counterparty or third party could result in legal liability, regulatory action and reputational harm. Although we have not experienced any material losses to date relating to cyber attacks or other such security breaches, 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. Further, as cyber attacks continue to evolve, we may incur significant costs in our attempt to modify or enhance our protective measures or investigate or remediate any vulnerabilities.

In addition, there have been a number of highly publicized cases around the world involving actual or alleged fraud or other misconduct by employees in the financial services industry in recent years and we run the risk that employee misconduct could occur. This misconduct has included and may include in the future the theft of proprietary information, including proprietary software. It is not always possible to deter or prevent employee misconduct and the precautions we take to prevent and detect this activity have not been and may not be effective in all cases.

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

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

In addition, the financial industry has and may continue to experience more stringent regulation of employee compensation, which could have an adverse effect on our ability to hire or retain the most qualified employees. If we fail or are unable to attract and appropriately train, motivate and retain qualified professionals, our business may also be adversely affected.

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

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

Actions by the financial services industry generally or by certain members of, or individuals in, the industry can also affect our reputation. For example, the role played by financial services firms in the financial crisis and the seeming shift toward increasing regulatory supervision and enforcement has caused public perception of us and others in the financial services industry to decline.

19

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

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

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

The lack of PCAOB inspections of our auditor in Spain may reduce the confidence in our reported financial information.

Our auditor, Deloitte, S.L., as auditor of companies, including the Bank, that are traded publicly in the United States and a firm registered with the US Public Company Accounting Oversight Board (United States) (“the “PCAOB”), is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and applicable United States professional standards.

Because our auditor is located in Spain, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Spanish authorities, our auditor is not currently inspected by the PCAOB. Inspections of other firms that the PCAOB has conducted outside Spain have identified deficiencies in those firms’ audit procedures and quality control procedures. This lack of PCAOB inspections in Spain prevents the PCAOB from evaluating our auditor’s audit and quality control procedures and deprives investors in our securities and those of other Spanish companies of the potential benefits of such inspections.

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

We face various issues that may give rise to risk of loss from legal and regulatory proceedings. These issues, including appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues and conduct by companies in which we hold strategic investments or joint venture partners, could increase the number of litigation claims and the amount of damages asserted against the Group or subject the Group to regulatory enforcement actions, fines and penalties. In addition, amidst the changing regulatory landscape described above, many of our consumers, customers and counterparties have become more litigious. The current regulatory environment, which suggests a migration toward increasing supervisory focus on enforcement, including in connection with alleged violations of law and customer harm, combined with enhanced enforcement and uncertainty about the evolution of the regulatory regime, may lead to significant operational and compliance costs.

Currently, the Bank and its subsidiaries are the subject of a number of legal proceedings and regulatory actions. For information relating to the legal proceedings and regulatory actions involving our businesses, see “Item 8. Financial Information—A. Consolidated statements and other financial information—Legal proceedings.” Additionally, the Bank and its subsidiaries may be the subject of future legal proceedings and regulatory actions. An adverse result in one or more of the Bank’s current or future legal proceedings or regulatory actions could have a material adverse effect on our operating results for any particular period, could require changes to our business practices and may even require that we exit certain businesses.

Credit, market and liquidity risks may have an adverse effect on our credit ratings and our cost of funds. Any reduction in our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our derivative contracts and adversely affect our interest margins and results of operations.

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

Any downgrade in our ratings would likely increase our borrowing costs, and require us to post additional collateral or take other actions under some of our derivative contracts, and could limit our access to capital markets and adversely affect our commercial business. For example, a ratings downgrade could adversely affect our ability to sell or market certain of our products, such as subordinated securities, engage in certain longer-term and derivatives transactions and retain our customers, particularly customers who need a minimum rating threshold in order to invest. This, in turn, could reduce our liquidity and have an adverse effect on our operating results and financial condition. Under the terms of certain of our derivative contracts, we may be required to maintain a minimum credit rating or terminate such contracts.

20

Banco Santander, S.A.’s long-term debt is currently rated investment grade by the major rating agencies Aa3 by Moody’s Investors Service España, S.A., A+ by Standard & Poor’s Ratings Services and A by Fitch Ratings Ltd. all of which have a negative outlook due to the difficult economic environment in Spain. Banco Santander, S.A.’s rating together with that of the other main Spanish banks, was downgraded by all three rating agencies in October 2011 (and by Standard & Poor’s and Fitch additionally in February 2012), due to the tougher-than-previously-anticipated macroeconomic and financial environment in Spain with dimming growth prospects in the near term, depressed real estate market activity and heightened turbulence in the capital markets. Santander UK’s long-term debt is currently rated investment grade by the major rating agencies A1 with outlook under review by Moody’s Investors Service, A+ with negative outlook by Standard & Poor’s Ratings Services and A+ with stable outlook by Fitch Ratings. Standard & Poor’s Ratings Services downgraded Santander UK’s rating in February 2012 from AA- to A+ with negative outlook, following their downgrading of Banco Santander, S.A. because the rating for both entities is equalized under Standard & Poor’s rating criteria of ‘core subsidiaries’.

We conduct substantially all of our material derivative activities through Banco Santander, S.A. and Santander UK. Following the credit rating downgrades described above, Banco Santander, S.A. posted a total of approximately €250 million of additional collateral pursuant to derivative and other financial contracts while the impact on Santander UK was not significant. Under the terms of certain derivative and other financial contracts, in the event of a further downgrade of Banco Santander, S.A.’s or a downgrade of Santander UK’s long-term debt rating, counterparties to those agreements may require Banco Santander, S.A. or Santander UK, as appropriate, to provide additional collateral, terminate these contracts or provide other remedies.

If the rating agencies were to downgrade their long-term senior debt ratings for Banco Santander, S.A. by one or two incremental notches, we expect that the amount of additional collateral we would post would likely be in line with the collateral posted in response to Banco Santander, S.A.’s most recent downgrades. An additional downgrade of Santander UK’s long-term senior debt ratings would lower Santander UK’s credit ratings below the minimum allowed by certain of its derivative and other financial contracts and could require that such counterparty contracts be renegotiated. The impact of any such downgrade cannot be accurately predicted as the impact would largely depend on the response of Santander UK, the Group and the respective counterparties. For example, as a result of the renegotiations, Santander UK could be required to cancel derivative contracts, post additional collateral, sell its position to another party that holds the required minimum credit ratings and/or provide a guarantee from an entity that holds the required minimum credit ratings, among others. It is not possible to know in advance what actions Santander UK, the Group and the respective counterparties would undertake in the event of a further downgrade of Santander UK’s credit ratings. We expect that any such downgrade would have a material adverse effect on the Group’s financial condition and results of operations, significantly larger than the impact of the downgrades of Banco Santander, S.A.’s credit ratings in October 2011 and February 2012 and of Santander UK in February 2012. In addition, if due to future downgrades, Banco Santander, S.A. or Santander UK were required to cancel their derivative contracts with certain counterparties and were unable to replace such contracts, the Group’s market risk profile could be altered.

The derivative and financial contracts that would be at risk of renegotiation as a result of a one-notch downgrade of Santander UK’s long-term credit rating primarily are basis swaps with a consolidated special purpose entity used in Santander UK’s covered bond programme. The aggregate notional amount of these swaps as at December 31, 2011 was approximately £40 billion. The derivative and financial contracts that would be at risk of renegotiation as a result of a two -notch downgrade of Santander UK’s long-term credit rating primarily are basis swaps and currency swaps with consolidated special purposes entities used in Santander UK’s Residential Mortgage Backed Securities (RMBS) and covered bond programs. The aggregate notional amount of these swaps as at December 31, 2011 was approximately £83 billion (in addition to the £40 billion notional amount of swaps that would be at risk of renegotiation as a result of a one-notch downgrade). Santander UK would also be required to take action in relation to the bank account arrangements with the consolidated special purposes entities under these programs. Such accounts are currently held by Santander UK. The action required could involve obtaining guarantees, transferring the accounts to another bank or re-negotiating the account bank agreement.

While certain potential impacts are contractual and quantifiable, the full consequences of a credit ratings downgrade to a financial institution are inherently uncertain, as they depend upon numerous dynamic, complex and inter-related factors and assumptions, including market conditions at the time of any downgrade, whether any downgrade of a firm’s long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For a further discussion of our liquidity matters, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and capital resources.”

21

In light of the difficulties in the financial services industry and the financial markets, there can be no assurance that the rating agencies will maintain their current ratings or outlooks, or with regard to those rating agencies that have a negative outlook on the Group, there can be no assurances that such agencies will revise such outlooks upward. The Group’s failure to maintain favorable ratings and outlooks would likely increase our cost of funding and adversely affect the Group’s interest margins and results of operations.

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 €4,664 million of our profit attributable to the Parent bank for the year ended December 31, 2011 (a decrease of 1% from €4,728 million for the year ended December 31, 2010). 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 of the Latin American countries in which we operate.

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

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

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

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

Item 4. Information on the Company

A. History and development of the company

Introduction

Banco Santander, S.A. (“Santander”, the “Bank”, the “Parent” or the “Parent 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.

22

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

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

Principal Capital Expenditures and Divestitures

Acquisitions, Dispositions, Reorganizations

Our principal acquisitions and dispositions in 2011, 2010 and 2009 are as follows:

Acquisition of the Polish institution Bank Zachodni WBK

On September 10, 2010, we announced that we had reached an agreement with Allied Irish Banks (“AIB”) to acquire 70.36% of the Polish institution Bank Zachodni WBK (“BZ WBK”) for an amount of approximately €2.938 billion in cash. On February 7, 2011, we announced that we had launched a tender offer in Poland (the “Tender Offer”) for 100% of the share capital of BZ WBK in accordance with applicable Polish law and regulation. The Tender Offer forms part of the agreement of Banco Santander with AIB for the acquisition of AIB’s stake in BZ WBK announced in September 10, 2010.

Under the Tender Offer, Banco Santander offered PLN 226.89 in cash per share (approximately €58.74) resulting in a total maximum consideration of PLN 16,580,216,589.57 (approximately €4,293.4 million) for the total share capital of BZ WBK.

The Tender Offer was made in Poland subject to Polish law and subject to the terms and conditions included in the Tender Offer document (dokument wezwania) submitted to the Polish securities regulator—Polish Financial Supervision Commission (Komisja Nadzoru Finansowego) and the Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A.). The consummation of the Tender Offer was subject to the satisfaction of the conditions indicated in the Tender Offer document, including the acceptance of the tender offer by holders of more than 70% of the outstanding shares of BZ WBK and the approval by the Polish regulatory authorities of the acquisition by Grupo Santander of BZ WBK.

The acceptance period of the tender offer commenced on February 24, 2011 and ended on March 25, 2011.

69,912,653 BZ WBK shares were tendered, representing 95.67% of BZ WBK’s capital. Since the Tender Offer was made at a cash price of PLN 226.89 per share (approximately €57.05), the purchase of the shares tendered in the offer resulted in a payment of PLN 15,862.48 million (approximately €3,987 million).

Since the 70% acceptance threshold (which was a condition of the Tender Offer) was exceeded and all the remaining conditions, including the obtaining of the appropriate regulatory authorizations, were met, the tender offer was settled and the transfer of the shares was made on April 1, 2011.

Additionally, on April 1, 2011, we acquired AIB’s 50% stake in BZ WBK Asset Management for €174 million in cash. Subsequently, based on the terms and conditions of the takeover bid, certain non-controlling shareholders of BZ WBK opted to sell their shares. As a result, the Group acquired 421,859 additional shares for €24 million.

Finally, in May and June 2011, we acquired and aggregate of 113,336 additional BZ WBK shares. As of December 31, 2011, the Group held a total of 70,334,512 shares of Bank Zachodni WBK S.A. (96.25%).

Sales of 1.9% and 7.8% of Banco Santander Chile

On February 17, 2011, we announced that we had sold shares representing 1.9% of the share capital of Banco Santander Chile, for a total consideration of US$291 million. This transaction generated a capital gain for Banco Santander of approximately €110 million, entirely accounted for as reserves. Following the transaction, we hold a 75% stake in the share capital of Banco Santander Chile.

On November 22, 2011, we announced the launch of a public secondary offering of approximately 14,741.6 million shares of common stock of Banco Santander Chile, representing 7.8% of the company’s share capital.

23

On December 7, 2011, we announced that we had successfully completed the offering. As a result, 7.82% of the capital of such bank was sold at a price of 33 Chilean pesos per share and US$66.88 per ADR. The placement amounted to US$950 million, with a positive impact on the core capital of the Group of 11 basis points.

Following the transaction, we hold 67% of the share capital of Banco Santander Chile. We have agreed not to reduce our stake in Banco Santander Chile for one year.

Agreement with Zurich Financial Services Group

On February 22, 2011, the Group signed a Memorandum of Understanding with insurer Zurich Financial Services Group (“Zurich”) to form a strategic alliance to strengthen insurance distribution in five key Latin American markets: Brazil, Chile, Mexico, Argentina and Uruguay.

Once the required authorizations from the various regulators were obtained, in the fourth quarter of 2011 Zurich acquired, for €1,044 million 51% of the share capital of ZS Insurance América, S.L. (holding company for the Group’s insurance businesses in Latin America), thereby gaining control over this company, and it has taken over management of the companies concerned. The agreement also provides for deferred payments based on the achievement of the business plan targets over the coming 25 years.

Following this transaction Santander retained 49% of the share capital of the holding company and entered into a distribution agreement for the sale of insurance products in each of the relevant countries for 25 years.

As a result of the aforementioned transaction, the Group recognized a gain of €641 million (net of the related tax effect) under Gains (losses) on disposal of assets not classified as non-current assets held for sale in the consolidated income statement for 2011, of which €233 million related to the measurement at fair value of the 49% ownership interest retained in this company.

Santander Banif Inmobiliario

On December 3, 2010, exclusively for commercial reasons, we decided to contribute resources to the Santander Banif Inmobiliario, FII property investment fund (the “Fund”) through the subscription of new units and the granting of a two-year liquidity guarantee in order to meet any outstanding redemption claims by the unit holders of the Fund and to avoid winding up the Fund. We offered the unit holders of the Fund the opportunity to submit new requests for the total or partial redemption of their units or for the total or partial revocation of any redemption requests that they had previously submitted. Any such requests were required to be submitted before February 16, 2011.

Redemptions from the Fund, managed by Santander Real Estate, S.G.I.I.C. S.A., had been suspended for a period of two years in February 2009, in accordance with the request filed with the Spanish National Securities Market Commission (CNMV), due to the lack of sufficient liquidity to meet the redemptions requested at that date.

On March 1, 2011, we paid the full amount of the redemptions requested by the Fund’s unit holders, which amounted to €2,326 million (93.01% of the Fund’s net assets), through the subscription of the related units by us at their redemption value at February 28, 2011.

Following the aforementioned acquisition, we own 95.54% of the Fund. The suspension of redemptions was lifted from said date and the Fund is operating normally.

Metrovacesa, S.A. (“Metrovacesa”)

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

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

24

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

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

At December 31, 2010, the value of this holding amounted to €402 million, after deducting the write-downs, equivalent to €24.4 per share. Also, the Group has granted the company loans amounting to €109 million, which were fully provisioned.

On March 17, 2011, the creditor entities that had been party to the agreement for the restructuring of Metrovacesa’s debt in 2009, including Banco Santander, S.A. and Banco Español de Crédito, S.A., entered into a capitalization and voting agreement relating to Metrovacesa (which is subject to certain conditions precedent, including the implementation by Metrovacesa of a capital increase through monetary contributions and the conversion of debt into equity) whereby the creditor entities, taken as a whole, will convert approximately €1,360 million of Metrovacesa’s financial debt into equity, the Group’s share of which would be €492 million.

On June 28, 2011, the shareholders at the annual general meeting of Metrovacesa resolved to approve the aforementioned capital increase for a par value of €1,949 million, subject to certain conditions precedent such as the CNMV releasing the Group from the obligation to launch a takeover bid for all of the share capital, since the transaction might raise the Group’s holding in the share capital of Metrovacesa above 30%. This release was granted on July 6, 2011.

On August 1, 2011, we announced that, following the execution of the capital increase of Metrovacesa, S.A. as approved by the shareholders at the annual general meeting held on June 28, 2011, Banco Santander, S.A. and the individuals and legal entities whose voting rights are attributed to the Bank pursuant to the assumptions provided in article 5 of Royal Decree 1066/2007, of July 27, governing the legal framework for public take-over bids of securities, have become the holders of a total of 344,530,740 shares in Metrovacesa, S.A., representing 34.88% of the company’s share capital (excluding the treasury shares held by it which, according to the information provided by Metrovacesa, S.A., amounted to 401,769 as at July 29, 2011).

New partners for Santander Consumer USA

On October 21, 2011 we announced that Santander Holdings USA, Inc. (“SHUSA”) and Santander Consumer USA Inc. (“SCUSA”), a majority-owned subsidiary of SHUSA, entered into an investment agreement with Sponsor Auto Finance Holdings Series LP, a Delaware limited partnership (“Auto Finance Holdings”). Auto Finance Holdings is jointly owned by investment funds affiliated with each of Warburg Pincus LLC, Kohlberg Kravis Roberts & Co. L.P. and Centerbridge Partners L.P. (collectively, the “New Investors”), as well as DFS Sponsor Investments LLC, a Delaware limited liability company affiliated with Thomas G. Dundon, the Chief Executive Officer of SCUSA and a Director of SHUSA, and Jason Kulas, Chief Financial Officer of SCUSA. As previously reported on October 20, 2011, SCUSA also entered into an investment agreement with DDFS LLC (“DDFS”), a Delaware limited liability company affiliated with Thomas G. Dundon.

On December 31, 2011, Auto Finance Holdings Series and DDFS completed their investments in SCUSA. SCUSA increased its share capital on that date through the issuance of shares to Auto Finance Holdings for an aggregate consideration of $1.0 billion and to DDFS for an aggregate consideration of $158.2 million.

The transaction valued SCUSA at $4 billion. Upon its completion, Banco Santander, S.A. realized a capital gain of €872 million under Gains (losses) on disposal of assets not classified as non-current assets held for sale, of which €649 million related to the measurement at fair value of the 65% ownership interest retained in SCUSA. The fair value of SCUSA was determined using comparable market data, recent transactions and discounted cash flow analyses, taking into account contingent payments.

As a result of these transactions, SHUSA, the New Investors (indirectly through Auto Finance Holdings) and Mr. Dundon (indirectly through DDFS and DFS Sponsor Investments LLC) own approximately 65%, 24% and 11% of the common stock of SCUSA, respectively.

Also on December 31, 2011, SHUSA, SCUSA, Auto Financing Holdings, DDFS, Thomas G. Dundon and Banco Santander, S.A. entered into a shareholders agreement (the “Shareholders Agreement”). The Shareholders Agreement provides each of SHUSA, DDFS and Auto Finance Holdings with certain board representation, governance, registration and other rights with respect to their ownership interests in SCUSA. Subject to the terms and conditions of the Shareholders Agreement, SHUSA, Auto Finance Holdings and DDFS jointly manage SCUSA and share control over it.

25

Pursuant to the Shareholders Agreement, depending on SCUSA’s performance during 2014 and 2015, if SCUSA exceeds certain performance targets, SCUSA may be required to pay up to $595.0 million in favor of SHUSA. If SCUSA does not meet such performance targets during 2014 and 2015, SCUSA may be required to make a payment to Auto Finance Holdings of up to the same amount.

The Shareholders Agreement also provides that each of Auto Finance Holdings and DDFS will have the right to sell, and SHUSA will be required to purchase, their respective shares of SCUSA common stock, at its then fair market value, and Auto Finance Holdings and DDFS, if applicable, will receive the payment referred to above at that time (i) at the fourth, fifth and seventh anniversaries of the closing of the investments, unless an initial public offering of SCUSA common stock has been previously consummated or (ii) in the event there is a deadlock with respect to certain specified matters which require the approval of the board of directors or shareholders of SCUSA.

Offer to exchange subordinated debt instruments for non-subordinated debt instruments

On November 15, 2011, we announced an offer (“the Offer”) to holders of the existing securities identified in the table below (“the Existing Securities”), to exchange Existing Securities for new securities to be issued (“the New Securities”).

The Existing Securities constituted eight series of subordinated debt instruments issued by Santander Issuances, S.A.U., which are listed on the Luxembourg Stock Exchange.

The New Securities are senior debt instruments denominated in pounds sterling and euros with a maturity date of December 1, 2015. The New Securities trade on the Luxembourg Stock Exchange.

We used funds pursuant to the Offer from our ordinary available liquidity to comply with our payment obligations pursuant to the Offer.

The Offer allows managing more effectively the Group’s outstanding liabilities, taking into consideration prevailing market conditions.

On November 24, 2011, we announced (i) the aggregate nominal amount of the Existing Securities accepted for the exchange; and (ii) the final nominal amount and interest rate of the New Securities. Such amounts as set forth in the table below.

Series No.	ISIN		Aggregate Amount of Existing Securities accepted for Exchange		Aggregate Nominal Amount of New Securities to be issued		Aggregate Outstanding Amount of Existing Securities after the exchange
1		XS0291652203	€	274,000,000	€	243,300,000	€	1,226,000,000
2		XS0261717416	€	202,200,000	€	180,000,000	€	347,800,000
3		XS0327533617	€	394,250,000	€	347,500,000	€	1,105,750,000
4		XS0284633327	£	146,053,000	£	124,800,000	£	153,947,000
5		XS0255291626	€	165,471,000	€	141,300,000	€	334,529,000
6		XS0301810262	€	85,150,000	€	72,600,000	€	414,850,000
7		XS0440402393	€	135,500,000	€	131,500,000	€	313,750,000
8		XS0440403797	£	70,950,000	£	65,000,000	£	772,400,000

26

The final nominal amount and interest rate of the New Securities are set forth below:

• €1,116,200,000 3.381% senior notes due December 1, 2015.

• GBP 189,800,000 3.160% senior notes due December 1, 2015.

The Offer generated gross capital gains of approximately €144 million, included in the 2011 accounts.

Offer to repurchase preferred securities and subscribe Banco Santander shares

On December 2, 2011, we announced an offer (the “Repurchase Offer”) to repurchase Series X Preferred Securities issued by Santander Finance Capital, S.A.U. in June 2009 and guaranteed by the Bank (the “Series X Preferred Securities”) and a simultaneous public offer to subscribe for newly-issued shares of Banco Santander (the “New Shares”), on the terms set out below. We refer to the Repurchase Offer and the issuance of New Shares as the “Capital Increase.”

In order to participate in the Repurchase Offer, holders of Series X Preferred Securities were required to irrevocably subscribe the number of New Shares which corresponded to the repurchase price of their Series X Preferred Securities. The New Shares were offered solely to the abovementioned holders of Series X Preferred Securities who accepted the Repurchase Offer.

The issue price of the New Shares (nominal plus premium) equaled the arithmetic mean of the average weighted prices of Banco Santander shares on the Spanish stock exchanges during the Acceptance Period. Consequently, the number of New Shares to be subscribed by each holder of Series X Preferred Securities who accepted the Repurchase Offer was the result of dividing the nominal value of the preferred securities (€25.00) by the issue price of the New Shares.

On December 28, 2011, we announced that during the acceptance period, the holders of 77,743,969 preferred securities, representing 98.88% of the preference shares outstanding, had accepted the repurchase offer.

The holders of these preferred securities subscribed 341,802,171 shares under the Capital Increase. Consequently, the total amount (nominal plus premium) subscribed was €1,943,599,225, and the nominal value of the Capital Increase was €170,901,085.50. The New Shares represented 3.84% of the share capital of Banco Santander following the Capital Increase.

On December 30, 2011, Banco Santander acquired the Series X Preferred Securities and the new shares subscribed by the holders of those preferred securities were paid up.

The new shareholders were, as of December 30, 2011, entitled to all of the rights pertaining to the shares of Banco Santander and, in particular, have the right to participate in the Santander Dividendo Elección program.

The Capital Increase resulted in a raise in core capital of 34 basis points.

Sale of the Colombian unit to the Chilean group Corpbanca

On December 6, 2011, we reported that we had reached an agreement with the Chilean group Corpbanca for the sale of Banco Santander Colombia and its other subsidiaries in that country.

The transaction values our Colombian operations (which in 2010 contributed US$54 million to the Group’s profits and is not a core market for the Group) at US$1,225 million and will generate for Santander a capital gain of approximately €615 million, which will be allocated to reinforce our balance sheet.

Banco Santander Colombia shares are listed on the Colombian Stock Exchange and has a free float of approximately 2.15% of its share capital.

The transaction is subject to obtaining the relevant regulatory approvals and is expected to be completed within the second quarter of 2012.

New capital requirements

On December 8, 2011, the European Banking Authority (“EBA”) published aggregate figures relating to capital requirements of a temporary and extraordinary nature applicable to financial institutions, calculated on the basis of data as of September 30, 2011.

27

According to the updated calculations, the additional capital required for Grupo Santander amounts to €15,302 million versus the €14,971 million published by the EBA on October 26, 2011, which was based on estimated figures for September 30, 2011.

In accordance with the new requirements of the EBA, our objective is to attain a 10% core capital ratio, which we expect to achieve through the organic creation of capital, optimization of risk-weighted assets, expansion of the use of internal capital calculation models and other measures, including the possible sale of assets.

Tender offer for subordinated notes

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

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

Also, on February 17, 2010, Banco Santander, S.A. offered to purchase for cash perpetual subordinated notes issued by Santander Perpetual, S.A.U. for a total nominal amount of US$1.5 billion (of which Santander held approximately US$350 million). The aggregate nominal amount of securities accepted for purchase was US$1.1 billion, representing 95% of the outstanding notes not held by Santander.

Bolsas y Mercados Españoles (“BME”)

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

James Hay Holdings Limited

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

28

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

On April 25, 2010, we announced that we had reached an agreement with Banco do Brasil S.A. and Banco Bradesco S.A. for the sale of the entire stake held by Grupo Santander in the companies Companhia Brasileira de Soluções e Serviços (15.32% of the capital), and Cielo S.A. – formerly Visanet – (7.20% of the capital).

The total agreed sale price was BRL200 million (approximately €89 million) for the 15.32% of CBSS and BRL1,487 million (approximately €650.7 million) for the 7.20% of Cielo.

The net capital gain generated for Grupo Santander was approximately €245 million.

The closing of the transactions took place in July 2010.

Acquisition of AIG Bank Polska Spolka Akcyina

On June 8, 2010, Santander Consumer Bank S.A. (Poland) increased capital through the issuance of 1,560,000 new shares, fully subscribed by AIG Consumer Finance Group Inc. who made a contribution of 11,177,088 shares of AIG Bank Polska S.A. representing a 99.92% of its share capital. The amount of the capital increase amounted to 452 million Polish zlotys (€109 million approximately as of the date of the transaction).

The capital increase has diluted the Group’s share capital of Santander Consumer Bank S.A. (Poland), which is now 70%.

Acquisition of 24.9% of Banco Santander Mexico

On June 9, 2010, we announced that Banco Santander had reached an agreement with Bank of America to acquire the 24.9% stake held by the latter in Grupo Financiero Santander (“Banco Santander Mexico”) for an amount of US$ 2.5 billion. Following this transaction, our holding in Banco Santander Mexico will amount to 99.9%.

In 2003, Bank of America acquired this 24.9% stake from Santander for an amount of US$1.6 billion.

The transaction was completed on September 23, 2010.

Agreement to purchase Royal Bank of Scotland branch offices

In August 2010 Santander UK plc announced that it had entered into an agreement to acquire the portion of the banking business carried on by Royal Bank of Scotland (RBS) through its branches in England and Wales and the NatWest network in Scotland, as well as certain SME and corporate banking centers. The acquisition is currently in progress and is expected to be completed in the fourth quarter of 2012, once the necessary approvals have been obtained and certain other conditions have been met.

Acquisition of CitiFinancial Auto’s auto loan portfolio

On June 24, 2010, we announced that we had reached an agreement with Citigroup Inc. (“Citi”) to purchase US$3.2 billion of CitiFinancial Auto’s auto loan portfolio. In addition, Santander and Citi entered into an agreement under which Santander will service a portfolio of US$7.2 billion of auto loans that will be retained by Citi.

Santander purchased the US$ 3.2 billion portion of the portfolio at a price equal to 99% of the value of the gross receivables.

The transaction closed on September 3, 2010.

Acquisition of the commercial banking business of Skandinaviska Enskilda Banken in Germany

On July 12, 2010, we announced that we had reached an agreement with Skandinaviska Enskilda Banken (SEB Group) for the acquisition by our affiliate Santander Consumer Bank AG of SEB’s commercial banking business in Germany for an amount of approximately €494 million (€555 million deducting certain amendments to the purchase price agreed between the parties).

Following the acquisition of SEB’s commercial banking business in Germany, which includes 173 branches and serves one million customers, the number of branches of Santander Consumer Bank’s network in Germany almost doubled.

29

The transaction closed on January 31, 2011, once the appropriate regulatory approvals were obtained.

Tender offer for Santander Bancorp shares

On July 23, 2010, we announced the completion of the tender offer by our wholly-owned subsidiary, Administración de Bancos Latinoamericanos Santander, S.L. (“ABLASA”), for all outstanding shares of common stock of Santander BanCorp not owned by ABLASA at US$12.69 per share.

The offer expired at 12:00 midnight, New York City time, on July 22, 2010. Based on information provided by BNY Mellon Shareowner Services, the depositary for the tender offer, 3,644,906 Santander BanCorp shares were validly tendered and not withdrawn. The tendered shares represented approximately 7.8% of Santander BanCorp’s outstanding shares of common stock. Together with the 90.6% of the outstanding shares already held by ABLASA, ABLASA held a total of approximately 45,886,244 shares or 98.4% of the 46,639,104 Santander BanCorp shares outstanding after the expiration of the tender offer. All Santander BanCorp shares that were validly tendered and not withdrawn immediately prior to the expiration of the tender offer were accepted and purchased by ABLASA.

ABLASA acquired the remaining publicly held shares of Santander BanCorp through a short-form merger under Puerto Rico law on July 29, 2010. As a result of the merger, any remaining shares of Santander BanCorp common stock were cancelled pursuant to the merger in consideration for the same offer price of US$12.69 cash paid in the tender offer, without interest and less any required withholding taxes (other than shares of Santander BanCorp common stock for which appraisal rights were validly exercised under Puerto Rico law). Upon completion of the merger, Santander BanCorp became a wholly owned subsidiary of Banco Santander, its shares ceased to be traded on the New York Stock Exchange, and Santander BanCorp was no longer required to file certain information and periodic reports with the U.S. Securities and Exchange Commission.

Acquisition of auto loan portfolio in the USA from HSBC

On August 27, 2010, we purchased a US$ 4.3 billion auto loan portfolio in the USA from HSBC, for a total consideration of approximately US$ 4 billion. The portfolio amount represents the carrying amount of the loans at June 30, 2010, and the purchase price is subject to final adjustments.

Santander Consumer USA is already servicing the auto loan portfolio that was acquired.

The transaction required only US$ 342 million financing from Grupo Santander, since it carries financing from a third party as well as assumptions of existing securitizations pertaining to part of the portfolio.

Agreement with Qatar Holding by which it will subscribe a bond issue

On October 18, 2010, Banco Santander announced that it had reached an agreement with Qatar Holding, by which the latter will subscribe bonds issued by Banco Santander amounting to US$ 2.719 billion, mandatorily exchangeable for existing or for new shares of Banco Santander Brasil, at the choice of Banco Santander.

This transaction represents 5% of the share capital of Banco Santander Brasil.

The bonds will mature on the third anniversary of the issuance date. The conversion or exchange price will be Brazilian reais 23.75 per share and the bonds will pay an annual coupon of 6.75% in U.S. dollars.

The transaction is part of Banco Santander’s commitment for its Brazilian affiliate to have a free float of 25% by the end of 2014.

Acquisition of Sovereign

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

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

30

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

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

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

At the time of the acquisition this transaction gave rise to goodwill of US$2,053 million (€1,601 million at the exchange rate on the date of the acquisition, €1,425 million at the exchange rate on December 31, 2009).

Acquisition of Real Tokio Marine Vida e Previdencia

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

CEPSA

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

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

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

On April 29, 2009, we announced that we had reached an agreement with the company Atlas Services Nederland BV (a 100%-owned affiliate of France Telecom) on the sale of the 5.01% share package held by Grupo Santander in France Telecom España, S.A. for an amount of €378 million. The sale generated a loss for Grupo Santander of €14 million.

Triad Financial Corporation

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

Banco de Venezuela

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

31

Offers to exchange perpetual issues for other financial instruments

On July 9, 2009, Banco Santander, S.A. and its subsidiary Santander Financial Exchanges Limited launched various offers to exchange 30 issues of securities eligible to be included in capital for a total nominal amount of approximately €9.1 billion for securities to be issued by Santander and its subsidiaries. The exchange envisaged the delivery of new securities that meet the current market standards and regulatory requirements to be classified as equity at the consolidated Group level.

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

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

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

Purchase of securitizations

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

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

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

On October 13, 2009, our subsidiary Banco Santander (Brasil) S.A. (Santander Brasil) closed its initial public offering of 525,000,000 units, each unit representing 55 ordinary shares and 50 preference shares, without par value. The offered securities (units) are share deposit certificates. The units were offered in a global offering consisting of an international tranche in the United States and in other countries other than Brazil, in the form of American Depositary Shares (“ADSs”), in which each ADS represented a unit, and a domestic tranche of units in Brazil.

The initial public offering price was BRL 23.50 per unit and $13.4033 per ADS.

Additionally, Santander Brasil granted the international underwriters an option, exercisable before November 6, 2009, to purchase an additional 42,750,000 ADSs to cover any over-allotments in connection with the international tranche. Santander Brasil also granted the domestic underwriters an option, exercisable during the same period, to purchase an additional 32,250,000 units to cover any over-allotments in connection with the Brazilian tranche.

Once the global offering was completed and after the underwriters exercised their options, the capital increase amount was BRL 13,182 million (€5,092 million). The free float of Santander Brasil rose to approximately 16.45% of its share capital, from only 2.0% before the global offering. Santander Brasil undertook to raise the free float to at least 25% of its share capital within three years from the date of the initial public offering in order to maintain its listing on Level 2 of the Bolsa de Valores, Mercadorias e Futuros (BM&FBOVESPA). The ADSs are listed on the New York Stock Exchange.

Santander Group’s net gains from the placement amounted to €1,499 million.

Prior to the public offering, on August 14, 2009, the Group transferred to Santander Brasil, through share exchange transactions, all the share capital of certain Brazilian asset management, insurance and banking companies (including Santander Seguros S.A. and Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A.) which were owned by Santander Group and certain non-controlling shareholders. The total equity of the transferred businesses was valued at BRL 2.5 billion. The purpose of these transactions was to consolidate in a single entity Santander Group’s investments in Brazil, thus streamlining the current corporate structure and grouping the ownership interests held by Santander Group and by the non-controlling shareholders in those entities in the share capital of Santander Brasil. As a result of these transactions, the share capital of Santander Brasil was increased by approximately BRL 2.5 billion through the issuance of 14,410,886,181 shares, of which 7,710,342,899 were ordinary shares and 6,700,543,282 were preference shares. Additionally, on September 17, 2009, Banco Santander sold to Santander Brasil a loan portfolio consisting of loans to Brazilian companies and their affiliates abroad for US$ 806.3 million.

32

Santander Brasil is the third largest private-sector bank in Brazil, the largest bank controlled by an international financial group and the fourth largest bank overall in Brazil in absolute terms, with a market share of 10.5% in terms of loans. Santander Brasil carries on its business activity across the country, although its presence is concentrated in the Southern and South Eastern regions, where it has one of the largest branch networks, according to the Central Bank of Brazil.

In August 2008, Santander Brasil acquired Banco Real, which was then the fourth largest private-sector Brazilian bank in terms of volume of assets. At the time of the purchase, Santander Brasil was the fifth largest private-sector bank in Brazil in terms of volume of assets. The businesses of Banco Real and Santander Brasil were highly complementary before the acquisition. Santander Brasil considered that the acquisition provided considerable opportunities in terms of operational, commercial and technological synergies, building on the best practices of each bank. Banco Real’s strong representation in the states of Rio de Janeiro and Minas Gerais has further enhanced Santander Brasil’s position in the Southern and South Eastern regions of the country, adding to this entity’s already significant presence in those regions, particularly in the State of São Paulo. The acquisition of Banco Real consolidated Santander Brasil’s position as a full-service bank with nationwide coverage, whose size enables it to compete efficiently in its target markets.

In the third quarter of 2010, we sold 2.616% of the share capital of Santander Brasil. The sale price amounted to €867 million, which gave rise to increases of €162 million in Reserves and €790 million in Non-controlling interest, and a decrease of €85 million in Valuation adjustments—Exchange differences.

Sale of 10% of the share capital of Attijariwafa Bank

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

General Electric Money and Interbanca

The first quarter of 2009 saw the completion of the agreement reached by Banco Santander and General Electric (“GE”) in March 2008 whereby Banco Santander would acquire the units of GE Money in Germany (already acquired in the fourth quarter of 2008), Finland and Austria and its card (Santander Cards UK Limited) and vehicle financing units in the UK, and GE Commercial Finance would acquire Interbanca, an entity specializing in wholesale banking which was assigned to Banco Santander in the distribution of ABN AMRO’s assets. The initial goodwill arising from the acquisition of the GE business amounted to €558 million at December 2009.

Capital Increases

As of December 31, 2009, our capital consisted of 8,228,826,135 fully subscribed and paid shares of €0.50 par value each. In 2009, our capital increased by 234,766,732 shares, or 2.94% of our total capital as of December 31, 2008, as a result of the following transactions:

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

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

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

As of December 31, 2010, our capital had increased by 100,295,963 shares, or 1.22% of our total capital as of December 31, 2009, to 8,329,122,098 shares as a result of the following transactions:

• Valores Santander: On October 7, 2010, the Bank issued 11,582,632 new shares in exchange for 33,544 Valores Santander.

33

• Scrip Dividend: On November 2, 2010 we issued 88,713,331 ordinary shares par value €0.5 in the free-of-charge capital increase, corresponding to 1.08% of our share capital. The amount of the capital increase was €44,356,665.50.

As of December 31, 2011, our capital had increased by 579,921,105 shares, or 6.96% of our total capital as of December 31, 2010, to 8,909,043,203 shares as a result of the following transactions:

• Valores Santander: On October 6, 2011, 1,223,457 new shares were issued in exchange for 3,458 Valores Santander.

• Scrip Dividend: On February 1, 2011, we issued 111,152,906 ordinary shares par value €0.5 in the free-of-charge capital increase, corresponding to 1.33% of our share capital. The amount of the capital increase was €55,576,453. Additionally, on November 2, 2011, the Bank issued 125,742,571 ordinary shares par value €0.5 in the free-of-charge capital increase, corresponding to 1.49% of our share capital. The amount of the capital increase was €62,871,285.50.

• Repurchase of Series X Preferred Securities and subscription of Banco Santander shares: On December 28, 2011, we announced that the holders of 77,743,969 preference shares had accepted the Repurchase Offer. On December 30, 2011, the holders of these preference shares subscribed 341,802,171 shares. Consequently, the total amount (nominal plus premium) subscribed was €1,944 million and the nominal value was €170.9 million. The New Shares represent 3.84% of our share capital after the Capital Increase.

Recent Events

Scrip dividend

On January 31, 2012, further to the reports on Form 6-K dated December 12, 2011 and January 12, 2012, we announced that the trading period for the free allotment rights corresponding to the free-of-charge capital increase by means of which the Santander Dividendo Elección program was carried out ended on January 30, 2012.

During the period set for that purpose, the holders of 13.35% of the free allotment rights accepted the irrevocable undertaking to waive their free allotment rights issued by Banco Santander. Consequently, Banco Santander has acquired 1,189,774,111 rights for a total gross consideration of €141,583,119.21. Banco Santander has waived the free allotment rights so acquired.

The holders of the remaining 86.65% of the free allotment rights have chosen to receive new shares. Thus, the definitive number of ordinary shares of €0.5 of face value issued in the free-of-charge capital increase is 167,810,197, corresponding to 1.88% of the share capital, and the amount of the capital increase is €83,905,098.50. The value of the remuneration corresponding to the shareholders who have requested new shares amounts to €918,593,018.38.

The authorization for the admission to listing of the new shares in the Spanish Stock Exchanges and in the other stock exchanges where Banco Santander is listed was granted in February 2012.

Resignation of Francisco Luzón

On January 23, 2012, we announced that our board of directors resolved at the meeting held that day to leave record of the resignation presented by Francisco Luzón from his positions as director and member of the executive committee of the Bank, with effect from January 23, 2012. Francisco Luzón has taken voluntary pre-retirement, also ceasing to hold office as an executive vice president of the Bank and head of its America division.

Transfer of interest in Banco Santander (Brasil), S.A.

In January and March 2012 the Group transferred shares representing 4.41% and 0.77%, respectively, of the capital stock of Banco Santander (Brasil), S.A. to two leading international financial institutions. These institutions have undertaken to deliver these shares to the holders of bonds issued by Banco Santander in October 2010 which are exchangeable for Banco Santander (Brasil), S.A. shares upon maturity, in accordance with their terms.

Royal Decree-Law 2/2012

On February 3, 2012 the Spanish Ministry of Economy and Competitiveness approved the Royal Decree-Law 2/2012 on the clean-up of the financial sector.

This Royal Decree-Law forms part of the Government’s structural reforms and contains, among others, a series of measures aimed at cleaning up Spanish credit institutions’ balance sheets, which were adversely affected by the impairment of their assets linked to the real estate industry. With this legislation, the Government intends to design an integrated reform strategy that will impact the valuation of these assets and entail the clean-up of Spanish credit institutions’ balance sheets so that financial institutions can once again fulfill their essential function of channeling savings into efficient investment projects that encourage economic activity, growth and employment.

34

The balance sheet clean-up measures take the form of two main ideas:

i) A revision of the minimum percentages of the provisions that institutions must recognize in their balance sheets in relation to lending to the real estate industry and to foreclosed assets and assets received in payment of loans to the real estate industry; and

ii) An increase in the minimum capital required for Spanish credit institutions, calculated on the basis of real estate industry related assets recorded on their balance sheet.

The Royal Decree-Law stipulates that credit institutions must comply with its provisions by December 31, 2012. The provision required is a one-off provision aimed at eliminating the uncertainty regarding the value of these assets –particularly land– on Spanish credit institutions’ balance sheets. It should be noted that these minimum percentages are established on a general basis and the legislation does not include sufficient details for the specific features of the assets held by different institutions, or of those held by a single institution to be reflected.

Taking into account the above, and that at 2011 year-end the Group had reviewed the recoverable values of its real estate assets pursuant to IFRSs, we do not believe that this is an adjusting event as defined by IAS 10.

With respect to the recognition of the impact of Royal Decree-Law 2/2012 on the Group’s IFRS-IASB consolidated financial statements for 2012, the Group will continue to apply its current procedure with regard to Spanish regulatory requirements related to the loan provision and to the valuation of foreclosed assets,, i.e. it will compare the amount of the provisions for loans and foreclosed assets to be recognized at each date calculated pursuant to IFRSs (obtained from internal models for credit loss provisions and from external valuations and other evidence for foreclosed assets and assets received in payment of loans) with the amount of the provisions required by the Spanish regulatory requirement including Royal Decree-Law 2/2012, in order to ascertain whether the difference between the two amounts is not material in relation to the Group’s consolidated financial statements as a whole and, accordingly, does not require any adjustment to be made for the preparation of the consolidated financial statements under IFRS-IASB.

As of the date hereof, it was not possible to estimate the provisions that will have to be recognized in the consolidated IFRS books at December 31, 2012, since the provisions will depend, among others, on the rate of sales of the real estate portfolio, the general performance of the economy in the year and, in particular, on the value of real estate assets. However, if the Government’s negative forecasts are borne out, it is possible that the provision required under IFRSs will converge with the provision required for regulatory purposes calculated pursuant to Royal Decree-Law 2/2012.

Santander and KBC agree to merge Bank Zachodni WBK and Kredyt Bank in Poland

On February 28, 2012, we announced that Banco Santander, S.A. and KBC Bank NV had entered into an investment agreement to combine their Polish banking subsidiaries, Bank Zachodni WBK S.A. (‘Bank Zachodni WBK’) and Kredyt Bank S.A. (‘Kredyt Bank’).

The transaction will entail a share capital increase in Bank Zachodni WBK, where the newly issued shares in Bank Zachodni WBK will be offered and rendered to KBC and the other shareholders of Kredyt Bank in exchange for their shares in Kredyt Bank. Under the agreements, and subject to independent evaluation and final agreement by Bank Zachodni WBK and Kredyt Bank, as well as to obtaining regulatory approval from the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego) and relevant competition clearance, Bank Zachodni WBK will merge with Kredyt Bank at the ratio of 6.96 Bank Zachodni WBK shares for every 100 Kredyt Bank shares. At current market prices, the transaction values Kredyt Bank at PLN 15.75 a share and BZ WBK at PLN 226.4 a share. The combined bank’s total pro forma value will be PLN 20.8 billion (€5 billion). Both Bank Zachodni WBK and Kredyt Bank are listed on the Warsaw Stock Exchange. The merged bank will continue to be listed on the Warsaw Stock Exchange.

Following the proposed merger, we will hold approximately 76.5% of the merged bank and KBC around 16.4%. The rest will be held by other minority shareholders. We have committed ourselves to help KBC to lower its stake in the merged bank from 16.4% to below 10% immediately after the merger. For this purpose, we will seek to place a stake with investors. In this regard, we have also committed ourselves to acquire up to 5% of the merged bank to assist KBC. Furthermore, KBC intends to divest its remaining stake, with a view to maximizing its value.

35

With this transaction, we will increase our presence in Poland, one of our ten core markets, underlining our long-term commitment to Poland. The proposed merger will consolidate the merged bank’s position as Poland’s third largest bank by all measures, with a market share of 9.6% in deposits, 8.0% in loans and 12.9% in branches (899). With more than 3.5 million retail customers, the merged bank will also be Poland’s third in terms of revenues and profits, significantly closing the gap to the leaders. Including the Santander Consumer finance business, the Group’s total market share in terms of volume will amount to around 10% in Poland. The proposed merger will produce business synergies in addition to those announced following the acquisition of Bank Zachodni WBK by Banco Santander. Santander estimates the impact of this transaction on its Group core capital ratio under Basel II criteria will be around 5 basis points.

Under the investment agreement, Santander has also committed to acquire 100% of Zagiel, the consumer finance arm of KBC in Poland, at an adjusted net asset value, also subject to obtaining the relevant competition clearance. Additionally, the existing cooperation between Kredyt Bank and KBC TFI (KBC’s Polish asset management company) will remain in place for the foreseeable future. The merged bank will distribute KBC TFI’s funds under a non-exclusive distribution agreement for a minimum term of two years from the proposed merger transaction.

The transaction is expected to close in the second half of 2012, subject to the registration of the merger between Bank Zachodni WBK and Kredyt Bank and to obtaining regulatory approval from Polish Financial Supervision Authority (Komisdja Nadzoru Finansowego) and relevant competition clearance.

Valores Santander

On March 30, 2012, we informed that the Ordinary General Shareholders’ Meeting held that day had resolved to grant the holders of Valores Santander an option to convert their securities on four occasions before October 4, 2012, the mandatory conversion date for the outstanding Valores Santander. Specifically, the holders of Valores Santander may request their conversion within the fifteen calendar days prior to each of June 4, July 4, August 4 and September 4, 2012.

Those who opt for the voluntary conversion will receive the number of new shares of Banco Santander that results from the conversion ratio prevailing as of the date of this report pursuant to the prospectus of the issuance (365.76 shares for each Valor Santander). In addition, they will receive, subject to the same cancellation events provided in the prospectus, the remuneration corresponding to their Valores Santander accrued until the applicable voluntary conversion date.

Without prejudice to such voluntary conversion option, the terms and conditions of the issuance remain unchanged. As a result, the holders of Valores Santander who do not opt for the voluntary conversion in any of the conversion windows will maintain the rights of their securities, which will mandatorily convert into new shares of Santander on October 4, 2012 pursuant to the terms of the prospectus.

Invitation to tender certain securitization bonds for cash

On April 16, 2012, we announced an invitation to all holders of certain securities (the Securities) to tender such Securities for purchase by Banco Santander for cash (the Invitation). The Securities are fixed rate securities (securitization bonds) listed on the AIAF Fixed Rate Market which correspond to 33 different series issued by specific securitization funds managed by Santander de Titulización, S.G.F.T., S.A. series with an aggregate outstanding principal amount of €6 billion. We intend to accept offers for up to up to a maximum aggregate principal amount of €750 million. Such amount is indicative only and not binding on Banco Santander.

Such holders of Securities may remit, or request their corresponding mediators or participating entities (in the case that said owners are not participating entities in Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A. Unipersonal (Iberclear)) to remit, the corresponding instructions of the tender offers (the Tender Offers) to the tender and information agent, Lucid Issuer Services Limited, as from April 16, 2012.

Tender Offers must specify the number of Securities included in each offer, the outstanding principal amount of such Securities and the price at which such Securities are tendered in the relevant offer. The price shall be specified by each holder as a percentage of the outstanding principal amount of the relevant Securities tendered for purchase. Regarding the senior Securities to which the Invitation is directed, an indicative minimum purchase price has been provided for information purposes only and is not binding on Banco Santander. Banco Santander may, but is not required to accept, Tender Offers made at or below this minimum price.

36

Tender Offers will be irrevocable unless Banco Santander modifies the terms of the Invitation in a manner that makes the Invitation less favorable to holders.

The amount in cash that must be paid for each Security is equal to the sum of (i) the purchase price multiplied by the principal amount of the Securities on the date of settlement which are accepted for purchase plus (ii) interest accrued but not paid since the immediately preceding interest payment date (inclusive) until the date of settlement of the Tender Offers (exclusive) in relation to such Securities.

The terms of the Tender Offers and the procedure to make the Tender Offers are set forth in the tender offer memorandum dated April 16, 2012 (the Tender Offer Memorandum).

We have absolute discretion whether to accept the Securities tendered for purchase, in accordance with the terms and conditions of the Tender Offer Memorandum.

We will satisfy the payment obligations derived from the Invitation, if any, with funds from our treasury.

We reserve the right to modify the terms and conditions of the Invitation as well as to extend, re-open or terminate the Invitation at any moment.

The rationale for the Invitation is to effectively manage the Group’s outstanding liabilities and to strengthen our balance sheet. The Offers are also designed to provide liquidity to Security holders.

On April 25, 2012 we announced the aggregate outstanding principal amount of each of the Securities accepted for purchase which for senior securities amounted to €388,537,762.18 and for mezzanine securities €61,703,163.58. The sale and purchase agreements of the relevant securities have been agreed.

In respect of each security, the aggregate outstanding principal amount means the outstanding principal amount of the relevant security as at the settlement date (i.e. following any reduction of its original principal amount by prepayments prior to such date in accordance, only, with the terms of such security). The settlement date was April 27, 2012.

B. Business overview

At December 31, 2011, we had a market capitalization of €50.3 billion, stockholders’ equity of €76.4 billion and total assets of €1,251.5 billion. We had an additional €131.5 billion in mutual funds, pension funds and other assets under management at that date. As of December 31, 2011, we had 63,866 employees and 6,608 branch offices in Continental Europe, 26,295 employees and 1,379 branches in the United Kingdom, 91,887 employees and 6,046 branches in Latin America, 8,968 employees and 723 branches in the United States (Sovereign Bancorp) and 2,333 employees in other geographic regions (for a full breakdown of employees by country, see Item 6 of Part I, “Directors, Senior Management and Employees—D. Employees” herein).

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

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

The financial statements of each business area have been drawn up by aggregating the Group’s basic operating units. The information relates to both the accounting data of the companies in each area as well as that provided by the management information systems. In all cases, the same general principles as those used in the Group are applied.

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

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

• Continental Europe. This covers all retail banking business (including Banco Banif, S.A. (“Banif”), our specialized private bank), wholesale banking and asset management and insurance conducted in Europe, with the exception of the United Kingdom. This segment includes the following units: the Santander Branch Network, Banco Español de Crédito, S.A. (“Banesto”), Santander Consumer Finance (including Santander Consumer USA) and Portugal and Bank Zachodni WBK which was incorporated in April 2011.

37

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

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

• Sovereign. This includes all the financial activities of Sovereign, including retail and wholesale banking, asset management and insurance. Sovereign’s operations are conducted solely in the U.S.

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

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

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

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

In addition to these operating units, which cover everything by geographic area and business, we continue to maintain a separate Corporate Activities area. This area incorporates the centralized activities relating to equity stakes in financial companies, financial management of the structural exchange rate position and of the Parent bank’s structural interest rate risk, as well as management of liquidity and of stockholders’ equity through issues and securitizations. As the Group’s holding entity, it manages all capital and reserves and allocations of capital and liquidity. It also incorporates amortization of goodwill but not the costs related to the Group’s central services except for corporate and institutional expenses related to the Group’s functioning.

In 2011, Grupo Santander maintains the same primary and secondary operating segments as it had in 2010.

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

For purposes of our financial statements and this annual report on Form 20-F, we have calculated the results of operations of the various units of the Group listed below using these criteria. As a result, the data set forth herein may not coincide with the data published independently by each unit individually.

First level (or geographic):

Continental Europe

This area covers the banking activities of the different networks and specialized units in Europe, principally with individual clients and Small and Medium Enterprises (“SMES”), as well as private and public institutions. During 2011, there were five main units within this area: the Santander Branch Network, Banesto, Santander Consumer Finance, Portugal and Bank Zachodni WBK which was incorporated in April 2011, including retail banking, global wholesale banking and asset management and insurance.

Continental Europe is the largest business area of Grupo Santander by assets. At the end of 2011, it accounted for 37.2% of total customer funds under management, 42.2% of total loans and credits and 31.0% of profit attributed to the Parent bank of the Group’s main business areas.

The area had 6,608 branches and 63,866 employees (direct and assigned) at the end of 2011.

38

In 2011, the Continental Europe segment’s profit attributable to the Parent bank decreased 15.1% to €2,849. Profits have been hard hit by deleveraging, the low growth environment and low interest rates, as well as the negative impact of gains on financial transactions and fee income. Return on equity (“ROE”) in 2011 was 9.3%, a 311 basis point decrease from 2010.

The Santander Branch Network

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

At the end of 2011, we had 2,915 branches and a total of 18,704 employees (direct and assigned), none of which was hired on a temporary basis, dedicated to retail banking in Spain. Compared to 2010, there was a net decrease of 16 branches and 189 employees.

In 2011, profit attributable to the Parent bank from the Santander Branch Network was €660 million, 22.1% lower than 2010, while the ROE reached 9.6% (as compared to 11.9% in 2010). Although net income increased by 2.4% and administrative and depreciation and amortization expenses declined 1.2% they did not feed though profits because of greater provisions.

These results were obtained in a still difficult environment, with insufficient signs of an economic recovery, strong competition for liquidity and low demand for loans.

In 2011, the Santander Branch Network lending decreased by approximately 7.8%, customer funds under management were reduced by 4.5%, deposits decreased 7.9%, mutual funds fell 20.6% and pension funds declined 3.5%. The activity reflected the scant demand for loans and a strategy in funding which combines cost reduction and volume retention. The ratio of non-performing loans (“NPL”) for Santander Branch Network and Banco Santander, S.A. grew to 8.5% and 6.0%, from 5.5% and 4.2% in 2010, respectively. The evolution of NPLs was worse than expected because the downturn in the economy was more severe than envisaged and the fall in lending meant the NPL ratio increased to a greater extent than the volume of NPLs. While the NPL ratio for residential mortgages remained stable, the rise in the NPLs ratio was related to loans with real estate purpose. This reflects a further deterioration in this segment and the Group’s policy to sharply reduce balances in this sector.

Banesto

At the end of 2011, Banesto had 1,714 branches and 9,548 employees (direct and assigned), of which 13 employees were temporary, a decrease of 48 branches and an increase of 194 employees as compared to the end of 2010.

In 2011, profit attributable to the Parent bank from Banesto was €130 million, a 68.9% decrease from 2010, while the ROE reached 2.8% as compared to 9.4% in 2010. In the second half of 2011, the Spanish market faced continued weak economic growth, strong tensions and high volatility. The sector’s NPLs continued to rise and interest rates were unstable. Liquidity tensions in the financial system triggered a rise in wholesale funding costs.

At the end of 2011, the balance of loans was 9.0% lower than a year earlier, deposits decreased 15.0%, customer funds under management diminished by 16.2%, mutual funds fell 22.3% and pension funds declined 7.5%. NPL grew to 5.0% in 2011, up 0.9 percentage points from 2010 as a result of the still difficult environment, in particular in the real estate segment, and a fall in lending which meant the NPL ratio increased to a greater extent than the volume NPL.

Santander Consumer Finance

Our consumer financing activities are conducted through our subsidiary Santander Consumer Finance (SCF) and its group of companies. Most of the activity of Santander Consumer Finance relates to auto financing, personal loans, credit cards, insurance and customer deposits. These consumer financing activities are mainly focused on Germany, Spain, Italy, Norway, Poland, Finland, Sweden, the US (SCUSA began accounted by the equity accounted method at the end of December 2011 without impact on profits) and the UK. We also conduct business in Portugal, Austria and the Netherlands, among others.

At the end of 2011, this unit had 647 branches (as compared to 519 at the end of 2010) and 15,610 employees (direct and assigned) (as compared to 13,852 employees at the end of 2010), of which 1,105 employees were temporary.

The SCF business model is based on portfolio diversification, leadership in core markets, efficiency, control of risks and recoveries and a single pan-European platform.

39

In Europe, the focus was on organic growth and cross-selling, backed by brand agreements (37 with 9 manufacturers), which increased the recurrence of profits and boosted new car business, particularly in Germany and the UK. In addition we increased our penetration in the second-hand car sector and in new car sales in central European and Nordic countries. The first steps were also taken in Germany by Santander Retail (former SEB), focusing on mortgages and on capturing customer funds.

In the US, high growth in new loans and the capacity to extract value from a greater presence in the market doubled profits. This attractive performance made it possible for new partners to invest in SCUSA in the fourth quarter which allowed a capital injection of $1,150 million. This operation strengthened the business and increased our future growth capacity.

In 2011, this unit generated €1,228 million in profit attributable to the Parent bank, a 51.5% increase from 2010, while the ROE reached 12.3% (as compared to 10.3% in 2010). This improvement was fuelled by an increase in total income, an improvement in efficiency and a drop in loan loss provisions.

Customer loans amounted to €60 billion, 5% less than in 2010 because of the consolidation of SCUSA by the equity accounted method at the end of December 2011. Excluding this impact, gross lending was 16% higher, due to organic growth and the integration of businesses in Germany. Additionally, this area has €39 billion in customer funds under management. NPL decreased to 3.8% in 2011 from 4.9% a year earlier supported by recoveries, which increased 38% in 2011.

Customer deposits increased 27.9% during 2011 fuelled by SC Germany and the entry of Santander Retail.

Portugal

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

At the end of 2011, Portugal operated 716 branches (as compared to 759 branches at the end of 2010) and had 6,091 employees (direct and assigned) (as compared to 6,214 employees at the end of 2010), of which 83 employees were temporary.

In 2011, profit attributable to the Parent bank was €174 million, a 61.8% decrease from 2010, due to the 18.3% decrease in total income and the 87.7% rise in provisions. This rise in provisions reflects the difficult economic environment, which is also strongly increasing NPLs. The NPL ratio increased in 2011 to 4.1% from 2.9% a year earlier. The ROE was 7.0%, as compared to 20.3% in 2010.

In a very difficult economic and financial environment, which led to a slowdown in economic activity and a lack of liquidity in the markets, Santander Totta has focused on strengthening its balance sheet. Lending reflected the deterioration of economic conditions and dropped 5.6% to €28,403 million. Customer funds under management decreased 8.1% and mutual funds and pension funds decreased 41.8% and 42.2%, respectively.

Retail Poland (BZ WBK)

On April 1, 2011, we completed the acquisition of 96% of BZ WBK along with the 50% of BZ WBK Asset Management. The BZ WBK Group is now integrated into Grupo Santander, consolidating its results and business as of the second quarter of 2011.

BZ WBK has the third largest branch network in Poland (622 including 96 agencies), 9,383 employees, €2.4 million retail customers and close to €20 billion of loans and customer funds (mostly deposits).

In the nine months of its consolidation in 2011, BZ WBK posted a profit attributable to the Parent bank of €232 million. For comparison purposes, the profit for the whole year in local criteria was €288 million (which represents an increase of 21.6% since 2010). The ROE stood at 17.9%.

Others

The rest of our businesses in the Continental Europe segment (Banif, Asset Management, Insurance and Global Wholesale Banking) generated profit attributable to the Parent bank of €424 million in 2011, 48.5% less than in 2010. Of these businesses Global Wholesale Banking, provided 69% of total income and 90% of profits. Global Wholesale Banking posted a 51.7% decrease in profit attributable to the Parent bank (€382 million), hit by market weakness and tensions in the last few quarters, as well as by the Group’s strategy to give priority to reducing risk and releasing capital and liquidity.

40

United Kingdom

As of December 31, 2011, the United Kingdom accounted for 32.2% for the total customer funds under management of the Group’s operation areas. Furthermore it also accounted for 33.7% of total loans and credits and 12.5% of profit attributed to the Parent bank of the Group’s main business areas.

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

Santander UK is focused on the United Kingdom (85% of its balance sheet). More than 80% of customer loans are mortgages for homes in the UK. The portfolio of mortgages is of a high quality, with no exposure to self-certified or subprime mortgages and less than 1% of buy-to-let loans.

At the end of 2011, we had 1,379 branches and a total of 26,295 employees (direct and assigned) of which 556 employees were temporary, in the United Kingdom. Compared to 2010, there was a net decrease of 37 branches and an increase of 2,646 employees.

In 2011, Santander UK contributed €1,145 million profit attributable to the Parent bank (a 41.7% decrease from 2010). Loans and advances to customers increased by 7.8% and customer funds under management increased 6.4% during the same period. ROE was 9.2% (as compared to 21.3% in 2010). The NPL ratio at the end of 2011 increased to 1.9% from 1.8% at the end of 2010. The income statement was affected by the environment of low activity, low interest rates, regulatory changes, higher funding costs and the PPI provision. On the other hand, costs were almost flat and fewer provisions were made, reflecting the good evolution of non-performing loans.

Latin America

At December 31, 2011, we had 6,046 offices and 91,887 employees (direct and assigned) in Latin America (as compared to 5,882 offices and 89,526 employees, respectively, at December 31, 2010), of which 1,550 were temporary employees. At that date, Latin America accounted for 26.0% of the total customer funds under management, 18.7% of total loans and credits and 50.8% of profit attributed to the Parent bank of the Group’s main business areas.

Profit attributable to the Parent bank from Latin America was €4,664 million in 2011, a 1.4% decrease from 2010, while the ROE reached 21.8% (as compared to 22.3% in 2010).

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

	Percentage held at December 31, 2011			Percentage held at December 31, 2011
Banco Santander (Brasil), S.A.		81.53	Banco Santander, S.A. (Uruguay)		100.00
Banco Santander Chile		67.01	Banco Santander Colombia, S.A.		97.85
Banco Santander (Mexico), S.A., Institución de Banca Múltiple, Grupo Financiero Santander		99.86	Banco Santander Puerto Rico		100.00
Banco Santander Río, S.A. (Argentina)		99.30	Banco Santander Perú, S.A.		100.00

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

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

The Group announced an agreement to sell its business units in Colombia to the Chilean group CorpBanca for $1,225 million (estimated capital gains of €615 million). This operation is due to be completed during 2012 and it is subject to obtaining the authorizations from the regulatory bodies and a takeover bid delisting Banco Santander Colombia shares aimed to minority shareholders who have 2.15% of Santander Colombia. The 2011 results do not yet incorporate these capital gains.

41

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

Brazil. Santander Brazil is the third largest private sector bank in terms of assets, and the leading foreign bank, with a market share of 10.5% in loans. At the end of 2011, the institution had 3,775 branches, 54,197 employees and 25.3 million customers.

During 2011, lending increased 20% with significant growth across all the major segments. Particularly noteworthy was lending to individuals and SMEs and companies, which grew by around 23% and 26%, respectively. Deposits excluding repos rose 6%, with a good performance in time deposits (+30%).

Profit attributable to the Parent bank from Brazil in 2011 was €2,610 million, a 7.2% decrease when compared with 2010 (-7.3% in local currency). Total income rose 11.2% in local currency, spurred by net interest income and fee income, which coupled with a slight improvement in the efficiency ratio, produced a 10.5% increase in net operating income. This increase enabled the larger provisions to be absorbed, maintaining net operating income after provisions in positive growth rates (+2.9%). This, however, did not feed through to profits mainly because of labor disputes, a higher tax rate and minority interests. For 2011, ROE was 23.3% and at the end of 2011, NPL ratio was 5.4%, an increase of 47 percentage points as compared to 4.91% in 2010, mainly due to a moderate rise in NPLs of individual borrowers, principally in consumer credits and cards. The NPL coverage ratio was 95%.

Mexico. Banco Santander (Mexico), S.A., Institución de Banca Múltiple, Grupo Financiero Santander, is one of the leading financial services companies in Mexico. It leads the third largest banking group in Mexico in terms of business volume. As of December 31, 2011, we had a network of 1,125 branches, 13,162 employees and 9.3 million customers in Mexico. Santander Mexico acquired a portfolio of mortgages from GE Capital Corporation for $1,870 million in the second quarter of 2011.

In 2011, lending rose 22%, with mortgage loans growing 30%, both on a like-for-like basis (excluding GE). In addition, bank savings increased 8%, with demand deposits up 14%, time deposits 6% and mutual funds 3%.

Profit attributable to the Parent bank from Mexico in 2011 increased 40.9% to €936 million (45.6% in local currency) due to growth in net interest income and fee income, lower provisions and benefiting from lower minority interests. For 2011, ROE was 21.2% and at the end of 2011, the NPL ratio remained at 1.8% and the NPL coverage ratio was 176%.

Chile. Banco Santander Chile is the principal component of the largest financial group in Chile in terms of assets and profits. Grupo Santander sold an aggregate of 9.7% of Banco Santander Chile in 2011 for $1,241 million, leaving it with 67%. As of December 31, 2011, we had 499 branches, 12,204 employees and more than 3.5 million customers and market shares of 19.7% in loans and 17.3% in savings.

In 2011, lending accelerated due to the higher economic growth and the positive impact of reconstruction following the 2010 earthquake. Loans rose 7%, with cards up 15%, mortgages 10% and consumer credit 8%. Commercial credit grew 4%.

Savings grew 11%. Time deposits increased 29% and mutual funds declined 10%.

Profit attributable to the Parent bank from Chile decreased 9.0% in 2011 to €611 million (a 9.3% decrease as compared to 2010 in local currency) mainly due to growth in operating expenses (10.1%) and in loan loss provisions (17.3%). For 2011, ROE was 25.4% at the end of 2011, the NPL ratio remained stable at 3.9% compared to 3.7% in 2010 and the NPL coverage ratio was 73%.

Argentina. Santander Río is one of the country’s leading banks, with market shares of 8.9% in lending and 10.1% in savings. It has 358 branches, 6,773 employees and 2.5 million customers.

The Group focused its strategy in 2011 on maximizing the strengths of the franchise, sustained by a successful transactional banking model resting on low funding costs (demand deposits accounted for 68% of total deposits) and high levels of revenues from services (recurrence ratio of 88%).

During the year, lending (+28%) continued to grow strongly. Demand deposits rose 20%, time deposit rose 42% and mutual funds rose 35%.

Profit attributable to the Parent bank was €287 million, 2.7% lower (8.0% higher in local currency). At the end of 2011, the NPL ratio was 1.2% and the NPL coverage ratio was 207%.

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

42

Uruguay. Santander is the largest private sector bank in the country in terms of the number of branches (78) and business (market share of 18.6% in lending and 16.0% in deposits). As of December 31, 2011, we had 1,166 employees and 247,000 customers.

Profit attributable to the Parent bank was €20 million in 2011, 70.3% lower than in 2010 (a 69.9% decrease in local currency) and the NPL ratio was 0.64% as of December 31, 2011.

Colombia. As of December 31, 2011, Banco Santander Colombia, S.A. had 80 branches, 1,458 employees and 0.3 million banking customers.

As previously mentioned, the Group announced an agreement to sell its business in Colombia to the Chilean group CorpBanca. The transaction is expected to be completed in the second quarter of 2012, once the regulatory authorizations have been obtained.

Profit attributable to the Parent bank from Colombia was €58 million in 2011, 43.0% higher than in 2010 (a 46.5% increase in local currency). As of December 31, 2011, the NPL ratio was 1.0% and the NPL coverage ratio was 299%.

Puerto Rico. As of December 31, 2011, Banco Santander Puerto Rico had 121 branches, 1,753 employees and 0.5 million customers.

Profit attributable to the Parent bank from Puerto Rico in 2011 was €34 million, a 10.1% decrease as compared to 2010 (a 5.6% decrease in dollars). At the end of 2011, the NPL ratio stood at 8.6% and the NPL coverage ratio was 51%.

Peru. As of December 31, 2011, Banco Santander Perú, S.A. had 1 branch, 60 employees and 100,000 banking customers. The unit’s activity is focused on companies and on attending to the Group’s global customers.

Profit attributable to the Parent bank from Peru was €11 million in 2011, 56.4% higher than in 2010, (a 60.3% increase in local currency).

Sovereign

Sovereign, with 723 branches, 2,303 ATMs and more than 1.7 million customers, is developing a business model focused on retail customers at December 31, 2011 and companies. At that date, Sovereign had 8,968 employees (direct and assigned), none of which were temporary. Sovereign accounted for 4.6% of the total customer funds under management, 5.4% of total loans and credits and 5.7% of profit attributed to the Parent bank of the Group’s main business areas.

In 2011, Sovereign contributed €526 million profit attributable to the Parent bank as compared to a €424 million a year earlier. For 2011, ROE was 13.0%. Loans and advances to customers at December 31, 2011 were €40,194 million and customer funds under management €40,812 million. Rigorous admission and renewal of loans standards, together with their proactive management, were reflected in a continuous improvement in NPL which decreased 176 basis points to 2.9% and NPL coverage which stood at 96% up from 75% in 2010.

The results show a solid income statement backed by the generation of recurring revenues, a reduction in the cost of deposits and an improvement in the levels of provisions. This was the result of the improvement in the balance sheet structure, which, together with the recovery in volumes of basic loans and control of spending, provides a solid base for 2012.

Second or business level:

Retail Banking

Profit attributable to the Parent bank of the retail banking sector was 5.7% lower than 2010 at €6,893 million. Retail Banking generated 87.4% of the operating areas’ total income and 75.1% of profit attributable to the Parent bank. Total income increased 7.0% to €39,892 million due to the 7.6% rise in net interest income and strongly backed by fee income (+10.8%). However, profits attributable to the Parent were lower due to the Payment Protection Insurance (“PPI”) after tax provision of €620 million in the second quarter for customer remediation in the UK (see “Item 8. Financial Information – A. Consolidated statements and other financial information. – Legal proceedings – ii. Non-tax-related proceedings”). This segment had 187,022 employees as of December 31, 2011, of which 4,164 were temporary.

The performance by geographic areas reflects the varying economic environments with lower growth in developed economies and a better macroeconomic environment in emerging countries.

43

• Retail banking in continental Europe, despite the recovery in revenues and the positive impact of incorporations to the Group, was conditioned by the higher amount assigned to provisions and writedowns. Profit attributable to the Parent bank declined 3.0%.

• Retail banking in the UK was 42.5% lower in sterling as it was hit by the PPI remediation. Excluding this impact, profit attributable to the Parent was almost the same as in 2010. Total income declined, affected by regulatory changes, but this was offset by flat costs and reduced needs for provisions.

• Retail banking revenues and costs in Latin America continued to grow, compatible with business development.

Global Private Banking includes institutions that specialize in financial advisory and asset management for high-income clients (mainly Banif in Spain and Santander Private Banking in the UK, Italy and Latin America), as well as the units of domestic private banking in Portugal and Latin America, jointly managed with local retail banks. Profit before tax was 2.0% higher (+4.7% excluding exchange rate impact) at €370 million, due to the rise in net interest income (+9.2%) and reduced needs for provisions and writedowns, which offset the lower gains on financial transactions and higher operating expenses (+9.1%). The higher tax charge absorbed almost four points of growth in profit attributable to the Parent which at €279 million was 1.5% lower than in 2010 (+1.4% excluding the exchange rate impact).

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 10.2% of the operating areas’ total income and 20.4% of profit attributable to the Parent bank in 2011. Profit attributable to the Parent bank in 2011 by Global Wholesale Banking amounted to €1,872 million, a 30.6% decrease from 2010. This reduction was due to the fall in total income from the sharp reduction in gains on financial transactions and in fee income, coupled with higher costs and provisions. This segment had 2,722 employees as of December 31, 2011, of which 2 were temporary.

Beginning in the spring, markets were very unstable, and the instability intensifying in the second half of the year due to the Eurozone’s sovereign debt crisis. This environment had a significant impact on revenues, particularly those derived from equities and those not related to customers, whose decreases explain the larger reduction in profits.

At the strategic level, and in a very complex year, the division focused on maintaining the results of its franchise in a very complex year and on reducing exposure to risk (for example, cutting the risk of trading activity), which helped to improve the Group’s capital and liquidity positions, particularly in those countries with the greatest tensions.

The division also continued to invest in resources to strengthen its operational capacities and distribution of basic treasury products, with a special focus on foreign exchange and fixed-income businesses. The generation of recurring revenues and strict management of the cost base is enabling Santander Global Banking to absorb these investments and improve its efficiency ratio to 35.1%.

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

Asset Management and Insurance

This segment comprises all of our companies whose activity is the management of mutual and pension funds and insurance. At December 31, 2011, this segment accounted for 2.4% of total income and 4.6% of profit attributable to the Parent bank. Profit attributable to the Parent bank by Asset Management and Insurance was €419 million in 2011 or 9.5% lower than in 2010. This segment had 1,272 employees at the end of 2011, of which 42 were temporary.

Total income growth in 2011 was flat at 0.6%, while net operating income rose 2.2% largely due to the 2.8% fall in operating expenses. The other negative results and a higher tax charge caused profit attributable to the Parent bank to be 9.5% lower than in 2010. These results include a negative impact of €64 million in total income and €53 million in net operating income from the global agreement with Zurich in the fourth quarter. Excluding this impact, total income increased in 2011 6.6% and net operating income increased 9.2%.

44

In 2011, we formed a strategic alliance with the insurer Zurich to strengthen our bancassurance business in five key markets in Latin America: Brazil, Mexico, Chile, Argentina and Uruguay. Santander created a holding company for its insurers in Latin America, which is 49% owned by it and 51% owned by Zurich. This agreement combines Banco Santander’s commercial and distribution capacity with the experience of Zurich in developing and managing products. In each of the five countries, Banco Santander will distribute the strategic alliance’s bancassurance products for 25 years.

Asset Management

Santander Asset Management obtained profit attributable to the Parent bank of €53 million, a 34.6% decrease as compared to 2010. The revenue reduction was the result of a fall in managed volumes, accelerated in the second half, which was partly offset by a better mix of products and, in consequence, in average revenues.

Total mutual and pension funds under management amounted to €112 billion, 10% less than in December 2010. The preference for liquidity and on-balance sheet funds, together with more unstable markets in the second half of the year and the impact on prices, explain the fall in volumes.

Insurance

The global area of Santander Insurance posted a profit attributable to the Parent bank of €366 million, 3.8% more than in 2010. This result was affected by the sale of 51% of the insurance companies in Latin America completed in the fourth quarter of 2011 as, without it, growth would have been 4.0%.

Insurance business generated total revenues (including fee income paid to the commercial networks) of €3,083 million (+14.7%). The total contribution to profits (income before taxes of insurers and brokers plus fee income received by the networks) increased 15.7% to €2,882 million, 17.9% higher excluding the impact of the sale of the insurance companies.

The total volume of premium income increased 9% due to the good evolution of protection insurance premiums (+13%) as well as the recovery in the distribution of savings insurance whose premium income rose 7% after falling in 2010.

Corporate Activities

At the end of 2011, this area had 2,333 employees (direct and assigned) of which 901 were temporary. At year end of 2010, this area had 2,529 employees, of which 623 were temporary.

This area is responsible for, on the one hand, a series of centralized activities to manage the structural risks of the Group and of the Parent bank. It executes the necessary activities for managing interest rates, exposure to exchange-rate movements and the required levels of liquidity in the Group. On the other hand, it acts as the Group’s holding entity, managing the Group’s global capital as well as that of each of the business units.

The Corporate Activities area had a loss of €3,833 million in 2011, a 67.3% increase as compared to 2010. This was mainly due to pre-tax provisions against the fourth quarter earnings to cover real estate exposure in Spain of €1,812 million and €601 million in pre-tax provisions to amortize goodwill related to Santander Totta, and higher cost of funding. These impacts were partially offset by greater gains on financial transactions, mainly hedging of exchange rates and net capital gains of €1,513 million generated in 2011 (€872 million arising from the entry of new partners in the capital of SCUSA and €641 million from the sale of the insurance holding in Latin America).

With respect to the area’s activities:

Interest rate management is conducted on a coordinated basis by all the units, but this business only registers the part relative to the balance sheet of the Parent bank via the ALCO portfolios (at the volume levels and duration considered optimum at each moment).

Management of the exposure to exchange-rate movements, both from investments in the shareholders’ equity of units in currencies other than the euro as well as from the results generated for the Group by each of the units, also in various currencies, is also conducted on a centralized basis. This management (dynamic) is carried out by exchange-rate derivative instruments minimizing at each moment the financial cost of hedging.

Management of structural liquidity aims to finance our recurrent activity in optimum conditions of maturity and cost. The decisions whether to go to the wholesale markets to capture funds and cover stable and permanent liquidity needs, the type of instrument used, the maturity date structure and management of the associated risks of interest rates and exchange rates of the various financing sources, are also conducted on a centralized basis.

45

The financial management unit uses financial derivatives to cover the interest rate and exchange rate risks from new issuances. The net impact of this hedging is recorded in the gains/losses on financial transactions in corporate activities. The financial management area also analyzes the strategies for structural management of credit risk aiming to reduce concentrations by sectors, which naturally occur as a result of commercial activity. Derivative transactions achieve an effect similar to selling some assets and acquiring others enabling us to diversify the credit portfolio as a whole.

In addition, the area of Corporate Activities acts as the Group’s holding entity. It manages all capital and reserves and allocations of capital to each of the business units as well as provides liquidity that some of the business units might need (mainly the Santander Branch Network and corporate in Spain). The price at which these operations are carried out is the market rate (Euribor or swap without liquidity premium for their duration) for each of the maturities of repricing operations.

Lastly, the equity stakes that the Group takes within its policy of optimizing investments is reflected in corporate activities.

Total Revenues by Activity and Geographic Location

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

Selected Statistical Information

The following tables show our selected statistical information.

Average Balance Sheets and Interest Rates

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

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

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

• We have included loan arrangement fees in interest income;

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

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

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

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

As stated above under “Presentation of Financial and Other Information”, we have prepared our financial statements for 2007, 2008, 2009, 2010 and 2011 under IFRS-IASB.

46

Average Balance Sheet - Assets and Interest Income

									Year ended December, 31
ASSETS	2011								2010								2009
	Average								Average								Average
	Balance		Interest			Average Rate			Balance		Interest			Average Rate			Balance		Interest		Average Rate
	(in millions of euros, except percentages)
Cash and due from central banks
Domestic		8,436		187			2.22	%		8,441		87			1.03	%		7,916		87		1.10	%
International		73,259		3,005			4.10	%		52,936		1,846			3.49	%		25,933		269		1.04	%
		81,695		3,192			3.91	%		61,377		1,933			3.15	%		33,849		356		1.05	%
Due from credit entities
Domestic		22,140		190			0.86	%		29,392		206			0.70	%		20,935		366		1.75	%
International		53,123		871			1.64	%		51,382		839			1.63	%		58,290		2,156		3.70	%
		75,263		1,061			1.41	%		80,774		1,045			1.29	%		79,225		2,522		3.18	%
Loans and credits
Domestic		217,235		7,581			3.49	%		224,642		7,312			3.25	%		230,642		10,297		4.46	%
International		513,568		39,328			7.66	%		482,407		34,542			7.16	%		436,857		31,784		7.28	%
		730,803		46,909			6.42	%		707,049		41,854			5.92	%		667,499		42,081		6.30	%
Debt securities
Domestic		42,293		1,458			3.45	%		44,784		1,136			2.54	%		40,146		1,158		2.88	%
International		106,408		5,948			5.59	%		107,662		5,096			4.73	%		92,777		4,428		4.77	%
		148,701		7,406			4.98	%		152,446		6,232			4.09	%		132,923		5,586		4.20	%
Income from hedging operations
Domestic				378								169								305
International				(46	)							(76	)							587
				332								93								892
Other interest-earning assets
Domestic		24,840		779			3.14	%		27,769		698			2.51	%		29,389		610		2.08	%
International		63,905		1,176			1.84	%		62,757		1,052			1.68	%		60,209		1,126		1.87	%
		88,745		1,955			2.20	%		90,526		1,750			1.93	%		89,598		1,736		1.94	%
Total interest-earning assets
Domestic		314,944		10,573			3.36	%		335,028		9,608			2.87	%		329,028		12,823		3.90	%
International		810,263		50,283			6.21	%		757,144		43,299			5.72	%		674,066		40,350		5.99	%
		1,125,207		60,856			5.41	%		1,092,172		52,907			4.84	%		1,003,094		53,173		5.30	%
Investments in affiliated companies
Domestic		443		—			0.00	%		201		—			0.00	%		153		—		0.00	%
International		546		—			0.00	%		52		—			0.00	%		709		—		0.00	%
		989		—			0.00	%		253		—			0.00	%		862		—		0.00	%
Total earning assets
Domestic		315,387		10,573			3.35	%		335,229		9,608			2.87	%		329,181		12,823		3.90	%
International		810,809		50,283			6.20	%		757,196		43,299			5.72	%		674,775		40,350		5.98	%
		1,126,196		60,856			5.40	%		1,092,425		52,907			4.84	%		1,003,956		53,173		5.30	%
Other assets		102,186								97,936								90,198
Assets from discontinued operations		—								—								4,981
Total average assets		1,228,382		60,856						1,190,361		52,907						1,099,135		53,173

47

Average Balance Sheet - Liabilities and Interest Expense

									Year ended December, 31
LIABILITIES AND STOCKHOLDERS EQUITY	2011								2010								2009
	Average								Average								Average
	Balance		Interest			Average Rate			Balance		Interest			Average Rate			Balance		Interest			Average Rate
Due to credit entities
Domestic		33,456		756			2.26	%		28,586		389			1.36	%		21,713		424			1.95	%
International		113,182		2,119			1.87	%		105,991		1,283			1.21	%		120,217		2,861			2.38	%
		146,638		2,875			1.96	%		134,577		1,672			1.24	%		141,930		3,285			2.31	%
Customers deposits
Domestic		164,980		2,895			1.75	%		155,244		2,839			1.83	%		130,581		2,695			2.06	%
International		451,710		13,924			3.08	%		413,670		10,607			2.56	%		333,021		9,116			2.74	%
		616,690		16,819			2.73	%		568,914		13,446			2.36	%		463,602		11,811			2.55	%
Marketable debt securities
Domestic		91,358		3,142			3.44	%		105,411		2,876			2.73	%		125,931		3,598			2.86	%
International		104,749		3,288			3.14	%		103,595		2,083			2.01	%		95,299		2,638			2.77	%
		196,107		6,430			3.28	%		209,006		4,959			2.37	%		221,230		6,236			2.82	%
Subordinated debt
Domestic		15,321		752			4.91	%		19,702		1,019			5.17	%		21,704		1,029			4.74	%
International		11,352		1,188			10.47	%		14,394		1,211			8.41	%		17,304		1,325			7.66	%
		26,673		1,940			7.27	%		34,096		2,230			6.54	%		39,008		2,354			6.03	%
Other interest-bearing liabilities
Domestic		37,580		1,242			3.30	%		39,729		1,031			2.60	%		37,348		1,129			3.02	%
International		83,876		1,166			1.39	%		81,999		1,184			1.44	%		70,462		1,242			1.76	%
		121,456		2,408			1.98	%		121,728		2,215			1.82	%		107,810		2,371			2.20	%
Expenses from hedging operations
Domestic				(805	)							(1,362	)							(623	)
International				368								522								1,440
				(437	)							(840	)							817
Total interest-bearing liabilities
Domestic		342,695		7,982			2.33	%		348,672		6,792			1.95	%		337,277		8,252			2.45	%
International		764,869		22,053			2.88	%		719,649		16,891			2.35	%		636,303		18,622			2.93	%
		1,107,564		30,035			2.71	%		1,068,321		23,683			2.22	%		973,580		26,874			2.76	%
Other liabilities		40,999								45,192								54,383
Non-controlling interest		5,998								5,695								3,192
Stockholders’ Equity		73,821								71,153								63,393
Liabilities from discontinued operations		—								—								4,587
Total average Liabilities and Stockholders’ Equity		1,228,382		30,035						1,190,361		23,682						1,099,135		26,874

48

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 2011 compared to 2010 and 2010 compared to 2009. We have calculated volume variances based on movements in average balances over the period and rate variance based on changes in interest rates on average interest-earning assets and average interest-bearing liabilities. We have allocated variances caused by changes in both volume and rate to volume. You should read the following tables and the footnotes thereto in light of our observations noted in the preceding sub-section entitled “—Average Balance Sheets and Interest Rates”, and the footnotes thereto.

Volume and rate analysis	IFRS-IASB 2011/2010
	Increase (Decrease) due to changes in
	Volume			Rate		Net change
	(in millions of euros)
Interest income
Cash and due from central banks
Domestic		—			100		100
International		794			364		1,158
		794			464		1,258
Due from credit entities
Domestic		(57	)		41		(16	)
International		29			3		32
		(28	)		44		16
Loans and credits
Domestic		(247	)		516		269
International		2,306			2,480		4,786
		2,059			2,996		5,055
Debt securities
Domestic		(66	)		388		322
International		(60	)		913		853
		(126	)		1,301		1,175
Other interest-earning assets
Domestic		(79	)		160		81
International		20			104		124
		(59	)		264		205
Total interest-earning assets without hedging operations
Domestic		(449	)		1,205		756
International		3,089			3,864		6,953
		2,640			5,069		7,709
Income from hedging operations
Domestic		209			—		209
International		31			—		31
		240			—		240
Total interest-earning assets
Domestic		(240	)		1,205		965
International		3,120			3,864		6,984
		2,880			5,069		7,949

49

Volume and rate analysis	IFRS-IASB 2010/2009
	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in millions of euros)
Interest income
Cash and due from central banks
Domestic		6			(6	)		—
International		482			1,095			1,577
		488			1,089			1,577
Due from credit entities
Domestic		112			(273	)		(161	)
International		(230	)		(1,086	)		(1,316	)
		(118	)		(1,359	)		(1,477	)
Loans and credits
Domestic		(262	)		(2,724	)		(2,986	)
International		3,268			(511	)		2,757
		3,006			(3,235	)		(229	)
Debt securities
Domestic		126			(148	)		(22	)
International		705			(38	)		667
		831			(186	)		645
Other interest-earning assets
Domestic		(35	)		123			88
International		46			(120	)		(74	)
		11			3			14
Total interest-earning assets without hedging operations
Domestic		(53	)		(3,028	)		(3,081	)
International		4,271			(660	)		3,611
		4,218			(3,688	)		530
Income from hedging operations
Domestic		(135	)		—			(135	)
International		(663	)		—			(663	)
		(798	)		—			(798	)
Total interest-earning assets
Domestic		(188	)		(3,028	)		(3,216	)
International		3,608			(660	)		2,948
		3,420			(3,688	)		(268	)

50

	IFRS-IASB 2011/2010
	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in millions of euros)
Interest charges
Due to credit entities
Domestic		75			292			367
International		93			743			836
		168			1,035			1,203
Customers deposits
Domestic		174			(118	)		56
International		1,037			2,280			3,317
		1,211			2,162			3,373
Marketable debt securities
Domestic		(417	)		683			266
International		23			1,181			1,204
		(394	)		1,864			1,470
Subordinated debt
Domestic		(217	)		(50	)		(267	)
International		(285	)		262			(23	)
		(502	)		212			(290	)
Other interest-bearing liabilities
Domestic		(58	)		269			211
International		27			(44	)		(17	)
		(31	)		225			194
Total interest-bearing liabilities without hedging operations
Domestic		(443	)		1,076			633
International		895			4,422			5,317
		452			5,498			5,950
Expenses from hedging operations
Domestic		558			—			558
International		(154	)		—			(154	)
		404			—			404
Total interest-bearing liabilities
Domestic		115			1,076			1,191
International		741			4,422			5,163
		856			5,498			6,354

51

Volume and rate analysis	IFRS-IASB 2010/2009
	Increase (Decrease) due to changes in
	Volume			Rate			Net change
	(in millions of euros)
Interest charges
Due to credit entities
Domestic		113			(148	)		(35	)
International		(306	)		(1,272	)		(1,578	)
		(193	)		(1,420	)		(1,613	)
Customers deposits
Domestic		473			(329	)		144
International		2,097			(606	)		1,491
		2,570			(935	)		1,635
Marketable debt securities
Domestic		(566	)		(156	)		(722	)
International		215			(770	)		(555	)
		(351	)		(926	)		(1,277	)
Subordinated debt
Domestic		(99	)		90			(9	)
International		(237	)		123			(114	)
		(336	)		213			(123	)
Other interest-bearing liabilities
Domestic		69			(167	)		(98	)
International		186			(243	)		(57	)
		255			(410	)		(155	)
Total interest-bearing liabilities without hedging operations
Domestic		(10	)		(710	)		(720	)
International		1,955			(2,768	)		(813	)
		1,945			(3,478	)		(1,533	)
Expenses from hedging operations
Domestic		(740	)		—			(740	)
International		(918	)		—			(918	)
		(1,658	)		—			(1,658	)
Total interest-bearing liabilities
Domestic		(750	)		(711	)		(1,461	)
International		1,037			(2,768	)		(1,731	)
		287			(3,479	)		(3,192	)

52

Assets

Earning Assets—Yield Spread

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

Earning Assets - Yield Spread	IFRS-IASB
	Year Ended December 31,
	2011			2010			2009
	(in millions of euros, except percentages)
Average earning assets
Domestic		315,387			335,229			329,181
International		810,809			757,196			674,775
		1,126,196			1,092,425			1,003,956
Interest
Domestic		10,573			9,608			12,823
International		50,283			43,299			40,350
		60,856			52,907			53,173
Net interest income (1)
Domestic		2,591			2,816			4,571
International		28,230			26,408			21,727
		30,821			29,224			26,298
Gross yield (2)
Domestic		3.35	%		2.87	%		3.90	%
International		6.20	%		5.72	%		5.98	%
		5.40	%		4.84	%		5.30	%
Net yield (3)
Domestic		0.82	%		0.84	%		1.39	%
International		3.48	%		3.49	%		3.22	%
		2.74	%		2.68	%		2.62	%
Yield spread (4)
Domestic		1.02	%		0.92	%		1.45	%
International		3.32	%		3.37	%		3.05	%
		2.69	%		2.62	%		2.54	%

(1) Net interest income is the net amount of interest and similar income and interest expense and similar charges. See “Income Statement” on page 9.

(2) Gross yield is the quotient of interest income divided by average earning assets.

(3) Net yield is the quotient of net interest income 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—Interest Income / (Charges)” herein.

53

Return on Equity and Assets

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

	Year Ended December 31,
	2011			2010			2009
ROA: Return on average total assets		0.50	%		0.76	%		0.86	%
ROE: Return on average stockholders’ equity		7.14	%		11.80	%		13.90	%
PAY-OUT: Dividends per average share as a percentage of net attributable income per average share (*)		34.33	%		40.70	%		46.09	%
Average stockholders’ equity as a percentage of average total assets		6.10	%		5.82	%		5.85	%

(*) The pay-out ratio does not include in the numerator the amounts paid under the Santander Dividendo Elección program (scrip dividends) which are not dividends paid on account of the net attributable income of the period. Such dividends amount to €3,423.3 million, €1,668.8 million and €796.8 million for 2011, 2010 and 2009, respectively.

Interest-Earning Assets

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

Interest-earning assets
	IFRS-IASB
	Year Ended December 31,
	2011			2010			2009
Cash and due from Central Banks
Domestic		0.75	%		0.77	%		0.79	%
International		6.51	%		4.85	%		2.59	%
		7.26	%		5.62	%		3.38	%
Due from credit entities
Domestic		1.97	%		2.69	%		2.09	%
International		4.71	%		4.70	%		5.81	%
		6.68	%		7.39	%		7.90	%
Loans and credits
Domestic		19.31	%		20.56	%		22.99	%
International		45.64	%		44.18	%		43.55	%
		<