presentation santander spain april 2010

8/9/2019 Presentation Santander Spain April 2010

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2

Spain GDP: -0.4% in 2010E and 1.3% in 2011ESpain GDP his tory and forecast figures

3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10F 2Q10F 3Q10F 4Q10F 2007 2008 2009 2010F 2011F

Real GDP QoQ -0.6 -1.1 -1.7 -1.0 -0.3 -0.1 -0.1 0.1 0.1 0.3

QoQ a -2.2 -4.3 -6.6 -3.8 -1.1 -0.6 -0.2 0.2 0.4 1.0

YoY 0.5 -1.2 -3.3 -4.2 -4.0 -3.1 -1.4 -0.4 0.0 0.4 3.6 0.9 -3.6 -0.4 1.3

Private Consumption QoQ -1.1 -1.2 -2.5 -1.3 0.0 0.3 -0.1 0.1 -0.3 0.2

(57.9% of GDP) QoQ a -4.3 -4.7 -9.5 -5.3 -0.2 1.4 -0.4 0.4 -1.2 0.8

YoY -1.3 -3.3 -5.5 -6.0 -5.0 -3.5 -1.2 0.3 0.0 -0.1 3.6 -0.6 -5.0 -0.2 1.1

Public Consumption QoQ 1.9 1.6 0.7 0.4 1.4 -1.7 0.3 0.2 0.1 0.0

(22.4% of GDP) QoQ a 7.7 6.4 2.9 1.7 5.5 -6.6 1.2 0.8 0.4 0.0

YoY 5.8 6.3 6.0 4.7 4.1 0.8 0.3 0.1 -1.1 0.6 5.5 5.4 3.9 0.0 -0.3

Total Investment QoQ -3.5 -4.6 -6.0 -4.1 -2.4 -1.0 -0.8 -0.7 -1.0 -1.2

(21.3% of GDP) QoQ a -13.2 -17.1 -22.0 -15.5 -9.1 -4.1 -3.4 -2.9 -4.1 -4.9

YoY -6.0 -10.9 -14.9 -17.0 -16.0 -12.9 -8.1 -4.9 -3.6 -3.8 4.7 -4.3 -15.2 -5.1 -1.7

Capital Goods QoQ -4.3 -7.2 -14.2 -5.9 1.8 3.1 -3.0 0.2 1.0 1.0

(8.5% of GDP) QoQ a -16.1 -25.7 -45.8 -21.7 7.2 13.0 -11.5 0.8 4.1 4.1

YoY -3.0 -11.6 -24.0 -28.3 -23.8 -15.3 -4.3 2.0 1.2 -0.9 6.7 -2.6 -20.7 -3.9 3.6

Construction QoQ -2.9 -3.5 -3.1 -2.8 -2.6 -2.2 -2.7 -1.0 -2.0 -2.5

(13.2% of GDP) QoQ a -11.0 -13.2 -11.7 -10.6 -10.0 -8.5 -10.4 -3.9 -7.8 -9.6YoY -7.2 -10.2 -11.3 -11.6 -11.4 -10.2 -9.9 -8.2 -7.7 -8.0 3.2 -5.5 -11.1 -8.4 -5.3

Inventories Euros mn 668 703 660 621 634 789 500 600 500 600

Cont GDP 0.0 0.0 0.0 0.0 0.0 0.1 -0.2 0.1 -0.1 0.1 -0.1 0.1 0.0 -0.1 0.0

Exports QoQ -2.4 -5.4 -8.4 0.7 2.1 3.0 -0.2 1.0 1.5 0.5

(20.8% of GDP) QoQ a -9.2 -19.8 -29.5 3.0 8.7 12.5 -0.8 4.1 6.1 2.0

YoY -2.9 -7.1 -16.6 -14.7 -10.8 -2.9 5.7 6.0 5.4 2.8 6.7 -0.9 -11.3 5.0 4.2

Imports QoQ -4.1 -6.3 -10.8 -2.3 1.7 2.1 -1.0 0.4 0.4 -0.1

(22.6% of GDP) QoQ a -15.5 -22.9 -36.8 -8.8 7.0 8.5 -3.9 1.6 1.6 -0.4

YoY -7.6 -13.5 -22.3 -21.7 -17.0 -9.6 0.4 3.2 1.8 -0.3 8.0 -4.8 -17.7 1.3 2.9

Net external sector Euros mn -8116 -7517 -5870 -4808 -4901 -4641 -3658 -3615 -2798 -2303

Cont GDP 0.5 0.4 1.0 0.7 -0.1 0.2 0.6 0.0 0.5 0.3 -0.8 1.1 2.3 1.2 1.0

CPI 2.8 4.1 -0.3 1.3 1.9

Unemployment rate 8.3 11.3 18.0 19.6 18.3

Public Budget (a) 1.9 -4.1 -11.4 -10.0 -8.0

Current account (a) -10.0 -9.6 -5.8 -3.7 -2.4Source: INE, BoS, Santander Investment Bo lsa estimates and forecasts.

Annual figures: annual average. (a) as a % of GDP. Cont GDP: contr ibut ion to QoQ GDP growth


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3

The Real Adjustment of the Spanish Economy

GDP growth has not fallen dramatically thanks to net exports

The adjustment of the economy must be seen though Private Domestic Final Sales

In 2010E, this indicator could come back to the 2004 levels

GDP could be almost flat in 2010E (-0.4% in 2010E and 1.3% in 2011E)

GDP Breakdown, Composition of GDP growth, 1Q07-4Q11E. GDP Private Domestic Final Sales, 1995-2011E.

Source: IN and Santander Investment Bolsa. Source: IN and Santander Investment Bolsa.

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11

(%,

QoQannualised)

Private Domestic Final Sales Domestic Final Sales GDP

300

350

400

450

500

550

600

1995 1997 1999 2001 2003 2005 2007 2009 2011

(BillionEuros)

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

( % )

=Private Domestic Final Sales

Annual Groth Rates (RHS)


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De-leveraging is running at full speed in the private sector. Flows vsStocks.

The Current Account deficit has been reduced to just 4.7% of GDP in 2009 from 10% in 2007

The private sector is reducing its leverage at a fast pace. Savings are up and investments down

Households pushed savings to around 19% of Gross Disposable Income in 2009

The reduction in Investments is mainly concentrated in Construction; particularly in Real Estate.

Flows almost adjusted. More time needed for adjusting the stocks

Source: Mineco, INE, BoS and Santander Investment Bolsa.

Spain - Net Lending (+) or Net Borrowing (-) [=Current Account Balance] (% of GDP) by

Sector, 1995-2009.

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(%of

GDP)

Financial institutions

General Government

Non-financial corporations

Households and non-profit Institutions

Total Economy


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The Real Estate sector and Immigration.

The adjustment in the construction sector (real estate) would be almost completed

Building permits have gone down 90% from the peak reached in 2007

Prices would be down btw 20-30% in large cit ies and even 50% in the coastal area

The current production of houses would be below sustainable demand. Stocks are the problem

Immigration is coming down. The adjustment in population is necessary.

Spain - Housing Starts vs Building Permits, 1984-2009.

Source: Ministry of Housing, BoS & Santander Investment Bo lsa.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1984 1988 1992 1996 2000 2004 2008

(units)

Housing Starts (LHS) Building Permits (LHS)

Spain - Immigration vs Natural Growth, 1960-2030E.

Source: INE and Santander Investment Bolsa estimates.

-600

-400

-200

0

200

400

600

800

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 2028

('000,annualchange)

Natural

Inmigration-Pessimistic

Inmigration-Base

Forecasts


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GDP is likely to grow at lower rates than in the past

Old economy based on population growth and employment creation is over

New economy should be more biased towards productivity

Growth potential down from around 3.0% to around 1.5%

The Industry and Services leading the way up

Spain - Growth Model-Pessimisti c Scenario, 1960-2030F.

Source: MINECO, AMECO, INE, OECD and Santander Investment Bolsa estimates.

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1960-70 1971-80 1981-90 1991-2000 2001-08 2009 2010 2011 2012-20 2021-30

(%

YoY)

Population

Employment

Working Age Population (15-64)

Productivity

GDP per Capita

Real GDP

Forecasts

GDP-Growth Composi tion from the Supply s ide, 1996-2009.

Source: INE and Santander Investment Bolsa.

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

20092008200720062005200420032002200120001999199819971996

Contributionin

pp

to

annualGDPg

rowth

Agricul Industry Construc Services VAT Energy

9


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7

The Public sector to start doing its homework in 2010E.

Significant deterioration of Public accounts, with revenues plummeting and expenditures accelerating

Government plans to reduce deficit credible, although GDP estimates would be on the optimistic side

Debt levels are low. The bulk of the Countries debt is in the private side

Public Adms- Investments % of GDP and Annual rate, 2000-2009 Public Adms -Net position lending (+) / borrowing (-)

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

(%

ofGDP)

Savings

Gross Fixed Capital Formation

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

(%

ofGDP)

-14

-12

-10

-80

-60

-40

-20

0

20,

40,

Net Lending / Borrowing as a % of GDP (LHS)

bn Euros (RHS)

Source: INE and Santander Investment Bolsa.

GDP -3.6 -0.3 1.8 2.9 3.1General Government Budget Balance (% of GDP) -11.4 -9.8 -7.5 -5.3 -3.0

General Government Gross Debt (% of GDP) 55.2 65.9 71.9 74.3 74.1

2011 2012 2013

Source: Annual update of the Stability Programme.

(Growth rate in percent)

Fiscal Adjustment Path 2009-2013 2009 2010


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BBVA & POP our top picks for a recovery

I. Lower NIM and ongoing high provisioning, will mean lower earnings in

2010 before a recovery in 2011/2012.

II. Revenues to remain flat over the next 3 years as the private sector

continues to deleverage.

III. The restructuring of the S&Ls will alleviate competitive pressures and

allow stable revenues as banks gain market share.

IV. Asset quality deterioration continues to moderate, and points to NPL ratios

peaking in 2010.

V. The reduction in loan losses will be the main earnings driver in our view.

We estimate that ROTE should improve from 7% for domestic banks in

2010E to 11% in 2012E.


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Market share to improve revenue outlook

In a deleveraging economy loan growth will remain under pressure. We expect negativegrowth in 2010 for the system, and low single digit growth (2-3%) after that.

Banks are gaining market share, and we believe they should continue to do so in the

medium term as savings banks restructure, alleviating the revenue outlook.

Spanish Banks Mortgage Underwr iting Market Share

Source: Bank of Spain, Santander Investment Bolsa

YoY Loan Growth Since 2007

0

500

1,000

1,500

2,000

2,500

3,000

3,5004,000

32.0%

33.0%34.0%

35.0%

36.0%

37.0%

38.0%

39.0%

40.0%

41.0%42.0%

mortgage production Banks Market Share 3m rolling average (rhs)

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-0

8Jul-0

8

Oct-08

Jan-09

Apr-0

9Jul-0

9

Oct-09

Jan-10


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10

Margin Pressure in 2010

The delayed impact of mortgage re-pricing on margins together with increasing assetspreads and ALM portfolios have meant relatively resilient margins.

In turn this should translate into margin pressure in 2010 and 2011, before a recovery in2012. We estimate -5.3% in 2010 NII and -0.2% in 2011, with Bankinter the most affected.

Deposit war has recently intensified which could increase cost of funding, and addpressure to the savings banks to re-structure.


Retail time deposit spreads 2006-2010

-2.00

-1.50

-1.00

-0.50

-

0.50

1.00

Jan-06

Apr-0

6Jul-0

6

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-0

8Jul-0

8

Oct-08

Jan-09

Apr-0

9Jul-0

9

Oct-09

Jan-10

Cajas Banks

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Jan-03

Jul-0

3

Jan-04

Jul-0

4

Jan-05

Jul-0

5

Jan-06

Jul-0

6

Jan-07

Jul-0

7

Jan-08

Jul-0

8

Jan-09

Jul-0

9

Jan-10

Res identia l mortgages Corporate 1mn

Front Book Loan spreads 2003-2010


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Savings Banks Restructuring

Higher margin pressure (negative NII growth of 20-25% in 2010E), and ongoing highprovisions could trigger 4-5bn losses for the S&Ls in 2010, accelerating consolidation.

We have counted up to 32 savings banks that could be involved in mergers, with

combined assets worth 765bn (2/3rds of the savings banks total and 1/3rd of the bankingsystems assets).

Savings Banks Merger Process

( mn) Assets Loans Deposi ts Equity Employees Branches

Caja Madrid + CAM 267,009 172,584 129,877 13,931 21,550 3,210

Caixa Catalunya + Tarragona + Manresa 82,466 57,859 39,735 3,560 7,678 1,423

Caixanova + Caixa Galicia 77,178 56,549 46,683 3,548 8,236 1,460

CAN + CG Canarias + Sa Nostra + Caja Burgos 59,357 41,326 40,545 3,779 6,069 1,070

Cajasur + Unicaja + Jaen 54,820 39,227 38,295 3,698 8,105 1,476

Caja Espaa + Caja Duero 46,802 29,393 31,831 2,373 5,961 1,166

Cajastur + CCM 42,481 28,885 27,694 1,573 3,604 944

Sabadell + Terrasa + Manlleu + Girona 35,295 26,238 26,943 1,739 3,280 707

Laietana + Penedes 32,498 23,230 21,756 1,540 4,102 939

Cajasol + Guadalajara 29,660 23,571 21,828 1,745 5,154 889

C- Rioja + C.I. Canarias + C. Inmaculada 24,994 17,944 18,275 1,475 2,951 556

Caja Avila + Segovia 13,097 8,742 9,268 634 1,203 244

Total 765,657 525,548 452,730 39,595 77,893 14,084

Source: Press and company reports .


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10-12bn FROB Capital Injection Required

Losses, coupled with the relatively tight capital ratios and the inability to raise capital, leadus to believe that mergers will go ahead despite resistance from regional poli ticians.

We believe savings banks will require 10-12bn of funds to cover accumulated losses (7-8bn 2009E-10E) and restructuring charges (3-4bn).

FROB funds are awarded in the form of preference shares, which have to be repurchased ina maximum period of five years. This implies the institut ions involved wi ll need asset

disposals/downsizing in order to be able to repay the FROB.

Announced mergers have proposed job cuts of up to 20-25% and 1/3 of branches closed. Ifwe extrapolate this we would be talking about closing or selling 5000 branches with close to180bn in loans, and 20,000 employees. This is around 10% of the whole banking system.

Savings banks profitability is likely to remain under pressure until 2012 and will not returnto a 10% ROE until 2014. Assuming a cost of 8% for the FROB funds, we estimate theinsti tutions could generate close to 6bn, which implies the remaining 6bn would be repaideither through disposals or downsizing their loan book by close to 20%, or 100bn.


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13

NPL Ratios to peak in 2010

We expect interest rates to be supportive until 2012, which makes us think theimprovement in the flow of NPL entries in 2H09, wil l be sustained in 2010 and NPLs wil lpeak in 2010 at 6.5% vs. 5.1% Dec 09.

Current NPL entries continue to be driven by SMEs and real estate, while residentialmortgages continue to show relative stabil ity at 2.87% (Dec 2009).

NPL ratio vs. Employment growth (reversed)

Source: Bank of Spain, Company data, Santander Investment Bolsa

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%8.0%

Jun-99

Dec-99

Jun-00

Dec-00

Jun-01

Dec-01

Jun-02

Dec-02

Jun-03

Dec-03

Jun-04

Dec-04

Jun-05

Dec-05

Jun-06

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Employment creation (reversed) System NPL ratio rhs

Real estate Asset quality

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2005

MAR

2005

SEP

2006

MAR

2006

SEP

2007

MAR

2007

SEP

2008

MAR

2008

SEP

2009

Mar

2009

SEP

Residential Mortgages Construction Real Estate


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14

Real estate adjustment well advanced

Banks average exposure to residential real estate developers is 9% of the loan book withan NPL ratio close to 10%. If we add back the acquired real estate (14bn gross) weestimate the adjusted NPL ratio would be close to 28% in this segment.

This does not include 59bn of restructured loans (substandard risk), equivalent to 18%of real estate loans, and 3.2% of the system loans. We expect some of them to becomenon performing over the next 2 years.

Developer NPL ratio including purchased assets


Problem loans close to 10% of the system loan book

30.4%29.0% 28.7%

27.1%

24.0% 23.8%

34.7%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Popula

r

Pasto

r

Bankint

er

Santande

r

Saba

dell

BBVA

Banesto

5.1%

3.2%

1.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

System NPL ratio Substandard risk Real Estate Purchases


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15

Provisioning efforts still high in 2010

Coverage is close to 60%, but increased provisioning requirements in real estate andsubstandard risk, mean 2010 will still be a year of high loan loss charges.

The 2 year provisioning calendar and the lower NPL formation since 2H09 point to

provisions comning down more materially in 2011.

We estimate domestic banks will have provisioned 6% of their loan book by 2011,including MVC writen-down to 15 vs. 32, and coverage on RE purchases reaching 35%.


Average provision charge est imates

1.0%

1.7%

1.3%

0.9%0.6%

0.2%

0.3%

0.6%

-0.2%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

2008 2009E 2010E 2011E 2012E

Net provisioning charge Generic Provision

32.0%

22.7%

20.2%

14.0% 14.0% 14.0%

32.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Santande

r

BBVA

Banesto

Bankint

er

Saba

dell

Popula

r

Pasto

r

Coverage on purcahsed RE assets (Dec 2009)


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16

BBVA & POP our top picks for a recovery

We have a 15 price target on BBVA. We believe BBVA will offer higher-than-average resilience in earnings in Spain in 2010E, while at the same time it is a playon recovery in Mexico and the US. The stock is trading at 1.8x P/TBV on ourestimates, with sustainable ROEs north of 20%.

We have a 7.20 target price on POP. We believe it could more than doubleearnings as its provision charge should fall from 160bp to a more normalised 60bpin 2012E. On our estimates the stock is trading on 7.0x normalised earnings vs8.0x for the average European banks.

COUNTRY CURRENT

Bank PRICE M. Cap Outstanding Rating 2009E 2010E 2011E 2009A 2010E 2011E

SPAIN 12.00 14.29 12.32 1.35 1.27 1.21

SANTANDER 10.37 85,292 8228.826 NR 9.96 9.29 8.30 1.95 1.77 1.61

BBVA 10.93 40,947 3747.969 Buy 9.91 8.51 8.16 1.89 1.78 1.75

B. POPULAR 5.76 7,679 1333.152 Buy 9.64 13.16 8.49 1.04 0.99 0.93

BANESTO 8.46 5,817 687.387 NR 10.40 8.97 8.18 1.08 0.92 0.86

B. SABADELL 4.13 4,957 1200 Underweight 9.88 16.16 11.58 1.16 1.12 1.07

B. PASTOR 4.39 1,172 266.919 Underweight 11.37 23.08 17.58 0.82 0.80 0.77

BANKINTER 6.28 2,973 473.448 Hold 10.99 11.84 12.96 1.23 1.17 1.11

Average Domest ic 10.46 14.64 11.76 1.07 1.00 0.95

AVERAGE EUROPE 22.08 12.06 10.25 1.13 1.06 0.98

AVERAGE EUROPE EX UK 26.75 12.29 10.64 1.11 1.05 0.97

PE P/TgBV


17/27

17

Fiscal and Regulatory Environment Deteriorates

Government Measures

F is c a l t r e a t m e n t R e g u l a ti o n

C o n s u m p t i o n

V A T r a is e d to 1 8 % f ro m 1 6 % ( 8 % fr o m 7 % b a s i c ) in J u l y

2 0 1 0 E n la r g e m e n t o f r e t i r e m e n t a g e f r o m 6 5 to 6 7

E l im in a t i o n o f d e d u c t i o n o f 4 0 0 / p e r s o n

E x te n s io n o f u n e m p l o y m e n t b e n e fi t s t o lo n g te r m

u n e m p lo y e d

R a i s e i n s p e c ia l t a x e s ( g a s o l i n e a n d t o b a c c o )

R e v e r s a l o f " B e c k h a m L a w "

E l im in a t io n o f t a x i n c e n t iv e s to a c q u i s i t io n o f h o u s e s

C a p i ta l g a i n s t a x ra i s e d fr o m 1 8 % t o 1 9 - 2 1 %

C o r p o r a t e s

E l im in a t io n o f g o o d w i l l d e d u c ta b i l i ty f o r a c q u i s i tio n s a f te r

2 0 0 7

E le c t r i c U t i l i t ie s A id t o b u r n d o m e s t i c c o a l

T e l e c o m s / m e d i a

T e l e c o m s + 0 . 9 % T a x o n r e v e n u e s t o f in a n c e T V E ( i n

r e v ie w b y E U )

M e d i a F T A + 3 . 0 % T a x o n re v e n u e s t o f in a n c e T V E

M e d i a P a y T V + 1 .5 % T a x o n r e v e n u e s to fi n a n c e T V E

P h a r m a C h a n g e s i n r e fe r e n c e p r ic e m e c h a n i s mR e d u c t i o n o f 2 5 % in g e n e r ic d r u g s p r ic e s

F i n a n c i a l s I n t ro d u c t i o n o f F R O B t o f o s t e r S & L r e s t r u c tu r in g

P r o v is i o n i n g r e q u i r e m e n t s s o f te n e d

C o n s t ru c t i o n

R e d u c t i o n in p u b l i c i n v e s tm e n t s o n t h e b a c k o f a u s te r ir t y

p l a n

Government fiscal imbalances and mounting international pressure to fix them might require more measures in

the future

Consumers and corporations are progressing on their deleveraging process, but are likely to be the target ofraising fiscal and regulatory pressures

Salary contention, increasing taxes and stubbornly high unemployment will l imit progresses on consumerspending

Reduced remuneration on regulated assets, anaemic demand and more intervention should affect regulatedsectors


18/27

18

The Spanish State Could Dispose Some Assets

Portfolio of Companies with State Participation

L is ted Co m pa n ies Stak e Sec to r Va lu e ( m n)

EADS 5.48 Aerosp ace 616 .9

Ebro Puleva 8.45 Food 184 .5

Enags 5.00 Gas Grid 182 .9

Iberia 5.26 Airlines 106 .6

REE 20.00 Electric ity Grid 970 .4

TOTAL listed 2,061 .3

Non L isted Co m pan ies Stak e Sec to r Va lu e ( m n)

AENA 100.00 Airports

ADIF 100.00 Rai lways

Agencia E FE 100.00 MediaRTVE 100.00 Media

Apuest as del Estado 100.00 Gam bling

Hispasat 7.41 Sa tellite s

Hunosa 100.00 Minin g

Navantia 100.00 Sh ipbuilding

TOTAL non listed 4 2,100 .0

TOTAL listed and no n listed stakes 44,161 .3

The Spanish state sold 61 public companies in 1992-2007 with proceeds totalling 45bn


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19

Utilities: The Tariff Deficit Piles-up

Sources of Deficit

RENEWABLE 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E

Output %

Wind 41% 42% 42% 43% 43% 44% 44% 45%

Hydro 6% 6% 5% 5% 5% 4% 4% 4%

P ho tovo ltaic 7% 7% 8% 8% 8% 8% 7% 7%

Thermosolar 0% 1% 2% 3% 4% 4% 4% 4%

B iomass 3% 3% 4% 4% 4% 4% 4% 4%

Waste 3% 3% 3% 3% 3% 3% 3% 3%

Waste Treat 4% 4% 4% 4% 3% 3% 3% 3%

Cogeneration 36% 34% 33% 31% 31% 30% 30% 30%TOTAL 100% 100% 100% 100% 100% 100% 100% 100%

Subsidy %

Wind 22% 22% 22% 21% 20% 20% 21% 22%

Hydro 3% 3% 3% 3% 2% 2% 2% 2%

P ho tovo ltaic 39% 40% 38% 37% 37% 36% 36% 35%

Thermosolar 1% 4% 8% 11% 14% 16% 17% 17%

B iomass 3% 3% 3% 3% 3% 3% 3% 3%

Waste 1% 1% 1% 1% 1% 1% 1% 1%

Waste Treat 4% 4% 4% 3% 3% 3% 3% 3%

Cogeneration 26% 23% 22% 20% 19% 18% 17% 17%

TOTAL 100% 100% 100% 100% 100% 100% 100% 100%

Tariff Deficit Expected Evolution

0

5000

100 00

15000

20000

25000

30000

35000

40000

45000

50000

2002 2004 2006 2008 2010 2012 2014 2016

0

2,000

4,000

6,000

8,000

10,00 0

12,00 0

14,00 0

Cummulat ive Secur it ised Tar if f D ef ic it

Tariff deficit expected to total 10bn in 2010 and growing by more than 4bn/year

System revenue increases do not cover the high inflation in costs generated by the shift to renewables

Aids to domestic coal highly the higher degree of government intervention

Photovoltaic accounts for the largest portion of subsidies


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20

Telecoms: Telefnica, a good Value Story

F o r w a rd P E p e rf o r m a n c e

0 .0

2 .0

4 .0

6 .0

8 .0

10 .0

12 .0

14 .0

16 .0

18 .0

2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 20 0 9 e 20 1 0 e

- 1 7 % - 2 0 %

Div id e n d y ie ld

0 . 0 %

2 . 0 %

4 . 0 %

6 . 0 %

8 . 0 %

1 0 . 0 %

1 2 . 0 %

T I KPN

2 0 1 0

PT

2 0 1 0

PT

2 0 1 1

T EF

2 0 1 0

DT

2 0 1 0

FT

2 0 1 0

T EF

2 0 1 1

T EF

2 0 1 2

European Telecoms DY (%) Telefnica Relative P/E Ratio

Appealing mul tiples: 9.3x P/E 2010

The strongest value story in the sector : 12% yield in the next 16 months (2.05 per share)

Catalysts: negative news flow could disappear across the year

No takeover bid on Telecom Italia

No overpayment for spectrum in Germany

Gap capacity vs. America Movil in Mexico to be reduced, Vivendi wont bid fo r spectrum

GVT will not enter in Sao Paulo this year, Telesp could upgrade the network meanwhile

Competition in Spain is not tangible

C i Sh R d i i Ci il W k A i i


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21

Construction: Sharp Reduction in Civil Works Activity

Spain Public Tenders (2004-2013E)

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

45000000

50000000

2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E

C ent ral Go vernm ent A ut ono m ous Regio ns Lo cal Aut ho rit ies

0

10000

20000

30000

40000

50000

60000

2008 2009 2010E 2011E 2012E 2013E

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Publ ic Inves tments % GDP

Spain Public Investments (2004-2013E)

Public Tenders flat in 2009 thanks to local (+58% on the back of the Plan E) offsetting the negative evolution of Central (-28%) andregional (-6%) governments

Plan E incentives to be trimmed from 8bn in 2009 to 5bn in 2010

The government aims to cut public investments by some 14%in 2008/2013 and the weight on GDP from 4.0% to 2.9%

In order to partially offset the decline, 15bn PPIs could be auctioned in 2010-2011

C li l S C lli V l ti St i


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22

Cyclicals: Some Compelling Valuation Stories

Iberian Cyclicals Gap between current valuation and average multiples

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

EV/Norm EBITDA Average EV/EBITDA Difference

P f T d I t ti ll Di ifi d C i


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23

Preference Towards Internationally Diversified Companies

US$ Exposure

S pai n - IBEX 35 Latam US$ L atam +US$

A bengoa 25 23 48

B anco Santander 47 0 47

B BVA 30 16 46

E bro Puleva 5 39 44

Grifols 8 35 43

Iberdrola Renovabl es 6 35 41

E ndesa 40 0 40

Telefonica 37 0 37

A cerinox 0 35 35

Mapfre 23 9 32

IBEX 35 25 6 31

S pai n - SMC Latam US$ L atam +US$

V iscofan 20 25 45

S ol Melia 30 0 30

P rosegur 27 0 27

Grupo Prisa 25 0 25

Tubacex 0 20 20

Cementos Portland 4 13 17E NCE 13 0 13

NH Hoteles 9 0 9

A lmira ll 0 6 6

S MC 4 3 7

Por tuga l Latam US$ La tam+US$

P ortugal Telecom 41 0 41

B ES 18 8 26

Cimpor 19 0 19

E DP 17 0 17

B ri sa 12 0 12

E DP Renovaveis 0 10 10

P ortucel 0 10 10

S onae Industria 8 0 8

Teixeira Duarte 5 0 5

Mota Engil 2 0 2

P ortugal 11 2 13

Iberian Companies by Domestic ExposureReven u es EBIT Revenu es Reven ues

Spai n - IBEX 35

Domestic

(%)

Domestic

(%) Sp ain - SMC

Domest ic

(%) P or tug al

Dom estic

(%)

B ME 100 100 Banco Guipuzcoano 100 REN 100

E nagas 100 100 Banco Pastor 100 S onaeCom 100

Telecinco 100 100 Banco de Valencia 100 ZON Mul timedia 100

B anesto 100 100 Antena 3 100 S onae SGPS 92

B anco Sabadell 100 100 Jazztel 100 B ri sa 88

B ankinter 100 100 Vocento 100 Galp 79

B anco Popular 100 100 Zardoya O tis 93 B PI 78

REE 98 98 Clini ca Baviera 90 E DP 78S acyrVallehermoso 84 88 Corporacion Dermoestetica 90 B CP 74

A CS 77 81 Rovi 85 S emapa 73

A ccion a 67 88 Solar ia 80 A ltri 71

Indra 65 69 Cementos Portl and 76 Mota Engil 69

Iberia 61 61 Dinamia 75 Martifer 67

E ndesa 60 60 Grupo Prisa 75 Jeronimo Martins 61

Gas Natural 60 66 Baron de Ley 70 P ortugal Telecom 55

FCC 57 65 Faes 70 E DP Renovaveis 51

Mapfre 54 77 Catalana Occidente 66 Teixeira Duarte 49

A bertis 51 55 CF Alba 65 S onae I ndust ria 26

Repsol 51 40 Zel tia 64 B ES 23

Criteria CaixaCorp 49 48 Alm irall 59 Cimpor 23Iberdrola Renovables 48 48 Prosegur 51 P ortucel 0

E bro Puleva 45 40 Vidrala 50

OHL 44 33

Iberdrola 43 46 Sol Melia 40

B BVA 39 41 ENCE 20

Telefonica 37 47 NH Hoteles 18

B anco Santander 37 37 Viscofan 15

Gamesa 36 47 Tubacex 10

Ferrovial 35 19

Inditex 32 36

A bengoa 28 30

Grifols 24 28

Tecnicas Reunidas 23 25

A cerinox 12 17

A rcelor Mittal 7 7

Ibex 35 44 47 Spain - SMC 71 P ortugal 61


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24

Spanish Companies have Significant Exposure to Latam

Spanish IBEX 35 Members Latam Exposure

Com pan y Arg enti na B razil Mexi co

Other

Latam

Total

Latam Arg enti na Br azi l Mexi co

Other

Latam

Total

Latam

B anco Santander 3 22 8 14 47 3 22 8 14 47

E ndesa 2 8 0 30 40 2 8 0 30 40

Telefonica 3 18 3 13 37 1 18 0 15 34

Repsol 23 1 1 5 30 33 1 1 10 45

B BVA 2 0 25 3 30 1 0 30 4 35

Criteria CaixaCorp 8 7 3 7 25 8 10 3 12 32

Gas Natural 4 7 6 8 25 0 6 6 16 28

A bengoa 0 14 5 6 25 0 17 4 4 25

Mapfre 2 8 3 10 23 1 4 1 4 10

Iberia 2 3 4 5 14 2 3 4 6 14

OHL 0 6 2 4 12 0 29 21 8 58

A rcelor Mit tal 2 8 1 1 12 2 8 1 1 12

Iberdrola 0 6 3 2 11 0 5 5 3 13Indra 1 2 2 3 10 1 2 2 3 8

Inditex 0 1 7 1 9 0 1 5 0 6

Grifols 1 2 3 2 8 1 1 2 2 6

Tecnicas Reunidas 0 2 2 3 7 0 1 1 3 5

Iberdrola Renovable 0 2 2 2 6 0 0 0 0 0

A CS 1 1 1 1 4 1 1 1 1 4

A bert is 1 0 0 2 3 1 0 0 1 2

S acyrVallehermoso 0 0 0 3 3 0 0 0 7 7

Ferrovial 0 0 0 2 2 0 0 0 9 9

REE 0 0 0 2 2 0 0 0 2 2

IBEX 35 3 9 5 8 25 3 9 5 9 26

IBEX 35 (ex financial 3 8 2 7 20 3 8 2 9 21

EBITRevenues

Amongst Smal l & Mid Caps, Sol Melia (30%), Prosegur (50%), Prisa (25%), Viscofn (20%) and NH Hoteles (9%)

Stock Selection


25/27

25

Stock Selection

Spanish Equity Market Main Stock Recomendations

International Latam Financial Low Refinancing Low low Interest Rate Valuation Growth

Diversification Exposure Strength Risk FlowBack Sensitivity

Telefnica

BBVA

Inditex

Tecnicas Reunidas

Acerinox

Tubacex

B: Popular

Enags

Sol Melia

Vocento

Ferrovial

Acciona

Spanish Equity Market Sector and Stock Selection


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26

Spanish Equity Market Sector and Stock Selection

BBVAInternationalInternationalBanksBanks

Overweight

BasicBasic MaterialsMaterials

IndustrialsIndustrials

TelecomsTelecoms

OilsOils

Acerinox

Tubacex

Telefnica

Tcnicas Reunidas

Underweight

B. PopularDomesticDomestic

BanksBanks

UtilitiesUtilities

MediaMedia

ConsumerConsumerSectorsSectors

ConstructionConstruction

Acciona, Enags

Vocento

Inditex, Sol Melia

Ferrovial


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27

presentation santander spain april 2010

Documents