Banco Santander, S.a. · BME:SAN
Banco Santander — Merger or Acquisition (June 2017)
43 slides from Banco Santander's merger presentation, Jun 7, 2017
Slide 1: Banco Popular acquisition: Creating shareholder value through in-market consolidation
Banco Popular acquisition Creating shareholder value through in - market consolidation
Slide 2: Disclaimer
2 Disclaimer This presentation (the "Presentation") has been prepared by Banco Santander, S.A. ("Santander " or "the Company"). For the purpo ses hereof, the Presentation shall mean and include the slides that follow, any prospective oral presentations of such slides by the Company, as well as any q
Slide 3: Popular acquisition: in-depth review
3 Popular acquisition: in - depth review Overview strategic and financial rationale Concluding remarks Rights offering Banco Popular acquisition Creating shareholder value through in - market consolidation 1 2 3 4
Slide 4: Strong strategic rationale: leading retail and commercial bank in Spain and Portugal
4 Strong strategic rationale Creating the leading retail and commercial bank in Spain and Portugal c.2% market share • 118 branches • c.320k total customers • Cust . Loans 2 : 6.4Bn € • Cust . Funds: 5.7Bn € Portugal c.6 - 7% market share • 1,644 1 branches • c.4.1m total customers • Cust . Loans 2
Slide 5: Strong strategic rationale: Complementary franchises
5 Strong strategic rationale Complementary franchises 4% 5% 9% 11% 13% 25% Peer 2 Peer 5 Peer 3 Peer 4 Peer 1 SME Market share in Spain (%) 0.51% 1.06% … deepening customer relationships Fees / Loans (%, 2016) 372 bps 18 bps … through wholesale funding synergies 3 - year Senior debt (m/s + spread) 1
Slide 6: In-market consolidation: leveraging economies of scale
6 In - market consolidation Leveraging economies of scale with manageable execution risks Expected annual cost savings in 2020 pre tax: EUR c.500m (c.10% of 2017 combined cost base) Synergies for best - in - class efficiency Focus on preserving franchise value Cost to income 50% 60% Pre - synergies
Slide 7: Real estate: additional provisioning to execute a quick unwind
7 Real estate Additional provisioning to execute a quick unwind Roadmap for a quick RE unwind - 60% 1Q 2017 2012 Santander “Real Estate activity in Spain” 1 1 Net real estate assets plus net loans RE well provisioned after adjustments ▪ Plan in place to reduce Banco Popular RE Assets and RE NPLs to
Slide 8: Creating shareholder value: improving profitability of Spain and Portugal franchise
8 Creating shareholder value Improving profitability of Spain and Portugal franchise Enhanced earnings growth profile Improving franchises target profitability 825 570 CAGR: c.25% – 30% 2019E 2020E c.950 2018E Banco Popular Net income targets w/ synergies (m € ) c.13 n.a 2016 9.6 2020E with synergie
Slide 9: Creating shareholder value: attractive financial terms
9 Creating shareholder value Transaction at attractive financial terms to continue delivering on our commitments Target EPS accretion Target TNAVPS accretion CET1 FL 2019: c.2% | 2020: c.3% 2018: c.3% Neutral / Slightly positive Rights offering Target RoI year 3 7Bn € 13 – 14 % already above Cost of
Slide 10: Popular acquisition: in-depth review
10 Popular acquisition: in - depth review Overview strategic and financial rationale Concluding remarks Rights offering 1 2 3 4 Banco Popular acquisition Creating shareholder value through in - market consolidation
Slide 11: Strong strategic/business fit at an attractive point in the cycle
11 Strong strategic / business fit at an attractive point in the cycle 2. Popular: unique domestic consolidation opportunity in Spain and Portugal 1. Attractive financials (targeting RoI 13 - 14% and EPS accretive in year 2), enhancing KPIs for Group, Spain and Portugal 4. Significant cost synergies
Slide 12: Popular: unique domestic consolidation opportunity in Spain and Portugal
12 < 5% 5% < x < 15% > 15% 6.6% 3.3% 4.8% 5.5% 6.8% 2.7% 5.9% 7.6% 16.0% 9.3% 2.6% 4.6% 4.7% 8.1% 4.9% 4.1% 2.7% 2.5% Gross Loans excl. Repos Breakdown (2016, %) Branches market share of 6% in Spain and 2.5% in Portugal Customer Funds (2016, %) Leader in SMEs in Spanish market (1 ) Popular : unique
Slide 13: Strong strategic/business fit at an attractive point in the cycle
13 Strong strategic / business fit at an attractive point in the cycle 2. Popular: unique domestic consolidation opportunity in Spain and Portugal 1. Attractive financials (targeting RoI 13 - 14% and EPS accretive in year 2), enhancing KPIs for Group, Spain and Portugal 4. Significant cost synergies
Slide 14: Acquisition in a core market
14 Acquisition in a core market • Creating the leading bank in Spain with loans market share of c.20% • A nationwide branch network with heavier weight in the wealthier regions • Diversifying Santander Spain loan portfolio while maintaining Group’s geographic diversification • Santander Totta : rein
Slide 15: Creating the leading bank in Spain: c.20% market share
15 19.5% 15.0% 13.8% 12.3% 8.5% 8.0% 7.2% Customer funds Market share (%) Loans Market share (%) A Peer 3 Peer 4 Peer 2 2.7% 5.7% Peer 1 Peer 5 16.7% 18.8% 7.2% 7.3% 13.1% 14.1% Acquisition in a core market Creating the leading bank in Spain: c.20% market share Peer 1 Peer 2 Peer 3 Peer 4 Note: Data
Slide 16: Post transaction branch market share
16 Post transaction branch market share 3.7% 2.8% 3.3% 2.8% 3.4% 3.3% 3.5% 3.1% 2.7% 3.1% 3.8% 1.9% 2.9% 2.0% 2.3% 1.5% 3.5% 22.8% 13.1% 15.0% 13.8% 16.3% 13.0% 15.4% 18.2% 28.9% 20.7% 13.4% 12.1% 17.4% 11.4% 16.4% 20.8% < [15]% [15]% < x < [20]% > [20]% GDP contribution per region (%) 18.9% 18.8% 1
Slide 17: Diversifying Santander Spain loan portfolio while maintaining geographic diversification
17 (1) Santander Operating Areas attributable income as of 1Q 2017 annualized. Note: Mature markets include Spain, UK, US, SCF and Portugal. Emerging markets include Poland and LatAm . Estimated Net Income for Banco Popular after synergies. Group geographic diversification Loan portfolio breakdown (
Slide 18: Santander Totta: reinforcing our leadership in Portugal
18 22.9% 17.5% 17.5% 14.7% 13.0% 10.1% 2.8% 26.1% 17.0% 15.5% 13.3% 12.3% 9.4% 2.3% 16.7% 15.5% 14.2% 13.3% 11.6% 11.5% 2.5% Branches market share(%) Deposits market share (%) Loans market share (%) Acquisition in a core market Santander Totta: reinforcing our leadership in Portugal A Peer 1 Peer 2
Slide 19: Leading SME franchise
19 Strong market share in SMEs Peer 3 Peer 4 Peer 5 Peer 2 24.8% Peer 1 12.7% 9.3% 4.3% 5.1% 11.1% 13.8% 10.6% SMEs Market share as of dic 2015 according to public information of credit risk exposure Leading SME franchise B That results in higher NIM 2016 SME franchise with scale 1.20% 1.36% Peers A
Slide 20: Development of deeper customer relationships
20 58% 54% 54% 51% 45% 43% 38% Santander Spain CaixaBank Bankia Sabadell BBVA Spain Bankinter Popular 1.06% 0.98% 0.88% 0.77% 0.75% 0.73% 0.51% Santander Spain CaixaBank Sabadell Bankinter BBVA Spain Bankia Popular SMEs: • Credit driven relationships • Potential to selling products (FX, comex , rent
Slide 21: Wholesale funding cost reduction
21 A - / F2 (Stable) B / B (Negative) A3 / P - 2 (Stable) B2 / NP (Negative) A - / A - 2 (Positive) B / B (Negative) (1) Trading level as of May , 2017 Source: Bloomberg. Opportunity to improve the combined franchise Wholesale Funding Cost Reduction C 3 - year Senior Debt +18bps (1) +372bps (1) AT1
Slide 22: The Spanish market faces a positive banking cycle
22 An attractive point in the cycle The Spanish market faces a positive banking cycle Low interest rate environment -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 2014 2015 2016 2017 2018 2019 2020 2021 1M EUR 3M EUR 12M EUR Cost of risk evolution (bps) Source: Bank of Spain, Estimates from analysts consensus
Slide 23: Robust sector trends
23 Robust Sector Trends Overall Home Sales in Spain Growing since Early 2014 Units of Houses (‘000) Earnings Momentum Spanish Banks RoE (%) Source: Ministerio de Fomento, CBRE. 802 855 908 769 510 414 444 309 327 285 347 383 437 495 526 545 537 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 24: Strong strategic/business fit at an attractive point in the cycle
24 Strong strategic / business fit at an attractive point in the cycle 2. Popular: unique domestic consolidation opportunity in Spain and Portugal 1. Attractive financials (targeting RoI 13 - 14% and EPS accretive in year 2), enhancing KPIs for Group, Spain and Portugal 4. Significant cost synergies
Slide 25: Relevant cost synergies: targeting EUR c.500m
25 Relevant cost synergies: Targeting EUR c.500m Key Cost Synergies Drivers Expected efficiency improvements by 2020: EUR c.500m before tax c.33% of Popular or c.10% of the combined 2017 cost base of Spain and Portugal » Improving operating efficiency by leveraging Santander Group’s capabilities and
Slide 26: Improving efficiency of combined entity
26 Cost to Income ratio Spain (%) Total savings c.130 c.210 c.160 Distribution network and other cost savings HQ / General Expenses c.500 IT Integrations Annual cost savings (million euros) Improving efficiency of combined entity 50% 60% Pre - synergies 2016 Post - synergies 2020E - 10pp
Slide 27: Potential business risks
27 Potential Business Risks Total Real Estate assets and loans of c. € 34Bn gross (c.20Bn € net) Mitigants • Provisioning above peers average and roadmap in place to accelerate combined NPA reduction • Strong track record of NPA management by Santander • Proven integration track record with limited
Slide 28: Transaction assumes adequate provisioning of RE assets and loans
28 Transaction assumes an adequate provisioning of RE assets and loans Post - adjustments Pre - deal (Q1’17) Peers EUR Bn Gross value % Cov . Provision % Cov . Net value % Cov . Total RE Assets 17.7 39% 4.7 65% 6.2 52% Non - perfoming RE loans 12.1 55% 2.5 75% 3.0 51% RE assets + RE NPLs 29.8 45% 7.
Slide 29: Combined NPA exposure
29 Combined NPA exposure Total RE Assets (Net, Bn € ) Total NPLs (Net, Bn € ) Total NPAs (Net, Bn € ) 10.9 POP 3 San Non - Core RE 1 4.7 Combined 6.2 12.1 POP 3 SAN Spain 2 6.0 Combined 6.1 23.0 POP 3 SAN 10.7 Combined 12.3 1 Santander non - core RE reported as “Real Estate activity in Spain”, inclu
Slide 30: Revenue attrition assumptions
30 ▪ Clients overlap ▪ Santander Risk appetite ▪ Higher NPLs after provisions adjustment We are assuming some revenue attrition while not including revenue potential upside Revenue attrition due to… Revenues 2019E : c.9% below current market consensus ▪ Sensitivity to Interest rate changes (c.150m €
Slide 31: Strong strategic/business fit at an attractive point in the cycle
31 Strong strategic / business fit at an attractive point in the cycle 2. Popular: unique domestic consolidation opportunity in Spain and Portugal 1. Attractive financials (targeting RoI 13 - 14 % and EPS accretive in year 2), enhancing KPIs for Group, Spain and Portugal 4. Significant cost synergie
Slide 32: 2020E net profit c.950M €
32 2020E Net profit c.950M € 2020 assumes: • No interest rate increase • 9% Revenues attrition • Costs synergies c.500m € • Provisions normalized at 60bps / loans EUR million 2017E 2018E 2019E 2020E POPULAR MARKET CONSENSUS Revenues 2,840 2,920 3,000 Expenses - 1,500 - 1,450 - 1,460 Margin pre - pro
Slide 33: Profitability improvement targets through economies of scale
33 Profitability improvement targets through economies of scale SAN Spain improvement of key ratios SAN POP c.13 n.a . 2016 9.6 2020E with synergies C/I (%) RoTE (1) (%) Santander Spain public information perimeter (1) Calculated with equity as 11% RWAs 59 50 60 2020E with synergies 2016 SAN Totta i
Slide 34: Summary of total provisioning and capital needs
34 Real Estate Assets Real Estate Loans 7.9 Total Provision Deficit Other adjustments 4.7 2.5 Non Real Estate Loans 0.7 Net capital deficit 0.8 0.4 EUR Bn 9.1 Prov. & Capital deficit Bailed in capital - 2.0 7.1 Net Prov . & Capital deficit 2.2 current Capital Deficit ▪ - 0,6 lower RWA after addition
Slide 35: Investment required of €7Bn with targeted ROI of 13-14%
35 CET1 FL neutral impact EPS accretive from year 2 Provision and Capital Deficit 7.1 Restructuring Costs 1.3 Asset sales - 0.5 Pre Provision Profit 9M - 0.9 Net Investment (EUR Bn ) ~7.0 Net Profit 2020 (EUR M) ~ 950 ROI 13 - 14% Investment required of € 7Bn with a targeted ROI of 13 - 14%
Slide 36: Attractive financial impact, enhancing key KPIs for the Group
36 2018 ROI of 13 - 14% above Cost of Equity in 2019 EPS accretive from 2019 onwards Targeted EPS accretion (%) Slightly negative c.2% 2019 Targeted TNAV/S accretion (%) c.3% CET1 Fully Loaded (%) Neutral / Slightly positive Improved organic capital generation Attractive financial impact, enhancing
Slide 37: Popular acquisition: in-depth review
37 Popular acquisition: in - depth review Overview strategic and financial rationale Concluding remarks Rights offering 1 2 3 4 Banco Popular acquisition Creating shareholder value through in - market consolidation
Slide 38: Rights issue for the acquisition of Banco Popular
38 Size, terms and conditions • Rights issue of € 7,000Mn • Rights offering with preferential subscription rights for existing shareholders • Underwritten transaction Expected timing 1 Rights Issue for the acquisition of Banco Popular Beginning of July End of July Subscription period Execution 1 Sub
Slide 39: Popular acquisition: in-depth review
39 Popular acquisition: in - depth review Overview strategic and financial rationale Concluding remarks Rights offering 1 2 3 4 Banco Popular acquisition Creating shareholder value through in - market consolidation
Slide 40: Key conclusions
40 Strong strategic/business fit at an attractive point in the banking cycle 2. Unique domestic consolidation opportunity to accelerate Santander Spain and Portugal’s earnings growth 1. Significant cost synergies while execution risks manageable and potential revenues upside not being considered 3.
Slide 41: Creating shareholder value: continuing to deliver on our commitments
41 Creating shareholder value Allowing us to continue delivering on our commitments 2018 targets Q1 2017 Loyal customers Digital customers Fee income 1 Cost of risk Cost to income EPS ( € ) DPS ( € ) FL CET1 18.6m Double digit growth Increase >11% 15.5m 0.122 (1 st quarter) 0.22 2 10.66% 45 - 47% 46
Slide 42: Thank you
Thank you Our purpose is to help people and businesses prosper. Our culture is based on the belief that everything we do should be
Slide 43: Real Estate Assets - Breakdown
43 Real Estate Assets - Breakdown EUR Bn March 2017 POPULAR SAN RE activities COMBINED Gross % Addit. Net % Final Gross Net % Gross Net % Final value Cover. Cover. value Cover. value value Cover. value value Cover. Finished 6.5 29% 1.5 3.1 52% 2.2 1.1 50% 8.7 4.2 52% Under const. 0.3 34% 0.1 0.1 60%