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Name | Symbol | Market | Type |
---|---|---|---|
Banco Santander SA | NYSE:SAN | NYSE | Depository Receipt |
Price Change | % Change | Price | High Price | Low Price | Open Price | Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 4.80 | 4.85 | 4.73 | 4.75 | 1,676,255 | 21:00:09 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the six months ended June 30, 2015
Commission File Number: 001 - 12518
BANCO SANTANDER, S.A.
Ciudad Grupo Santander
28660 Boadilla del Monte
Madrid - Spain
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (1):
Yes ¨ No x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (7):
Yes ¨ No x
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes ¨ No x
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Not applicable
Exhibit 99.1 | Certain financial information included in Banco Santander, S.A.s Form 6-K, relating to the six-month period ended June 30, 2015, recast as a result of certain changes in the geographic and business segments of Banco Santander, S.A. and its subsidiaries (the Group). | |
Exhibit 99.2 | Interim unaudited condensed consolidated financial statements for the six-month period ended June 30, 2015, recast as a result of certain changes in the Groups geographic and business segments. |
This Form 6-K is incorporated by reference into Banco Santander, S.A.s Registration Statement on Form F-3 (File No. 333-207389) filed with the Securities and Exchange Commission.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 6-K and that it has duly caused and authorized the undersigned to sign this report on its behalf.
BANCO SANTANDER, S.A. | ||||
By: | /s/ José G. Cantera | |||
Name: | José G. Cantera | |||
Title: | Chief Financial Officer |
Date: November 5, 2015
Exhibit 99.1
Page | ||||||
Presentation of Financial and Other Information | 2 | |||||
Item | ||||||
1. | 7 | |||||
2. | 7 | |||||
3. | 7 | |||||
4. | 17 | |||||
5. | 17 | |||||
6. | 17 |
1
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Explanatory Note
We are filing this report on Form 6-K to recast our segment financial information and related disclosure as of June 30, 2015 which were included in our Report on Form 6-K furnished to the Securities and Exchange Commission (SEC) on September 30, 2015, in order to reflect our current reporting structure. In order to present information on a comparable basis, the segment information for the six months ended June 30, 2014 included in this report has been recast to reflect the changes in our reported segments.
On September 23, 2015, we announced that, starting with the financial information for the third quarter 2015, we would carry out a change in our reported segments resulting from the application of new financial criteria to reflect our current reporting structure. This financial information for the third quarter 2015 has been included in our Report on Form 6-K furnished to the SEC on November 5, 2015.
This change in our reported segments aims to (i) increase transparency in the Corporate Center segment (previously called Corporate Activities); (ii) facilitate the analysis of all business units; and (iii) highlight the activity carried out by the Corporate Center segment. The consolidated figures for the Group are unaffected.
The financial information in this report is recast to give effect to the changes in our reported segments. The main changes are the following:
1. | Change of criteria: the change in segments mainly affects the income statement line items of net interest income, gains on financial transactions and operating expenses, due to decrease in the Corporate Center segment and its allocation to the business units. The main changes are as follows: |
Previous criteria
|
New criteria
| |
The Spain business unit was treated as a retail network, thus individualized internal transfer rates (ITR)* by operation were applied to calculate the financial margin, and the balance sheet was matched in terms of interest rate risk. The counterparty of these results was the Corporate Center segment. | The Spain business unit is treated like the other units of the Group. All results from financial management of the balance sheet are recorded in Spain, including the results from interest rate risk management. | |
The cost of issuances eligible as additional Tier 1 capital (AT1) made by Brazil and Mexico to replace common equity tier 1 (CET1) was recorded in the Corporate Center segment, as the issuances were made for capital optimization in these units. | Each country recognizes the cost related to its AT1 issuances. | |
The Corporate Center segment costs were charged to the countries/units; this criteria has not changed in recent years. | The scope of costs allocated to the units from the Corporate Center segment is expanded. |
* | ITR is a mechanism designed to help manage interest rate and liquidity risks, by isolating them from the business areas and centralizing them into the Financial Management Area in the Corporate Center. The main function of a transfer rate system is to set the price of the fund exchanges between business areas and the Corporate Centre. This price represents the true opportunity cost of the funds (raised or invested) and has to take into account the costs of all associated interest rate and liquidity risks. Whether it is a fund investment or a fund raising transaction, the different business areas obtain a spread over or under the current transfer rate, and that spread is used to analyze the results of these business areas. |
2. | Creation of a new business segment Spains Real Estate Activity which combines the former Spains Run-Off Real Estate business segment and other real estate assets, such as our subsidiary Metrovacesa, the assets from our old real estate fund (Santander Banif Inmobiliario) and others, previously included in the Corporate Center segment. |
3. | The United States geographic segment is modified such that it continues to include the businesses of Santander Holdings USA (SHUSA), Santander Bank and Santander Consumer USA Holding Inc. (SCUSA) and the commercial banking activity of Banco Santander Puerto Rico and in addition includes Banco Santander International and the Banks New York branch, units that were previously included in Latin America. |
In this report we have included only such disclosure as was impacted by the revisions described above and have only revised such disclosure to reflect such revisions. This report does not, and does not purport to, recast the information in any
2
other part of the Form 6-K filed on September 30, 2015 or update any information in such 6-K to reflect any events that have occurred after its filing. The filing of this report should not be understood to mean that any statements contained in the above mentioned Form 6-K are true and complete as of any date subsequent to September 30, 2015. This Form 6-K should be read in conjunction with the above mentioned Form 6-K, our annual report on Form 20-F for the year ended December 31, 2014 (the 2014 Form 20-F), our Form 20-F as recast for the year ended December 31, 2014 filed on Form 6-K on November 5, 2015, and our other filings with the SEC.
Accounting Principles
Under Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements in conformity with the International Financial Reporting Standards previously adopted by the European Union (EU-IFRS). The Bank of Spain Circular 4/2004 of December 22, 2004 on Public and Confidential Financial Reporting Rules and Formats (Circular 4/2004) requires Spanish credit institutions to adapt their accounting systems to the principles derived from the adoption by the European Union of International Financial Reporting Standards. Therefore, Grupo Santander (the Group or Santander) is required to prepare its consolidated financial statements for the six-month period ended June 30, 2015 in conformity with the EU-IFRS and Bank of Spains Circular 4/2004. Differences between EU-IFRS, Bank of Spains Circular 4/2004 and International Financial Reporting Standards as issued by the International Accounting Standard Board (IFRS-IASB) are not material. Therefore, we assert that the financial information contained in this report on Form 6-K complies with IFRS-IASB.
We have formatted our financial information according to the classification format for banks used in Spain. We have not reclassified the line items to comply with Article 9 of Regulation S-X. Article 9 is a regulation of the US Securities and Exchange Commission that contains formatting requirements for bank holding company financial statements.
General Information
Our consolidated financial statements are in Euros, which are denoted euro, euros, EUR or throughout this report. Also, throughout this report, when we refer to:
| the Bank, we mean Banco Santander, S.A.; |
| we, us, our, the Group, Grupo Santander or Santander, we mean Banco Santander, S.A. and its subsidiaries, unless the context otherwise requires; |
| dollars, US$ or $, we mean United States dollars; and |
| pounds or £, we mean United Kingdom pounds; |
When we refer to average balances for a particular period, we mean the average of the month-end balances for that period, unless otherwise noted. We do not believe that monthly averages present trends that are materially different from trends that daily averages would show. In calculating our interest income, we include any interest payments we received on non-accruing loans if they were received in the period when due. We have not reflected consolidation adjustments in any financial information about our subsidiaries or other business units.
When we refer to loans, we mean loans, leases, discounted bills and accounts receivable, unless otherwise noted. The loan to value LTV ratios disclosed in this report refer to LTV ratios calculated as the ratio of the outstanding amount of the loan to the most recent available appraisal value of the mortgaged asset. Additionally, if a loan is approaching a doubtful status, we update the appraisals which are then used to estimate allowances for loan losses.
When we refer to non-performing balances, we mean non-performing loans and contingent liabilities (NPL), securities and other assets to collect.
When we refer to allowances for credit losses, we mean the specific allowances for credit losses, and unless otherwise noted, the collectively assessed allowance for credit losses including any allowances for country-risk. See Item 4. Information on the CompanyB. Business OverviewClassified AssetsAllowances for Credit Losses and Country-Risk Requirements in the 2014 Form 20-F.
3
When we refer to perimeter effect, we mean growth or reduction derived from changes in the companies that we consolidate resulting from acquisitions, dispositions or other reasons.
When we refer to net interest income, we mean interest income/(charges), calculated as interest and similar income less interest expense and similar charges.
Where a translation of foreign exchange is given for any financial data, we use the exchange rates of the relevant period (as of the end of such period for balance sheet data and the average exchange rate of such period for income statement data) as published by the European Central Bank, unless otherwise noted.
Management makes use of certain financial measures in local currency to help in the assessment of on-going operating performance. These non-GAAP financial measures include the results of operations of our subsidiary banks located outside the eurozone, excluding the impact of foreign exchange. We analyze these banks performance on a local currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have a non-operating impact on the results of operations, we believe that evaluating their performance on a local currency basis provides an additional and meaningful assessment of performance to both management and the companys investors. For a discussion of the accounting principles used in translation of foreign currency-denominated assets and liabilities to euros, see Note 2(a) to our consolidated financial statements for the year ended December 31, 2014 in our 2014 Form 20-F.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, information regarding:
| exposure to various types of market risks; |
| management strategy; |
| capital expenditures; |
| earnings and other targets; and |
| asset portfolios. |
Forward-looking statements may be identified by words such as expect, project, anticipate, should, intend, probability, risk, VaR, RORAC, target, goal, objective, estimate, future and similar expressions. We include forward-looking statements in the Operating and Financial Review and Prospects and Quantitative Analysis About Market Risk sections. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements.
You should understand that adverse changes in the following important factors, in addition to those discussed in our 2014 Form 20-F under Key InformationRisk Factors, Operating and Financial Review and Prospects, Information on the Company and elsewhere in this current report, could affect our future results and could cause those results or other outcomes to differ materially from those anticipated in any forward-looking statement:
4
5
The forward-looking statements contained in this report speak only as of the date of this report. We do not undertake to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.
6
Selected Consolidated Financial Information
There are no changes derived from the recast described in the introductory explanatory note.
Selected Statistical Information
There are no changes derived from the recast described in the introductory explanatory note.
Operating and Financial Review and Prospects
A. Operating results
We have based the following discussion on our interim consolidated financial statements for the six months ended June 30, 2015. You should read this discussion along with this report, and this discussion is qualified in its entirety by reference to them.
General
There are no changes derived from the recast described in the introductory explanatory note.
2015 overview
There are no changes derived from the recast described in the introductory explanatory note.
Results of operations for Grupo Santander
There are no changes derived from the recast described in the introductory explanatory note.
Results of Operations by Business Areas
Our results were affected by the following changes which took place during the first half of 2015:
1) In the global businesses:
| The business of Private Banking, Asset Management and Insurance, which previously appeared as an independent global business, is now integrated into Retail Banking. |
2) Other adjustments:
| Annual adjustment of the clients of the Global Customer Relationship Model between Retail Banking and Global Banking and Markets. This change has no impact on the geographic segments. |
In addition, our results are affected by the change in our reported segments resulting from the application of new financial criteria to reflect our current reporting structure (see Presentation of Financial and Other Information - Explanatory Note).
The main changes, which have been applied to all segment information for all periods included in this report, are the following:
1. | Change of criteria: the change in segments mainly affects the income statement line items of net interest income, gains on financial transactions and operating expenses, due to decrease in the Corporate Center segment and its allocation to the business units. |
2. | Creation of a new business segment Spains Real Estate Activity which combines the former Spains Run-Off Real Estate business segment and other real estate assets, such as our subsidiary Metrovacesa, the assets from our old real estate fund (Santander Banif Inmobiliario) and others, previously included in the Corporate Center segment. |
3. | The United States geographic segment is modified such that it continues to include the businesses of SHUSA (Santander Bank and SCUSA) and the commercial banking activity of Banco Santander Puerto Rico and in |
7
addition includes Banco Santander International and the Banks New York branch, units that were previously included in Latin America. |
The financial statements of each operating segment are prepared by aggregating the figures for the Groups various business units. The basic information used for segment reporting comprises the accounting data of the legal units composing each segment and the data available from the management information systems. All segment financial statements have been prepared on a basis consistent with the accounting policies used by the Group.
For a description of our business areas, see Item 4. Information on the CompanyB. Business Overview in our Form 6-K filed with the SEC on November 5, 2015.
Our results of operations by business areas can be summarized as follows:
8
First level (geographic):
Continental Europe
Six Months Ended June 30 |
Variations | |||||||||||||||
2015 | 2014 | Amount | (%) | |||||||||||||
(in millions of euros, except percentages) | ||||||||||||||||
INTEREST INCOME / (CHARGES) |
4,063 | 3,691 | 372 | 10 | % | |||||||||||
Income from equity instruments |
173 | 171 | 2 | 1 | % | |||||||||||
Income from companies accounted for by the equity method |
63 | (14 | ) | 77 | n.a. | |||||||||||
Net fees and commissions |
1,720 | 1,788 | (68 | ) | (4 | %) | ||||||||||
Gains/losses on financial assets and liabilities (net) * |
495 | 553 | (58 | ) | (10 | %) | ||||||||||
Other operating income/(expenses) (net) |
113 | (15 | ) | 128 | n.a. | |||||||||||
TOTAL INCOME |
6,627 | 6,174 | 453 | 7 | % | |||||||||||
Administrative expenses |
(3,118 | ) | (3,003 | ) | (115 | ) | 4 | % | ||||||||
Depreciation and amortization |
(230 | ) | (243 | ) | 13 | (5 | %) | |||||||||
Provisions (net) |
(161 | ) | (113 | ) | (48 | ) | 42 | % | ||||||||
Impairment losses on financial assets (net) |
(1,173 | ) | (1,583 | ) | 410 | (26 | %) | |||||||||
Impairment losses on other assets (net) |
(83 | ) | (99 | ) | 16 | (16 | %) | |||||||||
Gains/(losses) on other assets (net) |
(57 | ) | (177 | ) | 120 | (68 | %) | |||||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
1,805 | 956 | 849 | 89 | % | |||||||||||
Income tax |
(468 | ) | (223 | ) | (245 | ) | 110 | % | ||||||||
PROFIT FROM CONTINUING OPERATIONS |
1,337 | 733 | 604 | 82 | % | |||||||||||
Profit/(loss) from discontinued operations (net) |
| | | n.a. | ||||||||||||
CONSOLIDATED PROFIT FOR THE YEAR |
1,337 | 733 | 604 | 82 | % | |||||||||||
Profit attributable to non-controlling interest |
137 | 71 | 66 | 93 | % | |||||||||||
Profit attributable to the Parent |
1,200 | 662 | 538 | 81 | % |
* | Includes exchange differences (net) |
In the first half of 2015, Continental Europe contributed 23% of the profit attributed to the Groups operating areas. In a more favorable but still weak environment with low interest rates, the general strategic lines of the last few years were maintained: (i) defending spreads on loans and on deposits, (ii) reducing the cost of deposits in all the units, (iii) control of costs and exploiting synergies, and (iv) active risk management.
Total income increased 453 million, mainly due to the 372 million increase in interest income / (charges). This increase was concentrated in Santander Consumer due to the incorporation of GE Nordics, Carfinco in Canada and the PSA France.
Operating expenses; which includes administrative expenses and depreciation and amortization, increased by 3% or 102 million mainly due to higher expenses in Santander Consumer as a result of the incorporation of the businesses mentioned above.
Provisions and impairment losses, which include provisions (net), impairment losses on financial assets (net), and impairment losses on other assets, declined 378 million or 21% mainly due to the reduction in net new non-performing loans.
Profit attributable to the Parent increased 538 million, due to greater interest income / (charges) and a reduction in impairment losses on financial assets. Of note by units was the good performance of Spain.
9
United Kingdom
Six Months Ended June 30 |
Variations | |||||||||||||||
2015 | 2014 | Amount | (%) | |||||||||||||
(in millions of euros, except percentages) | ||||||||||||||||
INTEREST INCOME / (CHARGES) |
2,441 | 2,024 | 417 | 21 | % | |||||||||||
Income from equity instruments |
| | | n.a | ||||||||||||
Income from companies accounted for by the equity method |
2 | 5 | (3 | ) | (60 | %) | ||||||||||
Net fees and commissions |
578 | 494 | 84 | 17 | % | |||||||||||
Gains/losses on financial assets and liabilities (net) * |
145 | 149 | (4 | ) | (3 | %) | ||||||||||
Other operating income/(expenses) (net) |
11 | 13 | (2 | ) | (15 | %) | ||||||||||
TOTAL INCOME |
3,177 | 2,685 | 492 | 18 | % | |||||||||||
Administrative expenses |
(1,508 | ) | (1,349 | ) | (159 | ) | 12 | % | ||||||||
Depreciation and amortization |
(159 | ) | (195 | ) | 36 | (18 | %) | |||||||||
Provisions (net) |
(111 | ) | 26 | (137 | ) | n.a. | ||||||||||
Impairment losses on financial assets (net) |
(94 | ) | (208 | ) | 114 | (55 | %) | |||||||||
Impairment losses on other assets (net) |
(1 | ) | | (1 | ) | n.a. | ||||||||||
Gains/(losses) on other assets (net) |
6 | (1 | ) | 7 | n.a. | |||||||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
1,310 | 958 | 352 | 37 | % | |||||||||||
Income tax |
(276 | ) | (194 | ) | (82 | ) | 42 | % | ||||||||
PROFIT FROM CONTINUING OPERATIONS |
1,034 | 764 | 270 | 35 | % | |||||||||||
Profit/(loss) from discontinued operations (net) |
| | | n.a. | ||||||||||||
CONSOLIDATED PROFIT FOR THE YEAR |
1,034 | 764 | 270 | 35 | % | |||||||||||
Profit attributable to non-controlling interest |
19 | | 19 | n.a. | ||||||||||||
Profit attributable to the Parent |
1,015 | 764 | 251 | 33 | % |
* | Includes exchange differences (net) |
In the first half of 2015, United Kingdom contributed 19% of the profit attributed to the Groups total operating areas. Results were obtained in an environment of improving economic growth. Santander UKs strategy remained focused on loyal and satisfied retail customers. Support to UK businesses was improved by offering a broader range of products and a larger distribution capacity.
Total income rose 492 million or 18%, mainly due to a 417 million increase in interest income / (charges) and a 84 million increase in net fees and commissions. The net interest income improvement reflected the lower cost of retail liabilities and higher volumes. The increase in net fees and commissions was mainly due to lending commissions and Global Corporate Banking activity.
Operating expenses increased 123 million mainly due to investment programs in retail and corporate banking. These strategic investments underpin future efficiency improvements.
Provisions and impairment losses increased 24 million or 13% mainly due to: (i) a 137 million rise in provisions (net) after the releases accounted in 2014 due to the reduction in obligations relating to the agreement reached to limit pensionable salary, and (ii) a 114 million decrease in impairment losses on financial assets (net) with improved credit quality across the loan portfolios, conservative loan-to-value criteria, and supported by a better economic environment.
Profit attributable to the Parent increased 251 million or 33% (19% in local currency) mainly due to improved interest income / (charges), resulting from improved margins as well as increasing volumes, and lower impairment losses, reflecting the better quality of the balance sheet and the improved macroeconomic environment.
10
Latin America
Six Months Ended June 30 |
Variations | |||||||||||||||
2015 | 2014 | Amount | (%) | |||||||||||||
(in millions of euros, except percentages) | ||||||||||||||||
INTEREST INCOME / (CHARGES) |
7,778 | 6,721 | 1,057 | 16 | % | |||||||||||
Income from equity instruments |
34 | 52 | (18 | ) | (35 | %) | ||||||||||
Income from companies accounted for by the equity method |
153 | 129 | 24 | 19 | % | |||||||||||
Net fees and commissions |
2,287 | 2,057 | 230 | 11 | % | |||||||||||
Gains/losses on financial assets and liabilities (net) * |
298 | 212 | 86 | 41 | % | |||||||||||
Other operating income/(expenses) (net) |
(162 | ) | (142 | ) | (20 | ) | 14 | % | ||||||||
TOTAL INCOME |
10,388 | 9,029 | 1,359 | 15 | % | |||||||||||
Administrative expenses |
(3,709 | ) | (3,404 | ) | (305 | ) | 9 | % | ||||||||
Depreciation and amortization |
(364 | ) | (351 | ) | (13 | ) | 4 | % | ||||||||
Provisions (net) |
(887 | ) | (362 | ) | (525 | ) | n.a. | |||||||||
Impairment losses on financial assets (net) |
(2,659 | ) | (2,546 | ) | (113 | ) | 4 | % | ||||||||
Impairment losses on other assets (net) |
(170 | ) | 17 | (187 | ) | n.a. | ||||||||||
Gains/(losses) on other assets (net) |
65 | 30 | 35 | 117 | % | |||||||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
2,664 | 2,413 | 251 | 10 | % | |||||||||||
Income tax |
323 | (606 | ) | 929 | n.a. | |||||||||||
PROFIT FROM CONTINUING OPERATIONS |
2,987 | 1,807 | 1,180 | 65 | % | |||||||||||
Profit/(loss) from discontinued operations (net) |
| | | n.a. | ||||||||||||
CONSOLIDATED PROFIT FOR THE YEAR |
2,987 | 1,807 | 1,180 | 65 | % | |||||||||||
Profit attributable to non-controlling interest |
435 | 414 | 21 | 5 | % | |||||||||||
Profit attributable to the Parent |
2,552 | 1,393 | 1,159 | 83 | % |
* | Includes exchange differences (net) |
In the first half of 2015, Latin America contributed 49% of the profit attributed to the Groups total operating areas. The evolution of results in euros is positively affected by average exchange rates.
Total income increased by 1,359 million or 15% mainly due to a 1,057 million or 16% improvement in interest income / (charges). This variation was mainly due to the increase in loan volumes and spreads in Brazil, the increase in Mexicos lending and the exchange rate impact. Furthermore, net fees and commissions increased by 230 million or 11% mainly concentrated in Argentina (basically due to improved performance of credit cards and current accounts) and Brazil (primarily insurance and credit cards).
Operating expenses increased 318 million or 8%, mainly due to increased capacity and new commercial projects.
Provisions and impairment losses increased by 825 million or 29% mainly due to a 525 million increase in provisions concentrated in Brazil. The provisions increase in Brazil was mainly due to releases occurred in 2014 that were not repeated in 2015, together with an increase in civil and legal provisions in the first half of 2015.
Income tax at June 30, 2015 was a 323 million gain, a 929 million increase as compared to the 606 million loss a year earlier mainly due to the reversal in the second quarter of 2015 of tax liabilities in Brazil.
Profit attributable to the Parent increased by 1,159 million or 83%, affected positively by the reversal of tax liabilities in Brazil and exchange rates. Excluding these effects the increase would have been 21% mainly due to higher total income (driven by net interest income and fees and commissions), partially offset by higher operating expenses in most of the units and higher provisions and impairment losses in Brazil.
11
United States
Six Months Ended June 30 |
Variations | |||||||||||||||
2015 | 2014 | Amount | (%) | |||||||||||||
(in millions of euros, except percentages) | ||||||||||||||||
INTEREST INCOME / (CHARGES) |
3,012 | 2,311 | 701 | 30 | % | |||||||||||
Income from equity instruments |
26 | 13 | 13 | 100 | % | |||||||||||
Income from companies accounted for by the equity method |
2 | 2 | | 0 | % | |||||||||||
Net fees and commissions |
533 | 406 | 127 | 31 | % | |||||||||||
Gains/losses on financial assets and liabilities (net) * |
154 | 66 | 88 | 133 | % | |||||||||||
Other operating income/(expenses) (net) |
141 | 33 | 108 | n.a. | ||||||||||||
TOTAL INCOME |
3,868 | 2,831 | 1,037 | 37 | % | |||||||||||
Administrative expenses |
(1,299 | ) | (956 | ) | (343 | ) | 36 | % | ||||||||
Depreciation and amortization |
(126 | ) | (96 | ) | (30 | ) | 31 | % | ||||||||
Provisions (net) |
(63 | ) | (15 | ) | (48 | ) | n.a. | |||||||||
Impairment losses on financial assets (net) |
(1,393 | ) | (1,045 | ) | (348 | ) | 33 | % | ||||||||
Impairment losses on other assets (net) |
(1 | ) | (6 | ) | 5 | (83 | %) | |||||||||
Gains/(losses) on other assets (net) |
3 | 16 | (13 | ) | (81 | %) | ||||||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
989 | 729 | 260 | 36 | % | |||||||||||
Income tax |
(315 | ) | (230 | ) | (85 | ) | 37 | % | ||||||||
PROFIT FROM CONTINUING OPERATIONS |
674 | 499 | 175 | 35 | % | |||||||||||
Profit/(loss) from discontinued operations (net) |
| | | n.a. | ||||||||||||
CONSOLIDATED PROFIT FOR THE YEAR |
674 | 499 | 175 | 35 | % | |||||||||||
Profit attributable to non-controlling interest |
200 | 110 | 90 | 82 | % | |||||||||||
Profit attributable to the Parent |
474 | 389 | 85 | 22 | % |
* | Includes exchange differences (net) |
In the first half of 2015, the United States contributed 9% of the profit attributed to Groups total operating areas. Santander in the United States comprises (i) Santander Holdings USA (SHUSA) which is the parent company of Santander Bank, a national banking association, and Santander Consumer USA Holdings Inc. (SCUSA), a consumer finance company focused on vehicle finance, (ii) the commercial banking activity of Banco Santander Puerto Rico, (iii) Banco Santander International (based in Miami), and (iv) the business of the Banks New York branch.
On July 3, 2015, we announced that we had reached an agreement to buy DDFS LLCs 9.68% stake in SCUSA. Following this transaction, subject to several regulatory approvals, the Groups stake in SCUSA will increase to around 68.7%.
Total income increased by 1,037 million or 37% (11% in local currency) mainly due to SCUSA, as a result of an increase in originations, which spurred net interest income, as well as the development of the leasing business, and fee income from servicing. However, Santander Banks net interest income is under pressure from continuing low interest rates, offset by trading gains.
Operating expenses increased 373 million or 35% due to the efforts made in regulatory compliance and IT investments.
Provisions and impairment losses rose 391 million or 37%, mainly due to the 348 million increase in impairment losses on financial assets (net), relating to the continued growth in retail installment contracts and the related provisioning for this portfolio.
Profit attributable to the Parent increased by 85 million or 22%, (flat in local currency) thanks to higher total income (net interest income and fees and commissions) that more than offset the increase in costs, loan loss provisions and non-controlling interest.
12
Corporate Center
Six Months Ended June 30 |
Variations | |||||||||||||||
2015 | 2014 | Amount | (%) | |||||||||||||
(in millions of euros, except percentages) | ||||||||||||||||
INTEREST INCOME / (CHARGES) |
(352 | ) | (385 | ) | 33 | (9 | %) | |||||||||
Income from equity instruments |
40 | 15 | 25 | n.a. | ||||||||||||
Income from companies accounted for by the equity method |
(20 | ) | (14 | ) | (6 | ) | 43 | % | ||||||||
Net fees and commissions |
(7 | ) | (11 | ) | 4 | (36 | %) | |||||||||
Gains/losses on financial assets and liabilities (net) * |
(57 | ) | 298 | (355 | ) | n.a. | ||||||||||
Other operating income/(expenses) (net) |
(12 | ) | (11 | ) | (1 | ) | 9 | % | ||||||||
TOTAL INCOME |
(408 | ) | (108 | ) | (300 | ) | n.a. | |||||||||
Administrative expenses |
23 | (9 | ) | 32 | n.a. | |||||||||||
Depreciation and amortization |
(316 | ) | (280 | ) | (36 | ) | 13 | % | ||||||||
Provisions (net) |
(338 | ) | (1,042 | ) | 704 | (68 | %) | |||||||||
Impairment losses on financial assets (net) |
24 | 13 | 11 | 85 | % | |||||||||||
Impairment losses on other assets (net) |
(32 | ) | (743 | ) | 711 | (96 | %) | |||||||||
Gains/(losses) on other assets (net) |
120 | 2,349 | (2,229 | ) | (95 | %) | ||||||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
(927 | ) | 180 | (1,107 | ) | n.a. | ||||||||||
Income tax |
(29 | ) | (695 | ) | 666 | (96 | %) | |||||||||
PROFIT FROM CONTINUING OPERATIONS |
(956 | ) | (515 | ) | (441 | ) | 86 | % | ||||||||
Profit/(loss) from discontinued operations (net) |
| | | n.a. | ||||||||||||
CONSOLIDATED PROFIT FOR THE YEAR |
(956 | ) | (515 | ) | (441 | ) | 86 | % | ||||||||
Profit attributable to non-controlling interest |
24 | (63 | ) | 87 | n.a. | |||||||||||
Profit attributable to the Parent |
(980 | ) | (452 | ) | (528 | ) | 117 | % |
* | Includes exchange differences (net) |
This area covers a series of centralized activities and acts as the Groups holding. Therefore, it manages all equity (capital and reserves of all the units) and determines its allocation to each of the units.
Total income decreased by 300 million due to a 355 million decrease in gains/losses on financial assets and liabilities derived from reduced results from centralized management of risks (interest rate risk and exchange rate risk), which was partly offset by the lower financial cost of issuances because of the decline in interest rates as well as the lower volume (decline in businesses liquidity needs in year-on-year comparison).
Operating expenses increased by 4 million or 1% mainly due to expenses related to corporate transactions underway (recorded in this area until they are granted) and higher costs from regulatory requirements.
Provisions and impairment losses, decreased by 1,426 million or 80% as the provision for pre-retirements in Spain and restructuring costs and impairment losses on intangible assets recorded in 2014 were not repeated in 2015.
Gains / (losses) on other assets decreased by 2,229 million, mainly due to certain transactions registered in 2014: the stock market placement of SCUSA (1.7 billion) and the sale of Altamira (for 664 million). In 2015 we did not record any significant gain or loss in this line item.
Income tax decreased by 666 million mainly due to the tax impact registered in 2014 from the SCUSA and Altamira transactions which were not repeated in 2015.
Loss attributable to the Parent increased by 528 million mainly due to the decrease in gains on other assets relating to the 2014 SCUSA and Altamira transactions partly offset by the reduction in income tax expenses.
13
Second level (business):
Retail Banking
Six Months Ended June 30 |
Variations | |||||||||||||||
2015 | 2014 | Amount | (%) | |||||||||||||
(in millions of euros, except percentages) | ||||||||||||||||
INTEREST INCOME / (CHARGES) |
15,828 | 13,548 | 2,280 | 17 | % | |||||||||||
Income from equity instruments |
79 | 82 | (3 | ) | (4 | %) | ||||||||||
Income from companies accounted for by the equity method |
225 | 148 | 77 | 52 | % | |||||||||||
Net fees and commissions |
4,363 | 4,045 | 318 | 8 | % | |||||||||||
Gains/losses on financial assets and liabilities (net) * |
669 | 457 | 212 | 46 | % | |||||||||||
Other operating income/(expenses) (net) |
58 | (147 | ) | 205 | n.a. | |||||||||||
TOTAL INCOME |
21,222 | 18,133 | 3,089 | 17 | % | |||||||||||
Administrative expenses |
(8,572 | ) | (7,786 | ) | (786 | ) | 10 | % | ||||||||
Depreciation and amortization |
(786 | ) | (798 | ) | 12 | (2 | %) | |||||||||
Provisions (net) |
(1,205 | ) | (437 | ) | (768 | ) | 176 | % | ||||||||
Impairment losses on financial assets (net) |
(4,885 | ) | (4,924 | ) | 39 | (1 | %) | |||||||||
Impairment losses on other assets (net) |
(179 | ) | (16 | ) | (163 | ) | n.a. | |||||||||
Gains/(losses) on other assets (net) |
47 | 6 | 41 | n.a. | ||||||||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
5,642 | 4,178 | 1,464 | 35 | % | |||||||||||
Income tax |
(428 | ) | (1,017 | ) | 589 | (58 | %) | |||||||||
PROFIT FROM CONTINUING OPERATIONS |
5,214 | 3,161 | 2,053 | 65 | % | |||||||||||
Profit/(loss) from discontinued operations (net) |
| | | n.a. | ||||||||||||
CONSOLIDATED PROFIT FOR THE YEAR |
5,214 | 3,161 | 2,053 | 65 | % | |||||||||||
Profit attributable to non-controlling interest |
719 | 521 | 198 | 38 | % | |||||||||||
Profit attributable to the Parent |
4,495 | 2,640 | 1,855 | 70 | % |
* | Includes exchange differences (net) |
The Groups Retail Banking segment, which includes all customer banking businesses (except those of corporate banking which are included under Global Corporate Banking) generated 86% of the profit attributed to Groups total operating areas in the first half of 2015. The evolution of results in euros is affected by average exchange rates.
Total income increased by 3,089 million or 17% mainly due to 2,280 million or 17% improvement in interest income / (charges). This increase in interest income / (charges) was mainly due to the impact of exchange rates and increased interest income of Santander Consumer (which benefited from the consolidation of GE Nordics, Carfinco in Canada and PSA France) and Latin America.
Operating expenses increased by 774 million or 8% mainly concentrated in Latin America due to the increased installed capacity and new commercial projects.
Income tax improved by 589 million mainly due to the reversal in the second quarter of 2015 of tax liabilities in Brazil.
Provisions and impairment losses increased by 892 million or 17% resulting mainly from the increase in provisions concentrated in Brazil. The provisions increase in Brazil was mainly due to releases occurred in 2014 that were not repeated in 2015, together with an increase in civil and legal provisions in the first half of 2015.
Profit attributable to the Parent increased by 1,855 million or 70% affected positively by the reversal of tax liabilities in Brazil and exchange rates. Excluding these impacts the increase was 28%, mainly due to the improved performance in total income.
14
Global Corporate Banking
Six Months Ended June 30 |
Variations | |||||||||||||||
2015 | 2014 | Amount | (%) | |||||||||||||
(in millions of euros, except percentages) | ||||||||||||||||
INTEREST INCOME / (CHARGES) |
1,478 | 1,212 | 266 | 22 | % | |||||||||||
Income from equity instruments |
154 | 154 | | 0 | % | |||||||||||
Income from companies accounted for by the equity method |
(3 | ) | | (3 | ) | n.a. | ||||||||||
Net fees and commissions |
754 | 701 | 53 | 8 | % | |||||||||||
Gains/losses on financial assets and liabilities (net) * |
345 | 520 | (175 | ) | (34 | %) | ||||||||||
Other operating income/(expenses) (net) |
24 | 12 | 12 | 100 | % | |||||||||||
TOTAL INCOME |
2,752 | 2,599 | 153 | 6 | % | |||||||||||
Administrative expenses |
(945 | ) | (821 | ) | (124 | ) | 15 | % | ||||||||
Depreciation and amortization |
(87 | ) | (77 | ) | (10 | ) | 13 | % | ||||||||
Provisions (net) |
(11 | ) | (22 | ) | 11 | (50 | %) | |||||||||
Impairment losses on financial assets (net) |
(342 | ) | (305 | ) | (37 | ) | 12 | % | ||||||||
Impairment losses on other assets (net) |
(16 | ) | (16 | ) | | 0 | % | |||||||||
Gains/(losses) on other assets (net) |
8 | (1 | ) | 9 | n.a. | |||||||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
1,359 | 1,357 | 2 | 0 | % | |||||||||||
Income tax |
(379 | ) | (372 | ) | (7 | ) | 2 | % | ||||||||
PROFIT FROM CONTINUING OPERATIONS |
980 | 985 | (5 | ) | (1 | %) | ||||||||||
Profit/(loss) from discontinued operations (net) |
| | | n.a. | ||||||||||||
CONSOLIDATED PROFIT FOR THE YEAR |
980 | 985 | (5 | ) | (1 | %) | ||||||||||
Profit attributable to non-controlling interest |
72 | 76 | (4 | ) | (5 | %) | ||||||||||
Profit attributable to the Parent |
908 | 909 | (1 | ) | (0 | %) |
* | Includes exchange differences (net) |
The Global Corporate Banking segment (previously called Global Wholesale Banking) generated 17% of the operating areas total profit attributable to the Group in the first half of 2015. Santander Global Banking & Markets maintained the lines of action begun in 2014: develop the sale of products to all the Banks clients, develop our transaction business, deepen the creation of the customer franchise in the UK, the US and Poland and step up our coverage in Asia and the Andean region, in line with the Groups expansion in these areas.
Total income increased by 153 million or 6%, mainly due to interest income / (charges) and net fees and commissions. The main areas of Global Corporate Banking experienced varied performance. Global transaction banking, against a backdrop of contained spreads and low interest rates, increased 6%. Financing solutions and advisory grew 9% reflecting the soundness of the various businesses. In global markets, customer revenues were down 14% due to the lower contribution of European units.
Operating expenses increased 134 million or 15%, because of investments in potential growth markets, particularly in the US, UK, Poland and Asia.
Provisions and impairment losses increased by 26 million or 8%, mainly due to growth in loan loss provisions in Brazil.
Profit attributable to the Parent decreased by 1 million (flat in local currency), reflecting that the increase in total income was offset by higher expenses and loan loss provisions.
15
Spains Real Estate Activity
Six Months Ended June 30 |
Variations | |||||||||||||||
2015 | 2014 | Amount | (%) | |||||||||||||
(in millions of euros, except percentages) | ||||||||||||||||
INTEREST INCOME / (CHARGES) |
(12 | ) | (13 | ) | 1 | (8 | %) | |||||||||
Income from equity instruments |
| | | n.a. | ||||||||||||
Income from companies accounted for by the equity method |
(2 | ) | (26 | ) | 24 | (92 | %) | |||||||||
Net fees and commissions |
1 | (1 | ) | 2 | n.a. | |||||||||||
Gains/losses on financial assets and liabilities (net) * |
78 | 3 | 75 | n.a. | ||||||||||||
Other operating income/(expenses) (net) |
21 | 24 | (3 | ) | (13 | %) | ||||||||||
TOTAL INCOME |
86 | (13 | ) | 99 | n.a. | |||||||||||
Administrative expenses |
(117 | ) | (105 | ) | (12 | ) | 11 | % | ||||||||
Depreciation and amortization |
(6 | ) | (10 | ) | 4 | (36 | %) | |||||||||
Provisions (net) |
(6 | ) | (5 | ) | (1 | ) | 20 | % | ||||||||
Impairment losses on financial assets (net) |
(92 | ) | (153 | ) | 61 | (40 | %) | |||||||||
Impairment losses on other assets (net) |
(60 | ) | (56 | ) | (4 | ) | 7 | % | ||||||||
Gains/(losses) on other assets (net) |
(38 | ) | (137 | ) | 99 | (72 | %) | |||||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
(233 | ) | (479 | ) | 246 | (51 | %) | |||||||||
Income tax |
71 | 136 | (65 | ) | (48 | %) | ||||||||||
PROFIT FROM CONTINUING OPERATIONS |
(162 | ) | (343 | ) | 181 | (53 | %) | |||||||||
Profit/(loss) from discontinued operations (net) |
| | | n.a. | ||||||||||||
CONSOLIDATED PROFIT FOR THE YEAR |
(162 | ) | (343 | ) | 181 | (53 | %) | |||||||||
Profit attributable to non-controlling interest |
| (2 | ) | 2 | n.a. | |||||||||||
Profit attributable to the Parent |
(162 | ) | (341 | ) | 179 | (52 | %) |
* | Includes exchange differences (net) |
The Spains Real Estate Activity segment, which has a specialized management model, combines (i) the run-off real estate activity in Spain, which includes loans to clients mainly for real estate promotion, where our strategy focuses on a significant reduction of our exposure; (ii) quality real estate operating assets (mainly from our old real estate fund, Santander Banif Inmobiliario); (iii) our subsidiary Metrovacesa; and (iv) certain other assets such as our stake in Sareb.
Total income increased by 99 million, mainly due to the global consolidation of Metrovacesa in 2015 that resulted in a decrease in income from companies accounted for by the equity method and an increase in gains on financial assets and liabilities.
Impairment losses on financial assets continued its downward trend and experienced a reduction of 61 million in the first half of 2015 directly related to the decrease in net customer lending.
Losses on other assets (net) decreased by 99 million mainly due a drop in losses from sale of foreclosed assets.
Losses attributable to the Parent decreased by 179 million, mainly due to the combined effect of the increase in total income and the reduction of impairment losses and of losses from the sale of foreclosed assets.
Financial Condition
There are no changes derived from the recast described in the introductory explanatory note.
16
B. Liquidity and capital resources
There are no changes derived from the recast described in the introductory explanatory note.
C. Research and development, patents and licenses, etc.
There are no changes derived from the recast described in the introductory explanatory note.
D. Trend information
There are no changes derived from the recast described in the introductory explanatory note.
E. Off-balance sheet arrangements
There are no changes derived from the recast described in the introductory explanatory note.
F. Tabular disclosure of contractual obligations
There are no changes derived from the recast described in the introductory explanatory note.
G. Other disclosures
There are no changes derived from the recast described in the introductory explanatory note.
Legal Proceedings
There are no changes derived from the recast described in the introductory explanatory note.
Quantitative Analysis About Market Risk
There are no changes derived from the recast described in the introductory explanatory note.
Recent Events
There are no changes derived from the recast described in the introductory explanatory note.
17
Exhibit 99.2
SANTANDER GROUP
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS AT June 30, 2015 AND DECEMBER 31, 2014
(Millions of euros)
The accompanying explanatory Notes 1 to 16 are an integral part of the unaudited condensed consolidated balance sheet as at June 30, 2015.
F-1
SANTANDER GROUP
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2015 AND 2014
(Millions of euros)
(Debit) Credit | ||||||||||||
Note | 01/01/15 to 06/30/15 |
01/01/14 to 06/30/14 |
||||||||||
INTEREST AND SIMILAR INCOME |
29,182 | 26,580 | ||||||||||
INTEREST EXPENSE AND SIMILAR CHARGES |
(12,240 | ) | (12,218 | ) | ||||||||
INTEREST INCOME/(CHARGES) |
16,942 | 14,362 | ||||||||||
INCOME FROM EQUITY INSTRUMENTS |
273 | 251 | ||||||||||
INCOME FROM COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD |
200 | 108 | ||||||||||
FEE AND COMMISSION INCOME |
6,606 | 6,034 | ||||||||||
FEE AND COMMISSION EXPENSE |
(1,495 | ) | (1,300 | ) | ||||||||
GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES (net) |
(298 | ) | 1,328 | |||||||||
EXCHANGE DIFFERENCES (net) |
1,333 | (50 | ) | |||||||||
OTHER OPERATING INCOME |
1,844 | 2,944 | ||||||||||
OTHER OPERATING EXPENSES |
(1,753 | ) | (3,066 | ) | ||||||||
TOTAL INCOME |
23,652 | 20,611 | ||||||||||
ADMINISTRATIVE EXPENSES |
(9,611 | ) | (8,721 | ) | ||||||||
Personnel expenses |
(5,591 | ) | (4,999 | ) | ||||||||
Other general administrative expenses |
(4,020 | ) | (3,722 | ) | ||||||||
DEPRECIATION AND AMORTIZATION |
(1,195 | ) | (1,165 | ) | ||||||||
PROVISIONS (net) |
(1,560 | ) | (1,506 | ) | ||||||||
IMPAIRMENT LOSSES ON FINANCIAL ASSETS (net) |
5 | (5,295 | ) | (5,369 | ) | |||||||
IMPAIRMENT LOSSES ON OTHER ASSETS (net) |
(287 | ) | (831 | ) | ||||||||
GAINS/(LOSSES) ON DISPOSAL OF ASSETS NOT CLASSIFIED AS NON-CURRENT ASSETS HELD FOR SALE |
193 | 2,302 | ||||||||||
GAINS FROM BARGAIN PURCHASES ARISING IN BUSINESS COMBINATIONS |
| | ||||||||||
GAINS/(LOSSES) OF NON-CURRENT ASSETS HELD FOR SALE NOT CLASSIFIED AS DISCONTINUED OPERATIONS |
6 | (56 | ) | (85 | ) | |||||||
OPERATING PROFIT/(LOSS) BEFORE TAX |
5,841 | 5,236 | ||||||||||
INCOME TAX |
(765 | ) | (1,948 | ) | ||||||||
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS |
5,076 | 3,288 | ||||||||||
PROFIT/LOSS FROM DISCONTINUED OPERATIONS (net) |
| | ||||||||||
CONSOLIDATED PROFIT FOR THE PERIOD |
5,076 | 3,288 | ||||||||||
Profit attributable to the Parent |
4,261 | 2,756 | ||||||||||
Profit attributable to non-controlling interests |
815 | 532 | ||||||||||
EARNINGS PER SHARE: |
||||||||||||
From continuing and discontinued operations: |
||||||||||||
Basic earnings per share (euros) |
3 | 0.30 | 0.24 | |||||||||
Diluted earnings per share (euros) |
3 | 0.30 | 0.24 | |||||||||
From continuing operations: |
||||||||||||
Basic earnings per share (euros) |
3 | 0.30 | 0.24 | |||||||||
Diluted earnings per share (euros) |
3 | 0.30 | 0.24 |
The accompanying explanatory Notes 1 to 16 are an integral part of the unaudited condensed consolidated income statement for the six-month period ended June 30, 2015.
F-2
SANTANDER GROUP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE
FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2015 AND 2014
(Millions of euros)
Note | 01/01/15 to 06/30/15 |
01/01/14 to 06/30/14 |
||||||||
CONSOLIDATED PROFIT FOR THE PERIOD |
5,076 | 3,288 | ||||||||
OTHER RECOGNIZED INCOME AND EXPENSE: |
459 | 2,828 | ||||||||
Items that will not be reclassified to profit or loss |
(168 | ) | (92 | ) | ||||||
Actuarial gains and losses on defined benefit pension plans |
11 | (188 | ) | (125 | ) | |||||
Non-current assets held for sale |
| | ||||||||
Income tax relating to items that will not be reclassified to profit or loss |
20 | 33 | ||||||||
Items that may be reclassified subsequently to profit or loss for the period |
627 | 2,920 | ||||||||
Available-for-sale financial assets: |
11 | (1,273 | ) | 1,449 | ||||||
Revaluation gains/(losses) |
(797 | ) | 2,109 | |||||||
Amounts transferred to income statement |
(476 | ) | (660 | ) | ||||||
Other reclassifications |
| | ||||||||
Cash flow hedges: |
(173 | ) | 196 | |||||||
Revaluation gains/(losses) |
192 | 361 | ||||||||
Amounts transferred to income statement |
(365 | ) | (165 | ) | ||||||
Amounts transferred to initial carrying amount of hedged items |
| | ||||||||
Other reclassifications |
| | ||||||||
Hedges of net investments in foreign operations: |
11 | (1,114 | ) | (1,087 | ) | |||||
Revaluation gains/(losses) |
(1,114 | ) | (1,087 | ) | ||||||
Amounts transferred to income statement |
| | ||||||||
Other reclassifications |
| | ||||||||
Exchange differences: |
11 | 2,818 | 2,631 | |||||||
Revaluation gains/(losses) |
2,818 | 2,627 | ||||||||
Amounts transferred to income statement |
| 4 | ||||||||
Other reclassifications |
| | ||||||||
Non-current assets held for sale: |
| | ||||||||
Revaluation gains/(losses) |
| | ||||||||
Amounts transferred to income statement |
| | ||||||||
Other reclassifications |
| | ||||||||
Entities accounted for using the equity method: |
(42 | ) | 224 | |||||||
Revaluation gains/(losses) |
(45 | ) | 223 | |||||||
Amounts transferred to income statement |
3 | 1 | ||||||||
Other reclassifications |
| | ||||||||
Income tax |
411 | (493 | ) | |||||||
TOTAL RECOGNIZED INCOME AND EXPENSE |
5,535 | 6,116 | ||||||||
|
|
|
|
|||||||
Attributable to the Parent |
4,712 | 5,051 | ||||||||
Attributable to non-controlling interests |
823 | 1,065 |
The accompanying explanatory Notes 1 to 16 are an integral part of the unaudited condensed consolidated statement of recognized income and expense for the six-month period ended June 30, 2015.
F-3
SANTANDER GROUP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2015 AND 2014
(Millions of euros)
Equity attributable to the Parent | ||||||||||||||||||||||||||||||||
Shareholders equity | ||||||||||||||||||||||||||||||||
Share capital | Share premium and reserves less dividends and remuneration |
Other equity instruments |
Less: Treasury shares |
Profit for the period attributable to the Parent |
Valuation adjustments |
Non-controlling interests |
Total equity | |||||||||||||||||||||||||
Balance as at 12/31/14 |
6,292 | 79,300 | 265 | (10 | ) | 5,816 | (10,858 | ) | 8,909 | 89,714 | ||||||||||||||||||||||
Adjustments due to changes in accounting policies |
| | | | | | | | ||||||||||||||||||||||||
Adjustments due to errors |
| | | | | | | | ||||||||||||||||||||||||
Adjusted beginning balance |
6,292 | 79,300 | 265 | (10 | ) | 5,816 | (10,858 | ) | 8,909 | 89,714 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total recognized income and expense |
| | | | 4,261 | 451 | 823 | 5,535 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other changes in equity |
866 | 10,980 | 43 | (93 | ) | (5,816 | ) | | 723 | 6,703 | ||||||||||||||||||||||
Capital increases/(reductions) |
866 | 6,573 | | | | | 319 | 7,758 | ||||||||||||||||||||||||
Conversion of financial liabilities into equity |
| | | | | | | | ||||||||||||||||||||||||
Increases in other equity instruments |
| | 71 | | | | | 71 | ||||||||||||||||||||||||
Reclassification from/to financial liabilities |
| | | | | | | | ||||||||||||||||||||||||
Distribution of dividends |
| (1,389 | ) | | | | | (224 | ) | (1,613 | ) | |||||||||||||||||||||
Transactions involving own equity instruments (net) |
| 21 | | (93 | ) | | | | (72 | ) | ||||||||||||||||||||||
Transfers between equity items |
| 5,816 | | | (5,816 | ) | | | | |||||||||||||||||||||||
Increases/(decreases) due to business combinations |
| | | | | | 594 | 594 | ||||||||||||||||||||||||
Equity-instrument-based payments |
| | (72 | ) | | | | | (72 | ) | ||||||||||||||||||||||
Other increases/(decreases) in equity |
| (41 | ) | 44 | | | | 34 | 37 | |||||||||||||||||||||||
Balance as at 06/30/15 |
7,158 | 90,280 | 308 | (103 | ) | 4,261 | (10,407 | ) | 10,455 | 101,952 |
The accompanying explanatory Notes 1 to 16 are an integral part of the unaudited condensed consolidated statement of changes in total equity for the six-month period ended June 30, 2015.
F-4
SANTANDER GROUP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2015 AND 2014
(Millions of euros)
Equity attributable to the Parent | ||||||||||||||||||||||||||||||||
Shareholders equity | ||||||||||||||||||||||||||||||||
Share capital | Share premium and reserves less dividends and remuneration |
Other equity instruments |
Less: Treasury shares |
Profit for the period attributable to the Parent |
Valuation adjustments |
Non-controlling interests |
Total equity | |||||||||||||||||||||||||
Balance as at 12/31/13 |
5,667 | 74,519 | 193 | (9 | ) | 4,370 | (14,152 | ) | 9,314 | 79,902 | ||||||||||||||||||||||
Adjustments due to changes in accounting policies |
| | | | | | | | ||||||||||||||||||||||||
Adjustments due to errors |
| | | | | | | | ||||||||||||||||||||||||
Adjusted beginning balance |
5,667 | 74,519 | 193 | (9 | ) | 4,370 | (14,152 | ) | 9,314 | 79,902 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total recognized income and expense |
| | | | 2,756 | 2,295 | 1,065 | 6,116 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other changes in equity |
222 | 3,670 | 145 | (128 | ) | (4,370 | ) | | 159 | (302 | ) | |||||||||||||||||||||
Capital increases/(reductions) |
222 | (224 | ) | | | | | (529 | ) | (531 | ) | |||||||||||||||||||||
Conversion of financial liabilities into equity |
| | | | | | | | ||||||||||||||||||||||||
Increases in other equity instruments |
| | 186 | | | | | 186 | ||||||||||||||||||||||||
Reclassification from/to financial liabilities |
| | | | | | | | ||||||||||||||||||||||||
Distribution of dividends |
| (438 | ) | | | | | (289 | ) | (727 | ) | |||||||||||||||||||||
Transactions involving own equity instruments (net) |
| 20 | | (128 | ) | | | | (108 | ) | ||||||||||||||||||||||
Transfers between equity items |
| 4,361 | 9 | | (4,370 | ) | | | | |||||||||||||||||||||||
Increases/(decreases) due to business combinations |
| | | | | | 103 | 103 | ||||||||||||||||||||||||
Equity-instrument-based payments |
| | (46 | ) | | | | | (46 | ) | ||||||||||||||||||||||
Other increases/(decreases) in equity |
| (49 | ) | (4 | ) | | | | 874 | 821 | ||||||||||||||||||||||
Balance as at 06/30/14 |
5,889 | 78,189 | 338 | (137 | ) | 2,756 | (11,857 | ) | 10,538 | 85,716 |
The accompanying explanatory Notes 1 to 16 are an integral part of the unaudited condensed consolidated statement of changes in total equity for the six-month period ended June 30, 2015.
F-5
SANTANDER GROUP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2015 AND 2014
(Millions of euros)
Note | 06/30/15 | 06/30/14 | ||||||||
A. CASH FLOWS FROM OPERATING ACTIVITIES |
(10,137 | ) | 3,822 | |||||||
|
|
|
|
|||||||
Consolidated profit for the period |
5,076 | 3,288 | ||||||||
Adjustments made to obtain the cash flows from operating activities: |
8,949 | 9,235 | ||||||||
Depreciation and amortization |
1,195 | 1,165 | ||||||||
Other adjustments |
7,754 | 8,070 | ||||||||
Net increase/(decrease) in operating assets and liabilities: |
(23,407 | ) | (8,710 | ) | ||||||
Operating assets |
(42,718 | ) | (29,019 | ) | ||||||
Operating liabilities |
19,311 | 20,309 | ||||||||
Income tax recovered/(paid) |
(755 | ) | 9 | |||||||
|
|
|
|
|||||||
B. CASH FLOWS FROM INVESTING ACTIVITIES |
(2,279 | ) | (1,749 | ) | ||||||
|
|
|
|
|||||||
Payments: |
5,041 | 3,539 | ||||||||
Tangible assets |
7 | 3,688 | 2,852 | |||||||
Intangible assets |
351 | 526 | ||||||||
Investments |
43 | 21 | ||||||||
Subsidiaries and other business units |
2 | 959 | 140 | |||||||
Non-current assets held for sale and associated liabilities |
| | ||||||||
Held-to-maturity investments |
| | ||||||||
Other payments related to investing activities |
| | ||||||||
Proceeds: |
2,762 | 1,790 | ||||||||
Tangible assets |
7 | 1,827 | 427 | |||||||
Intangible assets |
1 | | ||||||||
Investments |
66 | 248 | ||||||||
Subsidiaries and other business units |
497 | 664 | ||||||||
Non-current assets held for sale and associated liabilities |
6 | 371 | 451 | |||||||
Held-to-maturity investments |
| | ||||||||
Other proceeds related to investing activities |
| | ||||||||
|
|
|
|
|||||||
C. CASH FLOWS FROM FINANCING ACTIVITIES |
9,338 | 2,040 | ||||||||
|
|
|
|
|||||||
Payments: |
1,793 | 2,115 | ||||||||
Dividends |
3 | 673 | 438 | |||||||
Subordinated liabilities |
481 | 106 | ||||||||
Redemption of own equity instruments |
| | ||||||||
Acquisition of own equity instruments |
634 | 1,571 | ||||||||
Other payments related to financing activities |
5 | | ||||||||
Proceeds: |
11,131 | 4,155 | ||||||||
Subordinated liabilities |
3,061 | 2,693 | ||||||||
Issuance of own equity instruments |
11 | 7,500 | | |||||||
Disposal of own equity instruments |
570 | 1,462 | ||||||||
Other proceeds related to financing activities |
| | ||||||||
|
|
|
|
|||||||
D. EFFECT OF FOREIGN EXCHANGE RATE CHANGES |
1,612 | 2,661 | ||||||||
|
|
|
|
|||||||
E. NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
(1,466 | ) | 6,774 | |||||||
|
|
|
|
|||||||
F. CASH AND CASH EQUIVALENTS AS AT BEGINNING OF PERIOD |
69,428 | 77,103 | ||||||||
|
|
|
|
|||||||
G. CASH AND CASH EQUIVALENTS AS AT END OF PERIOD |
67,962 | 83,877 | ||||||||
|
|
|
|
|||||||
COMPONENTS OF CASH AND CASH EQUIVALENTS AS AT END OF PERIOD |
||||||||||
Cash |
6,173 | 5,769 | ||||||||
Cash equivalents at central banks |
61,789 | 78,108 | ||||||||
Other financial assets |
| | ||||||||
Less - Bank overdrafts refundable on demand |
| | ||||||||
|
|
|
|
|||||||
TOTAL CASH AND CASH EQUIVALENTS AS AT END OF PERIOD |
67,962 | 83,877 | ||||||||
|
|
|
|
The accompanying explanatory Notes 1 to 16 are an integral part of the unaudited condensed consolidated statement of cash flows for the six-month period ended June 30, 2015.
F-6
Banco Santander, S.A. and Companies composing Santander Group
Explanatory notes to the interim unaudited condensed consolidated financial statements for the six-month period ended June 30, 2015
1. | Introduction, basis of presentation of the interim condensed consolidated financial statements and other information |
a) | Introduction |
Banco Santander, 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 on the website of the Bank (www.santander.com) and at its registered office at Paseo de Pereda 9-12, Santander.
In addition to the operations carried on directly by it, the Bank is the head of a group of subsidiaries that engage in various business activities and which compose, together with it, Santander Group (the Group or Santander Group).
The Groups interim condensed consolidated financial statements (interim financial statements) were prepared and signed by the directors at the board meeting held on July 29, 2015. The Groups consolidated financial statements for 2014 were approved by the shareholders at the Banks annual general meeting on March 27, 2015.
b) | Basis of presentation of the interim financial statements |
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 accordance with the International Financial Reporting Standards (IFRSs) previously adopted by the European Union (EU-IFRSs). In order to adapt the accounting system of Spanish credit institutions to the new standards, the Bank of Spain issued Circular 4/2004, of December 22, on Public and Confidential Financial Reporting Rules and Formats.
The Groups consolidated financial statements for 2014 were prepared by the Banks directors (at the board of directors meeting on February 23, 2015) in accordance with International Financial Reporting Standards as adopted by the European Union, taking into account Bank of Spain Circular 4/2004, and with the International Financial Reporting Standards adopted by the International Accounting Standards Board (IASB-IFRSs), using the basis of consolidation, accounting policies and measurement bases described in Note 2 to the aforementioned consolidated financial statements and, accordingly, they presented fairly the Groups consolidated equity and consolidated financial position at December 31, 2014 and the consolidated results of its operations, the consolidated recognized income and expense, the changes in consolidated equity and the consolidated cash flows in 2014.
These interim financial statements were prepared and are presented in accordance with IAS 34, Interim Financial Reporting, for the preparation of interim condensed financial statements, in conformity with Article 12 of Royal Decree 1362/2007, and taking into account the requirements of Circular 1/2008, of January 30, of
F-7
the Spanish National Securities Market Commission (CNMV). The aforementioned interim financial statements have been included in the half-yearly financial report for 2015 to be presented by the Group in accordance with the aforementioned CNMV Circular 1/2008.
In accordance with IAS 34, the interim financial report is intended only to provide an update on the content of the latest annual consolidated financial statements authorized for issue, focusing on new activities, events and circumstances occurring during the six-month period, and does not duplicate information previously reported in the latest annual consolidated financial statements prepared. Consequently, these interim financial statements do not include all the information that would be required for a complete set of consolidated financial statements prepared in accordance with International Financial Reporting Standards and, accordingly, for a proper comprehension of the information included in these interim financial statements, they should be read together with the Groups consolidated financial statements for the year ended December 31, 2014 as recast.
The Group is filing these interim financial statements to recast Note 12 Segment information for the six-month periods ended June 30, 2015 and June 30, 2014 and to effect changes to related disclosures. The change in the reported segments results from the application of new financial criteria starting with the financial information for the third quarter 2015 that aim to reflect the Groups current reporting structure. The main changes to the reported segments are described in Note 12. These changes were prepared by the Group Management and approved on November 5, 2015.
These interim financial statements do not, and do not purport to, recast the information in any part of such financial statements other than Note 12 and related disclosures, or update any information in such financial statements to reflect any events that have occurred after September 30, 2015. The filing of these consolidated financial statements should not be understood to mean that any statements contained therein are true and complete as of any date subsequent to September 30, 2015.
The accounting policies and methods used in preparing these interim financial statements are the same as those applied in the consolidated financial statements for 2014, taking into account the standards and interpretations that came into force in the first half of 2015. In this connection it should be noted that the following standards came into force for the Group in the first half of 2015:
| Improvements to IFRSs, 2011-2013 cycle (obligatory for reporting periods beginning on or after July 1 2014) - these improvements introduce minor amendments to IFRS 1, IFRS 3, IFRS 13 and IAS 40. |
The application of the aforementioned accounting standards did not have any material effects on the Groups interim financial statements.
In addition, the Group decided to apply early the following standards (the application of which is obligatory under IASB-IFRSs for annual reporting periods beginning on or after July 1, 2014) under IFRSs adopted by the European Union, as permitted by the corresponding standard:
| Amendments to IAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions - these amendments allow employee contributions to be deducted from the service cost in the same period in which they are paid, provided certain requirements are met, without the need to make calculations to attribute the reduction to each year of service. |
| Improvements to IFRSs, 2010-2012 cycle - these improvements introduce minor amendments to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38. |
The application of the aforementioned accounting standards did not have any material effects on the Groups interim financial statements.
F-8
c) | Use of estimates |
The consolidated results and the determination of consolidated equity are sensitive to the accounting policies, measurement bases and estimates used by the directors of the Bank in preparing the interim financial statements. The principal accounting policies and measurement bases are indicated in Note 2 to the consolidated financial statements for 2014.
In the interim financial statements estimates were occasionally made by the senior management of the Bank and of the consolidated entities in order to quantify certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates, which were made on the basis of the best information available, relate basically to the following:
1. | The income tax expense, which, in accordance with IAS 34, is recognized in interim periods based on the best estimate of the weighted average tax rate expected by the Group for the full financial year; |
2. | The impairment losses on certain assets available-for-sale financial assets, loans and receivables, non-current assets held for sale, investments, tangible assets and intangible assets; |
3. | The assumptions used in the calculation of the post-employment benefit liabilities and commitments and other obligations; |
4. | The useful life of the tangible and intangible assets; |
5. | The measurement of goodwill arising on consolidation; |
6. | The calculation of provisions and the consideration of contingent liabilities; |
7. | The fair value of certain unquoted assets and liabilities; and |
8. | The recoverability of deferred tax assets. |
In the six-month period ended June 30, 2015 there were no significant changes in the estimates made at 2014 year-end other than those indicated in these interim financial statements. In this connection, in relation to the tax-related proceeding concerning the Brazilian PIS and COFINS social contributions and taking into account the latest events, which are described in Note 10.d, the Groups legal advisers considered it unlikely that the petitions filed by the Brazilian Federal Public Prosecutors Office (embargos de declaraçao) for clarification of the Federal Supreme Courts decision to dismiss the extraordinary appeal filed by the aforementioned Public Prosecutors Office in relation to the COFINS social contributions would be upheld and, based on the foregoing, Banco Santander (Brasil), S.A. reversed tax liabilities amounting to EUR 2,407 million (EUR 1,444 million net of the tax effect).
d) | Contingent assets and liabilities |
Note 2.o to the Groups consolidated financial statements for the year ended December 31, 2014 includes information on the contingent assets and liabilities at that date. There were no significant changes in the Groups contingent assets and liabilities from December 31, 2014 to the date of formal preparation of these interim financial statements.
F-9
e) | Comparative information |
The information for 2014 contained in these interim financial statements is presented for comparison purposes only with the information relating to the six-month period ended June 30, 2015.
In order to interpret the changes in the balances with respect to December 31, 2014, it is necessary to take into consideration the exchange rate effect arising from the volume of foreign currency balances held by the Group in view of its geographic diversity (see Note 51.b to the consolidated financial statements for the year ended December 31,2014) and the impact of the appreciation/depreciation of the various currencies against the euro in the first six months of 2015, considering the exchange rates at the end of the first half of 2015: Mexican peso (+1.91%), US dollar (+8.51%), Brazilian real (-7.18%), pound sterling (+9.49%), Chilean peso (+3.15%) and Polish zloty (+1.96%).
f) | Seasonality of the Groups transactions |
In view of the business activities carried on by the Group entities, their transactions are not cyclical or seasonal in nature. Therefore, no specific disclosures are included in these explanatory notes to the Groups interim financial statements for the six-month period.
g) | Materiality |
In determining the note disclosures to be made on the various items in the financial statements or other matters, the Group, in accordance with IAS 34, took into account their materiality in relation to the interim financial statements.
h) | Events after the reporting period |
It should be noted that from July 1, 2015 to September 30, 2015, date on which the financial statements for the first half of 2015 were authorized for issue, the following significant event occurred at Santander Group:
| On July 3, 2015, the Group announced that it had reached an agreement to purchase the 9.68% ownership interest held by DDFS LLC in Santander Consumer USA Holdings Inc. (SCUSA) for USD 928 million. Following this transaction, which is subject to the obtainment of the relevant regulatory authorizations, the Group will have an ownership interest of approximately 68.7% in SCUSA. The transaction is subject to regulatory approval. |
i) | Condensed consolidated statements of cash flows |
The following terms are used in the condensed consolidated statements of cash flows with the meanings specified:
| Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value, irrespective of the portfolio in which they are classified. |
The Group classifies as cash and cash equivalents the balances recognized under Cash and balances with central banks in the condensed consolidated balance sheet.
F-10
| Operating activities: the principal revenue-producing activities of credit institutions and other activities that are not investing or financing activities. |
| Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents. |
| Financing activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities. |
2. | Santander Group |
Appendices I, II and III to the consolidated financial statements for the year ended December 31, 2014 provide relevant information on the Group companies at that date and on the equity-accounted companies.
Also, Note 3 to the aforementioned consolidated financial statements includes a description of the most significant acquisitions and disposals of companies performed by the Group in 2014, 2013 and 2012.
The tables below provide detailed information on the most representative acquisitions of ownership interests in the capital/equity of the aforementioned and other entities, as well as on other significant corporate transactions, performed in the first half of 2015:
BUSINESS COMBINATIONS OR OTHER ACQUISITIONS OR
INCREASES IN OWNERSHIP INTERESTS IN SUBSIDIARIES, JOINT VENTURES |
||||||||||||||||||||||
Name of entity (or line of business) acquired or merged |
Category | Effective transaction date (dd/mm/yy) |
Cost (net) of the combination (a) + (b) (millions of euros) |
% of voting power acquired |
% of total voting power at entity after acquisition |
|||||||||||||||||
Amount (net) paid in acquisition + other costs directly attributable to combination (a) |
Fair value of equity instruments issued for acquisition of entity (b) |
|||||||||||||||||||||
Carfinco Financial Group Inc. |
Acquisition | 06/03/15 | 209 | | 100.00 | % | 100.00 | % | ||||||||||||||
PSA Finance UK Limited |
Acquisition | 03/02/15 | 148 | | 50.00 | % | 50.00 | % | ||||||||||||||
Société Financière de Banque SOFIB |
Acquisition | 02/02/15 | 462 | | 50.00 | % | 50.00 | % |
There were no significant disposals of ownership interests in the first half of 2015.
The most significant transactions performed in the first half of 2015 were as follows:
Agreement with Banque PSA Finance
As part of the agreement for the operation of the PSA Peugeot Citroën Groups vehicle financing business entered into by the Group, through its subsidiary Santander Consumer Finance, S.A., and Banque PSA Finance, in January 2015 the related regulatory authorizations to commence activities in France and the United Kingdom were obtained and, accordingly, on February 2 and 3, 2015 the Group acquired 50% of Société Financière de Banque SOFIB and PSA Finance UK Limited for EUR 462 million and EUR 148 million, respectively.
F-11
Carfinco Financial Group
On September 16, 2014, the Bank announced that it had reached an agreement to purchase the listed Canadian company Carfinco Financial Group Inc. (Carfinco), a company specializing in vehicle financing.
In order to acquire Carfinco, Santander Holding Canada Inc. was incorporated, a company 96.4% owned by Banco Santander, S.A. and 3.6% owned by certain members of the former management group. On 6 March 2015, all of Carfinco was acquired through the aforementioned holding company for EUR 209 million, giving rise to goodwill of EUR 162 million.
Other transactions
Custody business
On June 19, 2014, the Group announced that it had reached an agreement with FINESP Holdings II B.V., a subsidiary of Warburg Pincus, to sell a 50% stake in Santanders custody business in Spain, Mexico and Brazil, with this business valued at EUR 975 million. The remaining 50% will be retained by the Group. The sale is subject to the obtainment of the relevant regulatory authorizations.
Agreement with UniCredit
On April 23, 2015, the Group announced that, together with its partners Warburg Pincus and General Atlantic, it had entered into a heads of terms and exclusivity agreement with UniCredit, subject to the signing of the final agreement, to merge Santander Asset Management and Pioneer Investments.
The agreement provides for the creation of a new company comprising the local asset managers of Santander Asset Management and Pioneer Investments. The Group will have a 33.3% direct stake in the new company, UniCredit another 33.3%, and Warburg Pincus and General Atlantic will share a 33.3% stake. Pioneer Investments operations in the United States will not be included in the new company but rather will be owned by UniCredit (50%) and Warburg Pincus and General Atlantic (50%).
3. | Shareholder remuneration system and earnings per share |
a) | Shareholder remuneration system |
The cash remuneration paid by the Bank to its shareholders in the first six months of 2015 and 2014 was as follows:
First half of 2015 | First half of 2014 | |||||||||||||||||||||||
% of par value |
Euros per share |
Amount (Millions of euros) |
% of par value |
Euros per share |
Amount (Millions of euros) |
|||||||||||||||||||
Ordinary shares |
9.64 | % | 0.0482 | 673 | 7.65 | % | 0.0383 | 438 | ||||||||||||||||
Other shares (non-voting, redeemable, etc.) |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total remuneration paid |
9.64 | % | 0.0482 | 673 | 7.65 | % | 0.0383 | 438 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Remuneration paid out of profit |
4.74 | % | 0.0237 | 328 | 4.14 | % | 0.0207 | 235 | ||||||||||||||||
Remuneration paid with a charge to reserves or share premium |
4.90 | % | 0.0245 | 345 | 3.51 | % | 0.0176 | 203 | ||||||||||||||||
Remuneration paid in kind |
| | | | | |
F-12
Under the Santander Dividendo Elección remuneration scheme, the shareholders were offered the possibility of opting to receive an amount equal to the third interim dividend for 2014 and the final dividend for that year (fourth dividend for 2014), respectively, in cash or new shares.
In addition to the EUR 673 million in cash shown in the foregoing table (of which EUR 328 million relate to the amount of the third interim dividend for 2014 and EUR 345 million to the amount of the final dividend for 2013), in the first half of 2015 shares with a value of EUR 3,465 million were assigned to shareholders under the Santander Dividendo Elección shareholder remuneration scheme.
Also, on June 30, 2015 Banco Santander announced that on or after August 1 it would pay the first interim dividend for 2015 in cash (EUR 0.05 gross per share) totaling EUR 716 million.
b) | Earnings per share from continuing and discontinued operations |
i. Basic earnings per share
Basic earnings per share for the period are calculated by dividing the net profit attributable to the Group for the six-month period (adjusted by the after-tax amount relating to the remuneration of contingently convertible preference shares recognized in equity) by the weighted average number of ordinary shares outstanding during the period, excluding the average number of treasury shares held in the period.
Accordingly:
06/30/15 | 06/30/14 | |||||||
Net profit attributable to the Parent (millions of euros) |
4,261 | 2,756 | ||||||
Remuneration of contingently convertible preference shares (millions of euros) |
(137 | ) | (23 | ) | ||||
|
|
|
|
|||||
4,124 | 2,733 | |||||||
Of which: |
||||||||
Profit/Loss from discontinued operations (millions of euros) |
| | ||||||
Profit from continuing operations (millions of euros) |
4,124 | 2,733 | ||||||
|
|
|
|
|||||
Weighted average number of shares outstanding |
13,934,351,821 | 11,601,218,193 | ||||||
|
|
|
|
|||||
Basic earnings per share (euros) |
0.30 | 0.24 | ||||||
|
|
|
|
|||||
Of which: from discontinued operations (euros) |
0.00 | 0.00 | ||||||
|
|
|
|
|||||
from continuing operations (euros) |
0.30 | 0.24 | ||||||
|
|
|
|
ii. Diluted earnings per share
Diluted earnings per share for the period are calculated by dividing the net profit attributable to the Group for the six-month period (adjusted by the after-tax amount relating to the remuneration of contingently convertible preference shares recognized in equity) by the weighted average number of ordinary shares outstanding during the period, excluding the average number of treasury shares and adjusted for all the dilutive effects inherent to potential ordinary shares (share options, warrants and convertible debt instruments).
Accordingly, diluted earnings per share were determined as follows:
F-13
06/30/15 | 06/30/14 | |||||||
Net profit attributable to the Parent (millions of euros) |
4,261 | 2,756 | ||||||
Remuneration of contingently convertible preference shares (millions of euros) |
(137 | ) | (23 | ) | ||||
Dilutive effect of changes in profit for the period arising from potential conversion of ordinary shares |
| | ||||||
|
|
|
|
|||||
Net profit attributable to the Parent (millions of euros) |
4,124 | 2,733 | ||||||
|
|
|
|
|||||
Of which: |
||||||||
|
|
|
|
|||||
Profit/Loss from discontinued operations (millions of euros) |
| | ||||||
|
|
|
|
|||||
Profit from continuing operations (millions of euros) |
4,124 | 2,733 | ||||||
|
|
|
|
|||||
Weighted average number of shares outstanding |
13,934,351,821 | 11,601,218,193 | ||||||
Dilutive effect of: |
||||||||
Options/ receipt of shares |
25,120,623 | 35,608,413 | ||||||
|
|
|
|
|||||
Adjusted number of shares |
13,959,472,444 | 11,636,826,606 | ||||||
|
|
|
|
|||||
Diluted earnings per share (euros) |
0.30 | 0.24 | ||||||
|
|
|
|
|||||
Of which: from discontinued operations (euros) |
0.00 | 0.00 | ||||||
|
|
|
|
|||||
from continuing operations (euros) |
0.30 | 0.24 | ||||||
|
|
|
|
4. | Remuneration and other benefits paid to the Banks directors and senior managers |
Note 5 to the Groups consolidated financial statements for the year ended December 31, 2014 includes the detail of the remuneration and other benefits paid to the Banks directors and senior managers in 2014 and 2013.
The most salient data relating to the aforementioned remuneration and benefits for the six-month periods ended June 30, 2015 and 2014 are summarized as follows:
Remuneration of directors (1) (2)
Thousands of euros | ||||||||
06/30/15 | 06/30/14 | |||||||
Members of the board of directors: |
||||||||
Type of remuneration- |
||||||||
Fixed salary remuneration of executive directors |
4,622 | 4,164 | ||||||
Variable remuneration in cash of executive directors |
| | ||||||
Attendance fees of directors |
992 | 604 | ||||||
Other (except insurance premiums) |
381 | 348 | ||||||
|
|
|
|
|||||
Sub-total |
5,995 | 5,116 | ||||||
Transactions with shares and/or other financial instruments |
| | ||||||
|
|
|
|
|||||
5,995 | 5,116 | |||||||
|
|
|
|
(1) | The annual consolidated financial statements for 2015 will contain detailed and complete information on the remuneration paid to all the directors, including executive directors. |
(2) | Additionally, in the first half of 2015, EUR 1,725 thousand were paid relating to six months instalments of the annual emolument for 2015, which was set by a resolution of the board of directors on April 27, 2015. The annual emolument for 2014 was set by the board resolution of December 22, 2014 and was paid in a single payment subsequent to said resolution. |
F-14
Other benefits of the directors (1)
Thousands of euros | ||||||||
06/30/15 | 06/30/14 | |||||||
Members of the board of directors: |
||||||||
Other benefits- |
||||||||
Advances |
| | ||||||
Loans granted |
4,199 | 5,360 | ||||||
Pension funds and plans: Provisions and/or contributions (2) |
2,704 | 1,837 | ||||||
Pension funds and plans: Accumulated rights (3) |
138,480 | 149,026 | ||||||
Life insurance premiums |
427 | 229 | ||||||
Guarantees provided for directors |
| |
(1) | On January 12, 2015, Mr. Javier Marín Romano ceased to be a director and took voluntary pre-retirement, as provided for in his contract. The financial statements for 2014 contain information on the terms and conditions of this pre-retirement, and this information will also be included in the financial statements for 2015. |
(2) | Corresponds to the provisions and/or contributions made in the first six months of 2015 and 2014 for retirement pensions and supplementary benefits (surviving spouse and child benefits, and permanent disability). |
(3) | Corresponds to the pension rights accumulated by the directors. In addition, at June 30, 2015 and June 30, 2014, former board members held accumulated pension rights amounting to EUR 88,673 thousand and EUR 89,447 thousand, respectively. |
Also, in his capacity as a member of the boards of directors of Group companies, in the first half of 2015 Mr. Matías Rodríguez Inciarte received EUR 21 thousand as non-executive director of U.C.I., S.A. (first half of 2014: EUR 28 thousand).
Remuneration of senior managers
In the last nine months, the Banks board of directors has approved a series of appointments and organizational changes aimed at simplifying the Groups organization and rendering it more competitive. As a result, at 2015 year-end the number of executive vice presidents will have been reduced by eight.
The table below includes the amounts relating to the half-yearly remuneration of the members of the Banks senior management at June 30, excluding the remuneration of the executive directors. This remuneration includes EUR 4,150 thousand relating to six members of senior management who at December 31, 2015 will have ceased to discharge their functions as such.
Thousands of euros | ||||||||
06/30/15 | 06/30/14 | |||||||
Senior management: |
||||||||
Total remuneration of senior management (1) |
15,483 | 15,372 |
(1) | Additionally, members of senior management who at June 30, 2015 had ceased to discharge their duties as such received remuneration totaling EUR 1,627 thousand in the first half of the year (June 30, 2014: EUR 462 thousand). |
F-15
The annual variable remuneration (or bonus) for 2014 paid to the directors and the other members of senior management was disclosed in the information on remuneration set forth in the financial statements for that year. Similarly, the variable remuneration allocable to 2015 profit or loss, which will be submitted for approval by the board of directors, will be disclosed in the financial statements for 2015.
5. | Financial assets |
a) | Breakdown |
The detail, by nature and category for measurement purposes, of the Groups financial assets, other than the balances relating to Cash and balances with central banks and Hedging derivatives, at June 30, 2015 and December 31, 2014 is as follows:
Millions of euros | ||||||||||||||||||||
06/30/15 | ||||||||||||||||||||
Financial assets held for trading |
Other financial assets at fair value through profit or loss |
Available- for-sale financial assets |
Loans and receivables |
Held-to- maturity investments |
||||||||||||||||
Loans and advances to credit institutions |
3,431 | 21,086 | | 55,949 | | |||||||||||||||
Loans and advances to customers |
5,789 | 11,307 | | 782,137 | | |||||||||||||||
Debt instruments |
51,152 | 4,189 | 123,988 | 6,846 | | |||||||||||||||
Equity instruments |
18,272 | 663 | 5,047 | | | |||||||||||||||
Trading derivatives |
72,557 | | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
151,201 | 37,245 | 129,035 | 844,932 | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Millions of euros | ||||||||||||||||||||
12/31/14 | ||||||||||||||||||||
Financial assets held for trading |
Other financial assets at fair value through profit or loss |
Available- for-sale financial assets |
Loans and receivables |
Held-to- maturity investments |
||||||||||||||||
Loans and advances to credit institutions |
1,815 | 28,592 | | 51,306 | | |||||||||||||||
Loans and advances to customers |
2,921 | 8,971 | | 722,819 | | |||||||||||||||
Debt instruments |
54,374 | 4,231 | 110,249 | 7,510 | | |||||||||||||||
Equity instruments |
12,920 | 879 | 5,001 | | | |||||||||||||||
Trading derivatives |
76,858 | | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
148,888 | 42,673 | 115,250 | 781,635 | | ||||||||||||||||
|
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|
|
b) | Sovereign risk with peripheral European countries |
The detail at June 30, 2015 and December 31, 2014, by type of financial instrument, of the Group credit institutions sovereign risk exposure to Europes peripheral countries and of the short positions held with them, taking into consideration the scope established by the European Banking Authority (EBA) in the analyses performed on the capital needs of European credit institutions (see Note 54 to the consolidated financial statements for 2014), is as follows:
F-16
Sovereign risk by country of issuer/borrower at June 30, 2015 (*) |
||||||||||||||||||||||||||||||||
Millions of euros | ||||||||||||||||||||||||||||||||
Debt instruments | Loans and advances to customers (**) |
Total net direct exposure |
Derivatives (***) | |||||||||||||||||||||||||||||
Financial assets held for trading and Other financial assets at fair value through profit or loss |
Short positions |
Available- for-sale financial assets |
Loans and receivables |
Other than CDSs |
CDSs | |||||||||||||||||||||||||||
Spain |
4,997 | (3,584 | ) | 27,858 | 912 | 16,034 | 46,217 | (149 | ) | | ||||||||||||||||||||||
Portugal |
192 | (160 | ) | 6,661 | | 665 | 7,358 | | | |||||||||||||||||||||||
Italy |
2,934 | (1,372 | ) | | | | 1,562 | | | |||||||||||||||||||||||
Greece |
| | | | | | | | ||||||||||||||||||||||||
Ireland |
| | | | | | 162 | |
(*) | Information prepared under EBA standards. Also, there are government debt securities on insurance companies balance sheets amounting to EUR 9,357 million (of which EUR 8,127 million, EUR 605 million and EUR 625 million relate to Spain, Portugal and Italy, respectively) and off-balance-sheet exposure other than derivatives contingent liabilities and commitments amounting to EUR 2,560 million (of which EUR 2,443 million, EUR 95 million and EUR 22 million to Spain, Portugal and Italy, respectively). |
(**) | Presented without taking into account the valuation adjustments recognized (EUR 41 million). |
(***) | Other than CDSs refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. CDSs refers to the exposure to CDSs based on the location of the underlying. |
Sovereign risk by country of issuer/borrower at December 31, 2014 (*) |
||||||||||||||||||||||||||||||||
Millions of euros | ||||||||||||||||||||||||||||||||
Debt instruments | Loans and advances to customers (**) |
Total net direct exposure |
Derivatives (***) | |||||||||||||||||||||||||||||
Financial assets held for trading and Other financial assets at fair value through profit or loss |
Short positions |
Available- for-sale financial assets |
Loans and receivables |
Other than CDSs |
CDSs | |||||||||||||||||||||||||||
Spain |
4,374 | (2,558 | ) | 23,893 | 1,595 | 17,465 | 44,769 | (60 | ) | | ||||||||||||||||||||||
Portugal |
163 | (60 | ) | 7,811 | | 590 | 8,504 | | | |||||||||||||||||||||||
Italy |
3,448 | (1,723 | ) | | | | 1,725 | | | |||||||||||||||||||||||
Greece |
| | | | | | | | ||||||||||||||||||||||||
Ireland |
| | | | | | 61 | |
(*) | Information prepared under EBA standards. Also, there are government debt securities on insurance companies balance sheets amounting to EUR 8,420 million (of which EUR 7,414 million, EUR 691 million and EUR 315 million relate to Spain, Portugal and Italy, respectively) and off-balance-sheet exposure other than derivatives contingent liabilities and commitments amounting to EUR 3,081 million (of which EUR 2,929 million, EUR 97 million and EUR 55 million to Spain, Portugal and Italy, respectively). |
(**) | Presented without taking into account the valuation adjustments recognized (EUR 45 million). |
(***) | Other than CDSs refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. CDSs refers to the exposure to CDSs based on the location of the underlying. |
F-17
The detail of the Groups other exposure to other counterparties (private sector, central banks and other public entities that are not considered to be sovereign risks) in the aforementioned countries at June 30, 2015 and December 31, 2014 is as follows:
Exposure to other counterparties by country of issuer/borrower at June 30, 2015 (*) |
||||||||||||||||||||||||||||||||||||
Millions of euros | ||||||||||||||||||||||||||||||||||||
Debt instruments | Loans and advances to customers (**) |
Total net direct exposure |
Derivatives (***) | |||||||||||||||||||||||||||||||||
Balances with central banks |
Reverse repurchase agreements |
Financial assets held for trading and Other financial assets at fair value through profit or loss |
Available- for-sale financial assets |
Loans and receivables |
Other than CDSs |
CDSs | ||||||||||||||||||||||||||||||
Spain |
1,899 | 16,249 | 1,989 | 4,868 | 1,002 | 155,774 | 181,781 | 2,869 | (37 | ) | ||||||||||||||||||||||||||
Portugal |
538 | | 117 | 892 | 2,485 | 24,127 | 28,159 | 1,694 | | |||||||||||||||||||||||||||
Italy |
4 | | 637 | 915 | 7 | 7,119 | 8,682 | (98 | ) | 7 | ||||||||||||||||||||||||||
Greece |
| | | | | 50 | 50 | 32 | | |||||||||||||||||||||||||||
Ireland |
| | 149 | 281 | 103 | 716 | 1,249 | 314 | |
(*) | Also, the Group has off-balance-sheet exposure other than derivatives -contingent liabilities and commitments- amounting to EUR 63,697 million, EUR 8,078 million, EUR 3,135 million, EUR 17 million and EUR 562 million to counterparties in Spain, Portugal, Italy, Greece and Ireland, respectively. |
(**) | Presented excluding valuation adjustments and impairment losses recognized (EUR 11,452 million). |
(***) | Other than CDSs refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. CDSs refers to the exposure to CDSs based on the location of the underlying. |
Exposure to other counterparties by country of issuer/borrower at December 31, 2014 (*) |
||||||||||||||||||||||||||||||||||||
Millions of euros | ||||||||||||||||||||||||||||||||||||
Debt instruments | Loans and advances to customers (**) |
Total net direct exposure |
Derivatives (***) | |||||||||||||||||||||||||||||||||
Balances with central banks |
Reverse repurchase agreements |
Financial assets held for trading and Other financial assets at FVTPL |
Available- for-sale financial assets |
Loans and receivables |
Other than CDSs |
CDSs | ||||||||||||||||||||||||||||||
Spain |
1,513 | 17,701 | 3,467 | 5,803 | 1,176 | 154,906 | 184,567 | 3,521 | (15 | ) | ||||||||||||||||||||||||||
Portugal |
675 | | 229 | 1,126 | 2,221 | 24,258 | 28,509 | 1,889 | | |||||||||||||||||||||||||||
Italy |
5 | | 1,037 | 1,040 | | 6,342 | 8,424 | 20 | 6 | |||||||||||||||||||||||||||
Greece |
| | | | | 50 | 50 | 37 | | |||||||||||||||||||||||||||
Ireland |
| | 161 | 133 | 111 | 538 | 943 | 299 | |
(*) | Also, the Group has off-balance-sheet exposure other than derivatives -contingent liabilities and commitments- amounting to EUR 60,318 million, EUR 6,051 million, EUR 3,049 million, EUR 17 million and EUR 237 million to counterparties in Spain, Portugal, Italy, Greece and Ireland, respectively. |
(**) | Presented excluding valuation adjustments and impairment losses recognized (EUR 12,238 million). |
(***) | Other than CDSs refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. CDSs refers to the exposure to CDSs based on the location of the underlying. |
F-18
Following is certain information on the notional amounts of the CDSs detailed in the foregoing tables at June 30, 2015 and December 31, 2014:
06/30/15 |
||||||||||||||||||||||||||
Millions of euros |
||||||||||||||||||||||||||
Notional amount | Fair value | |||||||||||||||||||||||||
Bought | Sold | Net | Bought | Sold | Net | |||||||||||||||||||||
Spain |
Sovereign | | | | | | | |||||||||||||||||||
Other | 1,082 | 1,345 | (263 | ) | (8 | ) | (29 | ) | (37 | ) | ||||||||||||||||
Portugal |
Sovereign | 27 | 132 | (105 | ) | 1 | (1 | ) | | |||||||||||||||||
Other | 119 | 114 | 5 | | | | ||||||||||||||||||||
Italy |
Sovereign | 243 | 508 | (265 | ) | | | | ||||||||||||||||||
Other | 620 | 647 | (27 | ) | 5 | 2 | 7 | |||||||||||||||||||
Greece |
Sovereign | | | | | | | |||||||||||||||||||
Other | | | | | | | ||||||||||||||||||||
Ireland |
Sovereign | 4 | 4 | | | | | |||||||||||||||||||
Other | 5 | | 5 | | | |
12/31/14 |
||||||||||||||||||||||||||
Millions of euros |
||||||||||||||||||||||||||
Notional amount | Fair value | |||||||||||||||||||||||||
Bought | Sold | Net | Bought | Sold | Net | |||||||||||||||||||||
Spain |
Sovereign | | | | | | | |||||||||||||||||||
Other | 1,260 | 1,576 | (316 | ) | (11 | ) | (4 | ) | (15 | ) | ||||||||||||||||
Portugal |
Sovereign | 210 | 239 | (29 | ) | 1 | (1 | ) | | |||||||||||||||||
Other | 149 | 162 | (13 | ) | | | | |||||||||||||||||||
Italy |
Sovereign | 401 | 318 | 83 | (1 | ) | 1 | | ||||||||||||||||||
Other | 668 | 735 | (67 | ) | 2 | 4 | 6 | |||||||||||||||||||
Greece |
Sovereign | | | | | | | |||||||||||||||||||
Other | | | | | | | ||||||||||||||||||||
Ireland |
Sovereign | 4 | 4 | | | | | |||||||||||||||||||
Other | | | | | | |
c) | Valuation adjustments for impairment of financial assets |
c.1) Available-for-sale financial assets
At June 30, 2015, the Group analyzed the changes in the fair value of the various assets composing this portfolio and charged net impairment losses of EUR 115 million to the consolidated income statement for the first half of 2015 (first half of 2014: net charge of EUR 59 million). Accordingly, most of the changes in value of these assets are presented in equity under Valuation adjustments - Available-for-sale financial assets (see Note 11). The changes in valuation adjustments in the six-month period are recognized in the condensed consolidated statement of recognized income and expense.
F-19
c.2) Loans and receivables
The changes in the balance of the allowances for impairment losses on the assets included under Loans and receivables in the six-month periods ended June 30, 2015 and 2014 were as follows:
Millions of euros | ||||||||
06/30/15 | 06/30/14 | |||||||
Balance as at beginning of period |
27,321 | 24,959 | ||||||
|
|
|
|
|||||
Impairment losses charged to income for the period |
5,960 | 5,966 | ||||||
Of which: |
||||||||
Impairment losses charged to income |
8,494 | 8,487 | ||||||
Impairment losses reversed with a credit to income |
(2,534 | ) | (2,521 | ) | ||||
Write-off of impaired balances against recorded impairment allowance |
(5,640 | ) | (5,693 | ) | ||||
Exchange differences and other changes |
(120 | ) | 2,285 | |||||
|
|
|
|
|||||
Balance as at end of period |
27,521 | 27,517 | ||||||
|
|
|
|
|||||
Of which, relating to: |
||||||||
Impaired assets |
19,173 | 19,754 | ||||||
Of which, arising from country risk |
46 | 38 | ||||||
Other assets |
8,348 | 7,763 |
Previously written-off assets recovered in the first six months of 2015 and 2014 amounted to EUR 780 million and EUR 656 million, respectively. Considering these amounts and those recognized under Impairment losses charged to income in the foregoing table, the impairment losses on loans and receivables amounted to EUR 5,180 million in the first half of 2015 (first half of 2014: EUR 5,310 million). If the impairment losses on available-for-sale financial assets (see Note 5.c.1) are added to these amounts, total impairment losses on financial assets amounted to EUR 5,295 million for the six-month period ended June 30, 2015 (six-month period ended June 30, 2014: EUR 5,369 million).
d) | Impaired assets |
The detail of the changes in the six-month periods ended June 30, 2015 and 2014 in the balance of financial assets classified as loans and receivables and considered to be impaired due to credit risk is as follows:
Millions of euros | ||||||||
06/30/15 | 06/30/14 | |||||||
Balance as at beginning of period |
40,552 | 40,374 | ||||||
Net additions |
3,585 | 4,928 | ||||||
Written-off assets |
(5,640 | ) | (5,693 | ) | ||||
Changes in scope of consolidation |
54 | 326 | ||||||
Exchange differences and other |
742 | 1,068 | ||||||
|
|
|
|
|||||
Balance as at end of period |
39,293 | 41,003 | ||||||
|
|
|
|
F-20
This amount, after deducting the related allowances, represents the Groups best estimate of the discounted value of the flows that are expected to be recovered from the impaired assets.
e) | Fair value of financial assets not measured at fair value |
Following is a comparison of the carrying amounts of the Groups financial assets measured at other than fair value and their respective fair values at June 30, 2015 and December 31, 2014:
Millions of euros | Millions of euros | |||||||||||||||
06/30/15 | 12/31/14 | |||||||||||||||
Carrying amount |
Fair value | Carrying amount |
Fair value | |||||||||||||
Loans and receivables: |
||||||||||||||||
Loans and advances to credit institutions |
55,949 | 56,077 | 51,306 | 51,202 | ||||||||||||
Loans and advances to customers |
782,137 | 791,271 | 722,819 | 727,383 | ||||||||||||
Debt instruments |
6,846 | 6,837 | 7,510 | 7,441 | ||||||||||||
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ASSETS |
844,932 | 854,185 | 781,635 | 786,026 | ||||||||||||
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|
The main valuation methods and inputs used in the estimates of the fair values of the financial assets in the foregoing table are detailed in Note 51.c to the consolidated financial statements for 2014.
6. | Non-current assets held for sale |
The detail, by nature, of the Groups non-current assets held for sale at June 30, 2015 and December 31, 2014 is as follows:
Millions of euros | ||||||||
06/30/15 | 12/31/14 | |||||||
Tangible assets |
5,579 | 5,256 | ||||||
Of which: |
||||||||
Foreclosed assets |
5,461 | 5,139 | ||||||
Of which: Property assets in Spain |
4,904 | 4,597 | ||||||
Other tangible assets held for sale |
118 | 117 | ||||||
Other assets |
29 | 120 | ||||||
|
|
|
|
|||||
5,608 | 5,376 | |||||||
|
|
|
|
At June 30, 2015, the allowance that covers the value of the foreclosed assets amounted to EUR 5,706 million (December 31, 2014: EUR 5,404 million), which represents a coverage ratio of 51.1% of the gross value of the portfolio (December 31, 2014: 51.3%). The net charges recorded in the first half of 2015 amounted to EUR 89 million (first half of 2014: EUR 146 million), which were recognized under gains/(losses) of non-current assets held for sale not classified as discontinued operations in the condensed consolidated income statement.
In the first half of 2015, the Group sold, for a net total of approximately EUR 353 million, foreclosed properties with a gross carrying amount of EUR 500 million, for which provisions totaling EUR 176 million had been
F-21
recognized. These sales gave rise to gains of EUR 29 million, which are recognized under gains/(losses) of non-current assets held for sale not classified as discontinued operations in the condensed consolidated income statement for the first half of 2015 (first half of 2014: gains of EUR 10 million). Also, in the first half of 2015 other tangible assets were sold for EUR 18 million, giving rise to a gain of EUR 4 million.
7. | Tangible assets |
a) | Changes in the period |
In the first six months of 2015, tangible assets were acquired for EUR 3,688 million (first six months of 2014: EUR 2,852 million).
Also, in the first six months of 2015, tangible asset items were disposed of with a carrying amount of EUR 1,804 million (first six months of 2014: EUR 443 million), giving rise to a net gain of EUR 23 million in the first six months of 2015 (first six months of 2014: loss of EUR 16 million).
b) | Impairment losses |
In the first six months of 2015, there were impairment losses on tangible assets (mainly investment property) amounting to EUR 59 million (first six months of 2014: EUR 79 million), which were recognized under Impairment losses on other assets (net) in the consolidated income statement.
c) | Property, plant and equipment purchase commitments |
At June 30, 2015 and 2014, the Group did not have any significant commitments to purchase property, plant and equipment items.
F-22
8. | Intangible assets |
a) | Goodwill |
The detail of Intangible Assets - Goodwill at June 30, 2015 and December 31, 2014, based on the cash-generating units giving rise thereto, is as follows:
Millions of euros | ||||||||
06/30/15 | 12/31/14 | |||||||
Santander UK |
10,445 | 9,540 | ||||||
Banco Santander (Brasil) |
5,710 | 6,129 | ||||||
Santander Consumer USA |
2,997 | 2,762 | ||||||
Bank Zachodni WBK |
2,465 | 2,418 | ||||||
Santander Bank NA |
1,835 | 1,691 | ||||||
Santander Consumer Germany |
1,315 | 1,315 | ||||||
Banco Santander Totta |
1,040 | 1,040 | ||||||
Banco Santander Chile |
697 | 675 | ||||||
Santander Consumer Bank (Nordics) |
571 | 564 | ||||||
Grupo Financiero Santander (Mexico) |
557 | 561 | ||||||
Other companies |
962 | 853 | ||||||
|
|
|
|
|||||
28,594 | 27,548 | |||||||
|
|
|
|
In the first half of 2015, goodwill increased by EUR 947 million due to exchange differences (see Note 11). Pursuant to current regulations, these exchange differences were recognized with a credit to Valuation adjustments - Exchange differences in equity through the consolidated statement of recognized income and expense.
Note 17 to the consolidated financial statements for the year ended December 31, 2014 includes detailed information on the procedures followed by the Group to analyses the potential impairment of the goodwill recognized with respect to its recoverable amount and to recognize the related impairment losses, where appropriate.
Accordingly, based on the analysis performed of the available information on the performance of the various cash-generating units which might evidence the existence of indications of impairment, the Groups directors concluded that in the first half of 2015 there were no impairment losses which required recognition.
b) | Other intangible assets |
In the first half of 2015, there were no significant impairment losses.
In the first half of 2014, there were impairment losses amounting to EUR 688 million which were recognized under Impairment losses on other assets (net) in the consolidated income statement. These impairment losses related mainly to the decline in or loss of the recoverable value of certain computer systems and applications as a result of the processes initiated by the Group to adapt to the various regulatory changes and to transform or integrate businesses.
F-23
9. | Financial liabilities |
a) | Breakdown |
The detail, by nature and category for measurement purposes, of the Groups financial liabilities, other than hedging derivatives, at June 30, 2015 and December 31, 2014 is as follows:
Millions of euros | ||||||||||||||||||||||||
06/30/15 | 12/31/14 | |||||||||||||||||||||||
Financial liabilities held for trading |
Other financial liabilities at fair value through profit or loss |
Financial liabilities at amortized cost |
Financial liabilities held for trading |
Other financial liabilities at fair value through profit or loss |
Financial liabilities at amortized cost |
|||||||||||||||||||
Deposits from central banks |
1,421 | 8,181 | 33,692 | 2,041 | 6,321 | 17,290 | ||||||||||||||||||
Deposits from credit institutions |
4,805 | 11,402 | 105,196 | 5,531 | 19,039 | 105,147 | ||||||||||||||||||
Customer deposits |
7,635 | 31,756 | 648,508 | 5,544 | 33,127 | 608,956 | ||||||||||||||||||
Marketable debt securities |
| 4,024 | 196,429 | | 3,830 | 193,059 | ||||||||||||||||||
Trading derivatives |
73,750 | | | 79,048 | | | ||||||||||||||||||
Subordinated liabilities |
| | 19,836 | | | 17,132 | ||||||||||||||||||
Short positions |
20,277 | | | 17,628 | | | ||||||||||||||||||
Other financial liabilities |
| 1 | 25,393 | | | 19,468 | ||||||||||||||||||
|
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|
|
|
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|
|||||||||||||
107,888 | 55,364 | 1,029,054 | 109,792 | 62,317 | 961,052 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
b) | Information on issuances, repurchases or redemptions of debt instruments |
Following is a detail, at June 30, 2015 and 2014, of the outstanding balance of the debt instruments which at these dates had been issued by the Bank or any other Group entity. Also included is the detail of the changes in this balance in the first six months of 2015 and 2014:
Millions of euros | ||||||||||||||||||||
06/30/15 | ||||||||||||||||||||
Outstanding beginning balance at 1/01/15 |
Issuances | Repurchases or redemptions |
Exchange rate and other adjustments |
Outstanding ending balance at 06/30/15 |
||||||||||||||||
Debt instruments issued in an EU member state for which it was necessary to file a prospectus |
148,105 | 25,832 | (36,034 | ) | (1,205 | ) | 136,698 | |||||||||||||
Debt instruments issued in an EU member state for which it was not necessary to file a prospectus |
2,084 | 856 | (467 | ) | 298 | 2,771 | ||||||||||||||
Other debt instruments issued outside EU member states |
63,832 | 30,042 | (20,227 | ) | 7,173 | 80,820 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
214,021 | 56,730 | (56,728 | ) | 6,266 | 220,289 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-24
Millions of euros | ||||||||||||||||||||
06/30/14 | ||||||||||||||||||||
Outstanding beginning balance at 01/01/14 |
Issuances | Repurchases or redemptions |
Exchange rate and other adjustments |
Outstanding ending balance at 06/30/14 |
||||||||||||||||
Debt instruments issued in an EU member state for which it was necessary to file a prospectus |
143,865 | 22,249 | (24,155 | ) | (7,323 | ) | 134,636 | |||||||||||||
Debt instruments issued in an EU member state for which it was not necessary to file a prospectus |
3,226 | 10,488 | (7,021 | ) | 5,195 | 11,888 | ||||||||||||||
Other debt instruments issued outside EU member states |
44,525 | 18,901 | (17,441 | ) | 18,029 | 64,014 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
191,616 | 51,638 | (48,617 | ) | 15,901 | 210,538 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
c) | Other issuances guaranteed by the Group |
At June 30, 2015, there were no debt instruments issued by associates or non-Group third parties that had been guaranteed by the Bank or any other Group entity.
d) | Case-by-case information on certain issuances, repurchases or redemptions of debt instruments |
The main characteristics of the most significant issuances (excluding promissory notes, securitizations and issues maturing within less than one year), repurchases or redemptions performed by the Group in the first six months of 2015, or guaranteed by the Bank or Group entities, are as follows:
F-25
Issuer data |
Data on the transactions performed in the first half of 2015 | |||||||||||||||||||||||||||||
Name |
Relationship with the Bank |
Country of registered office |
Issuer or issue credit rating |
Transaction | ISIN code | Type of security |
Transaction date |
Amount of the issue, repurchase or redemption (millions of euros) (a) |
Balance outstanding (millions of euros) (a) |
Interest rate | Market where listed |
Type of guarantee provided |
Risks additional to the guarantee that the Group would assume | |||||||||||||||||
ABBEY NATIONAL TREASURY SERVICES PLC |
Subsidiary | United Kingdom |
A2 / A / A | Issue | US002799AT16 | Senior debt | 16/03/15 | 929 | 929 | 2.38% | TRACE | N/A | N/A | |||||||||||||||||
ABBEY NATIONAL TREASURY SERVICES PLC |
Subsidiary | United Kingdom |
Aaa / AAA / - | Issue | XS1220923996 | Mortgage- backed bond |
21/04/15 | 1,000 | 1,000 | 0.25% | London | Santander UK PLC - Abbey Covered Bonds LLP guarantee |
N/A | |||||||||||||||||
ABBEY NATIONAL TREASURY SERVICES PLC |
Subsidiary | United Kingdom |
Aaa / AAA / AAA |
Issue | XS1238066622 | Mortgage- backed bond |
29/05/15 | 703 | 703 | 0.79% | London | Santander UK PLC - Abbey Covered Bonds LLP guarantee |
N/A | |||||||||||||||||
BANCO SANTANDER (BRASIL) S.A. |
Subsidiary | Brazil | N/A | Issue | Financial bill (LF) |
Financial bill (LF) |
25/02/15 | 966 | 276 | 6.75% | N/A | N/A | N/A | |||||||||||||||||
BANCO SANTANDER (BRASIL) S.A. |
Subsidiary | Brazil | N/A | Issue | Financial bill (LF) |
Financial bill (LF) |
22/04/15 | 294 | 294 | 14.56% | N/A | N/A | N/A | |||||||||||||||||
SANTANDER BANK, NATIONAL ASSOCIATION |
Subsidiary | United States |
Baa1 / BBB+ / BBB+ |
Issue | US80280JDB44 | Senior debt | 12/01/15 | 697 | 697 | 2.00% | TRACE | N/A | N/A | |||||||||||||||||
SANTANDER BANK, NATIONAL ASSOCIATION |
Subsidiary | United States |
Baa1 / BBB+ / BBB+ |
Issue | US80280JDC27 | Senior debt | 12/01/15 | 232 | 232 | 3M US LIBOR + 0.93% |
TRACE | N/A | N/A | |||||||||||||||||
SANTANDER CONSUMER BANK AS |
Subsidiary | Norway | N/A | Issue | NO0010731037 | Senior debt | 19/02/15 | 230 | 230 | 3M NIBOR + 0.77% |
Norway | N/A | N/A | |||||||||||||||||
SANTANDER CONSUMER BANK AS |
Subsidiary | Norway | A3 / - / BBB | Issue | XS1218217377 | Senior debt | 21/04/15 | 750 | 750 | 0.63% | Dublin / Norway |
N/A | N/A | |||||||||||||||||
SANTANDER CONSUMER FINANCE, S.A. |
Subsidiary | Spain | Baa1 / A- / BBB+ |
Issue | XS1188117391 | Senior debt | 18/02/15 | 1,000 | 1,000 | 0.90% | Dublin | N/A | N/A | |||||||||||||||||
SANTANDER CONSUMER FINANCE, S.A. |
Subsidiary | Spain | - / A- / - | Issue | XS1226746490 | Senior debt | 11/05/15 | 200 | 200 | 0.14% | Dublin | N/A | N/A | |||||||||||||||||
SANTANDER HOLDINGS USA, Inc. |
Subsidiary | United States |
Baa2 / - / BBB |
Issue | US80282KAD81 | Senior debt | 04/04/15 | 894 | 894 | 2.65% | TRACE | N/A | N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Baa1 / BBB+ / BBB+ |
Issue | XS1169932289 | Senior debt | 26/01/15 | 250 | 250 | 3M EU + 0.27% |
Dublin | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Baa1 / BBB+ / BBB+ |
Issue | XS1171573188 | Senior debt | 28/01/15 | 200 | 200 | 3M EU + 0.23% |
Dublin | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Baa1 / A- / BBB+ |
Issue | XS1195284705 | Senior debt | 04/03/15 | 300 | 300 | 3M EU + 0.60% |
Dublin | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER UK GROUP HOLDINGS PLC |
Subsidiary | United Kingdom |
Ba2 / BB+ | Issue | XS1244538523 | Subordinated debt |
10/06/15 | 1,054 | 914 | 7.38% | London | N/A | N/A | |||||||||||||||||
SANTANDER ISSUANCES, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Baa2 / BBB+ / BBB- |
Issue | XS1201001572 | Subordinated debt |
18/03/15 | 1,500 | 1,500 | 2.50% | Dublin | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER UK PLC |
Subsidiary | United Kingdom |
A2 / A / A | Issue | XS1166160173 | Senior debt | 14/01/15 | 1,500 | 1,500 | 1.13% | London | N/A | N/A | |||||||||||||||||
SANTANDER UK PLC |
Subsidiary | United Kingdom |
A2 / A / A | Issue | XS1172406818 | Senior debt | 18/02/15 | 605 | 605 | 3M EU + 0.30% |
London | N/A | N/A | |||||||||||||||||
SANTANDER UK PLC |
Subsidiary | United Kingdom |
A2 / A / A | Issue | XS1172406818 | Senior debt | 12/02/15 | 645 | 645 | 3M EU + 0.30% |
London | N/A | N/A | |||||||||||||||||
SANTANDER UK PLC |
Subsidiary | United Kingdom |
A2 / A / A | Issue | XS1190294063 | Senior debt | 25/02/15 | 1,031 | 1,031 | 1.88% | London | N/A | N/A | |||||||||||||||||
SANTANDER UK PLC |
Subsidiary | United Kingdom |
A2 / A / A | Issue | XS1199439222 | Senior debt | 10/03/15 | 1,000 | 1,000 | 1.13% | London | N/A | N/A | |||||||||||||||||
ABBEY NATIONAL TREASURY SERVICES PLC |
Subsidiary | United Kingdom |
AAA | Repayment | XS0746622009 | Mortgage- backed bond |
16/02/15 | 1,031 | | 3M GB LIBOR + 1.60% |
London | N/A | N/A | |||||||||||||||||
ABBEY NATIONAL TREASURY SERVICES PLC |
Subsidiary | United Kingdom |
AA- | Repayment | XS0220989692 | Mortgage- backed bond |
04/06/15 | 250 | | 3.38% | London | Santander UK PLC - Abbey Covered Bonds LLP guarantee |
N/A |
F-26
Issuer data |
Data on the transactions performed in the first half of 2015 | |||||||||||||||||||||||||||||
Name |
Relationship with the Bank |
Country of registered office |
Issuer or issue credit rating |
Transaction | ISIN code | Type of security |
Transaction date |
Amount of the issue, repurchase or redemption (millions of euros) (a) |
Balance outstanding (millions of euros) (a) |
Interest rate | Market where listed |
Type of guarantee provided |
Risks additional to the guarantee that the Group would assume | |||||||||||||||||
ABBEY NATIONAL TREASURY SERVICES PLC |
Subsidiary | United Kingdom |
AA- | Repayment | XS0220989692 | Mortgage- backed bond |
08/06/15 | 2,000 | | 3.38% | London | Santander UK PLC - Abbey Covered Bonds LLP guarantee |
N/A | |||||||||||||||||
ABBEY NATIONAL TREASURY SERVICES PLC |
Subsidiary | United Kingdom |
A1/A | Repayment | CH0115236322 | Senior debt |
08/06/15 | 264 | | 2.00% | Switzerland | N/A | N/A | |||||||||||||||||
ABBEY NATIONAL TREASURY SERVICES PLC |
Subsidiary | United Kingdom |
AA- | Repayment | XS0220989692 | Mortgage- backed bond |
08/06/15 | 525 | | 3.38% | London | N/A | N/A | |||||||||||||||||
BANCO SANTANDER (BRASIL) S.A. |
Subsidiary | Brazil | N/A | Repayment | Financial bill (LF) |
Financial bill (LF) |
25/02/15 | 213 | | 7.78% | N/A | N/A | N/A | |||||||||||||||||
BANCO SANTANDER (BRASIL) S.A. |
Subsidiary | Brazil | N/A | Repayment | BANSAOCLN | Private senior debt |
12/01/15 | 307 | | 3.18% | N/A | N/A | N/A | |||||||||||||||||
BANCO SANTANDER (BRASIL) S.A. |
Subsidiary | Brazil | Baa2 / BBB- / BBB |
Repayment | US05966UAB08 | Senior debt |
06/04/15 | 760 | | 4.60% | Luxembourg | N/A | N/A | |||||||||||||||||
BANCO SANTANDER, S.A. |
Parent | Spain | Aaa / - / AAA |
Repayment | ES0413440068 | Mortgage- backed bond |
27/01/15 | 1,642 | | 3.50% | AIAF | N/A | N/A | |||||||||||||||||
BANCO SANTANDER, S.A. |
Parent | Spain | Aaa / - / AAA |
Repayment | ES0413440068 | Mortgage- backed bond |
27/01/15 | 200 | | 3.50% | AIAF | N/A | N/A | |||||||||||||||||
BANCO SANTANDER, S.A. |
Parent | Spain | AAA | Repayment | ES0413440217 | Mortgage- backed bond |
30/03/15 | 597 | | 4.63% | AIAF | N/A | N/A | |||||||||||||||||
BANCO SANTANDER, S.A. |
Parent | Spain | Aaa / AAA | Repayment | ES0413900202 | Mortgage- backed bond |
28/01/15 | 1,000 | | 3.13% | Spain | N/A | N/A | |||||||||||||||||
BANCO SANTANDER, S.A. |
Parent | Spain | Aaa | Repayment | ES0413900285 | Mortgage- backed bond |
17/02/15 | 1,990 | | 3.25% | AIAF | N/A | N/A | |||||||||||||||||
BANCO SANTANDER, S.A. |
Parent | Spain | Aaa | Repayment | ES0413900244 | Mortgage- backed bond |
16/03/15 | 1,999 | | 4.38% | Spain | N/A | N/A | |||||||||||||||||
BANCO SANTANDER, S.A. |
Parent | Spain | A2 / A+ | Repayment | ES0313440150 | Senior debt |
17/04/15 | 477 | | 3.00% | AIAF | N/A | N/A | |||||||||||||||||
SANTANDER CONSUMER FINANCE, S.A. |
Subsidiary | Spain | - / - / BBB- | Repayment | XS0981705618 | Senior debt |
23/04/15 | 917 | | 1.63% | Dublin | N/A | N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Baa1 / BBB / BBB |
Repayment | XS1022793951 | Senior debt |
04/02/15 | 500 | | 3M GB LIBOR + 0.65% |
Ireland | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Aa2 / AA / AA |
Repayment | XS0491856265 | Senior debt |
10/03/15 | 865 | | 3.50% | Spain | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Baa2 / BBB / BBB+ |
Repayment | XS0907861214 | Senior debt |
25/03/15 | 300 | | 3M EU + 1.90% |
Luxembourg | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Baa1 / BBB+ / BBB |
Repayment | XS1041097301 | Senior debt |
10/04/15 | 300 | | 3M EU + 0.61% |
Dublin | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Aa3 / A+ / A | Repayment | XS0770378619 | Senior debt |
16/04/15 | 248 | | 1.80% | New York and London |
Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER INTERNATIONAL DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Aa2 / AA / AA |
Repayment | XS0624668801 | Senior debt |
18/05/15 | 937 | | 4.50% | Luxembourg | Banco Santander, S.A. guarantee |
N/A | |||||||||||||||||
SANTANDER US DEBT, S.A. (SOLE-SHAREHOLDER COMPANY) |
Subsidiary | Spain | Aa2 / AA / AA |
Repayment | US808215AQ38 | Senior debt |
20/01/15 | 929 | | 3.72% | United States |
Banco Santander, S.A. guarantee |
N/A |
(a) | The amounts relating to securities denominated in foreign currencies were translated to euros at the exchange rate prevailing at the end of the first half of 2015. |
F-27
e) | Fair value of financial liabilities not measured at fair value |
Following is a comparison of the carrying amounts of the Groups financial liabilities measured at other than fair value and their respective fair values at June 30, 2015 and December 31, 2014:
Millions of euros | ||||||||||||||||
06/30/15 | 12/31/14 | |||||||||||||||
Carrying amount |
Fair value | Carrying amount |
Fair value | |||||||||||||
Financial liabilities at amortized cost: |
||||||||||||||||
Deposits from central banks |
33,692 | 33,692 | 17,290 | 17,290 | ||||||||||||
Deposits from credit institutions |
105,196 | 105,465 | 105,147 | 105,557 | ||||||||||||
Customer deposits |
648,508 | 647,375 | 608,956 | 608,339 | ||||||||||||
Marketable debt securities |
196,429 | 199,058 | 193,059 | 197,093 | ||||||||||||
Subordinated liabilities |
19,836 | 19,972 | 17,132 | 17,428 | ||||||||||||
Other financial liabilities |
25,393 | 25,804 | 19,468 | 19,428 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES |
1,029,054 | 1,031,366 | 961,052 | 965,135 | ||||||||||||
|
|
|
|
|
|
|
|
The main valuation methods and inputs used in the estimates of the fair values of the financial liabilities in the foregoing table are detailed in Note 51.c to the consolidated financial statements for 2014.
10. | Provisions |
a) | Breakdown |
The detail of Provisions at June 30, 2015 and December 31, 2014 is as follows:
Millions of euros | ||||||||
06/30/15 | 12/31/14 | |||||||
Provision for pensions and similar obligations |
9,231 | 9,412 | ||||||
Provisions for taxes and other legal contingencies |
3,034 | 2,916 | ||||||
Provisions for contingent liabilities and commitments |
666 | 654 | ||||||
Of which: due to country risk |
12 | 2 | ||||||
Other provisions |
2,539 | 2,394 | ||||||
|
|
|
|
|||||
Provisions |
15,470 | 15,376 | ||||||
|
|
|
|
b) | Provisions for pensions and similar obligations |
The change in Provisions for pensions and similar obligations in the first six months of 2015 related to benefit payments exceeding EUR 478 million, as well as to the greater obligations arising from the increase in the cumulative actuarial gains and losses as a result of the change in actuarial assumptions.
F-28
c) | Provisions for taxes and other legal contingencies and Other provisions |
Set forth below is the detail, by type of provision, of the balances at June 30, 2015 and at December 31, 2014 of Provisions for taxes and other legal contingencies and other provisions. The types of provision were determined by grouping together items of a similar nature:
Millions of euros | ||||||||
06/30/15 | 12/31/14 | |||||||
Provisions for taxes |
1,390 | 1,289 | ||||||
Provisions for employment-related proceedings (Brazil) |
619 | 616 | ||||||
Provisions for other legal proceedings |
1,026 | 1,011 | ||||||
Provision for customer remediation |
409 | 632 | ||||||
Regulatory framework-related provisions |
325 | 298 | ||||||
Provision for restructuring |
270 | 273 | ||||||
Other |
1,534 | 1,191 | ||||||
|
|
|
|
|||||
5,573 | 5,310 | |||||||
|
|
|
|
Relevant information is set forth below in relation to each type of provision shown in the preceding table:
The provisions for taxes include provisions for tax-related proceedings.
The provisions for employment-related proceedings (Brazil) relate to claims filed by trade unions, associations, the prosecutors office and ex-employees claiming employment rights to which, in their view, they are entitled, particularly the payment of overtime and other employment rights, including litigation concerning retirement benefits. The number and nature of these proceedings, which are common for banks in Brazil, justify the classification of these provisions in a separate category or as a separate type from the rest. The Group calculates the provisions associated with these claims in accordance with past experience of payments made in relation to claims for similar items. When claims do not fall within these categories, a case-by-case assessment is performed and the amount of the provision is calculated in accordance with the status of each proceeding and the risk assessment carried out by the legal advisers. The average duration of the employment-related proceedings is approximately eight years.
The provisions for other legal proceedings include provisions for court, arbitration or administrative proceedings (other than those included in other categories or types of provisions disclosed separately) brought against Santander Group companies.
The provisions for customer remediation include the estimated cost of payments to remedy errors relating to the sale of certain products in the UK and Germany. To calculate the provision for customer remediation, the best estimate of the provision made by management is used, which is based on the estimated number of claims to be received and, of these, the number that will be accepted, as well as the estimated average payment per case.
The regulatory framework-related provisions include mainly the provisions for the extraordinary contribution to the Deposit Guarantee Fund in Spain and those relating to the FSCS and the bank levy in the UK.
The provisions for restructuring include only the direct costs arising from restructuring processes carried out by the various Group companies.
Qualitative information on the main litigation is provided in Note 10.d.
F-29
Our general policy is to record provisions for tax and legal proceedings in which we assess the chances of loss to be probable and we do not record provisions when the chances of loss are possible or remote. We determine the amounts to be provided for as our best estimate of the expenditure required to settle the corresponding claim based, among other factors, on a case-by-case analysis of the facts and the legal opinion of internal and external counsel or by considering the historical average amount of the loss incurred in claims of the same nature. The definitive date of the outflow of resources embodying economic benefits for the Group depends on each obligation. In certain cases, the obligations do not have a fixed settlement term and, in others, they depend on legal proceedings in progress.
The main changes in Provisions for taxes and other legal contingencies and Other provisions were as follows: with regard to Brazil, the main charges to profit or loss in the period ended June 30, 2015 were EUR 160 million due to civil contingencies and EUR 184 million arising from employment-related claims. This increase was offset partially by the use of available provisions, of which EUR 158 million related to payments of employment-related claims, EUR 140 million to civil payments and EUR 10 million to restructuring provisions used. With regard to the United Kingdom, EUR 19 million of net provisions for customer remediation, EUR 101 million of regulatory framework-related provisions and EUR 10 million of restructuring provisions were recognized in the first six months of 2015. These increases were offset by the use of EUR 101 million of customer remediation provisions, EUR 45 million of regulatory framework-related provisions and EUR 29 million of restructuring provisions. With regard to Germany, customer remediation payments totaling EUR 175 million were made.
d) | Litigation and other matters |
i. Tax-related litigation
As of the date of this report, the main tax-related proceedings concerning the Group were as follows:
| Legal actions filed by Banco Santander (Brasil), S.A. and certain Group companies in Brazil challenging the increase in the rate of Brazilian social contribution tax on net income from 9% to 15% stipulated by Interim Measure 413/2008, ratified by Law 11,727/2008, a provision having been recognized for the amount of the estimated loss. |
| Legal actions filed by certain Group companies in Brazil claiming their right to pay the Brazilian social contribution tax on net income at a rate of 8% and 10% from 1994 to 1998. No provision was recognized in connection with the amount considered to be a contingent liability. |
| Legal actions filed by Banco Santander, S.A. (currently Banco Santander (Brasil), S.A.) and other Group entities claiming their right to pay the Brazilian PIS and COFINS social contributions only on the income from the provision of services. In the case of Banco Santander, S.A., the legal action was declared unwarranted and an appeal was filed at the Federal Regional Court. In September 2007 the Federal Regional Court found in favor of Banco Santander, S.A., but the Brazilian authorities appealed against the judgment at the Federal Supreme Court. On April 23, 2015, the Federal Supreme Court issued a decision granting leave for the extraordinary appeal filed by the Brazilian authorities with regard to the PIS contribution to proceed, and dismissing the extraordinary appeal lodged by the Brazilian Federal Public Prosecutors Office in relation to the COFINS contribution. The Federal Supreme Court has not yet handed down its decision on the PIS contribution and, with regard to the COFINS contribution, on May 28, 2015, the Federal Supreme Court in plenary session unanimously dismissed the extraordinary appeal filed by the Brazilian Federal Public Prosecutors Office. Although on June 29 the Federal Public Prosecutors Office filed a petition for clarification (embargos de declaraçao) of the decision, it has also been dismissed and on September 3, 2015, the Federal Public Prosecutor admitted that no other appeal is admissible. In the case of Banco ABN AMRO Real, S.A. (currently Banco Santander (Brasil), S.A.), in March 2007 the court found in its favor, but the Brazilian authorities appealed against the judgment at the Federal Regional Court, which handed down a decision partly upholding the appeal in September |
F-30
2009. Banco Santander (Brasil), S.A. filed an appeal at the Federal Supreme Court. Law 12,865/2013 established a program of payments or deferrals of certain tax and social security debts, under which any entities that availed themselves of the program and withdrew the legal actions brought by them were exempted from paying late-payment interest. In November 2013 Banco Santander (Brasil) S.A. partially availed itself of this program but only with respect to the legal actions brought by the former Banco ABN AMRO Real, S.A. in relation to the period from September 2006 to April 2009, and with respect to other minor actions brought by other entities in its Group. However, the legal actions brought by Banco Santander, S.A. and those of Banco ABN AMRO Real, S.A. relating to the periods prior to September 2006, for which the estimated loss was provisioned, still subsist. |
| Banco Santander (Brasil), S.A. and other Group companies in Brazil have appealed against the assessments issued by the Brazilian tax authorities questioning the deduction of loan losses in their income tax returns (IRPJ and CSLL) on the ground that the relevant requirements under the applicable legislation were not met. No provision was recognized in connection with the amount considered to be a contingent liability. |
| Banco Santander (Brasil), S.A. and other Group companies in Brazil are involved in several administrative and legal proceedings against various municipalities that demand payment of the Service Tax on certain items of income from transactions not classified as provisions of services. No provision was recognized in connection with the amount considered to be a contingent liability. |
| In addition, Banco Santander (Brasil), S.A. and other Group companies in Brazil are involved in administrative and legal proceedings against the tax authorities in connection with the taxation for social security purposes of certain items which are not considered to be employee remuneration. No provision was recognized in connection with the amount considered to be a contingent liability. |
| In December 2008 the Brazilian tax authorities issued an infringement notice against Banco Santander (Brasil), S.A. in relation to income tax (IRPJ and CSLL) for 2002 to 2004. The tax authorities took the view that Banco Santander (Brasil), S.A. did not meet the necessary legal requirements to be able to deduct the goodwill arising on the acquisition of Banespa (currently Banco Santander (Brasil), S.A.). Banco Santander (Brasil) S.A. filed an appeal against the infringement notice at Conselho Administrativo de Recursos Fiscais (CARF), which on October 21, 2011 unanimously decided to render the infringement notice null and void. The tax authorities have appealed against this decision at a higher administrative level. In June 2010 the Brazilian tax authorities issued infringement notices in relation to this same matter for 2005 to 2007. Banco Santander (Brasil), S.A. filed an appeal against these procedures at CARF, which was partially upheld on October 8, 2013. This decision has been appealed at the higher instance of CARF (Tax Appeal High Chamber). In December 2013 the Brazilian tax authorities issued the infringement notice relating to 2008, the last year for amortization of the goodwill. Banco Santander (Brasil), S.A. appealed against this infringement notice and the court found in its favor. The Brazilian tax authorities appealed against this decision at CARF. Based on the advice of its external legal counsel and in view of the first decision by CARF, the Group considers that the stance taken by the Brazilian tax authorities is incorrect and that there are sound defense arguments to appeal against the infringement notices. Accordingly, the group believes that the risk of incurring a loss is remote. Consequently, no provisions have been recognized in connection with these proceedings because this matter should not affect the consolidated financial statements. |
| In May 2003 the Brazilian tax authorities issued separate infringement notices against Santander Distribuidora de Títulos e Valores Mobiliarios Ltda. (DTVM) and Banco Santander Brasil, S.A. (currently Banco Santander (Brasil), S.A.) in relation to the Provisional Tax on Financial Movements (CPMF) with respect to certain transactions carried out by DTVM in the management of its customers funds and for the clearing services provided by Banco Santander Brasil, S.A. to DTVM in 2000, 2001 and the first two months of 2002. The two entities appealed against the infringement notices at CARF, with DTVM obtaining a favorable decision and Banco Santander Brasil, S.A. an unfavorable decision. Both decisions were appealed by the losing parties at the Higher Chamber of CARF. Unfavorable decisions were obtained for Banco Santander (Brasil) S.A. and DTVM on June 12 and 19, 2015, respectively. |
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Both cases were appealed at court in a single proceeding and a provision was recognized for the estimated loss. |
| In December 2010 the Brazilian tax authorities issued an infringement notice against Santander Seguros, S.A., as the successor by merger to ABN AMRO Brasil Dois Participacoes, S.A., in relation to income tax (IRPJ and CSL) for 2005. The tax authorities questioned the tax treatment applied to a sale of shares of Real Seguros, S.A. made in that year. The bank filed an appeal for reconsideration against this infringement notice. As the former parent of Santander Seguros, S.A. (Brasil), Banco Santander (Brasil), S.A. is liable in the event of any adverse outcome of this proceeding. No provision was recognized in connection with this proceeding as it was considered to be a contingent liability. |
| Also in December 2010, the Brazilian tax authorities issued infringement notices against Banco Santander (Brasil), S.A. in connection with income tax (IRPJ and CSLL), questioning the tax treatment applied to the economic compensation received under the contractual guarantees provided by the sellers of the former Banco Meridional. The bank filed an appeal for reconsideration against this infringement notice. On November 23, 2011, CARF unanimously decided to render null and void an infringement notice relating to 2002 with regard to the same matter, and the decision was declared final in February 2012. The proceedings relating to the 2003 to 2006 fiscal years are still in progress although, based on the advice of its external legal counsel, the Group considers that the risk of incurring a loss is remote. |
| In June 2013, the Brazilian tax authorities issued an infringement notice against Banco Santander (Brasil), S.A. as the party liable for tax on the capital gain allegedly obtained in Brazil by the entity not resident in Brazil, Sterrebeeck B.V., as a result of the incorporação de ações (merger of shares) transaction carried out in August 2008. As a result of the aforementioned transaction, Banco Santander (Brasil), S.A. acquired all of the shares of Banco ABN AMRO Real, S.A. and ABN AMRO Brasil Dois Participações, S.A. through the delivery to these entities shareholders of newly issued shares of Banco Santander (Brasil), S.A., issued in a capital increase carried out for that purpose. The Brazilian tax authorities take the view that in the aforementioned transaction Sterrebeeck B.V. obtained income subject to tax in Brazil consisting of the difference between the issue value of the shares of Banco Santander (Brasil), S.A. that were received and the acquisition cost of the shares delivered in the exchange. In December 2014 the Group appealed against the infringement notice at CARF after the appeal for reconsideration lodged at the Federal Tax Office was dismissed. Based on the advice of its external legal counsel, the Group considers that the stance taken by the Brazilian tax authorities is incorrect and that there are sound defense arguments to appeal against the infringement notice. Accordingly, the risk of incurring a loss is remote. Consequently, the Group has not recognized any provisions in connection with these proceedings because this matter should not affect the consolidated financial statements. |
| In November 2014 the Brazilian tax authorities issued an infringement notice against Banco Santander (Brasil), S.A. in relation to income tax (IRPJ and CSLL) for 2009 questioning the tax-deductibility of the amortization of the goodwill of Banco ABN AMRO Real S.A., performed prior to the absorption of this bank by Banco Santander (Brasil), S.A., but accepting the amortization performed after to the merger. On the advice of its external legal counsel, Banco Santander (Brasil), S.A. has appealed this decision at the Federal Tax Office. No provision was recognized in connection with this proceeding as it was considered to be a contingent liability. Banco Santander (Brasil), S.A. has also appealed against infringement notices issued by the tax authorities questioning the tax deductibility of the amortization of the goodwill arising on the acquisition of Banco Sudameris. No provision was recognized in connection with this matter as it was considered to be a contingent liability. |
| Legal action brought by Sovereign Bancorp, Inc. (currently Santander Holdings USA, Inc.) claiming its right to take a foreign tax credit in connection with taxes paid outside the United States in fiscal years 2003 to 2005 in relation to financing transactions carried out with an international bank. Santander Holdings USA Inc. considers that, in accordance with applicable tax legislation, it is entitled to recognize the aforementioned tax credits as well as the related issuance and financing costs. In addition, if the outcome of this legal action is favorable to the interests of Santander Holdings USA, Inc., the amounts |
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paid over by the entity in relation to this matter with respect to 2006 and 2007 would have to be refunded. In 2013 the US courts found against two taxpayers in cases with a similar structure In the case of Santander Holdings USA, Inc. the proceeding was scheduled for 7 October 2013, although it was adjourned indefinitely when the judge found in favor of Santander Holdings USA, Inc. with respect to one of the main grounds of the case. Santander Holdings USA, Inc. expects the judge to rule on whether his previous decision will result in the proceedings being stayed in the case or whether other matters need to be analyzed before a final decision may be handed down. If the decision is favorable to Santander Holdings USA, Inc.s interests, the US government has stated its intention to appeal against it. The estimated loss relating to this proceeding was provided for. |
| The Santander UK group has proactively engaged with HM Revenue & Customs to resolve a number of outstanding legacy tax matters. It has not however been possible to satisfactorily resolve all of these matters and as a result litigation proceedings have commenced in relation to a small number of remaining issues. All of these items relate to periods prior to Santander UKs adoption of the Code of Practice on Taxation for Banks in 2010. During 2015, the court of first instance handed down judgments in favor of HM Revenue & Customs in relation to all of these issues. Santander UK has decided to not appeal these judgements further. A provision has been recognized and utilized for the full amount. |
As of the date of this report certain other less significant tax-related proceedings were also in progress.
ii. Other litigation
As of the date of this report, the main non-tax-related proceedings concerning the Group were as follows:
| Customer remediation: claims associated with the sale by Santander UK of certain financial products (principally payment protection insurance or PPI) to its customers. |
At June 30, 2015, the provision recognized in this connection amounted to GBP 73 million. The monthly cost of compensation, including the proactive program of contact with customers, fell to GBP 10 million per month in the first half of 2015 from a monthly average of GBP 11 million over the whole of 2014. Excluding the results of pro-active customer contact, the average redress costs for the first quarter of 2015 were GBP 6 million per month. The percentage of unjustified claims continues to be high.
| After the Madrid Provincial Appellate Court had rendered null and void the award handed down in the previous arbitration proceeding, on September 8, 2011, Banco Santander, S.A. filed a new request for arbitration with the Spanish Arbitration Court against Delforca 2008, S.A. (formerly Gaesco Bolsa Sociedad de Valores, S.A.), claiming EUR 66 million that the latter owes it as a result of the declaration on January 4, 2008 of the early termination by the Bank of all the financial transactions agreed upon between the parties. |
On August 3, 2012, Delforca 2008, S.A. was declared to be in a position of voluntary insolvency by Barcelona Commercial Court no. 10, which had agreed as part of the insolvency proceeding to stay the arbitration proceeding and the effects of the arbitration agreement entered into by Banco Santander, S.A. and Delforca 2008, S.A. The Arbitration Court, in compliance with the decision of the Commercial Court, agreed on January 20, 2013 to stay the arbitration proceedings at the stage reached at that date until a decision could be reached in this respect in the insolvency proceeding.
In addition, as part of the insolvency proceeding of Delforca 2008, S.A., Banco Santander, S.A. notified its claim against the insolvent party with a view to having the claim recognized as a contingent ordinary claim without specified amount. However, the insolvency manager opted to exclude Banco Santander, S.A.s claim from the provisional list of creditors and, accordingly, Banco Santander, S.A. filed an ancillary claim which was dismissed by a court decision on February 17, 2015. This decision also held that Banco
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Santander, S.A. had breached its contractual obligations under the framework financial transactions agreement entered into with Delforca 2008, S.A.
As part of the same insolvency proceeding, Delforca 2008, S.A. filed another ancillary claim requesting the termination of the arbitration agreement included in the framework financial transactions agreement entered into by that party and Banco Santander, S.A. in 1998, as well as the termination of the obligation that allegedly binds the insolvent party to the High Council of Chambers of Commerce (Spanish Arbitration Court). This claim was upheld in full by the Court.
On December 30, 2013, Banco Santander filed a complaint requesting the termination of the insolvency proceeding of Delforca 2008, S.A. due to supervening disappearance of the alleged insolvency of the company. The complaint was dismissed by the decision of June 30, 2014.
A court order dated May 25, 2015 declared the end of the common phase of the insolvency proceeding and the opening of the arrangement phase. Banco Santander has filed an appeal against the courts decisions on the following: 1) the stay of the arbitration proceeding and the effects of the arbitral agreement, 2) the termination of the arbitration agreement 3) the failure to recognize the contingent claim and the declaration of breach by Banco Santander, S.A. and 4) the decision not to conclude the proceeding due to the non-existence of insolvency.
On June 23, 2015, Delforca 2008, S.A. submitted an arrangement proposal entailing the payment in full of the ordinary and subordinate claims. On September 16, 2015, the Court agreed to a suspension of the arrangement phase until the Barcelona Provincial Appellate Court decides on the stay requested.
In its appeal documents, Banco Santander requested the stay of any proceedings that might be affected by the decision on the appeals filed, including the stay of the insolvency proceeding and the processing of the arrangement phase until the Court rules on the appeals.
In addition, in April 2009 Mobiliaria Monesa, S.A. (parent of Delforca 2008, S.A.) filed a claim against Banco Santander, S.A. at Santander Court of First Instance no. 5, claiming damages which it says it incurred as a result of the (in its opinion) unwarranted claim filed by the Bank against its subsidiary, reproducing the same objections as Delforca 2008, S.A. This proceeding has currently been stayed on preliminary civil ruling grounds, against which Mobiliaria Monesa, S.A. filed an appeal which was dismissed by the Cantabria Provincial Appellate Court in a judgment dated January 16, 2014.
Lastly, on April 11, 2012, Banco Santander, S.A. was notified of the claim filed by Delforca 2008, S.A., heard by Madrid Court of First Instance no. 21, in which it sought indemnification for the damage and losses it alleges it incurred due to the (in its opinion) unwarranted claim by the Bank. Delforca 2008, S.A. made the request in a counterclaim filed in the arbitration proceeding that concluded with the annulled award, putting the figure at up to EUR 218 million. The aforementioned Court upheld the motion for declinatory exception proposed by Banco Santander, S.A. as the matter has been referred for arbitration. This decision was confirmed in an appeal at the Madrid Provincial Appellate Court in a judgment dated May 27, 2014. The Group considers that the risk of loss arising as a result of these matters is remote and, accordingly, it has not recognized any provisions in connection with these proceedings.
| Former employees of Banco do Estado de São Paulo S.A., Santander Banespa, Cia. de Arrendamiento Mercantil: a claim was filed in 1998 by the association of retired Banespa employees (AFABESP) on behalf of its members, requesting the payment of a half-yearly bonus initially envisaged in the entitys Bylaws in the event that the entity obtained a profit and that the distribution of this profit were approved by the board of directors. The bonus was not paid in 1994 and 1995 since the bank did not make a profit and partial payments were made from 1996 to 2000, as agreed by the board of directors, and the relevant clause was eliminated in 2001. The Regional Employment Court ordered the bank to pay this half-yearly |
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bonus in September 2005 and the bank filed an appeal against the decision at the High Employment Court (TST) and, subsequently, at the Federal Supreme Court (STF). The TST confirmed the judgment against the bank, whereas the STF rejected the extraordinary appeal filed by the bank in a decision adopted by only one of the Court members, thereby also upholding the order issued to the bank. This decision was appealed by the bank and the association. Only the appeal lodged by the bank has been given leave to proceed and will be decided upon by the STF in plenary session. |
| Planos economicos: Like the rest of the banking system, Santander Brazil has been the subject of claims from customers, mostly depositors, and of class actions brought for a common reason, arising from a series of legislative changes relating to the calculation of inflation (planos economicos). The claimants considered that their vested rights had been impaired due to the immediate application of these adjustments. In April 2010, the High Court of Justice (STJ) set the limitation period for these class actions at five years, as claimed by the banks, rather than 20 years, as sought by the claimants, which will probably significantly reduce the number of actions brought and the amounts claimed in this connection. As regards the substance of the matter, the decisions issued to date have been adverse for the banks, although two proceedings have been brought at the STJ and the Supreme Federal Court (STF) with which the matter is expected to be definitively settled. In August 2010, the STJ handed down a decision finding for the plaintiffs in terms of substance, but excluding one of the planos from the claim, thereby reducing the amount thereof, and once again confirming the five-year statute-of-limitations period. Shortly thereafter, the STF issued an injunctive relief order whereby the proceedings in progress were stayed until this court issues a final decision on the matter. |
| Proceeding under Criminal Procedure Law (case no. 1043/2009) conducted at Madrid Court of First Instance no. 26, following a claim brought by Banco Occidental de Descuento, Banco Universal, C.A. against the Bank for USD 150 million in principal plus USD 4.7 million in interest, upon alleged termination of an escrow contract. |
The court upheld the claim but did not make a specific pronouncement on costs. A judgment handed down by the Madrid Provincial Appellate Court on October 9, 2012 upheld the appeal lodged by the Bank and dismissed the appeal lodged by Banco Occidental de Descuento, Banco Universal, C.A., dismissing the claim. The dismissal of the claim was confirmed in an ancillary order to the judgment dated December 28, 2012. An appeal was filed at the Supreme Court by Banco Occidental de Descuento against the Madrid Provincial Appellate Court decision. The appeal was dismissed in a Supreme Court judgment dated October 24, 2014. Banco Occidental de Descuento has filed a motion for annulment against the aforementioned judgment. The Bank has challenged the appeal. The Bank has not recognized any provisions in connection with these proceedings.
| On January 26, 2011, notice was served on the Bank of an ancillary insolvency claim to annul acts detrimental to the assets available to creditors as part of the voluntary insolvency proceedings of Mediterráneo Hispa Group, S.A. at Murcia Commercial Court no. 2. The aim of the principal action is to request annulment of the application of the proceeds obtained by the company undergoing insolvency from an asset sale and purchase transaction involving EUR 32 million in principal and EUR 2.7 million in interest. On November 24, 2011, the hearing was held with the examination of the proposed evidence. Upon completion of the hearing, it was resolved to conduct a final proceeding. The Court dismissed the claim in full in a judgment dated November 13, 2013. The judgment was confirmed at appeal by the Murcia Provincial Appellate Court in a judgment dated July 10, 2014. The insolvency managers have filed a cassation and extraordinary appeal against procedural infringements against the aforementioned judgment. |
| The bankruptcy of various Lehman Group companies was made public on September 15, 2008. Various customers of Santander Group were affected by this situation since they had invested in securities issued by Lehman or in other products which had such assets as their underlying. |
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At the date of this report, certain claims had been filed in relation to this matter. The Banks directors and its legal advisers consider that the various Lehman products were sold in accordance with the applicable legal regulations in force at the time of each sale or subscription and that the fact that the Group acted as intermediary would not give rise to any liability for it in relation to the insolvency of Lehman. Accordingly, the risk of loss is considered to be remote and, as a result, no provisions needed to be recognized in this connection.
| The intervention, on the grounds of alleged fraud, of Bernard L. Madoff Investment Securities LLC (Madoff Securities) by the US Securities and Exchange Commission (SEC) took place in December 2008. The exposure of customers of the Group through the Optimal Strategic US Equity (Optimal Strategic) subfund was EUR 2,330 million, of which EUR 2,010 million related to institutional investors and international private banking customers, and the remaining EUR 320 million made up the investment portfolios of the Groups private banking customers in Spain, who were qualifying investors. |
At the date of this report, certain claims had been filed against Group companies in relation to this matter. The Group considers that it has at all times exercised due diligence and that these products have always been sold in a transparent way pursuant to applicable legislation and established procedures. The risk of loss is therefore considered to be remote or immaterial.
| At the end of the first quarter of 2013, certain news reports suggested that the Portuguese authorities were questioning the validity of the interest rate swaps arranged between various financial institutions and public sector companies in Portugal, particularly in the public transport industry. |
The swaps under debate included swaps arranged by Banco Santander Totta, S.A. with the public companies Metropolitano de Lisboa, E.P.E. (MdL), Metro de Porto, S.A. (MdP), Sociedade de Transportes Colectivos do Porto, S.A. (STCP) and Companhia Carris de Ferro de Lisboa, S.A. (Carris). These swaps were arranged prior to 2008, i.e. before the start of the financial crisis, and had been executed without incident.
In view of this situation Banco Santander Totta, S.A. took the initiative to request a court judgment on the validity of the swaps in the jurisdiction of the United Kingdom to which the swaps are subject. The corresponding claims were filed in May 2013.
After the Bank had filed the claims, the four companies (MdL, MdP, STCP and Carris) notified Banco Santander Totta, S.A. that they were suspending payment of the amounts owed under the swaps until a final decision had been handed down in the UK jurisdiction in the proceedings. MdL, MdP and Carris suspended payment in September 2013 and STCP did the same in December 2013.
Consequently, Banco Santander Totta, S.A. extended each of the claims to include the unpaid amounts.
On November 29, 2013, the companies presented their defense in which they claimed that the swaps were null and void under Portuguese law and, accordingly, that they should be refunded the amounts paid.
On February 14, 2014, Banco Santander Totta, S.A. answered the counterclaim, maintaining its arguments and rejecting the opposing arguments in its documents dated November 29, 2013.
On April 4, 2014, the companies issued their replies to the banks documents. The preliminary hearing took place on May 16, 2014. The documentation analysis stage has been in progress since December 2014. These proceedings are still in progress.
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Banco Santander Totta, S.A. and its legal advisers consider that the entity acted at all times in accordance with applicable legislation and under the terms of the swaps, and take the view that the UK courts will confirm the full validity and effectiveness of the swaps. As a result, the Group has not recognized any provisions in connection with these proceedings. Most of the German banking industry has been affected by two German Supreme Court decisions in 2014 in relation to processing fees in consumer loan agreements.
In May 2014 the German Supreme Court held processing fees in loan agreements to be null and void. The Court subsequently handed down a ruling at the end of October 2014 extending from three to ten years the statute of limitation period on claims relating to old transactions. Therefore, any claims relating to processing fees paid between 2004 and 2011 became statute-barred in 2014. This situation gave rise to numerous claims at the end of 2014 which have affected the income statements of banks in Germany.
Santander Consumer Bank AG stopped including these processing fees in agreements from January 1, 2013 and ceased charging these fees definitively at that date, i.e. before the Supreme Court handed down its judgment on the issue.
In 2014 Santander Consumer Bank AG recognized provisions totaling approximately 455 million to cover the estimated cost of the claims relating to processing fees, considering both the claims already received and the estimated claims that may be received in 2015 relating to fees paid in 2012; no new claims are expected to be received for fees paid earlier than 2012 since they are statute-barred.
The Bank and the other Group companies are subject to claims and, therefore, are party to certain legal proceedings incidental to the normal course of their business (including those in connection with lending activities, relationships with employees and other commercial or tax matters).
In this context, it must be considered that the outcome of court proceedings is uncertain, particularly in the case of claims for indeterminate amounts, those based on legal issues for which there are no precedents, those that affect a large number of parties or those at a very preliminary stage.
With the information available to it, the Group considers that at June 30, 2015, it had reliably estimated the obligations associated with each proceeding and had recognized, where necessary, sufficient provisions to cover reasonably any liabilities that may arise as a result of these tax and legal situations. It also believes that any liability arising from such claims and proceedings will not have, overall, a material adverse effect on the Groups business, financial position or results of operations.
11. | Equity |
In the six-month periods ended June 30, 2015 and 2014 there were no quantitative or qualitative changes in the Groups equity other than those indicated in the condensed consolidated statements of changes in total equity.
a) | Issued capital |
On January 8, 2015, the Group announced that its board of directors had resolved to increase capital through an accelerated bookbuilt offering with disapplication of pre-emption rights. The capital increase amounted to EUR 7,500 million, of which EUR 607 million related to the par value of the 1,213,592,234 new shares issued and EUR 6,893 million to the share premium.
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On January 29 and April 29 2015, the bonus issues through which the Santander Dividendo Elección scrip dividend scheme is instrumented took place, whereby 262,578,993 and 256,046,919 shares (1.90% and 1.82% of the share capital) were issued for an amount of EUR 131 million and EUR 128 million, respectively.
At June 30, 2015, the Banks share capital consisted of 14,316,632,805 shares with a total par value of EUR 7,158 million.
b) | Valuation adjustments - Available-for-sale financial assets |
Valuation adjustments - Available-for-sale financial assets includes the net amount of unrealized changes in the fair value of assets classified as available-for-sale financial assets (see Note 5.b).
The breakdown, by type of instrument and geographical origin of the issuer, of Valuation adjustments - Available-for-sale financial assets at June 30, 2015 and December 31, 2014 is as follows:
Millions of euros | ||||||||||||||||||||||||||||||||
06/30/15 | 12/31/14 | |||||||||||||||||||||||||||||||
Revaluation gains |
Revaluation losses |
Net revaluation gains/(losses) |
Fair value | Revaluation gains |
Revaluation losses |
Net revaluation gains/(losses) |
Fair value | |||||||||||||||||||||||||
Debt instruments |
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Government debt securities and debt instruments issued by central banks |
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Spain |
373 | (327 | ) | 46 | 35,904 | 835 | (176 | ) | 659 | 31,190 | ||||||||||||||||||||||
Rest of Europe |
233 | (75 | ) | 158 | 20,744 | 325 | (56 | ) | 269 | 20,597 | ||||||||||||||||||||||
Latin America and rest of the world |
93 | (205 | ) | (112 | ) | 35,397 | 89 | (97 | ) | (8 | ) | 30,230 | ||||||||||||||||||||
Private-sector debt securities |
209 | (219 | ) | (10 | ) | 31,943 | 243 | (193 | ) | 50 | 28,232 | |||||||||||||||||||||
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908 | (826 | ) | 82 | 123,988 | 1,492 | (522 | ) | 970 | 110,249 | |||||||||||||||||||||||
Equity instruments |
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Domestic |
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Spain |
52 | (8 | ) | 44 | 1,540 | 35 | (8 | ) | 27 | 1,447 | ||||||||||||||||||||||
International |
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Rest of Europe |
317 | (40 | ) | 277 | 1,181 | 282 | (23 | ) | 259 | 1,245 | ||||||||||||||||||||||
United States |
25 | | 25 | 817 | 25 | | 25 | 762 | ||||||||||||||||||||||||
Latin America and rest of the world |
275 | (3 | ) | 272 | 1,509 | 298 | (19 | ) | 279 | 1,547 | ||||||||||||||||||||||
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669 | (51 | ) | 618 | 5,047 | 640 | (50 | ) | 590 | 5,001 | |||||||||||||||||||||||
Of which: |
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Listed |
532 | (45 | ) | 487 | 1,798 | 311 | (26 | ) | 285 | 1,787 | ||||||||||||||||||||||
Unlisted |
137 | (6 | ) | 131 | 3,249 | 329 | (24 | ) | 305 | 3,214 | ||||||||||||||||||||||
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1,577 | (877 | ) | 700 | 129,035 | 2,132 | (572 | ) | 1,560 | 115,250 | |||||||||||||||||||||||
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In the first half of 2015 the Group recognized EUR 96 million in the income statement in relation to impairment of debt instruments and EUR 19 million in relation to impairment of equity instruments.
c) | Valuation adjustments - Hedges of net investments in foreign operations and Exchange differences |
Valuation adjustments - Hedges of net investments in foreign operations includes the net amount of the changes in value of hedging instruments in hedges of net investments in foreign operations, in respect of the portion of these changes considered to be effective hedges.
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Valuation adjustments - Exchange differences includes the net amount of exchange differences arising on non-monetary items whose fair value is adjusted against equity and the differences arising on the translation to euros of the balances of the consolidated entities whose functional currency is not the euro.
The net changes in both these items in the first half of 2015 recognized in the statement of recognized income and expense reflect the effect arising from the appreciation of foreign currencies, mainly the pound sterling and the US dollar, and the depreciation of the Brazilian real. Of the change in the balance in the first half of 2015, a gain of approximately EUR 947 million related to the measurement of goodwill using the period-end exchange rate.
d) | Valuation adjustments - Other valuation adjustments |
The changes in the balance of Valuation adjustments - Other valuation adjustments are shown in the condensed consolidated statement of recognized income and expense and include the actuarial gains and losses generated in the period and the return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset), less the administrative expenses and taxes inherent to the plan, and any change in the effect of the asset ceiling.
The most significant changes in the first half of 2015 related to:
| Increase of EUR 98 million in the cumulative actuarial losses relating to the Groups businesses in the United Kingdom, due to the lower-than-expected return on the asset portfolio. |
| Increase of EUR 115 million in the cumulative actuarial losses relating to the Groups businesses in Spain, due to the change in the main actuarial assumptions a decrease in the discount rate from 2% to 1.75%. |
| Decrease of EUR 117 million in the cumulative actuarial losses relating to the Groups businesses in Brazil, due to the higher-than-expected return on assets. |
| A net decrease of EUR 4 million in the actuarial losses of the rest of the Groups units, due to changes in the actuarial assumptions. |
| A net increase of EUR 96 million in the actuarial losses of all foreign units, due to changes in exchange rates. |
12. | Segment information |
Our results are affected by the change in our reported segments resulting from new criteria to measure our segments profit or loss and from the new composition of our segments to reflect our current reporting structure.
The main changes, which have been applied to all segment information for all periods included in the consolidated financial statements, are the following:
1. | Change of measurement criteria the change in segments mainly affects the income statement line items of net interest income, gains on financial transactions and operating expenses, due to decrease in the Corporate Center segment (previously called Corporate Activities) and its allocation to the business units. The main changes are as follows: |
F-39
Previous measurement criteria
|
New measurement criteria
| |
The Spain business unit was treated as a retail network, thus individualized internal transfer rates (ITR)* by operation were applied to calculate the financial margin, and the balance sheet was matched in terms of interest rate risk. The counterparty of these results was the Corporate Center segment. | The Spain business unit is treated like the other units of the Group. All results from financial management of the balance sheet are recorded in Spain, including the results from interest rate risk management. | |
The cost of issuances eligible as additional Tier 1 capital (AT1) made by Brazil and Mexico to replace common equity tier 1 (CET1) was recorded in the Corporate Center segment, as the issuances were made for capital optimization in these units. | Each country recognizes the cost related to its AT1 issuances. | |
The Corporate Center segment costs were charged to the countries/units; this measurement criteria has not changed in recent years. | The scope of costs allocated to the units from the Corporate Center segment are expanded. |
* ITR is a mechanism designed to help manage interest rate and liquidity risks, by isolating them from the business areas and centralizing them into the Financial Management Area in the Corporate Center. The main function of a transfer rate system is to set the price of the fund exchanges between business areas and the Corporate Centre. This price represents the true opportunity cost of the funds (raised or invested) and has to take into account the costs of all associated interest rate and liquidity risks. Whether it is a fund investment or a fund raising transaction, the different business areas obtain a spread over or under the current transfer rate, and that spread is used to analyze the results of these business areas.
2. The United States geographic segment is modified such that it continues to include the businesses of SHUSA (Santander Bank and SCUSA) and the commercial banking activity of Banco Santander Puerto Rico and in addition includes Banco Santander International and the Banks New York branch, units that were previously included in Latin America.
As required by CNMV Circular 1/2008, the detail, by the geographical areas indicated in the aforementioned Circular, of the balance of Interest and similar income for the six-month periods ended June 30, 2015 and 2014 is as follows:
Interest and similar income by geographical area (Millions of euros) |
||||||||
Consolidated | ||||||||
Geographical area |
06/30/15 | 06/30/14 | ||||||
Spain |
3,696 | 4,383 | ||||||
|
|
|
|
|||||
Abroad: |
||||||||
European Union |
7,161 | 6,546 | ||||||
OECD countries |
6,982 | 5,930 | ||||||
Other countries |
11,343 | 9,721 | ||||||
|
|
|
|
|||||
25,486 | 22,197 | |||||||
|
|
|
|
|||||
Total |
29,182 | 26,580 | ||||||
|
|
|
|
For Group management purposes, the primary level of segmentation, by geographical area, comprises five segments: four operating areas plus the Corporate Center. The operating areas, which include all the business activities carried on therein by the Group, are Continental Europe, the United Kingdom, Latin America and the United States, based on the location of the Groups assets.
Following is the breakdown of revenue by the geographical segments used by the Group. For the purposes of the table below, revenue is deemed to be that recognized under Interest and similar income, Income from equity
F-40
instruments, Fee and commission income, Gains/losses on financial assets and liabilities (net) and Other operating income in the accompanying condensed consolidated income statements for the six-month periods ended June 30, 2015 and 2014:
Revenue (Millions of euros) | ||||||||||||||||||||||||
Revenue from external customers |
Inter-segment revenue | Total revenue | ||||||||||||||||||||||
Segment |
06/30/15 | 06/30/14 | 06/30/15 | 06/30/14 | 06/30/15 | 06/30/14 | ||||||||||||||||||
Continental Europe |
7,785 | 11,033 | 495 | 33 | 8,280 | 11,066 | ||||||||||||||||||
United Kingdom |
5,609 | 4,994 | 130 | 357 | 5,739 | 5,351 | ||||||||||||||||||
Latin America |
17,328 | 15,896 | (262 | ) | (254 | ) | 17,066 | 15,642 | ||||||||||||||||
United States |
5,140 | 3,619 | 81 | 9 | 5,221 | 3,628 | ||||||||||||||||||
Corporate Center |
1,745 | 1,595 | 3,082 | 4,250 | 4,827 | 5,845 | ||||||||||||||||||
Inter-segment revenue adjustments and eliminations |
| | (3,526 | ) | (4,395 | ) | (3,526 | ) | (4,395 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
37,607 | 37,137 | | | 37,607 | 37,137 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Also, following is the reconciliation of the Groups consolidated operating profit/(loss) before tax for the six-month periods ended June 30, 2015 and 2014, broken down by business segment, to the operating profit/(loss) before tax per the condensed consolidated income statements for these periods:
Consolidated profit (Millions of euros) |
||||||||
Segment |
06/30/15 | 06/30/14 | ||||||
Continental Europe |
1,337 | 734 | ||||||
United Kingdom |
1,034 | 764 | ||||||
Latin America |
2,987 | 1,807 | ||||||
United States |
674 | 498 | ||||||
Corporate Center |
(956 | ) | (515 | ) | ||||
|
|
|
|
|||||
Total profit of the segments reported |
5,076 | 3,288 | ||||||
(+/-) Unallocated profit/loss |
| | ||||||
(+/-) Elimination of inter-segment profit/loss |
| | ||||||
(+/-) Other profit/loss |
| | ||||||
(+/-) Income tax and/or profit from discontinued operations |
765 | 1,948 | ||||||
|
|
|
|
|||||
Operating profit/(loss) before tax |
5,841 | 5,236 | ||||||
|
|
|
|
13. | Related party transactions |
The parties related to the Group are deemed to include, in addition to its subsidiaries, associates and jointly controlled entities, the Banks key management personnel (the members of its board of directors and the
F-41
executive vice presidents, together with their close family members) and the entities over which the key management personnel may exercise significant influence or control.
Following is a detail of the transactions performed by the Group with its related parties in the first six months of 2015 and 2014, distinguishing between significant shareholders, members of the Banks board of directors, the Banks executive vice presidents, Group entities and other related parties. Related party transactions were made on terms equivalent to those that prevail in arms-length transactions or, when this was not the case, the related compensation in kind was recognized:
Millions of euros | ||||||||||||||||||||
06/30/15 | ||||||||||||||||||||
Expenses and income |
Significant shareholders |
Directors and executives |
Group companies or entities |
Other related parties |
Total | |||||||||||||||
Expenses: |
||||||||||||||||||||
Finance costs |
| | 8 | | 8 | |||||||||||||||
Management or cooperation agreements |
| | | | | |||||||||||||||
R&D transfers and licensing agreements |
| | | | | |||||||||||||||
Leases |
| | | | | |||||||||||||||
Services received |
| | | | | |||||||||||||||
Purchases of goods (finished or in progress) |
| | | | | |||||||||||||||
Valuation adjustments for uncollectible or doubtful debts |
| | | | | |||||||||||||||
Losses on derecognition or disposal of assets |
| | | | | |||||||||||||||
Other expenses |
| | 9 | | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
| | 17 | | 17 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income: |
||||||||||||||||||||
Finance income |
| | 48 | 8 | 56 | |||||||||||||||
Management or cooperation agreements |
| | | | | |||||||||||||||
R&D transfers and licensing agreements |
| | | | | |||||||||||||||
Dividends received |
| | | | | |||||||||||||||
Leases |
| | | | | |||||||||||||||
Services rendered |
| | | | | |||||||||||||||
Sale of goods (finished or in progress) |
| | | | | |||||||||||||||
Gains on derecognition or disposal of assets |
| | | | | |||||||||||||||
Other income |
| | 391 | 6 | 397 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
| | 439 | 14 | 453 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Millions of euros | ||||||||||||||||||||
06/30/15 | ||||||||||||||||||||
Other transactions |
Significant shareholders |
Directors and executives |
Group companies or entities |
Other related parties |
Total | |||||||||||||||
Purchases of tangible, intangible or other assets |
| 2 | | | 2 | |||||||||||||||
Financing agreements: loans and capital contributions (lender) |
| 33 | 6,967 | 1,208 | 8,208 | |||||||||||||||
Finance leases (lessor) |
| | | | | |||||||||||||||
Repayment or termination of loans and leases (lessor) |
| | | | | |||||||||||||||
Sales of tangible, intangible or other assets |
| | | | | |||||||||||||||
Financing agreements: loans and capital contributions (borrower) |
| 34 | 1,132 | 69 | 1,235 | |||||||||||||||
Finance leases (lessee) |
| | | | | |||||||||||||||
Repayment or termination of loans and leases (lessee) |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Guarantees provided |
| | 38 | 173 | 211 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Guarantees received |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commitments acquired |
| 5 | 32 | 379 | 416 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commitments/guarantees cancelled |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Dividends and other distributed profit |
| 12 | | 42 | 54 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other transactions |
| | 4,229 | 1,496 | 5,725 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-42
Millions of euros | ||||||||||||||||||||
06/30/14 | ||||||||||||||||||||
Expenses and income |
Significant shareholders |
Directors and executives |
Group companies or entities |
Other related parties |
Total | |||||||||||||||
Expenses: |
||||||||||||||||||||
Finance costs |
| | 10 | 1 | 11 | |||||||||||||||
Management or cooperation agreements |
| | | | | |||||||||||||||
R&D transfers and licensing agreements |
| | | | | |||||||||||||||
Leases |
| | | | | |||||||||||||||
Services received |
| | | | | |||||||||||||||
Purchases of goods (finished or in progress) |
| | | | | |||||||||||||||
Valuation adjustments for uncollectible or doubtful debts |
| | | | | |||||||||||||||
Losses on derecognition or disposal of assets |
| | | | | |||||||||||||||
Other expenses |
| | 10 | | 10 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
| | 20 | 1 | 21 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income: |
||||||||||||||||||||
Finance income |
| | 43 | 3 | 46 | |||||||||||||||
Management or cooperation agreements |
| | | | | |||||||||||||||
R&D transfers and licensing agreements |
| | | | | |||||||||||||||
Dividends received |
| | | | | |||||||||||||||
Leases |
| | | | | |||||||||||||||
Services rendered |
| | | | | |||||||||||||||
Sale of goods (finished or in progress) |
| | | | | |||||||||||||||
Gains on derecognition or disposal of assets |
| | | | | |||||||||||||||
Other income |
| | 278 | 16 | 294 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
| | 321 | 19 | 340 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Millions of euros | ||||||||||||||||||||
06/30/14 | ||||||||||||||||||||
Other transactions |
Significant shareholders |
Directors and executives |
Group companies or entities |
Other related parties |
Total | |||||||||||||||
Purchases of tangible, intangible or other assets |
| | | | | |||||||||||||||
Financing agreements: loans and capital contributions (lender) |
| 31 | 6,654 | 617 | 7,302 | |||||||||||||||
Finance leases (lessor) |
| | | | | |||||||||||||||
Repayment or termination of loans and leases (lessor) |
| | | | | |||||||||||||||
Sales of tangible, intangible or other assets |
| | | | | |||||||||||||||
Financing agreements: loans and capital contributions (borrower) |
| 17 | 1,133 | 234 | 1,384 | |||||||||||||||
Finance leases (lessee) |
| | | | | |||||||||||||||
Repayment or termination of loans and leases (lessee) |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Guarantees provided |
| | 76 | 300 | 376 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Guarantees received |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commitments acquired |
| 3 | 604 | 82 | 689 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commitments/guarantees cancelled |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Dividends and other distributed profit |
| 9 | | 50 | 59 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other transactions |
| | 5,915 | 1,194 | 7,109 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
In addition to the detail provided above, there were insurance contracts linked to pensions amounting to EUR 337 million at June 30, 2015 (June 30, 2014: EUR 344 million).
F-43
14. | Average headcount |
The average number of employees at the Group and at the Bank, by gender, in the six-month periods ended June 30, 2015 and 2014 was as follows:
Average headcount |
Bank | Group | ||||||||||||||
06/30/15 | 06/30/14 | 06/30/15 | 06/30/14 | |||||||||||||
Men |
13,030 | 14,214 | 84,066 | 82,923 | ||||||||||||
Women |
10,155 | 10,286 | 103,302 | 100,950 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
23,185 | 24,500 | 187,368 | 183,873 | |||||||||||||
|
|
|
|
|
|
|
|
15. | Other disclosures: valuation techniques for financial assets and liabilities |
The following table shows a summary of the fair values, at June 30, 2015 and December 31, 2014, of the financial assets and liabilities indicated below, classified on the basis of the various measurement methods used by the Group to determine their fair value:
Millions of euros | ||||||||||||||||||||||||
06/30/15 | 12/31/14 | |||||||||||||||||||||||
Published price quotations in active markets |
Internal models |
Total | Published price quotations in active markets |
Internal models |
Total | |||||||||||||||||||
Financial assets held for trading |
70,523 | 80,678 | 151,201 | 67,319 | 81,569 | 148,888 | ||||||||||||||||||
Other financial assets at fair value through profit or loss |
3,594 | 33,651 | 37,245 | 3,670 | 39,003 | 42,673 | ||||||||||||||||||
Available-for-sale financial assets (1) |
97,651 | 29,726 | 127,377 | 90,149 | 23,455 | 113,604 | ||||||||||||||||||
Hedging derivatives (assets) |
127 | 5,980 | 6,107 | 26 | 7,320 | 7,346 | ||||||||||||||||||
Financial liabilities held for trading |
21,203 | 86,685 | 107,888 | 17,409 | 92,383 | 109,792 | ||||||||||||||||||
Other financial liabilities at fair value through profit or loss |
| 55,364 | 55,364 | | 62,317 | 62,317 | ||||||||||||||||||
Hedging derivatives (liabilities) |
334 | 9,752 | 10,086 | 226 | 7,029 | 7,255 | ||||||||||||||||||
Liabilities under insurance contracts |
| 648 | 648 | | 713 | 713 |
(1) | In addition to the financial instruments measured at fair value shown in the foregoing table, at June 30, 2015, the Group held equity instruments classified as available-for-sale financial assets and carried at cost amounting to EUR 1,658 million (December 31, 2014: EUR 1,646 million). |
Financial instruments at fair value, determined on the basis of published price quotations in active markets (Level 1), include government debt securities, private-sector debt securities, derivatives traded in organized markets, securitized assets, shares, short positions and fixed-income securities issued.
In cases where price quotations cannot be observed, management makes its best estimate of the price that the market would set, using its own internal models. In most cases, these internal models use data based on observable market parameters as significant inputs (Level 2) and, in very specific cases, they use significant inputs not observable in market data (Level 3). In order to make these estimates, various techniques are employed, including the extrapolation of observable market data. The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, unless the fair value of the instrument can be obtained from other market transactions performed with the same or similar instruments or can be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates.
F-44
The Group did not make any material transfers of financial instruments between one measurement level and another in the first six months of 2015.
The Group has developed a formal process for the systematic valuation and management of financial instruments, which has been implemented worldwide across all the Groups units. The governance scheme for this process distributes responsibilities between two independent divisions: Treasury (development, marketing and daily management of financial products and market data) and Risk (on a periodic basis, validation of pricing models and market data, computation of risk metrics, new transaction approval policies, management of market risk and implementation of fair value adjustment policies). The approval of new products follows a sequence of steps (request, development, validation, integration in corporate systems and quality assurance) before the product is brought into production. This process ensures that pricing systems have been properly reviewed and are stable before they are used.
The most important products and families of derivatives, and the related valuation techniques and inputs, by asset class, are detailed in the consolidated financial statements as at December 31, 2014. These valuations include the calculation of the valuation adjustment for counterparty risk or default risk (the CVA and DVA recognized at June 30, 2015 totaled EUR 654 million and EUR 280 million, respectively).
Set forth below are the financial instruments at fair value whose measurement was based on internal models (Levels 2 and 3) at June 30, 2015 and December 31, 2014:
F-45
Millions of euros | ||||||||||||||||||||
Fair values calculated using internal models at 06/30/15 |
Fair values calculated using internal models at 12/31/14 |
|||||||||||||||||||
Level 2 | Level 3 | Level 2 | Level 3 | Valuation techniques |
Main inputs | |||||||||||||||
ASSETS: |
147,593 | 2,442 | 148,760 | 2,587 | ||||||||||||||||
Financial assets held for trading |
79,707 | 971 | 80,378 | 1,191 | ||||||||||||||||
Loans and advances to credit institutions |
3,431 | | 1,815 | | Present Value Method |
Observable market data | ||||||||||||||
Loans and advances to customers (a) |
5,789 | | 2,921 | | Present Value Method |
Observable market data | ||||||||||||||
Debt and equity instruments |
1,334 | 68 | 1,768 | 85 | Present Value Method |
Observable market data, HPI | ||||||||||||||
Trading derivatives |
69,153 | 903 | 73,874 | 1,106 | ||||||||||||||||
Swaps |
49,024 | 70 | 55,794 | 116 | Present Value Method, Gaussian Copula (b) |
Observable market data, basis, liquidity | ||||||||||||||
Exchange rate options |
1,155 | | 1,000 | | Black-Scholes Model |
Observable market data, liquidity | ||||||||||||||
Interest rate options |
7,857 | 635 | 8,385 | 768 | Blacks Model, Heath-Jarrow-Morton Model |
Observable market data, liquidity, correlation | ||||||||||||||
Interest rate futures |
552 | | 132 | | Present Value Method |
Observable market data | ||||||||||||||
Index and securities options |
2,839 | 81 | 2,420 | 111 | Black-Scholes Model |
Observable market data, dividends, correlation, liquidity, HPI | ||||||||||||||
Other |
7,726 | 117 | 6,143 | 111 | Present Value Method, Monte Carlo simulation and other |
Observable market data and other | ||||||||||||||
Hedging derivatives |
5,975 | 5 | 7,320 | | ||||||||||||||||
Swaps |
5,466 | 5 | 7,058 | | Present Value Method |
Observable market data, basis | ||||||||||||||
Exchange rate options |
| | 40 | | Black-Scholes Model |
Observable market data | ||||||||||||||
Interest rate options |
25 | | 28 | | Blacks Model |
Observable market data | ||||||||||||||
Other |
484 | | 194 | | N/A |
N/A | ||||||||||||||
Other financial assets at fair value through profit or loss |
33,051 | 600 | 38,323 | 680 | ||||||||||||||||
Loans and advances to credit institutions |
21,086 | | 28,592 | | Present Value Method |
Observable market data | ||||||||||||||
Loans and advances to customers (c) |
11,223 | 84 | 8,892 | 78 | Present Value Method |
Observable market data, HPI | ||||||||||||||
Debt and equity instruments |
742 | 516 | 839 | 602 | Present Value Method |
Observable market data | ||||||||||||||
Available-for-sale financial assets |
28,860 | 866 | 22,739 | 716 | ||||||||||||||||
Debt and equity instruments |
28,860 | 866 | 22,739 | 716 | Present Value Method |
Observable market data | ||||||||||||||
LIABILITIES: |
152,116 | 333 | 161,890 | 552 | ||||||||||||||||
Financial liabilities held for trading |
86,372 | 313 | 91,847 | 536 | ||||||||||||||||
Deposits from central banks |
1,421 | | 2,041 | | Present Value Method |
Observable market data | ||||||||||||||
Deposits from credit institutions |
4,805 | | 5,531 | | Present Value Method |
Observable market data | ||||||||||||||
Customer deposits |
7,635 | | 5,544 | | Present Value Method |
Observable market data | ||||||||||||||
Trading derivatives |
71,475 | 313 | 76,644 | 536 | ||||||||||||||||
Swaps |
51,063 | 1 | 56,586 | 49 | Present Value Method, Gaussian Copula (b) |
Observable market data, basis, liquidity, HPI | ||||||||||||||
Exchange rate options |
1,155 | | 1,033 | | Black-Scholes Model |
Observable market data, liquidity | ||||||||||||||
Interest rate options |
8,904 | 183 | 9,816 | 294 | Blacks Model, Heath-Jarrow-Morton Model |
Observable market data, liquidity, correlation | ||||||||||||||
Index and securities options |
3,472 | 129 | 3,499 | 193 | Black-Scholes Model |
Observable market data, dividends, correlation, liquidity, HPI | ||||||||||||||
Interest rate and equity futures |
485 | | 165 | | Present Value Method |
Observable market data | ||||||||||||||
Other |
6,396 | | 5,545 | | Present Value Method, Monte Carlo simulation and other |
Observable market data and other | ||||||||||||||
Short positions |
1,036 | | 2,087 | | Present Value Method |
Observable market data | ||||||||||||||
Hedging derivatives |
9,745 | 7 | 7,029 | | ||||||||||||||||
Swaps |
9,087 | 7 | 6,901 | | Present Value Method |
Observable market data, basis | ||||||||||||||
Exchange rate options |
| | 2 | | Black-Scholes Model |
Observable market data | ||||||||||||||
Interest rate options |
12 | | 14 | | Blacks Model |
Observable market data | ||||||||||||||
Other |
646 | | 112 | | N/A |
N/A | ||||||||||||||
Other financial liabilities at fair value through profit or loss |
55,351 | 13 | 62,301 | 16 | Present Value Method |
Observable market data | ||||||||||||||
Liabilities under insurance contracts |
648 | | 713 | | Present Value Method |
(a) | Includes mainly short-term loans and reverse repurchase agreements with corporate customers (mainly brokerage and investment companies). |
(b) | Includes credit risk derivatives with a positive net fair value of EUR 73 million recognized in the consolidated balance sheet. These assets and liabilities are measured using the Standard Gaussian Copula Model. |
(c) | Includes home mortgage loans to financial institutions in the UK (which are regulated and partly financed by the Government). The fair value of these loans was obtained using observable market variables, including current market transactions with similar amounts and collateral facilitated by the UK Housing Association. Since the Government is involved in these financial institutions, the credit risk spreads have remained stable and are homogeneous in this sector. The results arising from the valuation model are checked against current market transactions. |
F-46
The measurements obtained using the internal models might have been different had other methods or assumptions been used with respect to interest rate risk, to credit risk, market risk and foreign currency risk spreads, or to their related correlations and volatilities. Nevertheless, the Banks directors consider that the fair value of the financial assets and liabilities recognized in the consolidated balance sheet and the gains and losses arising from these financial instruments are reasonable.
The net loss recognized in the income statement for the first six months of 2015 arising from the aforementioned valuation models amounted to EUR 339 million, of which a loss of EUR 104 million related to models whose significant inputs are unobservable market data.
Level 3 financial instruments
Set forth below are the Groups main financial instruments measured using unobservable market data that constitute significant inputs of the internal models (Level 3):
| Instruments in Santander UKs portfolio (loans, debt instruments and derivatives) linked to the House Price Index (HPI). Even if the valuation techniques used for these instruments may be the same as those used to value similar products (present value in the case of loans and debt instruments, and the Black-Scholes model for derivatives), the main factors used in the valuation of these instruments are the HPI spot rate, the growth rate of that rate, its volatility and mortality rates, which are not always observable in the market and, accordingly, these instruments are considered illiquid. |
| The HPI spot rate: for some instruments the NSA HPI spot rate, which is directly observable and published on a monthly basis, is used. For other instruments where regional HPI rates must be used (published quarterly), adjustments are made to reflect the different composition of the rates and adapt them to the regional composition of Santander UKs portfolio. |
| HPI growth rate: this is not always directly observable in the market, especially for long maturities, and is estimated in accordance with existing quoted prices. To reflect the uncertainty implicit in these estimates, adjustments are made based on an analysis of the historical volatility of the HPI, incorporating reversion to the mean. |
| HPI volatility: the long-term volatility is not directly observable in the market but is estimated on the basis of more short-term quoted prices and by making an adjustment to reflect the existing uncertainty, based on the standard deviation of historical volatility over various time periods. |
| Mortality rates: these are based on published official tables and adjusted to reflect the composition of the customer portfolio for this type of product at Santander UK. |
| Illiquid CDOs and CLOs in the portfolio of the treasury unit in Madrid. These are measured by grouping together the securities by type of underlying (sector/country), payment hierarchy (prime, mezzanine, junior, etc.), and assuming forecast conditional prepayment rates (CPR) and default rates, adopting conservative criteria. |
| Trading derivatives on baskets of shares. These are measured using advanced local and stochastic volatility models, using Monte Carlo simulations; the main unobservable input is the correlation between the prices of the shares in each basket in question. |
| Callable interest rate trading derivatives (Bermudan-style options) where the main unobservable input is mean reversion of interest rates. |
The table below shows the effect, at June 30, 2015, on the fair value of the main financial instruments classified as Level 3 of a reasonable change in the assumptions used in the valuation. This effect was determined by applying the probable valuation ranges of the main unobservable inputs detailed in the following table:
F-47
Portfolio/Instrument |
Valuation technique |
Main unobservable inputs |
Range | Weighted average |
Impacts (in millions of euros) | |||||||||||||
(Level 3) |
Unfavorable scenario |
Favorable scenario |
||||||||||||||||
Financial assets held for trading |
||||||||||||||||||
Debt instruments |
Partial differential equations |
Long-term volatility |
27%-41% | 30.77 | % | (0.9 | ) | 0.3 | ||||||||||
Trading derivatives |
Present Value Method |
Curves on TAB indices (*) |
(a) | (a) | (2.3 | ) | 2.3 | |||||||||||
Present Value Method, Modified Black-Scholes Model |
HPI forward growth rate |
0%-5% | 2.7 | % | (46 | ) | 39 | |||||||||||
Present Value Method, Modified Black-Scholes Model |
HPI spot rate |
n/a | 637 | (**) | (13 | ) | 13 | |||||||||||
Gaussian Copula model |
Probability of default |
0%-5% | 2.38 | % | (11 | ) | 10 | |||||||||||
Advanced local and stochastic volatility models |
Correlation between share prices |
55%-75% | 65 | % | (9.1 | ) | 9.1 | |||||||||||
Advanced multi-factor interest rate models |
Mean reversion of interest rates |
0.0001-0.03 | 0.01 | (***) | | 39.1 | ||||||||||||
Hedging derivatives (assets) |
Advanced multi-factor interest rate models |
Mean reversion of interest rates |
0.0001-0.03 | 0.03 | (0.1 | ) | | |||||||||||
Other financial assets at fair value through profit or loss |
||||||||||||||||||
Loans and advances to customers |
Weighted average by probability (according to forecast mortality rates) of European HPI options, using the Black-Scholes model |
HPI forward growth rate |
0%-5% | 2.8 | % | (8 | ) | 6 | ||||||||||
Debt and equity instruments |
Weighted average by probability (according to forecast mortality rates) of HPI forwards, using the present value model |
HPI forward growth rate |
0%-5% | 2.7 | % | (61 | ) | 52 | ||||||||||
Weighted average by probability (according to forecast mortality rates) of HPI forwards, using the present value model |
HPI spot rate |
n/a | 637 | (**) | (34 | ) | 37 | |||||||||||
Available-for-sale financial assets |
||||||||||||||||||
Debt and equity instruments |
Present Value Method, others |
Non-performing loans and prepayment ratios, cost of capital, long-term earnings growth rate, long-term estimated dividends; valuation multipliers |
(a) | (a) | (1.3 | ) | 1.3 | |||||||||||
Financial liabilities held for trading |
||||||||||||||||||
Trading derivatives |
Present Value Method, Modified Black-Scholes Model |
HPI forward growth rate |
0%-5% | 2.4 | % | (15 | ) | 13 | ||||||||||
Present Value Method, Modified Black-Scholes Model |
HPI spot rate |
n/a | 615 | (**) | (14 | ) | 13 | |||||||||||
Present Value Method, Modified Black-Scholes Model |
Curves on TAB indices (*) |
(a) | (a) | | | |||||||||||||
Advanced local and stochastic volatility models |
Correlation between share prices |
55%-75% | 65 | % | (b) | (b) | ||||||||||||
Advanced multi-factor interest rate models |
Mean reversion of interest rates |
0.0001-0.03 | 0.01 | (***) | (b) | (b) | ||||||||||||
Hedging derivatives (liabilities) |
Advanced multi-factor interest rate models |
Mean reversion of interest rates |
0.0001-0.03 | 0.03 | (0.1 | ) | | |||||||||||
Other liabilities at fair value through profit or loss |
| | | | (b) | (b) |
(*) | TAB: Tasa Activa Bancaria (Active Bank Rate). Average deposit interest rates (over 30, 90, 180 and 360 days) published by the Chilean Association of Banks and Financial Institutions (ABIF) in nominal currency (Chilean peso) and in real terms, adjusted for inflation (Unidad de Fomento - UF). |
(**) | There are national and regional HPI indices. The HPI spot value is the weighted average of the indices that correspond to the positions of each portfolio. The impact reported is a change of 10%. |
(***) | Theoretical average value of the parameter. The change arising on a favorable scenario is from 0.0001 to 0.03. An unfavorable scenario is not considered as there is insufficient margin for an adverse change from the current parameter level. The Group is also exposed, to a lesser extent, to this type of derivative in currencies other than the euro and, therefore, both the average and the range of the unobservable inputs are different. The impact in an unfavorable scenario would be losses of EUR -5.6 million. |
(a) | The exercise was conducted for the unobservable inputs described in the Main unobservable inputs column under probable scenarios. The range and weighted average value used are not shown because the aforementioned exercise was conducted jointly for various inputs or variants thereof (e.g. the TAB input comprises vector-time curves, for which there are also nominal yield curves and inflation-indexed yield curves), and it was not possible to break down the results separately by type of input. In the case of the TAB curve the gain or loss is reported for changes of +/-100 b.p. for the total sensitivity to this index in Chilean pesos and UFs. |
(b) | The Group calculates the potential impact on the measurement of each instrument on a joint basis, regardless of whether the individual value is positive (assets) or negative (liabilities), and discloses the joint effect associated with the related instruments classified on the asset side of the consolidated balance sheet. |
F-48
Lastly, the changes in the financial instruments classified as Level 3 in the first half of 2015 were as follows:
12/31/14 | Changes | 06/30/15 | ||||||||||||||||||||||||||||||||||||||||||
Millions of euros |
Fair value calculated using internal models (Level 3) |
Purchases | Sales | Issues | Settlements | Changes in fair value recognized in profit or loss (unrealized) |
Changes in fair value recognized in profit or loss (realized) |
Changes in fair value recognized in equity |
Level reclassifications |
Other | Fair value calculated using internal models (Level 3) |
|||||||||||||||||||||||||||||||||
Financial assets held for trading |
1,191 | | (216 | ) | | | (34 | ) | 2 | | | 28 | 971 | |||||||||||||||||||||||||||||||
Debt and equity instruments |
85 | | (21 | ) | | | (3 | ) | 4 | | | 3 | 68 | |||||||||||||||||||||||||||||||
Trading derivatives |
1,106 | | (195 | ) | | | (31 | ) | (2 | ) | | | 25 | 903 | ||||||||||||||||||||||||||||||
Swaps |
116 | | (60 | ) | | | 6 | (2 | ) | | | 10 | 70 | |||||||||||||||||||||||||||||||
Interest rate options |
768 | | (100 | ) | | | (32 | ) | | | | (1 | ) | 635 | ||||||||||||||||||||||||||||||
Index and securities options |
111 | | (32 | ) | | | (1 | ) | | | | 3 | 81 | |||||||||||||||||||||||||||||||
Other |
111 | (3 | ) | | | (4 | ) | | | | 13 | 117 | ||||||||||||||||||||||||||||||||
Hedging derivatives |
| | | | | (14 | ) | | | 17 | 2 | 5 | ||||||||||||||||||||||||||||||||
Swaps |
| | | | | (14 | ) | | | 17 | 2 | 5 | ||||||||||||||||||||||||||||||||
Other financial assets at fair value through profit or loss |
680 | 1 | (19 | ) | | | (45 | ) | | | | (17 | ) | 600 | ||||||||||||||||||||||||||||||
Loans and advances to customers |
78 | | | | | | | | | 6 | 84 | |||||||||||||||||||||||||||||||||
Debt and equity instruments |
602 | 1 | (19 | ) | | | (45 | ) | | | | (23 | ) | 516 | ||||||||||||||||||||||||||||||
Available-for-sale financial assets |
716 | 2 | (69 | ) | | (8 | ) | | | 13 | 199 | 13 | 866 | |||||||||||||||||||||||||||||||
TOTAL ASSETS |
2,587 | 3 | (304 | ) | | (8 | ) | (93 | ) | 2 | 13 | 216 | 26 | 2,442 | ||||||||||||||||||||||||||||||
Financial liabilities held for trading |
536 | 3 | (246 | ) | | | 17 | | | | 3 | 313 | ||||||||||||||||||||||||||||||||
Trading derivatives |
536 | 3 | (246 | ) | | | 17 | | | | 3 | 313 | ||||||||||||||||||||||||||||||||
Swaps |
49 | | (49 | ) | | | | | | | 1 | 1 | ||||||||||||||||||||||||||||||||
Interest rate options |
294 | | (140 | ) | | | 33 | | | | (4 | ) | 183 | |||||||||||||||||||||||||||||||
Index and securities options |
193 | 3 | (57 | ) | | | (16 | ) | | | | 6 | 129 | |||||||||||||||||||||||||||||||
Hedging derivatives |
| | | | | (1 | ) | | | 5 | 3 | 7 | ||||||||||||||||||||||||||||||||
Swaps |
| | | | | (1 | ) | | | 5 | 3 | 7 | ||||||||||||||||||||||||||||||||
Other financial liabilities at fair value through profit or loss |
16 | | (3 | ) | | | (3 | ) | | | | 3 | 13 | |||||||||||||||||||||||||||||||
TOTAL LIABILITIES |
552 | 3 | (249 | ) | | | 13 | | | 5 | 9 | 333 |
F-49
16. | Other disclosures |
This Note includes relevant information about additional disclosure requirements.
16.1 | Parent company financial statements |
Following are the summarized balance sheets of Banco Santander, S.A. as of June 30, 2015 (unaudited) and December 31, 2014. In the financial statements of the Parent, investments in subsidiaries, jointly controlled entities and associates are recorded at cost.
June 30, 2015 | December 31, 2014 | |||||||
UNAUDITED CONDENSED BALANCE SHEETS (Parent company only) |
(Millions of Euros) | |||||||
Assets |
||||||||
Cash and due from banks |
57,372 | 54,238 | ||||||
Of which: |
||||||||
To bank subsidiaries |
11,416 | 7,911 | ||||||
Trading account assets |
78,063 | 83,116 | ||||||
Investment securities |
60,804 | 58,428 | ||||||
Of which: |
||||||||
To bank subsidiaries |
13,666 | 14,164 | ||||||
To non-bank subsidiaries |
5,890 | 6,469 | ||||||
Net Loans and leases |
207,641 | 203,239 | ||||||
Of which: |
||||||||
To non-bank subsidiaries |
36,981 | 35,139 | ||||||
Investment in affiliated companies |
82,197 | 80,275 | ||||||
Of which: |
||||||||
To bank subsidiaries |
69,527 | 68,135 | ||||||
To non-bank subsidiaries |
12,670 | 12,140 | ||||||
Premises and equipment, net |
1,776 | 1,770 | ||||||
Other assets |
18,085 | 15,737 | ||||||
|
|
|
|
|||||
Total assets |
505,938 | 496,802 | ||||||
Liabilities |
||||||||
Deposits |
281,221 | 258,306 | ||||||
Of which: |
||||||||
To bank subsidiaries |
19,063 | 14,770 | ||||||
To non-bank subsidiaries |
48,233 | 50,662 | ||||||
Short-term debt |
38,148 | 48,645 | ||||||
Long-term debt |
42,108 | 48,596 | ||||||
Total debt |
80,256 | 97,241 | ||||||
Of which: |
||||||||
To bank subsidiaries |
168 | 1,397 | ||||||
To non-bank subsidiaries |
16,105 | 14,160 | ||||||
Other liabilities |
86,251 | 89,306 | ||||||
|
|
|
|
|||||
Total liabilities |
447,727 | 444,853 | ||||||
Stockholders equity |
||||||||
Capital stock |
7,158 | 6,292 | ||||||
Retained earnings and other reserves |
51,053 | 45,657 | ||||||
|
|
|
|
|||||
Total stockholders equity |
58,211 | 51,949 | ||||||
Total liabilities and Stockholders Equity |
505,938 | 496,802 |
F-50
Following are the summarized unaudited statements of income of Banco Santander, S.A. for the periods ended June 30, 2015 and 2014.
UNAUDITED CONDENSED STATEMENTS OF INCOME (Parent company only) |
Six months ended June 30, 2015 |
Six months ended June 30, 2014 |
||||||
(Millions of Euros) | ||||||||
Interest income |
||||||||
Interest from earning assets |
3,708 | 4,266 | ||||||
Dividends from affiliated companies |
1,485 | 1,147 | ||||||
Of which: |
||||||||
From bank subsidiaries |
1,231 | 1,124 | ||||||
From non-bank subsidiaries |
254 | 23 | ||||||
5,193 | 5,414 | |||||||
Interest expense |
(1,925 | ) | (2,782 | ) | ||||
Interest income / (Charges) |
3,268 | 2,632 | ||||||
Provision for credit losses |
(749 | ) | (1,001 | ) | ||||
Interest income / (Charges) after provision for credit losses |
2,519 | 1,630 | ||||||
Non-interest income: |
1,437 | 3,120 | ||||||
Non-interest expense: |
(2,980 | ) | (4,147 | ) | ||||
Income before income taxes |
976 | 604 | ||||||
Income tax expense |
22 | 3 | ||||||
Net income |
998 | 607 |
F-51
UNAUDITED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Parent company only) |
Six months ended June 30, 2015 |
Six months ended June 30, 2014 |
||||||
(Millions of Euros) | ||||||||
NET INCOME |
998 | 607 | ||||||
OTHER COMPREHENSIVE INCOME |
(621 | ) | 8 | |||||
Items that may be reclassified subsequently to profit or loss |
||||||||
Available-for-sale financial assets: |
(890 | ) | 354 | |||||
Revaluation gains/(losses) |
(674 | ) | 1,363 | |||||
Amounts transferred to income statement |
(216 | ) | (1,009 | ) | ||||
Other reclassifications |
| | ||||||
Cash flow hedges: |
83 | (134 | ) | |||||
Revaluation gains/(losses) |
83 | (134 | ) | |||||
Amounts transferred to income statement |
| | ||||||
Amounts transferred to initial carrying amount of hedged items |
| | ||||||
Other reclassifications |
| | ||||||
Hedges of net investments in foreign operations: |
(1 | ) | (68 | ) | ||||
Revaluation gains/(losses) |
(1 | ) | (68 | ) | ||||
Amounts transferred to income statement |
| | ||||||
Other reclassifications |
| | ||||||
Exchange differences: |
| | ||||||
Non-current assets held for sale: |
| | ||||||
Actuarial gains/(losses) on pension plans |
(79 | ) | (140 | ) | ||||
Other comprehensive income |
| | ||||||
Income tax |
266 | (4 | ) | |||||
Items that will not be reclassified to profit or loss: |
||||||||
Actuarial gains/(losses) on pension plans |
| | ||||||
Income tax |
| | ||||||
TOTAL COMPREHENSIVE INCOME |
377 | 615 |
F-52
UNAUDITED CONDENSED CASH FLOW STATEMENTS (Parent company only) |
Six months ended June 30, 2015 |
Six months ended June 30, 2014 |
||||||
(Millions of Euros) | ||||||||
1. Cash flows from operating activities |
||||||||
Consolidated profit |
998 | 607 | ||||||
Adjustments to profit |
2,032 | (892 | ) | |||||
Net increase/decrease in operating assets |
(13,574 | ) | 3,629 | |||||
Net increase/decrease in operating liabilities |
8,181 | 2,287 | ||||||
Reimbursements/payments of income tax |
335 | 906 | ||||||
Total net cash flows from operating activities (1) |
(2,028 | ) | 6,537 | |||||
2. Cash flows from investing activities |
||||||||
Investments (-) |
(501 | ) | (5,945 | ) | ||||
Divestments (+) |
151 | 327 | ||||||
Total net cash flows from investment activities (2) |
(350 | ) | (5,618 | ) | ||||
3. Cash flows from financing activities |
||||||||
Issuance of own equity instruments |
7,500 | | ||||||
Disposal of own equity instruments |
1,474 | 1,299 | ||||||
Acquisition of own equity instruments |
(1,517 | ) | (1,398 | ) | ||||
Issuance of debt securities |
1,478 | 2,598 | ||||||
Redemption of debt securities |
(61 | ) | (29 | ) | ||||
Dividends paid |
(672 | ) | (438 | ) | ||||
Issuance/Redemption of equity instruments |
| | ||||||
Other collections/payments related to financing activities |
(207 | ) | (13 | ) | ||||
Total net cash flows from financing activities (3) |
7,995 | 2,019 | ||||||
4. Effect of exchange rate changes on cash and cash equivalents (4) |
(381 | ) | (63 | ) | ||||
5. Net increase/decrease in cash and cash equivalents (1+2+3+4) |
5,236 | 2,875 | ||||||
Cash and cash equivalents at beginning of period |
7,025 | 10,929 | ||||||
Cash and cash equivalents at end of period |
12,261 | 13,804 |
F-53
16.2 | Preference Shares and Preferred Securities |
The following table shows the balance of the preference shares and preferred securities as of June 30, 2015 and December 31, 2014:
June 30, 2015 | December 31, 2014 | |||||||
(Millions of Euros) | ||||||||
Preference shares |
1,358 | 739 | ||||||
Preferred securities |
6,639 | 6,239 | ||||||
|
|
|
|
|||||
Total at period-end |
7,997 | 6,978 | ||||||
|
|
|
|
Both Preference Shares and Preferred Securities are recorded under the Financial liabilities at amortized cost Subordinated Liabilities caption in the consolidated balance sheet as of June 30, 2015 and December 31, 2014.
Preference Shares include the financial instruments issued by the consolidated companies which, although equity for legal purposes, do not meet the requirements for classification as equity in the financial statements. These shares do not carry any voting rights and are non-cumulative. They were subscribed to by non-Group third parties except for the shares of Santander UK amounting to GBP 200 million, are redeemable at the discretion of the issuer, based on the conditions of the issuer. None of these issues are convertible into Bank shares or granted privileges or right which, in certain circumstances, make them convertibles into shares.
On March 5, May 8 and September 2, 2014, Banco Santander, S.A. announced that its executive committee had resolved to launch issues of preference shares contingently convertible into newly issued ordinary shares of the Bank (CCPSs) for a nominal amount of EUR 1,500 million, USD 1,500 million and EUR 1,500 million. The interest, payment of which is subject to certain conditions and is discretionary, was set at 6.25% per annum for the first five years (to be reprised thereafter by applying a 541 basis-point spread to the 5-year Mid-Swap Rate) for the March issue, at 6.375% per annum for the first five years (to be reprised thereafter by applying a 478.8 basis-point spread to the 5-year Mid-Swap Rate) for the May issue and at 6.25% per annum for the first seven years (to be reprised every five years thereafter by applying a 564 basis-point spread to the 5-year Mid-Swap Rate) for the September issue.
On March 25, 2014, May 28 and September 30, the Bank of Spain confirmed that the CCPSs were eligible as Additional Tier 1 capital under the new European capital requirements of Regulation (EU) No 575/2013. The CCPSs are perpetual, although they may be redeemed early in certain circumstances and would convert into newly issued ordinary shares of Banco Santander if the Common Equity Tier 1 ratio of the Bank or its consolidated group fell below 5.125%, calculated in accordance with Regulation (EU) No 575/2013. The CCPSs are traded on the Global Exchange Market of the Irish Stock Exchange.
Furthermore, on January 29, 2014, Banco Santander (Brasil), S.A. launched an issue of Tier 1 perpetual subordinated notes for a nominal amount of USD 1,248 million, of which the Group has acquired 89.6%. The notes are perpetual and would convert into ordinary shares of Banco Santander (Brasil), S.A. if the Common Equity Tier 1 ratio, calculated as established by the Central Bank of Brazil, were to fall below 5.125%.
This category includes non-cumulative preferred non-voting shares issued by Santander UK plc, Santander UK Group Holdings Limited, Santander Holdings USA, Inc., Santander Bank, National Association and Santander Holdings, Ltd.
For the purposes of payment priority, Preferred Securities are junior to all general creditors and to subordinated deposits. The payment of dividends on these securities, which have no voting rights, is conditional upon the obtainment of sufficient distributable profit and upon the limits imposed by Spanish banking regulations on equity.
This category includes non-cumulative preferred non-voting securities issued by Santander Finance Capital, S.A. (Unipersonal), Santander Finance Preferred, S.A. (Unipersonal), and Santander International Preferred, S.A. (Sociedad Unipersonal), guaranteed by the Bank. It also includes non-cumulative preferred non-voting securities issued by Banco Santander, S.A., Banco Santander, (Brasil), S.A. and Santander UK Group.
F-54
Preference shares and preferred securities are perpetual securities and there is no obligation that requires the Group to redeem them. All securities have been fully subscribed by third parties outside the Group. In the consolidated balance sheets, these securities are shown net of any temporary transactions relating to liquidity guarantees, and are described in the table below:
Outstanding at June 30, 2015 | ||||||||||
Preference Shares |
Amount in currency (million) |
Interest rate | Redemption Option (1) | |||||||
Issuer/Date of issue |
Currency | |||||||||
Banesto Holding, Ltd, December 1992 |
US Dollar | 1.3 | 10.50% | June 30, 2012 | ||||||
Santander UK plc, October 1995 |
Pounds Sterling | 80.3 | 10.375% | No option | ||||||
Santander UK plc, February 1996 |
Pounds Sterling | 80.3 | 10.375% | No option | ||||||
Santander UK plc, March 2004 |
Pounds Sterling | 6.5 | 5.827% | March 22, 2016 | ||||||
Santander UK plc, May 2006 |
Pounds Sterling | 13.8 | 6.222% (2) | May 24, 2019 | ||||||
Santander UK Group Holdings plc, June 2015 |
Pounds Sterling | 650.0 | 7.375% | No option | ||||||
Santander Bank, National Association, August 2000 |
US Dollar | 153.0 | 12.000% | May 16, 2020 | ||||||
Santander Holdings USA, Inc., May 2006 (*) |
US Dollar | 75.5 | 7.300% | May 15, 2011 | ||||||
Outstanding at June 30, 2015 | ||||||||||
Preferred Securities |
Amount in currency (million) |
Interest rate | Maturity date | |||||||
Issuer/Date of issue |
Currency | |||||||||
Banco Santander, S.A. |
||||||||||
Banco Español de Crédito, October 2004 |
Euro | 36.5 | CMS 10 + 0.125% | Perpetuity | ||||||
Banco Español de Crédito (1), November 2004 |
Euro | 106.5 | 5.5% | Perpetuity | ||||||
March 2014 |
Euro | 1,500.0 | 6.25% (3) | Perpetuity | ||||||
May 2014 |
US Dollar | 1,500.0 | 6.375% (4) | Perpetuity | ||||||
September 2014 |
Euro | 1,500.0 | 6.250% (5) | Perpetuity | ||||||
Santander Finance Capital, S.A. (Unipersonal) |
||||||||||
March 2009 |
US Dollar | 18.2 | 2.0% | Perpetuity | ||||||
March 2009 |
US Dollar | 25.0 | 2.0% | Perpetuity | ||||||
March 2009 |
Euro | 309.6 | 2.0% | Perpetuity | ||||||
March 2009 |
Euro | 153.4 | 2.0% | Perpetuity | ||||||
Santander Finance Preferred, S.A. (Unipersonal) |
||||||||||
March 2004 (*) |
US Dollar | 89.3 | 6.41% | Perpetuity | ||||||
September 2004 |
Euro | 144.0 | CMS 10 +0.05% subject to a maximum distribution of 8% per annum |
Perpetuity | ||||||
October 2004 |
Euro | 155.0 | 5.75% | Perpetuity | ||||||
November 2006 (*) |
US Dollar | 161.8 | 6.80% | Perpetuity | ||||||
January 2007 (*) |
US Dollar | 109.5 | 6.50% | Perpetuity | ||||||
March 2007 (*) |
US Dollar | 210.4 | US3M + 0.52% | Perpetuity | ||||||
July 2007 |
Pounds Sterling | 4.9 | 7.01% | Perpetuity | ||||||
Santander International Preferred S.A. (Sociedad Unipersonal) |
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March 2009 |
US Dollar | 979.7 | 2.00% | Perpetuity | ||||||
March 2009 |
Euro | 8.6 | 2.00% | Perpetuity | ||||||
Santander UK Group |
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Abbey National Plc, February 2001(6) |
Pounds Sterling | 39.5 | 7.037% | Perpetuity | ||||||
Abbey National Plc, August 2002 |
Pounds Sterling | 1.8 | Fixed to 6.984% until February 9, 2018, and thereafter, at a rate reset semi-annually of 1.86% per annum + Libor GBP (6M) |
Perpetuity | ||||||
Banco Santander (Brasil), S.A. |
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January 2014 |
US Dollar | 129.6 | 7.38% | October 29, 2049 |
F-55
(1) | From these dates the issuer can redeem the shares, subject to prior authorization by the national supervisor. |
(2) | That issuance is a Fixed/Floating Rate Non-Cumulative Callable Preference Shares. Dividends will accrue on a principal amount equal to £1,000 per Preference Share at a rate of 6.222 per cent. per annum in respect of the period from (and including) May 24, 2006 (the Issue Date) to (but excluding) May 24, 2019 (the First Call Date) and thereafter at a rate reset quarterly equal to 1.13 per cent. per annum above the London interbank offered rate for three-month sterling deposits. From (and including) the Issue Date to (but excluding) the First Call Date, dividends, if declared, will be paid annually in arrears on May 24, in each year. Subject as provided herein, the first such dividend payment date will be May 24, 2007 and the last such dividend payment date will be the First Call Date. From (and including) the First Call Date, dividends, if declared, will be paid quarterly in arrears on May 24, August 24, November 24 and February 24, in each year. Subject as provided herein, the first such dividend payment date will be August 24, 2019. |
(3) | Payment is subject to certain conditions and to the discretion of the Bank. The 6.25% interest rate is set for the first five years. After that, it will be reviewed by applying a margin of 541 basis points on the five-year Mid-Swap Rate. |
(4) | Payment is subject to certain conditions and to the discretion of the Bank. The 6.375% interest rate is set for the first five years. After that, it will be reviewed by applying a margin of 478.8 basis points on the five-year Mid-Swap Rate. |
(5) | Payment is subject to certain conditions and to the discretion of the Bank. The 6.25% interest rate is set for the first five years. After that, it will be reviewed by applying a margin of 564 basis points on the five-year Mid-Swap Rate. |
(6) | From February 14, 2026, this issue will bear interest at a rate, reset every five years, of 3.75% per annum above the gross redemption yield on a five-year specified United Kingdom government security. |
(*) | Listed in the U.S. |
In accordance with Reg. S-X Rule 3-10, financial statements of guarantors and issuers of guaranteed securities registered or being registered, Santander Finance Preferred, S.A. (Unipersonal), Santander Finance Capital, S.A. (Unipersonal), Santander International Preferred, S.A. (Unipersonal), Santander US Debt, S.A. Unipersonal and Santander Issuances, S.A. Unipersonal, do not file the financial statements required for a registrant by Regulation S-X as:
| Santander Finance Preferred, S.A. (Unipersonal) is 100% owned finance subsidiary of Banco Santander, S.A. that fully and unconditionally guarantees the preferred securities (Series 1, 4, 5 and 6 are listed in the United States). No other subsidiary of the Bank guarantees such securities. |
| Santander Finance Capital, S.A. (Unipersonal) is 100% owned finance subsidiary of Banco Santander, S.A. that fully and unconditionally guarantees the preferred securities (not listed in the United States). No other subsidiary of the Bank guarantees such securities. |
| Santander International Preferred, S.A. (Unipersonal) is 100% owned finance subsidiary of Banco Santander, S.A. that fully and unconditionally guarantees the preferred securities (not listed in the United States). No other subsidiary of the Bank guarantees such securities. |
| Santander US Debt, S.A. Unipersonal is 100% owned finance subsidiary of Banco Santander, S.A. The senior debt is fully and unconditionally guaranteed by Banco Santander, S.A. (not listed in the United States). No other subsidiary of the Bank guarantees such securities. |
| Santander Issuances, S.A. Unipersonal is 100% owned finance subsidiary of Banco Santander, S.A. The subordinated debt is fully and unconditionally guaranteed by Banco Santander, S.A. (not listed in the United States). No other subsidiary of the Bank guarantees such securities. |
F-56
Exhibit I
(Millions of Euros) | Year ended December 31, | |||||||||||||||||||||||||||||||
June 30, 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||
IFRS: |
Including interest on deposits |
Excluding interest on deposits |
Including interest on deposits |
Excluding interest on deposits |
Including interest on deposits |
Excluding interest on deposits |
Including interest on deposits |
Excluding interest on deposits |
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FIXED CHARGES: |
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Fixed charges and preferred stock dividends |
12,094 | 6,124 | 24,799 | 11,953 | 25,162 | 10,499 | 28,466 | 11,903 | ||||||||||||||||||||||||
Preferred dividends |
47 | 47 | 126 | 126 | 112 | 112 | 132 | 132 | ||||||||||||||||||||||||
Fixed charges |
12,047 | 6,077 | 24,673 | 11,827 | 25,050 | 10,387 | 28,334 | 11,771 | ||||||||||||||||||||||||
EARNINGS: |
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Income from continuing operations before taxes and extraordinary items |
5,841 | 5,841 | 10,679 | 10,679 | 7,378 | 7,378 | 3,565 | 3,565 | ||||||||||||||||||||||||
Less: Earnings from associated companies |
200 | 200 | 65 | 65 | 197 | 197 | 427 | 427 | ||||||||||||||||||||||||
Fixed charges |
12,047 | 6,077 | 24,673 | 11,827 | 25,050 | 10,387 | 28,334 | 11,771 | ||||||||||||||||||||||||
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Total earnings |
17,688 | 11,718 | 35,287 | 22,441 | 32,231 | 17,568 | 31,472 | 14,909 | ||||||||||||||||||||||||
Ratio of earnings to fixed charges |
1.47 | 1.93 | 1.43 | 1.90 | 1.29 | 1.69 | 1.11 | 1.27 | ||||||||||||||||||||||||
Ratio of earnings to combined fixed charges and preferred stock dividends |
1.46 | 1.91 | 1.42 | 1.88 | 1.28 | 1.67 | 1.11 | 1.25 |
F-57
1 Year Banco Santander Chart |
1 Month Banco Santander Chart |
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