Professional Documents
Culture Documents
Document Incorporated by Reference ST Annual Report 2007 2009 07 17
Document Incorporated by Reference ST Annual Report 2007 2009 07 17
Annual Report
2007
(proposal)
Index
Santander Totta
Performance Framework.................................................................................................15
Business Areas................................................................................................................23
Credit Risk........................................................................................................................43
Counterparty’s Credit Risk .......................................................................................................... 44
Market Risk.......................................................................................................................44
Balance sheet Risk ....................................................................................................................... 46
Trading Risk .................................................................................................................................. 47
Additional Information.....................................................................................................49
Duties carried out by Members of Board of Directors of Santander Totta in other societies 53
Movements in Shares and Bonds of Members of Governing and Monitoring Bodies ........... 57
Santander Totta
Financial highlights
Var. %
million euros Dec 07 Dec 06
Dec 07 / Dec 06
Balance sheet
Net assets 37 799 33 546 +12.7%
Net loans 27 917 26 361 +5.9%
Total customer funds 27 907 26 329 +6.0%
Capital + Minority interest + Subordinated liabilities 2 664 2 700 -1.3%
CEO
Auditing, Marketing, Human
Resources and Products
Nuno Amado
António Vieira Monteiro Elias da Costa Eduardo Stock da Cunha José Eduardo Bettencourt Carlos Amaral Pedro Castro e Almeida
Board of Directors
Fiscal Board
Single Controller
Executive Committee
Company Secretary
The Board of Directors and each of its members act in compliance with legality, transparency and
responsibility, aiming at maximising Santander Totta’s return and optimise the interests of its
shareholders, Customers and employees.
The scrupulous fulfilment of legal and regulatory standards in force and the compliance, under all
circumstances, with demanding ethical principles in accordance with the best practices is a
constant concern of our Bank. It is incumbent on the Institutional Affairs and Compliance
Coordination Department, at the first level of the Institution’s hierarchy, among other duties, to
promote and watch over the fulfilment of the provisions in force namely by means of the
establishment of guidelines and procedures, the disclosure of implemented prescriptive changes,
the definition of a code of conduct and control of the set up practices.
The competencies and action of the mentioned Coordination Department are adjusted to the
regulations framework of the Compliance function currently defined by Notice no. 3/2006 dated 9
May of the Bank of Portugal, complemented by Circular-Letter of the mentioned Institution under
no. 41/2005/DSB of 1 June, as well as the principles and recommendations defined for the
Compliance Function by Basel Committee on Banking Supervision included in “Compliance and
The Compliance Function in Banks” document issued in April 2005 which was enforced by the
aforementioned Notice. Santander Totta has adopted such principles and recommendations in the
scope of its compliance policy.
Similarly the Executive Committee meets the requirements now provided for in the new article 305-
A of Portuguese Security Market Code, introduced by Decree Law 357-A/2007, of 31 December,
which has transposed, the Directive regarding financial instruments market among others.
Accordingly and also complying with the provisions of article 6 of CMVM (Portuguese Securities
Market Commission) Regulation no. 2/2007, of 10 December, the responsible person for the
Compliance was notified to CMVM.
The rules concerning Santander Totta’s governance are present, not only in its own regulations,
but also in internal standards and procedures, approved by the Board of Directors or the Executive
Committee, and comprise a set of practical measures regarding the action of those bodies and all
the others which are an integral part of the company’s structure.
The fact that the regulations do not contain any lock-in clause should be stressed. Moreover, all
provisions likely to lead to a similar outcome are excluded.
Specifically established methodologies, procedures and controls are especially designed and
implemented in order to ensure the maximum accuracy to the accounting and financial records, so
as the respective accounts reflect exactly the company’s situation.
On the other hand several codes of conduct are in force, which apply namely to members of the
Board of Directors, responsible people at the institution’s hierarchy as well as employers directly
involved in the various activities of financial intermediation who, notwithstanding the general duties,
establish an increased set of obligations to guarantee actions’ confidentiality, exemption and
transparency, ensure the conflicts of interests’ prevention and their suitable solutions in case they
occur, as well as the protection and reserve of privileged information, in compliance with legal
requirements and the highest ethical standards
Santander Totta, in line with the Group’s policy worldwide, elected the promotion of knowledge and
teaching, especially as far as Universities are concerned, as its priority in terms of corporative
social responsibility, allocating more than 70% of its budget of corporative social responsibility to
this area. On the other hand, Santander Totta has developed an active policy of sponsorships,
supports and patronage in other strategic action areas, such as social solidarity and environment
protection, without neglecting culture, health and sports’ promotion, being aware that this
diversified intervention is crucial to enhance the economic agents’ social and corporative
awareness.
Established in Spain in 1857, in the city it was named after, Santander celebrated its 150th
anniversary in 2007.
The commemorating events that occurred in the several countries where Santander operates,
have stressed its enormous expansion and the success.
After 150 years of history, Santander rose to the eighth position of the international financial
ranking by market capitalization, with a solid implementation in two continents, America and
Europe. It operates in more than 40 countries, deals in the three main currencies of the world
economy, the euro, the dollar and the pound sterling, and in all segments of the market –
commercial and investment banking, business banking, private banking, consumer credit,
insurance and pension funds. With 69 million clients all over the world and 130,000 professionals
of several nationalities, it has the largest branch network in the western world: 10,852. Santander
is a centennial, global and multinational bank.
In Portugal the commemorating event took place on 11 October, with sessions dedicated to
employees and customers, shareholders and institutional clients. A book on Santander’s history
especially designed to celebrate the bank’s anniversary was disclosed.
To give this award, Euromoney examined the information regarding results, significant gains in
market shares, strategic vision, as well as business lines progress during last year’s activity. Other
quantitative indicators were added to this information, such as market shares in the various
segments, productivity, ROE and efficiency rate, among others.
Euromoney highlighted the fact that Santander Totta is focused in the domestic market, while
delivering a high income growth rate and keeping costs under control.
This was the Portugal’s largest deal in 2006, in Mergers and Acquisitions,
and the largest IPO in 9 years. According to that magazine “this
acquisition of Amorim Energia enables a national economic group to hold a strong position in the
management of a strategic company, becoming, at the same time, a credible partner for ENI,
which is the other main shareholder of Galp Energia, with a similar participating interest in the
company”.
This is not the first time The Banker magazine rewards the bank for its performance. Since 2000,
the magazine has elected three times Santander Totta as the best financial institution operating in
Portugal.
Santander Totta was highlighted as the largest foreign investment in Portugal and also the
company which sells most and the most profitable one as well as the company which generates
the highest added value.
Santander Asset Management was awarded two prizes in the category of “Portuguese Equities”,
and two other in “Personal Equity Plan”. This rewards the best return among its main competitors.
Santander Asset Management team has been excelling in the main reference index of the national
market, PSI-20, in the last ten years, through “Santander Acções Portugal” and “Santander Plano
Poupança Acções”, funds contributing thus for the growing visibility the Portuguese market has
been achieving.
Santander Totta received the Customer Intelligence Award 2007, for the work developed in the
Customer Relationship Management (CRM) area. The prize was handed by International SAS, the
current market leader of Customer Intelligence tools.
The results achieved in operations with customers, the Data Mining models created and the
approach and development of CRM policies, contributed for the awarding of this Prize, a
recognition for the innovating capacity and the relationship with customers.
Santander Totta, 3C and their contact center operations came 1st as for APCC 2007 prizes
(outsourcing category). The Contact center operation has 130 inbound / outbound positions, which
enables it to make more than 300,000 contacts with customers.
This prize recognizes the level of excellence achieved with contact center operation, which
resulted from an ongoing effort by 3C – customer contact center and the bank, for the improvement
of the quality and efficiency of the relationship with the customers.
The assessment of the candidates is based on “Benchmarking Contact Centers Portugal 2007”,
carried out in cooperation with IZO Portugal, which takes into account such aspects as the
accessibility, management and interactions resolution, staff and resources, quality and ongoing
improvement, working environment, telemarketing, technology and outsourcing model.
Custody
Banco Santander de Negócios obtained the maximum score for the results of
the survey Global Custodian magazine carries out every year, with the aim to
rate the quality of the services provided by the various custodians operating
in the main international markets. The Bank was top rated in all categories:
cross-border / non-affiliated, domestic clients and leading clients.
The year of 2007 was a year of intense activity for Universia Portal, because of the change of the
brand image of Universia and the “I Edition of Virtual Job Center of Universia”.
Gathering already 1,056 institutions of Higher Education in Latin America and the Iberian
Peninsula, the Universia network of university cooperation with Santander Group as its financial
partner, focuses its activity in three items: development of knowledge, support to the relation
University/Company and mobility and internationalization.
With the aim to convey a new positioning in the evolution of the university portal, the network of
universities and opportunities - Universia Network – launched this year a new visual identity and a
new portal in all countries in which it operates. The decision to change the brand image results
from a consultation procedure among university students and teachers and the subsequent
evaluation by deans and Santander general managers.
The new identity of Universia goes side by side with the changes of Universia Portugal Portal,
which appears with a better navigability and segmented global contents. This new look reinforces
the dimension of Universia as an university cooperation network of international scope and
highlights its main lines, in segments as employment, international academic mobility, training,
university news and OpenCourseWare (teaching material of free access), as a result of alliances
carried out by Universia with MIT, Wharton and Miguel de Cervantes Virtual Library.
The end of the year witnessed the “I Edition of Virtual Job Center of Universia”, an exhibition as a
web platform of interactive format, which took place between 3 and 14 of December. This virtual
exhibition, the only one on the Internet, has all the characteristics of a traditional fair, improved with
the benefits of the Internet: open 24 hours and 100% customized treatment, and in a second life
environment, a virtual environment which enabled the users to interact with the display assistants
present in the exhibition.
In 2007, Santander Totta formalized the first loan contracts with students of higher education under
the “Mutual Guarantee Credit System”, in a ceremony carried out in Lisbon.
Nuno Amado, Chairman of the Executive Committee of Santander Totta said “the launching of this
credit system is in line with the bank’s strategy as it rewards the merit, and has very competitive
conditions of interest and maturity, enabling an investment in the future”.
Santander Totta was the first Bank to launch this product in the market, in mid September, in the
scope of its campaign for university students “PAC 4U”, which promotes the opening of a “Super
Conta Estudantes Universitários”, (Super Account University Students) by means of which the
students don’t pay maintenance costs nor any commission for the main daily services. When
subscribing the account (with a minimum of 25 euros), the university students receive a MP3
player, and have only to join freely Netbanco and telephone banking services, and subscribe
“Universitário Inteligente” (intelligent university student) or “Novo Classic Universitário” card. The
students may participate also in a pastime and win an “Erasmus” scholarship in Europe.
The “Crédito Ensino Superior com Garantia Mútua” (mutual guarantee higher education credit
system) aims at funding degrees, masters, doctorates and international mobility program, with
special conditions for the students, according to their academic progress. When they subscribe this
product, or any other credit solution the university students receive with no drawing, an InterRail
ticket in Europe.
“Primus Inter Pares” prize was awarded for the fourth time in 2007. This prize, a joint initiative of
Santander Totta and Expresso newspaper aims at rewarding the best final year students for
degrees in Economics and Companies’ Management, not only for their academic performance but
also for their human qualities, ethical values and emotional intelligence.
“Economic Journalism” award was created by Santander Totta and Universidade Nova de Lisboa,
to distinguish and reward the best works published every year in written and electronic media, in
Economics, Company Management and Financial Markets, promoting a better quality of data
processing and contributing thus for a more responsible, informed and participated citizenship.
The first prize, called “Grande Prémio”, is 15,000 Euros and is awarded to the best work competing
in the three areas which is also the winner of the respective area. The other two prizes, of 7,500
Euros each, distinguish the best work competing for the other fields.
Culture
In the cultural and scientific areas, Santander Totta focused its sponsorship, support and
patronage policy mainly on the promotion and preservation of history and artistic heritage, the
promotion and protection of Portuguese Language in an increasingly global world, as well as on
the promotion of music.
“Encompassing the Globe: Portugal and the World in 16th and 17th centuries”
Santander Totta was the main sponsor of the “Encompassing the Globe: Portugal and the World in
the XVI e XVII centuries” exhibition, organised by the prominent Smithsonian Institution.
The exhibition opened on 23 June and brought to Washington D.C., more precisely to two
Museums of the Smithsonian Institution, to the National Museum of African Art and National
Museum of Asian Art, 250 pieces from the time of the Portuguese Discoveries.
Pursuing a contemporary perspective of history, this show aims at disclosing to the American
people the importance of the Portuguese world by means of “extraordinary works of art”, according
to the words of de Jay Levenson, the commissioner of the exhibition and also director of the MoMA
international program.
The exhibition is divided into six sections corresponding to six different areas of the Globe where
the Portuguese influence was more striking, and brings together a group of the world’s main
museums selected by a group of international experts, including the Portuguese Diogo Ramada
Curto and Nuno Vassalo e Silva.
A “Virtual Show” of this exhibition opened on 27 June. There some pieces representative of the
Portuguese presence in the world in the 16th and 17th centuries were physically displayed, as the
works displayed in Washington, which could be seen by means of a video.
At the same time of the “Virtual Show” the book “Atlas da Arte Portuguesa no Mundo”,
commissioned to Professor Pedro Dias was presented. This book, in line with the exhibition’s topic,
aims at giving continuity to the project of publishing works (“De Goa a Pangim” e “Portugal e o
Ceilão”, also by Professor Pedro Dias) which convey a more thorough knowledge of this relevant
era in the Portuguese history.
“Portugal e o Ceilão” book received a prize awarded by Portuguese Academy of History. This prize
rewards the work of Pedro Dias, published by Santander Totta, as the best book of 2006 on the
history of the Portuguese people in Asia. The prize was awarded on 11 July, at the Portuguese
Academy of History, during the closing ceremony of the academic year.
“Portugal e Ceilão. Baluartes, Marfim e Pedraria” received one of the six prizes awarded by the
Portuguese Academy of History which with other institutions has distinguished several works in
different fields such as Regional and Local History, Modern and Contemporary History and the
History of the East.
Antiquities Biennial
Santander Totta has sponsored another edition of Antiquities Biennial. The largest national
antiquities fair in Lisbon is becoming increasingly important in the sector of works of art. This is its
seventh edition. Organized by Associação Portuguesa de Antiguidades (APA) (Portuguese
association of antiquities), the VII Biennial gathered the largest number of exhibitors, comprising a
larger exhibition area in Cordoaria Nacional building. 39 antique shops were present, with an
expert commission certifying the pieces on display. This committee comprises experts, collectors
and businessman who have carried out not only the expert audit on the works but also their
cataloguing.
Music Promotion
In the scope of the sponsorship of Orquestra Metropolitana de Lisboa, Santander Totta organized
a Christmas concert for its employees only. This concert, which took place at Igreja da Graça, in
Lisbon, was performed by Orquestra Metropolitana de Lisboa, within the scope of the protocol with
this entity. Maestro Jorge Matta conducted the orquestra, with tenor João Cipriano Martins,
baritone Jorge Vaz de Carvalho and Santa Maria de Belém Choir singing “Mass of Glory”.
Still in the Cultural field supports were granted to several institutions such as Palácio Nacional da
Ajuda, Fundação Luso Espanhola and Fundação Maria Ulrich, among others.
Santander Totta celebrated Christmas with several actions. In addition to supporting “Pão de
Todos” (bread for everyone) solidarity initiative where during one week it was possible to taste all
kinds of bread with hot chocolate for free, served by about 70 volunteers from the Bank, Santander
Totta has supported also RTP television program “Dance with Me” which brings together many
guests from the television and show business world.
Together with these initiatives, Santander Totta has sponsored Christmas lighting in some of the
main areas of Lisbon and Oporto.
CEBI Foundation
Santander Totta is one of the founding members of CEBI – Fundação para o Desenvolvimento
Comunitário de Alverca – with facilities in Vila Franca de Xira and Mafra municipalities. It is an
institution providing a great variety of services to more than 3,000 families and employs more than
400 workers. Among the institution’s activities education should be highlighted as it welcomes
more than 1,500 children and young people from 4 months to 16 years old daily. In the scope of
this social action there were two homes for elderly people with a capacity of 110 users, a Social
Emergency Centre, to welcome 30 children at risk or victims of physical abuse, a Reception Centre
for Single-parent Families, with a capacity for 14 elements, with the aim to their social
reintegration, also providing food help to about 150 families in need. In the health field the
institution has a Physiotherapy Clinic and Mental Health Assistance Bureau, which includes a drug
addiction prevention service.
Also in Social Solidarity field, support was provided to several institutions, among which we can
highlight the cooperation with Pró Dignitate, SOS Children’s Villages, Red Cross, IMA e Liga
Portuguesa contra a Sida (Portuguese league against Aids), among others.
In the scope of Health and Sports Santander Totta has been supporting events and projects
focused on the promotion of a sports culture.
Tennis has received a special attention, with support to various projects developed by tennis
academies. The investment in these academies has amounted to more than 50,000 Euros in 2007
and has involved about 1,250 young people permanently.
It should also be mentioned that Santander Totta supported “Santa Cruz Ocean Spirit” –
International Festival of Waves Sports, which brought together the best performers of this sports
category. Classes, demonstrations and concerts were the other attractions of the events.
Enviroment
Santander Totta sponsored the edition of nine books on trees and forests in Portugal a joint edition
of Luso-American Foundation for Development (FLAD), Público newspaper and League for Nature
Protection (LPN).The series of images reproduced by these works are an unparalleled and
precious value which goes well beyond the scope of the forests.
Shareholder structure
Shareholder N. Shares %
Rating
In 2007, Santander Totta again has the highest rating notation granted to any private Portuguese
bank: AA, Aa3 and AA for the long term debt, granted by Fitch Ratings, Moody’s e Standard &
Poor’s, respectively.
Standard & Poor’s and Fitch Ratings reviewed upwards the notation of the bank from AA- to AA
(outlook stable). Moody’s upgraded long term rating notation from A1 to Aa3.
The high rating notations granted to Banco Santander Totta, SA reflect the adopted strategy, the
strong solidity and the capacity for generating results, as it can be confirmed by the different rating
agencies:
Agency Rating
FitchRatings
Short term F1+
Long term AA
outlook stable
Individual B
Moody's Investors
P-1
Aa3
outlook stable
Individual C+
Standard & Poor's
Short term A1+
Long term AA
outlook stable
Performance Framework
International Economy
The year of 2007 witnessed the materialization of several risk factors, which had been latent until
then, which characterized the economic and financial evolution, especially during the second half
of the year, and which may have more visible impacts in 2008.
These developments contributed also to question the resilience of the world economy as far as the
capacity to accommodate shocks is concerned, and made it easier to see the different evolution
between developed markets and emerging ones.
As for the economic development, in global terms, IMF’s estimates admit that the world economy
may have grown 4.9%, in what was the fourth consecutive year of growth above potential. Like in
previous years, emerging markets must have contributed to about two thirds of the growth rate,
whilst developed markets must have slowed down with the USA showing a more visible trend.
This duality in the world economy and the resilience of emerging markets have kept raw-material in
general under pressure, reaching new historical maximums in 2007, in a scenario of an ongoing
sustained growing demand. The crude recorded a new historical maximum, in nominal terms, close
to 100 dollars per barrel for the Brent, but in real terms didn’t come to the maximums of the
eighties.
The prices of agricultural goods were among the ones with a greater increase, becoming a
potential source for inflationary pressures. The prices of cereals have recorded historical
maximums, especially wheat, the price of which almost doubled, anticipating a greater demand for
the production of bio-fuels.
Prices of Brent oil, in dollars per barrel and the commodities index
100 400
Brent (LHS)
90
CRB Commodities Index (RHS)
80 350
70
60 300
50
40 250
30
20 200
10
0 150
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Source: Bloomberg
The most outstanding fact of the year was the reaction of the financial markets to the growth of
high risk mortgage credit (“subprime”) in the USA, in a process started in July and which would
continue along the second half of 2007 (including the beginning of 2008).
The granting of credit to higher risk borrowers, in many cases without relevant information on their
compliance capacity, and when the credit was based on an attractive fixed rate during the first two
years, after which it would be indexed to a variable rate, in many cases increased with a high
spread could result in the next fixing would occurring in a background of higher interest rates and
cause a downturn of real estate valuations.
What started to be a correction movement of the markets, after a pronounced decrease of the
credit spreads and a more permissive risks assessment, resulted in a phase of strong instability of
the financial markets, where the total impacts of which are still to be evaluated. The interval of
estimates of losses in assets of “subprime” mortgage is between 200 and 400billion dollars. The
amount of losses borne until the end of 2007 exceeds 100 billion dollars, but there are additional
risks, associated with other securitized credits (such as consumer credit and for vehicles
acquisition).
Two immediate effects result from this economic situation. On the one hand, a disruption in the
money markets, especially for periods over one month. The doubts on the exposure of the
counterparties to “subprime” credit and the fears of possible needs of liquidity by themselves have
led to a pronounced increase of the short term interest rates. 3 months rates reached maximums
since 2001 on euro-area, with Euribor rate 100pb above funds lending rate of European Central
Bank at the end of the year. In the USA the maximum differential between a 3 months Libor rate
went up to 80pb.
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07
Source: Reuters
This evolution resulted in the need of an intervention by the main central banks in money markets
through a much greater supply of liquidity that would be necessary under normal conditions, as a
way of ensuring the normal operation of markets. This normalization process was gradual and did
not follow any linear trend, with occasional peaks, as the new information on the exposure of banks
to high risk credit was being known.
On the other hand, credit markets almost closed down, with a pronounced reduction of new debt
issuance by banks and companies, associated with an increase of credit spreads for all issuers
and all maturities. In the credit derivatives market, spreads for credit default swaps reached
maximums since 2005, even if within a context of reduced markets depth.
100 500
Itraxx - Main 5Y
90
Itraxx - HiVol 5Y 450
80
400
70
350
60
50 300
40
250
30
200
20
150
10
0 100
Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07
Source: Reuters
Aiming at offsetting the more restrictive monetary conditions, resulting from the increase of the
interest rates in monetary markets and the widening of credit spreads, the USA Federal Reserve
aggressively decreased the reference interest rates from 5.25% at the beginning of the summer to
4.25% at the end of the year.
USA Central Bank’s growth forecast were successively downward rated, considering a core
scenario of strong deceleration at the first half of 2008, although with no recession, after which the
growth would resume to rates progressively closer to the long term trend, during the second half of
2008. Consumer prices were gradually losing relevance as a risk factor for conducting the
monetary policy, although there was still some acceleration in the second half of the year.
In the euro area, European Central Bank capped the cycle of increasing interest reference rates,
after they reached 4.0% in June. The disruptions in monetary markets, the increase of credit
spreads and the euro appreciation (which in face of the dollar reached new historic maximums,
only below 1.50 dollars) contributed for the financial conditions becoming restrictive, among signs
of gradual deceleration of the activity. The expectations of additional increases of the interest
reference rates by ECB began to disappear, and were replaced by moderate expectations that in
2008 a monetary policy inversion could occur.
4.0
Euro area Germany
3.5 France Italy
Spain
3.0
2.5
2.0
1.5
1.0
0.5
0.0
GDP Inflation
Source: Eurostat
In the United Kingdom, the correction signs in the real estate market were visible and the first
contagious signs to the real economy appear with a deceleration of domestic demand especially
regarding private consumption. As a result of this, Bank of England has decreased its interest
reference rate in 25pb, to 5.5%, adopting guidance for potential additional decreases which may
materialize in 2008.
The emerging markets continued to evolve in a rather positive way, with no contagious signs of the
problems to the financial markets, which affected mainly the developed economies. All of this
despite an instability source appearing at the end of the first quarter, with a pronounced
devaluation of the Asian shares markets, especially the Chinese one. Most of the credit spreads of
the emerging markets remained close to the minimum values recorded at the beginning of the
second half of the year. On the other hand, the respective currencies appreciated versus the dollar.
105
100
95
Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07
Source: ECB
The investors’ position changed, showing a clear preference for less risky assets, especially
turning to public debt. However, even in the USA there was no general disinvestment of the equity
markets, rather a greater selectivity in the investments, with the main indexes closer to the year’s
maximums despite the strong decline for financials.
Consequently, long term interest rates have decreased pronouncedly at the second half of the
year, after the two-year maximums reached at the beginning of June, when the investors’ main
concern was still the risk of greater inflation acceleration. In the USA, the more affected country by
the “subprime” crisis, the long term interest rates dropped more than 100pb, since the maximum in
July until the end of the year, when the rates were close to 4.0%.
In Europe, the drop of the long term interest rates was less pronounced, given that the consensus
was that it could be less affected by the instability of financial markets. However, there was an
increase of the spreads among the various sovereign issuers, on behalf of the “core” markets.
Germany
USA
Portugal
4.75%
4.25%
3.75%
Dec-06 Mar-07 May-07 Jul-07 Sep-07 Nov-07
Despite this repositioning of investors, most of the equity markets closed still showing significant
valuations, even if below the maximums of the first half of the year, when in some markets (as the
Spanish and Unites States markets) the maximums of 2000 were broken.
In the first half of the year, the evolution of the equity markets was still showing a high volume of
mergers and acquisitions operations, highlighted by the Public Purchase Offer launched on ABN
Amro bank by the consortium of Santander, Fortis and Royal Bank of Scotland banks, and which
defeated Barclay’s competing bid.
The financial sector was particularly affected, especially in the USA. The main banks, as a result of
losses exposed to “subprime” credit, witnessed their respective market capitalization dropping
about 40%. UBS, Citigroup, Morgan Stanley e Merrill Lynch banks tried to maintain their solvency,
widening their shareholders base, especially by bringing in several Asian sovereign funds, with
investments over 20 billion Euros.
The Portuguese market was among those showing a greater valuation in 2007, with a M&A action
highlighted by two Public Purchase Offers started in 2006, one of Sonaecom on PT and the other
one of BCP on o BPI, where the target-companies’ investors rejected the offer.
The company with the best performance was Galp Energia, with a 172.5% appreciation in 2007,
benefiting from the exposure to oil and new oil discoveries, especially Tupi concession, in Brazil,
which was the greatest discovery since 2000.
125
Portugal
EMU - Eurostoxx 50
120
USA - Dow Jones
Japan - Nikei
115
110
105
100
95
90
85
Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07
Portuguese Economy
In 2007, the GDP in Portugal increased 1.9%, the strongest rhythm since 2001, when the economy
grew 2.0%. External demand continued to show a relevant positive contribution to growth, but
domestic demand had the most important contribution, mainly by means of private investment.
The exports growth decelerated to 7.1%, against 9.2% of last year, with a more pronounced
slowing down in goods. Exports of services must have maintained their growth rates above 10%.
Exports deceleration brought its growth closer to external demand growth rate, and thus an
interruption of the recovery process of market shares may have occurred.
As for the main characteristics, last years’ great trends are still showing: exports of machines and
equipment are still the more relevant ones, but the exports of clothing and footwear are starting to
recover, benefiting from the sector’s restructuring, which enabled a small progress in terms of
value added. As for the export markets, Spain and Germany are still the main ones, while Angola
is still the most dynamic one, with growth rates around 40%.
The strong dynamism of services contributed to a faster reduction of the external balance of goods
and services, which dropped below 7% of GDP, for the first time since 2003. However, the
reduction of the deficit of current balance and capital account balance was less pronounced, in so
far as, on the one hand, 2007 was a transition year as for E.U. support, and on the other hand
there was an increase on the interest paid abroad due to economy’s greater indebtedness.
Domestic demand became stronger in 2007, and was the main contribution for growth (about
1.8%). The reason for better performance lies with the private investment, which accelerated, with
a 3.2% growth, the strongest rhythm since the period of 1999-2000.
This evolution reflects two main trends. On the one hand, a strong recovery of the investment in
transport equipment, especially aeronautical equipment/aircraft equipment and, on the other hand,
the progressive stabilization of the building sector, which no longer had a negative contribution to
growth, as has happened in the previous five years.
Private consumption continued to grow clearly below GDP, pressured by the effects of the interest
rates increases and also by the high unemployment level.
Public consumption has grown marginally in 2007, despite the initial estimates that it might
continue to decline. Preliminary data of implementation of the budget in 2007 point towards a more
pronounced deficit reduction which must have been around 2.5% of GDP, comparing with the 3.0%
goal. It should be noted that the forecast included in PB was of 2.4% deficit on GDP for 2008. It is
thus the second year with a more favorable implementation, after the 3.9% recorded in 2006. Once
again, the main contributions were associated to the strong growth of revenue (tax revenue grew
by 9.2%, against 7.2% in 2006) and containment of capital expenditure, in so far as current
expenditure grew by 3.6%.
Inflation decelerated to 2.5%, but still pressured by the rise of energy prices, on the one hand, and
food prices on the other. This last effect may still continue to be felt in 2008, in a global scenario of
acceleration of the cereals’ prices.
Unemployment grew to 8.0%, a new maximum, as job creation continued to be less than the
growth in the number of new workers in the labour market. This slower job creation continues to
reflect the restructuring of the national productive sector, but contributed for a stronger growth of
productivity, an important condition to restore competitiveness of exporting companies.
The development of financial international markets hasn’t still had a visible impact on credit
aggregates, which continued to expand fast. Total credit to private sector must have grown close to
10% (8.4% in 2006). Private credit decelerated slightly, due to mortgage credit, which started to
reflect the impact of the interest reference rates growth. The acceleration of corporate credit was
more relevant, associated with the stronger investment growth, an evolution which was visible for
pure bank credit and also for credit granted by means of commercial paper programs.
Non compliance ratios are close to the series minimums, in general, although the banking sector is
very active as far as the management of the respective credit portfolio is concerned.
In the most recent survey on credit market among banks, it is reported, on the one hand, the
adoption of slightly more restrictive conditions for credit granting, especially by means of an
increase of the credit spreads and on the other hand the banks report more difficulties to access
funding, particularly by means of credit securitization transactions. In this scenario most banks
privileged deposits as their main resource, in some cases with specific offers of high interest rates,
above the market rates.
Business Areas
Commercial Banking
The year of 2007 witnessed a strong institutional launching campaign of the Santander Totta single
brand. Named as “My Bank”, the campaign was established with the aim to increase the number of
new customers, reduce the drop offs and improve the perceived quality, reinforcing Santander
Totta’s “Value for Money” position. The campaign was based mainly in two vectors: the
commission exemption for main services provided to a wider customer base and the granting of
awards to customers with new domiciliation of salaries / retirement benefits.
Conditions offered have leveraged customer retention levels, achieving an average of 4.5 products
per customer. The business volume grew by 8.8% and operating income rose 7.1%.
Individuals
Resources increased by 6.0%, sustained by a strong effort to launch products, seeking always to
offer the best opportunities to different markets and suspect to economic trends. Highlights include
the launching of 19 structured products (both for Mass-Market, Premium and Non-Residents
segments), 2 special investment funds and 2 special investment insurance.
Several traditional term deposits and structured products were launched, with the aim at
diversifying investment opportunities for clients and increasing customer’s growth, retention and
loyalty levels, offering very competitive rates. Four structured term deposits and five structured
deposit bonds, in a total of 645 million Euros were launched in the Mass-Market segment. For the
Premium segment seven structured products were issued amounting to a total of 90.5 million
Euros.
As for special unit-linked investment and insurance funds, a total of 366 million of Euros was raised
in eight issues. Also for the Emigrants and non Residents segment four long term deposit products
in USD were placed amounting to 43 million Euros.
As for loans, the year of 2007 was again characterized by dynamism and innovation, in an
increasingly competitive market, and Santander Totta reinforced its position as one of the main
players in the mortgage credit market, present in the Portuguese customers’ top of mind. Mortgage
credit continued to be one of the main pillars of the activity, with production reaching historic
maximums, with a growth 20% over last years.
After the success of “Super Rate” campaign in 2006, “Double Zero” campaign was launched at the
beginning of the year from which customers benefitted from a 0% promotional spread at the first
year, not only for mortgage credit but also for signal credit. Another benefit introduced transversally
to mortgage credit portfolio was the possibility of being granted capital exemption for the first 5
years.
The year was characterized also by pronounced changes in legislation which have introduced a
new dynamic into the market, decreasing the barriers to customers’ mobility and requiring from
Santander Totta a more aggressive and competitive response to the new challenges as far as
customer growth and retention is concerned. Therefore several measures were implemented,
aiming at providing the Sales Management and Support Department with a greater contracting
agility and mobility and with the tools enabling it to ensure greater customer growth, such as the
new transfer campaign, where Santander Totta bears all the costs inherent to the process.
Focusing on the maintenance and retention of the current customers “Triplo R” concept was
created based on the pillars of Customer’s Retention, Credit Restructuring and Reciprocal
Arrangements Renegotiation.
Also in 2007, unemployment coverage, additional to life and dwelling insurance, was launched and
is called “Dwelling Protection Plan”, which increased the supply of insurance products and provides
protection against one of the main causes of non compliance for mortgage credit.
The strategy adopted for consumer credit focused on the launching of differentiating and
competitive products and the adjustment of the already existing products to current market
conditions, namely by means of increasing the maximum amount of the funding and the extension
of contracting timeframes. It should also be highlighted the introduction of a new contracting
channel, Multibanco, which offers a new, easy, fast and user friendly contracting option. This
channel brought together RSF, Banca Telefónica and Netb@banco launched in 2006 as
alternative means to contract consumer credit over the counter.
The Bank continued to invest on non financial products in 2007, through successful partnerships
with well known brands which enabled several innovating and very high quality products to be
placed on the market and which were widely accepted, resulting in the growth of the portfolio and
the commissions’ level. Highlights include the launching of the “Digital Image” campaign offering
models of Canon cameras and also “Login Credit” and “University Students Login Credit” which
made the last models of HP brand available.
Individuals
average balance; million euros
2007 2006 Var. 07/06 %
Small business
2007 was the year of the consolidation on the Small Business area with 18.3% growth in the
business volume, of which 21.0% in loans and 13.1% in resources, with the operating income
growing by 6.8%.
It was a year of great activity in this segment, and Santander Totta launched several campaigns, of
which we highlight: “Solutions Tourism / Teaching”, “Credit Line BEI with a Protocol” and “Credit
Solutions with Guarantee / Fincresce / Lisgarante”.
Smal business
average balance; million euros
2007 2006 Var. 07/06 %
Cards
The number of cards placed with clients increased by 7.4%, reaching 1.2 million by the end of
2007. As far as the banking product is concerned there was an increase of 12%, and we should
highlight the 27% growth achieved in the net interest margin. Several commercial initiatives
contributed for this performance, such as the ones regarding the champions’ league games, in
which the representatives of the best branches were able to take their children to watch the players
coming onto the field. “Light Summer” and “Push Light” campaigns also contributed for the
increase of usage of cards and consequently for the growth of the portfolio. “Christmas” card, an
innovating temporary card and 100% free was launched at the end of the year.
Distribution Network
Aiming at bringing the customer closer, the strategy of expanding the branches network continued
in 2007, in line with what had been established for the three-year period of 2006-2008 – opening
100 branches. 75 new branches were opened until the end of year in the scope of this program,
including 7 branches in universities.
When choosing the location of the new branches, geographic areas with greater economic
performance are taken into consideration by Santander Totta and in some places where branches
overlapped, as a result of the recent brands merging, the branches network was rationalized.
With the aim to constantly improve the service quality, Santander Totta developed in the past years
a program of modernization of the branches comprising 57% of the total number of the branches at
the end of 2007 (branches which represent about 65% of the business volume of the whole
network).
At the end of the year, Santander Totta’s distribution network in Portugal comprised 684 branches
and 21 business centers, 705 service points in total.
Private Banking
Private Banking reinforced its position in the national market of this segment with a growth of about
28% in business volume and 22% in number of customers in 2007. Customer growth was a
strength of the team’s performance for which the merging of the two Santander and Totta teams
and the new name Santander Totta have contributed in a relevant way. In a segment as specific as
Private Banking, the evidence of a strong international name as Santander, together with a local
team with a vast experience in this area are very important aspects for current and potential
clients.
In an economic and financial turbulent market, as was the case of the last half of the year,
discretion, confidentiality and ethics followed by Santander Totta “private” team, together with
synergies and the soundness coming from Santander Group, were the aspects with added value
for the customers.
As for Human Resources, the commercial team was reinforced, enabling from the beginning of the
year a closer follow up of the customers portfolio and also specialists were brought in which
enabled a closer connection with other areas – Asset Management and Treasury – and
consequently a better monitoring of discretionary portfolio management and investment funds for
customers on this segment.
Savings products with totally or partially guaranteed capital were launched during the year,
specifically focused on private customers with different risk profiles. By the end of the year
“Santander Shares Selection” fund was launched. This fund aims at benefitting from the expertise
of the management team for the selection of shares, especially Portuguese and European ones,
and different strategies of asset allocation.
“Platinum” credit card maintained a strong acceptance among the clients and the miles loyalty
program has become even more attractive going to 2 miles per euro.
Corporates
With the aim to grow in a sustained way in profits and volumes the Corporate network strategy for
2007 was based on: widening of customer’s base and customer relationship.
The model used showed results as to the increase of the customer’s base, reversing the trend of
the past years; the new customers were responsible for a considerable growth of the credit.
As to share of wallet, internal campaigns for products considered to be binding were promoted with
excellent results in terms of transactionality associated with other services and foreign products.
With the aim to maintain this strategy, new specialized departments were structured to leverage
the placement of binding products in the 4th quarter of 2007.
As for the results, the managed business volume grew by 12.1%, 13.7% of which in loans and
5.2% in resources, whilst operating income recorded a value identical to the one in 2006. The
performance of operating income is mainly a consequence of the regulatory changes which took
place in 2007 (DL no. 171/2007), with a negative impact on the net interest margin. Nevertheless
we should highlight the placement of cash structured products, which grew by 40%, against the
same period of the previous year.
Corporates
average balance; million euros
2007 2006 Var. 07/06 %
Loans 6 257 5 504 753 13.7%
Resources 1 312 1 248 65 5.2%
Business volume 7 569 6 752 817 12.1%
Operating income 97 97 0 -0.2%
The year of 2007 witnessed changes in legislation on mortgage credit with very significant impacts
on all intervening players: regulatory authorities, banks, intermediation companies, building
companies and individuals, especially families, as well as the massive emergence of financial
consultancy companies.
To overcome these difficulties and always focusing on improving the quality of the services
provided, it was necessary to intensify the rhythm and the visits to partners. Promotors and
Mediators area, in cooperation with the sales management and support department, carried out
training courses in the Bank and intermediation companies which together with the image and
soundness of the Group and the quality and innovation of the products enabled it to exceed the
established objectives, with a 22% growth against the previous year and a 40% share of wallet of
the total production.
Santander Totta attended the most important national events related to the sector, namely the two
real estate shows in Lisbon and Oporto and the annual conventions of the greater real estate
master’s operating in Portugal, with more than five thousand sales people enabling Santander
Totta to be on the sector’s “top of mind”.
As for outside promoters, the growth of the activity was in line with the objective, in quantity and
business volume. We would like to highlight the implementation of the new Project “Promotor
Shops”, by opening 35 new physical areas with Santander Totta brand, as well as the launching of
a newsletter.
Transactional Banking
The work carried out in the past years in the companies segment continued through 2007 with the
reinforcement of Santander Totta image as the bank of innovative solutions in the cash
management area. Business volume in payments by letter-cheques grew by 15% and in the direct
debits product the market share as creditor bank achieved 13%, as a result of the 44% increase in
the number of direct debit instructions and a growth of 23% in business volume along the year.
Reflecting the strategic importance which Santander Totta grants to international business and with
the aim at improving the responses to the needs of Portuguese companies operating in foreign
markets, namely in the safe management of its international collection and payment operations,
several actions were developed some of them listed below:
As for ATM (automated teller machines), with more than 22,000 POS in the market, Santander
Totta has a market share much greater than its natural share. In 2007, the share in operation
volume was 16.4%, 1.7 p.p. more than the same period of the previous year, and in number of
operations the share was 19.4%. The good performance in the sector of gas stations (38.6% share)
and in supermarkets sector (23.7%) should be highlighted. The promotions carried out and
supported by a team of executives have contributed for this positive evolution. The project of the
installation of online POS, which started up in June and for which Santander Totta was the pioneer
bank was a decisive one also.
A new Netbanco Companies platform was launched in 2007, with a new design and greater
improvements in terms of surfing. A set of new features for companies was implemented, taking
into account the operating and cash requirements. As we have mentioned before, various other
features were launched in Netbanco Individuals, among which we highlight international transfers.
Several contents areas addressed to several different customers sectors were also created. The
growth rate of regular users was 35% in Netbanco Individuals and 20% in Netbanco Companies.
In Telephone Banking, the year of 2007 was characterized mainly by an important effort to redefine
processes and the implementation of new quality indicators, with the purpose to improve even
more the level of the service provided to the customers. The technological up-grade of all the call
centers infrastructure was also carried out. The number of subscribers grew by 10% and more than
2 million calls were handled. The year of 2007 was also characterized by a big growth of the
number and diversity of telemarketing campaigns, resulting in a 25% increase in the number of
registers.
In SelfBanking, the “Rede Interna” (internal network) program was implemented, making a total of
360 equipment items comprising more than 40% of Santander Totta’s branches available to
customers. This is the third largest selfbanking internal network in Portugal. Regarding the
Multibanco network, the park’s growing strategy was kept, achieving 1,560 ATM’s, which
represents a market share of about 12.4%. On the 3rd quarter of the year, new ATM’s MB with the
intelligent deposit of cheques and notes feature were introduced, which will play a relevant support
role to the automation strategy of basic operations.
Large Corporations
The first half of 2007 was characterized by the same scenario of strong competition on the national
financial system, with immediate pressure on net interest margins and commissions’ structure. At
the beginning of the first half of the year the Public Purchase Offer that Sonae Group launched on
PT Group, with Santander Totta’s financial consultancy, caused a re-focusing of the business’s
objectives. The following second half of the year witnessed financial market’s international crisis,
with the well known consequences, namely with regards to the credit access conditions.
Internally the consolidation of the new commercial and organizational relation was achieved
following the model developed by Santander Group, with the due adjustments to each country’s
specificities. This new model has deepened the existing relations with customers, enabling
Santander Totta to reinforce its position as the bank of first choice for its main customers.
A special attention was given to the cross-selling of the products and services from several
business areas, enabling to present innovating and value generating solutions to the customers.
Interest rates hedging solutions, structured financing operation, consultancy for buying and selling
holdings in companies and financial solutions to profit the suppliers’ value chain were developed
and implemented with particular success. This has enabled increasing transactionality levels.
The operating income grew by 4.9% against the same period the previous year, whilst the net
operating income increased by 7.9%. The strong growth of the financial operations and
commissions of means of payment and banking services contributed for the good performance of
these indicators.
The performance of specialized credit with a growth greater than 50% should also be highlighted.
International Activity
During the year of 2007, international activity followed the trend of the previous year enhancing the
work carried out in the emigration area, with extremely positive results both at the profitability level
and business volume’s growth, particularly in the credit segment.
In the middle of the year it was decided to close down the branch in Luxembourg, since the
strategic option of the Group abroad is to keep, as a support to the community of Portuguese
emigrants, in Europe and outside Europe, non autonomous less expensive and more flexible
structures than the one existing in Luxembourg.
The business volume in the Emigration segment grew by 7%, reflecting the effort to improve the
articulation among customer/ representation office /branch in Portugal, the excellence of the
products designed specifically for this customers’ segment, trying always to adjust them to their
specific needs and the work carried out for credit raising and 2nd generation emigrants’ savings.
The operating income of the segment grew by about 9%, due to a better adjustment of the
liabilities products mix held by customers, and the loans expansion which went over 20%.
Regarding also emigrants’ remittances, the year had a very positive performance. As a matter of
fact, in addition to the maintenance of a global market share which is almost the double of the
natural market share of the bank, the remittances volume grew by about 5%, reflecting the effort
developed to tighten the relations between the network and the emigrant customer, the promotions
developed and the greater pro-activity of the employees of representation offices.
The offer, with a great success, of “Seguros Especiais de Investimento” (SEI), (special insurance
investment) and also the specific site for the Emigration area, “Portuguese Abroad”, with a link to
the bank’s home page, as well as a link for the London branch page, should be highlighted. The
site “Portuguese Abroad” was created with the aim to provide information on products and services
made available by Santander Totta specifically to this segment as well as information about the
physical network the Bank has abroad, enabling an easy and user friendly access.
The London Branch continued to grow above expectations, both as for volume of loans, and for
results, keeping the focus loans for a 2nd house in Portugal to UK and Ireland residents.
Banco Totta de Angola continued to expand its activity, with a commercial strategy mostly focused
on the reinforcement of its corporate segment, where it keeps a position of strong involvement in
the Angolan economy’s key sectors and leadership of local financial syndicates, confirming
simultaneously a strong growth of its individual network.
The suitable perception of the evolution of the exchange and monetary indicators enabled an
efficient and well balanced management of the Bank’s treasury department.
Due to the dynamics of the commercial network and the country’s positive economic perspectives,
the Bank reached 370 millions of dollars in resources, a 39% increase against the previous year’s
amount. The loan portfolio, including disbursement and signature, had an expressive increase to
224 million dollars, a 96% growth against the previous year.
During the same period, the bank renovated its internal systems of swift communication, installed
new front office software in the branches, launched electronic banking, increased the distribution of
Multicaixa debit card and prepared the launching of its Visa cards. It reached simultaneously, a
network of 14 branches, including 3 business centres.
Human Resources
In the year of the Santander’s 150th anniversary highlights for Human Resources area are the
development of several initiatives, created in the scope of these commemorations aiming at
bringing Santander Totta together with its employees.
A special focus should be put on “Santander is You”, a human resources corporate program
developed with the purpose of promoting the benefits of working in Santander, providing
employees with opportunities of professional and personal development, of consolidating the
knowledge of corporate values, as well as to promote the dialogue between directive staff and their
teams.
The delivery of 100 Santander shares to all employees, “150 dedicated lives”, “Santander Spirit”,
“Santander Ambassadors”, the visits carried out by more than 150 employees to Boadilla, the
promotion of an internal contest which took 2 employers to Silverstone Grand Prix, the decorations
of work centres, the direct promotion of benefits of working with Santander through posters which
were displayed during the year and the distribution of a book with the Bank’s history, were the
visible face of this program which will continue in 2008.
The disclosure of more than 40 internal recruitments, the relocation of 50 employees from central
services to the commercial network and about 1,200 internal relocations carried out, show the
dynamics and the mobility and the policy which Santander Totta has been implementing.
The recognition of merit and contribution of each employee for Santander Totta’s success was
again a strategic landmark in 2007. Between 2001 and 2007 the variable remuneration component
by employee grew by 129%, which shows the commitment in distributing the value created by the
employees.
Training was still a pillar of the activity of Human Resources area, delivering approximately
300,000 training hours.
The development of leadership and management competences was a priority in training activity,
highlighting seminars on negotiation for branch directors and leadership program delivered by
Universidade Católica.
Also during the year of 2007, a 2nd questionnaire on employee internal satisfaction level with an
initiative called “Que Tal de Clima”, (what about the climate) with the participation of 66% of the
employees, a rate greater than the one of the previous year and the one for identical studies in
companies of the same size.
With the purpose of developing measures to conciliate professional and personal life, “Programa
Libra” was reinforced in 2007 with new initiatives, such as the support to vaccination against
cervical cancer aimed at the employees’ daughters with ages between 9 and 19 years old, the
award of prizes to employee’s children finishing 12th year in school with a rate greater than 16 (in a
1 to 20 scale) and also the possibility of employees to chose to work part time, with specific
conditions developed to promote the choice of this option.
For the 2nd consecutive year Santander Totta has decided to consider favourably all requests
submitted in the scope of mortgage credit, at ACT rate, and for this purpose made an amount of 60
million Euros available, a decision to meet the wishes of the employees, enabling them an easier
access to better housing conditions.
As it was mentioned in the previous chapter regarding corporate social responsibility and through
Núcleo de Voluntariado (voluntary work group), Santander Totta promoted “Dia do Voluntariado
Santander Totta” with the participation of more than 50 volunteers supporting Banco Alimentar
Contra a Fome (food bank against hunger) in an initiative of selection of goods donated to that
Institution. The Bank participated also in a project of association “Aprender a Empreender”
(learning to undertake), with volunteers who during a quarter taught in public schools with the aim
to develop in children entrepreneurship, and supported “Pão de Todos” (bread for all) initiative
during Christmas season.
The Technology and Systems area focus on its policies of operating continuity and compliance
continued in 2007 with the development of a range of activities aiming at guaranteeing and
supporting the efficient alignment of information technologies with the business needs and
consolidating corporative integration, through the implementation of structural projects as well as
the implementation of the respective management and costs control models in line with the ones
followed by the Group.
In the Software Development area we highlight the activities developed with ISBAN (Group’s
software house specialized in core banking systems) in the scope of the “Tagus/Partenón” project,
a strategic and decisive initiative for the optimization of the processes aiming at improving the
quality of the provided services by networks to clients and which will continued in 2008.
We also highlight the implementation of software to support the launch of new products associated
with the mortgage credit, customers (zero commission), cards, insurance and savings products
campaigns, as well as the development of a set of tools which enable a more efficient planning and
management of the commercial activity, namely in the corporates area.
In 2007 a series of legislation projects were also developed such as: value-date on deposits,
preparation of new SEPA formats, rounding up to the nearest thousandth in mortgage credit
operations, Mifid, BIS II and SOX.
In the production area, the financial year of 2007 witnessed the consolidation of the relation with
“PRODUBAN” (bank’s prime contractor for the Production, Communications and Systems),
company through which it was possible to ensure the global and structural renovation of
communication network among branches and buildings of central services and which enabled to
improve the quality of the provided service and to achieve, in a sustained way, new efficiency
thresholds.
Quality
The Quality Coordination Department, fulfilling its mission of obtaining levels of excellence
services, took on a role of greater intervention in 2007 through a specific project, “Radar” Project
which enabled the full implementation of the virtuous cycle of Detection, Action Plan and
Assessment of processes with a greater impact on the final customer.
Of greater relevance is the renovation of certification ISO 9001:2000, for all its activity, for the third
consecutive cycle, and for a new 3-year cycle, consolidating thus the implemented quality
management system, with a high commitment at all levels in the Organization.
The year of 2007, in an adverse economic environment due to the various changes in the
legislation with a strong impact on the bank’s traditional activity, was a difficult year with regards to
customers’ claims. Santander Totta has started a process of training and disclosure of best
practices which enabled, even in this adverse scenario, associated with a greater visibility of the
complaints book, a slight decrease of formal complaints, even more reinforced when assessed with
effective customers’ growth.
The implementation of “Radar” project enabled not only important improvements as for services
subject to intervention, but also the timely detection of negative impact occurrences as for the
service to customer, managing to anticipate potential occurrences by means of the implementation
of the respective measures.
There was an improvement of the levels of service to customer which had a direct impact at the
levels of satisfaction of the internal customer and consequently on the external customer.
7.9
+14%
7.5
7.3
6.9
In addition to the indicators on customer satisfaction being at good levels, with a high level of
customer’s recommendation, 86% of the customers stating they recommend the bank (82% in
2006), the compliance with standards of customer’s reception on branches shows high levels
(88%). These standards are assessed through mystery visits carried out quarterly to all the
network’s branches. We also get the best ratings among the main competitors, through
measurement carried out by Multimétrica Company to all the market branches in Portugal.
% Global execution
2ndH07
81
Santander Totta
Bank 1 78
Bank 2 78
Bank 3 78
Bank 4 72
We should highlight also the implementation of “Customers Indicator” in the Companies’ network,
with direct impact on incentives, as it happens in Individuals network where operating metrics of
satisfaction and customers are combined.
The quality committees with specific evaluation elements enabled also the implementation of
specific action plans for improvement, creating an effective dynamics and commitment of the whole
bank.
Consolidated Activity
Introduction
Banco Santander Totta had a net consolidated income of 387.6 million Euros, which represents a
growth of 9.5% against 2006. Purging the net effect of the sale of the shares of BPI (in 2006 and
2007), the net income grew 25.6% against the previous year.
The increase of results was achieved by means of a very dynamic commercial activity, supported
by value added products, a strict control of structure costs and the maintenance of the quality of the
loan portfolio, within a context of strong competition, difficult economic situation and legal changes
which had a negative impact on profits.
A positive performance of the main activity indicators has also been reported, namely the growth of
resources and loans, in particular mortgage credit and deposits.
598
519 +15.2%
388
354 +9.5%
Million euros
Income Statement
Banco Santander Totta generated a Consolidated Net Result of 387.6 million Euros in December
2007, corresponding to a 9.5% growth (25.6% without non recurrent results) against the previous
year.
The Net income growth was leveraged by the good performance of net interest margin and results
of financial transactions in parallel with costs’ control, which reported a 0.9% increase, below
inflation.
These results were achieved in a difficult economic context. The changes in the legislation in force,
namely the round up to the next thousandth of the interest rate for credits and the reduction of pre
payment penalties of mortgages among banks, resulted in an increase of competition in the
banking sector.
The liquidity crisis, with the consequent increase of funding cost, also had a negative impact on the
net interest margin, in the second half of the year. In a scenario of strong competition there was,
additionally, a migration of funds to term deposits.
The increase of the commercial banking activity was based on high share of wallet and the
development of sustainable relations with customers, with an increase of the business volume
which led to net interest margin increase, namely on account of the increase of loan portfolio,
which continued to be leveraged by credit in Small business (21.0%), Companies (14.1%),
mortgage credit (8.9%) and consumer credit (15.2%) segments.
+8.3%
670.6
619.0
Dec 06 Dec 07
Million euros
Net commissions amounted to 311.2 million Euros, an increase of 4.1% against the previous year.
This was due to the “zero commission” campaign aiming at increasing customer growth and loyalty,
and the changes in the legislation, by means of the establishment of a maximum limit for the
commission applied by the banks in case of partial or total reimbursement of a mortgage credit. We
should highlight the performance of insurance commissions, namely for the marketing of structured
products “Seguro Euro Energia” and “Seguro Rendimento Campeão”, which raised a volume of
about 169 million Euros.
The results of financial transactions grew from 75.9 million Euros to 107.4 million Euros, with the
outstanding contribution of the activity of derivative markets and structured products negotiated
with customers, of proprietary trading operations and capital gains realized in financial assets
available for sale of assets and bad debt portfolio.
Notwithstanding the adverse economic situation and competitive background, the Operating
income amounted to 1,092.0 million Euros, an 8.5% increase in the year, supported by the
commercial dynamics and innovation of offered products, represented by the increase of the
business volume.
As restraint and cost rationalization policy was maintained, operating expenses (staff costs,
overheads and depreciation) increased 1.3%, amounting to 494.5 million Euros.
Personnel expenses increased 3.3% to 277.9 million Euros and overheads amounted to 148.5
million Euros in 2007, below the amount of the same period the previous year, notwithstanding the
commercial network expansion and the investment in a single Partenon IT platform.
The evolution of expenses, below the progression of Operating income (8.5%), enabled a new
improvement of the efficiency ratio (without depreciation), which reached 39.1%, against 42.0% in
2006.
42.0%
39.1%
Dec 06 Dec 07
As for productivity, Banco Santander Totta, following the volumes’ increase, kept a favourable
evolution of net income and number of branches.
The losses in impairment net of recoveries amounted to 86.2 million Euros, which represents a
37.6% increase against the amount reported in 2006 (62.7 million Euros), reflecting a well
provisioned balance sheet.
+85
-50
-6 +5
Operating Impairment
Operating Taxes
income and
costs and
Other provisions
Minority interest
354 388
Net Assets reached 37.8 billion Euros at the end of December 2007, representing 12.7% increase
against the year of 2006. The evolution of loan portfolio, financial assets available for sale and
investments in credit institutions contributed for this increase.
The Total Business Volume (Loans and Customers’ Total Resources) amounted to 57.8 billion
Euros, a 5.5% increase against the previous year.
Loans*
35
28.4 29.8
30 4
25
11.7
Billion Euros
20 11.2
15
10 17.3
15.9
5
0
2006 2007
Gross customer loans’ portfolio (including guarantees) amounted to 29.8 billion Euros at the end of
2007, a 4.9% increase against the same period of the previous year. The loan portfolio weight
corresponded to about 74% of the total net assets.
Mortgage loans, representing about 50% of the credit portfolio, continued to be the “anchor
product” showing sustained growth levels with an 8.9% increase against the amount of the previous
year. Consumer Credit with a 15.2% increase also contributed to the growth in the Individual
segment.
As for Loans to Corporates the segment Small businesses and Corpoprates stood out with
increases of 21.0% e 14.1%, respectively, with a negative impact due to the reduction in Loans to
Large Corporations.
Total Customer resources reported a 6.0% increase, amounting to 27,907 million Euros,
notwithstanding the turbulence of the markets and a strong competition pressure.
Customers resources recorded in balance sheet (deposits and debits represented by securities), a
support to total customers resources’ growth, amounted to 18,613 million Euros, 9.1% more
against the same period in 2006. Customer resources on-balance sheet (9,294 million Euros) grew
by 0.3% due to the evolution of insurances and other resources, given the decrease of investment
funds, resulting from markets’ volatility.
27.9
30
25
9.3
9.3
20
Billion Euros
15
10 17.1 18.6
5
0
2006 2007
Banco Santander Totta’s solvency ratio, estimated according to instruction 16/2004 of Banco de
Portugal was 9.0% and Core Tier I 5.2% in December 2007, not including withheld results
generated in the year. Including in the solvency ratios the generated result (net of dividends to
distribute), solvency ratio achieves 10.0% at the end of 2007 (12.0% in 2006) and Core Tier I
decreases from 7.0% to 6.1%.
Solvency ratio* 10.0% 9.0% 12.0% -2.1 p.p. 9.2% 8.2% 10.8% -1.6 p.p.
Tier I ratio* 7.7% 6.5% 8.7% -1.0 p.p. 7.5% 6.5% 9.3% -1.8 p.p.
According to Bank of International Settlements – BIS standards, solvency ratio reached 8.2% in
2007 and Core Tier I reached 4.4%, not including withholding results generated in 2007. Including
results, solvency ratio reached 9.2% (10.8% in 2006), and Core Tier I decreased from 6.2% to
5.3%.
Individual Activity
Financial Statement
Notwithstanding the year of 2007 having been difficult for the banking activity, due to the new legal
framework, intense competition and the financial crisis occurred in the second half of the year, the
operating income reached 1,037.5 million Euros, with the contributions of net interest margin
(508.6 million Euros), net commissions (310.7 million Euros) and results of financial transactions
(98.0 million Euros).
Following the effective costs control, a new efficiency gain was achieved with the respective ratio
improving 0.9 p.p. to 40.9%.
The net income amounted to 343.4 million Euros in 2007 (312.9 million Euros in 2006), which
enabled BST to achieve a ROE of 19.0% (19.4% in 2006).
Net assets amounted to 39.7 billion Euros in 2007, a 20.5% increase against the year of 2006. This
increase is mainly due to the increase of the loan portfolio, financial assets available for sale and
investments in credit institutions.
The Business volume (customers’ total loans and resources) reached 55.3 billion Euros, a 7.1%
increase against the same period the previous year.
Customers’ loans amounted to 28.9 billion Euros at the end of 2007, which represents a 12.9%
increase over what was reported in 2006. The loan portfolio’s weight corresponded to about 66%
of the total net assets (72% in 2006).
Customers’ total resources increased 1.3%, amounting to 26.4 billion Euros, despite the markets’
volatility and the strong competition.
Customer funds on-balance sheet (deposits and debits represented by securities) amounted to
17.1 million Euros, a 1.9% growth against the same period the previous year. Customer funds off-
balance sheet increased 0.3%, against 2006.
Risk Management
Credit Risk
In Santander Totta the credit risk management is carried out in an integrated way taking into
account its identification and measurement as well as the control and mitigation of the different
exposures.
The organization of credit risks function is based on various common principles and organizational
criteria shared by the different areas which integrate it. For its suitable development, Santander
Totta established a set of policies, procedures and management and assessment tools which
sharing a common Basic model are adjusted to the Portuguese market.
The credit risks management comprises identification, measurement, integration and assessment
of the various credit exposures and their return adjusted to the respective risk, both in a global
perspective and within each activity area. The credit risks management’s process adjusts to the
customer segment throughout the successive stages of the credit cycle: admission, management
and follow up and recoveries.
The Retail Banking’s risk model is differentiated according to the characteristics of the customer
and the product making a distinction between risks’ customised handling and global management
(medium and large corporations) and standard risks’ handling (small enterprises, businesses and
individuals).
The major and globally handled customers are allocated to portfolios, which are assigned to risk
analysts, who follow up the customers’ positions in an active and ongoing manner.
Wholesale Banking’s risk area handles larger and global natured customers such as multinational
financial groups. A pre-rating model (setting an internal maximum number for the risk) is
established for these customers based on a measurement and follow up of the risk capital.
As for Corporate risks, the efficiency in admission circuits was improved by means of establishing
pre-ratings based on a more simplified model and applying only to certain customers with high
knowledge of the risks-commercial binomial.
The risks for Individuals and Small businesses segments are managed supported on automatic
decision systems, enabling an efficient handling of the risk and, at the same time, effective as far
as the resources are concerned.
Under this model, the powers to make decisions as to risks are delegated, first, to Central
Commissions of Credit and afterwards, at a regional level and Business Units.
As for the admission of standard risks throughout the year, new scales for different portfolios’
implementation occurred in 2006 was stabilized, which together with an automatic decision system
enabled a sustained growth on the percentage of decisions by the Business Units. A larger use of
behavioural scoring was also extended to the whole network enabling pro-activity reinforcement for
the admission of this kind of risks.
On the other hand there was a strong progress with the implementation of Basel II Project
directives with Santander Totta improving admission tools for all the portfolio’s risk segments.
Simultaneously, databases were extensively fed and populated regarding the customer’s economic
and financial information.
In the financial year of 2007 the activity of Credit Risks area was based on the following main lines:
• Strengthening the risks mission focused on the business support, reinforcing the
interconnection between credit risks and commercial areas, aiming at their growth,
simultaneously with the control of slowness levels so as to ensure the maintenance of
healthy portfolios;
• Maintaining the segmentation principle in handling credit risks, differentiating the risk’s
approach according to customers and products’ features;
• Reinforcement of Standard Risks’ decision-making systems with new instruments being
increasingly used such as Triad behavioural promoting a sustained growth of operations’
resolution at the level of business units with consequent impacts not only as far as the
customers’ service quality, but also as consistency and coherence of the service quality at
Risks Area are concerned;
• Increase of pro-activity at Admission of Risks in portfolio reinforcing customers’ pre-rating,
as well as the support to Trade Area in raising new customers;
• Reinforcement of the follow-up function with qualitative adjustments as for production /
information analysis, which enabled a proactive intervention regarding the identification of
problems and solutions seeking, contributing in that way to maintain the credit portfolio’s
quality;
• Greater focus on recoveries for the management of irregular assets, with the reinforcement
of portfolios’ sale and payment in kind as an alternative to judicial proceedings.
Santander Totta uses a risk and approval system associated with exposure to financial entities
(counterpart risk), based on granting a rating and the management of credit limits and another sort
of exposures resulting from cash operations. The purpose is to mitigate the credit / solvency risk,
by means of the implementation of uniformed and established proceedings and controls.
• Risk analysts analyzing counterparts, aiming at establishing the non compliance / expected
loss degree / (rating);
• Control whenever possible of rating versus risk perceived by the market (external rating
and credit default swaps);
• Granting of exposure limits by means of a matrix per type of product and operation’s
maximum timeframe.
The revision of credit limits and rating is carried out at least once a year, according to corporate and
uniform methodology.
The control of risk exposure is measured by means of integrated systems enabling to identify, at each
moment, the use level of the limits as well as the availability for new operations.
Market Risk
The segment of measurement, control and follow up of financial risks includes the transactions with
assets risk. The risk results from changes in several market variables, such as interest rates,
foreign exchange rates, and volatility – as well as the solvency risk and liquidity risk of the different
products and markets where Santander Totta operates.
According to the purpose of the risk the activities are segmented as follows:
• Treasury
– Proprietary trading - (Directional Portfolio) - Positions with larger timeframes through fixed
and floating interest rate products and currency.
• Structural Risk: activities with a main risk resulting from interest rates changes, with no
medium/long term positions and therefore not considered as negotiation are included under
this heading;
– Assets and Liabilities management: the interest risk and liquidity risk appear as a result of
time lags regarding maturities and assets and liabilities’ repricing. Positions taken in
portfolios to protect the margin and active management of credit risk inherent to
Santander Totta balance sheet are also included under this heading.
– Structural variable income: capital investments in financial and non financial companies,
which do not consolidate, generating variable income risks are recorded under this
heading.
Methodologies
Trading Activity
The standard methodology implemented in 2007 financial year for the trading activity is the Value
at Risk (VaR). Historic simulation is used as a base with a 99% confidence level and one day
timeframe, applying statistical adjustments which enabled including quickly and efficiently the most
recent events and which put restraints to the assumed risk levels.
Stress Testing (scenarios analysis) is used also. This analysis consists in establishing scenarios
for different financial variable’s behaviours deriving the respective impact on the results when
applying them to the activities. These scenarios may replicate the behaviour of financial variables
before past facts (such as crisis) or, on the contrary, may determine plausible scenarios not
corresponding to past events. In short, the scenarios’ analysis seeks to identify the potential risk
under extreme market conditions and on the fringes of probabilities of occurrence not covered by
VaR.
A daily follow-up of the positions is carried out at the same time, with an extensive control of
changes occurred in portfolios, aiming at detecting profile changes or possible impacts to correct
them. Daily preparation of results account is a risk indicator, in so far as it enables us to identify the
impact of changes in financial variables or the changes in portfolios
Back-testing measure
The reliability of the VaR model is periodically assessed through an analysis to back-testing. Back-
testing consists in a comparative analysis between the calculations of Value at Risk (VaR) and
daily “clean” results (clean P&L – result associated with the revaluation of closing portfolios of the
previous day at closing prices of the following day), where the occasional/isolated gaps of the
results are checked against the estimated measures.
Back-testing analysis carried out in Santander Totta complies with the recommendations of BIS
with regards to the comparison of internal systems used for financial risks’ measurement and
management. Additionally, in back-testing hypothesis tests, excesses tests, normality tests,
Spearman rank correlation, average excess measures, etc. are carried out.
Limits
Quantitative limits used for trading portfolios and gathered in two groups and are set according to
the following:
• Limits to protect future potential losses. Examples of this kind of limits are VaR, on
sensitivity measures (bpvs or greeks) or on equivalent positions;
• Limits to protect/accommodate effective losses or to protect results already achieved during
the financial year. This kind of limits aims at generating warnings on loss (loss triggers),
enabling to make decisions before reaching stop loss (maximum loss limit), from which it
shall be considered that losses have reached an unacceptable level and the positions shall
be closed at once.
The ALM function is allocated to the 1st level of the organisational structure of Santander Totta and
decisions are made at the Asset and Liability Committee (ALCO), chaired by the President of the
Executive Committee and which includes the executive directors who are responsible for Financial,
Treasury, Commercial, Marketing and International areas. The Committee meets every month and
the balance sheet risks are analyzed and the structural decisions to be implemented are made.
The ALM mission is to measure and control every risk, to optimise Net Interest margin and
maximise the balance sheet amount, in compliance with the strategy drawn by top management
and with the approved limits.
The following limits of balance sheet management are defined for the ALM area:
• Limits to control interest rate risk, namely Net Interest Margin (NIM) sensitivity and Market
Value of Equity (MVE) sensitivity to unexpected interest rates’ changes;
• Limits to control liquidity risk through the liquidity coefficient and accumulated net illiquidity.
The interest rate’s risk of consolidated balance sheet is measured through a model of risk’s
dynamic analysis, modelling the time evolution of risk factors and Santander Totta’s positions over
assets and liabilities sensitive to interest rate changes. The model enables measuring and
controlling every risk factor associated with the Balance Sheet market risk, namely the risk directly
originated by yield curve shifts, given the index structure and the existing revaluation which
determine the net interest margin sensitivity and market value of equity sensitivity of the items
which constitute the balance sheet.
Due to the uncertainty of interest rate levels for 2007, a policy to maintain sensitivity at low levels
was followed, and, in general terms, at the end of December 2007 the balance sheet is almost
immunised against interest rate risk (for non-expected parallel changes on the market’s interest
rate curve).
Foreign exchange risk in the commercial activity is measured and controlled by the global foreign
exchange position, and Santander Totta has a total coverage’s strategy.
Liquidity management policy is decided at ALCO. Santander Totta’s funding policy takes into
account the performance of the balance sheet aggregates, the structural situation of the assets
and liabilities time to maturity, the amount of interbanking net debt compared to the available lines,
the dispersion of the maturities and the minimisation of costs linked to the funding activity.
Decisions on liquidity policy are made at ALCO and carried out by Treasury’s office, in coordination
with ALM area.
The liquidity structural situation is suitable, with liquidity indicators within the established limits. The
net balance of short term indebtedness amounted to 900 million Euros. It should be reported the
fact that this balance is very far from the interbanking short term lines perceived on behalf of
Santander Totta.
Two new operations of mortgage credit securitization of about 4,200 million Euros and the
issuance of medium long term liabilities, on deposits or bonds, placed among retail clients have
contributed for structural suitability.
Santander Totta has an EMTN´s program of 10 billion of euros of which about 7.6 billion of euros
are still to be used
Trading Risk
Santander Totta has a trading risk management and control model based on the direct and active
management by every unit, by means of the application of procedures and controls formally
defined for the objective identification, evaluation and mitigation of operational risks and therefore
the reduction of the losses deriving from this kind of risk.
• Establishment standards and procedures of support to risk management and control, and
the competences of all intervening parties;
• Follow up of risk generating activities;
• Analysis and report of aggregated information on impacts;
• Proposal for the implementation of preventive measures and remedial actions, as well as
controls to reduce the risk level.
There are qualitative and quantitative analysis enabling the identification, control and report of trading
risk, such as self-assessment questionnaires and trading risk indicators, as well as databases of
mistakes, impacts and statistics.
During 2007 the main activities carried out were the following:
Net income for the financial year of 2007, in individual terms, amounted to € 343,398,747.82 (three
hundred forty three million, three hundred ninety eight thousand, seven hundred forty seven Euros
and eighty two cents) and consolidated Net income for 2007 financial year, was € 387,619,076.00
(three hundred eighty seven million, six hundred nineteen thousand and seventy six Euros).
The Board of Directors, in accordance with the provisions of article 19 of the articles of
incorporation, proposes the following distribution of profits:
– Legal Reserve: € 34,339.874.79 (thirty four million three hundred thirty nine thousand
eight hundred seventy four Euros and seventy nine cents);
– Dividends Distribution: € 200,000,000.00 (two hundred million Euros) for all the issued
shares;
– The remaining amount of € 109,058,873.03 (one hundred nine million fifty eight thousand
eight hundred seventy three Euros and three cents), for retained earnings.
Additional Information
Santander Totta identifies with society and the authorities of the different countries where it
operates, by recognising the importance of the prevention and fight against money laundering and
terrorism financing, which impacts essential aspects of living in society and shows its solidarity and
maximum cooperation with competent authorities to prevent and fight against these phenomena.
Santander Totta considers that the best way to fulfil its commitment implies establishing internal
efficient standards and procedures, developing banking activity in accordance with a strict code of
good practices, to settle acting patterns, control and communication systems, in order to prevent
that its Units are used for money laundering and terrorism financing and guarantee that all
employees comply with the set up policies and procedures, and comply strictly with laws against
money laundering, as well as the recommendations issued on this matter by the International
Group of Financial Activity and national and international authorities.
For this purpose Santander Totta has regulations in line with the legal provisions and a
organization structure assigned to the prevention and control of money laundering, its staff has the
suitable training for this matter and use automatic procedures for detection and internal
communication of possible risk operations and monitors and carries out transactions and alerts
with characteristics of possible risk.
Local visits were also made to the units with head offices abroad, to check and guarantee the
compliance with the policies, as well as the operation capability of the systems to fight against
money laundering and terrorism financing. These Units have been implementing the set up
procedures or the legal standards of the country if the latter are more demanding.
The system for prevention and internal control against money laundering is audited every year,
with the aim of certifying integrity and monitor the compliance with legal obligations and Santander
Totta’s criteria and procedures.
The main activities carried out by members of Board of Directors of BANCO SANTANDER TOTTA,
SA outside the societies, which are significant for the latter are the following ones:
Banco Santander de Negócios Portugal, S.A. Vice-Chairman of the Board of Directors and
Chairman of the Executive Committee
Santander Totta, S.G.P.S., S.A. Member of the Board of Directors and of the
Executive Committee
Portal Universia Portugal, S.A. Member of the Board of Directors and of the
Executive Committee
Santander Totta, S.G.P.S., S.A. Member of the Board of Directors and of the
Executive Committee
Banco Santander de Negócios Portugal, S.A. Member of the Board of Directors and of the
Executive Committee
Banco Santander de Negócios Portugal, S.A. Member of the Board of Directors and of the
Executive Committee
Portal Universia Portugal, S.A. Member of the Board of Directors and of the
Executive Committee
Banco Santander de Negócios Portugal, S.A. Member of the Board of Directors and of the
Executive Committee
Under the terms and for the purposes of the provisions of Article 447º of Companies Code and
subparagraph a), of Article 8, of CMVM 4/2004 Regulation, we inform that the movements of
shares and bonds carried out by the members of governing and monitoring bodies regarding the
year of 2007, were the following:
Board of Directors
Shares Position
Holding on 31.12.2006:
157 Banco Santander Totta, S.A. shares
142,571 Santander Totta, SGPS, S.A. shares
2 BSN - Banco Santander de Negócios Portugal, S.A. shares
On 31.12.2007, he held:
157 Banco Santander Totta, S.A. shares
142.571 do Santander Totta, SGPS, S.A. shares
2 do BSN - Banco Santander de Negócios Portugal, S.A. shares
Bonds position
Holding on 31.12.2006:
50 BSP– Poup. Super Estrelas II Bonds
75 BTA– Poup. Super Estrelas Bonds
75 BTA – Poup. Super Estrelas II Bonds
50 BTA – Super 5% Bonds
50 BTA – Estratégia Valor Mais 05/09 Bonds
During the year 2007, the following movements were reported: Unit Value
27.02.2007 Reimbursement 50 BTA – Super 5% Bonds 50 euros each
On 31.12.2007, he held:
50 BSP – Poup. Super Estrelas II Bonds
75 BTA – Poup. Super Estrelas Bonds
75 BTA – Poup. Super Estrelas II Bonds
50 BTA – Estratégia Valor Mais 05/09 Bonds
Bonds Position
Holding on 31.12.2006:
200 BTA – Totta Euro Inflação Cx. 2003/08 Bond
200 BSP - Poupança Super Estrelas Bond
Durin the year of 2007, the following movements were reported: Unit Value
26.03.2007 Subscription of 100 BST-Inv. Premium 2011-8.25% CX Bonds 50 euros each
On 31.12.2007 he held:
200 BTA – Totta Euro Inflação Cx. 2003/08 Bonds
200 BSP - Poupança Super Estrelas Bonds
100 BST – Investimento Premium 2011-8.25% CX Bonds
Shares position
Holding on 31.12.2006:
142.571 Santander Totta, SGPS, S.A. shares
157 Banco Santander Totta, S.A. shares
On 31.12.2007, he held:
142.571 Santander Totta, SGPS, S.A. shares
157 Banco Santander Totta, S.A. shares
Bonds position
Holding on 31.12.2006:
900 BSP – Poupança Super Estrelas II Bonds
900 BSP – Euro rentabilidade Bonds
500 Rendimento Mundial 2004 Bonds
500 BSP – Rendimento Certo Cx.05/2013 Bonds
1240 BST – Competição Mundial Cx.06/2010 Bonds
On 31.12.2007, he held:
900 BSP – Poupança Super Estrelas II Bonds
900 Obrigações BSP – Euro Rentabilidade Bonds
500 Obrigações Rendimento Mundial 2004 Bonds
500 Obrigações BSP – Rendimento Certo Cx.05/2013 Bonds
1240 Obrigações BST – Competição Mundial Cx.06/2010 Bonds
Shares position
Holding on 31.12.2006:
6.053 Banco Santander Totta, S.A shares
On 31.12.2007, he held:
6.053 do Banco Santander Totta, S.A shares
Bonds position
During the year of 2007, the following movements were reported: Unit Value
18.05.2007 internal transfer of 300 BTA – Rend. Certo CX.05/2013 bonds 50 euros each
On 31.12.2007, he held:
300 BTA – Rendimento Certo CX. 05/2013 Bonds
Bonds position
Holding on 31.12.2006:
54 CPP – Garantido 6 Anos bonds
300 BTA – Rendimento Certo Cx.05/2013 bonds
During the year 2007, the following movements were reported: Unit Value
30.04.2007 Subscriptionof 100 BST – Euro Banca 7/2011 CX bonds 50 euros each
On 31.12.2007, he held:
54 CPP – Garantido 6 Anos bonds
300 BTA – Rendimento Certo Cx.05/2013 bonds
100 BST – Euro Banca 7/2011 CX bonds
Shares position
Holding on 31.12.2006:
1 ISBANP – Engenharia e Software Bancário, S.A. share
On 31.12.2007, he held:
1 ISBANP – Engenharia e Software Bancário, S.A. share
Bonds position
Holding on 31.12.2006:
100 BTA – Estratégia Valor Mais 05/09 bonds
100 BTA – Rendimento China 6% bonds
200 BST-Super Rendimento Mercados Emergentes Cx.-06/2010 bonds
100 BST – Gás Natural Premium Cx. 10%-2010 bonds
During the year 2007, the following movements were reported: Unit Value
12.07.2007 Sale in Stock Exchange of 100 BTA – Rendimento China 6% bonds 50 euros each
22.01.2007 Subscription of 280 BST – Rendimento China 8% bonds 50 euros each
On 31.12.2007, he held:
100 BTA – Estratégia Valor Mais 05/09 bonds
200 BST-Super Rendimento Mercados Emergentes Cx.-06/2010 bonds
100 BST – Gás Natural Premium Cx. 10%-2010 bonds
280 BTA – Rendimento China 8% bonds
Bonds position
Holding on 31.12.2006:
50 BTA Poupança Super Estrelas bonds
On 31.12.2007, he held:
50 BTA Poupança Super Estrelas bonds
Bonds position
Holding on 31.12.2006:
200 Totta – Rendimento Certo –bonds
100 BTA – Cabaz Mundial – bonds
500 Rendimento Crescente 6 – bonds
300 BST – Rendimento Mercados Emergentes – bonds
During the year 2007, the following movements were reported: Unit Value
19.11.2007 Reimbursement of 100 BTA – Totta Cabaz Mundial – bonds 50 euros each
22.01.2007 Subscription 400 BST – Rendimento China 8% - bonds 50 euros each
On 31.12.2007, he held:
200 Totta – Rendimento Certo – bonds
500 Rendimento Crescente 6 – bonds
300 BST – Rendimento Mercados Emergentes – bonds
400 BST – Rendimento China 8% - bonds
April 2008
LEGAL CERTIFICATION OF ACCOUNTS AND AUDIT REPORT
Introduction
1. In compliance with the applicable legislation we hereby present our Legal Certification of Accounts
and Audit Report on the consolidated financial information contained in the Directors’ Report and on
the accompanying consolidated financial statements of Banco Santander Totta, S.A. and subsidiaries
(“the Bank” or “BST”) for the year ended December 31, 2007, which comprise the consolidated
balance sheet as of December 31, 2007 that presents a total of 37,799,300 tEuros and total
shareholders’ equity of 2,243,440 tEuros, including consolidated net income attributable to the
shareholders of BST of 387,619 tEuros, the consolidated statements of income, cash flows and changes
in shareholders’ equity for the year then ended and the corresponding notes.
Responsibilities
2. The Board of Directors of the Bank is responsible for: (i) the preparation of consolidated financial
statements that present a true and fair view of the financial position of the companies included in the
consolidation, the consolidated results of their operations and their consolidated cash flows; (ii) the
preparation of historical financial information in accordance with the applicable accounting principles
and that is complete, true, timely, clear, objective and licit, as required by the Portuguese Securities
Market Code (“Código dos Valores Mobiliários”); (iii) the adoption of adequate accounting policies
and criteria and maintenance of appropriate systems of internal control; and (iv) the disclosure of any
significant facts that have influenced the operations of the companies included in the consolidation,
their financial position or results of operations.
3. Our responsibility is to examine the financial information contained in the documents of account
referred to above, including verifying that, in all material respects, the information is complete, true,
timely, clear, objective and licit, as required by the Portuguese Securities Market Code, and to issue a
professional and independent report based on our work.
Page 2 of 2
Scope
4. Our examination was performed in accordance with the auditing standards (“Normas Técnicas e
Directrizes de Revisão/Auditoria”) issued by the Portuguese Institute of Statutory Auditors (“Ordem
dos Revisores Oficiais de Contas”), which require that the examination be planned and performed with
the objective of obtaining reasonable assurance about whether the consolidated financial statements are
free of material misstatement. Our examination included verifying, on a sample basis, evidence
supporting the amounts and disclosures in the consolidated financial statements and assessing the
estimates, based on judgements and criteria defined by the Board of Directors, used in their
preparation. Our examination also included verifying the consolidation procedures used, application of
the equity method and verifying that the financial statements of the companies included in the
consolidation have been adequately examined, assessing the adequacy of the accounting principles
used, their uniform application and their disclosure, taking into consideration the circumstances,
verifying the applicability of the going concern concept, verifying the adequacy of the overall
presentation of the consolidated financial statements, and assessing if, in all material respects, the
consolidated financial information is complete, true, timely, clear, objective and licit. Our examination
also included verifying that the consolidated financial information included in the Directors’ Report is
consistent with the consolidated financial statements. We believe that our examination provides a
reasonable basis for expressing our opinion.
Opinion
5. In our opinion, the consolidated financial statements referred to in paragraph 1 above present fairly, in
all material respects, the consolidated financial position of Banco Santander Totta, S.A. and
subsidiaries as of December 31, 2007, the consolidated results of their operations and their consolidated
cash flows for the year then ended in conformity with the International Financial Reporting Standards
as adopted by the European Union and the financial information included therein is, in terms of the
definitions included in the standards referred to in paragraph 4 above, complete, true, timely, clear,
objective and licit.
2007 2006
Amounts before
Impairment, Impairment,
depreciation and depreciation and Net Net
ASSETS Notes amortization amortization assets assets LIABILITIES AND SHAREHOLDERS' EQUITY Notes 2007 2006
Cash and deposits at central banks 6 425,200 - 425,200 513,934 Liabilities
Balances due from banks 7 380,288 - 380,288 263,017 Resources of central banks 18 2,128,308 3,037
Financial assets held for trading 8 1,387,958 - 1,387,958 1,100,597 Financial liabilities held for trading 8 1,251,020 950,296
Financial assets designated at fair value through profit an 9 407,028 - 407,028 417,754 Resources of other financial institutions 19 5,381,279 4,840,797
Available-for-sale financial assets 10 1,898,954 42,858 1,856,096 375,489 Resources of customers and others 20 11,866,257 11,450,360
Loans and advances to banks 11 4,369,784 - 4,369,784 3,293,978 Debt securities issued 21 13,855,170 12,803,768
Loans and advances to customers 12 28,359,271 441,995 27,917,276 26,361,538 Hedging derivatives 13 235,186 383,630
Hedging derivatives 13 77,406 - 77,406 197,375 Provisions 22 90,467 88,291
Other tangible assets 14 793,391 372,686 420,705 408,018 Current tax liabilities 16 23,283 17,919
Intangible assets 14 192,382 144,375 48,007 44,852 Deferred tax liabilities 16 25,094 46,786
Investments in associates 15 20,965 - 20,965 22,384 Equity instruments 23 - 100,477
Current tax assets 16 2,070 - 2,070 3,630 Subordinated liabilities 24 420,321 430,750
Deferred tax assets 16 241,036 - 241,036 259,099 Other liabilities 25 279,475 261,931
Other assets 17 290,819 45,338 245,481 284,771 Total liabilities 35,555,860 31,378,042
Shareholders' equity
Share capital 26 589,811 589,811
Share premium account 26 163,703 163,703
Other equity instruments 26 135,000 135,000
Revaluation reserves 26 5,679 78,424
Other reserves and retained earnings 26 444,658 297,274
Treasury shares (177) (72)
Consolidated net income attributable to the shareholders 27 387,619 353,914
Shareholders' equity attributable to the shareholders of BST 1,726,293 1,618,054
Minority interest 28 517,147 550,340
Total shareholders' equity 2,243,440 2,168,394
Total Assets 38,846,552 1,047,252 37,799,300 33,546,436 Total liabilities and shareholders' equity 37,799,300 33,546,436
Taxes
Current 16 (83,740) (58,949)
Deferred 16 (12,307) (42,080)
Income after taxes and before minority interest 387,621 353,916
2007 2006
Net cash flow from/(used in) operating activities before income tax 1,441,833 (7,087,951)
Income tax paid (87,178) (70,486)
Net cash flow from/(used in) operating activities 1,354,655 (7,158,437)
Cash and cash equivalents at the beginning of the year 776,951 744,440
Cash and cash equivalents at the end of the year 805,488 776,951
The accompanying notes form an integral part of these statements of cash flows.
BANCO SANTANDER TOTTA, S.A.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
Balances at December 31, 2005 589,811 163,703 - 23,245 72,491 (26,064) 41,470 573,945 4,402 (427,648) (13) 296,996 291,665 1,604,003
Appropriation of net income - - - - - 751 31,289 26,420 1,060 93,469 - (173,914) 20,925 -
Dividends distributed - - - - - - - - - - - (180,000) - (180,000)
Exchange difference on foreign subsidiaries - - - - - - - - (5,013) - - - (28,800) (33,813)
Payment of interim dividend on preference shares
with equity features - - - - - - - - - - - - (27,608) (27,608)
Write-off of cost of issuing preference shares - - - - - - - - - - - - 2,250 2,250
Change in the fair value of available-for-sale equity items - - - - (90,067) 16,104 - - - - - - - (73,963)
Change in the fair value cash flow hedging derivatives - - - - 636 (169) - - - - - - - 467
Purchase of treasury shares - - - - - - - - - - (105) - - (105)
Others - - - - - - - 159 - - - - 40 199
Consolidated net income for the year attributable to the shareholder - - - - - - - - - - - 387,619 - 387,619
Balances at December 31, 2007 589,811 163,703 135,000 23,245 (18,239) 673 102,068 624,471 (5,219) (276,662) (177) 387,619 517,147 2,243,440
INTRODUCTORY NOTE
Banco Santander Totta, S.A. (hereinafter referred to as the “Bank” or “BST”), previously known as
Companhia Geral de Crédito Predial Português, S.A. (“CPP”), is a commercial bank founded in 1864. The
Bank was nationalized in 1975 and transformed into a State owned bank in 1990. On December 2, 1992
the Bank’s capital was re-privatized through an Initial Public Offering carried out in a special session of the
Lisbon Stock Exchange.
Since December 2000, following the acquisition of Banco Totta & Açores, S.A. (“Totta”) by the Santander
Group (“SAN”), the Bank has been part of the SAN. The main balances and transactions with Group
Companies are presented in Note 45.
On December 16, 2004, a demerger/merger operation of Totta was carried out, under which its
investments in Foggia, SGPS, S.A. and Totta Seguros – Companhia de Seguros de Vida, S.A. were
demerged and the remainder of its operations, together with Banco Santander Portugal, S.A. (“BSP”), were
merged into CPP, which then changed its name to the current one.
The Bank’s operations consist of obtaining funds from third parties, in the form of deposits and others,
which it applies, together with its own funds, in all sectors of the economy, mostly in the form of loans or
securities and also provides other banking services in Portugal and abroad.
The Bank has a domestic network of 684 branches (644 branches at December 31, 2006) and foreign
exchange posts and has overseas branches in London and Luxembourg, as well as an offshore financial
branch and an international offshore branch in the Autonomous Region of Madeira. The Bank also has
subsidiaries and representation offices abroad as well as investments in subsidiaries and associated
companies. In 2007 BST’s Board of Directors decided to close the Luxembourg branch.
BST’s consolidated financial statements were prepared on a going concern basis, from its books
and accounting records maintained in accordance with the accounting principles set forth in the
International Financial Reporting Standards (IAS/IFRS) as adopted by the European Union,
Regulation (CE) 1606/2002 of July 19 of the European Parliament and Council, transposed to
Portuguese legislation by Decree-Law 35/2005 of February 17, and Notice 1/2005 of February 21
of the Bank of Portugal. Where Group companies use different accounting principles, appropriate
adjustments were made.
In 2007 the Bank and subsidiary and associated companies adopted IFRS 7 – Financial
Instruments: Disclosures, effective for reporting periods starting January 1, 2007 or later, with the
necessary amendments of IAS 1 – Financial Statement Presentation. The impact of adopting
IFRS 7 consisted essentially of greater disclosure regarding financial instruments used and
management of capital (Note 46).
On the other hand, the Bank also adopted the amendment of IAS 1 – Disclosure of entity-specific
capital requirements, which reflected the need of additional disclosures concerning capital
requirements. Disclosures established under this amendment are presented on Note 47.
1
BANCO SANTANDER TOTTA, S.A.
As of December 31, 2007 were available for early adoption the following standards (new and
review) and interpretations issued by the International Accounting Standards Board (IASB) and
by the Internacional Financial Reporting Interpretation Committee (IFRIC), respectively, endorsed
by the European Union:
- IFRIC 11 – “IFRS 2 - Group and Treasury Share Transactions” – The Interpretation main
objective is to clarify how to apply IFRS 2 to share-based payments’. Its application is
mandatory for reporting periods starting March 1, 2007 or later.
In addition, until the approval of the attached financial statement, have still been issued the
following standards and interpretations, not yet endorsed by the European Union:
The application of the reviewed standards is mandatory for reporting periods starting July 1,
2009 or later.
- IFRIC 14 – “IAS 19 - The Limit on a Defined Benefit Asset Minimum Funding Requirements
and their Interaction” – This Interpretation clarifies the requirements for the recognition of a
surplus in a pension plan as an asset, as well as the effects relating to the recognition of the
minimum funding requirement as liability. Its application is mandatory for reporting periods
starting January 1, 2008 or later.
Though an assessment of the impact of the adoption of standards and interpretation above is not
yet available, in preparing the attached consolidated financial statements, the Bank’ Board of
Directors believes that its implementation will not produce a material impact.
The financial statements of BST and subsidiary and associated companies for the year ended
December 31, 2007 are subject to approval by the corresponding Shareholders’ General
Meetings. However, the Bank’s Board of Directors believes that they will be approved without
significant changes.
2
BANCO SANTANDER TOTTA, S.A.
Subsidiary companies are those in which the Bank has direct or indirect control. Control usually
exists when the percentage participation exceeds 50%, the majority of voting rights are held or
there is power to manage the financial and operating policies of an entity so as to benefit from its
operations.
The financial statements of subsidiaries are consolidated by the full integration method from the
time BST has control over their activities to the time control ceases.
Balances, transactions and the corresponding income and expenses between the consolidated
entities are eliminated in the consolidation process. Third party participation in subsidiary
companies consolidated by the full integration method is reflected in the caption “Minority
interest” (Note 28).
Associated companies are those in which the Bank has significant influence, but over which it
does not have control. Significant influence is presumed to exist when a participation (direct or
indirect) exceeds 20% or where the Bank has the power to participate in decisions relating to
their financial and operating policies, but does not have control or joint control over them.
Companies in which the Bank’s participation is less than 20%, but that are majority held by the
Santander Group are also considered as associated companies. Participations in associated
companies are recorded in accordance with the equity method, from the time the Bank has
significant influence until the date it ceases.
In accordance with the equity method, the consolidated financial statements include the part of
shareholders’ equity and profit and loss of the associated companies attributable to the Bank.
Goodwill corresponds to the excess of the cost of acquisitions over the effective percentage held
in the fair value of the assets, liabilities and contingent liabilities of subsidiary and associated
companies.
The Bank decided not to apply IFRS 3 – Concentration of business activities, retrospectively.
Therefore goodwill on acquisitions up to January 1, 2004 is reflected as a deduction from
shareholders’ equity in compliance with the former accounting policy. On the other hand,
previously recognized negative goodwill was recorded as an increase in shareholders’ equity, as
permitted by IFRS 1.
Acquisitions of subsidiaries and associated companies after January 1, 2004 are recorded in
accordance with the purchase method. Cost of the acquisitions corresponds to the fair value of
the assets and liabilities of the subsidiaries and associated companies as of the acquisition date,
plus costs directly attributable to the acquisition. Goodwill is recorded as an asset and is subject
to impairment tests in accordance with IAS 36, but is not amortized. In addition, whenever fair
value exceeds cost (negative goodwill), the difference is reflected in the statement of income.
The Bank consolidates Special Purpose Entities (SPE), namely vehicles used for securitization
operations of mortgage loans, by the full integration method.
3
BANCO SANTANDER TOTTA, S.A.
The Group decided to reverse, as of the transition date (January 1, 2004), the reserve resulting
from exchange differences arising on the translation of financial statements of subsidiaries
expressed in functional currencies other than the Euro. As from that date, in compliance with
IAS 21, the foreign currency financial statements of subsidiary and associated companies have
been translated to Euros as follows:
- Assets and liabilities are translated at the closing exchange rate for Euros on the balance
sheet date;
- Non-monetary assets recorded at historical cost, including tangible assets, remain reflected at
the original exchange rates; and
- Foreign currency income and expenses are translated to Euros at the average exchange
rates of the month in which they are recognized.
Exchange differences are reflected in the shareholders’ equity caption “Exchange fluctuation
reserves”.
The main accounting policies used in preparing the financial statements were as follows:
a) Accruals basis
The Bank uses the accrual-based accounting principle for most of its financial statement
captions. Therefore, expenses and income are recorded in the period to which they relate,
independently of when they are paid or received.
Foreign currency assets and liabilities are translated to Euros at the fixing exchange rates at
the balance sheet date, except for foreign currency notes and coins, which are translated at
the average rate for the month indicated by the Bank of Portugal.
Income and expenses relating to foreign currency transactions are recorded in the period in
which they occur, in accordance with the effect they have on the exchange position.
The spot position in any particular currency, which is the net balance of all assets and
liabilities in that currency, is revalued on a daily basis, using the fixing exchange rate
indicated by the Bank of Portugal, by corresponding entry to the statement of income.
The forward position in any particular currency, which is the net balance of forward
operations waiting to be settled, is revalued at forward market rates or, in their absence,
calculated based on the interest rates applicable to that currency for the remaining period to
maturity of each operation. Differences between the amounts in Euros at the forward
revaluation rates and the contracted rates, which correspond to revaluation of the forward
exchange position, are recorded in the statement of income.
This caption includes loans and advances made by the Bank to customers and to credit
institutions.
Loans and advances to costumers include loans to costumers, as well as other security
operations (commercial paper), which are recorded at their nominal value.
Subsequently, loans and other receivables are recorded at amortized cost, being submitted
to periodic impairment analyses.
4
BANCO SANTANDER TOTTA, S.A.
Commission and interest on operations underlying assets included in this category, as well
as interest on loans and advances granted, are recognized on an accruals basis over the
period of the operations, using the effective interest rate method, regardless of when they
are received or paid. The Bank opted to defer commission received and paid relating to
credit granted as from January 1, 2004.
The Group classifies as overdue credit, instalments of principal and interest overdue for
more than 30 days. Credits with overdue instalments are denounced in accordance with the
approved credit procedures, the whole debt being considered overdue.
Impairment
Loans to customers and other receivables are subject to periodic impairment tests. A
financial asset is considered to be impaired if, and only if, there is evidence that one or more
loss events have occurred that have a measurable impact on the estimated future cash
flows of that asset or group of assets.
The Group’s loan portfolio is segmented as follows for purposes of determining impairment:
− Corporate customers;
− Mortgage loans;
− Consumer credit;
− Credit cards;
− Overdue instalments of principal and interest of at least tEuros 75 (that are monitored
by recovery managers);
. All credits between tEuros 50 and tEuros 300, monitored by risk managers.
The Bank carries out a collective impairment assessment of the remaining segments of the
loan portfolio.
5
BANCO SANTANDER TOTTA, S.A.
− Non compliance with a contract, such as delay in paying principal and/or interest;
. Economic conditions in the sector in which the debtor operates with an impact on
the debtor’s ability to comply with its obligations.
Impairment losses for customers that are not in default corresponds to the product of the
probability to default (PI) and the difference between the book value of the respective credits
and the discounted cash flows of those operations. PI corresponds to the probability of one
transaction, operation or client defaulting during an emergency period. Emergency period
corresponds to the period between the occurrence of a loss event and the identification of
that event by the Bank (incurred but not reported). For all the loan portfolio segments, the
Bank considers an emergency period of 12 months.
If there is evidence that the Group has incurred an impairment loss on credits or other
receivables, the amount of the loss is determined by the difference between the book value
of those assets and the present value of the estimated future cash flows, discounted at the
original interest rate of the asset or financial assets. The book value of the asset or assets
is reduced by the balance of the impairment loss account. In the case of credits with
variable interest rates, the discount rate used to determine an impairment loss is the current
interest rate, determined by the contract. Impairment losses are recorded by corresponding
entry to the statement of income.
In accordance with the Group’s current impairment model for the customer loan portfolio,
the existence of impairment losses is assessed individually, on a sample basis, and on a
collective basis. When a group of financial assets is assessed collectively, the future cash
flows of that group are estimated based on the contractual cash flows of the assets of that
group and on historical data regarding losses on assets with similar credit risk
characteristics. Whenever the Group considers it necessary, the historical information is
updated based on current observable data, in order to reflect the effect of current conditions.
When, in a subsequent period, there is a decrease in the amount of impairment losses due
to a specific event, the previously recognised amount is reversed and the impairment loss
account is adjusted. The amount reversed is recognized directly in the statement of income.
The Group periodically writes off overdue credits considered uncollectible using the
respective accumulated impairment account. Any credits recovered are recognised as
decreases in impairment losses, in the statement of income caption “Loan impairment net of
reversals and recoveries”.
Loan sales
Gains and losses on the definitive sale of loans are recorded in the statement of income
caption “Results of other assets” (Note 38). Such gains and losses correspond to the
difference between the sales price fixed and the book value of the assets net of impairment
losses. Possible contingent future collections are not considered in determining the fixed
amount of the sale
6
BANCO SANTANDER TOTTA, S.A.
Responsibilities for guarantees given and irrevocable commitments are recorded in off-
-balance sheet accounts by the amount at risk, while interest, commission and other income
are recorded in the statement of income over the period of the operations.
Income from a significant service rendered, such as income from syndicated loans, is
recognized in the statement of income when the service has been completed.
Income from services and commission obtained as the services are rendered are
recognized in the statement of income in the period to which they refers.
Income from services and commission that are part of the remuneration of financial
instruments are recorded in the statement of income, using the effective interest rate
method.
Costs relating to services and commission are recognized using the same criteria as for
income.
e) Financial instruments
The following assets and liabilities are recognized and valued in compliance with IAS 32 and
IAS 39, and comprise the following specific categories:
i) Financial assets and liabilities held for trading and financial assets designated at fair
value through profit and loss
Financial assets held for trading include fixed income securities and variable yield
securities traded on active markets, as well as derivatives purchased with the intention
of being sold or repurchased in the short term. Trading derivatives (including currency
swaps) with a receivable net value (positive fair value) and options bought are included
in the caption “Financial assets held for trading”. Trading derivatives (including
currency swaps) with a payable net value (negative fair value) and options sold are
included in the caption “Financial liabilities held for trading”.
Financial assets designated at fair value through profit and loss include fixed income
securities traded on active markets that the Bank has opted to record and value at fair
value through profit and loss.
Financial assets and liabilities held for trading and financial assets designated at fair
value through profit and loss are recorded initially at fair value. Gains and losses
resulting from subsequent valuations are recognized in the statement of income.
The fair value of financial assets held for trading is the “bid-price” or the closing price of
the securities at the balance sheet date. Where market value is not available, fair value
is estimated based on valuation techniques that include price valuation models or
discounted cash flow techniques.
7
BANCO SANTANDER TOTTA, S.A.
Where discounted cash flow techniques are used, the future financial flows are
estimated in accordance with management’s expectations and the discount rate
corresponds to the market rate for financial assets and liabilities with similar
characteristics. In the case of price valuation models, the data used corresponds to
information regarding market prices.
The fair value of derivatives not listed on stock markets is estimated based on the
amount that would be receivable or payable to liquidate the contract on the valuation
date, considering market conditions as well as the creditworthiness of the
counterparties.
Available-for-sale financial assets include equity and debt instruments which are not
classified as financial assets held for trading or at fair value through profit or loss, as
held-to-maturity investments or as loans and accounts receivable.
Available-for-sale financial assets are valued at fair value, except for equity
instruments not listed on an active market, the fair value of which cannot be
determined reliably, which are recorded at cost. Subsequent gains and losses resulting
from changes in the fair value of available-for-sale financial assets are recognized
directly in the shareholders’ equity caption “Fair value reserve” until they are sold (or
until impairment losses are recognized on them), when they are transferred to the
statement of income. Exchange gains and losses on monetary assets are recognized
directly in the statement of income.
Interest on financial assets and the recognition of differences between their cost and
the nominal value (premium or discount) are calculated in accordance with the
effective rate method and recorded in the statement of income caption “Interest
income”.
Securities sold with repurchase agreements are maintained in the portfolio in which
they were originally recorded. Funds received are recorded on the settlement date in a
specific liability account, interest being recorded on an accruals basis.
Evidence of impairment of listed securities is considered to exist where their list price
falls continuously or falls significantly. Evidence of impairment of unlisted securities is
considered to exist where there is a significant impact on the estimated future cash
flow of the financial asset, provided that it can be reasonably estimated.
8
BANCO SANTANDER TOTTA, S.A.
Derivatives embedded in bonds issued are recorded separately and revalued at fair
value through profit and loss.
Derivative instruments traded by the Group are always recognized in the balance sheet at
their fair value.
Derivatives embedded in other financial instruments (namely debt issued) are segregated
from their host contract whenever their risks and characteristics are not intimately related to
those of the host contract and the whole instrument is not recorded at fair value through
profit and loss.
BST uses derivative financial instruments to hedge interest and exchange rate risks
resulting from financing and investing activities. Derivatives which do not qualify for hedge
accounting are recorded as financial instruments held for trading, in financial assets or
liabilities held for trading captions, and all variations in their fair value are reflected in the
statement of income.
Derivatives which qualify for hedge accounting are recorded at fair value and the gains and
losses are recognized in accordance with the hedge accounting model adopted by BST.
9
BANCO SANTANDER TOTTA, S.A.
In accordance with IAS 39.88, hedge accounting is only applicable where the following
requirements are met cumulatively:
− Formal documentation exists regarding the hedging relationship and risk management
strategy of the Bank, including the following:
. Definition of the method used to measure the hedging efficiency and subsequent
monitoring.
− During the period of the operation, the hedging effectiveness is maintained at between
80% and 125%. The hedging effectiveness is tested on each financial statement date
by comparing the variation in fair value of the hedged item, with the variation of the fair
value of the hedging derivative.
Hedge accounting is only applied from the time all these requirements are met. In the same
way, if at any time the hedging efficiency ceases to be between 80% and 125%, hedge
accounting is discontinued.
Gains or losses on the revaluation of hedging instruments are recognized in the statement
of income. If the hedge is efficient, the gains and losses resulting from variations in the fair
value of the hedged item relating to the risk which is being hedged are also recognized in
the statement of income.
If a hedging instrument matures or is terminated early, the gains or losses in the valuation of
the hedged risk, recognized as value adjustments of the hedged items, are amortized over
the remaining period of the hedged item. If the hedged asset or liability is sold or liquidated,
the amounts recognized as valuation of the hedged risk are recorded in the statement of
income for the year and the derivative instrument is transferred to the trading portfolio. If the
hedge becomes ineffective, the gains and losses recognized as value adjustments of the
hedged items are amortized through the statement of income over the remaining period.
Hedge accounting is not applied in the case of exchange rate hedging of monetary items,
the gain or loss on the derivative and on the monetary items being recognized in the
statement of income for the period.
Cash flow hedges refer to hedging the exposure to variations in future cash flows that can
be attributed to a specific risk relating to a recorded asset or liability, or to a highly probable
future transaction that may affect results.
BST has derivative financial instruments contracted to hedge future flows of interest on its
variable rate mortgage loan portfolio.
10
BANCO SANTANDER TOTTA, S.A.
Application of cash flow hedge accounting is also subject to the previously mentioned hedge
accounting requirements, and requires the following accounting:
− The effective portion of the gain or loss on the hedging instrument is recognized
directly in a specific equity caption; and
Additionally, the gain or loss on the hedging instrument recognized in equity is the lower of
the following amounts:
− The accumulated variation of the fair value of the hedging instrument as from the
beginning of the hedge; and
− The accumulated variation of the fair value of the hedged item, relating to the risk that
is being hedged, as from the beginning of the hedge.
In this respect, the portion of the gain or loss on the hedging instrument not recognized in
equity, if any, is recorded in the statement of income.
Cash flow hedge accounting must be discontinued if the hedging instrument matures or is
terminated early, if the hedge becomes inefficient or if it is decided to terminate the hedge
relationship. In these cases, the accumulated profit or loss resulting from the hedging
instrument must remain reflected separately in equity, being recorded in the statement of
income in the same period the gains or losses on the hedged item are recognized.
Tangible assets used by the Bank in its operations are recorded at cost (including costs
attributed directly) less accumulated depreciation and impairment losses.
Years of
useful life
Leasehold improvements are depreciated over their expected useful lives, or lease period if
shorter, corresponding on average to ten years.
As permitted by IFRS 1, on transition to IAS/IFRS, the Bank maintained the book value of
tangible assets acquired up to January 1, 2004, which corresponds to cost adjusted by legal
revaluations based on evolution of the general price index. Part, corresponding to 40% of
the increase in depreciation resulting from the revaluations, is not tax deductible, the
corresponding deferred tax liability being recorded.
Impairment tests are made periodically. The branches are considered as cash flow
generating units for this purpose, impairment losses being recognized where the value of
the property is not recovered through use in the operations. In such cases, the amount of
the impairment loss corresponds to the difference between the net amount of the real estate
and the amount of the valuation.
The criteria followed in the evaluations usually consider the “market comparison method”
and the value in the assessment corresponds to the market value of the asset in its current
state.
11
BANCO SANTANDER TOTTA, S.A.
h) Intangible assets
The Bank recognizes in this caption, costs incurred in the development phase of information
systems implemented and in the implementation phase, as well as costs of acquiring
software, in both cases where the estimated impact extends beyond the financial year in
which the costs are incurred. Assessments are made annually to determine any impairment
losses.
Intangible assets are amortized on a monthly basis over the estimated period of useful life of
the assets which, on average, corresponds to three years.
The Bank records under the caption “Other assets”, property, equipment and other assets
received as settlement of non-performing loans, these being recorded at the amount of the
settlement agreement, which is the lower of the amount of the outstanding debt or the
appraised value of the asset as of the date of the agreement. Such property is subject to
periodic appraisals, impairment losses being recorded whenever the appraised value (net of
costs to sell) is lower than its book value. Tangible assets are recorded in this caption from
the time the promissory contract transferring or auctioning the asset is signed.
This caption also includes the Bank’s property for own use in the process of sale. Such
assets are transferred from tangible assets at their book value in accordance with IAS 16
(cost net of impairment and depreciation) and are also subject to periodic appraisals to
determine impairment losses.
The Bank does not recognize unrealized gains on these assets, because there is no
confirmed expectation of its realization.
Considering the above and though the Bank’s Board of Directors believes that there is no
material impact on its financial position, the Bank is evaluating the possibility of recognizing
these assets according to IAS 40 – “Investment Property”, using the fair value model.
j) Provisions
This liability caption includes provisions recorded in accordance with IAS 37, to cover the
restructuring plan, tax contingencies, legal processes and other specific risks arising from
BST’s operations (Note 22).
The Bank subscribed to the Collective Labour Agreement (Acordo Colectivo de Trabalho -
ACT) for the Portuguese Banking Sector, under which its employees or their families are
entitled to retirement, disability and survivor pensions. However, as the employees of the
former Totta are covered by Social Security, the Bank’s pension liability to these employees
consists on the payment of supplements. The remaining employees of BST are not covered
by Social Security, the Bank being responsible for payment of the full amount of the
pensions established in the ACT. In order to cover its liability the Bank has a Pension Fund.
BST’s present pension plan is a defined benefit plan, as it establish the criteria for
determining the amount of the pension that each employee will receive during retirement
based on his/her time of service and remuneration at the time of retirement, the pensions
being adjusted annually based on the remuneration established in the ACT for current
personnel.
12
BANCO SANTANDER TOTTA, S.A.
On January 1, 2004 BST opted not to apply IAS 19 retrospectively, and therefore has not
recalculated the actuarial gains and losses that would be deferred on the balance sheet if
this standard was adopted as from the beginning of the pension plans. Consequently, the
actuarial gains and losses existing at January 1, 2004, as well as those resulting from
adopting IAS 19 were reversed/recorded, by corresponding entry to retained earnings as of
the transition date.
BST’s retirement pension liability is calculated annually by experts, based on the “Projected
Unit Credit” method. The discount rate used in the actuarial calculations is determined
based on market rates for high quality corporate bonds, in the currency in which the benefits
will be paid (Euros), with similar maturity terms to those of the plan’s liability. Employees’
post-employment benefits also include healthcare (SAMS) and death subsidy during
retirement.
Actuarial gains and losses resulting from: (i) the differences between the actuarial and
financial assumptions used and the effective amounts; and (ii) the changes in actuarial
assumptions, are recognized as assets or liabilities, their accumulated amount being
reflected in the statement of income based on the “corridor” method.
In accordance with the “corridor” method, the accumulated deferred actuarial gains and
losses that exceed 10% of the greater of the present value of the total liability or the value of
the fund, both as of the beginning of the year, are reflected in the statement of income over
the remaining estimated period of service of the employees covered by the plan. The
accumulated actuarial gains and losses within that limit are not recognized in the statement
of income.
- Interest cost, net of estimated income of the Pension Fund assets, in the caption
“Interest income/expense";
- Current service cost in the caption “Personnel costs”; and
In 2006 and 2007 the Bank used part of the restructuring provision to cover the increased
past service liability due to early retirements.
The retirement pension liability less the fair value of the plan assets and the actuarial gains
and losses not recognized in the statement of income because of the “corridor” method is
recorded in “Other assets” (Note 17).
Bank of Portugal Notice 4/2005 establishes the requirement for full funding, by the pension
fund, of the liability for pensions in payment and a minimum funding of 95% of the past
service liability for current personnel. However, the Notice establishes a transitory period of
5 to 7 years to cover the increased liability resulting from the adoption of IAS 19.
In 2006 and 2007 the Bank contributed to the pension funds, amounts to cover its total
liability for employee benefits, including healthcare (SAMS).
In compliance with the ACT, BST has assumed the commitment to pay current employees
with fifteen, twenty-five and thirty years of good and effective service, a long service bonus
corresponding to one, two or three months of their effective monthly remuneration (in the
year the premium is attributed), respectively.
13
BANCO SANTANDER TOTTA, S.A.
BST determines the present value of the liability for long service bonuses by actuarial
calculation using the “Projected Unit Credit” method. The actuarial assumptions used
(financial and demographic) are based on expectations, as of the balance sheet date,
regarding salary increases, using mortality tables adapted to the Bank’s population. The
discount rate used is determined based on market rates for high quality corporate bonds
with similar maturity terms to those of payment of the liability.
The liability for long service bonuses is recorded in the caption “Other liabilities – long
service bonus” (Note 25).
m) Income taxes
BST is subject to the tax regime established in the Corporate Income Tax Code (“CIRC”).
The branches’ accounts are consolidated with those of the Bank for tax purposes. In
addition to being subject to Corporate Income Tax, the results of the branches are also
subject to local taxes in the countries/territories in which they are established. Local taxes
are deductible from Corporate Income Tax in Portugal under the terms of article 85 of CIRC
and the Double Taxation Agreements signed by Portugal.
The Offshore branch in the Autonomous Region of Madeira benefits from article 33 of the
Statute of Tax Benefits (“EBF”), which grants it exemption from corporate income tax up to
December 31, 2011. In accordance with article 33-A of EBF, for purposes of this benefit, at
least 85% of the taxable profit of the Bank’s total operations is considered to result from
operations outside the Madeira free trade area.
In accordance with article 86 of the Corporate Income Tax Code, tax paid under the terms of
item 1, article 83, net of international double taxation and any tax benefits, cannot be less
than 60% of the amount that would have been determined if the taxpayer did not have the
tax benefits established in item 13, article 40 and article 69 of the Corporate Income Tax
Code.
In 2006 the Portuguese Parliament approved and published in the Official Journal of the
Republic of January 15, 2007, the new Local Finances Law (“Lei das Finanças Locais”),
which is effective as from January 1, 2007. In accordance with article 14 of the law, the
local authorities can establish a maximum local tax of up to 1.5% of taxable income subject
to and not exempt from corporate income tax. The change results in a decrease to 25% in
the tax rate used to calculate deferred taxes relating to tax losses carried forward and to
26.5% relating to the other temporary differences resulting from the recognition of corporate
income tax for the year.
Deferred tax assets and liabilities correspond to the tax recoverable and payable in future
periods resulting from temporary differences between the carrying value of assets and
liabilities and their respective tax bases. Tax credits are also recognized as deferred tax
assets.
Deferred tax assets are recognized when it is estimated that they will be recovered and only
up to the amount that will probably be recovered through the existence of sufficient
expected future taxable income to absorb the deductible temporary differences.
Deferred tax assets and liabilities have been calculated using the tax rates decreed for the
period in which the respective assets are expected to be realized or the liabilities incurred.
For purposes of recognizing deferred tax assets relating to the adjustment of the pension
liability to IAS/IFRS, calculated as of 1 January 2004, the amount of approximately
tEuros 88,684 was excluded from the base of the calculation, corresponding to tax of
tEuros 24,388, because the Bank believes that there is a risk that this amount will not be
recovered.
14
BANCO SANTANDER TOTTA, S.A.
Current and deferred taxes are reflected in the statement of income, except for taxes on
transactions recorded directly in shareholders’ equity, namely unrealized gains and losses
on available-for-sale securities and cash flow hedging derivatives.
Post-employment benefits
Retirement and survivor pensions have been estimated using actuarial tables and assumptions
regarding pension and salary growth and expected return of the pension fund assets, which may differ
from the actual amounts.
Models and valuation techniques, such as those described in Note 1.3 e) above, are used to value
financial instruments not traded on active markets. Consequently, the valuations correspond to best
estimates of the fair value of these instruments as of the balance sheet date.
Impairment loss on loans has been determined as explained in Note 1.3 c) above. Consequently,
impairment determined by individual assessment corresponds to the Bank’s judgement as to the
financial situation of the customers and its estimate of the value of the loan guarantees given, with the
consequent impact on expected future cash flows. Impairment loss determined on a collective basis is
estimated based on historical parameters for comparable types of operations, considering estimates
of default and recoverability.
Taxes
Deferred tax assets are recognized based on the assumption of the existence of future taxable
income. Additionally, deferred tax assets and liabilities have been determined based on the tax
legislation currently in force. Therefore, changes in tax legislation or in its interpretation by the
competent authorities may have an impact on the amount of deferred taxes.
In 2006 Law 53-A/2006 of December 29, that approved the State Budget for 2007, introduced a
change to article 14 of Decree-law 35/2005 of February 17. As a result of the change, all entities
subject to Bank of Portugal supervision that must present individual non-consolidated financial
statements in accordance with the Adjusted Accounting Standards issued under Bank of Portugal
Notice 1/2005 of February 21, must use these to calculate taxable profit. This change is effective as
from January 1, 2006.
For this purpose, the State Budget for 2007 has established a set of rules, applicable to the year 2006,
which will remain in force until the necessary changes needed to adjust to the new situation resulting
from the adoption of IAS/IFRS, are introduced into the Corporate Income Tax Code.
The transitory rules resulting from the introduction of the Adjusted Accounting Standards were
observed in calculating taxable income for 2007 and 2006, in accordance with the Bank’s
interpretation of them.
15
BANCO SANTANDER TOTTA, S.A.
3. DISCONTINUED OPERATIONS
Following a meeting of the Bank’s Executive Committee held on 21 March 2007, procedures were
started to close Luxembourg branch.
In addition, as of June 2006 the process of closing Totta & Açores Finance Ireland, Ltd. (TAFIL) was
initiated, and was concluded in March 2007 (Note 5). Nevertheless, in substance, TAFIL’s operation
was not discontinued, as the previously developed activity by this entity is now undergone by Totta
Ireland, Plc.. Therefore, even if in formal terms this entity was closed, in substance, the assets and
liabilities previously reflected in TAFIL’s books, as well as its operations, are now within Totta Ireland,
Plc. books and, consequently, remain inside the consolidation perimeter.
The Banks’ Board of Directors considers that, in accordance with paragraphs 29, 30 and 31 of IAS 1,
the amounts related to the Luxembourg branch and TAFIL are not material. However, as required in
paragraph 33 of the above mentioned standard, additional disclosures are presented regarding these
entities (Notes 4, 22 and 27).
16
BANCO SANTANDER TOTTA, S.A.
The Bank’s balance sheet as of December 31, 2007, by geographic segments, was as follows:
Domestic operations International operations
Inter-segment Inter-segment Consolidated
Portugal London Madeira Luxembourg operations Total Ireland Angola Puerto Rico Other Total operations total
Assets
Cash and deposits at central banks 371,412 137 134 - 371,683 - 53,517 - - 53,517 - 425,200
Balances due from banks 381,544 1,202 3,383 2,771 (9,101) 379,799 21,995 10,560 7,423 760 40,738 (40,249) 380,288
Financial assets held for trading 1,432,849 1,934 - 1 - 1,434,784 - 66,148 653 - 66,801 (113,627) 1,387,958
Financial assets designated at fair value through profit and loss 407,028 - - - - 407,028 - - - - - - 407,028
Available-for-sale financial assets 4,004,967 - - - - 4,004,967 1,932,587 47,033 - - 1,979,620 (4,128,491) 1,856,096
Loans and advances to banks 8,554,376 4,021,854 89,703 4,476 (6,653,103) 6,017,306 1,243,235 37,954 486,147 332,315 2,099,651 (3,747,173) 4,369,784
Loans and advances to customers 25,655,522 2,121,947 22,026 13,937 - 27,813,432 - 103,225 - - 103,225 619 27,917,276
Hedging derivatives 77,403 - - - - 77,403 - - 1,068 - 1,068 (1,065) 77,406
Other tangible assets 412,492 504 - 92 - 413,088 2 7,556 - 59 7,617 - 420,705
Intangible assets 47,469 52 - 39 - 47,560 - 447 - - 447 - 48,007
Investments in associates 370,475 - - - - 370,475 - - - 23,827 23,827 (373,337) 20,965
Current tax assets 2,065 - - - - 2,065 - - - 5 5 - 2,070
Deferred tax assets 241,021 - - - - 241,021 - 15 - - 15 - 241,036
Other assets 299,989 354 - 440 (31,544) 269,239 - 1,270 1 2,373 3,644 (27,402) 245,481
Total Assets, net 42,258,612 6,147,984 115,112 21,890 (6,693,748) 41,849,850 3,197,819 327,725 495,292 359,339 4,380,175 (8,430,725) 37,799,300
Liabilities
Shareholders' equity 1,706,383 35,355 11,258 (1,254) (31,544) 1,720,198 358,264 62,464 249,414 335,028 1,005,170 (481,928) 2,243,440
Total liabilities and shareholders' equity 42,258,612 6,147,984 115,112 21,890 (6,693,748) 41,849,850 3,197,819 327,725 495,292 359,339 4,380,175 (8,430,725) 37,799,300
17
BANCO SANTANDER TOTTA, S.A.
The Bank’s balance sheet as of December 31, 2006, by geographic segments, was as follows:
Domestic operations International operations
Inter-segment Inter-segment Consolidated
Portugal London Madeira Luxembourg operations Total Ireland Angola Puerto Rico Other Total operations total
Assets
Cash and deposits at central banks 479,580 391 - 990 - 480,961 - 32,973 - - 32,973 - 513,934
Balances due from banks 269,190 2,042 4,181 1,337 (13,109) 263,641 14,604 5,684 5,966 782 27,036 (27,660) 263,017
Financial assets held for trading 1,146,635 9,404 - 28 (4,152) 1,151,915 - 45,370 744 - 46,114 (97,432) 1,100,597
Financial assets at fair value through profit and loss 417,754 - - - - 417,754 - - - - - - 417,754
Available-for-sale financial assets 1,930,502 - - - - 1,930,502 422,732 25,918 - - 448,650 (2,003,663) 375,489
Loans and advances to banks 5,892,246 4,958,051 100,067 139,639 (7,712,799) 3,377,204 - 75,921 496,172 435,057 1,007,150 (1,090,376) 3,293,978
Loans and advances to customers 24,087,081 2,127,080 29,306 44,853 - 26,288,320 - 73,218 - - 73,218 - 26,361,538
Hedging derivatives 196,519 - - - - 196,519 - - 856 - 856 - 197,375
Other tangible assets 402,559 585 - 136 - 403,280 3 4,672 - 63 4,738 - 408,018
Intangible assets 44,585 37 - 50 - 44,672 - 180 - - 180 - 44,852
Investments in associates 369,226 - - - - 369,226 - - - 26,633 26,633 (373,475) 22,384
Current tax assets 1,904 - - - - 1,904 - 1,722 - 4 1,726 - 3,630
Deferred tax assets 259,083 - - - - 259,083 - 16 - - 16 - 259,099
Other assets 265,503 429 - 228 (32,572) 233,588 79,108 1,351 429 449 81,337 (30,154) 284,771
Total Assets, net 35,762,367 7,098,019 133,554 187,261 (7,762,632) 35,418,569 516,447 267,025 504,167 462,988 1,750,627 (3,622,760) 33,546,436
Liabilities
Shareholders' equity 1,530,902 34,671 14,462 835 (32,572) 1,548,298 438,346 51,085 278,214 334,563 1,102,208 (482,112) 2,168,394
Total liabilities and shareholders' equity 35,762,367 7,098,019 133,554 187,261 (7,762,632) 35,418,569 516,447 267,025 504,167 462,988 1,750,627 (3,622,760) 33,546,436
18
BANCO SANTANDER TOTTA, S.A.
The Bank’s statement of income for the year ended December 31, 2007, by geographic segments, was as follows:
Domestic operations International operations
Inter-segment Inter-segment Consolidated
Portugal London Madeira Luxembourg operations Total Ireland Angola Puerto Rico Other Total operations total
Interest income 3,331,133 329,630 5,886 3,769 (315,514) 3,354,904 213,848 22,590 29,431 18,965 284,834 (373,198) 3,266,540
Interest expense (2,845,213) (311,588) (4,310) (2,655) 315,514 (2,848,252) (110,970) (3,635) (11,236) (4,308) (130,149) 382,504 (2,595,897)
Financial margin 485,920 18,042 1,576 1,114 - 506,652 102,878 18,955 18,195 14,657 154,685 9,306 670,643
Income from equity instruments 7,458 - - - - 7,458 - - - - - - 7,458
Fees and commission income 369,606 6,694 8 290 (129) 376,469 - 4,145 - 1,452 5,597 (13,979) 368,087
Fees and commission expense (57,222) (1,745) - (36) 129 (58,874) (175) (379) (2) (1,411) (1,967) 3,968 (56,873)
Result of assets and liabilities valued at fair value through profit and loss (net) 3,880 - - - - 3,880 (716) 10 (281) - (987) 707 3,600
Result of available-for-sale financial assets (net) 66,421 - - - - 66,421 - (1,156) - - (1,156) - 65,265
Result of exchange revaluation (net) 5,904 131 (13) 1 - 6,023 (358) 7,741 42 173 7,598 - 13,621
Results of other assets 24,883 33 - 39 - 24,955 - - - - - - 24,955
Other operating results (5,304) 21 (50) 11 - (5,322) (3) 1,031 (8) (97) 923 (4,080) (8,479)
Net income from banking activities 901,546 23,176 1,521 1,419 - 927,662 101,626 30,347 17,946 14,774 164,693 (4,078) 1,088,277
Personnel costs (269,523) (1,995) - (756) - (272,274) (159) (4,587) (166) (732) (5,644) - (277,918)
General administrative costs (146,127) (1,309) - (747) - (148,183) (344) (3,578) (124) (375) (4,421) 4,080 (148,524)
Depreciation and amortization (67,238) (181) - (75) - (67,494) (1) (504) - (31) (536) - (68,030)
Provisions, net (21,619) (6,154) - (834) 992 (27,615) - (65) - - (65) - (27,680)
Loan impairment net of reversals and recoveries (63,144) (111) 992 (271) (992) (63,526) - (1,317) - - (1,317) - (64,843)
Impairment of other financial assets net of reversals and recoveries 5 - - - - 5 - - - - - - 5
Impairment of other assets net of reversals and recoveries (21,367) - - 9 - (21,358) - - - - - - (21,358)
Net income of associates 3,739 - - - - 3,739 - - - - - - 3,739
Income before taxes and minority interest 316,272 13,426 2,513 (1,255) - 330,956 101,122 20,296 17,656 13,636 152,710 2 483,668
Current tax (64,732) (870) - - - (65,602) (12,013) (6,118) - (7) (18,138) - (83,740)
Deferred tax (11,702) - - - - (11,702) (605) - - - (605) - (12,307)
Net consolidated profit for the year 239,838 12,556 2,513 (1,255) - 253,652 88,504 14,178 17,656 13,629 133,967 2 387,621
Minority interest - - - - - - - - - - - 2 2
Consolidated net income attributable to the shareholders of BST 239,838 12,556 2,513 (1,255) - 253,652 88,504 14,178 17,656 13,629 133,967 - 387,619
19
BANCO SANTANDER TOTTA, S.A.
The Bank’s statement of income for the year ended December 31, 2006, by geographic segments, was as follows:
Domestic operations International operations
Inter-segment Inter-segment Consolidated
Portugal London Madeira Luxembourg operations Total Ireland Angola Puerto Rico Other Total operations total
Interest income 3,254,887 339,985 11,617 20,757 (309,311) 3,317,935 99,214 17,423 19,618 38,728 174,983 (382,345) 3,110,573
Interest expense (2,808,524) (321,736) (7,210) (18,737) 309,311 (2,846,896) (3,893) (2,675) (8,782) (23,870) (39,220) 394,514 (2,491,602)
Financial margin 446,363 18,249 4,407 2,020 - 471,039 95,321 14,748 10,836 14,858 135,763 12,169 618,971
Income from equity instruments 7,852 - - - - 7,852 - - - - - - 7,852
Fees and commission income 338,609 3,708 - 564 (196) 342,685 13 3,696 13 1,629 5,351 (12,906) 335,130
Fees and commission expense (33,503) (1,311) - (41) 196 (34,659) (77) (366) (9) (795) (1,247) (161) (36,067)
Result of assets and liabilities valued at fair value through profit and loss (net) 9,770 - 256 - - 10,026 (27,821) (5) 57 - (27,769) 898 (16,845)
Result of available-for-sale financial assets (net) 41,819 - - - - 41,819 - (84) - - (84) - 41,735
Result of exchange revaluation (net) (2,095) 64 (18) 1 - (2,048) (46) 6,658 73 166 6,851 - 4,803
Results of other assets 18,795 83 - - - 18,878 27,384 - (9) - 27,375 - 46,253
Other operating results 5,660 (152) (29) (3) - 5,476 - 1,272 (2) (145) 1,125 (4,172) 2,429
Net income from banking activities 833,270 20,641 4,616 2,541 - 861,068 94,774 25,919 10,959 15,713 147,365 (4,172) 1,004,261
Personnel costs (260,928) (1,855) - (942) - (263,725) (155) (4,223) (125) (827) (5,330) - (269,055)
General administrative costs (151,868) (1,473) - (680) - (154,021) (354) (2,640) (188) (396) (3,578) 4,172 (153,427)
Depreciation and amortization (64,836) (341) - (116) - (65,293) (1) (228) - (29) (258) 1 (65,550)
Provisions, net 3,732 (4,847) 72 84 - (959) - (154) - - (154) 1 (1,112)
Loan impairment net of reversals and recoveries (15,210) (254) - (33) - (15,497) - (738) - - (738) - (16,235)
Impairment of other financial assets net of reversals and recoveries (22,418) - - - - (22,418) - - - - - - (22,418)
Impairment of other assets net of reversals and recoveries (23,994) - - (9) - (24,003) - - - - - - (24,003)
Net income of associates 2,484 - - - - 2,484 - - - - - - 2,484
Income before taxes and minority interest 300,232 11,871 4,688 845 - 317,636 94,264 17,936 10,646 14,461 137,307 2 454,945
Current tax (45,450) - - (9) - (45,459) (11,657) (1,828) - (5) (13,490) - (58,949)
Deferred tax (42,071) - - - - (42,071) (8) (1) - - (9) - (42,080)
Net consolidated profit for the year 212,711 11,871 4,688 836 - 230,106 82,599 16,107 10,646 14,456 123,808 2 353,916
Minority interest - - - - - - - - - - - 2 2
Consolidated net income attributable to the shareholders of BST 212,711 11,871 4,688 836 - 230,106 82,599 16,107 10,646 14,456 123,808 - 353,914
20
BANCO SANTANDER TOTTA, S.A.
The Bank’s business segment reporting is made up of the following major business areas:
Retail banking: corresponds mainly to credit granting operations and the obtaining of funds relating to
private customers and businesses with turnovers of less than five million Euros through the branch
network and the provision of telephone and internet banking services.
Commercial banking: directed to companies with a turnover of between 5 and 125 million Euros and
Large Companies with a turnover in excess of 125 million Euros. This activity is backed by the branch
network as well as specialized services, and includes a variety of products, such as loans, project
finance, export financing, real estate, factoring and leasing.
Corporate activities: this area covers all the activities that provide support to the Group’s main
activities but which are not directly related to its core business.
The statement of income for the year ended December 31, 2007, as well as some of the more
significant balance sheet captions, by business segment, are as follows:
Net income from fees and commission 290,945 32,825 (12,556) 311,214
Other income 2,195 470 (11,144) (8,479)
Commercial margin 811,501 107,247 62,088 980,836
21
BANCO SANTANDER TOTTA, S.A.
Assets
Loans and advances to customers
Mortgage Loans 15,463,446 - - 15,463,446
Consumer credit 1,399,292 - - 1,399,292
Other loans 3,804,577 7,249,961 - 11,054,538
20,667,314 7,249,961 - 27,917,276
Liabilities
Resources on the balance sheet
Customers' accounts and other resources 9,882,726 1,983,530 - 11,866,257
Debt securities issued 1,331,556 12,523,614 - 13,855,170
11,214,283 14,507,144 - 25,721,427
The statement of income for the year ended December 31, 2006, as well as some of the more
significant balance sheet captions, by business segment, are as follows:
22
BANCO SANTANDER TOTTA, S.A.
Assets
Loans and advances to customers
Mortgage Loans 14,192,160 - - 14,192,160
Consumer credit 1,072,892 - - 1,072,892
Other loans 2,784,834 8,311,652 - 11,096,486
18,049,886 8,311,652 - 26,361,538
Liabilities
Resources on the balance sheet
Customers' accounts and other resources 9,590,405 1,364,703 495,252 11,450,360
Debt securities issued 1,471,952 11,331,816 - 12,803,768
11,062,357 12,696,519 495,252 24,254,128
The subsidiary and associated companies, as well as the more significant financial data extracted
from their individual financial statements, excluding IAS/IFRS transition adjustments, as of December
31, 2007 and 2006, are as follows:
Direct Effective Shareholders'
participation (%) participation (%) Total assets equity Net income
Company 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
BANCO SANTANDER TOTTA, S.A. - - 100,00 100,00 39,692,428 32,951,806 1,759,263 1,807,541 343,399 312,884
BANCO TOTTA DE ANGOLA, S.A. 99,98 99,98 99,98 99,98 335,533 273,079 67,380 56,349 14,295 12,835
TOTTA & AÇORES FINANCING (1) (5) 100,00 100,00 100,00 100,00 300,034 303,315 300,034 300,038 12,584 12,485
PINTO TOTTA INTERNATIONAL FINANCE 50,00 50,00 50,00 50,00 34 196,009 34 189,863 - -
SERFIN INTERNATIONAL BANK & TRUST - - 100,00 100,00 28,698 30,438 28,259 29,912 1,612 1,521
TOTTA & AÇORES, INC. - NEWARK 100,00 100,00 100,00 100,00 676 644 638 631 80 18
TOTTA & AÇORES FINANCE IRELAND - 100,00 - 100,00 - 2,284 - 2,284 - 1,034
TOTTA IRELAND, PLC (4) 100,00 100,00 100,00 100,00 4,315,111 1,608,833 354,026 359,238 12,220 17,431
MADEISISA, S.G.P.S. 100,00 100,00 100,00 100,00 33,193 35,795 9,360 9,155 222 1,409
TOTTA URBE - Emp.Admin. e Construções, S.A. (2) 100,00 100,00 100,00 100,00 126,980 113,162 107,647 105,209 3,657 222
BENIM - Sociedade Imobiliária, S.A. (3) - - 25,00 25,00 11,788 11,569 7,870 7,912 (10) 253
TOTTA CRÉDITO ESPECIALIZADO, IFIC,S.A. (3) 16,12 16,12 16,12 16,12 2,320,110 1,982,151 124,609 133,784 22,825 17,425
BST INTERNATIONAL BANK, INC. - PORTO RICO (1) (6) 100,00 100,00 100,00 100,00 494,708 503,458 248,681 277,241 18,015 9,926
HIPOTOTTA nº 1 PLC - - - - 551,827 773,834 (2,922) (2,560) (478) 131
HIPOTOTTA nº 2 PLC - - - - 1,539,517 2,006,566 (8,877) (3,233) (150) (990)
HIPOTOTTA nº 3 PLC - - - - 2,443,809 2,861,364 (14,263) (10,469) 282 (1,561)
HIPOTOTTA nº 4 PLC - - - - 2,165,140 2,542,245 (12,190) (8,173) (2,456) (819)
HIPOTOTTA nº 5 PLC - - - - 1,861,677 - (52) - (92) -
HIPOTOTTA nº 6 Ltd - - - - 2,239,974 - - - - -
HIPOTOTTA nº 1 FTC - - - - 543,423 764,517 533,090 756,182 (520) 15
HIPOTOTTA nº 2 FTC - - - - 1,523,609 1,987,124 1,492,746 1,967,626 (1,227) (1,102)
HIPOTOTTA nº 3 FTC - - - - 2,441,786 2,855,921 2,399,647 2,824,673 (1,746) (1,568)
HIPOTOTTA nº 4 FTC - - - - 2,174,865 2,547,276 2,145,853 2,525,415 (2,507) (801)
HIPOTOTTA nº 5 FTC - - - - 1,857,138 - 1,840,130 - (93) -
HIPOTOTTA nº 6 FTC - - - - 2,224,066 - 2,200,000 - - -
23
BANCO SANTANDER TOTTA, S.A.
Consolidation
Company Business Head office method
(1) This company’s shareholders’ equity includes preference shares subscribed for by Santander Central
Hispano Group companies (Note 28).
(2) This company’s shareholders’ equity includes supplementary capital contributions totalling tEuros 99,760.
(4) The amounts reflected in the columns “Net income” correspond to the net income of the December month of
each year, as this entity closes its economic year as of November 30. In the periods between January 1 to
November 30 of 2007 and 2006, Totta Ireland Plc. net income amounted to tEuros 72,046 and tEuros
64,247, respectively.
(5) The capital is represented by 50,000 ordinary shares of 1 United States Dollar each and by 300,000 non
voting preference shares of 1,000 Euros each. Considering the preference shares, the Bank’s effective
participation in this entity is 0.01%.
(6) The capital is represented by 5,000,000 ordinary shares of 1 United States Dollar each and by 3,600 non
voting preference shares of 100,000 United States Dollars each. Considering the preference shares, the
Bank’s effective participation in this entity is 1.37%.
In compliance with IAS 27 and SIC 12, the Bank’s consolidated financial statements started including
special purpose entities created for securitization operations, given that most of the risks and benefits
of their activity are the Bank’s (Note 44). These entities are referred to above as Hipototta No. 1 FTC,
Hipototta No. 2 FTC, Hipototta No. 3 FTC, Hipototta No. 4 FTC, Hipototta No. 5 FTC and Hipototta
No. 6 FTC (securitized loans funds) and Hipototta No. 1 PLC, Hipototta No. 2 PLC, Hipototta No. 3
PLC, Hipototta No. 4 PLC, Hipototta No. 5 PLC and Hipototta No. 6 Ltd (entities which acquired the
participating units issued by the securitized loans funds).
The main changes in the group companies in 2007 were conclusion of the liquidation process of
TAFIL – Totta e Açores Finance Ireland, Ltd. and the decision to start the process to close the
Luxembourg Branch.
24
BANCO SANTANDER TOTTA, S.A.
In March 2006 BST signed an agreement with Caixa Geral de Depósitos, S. A. (“CGD”), for a
partnership in Banco Totta de Angola, S.A., through the foundation of an autonomous entity, to be
50% owned by BST and 50% by CGD. That entity will own 60,314,284 shares, corresponding to 76%
of Banco Totta de Angola, S.A.’s capital, currently owned by BST and recorded in its non-consolidated
financial statements at the amount of tEuros 21,452. The remaining 19,034,648 shares owned by
BST, representing 23.985% of Banco Totta de Angola S.A.’s capital, may be sold to a third-party with
the prior consent of CGD. This transaction is yet to be completed due to the lack of authorization to
date from the Angolan Authorities. Under the terms of the initial agreement, the Bank received tEuros
15,000 from CGD, which has been recorded in caption “Other Liabilities” (Note 25).
2007 2006
In accordance with European Central Bank Regulation 2,818/98 of December 1, 1998, as from
January 1, 1999 financial entities in participating member states must maintain minimum cash
reserves at the participating National Central Banks. The basis for determining the amount of the
reserves is all deposits at central banks and financial and monetary entities outside the Euro Zone and
all deposits of clients repayable in less than two years, to which 2% is applied and tEuros 100 is
deducted from the amount calculated. The minimum cash reserve requirements earn interest at the
average of the rates for the principal refinancing operations of the European Central Bank System.
2007 2006
Balances due from domestic banks
Demand deposits 121,472 19,015
Cheques for collection 177,157 209,871
25
BANCO SANTANDER TOTTA, S.A.
2007 2006
Securities
Participating units 162,150 87,613
Central bank of Angola securities 66,097 45,370
----------- -----------
228,247 132,983
Derivatives
Derivative instruments with positive fair value 1,159,711 967,614
------------- -------------
1,387,958 1,100,597
======= =======
The caption “Participating Units” at December 31, 2007 and 2006 refers essentially to security and
real estate funds managed by Santander Group entities. Details of the securities as of 31 December
2007 are included in Appendix I.
31-12-2007 31-12-2006
Assets Liabilities Net Assets Liabilities Net
(Note 13) (Note 13)
Over-the-counter market
FRA's - 912 (912) - - -
Forwards 838 114 724 - 335 (335)
Swaps
Currency swaps 175 13,421 (13,246) 604 - 604
Interest rate swaps 440,225 516,678 (76,453) 465,681 461,905 3,776
Equity swaps 39,729 23,312 16,417 27,267 13,977 13,290
Options 417,005 430,953 (13,948) 347,428 348,055 (627)
Caps & Floors 261,328 265,219 (3,891) 123,555 122,945 610
Stock exchange contracts
Futures 411 411 - 3,079 3,079 -
1,159,711 1,251,020 (91,309) 967,614 950,296 17,318
2007 2006
26
BANCO SANTANDER TOTTA, S.A.
2007
Accrued Fair Value Reserve Book
Cost interest Positive Negative Total Impairment Value
(Note 26) (Note 22)
Debt Instruments
Issued by residents
Treasury Bonds 104,601 3,616 - (274) (274) (189) 107,754
Other Portuguese Government entities 15,000 4 - (517) (517) - 14,487
Other Portuguese entities
Unsubordinated debt 234,260 1,796 120 (232) (112) (310) 235,634
Subordinated debt 119,736 600 74 (28,761) (28,687) - 91,649
Issued by non residents
International financial entities 46,723 13 - - - - 46,736
Other non residents 1,300,348 10,960 - - - - 1,311,308
Equity Instruments
Issued by residents
Fair value 56,642 - 11,845 (546) 11,299 (35,978) 31,963
Historical cost 21,499 - - - - (5,635) 15,864
Issued by non residents
Historical cost 1,447 - - - - (746) 701
1,900,256 16,989 12,039 (30,330) (18,291) (42,858) 1,856,096
2006
Accrued Fair Value Reserve Book
Cost interest Positive Negative Total Impairment Value
(Note 26) (Note 22)
Debt Instruments
Issued by residents
Treasury Bonds 892 11 - - - (176) 727
Other Portuguese Government entities 15,000 - - (525) (525) - 14,475
Other Portuguese entities
Unsubordinated debt 41,548 309 86 (290) (204) (334) 41,319
Subordinated debt 119,733 861 3,188 - 3,188 - 123,782
Defaulting debt 2,237 - - - - (2,237) -
Issued by non residents
International financial entities 1,496 22 - - - - 1,518
Other non residents 25,577 326 - - - - 25,903
Equity Instruments
Issued by residents
Fair value 115,332 - 69,272 (58) 69,214 (36,042) 148,504
Historical cost 21,317 - - - - (5,635) 15,682
Issued by non residents
Fair value 746 - 103 - 103 (746) 103
Historical cost 3,476 - - - - - 3,476
347,354 1,529 72,649 (873) 71,776 (45,170) 375,489
In 2007 and 2006 the Bank sold 16,574,849 and 14,648,007 shares of Banco BPI, S.A., for
tEuros 106,908 and tEuros 80,509, respectively. These sales resulted in gains of tEuros 64,032 and
tEuros 44,390 in 2007 and 2006, respectively. In 2007 Totta Urbe sold 3,264,553 shares of Banco
BPI, S.A. for tEuros 21,056, resulting in a gain of tEuros 1,696 (Note 36).
Details of the securities of this caption at December 31, 2007 are presented in Appendix I.
27
BANCO SANTANDER TOTTA, S.A.
2007 2006
Following receipt in May 2007 of confirmation from a customer renouncing any future claim against
the Bank, as the result of the liquidation made under the Debt Settlement Protocol between Angola
and Portugal, the Bank wrote off the credit and interest due on applications in foreign credit institutions
(tEuros 1,644) and other liabilities (tEuros 1,627), having used the impairment recognized earlier
(tEuros 17).
28
BANCO SANTANDER TOTTA, S.A.
2007 2006
Unsecuritized credit
Domestic loans
To companies
Credit on current account 1,872,566 1,795,313
Loans 4,266,573 3,953,498
Finance leasing 1,631 1,990
Discount and credit securities 434,251 409,200
Overdrafts 410,163 539,708
Other credits 86,927 83,253
To individuals
Mortgage loans 5,028,196 6,160,360
Consumer credit and others 1.910,395 1,688,083
Foreign loans
To companies
Credit on current account 513,165 474,460
Loans 506,966 491,643
Discount and credit securities 318 238
Overdrafts 2,453 1,565
Other credits 5 8
To individuals
Mortgage loans 447,323 382,100
Consumer credit and others 36,169 49,043
--------------- ---------------
15,517,101 16,030,462
--------------- ---------------
Securitized credit
Non subordinated debt securities issued by Portuguese entities
Commercial paper 2,086,794 2,461,916
------------- -------------
Non-derecognized securitized assets
Mortgage loans (Note 44)
. Hipototta nº 1 522,278 754,662
. Hipototta nº 2 1,464,157 1,951,343
. Hipototta nº 3 2,379,671 2,813,165
. Hipototta nº 4 2,126,001 2,519,735
. Hipototta nº 5 1,807,709 -
. Hipototta nº 6 2,151,921 -
--------------- -------------
10,451,737 8,038,905
--------------- -------------
Overdue loans and interest
Up to 90 days 16,823 10,811
More than 90 days 87,177 116,293
Non-derecognized securitized assets 37,407 23,479
----------- ------------
141,407 150,583
--------------- ---------------
28,197,039 26,681,866
--------------- ---------------
29
BANCO SANTANDER TOTTA, S.A.
2007 2006
Accrued interest
Non-securitized credit 85,262 75,620
Securitized credit 8,868 4,674
Non-derecognized securitized assets 59,344 42.571
Deferred expenses 112,157 72.741
Fees and commission relating to amortized cost (net) ( 101,661 ) ( 65,670 )
Value adjustment of hedged assets ( 1,738 ) 207
----------- ----------
162,232 130,143
--------------- ---------------
28,359,271 26,812,009
Impairment of loans and advances to customers (Note 22) ( 441,995 ) ( 450,471 )
--------------- ----------------
27,917,276 26,361,538
========= =========
In 2007 and 2006 mortgage loans and company loans portfolios, consisting mainly of overdue credit
and credit written off, were sold. As a result of these operations the Bank recorded a gain of
tEuros 24,272 and tEuros 18,898, respectively (Note 38).
The changes in impairment of loans and advances to customers during 2007 and 2006 are presented
in Note 22.
Overdue loans and interest at December 31, 2007 and 2006 are made up as follows:
2007 2006
30
BANCO SANTANDER TOTTA, S.A.
Loans to customers at December 31, 2007 and 2006 are made up as follows, by business sector:
2007
Performing Overdue Total %
Agriculture and forestry 275,676 2,266 277,942 0,99%
Fishing 3,271 11 3,282 0,01%
Mining 478,607 278 478,885 1,70%
Manufacturing:
Food, beverage and tobacco 216,292 810 217,102 0,77%
Textiles, leather and clothing 215,584 3,086 218,670 0,78%
Wood and cork 73,739 1,176 74,915 0,27%
Paper and publishing 102,934 471 103,405 0,37%
Chemicals 108,409 121 108,530 0,38%
Ceramic, glass and cement 110,479 659 111,138 0,39%
Basic metallurgy 106,343 524 106,867 0,38%
Machines and vehicles 148,637 2,104 150,741 0,53%
Chemicals and Pharmaceuticals 362 - 362 0,00%
Electricity, water and gas 809,964 113 810,077 2,87%
Construction and public works 1,635,285 12,005 1,647,290 5,84%
Commerce and hotels:
Wholesale trade 523,544 5,979 529,523 1,88%
Retail sale 798,996 5,356 804,352 2,85%
Restaurants and hotels 192,562 1,129 193,691 0,69%
Transport and communications 890,534 234 890,768 3,16%
Non monetary financial institutions 827,390 28 827,418 2,93%
Government administration 380,687 2,170 382,857 1,36%
Other service companies 2,293,659 9,529 2,303,188 8,17%
Loans to individuals 6,943,389 55,001 6,998,390 24,82%
Non-derecognised securitized assets 10,451,737 37,407 10,489,144 37,20%
Foreign loans 132,292 630 132,922 0,47%
Other loans 335,260 320 335,580 1,19%
28,055,632 141,407 28,197,039 100,00%
2006
Performing Overdue Total %
Agriculture and forestry 223,265 3,186 226,451 0,85%
Fishing 2,975 53 3,028 0,01%
Mining 482,438 323 482,761 1,81%
Manufacturing:
Food, beverage and tobacco 207,508 784 208,292 0,78%
Textiles, leather and clothing 197,233 5,783 203,016 0,76%
Wood and cork 87,594 2,056 89,650 0,34%
Paper and publishing 55,176 202 55,378 0,21%
Chemicals 86,560 175 86,735 0,33%
Ceramic, glass and cement 109,084 1,188 110,272 0,41%
Basic metallurgy 114,763 1,014 115,777 0,43%
Machines and vehicles 142,258 2,933 145,191 0,54%
Chemicals and Pharmaceuticals 260 - 260 0,00%
Electricity, water and gas 510,700 139 510,839 1,91%
Construction and public works 1,624,041 18,818 1,642,859 6,16%
Commerce and hotels:
Wholesale trade 481,559 6,102 487,661 1,83%
Retail sale 882,787 8,310 891,097 3,34%
Restaurants and hotels 173,954 1,027 174,981 0,66%
Transport and communications 840,725 966 841,691 3,15%
Non monetary financial institutions 750,646 40 750,686 2,81%
Government administration 380,666 2,489 383,155 1,44%
Other service companies 2,951,517 3,601 2,955,118 11,08%
Loans to individuals 7,817,750 67,097 7,884,847 29,55%
Non-derecognised securitized assets 8,038,905 23,479 8,062,386 30,22%
Foreign loans 148,979 467 149,446 0,56%
Other loans 219,940 351 220,289 0,83%
26,531,283 150,583 26,681,866 100,00%
31
BANCO SANTANDER TOTTA, S.A.
The loans in default and performing loans, with and without evidence of impairment, at December 31,
2007 are as follows:
Loans to companies
. Without evidence of impairment - 10,413,187 10,413,187
. With evidence of impairment 46,869 268,385 315,254
--------- --------------- ---------------
46,869 10,681,572 10,728,441
--------- --------------- ---------------
Mortgage loans
. Without evidence of impairment - 13,487,377 13,487,377
. With evidence of impairment 67,938 1,995,594 2,063,532
--------- --------------- ---------------
67,938 15,482,971 15,550,909
--------- --------------- ---------------
Consumer credit
. Without evidence of impairment - 957,536 957,536
. With evidence of impairment 7,226 136,465 143,691
-------- ----------- -----------
7,226 1,094,001 1,101,227
-------- ----------- -----------
Loans granted through credit cards
. Without evidence of impairment - 198,442 198,442
. With evidence of impairment 4,231 25,581 29,812
-------- ----------- -----------
4,231 224,023 228,254
-------- ----------- -----------
Other loans to individuals
. Without evidence of impairment - 468,450 468,450
. With evidence of impairment 15,143 104,615 119,758
--------- ----------- -----------
15,143 573,065 588,208
---------- ------------- --------------
141,407 28,055,632 28,197,039
====== ========= =========
32
BANCO SANTANDER TOTTA, S.A.
The loans in default and performing loans, with and without evidence of impairment, at December 31,
2006 are as follows:
Loans to companies
. Without evidence of impairment - 10,782,634 10,782,634
. With evidence of impairment 62,672 137,505 200,177
--------- --------------- ---------------
62,672 10,920,139 10,982,811
--------- --------------- ---------------
Mortgage loans
. Without evidence of impairment - 12,170,953 12,170,953
. With evidence of impairment 69,123 1,920,756 1,989,879
--------- --------------- ---------------
69,123 14,091,709 14,160,832
--------- --------------- ---------------
Consumer credit
. Without evidence of impairment - 791,184 791,184
. With evidence of impairment 4,738 107,319 112,057
-------- ----------- -----------
4,738 898,503 903,241
-------- ----------- -----------
Loans granted through credit cards
. Without evidence of impairment - 165,909 165,909
. With evidence of impairment 2,344 25,681 28,025
-------- ----------- -----------
2,344 191,590 193,934
-------- ----------- -----------
Other loans to individuals
. Without evidence of impairment - 341,426 341,426
. With evidence of impairment 11,706 87,916 99,622
--------- ----------- -----------
11,706 429,342 441,048
----------- --------------- ---------------
150,583 26,531,283 26,681,866
====== ========= =========
2007 2006
Assets Liabilities Net Assets Liabilities Net
Fair value hedges
Interest rate swaps 73,619 59,204 14,415 176,907 219,409 (42,502)
Equity swaps 3,735 175,982 (172,247) 5,588 164,221 (158,633)
Cash Flow hedges
Interest rate swaps 52 - 52 14,880 - 14,880
77,406 235,186 (157,780) 197,375 383,630 (186,255)
33
BANCO SANTANDER TOTTA, S.A.
2. Hedging derivatives
Fair value hedges
Interest rate swaps
. Liabilities and loans 12,377 3,100 3,606 53,115 1,225,338 273,915 1,559,074 1,436,727 122,347
. Other assets valued at fair value 2,038 - - - - 380,000 380,000 380,000 -
Equity swaps (172,247) 3,500 180,353 437,367 1,338,506 1,047,638 3,007,364 2,956,882 50,482
Cash flow hedges
Interest rate swaps
. Cash flow 52 - - 750,000 750,000 - 1,500,000 1,500,000 -
(157,780) 6,600 183,959 1,240,482 3,313,844 1,701,553 6,446,438 6,273,609 172,829
2. Hedging derivatives
Fair value hedges
Interest rate swaps
. Preference shares issued (2,512) - 284,738 - - - 284,738 - 284,738
. Liabilities and loans (30,814) 290,806 - 43,799 1,042,279 8,929,782 10,306,666 10,123,738 182,929
. Other assets valued at fair value (8,680) - - - - 380,000 380,000 380,000 -
Cross currency swaps
. Purchased - - 28,333 - - 28,333 28,333 -
(496)
. Sold - - (26,128) - - (26,128) - (26,128)
Equity swaps (158,633) 132,947 37,097 80,467 841,815 1,351,946 2,444,272 2,435,679 8,592
Cash flow hedges
Interest rate swaps
. Cash flow 14,880 - 885,000 1,750,000 - - 2,635,000 2,635,000 -
(186,255) 423,753 1,206,835 1,876,471 1,884,094 10,661,728 16,052,881 15,602,750 450,131
34
BANCO SANTANDER TOTTA, S.A.
The changes in these captions during the year ended December 31, 2007 were as follows:
Transfers
From/to assets held
12-31-2006 Write offs for sale (Note 17) Between fixed assets Depreciation Exchange differences 12-31-2007
Accumulated Accumulated Accumulated Accumulated and Reversal Accumulated Accumulated
depreciation depreciation depreciation depreciation amortization of depreciation depreciation
Gross and amortization Impairment Acquisitions Gross and amortization Impairment Gross and amortization Gross and amortization for the year Impairment impairment Gross and amortization Impairment Gross and amortization Impairment Net
(Note 22) (Note 22)
Tangible Assets
Property
. Property for own use 386,374 88,939 904 6,629 91 - - (1,746) (381) 9,812 (1) 7,197 131 (10) (43) (6) (2) 400,935 95,748 1,023 304,164
. Leasehold improvements 112,167 85,675 - 4,384 9,137 8,805 - - - 3,822 1 4,343 - - (14) (14) - 111,222 81,200 - 30,022
. Other property 16,839 3,982 5,001 85 35 - 20 - - (10) - 286 5 - - - - 16,879 4,268 4,986 7,625
Work in progress
. Property for own use 5,328 - - 13,165 - - - - - (10,153) - - - - (122) - - 8,218 - - 8,218
. Leasehold improvements 538 - - 4,143 5 - - - - (3,425) - - - - - - - 1,251 - - 1,251
521,246 178,596 5,905 28,406 9,268 8,805 20 (1,746) (381) 46 - 11,826 136 (10) (179) (20) (2) 538,505 181,216 6,009 351,280
Equipment
. Furniture and fixtures 17,589 7,286 - 1,664 1,212 1,153 - - - 136 (1) 2,084 - - (15) (7) - 18,162 8,209 - 9,953
. Machinery and tools 2,989 2,308 - 168 11 10 - - - 2 1 256 - - (11) (5) - 3,137 2,550 - 587
. Computer hardware 85,635 59,493 - 13,674 9,634 9,624 - - - 90 - 16,412 - - (22) (12) - 89,743 66,269 - 23,474
. Interior installations 86,826 66,092 - 1,224 1,599 1,380 - (7) (3) 37 - 4,462 - - (9) (3) - 86,472 69,168 - 17,304
. Vehicles 13,052 6,960 - 3,862 1,593 1,446 - - - - - 2,934 - - (17) (18) - 15,304 8,430 - 6,874
. Security equipment 26,921 24,632 - 443 1,182 1,160 - - - 238 - 782 - - (2) (1) - 26,418 24,253 - 2,165
. Other equipment 7,031 5,870 - 2,775 6 - - - - 153 - 392 - - - - - 9,953 6,262 - 3,691
. Tangible assets in progress 2,354 - - 2,654 458 - - - - (702) - - - - - - - 3,848 - - 3,848
242,397 172,641 - 26,464 15,695 14,773 - (7) (3) (46) - 27,322 - - (76) (46) - 253,037 185,141 - 67,896
Intangible assets
Software purchased 152,011 107,614 - 37,575 775 763 - - - - - 28,427 5,525 - (14) (13) - 188,797 135,265 5,525 48,007
Goodwill 3,585 3,130 - - - - - - - - - 455 - - - - - 3,585 3,585 - -
155,596 110,744 - 37,575 775 763 - - - - - 28,882 5,525 - (14) (13) - 192,382 138,850 5,525 48,007
35
BANCO SANTANDER TOTTA, S.A.
The changes in these captions during the year ended December 31, 2006 were as follows:
Transfers
From/to assets held
12-31-2005 Write offs for sale (Note 17) Between fixed assets Depreciation Exchange differences 12-31-2006
Accumulated Accumulated Accumulated Accumulated and Reversal Accumulated Accumulated
depreciation depreciation depreciation depreciation amortization of depreciation depreciation
Gross and amortization Impairment Acquisitions Gross and amortization Impairment Gross and amortization Gross and amortization for the year Impairment impairment Gross and amortization Impairment Gross and amortization Impairment Net
(Note 22) (Note 22)
Tangible Assets
Property
. Property for own use 412,177 104,280 49 7,663 10,080 6,523 - (38,008) (17,366) 14,724 - 8,581 860 - (102) (33) - 386,374 88,939 909 296,526
. Leasehold improvements 106,075 83,654 - 5,808 2,706 2,573 - - - 3,006 113 4,495 - - (16) (14) - 112,167 85,675 - 26,492
. Other property 16,923 3,699 5,067 265 335 3 43 (13) - - - 286 - - (1) - - 16,839 3,982 5,024 7,833
Work in progress
. Property for own use 7,276 - - 13,443 93 - - - - (15,298) - - - - - - - 5,328 - - 5,328
. Leasehold improvements 1,596 - - 2,319 5 - - - - (3,372) - - - - - - - 538 - - 538
544,047 191,633 5,116 29,498 13,219 9,099 43 (38,021) (17,366) (940) 113 13,362 860 - (119) (47) - 521,246 178,596 5,933 336,717
Equipment
. Furniture and fixtures 15,135 5,608 - 2,159 85 24 - - - 406 (155) 1,864 - - (26) (7) - 17,589 7,286 - 10,303
. Machinery and tools 2,970 2,142 - 237 279 229 - - - 78 66 363 - - (17) (34) - 2,989 2,308 - 681
. Computer hardware 76,335 46,436 - 8,958 1,477 1,359 - - - 1,853 19 14,410 - - (34) (13) - 85,635 59,493 - 26,142
. Interior installations 86,335 61,833 - 1,182 553 282 - (334) (205) 212 9 4,714 - - (16) 23 - 86,826 66,092 - 20,734
. Vehicles 10,730 6,037 - 3,892 1,581 1,461 - - - 42 22 2,381 - - (31) (19) - 13,052 6,960 - 6,092
. Security equipment 26,086 23,924 - 603 97 86 - - - 330 - 794 - - (1) - - 26,921 24,632 - 2,289
. Other equipment 6,663 3,149 - 336 398 201 - - - 429 - 2,920 - - 1 2 - 7,031 5,870 - 1,161
. Tangible assets in progress 4,213 - - 2,243 699 - - - - (3,403) - - - - - - - 2,354 - - 2,354
228,467 149,129 - 19,610 5,169 3,642 - (334) (205) (53) (39) 27,446 - - (124) (48) - 242,397 172,641 - 69,756
Intangible assets
Software purchased 147,910 113,861 - 34,480 30,367 30,356 - - - - - 24,119 - - (12) (10) - 152,011 107,614 - 44,397
Goodwill 2,518 2,507 - - - - - - - 1,067 - 623 - - - - - 3,585 3,130 - 455
150,428 116,368 - 34,480 30,367 30,356 - - - 1,067 - 24,742 - - (12) (10) - 155,596 110,744 - 44,852
Part of the impairment loss recognized in tangible asstes – other property as of December 31, 2007 and 2006, in the amount of tEuros 4,942, relates to
the potential loss in a property named “Centro Comercial Gemini”, which is reflected in the books of the subsidiary Totta Urbe – Empresa de
Administração e Construções, S.A..
As of December 31, 2007 and 2006, the amounts of tEuros 46,356 and tEuros 38,158, respectively, recorded under the caption software, net of
depreciation, were paid to ISBAN PT – Engenharia e Software Bancário, S.A., the Group entity that performs the software development of all corporative
applications. This company is entirely owned by entities of the Santander Group.
In the year ended December 31, 2007, an impairment loss in intangible assets – software, in the amount of tEuros 5,525 was recorded, relating to the
book value of the application software named “Sintra”, which was discontinued with the entry in production of part of the software named “Partenon”.
36
BANCO SANTANDER TOTTA, S.A.
At December 31, 2007 and 2006 this caption was made up as follows:
2007 2006
Effective Book Effective Book
participation (%) value participation (%) value
Benim – Sociedade Imobiliária, S.A. is indirectly owned by the Bank through its equity participation in
Totta Urbe - Empresa de Administração e Construções, S.A..
At December 31, 2007 and 2006 Totta Crédito Especializado, IFIC, S.A. was effectively owned in
99,98% by Santander Totta, SGPS, S.A., which has an effective participation of 99.86%, in the Bank.
At December 31, 2007 and 2006 these captions were made up as follows:
2007 2006
Current tax assets:
. Corporate income tax recoverable 2,070 3,630
==== ====
Current tax liabilities:
. Corporate income tax payable 20,318 14,513
. Others 2,965 3,406
--------- ---------
23,283 17,919
===== =====
Deferred tax assets:
. Due to temporary differences 241,036 256,797
. Due to tax losses carried forward - 2,302
----------- -----------
241,036 259,099
====== ======
Deferred tax liabilities:
. Due to temporary differences 20,311 41,312
. Due to tax credits 4,783 5,474
--------- ---------
25,094 46,786
===== =====
37
BANCO SANTANDER TOTTA, S.A.
Taxes in the statement of income for the years ended December 31, 2007 and 2006 are made up as
follows:
2007 2006
Current tax
. For the year ( 69,475 ) ( 53,136 )
. taxes paid in prior years ( 10,817 ) -
. Insufficiency of the estimate ( 3,448 ) ( 225 )
. Additional assessments - ( 5,588 )
--------- ---------
( 83,740 ) ( 58,949 )
--------- ---------
Deferred tax
. Record and reversal of temporary differences ( 12,672 ) ( 38,511 )
. (Expense)/Income for tax credits 365 ( 3,569 )
--------- ----------
( 12,307 ) ( 42,080 )
---------- -----------
( 96,047 ) ( 101,029 )
====== ======
38
BANCO SANTANDER TOTTA, S.A.
The changes in deferred tax assets and liabilities in the years ended December 31, 2007 and 2006 were as follows:
Equity Equity
Balance at Realized/ Statement Balance at Realized/ Statement Balance at
12-31-2005 Increases reversed of income Others 12-31-2006 Increases reversed of income Others 12-31-2007
Application of IAS/IFRS
Retirement pensions 126,968 - - (27,348) (1) 99,619 - - (27,523) - 72,096
Tangible assets - - - 571 15 586 - - (146) - 440
Intangible assets 1,457 - - (846) (22) 589 - - (400) - 189
Deferred fees and commission 10,783 - - (2,470) - 8,313 - - (2,078) - 6,235
Long service bonus 11,817 - - (5,791) (1) 6,025 - - 159 - 6,184
Early retirements recognized by charge
to reserves prior to 2001 21,254 - - (6,475) 1 14,780 - - (5,382) - 9,398
Provisions temporarily not tax deductible 107,594 - - 2,277 17 109,888 - - 15,281 - 125,169
Tax losses carried forward of Totta Urbe 2,478 - - (176) - 2,302 - - (2,302) - -
Tax but not accounting gains - - - - - - - - 1,633 (17) 1,616
Revaluation of tangible fixed assets (6,592) 222 - 765 (237) (5,842) - 751 1,204 (751) (4,638)
Investments in associated companies
in accordance with the equity method (504) - - 30 - (474) - - (14) - (488)
275,255 222 - (39,463) (228) 235,786 - 751 (19,568) (768) 216,201
Reclassification
Temporary differences on derivatives held for trading (10,527) - - (3,446) (1) (13,974) - - 7,946 - (6,028)
39
BANCO SANTANDER TOTTA, S.A.
Reconciliation between the nominal rate of income tax and the effective rate for the years ended
December 31, 2007 and 2006 is as follows:
2007 2006
Income Income
tax rate Amount tax rate Amount
In the transition to the accounting standards established by IAS/IFRS the Bank did not recognize part of
the deferred tax assets relating to retirement pensions, because there are doubts as to its recovery. As
of December 31, 2007 the unrecorded deferred tax asset amounts to tEuros 49,728 corresponding to
taxable income of tEuros 187,653.
The tax authorities can review the Group’s tax situation during a period of four years, except where tax
losses carried forward have been used, in which case the right to corrections expires in six years. This
can result in possible additional assessments for the years subject to review, due to different
interpretations of the tax legislation.
The banks merged into BST on December 16, 2004 were subject to tax inspections for the years up to
2003 as regards CPP and 2004 as regards totta and BSP.
As a result of these inspections the banks received additional assessments, essentially of corporate
income tax. The corrections made relate to several matters, including, among others, early retirement
costs, provisions in excess of the minimum limits set forth in Bank of Portugal Notice 3/95, questions
regarding exemption of income of the offshore financial branches in the Autonomous Region of Madeira,
taxes of other branches and increases in shareholders’ equity. Some of these corrections are only
temporary, namely those relating to early retirement costs and provisions in excess of the minimum
limits required by the Bank of Portugal.
The Bank paid the full amount or part of the amount of the additional assessments or, where applicable,
gave a bank guarantee for them. However, the Bank appealed against the majority of the additional
assessments.
BST records, in the liability caption “Provisions”, the amount considered necessary to cover the risks of
having to pay the recoverable taxes which are reflected in the caption “Other assets”, the additional tax
assessments received which were not paid and contingencies relating to prior years not yet reviewed by
the Tax Administration. In 2007 the Bank used tEuros 10,362 of the provision (Note 22) to cover the
payment of additional tax assessments in the amount of tEuros 10,183 and part of the recoverable tax,
in the amount of tEuros 179. In addition, the debit balance of tEuros 10,817 (Note 17) that still remained
in the caption “Other assets” was reversed by corresponding entry to the statement of income caption
“Current taxes – taxes paid in prior years”. The provision that was recorded for this matter was
allocated to other tax contingencies.
40
BANCO SANTANDER TOTTA, S.A.
2007 2006
Assets received as settlement of defaulting loans:
. Property 96,338 108,095
. Promises 21,682 24,198
. Other 293 227
Own property for sale 17,525 19,415
----------- -----------
135,838 151,935
----------- -----------
Accrued income:
. from placement of security investment funds managed by
Santander SGFIM 4,114 4,014
. from credit operations 3,060 3,782
. from other services rendered 19,889 17,635
. others 1.990 2,403
Deferred expenses 8,364 5,792
Recoverable taxes (Note 16) - 11,548
Other receivables 9,093 6,782
Gold, other precious metals and coin collections 2,427 2,580
Subsidy receivable from the Portuguese State 3,541 2,623
Other cash and deposits 359 353
Amounts to be settled with the pension fund (Note 43) 85,311 56,684
Shareholders’ loans:
. Propaço – Sociedade Imobiliária de
Paço de Arcos, Lda. (Propaço) 2,411 2,411
. Fafer – Empreendimentos Urbanísticos Construção, S.A. (Fafer) 386 386
. Benim, S.A. 250 250
. Gestínsua – Aquisições e Alienações de Património Imobiliário
e Mobiliário, S.A. 126 126
Other equity investments:
. Nortrem – Aluguer de Material Ferroviário, A.C.E. (Nortrem) 5,512 6,724
. Trem II – Aluguer de Material Circulante (Trem II) 2,155 2,883
. Trem - Aluguer de Material Circulante, A.C.E. (Trem) 283 371
. Others 9 56
Amounts pending settlement - 46,269
Others 5,701 4,708
----------- ----------
154,981 178,380
----------- ----------
290,819 330,315
----------- ----------
Impairment (Note 22):
. Shareholders’ loans ( 1,911 ) ( 1,911 )
. Assets received as settlement of defaulting loans ( 38,603 ) ( 41,306 )
. Others ( 4,824 ) ( 2,327 )
--------- ----------
( 45,338 ) ( 45,544 )
----------- -----------
245,481 284,771
====== ======
41
BANCO SANTANDER TOTTA, S.A.
The changes in the captions “Assets received as settlement of defaulting loans” and “Own property for
sale” during the years ended December 31, 2007 and 2006 are made up as follows:
2007
December 31, 2006 Transfers December 31, 2007
Gross Accumulated Utilization of from tangible Increase in Decrease in Gross Accumulated Net
amount impairment Increases Sales impairment fixed assets impairment impairment amount impairment amount
(Note 14)
Assets received as settlement of defaulting loans
. Property 108,095 (36,208) 68,674 (80,431) 14,239 - (14,390) 2,009 96,338 (34,350) 61,988
. Promises 24,198 (2,695) 68,022 (70,538) 137 - (1,739) 2,009 21,682 (2,288) 19,394
. Other 227 (227) 66 - - - (66) - 293 (293) -
Own property for sale 19,415 (2,176) - (3,259) 1,252 1,369 (771) 23 17,525 (1,672) 15,853
151,935 (41,306) 136,762 (154,228) 15,628 1,369 (16,966) 4,041 135,838 (38,603) 97,235
2006
December 31, 2005 Transfers December 31, 2006
Gross Accumulated Utilization of from tangible Increase in Decrease in Gross Accumulated Net
amount impairment Increases Sales impairment fixed assets impairment impairment amount impairment amount
(Note 14)
Assets received as settlement of defaulting loans
. Property 110,542 (26,729) 61,995 (64,455) 10,435 13 (19,914) - 108,095 (36,208) 71,887
. Promises 29,220 (3,478) 62,056 (67,078) - - (1,903) 2,686 24,198 (2,695) 21,503
. Other 227 (227) - - - - - - 227 (227) -
Own property for sale 3,677 - - (5,033) 1,539 20,771 (3,715) - 19,415 (2,176) 17,239
143,666 (30,434) 124,051 (136,566) 11,974 20,784 (25,532) 2,686 151,935 (41,306) 110,629
The caption “Amounts pending settlement” in 2006 refers to amounts due from sales of securities on the
last days of December.
2007 2006
The caption “Resources of the Bank of Portugal” corresponds to sale operations with repurchase
agreements of bonds relating to securitized loans as follows:
Securities Quantity Principal Interest Total Beginning date Ending date Rate
HIPOTOTTA N3 PLC-CLASS A 5,163 350,000 293 350,293 28-12-2007 04-01-2008 4,30
HIPOTOTTA N6 Ltd-CLASS A1 2,049 200,000 374 200,374 18-12-2007 04-01-2008 4,21
HIPOTOTTA N6 Ltd-CLASS A2 400 38,717 436 39,153 31-10-2007 31-01-2008 4,45
HIPOTOTTA N6 Ltd-CLASS A2 1,033 100,000 1,140 101,140 31-10-2007 31-01-2008 4,51
HIPOTOTTA N6 Ltd-CLASS A2 516 50,000 565 50,565 31-10-2007 31-01-2008 4,47
HIPOTOTTA N6 Ltd-CLASS A2 782 75,695 861 76,556 22-11-2007 21-02-2008 4,55
HIPOTOTTA N6 Ltd-CLASS A2 1,550 150,000 1,767 151,767 28-11-2007 28-02-2008 4,66
HIPOTOTTA N6 Ltd-CLASS A2 2,101 200,000 2,484 202,484 11-12-2007 13-03-2008 4,86
HIPOTOTTA N6 Ltd-CLASS A2 2,101 200,000 2,474 202,474 11-12-2007 13-03-2008 4,84
HIPOTOTTA N6 Ltd-CLASS A2 1,051 100,000 1,250 101,250 11-12-2007 13-03-2008 4,89
HIPOTOTTA N6 Ltd-CLASS A2 2,101 200,000 2,494 202,494 11-12-2007 13-03-2008 4,88
HIPOTOTTA N6 Ltd-CLASS A2 1,576 150,000 1,867 151,867 11-12-2007 13-03-2008 4,87
HIPOTOTTA N6 Ltd-CLASS A2 3,118 300,000 561 300,561 18-12-2007 04-01-2008 4,21
2,114,412 16,566 2,130,978
42
BANCO SANTANDER TOTTA, S.A.
2007 2006
Consigned resources at December 31, 2007 and 2006 refers to loans from the European Investment
Bank (EIB), to be used exclusively to finance small and medium size projects previously submitted to
the EIB for approval. The loans are as follows:
As collateral for the payment of the loan “BTA Empréstimo Global III”, the Bank pledged in guarantee
loans to Municipalities in the amount of tEuros 150,000.
As collateral for the payment of the loan “Santander Totta GL IV – Tranche B”, the Bank pledged in
guarantee 1,500 Class A2 bonds of Hipototta No. 6 Ltd.
43
BANCO SANTANDER TOTTA, S.A.
2007 2006
2007 2006
Bonds outstanding
Cash bonds
Issued 12,075,413 10,465,375
Repurchased ( 175,000 ) ( 175,000 )
Accrued interest 51,772 32,649
--------------- --------------
11,952,185 10,323,024
--------------- --------------
Others
Deposit certificates 606 567,636
EMTN Programme 2,045,000 2,045,000
Others - 24
Accrued interest 10,756 19,512
-------------- -------------
2,056,362 2,632,172
-------------- -------------
44
BANCO SANTANDER TOTTA, S.A.
At 31 December 2007 the London Branch had the following bonds issued under the Euro Medium Term
Notes Programme:
The changes in provisions and impairment in 2007 and 2006 were as follows:
2007
Exchange
12/31/2006 Increases Reversals Utilized differences 12/31/2007
2006
Exchange
12/31/2005 Increases Reversals Utilized differences 12/31/2006
45
BANCO SANTANDER TOTTA, S.A.
Impairment -
2007
Reversal of
Impairment impairment Exchange Impairment
12/31/2006 losses losses Utilized differences 12/31/2007 recovery
2006
Reversal of
Impairment impairment Exchange Impairment
12/31/2005 losses losses Utilized differences 12/31/2006 recovery
The provision for employee benefits was recorded to cover early retirement costs and contractual
indemnities due to early retirement and termination of employment contracts, as a result of the
restructuring plan launched following the merger of the commercial banks on December 16, 2004. In
2007, and following the new restructuring plan launched by BST, as a result of the merger of the brands
and the consequent need for geographical restructure of the branches, the effect of early retirement of a
group of employees was computed. Therefore, an additional provision for restructuring costs of
tEuros 13,000 was recorded, of which tEuros 1,000 relating to the Luxembourg branch.
In 2007 the Bank used the provision for early retirement costs of 42 employees in the amount of
tEuros 10,580 and indemnities for early retirement of tEuros 1,476. Of these amounts, tEuros 4,084 was
paid by utilization of the provision for employees’ retirement benefits recorded at 31 December 2006.
The balance of the provision, in the amount of tEuros 3,757, will be used for a supplementary pension
plan of the Board of Directors.
In 2006 the Bank used the provision for termination of employment contracts of 161 employees in the
amount of tEuros 49,042, as well as indemnities for early retirement in the amount of tEuros 8,891.
46
BANCO SANTANDER TOTTA, S.A.
As of December 31, 2007 and 2006, the caption “Other provisions” includes:
- Provisions for legal processes, following lawsuits of customers and Bank’s employees, in the
amounts of tEuros 16,167 and tEuros 13,808, respectively. The legal area of the Bank estimates
the expected loss for each process, based on its development as reported by the lawyer
responsible for each process;
- Other provisions, recognized whenever the expected benefits of a formal contract are lower than
the estimated expenditures to fulfil the obligations of such contract, in the amounts of
tEuros 14,019 and tEuros 13,193, respectively. As of December 31, 2007 and 2006, these
amounts include contingencies related to operational risk (frauds, operations pending confirmation,
open items and fees) in the amounts of tEuros 6,513 and tEuros 5,482, respectively and
contingencies related to the closing of former branches in the amounts of tEuros 1,392 and tEuros
3,324, respectively. These provisions were estimated considering the Bank’s best knowledge of
future customer claims and other entities related to the branches.
As a result of the subjective nature of the above mentioned provisions and, most of all, considering that
the occurrence of the respective outflows is, in large respect, depending on third parties, they cannot be
estimated with a proper level of accuracy.
At December 31, 2007 and 2006 this caption was made up as follows:
2007 2006
In 2006 this caption included preference shares of Pinto Totta International Finance (PTIF), a company
with head office on the Cayman Islands, with capital of 50,000 USD owned in equal parts by BST and
Banco Comercial Português, S.A., as a result of the merger of the former BPSM into Banco Comercial
Português, S.A.. The company issued 250,000 non voting preference shares at the price of 1,000 USD
each, which were fully subscribed for and paid up by third parties, payment of dividends and repayment
of the shares being guaranteed jointly by the two banks. The holders of the shares were entitled to a
dividend payable half yearly, corresponding to annual remuneration of 7.77%, fixed for a period of 10
years. PTIF repaid all the preference shares as from August 2007, in accordance with an early
repayment option approved by the Bank of Portugal, at the price of 1,000 USD per share plus the
dividend accrued monthly since the last payment made.
47
BANCO SANTANDER TOTTA, S.A.
2007 2006
2007 2006
The caption “Amounts to be settled with banks and customers” at December 31, 2007 and 2006
corresponds to inter-bank electronic transfers that were cleared in the first days of the following year.
48
BANCO SANTANDER TOTTA, S.A.
26. EQUITY
The Bank’s share capital at December 31, 2007 and 2006 is made up of 589,810,510 subscribed and
fully paid up shares of one Euro each, held as follows:
2007 2006
Number %
of shares participation Amount Amount
In accordance with Ministerial Order 408/99 of June 4, published in the Official Journal of the Republic –
I B Series number 129, the share premium of tEuros 163,703 cannot be used to pay dividends or to
purchase treasury shares.
The other equity instruments refer to supplementary capital contributions made by the shareholder
Santander Totta, SGPS, S. A., which do not bear interest or have a defined redemption term. They can
only be redeemed by decision of the Bank’s Board of Directors with the prior approval of the Bank of
Portugal.
The revaluation reserves at December 31, 2007 and 2006 were made up as follows:
2007 2006
Revaluation reserves -
Reserves resulting from fair value revaluation of:
Available-for-sale financial assets (Note 10) ( 18,291 ) 71,776
Cash flow hedging instruments 52 ( 584 )
Legal revaluation reserves as of the transition date 23,245 23,245
-------- ----------
5,006 94,437
-------- ----------
Deferred tax reserves -
Temporary differences relating to:
Available-for-sale financial assets 6,548 ( 9,556 )
Hedging instruments ( 14 ) 155
Revaluation of tangible assets ( 5,861 ) ( 6,612 )
----- --------
673 ( 16,013 )
-------- ---------
5,679 78,424
===== =====
Revaluation reserves
In 1998 the Bank revalued tangible fixed assets in accordance with Decree-Law 31/98 of February 11,
resulting in a net increase of such assets of approximately tEuros 23,245, which was recorded in
revaluation reserves. The net amount of the revaluation recorded in accordance with Decree-Law 31/98
of February 11 can only be used to increase capital or to cover losses, as the revalued assets are used
(through depreciation) or sold.
49
BANCO SANTANDER TOTTA, S.A.
The caption “Other reserves and retained earnings” at December 31, 2007 and 2006 is made up as
follows:
2007 2006
Legal reserve
This reserve can only be used to cover accumulated losses or to increase capital.
Merger reserve
In accordance with current legislation, the merger reserve is equivalent to the legal reserve and can only
be used to cover accumulated losses or to increase capital.
50
BANCO SANTANDER TOTTA, S.A.
2007 2006
Contribution to Contribution to
Net income consolidated Net income consolidated
for the year net income for the year net income
Third party participation in Group companies, by entity, in 2007 and 2006 is as follows:
2007 2006
Balance Statement Balance Statement
sheet of income sheet of income
On June 30, 2006 BST International Bank, Inc (BST Puerto Rico) issued 3,600 non voting preference
shares of 100,000 USD each, fully subscribed for and paid up by Banco Santander Central Hispano.
The Bank guarantees a dividend on these shares corresponding to annual remuneration of 6.56%
payable quarterly, if and when declared by BST Puerto Rico’s directors. BST Puerto Rico may redeem
the preference shares, in full or in part, as from June 30, 2016 at 100,000 USD per share plus the
amount of the dividend accrued monthly since the last payment made.
51
BANCO SANTANDER TOTTA, S.A.
On June 29, 2005 TAF issued 300,000 non voting preference shares of 1,000 Euros each, fully
subscribed for and paid up by Banco Santander Central Hispano. The Bank guarantees a dividend on
these shares corresponding to annual remuneration of 4.12% payable quarterly, if and when declared
by TAF’s directors. TAF may redeem the preference shares, in full or in part, as from June 30, 2015 at
1,000 Euros per share plus the amount of the dividend accrued monthly since the last payment made.
These issues were classified as equity in accordance with IAS 32. In accordance with IAS 32,
preference shares issued are classified as equity if:
− The Issuer or the Bank does not have a contractual liability to deliver cash or other financial asset
to the shareholders; and
− Payment of dividends and repayment of the preference shares are at the discretion of the issuer.
2007 2006
52
BANCO SANTANDER TOTTA, S.A.
The Deposit Guarantee Fund was created in November 1994 in accordance with Decree Law 298/92 of
December 31, to guarantee customers’ deposits in accordance with the limits established in the General
Regime for Credit Institutions. The initial contribution to the Fund, which was established by Ministerial
Order of the Ministry of Finance, was made in cash and deposit securities, and was amortized over 60
months as from January 1995. Except as mentioned in the following paragraph, regular annual
contributions to the Fund are recorded as expense for the year to which they relate.
In 2007 and 2006, as allowed by the Bank of Portugal, the Bank paid 85% of the annual contribution to
the Fund, in the amounts of tEuros 2,675 and tEuros 2,983, respectively (Note 39), and accepted an
irrevocable commitment to the Deposit Guarantee Fund to pay the remaining 15% of the annual
contribution, if and when demanded. The unpaid amount of the commitment totalled tEuros 52,426 as of
December 31, 2007 (tEuros 51,954 at December 31, 2006). The assets pledged in guarantee to the
Bank of Portugal are recorded in off-balance sheet accounts at market value.
The responsibility to pay the Investor Indemnity System is not recorded as a cost, but is covered by the
acceptance of an irrevocable commitment to pay that amount, if required to do so, part (50%) of the
commitment being guaranteed by a pledge of Portuguese Treasury Bonds. At December 31, 2007 the
commitment totalled tEuros 8,738 (tEuros 8,514 at December 31, 2006).
Assets pledged in guarantee at December 31, 2007 and 2006 are as follows:
2007
Deposit Guarantee Investor Indemnity
Fund System SPGT
Financial assets designated at fair value through profit and loss 62,939 4,881 143,249
2006
Deposit Guarantee Investor Indemnity
Fund System SPGT
Financial assets designated at fair value through profit and loss 63,767 4,771 81,315
Loans and advances to customers - - 54,762
63,767 4,771 136,077
53
BANCO SANTANDER TOTTA, S.A.
2007 2006
Interest on cash and deposits
At Central Banks
At the Bank of Portugal 11,230 8,253
At other central banks abroad 75 85
At credit institutions 981 438
Other - 1
Interest on loans and advances to banks
Banks in Portugal
At the Bank of Portugal 1 -
At other banks 98,541 63,651
Foreign banks 70,415 83,914
Interest on loans to customers
Domestic loans 777,861 662,420
Foreign loans 76,991 58,990
Other receivables (securitized – commercial paper) 70,641 40,015
Commission and fees received relating to amortized cost 12,798 12,429
Securitized assets not derecognized 480,724 362,188
Estimated income on Pension Fund assets, less
pension plan interest cost (Note 43) 10,296 -
Interest on overdue credit 12,032 7,413
Interest income on other financial assets
Financial assets held for trading
Securities 7,491 3,390
Derivatives 1,469,794 1,629,882
Available-for-sale financial assets
Securities 35,293 32,676
Purchased under the securitization operations 50,085 -
Held-to-maturity investments
Securities - 320
Hedging derivatives 74,003 143,754
Debtors and other applications 5,261 46
Other interest 2,027 708
-------------- -------------
3,266,540 3,110,573
======== ========
The caption “Commission and fees received relating to amortized cost” for 2007 and 2006 relate to
loans to customers (Note 12).
54
BANCO SANTANDER TOTTA, S.A.
2007 2006
Interest on customers’ deposits
Public sector 14,281 11,815
Emigrants 7,736 7,058
Other residents 151,921 100,988
Non residents 43,486 65,568
----------- ----------
217,424 185,429
----------- ----------
Interest on other resources of customers 688 252
Interest on resources of Central Banks
Bank of Portugal 12,191 118,513
Other Central Banks 293 422
Interest on resources of credit institutions
Domestic 39,325 29,233
Foreign 162,356 135,146
Interest on debt securities issued
Non subordinated
Deposit certificates 4,448 68,868
Bonds 516,179 293,552
Other 86,752 54,246
Interest on financial liabilities held for trading - derivatives 1,454,225 1,424,245
Interest on hedging derivatives 73,055 140,205
Interest on subordinated liabilities 24,018 30,398
Pension plan interest cost less estimated
return on plan assets (Note 43) - 4,727
Other interest 4,943 6,366
------------- --------------
2,378,473 2,306,173
------------- --------------
2,595,897 2,491,602
======== ========
2007 2006
55
BANCO SANTANDER TOTTA, S.A.
2007 2006
On guarantees given
Guarantees and sureties 13,896 13,634
Open documentary credits 1,457 1,274
On irrevocable commitments to third parties 4,322 1,752
On services rendered
Custody and safekeeping 2,940 2,970
Amounts for collection 27,347 31,201
Fund management 48,656 49,526
Transfers 1,427 1,338
Card transactions 50,980 42,974
Annuities 13,823 14,832
Setting up loans 90 3,088
Credit operations 82,629 64,159
On operations carried out on account of third parties
Securities 5,598 4,252
Others 223 228
Other fees and commission received
Insurance 81,705 62,294
Specialized credit 3,060 3,782
Demand deposits 10,612 14,631
Cheques 13,422 17,548
Booklets 5,392 4,900
Others 508 748
----------- -----------
368,087 335,130
====== ======
2007 2006
On guarantees received
Guarantees and sureties 886 6
On banking services rendered by third parties
Asset custody and safekeeping 174 47
Amounts for collections 2,922 2,619
Asset management 847 -
Credit operations 24,154 8,384
Customer transactions 18,669 12,709
Others 1,058 2,562
On operations carried out by third parties
Securities 836 1,013
Others 6,204 3,286
Other fees and commission paid 1,123 5,441
--------- ---------
56,873 36,067
===== =====
56
BANCO SANTANDER TOTTA, S.A.
35. RESULT OF ASSETS AND LIABILITIES VALUED AT FAIR VALUE THROUGH PROFIT AND LOSS
2007 2006
Gains Losses Net Gains Losses Net
2007 2006
Gains Losses Net Gains Losses Net
Debt instruments
Issued by residents
Domestic public debt - - - - (2,944) (2,944)
Other domestic issuers - (53) (53) 1 (1) -
- (53) (53) 1 (2,945) (2,944)
Equity instruments
Valued at fair value 66,228 - 66,228 44,894 (168) 44,726
Valued at historical cost 245 - 245 35 - 35
Other 1 - 1 6 (3) 3
66,474 - 66,474 44,935 (171) 44,764
67,916 (2,651) 65,265 44,955 (3,220) 41,735
The gain on equity instruments in 2007 and 2006 includes tEuros 65,728 and tEuros 44,390 relating to
gain on the the sale of Banco BPI, S.A.’s shares, respectively (Note 10).
57
BANCO SANTANDER TOTTA, S.A.
2007 2006
The gain on the sale of loans to customers in 2006 includes tEuros 27,384 relating to gain of Totta
Ireland PLC on the sale of a credit operation over PT Multimédia, offset by loss of the same amount in
the caption “Result of assets and liabilities valued at fair value through profit and loss – Hedging
derivatives”.
58
BANCO SANTANDER TOTTA, S.A.
2007 2006
Other operating income
Operating lease income 464 416
Reimbursement of expenses 5,546 5,908
Income for sundry services rendered 2,639 2,886
Others 18,823 16,465
--------- ---------
27,472 25,675
--------- ---------
Other operating expenses
Subscriptions and donations ( 1,260 ) ( 954 )
Contributions to the Deposit Guarantee Fund (Note 29) ( 2,675 ) ( 2,983 )
Other operating expenses ( 29,157 ) ( 16,680 )
Other taxes
Direct ( 1,457 ) ( 1,703 )
Indirect ( 1,402 ) ( 926 )
--------- ---------
( 35,951 ) ( 23,246 )
-------- --------
( 8,479 ) 2,429
==== =====
59
BANCO SANTANDER TOTTA, S.A.
2007 2006
2007 2006
For purposes of determining BST’s past service liability relating to active and retired employees,
actuarial calculations were made in 2007 and 2006 by Watson Wyatt International Limited, Portugal
branch. The present value of the past service liability and corresponding current service cost were
determined based on the Projected Unit Credit method.
The following main assumptions were used as of December 31, 2007 and 2006:
2007 2006
Mortality table TV 88/90 TV 88/90
Pension fund return rate 5.50% 5.00%
Actuarial technical rate (discount rate) 5.00% 4.75%
Salary growth rate 3.20% 3.20%
Pension growth rate 2.50% 2.50%
In determining the pension cost for 2008, the same assumptions used to calculate the liability as of
December 31, 2007 were considered and the estimated rate of income of 5.5% of the Pension Fund was
maintained.
60
BANCO SANTANDER TOTTA, S.A.
On December 27, 2007 the Directing Council of the Portuguese Institute of Insurance authorized the
Banco Santander Portugal Pension Fund and the Crédito Predial Português Pension Fund to be
extinguished, and changes to be made in the contract constituting the Banco Totta & Açores Pension
Fund, which became called Fundo de Pensões do Banco Santander Totta, following the merger with the
two extinguished funds.
The liability for retirement pensions, healthcare and death subsidy and respective funding at December
31, 2007 and 2006 are as follows:
2007
Estimated past service liability:
- Serving employees 241,071
- Pensioners 35,054
- Retired and early retired personnel 1,045,467
- Healthcare (SAMS) 139,806
- Death subsidy 18,767
-------------
1,480,165
-------------
Funding of the liability:
- Value of the Fund assets as
informed by the managing entity: 1,486,078
-------------
Excess amount funded 5,913
====
2006
Former Former Former
totta CPP BSP BST
The changes in the past service liability in the years ended December 31, 2007 and 2006 are as follows:
2007 2006
In accordance with Bank of Portugal Notice 4/2005, the cost of employee pensions and other benefits
for the year includes current service and interest cost, less estimated return on the plan assets. Pension
cost for 2007 is made up as follows:
In 2007 and 2006 the cost and gain of employee post-employment benefits was included in the following
captions:
2007 2006
62
BANCO SANTANDER TOTTA, S.A.
The balance sheet amount relating to the pension plan as of December 31, 2007 and 2006 is made up
as follows (Note 17):
2007 2006
63
BANCO SANTANDER TOTTA, S.A.
2006
Former Former Former
totta CPP BSP BST
The actuarial deviations with healthcare and death subsidy in 2007 and 2006 are due to the following:
2006
2007 Former Former Former
BST totta CPP BSP BST
The increase in the liability for early retirements in 2007 and 2006, in the amounts of tEuros 12,152 and
tEuros 49,042, respectively, and indemnities paid for retirement, in the amounts of tEuros 2,183 and
tEuros 8,891, respectively, was recorded in 2007 by corresponding charge to the provision for employee
benefits (tEuros 10,580 for early retirement and tEuros 1,476 for indemnities) and by corresponding
charge to the statement of income (tEuros 1,572 for early retirement and tEuros 707 indemnities). In
2006 the increase was charged in full to the provision for employee benefits.
The effective increase in remuneration in 2007 and 2006 for purposes of Social Security contributions
relating to employees of the former totta, was 6.8% and 7.4%, respectively.
The effective increase in pensions in 2007 and 2006 was 2.7% and 2.5%, respectively.
64
BANCO SANTANDER TOTTA, S.A.
At December 31, 2007 and 2006 Santander Pensões, Sociedade Gestora de Fundos de Pensões, S.A.
managed the Group’s Pension Funds. The number of participants in the Funds as of those dates was
the following:
2006
2007 Former Former Former
BST totta CPP BSP BST
The changes in the Pension Fund assets in 2006 and 2007 were as follows:
The return on assets of the Pension Funds in 2007 and 2006 was as follows:
2007 2006
BST 5.08% -
Former totta - 8.24%
Former CPP - 8.03%
Former BSP - 7.37%
65
BANCO SANTANDER TOTTA, S.A.
The portfolio of the pension funds at December 31, 2007 and 2006 included the following Group
company assets:
2006
2007 Former Former Former
BST totta CPP BSP BST
In July and December 2003, December 2004 and 2005 and March and October 2007 BST sold part of
its mortgage loans portfolios, in the amounts of tEuros 1,100,000, tEuros 2,650,000, tEuros 3,400,000,
tEuros 2,800,000, tEuros 2,000,000 and tEuros 2,200,000, respectively, through six securitization
operations. The loans were sold at their nominal value (book value) to Fundo de Titularização de
Créditos Hipototta No. 1 FTC (Hipototta FTC No. 1), Fundo de Titularização de Créditos Hipototta No. 2
FTC (Hipototta FTC No. 2), Fundo de Titularização de Créditos Hipototta No. 3 FTC (Hipototta FTC No.
3), Fundo de Titularização de Créditos Hipototta No. 4 FTC (Hipototta FTC No. 4), Fundo de
Titularização de Créditos Hipototta No. 5 FTC (Hipototta FTC No. 5) and Fundo de Titularização de
Créditos Hipototta No. 6 FTC (Hipototta FTC No. 6), respectively (hereinafter referred to jointly as
Hipototta FTC Funds).
The funds are managed by Navegator – Sociedade Gestora de Fundos de Titularização de Créditos,
S.A., in which the Group does not have any direct or indirect participating interest. BST continues to
manage the mortgage contracts, transferring all the amounts received under the loan contracts to the
Hipototta FTC Funds.
To finance the operation, the Funds issued participating units in amounts equal to the loan portfolios
purchased, which were fully subscribed for by Hipototta No. 1 PLC, Hipototta No. 2 PLC, Hipototta No. 3
PLC, Hipototta No. 4 PLC, Hipototta No. 5 PLC and Hipototta No. 6 Ltd with head offices in Ireland
(hereinafter referred to jointly as Hipototta PLC/Ltd).
The Hipottota FTC Funds pay all amounts received from BST and from the Portuguese Treasury
(Direcção Geral do Tesouro) to the Hipototta PLC/Ltd, segregating the instalments between principal
and interest.
66
BANCO SANTANDER TOTTA, S.A.
To finance the operation, the Hipottota PLC/Ltd issued notes with different levels of subordination and
rating and, consequently, of remuneration. The major characteristics of the notes are as follows:
Hipottta PLC No 1
Remuneration
Amount Rating Redemption Early Up to early After early
Issued debt Initial Present S&P Fitch date redemption date redemption date redemption date
Class A 1,053,200 490,476 AAA Aaa November 2034 August 2012 Euribor 3 m + 0.27% Euribor 3 m + 0.54%
Class B 32,500 31,625 A+ A1 November 2034 August 2012 Euribor 3 m + 0.65% Euribor 3 m + 0.95%
Class C 14,300 13,937 BBB+ Baa1 November 2034 August 2012 Euribor 3 m + 1.45% Euribor 3 m + 1.65%
1,100,000 536,038
Class D 17,600 11,000 November 2034 August 2012 Residual income of the securitized portfolio
1,117,600 547,038
Hipottta PLC No 2
Remuneration
Amount Rating Redemption Early Up to early After early
Issued debt Initial Present S&P Fitch date redemption date redemption date redemption date
Class A 2,557,200 1,408,971 AAA AAA September 2036 December 2012 Euribor 3 m + 0.22% Euribor 3 m + 0.44%
Class B 39,800 39,800 AA+ AA+ September 2036 December 2012 Euribor 3 m + 0.5% Euribor 3 m + 1%
Class C 53,000 53,000 A A September 2036 December 2012 Euribor 3 m + 0.65% Euribor 3 m + 1.30%
2,650,000 1,501,771
Class D 18,550 18,550 September 2036 December 2012 Residual income of the securitized portfolio
2,668,550 1,520,321
Hipototta PLC No 3
Remuneration
Amount Redemption Early Up to early After early
Issued debt Initial Present Rating Fitch date redemption date redemption date redemption date
Class A 3,206,200 2,219,769 AAA December 2047 December 2013 Euribor 3 m + 0.13% Euribor 3 m + 0.26%
Class B 122,400 122,400 AA December 2047 December 2013 Euribor 3 m + 0.23% Euribor 3 m + 0.46%
Class C 71,400 71,400 A December 2047 December 2013 Euribor 3 m + 0.33% Euribor 3 m + 0.66%
3,400,000 2,413,569
Class D 17,000 17,000 December 2047 December 2013 Residual income of the securitized portfolio
3,417,000 2,430,569
Hipototta PLC No 4
Remuneration
Amount Redemption Early Up to early After early
Issued debt Initial Present Rating Fitch date redemption date redemption date redemption date
Class A 2,616,040 1,973,752 AAA December 2048 December 2014 Euribor 3 m + 0.12% Euribor 3 m + 0.24%
Class B 44,240 44,240 AA- December 2048 December 2014 Euribor 3 m + 0.19% Euribor 3 m + 0.40%
Class C 139,720 139,720 A December 2048 December 2014 Euribor 3 m + 0.29% Euribor 3 m + 0.58%
2,800,000 2,157,712
Class D 14,000 14,000 December 2048 December 2014 Residual income of the securitized portfolio
2,814,000 2,171,712
Hipototta PLC No 5
Remuneration
Amount Rating Redemption Early Up to early After early
Issued debt Initial Present S&P Fitch date redemption date redemption date redemption date
Class A1 200,000 39,907 AAA Aaa February 2060 February 2014 Euribor 3 m + 0.05% Euribor 3 m + 0.10%
Class A2 1,693,000 1,693,000 AAA Aaa February 2060 February 2014 Euribor 3 m + 0.13% Euribor 3 m + 0.26%
Class B 26,000 26,000 AA Aa2 February 2060 February 2014 Euribor 3 m + 0.17% Euribor 3 m + 0.34%
Class C 24,000 24,000 A A1 February 2060 February 2014 Euribor 3 m + 0.24% Euribor 3 m + 0.48%
Class D 26,000 26,000 BBB Baa2 February 2060 February 2014 Euribor 3 m + 0.50% Euribor 3 m + 1.00%
Class E 31,000 31,000 BB Ba3 February 2060 February 2014 Euribor 3 m + 1.75% Euribor 3 m + 3.50%
2,000,000 1,839,907
Class F 10,000 10,000 CCC- Ca February 2060 February 2014 Residual income of the securitized portfolio
2,010,000 1,849,907
67
BANCO SANTANDER TOTTA, S.A.
Hipototta Ltd No 6
Remuneration
Amount Rating Redemption Early Up to early After early
Issued debt Initial Present S&P Fitch date redemption date redemption date redemption date
Class F 11,450 11,450 CCC- Ca July 2060 - Residual income of the securitized portfolio
2,211,450 2,211,450
The notes issued by Hipototta PLC No. 1, Hipototta PLC No. 2, Hipototta PLC No. 3 and Hipototta PLC
No. 4 payable quarterly payable on March 30, June, September and December of each year. The notes
issued by Hipototta PLC No. 5 bear interest payable quarterly on February 28, May 30, August and
November each year. The notes issued by Hipototta Ltd No. 6 bear interest payable quarterly on
January 30, Abril, Julho and Outubro each year.
BST has as the option to redeem the notes early on the above mentioned dates and the possibility of
repurchasing the loan portfolios at their nominal value when the outstanding loan portfolio is equal to or
less than 10% of the initial amount of the operations.
Additionally, up to five days before each interest payment date, the Hipototta PLC/Ltd have the option to
make partial repayments of the Class A, B and C notes, as well as Class D and E for Hipototta PLC No.
5 and Hipototta Ltd No. 6, in order to adjust the amount of the liability to that of the outstanding
mortgage loan portfolios.
Remuneration of the Class D notes of the first four Hipototta and of the class F notes of the last two is
the last liability to be paid by the Hipototta PLC/Ltd.
Remuneration of those notes correspond to the difference between the income generated by the
securitized loan portfolio and the sum of all costs to be incurred in the operation, namely:
- Taxes;
- Expenses and fees calculated based on the amounts of the portfolio (custodian fee and service
fee, both charged by BST, and management fee, charged by the Hipototta FTC funds);
- Interest on the other classes of notes;
- Impairment losses.
When the securitization operations were launched, the estimate income of the securitized loan portfolios
included in the calculation of the remuneration of the class D notes of the Hipototta PLC No. 1, 2, 3 and
4 corresponds to average annual rates 1.1%, 1%, 1.1% and 0.9%, respectively, and of the class F notes
of the Hipototta PLC No. 5 and Hipototta Ltd No. 6, corresponds to an annual average of 0.9%, of the
total credit portfolio.
The initial costs of the operation were financed by a subordinated loan from BST.
The notes with the highest degree of subordination (class D in the case of the first four Hipototta and
class F in the case of the last two) were acquired by a BST Group subsidiary. The remaining notes
issued by the first four Hipototta PLC, the class B and E notes issued by the Hipototta PLC No. 5 and
the class A1 and A2 notes issued bt the Hipototta Ltd No. 6 were acquired by BST and recorded in the
available-for-sale financial assets portfolio in its non-consolidated financial statements. In 2006 the Bank
sold all the class A notes of Hipototta PLC No. 2 and Hipototta PLC No. 4 and part of the class A notes
of Hipototta PLC No. 1 and Hipototta PLC No. 3.
In addition, a liquidity swap was entered into between the Santander Group and Hipototta PLC No. 1,
which corresponds to a facility/credit line in the event of the need for liquidity by Hipototta PLC No. 1.
68
BANCO SANTANDER TOTTA, S.A.
Accounting recognition
In compliance with IAS 27 and SIC 12, the Hipototta FTC Funds and Hipototta PLC/Ltd were included in
the consolidated financial statements (Note 5), given that the Bank has the majority of the risks and
benefits relating to the operations of these entities. Consequently, the securitized mortgage loans were
reflected in the balance sheet and part of the bonds issued by the Hipototta PLC/Ltd, which are held by
the Group, were eliminated in the consolidation process.
Effective
Related entities Head office participation
69
BANCO SANTANDER TOTTA, S.A.
The balances with related entities at December 31, 2007 are as follows:
Entities Entities Entities under
Entities that under joint significantly direct or indirect
directly or indirectly control influenced common control
Assets: control the Group by the Group by the Group by the Group
Liabilities:
Costs:
Personnal costs - - - 2
Income:
70
BANCO SANTANDER TOTTA, S.A.
The balances with related entities at December 31, 2006 are as follows:
Liabilities:
Costs:
Personnal costs - - - 2
Income:
71
BANCO SANTANDER TOTTA, S.A.
The loans and advances to members of management and supervisory boards at December 31, 2007
and 2006 amounted to tEuros 1,242 and tEuros 1,085 respectively, and were granted in accordance
with the mortgage loan policy defined for all the Group employees. Fixed and variable remuneration of
the members of the management and supervisory boards in 2007 and 2006 amounted to tEuros 5,693
and tEuros 6,107. These were the most relevant benefits to key management personnel in 2007 and
2006.
The Santander Group, which includes BST, has a worldwide long term incentive plan including 2,601
employees, which consists of Banco Santander, S.A. (SAN) stock options conditional to the market
value performance of the shares and to the growth of the earnings per share compared with a group of
similar banks. In the case of BST, the group of employees included in this plan amounts to 157,
including key management personnel. In relation to key management personnel, the plan’s costs
reflected in the financial statements of BST as of December 31, 2007 and 2006 amounted to tEuros 322
and tEuros 287, respectively. The conditions of the plan were met, which will allow the exercise of the
stock options at 9.09 Euros. The start and end dates of the exercise period are from January 15, 2008 to
January 15, 2009.
In the shareholders’ General Meeting of SAN held at June 23, 2007, the “Stock Plan Entailed to
Santander Group Objectives” was approved, for the period from January 1, 2008 up to December 31,
2009 (with a first cycle up to December 31, 2008 and a second cycle up to December 31, 2009). BST is
also included in this new plan, after approval in the executive committee meeting of December 19, 2007,
with approximately 341 employees. The beneficiaries of this plan received a maximum number of SAN’s
shares. The maximum number of shares to be delivered to each beneficiary will be determined by
multiplying the maximum number of shares attributed to the beneficiary, by the sum of coefficients
obtained in the comparison of SAN’s evolution with the entities understood in a Group with relation to
two parameters: the total shareholder’s return and the benefit growth per share. The cost of this plan
regarding key management personnel, at December 31, 2007, reflected in the financial statements of
BST, amounted to tEuros 738.
In relation to the post-employment benefits, the key management personnel with labour bond to BST are
included in the pension plan of the Collective Labour Agreement (“Acordo Colectivo de Trabalho” - ACT)
for the banking sector subscribed by BST. The general conditions of this plan are described in
Note 1.3 k). At December 31, 2007 the liability related to this benefit amounted to tEuros 217.
In the General Meeting held at May 30, 2007, the BST shareholders approved the “Regulation of
complementary attribution of retirement pension for age or disability” for the executive members of the
Board of Directors of the ex – BTA who transited to executive members (executive committee) of the
BST Board of Directors and were in office for more than ten years. This defined benefit pension plan is a
supplement plan and is dependant of the Social Security general regime. The remunerations committee
defined the attribution and the amount of the supplement retirement pension for age or disability, being
able to complement up to 80% of the gross annual fixed wages depending on the time the member has
been in office.
At December 31, 2007 the liabilities regarding this plan amounted to tEuros 5,683 and were covered by
a provision of the same amount registered in caption “Provision for employee benefits”.
Regarding employment ceasing benefits, according to the Commercial Law (“Código das Sociedades
Comerciais”), whenever the mandate of a member of management or supervisory boards is ceased
before it’s term, by means of a BST decision, the Bank shall reimburse the future earnings that the
member would be entitled to up to the end of the mandate.
72
BANCO SANTANDER TOTTA, S.A.
BALANCE SHEET
Financial instruments at December 31, 2007 and 2006 had the following book values:
2007
Valued at Valued at Valued at
fair value amortized cost historical cost Impairment Net
Assets
Liabilities
2006
Valued at Valued at Valued at
fair value amortized cost historical cost Impairment Net
Assets
Liabilities
There were no reclassification changes in financial assets in the years ended December 31, 2007 and
2006.
73
BANCO SANTANDER TOTTA, S.A.
STATEMENT OF INCOME
The net gain and loss on financial instruments in the years ended December 31, 2007 and 2006 were
as follows:
2007
By corresponding entry to profit and loss By corresponding entry to equity
Gain Loss Net Gain Loss Net
2006
By corresponding entry to profit and loss By corresponding entry to equity
Gain Loss Net Gain Loss Net
The above amounts do not include gain and loss resulting from exchange revaluation of financial
instruments, which for the years ended December 31, 2007 and 2006 amounted to net gains of
tEuros 13,621 and tEuros 4,803, respectively.
74
BANCO SANTANDER TOTTA, S.A.
Interest income and expense on financial assets not recorded at fair value through profit and loss,
computed in accordance with the effective rate method, for the years ended December 31, 2007 and
2006 is as follows:
2007 2006
Income Expense Net Income Expense Net
Assets
Liabilities
Fees and commission income and expense on financial assets and liabilities not recorded at fair value
through profit and loss, not included in the calculation of the effective rate, for the years ended
December 31, 2007 and 2006, are as follows:
2007 2006
Income Expense Net Income Expense Net
Assets
Loans and advances to customers 71,070 (30,358) 40,712 52,843 (11,668) 41,175
Passivo
Resources of customers and others 40,985 - 40,985 48,395 - 48,395
In 2007 and 2006 the Bank recognized financial income of tEuros 12,932 and tEuros 11,062,
respectively, relating to “Interest income” on overdue credit operations or with impairment.
75
BANCO SANTANDER TOTTA, S.A.
OTHER DISCLOSURES
Hedge accounting
Hedging derivatives and the financial instruments designated as hedged items at December 31, 2007
and 2006 are as follows:
2007
Hedged item Hedging instrument
Nominal Gross Fair value Book Nominal Fair
value value adjustments value value value
Fair value hedge:
Loans and advances to customers 100,686 101,338 (1,738) 99,600 102,810 1,770
Financial assets designated at fair value through profit and loss 380,000 402,488 4,540 407,028 380,000 2,038
Resources of customers and others (1,441,557) (1,468,415) 52,522 (1,415,893) 1,534,295 (31,175)
Debt securities issued (2,517,863) (2,557,113) 153,377 (2,403,736) 2,522,499 (130,076)
Subordinated liabilities (15,050) (15,060) 353 (14,707) 15,050 (389)
Cash flow hedge:
Loans and advances to customers 1,500,000 1,500,000 - 1,500,000 1,500,000 52
(1,993,784) (2,036,762) 209,054 (1,827,708) 6,054,654 (157,780)
2006
Hedged item Hedging instrument
Nominal Gross Fair value Book Nominal Fair
value value adjustments value value value
The expected cash flow by periods, that affect the results for the year are as follows:
2007
Up to From 3 months From 6 months From 1 to More than
3 months to 6 months to 1 year 3 years 3 years Total
2006
Up to From 3 months From 6 months From 1 to More than
3 months to 6 months to 1 year 3 years 3 years Total
For the year ended December 31, 2007, no amounts were recognized in the statement of income
relating to ineffective hedges of these products, as the financial derivative instruments contracted in
previous years had as maturity date the end of the year and were cancelled during 2007.
For the year ended December 31, 2006, no amounts were recognized in the statement of income
relating to ineffective hedges of these products.
76
BANCO SANTANDER TOTTA, S.A.
The gain and loss on fair value hedging operations recognized in the statements of income for the years
ended December 31, 2007 and 2006 are as follows:
Financial instruments at December 31, 2007 and 2006 are made up as follows:
2007
Valued at Not valued at
fair value fair value Total
Assets
Liabilities
77
BANCO SANTANDER TOTTA, S.A.
2006
Valued at Not valued at
fair value fair value Total
Assets
Liabilities
The financial assets and liabilities to which hedge accounting was applied are included as valued at fair
value, although only the amounts relating to the hedged risk were subject to fair value adjustment.
The fair value of financial assets and liabilities valued at fair value or subject to fair value adjustments in
accordance with hedge accounting at December 31, 2007 and 2006 are as follows:
2007
Value adjustments Net
Accrued due to hedging Impairment and book
Cost interest Gain/(Loss) operations amortization value
Assets
Liabilities
78
BANCO SANTANDER TOTTA, S.A.
2006
Value adjustments Net
Accrued due to hedging Impairment and book
Cost interest Gain/(Loss) operations amortization value
Assets
Liabilities
The methods used to determine fair value were based on market prices on active financial instrument
markets or other valuation techniques, such as discounted cash flows. The book value of financial
instruments valued at fair value or subject to value adjustments for hedging operations, by valuation
methodology, at December 31, 2007 and 2006, is as follows:
2007
Method of determining fair value
Listings of Other valuation
active markets techniques Total
Assets
Liabilities
79
BANCO SANTANDER TOTTA, S.A.
2006
Method of determining fair value
Listings of Other valuation
active markets techniques Total
Assets
Liabilities
The book value and fair value of these financial instruments valued at amortized cost or historical cost
at December 31, 2007 and 2006 is as follows:
2007
Book Fair
value value Difference
Assets
Liabilities
80
BANCO SANTANDER TOTTA, S.A.
2006
Book Fair
value value Difference
Assets
Liabilities
The main assumptions used in determining fair value, by financial instrument type, were the following:
- For loans and resources from banks with term to maturity of less than 6 months, fair value was
considered to be equal to the book value. For operations with longer maturity terms, future cash
flows were discounted using the interest rate curves for the money market.
- The fair value of variable rate loans to companies and large companies, was considered to be equal
to book value. In the case of loans to private customers (mortgage and consumer loans) and small
businesses (loans), the average spread of production in the last quarter of the year was used to
discount the future cash flows of the portfolio. In the case of fixed rate loans to companies and
private customers, the future cash flows were discounted at the average rates used by the Bank at
the end of the year.
- The fair value of demand deposits from clients was considered to be equal to book value. In the case
of term deposits the Bank used the average rates for deposits contracted in the last quarter of the
year, for each type of deposit.
- The fair value of cash bonds issued by the Bank was determined by discounting the future cash
flows using the average interest rate of the securities issued at the end of the year.
- The fair value of subordinated liabilities was determined by discounting the future cash flows at
market rates for the residual term of each issue.
In 2007 the Bank recognized initial gains on financial instruments valued at fair value through other
valuation techniques, in the contracting of derivative operations with customers classified internally as
“Retail clients”.
Such procedure was implemented in result of the client segmentation and according to IAS 39,
considering that other valuation techniques for the measurement of fair value of the derivative
operations with customers classified internally as “Retail clients”, do not inequivocal encompass
observed market data.
81
BANCO SANTANDER TOTTA, S.A.
The Group classifies clients internally in accordance with the following criteria:
- Major clients – Large companies and institutional entities (financial sector entities such as
banks and insurance companies and public sector companies);
- Retail clients.
As of December 31, 2007, the unrecognized amount regarding these operations corresponds to
tEuros 24,979 and is recorded under the caption “Financial liabilities held for trading”.
RISK MANAGEMENT
CREDIT RISK
Credit risk management by the Group includes identification, measurement, integration and evaluation
of different credit risk exposures and analysis of return in relation to risk, on an overall basis, as well as
for each area of activity.
Credit risk management is provided by an independent area (the Group Risk Area) which is responsible
for managing the special client vigilance system, credit risk segmentation based on the characteristics of
customers and products and for the scoring systems (applicable to mortgage loans, consumer credit
and credit cards) and ratings used by the Bank.
Counterparty risk consists of the potential credit risk on transactions on financial markets, corresponding
to the possibility of non-compliance by the counterparty with the contracted terms and subsequent
financial loss for the Bank. Such transactions include the purchase and sale of securities, the
contracting of sale transactions with repurchase agreements, the loan of securities and derivative
instruments. Considering the complexity and volume of the transactions, as well as the requirements of
an adequate control of the consolidated risks with certain customer segments, perimeter control is
defined in accordance with the segments involved.
Control of these risks is carried out daily based on an integrated system that registers the limits
approved, updates the positions in real time, provides information on the limits available and aggregate
exposure, also in real time, for the different products and maturities. The system also enables the
concentration of risk by groups of customers/counterparties to be controlled on a transversal basis (at
several levels).
Derivative position risk (known as Equivalent Credit Risk) is determined as the sum of the present value
of each contract (or present cost of substitution) with its Potential Risk, a component that reflects the
estimated maximum expected value until maturity, in accordance with the volatility of the underlying
market and contracted cash flow structure.
For specific customer segments (namely global corporate customers) the Bank has implemented credit
limits considering economic capital, incorporating, in the quantitative control, the variables relating to the
credit quality of each counterparty.
82
BANCO SANTANDER TOTTA, S.A.
The maximum exposure to credit risk and corresponding book value of the financial instruments at
December 31 2007 and 2006 are as follows:
2007 2006
Book Maximum Book Maximum
value exposure value exposure
The maximum exposure of “Loans and advances to customers” at December 31, 2007 includes tEuros
455,938 and tEuros 4,192,614 relating to irrevocable credit lines and revocable credit lines, respectively
(tEuros 224,132 and tEuros 4,313,534 at December 31, 2006, respectively).
Credit granted
The Bank periodically analyses customer credit and other amounts receivable in order to identify
evidence of impairment. For the purpose of analyzing impairment loss collectively, the Bank segments
the credit portfolio in accordance with the type of product and type of customer involved in the
operations (Note 12). In this respect, customer credit without evidence of impairment, at December 31,
2007 and 2006, is as follows:
2007 2006
The risk analysis are supported by a mandatory internally developed rating model, except for individual
customers. The risk level inherent to the customer is implied in the attribution of internal rating levels,
which can go from 1 to 9. The risk level is determined based on the following parameters:
. Demand/Market;
. Partners/Management;
. Access to credit;
. Profitability;
. Generation of funds;
. Solvency.
83
BANCO SANTANDER TOTTA, S.A.
A classification from 1 (minimum) to 9 (maximum) is attributed to these factors in accordance with the
following weighting:
The rating is manually calculated by the analysts, based on information supplied by the costumer,
general information of the business sector and external databases. The final rating, by each weighting
parameter, is later introduced in the Bank’s computer system.
Credit granted by the Bank to companies without evidence of impairment, by internal rating, at
December 31, 2007 and 2006, is as follows:
2007 2006
Credit Guarantees Credit Guarantees
granted given granted given
The book value of credit granted to customers, in which the conditions have been renegotiated in 2006
and 2007, can be detailed as follows:
Unmatured Loans in
loans default Total
Companies:
. Large companies 4,579 - 4,579
. Medium companies 16,009 520 16,529
. Small companies 9,781 255 10,036
--------- ------- ---------
30,369 775 31,144
Individuals 43,409 514 43,923
--------- ------- ---------
73,778 1,289 75,067
===== ==== =====
84
BANCO SANTANDER TOTTA, S.A.
Credit granted to customers with evidence of impairment at December 31, 2007 and 2006 is as follows:
2007 2006
Overdue credit or impaired credit determined by specific analysis guaranteed by mortgage, pledged
deposits at the Bank or debt securities issued by the entity itself, at December 31, 2007 and 2006, is
made up as follows:
2007 2006
Principal Value of Principal Value of
due guarantee/collateral due guarantee/collateral
Credit overdue or impaired determined by individual analysis
Guarantee exceeds principal due 475,489 1,198,966 398,019 1,053,491
Guarantee less than principal due 41,465 15,983 43,656 17,998
516,954 1,214,949 441,675 1,071,489
The book value of executed guarantees and other collateral relating to credit granted at December 31,
2007 and 2006 amounted to tEuros 81,440 and tEuros 93,390, respectively, and is made up as follows:
2007 2006
Impairment of assets received as settlement of defaulting loans (Note 17) (36,807) (39,130)
Impairment of available-for-sale assets (22,122) (22,122)
(58,929) (61,252)
81,440 93,390
LIQUIDITY RISK
Liquidity risk management policy is decided by the top level area in the organization structure
responsible for Asset and Liabilities Management (ALM) and the Assets and Liabilities Committee
(ALCO), which is presided over by the President of the Executive Commission and includes the
members of the Executive Commission responsible for the Financial, Treasury, Commercial, Marketing
and International Areas. The Committee meets monthly and analyses balance sheet risks and strategic
options.
The following balance sheet risk management limits are defined for the Asset and Liabilities
Management Area:
- Limits aimed at controlling interest rate risk, namely financial margin (NIM) sensitivity and asset
value (MVE) sensitivity to unexpected fluctuations in interest rates; and
- Limits aimed at controlling liquidity risk through liquidity coefficient and accumulated net illiquidity
indicators.
85
BANCO SANTANDER TOTTA, S.A.
The Bank’s financing policy takes into consideration the evolution of the balance sheet aggregates, the
structural position of terms to maturity of assets and liabilities, the net inter-bank indebtedness level
given the credit lines available, dispersion of the maturities and minimization of funding activity related
costs. In this respect, the medium term bonds issued to retail banking clients are beneficial to the
structural adequacy.
Under its liquidity policy, at December 31, 2007 the Bank had an EMTM programme of
tEuros 100,000,000, of which tEuros 7,655,000 had not yet been issued.
The Bank does not analyze liquidity risk of financial instruments held for trading.
The non-discounted projected cash flows of financial instruments in accordance with their contractual
maturities at December 31, 2007 and 2006 are as follows:
2007
Up to From 3 months From 1 to From 3 to More yhan
On demand 3 months to 1 year 3 years 5 years 5 years Undetermined Total
Assets
Cash and deposits at central banks 250,823 1,838 5,555 182,779 - - - 440,995
Balances due from banks 380,288 - - - - - - 380,288
Financial assets held for trading 1,387,958 - - - - - - 1,387,958
Financial assets designated at fair value through profit and loss 2 3 26,871 157,257 41,728 418,727 - 644,588
Available-for-sale financial assets - 20,425 69,343 242,307 307,914 2,375,009 48,528 3,063,526
Loans and advances to banks 1,050,055 541,645 238,032 2,493,037 51,334 492,575 - 4,866,678
Loans and advances to customers 1,154,282 2,612,755 3,127,775 8,473,365 3,540,352 25,782,672 - 44,691,201
Hedging derivatives 77,406 - - - - - - 77,406
Investments in associates - - - - - - 20,965 20,965
4,300,814 3,176,666 3,467,576 11,548,745 3,941,328 29,068,983 69,493 55,573,605
Liabilities
2006
Up to From 3 months From 1 to From 3 to More yhan
On demand 3 months to 1 year 3 years 5 years 5 years Undetermined Total
Assets
Cash and deposits at central banks 186,867 2,595 8,395 339,888 - - - 537,745
Balances due from banks 263,017 - - - - - - 263,017
Financial assets held for trading 1,100,597 - - - - - - 1,100,597
Financial assets designated at fair value through profit and loss 1 3 21,145 41,452 41,452 442,403 - 546,456
Available-for-sale financial assets 663 1,997 7,150 56,777 12,573 397,672 167,765 644,597
Loans and advances to banks 1,630,375 326,673 230,491 1,144,867 32,377 53,564 - 3,418,347
Loans and advances to customers 1,888,862 2,397,665 2,274,752 8,025,899 3,068,808 20,931,581 - 38,587,567
Hedging derivatives 197,375 - - - - - - 197,375
Investments in associates - - - - - - 22,384 22,384
5,267,757 2,728,933 2,541,933 9,608,883 3,155,210 21,825,220 190,149 45,318,085
Liabilities
86
BANCO SANTANDER TOTTA, S.A.
The projected cash flows of the financial instruments were determined based on principles and
assumptions used by the Group to manage and control liquidity resulting from its operations. The
following main assumptions were used to determine the projected cash flows:
- The projected cash flows of assets and liabilities with variable remuneration related to the interest
rate curve were calculated considering the forward interest rate curve;
- Credit line operations without defined maturity dates or periodically renewable, such as bank
overdrafts and current account credit lines, were considered to have an average maturity of 25
months;
- The projected cash flows of demand deposits were considered as payable on demand.
MARKET RISK
Market risk consists in general of the potential fluctuation of a financial asset’s value due to
unanticipated variations in market variables, such as interest rates, exchange rates, credit spreads,
equity security prices, precious metals and comodities.
The standard methodology applied for the Santander Totta Group’s negotiation activity is Value at Risk
(VaR). Historical Simulation with a 99% confidence level and a time horizon of one day is used as the
basis, statistical adjustments having been applied, to enable the more recent occurrences that affect the
level of risk assumed to be included rapidly and effectively. This measure is only used in the Group’s
treasury management, the Bank using specific sensitivity measures.
Calculated VaR represents a daily estimate of the maximum potential risk under normal market
conditions (individually by portfolio/business sector and for the overall positions), within the assumptions
defined in constructing the model.
In addition, other measures are carried out that enable additional risk control to be maintained. In
abnormal market conditions Stress Testing is carried out. This consists of defining extreme behavioural
scenarios with different financial variables, so obtaining the corresponding potential impact on results. In
summary, the analysis of scenarios endeavours to identify the potential risk in extreme market
conditions in the verge of probability, not covered by VaR.
Daily positions are also monitored, an exhaustive control being made of changes in the portfolios so as
to detect the existence of possible situations that require immediate correction. The preparation of a
daily statement of income has the objective of identifying the impact of changes in variables or in the
composition of the portfolios.
The Bank uses sensitivity measures and equivalent positions. In the case of interest rate it uses the
BPV – estimated impact on results of parallel changes in interest rate curves. Because of the unusual
nature of derivative operations, specific sensitivity measures are carried out daily, namely calculation of
sensitivity to changes in the underlying prices (delta and gamma), volatility (vega) and time (theta).
87
BANCO SANTANDER TOTTA, S.A.
Quantity limits, classified into two groups, are used for the trading portfolio, based on the following
objectives:
- Limits aimed at protecting the volume of losses (VaR, Equivalent positions and sensitivity);
- Limits aimed at protecting/accommodating the volume of effective losses or protecting the results
already achieved during the period (Loss Triggers and Stop Losses).
The model used to analyse interest rate structural risk enables all the factors relating to balance sheet
market risks to be controlled, namely risk resulting directly from change in the income curve, given the
existing indexing and re-pricing structure, that determine sensitivity of the financial margin and sensitivity
of the asset value of the balance sheet instruments.
Financial instruments, by exposure to interest rate risk, at December 31, 2007 and 2006 are as follows:
2007
Exposure to Not subject to
Fixed rate Variable rate interest rate risk Derivatives Total
Assets
Liabilities
88
BANCO SANTANDER TOTTA, S.A.
2006
Exposure to Not subject to
Fixed rate Variable rate interest rate risk Derivatives Total
Assets
Liabilities
Financial instruments – structural balance (excluding assets and liabilities held for trading)
Equity value sensitivity is calculated by means of simulating the variation in the market value of assets
and liabilities based on changes of 100 basis points (bp’s) in the forward interest rate curve. This
methodology assumes the following parameters and assumptions:
- all assets and liabilities that are sensitive to variations in interest rates, that is, whose value and
corresponding contribution to financial margin change as a result of changes in market rates;
- the assets and liabilities are grouped in accordance with their exposure to interest rate risk;
- future cash flows, duly distributed by the re-pricing dates (variable rates) or maturity dates (fixed
rate), are calculated for each operation (contract);
- for each group previously defined the operations are sub-grouped by re-pricing/maturity date;
- the intended time intervals for measurement of the interest rate gaps are defined;
- for each group, the flows are re-grouped based on the intervals determined;
- for each product considered to be sensitive, that does not have a defined maturity date, the
distribution parameters are estimated based on previously studied behavioural models;
- the total inflows and outflows are calculated for each interval and the difference between them,
corresponding to the interest rate risk gap, is determined for each interval.
89
BANCO SANTANDER TOTTA, S.A.
The interest rate gap enables an approximation to be made of the sensitivity of the asset value and the
financial margin to variations in market rates. This approximation has the following assumptions:
- the volumes remain constant in the balance sheet and are automatically renewed;
- interest rates are assumed to vary in parallel, the possibility of actual changes for different terms of
the interest rate curve not being considered;
In the terms of variation in Equity Value, the increases in interest rates assume a decrease in the
amount of the intervals with positive gaps and an increase in the value of the negative gaps. A decrease
in interest rates has the opposite effect.
- Evolution of the balance sheet – a static balance sheet is assumed, under which the amount of the
contracts that mature are substituted by new operations of the same amount, so that the balance
sheet balances remain constant during the period analysed.
- Maturities and re-pricing – the actual maturity and re-pricing dates of the operations are considered.
The assets and liabilities whose value is not changed with changes in interest rates are considered
to be not sensitive.
- Indexing factors – the indexing factors defined contractually are considered, and for simulation
purposes a spot curve as of the valuation date with a forward underlying curve is used.
- Nature of New Business (term, spread, indexing factor, etc.) – the conditions applied in the budget
for the each product are used. When these characteristics cease being within market conditions for
certain products the average conditions practiced in the last month or new commercial directives for
each product under review are used.
At December 31, 2007 and 2006 the sensitivity of the equity value of these financial instruments to
variations of 100 basis points (bp’s) corresponds to:
2007 2006
Assets
90
BANCO SANTANDER TOTTA, S.A.
The sensitivity of financial instruments held for trading is determined by the Bank through calculation of
the cash flows of each instrument, considering the maturities included in the contractual IT System of
the Bank and respective forward interest rate curves.
The sensitivity analysis of financial instruments held for trading to changes in interest rates is made
based on variations of one basis point over the interest rate for each maturity. In this respect, the Bank
determines a vector of sensitivities, which corresponds to difference between the new fair value of the
financial instrument and its initial value for each time interval, which corresponds to a series of interest
rate risk measurements made over the whole temporal structure. The vector indicates the exact
variation in the value of the portfolio for each independent variation of one basis point in each of the
rates.
At December 31, 2007 and 2006, sensitivity of the equity value of financial instruments held for trading
to positive variations of one basis point (bp) in BST corresponds to:
1 day - -
1 month - -
6 months (1) (1)
9 months (3) -
1 year (11) -
2 years (4) -
3 years (6) (2)
4 years (20) (8)
5 years 21 (4)
> 5 years 3 18
(21) 3
Exposure to interest rate risk of the Bank’s financial instruments held for trading is hedged by positions
in another Santander Totta Group financial institution. The sensitivity of the equity value of such
financial instruments of the Santander Totta Group to positive changes of one basis point (bp) at
December 31, 2007 and 2006 corresponds to:
2007
Maturity Total EUR USD
1 day - - -
1 month (5) (5) -
6 months 8 8 -
9 months (4) (4) -
1 year 4 5 (1)
2 years (9) (5) (4)
3 years (1) (1) -
4 years (18) (20) 2
5 years 30 28 2
> 5 years 14 3 11
19 9 10
91
BANCO SANTANDER TOTTA, S.A.
2006
Maturity Total EUR USD GBP
Exchange risk
The profile defined for foreign exchange risk is very conservative and is based on the hedging policy
adopted. Implementation of the policy is a responsibility of the Treasury Area so that the risks involved
are maintained at a low level, this being achieved mainly through currency swaps. Exchange risk limits
are established and monitored by the Market Risk Area.
Financial instruments, by currency, at December 31, 2007 and 2006 are as follows:
2007
Other
Euros US Dollars currencies Total
Assets
Liabilities
92
BANCO SANTANDER TOTTA, S.A.
2006
Other
Euros US Dollars currencies Total
Assets
Liabilities
The Bank’s exchange exposure (“delta exchange rate”), by currency, which corresponds to the
maximum loss in equity value of financial instruments held for trading, to changes in the rate of
exchange, considering exposure of the balance sheets as of December 31, 2007 and 2006, is as
follows:
93
BANCO SANTANDER TOTTA, S.A.
Exposure to equity risk (delta equity), which corresponds to the maximum loss in equity value of
financial instruments held for trading, to changes in market quotations, considering exposure of the
balance sheets as of December 31, 2007 and 2006, is as follows:
The Bank’s reduced exposure results from exposure to equity risk on financial instruments held for
trading of the Santander Totta Group being concentrated in another financial institution of the Group.
Sensitivity of the equity value of financial instruments subject to volatility risk (options and other
derivative financial instruments) resulting from a 1% increase in volatility, at December 31, 2007 and
2006, corresponds to:
2007
Maturity Interest rate Equity listings Exchange rate
1 day - - -
1 month - - -
6 months - - -
9 months (2) - -
1 year (3) - -
2 years (1) 1 7
3 years 10 - -
4 years 9 - -
5 years 6 - -
> 5 years 6 - -
25 1 7
94
BANCO SANTANDER TOTTA, S.A.
2006
Maturity Interest rate Equity listings Exchange rate
1 day - - -
1 month - - -
6 months - - -
9 months - - -
1 year 3 - -
2 years 13 (4) 1
3 years 15 (3) 2
4 years 13 - -
5 years 9 - -
> 5 years 3 - -
56 (7) 3
At a consolidated level, BST aims to maintain a strong financial solidity, which is substanciated by the
maintenance of a capital adequacy ratio – relation between qualifying capital and risk weighted assets -
above 8%, which is the minimum legal ratio requirement established by Notice nº 5/2007 of Bank of
Portugal.
The distribution of dividends is conditioned to the maintenance of a strong capital base to support the
development of the Bank’s business operations, considering its risk policies. Regarding the financial
year of 2007, the Board of Directors of the Bank is proposing to pay dividends to shareholders in the
amount of tEuros 200,000, which represents a dividend of 0.339 Euros per share.
The Capital components follow the present regulations of Bank of Portugal (Notice nº 4/2007). In
particular, since June 2007, 50% of the deduction to Capital regarding investments in financial
institutions and insurance companies, which were previously considered entirely in the Tier II ratio,
started to be considered in the Tier I ratio. This fact caused a decrease of about 7 basis points in the
Tier I ratio in December 2007.
95
BANCO SANTANDER TOTTA, S.A.
The following table summarizes the composition of consolidated regulatory capital of the Bank, at the
end of 2007 and 2006 (amounts in million Euros):
2007 2006
At a consolidated level, Banco Santander Totta maintains a strong capital base, which can be shown by
the core Tier I ratio of 6.1% at December 2007. According to what was planned, the capital adequacy
ratio decreased from 12% in the end of 2006 to 10% in the end of 2007, reflecting the early redemption
of Pinto Totta International Finance’s preference shares (100 million Euros) and a strong growth of the
Bank’s activities.
These financial statements are a translation of financial statements originally issued in Portuguese. In
the event of discrepancies, the Portuguese language version prevails.
96
BANCO SANTANDER TOTTA, S.A.
APPENDIX I
SECURITIES PORTFOLIO AT DECEMBER 31, 2007
1/3
(Translation of financial statements originally issued in Portuguese - Note 48)
(Amounts expressed in thousands of Euros – tEuros)
FTPYME SANTANDER 2 D Espanha EUR 585 100,000 104 60,278 653 - - - - 60,931 - 60,931 18/04/2037 5.355
SANTANDER HIPOTECARIO 2 C Espanha EUR 323 100,000 101 32,427 333 - - - - 32,760 - 32,760 18/01/2049 4.955
SANTANDER EMPRESAS 2 C Espanha EUR 363 100,000 101 36,422 208 - - - - 36,630 - 36,630 23/06/2050 4.904
SANTANDER EMPRESAS 1 SERIE C Espanha EUR 961 100,000 101 96,208 744 - - - - 96,952 - 96,952 26/10/2038 4.888
SANTANDER CONSUMER SPAIN-SERIE B Espanha EUR 780 100,000 100 78,000 134 - - - - 78,134 - 78,134 20/09/2022 5.156
SANTANDER EMPRESAS 3-SERIE B NOTES Espanha EUR 397 100,000 101 39,685 426 - - - - 40,111 - 40,111 16/10/2049 5.012
SANTANDER EMPRESAS 3 - SERIE C NOTE Espanha EUR 1,173 100,000 101 117,256 1,268 - - - - 118,524 - 118,524 16/10/2049 5.052
SANTANDER HIPOTERCAIO 3 - CLASS B Espanha EUR 792 100,000 101 79,200 804 - - - - 80,004 - 80,004 18/01/2050 4.875
SANTANDER HIPOTECARIO 3 - CLASS C Espanha EUR 475 100,000 101 47,500 490 - - - - 47,990 - 47,990 18/01/2050 4.955
1,820,668 b 16,989 - 194 (29,784) (29,590) 1,808,067 (499) 1,807,568
Equity Instruments
Issued by residents
Valued at fair value
BPI Portugal EUR 5,111,532 1 5.36 16,035 - - 11,842 (480) 11,362 27,397 - 27,397 n.a. n.a.
AMADEU GAUDENCIO Portugal EUR 39,480 5 - 197 - - - - - 197 (197) - n.a. n.a.
BEIRA VOUGA-INV.IM.C.INDUST Portugal EUR 9 5 0 - - - - - - - - - n.a. n.a.
CAETANO -COM SA Portugal EUR 4 1 1 - - - - - - - - - n.a. n.a.
CASA HIPOLITO Portugal EUR 11,385 5 - 57 - - - - - 57 (57) - n.a. n.a.
COMP.FIA.TEC.FAFE Portugal EUR 48 5 - - - - - - - - - - n.a. n.a.
COMP.FIACAO TECIDOS ALCOBACA Portugal EUR 82,491 5 - 401 - - - - - 401 (401) - n.a. n.a.
COMP.PORT.COBRE Portugal EUR 121,950 2 - 9 - - - - - 9 (9) - n.a. n.a.
EMAPE-E.AGRO.P.BENAVENTE Portugal EUR 5,500 5 - 45 - - - - - 45 (45) - n.a. n.a.
EMPRESA CINEMATOGRAFICA S.PEDRO, Portugal EUR 50 5 - - - - - - - - - - n.a. n.a.
ERG Portugal EUR 16,845 5 - 137 - - - - - 137 (137) - n.a. n.a.
ESTAMPARIA IMPERIO Portugal EUR 45,578 5 - 603 - - - - - 603 (603) - n.a. n.a.
FABRICA PORTUGAL S.A. Portugal EUR 11,170 5 0 1 - - - - - 1 - 1 n.a. n.a.
FAFER-EMMP.URBANIST CONSTRUC S.A Portugal EUR 66,522 5 5 1,493 - - - - - 1,493 (1,145) 348 n.a. n.a.
FIANDEIRA MIRENSE Portugal EUR 2,100 5 - 1 - - - - - 1 (1) - n.a. n.a.
FITOR-COMP.PORT. DE TEXTEIS Portugal EUR 67,969 2 - 804 - - - - - 804 (804) - n.a. n.a.
FOMENTO-SOC.GEST. NOMINATIVAS Portugal EUR 146 1 - - - - - - - - - - n.a. n.a.
FOMENTO-SOC.GEST. PORTADOR Portugal EUR 70 1 - - - - - - - - - - n.a. n.a.
FUNDINIO-FUNDICAO INJEC. ALUMINI Portugal EUR 20,000 5 3 100 - - - - - 100 (42) 58 n.a. n.a.
FUNFRAP-FUNDICAO PORTUGUESA, S.A Portugal EUR 100,000 5 3 275 - - - - - 275 - 275 n.a. n.a.
GAP-SOC.GEST.PART.SOCIAIS Portugal EUR 9 5 4 - - - - - - - - - n.a. n.a.
GARVAL - SOC.DE GARANTIA MUTUA S Portugal EUR 50,000 1 1 50 - - - - - 50 - 50 n.a. n.a.
GEOFINANCA - NOMINATIVAS Portugal EUR 75,462 5 0 305 - - - - - 305 (305) - n.a. n.a.
GEOFINANCA - PORTADOR Portugal EUR 16,277 5 (0) 65 - - - - - 65 (65) - n.a. n.a.
GESTINSUA - AQUIS.ALIEN.PATRIM S Portugal EUR 166 5 - 10 - - - - - 10 (10) - n.a. n.a.
GUINOR-CIA DESENVOL.IMOB. SGPS, SA Portugal EUR 1,000 5 - 9,733 - - - - - 9,733 (9,733) - n.a. n.a.
HOTAL - SOC IND HOTELEIRA SUL PR Portugal EUR 2,700 5 - 22 - - - - - 22 (22) - n.a. n.a.
INCAL Portugal EUR 62 1 - - - - - - - - - - n.a. n.a.
JOTOCAR - IND.MOBIL. Portugal EUR 40 5 - - - - - - - - - - n.a. n.a.
JUPITER-INDUSTRIA HOTELEIRA Portugal EUR 5 5 5 - - - - - - - - - n.a. n.a.
MATUR Portugal EUR 17,098 5 - 205 - - - - - 205 (205) - n.a. n.a.
PORTO CAVALEIROS Portugal EUR 128,923 5 - 820 - - - - - 820 (820) - n.a. n.a.
POSSE SGPS, SA Portugal EUR 1,400 5 1 12,388 - - - - - 12,388 (12,387) 1 n.a. n.a.
PROCAPITAL-INV.IMOBILIARIOS NOMI Portugal EUR 198,333 5 - 1,680 - - - - - 1,680 (1,680) - n.a. n.a.
PROCAPITAL-INV.IMOBILIARIOS PORT Portugal EUR 494,126 5 - 4,319 - - - - - 4,319 (4,319) - n.a. n.a.
RETUR Portugal EUR 1 5 19 - - - - - - - - - n.a. n.a.
SALVADOR CAETANO -COM AUT Portugal EUR 4 5 1 - - - - - - - - - n.a. n.a.
SODERA - SOC.DES.REG ALENTEJO S. Portugal EUR 1,828,125 5 0 - - - - - - - - - n.a. n.a.
SPE-SOC.P.EMPREENDIMENTOS(NOM) Portugal EUR 1,398 1 - 6 - - - - - 6 (6) - n.a. n.a.
TEXTEIS ATMA, S.A. Portugal EUR 2 0 - 418 - - - - - 418 (418) - n.a. n.a.
TEXTEIS LOPES COSTA Portugal EUR 8,972 1 - 90 - - - - - 90 (90) - n.a. n.a.
TEXTIL LUIS CORREIA / 88 Portugal EUR 19,901 5 - 187 - - - - - 187 (187) - n.a. n.a.
UNIFA Portugal EUR 7 5 0 - - - - - - - - - n.a. n.a.
VILATEXTIL-SOC.IND.TEXTIL Portugal EUR 45,400 5 - 226 - - - - - 226 (226) - n.a. n.a.
F.I.M. EURO PARQUES Portugal EUR 50,000 5 - 249 - - - - - 249 (249) - n.a. n.a.
FIQ API CAPITAL II Portugal EUR 40 24,940 4,300 519 - - - - - 519 (347) 172 n.a. n.a.
FIQ PME CAPITAL Portugal EUR 58 24,940 13,241 1,342 - - - - - 1,342 (574) 768 n.a. n.a.
FIQ PME CAPITAL VALOR Portugal EUR 40 24,940 18,209 783 - - - - - 783 (55) 728 n.a. n.a.
FIQ PME INVESTIMENTOS Portugal EUR 50 24,940 19,704 1,247 - - - - - 1,247 (262) 985 n.a. n.a.
FIQ PME INVESTIMENTOS RETEX Portugal EUR 40 24,940 16,995 784 - - - - - 784 (104) 680 n.a. n.a.
B.S.V.MAQ.AUTOMATICAS, SA - CAUTELAS Portugal EUR 3,774 5 - 19 - - - - - 19 (19) - n.a. n.a.
ERG - SOC.CONST. - CAUTELAS Portugal EUR 2,052 5 - 17 - - - - - 17 (17) - n.a. n.a.
CENTRO EST.AD. DESENV. Portugal EUR 50 5 - - - - - - - - - - n.a. n.a.
COOP.CONS.S.MIGUEL Portugal EUR 100 1 - - - - - - - - - - n.a. n.a.
D.C.I. - DES.COM.INTERN. Portugal EUR 10,000 5 - 50 - - - - - 50 (50) - n.a. n.a.
INICA - SOC.MIN.INDUSTRIAIS Portugal EUR 100 5 - - - - - - - - - - n.a. n.a.
NOVA VOUGA - IND ALIMENTACAO SARL Portugal EUR 60,601 5 - 168 - - - - - 168 (168) - n.a. n.a.
BANCO SANTANDER TOTTA, S.A.
APPENDIX I
SECURITIES PORTFOLIO AT DECEMBER 31, 2007
3/3
(Translation of financial statements originally issued in Portuguese - Note 48)
(Amounts expressed in thousands of Euros – tEuros)
Bonds issued
Bonds
Totta Rendimento Certo EUR 54,986 - 54,986 - - - (4,114) 50,872 Variable 31-Jan-2005 31-Jan-2013 Euribor 1 year
BTA Euro Inflação EUR 4,000 - 4,000 - - - (65) 3,935 Variable 15-Mai-2003 15-Mai-2008 Eurostat index and Euribor 6 months
BTA Investimento Global 5 EUR 7,883 - 7,883 341 - 341 (128) 8,096 Variable 29-Ago-2003 3-Set-2008 Basket of 25 shares
BTA Super Estrelas EUR 70,500 - 70,500 4,409 - 4,409 (1,221) 73,688 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Franklin
Mutual Beacon Fund, Merril Lynch International Fund - Global
Fundamental Value Fund, Dexia Sustainable Accent Social, MFS
Funds - Global Equity Fund - Class A1 - and bond funds.
BTA Super Estrelas 2ªSerie EUR 38,000 - 38,000 2,376 - 2,376 (658) 39,718 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Franklin
Mutual Beacon Fund, Merril Lynch International Fund - Global
Fundamental Value Fund, Dexia Sustainable Accent Social, MFS
Funds - Global Equity Fund - Class A1 - and bond funds
BTA Super Estrelas II EUR 38,011 - 38,011 1,555 - 1,555 (840) 38,726 Variable 28-Nov-2003 28-Nov-2008 Basket of funds - Socgen International SICAV (equity fund), KBC
Bonds High Interest - Kap (bond fund) and CS Euroreal (real
estate fund)
BTA Super Estrelas III EUR 24,177 - 24,177 968 - 968 (574) 24,571 Variable 29-Dez-2003 29-Dez-2008 Basket of funds - Socgen International SICAV (equity fund), KBC
Bonds High Interest - Kap (bond fund) and CS Euroreal (real
estate fund)
BTA Euro Rentabilidade EUR 27,686 - 27,686 442 - 442 (103) 28,025 Variable 18-Jun-2004 18-Jun-2008 Euribor 1 Year
BTA Oportunidade Crescente 2004 EUR 3,670 - 3,670 79 - 79 (5) 3,744 Variable 29-Jun-2004 30-Jun-2008 Euribor 1 Year
BTA Rendimento Mundial EUR 22,524 - 22,524 142 - 142 (659) 22,007 Variable 29-Jul-2004 29-Jul-2009 Basket of 3 indexes - Dow Jones Euro Stoxx 50, Standard &
Poor´s 500, Nikkei 225
BTA Oportunidade Crescente II EUR 5,058 - 5,058 - - - (122) 4,936 Variable 2-Ago-2004 4-Ago-2008 Euribor 1 Year
BTA Investimento Prestígio EUR 4,685 - 4,685 50 - 50 (656) 4,079 Variable 17-Set-2004 17-Set-2012 Euribor 1 Year
BTA Soma Global EUR 21,042 - 21,042 138 - 138 149 21,329 Variable 2-Nov-2004 2-Nov-2009 Indexes: Dow Jones euro Stoxx 50 (Euro zone);Standard & Poor's
500(North American Market)
BTA Cabaz África (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - Accor SA, British Petroleum Plc, Lafarge SA,
Total SA, Vinci SA
BTA Cabaz América (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - Abbot Laboratories, Altria Group Inc., Bank of
America Corp., Motorola Inc., The Dow Chemical Company
BTA Cabaz Ásia (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - KDDI Corp., Kyocera Corp., Nissan Motor Co
Ltd, Sumitomo Corp., Suzuki Motor Corp.
BTA Cabaz Europa (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - Metro AG, Nestle SA (Reg), Novartis AG,
Telecom Itália SpA, Vivendi Universal SA
BTA Cabaz Oceânia (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - Australia nd New Zealand, Banking Group
Ltd, Exxon Mobil Corp., Mitsubishi Corp.,Mitsui & Co Ltd, Vodafon
Group Plc
CPP Taxa Fixa 2002 EUR 125,000 87,500 37,500 4,398 3,079 1,319 - 38,819 5.30% 2-Mai-2002 2-Mai-2009 Fixed rate
CPP Investimento Global 5 EUR 3,966 - 3,966 172 - 172 (64) 4,074 Variable 29-Ago-2003 3-Set-2008 Basket of 25 shares
CPP Super Estrelas EUR 35,000 - 35,000 2,189 - 2,189 (610) 36,579 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Franklin
Mutual Beacon Fund, Merril Lynch International Fund - Global
Fundamental Value Fund, Dexia Sustainable Accent Social, MFS
Funds - Global Equity Fund - Class A1 - and bond funds
CPP Super Estrelas 2ª Serie EUR 23,500 - 23,500 1,470 - 1,470 (409) 24,561 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Franklin
Mutual Beacon Fund, Merril Lynch International Fund - Global
Fundamental Value Fund, Dexia Sustainable Accent Social, MFS
Funds - Global Equity Fund - Class A1 - and bond funds
CPP Super Estrelas II EUR 22,013 - 22,013 900 - 900 (487) 22,426 Variable 28-Nov-2003 28-Nov-2008 Basket of equity funds - Socgen International SICAV, Franklin
Mutual Beacon Fund, Merril Lynch International Fund - Global
Fundamental Value Fund, Dexia Sustainable Accent Social, MFS
Funds - Global Equity Fund - Class A1 - and bond funds
CPP Super Estrelas III EUR 10,307 - 10,307 413 - 413 (245) 10,475 Variable 29-Dez-2003 29-Dez-2008 Basket of funds - Morgan Stanley SICAV Global Class I (equity
fund), PAM (L) Bond Universalis Cap (bond fund) and SEB
ImmoInvest (real estate fund)
CPP Euro Rentabilidade EUR 15,183 - 15,183 243 - 243 (57) 15,369 Variable 18-Jun-2004 18-Jun-2008 Euribor 1 Year
CPP Rendimento Mundial EUR 14,255 - 14,255 90 - 90 (417) 13,928 Variable 29-Jul-2004 29-Jul-2009 Basket of 3 indexes - Dow Jones Euro Stoxx 50, Standard &
Poor´s 500, Nikkei 225
APPENDIX II
2/4
Bonds issued
CPP Soma Global EUR 11,357 - 11,357 74 - 74 80 11,511 Variable 2-Nov-2004 2-Nov-2009 Indexes: Dow Jones euro Stoxx 50 (Euro Zone);Standard & Poor's
500(North American Market); Nikkei 225 (Japanese Market)
BSP 2008 PTE 14,964 - 14,964 302 - 302 (39) 15,227 Variable 9-Jul-1998 9-Jul-2008 Yield benchmark - 10 year TB bonds
BSP Euro Futuro Santander EUR 5,000 - 5,000 37 - 37 (187) 4,850 Variable 10-Fev-1999 10-Fev-2009 Euribor 12 months
Santander Rendimento Certo EUR 19,963 - 19,963 - - - (1,494) 18,469 5.30% 31-Jan-2005 31-Jan-2013 Euribor 1 year
BSP- Taxa Fixa 2002 EUR 125,000 87,500 37,500 4,398 3,079 1,319 - 38,819 Variable 2-Mai-2002 2-Mai-2009 Fixed rate
BSP Investimento Global 5 EUR 3,299 - 3,299 143 - 143 (53) 3,389 Variable 29-Ago-2003 3-Set-2008 Basket of shares AXA, Nestle, Pepsi Co, Sony Corporation an
Vodafone Group Plc
BSP Super Estrelas EUR 24,500 - 24,500 1,532 - 1,532 (429) 25,603 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Frankli
Mutual Beacon Fund, Merril Lynch International Fund - Globa
Fundamental Value Fund, Dexia Sustainable Accent Social, MF
Funds - Global Equity Fund - Class A1 - and bond funds.
BSP Super Estrelas 2ª Serie EUR 12,000 - 12,000 751 - 750 (210) 12,540 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Frankli
Mutual Beacon Fund, Merril Lynch International Fund - Globa
Fundamental Value Fund, Dexia Sustainable Accent Social, MF
Funds - Global Equity Fund - Class A1 - and bond funds.
BSP Super Estrelas II EUR 9,803 - 9,803 401 - 401 (221) 9,983 Variable 28-Nov-2003 28-Nov-2008 Basket of equity funds - Socgen International SICAV, Frankli
Mutual Beacon Fund, Merril Lynch International Fund - Globa
Fundamental Value Fund, Dexia Sustainable Accent Social, MF
Funds - Global Equity Fund - Class A1 - and bond funds.
BSP Super Estrelas III EUR 4,497 - 4,497 180 - 180 (107) 4,570 Variable 29-Dez-2003 29-Dez-2008 Basket of equity funds - Socgen International SICAV, Frankli
Mutual Beacon Fund, Merril Lynch International Fund - Globa
Fundamental Value Fund, Dexia Sustainable Accent Social, MF
Funds - Global Equity Fund - Class A1 - and bond funds.
BSP Euro Rentabilidade EUR 13,903 - 13,903 222 - 222 (52) 14,073 Variable 18-Jun-2004 18-Jun-2008 Euribor 1 year
BSP Rendimento Mundial EUR 13,375 - 13,375 84 - 84 (392) 13,067 Variable 29-Jul-2004 29-Jul-2009 Basket of 3 indexes - Dow Jones Euro Stoxx 50, Standard &
Poor´s 500, Nikkei 225
BSP Soma Global EUR 5,908 - 5,908 39 - 39 42 5,989 Variable 2-Nov-2004 2-Nov-2009 Indexes: Dow Jones euro Stoxx 50 (Euro Zone);Standard & Poor
500(North American Market);
Santander Totta EUR/USD (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate EUR/USD
Santander Totta GBP/USD (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate GBP/USD
Santander Totta AUD/USD (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate AUD/USD
Santander Totta USD/CHF (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate USD/CHF
Santander Totta USD/JPY (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate USD/JPY
Santander Estrategia Rendimento Mais EUR 13,332 - 13,332 177 - 177 (847) 12,662 Variable 2-Mai-2005 3-Mai-2010 Index: Deutsche Bank Forward Rate Bias EUR ("Índice FRB
EUR")
Totta Estrategia Valor Mais EUR 50,565 - 50,565 672 - 672 (1,931) 49,306 Variable 2-Mai-2005 4-Mai-2009 Dow Jones stoxx 50 return EUR Index
Relative Value Arbitrage Strategy (HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge Fund
Equity Hedge Strategy(HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge Fund
Event Driven Strategy(HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge Fund
Macro Strategy(HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge Fund
Distressed Securities Strategy (HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge Fund
Santander Rendimento Cresce 6% EUR 15,719 - 15,719 185 - 185 (1,528) 14,376 Variable 25-Ago-2005 25-Ago-2011 Dow Jones Stoxx Small 200 Index; Dow Jones Stoxx Small 50
Index
Totta Rendimento Cresce 6% EUR 57,053 - 57,053 670 - 670 (5,546) 52,177 Variable 25-Ago-2005 25-Ago-2011 Dow Jones Stoxx Small 200 Index; Dow Jones Stoxx Small 50
Index
Ouro & Prata (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket
Chumbo & Estanho (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket
Cobre & Niquel (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket
Gasolina & Gas Natural (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket
Oleo & Petroleo (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket
Mercado Obrigaccionista ( SUPER MIX INVEST FEI) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 Index iBoxx€ Corporates A 5-7 - total return, Bloomberg 'QX5T
<INDEX>'
Mercado Monetário ( SUPER MIX INVEST FEI) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 Index European Central Bank Eonia Capitalization 7 day
Mercado Accionista ( SUPER MIX INVEST FEI ) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 Dow Jones Euro Stoxx 50
Mercado Imobiliario ( SUPER MIX INVEST FEI) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 FTSE EPRA/NAREIT Europe Index
Mercado Hedge Funds ( SUPER MIX INVEST FEI ) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 HFRX Global Hedge Fund (USD)
Super Rendimento Mercados Emergentes EUR 91,771 - 91,771 888 - 888 (5,256) 87,403 Variable 23-Jan-2006 25-Jan-2010 Basket of Funds
Totta MultInvestimento EUR 84,510 - 84,510 3,243 - 3,243 (6,582) 81,171 Variable 28-Fev-2006 28-Fev-2011 Basket of Funds
Totta Asia Investimento EUR 59,243 - 59,243 1,726 - 1,726 (3,743) 57,226 Variable 3-Abr-2006 5-Abr-2010 Basket of shares
APPENDIX II
3/4
Bonds issued
Rendimento Premium 7,5% EUR 8,919 - 8,919 74 - 74 (1,043) 7,950 Variable 2-Mai-2006 2-Mai-2012 Indexes: ABN AMRO Alfa Index Europe and Dow Jones Euro
Stoxx 50 - Price Return
Banca(MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of shares
Media (MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of shares
Seguros (MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of shares
Utilities (MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of shares
Telecomunicações(MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of shares
Rendimento Premium 7,5% 2ª Serie EUR 9,019 - 9,019 71 - 71 (956) 8,134 Variable 1-Jun-2006 1-Jun-2012 Indexes: ABN AMRO Alfa Index Europe and Dow Jones Euro
Stoxx 50 - Price Return
Competição Mundial EUR 77,618 - 77,618 594 - 594 (5,238) 72,974 Variable 19-Jun-2006 21-Jun-2010 Basket of funds: UBS (Lux) Equity Fund – European Opportunity
B; JPMorgan Funds– Middle East Equities A (Acc); DWS Invest
TOP 50 Asia Fund; Dexia Equities L Australia; JPMorgan Funds –
America Equity A (Acc); MLIIF Latin America Fund – Class A Non-
distributing
Solar (ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Solarworld AG; Q-Cells AG; Energy Conversion
Devices Inc; Conergy AG; Evergreen Solar In
Eolica(ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Vestas Wind Systems AS; Gamesa Corporation
tecnologica SA; FPL Group Inc; Clipper Windpower Plc; Iberdrola
SA
Bio Energia(ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Abengoa SA; AES Corp; Pacifc Ethanol Inc;
Medis Technologies Ltd; Earth Biofuels In
Agua(ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Veolia Environnement SA; ITT Industries Inc;
Severn Trent, Plc; Suez SA; Aqua America Inc
Agro(ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Archer-Daniels Midland Co; Monsanto Co;
Syngenta AG; K+S AG; Agrium Inc
Diversificaçao Premium 7,50% EUR 7,487 - 7,487 53 - 53 (594) 6,946 Variable 31-Jul-2006 2-Ago-2010 Indexes: Dow Jones Euro Stoxx 50 - Price Return (Eur); iBoxx€
Sovereigns Eurozone Performance; Exchange Rate EUR/USD;
HFRX Global Hedge Fund (USD
Aqua Rendimento EUR 59,669 - 59,669 406 - 406 (5,567) 54,508 Variable 21-Ago-2006 22-Ago-2011 Basket of shares: Veolia Environnement SA; ITT Industries Inc;
Severn Trent, Plc; Suez SA; Aqua America Inc; Pentair Inc;
Geberit AG Reg; Pennon Group Plc; Aguas de Barcelona - Class
A; Kurita Water Industries Ltd
Rendimento Valor Global EUR 68,900 - 68,900 436 - 436 (7,081) 62,255 Variable 25-Set-2006 26-Set-2011 Basket of indexes: FTSEuroFirst 80 - price return (EUR); FTSE
Xinhua China 25 - price return; S&P Latin America 40; Stndard &
Poor's 500 Composite Price; Nikkei 225
Gas Natural Premium 10% EUR 9,189 - 9,189 58 - 58 (697) 8,550 Variable 25-Set-2006 27-Set-2010 Basket of shares: Eni Spa; Iberdrola SA; RWE AG; Gaz de
France; E.ON AG; ENEL Spa
Banca Premium EUR 10,565 - 10,565 28 - 28 (244) 10,349 Variable 2-Nov-2006 2-Fev-2009 Basket of shares: ABN Amro Holding NV; Unicredito Italiano SpA;
Deutsch Bank AG; ING Groep NV; BNP Paribas
Farmaceuticas I (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares: Akzo Nobel NV; Stada Arzneimittel A.G.; Roche
Holding A.G.; Abbott Laboratories; Sonofi-Aventi
Farmaceuticas II (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares: Swiss Life Holding; Takeda Pharmaceutical Co.
Ltd; Pfizer Inc.; Novartis AG; GlaxoSmithkline Plc
Tecnologias Médicas I (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares;: McKesson Corp.; T&D Holdings Inc; Boston
Scientific Corp.; GenzymeCorp.; Allergan Inc
Tecnologias Médicas II (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares: Amgen Inc.; Wellpoint Inc.; Merck KGaA;
Cardinal Health Inc.; Nobel Biocare Holdig A.G
Tecnologias Médicas III (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares: UnitedHealth Group Inc; Aetna Inc;
Johnson&Jonhson; CSL Limited; IMS Health Inc
Banca Premium 10% - 2ª Serie EUR 8,927 - 8,927 9 - 9 (216) 8,720 Variable 7-Dez-2006 9-Mar-2009 Basket of shares: ABN Amro Holding NV; Unicredito Italiano SpA;
Deutsch Bank AG; ING Groep NV; BNP Paribas
OPV Europa e E.U.A (OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 Europe - price return; IPOX - 30 U.S. - price
return; Dow Jones EuroStoxx 50 - price return - EUR ;
Standard&Poors 500 Composite price
OPV Europa e Asia Pacifico(OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 Europe - price return; IPOX - 30 Asia Pacific -
price return; Dow Jones EuroStoxx 50 - price return - EUR ; Nikkei
225
OPV Europa(OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 Europe - price return; Dow Jones EuroStoxx 5
- price return - EUR
OPV E.U.A(OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 U.S. - price return; Standard&Poors 500
Composite price
OPV Asia Pacifico(OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 Asia Pacific - price return; Nikkei 225
Rendimento China 8% EUR 100,447 - 100,447 472 - 472 (7,828) 93,091 Variable 22-Jan-2007 24-Jan-2011 Index FTSE Xinhua China 25
Rendimento China Premium 10% EUR 15,000 - 15,000 66 - 66 (1,285) 13,781 Variable 12-Fev-2007 14-Fev-2011 Index FTSE Xinhua China 25
Infra-estruturas Aeronautica (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 shares
Infra-estruturas Transportes (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 shares
Infra-estruturas Telecomunicações (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 shares
APPENDIX II
4/4
Bonds issued
Infra-estruturas Energia (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 shares
Infra-estruturas Utilities (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 shares
Investimento Premium 8,25% EUR 15,020 - 15,020 - - - (1,369) 13,651 Variable 26-Mar-2007 28-Mar-2011 Basket of 4 shares
Best Index EUR 2,391 - 2,391 - - - (196) 2,195 Variable 30-Mar-2007 30-Mar-2010 Basket of indexes
Euro Premium 7,00% EUR 12,940 - 12,940 - - - (1,177) 11,763 Variable 30-Abr-2007 2-Mai-2011 Basket of 10 shares and index
Euro Banca 7,00% EUR 85,000 - 85,000 279 - 279 (6,812) 78,467 Variable 30-Abr-2007 30-Mai-2011 Basket of 5 shares and index
Europa 100% EUR 6,975 - 6,975 - - - (229) 6,746 Variable 2-Mai-2007 3-Nov-2008 Index Dow Jones Euro Stoxx 50
Europa 100% - 2ª serie EUR 4,250 - 4,250 - - - (140) 4,110 Variable 2-Mai-2007 3-Nov-2008 Index Dow Jones Euro Stoxx 50
Dividendos ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 2 indexes
Japão ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 1 index
Converg. Europeia ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 2 indexes
Taxas de Camio ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 Currency rates
Taxas de Juro ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 Interest swap rate usd
Valor Premium EUR 11,665 - 11,665 29 - 29 (1,076) 10,618 Variable 25-Jun-2007 27-Jun-2011 Index FtseUROFIRST 80
Euro Dolar Premium EUR 10,846 - 10,846 - - - (1,288) 9,558 Variable 6-Ago-2007 8-Ago-2011 Euribor 3M and Currency rate EUR/USD
Super Rendimento Campeão EUR 58,907 - 58,907 - - - (6,673) 52,234 Variable 23-Ago-2007 23-Nov-2012 Basket of 5 shares
Premium Bens de Luxo EUR 11,778 - 11,778 273 - 273 (1,058) 10,993 Variable 17-Set-2007 19-Dez-2011 Basket of shares
Rendimento Valor Absoluto EUR 79,604 - 79,604 - - - (4,241) 75,363 Variable 27-Set-2007 28-Set-2009 Currency rate EUR/USD and 2 indexes
Exposição Ásia 2010 EUR 3,375 - 3,375 - - - (417) 2,958 Variable 29-Out-2007 29-Out-2010 Basket of 5 indexes
Infra estrutura Global 2010 EUR 2,900 - 2,900 - - - (322) 2,578 Variable 27-Dez-2007 27-Dez-2010 Index S&P Global infrastructure
Extendible Liquidity Securities EXEL's (Sucursal de Londres) USD 1,018,953 - 1,018,953 (2,053) - (2,053) - 1,016,900 Variable 22-Jun-2006 18-Jul-2011 USD "LIBOR"
-
Extendible Floating Rate Notes USD 1,188,778 - 1,188,778 3,700 - 3,700 - 1,192,478 Variable 8/Fev/2007 7/Mar/2012 LIBOR 1 Month
4,975,595 175,000 4,800,595 49,694 6,158 43,535 (153,377) 4,690,753
Bonds - Securitized
Hipototta 1 - Classe A - Notes EUR 154,865 - 154,865 22 - 22 - 154,887 Variable 25-Jul-2003 25-Nov-2034 Euribor 3 months + 0,27% (until early redemption, August 2012)
Euribor 3 months + 0,54% (after early redemption
Hipototta 2 - Classe A - Notes EUR 1,414,878 - 1,414,878 195 - 195 - 1,415,073 Variable 23-Dez-2003 30-Set-2036 Euribor 3 months + 0,22% (until early redemption, Decembe
2012); Euribor 3 months + 0,44% (after early redemption
Hipototta 3 - Classe A - Notes EUR 1,827,158 - 1,827,158 249 - 249 - 1,827,407 Variable 13-Dez-2004 30-Dez-2047 Euribor 3 months + 0,13% (until early redemption, Decembe
2013); Euribor 3 months + 0,26% (after early redemption
Hipototta 4 - Classe A - Notes EUR 1,970,010 - 1,970,010 268 - 268 - 1,970,278 Variable 9-Dez-2005 30-Set-2048 Euribor 3 months + 0,12% (until early redemption, Decembe
2014); Euribor 3 months + 0,24% (after early redemption
Hipototta 5 - Classe A1 - Notes EUR 39,907 - 39,907 170 - 170 - 40,077 Variable 22-Mar-2007 28-Fev-2060 Euribor 3 months + 0,05% (until early redemption February 2014);
Euribor 3 months + 0,10% (after early redemption
Hipototta 5 - Classe A2 - Notes EUR 1,693,000 - 1,693,000 7,333 - 7,333 - 1,700,333 Variable 22-Mar-2007 28-Fev-2060 Euribor 3 months + 0,13% (until early redemption February 2014);
Euribor 3 months + 0,26% (after early redemption
7,099,818 - 7,099,818 8,237 - 8,237 - 7,108,055
12,075,413 175,000 11,900,413 57,931 6,158 51,772 (153,377) 11,798,808
OTHER
EMTN's EUR 2,045,000 - 2,045,000 10,754 - 10,754 - 2,055,754
TOTAL DEBT SECURITIES ISSUED 14,121,019 175,000 13,946,019 68,687 6,158 62,528 (153,377) 13,855,170
APPENDIX III
EMTN EUR 300,000 - 300,000 947 - 947 - - - 300,947 3.94% December 9, 2015 December 9, 2010
Obrigações Perpétuas Subordinadas Totta 2000 EUR 284,315 270,447 13,868 503 479 24 - - - 13,892 6.46% Perpetual June 22, 2010
Obrigações Perpétuas subordinadas BSP 2001 EUR 172,833 145,110 27,723 945 314 631 - - - 28,354 6.34% Perpetual February 23, 2011
Obrigações Perpétuas Subordinadas CPP 2001 EUR 54,359 50,085 4,274 97 - 97 - - - 4,371 6.34% Perpetual February 23, 2011
Obrigações Perpétuas Subordinadas "Top's" - Totta EUR 29,928 1,063 28,865 126 - 126 - - - 28,991 4.71% Perpetual December 4, 2007
Obrigações Perpétuas Subordinadas "Top's" - CPP EUR 29,928 996 28,932 127 - 127 - - - 29,059 4.71% Perpetual December 4, 2007
Obrigações de Caixa Subordinadas CPP Garantido 6 anos EUR 15,050 - 15,050 10 - 10 (353) - (353) 14,707 1.00% December 5, 2008 -