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
Banco Popular acquisition Creating shareholder value through in-market consolidation
Slide 2: Disclaimer
Disclaimer This presentation (the "Presentation") has been prepared by Banco Santander, S.A. ("Santander " or "the Company"). For the purposes 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 ques
Slide 3: Banco Popular acquisition
Banco Popular acquisition Creating shareholder value through in-market consolidation 1 2 3 4 Overview Popular strategic and acquisition: Concluding Rights offering financial in-depth remarks rationale review 3
Slide 4: Strong strategic rationale
Strong strategic rationale Creating the leading retail and commercial bank in Spain and Portugal Add-on acquisition in Iberia… … at the right point of the cycle Spain Portugal Euribor 12 months (%) c.6-7% market share c.2% market share • 1,6441 branches • 118 branches • c.4.1m total customers • c.32
Slide 5: Strong strategic rationale: complementary franchises
Strong strategic rationale Complementary franchises Leading SME franchise Potential to improve acquired business… SME Market share in Spain (%) … deepening customer relationships Fees / Loans (%, 2016) 1.06% 25% 0.51% Peer 1 13% Peer 2 11% … through wholesale funding synergies Peer 3 9% 3-year Senio
Slide 6: In-market consolidation
In-market consolidation Leveraging economies of scale with manageable execution risks Synergies for best-in-class efficiency Focus on preserving franchise value Expected annual cost savings in 2020 pre tax: Proven integration track record limiting potential revenue attrition EUR c.500m (c.10% of 201
Slide 7: Real estate
Real estate Additional provisioning to execute a quick unwind RE well provisioned after adjustments Roadmap for a quick RE unwind €7.2Bn additional provisions for Real Estate Plan in place to reduce Banco Popular RE exposure, achieving coverage well over Assets and RE NPLs to non-material levels
Slide 8: Creating shareholder value
Creating shareholder value Improving profitability of Spain and Portugal franchise Enhanced earnings growth profile Improving franchises target profitability RoTE(1) (%) Banco Popular Net income targets w/ synergies c.13 (m€) 9.6 CAGR: n.a c.25% – 30% c.950 825 2016 2020E with synergies 570 RoTE(1)
Slide 9: Creating shareholder value
Creating shareholder value Transaction at attractive financial terms to continue delivering on our commitments Price Paid €1 for 100% of the capital Rights offering 7Bn€ Target 13 – 14% RoI year 3 already above Cost of Equity in 2019 Target EPS 2019: c.2% | 2020: c.3% accretion Target TNAVPS 2018: c
Slide 10: Banco Popular acquisition
Banco Popular acquisition Creating shareholder value through in-market consolidation 1 2 3 4 Overview Popular strategic and acquisition: Concluding Rights offering financial in-depth remarks rationale review 10
Slide 11: Why are we acquiring Banco Popular?
Why are we acquiring Banco Popular? 1. Popular: unique domestic consolidation opportunity in Spain and Portugal 2. Strong strategic / business fit at an attractive point in the cycle Significant cost synergies, real estate assets well provisioned with 3. manageable execution risks Attractive financi
Slide 12: Popular: unique domestic consolidation opportunity in Spain and Portugal
Popular: unique domestic consolidation opportunity in Spain and Portugal Gross Loans excl. Repos Breakdown Leader in SMEs in Spanish market(1) (2016, %) Corps & Institutions RE non-core 13.8% 18% 19% 12.7% Total Group 11.1% 10.6% 9.3% Other gross loans: 7% individuals 5.1% 4.3% 97.6Bn€ 35% 22% SMEs
Slide 13: Why are we acquiring Banco Popular?
Why are we acquiring Banco Popular? 1. Popular: unique domestic consolidation opportunity in Spain and Portugal 2. Strong strategic / business fit at an attractive point in the cycle Significant cost synergies, real estate assets well provisioned with 3. manageable execution risks Attractive financi
Slide 14: Strong strategic / business fit at an attractive point in the cycle
Strong strategic / business fit at an attractive point in the cycle A 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 main
Slide 15: Creating the leading bank in Spain: c.20% market share
A Acquisition in a core market Creating the leading bank in Spain: c.20% market share Loans Market share (%) 19.5% 15.0% 13.8% 12.3% 8.5% 8.0% 7.2% Peer 1 Peer 2 Peer 3 Peer 4 Customer funds Market share (%) 18.8% 16.7% 14.1% 13.1% 7.3% 7.2% 5.7% 2.7% Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Note: Data fo
Slide 16: A nationwide branch network with heavier weight in the wealthier regions
A Acquisition in a core market A nationwide branch network with heavier weight in the wealthier regions Post transaction branch market share GDP contribution per region (%) GDP Growth (%) 20.7% 13.4% Cataluña 18.9% 3.5% 28.9% 17.4% 11.4% Madrid 18.8% 3.7% 15.4% Andalucía 13.4% 2.8% 18.2% 12.1% Valen
Slide 17: Diversifying Santander Spain Loan Portfolio while maintaining Group Geographic diversification
A Acquisition in a core market Diversifying Santander Spain Loan Portfolio while maintaining Group Geographic diversification Loan portfolio breakdown (2016) Group geographic diversification Asset distribution RE non-core 2% Pre-deal Post-deal 8% Other 13% 19% Developing Developing individuals 11% m
Slide 18: Santander Totta: reinforcing our leadership in Portugal
A Acquisition in a core market Santander Totta: reinforcing our leadership in Portugal Loans market share (%) 22.9% 17.5% 17.5% 14.7% 13.0% 10.1% 2.8% Peer 1 Peer 2 Peer 3 Peer 4 Deposits market share (%) 26.1% 17.0% 15.5% 13.3% 12.3% 9.4% 2.3% Peer 1 Peer 2 Peer 3 Peer 4 Branches market share(%) 16
Slide 19: Leading SME franchise
B Leading SME franchise Strong market share in SMEs 24.8% 13.8% 12.7% 11.1% 10.6% 9.3% 5.1% 4.3% Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 That results in higher NIM SME franchise with scale 2016 1.36% c.920 SMEs 1.20% SMEs & Corps customers specialized c.620k managers Popular Peers Avg. 19 SMEs Market sha
Slide 20: Development of deeper customer relationships
C Opportunity to improve the combined franchise Development of deeper customer relationships Recurrence Ratio (%) Fees over Loans (%) (1Q 2017, % of Net Fees over Total Operating (2016, % of Net Fees over Average Loans) Expenses) 58% Potential Potential 1.06% 54% 54% Upside Upside 0.98% 51% 0.88% 45
Slide 21: Wholesale Funding Cost Reduction
C Opportunity to improve the combined franchise Wholesale Funding Cost Reduction m/s + Spread m/s + Spread Volume 3-year +18bps(1) +372bps(1) 1Bn€ Senior Debt Covered Bonds A- / F2 B/B Maturing in: (Stable) (Negative) 2018 (10.7bps)(1) +11bps(1) 12Bn€ 2020 (13.4bps)(1) +40.6bps(1) A3 / P-2 B2 / NP (
Slide 22: The Spanish market faces a positive banking cycle
D An attractive point in the cycle The Spanish market faces a positive banking cycle Key drivers improving with further upside Low interest rate environment € in bn GDP Growth (%) 800 0.8% (3.6%) 0.0% (1.0%) (2.9%) (1.7%) 1.4% 3.2% 3.2% 2.8% 2.4% 1M EUR 3M EUR 12M EUR 700 0.6% 600 0.4% 500 26% 0.2%
Slide 23: Business growth supported by private consumption and RE sector trends
D An attractive point in the cycle Business growth supported by private consumption and RE sector trends Total Sector Loan Growth (%) 3.3% 2.3% 2.6% 2.6% 1.1% 0.3% 0% -2.6% -3.5% -3.7% -4.4% -8.2% -10.7% -12 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Source: Bank of Spain, EIU.
Slide 24: Why are we acquiring Banco Popular?
Why are we acquiring Banco Popular? 1. Popular: unique domestic consolidation opportunity in Spain and Portugal 2. Strong strategic / business fit at an attractive point in the cycle Significant cost synergies, real estate assets well provisioned with 3. manageable execution risks Attractive financi
Slide 25: Relevant cost synergies: Targeting EUR c.500m
Relevant cost synergies: Targeting EUR c.500m Key Cost Synergies Drivers Improving operating efficiency by leveraging Santander Group’s capabilities and best practices: Expected efficiency • Leverage Santander Group’s economies of scale (e.g. joint purchasing) improvements by 2020: • Optimization
Slide 26: Improving efficiency of combined entity
Improving efficiency of combined entity Annual cost savings Cost to Income ratio Spain (%) (million euros) c.130 c.500 -10pp 60% c.160 50% c.210 Pre-synergies Post-synergies 2016 2020E IT HQ / Distribution Total savings Integrations General network and Expenses other cost savings 26
Slide 27: Manageable execution risks
Manageable execution risks Potential Business Risks Mitigants Total Real Estate assets and • Provisioning above peers average and roadmap in place loans of c.€34Bn gross to accelerate combined NPA reduction (c.20Bn€ net) • Strong track record of NPA management by Santander Loans ex- Real Estate • Ad
Slide 28: Transaction assumes an adequate provisioning of RE assets and loans
Transaction assumes an adequate provisioning of RE assets and loans Peers Pre-deal (Q1’17) Post-adjustments Net EUR Bn Gross value % Cov. Provision % Cov. % Cov. value 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% 7.2 69% 9.2 52
Slide 29: Combined NPA exposure
Combined NPA exposure Total RE Assets Total NPLs Total NPAs (Net, Bn€) (Net, Bn€) (Net, Bn€) 12.3 23.0 6.1 12.1 6.2 10.9 10.7 6.0 4.7 San POP3 Combined SAN POP3 Combined SAN POP3 Combined Non- Spain2 Core RE1 Disposal plan to reduce Popular NPAs to non-material levels in 3 years 1 Santander non-core
Slide 30: We are assuming some revenue attrition while not including revenue potential upside
We are assuming some revenue attrition while not including revenue potential upside Revenue attrition due to… Revenues 2019E: Clients overlap c.9% Santander Risk appetite below current market Higher NPLs after provisions adjustment consensus Positive revenue possibilities (not included) Sens
Slide 31: Why are we acquiring Banco Popular?
Why are we acquiring Banco Popular? 1. Popular: unique domestic consolidation opportunity in Spain and Portugal 2. Strong strategic / business fit at an attractive point in the cycle Significant cost synergies, real estate assets well provisioned with 3. manageable execution risks Attractive financi
Slide 32: 2020E Net profit c.950M€
2020E Net profit c.950M€ EUR million 2017E 2018E 2019E 2020E POPULAR MARKET CONSENSUS 2020 assumes: Revenues 2,840 2,920 3,000 Expenses -1,500 -1,450 -1,460 • No interest rate increase Margin pre-provision 1,340 1,470 1,540 NET PROFIT 154 450 562 • 9% Revenues attrition • Costs synergies c.500m€ POP
Slide 33: Profitability improvement targets through economies of scale
SAN Profitability improvement targets through economies POP Combined of scale SAN Spain improvement of key ratios SAN Totta improvement of key ratios Santander Spain public information perimeter C/I C/I (%) (%) 59 60 55 43 38 50 2016 2020E with 2016 2020E with synergies synergies RoTE(1) RoTE(1) (%)
Slide 34: Summary of total provisioning and capital needs
Summary of total provisioning and capital needs EUR Bn Real Estate Assets 4.7 Increasing coverage to 65% from current 39% Real Estate Loans 2.5 Increasing NPLs coverage to 75% Non Real Estate Loans 0.7 Total Provision Deficit 7.9 2.2 current Capital Deficit - 0,6 lower RWA after additional provisi
Slide 35: Investment required of €7Bn with a targeted ROI of 13-14%
Investment required of €7Bn with a targeted ROI of 13-14% 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% CET1 FL neutral impact EPS accretive from year 2 35
Slide 36: Attractive financial impact, enhancing key KPIs for the Group
Attractive financial impact, enhancing key KPIs for the Group 2018 2019 2020 Targeted EPS Slightly accretion (%) negative c.2% c.3% Targeted TNAV/S accretion (%) c.3% CET1 Fully Loaded Neutral / Improved organic capital (%) Slightly positive generation ROI of 13-14% above Cost of Equity in 2019 EPS
Slide 37: Banco Popular acquisition
Banco Popular acquisition Creating shareholder value through in-market consolidation 1 2 3 4 Overview Popular strategic and acquisition: Concluding Rights offering financial in-depth remarks rationale review 37
Slide 38: Rights Issue for the acquisition of Banco Popular
Rights Issue for the acquisition of Banco Popular • Rights issue of €7,000Mn Size, terms • Rights offering with preferential subscription rights for and existing shareholders conditions • Underwritten transaction Beginning End of of July July Expected timing1 Subscription period Execution 38 1 Subje
Slide 39: Banco Popular acquisition
Banco Popular acquisition Creating shareholder value through in-market consolidation 1 2 3 4 Overview Popular strategic and acquisition: Concluding Rights offering financial in-depth remarks rationale review 39
Slide 40: Key conclusions
Key conclusions Unique domestic consolidation opportunity to accelerate Santander Spain 1. and Portugal’s earnings growth 2. Strong strategic/business fit at an attractive point in the banking cycle Significant cost synergies while execution risks manageable and potential 3. revenues upside not bein
Slide 41: Creating shareholder value
Creating shareholder value Allowing us to continue delivering on our commitments Q1 2017 2018 targets Loyal customers 15.5m 18.6m Digital customers 22.1m 30m Fee income1 12.1% c.10% CAGR 15-18 Cost of risk 1.17% 1.2% AVG. 15-18 Cost to income 46.1% 45 - 47% EPS (€) 0.122 Double digit growth (1st qua
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
Real Estate Assets - Breakdown EUR Bn POPULAR SAN RE activities COMBINED March 2017 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% 0.