The integration of the Cajas and the financial reform: The combined solution for the troubled financial environment A. Núñez-Lagos / G. Núñez Fernández/ R. García Llaneza Madrid, June 8, 2012

CONTENTS FINANCIAL CRISIS MADE IN SPAIN 1THE ASSESSMENT: A NEED FOR RESTRUCTURING 1.1Nature and features of savings banks 1.2Consolidation: drivers and legal alternatives 1.3Overview of the restructuring process 2THE DESIGN: A CONTRACTUAL GROUP 2.1IPS and contractual group: fundamentals of the design 3.2Establishment of a contractual group 3.3Rationale for the contractual group 3EVOLUTION THROUGH “BANKISATION” : legal developments 3.2Reasons for “bankisation” 3.3Contractual group 2.0 4THE 2012 REFORM 4.1Spanish Capital Adequacy Requirements 4.2Some figures 2

1. THE ASSESSMENT: A NEED FOR RESTRUCTURING 3

 Origin  local and social purpose  limited scope of activities  Legal nature  Business / foundation  Differences with banks  No share capital  No shareholders  Regulation and supervision: multi-level competence A NEED FOR RESTRUCTURING 1.1 Nature and features of savings banks 4

 Non-structural issues  High exposure to real estate and construction businesses  Excess capacity  Weaker internal demand – narrower margins  Dependency on wholesale financial markets  Geographic concentration risk  Structural issues  Corporate governance  Capital difficulties: no capacity to increase share-capital 1.1 Nature and features of savings banks A NEED FOR RESTRUCTURING 5

 Enhancing solvency and liquidity is the goal  Consolidation is the answer  Internal capital generation Downsizing Corporate governance  Concentration risk  Cost of finance Volume Credit rating  Accounting treatment  New capital instruments 1.2 Consolidation: drivers and legal alternatives A NEED FOR RESTRUCTURING 6

 Consolidation instruments available  Merger  IPS/Consolidated group of credit institutions  Re-organisation process  : first round of consolidation: mergers and creation of contractual groups  2011: “bankisation” of the financial business  2012: second round of consolidation. The market test  Regulatory drivers  increased capital requirements  conditional State support 1.2 Consolidation: drivers and legal alternatives A NEED FOR RESTRUCTURING 7

  45 cajas. Average size 30bn € Total Assets  2010  7 mergers  5 contractual groups  2 cajas resolved and transformed into foundations  Nearly €1,000 bn assets involved in corporate transactions. Only 5 cajas had not taken part in any : Kutxa, Vital, Ibercaja, Pollensa, Ontinyent (6.3 % total assets)  2011  All cajas (except for Caixa Pollensa and Caixa Ontinyent (0.1% total assets)) transferred their assets and liabilities to banks  1 more contractual group (Kutxabank)  1 caja resolved. Assets assigned to traditional bank.  3 more cajas + 1 bank taken over by the State  2012 (Jan-May)  3 bank mergers  State has sold out 1 out of the 4 entities taken over in Remainder to go in Sold-out cajas will merge into assignee entities  11 operating entities. Average size 103bn € Total Assets 1.3 Overview of the restructuring process A NEED FOR RESTRUCTURING Appendix 1 Appendix 2 Appendix 3 Appendix 4 8

 Limited success of mergers  Practical evidence Few transactions Regional scope, except Bankia  Resilience factors  Economic limitations  Higher cost of synergies  Loss of intangible assets  Limited accounting impact  Issues related to corporate governance and capital raising remain unsolved 1.3 Overview of the restructuring process A NEED FOR RESTRUCTURING 9

2. THE DESIGN: INSTITUTIONAL PROTECTION SCHEME/ CONTRACTUAL GROUP 10

 IPS (Institutional Protection Scheme)  Contractual undertaking to provide liquidity and capital Immediately available funds Aggregated capital and risk monitoring 24 month prior notice to quit  Legal framework: Art Directive 48\2006\CE  Subject to Banco de España consent.  Effect: zero weight of cross-exposures 2. IPS / CONTRACTUAL GROUP 2.1 IPS and contractual group: fundamentals of the design IPS Institutional Protection Scheme 11

 Contractual group  Goals sought: transferring control to a single entity. Integrated businesses under common direction Financial solidarity: shared solvency, liquidity and results  Instrument: IPS enhanced with additional elements for financial and operational integration  Legal framework Until April, 2010, not specifically provided for Current –article 8.3.d) Law 13/1985 –Royal Decree-law (“RD-law”) 10/2011 –Regional legislation 2. IPS / CONTRACTUAL GROUP 2.1 IPS and contractual group: fundamentals of the design Contractual group 12

 Requirements for an “enhanced” IPS  Centralised policies, business strategies and levels and measures for internal control and risk management –if the parties are savings banks, central entity must be a public limited liability company (S.A.) under “common control”  Solvency and liquidity commitment. Minimum 40% capital  Pooling of individual results. Minimum 40%  Term. Minimum 10 years. BdE to authorise exit  Consequences of an “enhanced” IPS  Qualifies as group for accounting/regulatory purposes  May be exempted from individual solvency requirements  One player on the market 2. IPS / CONTRACTUAL GROUP 2.2 Establishment of a contractual group Legal features 13

Shareholding structure Caja 1Caja 2Caja 3 Central entity (bank) Caja 1Caja 2Caja 3 Central entity (bank) Integration Agreement Control structure (unified management) 2. IPS / CONTRACTUAL GROUP “REVERSAL EFFECT” 14

 The Integration Agreement  Political structure Exchange ratio (quotas) Consolidation and “circular control”  Economic structure Financial integration ► solvency and liquidity support ► cash pooling ► profit pooling Functional integration ► policies ► operations ► businesses  Legal structure Stability and enforcement mechanisms 2.2 Establishment of a contractual group Integration Agreement 2. IPS / CONTRACTUAL GROUP 15

 Strategic rationale  High level integration  Limited cost of synergies  Resolves certain issues inherent to savings banks’ legal nature  Wider accounting impact  Economic rationale  Preserves the savings banks and their social role  Dual business structure (franchise-type) / dual, specialised organisation  Parent entity is a bank 2. IPS / CONTRACTUAL GROUP 2.3 Rationale for the contractual group 16

3. EVOLUTION TRHOUGH BANKISATION 17

 Transformation into a foundation  Italian precedent  Indirect financial business  Control/joint control + ≥25% share capital  Cajas live on as credit entities  Kick-start:”la Caixa” 3. EVOLUTION THROUGH “BANKISATION” : legal developments New perspectives after RD-law 11/2010 RD-law 2/2011 A new urge on consolidation  Twofold purpose  Reinforce the solvency of the financial system New capital requirements (primarily applicable to cajas) Reform of the FROB legal framework  Promote further restructuring in the savings bank sector 18

3. EVOLUTION THROUGH “BANKISATION” : legal developments RD-law 2/2011 A new urge on consolidation  Solvency requirements (additional to BIS III)  Principal capital: –Composition: roughly equivalent to BIS III/CRR IV –Scope: consolidated  Minimum required: –general: 8% RWA –10% RWA if high dependency on wholesale finance (>20%) and no significant third-party shareholders (≥20%)  Impact on banks / cajas / credit unions  Timeframe for compliance: /  Amendment of FROB legal framework  Ordinary shares become the only instrument available for support Exception: credit unions  Total bankisation of cajas  Rules on corporate governance 19

 Strategic options under RD-law 2/2011  All cajas (but for a few exceptions) need to recapitalise  Alternatives for recapitalisation raising capital on the market: public or private placement corporate transactions theoretically, disinvestments  Each alternative implies total bankisation of self-standing entities of IPSs: the existing structure proves a disadvantage on the market –excessively complex –locates value outside the bank 3. EVOLUTION THROUGH “BANKISATION” 3.2 Reasons for “bankisation” Non-compliant entities 20

 Even well capitalised entities have strong incentives to “go bank”  Avoid competitive disadvantage of being a caja  Re-organise assets and re-focus strategies  Set up a platform for future corporate transactions  Reduce cost of capital / finance  Split business / charity 3. EVOLUTION THROUGH “BANKISATION” 3.2 Reasons for “bankisation” Compliant entities 21

3. EVOLUTION THROUGH “BANKISATION” 3.3 contractual group 2.0  A contractual group without the substance  No dual business structure  Virtual merger becomes actual: full business integration full financial solidarity  Integration Agreement becomes a Shareholders’ Agreement  Present and future  Contractual groups remain as a safe harbour... ... but are not likely to live for ever no room for new groups interaction with banks will dilute the cajas’ shareholding preserving the legal form of a caja may probably cease to be a priority 22

4. THE 2012 REFORM 23

 RDL 2/2011  Required new minimum capital: o Non-listed entities or o Entities highly dependant on wholesale finance o Others:  RDL 2/2012  Reinforcing provisions related to NPLs and foreclosures.  RDL 18/2012  Reinforcing provisions related to all real estate risks.  Asset Management Companies. 4. THE 2012 REFORM 4.1 Spanish Capital Adequacy Requirements 8% 10% 24

4. THE 2012 REFORM 4.2 Some figures Increase level of provisions: € 54,000 M Increase level of provisions: € 30,000 M Source: Ministerio de Economía y Competitividad 25

4. THE 2012 REFORM Financial sector reform 2 nd phase. May 2012: Additional increase in provisions for Performing assets (around € 30 bn) 26 Source: Ministerio de Economía y Competitividad

APPENDICES 1SAVINGS BANK SECTOR SAVINGS BANK SECTOR SAVINGS BANK SECTOR SAVINGS BANK SECTOR JAN-MAY 2012 Source: statistical information of the Confederación Española de Cajas de Ahorros ( 27

APPENDICES APPENDIX 1 - SAVINGS BANK SECTOR CajaTotal assets (bn €) Caja Mediterráneo (CAM) Caja de Ahorros y M.P de Ávila7.115 Monte de Piedad y Caja General de Ahorros de Badajoz Caixa d´Estalvis i Pensions de Barcelona. (la Caixa) Caixa d´Estalvis de Catalunya Bilbao Bizkaia Kutxa Caja de A. y M. P. del Círculo Católico de Obreros de Burgos Caja de Ahorros Municipal de Burgos Caja de Ahorros y M. P. de Extremadura7.590 Caja de Ahorros y M. P. de Córdoba (Cajasur) Caja de Ahorros de Galicia Caja de Ahorros de Castilla La Mancha Caixa d´Estalvis de Girona7.815 Caja General de Ahorros de Granada Caja de Ahorro Provincial de Guadalajara1.755 Caja Provincial de Ahorros de Jaén0.982 Caja España de Inversiones, Caja de Ahorros y M. P Caja de Ahorros de La Rioja

APPENDIX 1 - SAVINGS BANK SECTOR CajaTotal assets (bn €) Caja de Ahorros y M. P. de Madrid M.P. y C.A. de Ronda, Cádiz, Almería, Málaga y Antequera (Unicaja) Caixa d'Estalvis Comarcal de Manlleu2.643 Caixa d´Estalvis de Manresa6.545 Caixa d´Estalvis Laietana9.191 Caja de Ahorros de Murcia Caja de Ahorros y M. P. de Ontinyent0.980 Caja de Ahorros de Asturias Caja de Ahorros y M. P. de Las Baleares Caja Insular de Ahorros de Canarias9.305 Caja de Ahorros y Monte de Piedad de Navarra Caja de Ahorros de Pollensa0.344 Caixa d´Estalvis de Sabadell Caja de Ahorros de Salamanca y Soria (Caja Duero) Caja de Ahorros y M. P. de Gipuzkoa y San Sebastián Caja General de Ahorros de Canarias Caja de Ahorros de Santander Y Cantabria Caja de Ahorros y M. P. de Segovia6.172 APPENDICES 29

APPENDIX 1 - SAVINGS BANK SECTOR CajaTotal assets (bn €) Caja de Ahorros Provincial San Fernando de Sevilla y Jerez Caixa d´Estalvis de Tarragona Caixa d´Estalvis de Terrassa Caja de Ahorros de Valencia, Castellón y Alicante (Bancaja) Caixa de Aforros de Vigo, Ourense E Pontevedra Caixa d´Estalvis del Penedès Caja de Ahorros de Vitoria y Álava9.252 Caja de Ahorros y M. P. de Zaragoza Aragón Y Rioja Caja de Ahorros de la Inmaculada de Aragón APPENDICES 30

APPENDIX 2 - SAVINGS BANK SECTOR / Mergers Resulting entityMerged entities Total assets of the merged entities (Bn € ) Total assets of the resulting entity (Bn € at ) Catalunya CaixaCaixa Catalunya Caixa Tarragona Caixa Manresa Nova Caixa GaliciaCaixanova Caixa Galicia Caja España de Inversiones Salamanca y Soria Caja España Caja Duero UnnimCaixa Manlleu Caixa Sabadell Caixa Terrassa La Caixa”la Caixa” Caixa Girona Cajasol Caja Guadalajara * Unicaja Caja de Jaén N.B.: (1) Last Balance Sheet before the Merger: ; (2) Last Balance Sheet before the Merger: ; (3) Last Balance Sheet before the Merger: * As of Cajasol was integrated in Banca Cívica APPENDICES 31

APPENDIX 2 - SAVINGS BANK SECTOR / Contractual Groups IPSIntegrated entities Total assets of the integrated entities (Bn € ) Consolidated total assets as of (Bn €) Banco Financiero y de Ahorros/Bankia Caja Madrid Bancaja Caja Insular de Canarias Caja de Ávila Caja Segovia Caixa Laietana Caja Rioja Banco Base* * Broke up in March, 2011 Cajastur CAM Caja Cantabria Caja Extremadura Banca CívicaCaja Navarra Cajasol Caja General de Canarias Caja de Burgos Mare NostrumCaja Murcia Caixa Penedès Caja Granada Sa Nostra Caja3CAI Caja Círculo Caja Badajoz APPENDICES 32

APPENDIX 2 - SAVINGS BANK SECTOR / Resolved Saving Banks Resolved entity Purchasing entity Total assets purchased (Bn €) Consolidated assets of purchaser after purchase (Bn €) Is the purchaser a caja or a bank controlled by a caja? Caja Castilla-La Mancha* Cajastur (CCM Bank) YES CajasurBBK (BBK Bank) YES N.B: * Acquisition was effected by end of (1) Caja Castilla La Macha´s total assets value as of Cajastur’s total assets value as of (2) Cajasur’s total assets value as of BBK´s total assets value as of APPENDICES 33

APPENDIX 3 - SAVINGS BANK SECTOR / A New Contractual Group: Kutxabank IPSIntegrated entities Total consolidated assets of integrated entities as of (Bn €) Kutxabank* BBK KUTXA VITAL N.B: * First consolidation date was APPENDICES 34

APPENDIX 3 - SAVINGS BANK SECTOR / Transfer of Assets and Liabilities to Banks Entity Method of indirect financial business Beneficiary bank Consolidated assets as of Beneficiary bank is controlled by one or more cajas Banco Financiero y de Ahorros/Bankia IPSBANKIA, SA YES Mare NostrumIPSGRUPO BMN, SA67.201YES Banca CívicaIPSGRUPO BANCA CÍVICA, SA YES Caja3IPSBANCO GRUPO CAJA3, SA YES LIBERBANK*IPSLIBERBANK, SA50.847YES Kutxabank**IPSKUTXABANK, SA-YES N.B.: * Liberbank is the Contractual Group resulting from the integration of Cajastur, Caja Extremadura y Caja Cantabria, after the breaking up of Banco Base. ** Actual first consolidation date was APPENDICES 35

APPENDIX 3 - SAVINGS BANK SECTOR / Transfer of assets and liabilities to banks Entity Method of indirect financial business Beneficiary bank Consolidated assets as of Beneficiary bank is controlled by one or more cajas La CaixaIndividual indirect financial business CAIXABANK, SA YES IbercajaIndividual indirect financial business IBERCAJA BANCO, SA45.144YES CAMIndividual indirect financial business BANCO CAM, SAU70.805YES UnicajaIndividual indirect financial business UNICAJA BANCO, SA38.252YES Caja España de Inversiones Salamanca y Soria Individual indirect financial business BANCO DE CAJA ESPAÑA DE INVERSIONES, SALAMANCA Y SORIA, SA YES Catalunya CaixaIndividual indirect financial business CATALUNYA BANC, SA77.049YES Nova Caixa GaliciaIndividual indirect financial business NCG BANCO, SA72.236YES UnnimIndividual indirect financial business UNNIM BANC, SA28.288YES APPENDICES 36

APPENDIX 3 - SAVINGS BANK SECTOR / One caja is resolved. Purchased entitiy Total assets of the purchased company as of (Bn €) Purchasing company Total assets of the purchaser as of (Bn €) Is the purchaser a caja or a bank controlled by a caja? CAM70.805Banco Sabadell NO 4. Four entities are taken over by the State Entity taken over Total assets of the entity as of State´s ownership (%) NGC Banco ,16 Catalunya Bank ,74 Unnim Banc Banco de Valencia APPENDICES 37

APPENDIX 4 - SAVINGS BANK SECTOR JAN 2012 / MAY Two bank mergers Absorbed bank Total assets of the purchased bank as of (Bn €) Absorbing bank Total assets of the purchaser as of (Bn €) Is the purchaser controlled by a caja or a group of cajas? Banco Grupo Caja Ibercaja Banco45.144YES Banca Cívica71.817CaixaBank YES Banco de Caja España de Inversiones, Salamanca y Soria Unicaja Banco38.252YES 2. Sale of the cajas taken over Sold-out entity Total assets of the sold-out entity as of (Bn €) Purchasing entity Total assets of the purchaser as of (Bn €) Is the purchaser controlled by a caja or a group of cajas? Unnim Banc28.288BBVA NO Catalunya Bank NCG Banco Banco de Valencia APPENDICES 38

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