financial statements Auditor’s report
47,476,100 52,149,027 40,476,981Term to maturity
The detail, by maturity, of the balances of the «Savings Deposits - Time»and «Other Deposits - Time»captions in the consolidated balance sheets is as follows:
186
(16) Marketable debt securities Bonds and debentures
The breakdown, by currency and interest rate, of the balances of this caption in the consolidated balance sheets is as follows:
Thousands of Euros December 31, 2002
Outstanding
Amount in Annual
Currency Interest
Issue Currency 2002 2001 2000 (Millions) Rate (%)
Euros:
Fixed interest 7,364,425 3,415,549 3,519,093 — 5.18
Floating interest 5,145,509 5,709,449 5,763,617 — 3.21
U.S. dollars:
Fixed interest 1,429,024 2,422,252 1,789,188 1,499 5.96
Floating interest 1,419,888 3,124,495 2,807,262 1,489 1.55
Pounds sterling:
Fixed interest 661,029 706,656 688,989 430 7.55
Floating interest 1,380,477 1,561,221 1,201,723 898 4.02
Chilean pesos:
Fixed interest 2,442,948 3,487,374 3,644,634 1,845,224 6.61
Floating interest — — 32,395 — —
Other currencies 654,029 802,158 639,056 — —
Balances at year-end 20,497,329 21,229,154 20,085,957
Thousands of Euros 2002 2001 2000
Balances at the beginning of the year 21,229,154 20,085,957 13,970,755
Net inclusion of companies in the Group: (319,342) — 1,105,410
Net issues 6,698,032 3,930,111 5,909,995
Of which:
Banco Santander Central Hispano, S.A.
Mortgage bonds October 2002 - Fixed 3,000,000 — —
Banesto
Mortgage bonds March 2002 - Fixed 1,000,000 — —
Santander Central Hispano International Ltd
February 2005 - Floating 500,000 — —
February 2004 – Floating — 567,343 —
April 2004 – Floating — 500,000 —
March 2002 – Floating — — 1,016,685
June 2005 – Floating — — 537,347
Redemptions (4,620,244) (3,104,884) (1,348,431)
Of which:
Santander Central Hispano International Ltd
October 2002 - Floating (500,000) — —
August 2002 - Floating (645,943) — —
March 2002 - Floating (1,000,000) — —
May 2001 – Floating — (1,000,000) —
Banco Río
1998 Global Program — — (264,247)
1999 Global Program — — (443,697)
Exchange differences (2,490,271) 317,970 448,228
Balances at year-end 20,497,329 21,229,154 20,085,957
Variations
The variations in «Bonds and Debentures»accounts were as follows:
187 Maturity
The detail, by maturity, of the balance of this caption as of December 31, 2002, is as follows:
(17) Provisions for contingencies and expenses Variations
The detail of the variations in the balances of the «Provisions for Contingencies and Expenses»caption is as follows:
Promissory notes and other securities
The detail, by maturity, of the balances of the «Promissory Notes and Other Securities» caption, issued basically by Banco Santander Central Hispano, S.A.; Santander Central Hispano International Ltd.; Santander Central Hispano Finance
(Delaware), Inc.; Santander Consumer Finance, S.A.; Banca Serfin S.A.; Banco Santander Mexicano S.A.; and Banco Totta &
Açores, Ltda., is as follows:
Year of Maturity Millions of Euros
2003 3,891
2004 4,701
2005 2,607
2006 59
2007 4,987
Subsequent years 4,252
20,497
Thousands of Euros 2002 2001 2000
Term to Maturity
Up to 3 months 6,887,054 14,882,899 9,905,250
3 months to 1 year 1,591,281 4,271,742 3,799,556
1 to 5 years 2,313,443 1,225,301 375,147
10,791,778 20,379,942 14,079,953
Of which: Euros 6,010,792 5,683,417 4,389,276
Thousands of Euros 2002 2001 2000
Balances at the beginning of the year 16,917,289 15,447,232 4,238,025
Net inclusion of companies in the Group (1,129) 673 7,451,396
Provision charged to income 1,392,143 2,650,409 389,492
Salary commitments to employees taking early retirement at Spanish
companies in the year (Note 2-j) 1,340,532 695,845 763,818
In-house pension allowances insured - Companies in Spain (Note
2-j)-Premiums paid to insurance companies 63,620 90,784 —
Recording of in-house pension allowances insured — — 3,236,023
Variation in net level premium reserves of insurance companies 244,904 257,317 219,135
Externalized insurance policies (90,843) — —
Payments to pensioners by insurance companies (266,405) (278,461) (284,561)
(48,724) 69,640 3,170,597
Payments to pensioners and to employees who took early retirement
with a charge to in-house allowances (Note 2-j) (774,902) (726,461) (324,985)
Insurance premiums paid (Note 2-j) (63,620) (91,770) (5,241)
Externalized pension allowance (316,243) — —
Allowance used (1,300,820) (335,653) (320,568)
Transfers (285,973) (174,516) 149,910
Exchange differences and other variations (3,010,803) (618,110) (65,212)
188
Inclusion of companies in the Group
The company included in the Group in 2000 with the largest amount of recorded «Provisions for Contingencies and Expenses»was Banespa (Note 3).
In accordance with the applicable Brazilian labor regulations, Banespa had recorded as of December 31, 2000, the pension allowances arising from the commitments to certain employees, which amounted to approximately 4,000 million Brazilian reais
Since 1987, the directors of Banespa, as advised by their tax advisers, treated these expenses as deductible expenses in calculating the Brazilian corporate income tax; however, in September 1999, the «Secretaria da Receita Federal»ruled that approximately 2,867 million Brazilian reais of these expenses were not tax deductible. In October 1999, the Board of Directors
of Banespa filed an appeal against this decision and paid the related deposit (1,450 million Brazilian reais) and recorded a provision of 2,600 million Brazilian reais for this contingency.
This provision was recorded in 1999 with a charge to income, after recording the related deferred tax asset of 1,200 million Brazilian reais.
In 2002 the directors of Banespa availed themselves of «Medida Provisoria Nº 66», and paid 2,110 million Brazilian reais to terminate the procedure. The company did not agree with a further 103 million Brazilian reais relating to expenses and surcharges, and, accordingly, a judicial action for injunctive relief was initiated and a deposit was placed for this amount.
Other provisions
The balances of the «Provisions for Contingencies and Expenses - Other Provisions»caption included the following items::
Thousands of Euros 2002 2001 2000
Credit loss allowance for off-balance-sheet risks 317,009 357,085 283,521
Of which: Country risk 17,964 14,004 26,126
Allowance for losses on futures transactions 520,446 399,986 276,622
Allowance for contingencies and commitments at operating units:
Recorded at Spanish companies 2,138,895 2,361,593 878,752
Of which: Relating to investments made 1,356,278 1,287,434 —
Recorded at other companies 2,032,319 4,777,259 5,355,968
Of which: Banespa (*) 944,286 3,088,842 3,470,568
5,008,669 7,895,923 6,794,863
(*) See «Inclusion of Companies in the Group»heading of this Note.
(18) Subordinated debt
The detail, by currency and interest rate, of the balances of this caption is as follows:
Thousands of Euros December 31, 2002
Outstanding
Amount in Annual
Currency Interest
Issue Currency 2002 2001 2000 (Millions) Rate (%)
Euros:
Fixed interest 2,650,248 2,550,070 2,043,470 — 5.84
Floating interest 2,838,370 2,127,704 1,094,452 — 5.07
US dollars:
Fixed interest 4,399,523 5,431,010 5,136,729 4,614 7.35
Floating interest 1,690,664 1,898,309 1,797,883 1,773 2.02
Pounds sterling:
Fixed interest 307,447 657,567 320,460 200 6.75
Floating interest 307,447 — — 200 6.77
Other currencies 256,529 331,331 336,947 — —
Balances at year-end 12,450,228 12,995,991 10,729,941
189 Variations
The variations in the balances of this caption were as follows:
The interest on subordinated debt amounted to E736,364 thousand in 2002 (E750,778 thousand in 2001 and E660,056 thousand in 2000).
Other information
These issues are subordinated and, therefore, for debt seniority purposes they are junior to the claims of all general creditors of the issuers. The issues of Santander Central Hispano Issuances, Ltd. are guaranteed by the Bank or are secured by restricted deposits at the Bank.
As of December 31, 2002, 2001 and 2000, the balance of this caption included E321,180 thousand relating to issues convertible into shares of the Bank at any time from January 1,
1999 through December 23, 2003, at the holders’ option at a conversion ratio of one share for every security plus the equivalent in euros of 0.483 shares at the Bank share closing price on the agreed conversion date.
Maturity
The detail, by maturity, of the balance of this caption in the consolidated balance sheet as of December 31, 2002, is as follows:
Thousands of Euros 2002 2001 2000
Balances at the beginning of the year 12,995,991 10,729,941 8,098,668
Inclusion of companies in the Group 100,213 — 389,676
Net issues 1,095,356 1,968,198 1,988,383
Of which: Santander Central Hispano Issuances, Ltd.:
May 2012 - Floating 95,356 — —
April 2012 - Floating 1,000,000 — —
March 2011 at 6% — 500,000 —
March 2011 - Floating — 500,000 —
September 2011 - Floating — 500,000 —
September 2010 at 7.625% — — 1,074,694
July 2010 at 6.375% — — 500,000
Redemptions (433,359) (31,913) (252,915)
Of which: Santander Central Hispano Issuances, Ltd.:
December 1994 - Floating (215,505) — —
Exchange differences (1,307,973) 329,765 506,129
Balances at year-end 12,450,228 12,995,991 10,729,941
Millions of Euros Maturity
2003 461
2004 541
2005 1,174
2006 1,071
2007 615
Subsequent years 8,588
12,450
190
(19) Minority interests Breakdown
The detail, by Group company, of the balances of the «Minority Interests»caption is as follows:
Thousands of Euros 2002 2001 2000
Preferred shares issued by:
BSCH Finance, Ltd. 3,733,936 4,660,831 4,584,076
BCH Eurocapital, Ltd. 637,278 741,799 686,554
Pinto Totta International Finance, Ltd. 217,893 261,254 252,906
BCH Capital, Ltd 194,563 338,466 319,708
Totta y Açores Financing Limited 128,907 155,049 150,217
Banesto Holdings, Ltd 67,919 81,732 75,583
BCH Internacional Puerto Rico Inc. and Banco Santander Puerto Rico 55,602 139,609 132,752 5,036,098 6,378,740 6,201,796 Equity of minority interests:
Banesto Group 295,636 28,380 34,618
Somaen Dos, S.L. 275,665 248,573 221,737
Banco Santander Chile 103,325 53,286 49,427
Banco Santander Puerto Rico 45,295 63,984 67,512
Brazil Group 36,207 26,258 1,029,726
Banco Santander Portugal 35,458 32,827 34,618
Grupo Financiero Santander Serfin 25,933 28,584 16,912
Orígenes AFJP 23,193 37,780 18,199
Banco Río 3,235 152,873 205,973
Banco Santiago — 217,284 223,288
Other companies 156,665 164,761 227,917
1,000,612 1,054,590 2,129,927 6,036,710 7,433,330 8,331,723
Preferred shares
These are noncumulative nonvoting shares. They were subscribed by third parties outside the Group and are fully or partially redeemable after five years, at the issuer’s discretion.
191 Variations
The variations in the balances of this caption were as follows:
Thousands of Euros 2002 2001 2000
Balances at the beginning of the year 8,273,936 9,132,710 6,937,008
Inclusion of companies in the Group 1,211 3,300 1,037,292
Of which: Banespa — — 1,029,726
Preferred shares–
Inclusion of companies in the Group — — 429,862
Issue — — 639,525
Of which:
BSCH Finance Ltd
Interest at 8.625% — — 322,407
Interest at 9.4% — — 317,118
Redemption (890,220) — (19,719)
Of which
BSCH Finance Ltd, (694,680) — —
Dividends paid (400,665) (500,258) (442,495)
Exchange differences (552,014) 238,896 259,884
(1,842,899) (261,362) 867,057
Variation in percentages of ownership (60,178) (1,007,921) (595,345)
Dividends paid to minority interests (181,551) (192,967) (83,246)
Exchange differences and other (153,809) (240,430) 168,957
Balances at year-end 6,036,710 7,433,330 8,331,723
Net income for the year attributed to minority interests 538,463 840,606 800,987
6,575,173 8,273,936 9,132,710
Capital Stock Number Par Value of Shares (Euros) Number of shares and par value of the capital stock as of December 31, 1999 3,667,793,148 1,833,896,574 Capital increases:
For acquisition of shares of:
Totta Group 252,892,250 126,446,125
Royal Bank of Scotland 179,615,243 89,807,622
Banco del Río de la Plata, S.A. 63,450,006 31,725,003
For merger bonus 6,736,590 3,368,295
For share subscription offering 345,000,000 172,500,000
Cash payment of capital increase by Royal Bank of Scotland 44,749,176 22,374,588
Number of shares and par value of the capital stock as of December 31, 2000 4,560,236,413 2,280,118,207 Capital increases:
For incentive plan 1,300,000 650,000
For placement among institutional investors 97,826,086 48,913,043
Number of shares and par value of the capital stock as of December 31, 2001 4,659,362,499 2,329,681,250 Capital increases:
For acquisition of shares of AKB (Note 3) 109,040,444 54,520,222
Number of shares and par value of the capital stock as of December 31, 2002 4,768,402,943 2,384,201,472 (20) Capital stock
The variations in the Bank’s capital stock were as follows:
192
The Bank’s shares are listed on the computerized trading system of the Spanish stock exchanges and on the New York, Milan, London, Paris, Lisbon, Buenos Aires, Frankfurt and Swiss stock exchanges, and all of them have the same features and rights.
As of December 31, 2002, the only shareholders with an ownership interest in the Bank’s capital stock of over 3% were Chase Nominees Limited (with a 5.50% investment) and State Street Bank and Trust Company (with 3.46%).
Other considerations
As of December 31, 2002, the additional capital stock authorized by the Shareholders’ Meeting amounted to E1,464 million. The time periods that the Bank’s directors have to carry out capital increases up to this limit expire in February 2007.
On February 9, 2002, the Shareholders’ Meeting set the maximum amount of Bank shares that the Bank and/or any Group subsidiary may acquire at 5% of the capital stock outstanding at any time.
Also, the aforementioned Shareholders’ Meeting authorized the Bank’s Board of Directors to issue fixed-income securities not convertible to equity up to a maximum amount of E15,000 million over a period of five years and fixed-income securities convertible to equity for up to E1,000 million over a one-year period, and empowered the Board of Directors to execute the resolution to issue fixed-income securities
convertible to shares without preemptive rights up to a maximum amount of E1,000 million over a one-year period, and, in addition, authorized the related capital increases to cater for the conversion, if any.
As of December 31, 2002, the shares of the following companies were listed on official stock markets: Banco Río de la Plata; Banco de Venezuela, S.A.C.A.; Banco Santander Colombia; Santander Bank Corporation (Puerto Rico); Grupo Financiero Santander Serfin, S.A. de C.V.; Banco Santander Chile; Bansaliber, S.A.; Central de Inversiones en Valores, S.A.
(Ceivasa); Financiera Bansander, S.A. (Fibansa); Norteña de Valores, S.A. (Norvasa); Cartera Mobiliaria, S.A. (Carmosa);
Santander Chile Holding; Inmuebles B de V 1985 C.A.; Banco do Estado de Sao Paulo; Banesto; Portada S.A. and Banco Totta
& Açores.
As of December 31, 2002, the capital increases in progress at Group companies and the additional capital authorized by their Shareholders’ Meetings were not material at Group level.
(21) Reserves Variations
The variations in the overall balances of reserves at the Group (see composition in Note 1) were as follows:
Thousands of Euros 2002 2001 2000
Balances at the beginning of the year 15,663,278 14,556,924 5,521,618
Prior year’s attributed income 2,486,303 2,258,141 1,575,108
Dividends paid on prior year’s income (1,329,462) (1,241,219) (861,454)
Capital increases (Note 20) 1,045,480 864,985 9,069,812
Of which
Additional paid-in capital 1,045,480 853,415 5,273,748
Early recording of voluntary reserves — 11,570 3,796,064
Charge for early retirement of employees (Note 2-j) (*) (839,923) (449,780) (461,962)
Retirement of differences in first-time consolidation (Note 12) — — (122,408)
Sale of preemptive rights on Banesto shares (Note 3) (**) 271,805 — —
Exchange differences (2,666,942) (527,310) (53,238)
Variations in reserves at associated companies (Note 10) (243,289) 178,428 17,814
Other variations, net (34,037) 23,109 (128,366)
Balances at year-end (Note 1) 14,353,213 15,663,278 14,556,924
(*) Based on the Group’s ownership interest in Banesto as of December 31, 2002, 2001 and 2000 (88.57%, 98.57% and 98.54%, respectively).
(**) As a result of the sale of the preemptive rights on Banesto shares (Note 3), the additional paid-in capital which was applied proportionally to the amortization of the goodwill that arose subsequent to the tender offer launched by the Bank in 1998, was rerecorded under the «Reserves»caption in the consolidated balance sheet as of December 31, 2002.
193 Additional paid-in capital, reserves and revaluation reserves
The breakdown of the balances of these captions, relating in full to the Bank, is as follows:
Legal reserve
Under the revised Corporations Law, 10% of Spanish companies' net income for each year must be transferred to the legal reserve.
These transfers must be made until the balance of this reserve reaches 20% of capital stock. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased capital stock amount.
Reserves for treasury stock
Under the revised Corporations Law, a restricted reserve was recorded for an amount equal to the book value of the Bank shares owned by subsidiaries. This reserve will become unrestricted when the circumstances which gave rise to its mandatory recording cease to exist. Additionally, this reserve includes the outstanding balance of the loans granted by the Group that are secured by Bank shares.
Revaluation reserves Royal Decree-Law 7/1996
The balance of this account can be used, free of tax charges, to increase capital. From January 1, 2007, the balance of this account can be taken to unrestricted reserves, provided that the monetary surplus has been realized. The surplus will be deemed to have been realized in respect of the portion on which depreciation has been taken for accounting purposes or when the revalued assets have been transferred or retired from the accounting records.
If this balance were used in a manner other than that provided for in Royal Decree-Law 7/1996, it would be subject to tax.
Additional paid-in capital
The revised Corporations Law expressly permits the use of the additional paid-in capital balance to increase capital of the entities at which it is recorded and establishes no specific restrictions as to its use.
Early recording of voluntary reserves
As required by the Bank of Spain, the «Reserves»caption in the consolidated balance sheet as of December 31, 2002, includes
«Voluntary Reserves Recorded Early», of which approximately E3,277 million (E3,397 million and E3,738 million as of December 31, 2001 and 2000, respectively) relate to the difference between the amount at which certain Bank shares were issued – in accordance with Article 159.1.c of the revised Spanish Corporations Law – for the acquisition of investments in the capital stock of other entities and the market value of the shares received in exchange, net of the equivalent amortization of the goodwill arising in the acquisitions. This amount increased initially the acquisition cost of the investments acquired (Notes 12 and 20).
Thousands of Euros 2002 2001 2000
Restricted reserves:
Legal reserve 476,841 465,935 456,024
Reserves for treasury stock 132,462 146,701 240,459
Revaluation reserves Royal Decree-Law 7/1996 42,666 42,666 42,666
Unrestricted reserves:
Additional paid-in capital 8,979,735 8,651,004 8,078,240
Voluntary reserves and consolidation reserves attributed to the Bank 4,964,087 4,811,102 4,697,949
Of which: Early recording of voluntary reserves 3,284,856 3,408,113 3,796,064
Group reserves attributed to the Bank 14,595,791 14,117,408 13,515,338
Of which: Reserves recorded at the Bank 14,436,631 14,096,519 13,502,101
194
Reserves and accumulated losses at consolidated companies
The breakdown, by company, of the balances of these captions in the consolidated balance sheets, based on each company’s
contribution to the Group (after considering the effect of consolidation adjustments), is as follows:
Thousands of Euros 2002 2001 2000