ASSET MANAGEMENT AND INSURANCE

ASSET MANAGEMENT AND INSURANCE EUR Million

Variation

INCOME STATEMENT 2013 2012 Amount % % w/o FX

Net interest income 115 118 (3) (2.7) 1.8

Net fees 348 418 (69) (16.6) (11.8)

Gains (losses) on financial transactions 6 3 3 109.1 165.6

Other operating income ⁽¹⁾ 293 355 (62) (17.4) (13.6)

Gross income 763 894 (131) (14.6) (10.2)

Operating expenses (318) (306) (12) 3.9 7.5

Net operating income 444 587 (143) (24.3) (19.7)

Net loan-loss provisions 0 (2) 2 ƒ ƒ

Other income (8) (10) 2 (19.9) (10.2)

Profit before taxes 437 576 (139) (24.1) (19.6)

Tax on profit (101) (154) 53 (34.6) (31.3)

Profit from continuing operations 336 422 (86) (20.3) (15.2)

Net profit from discontinued operations 0 ƒ 0 ƒ ƒ

Consolidated profit 336 422 (86) (20.3) (15.2)

Minority interests 24 20 4 21.0 36.7

Attributable profit to the Group 313 402 (90) (22.3) (17.6)

(1).- Including dividends, income from equity-accounted method and other operating income/expenses

In 2013, Santander Insurance advanced in its global

business model in order to meet the needs of local networks and their clients, with a low risk profile and a high degree of efficiency and quality of service in their operations. Their business focused on:

• Completing the insurance range with solutions tailored to each customer segment, with a particular focus on Select and SMEs.

• Strengthen the multi channel strategy with specific

products for channels that supplement the branch network.

• Strengthen bancassurance business thanks to the strategic alliance reached in Spain with Aegon, added to that in 2011 with Zurich for Latin America. The agreement between Bank Zachodni WBK and Aviva in Poland to distribute insurance via the bank»s branches was also pushed.

Of note was the development in Europe of insurance not linked to lending, with strong growth in all networks.

Savings business, an area of great potential because of the ageing of the population and the greater demand for retirement-savings products, also performed well.

In Latin America, further progress was made in developing recurring business, with less dependence on lending and focus on quality of service for customers. Autocompara, the auto insurance comparison company for the whole region, was also consolidated.

Results

Gross income declined 14.6%, which fed through to net operating income (-24.3%) and attributable profit (-22.3%) from the costs of developing the franchise. Discounting the perimeter and exchange rate effects, gross income, net operating income and profit declined 3.6%, 9.7% and 7.1%, respectively.

The area»s total contribution to the Group including revenues recorded by the distribution networks

amounted to EUR 3,839 million (-3.4% y-o-y; +3.5% on a like-for-like basis and constant exchange rates). These revenues accounted for 9% of the operating areas» total.

The total results for the Group (profit before tax plus fees paid to the networks) were EUR 3,513 million (-3.9% y-o-y and +3.3% excluding the perimeter and exchange rate effects).

Total

-4%

-3%

-3%

Insurance

Asset Management

(*) Year-on-year change at constant perimeter and exchange rates.

Total: +3%; Insurance: +4%; Asset Management: +2%

TOTAL GROUP REVENUES EUR Million

ASSET UNDER MANAGEM.

EUR Billion

ATTRIBUTABLE PROFIT Constant EUR Million

(*) In euros: -22.3%

ASSET MANAGEMENT AND INSURANCE. INCOME STATEMENT EUR Million

Gross income Net operating income Attributable profit

2013 % % w/o FX 2013 % % w/o FX 2013 % % w/o FX

Mutual funds 338 1.1 5.7 138 (17.0) (12.3) 76 (24.1) (20.3)

Pension funds 2 (92.5) (92.5) 6 (57.9) (57.9) 4 (57.6) (57.6)

Insurance 423 (21.3) (16.7) 301 (26.2) (21.4) 233 (20.5) (15.2)

Total Asset Management and Insurance 763 (14.6) (10.2) 444 (24.3) (19.7) 313 (22.3) (17.6)

Asset Management

Attributable profit in 2013 was EUR 80 million, 27.2%

lower than in the same period of 2012, following a fall of 4.6% in gross income affected by exchange rates, higher costs and minority interests after the strategic agreement that redefined the business. Excluding the exchange rate impact, gross income was virtually unchanged (-0.6%) and attributable profit dropped 23.8%.

Including the fees recorded by the networks, total gross income was EUR 1,198 million (-2.7% y-o-y; +2.2% in constant euros) and the total result for the Group was EUR 1,003 million (-4.2% y-o-y; +0.9% in constant euros).

The total volume of managed funds was EUR 156,400 million, (+2% y-o-y and +8% in constant euros). Of this, EUR 104,200 million were mutual and pension funds, EUR 9,000 million were client portfolios other than funds, including institutional mandates. The rest was management mandates on behalf of other Group units.

The main developments by units and countries were as follows:

• In traditional management of assets, the Group managed EUR 153,600 million, which accounted for 89% of the total and is concentrated in the four large markets of Spain, Brazil, the UK, and Mexico.

In Spain, Santander Asset Management took advantage of the revitalization of mutual fund business (2013, first year with net subscriptions and revaluation of assets since 2005) to consolidate its leadership in funds and increase its market share (+148 b.p. so far this year to 16.6%, according to Inverco). Management is focused on profiled funds, money market and short-term fixed income funds.

Funds under traditional management, including pension funds and mandates, amounted to EUR 63,400 million (+22% more than at the end of 2012).

Brazil has EUR 38,700 million under management (+8% in local currency), spurred by retail and corporate clients, and with stability in institutional mandates.

The UK, with a more selective focus, due to new regulation, reduced its balances under management to EUR 23,700 million (-6% in sterling).

In Mexico, we continued to improve the mix of the EUR 10,400 million under management (+5% in pesos this year) by launching profiled funds for Select clients.

In the rest of countries, growth in Poland (+12%), Chile (+2%) and declines in the balances in Portugal (-19% with pension funds) and Puerto Rico (-38%). All changes in local currency.

• In non-traditional management (real estate, alternative management and private equity funds), Santander Asset Management continued to adjust its activity to the scant demand for these products. Managed funds remained at around EUR 3,000 million.

•Complete segmented offer for Select clients in Brazil, Portugal and Poland.

•Progress in selective access to institutional business, and in improving value proposals for clients and networks.

Strategy and objectives in 2014

Insurance

Santander Insurance posted an attributable profit of EUR 233 million, 20.5% less than in 2012, following the corporate operations in Spain and Portugal. Eliminating this effect and the impact of exchange rates, attributable profit was almost the same (-1.0%).

Including the fees paid to the networks, insurance business generated total revenues of EUR 2,641 million for the Group (3.7% less year-on-year; +4.2% at constant perimeter and exchange rates). The total result for the Group (income before taxes of insurers and brokers plus fee income paid to the networks) was EUR 2,510 million (-3.8% y-o-y; +4.3%

on a like-for-like basis and constant euros).

Continental Europe»s total results were 3.5% lower because of the change in perimeter, but 1.8% higher on a like-for-like basis, supported by Portugal and faster growth in consumer business.

Spain»s results grew at a slower pace (-2.9% y-o-y on a like-for-like basis). In Portugal, the nominal fall of 12.0% was the equivalent of a rise of 4.0% without the reinsurance operation, thanks to the good evolution of savings-investment products.

Growing contribution of Santander Consumer Finance.

Profit before tax and fee income rose 5.1% year-on-year, backed by growth in Germany and the Nordic countries.

Poland»s trend improved in the year, but its contribution in local currency was lower than in 2012 (-2.2%).

The UK»s total results continued to fall (-33.7%), in line with the market as a whole, within the process of tailoring the offer of products to clients» needs.

Latin America»s total result was 12.1% higher in constant euros and on a like-for-like basis, backed by the distribution of protection products via banking networks and intensive use of alternative channels. In local currency, noteworthy double digit growth in all countries, Brazil (+13.1%), Mexico (+18.8%), as well as Argentina, Uruguay and Puerto Rico with growth rates of more than 15%. Only Chile»s result was lower (-15.3%) because of the reduced contracting of protection products, although there was a change of trend in the fourth quarter.

Lastly, the notable rise over 2012 in the US. Fee income from the distribution of third party insurance almost doubled in dollars.

•Widen the open market insurance range (more

segmented, multi channel, focused on Select and SMEs), as a key linking element.

•Consolidate the implementation of the Programme for Excellence and Customer Satisfaction in insurance, enhancing client experience and strengthening trust in the long term.

Strategy and objectives in 2014

164 Executive summary 166 Introduction

168 Corporate principles of risk management, control and appetite 174 Corporate governance

of the risks function

176 Integral control and internal validation of risks

178 Risk focuses 180 Credit risk 210 Market risk

231 Liquidity risk and funding 244 Operational risk

253 Compliance and reputational risk 259 Capital