Diapositiva 1

1
Grupo SantanderCompetition policy and financial
market integration
European Parliament Financial Services
ForumBrussels 15 June 2005
2
Whats wrong with Europe?

• Why does Europe grow at 1 and the US at 3?

• Europe has lagged the US in productivity growth
• The US has a strong focus on productivity
  improvement

How can Europe generate a new wave of
productivity growth?
3
Integration of financial services as a powerful
tool to boost productivity growth

• Productivity growth has traditionally focused on
  non tradable sectors

We have freedom of movement for capital, for
workers now we need a fully integrated market
for financial services
but

• Significant potential to boost productivity in
  service sectors such as banking

• Banking is part of the national value chain-
  with global competition intensifying, Europe can
  afford no weak links

4
Why does an integrated financial services market
create value?

• Fosters financial development
• Generates economies of scale
• and allows for efficiency
• Increases competition / improve pricing

Estimates of 0,5-0,9 EU GDP p.a.
5
Letting best practice travel- in terms of
technology, products. Why it is important How
exporting best practice creates value
Important to improve productivity- and
productivity improvement means having banks that
can provide better products or services at
cheaper prices.

• 1. Better products and better service

Productivity improvement

• 2. Better efficiency cheaper prices

6
Abbey significant potential to improve the
commercial efficiencyAbbey has a strong customer
franchise and provides a platform to evolve in
the long run from a mortgage bank into a
universal bank
Universal Bank
Mortgage Bank
18 million customers, 13.3 million active
customers
Low market shares in other areas
Market Share
Mortgages
Savings
10,4
6,8
With the exception of Scottish Provident, Abbey
has failed to grow its market shares in other PFS
areas, despite its customer franchise and brand
strength
7
Transfer of IT and product innovation SGC Sale
of treasury products to SMEs
SANTANDER GLOBAL CONNECT SPAIN
SANTANDER GLOBAL CONNECT PORTUGAL
Other countries
Know-how and IT transfer
4,8x
6,5x
9x
8
Abbey significant potential to improve the
operational efficiency
Grupo Santanders proven track record
Abbey / UK Banks Cost / Income ratio
62
Based on most recent results and management
estimates of the PFS components of the peer group

• We run Abbeys with lower costs and generate
  20 revenue per front employee

9
Why Santander buying Abbey is good for stake
holder?We can introduce innovation, choice, and
price competition into the Market
SAN opening jaws
Abbey closing jaws
IT is key
Free market works Cross border consolidation not
about egos- but about productivity, efficiency,
consumer choice and market discipline.
10
So financial sector integration has the
potential to boost productivity growth Why is
it not happening?
11
There are barriers to integration of financial
services market why does it matter?

• Obstacles to cross border MA
• Legal / Regulatory burden
• Legal structure
• Ownership / voting limits
• Different accounting / disclosure needs
• Lack of tax coordination
• Restrictions on the kinds of offers that can be
  executed
• Differences on data protection
• Un-coordinated supervision

Limits strategic options / potential
developments

Extra costs
12
Why less, not more regulation is important

• Regulation is high cost
• Compliance risk
• Limits competition
• Regulation has a significant impact on banks
  strategies and behaviour
• It does not substitute sound management practices
• De-regulation should be market driven
• Need for co-ordinated supervision

13
Conclusions

• Europe has all the ingredients (capital,
  skilled labor and market size) to become the
  most competitive area in the world
• but we are not taking the opportunity
• More not less financial integration is key for
  European competitiveness
• Financial services integration fosters
  innovation, choice, and price competition t
• For instance, by buying Abbey Santander brings
  more competition and innovation to the UK market
• Regulatory barriers are keeping the European
  financial sector from realizing its full
  potential
• the consumer gets less for his money
• Protectionism is just delaying the unavoidable
• Need for more co-ordinated financial
  supervision
• Letting market discipline reign

As long as regulation and protectionism keep
best practice from travelling, it will be
difficult for Europe to compete with the US
14