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IMPORTANT NOTICE
IMPORTANT: You must read the following disclaimer before continuing. The following
disclaimer applies to the attached document (the "Document") and you are advised to read this
disclaimer page carefully before reading, accessing or making any other use of the Document.
In accessing the Document, you acknowledge and accept the following disclaimer, including
any modifications to it from time to time, each time you access the Document.
INFORMATION ONLY: The Document is for information purposes only. The Document,
which comprises the summary document relating to Banco Santander Central Hispano, S.A. (the
"Company"), has been prepared pursuant to and in compliance with Article 4(2)(h) of Directive
2003/71/EC, solely in order to effect the admission of all of the Company's ordinary shares to
the Official List of the UK Listing Authority and to the London Stock Exchange by way of a
secondary listing ("Admission"). The Document is made available on this site for information
only.
NO OFFER OF SHARES: The Document has been produced for the purpose of the
Admission only. The Company is not offering for sale or subscription any new shares in
connection with the Admission. The Document does not constitute an offer to sell, or the
solicitation of an offer to subscribe for or buy, shares in any jurisdiction.
RESTRICTIONS: The distribution of the Document may be restricted by law. No action
has been or will be taken by the Company to permit the possession or distribution of the
Document in any jurisdiction where action for that purpose may be required. Accordingly,
neither the Document nor any advertisement or any other material relating to it may be
distributed or published in any jurisdiction except under circumstances that will result in
compliance with any applicable laws and regulations. Persons who access the Document or, in
whose possession it comes, should inform themselves about and observe any such restrictions.
Any failure to comply with these restrictions may constitute a violation of the securities law of
any such jurisdictions.

A copy of this document which comprises a summary document relating to Banco Santander Central Hispano, S.A.
(the ‘‘Company’’) has been prepared by the Company pursuant to Article 4(2)(h) of Directive 2003/71/EC (the
‘‘Prospectus Directive’’) and has been submitted to and reviewed by the United Kingdom Financial Services
Authority (the ‘‘FSA’’) in accordance with the Prospectus Directive.
Application has been made to the Financial Services Authority acting in its capacity as the competent authority for
the purposes of Part VI of the Financial Services and Markets Act (‘‘FSMA’’) (the ‘‘UKLA’’) and to the London Stock
Exchange plc (the ‘‘London Stock Exchange’’) respectively for admission of all of the Company’s ordinary shares
(the ‘‘Shares’’): (i) to the Official List of the UKLA (the ‘‘Official List’’); and (ii) to the London Stock Exchange’s
market for listed securities (together, ‘‘Admission’’) by way of a secondary listing. It is expected that Admission will
become effective and dealings in the Shares will commence on the London Stock Exchange at 8.00 a.m. (London
time) on 1 July 2005.
The Shares have a primary listing on the market of the Bolsas de Valores in Spain. The Shares are also listed on
the Milan, Lisbon and Buenos Aires Stock Exchanges and on the New York Stock Exchange Inc. (through ADRs
representing the Shares).
Prospective investors should read the entire document and, in particular, the Risk Factors set out on
pages 11 to 15, when considering an investment in the Company.
BANCO SANTANDER CENTRAL HISPANO, S.A.
(Incorporated and registered in the Kingdom of Spain under
the Companies Law (Ley de Sociedades Anónimas))
Introduction of 6,254,296,579 Shares of 10.50 each and admission to listing on
the Official List and to trading on the London Stock Exchange
Notice in connection with the Admission
The Company is not offering any new Shares nor any other securities in connection with the Admission.
This document has been prepared pursuant to and in compliance with Article 4(2)(h) of the Prospectus
Directive, the FSMA and the Listing Rules solely in order to effect the Admission. This document does
not constitute an offer to sell, or the solicitation of an offer to subscribe for or buy, Shares nor any other
securities in any jurisdiction. The Shares will not be generally made available or marketed to the public
in the United Kingdom of Great Britain and Northern Ireland (the ‘‘UK’’ or ‘‘United Kingdom’’) or in any
other jurisdiction in connection with the Admission.
The distribution of this document may be restricted by law. No action has been or will be taken by the
Company to permit the possession or distribution of this document in any jurisdiction where action for
that purpose may be required. Accordingly, neither this document nor any advertisement or any other
material relating to it may be distributed or published in any jurisdiction except under circumstances that
will result in compliance with any applicable laws and regulations. Persons into whose possession this
document comes should inform themselves about and observe any such restrictions. Any failure to
comply with these restrictions may constitute a violation of the securities law of any such jurisdictions.
Investors should rely only on the information in this document. No person has been authorised to give
any information or make any representations other than those contained in this document and, if given
or made, such information or representations must not be relied on as having been authorised by the
Company. Any delivery of this document shall not, under any circumstances, create any implication that
there has been no change in the affairs of the Company or its subsidiaries since, or that the information
contained herein is correct at any time subsequent to, the date of this document.
The contents of this document are not to be construed as legal, financial, business or tax advice. Each
prospective investor should consult his, her or its own legal adviser, financial adviser or tax adviser for
legal, financial or tax advice.
1 July 2005

Forward-looking Statements
Some of the statements, and in particular all statements in relation to the Profit Forecast (as defined
below), under ‘‘Key Information’’, ‘‘Risk Factors’’, ‘‘Part I: Information on the Group’’ and elsewhere in
this document include forward-looking statements which reflect the Group’s or, as appropriate, the
Directors’ current views with respect to financial performance, business strategy, plans and objectives
of management for future operations (including development plans relating to the Group’s products and
services). These statements include forward-looking statements both with respect to the Group and the
sectors and industries in which the Group operates. Statements which include the words ‘‘expects’’,
‘‘intends’’, ‘‘plans’’, ‘‘believes’’, ‘‘projects’’, ‘‘anticipates’’, ‘‘will’’, ‘‘targets’’, ‘‘aims’’, ‘‘may’’, ‘‘would’’,
‘‘could’’, ‘‘continue’’ and similar statements of a future or forward-looking nature identify forward-looking
statements for purposes of the United States federal securities laws or otherwise.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there
are or will be important factors that could cause the Group’s actual results to differ materially from those
indicated in these statements. These factors include but are not limited to those described in the part of
this document entitled ‘‘Risk Factors’’, which should be read in conjunction with the other cautionary
statements that are included in this document. Any forward-looking statements in this document reflect
the Group’s current views with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the Group’s operations, results of operations, growth strategy
and liquidity.
These forward-looking statements speak only as at the date of this document. Subject to any
obligations under the Listing Rules, the Company undertakes no obligation to publicly update or review
any forward-looking statement, whether as a result of new information, future developments or
otherwise. All subsequent written and oral forward-looking statements attributable to the Group or
individuals acting on behalf of the Group are expressly qualified in their entirety by this paragraph.
Prospective investors should specifically consider the factors identified in this document which could
cause actual results to differ before making an investment decision.
Enforceability of Civil Liabilities
The Company is a sociedad anónima incorporated under the laws of the Kingdom of Spain. The
Directors and officers of the Company reside outside of the United States and the District of Columbia
(‘‘US’’ or ‘‘United States’’). In addition, a substantial portion of the assets of the Directors and the
Group are or may be located outside the United States. It may not be possible, therefore, for investors to
effect service of process within the United States upon the Company or its Directors or officers, or to
enforce in United States courts judgments against them obtained in those courts based upon the civil
liability provisions of the federal securities laws of the United States. Furthermore, there is substantial
doubt as to the enforceability in the Kingdom of Spain, whether by original actions or by seeking to
enforce a judgment of a United States court, of claims based on the federal securities laws of the United
States.
Overseas Distribution
The distribution of this document in jurisdictions other than the United Kingdom may be restricted by law
and therefore persons into whose possession this document comes should inform themselves about
and observe any such restrictions. Any failure to comply with any such restrictions may constitute a
violation of the securities laws of any such jurisdiction.
No Incorporation of Website Information
This document will be published on the Group’s website at www.gruposantander.com. However, the
contents of the Group’s website do not form part of this document.
Presentation of Financial and Other Information
Financial Data
The audited financial information for the three years ended 31 December 2004 in relation to the
Company in this document has been prepared in accordance with the Bank of Spain’s Circular 4/1991,
as amended (‘‘Spanish GAAP’’) and the unaudited financial information for the three months ended
31 March 2005 has been prepared in accordance with the Bank of Spain’s Circular 4/2004 which
reflects the introduction of International Financial Reporting Standards (‘‘IFRS’’) (See Note 1 to the
Company’s consolidated financial statements). Certain financial information in relation to Abbey
National plc (‘‘Abbey’’) in this document has been prepared in accordance with United Kingdom
Generally Accepted Accounting Principles (‘‘UK GAAP’’). Spanish GAAP differs in certain significant
respects from UK GAAP and IFRS. The Company has restated the income statements and balance
sheets of Abbey for the three years ended 31 December 2004 which have been prepared under UK
GAAP to conform to the Company’s basis of presentation under Spanish GAAP. This information has
not been audited. See ‘‘Part 3: Financial Information on Abbey — Unaudited restatement of Abbey
2

financial information to conform to Spanish GAAP’’. In making an investment decision, prospective
investors must rely on their own examination of the Group, the rights attaching to the Shares and the
financial information in this document. Prospective investors should consult their own professional
advisers for an understanding of the differences between Spanish GAAP, UK GAAP and IFRS.
Certain figures contained in this document, including financial information, have been subject to
rounding adjustments. Accordingly, in certain instances, the sum of the numbers in a column or a row in
tables contained in this document may not conform exactly to the total figure given for that column or
row.
Market, Economic and Industry Data
Market, economic and industry data used throughout this document is derived from various industry and
other independent sources. Where market, economic and industry data is derived from industry and
other independent sources, the publications in which they are contained generally state that the
information they contain has been obtained from sources believed to be reliable, but that the accuracy
and completeness of such information is not guaranteed.
Currency
Unless otherwise indicated, all references in this document to ‘‘pounds sterling’’, ‘‘£’’, ‘‘pence’’ or ‘‘p’’ are
to the lawful currency of the United Kingdom, all references to ‘‘$’’, ‘‘U.S.$’’ or ‘‘U.S. dollars’’ are to the
lawful currency of the United States and all references to ‘‘0’’, ‘‘euro’’ or ‘‘Euros’’ are to the currency
introduced at the start of the third stage of European economic and monetary union pursuant to the
Treaty establishing the European Community, as amended.
In respect of the financial information for the years ended 31 December 2004 and 2003, the following
exchange rates have been used:
Exchange rates: 1 1/currency parity
Average (income statement) Period-end (balance sheet)
2004 2003 2002 2004 2003 2002
U.S.$ 1.2410 1.1293 0.9420 1.3621 1.2630 1.0487
Pounds sterling 0.6780 0.6917 0.6285 0.7050 0.7048 0.6505
Brazilian real 3.6564 3.4593 2.6358 3.6177 3.6646 3.7124
New Mexican peso 14.0120 12.1770 9.0595 15.2279 14.1772 10.9972
Chilean peso 756.6815 778.6707 646.9462 759.7110 748.3910 755.3269
Venezuelan bolivar 2,336.1757 1,814.0590 1,026.3904 2,611.9630 2,018.2857 1,464.7722
Argentine peso 3.6564 3.3305 2.8335 4.0488 3.7259 3.5394
Grupo Santander
For consolidation purposes in relation to the Company’s financial information for the three years ended
31 December 2004, references to the Group means the Company and those subsidiaries whose
business activity is directly related to that of the Company and which are directly or indirectly 50% or
more owned by the Company or, if less than 50% owned, are effectively controlled by the Company and
constitute, together with the Company, a single decision-making unit, and such subsidiaries were fully
consolidated in the Company’s consolidated financial statements. In addition, Group includes
investments in companies controlled by the Company and not consolidated due to their business
activity, which is not directly related to that of the Company (see Note 11 of the Consolidated Financial
Statements for the year ended 31 December 2004 on page 67 of this document, the ‘‘2004
Consolidated Financial Statements’’). The Group has investments in companies which have a lasting
relationship with the Group, and are intended to contribute to the Group’s business activities, and in
which the Group’s ownership interests are generally equal to or exceed 20% (or 3% if the relevant
company is listed), and over which the Group exercises significant influence, as evidenced by its
representation in the relevant company’s governing body, significant transactions between the other
Group companies and the investee, or the exchange of management personnel, among others
(‘‘associated companies’’ — see Note 10 of the 2004 Consolidated Financial Statements). For more
information, see Note 1 of the 2004 Consolidated Financial Statements.
Thus, in the consolidated financial statements of groups of credit entities in 2004 only financial entities
and companies that conducted banking activity or were mere investment companies are consolidated
by the global integration method. In addition, investments in insurance companies and other companies
whose activity had nothing to do with financial activity, such as industrial, commercial or real estate
firms are valued by the equity method.
IFRS has broadened the perimeter of consolidation to include all companies that are part of the Group
where management control is exercised. This new concept is applied in the preparation of the unaudited
consolidated financial information in relation to the Group for the three months ended 31 March 2005
(the ‘‘2005 First Quarter Results’’) (See ‘‘Annex: Financial Report for First Quarter 2005’’).
3

As a result of the 2005 First Quarter Results being prepared in accordance with IFRS, certain changes
were required to, among other things, the accounting principles previously applied by the Company, the
way the relevant financial statements are presented and the segmentation of the Group’s business
areas for financial reporting purposes. The Group’s financial information for the three months ended
31 March 2004 has been restated in accordance with IFRS in the 2005 First Quarter Results and in
order to provide like-for-like comparisons. The notes to the 2005 First Quarter Results explain the main
concepts affected by the changes arising from the application of IFRS (See: ‘‘Annex: Financial Report
for First Quarter 2005’’ and, in particular, pages 10 and 11 of that Report).
The accounts of Abbey were consolidated into the Group on 31 December 2004 in respect of the
consolidated balance sheet for the Group as at that date but not in relation to the Group’s income
statement for year to 31 December 2004. With the exception of the consolidated balance sheet for the
Group as at 31 December 2004, the comments about the Group’s performance and comparisons with
previous financial years take into account the relevant figures excluding Abbey.
The unaudited consolidated financial information for the Group for the three months to 31 March 2005
(See ‘‘Annex: Financial Report for First Quarter 2005’’), which was drawn upon the basis of IFRS,
includes, for the first time, Abbey’s financial results.
4

CONTENTS
Page
Directors, Secretary to the Board, Registered Office And Advisers 6
Key Information 7
Risk Factors 11
Part 1: Information On The Group 16
Part 2: Financial Information On The Company 33
Part 3: Financial Information On Abbey 113
Part 4: Regulatory Overview 204
Part 5: Additional Information 215
Index Of Defined Terms 254
Annex: Financial Report for First Quarter 2005 A-1
5

DIRECTORS, SECRETARY TO THE BOARD, REGISTERED OFFICE AND ADVISERS
Directors Emilio Botín-Sanz de Sautuola y García de los Ríos
Fernando de Asúa Álvarez
Chairman
First Vice-Chairman
Alfredo Sáenz Abad Second Vice-Chairman
& CEO
Matías Rodríguez Inciarte Third Vice-Chairman
Manuel Soto Serrano Fourth Vice-Chairman
Assicurazioni Generali S.p.A Director
Antonio Basagoiti García-Tuñón Director
Ana Patricia Botín-Sanz de Sautuola y O’Shea Director
Emilio Botín-Sanz de Sautuola y O’Shea Director
Javier Botín-Sanz de Sautuola y O’Shea Director
Lord Burns Director
Guillermo de la Dehesa Romero Director
Rodrigo Echenique Gordillo Director
Antonio Escámez Torres Director
Francisco Luzón López Director
Abel Matutes Juan Director
Mutua Madrileña Automovilista, s.s.p.f. Director
Luis Angel Rojo Duque Director
Luis Alberto Salazar-Simpson Bos
together, the ‘‘Board’’ or the ‘‘Directors’’, each of
Ciudad Grupo Santander
Avda de Cantabria s/n
28660 Boadilla del Monte (Madrid)
Spain
(being the Group’s principal place of business)
Director
Secretary to the
Board
Ignacio Benjumea Cabeza de Vaca
Registered Office Paseo de Pereda, 9-12
39004 Santander
Spain
Principal Place of Ciudad Grupo Santander
Business Avda de Cantabria s/n
28660 Boadilla del Monte (Madrid)
Spain
Legal Advisers to Clifford Chance LLP
the Company as 10 Upper Bank Street
to English law London
E14 5JJ
United Kingdom
Auditors to the Deloitte S.L.
Company Plaza Pablo Ruiz Picasso 1, Torre Picasso
28020 Madrid
Spain
Paying Agent Banco Santander Central Hispano, S.A.
Santander House
100 Ludgate Hill
London
EC4M 7NJ
United Kingdom
6

KEY INFORMATION
The following summary of key information must be read as an introduction to this document. Although
the Company is not making any offer to sell, or the solicitation of an offer to subscribe for or buy the
Shares or any other securities of the Company, any assessment of the Shares or the Company should
be based on a consideration of this document as a whole. No civil liability attaches to the Company in
any Member State of the European Economic Area, which has implemented the Prospectus Directive
solely on the basis of this summary of key information unless it is misleading, inaccurate or inconsistent
when read together with the other parts of this document. Where a claim relating to the information
contained in this document is brought before a court in a Member State of the European Economic
Area, the plaintiff may, under the national legislation of the Member State where the claim is brought, be
required to bear the costs of translating the document before the legal proceedings are initiated.
Prospective investors should not rely exclusively on the information contained in this section. An
investment in the Shares involves risks, including those relating to or arising from the regulatory
regimes to which the Group is subject, competition within the banking and financial services industry,
dependence on key personnel, and fluctuations in the market price of the Shares. Further details of
these and other risk factors which investors should take into account are set out under the heading
‘‘Risk Factors’’ below.
1. BUSINESS OVERVIEW
Founded in 1857, the Group is a leading banking and financial services group operating through a
network of offices both in Spain and internationally. At 31 December 2004, the Group was one of the ten
largest banking groups in the world by market capitalisation and the largest banking group in the euro
zone with a stock market capitalisation of 057.1 billion, stockholders’ equity of 032.1 billion and total
assets of 0575.4 billion. The Group had an additional 0140.0 billion in mutual funds, pension funds and
other assets under management at that date. For the financial year ended 31 December 2004, the
Group reported net attributable income of 03,135.6 million.
As at 31 December 2004, the Group had 126,488 employees worldwide, comprising 33,353 employees
and 4,384 branch offices in Spain and 93,135 employees (of whom Abbey employed 24,361) and 5,589
branches outside Spain (out of which Abbey had 730). The Group’s principal operations are in Spain,
the United Kingdom, Portugal, Germany, Italy and Latin America.
Following IFRS coming into force in Spain on 1 January 2005, the Group’s financial reporting
obligations have been modified. As a result the Company has changed the way in which its financial
statements are presented and restructured its business areas for financial reporting purposes since the
date of the last audited and consolidated financial accounts on 31 December 2004. ‘‘Part 1: Information
on the Group’’ sets out the Group’s business as at 31 December 2004. The changes arising from the
application of IFRS and the current structure financial reporting of the Group’s business areas are set
out in the ‘‘Annex: Financial Report for First Quarter 2005’’ and in particular in pages A-1 to A-49 of this
document. Abbey is excluded from the individual business areas described in Part 1 of this document
for presentational purposes and is described separately in paragraph 1.6 of Part 1 of this document.
The 2005 First Quarter Results incorporate Abbey’s financial results for the first time. See ‘‘Annex:
Financial Report for First Quarter 2005.’’
2. SUMMARY FINANCIAL INFORMATION
Key consolidated financial data for the Group for the years ended 31 December 2004, 2003 and 2002 is
set out below:
2004
2004 without
Abbey 2003 2002
Balance sheet (Million euros)
Total assets 575,397.9 379,250.8 351,790.5 324,208.1
Loans and credits (net) 335,207.7 198,510.7 172,504.0 162,973.0
Total customer funds 538,041.7 365,604.5 323,900.8 304,893.0
On-balance sheet 398,047.0 240,150.6 214,997.9 211,555.1
Off-balance sheet 139,994.7 125,454.0 108,903.0 93,337.9
Shareholders’ equity 32,057.6 32,057.6 18,363.7 17,594.2
Total managed funds
Solvency and NPL ratios (%)
715,392.5 504,704.8 460,693.5 417,546.0
BIS ratio 13.01 — 12.43 12.64
Tier I 7.16 — 8.26 8.01
NPL ratio 1.05 1.27 1.55 1.89
NPL coverage 184.61 207.96 165.19 139.94
7

KEY INFORMATION
2004
2004 without
Abbey 2003 2002
Income statement (Million euros)
Net interest income 8,635.7 — 7,958.3 9,358.7
Basic revenue 13,245.0 — 12,128.9 13,647.9
Gross operating income 14,197.7 — 13,127.7 14,004.2
Net operating income 6,545.2 — 5,720.7 5,565.8
Net attributable income (cash-basis) 3,600.7 — 3,133.3 2,902.9
Net attributable income
Profitability and efficiency (%)
3,135.6 — 2,610.8 2,247.2
Efficiency ratio 47.44 — 49.34 52.28
ROA 1.02 — 0.95 0.81
ROE (cash-basis) 18.35 — 17.37 16.04
ROE
Market capitalisation and the Share
15.98 — 14.48 12.42
Shares outstanding (millions at period end) 6,254 — 4,768 4,768
Share price (euro) 9.13 — 9.39 6.54
Market capitalisation (million euros) 57,101.7 — 44,775.3 31,185.4
EPS (cash-basis) 0.7243 — 0.6571 0.6139
EPS (euro) 0.6307 — 0.5475 0.4753
P/E ratio (market capitalisation/net attributable income per share) 14.48 — 17.15 13.76
Dividends per share (euro)
Other data (at period end)
0.3332 — 0.3029 0.2885
Shareholders 2,685,317 — 1,075,733 1,092,193
Number of employees 126,488 — 103,038 104,178
Spain 33,353 — 34,956 35,887
Abroad 93,135 — 68,082 68,291
Out of which: Abbey 24,361 — — —
Number of branches 9,973 — 9,199 9,281
Spain 4,384 — 4,369 4,314
Abroad 5,589 — 4,830 4,967
Out of which: Abbey 730 —
Explanatory Notes:
‘‘BIS ratio’’ means total regulatory capital (net of deductions) divided by risk-weighted assets. See ‘‘Part 4: Regulatory
Overview — 2.3 Capital Adequacy Requirements — The Basel Accord’’ below;
‘‘NPL’’ means non-performing loans;
‘‘Net interest income’’ means interest income plus income from equity securities less interest expense;
‘‘Basic revenue’’ means net interest income plus collected less fees paid;
‘‘Gross operating income’’ means basic revenue plus gains (losses) on financial transactions;
‘‘Net operating income’’ means gross operating income plus other operating income less general administrative expense, less
depreciation, amortisation and writedown of property and equipment and intangible assets and less other operating expenses;
‘‘Efficiency ratio’’ means general administrative expenses divided by gross operating income;
‘‘ROA’’ means return on assets being consolidated net income for the year divided by average total assets;
‘‘ROE’’ means return on equity being net attributable income divided by average shareholders’ equity;
‘‘ROE (cash-basis)’’ means net attributable income (cash-basis) divided by average shareholders’ equity, before ordinary
goodwill amortisation;
‘‘EPS’’ means earnings per share; and
‘‘P/E’’ means price earning.
Key unaudited consolidated financial data for the Group for the three months to 31 March 2005 is set
out below:
Jan-Mar 05 Jan-Mar 04
with Abbey without Abbey
Balance Sheet (Million euros)
Total assets 698,581 417,231 363,420
Customer loans 370,061 209,628 183,460
Customer funds under management 607,828 392,671 357,594
On-balance sheet 465,253 265,055 240,197
Off-balance sheet 142,574 127,616 117,397
Shareholders’ equity 33,338 18,718
Total managed funds 841,155 544,847 480,817
8

KEY INFORMATION
Jan-Mar 05 Jan-Mar 04
with Abbey without Abbey
Capital and NPL ratios (%)
BIS ratio 12.97 12.29
Tier I 7.24 8.08
NPL ratio 1.07 1.22 1.33
NPL coverage 162.22 202.18 168.87
Income statement (Million euros)*
Net interest income (w/o dividends) 2,321.4 1,928.8 1,798.5
Commercial revenue 4,096.2 3,327.6 3,101.5
Gross operating income 4,537.7 3,669.4 3,419.5
Net operating income 2,053.7 1,784.0 1,618.6
Net consolidated income 1,303.9 1,150.5 965.8
Attributable income to the Group 1,185.1 1,031.7 855.6
Profitability and efficiency (%)
ROA 0.76 1.06
ROE 15.06 20.18
Efficiency ratio 50.94 46.96 47.77
(general administrative expenses/gross operating income)
Market capitalisation and shares
Shares outstanding (millions at period-end) 6,254 4,768
Share price (euros) 9.39 8.85
Market capitalisation (Million euros) 58,728 42,200
EPS (euro) 0.1900 0.1801
Diluted EPS (euro) 0.1898 0.1795
P/E ratio (share price/Annualized EPS) 12.35 12.29
Other data
Shareholders (number) 2,578,094 1,094,525
Number of employees 125,933 102,683
Continental Europe 43,387 43,836
United Kingdom (Abbey) 23,450 0
Latin America 57,625 57,475
Financial management and equity stakes 1,471 1,372
Number of branches 9,935 9,151
Continental Europe 5,241 5,112
United Kingdom (Abbey) 718 0
Latin America 3,976 4,039
(*) This includes the results of the sale in January 2005 of the 2.57% stake in The Royal Bank of Scotland Group plc. A provision
in an amount equal to the gain arising on this sale was constituted and included in the same line of the income statement to cover
possible contingencies.
Note: This information has not been audited. It was prepared in accordance with International Financial Reporting Standards
(IFRS).
3. DIVIDENDS AND DIVIDEND POLICY
The Company normally pays a yearly dividend in quarterly instalments. Charged to earnings for the
financial year to 31 December 2004, on each of 1 August 2004, 1 November 2004 and 1 February 2005,
the Company paid an interim dividend of euro 0.083 per Share, and on 1 May 2005 paid an interim
dividend of euro 0.0842 per Share. The total dividend paid on the earnings for the financial year to
31 December 2004 amounts to euro 0.3332 per share, which is 10% higher than the total dividend paid
in 2003.
On 20 June 2005, the Company announced that as at 1 August 2005 it will pay the first dividend on
account of the earnings for the financial year to 31 December 2005 for a gross amount of 0.09296 euros
per Share. Such dividend is 12% higher than the one paid in August 2004 (first interim dividend on
account of the earnings for 2004).
4. CURRENT TRADING, PROSPECTS AND STRATEGY
In 2004, the Group combined development of banking activity in its target markets and businesses with
completion of its acquisition of Abbey together with the implementation of the first steps of its strategy
for the UK’s second largest provider of mortgages.
Net attributable income for the Group amounted to 03,135.6 million in 2004, 20.1% more than in 2003.
On a cash-basis (before ordinary amortisation of goodwill) net attributable income was 03,600.7 million.
Earnings per share were 00.6307, 15.2% more than in 2003. On a cash-basis, the figure was 00.7243
per share. ROE was 16.0%, 1.5 points more than in 2003. On a cash-basis, ROE was 18.3%.
9

KEY INFORMATION
Net interest income rose 8.5% and net fees and commissions 10.5%. Other positive developments
which spurred growth in earnings were cost control, the rise in net income from companies accounted
for by the equity method, diminished needs for specific credit-loss provisions, the reduced cost of
preferred shares and lower ordinary amortisation of goodwill. On the other hand, generic and statistical
provisions increased 42% and minority interests rose (sale in the first quarter of 2003 of 24.9% of
Santander Serfin to Bank of America).
The year-on-year impact of exchange rates was around 4 percentage points negative on profit and loss
and 1.5 percentage points on the balance sheet.
Lastly, 0831 million of extraordinary capital gains were allocated in the fourth quarter of 2004 to various
extraordinary allowances: 0527 million (net of tax) to early retirements in Spain, 0154 million to early
amortisation of goodwill mainly in Venezuela and Colombia and 0155 million to provision the costs
related to the Abbey acquisition.
All operating business areas registered high levels of activity in 2004, reflected in higher net operating
income.
The financial sector is facing new challenges stemming from greater competition, the narrowing of
spreads, increased globalisation and the need to respond to the increasingly complex needs of
customers. The Group is already prepared to meet these challenges. The Directors are confident that
the Group has a business model of proven success in European and Latin American countries, and this
model is also being applied to Abbey. The pillars of this model are focus on retail banking,
diversification, efficiency, prudence in risks and balance sheet strength. The Group has a flexible style
of management, which enables it to take advantage of business opportunities and to adapt easily to the
countries in which it operates and to changes and new challenges.
The key focus for 2005 is on the integration of Abbey into the Group and the finalisation of the
implementation of the Partenón information technology system (‘‘Partenón’’). At Abbey, the
management team will implement a series of measures to enhance Abbey’s competitive position within
the UK market through cost reduction, recurrent revenue stability, sales growth, improved service at
branches, simplifying product offering and improving the assignment of responsibilities, the follow-up
and control of management and issues relating to risk and compliance. Branches across the Group will
focus on training and implementing the new information technology platform.
Commentary on the financial and trading performance of the Group for the three months to 31 March
2005 is set out in ‘‘Annex: Financial Report for First Quarter 2005’’. Since 31 March 2005, the Group’s
levels of business activity and growth have continued to develop as expected.
5. PROFIT FORECAST
Consistent with the statement made by the Chairman of the Company at the general shareholders
meeting of the Company held on 18 June 2004, the Directors forecast that, on the basis set out in
paragraph 15 of Part 5: ‘‘Additional Information — Profit Forecast’’ of this document and in the absence
of unforeseen circumstances, the net attributable income for the Group for the financial year to
31 December 2005 will be at least 05 billion (the ‘‘Profit Forecast’’).
The basis of preparation and principal assumptions underlying the Profit Forecast are set out in
paragraph 15 of Part 5: ‘‘Additional Information — Profit Forecast’’ of this document.
10

RISK FACTORS
Prospective investors should carefully consider the following risk factors in addition to the other
information contained in this document. If any of the risks described below were to occur, this could
result in the Group’s results of operations or financial condition being adversely affected. If this were to
lead to a decline in the trading price of the Shares, prospective investors may lose all or part of any
investment. The risks and uncertainties described below are not the only ones faced by the Group.
Additional risks and uncertainties not presently known or currently deemed immaterial may also have a
material adverse effect on the Group’s business, results of operations or financial condition.
Risks Relating to the Group’s Operations
Since the Group’s loan portfolio is concentrated in Spain, the United Kingdom and Latin
America, adverse changes affecting the Spanish, United Kingdom or certain Latin American
economies could adversely affect the Company’s financial condition.
The Group’s loan portfolio is mainly concentrated in Spain, the United Kingdom and Latin America. At
31 December 2004, Continental Europe accounted for approximately 49% of the Group’s total loans
portfolio, the UK 40% and Latin America 10%. Therefore, adverse changes affecting the economies of
Continental Europe, and in particular Spain, the United Kingdom or Latin America where the Group
operates would likely have a significant adverse impact on the Group’s loan portfolio and, as a result, on
the Group’s financial condition, cash flows and results of operations. See ‘‘Part 1: Information on the
Company — 1. Business Overview.’’ for further details.
Some of the Group’s business is cyclical and the Group’s income may decrease when demand
for certain products or services is in a down cycle.
The level of income the Group derives from certain of its products and services depends on the strength
of the economies in the regions where it operates and certain market trends prevailing in those areas.
While the Company has increased its diversification of its business with the acquisition of Abbey,
negative cycles may adversely affect the Group’s income in the future.
Different disclosures and accounting principles between Spanish GAAP and UK GAAP may
provide different or less information about the Company than prospective investors may expect.
The Company has prepared its consolidated audited financial statements for the year ended
31 December 2004, 2003 and 2002 in accordance with Spanish GAAP. Spanish GAAP differs in
significant respects from UK GAAP. Prospective investors may not be familiar with the presentation of
financial information under Spanish GAAP and should consult with their own professional advisers for
an understanding of the differences between Spanish GAAP and UK GAAP.
Different disclosures and accounting principles between IFRS and both Spanish GAAP and
UK GAAP may provide different or less information about the Company (and Abbey) than
prospective investors may expect.
Under Regulation (EC) No 1606/2002, for each financial year starting after 1 January 2005, the
Company is required to prepare its consolidated accounts in accordance with international accounting
standards adopted by the International Accounting Standards Board (as amended from time to time)
commonly known as International Financial Reporting Standards (IFRS). The Group’s consolidated
financial statements will no longer be prepared under Spanish GAAP and prospective investors may not
be familiar with the presentation of the Group’s results (including those of Abbey) under the new regime.
The unaudited 2005 First Quarter Results have been prepared under IFRS. Prospective investors
should consult with their own professional advisers for an understanding of the differences between
Spanish GAAP, UK GAAP and IFRS. See Note 1 of the Consolidated Financial Statements on page 36
of this document.
Since the Group’s principal source of funds is short term deposits, a sudden shortage of these
funds could increase the Group’s cost of funding.
Historically, the Group’s principal sources of funds have been customer deposits (savings, demand and
time deposits). At 31 December 2004, 20.8% of these customer deposits were time deposits in amounts
greater than U.S.$100,000. Time deposits represented 59.5% and 51.7% of total customer deposits at
the end of 2002 and 2003, respectively. At the end of 2004, including time deposits held by Abbey, time
deposits represented 49.4% of the Group’s total customer deposits. Large-denomination time deposits
may be a less stable source of deposits than savings and demand deposits. In addition, since the Group
relies heavily on short-term deposits for its funding, there can be no assurance that the Group will be
able to maintain its levels of funding without incurring higher funding costs or liquidating certain assets.
11

RISK FACTORS
A substantial percentage of the Group’s customer base is particularly sensitive to adverse
developments in the economy.
Medium- and small-size companies and middle and lower-middle income individuals can be more
adversely affected by adverse developments in the economy than large companies and high income
individuals. As a result, the Group’s substantial lending to these segments of its existing and targeted
customer base causes the Group to assume a relatively higher degree of risk than if it focused more
heavily on the other, more economically stable groups.
Risks concerning borrower credit quality and general economic conditions are inherent in the
Group’s business.
Risks arising from changes in credit quality and the recoverability of loans and amounts due from
counterparties are inherent in a wide range of the Group’s businesses. Adverse changes in the credit
quality of the Group’s borrowers and counterparties or a general deterioration in Spanish, UK, Latin
American or global economic conditions, or arising from systemic risks in the financial systems, could
reduce the recoverability and value of the Group’s assets and require an increase in the Group’s level of
provisions for bad and doubtful debts. Deterioration in the economies in which the Company or its
subsidiaries operate could reduce the profit margins for the Group’s banking and financial services
businesses. See ‘‘Part 1: Information on the Group — 5. Risk management’’ for a discussion of these
items.
Increased exposure to real estate makes the Group more vulnerable to developments in this
market.
The decrease in interest rates globally has caused an increase in the demand for mortgage loans in the
last few years. This has had repercussions in housing prices, which have also risen significantly. As real
estate mortgages are one of the Group’s main assets, comprising 50.9% of the Group’s loan portfolio at
31 December 2004 (including Abbey), the Group is currently highly exposed to developments in real
estate markets. A strong increase in interest rates might have a significant negative impact in mortgage
payment delinquency rates. An increase in such delinquency rates could have an adverse effect on the
Group’s business, financial condition and results of operations.
The Group may generate lower revenues from brokerage and other commission- and fee-based
businesses.
Market downturns are likely to lead to declines in the volume of transactions that the Group executes for
its customers and, therefore, to declines in the Group’s non-interest revenues. In addition, because the
fees that the Group charges for managing its clients’ portfolios are in many cases based on the value or
performance of those portfolios, a market downturn that reduces the value of the Group’s clients’
portfolios or increases the amount of withdrawals would reduce the revenues the Group receives from
its asset management and private banking and custody businesses.
Even with the absence of a market downturn, below-market performance by the Group’s mutual funds
may result in increased withdrawals and reduced inflows, which would reduce the revenue the Group
receives from its asset management business.
Market risks associated with fluctuations in bond and equity prices and other market factors are
inherent in the Group’s business. Protracted market declines can reduce liquidity in the markets,
making it harder to sell assets and leading to material losses.
The performance of financial markets may cause changes in the value of the Group’s investment and
trading portfolios. In some of the Group’s business, protracted adverse market movements, particularly
asset price decline, can reduce the level of activity in the market or reduce market liquidity. These
developments can lead to material losses if the Group cannot close out deteriorating positions in a
timely way. This may especially be the case for assets of the Group for which there are not very liquid
markets to begin with. Assets that are not traded on stock exchanges or other public trading markets,
such as derivative contracts between banks, may have values that the Group calculates using models
other than publicly quoted prices. Monitoring the deterioration of prices of assets like these is difficult
and could lead to losses that the Group did not anticipate.
Despite the Group’s risk management policies, procedures and methods, the Group may
nonetheless be exposed to unidentified or unanticipated risks.
The Group has devoted significant resources to developing its risk management policies, procedures
and assessment methods and intends to continue to do so in the future. Nonetheless, the Group’s risk
management techniques and strategies may not be fully effective in mitigating the Group’s risk
exposure in all economic market environments or against all types of risk, including risks that the Group
fails to identify or anticipate. Some of the Group’s qualitative tools and metrics for managing risk are
based upon the Group’s use of observed historical market behaviour. The Group applies statistical and
other tools to these observations to arrive at quantifications of its risk exposures. These tools and
metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from
12

RISK FACTORS
factors the Group did not anticipate or correctly evaluate in its statistical models. This would limit the
Group’s ability to manage its risks. The Group’s losses thus could be significantly greater than the
historical measures indicate. In addition, the Group’s quantified modelling does not take all risks into
account. The Group’s more qualitative approach to managing those risks could prove insufficient,
exposing it to material unanticipated losses. If existing or potential customers believe the Group’s risk
management is inadequate, they could take their business elsewhere. This could harm the Group’s
reputation as well as its revenues and profits.
Increased competition in the countries where the Group operates may adversely affect the
Group’s growth prospects and operations.
Most of the financial systems in which the Group operates are highly competitive. Recent financial
sector reforms in the markets in which the Group operates have increased competition among both
local and foreign financial institutions, and the Company believes that this trend will continue. In
particular, price competition in Europe and Latin America has increased recently. The Group’s success
in the European and Latin American markets will depend on its ability to remain competitive with other
financial institutions. In addition, there has been a trend towards consolidation in the banking industry,
which has created larger and stronger banks with which the Company must now compete. However,
there can be no assurance that this increased competition will not adversely affect the Group’s growth
prospects, and therefore its operations. The Group also faces competition from non-bank competitors,
such as brokerage companies, department stores (for some credit products), leasing companies and
factoring companies, mutual funds and pension funds management companies and insurance
companies.
Volatility in interest rates may negatively affect the Group’s net interest income and increase its
non-performing loan portfolio.
Changes in market interest rates could affect the interest rates charged on the interest-earning assets
differently than the interest rates paid on interest-bearing liabilities. This difference could result in an
increase in interest expense relative to interest income leading to a reduction in the Group’s net interest
income. Income from treasury operations is particularly vulnerable to interest rate volatility. Since the
majority of the Group’s loan portfolio reprices in less than one year, rising interest rates may also bring
about an increasing non-performing loan portfolio. Interest rates are highly sensitive to many factors
beyond the Company’s control, including deregulation of the financial sector, monetary policies,
domestic and international economic and political conditions and other factors.
Foreign exchange rate fluctuations may negatively affect the Group’s earnings and the value of
the Group’s assets and shares.
Fluctuations in the exchange rate between the euro and pounds sterling will affect the pounds sterling
equivalent of the price of the Company’s securities on the stock exchanges in which the Shares are
traded. These fluctuations will also affect the conversion to pounds sterling of cash dividends paid in
euros on the Shares.
In the ordinary course of the Group’s business, it has a percentage of its assets and liabilities
denominated in currencies other than the euro. Fluctuations in the value of the euro against other
currencies may adversely affect the Group’s profitability. For example, the appreciation of the euro
against some Latin American currencies and the U.S. dollar will depress earnings from the Group’s
Latin American operations, and the appreciation of the euro against pounds sterling will depress
earnings from the Group’s UK operations. Additionally, while most of the governments of the countries
in which the Group operates have not imposed prohibitions on the repatriation of dividends, capital
investment or other distributions, no assurance can be given that these governments will not institute
restrictive exchange control policies in the future. Moreover, fluctuations among the currencies in which
the Shares trade could reduce the trading price of the Shares in the relevant jurisdictions.
Changes in the regulatory framework in the jurisdictions where the Group operates could
adversely affect its business.
A number of banking regulations designed to maintain the safety and soundness of banks and limit their
exposure to risk apply in the different jurisdictions in which the Company and its subsidiaries operate.
Changes in regulations, which are beyond the Company’s control, may have a material effect on the
Group’s business and operations. As some of the banking laws and regulations have been recently
adopted, the manner in which those laws and related regulations are applied to the operations of
financial institutions is still evolving. Moreover, no assurance can be given generally that laws or
regulations will be adopted, enforced or interpreted in a manner that will not have an adverse affect on
the Group’s business.
13

RISK FACTORS
Operational risks are inherent in the Group’s business.
The Group’s businesses depend on the ability to process a large number of transactions efficiently and
accurately. Losses can result from inadequate or failed internal control processes, people and systems,
or from external events that interrupt normal business operations.
If the Group is not able to adequately implement the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 and is the subject of sanctions or investigation, the Group’s results
of operations and the Group’s ability to provide timely and reliable financial information may be
adversely affected.
Changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002 and related regulations implemented by the Securities and
Exchange Commission (‘‘SEC’’) are creating uncertainty for public companies, increasing legal and
financial compliance costs and making some activities more time consuming. The Group will be
evaluating its internal control over financial reporting to allow management to report on, and its
registered independent public accounting firm to attest to, the Group’s internal controls over financial
reporting. The Group will be performing the system and process evaluation and testing (and any
necessary remediation) required to comply with the management certification and auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, which the Group are required to comply with in
its annual report which the Group will file in 2006 for its 2005 fiscal year. As a result, the Group expects
to incur substantial additional expenses and diversion of management’s time. Whilst the Group
anticipates being able to fully implement the requirements relating to internal controls and all other
aspects of Section 404 by its deadline, the Group cannot be certain as to the timing of completion of its
evaluation, testing and any remediation actions or the impact of the same on the Group’s operations
since there is presently no precedent available by which to measure compliance adequacy. If the Group
is not able to implement the requirements of Section 404 in a timely manner or with adequate
compliance, the Group might be subject to sanctions or investigation by regulatory authorities such as
the SEC. Any such action could adversely affect the Group’s financial results or investors’ confidence in
the Company and could cause the price of its securities to fall. In addition, if the Group fails to develop
and maintain effective controls and procedures, it may be unable to provide the financial information in a
timely and reliable manner.
Risks Relating to Latin America
The growth of the Company’s Latin American subsidiaries and their asset quality and
profitability may be adversely affected by volatile macroeconomic conditions.
The economy of the 10 Latin American countries in which the Group operates has experienced
significant volatility in recent decades, characterised, in some cases, by slow or regressive growth,
declining investment and hyperinflation. This volatility has resulted in fluctuations in the levels of
deposits and in the relative economic strength of various segments of the economies to which the
Group lends. Latin America banking activities (including Retail Banking, Asset Management and Private
Banking and Global Wholesale Banking) accounted for 01,284.8 million of the Group’s net attributable
income for the year ended 31 December 2004 (a decrease of 2.6% from 01,318.5 million for the year
ended 31 December 2003). (This figure does not include goodwill amortisation of 0342.5 million and
01,979.8 million and financing costs of 0517.0 and 0542.3 million taking into account the euro long-term
interest rate, net of taxes at 31 December 2004 and 2003, respectively). Negative and fluctuating
economic conditions, such as a changing interest rate environment, impact the Group’s profitability by
causing lending margins to decrease and leading to decreased demand for higher margin products and
services.
Additionally, the recent economic and political crisis in Argentina which led to the conversion by the
Argentine government of all U.S. dollar-denominated debt which was subject to Argentine laws and
jurisdiction into Argentine peso-denominated debt had a negative impact on the Group’s Argentine
banking subsidiaries. The negative effects on the Group’s operations in Argentina included losses
generated by this forced conversion of U.S. dollar-denominated debt to Argentine pesos at below
market rates, lower lending and deposit-making activities, increased restrictions on the transferability of
funds and a larger number of defaults by Argentine customers. Although Argentina’s economy
continued to recover in 2004, and the results of operations of the Group’s Argentine banking
subsidiaries have also improved, it is possible that, despite its recent economic growth, Argentina could
return to a period of economic and political instability. If this were to occur, the financial condition and
results of operations of the Group’s Argentine subsidiaries could be materially and adversely affected.
Significant competition in some Latin American countries could intensify price competition and
limit the Group’s ability to increase its share in those markets.
Because some of the Latin American countries in which the Group operates (i) only raise limited
regulatory barriers to market entry, (ii) generally do not make any differentiation between locally or
foreign-owned banks, (iii) have permitted consolidation of their banks, and (iv) do not restrict capital
14

RISK FACTORS
movements, the Group faces significant competition in Latin America from both domestic and foreign
commercial and investment banks.
Latin American economies can be directly and negatively affected by adverse developments in
other countries.
Financial and securities markets in Latin American countries in which the Group operates are, to
varying degrees, influenced by economic and market conditions in other countries in Latin America and
beyond. Negative developments in the economy or securities markets in one country, particularly in an
emerging market, may have a negative impact on other emerging market economies. These
developments may adversely affect the business, financial condition and operating results of the
Company’s subsidiaries in Latin America.
Risks Relating to Acquisitions and Strategy
The Group’s recent acquisition of Abbey, and any future acquisitions may not be successful and
may be disruptive to the Group’s business.
The Group has in the past acquired controlling interests in various companies and, more recently, the
Group completed its acquisition of Abbey. Although the Company expects to realise strategic,
operational and financial benefits as a result of the Abbey acquisition, the Company cannot predict
whether and to what extent such benefits will be achieved. In particular, the success of the Abbey
acquisition will depend, in part, on the Company’s ability to realise the anticipated cost savings from
assuming control of Abbey’s business. In addition, the Company will face certain challenges, as it works
to integrate Abbey’s operations into the Group’s businesses. Moreover, the Abbey acquisition increased
the Group’s total assets by 51.7% as at 31 December 2004, thereby presenting the Group with
significant challenges as it works to manage the increases in scale resulting from the acquisition. The
failure of the Group to successfully integrate and operate Abbey, and to realise the anticipated benefits
of the acquisition, could adversely affect the operating, performing and financial results of the Group.
Additionally, the Company may consider other strategic acquisitions and partnerships from time to time.
There can be no assurances that the Company will be successful in its plans regarding the operation of
these or other acquisitions and strategic partnerships.
The Company can give prospective investors no assurance that its acquisition and partnership activities
will perform in accordance with its expectations. Despite its due diligence efforts, the Company must
necessarily base any assessment of potential acquisitions and partnerships on inexact and incomplete
information and assumptions with respect to operations, profitability and other matters that may prove to
be incorrect. The Company can give no assurance that its expectations with regard to integration and
synergies will materialise.
15

PART 1:
INFORMATION ON THE GROUP
The following information should be read in conjunction with the more detailed information appearing
elsewhere in this document, including the financial and other information in Part 2: Financial Information
on the Company, Part 3: Financial Information on Abbey and Annex: Financial Report for First Quarter
2005. The financial information included in this Part 1: Information on the Group has been extracted
without material adjustment from either (i) the Company’s audited consolidated financial statements for
the years ended 31 December 2002, 2003 and 2004 or (ii) the Group’s accounting records which form
the basis of the Company’s audited consolidated financial statements.
Following the introduction of IFRS in Spain on 1 January 2005, the Group’s financial reporting
obligations have been modified and, in order to comply with IFRS, the Company has restructured its
business areas for financial reporting purposes. The changes arising from the application of IFRS and
the current financial reporting structure of the Group’s business areas are set out in the ‘‘Annex:
Financial Report for First Quarter 2005’’ and in particular in pages A-1 to A-49 of this document.
The business overview and financial information set out below in relation to the Group is based on the
information and business regulation presented in the Group’s 2004 Annual Report.
1. BUSINESS OVERVIEW
Founded in 1857, the Group is a leading banking and financial services group operating through a
network of offices both in Spain and internationally. At 31 December 2004, the Group was one of the ten
largest banking groups in the world by market capitalisation and the largest banking group in the
eurozone with a stock market capitalisation of 057.1 billion, stockholders’ equity of 032.1 billion and total
assets of 0575.4 billion. The Group had an additional 0140.0 billion in mutual funds, pension funds and
other assets under management at that date. For the financial year ended 31 December 2004, the
Group reported net attributable income of 03,135.6 million.
As at 31 December 2004, the Group had 126,488 employees worldwide, comprising 33,353 employees
and 4,384 branch offices in Spain and 93,135 employees (of whom Abbey employed 24,361) and 5,589
branches outside Spain (out of which Abbey had 730). In 2004, the Group transferred its headquarters
to Ciudad Grupo Santander in Boadilla del Monte on the outskirts of Madrid. Approximately 6,500
employees work at this purpose built site which comprises offices, training facilities and other resources
for staff.
The Group’s principal operations are in Spain, the United Kingdom, Portugal, Germany, Italy and Latin
America. It is the leading financial franchise in Latin America by on-balance sheet business volume and
by net attributable income, with majority shareholdings in banks in Argentina, Bolivia, Brazil, Chile,
Colombia, Mexico, Puerto Rico, Uruguay and Venezuela. The Group also has significant operations in
New York and Paris, together with financial investments in San Paolo-IMI and Attijariwafa Bank
(formerly known as Banque Commerciale du Maroc).
On 12 November 2004, following the competition approval from the European Commission, the
approval by the UK and Spanish regulators and the shareholders of both banks, and the sanction by the
UK court of the scheme of arrangement, the Company issued 1,485,893,636 new Shares, amounting to
012,541 million, to complete the acquisition of Abbey. Abbey is a significant financial services provider
in the UK, being the second largest residential mortgage lender and having been identified as the third
largest savings brand in the UK. It operates across the full range of personal financial services serving
approximately 18 million customers.
Abbey’s accounts were consolidated into the Company’s on 31 December 2004, with no impact on the
Group’s income statement, but the Company’s consolidated balance sheet figures include Abbey. The
descriptions and comments below about the Group’s performance, in 2004, and comparisons with the
year 2003 take into account the figures excluding Abbey. Further information on Abbey can be found
separately at paragraph 1.6 below and also in ‘‘Part 3: Financial Information on Abbey’’.
The Group’s business is divided into four principal business areas (excluding Abbey which is described
separately in paragraph 1.6 below) (further details of which are given in paragraphs 1.1 to 1.4 below):
(i) European Retail Banking, which covers the banking activities of the different networks and
specialised units in Europe, principally with individual clients and small and medium sized
companies (‘‘SMEs’’), as well as private and public institutions. There are four units within
this area: Santander Central Hispano Retail Banking, Banesto, Portugal and Santander
Consumer (Abbey being described separately below);
(ii) Retail Banking Latin America, which covers the banking activities in Latin America
conducted through the Group’s subsidiary banks and finance companies;
16

PART 1: INFORMATION ON THE GROUP
(iii) Asset Management (including pension and mutual funds and bancassurance) and Private
Banking (including activities carried out with clients via specialised units in Spain and
abroad); and
(iv) Global Wholesale Banking, which covers the Group’s corporate banking activities in
Spain, the rest of Europe and New York, treasury activities in Madrid and New York, as
well as investment banking throughout the world.
In addition, the Financial Management and Equity Stakes area is responsible for centralised activities
relating to strategic or temporary equity stakes in industrial and financial companies, financial
management related to the structural exchange rate position, the Group’s asset and liability portfolio
and management of liquidity and capital through securities issuances and securitisation. As the Group’s
holding entity, it manages all capital and reserves and allocations of capital and liquidity to the different
business areas. It also incorporates the accelerated amortisation of goodwill and country-risk but not
the costs related to the Group’s central services. This area also includes, on a temporary basis,
businesses that are being wound down or closed in order not to distort the rest of the Group’s
businesses. In exceptional circumstances, it may include the launch of an activity of a strategic nature.
1.1 European Retail Banking
(a) Overview
This area covers the banking activities of the different networks and specialised units in Europe, chiefly
with individual clients and SMEs, as well as private and public institutions. The area is made up of four
units: Santander Central Hispano Retail Banking, Banesto, Santander Consumer and Portugal further
details of which are set out below. Details of Abbey’s business are set out separately at paragraph 1.6.
European Retail Banking is the largest business area of the Group. It accounted for 55% of the net
attributable income of the Group’s four principal business areas (excluding Abbey) in 2004.
The area had 5,180 branches and 40,703 employees (direct and assigned) at the end of 2004.
Compared to the position at the end of 2003, this represented a net increase of 1.77% in the number of
branches and a net reduction of 2.26% in the number of employees.
(b) Recent Trading Performance
European Retail Banking performed well in 2004. Net attributable income rose 20.4%, supported by a
17.7% increase in net operating income as a result of higher revenues than in 2003 and almost flat
costs.
This performance reflected stronger activity, particularly lending, which grew 19% (excluding
securitisations), and gains in efficiency (3.3 points) and productivity (the business volume per employee
rose 18% and net income per employee increased 23%).
Net interest income was 04,952.0 million, 6.9% more than in 2003, because of the net effect of the rise
in business volumes and the squeezing of spreads caused by lower interest rates in some countries.
Net fees and commissions increased 10.9% to 02,347.0 million. All sub-areas grew, notably Santander
Central Hispano Retail Banking (by 13.0%), Santander Consumer (by 12.6%) and Portugal (by 12.1%).
The higher net gains on financial transactions reflect the greater distribution of products to clients.
Gross operating income rose 9.4%, which combined with costs that remained almost flat and a good
performance by all units, improved the efficiency ratio by 3.3 points to 42.5% from 45.8% in 2003.
Net operating income of 03,918.7 million was 17.7% higher than in 2003. Net provisions for creditlosses
increased 16.2%, due to more generic and statistical provisions as a result of greater lending.
Specific provisions fell because of the excellent credit risk quality.
Net attributable income amounted to 02,120.3 million, 20.4% more than in 2003. ROE remained
unchanged at 19.5%.
Of note in business activity was the 15% growth in lending (by 19% excluding securitisations) and 12%
in managed customer funds.
In lending, Banesto Retail and Santander Central Hispano Retail Banking registered growth of 31% and
19%, respectively (excluding the impact of securitisation). Growth in mortgages and in loans to
companies was over 23% in both cases. Lending by Santander Consumer rose 30% and fell in Portugal
due to securitisation (with growth of 4% eliminating this effect). The focus on attracting funds resulted in
an increase in mutual funds (by 11%) and pension plans (by 10%), as well as in deposits which
grew 5%.
17

PART 1: INFORMATION ON THE GROUP
Santander Central Hispano Retail Banking
(a) Overview
This activity is carried out through the branch network of the Company, supported by an increasing
number of cash dispensers, savings books updaters, telephone banking services, electronic and
internet banking. Industry magazines Global Finance and Euromoney have recognised Santander
Central Hispano Retail Banking as the best bank in Spain in 2004.
At the end of 2004, Santander Central Hispano Retail Banking had 2,571 branches and a total of 19,371
(direct and assigned) employees. Compared to 2003, there was a net increase of 0.90% in branches
and a net reduction of 6.63% in employees.
(b) Recent Trading Performance
Santander Central Hispano Retail Banking generated net attributable income of 01,041.4 million in
2004, 12.4% higher than in 2003.
This performance was due to the greater business activity, reflected in a 19% rise in lending and 8% in
customer funds. Business growth was also solid and sustained during the whole year as well as
diversified.
Mortgages grew 23%, loans and credits 13%, leasing and renting 30% and commercial bills 9%. In
funds, deposits increased 5%, mutual funds 11% and pension plans 10%. The same growth occurred in
customer segments, with lending to companies and institutions up 21% and 17% to individual
customers and private banking, while funds rose 15% and 6%, respectively.
Management of spreads in lending and funds depended to a large extent on the movements in market
interest rates, flat during the year and downward in some periods. In this scenario it was necessary to
offset the fall in spreads with greater business activity and commissions.
Net interest income was 02,005.5 million, 2.9% lower than in 2003 (due to the movements in interest
rates).
The decline in net interest income was offset by financial and service commissions (increased by 12.6%
and 13% respectively) and by net gains on financial transactions from customers (by 188.8%).
Growth came from the strong activity in already consolidated businesses. Mutual funds grew by 15.0%,
pension plans by 10.2%, cards by 10.3% and mortgages by 6%. Growth also came from the more
innovative and higher potential businesses.
The recurrence ratio (non-financial commissions/costs) reached 95.0% and more than 100% including
net gains on financial transactions of customers.
Net interest income, commissions and net gains on financial transactions produced gross operating
income of 03,639.3 million, 6.1% more than in 2003.
Costs remained almost flat (at plus 0.4%) and therefore they were lower in real terms. Due to a
balanced management of revenues and costs, net operating income was 12.2% higher at
01,859.6 million and the efficiency ratio was 43.0%, 2.4 points better than in 2003.
Credit loss provisions rose 14.5%, due to the growth in lending. Specific provisions declined 29% and
generic and statistical ones increased 25%.
The credit risk quality continued to be excellent, underscored by a ratio of non-performing loans of
0.55% and coverage of 399%.
Banesto
(a) Overview
Banesto is a commercial banking group operating in Spain. At the end of 2004, Banesto had 1,683
branches and 9,801 employees (direct and assigned). Compared to the end of 2003, there was a net
decrease of 0.36% in the number of branches and a net reduction of 1.54% in employees.
(b) Recent Trading Performance
The Banesto group experienced a good year in 2004, with growth in business and earnings. This
enabled it to surpass the goals set for the year in terms of gains in market share and efficiency, credit
risk quality and profitability.
Net interest income increased 7.9% to 01,142.8 million, the result of both the rise in business as well as
management of prices and customers.
Net fees and commissions grew 8.6% to 0502.4 million. Commissions for services increased 9.1%
whereas those related to mutual and pension funds rose 11.8%, in line with the volume of funds
managed, due to maintenance of the average commission received.
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PART 1: INFORMATION ON THE GROUP
Net gains on financial transactions were 074.5 million, 30.4% more than in 2003, due to the distribution
of treasury products to customers.
As a result, gross operating income rose 8.9% to 01,719.6 million.
Personnel and general expenses increased 2.5%, meeting the goals set, and together with the growth in
gross operating income, produced a further improvement in the efficiency ratio to 45.6% from 48.5% in
2003.
Net operating income was 17.8% higher at 0815.9 million.
Net income from companies accounted for by the equity method and group transactions increased
20.2% to 095.9 million. This was due both to the higher ordinary earnings of the companies that are
carried by this method as well as to income from divestments.
Net provisions for credit-losses rose 16.6% to 0199.9 million. The allocation for specific provisions was
038.6 million, 9% less than in 2003, and together with the growth in lending underscores Banesto’s
credit risk quality.
Net extraordinary income was 049.7 million, up from 021.1 million in 2003.
Income before taxes was 22.3% higher at 0761.5 million. Net attributable income rose 23.7% to
0470.1 million. Both increases were Banesto’s highest in recent years.
Lending, adjusted for the impact of securitisation, increased 23% to 041,956 million, with significant
growth in all types and segments.
Moreover, this growth was combined with preserving credit risk quality. The ratio of NPLs fell to 0.55%
at the end of 2004 from 0.66% a year earlier. Coverage rose from 339% to 392%.
Total customer funds amounted to 056,746 million, 21% more than in 2003. On-balance sheet customer
funds grew 24% and off-balance sheet funds 11.6%.
The estimated total market share (loans and customer funds) reached 8.85%, with a year-on-year
increase of 0.38 points.
Santander Consumer
(a) Overview
The Group’s consumer financing activities are conducted through the Company’s subsidiary, Santander
Consumer. Most of the activity is in auto financing, personal loans and credit cards. These consumer
financing activities are mainly focused on Spain, Portugal, Germany and Italy (through Finconsumo).
The Group is also present in Austria, Hungary, the Czech Republic, Norway, Poland, Sweden and the
Netherlands with some 7 million customers in the above mentioned countries.
At the end of 2004, this area had 256 branches and 5,234 employees (direct and assigned). Compared
to 2003, there was a net increase of 39.89% in the number of offices and of 31.15% in the number of
employees.
(a) Recent Trading Performance
Santander Consumer’s new lending amounted to 015,300 million, 30% more than in 2003 including the
acquisitions of PTF, Elcon and Abfin during 2004 (See: Part 5: Additional Information —
1.2. Acquisitions, Dispositions and Reorganisations). Excluding these acquisitions, growth would have
been 23%. Total managed assets amounted to 026,800 million.
Of note was the 24% organic growth in auto financing, well above the rise in the sale of cars in Europe
which resulted in a gain in market share. Also significant was the 36% increase in consumer finance and
cards. The main traditional markets registered high lending growth: Spain and Portugal increased by
25%, Italy by 36% and Germany by 19%.
The increase in lending was combined with a ratio of NPLs of 2.2% and an improvement in coverage of
4 percentage points to 153%.
Gross operating income increased 27.4% to 01,306.8 million. Deducting provisions, the figure was
26.0% higher at 01,006.2 million, reinforcing the plan of growth with quality assets.
As a result, revenue growth was double that of costs, the efficiency ratio improved to 35.5%,
4.4 percentage points better than in 2003, and produced a rise of 37.5% in net operating income.
Net attributable income rose 44.9% to 0359.0 million. Excluding the units acquired in 2004 in Norway,
Poland and the Netherlands, growth was 37.5%.
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PART 1: INFORMATION ON THE GROUP
Portugal
(a) Overview
The Group’s Portuguese retail operations are conducted by Banco Santander Totta and the investment
banking operations by Banco Santander de Negocios Portugal.
At the end of 2004, retail banking in Portugal operated through 670 branches and had 6,297 employees
(direct and assigned). Compared to 2003, the number of branches remained unchanged but there was
a net reduction of 8.74% in the number of employees.
(b) Recent Trading Performance
Santander Totta generated net attributable income of 0289.5 million, 15.3% more than in 2003. The
efficiency ratio was 43.4% and ROE reached 18.7%. Retail banking generated 86% of net attributable
income, which was 17.2% higher than in 2003.
These results were achieved in a year when the Portuguese economy grew moderately (estimated at
1%), following a period of recession.
All retail banking revenue lines grew, due to greater business volumes and an adequate policy of prices
and customers which pushed up net interest income by 4.4% and basic revenue by 6.5% over 2003.
Net fees and commissions continued to grow strongly, with a growth of 12.1%.
Revenue growth together with reduced costs (personnel and general expenses declined 2.2%)
improved the efficiency ratio to 44.4% from 48.4% in 2003. Net operating income increased 14.8%.
Total lending declined 13%, due to the balances of securitised assets. Eliminating this effect, growth
was 4%. Of note in lending were rises (excluding securitisations) of 12% in mortgages, 16% in
consumer credits and 45% in credit cards.
The ratio of NPLs was 3.1%, higher than in 2003 mainly due to the aforementioned securitisations.
Excluding them, the NPL ratio was 2.3%. Coverage was 111%.
The strongest growth in funds came from time deposits (with an increase of 7%) and off-balance sheet
funds (with an increase of 14%).
For the third year running, industry magazines Euromoney and Exame named Santander Totta as the
best bank in Portugal in 2004.
1.2 Retail Banking Latin America
(a) Overview
The Group engages in a full range of retail banking activities in Latin America, although the range of its
activities varies from country to country. The Group’s primary lending operations are in Chile, Mexico,
Brazil and Puerto Rico. The Group’s principal mutual fund operations are in Brazil, Mexico, Chile and
Puerto Rico, and its main pension fund operations are in Chile, Mexico, Argentina, Peru and Colombia.
The Group’s significant position in Latin America is attributable to its financial strength, high degree of
diversification (by countries, businesses, products, etc.), and breadth and depth of the Group’s
franchise.
As at 31 December 2004, the Group is the leading financial franchise in Latin America by on-balance
sheet business volume and by net attributable income. As at 31 December 2004, the Group had 4,010
branches and 57,156 employees in the region. The Group’s business model for Latin America is clearly
focused on the customer, highly segmented, supported by technology and with an appropriate
management of costs and risks. The Group focused in 2004 on business growth and development of
recurrent revenues.
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The Group’s Latin American banking business is principally conducted by the following banking
subsidiaries:
Subsidiary
Percentage of share capital held as at
31 December 2004
Banco Río de la Plata (Argentina) 99.09
Banco Santa Cruz (Bolivia) 96.33
Banco Santander Brasil, S.A. 97.62
Banco Santander Meridional (Brazil) 96.91
Banespa (Brazil) 98.02
Banco Santander Chile 83.94
Banco Santander Colombia, S.A. 97.64
Banco Santander Mexicano, S.A. (1)
74.92
Banco Santander Puerto Rico 88.64
Banco Santander (Uruguay) 100.00
Banco de Venezuela, S.A.C.A. 98.41
(1)
The general shareholders’ meetings of Banco Santander Mexicano, S.A., Banca Serfín S.A. and other subsidiaries of the
Group in Mexico held on 29 November 2004 agreed to merge such entities into Banco Santander Mexicano, S.A. The
merger has been effective in accounting terms since 31 December 2004 and took legal effect on 1 January 2005. Banco
Santander Mexicano, S.A. has subsequently changed its name to Banco Santander Serfin, S.A. See paragraph 1.2.
‘‘Acquisitions, Dispositions and Reorganisations’’ in Part 5 below for further details.
(b) Recent Trading Performance
Retail Banking Latin America generated net attributable income of 01,038.6 million, 2.4% lower than in
2003 (an increase of 7.4% excluding the exchange rate impact) which represents 27% of the net
attributable income of the Group’s four principal business areas (excluding Abbey) in 2004.
Consolidated net income, not affected by the changes in minority shareholders, increased 9.8%
excluding the exchange rate impact. Total net attributable income from all activities in the region was
01,284.8 million, 2.6% lower than in 2003, but 6.6% higher excluding the exchange rate impact.
At the end of 2004, Retail Banking Latin America operated through 3,874 branches and had 52,107
employees (direct and assigned). Compared to the end of 2003, this represented a net reduction of
0.51% in the number of branches and of 0.23% in the number of employees.
The pace of growth in lending accelerated. The Group grew faster than the market, increasing its
market share from 11.0% to 11.6%. The total volume, excluding the exchange rate impact, increased
25% (excluding Fobaproa in Mexico). The Group’s focus on strengthening businesses with the greatest
degree of revenue recurrence resulted in a 39% rise in lending to individuals at constant exchange
rates.
In funds, on-balance sheet deposits (without repos) increased 21%, excluding the exchange rate
impact, while mutual funds rose 20%. Pension funds grew 15%, bringing the overall increase in total
managed funds to 18%.
Basic revenue, net of provisions, affected by the drop in average interest rates of around 19%, rose
17.0%. Excluding the exchange rate effect, basic revenue was 27.3% higher.
The Group’s strong drive to develop credit cards, cash management, foreign trade, mutual funds and
insurance business produced growth of 26.4% in commissions (after eliminating the exchange rate
impact).
Net gains on financial transactions declined 59.2% over 2003. This was largely due to the sharp
revaluation of Brazilian debt in the middle of 2003, the recovery of available funds and, in the opposite
direction, the negative impact in 2004 of interest rate rises in portfolios, especially in Mexico.
Gross operating income, net of the risk premium, rose to 04,488.9 million, an increase of 17.2% (after
eliminating the exchange rate impact). The relative share of net interest income and commissions in
gross operating income rose from 88.9% in 2003 to 95.7% in 2004.
The Group’s strategic focus on developing businesses with a high degree of recurring revenue resulted
in the launch of a series of specific projects (some local and others regional) for the medium term.
These costs and investments are temporarily (in 2004) affecting year-on-year comparisons in the
relevant items. Total expenses rose 14.7%, between 2003 and 2004, eliminating the exchange rate
impact. Following the investments made in 2004, the Group expects that expenses will increase at
levels close to inflation in 2005.
Net provisions for credit losses declined 9.9%, eliminating the exchange rate impact, and the risk
premium remained at a very moderate level (0.9% in 2004), even though a large part of lending went to
retail segments with a higher net return but also a higher risk. The NPL ratio (2.6%) and coverage
(164%) were better than in 2003 (less 1.3 percentage points in NPLs and with an increase of 38
percentage points in coverage), underscoring the region’s credit risk quality.
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PART 1: INFORMATION ON THE GROUP
The efficiency (55.3%) and recurrence (45.5%) ratios are affected by the delay in the generation of
revenues of some special corporate projects and the earlier recording of their corresponding costs.
(c) Other relevant factors
The following factors should be taken into account when considering the financial information in respect
of the Group’s Latin American operations:
In February 2003, 24.9% of Grupo Santander Serfin was sold to Bank of America, affecting year-onyear
comparisons of net attributable income. See paragraph 1.2 ‘‘Acquisitions, Dispositions and
Reorganisations’’ in Part 5 below for further details.
Argentina’s improved economic and financial expectations in 2004 made it possible to use the fund
established in prior years to cover the deficit of provisions arising from applying Spanish accounting
criteria to the Argentine subsidiaries. Accordingly, the Group’s assets in Argentina have been adjusted
in accordance with Spanish rules and ring fencing of income is no longer applied. Argentina made a
positive contribution in 2004. See ‘‘Risk Factors’’ above for further details.
The earnings performance in euros continued to be affected by exchange rates, although to a lesser
extent than in previous years. The appreciation of the Brazilian real and the Chilean peso (in average
exchange rates) meant that the region’s currencies as a whole strengthened slightly against the U.S.
dollar, but not against the euro because of the U.S. dollar’s slide against the European single currency.
Between 2003 and 2004, the Brazilian real depreciated from 3.46 to 3.63 per euro, the Mexican peso
fell from 12.2 to 14.0 per euro and the Venezuelan bolivar from 1,814 to 2,336 per euro. The Chilean
peso, on the other hand, appreciated from 778.7 to 756.7 per euro.
Average nominal interest rates fell sharply between 2003 and 2004. The reductions were very
significant in Brazil (a decrease of 30%), Chile (a decrease of 31%) and Venezuela (a decrease of
34%). The rise in US interest rates caused bouts of volatility in some of the region’s countries in the
second quarter of 2004, affecting interest rates and exchange rates. The balances of the banks in these
countries were managed in such a way as to maximise earnings and reduce market risks.
(d) Performance of main Latin American countries
Detailed below are the performance highlights of the main Latin American countries where the Group
operates. The descriptions relate to all the activities undertaken by the Group in each country in the
year ended 31 December 2004:
Brazil’s significant growth in retail business came from lending (an increase of 37%, excluding the
exchange rate effect) and mutual funds (an increase of 10% in local currency). As a result, net interest
income, fees and commissions increased, offsetting the impact of lower interest rates and lifting basic
revenue in euros by 16.3%.
Net attributable income, however, declined 2.3% to 0684.9 million as a result of lower net gains on
financial transactions and higher costs incurred in business development. In U.S. dollars, net
attributable income was 7.4% higher at U.S.$850.0 million.
Net operating income in Mexico rose 12.6% in euros, spurred by strong growth in lending, particularly to
individual customers and to companies, higher commissions and reduced personnel and general costs,
which offset lower interest revenues.
As a result of increased credit loss provisions (as compared to a release of allowances in 2003) and the
larger share of minority interests, net attributable income declined 18.4% to 0331.7 million (a fall of
10.3% in U.S. dollars to U.S.$411.7 million) at the end of 2004.
The recovery of activity in Chile, particularly loans, and the rise in net fees and commissions offset the
impact of lower interest rates. All revenue lines grew in euros and the volume of provisions returned to
usual levels. As a result, net attributable income of 0271.0 million, 11.3% higher than in 2003 (an
increase of 22.3% in U.S. dollars to U.S.$336.3 million).
Puerto Rico and Colombia also achieved higher earnings in 2004 (an increase of 62.4% and 58.2%,
respectively, in euros) with net attributable income of 045.7 million and 039.3 million respectively.
Uruguay and Argentina returned to profitability in 2004 and had net attributable income of 017.2 million
and 038.9 million respectively.
1.3 Asset Management and Private Banking
(a) Overview
This area comprises all of the Group’s companies whose activity is the management of mutual and
pension funds, private banking and bank assurance. At the end of 2004, this area had 6,735 employees
(direct and assigned) and 171 offices. Compared to 2003, this represented a net increase of 1.95% in
the number of employees and a net reduction of 9.52% in the number of offices.
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PART 1: INFORMATION ON THE GROUP
(b) Recent Trading Performance
Net attributable income was 0351.1 million, 9.9% higher than in 2003, which represented 9% of the net
attributable income of the Group’s principal four business areas (excluding Abbey) for 2004.
Asset Management
In 2004, the Group managed a total of 077.9 billion assets in Spain (an increase of 14%) strengthening
the Group’s leadership in the mutual funds sector with a market share of 27.6%. The business drive in
the commercial networks and the design of ‘‘ad hoc’’ products for the different customer segments
generated a significant rise in the demand for funds. The Group has been successful in meeting the
demands for ‘‘concept’’ equity funds, guaranteed products and alternative management funds. The
Group also remained the leader in real estate funds in Spain with 02,500 million under management.
At the end of 2004, the Group managed 028 billion of mutual and pension funds (an 18% increase
excluding the exchange rate impact) in Latin America. All relevant countries increased their balances of
mutual and pension funds in local currency. There was notable growth of more than 30% in mutual
funds in Mexico, Chile and Puerto Rico, as well as in pension plans in all countries (with an increase of
approximately 15% (without the effect of exchange rates), save for Argentina which had an increase of
9%).
Total commissions from the management of mutual and pension funds for the whole Group increased
22% as compared to 2003.
Insurance
In Spain, Santander Seguros continued to grow strongly in its target business areas, benefiting
revenues and activity. Its results, together with Banesto Seguros, made the Group the market leader in
individual life-risk products in the Spanish bancassurance sector with a market share above 21%.
In Latin America, the Group continued to focus on growth in the distribution of insurance via its banking
network. Supported by strong links in products related to loans, progress has been made in placing
other non-linked bancassurance products (life, auto, home) through personalised offers to customers.
There was notable growth in Brazil, Mexico and Chile with an aggregate growth of 34% in premium
income (excluding the exchange rate impact).
Private Banking
Banco Banif, recognised by Euromoney as Spain’s best private bank in 2004, achieved an increase of
22% in targeted customers in 2004. Banif’s net operating income increased by 25% and it obtained
customer balances of 022 billion.
International Private Banking, also recognised by Euromoney in 2004, registered 20% growth in euros
in net operating income and 35% in net attributable income (with an increase of 48% in U.S. dollars, the
currency used to manage this business). The average of managed customer funds rose 25% in U.S.
dollars.
1.4 Global Wholesale Banking
(a) Overview
This area covers the Group’s corporate banking in Spain, the rest of Europe and New York, treasury
units in Madrid and New York, as well as investment banking throughout the world.
At the end of 2004, this area had 2,223 employees (direct and assigned) and 18 offices. Compared to
2003, this represented a net decrease of 2.84% in the number of employees and of 30.77% in the
number of offices.
In Global Corporate Banking the Group serves its large corporate, financial institutions and
governments clients’ needs from its headquarters in Spain, its banking subsidiaries in Belgium, Portugal
and Latin America, its branches in London, Frankfurt, Paris and New York and its agency in Miami. The
corporate banking unit provides a full range of banking services including, amongst others, bill
discounting, global cash management, treasury management services, risk mitigation products, trade
finance and correspondent banking.
The Group’s Global Investment Banking operations include brokerage, corporate finance, structured
and project finance, and custody services. The corporate finance and structured finance units help the
Group’s clients in their special financing needs such as gaining access to the capital markets,
acquisition and project finance advice and mergers and acquisition advice. The brokerage unit provides
securities execution, dealing and research services. In addition, the Group provides custody, settlement
and other value added securities related services and engage in underwriting and dealing activities,
mainly with equity and fixed income securities and instruments in Spain, Portugal and the Company’s
branch in New York and Latin America.
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PART 1: INFORMATION ON THE GROUP
The Group’s Global Treasury operations relate to money, foreign exchange and fixed-income trading in
Spain and abroad (Portugal, New York and Latin America) using conventional instruments and
derivatives for its own account and for the account of customers and for participating in fixed income
capital market activities.
(b) Recent Trading Performance
In 2004, Global Wholesale Banking generated net attributable income of 0331.1 million in 2004 (9% of
the net attributable income of the Group’s principal four business areas (excluding Abbey) for 2004),
46.8% more than in 2003, due to growth in revenue from value added products, containment of costs
and reduced needs for provisions. As a result of business management being focused on increasing
recurrent revenues from customers, commissions covered 89% of the area’s costs and the efficiency
ratio continued to improve (being 1.5 percentage points better than in 2003).
The Group has further developed its Global Banking Model with corporate clients, taking advantage of
its global presence and the Group’s leadership in domestic markets to strengthen growth. Particular
importance is attached to value added products, particularly those of investment banking and treasury.
In Global Investment Banking, structured financing and syndicated loans performed well, increasing by
51% in gross operating income.
Revenue from equities business increased by 22%, consolidating the Group’s leadership in brokerage in
Spain (with a 13.6% of market share, including Banesto Bolsa), in Portugal (second with a market share
of 13.4%) and in ordinary Latin American shares.
In 2004, Global Treasury was focused on business with customers which, in turn, boosted trading
activities.
1.5 Financial Management and Equity Stakes
This area is responsible for the centralised activities relating to strategic or temporary equity stakes in
industrial and financial companies, financial management related to the structural exchange rate
position, the Group’s asset and liability portfolio, and management of liquidity and capital through issues
and securitisations. As the Group’s holding entity, it manages all capital and reserves and allocations of
capital and liquidity. It also incorporates the accelerated amortisation of goodwill and country-risk but,
as previously stated, it does not incorporate the costs related to the Group’s central services.
The area also includes, on a temporary basis, businesses that are being wound down or closed in order
not to distort the other businesses. In exceptional circumstances, it is responsible for the launch of an
activity of a strategic nature. See below for further details.
At the end of 2004, the Group’s Financial Management and Equity Stakes operations had 359
employees (direct and assigned) compared to 271 at the end of 2003.
Gross operating income from Financial Management and Equity Stakes was 0157.1 million in 2004,
35.2% higher than in 2003. Net attributable loss was 0705.6 million compared with a net attributable
loss of 0760.5 million in 2003.
This area covers a wide range of centralised activities, which can be divided into the three sub-areas:
Equity Stakes, Financial Management and Projects underway/wound down.
Equity Stakes
(a) Overview
This sub-area centralises the management of equity stakes in financial and industrial companies.
The Group has financial investments in a number of banking companies, principally in Europe. The
following summarises the Group’s most important financial investments, in each case stating the
percentage shareholding as at 31 December 2004:
) Commerzbank: the Group owned 3.4% of Commerzbank;
) San Paolo-IMI: the Group owned 8.5% of the capital stock of San Paolo-IMI, one of the
largest banking groups in Italy in terms of assets. San Paolo-IMI controls Intereuropa Bank, a
Hungarian bank in which the Group owns a 10% stake; and
) Attijariwafa Bank (Morocco) (formerly known as Banque Commerciale du Maroc): at
31 December 2004, the Group had a 14.5% interest in Attijariwafa Bank, which engages
mainly in trade finance and foreign investment activities. Together with Attijariwafa Bank, the
Group has a 50% joint venture in Attijari International Bank, which specialises in trade finance
in Tangiers’ free trade zone.
The majority of the Group’s industrial holdings portfolio consists of investments in strategic sectors
related to the growth of the Spanish economy. Through the Group’s investments in these areas, the
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PART 1: INFORMATION ON THE GROUP
Group aims to be present in these sectors as a long-term investor. The Group’s investments in nonfinancial
companies focus on long-term growth sectors, such as telecommunications.
The following table summarises the Company’s main industrial holdings at 31 December 2004:
Company Business
Percentage held
(as at 31 December 2004)
AUNA Telecommunications 27.34
ONO-Cableuropa Cable 18.93
Unión Fenosa, S.A. Electric Utility 22.02
Cepsa, S.A. Oil and Petrochemicals 32.27
Inmobiliaria Urbis, S.A. Real Estate 45.67
Antena 3 de Televisión, S.A. Mass Media 10.00
(b) Recent Trading Performance
Net attributable income of financial stakes in Europe was 0779.0 million, more than double that of 2003.
This was due to the rise in income from companies accounted for by the equity method, mainly the
higher contribution from The Royal Bank of Scotland Group plc., as well as the capital gains from the
sale of 2.51% of The Royal Bank of Scotland Group plc.
Net attributable income from industrial stakes was 21.5% more than in 2003 at 0459.9 million, largely
because of the higher generation of capital gains (the main sales were 0.46% of Vodafone, 1% of Unión
Fenosa and 3.1% of Sacyr-Vallehermoso). The sales in 2003 were 20.21% of Antena 3 de
Television, S.A., 0.51% of Vodafone and 28.35% of Home Mart.
As regards investments, the acquisition of 4% of Auna Operadores de Telecomunicaciones, S.A. was
notable.
The unrealised capital gains in industrial stakes were estimated at 02,400 million.
Financial management
This sub-area covers the management of structural exchange rate position, the Company’s Assets and
Liabilities Committee (‘‘ALCO’’) portfolio and the issues and securitisations that meet the Group’s
liquidity and capital needs.
The movement in interest rates and exchange rates in 2004, negative for retail business, is partly offset
by the positions of the ALCO and structural exchange rates portfolios. Centralised management of
exchange rates and of the ALCO portfolio contributed 0311 million to ordinary revenue in 2004.
This area includes the cost of hedging capital in Latin America, which amounted to 0112 million. The
area also manages all capital and reserves, the allocation of capital to each business unit, and the
financing cost of investments.
In addition there are certain positive items, of which the most significant is the capital gain from the
disposal of 3.7% stake in Shinsei (0118 million), as well as specific allocations of a centralised nature
(pensions of the Company), country-risk and early amortisation of goodwill. In 2004 this included the
0154 million of early amortisation of goodwill, the 0527 million extraordinary net charge for early
retirements (including Banesto) and the 0155 million provisioning of costs related to the acquisition of
Abbey. This means that its overall contribution to earnings is usually negative. The figure was
01,400.2 million negative in 2004 (0925.6 million negative in 2003).
The Group believes it is advisable to maintain in Argentina an additional fund that complements the
provisions already assigned so that the net book value of the Group’s subsidiaries in that country is
covered as well as the loans granted to them by the Group. The impact on earnings of provisions and
release of allowances, in accordance with these criteria, will be recorded in Financial Management and
Equity Stakes and will thus be independent of those registered in the Latin America Business Area.
Projects underway/wound down
Also included, on a temporary basis, are businesses in the process of being wound down or closed in
order to limit the impact on the rest of the Group’s businesses. In exceptional circumstances, the launch
of a business of a strategic nature may be included. In 2004, the main project included was the
development of Partenón (See paragraph 6 ‘‘Information Technology’’ below for further details).
1.6 Abbey National plc
(a) Acquisition
The Abbey National Building Society was formed by the merger of the Abbey Road Building Society and
the National Building Society in 1944 and the Society transferred its business to Abbey in July 1989
when Abbey became a public limited company and was listed on the London Stock Exchange.
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PART 1: INFORMATION ON THE GROUP
On 12 November 2004, following the competition approval from the European Commission, the
approval by UK and Spanish regulators and the shareholders of both banks, and the sanction by the UK
court of the scheme of arrangement, the Company issued 1,485,893,636 new Shares amounting to
012,541 million needed to complete the acquisition of Abbey.
(b) Overview
Abbey is a major financial services group in the UK, where it is the second largest provider of residential
mortgages. As at 31 December 2004, the date of the first consolidation (See Note 1 to the 2004
Consolidated Financial Statements on page 36 of this document) of Abbey into the Group, Abbey had
shareholders’ equity of £4.3 billion and total assets of £170.0 billion. As at 31 December 2004, Abbey
employed more than 24,000 people and had 730 branches and about 18 million customers in the UK.
Abbey provides a comprehensive range of personal financial services including mortgages, savings and
investments, banking, unsecured personal loans, pensions, life assurance and general insurance
products. The acquisition of Abbey has produced a much more geographically diversified business
structure for the Group with the aim of creating a premier international banking franchise.
Prior to the re-organisation of Abbey’s structure following the completion of the acquisition, Abbey had
two main business divisions: Personal Financial Services and the Portfolio Business Unit.
Personal Financial Services includes the following business areas:
(i) Banking and Savings: in addition to being the second largest provider of residential
mortgages in the UK, Abbey also provides a wide range of retail savings accounts and
offers a range of personal banking services including current accounts, unsecured loans
and credit cards;
(ii) Investment and Protection: Abbey offers life and health protection, investment and
pensions products primarily through its subsidiaries Abbey National Life, Scottish Mutual
Assurance and Scottish Provident;
(iii) General Insurance: the range of non-life insurance products sold by Abbey includes
buildings and contents insurance and payment protection insurance; and
(iv) Financial Markets: Abbey Financial Markets is responsible for the liquidity and capital
management activities of the bank and it also incorporates derivatives and
structured products and short term markets businesses.
The Portfolio Business Unit originally comprised a number of businesses, assets and portfolios that
were deemed inconsistent with Abbey’s UK Personal Financial Services strategy. Accordingly, Abbey
has reduced or exited these businesses and of the £60 billion of assets that existed within the Portfolio
Business Unit, as at 31 December 2004, only £4.7 billion remains, including finance leases, operating
leases (principally Porterbrook), Motor Financing and Litigation Funding.
(c) Integration of Abbey into the Group
Following the completion of the Company’s acquisition of Abbey, Lord Burns was ratified as Chairman
of Abbey’s board and Mr. Francisco Gómez Roldán (previously the Chief Financial Officer of the Group)
was appointed as Chief Executive Officer of Abbey. Since the date of the acquisition, a series of
measures have so far been taken to achieve synergies of costs and revenues, and, therefore, to create
value for the Group and its shareholders. These have included:
) completing the internal and external auditing of Abbey and its main businesses (banking, asset
management and insurance and financial markets);
) reviewing the main aspects of business and the support areas by seven specific teams backed
up by the Group’s specialists. This analysis has reaffirmed the Group’s synergy targets; and
) creating a new, more dynamic and flexible organisational structure. Three new divisions were
established by: (i) restructuring Abbey’s retail banking division, which integrates the former
divisions of sales and marketing; (ii) restructuring Abbey’s insurance and asset management,
which integrates both businesses and in doing so underscores the importance of these
markets for Abbey and (iii) the creation of a new manufacturing division as a result of the
merger of the former divisions of technology and operations with customers, which will be
responsible for global management of costs and the bank’s operational efficiency.
Abbey is now organised as follows:
) Business divisions: Sales and Marketing; Insurance and Asset Management; and Finance
and Markets.
) Support divisions: Human Resources; Manufacturing; and Risk.
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PART 1: INFORMATION ON THE GROUP
) A new Executive Committee, consisting of the Chief Executive Officer and those in charge of
the business and support areas has been established. It meets every week to monitor
business and the performance of the programmed plans.
The Business and Support divisions are supported by five central units – Compliance, Communications,
Legal, Secretariat and Tax, and Strategy and Planning.
(d) Recent Trading Performance
The following summary of Abbey’s trading performance has been extracted from Abbey’s preliminary
announcement of its results for the period ended 31 December 2004.
Abbey reported a profit before tax of £273 million (compared to a loss of £686 million in 2003), and a
profit attributable to ordinary shareholders of £32 million (compared to a loss of £759 million in 2003). Its
trading profit before tax for Personal Financial Services (‘‘PFS’’) was £814 million (statutory PFS profit
before tax of £250 million compared with £235 million in 2003). Abbey’s second half trading
performance in 2004 was affected by further decline in PFS revenues reflecting the expected spread
decline, negative life assurance experience variances and an element of business disruption. With
trading cost growth below inflation, there was a modest increase of 1% to £1,599 million. Credit quality
remains excellent, with no significant signs of deterioration on either the secured or unsecured loan
portfolios. Non-trading charges of £564 million were made including £321 million of re-organisation
costs incurred through 2004, and a further £243 million of post-acquisition charges. Total customer
loans amounted to £94.3 billion, up 4% on 2003. The Portfolio Business Unit assets have further
reduced by 62% to £4.7 billion, now less than 10% of the original £60 billion, with a statutory profit being
reported for 2004.
A PFS trading cost income ratio of 61.5% and return on equity of 12.1% was achieved.
Abbey’s capital ratios remain strong, with an equity Tier 1 ratio of 7.0%.
Abbey’s focus, like that of the Group, is retail banking and it is aiming to improve sales and revenue
performance across all sales channels.
Commentary on Abbey’s financial and trading performance for the three months to 31 March 2005 is
contained in ‘‘Annex: Financial Report for First Quarter 2005’’.
1.7 Total Revenues by Activity and Geographic Location
A breakdown of the Group’s total revenues by category of activity and geographic market is set out
below:
Thousands of Euros
2004 2003 2002
Interest income:
Spain 7,158,621 7,293,968 7,827,262
Other European countries 2,842,692 2,993,831 3,206,615
America 8,102,470 6,915,914 11,668,863
Other 52 27 8,598
18,103,835 17,203,740 22,711,338
Income from equity securities:
Spain 548,615 367,779 405,248
Other European countries 49,851 39,566 33,669
America 48,980 34,148 34,248
Other — — 7
647,446 441,493 473,172
Fees collected:
Spain 2,937,689 2,596,745 2,356,885
Other European countries 728,759 666,170 676,782
America 2,109,362 1,835,435 2,112,809
Other 829 529 610
5,776,639 5,098,879 5,147,086
Gains (losses) on financial transactions:
Spain 604,016 435,145 314,166
Other European countries 77,688 85,499 61,568
America 270,962 478,147 (20,627)
Other — 22 1,143
952,666 998,813 356,250
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PART 1: INFORMATION ON THE GROUP
Thousands of Euros
2004 2003 2002
Other operating income:
Spain 53,800 47,613 89,960
Other European countries 11,896 2,734 4,388
America 24,212 25,113 34,082
Other 1 — 1
89,909 75,460 128,431
1.8 Competition
The Group faces strong competition in all of its principal areas at operation from other banks, savings
banks, credit co-operatives, brokerage houses, insurance companies and other financial services firms.
Banks
The Company’s major competitor in the retail banking sector in Spain is Banco Bilbao Vizcaya
Argentaria, S.A.
At the end of December 2004, two banking groups which are headed by the Company and Banco Bilbao
Vizcaya Argentaria, S.A. accounted for approximately 62.1% of loans and 63.5% of deposits of all
Spanish banks, which in turn represented 30.7% of loans and 28.3% of deposits of the financial system,
according to figures published by the Spanish Banking Association (AEB) and the Confederación
Española de Cajas de Ahorro. These banking groups also hold significant investments in Spanish
industry.
Foreign banks have been operating in Spain since 1978 when the Bank of Spain adopted liberalisation
measures which opened up the Spanish banking market. At 31 December 2004, there were 61 foreign
banks (of which 53 were from European Union countries) with branches in Spain. In addition, there were
23 Spanish subsidiary banks of foreign banks (of which 17 were from European Union countries).
Spanish law provides that any financial institution organised and licensed in another member state of
the European Union may conduct business in Spain from an office outside Spain. Such European Union
financial institutions do not require any prior authorisation from the Spanish authorities. Once the Bank
of Spain receives notice from the institution’s home country supervisory authority of the institution’s
proposed activities in Spain, the institution is automatically registered and the proposed activities are
automatically authorised.
The Group also faces strong competition outside Spain, particularly in Argentina, Brazil, Chile, Mexico,
Portugal and the United Kingdom.
Abbey’s main competitors are UK banks, building societies and insurance companies and other
providers such as supermarket chains and large retailers.
In recent years, customer access, choice and mobility have all increased, as has the extent of
regulation. The market itself is competitive, driven largely by market incumbents. Channel development,
particularly the use of e-commerce technology, has moved hand-in-hand with this process as both new
and traditional competitors seek alternative ways of doing business. These trends are expected to
continue.
A changing regulatory environment has been an increasingly important feature of the United Kingdom
financial services market in recent years. This has had a particular impact on the savings and
investment market, with the industry beginning to move away from current polarised arrangements.
The industry is currently preparing for potential changes in the regulation of the mortgage and the
general insurance markets. Steps are also being taken towards the simplification and greater
transparency of products, including the further development of a suite of stakeholder products. Finally,
there is a range of pending accounting and supervisory regulation changes that could have a significant
impact on Abbey, as well as on the broader sector. See ‘‘Part 4: Regulatory Overview — United
Kingdom Regulation’’. The impact of these changes is as yet uncertain.
Savings Banks
Spanish savings banks (Cajas de Ahorros) are mutual organisations which engage in the same
activities as banks, but primarily take deposits and make loans, principally to individual customers and
small to medium-sized companies. The savings banks are influenced by regional and local
governments. The Spanish savings banks provide strong competition for the demand and savings
deposits which form an important part of the Group’s deposit base. Spanish savings banks, which were
traditionally regional institutions, are permitted to open branches and offices throughout Spain. In the
last few years, mergers among savings banks increased. The Spanish savings banks’ share of
domestic deposits and loans were 58.8% and 50.7%, respectively, as at 31 December 2004 and 58.0%
and 49.5%, respectively, as at 31 December 2003.
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PART 1: INFORMATION ON THE GROUP
Credit Co-operatives
Credit co-operatives are active principally in rural areas. They provide savings and loan services
including financing of agricultural machinery and supplies.
Brokerage Services
The Group faces competition in its brokerage activities in Spain from brokerage houses of other
financial institutions.
Spanish law provides that any investment services company authorised to operate in another member
state of the European Union may conduct business in Spain from an office outside Spain, once the
National Securities Commission (Comisión Nacional del Mercado de Valores ‘‘CNMV’’) receives notice
from the institution’s home country supervisory authority about the institution’s proposed activities in
Spain.
However, Spanish law provides that credit entities have access, as members, to the Spanish stock
exchanges, in accordance with the provisions established by the Investment Services Directive.
The Group also faces strong competition in its mutual funds, pension funds and insurance activities
from other banks, savings banks, insurance companies and other financial services firms.
2. CURRENT TRADING, PROSPECTS AND STRATEGY
The financial sector is facing new challenges stemming from greater competition, the narrowing of
spreads, increased globalisation and the need to respond to the increasingly complex needs of
customers. The Group is already prepared to meet these challenges. The Directors are confident that
the Group has a business model of proven success in European and Latin American countries, and this
model is also being applied to Abbey. The pillars of this model are focus on retail banking,
diversification, efficiency, prudence in risks and balance sheet strength. The Group also has a flexible
style of management, which enables it to take advantage of business opportunities and to adapt easily
to the countries in which it operates and to changes and new challenges.
The Company’s management guidelines for 2005 will focus on the improvement of recurring revenue,
service quality and operational efficiency, recovery of targeted solvency ratios and the maintenance of
high-risk quality of assets. Particular attention will be paid to (i) the commercial re-launching of Abbey
and its integration into the Group; and (ii) the finalisation of the implementation of the Partenón
information technology system at Santander Central Hispano Retail Banking and the continuing roll out
in other units. See paragraph 1.6 ‘‘Abbey National plc’’ above and paragraph 6 ‘‘Information
Technology’’ below for further detail.
At Retail Banking Santander Central Hispano, 2005 will be dominated by the implementation of the
Partenón information technology project. Branches will face the challenge not only of achieving their
targets but will also have to focus on training and on implementing the new information technology
platform.
The Group will look to take advantage of the high commercial speed of retail banking in Spain to
continue to increase its contribution to the Group in an interest rate environment more favourable than in
previous years. Management priorities will be diversification of growth and active management of
spreads which complement the Group’s strategy of increasing the distribution capacity of retail banking.
The Eurozone countries will profit from the more favourable interest rate environment. In Portugal, the
Group anticipates there being an increase in business supported by an economy which will grow slightly
over the average of the Eurozone. Santander Consumer will rely on the organic growth of its consumer
financing business as well as on the consolidation of the entities acquired in Poland, Norway and the
Netherlands in 2004.
At Abbey, the new management team will implement a series of measures to enhance Abbey’s
competitive position within the UK market through cost reduction, recurrent revenue stability, sales
growth, improved service at branches, simplifying product offering and improving the assignment of
responsibilities, the follow-up and control of management and issues relating to risk and compliance.
In Latin America, the Group will continue to seek to develop recurring businesses with customers in a
growing environment which is favourable to the banking business. Business activity growth with impact
on margins, higher volumes of fees coming from activity with customers together with a reduction in the
pace of growth in expenses after the expansion which occurred in 2004 will be the key drivers for the
Group’s business strategy.
The global business areas (asset management, private banking, wholesale banking and treasury) are
expected to continue to increase their contribution to the Group either on their own or through a greater
cooperation among the global business areas and the branch networks in order to develop high value
added products for customers.
29

PART 1: INFORMATION ON THE GROUP
Commentary on the financial and trading performance of the Group for the three months ended
31 March 2005 is set out in ‘‘Annex: Financial Report for First Quarter 2005.’’ Since 31 March 2005, the
Group’s levels of business activity and growth have continued to develop as expected.
3. PROFIT FORECAST
Consistent with the statement made by the Chairman of the Company at the general shareholders
meeting of the Company held on 18 June 2004, the Directors forecast that, on the basis set out in
paragraph 15 of ‘‘Part 5: Additional Information — Profit Forecast’’ of this document and in the absence
of unforeseen circumstances, the net attributable income for the Group for the financial year to
31 December 2005 will be at least 05 billion.
The basis of preparation and principal assumptions underlying the Profit Forecast are set out in
paragraph 15 of ‘‘Part 5: Additional Information — Profit Forecast’’ of this document.
4. DIVIDENDS AND DIVIDEND POLICY
The Company and its Spanish banking subsidiaries are subject to certain restrictions on dividend
payments, as prescribed by the Ministry of Economy and the Bank of Spain. See ‘‘Part 4: Regulatory
Overview — 2.7 Restriction on Dividends’’ and paragraph 3.7 of ‘‘Part 5: Additional Information’’ below
for further detail.
The Company normally pays a yearly dividend in quarterly instalments. Charged to earnings for the
financial year to 31 December 2004, on each of 1 August 2004, 1 November 2004 and 1 February 2005,
the Company paid an interim dividend of euro 0.083 per Share, and on 1 May 2005 paid an interim
dividend of euro 0.0842 per Share. The total dividend paid on the earnings for the financial year to
31 December 2004 amounts to euro 0.3332 per share, which is 10% higher than the total dividend paid
in 2003.
On 20 June 2005, the Company announced that as at 1 August 2005 it will pay the first dividend on
account of the earnings for the financial year to 31 December 2005 for a gross amount of 0.09296 euros
per Share. Such dividend is 12% higher than the one paid in August 2004 (first interim dividend on
account of the earnings for 2004).
It is the Company’s current intention to continue its policy of keeping a ‘‘pay-out’’ (dividends charged to
the earnings of a certain year divided by the Group’s net attributable income of that year) over
consolidated results of about 50% with the payment of quarterly dividends.
5. RISK MANAGEMENT
(a) Overview
The Group regards risk management as one of its key priorities in generating value on a sustained
basis. This model of management is in line with the principles of the New Basel Capital Accord.
The Risks Division reports to the third Vice Chairman and Chairman of the Risk Committee of the
Board. The Committee deals with all types of risk including credit, market, liquidity, operational and
counterparty risk. This Committee:
) sets the Group’s risk policies, in accordance with the Board’s Executive Committee;
) ensures that the risk levels assumed at the individual and global level meet the targets set;
) approves transactions beyond the powers delegated to bodies immediately below;
) empowers other committees lower down the hierarchy to deal with risks;
) receives information on the significant issues that it must know about and decide upon;
) regularly reviews the exposures to main clients, economic sectors, geographic areas and risk
categories;
) supervises the fulfilment of risk objectives, the tools used to manage risk, the measures being
taken to improve risk management and any other actions undertaken in this area;
) receives, evaluates and monitors the observations and recommendations made by the
supervisory authorities; and
) ensures that the Group’s measures are consistent with the level of risks previously decided.
Particular procedures for supervising and monitoring risks are:
) internal ratings, with valuation of the different components which, by client and operation
(collaterals, maturities, etc), allow an estimation of the probabilities of failure and then of the
loss expected based on of historical data;
30

PART 1: INFORMATION ON THE GROUP
) return on Risk Adjusted Capital (RORAC) method, used for pricing operations (bottom up) to
analysis of portfolios and units (top down);
) economic capital estimated by valuing various risks (credit, business, etc), both as a
reference of the management by different building blocks and the return obtained, as well as
in admission processes and the reference limit of the global classifications of large clients;
) value at risk as an element of control and for setting the limits of different portfolios; and
) stress testing to complement the analysis of market and credit risk, in order to value the
impact of alternative scenarios, including on provisions and capital.
The credit and market risk departments are integrated into a single unit and organised by large
segments of clients, covering admission, tracking, and recovery in all countries where the Group
operates according to corporate risks and counterparty, company retail banking risks and standardised
retail banking risks.
The Group’s Integral Risk Framework is used to measure the main risks to which the Group is exposed:
credit, market, structural, operational and business, as well as the degree of correlation (diversification)
between these risks and the different business units. In accordance with the requirements of
independence established in the New Basel Capital Accord, the Group has an autonomous
management unit for integrated management and internal control of risks. This unit’s functions are to
contribute a global view of the Group’s risk policies, to measure risk, to provide analysis and
methodologies for different risk exposures, as well as to exercise the control needed to guarantee the
consistency and homogeneity of processes and tools.
Both management units report to the third Vice Chairman who is responsible for the Risks Division.
(b) Recent Trading Performance
The main area of risk for the Group is in relation to credit risk and the Group’s recent experience in
relation to non-performing loans is summarised below.
The Group’s NPL ratio at the end of 2004 was 1.05% and coverage 185%, once Abbey was integrated
into the balance sheet.
Excluding Abbey, the Group’s NPL ratio was 1.27%. The improvement over the course of the year was
28 basis points (compared to 1.55% at the end of 2003).
NPL coverage rose 43 points in 2004 to 208% as at 31 December 2004.
Specific credit-loss provisions, net of write-offs, were 11.2% less than in 2003 at 0693.6 million.
The Group’s NPL ratio in Spain remained at an all-time low of 0.65%, 22 basis points better than at the
end of 2003. Coverage reached 329% (an increase of 105 percentage points).
In Portugal, where economic growth remains weak, the NPL ratio stands at 3.1%, above the 2.3% at the
end of 2003. This increase is affected by securitisation (including the securitised balances the NPL ratio
is 2.3%). Coverage was 111%, 14 percentage points lower than in December 2003.
The NPL ratio of Santander Consumer, including Hispamer in Spain, CC-Bank group in Germany and
Finconsumo in Italy, increased slightly to 2.2%, due to a larger balance of doubtful loans in Germany.
Coverage increased to 153% (an increase of 4 percentage points).
Latin America’s NPL ratio fell by 1.3 percentage points to 2.6%, largely due to the lower balances of bad
debts in Argentina, Chile and Mexico. Coverage stood at 162%, a rise of 37 percentage points for the
year.
Regarding market risk management, the total VaR (Value at Risk) of trading portfolios reached its
maximum level on 12 August 2004 (U.S.$22.5 million) due mainly to an increase of interest rates in
Mexico and increased volatility. The minimum levels were reached on 23 March 2004
(U.S.$15.6 million) as a result of a reduction of both interest and exchange rate positions in Brazil,
Mexico and Madrid. The average VaR in 2004 was U.S.$19.2 million.
6. INFORMATION TECHNOLOGY
Technology is an essential part of the Group’s management and the Directors believe that its strength in
this area puts it at a competitive advantage. The Group continues to concentrate on improving the
organisation’s operational and commercial efficiency as well as on creating appropriate Group-wide
infrastructures. Among these, the most significant is the commencement of operations at the Group’s
headquarters at Ciudad Grupo Santander.
One of the Group’s most important strategic projects is the development of Partenón. In Spain,
Partenón has begun to be successfully implemented as the sole data base for client data, customers’
personal accounts, custody and exchange systems and the services for international collections and
payments. Branches of Santander Central Hispano Retail Banking have been operating Partenón since
31

PART 1: INFORMATION ON THE GROUP
the last quarter of 2004, with the extension to the entire branch networks of Santander Central Hispano
and Banif expected to be completed in 2005. During 2004, steps have been taken to roll out Partenón to
other subsidiaries such as Patagón and Hispamer and the Group has already commenced its
assessment to implement it at Abbey. The Group will continue its strategic focus on Partenón in 2005 in
order to optimise both cost management and commercial effectiveness.
In Latin America, the Group has made progress in 2004 in the development and implementation of
‘‘Altair’’, the common technology platform for Latin America. The Group has already been able to
successfully implement such a platform at Banespa in Brazil.
Altec-Chile and Altec-Mexico (both wholly owned Group subsidiaries) also operate specialised
infrastructure centres for the Latin American region. The purpose of Altec-Chile is to centralise the
design, development and maintenance of the Altair system whilst Altec-Mexico focuses on processing
functions. Both centres have received industry certifications for their technology capacity.
Investment and expenses incurred by the Group in relation to information technology amounted to
approximately 01,100 million in 2004.
32

PART 2
FINANCIAL INFORMATION ON THE COMPANY
The financial information set out below has been extracted without material adjustment from the audited
consolidated financial statements of the Company for each of the three years ended 31 December
2002, 2003 and 2004 prepared in accordance with Spanish GAAP.
Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with generally accepted
accounting principles in Spain (Note 28). In the event of a discrepancy, the Spanish-language version prevails.
Banco Santander Central Hispano, S.A. and Companies Composing the Santander Group
Consolidated Balance Sheets as of 31 December 2004, 2003 and 2002
(Notes 1, 2, 3 and 4)
2004 2003 2002
(Thousands of Euros)
Assets
Cash on hand and on deposit at central banks:
Cash on hand 2,269,877 1,639,608 1,808,417
Cash at Bank of Spain 1,750,825 3,589,618 775,206
Cash at other central banks 4,765,844 3,678,214 3,657,955
8,786,546 8,907,440 6,241,578
Government debt securities (Note 5)
Due from credit institutions (Note 6):
16,123,313 31,107,864 24,988,493
Demand deposits 1,705,299 1,703,538 3,148,911
Other 47,864,648 35,914,299 37,107,479
49,569,947 37,617,837 40,256,390
Loans and credits (Note 7)
Debentures and other fixed-income securities (Note 8)
335,207,727 172,504,013 162,972,957
Public-sector issuers 31,873,002 27,339,738 22,854,792
Other issuers 50,965,590 16,937,316 9,231,369
82,838,592 44,277,054 32,086,161
Common stocks and other equity securities (Note 9) 13,164,023 10,064,122 7,866,752
Investments in non-group companies (Note 10) 2,697,128 4,266,425 4,769,738
Investments in group companies (Note 11)
Intangible assets:
5,045,947 1,067,771 1,129,393
Incorporation and start-up expenses 176 901 7,675
Other deferred charges 462,593 473,395 635,373
Consolidation Goodwill (Note 12):
462,769 474,296 643,048
Fully consolidated companies 16,099,163 6,065,632 8,970,164
Companies accounted for by the equity method 865,038 1,319,592 984,571
Property and equipment (Note 13):
16,964,201 7,385,224 9,954,735
Land and buildings for own use 2,723,047 2,723,142 3,000,385
Other property 369,642 286,981 280,711
Furniture, fixtures and other 5,120,445 1,573,846 1,659,463
8,213,134 4,583,969 4,940,559
Treasury stock 104,180 10,155 14,746
Other assets (Note 22) 23,755,320 17,983,170 17,554,670
Accrual accounts 7,758,288 6,919,377 6,353,686
Accumulated losses at consolidated companies (Note 21) 4,706,764 4,621,815 4,435,179
Total assets 575,397,879 351,790,532 324,208,085
Memorandum accounts (Note 23) 105,515,367 85,264,845 82,480,069
The accompanying Notes 1 to 28 and Exhibits I to IV are an integral part of the consolidated balance sheets as of 31 December
2004, 2003 and 2002.
33

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Banco Santander Central Hispano, S.A. and Companies Composing the Santander Group
Consolidated Balance Sheets as of 31 December 2004, 2003 and 2002 (Notes 1,2,3 and 4)
2004 2003 2002
(Thousands of Euros)
Liabilities and equity
Due to credit institutions (Note 14)
Customer deposits (Note 15):
Savings deposits—
84,813,805 75,580,312 50,820,719
Demand 145,000,185 76,613,017 67,644,766
Time
Other deposits—
70,367,960 46,973,305 52,286,346
Demand 3,820,858 309,402 408,544
Time 74,656,694 35,439,848 47,476,100
Marketable debt securities (Note 16):
293,845,697 159,335,572 167,815,756
Bonds and debentures outstanding 57,940,072 28,838,892 20,497,329
Promissory notes and other securities 26,067,117 15,602,313 10,791,778
84,007,189 44,441,205 31,289,107
Other liabilities (Note 22) 18,576,809 10,429,976 10,811,902
Accrual accounts
Provisions for contingencies and expenses (Note 17):
10,826,948 7,539,896 7,029,998
Pension allowance 10,652,752 8,935,148 8,839,081
Other provisions 4,692,293 3,792,529 5,008,669
15,345,045 12,727,677 13,847,750
General risk allowance — — 132,223
Negative difference in consolidation
Consolidated net income for the year:
10,916 14,040 15,459
Group 3,135,558 2,610,819 2,247,177
Minority interests (Note 19) 532,299 621,187 538,463
3,667,857 3,232,006 2,785,640
Subordinated debt (Note 18) 20,194,128 11,221,088 12,450,228
Minority interests (Note 19) 8,539,187 5,439,517 6,036,710
Capital stock (Note 20) 3,127,148 2,384,201 2,384,201
Additional paid-in capital (Note 21) 20,370,128 8,720,722 8,979,735
Reserves (Note 21) 5,680,854 5,510,846 5,573,390
Revaluation reserves (Note 21) 42,666 42,666 42,666
Reserves at consolidated companies (Note 21) 6,349,502 5,170,808 4,192,601
Total liabilities and equity 575,397,879 351,790,532 324,208,085
The accompanying Notes 1 to 28 and Exhibits I to IV are an integral part of the consolidated balance sheets as of 31 December
2004, 2003 and 2002.
34

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Banco Santander Central Hispano, S.A. and Companies Composing the Santander Group
Consolidated Statements of Income for the Years Ended 31 December 2004, 2003 and 2002
(Notes 1,2,3 and 4)
Statement of Income 2004 2003
(Thousands of Euros)
2002
Interest income (Note 25) 18,103,835 17,203,740 22,711,338
Of which: Fixed-income securities 3,656,639 3,413,601 5,081,124
Interest expense (Note 25)
Income from equity securities (Note 25):
(10,115,569) (9,686,896) (13,825,855)
Common stocks and other equity securities 281,949 131,987 120,061
Investments in non-Group companies 294,715 279,705 311,863
Investments in Group companies 70,782 29,801 41,248
647,446 441,493 473,172
Net interest income 8,635,712 7,958,337 9,358,655
Fees collected (Note 25) 5,776,639 5,098,879 5,147,086
Fees paid (Note 25) (1,167,350) (928,317) (857,802)
Gains (losses) on financial transactions (Note 25) 952,666 998,813 356,250
Gross operating income 14,197,667 13,127,712 14,004,189
Other operating income
General administrative expenses:
89,909 75,460 128,431
Personnel expenses (Note 25)
Of which:
(4,135,315) (4,049,372) (4,521,718)
Wages and salaries (3,011,955) (2,959,515) (3,208,776)
Employee welfare expenses (654,412) (643,144) (739,448)
Of which: Pensions (102,861) (96,603) (130,054)
Other administrative expenses (Note 25) (2,599,878) (2,428,325) (2,800,333)
Depreciation, amortisation and writedowns of property and equipment and
(6,735,193) (6,477,697) (7,322,051)
intangible assets (Note 13) (734,967) (762,794) (889,832)
Other operating expenses (272,223) (241,990) (354,913)
Net operating income
Net income from companies accounted for by the equity method (Notes 10 and
11):
6,545,193 5,720,691 5,565,824
Share in income of companies accounted for by the equity method 946,821 781,243 706,214
Share in losses of companies accounted for by the equity method (40,938) (64,474) (73,205)
Value adjustments due to collection of dividends (365,497) (309,506) (353,111)
540,386 407,263 279,898
Amortization of consolidation goodwill (Note 12)
Gains on Group transactions:
(618,935) (2,241,688) (1,358,616)
Gains on disposal of investments in fully consolidated companies (Note 3)
Gains on disposal of investments in companies accounted for by the equity method
14,165 702,113 10,092
(Note 3) 489,521 241,341 1,859,277
Gains on transactions involving parent company shares and Group financial liabilities 5,164 35,841 702
Losses on Group transactions:
508,850 979,295 1,870,071
Losses on disposal of investments in fully consolidated companies (Notes 3 and 12) (5,528) (13,502) (808,498)
Losses on disposal of investments in companies accounted for by the equity method (2,956) (4,255) (35,089)
Losses on transactions involving parent company shares and Group financial liabilities (34,149) (5,975) (17,544)
(42,633) (23,732) (861,131)
Writeoffs and credit loss provisions (net) (Note 7) (1,647,651) (1,495,687) (1,648,192)
Writedown of long-term investments (net) (257) 687 (272)
Reversal of provisions to general banking risk allowance — 85,945 —
Extraordinary income (Note 25) 1,027,150 1,337,064 1,270,092
Extraordinary loss (Note 25) (1,877,485) (668,398) (1,608,925)
Income before taxes 4,434,618 4,101,440 3,508,749
Corporate income tax (Note 22) (311,244) (341,007) (314,979)
Other taxes (Note 22) (455,517) (528,427) (408,130)
Consolidated net income for the year 3,667,857 3,232,006 2,785,640
Net income attributed to minority interests (Note 19) 532,299 621,187 538,463
Net income attributed to the group 3,135,558 2,610,819 2,247,177
The accompanying Notes 1 to 28 and Exhibits I to IV are an integral part of the consolidated statements of income for the years
ended 31 December 2004, 2003 and 2002.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Banco Santander Central Hispano, S.A.
and Companies composing the
Santander Group
Notes to Consolidated Financial Statements
for the year ended December 31, 2004
1. Description of the Bank, basis of presentation of the consolidated financial statements
and other information
Description of the Bank
Banco Santander Central Hispano, S.A. (‘‘the Bank’’ or ‘‘Banco Santander’’) is a private-law
entity subject to the rules and regulations applicable to banks operating in Spain. The bylaws and
other public information on the Bank can be consulted in the web page of the Bank
(www.gruposantander.com) and in its registered office at Paseo de Pereda 9-12, Santander.
Basis of presentation of the consolidated financial statements
The consolidated financial statements of the Bank and of the companies which, together with it,
compose the Santander Group (‘‘the Group’’) are presented in the formats stipulated by Bank of
Spain Circular 4/1991 and subsequent amendments, and, accordingly, they give a true and fair
view of the consolidated net worth, financial position and results of the Group. These
consolidated financial statements, which were prepared by the Bank’s directors from the
accounting records of the Bank and of each of the companies composing the Group, include the
adjustments and reclassifications required to conform the accounting principles and presentation
criteria followed by certain subsidiaries -mainly those abroad- with those applied by the Bank
(Note 2).
In view of the business activity carried on by the companies composing the Group, it does not
have any environmental liability, expenses, assets, provisions or contingencies that might be
material with respect to its consolidated net worth, financial position or results. Therefore, no
specific disclosures relating to environmental issues are included in these notes to consolidated
financial statements.
The 2003 and 2002 consolidated financial statements were approved by the Shareholders’
Meetings of the Bank on June 19, 2004 and June 21, 2003, respectively.
The 2004 consolidated financial statements of the Group and the financial statements of the
Bank and of almost all the consolidated companies have not yet been approved by the respective
Shareholders’ Meetings. However, the Bank’s Board of Directors considers that they will be
approved without material changes.
Abbey National plc (Abbey)
On July 25, 2004, the respective Boards of Directors of the Bank and Abbey approved the terms
on which the Board of Directors of Abbey recommended to its shareholders the tender offer
launched by Banco Santander for all the common capital stock of Abbey under a Scheme of
Arrangement subject to the British Companies Act.
After the related Shareholders’ Meetings of Abbey and the Bank were held in October 2004, and
the other conditions of the transaction were met, on November 12, 2004, the acquisition was
completed through the delivery of one new Banco Santander share for every Abbey common
share. The capital increase performed to cater for the purchase amounted to 012,541 million
(Notes 20 and 21), equal to 1,485,893,636 new shares of 00.5 par value, with additional paid-in
capital of 07.94 each.
Information on Abbey
Abbey is a major financial services group in the United Kingdom, where it is the second-largest
provider of residential mortgages. It is the sixth-largest bank in the UK in terms of assets, ranking
sixteenth in Europe and thirtieth worldwide. Abbey has over 24,000 employees, approximately
730 branches and 18 million customers.
Its consolidated assets and consolidated shareholders’ equity, calculated in accordance with
U.K. accounting principles, amounted to £170,000 million and £4,300 million, respectively, as of
December 31, 2004, the date of first-time consolidation of Abbey in the Santander Group.
Accordingly, the consolidated balance sheet includes the effect of the acquisition, whereas the
consolidated statement of income does not include the results obtained by Abbey from the date
of completion of the acquisition, which were not material. The goodwill arising from the
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
acquisition (Note 12) included the adjustments and valuations required for it to be presented in
conformity with the accounting principles and valuation methods described in Note 2.
Share repurchase program
On June 19, 2004, the Shareholders’ Meeting of Banco Santander authorized the Bank to
purchase Banco Santander shares on terms substantially the same as those authorized at
previous years’ shareholders’ meetings.
Since the date on which the tender offer for Abbey shares was announced, Banco Santander
acquired treasury stock under a share repurchase program authorized by the Board of Directors
of Banco Santander for the purpose of reducing the Bank’s capital stock for the net amount of the
purchases and sales carried out under such program, whose terms and conditions are as
follows:
1. The maximum number of Banco Santander shares which the Bank may hold will be
190,000,000 shares;
2. The maximum acquisition price will be 09.77 per share;
3. The program will be in force through March 31, 2005, and the Bank has announced its
decision not to extend the term of the program.
The summary of the transactions performed under this program through December 31, 2004, is
as follows:
Transaction Securities
Euros
Weighted
Average Price
Purchases 99,209,235 8.15
Sales (87,164,416)
12,044,819
8.12
Objections to corporate resolutions
The directors of the Bank and their legal advisers consider that the objection to certain
resolutions adopted by the Bank’s Shareholders’ Meetings on January 18, 2000, March 4, 2000,
March 10, 2001, February 9, 2002, June 24, 2002, June 21, 2003 and June 19, 2004, will have
no effect on the financial statements of the Bank and the Group.
On April 25, 2001, the Santander Court of First Instance number 1 rejected in full a claim
contesting resolutions adopted at the Shareholders’ Meeting on January 18, 2000. The plaintiff
filed an appeal against the judgment. On December 2, 2002, the Cantabria Provincial Appellate
Court dismissed the appeal. A cassation appeal has been filed against the judgment of the
Cantabria Provincial Appellate Court.
On November 29, 2002, the Santander Court of First Instance number 2 rejected in full the
claims contesting resolutions adopted at the Shareholders’ Meeting on March 4, 2000. The
plaintiffs filed an appeal against the judgment. On July 5, 2004, the Cantabria Provincial
Appellate Court dismissed the appeal. One of the appellants has prepared and filed an
extraordinary appeal on grounds of procedural infringements and a cassation appeal against the
judgment.
On March 12, 2002, the Santander Court of First Instance number 4 rejected in full the claims
contesting resolutions adopted at the Shareholders’ Meeting on March 10, 2001. The plaintiffs
filed an appeal against the judgment. On April 13, 2004, the Cantabria Provincial Appellate Court
dismissed the appeals. One of the appellants has prepared and filed an extraordinary appeal on
grounds of procedural infringements and a cassation appeal against the judgment.
On September 9, 2002, the Santander Court of First Instance number 5 rejected in full the claim
contesting resolutions adopted at the Shareholders’ Meeting on February 9, 2002. The plaintiff
filed an appeal against the judgment. On January 14, 2004, the Cantabria Provincial Appellate
Court dismissed the appeal. The appellant has prepared and filed an extraordinary appeal on
grounds of procedural infringements and a cassation appeal against the judgment.
On May 29, 2003, the Santander Court of First Instance number 6 rejected in full the claim
contesting the resolutions adopted at the Shareholders’ Meeting on June 24, 2002. An appeal
has been filed against the judgment.
Despite the amount of time elapsed, the Santander Court of First Instance number 7 has yet to
hand down its judgment on the objection to the resolutions adopted at the Shareholders’ Meeting
on June 21, 2003, since it was agreed that the proceedings should be stayed on grounds of the
need for an interlocutory decision in the criminal jurisdiction derived from the preliminary
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
proceedings conducted at Central Examining Court number 3, which are currently being handled
by the Criminal Chamber of the National Appellate Court, in respect of the amounts paid when
Mr. Amusátegui and Mr. Corcóstegui retired from the Bank. A new claim has also been filed with
the Santander Court of First Instance number 7 to contest the resolutions adopted at the same
Shareholders’ Meeting on June 21. This proceeding has been joined with the foregoing
proceeding, which means that it is subject to the effects of the stay on grounds of the need for an
interlocutory decision in the criminal jurisdiction.
The claims contesting the resolutions adopted at the Shareholders’ Meeting on June 19, 2004,
are currently being processed before the Santander Court of First Instance number 8.
Accounting policies
The consolidated financial statements of the Group were prepared in accordance with the
accounting principles and valuation methods described in Note 2, which coincide with those
established by Bank of Spain Circular 4/1991 and subsequent amendments thereto. All
obligatory accounting principles and valuation methods with a material effect on the consolidated
financial statements were applied in preparing them.
Consolidation principles
The companies whose business activity is directly related to that of the Bank and which are
directly or indirectly 50% or more owned by the Bank or, if less than 50% owned, are effectively
controlled by the Bank and constitute, together with the Bank, a single decision-making unit, were
fully consolidated.
All significant accounts and transactions between consolidated companies were eliminated in
consolidation. The equity of third parties in the Group is presented under the ‘‘Minority Interests’’
caption and in the ‘‘Consolidated Net Income for the Year — Minority Interests’’ account in the
consolidated balance sheets (Note 19).
The investments in companies controlled by the Bank and not consolidable because their
business activity is not directly related to that of the Bank (Note 11) and the investments in
companies which have a lasting relationship with the Group, which are intended to contribute to
the Group’s business activities, in which the Group’s ownership interests are generally equal to
or exceed 20% –3% if listed–, and over which the Group exercises significant influence –as
evidenced by its representation in the associated company’s governing body, significant
transactions between the other Group companies and the investee, or the exchange of
management personnel, among others (‘‘associated companies’’ — Note 10)–, are carried at the
fraction of the investees’ net worth corresponding to such investments, net of the dividends
collected from them and other net worth eliminations (equity method).
The income or loss generated by companies acquired in each year is consolidated by taking into
account only the income or loss relating to the period between the acquisition date and the
related year-end.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Determination of net worth
In evaluating the Group’s net worth, the balances of the following captions in the accompanying
consolidated balance sheets should be taken into consideration:
Thousands of Euros
2004 2003 2002
Capital stock (Note 20)
Reserves (Note 21):
3,127,148 2,384,201 2,384,201
Additional paid-in capital 20,370,128 8,720,722 8,979,735
Reserves 5,680,854 5,510,846 5,573,390
Revaluation reserves 42,666 42,666 42,666
26,093,648 14,274,234 14,595,791
Reserves at consolidated companies 6,349,502 5,170,808 4,192,601
Accumulated losses at consolidated companies (4,706,764) (4,621,815) (4,435,179)
Total reserves 27,736,386 14,823,227 14,353,213
Add- Consolidated net income for the year-Group
Less —
3,135,558 2,610,819 2,247,177
Interim dividend paid (Note 4) (791,555) (739,102) (727,782)
Third interim dividend payable (Note 4) (519,106) — —
Treasury stock (104,180) (10,155) (14,746)
Net worth per books at year-end
(1,414,841) (749,257) (742,528)
Less — 32,584,251 19,068,990 18,242,063
Third interim dividend — (369,551) (358,231)
Fourth interim dividend (Note 4) (526,612) (335,734) (289,595)
Net worth, after the distribution of income for the year 32,057,639 18,363,705 17,594,237
Equity
The entry into force of Law 13/1992 and Bank of Spain Circular 5/1993 and subsequent
amendments introduced new regulations governing minimum capital requirements for credit
institutions at both individual and consolidated group levels.
As of December 31, 2004, 2003 and 2002, the Group’s eligible capital exceeded the minimum
requirements stipulated by the aforementioned regulations by approximately 011,100 million,
05,700 million and 05,500 million, respectively.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Detail of risk provisions and coverage
In accordance with the Bank of Spain regulations, the risk provisions and coverage are presented
as assigned to the related assets and/or in specific accounts. The detail of the aggregate risk
provisions, coverage and guarantees, disregarding their accounting classification is as follows:
Thousands of Euros
2004 2003 2002
Credit loss allowance:
Due from credit institutions (Note 6) 49,307 111,735 90,522
Of which: Country risk 23,173 26,923 8,537
Loans and credits (Note 7) 6,969,263 5,116,683 4,938,204
Of which: Country risk 219,246 362,604 309,674
Debentures and other fixed-income securities (Note 8) 180,748 185,978 135,552
Of which: Country risk 14,616 9,831 257
Security price fluctuation allowance:
7,199,318 5,414,396 5,164,278
Government debt securities (Note 5) — 10,659 33
Debentures and other fixed-income securities (Note 8) 78,385 51,023 198,420
Common stocks and other equity securities (Note 9) 699,770 948,761 569,715
Pension allowance (Note 2-j):
778,155 1,010,443 768,168
At Spanish companies 8,077,574 7,627,149 7,448,941
At foreign companies 2,575,178 1,307,999 1,390,140
10,652,752 8,935,148 8,839,081
General risk allowance
Property and equipment allowance:
— — 132,223
Foreclosed assets (Note 13) 293,128 316,165 395,406
Other assets 52,499 60,819 104,837
345,627 376,984 500,243
Other asset allowances 126,153 154,954 207,750
Other provisions for contingencies and expenses (Note 17) 4,692,293 3,792,529 5,008,669
Total 23,794,298 19,684,454 20,620,412
Comparative information — early retirements
As indicated in Note 2-j, in 2003 and 2002, the Bank and other Group entities entered into early
retirement agreements with certain employees and recorded these commitments, after receiving
the related authorizations from the Bank of Spain pursuant to Rule 13 of Bank of Spain Circular
4/1991, with a charge to unrestricted reserves and simultaneously recorded the related deferred
tax asset (0336 million and 0181 million, respectively, in 2003 and 0856 million and 0461 million,
respectively, in 2002). In 2004, the Bank of Spain did not grant such authorization to credit
institutions and, accordingly, also in accordance with Rule 13 of Bank of Spain Circular 4/1991,
the Bank and other Group entities recorded net provisions of 0527 million with a charge to the
consolidated statement of income to meet their commitments to the employees who took early
retirement in that year (0810 million were charged to the ‘‘Extraordinary Loss’’ caption in the
accompanying 2004 consolidated statement of income, and simultaneously the related deferred
tax asset was recorded for 0283 million).
Transition to International Financial Reporting Standards
Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19,
2002, all companies governed by the law of an EU Member State and whose securities are
admitted to trading on a regulated market of any Member State must prepare their consolidated
financial statements for the years beginning on or after January 1, 2005 in conformity with the
International Financial Reporting Standards (IFRSs) previously ratified by the European Union.
Therefore, the Group is required to prepare its consolidated financial statements for the year
ending December 31, 2005 in conformity with the IFRSs ratified by the European Union at that
date.
Under IFRS 1, First-Time Adoption of International Financial Reporting Standards, the Group’s
consolidated financial statements for 2005 must necessarily include, for comparison purposes, a
consolidated balance sheet as of December 31, 2004, and a consolidated statement of income
for the year then ended prepared in accordance with the methods established by the IFRSs in
force as of December 31, 2005.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
In order to adapt the accounting system of Spanish credit institutions to the new standards, on
December 22 the Bank of Spain issued Circular 4/2004 on Public and Restricted Financial
Reporting Standards and Model Financial Statements. However, although the Group is
completing a plan for transition to IFRSs which includes, inter alia, an analysis of the accounting
method differences, the selection of the accounting methods to be applied when alternative
treatments are permitted and an assessment of the changes in reporting procedures and
systems, sufficient information is not yet available to estimate with reasonable objectivity the
extent to which the accompanying consolidated balance sheet and consolidated statement of
income for 2004 will differ from those to be prepared in the future in accordance with the
accounting methods contained in the IFRSs in force as of December 31, 2005.
2. Accounting principles and valuation methods
The accounting principles and valuation methods applied in preparing the consolidated financial
statements were as follows:
a) Recognition of revenues and expenses
Revenues and expenses are generally recognized for accounting purposes on an accrual basis,
the interest method being applied for transactions whose settlement periods exceed 12 months.
However, in accordance with the principle of prudence and with Bank of Spain regulations, the
interest earned on nonperforming, disputed or doubtful loans, including interest subject to
country risk in countries classified as experiencing temporary difficulties and as doubtful or very
doubtful, is not recognized as a revenue until it is collected.
b) Foreign currency transactions
Translation methods
Balances denominated in foreign currencies, including those of the financial statements of the
consolidated companies and branches in non-EMU countries, were translated to euros at the
year-end average official exchange rates in the Spanish spot foreign currency market, except for:
1. The balances funded in euros relating to the capital amounts assigned to branches in non-
EMU countries and to the reserves and undistributed earnings of companies and branches in
non-EMU countries, which were translated at historical exchange rates.
2. The revenue and expense accounts of the consolidated companies and branches in non-EMU
countries, which were translated at the average exchange rates in each year.
3. The balances arising from non-hedging forward foreign currency/foreign currency and foreign
currency/euro purchase and sale transactions, which were translated to euros at the year-end
exchange rates prevailing in the forward foreign currency market.
Accounting for exchange differences
The exchange differences arising from application of the above-mentioned translation methods
are recorded as follows:
1. The net debit or credit differences arising in the consolidation process are recorded under the
‘‘Accumulated Losses at Consolidated Companies’’ or ‘‘Reserves at Consolidated
Companies’’ captions, respectively, in the consolidated balance sheets, net of the portion of
these differences relating to minority interests (Note 21).
2. The remaining exchange differences are recorded under the ‘‘Gains (Losses) on Financial
Transactions’’ caption in the consolidated statements of income (Note 25), with a balancing
entry, in the case of nonhedging forward transactions, under the ‘‘Other Assets’’ or ‘‘Other
Liabilities’’ caption in the consolidated balance sheets.
Certain of the companies located in countries with specific accounting regulations on the
recording of adjustments for inflation (basically Chile, Mexico, Uruguay, Bolivia and Peru) record
debits and credits in their income statements to adjust their assets and liabilities for inflation.
These debits and credits are recorded under the ‘‘Extraordinary Loss’’ and ‘‘Extraordinary
Income’’ captions in the consolidated statements of income (Note 25). The detail of these items
is as follows:
Thousands of Euros
2004 2003 2002
Extraordinary income:
Other revenues 24,874 13,164 36,542
Extraordinary loss:
Other expenses (22,111) (22,293) (106,079)
2,763 (9,129) (69,537)
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
c) Credit loss allowance
The credit loss allowances, which are recorded as a reduction of the ‘‘Due from Credit
Institutions’’, ‘‘Loans and Credits’’ and ‘‘Debentures and Other Fixed-Income Securities’’ captions
on the asset side of the consolidated balance sheets, are intended to cover possible losses in the
full recovery of all types of risk transactions, except off-balance-sheet risks, arranged by the
consolidated companies in the course of their business activity.
The credit loss allowances were calculated as follows:
1. Allowance for risks in Spain and abroad, excluding country risk:
a. Specific allowances: on a case-by-case basis, based on the loan recovery expectations
and, as a minimum, by application of the coefficients stipulated in Bank of Spain
regulations. The credit loss allowance is increased by provisions from period income and is
decreased by chargeoffs of debts deemed to be uncollectible or which have been
nonperforming for more than three years (six years in the case of mortgage loans with
effective coverage) and by releases, where appropriate, of the provisions recorded for
debts subsequently recovered (Note 7).
b. General-purpose allowance: additionally, in accordance with Bank of Spain regulations, an
additional general-purpose allowance, equal to 1% of the loans and credits, private-sector
fixed-income securities, contingent liabilities and doubtful assets for which provision is not
mandatory (0.5% for certain mortgage loans) has been recorded for losses not specifically
identified at year-end.
2. Country-risk allowance: on the basis of the estimated classification of the degree of debtservicing
difficulty being experienced by each country (Note 7).
3. Allowance for the statistical coverage of credit losses: additionally, the Group is required to
record an allowance for the statistical coverage of the unrealized credit losses on the various
homogeneous loan portfolios, by charging each quarter to the ‘‘Writeoffs and Credit Loss
Provisions’’ caption in the consolidated statement of income for each of the consolidated
companies, the positive difference resulting from subtracting the net specific provisions for
credit losses recorded in the quarter from one-fourth of the statistical estimate of the overall
unrealized loan losses on the various homogeneous loan portfolios (estimated either using
calculation methods based on the Group’s statistical expectations, approved by the Bank of
Spain, or calculating the credit risk of each portfolio multiplied by certain coefficients which
range from 0% to 1.5%). If the resulting difference were negative, the amount would be
credited to the consolidated statement of income with a charge to the allowance recorded in
this connection (to the extent of the available balance).
The provisions recorded to cover the losses which may be incurred by the Group as a result of
the off-balance-sheet risks maintained by the consolidated companies are included under the
‘‘Provisions for Contingencies and Expenses — Other Provisions’’ caption in the consolidated
balance sheets (Note 17).
The credit loss allowances recorded by the Group comply with Bank of Spain regulations.
d) Government debt securities, debentures and other fixed-income securities
The securities composing the Group’s fixed-income securities portfolio were classified as follows:
1. The securities assigned to the trading portfolio, which consists of securities held for the
purpose of operating in the market, are stated at their year-end market price. The net
differences arising from price fluctuations are recorded (ex-coupon) under the ‘‘Gains
(Losses) on Financial Transactions’’ caption in the consolidated statements of income
(Note 25).
2. The securities assigned to the held-to-maturity portfolio, which consists of securities which the
Group has decided to hold until final maturity basically because it has the financial capacity to
do so or because it has related financing available, are stated at acquisition cost, adjusted by
the amount resulting from accruing by the interest method the positive or negative difference
between the redemption value and the acquisition cost over the residual life of the security.
3. The securities assigned to the available-for-sale portfolio, which consists of the securities not
assigned to either of the two portfolios described above, are stated at their adjusted
acquisition cost, as defined in paragraph 2 above. The adjusted acquisition cost and the
market value of these securities are compared. The market value of listed securities in this
portfolio is deemed to be the market price on the last day of trading of each year and that of
unlisted securities to be the current value at the market interest rates prevailing on that date.
A security price fluctuation allowance is recorded, if required, with a charge to asset accrual
accounts or to income.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
In the fixed-income securities assigned to the available-for-sale portfolio, the net difference
(additional to the security price fluctuation allowance recorded with a charge to income) by which
the adjusted acquisition cost exceeded their market value amounted to 045 million as of
December 31, 2004 (Notes 5 and 8) (02 million and 0272 million as of December 31, 2003 and
2002, respectively). This amount is not reflected in the consolidated balance sheets since the
security price fluctuation allowance recorded for this amount and the asset accrual account
against which the allowance was recorded offset each other. This accrual account is taken into
account in calculating the Group’s capital ratio.
In the event of disposal of these securities, the losses with respect to the adjusted acquisition
cost are recorded with a charge to income. Gains (if they exceed the losses charged to income in
the year) are credited to income only for the portion, if any, exceeding the security price
fluctuation allowance required at year-end and charged to accrual accounts.
e) Equity securities
Equity securities held in the trading portfolio are valued at their market price at year-end. The net
differences arising from price fluctuations are recorded under the ‘‘Gains (Losses) on Financial
Transactions’’ caption in the consolidated statements of income.
The investments in nonconsolidable Group companies and in associated entities (Note 1) are
accounted for by the equity method.
Equity securities other than those described above are recorded in the consolidated balance
sheets at the lower of cost or market. The market value of these securities is determined as
follows:
1. Listed securities: lower of average market price in the last quarter of the year or market price
on the last day of trading in the year.
2. Unlisted securities: underlying book value of the investment per the latest available financial
statements of the investees adjusted by the unrealized gains existing at the time of acquisition
and still existing at year-end. The difference between acquisition cost and the amount
calculated as indicated in the preceding paragraph which may be absorbed by the annual
increase in the underlying book values of the investees over a maximum period of 20 years
need not be written down.
The security price fluctuation allowance recorded to recognize the unrealized losses is presented
as a reduction of the balance of the related captions in the consolidated balance sheets (Note 9).
f) Intangible assets
Capital increase expenses, new business launch expenses, expenditures for the acquisition and
preparation of computer systems and programs which will be useful over several years, and
similar items are generally recorded at cost, net of accumulated amortization. These expenses
are amortized with a charge to income over a maximum period of five years.
0241 million, 0274 million and 0286 million of amortization of these expenses were charged to
the consolidated statements of income in 2004, 2003 and 2002, respectively, and these amounts
are recorded under the ‘‘Depreciation and Amortization and Writedown of Property and
Equipment and Intangible Assets’’ caption.
g) Consolidation goodwill and negative difference in consolidation
Consolidation goodwill
The positive differences between:
(i) the cost of the investments in consolidated companies (both those fully consolidated and
those accounted for by the equity method), and
(ii) as required by the Bank of Spain, the market value of the investments in other companies
contributed by third parties in capital increases carried out at the Bank in accordance with the
provisions of Article 159.1.c of the revised Spanish Corporations Law (Note 20)
and the respective underlying book values adjusted at the date of first-time consolidation are
allocated as follows:
1. If the difference is allocable to specific assets or liabilities of these companies, it is recorded
by increasing the value of the assets (or reducing the value of the liabilities) whose market
values were higher (lower) than the net book values per these companies’ balance sheets and
whose accounting treatment is similar to that of analogous assets (liabilities) of the Group
(amortization, accrual, etc.).
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
2. The remainder is recorded as consolidation goodwill. These differences are being amortized
from the acquisition date over the period in which it is considered that the investments will
contribute to the obtainment of income for the Group, which will not exceed 20 years
(Note 12).
The goodwill amortization charges are recorded under the ‘‘Amortization of Consolidation
Goodwill’’ caption in the consolidated statements of income.
Negative difference in consolidation
The negative differences in consolidation, which are recorded in the consolidated balance sheets
as deferred revenues, can be credited to consolidated income when the investments in the
capital stock of the related investee companies are totally or partially disposed of.
h) Property and equipment
Operating property and equipment
Property and equipment are carried at cost revalued pursuant to the applicable enabling
provisions, net of the related accumulated depreciation.
Depreciation is provided by the straight-line method at rates based on the years of estimated
average useful life of the related assets. The annual depreciation expense is calculated basically
at the following rates:
Buildings for own use
Percentages
2
Furniture 7.5 to 10
Fixtures 6 to 10
Office and automation equipment 10 to 25
Upkeep and maintenance expenses are expensed currently.
Property and equipment acquired through foreclosure
These property and equipment items are stated at the lower of the book value of the assets used
to acquire them or the appraised value of the asset acquired.
If these assets are not disposed of or added to the Group’s operating property and equipment, a
provision is recorded on the basis of the time elapsed since their acquisition, the nature of the
asset and/or the characteristics of the appraisal.
The provisions recorded with a charge to the ‘‘Extraordinary Loss’’ caption in the consolidated
statements of income are presented as a reduction of the balance of the ‘‘Property and
Equipment — Other Property’’ caption (Note 13).
i) Treasury stock
The balance of the ‘‘Treasury Stock’’ caption relates to Bank shares acquired and held by
consolidated companies. These shares are reflected at cost, net of the required provision, if any,
which is determined on the basis of the lower of the Group’s underlying book value or market
price. The aforementioned provision is recorded with a charge to the ‘‘Losses on Group
Transactions’’ caption in the consolidated statements of income.
The total Bank shares owned by consolidated companies represented 0.20% of the capital stock
issued by the Bank as of December 31, 2004. At that date, the nonconsolidable subsidiaries held
0.04% of the Bank’s capital stock (0.05% and 0.04%, respectively, as of December 31, 2003 and
0.08% and 0.02%, respectively, as of December 31, 2002).
In 2004, the Group companies (fully consolidated or accounted for by the equity method)
acquired and disposed of 840 million and 829 million Bank shares, respectively, including the
purchases and sales discussed in Note 1.
j) Pension commitments
Companies in Spain
Under the current collective labor agreements, certain Spanish consolidated entities have
undertaken to supplement the social security benefits accruing to certain employees, or to their
beneficiary rightholders, for retirement, permanent disability, death of spouse or death of parent.
These commitments, which amounted to 010,298 million, 09,996 million and 09,975 million as of
December 31, 2004, 2003 and 2002, respectively, were covered by in-house allowances and
external funds at those dates.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
1. Applicable regulations
In-house allowances —
Accrued pension commitments and contingencies must be valued and covered using
objective criteria. These criteria include an assumed annual interest rate not exceeding 4%
and the use of properly adjusted life expectancy, mortality and disability tables relating to
domestic or foreign past experience (if other than those relating to the past experience of the
group of employees concerned, properly checked).
The actuarial studies performed as of December 31, 2004, 2003 and 2002, to determine
these commitments were conducted on an individual basis by independent actuaries,
basically using the following assumptions:
a. Assumed annual interest rate: 4%.
b. Mortality tables: GRM/F-95 (PERM/F-2000P in the case of Banesto for 2004)
c. Annual social security pension revision rate: 1.5%.
d. Cumulative annual CPI: 1.5%.
e. Annual salary growth rate: 2.5%.
f. Method used to calculate the commitments to serving employees: straight-line distribution
of the estimated cost per employee based on the ratio of each employee’s years of past
service to his or her estimated total expected years of service (projected unit credit
method).
The Group recorded the difference between the recorded allowances as of December 31,
1999, and the allowances calculated by applying the new valuation methods, with a balancing
entry in a debit-balance account (which is presented in the consolidated balance sheets
offsetting the pension allowances) which is reduced each year with a charge to the
consolidated statement of income by at least one-tenth of the beginning balance. The
‘‘Extraordinary Loss’’ caption in the 2004, 2003 and 2002 consolidated statements of income
(Note 25) includes 0125 million, 0125 million and 0126 million, respectively, relating to the
annual charge recorded in this connection.
The pension commitments covered by insurance contracts (determined as the amount of the
net level premium reserves to be recorded by the insurer) are recorded under the ‘‘Provisions
for Contingencies and Expenses — Pension Allowance’’ caption, with a charge to the ‘‘Other
Assets’’ caption in the consolidated balance sheet. As of December 31, 2004, the amount of
the aforementioned insured commitments was 03,195 million (03,209 million and
03,192 million as of December 31, 2003 and 2002, respectively — Note 17).
Additionally, the valuation differences arising exclusively from the fact that the investments
relating to the insurance contracts are at interest rates exceeding those applied in calculating
the commitments to employees (4% annually) are recorded as an in-house pension
allowance, with a balancing entry in a debit-balance account (which is recorded in the
consolidated balance sheets offsetting the pension allowance), which is reduced (with a
charge to the ‘‘Interest Expense’’ caption in the consolidated statement of income — Note 25)
at the appropriate rate so that, taken together with the allocable cost resulting from the
increase in the recorded in-house pension allowance arising from the rate of return used to
calculate it, it is equal to the increase in value of the assets added (recorded with a credit to
the ‘‘Interest Income’’ caption in the consolidated statement of income — Note 25), thus
neutralizing the effect on income. As of December 31, 2004, 2003 and 2002, the
aforementioned valuation differences amounted to 0941 million, 01,019 million and
01,091 million, respectively.
External funds —
In the case of commitments which must be treated as external funds, the differences which
arose from the application of the new valuation methods with respect to the in-house
allowance as of December 31, 1999, are recorded with a charge to income over a maximum
period of 9 years if the commitment is instrumented in an insurance contract (14 years if
instrumented in a pension plan). The ‘‘Extraordinary Loss’’ caption in the 2004, 2003 and
2002 consolidated statements of income (Note 25) includes 014 million, 014 million and
015 million, respectively, relating to the annual charge recorded in this connection.
In 2002 the Group took out insurance contracts to externalize the commitments undertaken
subsequent to May 1996, and to employees hired after November 1999. The related funds are
deemed to be external funds and, accordingly, they are not recorded in the consolidated
balance sheets.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Other funds —
Certain labor obligations (‘‘Other Commitments’’) are recorded under the ‘‘Provisions for
Contingencies and Expenses — Pension Allowance’’ caption (Note 17), with a charge to
‘‘Extraordinary Loss’’ (Note 25), over a maximum period of five years from when the obligation
arose, in conformity with the applicable regulations.
2. Funded accrued commitments
Following are the main amounts disclosed in the aforementioned actuarial studies and the
amounts assumed by insurance companies as external funds:
Thousands of Euros
Discounted Present Value 2004 2003 2002
Accrued pensions of serving employees 1,161,328 1,159,683 1,234,819
Commitments arising from employees retired early 4,064,242 3,607,263 3,382,436
Vested pensions of retired employees (*)
5,024,296 5,186,573 5,328,055
Other commitments 48,244 42,096 29,897
Total accrued commitments 10,298,110 9,995,615 9,975,207
(*) Including pensions to employees who took early retirement.
These commitments were funded as follows:
Thousands of Euros
2004 2003 2002
Uninsured in-house allowance
Insured in-house allowance —
4,882,201 4,418,205 4,257,428
Net level premium reserves at Group insurance companies (*)
904,721 824,960 764,896
Insurance policies taken out with other insurance companies (*)
2,290,652 2,383,984 2,426,617
3,195,373 3,208,944 3,191,513
Pension allowance (Note 1)
Difference pursuant to the funding schedule stipulated by Bank of Spain
8,077,574 7,627,149 7,448,941
Circular 5/2000 (**)
625,612 750,847 876,884
Differences in insurance contracts assigned to pension commitments (**)
940,884 1,018,525 1,091,367
In-house allowance 9,644,070 9,396,521 9,417,192
External funds
Of which:
658,971 607,521 567,287
Insured provisions
Difference pursuant to the funding schedule stipulated by Bank of
609,064 543,979 489,959
Spain Circular 5/2000 49,907 63,542 77,328
Total amount 10,303,041 10,004,042 9,984,479
(*) These amounts have been recorded under the ‘‘Provisions for Contingencies and Expenses — Pension
Allowance’’ caption in the consolidated balance sheets with a charge to the ‘‘Other Assets’’ caption.
(**) These amounts are recorded under the ‘‘Provisions for Contingencies and Expenses — Pension Allowance’’
caption in the consolidated balance sheets and are offset, in the same amounts, by the debit-balance
accounts against which the allowance was initially recorded.
3. Plans for early retirement
In 2004, 2003 and 2002, the Bank, Banco Español de Crédito, S.A. (Banesto) and Santander
Consumer Finance, S.A. offered certain employees the possibility of taking early retirement.
Accordingly, in those years allowances were recorded to cover the supplementary liabilities to
employees taking early retirement and the salary and other benefit commitments to these
employees from the time of early retirement to the date of effective retirement.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Pursuant to Rule 13 of Bank of Spain Circular 4/1991, and after obtaining, where appropriate,
authorization from the Bank of Spain, these allowances were recorded as follows:
Thousands of Euros
2004 2003 2002
With a charge to unrestricted reserves (Note 21)
Of which:
— 335,820 856,431
Banco Santander Central Hispano, S.A. — 259,014 705,845
Banesto — 74,360 144,430
Santander Consumer Finance, S.A. — 2,446 6,156
With a charge to extraordinary income (*)
Of which:
809,973 26,215 55,071
Banco Santander Central Hispano, S.A. 693,344 15,869 45,801
Banesto 107,692 10,346 6,300
Santander Consumer Finance, S.A. 8,937 — 2,970
With a charge to deferred tax assets (Note 22) (**)
Of which:
— 188,427 484,101
Banco Santander Central Hispano, S.A. — 143,449 399,624
Banesto — 43,661 81,162
Santander Consumer Finance, S.A. — 1,317 3,315
Total allowances recorded (Note 17) 809,973 550,462 1,395,603
(*) Also, the prepaid taxes arising as a result of this charge were recorded in 2004 (Note 22).
(**) 3180,826 thousand and 3461,159 thousand of this amount arose from the charge to reserves in 2003 and
2002, respectively.
Abbey
Abbey’s pension commitments to its employees amounted to 05,232 million as of December 31,
2004. These commitments were calculated and recorded under U.K. regulations using U.K.
financial and actuarial assumptions. The allowances covering these commitments were
externalized and instrumented in various defined-benefit plans. Pursuant to U.K. regulations,
there is a difference which is written down over the average lives of the beneficiaries of the plans.
Additional internal allowances amounting to 01,207 million were recognized in the process of
standardization of accounting and valuation methods (Note 1).
Other companies abroad
In addition to the matters discussed above, other Group financial institutions abroad have
assumed commitments with their employees which are similar to pensions.
The technical assumptions used by these entities (interest rates, mortality tables, cumulative
annual CPI, etc.) are consistent with the socio-economic conditions prevailing in these countries.
As of December 31, 2004, 2003 and 2002, the total commitments covered by these companies
amounted to 03,579 million, 03,301 million and 03,002 million, respectively. Of these amounts,
01,368 million, 01,308 million and 01,390 million, respectively, were covered by in-house pension
allowances recorded under the ‘‘Provisions for Contingencies and Expenses — Pension
Allowance’’ caption in the consolidated balance sheets. The remaining amount was covered by
policies taken out with insurance companies.
Accrued cost and payments
The accrued pension cost at the Group and the payments for these commitments were as
follows:
Thousands of Euros
2004 2003 2002
Accrued cost (Note 25)
Of which are recorded under:
1,485,398 550,401 836,168
General administrative expenses — Personnel expenses 102,861 96,603 130,054
Extraordinary loss 979,834 120,119 350,832
Interest expense 601,015 554,012 597,211
Interest income (198,312) (220,333) (241,929)
Payments 1,182,269 1,122,682 1,125,565
Of which have been refunded by insurance entities 376,235 363,215 350,663
k) Assets and liabilities acquired or issued at a discount
Assets and liabilities acquired or issued at a discount, except for marketable securities, are
recorded at their redemption value. The difference between this value and the amounts paid or
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
received are recorded under the liability and asset ‘‘Accrual Accounts’’ captions in the
consolidated balance sheets.
l) Futures transactions
Futures transactions are recorded in memorandum accounts based on either the future rights
and commitments which might have an effect on net worth, or on the balances required to reflect
the transactions, regardless of whether or not they affect the Group’s net worth. Accordingly,
these instruments’ notional amount (theoretical value of the contracts) does not reflect the total
credit or market risk assumed by the Group.
Transactions whose purpose and effect was to eliminate or significantly reduce market risks and
which are performed to reduce the risk to which the Group is exposed in its management of
correlated assets, liabilities and futures transactions, were treated as hedging transactions. The
gains or losses arising from hedging transactions were taken to income symmetrically to the
revenues or expenses arising from the hedged items, with a balancing entry under ‘‘Other
Assets’’ or ‘‘Other Liabilities’’ in the consolidated balance sheets.
Nonhedging transactions (also called trading transactions) arranged on organized markets were
valued at market price, and market price fluctuations were recorded in full under the ‘‘Gains
(Losses) on Financial Transactions’’ caption in the consolidated statements of income.
The gains or losses arising from trading transactions arranged outside organized markets are not
recognized in income until they are effectively settled. However, provisions were recorded with a
charge to income for potential net foreign exchange losses, if any, on each type of risk disclosed
by the valuations of positions at the end of each year. The types of risks considered for these
purposes are interest rate, share price and currency risks.
m) Severance costs
Under current Spanish law, Spanish consolidated companies are required to pay severance to
employees terminated without just cause. There is no staff reduction plan making it necessary to
record a provision in this connection.
n) Corporate income tax and other taxes
These captions in the consolidated statements of income include all the debits or credits arising
from Spanish corporate income tax and those taxes of a similar nature applicable to companies
abroad, including both the amounts relating to the expense accrued in the year and those arising
from adjustments to the amounts recorded in prior years (Note 22).
The expense for corporate income tax of each year is calculated on the basis of book income
before taxes, increased or decreased, as appropriate, by the permanent differences from income
for tax purposes. Permanent differences are defined as those arising between the taxable
income and the book income before taxes which do not reverse in subsequent periods,
considering the income obtained by Group companies as a whole.
In this connection, certain timing differences which have a specific reversal period of fewer than
ten years are recorded for accounting purposes; all other differences are treated for all purposes
as permanent differences.
Tax relief and tax credits are treated as a reduction of the corporate income tax for the year in
which they are taken (Note 22). Entitlement to these tax credits is conditional upon compliance
with the requirements of current regulations.
3. Santander Group
Banco Santander Central Hispano, S.A.
The growth of the Group in the last decade has led the Bank to also act, in practice, as a holding
entity of the shares of the various companies in its Group, and its results are becoming
progressively less representative of the performance and earnings of the Group. Therefore, each
year the Bank determines the amount of dividends to be distributed to its shareholders on the
basis of the consolidated net income, while maintaining the Group’s traditionally high level of
capitalization and taking into account that the transactions of the Bank and of the rest of the
Group are managed on a consolidated basis (notwithstanding the allocation to each company of
the related net worth effect).
The Exhibits provide relevant data on the consolidated Group companies (Exhibit I and III) and
on the companies accounted for by the equity method (Exhibit II).
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
International Group structure
At international level, the various banks and other subsidiary and associated companies
belonging to the Group are integrated in a corporate structure comprising various holding
companies which are the ultimate shareholders of the banks and subsidiaries abroad.
The purpose of this structure, all of which is controlled by the Bank, is to optimize the
international organization from the strategic, economic, financial and tax standpoints, since it
makes it possible to define the most appropriate units to be entrusted with acquiring, selling or
holding stakes in other international entities, the most appropriate financing method for these
transactions and the most appropriate means of remitting the income obtained by the Group’s
various operating units to Spain.
Purchases and sales
The principal equity investments acquired and sold by the Group in 2002, 2003 and 2004, in
addition to the acquisition of the capital stock of Abbey indicated in Note 1, and other significant
corporate transactions were as follows:
ELCON Finance AS (Elcon)
In September 2004 the Group acquired all the shares of Elcon (a leading Norwegian vehicle
financing company) for NKr 3,440 million (approximately 0400 million). Subsequently, the Group
resolved to sell Elcon’s leasing and factoring businesses for approximately 0160 million. The
resulting goodwill amounted to 0131 million (Note 12).
Polskie Towarzystwo Finansowe, S.A. (PTF)
In February 2004 Santander Consumer Finance, S.A. announced the acquisition of all the shares
of the Polish consumer finance company Polskie Towarzystwo Finansowe, S.A., together with the
loan portfolio managed by it, for a cash amount of 0524 million, of which 0460 million relate to the
nominal amount of the loan portfolio acquired. The transaction as a whole gave rise to goodwill
totaling 070 million (Note 12).
Finconsumo Banca SpA (Finconsumo)
In 2003 the Group resolved to acquire the 50% holding in the capital stock of Finconsumo that it
did not own and acquired 20% for 060 million in that year. In January 2004 it acquired the
remaining 30% for 080 million, giving rise to goodwill of 058 million (Note 12).
Santander Central Hispano Previsión S.A. de Seguros y Reaseguros
In 2003 the Group reached an agreement to divest in full its holding in this company. Once the
required authorizations had been obtained, the transaction was performed in June 2004 for a
price of 0162 million.
Abfin BV
In September 2004 the Group acquired the Dutch company Abfin BV, which engages mainly in
vehicle financing, for 022 million. The goodwill arising on this acquisition amounted to 03 million.
Orígenes AFJP, S.A. (Orígenes AFJP)
In accordance with the commitments acquired in prior years, in 2003 the Group acquired a 20%
holding in the capital stock of Orígenes AFJP for 0141 million. The goodwill which arose from this
acquisition (Note 12) was amortized using the provisions recorded under the ‘‘Provisions for
Contingencies and Expenses — Other Provisions’’ caption as of December 31, 2002 (Note 17).
Banco Santander Portugal, S.A. (Banco Santander Portugal)
In 2003 the Group acquired a 12.74% ownership interest in the capital stock of Banco Santander
Portugal for 0106 million, thus increasing its holding to 97.95%.
Banco Español de Crédito, S.A. (Banesto)
In 2002 Banesto carried out a monetary capital increase through the issuance of 81,670,694 new
shares, carrying preemptive rights, at a ratio of 2 new shares issued at par for every 15 old
shares. The Group sold its preemptive rights (arising from its 99.04% holding in the capital stock
of Banesto) for 0443 million in 2002 (Note 21).
Grupo Financiero Santander Serfin, S.A. de C.V. (Grupo Financiero Santander Serfin)
and Banco Santander Mexicano, S.A.
In December 2002, the Group reached an agreement with Bank of America Corporation whereby
the latter acquired 24.9% of Grupo Financiero Santander Serfin for US$1,600 million
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
(01,457 million), which gave rise to gains of 0681 million. These gains were recorded under the
‘‘Gains on Disposal of Investments in Fully Consolidated Companies’’ caption in the consolidated
statement of income for the year ended December 31, 2003. Under this agreement, Bank of
America Corporation will keep its holding for at least three years, and after this period it may, if it
deems it appropriate, use several liquidity mechanisms, including the listing of its holding on the
stock exchange and the right to sell this holding to the Group, at one time, at its book value at the
time of the sale, calculated in accordance with international accounting standards.
After this sale, the Group’s holding in the capital stock of Grupo Financiero Santander Serfin
stood at 73.98%.
In June 2004, Grupo Financiero Santander Serfin increased capital by 0163.4 million, of which
the Group subscribed 0122.5 million.
On November 29, 2004, the Shareholders’ Meetings of Banco Santander Mexicano, S.A., Banca
Serfin, S.A., Factoring Santander Serfin, S.A. de C.V. and Fonlyser, S.A. de C.V. resolved to
merge the last three entities into Banco Santander Mexicano, S.A.. This merger was effective for
accounting purposes from December 31, 2004.
AKB Holding (AKB)
In 2001 the Group reached an agreement with the Werhahn Group for the acquisition of AKB (a
German group specializing in consumer finance). In 2002 the Bank issued 109,040,444 new
shares of 00.5 par value each and additional paid-in capital of 09.588 each for an effective
amount of 01,100 million, which were paid in full through the contribution of shares representing
all the capital stock of AKB, in accordance with the resolutions adopted by the Bank’s Special
Shareholders’ Meeting on February 9, 2002. AKB merged with CC-bank Ag. in 2002.
Banco Santiago
Under the agreements between the Group and the Central Bank of Chile (as the second largest
shareholder of Banco Santiago), on April 17, 2002, the Group acquired 35.45% of the Central
Bank of Chile’s holding in the capital stock of Banco Santiago for US$685 million. On August 1,
2002, the merger of Banco Santiago and Banco Santander Chile was effectively executed, with
retroactive effect to January 1, 2002, after the required resolutions of their respective
Shareholders’ Meetings and approval by the Chilean regulatory authorities. The name of the
post-merger entity is Banco Santander Chile.
Banco del Río de la Plata, S.A. (Banco Río)
As of December 31, 2004, the Group had a 99.1% interest in Banco Río (99.1% and 98.9% as of
December 31, 2003 and 2002, respectively) following the tender offer launched in 2000 to
acquire the capital stock of Banco Río owned by minority shareholders, which was accepted by
94% of the minority shareholders, the acquisition in 2002 (by virtue of the commitments assumed
in prior years) of 18.54% of the capital stock (23% of the voting rights) for 0395 million and the
conversion into equity in 2003 of the subordinated debt owned by the Group as of December 31,
2002.
Banco Santander Colombia, S.A. (Banco Santander Colombia)
As a result of a capital increase and of certain agreements reached in prior years, in 2002 the
Group increased its holding in the capital stock of Banco Santander Colombia by 34.32%, for
which it paid 0303 million.
Patagon Group
In July 2000, the Group acquired a 97.62% holding in the capital stock of the Patagon Group (a
U.S. financial portal) for approximately US$607 million.
In 2002 the Group restructured its Internet banking business, sold its holding in the U.S. financial
portal to the other shareholders and released the provisions recorded for the full amount of the
investment.
Other investments
Compañía Española de Petróleos, S.A. (Cepsa)
In 2003 the Bank launched a tender offer for up to 42,811,991 Cepsa shares, and the offer was
accepted for 32,461,948 shares, representing an investment of 0909 million (Notes 10 and 12).
Total, S.A. considered that the tender offer constituted a breach of historical side agreements
between it and the Bank in relation to Cepsa (agreements which had, however, been rendered
ineffective automatically by Law 26/2003) and, accordingly, filed a request for arbitration seeking
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
injunctive measures at the Netherlands Court of Arbitration. The award rendered in this injunctive
arbitration proceeding, which does not constitute a preliminary ruling on, or consider the merits
of, the matters raised since they must be resolved in an arbitration on the merits already in
progress, established injunctive measures that can be summarized as follows:
1. Requirement for the Bank and Total, S.A. to act in concert with respect to the shares of Cepsa
held by them directly or indirectly.
2. Prohibition against the sale or charging of the direct or indirect holdings of the Bank in
Somaen Dos, S.L. (Somaen), a company through which it owned its holding in Cepsa prior to
the tender offer.
3. Prohibition against the sale or charging of the Cepsa shares acquired by Santander in the
tender offer.
The arbitration proceeding to resolve on the merits of the case is currently underway. The
decision to be adopted in this proceeding will not be conditioned by the award rendered in the
injunctive proceeding described above, which is provisional and does not constitute a preliminary
ruling on the merits.
Royal Bank of Scotland Group, plc. (Royal Bank of Scotland)
In 2002 the Group made a net divestment of 3% of its holding in Royal Bank of Scotland, giving
rise to gains of approximately 0806 million. As of December 31, 2002, the ownership interest was
5.04%.
As of December 31, 2003, following several purchases and sales made during the year, the
Group’s holding was 5.05%. The sales gave rise to gains of 0217 million.
In May 2004 the Group subscribed to the capital increase at Royal Bank of Scotland, with a total
disbursement of £150 million, in order to maintain undiluted its ownership interest in this
company. The transaction gave rise to goodwill amounting to 025 million (Note 12).
In September 2004, the Group sold 79 million shares of Royal Bank of Scotland, representing
2.51% of its capital stock, giving rise to a gain of approximately 0472 million. As of December 31,
2004, the Group’s holding amounted to 2.54% and was recorded under the ‘‘Common Stocks
and Other Equity Securities’’ caption (Note 9).
In January 2005, the Group sold all the ownership interest held by it in the capital stock of Royal
Bank of Scotland as of December 31, 2004, giving rise to a gain of 0717 million which, in
accordance with accounting principles, will be recorded in 2005.
Unión Fenosa
In 2002 several purchases of shares of Unión Fenosa were made for a total amount
of 0465 million. In 2004 the Group sold 1% of its holding in Unión Fenosa, leaving an ownership
interest of 22.02% as of December 31, 2004.
Grupo Financiero Bital
In 2002 the Group subscribed to a capital increase and converted bonds into Grupo Financiero
Bital shares for approximately 099 million, thus increasing its holding to 25.4% of the dividend
rights and 29.1% of the voting rights. Subsequently, the Group accepted the tender offer
launched by Hong Kong and Shanghai Bank Corporation (‘‘HSBC’’) on Grupo Financiero Bital,
which gave rise to gains of approximately 0113 million.
Dragados y Construcciones, S.A.
In 2002 the Group divested its holding in Dragados y Construcciones, S.A. (as of December 31,
2001, the holding was 20.19% of capital stock) at a gain of approximately 0521 million (Note 9).
Grupo Sacyr-Vallehermoso, S.A. (Sacyr-Vallehermoso)
In 2002 the Group sold 24.5% of its holding in Sacyr-Vallehermoso (as of December 31, 2001,
the holding was 25.14% of capital stock) at a gain of approximately 0301 million (Note 9).
San Paolo IMI, S.p.A. (San Paolo IMI)
In 2003 the Group increased its holding in San Paolo IMI, from 5.2% as of December 31, 2002 to
8.6% as of December 31, 2004, with a net investment of 0525 million in 2003. As of
December 31, 2004 and 2003, this holding was recorded under the ‘‘Common Stocks and Other
Equity Securities’’ caption (Note 9).
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
The cost, total assets and gross revenues of the other consolidated companies acquired and
sold in 2004, 2003 and 2002 were not material with respect to the related consolidated totals.
Off-shore entities
At year-end, the Group’s off-shore entities (excluding Abbey’s subsidiaries) performed the
following business activities:
a) Banking and financial activities such as treasury, financing, foreign trade, international private
banking, trading, etc.
b) Obtaining financing from third parties, including issues of preferred shares and debt.
c) Ownership of shareholdings.
The revenues of these off-shore entities (excluding issuers) represented less than 2% of the
consolidated Group’s total revenues.
Exhibits I and III provide data on the off-shore companies, other than Abbey subsidiaries, and
their aggregate net income, excluding preferred security issuers (since their income relates
mainly to the holders of preferred securities) is not material with respect to the Group’s
consolidated net income.
Abbey’s off-shore subsidiaries perform activities similar to those detailed above and also perform
insurance and service activities. Exhibit I provides information on these subsidiaries.
The Group has established the proper procedures and controls (risk management, supervision,
verification and review plans and periodic reports) to prevent reputational and legal risk arising at
these entities. Also, the Group continued with its policy, also implemented in recent years, to
reduce the number of off-shore units. The off-shore units’ financial statements are audited by
independent auditors.
4. Distribution of the Bank’s income and directors’ compensation
Distribution of the Bank’s income
The Board of Directors will submit for approval by the Shareholders’ Meeting the following
proposal for distribution of the Bank’s 2004 net income:
Thousands
of Euros
Dividends:
Interim (Note 1) 1,837,273
Of which:
Distributed as of December 31, 2004 (*)
791,555
Third interim dividend (*)
519,106
Fourth interim dividend 526,612
Voluntary reserves 151
Net income for the year 1,837,424
(*) Recorded under the ‘‘Other Assets’’ caption.
The accounting statements formulated pursuant to legal requirements disclosing the existence of
sufficient funds for the distribution of the interim dividends were as follows:
Thousands of Euros
12/31/03 (*)
06/30/04 09/30/04 11/30/04 12/31/04
Income after taxes 1,445,033 813,585 1,192,911 1,537,679 1,837,424
Dividends paid (1,108,653) — (395,777) (791,555) (1,310,661)
336,380 813,585 797,134 746,124 526,763
Interim dividends 335,734 395,777 395,778 519,106 526,612
Accumulated interim dividends 1,444,387 395,777 791,555 1,310,661 1,837,273
Gross dividend per share (euros) 0.070408 0.083 0.083 0.083 0.0842
(*) Fourth 2003 interim dividend.
52

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Compensation and other benefits of the Bank’s directors and senior management
Directors’ compensation
Emoluments per the bylaws
Article 38 of the Bank’s bylaws provides that the share in the Bank’s income for the year to be
received by members of the Board of Directors for discharging their duties will be equal to up to
5% of such income.
The Board of Directors, making use of the powers conferred on it, set the related amount at
0.169% of the Bank’s income for 2004 (0.196% for 2003 and 0.191% for 2002).
Consequently, the gross amount to be received by each director in this connection in 2004
amounted to 071 thousand (065 thousand in 2003, the same amount as in 2002). Additionally,
there is an annual emolument in this connection for the Executive Committee members, the
gross amount of which was 0155 thousand in 2004 (a gross amount of 0141 thousand in 2003,
the same amount as in 2002).
Lastly, the members of the Audit and Compliance Committee have been assigned an annual
gross emolument of 036 thousand for 2004 (032 thousand (gross) in 2003 and 2002).
Salary compensation
The detail of the salary compensation received by the Bank’s Board members with executive
duties, who as of December 31, 2004, 2003 and 2002, were Mr. Emilio Botín-Sanz de Sautuola y
García de los Ríos, Mr. Alfredo Sáenz Abad, Mr. Matías Rodríguez Inciarte, Ms. Ana Patricia
Botín-Sanz de Sautuola y O’Shea and Mr. Francisco Luzón López, is as follows:
Thousands of Euros
2004 2003 2002
Total salary compensation 16,179 14,784 13,438
Of which: Variable compensation 9,395 8,373 7,103
Detail by director
The detail by director of the compensation earned by the Bank’s directors in 2004 is as follows:
53

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Thousands of Euros
2004 2003 2002
Bylaw-Stipulated Fees Attendance Fees Salary Compensation to
Executive Audit Other Executive Directors
Other
Directors Board Committee Committee Board Fees Fixed Variable Total Compensation Total Total Total
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos 71 155 — 23 4 1,022 1,473 2,495 1 2,749 2,591 2,477
Mr. Fernando de Asúa Álvarez 71 155 36 23 122 — — — — 407 378 693
Mr. Alfredo Sáenz Abad 71 155 — 23 3 2,575 3,101 5,676 324 6,252 5,756 4,848
Mr. Matías Rodríguez Inciarte 71 155 — 23 104 1,300 1,748 3,048 144 3,545 3,456 3,241
Mr. Manuel Soto Serrano 71 — 36 21 22 — — — — 150 136 131
Assicurazioni Generali, Spa 71 — — 5 — — — — — 76 73 68
Mr. Antonio Basagoiti García-Tuñón 71 68 — 23 88 — — — 29 279 207 178
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea 71 155 — 23 2 850 1,150 2,000 1 2,252 1,980 1,646
Ms. Emilio Botín-Sanz de Sautuola y O’Shea 71 — — 21 2 — — — — 94 85 102
Mr. Javier Botín Sanz de Sautuola y O’Shea 31 — — 11 — — — — — 42 — —
Lord Terence Burns 2 — — 2 — — — — — 4 — —
Mr. Guillermo de la Dehesa Romero 71 155 — 23 9 — — — — 258 233 120
Mr. Rodrigo Echenique Gordillo 71 155 36 23 109 — — — 719 1,113 992 1,027
Mr. Antonio Escámez Torres 71 155 — 23 100 — — — 739 1,088 1,192 1,109
Mr. Francisco Luzón López 71 155 — 23 2 1,037 1,923 2,960 327 3,538 3,202 2,873
Mr. Elías Masaveu Alonso del Campo 71 — — 6 4 — — — — 81 85 87
Mr. Abel Matutes Juan 71 — 36 23 14 — — — — 144 130 65
Mutua Madrileña Automovilista 49 — — 13 — — — — — 62 — —
Mr. Luis Alberto Salazar-Simpson Bos 71 — 36 21 15 — — — — 143 129 124
Mr. Jaime Botín-Sanz de Sautuola y García de los Ríos (*)
40 — — 8 — — — — — 48 78 88
Mr. Juan Abelló Gallo (*)
68 — 34 13 6 — — — — 121 126 63
Mr. José Manuel Arburúa Aspiunza (*)
22 — — 6 91 — — — 1 120 181 176
Sir George Ross Mathewson (*)
62 — — 7 — — — — — 69 81 78
Mr. Antonio de Sommer Champalimaud (*)
25 — — — — — — — — 25 67 65
Other directors (1)
— — — — — — — — — — — 292
Total 2004 1,435 1,463 214 387 697 6,784 9,395 16,179 2,285 22,660 — —
54
Total 2003 1,365 1,269 192 349 679 6,411 8,373 14,784 2,520 — 21,158 —
Total 2002 1,272 1,173 177 210 747 6,335 7,103 13,438 2,534 — — 19,551
(*) Directors who, having discharged Board duties as such for some months in 2004, ceased to discharge them prior to December 31, 2004.
(1) Directors who, having discharged Board duties as such for some months in 2002, ceased to discharge them prior to December 31, 2002. EUR 289 thousand of the total amount relate to
Mr. Ángel Corcóstegui Guraya.

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Compensation to the Board members as representatives of the Bank and to senior
management
Representation
By resolution of the Executive Committee, all the compensation received by the Bank’s directors
who represent the Bank on the Boards of Directors of listed companies in which the Bank has a
stake (at the expense of those companies) and which relates to appointments made after
March 18, 2002, will accrue to the Group. The compensation received in 2004 in connection with
representation duties of this kind, relating to appointments agreed upon before March 18, 2002,
was as follows:
Company
Thousands
of Euros
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos Royal Bank of Scotland 31.5
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos Shinsei Bank 77.0
Mr. Fernando de Asúa Álvarez Cepsa 140.6
249.1
Additionally, other directors of the Bank earned a total of 084.1 thousand in 2004 as members of
the Boards of Directors of Group companies.
Senior management
Additionally, in accordance with the recommendation of the Special Commission to Foster
Transparency and Security in the Markets and Listed Companies (‘‘Aldama Commission’’),
following is a detail of the compensation paid to the Bank’s General Managers (*) in 2004, 2003
and 2002:
Thousands of Euros
Salary Compensation
Other
Year Number Fixed Variable Total Compensation Total
2002 19 10,215 12,437 22,652 3,945 26,597
2003 20 12,924 16,664 29,588 4,703 34,291
2004 23 15,156 24,399 39,555 1,727 41,282
(*) Excluding Executive Directors’ compensation, which is detailed above.
Pension commitments, other insurance and other items
The total balance of supplementary pension obligations assumed by the Group over the years for
its serving and retired employees, which amounted to 019,109 million (covered mostly by inhouse
allowances) as of December 31, 2004, includes the obligations to those who have been
directors of the Bank during the year and who discharge (or have discharged) executive functions
during the year. The total pension commitments for these directors, together with the total sum
insured under life insurance policies at that date and other items, amounted to 0178 million as of
December 31, 2004 (0162 million as of December 31, 2003 and 0256 million as of December 31,
2002, of which 0108 million related to the settlement of the pension rights referred to in the
following section of this Note).
The following table provides information on the obligations undertaken and covered by the Group
relating to pension commitments to and other insurance for the Bank’s Executive Directors:
2004
Thousands of Euros
2003 2002
Accrued Accrued Accrued
Pension Other Pension Other Pension Other
Obligations Insurance Obligations Insurance Obligations Insurance
Mr. Emilio Botín-Sanz de
Sautuola y García de los
Ríos 10,700 — 10,028 — 9,420 —
Mr. Alfredo Sáenz Abad 46,061 7,724 52,807 7,573 55,138 3,877
Mr. Matías Rodríguez Inciarte
Ms. Ana Patricia Botín-Sanz
27,752 3,900 27,442 3,900 25,522 3,823
de Sautuola y O’Shea 9,742 1,258 7,736 1,258 6,656 1,258
Mr. Francisco Luzón López 35,703 6,224 19,448 4,886 18,452 4,698
Total 129,958 19,106 117,461 17,617 115,188 13,656
Additionally, other directors benefit from life insurance policies at the Group’s expense, the
related insured sum being 03 million as of December 31, 2004, 2003 and 2002.
55

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Pension settlement
Following the decision of Mr. Ángel Corcóstegui Guraya to resign, for personal reasons, in
February 2002 from his position as First Deputy Chairman of the Bank and Board member
(which entailed his corresponding resignation as Managing Director of the Bank and as member
of the various Board Committees on which he sat), and in settlement for the pension
commitments to him, the Bank paid on his resignation a gross amount of 0108 million for his
pension rights. This amount had been fully provided for as of that date. Upon payment, a
withholding of 48% was made, and the amount withheld was paid into the Spanish Treasury.
Accordingly, the net amount paid to Mr. Corcóstegui in this connection was 056 million.
56

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Stock option plan
The detail of the Bank’s stock options granted to the Board members as of December 31, 2004, is as follows:
Options Granted Exercised Options
Date of Date of
Commence- Expiration
Average Market Options at Average ment of of
Options at Exercise Exercise Exercise Price December 31, Exercise Exercise Exercise
01/01/04 Price Number Price Number Price Applied 2004 Price Period Period
Managers Plan 2000:
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos 150,000 10.545 — — — — — 150,000 10.545 12/30/03 12/29/05
Mr. Alfredo Sáenz Abad 100,000 10.545 — — — — — 100,000 10.545 12/30/03 12/29/05
Mr. Matías Rodríguez Inciarte 125,000 10.545 — — — — — 125,000 10.545 12/30/03 12/29/05
Mr. Antonio Escámez Torres 100,000 10.545 — — — — — 100,000 10.545 12/30/03 12/29/05
Mr. Francisco Luzón López 100,000 10.545 — — — — — 100,000 10.545 12/30/03 12/29/05
575,000 10.545 — — — — — 575,000 10.545
Long-term incentive plan(*) (I-06) (Note 25):
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos — — 541,400 9.07 — — — 541,400 9.07 01/15/08 01/15/09
Mr. Alfredo Sáenz Abad — — 1,209,100 9.07 — — — 1,209,100 9.07 01/15/08 01/15/09
Mr. Matías Rodríguez Inciarte — — 665,200 9.07 — — — 665,200 9.07 01/15/08 01/15/09
Mr. Francisco Luzón López — — 639,400 9.07 — — — 639,400 9.07 01/15/08 01/15/09
— — 3.055.100 9.07 — — — 3.055.100 9.07
(*) To be submitted for the approval of the next Shareholders’ Meeting.
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea’s rights as a beneficiary of the I-06 Plan Hill will be those proposed by the Board of Directors to its Shareholders’ Meeting and approved by it.
57

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Loans
The Group’s direct or indirect risk exposure to the Bank’s directors as of December 31, 2004,
amounted to 010.8 million (010.1 million and 014.4 million as of December 31, 2003 and 2002,
respectively) of loans and credits and 00.2 million (00.4 million and 01.2 million as of
December 31, 2003 and 2002, respectively) of guarantees provided. These loans and
guarantees were granted at market rates in all cases.
The detail by director as of December 31, 2004, is as follows:
Thousands of Euros
Loans and
Credits Guarantees Total
Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos 2,768 — 2,768
Mr. Antonio Basagoiti García-Tuñón 211 1 212
Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea 26 — 26
Mr. Javier Botín-Sanz de Sautuola y O’Shea 336 — 336
Mr. Rodrigo Echenique Gordillo 95 121 216
Mr. Antonio Escámez Torres 273 — 273
Mr. Francisco Luzón López 1,169 — 1,169
Mr. Abel Matutes Juan 5,861 — 5,861
Mutua Madrileña Automovilista 6 47 53
Mr. Luís Alberto Salazar-Simpson Bos 36 — 36
10,781 169 10,950
Detail of directors’ investments in companies with similar business activities and
performance by directors, as independent professionals or as employees, of similar
activities
In accordance with the requirements of Article 127 ter.4 of the Spanish Corporations Law, in
order to enhance the transparency of listed corporations, following is a detail of the directors’
investments in the capital stock of non-Group entities engaging in: (i) banking, financing or
lending; (ii) insurance; (iii) management of Collective Investment Institutions; or (iv) securities
brokerage; and of the management or governing functions, if any, that the directors discharge
therein:
Director
Mr. Emilio Botín-Sanz de Sautuola
Investee Line of Business
Number of
Shares Functions
y García de los Ríos Bankinter, S.A. Banking 847,777 Director (1)(2)
Shinsei Bank, Limited Banking — Director (1)
Bank of America Corporation Banking 280 —
Royal Bank of Scotland Group plc Banking — Director (1)(2)
Mr. Fernando de Asúa Álvarez Société Générale Banking 480 —
BNP Paribas Banking 1,507 —
San Paolo IMI, S.p.A. Banking 11,000 —
Royal Bank of Scotland Banking 4,185 —
Commerzbank, A.G. Banking 2,000 —
Banco Popular Español, S.A. Banking 1,000 —
Deutsche Bank, A.G. Banking 250 —
Centro Asegurador, S.A. Insurance 200 Representative (3)
Allianz Insurance 381 —
American International Group Insurance 1,000 —
Banco Bilbao Vizcaya Argentaria, S.A. Banking 6,000 —
Bankinter, S.A. Banking 4,000 —
ING Banking 3,000 —
Merrill Lynch Banking 625 —
Citigroup Banking 800 —
AEGON Insurance 5,000 —
Munich Re Insurance 400 —
Mr. Alfredo Sáenz Abad Banco Bilbao Vizcaya Argentaria, S.A. Banking 25,000 —
HSBC Holdings Banking 8,298 —
Lloyds TSB Banking 218 —
San Paolo IMI SpA Banking — Director (1)
Mr. Matías Rodríguez Inciarte Banesto Banking 18,700 Director
Mr. Manuel Soto Serrano Lloyds TSB Banking 91,000 —
Banesto Banking 55,000 —
58

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Director Investee Line of Business
Number of
Shares Functions
Assicurazioni Generali S.p.A (4)
Banca Nazionale del Lavoro S.p.A. Banking 261,889,244 —
Banca Intesa S.p.A. Banking 364,445,773 —
Commerzbank, AG Banking 54,120,386 —
Banca d’Italia Banking 19,000 —
San Paolo IMI SpA Banking 29,178,049 —
Banca Monte dei Paschi di Siena SpA Banking 16,432,492 —
UniCredito Italiano SpA Banking 36,165,513 —
Bank Leumi le-Israel B.M. Banking 19,450,774 —
Société Générale Banking 1,318,875 —
Ms. Ana Patricia Botín-Sanz de
Banesto Banking 750,000 —
Sautuola y O’Shea Assicurazioni Generali, SpA Insurance — Director (1)
Mr. Emilio Botín-Sanz de Sautuola
Banesto Banking 6,048 Chairman
y O’Shea Banesto Banking 532 —
Mr. Javier Botín-Sanz de Sautuola
Bankinter Banking 1,070 —
y O’Shea M & B Capital Advisers Holding, S.A. Securities
brokerage 1,765 —
M & B Capital Advisers, S.V., S.A. Securities
Mr. Guillermo de la Dehesa
brokerage — Executive Director
Romero AVIVA Vida y Pensiones, S.A. Insurance — Chairman (1)
Goldman Sachs & Co. Banking 12,888 —
Goldman Sachs Europe Ltd. Banking — Director (1)
AVIVA plc. Insurance 144 Director (1)
Mr. Rodrigo Echenique Gordillo Banco Comercial Portugués Banking 8,865 —
Banco Popular Español, S.A. Banking 1,000 —
Crédit Agricole Banking 1,150 —
Credit Suisse Group Banking 975 —
Deutsche Bank, A.G. Banking 220 —
Royal Bank of Scotland Banking 590 —
Wells Fargo Banking 375 —
Citigroup Banking 340 —
ING Banking 830 —
UBS Banking 395 —
Mr. Antonio Escámez Torres Attijariwafa Bank (5)
Banking 10 Deputy Chairman (1)
Mr. Elías Masaveu y Alonso del
Banco de Valencia, S.A. Banking 349 —
Campo Bankinter, S.A. Banking 4,321,679 Director (1)
Banco Bilbao Vizcaya Argentaria, S.A. Banking 164,821 —
Espirito Santo Banking 368,950 —
Banco Popular Español, S.A. Banking 1,950 —
Banco de Galicia, S.A. Banking 449,500 —
Royal Bank of Scotland Banking 315,688 —
Allianz Insurance 1,210 —
Mr. Abel Matutes Juan Assicurazione Internazionale di Providenza Insurance — Executive Director
San Paolo IMI SpA Banking 142,689 Director (1)(2)
Mutua Madrileña Automovilista,
s.s.p.f. (4)
Mutuactivos SAU S.V. Securities
brokerage 1,000,000 —
Mutuactivos SAU SGIIC Fund management 1,000,000 Chairman (6)
Autofondo SAU EGFP Fund management 20,000 —
Mr. Luís Alberto Salazar-Simpson
Bos Centro Asegurador, S.A. Insurance — Representative (7)
Mutua Madrileña Automovilista Insurance — Director
Bankinter, S.A. Banking 2,000 —
Mr. Juan Abelló Gallo (8)
Banco Popular Español, S.A. Banking 17,626 —
Banco Bilbao Vizcaya Argentaria, S.A. Banking 18,603 —
Barclays Banking 66,000 —
Lloyds TSB Banking 105,700 —
BNP Banking 20,146 —
AXA Insurance 55,000 —
American International Group Insurance 11,600 —
Citigroup Banking 24,400 —
Wells Fargo Banking 6,500 —
Crédit Agricole Banking 33,000 —
Catalana Occidente Insurance 27,808 —
59

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Director
Mr. Jaime Botín-Sanz de Sautuola
Investee Line of Business
Number of
Shares Functions
y García de los Ríos (8)
Bankinter, S.A. Banking 6,047,199 Adviser to the Board
Línea Directa Aseguradora, S.A. Insurance — Chairman (1)
Sir George Mathewson (8)
The Royal Bank of Scotland plc Banking 250,816 Chairman
National Westminster Bank plc Banking — Chairman
The Scottish Investment Trust plc Fund management — Director (1)
(1) Non-executive
(2) He ceased to be non-executive director during the period.
(3) He ceased to be the representative of the non-executive director Faa e Inversiones, S.A. on the Board of Centro
Asegurador during the period.
(4) Further relevant information on the investments of Assicurazioni Generali Sp.A and Mutua Madrileña Automovilista s.s.p.f.
can be found in these companies’ financial statements or in their web pages (www.generali.it and www.mutua-mad.es,
respectively).
(5) Formerly Banque Commerciale du Maroc, S.A.
(6) The representative of Mutua Madrileña on the Board of the Bank, Mr. Luís Rodríguez Durón, is the Chairman of Mutua
SAU SGiiC.
(7) He ceased to be representative of the non-executive director Connstructora Inmobiliaria Urbanizadora Vasco Aragonesa,
S.A. on the Board of Centro Asegurador, S.A. during the period.
(8) Directors for some months in 2004 who ceased to discharge this function before December 31, 2004.
The Annual Corporate Governance Report discloses information on the Bank’s directors
ownership interests in and seats on the Board of Group companies.
None of the Board members perform, as independent professionals or as employees, any
activities similar to those included in the foregoing table. Additionally, as required by Article 114.2
of the Securities Market Law, it is hereby stated that in 2004 the Bank’s directors did not perform,
either directly or indirectly, any transaction with the Bank or with other Group companies other
than in the ordinary course of operations or on an arm’s-length basis.
5. Government debt securities
Breakdown
The detail of the balances of this caption is as follows:
Thousands of Euros
2004 2003 2002
Book Market Book Market Book Market
Value Value Value Value Value Value
Fixed-income securities:
Trading portfolio:
Treasury bills
Other listed book-entry debt
2,977,951 2,977,951 1,705,321 1,705,321 — —
securities 1,914,757 1,914,757 2,709,900 2,709,900 2,025,794 2,025,794
Available-for-sale portfolio:
4,892,708 4,892,708 4,415,221 4,415,221 2,025,794 2,025,794
Treasury bills
Other listed book-entry debt
1,665 1,669 177,237 177,419 3,677,314 3,695,356
securities 6,020,387 6,101,580 20,655,201 20,776,008 13,252,332 13,715,738
Other listed securities 166,628 166,689 — — — —
Held-to-maturity portfolio:
Other listed book-entry debt
6,188,680 6,269,938 20,832,438 20,953,427 16,929,646 17,411,094
securities 5,041,925 5,279,509 5,870,864 6,062,924 6,033,086 6,453,700
Less — Security price fluctuation
16,123,313 16,442,155 31,118,523 31,431,572 24,988,526 25,890,588
allowance — — (10,659) — (33) —
16,123,313 16,442,155 31,107,864 31,431,572 24,988,493 25,890,588
60

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Term to maturity
The breakdown of the balances of this caption, by term to maturity, disregarding the security
price fluctuation allowance, is as follows:
Millions of Euros
Term to maturity 2004 2003 2002
Up to 3 months 2,956 151 574
3 months to 1 year 3,679 9,341 4,228
1 to 5 years 5,652 16,843 15,986
Over 5 years 3,836 4,784 4,201
16,123 31,119 24,989
Other information
Of the assets included in the ‘‘Government Debt Securities — Fixed-Income Securities’’ and
‘‘Debentures and Other Fixed-Income Securities’’ captions (Note 8) and of the assets acquired
under resale agreement, recorded under the ‘‘Due from Credit Institutions’’ (Note 6) and ‘‘Loans
and Credits’’ (Note 7) captions, as of December 31, 2004, the Group had sold under repurchase
agreement 076,358 million to the Bank of Spain, to other financial intermediaries and to
customers (public authorities, other resident sectors and nonresidents), and these amounts are
recorded under the ‘‘Due to Credit institutions — Time or Notification Deposits’’ (Note 14) and
‘‘Customer Deposits’’ (Note 15) captions in the consolidated balance sheets (069,992 million and
055,466 million as of December 31, 2003 and 2002, respectively).
The average annual interest rate on Treasury bills in 2004 was 2.18% (2.14% in 2003 and 3.67%
in 2002).
The ‘‘Other Listed Book-Entry Debt Securities’’ account includes debentures, bonds and
government debt securities with an average annual interest rate of 3.80% in 2004 (4.10% in 2003
and 5.05% in 2002).
As of December 31, 2004, the nominal amount of government debt securities pledged to certain
commitments of Group companies and third parties amounted to 062 million (0267 and
0600 million as of December 31, 2003 and 2002, respectively).
Security price fluctuation allowance
The variations in the balances of the ‘‘Security Price Fluctuation Allowance’’ account were as
follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year
Net provision for the year:
10,659 33 10,182
Period provision recorded — 10,659 —
Allowance released (10,659) (33) (10,143)
(10,659) 10,626 (10,143)
Amount used in sales, writedowns and other variations — — (6)
Balances at year-end — 10,659 33
61

PART 2: FINANCIAL INFORMATION ON THE COMPANY
6. Due from credit institutions
The breakdown of the balances of this caption, by type and term to maturity, is as follows:
Thousands of Euros
By type and term to maturity
Demand deposits:
2004 2003 2002
Current accounts 117,752 103,734 105,816
Other accounts 1,587,547 1,599,804 3,043,095
Other:
Deposits and other accounts at credit and financial institutions —
1,705,299 1,703,538 3,148,911
Up to 3 months 13,529,132 10,937,055 11,019,178
3 months to 1 year 2,694,813 2,888,295 3,881,831
1 to 5 years 452,761 554,824 509,223
Over 5 years 195,301 255,613 454,913
Assets acquired under resale agreement (Note 5) —
16,872,007 14,635,787 15,865,145
Up to 3 months 29,491,694 20,111,660 19,922,699
3 months to 1 year 1,550,254 1,278,587 1,410,157
31,041,948 21,390,247 21,332,856
47,913,955 36,026,034 37,198,001
Less — Credit loss allowance (Note 1) (49,307) (111,735) (90,522)
47,864,648 35,914,299 37,107,479
49,569,947 37,617,837 40,256,390
Of which: Euros 23,934,083 25,978,021 26,552,350
7. Loans and credits
Breakdown
The detail, by borrower sector, of the balances of this caption is as follows:
Thousand of Euros
2004 2003 2002
Public authorities 4,206,564 5,487,358 4,897,118
Other resident borrowers
Nonresident borrowers:
123,760,923 103,515,597 88,876,138
European Union (except Spain) 160,003,799 31,474,111 30,152,730
USA and Puerto Rico 14,566,536 4,580,092 5,133,573
Other OECD countries 3,011,607 808,212 1,645,739
Latin America 34,521,766 30,732,555 35,856,602
Other countries 2,105,795 1,022,771 1,349,261
214,209,503 68,617,741 74,137,905
342,176,990 177,620,696 167,911,161
Less — Credit loss allowance (Note 1) (6,969,263) (5,116,683) (4,938,204)
335,207,727 172,504,013 162,972,957
Of which: Euros 157,288,042 136,488,788 120,882,376
62

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Term to maturity, loan type and status
The detail, by term to maturity and loan type and status, of the balances of this caption,
disregarding the ‘‘Credit Loss Allowance’’ account balance, is as follows:
Thousands of Euros
2004 2003 2002
By term to maturity:
Up to 3 months 59,975 34,132 34,871
3 months to 1 year 37,837 29,683 28,749
1 to 5 years 69,606 45,835 43,299
Over 5 years 174,759 67,971 60,992
By loan type and status:
342,177 177,621 167,911
Financial bills 819 794 1,204
Secured loans 191,717 66,285 56,687
Spanish commercial bills 9,397 9,691 8,186
Other term loans 96,767 80,899 81,641
Assets acquired under resale agreement (Note 5) 20,927 2,913 3,091
Demand and other loans 7,162 6,180 6,733
Financial leases 11,342 7,582 6,669
Doubtful assets 4,046 3,277 3,700
342,177 177,621 167,911
Credit loss allowance
The variations in the balances of the ‘‘Credit Loss Allowance’’ account which, as indicated in
Note 2-c, covers nonperforming and doubtful loans and country risk of the ‘‘Due from Credit
institutions’’ (Note 6), ‘‘Loans and Credits’’ and ‘‘Debentures and Other Fixed-Income Securities’’
captions (Note 8), were as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 5,414,396 5,164,278 5,582,874
Inclusion of companies in the Group
Net provision of the year:
1,080,031 — 9,034
Period provision recorded 2,665,148 2,440,209 2,883,132
Allowance released (670,111) (690,874) (973,681)
1,995,037 1,749,335 1,909,451
Nonperforming loans charged off against allowance (963,779) (1,071,085) (1,473,374)
Exchange differences and other variations (173,839) (427,935) (1,153,128)
Writeoffs and transfers between allowances (152,528) (197) 289,421
Balances at year-end (Note 1)
Of which:
7,199,318 5,414,396 5,164,278
Allowance for specific risks 3,513,431 2,648,260 2,970,725
General-purpose allowance 2,073,566 1,596,603 1,417,681
Country-risk allowance 257,035 399,358 318,468
Allowance for statistical coverage 1,355,286 770,175 457,404
The 0409 million of written-off assets recovered in 2004 are presented as a reduction of the
balance of the ‘‘Writeoffs and Credit Loss Provisions’’ caption in the consolidated statement of
income. This caption also includes the direct writeoffs of loans classified as bad debts, which
amounted to 061 million in 2004. Written-off assets recovered in 2003 and 2002 amounted to
0357 million and 0394 million, respectively, and direct writeoffs of loans classified as bad debts to
0104 million and 0132 million, respectively.
Country risk
The allowance for possible losses that might arise in the realization of loans and credits, deposits
placed with financial institutions (Note 6), fixed-income securities (Note 8) and guarantees
provided, relating to public- and private-sector entities in problem debtor countries experiencing
differing degrees of debt-servicing difficulty exceeded the minimum provision requirements under
Bank of Spain regulations (Note 2-c).
As of December 31, 2004, the Group’s positions exposed to country risk (disregarding
intercompany balances) amounted to approximately 0920 million (0500 million and 0400 million
as of December 31, 2003 and 2002, respectively).
63

PART 2: FINANCIAL INFORMATION ON THE COMPANY
8. Debentures and other fixed-income securities
Breakdown
The breakdown, by listing status and classification, of the balances of this caption is as follows:
Thousands of Euros
2004 2003 2002
By listing status:
Listed 80,288,268 42,375,577 28,212,876
Unlisted 2,809,457 2,138,478 4,207,257
By classification:
83,097,725 44,514,055 32,420,133
Trading portfolio 47,589,954 9,532,252 10,915,650
Available-for-sale portfolio 30,496,680 31,065,394 16,522,447
Held-to-maturity portfolio 5,011,091 3,916,409 4,982,036
Less —
83,097,725 44,514,055 32,420,133
Credit loss allowance (Note 7) (180,748) (185,978) (135,552)
Security price fluctuation allowance (Note 1) (78,385) (51,023) (198,420)
82,838,592 44,277,054 32,086,161
Of which: Euros 30,629,376 22,948,058 8,234,974
Other information
As of December 31, 2004, 2003 and 2002, the market value of the available-for-sale and held-tomaturity
portfolios did not differ materially from the acquisition cost, adjusted as indicated in
Note 2-d).
The weighted average annual interest rate on the fixed-income securities portfolio as of
December 31, 2004, was 6.2% (6.2% and 10.2% as of December 2003 and 2002, respectively).
The effect of discounting by the interest method the fixed-income securities whose interest rates
are lower than the average cost of the Group’s borrowed funds is not material.
The balance as of December 31, 2004, of the ‘‘Public-Sector Issuers’’ account in the
consolidated balance sheet includes 031,673 million relating to securities issued by nonresident
public-sector entities (027,065 million and 022,639 million as of December 2003 and 2002,
respectively).
031,112 million of the Group’s total fixed-income securities portfolio as of December 31, 2004,
mature in 2005.
Security price fluctuation allowance
The variations in the balances of the ‘‘Security Price Fluctuation Allowance’’ account were as
follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 51,023 198,420 298,775
Net inclusion of companies in the Group 44,604 — (3,832)
Net release in the year (12,891) (15,416) (88,061)
Amount used in sales, writedowns, exchange differences and other variations (4,351) (131,981) (8,462)
Balances at year-end 78,385 51,023 198,420
9. Common stocks and other equity securities
This caption includes basically the shares and securities representing holdings of less than 20%
(less than 3% if listed) in the capital stock of companies which have no lasting relationship with
the Group and over which no significant influence is exercised (Note 2-e), and units in mutual
funds.
64

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Breakdown
The detail, by classification and listing status, of the balances of this caption is as follows:
Thousands of Euros
2004 2003 2002
By classification:
Trading portfolio 5,024,322 2,420,864 1,316,080
Available-for-sale portfolio 8,139,701 7,643,258 6,550,672
By listing status:
13,164,023 10,064,122 7,866,752
Listed 10,406,089 6,336,825 3,403,268
Unlisted 3,457,704 4,676,058 5,033,199
13,863,793 11,012,883 8,436,467
Less — Security price fluctuation allowance (Note 1) (699,770) (948,761) (569,715)
13,164,023 10,064,122 7,866,752
Of which: Euros 9,433,560 8,227,350 5,866,594
Variations
The variations in the balances of this caption, disregarding the security price fluctuation
allowance, were as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 11,012,883 8,436,467 8,330,551
Inclusion of companies in the Group 1,666,861 — —
Net additions (retirements) (367,253) 461,736 846,200
Transfers from (to) ‘‘Investments in non-Group Companies’’ (Note 10)
Of which:
1,139,678 1,358,560 (136)
Royal Bank of Scotland (Note 3) 1,166,722 — —
San Paolo IMI (*)
— 953,912 —
Commerzbank, Ag. (*)
— 333,138 —
Transfers of goodwill from ‘‘Investments in non-Group Companies’’ (Note 12)
Of which:
204,698 518,784 —
Royal Bank of Scotland 204,698 — —
San Paolo IMI — 439,571 —
Commerzbank, Ag. — 72,375 —
Transfers from (to) ‘‘Investments in Group Companies’’) (Note 11) (1,138) — 2,630
Exchange differences and other variations 208,064 237,336 (742,778)
Balances at year-end 13,863,793 11,012,883 8,436,467
(*) Following the issuance of the First-Time Application Standard of International Accounting Standards in 2003, as of
December 31, 2003, after recording the period goodwill amortization charge, the Group transferred the holdings
(Note 10) of less than 20% which are not intended to be held at long term. The transfer was made at the cost
previously recorded in the ‘‘Investments in non-Group Companies’’ caption plus the related goodwill. The required
security price fluctuation allowance was recorded if the market value after the transfer was lower than net cost.
Security price fluctuation allowance
The variations in the balances of the ‘‘Security Price Fluctuation Allowance’’ account were as
follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 948,761 569,715 522,640
Net inclusion of companies in the Group 100 (1,026) (1,866)
Net provision in the year 7,007 309,192 206,499
Amount used in sales, writedowns, transfers and other variations (256,098) 70,880 (157,558)
Balances at year-end 699,770 948,761 569,715
Other information
Vodafone Airtouch, plc. (Vodafone)
In 2004 the Group sold all of its investment in the capital stock of Vodafone, giving rise to gains of
0242 million.
65

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Auna Operadores de Telecomunicaciones, S.A. (Auna)
In January 2004, the Bank exercised certain agreements in connection with this company,
thereby increasing its holding by 2.5%, and subsequently made several acquisitions representing
a further 1.5% holding. The holding in Auna was 27.34% as of December 31, 2004, representing
an investment of 02,031 million (Note 27).
Shinsei Bank, Ltd. (Shinsei Bank)
In February 2004, the shareholders of Shinsei Bank, which was 11.4%-owned by the Group,
resolved to float on the stock exchange 35% of the bank shares, which gave rise to the sale of a
4% holding by the Santander Group, at a gain of 0118 million. Subsequent to the sale the
Group’s holding in this bank was reduced to 7.4%.
Sacyr-Vallehermoso
In 2004 the Group sold all of its holding in Sacyr-Vallehermoso for 092 million. The gain on this
transaction amounted to 047 million.
Notifications on share acquisitions
The notifications on share acquisitions and sales by the Bank in compliance with Article 86 of the
Spanish Corporations Law and Article 53 of Securities Market Law 24/1998 are listed in
Exhibit IV.
10. Investments in non-Group companies
This caption reflects the ownership rights in the capital of associated companies, i.e. companies
which, although not forming part of the Group, have a lasting relationship with the Group and are
intended to contribute to its activity, and over which significant influence is exercised (Exhibit II).
Breakdown
The breakdown, by company, of the balances of this caption (Note 3) is as follows:
Thousands of Euros
2004 2003 2002
Cepsa 1,479,104 1,324,117 833,135
Unión Fenosa 757,068 772,618 692,929
Attijariwafa Bank Société Anonyme 149,437 110,129 121,394
Abbey Group 35,439 — —
Royal Bank of Scotland — 1,850,889 1,883,328
San Paolo IMI (*)
— — 540,631
Commerzbank A.G. (*)
— — 326,540
Sacyr-Vallehermoso (*)
— — 58,569
Grupo Financiero Galicia, S.A. — — 30,142
Other companies 276,080 208,672 283,070
2,697,128 4,266,425 4,769,738
Of which:
Euros 2,460,034 2,284,370 2,704,751
Listed 2,236,172 3,947,624 4,393,742
(*) Transferred to the ‘‘Common Stocks and Other Equity Securities’’ caption as indicated in Note 9.
66

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Variations
The variations in the balances of this caption were as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 4,266,425 4,769,738 6,661,805
Inclusion of companies in the Group 35,439 — —
Purchases and capital increases (Note 3)
Of which:
259,635 1,112,430 528,105
San Paolo IMI — 368,182 —
Cepsa — 347,790 —
Royal Bank of Scotland 246,746 364,197 —
Sales and capital reductions (Note 3) (1,126,712) (394,051) (2,153,580)
Transfers from /(to) ‘‘Common Stocks and Other Equity Securities’’ (Note 9) (1,139,678) (1,358,560) 136
Transfers to ‘‘Investments in Group Companies’’ (Note 11) (2,884) — —
Effect of equity method accounting 436,420 298,629 243,625
Change of consolidation method (11,897) — (2,104)
Exchange differences and other variations (19,620) (161,761) (508,249)
Of which: Variations in reserves at associated companies (Note 21) (18,745) (1,837) (243,289)
Balances at year-end 2,697,128 4,266,425 4,769,738
11. Investments in Group companies
Breakdown
This caption reflects the investments in Group companies which were not consolidated
(Exhibit II) because their business activities are not directly related with those of the Group. The
breakdown, by company, of the balances of this caption is as follows:
Thousands of Euros
2004 2003 2002
Abbey Group (insurance companies) 4,053,056 — —
Inmobiliaria Urbis, S.A. 378,464 335,028 302,687
Santander Seguros y Reaseguros, Compañía Aseguradora, S.A. 124,254 98,933 62,460
Compañía Aseguradora Banesto Seguros, S.A. 60,679 56,580 50,729
La Unión Resinera Española, S.A. 48,156 46,477 53,963
Santander Seguros, S.A. (Brazil) 41,425 46,468 40,086
Altavida Santander Seguros de Vida, S.A. (Chile) 35,411 23,522 13,851
Seguros Santander Serfin, S.A. de C.V. 32,156 45,846 33,445
Santander Central Hispano Previsión, S.A. de Seguros y Reaseguros — 159,087 143,702
Totta Urbe, S.A. — — 104,577
B to B Factory Ventures, S.A. — — 40,000
Editel, S.L. — — 27,601
Other companies 272,346 255,830 256,292
5,045,947 1,067,771 1,129,393
Of which:
Euros 839,439 921,351 993,485
Listed 426,620 384,179 359,218
Variations
The variations in the balances of this caption were as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 1,067,771 1,129,393 1,227,351
Inclusion of companies in the Group 4,053,056 — 12,928
Purchases and capital increases 25,186 117,582 137,633
Sales and capital reductions (Note 3) (168,480) (41,602) (165,693)
Transfers from ‘‘Investments in non-Group Companies’’ (Note 10) 2,884 — —
Transfers (to)/from ‘‘Common Stocks and Other Equity Securities’’ (Note 9) 1,138 — (2,630)
Effect of equity method accounting 103,966 108,634 36,273
Change of consolidation method 18,732 (132,577) (23,939)
Exchange differences and other variations (58,306) (113,659) (92,530)
Balances at year-end 5,045,947 1,067,771 1,129,393
67

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Other information
As of December 31, 2004, there were no significant capital increases in progress at any
nonconsolidable subsidiary.
12. Consolidation goodwill
Breakdown
The breakdown, by company, of the balances of the ‘‘Consolidation Goodwill’’ caption (Note 3) is
as follows:
Thousands of Euros
2004 2003 2002
Fully consolidated companies:
Abbey Group (U.K. — Note 1) 10,263,893 — —
Totta Group (Portugal) 1,473,666 1,560,638 1,656,487
Banco Santander Chile (Note 3) 912,493 973,066 1,033,638
Grupo Financiero Santander Serfin (Mexico) 789,585 840,899 1,191,867
AKB (Germany — Note 3) 778,679 824,483 870,286
Meridional Group (Brazil) 667,641 710,985 754,395
Banesto Group 338,808 366,311 400,589
Banco de Venezuela 202,426 313,316 332,052
Elcon (Norway — Note 3) 128,762 — —
Finconsumo (Italy) 102,867 50,576 5,094
PTF (Poland — Note 3) 66,450 — —
Banespa (Brazil) — — 1,770,590
Banco Río (Argentina) — — 508,261
Other companies 373,893 425,358 446,905
16,099,163 6,065,632 8,970,164
Companies accounted for by the equity method:
Cepsa 616,690 650,949 92,486
Unión Fenosa 235,971 261,632 280,557
Royal Bank of Scotland (Notes 9 and 10) — 395,100 173,475
San Paolo IMI (Notes 9 and 10) — — 299,704
Commerzbank Ag. (Notes 9 and 10) — — 77,375
Grupo Financiero Galicia, S.A. (Argentina) — — 37,992
Other companies 12,377 11,911 22,982
865,038 1,319,592 984,571
16,964,201 7,385,224 9,954,735
As of December 31, 2002, the Group had recorded provisions to cover the potential loss of value
of certain of these assets. The goodwill of the Group units located in Argentina was written off in
2003 with a charge to the provisions previously recorded.
Based on the estimates, projections and assessments available to the Bank’s directors, the
forecasted revenues attributable to the Group from these companies are at least equal to the
amounts of the respective goodwill balances yet to be amortized in the related periods.
68

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Variations
The variations in the balances of the ‘‘Consolidation Goodwill’’ caption were as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 7,385,224 9,954,735 9,868,697
Additions (Notes 1 and 3)
Of which:
10,611,619 1,367,919 2,420,892
Abbey Group 10,263,893 — —
Elcon 131,498 — —
PTF 69,947 — —
Finconsumo 57,839 46,583 —
Royal Bank of Scotland 24,795 308,002 21,875
Banco Santander Portugal 2,723 69,102 —
Cepsa — 569,037 —
San Paolo IMI — 160,715 104,630
Orígenes AFJP — 101,819 —
AKB — — 916,091
Banco Santiago (Banco Santander Chile) — — 595,806
Banco Río — — 263,280
Banco Santander Colombia — — 240,114
Unión Fenosa — — 195,446
Retirements due to sale
Of which:
(209,009) (401,231) (976,238)
Royal Bank of Scotland (197,574) (69,446) (103,876)
Patagon Group — — (617,503)
Grupo Financiero Santander Serfin — (318,023) —
Société Générale — — (95,126)
Amortization charged to specific allowances (Note 17)
Transfers from ‘‘Investments in non-Group Companies’’ to ‘‘Common
— (775,727) —
Stocks and Other Equity Securities’’ (Note 9) (204,698) (518,784) —
Amortization charged to income (618,935) (2,241,688) (1,358,616)
Of which: Additional to that calculated on a straight-line basis
Of which:
(153,754) (1,719,164) (702,885)
Banco de Venezuela
Administradora de Fondos de Pensiones y Cesantías Santander,
(92,612) — —
S.A. (Colombia) (55,315) — —
Banespa (**)
— (1,703,835) (400,571)
Banco Santander Colombia — (786) (240,008)
Balances at year-end 16,964,201 7,385,224 9,954,735
(*) For the purpose of fulfilling the commitment assumed by the Group before the acquisition of Banespa in 2000 to
amortize the goodwill which arose from that acquisition over a maximum period of five years, and following the
issuance of the First-Time Application Standard of International Accounting Standards in 2003, the goodwill of
Banespa as of January 1, 2003, was written off in 2003 so that, in accordance with the principle of prudence, the
opening balance sheet as of January 1, 2004, prepared in conformity with International Accounting Standards, to be
included in the financial statements for the year ending December 31, 2005, enables the Group to fulfill the
aforementioned commitment.
69

PART 2: FINANCIAL INFORMATION ON THE COMPANY
13. Property and equipment
Variations
The variations in the ‘‘Property and Equipment’’ accounts and in the related accumulated
depreciation were as follows:
Land and
Thousands of Euros
Furniture,
Buildings for Other Fixtures
Own Use Property and Other Total
Revalued cost:
Balances at January 1, 2002
Additions and retirements (net) due to change
4,695,070 530,549 4,679,606 9,905,225
in scope of consolidation (73,130) (34,739) (4,556) (112,425)
Additions/Retirements (net) (228,384) (128,834) 130,517 (226,701)
Exchange differences (683,374) (78,103) (257,521) (1,018,998)
Balances at December 31, 2002
Additions and retirements (net) due to change
3,710,182 288,873 4,548,046 8,547,101
in scope of consolidation (13,044) (380) 198 (13,226)
Additions/Retirements (net) (135,026) 18,614 (192,150) (308,562)
Transfers — 18,785 (18,785) —
Exchange differences (146,074) (13,854) (100,476) (260,404)
Balances at December 31, 2003
Additions and retirements (net) due to change
3,416,038 312,038 4,236,833 7,964,909
in scope of consolidation 54,654 24,205 5,532,909 5,611,768
Additions/Retirements (net) 25,356 42,711 318,583 386,650
Transfers 2,790 15,630 (18,420) —
Exchange differences (49,220) (1,054) (30,529) (80,803)
Balances at December 31, 2004 3,449,618 393,530 10,039,376 13,882,524
Accumulated depreciation:
Balances at January 1, 2002
Additions and retirements (net) due to change
(936,286) (11,912) (2,603,097) (3,551,295)
in scope of consolidation 21,161 — 8,994 30,155
Retirements 108,297 4,205 83,842 196,344
Provisions (82,440) (1,244) (520,575) (604,259)
Exchange differences 179,471 789 142,253 322,513
Balances at December 31, 2002
Additions and retirements (net) due to change
(709,797) (8,162) (2,888,583) (3,606,542)
in scope of consolidation 8,750 1,211 (617) 9,344
Retirements 41,678 1,554 559,694 602,926
Transfers — (18,785) 18,785 —
Provisions (66,285) (875) (422,122) (489,282)
Exchange differences 32,758 — 69,856 102,614
Balances at December 31, 2003 (692,896) (25,057) (2,662,987) (3,380,940)
Additions due to new inclusions in the Group (11,150) — (2,151,736) (2,162,886)
Retirements 32,518 3,603 295,695 331,816
Transfers (1,700) (1,596) 3,296 —
Exchange differences 11,692 — 24,721 36,413
Provisions (65,035) (838) (427,920) (493,793)
Balances at December 31, 2004 (726,571) (23,888) (4,918,931) (5,669,390)
Property and equipment, net (*) :
Balances at December 31, 2002 3,000,385 280,711 1,659,463 4,940,559
Balances at December 31, 2003 2,723,142 286,981 1,573,846 4,583,969
Balances at December 31, 2004 2,723,047 369,642 5,120,445 8,213,134
(*) Of the total balances, approximately 35,210 million, 31,613 million and 32,602 million related to property and
equipment abroad as of December 31, 2004, 2003 and 2002, respectively.
Other property
The ‘‘Other Property’’ and ‘‘Furniture, Fixtures and Other’’ accounts include, among other items,
the assets acquired through foreclosure on nonrecovered loans. These assets are recorded at
foreclosure cost which in no case exceeds the book value of the loan, net of the allowance
recorded as a result of comparison with their market value. The allowance amounted to
0293 million as of December 31, 2004, and represented 54% of the recorded value (0316 million
and 0395 million and 57% and 58% as of December 31, 2003 and 2002, respectively).
70

PART 2: FINANCIAL INFORMATION ON THE COMPANY
14. Due to credit institutions
Breakdown
The breakdown, by type and term to maturity, of the balances of this caption is as follows:
Thousands of Euros
By Type and Term to Maturity
Demand deposits:
2004 2003 2002
Current accounts 39,162 12,821 28,712
Other accounts 3,532,614 1,747,580 3,920,819
Time or notification deposits:
Bank of Spain credit account drawdowns —
3,571,776 1,760,401 3,949,531
Up to 3 months
Time deposit —
— 915,473 1,000,022
Up to 3 months 34,535,552 14,517,822 15,257,124
3 months to 1 year 6,262,438 6,361,743 6,689,929
1 to 5 years 3,785,615 6,612,704 3,053,691
Over 5 years 2,869,921 2,008,154 2,756,834
Assets sold under repurchase agreement (Note 5) —
47,453,526 29,500,423 27,757,578
Up to 3 months 27,435,936 34,046,432 15,164,776
3 months to 1 year 5,127,997 8,862,729 1,770,672
1 to 5 years 1,077,738 494,854 1,178,140
Over 5 years 146,832 — —
33,788,503 43,404,015 18,113,588
81,242,029 73,819,911 46,871,188
84,813,805 75,580,312 50,820,719
Of which: Euros 33,703,535 57,387,612 30,530,819
As of December 31, 2004, the limit set by the Bank of Spain for the Bank and for the Banesto
Group in the system of loans guaranteed by public-sector debt securities amounted to
01,996 million and 0817 million, respectively (01,988 million and 01,017 million, and
01,209 million and 01,214 million as of December 31, 2003 and 2002 for the Bank and for the
Banesto Group, respectively).
71

PART 2: FINANCIAL INFORMATION ON THE COMPANY
15. Customer deposits
Breakdown
The breakdown, by geographical area and depositor sector, of the balances of this caption is as
follows:
Thousands of Euros
2004 2003 2002
By geographical area:
Spain 99,782,623 91,799,908 96,602,048
Other EU countries 147,356,167 25,040,806 23,990,299
USA and Puerto Rico 6,563,982 6,342,920 7,530,507
Other OECD countries 174,730 255,490 353,469
Latin America 38,733,800 34,618,654 37,915,080
Other 1,234,395 1,277,794 1,424,353
293,845,697 159,335,572 167,815,756
By sector:
Public authorities 13,966,167 9,225,949 12,126,084
Of which: Assets sold under repurchase agreement (Note 5)
Other residents —
7,702,543 3,934,274 9,829,694
Demand deposits 25,700,206 25,089,234 21,743,570
Savings deposits 18,602,253 17,823,421 16,057,659
Time deposits 19,474,400 18,640,052 21,326,541
Assets sold under repurchase agreement (Note 5) 17,766,883 16,348,466 19,194,664
Other deposits 626,266 17,734 109,686
82,170,008 77,918,907 78,432,120
Nonresidents 197,709,522 72,190,716 77,257,552
293,845,697 159,335,572 167,815,756
Of which: Euros 121,236,400 110,265,674 114,055,256
Term to maturity
The detail, by term to maturity, of the balances of the ‘‘Savings Deposits — Time’’ and ‘‘Other
Deposits — Time’’ captions in the consolidated balance sheets is as follows:
Thousands of Euros
2004 2003 2002
Savings deposits — Time:
Up to 3 months 51,041 23,477 27,174
3 months to 1 year 12,341 10,982 14,740
1 to 5 years 5,782 10,321 9,657
Over 5 years 1,204 2,193 715
70,368 46,973 52,286
Other deposits — Time:
Up to 3 months 61,880 32,157 44,047
3 months to 1 year 6,410 2,362 1,681
1 to 5 years 3,726 763 1,687
Over 5 years 2,641 158 61
74,657 35,440 47,476
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
16. Marketable debt securities
Bonds and debentures outstanding
The breakdown, by currency and interest rate, of the balances of this caption is as follows:
December 31, 2004
Outstanding
Amount in Annual
Thousands of Euros
Currency Interest
Issue Currency
Euros:
2004 2003 2002 (Millions) Rate (%)
Fixed interest 22,786,515 13,869,207 7,364,425 — 4.19%
Floating interest
U.S. dollars:
21,413,095 9,184,697 5,145,509 — 3.13%
Fixed interest 1,044,965 444,324 1,429,024 1,423 2.64%
Floating interest
Pounds sterling:
3,455,299 1,071,447 1,419,888 4,706 3.98%
Fixed interest 2,015,786 326,334 661,029 1,421 3.35%
Floating interest
Chilean pesos:
2,871,639 1,274,121 1,380,477 2,025 4.58%
Fixed interest 1,461,946 2,016,908 2,442,948 1,110,657 6.43%
Other currencies 2,890,827 651,854 654,029
Balances at year-end 57,940,072 28,838,892 20,497,329
Variations
The variations in ‘‘Bonds and Debentures Outstanding’’ accounts were as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 28,838,892 20,497,329 21,229,154
Net inclusion of companies in the Group 17,659,366 — (319,342)
Issues
Of which:
Banco Santander Central Hispano, S.A.:
17,201,370 13,025,505 6,698,032
Nonconvertible bonds February and December — Floating 3,500,000 — —
Mortgage bonds March and July — Fixed 2,000,000 — —
Mortgage bonds March, August and December- Fixed — 5,000,000 —
Territorial bonds June — Fixed — 2,000,000 —
Mortgage bonds October — Fixed
Banesto:
— — 3,000,000
Mortgage bonds February and September — Fixed 3,750,000 — —
Bonds June and October — Floating 3,000,000 — —
Mortgage bonds May — Fixed — 1,500,000 —
Bonds October — Floating — 2,000,000 —
Mortgage bonds March — Fixed
Santander Central Hispano International Ltd.:
— — 1,000,000
February — Floating
Santander Internacional Debt, S.A.:
— — 500,000
Bonds December — Floating 3,891,293 — —
Redemptions
Of which:
Santander Central Hispano International Ltd.:
(5,489,822) (4,227,694) (4,620,244)
April 2001 (500,000) — —
August 2000 (425,653) — —
April 2000 (422,815) — —
February 2001 (395,883) — —
January 2003 — (476,781) —
August 2003 — (500,000) —
June 2003 — (600,000) —
October 2002 — — (500,000)
August 2002 — — (645,943)
March 2002
Banesto:
— — (1,000,000)
February 2001 (600,000) — —
February 2002
Finconsumo:
(400,000) — —
June 2002
Banco Rio:
(300,000) — —
2002 Global Program (*)
— (796,366) —
Exchange differences (269,734) (456,248) (2,490,271)
Balances at year-end 57,940,072 28,838,892 20,497,329
(*) In accordance with the long-term debt restructuring program.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Maturity
The detail, by maturity, of the balance of this caption as of December 31, 2004, is as follows:
Maturity Millions of Euros
2005 9,247
2006 13,825
2007 8,858
2008 5,133
2009 5,658
Subsequent years 15,219
57,940
Promissory notes and other securities
The detail, by term to maturity, of the balances of the ‘‘Promissory Notes and Other Securities’’
caption, relating to instruments issued basically by Banco Santander Central Hispano, S.A.;
Santander Central Hispano International Ltd.; Santander Central Hispano Finance (Delaware),
Inc.; Santander Consumer Finance, S.A.; Banca Serfin S.A.; Banco Santander Mexicano S.A.;
Banco Totta & Açores, S.A., Santander International Debt, Abbey and the Bank’s subsidiary in
London, is as follows:
Thousands of Euros
Term to Maturity 2004 2003 2002
Up to 3 months 15,636,870 9,160,396 6,887,054
3 months to 1 year 8,497,129 4,626,705 1,591,281
1 to 5 years 1,384,966 1,815,212 2,313,443
Over 5 years 548,152 — —
26,067,117 15,602,313 10,791,778
Of which: Euros 6,599,077 9,242,409 6,010,792
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
17. Provisions for contingencies and expenses
Variations
The detail of the balances of this caption is as follows:
Thousands of Euros
2004 2003 2002
Pension allowance 10,652,752 8,935,148 8,839,081
Other provisions 4,692,293 3,792,529 5,008,669
Provisions for contingencies and expenses 15,345,045 12,727,677 13,847,750
Variations
The detail of the variations in the balances of the ‘‘Provisions for Contingencies and Expenses’’
caption is as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 12,727,677 13,847,750 16,917,289
Net inclusion of companies in the Group 2,130,064 10,239 (1,129)
Provision charged to income 1,619,717 574,286 1,392,143
Provision charged to reserves and prepaid taxes (Note 2-j)
Insured in-house pension allowances — Companies in Spain (Note 2-j)-
— 524,247 1,340,532
Premiums paid to insurance companies 46,404 58,683 63,620
Variation in net level premium reserves of insurance companies 198,313 221,476 244,904
Externalized insurance policies and other variations (22,927) (5,260) (90,843)
Payments to pensioners by insurance companies (235,361) (257,469) (266,405)
Payments to pensioners and to employees who took early retirement with
(13,571) 17,430 (48,724)
a charge to in-house allowances (Note 2-j) (806,034) (759,492) (774,902)
Insurance premiums paid (Note 2-j) (46,404) (58,683) (63,620)
In-house pension allowances externalized and other variations (22,197) (29,830) (316,243)
Allowance used (573,323) (1,069,332) (1,300,820)
Of which: Goodwill (Note 12) — (775,727) —
Transfers 345,466 (217,349) (285,973)
Exchange differences and other variations (16,350) (111,589) (3,010,803)
Balances at year-end 15,345,045 12,727,677 13,847,750
Other provisions
The balances of the ‘‘Provisions for Contingencies and Expenses — Other Provisions’’ caption
included the following items:
Thousands of Euros
2004 2003 2002
Credit loss allowance for off-balance-sheet risks 351,305 313,657 317,009
Of which: Country risk 8,096 5,568 17,964
Allowance for losses on financial futures transactions
Allowance for contingencies and commitments at operating units:
558,690 498,789 520,446
Recorded at Spanish companies 1,153,122 1,133,276 2,138,895
Of which: Relating to investments made in Argentina (Note 12) 198,653 436,893 1,356,278
Recorded at other companies
Of which:
2,629,176 1,846,807 2,032,319
Banespa 713,076 722,322 944,286
Abbey 919,236 — —
4,692,293 3,792,529 5,008,669
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
18. Subordinated debt
The detail, by currency and interest rate, of the balances of this caption is as follows:
December 31, 2004
Outstanding Annual
Amounts Interest
Thousands of Euros
in Currency Rate
Issue Currency
Euros:
2004 2003 2002 (Millions) (%)
Fixed interest 5,321,557 2,116,071 2,650,248 — 5.43%
Floating interest
U.S. dollars:
4,145,205 3,232,588 2,838,370 — 4.22%
Fixed interest 5,752,787 3,671,249 4,399,523 7,836 7.23%
Floating interest
Pounds sterling:
1,283,007 1,403,800 1,690,664 1,748 3.08%
Fixed interest 3,044,018 283,769 307,447 2,146 8.15%
Floating interest 283,665 283,769 307,447 200 7.63%
Other currencies 363,889 229,842 256,529 — —
Balances at year-end 20,194,128 11,221,088 12,450,228
Variations
The variations in the balances of this caption were as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 11,221,088 12,450,228 12,995,991
Inclusion of companies in the Group 7,318,447 — 100,213
Issues
Of which:
Santander Central Hispano Issuances, Ltd. —
2,489,381 500,000 1,095,356
September 2019 500,000 — —
September 2014 500,000 — —
May 2012 — Floating — — 95,356
April 2012 — Floating
Banesto —
— — 1,000,000
September 2013 — Floating — 500,000 —
March 2016 — Floating 500,000 — —
Santander Perpetual, S.A. Unipersonal-Perpetual 750,000 — —
Redemptions
Of which:
Santander Central Hispano Issuances, Ltd. —
(465,323) (589,619) (433,359)
December 1994 — — (215,505)
June 1994 — Fixed and Floating (192,956) — —
Santander Central Hispano Finance, B.V — (300,378) —
Exchange differences (369,465) (1,139,521) (1,307,973)
Balances at year-end 20,194,128 11,221,088 12,450,228
Other information
These issues are subordinated debt and, therefore, for credit seniority purposes they are junior to
the claims of all general creditors of the issuers. The issues of Santander Central Hispano
Issuances, Ltd. and Santander Perpetual, S.A. Unipersonal are guaranteed by the Bank or are
secured by restricted deposits at the Bank.
As of December 31, 2004, none of these issues was convertible into Bank shares, and they do
not grant privileges or rights that might, as a result of contingency, make them convertible into
shares. Abbey has a subordinated debt issue of £200 million which can be converted, at Abbey’s
option, into preferred shares of Abbey at a price of £1 per share.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Maturity
The detail, by maturity, of the balance of this caption as of December 31, 2004, is as follows:
Maturity
Millions
of Euros
2005 1,490
2006 994
2007 492
2008 188
2009 1,569
Subsequent years 15,461
20,194
The interest on subordinated debt amounted to 0686 million in 2004 (0679 million in 2003 and
0736 million in 2002).
19. Minority interests
Breakdown
The detail, by Group company, of the balances of the ‘‘Minority Interests’’ caption is as follows:
Thousands of Euros
2004 2003 2002
Preferred shares issued by:
Abbey Group 2,566,285 — —
Santander Finance Capital, S.A. 2,280,000 445,690 —
BSCH Finance Ltd. 725,894 2,793,776 4,030,006
Santander Finance Preferred, S.A. 639,491 — —
Banesto 325,000 — —
Pinto Totta International Finance, Ltd. 183,540 197,950 238,400
BCH Capital, Ltd. 168,857 182,107 219,319
Banesto Preferentes, S.A. 131,144 131,145 —
Totta & Açores Financing Limited 110,124 118,770 143,040
Banesto Holdings, Ltd. 56,748 61,200 76,285
BCH Eurocapital, Ltd — 554,236 667,493
BCH Internacional Puerto Rico Inc. and Banco Santander Puerto Rico — — 62,220
7,187,083 4,484,874 5,436,763
Dividends paid ( * )
— (314,461) (400,665)
7,187,083 4,170,413 5,036,098
Equity of minority interests:
Grupo Financiero Santander Serfin, S.A. de C.V. 415,592 375,249 25,933
Somaen Dos, S.L. 351,633 300,170 275,665
Banesto Group 303,612 277,793 295,636
Banco Santander Chile 129,217 133,856 103,325
Brazil Group 31,721 37,080 36,207
Santander Bank Corp 29,372 32,130 45,295
Orígenes AFJP, S.A. 13,730 11,653 23,193
Banco Santander Portugal 496 2,835 35,458
Cartera Mobiliaria, S.A., S.I.M — 63,207 27,957
Other companies 76,731 35,131 131,943
1,352,104 1,269,104 1,000,612
8,539,187 5,439,517 6,036,710
(*) From January 1, 2004, accrued dividends are recorded for accounting purposes under the ‘‘Other Assets’’ caption.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Preferred shares
These are noncumulative nonvoting shares. They were subscribed by third parties outside the
Group and are fully or partially redeemable after five years, at the issuer’s discretion.
Variations
The variations in the balances of this caption were as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year
Preferred shares:
6,060,704 6,575,173 8,273,936
Net inclusion of companies in the Group 2,566,285 (9,025) 1,211
Issue
Of which:
2,806,665 581,145 —
Santander Finance Capital, S.A. 1,830,000 450,000 —
Santander Finance Preferred, S.A. 661,665 — —
Banesto 325,000 — —
Banesto Preferentes, S.A. — 131,145 —
Redemption
Of which:
(2,624,283) (1,151,246) (890,220)
BSCH Finance Ltd. (2,057,390) (1,096,844) (694,680)
Dividends paid (314,461) (400,665)
Exchange differences and other variations (46,437) (381,849) (552,014)
Variation in percentages of ownership (Note 3) (63,045) 379,934 (60,178)
Dividends paid to minority interests (144,411) (112,597) (181,551)
Variations in capital 23,229 (22,717) 29,850
Exchange differences and other variations (39,520) (104,840) (183,659)
Balances at year-end 8,539,187 5,439,517 6,036,710
Net income for the year attributed to minority interests 532,299 621,187 538,463
9,071,486 6,060,704 6,575,173
20. Capital stock
The variations in the Bank’s capital stock were as follows:
Capital Stock
Number of Par Value
Shares (Euros)
Number of shares and par value of the capital stock as of December 31, 2002 and
2003 4,768,402,943 2,384,201,472
Capital increases Acquisition of Abbey shares (Note 1) 1,485,893,636 742,946,818
Number of shares and par value of the capital stock as of December 31, 2004 6,254,296,579 3,127,148,290
The Bank’s shares are listed on the computerized trading system of the Spanish stock
exchanges and on the New York, Milan, Lisbon and Buenos Aires stock exchanges, and all of
them have the same features and rights. As of December 31, 2004, the only shareholders with an
ownership interest in the Bank’s capital stock of over 3% were E.C. Nominees Limited (with a
7.76% holding) and Chase Nominees Limited (with a 6.23% holding).
Other considerations
As of December 31, 2004, the additional capital stock authorized by the Shareholders’ Meeting of
the Bank amounted to 01,492 million.
On June 19, 2004, the Shareholders’ Meeting resolved to increase capital by 0300 million, and
fully empowered the Board of Directors, for a period of one year, to set and establish the terms
and conditions for this capital increase in all matters not already provided for by the
Shareholders’ Meeting. In exercising these powers, the Board of Directors must determine
whether the capital increase is to be performed through the issuance of new shares or by
increasing the par value of the shares outstanding.
On June 19, 2004, the Shareholders’ Meeting set the maximum number of Bank shares that the
Bank and/or any Group subsidiary may acquire at 5% of the capital stock, fully paid, the
minimum price per share being the par value and the maximum price being up to 10% more than
the market price on the Spanish stock exchanges on the acquisition date.
Also, the aforementioned Shareholders’ Meeting authorized the Bank’s Board of Directors to
issue fixed-income securities for up to a maximum amount of 020,000 million or the equivalent
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
amount in another currency, by any lawful means. On June 21, 2003, the Shareholders’ Meeting
authorized the Bank’s Board of Directors to issue fixed-income securities convertible into new
shares and/or exchangeable for outstanding shares for up to 04,000 million over a five-year
period, and empowered the Board of Directors to increase capital by the required amount to cater
for the requests for conversion.
As of December 31, 2004, the shares of the following companies were listed on official stock
markets: Banco Río de la Plata, S.A.; Banco de Venezuela, S.A.; Banco Santander Colombia,
S.A.; Santander BankCorp (Puerto Rico); Grupo Financiero Santander Serfin, S.A. de C.V.;
Banco Santander Chile; Cartera Mobiliaria, S.A., S.I.M.; Santander Chile Holding, S.A.;
Inmuebles B de V 1985 C.A.; Banco do Estado de Sao Paulo, S.A.; Banesto; Portada, S.A. and
Capital Variable S.I.C.A.V., S.A.
As of December 31, 2004, the capital increases in progress at Group companies and the
additional capital authorized by their Shareholders’ Meetings were not material at Group level.
21. Reserves
Variations
The variations in the overall balances of reserves at the Group (see composition in Note 1) were
as follows:
Thousands of Euros
2004 2003 2002
Balances at the beginning of the year 14,823,227 14,353,213 15,663,278
Prior year’s attributed income 2,610,819 2,247,177 2,486,303
Dividends paid on prior year’s income (1,444,387) (1,375,608) (1,329,462)
Capital increases (Notes 1 and 20) 11,797,995 — 1,045,480
Charge for early retirement of employees (Note 2-j) (*)
— (327,342) (839,923)
Sale of preemptive rights on Banesto shares (Note 3) (**)
— — 271,805
Exchange differences (30,127) (8,584) (2,666,942)
Variation in reserves at associated companies (Note 10) (18,745) (1,837) (243,289)
Other variations, net (2,396) (63,792) (34,037)
Balances at year-end (Note 1) 27,736,386 14,823,227 14,353,213
(*) Based on the Group’s ownership interest in Banesto as of December 31, 2003 and 2002 (88.60% and 88.57%,
respectively).
(**) As a result of the sale of the preemptive rights on Banesto shares (Note 3), the additional paid-in capital which was
applied proportionally to the amortization of the goodwill that arose subsequent to the tender offer launched by the
Bank in 1998 was rerecorded under the ‘‘Reserves’’ caption in the consolidated balance sheet as of December 31,
2002.
Additional paid-in capital, reserves and revaluation reserves
The breakdown of the balances of these captions, relating in full to the Bank, is as follows:
Thousands of Euros
2004 2003 2002
Restricted reserves:
Legal reserve 625,430 476,841 476,841
Reserves for treasury stock 229,672 139,271 132,462
Revaluation reserves Royal Decree-Law 7/1996
Unrestricted reserves:
42,666 42,666 42,666
Additional paid-in capital 20,370,128 8,720,722 8,979,735
Voluntary reserves and consolidation reserves attributed to the Bank 4,825,752 4,894,734 4,964,087
Of which: Voluntary reserves recorded early 2,126,931 2,318,175 3,284,856
Group reserves attributed to the Bank 26,093,648 14,274,234 14,595,791
Of which: Reserves recorded at the Bank 25,976,836 14,178,195 14,436,631
Legal reserve
Under the revised Corporations Law, 10% of Spanish companies’ net income for each year must
be transferred to the legal reserve. These transfers must be made until the balance of this
reserve reaches 20% of capital stock. The legal reserve can be used to increase capital provided
that the remaining reserve balance does not fall below 10% of the increased capital stock
amount.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Reserves for treasury stock
Under the revised Corporations Law, a restricted reserve was recorded for an amount equal to
the book value of the Bank shares owned by subsidiaries. This reserve will become unrestricted
when the circumstances which gave rise to its mandatory recording cease to exist. Additionally,
this reserve includes the outstanding balance of the loans granted by the Group that are secured
by Bank shares.
Revaluation reserves Royal Decree-Law 7/1996
The balance of this account can be used, free of tax charges, to increase capital. From
January 1, 2007, the balance of this account can be taken to unrestricted reserves, provided that
the monetary surplus has been realized. The surplus will be deemed to have been realized in
respect of the portion on which depreciation has been taken for accounting purposes or when the
revalued assets have been transferred or retired from the accounting records.
If this balance were used in a manner other than as provided for in Royal Decree-Law 7/1996, it
would be subject to tax.
Additional paid-in capital
The revised Corporations Law expressly permits the use of the additional paid-in capital balance
to increase capital of the entities at which it is recorded and establishes no specific restrictions as
to its use.
Early recording of voluntary reserves
As required by the Bank of Spain, the ‘‘Reserves’’ caption in the consolidated balance sheet as of
December 31, 2004, includes ‘‘Voluntary Reserves Recorded Early’’, of which approximately
02,125 million (02,314 million and 03,277 million as of December 31, 2003 and 2002,
respectively) relate to the difference between the amount at which certain Bank shares were
issued — in accordance with Article 159.1.c of the revised Spanish Corporations Law — for the
acquisition of investments in the capital stock of other entities and the market value of the shares
received in exchange, net of the equivalent reduction in the goodwill arising in the acquisitions.
This amount increased initially the acquisition cost of the investments acquired.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Reserves and accumulated losses at consolidated companies
The breakdown, by company, of the balances of these captions, based on each company’s
contribution to the Group (after considering the effect of consolidation adjustments), is as follows:
Thousands of Euros
2004 2003 2002
RESERVES AT CONSOLIDATED COMPANIES:
Fully consolidated companies:
Grupo Financiero Mexicano (Consolidated Group) 1,297,222 937,895 712,570
Banco Español de Crédito (Consolidated Group) 967,735 584,003 461,160
Banespa 852,824 864,274 474,164
Banco Santander Chile (Consolidated Group) 391,654 344,981 539,054
Banco Totta & Açores, S.A. 272,244 183,736 120,319
Santander Central Hispano Investment, S.A. 203,256 219,908 217,947
Banco Santander Puerto Rico 201,892 228,591 263,573
Banco de Venezuela, S.A. (Consolidated Group) 157,861 95,905 127,723
Santander Consumer Finance, S.A. 84,194 — —
Santander Central Hispano Gestión, S.A., S.G.I.I.C 52,940 49,241 79,046
Other companies 511,944 487,802 22,294
4,993,766 3,996,336 3,017,850
Companies accounted for by the equity method:
Royal Bank of Scotland 658,741 607,443 534,672
Cepsa 249,378 161,823 110,013
Unión Fenosa 151,090 123,895 71,150
San Paolo IMI (Notes 9 and 10) — — 106,076
Sacyr-Vallehermoso (Note 10) — — 76,739
Other companies 296,527 281,311 276,101
1,355,736 1,174,472 1,174,751
Total reserves at consolidated companies 6,349,502 5,170,808 4,192,601
Of which: Restricted reserves 375,828 354,249 307,899
ACCUMULATED LOSSES AT CONSOLIDATED COMPANIES:
Fully consolidated companies:
Santander Investment Securities Inc. 191,181 179,864 159,671
Santander Investment Bank, Ltd. 107,535 116,537 104,274
Patagon Bank, S.A. 125,337 129,173 123,099
Patagon Euro, S.L 102,828 101,904 157,135
Banco Santander Colombia (Consolidated Group) 86,546 98,832 68,914
Gessinest Consulting, S.A. 85,776 75,188 30,629
Santander Merchant Bank, Ltd. 78,668 69,753 41,764
Capital Riesgo Global, S.C.R., S.A. 17,543 44,874 24,898
Santander Financial Products, Ltd. 2,237 12,204 31,203
Santander Consumer Finance, S.A. — 19,284 78,995
Other companies 426,688 379,038 226,009
1,224,339 1,226,651 1,046,591
Companies accounted for by the equity method 197,997 140,863 142,871
Translation differences
Of which:
3,284,428 3,254,301 3,245,717
Depreciation of the Brazilian real 1,544,123 1,563,456 1,602,789
Devaluation in Argentina 991,383 974,828 981,597
Total accumulated losses at consolidated companies 4,706,764 4,621,815 4,435,179
Net balance 1,642,738 548,993 (242,578)
22. Tax matters
Consolidated Tax Group
In accordance with current regulations, the Consolidated Tax Group includes Banco Santander
Central Hispano, S.A. (as the parent company) and the Spanish subsidiaries that meet the
requirements stipulated in the regulations on taxation of the consolidated net income of
corporate groups (as the controlled companies).
The other Group banks and companies file individual tax returns in accordance with the tax
regulations applicable in the respective countries.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Years open for tax audit
The years open for tax audit in the Consolidated Tax Group as of December 31, 2004, were
2001, 2002, 2003 and 2004 for the main taxes applicable to it.
The other Spanish consolidated entities generally have the last four years open for review by the
tax inspection authorities with respect to the main taxes applicable to them, except in the case of
those companies for which the statute of limitations has been interrupted due to tax audits.
In 2004 there were no significant developments in the matters being contested at the different
instances of the tax disputes pending resolution as of December 31, 2003.
In 2002 tax assessments were received relating to 1996, 1997 and 1998 for a total amount of
048 million, of which 039 million were contested. In 2003 and 2004 tax assessments were
received relating to 1998, 1999 and 2000, and were partially contested. The amount of the
resulting tax charge is not material for the Group.
The Bank’s directors consider that the liabilities, if any, which might arise as a result of these
claims would not have a material effect on the 2004 consolidated statement of income.
Because of the possible different interpretations which can be made of the tax regulations, the
outcome of future reviews of the open years by the tax authorities might give rise to contingent
tax liabilities which cannot be objectively quantified. However, the Bank’s tax advisers consider it
unlikely that such contingent liabilities or the contingent liabilities relating to the inspectors’
assessments referred to above will become actual liabilities, and that in any event the tax charge
which might arise therefrom would not materially affect the consolidated financial statements of
the Group.
Since 1992 the Madrid Central Court number 3 has kept open preliminary court proceedings,
now an ‘‘abbreviated’’ proceeding, to determine the liabilities related to certain credit assignment
transactions carried out by Banco Santander, S.A. from 1987 to 1989. The Bank and its internal
and external advisers consider that the final outcome of this litigation will be favorable and that no
additional specific provision is required.
The Court handed down an order on July 16, 1996, following a request to this effect from the
Government Lawyer and after having consulted the State Tax Agency, to dismiss the actions
against the Bank and its executives in respect of the income derived from the aforementioned
transactions. Subsequently, the Government Lawyer, as the representative of the Public
Treasury, and the Public Prosecutor’s Office have repeatedly applied to have the case against
the Bank and its management dismissed and struck out. However, a decision was rendered on
June 27, 2002 to turn the aforementioned preliminary court proceedings into an ‘‘abbreviated’’
proceeding. The Public Prosecutor’s Office, the Bank and its executives have appealed against
this decision.
On June 23, 2003, Panel Two of the Criminal Chamber of the National Appellate Court partially
upheld these appeals, and explicitly recognized that the assignments of naked credit ownership
were lawfully marketed and reduced the proceedings from 138 to 38 customer transactions (it
should be noted that the government lawyer and the Public Prosecutor’s Office have also
requested dismissal and removal of the case on grounds that no offense had been committed)
with respect to which the Bank’s possible involvement is still being alleged.
Following the submissions phase, in which the Public Prosecutor’s Office and the Government
Lawyer reiterated their petition to have the proceedings dismissed and struck out, based on the
class accusation filed by the Association for the Defense of Investors and Consumers, on
October 6, 2004 the Court ordered commencement of a trial for cumulative offenses of
misrepresentation and forgery of official documents, three cumulative offenses of
misrepresentation and forgery of commercial documents and thirty offenses against the Public
Treasury, against the Chairman of the Bank and three executives and ordered that they post a
bond to cover fines and costs, on a joint and several basis, for 067.8 million which has been
subsequently reduced to 040.1 million. Pursuant to the order, Section One of the Criminal
Chamber of the National Appellate Court has been designated as the body with jurisdiction to
conduct the trial.
In any event, following its traditional prudent criteria, the Group has recorded reasonable
provisions to cover any contingencies which might arise from the above-mentioned situations.
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Reconciliation
The reconciliation of the corporate income tax expense calculated at the standard rate to the
recorded corporate income tax expense is as follows:
Thousands of Euros
2004 2003 2002
Corporate income tax at the standard rate of 35%
Permanent differences:
1,552,116 1,435,504 1,228,062
Amounts arising from consolidation (*)
(771,215) (558,748) (499,646)
Tax credits and elimination of double taxation of dividends
Effect of allocation of the Group’s share in income of companies accounted
(52,711) (34,678) (18,830)
for by the equity method 38,571 27,356 13,523
‘‘Corporate Income Tax’’ and ‘‘Other Taxes’’, per consolidated statements
(785,355) (566,070) (504,953)
of income 766,761 869,434 723,109
(*) Including the net tax effect of all the consolidation adjustments treated as permanent differences by the Group,
which relate mainly to writedowns, and the differences arising from the different tax rates in Spain and in other
countries.
The Bank and certain of the other Spanish consolidated companies have availed themselves of
the tax credits available under corporate income tax legislation. Although the 2004 corporate
income tax return has not yet been filed, the provision for 2004 corporate income tax shown in
the consolidated balance sheet as of December 31, 2004, and the consolidated statement of
income for the year then ended is net of the related investment, dividend double taxation and
international double taxation tax credits recorded in the balance of ‘‘Permanent Differences’’ in
the foregoing reconciliation.
Other assets and other liabilities
The balance of the ‘‘Other Assets’’ caption in the consolidated balance sheets includes debit
balances with the tax authorities relating to deferred tax assets. The balance of the ‘‘Other
Liabilities’’ caption includes the liability for the various deferred taxes of the Group and the tax
collection accounts.
The detail of the two balances is as follows:
Thousands of Euros
2004 2003 2002
Other assets — Deferred tax assets
Of which:
5,891,958 3,995,055 4,418,761
Banespa 1,228,440 1,132,264 1,200,239
Abbey 1,004,494 — —
Early retirements in 1999 168,679 213,282 258,591
Early retirements in 2000 127,274 171,720 205,676
Early retirements in 2001 155,415 187,210 216,205
Early retirements in 2002 (Note 2-j) 367,561 427,629 484,101
Early retirements in 2003 (Note 2-j) 172,056 188,427 —
Early retirements in 2004 (Note 2-j) 283,491 — —
Other liabilities — Tax collection accounts and deferred tax liabilities
Of which:
3,374,321 2,259,705 2,587,226
Abbey 798,232 — —
Tax collection accounts 1,549,874 1,387,294 1,959,378
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
23. Memorandum accounts, futures transactions and off-balance-sheet funds under
management
Memorandum accounts
The ‘‘Memorandum Accounts’’ caption includes the following commitments and contingent
liabilities of the Group that arose in the normal course of its operations:
Thousands of Euros
2004 2003 2002
Contingent liabilities:
Rediscounts, endorsements and acceptances 206,042 26,720 45,087
Assets assigned to sundry obligations 24 81,160 185,620
Guarantees and other sureties 30,915,447 27,273,863 23,862,776
Other contingent liabilities 3,073,870 3,372,446 3,609,177
Commitments:
34,195,383 30,754,189 27,702,660
Sales with repurchase option
Balances drawable by third parties
40,310 512,698 466,644
Credit institutions 1,700,214 943,456 1,047,363
Public authorities 2,288,834 2,569,614 2,246,066
Other sectors 60,315,083 45,099,247 45,810,366
Other commitments 6,975,543 5,385,641 5,206,970
71,319,984 54,510,656 54,777,409
105,515,367 85,264,845 82,480,069
Futures transactions
The detail, by term to maturity, of the notional and/or contractual amounts of each type of futures
transactions arranged by the Group as of December 31, 2004, is as follows:
Thousands of Euros
Up to 1 to 5 5 to 10 Over 10
1 Year Years Years Years Total
Unmatured foreign currency purchase and sale transactions:
Purchases of foreign currencies against euros 18,534 9,671 2,542 240 30,987
Purchases of foreign currencies against foreign currencies 32,773 9,627 21,304 5,257 68,961
Sales of foreign currencies against euros
Financial asset purchase and sale transactions
16,711 6,766 2,501 437 26,415
(*) :
Purchases 3,120 150 85 305 3,660
Sales
Securities and interest rate futures
2,614 113 355 32 3,114
(*) :
Purchased 68,936 19,523 97 — 88,556
Sold
Options on securities
33,250 54,855 1 — 88,106
(*) :
Purchased 11,262 9,569 87 10 20,928
Written
Options on interest rates
26,452 34,368 4,599 7,837 73,256
(*) :
Purchased 16,032 18,304 4,457 1,497 40,290
Written
Options on foreign currencies:
38,751 43,950 29,355 2,967 115,023
Purchased 5,692 367 — 11 6,070
Written
Other interest rate transactions:
6,090 404 — 11 6,505
Forward rate agreements (FRAs) 25,320 — 14 2 25,336
Interest rate swaps (IRSs) 230,078 423,525 200,900 105,282 959,785
Other 307 1,962 731 1,197 4,197
Commodity futures transactions 1 4 — — 5
Total 535,923 633,158 267,028 125,085 1,561,194
(*) Based on the term of the underlying asset.
Other information
The aforementioned notional and/or contractual amounts of futures transactions do not
necessarily reflect the actual risk assumed by the Group, since the net position in these financial
instruments is the result of offset and/or combination thereof. This net position is used by the
Group basically to hedge the interest rate risk, the price of the underlying asset or the currency
risk, the resulting gains or losses on which are included under the ‘‘Gains (Losses) on Financial
Transactions’’ caption in the consolidated statements of income and, where appropriate, as an
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
increase in, or offset of, the results on the investments for which these hedging contracts were
arranged (Note 25).
Off-balance-sheet funds under management
The detail of the off-balance-sheet funds under management by the Group is as follows:
Thousands of Euros
2004 2003 2002
Mutual funds 94,125 80,502 68,140
Pension funds 34,854 19,495 17,513
Assets under management 10,997 8,906 7,685
139,976 108,903 93,338
24. Transactions with nonconsolidable Group companies and with associated companies
The detail of the Group’s main balances with nonconsolidable companies controlled by it and
with associated companies as of December 31 of each year, and of the impact of the
transactions with them on the statements of income, is as follows:
Thousands of Euros
2004 2003 2002
ASSETS:
Due from credit institutions 621,376 103,734 54,982
Debentures and other fixed-income securities — — 18,794
Loans and credits 1,579,464 1,445,472 1,364,470
2,200,840 1,549,206 1,438,246
LIABILITIES:
Due to credit institutions 20,391 123,039 414,493
Customer deposits 3,770,735 960,830 1,266,467
Debt securities 4,904 — —
3,796,030 1,083,869 1,680,960
STATEMENT OF INCOME:
Debit —
Interest expense 26,782 26,305 45,221
Fees paid 375 2,211 904
27,157 28,516 46,125
Credit —
Interest income 40,096 48,138 47,750
Gains on financial transactions 9,745 16,610 8,262
Fees collected 197,827 115,632 62,422
247,668 180,380 118,434
MEMORANDUM ACCOUNTS:
Contingent liabilities 342,940 1,017,854 369,891
Commitments 1,029,795 551,395 454,270
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
25. Statement of income disclosures
Following is certain relevant information in connection with the consolidated statements of
income:
a) Geographical breakdown
The geographical breakdown of the balances of the main captions composing the Group’s
revenues, by country of location of the Group companies giving rise to them, is as follows:
Thousands of Euros
2004 2003 2002
Interest income:
Spain 7,158,621 7,293,968 7,827,262
Other European countries 2,842,692 2,993,831 3,206,615
America 8,102,470 6,915,914 11,668,863
Other 52 27 8,598
18,103,835 17,203,740 22,711,338
Income from equity securities:
Spain 548,615 367,779 405,248
Other European countries 49,851 39,566 33,669
America 48,980 34,148 34,248
Other — — 7
647,446 441,493 473,172
Fees collected:
Spain 2,937,689 2,596,745 2,356,885
Other European countries 728,759 666,170 676,782
America 2,109,362 1,835,435 2,112,809
Other 829 529 610
5,776,639 5,098,879 5,147,086
Gains (Losses) on financial transactions:
Spain 604,016 435,145 314,166
Other European countries 77,688 85,499 61,568
America 270,962 478,147 (20,627)
Other — 22 1,143
952,666 998,813 356,250
Other operating income:
Spain 53,800 47,613 89,960
Other European countries 11,896 2,734 4,388
America 24,212 25,113 34,082
Other 1 — 1
89,909 75,460 128,431
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
b) Breakdown by type of transaction
The detail, by type of transaction, of certain captions in the consolidated statements of income is
as follows:
Thousands of Euros
2004 2003 2002
Interest income:
Bank of Spain and other central banks 236,530 296,106 335,567
Due from credit institutions 1,087,880 1,377,807 2,009,926
Fixed-income securities 3,656,639 3,413,601 5,081,124
Loans and credits 10,644,282 10,337,062 12,911,012
Revenues related to insurance contracts (Note 2-j) 198,312 220,333 241,929
Other revenues 2,280,192 1,558,831 2,131,780
18,103,835 17,203,740 22,711,338
Interest expense:
Bank of Spain 246,066 188,026 441,151
Due to credit institutions 1,923,656 1,780,376 2,182,298
Deposits 3,750,498 4,315,601 6,208,584
Debt securities and subordinated debt 2,442,315 2,020,264 2,379,629
Cost allocable to the recorded pension allowance (Note 2-j) 601,015 554,012 597,211
Other interest 1,152,019 828,617 2,016,982
10,115,569 9,686,896 13,825,855
Fees collected:
Contingent liabilities 247,116 226,988 212,346
Collection and payment services 2,024,054 1,974,861 2,100,042
Securities services 2,136,041 1,899,780 1,852,472
Other transactions 1,369,428 997,250 982,226
5,776,639 5,098,879 5,147,086
Fees paid:
Asset and liability transactions 122,571 220,785 161,691
Fees assigned 770,281 456,258 460,540
Other fees 274,498 251,274 235,571
1,167,350 928,317 857,802
Gains (Losses) on financial transactions (*) :
Fixed-income securities 525,098 392,101 (340,647)
Equity securities 474,685 432,008 (150,908)
Exchange differences 282,905 166,194 417,017
Derivatives (330,022) 8,510 430,788
952,666 998,813 356,250
(*) The balance of these captions in the consolidated statements of income includes the net gains (losses) on trading
transactions (Notes 2-d, 2-e and 2-l). To properly interpret these amounts, it must be borne in mind that, in the case of
hedging transactions, gains or losses arising from exchange differences and derivatives are symmetrical to those
recorded under the ‘‘Gains (Losses) on Financial Transactions — Fixed-Income Securities’’ and ‘‘Gains (Losses) on
Financial Transactions — Equity Securities’’ captions in the foregoing detail.
c) General administrative expenses
The detail of the balances of this caption in the consolidated statements of income is as follows:
Thousands of Euros
2004 2003 2002
Personnel expenses 4,135,315 4,049,372 4,521,718
Other administrative expenses 2,599,878 2,428,325 2,800,333
General administrative expenses 6,735,193 6,477,697 7,322,051
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Personnel expenses
The detail of the balances of this caption in the consolidated statements of income is as follows:
Thousands of Euros
2004 2003 2002
Wages and salaries 3,011,955 2,959,515 3,208,776
Social security costs 551,551 546,541 609,394
Period provision to in-house pension allowances (Note 2-j) 46,585 49,227 91,025
Contributions to external pension funds (Note 2-j) 56,276 47,376 39,029
102,861 96,603 130,054
Other expenses 468,948 446,713 573,494
4,135,315 4,049,372 4,521,718
The number of employees at the Group, by professional category, was as follows:
Number of Employees
2004 2003 2002
The Bank and other Spanish companies:
Top executives (*)
99 117 123
Other line personnel 25,693 26,383 26,230
Clerical staff 7,483 8,379 9,433
General services 78 89 101
33,353 34,968 35,887
Abbey 24,361 — —
Other banks and companies abroad 68,774 68,070 68,291
Other Spanish and foreign nonbanking companies 939 920 982
127,427 103,958 105,160
* Categories of Assistant Deputy Manager and above, including Senior Management.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
Compensation systems based on the delivery of Bank shares
In recent years, the Bank has put in place compensation systems linked to the market
performance of the Bank’s shares based on the achievement of certain objectives as shown
below:
Stock option plans
Date of Date of
Euros
Commencement Expiration
Number Exercise Year Qualifying Number of Exercise of Exercise
of Shares Price Granted Group of People Period Period
Plans in force at
January 1, 2002 36,025,123 8.64
Options granted
Of which:
2,895,000 9.41
European branches plan 2,895,000 9.41
Options exercised
Of which:
(4,637,240) 4.15
Plan Four (1,558,100) 7.84
Managers Plan 1999
Additional Managers
(3,000,700) 2.29
Plan 1999
Options canceled or not
(78,440) 2.41
exercised
Plans in force at
(6,974,580) —
December 31, 2002 27,308,303 9.32
Options granted
Of which:
1,410,000 6.55
European branches plan 1,410,000 6.55
Options exercised
Of which:
(965,087) 2.29
Managers Plan 99 (678,325) 2.29
Young Executives Plan
Additional Managers
(262,250) 2.29
Plan 99
Options canceled or not
(24,512) 2.41
exercised
Plans in force at
(2,013,250) —
December 31, 2003 25,739,966 9.38
Options exercised
Of which:
(1,934,406) (2.83)
Plan Four (36,000) 7.84
Managers Plan 99
Additional Managers
(1,139,488) 2.29
Plan 99 (55,668) 2.41
Young Executives Plan (563,250) 2.29
European branches plan
Options canceled or not
(140,000) 8.23
exercised
Plans in force at
(2,678,810) —
December 31, 2004
Of which:
21,126,750 9.94
Plan Four 228,000 7.84 1998 Managers 5 01/09/03 12/30/05
Investment Bank Plan 4,503,750 10.25 2000 Managers 56 06/16/03 06/15/05
Young Executives Plan 364,000 2.29 2000 Managers 111 07/01/03 06/30/05
Managers Plan 2000 13,341,000 10.55 2000 Managers 970 12/30/03 12/29/05
European branches plan 2,690,000 7.60 (*) 2002 and
2003
Managers 27 07/01/05 07/15/05
(*) The average exercise price ranges from 35.65 to 310.15 per share.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
The option plans on shares of the Bank originally granted by management of Abbey to its
employees (on Abbey shares) are as follows:
Date of Date of
Average Exercise
Commencement Expiration
Plans in force at Number Price Qualifying of Exercise of Exercise
December 31, 2004 of Shares Pounds Euros (*)
Group Period Period
Executive options 358,844 4.16 5.90 Managers 03/25/99 04/04/14
Employee options 56,550 5.90 8.37 Employees 09/09/99 09/08/06
Sharesave 17,260,173 3.56 5.05 Employees 04/01/04 10/01/11
17,675,567 3.58 5.08
(*) The euro/pound sterling exchange rate was 31.4183 per pound as of December 31, 2004.
Lastly, in 2004 a new long-term incentive plan was designed (I-06) in the form of stock options
tied to the achievement of two objectives: a revaluation of the Bank’s share price and growth in
earnings per share above a sample of comparable banks, in both cases. 2,750 executives are
covered by this plan with a total of up to 103,050,000 options on Bank shares at an exercise price
of 09.07. The exercise period is from January 15, 2008 to January 15, 2009. This plan will be
submitted for the approval of the next Shareholders’ Meeting.
The difference between the market value of the shares and the exercise price of the options is
recorded as an expense under the ‘‘General Administrative Expenses — Personnel Expenses’’
caption in the period from the grant date to the date of commencement of the exercise period.
Other administrative expenses
The detail of the balances of this caption in the consolidated statements of income is as follows:
Thousands of Euros
2004 2003 2002
Technology and systems 460,580 454,717 520,893
Communications 240,516 230,345 316,230
Advertising 289,406 211,446 266,002
Buildings, fixtures and office supplies 522,755 511,438 576,879
Taxes other than income tax 119,999 146,782 199,762
Experts’ reports 187,771 178,389 190,202
Per diems and travel expenses 153,858 136,573 146,080
Surveillance and cash courier services 137,944 135,440 162,001
Insurance premiums 27,053 29,786 36,908
Other expenses 459,996 393,409 385,376
2,599,878 2,428,325 2,800,333
Included in the ‘‘Experts’ Reports’’ balance are the audit fees paid by the Group companies (see
Exhibits I, II and III) to their respective auditors, the detail being as follows:
Thousands of Euros
2004 2003 2002
Annual audits performed by firms belonging to the Deloitte worldwide organization
Other reports required by legal and tax regulations emanating from different national
supervisory agencies in the countries in which the Group operates and examined by firms
9.4 8.9 9.1
in the Deloitte worldwide organization 2.6 2.2 2.9
Fees for audits performed by other firms 0.6 0.8 1.1
12.6 11.9 13.1
Also, in 2004 the various Group companies engaged other services, the detail being as follows:
1. Services provided by firms in the Deloitte worldwide organization: 02.8 million (04.7 million
and 05.4 million in 2003 and 2002, respectively).
The services from our auditors meet the independence requirements stipulated by
Law 44/2002 on Financial System Reform Measures and by the Sarbanes-Oxley Act of 2002
adopted by the Securities and Exchange Commission (SEC); accordingly, they do not include
the provision of services which are incompatible with the audit function.
2. Services provided by other audit firms: 05.6 million (04.4 million and 05.7 million in 2003 and
2002, respectively).
d) Extraordinary income/Extraordinary loss
The net debit balance (0850 million) of these captions in the consolidated statement of income
for the year ended December 31, 2004, includes the gains or losses on disposal of property and
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
equipment and long-term investments (net income of 0550 million and net loss of 083 million);
the collection of interest on doubtful and nonperforming loans earned in prior years
(0108 million); monetary adjustments (Note 2-b); provisions to pension allowances (Note 2-j);
and other net extraordinary losses (0448 million) arising from writedowns at various Group
subsidiaries, the most noteworthy being the expenses of 0155 million incurred in the acquisition
of Abbey (including 05.4 million of nonrecurring fees paid to the Deloitte worldwide organization
for work required under Spanish and U.K. regulations in the acquisition of Abbey).
The net credit balance (0669 million) of these captions in the consolidated statement of income
for the year ended December 31, 2003, includes the gains or losses on disposal of property and
equipment and long-term investments (net income of 0696 million and net loss of 093 million);
the collection of interest on doubtful and nonperforming loans earned in prior years (092 million);
monetary adjustments (Note 2-b); provisions to pension allowances (Note 2-j); and other net
income of 0103 million.
The net debit balance (0339 million) of these captions in the consolidated statement of income
for the year ended December 31, 2002, includes the gains or losses on disposal of property and
equipment and long-term investments (net income of 0443 million and net loss of 0122 million);
the collection of interest on doubtful and nonperforming loans earned in prior years (076 million);
monetary adjustments (Note 2-b); provisions to pension allowances (Note 2-j); and other net
losses of 0315 million, resulting mainly from the impact of writedowns of technology and other
companies and of businesses located outside Spain.
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
26. Statements of changes in financial position
The consolidated statements of changes in financial position are as follows:
Thousands of Euros
2004 2003 2002
SOURCE OF FUNDS:
From operations-
Income for the year 3,667,857 3,232,006 2,785,640
Depreciation and amortization expense
Net provisions to allowances for diminution in asset value and to other
1,353,902 3,004,482 2,248,448
allowances
Income of companies accounted for by the equity method, net of
3,609,764 2,542,276 3,428,511
dividends (540,386) (407,263) (279,898)
Direct writedown of assets 61,189 103,839 132,395
Losses on the sale of treasury stock, equity investments and fixed assets 124,677 115,723 973,395
Gains on the sale of treasury stock, equity investments and fixed assets (698,935) (1,300,209) (2,302,236)
7,578,068 7,290,854 6,986,255
Capital increase with additional paid-in capital 12,540,943 — 1,100,000
Net sale of treasury stock — 34,457 —
Subordinated debt securities issued 9,807,828 500,000 1,195,569
Lending less financing at Bank of Spain and credit institutions — 24,084,458 2,520,369
Loans and credits (*)
— — 9,087,650
Fixed-income securities (*)
— — 10,022,835
Customer deposits (**)
134,510,125 — —
Bond and debenture 34,860,737 13,025,505 6,698,032
Promissory notes and other securities 10,195,070 4,354,287 —
Preferred share issues 5,372,950 581,145 —
Sale of investments in Group and associated companies 1,999,403 1,761,549 4,884,437
Sale of property and equipment and intangible assets 1,068,325 845,411 1,754,111
Other asset items less liability items 5,679,936 — —
Total funds obtained 223,613,385 52,477,666 44,249,258
APPLICATION OF FUNDS:
Dividends 791,555 739,102 727,782
Subordinated debt securities redeemed 834,788 1,729,140 1,741,332
Lending less financing at Bank of Spain and credit institutions 3,303,008 — —
Net purchase of treasury stock 123,010 — 10,210
Loans and credits (**)
170,113,012 17,806,128 —
Fixed-income securities 18,726,066 11,757,298 —
Short-term equity securities 1,729,533 748,781 262,846
Customer deposits (*)
— 8,480,184 13,711,536
Redemption of bonds and debentures 5,489,823 4,227,694 4,939,586
Promissory notes and other securities — — 12,078,435
Purchase of investments in Group and associated companies 14,926,892 2,219,770 3,079,360
Purchase of property and equipment and intangible assets 4,681,231 980,416 985,510
Other minority interests 270,184 557,078 1,285,958
Redemption of preferred shares 2,624,283 1,151,246 890,220
Other asset items less liability items (*)
— 2,080,829 4,536,483
Total funds applied 223,613,385 52,477,666 44,249,258
(*) In 2002 these items were significantly affected by the net worth impact arising from the depreciation of certain Latin-
American currencies.
(**) In 2004 these items were significantly affected by the acquisition of Abbey.
27. Subsequent events
Auna
In January 2005 the Group acquired an additional 4.74% holding in the capital stock of Auna.
Casa de Bolsa Santander Serfin, S.A. de C.V. (Casa de Bolsa)
In 1997, Casa de Bolsa Santander Serfin, S.A. de C.V. was sued for an alleged breach of various
stock brokerage contracts. On July 6, 1999, Civil Court number Thirty-one of the Federal District
handed down a judgment ordering Casa de Bolsa to indemnify the plaintiff for certain shares,
cash and interest.
Casa de Bolsa filed a cassation appeal against the judgment. On January 20, 2005, the Court
handed down a decision, upholding the judgment in all respects. Casa de Bolsa has filed an
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PART 2: FINANCIAL INFORMATION ON THE COMPANY
appeal for protection of constitutional rights against that decision requesting that the judgment be
stayed.
Casa de Bolsa Management and their legal advisers consider that the final resolution of the
judgment will not have a material impact on the company’s financial statements.
Bankia Bank ASA (Bankia)
The Santander Group has reached an agreement to launch a tender offer for all the shares of the
Norwegian bank Bankia. The Board of Directors of Bankia has recommended that its
shareholders accept the Group’s offer. The offer price is NOK 65.18 per share (07.90), which
values Bankia at approximately 053 million.
Other matters
Subsequent to year-end, a trial was held in connection with the proceedings brought before the
National Appellate Court with respect to the compensation paid to Mr. José María Amusátegui
and Mr. Ángel Corcóstegui when they retired from the Bank, information on which was provided
by the Group in the Management Report for 2003. A decision has yet to be handed down in this
connection.
28. Explanation added for translation to English
These consolidated financial statements are presented on the basis of accounting principles
generally accepted in Spain. Certain accounting practices applied by the Group that conform with
generally accepted accounting principles in Spain may not conform with generally accepted
accounting principles in other countries.
93

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Exhibit I
Consolidated companies composing the Santander Group (2)
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
A N (123) plc United Kingdom — 100.00% PORTFOLIO
COMPANY
1,200 315 30 1,450
A S (Nominees) Limited
A.G. Activos y Participaciones,
United Kingdom — 100.00% SECURITIES
COMPANY
— — — —
S.A.
Abbey Business Services (India)
Spain — 88.54% SECURITIES
INVESTMENT
5 166 5 73
Private Limited
Abbey National (America) Holdings
India — 100.00% PORTFOLIO
COMPANY
— — — —
Inc.
Abbey National (America) Holdings
United States — 100.00% PORTFOLIO
COMPANY
— — — —
Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
33 — — 33
Abbey National (Gibraltar) Limited Gibraltar — 100.00% SECURITIES
COMPANY
6 — — 6
Abbey National (Holdings) Limited
Abbey National AESOP Trustees
United Kingdom — 100.00% PORTFOLIO
COMPANY
23 4 — 23
Limited
Abbey National Alpha
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Investments (**)
Abbey National American
United Kingdom — 100.00% FINANCE 64 — 1 64
Investments Limited
Abbey National Asset Managers
United Kingdom — 100.00% FINANCE 359 6 11 359
Limited
Abbey National Baker Street
United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
18 (5) (4) 12
Investments United Kingdom — 100.00% FINANCE 175 — — 175
Abbey National Belfast Limited
Abbey National Beta Investments
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Limited
Abbey National Business Asset
United Kingdom — 100.00% FINANCE 120 41 5 120
Leasing Limited
Abbey National Business Cashflow
United Kingdom — 100.00% LEASING — 6 2 —
Finance Limited
Abbey National Business
United Kingdom — 100.00% FACTORING 6 5 2 12
Commercial Lending Limited
Abbey National Business
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Equipment Leasing Limited
Abbey National Business Factors
United Kingdom — 100.00% LEASING — (5) — 22
Limited
Abbey National Business Finance
United Kingdom — 100.00% ADVISORY SERVICES 3 — — 3
Services Limited
Abbey National Business Leasing
United Kingdom — 100.00% ADVISORY SERVICES — — — —
(Holdings) Limited
Abbey National Business Leasing
United Kingdom — 100.00% ADVISORY SERVICES 2 12 — 5
Limited
Abbey National Business Office
United Kingdom — 100.00% ADVISORY SERVICES — (9) — —
Equipment Leasing Limited
Abbey National Business Sales Aid
United Kingdom — 100.00% LEASING — 6 — —
Leasing Limited
Abbey National Business Vendor
United Kingdom — 100.00% LEASING — 5 — —
Plan Leasing Limited United Kingdom — 100.00% LEASING — 6 2 —
Abbey National Capital LPI United States —
(b)
FINANCE — — — —
Abbey National Cahoot Limited
Abbey National Cardiff and the
United Kingdom — 100.00% FINANCIAL
SERVICES
— — — —
Vales Limited
Abbey National Charitable
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Trust Limited
Abbey National Computer Services
United Kingdom —
(b)
CHARITY SERVICES — — — —
Limited
Abbey National Continental
United Kingdom — 100.00% LEASING 21 — — —
Investments
Abbey National Corporate Services
United Kingdom — 100.00% FINANCE — — — —
Limited
Abbey National Credit and
United Kingdom — 100.00% LEASING — — — —
Payment Services Limited
Abbey National December Leasing
United Kingdom — 51.00% SERVICES — — — —
(1) Limited
Abbey National December Leasing
United Kingdom — 100.00% LEASING — 6 — —
(4) Limited
Abbey National December Leasing
United Kingdom — 100.00% LEASING — — 1 —
(7) Limited United Kingdom — 100.00% LEASING — — — —
Abbey National Ealing Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
94

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Abbey National Employees’
Trustees Limited
Abbey National Employment
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Services Inc.
Abbey National Financial and
Investment Services (Far East)
United States — 100.00% EMPLOYMENT
SERVICES
— — — —
Limited
Abbey National Financial and
Investment Services (Hong
Hong Kong — 100.00% FUND AND
PORTFOLIO
MANAGER
— — — —
Kong) Limited
Abbey National Financial and
Investment Services (Jersey)
Hong Kong — 100.00% FUND AND
PORTFOLIO
MANAGER
— — — —
Limited
Abbey National Financial and
Investment Services Ireland
Jersey — 100.00% PORTFOLIO
COMPANY
— — — —
Holdings
Abbey National Financial and
Ireland — 100.00% PORTFOLIO
COMPANY
2 — — 2
Investment Services Ireland plc
Abbey National Financial and
Investment Services Isle of Man
Ireland — 100.00% FUND AND
PORTFOLIO
MANAGER
2 — — 1
Limited
Abbey National Financial and
Isle of Man — 100.00% FUND AND
PORTFOLIO
MANAGER
— — 1 —
Investment Services PLC
Abbey National Financial
United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
7 16 6 7
Investments 3 B.V.
Abbey National Financial
Netherlands — 100.00% FINANCE 1 — — 1
Investments 4 B.V.
Abbey National Financial
Netherlands — 100.00% FINANCE 355 — — 355
Investments No. 2 Limited Jersey — 100.00% FINANCE — — — —
Abbey National First Capital B.V.
Abbey National Funded
Unapproved Retirement Benefits
Netherlands — 100.00% FINANCE — 4 — —
Scheme Trustees Limited (**)
Abbey National Funding (Jersey)
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Limited Jersey — 100.00% PORTFOLIO
COMPANY
— — — —
Abbey National Funding plc
Abbey National General Insurance
United Kingdom — 100.00% FINANCE — — — —
Services Limited
Abbey National Gibraltar
United Kingdom — 100.00% ADVISORY SERVICES 24 (78) — 24
(1986) Limited United Kingdom — 100.00% FINANCE 7 1 — 7
Abbey National Global Investments
Abbey National GP (Jersey)
United Kingdom — 100.00% FINANCE — — — —
Limited
Abbey National Graphics Services
Jersey — 100.00% FINANCE — — — —
Limited
Abbey National Group Pension
United Kingdom — 100.00% MARKETING — — — —
Schemes Trustees Limited (**)
Abbey National Growth
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Investments United Kingdom — 100.00% FINANCE — — — —
Abbey National Healthcare Limited United Kingdom — 100.00% INSURANCE 15 — 1 14
Abbey National Homes Limited
Abbey National Independent
United Kingdom — 100.00% FINANCE — (51) — —
Financial Consultants Ltd
Abbey National Independent
United Kingdom — 100.00% FINANCE — — — 1
Investments (**)
Abbey National International
United Kingdom — 100.00% FINANCE — — — —
Limited Jersey — 100.00% BANKING 212 33 20 212
Abbey National Investments
Abbey National Investments
United Kingdom — 100.00% FINANCE 151 — — 151
Holdings Limited
Abbey National Jersey International
United Kingdom — 100.00% PORTFOLIO
COMPANY
— 24 57 —
Limited
Abbey National June Leasing
Jersey — 100.00% FINANCE 262 31 2 262
(4) Limited (***)
Abbey National June Leasing
United Kingdom — 100.00% LEASING — 1 — —
(5) Limited (*)
United Kingdom — 100.00% LEASING — 1 — —
95

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Abbey National March Leasing
(4) Limited (**)
Abbey National Mortgage Finance
United Kingdom — 100.00% LEASING — 1 4 —
plc United Kingdom — 100.00% MORTGAGE LOAN
COMPANY
— — — —
Abbey National Newcastle Limited
Abbey National Nominees (Jersey)
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Limited Jersey — 100.00% SECURITIES
COMPANY
— — — —
Abbey National Nominees Limited
Abbey National North America
United Kingdom — 100.00% SECURITIES
COMPANY
— — — —
Corporation
Abbey National North America
United States — 100.00% FINANCE — 2 — —
Holdings Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
— — — —
Abbey National North America LLC
Abbey National Offshore Holdings
United States — 100.00% FINANCE — — — —
Limited
Abbey National Pension Funds
Jersey — 100.00% PORTFOLIO
COMPANY
245 21 — 258
(Holdings) Limited (**)
Abbey National Pension Funds
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Trustee Company Limited (**)
Abbey National PEP & ISA
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Managers Limited
Abbey National Personal Finance
United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
52 10 7 52
Limited
Abbey National Personal Pensions
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Trustee Limited United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Abbey National plc United Kingdom 100.00% — BANKING 3,741 2,044 (327) 12,462
Abbey National PLP (UK) Limited
Abbey National Properties
United Kingdom — 100.00% FINANCE — — — —
(1) Limited
Abbey National Properties
United Kingdom — 100.00% SERVICES — — — —
(2) Limited
Abbey National Property
United Kingdom — 100.00% LEASING — (3) — —
Developments Limited
Abbey National Property
United Kingdom — 100.00% REAL ESTATE — — — —
Investments
Abbey National Property Services
United Kingdom — 100.00% FINANCE 196 24 9 196
Limited
Abbey National Second Capital
United Kingdom — 100.00% REAL ESTATE — (18) — —
B.V.
Abbey National Secretariat
Netherlands — 100.00% FINANCE — 4 — —
Services (Jersey) Limited
Abbey National Secretariat
Jersey — 100.00% FUND AND
PORTFOLIO
MANAGER
— — — —
Services Limited United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
— — — —
Abbey National Securities Inc.
Abbey National September Leasing
United States — 100.00% SECURITIES
COMPANY
— 30 — —
(3) Limited
Abbey National September Leasing
United Kingdom — 100.00% LEASING — (7) 1 —
(5) Limited (*****)
Abbey National September Leasing
United Kingdom — 100.00% LEASING — 4 2 —
(7) Limited (*)
Abbey National Share Participation
Scheme Trustee Company
United Kingdom — 100.00% LEASING — — — —
Limited
Abbey National Shelf Co.
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
(4) Limited
Abbey National SMA Holdings
United Kingdom — 100.00% INSURANCE — — — —
Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
4,775 (380) (410) 4,507
Abbey National Sterling Capital plc
Abbey National Treasury
United Kingdom — 100.00% FINANCE — 4 — —
International (IOM) Limited
Abbey National Treasury
Isle of Man — 100.00% BANKING 7 3 — 9
Investments
Abbey National Treasury Services
United Kingdom — 100.00% FINANCE 687 16 31 687
(Australia) Holdings Limited
Abbey National Treasury Services
United Kingdom — 100.00% PORTFOLIO
COMPANY
— — — —
(Property) Limited United Kingdom — 100.00% FINANCE — — — —
96

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Abbey National Treasury Services
(Trains Holdings) Limited
Abbey National Treasury Services
United Kingdom — 100.00% PORTFOLIO
COMPANY
213 (37) (8) 213
(Transport Holdings) Limited
Abbey National Treasury Services
United Kingdom — 100.00% PORTFOLIO
COMPANY
11 (17) 3 11
Investments Limited
Abbey National Treasury Services
United Kingdom — 100.00% FINANCE 355 5 11 355
Overseas Holdings
Abbey National Treasury Services
United Kingdom — 100.00% PORTFOLIO
COMPANY
1,302 (140) 65 1,302
plc United Kingdom — 100.00% BANKING 3,615 (113) 501 3,342
Abbey National UK Investments
Abbey National Unit
United Kingdom — 100.00% FINANCE 860 282 39 860
Trust Managers Limited
Abbey National Wrap Managers
United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
21 23 19 21
Limited
Abbey Stockbrokers (Nominees)
United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
18 (9) (7) 18
Limited United Kingdom — 100.00% SECURITIES
COMPANY
— — — —
Abbey Stockbrokers Limited United Kingdom — 100.00% SECURITIES
COMPANY
21 (12) — 9
Abbnat BV Netherlands — 100.00% FINANCE — 1 — —
Abfin B.V.
Administración de Bancos
Latinoamericanos Santander,
Netherlands — 100.00% FINANCE 2 25 3 30
S.L.
Administradora de Fondos de
Pensiones y Cesantías
Spain 24.11% 75.89% HOLDING COMPANY 395 (51) 9 688
Santander, S.A. Colombia — 100.00% PENSION FUND
MANAGER
5 17 7 94
Afinidad AFAP, S.A. Uruguay — 100.00% FUND MANAGER 1 — 1 10
Afisa, S.A. Chile — 99.98% FUND MANAGER 3 3 — 2
AFP Summa Bansander S.A. Chile — 99.44% PENSION FUND
MANAGER
23 38 14 72
AFP Unión Vida, S.A. Peru — 99.94% PENSION FUND
MANAGER
6 6 15 15
Agecroft Properties (No. 2) Limited United Kingdom — 100.00% LEASING — 2 — —
Agrícola Los Juncales, S.A. Spain — 88.65% REAL ESTATE 1 12 2 9
AKB Marketing Services Sp. Z.o.o. Poland — 100.00% MARKETING 1 (1) — —
Alce Tenedora Inversiones, S.L. Spain — 100.00% HOLDING COMPANY — — — —
Aljarafe Golf, S.A. Spain — 70.55% REAL ESTATE 17 (5) — —
Aljardi SGPS, Lda. Portugal — 100.00% HOLDING COMPANY 1,159 (10) — 1,159
Allfunds Bank, S.A. Spain — 50.00% BANKING 27 (2) 5 14
Altec, S.A.
América Latina Tecnología de
Chile — 100.00% IT SERVICES 20 (15) (1) 19
México, S.A. De C.V. Mexico 99.99% — IT SERVICES 52 (3) (8) 40
Amicus UK Limited United Kingdom — 100.00% FINANCE 1 (1) — —
AN Structured Issues Limited Jersey — 100.00% FINANCE — — — —
Andaluza de Inversiones, S.A. Spain — 100.00% SECURITIES
INVESTMENT
30 (3) — 27
ANDSH Limited United Kingdom — 100.00% FINANCE 3 4 — 3
ANFP (US) LLC United States — 100.00% FINANCE — — — —
ANIFA Limited United Kingdom — 100.00% FINANCE — 3 — 3
ANITCO Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
— — — —
Argenline, S.A.
Asesora de Titulización, S.A.,
Uruguay — 100.00% FINANCE — — — —
S.G.F.T. Spain 70.00% 30.00% SECURITIZATION 1 — 1 2
Aurum, S.A. Chile 1.00% 99.00% HOLDING COMPANY 62 (67) (6) 58
Ausant Holding GMBH
Ausant Merchant Participations
Austria — 99.95% HOLDING COMPANY 11 171 — 160
GMBH Austria — 99.79% HOLDING COMPANY — 424 1 106
B.R.S. Investment S.A.
Baker Street Risk and Insurance
Argentina — 100.00% FINANCE 31 9 — 237
(Guernsey) Limited (***)
Guernsey — 100.00% INSURANCE 3 9 3 3
Banca Serfin, S.A.
Banco Alicantino de Comercio,
Mexico — 74.92% BANKING 201 600 249 660
S.A. Spain — 88.65% BANKING 9 — — 8
Banco Banif, S.A. Spain 100.00% — BANKING 39 96 23 84
Banco Caracas, Holding N.V. Netherlands
Antilles
— 75.42% BANKING — — — —
Banco Caracas, N.V. Netherlands
Antilles
— 100.00% BANKING 9 (2) (3) 9
Banco de Albacete, S.A. Spain 100.00% — BANKING 9 2 1 9
Banco de Asunción, S.A.
Banco de Venezuela, S.A., Banco
Paraguay — 99.33% BANKING 1 2 (1) 34
Universal (1)
Banco do Estado de Sao Paulo,
Venezuela 96.78% 1.63% BANKING 16 211 147 411
S.A. Brazil — 98.02% BANKING 701 388 484 749
97

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Banco Español de Crédito, S.A.
Banco Madesant — Sociedade
Spain 87.34% 1.31% BANKING 1,028 1,439 409 1,689
Unipessoal, S.A. Portugal — 100.00% BANKING 624 606 59 1,148
Banco Río de la Plata S.A. Argentina 20.18% 78.91% BANKING 109 86 9 1,386
Banco Santa Cruz, S.A. Bolivia 96.18% 0.15% BANKING 31 7 3 13
Banco Santander (Guernsey), Ltd. Guernsey — 99.96% BANKING 10 — 3 10
Banco Santander (Panamá), S.A. Panama — 100.00% BANKING 3 7 — 59
Banco Santander (Suisse), S.A.
Banco Santander Bahamas
Switzerland — 99.96% BANKING 19 59 33 15
International, Ltd. Bahamas — 100.00% BANKING 5 808 1 785
Banco Santander Brasil, S.A. Brazil — 97.62% BANKING 345 64 24 498
Banco Santander Chile Chile — 83.94% BANKING 948 149 262 1,399
Banco Santander Colombia, S.A.
Banco Santander de Negocios
Colombia — 97.64% BANKING 62 24 33 441
Portugal, S.A. Portugal — 99.79% BANKING 26 120 26 29
Banco Santander International United States 94.80% 5.20% BANKING 5 102 13 64
Banco Santander Meridional, S.A. Brazil — 96.91% BANKING 413 43 (11) 735
Banco Santander Mexicano, S.A. Mexico — 74.92% BANKING 296 566 135 521
Banco Santander Puerto Rico Puerto Rico — 88.64% BANKING 78 268 56 323
Banco Santander Totta, S.A. Portugal — 99.62% BANKING 590 907 49 2,204
Banco Santander, S.A. Uruguay 89.91% 10.09% BANKING 29 4 (11) 45
Banco Santander, S.A. Brazil — 99.89% BANKING 928 126 475 1,850
Banco Totta de Angola, SARL
Banespa, S.A Serviços Técnicos,
Administrativos e de Corretagem
Angola — 99.78% BANKING 7 9 8 19
de Seguros
Banespa, S.A. Corretora de
Brazil — 98.02% SERVICES 4 (5) 22 26
Cambio e Titulos
Banesto Banca Privada Gestión,
Brazil — 98.02% SECURITIES
COMPANY
6 (9) 15 7
S.A. S.G.I.I.C. Spain — 88.65% FUND MANAGER 2 — — 2
Banesto Banco de Emisiones, S.A.
Banesto Bolsa, S.A., Sdad. Valores
Spain — 88.65% BANKING 30 67 — 86
y Bolsa Spain — 88.65% SECURITIES
COMPANY
5 68 6 31
Banesto Delaware, Ltd. United States — 88.65% FINANCE — — — —
Banesto e-Business, S.A.
Banesto Factoring, S.A.
Establecimiento Financiero de
Spain — 88.65% SECURITIES
INVESTMENT
6 (6) (1) —
Crédito Spain — 88.65% FACTORING 5 13 (1) 12
Banesto Finance, Ltd. Cayman Islands — 88.65% FINANCE — — — —
Banesto Financial Products, Plc. Ireland — 88.64% FINANCE — — — —
Banesto Issuances, Ltd. Cayman Islands — 88.65% FINANCE — — — —
Banesto Renting, S.A. Spain — 88.65% FINANCE 1 2 3 2
Banesto Securities, Inc.
Banesto Servicios y Tecnología
United States — 88.65% SECURITIES
COMPANY
— — — —
Aplicada, S.A. Spain — 88.65% SERVICES 4 — — 4
Banif Gestión, S.A., S.G.I.I.C. Spain — 97.73% FUND MANAGER 1 5 1 2
Bansa Santander, S.A. Chile — 99.99% REAL ESTATE 19 (17) (1) 17
Bansalease, S.A., E.F.C.
Bansaleasing Colombia, S.A.,
Compañía de Financiamiento
Spain 100.00% — LEASING 54 12 7 57
Comercial Colombia — 100.00% LEASING 5 1 1 6
Bansamex, S.A.
Bansander de Financiaciones,
Spain 50.00% — CARDS — 1 — 1
S.A., EFC. Spain — 100.00% FINANCE 5 26 19 4
Bansander Leasing, Corp. Puerto Rico — 100.00% LEASING — 4 — —
Bansander, S.A. Spain 100.00% — SECURITIES
INVESTMENT
— — — —
Bee Ess Limited
Birrell Smith Underwriting Agencies
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Bitalbond, B.V. Netherlands 100.00% — HOLDING COMPANY — 17 — —
Brettwood Limited Jersey — 100.00% ADVISORY SERVICES — — — —
Bridford Financial Services Limited United Kingdom — 100.00% ADVISORY SERVICES 1 — — —
Bridford Life and Pensions Ltd United Kingdom — 100.00% ADVISORY SERVICES — — — —
Bridford Pension Trustees Limited United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Briswiss, Ltd. Virgin Islands — 99.88% HOLDING COMPANY 687 296 24 940
Buhal Leasing, Ltd.
Business OutSourcing Services
United Kingdom 100.00% — LEASING 7 (5) — 2
Limited United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
— — — —
CA Premier Banking Limited United Kingdom — 100.00% BANKING 6 — — 6
Cabel, S.A. (in liquidation) Belgium 86.99% 9.99% HOLDING COMPANY — — — —
Cambios Sol, S.A. Spain — 62.06% FOREIGN
CURRENCY
PURCHASE AND
SALE
2 2 — 13
Canfy, S.L. Spain 89.00% 11.00% HOLDING COMPANY 51 28 4 81
Cántabra de Inversiones, S.A. Spain 100.00% — SECURITIES
INVESTMENT
187 56 200 187
98

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Cántabro Catalana de Inversiones,
S.A.
Capital Grupo Santander, S.A.,
Spain 100.00% — SECURITIES
INVESTMENT
154 11 (14) 141
S.G.E.C.R. Spain 90.00% 9.98% VENTURE CAPITAL
COMPANY
2 2 — 4
Capital Riesgo Global, SCR, S.A. Spain 68.84% 31.16% VENTURE CAPITAL
COMPANY
29 955 — 884
Carfax Insurance Limited Guernsey — 100.00% INSURANCE 29 86 110 29
Cartera Mobiliaria, S.A., SIM Spain — 85.00% SECURITIES
INVESTMENT
31 467 33 213
Carvasa Inversiones, S.L.
Casa de Bolsa Santander Serfín,
Spain — 100.00% HOLDING COMPANY 7 49 2 100
S.A. De C.V. Mexico — 74.89% SECURITIES
COMPANY
31 3 9 30
Cater Allen (US) Limited
Cater Allen Asset Management
United Kingdom — 100.00% PORTFOLIO
COMPANY
— — — —
(Jersey) Limited Jersey — 100.00% ADVISORY SERVICES — — — —
Cater Allen Futures Limited United Kingdom — 100.00% ADVISORY SERVICES 2 — — 2
Cater Allen Holdings Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
126 9 1 122
Cater Allen International Limited
Cater Allen Investment
United Kingdom — 100.00% SECURITIES
COMPANY
171 175 27 167
Management Limited United Kingdom — 100.00% LEASING — — — —
Cater Allen Limited
Cater Allen Lloyd’s Holdings
United Kingdom — 100.00% BANKING 146 64 7 162
Limited
Cater Allen Nominees (Jersey)
United Kingdom — 100.00% PORTFOLIO
COMPANY
15 (28) — —
Limited Jersey — 100.00% SECURITIES
COMPANY
— — — —
Cater Allen Nominees Limited
Cater Allen Offshore Nominees
United Kingdom — 100.00% SECURITIES
COMPANY
— — — —
Limited Jersey — 100.00% SECURITIES
COMPANY
— — — —
Cater Allen Pensions Limited United Kingdom — 100.00% PENSION FUND
MANAGER
— — — —
Cater Allen Registrars Limited
Cater Allen Syndicate Management
Jersey — 100.00% SECURITIES
COMPANY
— — — —
Limited
Cater Allen Trust Company
United Kingdom — 100.00% ADVISORY SERVICES 2 2 — 1
(International) Limited
Cater Allen Trust Company
Liberia — 100.00% ASSET
MANAGEMENT
— — — —
(Jersey) Limited Jersey — 100.00% ASSET
MANAGEMENT
— — — —
Cater Tyndall Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
14 4 — 67
CC autoboerse.de AG Germany — 100.00% INTERNET 1 — 1 1
CC Credit Rt. Hungary — 100.00% FINANCE 4 4 1 4
CCB Finance, a.s. Czech Republic — 100.00% LEASING 35 (1) (4) 33
CC-Bank Aktiengesellschaft Germany — 100.00% BANKING 30 432 272 474
CC-Debit GmbH Germany — 100.00% INSURANCE — — 9 —
CC-Holding GmbH Germany — 100.00% HOLDING COMPANY 49 1,019 125 1,357
CC-ITS GmbH
CC-Leasing Austria Gesellschaft
Germany — 100.00% SERVICES — — 2 —
m.b.h. Austria — 100.00% LEASING — — — —
CC-Leasing GmbH
Centro de Equipamientos Zona
Germany — 100.00% LEASING 1 3 17 4
Oeste, S.A. Spain 25.35% 74.65% REAL ESTATE 52 (19) (25) 11
Centro Deportivo Santander, S.A. Spain — 100.00% ADVISORY SERVICES — — — —
Charterfield Finance Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Ciudad Financiera, S.A.
Colchester Management Company
Spain 99.94% 0.06% REAL ESTATE 1 — — 1
Limited
Comercial Española de Valores,
United Kingdom — 100.00% REAL ESTATE — — — —
S.A. Spain 69.03% 30.97% SECURITIES
INVESTMENT
8 23 (3) 27
Compass Trust Company Limited
Consultoría Tributaria, Financiera y
Jersey — 100.00% ASSET
MANAGEMENT
— 2 — —
Contable, S.A. Spain 100.00% — ADVISORY SERVICES — — — —
Corpoban, S.A.
Corporación Industrial y Financiera
Spain — 88.65% SECURITIES
INVESTMENT
36 29 3 60
de Banesto, S.A.
Corredora de Seguros Santander,
Spain — 88.55% HOLDING COMPANY 134 244 3 355
Ltda. Chile — 83.94% INSURANCE BROKER 1 8 6 1
Cota de las Estrellas, S.A.
Covista Integrated Business
Spain — 44.94% REAL ESTATE 1 — — 6
Infrastructure Limited United Kingdom — 100.00% REAL ESTATE — — — —
99

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Credisol, S.A. Uruguay — 100.00% CARDS — — — 7
Crefisa, Inc. Puerto Rico 100.00% — FINANCE — 32 — 18
Crossley & Partners Ltd
Debt Management and Recovery
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Services Limited United Kingdom — 100.00% COLLECTION AND
PAYMENT SERVICES
— — — —
Deutsche Porterbrook GmbH Germany — 100.00% LEASING — — — —
DF 123 Limited United Kingdom — 100.00% LEASING — 2 1 —
Digital Procurement Holdings, N.V. Netherlands 88.11% — ELECTRONIC
SERVICES
15 — — 2
Diners Club Spain, S.A.
Duchess Parade Investments
Spain 90.00% — CARDS 2 5 2 7
Limited United Kingdom — 100.00% LEASING 1 1 — 1
Dudebasa, S.A.
Duncan Lawrie Pension
Spain — 88.65% FINANCE 1 33 7 22
Consultants Limited
Efectividad en Medios de Pago,
United Kingdom — 100.00% ASSET
MANAGEMENT
2 (1) — 1
S.A. de C.V. Mexico 98.59% 1.41% FINANCE 22 — — 11
Efla 2003, S.L. Spain — 88.65% SECURITIES
INVESTMENT
— — — —
Elcon Finance A.S. Norway — 100.00% FINANCE 145 24 18 287
Elerco, S.A.
Factoring Santander Serfín, S.A.
Spain — 88.55% RENTAL — 38 1 35
De C.V. Mexico — 73.99% FACTORING 51 (32) — 6
FC Factor S.R.L
FFB — Participaçoes e Serviços,
Italy — 100.00% FINANCE 1 1 — 1
Sociedade Unipessoal, S.A. Portugal — 100.00% HOLDING COMPANY 1,020 2,312 71 1,020
Fideicomiso 100740 SLPT
Fideicomiso GFSSLPT Banca
Mexico — 74.89% FINANCE 3 — — 2
Serfín, S.A. Mexico — 74.91% FINANCE 21 — — 14
Finconsumo Banca SPA Italy — 100.00% FINANCE 22 59 28 162
First National Litigation Funding plc
First National Motor Business
United Kingdom — 100.00% FINANCE — (50) (29) —
Limited
First National Motor Contracts
United Kingdom — 100.00% LEASING — — — —
Limited
First National Motor Facilities
United Kingdom — 100.00% LEASING — (1) (3) —
Limited
First National Motor Finance
United Kingdom — 100.00% LEASING — — — —
Limited
First National Motor Leasing
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Limited United Kingdom — 100.00% LEASING — — — 1
First National Motor No. 1 plc United Kingdom — 100.00% ADVISORY SERVICES — — — —
First National Motor plc United Kingdom — 100.00% LEASING — (77) (8) —
Foggia, S.G.P.S., S.A.
Fomento Cultural Santander
Portugal — 99.85% HOLDING COMPANY 138 2,446 7 2,250
Mexicano, A.C. Mexico — 74.92% SERVICES — 1 — —
Fomento e Inversiones, S.A. Spain 100.00% — SECURITIES
INVESTMENT
1 3 19 17
Fondo Inverpro, S.A. De C.V.
Fondos Santander, S.A.
Administradora de Fondos de
Mexico — 74.90% FUND MANAGER 2 (1) — —
Inversión Uruguay — 100.00% FUND MANAGER — — — 1
Fonlyser, S.A. De C.V. Mexico — 74.91% FINANCE 32 (5) — 16
Formación Integral, S.A. Spain — 88.65% TRAINING 1 — — 1
Fortensky Trading, Ltd. Ireland — 100.00% FINANCE — — — —
GB Trustees Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Gedinver e Inmuebles, S.A. Spain — 88.65% FINANCE 3 5 1 9
Geoban, S.A. Spain — 88.65% SERVICES — 1 (1) —
Gescoban Soluciones, S.A. Spain — 88.65% FINANCE — — — 1
Gessinest Consulting, S.A.
Gestión de Actividades
Spain 99.88% 0.12% HOLDING COMPANY 9 (54) (31) —
Tecnológicas, S.A. Spain 99.98% 0.02% SERVICES — — (8) —
Gestión Industrial Hispamer, S.A.
Gestión Santander México, S.A. De
Spain 100.00% — BUSINESS
PROMOTION
— — — —
C.V. Mexico — 74.92% FINANCE 2 — 7 1
Get Motoring PLC United Kingdom — 100.00% ADVISORY SERVICES — — — —
GMBC Financial Services Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Golf Santander, S.A. Spain 99.99% 0.01% HOLDING COMPANY 2 — — 2
Grupo Empresarial Santander, S.L.
Grupo Financiero Santander Serfín,
Spain 99.10% 0.90% HOLDING COMPANY 2,843 3 487 4,005
S.A. De C.V.
Grupo Inmobiliario La Corporación
Mexico 74.68% 0.24% HOLDING COMPANY 1,784 (2) 395 1,809
Banesto, S.A. Spain — 88.54% SECURITIES
INVESTMENT
1 7 — 22
Grupo Santander Perú, S.A.
Guest Barnes (Underwriting
Peru — 100.00% HOLDING COMPANY 19 4 12 299
Agencies) Limited
Harris & Dixon (Underwriting
United Kingdom — 100.00% ADVISORY SERVICES — — — —
Agencies) Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Harvestime Limited Jersey — 100.00% BANKING — — — —
Hedge End Park No. 3 Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Hedge End Park No. 4 Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
100

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Hipotebansa EFC, S.A.
Hispamer Servicios Financieros
Spain 100.00% — MORTGAGE LOANS 36 8 12 36
EFC, S.A. Spain — 100.00% FINANCE 83 36 46 98
HMC Mortgage Notes 102 PLC United Kingdom — 100.00% MORTGAGE LOAN
COMPANY
— — — —
Holbah II, Ltd. Bahamas — 100.00% HOLDING COMPANY — 881 4 1,142
Holbah, Ltd. Bahamas — 100.00% HOLDING COMPANY — (150) 1 123
Holneth Merchant, B.V. Netherlands — 100.00% HOLDING COMPANY — (2) — —
Holneth, B.V. Netherlands — 100.00% HOLDING COMPANY 9 34 64 10
Holsant, B.V. Netherlands — 100.00% HOLDING COMPANY — 11 — —
Homesave Company United Kingdom — 100.00% LEASING 4 1 — 4
Hualle, S.A. Spain — 88.65% SECURITIES
INVESTMENT
5 — — 4
Ibergement Assesments S.L. Spain 99.67% — HOLDING COMPANY — (3) (10) —
IEM (Holland) Aircraft Lease B.V. Netherlands — 100.00% LEASING — 2 (1) —
IEM 757 Leasing I B.V. Netherlands — 100.00% LEASING — (6) (3) —
IEM Airfinance B.V. Netherlands — 100.00% LEASING 6 (29) (4) 29
IEM Lease Aircraft B.V.
Ingeniería de Software Bancario,
Netherlands — 100.00% LEASING 3 (113) (45) 3
S.L. Spain 49.00% 45.21% IT SERVICES 61 (10) (6) 24
Inmobiliaria Laukariz S.A.
Inmobiliaria Lerma y Amazonas,
Spain — 88.65% REAL ESTATE — 14 — 9
S.A. De C.V.
Inmobiliaria Santander México,
Mexico — 74.87% REAL ESTATE
MANAGEMENT
7 10 — 12
S.A. de C.V. Mexico — 99.99% REAL ESTATE
MANAGEMENT
7 (8) — 6
Inmuebles B de V 1985 C.A. Venezuela — 35.11% RENTAL OF
PREMISES
— 1 — —
Inscape Investments Limited
Integrated Securities Services,
United Kingdom — 100.00% FINANCE 128 (101) 2 27
S.A.
Integritas (Canada) Trustee
Spain — 60.00% HOLDING COMPANY 1 — — —
Corporation Ltd. Canada — 100.00% ASSET
MANAGEMENT
— — — —
Integritas New Zealand Ltd. New Zealand — 100.00% ASSET
MANAGEMENT
— — — —
Integritas Trust, S.A.
Inversiones Estratégicas, S.A. De
Switzerland — 100.00% HOLDING COMPANY — — — —
C.V. Mexico — 48.20% FINANCE — — — —
ISBAN Portugal Portugal — 97.00% IT SERVICES 1 — — —
Isban UK., Ltd.
Itasant Sociedade Gestora de
Participaçoes Sociais Sociedade
United Kingdom — 94.21% IT SERVICES — — — —
Unipessoal, Lda. Portugal — 100.00% HOLDING COMPANY — 337 (10) 92
J.R.H. Limited
James Hay Administration
United Kingdom — 100.00% FINANCE — — — —
Company Limited United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
— (11) (11) —
James Hay Holdings Limited
James Hay Insurance Company
United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
28 (13) 1 —
Limited
James Hay Investment Services
Jersey — 100.00% FUND AND
PORTFOLIO
MANAGER
21 3 1 21
Limited
James Hay Pension Trustees
United Kingdom — 100.00% FINANCE — 1 — 1
Limited United Kingdom — 100.00% ASSET
MANAGEMENT
1 4 (1) 21
Key Investments Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
2 1 — 3
Kontax Pensions (Midlands) Ltd United Kingdom — 100.00% ADVISORY SERVICES — — — —
Kontax Pensions Limited United Kingdom — 100.00% FINANCE — — — —
Larix Limited Isle of Man — 88.65% REAL ESTATE — 1 — 1
Leasing Equipment Limited United Kingdom — 100.00% LEASING — — — —
Life OnLine Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Lion Consulting, S.A. Argentina — 94.93% ADVISORY SERVICES — — — —
Lodares Inversiones, S.L. Spain 100.00% — HOLDING COMPANY 12 224 20 236
LOF Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
LOL Limited United Kingdom — 100.00% ADVISORY SERVICES 7 (1) — 7
MAC No. 1 Limited (****)
United Kingdom — 100.00% MORTGAGE LOAN
COMPANY
— — — —
Macame, S.A.
Madeisisa — SGPS Sociedade
Spain 90.09% 9.91% HOLDING COMPANY 1 39 — 10
Unipessoal, Lda. Portugal — 99.80% HOLDING COMPANY 3 1 28 3
Mercado de Dinero, S.A. Spain — 88.65% SECURITIES
INVESTMENT
— — — —
Mosiler, S.A. Uruguay — 100.00% SERVICES — — — —
N&P (B.E.S.) Loans Limited United Kingdom — 100.00% LEASING 154 1 — 138
N&P Syndicated Loans Limited United Kingdom — 100.00% FINANCE — — — 1
N&P Trustees Ltd United Kingdom — 100.00% ADVISORY SERVICES — — — —
New Investment for Trains 1 PLC United Kingdom — 100.00% FINANCE — — — —
101

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Nordin, S.A. Spain — 88.65% REAL ESTATE — 1 — —
Novachance Limited United Kingdom — 100.00% REAL ESTATE — — — —
Oil-Dor, S.A.
Omega Gesellschaft für
Spain — 88.54% FINANCE 60 77 3 108
Vertriebsentwicklung mbh
Operadora de Derivados Serfin,
Germany — 100.00% HOLDING COMPANY — — — —
S.A. De C.V. Mexico — 74.91% FINANCE — — — —
Optimal Investment Services, S.A. Switzerland — 100.00% FUND MANAGER 5 2 5 5
Orígenes AFJP, S.A. Argentina — 59.20% PENSION FUND
MANAGER
32 13 (13) 173
Pacale, S.A. De C.V. Mexico — 74.88% FINANCE 7 10 — 12
Pan American Bank, Ltd. Bahamas — 100.00% BANKING 1 2 — 24
Parasant, S.A. Switzerland 100.00% — HOLDING COMPANY 1,167 31 — 1,167
Patagon Bank, S.A. Spain — 100.00% BANKING 39 (9) 2 47
Patagon Euro, S.L. Spain 100.00% — HOLDING COMPANY 229 74 (1) 587
Peninsular, S.A. France 100.00% — HOLDING COMPANY — — — 9
Pereda Gestión, S.A.
Polskie Towarzystwo Finansowe
Spain 99.99% 0.01% HOLDING COMPANY 3 — — 4
S.A. Poland — 100.00% FINANCE 1 (1) 2 34
Portada, S.A. Chile — 96.16% FINANCE 4 1 — 5
Porterbrook International Limited
Porterbrook Leasing Company
United Kingdom — 100.00% PORTFOLIO
COMPANY
— — — —
Limited
Porterbrook Leasing Company
United Kingdom — 100.00% LEASING — 932 (15) 744
MEBO Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
106 95 4 706
Porterbrook Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
391 — — 424
Porterbrook Maintenance Limited United Kingdom — 100.00% MAINTENANCE
SERVICES
— 154 7 —
Premises, B.V. Netherlands 100.00% — FINANCE — — — —
Préstamos de Consumo, S.A. Argentina — 99.97% FINANCE 17 (17) — 8
Prolific Holdings Limited
Prolific Property Development
United Kingdom — 100.00% PORTFOLIO
COMPANY
32 30 2 32
(Kent) Limited
Promoción de Servicios Integrales,
United Kingdom — 100.00% PORTFOLIO
COMPANY
— (1) — —
S.A. De C.V.
Promociones y Desarrollo Bansa,
Mexico — 99.99% SERVICES — — — —
S.A. De C.V.
Promotora AFR de Venezuela,
Mexico — 99.99% FINANCE — 1 — —
S.A. Venezuela — 98.40% ADVISORY SERVICES 4 (3) (1) 4
PTF Bank Spólka Akcyjna
R D Robertson Underwriting
Poland — 100.00% BANKING 12 51 1 60
Agency Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Ravensbank (Plot 2) Limited Jersey — 100.00% ASSET
MANAGEMENT
— — — —
Rea Brothers Trustees Limited United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Rental Collections Limited
Riobank International (Uruguay)
United Kingdom — 100.00% LEASING — — — —
SAIFE Uruguay — 100.00% BANKING 15 5 — 17
Riyal, S.L. Spain 60.20% 39.80% HOLDING COMPANY 17 386 51 426
Roger Cunliffe Investments Limited United Kingdom — 100.00% FINANCE — — — —
Rolling Stock Finance 1 PLC United Kingdom — 100.00% FINANCE — — — —
Rolling Stock Finance 2 PLC United Kingdom — 100.00% FINANCE — — — —
Ryders Discount Company Limited United Kingdom — 100.00% FACTORING — — — —
S C Servicios y Cobranzas S.A.
Saninv Gestao e Investimentos,
Colombia — 97.76% COLLECTION AND
PAYMENT SERVICES
— 1 — 1
S.A. Portugal — 100.00% FINANCE 100 — (27) 75
Santana Credit E.F.C., S.A.
Santander Activos Inmobiliarios,
Spain — 50.00% FINANCE 4 1 1 1
S.G.I.I.C., S.A.
Santander Asset Management
Spain — 99.09% FUND MANAGER 1 12 13 6
Ireland, Ltd.
Santander Asset Management,
Ireland — 100.00% FUND MANAGER — 15 (1) —
Ltda.
Santander Asset Management,
Brazil — 97.62% SECURITIES
INVESTMENT
18 (2) 3 16
S.L.
Santander Banespa Administradora
Spain 100.00% — FUND AND
PORTFOLIO
MANAGER
29 67 25 6
de Consorcios, Ltda.
Santander Banespa, Cia. de
Brazil — 97.62% FINANCE 1 — — 1
Arrendamiento Mercantil Brazil — 98.02% LEASING 97 6 13 106
Santander Bank and Trust, Ltd. Bahamas — 100.00% BANKING 1 1,324 2 1,166
Santander BankCorp Puerto Rico — 88.64% HOLDING COMPANY 93 383 62 186
Santander Benelux, S.A., N.V.
Santander Brasil Arrendamento
Belgium 100.00% — BANKING 40 1 1 25
Mercantil, S.A. Brazil — 97.62% LEASING 11 3 6 10
102

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Santander Brasil Investimentos e
Serviços, S.A.
Santander Brasil Participaçoes e
Brazil — 100.00% SERVICES 7 13 2 22
Emprendimentos, S.A.
Santander Brasil S.A., Corretora de
Brazil — 97.62% SERVICES 53 2 2 70
Cambio e Valores Mobiliarios
Santander Capital Desarrollo,
Brazil — 97.62% SECURITIES
COMPANY
10 13 2 14
SGECR, S.A. Spain 100.00% — VENTURE CAPITAL
COMPANY
— — — —
Santander Capitalizaçao, S.A. Brazil — 98.98% FUND MANAGER 4 — 9 4
Santander Carteras, S.G.C., S.A.
Santander Central Hispano Asset
Spain — 100.00% FUND MANAGER 1 5 1 1
Management Bahamas Inc.
Santander Central Hispano Asset
Bahamas — 100.00% FUND MANAGER — 17 1 —
Management Luxembourg, S.A.
Santander Central Hispano Bolsa,
Luxembourg — 97.73% FUND MANAGER — — — —
S.V., S.A.
Santander Central Hispano
Spain — 100.00% SECURITIES
COMPANY
25 71 30 104
Finance (Delaware), Inc.
Santander Central Hispano
United States 100.00% — FINANCE — 1 — —
Finance, B.V.
Santander Central Hispano
Netherlands 100.00% — FINANCE — 1 — —
Financial Services, Ltd.
Santander Central Hispano
Cayman Islands 100.00% — FINANCE — 1 — —
International Ltd.
Santander Central Hispano
Cayman Islands 100.00% — FINANCE — 3 — —
Issuances, Ltd. Cayman Islands 100.00% — FINANCE — 3 — —
Santander Chile Holding, S.A. Chile 22.11% 77.33% HOLDING COMPANY 415 78 84 271
Santander Commercial Paper, S.A.
Santander Companhia
Securitizadora de Créditos
Spain 100.00% — HOLDING COMPANY — — — —
Financeiros
Santander Consumer Finance,
Brazil — 97.62% COLLECTION
MANAGEMENT
74 (29) 6 56
Germany GmbH
Santander Consumer Finance,
Germany — 100.00% HOLDING COMPANY — 2,316 (48) 2,316
S.A. Spain 63.19% 36.81% BANKING 173 1,372 300 1,517
Santander de Leasing, S.A., E.F.C.
Santander de Titulización S.G.F.T.,
Spain 70.00% 30.00% LEASING 27 4 1 27
S.A.
Santander Distribuidora de Títulos
Spain 81.00% 19.00% SECURITIZATION 1 — 3 1
e Valores Mobiliarios, Ltda.
Santander Factoring y Confirming,
Brazil — 97.62% SECURITIES
COMPANY
2 1 — 4
S.A., E.F.C. Spain 100.00% — FACTORING 59 22 15 76
Santander Factoring, S.A. Chile — 99.44% FACTORING 5 12 1 6
Santander Financial Products, Ltd.
Santander Gestao de Activos —
Sociedade Gestora de Fundos
Ireland — 100.00% FINANCE — 149 19 162
de Investimento Mobiliario, S.A.
Santander Gestâo de Activos,
Portugal — 99.79% FUND MANAGER 5 10 8 7
SGPS, S.A.
Santander Gestión de Activos,
Portugal — 99.79% FUND MANAGER 4 21 — 7
S.A., S.G.I.I.C.
Santander Gestión de Recaudación
Spain 28.30% 69.43% FUND MANAGER 23 37 8 33
y Cobranzas, Ltda. Chile — 98.90% FINANCE 1 — (1) 2
Santander Global Services, S.A. Uruguay — 100.00% SERVICES — — — —
Santander Holanda B.V. Netherlands 100.00% — HOLDING COMPANY 12 1 (3) —
Santander Holding Gestión, S.L.
Santander Holding Internacional,
Spain — 100.00% HOLDING COMPANY 1 1 (140) —
S.A. Spain 99.95% 0.05% HOLDING COMPANY 23 10 299 23
Santander Insurance Agency, Inc. Puerto Rico — 88.64% SECURITIES
INVESTMENT
14 (6) 1 3
Santander International Debt, S.A. Spain 100.00% — HOLDING COMPANY — — — —
Santander Inversiones, S.A. Chile — 99.99% HOLDING COMPANY 322 (24) (3) 315
Santander Investment Bank, Ltd. Bahamas — 100.00% BANKING 7 50 6 376
Santander Investment Chile, Ltda.
Santander Investment Colombia
Chile — 99.99% FINANCE 46 66 14 52
S.A.
Santander Investment Gerente FCI,
Colombia — 99.86% FINANCE 9 (2) — 45
S.A. Argentina — 99.14% FUND MANAGER — 5 1 —
Santander Investment I, S.A.
Santander Investment Inmobiliaria
Spain 100.00% — HOLDING COMPANY 308 (1,851) (58) 327
Colombia, Ltda. Colombia — 99.86% REAL ESTATE
MANAGEMENT
7 (3) — —
Santander Investment Limited
Santander Investment Securities,
Bahamas — 100.00% SECURITIES
COMPANY
— 9 (5) —
Inc.
Santander Investment Services,
United States — 100.00% SECURITIES
COMPANY
213 (153) (9) 295
S.A. Spain 100.00% — BANKING 21 129 107 14
103

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Santander Investment Sociedad
Agente de Bolsa, S.A.
Santander Investment Trust
Colombia S.A., Sociedad
Peru — 100.00% SECURITIES
COMPANY
2 — (1) 9
Fiduciaria
Santander Investment Valores
Colombia S.A., Comisionista de
Colombia — 100.00% FUND MANAGER 2 7 — 16
Bolsa Comercial
Santander Investment, S.A.,
Colombia — 97.76% SECURITIES
COMPANY
— 1 1 1
Corredores de Bolsa Chile — 99.99% SECURITIES
COMPANY
12 18 3 12
Santander Issuances, S.A.
Santander Management
Gesellschaft für
Spain 100.00% — HOLDING COMPANY — — — —
Abrechnungssysteme mbh
Santander Management
Germany — 100.00% FINANCE — — — —
Latinoamérica, B.V. Netherlands — 100.00% HOLDING COMPANY — — — —
Santander Merchant Bank, Ltd. Bahamas — 100.00% BANKING 4 61 4 134
Santander Merchant, S.A.
Santander Mexicano S.A. De C.V.
Argentina — 99.97% FINANCE 9 (9) — 18
Afore Mexico — 74.92% PENSION FUND
MANAGER
30 5 39 2
Santander Multimedios, S.A. Chile — 99.99% INTERNET 1 — — 1
Santander Overseas Bank, Inc.
Santander Pensiones, S.A.,
Puerto Rico — 100.00% BANKING 81 252 7 203
E.G.F.P.
Santander Pensôes — Sociedade
Gestora de Fundos de Pensôes,
Spain 21.20% 76.54% PENSION FUND
MANAGER
39 12 7 50
S.A.
Santander Perpetual S.A.
Portugal — 99.79% PENSION FUND
MANAGER
1 2 1 1
Unipersonal Spain 100.00% — HOLDING COMPANY — — — —
Santander Private Advisors, Ltd. United States 100.00% — HOLDING COMPANY — — — —
Santander S.A. Agente de Valores Chile — 84.09% SECURITIES
COMPANY
41 88 27 21
Santander Securities Corporation
Santander Sociedad de Bolsa,
Puerto Rico — 88.64% SECURITIES
COMPANY
18 3 7 16
S.A. Argentina — 99.14% SECURITIES
COMPANY
3 1 1 3
Santander Totta, SGPS. Portugal — 99.80% HOLDING COMPANY 1,509 — — 2,554
Santander Trade Services, Ltd.
Santander Venezuela Sociedad
Administradora de Entidades de
Hong Kong — 100.00% ADVISORY SERVICES 32 (31) 2 32
Inversión Colectiva, C.A.
Santander, S.A., Administradora
Venezuela — 90.00% FUND MANAGER — — — —
General de Fondos
Santander, S.A., Sociedad
Chile — 83.95% FUND MANAGER 12 30 17 8
Securitizadora
Santiago Corredores de Bolsa,
Chile — 84.00% SECURITIZATION 1 — — 1
Ltda. Chile — 83.94% SECURITIES
COMPANY
7 3 1 8
Santiago Leasing, S.A. Chile — 84.02% LEASING 27 10 (5) 51
Santusa Holding, S.L. Spain 69.64% 30.36% HOLDING COMPANY 4,857 5,522 74 9,179
Sarum Trustees Limited United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Scotprov Limited
Scottish Mutual International
Fund Managers (South Africa)
United Kingdom — 100.00% PORTFOLIO
COMPANY
213 (89) (7) 124
Limited
Scottish Mutual International
South Africa — 100.00% SERVICES — — — —
Fund Managers Limited
Scottish Mutual International
Ireland — 100.00% FINANCE 1 — 2 1
Holdings
Scottish Mutual International
Ireland — 100.00% PORTFOLIO
COMPANY
371 (122) (41) 249
Investment Fund plc (******)
Scottish Mutual Investment
Ireland — 100.00% FUND MANAGER — — — —
Managers Limited United Kingdom — 100.00% FINANCE 1 4 (4) 1
Scottish Mutual Nominees Limited
Scottish Mutual Pension Funds
United Kingdom — 100.00% SECURITIES
COMPANY
— — — —
Investment Limited
Scottish Mutual PEP and ISA
United Kingdom — 100.00% ASSET
MANAGEMENT
1 1 — 1
Managers Limited
Scottish Provident (Holdings)
United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
43 3 1 43
Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
97 (35) 2 62
104

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Scottish Provident Institution
Scottish Provident Pension
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Trustees Limited United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Scottish Provident Trustees Limited United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Sercopyme, S.A. Spain — 88.65% SERVICES 17 2 (1) 17
Serfin International Bank and Trust Cayman Islands — 99.80% BANKING 37 (11) 28 24
Serfin VII, Ltd.
Servicio de Alarmas Controladas
Cayman Islands — 100.00% FUND MANAGER — 1 — 8
por Ordenador, S.A. Spain 100.00% — SECURITY 1 — — 1
Servicios Administrados, S.A.
Servicios de Cobranza,
Recuperación y Seguimiento,
Uruguay — 100.00% FINANCE — — — 2
S.A. De C.V. Mexico — 100.00% SERVICES 1 — — 3
Sheppards Moneybrokers Limited
Sinvest Inversiones y Asesorías
United Kingdom — 100.00% ADVISORY SERVICES 20 4 — 20
Limitada Chile — 99.99% FINANCE 1 33 5 2
Sistema 4B, S.A. Spain 46.02% 11.50% CARDS 3 13 2 10
SMA (81/103 Kings Road) Limited
Sociedad Integral de Valoraciones
United Kingdom — 100.00% REAL ESTATE — — — —
Automatizadas, S.A.
Societe de Gestion de Leopard
Spain — 100.00% APPRAISAL 1 — 2 1
Fund, S.A. Luxembourg — 100.00% FUND MANAGER — — — —
Sodepro, S.A. Spain — 88.65% FINANCE 3 1 — 2
Soince, S.A. Chile 0.01% 99.80% HOLDING COMPANY — 8 — 8
Solarlaser Limited United Kingdom — 100.00% REAL ESTATE 56 30 3 56
Somaen Dos, S.L. Spain — 59.96% HOLDING COMPANY 26 634 84 402
Sotrón, S.L. Spain — 100.00% HOLDING COMPANY 5 81 12 86
South Glasgow Retail Park Limited United Kingdom — 100.00% REAL ESTATE 35 (21) — 2
SPI Finance Plc
SPILA Marketing Services (Pty)
United Kingdom — 100.00% FINANCE — — — —
Limited South Africa — 100.00% MARKETING — — — —
SPL (Holdings 1) Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
2,464 (556) (455) 1,908
SPL (Holdings 2) Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
25 (6) (5) 19
SPL (Holdings) Limited United Kingdom — 100.00% PORTFOLIO
COMPANY
3,068 (1,143) (460) 1,925
Suleyado 2003, S.L. Spain — 100.00% HOLDING COMPANY 7 — — 7
Swesant Merchant S.A. Switzerland — 100.00% HOLDING COMPANY 2 — — 383
Swesant, S.A. Switzerland — 100.00% HOLDING COMPANY — 81 336 —
Symbios Capital, B.V. Netherlands — 100.00% VENTURE CAPITAL
COMPANY
21 — 1 22
Symbios Capital, S.L. Spain 98.00% 2.00% HOLDING COMPANY — — — —
Talorcan plc
Taxagest Sociedade Gestora de
United Kingdom — 100.00% FINANCE 2 — — 2
Participaçoes Sociais, S.A. Portugal — 99.79% HOLDING COMPANY 42 37 5 42
Teatinos Siglo XXI, S.A. Chile 50.00% 50.00% HOLDING COMPANY 70 (17) 43 384
Teylada, S.A. Spain 11.11% 88.89% SECURITIES
INVESTMENT
— — — —
The Compass Group Limited
The Inscape Investment Fund
Jersey — 100.00% PORTFOLIO
COMPANY
— — — —
(Jersey) Limited
The National & Provincial Building
Society Custodian Trustee
Jersey — 100.00% FINANCE — — — —
Limited (**)
The National & Provincial Building
Society Pension Fund Trustees
United Kingdom —
(b)
ASSET
MANAGEMENT
— — — —
Limited (**)
The Scottish Mutual Assurance
United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
Society United Kingdom — 100.00% INSURANCE — — — —
The WF Company Limited
Three Quays Underwriting
United Kingdom — 100.00% ADVISORY SERVICES — 1 — —
Management Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Timac Properties Limited Jersey — 100.00% SECURITIES
COMPANY
— — — —
Títulos de Renta Fija, S.A.
Tornquist Asesores de Seguros,
Spain 100.00% — SECURITIES
INVESTMENT
— — — —
S.A.
Totta & Açores Ct. Inc. —
Argentina — 99.83% ADVISORY SERVICES — — — —
Naugatuck
Totta & Açores Finance Ireland,
United States — 99.80% BANKING — — — —
Limited Ireland — 99.15% FINANCE 57 — 2 57
Totta & Açores Inc. Newark United States — 99.80% BANKING — — — —
Totta (Ireland), PLC
Totta Crédito Especializado,
Instituiçao Financeira de Crédito,
Ireland — 99.80% FINANCE 286 1 11 285
S.A. (IFIC) Portugal — 99.71% LEASING 35 50 14 42
105

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership by Millions of Euros
Company Location
the Bank
Direct Indirect Line of Business
Capital Net Income
(*) Stock (a) Reserves (a)
(Loss) (a) Cost (a)
Totta Urbe — Empresa de
Administraçâo e Construçôes,
S.A.
Tyndall Nominees (Isle of Man)
Portugal — 99.80% REAL ESTATE 100 6 — 148
Limited Isle of Man — 100.00% SECURITIES
COMPANY
— — — —
Universia Holding, S.A.
Valores Santander Casa de Bolsa,
Spain 50.00% 50.00% INTERNET — — — —
C.A. Venezuela — 90.00% SECURITIES
COMPANY
2 4 2 7
Vendcare Finance Limited
Vista Capital de Expansión, S.A.
United Kingdom — 100.00% LEASING — — — —
SGECR Spain — 50.00% VENTURE CAPITAL
MANAGEMENT
— — — —
Vista Desarrollo, S.A. SCR
W.N.P.H. Gestao e Investimentos
Spain 100.00% — VENTURE CAPITAL
COMPANY
48 31 2 33
Sociedade Unipessoal, S.A. Portugal — 100.00% SECURITIES
INVESTMENT
— 31 1 —
Wallcesa, S.A. Spain 100.00% — SECURITIES
INVESTMENT
2 12 (4) 10
Wassens Onroerend Goed, B.V. Netherlands — 100.00% HOLDING COMPANY — — — —
Wex Point Finance, S.L. Spain — 88.65% SERVICES 1 3 (1) 3
WF (Management) Limited United Kingdom — 100.00% FUND AND
PORTFOLIO
MANAGER
— — — —
WF (Trustees) Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
WF Systems Ltd United Kingdom — 100.00% ADVISORY SERVICES — — — —
Whitefoord & Foden Limited United Kingdom — 100.00% ADVISORY SERVICES — — — —
Whiting Pension Services Ltd United Kingdom — 100.00% ASSET
MANAGEMENT
— — — —
(a) Amount per books of each company as of December 31, 2004. The cost per books (net of allowance) is the figure per the
books of each holding company on the basis of the Group’s percentage of ownership, disregarding amortization of
consolidation goodwill. The data on companies abroad were translated to euros at the year-end exchange rates.
(b) Companies over which effective control is held.
(*) Data from the latest approved financial statements as of March 10, 2004.
(**) Data from the latest approved financial statements as of March 31, 2004.
(***) Data from the latest approved financial statements as of June 30, 2004.
(****) Data from the latest approved financial statements as of August 31, 2004.
(*****) Data from the latest approved financial statements as of September 30, 2004.
(******) Data the latest approved financial statements as of October 31, 2004.
(1) Data expressed on a comparable basis with those for calendar 2004.
(2) The preferred share and security issuer companies are detailed in Exhibit III, together with other relevant information.
106

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Exhibit II
Nonconsolidable companies in which the Santander Group has holdings of more than 3%
(20% if unlisted)
% of Ownership Millions of Euros
Company Location
by the Bank
Direct Indirect Line of Business
Capital Net Income
(*)
Stock (*)
Reserves (*)
(Loss) (*)
Abbey National Life plc United Kingdom — 100,00% INSURANCE 211 299 37
ABSLine Multimedia, S.L.
Accordfin España, E.F.C.,
Spain — 47.50% INTERNET — — —
S.A. Spain — 49.00% FINANCE 11 — 2
Adherbal Global, S.L.
Administradora de Tarjetas de
Spain — 50.00% HOLDING COMPANY 42 — (3)
Crédito Bolivia — 24.08% CARDS 1 — —
Agrícola Tabaibal, S.A. Spain — 65.78% AGRICULTURE AND LIVESTOCK — — —
Agropecuaria Tapirapé, S.A. Brazil — 97.05% AGRICULTURE AND LIVESTOCK 2 (1) —
Aguas de Fuensanta, S.A. Spain — 39.29% FOOD 3 5 —
Alcaidesa Holding, S.A. Spain — 44.26% REAL ESTATE 13 51 9
Alcaidesa Inmobiliaria, S.A. Spain — 44.26% REAL ESTATE 34 29 23
Alcaidesa Servicios, S.A.
Almacenadora Serfin, S.A. De
Spain — 44.26% SERVICES — — —
C.V.
Almacenadora Somex, S.A.
Mexico — 73.90% STORAGE 15 (14) —
De C.V.
Altavida Santander Seguros
Mexico — 72.85% STORAGE 1 4 —
de Vida, S.A.
Antena 3 de Televisión, S.A.
Chile — 100.00% INSURANCE 9 16 12
(consolidated) (**)
Aparcamientos y
Spain 0.51% 9.49% MEDIA 167 291 (207)
Construcciones, S.A.
Arena Communications
Spain — 88.65% REAL ESTATE 3 (1) —
Network, S.L. (**)
Asajanet Servicios
Spain 20.00% — ADVERTISING — 3 —
Agropecuarios, S.L. Spain 30.00% — INTERNET — 1 —
Attijari Factoring Maroc, S.A. (**) Attijari International Bank
Morocco — 25.00% FACTORING 3 1 —
Société Anonyme (**)
Attijariwafa Bank Société
Morocco 50.00% — BANKING 2 1 —
Anonyme (**)
Auna Operadores de
Telecomunicaciones, S.A.
Morocco — 14.48% BANKING 124 387 39
(consolidated) (**)
Banco Internacional da Guiné-
Spain 12.28% 15.06% TELECOMMUNICATIONS 2,198 110 (55)
Bissau, S.A. Guinea Bissau — 48.82% BANKING 1 (32) (1)
Banesto B2C Escaparate, S.L. Spain — 88.65% TECHNOLOGY 2 (3) —
Banestur, S.A.
Benim — Sociedade
Spain — 88.65% TOURISM — — —
Imobiliária, S.A.
Bozano, Simonsen Centros
Portugal — 24.95% REAL ESTATE 1 7 —
Comerciais, S.A. (**)
Brazil — 96.90% SHOPPING MALL
MANAGEMENT
55 31 8
BPI SGPS, S.A. (**)
Portugal — 5.29% BANKING 760 303 164
Canela Foods, S.A.
Cantabria Capital, SGECR,
Spain 16.08% 8.07% HOSPITALITY SERVICES — 11 (5)
S.A.
Capital Variable SIMCAV,
Spain 50.00% — VENTURE CAPITAL MANAGER — — —
S.A. Spain — 78.77% S.I.M.C.A.V. 6 1 —
Carpe Diem Salud, S.L.
Carpe Diem Servicios
Spain 100.00% — HEALTH CARE SERVICES — — —
Sanitarios, S.L. Spain 61.29% — MARKETING AND
DISTRIBUTION OF
HEALTHCARE PRODUCTS
— — (1)
Cartera del Norte, S.A. Spain — 31.99% FINANCE 1 — —
Catmoll, S.L. Spain 100.00% — CONCESSION — HOLDER 7 — —
CBE Service SPRL (**)
Belgium — 20.00% SERVICES — — —
Centradia Group, Ltd. (**)
Centro de Compensación
United Kingdom 29.03% — ADVISORY SERVICES 39 (22) (2)
Automatizado, S.A.
Centro Desarrollo Invest. Apli.
Chile — 27.70% PAYMENT SYSTEMS — — —
Nuevas Tecnologías Spain — 43.44% TECHNOLOGY — 1 —
Certidesa, S.L. Spain — 100.00% AIRCRAFT LEASE 22 (5) (4)
Clínica Sear, S.A. Spain — 44.79% HEALTH CARE 1 6 —
Club Zaudin Golf, S.A.
Commerzbank, A.G.
Spain — 67.08% SERVICES — 15 —
(consolidated) (**)
Compañía Aseguradora
Germany — 3.38% BANKING 1,545 9,866 (2,320)
Banesto Seguros, S.A.
Compañía Concesionaria del
Spain — 88.65% INSURANCE 19 35 12
Túnel de Soller, S.A.
Compañía Española de
Petróleos, S.A.
Spain — 28.99% CONSTRUCTION 17 — —
(consolidated) (**)
Spain 12.35% 19.92% OIL REFINING 268 2,019 612
Consorcio Credicard, C.A.
Consorcio Internacional de
Aseguradores de Crédito,
Venezuela — 32.80% CARDS — 2 5
S.A. Spain 20.25% — CREDIT INSURANCE 21 — (1)
107

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership Millions of Euros
Company Location
by the Bank
Direct Indirect Line of Business
Capital Net Income
(*)
Stock (*)
Reserves (*)
(Loss) (*)
Consorcio Mexicano de
Aseguradores de Crédito,
S.A. Spain 40.25% — CREDIT INSURANCE 4 — —
Corporación Suiche 7B, C.A. Venezuela — 31.75% CARDS — 1 1
Corporate Director Dos, S.L. Spain 66.67% — HOLDING COMPANY — — —
Corporate Director Uno, S.L.
Costa Canaria de Veneguera,
Spain 33.33% — HOLDING COMPANY — — —
S.A. Spain — 65.78% REAL ESTATE 22 (6) —
Crinaria, S.A. Spain — 88.65% HOSPITALITY 2 5 —
Depósitos Portuarios, S.A. Spain — 88.56% SERVICES — — —
Deposoltenegolf, S.A.
Dinsa Customer Services,
Spain — 88.65% SPORTS 1 21 —
S.A.
Diseño e Integración de
Spain — 88.65% IT 2 3 (4)
Soluciones, S.A.
EDS Credit Services
Spain — 88.65% IT 1 3 (3)
Limited (****).
United Kingdom — 25,02% IT SERVICES — (6) (6)
Efearvi, S.A.
Empresa de Tarjetas
Spain — 88.64% REAL ESTATE 1 (1) —
Inteligentes, S.A. Chile — 22.66% CARDS 2 (1) (1)
Estrella Servi-Rent, S.A. Spain — 49.00% AUTOMOTIVE INDUSTRY — — —
Europartners Holding, S.A. (**)
Luxembourg 50.00% — HOLDING COMPANY — 1 1
Gire, S.A. (**)
Grupo Alimentario de
Argentina — 57.80% PAYMENT INSTRUMENTS — 3 1
Exclusivas, S.A. Spain — 35.87% FOOD — — —
Grupo Eurociber, S.A.
Grupo Financiero Galicia, S.A.
Spain — 88.65% SERVICES 1 — —
(consolidated) (**)
Argentina — 6.70% BANKING 293 158 (58)
Grupo Golf del Sur, S.A. Spain — 88.65% REAL ESTATE — 9 —
Grupo Konecta Net, S.L. Spain — 35.39% HOLDING COMPANY 3 3 3
Grupo Taper, S.A. (**)
Spain 27.77% — DISTRIBUTION OF MEDICAL
EQUIPMENT
4 19 1
Guaranty Car, S.A.
H.B.F. Aluguer e Comercio de
Spain — 100.00% AUTOMOTIVE INDUSTRY 1 — —
Viaturas, S.A. Portugal — 100.00% RENTING — — —
H.B.F. Auto-Renting, S.A. Spain — 100.00% RENTING 1 4 3
Hispamer Renting, S.A.
HLC — Centrais de
Spain — 100.00% RENTING — 2 5
Cogeraçao, S.A. (**)
Ibérica de Compras
Portugal — 24.44% ENERGY OPERATION 2 (4) (2)
Corporativas, S.L.
Infotel, Información y
Spain 53.17% 2.94% E-COMMERCE 2 3 (2)
Telecomunicaciones, S.A.
Inmobiliaria Sitio de
Spain — 29.45% TELECOMMUNICATIONS 1 1 1
Baldeazores, S.A. Spain — 44.27% REAL ESTATE — — —
Inmobiliaria Urbis, S.A. Spain — 45.67% REAL ESTATE 152 516 124
Inoinversora, S.A. SICAV Spain — 11.04% S.I.C.A.V. 4 — —
Instituto Serfin, A.C.
Intereuropa Bank, R.T.
Mexico — 74.34% NOT-FOR-PROFIT INSTITUTE 1 1 —
(consolidated) (**)
Internacional Compañía
Hungary — 10.00% BANKING 27 17 8
Seguros de Vida, S.A.
Inversiones Marítimas del
Argentina — 59.20% INSURANCE 1 9 5
Mediterráneo, S.A. Spain 100.00% — HOLDING COMPANY — 3 3
Inversiones Turísticas, S.A. Spain — 88.65% HOSPITALITY 5 27 1
Kassadesing 2005, S.L.
Konecta BTO Contactcenter,
Spain — 44.33% REAL ESTATE 8 — —
S.A. Spain — 35.39% MARKETING — 2 1
Konecta Canarias, S.A.
Konecta Centro Especial de
Spain — 35.39% MARKETING — 1 1
Empleo Madrid, S.L.
Konecta Centro Especial de
Spain — 35.39% TELEMARKETING — — —
Empleo Sevilla, S.L.
Konecta Centro Especial de
Spain — 35.39% TELEMARKETING — — —
Empleo, S.A.
Konecta Comercialización,
Spain — 35.39% MARKET STUDIES — — —
S.L.
Konecta Field Marketing,
Spain — 35.37% MARKETING — — —
S.A.U.
Konecta Net Empleo, E.T.T.,
Spain — 35.39% HOLDING COMPANY — — —
S.A. Spain — 35.39% TEMPORARY EMPLOYMENT
AGENCY
— — —
Konecta Portugal, Lda.
Konecta Servicios de Empleo
Portugal — 35.39% MARKETING — — —
ETT, S.A.
Konecta Servicios de
Spain — 35.39% TEMPORARY EMPLOYMENT
AGENCY
— — —
Formación, S.L.
Konecta The One to One
Spain — 35.39% TRAINING — — —
Agency, S.L. Spain — 35.39% HOLDING COMPANY — — —
Konectanet Eventos, S.L.
La Unión Resinera Española,
Spain — 21.24% EVENT ORGANIZATION — — —
S.A. (consolidated) Spain 74.87% 24.11% CHEMICALS 4 46 —
Laparanza, S.A. (**)
Spain 61.59% — AGRICULTURE AND LIVESTOCK 4 22 —
108

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership Millions of Euros
Company Location
by the Bank
Direct Indirect Line of Business
Capital Net Income
(*)
Stock (*)
Reserves (*)
(Loss) (*)
Larix Chile Inversiones
Limitada Chile — 88.65% REAL ESTATE — — —
Layna Auto, S.L.
Layna Inversiones Galicia,
Spain — 49.00% AUTOMOTIVE INDUSTRY 5 — —
S.L. Spain — 49.00% HOLDING COMPANY 8 — —
Layna Inversiones, S.A. Spain — 49.00% HOLDING COMPANY 23 — 1
Layna Patrimonial, S.L. Spain — 49.00% REAL ESTATE 3 3 —
Linvest, S.A. Argentina — 99.93% FINANCIAL SERVICES — — —
Luresa Inmobiliaria, S.A. Spain — 98.98% REAL ESTATE 9 9 —
Marismas de Astillero, S.A. Spain 49.83% 12.52% SERVICES — — —
Masías de Betera, S.L. Spain — 22.47% REAL ESTATE 1 — —
Merciver, S.L.
Meter Fit (North East)
Spain — 88.65% HOTEL OPERATION — (2) —
Limited (*****)
Meter Fit (North West)
United Kingdom — 50,00% LEASING — (5) (3)
Limited (*****)
Meter Serve (North East)
United Kingdom — 50,00% LEASING — (5) (4)
Limited (*****)
Meter Serve (North West)
United Kingdom — 50,00% PORTFOLIO COMPANY — — —
Limited (*****)
Modelo Continente SGPS,
United Kingdom — 50,00% PORTFOLIO COMPANY — — —
S.A. (**)
Portugal 5.17% 21.30% FOOD 1,100 (843) 75
Moneda y Crédito, S.L. Spain 50.00% — ADVERTISING — — —
Multimedia de Cable, S.A. (**)
Spain 37.45% — HOLDING COMPANY 12 (12) (1)
Naviera Mirambel, S.L. Spain — 100.00% FINANCE — — —
Nisa Santander, S.A.
Norchem Holdings é
Spain 99.99% 0.01% INACTIVE 1 — —
Negocios, S.A.
Norchem Participaçoes e
Brazil — 21.23% HOLDING COMPANY 1 13 1
Consultoría, S.A.
Nova Bostwick (Portugal)
Fabrica de Portas
Brazil — 48.81% CONSULTING 2 5 1
Metalicas, Ltd. Portugal — 99.62% DOOR MANUFACTURING — — —
NW Services CO.
Operadora de Activos Alfa,
United States — 86.97% E-COMMERCE 4 — —
S.A. De C.V.
Operadora de Activos Beta,
Mexico — 49.80% SERVICES 12 (11) —
S.A. de C.V.
Orígenes Seguros de Retiro,
Mexico — 49.90% SERVICES 5 — —
S.A.
Polígono Industrial Gerona,
Argentina — 59.20% INSURANCE 1 27 —
S.A.
Portal Universia Argentina,
Spain — 26.56% REAL ESTATE 2 2 1
S.A.
Portal Universia Portugal,
Prestaçao de Serviços de
Argentina 99.79% 0.21% INTERNET 2 (1) (1)
Informática, S.A. Portugal 98.54% 1.44% INTERNET 3 (2) (1)
Portal Universia, S.A. Spain 79.39% 1.11% INTERNET 37 (18) (6)
Procura Digital Chile, S.A.
Procura Digital de Venezuela,
Chile — 86.97% E-COMMERCE — 1 —
S.A. Venezuela — 86.97% E-COMMERCE 2 (2) —
Procura Digital Ltda. Brazil — 86.97% E-COMMERCE — (1) —
Procura Digital SRL de C.V.
Programa Hogar Montigalá,
Mexico — 86.97% E-COMMERCE 1 — —
S.A.
Programa Multi Sponsor PMS,
Spain — 88.55% REAL ESTATE — 6 1
S.A. (**)
Promotora Herlosacantos,
Spain 24.75% 24.75% ADVERTISING 3 2 1
S.A. (**)
Spain — 50.00% REAL ESTATE — — —
Proyecto Europa, S.A. Spain — 88.65% ADVISORY SERVICES — — —
PSA Finance PLC United Kingdom — 50,00% LEASING 57 10 9
Quisqueya 12, Inc. Puerto Rico — 50.00% REAL ESTATE — 2 —
R. Benet, S.A. Spain — 49.00% AUTOMOTIVE SERVICES 2 3 2
Redbanc, S.A. Chile — 27.70% CARDS 4 — 1
Reintegra, S.A. Spain — 45.00% HOLDING COMPANY 2 — 1
Retiro Inmuebles, S.L. Spain — 22.47% REAL ESTATE 1 — —
Retos Cartera, S.A.
Río Compañía de Seguros,
Spain — 25.33% SECURITIES INVESTMENT 13 — —
S.A.
San Paolo IMI, S.p.A.
Argentina — 99.89% INSURANCE 4 1 1
(consolidated) (**)
Santander Banespa Seguros,
Italy — 8.48% BANKING 5,144 4,879 972
S.A.
Santander Consumer Finance
Correduría de Seguros,
Brazil — 98.97% INSURANCE 2 — —
S.A.
Santander de Desarrollos
Spain — 100.00% ADVISORY SERVICES — — 1
Inmobiliarios, S.A. Spain 98.39% 1.61% REAL ESTATE — — —
Santander de Renting, S.A.
Santander Seguros y
Reaseguros, Compañía
Spain 100.00% — RENTING 6 13 7
Aseguradora, S.A. Spain 100.00% — INSURANCE 26 74 24
Santander Seguros, S.A. Brazil — 98.98% INSURANCE 33 24 12
Santander Seguros, S.A. Uruguay — 100.00% INSURANCE 1 2 —
Scottish Mutual Assurance plc United States — 100,00% INSURANCE 2,294 (351) 107
109

PART 2: FINANCIAL INFORMATION ON THE COMPANY
% of Ownership Millions of Euros
Company Location
by the Bank
Direct Indirect Line of Business
Capital Net Income
(*)
Stock (*)
Reserves (*)
(Loss) (*)
Scottish Mutual International
plc
Scottish Mutual Pensions
Ireland — 100,00% INSURANCE 363 (195) 22
Limited
Scottish Provident
International Life Assurance
United States — 100,00% INSURANCE 187 (54) 15
Limited Isle of Man — 100,00% INSURANCE 78 (57) 1
Scottish Provident Limited
Seguros Santander Serfin,
United States — 100,00% INSURANCE 2,503 (599) (38)
S.A. De C.V.
Servicios Corporativos
Seguros Serfin, S.A. De
Mexico — 74.92% INSURANCE 33 (1) —
C.V.
Servicios Corporativos Serfin,
Mexico — 73.42% INSURANCE — — —
S.A. De C.V.
Servicios Universia Venezuela
Mexico — 74.91% FINANCIAL SERVICES — — —
S.U.V., S.A.
Shinsei Bank, Ltd.
Venezuela 79.97% 0.24% INTERNET 1 (1) (1)
(consolidated) (***)
Sociedad Interbancaria de
Japan — 7.40% BANKING 3,381 1,590 497
Depósitos de Valores, S.A.
Sociedad Mexicana de
Arrendamiento Puro, S.A.
Chile — 24.34% SECURITIES DEPOSIT 1 — —
De C.V.
Star Capital Partners, Ltd. —
Mexico — 99.98% RENTING — — —
Group (**)
Técnicas Reunidas, S.A.
United Kingdom 19.96% — FUND MANAGER — 2 6
(consolidated) (**)
Tenedora de Acciones de
Spain — 38.02% ENGINEERING 6 79 36
Redesur, S.A. (**)
Spain 25.00% — HOLDING COMPANY 17 (2) (2)
Top-30, S.L. (**)
Totta Seguros, Companhia de
Spain — 21.52% CONSTRUCTION — — —
Seguros de Vida, S.A. Portugal — 99.80% INSURANCE 23 11 7
Transbank, S.A. Chile — 27.70% CARDS 6 — 1
Transolver Finance EFC, S.A. Spain — 50.00% LEASING 9 14 2
U.C.I., S.A.
Unión Eléctrica Fenosa, S.A.
Spain — 50.00% MORTGAGE LOANS 48 52 28
(consolidated) (**)
Spain 8.21% 13.81% ENERGY OPERATION 914 1,775 373
Universia Brasil, S.A. Brazil 100.00% — INTERNET 5 (2) (2)
Universia Chile, S.A. Chile 99.81% 0.19% INTERNET 4 (2) (1)
Universia Colombia, S.A.
Universia México, S.A. De
Colombia 94.49% 5.31% INTERNET 3 (1) (1)
C.V. Mexico 100.00% — INTERNET 3 (2) (1)
Universia Perú, S.A. Peru 99.69% 0.31% INTERNET 3 (2) (1)
Universia Puerto Rico, Inc. Puerto Rico 100.00% — INTERNET 3 (2) (1)
Urbiespar, S.A. Spain — 22.47% REAL ESTATE — — —
Virtual Payments, S.L. Spain — 88.65% TECHNOLOGY 1 — —
Wex Point España, S.L. Spain — 88.65% SERVICES 6 (1) (3)
(*) Amounts per the books of each company generally as of December 31, 2004, unless otherwise stated, since the financial
statements have not yet been formally prepared. The data on companies abroad were translated to euros at the year-end
exchange rates.
(**) Data as of December 31, 2003, the date of the latest approved financial statements.
(***) Data as of March 31, 2004, this company’s year end.
(****) Data from the latest approved financial statements as of December 31, 2002.
(*****) Data from the latest approved financial statements as of March 31, 2004.
110

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Exhibit III
Consolidated Preferred Share and Security Issuer Companies in the Santander Group
% of Ownership Millions of Euros
Company Location
by the Bank
Direct Indirect
Line of
Business
Capital
Stock
Net Preferred Income
(*)
Reserves (*)
Income (*)
Dividend (*)
Balance (*) Cost
Abbey National Capital Trust I United States — (a) FINANCE — — 66 66 — —
Banesto Holdings, Ltd. Guernsey — 88.65% FINANCE 57 (112) 6 6 — —
Banesto Preferentes, S.A. Spain — 88.65% FINANCE 131 — 3 3 — —
BCH Capital, Ltd. Cayman Islands 100.00% — FINANCE — — 16 16 — —
BCH Eurocapital, Ltd. Cayman Islands 100.00% — FINANCE — 1 4 4 — —
BSCH Finance, Ltd.
Pinto Totta International
Cayman Islands 100.00% — FINANCE 71 (8) 95 95 — 68
Finance, Limited
Santander Finance Capital,
Cayman Islands — 49.90% FINANCE — — 14 14 — —
S.A.
Santander Finance Preferred,
Spain 100.00% — FINANCE — — 35 35 — —
S.A.
Totta & Açores Financing,
Spain 100.00% — FINANCE — — 14 14 — —
Limited Cayman Islands — 99.80% FINANCE — — 10 10 — —
(*) Amounts per the books of each company as of December 31, 2004, translated to euros (in the case of companies abroad)
at the year-end exchange rates.
(a) Company over which effective control is exercised.
111

PART 2: FINANCIAL INFORMATION ON THE COMPANY
Exhibit IV
Notifications of Acquisitions and Sales of Investments in 2004
(Art. 86 of the revised Corporations Law and Art. 53 of Securities Market Law 24/1998)
Investee
Date of
Notification
Ibermilenium, S.I.C.A.V., S.A. 04/06/04
Zubayda Gestión Diversificada, S.I.C.A.V., S.A. 04/23/04
Majadas Altas Inversiones, S.I.C.A.V., S.A. 04/29/04
Capital Riesgo Global S.C.R., S.A. 12/10/04
Cartera Mobiliaria, S.A., S.I.M. 12/29/04
112

PART 3
FINANCIAL INFORMATION ON ABBEY
(A) Audited consolidated financial statements of Abbey for the three years ended
31 December 2002, 2003 and 2004 prepared in accordance with UK GAAP*
The financial information set out below for the year ended 31 December 2002 (as restated) has been
extracted without material adjustment from the published audited consolidated financial statements of
Abbey for the year ended 31 December 2003. The financial information for the three years ended
31 December 2004, has been extracted, without material adjustment, from the published audited
consolidated financial statements of Abbey for the years ended 31 December 2004, 2003 and 2002. UK
GAAP differs from Spanish GAAP in certain material respects as further described in Section B below.
(*) Defined terms and page references in this Part 3 are as defined and set out in Abbey’s 2004 Financial Statements.
113

PART 3: FINANCIAL INFORMATION ON ABBEY
Consolidated Profit and Loss Account
For the years ended 31 December 2004, 2003 and 2002
2003 2002
2004 (restated) (restated)
Notes £m £m £m
Interest receivable:
Interest receivable and similar income arising from debt securities 87 393 1,386
Other interest receivable and similar income 3 4,838 4,851 5,382
Interest payable 4 (3,395) (3,182) (4,184)
Net interest income 1,530 2,062 2,584
Dividend income 5 1 1 1
Fees and commissions receivable 639 767 786
Fees and commissions payable (114) (248) (275)
Dealing profits
Income from long-term assurance business before embedded value charges
6 268 217 205
and rebasing 21 108 176 321
Embedded value charges and rebasing
Income from long-term assurance business after embedded value charges
21 (32) (378) (632)
and rebasing 21 76 (202) (311)
Other operating (expense) income 7 244 (165) 510
Total operating income — continuing operations 2 2,626 2,711 3,141
Total operating income — discontinued operations 2 18 (279) 359
Total operating income 2,644 2,432 3,500
Administrative expenses 8 (2,053) (2,014) (1,852)
Depreciation of fixed assets excluding operating lease assets 26 (81) (112) (103)
Depreciation and impairment on operating lease assets 27 (151) (251) (280)
Amortisation of goodwill 25 (20) (20) (64)
Impairment of goodwill 25 — (18) (1,138)
Depreciation, amortisation and impairment (252) (401) (1,585)
Provisions for bad and doubtful debts 9 35 (474) (514)
Provisions for contingent liabilities and commitments
Amounts written off fixed asset investments
38 (202) (104) (50)
— debt securities 19 67 (45) (388)
— equity shares and similar investments 20 13 (148) (123)
Provisions and amounts written off fixed asset investments (87) (771) (1,075)
Operating profit/(loss) 252 (754) (1,012)
Income from associated undertakings 6 12 17
Profit on disposal of Group undertakings 46 89 48
Profit/(loss) on the sale or termination of an operation 57 (31) (33) —
Continuing operations 2 200 (182) (278)
Discontinued operations 2 73 (504) (669)
Profit/(loss) on ordinary activities before tax 273 (686) (947)
Tax on profit/(loss) on ordinary activities 10 (144) 42 (152)
Profit/(loss) on ordinary activities after tax 129 (644) (1,099)
Minority interests — non-equity
Profit/(loss) for the financial year attributable to the shareholders of
41 (49) (55) (62)
Abbey National plc 80 (699) (1,161)
Transfer from/(to) non-distributable reserve 43 47 (200) 263
Dividends including amounts attributable to non-equity interests 12 (631) (424) (424)
Retained loss for the financial year (504) (1,323) (1,322)
Profit/(loss) on ordinary activities before tax includes for acquired operations — — 4
Earnings/(loss) per ordinary share — basic 13 2.2p (52.4p) (84.8p)
Earnings/(loss) per ordinary share — diluted 13 2.2p (52.4p) (84.3p)
The Group’s results as reported are on an historical cost basis, except where, as described in
Accounting policies, special provisions of the Companies Act 1985 or industry standards apply.
Accordingly, no note of historical cost profits and losses has been presented.
The 2003 and 2002 comparatives have been restated to include accrued interest on mark-to-market
securities and money market instruments within dealing profits. These amounts were previously
included within interest income and interest expense. The impact of the adjustment was to move
£978 million (2002: £1,301 million), from interest income and £892 million (2002: £1,258 million) from
interest expense into dealing profits.
114

PART 3: FINANCIAL INFORMATION ON ABBEY
Consolidated Balance Sheet
As at 31 December 2004, 2003 and 2002
2004 2004 2003 2003 2002 2002
Notes £m £m £m £m £m £m
Assets
Cash and balances at central banks 454 439 396
Treasury bills and other eligible bills 14 1,990 1,631 1,483
Loans and advances to banks
Loans and advances to customers not subject to
15 10,148 7,155 6,601
securitisation
Loans and advances to customers subject to
79,331 84,488 81,427
securitisation 17 28,976 23,833 24,156
Less: non-recourse finance (15,098) (14,482) (15,160)
Loans and advances to customers 16 93,209 93,839 90,423
Net investment in finance leases 18 1,148 2,573 3,447
Debt securities 19 22,683 30,328 59,807
Equity shares and other similar interests 20 1,176 1,633 963
Long-term assurance business 21 2,968 2,272 2,316
Interests in associated undertakings 22 25 39 51
Intangible fixed assets 25 317 341 376
Tangible fixed assets excluding operating lease assets 26 246 268 371
Operating lease assets 27 2,341 2,529 2,573
Tangible fixed assets 2,587 2,797 2,944
Other assets 28 4,661 4,162 5,085
Prepayments and accrued income 29 1,195 1,230 1,891
Assets of long-term assurance funds 21 27,180 28,336 29,411
Total assets 169,741 176,775 205,194
Liabilities
Deposits by banks 31 18,412 22,125 24,174
Customer accounts 32 78,850 74,401 76,766
Debt securities in issue 33 21,969 24,834 48,079
Dividend payable 43 245 113
Other liabilities 34 9,170 11,452 9,125
Accruals and deferred income 35 1,729 1,582 2,218
Provisions for liabilities and charges 36 870 836 1,028
Subordinated liabilities including convertible debt 39 5,360 6,337 6,532
Other long-term capital instruments 40 722 742 771
Liabilities of long-term assurance funds 21 27,180 28,336 29,411
Minority interests — non-equity 41 512 554 627
Called up share capital
164,817 171,444 198,844
— ordinary shares 42 148 146 146
— preference shares 42 325 325 325
Share premium account 42 2,164 2,059 2,155
Reserves 43 306 274 74
Profit and loss account 43 1,981 2,527 3,650
Shareholders’ funds including non-equity interests 44 4,924 5,331 6,350
Total liabilities 169,741 176,775 205,194
Memorandum items
Contingent liabilities
Guarantees and assets pledged as collateral security 46 1,084 2,148 1,902
Other contingent liabilities 47 116 159 157
1,200 2,307 2,059
Commitments
Obligations under stock borrowing and lending
agreements 48 20,508 25,649 19,137
Other commitments 48 2,849 3,018 4,742
23,357 28,667 23,879
115

PART 3: FINANCIAL INFORMATION ON ABBEY
Company Balance Sheet
As at 31 December 2004, 2003 and 2002
2004 2004 2003 2003 2002 2002
Notes £m £m £m £m £m £m
Assets
Cash and balances at central banks 443 417 356
Loans and advances to banks
Loans and advances to customers not subject to
15 3,605 4,218 4,716
securitisation 63,829 66,048 59,628
Loans and advances to customers subject to securitisation 17 28,976 23,835 24,035
Less: non-recourse finance (12,948) (13,813) (14,491)
Loans and advances to customers 16 79,857 76,070 69,172
Net investment in finance leases 18 3 18 13
Debt securities 19 405 480 1,394
Equity shares and other similar interests 20 1 2 2
Shares in Associate undertakings 22 12 32 —
Shares in Group undertakings 23 8,250 8,171 7,545
Tangible fixed assets 26 226 239 304
Other assets 28 1,293 1,001 794
Prepayments and accrued income 29 379 501 566
Total assets 94,474 91,149 84,862
Liabilities
Deposits by banks 31 15,697 18,780 14,307
Customer accounts 32 65,910 57,900 55,444
Debt securities in issue 33 4 4 4
Dividend payable 43 245 113
Other liabilities 34 1,114 1,030 759
Accruals and deferred income 35 1,008 823 941
Provisions for liabilities and charges 36 224 100 43
Subordinated liabilities including convertible debt 39 5,673 6,689 6,959
Other long-term capital instruments 40 722 742 771
Called up share capital
90,395 86,313 79,341
— ordinary shares 42 148 146 146
— preference shares 42 325 325 325
Share premium account 42 2,164 2,059 2,155
Profit and loss account 43 1,442 2,306 2,895
Shareholders’ funds including non-equity interests 44 4,079 4,836 5,521
Total liabilities 94,474 91,149 84,862
Memorandum items
Contingent liabilities
Guarantees and assets pledged as collateral security 46 63,009 69,487 110,882
Other contingent liabilities 47 8 8 23
63,017 69,495 110,905
Commitments 48 1,733 1,627 1,303
116

PART 3: FINANCIAL INFORMATION ON ABBEY
Consolidated Statement of Total Recognised Gains and Losses
As at 31 December 2004, 2003 and 2002
2004 2003 2002
Notes £m £m £m
Profit/(loss) attributable to the shareholders of Abbey National plc 80 (699) (1,161)
Translation differences on foreign currency net investment 43 (2) (1) (2)
Total recognised (losses) gains relating to the year 78 (700) (1,163)
Total gains recognised since the prior year 78
Consolidated Cash Flow Statement
As at 31 December 2004, 2003 and 2002
2004 2003 2002
Notes £m £m £m
Net cash (outflow)/inflow from operating activities
Returns on investments and servicing of finance:
52a (2,019) (32,678) (10,952)
Interest paid on subordinated liabilities (277) (262) (337)
Preference dividends paid (48) (55) (63)
Payments to non-equity minority interests (49) (55) (62)
Net cash outflow from returns on investments and servicing of finance
Taxation:
(374) (372) (462)
UK corporation tax paid (2) (93) (481)
Overseas tax paid (10) (6) (15)
Total taxation paid
Capital expenditure and financial investment:
(12) (99) (496)
Purchases of investment securities (1,713) (3,895) (16,636)
Sales of investment securities 1,796 26,462 12,926
Redemptions and maturities of investment securities 1,235 3,175 14,977
Purchases of tangible fixed assets (155) (532) (909)
Sales of tangible fixed assets 83 194 79
Transfers (to)/from life assurance funds
Net cash inflow/(outflow) from capital expenditure and financial
(712) (215) (882)
investment 534 25,189 9,555
Acquisitions and disposals 52e-g 3,180 8,803 (536)
Equity dividends paid (697) (216) (648)
Net cash inflow/(outflow) before financing
Financing:
612 627 (3,539)
Issue of ordinary share capital 13 2 17
Issue of loan capital — — 392
Issue of other long-term capital instruments — — 485
Issue of preferred securities and minority interests — — 15
Redemption of preference share capital — (124) —
Redemption of preferred securities — (15) —
Repayments of loan capital (813) (56) (222)
Net cash (outflow)/inflow from financing 52c (800) (193) 687
Increase/(decrease) in cash 52b (188) 434 (2,852)
For the purposes of the Consolidated Cash Flow Statement, cash includes all cash at bank and in hand
and loans and advances to banks repayable on demand without notice or penalty, including amounts
denominated in foreign currencies.
117

PART 3: FINANCIAL INFORMATION ON ABBEY
Basis of presentation
Accounting Policies
The Consolidated Financial Statements are prepared in accordance with the special provisions of
Part VII Schedule 9 of the Companies Act 1985 applicable to banking companies and banking groups.
Accounting convention
Abbey prepares its Consolidated Financial Statements under the historical cost convention, modified by
the revaluation of certain assets and liabilities. They are prepared in accordance with applicable
accounting standards of the Accounting Standards Board and pronouncements of its Urgent Issues
Task Force and with the Statements of Recommended Accounting Practice issued by the British
Bankers’ Association, the Irish Bankers’ Federation and the Finance and Leasing Association.
Accounting policies are reviewed regularly to ensure they are the most appropriate to the circumstances
of Abbey for the purposes of giving a true and fair view.
Consistent with other banking groups, in preparing consolidated financial statements, the long-term
assurance business is valued using the embedded value method, with adjustments made for the impact
of investment variances to Long-Term Assumptions. Disclosures consistent with the guidance provided
by the Association of British Insurers in December 2001 is provided in either the Consolidated Financial
Statements or the Operating and Financial Review, wherever practical.
Basis of consolidation
The Group Financial Statements incorporate the Consolidated Financial Statements of the company
and all its subsidiary undertakings. The accounting reference date of the company and its subsidiary
undertakings is 31 December, with the exception of those leasing, investment, insurance and funding
companies, which, because of commercial considerations, have various accounting reference dates.
The financial statements of these subsidiaries have been consolidated on the basis of interim Financial
Statements for the period to 31 December 2004.
The assets and liabilities of the long-term assurance funds are presented separately from those of other
businesses in order to reflect the different nature of the shareholders’ interests therein.
Interest in subsidiary undertakings and associated undertakings
The company’s interests in subsidiary undertakings and associated undertakings are stated at cost less
any provisions for impairment. The Group’s interests in associated undertakings are stated at Abbey’s
share of the book value of the net assets of the associated undertakings.
Goodwill
Goodwill arising on consolidation as a result of the acquisitions of subsidiary undertakings and the
purchase of businesses after 1 January 1998 is capitalised under the heading Intangible fixed assets
and amortised on a straight-line basis over its expected useful economic life. The useful economic life is
calculated using a valuation model which determines the period of time over which returns are expected
to exceed the cost of capital, subject to a maximum period of 20 years.
Goodwill arising on consolidation as a result of the acquisitions of subsidiary undertakings, and the
purchase of businesses prior to 1 January 1998, has previously been written off directly to reserves. On
disposal of subsidiary undertakings and businesses, such goodwill is charged to the Profit and Loss
Account balanced by an equal credit to reserves. Where such goodwill in continuing businesses has
suffered an impairment, a similar charge to the Profit and Loss Account and credit to reserves is made.
Impairment of fixed assets and goodwill
Tangible fixed assets, other than investment properties, and goodwill are subject to review for
impairment in accordance with FRS 11 Impairment of Fixed Assets and Goodwill. The carrying values
of tangible fixed assets and goodwill are written down by the amount of any impairment, and the loss is
recognised in the Profit and Loss Account in the period in which this occurs. Should an event reverse
the effects of a previous impairment, the carrying value of the tangible fixed assets and goodwill may be
written up to a value no higher than the original depreciated or amortised cost which would have been
recognised had the original impairment not occurred.
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PART 3: FINANCIAL INFORMATION ON ABBEY
Depreciation
Tangible fixed assets excluding operating lease assets and investment properties are depreciated on a
straight-line basis over their estimated useful lives, as follows:
Freehold buildings: 100 years
Long and short leasehold premises: Over the remainder of the lease,
with a maximum of 100 years.
Acquisition premiums are depreciated
over the period to the next rent review.
Freehold land: Not depreciated
Office fixtures, equipment and furniture: 5 to 8 years
Computer equipment: 3 to 5 years
For a description of depreciation on operating lease assets, see ‘‘Assets leased to customers’’ below.
Interest receivable and payable
Interest receivable and payable is recognised in the Profit and Loss Account as it accrues. Interest is
suspended where due but not received on loans and advances in arrears where recovery is doubtful.
The amounts suspended are excluded from interest receivable on loans and advances until recovered.
Fees, commissions and dividends receivable
Fees and commissions receivable in respect of services provided are taken to the Profit and Loss
Account when the related services are performed. Where fees, commissions and dividends are in the
nature of interest, these are taken to the Profit and Loss Account on a systematic basis over the
expected life of the transaction to which they relate, and are included under the heading interest
receivable, except for amounts that related to trading activities. Income on investments in equity shares
and other similar interests is recognised as and when dividends are declared, and included within
dividend income. Fees received on loans with high loan-to-value ratios are accounted for as described
under the heading ‘‘Deferred income’’.
This accounting policy has been amended to reflect the change in accounting policy described in the
dealing profits accounting policy.
Lending-related fees and commissions payable and discounts
Under certain schemes, payments and discounts may be made to customers as incentives to take out
loans. It is usually a condition of such schemes that incentive payments are recoverable by way of early
redemption penalty charges in the event of redemption within a specified period, ‘‘the penalty period’’,
and it is Abbey’s policy and normal practice to make such charges. Such incentive payments are
charged to the Profit and Loss Account over the penalty period where their cost is recoverable from the
net interest income earned from the related loans over the penalty period. If the loan is redeemed within
the penalty period the incentive payments are offset against the penalty charge. When the related loan
is redeemed, sold or becomes impaired any amounts previously unamortized are charged to the Profit
and Loss Account. The Profit and Loss Account charge for such amounts is included under the heading
interest receivable.
Commissions payable to introducers in respect of obtaining certain lending business are charged to the
Profit and Loss Account over the anticipated life of the loans. The Profit and Loss Account charge for
such commissions is included under the heading Fees and commissions payable.
Dealing profits
Dealing profits include movements in prices on a mark-to-market basis, including interest and dividends,
on trading derivatives, trading security positions, trading treasury and other bills and related funding.
This is a presentational change in that previously interest on mark-to-market securities and money
market instruments was classified within interest receivable and interest payable. This had no impact on
profit. In the 12 months to December 2003 this change resulted in reclassification of £86 million (2002:
£105 million) from net interest income to non interest income.
Deferred income
The arrangement of certain UK loans and advances secured on residential properties with high loan-tovalue
ratios may result in a fee being charged.
In Abbey’s accounts, such fees are deferred and are included in the Balance Sheet under the heading
accruals and deferred income. The deferred income balance is taken to the Profit and Loss Account
over the average anticipated life of the loan and is included under the heading Other operating income.
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PART 3: FINANCIAL INFORMATION ON ABBEY
Pensions
Where pensions are provided by means of a funded defined benefits scheme, annual contributions are
based on actuarial advice. The expected cost of providing pensions is recognised on a systematic basis
over the expected average remaining service lives of members of the scheme.
For defined contribution schemes the amount charged to the Profit and Loss Account in respect of
pensions costs and other post retirement benefits is the contributions payable in the year. Differences
between contributions payable in the year and contributions actually paid are shown as either accruals
or prepayments on the Balance Sheet.
Provisions for bad and doubtful debts
A specific provision is established for all impaired loans where it is likely that some of the capital will not
be repaid or, where the loan is secured, recovered through enforcement of security. No provision is
made where the security is in excess of the secured advance. Default is taken to be likely after a
specified period of repayment default. Loans that are part of a homogeneous pool of similar loans are
placed on default status based on the number of months in arrears, which is determined through
historical experience.
Loans that are not part of a homogeneous pool of similar loans are analysed based on the number of
months in arrears on a case by case basis and are placed on default status when the probability of
default is likely.
Generally, the length of time before a loan is placed on default status after a repayment default depends
on the nature of the collateral that secures the advance. On advances secured by residential property,
the default period is three months. On advances secured by commercial property, the default period is
five months, based on historical experience with business customers. For advances secured by
consumer goods such as cars or computers, the default period is less than three months, the exact
period being dependent on the particular type of loan in this category.
On unsecured advances, such as personal term loans, the default period is often less than three
months. Exceptions to the general rule exist with respect to revolving facilities, such as bank overdrafts,
which are placed on default upon a breach of the contractual terms governing the applicable account,
and on credit card accounts where the default period is three months.
Wholesale lending and investment securities are placed on default status immediately upon default on a
payment due date or following any event specified in the loan documentation as a default event.
Securities are also placed on default status if the counterparty goes into voluntary or forced
administration or liquidation or makes an announcement that it would not meet its commitments on the
next payment due date.
Once a loan is considered impaired, an assessment of the likelihood of collecting the principal is made.
This assessment includes, where appropriate, the use of statistical techniques developed based on
previous experience and on management judgment of economic conditions. These techniques estimate
the propensity of loans to result in losses net of any recovery where applicable.
A general provision is made against loans and advances to cover bad and doubtful debts which have
not been separately identified, but which are known from experience to be present in portfolios of loans
and advances. The general provision is determined using management judgment given past loss
experience, lending quality and economic conditions, and is supplemented by statistical based
calculations.
The specific and general provisions are deducted from loans and advances. Provisions made during the
year, less amounts released and recoveries of amounts written off in previous years, are charged to the
Profit and Loss Account. Write offs are determined on a case by case basis for different products and
portfolios, at times ranging typically from 30 to 365 days.
Share-based payments
The costs of share-based instruments are accounted for on a fair value basis, computed by reference to
the grant date; such costs are expensed over the performance period to which the award relates. The
amount charged to the Profit and Loss Account is credited to reserves.
In accordance with UITF 38 Accounting for ESOP Trusts, shares purchased through Employee Share
Option Trusts (ESOPs) are held at cost and treated as treasury shares and are taken as a deduction
from shareholders’ equity.
Foreign currency translation
Income and expenses arising in foreign currencies are translated into pounds sterling at the average
rates of exchange over the accounting period unless they are hedged, in which case the relevant hedge
rate is applied. Dividends are translated at the rate prevailing on the date the dividend is receivable.
Monetary assets and liabilities denominated in foreign currencies are translated into pounds sterling at
120

PART 3: FINANCIAL INFORMATION ON ABBEY
the rates of exchange current at the balance sheet date. In Abbey’s Consolidated Financial Statements,
exchange differences on the translation of the opening net assets of foreign undertakings to the closing
rate of exchange are taken to reserves, as are those differences resulting from the restatement of the
profits and losses of foreign undertakings from average to closing rates. Exchange differences arising
on the translation of foreign currency borrowings used to hedge investments in overseas undertakings
are taken directly to reserves and offset against the corresponding exchange differences arising on the
translation of the investments. Other translation differences are dealt with through the Profit and Loss
Account.
Securities
Debt securities, equity shares and other similar interests (‘‘securities’’) held for investment purposes are
stated at cost, adjusted for any amortisation of premium or discount on an appropriate basis over their
estimated remaining lives. Provision is made for any impairment.
In accordance with industry practice, securities which are not held for the purpose of investment and the
associated funding of these assets are stated at market value and profits and losses arising from this
revaluation are taken directly to the Profit and Loss Account. The net return on these assets, including
interest, appears in dealing profits in the Profit and Loss Account. This net return comprises the
revaluation profit and loss referred to above, plus profits and losses on disposal of these assets. The
difference between the cost and market value of securities not held for investment is not disclosed as its
determination is not practicable.
The market values of securities are primarily derived using publicly quoted prices, direct broker quotes
or recognised market models. Where such prices are unavailable, market values for those securities
have been derived using in-house pricing models.
Where securities are transferred between portfolios held for investment purposes and portfolios held for
other purposes, the securities are transferred at market value. Gains and losses on these transfers are
taken directly to the Profit and Loss Account, and are included within other operating income.
Securities are recognised as assets or, in the case of short positions, liabilities, at the date at which the
commitment to purchase or sell is considered to be binding.
Securities sold subject to a sale and repurchase agreements (‘‘repurchase’’ agreement) are retained on
the Balance Sheet where substantially all of the risk and rewards of ownership remain within Abbey.
Similarly, securities purchased subject to a purchase and resale agreement (‘‘resale’’ agreement) are
treated as collateralised lending transactions where Abbey does not acquire substantially all of the risks
and rewards of ownership.
This accounting policy has been amended to reflect the change in accounting policy described in the
dealing profits accounting policy.
Repurchase and resale agreements
Repurchase and resale agreements are included within loans and advances to banks, loans and
advances to customers, deposit by banks and customer accounts. The difference between sale and
repurchase and purchase and resale prices for such transactions is charged to the Profit and Loss
Account over the life of the relevant transaction and reported within dealing profits. Repurchase and
resale agreements transacted on standard settlement terms are recognised on the Balance Sheet on a
trade date basis while all non-standard settlement terms agreements are recognised on a value date
basis.
Outright sale and purchase of securities combined with the total return swaps which remove the risk
inherent in those securities are accounted for as effectively repurchase and resale agreements.
Abbey adopts a value date accounting treatment for repurchase and resale agreements which fall
outside the standard terms of settlement. It is considered that this policy is more appropriate for Balance
Sheet presentation as it better reflects the economic risks and rewards of these instruments.
This accounting policy has been amended to reflect the change in accounting policy described in the
dealing profits accounting policy.
Customer accounts/deposits
Contracts involving the receipt of cash on which customers receive an index-linked return are accounted
for in substance as equity index-linked deposits. The current market value of the contract is reported
within Customer accounts.
Equity index-linked deposits are managed within the equity derivatives trading book as an integral part
of the equity derivatives portfolio. Equity index-linked deposits are remeasured at fair value at each
reporting date with changes in fair values recognised in the consolidated Profit and Loss Account. The
equity index-linked deposits contain embedded derivatives. These embedded derivatives, in
combination with the principal cash deposit element, are designed to replicate the investment
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PART 3: FINANCIAL INFORMATION ON ABBEY
performance profile tailored to the return agreed in the contracts with customers. Such embedded
derivatives are not separated from the host instrument and are not separately accounted for as a
derivative instrument, as the entire contract embodies both the embedded derivative instrument and the
host instrument and is remeasured at fair value at each reporting date.
Stock borrowing and lending agreements
Obligations taken on pursuant to entering into such agreements are reported as commitments. Income
earned and expense paid on stock borrowing and lending agreements is reported in dealing profits.
This accounting policy has been amended to reflect the change in accounting policy described in the
dealing profits accounting policy.
Deferred taxation
Deferred taxation is provided on all timing differences that have not reversed before the balance sheet
date at the rate of tax expected to apply when those timing differences will reverse. Deferred tax assets
are recognised to the extent that they are regarded as recoverable.
Subordinated liabilities (including convertible debt) and debt securities in issue
Bonds and notes issued are stated at net issue proceeds adjusted for amortisation. Premiums,
discounts and expenses relating to bonds and notes issued are amortised over the life of the underlying
transaction. Where premiums, discounts and expenses are matched by swap fees, the respective
balances have been netted.
Derivatives
Transactions are undertaken in derivative financial instruments, (derivatives), which include interest rate
swaps, cross currency and foreign exchange swaps, futures, equity and credit derivatives, options and
similar instruments for both trading and non-trading purposes.
Derivatives classified as trading are held for market-making or portfolio management purposes within
Abbey’s trading books. Trading book activity is the buying and selling of financial instruments in order to
take advantage of short-term changes in market prices or for market-making purposes in order to
facilitate customer requirements. Trading derivatives are carried at fair value in the balance sheet within
other assets and other liabilities. Valuation adjustments to cover credit and market liquidity risks and
other fair value adjustments are made. Positive and negative market values of trading derivatives are
offset where the contracts have been entered into under master netting agreements or other
arrangements that represent a legally enforceable right of set off which will survive the liquidation of
either party. Gains and losses are taken directly to the Profit and Loss Account and reported within
dealing profits.
Derivatives classified as non-trading are those entered into for the purpose of matching or eliminating
risk from potential movements in foreign exchange rates, interest rates, and equity prices inherent in
Abbey’s non-trading assets, liabilities and positions. Non-trading derivatives are accounted for in a
manner consistent with the assets, liabilities, or positions being hedged. Income and expense on nontrading
derivatives are recognised as they accrue over the life of the instruments as an adjustment to
interest receivable or interest payable. Credit derivatives, designated as non-trading and through which
credit risk is taken on, are reported as guarantees which best reflect the economic substance of those
transactions.
Where a non-trading derivative no longer represents a hedge because either the underlying non-trading
asset, liability or position has been derecognised, or transferred into a trading portfolio, or the
effectiveness of the hedge has been undermined, it is restated at fair value and any change in value is
taken directly to the Profit and Loss Account and reported within other operating income. Thereafter the
derivative is classified as trading or redesignated as a hedge of another non-trading item and accounted
for accordingly. In other circumstances where non-trading derivatives are reclassified as trading or
where non-trading derivatives are terminated, any resulting gains and losses are amortised over the
remaining life of the hedged asset, liability or position. Unamortised gains and losses are reported
within prepayments and accrued income and accruals and deferred income on the Balance Sheet.
Derivatives hedging anticipatory transactions are accounted for on a basis consistent with the relevant
type of transaction. Where anticipatory transactions do not actually occur, related derivatives are
restated at fair value and changes in value are taken directly to the Profit and Loss Account and
reported within other operating income. Where retained, such derivatives are reclassified as trading or
redesignated as a hedge of a non-trading item and accounted for accordingly.
Assets leased to customers
Assets leased to customers under agreements which transfer substantially all the risks and rewards
associated with ownership, other than legal title, are classified as finance leases. All other assets leased
to customers are classified as operating lease assets.
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PART 3: FINANCIAL INFORMATION ON ABBEY
The net investment in finance leases represents total minimum lease payments less gross earnings
allocated to future periods. Income from finance leases is credited to the Profit and Loss Account using
the actuarial after-tax method to give a constant periodic rate of return on the net cash investment.
Operating lease assets are reported at cost less depreciation. They are shown as a separate class of
tangible fixed asset because they are held for a different purpose to tangible fixed assets used in
administrative functions. In the Profit and Loss Account, income in respect of operating lease assets is
reported within other operating income, and depreciation on operating lease assets is reported within
depreciation and amortisation. Provision is made for any impairment in value, any such amount being
included in depreciation and amortisation.
Abbey selects the most appropriate method for recognition of income and depreciation according to the
nature of the operating lease. This is determined by various factors including the length of the lease in
proportion to the total economic life of the asset, any terms providing protection against early
cancellation, and the amount of income retained in the lease to cover future uncertainties in respect of
the realisation of residual values. For a large proportion of Abbey’s operating leases, the most
appropriate method of accounting for income and depreciation is the actuarial after-tax method. Other
operating leases are accounted for on a straight-line basis.
Leases
Assets held under finance leases and other similar contracts, which confer rights and obligations similar
to those attached to owned assets, are capitalised as tangible fixed assets and are depreciated over the
shorter of the lease terms and their useful lives. The capital elements of future lease obligations are
recorded as liabilities, while the interest elements are charged to the Profit and Loss Account over the
period of the leases to produce a constant rate of charge on the balance of capital repayments
outstanding. Hire purchase transactions are dealt with similarly except that assets are depreciated over
their useful lives.
Rentals under operating leases are charged on a straight-line basis over the lease term, even if the
payments are not made on such a basis. Benefits received and receivable as an incentive to sign an
operating lease are similarly spread on a straight-line basis over the lease term, except where the
period to the review date on which the rent is first expected to be adjusted to the prevailing market rate
is shorter than the full lease term, in which case the shorter period is used. Property rentals under
operating leases are generally subject to annual escalation clauses or regular rent reviews; increased
costs are charged from the increase date.
Securitisations
Certain Group undertakings have issued debt securities, or have entered into funding arrangements
with lenders, in order to refinance existing assets or to finance the purchase of certain portfolios of loan
and investment assets. These obligations are secured on the assets of the undertakings through nonrecourse
finance arrangements. Where the conditions for linked presentation, as stipulated in FRS 5,
are met, the proceeds of the note issues, to the extent that there is no recourse to Abbey, are presented
as ‘‘non-recourse finance’’ in Abbey’s balance sheet and shown deducted from the securitised assets,
which are presented as ‘‘Loans and advances to customers subject to securitisation’’ in Abbey’s
balance sheet.
Long-term assurance business
The value of the long-term assurance business represents the value of the shareholders’ interest in the
long-term assurance funds, which consists of the present value of the surplus expected to emerge in the
future from business currently in force, together with Abbey’s interest in the surplus retained within the
long-term assurance funds.
In determining this value, assumptions relating to investment returns, future mortality and morbidity,
persistency and levels of expenses are based on experience of the business concerned. The surplus
expected to emerge in the future is discounted at a risk-adjusted discount rate after provision has been
made for taxation.
To demonstrate the impact of the actual investment return compared to the expected return over a year,
an adjustment is made (shown as embedded value charges and rebasing on long-term assurance
business, in the Profit and Loss Account) identifying separately the value generated from the normal
operations of the business, from that relating to market conditions. With the exception of products with
material explicit investment guarantees, assumptions as to future investment returns (rather than
forward market rates) are used to assess the future value of both assets and liabilities, in all cases
projecting from the current market values. Where material investment guarantees are given, the market
forward rate is used to assess the value of the liability.
Changes in the value of long-term assurance business, are included in the Profit and Loss Account
taking account of the effective rate of tax where appropriate. The post-tax increase in the value is
treated as non-distributable until it emerges as part of the surplus arising during the year.
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PART 3: FINANCIAL INFORMATION ON ABBEY
The values of the assets and liabilities of the long-term assurance funds are based on the amounts
included in the financial statements of the Life Assurance companies. The values are determined in
accordance with the terms of the Companies Act 1985 (Insurance Companies Accounts)
Regulations 1993, adjusted for the purposes of inclusion in Abbey Financial Statements in order to be
consistent with Abbey’s accounting policies and presentation, where a separate asset is established to
account for the value of long-term assurance business.
Reserve capital instruments
Reserve capital instruments, included within other long-term capital instruments, are unsecured
securities, subordinated to the claims of unsubordinated and subordinated creditors. Reserve capital
instruments are treated as subordinated liabilities. Interest payable on the reserve capital instruments is
included within interest payable.
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PART 3: FINANCIAL INFORMATION ON ABBEY
1. Segmental analysis
a) By class of business
Notes to the Financial Statements
Banking Investment Abbey Group
Motor
Finance &
and and Financial General Infra- Whole-sale Litigation Group
Savings (1)
Protection (1)
Markets (1)
Insurance (1)
structure (1)
Banking (2)
Funding (2,3)
Other (2)
Total
£m £m £m £m £m £m £m £m £m
2004
Net interest income
Other income and
1,510 77 21 (4) (134) (70) 98 32 1,530
charges
Total operating
438 93 291 114 95 186 (24) (27) 1,166
income (loss)
Operating expenses
excluding
depreciation on
operating lease
1,948 170 312 110 (39) 116 74 5 2,696
assets
Depreciation and
impairment on
operating lease
(1,297) (89) (133) (56) (489) (30) (22) (38) (2,154)
assets
Provisions for bad and
— — — — — (151) — — (151)
doubtful debts
Provisions for
contingent liabilities
(34) 80 — — — 88 (89) (10) 35
and commitments
Amounts written off
fixed asset
(155) (32) — — (46) — — — (233)
investments
Profit/(loss) before
— — — — — 80 — — 80
taxation 462 129 179 54 (574) 103 (37) (43) 273
Total assets 79,645 28,838 50,073 144 812 6,956 646 2,627 169,741
Net assets 2,295 1,968 324 8 8 187 40 94 4,924
The average number of
staff employed by
the Group during the
year was as follows:
Employees 18,015 3,666 486 94 2,038 110 28 216 24,653
2003
Net interest income
Other income and
1,720 83 26 (5) (115) 22 245 86 2,062
charges
Total operating
427 (165) 223 126 90 (197) (58) 25 385
income (loss)
Operating expenses
excluding
depreciation on
operating lease
2,147 (82) 249 121 (25) (175) 187 111 2,533
assets
Depreciation and
impairment on
operating lease
(1,286) (58) (128) (89) (309) (107) (137) (83) (2,197)
assets
Provisions for bad and
— — — — — (250) (1) — (251)
doubtful debts
Provisions for
contingent liabilities
(130) (80) — — — (154) (99) (11) (474)
and commitments
Amounts written off
fixed asset
(14) — — — (71) (2) — (17) (104)
investments
Profit/(loss) before
(10) — — — — (183) — — (193)
taxation 707 (220) 121 32 (405) (871) (50) — (686)
Total assets 77,183 28,790 54,459 165 564 7,426 2,160 6,028 176,775
Net assets 2,325 1,846 425 8 8 362 127 230 5,331
The average number
of staff employed by
the Group during the
year was as follows:
Employees 16,378 3,708 511 139 3,999 374 1,170 759 27,038
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PART 3: FINANCIAL INFORMATION ON ABBEY
Banking Investment Abbey Group
Motor
Finance &
and and Financial General Infra- Whole-sale Litigation Group
Savings (1)
Protection (1)
Markets (1)
Insurance (1)
structure (1)
Banking (2)
Funding (2,3)
Other (2)
Total
£m £m £m £m £m £m £m £m £m
2002
Net interest income
Other income and
1,799 90 27 (3) (175) 327 464 55 2,584
charges
Total operating
454 (218) 231 149 106 378 (48) (71) 981
income (loss)
Operating expenses
excluding
depreciation on
operating lease
2,253 (128) 258 146 (69) 705 416 (16) 3,565
assets
Depreciation and
impairment on
operating lease
(1,131) (53) (110) (54) (1,074) (123) (546) (66) (3,157)
assets
Provisions for bad and
(23) — — — — (252) (5) — (280)
doubtful debts
Provisions for
contingent liabilities
(151) — — — 1 (247) (115) (2) (514)
and commitments
Amounts written off
fixed asset
(11) — — — (35) — (4) — (50)
investments
Profit/(loss) before
2 — — — — (513) — — (511)
taxation 939 (181) 148 92 (1,177) (430) (254) (84) (947)
Total assets 67,264 30,404 43,603 199 837 48,401 7,751 6,735 205,194
Net assets 2,060 1,764 386 9 14 1,387 393 337 6,350
The average number
of staff employed by
the Group during the
year was as follows:
Employees 15,882 3,486 539 206 4,788 495 1,503 1,284 28,183
The average number of staff employed in the year is calculated on a full-time equivalent basis.
Consistent with previous years, when arriving at the segmental analysis, certain adjustments have
been made. They include an adjustment to reflect the capital notionally absorbed by each segment,
based on the Group’s Financial Services Authority regulatory requirements, and an allocation across
the segments of the earnings on Group reserves.
(1) Collectively the Personal Financial Services group of reportable segments.
(2) Collectively the Portfolio Business Unit group of reportable segments.
(3) Motor Finance and Litigation Funding were previously known as First National.
b) By geographical region
Europe United Rest of Group
UK (excluding UK) States World Total
£m £m £m £m £m
2004
Net interest income 1,505 30 (5) — 1,530
Dividend income 1 — — — 1
Net fees and commissions receivable 524 1 — — 525
Dealing profits 266 — 2 — 268
Other operating income 358 14 — — 372
Total operating income
Operating expenses excluding depreciation on
2,654 45 (3) — 2,696
operating lease assets
Depreciation and impairment on operating lease
(2,114) (37) (3) — (2,154)
assets (151) — — — (151)
Provisions for bad and doubtful debts
Provisions for contingent liabilities and
36 (1) — — 35
commitments (233) — — — (233)
Amounts written off fixed asset investments 80 — — — 80
Profit/(loss) before taxation 272 7 (6) — 273
Total assets 168,465 — 1,276 — 169,741
Net assets 4,924 — — — 4,924
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PART 3: FINANCIAL INFORMATION ON ABBEY
Europe United Rest of Group
UK (excluding UK) States World Total
£m £m £m £m £m
2003
Net interest income 1,977 76 12 (3) 2,062
Dividend income 1 — — — 1
Net fees and commissions receivable 514 5 — — 519
Dealing profits 215 — 2 — 217
Other operating income (308) 42 — — (266)
Total operating income
Operating expenses excluding depreciation on
2,399 123 14 (3) 2,533
operating lease assets
Depreciation and impairment on operating lease
(2,138) (55) (4) — (2,197)
assets (251) — — — (251)
Provisions for bad and doubtful debts (467) (7) — — (474)
Provisions for contingent liabilities and commitments (104) — — — (104)
Amounts written off fixed asset investments (193) — — — (193)
Profit/(loss) before taxation (754) 61 10 (3) (686)
Total assets 174,027 1,867 881 — 176,775
Net assets 5,229 102 — — 5,331
2002
Net interest income 2,422 109 52 1 2,584
Dividend income 1 — — — 1
Net fees and commissions receivable 508 3 — — 511
Dealing profits 203 (2) 4 — 205
Other operating income 218 46 — — 264
Total operating income
Operating expenses excluding depreciation on
3,352 156 56 1 3,565
operating lease assets
Depreciation and impairment on operating lease
(3,013) (135) (8) (1) (3,157)
assets (280) — — — (280)
Provisions for bad and doubtful debts (517) 3 — — (514)
Provisions for contingent liabilities and commitments (50) — — — (50)
Amounts written off fixed asset investments (513) 2 — — (511)
Profit/(loss) before taxation (1,021) 26 48 — (947)
Total assets 188,888 8,705 7,465 136 205,194
Net assets 5,525 336 478 11 6,350
The above tables are based on the domicile of the office writing the business.
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PART 3: FINANCIAL INFORMATION ON ABBEY
2. Discontinued Operations
Continuing Discontinued Continuing Discontinued
Continuing Discontinued operations operations Total operations operations Total
operations operations Total 2003 2003 2003 2002 2002 2002
2004 2004 2004 (restated) (restated) (restated) (restated) (restated) (restated)
£m £m £m £m £m £m £m £m £m
Net interest income
Other income and
1,501 29 1,530 1,883 179 2,062 2,159 530 2,689
charges 1,125 (11) 1,114 828 (458) 370 982 (171) 811
Total Income
Total administrative
2,626 18 2,644 2,711 (279) 2,432 3,141 359 3,500
expenses
Depreciation of
tangible fixed assets
excluding operating
(2,030) (23) (2,053) (1,927) (87) (2,014) (1,670) (182) (1,852)
lease assets
Amortisation —
(80) (1) (81) (111) (1) (112) (95) (8) (103)
Goodwill
Impairment loss on
tangible & intangible
(20) — (20) (20) — (20) (53) (11) (64)
fixed assets
Operating expenses
excluding
depreciation on
operating lease
— — — (18) — (18) (781) — (781)
assets
Depreciation and
impairment on
operating lease
(2,130) (24) (2,154) (2,076) (88) (2,164) (2,599) (201) (2,800)
assets
Provisions for bad and
(151) — (151) (251) — (251) (278) (2) (280)
doubtful debts
Provisions for
contingent liabilities
36 (1) 35 (446) (28) (474) (436) (78) (514)
and commitments
Amounts written off
fixed assets
(202) — (202) (104) — (104) (46) (4) (50)
investments
Operating
— 80 80 (118) (75) (193) (123) (388) (511)
profit/(loss)
Income from
associated
179 73 252 (284) (470) (754) (341) (314) (655)
undertakings
Profit/loss on sale of
subsidiary
6 — 6 12 — 12 17 — 17
undertakings 46 — 46 447 (358) 89 46 2 48
Less: 2002 provision
Profit/(loss) on sale or
termination of an
— — — (357) 357 — — (357) (357)
operation
Profit/(loss) before
(31) — (31) — (33) (33) — — —
taxation 200 73 273 (182) (504) (686) (278) (669) (947)
Discontinued activities included:
) The business which managed Abbey’s debt securities portfolios in its Asset Management and
Risk Transfer businesses in the Wholesale Bank segment.
) European Banking operations discontinued in 2004 following the sale of Abbey National
France.
) Total operating income and charges in 2004 consisted of £73 million (2003: £(470) million
loss).
During 2003, Abbey discontinued the business which managed its debt securities portfolios in its
Asset Management and Risk Transfer businesses in the Wholesale Bank segment. Total charges
and operating income in 2003 consisted of £(470) million loss (2002: £(314) million loss).
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PART 3: FINANCIAL INFORMATION ON ABBEY
3. Other interest receivable and similar income
2003 2002
2004 (restated) (restated)
£m £m £m
On secured advances 4,055 3,726 3,805
On unsecured advances 350 458 707
On wholesale lending 79 340 490
On finance leases 95 142 202
On other interest earning assets and investments 259 185 178
4,838 4,851 5,382
Interest receivable on secured advances is net of £232 million (2003: £284 million, 2002:
£401 million) in respect of the charge for lending-related fees and discounts payable, which are
charged against interest income over the period of time in which Abbey has the right to recover
the incentives in the event of early redemption and it is normal practice to do so. The movements
on such incentives are as follows:
Group Company
Interest Interest
rate Cash- rate Cashdiscounts
backs Total discounts backs Total
£m £m £m £m £m £m
At 1 January 2004 18 107 125 18 107 125
Expenditure incurred in the year 147 23 170 147 23 170
Transfer to profit and loss account (160) (72) (232) (160) (72) (232)
At 31 December 2004 5 58 63 5 58 63
Interest due but not received on loans and advances in arrears has not been recognised in
interest receivable where collectibility is in doubt, but has been suspended. A table showing the
movements on suspended interest is included in note 9.
A presentational change has been made with respect to accrued interest as set out in the
accounting policy on dealing profits on page 84.
4. Interest payable
2003 2002
2004 (restated) (restated)
£m £m £m
On retail customer accounts 2,090 1,648 1,699
On other deposits and debt securities in issue 992 1,216 2,120
On subordinated liabilities including convertible debt 313 318 365
3,395 3,182 4,184
A presentational change has been made with respect to accrued interest as set out in the
accounting policy on dealing profits on page 84.
5. Dividend income
2004 2003 2002
£m £m £m
Income from equity shares 1 1 1
6. Dealing profits
2003 2002
2004 (restated) (restated)
£m £m £m
Securities 83 120 117
Interest rate, equity and credit derivatives 185 97 88
268 217 205
A presentational change has been made with respect to accrued interest as set out in the
accounting policy on dealing profits on page 84.
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PART 3: FINANCIAL INFORMATION ON ABBEY
7. Other operating (expenses)/income
2004 2003 2002
£m £m £m
Fee income from high LTV lending (see note 35) 37 45 85
Profit/(loss) on disposal of investment securities (168) (474) (88)
Profit/(loss) on disposal of equity shares — (34) 34
Profit/(loss) on disposal of fixed assets (34) 2 3
Income from operating leases 291 325 400
Other 118 (29) 76
244 (165) 510
8. Administrative expenses
2004 2003 2002
£m £m £m
Staff costs (1) :
Wages and salaries 791 782 769
Social security costs 65 64 62
Other pension costs 123 128 101
Property and equipment expenses:
979 974 932
Rents payable 114 115 121
Rates payable 10 28 28
Hire of equipment 3 3 4
Other property and equipment expenses 58 75 63
185 221 216
Other administrative expenses 889 819 704
2,053 2,014 1,852
(1) Excludes the following staff costs incurred by the Life Assurance businesses, which are charged to income
from long-term assurance business:
2004 2003 2002
£m £m £m
Staff costs:
Wages and salaries 76 89 82
Social security costs 5 6 6
Other pension costs 11 13 10
92 108 98
The aggregate remuneration for audit and other services payable to the auditors is analysed
below:
2004 2003
£m £m
Audit services
— statutory audit 4.1 4.1
— audit related regulatory reporting 2.1 0.9
6.2 5.0
Further assurance services
Tax services
1.9 1.3
— compliance services 0.1 0.1
— advisory services — 0.1
Other services
2.0 1.5
— other services 1.1 3.5
1.1 3.5
9.3 10.0
% Non-Audit: Audit Services 50 100
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PART 3: FINANCIAL INFORMATION ON ABBEY
No internal audit, valuation, litigation or recruitment services were provided by the external
auditors during these years.
Further assurance relates primarily to advice on accounting matters and accords with the
definition of ‘‘audit related fees’’ per Securities Exchange Commission guidance.
Tax services relate principally to advice on Abbey’s tax affairs.
The other service expenditure of £1.1 million in 2004 primarily relates to consulting services,
which were subject to pre-approval by the Audit and Risk Committee. The bulk of the expenditure
was in connection with services provided in respect of the Sarbanes-Oxley readiness project
including a dry run assessment of readiness.
The pre-approval of services provided by the external auditors is explained on page 73.
Included within the remuneration for audit services is the audit fee for Abbey National plc of
£0.7 million (2003: £0.9 million).
Of the fees payable to the Group’s auditors for audit services, £4 million (2003: £3.7 million;
2002: £3.8 million) related to the UK.
9. Provisions for bad and doubtful debts
On advances
secured on On other On On
residential secured unsecured wholesale
properties advances advances advances Total
£m £m £m £m £m
Group
At 1 January 2004
General 177 61 32 172 442
Specific 25 63 174 161 423
Disposals of subsidiary undertakings (28) (38) (4) — (70)
Exchange adjustments — — — — —
Transfer from profit and loss account (119) 98 74 (88) (35)
Irrecoverable amounts written off (4) (41) (136) (164) (345)
Recoveries 16 8 28 — 52
At 31 December 2004
Being for the Group:
67 151 168 81 467
General 58 3 35 14 110
Specific
At 1 January 2003
9 148 133 67 357
General 174 23 35 56 288
Specific 50 76 128 204 458
Disposals of subsidiary undertakings (20) (13) (61) — (94)
Exchange adjustments 3 3 — — 6
Transfer from profit and loss account 17 90 214 153 474
Irrecoverable amounts written off (26) (55) (148) (80) (309)
Recoveries 4 — 38 — 42
At 31 December 2003
Being for the Group:
202 124 206 333 865
General 177 61 32 172 442
Specific
At 1 January 2002
25 63 174 161 423
General 150 22 36 — 208
Specific 62 72 156 — 290
Acquisition of subsidiary undertakings 6 1 1 — 8
Disposal of subsidiary undertakings — — (1) — (1)
Transfer from investment security provisions — — — 16 16
Exchange adjustments 1 2 — (3) —
Transfer from profit and loss account 23 26 218 247 514
Irrecoverable amounts written off (27) (33) (336) — (396)
Recoveries 9 9 89 — 107
At 31 December 2002
Being for the Group:
224 99 163 260 746
General 174 23 35 56 288
Specific 50 76 128 204 458
131

PART 3: FINANCIAL INFORMATION ON ABBEY
On advances
secured on On other On On
residential secured unsecured wholesale
properties advances advances advances Total
£m £m £m £m £m
Company
At 31 December 2004
General 54 3 35 — 92
Specific
At 31 December 2003
7 4 130 — 141
General 142 3 32 — 177
Specific
At 31 December 2002
5 8 87 — 100
General 119 — 24 — 143
Specific
Total Group provisions at:
At 31 December 2004
11 6 76 — 93
UK 67 151 168 81 467
Non-UK
At 31 December 2003
— — — — —
UK 173 96 202 333 804
Non-UK
At 31 December 2002
29 28 4 — 61
UK 189 61 156 260 666
Non-UK 35 38 7 — 80
Capital provisions as a percentage of loans and advances to customers:
On advances
secured on On other On On
residential secured unsecured wholesale
properties advances advances advances Total
% % % % %
Group
At 31 December 2004
UK 0.1 5.1 4.4 9.4 0.7
Non-UK
At 31 December 2003
0.3 — 67.3 — 0.4
UK 0.3 3.4 4.2 13.4 1.0
Non-UK
At 31 December 2002
1.6 58.5 2.7 — 3.1
UK 0.3 1.6 2.3 3.0 0.8
Non-UK
Company
1.1 59.9 5.9 — 2.4
At 31 December 2004 0.1 0.9 4.6 — 0.4
At 31 December 2003 0.2 0.8 3.7 — 0.4
At 31 December 2002 0.2 0.6 3.5 — 0.4
132

PART 3: FINANCIAL INFORMATION ON ABBEY
Analysis of movements on suspended interest:
On advances
secured on On other On
residential secured unsecured
properties advances advances Total
£m £m £m £m
Group
At 1 January 2004 14 32 4 50
Disposal of subsidiary undertakings (12) (29) (1) (42)
Exchange adjustments — — — —
Amounts suspended in the period 2 1 4 7
Irrecoverable amounts written off (2) (2) (4) (8)
At 31 December 2004 2 2 3 7
At 1 January 2003 31 37 8 76
Disposal of subsidiary undertakings (12) — (3) (15)
Exchange adjustments 2 2 — 4
Amounts suspended in the period 2 2 5 9
Irrecoverable amounts written off (9) (9) (6) (24)
At 31 December 2003 14 32 4 50
At 1 January 2002 39 47 10 96
Exchange adjustments 2 3 — 5
Acquisitions of subsidiary undertakings 3 — — 3
Amounts suspended in the period — 2 8 10
Irrecoverable amounts written off (13) (15) (10) (38)
At 31 December 2002
Company
31 37 8 76
At 31 December 2004 2 2 3 7
At 31 December 2003 1 2 3 6
At 31 December 2002 13 2 4 19
The value of loans and advances on which interest has been suspended is as follows:
On advances
secured on On other On
residential secured unsecured
properties advances advances Total
£m £m £m £m
Group
At 31 December 2004
Loans and advances to customers 43 30 140 213
Provisions on these amounts
At 31 December 2003
(7) — (109) (116)
Loans and advances to customers 90 117 111 318
Provisions on these amounts
At 31 December 2002
(21) (27) (72) (120)
Loans and advances to customers 228 146 229 603
Provisions on these amounts
Company
At 31 December 2004
(54) (60) (118) (232)
Loans and advances to customers 47 4 140 191
Provisions on these amounts
At 31 December 2003
(7) (3) (109) (119)
Loans and advances to customers 38 6 95 139
Provisions on these amounts
At 31 December 2002
(4) (1) (69) (74)
Loans and advances to customers 100 2 90 192
Provisions on these amounts (7) — (63) (70)
133

PART 3: FINANCIAL INFORMATION ON ABBEY
Analysis of Group non-performing loans and advances
The following table presents loans and advances which are classified as ‘‘non-performing’’. No
interest is suspended or provisions made in respect of such cases where the Group does not
expect to incur losses.
2004 2003 2002
£m £m £m
Loans and advances on which a proportion of interest has been suspended and/or
on which specific provision has been made
Loans and advances 90 days overdue on which no interest has been suspended
422 1,632 669
and on which no specific provision has been made 801 1,114 1,386
Non-accruing loans and advances 1 30 22
1,224 2,776 2,077
Non-performing loans and advances as a percentage of total loans and advances to
customers 1.48% 3.25% 2.36%
Provisions as a percentage of total non-performing loans and advances 38.19% 31.14% 35.95%
10. Tax on profit/(loss) on ordinary activities
The charge or credit for taxation comprises:
2004 2003 2002
£m £m £m
UK Corporation tax:
Current year 78 57 252
Prior years 8 (112) (31)
Double tax relief — (7) —
Share of associated undertakings taxation 3 5 5
Overseas taxation — 11 8
Total current tax (credit)/charge
Deferred tax:
89 (46) 234
Timing differences, origination and reversal 55 4 (82)
144 (42) 152
Factors affecting the charge for taxation for the year:
2004 2003 2002
£m £m £m
Profit/(loss) on ordinary activities before tax 273 (686) (947)
Taxation at UK corporation tax rate of 30% of (2003: 30%, 2002: 30%) 82 (206) (284)
Effect of non-allowable provisions and other non-equalised items 55 218 38
Amortisation and impairment of goodwill 4 11 360
Capital allowances for the period in excess of depreciation (46) (61) 42
Provisions and short term timing differences (19) 98 74
Effect of non-UK profits and losses 5 6 36
Adjustment to prior year provisions 8 (112) (31)
Effect of loss utilisation — — (1)
Current tax charge for the year 89 (46) 234
Factors that may affect future period’s tax charges:
Future profits in offshore subsidiaries where rates of tax are lower than the standard UK
corporation tax rate will continue to reduce the Group tax charges. However any dividends
received from these offshore subsidiaries will increase future Group tax charges.
Future profits or losses on the sale of trading subsidiaries should not be subject to taxation in the
UK under the substantial shareholding exemption and this will have a corresponding impact on
the future Group tax charges.
Any future non-allowable provisions and other non-equalised items will increase the future Group
tax charges.
11. Loss/profit on ordinary activities after tax
The loss after tax of the Company attributable to the shareholders is £231 million (2003: loss
£167 million; 2002: loss £497 million). As permitted by Section 230 of the Companies Act 1985,
134

PART 3: FINANCIAL INFORMATION ON ABBEY
the Company’s Profit and Loss Account has not been presented in these Consolidated Financial
Statements.
12. Dividends
2004 2003 2002
Pence Pence Pence
per per per 2004 2003 2002
share share share £m £m £m
Ordinary shares (equity):
Interim (paid) 8.33 8.33 17.65 122 120 255
Final (proposed) — 16.67 7.35 — 244 107
Special (paid) 31.00 — — 461 — —
39.33 25.00 25.00 583 364 362
Preference shares (non-equity) 48 60 62
631 424 424
13. Earnings/(loss) per ordinary share
2004 2003 2002
Profit/(loss) attributable to the shareholders of Abbey National plc (£m) 80 (699) (1,161)
Preference dividends (£m) (48) (60) (62)
Profit/(loss) attributable to the ordinary shareholders of Abbey National plc (£m) 32 (759) (1,223)
Weighted average number of ordinary shares in issue during the year — basic (million) 1,460 1,448 1,442
Dilutive effect of share options outstanding (million) 9 9 8
Weighted average number of ordinary shares in issue during the year — diluted (million) 1,469 1,457 1,450
Basic earnings/(loss) per ordinary share (pence) 2.2p (52.4p) (84.8p)
Diluted earnings/(loss) per ordinary share (pence) 2.2p (52.4p) (84.3p)
In accordance with UITF 13, ‘‘Accounting for ESOP Trusts’’, shares held in trust in respect of
certain incentive schemes have been excluded from the calculation of earnings per ordinary
share as the trustees have waived dividend and voting rights.
14. Treasury bills and other eligible bills
Group
2004 2004 2003 2003 2002 2002
Book Market Book Market Book Market
value value value value value value
£m £m £m £m £m £m
Treasury bills 1,922 1,922 1,560 1,560 1,159 1,159
Other eligible bills 68 68 71 71 324 324
1,990 1,990 1,631 1,631 1,483 1,483
Treasury bills and other eligible bills are held for trading and liquidity management purposes.
135

PART 3: FINANCIAL INFORMATION ON ABBEY
15. Loans and advances to banks
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Items in the course of collection 94 171 176 85 164 167
Amounts due from subsidiaries — — — 3,381 3,925 4,411
Purchase and resale agreements 6,397 5,034 3,461 — — —
Other loans and advances 3,657 1,950 2,964 139 129 138
Repayable:
10,148 7,155 6,601 3,605 4,218 4,716
On demand 2,887 3,089 2,703 209 142 476
In not more than 3 months 7,197 4,022 3,319 85 232 167
In more than 3 months but not more than 1 year 63 11 440 322 546 261
In more than 1 year but not more than 5 years 1 33 132 740 1,337 871
In more than 5 years — — 7 2,249 1,961 2,941
10,148 7,155 6,601 3,605 4,218 4,716
Banking business 3,068 1,031 3,127 3,605 4,218 4,716
Trading business 7,080 6,124 3,474 — — —
10,148 7,155 6,601 3,605 4,218 4,716
The loans and advances to banks in the above table have the following interest rate structures:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Fixed rate 7,854 5,225 3,863 136 115 135
Variable rate 2,187 1,754 2,562 3,375 3,939 4,414
Items in the course of collection (non-interest bearing) 107 176 176 94 164 167
10,148 7,155 6,601 3,605 4,218 4,716
The Group’s policy is to hedge fixed rate loans and advances to banks to floating rates using
derivative instruments, or by matching with other on-balance sheet interest rate exposures. See
note 51, Derivatives — Non-trading derivatives, for further information.
16. Loans and advances to customers
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Advances secured on residential properties 76,012 75,014 68,929 75,114 71,208 63,224
Purchase and resale agreements 11,257 9,372 3,100 1,083 — —
Other secured advances 1,642 2,849 3,479 3,226 1,300 956
Unsecured advances 3,413 4,441 6,111 — 2,797 2,529
Wholesale lending 880 2,115 8,674 — — —
Collateralised and guaranteed mortgage loans 5 48 130 — — —
Amounts due from subsidiaries — — — 434 765 2,463
Repayable:
93,209 93,839 90,423 79,857 76,070 69,172
On demand or at short notice 9,391 10,844 4,747 1,859 1,648 1,876
In not more than 3 months 6,240 3,971 8,318 706 946 762
In more than 3 months but not more than 1 year 2,482 4,513 4,003 1,930 2,083 1,504
In more than 1 year but not more than 5 years 11,347 12,899 13,044 10,270 10,720 7,525
In more than 5 years 64,216 62,477 61,057 65,325 60,950 57,741
Less: provisions (see note 9) (467) (865) (746) (233) (277) (236)
93,209 93,839 90,423 79,857 76,070 69,172
Banking business 81,852 84,234 87,134 79,857 76,070 69,172
Trading business 11,357 9,605 3,289 — — —
93,209 93,839 90,423 79,857 76,070 69,172
Included within Group unsecured advances in 2003 were two contingent loans owed by the withprofit
sub funds of the long-term business funds of Scottish Mutual Assurance plc and Scottish
Provident Limited to Abbey National Scottish Mutual Assurance Holdings Limited of £571 million
136

PART 3: FINANCIAL INFORMATION ON ABBEY
and £623 million respectively. These loans include accrued interest of £75 million and £80 million
and were subject to provisions of £76 million and £4 million, respectively. These loans were
repaid in the course of 2004. See note 21, long-term assurance business, for further information.
The loans and advances to customers included in the above table have the following interest rate
structures:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Fixed rate 32,502 30,877 25,539 18,446 16,590 13,584
Variable rate 61,174 63,827 65,630 61,644 59,757 55,824
Provisions (467) (865) (746) (233) (277) (236)
93,209 93,839 90,423 79,857 76,070 69,172
The Group’s policy is to hedge fixed rate loans and advances to customers to floating rates using
derivative instruments, or by matching with other on-balance sheet interest rate exposures. See
note 51, Derivatives — Non-trading derivatives for further information.
17. Loans and advances to customers subject to securitisation
Loans and advances to customers include portfolios of residential mortgage loans which are
subject to non-recourse finance arrangements. These loans have been purchased by, or
assigned to, special purpose securitisation companies (‘‘Securitisation Companies’’), and have
been funded primarily through the issue of mortgage-backed securities (‘‘Securities’’). No gain
or loss has been recognised as a result of these sales. These Securitisation Companies are
consolidated and included in the Group financial statements as quasi-subsidiaries.
Abbey National plc and its subsidiaries are under no obligation to support any losses that may be
incurred by the Securitisation Companies or holders of the Securities except as described below,
and do not intend to provide such further support. Carfax Insurance Limited, a wholly owned
subsidiary of Abbey National plc, provides mortgage indemnity guarantee insurance to Abbey
National plc. Abbey National plc has assigned its interest under each mortgage indemnity
guarantee policy to the Securitisation Companies, to the extent that it relates to loans comprised
in the current portfolio. Since 1 January 2002 Abbey National plc has not taken out mortgage
indemnity guarantee insurance in relation to new mortgage loans. Holders of the Securities are
only entitled to obtain payment of principal and interest to the extent that the resources of the
Securitisation Companies are sufficient to support such payments, and the holders of the
Securities have agreed in writing not to seek recourse in any other form.
Abbey National plc receives payments from the Securitisation Companies in respect of fees for
administering the loans, and payment of deferred consideration for the sale of the loans. In
addition, Abbey National plc has made interest bearing subordinated loans to Holmes Financing
(No.1) plc, Holmes Financing (No.2) plc, Holmes Financing (No.3) plc, Holmes Financing (No.4)
plc, Holmes Financing (No.5) plc, Holmes Financing (No.6) plc, Holmes Financing (No.7) plc and
Holmes Financing (No.8) plc. Abbey National plc does not guarantee the liabilities of the
subsidiary which provides mortgage indemnity guarantee insurance. Abbey National plc is
contingently liable to pay to the subsidiary any unpaid amounts in respect of share capital. At a
Group level, a separate presentation of assets and liabilities is adopted to the extent of the
amount of insurance cover provided by the subsidiary.
Abbey National Treasury Services plc has entered into an interest rate swap with Holmes
Funding Limited. This swap in effect converts a proportion of the fixed and variable interest flows
receivable from customers into LIBOR based flows to match the interest payable on the
Securities.
Abbey National plc has no right or obligation to repurchase the benefit of any securitised loan,
except if certain representations and warranties given by Abbey National plc at the time of
transfer are breached.
In April 2004 Holmes Funding Limited acquired, at book value, a beneficial interest in the trust
property vested in Holmes Trustees Limited. This further beneficial interest of £4.0 billion was
acquired through borrowing from Holmes Financing (No.8) plc, which funded its advance to
Holmes Funding Limited, principally through the issue of mortgage backed securities. The
remaining share of the beneficial interest in residential mortgage loans held by Holmes Trustees
Limited belongs to Abbey National plc, and amounts to £15.8 billion at 31 December 2004.
137

PART 3: FINANCIAL INFORMATION ON ABBEY
The balances of assets securitised and non-recourse finance at 31 December 2004 were as
follows:
Gross Non- Subordinated
assets recourse loans made
Date of securitised finance by the Group
Securitisation company securitisation £m £m £m
Holmes Financing (No.1) plc 19 July 2000 1,520* 1,537 4
Holmes Financing (No.2) plc 29 November 2000 655* 856 4
Holmes Financing (No.3) plc 23 May 2001 533* 1,322 6
Holmes Financing (No.4) plc 5 July 2001 1,546* 1,791 3
Holmes Financing (No.5) plc 8 November 2001 901* 992 2
Holmes Financing (No.6) plc 7 November 2002 2,704* 2,878 2
Holmes Financing (No.7) plc 20 March 2003 1,540* 1,836 1
Holmes Financing (No.8) plc 1 April 2004 3,769 3,886 12
Retained interest in Holmes Trustees Limited 15,808** — —
28,976 15,098 34
* Represents the interest in the trust property at book value held by Holmes Funding Limited related to the debt issued
by these securitisation companies.
** As part of the master structure trust agreement, a certain proportion of funds is required to be retained in the trust.
The securitisation vehicles have placed deposits totalling £2,150 million representing cash which
has been accumulated to finance the redemption of a number of securities issued by the
securitisation companies. The securitisation companies’ contractual interest in advances secured
on residential property is therefore reduced by this amount.
Abbey National plc does not own directly, or indirectly, any of the share capital of any of the
above securitisation companies or their parents.
A summarised profit and loss account for the years ended 31 December 2004, 2003 and 2002
and an aggregated balance sheet at 31 December 2004 and 2003 for the above companies is
set out below:
138

PART 3: FINANCIAL INFORMATION ON ABBEY
Profit and loss account for the year ended 31 December
2004 2003 2002
£m £m £m
Net interest income 15 3 7
Other operating expenses (9) (7) (8)
Administrative expenses (1) (1) —
Provisions 19 (6) (7)
Profit/(loss) for the financial period 24 (11) (8)
Prior years have been restated for a reallocation between administrative expenses and other
operating expenses
Cash flow statement for period ended 31 December
2004 2003 2002
£m £m £m
Net cash outflow from operating activities (2) — (5)
Net cash outflow from returns on investment and servicing of finance — — —
Total taxation paid 2 — —
Net cash inflow/(outflow) from capital expenditure and financing investment — — —
Net cash outflow before financing — — —
Net cash inflow from financing — — —
Net (decrease)/increase in cash — — (5)
Balance sheet as at 31 December
2004 2003 2002
£m £m £m
Loans and advances to banks 2,982 1,504 2,113
Loans and advances to customers 13,168 14,053 14,636
Prepayments 101 72 67
Total assets 16,251 15,629 16,816
Deposits by banks 540 547 1,050
Debt securities in issue 15,510 14,895 15,595
Accruals and deferred income 203 210 188
Profit and loss account (2) (23) (17)
Total liabilities 16,251 15,629 16,816
18. Net investment in finance leases
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Amounts receivable 1,983 4,241 6,073 3 21 15
Less: deferred income (835) (1,668) (2,626) — (3) (2)
1,148 2,573 3,447 3 18 13
Repayable:
In not more than 3 months 37 31 72 — 1 —
In more than 3 months but not more than 1 year 12 66 75 — 4 —
In more than 1 year but not more than 5 years 84 537 596 3 13 12
In more than 5 years 1,015 1,939 2,704 — — 1
1,148 2,573 3,447 3 18 13
Cost of assets acquired for the purpose of letting under finance
leases in the year — 176 68 — 11 —
Gross rentals receivable 135 611 451 — 21 —
Commitments as lessor for the purchase of equipment for use in
finance leases 3 — 41 — — —
Amounts outstanding subject to a sub-participation — 14 — — —
Provisions for impairment relate to small ticket leasing assets.
139

PART 3: FINANCIAL INFORMATION ON ABBEY
19. Debt securities
Group
2004 2004 2003 2003 2002 2002
Book Market Book Market Book Market
value value value value value value
£m £m £m £m £m £m
Investment securities
Issued by public bodies:
Government securities — — 125 125 1,457 1,638
Other public sector securities 28 28 28 28 966 983
Issued by other issuers:
28 28 153 153 2,423 2,621
Bank and building society certificates of deposit 317 317 204 204 1,011 1,022
Other debt securities 361 379 1,574 1,484 30,042 29,460
678 696 1,778 1,688 31,053 30,482
Less: provisions (34) — (178) — (501) —
Sub-total — Non-trading book
Other securities
Issued by public bodies:
672 724 1,753 1,841 32,975 33,103
Government securities
Issued by other issuers:
3,359 3,359 4,374 4,374 5,875 5,875
Bank and building society certificates of deposit 11,170 11,170 15,811 15,811 14,322 14,322
Other debt securities 7,482 7,482 8,390 8,390 6,635 6,635
18,652 18,652 24,201 24,201 20,957 20,957
Sub-total — Trading book 22,011 22,011 28,575 28,575 26,832 26,832
Total 22,683 22,735 30,328 30,416 59,807 59,935
Company
2004 2004 2003 2003 2002 2002
Book Market Book Market Book Market
value value value value value value
£m £m £m £m £m £m
Investment securities
Issued by public bodies:
Other public sector securities
Issued by other issuers:
28 28 28 28 28 28
Other debt securities 377 377 452 452 1,366 1,366
405 405 480 480 1,394 1,394
The Company held no securities for purposes other than investment. The investment securities
held by the Company include subordinated investments in subsidiaries of £377 million
(2003: £432 million) and are included within Other debt securities. Investment securities held by
the Group include £nil (2003: £20 million) of subordinated investments in associates and are
included within Other debt securities.
All of the securities held by the Company are unlisted.
140

PART 3: FINANCIAL INFORMATION ON ABBEY
Analysed by listing status:
Group
2004 2004 2003 2003 2002 2002
Book Market Book Market Book Market
value value value value value value
£m £m £m £m £m £m
Investment securities
Listed in the UK 370 422 701 673 4,836 4,901
Listed or registered elsewhere 255 257 161 223 24,414 24,505
Unlisted 47 45 891 945 3,725 3,697
Sub-total — Non-trading book
Other securities
672 724 1,753 1,841 32,975 33,103
Listed in the UK 1,199 1,199 2,015 2,015 1,264 1,264
Listed or registered elsewhere 6,414 6,414 7,644 7,644 4,982 4,982
Unlisted 14,398 14,398 18,916 18,916 20,586 20,586
Sub-total — Trading book 22,011 22,011 28,575 28,575 26,832 26,832
Total 22,683 22,735 30,328 30,416 59,807 59,935
Book value of debt securities analysed by maturity:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Due within 1 year 12,996 20,644 21,169 28 150 28
Due in more than 1 year but not more than 5 years 4,790 3,712 12,675 — — 10
Due in more than 5 years but not more than 10 years 3,920 4,427 13,164 — 32 575
Due in more than 10 years 1,011 1,723 13,300 377 298 781
Less: provisions (34) (178) (501) — — —
22,683 30,328 59,807 405 480 1,394
The movement on debt securities held for investment purposes was as follows:
Group
Cost Provisions
Net book
value
£m £m £m
At 1 January 2004 1,931 (178) 1,753
Exchange adjustments (148) — (148)
Additions 1,476 — 1,476
Disposals (1,331) 93 (1,238)
Redemptions and maturities (1,239) — (1,239)
Transfers to other securities (net) — (16) (16)
Transfer from profit and loss account — 67 67
Net of amortisation of discounts (premiums) 17 — 17
At 31 December 2004 706 (34) 672
At 1 January 2003 33,476 (501) 32,975
Exchange adjustments (1,469) 22 (1,447)
Additions 1,436 — 1,436
Disposals (24,188) 346 (23,842)
Redemptions and maturities (3,175) — (3,175)
Transfers to other securities (net) (4,141) — (4,141)
Transfer from profit and loss account — (45) (45)
Net of amortisation of discounts (premiums) (8) — (8)
At 31 December 2003 1,931 (178) 1,753
At 1 January 2002 48,286 (357) 47,929
Exchange adjustments (2,915) 25 (2,890)
Additions 15,500 — 15,500
Disposals (12,106) 203 (11,903)
Redemptions and maturities (14,977) — (14,977)
Transfer to provisions for bad and doubtful debts (note 8) — 16 16
Transfers to other securities (net) (309) — (309)
Transfer from profit and loss account — (388) (388)
Net of amortisation of discounts (premiums) (3) — (3)
At 31 December 2002 33,476 (501) 32,975
141

PART 3: FINANCIAL INFORMATION ON ABBEY
Company
Cost Provisions
Net book
value
£m £m £m
At 1 January 2004 480 — 480
Exchange Adjustments (43) — (43)
Disposals (32) — (32)
At 31 December 2004 405 — 405
At 1 January 2003 1,394 — 1,394
Additions 20 — 20
Disposals (934) — (934)
At 31 December 2003 480 — 480
At 1 January 2002 2,002 — 2,002
Exchange adjustments (99) — (99)
Additions 29 — 29
Disposals (538) — (538)
At 31 December 2002 1,394 — 1,394
The total net book value of debt securities held for investment purposes at 31 December 2004
includes net unamortised premiums/discounts of £34 million (2003: £39 million).
Included within debt securities are £nil (2003: £5 million) of subordinated amounts due from third
parties, which comprise debt securities issued by financial services companies which qualify as
regulatory capital for the issuing company. There are hedges in place in respect of the majority of
fixed rate investment securities whereby the rise or fall in their market value, due to interest rate
movements, will be offset by a substantially equivalent reduction or increase in the value of the
hedges. The Group also purchases credit protection by entering into credit derivative
transactions such as credit default swaps and total return swaps with highly rated banks. In 2003
the Group had purchased protection on a £707 million portfolio of high yield assets. Protection
had been purchased from a third party bank, which has in turn purchased protection from
Newark (a synthetic Collateral Debt Obligation) and super senior protection from a super senior
Monoline insurer. The Group’s exposure under the structure was £91 million. This consisted of a
junior note exposure (net of provisions) of £31 million to Newark and a potential exposure with
respect to credit spread of £60 million. This structure was unwound in the course of 2004.
In prior years Investment debt securities included asset backed and mortgage-backed securities
sold to various bankruptcy-remote special purpose vehicles.
The special purpose vehicles were owned directly by charitable trusts and therefore were not
legal subsidiaries of the Group. However they were consolidated into the Group on the basis that
substantially all the rewards inherent in those entities were retained in the Group.
The debt security acquisitions by these special purpose vehicles were funded primarily through
the issue of commercial paper to the market. These vehicles were disposed in the course of
2003.
An aggregated summary profit and loss account for the years ended 31 December 2004, 2003
and 2002, and an aggregated balance sheet as at 31 December 2004 and 2003 for these entities
are shown below.
Profit and loss account for the year ended 31 December
2004 2003 2002
£m £m £m
Interest receivable — 33 137
Interest payable — (29) (115)
Net interest income — 4 22
Profit on disposal of investment debt securities — 4 2
Profit for the financial year — 8 24
Amounts charged to entities of the Group — (8) (24)
Retained profits — — —
142

PART 3: FINANCIAL INFORMATION ON ABBEY
Balance sheet as at 31 December
2004 2003 2002
£m £m £m
Investment debt securities — — 3,547
Prepayments and accrued income — — 20
Total assets — — 3,567
Debt securities in issue — — 3,556
Accruals and deferred income — — 11
Total liabilities — — 3,567
20. Equity shares and other similar interests
Group
2004 2004 2003 2003 2002 2002
Book Market Book Market Book Market
value value value value value value
£m £m £m £m £m £m
Listed in the UK 502 503 1,164 1,164 123 112
Listed elsewhere 663 664 93 93 41 48
Unlisted 11 11 376 376 799 811
1,176 1,178 1,633 1,633 963 971
Banking business 30 32 394 394 893 901
Trading business 1,146 1,146 1,239 1,239 70 70
1,176 1,178 1,633 1,633 963 971
Company
2004 2004 2003 2003 2002 2002
Book Market Book Market Book Market
value value value value value value
£m £m £m £m £m £m
Unlisted 1 1 2 2 2 2
The movement on equity shares and other similar interests held for investment purposes was as
follows:
Group
Cost Provisions
Net book
value
£m £m £m
At 1 January 2004 655 (261) 394
Exchange adjustments (14) 5 (9)
Additions 210 — 210
Disposals (808) 244 (564)
Impairments (1) — (1)
At 31 December 2004 42 (12) 30
At 1 January 2003 1,021 (128) 893
Exchange adjustments (12) 5 (7)
Additions 638 — 638
Disposals (992) 10 (982)
Impairments — (148) (148)
At 31 December 2003 655 (261) 394
At 1 January 2002 822 (10) 812
Exchange adjustments (17) 5 (12)
Additions 1,124 — 1,124
Disposals (908) — (908)
Impairments — (123) (123)
At 31 December 2002 1,021 (128) 893
There was a small movement on Company equity shares and other similar interests held for
investment purposes during the year. The total amount held was £1 million (2003: £2 million).
There were no provisions. These amounts exclude investment in subsidiary undertakings.
143

PART 3: FINANCIAL INFORMATION ON ABBEY
21. Long-term assurance business
The value of the long-term assurance business is as follows:
2004 2003 2002
£m £m £m
Gross of tax basis:
Income from long-term assurance business before embedded value charges and rebasing 108 176 321
Embedded value charges and rebasing (32) (378) (632)
Income from long-term assurance business after embedded value charges and rebasing 76 (202) (311)
Net of tax basis:
Income from long-term assurance business before embedded value charges and rebasing 78 110 252
Embedded value charges and rebasing (94) (369) (480)
Income from long-term assurance business after embedded value charges and rebasing (16) (259) (228)
The assets and liabilities of the long-term assurance funds are presented separately from those
of other businesses in order to reflect the different nature of the shareholders’ interest in them.
The value of the long-term assurance business is calculated by discounting the proportion of
surplus which is projected to accrue to shareholders in future years from business currently in
force, and adding the shareholders’ interest in the surplus retained within the long-term
assurance funds. The basis on which this value is determined is reviewed regularly in the light of
the experience of the business and expectations regarding future economic conditions.
The principal long-term economic assumptions used are as follows:
2004 2003 2002
% % %
Risk adjusted discount rate (net of tax) 7.25 7.5 8.5
Return on equities (gross of tax — pension business) 7.0 7.25 7.0
Return on equities (gross of tax — life business) 7.0 7.25 7.5
Return on gilts (gross of tax) 4.5 4.75 5.0
Return on corporate bonds (gross of tax) 5.0 5.25 5.75
Return on property 6.5 6.75
Inflation (indexation) 2.75 2.75 2.5
Inflation (expenses) 3.75 3.75 3.5
Embedded Value rebasing and other adjustments
The embedded value rebasing is made up of two components:
Investment assumptions and variances
The variance represents the adjustment to allow for differences between actual market
performance and our assumptions set out at the beginning of the year. Overall investment
assumptions and variances have improved by £101 million. The improvement shows that
investment performance and market movements were in closer alignment with assumptions. In
Scottish Mutual, the cost of £19 million principally reflects realised losses and an adjustment to
the assumed value of future profits following changes in asset mix during the period. The positive
£7 million Scottish Provident investment variance is largely driven by a change in asset mix in the
non-profit sub-fund out of cash and into bonds.
Other one off adjustments
The 2003 results included provisions in relation to the realistic balance sheet position of the
funds. The 2004 results include a partial release of provisions no longer required together with a
reallocation of provisions between entities in the long-term fund, excluding the shareholders’
fund.
Movement in the embedded value asset is calculated as follows:
2004 2003 2002
£m £m £m
At 1 January 2,272 2,316 1,662
Increase in value of long-term business after tax 78 110 252
Embedded value rebasing and other adjustments (94) (369) (480)
Capital injections — 272 913
Surplus transferred to/(from) long-term business funds 712 (57) (31)
At 31 December 2,968 2,272 2,316
144

PART 3: FINANCIAL INFORMATION ON ABBEY
The assets and liabilities of the long-term assurance funds are:
2004 2003 2002
£m £m £m
Investments 17,913 19,570 19,990
Assets held to cover linked liabilities 6,782 7,041 6,628
Debtors and prepayments 2,893 3,465 3,814
Other assets 2,656 1,564 1,592
Total assets 30,244 31,640 32,024
Less: Attributable to shareholders 3,064 3,304 2,613
Total assets attributable to policyholders 27,180 28,336 29,411
Technical provisions 16,601 18,729 20,069
Technical provisions for linked liabilities 6,998 7,142 6,699
Fund for future appropriations 898 (769) (995)
Other creditors 2,683 3,234 3,638
Total liabilities attributable to policyholders 27,180 28,336 29,411
These balances are prepared in accordance with applicable UK Accounting Standards under the
historical cost accounting rules modified to include revaluation of investments. The accounts
have also been prepared in accordance with the Statement of Recommended Practice on
Accounting for Insurance Business issued by the Association of British Insurers in November
2003.
The amounts of these assets, which are valued at market value, and liabilities of the long-term
assurance funds included in the consolidated balance sheet are based upon the draft life
assurance balance sheets prepared in compliance with the special provisions relating to
insurance groups of section 255A and Schedule 9A to the Companies Act 1985.
Included within other creditors in 2003 above are two contingent loans owed by the with-profit
sub funds of the long-term business funds of Scottish Mutual Assurance plc and Scottish
Provident Limited to Abbey National Scottish Mutual Assurance Holdings Limited of £500 million
and £619 million, respectively. Accrued interest on these loans amounted to £75 million and
£80 million, respectively.
The capital structure of the Life Companies changed significantly in July 2004 following the
completion of Abbey’s review of the with-profits funds in Scottish Mutual and Scottish Provident
and its subsequent agreement with the Financial Services Authority. Both contingent loans were
repaid with no incremental capital or adverse profit impact over and above that already reported.
A significant contribution was made to the Scottish Mutual with-profits fund, which was covered
by provisions set up in prior years. In addition, the hedging programme was extended and moved
into the with-profits funds to allow them to stand independently, reducing policyholder and
shareholder risk.
22. Interests and shares in associated undertakings
The movement in interests in associated undertakings for 2004 and 2003 was as follows:
Group Company
£m £m
At 1 January 2004 39 32
Additions — —
Dividend Received — (20)
Share of current year net assets (14) —
At 31 December 2004 25 12
At 1 January 2003 51 —
Additions — 51
Dividend Received — (19)
Share of current year net assets (12) —
At 31 December 2003 39 32
At 1 January 2002 59
Additions —
Dividend Received (1)
Share of current year net assets (7)
At 31 December 2002 51
145

PART 3: FINANCIAL INFORMATION ON ABBEY
The principal associated undertakings at 31 December 2004 are:
Name and nature of business Issued share capital
Group
Interest
%
EDS Credit Services Ltd, 5,000 A ordinary shares of £0.01 each and 1,000 B 25
Information technology services ordinary shares of £0.01 each
PSA Finance plc, Personal finance 40,000,000 £1 ordinary shares 50
IF Online Group Limited, 5,393,191 A ordinary shares of £1 each, 1,000,000
Information technology services B ordinary shares of £1 each 930,120 Class A
ordinary shares of £1 each 38,317 Class C
preference shares of £1 each, 1 Founder share of
£1 each, and 1 Abbey special share of £1 each
Abbey National plc acquired PSA Finance plc from First National Bank plc on 1 February 2003.
The UK is the principal area of operation of the principal associated undertakings and all are
registered in England and Wales.
All associated undertakings are unlisted. EDS Credit Services Limited and PSA Finance plc have
a year end of 31 December. IF Online Group Limited has a year end of 30 November.
23. Shares in Group undertakings
2004 2003 2002
Net Net Net
book book book
value value value
£m £m £m
Subsidiary undertakings
Banks 2,486 2,264 3,157
Others 5,764 5,907 4,388
8,250 8,171 7,545
The movement in shares in Group undertakings was as follows:
Cost Impairment Company
£m £m £m
At 1 January 2004 10,071 (1,900) 8,171
Exchange adjustments — — —
Additions 13 (142) (129)
Disposals (122) 45 (77)
Write-back of impairments — 285 285
At 31 December 2004 9,962 (1,712) 8,250
At 1 January 2003 8,802 (1,257) 7,545
Exchange adjustments 6 — 6
Additions 361 — 361
Disposals (25) 9 (16)
Other movements 927 — 927
Write-back of impairments — (652) (652)
At 31 December 2003 10,071 (1,900) 8,171
At 1 January 2002 7,512
Exchange adjustments 4
Additions 1,354
Disposals (68)
Write-back of impairments (1,257)
At 31 December 2002 7,545
Subscriptions for additional share capital in existing subsidiary undertakings during the year
amounted to £13 million, including £5 million in Abbey National Asset Managers and £5 million in
Abbey National Independent Consulting Group.
The write-back of impairments of shares in group undertakings in the year included: Abbey
National Treasury Services plc £285 million.
This was offset by impairment of shares in group undertakings in the following: Inscape
development £71 million, Scottish Mutual International Holdings £35 million and AN 123 Limited
146

PART 3: FINANCIAL INFORMATION ON ABBEY
£25 million. These impairments are only in the Abbey National plc accounts and do not affect the
consolidated accounts.
The following table details group undertakings sold in the year and the consideration received.
Date Company/Business disposed of Consideration
5 Mar 2004 Abbey National September Leasing (1) Limited £89m cash
10 Mar 2004 Royal St Georges Banque, S.A. £37m cash
26 Mar 2004 Abbey National September Leasing (2) Limited £251m cash
30 Jun 2004 Asset Finance & Leasing Business £875m cash
31 Jul 2004 Abbey National March Leasing (5) Limited £nil
17 Sep 2004 Abbey National September Leasing (6) Limited £13m cash
21 Oct 2004 Abbey National June Leasing (6) Limited £23m cash
16 Nov 2004 Abbey National France S.A. £1,525m cash
25 Nov 2004 Porterbrook Leasing Company (Euro) Limited £117m cash
3 Dec 2004 Eole Finance S.A. £3m cash
9 Dec 2004 Abbey National June Leasing (2) Limited £78m cash
9 Dec 2004 Abbey National December Leasing (2) Limited £169m cash
Total cash consideration £3,180m cash
The principal subsidiaries of Abbey National plc at 31 December 2004 are shown below, all of
which are directly held and unlisted except where indicated.
Nature of business
Country of Incorporation
or registration
Abbey National Leasing Companies*
(9 companies) Finance leasing England & Wales
Abbey National Treasury Services plc Treasury operations England & Wales
Abbey National Unit Trust Managers* Unit trust management Scotland
Abbey National Treasury International Ltd* Personal finance Jersey
Cater Allen International Ltd* Money market and broker dealer England & Wales
Scottish Mutual Investment Managers Ltd* Investment managers Scotland
Carfax Insurance Ltd Insurance Guernsey
Abbey National Life plc Insurance England & Wales
Abbey National PEP and ISA Managers Ltd* PEP and ISA management Scotland
Scottish Mutual Assurance plc* Insurance Scotland
Scottish Provident Ltd* Insurance Scotland
Scottish Mutual Pension Funds Investment Ltd Investment Scotland
Abbey National North America Corporation Funding United States
Abbey National Securities Inc
*Held indirectly through subsidiary companies.
Broker Dealer United States
All of the above entities have accounting reference dates of 31 December with the exception of
the following: Abbey National March Leasing (1) and (2) Limited (both 31 March); Abbey National
June Leasing (3), Limited (30 June); and Abbey National September Leasing Limited
(30 September).
All the above companies are included in the Consolidated Financial Statements. The Company
holds directly or indirectly 100% of the issued ordinary share capital of its principal subsidiaries.
All companies operate principally in their country of incorporation or registration. Abbey National
Treasury Services plc also has a branch office in the US. Abbey National plc has branches in
France and the Isle of Man and a representative office in Dubai.
147

PART 3: FINANCIAL INFORMATION ON ABBEY
24. Sale of Subsidiary Undertaking
On 16 November 2004 the Group sold its 100% interest in the ordinary share capital of Abbey
National France SA. The profit of Abbey National France SA up to the date of disposal was
£10 million, and for its last financial year £7 million. Net Assets disposed of and the related sales
proceeds were as follows.
£m
2004
Loans and Advances to Customers 1,528
Loans and advances to Banks 8
Other Assets 25
Deposits by Banks (15)
Other Liabilities (27)
Net Assets 1,519
Goodwill Written Back 6
Profit on Sale —
Sales Proceeds 1,525
Satisfied by cash
Net Cash Inflows in respect of sale comprise
Cash Consideration
1,525
Cash at Bank and in Hand Sold
2003
1,525
1,525
Loans and Advances to Customers 4,450
Other Assets 178
Deposits by Banks (56)
Other Liabilities (70)
Net Assets 4,502
Goodwill Written Back 190
Profit on Sale —
Sales Proceeds
At 31 December 2003
Satisfied by
4,692
Cash
Net Cash Inflows in respect of sale comprise
4,692
Cash Consideration 4,692
Cash at Bank and in Hand Sold
2002
(11)
4,681
Loans and advances to Banks 281
Other Assets 6
Deposits by Banks (50)
Other Liabilities (41)
Net Assets
Goodwill Written Back
Profit on Sale
196
Sales Proceeds
At 31 December 2002
Satisfied by
196
Cash
Net Cash Inflows in respect of sale comprise
196
Cash Consideration
Cash at Bank and in Hand Sold
196
148

PART 3: FINANCIAL INFORMATION ON ABBEY
25. Intangible fixed assets
Purchased
goodwill
Group
£m
Cost
At 1 January 2004 1,073
Additions —
Disposals (6)
At 31 December 2004 1,067
Amortisation and impairment
At 1 January 2004 732
Charge for the year 20
Disposals (2)
Impairments —
At 31 December 2004 750
Net book value
At 31 December 2004 317
At 31 December 2003 341
Purchased
goodwill
Group
£m
Cost
At 1 January 2003 1,257
Additions —
Disposals (184)
At 31 December 2003 1,073
Amortisation and impairment
At 1 January 2003 881
Charge for the year 20
Disposals (182)
Impairments 13
At 31 December 2003 732
Net book value
At 31 December 2003 341
At 31 December 2002 376
Purchased
goodwill
Group
£m
Cost
At 1 January 2002 1,303
Additions 8
Disposals (54)
At 31 December 2002 1,257
Amortisation and impairment
At 1 January 2002 60
Charge for the year 64
Disposals (8)
Impairments 765
At 31 December 2002 881
Net book value
At 31 December 2002 376
At 31 December 2001 1,243
Intangible fixed assets comprise positive purchased goodwill arising on acquisitions of subsidiary
undertakings and purchases of businesses made since 1 January 1998.
149

PART 3: FINANCIAL INFORMATION ON ABBEY
Goodwill included above in respect of all material acquisitions is currently being amortised over a
period of 20 years. Previously, goodwill arising on acquisitions of subsidiary undertakings and
purchases of businesses was taken directly to reserves.
In accordance with FRS 11, ‘‘Impairment of fixed assets and goodwill’’, the carrying value of
goodwill has been reviewed for impairment if there is some indication that impairment has
occurred.
The cumulative amount of goodwill taken to the Profit and Loss Account reserve in previous
periods by the Group and not subsequently recognised in the Profit and Loss Account is
£613 million (2003: £620 million), and by the Company £528 million (2003: £528 million).
26. Tangible fixed assets excluding operating lease assets
Premises
Group
Equipment Total
£m £m £m
Cost or valuation
At 1 January 2004 43 982 1,025
Disposals of subsidiary undertakings — (7) (7)
Additions 6 84 90
Disposals (7) (41) (48)
At 31 December 2004
Depreciation
42 1,018 1,060
At 1 January 2004 9 748 757
Disposals of subsidiary undertakings — (6) (6)
Charge for the year 3 78 81
Disposals (2) (16) (18)
At 31 December 2004
Net book value
10 804 814
At 31 December 2004 32 214 246
At 31 December 2003 34 234 268
At 31 December 2002 37 333 371
Investment
Group
Other
properties premises Equipment Total
£m £m £m £m
Cost or valuation
At 1 January 2003 1 47 1,234 1,282
Disposals of subsidiary undertakings — (3) (43) (46)
Additions — 12 37 49
Disposals (1) (13) (296) (310)
At 31 December 2003
Depreciation
— 43 932 975
At 1 January 2004 — 10 901 911
Disposals of subsidiary undertakings — (2) (30) (32)
Charge for the year — 6 106 112
Disposals — (5) (279) (284)
At 31 December 2003 — 9 698 707
150

PART 3: FINANCIAL INFORMATION ON ABBEY
Investment
Group
Other
properties premises Equipment Total
£m £m £m £m
Cost or valuation
At 1 January 2002 1 36 1,115 1,152
Acquisition of subsidiary undertakings — — 1 1
Disposals of subsidiary undertakings (4) (4)
Additions — 12 153 165
Disposals — (1) (31) (32)
At 31 December 2002
Depreciation
1 47 1,234 1,282
At 1 January 2002 — 7 809 816
Acquisition of subsidiary undertakings 1 1
Disposals of subsidiary undertakings — — (3) (3)
Charge for the year — 3 100 103
Disposals — — (6) (6)
At 31 December 2002 — 10 901 911
Premises
Company
Equipment Total
£m £m £m
Cost
1 January 2004 24 945 969
Disposal of businesses — — —
Additions 9 82 91
Disposals (2) (36) (38)
At 31 December 2004
Depreciation
31 991 1,022
At 1 January 2004 4 726 730
Disposal of businesses — — —
Charge for the year 3 75 78
Disposals — (12) (12)
At 31 December 2004
Net book value
7 789 796
At 31 December 2004 24 202 226
At 31 December 2003 20 219 239
At 31 December 2002 20 284 304
Premises
Company
Equipment Total
£m £m £m
Cost
1 January 2003 26 1,109 1,135
Disposal of businesses (3) — (3)
Additions 4 54 58
Disposals (3) (218) (221)
At 31 December 2003
Depreciation
24 945 969
At 1 January 2003 6 825 831
Disposal of businesses (2) — (2)
Charge for the year 6 85 91
Disposals (6) (184) (190)
At 31 December 2003 4 726 730
151

PART 3: FINANCIAL INFORMATION ON ABBEY
Premises
Company
Equipment Total
£m £m £m
Cost
1 January 2002 16 990 1,006
Acquisitions 1 1 2
Additions 9 135 144
Disposals — (17) (17)
At 31 December 2002
Depreciation
26 1,109 1,135
At 1 January 2002 4 741 745
Disposal of businesses — — —
Charge for the year 2 83 85
Disposals — 1 1
At 31 December 2002 6 825 831
The net book value of Other premises comprises:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Freeholds 7 9 15 — 1 2
Long leaseholds 3 5 4 1 1 —
Short leaseholds 22 20 18 22 17 17
Net book value at 31 December 32 34 37 23 19 19
Of which occupied for own use
The net book value of Other premises includes:
29 32 37 23 19 19
Assets held under finance leases — 1 4 — 1 4
Depreciation charge for the year on these assets
Capital expenditure which has been contracted, but not provided for
— 3 5 — 3 6
in the financial statements 13 38 23 13 38 23
27. Operating lease assets
Group
£m
Cost
At 1 January 2004 3,763
Additions 316
Disposals (766)
At 31 December 2004
Depreciation and impairment
3,312
At 1 January 2004 1,234
Charge for the year 151
Disposals (413)
At 31 December 2004
Net book value
971
At 31 December 2004 2,341
At 31 December 2003 2,529
At 31 December 2002 2,573
152

PART 3: FINANCIAL INFORMATION ON ABBEY
Group
£m
Cost
At 1 January 2003 3,587
Exchange adjustments (48)
Disposal of subsidiary undertakings (92)
Additions 491
Disposals (175)
At 31 December 2003
Depreciation and impairment
3,763
At 1 January 2003 1,014
Exchange adjustments (5)
Disposal of subsidiary undertakings (17)
Impairment 64
Charge for the year 187
Disposals (9)
At 31 December 2003 1,234
Group
£m
Cost
At 1 January 2002 3,473
Exchange adjustments (41)
Disposal of subsidiary undertakings (537)
Additions 744
Disposals (52)
At 31 December 2002
Depreciation and impairment
3,587
At 1 January 2002 951
Exchange adjustments (9)
Disposal of subsidiary undertakings (175)
Impairment 38
Charge for the year 242
Disposals (33)
At 31 December 2002 1,014
The net book value of operating lease assets includes residual values at the end of current lease
terms, which will be recovered through reletting or disposal in the following periods:
2004 2003 2002
£m £m £m
In not more than 1 year 87 493 384
In more than 1 year but not more than 2 years 364 102 685
In more than 2 years but not more than 5 years 347 432 225
In more than 5 years 1,312 1,223 882
Capital expenditure which has been contracted, but not provided for in the financial
2,110 2,250 2,176
statements 267 324 457
28. Other assets
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Foreign exchange, interest rate, equity & credit contracts:
Positive market value of trading derivative contracts (note 51)
Translation differences on foreign exchange derivatives used for
2,377 1,643 1,842 — — —
hedging purposes 214 209 162 — — 5
Debtors and other settlement balances 915 909 1,698 147 213 210
Introducer fees 22 80 314 6 8 24
Deferred tax asset (note 37) — — 160 122 80
Other 1,133 1,321 1,069 980 658 475
4,661 4,162 5,085 1,293 1,001 794
153

PART 3: FINANCIAL INFORMATION ON ABBEY
29. Prepayments and accrued income
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Accrued interest due from subsidiaries — — — 46 88 98
Unamortised lending-related fees (see note 3) 63 125 203 64 125 202
Other accrued interest 812 831 1,284 187 197 116
Prepayments and other accruals 320 274 404 82 91 150
1,195 1,230 1,891 379 501 566
Other accrued interest includes interest on dealing assets.
30. Assets subject to sale and repurchase transactions
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Debt securities 457 1,968 3,470 — — —
The above amounts are the assets held under sale and repurchase transactions included within
the amounts disclosed in note 19, Debt securities.
31. Deposits by banks
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Items in the course of transmission 161 204 221 161 191 214
Amounts due to subsidiaries — — — 15,536 18,589 14,015
Sale and repurchase agreements 6,592 9,390 7,300 — — —
Other deposits 11,659 12,531 16,653 — — 78
18,412 22,125 24,174 15,697 18,780 14,307
Repayable:
On demand 1,166 5,422 6,882 2 372 202
In not more than 3 months 15,343 14,766 15,108 13,565 17,480 11,919
In more than 3 months but not more than 1 year 874 1,502 1,651 639 58 214
In more than 1 year but not more than 5 years 316 18 50 342 — 84
In more than 5 years 713 417 483 1,149 870 1,888
18,412 22,125 24,174 15,697 18,780 14,307
Banking business 8,578 1,178 2,454 15,697 18,780 14,307
Trading business 9,834 20,947 21,720 — — —
18,412 22,125 24,174 15,697 18,780 14,307
154

PART 3: FINANCIAL INFORMATION ON ABBEY
32. Customer accounts
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Retail deposits 61,887 60,534 59,275 52,919 51,469 50,631
Amounts due to subsidiaries — — — 10,394 3,886 3,260
Sale and repurchase agreements 7,843 4,602 6,047 — — —
Other customer accounts 9,120 9,265 11,444 2,597 2,545 1,553
78,850 74,401 76,766 65,910 57,900 55,444
Repayable:
On demand 52,746 46,847 51,161 57,990 43,404 45,847
In not more than 3 months 21,293 21,900 19,325 7,184 13,526 8,538
In more than 3 months but not more than 1 year 2,116 2,820 1,951 52 77 85
In more than 1 year but not more than 5 years 1,097 641 1,853 54 27 103
In more than 5 years 1,598 2,193 2,476 630 866 871
78,850 74,401 76,766 65,910 57,900 55,444
Banking business 69,348 63,638 67,934 65,910 57,900 55,444
Trading business 9,502 10,763 8,832 — — —
78,850 74,401 76,766 65,910 57,900 55,444
Included in Group and Company customer accounts are amounts due to associated
undertakings of £nil (2003: £15 million) and £nil (2003: £15 million), respectively.
Contracts involving the receipt of cash on which customers receive an index-linked return are
accounted for in substance as equity index-linked deposits. The current market value of the
contract is reported within Other customer accounts.
33. Debt securities in issue
2004 2004
Group
2003 2003 2002 2002
Book Market Book Market Book Market
value value value value value value
£m £m £m £m £m £m
Bonds and medium term notes 13,015 14,397 14,939 14,996 17,449 17,709
Other debt securities in issue 8,954 8,917 9,895 9,897 30,630 30,631
21,969 23,314 24,834 24,893 48,079 48,340
The market values for medium and long-term debt securities in issue have been determined
using quoted market prices where reliable prices are available. In other cases, market values
have been determined using in-house pricing models, or stated at amortised cost.
2004
Company
2003 2002
£m £m £m
Bonds and medium term notes — — —
Other debt securities in issue 4 4 4
4 4 4
Bonds and medium term notes are repayable:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
In not more than 3 months 410 4,295 2,523 — — —
In more than 3 months but not more than 1 year 2,060 1,742 3,307 — — —
In more than 1 year but not more than 2 years 4,468 2,095 5,575 — — —
In more than 2 years but not more than 5 years 4,688 4,391 2,800 — — —
In more than 5 years 1,389 2,416 3,244 — — —
13,015 14,939 17,449 — — —
155

PART 3: FINANCIAL INFORMATION ON ABBEY
Other debt securities in issue are repayable:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
In not more than 3 months 5,369 5,114 19,933 — — —
In more than 3 months but not more than 1 year 3,215 3,573 9,513 — — —
In more than 1 year but not more than 2 years 128 789 609 4 — —
In more than 2 years but not more than 5 years 7 21 110 — 4 4
In more than 5 years 235 398 465 — — —
8,954 9,895 30,630 4 4 4
34. Other liabilities
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Creditors and accrued expenses 2,417 2,122 1,623 975 1,051 803
Short positions in government debt securities and equity shares 2,715 4,303 3,456 — — —
Taxation
Foreign exchange, interest rate, equity & credit contracts:
Negative market value of trading derivative contracts (see
37 (5) 104 (61) (137) (48)
note 51)
Translation differences on foreign exchange derivatives used for
3,665 4,762 3,467 — — —
hedging purposes
Obligations under finance leases all payable in:
336 269 471 199 115 —
Less than 1 year — 1 3 1 1 3
1 year to 5 years — — 1 — — 1
9,170 11,452 9,125 1,114 1,030 759
Short positions in government debt securities are mainly held for trading liquidity and hedging
purposes. The market value of short positions in debt securities and equity shares is
£2,715 million (2003: £4,303 million).
35. Accruals and deferred income
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Interest due to subsidiaries — — — 108 89 187
Other accrued interest 1,578 1,284 1,840 886 700 724
Deferred income from residential mortgage lending 43 79 131 — — —
Other deferred income 108 219 247 14 34 30
1,729 1,582 2,218 1,008 823 941
During the year, £37 million (2003: £45 million) of deferred income relating to high loan-to-value
lending was taken to the profit and loss account.
Other accrued interest includes interest on dealing liabilities.
36. Provisions for liabilities and charges
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Deferred taxation (see note 37) 550 690 952 — — —
Other provisions for liabilities and charges (see note 38) 320 146 76 224 100 43
870 836 1,028 224 100 43
156

PART 3: FINANCIAL INFORMATION ON ABBEY
37. Deferred taxation
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Tax effect of timing differences due to:
Excess of capital allowances over depreciation (68) (64) (39) (60) (54) (27)
Other (75) (98) (26) (100) (68) (53)
Capital allowances on finance lease receivables 693 852 1,017 — — —
550 690 952 (160) (122) (80)
Group Company
£m £m
At 1 January 2004 690 (122)
Transfer from profit and loss account 55 (38)
Disposals of subsidiary undertakings (195) —
At 31 December 2004 550 (160)
Deferred tax asset (see note 28) — (160)
Deferred tax liabilities 550 —
At 1 January 2003 952 (80)
Transfer from profit and loss account 4 (42)
Disposals of subsidiary undertakings (266) —
At 31 December 2003 690 (122)
Deferred tax asset (see note 28) — (122)
Deferred tax liabilities 690 —
At 1 January 2002 1,293 (57)
Transfer from profit and loss account (82) (23)
Disposals of subsidiary undertakings (259) —
At 31 December 2002 952 (80)
Deferred tax asset (see note 28) — (80)
Deferred tax liabilities 952 —
38. Other provisions for liabilities and charges
Group
Pension
and other Provisions
similar for Other
obligations (1)
commitments (2)
provisions (3)
Total
£m £m £m £m
At 1 January 2004 7 24 115 146
Transfer from profit and loss account 123 17 201 341
Pension contributions/provisions utilised (95) (3) (58) (156)
Provision reversed (11) — — (11)
At 31 December 2004 24 38 258 320
Group
Pension
and other Provisions Pension
similar for misselling Other
obligations (1)
commitments (2)
compensation (3)
provisions (4)
Total
£m £m £m £m £m
At 1 January 2003 7 14 8 47 76
Transfer from profit and loss account
Pension contributions/provisions
128 26 4 74 232
utilised
Provision reversed
(128) (16) (8) (10) (162)
At 31 December 2003 7 24 4 111 146
157

PART 3: FINANCIAL INFORMATION ON ABBEY
Group
Pension and Provisions Pension
other similar for misselling Other
obligations (1)
commitments (2)
compensation (3)
provisions (4)
Total
£m £m £m £m £m
At 1 January 2002 (14) 27 15 13 41
Transfer from profit and loss account 97 8 4 38 147
Pension contributions/provisions utilised (76) (21) (11) (2) (110)
Provision reversed — — — (2) (2)
At 31 December 2002 7 14 8 47 76
Pension and
Company
Provisions
other similar for Other
obligations (1)
commitments (2)
provisions (3)
Total
£m £m £m £m
At 1 January 2004 (28) 20 108 100
Transfer from profit and loss account 104 17 153 274
Pension contributions/provisions utilised (76) (6) (68) (150)
At 31 December 2004 — 31 193 224
Company
Pension and Provisions Pension
other similar for misselling Other
obligations (1)
commitments (2)
compensation (3)
provisions (4)
Total
£m £m £m £m £m
At 1 January 2003 (10) 1 5 47 43
Transfer from profit and loss account 111 25 — 68 204
Pension contributions/provisions utilised (129) (6) (3) (9) (147)
At 31 December 2003 (28) 20 2 106 100
Company
Pensions and Provisions Pension
other similar for misselling Other
obligations (1)
commitments (2)
compensation (3)
provisions (4)
Total
£m £m £m £m £m
At 1 January 2002 (25) 4 8 13 —
Transfer from profit and loss account 73 (1) — 38 110
Pension contributions/provisions utilised (58) (2) (3) (4) (67)
At 31 December 2002 (10) 1 5 47 43
The £202 million charge shown in the Profit and Loss Account in respect of provisions for
contingent liabilities and commitments comprises the amounts transferred from the Profit and
Loss Account and unutilised provisions reversed for provisions for commitments, pension
misselling compensation and other provisions.
(1) Pension and other similar obligations
The above balance represents the difference between amounts paid to the respective pension
schemes of the Group and amounts charged to the Profit and Loss Account in accordance with
SSAP 24, Accounting for pension costs.
In addition to pension and other similar obligations included in the above table, a balance in
respect of the pension surplus acquired with the purchase of the business of National and
Provincial Building Society (N&P) is included within other assets. This balance, which was
£13 million (2003: £15 million) at 31 December 2004, is being amortised over the remaining
service lives of employees contributing to the scheme, and £2 million (2003: £2 million) was
charged to the profit and loss account in the year ended 31 December 2004. See also note 53,
‘Retirement benefits’.
(2) Provisions for commitments
This comprises amounts in respect of committed expenditure, including amounts in respect of
vacant premises.
158

PART 3: FINANCIAL INFORMATION ON ABBEY
(3) Other provisions
Other provisions principally comprise amounts in respect of litigation and related expenses and
various other claims with respect to product misselling exposures.
39. Subordinated liabilities including convertible debt
2004
Group
2003 2002
£m £m £m
Dated subordinated liabilities:
Subordinated guaranteed floating rate notes 2003 (U.S.$100m) 62
Subordinated collared floating rate notes 2004 (CAN$100m) — 43 39
8.75% Subordinated guaranteed bond 2004 — 150 150
8.2% Subordinated bond 2004 (U.S.$500m) — 280 310
6.69% Subordinated bond 2005 (U.S.$750m) 388 420 464
10.75% Subordinated bond 2006 100 100 101
Subordinated guaranteed floating rate step-up notes 2009 (Swiss Fr 130m) — 59 58
5.00% Subordinated bond 2009 (0511.3m) 360 359 331
4.625% Subordinated notes 2011 (0500m) 352 352 324
11.50% Subordinated guaranteed bond 2017 149 149 149
10.125% Subordinated guaranteed bond 2023 149 149 149
7.57% Subordinated notes 2029 (U.S.$1,000m) 512 554 613
6.50% Subordinated notes 2030 149 149 149
7.25% Subordinated notes 2021 200 200 200
Callable capped subordinated floating rate notes 2012 (U.S.$50m) 26 28 31
Callable subordinated floating rate notes 2012 (U.S.$50m) 26 28 31
Callable subordinated floating rate notes 2012 (0500m) 352 352 324
2004
Group
2003 2002
£m £m £m
Undated subordinated liabilities:
10.0625% Exchangeable subordinated capital securities 200 199 199
7.35% Perpetual subordinated reset capital securities (U.S.$500m) 258 279 309
7.25% Perpetual subordinated capital securities (U.S.$150m) — 84 92
7.10% Perpetual callable subordinated notes (U.S.$150m) — 84 93
7.00% Perpetual subordinated capital securities (U.S.$250m) — 140 154
6.70% Perpetual subordinated reset capital securities (U.S.$500m) 258 279 308
6.00% Step-down Perpetual callable subordinated notes (0100m) 70 71 65
5.56% Subordinated guaranteed notes (YEN 15,000m) 76 79 78
5.50% Subordinated guaranteed notes (YEN 5,000m) 25 26 26
Fixed/Floating rate subordinated notes (YEN 5,000m) 25 26 26
7.50% 10 Year step-up perpetual subordinated notes 322 321 320
7.50% 15 Year step-up perpetual subordinated notes 425 425 425
7.38% 20 Year step-up perpetual subordinated notes 173 173 173
7.13% 30 Year step-up perpetual subordinated notes 279 279 279
7.13% Fixed to floating rate perpetual subordinated notes (0400m) 281 280 258
7.25% Perpetual callable subordinated notes (U.S.$400m) 205 220 242
5,360 6,337 6,532
159

PART 3: FINANCIAL INFORMATION ON ABBEY
2004
Company
2003 2002
£m £m £m
Dated subordinated liabilities:
Subordinated floating rate notes 2003 (U.S.$75m) 62
Subordinated floating rate notes 2004 (U.S.$74m)* — 41 46
Subordinated floating rate notes 2004* — 150 150
Subordinated floating rate notes 2004 (U.S.$500m)* — 280 310
6.69% Subordinated bond 2005 (U.S.$750m) 388 420 464
10.75% Subordinated bond 2006 100 100 101
Subordinated floating rate notes 2009 (U.S.$102m)* — 57 63
Subordinated floating rate notes 2009 (0511.3m) 359 359 331
4.625% Subordinated notes 2011 (0500m) 352 352 324
11.59% Subordinated loan stock 2017* 149 150 150
10.18% Subordinated loan stock 2023* 149 150 150
7.57% Subordinated notes 2029 (U.S.$1,000m) 512 554 613
6.50% Subordinated notes 2030 149 149 149
8.96% Subordinated notes 2030 (U.S.$1,000m)** 514 554 613
Callable capped subordinated floating rate notes 2012 (U.S.$50m) 26 28 31
Callable subordinated floating rate notes 2012 (U.S.$50m) 26 28 31
Callable subordinated floating rate notes 2012 (0500m) 352 352 324
2004
Company
2003 2002
£m £m £m
Undated subordinated liabilities:
10.0625% Exchangeable subordinated capital securities 200 199 199
7.35% Perpetual subordinated reset capital securities (U.S.$500m) 258 279 309
7.25% Perpetual subordinated capital securities (U.S.$150m) — 84 92
7.10% Perpetual callable subordinated notes (U.S.$150m) — 84 93
7.00% Perpetual subordinated capital securities (U.S.$250m) — 140 154
6.70% Perpetual subordinated reset capital securities (U.S.$500m) 258 279 308
6.00% Step-down perpetual callable subordinated notes (0100m) 70 71 65
5.56% Subordinated guaranteed notes (YEN 15,000m) 76 79 78
5.50% Subordinated guaranteed notes (YEN 5,000m) 25 26 26
Fixed/Floating rate subordinated notes (YEN 5,000m) 25 26 26
7.50% 10 Year step-up perpetual subordinated notes 322 321 320
7.50% 15 Year step-up perpetual subordinated notes 425 425 425
7.38% 20 Year step-up perpetual subordinated notes 173 173 173
7.13% 30 Year step-up perpetual subordinated notes 279 279 279
7.13% Fixed to floating rate perpetual subordinated notes (0400m) 281 280 258
7.25% Perpetual callable subordinated notes (U.S.$400m) 205 220 242
5,673 6,689 6,959
* These represent the on-lending to the Company, on a subordinated basis, of issues by subsidiary companies.
** This represents the on-lending to the Company, on a subordinated basis, of the issue of preferred securities (see
note 41).
The subordinated floating rate notes pay a rate of interest related to the LIBOR of the currency of
denomination.
The 10.0625% Exchangeable subordinated capital securities are exchangeable into fully paid
10.375% non-cumulative non-redeemable pound sterling preference shares of £1 each, at the
option of Abbey. Exchange may take place on any interest payment date providing that between
30 and 60 days notice has been given to the holders. The holders will receive one new pound
sterling preference share for each £1 principal amount of capital securities held. Note 42 details
the rights attaching to these shares, as they are the same.
The 7.35% Perpetual subordinated reset capital securities are redeemable at par, at the option of
Abbey, on 15 October 2006 and each fifth anniversary thereafter.
The 7.25% Perpetual subordinated capital securities were redeemed at par on the 15 June 2004.
The 7.10% Perpetual callable subordinated notes were redeemed at par on the 12 March 2004.
The 7.00% Perpetual subordinated capital securities were redeemed at par on the 29 April 2004.
The 6.70% Perpetual subordinated reset capital securities are redeemable at par, at the option of
Abbey, on 15 June 2008 and each fifth anniversary thereafter.
The 6.00% Step-down perpetual callable subordinated notes are redeemable at par, at the
option of Abbey, on each interest payment date.
160

PART 3: FINANCIAL INFORMATION ON ABBEY
The 5.56% Subordinated guaranteed notes are redeemable at par, at the option of Abbey, on
31 January 2015 and each fifth anniversary thereafter.
The 5.50% Subordinated guaranteed notes are redeemable at par, at the option of Abbey, on
27 June 2015 and each fifth anniversary thereafter.
The Fixed/Floating rate subordinated notes are redeemable at par, at the option of Abbey, on
27 December 2016 and each interest payment date anniversary thereafter.
The 7.50% 10 Year step-up perpetual subordinated notes are redeemable at par, at the option of
Abbey, on 28 September 2010 and each fifth anniversary thereafter.
The 7.50% 15 Year step-up perpetual subordinated notes are redeemable at par, at the option of
Abbey, on 28 September 2015 and each fifth anniversary thereafter.
The 7.38% 20 Year step-up perpetual subordinated notes are redeemable at par, at the option of
Abbey, on 28 September 2020 and each fifth anniversary thereafter.
The 7.13% 30 Year step-up perpetual subordinated notes are redeemable at par, at the option of
Abbey, on 30 September 2030 and each fifth anniversary thereafter.
The 7.13% Fixed to Floating rate perpetual subordinated notes are redeemable at par, at the
option of Abbey, on 28 September 2010 and each fifth anniversary thereafter.
The 7.25% perpetual callable subordinated notes are redeemable at par, at the option of Abbey,
at any time on or after 15 August 2006.
In common with other debt securities issued by Group companies, the subordinated liabilities are
redeemable in whole at the option of Abbey, on any interest payment date, in the event of certain
tax changes affecting the treatment of payments of interest on the subordinated liabilities in the
United Kingdom, at their principal amount together with any accrued interest.
Subordinated liabilities including convertible debt securities in issue are repayable:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
In 1 year or less 388 473 62 388 472 62
In more than 1 year but not more than 2 years 100 420 499 100 420 506
In more than 2 years but not more than 5 years 360 100 623 360 100 565
In more than 5 years 1,915 2,379 2,301 2,228 2,733 2,779
Undated 2,597 2,965 3,047 2,597 2,964 3,047
5,360 6,337 6,532 5,673 6,689 6,959
Subordinated liabilities including convertible debt issued by the Group have a market value,
calculated using quoted market prices where available, of £5,656 million (2003: £7,068 million).
40. Other long-term capital instruments
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Other long term capital instruments 722 742 771 722 742 771
Other long-term capital instruments comprise £300 million Step-up Callable Perpetual Reserve
Capital Instruments (RCIs), U.S.$500 million tier One Perpetual Subordinated Debt Securities
(Securities) and £175 million Fixed/Floating Rate Tier One Preferred Income Capital Securities
(TOPICs).
£300,000,000 Step-up Callable Perpetual Reserve Capital Instruments
The Reserve Capital Instruments were issued in 2001 by Abbey National plc. Reserve Capital
Instruments are redeemable by Abbey on 14 February 2026 or on each coupon payment date
thereafter, subject to the prior approval of the Financial Services Authority and provided that the
auditors have reported to the Trustee within the previous six months that the solvency condition
is met.
The Reserve Capital Instruments bear interest at a rate of 7.037% per annum, payable annually
in arrears, from 14 February 2001 to 14 February 2026. Thereafter, the reserve capital
instruments will bear interest at a rate, reset every five years, of 3.75% per annum above the
gross redemption yield on the UK five year benchmark gilt rate.
161

PART 3: FINANCIAL INFORMATION ON ABBEY
U.S.$500,000,000 Tier One Perpetual Subordinated Debt Securities
The Securities were issued on 8 August 2002 by Abbey National plc. The Securities have no
maturity date. However, Abbey National plc has the option to redeem the Securities in whole, but
not in part on 15 September 2007 or on each coupon payment date thereafter.
The Securities bear interest at a rate of 7.375% per annum, payable in U.S. dollars quarterly in
arrears.
£175,000,000 Fixed/Floating Rate Tier One Preferred Income Capital Securities
The Tier One Preferred Income Capital Securities were issued on 9 August 2002 by Abbey
National plc. The Tier One Preferred Income Capital Securities are redeemable by Abbey
National plc in whole but not in part on 9 February 2018 or on each coupon payment date
thereafter, subject to the prior approval of the Financial Services Authority.
The Tier One Preferred Income Capital Securities bear interest at a rate of 6.984% par annum,
payable semi-annually in arrears. From (and including) 9 February 2018, the Tier One Preferred
Income Capital Securities will bear interest, at a rate reset semi-annually of 1.86% per annum
above the six-month pound sterling LIBOR rate, payable semi-annually in arrears.
The Reserve Capital Instruments, Securities and Tier One Preferred Income Capital Securities
are not redeemable at the option of the holders and the holders do not have any rights against
other Abbey Group companies. Upon the occurrence of certain tax or regulatory events, the
Reserve Capital Instruments may be exchanged, their terms varied, or redeemed.
Interest payments may be deferred, but Abbey National plc may not declare or pay dividends on
or redeem or repurchase any junior securities until Abbey National plc next make a scheduled
payment on the Reserve Capital Instruments, Securities and Tier One Preferred Income Capital
Securities.
The Reserve Capital Instruments, Securities and Tier One Preferred Income Capital Securities
are unsecured securities of Abbey National plc and are subordinated to the claims of
unsubordinated creditors and subordinated creditors holding Abbey National plc loan capital.
Upon the winding up of Abbey National plc, the holder of each Reserve Capital Instruments,
Securities and Tier One Preferred Income Capital will rank pari passu with the holders of the
most senior class or classes of preference shares (if any) of Abbey National plc then in issue and
in priority to all other Abbey shareholders.
41. Minority interests — non-equity
Abbey National First Capital BV, Abbey National Capital Trust I, Abbey National Capital Trust II,
Abbey National Capital LP I and Abbey National Capital LP II are each 100% owned finance
subsidiaries of Abbey National plc. Abbey National First Capital BV has registered with the
Securities and Exchange Commission and issued to the public subordinated notes and mediumterm
notes that have been fully and unconditionally guaranteed by Abbey National plc. Abbey
National Capital Trust I and Abbey National Capital Trust II have registered trust preferred
securities, and Abbey National Capital LP I and Abbey National Capital LP II have registered
partnership preferred securities, for issuance in the US. Abbey National Capital Trust I and
Abbey National Capital Trust II each serve solely as passive vehicles holding the partnership
preferred securities issued by Abbey National Capital LP I and Abbey National Capital LP II,
respectively, and each has passed all the rights relating to such partnership preferred securities
to the holders of the issued trust preferred securities. All of the trust preferred securities and the
partnership preferred securities have been fully and unconditionally guaranteed on a
subordinated basis by Abbey National plc. Abbey National Capital Trust I has issued to the public
U.S.$1,000,000,000 of 8.963% Non-Cumulative Trust Preferred Securities. There are no
significant restrictions on the ability of Abbey National plc to obtain funds, by dividend or loan,
from any subsidiary. After 30 June 2030, the distribution rate on the preferred securities will be at
the rate of 2.825% per annum above the three-month US$ LIBOR rate for the relevant
distribution period.
The preferred securities are not redeemable at the option of the holders and the holders do not
have any rights against other Abbey Group companies. The partnership preferred securities may
be redeemed by the partnership, in whole or in part, on 30 June 2030 and on each distribution
payment date thereafter. Redemption by the partnership of the partnership preferred securities
may also occur in the event of a tax or regulatory change. Generally, holders of the preferred
securities will have no voting rights.
On a return of capital or on a distribution of assets on a winding up of the partnership, holders of
the partnership preferred securities will be entitled to receive, for each partnership preferred
security a liquidation preference of U.S.$1,000, together with any due and accrued distributions
and any additional amounts, out of the assets of the partnership available for distribution.
162

PART 3: FINANCIAL INFORMATION ON ABBEY
The preferred securities, the partnership preferred securities and the subordinated guarantees
taken together will not entitle the holders to receive more than they would have been entitled to
receive had they been the holders of directly issued non-cumulative, non-voting preference
shares of Abbey National plc.
42. Called up share capital and share premium account
Ordinary Preference
shares of Preference shares of Preference
10 pence shares of US$0.01 shares of
each £1 each each 30.01 each Total
£m £m £m £m £m
Authorised share capital
At 31 December 2003 175 1,000 6 6 1,187
At 31 December 2004
Issued and fully paid share capital
175 1,000 6 6 1,187
At 31 December 2003 146 325 — — 471
At 31 December 2004
Share premium account
148 325 — — 473
At 1 January 2004 1,752 10 297 — 2,059
Shares issued 105 — — — 105
Redemptions — — — — —
Amortisation of issue costs — — 3 — 3
Transfer from profit and loss reserve — — (3) — (3)
At 31 December 2004 1,857 10 297 — 2,164
Ordinary Preference
shares of Preference shares of Preference
10 pence shares of US$0.01 shares of
each £1 each each 30.01 each Total
£m £m £m £m £m
Authorised share capital
At 31 December 2002 175 1,000 6 6 1,187
At 31 December 2003
Issued and fully paid share capital
175 1,000 6 6 1,187
At 31 December 2002 146 325 — — 471
At 31 December 2003
Share premium account
146 325 — — 471
At 1 January 2003 1,732 9 414 — 2,155
Shares issued 20 — — — 20
Redemptions — — (116) — (116)
Amortisation of issue costs — — (2) — (2)
Transfer from profit and loss reserve — — 2 — 2
At 31 December 2003 1,752 9 298 — 2,059
Ordinary Preference
shares of Preference shares of Preference
10 pence shares of US$0.01 shares of
each £1 each each 30.01 each Total
£m £m £m £m £m
Authorised share capital
At 31 December 2001 175 1,000 6 6 1,187
At 31 December 2002
Issued and fully paid share capital
175 1,000 6 6 1,187
At 31 December 2001 145 325 — — 470
At 31 December 2002
Share premium account
146 325 — — 471
At 1 January 2002 1,627 9 414 — 2,050
Shares issued
Capitalisation of reserves in respect of shares issued
98 — — — 98
via QUEST 7 — — — 7
Amortisation of issue costs — — 3 — 3
Transfer from profit and loss reserve — — (3) — (3)
At 31 December 2002 1,732 9 414 — 2,155
163

PART 3: FINANCIAL INFORMATION ON ABBEY
Under the Company’s Executive, All Employee and Sharesave Schemes, employees hold
options to subscribe for 17,675,567 (2003: 52,418,724) ordinary shares at prices ranging from
420 to 644 pence per share, exercisable up to April 2014. In addition, 17,791,398 ordinary
shares were issued in lieu of cash for dividends in 2004, in accordance with the terms of the
Alternative Dividend Plan.
The Qualifying Employee Share Trust operates in conjunction with the Sharesave Scheme by
acquiring shares in the Company and using them to satisfy Sharesave options, by delivering the
shares to the employees on payment of the option price.
The shares were all transferred by the Qualifying Employee Share Trust to participants in
Abbey’s Sharesave Scheme in satisfaction of their options. The price paid by option holders,
including executive Directors, was 997 pence per share (three year options), 989 pence per
share (five year options) and 607 pence per share (seven year options). The Company’s
contribution has been included as a capitalisation of reserves.
Abbey National plc sponsored the Abbey National ESOP Trust, a discretionary trust for the
benefit of employees and former employees of the Abbey Group and the AN Employee Trust, a
discretionary trust for the benefit of Directors and former Directors of Abbey National plc. The
Company has provided £nil to the trustees of Abbey National ESOP Trust and £nil to the trustees
of Abbey National Trust, interest free irrevocable loans and gifts of £nil and £nil respectively, to
enable them to purchase Abbey National plc ordinary shares, which are used to satisfy options
and share awards granted by the Company to meet its commitments arising under employee and
Directors’ share schemes. Under the terms of the trusts, the trustees have waived all but a
nominal dividend on the shares they hold. The cost of providing these shares, less any amounts
paid by employees or Directors, is charged to the profit and loss account on a systematic basis
over the relevant performance period for the employees and Directors. At 31 December 2004 and
2003 the number and value of shares held were:
AN ESOP Trust AN Employee Trust
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Number of shares held (‘‘000) — 7,613 8,589 — 1,530 1,532
Book value of shares held — 67 67 — 13 13
Market value of shares held — 40 44 — 8 8
Prior to 2003 such shares were held as an asset within other assets on the balance sheet at the
lower of cost and net realisable value with any impairments being taken to the profit and loss
account. With the issue of UITF 38 Accounting for ESOP Trusts such shares are now held at cost
and treated as treasury shares and are taken as a deduction from shareholders equity. The 2003
Profit and Loss Account and Balance Sheet have been restated accordingly.
As of 31 December 2004 there were 780 shareholders.
The following tables show an analysis of their holdings:
Size of shareholding Shareholders
Number of
ordinary shares
of 10 pence
each
1-100 — —
101-1,000 — —
1,001+ 1 1,485,893,636
1 1,485,893,636
Size of shareholding Shareholders
Preference shares
of £1
each
1-100 1 198
101-1,000 8 31,037
1,001+ 738 324,968,765
747 325,000,000
164

PART 3: FINANCIAL INFORMATION ON ABBEY
Size of shareholding Shareholders
Preference shares
of US$0.01
each
1-100 — —
101-1,000 28 12,460
1,001+ 4 17,987,540
32 18,000,000
Pound Sterling preference shares
Holders of the sterling preference shares are entitled to receive a biannual non-cumulative
preferential dividend payable in pound sterling out of the distributable profits of the Company.
The rate per annum will ensure that the sum of the dividend payable on such date and the
associated tax credit (as defined in the terms of the pound sterling preference shares) represents
an annual rate of 8 5/8% per annum of the nominal amount of shares issued in 1997, and an
annual rate of 10 3/8% for shares issued in 1995 and 1996. On a return of capital or on a
distribution of assets on a winding up, the pound sterling preference shares shall rank pari passu
with any other shares that are expressed to rank pari passu therewith as regards participation in
assets, and otherwise in priority to any other share capital of the Company.
On such a return of capital or winding up, each pound sterling preference share shall, out of the
surplus assets of the Company available for distribution amongst the members after payment of
the Company’s liabilities, carry the right to receive an amount equal to the amount paid up or
credited as paid together with any premium paid on issue and the full amount of any dividend
otherwise due for payment.
Other than as set out above, no pound sterling preference share confers any right to participate
on a return of capital or a distribution of assets of the Company.
Holders of the pound sterling preference shares are not entitled to receive notice of or attend,
speak and vote at general meetings of the Company unless the business of the meeting includes
the consideration of a resolution to wind up the Company or any resolution varying, altering or
abrogating any of the rights, privileges, limitations or restrictions attached to the pound sterling
preference shares or if the dividend on the pound sterling preference shares has not been paid in
full for the three consecutive dividend periods immediately prior to the relevant general meeting.
In any such case, the pound sterling preference shareholders are entitled to receive notice of and
attend the general meeting at which such resolution is proposed and will be entitled to speak and
vote on such a resolution but not on any other resolution.
U.S. dollar preference shares
Holders of the U.S. dollar preference shares issued on 8 November 2001 are entitled to receive a
quarterly non-cumulative preferential dividend payable in U.S. dollars out of the distributable
profits of the Company payable at the fixed rate of U.S.$1.84375 per share annually (or 7.375%
of the U.S.$25 offer price).
The U.S. dollar preference shares are redeemable, in whole or in part, at the option of Abbey at
any time and from time to time after five years and one day after the date of original issue.
On a return of capital or on a distribution of assets on a winding up, the U.S. dollar preference
shares shall rank pari passu with any other shares that are expressed to rank pari passu
therewith as regards participation in assets, and otherwise in priority to any other share capital of
the Company. On such a return of capital or winding up, each U.S. dollar preference share shall,
out of the surplus assets of the Company available for distribution amongst the members after
payment of the Company’s liabilities, carry the right to receive an amount equal to U.S.$25,
payable in U.S. dollars together with any accrued and unpaid dividends at that time.
Other than as set out above, no U.S. dollar preference share confers any right to participate in a
return of capital or a distribution of assets of the Company.
Holders of the U.S. dollar preference shares are not entitled to receive notice of or attend, speak
and vote at general meetings of the Company unless the business of the meeting includes the
consideration of a resolution to wind up the Company or any resolution varying, altering or
abrogating any of the rights, privileges, limitations or restrictions attached to the U.S. dollar
preference shares or if the dividend on the U.S. dollar preference shares has not been paid in full
for the six consecutive quarters immediately prior to the relevant general meeting.
In any such case, the U.S. dollar preference shareholders are entitled to receive notice of and
attend the general meeting at which such resolution is proposed and will be entitled to speak and
vote on such a resolution but not on any other resolution.
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PART 3: FINANCIAL INFORMATION ON ABBEY
43. Reserves and profit and loss account
Profit and
loss account
Group Company
£m £m
At 1 January 2004 2,527 2,306
(Loss) retained for the financial year (504) (862)
Write-off of goodwill previously taken to reserves 6 —
Exchange differences (2) —
Transfer to share premium 1 1
Share option compensation costs taken to reserves (4) (3)
Transfer to treasury shares reserve (43) —
At 31 December 2004 1,981 1,442
Profit and
loss account
Group Company
£m £m
At 1 January 2003 3,650 2,895
(Loss) retained for the financial year (1,323) (591)
Write-off of goodwill previously taken to reserves 5 —
Goodwill transferred to profit and loss account during the year 190 —
Exchange differences (1) (4)
Transfer to share premium (2) (2)
Share option compensation costs taken to reserves 8 8
At 31 December 2003 2,527 2,306
Profit and loss
account
Group Company
£m £m
At 1 January 2002 4,585 3,815
(Loss) retained for the financial year (1,322) (921)
Write-off of goodwill previously taken to reserves 373 —
Goodwill transferred to profit and loss account during the year 13 —
Exchange differences (2) (2)
Transfer from share premium 3 3
Share option compensation costs taken to reserves 7 7
Capitalised on exercise of share options issued via QUEST (7) (7)
At 31 December 2002 3,650 2,895
Exchange gains arising from foreign currency borrowings used to hedge investments in overseas
Group undertakings of £2 million (2003: £1 million) have been taken to the reserves of the Group
and Company. These exchange movements are matched by corresponding exchange
movements on the net investments in the financial statements of the Company and exchange
movements on the net assets of overseas Group undertakings in the Group financial statements.
Non-distributable
Treasury shares
reserve
reserve (restated)
Group Company Group Company
£m £m £m £m
At 1 January 2004 353 — (79) —
Transfer to/from profit and loss account (47) — 43 —
Proceeds on sale of own shares — — 36 —
At 31 December 2004 306 — — —
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PART 3: FINANCIAL INFORMATION ON ABBEY
Non-distributable
Treasury shares
reserve
reserve (restated)
Group Company Group Company
£m £m £m £m
At 1 January 2003 153 — (79) —
Transfer from profit and loss account 200 — — —
At 31 December 2003 353 — (79) —
Revaluation Non-distributable
Treasury shares
reserve
reserve reserve (restated)
Group Company Group Company Group Company
£m £m £m £m £m £m
At 1 January 2002 — — 416 — (43) —
Purchase of own shares — — — — (36) —
Transfer from profit and loss account — — (263) — — —
At 31 December 2002 — — 153 — (79) —
The non-distributable reserve represents the value of the Group’s shareholders’ interest in the
long-term assurance funds of the life assurance businesses. The treasury shares reserve
represented shares of Abbey National plc that were held by Employee Share Ownership Trusts
and other entities within the Abbey group of companies. The treasury shares reserve no longer
exists due to the winding up of the Employee Share Ownership Trusts.
44. Reconciliation of movements in shareholders’ funds
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Profit/(loss) attributable to shareholders 80 (699) (1,161) (231) (167) (497)
Dividends (631) (424) (424) (631) (424) (424)
(551) (1,123) (1,585) (862) (591) (921)
Other recognised net losses relating to the year (1) (3) (2) — (6) (2)
Increases in ordinary share capital including share premium 107 20 109 108 20 109
Share option compensation costs taken to reserves
Redemptions of preference share capital including share
(4) 8 7 (3) 8 7
premium — (116) — — (116) —
Capitalised reserves on exercise of share options — — (7) — — (7)
Goodwill written off in period 6 5 373 — —
Goodwill transferred from profit and loss account — 190 13 — — —
Proceeds on sale of own shares 36 — (36) — — —
Net reduction to shareholders’ funds (407) (1,019) (1,128) (757) (685) (814)
Shareholders’ funds at 1 January 5,331 6,350 7,478 4,836 5,521 6,335
Shareholders’ funds at 31 December 4,924 5,331 6,350 4,079 4,836 5,521
Equity shareholders’ funds 4,292 4,699 5,602 3,447 4,204 4,773
Non-equity shareholders’ funds 632 632 748 632 632 748
At 31 December 4,924 5,331 6,350 4,079 4,836 5,521
Equity shareholders’ funds comprise called up ordinary share capital, ordinary share premium
account, profit and loss account and reserves.
Non-equity shareholders’ funds comprise called-up preference share capital and preference
share premium account.
45. Assets and liabilities denominated in foreign currency
The aggregate amounts of assets and liabilities denominated in currencies other than pound
sterling were as follows:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Assets 21,682 35,140 56,539 672 1,213 3,366
Liabilities 26,567 48,034 69,580 1,656 4,342 4,678
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PART 3: FINANCIAL INFORMATION ON ABBEY
The above assets and liabilities denominated in foreign currencies do not indicate Abbey’s
exposure to foreign exchange risk. The Group’s foreign currency positions are substantially
hedged by off-balance sheet hedging instruments, or by on-balance sheet assets and liabilities
denominated in the same currency.
46. Guarantees and assets pledged as collateral security
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Guarantees given by Abbey National plc of subsidiaries
liabilities — — — 63,009 69,487 110,876
Guarantees given to third parties 756 1,788 1,349 — — 6
Mortgaged assets granted 328 360 553 — — —
1,084 2,148 1,902 63,009 69,487 110,882
Abbey gives guarantees on behalf of customers. These guarantees have been made in the
normal course of business. A financial guarantee represents an undertaking that the Group will
meet a customer’s obligations to third parties if the customer fails to do so. The Group expects
most of the guarantees it provides to expire unused.
The current carrying amount and the maximum undiscounted potential amount of future
payments of third party guarantees is £756 million of which £353 million will be immediately
recoverable in the event of liquidation.
Mortgaged assets granted are to secure future obligations to third parties who have provided
security to the leasing subsidiaries.
47. Other contingent liabilities
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Other contingent liabilities 116 159 157 8 8 23
The principal other contingent liabilities are as follows:
Overseas tax demand
Abbey National Treasury Services plc has received a demand from an overseas tax authority
relating to the repayment of certain tax credits and related charges. Following certain
modifications to the demand its nominal amount now stands at £101 million (at the balance sheet
exchange rate) (2003: £101 million) as compared with the original demand of £113 million (at the
balance sheet exchange rate) (2003: £112 million). As at 31 December 2004 additional interest
in relation to the demand could amount to £16 million (at the balance sheet exchange rate)
(2003: £14 million). The amount of additional interest has been reduced from the amount
disclosed at 31 December 2003 of £36 million due to certain modifications to the basis on which
additional interest might be due.
Abbey National Treasury Services plc has received legal advice that it has strong grounds to
challenge the validity of the demand and accordingly no specific provision has been made.
48. Commitments
Commitments
Obligations under stock borrowing and lending agreements
Obligations under stock borrowing and lending agreements represent contractual commitments
to return stock borrowed. These obligations totalling £20,508 million at 31 December 2004
(2003: £25,649 million) are offset by a contractual right to receive stock under other contractual
agreements.
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Other commitments
The table below shows the contract or principal amount of commitments other than those relating
to derivatives (see note 51).
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Formal standby facilities, credit lines and other commitments
to lend:
Less than one year 1,739 1,634 1,319 1,733 1,627 1,303
One year and over 1,110 1,384 3,423 — — —
2,849 3,018 4,742 1,733 1,627 1,303
49. Operating leases
2004 2004
Group
2003 2003 2002 2002
Property Equipment Property Equipment Property Equipment
£m £m £m £m £m £m
Rental commitments under operating
leases expiring:
In not more than 1 year
In more than 1 year but not more than
6 1 22 3 18 1
5 years 23 1 19 7 35 2
In more than 5 years 82 — 87 — 85 —
111 2 128 10 138 3
2004 2004
Company
2003 2003 2002 2002
Property Equipment Property Equipment Property Equipment
£m £m £m £m £m £m
Rental commitments under operating
leases expiring:
In not more than 1 year
In more than 1 year but not more than
5 1 16 3 18 1
5 years 22 1 16 7 32 2
In more than 5 years 80 — 78 — 71 —
107 2 110 10 121 3
At 31 December 2004 Abbey held various leases on land and buildings, many for extended
periods, and other leases for equipment, which require the following aggregate annual rental
payments:
Group Company
2004 2003 2002 2004 2003 2002
£m £m £m £m £m £m
Year ended 31 December:
2004 — 135 141 — 118 124
2005 113 135 133 109 118 119
2006 111 118 122 108 105 108
2007 108 112 116 105 100 104
2008 96 112 115 93 99 104
2009 89 112 — 86 100 —
Total thereafter 858 992 1,198 841 957 1,097
2004 2003 2002
£m £m £m
Group rental expense comprises:
In respect of minimum rentals 118 118 117
Less: sub-lease rentals (3) (3) (3)
115 115 114
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PART 3: FINANCIAL INFORMATION ON ABBEY
50. Financial instruments
Interest rate risk
In accordance with FRS 13, interest rate repricing gap information is shown in the table (the ‘‘gap
table’’) below, at 31 December 2004.
It provides an estimate of the repricing profile of Abbey’s assets, liabilities and other off-balance
sheet exposures for non-trading activities. For the major categories of assets and liabilities, the
gap table shows the values of interest earning assets and interest bearing liabilities which reprice
within selected time bands. Items are allocated to time bands by reference to the earlier of the
next interest rate repricing date and the legal maturity date. This leads to an apparent timing
mismatch where the anticipated maturity date is different from the legal maturity date and
hedges have been structured accordingly.
The positions shown reflect both the repricing behaviour of the administered rates on mortgage
and savings products (over which Abbey has control) and contracted wholesale on and offbalance
sheet positions. The tables do not purport to measure market risk exposure.
Interest rate repricing gap at 31 December 2004
In more In more In more
than than than
3 months 6 months 1 year Non-
Not but not but not but not In more interest Nonmore
than more than more than more than than bearing Trading
3 months 6 months 12 months 5 years 5 years amounts Total Trading Total
£m £m £m £m £m £m £m £m £m
Assets
Treasury and other eligible bills — — — — — — — 1,990 1,990
Cash and loans and advances to banks (1)
453 — — — — 967 1,420 9,182 10,602
Loans and advances to customers (2)
59,282 1,982 3,305 12,903 3,242 1,138 81,852 11,357 93,209
Net investment in finance leases 948 46 146 2 2 4 1,148 — 1,148
Securities and investments 394 173 44 40 13 38 702 23,157 23,859
Other assets — — — — — 9,376 9,376 2,377 11,753
Assets of long-term assurance funds — — — — — 27,180 27,180 — 27,180
Total assets 61,077 2,201 3,495 12,945 3,257 38,703 121,678 48,063 169,741
Liabilities
Deposits by banks (1)
(349) — — — — (161) (510) (17,902) (18,412)
Customer accounts (63,690) (1,084) (2,016) (2,541) (17) — (69,348) (9,502) (78,850)
Debt securities in issue
Subordinated liabilities and other long-term capital
(7,991) (1,003) (444) (3,332) (252) — (13,022) (8,947) (21,969)
instruments (405) — (388) (1,328) (3,057) (704) (6,082) — (6,082)
Other liabilities — — — — — (5,431) (5,432) (6,381) (11,812)
Funding of trading book 5,331 — — — — — 5,331 (5,331) —
Liabilities of long-term assurance funds — — — — — (27,180) (27,180) — (27,180)
Minority interests — non-equity
Shareholders’ funds
— — — — — (512) (512) — (512)
— non-equity — — — — — (632) (632) — (632)
— equity — — — — — (4,292) (4,292) — (4,292)
Total liabilities (67,104) (2,087) (2,848) (7,401) (3,326) (38,912) (121,678) (48,063) (169,741)
Off-balance sheet items(3) (5,295) 1,730 1,446 (2,022) 4,218 (77)
Interest rate repricing gap (11,322) 1,844 2,093 3,522 4,149 (286)
2004 Cumulative gap (1,322) (9,478) (7,385) (3,863) 286 —
2003 Cumulative gap (6,760) (7,356) (6,309) 2,511 691 — — — —
2002 Cumulative gap (2,244) (3,398) (3,309) 3,181 (266) —
(1) Non-interest bearing items within Loans and advances to banks and Deposits by banks include items in the course of
collection and items in the course of transmission, respectively. These are short-term receipts and payments within the UK
retail banking clearing system. The remaining non-interest bearing item within Loans and advances to banks relates to the
interest free deposit maintained with the Bank of England.
(2) Non-interest bearing items within Loans and advances to customers relate to non-accruing lendings after deduction of
associated provisions.
(3) Off-balance sheet items are classified in the table above according to the interest terms contained in the contracts.
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PART 3: FINANCIAL INFORMATION ON ABBEY
Interest rate repricing gap at 31 December 2003
In more In more In more
than than than
3 months 6 months 1 year Non-
Not but not but not but not In more interest Nonmore
than more than more than more than than bearing Trading
3 months 6 months 12 months 5 years 5 years amounts Total Trading Total
£m £m £m £m £m £m £m £m £m
Assets
Treasury and other eligible bills — — — — — — — 1,631 1,631
Cash and loans and advances to banks (1)
449 — — — — 1,022 1,471 6,123 7,594
Loans and advances to customers (2)
61,758 1,343 2,095 13,847 2,958 2,234 84,235 9,604 93,839
Net investment in finance leases 1,840 48 250 300 123 3 2,564 9 2,573
Securities and investments 625 91 108 384 704 235 2,147 29,814 31,961
Other assets — — — — — 9,198 9,198 1,643 10,841
Assets of Long Term Assurance Funds — — — — — 28,336 28,336 — 28,336
Total assets 64,672 1,482 2,453 14,531 3,785 41,028 127,951 48,824 176,775
Liabilities
Deposits by banks (1)
(912) (38) (10) — (14) (204) (1,178) (20,947) (22,125)
Customer accounts (57,515) (1,313) (1,612) (3,111) (88) — (63,639) (10,762) (74,401)
Debt securities in issue
Subordinated liabilities and other long term capital
(16,091) (1,969) (3,108) (2,757) (909) — (24,834) — (24,834)
instruments (450) (208) (279) (1,067) (5,075) — (7,079) — (7,079)
Other liabilities — — — — — (5,050) (5,050) (9,065) (14,115)
Funding of trading book 8,050 — — — — — — (8,050) —
Liabilities of Long Term Assurance Funds — — — — — (28,336) (28,336) — (28,336)
Minority interests — non-equity
Shareholders’ funds
— — — — — (554) (554) — (554)
— non-equity — — — — — (632) (632) — (632)
— equity — — — — — (4,699) (4,699) — (4,699)
Total liabilities (66,918) (3,528) (5,009) (6,935) (6,086) (39,475) (127,951) (48,824) (176,775)
Off-balance sheet items (3)
(4,514) 1,450 3,603 1,224 481 (2,244) — — —
Interest rate repricing gap (6,760) (596) 1,047 8,820 (1,820) (691) — — —
(1) Non-interest bearing items within Loans and advances to banks and Deposits by banks include items in the course of
collection and items in the course of transmission, respectively. These are short-term receipts and payments within the
UK retail banking clearing system. The remaining non-interest bearing item within Loans and advances to banks relates to
the interest free deposit maintained with the Bank of England.
(2) Non-interest bearing items within Loans and advances to customers relate to non-accruing lendings after deduction of
associated provisions.
(3) Off-balance sheet items are classified in the table above according to the interest terms contained in the contracts.
171

PART 3: FINANCIAL INFORMATION ON ABBEY
Interest rate repricing gap at 31 December 2002
In more than In more than In more than
3 months 6 months 1 year
but not but not but not Non-interest
Not more more than more than more than In more than bearing Non-Trading
than 3 months 6 months 12 months 5 years 5 years amounts Total Trading Total
£m £m £m £m £m £m £m £m £m
Assets
Treasury and other
eligible bills
Cash and loans and
— — — — — — — 1,483 1,483
advances to banks (1)
Loans and advances to
2,767 28 — 70 — 658 3,523 3,474 6,997
customers (2)
Net investment in
65,225 1,105 3,757 13,595 3,422 30 87,134 3,774 90,908
finance leases
Securities and
2,251 188 405 310 293 — 3,447 — 3,447
investments 24,058 1,822 458 2,301 4,336 893 33,868 26,902 60,770
Other assets
Assets of Long Term
— — — — — 10,863 10,863 1,842 12,705
Assurance Funds — — — — — 29,411 29,411 — 29,411
Total assets 94,301 3,143 4,620 16,276 8,051 41,855 168,246 37,475 205,721
Liabilities
Deposits by banks (1)
(542) (1,097) (474) (11) (117) (213) (2,454) (21,720) (24,174)
Customer accounts (60,656) (801) (2,941) (3,430) (106) — (67,934) (8,832) (76,766)
Debt securities in issue
Subordinated liabilities
and other long term
(29,624) (4,201) (3,850) (7,474) (2,930) — (48,079) — (48,079)
capital instruments (424) (120) — (1,394) (5,365) — (7,303) — (7,303)
Other liabilities
Liabilities of Long Term
(729) (57) (116) (71) (93) (4,980) (6,046) (6,923) (12,969)
Assurance Funds
Minority interests —
— — — — — (29,411) (29,411) — (29,411)
non-equity
Shareholders’ funds
— — — — — (627) (627) — (627)
— non-equity — — — — — (748) (748) — (748)
— equity — — — — — (5,644) (5,644) — (5,644)
Total liabilities (91,975) (6,276) (7,381) (12,380) (8,611) (41,623) (168,246) (37,475) (205,721)
Off-balance sheet
items (3)
Interest rate repricing
(4,570) 1,979 2,850 2,594 (2,887) 34 — —
gap (2,244) (1,154) 89 6,490 (3,447) 266 — —
(1) Non-interest bearing items within Loans and advances to banks and Deposits by banks include items in the course of
collection and items in the course of transmission, respectively. These are short-term receipts and payments within
the UK retail banking clearing system. The remaining non-interest bearing item within Loans and advances to banks
relates to the interest free deposit maintained with the Bank of England.
(2) Non-interest bearing items within Loans and advances to customers relate to non-accruing lendings after deduction
of associated provisions.
(3) Off-balance sheet items are classified in the table above according to the interest terms contained in the contracts.
Negative gaps are liability sensitive and, all other things being equal, would indicate a benefit if
interest rates decline. A positive gap is asset sensitive and, all other things being equal, would
indicate a benefit if interest rates increase. Gap positions shown within the interest rate repricing
table are attributable to the balance sheet management of the Abbey’s capital, low rate and noninterest
bearing liabilities, aimed at reducing income volatility. Fixed rate assets and liabilities are
hedged in line with a broadly risk neutral management objective. A notional allocation of liabilities
has been made to the trading book for the purposes of the gap table. Such an allocation
represents the proportion of general funding supporting the trading book.
A number of Abbey non-trading assets and liabilities are subject to more complex repricing than
can be reflected in the above table or repriced with reference to indices other than interest rates.
The market risk exposure is minimised through the use of matching derivatives. The risks
associated with such instruments, and their hedges, are reflected in note 51 to the financial
statements.
Foreign exchange risk
Abbey’s main overseas operations are in the US. The main operating (or ‘functional’) currencies
of its operations are therefore sterling, euro and U.S. dollars. As Abbey prepares its Consolidated
Financial Statements in pound sterling, these will be affected by movements in the euro/pound
sterling and U.S. dollar/pound sterling exchange rates. The structural currency exposures
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PART 3: FINANCIAL INFORMATION ON ABBEY
contained in Abbey’s Consolidated Balance Sheet is predominantly affected by movements in
the exchange rates between the euro and pound sterling. This structural currency exposure is
not the same as structural market risk which arises from a variety of exposures inherent in a
product or portfolio. Translation gains and losses arising from these exposures are recognised in
the Statements of total recognised gains and losses.
Abbey mitigates the effect of this exposure by financing a significant proportion of its net
investments in its overseas operations with borrowings in the currency of the local operation.
Abbey’s structural currency exposures at 31 December 2004 were as follows:
Borrowings
hedging net Net Net
Net investment structural structural
investments in overseas currency currency
in operations operations exposures exposures
2004 2004 2004 2003
£m £m £m £m
Euro — Subsidiary — — — (17)
— Branches (1) — (1) (29)
Other non-pound sterling amounts 1 — 1 1
— — — (45)
Borrowings
hedging net Net Net
Net investment structural structural
investments in overseas currency currency
in operations operations exposures exposures
2003 2003 2003 2002
£m £m £m £m
Euro — Subsidiary 61 (78) (17) 12
— Branches (29) — (29) (33)
Other non-pound sterling amounts 1 — 1 1
33 (78) (45) (20)
Borrowings
hedging net Net Net
Net investment structural structural
investments in overseas currency currency
in operations operations exposures exposures
2002 2002 2002 2001
£m £m £m £m
Euro — Subsidiary 84 (72) 12 7
— Branches (33) — (33) (30)
Other non-pound sterling amounts 1 — 1 1
52 (72) (20) (22)
Abbey also has some transactional (or non-structural) currency exposures. Such exposures arise
from the activities of Abbey where the operating unit undertakes activities in currencies other
than the unit’s functional currency. Where such activities show currency mismatches between
assets and liabilities, Abbey uses a variety of derivative products to eliminate some or all of the
currency risk depending on the amount and nature of the transaction. Controls are in place to
limit the size of Abbey’s open transactional foreign exchange positions.
Certain transactional currency exposures give rise to net currency gains and losses which are
recognised in the Profit and Loss Account. Such exposures comprise the monetary assets and
monetary liabilities of Abbey that are not denominated in the functional currency of the operating
unit involved, other than certain non-pound sterling borrowings treated as hedges of net
investments in overseas operations (as shown in the above table). Transactional currency
exposures are stated net of derivatives used to hedge currency risk.
Abbey’s transactional currency exposures at 31 December 2004 and 2003 were as follows:
2004 — Net foreign currency monetary assets/(liabilities)
Pound Sterling U.S. Dollar Euro Other Total
£m £m £m £m £m
Pound Sterling n/a 527 70 32 629
Euro 88 — n/a — 88
88 527 70 32 717
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PART 3: FINANCIAL INFORMATION ON ABBEY
2003 — Net foreign currency monetary assets/(liabilities)
Pound Sterling U.S. Dollar Euro Other Total
£m £m £m £m £m
Pound Sterling n/a 268 (20) 32 280
Euro 81 — n/a — 81
81 268 (20) 32 361
2002 — Net foreign currency monetary assets/(liabilities)
Pound Sterling U.S. Dollar Euro Other Total
£m £m £m £m £m
Pound Sterling N/a 50 (7) 15 58
Euro 113 — N/a — 113
113 50 (7) 15 171
Certain areas of the business generate a significant proportion of their income in currencies
other than the functional currency, and may use forward foreign exchange contracts to fix the
functional currency equivalent of their forecast income. The outstanding nominal amount of such
transactions at 31 December 2004 was nil.
51. Derivatives
Derivative financial instruments (derivatives) are contracts or agreements whose value is derived
from one or more underlying indices or asset values inherent in the contract or agreement. They
include interest rate, cross-currency, equity and other index swaps, forward rate agreements,
futures, caps, floors, options, swaptions, credit default and total return swaps, equity index
contracts and exchange traded interest rate futures and equity index options. Derivatives are
used for trading and non-trading purposes. These terms are defined in Accounting policies —
Derivatives.
Non-trading derivatives
The main non-trading derivatives are interest rate and cross-currency swaps, and credit default
swaps, which are used to hedge Abbey’s exposures to interest rates, credit spread movements
and exchange rates inherent in non-trading assets, liabilities and positions, including fixed rate
lending and structured savings products within banking and saving segments and medium term
note issues, capital issues and fixed rate asset purchases within Abbey National Treasury
Services.
The following table illustrates activities undertaken by Abbey, the related risks associated with
such activities and the types of derivatives used in managing such risks. Such risks may also be
managed using on-balance sheet instruments as part of an integrated approach to risk
management.
Activity Risk Type of Hedge
Management of the return on Reduced profitability due to falls in Receive fixed interest rate swaps.
variable rate assets financed by
shareholders’ funds and net noninterest
bearing liabilities
interest rates.
Fixed rate lending and investments Sensitivity to increases in interest
rates.
Pay fixed interest rate swaps.
Fixed rate retail and wholesale
funding
Sensitivity to falls in interest rates. Receive fixed interest rate swaps.
Equity-linked retail funding. Sensitivity to increases in equity
market indices.
Receive equity swaps.
Management of other net interest Sensitivity of returns to changes in Interest rate swaps and caps/floors
income on retail activities interest rates. according to the type of risk
identified.
Profits earned in foreign currency Sensitivity to strengthening of pound
sterling against other currencies.
Forward foreign exchange contracts.
Investment in foreign currency Sensitivity to strengthening of pound Cross-currency and foreign
assets sterling against other currencies. exchange swaps. Foreign currency
funding.
Issuance of products with embedded Sensitivity to changes in underlying Interest rate swaps combined with
equity options rate and rate volatility causing option
exercise.
equity options.
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PART 3: FINANCIAL INFORMATION ON ABBEY
Activity Risk Type of Hedge
Lending and investments Sensitivity to weakening credit Purchase credit default and total
quality. return swaps.
Investment in, and issuance of, Sensitivity to changes in underlying Interest rate swaps plus caps/floors,
products with embedded interest rate and rate volatility causing option and other matched options.
rate options exercise.
Investment in, and issuance of, Sensitivity to changes in rates Interest rate swaps combined with
bonds with put/call features causing option exercise. swaptions (1) and other matched
options.
Firm commitments (e.g. asset Sensitivity to changes in rates Hedges are arranged at the time of
purchases, issues arranged) between arranging a transaction and commitments if there is exposure to
completion. rate movements.
(1) A swaption is an option on a swap which gives the holder the right but not the obligation to buy or sell a swap.
(2) Exchange-traded derivatives may additionally be used as hedges in any of the above activities in lieu of interest
rate swaps.
Derivative products which are combinations of more basic derivatives (such as swaps with
embedded option features), or which have leverage features, may be used in circumstances
where the underlying position being hedged contains the same risk features. In such cases the
derivative used will be structured to match the risks of the underlying asset or liability. Exposure
to market risk on such contracts is therefore hedged.
The following tables show the contract or underlying principal amounts, positive and negative
market values and related book values of derivatives held for non-trading purposes at
31 December 2004 and 2003. Contract or underlying principal amounts indicate the volume of
business outstanding at the balance sheet date and do not represent amounts at risk. The fair
values represent the amount at which a contract could be exchanged in an arm’s length
transaction, calculated at market rates current at the balance sheet date. The positive and
negative market values of the derivatives should not be viewed in isolation because they are
substantially matched by negative and positive market values, respectively, on the assets,
liabilities and positions being hedged.
2004 2004
Group
2004 2004 2004
Contract or Positive Related Negative Related
underlying market book market book
principal (1)
values (2)
value values (2)
value
£m £m £m £m £m
Exchange rate contracts:
Cross-currency swaps 23,311 761 240 1,440 359
Foreign exchange swaps and forwards 1,194 7 — — —
Foreign exchange options — — — — —
Interest rate contracts:
24,505 768 240 1,440 359
Interest rate swaps 49,143 1,136 374 376 66
Caps, floors and swaptions 1,707 6 16 1 —
Futures (exchange traded) — — — — —
Forward rate agreements — — — — —
Equity and commodity contracts:
50,850 1,142 390 377 66
Equity index options and similar products 256 — — 140 —
Equity and commodity index swaps 418 18 — 50 —
674 18 — 190 —
76,029 1,928 630 2,007 425
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PART 3: FINANCIAL INFORMATION ON ABBEY
2003 2003
Group
2003 2003 2003
Contract or Positive Related Negative Related
underlying market book market book
principal (1)
values (2)
value values (2)
value
£m £m £m £m £m
Exchange rate contracts:
Cross-currency swaps 22,214 928 124 1,380 183
Foreign exchange swaps and forwards 1,630 — 8 — —
Foreign exchange options — — — — —
Interest rate contracts:
23,844 928 132 1,380 183
Interest rate swaps 69,433 2,067 650 1,432 362
Caps, floors and swaptions 2,484 21 37 1 —
Futures (exchange traded) 4,907 — — — —
Forward rate agreements 2,213 — — — —
Equity and commodity contracts:
79,037 2,088 687 1,433 362
Equity index options and similar products 257 — — 86 —
Equity and commodity index swaps 673 22 9 20 3
930 22 9 106 3
103,811 3,038 828 2,919 548
2002 2002
Group
2002 2002 2002
Contract or Positive Related Negative Related
underlying market book market book
principal (1)
values (2)
value values (2)
value
£m £m £m £m £m
Exchange rate contracts:
Cross-currency swaps 23,849 835 166 1,236 330
Foreign exchange swaps and forwards 5,663 22 18 82 79
Foreign exchange options 29 3 — — —
Interest rate contracts:
29,541 860 184 1,318 409
Interest rate swaps 99,539 2,421 906 2,306 748
Caps, floors and swaptions 6,278 27 70 6 —
Futures (exchange traded) 3,745 — — — —
Forward rate agreements — — — — —
Equity and commodity contracts:
109,562 2,448 976 2,312 748
Equity index options and similar products 234 3 — 48 —
Equity and commodity index swaps 832 44 3 62 1
1,066 47 3 110 1
140,169 3,355 1,163 3,740 1,158
(1) Included in the above analysis of non-trading derivatives are exchange rate contracts, interest rate contracts and
equity and commodity contracts, with underlying principal amounts of £1,644 million, (2003: £1,574 million),
£17,936 million (2003: £47,685 million) and £333 million (2003: £363 million), respectively, which were undertaken
by Group entities with Abbey National Financial Products. The total net positive market value of such contracts
amounted to £505 million (2003: net positive £189 million). Associated contracts which Abbey National Financial
Products transacted with external counterparties are included in the analysis of trading derivatives. Net positive
market values of £505 million (2003: net positive £189 million) on all contracts held by Abbey National Financial
Products with other Group entities are included within Other assets.
(2) Positive market values arise where the present value of cash inflows exceeds the present value of cash outflows
on a contract by contract basis. Negative market values arise where the present value of cash outflows exceeds
the present value of cash inflows on a contract by contract basis.
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PART 3: FINANCIAL INFORMATION ON ABBEY
The following table analyses over-the-counter (OTC) and other non-exchange traded derivatives
held for non-trading purposes by remaining maturity:
Contract or
Group
Contract or Contract or
underlying Replacement underlying Replacement underlying Replacement
principal cost principal cost principal cost
2004 2004 2003 2003 2002 2002
£m £m £m £m £m £m
Non-trading derivatives
maturing:
In not more than one year
In more than one year but
26,673 286 36,368 806 55,737 647
not more than five years 38,727 912 47,672 1,257 56,086 1,365
In more than five years 10,629 730 14,864 975 24,601 1,343
76,029 1,928 98,904 3,038 136,424 3,355
The following table shows, by nominal amount, the activity in interest rate and cross currency
swaps entered into for hedging purposes, with third parties and Abbey National Financial
Products (ANFP).
2004 2003 2002
Interest Cross Interest Cross Interest Cross
rate currency rate currency rate currency
swaps swaps Total swaps swaps Total swaps swaps Total
£m £m £m £m £m £m £m £m £m
At 1 January (third party
contracts)
At 1 January (contracts
20,011 20,641 40,652 46,219 22,252 68,471 45,895 23,157 69,052
with) ANFP 49,422 1,573 50,995 53,320 1,597 54,917 56,627 4,152 60,779
New contracts
Acquisitions of subsidiary
25,618 3,924 29,542 22,362 5,483 27,845 29,649 3,423 33,072
undertakings
Matured and amortised
— — — — — — — — —
contracts (8,926) (2,237) (11,163) (32,416) (2,636) (35,052) (23,930) (3,187) (27,117)
Terminated contracts
Effect of foreign exchange
(5,776) (587) (6,363) (14,502) (4,430) (18,932) (3,125) (983) (4,108)
rate and other movements
Net (decrease) increase in
280 (74) 206 (1,652) (28) (1,680) (2,270) (158) (2,428)
contracts with ANFP (31,486) 71 (31,415) (3,898) (24) (3,922) (3,307) (2,555) (5,862)
At 31 December 49,143 23,311 72,454 69,433 22,214 91,647 99,539 23,849 123,388
Abbey uses interest rate swaps and cross-currency swaps predominantly for hedging fixed-rate
assets and liabilities so that they become, in effect, floating-rate assets and liabilities. For interest
rate swaps and cross-currency swaps used for these purposes, the weighted average pay fixed
rates, receive fixed rates, pay variable rates and receive variable rates by maturity and contract
amount at 31 December 2004 were as follows:
Pay fixed Receive fixed Pay variable Receive variable
Nominal Nominal Nominal Nominal
amount Rate amount Rate amount Rate amount Rate
£m % £m % £m % £m %
Contracts maturing (1) :
Less than one year 4,449 4.32 11,822 3.99 22,076 3.83 15,315 4.12
One to three years 2,787 4.87 1,768 5.02 14,797 3.46 15,811 4.11
Three to five years 1,812 5.01 1,275 6.32 15,500 4.14 16,086 4.61
Over five years 2,126 6.06 5,090 7.24 8,067 5.05 4,941 4.37
11,174 19,955 60,440 52,153
Pay fixed Receive fixed Pay variable Receive variable
Nominal Nominal Nominal Nominal
amount Rate amount Rate amount Rate amount Rate
2003
Contracts maturing
£m % £m % £m % £m %
(1) :
Less than one year 8,543 4.30 16,729 4.38 23,177 2.67 15,031 2.50
One to three years 9,210 4.70 12,036 4.51 24,688 2.27 21,801 2.23
Three to five years 2,481 5.30 3,292 4.91 9,353 3.17 8,535 2.77
Over five years 5,182 5.82 7,198 6.47 9,240 3.28 7,097 2.77
25,416 39,255 66,458 52,464
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PART 3: FINANCIAL INFORMATION ON ABBEY
Pay fixed Receive fixed Pay variable Receive variable
Nominal Nominal Nominal Nominal
amount Rate amount Rate amount Rate amount Rate
2002
Contracts maturing
£m % £m % £m % £m %
(1) :
Less than one year 13,532 4.98 18,823 4.60 34,075 2.83 28,821 2,76
One to three years 11,078 5.51 15,803 5.46 23,280 2.81 18,482 2.60
Three to five years 5,443 5.22 5,257 4.67 12,026 3.11 12,285 3.22
Over five years 10,208 5.42 8,127 6.30 13,776 3.62 15,790 3.25
40,261 48,010 83,157 75,378
(1) For the purpose of this analysis, the maturity date has been taken to be the date when the contract expires.
The total pay fixed nominal amount comprises £11,133 million in respect of interest rate swaps
and £41 million in respect of cross-currency swaps. The total receive fixed nominal amount
comprises £18,178 million in respect of interest rate swaps and £1,777 million in respect of
cross-currency swaps. The total pay variable nominal amount comprises £38,008 million in
respect of interest rate swaps and £22,432 million in respect of cross-currency swaps. The total
receive variable nominal amount comprises £30,964 million in respect of interest rate swaps and
£21,189 million in respect of cross-currency swaps.
A difference arises when comparing nominal contract assets and nominal contract liabilities.
Whereas with single currency swaps there are equal and opposite nominal balances on either
side of the swap leg, this is not necessarily the case with cross-currency swaps. At contract date
pound sterling equivalent nominal amounts should be equal and opposite, however, subsequent
exchange rate movements will result in divergence in the nominal amounts. This exchange rate
divergence explains the difference between nominal contract asset balances and nominal
contract liability balances.
The weighted average interest rates presented in the tables above reflect interest rates in a
range of currencies. These rates should not be analysed in isolation from the rates on the
underlying instruments. The effect of hedges has been included in the average interest rates
presented in the Average balance sheet included elsewhere in this Annual Report.
The contract amount of each type of end-use contract (excluding cross-currency swaps and
interest rate swaps which are included in the swaps detailed above) at 31 December 2004 are
set forth by currency in the table below. Of these contracts £1,194 million mature within one year
and £2,381 million mature after one year.
Contract type by nominal amount
Forward
foreign
exchange Options
and foreign Forward caps and Futures
exchange rate floors (exchange Equity
swaps agreements (OTC) (1)
traded) contracts
2004 £m £m £m £m £m
Pound Sterling 543 — 1,707 — 355
U.S. dollars 522 — — — 43
Euro 120 — — — 288
Hong Kong dollar — — — — —
Switzerland franc 9 — — — 8
Total 1,194 — 1,707 — 674
Contract type by nominal amount
Forward
foreign
exchange Options
and foreign Forward caps and Futures
exchange rate floors (exchange Equity
swaps agreements (OTC) (1)
traded) contracts
2003 £m £m £m £m £m
Pound Sterling — — 2,185 — 112
U.S. dollars — 2,213 209 3,843 453
Euro 1,540 — 87 883 357
Hong Kong dollar — — 3 — —
Switzerland franc 90 — — 181 8
Total 1,630 2,213 2,484 4,907 930
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PART 3: FINANCIAL INFORMATION ON ABBEY
Contract type by nominal amount
Forward
foreign
exchange Options
and foreign Forward caps and Futures
exchange rate floors (exchange Equity
swaps agreements (OTC) (1)
traded) contracts
2002 £m £m £m £m £m
Pound Sterling 3,089 — 4,234 375 420
U.S. dollars 1,649 — 1,702 3,207 192
Euro 610 — 368 163 441
Japanese Yen 276 — — — 5
Hong Kong dollar — — 3 — —
Switzerland franc — — — — 8
Australian Dollar 39 — — — —
Total 5,663 — 6,307 3,745 1,066
(1) All over-the-counter option contracts are in respect of interest related instruments.
Trading derivatives
The following table sets forth the contract or underlying principal (nominal) amounts, positive
market values and negative market values of derivatives held for trading purposes at
31 December 2004 and 2003.
Contract or Positive Negative Contract or
Group
Positive Negative Contract or Positive Negative
underlying market market underlying market market underlying market market
principal values values principal values values principal values values
2004 2004 2004 2003 2003 2003 2002 2002 2002
£m £m £m £m £m £m £m £m £m
Exchange rate contracts:
Cross-currency swaps
Foreign exchange swaps
8,817 194 393 10,572 253 428 10,801 173 218
and forwards 3,533 13 164 19,399 76 72 7,558 60 121
12,350 207 557 29,971 329 500 18,359 233 339
Interest rate contracts:
Interest rate swaps
Caps, floors and
377,931 8,350 8,694 380,989 8,254 8,794 329,834 10,006 10,432
swaptions
Futures (exchange
54,074 824 765 56,436 771 796 74,462 714 904
traded) 1,069 — — 5,348 32 28 25,274 — 8
Forward rate agreements 2,290 — — 4,547 2 1 1,722 — 7
435,364 9,174 9,459 447,320 9,059 9,619 431,292 10,720 11,351
Equity and credit
contracts:
Equity index and similar
products
Equity index options
15,696 581 1,750 11,561 538 2,535 13,639 348 1,233
(exchange traded)
Credit default swaps and
3,487 128 127 8,363 70 301 2,538 — 193
similar products 17,156 90 80 16,171 103 74 11,412 154 96
36,339 799 1,957 36,095 711 2,910 27,589 502 1,522
Total 484,053 10,180 11,973 513,386 10,099 13,029 477,240 11,455 13,212
Effect of netting
Fair values of contracts
between ANFP and
(8,308) (8,308) (8,456) (8,456) (9,745) (9,745)
other Group entities (1)
Amount included in Other
505 — — 189 132 —
assets/Other liabilities 2,377 3,665 1,643 4,762 1,842 3,467
(1) Associated contracts which Abbey National Financial Products has transacted with external counterparties are
included in the analysis of trading derivatives.
Positive fair values arise where gross positive fair values exceed gross negative fair values on a
contract by contract basis. This equates to net replacement cost. Negative fair values arise
where gross negative fair values exceed gross positive fair values on a contract by contract
179

PART 3: FINANCIAL INFORMATION ON ABBEY
basis. The totals of positive and negative fair values arising on trading derivatives at
31 December 2004 have been netted where the Group has a legal right of offset with the relevant
counterparty.
All exchange traded instruments are subject to cash requirements under the standard margin
arrangements applied by the individual exchanges. Such instruments are not subject to
significant credit risk.
Abbey National Treasury Services plc has a mandate to deal in credit derivatives. Abbey National
Treasury Services plc acts as principal under this mandate, and takes a fee for guaranteeing the
counterparty against the default of the senior obligations of a third party. Amounts in respect of
non-trading credit derivative contracts are included under note 46, Guarantees and assets
pledged as collateral security.
Substantially all of Abbey’s over-the-counter derivatives activity is contracted with financial
institutions.
The following table analyses replacement cost for over-the-counter and other non-exchange
traded derivatives with positive market values held for trading purposes by remaining maturity
before netting:
Contacts or
Group
Contacts or Contacts or
underlying Replace- underlying Replace- underlying Replaceprincipal
ment principal ment principal ment
cost cost cost cost cost cost
2004 2004 2003 2003 2002 2002
£m £m £m £m £m £m
Trading derivatives maturing (before
netting):
In not more than one year
In more than one year but not more
80,237 820 105,884 1,018 122,334 994
than five years 222,234 3,470 219,871 3,914 186,066 4,585
In more than five years 177,026 5,762 173,920 5,065 141,028 5,876
479,497 10,052 499,675 9,997 449,428 11,455
Unrecognised gains and losses on financial assets and financial liabilities resulting
from hedge accounting
Gains and losses on financial instruments used for hedging are not recognised until the exposure
that is being hedged is itself recognised. Unrecognised gains and losses on instruments used for
hedging are as follows:
Group
2004 2004
2004
Net gains
Gains Losses (losses)
£m £m £m
Gains and losses expected to be recognised:
In one year or less 209 (89) 120
After one year 1,328 (1,732) (404)
1,537 (1,821) (284)
Group
2003 2003
2003
Net gains
Gains Losses (losses)
£m £m £m
Gains and losses expected to be recognised:
In one year or less 633 (423) 210
After one year 1,561 (2,071) (510)
2,194 (2,494) (300)
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PART 3: FINANCIAL INFORMATION ON ABBEY
Group
2002 2002
2002
Net gains
Gains Losses (losses)
£m £m £m
Gains and losses expected to be recognised:
In one year or less 678 (549) 129
After one year 1,686 (2,205) (519)
2,364 (2,754) (390)
The net gain unrecognised as at the start of the year and recognised during the year was
£210 million (2003: £129 million).
Deferred gains and losses on financial assets and financial liabilities resulting from
hedge accounting
Deferred balances relating to settled derivatives and other financial transactions previously used
as hedges will be released to the profit and loss account in the same periods as the income and
expense flows from the underlying hedged transactions. The movement in the period is as
follows:
Group
Gains Losses
Total
net gains
(losses)
£m £m £m
At 1 January 2004 46 (11) 35
Previous year’s deferred gains and losses recognised in the year (4) 1 (3)
Gains and losses deferred in the year 13 (48) (35)
At 31 December 2004 55 (58) (3)
Gains and losses expected to be recognised:
In one year or less 41 (7) 34
After one year 14 (51) (37)
55 (58) (3)
Group
Gains Losses
Total
net gains
(losses)
£m £m £m
At 1 January 2003 64 (17) 47
Previous year’s deferred gains and losses recognised in the year (9) (3) (12)
Gains and losses deferred in the year (9) 9 —
At 31 December 2003 46 (11) 35
Gains and losses expected to be recognised:
In one year or less 10 (11) (1)
After one year 36 — 36
Group
Gains Losses
Total
net gains
(losses)
£m £m £m
At 1 January 2002 95 (14) 81
Previous year’s deferred gains and losses recognised in the year (34) 5 (29)
Gains and losses deferred in the year 3 (8) (5)
At 31 December 2002 64 (17) 47
Gains and losses expected to be recognised:
In one year or less 21 (9) 12
After one year 43 (8) 35
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PART 3: FINANCIAL INFORMATION ON ABBEY
52. Consolidated cash flow statement
a) Reconciliation of (loss)/profit before tax to net cash inflow from operating activities
2004 2003 2002
£m £m £m
Profit/(loss) on ordinary activities before tax 273 (686) (984)
Decrease in interest receivable and prepaid expenses 192 531 540
(Decrease)/increase in interest payable and accrued expenses 735 26 (25)
Provisions for bad and doubtful debts (35) 474 514
Provisions for contingent liabilities and commitments 233 104 50
Net advances written off (293) (267) (289)
Decrease before tax from Long Term Assurance business (76) 202 311
Depreciation and amortisation 252 401 1,585
Income from associated undertakings (6) (12) (17)
Profit on sale of subsidiary and associated undertakings (46) (89) (48)
Profit/(loss) on sale of tangible fixed assets and investments 128 497 55
Effect of other deferrals and accruals of cash flows from operating activities (303) (278) 190
Net cash inflow from trading activities 1,054 903 1,882
Net (increase)/decrease in loans and advances to banks and customers (4,295) (10,943) (5,104)
Net (increase)/decrease in investment in finance leases 77 (13) 404
Net (increase)/decrease in bills and securities 6,380 1,115 (5,643)
Net (decrease) in deposits and customer accounts 602 (3,291) (369)
Net (decrease) in debt securities in issue (2,030) (21,778) (4,432)
Net increase in other liabilities less assets (3,175) 1,947 2,006
Exchange movements (633) (618) 304
Net cash (outflow)/inflow from operating activities (2,019) (32,678) (10,952)
Exchange movements represent exchange movements on cash balances and investing and
financing activities. The movements are not indicative of Abbey’s exposure to foreign exchange
risk on these items, because foreign currency positions in such balances are substantially
hedged by other on-balance sheet and off-balance sheet foreign currency amounts. All other
exchange movements, including movements on hedges, are included in the relevant captions in
the above reconciliation.
b) Analysis of the balances of cash as shown in the balance sheet
Included in the balance sheet are the following amounts of cash:
Cash and Loans and
balances advances to
with other banks
central repayable
banks on demand Total
£m £m £m
At 1 January 2004 439 3,089 3,528
Net cash inflow/(outflow) 15 (203) (188)
At 31 December 2004 454 2,886 3,340
At 1 January 2003 396 2,698 3,094
Net cash inflow 43 391 434
At 31 December 2003 439 3,089 3,528
At 1 January 2002 494 5,452 5,946
Net cash (outflow) (98) (2,754) (2,852)
At 31 December 2002 396 2,698 3,094
Abbey is required to maintain balances with the Bank of England which at 31 December 2004
amounted to £131 million (2003: £127 million, 2002: £131 million). These are shown in loans and
advances to banks, and are not included in cash for the purposes of the Cash Flow Statement.
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PART 3: FINANCIAL INFORMATION ON ABBEY
c) Analysis of changes in financing during the year
Share Non- Other
capital inc. equity Sub- long-term
share minority ordinated capital
premium interests liabilities instruments Total
£m £m £m £m £m
At 1 January 2004 2,522 554 6,337 742 10,155
Net cash (outflow) from financing 13 — (813) — (800)
Shares issued for a non-cash consideration 101 — — — 101
Effect of foreign exchange rate changes — (42) (164) (20) (226)
At 31 December 2004 2,636 512 5,360 722 9,230
At 1 January 2003 2,626 627 6,532 771 10,556
Net cash (outflow) from financing (122) (15) (56) — (193)
Shares issued for a non-cash consideration 18 — — — 18
Effect of foreign exchange rate changes — (58) (139) (29) (226)
At 31 December 2003 2,522 554 6,337 742 10,155
At 1 January 2002 2,520 681 6,590 297 10,088
Net cash inflow from financing 17 15 170 485 687
Shares issued for a non-cash consideration 82 — — — 82
Capitalised on exercise of share options 7 — — — 7
Effect of foreign exchange rate changes — (69) (228) (11) (308)
At 31 December 2002 2,626 627 6,532 771 10,556
d) Acquisitions of subsidiary undertakings and purchase of businesses
2004 2003 2002
£m £m £m
Net assets acquired:
Loans and advances to banks — — —
Loans and advances to customers — — 281
Operating lease assets — — —
Tangible fixed assets — — —
Other assets — — 6
Debt securities — — —
Long term assurance business — — —
Assets of long term assurance funds — — —
Customer accounts — — —
Deposits by banks — — (50)
Debt securities in issue — — (31)
Provisions for liabilities and charges — — (2)
Other liabilities — — (8)
Liabilities of long term assurance funds — — —
Goodwill on acquisitions — — 8
Satisfied by:
— — 204
Cash — — 1,597
Deferred cash/loan notes* — — (1,393)
— — 204
* Such items relate to the consideration for the settlement of Scottish Provident of £1,393 million settled in cash and
£220 million in loan notes at the option of the members during 2002.
e) Analysis of the net outflow of cash in respect of acquisitions of subsidiary undertakings and
purchase of businesses
2004 2003 2002
£m £m £m
Cash consideration — — 1,597
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PART 3: FINANCIAL INFORMATION ON ABBEY
f) Sale of subsidiary, associated undertakings and businesses
2004 2003 2002
£m £m £m
Net assets disposed of:
Cash at bank and in hand — 11 —
Loans and advances to banks 9 26 10
Loans and advances to customers 2,423 7,780 21
Net investment in finance leases 1,349 887 887
Debt securities 6 16 —
Equity shares and other similar interests — —
Other assets 36 144 54
Prepayments and accrued income 2 — —
Tangible fixed assets 1 14 1
Operating lease assets — 75 362
Interests in associated undertakings — —
Deposits by banks (386) (56) (12)
Customer accounts — (1) —
Debt Securities in Issue — (23) —
Other liabilities (107) (74) (107)
Accruals and deferred income (17) — —
Provisions for liabilities and charges (194) (266) (262)
Goodwill disposed of 6 2 46
Goodwill written back 6 190 13
Profit on disposal 46 89 48
Satisfied by:
3,180 8,814 1,061
Cash 3,180 8,814 1,061
g) Analysis of the net inflow of cash in respect of the sale of subsidiary and associated
undertakings
2004 2003 2002
£m £m £m
Cash received as consideration 3,180 8,814 1,061
Cash disposed of — (11) —
Net cash inflow in respect of sale of subsidiary and associated undertakings 3,180 8,803 1,061
53. Retirement benefits
The Abbey National Amalgamated Pension Fund, Abbey National Group Pension Scheme,
Abbey National Associated Bodies Pension Fund, Scottish Mutual Assurance Staff Pension
Scheme, Scottish Provident Institutional Staff Pension Fund and National and Provincial Building
Society Pension Fund are the principal pension schemes within Abbey, covering 62%
(2003: 70%) of Abbey’s employees, and are all funded defined benefits schemes. All are closed
schemes, thus under the projected unit method the current service cost will increase as
members of the schemes reach retirement.
Formal actuarial valuations of the assets and liabilities of the schemes are carried out on a
triennial basis by an independent professionally qualified actuary. The latest formal actuarial
valuation was made at 31 March 2002 for the Amalgamated Fund, Associated Bodies Fund and
Group Pension Scheme, and the Scottish Provident Institution Staff Pension Fund, 31 March
2003 for the National and Provincial Building Society Pension Fund and 31 December 2003 for
the Scottish Mutual Assurance Staff Pension Scheme. In addition, there is an annual review by
the appointed actuary. The results of these reviews are included in the Consolidated Financial
Statements.
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The main long-term financial assumptions, as stated in absolute terms, used in the 2004 annual
review were:
2004 2003 2002
Nominal Nominal Nominal
per annum per annum per annum
% % %
Investment returns 6.4 6.6 6.1
Pension increases 2.5 2.5 2.5
General salary increase 4.0 4.0 4.0
General price inflation 2.5 2.5 2.5
At the latest actuarial review date, the market value of the combined assets was £2,280 million
and the combined funding level was 80.6%. All of the pension fund liabilities are valued on an
actuarial basis using the projected unit method. In the period ended 31 December 2004, the
employer’s contribution rates to the schemes ranged between 9.9% and 49.2%. In consultation
with the actuary, the agreed contribution rates for future years range from 9.8% to 52.6%.
As shown in the table below, the pension cost reflects the regular contribution rate less amounts
in respect of the surplus or deficit being recognised over the expected remaining service lives of
the members of all Abbey’s schemes in accordance with SSAP 24, Accounting for pension costs.
Surpluses or deficits are amortised on the basis of a percentage of payroll to align with
contribution rates. The pension cost charged to the Profit and Loss Account for the year was as
follows:
2004
Group
2003 2002
£m £m £m
Regular cost 66 75 85
Amortisation of surpluses arising on pension schemes — — (3)
Amortisation of deficits arising on pension schemes
Amortisation of surplus arising from fair value adjustment on acquisition of National and
50 45 16
Provincial 2 2 2
Charged to profit and loss account (note 38) 118 122 100
During 2004 an additional £31 million (2003: £15 million) was paid to the schemes in respect of
contractual termination benefits arising from restructuring. In addition £4 million (2003: £6 million)
was contributed to defined contribution and overseas pensions schemes.
Balances representing the difference between amounts paid to the respective pension schemes
of Abbey and any amounts charged to the Profit and Loss Account, in accordance with SSAP 24,
are included in the Balance Sheet. At 31 December 2004, an asset of £21 million
(2003: £23 million) and a liability of £40 million (2003: £38 million) have been included in the
balance sheet accordingly. In addition, included in other assets at 31 December 2004 was an
amount of £14 million (2003: £15 million) in respect of the unamortised pension scheme surplus
assessed at the date the business of National and Provincial was purchased. This was based on
an actuarial assessment of the scheme at that date and is included in the Balance Sheet in
accordance with FRS 17. This balance is being amortised over the average remaining service
lives of employees in the scheme as shown above.
During 2004 an additional £31 million (2003: £15 million) was paid to the scheme in respect of
contractual termination benefits arising from restructuring and various business disposals.
Additional disclosures required under the transition provisions of FRS 17:
Disclosures required under the transition provisions of FRS 17 are included below.
The main long-term financial assumptions, as stated in absolute terms, under the provisions of
FRS 17 are as follows:
2004 2003 2002
Nominal Nominal Nominal
per annum per annum per annum
% % %
Discount rate for scheme liabilities 5.4 5.5 5.7
Pension and deferred pension increases 2.8 2.7 2.4
General salary increase 4.3 4.2 3.9
General price inflation 2.8 2.7 2.4
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PART 3: FINANCIAL INFORMATION ON ABBEY
The fair value of the assets held by the pension schemes at 31 December 2004, and the
expected rate of return for each class of assets for the current period, is as follows:
2004 2003 2002
Expected Expected Expected
rate of Fair rate of Fair rate of Fair
return value return value return value
% £m % £m % £m
Equities 7.25 1,265 7.25 1,150 8.0 1,477
Bonds 5.0 1,076 5.2 1,025 4.5 326
Others 5.0 152 4.4 30 4.0 77
2,493 2,205 1,880
Pension fund liabilities are valued on an actuarial basis using the projected unit method and
pension assets are stated at their fair value.
The net pension scheme deficit measured under FRS 17 at 31 December 2004 comprised the
following:
2004 2003 2002
£m £m £m
Total market value of assets 2,493 2,205 1,880
Present value of scheme liabilities (3,689) (3,306) (2,722)
FRS 17 scheme deficit (1,196) (1,101) (842)
Related deferred tax asset 359 330 253
Net FRS 17 scheme deficit (837) (771) (589)
The following amounts would be reflected in the Profit and Loss Account and statement of total
recognised gains and losses on implementation of FRS 17:
2004 2003 2002
£m £m £m
Amount that would be charged to operating profits:
Current service cost 120 118 136
Past service cost 24 15 6
Gains on settlements (4) (13) (3)
Total operating charge 140 120 139
Amount that would be credited to finance income:
Expected return on pension scheme assets (139) (140) (148)
Interest on pension scheme liabilities 182 160 145
Net return 43 20 (3)
Amount that would be recognised in the statement of total recognised gains and
losses:
Actual return less expected return on pension scheme assets 104 94 (547)
Experience gains and losses arising on scheme liabilities
Gains arising from changes in assumptions underlying the present value of scheme
(10) 31 (30)
liabilities (162) (359) 9
Actuarial (loss) (68) (234) (568)
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PART 3: FINANCIAL INFORMATION ON ABBEY
2004 2003 2002
£m £m £m
Movement on pension scheme deficits during the year:
Deficit at 1 January (1,101) (842) (222)
Current service cost (120) (118) (136)
Contributions 156 115 84
Past service cost (24) (15) (6)
Gain on settlements 4 13 3
Other finance income (43) (20) 3
Actuarial (loss) (68) (234) (568)
Deficit at 31 December (1,196) (1,101) (842)
History of experience gains/(losses)
Difference between expected and actual return on scheme assets:
Amount (£m) 104 94 (547)
Percentage (%) of scheme assets 4.2 4.3 29
Experience gains/(losses) on scheme liabilities:
Amount (£m) (10) 31 (30)
Percentage (%) of the present value of scheme liabilities 0.3 0.9 1.0
Total gain/(loss) recognised:
Gain/(loss) on change of assumptions (68) (234) (9)
Percentage (%) of the present value of scheme liabilities 1.8 7.1 —
If the full provisions of FRS 17 were reflected in the Consolidated Financial Statements, the
Group Profit and Loss Account reserve of £1,981 million would be reduced by £834 million
(2003: £787 million) to £1,147 million (2003: £1,740 million). This reduction reflects the FRS 17
position shown above and the reversal of the remaining unamortised asset relating to the surplus
in the National and Provincial pension fund at acquisition.
54. Directors’ emoluments and interests
Further details of Directors’ emoluments and interests are included in the Directors’ Report on
pages 66 to 73.
Ex gratia pensions paid to former Directors and the spouses of deceased Directors of Abbey in
2004, which would have been provided for previously, amounted to £54,020 (2003: £74,199).
Details of loans, quasi loans and credit transactions entered into or agreed by the Company or its
subsidiaries with persons who are or were Directors and connected persons and officers of the
Company during the year were as follows:
Number of
Aggregate
amount
outstanding
persons £000
Directors
Loans 1 240
Quasi loans — —
Credit transactions
Officers
— —
(1)
Loans — —
Quasi loans — —
Credit transactions — —
(1) Officers are defined as the Company Secretary and those non-Board members who, during the year, were head of
a division.
No Director had a material interest in any contract of significance, other than a service contract,
with the Company or any of its subsidiaries at any time during the year. The Directors did not
have any interests in shares or debentures of subsidiaries. Further disclosures relating to these
transactions, as required under FRS 8, Related party disclosures, are given in note 56.
55. Share-based payments
Abbey granted share options to executive officers and employees principally under the Executive
Share Option scheme, Sharesave scheme and the Employee Share Option scheme.
Options granted under the Executive Share Option scheme are generally exercisable between
the third and tenth anniversaries of the grant date, provided that certain performance criteria are
met.
187

PART 3: FINANCIAL INFORMATION ON ABBEY
Under the Sharesave scheme, eligible employees could elect to exercise their options either
three, five or seven years after the grant date. See note 42 to the Consolidated Financial
Statements for a description of the options granted under this scheme.
The number of options authorised to be granted was limited to 10% of the total number of shares
issued since conversion.
The total compensation expense for equity-settled share based transactions recognised in the
Profit and Loss Account was £12 million (2003: £8 million, 2002: £7 million).
The fair value of each option for 2004, 2003 and 2002 has been estimated as at the grant date
using the Black-Scholes option pricing model using the following assumptions:
2004 2003 2002
Risk free interest rate
Dividend growth, based solely upon average growth
3.7%-7.3% 3.7%-7.3% 4.2% – 7.9%
since 1989
Volatility of underlying shares based upon historical
14% 14% 14%
volatility over five years
Expected lives of options granted under:
22.7%-42.3% 22.7%-42.3% 22.7%-40.0%
Employee Sharesave scheme 3, 5 and 7 years* 3, 5 and 7 years* 3, 5 and 7 years*
Executive Share Option scheme 6 years 6 years 6 years
Employee Share Option scheme 5 years 5 years 5 years
* For three, five and seven year schemes respectively.
The following table summarises the movement in the number of share options between those
outstanding at the beginning and end of the year, together with the changes in weighted average
exercise price over the same period. All of the shares options prior to 12 November 2004 relate to
shares in Abbey National plc. After 12 November 2004 all share options relate to shares in Banco
Santander Central Hispano, S. A. On 12 November 2004 all holders of options in ordinary shares
of Abbey National plc were given the option to exercise their options, to cancel their shares in
return for a cash payment or to transfer their options to options in shares of Banco Santander
Central Hispano, S.A.
Executive Share Employee Sharesave Employee Share
Option scheme scheme Option scheme
Weighted Weighted Weighted
average average average
Number of exercise Number of exercise Number of exercise
options price options price options price
granted £ granted £ granted £
2004
Options outstanding at the beginning of
the year 15,180,932 6.27 28,328,589 3.61 8,909,143 11.07
Options granted before 12 November 2,039,702 4.61 3,877,757 3.98 — —
Options exercised before 12 November (4,360,768) 3.93 (1,727,980) 3.51 (4,050) 5.91
Options forfeited before 12 November (12,501,022) 6.88 (13,094,132) 3.79 (1,666,493) 10.28
Options expired before 12 November — — (12,734) 7.65 — —
Options outstanding at 12 November 358,844 4.16 17,371,500 3.56 7,238,600 11.25
Options granted after 12 November — — — — — —
Options exercised after 12 November — — (39,778) 3.41 (6,300) 5.91
Options forfeited after 12 November — — (80,926) 4.23 (150) 5.91
Options expired after 12 November — — — — (7,175,600) 11.30
Options outstanding at the year end 358,844 4.16 17,250,796 3.56 56,550 5.91
Options exercisable at the end of the year
The weighted-average grant-date fair
value of options granted during the
11,327 5.65 — — 56,550 5.91
year 0.96 0.99 —
188

PART 3: FINANCIAL INFORMATION ON ABBEY
Executive Share Employee Sharesave Employee Share
Option scheme scheme Option scheme
Weighted Weighted Weighted
average average average
Number of exercise Number of exercise Number of exercise
options price options price options price
granted £ granted £ granted £
2003
Options outstanding at the beginning of
the year 8,005,206 9.15 18,173,482 6.32 10,507,253 11.08
Options granted during the year 8,576,826 3.80 27,113,143 3.20 — —
Options exercised during the year (114,990) 3.98 (246,456) 4.06 (450) 5.91
Options forfeited during the year (522,772) 8.84 (6,574,266) 5.10 (1,597,660) 11.16
Options expired during the year
Options outstanding at the end of the
(763,338) 7.13 (10,137,314) 6.39 — —
year 15,180,932 6.27 28,328,589 3.61 8,909,143 11.07
Options exercisable at the end of the year
The weighted-average grant-date fair
value of options granted during the
2,859,158 8.39 — — 2,965,128 10.59
year 0.52 0.38 —
2002
Options outstanding at the beginning of
the year 5,366,178 8.85 18,919,108 6.02 11,335,103 11.04
Options granted during the year 3,822,618 9.37 4,800,602 7.95 — —
Options exercised during the year (454,919) 6.43 (2,502,602) 5.76 (113,100) 5.91
Options forfeited during the year (622,983) 9.53 (2,142,906) 7.34 (396,500) 11.25
Options expired during the year
Options outstanding at the end of the
(105,688) 11.91 (900,720) 7.81 (318,250) 11.25
year 8,005,206 9.15 18,173,482 6.32 10,507,253 11.08
Options exercisable at the end of the year
The weighted-average grant-date fair
value of options granted during the
2,098,028 9.52 39,182 4.82 561,128 5.91
year 0.99 2.37 —
The following table summarises information about the options outstanding at 31 December 2004.
Executive Share Option
Options outstanding Options exercisable
Weighted Weighted Weighted
Number average average Number average
outstanding remaining exercise exercisable exercise
at contractual price at prices
31/12/2004 life (years) (£) 31/12/2004 (£)
Range of exercise prices
Between £3 and £4 182,474 8.25 3.73 — —
Between £4 and £5 165,043 9.25 4.54 — —
Between £5 and £6 11,327 0.24 5.65 11,327 5.65
358,844 11,327
189

PART 3: FINANCIAL INFORMATION ON ABBEY
Employee Sharesave Scheme
Options outstanding Options exercisable
Weighted Weighted Weighted
Number average average Number average
outstanding remaining exercise exercisable exercise
at contractual price at prices
31/12/2004 life (years) (£) 31/12/2004 (£)
Range of exercise prices
Between £3 and £4 14,834,587 3.21 3.25 — —
Between £4 and £5 696,043 2.66 4.23 — —
Between £5 and £6 1,285,612 0.83 5.13 — —
Between £7 and £8 205,479 2.93 7.76 — —
Between £8 and £9 93,519 0.75 8.53 — —
Between £9 and £10 135,556 1.61 9.28 — —
17,250,796 —
Under the Employee Sharesave scheme, the weighted-average exercise prices of options are
less than the market prices of the shares on the relevant grant dates.
Employee Share Option Scheme
Options outstanding Options exercisable
Weighted Weighted Weighted
Number average average Number average
outstanding remaining exercise exercisable exercise
at contractual price at prices
31/12/2004 life (years) (£) 31/12/2004 (£)
Range of exercise prices
Between £5 and £6 56,550 1.66 5.91 56,550 5.91
56. Related party disclosures
a) Transactions with directors, executive officers and their close family members
Directors, executive officers and members of their close families have undertaken the following
transactions with Abbey in the course of normal banking and life assurance business.
Amounts in
respect of
directors,
executive
officers (1) Number of
and
their close
directors family
and executive members
officers (1)
2004
2004 £000
Secured loans, unsecured loans and overdrafts
Net movements in the year — 226
Balances outstanding as at 31 December
Deposit, bank and instant access accounts and investments
1 240
Net movements in the year (1) 915
Balances outstanding as at 31 December
Life assurance policies
8 2,080
Net movements in the year 1 (57)
Total sum insured/value of investment 3 50
190

PART 3: FINANCIAL INFORMATION ON ABBEY
Amounts in
respect of
directors,
executive
officers (1) Number of
and
their close
directors family
and executive members
officers (1)
2003
2003 £000
Secured loans, unsecured loans and overdrafts
Net movements in the year 1 (375)
Balances outstanding as at 31 December
Deposit, bank and instant access accounts and investments
1 14
Net movements in the year 9 (3,310)
Balances outstanding as at 31 December
Life assurance policies
9 1,165
Net movements in the year 1 7
Total sum insured/value of investment 2 107
Amounts in
respect of
directors,
executive
officers (1) Number of
and
their close
directors family
and executive members
officers (1)
2002
2002 £000
Secured loans, unsecured loans and overdrafts
Net movements in the year 10 (1,024)
Balances outstanding as at 31 December
Deposit, bank and instant access accounts and investments
4 389
Net movements in the year 17 74
Balances outstanding as at 31 December
Life assurance policies
11 4,475
Net movements in the year 3 (711)
Total sum insured/value of investment 1 100
(1) Executive officers are defined as the Company Secretary and those non-Board members who during the year were
head of a Division.
Directors have also undertaken sharedealing transactions through an execution only stockbroker
subsidiary company of an aggregate net value of £2,280,413. The transactions were on normal
business terms and standard commission rates were payable.
Secured and unsecured loans are made to Directors, executive officers and their close family
members on the same terms and conditions as applicable to other employees within Abbey.
Amounts deposited by Directors, executive officers and their close family members earn interest
at the same rates as those offered to the market or on the same terms and conditions applicable
to other employees within Abbey. Such loans did not involve more than the normal risk of
collectibility or present other infavourable features.
Life assurance policies and investments are entered into by Directors, Executive Officers and
their close family members on normal market terms and conditions, or on the same terms and
conditions as applicable to other employees within Abbey. Abbey entered into these loan
agreements in the ordinary course of business, with terms prevailing for comparable transactions
with others and these did not involve more than the normal risk of collectibility or present other
unfavourable features.
b) Transactions with associated undertakings
Abbey National plc holds a 50% share in PSA Finance plc (PSA), a subsidiary of Peugeot SA.
PSA is a finance organisation providing financial services to the Peugeot-Citroën car dealership
network. The income receivable from Abbey’s interest in PSA amounted to £6 million (2003:
£12 million) in the year.
Abbey has a 25% interest in EDS Credit Services Ltd, a subsidiary of Electronic Data
Systems Ltd. Electronic Data Systems Ltd is a professional services firm specialising in
information technology. The income receivable from Abbey’s interest in EDS Credit Services Ltd
amounted to £nil (2003: £nil) in the period.
191

PART 3: FINANCIAL INFORMATION ON ABBEY
Balances outstanding between Abbey and associated companies at 31 December 2004 are
detailed in note 32. Further details of Abbey’s interests in associated undertakings are shown in
note 23.
c) Transactions with Long Term Assurance Funds
The long-term assurance funds are related parties for the purposes of this disclosure because
the assets and liabilities of the long-term assurance funds are included in the Balance Sheet.
At 31 December 2004, Abbey entities owed £666 million (2003: £858 million) to, and were owed
£1,354 million (2003: £411 million) by, the long-term assurance funds. Of these respective
amounts £662 million (2003: £852 million) relates to amounts deposited by the long-term
assurance funds with non-life assurance entities, and £1,327 million (2003: £376 million) relates
to amounts owed by the long-term assurance funds to non-life assurance entities. The remaining
amounts represent balances between the long-term assurance funds and the shareholders’
funds of the life assurance businesses. In addition, the long-term assurance funds have lent
£1,930 million (2003: £1,647 million) of investment assets to a subsidiary of Abbey National
Treasury Services under stock lending agreements at 31 December 2004.
Included in Fees and commissions receivable in the year is an amount of £17 million (2003:
£27 million) receivable from the long-term assurance fund of Abbey National Life plc in respect of
life assurance products sold through the retail branch network, and an amount of £nil payable
(2003: £272 million receivable) to the long-term assurance funds of Abbey National Life and
Scottish Mutual Assurance in respect of option premiums paid from/to Abbey Financial Markets.
During the year Abbey National Financial Investment Services plc incurred costs amounting to
£213 million (2003: £223 million) on behalf of the long-term assurance funds. All such costs were
recharged to the long-term assurance funds and included within the charge to income from longterm
assurance business. Included within fees and commissions receivable are management
fees received by Abbey National Financial Investment Services totalling £200 million (2003:
£200 million) from the long-term assurance funds.
Details of transfers of funds between shareholders’ funds and long-term assurance funds are
provided in note 21. Included within assets of long-term assurance funds and liabilities of longterm
assurance funds are amounts owing between the long-term assurance funds of £6 million
(2003: £15 million).
The value of the funds’ holdings in internally managed unit trusts amounted to £4,438 million
(2003: £4,604 million) at 31 December 2004. The unit trusts are managed by Abbey National
Unit Trust Management Ltd, Scottish Mutual Investment Fund Managers Ltd, Scottish Mutual
Investment Managers Ltd and Abbey National Asset Managers Ltd.
d) Subsidiary undertakings
In accordance with Financial Reporting Standard 8 ‘‘Related Party Disclosures’’ (‘‘FRS 8’’),
transactions or balances between group entities that have been eliminated on consolidation are
not reported.
e) Parent undertaking and controlling party
Since 12 November 2004 the company’s immediate and ultimate parent, and controlling party is
Banco Santander Central Hispano, S.A. The smallest and largest group into which the Group’s
results are included is the group accounts of Banco Santander Central Hispano, S.A. copies of
which may be obtained from Grupo Santander, Shareholder Department, Grupo Santander,
Santander House, 100 Ludgate Hill, London EC4M 7NJ.
57. Profit/(Loss) on sale or termination of a business
As a consequence of the acquisition of Abbey by Banco Santander Central Hispano, S.A. in
November 2004, certain decisions were made to reorganise certain areas of the business. As a
result, a loss of £31 million has been recognised during the year in relation to the exit of particular
parts of the business. A loss of £33 million was recognised in 2003 as a result of Abbey’s
reorganisation announced in February 2003. The total charge comprises £11 million (2003:
£16 million) of employee redundancy costs and £20 million (2003: £17 million) of other costs.
2004 2003 2002
£m £m £m
Opening balance 33 — —
Transfer to profit and loss 31 33 —
Utilised (15) — —
Closing balance 49 33
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PART 3: FINANCIAL INFORMATION ON ABBEY
(B) Unaudited restatement of Abbey financial information to conform to Spanish GAAP
The income statements and balance sheets of Abbey prepared under UK GAAP, as set out
below, have been extracted from Abbey’s audited consolidated financial statements for the three
years ended 31 December 2004, and have been restated below to conform to the Company’s
basis of presentation under Spanish GAAP. The information in this section has not been audited.
At 31 December 2004 At 31 December 2003 At 31 December 2002
Spanish Spanish Spanish
UK GAAP Adjustments GAAP UK GAAP Adjustments GAAP UK GAAP Adjustments GAAP
Notes £m £m £m £m £m £m £m £m £m
Assets
Cash on hand and
deposits at central
banks:
Cash on hand
Cash at other
466 — 466 417 — 417 356 — 356
central banks 14 — 14 22 — 22 40 — 40
Government debt
480 — 480 439 — 439 396 — 396
securities
Due from credit
institutions:
358 — 358 230 — 230 8 — 8
Demand deposits 678 — 678 213 — 213 133 — 133
Other (1) 8,334 (5) 8,329 6,456 (93) 6,363 6,215 (105) 6,110
9,012 (5) 9,007 6,669 (93) 6,576 6,348 (105) 6,243
Loans and credits
Debentures and other
fixed-income
securities:
Public-sector
(2) 94,502 694 95,196 95,687 (557) 95,130 93,916 (887) 93,029
issuers 5,019 — 5,019 5,928 — 5,928 9,779 — 9,779
Other issuers 19,148 — 19,148 25,593 — 25,593 51,071 — 51,071
Common stocks and
other equity
24,167 — 24,167 31,521 — 31,521 60,850 — 60,850
securities
Investments in non-
1,174 — 1,174 1,880 — 1,880 1,075 — 1,075
group companies
Investments in group
(3) 25 (1) 24 38 2 40 50 (13) 37
companies
Consolidation
goodwill:
Fully consolidated
(4) 4,025 (1,526) 2,499 3,797 (2,677) 1,120 3,855 (3,620) 235
companies
Companies accounted
for by the equity
90 — 90 102 — 102 124 — 124
method (5) 227 430 657 240 716 956 253 765 1,018
Property and
equipment:
Land and buildings for
317 430 747 342 716 1,058 377 765 1,142
own use 33 — 33 34 — 34 37 — 37
Other property
Furniture, fixtures and
17 — 17 16 — 16 18 — 18
other (6) 2,537 (115) 2,422 2,747 (37) 2,710 2,910 52 2,962
2,587 (115) 2,472 2,797 (37) 2,760 2,965 52 3,017
Treasury stock (7) — — — — 12 12 — 10 10
Other assets (8) 4,413 83 4,496 3,574 131 3,705 4,436 199 4,635
Accrual accounts
Accumulated losses at
consolidated
(9) 535 (99) 436 706 (71) 635 657 (65) 592
companies (10) 2,057 1,772 3,829 1,364 3,003 4,367 630 1,165 1,795
Total Assets 143,652 1,233 144,885 149,044 429 149,473 175,563 (2,499) 173,064
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PART 3: FINANCIAL INFORMATION ON ABBEY
Unaudited Consolidated Balance Sheets as at December 31, 2004, 2003 and 2002
At 31 December 2004 At 31 December 2003 At 31 December 2002
Spanish Spanish Spanish
UK GAAP Adjustments GAAP UK GAAP Adjustments GAAP UK GAAP Adjustments GAAP
Notes £ £ £ £ £ £ £ £ £
Liabilities and
equity
Due to credit
institutions
Customer deposits:
Savings deposits-
(11) 18,412 (353) 18,059 22,125 (380) 21,745 24,174 (886) 23,288
Demand 45,041 — 45,041 42,228 — 42,228 46,365 — 46,365
Time
Other deposits-
16,846 — 16,846 18,306 — 18,306 12,910 — 12,910
Demand 2,388 — 2,388 3,996 — 3,996 2,791 — 2,791
Time (12) 17,289 2,976 20,265 14,173 1,411 15,584 18,154 2,008 20,162
Marketable debt
securities:
Bonds and
debentures
81,564 2,976 84,540 78,703 1,411 80,114 80,220 2,008 82,228
outstanding
Promissory notes
and other
(13) 13,105 (412) 12,693 14,939 (413) 14,526 17,449 (343) 17,106
securities 8,864 — 8,864 9,895 — 9,895 30,630 — 30,630
21,969 (412) 21,557 24,834 (413) 24,421 48,079 (343) 47,736
Other liabilities (14) 5,688 125 5,813 6,985 (107) 6,878 6,220 73 6,293
Accrual accounts
Provisions for
contingencies
and expenses:
(15) 2,374 (275) 2,099 1,887 (278) 1,609 1,940 (323) 1,617
Pension allowance 24 — 24 7 — 7 7 — 7
Other provisions (16) 247 1 248 376 7 383 177 — 177
Consolidated net
income for the
year:
271 1 272 383 7 390 184 — 184
Group 32 511 543 (759) 1,474 715 (1,224) (1,171) (2,395)
Minority interests 96 — 96 115 — 115 124 — 124
128 511 639 (644) 1,474 830 (1,100) (1,171) (2,271)
Subordinated debt 5,159 — 5,159 6,137 — 6,137 6,332 — 6,332
Minority interest (17) 1,770 (58) 1,712 1,813 (42) 1,771 2,023 (15) 2,008
Capital stock
Additional paid-in-
148 — 148 146 — 146 146 — 146
capital 1,857 — 1,857 1,751 — 1,751 1,731 — 1,731
Reserves
Reserves at
consolidated
(18) 2,305 (921) 1,384 2,895 (663) 2,232 3,852 (1,120) 2,732
companies
Total Liabilities and
(19) 2,007 (361) 1,646 2,029 (580) 1,449 1,762 (722) 1,040
equity 143,652 1,233 144,885 149,044 429 149,473 175,563 (2,499) 173,064
The accompanying notes form an integral part of this financial information
194

PART 3: FINANCIAL INFORMATION ON ABBEY
Unaudited Consolidated Profit and Loss Accounts for years ended 31 December 2004, 2003
and 2002
Year ended 31 December 2004 Year ended 31 December 2003 Year ended 31 December 2002
Spanish Spanish Spanish
UK GAAP Adjustments GAAP UK GAAP Adjustments GAAP UK GAAP Adjustments GAAP
Notes £m £m £m £m £m £m £m £m £m
Interest income (20) 5,233 (75) 5,158 6,174 (115) 6,059 8,034 (46) 7,988
Of which: Fixed-income securities 79 — 79 433 — 433 1,662 — 1,662
Interest expense
Income from equity securities:
Common stocks and other equity
(21) (3,745) 63 (3,682) (4,063) 126 (3,937) (5,413) 107 (5,306)
securities 1 — 1 1 — 1 1 — 1
Investments in non-Group companies 20 — 20 19 — 19 — — —
Investments in Group companies 31 — 31 45 — 45 15 — 15
52 — 52 65 — 65 16 — 16
Net interest income (22) 1,540 (12) 1,528 2,176 11 2,187 2,637 61 2,698
Fees collected (23) 595 (39) 556 715 (44) 671 708 (57) 651
Fees paid (24) (107) 34 (73) (248) (88) (336) (273) (70) (343)
Gains (losses) on financial transactions (25) 137 (206) (69) (545) 107 (438) (436) 163 (273)
Gross operating income 2,165 (223) 1,942 2,098 (14) 2,084 2,636 97 2,733
Other operating income
General administrative expenses:
(26) 456 (31) 425 324 (40) 284 533 25 558
Personnel expenses
Of which:
(27) (1,011) (11) (1,022) (974) 5 (969) (932) 35 (897)
Wages and salaries (28) (676) (11) (687) (782) 5 (777) (769) 35 (734)
Employee welfare expenses (335) — (335) (192) — (192) (163) — (163)
Of which: Pensions (123) — (123) (128) — (128) (101) — (101)
Other administrative expenses (29) (1,023) 20 (1,003) (1,053) 40 (1,013) (894) 69 (825)
Depreciation, amortization and writedown
of property and equipment and
(2,034) 9 (2,025) (2,027) 45 (1,982) (1,826) 104 (1,722)
intangible assets (30) (233) (67) (300) (382) (63) (445) (1,519) (78) (1,597)
Net operating income
Net income from companies accounted for
by the equity method
Share in income of companies accounted
354 (312) 42 13 (72) (59) (176) 148 (28)
for by the equity method
Share in losses of companies accounted
(31) 110 802 912 75 751 826 109 — 109
for by the equity method
Value adjustments due to collection of
(32) — — — (202) — (202) (311) (1,352) (1,663)
dividends (51) — (51) (64) — (64) (15) — (15)
59 802 861 (191) 751 560 (217) (1,352) (1,569)
Amortization of consolidation goodwill
Gains on group transactions:
Gains on disposal of investments in fully
(20) — (20) (20) — (20) (64) — (64)
consolidated co.s
Gains on transactions involving parent
company shares and Group financial
(33) 46 6 52 89 565 654 46 386 432
liabilities (34) — 24 24 — 2 2 — — —
Losses on group transactions:
Losses on transactions involving parent
company shares and Group financial
46 30 76 89 567 656 46 386 432
liabilities (35) — — — — — — — (10) (10)
— — — — — — — (10) (10)
Writeoffs and credit loss provisions (net) (36) 36 (262) (226) (473) 181 (292) (487) (413) (900)
Extraordinary loss (202) — (202) (104) — (104) (50) — (50)
Income before taxes 273 258 531 (686) 1,427 741 (948) (1,241) (2,189)
Corporate income tax (37) (144) 253 109 42 47 89 (152) 70 (82)
Consolidated net income for the year 129 511 640 (644) 1,474 830 (1,100) (1,171) (2,271)
Net income attributed to minority interests 97 — 97 115 — 115 124 — 124
Net income attributed to the group 32 511 543 (759) 1,474 715 (1,224) (1,171) (2,395)
195

PART 3: FINANCIAL INFORMATION ON ABBEY
Adjustments made to the balance sheet under each item described above to conform Abbey’s UK
GAAP consolidated financial statements to Grupo Santander’s accounting policies are as follows:
At 31 December At 31 December At 31 December
2004 2003 2002
£m £m £m
1. Due from credit institutions: Other
(l) Securitisations (5) (93) (105)
(5) (93) (105)
2. Loans and credits
(d) Fees and commissions receivable and payable (142) (157) (347)
(g) Leasing (40) (59) (69)
(i) Credit provisions (1,274) (1,011) (1,077)
(l) Securitisations 2,150 670 606
694 (557) (887)
3. Investments in non-group companies
(a) Investment securities (1) 2 (13)
(1) 2 (13)
4. Investments in group companies
(k) Life assurance (1,144) (2,058) (2,911)
(m) Goodwill (382) (619) (709)
(1,526) (2,677) (3,620)
5. Consolidation goodwill: Companies accounted for by
the equity method
(m) Goodwill 430 716 765
430 716 765
6. Property and equipment: Furniture, fixtures and other
(f) Software 7 54 98
(g) Leasing (122) (91) (46)
(115) (37) 52
7. Treasury stock
(b) Treasury shares — 12 10
— 12 10
8. Other assets
(c) Derivatives financial instruments (514) (295) (364)
(l) Securitisations (2) (3) (1)
(o) Taxation 599 429 564
83 131 199
9. Accrual accounts
(l) Securitisations (99) (71) (65)
(99) (71) (65)
10. Accumulated losses at consolidated companies
(a) Investment securities (1) 13 —
(d) Fees and commissions receivable and payable 4 277 143
(f) Software (17) (32) (24)
(g) Leasing 150 115 —
(i) Credit provisions 219 790 —
(k) Life assurance 1,609 2,274 1,113
(m) Goodwill (96) (56) (73)
(n) Deferred taxation 87 70 —
(o) Taxation (183) (448) 6
1,772 3,003 1,165
11. Due to credit institutions
(l) Securitisations (353) (380) (886)
(353) (380) (886)
12. Customer deposits: Other deposits — Time
(l) Securitisations 2,976 1,411 2,008
2,976 1,411 2,008
13. Marketable debt securities: Bonds and debentures
outstanding
(a) Investment securities — — 209
(l) Securitisations (412) (413) (552)
(412) (413) (343)
196

PART 3: FINANCIAL INFORMATION ON ABBEY
At 31 December At 31 December At 31 December
2004 2003 2002
£m £m £m
14. Other liabilities
(e) Dividends — (244) (107)
(g) Leasing 44 49 55
(h) Share-based compensation 11 4 (1)
(l) Securitisations 1 (3) (4)
(n) Deferred Taxation 69 87 130
125 (107) 73
15. Accrual accounts
(d) Fees and commissions receivable and payable (104) (139) (172)
(l) Securitisations (171) (139) (151)
(275) (278) (323)
16. Provisions for contingencies and expenses: Other
provisions
(c) Derivative financial instruments — — (5)
(l) Securitisations 1 7 5
1 7 —
17. Minority interest
(j) Preference shares (58) (42) (15)
(58) (42) (15)
18. Reserves
(b) Treasury shares (24) 10 20
(c) Derivative financial instruments (295) (360) (506)
(d) Fees and commissions receivable and payable (89) (25) (10)
(e) Dividends — 244 107
(f) Software 35 57 73
(g) Leasing (49) (55) (60)
(h) Share-based compensation — (9) (34)
(i) Credit provisions (793) (496) (472)
(j) Preference shares 42 15 (13)
(l) Securitisations 20 15 9
(m) Goodwill (6) (195) (386)
(o) Taxation 238 136 152
(921) (663) (1,120)
19. Reserves at consolidated companies
(a) Investment securities — — (281)
(d) Fees and commissions receivable and payable 76 127 90
(f) Software 2 9 26
(g) Leasing (0) 0 (189)
(i) Credit provisions 0 — (122)
(k) Life assurance (448) (637) (425)
(n) Deferred taxation 0 (60) (148)
(o) Taxation 9 (19) 327
(361) (580) (722)
Total adjustments to shareholders’ funds (2,543) (2,772) (4,178)
197

PART 3: FINANCIAL INFORMATION ON ABBEY
Adjustments made to conform Abbey’s UK GAAP consolidated profit and loss accounts to Grupo
Santander’s accounting policies are set out below under each of the items described in the notes above.
Year ended Year ended Year ended
31 December 31 December 31 December
2004 2003 2002
£m £m £m
20. Interest income
(g) Leasing 19 10 61
(l) Securitisations (94) (125) (107)
(75) (115) (46)
21. Interest expense
(l) Securitisations 63 126 107
63 126 107
22. Net interest income
(c) Derivative financial instruments — — —
(g) Leasing 19 10 61
(l) Securitisations (31) 1 —
(12) 11 61
23. Fees collected
(d) Fees and commissions receivable and payable (30) (33) (48)
(l) Securitisations (9) (11) (9)
(39) (44) (57)
24. Fees paid
(d) Fees and commissions receivable and payable 15 (88) (70)
(l) Securitisations 19 — —
34 (88) (70)
25. Gains (losses) on financial transactions
(a) Investment Securities (2) 15 (11)
(c) Derivative financial instruments (220) 65 146
(j) Preference shares 16 27 28
(206) 107 163
26. Other operating income
(d) Fees and commissions receivable and payable (6) 0 7
(g) Leasing (25) (40) 18
(31) (40) 25
27. General administrative expenses: Personnel expenses
(h) Share-based compensation (11) 5 35
(11) 5 35
28. General administrative expenses: Personnel expenses —
Wages and salaries
(h) Share-based compensation (11) 5 35
(11) 5 35
29. General administrative expenses: Other administrative expenses
(f) Software 19 20 52
(l) Securitisations 1 20 17
20 40 69
30. Depreciation, amortization and writedown of property and
equipment and intangible assets
(f) Software (67) (63) (78)
(67) (63) (78)
31. Share in income of companies accounted for by the equity
method
(k) Life assurance 851 711 —
(m) Goodwill (49) 40 —
802 751 —
32. Share in losses of companies accounted for by the equity
method
(k) Life assurance — — (1,335)
(m) Goodwill — — (17)
— — (1,352)
198

PART 3: FINANCIAL INFORMATION ON ABBEY
Year ended Year ended Year ended
31 December 31 December 31 December
2004 2003 2002
£m £m £m
33. Gains on group transactions: Gains on disposal of investments
in fully consolidated companies
(d) Fees and commissions receivable and payable — 277 —
(i) Credit provisions — 93 —
(m) Goodwill 6 195 386
6 565 386
34. Gains on group transactions: Gains on transactions involving
parent company shares and Group financial liabilities
(b) Treasury shares 24 2 —
24 2 —
35. Losses on group transactions: Losses on transactions
involving parent company shares and Group financial liabilities
(b) Treasury Shares — — (10)
— — (10)
36. Writeoffs and credit loss provisions
(a) Investment Securities — — 70
(i) Credit provisions (262) 181 (483)
(262) 181 (413)
37. Corporate income tax
(k) Life assurance 63 142 (37)
(l) Securitisation 3 (4) (3)
(n) Deferred taxation 18 43 18
(o) Taxation 169 (134) 92
253 47 70
Total adjustments 511 1,474 (1,171)
199

PART 3: FINANCIAL INFORMATION ON ABBEY
Spanish GAAP adjustments to historical Abbey statement of income and balance sheet
Abbey prepares its consolidated financial statements in accordance with UK GAAP. In preparing the
unaudited Spanish GAAP financial information, Abbey’s historical consolidated financial statements
have been adjusted to conform to Santander’s accounting policies under Spanish GAAP by making the
adjustments described below.
(a) Investment securities
Under UK GAAP, debt securities and equity shares intended to be held on a continuing basis are
disclosed as investment securities and are included in the balance sheet at cost less provision for any
permanent diminution in value.
Under Spanish GAAP, all of Abbey’s investment securities, except for certain investments in unlisted
private equity partnerships and infrastructure projects, are classified as available-for-sale securities.
Available-for-sale securities are measured at the lower of cost and market value. Temporary unrealised
losses are not reported in the profit and loss account but are disclosed within a balance sheet accrual
account. Other-than-temporary losses are reported in the profit and loss account.
Under Spanish GAAP, investments in unlisted private equity partnerships and infrastructure projects
where the investor holds 20% or more of the equity are equity accounted.
(b) Treasury shares
Under UK GAAP, own shares held are carried at cost and presented as a deduction from shareholders’
funds.
Under Spanish GAAP, own shares held are reflected at cost, net of the required provision determined
on the basis of the lowest of cost, the entity’s underlying book value, or market price.
(c) Derivative financial instruments
Under UK GAAP, derivatives are classified as either trading or non-trading transactions. Derivatives
classified as trading transactions are measured at their fair value with changes being recognised
immediately through the profit and loss account. Where no market quotes are available, a price is
constructed from quoted prices for its components and appropriate modeling techniques. Fair values
take into account counterparty credit quality, market liquidity, closeout costs and directly related
administration costs. Additionally, quoted market prices are adjusted where it is considered that the
market price may not be reflective of the transaction size involved.
Derivatives are presumed to be trading transactions unless it can be demonstrated that they constitute
non-trading transactions held for hedging purposes as part of a company’s risk management strategy.
In order for a transaction to qualify as non-trading, it must match or eliminate the risk from potential
movements in interest rates, exchange rates, market value and/or credit quality inherent in the assets,
liabilities, positions or cash flows being hedged. Hedged positions can include off-balance sheet
exposures or specified anticipated transactions expected with reasonable certainty to arise in the
normal course of the bank’s business. Non-trading transactions are separately identified and
documented with an ongoing assessment to confirm that risk is being managed to the degrees sought.
Derivatives classified as non-trading transactions are measured on an accruals basis equivalent to that
used for the underlying asset, liability, position or cash flow being hedged.
Where banks have a position or exposure within their non-trading book, it is common practice for this to
be hedged by entering into an internal transaction with a separately managed trading unit rather than
directly with a third party. Such transactions, where the trading unit merely acts as a conduit to the
market, may be classified as hedges and accounted for as such providing they are on an arms length
basis and meet the relevant hedge criteria.
Certain contracts contain terms and conditions that, if accounted for separately, would qualify as standalone
derivatives. However, under UK GAAP, these terms and conditions are not bifurcated from the
host contract and are not accounted for separately.
Under Spanish GAAP, these instruments are registered in off-balance sheet accounts. Their gains and
losses are recognized in the profit and loss account depending on their designation as speculative or as
part of a hedging relationship. Transactions aimed at eliminating or significantly reducing market risks
and which are performed to reduce the risk to which entities are exposed in their management of
correlated assets, liabilities and futures transactions, and identified since their inception, are generally
designated as hedging transactions. The gains or losses arising from hedging transactions are accrued
symmetrically to the revenues or expenses arising from the hedged items, with a balancing entry under
‘‘Other Assets’’ or ‘‘Other Liabilities’’ in the consolidated balance sheets.
Non-hedging transactions arranged on organised markets are valued at market price, and market price
fluctuations are recorded in full in the consolidated statements of income. The gains or losses arising
from trading transactions arranged outside organised markets are not recognised in income until they
are effectively settled. However, provisions are recorded with a charge to income for unrealised net
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PART 3: FINANCIAL INFORMATION ON ABBEY
losses. These provisions are calculated independently for each risk (interest rate, equity price and
currency), by grouping them by risk category, then netting unrealized profits and losses for each group,
and then recognising only the net losses of each group.
Under Spanish GAAP, terms and conditions of hybrid contracts which themselves would be stand-alone
derivatives are bifurcated from the underlying hybrid contract and fair valued if they are not clearly and
closely related to the contract in which they are contained.
(d) Fees and commissions receivable and payable
Under UK GAAP, fee income relating to advances is recognised as follows:
) Front end fees which cover the costs of a continuing service to the borrower are spread over
the life of the advance on the basis of the work done;
) Front end fees charged in lieu of interest are spread on a level yield basis over the life of the
advance; and
) Other fees are recognised when they are receivable.
If costs incurred in arranging an advance are recovered through interest margin rather than by charging
a front end fees, those costs are deferred and charged over the life of the advance on a level yield basis.
Customer incentives can be deferred only if the bank has the right to recover the incentive in the event of
early redemption and it is its policy and normal practice to exercise such a right. Such incentives are
amortised over the early redemption period. Where such incentives are not amortised, they are charged
to the profit and loss account as they arise.
Commissions payable to introducers in respect of obtaining certain lending business, where this is the
primary form of distribution are charged to the profit and loss account over the anticipated life of the
loans.
Under Spanish GAAP, fees and commissions related to loan portfolio activity are credited to the profit
and loss account when the service is provided.
(e) Dividends
Under UK GAAP, dividends are recorded in the period to which they relate.
Under Spanish GAAP, dividends are only recorded in the period in which they are declared.
(f) Costs of software for internal use
Under UK GAAP, Abbey generally expenses costs of software developed for internal use.
Under Spanish GAAP, external costs incurred in the application development stage of the development
of software are capitalised and amortised over the estimated useful life of the software, not to exceed
three years.
(g) Leasing
Under UK GAAP, assets leased to customers under agreements which transfer substantially all the
risks and rewards associated with ownership, other than legal title, are classified as finance leases. All
other assets leased to customers are classified as operating lease assets.
Income from finance leases can be recognised in the profit and loss account using the actuarial after tax
method to give a constant periodic rate of return on the net cash investment.
Assets held under finance leases are capitalised as tangible fixed assets and are depreciated over the
shorter of the lease terms and their useful lives. The capital elements of future lease obligations are
recorded as liabilities, while the interest elements are charged to the profit and loss account over the
period of the leases to produce a constant rate of charge on the balance of capital repayments
outstanding. Operating lease assets are reported at cost less depreciation.
Income and deprecation in respect of operating leases may be accounted for on an actuarial after tax
basis or on a straight-line basis.
Profits arising on sale and leaseback transactions are recognised immediately if the resulting lease is
an operating lease.
Under Spanish GAAP, finance lease income is recognised in proportion to the funds invested in the
lease using a method that results in a constant rate of return on the net cash investment without taking
into account tax payments and receipts.
Operating lease assets are depreciated on a straight-line basis.
Profits arising on sale and leasebacks are deferred and amortised over the life of the transaction.
201

PART 3: FINANCIAL INFORMATION ON ABBEY
(h) Share-based compensation
Under UK GAAP, the costs of share-based instruments are accounted for on a fair value basis,
computed by reference to the grant date. Such costs are expensed over the performance period to
which the award relates. The amount charged to the profit and loss account is credited to reserves.
Under Spanish GAAP, the costs of share-based instruments are calculated using the intrinsic value of
the instruments, so that the difference between the market value of the share and the exercise price of
the option is recorded as an expense over the life of the option.
(i) Credit provisions
Under UK GAAP, loans and advances are generally recorded in the balance sheet at historic cost less
specific and general provisions. Only where a bank maintains a dealing portfolio of advances for the
purposes of trading on a secondary market are these held at market value with movements in market
value being taken to the profit and loss account.
A loan is impaired when, based on current information and events, the bank considers that the
creditworthiness of a borrower has undergone a deterioration such that it no longer expects to recover
the advance in full. In such circumstances, it is necessary to consider whether a specific provision
should be made against the advance. The amount of the specific provision is the bank’s estimate of the
amount (if any) needed to reduce the carrying value to the expected net realizable value. Where the
bank intends to hold the advance until it is recovered, the net realisable value may well exceed the
amount at which the advance could be sold on a secondary market. However, if the bank intends to
dispose of the advance before it is recovered, the provision should reduce the carrying value to the net
amount estimated to be realisable on disposal. The level of specific provision may subsequently be
increased or decreased to reflect changes in the prospects for recovery. When there is no realistic
prospect of recovery, the advance is written off. Advances are often exchanged for other assets. Where
the acquired assets are held only with a view to the orderly realisation of the original advance, the
original advance remains on the balance sheet with the provision adjusted to reflect the value of the
acquired assets.
A general provision is made against loans and advances to cover bad and doubtful debts which have
not been separately identified but which are known from experience to be present in portfolios of loans
and advances. The general provision is determined using management judgement given past loss
experience and current economic conditions and other relevant factors affecting the various categories
of advances in the portfolio.
Under Spanish GAAP, on the balance sheet, loans are carried at cost and presented net of their credit
loss allowances. The entire loan balance and its credit allowance are maintained on the balance sheet
until any portion of it has been classified as non-performing for 3 years, or up to 6 years for some
secured mortgage loans. After that period the loan balance and its 100% specific allowance are
removed from the balance sheet and recorded in off-balance sheet accounts, with no resulting impact
on net income at that time.
Only under unusual circumstances (bankruptcy, insolvency proceedings, etc.) can the credit loss be
directly recognised through write-offs. Loans are identified as impaired and placed on a non-accrual
basis when any interest or principal is past due for 90 days or more or when it is determined that the
payment of interest or principal is doubtfully collectible. It is doubtfully collectible when the borrower is
incurring continued losses, makes frequent delays in payments, cannot obtain new financing, is
reducing its stockholders’ equity, or other reasons based on available information.
Primarily only the amounts past due for 90 days or more are classified as non-performing. The entire
loan is classified as non-performing if one of the following three conditions is met:
1. Amounts classified as non-performing exceed 25% of the outstanding balance;
2. Any principal is past due more than 6 months for personal loans or 1 year for other loans;
and
3. The loan is deemed uncollectible.
Banks are required to record a specific allowance for credit losses, which is not less than the prescribed
reserve ratios applied against defined stratification of the loan portfolio. Based on judgmental
assessments of credit issues banks may record successive increases to this minimum allowance.
Pursuant to Bank of Spain regulations, an allowance must be recorded based on the time elapsed since
a loan is past due and for those loans for which collection is considered to be doubtful.
(j) Preference shares
Under UK GAAP, preference shares denominated in foreign currencies are not revalued, and are
translated at the historic rate of exchange.
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PART 3: FINANCIAL INFORMATION ON ABBEY
Under Spanish GAAP, preference shares denominated in foreign currencies are revalued at each
reporting date and are retranslated at the year-end rate of exchange. Any associated issue costs are
amortised over a five-year period.
(k) Life assurance
Under UK GAAP, life assurance operations are accounted for using the embedded value basis of
accounting, applicable to banking groups. An embedded value is an actuarially determined estimate of
the economic value of a life assurance company, excluding any value, which may be attributed to future
new business. The embedded value is the sum of the shareholder’s share of the net assets of the life
assurance company and the net present value of the shareholder’s share of emerging surplus from the
existing policies in force. The value of the existing business is calculated by projecting future net cash
flows using appropriate economic and actuarial best estimate assumptions, with the result discounted
at a rate that reflects the shareholder’s overall risk premium. Investment and property assets are held at
market value.
Under Spanish GAAP, the net present value of the profits inherent in the policies of the long-term
assurance fund is not recognised except for acquired business. Investment securities are held at cost (if
held-to-maturity portfolio); or at the lower of cost or market value (if available for sale portfolio). The
costs of acquiring new business are deferred and amortised over the period that premiums are paid,
subject to a recoverability test, and written off when the policy lapses.
Under Spanish GAAP the Inventory Premium approach is adopted for recognising profits arising over
the life of a policy. This is similar to the Net Premium method that has historically been used for withprofits
business in the UK, but differs from the Gross Premium method that applies to non-profit
business in the UK. The Spanish GAAP method will generally give a slower release of profits over the
life of a policy by establishing larger reserves in the earlier years, though this is partially offset by the
deferral of acquisition costs referred to above.
Unless assets & liabilities are precisely matched, as defined under Spanish GAAP, then additional
reserves are required to be established to meet policyholder liabilities.
(l) Securitisations
Certain loans to customers have been securitised and sold to investors via securitisation vehicles with
limited recourse, with servicing rights retained by Abbey.
Under UK GAAP, the Abbey securitisation transactions are treated as financing transactions. The
securitisation vehicles and the securitised customer loans are treated as owned by Abbey and
consequently are included on Abbey’s balance sheet. For certain securitisation transactions, the
receivables and associated debt are reported under UK GAAP under a ‘‘linked presentation’’ format
where the debt is non-recourse and is repayable only from benefits generated by the assets being
financed or by transfer of the assets themselves. In a linked presentation, the non-recourse debt is
shown deducted from the related gross receivables on the face of the balance sheet.
Under Spanish GAAP, the securitisation vehicles, including the securitised customer loans, reported
under the linked presentation are removed from the balance sheet.
(m) Goodwill
Under UK GAAP, goodwill arising on consolidation as a result of the acquisitions of subsidiary
undertakings, and the purchase of businesses prior to 1 January 1998, was written off directly to
reserves. On the disposal of subsidiary undertakings and businesses, such goodwill is charged to the
profit and loss account balanced by an equal credit to reserves.
Under Spanish GAAP, goodwill is recorded as an asset and amortised over its useful economic life.
(n) Deferred taxation
Under UK GAAP, deferred tax is not recognized on revaluations of tangible fixed assets.
Under Spanish GAAP, deferred tax is recognized on revaluations of tangible fixed assets.
(o) Taxation
Where appropriate, the adjustments from UK GAAP to Spanish GAAP have been adjusted for taxation,
typically assuming an effective tax rate of 30%.
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PART 4
REGULATORY OVERVIEW
1. EUROPEAN UNION
The Banking Consolidation Directive sets out minimum conditions for authorisation and the
ongoing prudential supervision of banks in member states of the European Union. Minimum
conditions for the authorisation and prudential supervision of investment firms are set out in the
Investment Services Directive. The overall responsibility for prudential supervision falls on the
home country regulator of a bank or investment firm. The Banking Consolidation Directive and
the Capital Adequacy Directive govern supervision of capital adequacy for both banks and
investment firms in the European Union. The Capital Adequacy Directive contains detailed rules
for the regulatory capital treatment of risks arising in the trading book, that is broadly, positions
and securities that a bank or investment firm holds for proprietary trading purposes. For other
(non-trading) risks, the Capital Adequacy Directive refers to the Banking Consolidation Directive,
which regulates the quality and proportions of different types of capital to be held by an
institution, the amount of capital to be held for counterparty exposures arising outside the trading
book and restrictions on exposures to an individual counterparty or group of connected
counterparties. In addition, the Capital Adequacy Directive and the Banking Consolidation
Directive require consolidated supervision of financial groups.
There are a number of proposals emanating from the European Union as part of its Financial
Services Action Plan which are intended to create a single market for financial services in the
European Union. These proposals will affect the Spanish and United Kingdom financial services
industry in due course. Work continues on the Financial Services Action Plan. Of the 42
proposals most have now been finalised.
There is also a proposal to create a Single European Payments Area and the European
Commission has published a consultation paper. The Regulation on Cross Border Payments in
Euros has been fully in force since 1 July 2003. In addition, there are proposals for a new
Consumer Credit Directive, and a directive on Unfair Commercial Practices. There have also
been a number of measures which are aimed at facilitating the provision of financial services
across borders by use of e-commerce. The revised Investment Services Directive is continuing
its progress through the European Union legislative process.
2. BANK OF SPAIN AND THE EUROPEAN CENTRAL BANK
The Bank of Spain, which operates as Spain’s autonomous central bank, supervises all Spanish
financial institutions, including the Company. Until 1 January 1999, the Bank of Spain was also
the entity responsible for implementing Spanish monetary policy. As at that date, the start of
Stage III of the European Monetary Union, the European System of Central Banks and the
European Central Bank became jointly responsible for Spain’s monetary policy. The European
System of Central Banks is composed of the European Central bank and the national central
banks of all 25 EU Member States. The ‘‘Eurosystem’’ is the term used to refer to the European
Central Bank and the national central banks of the member states which have adopted the euro.
The European Central Bank is responsible for the monetary policy of the European Union. The
Bank of Spain, as a member of the European System of Central Banks, takes part in the
development of the European System of Central Banks’ powers including the design of the
European Union’s monetary policy.
The European System of Central Banks is made up of three decision-making bodies:
) the Governing Council, comprised of the members of the Executive Board of the European
Central Bank and the governors of the national central banks of the twelve Member States
which have adopted the euro;
) the Executive Board, comprised of the President, Vice-President and four other members;
and
) the General Council of the European Central Bank, comprised of the President and Vice-
President of the European Central Bank and the governors of the national central banks of
the twenty five European Union Member States.
The Governing Council is the body in charge of formulating monetary policy and adopting the
guidelines and decisions necessary to perform the Eurosystem’s tasks. The Executive Board is
the body in charge of implementing the monetary policy for the euro area laid out by the
Governing Council and providing the instructions necessary to carry out monetary policy to the
euro area national central banks.
The European Central Bank has delegated the authority to issue the euro to the central banks of
each country participating in Stage III. These central banks are also in charge of executing the
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European Union’s monetary policy in their respective countries. The countries not taking part in
Stage III (including the United Kingdom) have a seat in the European System of Central Banks,
but do not have a say in the monetary policy or instructions laid out by the governing council to
the national central banks.
Notwithstanding the European Monetary Union, the Bank of Spain continues to be responsible
for:
) maintaining, administering and managing Spain’s foreign exchange and precious metal
reserves;
) promoting the stability and performance of the financial payment systems;
) rendering treasury services to the Spanish Treasury and to the regional governments,
although the granting of loans or overdrafts in favour of the state, the regional governments or
other bodies referred to in Section 104 of the European Union Treaty, is generally prohibited;
) rendering services related to public debt to the state and regional governments; and
) advising the government and drawing up statistics and reports on matters related to the Bank
of Spain’s areas at responsibility.
The Bank of Spain has the following supervisory powers over Spanish banks, subject to
applicable law, rules and regulations issued by the Spanish Government and the Ministry of
Economy and Finance:
) to conduct periodic inspections of Spanish banks to test compliance with current regulations
concerning, among other matters, preparation of financial statements, account structure,
credit policies and provisions and capital adequacy;
) to advise a bank’s board of directors and management when its dividend policy is deemed
inconsistent with the bank’s financial results;
) to undertake extraordinary inspections of banks concerning any matters relating to their
banking activities;
) to participate with, as the case may be, other authorities in appropriate cases in the
imposition of penalties to banks for infringement or violation of applicable regulations; and
) to take control of credit entities and to replace directors of credit entities when a Spanish
credit entity faces an exceptional situation that poses a risk on the financial status of the
relevant entity.
2.1 Liquidity Ratio
European Central Bank regulations that came into force on 1 January 1999, require credit
institutions in each member state that participates in the European Monetary Union to place a
specific percentage of their ‘‘Qualifying Liabilities’’ with their respective central banks in the form
of interest bearing deposits as specified below (the ‘‘Liquidity Ratio’’).
The European Central Bank requires the maintenance of a minimum liquidity ratio at all credit
institutions established in the member states of the European Monetary Union. Branches located
in the euro zone of institutions not registered in this area are also subject to this ratio, while the
branches located outside the euro zone of institutions registered in the euro zone are not subject
to this ratio.
‘‘Qualifying Liabilities’’ are broadly defined as deposits and debt securities issued. The Liquidity
Ratio is 2% over Qualifying Liabilities except in relation to deposits with stated maturity greater
than two years, deposits redeemable at notice after two years, repos and debt securities with a
stated maturity greater than two years, for which the ratio is 0%.
Liabilities of institutions subject to the Liquidity Ratio and liabilities of the European Central Bank
and national central banks are not included in the base of ‘‘Qualifying Liabilities’’.
2.2 Investment Ratio
The Spanish Government has the power to require credit institutions to invest a portion of certain
Qualifying Liabilities in certain kinds of public sector debt or public-interest financing (the
‘‘investment ratio’’), and has exercised this power in the past. Although the investment ratio has
been 0% since 31 December 1992, the law which authorises it has not been abolished, and the
Spanish Government could reimpose the ratio, subject to EU requirements.
2.3 Capital Adequacy Requirements
The Company and its Spanish bank subsidiaries are subject to Spanish capital adequacy
requirements that implement the European Union Capital Adequacy Directive.
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The Spanish capital adequacy requirements distinguish between ‘‘basic’’ and ‘‘complementary’’
capital and require certain ratios of basic and total capital to risk-weighted assets. Basic capital
generally includes ordinary shares, non-cumulative preference shares, most reserves and
generic credit allowances less holdings in other financial institutions exceeding certain
thresholds, treasury stock and financing for the acquisition (by persons other than the issuer’s
employees) of the issuer’s shares. Complementary capital generally includes certain cumulative
preference shares, revaluation and similar reserves, dated and perpetual subordinated debt.
The computation of both basic and complementary capital is subject to provisions limiting the
type of stockholding and the level of control which these stockholdings grant to a banking group.
The level of dated subordinated debt taken into account for the calculation of complementary
capital may not exceed 50% of basic capital, the level of non-cumulative preference shares may
not exceed 30% of basic capital and the total amount of complementary capital admissible for
computing total capital may not exceed the total amount of basic capital.
The consolidated total capital of a banking group calculated in the manner described above may
not be less than 8% of the group’s risk-weighted assets net of specified provisions and
amortisations. The calculation of total risk-weighted assets applies minimum multipliers of 0%,
10%, 20%, 50% and 100% to the group’s assets.
The following loans receive a 0% weighting:
) loans to the Spanish Government and the Bank of Spain, the Organisation for Economic
Cooperation and Development and European Union countries’ governments or central banks;
) loans to governments or central banks of countries that have entered into certain special loan
agreements with the International Monetary Fund (provided such countries had not
renegotiated their external debt within the five years preceding the loan);
) credits against the European Union;
) credits against Spanish autonomous governmental bodies, the Spanish social security fund
and certain Spanish governmental public entities, or credits expressly guaranteed by certain
entities mentioned above;
) certain securitised debt related to the Spanish nuclear moratorium;
) debt securities of Spanish autonomous communities (provided such securities have been
approved by the Spanish Government); and
) credits given in the debtor’s local currency against, or guaranteed by, governments or central
banks of such other countries not mentioned above, subject to certain exceptions.
A 10% weighting is attributed to mortgage securities and territorial bonds issued by credit
institutions and to fixed income securities issued by credit institutions authorised in the European
Union to which their home country supervisory authorities apply a 10% weighting.
Loans to Spanish autonomous communities and local councils, to the Organisation for Economic
Cooperation and Development regional and local governments, to banks, savings banks and
brokerage firms and to the European Investment Bank and multilateral development banks
receive at least a 20% weighting.
Residential mortgage loans receive at least a 50% weighting.
All other loans are weighted at 100%; however, such weighting may be lower if the loan is
guaranteed or secured. Off-balance-sheet assets are also included in the calculation of riskweighted
assets.
Spanish regulations provide that, if certain requirements are met, Spanish banks may include the
net credit exposure arising from certain interest rate -and foreign exchange-related derivative
contracts (rather than the entire notional amount of such contracts) in their total risk-adjusted
assets for purposes of calculating their capital adequacy ratios.
Including Abbey as at 31 December 2004, the Group’s eligible capital exceeded the minimum
required by the Bank of Spain by approximately 011,100 million. The Company’s Spanish
subsidiary banks were, at 31 December 2004, each in compliance with these capital adequacy
requirements, and all the Company’s foreign subsidiary banks were in compliance with their local
regulation.
Banks or consolidated banking groups should communicate immediately to the Bank of Spain if
they fail to satisfy minimum capital requirements, and within the next month should present a
plan to recover the required solvency position. This plan could be modified by the Bank of Spain.
While the deficit persists, the payment of dividends by any of the entities of the banking group
must be approved by Bank of Spain, and will be limited to a maximum of 50% of net attributable
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income. Payment of dividends could be forbidden if the deficit of capital is greater than 20% of
minimum capital requirements (see further paragraph 2.7 below).
The Basel Accord
The Basel Committee on Banking Regulations and Supervisory Practices, which includes the
supervisory authorities of twelve major industrial countries, has adopted an international
framework (the ‘‘Basel Accord’’) for capital measurement and capital standards of banking
institutions. The framework provides:
) definitions for ‘‘Tier 1’’ capital and ‘‘Tier 2’’ capital;
) a system for weighting assets and off balance sheet items according to credit risk; and
) a requirement that banks engaged in international operations maintain Tier 1 capital of at
least 4% of risk-weighted assets and ‘‘total’’ capital (Tier 1 capital plus up to an equal amount
of Tier 2 capital) of at least 8% of risk-weighted assets.
As described above, the capital adequacy of Spanish banks is regulated by European Union
directives applicable to the Spanish banking system as well as to the banking systems of other
European Union member states, including the United Kingdom. Each national authority which is
a party to the Basel Accord has implemented the Accord in a significantly different fashion. The
capital requirements imposed by the Basel Accord are in many respects similar to those imposed
by European Union directives, Spanish law and the Bank of Spain. Based purely on the capital
framework itself, and making assumptions that the Company considers appropriate (but without
including in Tier 2 capital any revaluation reserves), the Company estimates that, at
31 December 2004, the Group (including Abbey) had (1) a total capital to risk-weighted assets
ratio of 13.01%, and (2) a Tier 1 capital to risk-weighted assets ratio of 7.16%.
After continuing consultation, the Basel Committee on Banking Supervision released the third
Consultative Package of the new basel capital accord (the ‘‘New Basel Capital Accord’’), which
will replace the 1988 Accord. This Accord regulates the capital requirements for financial
institutions. The final version, published in 2004, is currently expected to be implemented during
2007 and 2008. However, implementation in the European Union will be dependent on the
adoption of a directive amending the Banking Consolidation Directive and the Capital Adequacy
Directives.
The New Basel Capital Accord introduces more emphasis on risk sensitivity, supervisory review
and market discipline (through more extensive disclosures). The impact of the New Basel Capital
Accord is not expected to increase the capital requirement, but will increase its volatility.
2.4 Concentration of Risk
Spanish banks may not have exposure to a single person or group in excess of 25% (20% in the
case of an affiliate) of the bank’s or group’s consolidated equity. Any exposure to a person or
group exceeding 10% of a bank’s or group’s consolidated equity is deemed a concentration and
the total amount of exposure represented by all of such concentrations must not exceed 800% of
such equity.
2.5 Legal Reserve And Other Reserves
Spanish banks are subject to legal and other restricted reserves requirements. In addition, the
Company must allocate profits to certain other reserves as described under Note 21 to the
Consolidated Financial Statements set out in ‘‘Part 2: Financial Information on the Company’’
above.
2.6 Employee Pension Plans
The Bank of Spain requires Spanish banks’ pension funds to be fully funded. At 31 December
2004, the Company’s pension plans were all fully funded according to Bank of Spain
requirements. See Note 2(j) to the Company’s consolidated financial statements set out in
‘‘Part 2: Financial Information on the Company’’ above.
2.7 Restrictions on Dividends
The Company may only pay dividends (including interim dividends) if such payment is in
compliance with the Bank of Spain’s minimum capital requirement (see above under ‘‘Capital
Adequacy Requirements’’) and other applicable legal and regulatory requirements or, as
described below, under certain circumstances when the Company has capital that is 20% or less
below the Bank of Spain’s minimum capital requirements.
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If a banking group meets this capital requirement, it may dedicate all of its net profits to the
payment of dividends, although in practice Spanish banks normally consult with the Bank of
Spain before declaring a dividend. Even if a banking group meets the capital requirement as a
group, any consolidated Spanish credit entity that is a subsidiary that does not meet the capital
requirement on its own will be subject to the limitations on dividends described below. If a
banking group or any Spanish credit entity subsidiary of the group has capital that is 20% or less
below the Bank of Spain’s minimum capital requirement, it must devote an amount of net profits
(at least 50%) determined by the Bank of Spain to reserves, and dividends may be paid out of the
remainder only with the prior approval of the Bank of Spain. If the capital is 20% or more below
the minimum requirement, it may not pay any dividends and must allocate all profits to reserves.
In the case of a banking group failing to meet the capital requirement, however, consolidated
subsidiaries in the group may pay dividends without restriction, so long as they are at least 90%
owned by group companies and, if they are credit entities, independently comply with the capital
requirement.
If a bank has no net profits, its board of directors may propose at the general meeting of
shareholders that a dividend be declared out of retained earnings. However, once the board of
directors has proposed the dividend to be paid, it must submit the proposal to the Minister of
Economy and Finance in Spain who, in consultation with the Bank of Spain, may in his discretion
authorise or reject the proposal of the board.
Compliance with such requirements notwithstanding, the Bank of Spain is empowered to advise
a bank against the payment of dividends on security and soundness grounds. If such advice is
not followed, the Bank of Spain may require that notice of such advice be included in the bank’s
annual report registered on the Mercantile Register. In no event may dividends be paid from
certain legal reserves.
Interim dividends of any given year may not exceed the net profits for the period from the closing
of the previous fiscal year to the date on which interim dividends are declared. In addition, the
Bank of Spain recommends that interim dividends not exceed an amount equal to one-half of all
net income from the beginning of the corresponding fiscal year. Although banks are not legally
required to seek prior approval from the Bank of Spain before declaring interim dividends, the
Bank of Spain has asked that banks consult with it on a voluntary basis before declaring interim
dividends.
2.8 Limitations On Types Of Business
Spanish banks generally are not subject to any prohibitions on the types of businesses that they
may conduct, although they are subject to certain limitations on the types of businesses they may
conduct directly.
The activities that the credit institutions authorised in another member state of the European
Union may conduct and which benefit from the mutual recognition within the European Union are
detailed in article 52 of Law 26/1988 (29 July 1988).
2.9 Deposit Guarantee Fund
The Deposit Guarantee Fund on Credit Institutions (the ‘‘FGD’’), which operates under the
guidance of the Bank of Spain, guarantees in the case of the Group’s Spanish banking
subsidiaries: (i) bank deposits up to 020,000 per depositor; and (ii) securities and financial
instruments which have been relied to a credit institution for its deposit, register or for such other
service, up to 020,000 per investor. Pursuant to regulations affecting the FGD, the FGD may
purchase non-performing loans or may acquire, recapitalise and sell banks which experience
difficulties.
The FGD is funded by annual contributions from member banks. The amount of such bank’s
contributions is currently 0.6 per thousand (0.4 per thousand for savings banks and 0.8 per
thousand for credit cooperatives) of the year-end amount of deposits to which the guarantee
extends. For that purpose, the calculation basis will take into consideration the bank deposits,
plus 5% of the market quotation (or nominal value or redemption value in case the securities are
not traded in any secondary market) of the guaranteed securities at the end of the financial year.
Nevertheless, the Minister of Economy and Finance may reduce the member bank contributions
once the capital of the FGD resources exceeds its requirements, and suspend further
contributions when the FGD’s funds exceed the requirement by 1% or more of the calculation
basis.
At 31 December 2004, the Company and its other domestic bank subsidiaries were members of
the FGD and thus obligated to make annual contributions to it.
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2.10 Data Protection
Law 15/1999, dated 13 December 1999, on protection of personal data sets the duties and
limitations that the treatment of personal data has to fulfil. Such requirements are applicable to
the treatment of personal data by credit entities with respect to their customers. The Law
establishes the obligation to notify the Data Protection Agency in Spain prior to the creation of
files with personal information. The identity of the persons who are responsible of the files and
the measures taken to preserve the security of those files have to be provided in these
notifications, among other matters. The files must be recorded in the Data Protection General
Registry, once compliance with the relevant requirements has been confirmed. Breaches of this
Law may be subject to claims by the interested parties before the Data Protection Agency. The
Agency, which has investigatory and sanctioning capabilities, is the Spanish Authority
responsible for the control and supervision of the enforcement of the Law. The Law sets the
principles which govern data collection and treatment in addition to the exercise by the interested
parties of their rights to object to, access, rectify and cancel their personal data. The exercise of
these rights has to be observed by the entrusted credit entity.
2.11 Recent Legislation
Law 44/2002 (22 November 2002) on reform measures of the financial system, amended, among
others, the Credit Entities Discipline and Intermediation Law, the Private Insurance law and the
Securities Market Law.
On 4 July 2003, Law 19/2003 was approved. This law is an update to Spanish exchange control
and money laundering prevention provisions. This law also introduces an additional rule to Law
13/1985, on requirements for the issuance of preferred securities.
On 9 July 2003, Law 22/2003 was approved, which implements certain reforms to the insolvency
process, compiling all the material and formal aspects of the insolvency process into a single
legal instrument.
Law 26/2003 (17 July 2003) amended the Securities Market Law 24/1988 and the Companies
Law in order to reinforce the transparency of listed companies.
Law 58/2003 (17 December 2003), the General Tax Law, became effective on 1 July 2004 and
superceded existing laws regulating this matter.
Royal Legislative Decree 3/2004 consolidated the existing legislation regarding personal income
tax into a single law and abolished existing law on the subject, including Law 40/1998 which was
the primary source of regulation.
Royal Legislative Decree 4/2004 consolidated the existing legislation regarding corporate income
tax into a single law and abolished existing law on the subject, including Law 43/1995 which was
the primary source of regulation.
Royal Legislative Decree 5/2004 consolidated the existing legislation regarding taxation of nonresident
individuals and entities into a single law and abolished existing law on the subject,
including Law 41/1998 which was the primary source of regulation.
Royal Decree 1777/2004 which developed Royal Decree Law 4/2004 on corporate income tax.
On 30 July 2004, Royal Decree 1778/2004 was approved, introducing reporting obligations for
(i) preferred participations and other debt instruments and (ii) certain income generated by
individuals in the European Union.
Royal Legislative Decree 6/2004, consolidated the existing legislation regarding the regulation
and supervision of private insurance.
Circular 4/2004 (22 December 2004) of the Bank of Spain to financial institutions sets standards
on public and reserved information and official forms for financial statements.
Law 3/2004 (29 December 2004) establishes measures against non-performance of commercial
transactions.
Royal Decree 54/2005 modifies the regulations on prevention of money laundering, to adapt to
Law 19/2003, approved by Royal Decree 925/1995, and other standards to regulate the banking,
finance and insurance systems.
Royal Decree Law 5/2005 (i) amends the Securities Market Law 24/1988 in order to implement
the Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be
published when securities are offered to the public or admitted to trading; and (ii) implements the
Directive 2002/47/EC of the European Parliament and of the Council on financial collateral
arrangements.
Circular 1/2005 of the CNMV which modifies the official forms used to report the periodic public
information of the companies whose securities are traded at the Bolsas de Valores.
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Law 6/2005 (22 April) on solvency and liquidation of credit entities.
Law 5/2005 (22 April) on supervision of financial conglomerates, amending other laws applicable
to the financial sector.
Also, please see the discussion of the Basel Accord above under ‘‘Capital Adequacy
Requirements’’.
2.12 Monetary Policy and Exchange Controls
The decisions of the European System of Central Banks influence conditions in the money and
credit markets, thereby affecting interest rates, the growth in lending, the distribution of lending
among various industry sectors and the growth of deposits. Monetary policy has had a significant
effect on the operations and profitability of Spanish banks in the past and this effect is expected
to continue in the future. Similarly, the monetary policies of governments in other countries in
which the Group has operations, particularly in Latin America and, following the acquisition of
Abbey, in the United Kingdom, affect the Group’s operations and profitability in those countries.
The Company cannot predict the effect which any changes in such policies may have in the
future upon the Group’s operations but the Company does not expect it to be material.
The European Monetary Union has had a significant effect upon foreign exchange and bond
markets and has involved modification of the internal operations and systems of banks and of
inter-bank payments systems. Since 1 January 1999, the start of Stage III, Spanish monetary
policy has been affected in several ways (see above under ‘‘Bank of Spain and the European
Central Bank’’). The euro has become the national currency of twelve participating countries and
the exchange rates between the currencies of these countries are fixed to the euro. Additionally,
the European System of Central Banks became the entity in charge of the European Union’s
monetary policy.
3. UNITED STATES REGULATION
By virtue of the operation of the Group’s branches in New York City and its agency in Miami, as
well as the Group’s ownership of a bank in Puerto Rico, the Company is subject to the U.S. Bank
Holding Company Act of 1956, as amended, and the U.S. International Banking Act of 1978, as
amended. These statutes impose limitations on the types of business conducted by the Group in
the United States and on the location and expansion of the Group’s banking business in the
United States. The Group’s banking subsidiaries and branches in the United States are subject
to supervision and regulation by the Board of Governors of the Federal Reserve System.
4. UNITED KINGDOM REGULATION
4.1 General
The Bank of England operates as the central autonomous bank of the UK, and is also
responsible for implementing UK monetary policy. Because the United Kingdom has yet to adopt
the euro, the Bank of England is not a member of the so-called ‘‘Eurosystem’’, as referred to in
paragraph 2 above (‘‘Bank of Spain and the European Central Bank’’). As a result, the Bank of
England (and other National Central Banks of those Member States which do not participate in
the euro area) is a member of the European System of Central Banks, but has a special status, in
that it is able to conduct its own national monetary policies, but does not take part in decisionmaking
with regard to the single monetary policy for the euro area and the implementation of
such decisions. The directives referred to at paragraph 1 ‘‘European Union’’ above apply to the
UK nonetheless.
The FSA is the single statutory regulator responsible for regulating deposit taking, mortgages,
insurance and investment business in the UK, pursuant to FSMA. It is a criminal offence for any
person to carry on any of the activities regulated under FSMA in the UK by way of business
unless that person is authorised by the FSA or falls under an exemption.
The FSA has authorised Abbey, as well as certain of its subsidiaries, to carry on certain
regulated activities. The regulated activities which they are authorised to engage in depend upon
permissions granted by the FSA. The main permitted activities of Abbey and its subsidiaries are
listed below.
4.1.1 Mortgages
Lending secured on land at least 40% of which is used as a dwelling by an individual borrower or
relative has been regulated by the FSA since 31 October 2004. Abbey is authorised to enter into,
advise and arrange regulated mortgage contracts.
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4.1.2 Banking
Deposit taking is a regulated activity that requires a firm to be authorised and supervised by the
FSA. Abbey has permission to carry on deposit taking as do two of its subsidiaries, Abbey
National Treasury Services plc and Cater Allen Limited.
4.1.3 Insurance
UK banking groups may provide insurance services through other group companies. Insurance
business is authorised and supervised by the FSA. Insurance business in the UK is divided
between two main categories: long term assurance (e.g. whole life, endowments, life insurance
investment bonds) and general insurance (e.g. building and contents cover and motor insurance).
Under FSMA, effecting or carrying out any contract of insurance, whether general or long term, is
a regulated activity requiring authorisation. Life insurance mediation has been subject to
regulation for many years. General insurance mediation has been subject to regulation by the
FSA since 14 January 2005.
Abbey has a number of subsidiaries which are authorised by the FSA to effect contracts of
insurance. Abbey also acts as a broker, receiving commissions for the policies arranged, and is
authorised by the FSA to perform this role.
4.1.4 Investment business
Investment business such as dealing in, arranging deals in, managing and giving investment
advice in respect of most types of securities and other investments, including options, futures and
contracts for differences (which would include interest rate and currency swaps) and long term
assurance contracts are all regulated activities under FSMA and require authorisation by the
FSA.
Abbey and a number of its subsidiaries have permission to engage in a wide range of wholesale
and retail investment businesses including selling certain life assurance and pension products,
unit trust products and Individual Savings Accounts (tax exempt saving products known as
‘‘ISAs’’) and providing certain retail equity products and services.
4.2 Capital Adequacy Requirements:
It is expected that by 1 January 2007 the UK will implement the Capital Requirements Directive
into national law. This will result in an amendment to the FSA’s handbook of rules and guidance
(the ‘‘FSA Handbook’’). The capital adequacy provisions in the FSA Handbook may differ from
the Capital Requirements Directive in those areas where national discretions are permitted and
where specific national interpretation is required. For credit risk, Abbey intends to apply the retail
Internal Ratings Based Approach and for Financial Markets, the Advanced Internal Rating Based
Approach.
Abbey intends to submit to the FSA a waiver application for the retail Internal Ratings Based
approach during the third quarter of 2005, with implementation to begin at the end of 2006.
In addition, for Financial Markets, a waiver application will be submitted by the third quarter of
2006 and implementation will begin on 1 January 2008. For operational risk, Abbey intends to
adopt the Standardised Approach, which will be implemented from the end of 2006, moving to
the Advanced Measurement Approach when appropriate. Abbey has established a bank-wide
programme which will manage the changes required to ensure compliance with the new Basel
Accord requirements.
4.3 FSA conduct of business rules
The FSA’s conduct of business rules also apply to every authorised person carrying on regulated
activities and regulate the day-to-day conduct of business standards to be observed by
authorised persons in carrying on those activities.
The conduct of business rules prescribe stringent rules relating to the circumstances and manner
in which authorised persons may communicate and approve financial promotions being
communications in the course of business, which are invitations or inducements to engage in
investment activity.
4.4 The Financial Services Compensation Scheme
In the case of the Group’s U.K. banking subsidiaries, the Financial Services Compensation
Scheme (the ‘‘FSCS’’) covers claims against authorised firms (or any participating European
Economic Area firms) where they are unable, or likely to be unable, to pay claims against them.
The FSCS covers the following:
Deposits: up to £31,700 per person (100% of the first £2,000 and 90% of the next £33,000).
The FSCS is triggered when an authorised deposit taker (such as a bank, building society or
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credit union) is, or the FSA considers that each authorised deposit taker is, unable, or likely to be
unable, to repay its depositors.
Investments: up to £48,000 per person (100% of the first £30,000 and 90% of the next
£20,000). The FSCS provides protection if an authorised firm is unable to pay claims against it.
Investments covered include stocks and shares, unit trusts, futures and options.
Mortgage advice and arranging: the FSCS will pay up to £48,000 (100% of the first £30,000
and 90% of the next £20,000) for claims against authorised mortgage firms that are unable to
pay claims against them.
Long-term insurance (pensions and life assurances) firms: unlimited, 100% of the first
£2,000 plus 90% of the remainder of the claim. Policyholder protection is triggered if an
authorised insurer is unable to meet claims against it, for example if it has been placed in
provisional liquidation or administration.
General insurance firms: Compulsory insurance (third party motor): unlimited, 100% of the
claim; non-compulsory insurance (home and general): unlimited, 100% of the first £2,000 plus
90% of the remainder of the claim. Policyholder protection is triggered if an authorised insurer is
unable to meet claims against it, for example if it has been placed in provisional liquidation or
administration.
General insurance advice and arranging (for business conducted on or after 14 January
2005): unlimited, comprising 100% of the first £2,000 plus 90% of the remainder of the claim.
Compulsory insurance is protected in full.
4.5 Data protection
The UK Data Protection Act 1998 limits the ability of a UK company to hold and use personal
information relating to its customers. The law requires UK companies to notify the Information
Commissioner of their activities concerning the processing of personal data prior to commencing
those activities. The Information Commissioner maintains a public register of data controllers. In
addition, companies regulated by the Data Protection Act 1998 must comply with the eight
enforceable principles of good conduct (the so-called ‘‘data protection principles’’) and must
submit requests for the individual who is the subject of the data concerning matters such as
giving access to their data and the right to object to incorrect data being held or to direct
marketing.
4.6 Other main relevant legislation
The Consumer Credit Act 1974 regulates certain loans up to £25,000 to consumers, both
secured (but excluding loans secured by land that are regulated by the FSA) and unsecured, as
well as associated credit broking. The Unfair Terms in Consumer Contracts Regulations 1999,
apply to certain contracts for goods and services entered into with consumers. The main effect of
the Regulations is that a contractual term covered by the Regulations which is ‘‘unfair’’ will be
unenforceable against a consumer. These Regulations contain an indicative list of unfair terms
and apply, inter alia, to mortgages, savings accounts and related products and services. The
FSA has issued guidance on how it will use its powers under these regulations.
4.7 Distance Marketing Directive
This directive deals with distance contracts for financial services. It is implemented by the
Banking Code, FSA, Consumer Credit Act and the Financial Services (Distance Marketing)
Regulations 2004. It gives customers a right to cancel a distance contract within 14 days (30 days
for some insurance products) and the right to receive certain information and a copy of the terms
and conditions before they become bound by the contract. This directive was implemented into
UK law on 31 October 2004.
4.8 Current and future developments
Payment Systems
Following the Chancellor’s Pre-Budget Report in November 2003, the Office of Fair Trading (the
‘‘OFT’’) has been given an enhanced role in payments systems for a period of four years . The
UK Government will then review competition in the industry and may consider legislation. In
March 2004, the OFT Payment Systems Task Force (the ‘‘Task Force’’) was established to
consider issues relating to competition, efficiency and innovation in the UK’s payments systems.
The Task Force brings together payments industry, retail, consumer and government
representatives with an interest in payments systems. The initial focus is on a faster electronic
payments scheme for the UK. Other issues to be addressed include cheques, governance and
access, industry co-operation, European developments, pricing and transparency.
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The payments industry is also under scrutiny from the Treasury Select Committee (the
‘‘Committee’’) who are conducting separate investigations into automatic teller machine (‘‘ATM’’)
charging and transparency of credit card charges. On 31 March 2005 the Committee published
its recommendations on ATM charging, calling for the government to review developments, for
greater transparency in ATM charging and for ATM charging to be brought within the Banking
Code.
A key objective within the European Union’s Financial Services Action Plan is to create an
integrated system for payments in Europe. The European Commission has issued a consultation
paper on a proposed directive for a New Legal Framework for Payments in Europe which could
have wide reaching implications for the UK payments industry. This Directive is now in the course
of development although no date has been set for adoption.
Future governance of insurance companies
The FSA are consulting on many issues which will affect the way insurers carry on business.
Child Trust Funds
The provisions of the announced Child Trust Funds Act 2004 came into force in two stages, on
1 January 2005 and 6 April 2005. The Act is designed to encourage parents and children to
develop savings habits and to ensure that, in future, all children have financial assets to start
adult life. They are a tax wrapper (free of personal income and capital gains tax), which can hold
a variety of savings and investments. All children born on or after 1 September 2002 qualify for a
Child Trust Fund. Since January 2005 Child Trust Fund vouchers have been sent to the entitled
children. Since 6 April 2005 firms have been able to process applications and accept
subscriptions.
Polarisation
The polarisation rules controlled the way certain savings and investment products could be sold.
Advisers on life assurance, personal pension policies, collective investment schemes (unit trusts
and OEICS) and investment trust savings schemes have either to: be an Independent Financial
Adviser with the ability to advise across all products and companies in the market; or represent
just one company or group and sell only its products. The FSA has issued new regulations to
remove the polarisation restrictions with the aim of increasing the range of products available to
customers as well as giving them a clearer picture of what they are paying for advice. The
depolarisation rules were being implemented over a 6-month transitional period, that ended on
1 June 2005.
Consumer Credit Bill
The bill is currently passing through Parliament, and its second reading in the House of
Commons was on 9 June 2005. Among the amendments in the most recent draft are changes
relating to increasing the financial limit at which loans are protected, provision of statements,
adding new provision relating to unfair relationships, increasing powers for the OFT, a new
licencing regime and new notices to be provided when borrower is in arrears.
European Union developments
There are a number of proposals emanating from the European Union, which will affect the UK
financial services industry in due course. These include proposals for a new Consumer Credit
Directive and implementing measures for the Markets in Financial Instruments Directive. There
have also been a number of measures which are aimed at facilitating the provision of financial
services across borders by use of e-commerce. In addition, the Unfair Commercial Practices
Directive was enacted on 11 June 2005 to enhance and harmonise consumer protection across
Europe. The deadline for national implementation is 12 June 2007.
New Banking Code
The Banking Code is issued by the Code Sponsors, the British Bankers’ Association, the Building
Societies’ Association and Association for Payment Clearing Services. Subscribers (including
Abbey) should ensure that they abide by the spirit as well as the letter of the Code. The most
recent edition of the Banking Code includes changes covering the key commitments, basic bank
account, interest rates, terms and conditions, cancellation rights, advertising, cards and personal
identification numbers and credit cards.
Misselling of Pension and Endowment Policies
In recent years the FSA has become particularly concerned about potential misselling in respect
of pension and mortgage endowment products. The concern is that many customers across the
financial services industry have either been sold products which were unsuitable for their needs,
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or were insufficiently appraised of the potential risks involved in utilising such products. A number
of insurers and other financial services institutions have either paid out compensation to such
customers voluntarily, or have been penalised by the FSA.
Companies which provided such products have been required by the FSA to provide notification
letters advising relevant customers of potential shortfalls in their expected returns, their right to
seek compensation, and potential time-limits on this right.
As a result of this concern, Abbey has been liasing with the FSA, and has pro-actively reviewed
all areas at its business where there is a concern that a potential disadvantage to customers may
have arisen. See also paragraph 18.1 of Part 5: Additional Information.
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1. THE COMPANY
PART 5:
ADDITIONAL INFORMATION
1.1 History
The Company was established on 21 March 1857 and incorporated into its present form as a
limited liability company by a public deed executed in Santander, Spain, on 14 January 1875, and
recorded on the Mercantile Registry of the Province of Santander. The Company’s by-laws were
amended to comply with the Companies Law (Ley de Sociedades Anónimas) currently in force in
Spain. Such amendment was authorised on 8 June 1992 and registered on the Mercantile
Registry of Santander.
On 15 January 1999, the boards of the Company and Banco Central Hispanoamericano, S.A.
agreed to merge Banco Central Hispanoamericano into the Company, and to change the
Company’s name to Banco Santander Central Hispano, S.A.. The Group conducts business
under the commercial name ‘‘Grupo Santander’’. The Company’s registered office is located in
Paseo de Pereda, 9-12, 39004 Santander, Spain.
1.2 Acquisitions, Dispositions and Reorganisations
The principal holdings acquired by the Company in 2002, 2003 and 2004 and other significant
corporate transactions were as follows:
Abbey. On 12 November 2004, the Company acquired 100% of the ordinary shares of Abbey, the
UK retail bank, for a total consideration of approximately £9 billion (approximately 012.5 billion)
by way of a court sanctioned scheme of arrangement. The consideration was satisfied by the
issue of shares by the Company. Abbey’s equity, in accordance with UK GAAP, as at
31 December 2004, the date of its first consolidation into the Group was £4.3 billion. See
paragraph 1.6 of ‘‘Part 1: Information on the Group’’ above for further details.
ELCON Finans AS (‘‘Elcon’’). In September 2004, the Group acquired 100% of the share capital
of Elcon (a leading Norwegian company in vehicle financing) for Norwegian kroner 3,440 million
(approximately 0400 million). Subsequently, the Group has agreed the sale of the leasing and
equipment factoring businesses of Elcon for 0160 million. The goodwill arising was 0131 million.
Polskie Towarzystwo Finansowe, S.A. (‘‘PTF’’). In February 2004, Santander Consumer
announced the acquisition of 100% of the Polish consumer finance company PTF, together with
the credit portfolio managed by PTF for a payment of 0524 million, out of which 0460 million
represented the nominal value of the acquired portfolio. The transaction included 070 million of
goodwill.
Finconsumo Banca SpA (‘‘Finconsumo’’). In 2003, the Group resolved to acquire the remaining
50% of the capital stock of Finconsumo that it did not already own and it went on to acquire 20%
of the capital stock for 060 million. In January 2004, the acquisition of the remaining 30%
became effective with a payment of 080 million that included 058 million of goodwill.
Santander Central Hispano Previsión, S.A., de Seguros y Reaseguros (‘‘Previsión’’). In 2003,
the Group reached an agreement for the sale of its entire investment in Previsión. Once the
required authorisations were obtained, the sale was completed in June 2004 for a price of
0162 million.
Abfin BV (‘‘Abfin’’). In September 2004, the Group acquired the Dutch company Abfin, whose
main business activity is vehicle financing, for a price of 022 million which included 03 million of
goodwill.
Orígenes AFJP, S.A. (‘‘Orígenes AFJP’’). In 2003, the Group acquired (in accordance with the
agreements reached in previous fiscal years) a 20% holding in the capital stock of Orígenes
AFJP for 0141 million. The goodwill which arose from this acquisition was amortised against the
provisions as at 31 December 2002.
Banco Santander Portugal, S.A. (‘‘Banco Santander Portugal’’). In 2003, the Group acquired a
12.74% ownership interest in the capital stock of Banco Santander Portugal for 0106 million, thus
increasing its holding to 97.95%.
Banco Español de Crédito, S.A. (‘‘Banesto’’). In 2002, Banesto carried out a monetary capital
increase through the issuance of 81,670,694 new shares, carrying pre-emptive rights, at a ratio
of 2 new shares issued at par for every 15 old shares. In 2002, the Group sold the pre-emptive
rights it received in this transaction (arising from its 99.04% holding in the capital stock of
Banesto) for 0443 million and reduced its ownership interest in Banesto to 88.57%. As at
31 December 2004, the Group had an 88.65% holding in the capital stock of Banesto.
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Grupo Financiero Santander Serfin, S.A. de C.V. (‘‘Serfín’’) and Banco Santander Mexicano,
S.A. In December 2002, the Group reached an agreement with Bank of America Corporation
whereby the latter acquired 24.9% of Serfin for U.S.$1,600 million, for which the Group
recognised capital gains of 0681 million in 2003. Under this agreement, Bank of America
Corporation must maintain its share holding in Serfin for at least three years, and after this period
it may use, if it deems it appropriate, several liquidity mechanisms, including the listing of its
Serfín shares and the right to sell its Serfin shares to the Group, at one time, at their book value
at the time of the sale, calculated in accordance with international accounting standards. The
sale of the 24.9% stake was completed in the first quarter of 2003. As at 31 December 2003, the
Group had a 74.0% holding in the capital stock of Serfin. In June 2004, the shareholders of Serfin
increased its capital by 0163.4 million, of which the Group subscribed 0122.5 million. The general
shareholders’ meetings of Banco Santander Mexicano, S.A. (a 100% owned subsidiary of
Serfin), Banca Serfín S.A. (a 100% owned subsidiary of Serfin), Factoring Santander Serfin, S.A.
de C.V. (a 98.9% owned subsidiary of Serfin) and Fonlyser, S.A. de C.V. (a 99.9% owned
subsidiary of Serfin) held on 29 November 2004 agreed to merge these entities into Banco
Santander Mexicano, S.A. For accounting purposes, the merger was effective as at 31 December
2004 but took legal effect on 1 January 2005. Banco Santander Mexicano, S.A. has
subsequently changed its legal name to Banco Santander Serfin, S.A.
AKB Holding (‘‘AKB’’). In 2001, the Group reached an agreement with the Werhahn Group for
the acquisition of AKB (a German group specialised in consumer finance). In May 2002, the
Company issued 109,040,444 new shares of 00.5 par value each and share premium of 09.588
each for an effective amount of 01,100 million, which were paid in full through the contribution of
shares representing all the capital stock of AKB, in accordance with the resolutions adopted by
the Company’s Extraordinary Shareholders’ Meeting held on 9 February 2002. In 2002, AKB
merged with CC-Bank AG. The Group owns 100% of CC-Bank AG.
Banco Santiago. Under the agreements between the Group and the Central Bank of Chile (as
the second largest shareholder of Banco Santiago), on 17 April 2002, the Group acquired
35.45% of the Central Bank of Chile’s holding in the capital stock of Banco Santiago for
U.S.$685 million. On 1 August 2002, Banco Santiago merged into Banco Santander Chile, with
retroactive effect as at 1 January 2002, after the required resolution of their respective
Shareholders’ Meetings and approval by the Chilean regulatory authorities. The name of the
post-merger entity is Banco Santander Chile.
Banco Río de la Plata, S.A. (‘‘Banco Río’’). As at 31 December 2004, the Group had a 99.1%
controlling interest in Banco Río (99.1% and 98,9% as at 31 December 2003 and 2002,
respectively) following (i) the tender offer launched in 2000 to acquire the capital stock of Banco
Río owned by minority shareholders, which was accepted by 94% of the minority shareholders,
(ii) the acquisition in 2002 (by virtue of the commitments assumed in prior years) of 18.54% of the
capital stock (23% of the voting rights) for 0395 million and (iii) the conversion into equity in 2003
of the subordinated debt owned by the Group as at 31 December 2002.
Banco Santander Colombia. As a result of a capital increase and of certain agreements reached
in prior years, in 2002, the Group increased its holding in the capital stock of Banco Santander
Colombia by 34.32% and paid 0303 million. As at 31 December 2004, the Group held 97.64% of
Banco Santander Colombia.
Patagon Group. In 2002, the Group restructured its internet banking business, selling its holding
in Patagon America, the Latin American financial portal, to the other shareholders for
U.S.$9.84 million and using the allowances recorded for the full amount of the investment that
included 0617 million of goodwill.
Banco de Venezuela. On 17 August 2002, Banco de Venezuela and Banco de Caracas merged
and formed the new Banco de Venezuela.
Compañía Española de Petróleos, S.A. (‘‘Cepsa’’). In 2003, the Company launched a tender
offer for up to 42,811,991 Cepsa shares. The offer was accepted by 32,461,948 shares,
representing an investment of 0909 million. For a description of certain legal proceedings relating
to the Cepsa tender offer, see the section entitled ‘‘Material Litigation’’ in ‘‘Part 5: Additional
Information’’ below.
The Royal Bank of Scotland Group plc (‘‘RBS’’). In 2002, the Group made a net divestment of 3%
of its holding in RBS, giving rise to gains of approximately 0806 million. As at 31 December 2002,
the Group’s ownership interest was 5.04%. As at 31 December 2003, following several
purchases and sales made during the year, the Group’s holding was 5.05%. The sales gave rise
to gains of 0217 million. In May 2004, the Group subscribed to a capital increase carried out by
RBS with a payment of £150 million in order to avoid the dilution of its holding. This transaction
gave rise to 025 million of goodwill. In September 2004, the Group sold 79 million ordinary
shares of RBS which represented a holding of 2.51% of its share capital. The transaction gave
rise to capital gains of approximately 0472 million. As at 31 December 2004, the Group held a
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participation of 2.54%. In January 2005, the Group sold the remainder of its shareholding in RBS
capital stock which gave rise to gains of 0717 million which will be recorded in its annual
accounts for 2005.
Unión Eléctrica Fenosa, S.A. (‘‘Unión Fenosa’’). In 2002, the Group acquired several holdings in
the capital stock of Unión Fenosa for a total amount of 0465 million. In 2004, the Group sold a 1%
of its holding that as at 31 December 2004, was 22.02%.
Grupo Financiero Bital. In 2002, the Group subscribed to a capital increase and converted bonds
into Grupo Financiero Bital shares for approximately 099 million, thus increasing the Group’s
holding to 25.4% of the economic rights and 29.1% of the voting rights of Grupo Financiero Bital.
In November 2002, the Group accepted the tender offer launched by Hong Kong and Shanghai
Bank Corporation for the shares of Grupo Financiero Bital, realising capital gains of
approximately 0113 million.
Dragados y Construcciones, S.A. In 2002, the Group divested its 23.5% holding in Dragados y
Construcciones, S.A. (as at 31 December 2001, the holding was 20.19% of capital stock) at a
capital gain of approximately 0521 million.
Grupo Sacyr-Vallehermoso, S.A. (‘‘Sacyr-Vallehermoso’’). In 2002, the Group divested 24.5%
of its holding in Sacyr-Vallehermoso (as at 31 December 2001, the holding was 25.14% of capital
stock) at a capital gain of approximately 0301 million. In 2004 the Group sold its entire remaining
holding in Sacyr-Vallehermoso for 092 million resulting in a capital gain of 047 million.
San Paolo IMI, S.p.A. (‘‘San Paolo IMI’’). In 2003, the Group increased its holding in San Paolo
IMI, from 5.2% as at 31 December 2002, to 8.6% as at 31 December 2004, with a net investment
of 0525 million in 2003.
Vodafone Airtouch, plc (‘‘Vodafone’’). As at 31 December 2001, the Group had a 1.53% holding
in Vodafone. During 2002, the Group reduced its stake from 1.53% to 0.97%, resulting in capital
gains of 0274 million. In 2003 the Group sold a further 0.67% of its holding, resulting in further
capital gains of 0369 million. During 2004, the Group divested its remaining holding in Vodafone,
realising capital gains of 0242 million.
Auna Operadores de Telecomunicaciones, S.A. (‘‘Auna’’). In 2002 the Group acquired a 12.62%
stake in Auna for 0939 million, thus increasing to 23.49% its total holding in this company,
although this stake could be increased by an additional 2.5%, which the Group did in 2004 for
approximately 0217 million. In addition, during 2004 the Group made purchases for an additional
1.5% stake for approximately 0120 million. As at 31 December 2004, the Group had a 27.34%
holding in the capital stock of Auna, with an investment of 02,031 million. In January 2005 the
Group acquired an additional 4.74% stake, thus increasing to 32.08% its total holding in this
company.
In April 2005, the Group, together with the other strategic partners of Auna, decided to open an
ordered and competitive process for the sale of the Group’s holdings in Auna, or, as the case
might be, its assets, submitting this option to the governance bodies of this telecommunications
group. For this purpose, the Group has given a mandate to an investment bank.
Shinsei Bank. In 2003, the Group increased its holding in the capital stock of the Japanese bank
Shinsei Bank from 6.5% as at 31 December 2002, to 11.4% as at 31 December 2003. The total
cost of the investment was approximately 0144 million. In February 2004, the owners of Shinsei
Bank, in whose capital the Group had a 11.4% stake, agreed to launch an initial public offering
for 35% of Shinsei Bank’s share capital. The offering resulted in the sale of a 4% stake by the
Group at a gain of 0118 million. After such sale, the Group held 7.4% of the capital stock of
Shinsei Bank.
Bankia Bank ASA (‘‘Bankia’’). In May 2005, and after the tender offer launched in March 2005,
the Group acquired 100% of the capital stock of Bankia (a Norwegian bank) for a price of
056 million, approximately.
In addition to expanding its existing operations, the Company continually reviews possible
acquisitions of, and investments in, businesses in markets in which the Company believes that
the Group has particular advantages.
2. SHARE CAPITAL
2.1 The Company’s capital currently consists of 6,254,296,579 Shares having a nominal value of
00.50 each, all of which were validly issued and fully paid.
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By resolutions passed at the general shareholders’ meetings set out below, the Company’s
shareholders delegated to the Board the authority to increase the Company’s share capital as
follows:
Maximum Equivalent Expiration
Increase number Date of
Date of meeting (Euro) of Shares such authority
18 June 2005 375,000,000 750,000,000 18 June 2006
18 June 2005 1,563,574,144.5 3,127,148,289 18 June 2008
As at the date of this document, the Company’s issued share capital is:
Issued and paid up
Number Nominal Value
Ordinary Shares 6,254,296,579 3,127,148,289.5
As at 1 January 2002, the Company’s issued share capital was 02,329,681,249.5 divided into
4,659,362,499 shares had been issued and fully paid. Since 1 January 2002, there have been
the following changes in the Company’s issued share capital.
On 14 May 2002, the Company made a capital increase, issuing 109,040,444 Shares (2.3% of
the Company’s capital prior to the increase) at an issue premium of 09.588 per share, which
were fully subscribed and disbursed through shares representing all the capital of AKB, in
accordance with the resolutions adopted by the Company’s Extraordinary Shareholders’ Meeting
held on 9 February 2002 (see ‘‘Acquisitions, Dispositions, Reorganisations’’ above).
Following this issue and as at 31 December 2002 and 2003, the Company’s capital stock
consisted of 4,768,402,943 fully subscribed and paid Shares.
On 12 November 2004, the Company made a capital increase, issuing 1,485,893,636 Shares
(31.2% of the Company’s capital prior to the increase) of 00.50 nominal value each at an issue
premium of 07.94 per share, which were fully subscribed and disbursed through shares
representing the entire ordinary share capital of Abbey, in accordance with the resolutions
adopted by the Company’s Extraordinary Shareholders’ Meeting held on 21 October 2004 (see
paragraph 1.6 of ‘‘Part 1: Information on the Group’’ above for further details).
Following this issue and as at the date of this document, the Company’s capital stock consisted
of 6,254,296,579 fully subscribed and paid shares of 00.50 par value each.
2.2 As at 31 December 2004, there were no debt issuances convertible into the Shares or securities
granting privileges or rights which as a result of a contingency could convert those securities into
Shares. Abbey has outstanding a subordinated debt issuance, in an amount of £200 million,
which could be converted at Abbey’s option into Abbey’s preferred stock at a price of £1 per
share.
3. THE COMPANY’S BY-LAWS AND APPLICABLE SPANISH LEGISLATION
3.1 General
As at the date of this document, the Company’s issued share capital is 03,127,148,289.50,
represented by a single class of 6,254,296,579 book-entry shares with a nominal value of 00.50
each. All of the Shares are fully paid and non-assessable. The Shares are in registered form and
are freely transferable (see paragraph 3.10 ‘‘Transfers’’ below). Spanish law requires that banklisted
equity securities be issued in book-entry form only.
3.2 Register
The Company is incorporated in Spain and operates in accordance with the Spanish Companies
Law (Real Decreto Legislativo 1564/1989 22 December which approves the revised text of the
Companies Law — Ley de Sociedades Anónimas). The Company is registered with the
Commercial Registry of Santander (Finance Section). The Company is also recorded in the
Special Registry of Banks and Bankers with registration number 0049, and its fiscal identification
number is A-39000013.
3.3 Corporate Objects and Purpose
The principal objects of the Company are to carry out all types of activities, operations and
services specific to the banking business in general and which are permitted under current
legislation and the acquisition, holding and disposal of all types of securities. The objects of the
Company are set out in full in article 12 of the Company’s by-laws which are available for
inspection at the Company’s registered office (see also paragraph 19 ‘‘Documents for
Inspection’’ below).
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3.4 Variation of Rights
Under Spanish law, the rights of shareholders may only be changed by an amendment to the bylaws
of the company that complies with the requirements explained below under ‘‘Meetings,
Notices, Voting Rights and Quorum’’. The Company’s by-laws do not contain any provision which
departs from the position under Spanish law.
3.5 Meetings, Notices, Voting Rights and Quorum
Meetings
The Company’s by-laws provide that an annual general meeting must be held within the first six
months of each financial year in order to: (1) review corporate performance; (2) approve, if
applicable, the previous year’s accounts; (3) determine the distribution of profits; and
(4) approve, if applicable, the Company’s consolidated accounts. In addition, resolutions may be
discussed and adopted on any other matter which is included on the agenda, such as the
appointment of the Company’s Auditors (currently Deloitte S.L.) (the ‘‘Auditor’’) and the
Directors.
The Company’s general shareholders’ meetings, both ordinary and extraordinary, must be held
in Santander, Spain, where the Company’s registered office is located.
In addition, an extraordinary general meeting of the Company’s shareholders may be called by
the Board at any time when deemed convenient by the Board for the Company’s interests.
Furthermore, the Board must call an extraordinary general meeting if so requested by
shareholders holding 5% or more of the Company’s outstanding share capital.
Notices
At least 15 days before the date fixed for any shareholders’ meeting (except in the case of a
merger or de-merger where the publication of notices must be made at least one month before
the date fixed for the meeting), a notice of such shareholders’ meeting must be published in the
Official Gazette of the Mercantile Registry (Boletín Oficial del Registro Mercantil) and in one of
the local newspapers having the largest circulation in the province where the Company’s
registered office is located. In addition, under Spanish law, the agenda of the meeting must be
sent to the CNMV and the Spanish Stock Exchanges and published on the Company’s website.
Notices of shareholders’ meetings may (but are not required to) provide for a second call to be
convened in the event that the required quorum (as detailed below in the Voting rights and
Quorum paragraph) is not present on the first call. There must be at least 24 hours between the
first and the second call for a shareholders’ meeting. In practice, meetings of the Company’s
shareholders are held on second call.
Voting rights and Quorum
Article 17 of the Company’s by-laws provides that each Share entitles the holder to one vote at
general shareholders’ meetings.
Under Spanish law a company’s by-laws may set a minimum number of shares that must be held
in order for holders to be entitled to attend general shareholders’ meetings. At the general
meeting of the Company’s shareholders held on 19 June 2004, the Company’s shareholders
resolved to amend the Company’s by-laws such that no minimum shareholding is required to
attend shareholders’ meetings.
Any Share may be voted by proxy. Subject to the limitations imposed by Spanish Law, proxies
may be given only to shareholders who are entitled to attend the shareholders’ meeting and are
acting in their individual capacity. Proxies must be in writing or by a distance means of
communication and are valid only for a single meeting.
In accordance with the Procedural Rules of the Company’s General Shareholders’ Meetings, the
Group’s website includes from the date when the call of the General Shareholders’ Meeting is
published, the details regarding the manner and procedures for shareholders to follow to confer
representation on any other shareholder who is eligible to attend the General Shareholders’
Meeting in his own right and to vote by proxy. The manner and procedures for electronic
delegation and voting via the Internet are also indicated.
At both the General Shareholders’ Meeting held in 2004 (the Annual General Meeting of 19 June
2004 and the Extraordinary General Meeting of 21 October 2004) the shareholders could
exercise their voting and representation rights prior to the meeting by electronic means (via the
Internet). In addition, at the Extraordinary General Shareholders’ Meeting of 21 October 2004,
shareholders could vote by post and in the Annual General Meeting held on 18 June 2005,
shareholders, besides exercising their voting and representation rights prior to the meeting by
post or via the Internet, were able to attend (besides attending and voting in person) via the
Internet and were also able to vote in real time on the resolutions put to the meeting.
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Only registered holders of the Shares of record at least five days prior to the day on which a
meeting is scheduled to be held may attend and vote at such meeting.
In general, resolutions passed by a general meeting are binding upon all shareholders. In certain
circumstances, Spanish law gives dissenting or absent shareholders the right to have their
Shares redeemed by the Company at prices determined in accordance with established formulae
or criteria. The Shares held by the Company or the Company’s affiliates are counted for
purposes of determining quorums but may not be voted by the Company or its affiliates.
Resolutions at general meetings are passed provided that, regarding the voting capital present or
represented at the meeting, the number of votes in favour is higher than the number of votes
against or in blank and abstentions.
In accordance with Spanish law, a quorum on first call for a duly constituted ordinary or
extraordinary general meeting of shareholders requires the presence in person or by proxy of
shareholders representing 25% of the Company’s subscribed voting capital. On second call there
is no quorum requirement. Notwithstanding the above, a quorum of 50% of the Company’s
subscribed voting capital is required on the first call to approve any of the following actions:
(i) issuance of bonds;
(ii) increase or reduction of share capital;
(iii) transformation of the Company (change in corporate nature);
(iv) merger, split or spin-off;
(v) any other amendment of the Company’s by-laws; and
(vi) dissolution.
A quorum of 25% of the subscribed voting capital is required to vote on such actions on the
second call. A two-third majority of the Company’s present or represented voting capital is
required to approve all of the above listed actions when the shareholders’ meeting is held on
second call and less than 50% of the subscribed voting capital is present.
For purposes of determining the quorum, those shareholders who vote by post or through the
Internet are counted as being present at the meeting, as provided by the Procedural Rules of the
Company’s General Shareholders’ Meetings.
3.6 Changes in Capital
Any increase or reduction in share capital must be approved at the general meeting in
accordance with the procedures explained above in ‘‘Meetings, Notices, Voting Rights and
Quorum’’.
3.7 Dividends
The Company’s by-laws establish that any available profits shall be distributed in the following
order: (i) the legally required amounts are placed into the compulsory reserves; (ii) the Board will
assign such amounts it considers appropriate to voluntary reserves and ‘‘fondos de previsión’’
(general allowances); (iii) the Board will identify an amount which should be carried forward; and
(iv) if the Board deems it advisable, the remaining amount will be divided equally amongst the
Company’s shareholders subject to the limitations imposed by Spanish law.
The Company’s by-laws also provide that non-voting shares shall receive a minimum annual
dividend of 5% of the capital paid out in respect of each such share in accordance with the ‘‘Ley
de Sociedades Anónimas’’ (Companies Law).
The amount, time and form of payment of the dividends, to be distributed amongst the
shareholders in proportion to their paid-in capital, will be established by resolutions adopted at
the general meeting. The Board of Directors is entitled to distribute sums on account of future
dividends. However, any such distributions must be approved at a general meeting.
A shareholder’s dividend entitlement lapses five years after the dividend payment date.
3.8 Pre-emptive Rights
In the event of a capital increase, or the issuance of convertible debt, each shareholder has a
preferential right by operation of law to subscribe for Shares in proportion to its shareholding in
each new issue of the Shares. However, this right may be excluded under certain circumstances
by specific approval at the shareholders’ meeting and this right is deemed excluded in the
relevant capital increase when the shareholders’ meeting approves:
) capital increases following conversion of convertible bonds into the Shares; or
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) capital increases due to the absorption of another company or of part of the spun-off assets
of another company, when the new shares are issued in exchange for the new assets
received.
If capital is increased by the issuance of new shares in return for capital from certain reserves,
the resulting new Shares will be distributed pro rata to existing shareholders.
3.9 Redemption
The Company’s by-laws do not contain any provisions relating to redemption of shares.
Nevertheless, pursuant to Spanish law, redemption rights may be created at a duly held general
shareholders’ meeting. Such meeting will establish the specific terms of any redemption rights
created.
3.10 Transfers
The Shares are in book-entry form and are freely transferable provided that the particular
transaction does not require prior notice to be given to the Bank of Spain or to the CNMV as
described below. The Company maintains a register of shareholders. The Company does not
recognise, at any given time, more than one person as the person entitled to vote each share in
the shareholders meeting.
Transfers executed through stock exchange systems are implemented pursuant to the stock
exchange clearing and settlement procedures of Iberclear. Transfers executed ‘‘over the counter’’
are implemented pursuant to the general legal regime for book entry transfer, including
registration by Iberclear.
Transfers of shares quoted on the Bolsas de Valores must be made through, or with, the
participation of a member of the relevant Spanish stock exchange. Brokerage firms, official
stockbroker or dealer firms, Spanish credit entities, investment services entities authorised in
other EU member states and investment services entities authorised by their relevant authorities
and in compliance with the Spanish regulations are eligible to be members of the Spanish stock
exchanges. The transfer of shares may be subject to certain fees and expenses.
Restrictions on acquisitions of shares in Spanish banks
Certain provisions of Spanish law require notice to be given to the Bank of Spain prior to the
acquisition by any individual or corporation of a significant holding of shares (as defined below) in
a Spanish bank. Any individual or corporation that wishes to acquire, directly or indirectly, a
significant holding of shares (participación significativa) in a Spanish bank must give advance
notice to the Bank of Spain describing the size of such proposed holding, the proposed terms
and conditions of the acquisition, and the anticipated closing date of the acquisition. A
‘‘significant holding’’ for these purposes is defined as 5% or more of the share capital or voting
rights of the target bank, or any lesser holding that gives the purchaser effective influence or
control over the target bank. In addition, advance notice must be given to the Bank of Spain of
any increase, direct or indirect, in any significant holding which reaches any of the following
thresholds: 10%; 15%; 20%; 25%; 33%; 40%; 50%; 66%; and 75%. Notice to the Bank of Spain
must also be given by anyone who, as a result of the contemplated acquisition, may attain
sufficient power to control the target bank. If the required notice is not given, or if the acquisition
is effected before a three month period after receipt of notice has passed, or if the acquisition is
opposed by the Bank of Spain then there may be the following consequences: (1) the acquired
shares may lose their voting rights; (2) the Bank of Spain may seize control of the target bank or
replace its board of directors; and (3) a fine may be levied on the purchaser.
The Bank of Spain has three months after the receipt of any such notice to object to a proposed
transaction. Such objection may be based on finding the purchaser to be unsuitable due to,
inter alia, one of the following: (1) its commercial or professional reputation; (2) its solvency; or
(3) the transparency of its corporate structure. If no such objection is raised within the three
months period, authorisation is deemed to have been granted. However, absent any objection by
the Bank of Spain, it may extend the period for closing the proposed transaction.
If any individual or institution plans to sell its significant holding, or reduce its holding to one of the
above-mentioned levels of ownership or, because of any sale, will lose control of the entity, it
must provide advance notice to the Bank of Spain indicating the size of the proposed transaction
and its anticipated closing date. Failure to comply with these requirements may lead to penalties
being imposed on the defaulting party.
Banks must notify the Bank of Spain as soon as they become aware of any acquisition or transfer
of their shares that exceeds the above-mentioned percentages. In addition, banks are required to
provide periodic reports to the Bank of Spain describing the composition of, and significant
alterations to, the ownership of their share capital. This information must specify the level of
ownership of the bank’s shares, regardless of the amount, held by any financial institutions. In
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particular, the Bank of Spain also requires each bank to provide it with a list, in April, July,
October and January, of all its shareholders that are financial institutions and all other
shareholders that own at least 0.25% of the bank’s share capital by reference to the last day of
each calendar quarter. Furthermore, banks are required to inform the Bank of Spain as soon as
they become aware of, and in any case not later than 15 days after, each acquisition by a person
or a group of at least 1% of the bank’s total share capital.
If the Bank of Spain determines, at any time, that the influence of a person who owns a
significant holding in a bank may adversely affect the bank’s financial situation, it may request
that the Spanish Ministry of Economy and Finance: (1) suspend the voting rights of such
person’s shares for a period not exceeding 3 years; (2) seize control of the bank or replace its
board of directors; or (3) revoke the bank’s license.
In addition, an acquisition or transfer of shares in any company listed on the Bolsas de Valores
where, following the transaction, the purchaser’s or seller’s holding reaches or falls below the
relevant thresholds (see ‘‘Disclosure of interests’’ below) must be reported to the listed company,
to the relevant governing bodies (Sociedades Rectoras) of the Spanish stock exchanges on
which such company is listed and to the CNMV.
3.11 Liquidation
On a liquidation of the Company, shareholders would be entitled to receive pro rata any assets
remaining after the payment of the Company’s debts, taxes and expenses of the liquidation.
Holders of non-voting shares, if any, are entitled to the reimbursement of the amount paid before
any amount is distributed to the holders of voting shares.
Under Spanish law, a public limited company may be wound up by: (1) the passing of a resolution
at its shareholders’ meeting; (2) the expiry of the duration established in its by-laws (the
Company’s by-laws provide that the Company has indefinite duration); (3) completion of the
business which constitutes its objects, impossibility of carrying out its objects or paralysis of the
company’s bodies; (4) losses which reduce its shareholders’ equity to an amount less than half
its share capital, unless the latter is sufficiently increased or reduced; (5) reduction of its share
capital to below 060,101 (being the minimum permitted share capital of a Spanish public
company; (6) its merger or de-merger; or (7) any other reason provided for in the company’s bylaws,
if any. The Company’s by-laws do not provide for any other reason.
When any of the circumstances specified in (3), (4), (5) and (7) of the previous paragraph occur,
the Board must call a meeting of the Company’s shareholders within two months of such
occurrence in order to pass a winding up resolution. If such meeting is not called, the winding up
resolution cannot be passed (for instance due to lack of quorum) or the shareholders (in general
meeting) reject the winding up, any interested person may, and the directors must, apply for the
winding up of the Company before a court. If the directors fail to call the shareholders meeting to
pass the winding up resolution or fail to apply for the winding up of the Company as described
above, they will be held jointly and severally liable for the Company’s obligations.
Upon the commencement of the winding up of the company, the liquidation process starts
(except in the event of a merger, de-merger or any other situation of global assignment of assets
and liabilities).
When the liquidation process starts, the company must add the words ‘‘in liquidation’’ to its
name, the directors are replaced by liquidators and an auditor (interventor) may be appointed to
review the liquidation proceedings. Liquidators are required to draft a balance sheet of the
company which must be approved by a resolution of the shareholders in general meeting. The
balance sheet, once approved, must be published in the Official Gazette of the Mercantile
Registry (Boletín Oficial del Registro Mercantil) and in one of the local newspapers having the
largest circulation in the province where the company’s registered office is located. The liquidator
may not distribute to shareholders any assets remaining after the payment of debts until: (1) the
expiration of the period during which the balance sheet can be challenged through the court (if no
challenge has been filed); or (2) final judgment having been given on claims related to the
balance sheet.
3.12 Business combinations
Under Spanish law, mergers or de-mergers by the Company require the authorisation of the
Spanish Ministry of Economy and Finance. In addition, a resolution approving a merger or demerger
must be passed by the Company’s shareholders in general meeting with the quorum and
majorities described in ‘‘Meetings, voting rights and quorum’’ above.
For a resolution approving a merger to be properly passed: (1) the directors must prepare a
merger statement which must be deposited with the Mercantile Registry; (2) one or more reports
on the merger must be issued by independent experts appointed by the Mercantile Registry; and
(3) the Board must issue a report on the merger. The merger resolution must be published three
times in the Official Gazette of the Mercantile Registry (Boletín Oficial del Registro Mercantil) and
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in two of the local newspapers which have the largest circulation in the province or provinces
where the registered offices of the Company and the other merging entity are located. Creditors
have a right to object to the merger within one month from the publication of the last
announcement. This objection right consists of the right to request the provision by the company
of banking guarantees in respect of the company’s debt owed to such creditor.
Approval of a de-merger resolution also requires the prior preparation and deposit of a de-merger
statement, the issue of one or more independent expert reports and the issue of a report by the
Board. The de-merger resolution must be published in the same manner as described above for
mergers and creditors have the same objection right.
Tender Offers
Royal Decree 432/2003 of 11 April 2003 (‘‘RD 432/2003’’) modified previous regulations on
tender offers set forth by Royal Decree 1197/1991 of 26 July 1991 (‘‘RD 1197/1991’’) reinforcing
the protection of minority shareholders and introducing certain changes intended to make the
tender offer regime more flexible.
RD 432/2003 introduces additional scenarios which impose the mandatory launching of a tender
offer. A person or entity must first launch a tender offer if it proposes to acquire a significant
shareholding (25% or more) in the voting stock of the target company’s shares (or certain other
equivalent securities that may directly or indirectly give the right to subscribe for shares) of a
publicly-traded Spanish company. The tender offer must be for shares representing, at least,
10% and up to 100% of the target’s company capital, contingent on the final percentage of the
capital of such target company to be acquired (basically, 25% or more or 50% or more). Also, the
launching of a tender offer is mandatory for the acquisition of shares representing 6% or more of
the capital of the target company during any twelve-month period when the offeror holds a stake
between 25% and 50% of the target’s company capital.
Tender offers are mandatory also, even without reaching the stake thresholds mentioned above,
if such person or entity intends to appoint more than one third but less than half plus one of the
target company’s board of directors or more than half of the directors of the target company’s
board of directors.
These new cases also require the mandatory launching of a tender offer if, within two years from
the date of the acquisition, the offeror nominates and appoints more than one third but less than
half plus one of the target company’s board of directors or more than one half of the target
company’s board of directors.
Finally, RD 432/2003 modifies the exceptions to the mandatory launching of a tender offer; it
allows for conditional tender offers upon certain requirements being met and it substantially
modifies the regime of competing tender offers.
3.13 Directors
Number of Directors
The Company’s by-laws provide that the minimum number of Directors is 14 and the maximum
number is 30.
Appointment, re-election and ratification of Directors
The Regulations of the Board provide that the Directors shall be appointed or re-elected or
ratified by the shareholders at the General Shareholders’ Meeting or by the Board, as applicable,
pursuant to the provisions of the Spanish Companies Law and the Company’s by-laws.
The Appointments and Remuneration Committee shall make proposals to the Board for the
appointment, re-election or ratification of Directors. The Board subsequently proposes the
Director to the General Shareholder Meeting. The Board shall appoint interim Directors to fill
vacancies (a power which is conferred on the Board under Spanish law). The Board shall
consider such proposals, which shall in turn be submitted for consideration and/or ratification at
the General Shareholders’ Meeting.
In the event of re-election or ratification, the proposal made by the Appointments and
Remuneration Committee shall contain an assessment of the relevant Director’s work and the
dedication to the position during the preceding period of time in which the proposed Director held
office. If the Board should choose to disregard the proposal made by the Appointments and
Remuneration Committee, the Board shall substantiate such decision and shall record the
reasons therefor in the minutes.
When proposing a person as Director, regard shall be had to the fact that such person is widely
recognised for his expertise, competence and experience, and special importance shall be
attached to any shareholding such person may have in the capital of the Company.
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All persons designated as Directors shall meet the requirements set forth in the applicable
Spanish legislation and in the Company’s by-laws, and upon taking office, shall formally
undertake to fulfil the obligations and duties prescribed by such legislation, the Company’s bylaws
and the Regulations of the Board.
There is no age limit for a person to be appointed as a Director or for a Director to remain in
office.
Term of Office
According to the Regulations of the Board, the Directors shall serve in their positions for three
years. Outgoing Directors may be re-elected. The Directors who have been designated by interim
appointment to fill vacancies may be ratified in their position at the first General Shareholders’
Meeting that is held following such designation, in which case they shall vacate office on the date
on which their predecessor would have vacated office. A Director who ends his term of office or,
for any other reason, ceases to act as such, shall be barred from serving in another entity having
a corporate purpose which is analogous to that of the Company, for a term of two years. The
Board may, if it deems it appropriate, relieve the outgoing Director from this restriction or reduce
it to a lesser period.
Removal and retirement of Directors
The Regulations of the Board provide that the Directors shall cease to hold office upon the
expiration of the term of office for which they have been appointed, for which purposes the
provisions of Article 145 of the Regulations of the Mercantile Registry shall apply, and when it is
so resolved by the shareholders at the General Shareholders’ Meeting in the exercise of its
powers.
In addition, in any case in which a Director may adversely affect the operation of the Board or the
credit or reputation of the Company and, in particular, when such a Director may have incurred in
a legal situation of incompatibility or prohibition, such Director shall tender his resignation to the
Board and formally resign from his position if the Board, following a report from the Appointments
and Remuneration Committee, deems it fit.
Composition of the Board
Although there is no provision in Spanish law regarding the composition of a board of directors,
the Regulations of the Board, following best corporate governance practice in Spain, provide that
in exercising its powers to make proposals at the General Shareholders’ Meeting and to
designate Directors by interim appointment to fill vacancies, the Board shall endeavour to ensure
that the external or non-executive Directors represent a majority over the executive Directors and
that the former include a reasonable number of independent Directors. See ‘‘Independence of
the Directors on the Board’’ below. The Company currently complies with this requirement.
3.14 Certain Powers of the Board
The actions of the members of the Board are limited by Spanish law and certain general
provisions contained in the Company’s by-laws. For instance, article 32 of the Company’s bylaws
state that the Directors will be liable to the Company, to its shareholders and to its corporate
creditors for any damages that they may cause by acts or omissions which are contrary to law or
to the Company’s by-laws. Furthermore, the Directors will be liable for any acts or omissions that
are contrary to the duties in the exercise of their office.
The Board may pass resolutions in order to establish the amount of each payment of any capital
call with respect to partially paid-in shares. The Board will also establish the period within which
the payments must be made and other details, all of which must be published in the ‘‘Boletín
Oficial del Registro Mercantil’’ (the Official Gazette of the Mercantile Register). Any delays in the
payment of capital calls will bear interest starting from the day when the payment is due and
without the need for any judicial or extra-judicial summons. The Company will also be able to take
any action authorised by law to collect such sums.
The Company’s by-laws provide that the members of the Board, and, if applicable, the Executive
Committee (Comisión Ejecutiva) (the ‘‘Executive Committee’’) and the Company’s Executive
Vice Presidents, shall receive as a joint participation in the Company’s annual results for
performing their duties, an aggregate amount equal to 5% of the Company’s annual results,
provided, however, that the Board may resolve that such percentage be reduced in those years
in which the Board deems it justified. In practice, the amount so distributed is lower than the 5%
limit mentioned above. In addition, the Board shall distribute the resulting payment among the
participants in such manner and amount as may resolved annually by the Board with respect to
each of them.
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In order to set the specific amount corresponding to such participation, the percentage decided
by the Board shall be applied to the year’s results.
In any event, before any payments in respect of the Directors’ participation can be made, the
Company must have made all allocations that have priority to such participation pursuant to
applicable legislation.
Regardless of the foregoing, the members of the Board and of the Executive Committee are
entitled to receive attendance fees, as well as such remuneration as may be applicable for the
performance of their duties within the Company other than their duties as a Director. These
amounts are approved by the Board of Directors with the prior proposal from the Appointments
and Remuneration Committee.
Directors may also receive compensation in the form of Shares or options over the Shares, or
other remuneration linked to Share value following a resolution adopted by the shareholders at
the General Shareholders’ Meeting (conducted in accordance with the Company’s by-laws and
applicable Spanish legislation).
See also paragraph 8.2 ‘‘Directors’ remuneration’’ below.
Directors’ conflicts of interest
Directors’ conflicts of interest are regulated by article 27 of the Regulations of the Board, which
follows article 127 ter of the Companies Law (introduced by Law 26/2003) (See ‘‘Part 4:
Regulatory Overview — Recent Legislation’’). Under Article 27, a Director is obliged to inform the
Board of any direct or indirect conflict of interest which may exist with the Company. If such
conflict relates to a particular transaction then the Director will not be entitled to undertake such a
transaction without the Board’s authorisation. Such authorisation would only be granted following
a report of the Appointments and Remuneration Committee. Such Director may not take part in
the discussion or voting regarding the transaction to which the conflict relates.
The Board acts as the administrative body in charge of the resolution of conflicts of interest. In
2004 there were 32 cases in which a Director abstained from taking part in or voting at
deliberations or meetings of the Board or of its Committees, in accordance with the rules
described above.
3.15 Directors’ borrowing powers
The Company’s by-laws provide that the Directors may, by resolution of the Board, direct the
subscription, acquisition, purchase, exchange, pledge and sale of public securities, shares,
debentures, bonds and warrants.
The Board is empowered to exercise borrowing powers without restriction as to limit or otherwise
on behalf of the Company, subject only to the power to authorise the issue of bonds which is
vested in the shareholders in general meeting.
3.16 Directors’ Indemnity
Companies in Spain may purchase and maintain corporate liability insurance for directors and
officers against their liabilities.
3.17 Disclosure of interests
An acquisition or transfer of shares in any company listed on a Spanish stock exchange
(including the Company) where, following the transaction: (1) the purchaser’s holding reaches
5% or any multiple of 5% of the share capital of such company; or (2) the seller’s holding is
reduced from 5% or from any multiple of 5% of the share capital of such company, must be
reported within seven business days following such acquisition or transfer to the company that
issued the listed shares, to the relevant governing bodies (Sociedades Rectoras) of the Spanish
stock exchanges on which such company is listed, and to the CNMV.
This threshold percentage is reduced to 1%, or any multiple of 1%, if the acquirer, or the person
who acts on his or her behalf, is resident in a tax haven (as defined under Spanish law), or is
resident in a country or territory where there is no authority entrusted with the supervision of the
securities markets, or where the designated authority declines to exchange information with the
CNMV. Whilst the United Kingdom is not generally considered to be a tax haven for these
purposes, certain of its territories, such as Jersey, Guernsey and the Isle of Man, may be.
An acquisition by a listed company (or a subsidiary of that company) of the company’s own
shares must be reported if the acquisition, together with any other such acquisitions since the
date of the last report, exceeds 1% of its share capital.
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The directors of any company listed on a Spanish stock exchange (including the Company) must
report to the CNMV, to the relevant governing bodies (Sociedades Rectoras) of the stock
exchanges on which the company is listed and to the company itself, the number of shares, or
options over the company’s shares, that they hold at the time of their appointment (or, if
applicable, report that they own no shares or options) directly, through companies they control or
any other intermediary, regardless of the amount, and must report all acquisitions or
transmissions of shares in the company, regardless of the amount that they carry out by
themselves or by means of either the companies they control or an intermediary. Directors must
also report the acquisition or transfer of option rights over the company’s shares.
In addition, managers of any listed company (such as the Company) must report the acquisition
of shares and options over shares as a result of compensation plan related to the shares’ price to
the CNMV. Any change to the aforesaid compensation plans must be also reported. Under the
Company’s by-laws, the implementation of any employee scheme referenced to the Shares,
regardless of whether the beneficiaries are directors, managers or others, requires shareholder
approval.
In addition, the Bank of Spain requires purchasers of Shares to notify, and seek approval from,
the Bank of Spain in certain circumstances.
Failure to notify to the Bank of Spain of any transaction involving a significant holding
(participación significativa), may have the consequence described in ‘‘Transfers’’ above.
Furthermore, failure to inform the CNMV of a significant holding may constitute an infringement
under the Spanish securities market law and penalties may be imposed on the defaulting party.
3.18 Amendment of the Company’s by-laws
Under Spanish law, shareholders have the power to amend any provision of a company’s bylaws.
The board of directors of a company is not authorised to change the company’s by-laws
(except for very minor amendments, such as the change of the corporate domicile within the
same municipality). Amendments adversely affecting the rights of the holders of any class of
shares will also require the passing of a resolution by holders of each class of shares affected.
Generally, amendments to the Company’s by-laws must be authorised by the Spanish Ministry of
Economy and Finance. However, certain amendments, such as the change of its domicile within
Spain or the implementation of statutory provisions in the Company’s by-laws, do not require
authorisation but must be notified to the Bank of Spain within 15 days of the resolution being
approved. A share capital increase cannot be effected until the Bank of Spain declares that it has
no objections to the resolution authorising the increase.
3.19 Information rights
The Procedural Rules of the Company’s General Shareholders’ Meeting provide that from the
date of publication of the notice of the meeting and up to and including the seventh day prior to a
general shareholders’ meeting, the Company’s shareholders may request in writing that the
Board provide information or clarification in respect of the matters included in the agenda and the
information that has been made available to the public through the CNMV since the last
shareholders’ meeting.
During the meeting, the shareholders may request verbal information or clarification in respect of
any of the matters included in the agenda. According to the Procedural Rules, of the Company’s
General Shareholders’ Meetings, the Directors shall be required to provide such information
except in those cases in which (i) it has been requested by shareholders representing less than
25% of the Company’s share capital, and the Chairman believes that the publication of the
required information may damage the Company’s interests; (ii) the request for information or
clarification does not refer to matters included in the agenda or, if relating to information rights
prior to the meeting, the information requested does not refer to that made available through the
CNMV; (iii) the requested information or clarification is not needed to form an opinion regarding
the matters submitted to the shareholders, or is deemed abusive for any reason; or (iv) legal or
regulatory provisions so provide.
The requested information or clarification shall be provided by the Chairman or, if applicable and
if directed by such Chairman, by the Chairman of the Audit and Compliance Committee, the
Secretary, a Director or, if appropriate, any employee or an expert on the relevant matter.
In the event that it is not possible to satisfy the shareholder’s right to receive information at the
General Shareholders’ Meeting, the Directors are required to provide the requested information
in writing to the interested shareholder within the period of seven days following the end of the
meeting.
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3.20 Challenging corporate resolutions
Resolutions by the shareholders in general meeting which are contrary to the law or to the
Company’s by-laws or that damage the Company’s corporate interests in favour of one or various
shareholders or third parties may be challenged.
Resolutions against the law are void. The action to declare a resolution void can be initiated by
any shareholder, the Directors or any third party with a legitimate interest. The claim must be
initiated within the 12 months following the approval of the resolution or, if the resolution in
question is required to be registered at the Commercial Registry, following the publication in the
Official Gazette of the Mercantile Registry. If the subject of the resolution is against public policy,
the claim can be initiated at any time.
Resolutions which are contrary to the Company’s by-laws or that damage the Company’s
corporate interests in favour of one or more shareholders or third parties are voidable. The action
to declare a resolution voidable can be initiated by those shareholders attending the meeting that
have expressly opposed the resolution (provided that such opposition is included in the minutes),
absent shareholders, shareholders who have been deprived illegally from their voting rights and
the Directors. The claim must be initiated within forty days following the date referred to in the
preceding paragraph.
Resolutions by the Board that are void or voidable can be challenged by Directors or by
shareholders representing at least 5% of the Company’s voting share capital.
4. COMPANY REPURCHASE PROGRAMME
At a General Shareholders’ Meeting held on 19 June 2004, the Company was authorised to
purchase its Shares substantially on the same terms as those authorised in the previous
shareholders’ meetings.
Since the date when the Company announced its offer to acquire Abbey on 26 July 2004, the
Company purchased its Shares under the authorisation described above through a repurchase
programme which was authorised by the Board and aimed at reducing the Company’s share
capital by the net amount of the purchases and sales made under such programme. The
repurchase programme was carried out according to the following terms:
(i) the maximum number of Shares which could be held was 190 million Shares;
(ii) the maximum acquisition price was 09.77 per Share; and
(iii) the repurchase programme expired on 31 March 2005.
The transactions undertaken under the repurchase programme up to its expiry on 31 March 2005
are summarised in the following table:
Number of Shares
Weighted
average price
(Euros)
Purchases 99,209,235 8.15
Sales (87,164,416) 8.12
Balance as at 31 December 2004 12,044,819
Purchases 1,200,000 9.33
Sales (13,244,819) 9.47
Balance as at 31 March 2005 0
5. DIRECTORS
5.1 The Board
The Company is managed by a Board which currently consists of 19 members. In accordance
with the Company’s by-laws, the Board must consist of at least 14 and not more than
30 members. Each member of the Board is elected to a three-year term by the Company’s
shareholders at a general meeting, with approximately one-third of the members being elected
each year, but they can be re-elected.
According to the Regulations of the Board, the Board shall approve the calendar for its annual
meetings, which shall be not less than nine. In addition, the Board shall meet whenever the
Chairman so decides at his own initiative or at the request of at least three Directors. In 2004, the
Board met 13 times and it is scheduled to meet 9 times in 2005. The Board elects the Company’s
Chairman and Vice Chairmen from among its members, as well as the Chief Executive Officer.
Between meetings of the Board, lending and other Board powers reside with the Executive
Committee (Comisión Ejecutiva) and with the Risk Committee (Comisión Delegada de Riesgos).
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The Chairman is the Company’s most senior officer and, as a result, has had delegated to him all
such powers as may be delegated under Spanish law, the Company’s by-laws and the
Regulations of the Board. The Chairman leads the Company’s management team, in accordance
with the decisions made and the criteria set by the Company’s shareholders at the General
Shareholders’ Meeting and by the Board.
The Chief Executive Officer by delegation and under the direction of the Board and of the
Chairman (as the Company’s most senior officer) leads the business and assumes the
Company’s highest executive functions.
The Board holds ultimate lending authority and it delegates such authority to the Risk
Committee, which generally meets twice a week. Members of Senior Management are appointed
and removed by the Board.
The current members of the Board are:
Name Position Director since
Emilio Botín-Sanz de Sautuola y García de los Ríos* Chairman 1960
Fernando de Asúa Álvarez* First Vice Chairman 1999
Alfredo Sáenz Abad* Second Vice-Chairman & CEO 1994
Matías Rodríguez Inciarte* Third Vice-Chairman 1988
Manuel Soto Serrano Fourth Vice-Chairman 1999
Assicurazioni Generali S.p.A Director 1999
Antonio Basagoiti García-Tuñón* Director 1999
Ana Patricia Botín-Sanz de Sautuola y O’Shea* Director 1989
Emilio Botín-Sanz de Sautuola y O’Shea Director 1989
Javier Botín-Sanz de Sautuola y O’Shea Director 2004
Lord Burns Director 2004
Guillermo de la Dehesa Romero* Director 2002
Rodrigo Echenique Gordillo* Director 1988
Antonio Escámez Torres* Director 1999
Francisco Luzón López* Director 1997
Abel Matutes Juan Director 2002
Mutua Madrileña Automovilista, s.s.p.f Director 2004
Luis Angel Rojo Duque Director 2005
Luis Alberto Salazar-Simpson Bos Director 1999
Those Directors marked with an asterisk are the members of the Executive Committee. The
Executive Committee, by delegation of the Board, is responsible for the day to day management
of the Company. It is also the most senior body for the granting of credit approvals. It meets on a
weekly basis.
5.2 Biography of current Directors
The following is a summary of the relevant business experience and principal business activities
of the Company’s Directors performed both within and outside the Company:
Name Born Relevant Business Experience and principal business activities
Emilio Botín-Sanz de Sautuola y García de 1934 He joined Banco Santander in 1958 and in 1986 he was
los Ríos appointed Chairman of the Board. He is a director of Shinsei
(Chairman of the Board and of the
Executive Committee)
Bank Limited.
Fernando de Asúa Álvarez 1932 Former Vice Chairman of Banco Central Hispanoamericano
(First Vice Chairman and Chairman of from 1991 to 1999. He was appointed Director in April 1999 and
the Appointments and Remuneration First Vice Chairman in July 2004. He is an Honorary Chairman
Committee) of IBM España, S.A. and a Director of Cepsa, Técnicas
Reunidas, S.A., Air Liquide España, S.A. and Constructora
Inmobiliaria Urbanizadora Vasco-Aragonesa, S.A.,
Alfredo Sáenz Abad 1942 Former Vice Chairman of Banco Bilbao Vizcaya and Chairman
(Second Vice Chairman and Chief of Banca Catalana until 1993. In 1994, he was appointed
Executive Officer) Chairman of Banesto and in February 2002, Second Vice
Chairman and Chief Executive Officer of the Company. He is
also Vice Chairman and Director of Cepsa, a Director of San
Paolo IMI S.p.A. and a Director of Auna Operadores de
Telecomunicaciones, S.A..
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Name Born Relevant Business Experience and principal business activities
Matías Rodríguez Inciarte 1948 He joined Banco Santander in 1984 and was appointed
(Third Vice Chairman and Chairman of Executive Vice President and Chief Financial Officer in 1986. In
the Risk Committee) 1988 he was appointed Director and in 1994 Second Vice
Chairman. He is also Chairman of Unión de Crédito
Inmobiliario, S.A., and Director of Banesto, S.A., Financiera
Ponferrada, S.A., Grupo Corporativo Ono, S.A. and Operador
del Mercado Ibérico de Energía Polo Español, S.A. He was
Minister of the Presidency of the Spanish Government (1981 —
1982).
Manuel Soto Serrano 1940 He was appointed as a Director in April 1999. He is Vice
(Fourth Vice Chairman and Chairman of Chairman and Director of Indra Sistemas, S.A., Director of
the Audit and Compliance Committee) Cortefiel, S.A., Corporación Financiera Alba, S.A. and
Inmobiliarias LAR, S.A..
Assicurazioni Generali S.p.A. An Italian insurance company represented by its Chairman,
(‘‘Assicurazioni’’) Mr. Antoine Bernheim who was born in 1924. Assicurazioni was
a Director of Banco Central Hispanoamericano from 1994 to
1999. Assicurazioni was appointed Director in April 1999.
Antonio Basagoiti García-Tuñón 1942 Former Executive Vice President of Banco Central
Hispanoamericano. He was appointed as a Director in July
1999. He is Chairman of Unión Fenosa, S.A., Vice Chairman of
Golf La Moraleja, S.A. and of Faes Farma, S.A. and a Director
of Pescanova, S.A. and Cepsa.
Ana Patricia Botín-Sanz de Sautuola y 1960 Former Executive Vice President of Banco Santander, S.A. and
O’Shea former Chief Executive Officer of Banco Santander de Negocios
from 1994 to 1999. In February 2002, she was appointed
Chairwoman of Banesto. She is also Chairwoman of
Inmobiliaria Urbis, S.A. and a director of Assicurazioni and
Grupo Televisa, S.A.
Emilio Botín-Sanz de Sautuola y O’Shea 1964 Former Executive Vice President of Banco Santander, S.A. He
is the sole Administrator of Puente San Miguel, S.A. and
Chairman of Swissrisk.
Javier Botín-Sanz de Sautuola y O’Shea 1973 He was appointed as a Director of the Company in 2004. He is
also an executive Director of M&B Capital Advisers, Sociedad
de Valores, S.A.
Lord Burns 1944 Lord Burns is Chairman of Abbey. He is also Chairman of Glas
Cymru Ltd (Welsh Water) and a non-executive director of
Pearson Group plc and British Land plc. He has been appointed
as a non-executive director and deputy chairman of Marks and
Spencer Group plc with effect from 1 October 2005. He was
formerly Permanent Secretary to the Treasury and chaired the
Parliamentary Financial Services and Markets Bill Joint
Committee.
Guillermo de la Dehesa Romero 1941 Former Secretary of State of Economy and Secretary General
of Commerce of the Spanish Government and Chief Executive
Officer of Banco Pastor. He was appointed as a Director in June
2002. He is Chairman of AVIVA Vida y Pensiones, S.A. and a
Director of Campofrío Alimentación, S.A., Unión Fenosa, S.A.,
Tele Pizza, S.A., Goldman Sachs Europe Ltd. and AVIVA plc.
He is also Chairman of the Centre for Economic Policy
Research (CEPR) in London, member of the Group of Thirty of
Washington, and Chairman of the Board of Trustees of the
Instituto de Empresa.
Rodrigo Echenique Gordillo 1946 Former Director and Chief Executive Officer of Banco
Santander, S.A. from 1988 to 1994. He is Chairman of the
Social Economic Council of the Carlos III University (Madrid)
and a Director of Inversiones Inmobiliarias Lar, S.A.
Antonio Escámez Torres 1951 Former Director and Executive Vice President of Banco Central
Hispanoamericano from 1988 to 1999. He was appointed as a
Director in April 1999. He is also Chairman of Santander
Consumer, Patagon and Arena Communications España, S.A.
and Vice Chairman of Attijariwafa Bank (formerly known as
Banque Commerciale du Maroc).
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Name Born Relevant Business Experience and principal business activities
Francisco Luzón López 1948 He joined Banco Santander in 1996 as Executive Vice
President, Adjoint to the Chairman. Former Chairman of Banco
Exterior de España (from 1988 to 1996), Caja Postal (from 1991
to 1996), Corporación Bancaria de España (from 1991 to 1996)
and of Argentaria (1996). He is also a Director of Industria de
Diseño Textil, S.A. and Chairman of the Social Council of the
University of Castilla – La Mancha.
Abel Matutes Juan 1941 Former Foreign Minister of the Spanish Government and EU
Commissioner (from 1989 to 1993). He is also a Director of FCC
Construcción, S.A. Assicurazioni Internazionale di Providenza
and Instituto Sectorial de Promoción y Gestión de Empresas,
S.A.
Mutua Madrileña Automovilista, s.s.p.f Spanish car insurance company represented on the Board by
Mr. Luis Rodríguez Durón, who was born in 1941, director of
Mutua Madrileña Automovilista and Chairman of Mutuactivos.
Luis Angel Rojo Duque 1934 Former Head of Economics, Statistics and Research
Department, Deputy Governor and Governor of the Bank of
Spain. He has been a member of the Governing Council of the
European Central Bank, Vice-Chairman of the European
Monetary Institute, member of United Nations’ Development
Planning Committee and Treasurer of the International
Association of Economy. He is Professor of Economic Theory of
the Complutense University of Madrid, Member of the Group of
Wise Men appointed by the ECOFIN Council for the study of
integration of the European financial markets, member of the
Royal Academy of Moral and Political Sciences and of the Royal
Academy of the Spanish Language.
Luis Alberto Salazar-Simpson Bos 1940 He is Chairman of Auna Telecomunicaciones, S.A. and
Constructora Inmobiliaria Urbanizadora Vasco-Aragonesa,
S.A., Director of Saint Gobain Cristalería, S.A. and of Mutua
Madrileña Automovilista. He is also a Joint Administrator of
Auna Telecomunicaciones, S.A. and of Retevisión Móvil, S.A.
5.3 Corporate Governance
An Audit and Compliance Committee and an Appointments and Remuneration Committee
operate as part of the Board. The Audit and Compliance Committee consists exclusively of six
external Directors, five of whom are independent in accordance with the principles set forth in
Article 5 of the Regulations of the Board. The Appointments and Remuneration Committee
consists of five external Directors, four of whom are independent. See ‘‘Independence of the
Directors on the Board’’ below.
The Audit and Compliance Committee
The Audit and Compliance Committee was created to provide support and specialisation in the
tasks of controlling and reviewing the accounts and compliance. Its mission, which has been
defined and approved by the Board, is established in the Company’s by-laws and in the
Regulations of the Board. Only non-executive Directors can be members of this Committee with
independent Directors (as defined in the Regulations of the Board) having a majority
representation. Its chairman must always be an independent Director (as defined in the
Regulations of the Board) and someone who has the necessary knowledge and experience of
accounting techniques and principles. Currently, the Chairman of the Audit and Compliance
Committee is Mr. Manuel Soto, the Fourth Vice Chairman of the Board.
Functions of the Audit and Compliance Committee:
) Have its chairman and/or secretary report to the General Shareholders’ Meeting with respect
to matters raised therein by shareholders regarding its powers.
) Propose the appointment of the Auditor, as well as the conditions in which such Auditor will be
hired, the scope of its professional duties and, if applicable, the revocation or non-renewal of
its appointment.
) Review the accounts of the Company and the Group, monitor compliance with legal
requirements and the proper application of generally accepted accounting principles, and
report on the proposals for alterations to the accounting principles and standards suggested
by management.
) Supervise the internal audit services.
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) Know the process for gathering financial information and the internal control systems.
) Serve as a channel of communication between the Board and the Auditor, assess the results
of each audit and the response of the management team to its recommendations, and act as
a mediator in the event of disagreement between the Board and the Auditor regarding the
principles and standards to be applied in the preparation of the financial statements.
Specifically, it shall endeavour to ensure that the statements ultimately drawn up by the Board
are submitted to the General Shareholders’ Meeting without any qualifications or reservations
in the Auditor’s report.
) Supervise the fulfilment of the audit contract, endeavouring to ensure that the opinion on the
annual financial statements and the main contents of the Auditor’s report are set forth in a
clear and accurate fashion.
) Watch over the independence of the Auditor, by taking notice of those circumstances or
issues that might risk such independence and any others related to the development of the
auditing procedure, as well as receive information and maintain such communication with the
Auditor as is provided for in legislation regarding the auditing of financial statements and in
technical auditing regulations. And, specifically, verify the percentage represented by the fees
paid for any and all reasons of the total income of the audit firm, and the length of service of
the partner who leads the audit team in the provision of such services to the Company. The
annual report registered before the Mercantile Register shall set forth the fees paid to the
audit firm, including information relating to fees paid for professional services other than audit
work.
) Review, before dissemination thereof, all periodical financial information which, in addition to
the annual information, is provided to the markets and the supervising authorities thereof, and
supervise that such information is prepared in accordance with the same principles and
practices applicable to the annual financial statements.
) Supervise the observance of the Code of Conduct of the Group in the Securities Markets, the
Manuals and procedures for the prevention of money laundering and, in general, the rules of
governance and compliance in effect in the Company, and make such proposals as are
deemed necessary for the improvement thereof. In particular, the Committee shall have the
duty to receive information and, if applicable, issue a report on disciplinary penalties to be
imposed upon members of the Senior Management.
) Review compliance with such courses of action and measures as result from the reports
issued or the inspection proceedings carried out by the administrative authorities having
functions of supervision and control.
) Know and, if applicable, respond to the initiatives, suggestions or complaints put forward or
raised by the shareholders regarding the area of authority of this Committee and which are
submitted to it by the Office of the General Secretary of the Company.
) Report on any proposed amendments to the Regulations of the Board prior to the approval
thereof by the Board.
The Audit and Compliance Committee has issued a report which was distributed together with
the Group’s 2004 Annual Report and which comprised a detailed account of the following points:
) Composition, function and procedures of the Committee.
) Activity during 2004, grouped according to the different basic functions of the Committee:
— Financial Information
— The Auditor
— Internal Group control systems
— Internal Auditing
— Compliance and Prevention of Money-Laundering
— Corporate Governance
— Measures proposed by the Supervisory Authorities
— Information provided to the Board and to the General Shareholders Meeting, and
evaluation of efficiency and compliance with the rules and procedures of governance of
the Company.
) Evaluation by the Committee of the fulfilment of its duties in 2004.
The Group’s 2004 Audit and Compliance Committee report is available on the Group’s website
www.gruposantander.com.
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The following are the current members of the Audit and Compliance Committee:
Name Position
Manuel Soto Serrano Chairman
Fernando de Asúa Álvarez Member
Rodrigo Echenique Gordillo Member
Abel Matutes Juan Member
Luis Angel Rojo Duque Member
Luis Alberto Salazar-Simpson Bos Member
Ignacio Benjumea Cabeza de Vaca also acts as Secretary to the Audit and Compliance
Committee but is classified as a non-member.
The Appointments and Remuneration Committee
The Regulations of the Board state that the members of this Committee must all be nonexecutive
Directors with independent Directors (as defined in the Regulations of the Board)
having a majority representation and its chairman being an independent Director (as defined in
the Regulations of the Board).
Currently, the Chairman of the Appointments and Remuneration Committee is Mr. Fernando de
Asúa Álvarez, the First Vice Chairman of the Board.
Functions of the Appointments and Remuneration Committee
) Establish and review the standards to be followed in order to determine the composition of the
Board and select those persons who will be proposed to serve as Directors.
) Prepare, by following standards of objectiveness and conformance to the corporate interests,
the proposals for appointment, re-election and ratification of Directors provided for in
Article 19, section 2 of the Regulations of the Board, as well as the proposals for appointment
of the members of each of the Committees of the Board.
) Propose to the Board the form and amount of, and the procedures relating to, the annual
compensation of the Directors — both for their performance as such and for their
performance in the Company of duties other than those of a Director — and of the Executive
Vice Presidents, and periodically review the compensation programs, assessing the
appropriateness and yield thereof and endeavouring to ensure that the compensation of
Directors shall conform to standards of moderation and correspondence to the earnings of
the Company.
) Watch over the transparency of such compensation and the inclusion in the annual report
registered before the Mercantile Register and in the annual corporate governance report of
information regarding the compensation of Directors and, for such purposes, submit to the
Board any and all information that may be appropriate.
) Watch over compliance by the Directors with the duties prescribed in Article 27 of the
Regulations of the Board, prepare the reports provided for therein and receive information,
and, if applicable, prepare a report on the measures to be adopted with respect to the
Directors in the event of non-compliance with the above-mentioned duties or with the Code of
Conduct of the Group in the Securities Markets.
The Appointments and Remuneration Committee issued a report which was distributed together
with the Group’s 2004 Annual Report and which comprised a detailed account of the following
points:
) Composition
) Functions
) Activity during 2004, grouped according to the different functions of the Committee
— Appointments and resignations of Directors
— Remuneration
— Compliance and obligations of the Directors
The Group’s 2004 Appointments and Remuneration Committee report is available on the
Group’s website www.gruposantander.com.
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The following are the members of the Appointments and Remuneration Committee:
Name Position
Fernando de Asúa Álvarez Chairman
Manuel Soto Serrano Member
Guillermo de la Dehesa Romero Member
Rodrigo Echenique Gordillo Member
Luis Angel Rojo Duque Member
Ignacio Benjumea Cabeza de Vaca also acts as Secretary to the Appointments and
Remuneration Committees but is classified as a non-member.
Independence of the Directors on the Board
The Board has six independent Directors (out of 19 Directors total), as defined in Article 5 of the
Regulations of the Board. The Regulations define the concept of an independent Director as
follows:
‘‘Independent directors shall be deemed to be those external or non-executive Directors who:
(i) are not, and do not represent, shareholders who have the power to influence the control of the
Company; (ii) have not held executive positions therein in the last three years; (iii) are not
connected to executive Directors by a family or professional bond; or (iv) do not maintain and
have not maintained any relations with the Company or the Group which may impair their
independence.’’
Independence of the Directors on the Audit and Compliance Committee
The Audit and Compliance Committee of the Board is composed of six Directors, five of whom
are independent in accordance with the standards set forth in the Regulations of the Board.
These independence standards may not necessarily be consistent with, or as stringent as, the
director independence standards established by the principles of good governance and code of
best practice appended to the Listing Rules (the ‘‘Combined Code’’). Under Spanish law, a
majority of the members and the chairman of the audit committee must be non-executive. All
members of the Audit and Compliance Committee are non-executive Directors and its Chairman
is independent in accordance with the standards set forth by the Regulations of the Board.
Independence of the Directors on the Appointments and Remuneration Committee
Under Spanish law, there is no requirement for the board of directors of a Spanish company to
establish a compensation or nomination committee, although there is a non-binding
recommendation for listed companies in Spain to have these committees and for them to be
composed of non-executive directors. The Company satisfies this non-binding recommendation.
Separate Meetings for Independent Directors
Under Spanish law, there is no requirement or non-binding recommendation that the
independent directors of a Spanish company meet periodically outside of the presence of the
company’s executive directors and as such, the independent Directors on the Board do not meet
outside of the presence of the other Directors.
Code of Conduct
In March 2000, the Company adopted a General Code of Conduct, which applies to all members
of the boards of the companies of the Group, to all employees subject to the Code of Conduct in
the Securities Market, including the Company’s Chairman, Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer, and to all those employees designated by the
Human Resources Division that have been specifically informed of their subjection to this
General Code of Conduct. On 28 July 2003, the Board approved amendments to the General
Code of Conduct to conform it to the requirements of Law 44/2002 (2 November 2002) on reform
measures of the financial system (see paragraph 2.11 ‘‘Recent Legislation’’ of Part 4 above). The
new Code entered into force on 1 August 2003 and substituted the previous one. The General
Code of Conduct establishes the principles that guide the actions of officers and Directors
including ethical conduct, professional standards and confidentiality. It also establishes the
limitations and defines the conflicts of interests arising from their status as senior executives or
Directors.
As at 31 December 2004, no waivers with respect to the General Code of Conduct had been
applied for or granted.
In addition, the Group abides by a Code of Conduct in the Securities Market, which was also
updated on 28 July 2003. This code establishes standards and obligations in relation to
securities trading, conflicts of interest and the treatment of price sensitive information.
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6. DIRECTORS’ AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS
As at 15 June 2005 (being the latest practicable date prior to the publication of this document),
the Directors had the following beneficial interests in the Shares:
Participation in Share Capital
Indirect Percentage
and Proxy of Share
Name of Director
Emilio Botín-Sanz de
Direct Voting Rights Total Capital
Sautuola y García de los Ríos (1)
1,488,712 98,609,696 100,098,408 2.028
Fernando de Asúa Álvarez 24,488 22,400 46,888 0.001
Alfredo Sáenz Abad 336,125 1,290,962 1,627,087 0.026
Matías Rodríguez Inciarte 540,947 120,944 661,891 0.011
Manuel Soto Serrano — 200,000 200,000 0.003
Assicurazioni Generali S.p.A 12,276,056 38,835,343 51,111,399 0.817
Antonio Basagoiti García-Tuñón 512,000 — 512,000 0.008
Ana Patricia Botín-Sanz de Sautuola y O’Shea (1)
4,977,323 4,024,646 9,001,969 0.001
Emilio Botín-Sanz de Sautuola y O’Shea (1)
9,041,480 1,567,724 10,609,204 0.025
Javier Botín-Sanz de Sautuola y O’Shea (1)
8,793,481 2,000,000 10,793,481 0.032
Lord Burns 27,101 — 27,101 0.000
Guillermo de la Dehesa Romero 100 — 100 0.000
Rodrigo Echenique Gordillo 651,598 7,344 658,942 0.011
Antonio Escámez Torres 556,899 — 556,899 0.009
Francisco Luzón López 1,214,883 723 1,215,606 0.019
Abel Matutes Juan 52,788 86,150 138,938 0.002
Mutua Madrileña Automovilista, s.s.p.f 65,068,029 — 65,068,029 1.040
Luis Angel Rojo Duque 1 — 1 0.000
Luis Alberto Salazar-Simpson Bos 32,865 4,464 37,329 0.001
TOTAL 105,594,876 146,770,396 252,365,272 4.035
(1) Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos has voting rights of 76,514,628 shares owned by Marcelino Botín
Foundation (1.22% of share capital), of 8,096,742 shares whose ownership corresponds to Mr. Jaime Botín-Sanz de
Sautuola y García de los Ríos, of 8,916,751 shares whose ownership corresponds to Ms. Ana Patricia Botín-Sanz de
Sautuola y O’Shea, of 9,036,292 shares whose ownership corresponds to Mr. Emilio Botín-Sanz de Sautuola y O’Shea,
and of 8,793,481 shares whose ownership corresponds to Mr. Javier Botín-Sanz de Sautuola y O’Shea. Therefore, the
table contains the number of shares of direct and indirect participation of each of the last three cited above who are
Directors of the Board. However, under the column of percentage over the share capital the participation of these three
Directors are accounted together with the shares owned by Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos or for
which he has proxy rights.
Insofar as it is known to the Company, as at 15 June 2005 (being the latest practicable date
before the publication of this document) the following persons held, directly or indirectly, interests
representing 3% or more of the Company’s issued share capital (excluding any treasury shares):
Shareholder Number of shares
Percentage of issued
ordinary share capital
EC Nominees Limited 377,944,520 6.04%
Chase Nominees Limited 385,231,326 6.16%
These shareholders are custodians who hold the Shares on behalf of third parties. To the
Company’s knowledge, none of these third parties beneficially owns more than 3% of the
Company’s issued share capital and the Company is not aware of any other person who is
directly or indirectly interested in 3% or more of the Company’s issued share capital.
The Company is not aware of any person who, directly or indirectly acting jointly with others or
acting alone, could exercise control over the Company.
7. TRANSACTIONS WITH DIRECTORS
7.1 No Director has or has had any interest in any transaction which is or was unusual in its nature or
conditions or significant to the business of any member of the Group and which was effected by
any member of the Group during the current or immediately preceding financial year, or which
was effected during an earlier financial year and remains in any respect outstanding or
unperformed.
The Directors Assicurazioni Generali S.p.A. (represented by Mr. Antoine Bernheim) and Mutua
Madrileña Automovilista (represented by Mr. Luis Rodríguez Durón) are each international
financial institutions that have a holding in the Company’s share capital.
No members of the Group have entered into any transactions during 2004 with the Company’s
Directors (including the above representatives of the Directors Assicurazioni Generali S.p.A. or
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Mutua Madrileña Automovilista) other than in the Company’s ordinary course of business and on
arm’s length terms.
Further information is set out below under ‘‘Loans made to Directors’’ regarding those
transactions to which article 200.13 of the Spanish Companies Law and rule 32 of the Bank of
Spain’s Circular 5/1993 apply.
In accordance with the requirements of Article 127 ter. 4 of the Spanish Companies Law, in order
to improve the transparency of listed companies, the table in Note 4 of the 2004 Consolidated
Financial Statements on page 58 of this document sets out details of the Directors’ respective
investments in the share capital of non-Group companies engaging in: (i) banking, financing or
lending; (ii) insurance; (iii) management of Collective Investment Institutions; or (iv) securities
brokerage, and of the management or governing functions, if any, that the Directors discharge in
relation to such non-Group companies as at 31 December 2004.
7.2 Loans made to Directors
As at 31 December 2004, the Group’s direct or indirect risk exposure to Directors amounted to
010.8 million (010.1 million and 014.4 million as at 31 December 2003 and 2002, respectively) of
loans and credits and 00.2 million (00.4 million and 01.2 million as at 31 December 2003 and
2002, respectively) of guarantees provided. These loans, credits and guarantees were granted at
market rates in all cases. Further details are set out in Note 4 to the 2004 Consolidated Financial
Statements on page 58 of this document.
Save as described in Note 4 to the 2004 Consolidated Financial Statements (see page 58 of this
document), as at 31 May 2005 (being the most recent practicable date prior to the publication of
this document), there were 028.4 million in aggregate loans or credits granted by the Group to
the Directors and there were 00.08 million in aggregate guarantees provided by the Group for the
Directors’ benefit.
8. DIRECTORS’ SERVICE CONTRACTS
8.1 Service Contracts
The terms and conditions of the contracts which, following a report from the Appointments and
Remuneration Committee and approval by the Board, have been entered into by the Company
with its executive Directors Mr. Alfredo Sáenz Abad, Mr. Matías Rodríguez Inciarte, Ms. Ana
Patricia Botín-Sanz de Sautuola y O’Shea and Mr. Francisco Luzón López, can be summarised
(notwithstanding certain specific provisions for each of the Directors in question) as follows:
(i) Exclusivity and non-competition
Executive Directors may not enter into other service contracts with other companies or
institutions, unless prior authorisation is obtained from the Board of Directors, an obligation of
non-competition being established with respect to companies and activities of a nature similar to
that of the Company and its consolidated Group.
(ii) Code of Conduct
Mention is made of the obligation to strictly observe the provisions of the Grupo Santander’s
General Code and Code of Conduct in Securities Markets, specifically with respect to rules of
confidentiality, professional ethics and conflict of interests.
(iii) Remuneration
The remuneration for undertaking their executive responsibilities consists basically of a fixed
amount, to be reviewed yearly, and a variable amount in terms of the criteria established by the
Company from time to time.
In addition, executive Directors are entitled to receive a pension supplement in the event of early
retirement or retirement, which may be externalised by the Company. The Company may request
executive Directors to take early retire, provided they have reached the age of 50 and have
served more than 10 years in the Company and/or other Group companies, although the
Company may order an extension of their professional duties for 6 months in order to arrange for
another Director to take over their responsibilities. Likewise, executive Directors may to take early
retirement at their own request if they are over 55 and have served the Company and/or other
Group companies for 10 years. In any event, any decision regarding retirement or early
retirement should be presented with 60 days’ notice.
The right to a pension supplement is also applicable (with certain differences between some
contracts and others) if the Director’s services are terminated due to the coincidence of different
objective circumstances such as those affecting the functional and organic status of the
executive Director.
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Pension rights are also recognised in favour of the spouse (widow) and children (orphans) in
cases of death and permanent disability of the executive Director.
Generally, the amount of such pension supplement consists of the amount necessary to reach
an annual gross amount equivalent to 100% of the fixed salary received by the Director in
question at the time when he or she actually ceased working, plus 30% of the average of the last
three variable remuneration amounts received. In certain cases, if the early retirement occurs at
the request of the Director, the amount resulting after applying the above criterion would be
reduced by percentages ranging from 20% to 4% in terms of the Director’s age on early
retirement.
Receipt of pension supplements will be incompatible with the rendering of services to
competitors of the Company or its Group, unless the Company’s express authorisation is
received.
Remuneration for undertaking executive responsibilities is compatible with the receipt of amounts
specified by the By-laws (participation in earnings) and an attendance fees applicable to them
merely in their capacity as members of the Board of Directors, as expressly established by the
By-laws and the Regulations of the Company’s Board of Directors.
(iv) Termination
The duration of such contracts is indefinite. However, if a contract is terminated owing to breach
of an executive Director’s responsibilities or of his or her own free will, he or she will not be
entitled to any financial compensation.
Whenever termination is attributable to the Company or due to objective circumstances, the
Director will be entitled to receive the following items of remuneration: a) the pension
supplements which in each case are recognised in his or her favour on changing to early retired
or retired status; or b) in certain cases, indemnities which, for an amount up to 5 years’ fixed
annual salary, are established in his or her contract depending on the date on which termination
occurs.
(v) Insurance
The Company provides life and accident insurance to its executive Directors, with coverage
varying in each case depending on the policy established by the Company for its senior
management, as well as health insurance consisting of reimbursement.
(vi) Confidentiality and return of documents
A strict confidentiality obligation is established throughout the duration of the Director’s
relationship with the Company and also following termination of such relationship, consisting of
the obligation to return to the Company all documents and objects in possession of the executive
Director relating to his or her activity.
8.2 Directors’ remuneration
By-law stipulated fees
Article 38 of the Company’s by-laws provides that the members of the Board (together with the
Executive Vice-Presidents) may receive an amount up to 5% of the Company’s net income for
any fiscal year, for performing their duties as Directors.
The Board, making use of the powers conferred on it, applied 0.169% of the Company’s income
for 2004 (as compared to 0.196% of the Company’s income for 2003 and 0.191% of the
Company’s income for 2002), as compensation for itself.
Consequently, the gross amount to be received by each Director as compensation in 2004 was
071,000 (compared to 065,000 in the 2003 and 2002). The Executive Committee members
received additional compensation, the gross amount of which was 0155,000 in 2004 (compared
to 0141,000 in 2003 and 2002). Finally, the members of the Audit and Compliance Committee
received additional gross compensation in the amount of 036,000 in 2004 and 032,000 in 2003
and 2002.
Salary Compensation
As provided by the Company’s by-laws, the members of the Board and of the Executive
Committee are entitled to be remunerated for discharging duties within the Company other than
those duties performed in their capacity as a Director.
Consequently, the Company’s Executive Directors (who as at 31 December 2004, 2003 and
2002 are Mr. Emilio Botín-Sanz de Sautuola y García de los Ríos, Mr. Alfredo Sáenz Abad,
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Mr. Matías Rodríguez Inciarte, Ms. Ana Patricia Botín-Sanz de Sautuola y O’Shea, and
Mr. Francisco Luzón López) received the following salary compensation:
Thousands of Euros
2004 2003 2002
Total salary compensation 16,179 14,784 13,438
of which: Variable compensation 9,395 8,373 7,103
Details of the remuneration and other compensation granted to the Company’s Directors during
the year ended 31 December 2004 are set out in Note 4 to the 2004 Consolidated Financial
Statements on page 54 of this document.
Compensation to the Board members as representatives of the Company
By resolution of the Executive Committee, all the compensation received by the Directors who
represent the Company on the boards of directors of listed companies in which the Company has
a stake (at the expense of those companies) as a result of appointments made after 18 March
2002, accrue to the Group. The compensation received in 2004 in connection with representation
duties of this kind relating to appointments made after 18 March 2002 was as follows:
Director Company Thousands of Euros
Emilio Botín-Sanz de Sautuola y García de los Ríos Royal Bank of Scotland Group plc. 31.5
Emilio Botín-Sanz de Sautuola y García de los Ríos Shinsei Bank 77
Fernando de Asúa Álvarez Cepsa, S.A 140.6
249.1
Additionally, other Directors received a total amount of 084,100 during 2004 for sitting on the
boards of companies belonging to the Group.
Pension commitments, other insurance and other items
The total balance of supplementary pension obligations assumed by the Group over the years for
its current and retired employees, which amounted to 019,109 million (covered mostly by inhouse
allowances) as at 31 December 2004, includes the obligations to those who have been
Directors of the Company during the year and who discharge (or have discharged) executive
functions during the year. The total pension commitments for these Directors, together with the
total sum insured under life insurance policies at that date and other items, amounted to
0178 million as at 31 December 2004 (0162 million as at 31 December 2003, and 0256 million as
at 31 December 2002 of which 0108 million related to the settlement of the pension rights
referred to below).
The following table provides information on the obligations undertaken and covered by the Group
relating to pension commitments and to other insurance for the Company’s executive Directors:
Thousands of Euros
2004 2003
Total Accrued Other Total Accrued Other
Pension Obligations Insurance Pension Obligations Insurance
Emilio Botín-Sanz de Sautuola y García de
los Ríos 10,700 — 10,028 —
Alfredo Sáenz Abad 46,061 7,724 52,807 7,573
Matías Rodríguez Inciarte
Ana Patricia Botín-Sanz de Sautuola y
27,752 3,900 27,442 3,900
O’Shea 9,742 1,258 7,736 1,258
Francisco Luzón López 35,703 6,224 19,448 4,886
Total 129,958 19,106 117,461 17,617
Additionally, other Directors of the Board benefit from life insurance policies at the Group’s
expense, the related insured sum being 03 million as at 31 December 2004, 2003 and 2002.
Following the decision of Mr. Ángel Corcóstegui to resign, for personal reasons, in February 2002
from his position as First Vice Chairman of the Company and Director (which entailed his
corresponding resignation as Chief Executive Officer of the Company and as member of the
various Board Committees on which he sat), and in settlement for the pension commitments to
him, the Company paid on his resignation a gross amount of 0108 million for his pension rights.
This amount had been fully provided for as at that date. Upon payment, a withholding of 48% was
made, and the amount withheld was paid into the Spanish Treasury. Accordingly, the net amount
paid to Mr. Corcóstegui in this connection was 056 million. See ‘‘paragraph 14 — Litigation’’
below.
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Stock option plan
The Company’s by-laws provide that Directors may also receive compensation in the form of
Shares or options over the Shares, or other remuneration linked to Share value following a
resolution adopted by the shareholders at the General Shareholders’ Meeting (conducted in
accordance with the Company’s by-laws and applicable Spanish legislation).
The share options granted to members of the Board as at 31 December 2004, are set out in
Note 4 to the 2004 Consolidated Financial Statements on page 57 of this document.
Board practices
The aggregate remuneration paid (including bonuses and other compensation) by the Company
to or for the benefit of Directors during the year ended 31 December 2004 was 022,744,000. In
addition, during 2004 the Group made pension fund contributions and paid insurance premiums
for a total of 022 million for the benefit of the Directors.
There is no arrangement under which any Director has agreed to waive future emoluments, nor
has there been any waiver of emoluments during the year ended 31 December 2004.
9. SHARE OPTION SCHEMES
In recent years, the Company has put in place compensation systems for its managers and
employees linked to the market performance of the Shares based on the achievement of certain
objectives.
Below is a summary of the different stock option and compensation plans in effect as at
31 December 2004:
9.1 Plan Four
Five of the Group’s officers participate in an option plan known as ‘‘Plan Four’’. Each option
received under this plan grants its holder the right to receive one Share. The exercise price of the
options subject to this plan is 07.84 per Share, and plan participants may exercise these options
until 30 December 2005. Plan participants must hold the Shares acquired through this plan for a
period of twelve months following the date of exercise of the options. During 2004, 36,000
options were exercised and as at 31 December 2004, the balance of outstanding options under
this plan was 228,000.
9.2 Investment Banking Plan
Fifty-six of the Group’s officers from the Global Wholesale Banking Division participate in an
equity incentive plan known as the ‘‘Investment Banking Plan’’. The number of options received
by plan participants under this plan is based on the extent to which certain business objectives
are achieved. Each option received under this plan grants its holder the right to receive one
Share. The exercise price of the options subject to this plan is 010.25 per Share, and plan
participants may exercise the first 50% of the options granted from 16 June 2003, and the
remaining 50% from 16 June 2004. The exercise period ended in both cases on 15 June 2005.
As at 31 December 2004, the balance of outstanding options under this plan was 4,503,750.
9.3 Young Executives Plan
One hundred and eleven of the Group’s officers participate in an option plan known as the
‘‘Young Executives Plan’’. Each option received under this plan grants its holder the right to
receive one Share. The exercise price of the options subject to this plan is 02.29 per Share, and
plan participants may have exercised the first 50% of the options granted from 1 July 2003 until
30 June 2005 and the remaining 50% from 1 July 2004 until 30 June 2005. Plan participants
must hold the Shares acquired through this plan for a period of twelve months following the date
of exercise of the options. As at 31 December 2004, the balance of outstanding options under
this plan was 364,000.
9.4 Managers Plan 2000
Nine hundred and seventy of the Group’s officers participate in an option plan known as the
‘‘Managers Plan 2000’’. Each option received under this plan grants its holder the right to receive
one Share. The exercise price of the options subject to this plan is 010.55 per Share, and plan
participants may exercise these options from 30 December 2003 until 29 December 2005. Plan
participants must hold the Shares acquired through this plan for a period of twelve months
following the date of exercise of the options. As at 31 December 2004, the balance of
outstanding options under this plan was 13,341,000.
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9.5 European Branches Plan
Twenty-seven of the Group’s officers participate in an incentive plan known as the ‘‘European
Branches Plan’’. Subject to the achievement of certain objectives, the beneficiaries of this plan
will receive a payment in cash or in Shares. For the purposes of the calculation of the number of
Shares to be delivered, the share price is calculated at the average quoted price for the month
prior to the incorporation of the branch. Plan participants may exercise the options granted from
1 July 2005 and 15 July 2005. As at 31 December 2004, the balance of outstanding Shares to be
delivered under this plan was 2,690,000.
9.6 Abbey Share Option Plan
Share option schemes linked to the Shares originally granted by the management of Abbey to its
employees (in respect of Abbey’s ordinary shares) are as follows:
Average exercise
Date of
commenceprice
ment Date of
Plans in force as at Number of Pounds Professional of Exercise Expiration of
31 December 2004 shares Sterling Euros category Period Period
Executive Options 358,844 4.16 5.90 Managers 25/03/99 04/04/14
Employee Options 56,550 5.90 8.37 Employees 09/09/99 08/09/06
Sharesave 17,260,173 3.56 5.05 Employees 01/04/04 01/10/11
17,675,567 3.58 5.08
(1) The pounds sterling/euro exchange rate as at 31 December 2004 was 1.4183 euros per pound sterling.
9.7 Plan I-06
On 20 December 2004, the Board decided to implement, further to the approval of the annual
General Shareholders’ Meeting, which was held on 18 June 2005, a new long term incentive
plan (I-06) consisting of options over the Shares. Such plan is linked to the achievement of a
double objective: appreciation of the market price of the Share and the growth of EPS; in both
cases over a sample 20 of comparable banks out of 29 selected among the world’s largest by
market capitalisation. Each option received under this plan will grant its holder the right to receive
one Share. The number of Group’s officers involved is 2,750 with a total number of 103,050,000
options over the Shares having been granted at an exercise price of 09.07 per Share. The
options are exercisable between 15 January 2008 and 15 January 2009.
10. EMPLOYEES
As at 31 December 2004, the Group had 126,488 employees (103,038 in 2003 and 104,178 in
2002) of which 33,353 were employed in Spain (34,956 in 2003 and 35,887 in 2002) and 93,135
were employed outside Spain (68,082 in 2003 and 68,291 in 2002). The terms and conditions of
employment in the private sector banks in Spain are negotiated on an industry-wide basis with
the trade unions. This process has historically produced collective agreements binding upon all
the private banks and their employees.
Spain’s previous nation-wide collective agreement for private banks was signed on 11 February
2004 and expired on 31 December 2004. A new collective agreement was signed on 11 May
2005 and expires 31 December 2005.
The table below shows the average number of the Group’s employees by category of
employment.
Average Number of Employees
2004 2003 2002
Top executives (1)
112 128 139
Other line personnel 26,537 26,034 27,059
Clerical staff 7,943 8,780 10,505
General services 81 91 115
34,673 35,033 37,818
Abbey (2)
24,388 — —
Staff of other banks and companies abroad 68,088 67,959 71,950
Staff of other Spanish and foreign non-banking companies 938 983 1,000
93,414 68,942 72,950
128,087 103,975 110,768
(1) Top executives includes the categories of Assistant Deputy General Manager and above, including Senior Management.
(2) For Abbey the number corresponds to the average of the months of November and December of 2004.
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11. ADMISSION AND DEALINGS
11.1 Application has been made for the Shares to be admitted to the Official List of the UK Listing
Authority and for trading on the London Stock Exchange’s market for listed securities. It is
expected that Admission will become effective and dealings in the Shares will commence on the
London Stock Exchange at 8.00 a.m. on 1 July 2005.
11.2 The Company, in common with all Spanish listed companies, does not issue share certificates to
individual shareholders. Instead, the Shares are held in dematerialised form represented by book
entries. The Shares are registered with Iberclear (the Spanish clearance and settlement system
through which holdings of, and trades in, the Shares in Spain are cleared and settled)
(‘‘Iberclear’’). Iberclear’s register is constituted from the accounts that financial institutions which
are participants in Iberclear hold with Iberclear. Participants in Iberclear, in turn, hold accounts in
the name of the shareholder or through the shareholder’s accredited financial intermediary.
As a matter of English law, foreign securities, including the Shares, are not eligible and cannot be
held and transferred directly in the system for paperless settlement of trades in listed securities in
the UK, which is operated by CRESTCo Limited (‘‘CRESTCo’’) and known as ‘‘CREST’’. As a
result, investors who do not wish to hold their Shares directly through a participant in Iberclear
have a choice as to whether to arrange for a custodian to hold their Shares on their behalf
through a participant in Iberclear or to elect to hold, or arrange for a nominee or custodian to hold
on their behalf, CREST Depository Interests representing entitlements to their Shares (‘‘Banco
Santander CDIs’’).
11.3 In order to provide a settlement service, CRESTCo has established the CREST International
Settlement Links Service under which a subsidiary of CRESTCo, CREST Depository Limited,
issues dematerialised depository interests representing entitlements to non-UK securities such
as the Shares, known as CREST Depository Interests or CDIs. The CREST International
Settlement Links Service links CRESTCo and Iberclear through CRESTCo’s relationship with
Euroclear Bank S.A./N.V., as operator of the Euroclear system (‘‘Euroclear’’) and Euroclear’s
link with Iberclear. Euroclear’s link operates via the services of Santander Investment Services,
S.A., which is a participant in Iberclear and through which an entity appointed by Euroclear,
currently EC Nominees Limited (a member of the Euroclear group) (‘‘EC’’) holds the Shares.
Banco Santander CDIs are held and settled solely within CREST. Where investors elect to hold
Banco Santander CDIs, the underlying Shares will be transferred to EC’s account with Santander
Investment Services, S.A. and Euroclear will hold the Shares for CREST Depository Limited’s
nominee. CREST Depository Limited will then issue Banco Santander CDIs which will be
recorded in, as appropriate, the relevant investor’s CREST account, the CREST account of the
relevant investor’s nominee or custodian or the CREST account of the nominee of the provider of
the Grupo Santander Nominee Service, on the basis described below.
Investors who are CREST members (‘‘CREST Members’’) may elect to have Banco Santander
CDIs credited to their CREST accounts which are enabled for holding Banco Santander CDIs in
CREST. CREST Members who elect to have Banco Santander CDIs credited to their CREST
account will, for so long as their Banco Santander CDIs are held in CREST and CREST
continues to provide such service, be able, if they so wish, to have amounts in respect of
dividends paid on the Shares in euro by the Company converted into, and paid to them in,
pounds sterling or any other CREST currency (without foreign exchange commission).
Investors who are not CREST members (‘‘Non-CREST Members’’) may arrange for a nominee
or custodian to hold Banco Santander CDIs on their behalf in their nominee’s or custodian’s
CREST account. Investors should contact their usual stockbroker or financial intermediary to
obtain further information regarding their stockbroker or financial intermediary holding Banco
Santander CDIs on their behalf and the costs associated with this. Alternatively, subject to
fulfilling certain requirements and signing up to terms and conditions, Non-CREST Members may
elect to hold Banco Santander CDIs in the corporate nominee service operated by Lloyds TSB
Registrars (the ‘‘Grupo Santander Nominee Service’’).
Investors whose Banco Santander CDIs are held in the Grupo Santander Nominee Service are
not required to pay the custody fee, as determined by CREST from time to time, charged at user
level for the use of CDIs and, for so long as arrangements remain in place with the provider of the
Grupo Santander Nominee Service and CREST continues to provide such service, will continue
to have amounts in respect of dividends paid on the Shares in euro by the Company converted
into, and paid to them in, pounds sterling (without foreign exchange commission).
To obtain further information regarding holding Banco Santander CDIs in the Grupo Santander
Nominee Service and the costs associated with this, shareholders should write to Grupo
Santander Nominee Service, The Causeway, Worthing, West Sussex, BN99 6DA, United
Kingdom or telephone 0870 532 9430 (from within the UK).
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11.4 EC is the registered holder of the Shares to which holders of Banco Santander CDIs are entitled.
Such entitlement to the Shares is represented by ownership of the Banco Santander CDIs.
Accordingly, holders of Banco Santander CDIs are able to enforce and exercise rights relating to
the Shares only in accordance with the arrangements described below, and, as a result of certain
aspects of Spanish law which governs the Shares, are not able to directly enforce or exercise
those rights.
The Company has entered into arrangements pursuant to which all holders of Banco Santander
CDIs: (i) will receive notices, in English, of all general shareholders’ meetings of the Company;
(ii) are able to give directions as to voting at all general shareholders’ meetings of the Company;
(iii) have made available to them and are sent, at their request, copies of the annual report and
accounts of the Company and all of the documents issued by the Company to registered holders
of the Shares (in each case, in English); and (iv) are treated in the same manner as registered
holders of the Shares in respect of all other rights attaching to the Shares, in the case of subparagraphs
(i) to (iv) above, so far as possible in accordance with applicable CREST regulations
(the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755)), the requirements of
CRESTCo applicable to the relevant issuer, user or participant in CREST, as described in the
CREST Glossary of Terms issued by CRESTCo, and applicable law. These rights are also
provided to all persons whose Banco Santander CDIs are held in the Grupo Santander Nominee
Service. Where Banco Santander CDIs are held by another nominee or custodian, the provision
of these rights will depend on the terms on which the nominee or custodian holds Banco
Santander CDIs on the relevant person’s behalf.
Details of who has the right to attend general shareholders’ meetings of the Company are set out
in paragraph 3.5 — Meetings, Notices, Voting Rights and Quorum — of this Part 5.
In addition, under the Company’s by-laws, the Chairman of the Company has the right to invite
any person to be present at a general shareholders’ meeting of the Company. The Chairman
may, at his discretion, extend such invitation to holders of Banco Santander CDIs (including
shareholders whose Banco Santander CDIs are held through the Grupo Santander Nominee
Service) who wish to be present at a general shareholders’ meeting of the Company without
effecting the cancellation of their Banco Santander CDIs for their underlying Shares. It should be
noted that any person present at a general shareholders’ meeting of the Company by invitation of
the Chairman is not entitled to speak, vote or exercise other shareholder rights in person at such
meeting. Such holders of Banco Santander CDIs are, however, entitled to give directions for
voting their underlying Shares pursuant to the arrangements referred to above.
The terms and conditions upon which CDIs are issued and held in CREST are set out in the deed
poll executed by CREST Depository Limited governing CDIs and other related documents in the
CREST International Manual (which forms part of the CREST Manual) issued by CRESTCo in
July 2004, as amended from time to time.
11.5 None of the Shares have been marketed or sold or are available to the public in whole or in part
in connection with the application for the Shares to be admitted to the Official List or to trading on
the London Stock Exchange’s market for listed securities.
12. TAX
12.1 United Kingdom tax
The comments set out below summarise certain UK taxation consequences of holding the
Shares. They are based on current law and current HM Revenue and Customs practice. They
are intended as a general guide and, except where otherwise stated, apply only to shareholders
who are solely resident or (if individuals) ordinarily resident for tax purposes in the United
Kingdom, who hold the Shares as an investment and who are the absolute beneficial owners of
their Shares. Any shareholders who do not fall within the above description or who are in any
doubt as to their taxation position should consult their own professional advisers.
Except where the context otherwise requires, references below to Shares include references to
Banco Santander CDIs.
(a) Dividends
Holders of Shares who are resident for tax purposes in the United Kingdom will, in general, be
subject to UK income tax or corporation tax on the gross amount of dividends paid on the
Shares, rather than on the amount actually received (the amount received being net of any
Spanish withholding tax (see paragraph 12.2(a) below for further details)). Dividends received by
such holders who are within the charge to corporation tax will be taxed at the prevailing
corporation tax rate. An individual will generally be chargeable to income tax on dividends paid
on the Shares at the Schedule F ordinary rate (currently 10%) or, to the extent that the amount of
the gross dividend when treated as the top slice of his or her income exceeds the threshold for
higher rate tax, at the Schedule F upper rate (currently 32.5%).
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Credit will generally be available for Spanish tax required to be deducted or withheld from the
dividends paid on the Shares against income tax or corporation tax to which the holder of the
shares is liable, broadly limited to the amount of such tax attributable to the dividends. As a result
individual shareholders who are chargeable to income tax at the Schedule F ordinary rate on the
whole of such dividends and who claim that credit through their tax return should have no further
tax to pay in respect of those dividends. Individual shareholders who are chargeable to income
tax on all or any portion of the dividends at the Schedule F upper rate and who claim that credit
through their tax return should be able to offset the amount of the available credit against their
income tax liability. Shareholders who are chargeable to corporation tax on the dividends and
who claim that credit should generally be able to offset the amount of the available credit against
their corporation tax liability.
No amounts in respect of UK tax are required to be withheld at source from dividends paid on the
Shares.
It is expected that there will be a specific course of action available for the 2004-2005 tax year to
prevent individual taxpayers being excluded from the Short Tax Return, being brought back into
Self-Assessment or being unable to file online using SA Online as a result of receiving a small
amount of foreign dividend income. It is expected that this will apply to shareholders receiving
£300 gross or less per tax year (where the shareholder has no other foreign income to report).
(b) Disposals of Shares
(i) Taxation of chargeable gains
A disposal or deemed disposal of Shares may, depending on the particular circumstances
of the shareholder and subject to any available exemptions or reliefs, give rise to a
chargeable gain or an allowable loss for the purposes of UK taxation of chargeable gains.
(ii) Stamp duty and stamp duty reserve tax (‘‘SDRT’’)
No SDRT will be payable in respect of any transfer of, or agreement to transfer, the
Shares.
No stamp duty will be payable in respect of the paperless transfer of a Banco Santander
CDI within CREST, or in respect of any other paperless transfer of an interest in the
Shares in dematerialised form, for example by way of book entry transfer through
Iberclear. Provided that any instrument of transfer is executed outside the United Kingdom
and does not relate to any property situate, or to any matter or thing done or to be done, in
the United Kingdom, no stamp duty will be payable in respect of other transfers of the
Shares.
(iii) Inheritance Tax
There may be a charge to UK inheritance tax where an individual dies owning Shares or in
respect of certain lifetime transfers of the shares, for example, gifts to some trusts and
gifts made within the seven years before an individual’s death. In certain circumstances,
depending on the value of an individual’s estate, inheritance tax may not be payable. In
addition, by making certain types of lifetime transfer, it may be possible to reduce or
eliminate a potential inheritance tax liability that would otherwise arise on death.
Where a transfer of Shares gives rise to a charge to Spanish Inheritance and Gift Tax the
amount of Spanish tax paid can generally be offset against the amount of UK inheritance
tax which is attributable to the value of those shares.
(c) Compliance
In certain circumstances the UK tax authorities can impose penalties for failure to comply with
the UK tax requirements referred to above.
12.2 Spanish tax for UK residents
The comments set out below summarise certain Spanish taxation consequences of the holding
of Shares for shareholders. They are based on current Spanish law and practice. They are
intended as a general guide and apply only to shareholders who are resident in the United
Kingdom for the purposes of the double taxation treaty between the United Kingdom and Spain
(under United Kingdom tax law this will include shareholders who are resident or (if individuals)
ordinarily resident only in the United Kingdom for tax purposes), who are the absolute beneficial
owners of their Shares and who do not carry on business through a permanent establishment in
Spain with which their holdings of Shares are effectively connected. Any shareholders who do
not fall within the above description or who are in any doubt as to their taxation position in respect
of the Shares should consult their own professional advisers immediately. In addition, these
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comments do not apply to any shareholders who own or control, directly or indirectly, 10% or
more of the share capital or voting rights of the Company.
A holder of Banco Santander CDIs will be treated for Spanish tax purposes as the holder of
Shares.
(a) Dividends
As a general rule, dividends paid on the Shares will be subject to Spanish withholding tax at a
rate of 15% on the gross amount of the dividend which the Company will withhold at source.
Subject to certain limitations, credit will generally be available under United Kingdom tax law for
such Spanish withholding tax against any United Kingdom income tax or corporation tax to which
the holder of the shares is charged (see paragraph 12.1(a) above for further details).
Shareholders will not be required to file a Spanish tax return in respect of dividends received on
the Shares from which tax is withheld as described in the preceding paragraph.
(b) Disposals of Shares
No charge to Spanish tax will arise to a shareholder on a disposal of Shares provided that the
relevant formalities set out below are complied with.
No liability to Spanish transfer tax will arise in respect of any transfer of the Shares.
No liability to Spanish transfer tax will arise in respect of the paperless transfer of a Banco
Santander CDI within CREST, or in respect of any other transfer of an interest in the Shares in
dematerialised form, for example by way of book entry transfer through the Iberclear system.
Any shareholder who disposes of Shares by way of sale or gift and realises a capital gain on that
disposal is required by Spanish law to file a tax return (Form 210) with the Spanish tax authority
(Agencia Estatal de Administracíon Tributaria) within one month of the date of disposal declaring
the gain made on the disposal. In order for a shareholder to benefit from the exemption from
Spanish tax in relation to the gain on the disposal provided in the double taxation treaty between
the United Kingdom and Spain, such tax return must be accompanied by a certificate obtained
from the UK HM Revenue and Customs stating that, to the best of their knowledge, the relevant
shareholder is tax resident in the United Kingdom for the purposes of the double taxation treaty
between Spain and the United Kingdom. For Spanish tax purposes, such certificates are valid for
one year from the date on which they are issued.
(c) Spanish Wealth Tax
Shareholders will not be charged to Spanish Wealth Tax on their holding of Shares.
(d) Spanish Inheritance and Gift Tax
A transfer of Shares on death to a beneficiary who is an individual may be subject to Spanish
Inheritance and Gift Tax, depending on the circumstances of the beneficiary.
Generally, where the beneficiary is the spouse, child, adopted child, grandchild, parent or
grandparent of the deceased the transfer will be exempt from Spanish Inheritance and Gift Tax
provided that the value of the Shares together with any other Spanish assets inherited by that
beneficiary from the deceased, does not exceed 015,956. This threshold may be increased in the
case of certain beneficiaries under the age of 21. To the extent that the threshold is exceeded,
Spanish Inheritance and Gift Tax will be chargeable at progressive rates ranging from 7.65% to
34% (depending on the total value of Spanish assets transferred to that beneficiary) on the
excess. A higher effective tax rate may apply if, at the time of such transfer, the beneficiary owns
assets subject to Spanish Wealth Tax worth over 0402,678 (excluding the Shares being
transferred). Where the beneficiary is resident in the United Kingdom for the purposes of the
double taxation treaty between the United Kingdom and Spain (under United Kingdom tax law
this will include individuals who are resident or ordinarily resident only in the United Kingdom for
tax purposes), the beneficiary’s assets which are subject to Spanish Wealth Tax will generally be
limited to real estate located in Spain and assets attributable to a Spanish permanent
establishment.
Where the beneficiary is within one of a number of other classes of relative specified by Spanish
law, the relevant threshold is 07,993. For other beneficiaries there is no exempt amount. In each
such case higher effective rates of tax may be payable depending on the relationship between
the beneficiary and the deceased and the value of Spanish assets owned by the beneficiary.
A transfer of Shares by way of gift to a beneficiary who is an individual is subject to Spanish
Inheritance and Gift Tax in the same manner as it would be if it were a transfer on death, save
that there are no applicable thresholds beneath which transfers do not attract tax for the
recipient.
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A transfer of Shares on death or by gift to a company which is resident in the United Kingdom for
the purposes of the double taxation treaty between the United Kingdom and Spain (under United
Kingdom tax law this will include companies which are resident only in the United Kingdom for
tax purposes) and does not have a permanent establishment in Spain with which the Shares are
connected, will not be subject to Spanish tax for the recipient.
A beneficiary of Shares transferred on death will be required to report such transfer within
6 months of the date of death in accordance with the applicable formalities under Spanish law,
which will involve the submission of certain documentation to the Spanish tax authority (Agencia
Estatal de Administración Tributaria). The beneficiary will be required to appoint a representative
in Spain for the purposes of administering the tax. A recipient of Shares transferred by way of gift
will be required to comply with similar formalities to those described above under Spanish law
within one month of the date of the gift.
Any beneficiary or recipient who is in any doubt as to their obligations should consult a
professional adviser.
Where a transfer of Shares gives rise to a charge to Spanish Inheritance and Gift Tax, under
United Kingdom tax law the amount of Spanish tax paid can generally be offset against the
amount of UK inheritance tax (if any) which is attributable to the value of those shares (see
further paragraph 12.1(b)(iii) above).
(e) Compliance
In certain circumstances, the Spanish tax authorities can impose penalties for failure to comply
with the Spanish tax requirements referred to above.
Any person who is in any doubt as to his tax position or requires more detailed information than
the general outline above or who is subject to tax in a jurisdiction other than the United Kingdom
should consult his professional advisers.
13. SIGNIFICANT CHANGE
There has been no significant change in the financial or trading position of the Group since
31 March 2005.
14. LITIGATION
Save as described below, neither the Company nor any member of the Group has been involved
in any legal or arbitration proceedings which may have, or have had during the 12 months
preceding the date of this document, a significant effect on the Group’s financial position, nor (so
far as the Company is aware) are any such proceedings pending or threatened by or against any
member of the Group.
Banco Santander Central Hispano
The resolutions adopted at the Company’s general shareholders’ meetings held on 18 January
2000 and on 4 March 2000, approving the capital increases agreed in connection with the
exchange offer made by The Royal Bank of Scotland Group plc. with National Westminster Bank
plc., and in connection with the Company’s acquisitions of the Portuguese banks Banco Totta &
Açores and Crédito Predial Portugués and the resolution adopted at the Company’s general
shareholders’ meeting held on 4 March 2000 approving the capital increase necessary to carry
out the exchange offers for shares of Banco Rio de la Plata, have been challenged under
Spanish law. One plaintiff shareholder, in the case of the resolutions adopted in the first meeting
and two plaintiff shareholders, in the case of the resolutions adopted in the second meeting, have
challenged these resolutions on the grounds that, among other things, they were provided with
insufficient information in connection with the vote on these resolutions and that the resolutions
excluding the preemptive rights of shareholders were not validly adopted. In the proceedings, the
plaintiffs have requested the court to declare that the above resolutions (and other ones adopted
in the same meetings) are null and void. The first claim was rejected by the court in April 2001,
and the plaintiff appealed the court’s rejection of his claim. The plaintiff’s appeal was then
rejected by the court on 2 December 2002. The plaintiff has appealed for redress and the
Company has asked the court not to admit such appeal. The second claim was rejected by the
courts of the city of Santander on 29 November 2002 and the plaintiffs appealed. Such appeal
was subsequently rejected by the court on 5 July 2004. The plaintiffs responded and the court
admitted the response of one of the plaintiffs and dismissed the other. The Company has
requested that the appeals not be admitted. The Company cannot anticipate the outcome of
these claims. Under Spanish law, if the claims were to prevail, the capital increase resolutions
adopted on 18 January 2000, and on 4 March 2000, could be declared null and void. The effect
under Spanish law of the declaration of nullity of a listed company’s share capital increase is
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highly uncertain and the Company is unable to anticipate what the outcome for it and its
shareholders would be if these claims were to prevail.
The resolutions adopted at the Company’s shareholders’ meeting held on 10 March 2001, have
been challenged under Spanish law by three shareholders who filed their claim before the courts
of the city of Santander. These shareholders claim that the Company did not comply with certain
provisions of Spanish corporate law with respect to the resolutions adopted in said shareholders’
meeting. The challenged resolutions include the approval of the Company’s annual accounts, the
approval of a capital increase in exchange of cash, the approval of a capital increase in exchange
of shares of Banco Rio de la Plata and BRS Investments and the approval of various issuances
of bonds. In their complaints, the plaintiff shareholders asked the Court to declare the resolutions
null and void and that the registration of the resolutions in the Commercial Registry also be
annulled. The claim was rejected by the court in March 2002. The plaintiff shareholders appealed
such rejection and, although the court allowed the admission of new evidence, the claim was
again rejected on 13 April 2004. One of the plaintiffs has appealed for redress and the Company
has asked the court that this appeal not be admitted.
The resolutions adopted at the Company’s shareholders’ meeting held on 9 February 2002, have
been challenged under Spanish law by one shareholder who has filed his claim before the courts
of the city of Santander. The challenged resolutions include the approval of the payment of an
interim dividend, the re-election of Arthur Andersen y Cía, S. Com. as the external auditor of the
Company, the approval of a capital increase in exchange of shares of the German Company AKB
Holding Gmbh and the approval of various issuances of bonds. Among other things, the plaintiff
alleges the infringement of the shareholders’ rights of participation during the meeting and of
receipt of information regarding the different issues to be voted on in the meeting; and that the
resolutions excluding the preemptive rights of shareholders were not validly adopted. The plaintiff
shareholder asked the Court to declare the above resolutions (and others adopted in the same
meeting) null and void and that the registration of the resolutions in the Commercial Registry also
be annulled. On 9 September 2002 the Court rejected the claim. The plaintiff appealed the
rejection but the court rejected the appeal on 14 January 2004. The plaintiff has appealed for
redress and the Company has asked the Court not to admit such appeal.
The resolutions adopted at the Company’s shareholders’ meeting held on 24 June 2002 have
been challenged under Spanish law by one shareholder who filed his claim before the courts of
the city of Santander. The challenged resolutions include the approval of the Company’s annual
accounts and the rejection by the shareholders meeting of the proposals made by the plaintiff
shareholder and another shareholder to file a claim requesting the declaration of the Directors’
liability in connection with the investments made by the Company in Argentina, as well as the
proposal made by another shareholder for the dismissal of one of the Directors. The Company
responded to the claim on 5 October 2002. During the term to respond to this claim, the
Company was required to respond to another claim, filed by a different shareholder, challenging
some of the resolutions adopted at the same meeting. The claim was admitted by the same court
of the city of Santander that is in charge of the first proceeding and has been joined to this
proceeding, so both proceedings will be carried out jointly. The Company responded to this
second claim on 25 October 2002. The hearing took place on 21, 22, and 24 April 2003, and the
court dismissed the claim on 29 May 2003. The plaintiffs have appealed such decision and the
Company has already answered the appeal. On 23 May 2005 the court decided not to admit a
new piece of evidence requested by one of the plaintiffs. Such plaintiff has requested the court’s
decision to be redressed.
Since fiscal year 1992, the Madrid Central Pre-Trial Investigation Court No. 3 has maintained pretrial
investigative proceedings — now Summary Proceedings — in order to determine liabilities of
the Company, its Chairman and three of its Officers with respect to certain credit assignment
transactions (operaciones de cesión de crédito) carried out by the Company between fiscal years
1987 and 1989. In the opinion of the Company and its internal and external advisors, the final
result of this litigation will be favourable to the Company, its Chairman and three of its Officers,
and does not require a specific additional reserve. On 16 July 1996, the Madrid Central Pre-Trial
Investigation Court No. 3, pursuant to a request made to such effect by the Attorney General
after having consulted the Spanish Tax Authority, dismissed certain but not all the claims against
the Company, its Chairman and three of its Officers. Thereafter, the Attorney General —
representative of the Tax Authority — and the Office of the Public Prosecutor repeatedly
requested the dismissal of the remaining claims and the removal of the case from the docket.
However, on 27 June 2002, the court changed the cited proceedings into a Summary
Proceeding. Such decision was appealed by the Office of the Public Prosecutor, the Company,
its Chairman and three of its Officers. On 23 June 2003, the Panel Two of the Criminal Division of
the National Criminal and Administrative Court (Audiencia Nacional) admitted partially such
appeals, explicitly acknowledging that the marketing of the credit assignment transactions with
clients had been legal, and reducing the number of transactions under scrutiny — and with
respect to which the Company’s possible involvement is still being alleged — from 138 to 38, with
respect to the remaining 38 transactions under scrutiny, the Attorney General and the Office of
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the Public Prosecutor have generally requested the dismissal of claims and their removal from
the docket on the grounds that no crime had been committed. Following the conclusion of the
indictment proceedings — with repeated requests by the Office of the Public Prosecutor and the
Attorney General for the dismissal of the proceedings and their removal from the docket, — and
based on the complaint filed by the citizen complainant, Asociación para la Defensa de
Inversores y Clientes (Investor and Customer Defense Association), the Court, in an order dated
6 October 2004, decreed the commencement of oral evidentiary proceedings against the
Chairman of the Company and three of its Officers for one continuing crime of falsification of an
official document, three continuing crimes of falsification of a commercial document, and thirty
crimes against the public finance, ordering that a bond be jointly posted for 067.8 million, which
amount was later reduced to 040.1 million, as a fine and for costs. The order designated Panel
One of the Criminal Division of the National Criminal and Administrative Court as the competent
court to hear the oral evidentiary proceedings.
In December 1995, the Spanish tax authorities issued an ‘‘Acta’’ (writ) requiring the Company to
pay 026.2 million in back withholding taxes, interest and penalties relating to the Company’s
alleged failure to comply with a purported obligation to withhold income tax on payments to
clients with respect to certain credit assignment transactions held by such clients. Although a
similar case in an amount of 03.8 million was successfully appealed by the Company in June
2003 (and then appealed in turn by the Regional tax authorities), the Company’s appeal against
this writ was rejected. The Company filed a second appeal which was partially admitted by the
court on 30 October 2003. Both the Company and the Attorney General have appealed such
decision before the Supreme Court and are awaiting the Court’s decision with respect to the
appeals.
The resolutions adopted at the Company’s shareholders’ meeting held on 21 June 2003 have
been challenged under Spanish law by three shareholders who filed their claims before the
courts of the city of Santander. The three plaintiff shareholders challenged the resolution
approving the annual accounts and the management of the Company and of the Group for 2002.
In addition, two out of the three plaintiff shareholders challenged the resolutions approving the
profit allocation for 2002 and the Procedural Rules of the Company’s Shareholders’ Meetings. On
10 October 2003, the Company answered the claims. The preliminary hearing took place on
21 January 2004. On 11 February 2004 the Court decided to suspend the proceedings until the
preliminary proceedings 352/2002 being carried out by the Madrid Central Court number 3
(referred to hereinbelow) are finalised. On 29 September 2004, the Company also responded to
a separate claim filed by another shareholder challenging the resolutions adopted at the same
meeting. The preliminary hearing for this claim took place on 19 January 2005. The Court
decided to carry out jointly all the proceedings related to the same meeting and to apply to all
such proceedings the suspension ordered by the Court on 11 February 2004.
The resolutions adopted at the Company’s shareholder meeting held on 19 June 2004 have been
challenged under Spanish law by three shareholders who filed their claims before the courts of
Santander. The challenged resolutions include the approval of the Company’s annual accounts,
the profit allocation and the approval of the Procedural Rules of the Company’s Shareholders’
Meetings. The Company has already responded to the three claims and requested that all such
claims be joined into one single proceeding. The Court granted the Company’s request to carry
out all the three proceedings jointly. The preliminary hearing took place on 7 February 2005 and
the hearing occurred on 9 and 10 May 2005. The Court’s decision is awaited.
Lanetro, S.A. filed a suit against the Company, carried out before the Court of 1st Instance no. 34
of Madrid, Complaint of Plenary Suit no. 558/2002, principally alleging that the Company
breached its alleged obligation to subscribe to the increase in capital stock of the plaintiff in the
amount of 030,050,605.22. The court rejected the claim on 16 December 2003, but the plaintiff
has appealed. The Company has answered the appeal and is presently awaiting the Court’s
decision with respect to the appeal.
For informational purposes, it is also mentioned that several persons, who allegedly have funds
deposited in Banco Río de la Plata, S.A., filed an application for conciliation before the courts of
the city of Madrid against the Company, the persons who were members of the Board during
2001 and 2002 and others. According to Spanish Law, this application did not start proper
judicial proceedings against the Company. The claimants only intended that the defendants
acknowledge the facts alleged in their application, regarding the Company and its Directors’
claimed obligation to reimburse the funds deposited by the claimants in Banco Río de la Plata,
S.A. The conciliation hearing was held on 16 July 2002. The Company and the members of the
Board refused to accept the facts and allegations of the application. This meant the termination
of the conciliation. In January 2004, there was a preliminary hearing in connection with a similar
case, in which a person who allegedly deposited funds in Banco Río de la Plata, S.A. is claiming
US$8,365.71. The Court has not determined the date for the next hearing yet.
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For the same informational purposes, it is mentioned that the Madrid Central Court number 3 is
carrying forward preliminary proceedings 352/2002 in connection with complaints filed by two
shareholders against the Chairman of the Company, regarding the economic terms of the
retirement in August 2001 of the former co-chairman, Mr. José María Amusátegui and the
economic terms of the resignation in February 2002 of the former first vice-chairman and chief
executive officer, Mr. Angel Corcóstegui. The prosecutor and the defendants requested the
dismissal of the case, which was opposed by the plaintiff shareholders. On 16 October 2003 the
Court decided to change the cited proceedings to a summary proceeding. The Office of the
Public Prosecutor and the Chairman of the Company and the other two accused appealed the
decision. The hearing of the appeals took place on 9 February 2004, and on 18 February 2004
the Court decided not to admit such appeals without entering into the merits of the matter. The
Chairman of the Company then appealed to the Constitutional Court. The Office of the Public
Prosecutor again requested the dismissal of the case. On 26 April 2004, the Madrid Central
Court number 3 decided to commence oral evidentiary proceedings. On 10 May 2004, with two
dissenting votes, and in spite of the favourable report of the Office of the Public Prosecutor, the
Constitutional Court decided not to admit the appeal. At the oral hearing, the Office of the Public
Prosecutor requested the acquittal of those accused on the grounds that the facts do not amount
to a criminal offence. On 13 April 2005, the Court decided to acquit those accused since the facts
do not amount to a criminal offence. A cassation appeal against such decision has been filed by
the plaintiffs.
On 25 September 2003, the Company announced that it would launch a public offering in Spain
for the acquisition of up to 16% of the share capital of Cepsa, a Spanish oil and petrochemical
company. On 21 October 2003, the Spanish National Securities Commission authorised the
Company to launch the offering. The acceptance term of the offering expired on 24 November
2003. The bid was accepted by shares representing 12.13% of Cepsa’s share capital.
The Company decided to launch the bid for Cepsa once the agreements with the French group
Total (‘‘Total’’), an oil and petrochemical group and major shareholder of Cepsa, to act in concert
with respect to the parties’ investments in Cepsa had become ineffective after the enactment of
Law 26/2003 of 17 July 2003. These agreements included those related to the company Somaen
Dos, S.L. (‘‘Somaen Dos’’), a holding company in which the Company, Total and Unión Fenosa
have participations of approximately 60%, 25% and 15%, respectively. Somaen Dos owns
shares representing 33.23% of Cepsa’s share capital, of which 19.92% belong to the Company,
8.31% to Total and 5.00% to Unión Fenosa.
After the Company’s announcement to launch the public offering, Total requested a summary
arbitral proceeding with the Netherlands Arbitration Institute seeking the adoption of certain
injunctive measures. On 25 November 2003, that arbitration institute made public a ruling that,
among other measures, imposed a temporary prohibition of the sale or encumbrance of the
Cepsa shares owned by Somaen Dos as well as the Cepsa shares that the Company had
acquired in the bid. Furthermore, the ruling instructed both the Company and Total to presently
respect the supermajority rules contained in the agreements to act in concert in Cepsa and the
rules, also established in those agreements, governing the right to appoint Directors of the
boards of Cepsa and Somaen Dos.
Additionally, on 20 October 2003, the Total group filed a request for an arbitral proceeding with
the Netherlands Arbitration Institute seeking a determination on the merits of its claim. The
Company responded that it was opposed to such request.
Currently, that arbitral proceeding remains open. In such proceeding, Elf and Odival (hereinafter,
‘‘Elf’’) have requested the Netherlands Arbitration Institute inter alia to instruct the Company: to
return to the market the Cepsa shares that the Company acquired in the bid, to declare that the
conditions for Elf to exercise a call option for 4.35% of Cepsa’s share capital have been fulfilled,
and to pay various indemnities, some of which have to be quantified during the course of the
proceeding.
On 15 October 2004, the Company answered the claim made by Elf. The Company requested:
(i) the dismissal of all the requests made by Elf in its claim, except for those related to the
admission of Elf’s right to the restoration of its economic participation in Cepsa that Elf owns
through Somaen, and to the Company’s abstention from actions that could lead to the transfer or
encumbrance of such participation, as these two requests have been repeatedly accepted by the
Company; (ii) the suspension of the presently existing injunctive measures described above;
(iii) the declaration of ineffectiveness of the agreements signed by the Company and Elf to act in
concert with respect to their investments in Cepsa; (iv) the express declaration that
insurmountable differences between the parties (‘‘disputa insuperable’’), within the meaning of
the signed agreements, has not occurred between the Company and Elf; (v) the imposition to Elf
of the obligation to negotiate in bona fide with the Company the most favourable way for both
parties and for Unión Fenosa to separate their economic participations in Cepsa and those that
are owned by Somaen; and (vi) the sentence of Elf to indemnify the Company for damages
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caused to the latter by the dispute between both parties and for damages derived from the
adoption of the injunctive measures.
On 30 November 2004, Total answered the Company’s pleadings and the Company responded
on 21 January 2005. After the hearings held by the Netherlands Arbitration Institute the
proceedings continue with a simultaneous submission of two conclusions filings. As at 31 May
2005, both the Company and Total submitted the first of such filings. The second filing must be
submitted before 30 June 2005. Once these second conclusion filings are submitted, the
proceedings will conclude with the issuance by the Institute of its ruling.
The decision to be adopted in this proceeding will not be conditioned by the above-mentioned
injunctive ruling which is temporary and which does not constitute a pre-judgment on the merits.
In May 2004, Chadia Limited, S.A. filed a suit against the Company, carried out before the Court
of 1st Instance number 48 of Madrid, proceeding number 420/2004, alleging that the Company
breached an alleged agreement for the sale to the plaintiff of certain buildings and seeking
damages in the amount of 0133 million. The Court rejected the claim, Chadia Limited, S.A.
appealed, and the Bank has already responded that is was opposed to such appeal.
Banesto
In 1995 and 1996, the former directors of Banesto, who had been replaced by decision of the
Bank of Spain’s Executive Council on 28 December 1993, filed claims challenging certain
corporate resolutions adopted by the shareholders’ meetings held on 26 March, and 22 August
1994 and 15 February 1995 approving, among other things, Banesto’s financial reorganisation
plan and the 1993 and 1994 financial statements of Banesto and the Banesto Group. In 2000,
Madrid Appellate Court decisions rejected all the appeals filed by the plaintiffs in connection with
the claim filed challenging the legality of the corporate resolutions approving the financial
restructuring plan; the plaintiffs subsequently filed a cassation appeal against these decisions
and Banesto has answered such cassation appeal. On 5 March 2002 the courts decided not to
admit the cassation appeal against the Madrid Appellate Court’s decision rejecting the claims of
some of the plaintiffs regarding the invalidity of the constitution of the shareholders’ meeting held
on 26 March 1994. On 22 July 2003, the court admitted the cassation appeal filed by the
remaining plaintiffs. Banesto filed its answer on 20 September 2003. On 31 March 2005, the
parties were informed of a request made by some of the plaintiffs to bring the case to the
European Court of Justice. Banesto has already opposed such request, and awaits the response
of the Office of the Public Prosecutor. The claim filed against the resolutions adopted by the
shareholders’ meeting held on 22 August 1994 approving the 1993 financial statements of
Banesto was rejected by the Court of First Instance and the plaintiffs subsequently filed an
appeal before the Madrid Appellate Court. The appeal was rejected in 2001 and the plaintiff has
appealed in cassation. The claim filed against the approval by the shareholders’ meeting held on
15 February 1995 of the 1994 financial statements of Banesto was also rejected in 2000 by the
Court of First Instance and was subsequently appealed by the plaintiffs. The appeal was
dismissed by judgment of the Court of Appeals of Madrid, rendered on 20 May 2003. In
September 2003, the plaintiffs’ appeal of this judgment was also dismissed. The plaintiffs have
since appealed to the Supreme Court.
Banesto’s directors and legal advisers do not believe that these claims will have any effect on the
financial statements of Banesto or its Group. The plaintiffs seek that the resolutions be declared
null and void, not damages. It is very difficult to assess what the practical consequences of an
adverse judgment would be.
Abbey National Treasury Services plc
Abbey National Treasury Services plc has received a demand from the French Tax Authority
relating to the repayment of certain tax credits and related charges. Following certain
modifications to the demand its nominal amount now stands at £101 million as compared with
the original demand of £113 million. As at 31 December 2004, additional interest in relation to the
demand could amount to £16 million. The amount of additional interest has been reduced from
the amount disclosed by Abbey National plc as at 31 December 2003 of £36 million due to
certain modifications to the basis on which additional interest might be due. Abbey National
Treasury Services plc has received legal advice that it has strong grounds to challenge the
validity of the demand and accordingly no specific provision has been made.
Banco do Estado de Sao Paulo (‘‘Banespa’’)
Pursuant to the Brazilian labour regulations applicable to Banespa, this bank had recorded as at
31 December 2000, the pension allowances arising from the commitments to certain employees,
which amounted to approximately 4,000 million Brazilian reais. Since 1987, the Directors of
Banespa, as advised by their tax advisers, treated these expenses as deductible expenses in
calculating the Brazilian corporate income tax. However, in September 1999, the ‘‘Secretaria de
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Receita Federal’’ issued a decision according to which these expenses, in an amount of
approximately Brazilian reais 2,867 million would not be tax deductible. In October 1999, the
Board of Directors of Banespa filed an appeal challenging this decision together with an ‘‘acción
cautelar’’ regarding fiscal years 1999 and 2000, posted a deposit of Brazilian reais 1,297 million
and recorded a provision of Brazilian reais 2,600 million for this contingency. Such provision was
recorded in 1999 with a charge to income, after recording the related deferred tax asset of
Brazilian reais 1,200 million.
In this respect, the Board of Directors of Banespa has decided to accept the Medida Provisória
nÕ 66 of the Secretaría da Receita Federal dated 29 August 2002 and to pay Brazilian reais
2,110 million in order to settle the proceedings. The company disputes any liability with respect to
an additional amount of Brazilian reais 103 million relating to costs and surcharges imposed in
connection with the dispute relating to the principal amount. The company has asked for a
cautionary judicial action posting a deposit for an equivalent amount.
Santander Brasil DTVM, Ltda. and Banco Santander Brasil, S.A.
On 19 May 2003, the Secretaria de Receita Federal issued an ‘‘Auto de Infração’’ requiring from
our Brazilian affiliate Santander Brasil DTVM, Ltda. the payment of Brazilian reais 290 million in
taxes allegedly incurred in connection with certain cash management services rendered by such
company to its clients which the company had treated during 2000, 2001 and the two first months
of 2002 as exempt from the Tax on Financial Transactions, following the advice of its tax advisers.
The Board of Directors of Santander Brasil DTVM, Ltda. appealed this decision in June 2003.
The Tax Authorities confirmed the ‘‘Auto de Infrançao’’ and the Board of Directors appealed to
‘‘Conselho de Contribuintes’’ (final administrative court). The Court decision is pending. On
31 December 2004, the amount involved in the action was equivalent to reais 306 million.
Also on 29 May 2003, the Secretaria de Receita Federal issued another ‘‘Auto de Infração’’
requiring from our Brazilian affiliate Banco Santander Brasil, S.A. the payment of Brazilian reais
290 million in taxes allegedly incurred in connection with certain clearing services rendered by
such company to Santander Brasil DTVM, Ltda. pursuant to an agreement between these two
companies. Following the advice of its tax advisers, Banco Santander Brasil, S.A. had treated
during 2000, 2001 and the two first months of 2002 such services as exempt from the Tax on
Financial Transactions. The Board of Directors of Banco Santander Brasil, S.A. appealed this
decision in June 2003. The Tax Authorities confirmed the ‘‘Auto de Infrançao’’ and the Board of
Directors appealed to ‘‘Conselho de Contribuintes’’ (final administrative court). The Court
decision is pending. On 31 December 2004, the amount involved in the action was equivalent to
reais 306 million.
Casa de Bolsa Santander Serfín, S.A. de C.V. (Grupo Financiero Santander Serfín)
An individual has filed an ordinary mercantile proceeding against Casa de Bolsa, Santander
Serfin, S.A. de C.V. (Grupo Financiero Santander Serfín) in the thirty first court on civil law of the
Federal District of Mexico in order to determine the liabilities of Casa de Bolsa, Santander Serfin,
S.A. de C.V. (Grupo Financiero Santander Serfín) with respect to the alleged existence of
irregular withdrawals at such entity made by a representative of the plaintiff and which were not
carried out in accordance with various security brokerage agreements subscribed to by the
parties. The plaintiff claims the restoration at market value of 2,401,588 shares of the company
Mexico 1, of 11,219,730 shares of the company Mexico 4, and the payment of 15,025,730
Mexican Pesos in addition to the payment of interests calculated applying the CCP rate multiplied
by four.
On 6 July 1999 the judgment against Casa de Bolsa became firm, and subsequently on
5 November 2004, the court rendered an execution ruling which quantified the amount of
interests at 37,646.8 million Mexican Pesos (US$3,408.4 million), and condemned Casa de
Bolsa to deliver the claimed shares. Casa de Bolsa appealed, and on 20 January 2005, the Court
decided not to admit such appeal. Against this decision Casa de Bolsa asked for reddress and
the Court admitted its request and suspended the 5 November 2004 ruling temporarily first and
subsequently granted a final suspension of such ruling which annulled it. The decision which
turned into the annulment of the 5 November 2004 ruling has been, on its turn, appealed by the
plaintiff and Casa de Bolsa. The Group is presently awaiting the Court’s decision.
Other Litigation
In addition to the above described matters, the Company and its subsidiaries are from time to
time subject to certain claims and parties to certain legal proceedings incidental to the normal
course of our business, including in connection with the Group’s lending activities, relationships
with the Group’s employees and other commercial or tax matters. In view of the inherent difficulty
of predicting the outcome of legal matters, particularly where the claimants seek very large or
indeterminate damages, or where the cases present novel legal theories, involve a large number
of parties or are in early stages of discovery, the Group cannot state with confidence what the
249

PART 5: ADDITIONAL INFORMATION
eventual outcome of these pending matters will be, what the timing of the ultimate resolution of
these matters will be or what the eventual loss, fines or penalties related to each pending matter
may be. The Company believes that it has made adequate reserves related to the costs
anticipated to be incurred in connection with these various claims and legal proceedings and
believes that liabilities related to such claims and proceedings should not have, in the aggregate,
a material adverse effect on the Group’s business, financial condition, or results of operations.
However, in light of the uncertainties involved in such claims and proceedings, there is no
assurance that the ultimate resolution of these matters will not significantly exceed the reserves
currently accrued by the Company; as a result, the outcome of a particular matter may be
material to the Company’s operating results for a particular period, depending upon, among
other factors, the size of the loss or liability imposed and the level of the Company’s income for
that period.
15. PROFIT FORECAST
15.1 Basis of preparation
The Profit Forecast, which is set out in paragraph 3 of Part I: Information on the Group on
page 30 of this document, has been prepared on the basis of IFRS used in preparing the most
recent unaudited accounts for the Group for the three months ended 31 March 2005. The Profit
Forecast takes account of the results shown by the unaudited accounts for the three months
ended 31 March 2005 and an estimate for the remainder of the period to 31 December 2005.
15.2 Assumptions for Profit Forecast
The key global macro economic and core business assumptions applied in preparing the profit
and loss account forecasts are set out below. These assumptions have been analysed between
Spain, Portugal, UK and Latin America.
Spain
Macro economic assumptions:
) Consumer price index (CPI) — A slight decrease is planned for 2005; setting it at 2.9% (the
actual CPI for 2004 was 3%).
) Gross national product (GNP) — For 2005 this is estimated to grow by 2.6% (in 2004 the
actual growth was 3.1%).
) European Central Bank official interest rates — These interest rates are expected to increase
by 2.5% in 2005 (compared to 2% in 2004).
) Euribor (12 months) is estimated to grow from 2.4% in 2004 to 2.9% in 2005.
) Exchange rate USD: The average rate of exchange USD/ for 2005 is estimated to be 1.30
(actual for 2004 was 1.24).
) Exchange rate pound sterling: The average rate of exchange of pounds sterling/euro for 2005
is estimated to be 0.73 (actual for 2004 was 0.68).
) Employment — Employment levels are expected to be maintained, with the unemployment
rate being slightly above 11%.
Core business assumptions:
) The loan portfolio growth is forecast to decrease from 16.8% in 2004 to 12.5% in 2005. This
is a consequence of the expected increase in interest rates, the level of indebtedness ratio
already achieved by families and the expected shrinkage of the construction sector.
) The bad debts ratio is expected to be maintained at its lowest levels (1.1% for 2005) due to
the stabilisation of economic growth, positive evolution of employment levels, improvement of
profitability of companies, maintenance of interest rates at low levels which have mitigated the
financial burden even with the increase in the overall loan levels, particularly given the weight
of mortgage loans in the loan portfolio.
) Growth of 12% is estimated for deposits, 14% for financial assets and 13% in the resources of
the investment funds. This is based on the expectation that consumer spending will grow at a
rate lower than the growth in disposable income, leading to a growth in savings. It is also
expected that family savings will increase due to the increase in gross savings and the
shrinkage of the residential homes market.
) Private consumption — Estimated to grow by 2% (1% in 2004)
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PART 5: ADDITIONAL INFORMATION
Portugal
Macro economic assumptions:
) CPI — A decrease is estimated for 2005, setting it at 2.2% (in 2004 it was 2.5%).
) GDP — In 2005 it is estimated to grow by 2.1% (1% growth in 2004)
) Private consumption — Estimated to grow by 1.7% (2.3% in 2004)
United Kingdom
Macro economic assumptions:
) CPI — An increase is estimated for 2005, setting it at 1.7% (in 2004 it was 1.3%).
) GDP — In 2005 it is estimated to grow by 2.8% (3.1% growth in 2004)
) Private consumption — Estimated to grow by 2.7% (3.3% in 2004)
Latin America
Macro economic assumptions:
Brazil
) CPI — A decrease is estimated for 2005, setting it at 6% (in 2004 it was 7.6%).
) GDP — In 2005 it is estimated to grow by 3% (5.2% growth in 2004)
) Interest rate — Selic — For 2005 it is estimated to be 15.5% (17.8% in 2004).
) Exchange rate — For 2005 the average exchange rate BRR / US $ is estimated to be 3.074
(2.927 actual for 2004). This indicates a planned devaluation of the BRR of approximately
5%.
Mexico
) CPI — A decrease is estimated for 2005, setting it at 3.8% (in 2004 it was 5.2%).
) GDP — In 2005 it is estimated to grow by 4% (4.4% growth in 2004)
) Interest rate — Cetes — For 2005 it is estimated to be 7.8% (8.5% in 2004).
) Exchange rate — For 2005 the average exchange rate MXN / US $ is estimated to be 11.9
(11.29 actual for 2004). This indicates a planned devaluation of the MXN of approximately
5%.
Chile
) CPI — An increase is estimated for 2005, setting it at 2.8% (in 2004 it was 2.4%).
) GDP — In 2005 it is estimated to grow by 4.5% (6.1% growth in 2004)
) Interest rate — official — For 2005 it is estimated to be 4.5% (2.3% in 2004).
) Exchange rate — For 2005 the average exchange rate CLP / US $ is estimated to be 634
(609.7 actual for 2004). This indicates a planned devaluation of the CLP of approximately 4%.
Core business assumptions:
Brazil
) The loan portfolio is planned to grow by 41.3% on the basis of an increase in the personal
consumer loans (39.8%) and corporate banking (40.1%).
) Growth in third party resources (from customers) is planned to be 28.4%, resulting mainly
from growth in time deposits (21.2%), investment funds (32.6%) and pension funds (57.8%).
) Given the scenario of an expected fall in interest rates, the Group estimates a fall in the
interest rate spreads which will be compensated by the significant growth in the loan portfolio
and third party resources.
) Net fees are forecast to increase by 20.9% over the level achieved in FY2004. This is
expected to be attained through the increased fees from credit cards (76.4%), insurance
(56.8%) and investment and pension funds (40.5%).
Mexico
) The loan portfolio is expected to increase by 26.7% mainly due to the growth in personal
consumer loans of 34% and in loans to companies of 39.9%.
251

PART 5: ADDITIONAL INFORMATION
) Third party resources are budgeted to increase by 23.4% as a consequence of the expected
growth of time deposits (32.9%) and investment funds (21.3%).
) Net fees are expected to increase by 2.6% due to the finalisation in FY2004 of the campaign
to promote the credit card ‘‘Santander Black’’.
Chile
) The loan portfolio is budgeted to grow by 23.8% compared with 2004 resulting from planned
growth in all segments: personal loans (22.9%), SMEs (19.3%), companies (27%) and
corporate banking (25.5%).
) Interest spreads are expected to be maintained, resulting in an increase in FY2005 forecast of
net interest income of 7.9% compared to FY2004.
) Net fees are forecasted to increase by 21.3%, mainly as a result of the increase from credit
cards and insurance.
16. MATERIAL CONTRACTS
Neither the Company nor any member of the Group has entered into any material contracts
(otherwise than in the ordinary course of business) during the period beginning two years before
the date of this document.
As at the date of this document, neither the Company nor any member of the Group has entered
into any other contract (otherwise than in the ordinary course of business), which contains any
provisions under which any member of the Group has an obligation or entitlement that would be
material to the Group.
17. CONSENTS
17.1 Deloitte, S.L. (formerly Deloitte & Touche España, S.L.) has given and has not withdrawn its
written consent to the inclusion of the financial information extracted from the audited
consolidated financial statements of the Company set out in Part 2 of this document and the
references to its name in the form and context in which they are respectively included and have
authorised the contents of their report and letter for the purposes of this document.
17.2 Deloitte & Touche LLP has given and has not withdrawn its written consent to the inclusion of its
report set out in Part 3 of this document and the references to its audit report and its name in the
form and context in which they are respectively included and have authorised the contents of
their report and letter for the purposes of this document.
18. GENERAL
18.1 On 25 May 2005, the FSA announced that it had fined Abbey £800,000 for breaching relevant
regulatory rules and principles in relation to the handling of mortgage endowment complaints
received from customers in the period between 1 October 2001 and 30 September 2003. In
determining the level of penalty, the FSA considered that Abbey’s conduct had been mitigated by
its high level of co-operation with the FSA and the remedial action proposed. These breaches
occurred prior to the Company’s acquisition of Abbey and, in reaching its decision, the FSA also
took account of the fact that, following the period in which the breaches had occurred, Abbey had
undergone significant changes in terms of its strategic direction, senior management and
operating model. In its decision, the FSA acknowledged that the Company had demonstrated its
commitment to treating customers fairly by supporting a comprehensive redress package for
Abbey customers who had been disadvantaged.
18.2 The Company’s auditors, Deloitte, S.L. (Inscritos en el Registro Oficial de Auditores de
Cuentas — ROAC) have audited the consolidated financial statements of the Company in
respect of the three years ended 31 December 2004 in accordance with Spanish GAAP and
without qualification. The auditors report does, however, include a reference to the uniformity of
financial statements (individual and consolidated) for the year ended 31 December 2004 as
compared to the year ended 31 December 2003 with respect to the accounting treatment of
pension commitments arising from early retirements which is due exclusively to credit entities
being prohibited by the Bank of Spain from charging such obligations against their reserves.
During 2003, with the express authorisation of the Bank of Spain, the commitments arising from
early retirements by the Company and by other companies of the Group were charged against
reserves. In 2004, the Bank of Spain did not grant authorisation to credit entities and
subsequently the Company charged such obligations against its individual and consolidated
statements of income.
18.3 As at the date of this document, the Shares have a primary listing on the market of the Bolsas de
Valores in Spain. The Shares are also listed on the Milan, Lisbon and Buenos Aires Stock
Exchanges and on the New York Stock Exchange Inc. (through ADRs representing the Shares).
252

PART 5: ADDITIONAL INFORMATION
The Group is, however, contemplating seeking a secondary listing for its Shares on the Mexican
stock exchange, Bolsa Mexicana de Valores, S.A de C.V., and it is currently anticipated that, if
such a listing was to be sought, it would be obtained during the second half of 2005. In
conjunction with any such listing in Mexico, the Company is also considering the possibility to
effect a placing of up to 10 million existing issued Shares (representing approximately 0.1599%
of the Company’s current issued ordinary share capital) with retail and institutional investors in
Mexico. The objective of such secondary listing and secondary placing is to develop a
shareholder base for the Shares among Mexican residents, as Mexico is one of the main retail
markets in which the Company operates.
19. DOCUMENTS FOR INSPECTION
Copies of the following documents are available for inspection on the Group’s website at
www.gruposantander.com:
19.1 this document;
19.2 the audited consolidated financial statements of the Group for the three years ended
31 December 2004 prepared in accordance with Spanish GAAP, including the relevant
auditor’s report in respect thereof;
19.3 the audited consolidated financial statements of Abbey for the three years ended
31 December 2004 prepared in accordance with UK GAAP, including the relevant
auditor’s report in respect thereof;
19.4 the unaudited consolidated financial statements of the Group for the three month period
ended 31 March 2005;
19.5 the most recent Spanish prospectus published by the Company;
19.6 the Company’s by-laws and an English translation thereof; and
19.7 all material facts (hechos relevantes) that the Company is obliged to file with the CNMV in
accordance with the requirements of the CNMV.
In accordance with its ongoing disclosure obligations, the Company will also publish on its
website all necessary financial information.
The contents of the Group’s website do not form part of this document.
253

INDEX OF DEFINED TERMS
2004 Consolidated Financial Statements ******************************************* 3
2005 First Quarter Results******************************************************** 3
Abbey ************************************************************************** 2
Abfin *************************************************************************** 215
Admission ********************************************************************** 1
AKB**************************************************************************** 216
ALCO ************************************************************************** 25
Altair *************************************************************************** 32
Assicurazioni ******************************************************************** 229
ATM *************************************************************************** 213
Auditor ************************************************************************* 219
Auna *************************************************************************** 217
Banco Río ********************************************************************** 216
Banco Santander CDIs *********************************************************** 240
Banco Santander Portugal ******************************************************** 215
Banespa************************************************************************ 248
Banesto ************************************************************************ 215
Bankia ************************************************************************* 217
Basel Accord******************************************************************** 207
Basic revenue ******************************************************************* 8
BIS ratio************************************************************************ 8
Board ************************************************************************** 6
Cepsa ************************************************************************** 216
CNMV************************************************************************** 29
Combined Code ***************************************************************** 233
Committee ********************************************************************** 213
Company *********************************************************************** 1
CREST ************************************************************************* 240
CREST Members**************************************************************** 240
CRESTCo ********************************************************************** 240
Directors************************************************************************ 6
EC ***************************************************************************** 240
Efficiency ratio ****************************************************************** 8
Elcon*************************************************************************** 215
Elf ***************************************************************************** 247
EPS**************************************************************************** 8
Euroclear *********************************************************************** 240
Executive Committee************************************************************* 224
FGD *************************************************************************** 208
Finconsumo********************************************************************* 215
FSA**************************************************************************** 1
FSA Handbook ****************************************************************** 211
FSCS ************************************************************************** 211
FSMA ************************************************************************** 1
Gross operating income ********************************************************** 8
Group ************************************************************************** 3
Grupo Santander Nominee Service ************************************************ 240
Iberclear************************************************************************ 240
IFRS *************************************************************************** 2
investment ratio ***************************************************************** 205
Liquidity Ratio ******************************************************************* 205
London Stock Exchange********************************************************** 1
Net interest income ************************************************************** 8
Net operating income ************************************************************ 8
New Basel Capital Accord ******************************************************** 207
Non-CREST Members *********************************************************** 240
NPL**************************************************************************** 8
Official List********************************************************************** 1
OFT**************************************************************************** 212
Orígenes AFJP****************************************************************** 215
254

INDEX OF DEFINED TERMS
P/E **************************************************************************** 8
Partenón *********************************************************************** 10
PFS**************************************************************************** 27
Previsión *********************************************************************** 215
Profit Forecast******************************************************************* 10
Prospectus Directive ************************************************************* 1
PTF **************************************************************************** 215
Qualifying Liabilities************************************************************** 205
RBS *************************************************************************** 216
RD 1197/1991******************************************************************* 223
RD 432/2003******************************************************************** 223
ROA *************************************************************************** 8
ROE *************************************************************************** 8
ROE (cash-basis)**************************************************************** 8
Sacyr-Vallehermoso************************************************************** 217
San Paolo IMI******************************************************************* 217
SDRT ************************************************************************** 242
SEC *************************************************************************** 14
Serfín ************************************************************************** 216
Shares ************************************************************************* 1
SMEs ************************************************************************** 16
Somaen Dos ******************************************************************** 247
Spanish GAAP ****************************************************************** 2
Task Force********************************************************************** 212
Total *************************************************************************** 247
UK ***************************************************************************** 1
UK GAAP*********************************************************************** 2
UKLA ************************************************************************** 1
Unión Fenosa ******************************************************************* 217
United Kingdom ***************************************************************** 1
United States ******************************************************************* 2
US ***************************************************************************** 2
Vodafone *********************************************************************** 217
255

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ANNEX: FINANCIAL REPORT FOR FIRST QUARTER 2005
The text of the Group’s financial report for the three month period ended 31 March 2005 is reproduced
in its entirety below.
A-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

Financial Report 2005
January - March
A 2

2
January - March 2005
Key consolidated data
Balance sheet (Million euros)
Jan-Mar 05 Jan-Mar 04 Variation (%)
with Abbey w/o Abbey with Abbey w/o Abbey 2004
Total assets 698,581 417,231 363,420 92.22 14.81 661,113
Customer loans 370,061 209,628 183,460 101.71 14.26 358,524
Customer funds under management 607,828 392,671 357,594 69.98 9.81 600,830
On-balance sheet 465,253 265,055 240,197 93.70 10.35 460,835
Off-balance sheet 142,574 127,616 117,397 21.45 8.70 139,995
Shareholders' equity 33,338 18,718 78.11 32,111
Total managed funds 841,155 544,847 480,817 74.94 13.32 801,108
Capital and NPL ratios (%)
BIS ratio 12.97 12.29 13.01
Tier I 7.24 8.08 7.16
NPL ratio 1.07 1.22 1.33 1.02
NPL coverage 162.22 202.18 168.87 166.14
Income statement (Million euros)*
Net interest income (w/o dividends) 2,321.4 1,928.8 1,798.5 29.08 7.25 7,372.3
Commercial revenue 4,096.2 3,327.6 3,101.5 32.07 7.29 12,954.5
Gross operating income 4,537.7 3,669.4 3,419.5 32.70 7.31 14,055.2
Net operating income 2,053.7 1,784.0 1,618.6 26.89 10.22 6,661.6
Net consolidated income 1,303.9 1,150.5 965.8 35.01 19.13 3,996.2
Attributable income to the Group 1,185.1 1,031.7 855.6 38.52 20.59 3,605.9
(*) This includes the results of the sale in January of the 2.57% stake in The Royal Bank of Scotland. A provision of the same amount and in the same line of the income statement
was constituted for covering possible contingencies.
Profitability and efficiency (%)
ROA 0.76 1.06 1.02
ROE 15.06 20.18 19.70
Efficiency ratio
(general administrative expenses / gross operating income)
50.94 46.96 47.77 47.63
Market capitalisation and shares
Shares outstanding (millions at period-end) 6,254 4,768 6,254
Share price (euros) 9.39 8.85 9.13
Market capitalisation (Million euros) 58,728 42,200 57,102
EPS (euro) 0.1900 0.1801 0.7289
Diluted EPS (euro) 0.1898 0.1795 0.7276
P/E ratio (share price / Annualized EPS) 12.35 12.29 12.53
Other data
Shareholders (number) 2,578,094 1,094,525 2,685,317
Number of employees 125,933 102,683 127,424
Continental Europe 43,387 43,836 43,366
United Kingdom (Abbey) 23,450 0 24,361
Latin America 57,625 57,475 58,265
Financial management and equity stakes 1,471 1,372 1,432
Number of branches 9,935 9,151 9,973
Continental Europe 5,241 5,112 5,233
United Kingdom (Abbey) 718 0 730
Latin America 3,976 4,039 4,010
Note: This information has not been audited. It was prepared in accordance with International Financial Reporting Standards (IFRS).
A 3

Contents
Key consolidated data
Performance during the quarter
Explanatory notes to the financial statements
Consolidated financial report
Information by segments
The Santander Central Hispano share
Corporate Governance
Corporate Social Responsibility
Highlights of the quarter
January - March 2005
• Grupo Santander’s financial statements have been drawn up in line with the International Financial Reporting
Standards (IFRS). This meant introducing changes to the accounting principles, the way statements are
presented and the structure of business areas. All the information for 2004 was drawn up again in accordance
with the new criteria.
• The income statement includes the capital gain (EUR 717 million) from the sale in January of 2.57% of The
Royal Bank of Scotland. A provision of the same amount and in the same line of the P&L account was
constituted for covering possible contingencies. As a consequence, capital gains did not feed through to
attributable income.
• The Group also incorporated in the first quarter and for the first time Abbey’s results (attributable income of
EUR 153 million), after consolidating its balance sheet at December 31, 2004. This report also presents the
Group’s first quarter income statement and balance sheet figures without Abbey in order to provide like-for-like
comparisons with 2004.
• Attributable income to the Group amounted to EUR 1,185.1 million, 38.5% more than in the first quarter of
2004. Excluding Abbey, growth was 20.6% higher than the first quarter of 2004 and 33.8% more than the
ordinary attributable income of the fourth quarter.
• The main drivers were higher revenues, cost control and reduced needs for provisions. All income and revenue
lines and the main segments grew (Continental Europe: net operating income, +22.8%; attributable income,
+44.9%. Latin America in dollars, the currency for managing the area: net operating income, +13.9%;
attributable income, +14.2%).
• Growth was driven by the excellent level of activity in Europe and Latin America, particularly lending (Spain,
Santander Consumer and all of Latin America increased by more than 15%). Managed customer funds
excluding REPOs increased 10.4%. All of this pushed up revenues and, above all, the net operating income of
the retail segments (Retail Banking Continental Europe: + 18.6%; Latin America Retail Banking: +40.7% in
euros; Asset Management and Insurance: +45.7% excluding Abbey).
• At the same time, the efficiency ratio improved by 0.8 p.p. (from 47.8% to 47.0% excluding Abbey) and credit
risk quality remained high. The ratio of non-performing loans (excluding Abbey, in order to make like-for-like
comparisons) dropped from 1.33% in March 2004 to 1.22% in March 2005 and NPL coverage rose from 169%
to 202% over the same period. Including Abbey, the NPL ratio was 1.07% and coverage 162%.
A 4
2
4
10
12
20
44
46
47
3

January - March 2005
4 Performance during the quarter
General background
Grupo Santander conducted its business against a
background of a continued upswing in the global economy
and a favourable performance in the financial markets. The
United States, emerging Asian and Latin American
economies registered the strongest growth while Europe
and Japan were more moderate.
The US economy maintained growth of over 3% and
inflation, despite the rise in oil prices, remained at a low level,
enabling the Fed to gradually increase its interest rates. The
Fed funds rate stood at 2.75% at the end of March. Latin
America grew at 4% and the budgetary and current account
balances evolved favourably. The moderate pressures on
prices that emerged in 2004 began to ease. The hike in
interest rates by Brazil’s and Mexico’s central banks to put a
brake on inflation appeared to be coming to an end.
In the Euro zone the recovery is weak and does not appear to
consolidate itself. Growth is still below 2%, due to moderate
job creation, higher oil prices and the euro’s strengthening
over the last few quarters. Inflation remained at around 2%
and looks like dipping below this level. The European Central
Bank maintained its repo rate at 2%. Spain’s growth
differential remains significant as its economy is expanding by
2.7%, due to buoyant domestic demand. The UK economy,
meanwhile, is also growing briskly (more than 2.5%) with
inflation under control. The Bank of England’s base rate has
remained at 4.75% since last August.
Summary of the Group’s performance and
businesses
In this environment, Grupo Santander maintained its
organic growth strategy in its traditional markets through a
drive in retail business with customers, based on greater
diversification and improved commercial and operating
efficiency. Abbey’s management took measures to speed up
cost savings, improve internal information and recover the
business base through a larger and better qualified sales
team. It also continued to look at opportunities to step up
its presence in consumer finance business.
The 2005 financial statements were drawn up on the basis
of the new International Financial Reporting Standards
(IFRS). In accordance with these rules, and in order to
provide like-for-like comparisons, the 2004 statements were
drawn up again. These statements are not audited.
The notes explaining the main concepts affected by the
changes are on pages 10 and 11 of this Report.
Grupo Santander’s attributable income in the first quarter
was EUR 1,185.1 million, 38.5% more than in the same
period of 2004. Both the 2005 and 2004 figures were
calculated on the basis of the IFRS. The higher earnings
reflect the impact of the incorporation in the first quarter of
EUR 153.4 million of attributable income from Abbey.
Excluding this contribution, growth would have been
20.6%.
Attributable income per share was EUR 0.1900, 5.5% more
than in the first quarter of 2004, and the diluted earnings
per share were EUR 0.1898.
ROE was 15.1% at the end of the first quarter (20.2% a
year earlier). The lower return is the result of the capital
increase for the acquisition of Abbey, a bank which has not
yet reached its full potential in results. The efficiency ratio
was 50.9% (excluding Abbey, it was 47.0%, 0.8 percentage
points better than in the first quarter of 2004). The ratio of
non-performing loans, also excluding Abbey in order to
provide a like-for-like comparison, was 0.11 points lower
and NPL coverage was 33 points higher than in March
2004.
This Report presents the Group’s balance sheet and income
statement figures, as well as their details, with and without
Abbey. The year-on-year comparisons with 2004 and the
comments are made on figures excluding Abbey. As these
figures are comparatively homogenous, they provide a truer
picture of the Group’s performance between the two
periods.
The Group’s results excluding Abbey included:
• A 7.3% rise in commercial revenue (basic revenue plus
insurance activity), with balanced growth by components,
• Lower growth (+5.3%) in operating costs than in
revenues.
• Strong reduction in loan-loss provisions (-32.0%), due to
the high quality of credit risk and the coverage levels
reached, in many cases already at the maximum limit set
by the Bank of Spain for the generic provision.
As a result, income before taxes (excluding Abbey) was
20.3% higher than in the first quarter, in line with the
growth of attributable income (+20.6%).
This performance was slightly affected by the exchange rate
differences between the two periods, as it reduced the
growth by 1.5/2 percentage points. Excluding the exchange
rate impact, commercial revenue rose 8.6%, net operating
income 11.8% and attributable income 22.4% (all before
incorporating Abbey).
A 5

The Group’s attributable income does not include the
capital gain from the sale in January of 2.57% of The Royal
Bank of Scotland (EUR 717 million). This is because a
provision of the same amount and in the same line of the
income statement was constituted for covering possible
contingencies.
As a result, the notable growth in the Group’s results came
from both Europe and Latin America, and especially those
most related to retail banking. For example, commercial
revenue, excluding Abbey, rose 10.3%, net operating
income increased 24.4% and attributable income was up
41.9%. Global Wholesale Banking and Financial
Management and Equity Stakes, on the other hand, reflect
lower results because of the impact of the markets on
treasury activity, the lower revenue generated in the Assets
and Liabilities portfolio of the parent bank (ALCO) and a
negative impact from the structural exchange rate position.
The Group’s structure of business areas (segments) changed
in the first quarter of 2005, in accordance with the
indications in the new rules (IAS 14). The principal level of
the structure is one divided by geographic areas, with
details of the main management units, and then a
secondary by the type of business (Retail Banking, Asset
Management and Insurance, Global Wholesale Banking and
Financial Management and Equity Stakes).
The new map of the Group’s businesses is set out on page
20 and 21 of this Report, with definitions of the two levels
of segmentation and the most significant changes made in
internal criteria.
The principal level of segmentation (geographic)
has four segments: three operating areas plus Financial
Management and Equity Stakes. The operating areas cover
all the businesses that the Group develops in them, and
they are: Continental Europe, United Kingdom (Abbey) and
Latin America. Aside from business in the United Kingdom
from Abbey, which was only integrated in 2005, the other
two large segments registered growth in euros in revenues,
net operating income and attributable income.
Continental Europe, which generates 57% of the
attributable income of the operating areas, registered
significant growth in revenues thanks to the better
performance of net interest income, almost flat costs and
reduced needs for provisions because of the high credit risk
quality arising from implementation of the IFRS.
Attributable income amounted to EUR 752.2 million,
44.9% more than in the first quarter of 2004 and 45.7%
higher than in the fourth quarter. All Retail Banking units
(Santander Central Hispano Network, Banesto, Santander
Consumer, Portugal and Banif), as well as Asset
Management and Wholesale Banking, grew.
A 6
Performance during the quarter
January - March 2005
• In the Santander Central Hispano Network greater
business with customers is feeding through to a greater
extent to net interest income, enabling its trend to change
(+4.4% y-o-y) and pushing up total revenues by 5.6% over
the first quarter of 2004. This increase, together with
another good quarter in terms of cost control, lifted net
operating income by 12.0%. As a result of the reduced
need for loan-loss provisions, attributable income in the first
quarter was 38.2% higher than in the same period of 2004.
• The main developments at Banesto were a rise of around
6% in gross operating income (because of strong
customer activity), controlled costs and moderately rising
net provisions, which produced a further improvement in
the efficiency ratio, a 14.1% increase in net operating
income and a 19.8% rise in attributable income.
• Santander Consumer maintained its trend of strong
growth in business and revenues (+33.2% overall;
+22.5% on a like-for-like basis), well above the rise in
costs (which were partly due to incorporations). Net
operating income was 40.7% higher year-on-year. Lower
loan-loss provisions resulted in attributable income that
was 77.8% more than in the first quarter of 2004
(+61.5% on a like-for-like basis).
As part of its strategy of selective acquisitions, Santander
Consumer reached agreement in the first quarter to
acquire 100% of the Norwegian bank Bankia for EUR 53
million. Bankia has a market share of 4% and specialises
in revolving loans through credit cards, which are solely
financed by deposits.
•In Portugal total revenues increased 7.9%, backed by net
interest income and fees, and together with flat costs
produced 16.9% growth in net operating income and an
increase of 21.6% in attributable income.
As regards activity, lending grew at a faster pace than the
market’s average, particularly mortgages and loans to
companies.
United Kingdom (Abbey): management focused on
developing activities in line with the strategic priorities set
for the year, principally improving the productivity of sales in
all channels, stabilising revenue flows and achieving cost
cuts more quickly. Progress was made in all these areas.
Among other measures the new team established a new
management structure in branches, hired new people and
put into effect a training plan to increase the sales team. Of
the 2,400 people notified that their jobs would be
eliminated, 1,000 left in the first three months of 2005. Two
call centres were closed and progress was made in
negotiations with global suppliers.
5

6
January - March 2005
Performance during the quarter
Abbey’s attributable income was EUR 153.4 million (£106.4
million). The most notable achievements were gross
operating income in line with recurrent revenue in the last
two quarters and lower costs.
Latin America generated EUR 421.7 million, 32% of the
attributable income of operating business areas (+8.8%
over Q104 and 33.0% over Q404). The main points were a
strong rise in activity and in revenues from customer
business, well above that of costs, and lower loan-loss
provisions because of the IFRS. In dollars, the currency used
to manage the area, attributable income was $553.0 million
(+14.2%).
•In Brazil the strong growth in customer business offset
the weak performance of financial business in treasury
and portfolios. Retail banking revenues increased 12.1%
in euros, which coupled with costs that rose in line with
inflation pushed up net operating income by 13.9%. The
rise in customer business is not reflected in those of the
whole country because of the impact of higher interest
rates on the spreads of financial business and on reduced
value of portfolios. As a result, total attributable income
was 1.5% lower at EUR 134.9 million ($176.9 million,
+3.4%).
• Under its strategic plan focused on profitable growth,
Mexico maintained in the first quarter of 2005 the strong
pace of growth of 2004. This produced further market
share gains in loans (mainly consumer) and managed
funds, basically mutual funds, whose year-on-year growth
was the highest in the Mexican banking system.
Reflecting the greater activity with customers and higher
spreads, revenue growth gained in quality as it was based
on recurrent revenues and diversification. Commercial
revenue rose 23.6% in dollars, but growth was lower in
attributable income because of the reduced contribution
of markets and the rise in costs arising from increased
business infrastructure and greater commercial needs.
Net operating income was 7.8% higher in dollars and
attributable income increased 3.4% to $130.8 million
(EUR 99.8 million; -1.5%).
• Chile’s strategy is focused on profitable growth in
customer banking businesses, particularly retail segments,
and on increasing the number of customers and the
products they have. This resulted in strong growth in
loans and deposits plus mutual funds.
The stronger activity was underscored by growth in all
revenue lines, producing 33.4% growth in net operating
income in dollars and 43.0% in attributable income to
$92.6 million (EUR 70.6 million, +36.2%).
Of note, in terms of attributable income, in the region’s
other countries were Puerto Rico (EUR 15.8 million;
+10.5%), Colombia (EUR 14.7 million; +17.9%) and
Argentina (EUR 11.4 million compared with almost zero in
the first quarter of 2004).
The secondary level (by businesses) distinguishes
between Retail Banking, Asset Management and Insurance
and Global Wholesale Banking (the sum of the three
geographic areas of the principal level).
Retail Banking, which generates 83% of the total
revenues of the operating business areas and 75% of
income before taxes, performed well. Excluding the
contribution of Abbey’s retail business, the rest of the
Group’s retail banking registered a rise of 24.4% in net
operating income and 41.9% in income before taxes over
the first quarter of 2004. Continental Europe’s net
operating income increased 18.6% and its income before
taxes grew 38.8%. The respective growth rates in Latin
America were 40.7% and 50.1%, spurred by the take-off in
customer business in the main markets.
Asset Management and Insurance (excluding Abbey’s
insurance contribution) generated income before taxes of
EUR 130.1 million, 52.4% higher than in the first quarter of
2004. Including Abbey’s insurance business, income before
taxes was EUR 212.8 million, 11% of the total of the
operating business areas.
Total revenue generated by all the products managed in this
segment (mutual and pension funds and insurance)
amounted to EUR 844.7 million in the first quarter, 63.7%
more than in the same period of 2004. Growth, excluding
Abbey, was 13.3%, underscoring the area’s innovation
capacity and management, as well as the distribution power
of our networks.
Global Wholesale Banking, which generates 14% of
income before taxes of the operating business areas,
registered a 9.3% decline in this line, because of the
negative impact of markets on the contribution of trading
business, particularly in the main Latin American
countries.
On the other hand, customer revenues, generated by the
Global Relation Model and the selling of treasury products,
performed well.
In short, this analysis underlines the Group’s effort to boost
business volumes and increase revenues through
strengthening customer activity in all geographic and
business areas, while controlling costs and enhancing credit
risk quality.
A 7

Grupo Santander results
Net interest income was EUR 2,357.9 million. Excluding
Abbey, it was EUR 1,965.2 million, 6.6% more than in the
first quarter of 2004, as the increased volumes fed through
more to revenues of the retail areas, given the evolution of
interest rates.
The net interest income of Continental Europe and Latin
America (without Abbey for like-to-like comparisons)
increased 8.1%.
In accordance with the new IFRS, the cost of preferred
shares is now recorded in net interest income. This cost in
the first quarter was EUR 83.1 million, for the whole Group,
and 15.3% lower than in the same period of 2004 without
Abbey.
Total net fees and insurance activity, excluding Abbey, were
7.9% higher than in the first quarter of 2004, with a
moderate rise in Europe and significant (+12.5%) in Latin
America. Of note by products were the revenues from
mutual and pension funds (+10.5%), insurance (+20.7%),
contingent liabilities (+9.9%) and a pick-up in those from
securities (+1.2%). Other fees from services increased 3.2%.
Income from companies accounted for by the equity
method increased 11.7% (excluding Abbey), mainly
because of Cepsa’s larger contribution.
The Group’s commercial revenue (excluding Abbey) was
7.3% higher year-on-year at EUR 3,327.6 million. This
growth was the same in gross operating income, as the
negative impact on trading gains of the lower value of
some Latin American portfolios and the reduced revenues
from management of the parent bank’s structural risk were
offset by higher trading gains from customers and the
positive effect of applying the IFRS to the valuation of
derivatives.
Including Abbey, gross operating income amounted to EUR
4,537.7 million, 32.7% more than in the first quarter of
2004.
Total general administrative expenses increased 5.5%
excluding Abbey, due to the commercial efforts and the
increased infrastructure in some countries (Brazil and
Mexico) and the perimeter effect of Santander Consumer’s
acquisitions in 2004. The growth in costs, lower than that
of revenues, produced an improvement of 0.8 points in the
efficiency ratio to 47.0% (excluding Abbey). The Group’s
efficiency ratio including Abbey stood at 50.9% at the end
of the first quarter.
The net figure of revenues less the costs of non-financial
services (excluding Abbey) was EUR 65.9 million, 30.8% more
A 8
Performance during the quarter
than in the first quarter of 2004. This concept covers the
results of non-financial consolidated companies (real estate
and renting companies, among others).
Net operating income (excluding Abbey) grew 10.2%. This
growth was based on all operating areas, which increased
17.5% (Financial Management and Equity Stakes
contributed less than in 2004 because of the reduced
revenues from the ALCO portfolios). Including Abbey, net
operating income was EUR 2,053.7 million, 26.9% more
than in the first quarter of 2004.
The impairment loss on the Group’s assets amounted to EUR
291.3 million, most of which were net loan loss provisions
(EUR 281.1 million) which, excluding Abbey, were 32.0%
lower than in the first quarter of 2004 after falling in all
geographic areas and main business units. They declined
because of applying the IFRS, the high credit risk quality and
lower country-risk provisions.
Other income was EUR 144.5 million negative in the first
quarter of 2005 (EUR 100.1 million negative in the same
period of 2004).
Attributable income, excluding Abbey, amounted to EUR
1,031.7 million, 20.6% more than in the first quarter of 2004
and 33.8% higher than the ordinary attributable income in
the fourth quarter. Including Abbey’s contribution of EUR
153.4 million, total attributable income was 38.5% higher
than in the first quarter of 2004 at EUR 1,185.1 million.
Grupo Santander balance sheet
January - March 2005
Assets at the end of the first quarter amounted to EUR
698,581 million and including off-balance sheet assets they
totalled EUR 841,155 million.
Loans and managed funds (customer activity) amounted to
EUR 377,256 million and EUR 607,828 million, respectively.
A large part of this growth (+100.4% and +70.0% y-o-y)
was due to Abbey’s incorporation in December 2004 and
the greater geographic diversification of businesses.
Continental Europe accounted for 47% of the Group’s total
lending, the United Kingdom 43% and Latin America 10%.
In order to provide like-for-like comparisons, the Group’s
performance over the last 12 months is analysed without
including Abbey.
Gross lending increased 14.7% over March 2004 to EUR
215,850 million (+15.8% excluding securitisations). Yearon-year
growth in loans to other resident sectors was
17.6% and particularly noteworthy was the 23.0% rise in
7

8
January - March 2005
Performance during the quarter
secured loans (both excluding securitisations). Loans to the
non-resident sector increased 14.0%.
As regards the geographic distribution (principal segments),
Continental Europe’s lending grew 15% with rises in all
countries. In Spain the Santander Central Hispano
Network’s lending increased 18% and Banesto’s 21%, while
Portugal’s rose 6% and Santander Consumer’s 31% (all
excluding securitisations).
Latin America’s registered growth of 20% in euros (+23%
in local currency), with increases in all large countries: Brazil
(+33%), Mexico (+24%), excluding the Fobaproa paper,
and Chile (+13%).
On-balance sheet customer funds excluding Abbey
amounted to EUR 265,055 million, 10.4% more than in the
first quarter of 2004. Deposits excluding REPOs increased
6.9%, marketable debt securities 32.5% and subordinated
debt 2.9%, while insurance liabilities declined 19.6%,
following the sale of the collective life assurance business in
Spain in the first half of 2004.
Off-balance sheet funds, also excluding Abbey, rose 8.7%
year-on-year to EUR 127,616 million, due to the good
performance of the three concepts included, which
increased in almost all countries where the Group operates.
Mutual funds grew 7.0%, pension plans 10.6% and
managed portfolios 20.2%.
Total managed funds (on-and off-balance sheet), excluding
Abbey, amounted to EUR 392,671 million at the end of
March, 9.8% more than a year earlier (+11.0% excluding
the exchange rate impact).
Continental Europe’s total funds increased 10% (+11% onbalance
sheet and +8% off-balance sheet). In Spain, which
accounts for more than 80% of Continental Europe’s total
balances, on-balance sheet funds increased 13% and offbalance
sheet ones 7%. In Spain the Group continued to be
the leader in mutual funds with a market share of around
27%. In Portugal the Group is ranked second in mutual
funds with a market share of 18%.
Latin America’s on- and off-balance sheet funds increased
10% in euros (+15% excluding the exchange rate impact).
All countries’ funds grew in local currency terms and in
deposits, excluding REPOs, they all registered double digit
growth, notably Venezuela (+69%), Brazil (+32%), Puerto
Rico and Argentina with growth above 20%, and Mexico
and Chile growing at 12%. The region’s mutual funds rose
16% (excluding the exchange rate impact), notably
Argentina, Mexico, Colombia and Puerto Rico. In pension
plans all countries grew (+13% overall growth, excluding
the exchange rate impact).
In addition, and as part of its global financing strategy, the
Group issued EUR 2,000 million of 7-year mortgage bonds
in the first quarter, as well as five issues of senior debt, four
of them denominated in euros, for a total amount of EUR
3,675 million and one in sterling (£55 million).
Two issues of senior debt amounting to EUR 510 million
matured in the first quarter of 2005, and two issues of
preferred shares (EUR 506 million) and two issues of
subordinated debt ($600 million) were amortised ahead of
schedule.
Goodwill pending amortisation, including Abbey, stood at
EUR 15,382 million at the end of the first quarter.
Grupo Santander’s shareholders’ equity, on the basis of BIS
criteria, amounted to EUR 46,525 million, EUR 17,818
million more than the minimum requirement. The BIS ratio
was 13.0%, Tier 1 7.2% and core capital 5.3%.
Risk management
The Group’s ratio of non-performing loans (NPLs) was
1.07% at the end of the first quarter of 2005 and NPL
coverage was 162%. Excluding Abbey, the NPL ratio was
1.22%, 1 b.p. lower than the fourth quarter of 2004 and 11
b.p. below that of the first quarter.
NPL coverage increased 8 percentage points during the first
quarter to 202% (+33 points y-o-y).
Net loan loss provisions were 32.0% less than in the first
quarter of 2004 (excluding Abbey). Specific provisions, net
of the recovery of written-off assets, amounted to EUR
135.6 million, 15.6% more than in the first quarter of 2004.
This percentage was almost the same as that for the rise in
credit risk during the period, which meant keeping the cost
of credit at a historically low level of 0.22%.
The NPL ratio in Spain remained at an all time low, falling to
0.59% at the end of the first quarter, 4 b.p. less than at the
end of 2004 and 14 b.p. below the level of March 2004.
NPL coverage rose during the first quarter by 40 percentage
points to 359% (+101 points y-o-y).
The NPL ratio in Portugal, in a still weak economic
environment, was 1.68% (+30 b.p. during the first quarter
and +21 b.p. y-o-y), affected particularly by securitisations.
NPL coverage was 182%, 26 points higher than in March
2004.
Consumer Banking in Europe, including Grupo Hispamer in
Spain, Grupo CC-Bank in Germany, Finconsumo in Italy and
the acquisitions in Norway and Poland, increased its NPL
ratio slightly to 2.44%, due to the rise in doubtful balances
in Italy and Germany. NPL coverage was 127% (slightly
A 9

lower than in March 2004, but 2.4 points higher than at the
end of 2004).
In Latin America the NPL ratio declined by 22 b.p. during
the first quarter to 2.73%. It was 47 b.p. lower year-onyear.
NPL coverage reached 160%, a rise of 8 percentage
points during the quarter and 20 year-on-year.
Abbey’s NPL ratio was 0.84% in March 2005, up from
0.70% at the end of 2004. NPL coverage was 72%.
As regards market risk management, at the beginning of
the year Abbey’s positions were included in the total VaRD
of the Group’s trading portfolios. These represented a VaRD
of EUR 9.6 million, but the Group’s total VaRD only rose by
EUR 4 million to EUR 18.3 million because of diversification.
Exchange rates: 1 euro / currency parity
Performance during the quarter
During the first quarter VaRD remained stable at around an
average of EUR 18.4 million (varying between EUR 17.4
million and EUR 19.5 million). The variations arose from
changes in positions and the volatility of markets.
Dividends
January - March 2005
On February 1, Santander Central Hispano paid a third
interim dividend charged to 2004 earnings of EUR 0.0830
per share. The fourth dividend of EUR 0.0842 per share
began to be paid as of May 1.
The total dividend charged to 2004 earnings that the Board
will propose to the Shareholders’ Meeting is EUR 0.3332 per
share, 10% more than in 2003.
Average (Income statement) Period-end (balance sheet)
Jan-Mar 05 Jan-Mar 04 31.03.05 31.12.04 31.03.04
US$ 1.3112 1.2490 1.2964 1.3621 1.2224
Pound sterling 0.6935 0.6794 0.6885 0.7050 0.6659
Brazilian real 3.4927 3.6186 3.4692 3.6177 3.5572
New Mexican peso 14.6605 13.7286 14.5207 15.2279 13.6615
Chilean peso 758.5727 734.8456 760.9868 759.7110 752.9950
Venezuelan bolivar 2,609.8758 2,226.7747 2,783.7597 2,611.9630 2,344.0613
Argentine peso 3.8470 3.6429 3.7887 4.0488 3.5175
A 10
9

January - March 2005
10 Explanatory notes to the financial statements
Explanatory notes to the financial statements
The International Financial Reporting Standards (IFRS) came
into force in Spain on January 1, 2005 and must be applied
by the groups of listed companies.
As a result, in order to interpret appropriately the financial
statements presented below, the accounting principles
described in Note 1 of the latest annual statements drawn
up by Grupo Santander must be taken into account, and
the changes which are now indicated. The figures for 2004
have been drawn up retroactively using the new criteria, but
have not yet been audited.
a) Financial commissions. Commissions for the opening of
credits and loans, which are not directly incurred by the
formalisation of operations, must be accrued over the life
of the operation, as one more component of the effective
return of a credit or loan, although limited amounts are
recorded in other operating income at the time they are
charged. Until now, these commissions were fully reflected
in the income statement once the operation was approved.
b) Derivatives. Under the IFRS, all derivative products have
to be valued on the basis of their fair value which,
whenever possible, should be their market value,
recording, as a general rule, the changes in the income
statement. Previously, all that could be recorded were the
changes in value if they were derivatives contracted in
organised markets. Otherwise, if the valuation showed
potential losses, they were reflected in results and if they
were potential profits they could not be recorded until
their effective materialisation or be offset with capital
losses in instruments of the same currency.
c) Financial assets available for sale. The new rules
create a portfolio that is very similar to the previous
portfolio of ordinary investment. The basic difference is
that the changes in the fair value of assets classified in
this portfolio must be registered, both negative and
positive ones, in the company’s assets. When these
changes in value occur, they are recorded in the income
statement. The previous rules were similar but only in the
allowance for capital losses.
d) Net loan-loss provisions. The new rules establish an
impairment test for all assets. The Bank of Spain
introduces a new provision for inherent losses, which are
those that all risk operations contracted by the entity
have from the time they are granted. The new provision
replaces the previous generic and statistical provisions.
There are also maximum and minimum provision limits
and a mechanism for annual allocation which takes into
account, on the one hand, the change in the credit
during the year and, on the other, the specific provisions
made during the year for specific doubtful loans.
A 11

e) Pension funds. The new rules mean the so-called "focus
of the fluctuation band" can be applied to actuarial gains
and losses, deferring the recording in results of the
differences that exceed 10% of the commitments over a
period of up to five years. This focus is also applied to the
deficit that arose in 2000 as a result of implementing the
regulations issued in 1999 and which had to be amortised
in 10 years, as long as this deficit is within the 10%
fluctuation band.
f) Goodwill. Until now, goodwill had to be amortised
systematically over a period which could last 20 years.
Under the new rules goodwill stops being amortised and
must be submitted, at least annually, to an impairment
test to determine if it continues to maintain its value, or
whether the eventual deterioration should be recorded
against the income statement.
g) Operations with treasury stock instruments. Under the
IFRS the results from the trading of treasury stock are
recorded as changes in net wealth and their value remains
fixed at acquisition cost. Under the previous rules the
results were recorded in the income statement.
h) Capital with the nature of financial liabilities. The
cost of some capital instruments, such as preferred
shares, which have a regular contractual remuneration, is
now recorded as a financial cost. Previously, this cost was
attributed to minority interests.
A 12
Explanatory notes to the financial statements
January - March 2005
i) Sphere of consolidation. Until now, in the
consolidated financial statements of groups of credit
entities only financial entities and companies that
conducted banking activity or were mere investment
companies consolidated by the global integration
method. In addition, insurance companies and others
whose activity had nothing to do with financial activity,
such as industrial, commercial or real estate firms,
consolidated by the equity method.
The IFRS broaden the perimeter of consolidation to all
companies that are part of the group where
management control is exercised. The results from
commissions charged by the Group’s insurance
companies are consolidated by global integration in the
income statement. Operating results contributed by
other non-financial and consolidated companies are
recorded under "Income from non-financial services"
and "Non-financial expenses". Lastly, the results
contributed by non-consolidated companies over which
there is a significant influence on their management are
recorded as "Income from companies accounted for by
the equity method."
The two changes that most affect the income statement,
and positively, are the amortisation of goodwill and the
reduced needs for loan-loss provisions.
11

January - March 2005
12 Consolidated financial report
Income statement
Million euros
Jan-Mar 05 Jan-Mar 04 Variation w/o Abbey
with Abbey w/o Abbey Amount (%)
Net interest income (w/o dividends) 2,321.4 1,928.8 1,798.5 130.3 7.25
Dividends 36.4 36.4 44.6 (8.2) (18.42)
Net interest income 2,357.9 1,965.2 1,843.1 122.1 6.63
Income from companies accounted for by the equity method 140.5 140.0 125.3 14.7 11.71
Net fees 1,384.2 1,170.1 1,101.6 68.5 6.22
Insurance activity 213.6 52.3 31.5 20.8 66.19
Commercial revenue 4,096.2 3,327.6 3,101.5 226.1 7.29
Gains (losses) on financial transactions 441.5 341.8 318.1 23.7 7.45
Gross operating income 4,537.7 3,669.4 3,419.5 249.8 7.31
Income from non-financial services 155.7 100.9 88.8 12.1 13.68
Non-financial expenses (35.0) (35.0) (38.4) 3.4 (8.84)
Other operating income (13.2) (21.3) (17.9) (3.4) 19.29
Operating costs (2,591.4) (1,929.9) (1,833.5) (96.4) 5.26
General administrative expenses (2,311.4) (1,723.1) (1,633.5) (89.6) 5.49
Personnel (1,383.7) (1,074.0) (1,016.7) (57.3) 5.64
Other administrative expenses (927.7) (649.0) (616.7) (32.3) 5.24
Depreciation and amortisation (280.1) (206.8) (200.0) (6.8) 3.40
Net operating income 2,053.7 1,784.0 1,618.6 165.5 10.22
Impairment loss on assets (291.3) (233.2) (365.9) 132.7 (36.25)
Net loan loss provisions (281.1) (223.0) (328.1) 105.2 (32.05)
Goodwill 0.0 0.0 (2.4) 2.4 (100.00)
Other assets (10.3) (10.3) (35.3) 25.0 (70.90)
Other income (144.5) (163.7) (100.1) (63.7) 63.63
Income before taxes 1,617.9 1,387.1 1,152.6 234.5 20.34
Corporate income tax (314.4) (237.0) (189.1) (48.0) 25.36
Net income from ordinary activity 1,303.4 1,150.1 963.5 186.5 19.36
Net income from discontinued operations 0.5 0.5 2.2 (1.8) (79.85)
Net consolidated income 1,303.9 1,150.5 965.8 184.7 19.13
Minority interests 118.8 118.8 110.2 8.6 7.78
Attributable income to the Group 1,185.1 1,031.7 855.6 176.2 20.59
Pro memoria:
Average total assets 685,237 408,535 365,486 43,049 11.78
Average shareholders' equity* 31,474 16,963 14,511 85.55
(*) Variation with Abbey
Net interest income (excluding dividends)
Million euros
1,798
1,821
1,844
1,908
2,321
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05
1,929
(*) Exchange rate effect excluded: +30.7% (w/o Abbey, +8.8%)
+29.1%*
(w/o Abbey: +7.2%)*
Commercial revenue (excluding dividends)
Million euros
4,060
3,057
3,123
3,159
3,227
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05
(*) Exchange rate effect excluded: +34.1% (w/o Abbey, +9.0%)
A 13
3,291
+32.8%*
(w/o Abbey: +7.7%)*

Quarterly
Million euros
Consolidated financial report
2004 2005
Q1 Q2 Q3 Q4 Q1
Net interest income (w/o dividends) 1,798.5 1,821.4 1,844.2 1,908.2 2,321.4
Dividends 44.6 197.2 103.3 44.0 36.4
Net interest income 1,843.1 2,018.6 1,947.5 1,952.2 2,357.9
Income from companies accounted for by the equity method 125.3 81.7 132.5 109.5 140.5
Net fees 1,101.6 1,174.2 1,141.7 1,165.2 1,384.2
Insurance activity 31.5 45.6 40.7 43.6 213.6
Commercial revenue 3,101.5 3,320.1 3,262.4 3,270.5 4,096.2
Gains (losses) on financial transactions 318.1 325.0 265.5 192.2 441.5
Gross operating income 3,419.5 3,645.2 3,527.9 3,462.7 4,537.7
Income from non-financial services 88.8 101.8 77.2 80.1 155.7
Non-financial expenses (38.4) (42.8) (32.0) (32.0) (35.0)
Other operating income (17.9) (9.2) (20.8) (15.0) (13.2)
Operating costs (1,833.5) (1,866.6) (1,868.9) (1,964.4) (2,591.4)
General administrative expenses (1,633.5) (1,657.3) (1,660.3) (1,743.7) (2,311.4)
Personnel (1,016.7) (1,037.6) (1,047.9) (1,133.7) (1,383.7)
Other administrative expenses (616.7) (619.7) (612.3) (609.9) (927.7)
Depreciation and amortisation (200.0) (209.3) (208.6) (220.8) (280.1)
Net operating income 1,618.6 1,828.3 1,683.4 1,531.3 2,053.7
Impairment loss on assets (365.9) (472.4) (496.4) (508.8) (291.3)
Net loan loss provisions (328.1) (436.4) (471.1) (337.2) (281.1)
Goodwill (2.4) 0.0 0.0 (135.8) 0.0
Other assets (35.3) (36.0) (25.3) (35.8) (10.3)
Other income (100.1) (5.5) 48.3 (179.6) (144.5)
Income before taxes (ordinary) 1,152.6 1,350.4 1,235.4 842.9 1,617.9
Corporate income tax (189.1) (230.8) (196.1) 19.2 (314.4)
Net income from ordinary activity 963.5 1,119.6 1,039.3 862.1 1,303.4
Net income from discontinued operations 2.2 1.2 2.1 6.2 0.5
Net consolidated income (ordinary) 965.8 1,120.8 1,041.4 868.3 1,303.9
Minority interests 110.2 89.3 93.7 97.2 118.8
Attributable income to the Group (ordinary) 855.6 1,031.5 947.7 771.1 1,185.1
Net extraordinary gains and writedowns 0.0 359.0 472.2 (831.3) 0.0
Attributable income to the Group (includ. extraordinaries) 855.6 1,390.5 1,419.9 (60.2) 1,185.1
Net operating income
Million euros
1,619
1,828
1,683
1,531
2,054
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05
1,784
(*) Exchange rate effect excluded: +28.5% (w/o Abbey, +11.8%)
+26.9%*
(w/o Abbey: +10.2%)*
A 14
Attributable income to the Group (ordinary)
Million euros
856
1,031
948
771
1,185
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05
1,032
(*) Exchange rate effect excluded: +40.4% (w/o Abbey, +22.4%)
January - March 2005
+38.5%*
(w/o Abbey: +20.6%)*
13

14
January - March 2005
Net fees and insurance business
Million euros
Consolidated financial report
Jan-Mar 05 Jan-Mar 04 Variation w/o Abbey
with Abbey w/o Abbey Amount (%)
Commissions for services 788.6 616.2 588.4 27.8 4.72
Credit and debit cards 134.5 129.9 126.3 3.6 2.87
Insurance 188.4 119.3 110.7 8.6 7.77
Account management 116.7 116.7 98.4 18.3 18.55
Commercial bills 70.6 70.6 91.4 (20.8) (22.76)
Contingent liabilities 60.7 60.7 55.2 5.4 9.86
Other transactions 217.8 119.1 106.4 12.7 11.90
Mutual & pension funds 442.7 412.9 373.8 39.1 10.46
Securities services 152.9 141.1 139.4 1.6 1.18
Net fees 1,384.2 1,170.1 1,101.6 68.5 6.22
Insurance activity 213.6 52.3 31.5 20.8 66.19
Net fees and insurance business 1,597.8 1,222.4 1,133.1 89.4 7.89
Operating costs
Million euros
Jan-Mar 05 Jan-Mar 04 Variation w/o Abbey
with Abbey w/o Abbey Amount (%)
Personnel expenses 1,383.7 1,074.0 1,016.7 57.3 5.64
General expenses: 927.7 649.0 616.7 32.3 5.24
Information technology 115.2 88.6 83.1 5.5 6.66
Communications 87.2 53.1 57.9 (4.7) (8.14)
Advertising 100.9 79.1 77.6 1.5 1.95
Buildings and premises 177.5 115.5 124.6 (9.1) (7.29)
Printed and office material 28.0 20.2 18.7 1.5 8.05
Taxes (other than income tax) 35.6 35.6 36.2 (0.6) (1.70)
Other expenses 383.3 256.9 218.8 38.1 17.44
Personnel and general expenses 2,311.4 1,723.1 1,633.5 89.6 5.49
Depreciation and amortisation 280.1 206.8 200.0 6.8 3.40
Total operating cost 2,591.4 1,929.9 1,833.5 96.4 5.26
Net loan loss provisions
Million euros
Jan-Mar 05 Jan-Mar 04 Variation w/o Abbey
with Abbey w/o Abbey Amount (%)
Non performing loans 443.3 376.9 397.3 (20.3) (5.12)
Country-risk (27.5) (27.5) 18.8 (46.3) —
Recovery of written-off assets (134.7) (126.5) (87.9) (38.5) 43.79
Total 281.1 223.0 328.1 (105.2) (32.05)
A 15

Balance sheet
Million euros
Assets
Consolidated financial report
January - March 2005
31.03.05 31.03.04 Variation w/o Abbey 31.12.04
with Abbey w/o Abbey Amount (%)
Cash on hand and deposits at central banks 10,205 9,762 9,271 491 5.29 8,801
Trading portfolio 88,792 37,468 30,547 6,921 22.66 83,032
Debt securities 59,531 26,100 21,830 4,270 19.56 56,736
Equities 6,066 3,372 2,743 629 22.92 4,470
Other 23,195 7,996 5,974 2,022 33.84 21,826
Other financial assets at fair value 116 116 90 26 28.91 96
Available-for-sale financial assets 71,921 50,517 62,237 (11,720) (18.83) 75,141
Debt securities 57,823 44,768 51,853 (7,084) (13.66) 58,397
Equities 14,098 5,749 10,384 (4,635) (44.64) 16,744
Loans 455,129 264,280 223,407 40,873 18.30 420,886
Deposits at credit institutions 76,023 46,917 34,741 12,176 35.05 55,289
Loans and credits 370,061 209,628 183,460 26,168 14.26 358,524
Other 9,045 7,736 5,207 2,529 48.58 7,072
Investments 3,817 16,326 3,547 12,779 360.26 3,748
Intangible assets and property and equipment 11,141 5,921 5,638 283 5.02 10,980
Goodwill 15,382 4,932 4,894 38 0.78 15,091
Insurance and reinsurance assets 5,256 2,667 2,742 (75) (2.72) 5,208
Other 36,822 25,240 21,045 4,195 19.93 38,129
Total assets 698,581 417,231 363,420 53,811 14.81 661,113
Liabilities and shareholders' equity
Trading portfolio 46,279 13,458 11,566 1,892 16.36 33,795
Financial liabilities at amortized cost 531,782 329,883 293,477 36,406 12.41 509,259
Due to central banks and credit institutions 100,999 64,776 57,548 7,227 12.56 84,301
Customer deposits 284,732 181,447 170,566 10,881 6.38 290,173
Marketable debt securities 116,119 62,963 47,529 15,434 32.47 106,916
Subordinated debt 21,999 13,131 12,759 372 2.91 22,178
Other financial liabilities 7,934 7,566 5,075 2,491 49.09 5,691
Insurance liabilities 42,404 7,513 9,343 (1,829) (19.58) 41,568
Provisions 16,045 14,158 13,400 758 5.66 15,660
Other liability accounts 17,654 10,981 8,149 2,832 34.75 16,708
Preferred securities 7,061 4,208 4,184 24 0.58 7,623
Minority interests 2,283 2,283 2,046 238 11.62 2,085
Equity adjustments by valuation 1,735 1,514 2,202 (688) (31.24) 1,778
Capital stock 3,127 3,127 2,384 743 31.16 3,127
Reserves 30,863 30,910 16,922 13,988 82.66 27,215
Income attributable to the Group 1,185 1,032 856 176 20.59 3,606
Less: dividends (1,837) (1,837) (1,109) (729) 65.72 (1,311)
Total liabilities and shareholders' equity 698,581 417,231 363,420 53,811 14.81 661,113
Off-balance-sheet managed funds 142,574 127,616 117,397 10,219 8.70 139,995
Total managed funds 841,155 544,847 480,817 64,030 13.32 801,108
A 16
15

16
January - March 2005
Customer loans
Million euros
Consolidated financial report
31.03.05 31.03.04 Variation w/o Abbey 31.12.04
with Abbey w/o Abbey Amount (%)
Public sector 4,279 4,279 5,626 (1,347) (23.94) 4,264
Other residents 128,876 128,876 110,053 18,823 17.10 124,807
Secured loans 62,962 62,962 51,655 11,306 21.89 59,826
Other loans 65,914 65,914 58,398 7,516 12.87 64,982
Non-resident sector 244,101 82,695 72,555 10,140 13.98 236,306
Secured loans 155,693 20,855 20,636 219 1.06 152,541
Other loans 88,408 61,840 51,919 9,921 19.11 83,765
Gross loans and credits 377,256 215,850 188,235 27,616 14.67 365,377
Credit loss allowance 7,195 6,223 4,775 1,448 30.32 6,853
Net loans and credits 370,061 209,628 183,460 26,168 14.26 358,524
Pro memoria: Doubtful loans 4,489 3,135 2,990 145 4.84 4,191
Public sector 2 2 3 (1) (22.33) 3
Other residents 898 898 955 (57) (5.94) 999
Non-resident sector 3,589 2,235 2,033 202 9.94 3,189
Credit risk management (*)
Million euros
31.03.05 31.03.04 Variation w/o Abbey 31.12.04
with Abbey w/o Abbey Amount (%)
Non-performing loans 4,418 3,064 2,924 140 4.78 4,105
NPL ratio (%) 1.07 1.22 1.33 (0.11) 1.02
Credit loss allowances 7,167 6,194 4,938 1,257 25.45 6,821
Specific 3,207 2,695 2,427 267 11.01 3,013
General-purpose 3,959 3,500 2,510 989 39.42 3,809
NPL coverage (%) 162.22 202.18 168.87 33.31 166.14
Ordinary non-performing and doubtful loans ** 2,978 2,637 2,426 211 8.70 2,753
NPL ratio (%) ** 0.72 1.05 1.11 (0.06) 0.69
NPL coverage (%) ** 240.69 234.86 203.50 31.36 247.77
(*) Excluding country-risk
(**) Excluding mortgage guarantees
Note: NPL ratio: Non-performing loans / computable assets
Non-performing loans by quarter
Million euros
2004 2005
Q1 Q2 Q3 Q4 Q1
Balance at beginning of period 3,513 2,924 2,909 2,933 4,105
+ Net additions * (159) 234 261 1,282 496
- Write-offs (430) (249) (237) (109) (183)
Balance at period-end
(*).- In Q4 04, 1,116.7 million relate to Abbey.
2,924 2,909 2,933 4,105 4,418
A 17

Gross loans and credits
Billion euros
365
377
205
188
196
208
216
+100.4%*
Mar 04 Jun 04 Sep 04 Dec 04 Mar 05
(w/o Abbey: +14.7%)*
(*) Exchange rate effect excluded: +101,3% (w/o Abbey, +15,5%)
NPL ratio
%
1.33
1.23
1.22
-11 b.p.
1,02
1,07
Mar 04 Dec 04 Mar 05 Dec 04 Mar 05
Million euros
w/o Abbey with Abbey
Trading portfolios*. VaR performance 2005
Million euros
20.0
19.0
18.0
17.0
D’2004
(*) with Abbey
2005 2004
Avg Latest Avg
Total 18.4 18.0 14.6
Europe 10.5 11.2 4.1
USA 2.7 2.0 2.4
Latin America 14.7 14.0 13.8
NPL coverage
%
169
Consolidated financial report
Customer loans. March 2005
% o/ operating areas
194
202
+33 b.p.
January - March 2005
166 162
Mar 04 Dec 04 Mar 05 Dec 04 Mar 05
Total trading
w/o Abbey with Abbey
Trading portfolios*. VaR by region. First quarter Trading portfolios*. VaR by product. First quarter
Million euros
Min Avg Max Latest
Total VaR 17.4 18.4 19.5 18.0
Diversification effect (1.9) (6.0) (11.7) (9.4)
Fixed income VaR 7.7 10.5 14.2 13.0
Equity VaR 3.6 4.7 5.8 5.4
Currency VaR 7.9 9.2 11.2 9.1
J’2005 F’2005
A 18
43%
10%
47%
Continental Europe
United Kingdom (Abbey)
Latin America
M’2005
17

18
January - March 2005
Consolidated financial report
Customer funds under management
Million euros
601
608
393
358
357
364
377
+70.0%*
Mar 04 Jun 04 Sep 04 Dec 04 Mar 05
(w/o Abbey: +9.8%)*
(*) Exchange rate effect excluded: +71.0% (w/o Abbey, +11.0%)
31.03.05 31.03.04 Variation w/o Abbey 31.12.04
with Abbey w/o Abbey Amount (%)
Public sector 18,172 18,172 11,467 6,705 58.48 13,998
Other residents 83,104 83,104 83,194 (90) (0.11) 86,234
Demand deposits 46,123 46,123 42,306 3,817 9.02 44,259
Time deposits 20,786 20,786 21,422 (636) (2.97) 24,258
REPOs 16,054 16,054 19,275 (3,221) (16.71) 17,592
Other 141 141 191 (50) (26.28) 125
Non-resident sector 183,455 80,171 75,905 4,266 5.62 189,941
Demand deposits 98,380 31,036 28,314 2,721 9.61 95,263
Time deposits 50,002 25,831 25,739 92 0.36 49,594
REPOs 9,818 7,134 7,891 (757) (9.60) 17,128
Public Sector 2,658 2,658 2,225 433 19.45 2,616
Other 22,597 13,512 11,735 1,777 15.15 25,339
Customer deposits 284,732 181,447 170,566 10,881 6.38 290,173
Debt securities 116,119 62,963 47,529 15,434 32.47 106,916
Subordinated debt 21,999 13,131 12,759 372 2.91 22,178
Insurance liabilities 42,404 7,513 9,343 (1,829) (19.58) 41,568
On-balance-sheet customer funds 465,253 265,055 240,197 24,858 10.35 460,835
Mutual funds 94,707 93,258 87,172 6,086 6.98 94,125
Pension plans 36,218 22,709 20,533 2,176 10.60 34,873
Managed portfolios 11,649 11,649 9,692 1,957 20.19 10,997
Off-balance-sheet customer funds 142,574 127,616 117,397 10,219 8.70 139,995
Customer funds under management 607,828 392,671 357,594 35,077 9.81 600,830
Customer funds under management
Billion euros
Customer funds under management. March 2005
% o/ operating areas
A 19
16%
39%
45%
Continental Europe
United Kingdom (Abbey)
Latin America

Shareholders' equity and capital ratios
Million euros
Consolidated financial report
Variation
January - March 2005
31.03.05 31.03.04 Amount (%) 31.12.04
Capital stock 3,127 2,384 743 31.16 3,127
Additional paid-in surplus 20,370 8,721 11,649 133.58 20,370
Reserves 10,495 8,219 2,276 27.70 6,949
Treasury stock (2) (17) 15 (87.55) (104)
On-balance-sheet shareholders' equity 33,990 19,306 14,684 76.06 30,342
Net attributable income 1,185 856 330 38.52 3,606
Interim dividend distributed (1,311) (1,109) (202) 18.22 (792)
Shareholders' equity at period-end 33,865 19,053 14,811 77.74 33,156
Interim dividend not distributed (527) (336) (191) 56.85 (1,046)
Shareholders' equity 33,338 18,718 14,620 78.11 32,111
Valuation adjustments 1,735 2,202 (467) (21.21) 1,778
Minority interests 2,283 2,046 238 11.62 2,085
Preferred securities
Shareholders' equity and
7,061 4,184 2,877 68.77 7,623
minority interests 44,417 27,149 17,268 63.61 43,596
Basic capital 25,992 17,088 8,904 52.11 24,419
Supplementary capital 20,533 8,894 11,639 130.86 19,941
Computable capital (BIS criteria) 46,525 25,982 20,543 79.07 44,360
Risk-weighted assets (BIS criteria) 358,834 211,375 147,459 69.76 340,946
BIS ratio 12.97 12.29 0.68 0.00 13.01
Tier 1 7.24 8.08 (0.84) 0.00 7.16
Cushion (BIS ratio) 17,818 9,072 8,747 96.42 17,084
Statement of changes in consolidated shareholders' equity
Million euros
Jan-Mar 05 Jan-Mar 04
Available-for-sale financial assets (496) 118
Other financial liabilities at fair value 0 0
Cash flow hedges (30) 8
Hedges of net investments in businesses abroad (13) (93)
Exchange differences 497 131
Long-term assets for sale 0 0
Net revenues recorded in shareholders' equity (42) 164
Net consolidated income (published) 1,304 966
Adjustments for changes in accounting criteria 0 0
Adjustments for misstatements 0 0
Net consolidated income 1,304 966
Parent Bank 1,143 1,020
Minority interests 119 110
Total revenues and expenses 1,262 1,130
Rating agencies
Long term Short term
Financial
Strength
Moody’s Aa3 P1 B
Standard & Poor’s A+ A1
Fitch Ratings AA- F1+ B
A 20
19

January - March 2005
20 Information by segments
Description of the segments
As a result of the entry into force of the International
Financial Reporting Standards (IFRS), Grupo Santander has
redefined its business areas. The new rules introduce
changes to both the accounting principles as well as the
way financial statements are presented, and they also
specifically regulate information on the different business
segments of companies in aspects such as their definition,
breakdown and the minimum level of information to be
supplied. The new areas also reflect the recent
incorporation of Abbey, following the consolidation of its
balance sheet at the end of 2004.
The financial information presented for the first quarter of
2005 reflects the new structure of the business areas and
the data for 2004 has been adjusted in accordance with the
criteria so that like-for-like comparisons can be made.
The financial statements of each business area have been
drawn up by adding up the Group’s basic operating units.
The information relates to both the accounting data of the
companies in each area as well as that provided by the
management information systems. In all cases, the financial
statements are adapted to the new rules, applying the same
general principles as those used in the Group.
As well as applying the general accounting changes set out
on pages 10 and 11 of this Report to the different business
areas, some internal criteria which better identify the risks
and returns of each business have been changed, in
accordance with the principles established in the new rules.
The main changes are as follows:
• Centralised costs. Although the principle of applying to
each unit the costs of central services incurred by them
for support and control is maintained, corporate and
institutional expenses related to the functioning of the
Group are excluded. These are now recorded in Financial
Management and Equity Stakes. These costs used to be
assigned to all businesses. On the other hand, the costs
related to projects underway, mainly spending on IT
systems, which were not of a corporate nature have been
applied to the corresponding business.
• Provisions and total funds for country risk. Both the risk, as
well as its provision are applied to the business area
responsible for its management and where the net revenues
of these operations are reflected. Only those intra-group
operations which maintain the provisions, where risk
disappears on an accounting basis, continue to be recorded,
as before, in Financial Management and Equity Stakes.
• Pension provisions. The general principle is that each
business assumes the cost for this concept, both the normal
allocation as well as that of possible deficits. The only
exception relates to the amortisation derived from the
initial deficit that surpasses the "corridor". In these cases,
as the aforementioned amortisation occurred because of
a corporate decision by the Group, and provided it
happens within five years and with the limit of the initial
deficit, its cost will be assumed by Financial Management
and Equity Stakes.
• Shareholders’ equity. In line with the development in the
Group of the necessary processes for calculating and
managing economic capital, the adjustment for
regulatory capital maintained until now has been
eliminated. This means that each business maintains the
shareholders’ equity it manages and only in those cases
where this figure is higher than the economic capital will
its use above this level be penalised. On the contrary no
payment will be made to the business.
In accordance with the criteria established in the IFRS, the
structure of the operating business areas is presented on
two levels:
Principal level (or geographic). The activity of the
Group’s operating units is segmented by geographical
areas. This coincides with the Group’s first level of
management and reflects our positioning in the world’s
three main currency areas. In addition, information is
provided on the most representative management units in
each one of them. The reported segments are:
• Continental Europe. This covers all retail banking
business (including Banif, the specialised private bank),
asset management and insurance and wholesale banking
conducted in Europe with the exception of Abbey. Given
the importance and specific weight of some of these
units, the financial information of the Santander Central
Hispano Network, Banesto, Portugal and Santander
Consumer is detailed.
In addition, small units outside the three geographic
areas, whose relative importance in total business is not
significant and which are extensions of the main areas,
are included in Continental Europe.
• United Kingdom (Abbey). This only covers Abbey’s
business, mainly focused on retail banking and insurance
in the UK.
• Latin America. This embraces all the Group’s financial
activities conducted via its subsidiary banks and
subsidiaries. It also includes the specialised units in
International Private Banking, as an independent and
A 21

globally managed unit. Because of their specific
importance, the financial statements of Brazil, Mexico
and Chile are also set out.
Secondary level (or business). This segments the
activity of the operating units by the type of business.
Information on the main sub segments of each unit is also
provided. The reported segments are:
• Retail Banking. This covers all customer banking
businesses (except those of Corporate Banking which are
managed globally throughout the world via a specific
customer relations model developed by the Group over
the last few years). Because of the relative importance of
this business in total activity, details are provided by both
geographic areas (continental Europe, United Kingdom-
Abbey and Latin America) as well as in the main
countries. The results of the hedging positions in each
country are also included, conducted within the sphere of
each one’s Assets and Liabilities Committee.
• Asset Management and Insurance. This includes
the contribution of the different units to the Group for
the design and management of mutual and pension
funds and insurance. Except for pension fund
management entities in Latin America which have their
own distribution networks, the Group uses, and
remunerates through agreements, retail networks to
place these products. This means that the result recorded
in this business is net (deducting the distribution cost
from gross income).
Distribution of attributable income by operative
geographical segments
January-March 2005
Latin America
• Brazil: 10%
• Mexico. 8%
• Chile: 5%
United Kingdom
(Abbey)
32%
11%
57%
Continental Europe
• SAN network: 23%
• Banesto. 9%
• Santander Consumer: 8%
• Portugal: 7%
A 22
Information by segments
January - March 2005
• Global Wholesale Banking. This business reflects the
returns from Global Corporate Banking, Investment
Banking and Markets worldwide including all treasuries
with global management, both for trading as well as
distribution to customers (always after the appropriate
distribution with Retail Banking customers), as well as
equities business.
As well as these operating units, which cover everything by
geographic area and businesses, the Group continues to
maintain the area of Financial Management and
Equity Stakes. This area incorporates the centralised
activities relating to equity stakes in industrial and financial
companies, financial management of the structural
exchange rate position and of the parent bank’s structural
interest rate risk, as well as management of liquidity and of
shareholders’ equity through issues and securitisations. As
the Group’s holding entity, it manages all capital and
reserves and allocations of capital and liquidity. It also
incorporates the accelerated amortisation of goodwill but
not, as previously stated, the costs related to the Group’s
central services apart from corporative and institutional
costs related to the Group’s functioning.
As the sum of the amounts of the operating geographic
areas (main level) is the same as that of the operating
business areas (secondary level), adding the results of
Financial Management and Equity Stakes to one or other
total gives the overall Group total.
Distribution of income before tax by operative business
segments
January-March 2005
11%
8%
14%
19%
48%
Retail banking: 75%
Retail Continental Europe
Retail Latin America
Retail United Kingdom (Abbey)
Asset Management and Insurance
Global Wholesale Banking
21

January - March 2005
22 Information by principal segments
Income statement and balance sheet principal segments
Million euros
Income statement
Operating areas Continental Europe
Variation (%)
Jan-Mar 05 Jan-Mar 04 Total w/o Abbey Jan-Mar 05 Jan-Mar 04 Var. (%)
Net interest income 2,548.7 1,995.0 27.76 8.07 1,317.3 1,191.0 10.60
Inc. from companies accounted by equity method 7.3 15.2 (52.12) (55.66) 5.4 13.8 (60.76)
Net fees 1,403.0 1,109.3 26.47 7.18 762.9 726.8 4.97
Insurance activity 214.4 32.3 563.14 64.41 30.8 16.4 87.97
Commercial revenue 4,173.4 3,151.9 32.41 8.03 2,116.4 1,948.0 8.64
Gains (losses) on financial transactions 448.9 247.4 81.46 41.15 150.8 62.2 142.46
Gross operating income
Income from non-financial services (net)
4,622.3 3,399.3 35.98 10.44 2,267.2 2,010.2 12.78
and other operating income 108.2 37.3 190.10 21.39 64.8 51.8 25.15
General administrative expenses (2,219.5) (1,565.4) 41.79 4.21 (908.7) (879.5) 3.32
Personnel (1,333.1) (982.3) 35.72 4.19 (632.1) (611.5) 3.38
Other administrative expenses (886.3) (583.1) 52.02 4.23 (276.6) (268.0) 3.19
Depreciation and amortisation (268.1) (192.4) 39.34 1.28 (122.0) (123.1) (0.95)
Net operating income 2,242.9 1,678.8 33.60 17.54 1,301.3 1,059.4 22.84
Net loan loss provisions (294.2) (330.9) (11.09) (28.65) (177.8) (248.8) (28.54)
Other income (26.3) (57.3) (54.20) (20.69) (11.9) (43.3) (72.57)
Income before taxes 1,922.4 1,290.6 48.96 31.08 1,111.6 767.2 44.89
Income from ordinary activity 1,414.4 985.8 43.47 27.91 784.7 549.4 42.84
Net consolidated income 1,414.8 988.1 43.19 27.67 785.2 549.4 42.92
Attributable income to the Group 1,327.3 906.9 46.35 29.44 752.2 519.2 44.87
Balance sheet
Loans and credits 369,465 182,891 102.01 14.29 171,790 151,942 13.06
Trading portfolio 87,280 29,104 199.89 23.54 19,191 17,334 10.72
Available-for-sale financial assets 54,796 29,548 85.45 13.01 19,451 15,907 22.28
Due from credit institutions 128,111 81,827 56.56 21.03 79,863 61,524 29.81
Intangible assets and property and equipment 10,378 5,087 104.01 1.39 3,999 3,919 2.04
Other assets 48,866 28,836 69.47 14.14 21,780 19,666 10.75
Total assets/liabilities & shareholders' equity 698,896 357,292 95.61 16.29 316,073 270,293 16.94
Customer deposits 278,866 159,953 74.34 9.77 125,604 114,667 9.54
Marketable debt securities 80,900 21,163 282.26 31.10 22,631 15,774 43.47
Subordinated debt 11,225 2,267 395.12 3.99 1,582 1,750 (9.57)
Insurance liabilities 42,404 9,343 353.86 (19.58) 6,356 8,520 (25.40)
Due to credit institutions 143,597 84,557 69.82 28.25 82,552 64,349 28.29
Other liabilities 117,625 61,580 91.01 17.97 63,528 53,452 18.85
Shareholders' equity 24,279 18,429 31.75 15.05 13,821 11,781 17.31
Off-balance-sheet funds 142,574 117,397 21.45 8.70 91,797 85,330 7.58
Mutual funds 94,707 87,172 8.64 6.98 77,388 73,356 5.50
Pension funds 36,218 20,533 76.39 10.60 8,415 7,588 10.89
Managed portfolios 11,649 9,692 20.19 20.19 5,995 4,386 36.69
Total customer funds under management 555,969 310,123 79.27 9.90 247,970 226,041 9.70
Total managed funds 841,471 474,689 77.27 14.41 407,871 355,622 14.69
Ratios (%) and other data
ROE 22.11 20.21 1.90 p. 22.63 18.39 4.24 p.
Efficiency ratio 48.02 46.05 1.97 p. (2.60 p.) 40.08 43.75 (3.67 p.)
NPL ratio 1.05 1.28 (0.23 p.) (0.09 p.) 0.86 0.89 (0.03 p.)
Coverage ratio 172.32 188.73 (16.41 p.) 31.28 p. 262.29 224.47 37.82 p.
Number of employees (direct & indirect) 124,462 101,311 22.85% (0.30%) 43,387 43,836 (1.02%)
Number of branches 9,935 9,151 8.57% 0.72% 5,241 5,112 2.52%
A 23

United Kingdom Latin America
(Abbey)
Jan-Mar 05 Jan-Mar 05 Jan-Mar 04 Var. (%)
Information by principal segments
January - March 2005
Income statement
392.7 838.7 803.9 4.32 Net interest income
0.5 1.3 1.4 (6.86) Inc. from companies accounted for by the equity method
214.0 426.0 382.5 11.38 Net fees
161.3 22.4 16.0 40.23 Insurance activity
768.6 1,288.4 1,203.8 7.03 Commercial revenue
99.7 198.4 185.2 7.14 Gains (losses) on financial transactions
868.3 1,486.8 1,389.1 7.04 Gross operating income
Income from non-financial services (net)
62.9 (19.6) (14.5) 34.79 and other operating income
(588.3) (722.4) (685.8) 5.34 General administrative expenses
(309.7) (391.3) (370.8) 5.53 Personnel
(278.6) (331.1) (315.0) 5.11 Other administrative expenses
(73.2) (72.9) (69.3) 5.24 Depreciation and amortisation
269.7 671.9 619.4 8.47 Net operating income
(58.1) (58.3) (82.0) (28.99) Net loan loss provisions
19.2 (33.6) (14.0) 139.67 Other income
230.8 580.1 523.4 10.83 Income before taxes
153.4 476.3 436.5 9.12 Income from ordinary activity
153.4 476.3 438.7 8.56 Net consolidated income
153.4 421.7 387.7 8.78 Attributable income to the Group
Balance sheet
160,433 37,242 30,949 20.33 Loans and credits
51,324 16,765 11,770 42.44 Trading portfolio
21,404 13,941 13,640 2.20 Available-for-sale financial assets
29,072 19,176 20,303 (5.55) Due from credit institutions
5,220 1,159 1,168 (0.79) Intangible assets and property and equipment
15,954 11,133 9,170 21.41 Other assets
283,408 99,415 86,999 14.27 Total assets/liabilities & shareholders' equity
103,285 49,977 45,286 10.36 Customer deposits
53,156 5,114 5,390 (5.12) Marketable debt securities
8,867 775 517 49.85 Subordinated debt
34,890 1,158 822 40.74 Insurance liabilities
35,156 25,889 20,208 28.11 Due to credit institutions
44,976 9,120 8,128 12.21 Other liabilities
3,077 7,382 6,648 11.04 Shareholders' equity
14,959 35,819 32,067 11.70 Off-balance-sheet funds
1,449 15,871 13,817 14.87 Mutual funds
13,510 14,294 12,945 10.43 Pension funds
— 5,654 5,306 6.56 Managed portfolios
215,157 92,842 84,082 10.42 Total customer funds under management
298,366 135,234 119,067 13.58 Total managed funds
Ratios (%) and other data
17.61 23.31 23.29 0.02 p. ROE
67.75 48.59 49.37 (0.78 p.) Efficiency ratio
0.84 2.73 3.20 (0.47 p.) NPL ratio
71.81 160.15 140.36 19.79 p. Coverage ratio
23,450 57,625 57,475 0.26% Number of employees (direct & indirect)
718 3,976 4,039 (1.56%) Number of branches
A 24
Income statement and balance sheet principal segments
Million euros
23

24
January - March 2005
Continental Europe
Information by principal segments
Continental Europe includes all the activities carried out in
this part of the world (i.e. both retail banking as well as
asset management, insurance and global wholesale
banking). The good performance during the first quarter
was underscored by the 44.9% rise in attributable income.
There were two main drivers. The first was the 22.8%
increase in net operating income, the result of much higher
revenues than in previous quarters and almost flat costs. The
second was the reduced need for net loan-loss provisions,
due to the high coverage levels already reached, in
accordance with the new International Financial Reporting
Standards (IFRS), which require lower provisions this year.
The income statement’s performance reflects greater activity,
mainly lending, which continued to grow at a fast pace (+15%,
eliminating securitisations), an improved efficiency ratio (-3.7
p.p.) and higher productivity. Business and attributable income
per employee rose 13% and 46%, respectively.
Net interest income was EUR 1,317.3 million, 10.6% more
than in the first quarter of 2004, and 2.8% higher than in
the fourth quarter of 2004. This growth was due to the
greater feeding through to the income statement of the rise
in business volumes, the result of the stabilisation of spreads
over the last few months. The trend was favourable in the
four large business units included here. Of note was
Santander Central Hispano Network whose net interest
income was 4.4% more than in the first quarter of 2004.
Total fees and insurance activity increased 6.8% to EUR 793.7
million. Portugal and Banif registered the highest growth
while that of the Santander Central Hispano Network and
Banesto was more moderate. Mutual and pension funds and
insurance, fuelled by increased activity and volumes,
continued to be the main drivers behind the growth in fees.
The higher gains on financial transactions reflect the growth
in the distribution of products to customers. Of note in this
trend, which continued that begun in 2004, was the 42.6%
rise at the Santander Central Hispano Network and 16.3%
at Banesto. Another factor was the market valuation of
derivatives after applying the IFRS as it had a positive impact
on the gains on financial transactions of wholesale banking.
As a result of the higher revenues, gross operating income
grew 12.8%. This together with general administrative
expenses that only rose 3.3% and a good performance in all
units led to an improvement of 3.7 p.p. in the efficiency
ratio to 40.1%.
All units improved their efficiency ratios. Of note was the
Santander Network and Portugal (around 40%) and
Santander Consumer (32%).
Net operating income was 22.8% higher than in the first
quarter of 2004 at EUR 1,301.3 million. The four large retail
banking units, whose results are set out below and which
generated 87% of total net operating income, registered
double digit growth.
Net loss provisions declined 28.5% in all units, as the limit
established by the Bank of Spain of 125% of the necessary
generic provision has been reached. This means that as of
now the only part that needs provisions is that resulting
from the increase in lending.
As a result, year-on-year growth (22.8%) in net operating
income was double that in attributable income (+ 44.9% to
EUR 752.2 million).
The good earnings trend in Continental Europe was
underlined in the first quarter when not only did it grow
notably over the same period of 2004, but also gross
operating income, net operating income and attributable
income were higher than in all of last year’s quarters.
Lending excluding securitisations rose 15%, and was
stronger in Retail Banking (+18%). In Wholesale Banking
basic financing has diminished due to the lower financing
needs of big companies.
As regards total lending, Banesto Retail Banking increased
28%, the Santander Central Hispano Network 18% and
Santander Consumer 31% (excluding securitisations).
Mortgages and companies continued to grow by more than
20%. Deposits rose 10% and mutual and pension funds
6%.
A 25

Continental Europe. Main units
Million euros
Income statement
Information by principal segments
Santander Central Santander
January - March 2005
Hispano Network Banesto Consumer Portugal
Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%)
Net interest income 492.4 4.38 265.2 7.04 310.9 35.44 153.4 7.66
Inc. from companies accounted by equity method — — 0.4 (96.49) 5.1 37.95 — —
Net fees 373.9 4.39 135.2 7.72 38.6 (22.09) 76.1 17.04
Insurance activity — — 7.5 39.58 — — 5.0 15.95
Commercial revenue 866.3 4.38 408.3 5.01 354.5 25.40 234.6 10.71
Gains (losses) on financial transactions 40.1 42.64 29.9 16.26 11.0 — 18.4 (18.40)
Gross operating income
Income from non-financial services (net)
906.3 5.64 438.2 5.71 365.6 33.22 252.9 7.92
and other operating income (1.3) — 63.3 37.54 5.6 (31.44) (2.4) (15.18)
General administrative expenses (370.9) 0.25 (197.4) 3.17 (115.8) 13.50 (106.5) (0.47)
Personnel (284.9) 0.43 (145.8) 3.54 (56.8) 18.86 (70.0) 0.40
Other administrative expenses (86.0) (0.33) (51.6) 2.15 (59.0) 8.79 (36.5) (2.08)
Depreciation and amortisation (58.7) (8.66) (24.9) 1.92 (12.6) 57.62 (13.9) 5.09
Net operating income 475.4 12.01 279.1 14.05 242.7 40.70 130.1 16.90
Net loan loss provisions (47.6) (57.74) (38.6) 15.13 (73.4) (7.71) (2.6) —
Other income (3.2) (10.15) (5.7) (37.75) (6.6) 75.74 1.3 —
Income before taxes 424.6 37.73 234.8 16.22 162.7 82.40 128.8 42.09
Income from ordinary activity 305.9 38.22 158.7 20.66 111.5 76.58 93.8 16.75
Net consolidated income 305.9 38.22 158.7 20.66 111.5 76.58 93.8 16.75
Attributable income to the Group 305.7 38.17 126.3 19.84 111.4 77.81 93.5 21.60
Balance sheet
Loans and credits 71,805 8.98 40,384 22.62 23,825 36.66 16,333 (8.93)
Trading portfolio — — 4,795 188.04 3 34.61 566 14.26
Available-for-sale financial assets 1 (34.34) 8,773 2.78 59 (80.44) 9,167 66.46
Due from credit institutions 94 (16.39) 15,266 66.65 10,674 23.07 9,983 (26.32)
Intangible assets and property and equipment 1,585 (2.78) 1,462 8.98 358 (8.91) 436 5.32
Other assets 833 (3.30) 7,093 35.85 932 17.99 3,164 36.21
Total assets/liabilities & shareholders' equity 74,318 8.51 77,773 32.14 35,851 29.93 39,650 (1.43)
Customer deposits 40,071 (3.48) 30,665 10.71 12,350 17.82 11,444 (0.66)
Marketable debt securities 23 (94.80) 14,385 104.24 3,029 24.02 3,968 14.04
Subordinated debt — — 1,116 (12.20) 156 20.90 311 (11.21)
Insurance liabilities — — 2,576 16.91 — — 2,108 32.07
Due to credit institutions 30 (53.93) 17,410 56.30 18,523 54.78 16,884 (11.18)
Other liabilities 28,589 31.66 8,891 26.99 719 (63.27) 3,041 11.98
Shareholders' equity 5,606 18.00 2,731 9.13 1,075 74.80 1,894 21.92
Off-balance-sheet funds 50,065 11.46 13,308 8.32 255 19.64 8,499 17.13
Mutual funds 44,750 11.47 11,524 6.38 229 18.65 5,250 12.30
Pension funds 5,315 11.43 1,342 10.52 26 29.27 986 13.08
Managed portfolios — — 442 85.75 — — 2,264 32.41
Total customer funds under management 90,159 3.78 62,050 22.87 15,790 19.02 26,330 8.79
Total managed funds 124,383 9.68 91,081 28.03 36,106 29.85 48,149 1.41
Ratios (%) and other data
ROE 22.40 3.21 p. 19.36 2.33 p. 45.95 6.51 p. 20.76 1.04 p.
Efficiency ratio 40.93 (2.20 p.) 45.04 (1.11 p.) 31.69 (5.50 p.) 42.11 (3.55 p.)
NPL ratio 0.53 (0.12 p.) 0.57 (0.12 p.) 2.44 0.40 p. 1.68 0.21 p.
Coverage ratio 423.24 124.19 p. 336.68 63.50 p. 127.23 (4.04 p.) 182.44 25.95 p.
Number of employees (direct & indirect) 19,218 (5.78%) 9,700 (2.05%) 5,269 29.55% 6,391 (4.01%)
Number of branches 2,576 1.02% 1,685 (0.30%) 256 39.13% 669 5.02%
A 26
25

26
January - March 2005
Information by principal segments
Santander Central Hispano Network
The Santander Central Hispano Network began 2005 by
consolidating the upward trend on which it ended 2004.
This was seen in its record attributable income which at EUR
305.7 million was 38.2% higher than in the first quarter of
2004, after applying the new International Financial
Reporting Standards (IFRS), and 31.3% more than the
fourth quarter.
The main drivers were significant activity, increasingly
efficient management of prices, cost control and the quality
of the lending portfolio (underscored by moderate loan-loss
provisions).
Net interest income definitively consolidated its growth
path. It was 4.4% higher than in the first quarter of 2004
at EUR 492.4 million. This year-on-year growth was not seen
during 2004. Moreover, the pace has been quickening in
the last months.
The main factor at play here was the growth in monthly
average balances, both lending (+18% y-o-y) and customer
funds (+7%). Meanwhile, the increasingly efficient pricing of
loans enabled the portfolio’s spreads to be stabilised over the
last few months, and together with a better performance of
interest rates fed the higher business volumes through to the
income statement to a greater extent.
The business drive over the past year in products such as
mutual funds, insurance, means of payment, operations
with securities and hedging of interest rates and exchange
rates – all of them purely business activities – produced EUR
414.0 million of non-financial fees and gains on financial
transactions, 7.2% more than in the first quarter of 2004.
Gross operating income was 5.6% higher at EUR 906.3
million.
This performance is even more noteworthy of one bears in
mind that it was achieved with lower operating costs. They
amounted to EUR 429.6 million, 1.1% lower than in the
first quarter of 2004 and also below all other quarters of
last year.
The combination of higher revenues and lower costs has a
multiplying effect on net operating income, which rose
12.0% over the first quarter of 2004 to EUR 475.4 million.
The efficiency ratio improved to 40.9%. The recurrence
ratio (non-financial fees as a percentage of costs) continued
to improve to 101% and 112% including gains on financial
transactions.
Adapting the 2004 and 2005 income statements to the new
International Financial Reporting Standards (IFRS) particularly
affects loan-loss provisions, whose volume was 57.7%
lower than in the first quarter of 2004 as fewer generic
provisions were needed after reaching the upper limit. The
ratio of non-performing loans continued at the low levels of
recent years (0.53% at the end of the first quarter) and NPL
coverage was 423%.
Attributable income was EUR 305.7 million, 38.2% more
than in the first quarter of 2004 (+EUR 84.4 million).
As regards the business volume, lending growth remained
positive for mortgages (+21%), loans (+19%) and
leasing/renting (+18%). Moreover, growth was spread
between individual customers, whose balances rose 16%,
large and medium-sized companies (+19%) and SMEs and
micro companies (+26%).
Growth in lending was combined with efficient
management of prices.
The various concepts and segments of customer funds also
grew, although more modestly than loans. For example, the
average balances of demand deposits increased 7%, same
growth for the sum of time deposits and mutual funds. A
large part of the business drive during the first quarter went
into offering alternative investment opportunities to
customers that participated in the "Supersatisfacción"
deposit which matured in March. The total amount
maturing was of EUR 3,000 million.
Noteworthy during the quarter, regarding customer funds,
was the selling of the "Superselección" equities fund (EUR
2,400 million placed).
Banesto
Grupo Banesto’s business, focused on targeted segments,
grew substantially during the first quarter and together
with stable customer spreads, cost control and credit risk
quality produced quality results in line with the goals set for
the year.
Like the other areas, Banesto’s figures were drawn up again
on the basis of the criteria set out on pages 20 and 21 of
this Report. This means that the data that follows does not
coincide with those published independently by Banesto.
Net interest income amounted to EUR 265.2 million, 7.0%
higher than in the first quarter of 2004. This was the result
of strong activity in the most profitable segments and
businesses and maintaining customer spreads, once the
repricing of loans was absorbed.
A 27

Net fees increased 7.7% over the first quarter of 2004 to
EUR 135.2 million. Those from mutual and pension funds
rose 7.3% and 7.1% from services, backed by the
transactional activity of our customers. Insurance activity
grew 39.6% year-on-year.
Gains on financial transactions continued to reflect the
increasing demand by customers for treasury products. They
amounted to EUR 29.9 million, 16.3% more than in the first
quarter of 2004 and a significant increase particularly given
the notable growth in previous years. Income for companies
accounted for by the equity method dropped to EUR 0.4
million compared to EUR 10.1 million in 2004. The decline
was due to the extraordinary income in 2004 of a real estate
subsidiary that in 2005 consolidates by global integration.
As a result of these factors, gross operating income rose
5.7% year-on-year to EUR 438.2 million. Excluding the
aforementioned extraordinary income, increase was 8.3%
Operating costs declined 3.0%, consistent with the Group’s
discipline in cost control, and combined with higher gross
operating income produced a further improvement in the
efficiency ratio (from 46.2% in the first quarter of 2004 to
45.0% a year later).
Higher gross operating income and revenue from nonfinancial
services, coupled with the lower growth in costs,
pushed up net operating income by 14.1% over the first
quarter of 2004 to EUR 279.1 million.
The net loan-loss provision of EUR 38.6 million was 15.1%
more than in the first quarter of 2004, the result of the
increased volume of lending. Net specific allowances
amounted to EUR 8.7 million, only 8% more than in the first
quarter of 2004. The generic allowance was EUR 29.8
million (EUR 27.0 million in Q104). Banesto has already
reached the upper limit of 125% of the generic provision.
Income before taxes was EUR 234.8 million. Attributable
income, after corporate income tax and minority interests,
was EUR 126.3 million, 19.8% higher than in the first
quarter of 2004.
Lending, adjusted for securitisations, amounted to EUR
42,045 million (+21% over Q104). Lending to the private
sector increased 23%, and within it, secured loans rose
30%, commercial bills 5% and other credits and loans
18%.
Lending growth went hand in hand with careful control of
credit risk quality. The ratio of non-performing loans was
0.57% at March 31, 2005, well below the 0.69% registered
a year earlier. NPL coverage also fared well and increased
from 273% to 337% over the same period.
A 28
Information by principal segments
On-balance sheet customer funds rose 28% year-on-year to
EUR 48,742 million and off-balance sheet funds increased
8%. Total managed funds were 23% higher than in March
2004 at EUR 62,050 million.
Santander Consumer
As part of its policy of combining organic growth with
selective acquisitions, Santander Consumer launched in the
first quarter of 2005 a bid to buy 100% of the Norway’s
Bankia Bank ASA. The bid was accepted by shareholders
and after obtaining the corresponding authorisations the
deal is scheduled to be completed in the second quarter.
Founded in 2001, Bankia generated income before taxes of
EUR 3.4 million in 2004, up from EUR 800,000 in 2003. It
has a portfolio of revolving loans with a net value of EUR
78.8 million (market share of 4%) and EUR 86.3 million of
customer deposits. Bankia’s share of the credit card market
is more than 3%.
Santander Consumer’s new lending amounted to EUR 4,255
million in the first quarter, 26.4% more year-on-year, and
driven by solid organic growth (+15.4% on a like-for-like
basis) and new incorporations. Managed assets totalled EUR
28,000 million.
All the main units registered organic growth, as well as markets
(Spain and Portugal, +16%; Germany, +5%; Italy, +37%) and
products (auto financing, +11%; consumer loans and cards,
+22%; direct, +28%). The new companies incorporated in
Poland, Scandinavia and the Netherlands increased their total
auto financing by 27.6% year-on-year. The rise in lending was
accompanied by a ratio of non-performing loans of 2.44% and
NPL coverage of 127% in the first quarter of 2005.
Gross operating income increased 33.2% year-on-year to EUR
365.6 million, the result of growth in average earning assets.
Revenue growth was double that of costs, improving the
efficiency ratio to 31.7% and producing 40.7% growth in net
operating income (+32% excluding the perimeter effect).
Attributable income to the Group was EUR 111.4 million,
77.8% more than in the first quarter of 2004, and 61.5%
excluding the contribution of the new units acquired in
Norway, Poland and the Netherlands.
Portugal
January - March 2005
In an atmosphere of uncertainty over the speed of Portugal’s
economic recovery, Santander Totta’s attributable income was
EUR 93.5 million, 21.6% more than in the first quarter of 2004.
27

28
January - March 2005
Information by principal segments
Commercial revenue increased 10.7%, spurred by growth
of 17% in net fees. Of note was that in mortgages, cards
and insurance, in line with the business volumes in these
products. Furthermore, despite the strong competition in
spreads, net interest income rose 7.7% year-on-year, as a
result of careful management of prices and volumes.
Higher revenues, together with almost flat costs, produced
an 16.9% rise in net operating income and a further
improvement in the efficiency ratio to 42.1% from 45.7%
in the first quarter of 2004.
Attributable income was 21.6% higher than in the first
quarter of 2004.
Total lending, including securitised customer loans, rose 6%, in
line with the market. New mortgages grew by more than 16%
and new consumer loans 15%. The non-performing loans ratio
increased to 1.68% from 1.47% in March 2004 (1.23% and
1.24%, respectively, including securitised loans). NPL coverage
increased from 156% to 182% over the same period.
In customer funds, capitalisation insurance and mutual
funds increased 30% and 12%, respectively. Santander
Totta was ranked second in the first quarter in Portugal’s
market for mutual funds (market share of 18.3%).
Others
The rest of businesses (Private Banking - Banif, Asset
Management and Insurance and Global Wholesale Banking)
generated attributable income of EUR 115 million, EUR 62.3
million more than in the first quarter of 2004.
Banif’s performance seems to confirm the success of the new
service of a single and global model for customers. It
combines, within personalised advice, a range of high valueadded
services and other basic ones. This strategy helped to
produce year-on-year growth of 21.1% in net operating
income and 43.0% in attributable income.
Asset Management and Insurance increased its attributable
income by 39.0%, with growth in both mutual funds as well
as in pensions and insurance.
Global Wholesale Banking’s attributable income doubled
because of the positive impact of applying the IFRS to the
valuation of derivatives and the lower net loan-loss
provisions required.
United Kingdom (Abbey)
Abbey became part of Grupo Santander on November 12,
2004 and only its balance sheet was consolidated at
December 31. Its first quarter 2005 income statement is,
therefore, the first to be included in the Group’s results.
Like other businesses, Abbey’s income statement has been
drawn up in accordance with the criteria set out on pages
20 and 21 of this Report. This means that the figures given
here do not coincide with its own.
Once the acquisition was completed, a new, more agile and
business-focused organisational structure was created. A
new management team has been completed with new
executives for the Sales and Marketing and Insurance and
Asset Management divisions, as well as appointing new
people to run the three sales channels: branches, telephone
banking and financial brokers.
A new corporate logo was also approved. The new logo, in
line with the Group’s global one displayed around the
world, adds the colour red and Santander’s flame to the
Abbey brand.
Other measures taken, in line with the strategic priorities set
for 2005, were:
• In addition to the new executives in charge of sales
channels, the following steps were taken to boost sales
productivity in all channels and stabilise recurrent revenue
flows: the launch of a new branch management structure;
new hirings and a training plan to increase the number of
sales staff; reviewing and relaunching fixed-rate
mortgages and investment products.
It is too early for the changes being made to have had a
meaningful impact on sales performance, but first quarter
results nonetheless include some encouraging early signs.
Mortgage approvals are improving, with our overall share
of approvals in March better than at any point in the last
15 months.
• In order to cut costs to the target of £150 million of
recurrent expenses this year, at the end of March, 2,400
people were notified their jobs would be eliminated
(1,000 have already left). The forecast for the whole of
2005 is a reduction of 4,000 employees. Progress was
also made with suppliers for global agreements, two call
centres were closed and the closure of one more was
announced.
The impact of these cost saving measures, limited in the
first quarter, together with the launch of new IT and
business platforms, will be felt in coming quarters.
Abbey generated net operating income of EUR 269.7
million in the first quarter and attributable income of EUR
A 29

153.4 million (£106.4 million at an average exchange rate
of EUR 1.4420 per £).
Net interest income was EUR 392.7 million. There was a
slight fall in spreads, partly due to a smaller number of early
repayments of mortgages which translated into reduced
revenue from early repayments of mortgages.
Net fees amounted to EUR 214.0 million. Of note were the
strength of those from mortgages and the increase in those
from bank accounts. Insurance activity generated EUR
161.3 million during the quarter.
Gains on financial transactions amounted to EUR 99.7
million, generated by business from customers of Abbey
Financial Markets (AFM).
As a result, gross operating income of EUR 868.3 million
was approximately in line with the recurrent revenues of the
third and fourth quarters of 2004.
General administrative expenses amounted to EUR 588.3
million including EUR 37 million of restructuring costs. Costs
are beginning to be cut at the different business areas of
the bank, reflecting the first measures taken.
Net loan-loss provisions were EUR 58.1 million. Abbey’s
credit risk quality was underscored at the end of March by
a non-performing loans ratio of just 0.84%.
Abbey’s retail banking operations generated income before
taxes of EUR 148.1 million and that of insurance was EUR
82.7 million.
Customer loans amounted to EUR 161,406 million at the
end of the quarter, an increase of 2.4% over December
2004.
Managed customer funds (excluding REPOs) amounted to
EUR 212,472 million, almost the same as at the end of
2004.
Customer activity such as the opening of new current
accounts and the granting of credit cards was higher than
in the fourth quarter of 2004.
In general terms, new business in most product lines is
beginning to recover, although it has yet to fully benefit
from the changes underway.
Latin America
Latin America registered its highest economic growth
(5.9%) in 2004 of the last 25 years. The region’s economy
A 30
Information by principal segments
January - March 2005
continued to expand in the first months of 2005, but at a
more sustainable pace. The first quarter activity indicators
suggest that GDP growth in 2005 will be 4.0%-4.5%. As
well as the lower pace of growth, inflation slowed to 6.7%
in March and the expectation for the end of 2005 is around
6%.
The external environment is supporting Latin America’s
improved performance, as global economic growth is on an
upswing and this year is expected to be another one when
it will be higher than the historic average. The region’s
current account could register its third consecutive surplus
in 2005.
Pro-active monetary and fiscal policies are aiding the
improved macroeconomic fundamentals. The central banks
of Brazil and Mexico are increasing their interest rates in
order to reduce their inflation expectations. In Chile, the
objective of higher interest rates is to end the expansive
monetary policy and restore positive real rates once the
economy grows at a brisk pace.
Fiscal policies have been equally rigorous. While Brazil’s
primary surplus remained at 4.25% of GDP, Mexico’s
budget deficit was close to zero and in Chile the structural
surplus rule of 1% of GDP remained in force.
As well as these macroeconomic achievements, the Latin
American financial system, after a notable recovery in 2004,
continued to grow at a brisk pace in the first months of
2005 (+18% nominal growth in savings and +20% in
lending). This growth meant a rise in bankarisation, with
more people obtaining loans.
In the first quarter Grupo Santander generated attributable
income in Latin America of EUR 421.7 million (+8.8% y-o-y
and +11% excluding the exchange rate impact). Retail
Banking, reflecting the rise in customer business, increased
its attributable income by 50.0% (+53.6% excluding the
exchange rate impact).
Grupo Santander is the leading financial franchise in Latin
America by on-balance sheet business volume and
attributable income. It has 3,976 points-of-sale in the
region, 19 million customers, of which more than 800,000
are companies, and 57,625 employees. Its global share of
the region’s banking business (loans + deposits + mutual
funds) is 9.7% (weighting of the market share in each of
the countries where the Group operates). Its share increased
20 b.p. in the year to March 2005.
The Group’s business model for Latin America is clearly
focused on the customer, highly segmented, backed by
technology and with appropriate management of costs and
risks. Since the end of 2003, it has focused on business
29

30
January - March 2005
Information by principal segments
growth and development of recurrent revenues. This year,
given the favourable macroeconomic outlook for the
region and its financial stability, provides a good
opportunity for Grupo Santander to continue to expand its
retail businesses.
The following factors should be taken into account when
analysing the first quarter financial information:
• The earnings performance in euros continued to be affected
by exchange rates. The dollar, the currency used to manage
the area, fell 5% against the euro (average exchange rate of
the first quarter of 2005 against that of the same period of
2004). The dollar’s slide against the euro was partly offset by
the renewed appreciation of some Latin American
currencies against the dollar, particularly the Brazilian real
and the Chilean peso. The average exchange rate of the real
appreciated from 3.62 to 3.49 per euro, while other
currencies depreciated: the Chilean peso from 735 to 759,
the Mexican peso from 13.7 to 14.7 and the Venezuelan
Bolivar (which devalued its exchange rate on March 3, 2005
to 2,510 per dollar) from 2,227 to 2,610.
• Interest rates, for the region as a whole, tended to rise
during 2004 and the first quarter of 2005. Average
nominal interest rates, between the first quarter of 2004
and the same period of 2005, rose sharply in Brazil
(14%), Chile (52%), Mexico (60%) and Puerto Rico
(141%), while falling in Venezuela (-9%). The balances
of the banks in these countries were managed in such a
way as to maximise the results and reduce the market
risks. In general terms, the rise in the region’s interest
rates had a positive impact on the higher spreads of
commercial business, while the profile adopted by
interest rate curves eroded the revenues of financial
and/or market businesses.
The main developments of the Group’s activity in Latin
America during the first quarter were:
Latin America. Results
Million euros
• The pace of growth in lending continued to accelerate.
Grupo Santander grew faster than the market, increasing
its market share to 11.6% from 11.0% at the end of
2003. The total volume, excluding the exchange rate
impact, increased 23% year-on-year (excluding Fobaproa
in Mexico). The Group’s focus on strengthening
businesses with the greatest degree of revenue recurrence
resulted in year-on-year rises of 31% and 39% in lending
to individuals and SMEs, respectively.
• In funds, on-balance sheet deposits (without REPOs)
increased 18%, excluding the exchange rate impact,
while mutual funds rose 16%. Pension funds grew 13%,
bringing the overall increase in total managed funds to
15%.
• Commercial revenue increased 7.0% (+9.5% eliminating
the exchange rate impact). The rise in nominal interest
rates (27% for the whole region) positively affected the
spreads on retail businesses, but the spreads on financial
businesses were, in general, negatively affected by the
profile adopted by the interest rate curves.
• The Group’s strong drive to develop banking/business
services that generate fees (credit cards, cash
management, foreign trade, mutual funds and insurance)
produced growth of 14.3% in total fees and insurance
activity (excluding the exchange rate impact).
• Gains on financial transactions did not change very much.
• Gross operating income increased 9.5% to EUR 1,486.8
million (excluding the exchange rate impact).
• The pace of growth in costs, as anticipated in previous
quarters, slowed. General administrative expenses rose
5.3% year-on-year (+7.1% excluding the exchange rate
impact), a rate that tends to converge with inflation
during the period.
Gross operating Net operating Attributable income
income income to the Group
Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%)
Brazil 528.1 2.31 210.9 (10.79) 134.9 (1.52)
Mexico 360.8 3.97 160.7 2.65 99.8 (1.50)
Chile 231.6 9.37 122.7 27.07 70.6 36.17
Puerto Rico 69.1 0.90 27.3 5.66 15.8 10.54
Venezuela 117.4 31.43 66.0 50.65 33.3 (9.32)
Colombia 24.5 11.41 9.0 7.23 14.7 17.90
Argentina 84.0 20.91 37.1 80.58 11.4 —
Rest 71.3 10.08 38.3 22.04 41.3 15.06
Total 1,486.8 7.04 671.9 8.47 421.7 8.78
A 31

• Net loan loss provisions were 25.2% lower (excluding the
exchange rate impact), maintaining the risk premium at very
moderate levels of only 0.6% in the first quarter of 2005.
This positive evolution of risk premiums occurred even
though the segments with the highest premium (and also
with the largest net return) are those growing the most.
• The non-performing loans ratio (2.73%) and coverage
(160%) improved over the first quarter of 2004 (-0.5
points the ratio and +20 points coverage), reflecting the
region’s high credit risk quality.
A 32
Information by principal segments
January - March 2005
• The efficiency (48.6%) and recurrence (59.0%) ratios also
improved over the first quarter of 2004 (0.8 and 3.2
points, respectively).
• By segments, and excluding the exchange rate impact,
Retail Banking’s gross operating income increased 16.7%,
net operating income rose 40.7% and income before
taxes 50.0%. Asset Management and Insurance also
registered growth and Wholesale Banking was hit by the
negative impact of treasuries.
31

32
January - March 2005
Latin America. Main units
Million euros
Income statement
Information by principal segments
Brazil Mexico Chile
Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%)
Net interest income 282.2 (7.87) 242.9 21.61 137.7 8.17
Inc. from companies accounted by equity method 0.1 50.68 0.0 — 0.3 —
Net fees 136.3 15.38 104.3 11.14 55.1 9.77
Insurance activity 9.6 133.13 2.1 (35.20) 4.5 16.96
Commercial revenue 428.3 (0.10) 349.2 17.69 197.5 8.96
Gains (losses) on financial transactions 99.8 14.09 11.7 (76.83) 34.0 11.82
Gross operating income
Income from non-financial services (net)
528.1 2.31 360.8 3.97 231.6 9.37
and other operating income 1.6 84.79 (15.4) 45.70 (0.0) (97.27)
General administrative expenses (283.3) 10.73 (171.1) 2.73 (97.8) (0.54)
Personnel (156.3) 13.47 (87.3) 4.70 (56.9) (2.57)
Other administrative expenses (127.0) 7.54 (83.8) 0.76 (40.9) 2.44
Depreciation and amortisation (35.5) 43.01 (13.6) 1.86 (11.0) (28.36)
Net operating income 210.9 (10.79) 160.7 2.65 122.7 27.07
Net loan loss provisions (33.0) (30.63) (12.5) (6.30) (20.8) 50.54
Other income 16.0 — (10.1) — (2.4) (73.09)
Income before taxes 193.8 2.16 138.1 (6.06) 99.5 34.95
Income from ordinary activity 137.6 (2.35) 134.5 (1.74) 80.7 36.43
Net consolidated income 137.6 (2.35) 134.5 (1.74) 80.7 31.45
Attributable income to the Group 134.9 (1.52) 99.8 (1.50) 70.6 36.17
Balance sheet
Loans and credits 6,273 35.05 10,710 13.35 10,539 12.65
Trading portfolio 3,206 157.30 11,744 39.68 1,238 (17.21)
Available-for-sale financial assets 5,275 (6.69) 4,341 37.98 1,325 (13.84)
Due from credit institutions 5,572 (2.55) 6,528 (13.27) 2,412 38.39
Intangible assets and property and equipment 354 7.45 284 (8.13) 257 (5.61)
Other assets 4,463 21.71 3,281 56.66 1,639 (0.22)
Total assets/liabilities & shareholders' equity 25,143 18.27 36,888 19.25 17,409 8.50
Customer deposits 7,155 35.80 18,543 2.37 9,658 8.65
Marketable debt securities 499 (32.70) 2,494 38.38 1,605 (15.45)
Subordinated debt 0 — 58 — 718 38.71
Insurance liabilities 684 69.54 47 20.83 30 33.89
Due to credit institutions 9,827 18.28 11,550 56.97 3,162 14.39
Other liabilities 4,622 3.88 2,495 14.02 847 44.20
Shareholders' equity 2,356 12.86 1,701 18.92 1,390 1.65
Off-balance-sheet funds 8,083 15.63 7,414 12.11 7,165 11.54
Mutual funds 7,681 15.47 4,627 17.25 1,926 6.95
Pension funds 0 — 2,787 4.51 5,239 13.32
Managed portfolios 403 18.90 0 — 0 —
Total customer funds under management 16,421 22.51 28,556 7.48 19,175 8.03
Total managed funds 33,226 17.62 44,303 18.00 24,575 9.37
Ratios (%) and other data
ROE 22.00 (4.52 p.) 24.53 (4.36 p.) 21.11 6.22 p.
Efficiency ratio 53.65 4.08 p. 47.42 (0.57 p.) 42.23 (4.21 p.)
NPL ratio 2.70 0.03 p. 0.89 (0.47 p.) 3.42 (0.58 p.)
Coverage ratio 188.11 (24.95 p.) 290.07 47.33 p. 130.95 21.44 p.
Number of employees (direct & indirect) 21,038 (0.71%) 12,539 5.14% 8,780 1.69%
Number of branches 1,860 (0.32%) 1,019 (0.10%) 340 (17.21%)
A 33

The performance by countries was as follows:
Brazil
Santander Banespa is one of the main financial franchises in
Brazil. It has a market share of 4%-5% for the country as a
whole and double that in the south/southeast of Brazil, the
strategically key area for the Group where close to 100
million people live and which generates almost 75% of
Brazil’s GDP. The Group has 1,860 branches in Brazil and 6.5
million individual customers.
The Brazilian economy is consolidating its expansion in
2005, albeit with a more moderate pace of growth than in
2004. The government is continuing to implement
economic policies so as to maintain the primary surplus and
control inflation. Interest rates will still be high until inflation
expectations converge with the government’s goals.
After establishing in 2003/2004 an appropriate commercial
organisation, the Group’s focus in 2005 is to strengthen
the most recurrent businesses and gain market share. This
produced a 33% rise in total lending in the first quarter,
excluding the exchange rate impact, with strong growth in
individual customers (credit cards, auto financing,
consumer loans, etc), SMEs and companies. As a result, the
market share of total loans reached 5.6%. Deposits and
mutual funds increased 21% and their market share was
4.3%.
Attributable income declined 1.5% to EUR 134.9 million
(-5.8% excluding the exchange rate impact). Although the
rise in nominal interest rates (222 b.p. on average between
the two periods) benefited net interest income in retail
businesses, the negative slope of the interest rate curve
eroded the net interest income of financial business and
markets in the first quarter of 2005. This negative impact,
and that derived from the reduced value of portfolios
because of the rise in interest rates, was partially offset by
the positive effect of portfolio sales. Fees increased 15.4%,
while the growth in costs is tending to converge with the
inflation rate.
The efficiency ratio in March was 53.7%, the recurrence
ratio 48.1%, ROE 22.0%, the NPL ratio 2.70% and
coverage 188%.
By segments, and excluding the exchange rate impact,
Retail Banking’s net operating income increased 9.0% and
its income before taxes 43.8%, because of lower net loanloss
provisions. Asset Management’s income also grew
strongly and Global Wholesale Banking’s dropped 44.3% (in
local currency), due to the aforementioned impact of
financial business.
A 34
Mexico
Information by principal segments
January - March 2005
Santander Serfin is the third largest banking Group in
Mexico by business volume, with a market share in loans of
17.1%, 15.4% in deposits and mutual funds and 8.2% in
pensions. The Group has 1,019 branches and 5.8 million
customers in Mexico. Although Banco Santander Mexicano
and Banca Serfin have been managed as one single financial
institution since December 2002, the merger of the two
banks did not become effective until January 1, 2005.
The Mexican economy remained strong in 2005. The central
bank’s monetary policy, which led to short-term interest
rates of 9.5%-10%, reduced inflationary tensions. The
comfortable balance of payments situation and the high
level of international reserves helped to produce a stable
exchange rate.
In line with its medium-term strategic plan, and after the
success achieved in 2004 in business volume growth, the
Group continued to focus on achieving a profitable increase
in its businesses. Total lending, excluding Fobaproa,
increased 24%, after eliminating the exchange rate impact,
enabling Santander Serfin to consolidate its gain in market
share (1.7 points in the year to March 2005), with notable
rises in strategically important products, particularly cards,
consumer loans and commercial bills. Deposits without
REPOs and mutual funds grew 15% (excluding the
exchange rate impact). Overall, the gain in their market
share was 1.2 points over the last 12 months.
Attributable income was EUR 99.8 million, 1.5% lower than
in the first quarter of 2004 (+4.2% excluding the exchange
rate impact). One factor at play was the very positive impact
of the sharp rise in business, while interest rates, which
increased 60% (or 353 b.p. on average), benefited the
spread of retail businesses but not that of financial
businesses and gains on financial transactions.
Commercial revenue increased 24.5% (excluding the
exchange rate impact). Costs, basically emanating from the
increase in business infrastructure (766 more ATMs) and
linked to business development, rose 8.5% (excluding the
exchange rate impact). The strong increase of retail
revenues, offset the fall in gains on financial transactions,
enabling net operating income to increase 8.6% (excluding
the exchange rate impact).
The efficiency ratio was 47.4%, the recurrence ratio 60.9%
and ROE 24.5%, while the non-performing loans ratio of
0.89% and coverage of 290% continued to underline the
high credit risk quality.
By segments, and without the exchange rate effect, the net
operating income of Retail Banking increased 49.1% and
33

34
January - March 2005
Information by principal segments
income before taxes rose 32.8%. That of Asset
Management and Insurance also grew, while Global
Wholesale Banking’s fell sharply because of lower spreads
and trading revenues.
Chile
Santander Chile is the largest financial franchise in the
country, as underscored by its market shares: 23.1% in loans,
21.5% in deposits and mutual funds and 11.5% in pensions.
It has 2.1 million banking customers and 340 branches.
The Chilean economy is expected to grow this year at a
similar pace to 2004, with strong increases in investment
which will become the engine of economic growth. The
Central Bank will prolong its gradual rise in interest rates,
reducing the monetary stimulus and returning to positive
real interest rates.
Following the upswing in 2004, Santander Santiago is
focusing on profitable growth in all businesses, particularly
retail segments. Lending increased 13% and deposits
(without REPOs) and mutual funds grew 11% year-in-year
(both excluding the exchange rate impact). These rates
produced a gain in market share of 1.3 points in lending to
individuals and 0.5 points in deposits and mutual funds.
Attributable income amounted to EUR 70.6 million in the
first quarter, 36.2% more than in the same period of 2004
(+41.6% eliminating the exchange rate impact). The main
driver was the combination of higher growth in commercial
revenues (+13.1% excluding the exchange rate impact) and
containment of costs (+3.0%, excluding the exchange rate
impact).
The efficiency ratio was 42.2%, the recurrence ratio 56.3%,
ROE 21.1%, the non-performing loans ratio 3.42% and
coverage 131%.
By segments and excluding the exchange rate impact, Retail
Banking’s net operating income rose 85.1% (strong increase
in revenues and flat costs) and its income before taxes
doubled. This high growth is not fully reflected in the
bottom line for the country as a whole, because of
Wholesale Banking.
Puerto Rico
Santander Puerto Rico is one of the largest financial
institutions in Puerto Rico, with a market share of 11.2% in
loans, 12.6% in deposits and 23.3% in mutual funds. It has
73 branches.
The Group is focusing in 2005 on growth in business,
particularly with individual customers (consumer loans and
mortgages) and medium-sized companies. In line with these
objectives, lending increased 32% year-on-year and
deposits and mutual funds rose 24%. This produced a gain
of 0.9 points in the market share of loans and 1.3 points in
deposits plus mutual funds.
Attributable income rose 10.5% to EUR 15.8 million
(+14.8% excluding the exchange rate impact). Gross
operating income increased 4.8% (excluding the exchange
rate impact), while general administrative expenses only
increased 0.8% (excluding the exchange rate impact).
The efficiency ratio was 55.1%, the recurrence ratio 41.1%
and ROE 16.7%. The ratio of non-performing loans was
2.20% and coverage 125%.
Venezuela
Banco de Venezuela is one of the country’s largest banks,
with market shares of 15.4% in loans and 13.1% in
deposits. It has 241 branches and 2.1 million customers.
With oil prices likely to remain high, the Venezuelan economy
is expected to grow in 2005 above its potential rate and will
continue to enjoy a strong current account surplus.
The main focus of management in 2005 is growth in
commercial revenue and in the profitability of business, with
the emphasis on higher lending and a rise in transactional
deposits (of high liquidity and low cost). Lending in the first
quarter, eliminating the exchange rate impact, increased
93% year-on-year and customer funds (excluding REPOs)
rose 69%. This produced gains in the respective market
shares of 0.9 and 0.4 points.
Thanks to this strategy, revenue growth was notable
(commercial revenue; +34.2% excluding the exchange rate
impact) and attributable income amounted to EUR 33.3
million (+9.5% excluding the exchange rate impact).
The efficiency and recurrence ratios were 35.9% and
50.3%, respectively, ROE stood at 39.7%, the ratio of nonperforming
loans was 2.23% and coverage 345%.
Colombia
The Colombian economy is expected to grow in 2005 by
close to 4% for the third year running.
Business grew strongly in the first quarter, continuing the
trend of 2004. Lending was 42% higher at the end of
March than a year earlier. Deposits (excluding REPOs) and
mutual funds rose 34%. These rates of growth were the
result of a business model focused on selective growth and
efficient management of costs.
A 35

Attributable income was EUR 14.7 million, 5.4% more than
in the first quarter of 2004 (excluding the exchange rate
impact). The credit risk quality indicators remained excellent
(NPL ratio of 0.42% and coverage of 740%).
Other countries
The Argentine economy continues to recover, fuelled by
domestic demand and solid growth of exports. The main
development in the first quarter was the high level of
acceptance (76%) by creditors of the government’s foreign
debt restructuring plan.
Lending by Grupo Santander (excluding that to the public
A 36
Information by principal segments
January - March 2005
sector) rose 27% year-on-year and was very focused on
SMEs and individuals. Deposits and mutual funds
increased 23%. During the first quarter the Bank
capitalised $137 million of the subordinated debt it had
with the Group. Attributable income amounted to EUR
11.4 million.
International Private Banking, globally managed in an
independent way, increased its attributable income by
23.8% in dollars ($32.2 million) over the first quarter of
2004, as a result of appropriate management of net interest
income and a sharp rise in fees, combined with notable cost
control.
35

36
January - March 2005
Information by principal segments
Financial Management and Equity Stakes
Million euros
Income statement
Variation
Jan-Mar 05 Jan-Mar 04 Amount (%)
Net interest income (w/o dividends) (196.1) (172.0) (24.1) 14.00
Dividends 5.3 20.1 (14.8) (73.59)
Net interest income (190.8) (151.9) (38.9) 25.61
Income from companies accounted for by the equity method 133.2 110.1 23.2 21.05
Net fees (18.8) (7.7) (11.1) 143.84
Insurance activity (0.9) (0.9) 0.0 (0.81)
Commercial revenue (77.2) (50.4) (26.8) 53.21
Gains (losses) on financial transactions (7.5) 70.7 (78.1) —
Gross operating income (84.7) 20.3 (104.9) —
Income from non-financial services (net) and other operating income (0.7) (4.8) 4.1 (85.64)
General administrative expenses (91.9) (68.1) (23.8) 34.94
Personnel (50.6) (34.4) (16.2) 46.95
Other administrative expenses (41.3) (33.7) (7.6) 22.67
Depreciation and amortisation (11.9) (7.6) (4.3) 57.26
Net operating income (189.2) (60.2) (129.0) 214.12
Net loan loss provisions 13.1 2.7 10.4 378.87
Other results (128.5) (80.5) (48.0) 59.68
Income before taxes (304.6) (138.0) (166.6) 120.77
Income from ordinary activities (110.9) (22.3) (88.6) 397.59
Consolidated income (110.9) (22.3) (88.6) 397.59
Attributable income to the Group (142.2) (51.4) (90.9) 176.92
Balance sheet
Trading portfolio 1,512 1,444 68 4.74
Available-for-sale financial assets 17,125 32,689 (15,564) (47.61)
Investments 3,640 3,402 238 7.00
Goodwill 15,369 4,823 10,545 218.62
Liquidity lent to the Group 35,981 33,301 2,680 8.05
Capital assigned to Group areas 24,279 18,429 5,851 31.75
Other assets 23,340 18,040 5,299 29.38
Total assets/liabilities & shareholders' equity 121,245 112,128 9,117 8.13
Customer deposits 5,866 10,613 (4,747) (44.73)
Marketable debt securities 35,219 26,366 8,853 33.58
Subordinated debt 10,774 10,492 281 2.68
Preferred securities 3,370 3,653 (283) (7.75)
Other liabilities 32,027 41,698 (9,671) (23.19)
Group capital and reserves 33,990 19,306 14,684 76.06
Off-balance-sheet funds — — — —
Mutual funds — — — —
Pension funds — — — —
Managed portfolios — — — —
Customer funds under management 51,858 47,471 4,388 9.24
Total managed funds 121,245 112,128 9,117 8.13
Resources
Number of employees (direct & indirect) 1,471 1,372 99 7.22
A 37

Financial Management and Equity Stakes
This area is responsible for a series of centralised activities
and acts as the Group’s holding entity, managing all capital
and reserves and assigning capital and liquidity to the other
businesses on the basis of the criteria set out on page 21 of
this Report. The cost of liquidity via the transfer of funds to
different businesses is at the short-term market rate, which
was 2.09% in the first quarter of 2005 (2.04% in the same
period of 2004).
• Equity Stakes: this centralises the management of equity
stakes in financial and industrial companies.
The main development during the first quarter was the
sale of 2.57% of The Royal Bank of Scotland, which
generated a capital gain of EUR 717 million. As stated in
other parts of this Report, it did not feed through to
attributable income.
Industrial stakes generated attributable income of EUR
79.3 million, 6.7% more than in the first quarter of 2004.
The increase was mainly due to the larger contribution of
income from companies accounted for by the equity
method, because of the higher earnings of these
companies, principally Cepsa’s.
There were no significant sales of industrial stakes during
the first quarter. As regards investments, of note was the
acquisition of 4.74% of Auna Operadores de
Telecomunicaciones, S.A.
The unrealised capital gains of industrial stakes of listed
companies stood at EUR 2,400 million at the end of the
first quarter.
• Financial management: this area carries out the global
functions of managing the structural exchange rate
position, the structural interest rate risk of the parent
bank and the liquidity risk. The latter is conducted
through issues and securitisations. It also manages the
shareholders’ equity.
A 38
Information by principal segments
January - March 2005
The cost of hedging the capital of the Group’s non-euro
denominated investments is another activity of this area.
The current hedging policy is aimed at protecting the
capital invested and the year’s results through various
instruments that are deemed to be the most appropriate
for its management. These investments, except for
Brazil, were fully or partially hedged during the first
quarter.
In 2004 the Group significantly reduced the portfolio of
structural interest rate risk hedging, which has a negative
impact when comparing net interest income and gains on
financial transactions between the first quarter of 2004
and the same period of 2005.
This sub-area manages shareholder’s equity, the allocation
of capital to each business unit, and the financing cost of
investments.
There are also other negative items such as the
amortisation of the initial excess of pension funds of the
subsidiaries over the fluctuation band. The Group
considers it convenient to maintain in Argentina an
additional fund that complements the provisions already
assigned so that the capital of our subsidiaries in the
country is covered as well as the loans granted to them by
the Group. The impact on earnings of provisions and
release of provisions, in accordance with these criteria,
will be recorded in Financial Management and Equity
Shareholdings and will thus be independent of those
registered in Latin America.
This means that this sub-area’s overall contribution to
earnings is normally negative.
This sub area also includes the fund constituted for the
same amount as the capital gain generated from the sale
of the stake in The Royal Bank of Scotland (see other parts
of this Report).
37

January - March 2005
38 Information by secondary segments
Income statement and business volumes secondary segments
Million euros
Operating business areas Retail Banking
Income statement
Retail Banking
Retail Banking generated income before taxes of EUR
1,446.7 million, 58.0% more than in the first quarter of
2004 and 41.8% higher excluding Abbey. Both Europe and
Latin America performed well.
Retail Banking in Continental Europe continued its
growth trends in volume and earnings. Gross operating
income was 10.3% higher than in the first quarter of 2004,
net operating income increased 18.6% and income before
taxes rose 38.8%. All units (Santander Central Hispano
Network, Banesto Retail, Portugal Retail and Banif) grew at
a brisk pace (double digit in net operating income and
attributable income).
There were four main drivers behind the sharp rise in results:
business growth, stronger in lending but also in customer
funds; better management of prices in an environment of
stable interest rates, which is enabling a recovery of spreads;
cost control, in particular at the Santander Central Hispano
Network and Portugal its expenses, and the lower needs for
Variation (%) Variation (%)
Jan-Mar 05 Total w/o Abbey Jan-Mar 05 Total w/o Abbey
Net interest income 2,548.7 27.76 8.07 2,424.0 34.98 11.86
Inc. from companies accounted by equity method 7.3 (52.12) (55.66) 6.4 (58.06) (61.60)
Net fees 1,403.0 26.47 7.18 1,161.9 29.47 8.29
Insurance activity 214.4 563.14 64.41 0.0 — —
Commercial revenue 4,173.4 32.41 8.03 3,592.3 32.63 10.26
Gains (losses) on financial transactions 448.9 81.46 41.15 255.0 218.99 94.30
Gross operating income
Income from non-financial services (net)
4,622.3 35.98 10.44 3,847.3 37.97 12.67
and other operating income 108.2 190.10 21.39 114.1 166.93 19.71
General administrative expenses (2,219.5) 41.79 4.21 (1,951.3) 40.20 3.55
Personnel (1,333.1) 35.72 4.19 (1,190.3) 35.95 4.02
Other administrative expenses (886.3) 52.02 4.23 (760.9) 47.41 2.77
Depreciation and amortisation (268.1) 39.34 1.28 (250.7) 42.96 2.18
Net operating income 2,242.9 33.60 17.54 1,759.4 39.19 24.40
Net loan loss provisions (294.2) (11.09) (28.65) (269.9) (8.75) (28.39)
Other income (26.3) (54.20) (20.69) (42.7) (18.90) 17.56
Income before taxes 1,922.4 48.96 31.08 1,446.7 58.02 41.85
Business volumes
Total assets 698,896 95.61 16.29 553,918 145.51 19.90
Loans and credits 369,465 102.01 14.29 339,979 125.37 19.02
Customer deposits 278,866 74.34 9.77 237,510 88.60 6.58
loan-loss provisions, because of the high credit risk quality
and the coverage level already reached.
Abbey’s Retail Banking operations generated revenues for
the Group of EUR 705.6 million, net operating income of EUR
186.9 million and income before taxes of EUR 148.1 million.
The good earnings performance of Retail Banking in
Latin America was based on strong growth in customer
business, the good results in net interest income and net
fees, and reduced needs for net loan-loss provisions. All of
this was reflected in a 12.7% rise in commercial revenue,
40.7% in net operating income and 50.0% in income
before taxes, all in euros.
The increasing proportion of customer business in all
countries, due to the strong commercial development in
previous quarters, was reflected in significant rises in
commercial revenue, net operating income and income
before taxes.
A 39

The table shows average growth of 15% in gross operating
income (in euros) in the three main countries and double
that in net operating income, as costs increased basically in
Information by secondary segments
January - March 2005
Income statement and business volumes secondary segments
Million euros
Asset Management and Insurance Global Wholesale Banking
Variation (%) Variation
Jan-Mar 05 Total w/o Abbey Jan-Mar 05 (%)
Income statement
(18.0) — 31.90 142.7 (27.10) Net interest income
0.0 — — 0.9 — Inc. from companies accounted by equity method
141.0 29.07 7.18 100.0 (2.53) Net fees
214.4 563.14 64.41 0.0 — Insurance activity
337.5 132.71 20.52 243.6 (18.35) Commercial revenue
14.2 343.10 342.02 179.8 9.43 Gains (losses) on financial transactions
351.6 137.24 27.45 423.4 (8.48) Gross operating income
Income from non-financial services (net)
0.2 — — (6.1) 16.77 and other operating income
(138.4) 137.91 3.37 (129.8) 12.47 General administrative expenses
(65.3) 82.22 (1.72) (77.5) 9.32 Personnel
(73.1) 227.24 11.54 (52.3) 17.50 Other administrative expenses
(5.4) 41.29 (3.94) (12.0) (9.20) Depreciation and amortisation
208.0 141.89 45.71 275.5 (16.21) Net operating income
(3.7) 196.42 196.42 (20.5) (39.26) Net loan loss provisions
8.5 — — 7.9 — Other income
212.8 149.34 52.44 262.9 (9.26) Income before taxes
Business volumes
7,266 (29.35) (29.35) 137,713 13.45 Total assets
369 (66.93) (66.93) 29,117 (5.84) Loans and credits
24 19.23 19.23 41,332 21.58 Customer deposits
Retail Banking. Income statement
Million euros
line with each country’s inflation, and income before taxes
continued to rise because of the reduced needs for net
loan-loss provisions.
Gross operating Net operating Income before
income income tax
Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%)
Continental Europe 1,948.2 10.32 1,104.0 18.56 924.3 38.78
o/w: Spain 1,454.8 7.05 821.0 14.77 703.0 31.29
Portugal 225.3 8.89 109.0 20.03 107.7 52.89
United Kingdom (Abbey) 705.6 — 186.9 — 148.1 —
Latin America 1,193.5 16.72 468.5 40.74 374.4 50.05
o/w: Brazil 429.7 12.12 134.7 13.92 115.5 50.39
Mexico 285.2 15.81 111.5 41.03 90.4 25.55
Chile 184.4 21.79 90.9 78.15 65.7 121.26
Total Retail Banking 3,847.3 37.97 1,759.4 39.19 1,446.7 58.02
A 40
39

40
January - March 2005
Information by secondary segments
Asset Management and Insurance
Income before taxes was EUR 212.8 million, 149% more
than in the first quarter of 2004 and 52.4% higher excluding
Abbey’s contribution. Managed mutual and pension funds
surpassed EUR 130,000 million (+7.7% y-o-y, excluding
Abbey), and the liabilities from insurance contracts
amounted to EUR 42,404 million.
Asset Management. Mutual and pension fund generated
in the first quarter a total volume of fees for the Group of
EUR 442.7 million, 18.4% higher than 2004 (+10.5%
without Abbey). Income before taxes, after deducting the
fees paid to the distribution networks and operating costs,
was EUR 89.1 million (+34.3% y-o-y).
The volume of managed mutual funds in Spain surpassed
EUR 72,000 million, making Santander Asset Management
the leader (market share of 26.8% in mutual and real
estate funds, according to Inverco). Of note was the launch
during the first quarter of new guaranteed funds
("Superselección Acciones 1 y 2"), which attracted more
than EUR 2,400 million, and other specialised funds for
Private Banking, making it the entity with highest growth
in equity funds in the quarter.
We also reinforced our leadership in innovation with new
products tailored to suit customers’ needs. The range of
"concept" funds was completed with funds that are
invested both in Spain (Small Caps España) and in the
United Kingdom (Top 25 UK) as well as international funds
(BRICT, which invests in Brazil, Russia, India, China and
Turkey). This diversified our offer geographically and by
management specialisation.
In alternative management, Optimal increased its assets to over
EUR 3,500 million in the first quarter, (+7.3% over December
2004) confirming investors’ preference for alternative
management funds of funds. We remained the leader in the
capturing of real estate funds (more than EUR 450 million net
in the quarter) and in terms of market share (57.4%) after
reaching approximately EUR 3,000 million in managed funds.
Mutual funds. March 2005
Million euros
Assets under Var. (%) o/
management Mar. 04
Spain 72,138 5.03
Continental Europe (excl. Spain) 5,250 12.30
United Kingdom (Abbey) 1,449 —
Latin America 15,871 14.87
Total* 94,707 8.64
(*).- Excl. Abbey: +7.0%
The volume of pension plans in Spain surpassed EUR 7,400
million at the end of the first quarter, 10.6% more than a
year earlier. In individual plans, which rose 10.0% year-onyear,
the Group remained the leader with a market share of
16.9%.
In Portugal, mutual and pension funds increased 12.3%
and 13.1%, respectively, year-on-year. The growth strategy
in mutual funds has enabled the Group to become the
second largest fund management entity (market share of
more than 18%).
In Latin America, managed mutual funds amounted to EUR
15,900 million, 16.5% more than in March 2004 excluding
the exchange rate effect, and with strong growth in all
countries. This was the result of a different strategy for
each country which combines knowledge of the markets
and local needs with taking advantage of the global
capacities in management and the development of high
value-added products.
Of note was Mexico, where mutual funds grew 24.6%
year-on-year (excluding the exchange rate effect) to more
than EUR 4,600 million and increased the market share
strongly, both in terms of volume (+310 b.p) as well as
revenues (+480 b.p.). The volume of assets, the dynamic
management funds, the performance in equities and the
network’s very profound knowledge of the product, makes
Santander Gestión de Activos México one of the entities
with the strongest potential in the country.
Brazil, whose managed assets increased 12.6% (excluding the
exchange rate impact) to EUR 7,700 million, focused on the
retail segment. The successful launch in the first quarter of a
one-year guaranteed fund enabled the Group to increase its
market share by more than 40 b.p. to 8.2%. New specialised
funds for private banking, which complete the range for this
segment (Multimercado funds), were also launched.
Chile, where the Group remained the leader in guaranteed
Pensions plans. March 2005
Million euros
Assets under Var. (%) o/
management Mar. 04
Spain 7,429 10.61
Continental Europe (excl. Spain) 986 13.08
United Kingdom (Abbey) 13,510 —
Latin America 14,294 10.43
Total* 36,218 76.39
(*).- Excl. Abbey: +10.6%
A 41

funds, for individuals and in private banking, completed its
equities range with the launch of new specialised funds
("Acciones Selectas"). Market share stands at 21%.
Puerto Rico registered growth in its managed assets of
around 20% (excluding the exchange rate impact).
Argentina also consolidated its good performance in fixed
income funds which helped to increase its managed assets
by 30% year-on-year (excluding the exchange rate effect).
Total pension plans in Latin America amounted to EUR
14,300 million, 13.2% more than in the first quarter of
2004 (excluding the exchange rate effect), and with
growth in all countries.
Insurance. The Group’s insurance companies generated
income before taxes of EUR 123.8 million in the first
quarter (+550.2% y-o-y; +115.8% excluding Abbey), after
disbursing the distribution fees to the networks. Including
them, total net revenue from the Group’s insurance activity
amounted to EUR 402.0 million, 182.8% more than in the
first quarter of 2004 (+20.7% excluding Abbey), because
of the distribution capacity of the Group’s networks and a
bancassurance management differentiated by countries.
In Spain, Santander Seguros maintained the growth trend in
its strategic business. Fees from products contributed to the
Group were 12% higher in the first quarter than in the
same period of 2004, and the total contribution (fees plus
the company’s income) amounted to EUR 40 million. Of
note in business volumes was growth of around 9% in
individual life-risk insurance and multi-risk household
insurance, together with the take-off in unemployment
Information by secondary segments
January - March 2005
insurance (+150% y-o-y). This performance, coupled with
that of Banesto Seguros, made Grupo Santander in Spain
the leader in the bancassurance sector in individual life-risk
products (market share of 22.3%).
In Portugal, the Group’s strategy combines the distribution
of risk insurance related to credit operations with
capitalisation-savings insurance. Premiums linked to credits
grew 32% over the first quarter of 2004.
In the United Kingdom, Abbey maintained notable activity
in insurance which, in the first quarter of 2005, accounted
for just over half of the Group’s total insurance revenue. Its
insurance products are distributed in a specialised way
through Abbey’s various channels (branches, brokers,
telemarketing and Internet).
Abbey continues to deploy a strategy differentiated by
types of insurance. In life insurance, Abbey Group’s
companies manage EUR 37,500 million from 4 million
customers. General insurance is basically household and
protection of payments and its evolution continued to be in
line with that of mortgages.
In Latin America, the Group continued to develop its
insurance distribution growth strategy through the local
retail networks. Backed by strong linking to products
related to lending, progress was made in placing nonlinked
bancassurance products through personalised offers
to customers (life, auto and household products). Of note,
by countries, were Brazil, Mexico and Chile whose total
premium income increased 22% (excluding the exchange
rate effect).
Asset Management and Insurance. Income statement
Million euros
Gross operating Net operating Income before
income income tax
Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%) Jan-Mar 05 Var. (%)
Mutual funds 62.6 17.01 41.3 19.70 41.6 16.78
Pension plans 79.8 20.78 49.3 49.13 47.5 54.51
Insurance 209.3 629.23 117.4 537.05 123.8 550.18
o/w: Abbey 162.7 — 82.7 — 82.7 —
Total Asset Management and Insurance 351.6 137.24 208.0 141.89 212.8 149.34
A 42
41

42
January - March 2005
Global Wholesale Banking
Information by secondary segments
Income before taxes amounted to EUR 262.9 million, 9.3%
lower than in the first quarter of 2004 due to reduced
treasury results in Latin America. Excluding this effect,
income before taxes would have been 27% higher,
because of growth in the other lines of gross operating
income (+28%) and reduced needs for loan-loss provisions.
Operating expenses increased 10.3%, mainly because of
costs related to the launch and expansion of the Santander
Global Connect and Santander Global Market projects.
Lastly, strict management of risk kept the ratio of nonperforming
loans at a low level (0.34% compared with
0.66% in March 2004).
The Group is consolidating a new structure for wholesale
business which was established during 2004. It is based on
a double vector (product-client). There are three large areas
of products which, because of their nature and potential,
require differentiated management: Corporate Products,
Investment Banking and Markets.
Its aim is to increase the generation of revenues, both by
corporate and institutional clients, the main consumers of
these products, as well as the retail customers of the
networks in the countries where the Group operates, and
develop specific products for their needs. Strategies such
as Santander Global Connect, within the Markets area
(derivative products for customers of the retail network
focused on hedging risks), are in response to this
objective.
The main developments in the product areas were:
• Corporate products including basic financing and
transactional banking activities, trade finance and
custody. Of note is the growing relative share of
transactional banking and trade finance while basic
financing was affected by lower spreads.
• Investment Banking provides a series of high value
financing solutions that the Group makes available to its
customers (structured/project finance, syndicated loans,
fixed income origination) and corporate finance activities.
Of note in the first quarter was the strong pace of activity
in Financing Solutions whose gross operating income
increased 12%. Among the main operations in which the
Group participated were: in Structured Finance,
refinancing ONO’s debt (as Mandated Lead Arranger;
total amount EUR 1,250 million; EUR 200 million
underwritten); Syndicated Loans, operations with
Telecom Italia and Inmobiliaria Colonial (EUR 240 million
and EUR 150 million underwritten, respectively); Fixed
Income Origination, participation as Joint Lead Manager
in placing the 30-year Kingdom of Spain bond (total: EUR
6,000 million).
In Corporate Finance, of note in the good first quarter
performance was advising Carrefour on the sale to Sonae
of its Modelo Continente assets in Mexico, and the
advice provided to EADS for its acquisition of OGMA-
Industria Aeronáutica de Portugal.
• Markets integrate treasury and equities activity,
including the ones of customers and those on our own
account in trading positions.
A 43
Equities’ revenue increased 12% year-on-year,
consolidating its leadership in brokerage in Spain (12%
market share including Banesto), in Portugal (3rd
position with a market share of 11%). This performance
was also reflected in the improvement in the sector’s
main rankings, both in Spain and Portugal (best brokerdealer
for equity analysis, Institutional Investor) as well as
Latin America (second in the asset weighted ranking of
Institutional Investor). Also of note, was the placement of
8% of Ence’s capital held by Portucel.
Revenues in Treasury Europe registered strong growth
supported by business with customers as well as own
trading positions.
Sales to Customers doubled its gross operating income,
spurred by the good performance of Santander Global
Connect whose new business increased 182% year-onyear,
after consolidating its project in Spain and
extending its activity to Portugal. In Europe, the structure
was strengthened for the sale of value-added products to
institutional clients and a cross-border book was
established for the sale of structured products to
corporate clients in conjunction with Latin American
countries.
Latin American treasuries reduced their year-on-year
revenues sharply (-46%) because of the high results in
the first quarter of 2004 and the impact of higher
interest rates in 2005 in Brazil and Mexico.
Customer activity maintained its positive performance. In
Brazil, we continue to be the leader in the sale of
structured derivatives, especially to corporates. In
Mexico, we are the leading market maker in fixed
income, the first in trading futures on MEXDER and the
second in the currency market. Moreover, following the
change in the regulatory framework, derivatives are
beginning to be sold to Afores and investment
companies, a high potential business. In Chile, the sale of

value-added products to corporate clients accounted for
29% of treasury results. The Group is also leader in the
currency, fixed income and interest rate derivatives
markets.
In Argentina, the magazine Latin Finance awarded Banco
Rio its "Local Currency Corporate Bond of the Year
2004" prize for a placement of Telefónica Argentina.
Lastly, in Colombia we closed the first 100% structured
deposit of local origin, making us one of the pioneers in
this field.
The second vector of the new structure is management of
A 44
Information by secondary segments
January - March 2005
corporate and institutional clients. In this area, the Group has
segmented those clients who for reasons of complexity,
potential and the multinational dimension of their activities
require global management at Group level in order to
integrate the Global Customer Relation Model. The aim is to
boost customer revenue generation through a range of high
value products and services.
These global groups are managed by a team comprising a
global account officer, local account officers in the markets
where the client operates and product specialists. The total
revenues generated by the Global Customer Relation
Model increased 6% year-on-year, with Brazil up 22%.
43

January - March 2005
44 The share
The Santander Central Hispano share
The financial markets continued their positive trend, with
both Spain’s Ibex-35 and the Dow Jones reaching their
highest levels of the last three and a half years. However,
the surge in oil prices, the uncertainty over their strength
and the quarter point increase in the Fed funds rate
reduced part of the gains.
In this environment, the Santander share ended the first
quarter at EUR 9.39, 2.85% higher than the closing price
of 2004. This was in line with the Euro zone (EuroStoxx 50:
+3.54%) and slightly more than Spain’s market (Ibex-35:
+1.96%).
Capitalisation
The market value of Santander Central Hispano at the end
of the first quarter was EUR 58,728 million, an increase of
EUR 16,528 million over the same period of 2004. The rise
was due to the higher share price and the increase in
number of shares after the capital increase of November
2004. Grupo Santander is the largest bank in the Euro
zone by this yardstick and ninth in the world.
The share’s weighting in the EuroStoxx 50 is 3.70% and
16.49% in the Ibex-35.
Trading
The number of shares traded during the first quarter was
4,346 million for an effective value of EUR 40,358 million,
the highest of Spain’s banks and with a liquidity ratio of
69%.
The number of shares traded in the first quarter of 2004
was 36.26% higher and the value increased 37.44%. The
average daily number of shares traded was 71 million.
Regarding the friendly bid for Abbey National plc
("Abbey"), Banco Santander announced it was seeking a
secondary listing on the LSE.
Initially it was estimated that the listing process would be
completed during the first half of 2005. However, because
of the entry into force of European Directive 2003/71/EC
of November 4, 2003, it is now estimated that the listing
will be obtained, under the new directive, in early July,
assuming, as expected, that the directive forms part of
English Law no later than July 1st.
As a consequence, the “free dealing facility” that the Bank
put in place because of the acquisition of Abbey will be
maintained until the shares are listed. In any case, the Bank
will make a new announcement once the listing is approved.
Shareholder remuneration
On February 1, Santander Central Hispano paid a third
interim dividend charged to 2004 earnings of EUR 0.0830
per share. On May 1, a fourth dividend was paid of EUR
0.0842 per share.
The total dividend charged to 2004 earnings that the
Board will propose to the Shareholders’ Meeting is EUR
0.3332 per share, 10% more than in 2003.
The Santander Central Hispano share
Shareholders and trading data
31.03.2005
Shareholders (number) 2,578,094
Shares outstanding (number) 6,254,296,579
Average daily turnover (no. of shares) 71,238,965
Share liquidity* (%) 69
Dividend per share euros
First interim dividend (01.08.04) 0.0830
Second interim dividend (01.11.04) 0.0830
Third interim dividend (01.02.05) 0.0830
Fourth interim dividend (01.05.05) 0.0842
Price movements during the year
Beginning (30.12.04) 9.13
High 9.83
Low 8.94
Last (31.03.05) 9.39
Market capitalization (millions) 58,728
Stock market indicators
Price / Book value (X) 1.76
P/E ratio (X) 12.35
(*).- Number of shares traded during the year / number of shares
A 45

Shareholders
The total number of shareholders at March 31, 2005 stood
at 2,578,094. The average investment per shareholder was
EUR 22,780 (2,426 shares).
As regards the geographic distribution of the capital stock,
91.06% of the shareholders are European, with an
average investment of EUR 20,772 (2,212 shares per
shareholder), and shareholders from the Americas hold
8.76% of the capital stock (average investment of EUR
1,538,879 and 168,677 shares).
Companies held 72.93% of the capital stock and
individuals 27.07%.
A 46
Comparative performance of share prices
December 30, 2004 to March 30, 2005
108
106
104
102
100
98
The share
January - March 2005
SAN Euro Stoxx Banks Euro Stoxx 50
96
30.12.2004 31.03.2005
45

46
January - March 2005
Corporate Governance
Deminor Rating, the independent European rating agency
for corporate governance matters, renewed its 8 out of 10
rating for the Bank. The scale goes from 1 ("most
questionable practices") to 10 ("best practices").
Deminor Rating said the Bank continued to be one of the
leading companies in Continental Europe in Corporate
Governance and it complied particularly well as regards its
standards of public information and the Board’s
functioning.
The full report is available on the Group’s website
(www.gruposantander.com) as well as on Deminor’s
(www.deminor-rating.com).
In response to the commitment assumed by the Chairman
at the Shareholders’ Meeting on June 19, 2004, the Bank
appointed Spencer Stuart to conduct a self-evaluation of
the Board of Directors.
This process highlighted Directors’ opinions on the positive
way in which the Board and its Committees work and their
view, on the basis of their own experience, that Santander’s
Board of Directors has high standards regarding functioning
best practices.
As regards the training of Directors and continuing the
sessions conducted during 2004, both in the sphere of the
Executive Committee as well as in the Audit and Compliance
Committee, particularly on New Financial Products, the
International Financial Reporting Standards (IFRS) and various
aspects of the Sarbanes-Oxley Law, a four-pronged training
programme was put into effect. The four areas are (i)
Financial Markets; (ii) Corporate Governance; (iii) Supervision
and Regulation; and (iv) Financial Information.
A noteworthy development in Corporate Governance took
place in the first quarter when we published for the first
time a report of the Appointments and Remuneration
Committee which, among other things, summarised the
terms and conditions of executive directors’ contracts.
Lastly, the National Securities Market Commission was told
on April 28 that the Board has agreed to appoint Mr. Luis
Angel Rojo Duque as an independent director to cover the
vacancy left by Mr. Juan Abelló.
This appointment, by co-opting, will be submitted for
approval to the next Shareholders’ Meeting, which is initially
scheduled for June 18 in Santander, Spain.
A 47

As part of its drive to develop the Social Responsibility of
companies, the Group inaugurated in Puerto Rico the "Week
of Corporate Social Responsibility." This was organised by
ConectaRSE, the first institution in Puerto Rico dedicated to
CSR education, promotion and implementation, and of which
Santander Puerto Rico is a founder partner.
In Chile, Santander Banefe awarded the fourth National
Prize to the Female Micro-Entrepreneur. This is an important
way to promote micro credits for communities that risk
being marginalised. The winners were selected from more
than 16,000 candidates throughout the country who have
received loans for their business projects.
In Spain, a group of employees’ children, with various types
of disability, went on an Alpine skiing trip specially adapted
for them. This was one of the Social Responsibility actions
that was most welcomed in 2004 by employees and it will
be repeated and extended this year.
The environment
The Group’s Environmental Committee authorised the
updating of the environmental policy (available on the
website).
In order to reduce the emission of greenhouse gases, Grupo
Santander, through Santander Investment Services, and
Climate Change Capital agreed to jointly develop financial
advisory activities in Spain’s climate change sector.
Universia
Universia (www.universia.net), the largest university portal
in the Spanish- and Portuguese-speaking world, held its
First Meeting of Rectors of Universia Portugal
(www.universia.pt), which has 19 partner universities (95%
of Portugal’s university community).
Corporate Social Responsability
A 48
January - March 2005
Universia launched the learning library, which includes more
than 800,000 books of Universia’s partner universities as
well as from other scientific and university libraries.
Santander Universities
In Spain, the Group renewed or enlarged six agreements
with universities. They were mainly focused on developing
and establishing new technologies in university campuses
and programmes of grants for the exchange of teachers and
students with other European and Latin American
universities.
In Salamanca, 134 grants were made to Latin American
students from 20 countries. This is the largest programme
of grants among Spanish universities with funds from a
private sector company (EUR 1.2 million).
In Mexico, the collaboration agreement with the National
Autonomous University of Mexico (UNAM) since 2002 was
renewed. Under the new agreement $1 million will be
contributed and some of it will be used to finance 300
scholarships for postgraduate students in the Network of
Macro Universities of Latin America and the Caribbean.
The Leonardo Torres Quevedo Foundation awarded Grupo
Santander the Business Collaboration prize and the
Tordesillas Group, comprising 34 Spanish, Portuguese and
Brazilian universities, made Mr. Emilio Botín a "partner of
honour" in recognition of Grupo Santander’s support for its
activities.
Miguel de Cervantes Virtual Library
The Miguel de Cervantes Virtual Library Foundation created
a new portal, in collaboration with Spain’s National Library,
which can be used to consult a selection of its most valuable
books.
47

Investor Relations
Ciudad Grupo Santander
Edificio Pereda, 1st floor
Avda de Cantabria, s/n
28660 Boadilla del Monte
Madrid (Spain)
Tel: 34 (91) 259 65 20 / 34 (91) 259 65 15 / 34 (91) 259 65 17 / 34 (91) 259 65 18
Fax: 34 (91) 257 02 45
e-mail: investor@gruposantander.com
Legal Head Office:
Paseo Pereda, 9-12. Santander (Spain)
Teléfono: 34 (942) 20 61 00
Operational Head Office:
Ciudad Grupo Santander.
Avda. de Cantabria, s/n 28660 Boadilla del Monte. Madrid (Spain)
www.gruposantander.com
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