1. Grupo Santander Competition policy and financial market integration European Parliament Financial Services Forum Brussels – 15 June 2005

2. 2 What’s wrong with Europe? Why does Europe grow at +1% and the US at +3%? Europe has lagged the US in productivity growth The US has a strong focus on productivity improvement How can Europe generate a new wave of productivity growth?

3. 3 Integration of financial services as a powerful tool to boost productivity growth Banking is part of the national “value chain”- with global competition intensifying, Europe can afford no “weak links” Productivity growth has traditionally focused on non tradable sectors Significant potential to boost productivity in service sectors such as banking We have freedom of movement for capital, for workers… … now we need a fully integrated market for financial services …but

4. 4 Why does an integrated financial services market create value? Estimates of 0,5-0,9% EU GDP p.a. 1.Fosters financial development 2.Generates economies of scale 3.…and allows for efficiency 4.Increases competition / improve pricing

5. 5 “Letting best practice travel”- in terms of technology, products. Why it is important; How exporting best practice creates value 1. Better products and better service 2. Better efficiency = cheaper prices Productivity improvement Important to improve productivity- and productivity improvement means: having banks that can provide better products or services at cheaper prices.

6. 6 MortgagesSavings 10,4% 6,8% Mortgage Bank Market Share Universal Bank Low market shares in other areas With the exception of Scottish Provident, Abbey has failed to grow its market shares in other PFS areas, despite its customer franchise and brand strength Abbey: significant potential to improve the commercial efficiency Abbey has a strong customer franchise and provides a platform to evolve in the long run from a mortgage bank into a universal bank… 18 million customers, 13.3 million active customers

7. 7 Transfer of IT and product innovation SGC: Sale of treasury products to SMEs SANTANDER GLOBAL CONNECT SPAIN SANTANDER GLOBAL CONNECT PORTUGAL Other countries 4,8x 6,5x 9x Know-how and IT transfer

8. 8 Abbey: significant potential to improve the operational efficiency Based on most recent results and management estimates of the PFS components of the peer group Grupo Santander’s proven track record Abbey / UK Banks Cost / Income ratio 62  We run “Abbeys” with lower costs and generate 20% + revenue per front employee

9. 9 Why Santander buying Abbey is good for stake holder? We can introduce innovation, choice, and price competition into the Market 2,0% 2,5% 3,0% 3,5% 4,0% 1S022S021S032S031S04 400 600 800 1.000 1.200 1.400 2,0% 3,0% 4,0% 5,0% 6,0% 7,0% q1 02q2 02q3 02q4 02q1 03q2 03q3 03q4 03q1 04q2 04q3 04 200220032004 1.300,0 1.400,0 1.500,0 1.600,0 1.700,0 1.800,0 Revenues / loans Costs / loans Operating profit (moving average) … SAN opening jaws… Abbey closing jaws IT is key Free market works: Cross border consolidation not about egos- but about productivity, efficiency, consumer choice and market discipline.

10. 10 So… financial sector integration has the potential to boost productivity growth… … Why is it not happening?

11. 11 There are barriers to integration of financial services market why does it matter? Obstacles to cross border M&A Legal / Regulatory burden –Legal structure –Ownership / voting limits –Different accounting / disclosure needs –Lack of tax coordination –Restrictions on the kinds of offers that can be executed –Differences on data protection Un-coordinated supervision Extra costs Limits “strategic options” / potential developments +

12. 12 Why less, not more regulation is important Regulation is high cost Compliance risk Limits competition Regulation has a significant impact on banks’ strategies and behaviour It does not substitute sound management practices De-regulation should be market driven Need for co-ordinated supervision 

13. 13 Conclusions Europe has all the ingredients (capital, skilled labor and market size) to become the most competitive area in the world… …but we are not taking the opportunity More not less financial integration is key for European competitiveness Financial services integration fosters innovation, choice, and price competition t For instance, by buying Abbey Santander brings more competition and innovation to the UK market Regulatory barriers are keeping the European financial sector from realizing its full potential… … the consumer gets less for his money …Protectionism is just delaying the unavoidable Need for more co-ordinated financial supervision Letting market discipline reign As long as regulation and protectionism keep “best practice” from travelling, it will be difficult for Europe to compete with the US

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