Santander - 20-F annual report

 

(Exact name of Registrant as specified in its charter)

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US GAAP o International Financial Reporting Standards as issued by the International Accounting Standards Board o Other þ

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Under Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements in conformity with the International Financial Reporting Standards previously adopted by the European Union (“EU-IFRS”). The Bank of Spain Circular 4/2004 of December 22, 2004 on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”) requires Spanish credit institutions to adapt their accounting systems to the principles derived from the adoption by the European Union of International Financial Reporting Standards. Therefore, Grupo Santander (“the Group” or “Santander”) is required to prepare its consolidated financial statements for the year ended December 31, 2007 in conformity with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.

Except where noted otherwise, the financial information contained in this report has been prepared according to the International Financial Reporting Standards as adopted by the European Union required to be applied under Bank of Spain’s Circular 4/2004. Our financial statements for the fiscal year ended December 31, 2005 were the first to be prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and the financial statements for the fiscal year ended December 31, 2004 were restated using the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 standards. Financial information for fiscal years ended on or prior to December 31, 2003, was prepared according to Bank of Spain Circular 4/91 (“previous Spanish GAAP”) and is not comparable with that prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. Note 57 to the consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2006 contains a description of the significant differences between these accounting standards. Note 57 in our Annual Report on Form 20-F for the year ended December 31, 2007 contains a description of significant differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and Generally Accepted Accounting Principals in the United States (“U.S. GAAP”).

We have formatted our financial information according to the classification format for banks used in Spain. We have not reclassified the line items to comply with Article 9 of Regulation S-X. Article 9 is a regulation of the U.S. Securities and Exchange Commission that contains formatting requirements for bank holding company financial statements. We have, however, included summary financial information that reflects the required reclassifications in Note 57 to our consolidated financial statements.

The information prepared under EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 for 2004 differs from the information contained in the statutory consolidated financial statements for that year, as approved at the Annual General Meeting on June 18, 2005, which were prepared in accordance with previous Spanish GAAP.

Additionally, the information contained in the consolidated income statements for the years ended December 31, 2006, 2005 and 2004 differs from the consolidated income statement data for such periods included in our Annual Report onForm 20-F for the year ended December 31, 2006 due to the reclassification of amounts relating to operations that were discontinued in 2007, such as the sale of our Latin American pension management companies. (See “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations”). Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, revenues and expenses of discontinued businesses must be reclassified from each income statement line item to “Profit from discontinued operations”. Revenue and expenses from prior years are also required to be reclassified for comparison purposes to present the same businesses as discontinued operations. This change in presentation does not affect “Profit attributed to the Group” (see Note 37 to our consolidated financial statements).

Our auditors, Deloitte, S.L., have audited our consolidated financial statements in respect of the three years ended December 31, 2007, 2006 and 2005 in accordance with the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. See page F-1 to our consolidated financial statements for the 2007, 2006 and 2005 report prepared by our independent registered public accounting firm.

In November 2004, we acquired 100% of the capital of Abbey National plc (“Abbey”). Our acquisition of Abbey was reflected on our financial statements as if the acquisition had occurred on December 31, 2004. Accordingly, Abbey’s assets and liabilities were consolidated into our balance sheet as of December 31, 2004, but Abbey’s results of operations had no impact on our income statement for the year ended December 31, 2004. Therefore, the income statement for the year ended December 31, 2005 is the first to reflect the acquisition of Abbey.

Our consolidated financial statements are in Euros, which are denoted “euro”, “euros”, EUR or “€” throughout this annual report. Also, throughout this annual report, when we refer to:

When we refer to average balances for a particular period, we mean the average of the month-end balances for that period, unless otherwise noted. We do not believe that monthly averages present trends that are materially different from trends that daily averages would show. We included in interest income any interest payments we received on non-accruing loans if they were received in the period when due. We have not reflected consolidation adjustments in any financial information about our subsidiaries or other units.

When we refer to loans, we mean loans, leases, discounted bills and accounts receivable, unless otherwise noted.

When we refer to impaired assets, we mean impaired loans, securities and other assets to collect.

When we refer to the allowances for credit losses, we mean the specific allowances for credit losses, and unless otherwise noted, the general allowance for credit losses including any allowances for country-risk. See “Item 4. Information on the Company—B. Business Overview—Financial Management and Equity Stakes—Classified Assets—Bank of Spain Allowances for Credit Losses and Country-Risk Requirements”.

This annual report contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include information regarding:

Forward-looking statements may be identified by words such as “expect,” “project,” “anticipate,” “should,” “intend,” “probability,” “risk,” “VaR,” “DCaR,” “ACaR,” “RORAC,” “target,” “goal,” “objective,” “estimate,” “future” and similar expressions. We include forward-looking statements in the “Operating and Financial Review and Prospects,” “Information on the Company” and “Qualitative and Quantitative Disclosures About Market Risk” sections. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements.

You should understand that adverse changes in the following important factors, in addition to those discussed in “Key Information—Risk Factors”, “Operating and Financial Review and Prospects,” “Information on the Company” and elsewhere in this annual report, could affect our future results and could cause those results or other outcomes to differ materially from those anticipated in any forward-looking statement:

The forward-looking statements contained in this annual report speak only as of the date of this annual report. We do not undertake to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

Not applicable.

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We have selected the following financial information from our consolidated financial statements. You should read this information in connection with, and it is qualified in its entirety by reference to, our consolidated financial statements.

Except where noted otherwise, the financial information contained in this report has been prepared according to the International Financial Reporting Standards as adopted by the European Union (“EU-IFRS”) required to be applied under Bank of Spain’s Circular 4/2004. Our financial statements for the fiscal year ended December 31, 2005 were the first to be prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and the financial statements for the fiscal year ended December 31, 2004 were restated using the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. Financial information for fiscal years ended on or prior to December 31, 2003 was prepared according to Bank of Spain Circular 4/91 (“previous Spanish GAAP”) and is not comparable with that prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. Note 57 to the consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2006 contains a description of the significant differences between these accounting standards. Note 57 to the 2007 consolidated financial statements contains a description of significant differences between the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 and U.S. GAAP. In addition, our financial information is presented according to the classification format for banks used in Spain.

In the F-pages of this Form 20-F, audited financial statements for the years 2007, 2006 and 2005 are presented. Audited financial statements for the year 2004 are not included in this document, but they can be found in our previous annual reports on Form 20-F.

In November 2004, we acquired 100% of the capital of Abbey. Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, our acquisition of Abbey was reflected on our financial statements as if the acquisition had occurred on December 31, 2004. Accordingly, Abbey’s assets and liabilities were consolidated into our balance sheet as of December 31, 2004, but Abbey’s results of operations had no impact on our income statement for the year ended December 31, 2004. Therefore, the income statement for the year ended December 31, 2005 is the first to reflect the acquisition of Abbey.

The information contained in the consolidated income statements for the years ended December 31, 2006, 2005 and 2004 differs from the consolidated income statement data for such periods included in our Annual Report on Form 20-F for the year ended December 31, 2006 due to the reclassification of amounts relating to operations that were discontinued in 2007, such as the sale of our Latin American pension management companies (see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations”). Under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, revenues and expenses of discontinued businesses must be reclassified from each income statement line item to “Profit from discontinued operations”. This presentation requirement came into effect in the fiscal year ended December 31, 2006. Revenues and expenses from prior years are also required to be reclassified for comparison purposes to present the same businesses as discontinued operations. This change in presentation does not affect “Profit attributed to the Group” (see Note 37 to our consolidated financial statements).

Fluctuations in the exchange rate between euros and dollars have affected the dollar equivalent of the share prices on Spanish Stock Exchanges and, as a result, are likely to affect the dollar market price of our American Depositary Shares, or ADSs, in the United States. In addition, dividends paid to the depositary of the ADSs are denominated in euros and fluctuations in the exchange rate affect the dollar conversion by the depositary of cash dividends paid on the shares to the holders of the ADSs. Fluctuations in the exchange rate of euros against other currencies may also affect the euro value of our non-euro denominated assets, liabilities, earnings and expenses.

The following tables set forth, for the periods and dates indicated, certain information concerning the exchange rate for euros and dollars (expressed in dollars per euro), based on the Noon Buying Rate as announced by the Federal Reserve Bank of New York for the dates and periods indicated.

On June 19, 2008, the exchange rate for euros and dollars (expressed in dollars per euro), based on the Noon Buying Rate, was $1.5502.

For a discussion of the accounting principles used in translation of foreign currency-denominated assets and liabilities to euros, see Note 2(a) of our consolidated financial statements.

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Our loan portfolio is mainly concentrated in Continental Europe (in particular, Spain), the United Kingdom and Latin America. At December 31, 2007, Continental Europe accounted for approximately 55% of our total loan portfolio (Spain accounted for 34% of our total loan portfolio), while the United Kingdom and Latin America accounted for 33% and 12%, respectively. Therefore, adverse changes affecting the economies of Continental Europe (in particular, Spain), the United Kingdom or the Latin American countries where we operate would likely have a significant adverse impact on our loan portfolio and, as a result, on our financial condition, cash flows and results of operations. See “Item 4. Information on the Company—B. Business Overview.”

The level of income we derive from certain of our products and services depends on the strength of the economies in the regions where we operate and certain market trends prevailing in those areas. Therefore, negative cycles may adversely affect our income in the future.

Historically, our principal source of funds has been customer deposits (demand, time and notice deposits). At December 31, 2007, 17.4% of these customer deposits were time deposits in amounts greater than $100,000. Time deposits represented 48.9%, 44.2% and 43.5% of total customer deposits at the end of 2007, 2006 and 2005, respectively. Large-denomination time deposits may be a less stable source of deposits than other type of deposits. The loss of market liquidity, triggered by the deterioration of the U.S. sub-prime credit market, continues to affect the supply and cost of liquidity and funding. The effects of the downturn have spread to the global economy, in particular to issuances in wholesale markets (principally asset backed securities) and to availability of liquid resources via the interbank markets. In this context, there can be no assurance that we will not incur materially higher funding costs or be required to liquidate certain assets.

Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of our businesses. Adverse changes in the credit quality of our borrowers and counterparties or a general deterioration in Spanish, United Kingdom, Latin American or global economic conditions, or arising from systemic risks in the financial systems, could reduce the recoverability and value of our assets and require an increase in our level of provisions for credit losses. Deterioration in the economies in which we operate could reduce the profit margins for our banking and financial services businesses.

From 2003 to 2006, historically low interest rates in the Eurozone caused an increase in the demand for mortgage loans. This had repercussions in housing prices, which also rose significantly. During 2007 and 2008 the housing market, both supply and demand, has adjusted sharply and interest rates have increased strongly in the Eurozone. As a consequence, our impaired assets as a percentage of total loans increased from 0.87% at December 31, 2006 to 1.07% at December 31, 2007. At March 31, 2008, our impaired assets as a percentage of total loans increased further to 1.29%. As real estate mortgages are one of our main assets, comprising 50% of our loan portfolio at December 31, 2007, we are currently highly exposed to developments in real estate markets. Interest rate increases from today’s levels could have a significant negative impact on our mortgage payment delinquency rates. An increase in such delinquency rates could have a material adverse effect on our business, financial condition and results of operations.

Market downturns are likely to lead to declines in the volume of transactions that the Group executes for its customers and, therefore, to declines in the Group’s non-interest revenues. In addition, because the fees that the Group charges for managing its clients’ portfolios are in many cases based on the value or performance of those portfolios, a market downturn that reduces the value of the Group’s clients’ portfolios or increases the amount of withdrawals would reduce the revenues the Group receives from its asset management and private banking and custody businesses.

Even in the absence of a market downturn, below-market performance by the Group’s mutual funds may result in increased withdrawals and reduced inflows, which would reduce the revenue the Group receives from its asset management business.

The performance of financial markets may cause changes in the value of the Group’s investment and trading portfolios. In some of the Group’s business, protracted adverse market movements, particularly asset price decline, can reduce the level of activity in the market or reduce market liquidity. These developments can lead to material losses if the Group cannot close out deteriorating positions in a timely way. This may especially be the case for assets of the Group for which there are less liquid markets to begin with. Assets that are not traded on stock exchanges or other public trading markets, such as derivative contracts between banks, may have values that the Group calculates using models other than publicly quoted prices. Monitoring the deterioration of prices of assets like these is difficult and could lead to losses that the Group did not anticipate.

The Group’s risk management techniques and strategies may not be fully effective in mitigating the Group’s risk exposure in all economic market environments or against all types of risk, including risks that the Group fails to identify or anticipate. Some of the Group’s qualitative tools and metrics for managing risk are based upon the Group’s use of observed historical market behavior. The Group applies statistical and other tools to these observations to arrive at quantifications of its risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors the Group did not anticipate or correctly evaluate in its statistical models. This would limit the Group’s ability to manage its risks. The Group’s losses thus could be significantly greater than the historical measures indicate. In addition, the Group’s quantified modeling does not take all risks into account. The Group’s more qualitative approach to managing those risks could prove insufficient, exposing it to material unanticipated losses. If existing or potential customers believe the Group’s risk management is inadequate, they could take their business elsewhere. This could harm the Group’s reputation as well as its revenues and profits.

We have historically acquired controlling interests in various companies, and have engaged in other strategic partnerships. Additionally, we may consider other strategic acquisitions and partnerships from time to time. There can be no assurances that we will be successful in our plans regarding the operation of future acquisitions and strategic partnerships.

We can give you no assurance that our acquisition and partnership activities will perform in accordance with our expectations. We base our assessment of potential acquisitions and partnerships on limited and potentially inexact information and on assumptions with respect to operations, profitability and other matters that may prove to be incorrect. We can give no assurances that our expectations with regards to integration and synergies will materialize.

The restructuring plan in place for the integration and separation of ABN AMRO into and among the businesses and operations of the Group is complex and involves substantial reorganization of ABN AMRO’s operations and legal structure. In addition, it contemplates activities taking place simultaneously in a number of businesses and jurisdictions. Implementation of the reorganization and the realization of the forecast benefits within the planned timetable may be challenging. Execution of the restructuring requires management resources previously devoted to the Group’s businesses and the retention of appropriately skilled ABN AMRO staff. The Group may not realize the benefits of the acquisition or the restructuring when expected or to the extent projected. See “Item 4. Information on the Company—A. History and Development of the Company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations—ABN AMRO Holding, N.V. (“ABN AMRO”)”.

Most of the financial systems in which we operate are highly competitive. Financial sector reforms in the markets in which we operate have increased competition among both local and foreign financial institutions, and we believe that this trend will continue. In particular, price competition in Europe and Latin America has increased recently. Our success in the European and Latin American markets will depend on our ability to remain competitive with other financial institutions. In addition, there has been a trend towards consolidation in the banking industry, which has created larger and stronger banks with which we must now compete. There can be no assurance that this increased competition will not adversely affect our growth prospects, and therefore our operations. We also face competition from non-bank competitors, such as brokerage companies, department stores (for some credit products), leasing and factoring companies, mutual fund and pension fund management companies and insurance companies.

Changes in market interest rates could affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income leading to a reduction in our net interest income. Income from treasury operations is particularly vulnerable to interest rate volatility. Since the majority of our loan portfolio reprices in less than one year, rising interest rates may also bring about an increasing non-performing loan portfolio. Interest rates are highly sensitive to many factors beyond our control, including deregulation of the financial sector, monetary policies, domestic and international economic and political conditions and other factors.

As of December 31, 2007, the Group’s interest rate risk measured in daily Value at Risk (“VaRD”) terms amounted to €75.4 million.

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of the price of our securities on the stock exchanges in which our shares and ADSs are traded. These fluctuations will also affect the conversion to U.S. dollars of cash dividends paid in euros on our ADSs.

In the ordinary course of our business, we have a percentage of our assets and liabilities denominated in currencies other than the euro. Fluctuations in the value of the euro against other currencies may adversely affect our profitability. For example, the appreciation of the euro against some Latin American currencies and the U.S. dollar will depress earnings from our Latin American operations, and the appreciation of the euro against the sterling will depress earnings from our UK operations. Additionally, while most of the governments of the countries in which we operate have not imposed prohibitions on the repatriation of dividends, capital investment or other distributions, no assurance can be given that these governments will not institute restrictive exchange control policies in the future. Moreover, fluctuations among the currencies in which our shares and ADSs trade could reduce the value of your investment.

As of December 31, 2007, our largest exposures on temporary positions (with a potential impact on the income statement) were concentrated on the U.S. dollar and the pound sterling. On that day, our largest exposures on permanent positions (with a potential impact on equity) were concentrated, in descending order, on the Brazilian real, the pound sterling, the Mexican peso and the Chilean peso.

A number of banking regulations designed to maintain the safety and soundness of banks and limit their exposure to risk apply in the different jurisdictions in which our subsidiaries operate. Changes in regulations, which are beyond our control, may have a material effect on our business and operations. As some of the banking laws and regulations have been recently adopted, the manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. Moreover, no assurance can be given generally that laws or regulations will be adopted, enforced or interpreted in a manner that will not have an adverse affect on our business.

Our businesses depend on the ability to process a large number of transactions efficiently and accurately. Losses can result from inadequate personnel, inadequate or failed internal control processes and systems, or from external events that interrupt normal business operations. We also face the risk that the design of our controls and procedures prove to be inadequate or are circumvented. We have suffered losses from operational risk in the past and there can be no assurance that we will not suffer material losses from operational risk in the future.

There may be less publicly available information about us than is regularly published about companies in the United States. While we are subject to the periodic reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), the disclosure required from foreign private issuers under the Exchange Act is more limited than the disclosure required from U.S. issuers. Additionally, we present our financial statements under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004 which differs from U.S. GAAP. See Note 57 to our consolidated financial statements.

The Group faces various issues that may give rise to risk of loss from legal and regulatory proceedings. These issues include appropriately dealing with potential conflicts of interest; legal and regulatory requirements; ethical issues; money laundering laws; and conduct by companies in which we hold strategic investments or joint venture partners. Failure to address these issues appropriately could increase the number of litigation claims and the amount of damages asserted against the Group or subject the Group to regulatory enforcement actions, fines and penalties. Currently, the Bank and its subsidiaries are the subject of a number of legal proceedings and regulatory actions. An adverse result in one or more of these proceedings could have a material adverse effect on our operating results for any particular period. For information relating to the legal proceedings involving our businesses, see “Item 8. Financial Information—A. Consolidated statements and other financial information—Legal proceedings”.

Any downgrade in our ratings could increase our borrowing costs, limit our access to capital markets and adversely affect the ability of our business to sell or market their products, engage in business transactions –particularly longer-term and derivatives transactions- and retain our customers. This, in turn, could reduce our liquidity and have an adverse effect on our operating results and financial condition.

The economies of the eight Latin American countries where we operate have experienced significant volatility in recent decades, characterized, in some cases, by slow or regressive growth, declining investment and hyperinflation. This volatility has resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the economies to which we lend. Latin American banking activities (including Retail Banking, Global Wholesale Banking, Asset Management and Private Banking) accounted for €2,666 million of our profit attributed to the Group for the year ended December 31, 2007 (an increase of 17% from €2,287 million for the year ended December 31, 2006). Negative and fluctuating economic conditions, such as a changing interest rate environment, impact our profitability by causing lending margins to decrease and leading to decreased demand for higher margin products and services. Negative and fluctuating economic conditions in some Latin American countries could also result in government defaults on public debt. This could affect us in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default in public debt could cause to the banking system as a whole, particularly since commercial banks’ exposure to government debt is high in several Latin American countries in which we operate.

In addition, revenues from our Latin American subsidiaries are subject to risk of loss from unfavorable political and diplomatic developments, social instability, and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps and tax policies.

No assurance can be given that our Latin American subsidiaries’ growth, asset quality and profitability will not be affected by volatile macroeconomic and political conditions in the Latin American countries in which we operate.

Several recent political developments in Venezuela present an increased risk that the Venezuelan government could nationalize or otherwise seek to intervene in the operations of our Venezuelan subsidiary, which could negatively affect our operations in Venezuela.

The profit attributed to the Group obtained from Venezuela in 2007 amounted to €179 million, which accounted for 2% of the total profit attributed to the Group during the year.

Because some of the Latin American countries in which we operate (i) only have limited regulatory barriers to market entry, (ii) generally do not differentiate between locally or foreign-owned banks, (iii) have permitted consolidation of their banks, and (iv) do not restrict capital movements, we face significant competition in Latin America from both domestic and foreign commercial and investment banks.

Financial and securities markets in the Latin American countries where we operate are, to varying degrees, influenced by economic and market conditions in other countries in Latin America and beyond. Negative developments in the economy or securities markets in one country, particularly in an emerging market, may have a negative impact on other emerging market economies. These developments may adversely affect the business, financial condition and operating results of our subsidiaries in Latin America.

Banco Santander, S.A. (“Santander” or “the Bank”) is the parent bank of Grupo Santander. It was established on March 21, 1857 and incorporated in its present form by a public deed executed in Santander, Spain, on January 14, 1875.

On January 15, 1999, the Boards of Directors of Banco Santander, S.A. and Banco Central Hispanoamericano, S.A. agreed to merge Banco Central Hispanoamericano, S.A. into Banco Santander, S.A., and to change Banco Santander’s name to Banco Santander Central Hispano, S.A. The shareholders of Banco Santander, S.A. and Banco Central Hispanoamericano, S.A. approved the merger on March 6, 1999, at their respective general meetings. The merger and the name change were registered with the Mercantile Registry of Santander, Spain, by the filing of a merger deed. Effective April 17, 1999, Banco Central Hispanoamericano, S.A. shares were extinguished by operation of law and Banco Central Hispanoamericano, S.A. shareholders received new Banco Santander shares at a ratio of three shares of Banco Santander, S.A. for every five shares of Banco Central Hispanoamericano, S.A. formerly held. On the same day, Banco Santander, S.A. changed its legal name to Banco Santander Central Hispano, S.A.

The General Shareholders’ Meeting held on June 23, 2007 approved the proposal to change the current name of the Bank to Banco Santander, S.A.

We are incorporated under, and governed by the laws of the Kingdom of Spain. We conduct business under the commercial name “Santander”. Our corporate offices are located in Ciudad Grupo Santander, Avda. de Cantabria s/n, 28660 Boadilla del Monte (Madrid), Spain. Telephone: (011) 34-91-259-6520.

Our principal acquisitions and dispositions in 2005, 2006 and 2007 are as follows:

On July 20, 2007, after having obtained the regulatory authorizations required to publish the documentation for the takeover bid for ABN AMRO, the Bank, together with the Royal Bank of Scotland Group plc, Fortis N.V. and Fortis S.A./N.V. (together, the “Bidders”) formally launched, through RFS Holdings B.V., an offer for all the ordinary shares, ADSs and previously convertible preference shares of ABN AMRO. The initial acceptance period of this offer (the “Offer”) ended on October 5, 2007.

The Bidders and RFS Holdings B.V., a company newly incorporated for the purpose of making the proposed offer, entered into an agreement relating to the Offer, dated as of May 28, 2007 (the “Consortium Agreement”). The Consortium Agreement sets forth the terms on which the Offer was made and provides for the management of ABN AMRO after completion of the Offer. This includes the allocation of the ABN AMRO businesses among the Bidders and the sale of non-core assets of ABN AMRO.

On October 10, 2007, the Bidders declared the Offer to be unconditional. As of that date, the owners of 86% of the ordinary share capital of ABN AMRO had accepted the Offer (including certain shares that the Bidders already owned and had undertaken to contribute to RFS Holdings B.V.).

On the same date, the commencement of an additional offer period was announced, during which the holders of ordinary shares and ADSs of ABN AMRO could tender them, under the same terms and conditions as those of the Offer, until October 31, 2007.

At the end of the additional offer period, the owners of 98.8% of the ordinary share capital of ABN AMRO (excluding its treasury shares) had definitively accepted the Offer.

The investment made by the Bank in ABN AMRO amounted to €20,615 million and, at December 31, 2007, consisted of the Bank’s 27.9% ownership interest in the share capital of RFS Holdings B.V., the holding entity of the shares of ABN AMRO.

Following all of these actions, the Bidders began the spin-off of the business lines of ABN AMRO in order to subsequently integrate each of the spun-off businesses into the Bidders. The following business lines correspond to Santander: the Latin American Business Unit of ABN AMRO–basically Banco ABN AMRO Real S.A. (“Banco Real”) in Brazil, the Banca Antoniana Popolare Veneta Spa Banking Group (“Antonveneta”), the cash relating to the sale of the consumer banking unit of ABN AMRO in the Netherlands – “Interbank” and DMC Consumer Finance, plus 27.9% of the assets that were not allocated to any of the Bidders of the consortium and which are intended to be disposed of. The finalization of the asset spin-off and integration process is subject to approval, among other regulators, by the Dutch Central Bank.

On November 15, 2007, ABN AMRO sold the consumer finance units located in the Netherlands for€98 million. Additionally, on November 8, 2007, the Bank entered into an agreement with Monte dei Paschi di Siena for the sale, at the earliest possible date and no later than September 2008, of Antonveneta (excluding Interbanca, the corporate banking division of Antonveneta, whose net investment value amounts to approximately €800 million) for €9 billion. The transaction was completed on May 30, 2008.

Accordingly, after the sale of Antonveneta to Monte dei Paschi di Siena, the net investment made by the Bank, basically in Banco Real and Interbanca, amounted to approximately €11,615 million (see more information about Interbanca in “Recent events – Agreement between Santander and General Electric (“GE”)”).

Banco Real is the fourth-largest bank in Brazil in terms of volume of loans, deposits and income. It has an extensive distribution network (1,900 branches and 8,700 ATMs), which enables it to carry on full retail and wholesale banking activities throughout Brazil, currently serving over 13 million customers. It also has entities specializing in private banking and vehicle financing.

The combination of the Group’s historical business in Brazil through Santander Brazil with Banco Real positions the combined entity with a market share and an infrastructure equal to those of the two leading private banks in Brazil, and creates the second-largest bank in Brazil in terms of deposits, the third-largest in terms of lending and network size, and the fourth-largest in terms of income.

At December 31, 2006, Banco Real had assets amounting to BRL120.83 billion (€50 billion), equity amounting to BRL9.78 billion (€4 billion) and attributed profit amounting to BRL2.48 billion (€1 billion).

Banco BPI, S.A. (“BPI”). Grupo Santander announced in January 2007 that it had entered into a firm agreement with Banco Comercial Portugués (“BCP”) for the sale to this bank of 44.6 million shares of Portuguese bank BPI, representing 5.87% of BPI’s share capital, at a price of €5.70 per share. The price is equal to that offered by BCP in the tender offer launched by it for BPI, or at a higher price should BCP revise its public offer bid upwards. The agreement was subject to regulatory approvals.

In May 2007, the tender offer failed since it did not obtain the minimum required support by BPI’s shareholders on which the bid was conditioned. The Bank of Portugal had set out a maximum level of ownership by BCP in BPI in case that the tender offer did not succeed. Grupo Santander sold to BCP 35.5 million shares of BPI, with capital gains of €107 million. As of December 31, 2007, the Group held 1.2% of BPI.

Santander Consumer Chile. Santander Consumer Finance and the Bergé Group, through its Chilean subsidiary SKBergé, a company formed by Sigdo Koppers and Bergé (“SKB”), reached a strategic agreement to set up a finance company in Chile. SKB will have an ownership interest of between 10% and 49%, with the remaining 90% to 51% to be held by Santander Consumer Finance. The new company, which will operate under the name of Santander Consumer Chile, will engage in consumer finance, focusing on both car and other durable consumer goods and credit cards. As of December 31, 2007, Santander Consumer Finance has acquired 89% of the capital stock of Santander Consumer Chile (at a cost of €13 million) and SKBergé the remaining 11%.

Financiera Alcanza S.A. de C.V. SOFOL (“Alcanza”). On June 13, 2007 Santander Consumer Finance signed an agreement with the main shareholders of Alcanza to acquire and increase the capital of Alcanza. After the transaction, Santander Consumer will control 85% of Alcanza. As in its other markets, Santander Consumer’s business in Mexico will focus on consumer finance and auto financing as part of its growth strategy.

Alcanza has 160 employees in 15 branches in Mexico. The total value of the acquisition together with the capital increase is an estimated US$39.5 million. The deal was closed in December 2007.

Bolsas y Mercados Españoles, S.A. (“BME”). On July 16, 2007, Santander Investment Bolsa, S.V., S.A. announced that it had carried out a private placement of shares in BME, for the account of Grupo Santander, among other institutional investors. A total of 2,842,929 shares of BME, representing 3.4% of the share capital of BME were placed, at a price of €42.90 per share. The transaction generated capital gains of €111 million for the Group.

Sale of Latin American pension fund management companies. On July 27, 2007 we announced that we had agreed to sell our Latin American mandatory pension fund management companies (“AFPs”) to ING Group for US$1,314 million (€906 million), generating a capital gain of €747 million. The sale includes fund management companies in Mexico (Afore Santander), Chile (AFP Bansander), Colombia (AFP and Cesantía Santander) and Uruguay (Afinidad AFAP).

On November 14, 2007 we announced that we had reached an agreement with ING Groep NV for the sale of our stake in the pension fund manager Orígenes AFJP and in the annuity provider Orígenes Seguros de Retiro, in Argentina, for a total consideration of US$166 million (€112 million), generating a capital gain of €84 million for the Group.

On November 14, 2007, we announced that we had sold ten real estate properties to two companies of Grupo Pontegadea for €458 million, obtaining a capital gain of €216 million. At the same time, we entered into a 40 year long lease contract of these properties, with an option to repurchase such properties.

On November 23, 2007, we concluded the sale of 1,152 properties to a company belonging to the Pearl Group, whose main shareholder is Sun Capital. Simultaneously, Grupo Santander entered into a lease agreement for these properties for a period of between 45 to 47 years, with an option to repurchase such properties. The transaction amounts to €2,040 million, generating an approximate net capital gain of €860 million for Grupo Santander.

CB Extrobank. (“Extrobank”). In 2007 we acquired 100% of the Russian bank Extrobank for €48 million and generated goodwill of €37 million.

Drive Consumer USA Inc. (formerly, Drive Financial Services LP) (“Drive”). On September 25, 2006, we reached an agreement to acquire 90% of Drive in the U.S. for $637 million in cash, representing a multiple of 6.8 times the estimated earnings for 2006. The transaction closed in 2006 and generated goodwill of $544 million. As of June 10, 2008, Grupo Santander has bought an additional 1% stake in Drive for $17 million.

Under the agreement, the total purchase price paid by Santander could increase by a maximum of $175 million, if Drive meets certain earning targets in 2007 and 2008.

Drive is one of the leading auto financing companies in the “subprime” customer segment in the United States. Based in Dallas, Texas, it is present in 35 states, with approximately 50% of its activity concentrated in Texas, California, Florida and Georgia. Drive has around 600 employees and its products are distributed through more than 10,000 auto dealer partnerships.

Until our acquisition, 64.5% of Drive was owned by HBOS plc and 35.5% by its management team. Following the acquisition by Santander, the present Chairman and COO of Drive is acting as Chief Executive Officer, maintaining ownership of 9% of Drive, a percentage on which the parties have signed a series of options which could enable Grupo Santander to buy this 9% between 2009 and 2013 at prices linked to the Drive’s earnings performance.

Abbey National plc (“Abbey”). On July 25, 2004, our Board of Directors and the Board of Directors of Abbey announced that they had reached an agreement on the terms of a recommended acquisition by us of all the ordinary shares of Abbey by means of a scheme of arrangement under the United Kingdom Companies Act.

After the approval of shareholders at the respective shareholders’ meetings of both companies, held in October 2004, and once all conditions of the transaction were met, on November 12, 2004, the acquisition was completed through the delivery of one new share of Santander for every Abbey share. The capital increase amounted to €12,540.9 million, representing 1,485,893,636 new Santander shares of €0.50 par value each and a share premium of €7.94 each.

On September 1, 2006, Abbey sold its entire life insurance business to Resolution plc (“Resolution”) for a fixed cash consideration of €5.3 billion (£3.6 billion). This represents 97% of the embedded value of the businesses sold as reported by Abbey as of December 31, 2005, and did not generate capital gains for Grupo Santander.

The life insurance businesses sold were Scottish Mutual Assurance plc, Scottish Provident Limited and Abbey National Life plc, as well as the two offshore life insurance companies, Scottish Mutual International plc and Scottish Provident International Life Assurance Limited. Abbey retained its entire branch based investment and asset management business and James Hay, its self-invested personal pension company, and its wrap business.

Separately, in order to provide continuity of product supply and service to its customers, Abbey entered into two distribution agreements with Resolution under which (i) Abbey would distribute through its retail network Abbey-branded life and pensions products created by Resolution; and (ii) Abbey would continue to be the exclusive distributor of Scottish Provident protection products to intermediaries.

In addition, Abbey secured exclusive access to provide retail banking products to Resolution’s five million policyholders.

Approximately 2,000 Abbey employees were transferred to Resolution as part of the transaction. Resolution continues to operate the life operations from the Abbey premises in Glasgow and also maintains the operations in Dublin, the Isle of Man and Hong Kong.

Sovereign Bancorp, Inc. (“Sovereign”). On May 31, 2006, Santander acquired shares of common stock of Sovereign equal to 19.8% of Sovereign’s outstanding shares after giving effect to such purchase. The purchase price was $27 per share ($25.65 post-stock dividend), for an aggregate purchase price of $2.4 billion and generated goodwill of $760 million. The proceeds of the sale were used by Sovereign to finance a portion of the $3.6 billion cash purchase price that Sovereign paid to acquire Independence Community Bank Corp. (‘‘Independence’’).

Sovereign’s Board of Directors elected three Santander designees to its Board of Directors, and at Santander’s Annual General Meeting of Shareholders held on June 17, 2006, the chief executive officer of Sovereign at that time was elected to Santander’s Board of Directors. Effective as of the beginning of 2007, the Sovereign Board of Directors decided to appoint a new chief executive officer and the former chief executive officer resigned from Santander’s Board of Directors. No representative of Sovereign currently serves on our Board.

Under the Investment Agreement dated October 24, 2005 between Santander and Sovereign, as amended (the ‘‘Investment Agreement’’), Santander had the right to increase its stake to 24.99% of Sovereign’s outstanding shares at market prices but, unless otherwise approved by Sovereign’s shareholders, any such shares purchased had to be placed in a voting trust and voted in proportion to the votes of Sovereign’s shareholders other than Santander and its affiliates. On May 3, 2007, Sovereign’s shareholders approved an amendment to Sovereign’s articles of incorporation that, among other effects, authorizes Santander to vote the shares then held in the voting trust and any additional Sovereign shares that Santander might acquire in the future. After shareholder approval of the amendment to Sovereign’s articles of incorporation, Santander and Sovereign took the necessary steps to terminate the voting trust and transfer the shares held by the trust to Santander. Upon completion of these steps, and since June 6, 2007, Santander has had the right to vote all of the 23,593,724 Sovereign shares previously held in the voting trust.

The Investment Agreement provides that, except with the consent of Sovereign’s Board of Directors or pursuant to the procedures described below, Santander may not increase its ownership stake in Sovereign to more than 24.99% until the end of the standstill period under the Investment Agreement. The Investment Agreement also provides that, Santander has certain rights to acquire additional Sovereign shares as necessary to allow it to maintain its 24.99% ownership interest.

From time to time, since May 31, 2006, Sovereign has issued shares in the ordinary course of business pursuant to the exercise of employee stock options, resulting in dilution of Santander’s ownership interest. From time to time, Santander has made purchases of additional shares from Sovereign or in open market transactions to offset, or partially offset, this dilution. In addition, to prevent further dilution of our holding, in May 2008, we invested $312 million to subscribe to a $1.25 billion common stock offering completed by Sovereign.

As of December 31, 2007, we had acquired 24.43% of Sovereign at a cost of €2.3 billion. During 2007, we made an appraisal of our investment in Sovereign and we reduced the value of our holding by €1,053 million as of December 31, 2007 (see Note 13 to our consolidated financial statements).

The Investment Agreement provides that, until May 31, 2011, Santander will have the option to make an offer to acquire 100% of Sovereign, subject to certain conditions and limitations agreed between the parties. If such an offer is made by Santander and the offer is the highest offer resulting from an auction of Sovereign or at least equal to a full and fair price for Sovereign as determined pursuant to a competitive valuation procedure agreed by the parties, the Sovereign board must accept the offer, provided that until May 31, 2009, any offer made by Santander must be at a price of at least $38 per share. Even if the Sovereign board accepts the offer, Santander will not be permitted to complete an acquisition of Sovereign unless a majority of the non-Santander shareholders who vote at the relevant Sovereign shareholder meeting approve the acquisition. In addition, until May 31, 2011, Santander will have a right of first negotiation and a matching right with respect to third party offers to acquire Sovereign. Finally, with certain exceptions, Santander has agreed that, until May 31, 2011, it will not sell or otherwise dispose of its Sovereign shares.

Santander has several options with respect to its investment in Sovereign. Santander can hold its investment in Sovereign indefinitely, seek to acquire 100% of Sovereign or, subject to the terms of the Investment Agreement, sell or otherwise dispose of its investment.

Intesa Sanpaolo. On December 29, 2006, we announced that we had sold shares representing 4.8% of the share capital of San Paolo-IMI, S.p.A. for a total consideration of €1,585 million. This transaction generated a capital gain of €705 million for Santander.

On June 19, 2007 we announced that we had sold our final stake of 1.79% that we held in the share capital of the Italian bank Intesa Sanpaolo (the entity resulting from the merger of San Paolo-IMI and Intesa), for a total consideration of €1,206 million. The transaction generated a capital gain of €566 million for the Group.

Banco Santander Chile. On November 27, 2006 Santander announced its intention to offer up to 7.23% of Banco Santander Chile’s common stock through a public offering registered with the Securities and Exchange Commission in the United States of America.

Banco Santander Chile is Chile’s largest bank, in terms of total loans and total deposits, and is a key element in Santander’s strategy in Latin America. Santander’s current policy is to maintain ownership of at least 75% of Banco Santander Chile’s common stock as part of its long term investment strategy in Latin America.

The public offering was completed in December 2006 and generated gross capital gains for Grupo Santander of €270 million.

Fumagalli Soldan. On November 8, 2006, Santander reached an agreement with KBL Group to acquire via its specialized subsidiary, Banif, the Italian private bank, KBL Fumagalli Soldan, a subsidiary of the KBL Group. The deal is valued at €44 million. Fumagalli Soldan has offices in Rome and Milan and has assets under management of €400 million. Santander plans to integrate Fumagalli Soldan with Banif and offer its Italian customers a wider range of banking products and services. Santander already has a consumer credit activity in Italy via Santander Consumer Finance.

Antena 3 de Televisión, S.A. (“Antena 3TV”). On October 25, 2006 Antena 3TV announced that it would repurchase a 10% interest in itself which was held directly or indirectly by Santander. The transaction, approved at the shareholders’ general meeting held in November 2006 by Antena 3TV, resulted in the acquisition by Antena 3TV of shares representing 5% of its share capital and a capital reduction through amortization of another 5%, in both cases at a price of €18 per share.

The acquisition was completed during 2006 and generated a capital gain of €294 million for Santander.

Merger of Banco Santander, S.A. and Riyal, S.L.(“Riyal”), Lodares Inversiones, S.L. Sociedad Unipersonal (“Lodares”), Somaen-Dos, S.L. Sociedad Unipersonal (“Somaen”), Gessinest Consulting, S.A. Sociedad Unipersonal (“Gessinest”) and Carvasa Inversiones, S.L. Sociedad Unipersonal (“Carvasa”). On October 23, 2006, the Bank held an Extraordinary General Shareholders’ Meeting that approved the merger by absorption of Riyal, Lodares, Somaen, Gessinest and Carvasa, into Banco Santander. As a result, Banco Santander absorbed all of the other five companies mentioned above, which were wholly-owned, directly or indirectly, by Banco Santander. The absorbed companies have been terminated and all of their net corporate assets have been transferred to Banco Santander which has acquired, as universal successor, all of the rights and obligations making up the net assets of the absorbed companies.

In 2003 the Bank launched a takeover bid for up to 42,811,991 Cepsa shares, and the offer was accepted for 32,461,948 shares, representing an investment of €909 million.

Total, S.A. considered that the Bank’s takeover bid breached historical side agreements between it (or its subsidiary, Elf Aquitaine, S.A.- “Elf”) and the Bank in relation to Cepsa and, accordingly, filed a request for arbitration at the Netherlands Court of Arbitration.

On April 3, 2006, the partial award rendered by the Arbitral Tribunal which, in the framework of the Netherlands Arbitration Institute, resolved the request for arbitration filed by Total, S.A. against the Bank was notified to the parties. The Tribunal considered that the side agreements contained in the agreements relating to Cepsa between the Bank and Total, S.A. (or Elf) were rendered invalid by application of Transitional Provision Three of Law 26/2003, of July 17. However, the fact that the Bank launched the aforementioned takeover bid without prior consultation with Total, S.A. caused, in the opinion of the Tribunal, an insurmountable disagreement between the two parties which, in application of the part of the agreements that was not rendered invalid, entitled Total, S.A. to repurchase from the Bank a 4.35% ownership interest in Cepsa at the price established in the agreements.

Also, the aforementioned partial award ordered the dissolution of Somaen-Dos, S.L. (Sole-Shareholder Company), the sole purpose of which was to hold ownership interests in Cepsa, with a view to each shareholder recovering direct ownership of their respective Cepsa shares, in accordance with the agreements entered into between the Bank and Total, S.A. (or “Elf”). To this end, on August 2, 2006, the Bank and Riyal, S.L. entered into two agreements, one with Elf Aquitaine, S.A. and Odival, S.A. and the other with Unión Fenosa, S.A. to enforce the partial award and separate the ownership interests that they each held through Somaen-Dos, S.L.

On October 13, 2006, Elf received notification from the European Commission communicating the authorization of the share ownership concentration resulting from the acquisition by Elf of shares representing 4.35% of the share capital of Cepsa. Consequently, the Group sold 11,650,893 Cepsa shares to Elf for €53 million. This sale gave rise to a loss of €158 million which was covered by a provision recognized for this purpose.

Banco Santander, S.A.’s holding in Cepsa was 31.64% of Cepsa’s share capital at December 31, 2007.

AFP Unión Vida. On July 25, 2006, Grupo Santander reached an agreement with Banco de Crédito Perú to sell to the latter the Peruvian pension company AFP Unión Vida for an amount, subject to adjustment, of $142 million. The transaction was completed on August 25, 2006 and generated for Santander capital gains of approximately $100 million.

Inmobiliaria Urbis, S.A (“Urbis”). In July 2006, the Group and Construcciones Reyal, S.A.U. (“Reyal”) entered into an agreement whereby Reyal undertook to launch a takeover bid for all the share capital of Urbis, at a price of €26 per share, provided that at least 50.267% of the share capital of Urbis was accepted. The Group undertook to transfer to Reyal all its ownership interest in Urbis and not to accept any competing offers. Upon completion of the terms stipulated by current legislation, on December 15, 2006, the CNMV announced that the takeover bid was valid, since it had been accepted by 96.40% of the shares of Urbis. The transaction was definitively settled on December 21, 2006 and gave rise to pre-tax gains of €1,218 million.

Both Reyal and URBIS are among the largest real estate companies in Spain.

Unifin S.p.A. (“Unifin”). In May 2006 the Group acquired 70% of the Italian consumer finance entity Unifin for €44 million, giving rise to goodwill of €37 million.

Banco Santa Cruz S.A. (“Banco Santa Cruz”). On April 18, 2006 we sold our entire stake in the capital stock of our subsidiary in Bolivia, Banco Santa Cruz.

Island Finance. On January 23, 2006, our subsidiary in Puerto Rico, Santander BanCorp, and Wells Fargo & Company reached an agreement through which we would acquire the assets and business operations in Puerto Rico of Island Finance, a consumer finance company, from Wells Fargo for $742 million. The transaction closed in the first quarter of 2006 and generated goodwill of $114 million. In 2007, we assessed our ownership interest in Island Finance and adjusted the value of the investment by €14 million. Island Finance provides consumer financing and mortgages to 205,000 customers through its 70 branches in Puerto Rico.

Interbanco S.A. (“Interbanco”). On September 14, 2005 we reached an agreement with SAG (Soluções Automóvel Globlais) of Portugal to form an alliance that will conduct consumer and vehicle financing operations in Portugal, as well as operational car leasing in Spain and Portugal. In January 2006, we paid €118 million to acquire 50.001% of Interbanco’s capital stock. At the close of this transaction, we combined our consumer and vehicle finance businesses in Portugal with those of SAG through the merger of Interbanco and Hispamer Portugal. Santander owns 60% of the capital stock of the combined company and SAG owns the remaining 40%.

In 2007 we acquired an additional 9.999% stake in Interbanco through Interbanco’s absorption of the branches in Portugal of Santander Consumer E.F.C, S.A. and Santander Consumer Finance, S.A. and consequently Interbanco changed its name to “Banco Santander Consumer Portugal”. After this transaction, and subject to the original agreements, we acquired the remaining 40% for €138 million. These transactions generated goodwill of €74 million. At December 31, 2007 we owned 100% of Banco Santander Consumer Portugal.

ELCON Finans A.S. (“Elcon”) and Bankia Bank A.S.A. (“Bankia”). In September 2004, we acquired 100% of the capital stock of Elcon, a leading Norwegian vehicle finance company, for 3.44 billion Norwegian Kroners (approximately €400 million). Subsequently, we agreed to sell Elcon’s equipment leasing and factoring businesses for approximately €160 million. This transaction generated goodwill of €120 million.

In March 2005, we launched a tender offer for Bankia (a Norwegian bank). In May 2005, we acquired 100% of Bankia’s capital stock for a total price of €54 million. This transaction generated goodwill of €45 million.

In December 2005, Elcon and Bankia were merged to form Santander Consumer Bank A.S.

The Royal Bank of Scotland Group, plc. (“RBS”). In September 2004, we sold 79 million of our RBS shares, representing 2.51% of our holding, at a capital gain of approximately €472 million. In January 2005, we sold our entire holding in RBS for €2,007 million at a capital gain of €717 million. In 2007, we acquired a 2.3% stake in the capital stock of RBS as a financial investment.

Unión Eléctrica Fenosa, S.A. (“Unión Fenosa”). In 2002, we acquired several holdings in the capital stock of Unión Fenosa for a total amount of €465 million. In 2004, we sold 1% of our holding that as of December 31, 2004, was 22.02%.

In September 2005, we agreed to sell our entire stake in Unión Fenosa, equivalent to 22.07% of its capital stock, to ACS Actividades de Construcción y Servicios, S.A. (ACS) for a price of€2,219 million. As a result of this sale, we realized capital gains of €1,157 million.

Auna Operadores de Telecomunicaciones, S.A. (“Auna”). In 2002, we acquired a 12.62% stake in Auna for €939 million, thus increasing to 23.49% our total holding in this company. This stake was increased by an additional 2.5% in 2004, for approximately €217 million. Furthermore, during 2004, we made purchases for an additional 1.5% stake in Auna for approximately €120 million. As of December 31, 2004, we had a 27.34% holding in the capital stock of Auna, with an investment of€2,031 million.

In January 2005, we acquired an additional 4.74% stake in Auna for €422 million, thus increasing to 32.08% our total holding in this company.

In November 2005, we sold 27.07% of our holding in Auna to France Télécom at a capital gain of €355 million. As of December 31, 2005, we had a 5.01% holding in the capital stock of Auna.

Shinsei Bank, Ltd (“Shinsei”). In 2003, we increased our holding in the capital stock of the Japanese bank Shinsei from 6.5% as of December 31, 2002, to 11.4% as of December 31, 2003. The total cost of the investment at that date was approximately €144 million. During 2004, we sold 4.0% of our holding at a capital gain of approximately €118 million. After this transaction, we held 7.4% of the capital stock of Shinsei. In the first quarter of 2005, we sold 2.7% of our holding at a capital gain of €49 million. As of December 31, 2007, we held 4.23% of the capital stock of Shinsei.

Commerzbank AG (“Commerzbank”). During 2005 we sold our 3.38% holding in Commerzbank at a capital gain of €24 million.

In addition to expanding our existing operations, we continually review possible acquisitions of, and investments in, businesses in markets in which we believe we have particular advantages.

As of December 31, 2005, 2006 and 2007 our capital stock consisted of 6,254,296,579 fully subscribed and paid shares of €0.5 par value each.

On January 25, 2008, we announced that we had reached an agreement with a consortium led by the United Kingdom property investor Propinvest for the sale of Ciudad Grupo Santander (our corporate headquarters) and its simultaneous lease-back for a period of 40 years, with a right to repurchase this property at the end of such period.

The price agreed for Ciudad Grupo Santander was €1.9 billion, generating capital gains of approximately €605 million.

Including other sale and leaseback operations we have conducted of our real estate assets in Spain, we have sold properties (always with simultaneous lease-back and re-purchase option) for a total amount of €4,398 million, generating capital gains totaling approximately €1,681 million. The transaction related to Ciudad Grupo Santander was the final part of the sale of our Spanish real estate property portfolio.

On February 27, 2008 Santander and Fortis reached an agreement under which Santander will purchase from Fortis ABN AMRO’s asset management business in Brazil, which was acquired by Fortis as part of the purchase of ABN AMRO by a consortium of Royal Bank of Scotland (“RBS”), Fortis and Santander. For more information see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganization—ABN AMRO Holding N.V. (“ABN AMRO”)”.

The transaction, valued at €209 million, was completed on March 12, 2008.

On March 27, 2008, Banco Santander and GE, through its GE Money and Commercial Finance business units, reached a preliminary agreement on the acquisition of certain businesses from each other valued at €1 billion.

Under the terms of the preliminary agreement, Banco Santander will acquire GE Money’s units in Germany, Finland and Austria, and its card and auto businesses in the UK, while GE Commercial Finance will acquire Interbanca, the Italian commercial bank assigned to Santander as part of the distribution of assets following the acquisition, together with RBS and Fortis, of ABN AMRO.

Banco Santander expects to integrate the GE Money units acquired, with total assets of €9 billion, into Santander Consumer Finance and Santander Cards. Interbanca would become part of GE Commercial Finance, providing GE with an enhanced capability to service midmarket banking businesses in Italy.

On June 2, 2008, we announced that we had reached a final agreement with GE and that the agreed base price for both transactions amounted to €1 billion each, subject to several adjustments.

These transactions are expected to close during the fourth quarter of 2008.

On April 4, 2008, Santander reached a preliminary agreement with RBS to acquire its continental European consumer finance business for €336 million. The package includes activities in Germany, the Netherlands, Belgium and Austria. The acquisition will be carried out by Santander Consumer Finance Germany GMBH.

The RBS European consumer finance business (“RBS ECF”) has 861 employees serving 2.3 million customers in Germany, the Netherlands, Belgium and Austria. Assets of RBS ECF in 2007 averaged€2.2 billion. RBS ECF makes installment loans both directly and via partners. It is strongly represented in the credit card business both in terms of private and corporate customers, and provides consumer finance via retail chains.

The acquisition is conditional upon a definitive agreement and the relevant approval from various national authorities.

We are a financial group operating principally in Spain, the United Kingdom, Portugal, other European countries and Latin America, offering a wide range of financial products. At December 31, 2007, we were one of the eight largest banking groups in the world by market capitalization and the largest banking group in the Eurozone with a stock market capitalization of €92.5 billion, stockholders’ equity of €55.2 billion and total assets of €912.9 billion. We had an additional€151.0 billion in mutual funds, pension funds and other assets under management at that date. As of December 31, 2007, we had 47,838 employees and 5,976 branch offices in Continental Europe, 16,827 employees and 704 branches in the United Kingdom (Abbey), 65,628 employees and 4,498 branches in Latin America and 1,526 employees in other geographic areas (For a full breakdown of employees by country, see “Item 6. Directors, Senior Management and Employees — D. Employees”).

Our principal operations are in Spain, the United Kingdom, Portugal, Germany, Italy and Latin America. We also have significant operations in New York as well as financial investments in RFS Holdings B.V., Sovereign and Attijariwafa Bank Société Anonyme (“Attijariwafa Bank”). In Latin America, we have majority shareholdings in banks in Argentina, Brazil, Chile, Colombia, Mexico, Puerto Rico, Uruguay and Venezuela.

In accordance with the criteria established by the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, the structure of the operating business areas has been segmented into two levels:

Principal level (or geographic). The activity of our operating units is segmented by geographical areas. This coincides with our first level of management and reflects our positioning in the world’s three main currency areas. The reported segments are:

Secondary level (or business). This segments the activity of our operating units by type of business. The reported segments are:

In addition to these operating units, which cover everything by geographic area and business, we continue to maintain a separate Financial Management and Equity Stakes area. This area incorporates the centralized activities relating to equity stakes in industrial and financial companies, financial management of the structural exchange rate position and of the parent Bank’s structural interest rate risk, as well as management of liquidity and of shareholders’ equity through issues and securitizations. As the Group’s holding entity, it manages all capital and reserves and allocations of capital and liquidity.

In 2007, Grupo Santander maintained the same primary and secondary operating segments as it had in 2006.

In addition, and in line with the criteria established in the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004, the results of businesses discontinued in 2007 (our Latin American pension management companies) and 2006 (Abbey’s insurance businesses, Urbis, Peru and Bolivia) and which were consolidated by global integration were eliminated from various lines of the income statement and included in “net profit from discontinued operations.”

The figures for 2006 and 2005 have been restated and include the changes, at both the consolidated and business segment levels .

Principal level (or geographic):

This area covers the banking activities of the different networks and specialized units in Europe, principally with individual clients and small and medium sized companies (“SMEs”), as well as private and public institutions. During 2007, there were four main units within this area: the Santander Branch Network, Banesto, Santander Consumer Finance and Portugal including retail banking, global wholesale banking and asset management and insurance.

Continental Europe is the largest business area of Grupo Santander. At the end of 2007, it accounted for 48% of total customer and funds under management, 55% of total loans and credits and 53% of profit attributed to the Group of the Group’s main business areas.

The area had 5,976 branches and 47,838 employees (direct and assigned) at the end of 2007.

In 2007, the Continental Europe segment’s efficiency ratio improved by 2% to 38.8% (from 40.8% in 2006). Profit attributed to the Group from this segment increased 27.4% to €4,423 million. Return on equity, (“ROE”), in 2007 was 21.3%, a 0.9% increase from 2006.

Our retail banking activity in Spain is carried out through the branch network of Santander, with support from an increasing number of automated cash dispensers, savings books updaters, telephone banking services, electronic and internet banking.

At the end of 2007, we had 2,887 branches and a total of 19,392 employees (direct and assigned), of which 87 employees were temporary, dedicated to retail banking in Spain. Compared to 2006, there was a net increase of 55 branches and a net increase of 365 employees.

In 2007, the Santander Branch Network grew by approximately 10.7% in lending, 17.9% in net operating income and 19.9% in profit attributed to the Group. It also improved its efficiency ratio from 40.9% in 2006 to 38.7% in 2007.

Gross income from the Santander Branch Network was €4,747 million in 2007, a 13.5% increase from 2006.

In 2007, profit attributed to the Group from the Santander Branch Network was €1,806 million, 19.9% higher than 2006, while the ROE reached 21.3% (as compared to 22.8% in 2006).

The 10.7% growth in lending in 2007 versus 2006 came from loans to SMEs (an 18% increase) and from mortgages (a 10% increase).

Customer funds under management experienced a reduction of 5.4% during 2007, which came principally from a decrease of 14.2% in mutual funds and 2.7% in customers deposits.

At the end of 2007, Banesto had 1,946 branches and 10,776 employees (direct and assigned), of which 161 employees were temporary, an increase of 102 branches and 231 employees as compared to the end of 2006.

For purposes of our financial statements and this annual report on Form 20-F, we have calculated Banesto’s results of operations using the criteria described on page 25 of this annual report on Form 20-F. As a result, the data set forth herein may not coincide with the data published independently by Banesto.

In 2007, Banesto grew by approximately 21.2% in lending, 17.2% in customer deposits and decreased 16.5% in off-balance sheet customer funds.

In 2007, gross income from Banesto was €2,282 million, a 14.8% increase from 2006. Profit attributed to the Group from Banesto was €668 million, a 46.9% decrease from 2006, while the ROE reached 18.3% as compared to 44.4% in 2006 (20.6% in 2006 excluding extraordinary capital gains and allowances), and the efficiency ratio improved to 41.2% (as compared to 45.3% in 2006).

Our consumer financing activities are conducted through our subsidiary Santander Consumer Finance S.A. and its group of companies. Most of the activity of Santander Consumer Finance relates to auto financing, personal loans, credit cards, insurance, and customer deposits. These consumer financing activities are mainly focused on Spain, Portugal, Germany and Italy (through Santander Consumer Bank S.p.A.). We also conduct business in the UK, Hungary, the Czech Republic, the Netherlands, Norway, Poland and Sweden. Our operations in the U.S. (through Drive) are included as part of this segment.

At the end of 2007, this unit had 285 branches (as compared to 282 at the end of 2006) and 7,221 employees (direct and assigned) (as compared to 5,401 employees at the end of 2006), of which 255 employees were temporary.

In 2007, this unit generated gross income of €2,638 million, a 44.5% increase from 2006. Profit attributed to the Group was €719 million, a 27.1% increase from 2006, while the ROE reached 34.1% (as compared to 35.6% in 2006) and the efficiency ratio improved to 29.6% (as compared to 34.7% in 2006).

At the end of 2007, total lending at this subsidiary amounted to more than €45 billion (a 15.9% increase as compared to 2006), including securitizations. Two-thirds of the lending is in auto finance, with a greater share of new vehicles (38% vs. 28% for used vehicles), and the combined share of consumer loans via dealers, cards and direct credit represent 17% of the total portfolio. Three countries account for 76% of the portfolio: Germany (36%), Spain (28%) and Italy (12%). If we include the U.S. (Drive) and the Netherlands (with each one accounting for 7% of the portfolio) the total volume represented by these five countries is 90%.

The main reasons for the growth in Santander Consumer Finance have been:

Our main Portuguese operations are conducted by Banco Santander Totta, S.A., and our Portuguese investment banking operations are conducted by Banco Santander de Negocios Portugal, S.A.

At the end of 2007, Portugal operated 763 branches (as compared to 727 branches at the end of 2006) and had 6,405 employees (direct and assigned) (as compared to 6,114 employees at the end of 2006), of which 427 employees were temporary.

In 2007, gross income from our activities in Portugal was €1,214 million, a 10.1% increase from 2006. Profit attributed to the Group was €527 million, 24.6% higher than in 2006, while the ROE reached 28.6% (24.1% in 2006) and the efficiency ratio improved to 44% (from 47.3% in 2006).

The rest of our businesses in the Continental Europe segment (Banif, Asset Management, Insurance and Global Wholesale Banking) generated profit attributed to the Group of €719 million, 83.4% more than in 2006.

Abbey became part of Grupo Santander on November 12, 2004 and as of December 31, 2004, only its balance sheet was consolidated. Its results of operations were consolidated with the Group’s for the first time in 2005.

Abbey is a significant financial services provider in the United Kingdom, being the third largest residential mortgage lender measured by outstanding balances. Abbey also provides a wide range of retail savings accounts, and operates across the full range of personal financial services.

At the end of 2007, Abbey had 704 branches and a total of 16,827 employees (direct and assigned) of which 193 employees were temporary. Compared to 2006, there was a net reduction of 8 branches and 319 employees.

For purposes of our financial statements and this annual report on Form 20-F, we have calculated Abbey’s results of operations using the criteria described on page 25 of this annual report on Form 20-F. As a result, the data set forth herein may not coincide with the data published independently by Abbey.

In 2007, Abbey contributed gross income of €3,780 million (a 6.2% increase from 2006), net operating income of €1,913 million (a 18.1% increase from 2006) and €1,201 million of profit attributed to the Group (a 19.8% increase from 2006) which represents 15% of the Group’s total operating areas. Loans and advances experienced a reduction of 3.4% and customer funds under management increased 5.3% during the same period. ROE was 32.26% (as compared to 32.79% in 2006) and the efficiency ratio was 50.1% (as compared to 55.1% in 2006).

Operating expenses were 3.2% lower, due to reduced personnel expense derived from the personnel reductions carried out during 2006.

The non-performing loans ratio during 2006 and 2007 was 0.60%, and the coverage ratio declined from 86% to 66%.

At December 31, 2007, we had 4,498 offices and 65,628 employees (direct and assigned) in Latin America (as compared to 4,368 offices and 60,871 employees, respectively, at December 31, 2006), of which 353 were temporary employees.

Profit attributed to the Group from Latin America was €2,666 million, a 16.6% increase from 2006, while the ROE reached 29.1% (as compared to 26.6% in 2006) and the efficiency ratio improved to 41.8% (as compared to 47% in 2006). At the end of 2007, Latin America accounted for 32% of the Group’s total profits.

Our Latin American banking business is principally conducted by the following banking subsidiaries:

We engage in a full range of retail banking activities in Latin America, although the range of our activities varies from country to country. We seek to take advantage of whatever particular business opportunities local conditions present.

Our significant position in Latin America is attributable to our financial strength, high degree of diversification (by countries, businesses, products, etc.), breadth and depth of our franchise.

Detailed below are the performance highlights of the main Latin American countries in which we operate:

Brazil. Banco Santander Brazil is one of the main financial franchises in Brazil. The data set forth herein relating to Brazil does not include information relating to Banco Real which we acquired in 2007 (see —A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganizations—ABN AMRO Holding N.V. (“ABN AMRO”) —Banco Real). Banco Santander Brazil has 2,104 branches and 8.3 million individual customers.

The Group continues to focus on expanding retail businesses. During the year, 800,000 individuals became new clients.

Lending rose 32%, driven by (all percentages in local currency): (1) a 28% growth in lending to individual customers (55% increase from credit cards, 30% increase in loans linked to payroll deposits and 26% increase in auto finance) and (2) a 41% growth in lending to SMEs and companies.

Deposits increased 30% and mutual funds grew 36%.

Profit attributed to the Group from Brazil in 2007 was €905 million, a 20.5% increase when compared with 2006 (a 17.6% increase in local currency). At the end of 2007 the efficiency ratio was 39.6%, ROE was 28.5%, the ratio of non-performing loans (“NPL”) was 2.7% and the NPL coverage was 101%.

Mexico. Banco Santander, S.A. (Mexico), is one of the leading financial services companies in Mexico.  It leads the third largest banking group in Mexico in terms of business volume. The Group has a network of 1,088 branches and 8.5 million customers in Mexico.

Loans and credits increased in 2007 by 24%. Of note were the growth of consumer credits and lending to SMEs (30% and 64% above the market, respectively).

Profit attributed to the Group from Mexico increased 23.8% to €654 million (an increase of 35.6% in local currency). The efficiency ratio was 37.7%, ROE was 26.5%, the ratio of non-performing loans was 1.2% at the end of 2007 and the NPL coverage was 192%.

Chile. Banco Santander Chile leads the largest financial group in the country with substantial business in loans, deposits and mutual funds and pension funds. The Group has 494 branches and 2.8 million customers.

In 2007, lending to individuals and SMEs grew by 15% and 19%, respectively, while deposits increased by 18%.

Profit attributed to the Group from Chile increased 11% to €543 million (a 19.3% increase in local currency). The efficiency ratio improved to 39.2%, ROE was 43.81%, the ratio of non-performing loans was 2.1% and the NPL coverage was 118%.

Puerto Rico. Banco Santander Puerto Rico is one of the largest financial institutions in Puerto Rico. The Group has 137 branches and 0.5 million customers.

In 2007, Santander Puerto Rico continued its strategy of developing business with individual customers (consumer loans and mortgages) and companies, in an environment of economic recession that has slowed down the growth of the financial system in Puerto Rico. Lending and savings increased by 4% and 5%, respectively.

Profit attributed to the Group from Puerto Rico was €1 million, compared to the €26 million obtained in 2006 due to higher net loan-loss provisions in 2007 as well as the impairment of the investment in Island Finance (€14 million). The efficiency ratio was 64.6%, the ratio of non-performing loans stood at 3.2% and the NPL coverage was 102%.

Venezuela. Banco de Venezuela, S.A. Banco Universal is one of the country’s largest banks with 283 branches and 3 million banking customers.

The main focus of management in 2007 was to maximize the profitability of business and increase recurrent revenues, through growth in lending, especially to individuals, transactional deposits and fee-generating services. Lending and deposits, in local currency, increased 56% and 8% respectively.

Profit attributed to the Group from Venezuela grew 22.6% to €179 million (a 33.8% increase in local currency). The efficiency ratio was 40.2%, ROE stood at 44%, the ratio of non-performing loans was 1.0% and the NPL coverage was 371%.

Colombia. In a favorable environment of economic and financial stability, the Group focused in 2007 on developing its franchise and on selective business growth, particularly in the retail segments. Lending to individual customers and SMEs rose by 60% and deposits by 4%.

Profit attributed to the Group from Colombia was €15 million, 39.3% lower than in 2006 in local currency.

Argentina. Banco Santander Río S.A. is one of Argentina’s leading banks, with a market share of 9.6% in lending and 9.4% in deposits.

Argentina continued its economic recovery during 2007 and Banco Santander Río made a positive contribution to the Group’s earnings, with profit attributed to the Group of €188 million in 2007, a 41% increase in local currency.

Lending rose 32% and was especially focused on SMEs and individuals, while deposits increased by 18%.

In 2007 Uruguay generated profit attributed to the Group of €23 million.

Santander Private Banking performed well, with an increase in profit attributed to the Group of 27.9% during 2007 to US$223 million. Assets under management totaled US$42 billion, representing 28% growth over 2006. This is mainly attributable to the integration of a portfolio of customers acquired from Bank of America.

The Group’s Retail Banking business generated 86% of the operating areas’ total gross income in 2007 and 80% of profit before tax. In 2007, Retail Banking generated gross income of €23,371 million, 20.9% higher than in 2006. Profit before tax was €9,358 million, 31.3% higher than in 2006. This segment had 126,118 employees at the end of 2007.

Retail Banking in Continental Europe continued the growth trends of the last two years in volume and earnings. Net interest income rose 26.9%, net operating income increased 26.7% and profit before tax grew 27.7%. All units (the Santander Branch Network, Banesto, Santander Consumer Finance, Portugal and Banif) grew strongly. As in 2006, the drivers in 2007 continued to be business growth, with lending up 15% and deposits up 7% (due to the issue of securities mandatorily convertible into newly-issued ordinary shares of the Bank (“Valores Santander”) amounting to €7 billion). Good management of prices in an environment of rising interest rates and selective control of costs also contributed to the growth in Retail Banking. The efficiency ratio improved from 42.2% in 2006 to 39.3% in 2007.

Net operating income generated by Abbey’s Retail Banking was 18.2% higher, partly because of the 7.2% rise in gross income and a 1.7% reduction in operating expenses. The combined effect was an improvement in the efficiency ratio of 4.7 percentage points to 49.9%.

The continued strong earnings performance of Retail Banking in Latin America was due to strong growth in customer business, the good performance in net interest income and net fees, and control of costs compatible with business development. Net operating income increased 50.5% and profit before tax grew 37.2% compared to 2006. The efficiency ratio was 7.6% better at 44.7%. In local currency, net operating income increased 32%, profit before tax increased 57.3%, and the efficiency ratio increased to 45.6%. The growth strategies were based on increasing the number of individual customers and SMEs, developing loyalty products, such as payroll and credit cards, and focusing on more profitable products in all countries.

This area covers our corporate banking, treasury and investment banking activities throughout the world.

This segment, managed by Santander Global Banking & Markets, contributed 11% of the operating areas’ total gross income and 16% of profit before tax. Profit before tax amounted to €1,832 million a 28.6% increase from 2006). This segment had 2,589 employees at the end of 2007.

These results were due to three factors:

• First, customer revenues grew strongly by 24%, which accounted for more than 77% of total revenues earned by this segment, as a result of the increasing contribution of greater value-added businesses (markets, investment banking and cash management).

• Second, a smaller contribution from the results of trading activity, which was affected in the second half of the year by instability in the financial markets, compared with the excellent results in the first half of the year. Revenues for the whole of 2007 were lower than in 2006.

• Third, lower generic provisions in 2007 compared with large allocations in 2006, generated by certain large transactions.

These factors were reflected in the income statement. Gross income grew by 12.6%, while gains on financial transactions were 28.9% lower because of the lower contribution from trading activities. Operating expenses (+23.1%) continued to reflect the investment made in developing markets and global transactional banking. The efficiency ratio was 32.5%.

The business model is structured as a double (customer-product) sector model in the countries where it operates. With regards to the customer sectors, the Global Customer Relationship Model, which manages the main corporate and institutional customers, continued to be used. The incorporation of 121 new clients (mostly from Latin America) in 2007, the restructuring of the coverage area and the development of specialized units, as well as stronger links with product areas, particularly global investment banking in a period of strong corporate activity, pushed up the Model’s revenues to €1,243 million, 27% more than in 2006.

The product sector’s three areas also made significant progress in line with its strategic priorities:

1. Global Transaction Banking.

In this area, which comprises various corporate products (global cash management, trade finance, basic finance and global securities – custody), the Group continued to strive to attain leadership in its markets. Gross income for Global Transaction Banking grew 16% for the whole year.

Cash management performed well. This area covers the range of transactional products (payments to and by suppliers, payroll, etc.), financing (discounting, advances, factoring, confirming) and funds. Cash management’s gross income, which accounted for more than one-third of the total, increased 20%, driven by operations in Brazil and Argentina (with increases of 38% and 46%, respectively).

2. Global Investment Banking.

This area covers corporate finance (mergers and acquisitions and equity capital markets), structured finance (project finance, acquisition finance and syndicated loans) and asset and capital structuring. Its objective is to consolidate our leadership in Spain and Portugal and in Latin America and to continue to work with our clients in other markets. Total revenues for these businesses were 66% higher in 2007 than in 2006.

In Corporate Finance, Santander participated in intermediation and advisory services for 150 operations, 53% of them outside of Spain.

In Equity Capital Markets, there was a great deal of activity in primary markets in Europe and Latin America, particularly in Brazil.

In Asset & Capital Structuring, the Group strengthened its international position with specialized units in Brazil, Mexico and Chile, where the focus was on innovation and the design of structures for financing assets and optimization of capital.

3. Markets.

This area, which covers the Group’s treasury activities and distribution of equities, made progress in its two objectives: firstly to leverage the Group’s commercial networks to distribute risk management solutions for companies and individuals; and secondly to develop additional product capacities in order to expand the franchise with corporate and institutional clients in core markets. Revenues generated by customers grew by 14% (including the equities business), which partly offset the weak performance of markets in the second half of the year. For 2007 as a whole, the revenue of the markets area was 5% lower than in 2006.

Revenues in the global treasury business with customers increased 9%. This business, which already accounts for two-thirds of the total, produced a good relative performance, as it limited the impact of instability in the financial markets and enabled us to take advantage of opportunities arising from this environment.

The two main revenue generators are Santander Global Markets and Santander Global Connect. Santander Global Markets, for corporate and institutional clients, leveraged its performance on increasing participation in operations with wholesale clients and more value-added solutions together with the synergies of crossed transactions between treasuries in Europe and Latin America. Santander Global Connect, for retail customers in cooperation with the retail banks of various countries, increased its gross revenues (including those recorded by the networks) as a result of the extension of its products to other Group treasuries and the strength of the market in Spain.

In Spain and Portugal, Santander Global Markets’ revenue from sales to clients registered high double digit growth, backed by participation in major operations with wholesale clients. Santander Global Connect’s contribution remained solid, with stronger growth in Portugal. The increased volatility in the markets in the second half of the year, however, meant a reduced performance in management of flows and books associated with customer activity.

In Latin America, customer revenues grew by 21%, due to Santander Global Connect entering new markets, and its increasing participation in wholesale operations. However, tensions in trading positions in the financial markets negatively impacted market activity.

This segment comprises all of our companies whose activity is the management of mutual and pension funds and insurance. At December 31, 2007, this segment accounted for 3% of total gross income and 4% of profit before tax. Profit before tax was €535 million or 13.3% higher than in 2006. This segment had 1,585 employees at the end of 2007.

Gross income rose 13.1%, mainly driven by insurance activity which increased 24.3%. Fee income was virtually unchanged mainly because of the slowdown in the mutual funds business in Spain and the strong impact of exchange rates on Latin America’s gross income. Operating expenses, which reflect the investment in building up these global businesses, increased 12.4%, below the growth in gross income. Net operating income rose 13.5% and the efficiency ratio improved slightly to 32.0%.

The sale in 2007 of our pensions businesses in Colombia, Uruguay, Mexico, Chile and Argentina, as a result of a strategic review, generated net capital gains of €622 million (recorded in the Financial Management and Equity Stakes segment). For more information see “Item 4. Information on the Company—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganization— Sale of Latin American pension fund management companies”.

Santander Asset Management’s global business generated €1,891 million of fees in 2007, a 5.9% increase. Profit before tax, after deducting operating expenses and fees paid to the networks was€243 million, an 8.1% increase. Total managed assets amounted to €130 billion.

Business was conducted in the second half of the year in an environment of strong preference for on-balance sheet funds and a widespread lack of confidence in the markets, particularly in mortgage-backed structured products.

The strategy continued to focus on developing platforms for transnational investment, improving the product mix, creating innovative products and optimizing efficiency in order to improve operating margins.

We streamlined and concentrated our UK structures by creating a single fund management institution under the brand of Santander Asset Management UK, enabling it to assume direct management of UK mutual funds and improve their return. In Santander Asset Management UK’s first year, we met our commercial and business targets and are laying the foundation for significant improvements in operational efficiency.

In an environment of strong growth in Latin America and a downturn in Europe, we continued to streamline our range of products and gradually use the platform in Luxembourg to unify products that can be distributed in the two continents.

In 2007, the Group sold its pension fund management businesses in Latin America.

These results and strict management of costs enabled Santander Asset Management to absorb the investment in developing its global platform and it ended the year with the sector’s best efficiency levels at the international level: operating expenses represented only 0.13% of assets under management.

Asset Management consists of traditional management and alternative management. Their respective performances were as follows:

This covers mutual funds and pension plans, but not alternative investment funds. At December 31, 2007, assets stood at €120 billion (92% of the total assets under management).

In Spain, assets under traditional management in mutual funds and investment companies amounted to €55 billion at December 31, 2007, consolidating our position as the sector’s leader with a market share of 22% according to Inverco.

Their development in 2007 was determined by the financial markets’ greater liquidity needs which gave rise to very aggressive offers to attract bank deposits. This tougher competition for deposits, coupled with putting them on the same tax level as mutual funds, reduced the relative attractiveness of funds for savers.

In addition, and also affecting the Santander Branch Network, the launch of “Valores Santander” reduced the attractiveness of mutual funds compared with this new product.

Growth in pension plans in Spain was lower at both the Group and market level because of tax changes to the year’s contributions. At the end of 2007, Santander Asset Management managed €10.5 billion (a 5% increase), 87% of which was individual plans.

In Portugal, management of mutual and pension funds continued the policy of improving the mix of products, which pushed up the average commission further. Managed assets amounted to €7.2 billion at December 31, 2007.

The UK benefited from the restructuring within the global model and Abbey’s drive in structured products. Managed assets amounted to more than €10 billion (a 34% increase in sterling) at December 31, 2007.

Latin America’s mutual funds under management rose 29%, in local currency, to €36 billion at December 31, 2007.

Santander Asset Management also strengthened its presence in various segments of alternative management, where it manages assets of more than €11 billion at December 31, 2007.

• In hedge funds, Optimal managed a volume close to €6 billion at December 31, 2007, a 16% increase (in local currency).

• In real estate funds and investment companies, Santander Asset Management administered €4.7 billion at December 31, 2007.

• In venture capital funds, we launched a new infrastructure fund. Santander Private Equity managed €317 million at December 31, 2007.

The global business of Santander Insurance generated gross income (fees and revenues from insurance) of €1,751 million (a 21.8% increase), 6.5% of the operating areas’ total. Its total contribution to the Group’s results, the sum of profit before tax of the insurance companies and brokers (€294 million) and fees received by networks, was €1,674 million (a 21.5% increase).

Santander Insurance made further progress in installing the global business model in all the Group’s insurance units. It launched a new commercial structure which integrates the various geographic areas and distribution channels.

Its objective is to achieve global management of the business at the level of product development and linkage (lending products, structured savings) as well as developing basic capacities (marketing-CRM, retaining customers, transfers and local application of best practices in processes and distribution channels).

Spain’s contribution was 24.6% higher at €465 million, due to the broadening and improvement of the range of products and intensive marketing. Of note was the good performance of new products, particularly insurance savings products in the Santander Branch Network, and the extension of the coverage of death, incapacity and unemployment insurance to include products with features such as direct deposit of payroll cheques and direct debits. Premium income rose strongly (to around €2.9 billion).

In Portugal, insurance linked to loans and capitalization-savings products grew strongly. The total contribution to the Group was 32.8% higher at €102 million.

Santander Consumer Finance kept up a strong pace of growth in credit-linked insurance. Its contribution increased 21.0% to €381 million.

The UK’s total contribution was €286 million, virtually unchanged in sterling. This was due to the reduction in the pace of business in the last part of 2007 and the cancellation of the distribution agreement with intermediaries, in contrast with the positive impact of new life-protection products sold via Abbey’s branches.

Latin America generated 26% (€441 million) of the area’s total contribution, with the fastest growth (+40.8% without the exchange-rate impact). The drive in marketing products via banking networks and other channels such as telemarketing, together with development of streamlined and transparent life-risk products, increased the results of the region by more than 30%. Of note was Mexico, which doubled its contribution, and Brazil, which contributed almost half the region’s total. Its solid growth resulted from the sale of more products.

At the end of 2007, this area had 1,526 employees (direct and assigned) (1,498 employees at the end of 2006), of which 193 were temporary.

This area is responsible for a series of centralized activities and acts as the Group’s holding entity, managing all capital and reserves and assigning capital and liquidity to the other businesses. The cost of liquidity, via the transfer of funds to various businesses, is done at the short-term market rate, which was 4.06% in 2007 (2.96% in 2006).

The area made a profit of €754 million, including ABN AMRO’s net contribution of €60 million and a net figure for extraordinary capital gains and allowances of €934 million.

ABN AMRO’s incorporation in the Group’s financial statements had the following effects: revenue of €141 million (recorded in share of results from entities accounted for by the equity method) and financing costs of €121 million (recorded in net interest income) which, net of tax, was €81 million, making the total net contribution €60 million.

Excluding capital gains and ABN AMRO’s net contribution, this area, as is usual, had a loss of €239 million (€178 million in 2006).

The main positive impact was on trading gains, which increased €803 million to €1,217 million (€414 million in 2006). This increase was principally due to the positive effect of the euro/dollar and euro/sterling positions (which offset the negative impact of the depreciation of the respective currencies on the results in Latin America and the UK), and the larger contribution of the portfolios of interest rate risk hedging. Interest rate risk hedging in 2007 made a slightly positive contribution, whereas it recorded losses in 2006 due to write-downs.

The negative effects were the impact on net interest income that the rise in interest rates had on the cost of financing, the higher cost from a larger volume of securitizations and a reduction in profits from Cepsa (part of this decline was offset in minority interests).

Equity Stakes: this sub segment centralizes the management of equity stakes in financial and industrial companies.

The main events in 2006 and 2007 were the sale of 4.8% of Sanpaolo IMI at the end of 2006 and of 1.79% of Intesa Sanpaolo in the second quarter of 2007 (the latter generating a capital gain of€566 million).

We have financial investments in a number of banking companies, principally in Europe. The following summarizes our most important financial investments:

RFS Holdings B.V. As of December 31, 2007, we had a 27.91% stake in RFS Holdings (the holding company of the ABN AMRO Group). (See Acquisitions, Dispositions, Reorganizations—ABN AMRO Holding N.V. (“ABN AMRO”)).

Sovereign Bancorp. As of December 31, 2007, we had a 24.43% stake in Sovereign.

Attijariwafa Bank. As of December 31, 2007, we had a 14.5% interest in Attijariwafa Bank, which engages mainly in trade finance and foreign investment activities. Together with Attijariwafa Bank we have a 50% joint venture in Attijari International Bank Société Anonyme, which specializes in trade finance in Tangier’s free trade zone.

The majority of our industrial holdings portfolio consists of investments in strategic sectors related to the growth of the Spanish economy. Through our investments in these areas, we aim to contribute to the Group’s consolidated results.

The following table summarizes our main industrial holdings at December 31, 2007:

At the end of 2007, our unrealized capital gains in listed financial and industrial stakes were estimated at around €4 billion.

Financial Management: this area manages the Group’s structural exchange rate position, the structural interest rate risk of the parent bank and liquidity risk. The management of liquidity risk is conducted through debt issuance and securitization.

The cost of hedging the capital of the Group’s non-euro denominated investments is another activity. The current hedging policy is aimed at protecting the capital invested and the year’s results through various instruments that are considered appropriate for their management. The main units that have exchange rate risk continued to be hedged in 2006 and 2007.

This sub segment also manages shareholders’ equity, the allocation of capital to each business unit, and the cost of financing investments, with the result that the contribution to earnings is usually negative.

For a breakdown of our total revenues by category of activity and geographic market please see Note 54 to our consolidated financial statements.

The following tables show our selected statistical information.

The following tables show, by domicile of customer, our average balances and interest rates for each of the past three years.

You should read the following tables and the tables included under “—Changes in Net Interest Income—Volume and Rate Analysis” and “—Assets—Earning Assets—Yield Spread” in conjunction with the following:

As stated above under “—A. History and development of the company—Principal Capital Expenditures and Divestitures—Acquisitions, Dispositions, Reorganization”, on November 12, 2004, we completed the acquisition of Abbey. For consolidation purposes, Abbey’s assets and liabilities were consolidated into our balance sheet as of December 31, 2004, but Abbey’s results of operations had no impact on our income statement for 2004. Therefore, 2005 is the first year to reflect the full impact of the acquisition of Abbey.

As stated above under “Presentation of Financial Information”, we have prepared our financial statements for 2004, 2005, 2006 and 2007 under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004. 2003 data has been prepared under previous Spanish GAAP, which is not comparable to data prepared under the EU-IFRS required to be applied under Bank of Spain’s Circular 4/2004.