international expansion: the santander case°œ표자료.pdf · santander consumer has a strong...

International Symposium on Globalizing Korea’s Financial Industry

June 2008

International Expansion:The Santander Case

Pablo de CastroCorporate DevelopmentGrupo Santander

2

Santander- the past 20 years…From a regional bank to a global bank


When does a cross-border acquisition create value? The Abbey example


When does a cross-border acquisition create value? The ABN Amro (Banco Real) example


ConclusionsConclusions

Guiding principles of our internationalisation strategyGuiding principles of our internationalisation strategy

3

Santander in 1985

Nº 6 in SpainNº 152 in the World

1985-94

1985-94

Santander; a middle size bank in Spain in 1985…

A medium sized bank in a “medium sized” country

A medium sized bank in a “medium sized” country

4

# 1 in theEurozone# 8 in the World

Santander today

• A Global Group

• Leader in commercial banking

• Strong balance sheet

1985-94•…into a Global bank in just 20 years

5

September 1989: Launching of the “ La Supercuenta”

1985-94 1994-98 1999 1999-04

In the 80s, Santander grew with a strategy based on product innovation…

8,4%

13,0%14,1%

6%

9%

12%

15%

1988 1989 1990

Growth based on a strong commercial culture +

strengthening customer relationships

Growth based on a strong commercial culture +

strengthening customer relationships

6

Nº 1 in SpainNº 45 in the World

Fuente: AEB

18, 50

12, 90

11, 6010, 80

2, 80

-1,0

1,5

4,0

6,5

9,0

11,5

14,0

16,5

19,0

Santander BCH BBV Argentaria Popular

Activos totales en 1993

Sant

ande

rB

anes

to

Total assets in 1993

•In 1994, we took a leap forward through the acquisition of Banesto

A strong organicgrowth track record allows Santander to

lead the consolidationprocess

A strong organicgrowth track record allows Santander to

lead the consolidationprocess

7

Banco de Venezuela

1997Santander Mexicano

1996-1998: “setting the foundations for our expansion in LatAm”

1994-98

19961997

1998Banco RioArgentina

Bancos Geral de Comercio y Noroeste

Brasil

•Santander: first wave of acquisitions in LatAm between 1996 & 1998

Its leadershipposition in Spain

allowed Santander to expand abroad

Its leadershipposition in Spain

allowed Santander to expand abroad

8

The first merger of the Eurozone

“size is crucial to be efficient and competitive”

“it is important to preserve our independence and the ability to create value”

“To be strong in Europe we need to be strong in our home market”Emilio Botín, March 1999

15 de enero de 1999: Fusión con el BCH•In 1999, we consolidated our leadership in Spain through the merger with BCH

9

Nº 2 in Europe

Nº 14 worldwide

New wave of globalisation…

1985-94 1994-98 1999 1999-04

Nº 1 in LatAm

- PTF (Polonia)

- ELCON (Noruega)

- ABFIN (Holanda)

(422)*

2004

Europe

-Totta & Açores

- Crédito Predial Portugués

1999

Portugal

(2.618)*

- Banespa

2000

Brazil

(8.226)*

2000

Mexico

- Grupo Financiero Serfín

(2.323)*

- AKB Group

2002

Germany

(1.369)*

- Banco Santiago

2002

Chile

(2.179)*

- Finconsumo

2003

Italy

(163)*

* Amount of investment in each country

10

Nº 1 in Europe

Nº 10 in the WorldNº 1 in LatAm

At that point, it was the largest cross-border acquisition in the history of

the European banking system…EUR 13bn, financed with stock

•In 2004… moving into the United Kingdom

11

Nº 1 in Europe

Nº 8 in the WorldNº 1 in LatAm

A U$ 100bn deal, in alliance with RBS and Fortis

•In 2007… the ABN Amro “Consortium” transaction

12

Market position: #1Market share: 18%Branches: 4,417Customers: 10m

… with leading presence in Europe in retail and commercial banking …

Spain

Market position: #3Market share: 10%Branches: 690Customers: 1.8m

PortugalMarket position: #6Market share: 9%Branches: 712Customers: 18.3m

UK

13

Market position: #2

Market position: #1Market share: 22%Branches: 401Customers: 2.9m

Market position: #3Market share: 15%Branches: 1,005Customers: 9.4m

Market position: #3Market share: 12%Branches: 3,972Customers: >15m

Market position: #2

Brazil

Chile

Mexico

Argentina

Venezuela

… as well as the leading retail and corporate banking franchise in Latin America

Plus: Puerto Rico, Colombia, Peru, Uruguay …

14

Holland Denmark Russia

Austria

Syria

Spain

France

Port

ugal

Belgium

IrelandUnitedKingdom

Luxembourg

Switzerland

Italy

Greece

AlbaniaMacedonia

GermanyBelarus

Latvia

Estonia

Finland

Lithuania

Sweden

Norway

Poland

CzechRep.

SlovakiaHungary

SloveniaCroatia

Bosnia-Herz.Yugoslavia

Bulgaria

Romania

Moldova

Ukraine

Turkey

Santander Consumer has a

strong presence in the most dynamic countries (Iberia,

UK, Hungary, Czech Republic, Poland, Italy,…)

Presence in 13 European countries

Santander Consumer's presence: access to the largest economies in Europe 5,304 employees

278 branches353 mn. inhabitants

… with the addition of Drive

Financial in the US

15

Our growth in the last 20 years has allowed us to take a giant leap in a relatively short period of time

From a domestic retail bank… … to a global bank

200769 mill

7,596 Eur Mill

75bn

1.2 euros

18.8%

Number of customers

Net profit

Market cap

EPS

TSR*

1985

750,000

133 mill euros

2.5bn euros

0.16 euros

*Total shareholder return

16

0,04

0,11

0,19

0,53

0,42

0,33

'86 '92 '98 '04 '05 ´07

0,090,22

0,38

1,06

0,840,73

'86* '92* '98* '04 '05 '07

(*) Adjusted to splits and capital increases. In 2004 and 2005 under IFRS criteria.

CAGR: +14% CAGR: +15%

Dividend per shareEarnings per share*

EUR

EUR

1985-94

•A strong value creation track record for Santander’s shareholders

**1,28 0,65

17Santander is recurrently among the top of our peer group by dividend + share price (Total Shareholder Return)

15 years 5 years 3 years

4º5º 2º

+12%

+18%

SAN DJS Banks*

+14%

+22%

SAN DJS Banks*

+10%

+22%

SAN DJS Banks*

… surpassing banking indices

(*) Dow Jones Stoxx Banks: Index of 65 European Banks

18

0 50000 100000 150000 200000 250000

IND & COMM BK OF CHINA - A

CHINA CONSTRUCTION BANK-H

HSBC HOLDINGS PLC

BANK OF CHINA LTD - H

JPMORGAN CHASE & CO

BANK OF AMERICA CORP

BANCO SANTANDER SA

CITIGROUP INC

MITSUBISHI UFJ FINANCIAL GRO

BNP PARIBAS

UNICREDIT SPA

WELLS FARGO & CO

GOLDMAN SACHS GROUP INC

BANCO BILBAO VIZCAYA ARGENTA

ING GROEP NV-CVA

INTESA SANPAOLO

Top 10 by market capitalisation

Number7 in theWorld

Number7 in theWorld

19









20The Spanish banking sector has accomplished a remarkable productivity jump over the past 20 years…

This productivityimprovement has beenmade possible by:

• Cost synergies resulting frommergers

• Use of technology• Constructive dialogue withtrade unions

This productivityimprovement has beenmade possible by:

• Cost synergies resulting frommergers

• Use of technology• Constructive dialogue withtrade unions

1987 1992 1997 2002 2007

-

2.000

4.000

6.000

Loans / employee-Spanish banking system

(EUR 000s)

x11

21We had developed a successful business model at home…one which we could export to other markets

22Solid retail banking model

… and a strict risk policy• Credit risk• Balance sheet management

… and a strict risk policy• Credit risk• Balance sheet management

Commercial focus

• Client focus• Focus on distribution• Service quality• Product innovation• Relevant market share

Commercial focus

• Client focus• Focus on distribution• Service quality• Product innovation• Relevant market share

Efficiency focus

• Top technology / sharedplatform• Process improvement• Continuous restructuring

Efficiency focus

• Top technology / sharedplatform• Process improvement• Continuous restructuring

Expandthe “front”Expand

the “front”Cut the“back”

Cut the“back”

23

… is moving abroad made possible

… is moving abroad made possible

Internationalisation…… “exporting” the strong business modelswhich had been developed at home

Internationalisation…… “exporting” the strong business modelswhich had been developed at home

Only afterdeveloping a strong retail and commercialbusiness model at home…

Only afterdeveloping a strong retail and commercialbusiness model at home…

24

StrategicStrategic CyclicalCyclical FinancialFinancial

Internationalisation: a triple hurdleInternationalisation: a triple hurdle

“Natural owner”“Natural owner” “Timing”“Timing” Good priceGood price

25









26

We disagree… cross border mergers can create value, but ONLY if certain conditions are met…We disagree… cross border mergers can create value, but ONLY if certain conditions are met…

+

What the acquirer needs to have

What the target needs to have

1. Clear retail business and organizational model to export

2. Exportable IT…

3. …with capacity to industrialize operations

4. “Spare” international management capacity

1. Good old franchise…

2. Commercially underperforming

3. Lack of management focus

4. “Pre –industrial”operating systems

Traditional view on mergers… only in market mergers create significant value (e.g., FT (12/04/08)

27We entered the UK because we considered its bankingmarket to be very attractive…

28… but it was also a very competitive one…… which put pressure on the weaker players

29

-25

-20

-15

-10

-5

0

5

10

15

20

25

10 20 30 40 50 60 70

Abbey was the worst performing UK bank at the time…

•Revenue growth CAGR 2001-2003

•Average cost to income ratio 2001-2003

•Average:•6.0

•Business volume

Source: Bankscope

•RBS

•Barclays

•HBOS

•Lloyds TSB

•Abbey

•Nationwide

•HSBC

•Alliance & Leicester

•Northern Rock

•90 •80 •70 •50 •40 •30•Average:

•60

… in terms of efficiency as well as in terms of growth… in terms of efficiency as well as in terms of growth

30There was clear upside from a commercial point of view

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Mortgages Savingsaccounts

Currentaccount

Generalinsurance

UPL Credit cards Investments SMEs

Significant potential to increase share of wallet

Mortgage bank

Commercial bank

Abbey’s “commercial gap”

Abbey’s “commercial gap”

Market share by product

31We designed a clear turnaround plan

Executionand

Team-Building/Leadership

Executionand

Team-Building/Leadership

32

Fast-forward threeyears…

Fast-forward threeyears…

33Abbey is already outperforming its peers (I)…

… in terms of revenue growth…… in terms of revenue growth…

34

Q1 05 Q1 08

71% 47%24pp

Abbey is already outperforming its peers (II)…

… in terms of cost discipline and efficiency improvement…… in terms of cost discipline and efficiency improvement…

35Abbey is already outperforming its peers (III)…

… as well as in terms of operating “jaws”… as well as in terms of operating “jaws”

36This is just the tip of the iceberg

Good old fashioned cost discipline + first efforts to

recover the “commercial pulse”

Full implementation of our IT platform (Partenon)- 2007 / 2008

Full development of business lines such as credit cards, SMEs,

asset management…

Strong leadership, team-building and right incentives…

+ synergies with the Group

37


Abbey’s triple hurdleAbbey’s triple hurdle

“Natural owner”• Improve efficiency

• IT• Commercial best

practices


• IT• Commercial best

practices

Trough profitability(losses in corporate

book, insurancebusiness)

Trough profitability(losses in corporate

book, insurancebusiness)

ROI > cost ofcapital in year 3

(2007)

ROI > cost ofcapital in year 3

(2007)

38









39

n Brazil is an attractive marketn The deal would create a leading bank in Brazil

– Third bank in terms of network and loans; second bank in terms of customer deposits– This will translate into a qualitative leap in key segments

n Excellent fit with our existing businesses – Geographic complementarity: Both banks create a powerhouse in the South/South

East of the country (the economic hub of Brazil).– Business complementarity: Real stronger in mass market, small businesses, while

Santander Banespa is stronger in affluent segments and business banking

n Value creation potential through in-market synergies– Integration of head offices, central functions; optimisation of distribution networks– Santander Banespa has a scalable IT system, which can easily absorb Real’s

business volume, with very limited additional investment

n … with low execution risk– Santander has extensive experience in integrating banks in the region; specifically

in Brazil

Building the best bank in Brazil

40

Brazil: a virtuous circle out of policy improvement and commodity prices leads to the development of local capital markets; on track for an investment grade rating

n Debt issuance– Local denominated– Long term maturities – Fixed rates– Long yield curve

Increased confidence

n Reliance on domestic saving– ... out of necessity Brazil enjoys…

n Current account surplusn Primary Fiscal surplus

n Floating exchange rates– competitive adjustments if

requiredn Independent monetary policy

– Sucessful fight against inflation

41

Brazil has a lot of banking potential compared to other developing countries …

Lower penetration ratios than other BRIC countries

10%3%3%Insurance Premiums / GDP

61%5%2%Mortgages / GDP

97%79%30%Deposits / GDP

139%58%32%Loans / GDP

Developed CountriesOther BRICBrazil

Source: Merrill Lynch ResearchNote: Other BRIC includes Russia, India and China and developed countries include the US, the UK, Japan and GermanyBased on non-weighted averages

42

… and this results into very attractive growth rates of banking volumes

Source: Central Bank Brazil

43

The new bank would become the 3rd franchise in terms of distribution network …

5.205

4.064 3.9723.383

1.946 1.8971.392 1.256 898

129

BB Bradesco ABN+SAN ITAÚ ABN Real SAN HSBC Unib N. Caixa

Opened in 2006

Branches & PABs 2006

44

Excellent geographical fit within Brazil… both banks create a power force in the core economic hub of Brazil

Banespa: stronger in Sao Paulo stateReal: strong in Sao Paulo city, Rio,

main cities, Northeast… which should translate into

limited customer attrition

Excellent complementarity

in key states

% of national

GDP

Market share-SAN

Market share-ABN

Combined market share

Sao Paulo 34% 13% 7% 20%

Rio de Janeiro 13% 3% 10% 13%

Minas Gerais 10% 2% 7% 9%

Rio Grande do Sul 8% 8% 2% 11%

Subtotal- "top 4" 64% 9% 7% 16%

Brazil- total 100% 6% 6% 12%

45

… as well as an excellent product markets fit

Mortgages3%

Consumer lending +

cards34%

SMEs7%

Largecorporates

24%

Corporates32%

Mortgages4%

Largecorporates

8%

Corporates19% Consumer lending +

cards44%

SMEs25%

SAN Banespa: stronger in the affluent segments + corporate banking

ABN Real: stronger in mass market + small companies

46

Phase 3: Integration IIPhase 2: Integration IPhase 1: Cost Reduction

Efficiency best practices

IT Integration

Head office/central function Integration

Full Merger / networks

1

2

4

5

Operations Integration3

We have structured a plan composed of five initiatives, starting with a cost rationalization program

47

3,734,19

General and administrative

expenses

Personnel expenses

(*) Includes loans, deposits and off-balance funds

0,39

0,08

0,46

The first step would be to bring Real to

Santander Banespa’sstandalone

efficiency level

Difference

In terms of ordinary efficiency best practices, Real has significant potential to improve administrative expensesPercentage, 2006

Cost over volume (%)*

1,88 1,96

1,852,24

Banespa Real

48

These initiatives will allow to capture > EUR 800 million in pre-tax synergiesEUR Million

810110

7040

150

135

305

Costreduction

Real

OpsIntegration

Head Office

integration

Merger Total synergies

IT Integration

Revenues1 3 4 52 6

49

… but still below the profit generation levels of peers…(even after assumed synergies)

Potential to capture the enhanced profitabilityassociated with scale in Brazil

Consensus- net profit 2010 (U$ m)

Synergies

SAN

Real

766

5.271 5.162

-

1.000

2.000

3.000

4.000

5.000

6.000

Itau Bradesco SAN + Real

3.781

3.015

50

Santander’s has a strong integration track record in Brazil

1997

Banco Geral do Comercio

Banespa

1998

2000

2000

Track Record in Brazil

We are ready to integrate Real: In Brazil, we now have a single, multi-bank and scalable IT platform

Banco Noroeste

CF Meridional

51We have executed several integrations in Latin America over the past decade- e.g., integration of two banks in Mexico and in Chile

In Mexico, the combination of in-market synergies (from the integration of Santander Mexicano and Serfin), along with strong business growth, has

allowed us to achieve a significant reduction in our efficiency ratio

C/I Mexico

35%

40%

45%

50%

55%

60%

1999 2000 2001 2002 2003 2004 preNICs

2004NICs

2005 2006 Q1 07

2005: full mergerbetween Serfin and

SAN Mexicano becomes effective

2000: acquisitionof Serfin

2002: single brand:

Santander Serfin

2001: implementation ofAltair (IT platform)

in Serfin starts

2004: implementation

of Altair completed

52


Banco Real’s triple hurdleBanco Real’s triple hurdle


• In market synergies• Critical mass


• In market synergies• Critical mass

Brazil’s “virtuous cycle”

Growth multiplier(economic growth +

increasedbancarisation)

Brazil’s “virtuous cycle”

Growth multiplier(economic growth +

increasedbancarisation)

ROI: 18%EPS: +4%(year 3)

ROI: 18%EPS: +4%(year 3)

53









54

International expansion can be a powerful source of value creation…

… but only when carried out in a very disciplined way:

Strategic discipline:

• The “natural owner”concept

• Markets you know well• Potential to create value

• In-market synergies• Exporting best practices

Financial discipline:

• No “strategic” acquisitions• Every acquisition needs to be done at a price which creates valuefor the shareholders• Communicate clear financialtargets. In Santander’s case:

• EPS accretion (year 3)• ROI > cost of capital (year 3)

international expansion: the santander case°œ표자료.pdf · santander consumer has a strong...

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