Annual Report 2007 - CMVMweb3.cmvm.pt/sdi2004/emitentes/docs/PC18254.pdfThis is not the first time The Banker magazine rewards the bank for its performance. Since 2000, the magazine

Annual Report 2007

Banco Santander Totta, S.A.

Annual

20

(pro

Report 07

posal)

1

Annual Report 2007

Index

Santander Totta Financial highlights......................................................................................................................... 4 Organizational flow chart .............................................................................................................. 5 Governing Bodies ........................................................................................................................... 6 Santander Totta’s Governance Practices .................................................................................... 7 Corporate Social Responsibility .................................................................................................... 7 Rating 14 Performance Framework International Economy................................................................................................................. 15 Portuguese Economy ................................................................................................................... 20 Business Areas Individuals and Businesses .......................................................................................................... 23 Private Banking ............................................................................................................................. 25 Corporates..................................................................................................................................... 26 Promotors and Mediators............................................................................................................. 27 Transactional Banking.................................................................................................................. 27 Complementary Channels – NetB@nco, Call Center and Selfbanking.................................. 28 Large Corporations....................................................................................................................... 29 International Activity .................................................................................................................... 29 Business support departments Human Resources......................................................................................................................... 31 Tecnologia e Sistemas ................................................................................................................. 32 Quality 32 Economic and Financial Performance Consolidated Activity................................................................................................................... 35 Individual Activity ......................................................................................................................... 41 Risk Management Credit Risk...................................................................................................................................... 43 Counterparty’s Credit Risk ........................................................................................................... 44 Market Risk .................................................................................................................................... 44 Balance sheet Risk ....................................................................................................................... 46 Trading Risk.................................................................................................................................... 47 Proposal for Distribution of Profits ................................................................................................ 48 Additional Information Prevention on Money Laundering............................................................................................... 49

Banco Santander Totta, S.A. 2

Organization Structure by Departments..................................................................................... 49

Annual Report 2007

Duties carried out in other societies ........................................................................................... 53 Movements in Shares and Bonds of Members of Governing and Monitoring Bodies........... 57 Financial Statements / Notes / Report and Opinion................................................................. 61


Annual Report 2007

Santander Totta

Financial highlights

Var. % Dec 07 / Dec 06

Balance sheet Net assets 37 799 33 546 +12.7% Net loans 27 917 26 361 +5.9% Total customer funds 27 907 26 329 +6.0% Capital + Minority interest + Subordinated liabilities 2 664 2 700 -1.3%

Profit & Loss Net interest income (exclud. dividends) 670.6 619.0 +8.3% Commissions + Other income 302.7 301.5 +0.4% Operating income 1 092.0 1 006.7 +8.5% Net operating income 597.5 518.7 +15.2% Income before taxes 483.7 454.9 +6.3% Net income 387.6 353.9 +9.5%

Ratios ROE 24.0% 27.0% -3.0 p.p. ROA 1.0% 1.1% -0.1 p.p. Cost-to-income 39.1% 42.0% -2.9 p.p. Solvency ratios BoP solvency ratio 10.0% 12.0% -2.0 p.p. Core Capital (Tier I) 6.1% 7.0% -0.9 p.p. BIS ratio 9.2% 10.8% -1.6 p.p.

Employees 5 995 5 934 +61Employees in Portugal 5 730 5 687 +43Branches 762 723 +39Branches and corporate centers in Portugal 705 664 +41

million euros Dec 07 Dec 06


Annual Report 2007

Organizational flow chart (31/12/07)

Auditing, Marketing, Human Resources and Products

CEO

Nuno Amado

Financial and

Sources

Eduardo Stock da Cunha José Eduardo Bettencourt

International, Institutional and Complementary

Channels

Carlos Amaral

Risk, Recovery, Universities,

Disinvestment and Banco Totta de Angola

António Vieira Monteiro

Institutional Communication, Corporate

Image and Quality

Luis Bento dos Santos

Elias da Costa Pedro Castro e Almeida

Insurance and Asset Management

Individuals, Small Business, Corporates network, and External Promoters and Agents

Large Corporations and Investment Banking

Legal Department, Prevention of Money Laundering,

Assessment and General Council

José Carlos Sítima

5


Annual Report 2007

Governing Bodies (31/12/2007)

. Board of Shareholders Ge

Chairman Vice – Chairman

Secretary Board of Directors

Chairman Vice – Chairman

Members of the Board

Fiscal Board

Chairman Members of the Board

Substitute Single Controller

Executive Committee

Chairman Members of the Board

Company Secretary

Permanent Substitute


BANCO SANTANDER TOTTA, S.A

neral Meeting

António Manuel de Carvalho Ferreira Vitorino António de Macedo Vitorino Company secretary

António Mota de Sousa Horta Osório Matias Pedro Rodriguez Inciarte Nuno Manuel da Silva Amado António José Sacadura Vieira Monteiro Carlos Manuel Amaral de Pinho Eduardo José Stock da Cunha Eurico Silva Teixeira de Melo José Carlos Brito Sítima José Eduardo Fragoso Tavares de Bettencourt José Manuel Alves Elias da Costa Luís Filipe Ferreira Bento dos Santos Miguel de Campos Pereira de Bragança Pedro Aires Coruche Castro e Almeida

António Mendo Castel-Branco Borges Mazars & Associados, S.R.O.C. Ricardo Manuel Duarte Vidal Castro Pedro Manuel Alves Ferreira Guerra

Deloitte & Associados, S.R.O.C., S.A.

Nuno Manuel da Silva Amado António José Sacadura Vieira Monteiro Carlos Manuel Amaral de Pinho Eduardo José Stock da Cunha José Carlos Brito Sítima José Eduardo Fragoso Tavares de Bettencourt José Manuel Alves Elias da Costa Luís Filipe Ferreira Bento dos Santos Pedro Aires Coruche Castro e Almeida

António Miguel Leonetti Terra da Motta João Manuel da Mota Branquinho e Crespo

6

Annual Report 2007

Santander Totta’s Governance Practices The Board of Directors and each of its members act in compliance with legality, transparency and responsibility, aiming at maximising Santander Totta’s return and optimise the interests of its shareholders, Customers and employees. The scrupulous fulfilment of legal and regulatory standards in force and the compliance, under all circumstances, with demanding ethical principles in accordance with the best practices is a constant concern of our Bank. It is incumbent on the Institutional Affairs and Compliance Coordination Department, at the first level of the Institution’s hierarchy, among other duties, to promote and watch over the fulfilment of the provisions in force namely by means of the establishment of guidelines and procedures, the disclosure of implemented prescriptive changes, the definition of a code of conduct and control of the set up practices. The competencies and action of the mentioned Coordination Department are adjusted to the regulations framework of the Compliance function currently defined by Notice no. 3/2006 dated 9 May of the Bank of Portugal, complemented by Circular-Letter of the mentioned Institution under no. 41/2005/DSB of 1 June, as well as the principles and recommendations defined for the Compliance Function by Basel Committee on Banking Supervision included in “Compliance and The Compliance Function in Banks” document issued in April 2005 which was enforced by the aforementioned Notice. Santander Totta has adopted such principles and recommendations in the scope of its compliance policy. Similarly the Executive Committee meets the requirements now provided for in the new article 305-A of Portuguese Security Market Code, introduced by Decree Law 357-A/2007, of 31 December, which has transposed, the Directive regarding financial instruments market among others. Accordingly and also complying with the provisions of article 6 of CMVM (Portuguese Securities Market Commission) Regulation no. 2/2007, of 10 December, the responsible person for the Compliance was notified to CMVM. The rules concerning Santander Totta’s governance are present, not only in its own regulations, but also in internal standards and procedures, approved by the Board of Directors or the Executive Committee, and comprise a set of practical measures regarding the action of those bodies and all the others which are an integral part of the company’s structure. The fact that the regulations do not contain any lock-in clause should be stressed. Moreover, all provisions likely to lead to a similar outcome are excluded. Specifically established methodologies, procedures and controls are especially designed and implemented in order to ensure the maximum accuracy to the accounting and financial records, so as the respective accounts reflect exactly the company’s situation. On the other hand several codes of conduct are in force, which apply namely to members of the Board of Directors, responsible people at the institution’s hierarchy as well as employers directly involved in the various activities of financial intermediation who, notwithstanding the general duties, establish an increased set of obligations to guarantee actions’ confidentiality, exemption and transparency, ensure the conflicts of interests’ prevention and their suitable solutions in case they occur, as well as the protection and reserve of privileged information, in compliance with legal requirements and the highest ethical standards Corporate Social Responsibility

Santander Totta, in line with the Group’s policy worldwide, elected the promotion of knowledge and teaching, especially as far as Universities are concerned, as its priority in terms of corporative

7


Annual Report 2007

social responsibility, allocating more than 70% of its budget of corporative social responsibility to this area. On the other hand, Santander Totta has developed an active policy of sponsorships, supports and patronage in other strategic action areas, such as social solidarity and environment protection, without neglecting culture, health and sports’ promotion, being aware that this diversified intervention is crucial to enhance the economic agents’ social and corporative awareness.

Santander, 150 years of existence Established in Spain in 1857, in the city it was named after, Santander celebrated its 150th anniversary in 2007. The commemorating events that occurred in the several countries where Santander operates, have stressed its enormous expansion and the success. After 150 years of history, Santander rose to the eighth position of the international financial ranking by market capitalization, with a solid implementation in two continents, America and Europe. It operates in more than 40 countries, deals in the three main currencies of the world economy, the euro, the dollar and the pound sterling, and in all segments of the market – commercial and investment banking, business banking, private banking, consumer credit, insurance and pension funds. With 69 million clients all over the world and 130,000 professionals of several nationalities, it has the largest branch network in the western world: 10,852. Santander is a centennial, global and multinational bank. In Portugal the commemorating event took place on 11 October, with sessions dedicated to employees and customers, shareholders and institutional clients. A book on Santander’s history especially designed to celebrate the bank’s anniversary was disclosed.

Awards and distinctions granted in 2007

Santander Totta was considered to be the best bank in Portugal for six consecutive years by Euromoney Awards for Excellence magazine.

Euromoney Award – Best Bank in Portugal

To give this award, Euromoney examined the information regarding results, significant gains in market shares, strategic vision, as well as business lines progress during last year’s activity. Other quantitative indicators were added to this information, such as market shares in the various segments, productivity, ROE and efficiency rate, among others. Euromoney highlighted the fact that Santander Totta is focused in the domestic market, while delivering a high income growth rate and keeping costs under control.

The Banker Award– Deal of the Year In 2007, The Banker magazine considered the acquisition of 32.6% of Galp capital by Amorim Energia as one of the business of the year in Portugal. This operation involved 1.64 billion Euros with the purchaser having been financially advised by Banco Santander de Negócios, which participated also in the respective IPO (Initial Public Offering). This was the Portugal’s largest deal in 2006, in Mergers and Acquisitions, and the largest IPO in 9 years. According to that magazine “this

8


Annual Report 2007

acquisition of Amorim Energia enables a national economic group to hold a strong position in the management of a strategic company, becoming, at the same time, a credible partner for ENI, which is the other main shareholder of Galp Energia, with a similar participating interest in the company”. This is not the first time The Banker magazine rewards the bank for its performance. Since 2000, the magazine has elected three times Santander Totta as the best financial institution operating in Portugal.

Santander Totta is the company generating more wealth in Portugal

Visão magazine has published, at the end of 2007, a study on foreign companies operating in Portugal, where Santander Totta comes as “the foreign company generating more wealth in Portugal” and as “clearly the largest foreign company, regardless of the established criteria”. Santander Totta was highlighted as the largest foreign investment in Portugal and also the company which sells most and the most profitable one as well as the company which generates the highest added value.

Standard & Poor’s/Diário Económico Award– Best Domestic Manager of Stock Funds

In 2007, four of Santander Asset Management’s funds were awarded prizes, which led to it being considered as the best national equity fund manager in 2006. Santander Asset Management was awarded two prizes in the category of “Portuguese Equities”, and two other in “Personal Equity Plan”. This rewards the best return among its main competitors. Santander Asset Management team has been excelling in the main reference index of the national market, PSI-20, in the last ten years, through “Santander Acções Portugal” and “Santander Plano Poupança Acções”, funds contributing thus for the growing visibility the Portuguese market has been achieving.

Customer Intelligence Award Santander Totta received the Customer Intelligence Award 2007, for the work developed in the Customer Relationship Management (CRM) area. The prize was handed by International SAS, the current market leader of Customer Intelligence tools. The results achieved in operations with customers, the Data Mining models created and the approach and development of CRM policies, contributed for the awarding of this Prize, a recognition for the innovating capacity and the relationship with customers.

9


Annual Report 2007

APCC Prizes – Contact Center Operation Santander Totta, 3C and their contact center operations came 1st as for APCC 2007 prizes (outsourcing category). The Contact center operation has 130 inbound / outbound positions, which enables it to make more than 300,000 contacts with customers. This prize recognizes the level of excellence achieved with contact center operation, which resulted from an ongoing effort by 3C – customer contact center and the bank, for the improvement of the quality and efficiency of the relationship with the customers. The assessment of the candidates is based on “Benchmarking Contact Centers Portugal 2007”, carried out in cooperation with IZO Portugal, which takes into account such aspects as the accessibility, management and interactions resolution, staff and resources, quality and ongoing improvement, working environment, telemarketing, technology and outsourcing model.

Custody Banco Santander de Negócios obtained the maximum score for the results of the survey Global Custodian magazine carries out every year, with the aim to rate the quality of the services provided by the various custodians operating in the main international markets. The Bank was top rated in all categories: cross-border / non-affiliated, domestic clients and leading clients.

Universia and Universities

The year of 2007 was a year of intense activity for Universia Portal, because of the change of the brand image of Universia and the “I Edition of Virtual Job Center of Universia”. Gathering already 1,056 institutions of Higher Education in Latin America and the Iberian Peninsula, the Universia network of university cooperation with Santander Group as its financial partner, focuses its activity in three items: development of knowledge, support to the relation University/Company and mobility and internationalization. With the aim to convey a new positioning in the evolution of the university portal, the network of universities and opportunities - Universia Network – launched this year a new visual identity and a new portal in all countries in which it operates. The decision to change the brand image results from a consultation procedure among university students and teachers and the subsequent evaluation by deans and Santander general managers. The new identity of Universia goes side by side with the changes of Universia Portugal Portal, which appears with a better navigability and segmented global contents. This new look reinforces the dimension of Universia as an university cooperation network of international scope and highlights its main lines, in segments as employment, international academic mobility, training, university news and OpenCourseWare (teaching material of free access), as a result of alliances carried out by Universia with MIT, Wharton and Miguel de Cervantes Virtual Library. The end of the year witnessed the “I Edition of Virtual Job Center of Universia”, an exhibition as a web platform of interactive format, which took place between 3 and 14 of December. This virtual exhibition, the only one on the Internet, has all the characteristics of a traditional fair, improved with the benefits of the Internet: open 24 hours and 100% customized treatment, and in a second life environment, a virtual environment which enabled the users to interact with the display assistants present in the exhibition.

10


Annual Report 2007

In 2007, Santander Totta formalized the first loan contracts with students of higher education under the “Mutual Guarantee Credit System”, in a ceremony carried out in Lisbon. Nuno Amado, Chairman of the Executive Committee of Santander Totta said “the launching of this credit system is in line with the bank’s strategy as it rewards the merit, and has very competitive conditions of interest and maturity, enabling an investment in the future”. Santander Totta was the first Bank to launch this product in the market, in mid September, in the scope of its campaign for university students “PAC 4U”, which promotes the opening of a “Super Conta Estudantes Universitários”, (Super Account University Students) by means of which the students don’t pay maintenance costs nor any commission for the main daily services. When subscribing the account (with a minimum of 25 euros), the university students receive a MP3 player, and have only to join freely Netbanco and telephone banking services, and subscribe “Universitário Inteligente” (intelligent university student) or “Novo Classic Universitário” card. The students may participate also in a pastime and win an “Erasmus” scholarship in Europe. The “Crédito Ensino Superior com Garantia Mútua” (mutual guarantee higher education credit system) aims at funding degrees, masters, doctorates and international mobility program, with special conditions for the students, according to their academic progress. When they subscribe this product, or any other credit solution the university students receive with no drawing, an InterRail ticket in Europe.

Primus Inter Pares “Primus Inter Pares” prize was awarded for the fourth time in 2007. This prize, a joint initiative of Santander Totta and Expresso newspaper aims at rewarding the best final year students for degrees in Economics and Companies’ Management, not only for their academic performance but also for their human qualities, ethical values and emotional intelligence.

Economic Journalism Award “Economic Journalism” award was created by Santander Totta and Universidade Nova de Lisboa, to distinguish and reward the best works published every year in written and electronic media, in Economics, Company Management and Financial Markets, promoting a better quality of data processing and contributing thus for a more responsible, informed and participated citizenship. The first prize, called “Grande Prémio”, is 15,000 Euros and is awarded to the best work competing in the three areas which is also the winner of the respective area. The other two prizes, of 7,500 Euros each, distinguish the best work competing for the other fields.

Culture In the cultural and scientific areas, Santander Totta focused its sponsorship, support and patronage policy mainly on the promotion and preservation of history and artistic heritage, the promotion and protection of Portuguese Language in an increasingly global world, as well as on the promotion of music.

“Encompassing the Globe: Portugal and the World in 16th and 17th centuries” Santander Totta was the main sponsor of the “Encompassing the Globe: Portugal and the World in the XVI e XVII centuries” exhibition, organised by the prominent Smithsonian Institution.

11


Annual Report 2007

The exhibition opened on 23 June and brought to Washington D.C., more precisely to two Museums of the Smithsonian Institution, to the National Museum of African Art and National Museum of Asian Art, 250 pieces from the time of the Portuguese Discoveries. Pursuing a contemporary perspective of history, this show aims at disclosing to the American people the importance of the Portuguese world by means of “extraordinary works of art”, according to the words of de Jay Levenson, the commissioner of the exhibition and also director of the MoMA international program. The exhibition is divided into six sections corresponding to six different areas of the Globe where the Portuguese influence was more striking, and brings together a group of the world’s main museums selected by a group of international experts, including the Portuguese Diogo Ramada Curto and Nuno Vassalo e Silva. A “Virtual Show” of this exhibition opened on 27 June. There some pieces representative of the Portuguese presence in the world in the 16th and 17th centuries were physically displayed, as the works displayed in Washington, which could be seen by means of a video. At the same time of the “Virtual Show” the book “Atlas da Arte Portuguesa no Mundo”, commissioned to Professor Pedro Dias was presented. This book, in line with the exhibition’s topic, aims at giving continuity to the project of publishing works (“De Goa a Pangim” e “Portugal e o Ceilão”, also by Professor Pedro Dias) which convey a more thorough knowledge of this relevant era in the Portuguese history.

“Portugal e o Ceilão” Book “Portugal e o Ceilão” book received a prize awarded by Portuguese Academy of History. This prize rewards the work of Pedro Dias, published by Santander Totta, as the best book of 2006 on the history of the Portuguese people in Asia. The prize was awarded on 11 July, at the Portuguese Academy of History, during the closing ceremony of the academic year. “Portugal e Ceilão. Baluartes, Marfim e Pedraria” received one of the six prizes awarded by the Portuguese Academy of History which with other institutions has distinguished several works in different fields such as Regional and Local History, Modern and Contemporary History and the History of the East.

Antiquities Biennial Santander Totta has sponsored another edition of Antiquities Biennial. The largest national antiquities fair in Lisbon is becoming increasingly important in the sector of works of art. This is its seventh edition. Organized by Associação Portuguesa de Antiguidades (APA) (Portuguese association of antiquities), the VII Biennial gathered the largest number of exhibitors, comprising a larger exhibition area in Cordoaria Nacional building. 39 antique shops were present, with an expert commission certifying the pieces on display. This committee comprises experts, collectors and businessman who have carried out not only the expert audit on the works but also their cataloguing.

Music Promotion In the scope of the sponsorship of Orquestra Metropolitana de Lisboa, Santander Totta organized a Christmas concert for its employees only. This concert, which took place at Igreja da Graça, in Lisbon, was performed by Orquestra Metropolitana de Lisboa, within the scope of the protocol with this entity. Maestro Jorge Matta conducted the orquestra, with tenor João Cipriano Martins, baritone Jorge Vaz de Carvalho and Santa Maria de Belém Choir singing “Mass of Glory”.

12


Annual Report 2007

Still in the Cultural field supports were granted to several institutions such as Palácio Nacional da Ajuda, Fundação Luso Espanhola and Fundação Maria Ulrich, among others.

Social Solidarity, Health, Sports and Environment

Christmas: a Special Season

Santander Totta celebrated Christmas with several actions. In addition to supporting “Pão de Todos” (bread for everyone) solidarity initiative where during one week it was possible to taste all kinds of bread with hot chocolate for free, served by about 70 volunteers from the Bank, Santander Totta has supported also RTP television program “Dance with Me” which brings together many guests from the television and show business world. Together with these initiatives, Santander Totta has sponsored Christmas lighting in some of the main areas of Lisbon and Oporto.

CEBI Foundation Santander Totta is one of the founding members of CEBI – Fundação para o Desenvolvimento Comunitário de Alverca – with facilities in Vila Franca de Xira and Mafra municipalities. It is an institution providing a great variety of services to more than 3,000 families and employs more than 400 workers. Among the institution’s activities education should be highlighted as it welcomes more than 1,500 children and young people from 4 months to 16 years old daily. In the scope of this social action there were two homes for elderly people with a capacity of 110 users, a Social Emergency Centre, to welcome 30 children at risk or victims of physical abuse, a Reception Centre for Single-parent Families, with a capacity for 14 elements, with the aim to their social reintegration, also providing food help to about 150 families in need. In the health field the institution has a Physiotherapy Clinic and Mental Health Assistance Bureau, which includes a drug addiction prevention service. Also in Social Solidarity field, support was provided to several institutions, among which we can highlight the cooperation with Pró Dignitate, SOS Children’s Villages, Red Cross, IMA e Liga Portuguesa contra a Sida (Portuguese league against Aids), among others.

Health and Sports

In the scope of Health and Sports Santander Totta has been supporting events and projects focused on the promotion of a sports culture. Tennis has received a special attention, with support to various projects developed by tennis academies. The investment in these academies has amounted to more than 50,000 Euros in 2007 and has involved about 1,250 young people permanently. It should also be mentioned that Santander Totta supported “Santa Cruz Ocean Spirit” – International Festival of Waves Sports, which brought together the best performers of this sports category. Classes, demonstrations and concerts were the other attractions of the events.

Enviroment Santander Totta sponsored the edition of nine books on trees and forests in Portugal a joint edition of Luso-American Foundation for Development (FLAD), Público newspaper and League for Nature Protection (LPN).The series of images reproduced by these works are an unparalleled and precious value which goes well beyond the scope of the forests.

13


Annual Report 2007

Shareholder structure

Shareholder N. Shares %

Santander Totta, S.G.P.S, S.A TaxaGest – Sociedade Gestora de Participações Sociais, S.A.

574,356,881

14,593,315

97.38

2.47

Rating In 2007, Santander Totta again has the highest rating notation granted to any private Portuguese bank: AA, Aa3 and AA for the long term debt, granted by Fitch Ratings, Moody’s e Standard & Poor’s, respectively. Standard & Poor’s and Fitch Ratings reviewed upwards the notation of the bank from AA- to AA (outlook stable). Moody’s upgraded long term rating notation from A1 to Aa3. The high rating notations granted to Banco Santander Totta, SA reflect the adopted strategy, the strong solidity and the capacity for generating results, as it can be confirmed by the different rating agencies:

S&P - March 2007 “The upgrade is based on Santander’s growing diversification, sound management and strategy, strengthening commercial franchise, and strong and improving financial profile.” “The stable outlook reflects our expectation that Santander will continue to improve its financial performance gradually, benefiting from good prospects at all of its business units….”

Moody’s - October 2007 “…The rating is supported by its good domestic franchise, robust risk management and controls, and strong financial profile.”

Fitch Ratings - December 2007 “…ratings of Santander Totta are in line with those of its parent … , as its activities in Portugal are of strategic importance to the group and have become increasingly integrated with those of Santander. Santander Totta’s Individual Rating reflects its strong national franchise, solid profitability, healthy asset quality, and sound liquidity and capital base. They also take into account concentration on individual names.”

Agency Rating

FitchRatingsShort term F1+Long term AA

outlook stableIndividual B

Moody's InvestorsP-1Aa3

outlook stableIndividual C+

Standard & Poor'sShort term A1+ Long term AA

outlook stable

14


Annual Report 2007

Performance Framework

International Economy The year of 2007 witnessed the materialization of several risk factors, which had been latent until then, which characterized the economic and financial evolution, especially during the second half of the year, and which may have more visible impacts in 2008. These developments contributed also to question the resilience of the world economy as far as the capacity to accommodate shocks is concerned, and made it easier to see the different evolution between developed markets and emerging ones. As for the economic development, in global terms, IMF’s estimates admit that the world economy may have grown 4.9%, in what was the fourth consecutive year of growth above potential. Like in previous years, emerging markets must have contributed to about two thirds of the growth rate, whilst developed markets must have slowed down with the USA showing a more visible trend.

World Economic Growth (%) 2003 2004 2005 2006 2007 World 3.8 4.9 4.4 5.0 4.9 Developed Countries 1.9 3.2 2.5 3.0 2.6 USA 2.5 3.6 3.1 2.9 2.2 Japan 1.4 2.7 1.9 2.5 1.9 EMU 0.8 2.0 1.5 2.8 2.6 United Kingdom 2.8 3.3 1.8 2.8 3.1 Developing Countries 6.7 7.7 7.0 7.7 7.8 Africa 4.7 5.8 5.9 5.8 6.0 Asia 8.3 8.8 9.0 9.6 9.6 Eastern Europe 4.8 6.7 5.6 6.4 5.5 Middle East 6.6 5.6 5.6 5.8 6.0 Latin America 2.4 6.0 4.6 5.4 5.4

Source: IMF (January 2008) This duality in the world economy and the resilience of emerging markets have kept raw-material in general under pressure, reaching new historical maximums in 2007, in a scenario of an ongoing sustained growing demand. The crude recorded a new historical maximum, in nominal terms, close to 100 dollars per barrel for the Brent, but in real terms didn’t come to the maximums of the eighties. The prices of agricultural goods were among the ones with a greater increase, becoming a potential source for inflationary pressures. The prices of cereals have recorded historical maximums, especially wheat, the price of which almost doubled, anticipating a greater demand for the production of bio-fuels.

15


Annual Report 2007

Prices of Brent oil, in dollars per barrel and the commodities index Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

150

200

250

300

350

400

Brent (LHS)

CRB Commodities Index (RHS)

0

10

20

30

40

50

60

70

80

90

100

Source: Bloomberg The most outstanding fact of the year was the reaction of the financial markets to the growth of high risk mortgage credit (“subprime”) in the USA, in a process started in July and which would continue along the second half of 2007 (including the beginning of 2008). The granting of credit to higher risk borrowers, in many cases without relevant information on their compliance capacity, and when the credit was based on an attractive fixed rate during the first two years, after which it would be indexed to a variable rate, in many cases increased with a high spread could result in the next fixing would occurring in a background of higher interest rates and cause a downturn of real estate valuations. What started to be a correction movement of the markets, after a pronounced decrease of the credit spreads and a more permissive risks assessment, resulted in a phase of strong instability of the financial markets, where the total impacts of which are still to be evaluated. The interval of estimates of losses in assets of “subprime” mortgage is between 200 and 400billion dollars. The amount of losses borne until the end of 2007 exceeds 100 billion dollars, but there are additional risks, associated with other securitized credits (such as consumer credit and for vehicles acquisition). Two immediate effects result from this economic situation. On the one hand, a disruption in the money markets, especially for periods over one month. The doubts on the exposure of the counterparties to “subprime” credit and the fears of possible needs of liquidity by themselves have led to a pronounced increase of the short term interest rates. 3 months rates reached maximums since 2001 on euro-area, with Euribor rate 100pb above funds lending rate of European Central Bank at the end of the year. In the USA the maximum differential between a 3 months Libor rate went up to 80pb.

16


Annual Report 2007

Short-term rates (3 months)

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07

Euribor 3MLibor $ 3MLibor GBP 3M

Source: Reuters

This evolution resulted in the need of an intervention by the main central banks in money markets through a much greater supply of liquidity that would be necessary under normal conditions, as a way of ensuring the normal operation of markets. This normalization process was gradual and did not follow any linear trend, with occasional peaks, as the new information on the exposure of banks to high risk credit was being known. On the other hand, credit markets almost closed down, with a pronounced reduction of new debt issuance by banks and companies, associated with an increase of credit spreads for all issuers and all maturities. In the credit derivatives market, spreads for credit default swaps reached maximums since 2005, even if within a context of reduced markets depth.

Spreads de Credit Default Swaps – 5 Years (pb)

0

10

20

30

40

50

60

70

80

90

100

Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07100

150

200

250

300

350

400

450

500Itraxx - Main 5Y

Itraxx - HiVol 5Y

Source: Reuters

Aiming at offsetting the more restrictive monetary conditions, resulting from the increase of the interest rates in monetary markets and the widening of credit spreads, the USA Federal Reserve aggressively decreased the reference interest rates from 5.25% at the beginning of the summer to 4.25% at the end of the year.

17


Annual Report 2007

USA Central Bank’s growth forecast were successively downward rated, considering a core scenario of strong deceleration at the first half of 2008, although with no recession, after which the growth would resume to rates progressively closer to the long term trend, during the second half of 2008. Consumer prices were gradually losing relevance as a risk factor for conducting the monetary policy, although there was still some acceleration in the second half of the year. In the euro area, European Central Bank capped the cycle of increasing interest reference rates, after they reached 4.0% in June. The disruptions in monetary markets, the increase of credit spreads and the euro appreciation (which in face of the dollar reached new historic maximums, only below 1.50 dollars) contributed for the financial conditions becoming restrictive, among signs of gradual deceleration of the activity. The expectations of additional increases of the interest reference rates by ECB began to disappear, and were replaced by moderate expectations that in 2008 a monetary policy inversion could occur.

Economy of EMU – 2007 (%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

GDP Inflation

Euro area Germany

France Italy

Spain

Source: Eurostat In the United Kingdom, the correction signs in the real estate market were visible and the first contagious signs to the real economy appear with a deceleration of domestic demand especially regarding private consumption. As a result of this, Bank of England has decreased its interest reference rate in 25pb, to 5.5%, adopting guidance for potential additional decreases which may materialize in 2008. The emerging markets continued to evolve in a rather positive way, with no contagious signs of the problems to the financial markets, which affected mainly the developed economies. All of this despite an instability source appearing at the end of the first quarter, with a pronounced devaluation of the Asian shares markets, especially the Chinese one. Most of the credit spreads of the emerging markets remained close to the minimum values recorded at the beginning of the second half of the year. On the other hand, the respective currencies appreciated versus the dollar.

18


Annual Report 2007

Evolution of the Main Exchange Rates (Dec 2006=100)

95

100

105

110

115


EUR/USDEUR/GBPEUR/JPYEffective Exchange Rate

Source: ECB The investors’ position changed, showing a clear preference for less risky assets, especially turning to public debt. However, even in the USA there was no general disinvestment of the equity markets, rather a greater selectivity in the investments, with the main indexes closer to the year’s maximums despite the strong decline for financials. Consequently, long term interest rates have decreased pronouncedly at the second half of the year, after the two-year maximums reached at the beginning of June, when the investors’ main concern was still the risk of greater inflation acceleration. In the USA, the more affected country by the “subprime” crisis, the long term interest rates dropped more than 100pb, since the maximum in July until the end of the year, when the rates were close to 4.0%. In Europe, the drop of the long term interest rates was less pronounced, given that the consensus was that it could be less affected by the instability of financial markets. However, there was an increase of the spreads among the various sovereign issuers, on behalf of the “core” markets.

10 Years Interest Rates

3.75%

4.25%

4.75%

5.25%

Dec-06 Mar-07 May-07 Jul-07 Sep-07 Nov-07

GermanyUSAPortugal

Source: BSN Portugal, Reuters

19


Annual Report 2007

Despite this repositioning of investors, most of the equity markets closed still showing significant valuations, even if below the maximums of the first half of the year, when in some markets (as the Spanish and Unites States markets) the maximums of 2000 were broken. In the first half of the year, the evolution of the equity markets was still showing a high volume of mergers and acquisitions operations, highlighted by the Public Purchase Offer launched on ABN Amro bank by the consortium of Santander, Fortis and Royal Bank of Scotland banks, and which defeated Barclay’s competing bid. The financial sector was particularly affected, especially in the USA. The main banks, as a result of losses exposed to “subprime” credit, witnessed their respective market capitalization dropping about 40%. UBS, Citigroup, Morgan Stanley e Merrill Lynch banks tried to maintain their solvency, widening their shareholders base, especially by bringing in several Asian sovereign funds, with investments over 20 billion Euros. The Portuguese market was among those showing a greater valuation in 2007, with a M&A action highlighted by two Public Purchase Offers started in 2006, one of Sonaecom on PT and the other one of BCP on o BPI, where the target-companies’ investors rejected the offer. The company with the best performance was Galp Energia, with a 172.5% appreciation in 2007, benefiting from the exposure to oil and new oil discoveries, especially Tupi concession, in Brazil, which was the greatest discovery since 2000.

Equity Markets (Dec 2006 = 100)

85

90

95

100

105

110

115

120

125


PortugalEMU - Eurostoxx 50USA - Dow JonesJapan - Nikei

Source: Reuters, Euronext Lisbon Portuguese Economy In 2007, the GDP in Portugal increased 1.9%, the strongest rhythm since 2001, when the economy grew 2.0%. External demand continued to show a relevant positive contribution to growth, but domestic demand had the most important contribution, mainly by means of private investment. The exports growth decelerated to 7.1%, against 9.2% of last year, with a more pronounced slowing down in goods. Exports of services must have maintained their growth rates above 10%. Exports deceleration brought its growth closer to external demand growth rate, and thus an interruption of the recovery process of market shares may have occurred.

20


Annual Report 2007

As for the main characteristics, last years’ great trends are still showing: exports of machines and equipment are still the more relevant ones, but the exports of clothing and footwear are starting to recover, benefiting from the sector’s restructuring, which enabled a small progress in terms of value added. As for the export markets, Spain and Germany are still the main ones, while Angola is still the most dynamic one, with growth rates around 40%. The strong dynamism of services contributed to a faster reduction of the external balance of goods and services, which dropped below 7% of GDP, for the first time since 2003. However, the reduction of the deficit of current balance and capital account balance was less pronounced, in so far as, on the one hand, 2007 was a transition year as for E.U. support, and on the other hand there was an increase on the interest paid abroad due to economy’s greater indebtedness. Domestic demand became stronger in 2007, and was the main contribution for growth (about 1.8%). The reason for better performance lies with the private investment, which accelerated, with a 3.2% growth, the strongest rhythm since the period of 1999-2000. This evolution reflects two main trends. On the one hand, a strong recovery of the investment in transport equipment, especially aeronautical equipment/aircraft equipment and, on the other hand, the progressive stabilization of the building sector, which no longer had a negative contribution to growth, as has happened in the previous five years.

Indicators on Portugal (%) 2003 2004 2005 2006 2007 PIB -0.8 1.5 0.9 1.3 1.9 Private Consumption -0.1 2.5 2.0 1.1 1.5 Public Consumption 0.2 2.6 3.2 -1.2 0.3 Investment -8.3 2.5 -1.5 -0.8 3.2 Exports 3.9 4.0 2.0 9.2 7.1 Imports -0.8 6.7 3.5 4.6 5.4 Average inflation 3.3 2.4 2.3 3.1 2.5 Unemployment 6.3 6.7 7.6 7.7 8.0 Public deficit (% of GDP) -2.9 -3.4 -6.1 -3.9 -2.5 Public Debt (% do GDP) 56.9 58.3 63.7 64.8 64.4 BTC (% do GDP) -4.2 -6.2 -8.6 -8.6 -8.2

Source: INE (national statistics institute), Ministry of Finance, Bank of Portugal Private consumption continued to grow clearly below GDP, pressured by the effects of the interest rates increases and also by the high unemployment level. Public consumption has grown marginally in 2007, despite the initial estimates that it might continue to decline. Preliminary data of implementation of the budget in 2007 point towards a more pronounced deficit reduction which must have been around 2.5% of GDP, comparing with the 3.0% goal. It should be noted that the forecast included in PB was of 2.4% deficit on GDP for 2008. It is thus the second year with a more favorable implementation, after the 3.9% recorded in 2006. Once again, the main contributions were associated to the strong growth of revenue (tax revenue grew by 9.2%, against 7.2% in 2006) and containment of capital expenditure, in so far as current expenditure grew by 3.6%. Inflation decelerated to 2.5%, but still pressured by the rise of energy prices, on the one hand, and food prices on the other. This last effect may still continue to be felt in 2008, in a global scenario of acceleration of the cereals’ prices. Unemployment grew to 8.0%, a new maximum, as job creation continued to be less than the growth in the number of new workers in the labour market. This slower job creation continues to

21


Annual Report 2007

reflect the restructuring of the national productive sector, but contributed for a stronger growth of productivity, an important condition to restore competitiveness of exporting companies. The development of financial international markets hasn’t still had a visible impact on credit aggregates, which continued to expand fast. Total credit to private sector must have grown close to 10% (8.4% in 2006). Private credit decelerated slightly, due to mortgage credit, which started to reflect the impact of the interest reference rates growth. The acceleration of corporate credit was more relevant, associated with the stronger investment growth, an evolution which was visible for pure bank credit and also for credit granted by means of commercial paper programs. Non compliance ratios are close to the series minimums, in general, although the banking sector is very active as far as the management of the respective credit portfolio is concerned. In the most recent survey on credit market among banks, it is reported, on the one hand, the adoption of slightly more restrictive conditions for credit granting, especially by means of an increase of the credit spreads and on the other hand the banks report more difficulties to access funding, particularly by means of credit securitization transactions. In this scenario most banks privileged deposits as their main resource, in some cases with specific offers of high interest rates, above the market rates.

22


Annual Report 2007

Business Areas

Commercial Banking

Individuals and Businesses The year of 2007 witnessed a strong institutional launching campaign of the Santander Totta single brand. Named as “My Bank”, the campaign was established with the aim to increase the number of new customers, reduce the drop offs and improve the perceived quality, reinforcing Santander Totta’s “Value for Money” position. The campaign was based mainly in two vectors: the commission exemption for main services provided to a wider customer base and the granting of awards to customers with new domiciliation of salaries / retirement benefits. Conditions offered have leveraged customer retention levels, achieving an average of 4.5 products per customer. The business volume grew by 8.8% and operating income rose 7.1%.

Individuals Resources increased by 6.0%, sustained by a strong effort to launch products, seeking always to offer the best opportunities to different markets and suspect to economic trends. Highlights include the launching of 19 structured products (both for Mass-Market, Premium and Non-Residents segments), 2 special investment funds and 2 special investment insurance. Several traditional term deposits and structured products were launched, with the aim at diversifying investment opportunities for clients and increasing customer’s growth, retention and loyalty levels, offering very competitive rates. Four structured term deposits and five structured deposit bonds, in a total of 645 million Euros were launched in the Mass-Market segment. For the Premium segment seven structured products were issued amounting to a total of 90.5 million Euros. As for special unit-linked investment and insurance funds, a total of 366 million of Euros was raised in eight issues. Also for the Emigrants and non Residents segment four long term deposit products in USD were placed amounting to 43 million Euros. As for loans, the year of 2007 was again characterized by dynamism and innovation, in an increasingly competitive market, and Santander Totta reinforced its position as one of the main players in the mortgage credit market, present in the Portuguese customers’ top of mind. Mortgage credit continued to be one of the main pillars of the activity, with production reaching historic maximums, with a growth 20% over last years. After the success of “Super Rate” campaign in 2006, “Double Zero” campaign was launched at the beginning of the year from which customers benefitted from a 0% promotional spread at the first year, not only for mortgage credit but also for signal credit. Another benefit introduced transversally to mortgage credit portfolio was the possibility of being granted capital exemption for the first 5 years. The year was characterized also by pronounced changes in legislation which have introduced a new dynamic into the market, decreasing the barriers to customers’ mobility and requiring from Santander Totta a more aggressive and competitive response to the new challenges as far as customer growth and retention is concerned. Therefore several measures were implemented, aiming at providing the Sales Management and Support Department with a greater contracting agility and mobility and with the tools enabling it to ensure greater customer growth, such as the new transfer campaign, where Santander Totta bears all the costs inherent to the process.

23


Annual Report 2007

Focusing on the maintenance and retention of the current customers “Triplo R” concept was created based on the pillars of Customer’s Retention, Credit Restructuring and Reciprocal Arrangements Renegotiation. Also in 2007, unemployment coverage, additional to life and dwelling insurance, was launched and is called “Dwelling Protection Plan”, which increased the supply of insurance products and provides protection against one of the main causes of non compliance for mortgage credit. The strategy adopted for consumer credit focused on the launching of differentiating and competitive products and the adjustment of the already existing products to current market conditions, namely by means of increasing the maximum amount of the funding and the extension of contracting timeframes. It should also be highlighted the introduction of a new contracting channel, Multibanco, which offers a new, easy, fast and user friendly contracting option. This channel brought together RSF, Banca Telefónica and Netb@banco launched in 2006 as alternative means to contract consumer credit over the counter. The Bank continued to invest on non financial products in 2007, through successful partnerships with well known brands which enabled several innovating and very high quality products to be placed on the market and which were widely accepted, resulting in the growth of the portfolio and the commissions’ level. Highlights include the launching of the “Digital Image” campaign offering models of Canon cameras and also “Login Credit” and “University Students Login Credit” which made the last models of HP brand available.

Individuals average balance; million euros

2007 2006 Var. 07/06 %

Loans 17 506 16 042 1 463 9.1% Mortgage credit 15 401 14 121 1 281 9.1% Consumer credit & Other 2 104 1 922 182 9.5%

Resources 17 758 16 757 1 001 6.0% On Balance sheet 9 226 8 186 1 040 12.7% Off Balance sheet 8 532 8 571 -39 -0.5%

Business volume 35 263 32 800 2 464 7.5%

Operating income 655 612 44 7.2%

24


Annual Report 2007

Small business

2007 was the year of the consolidation on the Small Business area with 18.3% growth in the business volume, of which 21.0% in loans and 13.1% in resources, with the operating income growing by 6.8%. It was a year of great activity in this segment, and Santander Totta launched several campaigns, of which we highlight: “Solutions Tourism / Teaching”, “Credit Line BEI with a Protocol” and “Credit Solutions with Guarantee / Fincresce / Lisgarante”.

Smal businessaverage balance; million euros

2007 2006 Var. 07/06 %

Loans 3 440 2 842 598 21.0%

Resources 1 696 1 500 197 13.1%

Business volume 5 137 4 342 795 18.3%

Operating income 138 130 9 6.8%

Cards

The number of cards placed with clients increased by 7.4%, reaching 1.2 million by the end of 2007. As far as the banking product is concerned there was an increase of 12%, and we should highlight the 27% growth achieved in the net interest margin. Several commercial initiatives contributed for this performance, such as the ones regarding the champions’ league games, in which the representatives of the best branches were able to take their children to watch the players coming onto the field. “Light Summer” and “Push Light” campaigns also contributed for the increase of usage of cards and consequently for the growth of the portfolio. “Christmas” card, an innovating temporary card and 100% free was launched at the end of the year.

Distribution Network Aiming at bringing the customer closer, the strategy of expanding the branches network continued in 2007, in line with what had been established for the three-year period of 2006-2008 – opening 100 branches. 75 new branches were opened until the end of year in the scope of this program, including 7 branches in universities. When choosing the location of the new branches, geographic areas with greater economic performance are taken into consideration by Santander Totta and in some places where branches overlapped, as a result of the recent brands merging, the branches network was rationalized. With the aim to constantly improve the service quality, Santander Totta developed in the past years a program of modernization of the branches comprising 57% of the total number of the branches at the end of 2007 (branches which represent about 65% of the business volume of the whole network). At the end of the year, Santander Totta’s distribution network in Portugal comprised 684 branches and 21 business centers, 705 service points in total.

Private Banking Private Banking reinforced its position in the national market of this segment with a growth of about 28% in business volume and 22% in number of customers in 2007. Customer growth was a strength of the team’s performance for which the merging of the two Santander and Totta teams

25


Annual Report 2007

and the new name Santander Totta have contributed in a relevant way. In a segment as specific as Private Banking, the evidence of a strong international name as Santander, together with a local team with a vast experience in this area are very important aspects for current and potential clients. In an economic and financial turbulent market, as was the case of the last half of the year, discretion, confidentiality and ethics followed by Santander Totta “private” team, together with synergies and the soundness coming from Santander Group, were the aspects with added value for the customers. As for Human Resources, the commercial team was reinforced, enabling from the beginning of the year a closer follow up of the customers portfolio and also specialists were brought in which enabled a closer connection with other areas – Asset Management and Treasury – and consequently a better monitoring of discretionary portfolio management and investment funds for customers on this segment. Savings products with totally or partially guaranteed capital were launched during the year, specifically focused on private customers with different risk profiles. By the end of the year “Santander Shares Selection” fund was launched. This fund aims at benefitting from the expertise of the management team for the selection of shares, especially Portuguese and European ones, and different strategies of asset allocation. “Santander Alternative Portfolio”, a hedge fund registered in Portugal, was an attractive investment solution, showing a performance greater than 6% (net). “Santander Private Elite”, with placements exceeding 100 million Euros in the year, despite the market’s instability, achieved interesting return/risk ratios. The flexibility of the profile change continues to be an important differentiating aspect of this product. “Platinum” credit card maintained a strong acceptance among the clients and the miles loyalty program has become even more attractive going to 2 miles per euro.

Corporates With the aim to grow in a sustained way in profits and volumes the Corporate network strategy for 2007 was based on: widening of customer’s base and customer relationship. The model used showed results as to the increase of the customer’s base, reversing the trend of the past years; the new customers were responsible for a considerable growth of the credit. As to share of wallet, internal campaigns for products considered to be binding were promoted with excellent results in terms of transactionality associated with other services and foreign products. With the aim to maintain this strategy, new specialized departments were structured to leverage the placement of binding products in the 4th quarter of 2007. As for the results, the managed business volume grew by 12.1%, 13.7% of which in loans and 5.2% in resources, whilst operating income recorded a value identical to the one in 2006. The performance of operating income is mainly a consequence of the regulatory changes which took place in 2007 (DL no. 171/2007), with a negative impact on the net interest margin. Nevertheless we should highlight the placement of cash structured products, which grew by 40%, against the same period of the previous year.

26


Annual Report 2007

Corporatesaverage balance; million euros

2007 2006 Var. 07/06 %

Loans 6 257 5 504 753 13.7%

Resources 1 312 1 248 65 5.2%

Business volume 7 569 6 752 817 12.1%

Operating income 97 97 0 -0.2%

Promotors and Mediators The year of 2007 witnessed changes in legislation on mortgage credit with very significant impacts on all intervening players: regulatory authorities, banks, intermediation companies, building companies and individuals, especially families, as well as the massive emergence of financial consultancy companies. To overcome these difficulties and always focusing on improving the quality of the services provided, it was necessary to intensify the rhythm and the visits to partners. Promotors and Mediators area, in cooperation with the sales management and support department, carried out training courses in the Bank and intermediation companies which together with the image and soundness of the Group and the quality and innovation of the products enabled it to exceed the established objectives, with a 22% growth against the previous year and a 40% share of wallet of the total production. Santander Totta attended the most important national events related to the sector, namely the two real estate shows in Lisbon and Oporto and the annual conventions of the greater real estate master’s operating in Portugal, with more than five thousand sales people enabling Santander Totta to be on the sector’s “top of mind”. As for outside promoters, the growth of the activity was in line with the objective, in quantity and business volume. We would like to highlight the implementation of the new Project “Promotor Shops”, by opening 35 new physical areas with Santander Totta brand, as well as the launching of a newsletter.

Transactional Banking The work carried out in the past years in the companies segment continued through 2007 with the reinforcement of Santander Totta image as the bank of innovative solutions in the cash management area. Business volume in payments by letter-cheques grew by 15% and in the direct debits product the market share as creditor bank achieved 13%, as a result of the 44% increase in the number of direct debit instructions and a growth of 23% in business volume along the year.

27


Annual Report 2007

Reflecting the strategic importance which Santander Totta grants to international business and with the aim at improving the responses to the needs of Portuguese companies operating in foreign markets, namely in the safe management of its international collection and payment operations, several actions were developed some of them listed below:

• • •

•

•

Improvement of products available in Netbanco Empresas channel; Launching of transfers abroad in electronic banking for individuals; Proactive identification of commercial opportunities focussing mainly on the Iberian Business and trade finance, developing campaigns especially aimed at exporters and importers; Visits to Customers together with commercial networks, reinforcing a commercial approach focussing on technical consultancy; Training and products disclosure internal actions.

As for ATM (automated teller machines), with more than 22,000 POS in the market, Santander Totta has a market share much greater than its natural share. In 2007, the share in operation volume was 16.4%, 1.7 p.p. more than the same period of the previous year, and in number of operations the share was 19.4%. The good performance in the sector of gas stations (38.6% share) and in supermarkets sector (23.7%) should be highlighted. The promotions carried out and supported by a team of executives have contributed for this positive evolution. The project of the installation of online POS, which started up in June and for which Santander Totta was the pioneer bank was a decisive one also.

Complementary Channels – NetB@nco, Call Center and Selfbanking A new Netbanco Companies platform was launched in 2007, with a new design and greater improvements in terms of surfing. A set of new features for companies was implemented, taking into account the operating and cash requirements. As we have mentioned before, various other features were launched in Netbanco Individuals, among which we highlight international transfers. Several contents areas addressed to several different customers sectors were also created. The growth rate of regular users was 35% in Netbanco Individuals and 20% in Netbanco Companies. In Telephone Banking, the year of 2007 was characterized mainly by an important effort to redefine processes and the implementation of new quality indicators, with the purpose to improve even more the level of the service provided to the customers. The technological up-grade of all the call centers infrastructure was also carried out. The number of subscribers grew by 10% and more than 2 million calls were handled. The year of 2007 was also characterized by a big growth of the number and diversity of telemarketing campaigns, resulting in a 25% increase in the number of registers. In SelfBanking, the “Rede Interna” (internal network) program was implemented, making a total of 360 equipment items comprising more than 40% of Santander Totta’s branches available to customers. This is the third largest selfbanking internal network in Portugal. Regarding the Multibanco network, the park’s growing strategy was kept, achieving 1,560 ATM’s, which represents a market share of about 12.4%. On the 3rd quarter of the year, new ATM’s MB with the intelligent deposit of cheques and notes feature were introduced, which will play a relevant support role to the automation strategy of basic operations.

28


Annual Report 2007

Large Corporations The first half of 2007 was characterized by the same scenario of strong competition on the national financial system, with immediate pressure on net interest margins and commissions’ structure. At the beginning of the first half of the year the Public Purchase Offer that Sonae Group launched on PT Group, with Santander Totta’s financial consultancy, caused a re-focusing of the business’s objectives. The following second half of the year witnessed financial market’s international crisis, with the well known consequences, namely with regards to the credit access conditions. Internally the consolidation of the new commercial and organizational relation was achieved following the model developed by Santander Group, with the due adjustments to each country’s specificities. This new model has deepened the existing relations with customers, enabling Santander Totta to reinforce its position as the bank of first choice for its main customers. A special attention was given to the cross-selling of the products and services from several business areas, enabling to present innovating and value generating solutions to the customers. Interest rates hedging solutions, structured financing operation, consultancy for buying and selling holdings in companies and financial solutions to profit the suppliers’ value chain were developed and implemented with particular success. This has enabled increasing transactionality levels. The operating income grew by 4.9% against the same period the previous year, whilst the net operating income increased by 7.9%. The strong growth of the financial operations and commissions of means of payment and banking services contributed for the good performance of these indicators. The performance of specialized credit with a growth greater than 50% should also be highlighted.

International Activity During the year of 2007, international activity followed the trend of the previous year enhancing the work carried out in the emigration area, with extremely positive results both at the profitability level and business volume’s growth, particularly in the credit segment. In the middle of the year it was decided to close down the branch in Luxembourg, since the strategic option of the Group abroad is to keep, as a support to the community of Portuguese emigrants, in Europe and outside Europe, non autonomous less expensive and more flexible structures than the one existing in Luxembourg. The business volume in the Emigration segment grew by 7%, reflecting the effort to improve the articulation among customer/ representation office /branch in Portugal, the excellence of the products designed specifically for this customers’ segment, trying always to adjust them to their specific needs and the work carried out for credit raising and 2nd generation emigrants’ savings. The operating income of the segment grew by about 9%, due to a better adjustment of the liabilities products mix held by customers, and the loans expansion which went over 20%. Regarding also emigrants’ remittances, the year had a very positive performance. As a matter of fact, in addition to the maintenance of a global market share which is almost the double of the natural market share of the bank, the remittances volume grew by about 5%, reflecting the effort developed to tighten the relations between the network and the emigrant customer, the promotions developed and the greater pro-activity of the employees of representation offices. The offer, with a great success, of “Seguros Especiais de Investimento” (SEI), (special insurance investment) and also the specific site for the Emigration area, “Portuguese Abroad”, with a link to the bank’s home page, as well as a link for the London branch page, should be highlighted. The site “Portuguese Abroad” was created with the aim to provide information on products and services

29


Annual Report 2007

made available by Santander Totta specifically to this segment as well as information about the physical network the Bank has abroad, enabling an easy and user friendly access. The London Branch continued to grow above expectations, both as for volume of loans, and for results, keeping the focus loans for a 2nd house in Portugal to UK and Ireland residents. Banco Totta de Angola continued to expand its activity, with a commercial strategy mostly focused on the reinforcement of its corporate segment, where it keeps a position of strong involvement in the Angolan economy’s key sectors and leadership of local financial syndicates, confirming simultaneously a strong growth of its individual network. The suitable perception of the evolution of the exchange and monetary indicators enabled an efficient and well balanced management of the Bank’s treasury department. Due to the dynamics of the commercial network and the country’s positive economic perspectives, the Bank reached 370 millions of dollars in resources, a 39% increase against the previous year’s amount. The loan portfolio, including disbursement and signature, had an expressive increase to 224 million dollars, a 96% growth against the previous year. During the same period, the bank renovated its internal systems of swift communication, installed new front office software in the branches, launched electronic banking, increased the distribution of Multicaixa debit card and prepared the launching of its Visa cards. It reached simultaneously, a network of 14 branches, including 3 business centres.

30


Annual Report 2007

Business support departments

Human Resources In the year of the Santander’s 150th anniversary highlights for Human Resources area are the development of several initiatives, created in the scope of these commemorations aiming at bringing Santander Totta together with its employees. A special focus should be put on “Santander is You”, a human resources corporate program developed with the purpose of promoting the benefits of working in Santander, providing employees with opportunities of professional and personal development, of consolidating the knowledge of corporate values, as well as to promote the dialogue between directive staff and their teams. The delivery of 100 Santander shares to all employees, “150 dedicated lives”, “Santander Spirit”, “Santander Ambassadors”, the visits carried out by more than 150 employees to Boadilla, the promotion of an internal contest which took 2 employers to Silverstone Grand Prix, the decorations of work centres, the direct promotion of benefits of working with Santander through posters which were displayed during the year and the distribution of a book with the Bank’s history, were the visible face of this program which will continue in 2008. The disclosure of more than 40 internal recruitments, the relocation of 50 employees from central services to the commercial network and about 1,200 internal relocations carried out, show the dynamics and the mobility and the policy which Santander Totta has been implementing. The recognition of merit and contribution of each employee for Santander Totta’s success was again a strategic landmark in 2007. Between 2001 and 2007 the variable remuneration component by employee grew by 129%, which shows the commitment in distributing the value created by the employees. Training was still a pillar of the activity of Human Resources area, delivering approximately 300,000 training hours. The development of leadership and management competences was a priority in training activity, highlighting seminars on negotiation for branch directors and leadership program delivered by Universidade Católica.

No. of training hours 295,475 No. of training hours by Employee 48 Investment in Training 2,3 million Euros Investment Training / Payroll 1.40% % e-learning Training 20%

Also during the year of 2007, a 2nd questionnaire on employee internal satisfaction level with an initiative called “Que Tal de Clima”, (what about the climate) with the participation of 66% of the employees, a rate greater than the one of the previous year and the one for identical studies in companies of the same size. With the purpose of developing measures to conciliate professional and personal life, “Programa Libra” was reinforced in 2007 with new initiatives, such as the support to vaccination against cervical cancer aimed at the employees’ daughters with ages between 9 and 19 years old, the award of prizes to employee’s children finishing 12th year in school with a rate greater than 16 (in a

31


Annual Report 2007

1 to 20 scale) and also the possibility of employees to chose to work part time, with specific conditions developed to promote the choice of this option. For the 2nd consecutive year Santander Totta has decided to consider favourably all requests submitted in the scope of mortgage credit, at ACT rate, and for this purpose made an amount of 60 million Euros available, a decision to meet the wishes of the employees, enabling them an easier access to better housing conditions. As it was mentioned in the previous chapter regarding corporate social responsibility and through Núcleo de Voluntariado (voluntary work group), Santander Totta promoted “Dia do Voluntariado Santander Totta” with the participation of more than 50 volunteers supporting Banco Alimentar Contra a Fome (food bank against hunger) in an initiative of selection of goods donated to that Institution. The Bank participated also in a project of association “Aprender a Empreender” (learning to undertake), with volunteers who during a quarter taught in public schools with the aim to develop in children entrepreneurship, and supported “Pão de Todos” (bread for all) initiative during Christmas season. Technology and Systems The Technology and Systems area focus on its policies of operating continuity and compliance continued in 2007 with the development of a range of activities aiming at guaranteeing and supporting the efficient alignment of information technologies with the business needs and consolidating corporative integration, through the implementation of structural projects as well as the implementation of the respective management and costs control models in line with the ones followed by the Group. In the Software Development area we highlight the activities developed with ISBAN (Group’s software house specialized in core banking systems) in the scope of the “Tagus/Partenón” project, a strategic and decisive initiative for the optimization of the processes aiming at improving the quality of the provided services by networks to clients and which will continued in 2008. We also highlight the implementation of software to support the launch of new products associated with the mortgage credit, customers (zero commission), cards, insurance and savings products campaigns, as well as the development of a set of tools which enable a more efficient planning and management of the commercial activity, namely in the corporates area. In 2007 a series of legislation projects were also developed such as: value-date on deposits, preparation of new SEPA formats, rounding up to the nearest thousandth in mortgage credit operations, Mifid, BIS II and SOX. In the production area, the financial year of 2007 witnessed the consolidation of the relation with “PRODUBAN” (bank’s prime contractor for the Production, Communications and Systems), company through which it was possible to ensure the global and structural renovation of communication network among branches and buildings of central services and which enabled to improve the quality of the provided service and to achieve, in a sustained way, new efficiency thresholds. Quality The Quality Coordination Department, fulfilling its mission of obtaining levels of excellence services, took on a role of greater intervention in 2007 through a specific project, “Radar” Project which enabled the full implementation of the virtuous cycle of Detection, Action Plan and Assessment of processes with a greater impact on the final customer.

32


Annual Report 2007

Of greater relevance is the renovation of certification ISO 9001:2000, for all its activity, for the third consecutive cycle, and for a new 3-year cycle, consolidating thus the implemented quality management system, with a high commitment at all levels in the Organization. The year of 2007, in an adverse economic environment due to the various changes in the legislation with a strong impact on the bank’s traditional activity, was a difficult year with regards to customers’ claims. Santander Totta has started a process of training and disclosure of best practices which enabled, even in this adverse scenario, associated with a greater visibility of the complaints book, a slight decrease of formal complaints, even more reinforced when assessed with effective customers’ growth. The implementation of “Radar” project enabled not only important improvements as for services subject to intervention, but also the timely detection of negative impact occurrences as for the service to customer, managing to anticipate potential occurrences by means of the implementation of the respective measures. There was an improvement of the levels of service to customer which had a direct impact at the levels of satisfaction of the internal customer and consequently on the external customer.

Satisfaction level of the internal customer

6.9

7.37.5

7.9

2004 2005 2006 2007

+14%

In addition to the indicators on customer satisfaction being at good levels, with a high level of customer’s recommendation, 86% of the customers stating they recommend the bank (82% in 2006), the compliance with standards of customer’s reception on branches shows high levels (88%). These standards are assessed through mystery visits carried out quarterly to all the network’s branches. We also get the best ratings among the main competitors, through measurement carried out by Multimétrica Company to all the market branches in Portugal.

72

78

78

78

81Santander Totta

Bank 1

Bank 2

Bank 3

Bank 4

2ndH07

% Global execution

72

78

78

78

81Santander Totta

Bank 1

Bank 2

Bank 3

Bank 4

2ndH07

% Global execution We should highlight also the implementation of “Customers Indicator” in the Companies’ network, with direct impact on incentives, as it happens in Individuals network where operating metrics of satisfaction and customers are combined.

33


Annual Report 2007

The quality committees with specific evaluation elements enabled also the implementation of specific action plans for improvement, creating an effective dynamics and commitment of the whole bank.

34


Annual Report 2007

Economic and Financial Performance

Consolidated Activity

Introduction Banco Santander Totta had a net consolidated income of 387.6 million Euros, which represents a growth of 9.5% against 2006. Purging the net effect of the sale of the shares of BPI (in 2006 and 2007), the net income grew 25.6% against the previous year. The increase of results was achieved by means of a very dynamic commercial activity, supported by value added products, a strict control of structure costs and the maintenance of the quality of the loan portfolio, within a context of strong competition, difficult economic situation and legal changes which had a negative impact on profits. A positive performance of the main activity indicators has also been reported, namely the growth of resources and loans, in particular mortgage credit and deposits.

+15.2%

+9.5%

519

598

354388

2006 2007 2006 2007

Net operating income Net income

Million euros

35


Annual Report 2007

Income Statement

million euros Dec 07 Dec 06 Var. %

Net interest income (exclud. dividends) 670.6 619.0 +8.3%Dividends 7.5 7.9 -5.0%Net interest income 678.1 626.8 +8.2%Net commissions and other income 306.5 304.0 +0.8%Commercial revenue 984.6 930.8 +5.8%Gains/losses on financial transactions 107.4 75.9 +41.5%Operating income 1 092.0 1 006.7 +8.5% Operating costs (426.4) (422.5) +0.9% Personnel expenses (277.9) (269.1) +3.3% Other administrative expenses (148.5) (153.4) -3.2% Depreciation (68.0) (65.6) +3.8%Net operating income 597.5 518.7 +15.2%Impairment and other provisions (113.9) (63.8) +78.6%Income before taxes and MI 483.7 454.9 +6.3%Taxes (96.0) (101.0) -4.9%Income after taxes 387.6 353.9 +9.5%Minority interest (0.0) (0.0) -12.0%Net income 387.6 353.9 +9.5%Tax rate 19.9% 22.2% -2.3 p.p.

Banco Santander Totta generated a Consolidated Net Result of 387.6 million Euros in December 2007, corresponding to a 9.5% growth (25.6% without non recurrent results) against the previous year. The Net income growth was leveraged by the good performance of net interest margin and results of financial transactions in parallel with costs’ control, which reported a 0.9% increase, below inflation. These results were achieved in a difficult economic context. The changes in the legislation in force, namely the round up to the next thousandth of the interest rate for credits and the reduction of pre payment penalties of mortgages among banks, resulted in an increase of competition in the banking sector. The liquidity crisis, with the consequent increase of funding cost, also had a negative impact on the net interest margin, in the second half of the year. In a scenario of strong competition there was, additionally, a migration of funds to term deposits. The increase of the commercial banking activity was based on high share of wallet and the development of sustainable relations with customers, with an increase of the business volume which led to net interest margin increase, namely on account of the increase of loan portfolio, which continued to be leveraged by credit in Small business (21.0%), Companies (14.1%), mortgage credit (8.9%) and consumer credit (15.2%) segments.

36


Annual Report 2007

+8.3%

Net interest income

619.0

670.6

Dec 06 Dec 07

Million euros

Net commissions amounted to 311.2 million Euros, an increase of 4.1% against the previous year. This was due to the “zero commission” campaign aiming at increasing customer growth and loyalty, and the changes in the legislation, by means of the establishment of a maximum limit for the commission applied by the banks in case of partial or total reimbursement of a mortgage credit. We should highlight the performance of insurance commissions, namely for the marketing of structured products “Seguro Euro Energia” and “Seguro Rendimento Campeão”, which raised a volume of about 169 million Euros. The results of financial transactions grew from 75.9 million Euros to 107.4 million Euros, with the outstanding contribution of the activity of derivative markets and structured products negotiated with customers, of proprietary trading operations and capital gains realized in financial assets available for sale of assets and bad debt portfolio. Notwithstanding the adverse economic situation and competitive background, the Operating income amounted to 1,092.0 million Euros, an 8.5% increase in the year, supported by the commercial dynamics and innovation of offered products, represented by the increase of the business volume. As restraint and cost rationalization policy was maintained, operating expenses (staff costs, overheads and depreciation) increased 1.3%, amounting to 494.5 million Euros.


Personnel expenses 277.9 269.1 3.3%Other administrative expenses 148.5 153.4 -3.2%Operating costs 426.4 422.5 0.9%Depreciation 68.0 65.6 3.8%Total operating costs 494.5 488.0 1.3%Cos-to-income 39.1% 42.0% -2.9 p.p.Operating costs / Operating income 45.3% 48.5% -3.2 p.p.

Personnel expenses increased 3.3% to 277.9 million Euros and overheads amounted to 148.5 million Euros in 2007, below the amount of the same period the previous year, notwithstanding the commercial network expansion and the investment in a single Partenon IT platform. The evolution of expenses, below the progression of Operating income (8.5%), enabled a new improvement of the efficiency ratio (without depreciation), which reached 39.1%, against 42.0% in 2006.

37


Annual Report 2007

42.0%

39.1%

Dec 06 Dec 07

As for productivity, Banco Santander Totta, following the volumes’ increase, kept a favourable evolution of net income and number of branches.


Employees per branch (number) (1) 7.9 8.2 -4.1%Loans per employee 5.0 4.8 +3.9%Resources captation per employee 4.7 4.4 +5.1%Loans per branch (1) 39.1 39.3 -0.4%Resources captation per branch (1) 36.8 36.5 +0.7%

Net income per employee (thousand euros) 64.7 59.6 +8.4%Net income per branch (thousand euros) (1) 508.7 489.5 +3.9%

(1) Includes branches (in Portugal and abroad), corporate centers, exchange offices, automatic branches, subsidiaries and representative offices The losses in impairment net of recoveries amounted to 86.2 million Euros, which represents a 37.6% increase against the amount reported in 2006 (62.7 million Euros), reflecting a well provisioned balance sheet.

December 2006

Net Income

+85-50

-6 +5

388354

million euros

December 2007

Operating income

Impairmentand

Other provisions

Operatingcosts

Taxesand

Minority interest

December 2006

Net Income

+85-50

-6 +5

388354

million euros

December 2007

Operating income

Impairmentand

Other provisions

Operatingcosts

Taxesand

Minority interest

38


Annual Report 2007

Balance Sheet and Activity Net Assets reached 37.8 billion Euros at the end of December 2007, representing 12.7% increase against the year of 2006. The evolution of loan portfolio, financial assets available for sale and investments in credit institutions contributed for this increase.


Business volume (1) 57 724 54 743 +5.4%

Total gross loans (1) 29 817 28 414 +4.9%Gross loans (2) 28 359 26 812 +5.8% from which Loans to corporates 11 706 11 194 +4.6% SME's/Small business 2 505 2 071 +21.0% Corporates 4 900 4 296 +14.1% Large corporates 4 301 4 828 -10.9% Loans to individuals 17 322 15 877 +9.1% from which Mortgage credit (includes securitization) 15 456 14 192 +8.9% Consumer credit 1 370 1 189 +15.2%

Total customer resources 27 907 26 329 +6.0% Total customer resources on balance sheet 18 613 17 062 +9.1% Deposits 11 866 11 450 +3.6% Securities issued 6 747 5 612 +20.2% Total customer resources off balance sheet 9 294 9 267 +0.3% Investment funds (managed) 5 259 5 627 -6.6% Insurance and other 4 035 3 640 +10.9% (1) Includes securitization, commercial paper, guarantees and endorsements and excludes shares with guarantee (2) Includes securitization, commercial paper and excludes shares with guarantee

The Total Business Volume (Loans and Customers’ Total Resources) amounted to 57.8 billion Euros, a 5.5% increase against the previous year.

* Includes securitization and guarantees

Loans*

15.9 17.3

11.2 11.7

05

101520253035

2006 2007

Bill

ion

Euro

s

Individuals Corporates Other

29.828.44

Gross customer loans’ portfolio (including guarantees) amounted to 29.8 billion Euros at the end of 2007, a 4.9% increase against the same period of the previous year. The loan portfolio weight corresponded to about 74% of the total net assets.

39


Annual Report 2007

Mortgage loans, representing about 50% of the credit portfolio, continued to be the “anchor product” showing sustained growth levels with an 8.9% increase against the amount of the previous year. Consumer Credit with a 15.2% increase also contributed to the growth in the Individual segment. As for Loans to Corporates the segment Small businesses and Corpoprates stood out with increases of 21.0% e 14.1%, respectively, with a negative impact due to the reduction in Loans to Large Corporations. Total Customer resources reported a 6.0% increase, amounting to 27,907 million Euros, notwithstanding the turbulence of the markets and a strong competition pressure. Customers resources recorded in balance sheet (deposits and debits represented by securities), a support to total customers resources’ growth, amounted to 18,613 million Euros, 9.1% more against the same period in 2006. Customer resources on-balance sheet (9,294 million Euros) grew by 0.3% due to the evolution of insurances and other resources, given the decrease of investment funds, resulting from markets’ volatility.

Total customer funds

17.1 18.6

9.3 9.3

0

5

10

15

20

25

30

2006 2007

Bill

ion

Euro

s

On balance sheet Off balance sheet

27.9

Solvency Ratio (Capital Adequacy Ratio)

Banco Santander Totta’s solvency ratio, estimated according to instruction 16/2004 of Banco de Portugal was 9.0% and Core Tier I 5.2% in December 2007, not including withheld results generated in the year. Including in the solvency ratios the generated result (net of dividends to distribute), solvency ratio achieves 10.0% at the end of 2007 (12.0% in 2006) and Core Tier I decreases from 7.0% to 6.1%.

Dec 07 (incl. profits)

Dec 07 (excl. profits) Dec 06 Var.

Dec 07 (incl. profits)

Dec 07 (excl. profits) Dec 06 Var.

(1) (2) (3) (4)=(1) / (3) (5) (6) (7) (8)=(5) / (7)Total capital 2 415 2 182 2 544 -5.1% 2 228 1 995 2 266 -1.7% Tier I capital 1 861 1 570 1 844 +0.9% 1 810 1 577 1 949 -7.2% Tier II capital 553 612 700 -20.9% 418 418 317 +32.0%Risk weighted assets 24 213 24 213 21 159 +14.4% 24 246 24 246 21 058 +15.1%

Core Tier I 6.1% 5.2% 7.0% -0.8 p.p. 5.3% 4.4% 6.2% -0.8 p.p.

Solvency ratio* 10.0% 9.0% 12.0% -2.1 p.p. 9.2% 8.2% 10.8% -1.6 p.p.Tier I ratio* 7.7% 6.5% 8.7% -1.0 p.p. 7.5% 6.5% 9.3% -1.8 p.p.

* According to BoP 16/2004 instruction

million eurosBank of Portugal BIS

According to Bank of International Settlements – BIS standards, solvency ratio reached 8.2% in 2007 and Core Tier I reached 4.4%, not including withholding results generated in 2007. Including

40


Annual Report 2007

results, solvency ratio reached 9.2% (10.8% in 2006), and Core Tier I decreased from 6.2% to 5.3%. Individual Activity

Financial Statement Notwithstanding the year of 2007 having been difficult for the banking activity, due to the new legal framework, intense competition and the financial crisis occurred in the second half of the year, the operating income reached 1,037.5 million Euros, with the contributions of net interest margin (508.6 million Euros), net commissions (310.7 million Euros) and results of financial transactions (98.0 million Euros).

Following the effective costs control, a new efficiency gain was achieved with the respective ratio improving 0.9 p.p. to 40.9%. As a consequence of Banco Santander Totta’s prudent and judicious risk management, impairment losses and other constituted provisions totalled only 129.0 million Euros, leading to an income of 417.2 million Euros before tax. The net income amounted to 343.4 million Euros in 2007 (312.9 million Euros in 2006), which enabled BST to achieve a ROE of 19.0% (19.4% in 2006).

Balance Sheet and Activity Net assets amounted to 39.7 billion Euros in 2007, a 20.5% increase against the year of 2006. This increase is mainly due to the increase of the loan portfolio, financial assets available for sale and investments in credit institutions.

million euros

Business volume (1) 55 311 51 660 +7.1%

Total gross loans (1) 28 929 25 628 +12.9%Gross loans (2) 26 276 24 009 +9.4%

Total customer funds 26 382 26 032 +1.3% Total customer funds on balance sheet 17 088 16 765 +1.9% Deposits 11 460 11 083 +3.4% Securities issued 5 629 5 682 -0.9% Total customer funds off balance sheet 9 294 9 267 +0.3% Investment funds (managed) 5 259 5 627 -6.6% Insurance and other 4 035 3 640 +10.9%(1) includes securitisation, commercial paper, guaratees and endorsements and excludes shares with guaratee(2) includes securitisation, commercial paper and excludes shares with guaratee

Dec 07 Dec 06 Var. %

The Business volume (customers’ total loans and resources) reached 55.3 billion Euros, a 7.1% increase against the same period the previous year. Customers’ loans amounted to 28.9 billion Euros at the end of 2007, which represents a 12.9% increase over what was reported in 2006. The loan portfolio’s weight corresponded to about 66% of the total net assets (72% in 2006). Customers’ total resources increased 1.3%, amounting to 26.4 billion Euros, despite the markets’ volatility and the strong competition.

41


Annual Report 2007

Customer funds on-balance sheet (deposits and debits represented by securities) amounted to 17.1 million Euros, a 1.9% growth against the same period the previous year. Customer funds off-balance sheet increased 0.3%, against 2006.

42


Annual Report 2007

Risk Management

Credit Risk In Santander Totta the credit risk management is carried out in an integrated way taking into account its identification and measurement as well as the control and mitigation of the different exposures. The organization of credit risks function is based on various common principles and organizational criteria shared by the different areas which integrate it. For its suitable development, Santander Totta established a set of policies, procedures and management and assessment tools which sharing a common Basic model are adjusted to the Portuguese market.

Customer’s segmentation to manage risks The credit risks management comprises identification, measurement, integration and assessment of the various credit exposures and their return adjusted to the respective risk, both in a global perspective and within each activity area. The credit risks management’s process adjusts to the customer segment throughout the successive stages of the credit cycle: admission, management and follow up and recoveries. The Retail Banking’s risk model is differentiated according to the characteristics of the customer and the product making a distinction between risks’ customised handling and global management (medium and large corporations) and standard risks’ handling (small enterprises, businesses and individuals). The major and globally handled customers are allocated to portfolios, which are assigned to risk analysts, who follow up the customers’ positions in an active and ongoing manner. Wholesale Banking’s risk area handles larger and global natured customers such as multinational financial groups. A pre-rating model (setting an internal maximum number for the risk) is established for these customers based on a measurement and follow up of the risk capital. As for Corporate risks, the efficiency in admission circuits was improved by means of establishing pre-ratings based on a more simplified model and applying only to certain customers with high knowledge of the risks-commercial binomial. The risks for Individuals and Small businesses segments are managed supported on automatic decision systems, enabling an efficient handling of the risk and, at the same time, effective as far as the resources are concerned.

Risk decision and management body Under this model, the powers to make decisions as to risks are delegated, first, to Central Commissions of Credit and afterwards, at a regional level and Business Units. As for the admission of standard risks throughout the year, new scales for different portfolios’ implementation occurred in 2006 was stabilized, which together with an automatic decision system enabled a sustained growth on the percentage of decisions by the Business Units. A larger use of behavioural scoring was also extended to the whole network enabling pro-activity reinforcement for the admission of this kind of risks. On the other hand there was a strong progress with the implementation of Basel II Project directives with Santander Totta improving admission tools for all the portfolio’s risk segments.

43


Annual Report 2007

Simultaneously, databases were extensively fed and populated regarding the customer’s economic and financial information.

2007 financial year In the financial year of 2007 the activity of Credit Risks area was based on the following main lines:

•

•

•

•

•

•

•

•

•

Strengthening the risks mission focused on the business support, reinforcing the interconnection between credit risks and commercial areas, aiming at their growth, simultaneously with the control of slowness levels so as to ensure the maintenance of healthy portfolios; Maintaining the segmentation principle in handling credit risks, differentiating the risk’s approach according to customers and products’ features; Reinforcement of Standard Risks’ decision-making systems with new instruments being increasingly used such as Triad behavioural promoting a sustained growth of operations’ resolution at the level of business units with consequent impacts not only as far as the customers’ service quality, but also as consistency and coherence of the service quality at Risks Area are concerned; Increase of pro-activity at Admission of Risks in portfolio reinforcing customers’ pre-rating, as well as the support to Trade Area in raising new customers; Reinforcement of the follow-up function with qualitative adjustments as for production / information analysis, which enabled a proactive intervention regarding the identification of problems and solutions seeking, contributing in that way to maintain the credit portfolio’s quality; Greater focus on recoveries for the management of irregular assets, with the reinforcement of portfolios’ sale and payment in kind as an alternative to judicial proceedings.

Counterparty’s Credit Risk Santander Totta uses a risk and approval system associated with exposure to financial entities (counterpart risk), based on granting a rating and the management of credit limits and another sort of exposures resulting from cash operations. The purpose is to mitigate the credit / solvency risk, by means of the implementation of uniformed and established proceedings and controls. This model is used the following way:

Risk analysts analyzing counterparts, aiming at establishing the non compliance / expected loss degree / (rating); Control whenever possible of rating versus risk perceived by the market (external rating and credit default swaps); Granting of exposure limits by means of a matrix per type of product and operation’s maximum timeframe.

The revision of credit limits and rating is carried out at least once a year, according to corporate and uniform methodology. The control of risk exposure is measured by means of integrated systems enabling to identify, at each moment, the use level of the limits as well as the availability for new operations. Market Risk

Activities subject to market risk The segment of measurement, control and follow up of financial risks includes the transactions with assets risk. The risk results from changes in several market variables, such as interest rates,

44


Annual Report 2007

foreign exchange rates, and volatility – as well as the solvency risk and liquidity risk of the different products and markets where Santander Totta operates. According to the purpose of the risk the activities are segmented as follows:

•

•

Treasury

–

–

–

–

Trading: it includes the activity of Financial Services to customers (Institutional, Investment banking and Commercial banking);

Proprietary trading - (Directional Portfolio) - Positions with larger timeframes through fixed and floating interest rate products and currency.

Structural Risk: activities with a main risk resulting from interest rates changes, with no medium/long term positions and therefore not considered as negotiation are included under this heading;

Assets and Liabilities management: the interest risk and liquidity risk appear as a result of time lags regarding maturities and assets and liabilities’ repricing. Positions taken in portfolios to protect the margin and active management of credit risk inherent to Santander Totta balance sheet are also included under this heading.

Structural variable income: capital investments in financial and non financial companies, which do not consolidate, generating variable income risks are recorded under this heading.

Methodologies

Trading Activity

The standard methodology implemented in 2007 financial year for the trading activity is the Value at Risk (VaR). Historic simulation is used as a base with a 99% confidence level and one day timeframe, applying statistical adjustments which enabled including quickly and efficiently the most recent events and which put restraints to the assumed risk levels. Stress Testing (scenarios analysis) is used also. This analysis consists in establishing scenarios for different financial variable’s behaviours deriving the respective impact on the results when applying them to the activities. These scenarios may replicate the behaviour of financial variables before past facts (such as crisis) or, on the contrary, may determine plausible scenarios not corresponding to past events. In short, the scenarios’ analysis seeks to identify the potential risk under extreme market conditions and on the fringes of probabilities of occurrence not covered by VaR. A daily follow-up of the positions is carried out at the same time, with an extensive control of changes occurred in portfolios, aiming at detecting profile changes or possible impacts to correct them. Daily preparation of results account is a risk indicator, in so far as it enables us to identify the impact of changes in financial variables or the changes in portfolios

Back-testing measure The reliability of the VaR model is periodically assessed through an analysis to back-testing. Back-testing consists in a comparative analysis between the calculations of Value at Risk (VaR) and daily “clean” results (clean P&L – result associated with the revaluation of closing portfolios of the previous day at closing prices of the following day), where the occasional/isolated gaps of the results are checked against the estimated measures.

45


Annual Report 2007

Back-testing analysis carried out in Santander Totta complies with the recommendations of BIS with regards to the comparison of internal systems used for financial risks’ measurement and management. Additionally, in back-testing hypothesis tests, excesses tests, normality tests, Spearman rank correlation, average excess measures, etc. are carried out.

Limits Quantitative limits used for trading portfolios and gathered in two groups and are set according to the following:

•

•

•

•

Limits to protect future potential losses. Examples of this kind of limits are VaR, on sensitivity measures (bpvs or greeks) or on equivalent positions; Limits to protect/accommodate effective losses or to protect results already achieved during the financial year. This kind of limits aims at generating warnings on loss (loss triggers), enabling to make decisions before reaching stop loss (maximum loss limit), from which it shall be considered that losses have reached an unacceptable level and the positions shall be closed at once.

Balance sheet Risk The ALM function is allocated to the 1st level of the organisational structure of Santander Totta and decisions are made at the Asset and Liability Committee (ALCO), chaired by the President of the Executive Committee and which includes the executive directors who are responsible for Financial, Treasury, Commercial, Marketing and International areas. The Committee meets every month and the balance sheet risks are analyzed and the structural decisions to be implemented are made. The ALM mission is to measure and control every risk, to optimise Net Interest margin and maximise the balance sheet amount, in compliance with the strategy drawn by top management and with the approved limits. The following limits of balance sheet management are defined for the ALM area:

Limits to control interest rate risk, namely Net Interest Margin (NIM) sensitivity and Market Value of Equity (MVE) sensitivity to unexpected interest rates’ changes; Limits to control liquidity risk through the liquidity coefficient and accumulated net illiquidity.

The interest rate’s risk of consolidated balance sheet is measured through a model of risk’s dynamic analysis, modelling the time evolution of risk factors and Santander Totta’s positions over assets and liabilities sensitive to interest rate changes. The model enables measuring and controlling every risk factor associated with the Balance Sheet market risk, namely the risk directly originated by yield curve shifts, given the index structure and the existing revaluation which determine the net interest margin sensitivity and market value of equity sensitivity of the items which constitute the balance sheet. Due to the uncertainty of interest rate levels for 2007, a policy to maintain sensitivity at low levels was followed, and, in general terms, at the end of December 2007 the balance sheet is almost immunised against interest rate risk (for non-expected parallel changes on the market’s interest rate curve). Foreign exchange risk in the commercial activity is measured and controlled by the global foreign exchange position, and Santander Totta has a total coverage’s strategy. Liquidity management policy is decided at ALCO. Santander Totta’s funding policy takes into account the performance of the balance sheet aggregates, the structural situation of the assets and liabilities time to maturity, the amount of interbanking net debt compared to the available lines, the dispersion of the maturities and the minimisation of costs linked to the funding activity.

46


Annual Report 2007

Decisions on liquidity policy are made at ALCO and carried out by Treasury’s office, in coordination with ALM area. The liquidity structural situation is suitable, with liquidity indicators within the established limits. The net balance of short term indebtedness amounted to 900 million Euros. It should be reported the fact that this balance is very far from the interbanking short term lines perceived on behalf of Santander Totta. Two new operations of mortgage credit securitization of about 4,200 million Euros and the issuance of medium long term liabilities, on deposits or bonds, placed among retail clients have contributed for structural suitability. Santander Totta has an EMTN´s program of 10 billion of euros of which about 7.6 billion of euros are still to be used Trading Risk Santander Totta has a trading risk management and control model based on the direct and active management by every unit, by means of the application of procedures and controls formally defined for the objective identification, evaluation and mitigation of operational risks and therefore the reduction of the losses deriving from this kind of risk. The use of this model is carried out by means of:

•

• • •

• •

•

•

•

Establishment standards and procedures of support to risk management and control, and the competences of all intervening parties; Follow up of risk generating activities; Analysis and report of aggregated information on impacts; Proposal for the implementation of preventive measures and remedial actions, as well as controls to reduce the risk level.

There are qualitative and quantitative analysis enabling the identification, control and report of trading risk, such as self-assessment questionnaires and trading risk indicators, as well as databases of mistakes, impacts and statistics. During 2007 the main activities carried out were the following:

Collection of operational risks’ events, analysis, conciliation, rating and follow-up; Opening specific trading risks book accounts, so as to enable the due identification of respective events; Analysis of the information included in tools supporting risk management and control, definition of preventive measures, remedial actions and controls leading to reduce risk levels; Development of a questionnaire of self-assessment of operational risk, valued analysis of the answers, identification of potential risk situations and subsequent implementation of recommendations and remedial measures; Periodical drawing up of internal reports of analysis and follow-up of the implemented model intended for senior management and decision bodies and other intervening parties.

47


Annual Report 2007

Proposal for Distribution of Profits

Net income for the financial year of 2007, in individual terms, amounted to € 343,398,747.82 (three hundred forty three million, three hundred ninety eight thousand, seven hundred forty seven Euros and eighty two cents) and consolidated Net income for 2007 financial year, was € 387,619,076.00 (three hundred eighty seven million, six hundred nineteen thousand and seventy six Euros). The Board of Directors, in accordance with the provisions of article 19 of the articles of incorporation, proposes the following distribution of profits:

–

–

–

Legal Reserve: € 34,339.874.79 (thirty four million three hundred thirty nine thousand eight hundred seventy four Euros and seventy nine cents); Dividends Distribution: € 200,000,000.00 (two hundred million Euros) for all the issued shares; The remaining amount of € 109,058,873.03 (one hundred nine million fifty eight thousand eight hundred seventy three Euros and three cents), for retained earnings.

Lisbon, 31 January 2008

THE BOARD OF DIRECTORS

48


Annual Report 2007

Additional Information

Prevention on Money Laundering Santander Totta identifies with society and the authorities of the different countries where it operates, by recognising the importance of the prevention and fight against money laundering and terrorism financing, which impacts essential aspects of living in society and shows its solidarity and maximum cooperation with competent authorities to prevent and fight against these phenomena. Santander Totta considers that the best way to fulfil its commitment implies establishing internal efficient standards and procedures, developing banking activity in accordance with a strict code of good practices, to settle acting patterns, control and communication systems, in order to prevent that its Units are used for money laundering and terrorism financing and guarantee that all employees comply with the set up policies and procedures, and comply strictly with laws against money laundering, as well as the recommendations issued on this matter by the International Group of Financial Activity and national and international authorities. For this purpose Santander Totta has regulations in line with the legal provisions and a organization structure assigned to the prevention and control of money laundering, its staff has the suitable training for this matter and use automatic procedures for detection and internal communication of possible risk operations and monitors and carries out transactions and alerts with characteristics of possible risk. Local visits were also made to the units with head offices abroad, to check and guarantee the compliance with the policies, as well as the operation capability of the systems to fight against money laundering and terrorism financing. These Units have been implementing the set up procedures or the legal standards of the country if the latter are more demanding. The system for prevention and internal control against money laundering is audited every year, with the aim of certifying integrity and monitor the compliance with legal obligations and Santander Totta’s criteria and procedures. Organization Structure by Departments Nuno Manuel Amado Internal Audit Department Operational Risk Department Credit Risk Department Financial Risk Department Marketing Coordination Department Marketing Planning and Segmentation Department Services and Products Coordination Department

Communication and Advertising Department

Individuals Department Small Business and Corporate Department Human Resources Coordination Department Human Resources Management Department Administrative Management Department Clearing department Transactional Banking Coordination Department Way of Payment Department Cards Department Analysis and Data Base Department Executive Commission Chairman Office Public Relations and Special Events Office

49


Annual Report 2007

António Vieira Monteiro Debt Recovery Coordination Department Recovery Management Department North Recovery Department South Recovery Department Follow-up and Legal Control Department Standardized risks Coordination Department Procedures and Credit Policies Department North UDO Department South UDO Department Corporate and Wholesale Banking Risks Coordination Department Wholesale Banking Department Control and Follow-up Coordination Department

Commercial Banking Department

Central Management and Follow-up Department North Management and Follow-up Department South Management and Follow-up Department Commercial Banking Credit Control Department Wholesale Banking Credit Control Department Operational, Capital, Markets and Financial Risks Coordination Department

Procedures and Financial Markets Operational Control Department Financial Risks Department Methodology, Procedures and Infrastructure Department Planning and Risk Projects Office Universities Office

Senior Credit Management Committee Carlos Amaral de Pinho Complementary Channels Coordination Department Phone Channel Department Self-Banking Department NetB@nco Department International Coordination Department Subsidiaries and Management Control Department Emigration Commercial Department Institutional Customers Department Eduardo José Stock da Cunha Accounting and Management Control Coordination Department Norms and Internal Control Office Prudential Control Office Accounting Department Management Control Department Consolidated Group Department

Financial Coordination Department Corporate Financial Services Department Tax Department Financial Participations Department Asset and Liability Management Department

50


Annual Report 2007

Cost Organization and Optimization and Logistics Coordination Department Network Organization and Special Projects Department Process Development Department Cost Optimization and Control Department Communications, Purchases and Transportation Department

Technology and Systems Coordination Department Functional Department Production Department Property and Security Coordination Department Security Office Works and Maintenance Department Property and Space Management Department Operations Coordination Department Foreign and Payments Department Markets and Accounts Operational Department Financial Markets Operational Department Customer and Operational Control Department Forwarding, Archive and Securities Department Commercial Banking Custody Department Mortgage Credit Coordination Department José Carlos Sítima Business Consulting Coordination Department Corporate and Consulting Department Institutional Affairs and Compliance Coordination Department Surveillance Office Prevention and Money Laundering Office José Eduardo Bettencourt Individuals and Small Business Coordination Department – North Individuals and Small Business Department– North Commercial Dynamics Department – North Business Support Commercial Department – North Irregularities Control Department- North Individuals and Small Business Commercial Department North 1 Individuals and Small Business Commercial Department North 2 Individuals and Small Business Commercial Department North 3 Individuals and Small Business Commercial Department North 4 Individuals and Small Business Commercial Department North 5 Individuals and Small Business Commercial Department North 6 Individuals and Small Business Commercial Department North 7 Individuals and Small Business Commercial Department North 8 Individuals and Small Business Commercial Department North 9 Individuals and Small Business Commercial Department North 10 Individuals and Small Business Commercial Department North 11 Individuals and Small Business Commercial Department North 12 Individuals and Small Business Commercial Department North 13 Individuals and Small Business Commercial Department North 14 Individuals and Small Business Commercial Department North 15 Individuals and Small Business Coordination Department – South Individuals and Small Business Department– South Commercial Dynamics Department – South Business Support Commercial Department – South Irregularities Control Department- South Individuals and Small Business Commercial Department North 1 Individuals and Small Business Commercial Department North 2 Individuals and Small Business Commercial Department North 3 Individuals and Small Business Commercial Department North 4 Individuals and Small Business Commercial Department North 5 Individuals and Small Business Commercial Department North 6 Individuals and Small Business Commercial Department North 7 Individuals and Small Business Commercial Department North 8 Individuals and Small Business Commercial Department North 9

51


Annual Report 2007

Individuals and Small Business Commercial Department North 10 Individuals and Small Business Commercial Department North 11 Individuals and Small Business Commercial Department North 12 Individuals and Small Business Commercial Department North 13 Individuals and Small Business Commercial Department North 14 Individuals and Small Business Commercial Department North 15 Individuals and Small Business Commercial Department North 16 Individuals and Small Business Commercial Department North 17 Individuals and Small Business Commercial Department North 18

Commercial Private Banking Department North Commercial Private Banking Department South Commercial Private Banking Department – South 1 Commercial Private Banking Department – South 1 Private Banking Business Support Department Business Dynamics and Follow-up Coordination Department

Private Banking Asset Management Office

Business Dynamics and Follow-up Department North Business Dynamics and Follow-up Department South Network Control and Dynamics Coordination Department Network Planning, Management and Control Department Network Operational Marketing Department Network Management and Commercial Dynamics Department Collective Protocols Office Network Projects Support Office Corporate Coordination Department - North Corporate Commercial Department North 1 Corporate Commercial Department North 2 Corporate Commercial Department North 3 Corporate Commercial Department North 4 Corporate Commercial Department North 5 Corporate Commercial Department North 6 Corporate Commercial Department North 7 Corporate Commercial Department North 8 Corporate Commercial Department North 9 Corporate Risks Department North Corporate Coordination Department - South Corporate Commercial Department South 1 Corporate Commercial Department South 2 Corporate Commercial Department South 3 Corporate Commercial Department South 4 Corporate Commercial Department South 5 Corporate Commercial Department South 6 Corporate Commercial Department South 7 Corporate Commercial Department South 8 Corporate Commercial Department South 9 Corporate Risks Department South Iberian Corporations Coordination Department Construction Promotion Coordination Department Construction Promotion Commercial Department North Construction Promotion Commercial Department South Real Estate Risks Department Real Estate Promoters and Agents Coordination Department Management Support Office Commercial Department North Commercial Department South Promoters Stores Commercial Department Volcano Project

52


Annual Report 2007

José Manuel Elias da Costa Corporate and Investment Banking Coordination Department Credit Markets Coordination Department Global Transaction Banking Coordination Department Global Customers Commercial Department - Sales Lisbon 1 Global Customers Commercial Department - Sales Lisbon 2 Global Customers Commercial Department - Sales Oporto Global Customers Products Dynamics Department Treasury Coordination Department Corporate Sales Department Institutional Sales Department Global Connect Department Market-Making Office Economic Research Office Midlle-Office Cash Equity Department Institutional Custody Department Exchange Products Office Equity Research Office Proprietary Trading Department Business Control Office Luís Bento dos Santos Quality Coordination Department Customer Support Department Control Department Image and Internal and External Communication Office Information and Follow-up Office Duties carried out by Members of Board of Directors of Santander Totta in other societies The main activities carried out by members of Board of Directors of BANCO SANTANDER TOTTA, SA outside the societies, which are significant for the latter are the following ones: António Mota de Sousa Horta Osório

Banco Santander, S.A. Santander Investment, S.A. (Spain) Abbey National, Plc. (UK) Santander Totta, S.G.P.S., S.A. Banco Santander de Negócios Portugal, S.A. Portal Universia Portugal, S.A.

General Manager Member of the Director’s Committee Member of the Board of Directors Chairman of the Executive Committee Chairman of the Board of Directors Chairman of the Board of Directors Vice-Chairman of the Board of Directors

53


Annual Report 2007

Nuno Manuel da Silva Amado Banco Santander, S.A. Santander Totta, S.G.P.S., S.A. Banco Santander de Negócios Portugal, S.A. Portal Universia Portugal, S.A. Câmara de Comércio e Indústria Luso Espanhola

General Manager Member of the Director’s Committee Vice-Chairman of the Board of Directors and Chairman of the Executive Committee Vice-Chairman of the Board of Directors and Chairman of the Executive Committee Vice-Chairman of the Board of Directors and Chairman of the Executive Committee Vice-Chairman of the Director’s Council

Matias Rodrigues Inciarte Banco Santander, S.A. Santander Totta, S.G.P.S., S.A. Banco Espanhol de Crédito, S.A. Financeira Ponferrada, S.A. SCH Seguros e Reseguros, S.A. União de Crédito Imobiliário, S.A. Santander Activos Imobiliários, S.A., SGIIC Operador do Mercado Ibérico de Energia Pólo Espanhol, S.A. Grupo Corporativo Ono, S.A.

Vice-Chairman (3rd) of the Board of Directors Vice-Chairman of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors President of the Board of Directors President of the Board of Directors Member of the Board of Directors Vice-Chairman (2nd)

Miguel de Campos Pereira de Bragança

Santander Totta, S.G.P.S., S.A. Abbey National Plc (UK) Banco Santander de Negócios Portugal, S.A. Santander Insurance Services UK Limited (entre 23-01-07 e 19-09-07) Santander IP UK Limited (entre 23-01-07 e 18-09-07) Santander Cards Limited

Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors

54


Annual Report 2007

António José Sacadura Vieira Monteiro Santander Totta, S.G.P.S., S.A. Portal Universia Portugal, S.A. Banco Totta de Angola

Member of the Board of Directors and of the Executive Committee Member of the Board of Directors and of the Executive Committee Chairman of the Board of Directors

José Manuel Alves Elias da Costa Santander Totta, S.G.P.S., S.A. Banco Santander de Negócios Portugal, S.A.

Member of the Board of Directors and of the Executive Committee Member of the Board of Directors and of the Executive Committee

Eurico Silva Teixeira de Melo

Santander Totta, S.G.P.S., S.A. Banco Santander de Negócios Portugal, S.A. Portal Universia Portugal, S.A. Socitrel – Santo Tirso RAR Holding

Member of the Board of Directors Member of the Board of Directors Vice-Chairman of the Board of Directors and Member of the Executive Committee Chairman of the Fiscal Committee Chairman of the Board of the General Meeting

Eduardo José Stock da Cunha

Banco Santander de Negócios Portugal, S.A. ISBAN PT – Engenharia e Software Bancário, S.A. Taxagest – Soc. Gestora de Participações Sociais, S.A. SIBS – Soc. Interbancária de Serviços, S.A.

Member of the Board of Directors and of the Executive Committee Chairman of the Board of Directors Chairman of the Board of Directors Member of the Board of Directors

Luís Filipe Ferreira Bento dos Santos Banco Santander de Negócios Portugal, S.A. Portal Universia Portugal, S.A.

Member of the Board of Directors Member of the Board of Directors and of the Executive Committee

55


Annual Report 2007

José Carlos Brito Sítima Portal Universia Portugal, SA Tottaurbe – Empresa de Administração e Construções, S.A. Banco Totta de Angola

Chairman of the Board of the General Meeting Chairman of the Board of Directors Chairman of the Board of the General Meeting

Pedro Aires Coruche Castro e Almeida Banco Santander de Negócios Portugal, S.A. Santander Totta Seguros – Companhia de Seguros de Vida, S.A. Santander Pensões – Sociedade Gestora de Fundos de Pensões, S.A Santander Gestão de Activos, SGPS, SA Santander Asset Management – Sociedade Gestora de Fundos de Invest. Mobiliário, S.A.

Member of the Board of Directors and of the Executive Committee Chairman of the Board of Directors Chairman of the Board of Directors Chairman of the Board of Directors Chairman of the Board of Directors

António Mendo Castel-Branco Borges Santander Totta, S.G.P.S., S.A. Banco Santander de Negócios Portugal, S.A. Goldman Sachs International CNP Assurances (France) SCOR (France) Caixa Seguros (Brazil) Jerónimo Martins Heidrick and Struggles (USA) Fundação Champalimaud

Chairman of the Fiscal Committee Chairman of the Fiscal Committee Vice-Chairman and Managing Director Member of the Board of Directors Member of the Supervision Committee Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors

Ricardo Manuel Duarte Vidal de Castro Santander Totta, S.G.P.S., SA Banco Santander de Negócios Portugal, S.A.

Member of Fiscal Committee Member of Fiscal Committee

56


Annual Report 2007

Pedro Manuel Alves Ferreira Guerra Santander Totta, S.G.P.S., SA Banco Santander de Negócios Portugal, S.A.

Fiscal Committee - substitute Fiscal Committee – substitute

Movements in Shares and Bonds of Members of Governing and Monitoring Bodies Under the terms and for the purposes of the provisions of Article 447º of Companies Code and subparagraph a), of Article 8, of CMVM 4/2004 Regulation, we inform that the movements of shares and bonds carried out by the members of governing and monitoring bodies regarding the year of 2007, were the following: Board of Directors António Mota de Sousa Horta Osório – Presidente Shares Position Holding on 31.12.2006: 157 Banco Santander Totta, S.A. shares 142,571 Santander Totta, SGPS, S.A. shares 2 BSN - Banco Santander de Negócios Portugal, S.A. shares On 31.12.2007, he held: 157 Banco Santander Totta, S.A. shares 142.571 do Santander Totta, SGPS, S.A. shares 2 do BSN - Banco Santander de Negócios Portugal, S.A. shares Bonds position Holding on 31.12.2006: 50 BSP– Poup. Super Estrelas II Bonds 75 BTA– Poup. Super Estrelas Bonds 75 BTA – Poup. Super Estrelas II Bonds 50 BTA – Super 5% Bonds 50 BTA – Estratégia Valor Mais 05/09 Bonds During the year 2007, the following movements were reported: Unit Value 27.02.2007 Reimbursement 50 BTA – Super 5% Bonds 50 euros each On 31.12.2007, he held: 50 BSP – Poup. Super Estrelas II Bonds 75 BTA – Poup. Super Estrelas Bonds 75 BTA – Poup. Super Estrelas II Bonds 50 BTA – Estratégia Valor Mais 05/09 Bonds

57


Annual Report 2007

Nuno Manuel Silva Amado – Vice - President Bonds Position Holding on 31.12.2006: 200 BTA – Totta Euro Inflação Cx. 2003/08 Bond 200 BSP - Poupança Super Estrelas Bond Durin the year of 2007, the following movements were reported: Unit Value 26.03.2007 Subscription of 100 BST-Inv. Premium 2011-8.25% CX Bonds 50 euros each On 31.12.2007 he held: 200 BTA – Totta Euro Inflação Cx. 2003/08 Bonds 200 BSP - Poupança Super Estrelas Bonds 100 BST – Investimento Premium 2011-8.25% CX Bonds Eurico Silva Teixeira de Melo – Vogal Shares position Holding on 31.12.2006: 142.571 Santander Totta, SGPS, S.A. shares 157 Banco Santander Totta, S.A. shares On 31.12.2007, he held: 142.571 Santander Totta, SGPS, S.A. shares 157 Banco Santander Totta, S.A. shares Bonds position Holding on 31.12.2006: 900 BSP – Poupança Super Estrelas II Bonds 900 BSP – Euro rentabilidade Bonds 500 Rendimento Mundial 2004 Bonds 500 BSP – Rendimento Certo Cx.05/2013 Bonds 1240 BST – Competição Mundial Cx.06/2010 Bonds On 31.12.2007, he held: 900 BSP – Poupança Super Estrelas II Bonds 900 Obrigações BSP – Euro Rentabilidade Bonds 500 Obrigações Rendimento Mundial 2004 Bonds 500 Obrigações BSP – Rendimento Certo Cx.05/2013 Bonds 1240 Obrigações BST – Competição Mundial Cx.06/2010 Bonds Miguel de Campos Pereira de Bragança – Voting member Shares position Holding on 31.12.2006: 6.053 Banco Santander Totta, S.A shares On 31.12.2007, he held: 6.053 do Banco Santander Totta, S.A shares

58


Annual Report 2007

Bonds position During the year of 2007, the following movements were reported: Unit Value 18.05.2007 internal transfer of 300 BTA – Rend. Certo CX.05/2013 bonds 50 euros each On 31.12.2007, he held: 300 BTA – Rendimento Certo CX. 05/2013 Bonds António José Sacadura Vieira Monteiro – Vogal Bonds position Holding on 31.12.2006: 54 CPP – Garantido 6 Anos bonds 300 BTA – Rendimento Certo Cx.05/2013 bonds During the year 2007, the following movements were reported: Unit Value 30.04.2007 Subscriptionof 100 BST – Euro Banca 7/2011 CX bonds 50 euros each On 31.12.2007, he held: 54 CPP – Garantido 6 Anos bonds 300 BTA – Rendimento Certo Cx.05/2013 bonds 100 BST – Euro Banca 7/2011 CX bonds Carlos Manuel Amaral Pinho – Voting member Shares position Holding on 31.12.2006: 1 ISBANP – Engenharia e Software Bancário, S.A. share On 31.12.2007, he held: 1 ISBANP – Engenharia e Software Bancário, S.A. share Bonds position Holding on 31.12.2006: 100 BTA – Estratégia Valor Mais 05/09 bonds 100 BTA – Rendimento China 6% bonds 200 BST-Super Rendimento Mercados Emergentes Cx.-06/2010 bonds 100 BST – Gás Natural Premium Cx. 10%-2010 bonds During the year 2007, the following movements were reported: Unit Value 12.07.2007 Sale in Stock Exchange of 100 BTA – Rendimento China 6% bonds 50 euros each 22.01.2007 Subscription of 280 BST – Rendimento China 8% bonds 50 euros each On 31.12.2007, he held: 100 BTA – Estratégia Valor Mais 05/09 bonds 200 BST-Super Rendimento Mercados Emergentes Cx.-06/2010 bonds 100 BST – Gás Natural Premium Cx. 10%-2010 bonds 280 BTA – Rendimento China 8% bonds

59


Annual Report 2007

Eduardo José Stock da Cunha – Voting member Bonds position Holding on 31.12.2006: 50 BTA Poupança Super Estrelas bonds On 31.12.2007, he held: 50 BTA Poupança Super Estrelas bonds Luís Filipe Ferreira Bento dos Santos – Voting member Bonds position Holding on 31.12.2006: 200 Totta – Rendimento Certo –bonds 100 BTA – Cabaz Mundial – bonds 500 Rendimento Crescente 6 – bonds 300 BST – Rendimento Mercados Emergentes – bonds During the year 2007, the following movements were reported: Unit Value 19.11.2007 Reimbursement of 100 BTA – Totta Cabaz Mundial – bonds 50 euros each 22.01.2007 Subscription 400 BST – Rendimento China 8% - bonds 50 euros each On 31.12.2007, he held: 200 Totta – Rendimento Certo – bonds 500 Rendimento Crescente 6 – bonds 300 BST – Rendimento Mercados Emergentes – bonds 400 BST – Rendimento China 8% - bonds

60


Annual Report 2007

Financial Statements / Notes / Report and Opinion

61


BANCO SANTANDER TOTTA, S.A.

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 TOGETHER WITH LEGAL CERTIFICATION OF ACCOUNTS AND AUDIT REPORT

April 2008

LEGAL CERTIFICATION OF ACCOUNTS AND AUDIT REPORT

CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands of Euros – tEuros)

(Translation of a report originally issued in Portuguese – Note 48)

Introduction 1. In compliance with the applicable legislation we hereby present our Legal Certification of Accounts

and Audit Report on the consolidated financial information contained in the Directors’ Report and on the accompanying consolidated financial statements of Banco Santander Totta, S.A. and subsidiaries (“the Bank” or “BST”) for the year ended December 31, 2007, which comprise the consolidated balance sheet as of December 31, 2007 that presents a total of 37,799,300 tEuros and total shareholders’ equity of 2,243,440 tEuros, including consolidated net income attributable to the shareholders of BST of 387,619 tEuros, the consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended and the corresponding notes.

Responsibilities 2. The Board of Directors of the Bank is responsible for: (i) the preparation of consolidated financial

statements that present a true and fair view of the financial position of the companies included in the consolidation, the consolidated results of their operations and their consolidated cash flows; (ii) the preparation of historical financial information in accordance with the applicable accounting principles and that is complete, true, timely, clear, objective and licit, as required by the Portuguese Securities Market Code (“Código dos Valores Mobiliários”); (iii) the adoption of adequate accounting policies and criteria and maintenance of appropriate systems of internal control; and (iv) the disclosure of any significant facts that have influenced the operations of the companies included in the consolidation, their financial position or results of operations.

3. Our responsibility is to examine the financial information contained in the documents of account

referred to above, including verifying that, in all material respects, the information is complete, true, timely, clear, objective and licit, as required by the Portuguese Securities Market Code, and to issue a professional and independent report based on our work.

Page 2 of 2

Scope 4. Our examination was performed in accordance with the auditing standards (“Normas Técnicas e

Directrizes de Revisão/Auditoria”) issued by the Portuguese Institute of Statutory Auditors (“Ordem dos Revisores Oficiais de Contas”), which require that the examination be planned and performed with the objective of obtaining reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our examination included verifying, on a sample basis, evidence supporting the amounts and disclosures in the consolidated financial statements and assessing the estimates, based on judgements and criteria defined by the Board of Directors, used in their preparation. Our examination also included verifying the consolidation procedures used, application of the equity method and verifying that the financial statements of the companies included in the consolidation have been adequately examined, assessing the adequacy of the accounting principles used, their uniform application and their disclosure, taking into consideration the circumstances, verifying the applicability of the going concern concept, verifying the adequacy of the overall presentation of the consolidated financial statements, and assessing if, in all material respects, the consolidated financial information is complete, true, timely, clear, objective and licit. Our examination also included verifying that the consolidated financial information included in the Directors’ Report is consistent with the consolidated financial statements. We believe that our examination provides a reasonable basis for expressing our opinion.

Opinion 5. In our opinion, the consolidated financial statements referred to in paragraph 1 above present fairly, in

all material respects, the consolidated financial position of Banco Santander Totta, S.A. and subsidiaries as of December 31, 2007, the consolidated results of their operations and their consolidated cash flows for the year then ended in conformity with the International Financial Reporting Standards as adopted by the European Union and the financial information included therein is, in terms of the definitions included in the standards referred to in paragraph 4 above, complete, true, timely, clear, objective and licit.

Lisbon, April 8, 2008 DELOITTE & ASSOCIADOS, SROC S.A. Represented by Jaime Pedro Galhoz Pereira


CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006

(Translation of balance sheets originally issued in Portuguese - Note 48)

(Amounts expressed in thousands of Euros)

2007 2006Amounts before

Impairment, Impairment,depreciation and depreciation and Net Net

Notes amortization amortization assets assets Notes 2007 2006

Cash and deposits at central banks 6 425,200 - 425,200 513,934 LiabilitiesBalances due from banks 7 380,288 - 380,288 263,017 Resources of central banks 18 2,128,308 3,037Financial assets held for trading 8 1,387,958 - 1,387,958 1,100,597 Financial liabilities held for trading 8 1,251,020 950,296Financial assets designated at fair value through profit an 9 407,028 - 407,028 417,754 Resources of other financial institutions 19 5,381,279 4,840,797Available-for-sale financial assets 10 1,898,954 42,858 1,856,096 375,489 Resources of customers and others 20 11,866,257 11,450,360Loans and advances to banks 11 4,369,784 - 4,369,784 3,293,978 Debt securities issued 21 13,855,170 12,803,768Loans and advances to customers 12 28,359,271 441,995 27,917,276 26,361,538 Hedging derivatives 13 235,186 383,630Hedging derivatives 13 77,406 - 77,406 197,375 Provisions 22 90,467 88,291Other tangible assets 14 793,391 372,686 420,705 408,018 Current tax liabilities 16 23,283 17,919Intangible assets 14 192,382 144,375 48,007 44,852 Deferred tax liabilities 16 25,094 46,786Investments in associates 15 20,965 - 20,965 22,384 Equity instruments 23 - 100,477Current tax assets 16 2,070 - 2,070 3,630 Subordinated liabilities 24 420,321 430,750Deferred tax assets 16 241,036 - 241,036 259,099 Other liabilities 25 279,475 261,931Other assets 17 290,819 45,338 245,481 284,771 Total liabilities 35,555,860 31,378,042

Shareholders' equity Share capital 26 589,811 589,811Share premium account 26 163,703 163,703Other equity instruments 26 135,000 135,000Revaluation reserves 26 5,679 78,424Other reserves and retained earnings 26 444,658 297,274Treasury shares (177) (72)Consolidated net income attributable to the shareholders 27 387,619 353,914Shareholders' equity attributable to the shareholders of BST 1,726,293 1,618,054Minority interest 28 517,147 550,340 Total shareholders' equity 2,243,440 2,168,394

Total Assets 38,846,552 1,047,252 37,799,300 33,546,436 Total liabilities and shareholders' equity 37,799,300 33,546,436

LIABILITIES AND SHAREHOLDERS' EQUITYASSETS

The accompanying notes form an integral part of these balance sheets.


CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

(Translation of statements originally issued in Portuguese - Note 48)


Notes 2007 2006

Interest income 30 3,266,540 3,110,573Interest expense 31 (2,595,897) (2,491,602)

Financial margin 670,643 618,971

Income from equity instruments 32 7,458 7,852Fees and commission income 33 368,087 335,130Fees and commission expense 34 (56,873) (36,067)Result of assets and liabilities valued at fair value through profit and loss 35 3,600 (16,845)Result of available-for-sale financial assets (net) 36 65,265 41,735Result of exchange revaluation (net) 37 13,621 4,803Result of other assets 38 24,955 46,253Other operating results 39 (8,479) 2,429

Net income from banking acivities 1,088,277 1,004,261

Personnel costs 40 (277,918) (269,055)General administrative costs 41 (148,524) (153,427)Depreciation and amortization 14 (68,030) (65,550)Provisions, net 22 (27,680) (1,112)Loan impairment net of reversals and recoveries 22 (64,843) (16,235)Impairment of other financial assets net of reversals and recoveries 22 5 (22,418)Impairment of other assets net of reversals and recoveries 22 (21,358) (24,003)Net income of associates 42 3,739 2,484

Income before taxes and minority interest 483,668 454,945

Taxes Current 16 (83,740) (58,949) Deferred 16 (12,307) (42,080)

Income after taxes and before minority interest 387,621 353,916

Income attributable to minority interest 28 2 2

Consolidated net income attributable to the shareholders of BST 27 387,619 353,914

Average number of ordinary shares outstanding 589,784,106 589,801,224Earnings per share (in Euros) 0.66 0.60

The accompanying notes form an integral part of these statements of income.


CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 and 2006

(Translation of statements originally issued in Portuguese - Note 48)

(Amounts in thousands of Euros)

2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES:Interest, commission and other income 3,498,281 3,401,073Interest, commission and other expense (2,087,081) (2,216,516)Payments to personnel and suppliers (407,664) (408,803)Contributions to the Pension Funds (46,638) (417,019)Foreign exchange and other operating results 4,777 6,890Recovery of uncollectible loans 21,489 33,977

Operating results before changes in operating assets and liabilitie 983,164 399,602

(Increase) / decrease in operating assetsLoans and advances to banks (1,065,744) 486,287Financial assets held for trading (246,307) 178,173Loans and advances to customers (1,588,195) (916,823)Hedging derivatives (45,948) 105,943Available-for-sale non-current financial assets 1,552 (20,243)Other operating assets 51,325 14,419

(2,893,317) (152,244)Increase / (decrease) in operating liabilities:

Resources of financial institutions 2,652,671 (6,388,174)Resources of customers and others 390,791 (776,236)Financial liabilities held for trading 300,724 (162,722)Other operating liabilities 7,800 (8,178)

3,351,986 (7,335,310)

Net cash flow from/(used in) operating activities before income tax 1,441,833 (7,087,951)Income tax paid (87,178) (70,486)

Net cash flow from/(used in) operating activities 1,354,655 (7,158,437)

CASH FLOWS FROM INVESTING ACTIVITIES:Dividends received 12,617 7,852Purchase of available-for-sale financial assets (1,657,870) (74,471)Sale of available-for-sale financial assets 167,820 335,606Income from available-for-sale assets 69,917 24,612Sale of held-to-maturity investments - 22,895Purchase of intangible and tangible assets (92,507) (81,372)Sale of tangible assets 1,744 24,276

Net cash flow from/(used in) investing activities (1,498,279) 259,398

CASH FLOWS FROM FINANCING ACTIVITIES:Dividends paid (180,000) (180,000)Supplementary capital contributions - 135,000Issuance of debt securities and subordinated liabilities 878,248 7,270,225Interest paid on bonds issued and others (503,658) (277,245)Interest paid on subordinated liabilities (22,429) (16,430)

Net cash flow from investing activities 172,161 6,931,550

Net increase in cash and cash equivalents 28,537 32,511

Cash and cash equivalents at the beginning of the year 776,951 744,440Cash and cash equivalents at the end of the year 805,488 776,951

The accompanying notes form an integral part of these statements of cash flows.


CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006


(Translation of a statement originally issued in Portuguese - Note 48)

Share Other Exchange premium equity Legal Fair Deferred Legal Other fluctuation Retained Treasury Net Minority

Capital account instruments revaluation value taxes reserve reserves reserve earnings shares income interest Total

Balances at December 31, 2005 589,811 163,703 - 23,245 72,491 (26,064) 41,470 573,945 4,402 (427,648) (13) 296,996 291,665 1,604,003

Appropriation of net income - - - - - - 29,309 23,702 - 57,741 - (116,996) 6,244 -Dividends distributed - - - - - - - - - - - (180,000) - (180,000)Exchange difference on foreign subsidiaries - - - - - - - - (5,651) - - - - (5,651)Issuance of preference shares with equity features - - - - - - - - - - - - 273,349 273,349Payment of interim dividend on preference shares with equity features - - - - - - - - - - - - (20,922) (20,922)Change in the fair value of available-for-sale equity items - - - - 17,793 4,584 - - - - - - - 22,377Change in the fair value cash flow hedging derivatives - - - - (19,092) 5,245 - - - - - - - (13,847)Supplementary capital contributions made by ST, SGPS - - 135,000 - - - - - - - - - - 135,000Purchase of treasury shares - - - - - - - - - - (59) - - (59)Others - - - - - 222 - 245 (17) (224) - - 4 230Consolidated net income for the year attributable to the shareholder - - - - - - - - - - - 353,914 - 353,914Balances at December 31, 2006 589,811 163,703 135,000 23,245 71,192 (16,013) 70,779 597,892 (1,266) (370,131) (72) 353,914 550,340 2,168,394

Appropriation of net income - - - - - 751 31,289 26,420 1,060 93,469 - (173,914) 20,925 -Dividends distributed - - - - - - - - - - - (180,000) - (180,000)Exchange difference on foreign subsidiaries - - - - - - - - (5,013) - - - (28,800) (33,813)Payment of interim dividend on preference shares with equity features - - - - - - - - - - - - (27,608) (27,608)Write-off of cost of issuing preference shares - - - - - - - - - - - - 2,250 2,250Change in the fair value of available-for-sale equity items - - - - (90,067) 16,104 - - - - - - - (73,963)Change in the fair value cash flow hedging derivatives - - - - 636 (169) - - - - - - - 467Purchase of treasury shares - - - - - - - - - - (105) - - (105)Others - - - - - - - 159 - - - - 40 199Consolidated net income for the year attributable to the shareholder - - - - - - - - - - - 387,619 - 387,619Balances at December 31, 2007 589,811 163,703 135,000 23,245 (18,239) 673 102,068 624,471 (5,219) (276,662) (177) 387,619 517,147 2,243,440

Revaluation reserves

The accompanying notes form an integral part of this statement.

BANCO SANTANDER TOTTA, S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006 (Translation of notes originally issued in Portuguese – Note 48) (Amounts expressed in thousands of Euros - tEuros, unless otherwise indicated)

1

INTRODUCTORY NOTE Banco Santander Totta, S.A. (hereinafter referred to as the “Bank” or “BST”), previously known as Companhia Geral de Crédito Predial Português, S.A. (“CPP”), is a commercial bank founded in 1864. The Bank was nationalized in 1975 and transformed into a State owned bank in 1990. On December 2, 1992 the Bank’s capital was re-privatized through an Initial Public Offering carried out in a special session of the Lisbon Stock Exchange. Since December 2000, following the acquisition of Banco Totta & Açores, S.A. (“Totta”) by the Santander Group (“SAN”), the Bank has been part of the SAN. The main balances and transactions with Group Companies are presented in Note 45. On December 16, 2004, a demerger/merger operation of Totta was carried out, under which its investments in Foggia, SGPS, S.A. and Totta Seguros – Companhia de Seguros de Vida, S.A. were demerged and the remainder of its operations, together with Banco Santander Portugal, S.A. (“BSP”), were merged into CPP, which then changed its name to the current one. The Bank’s operations consist of obtaining funds from third parties, in the form of deposits and others, which it applies, together with its own funds, in all sectors of the economy, mostly in the form of loans or securities and also provides other banking services in Portugal and abroad. The Bank has a domestic network of 684 branches (644 branches at December 31, 2006) and foreign exchange posts and has overseas branches in London and Luxembourg, as well as an offshore financial branch and an international offshore branch in the Autonomous Region of Madeira. The Bank also has subsidiaries and representation offices abroad as well as investments in subsidiaries and associated companies. In 2007 BST’s Board of Directors decided to close the Luxembourg branch. 1. BASES OF PRESENTATION AND MAIN ACCOUNTING POLICIES 1.1. Bases of presentation BST’s consolidated financial statements were prepared on a going concern basis, from its books

and accounting records maintained in accordance with the accounting principles set forth in the International Financial Reporting Standards (IAS/IFRS) as adopted by the European Union, Regulation (CE) 1606/2002 of July 19 of the European Parliament and Council, transposed to Portuguese legislation by Decree-Law 35/2005 of February 17, and Notice 1/2005 of February 21 of the Bank of Portugal. Where Group companies use different accounting principles, appropriate adjustments were made.

In 2007 the Bank and subsidiary and associated companies adopted IFRS 7 – Financial

Instruments: Disclosures, effective for reporting periods starting January 1, 2007 or later, with the necessary amendments of IAS 1 – Financial Statement Presentation. The impact of adopting IFRS 7 consisted essentially of greater disclosure regarding financial instruments used and management of capital (Note 46).

On the other hand, the Bank also adopted the amendment of IAS 1 – Disclosure of entity-specific

capital requirements, which reflected the need of additional disclosures concerning capital requirements. Disclosures established under this amendment are presented on Note 47.


2

As of December 31, 2007 were available for early adoption the following standards (new and review) and interpretations issued by the International Accounting Standards Board (IASB) and by the Internacional Financial Reporting Interpretation Committee (IFRIC), respectively, endorsed by the European Union:

- IFRS 8 – “Operating Segments” – This standard specifies the disclosure requirements of

information about the entity’s operating segments, replacing IAS 14 – “Segment reporting”. Its application is mandatory for reporting periods starting January 1, 2009 or later;

- IFRIC 11 – “IFRS 2 - Group and Treasury Share Transactions” – The Interpretation main

objective is to clarify how to apply IFRS 2 to share-based payments’. Its application is mandatory for reporting periods starting March 1, 2007 or later.

In addition, until the approval of the attached financial statement, have still been issued the

following standards and interpretations, not yet endorsed by the European Union: - IAS 1 (Amendment) – “Presentation of Financial Statements” – The amendment introduces

changes in the name and requirements of presentation of financial statements, as well as statement of changes in equity. Its application is mandatory for reporting periods starting January 1, 2009 or later;

- IFRS 3 (Amendment) – “Business Combinations” and IAS 27 – “Consolidated and Separate

Financial Statements” – The revised text of these standards introduce changes regarding the measurement and recognition of the Goodwill acquired in business combinations, at their acquisition date and the consideration of the impact of later events on the fair value of the acquired entity and in the accounting treatment of acquisitions made in several stages. It also defines the accounting treatment to adopt in the recognition of transactions with shares of subsidiaries, with or without control maintenance.

The application of the reviewed standards is mandatory for reporting periods starting July 1,

2009 or later. - IFRIC 14 – “IAS 19 - The Limit on a Defined Benefit Asset Minimum Funding Requirements

and their Interaction” – This Interpretation clarifies the requirements for the recognition of a surplus in a pension plan as an asset, as well as the effects relating to the recognition of the minimum funding requirement as liability. Its application is mandatory for reporting periods starting January 1, 2008 or later.

Though an assessment of the impact of the adoption of standards and interpretation above is not

yet available, in preparing the attached consolidated financial statements, the Bank’ Board of Directors believes that its implementation will not produce a material impact.

The financial statements of BST and subsidiary and associated companies for the year ended

December 31, 2007 are subject to approval by the corresponding Shareholders’ General Meetings. However, the Bank’s Board of Directors believes that they will be approved without significant changes.


3

1.2. Consolidation principles and recording of associated companies

Subsidiary companies are those in which the Bank has direct or indirect control. Control usually exists when the percentage participation exceeds 50%, the majority of voting rights are held or there is power to manage the financial and operating policies of an entity so as to benefit from its operations.

The financial statements of subsidiaries are consolidated by the full integration method from the time BST has control over their activities to the time control ceases.

Balances, transactions and the corresponding income and expenses between the consolidated entities are eliminated in the consolidation process. Third party participation in subsidiary companies consolidated by the full integration method is reflected in the caption “Minority interest” (Note 28).

Associated companies are those in which the Bank has significant influence, but over which it does not have control. Significant influence is presumed to exist when a participation (direct or indirect) exceeds 20% or where the Bank has the power to participate in decisions relating to their financial and operating policies, but does not have control or joint control over them. Companies in which the Bank’s participation is less than 20%, but that are majority held by the Santander Group are also considered as associated companies. Participations in associated companies are recorded in accordance with the equity method, from the time the Bank has significant influence until the date it ceases.

In accordance with the equity method, the consolidated financial statements include the part of shareholders’ equity and profit and loss of the associated companies attributable to the Bank.

Goodwill corresponds to the excess of the cost of acquisitions over the effective percentage held

in the fair value of the assets, liabilities and contingent liabilities of subsidiary and associated companies.

The Bank decided not to apply IFRS 3 – Concentration of business activities, retrospectively. Therefore goodwill on acquisitions up to January 1, 2004 is reflected as a deduction from shareholders’ equity in compliance with the former accounting policy. On the other hand, previously recognized negative goodwill was recorded as an increase in shareholders’ equity, as permitted by IFRS 1.

Acquisitions of subsidiaries and associated companies after January 1, 2004 are recorded in

accordance with the purchase method. Cost of the acquisitions corresponds to the fair value of the assets and liabilities of the subsidiaries and associated companies as of the acquisition date, plus costs directly attributable to the acquisition. Goodwill is recorded as an asset and is subject to impairment tests in accordance with IAS 36, but is not amortized. In addition, whenever fair value exceeds cost (negative goodwill), the difference is reflected in the statement of income.

The Bank consolidates Special Purpose Entities (SPE), namely vehicles used for securitization

operations of mortgage loans, by the full integration method.


4

The Group decided to reverse, as of the transition date (January 1, 2004), the reserve resulting from exchange differences arising on the translation of financial statements of subsidiaries expressed in functional currencies other than the Euro. As from that date, in compliance with IAS 21, the foreign currency financial statements of subsidiary and associated companies have been translated to Euros as follows:

- Assets and liabilities are translated at the closing exchange rate for Euros on the balance

sheet date;

- Non-monetary assets recorded at historical cost, including tangible assets, remain reflected at the original exchange rates; and

- Foreign currency income and expenses are translated to Euros at the average exchange

rates of the month in which they are recognized.

Exchange differences are reflected in the shareholders’ equity caption “Exchange fluctuation reserves”.

1.3. Summary of the main accounting policies The main accounting policies used in preparing the financial statements were as follows: a) Accruals basis

The Bank uses the accrual-based accounting principle for most of its financial statement captions. Therefore, expenses and income are recorded in the period to which they relate, independently of when they are paid or received.

b) Foreign currency transactions

Foreign currency assets and liabilities are translated to Euros at the fixing exchange rates at the balance sheet date, except for foreign currency notes and coins, which are translated at the average rate for the month indicated by the Bank of Portugal.

Income and expenses relating to foreign currency transactions are recorded in the period in which they occur, in accordance with the effect they have on the exchange position.

The spot position in any particular currency, which is the net balance of all assets and liabilities in that currency, is revalued on a daily basis, using the fixing exchange rate indicated by the Bank of Portugal, by corresponding entry to the statement of income.

The forward position in any particular currency, which is the net balance of forward operations waiting to be settled, is revalued at forward market rates or, in their absence, calculated based on the interest rates applicable to that currency for the remaining period to maturity of each operation. Differences between the amounts in Euros at the forward revaluation rates and the contracted rates, which correspond to revaluation of the forward exchange position, are recorded in the statement of income.

c) Loans and accounts receivable

This caption includes loans and advances made by the Bank to customers and to credit institutions.

Loans and advances to costumers include loans to costumers, as well as other security operations (commercial paper), which are recorded at their nominal value.

Subsequently, loans and other receivables are recorded at amortized cost, being submitted to periodic impairment analyses.


5

Commission and interest on operations underlying assets included in this category, as well as interest on loans and advances granted, are recognized on an accruals basis over the period of the operations, using the effective interest rate method, regardless of when they are received or paid. The Bank opted to defer commission received and paid relating to credit granted as from January 1, 2004.

The Group classifies as overdue credit, instalments of principal and interest overdue for more than 30 days. Credits with overdue instalments are denounced in accordance with the approved credit procedures, the whole debt being considered overdue.

Impairment

Loans to customers and other receivables are subject to periodic impairment tests. A financial asset is considered to be impaired if, and only if, there is evidence that one or more loss events have occurred that have a measurable impact on the estimated future cash flows of that asset or group of assets.

The Group’s loan portfolio is segmented as follows for purposes of determining impairment:

− Corporate customers;

− Mortgage loans;

− Consumer credit;

− Credit cards;

− Other credit to individual customers.

The Group makes an individual assessment of corporate customers that have:

− Overdue instalments of principal and interest of at least tEuros 75 (that are monitored

by recovery managers);

− Overdue instalments for more than 90 days:

. All credits granted greater than tEuros 300; and

. All credits between tEuros 50 and tEuros 300, monitored by risk managers.

− Customers classified as “Doubtful not in litigation” for special follow-up purposes, considering signs of impairment other than default.

Customers assessed individually with no evidence of impairment are subsequently assessed on a collective basis, differentiating customers with responsibilities greater and less than tEuros 300.

The Bank carries out a collective impairment assessment of the remaining segments of the loan portfolio.


6

Evidence of impairment of an asset or group of assets, as defined by the Group, corresponds to observation of several loss events, such as:

− Non compliance with a contract, such as delay in paying principal and/or interest;

− Significant financial difficulty of the debtor;

− Significant change in the debtor’s equity;

− Other adverse changes, such as:

. Condition and/or ability to pay;

. Economic conditions in the sector in which the debtor operates with an impact on

the debtor’s ability to comply with its obligations.

Impairment losses for customers that are not in default corresponds to the product of the probability to default (PI) and the difference between the book value of the respective credits and the discounted cash flows of those operations. PI corresponds to the probability of one transaction, operation or client defaulting during an emergency period. Emergency period corresponds to the period between the occurrence of a loss event and the identification of that event by the Bank (incurred but not reported). For all the loan portfolio segments, the Bank considers an emergency period of 12 months.

If there is evidence that the Group has incurred an impairment loss on credits or other receivables, the amount of the loss is determined by the difference between the book value of those assets and the present value of the estimated future cash flows, discounted at the original interest rate of the asset or financial assets. The book value of the asset or assets is reduced by the balance of the impairment loss account. In the case of credits with variable interest rates, the discount rate used to determine an impairment loss is the current interest rate, determined by the contract. Impairment losses are recorded by corresponding entry to the statement of income.

In accordance with the Group’s current impairment model for the customer loan portfolio, the existence of impairment losses is assessed individually, on a sample basis, and on a collective basis. When a group of financial assets is assessed collectively, the future cash flows of that group are estimated based on the contractual cash flows of the assets of that group and on historical data regarding losses on assets with similar credit risk characteristics. Whenever the Group considers it necessary, the historical information is updated based on current observable data, in order to reflect the effect of current conditions.

When, in a subsequent period, there is a decrease in the amount of impairment losses due to a specific event, the previously recognised amount is reversed and the impairment loss account is adjusted. The amount reversed is recognized directly in the statement of income.

The Group periodically writes off overdue credits considered uncollectible using the respective accumulated impairment account. Any credits recovered are recognised as decreases in impairment losses, in the statement of income caption “Loan impairment net of reversals and recoveries”.

Loan sales Gains and losses on the definitive sale of loans are recorded in the statement of income

caption “Results of other assets” (Note 38). Such gains and losses correspond to the difference between the sales price fixed and the book value of the assets net of impairment losses. Possible contingent future collections are not considered in determining the fixed amount of the sale


7

Guarantees given and irrevocable commitments

Responsibilities for guarantees given and irrevocable commitments are recorded in off- -balance sheet accounts by the amount at risk, while interest, commission and other income are recorded in the statement of income over the period of the operations.

d) Recognition of income and costs relating to services and commission

Income from a significant service rendered, such as income from syndicated loans, is recognized in the statement of income when the service has been completed.

Income from services and commission obtained as the services are rendered are recognized in the statement of income in the period to which they refers.

Income from services and commission that are part of the remuneration of financial instruments are recorded in the statement of income, using the effective interest rate method.

Costs relating to services and commission are recognized using the same criteria as for

income. e) Financial instruments

The following assets and liabilities are recognized and valued in compliance with IAS 32 and IAS 39, and comprise the following specific categories:

- Financial assets and liabilities held for trading;

- Financial assets designated at fair value through profit and loss;

- Available-for-sale financial assets; and

- Other financial liabilities.

i) Financial assets and liabilities held for trading and financial assets designated at fair

value through profit and loss Financial assets held for trading include fixed income securities and variable yield

securities traded on active markets, as well as derivatives purchased with the intention of being sold or repurchased in the short term. Trading derivatives (including currency swaps) with a receivable net value (positive fair value) and options bought are included in the caption “Financial assets held for trading”. Trading derivatives (including currency swaps) with a payable net value (negative fair value) and options sold are included in the caption “Financial liabilities held for trading”.

Financial assets designated at fair value through profit and loss include fixed income

securities traded on active markets that the Bank has opted to record and value at fair value through profit and loss.

Financial assets and liabilities held for trading and financial assets designated at fair value through profit and loss are recorded initially at fair value. Gains and losses resulting from subsequent valuations are recognized in the statement of income.

The fair value of financial assets held for trading is the “bid-price” or the closing price of

the securities at the balance sheet date. Where market value is not available, fair value is estimated based on valuation techniques that include price valuation models or discounted cash flow techniques.


8

Where discounted cash flow techniques are used, the future financial flows are estimated in accordance with management’s expectations and the discount rate corresponds to the market rate for financial assets and liabilities with similar characteristics. In the case of price valuation models, the data used corresponds to information regarding market prices.

The fair value of derivatives not listed on stock markets is estimated based on the

amount that would be receivable or payable to liquidate the contract on the valuation date, considering market conditions as well as the creditworthiness of the counterparties.

ii) Available-for-sale financial assets

Available-for-sale financial assets include equity and debt instruments which are not

classified as financial assets held for trading or at fair value through profit or loss, as held-to-maturity investments or as loans and accounts receivable.

Available-for-sale financial assets are valued at fair value, except for equity

instruments not listed on an active market, the fair value of which cannot be determined reliably, which are recorded at cost. Subsequent gains and losses resulting from changes in the fair value of available-for-sale financial assets are recognized directly in the shareholders’ equity caption “Fair value reserve” until they are sold (or until impairment losses are recognized on them), when they are transferred to the statement of income. Exchange gains and losses on monetary assets are recognized directly in the statement of income.

iii) Income recognition

Interest on financial assets and the recognition of differences between their cost and

the nominal value (premium or discount) are calculated in accordance with the effective rate method and recorded in the statement of income caption “Interest income”.

Income from variable return securities, namely dividends, is recognized in the

statement of income on the date the dividends are declared or received. In accordance with this criteria, interim dividends are recognized as income in the year the distribution is declared.

iv) Sales operations with repurchase agreements

Securities sold with repurchase agreements are maintained in the portfolio in which

they were originally recorded. Funds received are recorded on the settlement date in a specific liability account, interest being recorded on an accruals basis.

v) Impairment of financial instruments

Where there is evidence of impairment of an asset or group of assets, the impairment

loss is recognized with a corresponding entry in the statement of income. Evidence of impairment of listed securities is considered to exist where their list price

falls continuously or falls significantly. Evidence of impairment of unlisted securities is considered to exist where there is a significant impact on the estimated future cash flow of the financial asset, provided that it can be reasonably estimated.

Except as explained in the following paragraph, if in a subsequent period there is a

decrease in the amount of impairment loss attributable to a specific event, the previously recognized amount is reversed through an adjustment to the caption impairment losses. The reversal is recognized directly in the statement of income.


9

Where there is objective evidence of impairment of available-for-sale financial assets as a result of a significant and prolonged decrease in the fair value of the security or financial difficulty of the issuer, the accumulated loss of the fair value reserve is transferred from equity to the statement of income. Impairment losses on fixed income securities can be reversed through the statement of income if there is an increase in the fair value of the security resulting from an event that occurs after determination of the impairment. Impairment losses on variable yield securities cannot be reversed and so any unrealized gain arising after recognition of the impairment loss is recorded in the fair value reserve. In the case of variable yield securities for which impairment losses have been recognized, subsequent reductions in fair value are always recognized in the statement of income.

vi) Other financial liabilities

Other financial liabilities, comprising essentially resources of other financial institutions,

customers’ deposits and debt issued, are valued at fair value, which corresponds to the amount received initially net of transaction costs. Subsequently they are valued at amortized cost, in accordance with the effective interest rate method.

Derivatives embedded in bonds issued are recorded separately and revalued at fair

value through profit and loss.

f) Valuation of derivative instruments and hedge accounting

Derivative instruments traded by the Group are always recognized in the balance sheet at their fair value.

Derivatives embedded in other financial instruments (namely debt issued) are segregated from their host contract whenever their risks and characteristics are not intimately related to those of the host contract and the whole instrument is not recorded at fair value through profit and loss.

BST uses derivative financial instruments to hedge interest and exchange rate risks resulting from financing and investing activities. Derivatives which do not qualify for hedge accounting are recorded as financial instruments held for trading, in financial assets or liabilities held for trading captions, and all variations in their fair value are reflected in the statement of income.

Derivatives which qualify for hedge accounting are recorded at fair value and the gains and losses are recognized in accordance with the hedge accounting model adopted by BST.


10

In accordance with IAS 39.88, hedge accounting is only applicable where the following requirements are met cumulatively:

− Formal documentation exists regarding the hedging relationship and risk management

strategy of the Bank, including the following:

. Identification of the hedging instrument;

. Identification of the hedged item;

. Identification of the hedged risk; and

. Definition of the method used to measure the hedging efficiency and subsequent monitoring.

− Initial expectation that the hedging relationship is highly effective; and

− During the period of the operation, the hedging effectiveness is maintained at between

80% and 125%. The hedging effectiveness is tested on each financial statement date by comparing the variation in fair value of the hedged item, with the variation of the fair value of the hedging derivative.

Hedge accounting is only applied from the time all these requirements are met. In the same way, if at any time the hedging efficiency ceases to be between 80% and 125%, hedge accounting is discontinued.

Fair value hedges

Gains or losses on the revaluation of hedging instruments are recognized in the statement of income. If the hedge is efficient, the gains and losses resulting from variations in the fair value of the hedged item relating to the risk which is being hedged are also recognized in the statement of income.

If a hedging instrument matures or is terminated early, the gains or losses in the valuation of the hedged risk, recognized as value adjustments of the hedged items, are amortized over the remaining period of the hedged item. If the hedged asset or liability is sold or liquidated, the amounts recognized as valuation of the hedged risk are recorded in the statement of income for the year and the derivative instrument is transferred to the trading portfolio. If the hedge becomes ineffective, the gains and losses recognized as value adjustments of the hedged items are amortized through the statement of income over the remaining period.

Hedge accounting is not applied in the case of exchange rate hedging of monetary items, the gain or loss on the derivative and on the monetary items being recognized in the statement of income for the period.

Cash flow hedges

Cash flow hedges refer to hedging the exposure to variations in future cash flows that can be attributed to a specific risk relating to a recorded asset or liability, or to a highly probable future transaction that may affect results.

BST has derivative financial instruments contracted to hedge future flows of interest on its variable rate mortgage loan portfolio.


11

Application of cash flow hedge accounting is also subject to the previously mentioned hedge accounting requirements, and requires the following accounting:

− The effective portion of the gain or loss on the hedging instrument is recognized

directly in a specific equity caption; and

− The ineffective portion is recorded in the statement of income.

Additionally, the gain or loss on the hedging instrument recognized in equity is the lower of the following amounts:

− The accumulated variation of the fair value of the hedging instrument as from the

beginning of the hedge; and

− The accumulated variation of the fair value of the hedged item, relating to the risk that is being hedged, as from the beginning of the hedge.

In this respect, the portion of the gain or loss on the hedging instrument not recognized in equity, if any, is recorded in the statement of income.

Cash flow hedge accounting must be discontinued if the hedging instrument matures or is terminated early, if the hedge becomes inefficient or if it is decided to terminate the hedge relationship. In these cases, the accumulated profit or loss resulting from the hedging instrument must remain reflected separately in equity, being recorded in the statement of income in the same period the gains or losses on the hedged item are recognized.

g) Other tangible assets

Tangible assets used by the Bank in its operations are recorded at cost (including costs attributed directly) less accumulated depreciation and impairment losses.

Depreciation of tangible assets is recorded systematically over the estimated period of useful life of the assets:

Years of useful life Property for own use 50 Equipment 4 to 10

Leasehold improvements are depreciated over their expected useful lives, or lease period if shorter, corresponding on average to ten years.

As permitted by IFRS 1, on transition to IAS/IFRS, the Bank maintained the book value of tangible assets acquired up to January 1, 2004, which corresponds to cost adjusted by legal revaluations based on evolution of the general price index. Part, corresponding to 40% of the increase in depreciation resulting from the revaluations, is not tax deductible, the corresponding deferred tax liability being recorded.

Impairment tests are made periodically. The branches are considered as cash flow generating units for this purpose, impairment losses being recognized where the value of the property is not recovered through use in the operations. In such cases, the amount of the impairment loss corresponds to the difference between the net amount of the real estate and the amount of the valuation.

The criteria followed in the evaluations usually consider the “market comparison method” and the value in the assessment corresponds to the market value of the asset in its current state.


12

h) Intangible assets

The Bank recognizes in this caption, costs incurred in the development phase of information systems implemented and in the implementation phase, as well as costs of acquiring software, in both cases where the estimated impact extends beyond the financial year in which the costs are incurred. Assessments are made annually to determine any impairment losses.

Intangible assets are amortized on a monthly basis over the estimated period of useful life of the assets which, on average, corresponds to three years.

i) Tangible assets available for sale

The Bank records under the caption “Other assets”, property, equipment and other assets received as settlement of non-performing loans, these being recorded at the amount of the settlement agreement, which is the lower of the amount of the outstanding debt or the appraised value of the asset as of the date of the agreement. Such property is subject to periodic appraisals, impairment losses being recorded whenever the appraised value (net of costs to sell) is lower than its book value. Tangible assets are recorded in this caption from the time the promissory contract transferring or auctioning the asset is signed.

This caption also includes the Bank’s property for own use in the process of sale. Such assets are transferred from tangible assets at their book value in accordance with IAS 16 (cost net of impairment and depreciation) and are also subject to periodic appraisals to determine impairment losses.

The Bank does not recognize unrealized gains on these assets, because there is no confirmed expectation of its realization.

Considering the above and though the Bank’s Board of Directors believes that there is no material impact on its financial position, the Bank is evaluating the possibility of recognizing these assets according to IAS 40 – “Investment Property”, using the fair value model.

j) Provisions

This liability caption includes provisions recorded in accordance with IAS 37, to cover the restructuring plan, tax contingencies, legal processes and other specific risks arising from BST’s operations (Note 22).

k) Employees’ post employment benefits

The Bank subscribed to the Collective Labour Agreement (Acordo Colectivo de Trabalho - ACT) for the Portuguese Banking Sector, under which its employees or their families are entitled to retirement, disability and survivor pensions. However, as the employees of the former Totta are covered by Social Security, the Bank’s pension liability to these employees consists on the payment of supplements. The remaining employees of BST are not covered by Social Security, the Bank being responsible for payment of the full amount of the pensions established in the ACT. In order to cover its liability the Bank has a Pension Fund.

BST’s present pension plan is a defined benefit plan, as it establish the criteria for determining the amount of the pension that each employee will receive during retirement based on his/her time of service and remuneration at the time of retirement, the pensions being adjusted annually based on the remuneration established in the ACT for current personnel.


13

On January 1, 2004 BST opted not to apply IAS 19 retrospectively, and therefore has not recalculated the actuarial gains and losses that would be deferred on the balance sheet if this standard was adopted as from the beginning of the pension plans. Consequently, the actuarial gains and losses existing at January 1, 2004, as well as those resulting from adopting IAS 19 were reversed/recorded, by corresponding entry to retained earnings as of the transition date.

BST’s retirement pension liability is calculated annually by experts, based on the “Projected Unit Credit” method. The discount rate used in the actuarial calculations is determined based on market rates for high quality corporate bonds, in the currency in which the benefits will be paid (Euros), with similar maturity terms to those of the plan’s liability. Employees’ post-employment benefits also include healthcare (SAMS) and death subsidy during retirement.

Actuarial gains and losses resulting from: (i) the differences between the actuarial and financial assumptions used and the effective amounts; and (ii) the changes in actuarial assumptions, are recognized as assets or liabilities, their accumulated amount being reflected in the statement of income based on the “corridor” method.

In accordance with the “corridor” method, the accumulated deferred actuarial gains and losses that exceed 10% of the greater of the present value of the total liability or the value of the fund, both as of the beginning of the year, are reflected in the statement of income over the remaining estimated period of service of the employees covered by the plan. The accumulated actuarial gains and losses within that limit are not recognized in the statement of income.

BST records the following as a cost in the statement of income: - Interest cost, net of estimated income of the Pension Fund assets, in the caption

“Interest income/expense";

- Current service cost in the caption “Personnel costs”; and

- Increased liability due to early retirements in the caption “Personnel costs”.

In 2006 and 2007 the Bank used part of the restructuring provision to cover the increased past service liability due to early retirements.

The retirement pension liability less the fair value of the plan assets and the actuarial gains and losses not recognized in the statement of income because of the “corridor” method is recorded in “Other assets” (Note 17).

Bank of Portugal Notice 4/2005 establishes the requirement for full funding, by the pension fund, of the liability for pensions in payment and a minimum funding of 95% of the past service liability for current personnel. However, the Notice establishes a transitory period of 5 to 7 years to cover the increased liability resulting from the adoption of IAS 19.

In 2006 and 2007 the Bank contributed to the pension funds, amounts to cover its total liability for employee benefits, including healthcare (SAMS).

l) Long service bonus

In compliance with the ACT, BST has assumed the commitment to pay current employees with fifteen, twenty-five and thirty years of good and effective service, a long service bonus corresponding to one, two or three months of their effective monthly remuneration (in the year the premium is attributed), respectively.


14

BST determines the present value of the liability for long service bonuses by actuarial calculation using the “Projected Unit Credit” method. The actuarial assumptions used (financial and demographic) are based on expectations, as of the balance sheet date, regarding salary increases, using mortality tables adapted to the Bank’s population. The discount rate used is determined based on market rates for high quality corporate bonds with similar maturity terms to those of payment of the liability.

The liability for long service bonuses is recorded in the caption “Other liabilities – long service bonus” (Note 25).

m) Income taxes

BST is subject to the tax regime established in the Corporate Income Tax Code (“CIRC”). The branches’ accounts are consolidated with those of the Bank for tax purposes. In addition to being subject to Corporate Income Tax, the results of the branches are also subject to local taxes in the countries/territories in which they are established. Local taxes are deductible from Corporate Income Tax in Portugal under the terms of article 85 of CIRC and the Double Taxation Agreements signed by Portugal.

The Offshore branch in the Autonomous Region of Madeira benefits from article 33 of the Statute of Tax Benefits (“EBF”), which grants it exemption from corporate income tax up to December 31, 2011. In accordance with article 33-A of EBF, for purposes of this benefit, at least 85% of the taxable profit of the Bank’s total operations is considered to result from operations outside the Madeira free trade area.

In accordance with article 86 of the Corporate Income Tax Code, tax paid under the terms of item 1, article 83, net of international double taxation and any tax benefits, cannot be less than 60% of the amount that would have been determined if the taxpayer did not have the tax benefits established in item 13, article 40 and article 69 of the Corporate Income Tax Code.

In 2006 the Portuguese Parliament approved and published in the Official Journal of the Republic of January 15, 2007, the new Local Finances Law (“Lei das Finanças Locais”), which is effective as from January 1, 2007. In accordance with article 14 of the law, the local authorities can establish a maximum local tax of up to 1.5% of taxable income subject to and not exempt from corporate income tax. The change results in a decrease to 25% in the tax rate used to calculate deferred taxes relating to tax losses carried forward and to 26.5% relating to the other temporary differences resulting from the recognition of corporate income tax for the year.

Deferred tax assets and liabilities correspond to the tax recoverable and payable in future periods resulting from temporary differences between the carrying value of assets and liabilities and their respective tax bases. Tax credits are also recognized as deferred tax assets.

Deferred tax assets are recognized when it is estimated that they will be recovered and only up to the amount that will probably be recovered through the existence of sufficient expected future taxable income to absorb the deductible temporary differences.

Deferred tax assets and liabilities have been calculated using the tax rates decreed for the period in which the respective assets are expected to be realized or the liabilities incurred.

For purposes of recognizing deferred tax assets relating to the adjustment of the pension liability to IAS/IFRS, calculated as of 1 January 2004, the amount of approximately tEuros 88,684 was excluded from the base of the calculation, corresponding to tax of tEuros 24,388, because the Bank believes that there is a risk that this amount will not be recovered.


15

Current and deferred taxes are reflected in the statement of income, except for taxes on transactions recorded directly in shareholders’ equity, namely unrealized gains and losses on available-for-sale securities and cash flow hedging derivatives.

2. PRINCIPAL ESTIMATES AND UNCERTAINTIES REGARDING THE APPLICATION OF THE

ACCOUNTING STANDARDS The preparation of financial statements requires estimates and assumptions to be made by

management, which may affect the amount of assets and liabilities, income and costs, as well as the contingent liabilities disclosed.

Post-employment benefits Retirement and survivor pensions have been estimated using actuarial tables and assumptions

regarding pension and salary growth and expected return of the pension fund assets, which may differ from the actual amounts.

Valuation of financial instruments not traded on active markets Models and valuation techniques, such as those described in Note 1.3 e) above, are used to value

financial instruments not traded on active markets. Consequently, the valuations correspond to best estimates of the fair value of these instruments as of the balance sheet date.

Determination of impairment losses on financial assets Impairment loss on loans has been determined as explained in Note 1.3 c) above. Consequently,

impairment determined by individual assessment corresponds to the Bank’s judgement as to the financial situation of the customers and its estimate of the value of the loan guarantees given, with the consequent impact on expected future cash flows. Impairment loss determined on a collective basis is estimated based on historical parameters for comparable types of operations, considering estimates of default and recoverability.

Taxes Deferred tax assets are recognized based on the assumption of the existence of future taxable

income. Additionally, deferred tax assets and liabilities have been determined based on the tax legislation currently in force. Therefore, changes in tax legislation or in its interpretation by the competent authorities may have an impact on the amount of deferred taxes.

In 2006 Law 53-A/2006 of December 29, that approved the State Budget for 2007, introduced a

change to article 14 of Decree-law 35/2005 of February 17. As a result of the change, all entities subject to Bank of Portugal supervision that must present individual non-consolidated financial statements in accordance with the Adjusted Accounting Standards issued under Bank of Portugal Notice 1/2005 of February 21, must use these to calculate taxable profit. This change is effective as from January 1, 2006.

For this purpose, the State Budget for 2007 has established a set of rules, applicable to the year 2006,

which will remain in force until the necessary changes needed to adjust to the new situation resulting from the adoption of IAS/IFRS, are introduced into the Corporate Income Tax Code.

The transitory rules resulting from the introduction of the Adjusted Accounting Standards were

observed in calculating taxable income for 2007 and 2006, in accordance with the Bank’s interpretation of them.


16

3. DISCONTINUED OPERATIONS Following a meeting of the Bank’s Executive Committee held on 21 March 2007, procedures were

started to close Luxembourg branch. In addition, as of June 2006 the process of closing Totta & Açores Finance Ireland, Ltd. (TAFIL) was

initiated, and was concluded in March 2007 (Note 5). Nevertheless, in substance, TAFIL’s operation was not discontinued, as the previously developed activity by this entity is now undergone by Totta Ireland, Plc.. Therefore, even if in formal terms this entity was closed, in substance, the assets and liabilities previously reflected in TAFIL’s books, as well as its operations, are now within Totta Ireland, Plc. books and, consequently, remain inside the consolidation perimeter.

The Banks’ Board of Directors considers that, in accordance with paragraphs 29, 30 and 31 of IAS 1,

the amounts related to the Luxembourg branch and TAFIL are not material. However, as required in paragraph 33 of the above mentioned standard, additional disclosures are presented regarding these entities (Notes 4, 22 and 27).


17

4. BALANCE SHEET AND STATEMENT OF INCOME BY SEGMENTS The Bank’s balance sheet as of December 31, 2007, by geographic segments, was as follows:

Domestic operations International operationsInter-segment Inter-segment Consolidated

Portugal London Madeira Luxembourg operations Total Ireland Angola Puerto Rico Other Total operations total

Assets

Cash and deposits at central banks 371,412 137 134 - 371,683 - 53,517 - - 53,517 - 425,200Balances due from banks 381,544 1,202 3,383 2,771 (9,101) 379,799 21,995 10,560 7,423 760 40,738 (40,249) 380,288Financial assets held for trading 1,432,849 1,934 - 1 - 1,434,784 - 66,148 653 - 66,801 (113,627) 1,387,958Financial assets designated at fair value through profit and loss 407,028 - - - - 407,028 - - - - - - 407,028Available-for-sale financial assets 4,004,967 - - - - 4,004,967 1,932,587 47,033 - - 1,979,620 (4,128,491) 1,856,096Loans and advances to banks 8,554,376 4,021,854 89,703 4,476 (6,653,103) 6,017,306 1,243,235 37,954 486,147 332,315 2,099,651 (3,747,173) 4,369,784Loans and advances to customers 25,655,522 2,121,947 22,026 13,937 - 27,813,432 - 103,225 - - 103,225 619 27,917,276Hedging derivatives 77,403 - - - - 77,403 - - 1,068 - 1,068 (1,065) 77,406Other tangible assets 412,492 504 - 92 - 413,088 2 7,556 - 59 7,617 - 420,705Intangible assets 47,469 52 - 39 - 47,560 - 447 - - 447 - 48,007Investments in associates 370,475 - - - - 370,475 - - - 23,827 23,827 (373,337) 20,965Current tax assets 2,065 - - - - 2,065 - - - 5 5 - 2,070Deferred tax assets 241,021 - - - - 241,021 - 15 - - 15 - 241,036Other assets 299,989 354 - 440 (31,544) 269,239 - 1,270 1 2,373 3,644 (27,402) 245,481Total Assets, net 42,258,612 6,147,984 115,112 21,890 (6,693,748) 41,849,850 3,197,819 327,725 495,292 359,339 4,380,175 (8,430,725) 37,799,300

Liabilities

Resources of central banks 2,128,278 30 - - - 2,128,308 - - - - - - 2,128,308Financial liabilities held for trading 1,336,658 1,906 - 14 - 1,338,578 24,876 48 968 - 25,892 (113,450) 1,251,020Resources of other financial institutions 11,549,321 2,008,000 5,523 13,139 (6,661,283) 6,914,700 1,618,562 8,554 4,642 - 1,631,758 (3,165,179) 5,381,279Resources of customers and others 11,201,099 153,146 98,112 7,404 - 11,459,761 - 247,335 238,862 24,049 510,246 (103,750) 11,866,257Debt securities issued 13,320,651 3,076,275 - 608 - 16,397,534 1,192,471 - - - 1,192,471 (3,734,835) 13,855,170Hedging derivatives 235,098 - - - - 235,098 - - 1,282 - 1,282 (1,194) 235,186Provisions 61832 25,856 217 389 - 88,294 - 1,969 - 204 2,173 - 90,467Current tax liabilities 12,519 870 - 947 - 14,336 2,966 5,981 - - 8,947 - 23,283Deferred tax liabilities 24,489 - - - - 24,489 605 - - - 605 - 25,094Equity instruments - - - - - - - - - - - - -Subordinated liabilities 406,668 843,326 - - - 1,249,994 - - - - - (829,673) 420,321Other liabilities 275,616 3,220 2 643 (921) 278,560 75 1,374 124 58 1,631 (716) 279,475Total do Passivo 40,552,229 6,112,629 103,854 23,144 (6,662,204) 40,129,652 2,839,555 265,261 245,878 24,311 3,375,005 (7,948,797) 35,555,860

Shareholders' equity 1,706,383 35,355 11,258 (1,254) (31,544) 1,720,198 358,264 62,464 249,414 335,028 1,005,170 (481,928) 2,243,440Total liabilities and shareholders' equity 42,258,612 6,147,984 115,112 21,890 (6,693,748) 41,849,850 3,197,819 327,725 495,292 359,339 4,380,175 (8,430,725) 37,799,300


18

The Bank’s balance sheet as of December 31, 2006, by geographic segments, was as follows:

Domestic operations International operations

Inter-segment Inter-segment Consolidated Portugal London Madeira Luxembourg operations Total Ireland Angola Puerto Rico Other Total operations total

Assets

Cash and deposits at central banks 479,580 391 - 990 - 480,961 - 32,973 - - 32,973 - 513,934Balances due from banks 269,190 2,042 4,181 1,337 (13,109) 263,641 14,604 5,684 5,966 782 27,036 (27,660) 263,017Financial assets held for trading 1,146,635 9,404 - 28 (4,152) 1,151,915 - 45,370 744 - 46,114 (97,432) 1,100,597Financial assets at fair value through profit and loss 417,754 - - - - 417,754 - - - - - - 417,754Available-for-sale financial assets 1,930,502 - - - - 1,930,502 422,732 25,918 - - 448,650 (2,003,663) 375,489Loans and advances to banks 5,892,246 4,958,051 100,067 139,639 (7,712,799) 3,377,204 - 75,921 496,172 435,057 1,007,150 (1,090,376) 3,293,978Loans and advances to customers 24,087,081 2,127,080 29,306 44,853 - 26,288,320 - 73,218 - - 73,218 - 26,361,538Hedging derivatives 196,519 - - - - 196,519 - - 856 - 856 - 197,375Other tangible assets 402,559 585 - 136 - 403,280 3 4,672 - 63 4,738 - 408,018Intangible assets 44,585 37 - 50 - 44,672 - 180 - - 180 - 44,852Investments in associates 369,226 - - - - 369,226 - - - 26,633 26,633 (373,475) 22,384Current tax assets 1,904 - - - - 1,904 - 1,722 - 4 1,726 - 3,630Deferred tax assets 259,083 - - - - 259,083 - 16 - - 16 - 259,099Other assets 265,503 429 - 228 (32,572) 233,588 79,108 1,351 429 449 81,337 (30,154) 284,771Total Assets, net 35,762,367 7,098,019 133,554 187,261 (7,762,632) 35,418,569 516,447 267,025 504,167 462,988 1,750,627 (3,622,760) 33,546,436

Liabilities

Resources of central banks 3,023 14 - - - 3,037 - - - - - - 3,037Financial liabilities held for trading 1,016,726 9,419 - 51 (4,152) 1,022,044 24,576 - 1,107 - 25,683 (97,431) 950,296Resources of other financial institutions 10,803,348 2,059,016 10,081 36,363 (7,725,187) 5,183,621 50,056 2 228 - 50,286 (393,110) 4,840,797Resources of customers and others 10,606,554 323,056 107,761 45,473 - 11,082,844 - 198,017 217,709 26,918 442,644 (75,128) 11,450,360Debt securities issued 10,641,217 3,768,166 - 4,488 - 14,413,871 - - - - - (1,610,103) 12,803,768Hedging derivatives 381,314 - - - - 381,314 - - 2,316 - 2,316 - 383,630Provisions 64,869 19,702 1,239 227 - 86,037 - 2,026 - 228 2,254 - 88,291Current tax liabilities 8,616 - - 947 - 9,563 3,406 4,950 - - 8,356 - 17,919Deferred tax liabilities 46,786 - - - - 46,786 - - - - - - 46,786Equity instruments 2,512 - - - - 2,512 - - - 97,965 97,965 - 100,477Subordinated liabilities 414,982 879,668 - 97,965 - 1,392,615 - - - - - (961,865) 430,750Other liabilities 241,518 4,307 11 912 (721) 246,027 63 10,945 4,593 3,314 18,915 (3,011) 261,931Total do Passivo 34,231,465 7,063,348 119,092 186,426 (7,730,060) 33,870,271 78,101 215,940 225,953 128,425 648,419 (3,140,648) 31,378,042

Shareholders' equity 1,530,902 34,671 14,462 835 (32,572) 1,548,298 438,346 51,085 278,214 334,563 1,102,208 (482,112) 2,168,394Total liabilities and shareholders' equity 35,762,367 7,098,019 133,554 187,261 (7,762,632) 35,418,569 516,447 267,025 504,167 462,988 1,750,627 (3,622,760) 33,546,436


19

The Bank’s statement of income for the year ended December 31, 2007, by geographic segments, was as follows:



Interest income 3,331,133 329,630 5,886 3,769 (315,514) 3,354,904 213,848 22,590 29,431 18,965 284,834 (373,198) 3,266,540Interest expense (2,845,213) (311,588) (4,310) (2,655) 315,514 (2,848,252) (110,970) (3,635) (11,236) (4,308) (130,149) 382,504 (2,595,897)Financial margin 485,920 18,042 1,576 1,114 - 506,652 102,878 18,955 18,195 14,657 154,685 9,306 670,643Income from equity instruments 7,458 - - - - 7,458 - - - - - - 7,458Fees and commission income 369,606 6,694 8 290 (129) 376,469 - 4,145 - 1,452 5,597 (13,979) 368,087Fees and commission expense (57,222) (1,745) - (36) 129 (58,874) (175) (379) (2) (1,411) (1,967) 3,968 (56,873)Result of assets and liabilities valued at fair value through profit and loss (net) 3,880 - - - - 3,880 (716) 10 (281) - (987) 707 3,600Result of available-for-sale financial assets (net) 66,421 - - - - 66,421 - (1,156) - - (1,156) - 65,265Result of exchange revaluation (net) 5,904 131 (13) 1 - 6,023 (358) 7,741 42 173 7,598 - 13,621Results of other assets 24,883 33 - 39 - 24,955 - - - - - - 24,955Other operating results (5,304) 21 (50) 11 - (5,322) (3) 1,031 (8) (97) 923 (4,080) (8,479)Net income from banking activities 901,546 23,176 1,521 1,419 - 927,662 101,626 30,347 17,946 14,774 164,693 (4,078) 1,088,277Personnel costs (269,523) (1,995) - (756) - (272,274) (159) (4,587) (166) (732) (5,644) - (277,918)General administrative costs (146,127) (1,309) - (747) - (148,183) (344) (3,578) (124) (375) (4,421) 4,080 (148,524)Depreciation and amortization (67,238) (181) - (75) - (67,494) (1) (504) - (31) (536) - (68,030)Provisions, net (21,619) (6,154) - (834) 992 (27,615) - (65) - - (65) - (27,680)Loan impairment net of reversals and recoveries (63,144) (111) 992 (271) (992) (63,526) - (1,317) - - (1,317) - (64,843)Impairment of other financial assets net of reversals and recoveries 5 - - - - 5 - - - - - - 5Impairment of other assets net of reversals and recoveries (21,367) - - 9 - (21,358) - - - - - - (21,358)Net income of associates 3,739 - - - - 3,739 - - - - - - 3,739Income before taxes and minority interest 316,272 13,426 2,513 (1,255) - 330,956 101,122 20,296 17,656 13,636 152,710 2 483,668Current tax (64,732) (870) - - - (65,602) (12,013) (6,118) - (7) (18,138) - (83,740)Deferred tax (11,702) - - - - (11,702) (605) - - - (605) - (12,307)Net consolidated profit for the year 239,838 12,556 2,513 (1,255) - 253,652 88,504 14,178 17,656 13,629 133,967 2 387,621Minority interest - - - - - - - - - - - 2 2Consolidated net income attributable to the shareholders of BST 239,838 12,556 2,513 (1,255) - 253,652 88,504 14,178 17,656 13,629 133,967 - 387,619


20

The Bank’s statement of income for the year ended December 31, 2006, by geographic segments, was as follows:



Interest income 3,254,887 339,985 11,617 20,757 (309,311) 3,317,935 99,214 17,423 19,618 38,728 174,983 (382,345) 3,110,573Interest expense (2,808,524) (321,736) (7,210) (18,737) 309,311 (2,846,896) (3,893) (2,675) (8,782) (23,870) (39,220) 394,514 (2,491,602)Financial margin 446,363 18,249 4,407 2,020 - 471,039 95,321 14,748 10,836 14,858 135,763 12,169 618,971Income from equity instruments 7,852 - - - - 7,852 - - - - - - 7,852Fees and commission income 338,609 3,708 - 564 (196) 342,685 13 3,696 13 1,629 5,351 (12,906) 335,130Fees and commission expense (33,503) (1,311) - (41) 196 (34,659) (77) (366) (9) (795) (1,247) (161) (36,067)Result of assets and liabilities valued at fair value through profit and loss (net) 9,770 - 256 - - 10,026 (27,821) (5) 57 - (27,769) 898 (16,845)Result of available-for-sale financial assets (net) 41,819 - - - - 41,819 - (84) - - (84) - 41,735Result of exchange revaluation (net) (2,095) 64 (18) 1 - (2,048) (46) 6,658 73 166 6,851 - 4,803Results of other assets 18,795 83 - - - 18,878 27,384 - (9) - 27,375 - 46,253Other operating results 5,660 (152) (29) (3) - 5,476 - 1,272 (2) (145) 1,125 (4,172) 2,429Net income from banking activities 833,270 20,641 4,616 2,541 - 861,068 94,774 25,919 10,959 15,713 147,365 (4,172) 1,004,261Personnel costs (260,928) (1,855) - (942) - (263,725) (155) (4,223) (125) (827) (5,330) - (269,055)General administrative costs (151,868) (1,473) - (680) - (154,021) (354) (2,640) (188) (396) (3,578) 4,172 (153,427)Depreciation and amortization (64,836) (341) - (116) - (65,293) (1) (228) - (29) (258) 1 (65,550)Provisions, net 3,732 (4,847) 72 84 - (959) - (154) - - (154) 1 (1,112)Loan impairment net of reversals and recoveries (15,210) (254) - (33) - (15,497) - (738) - - (738) - (16,235)Impairment of other financial assets net of reversals and recoveries (22,418) - - - - (22,418) - - - - - - (22,418)Impairment of other assets net of reversals and recoveries (23,994) - - (9) - (24,003) - - - - - - (24,003)Net income of associates 2,484 - - - - 2,484 - - - - - - 2,484Income before taxes and minority interest 300,232 11,871 4,688 845 - 317,636 94,264 17,936 10,646 14,461 137,307 2 454,945Current tax (45,450) - - (9) - (45,459) (11,657) (1,828) - (5) (13,490) - (58,949)Deferred tax (42,071) - - - - (42,071) (8) (1) - - (9) - (42,080)Net consolidated profit for the year 212,711 11,871 4,688 836 - 230,106 82,599 16,107 10,646 14,456 123,808 2 353,916Minority interest - - - - - - - - - - - 2 2Consolidated net income attributable to the shareholders of BST 212,711 11,871 4,688 836 - 230,106 82,599 16,107 10,646 14,456 123,808 - 353,914


21

The Bank’s business segment reporting is made up of the following major business areas:

Retail banking: corresponds mainly to credit granting operations and the obtaining of funds relating to private customers and businesses with turnovers of less than five million Euros through the branch network and the provision of telephone and internet banking services.

Commercial banking: directed to companies with a turnover of between 5 and 125 million Euros and Large Companies with a turnover in excess of 125 million Euros. This activity is backed by the branch network as well as specialized services, and includes a variety of products, such as loans, project finance, export financing, real estate, factoring and leasing.

Corporate activities: this area covers all the activities that provide support to the Group’s main activities but which are not directly related to its core business.

The statement of income for the year ended December 31, 2007, as well as some of the more significant balance sheet captions, by business segment, are as follows:

Retail Commercial Corporate Consolidated

banking banking activities total

Financial margin (narrow sense) 518,361 73,952 78,330 670,643Income from equity instruments - - 7,458 7,458Financial margin 518,361 73,952 85,788 678,101

Net income from fees and commission 290,945 32,825 (12,556) 311,214Other income 2,195 470 (11,144) (8,479)Commercial margin 811,501 107,247 62,088 980,836

Income from financial operations 6,359 28,406 72,676 107,440Banking activity income 817,860 135,653 134,764 1,088,277

Operating costs (383,942) (35,866) (6,633) (426,441)Depreciation and amortization (62,665) (4,574) (791) (68,030)Net operating income 371,253 95,212 127,339 593,805

Net impairment and provisions (24,801) (28,656) (60,420) (113,876)Net income of associated companies - - 3,739 3,739Income before taxes and minority interest 346,452 66,557 70,659 483,668

Tax expense (68,799) (13,217) (14,032) (96,047)Income attributable to minority interest - (22) 20 (2)

Net income 277,654 53,318 56,647 387,619


22

Retail Commercial Corporate Consolidated banking banking activities total

Assets

Loans and advances to customers Mortgage Loans 15,463,446 - - 15,463,446 Consumer credit 1,399,292 - - 1,399,292 Other loans 3,804,577 7,249,961 - 11,054,538

20,667,314 7,249,961 - 27,917,276

Liabilities

Resources on the balance sheetCustomers' accounts and other resources 9,882,726 1,983,530 - 11,866,257Debt securities issued 1,331,556 12,523,614 - 13,855,170

11,214,283 14,507,144 - 25,721,427

Guarantees and other sureties provided 109,646 1,347,623 - 1,457,269

Investment funds 4,793,502 465,080 - 5,258,582

The statement of income for the year ended December 31, 2006, as well as some of the more significant balance sheet captions, by business segment, are as follows:

Retail Commercial Corporate Consolidated

banking banking activities total

Financial margin (narrow sense) 468,684 83,002 67,285 618,971Income from equity instruments - - 7,852 7,852Financial margin 468,684 83,002 75,137 626,823

Net income from fees and commission 273,560 25,503 - 299,063Other income (2,600) 8,694 (3,665) 2,429Commercial margin 739,644 117,199 71,472 928,315

Income from financial operations 5,736 22,143 48,067 75,946Banking activity income 745,380 139,342 119,539 1,004,261

Operating costs (381,178) (41,304) - (422,482)Depreciation and amortization (60,751) (4,799) - (65,550)Net operating income 303,451 93,239 119,539 516,229

Net impairment and provisions (48,576) (11,585) (3,607) (63,768)Net income of associated companies - 2,484 - 2,484Income before taxes and minority interest 254,875 84,138 115,932 454,945

Tax expense (56,600) (18,684) (25,745) (101,029)Income attributable to minority interest - - (2) (2)

Net income 198,275 65,454 90,185 353,914


23

Retail Commercial Corporate Consolidated banking banking activities total

Assets

Loans and advances to customers Mortgage Loans 14,192,160 - - 14,192,160 Consumer credit 1,072,892 - - 1,072,892 Other loans 2,784,834 8,311,652 - 11,096,486

18,049,886 8,311,652 - 26,361,538

Liabilities

Resources on the balance sheetCustomers' accounts and other resources 9,590,405 1,364,703 495,252 11,450,360Debt securities issued 1,471,952 11,331,816 - 12,803,768

11,062,357 12,696,519 495,252 24,254,128

Guarantees and other sureties provided 34,427 1,399,525 168,422 1,602,374

Investment funds 5,339,674 287,805 - 5,627,479 5. GROUP COMPANIES AND TRANSACTIONS DURING THE YEAR

The subsidiary and associated companies, as well as the more significant financial data extracted from their individual financial statements, excluding IAS/IFRS transition adjustments, as of December 31, 2007 and 2006, are as follows:

Direct Effective Shareholders'

participation (%) participation (%) Total assets equity Net incomeCompany 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006

BANCO SANTANDER TOTTA, S.A. - - 100,00 100,00 39,692,428 32,951,806 1,759,263 1,807,541 343,399 312,884BANCO TOTTA DE ANGOLA, S.A. 99,98 99,98 99,98 99,98 335,533 273,079 67,380 56,349 14,295 12,835TOTTA & AÇORES FINANCING (1) (5) 100,00 100,00 100,00 100,00 300,034 303,315 300,034 300,038 12,584 12,485PINTO TOTTA INTERNATIONAL FINANCE 50,00 50,00 50,00 50,00 34 196,009 34 189,863 - -SERFIN INTERNATIONAL BANK & TRUST - - 100,00 100,00 28,698 30,438 28,259 29,912 1,612 1,521TOTTA & AÇORES, INC. - NEWARK 100,00 100,00 100,00 100,00 676 644 638 631 80 18TOTTA & AÇORES FINANCE IRELAND - 100,00 - 100,00 - 2,284 - 2,284 - 1,034TOTTA IRELAND, PLC (4) 100,00 100,00 100,00 100,00 4,315,111 1,608,833 354,026 359,238 12,220 17,431MADEISISA, S.G.P.S. 100,00 100,00 100,00 100,00 33,193 35,795 9,360 9,155 222 1,409TOTTA URBE - Emp.Admin. e Construções, S.A. (2) 100,00 100,00 100,00 100,00 126,980 113,162 107,647 105,209 3,657 222BENIM - Sociedade Imobiliária, S.A. (3) - - 25,00 25,00 11,788 11,569 7,870 7,912 (10) 253TOTTA CRÉDITO ESPECIALIZADO, IFIC,S.A. (3) 16,12 16,12 16,12 16,12 2,320,110 1,982,151 124,609 133,784 22,825 17,425BST INTERNATIONAL BANK, INC. - PORTO RICO (1) (6) 100,00 100,00 100,00 100,00 494,708 503,458 248,681 277,241 18,015 9,926HIPOTOTTA nº 1 PLC - - - - 551,827 773,834 (2,922) (2,560) (478) 131HIPOTOTTA nº 2 PLC - - - - 1,539,517 2,006,566 (8,877) (3,233) (150) (990)HIPOTOTTA nº 3 PLC - - - - 2,443,809 2,861,364 (14,263) (10,469) 282 (1,561)HIPOTOTTA nº 4 PLC - - - - 2,165,140 2,542,245 (12,190) (8,173) (2,456) (819)HIPOTOTTA nº 5 PLC - - - - 1,861,677 - (52) - (92) -HIPOTOTTA nº 6 Ltd - - - - 2,239,974 - - - - -HIPOTOTTA nº 1 FTC - - - - 543,423 764,517 533,090 756,182 (520) 15HIPOTOTTA nº 2 FTC - - - - 1,523,609 1,987,124 1,492,746 1,967,626 (1,227) (1,102)HIPOTOTTA nº 3 FTC - - - - 2,441,786 2,855,921 2,399,647 2,824,673 (1,746) (1,568)HIPOTOTTA nº 4 FTC - - - - 2,174,865 2,547,276 2,145,853 2,525,415 (2,507) (801)HIPOTOTTA nº 5 FTC - - - - 1,857,138 - 1,840,130 - (93) -HIPOTOTTA nº 6 FTC - - - - 2,224,066 - 2,200,000 - - -


24

ConsolidationCompany Business Head office method

BANCO SANTANDER TOTTA, S.A. Banking Portugal Parent companyBANCO TOTTA DE ANGOLA, S.A. Banking Angola FullTOTTA & AÇORES FINANCING (1) (5) Banking Cayman Islands FullPINTO TOTTA INTERNATIONAL FINANCE Banking Cayman Islands ProportionalSERFIN INTERNATIONAL BANK & TRUST Banking Cayman Islands FullTOTTA & AÇORES, INC. - NEWARK Obtaining funds EUA FullTOTTA & AÇORES FINANCE IRELAND Investment management Ireland FullTOTTA IRELAND, PLC Investment management Ireland FullMADEISISA, S.G.P.S. Holding company Portugal FullTOTTA URBE - Emp.Admin. e Construções, S.A. (2) Real estate management Portugal FullBENIM - Sociedade Imobiliária, S.A. Real state Portugal (3)TOTTA CRÉDITO ESPECIALIZADO, IFIC, S.A. Leasing, consumer factoring and LTR Portugal (3)BST INTERNATIONAL BANK, INC. - PORTO RICO (1) (6) Banking Puerto Rico FullHIPOTOTTA nº 1 PLC Investment management Ireland FullHIPOTOTTA nº 2 PLC Investment management Ireland FullHIPOTOTTA nº 3 PLC Investment management Ireland FullHIPOTOTTA nº 4 PLC Investment management Ireland FullHIPOTOTTA nº 5 PLC Investment management Ireland FullHIPOTOTTA nº 6 Ltd Investment management Ireland FullHIPOTOTTA nº 1 FTC Securitized loans fund Portugal FullHIPOTOTTA nº 2 FTC Securitized loans fund Portugal FullHIPOTOTTA nº 3 FTC Securitized loans fund Portugal FullHIPOTOTTA nº 4 FTC Securitized loans fund Portugal FullHIPOTOTTA nº 5 FTC Securitized loans fund Portugal FullHIPOTOTTA nº 6 FTC Securitized loans fund Portugal Full

(1) This company’s shareholders’ equity includes preference shares subscribed for by Santander Central

Hispano Group companies (Note 28).

(2) This company’s shareholders’ equity includes supplementary capital contributions totalling tEuros 99,760.

(3) Stated based on the equity method.

(4) The amounts reflected in the columns “Net income” correspond to the net income of the December month of each year, as this entity closes its economic year as of November 30. In the periods between January 1 to November 30 of 2007 and 2006, Totta Ireland Plc. net income amounted to tEuros 72,046 and tEuros 64,247, respectively.

(5) The capital is represented by 50,000 ordinary shares of 1 United States Dollar each and by 300,000 non

voting preference shares of 1,000 Euros each. Considering the preference shares, the Bank’s effective participation in this entity is 0.01%.

(6) The capital is represented by 5,000,000 ordinary shares of 1 United States Dollar each and by 3,600 non

voting preference shares of 100,000 United States Dollars each. Considering the preference shares, the Bank’s effective participation in this entity is 1.37%.

In compliance with IAS 27 and SIC 12, the Bank’s consolidated financial statements started including special purpose entities created for securitization operations, given that most of the risks and benefits of their activity are the Bank’s (Note 44). These entities are referred to above as Hipototta No. 1 FTC, Hipototta No. 2 FTC, Hipototta No. 3 FTC, Hipototta No. 4 FTC, Hipototta No. 5 FTC and Hipototta No. 6 FTC (securitized loans funds) and Hipototta No. 1 PLC, Hipototta No. 2 PLC, Hipototta No. 3 PLC, Hipototta No. 4 PLC, Hipototta No. 5 PLC and Hipototta No. 6 Ltd (entities which acquired the participating units issued by the securitized loans funds).

The main changes in the group companies in 2007 were conclusion of the liquidation process of TAFIL – Totta e Açores Finance Ireland, Ltd. and the decision to start the process to close the Luxembourg Branch.


25

In March 2006 BST signed an agreement with Caixa Geral de Depósitos, S. A. (“CGD”), for a partnership in Banco Totta de Angola, S.A., through the foundation of an autonomous entity, to be 50% owned by BST and 50% by CGD. That entity will own 60,314,284 shares, corresponding to 76% of Banco Totta de Angola, S.A.’s capital, currently owned by BST and recorded in its non-consolidated financial statements at the amount of tEuros 21,452. The remaining 19,034,648 shares owned by BST, representing 23.985% of Banco Totta de Angola S.A.’s capital, may be sold to a third-party with the prior consent of CGD. This transaction is yet to be completed due to the lack of authorization to date from the Angolan Authorities. Under the terms of the initial agreement, the Bank received tEuros 15,000 from CGD, which has been recorded in caption “Other Liabilities” (Note 25).

6. CASH AND DEPOSITS AT CENTRAL BANKS This caption is made up as follows: 2007 2006 Cash 212,187 165,920 Demand deposits at central banks: Bank of Portugal 174,377 327,067 Foreign Central Banks 38,636 20,947 ----------- ----------- 425,200 513,934 ====== ====== In accordance with European Central Bank Regulation 2,818/98 of December 1, 1998, as from

January 1, 1999 financial entities in participating member states must maintain minimum cash reserves at the participating National Central Banks. The basis for determining the amount of the reserves is all deposits at central banks and financial and monetary entities outside the Euro Zone and all deposits of clients repayable in less than two years, to which 2% is applied and tEuros 100 is deducted from the amount calculated. The minimum cash reserve requirements earn interest at the average of the rates for the principal refinancing operations of the European Central Bank System.

7. BALANCES DUE FROM BANKS This caption is made up as follows: 2007 2006 Balances due from domestic banks Demand deposits 121,472 19,015 Cheques for collection 177,157 209,871 Balances due from foreign banks Demand deposits 79,618 31,661 Cheques for collection 2,041 2,470 ----------- ----------- 380,288 263,017 ====== ======


26

8. FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING This caption is made up as follows: 2007 2006 Securities Participating units 162,150 87,613 Central bank of Angola securities 66,097 45,370 ----------- ----------- 228,247 132,983 Derivatives Derivative instruments with positive fair value 1,159,711 967,614 ------------- ------------- 1,387,958 1,100,597 ======= =======

The caption “Participating Units” at December 31, 2007 and 2006 refers essentially to security and real estate funds managed by Santander Group entities. Details of the securities as of 31 December 2007 are included in Appendix I.

The caption derivative instruments held for trading is made up as follows:

31-12-2007 31-12-2006Assets Liabilities Net Assets Liabilities Net

(Note 13) (Note 13)Over-the-counter market

FRA's - 912 (912) - - -Forwards 838 114 724 - 335 (335)Swaps

Currency swaps 175 13,421 (13,246) 604 - 604Interest rate swaps 440,225 516,678 (76,453) 465,681 461,905 3,776Equity swaps 39,729 23,312 16,417 27,267 13,977 13,290

Options 417,005 430,953 (13,948) 347,428 348,055 (627)Caps & Floors 261,328 265,219 (3,891) 123,555 122,945 610

Stock exchange contractsFutures 411 411 - 3,079 3,079 -

1,159,711 1,251,020 (91,309) 967,614 950,296 17,318 9. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS This caption is made up as follows: 2007 2006 Bonds and other fixed income securities - OT 5,45 SET. 2013 (Appendix I) 407,028 417,754 ====== ======


27

10. AVAILABLE-FOR-SALE FINANCIAL ASSETS This caption is made up as follows:

Accrued Fair Value Reserve BookCost interest Positive Negative Total Impairment Value

(Note 26) (Note 22)Debt Instruments

Issued by residentsTreasury Bonds 104,601 3,616 - (274) (274) (189) 107,754Other Portuguese Government entities 15,000 4 - (517) (517) - 14,487Other Portuguese entities

Unsubordinated debt 234,260 1,796 120 (232) (112) (310) 235,634Subordinated debt 119,736 600 74 (28,761) (28,687) - 91,649

Issued by non residentsInternational financial entities 46,723 13 - - - - 46,736Other non residents 1,300,348 10,960 - - - - 1,311,308

Equity InstrumentsIssued by residents

Fair value 56,642 - 11,845 (546) 11,299 (35,978) 31,963Historical cost 21,499 - - - - (5,635) 15,864

Issued by non residentsHistorical cost 1,447 - - - - (746) 701

1,900,256 16,989 12,039 (30,330) (18,291) (42,858) 1,856,096

2007

Accrued Fair Value Reserve BookCost interest Positive Negative Total Impairment Value

(Note 26) (Note 22)Debt Instruments

Issued by residentsTreasury Bonds 892 11 - - - (176) 727Other Portuguese Government entities 15,000 - - (525) (525) - 14,475Other Portuguese entities

Unsubordinated debt 41,548 309 86 (290) (204) (334) 41,319Subordinated debt 119,733 861 3,188 - 3,188 - 123,782Defaulting debt 2,237 - - - - (2,237) -

Issued by non residentsInternational financial entities 1,496 22 - - - - 1,518Other non residents 25,577 326 - - - - 25,903

Equity InstrumentsIssued by residents

Fair value 115,332 - 69,272 (58) 69,214 (36,042) 148,504Historical cost 21,317 - - - - (5,635) 15,682

Issued by non residentsFair value 746 - 103 - 103 (746) 103Historical cost 3,476 - - - - - 3,476

347,354 1,529 72,649 (873) 71,776 (45,170) 375,489

2006

In 2007 and 2006 the Bank sold 16,574,849 and 14,648,007 shares of Banco BPI, S.A., for

tEuros 106,908 and tEuros 80,509, respectively. These sales resulted in gains of tEuros 64,032 and tEuros 44,390 in 2007 and 2006, respectively. In 2007 Totta Urbe sold 3,264,553 shares of Banco BPI, S.A. for tEuros 21,056, resulting in a gain of tEuros 1,696 (Note 36).

Details of the securities of this caption at December 31, 2007 are presented in Appendix I.


28

11. LOANS AND ADVANCES TO BANKS This caption is made up as follows: 2007 2006 Loans and advances to other Portuguese banks Very short term loans and advances - 5,783 Deposits 292,670 108,049 Loans 2,506,567 2,075,680 Subordinated applications 50,000 - Accrued interest 12,226 8,712 -------------- ------------- 2,861,463 2,198,224 -------------- ------------- Loans and advances to other foreign banks Very short term loans and advances 37,327 709,650 Deposits 1,455,575 304,001 Other applications 8,388 79,992 Overdue credit and interest - 1,644 Accrued interest 7,031 484 ------------- ------------- 1,508,321 1,095,771 ------------- ------------- 4,369,784 3,293,995 Impairment (Note 22) - ( 17 ) -------------- ------------- 4,369,784 3,293,978 ======== ========

Following receipt in May 2007 of confirmation from a customer renouncing any future claim against the Bank, as the result of the liquidation made under the Debt Settlement Protocol between Angola and Portugal, the Bank wrote off the credit and interest due on applications in foreign credit institutions (tEuros 1,644) and other liabilities (tEuros 1,627), having used the impairment recognized earlier (tEuros 17).


29

12. LOANS AND ADVANCES TO CUSTOMERS This caption is made up as follows: 2007 2006 Unsecuritized credit Domestic loans To companies Credit on current account 1,872,566 1,795,313 Loans 4,266,573 3,953,498 Finance leasing 1,631 1,990 Discount and credit securities 434,251 409,200 Overdrafts 410,163 539,708 Other credits 86,927 83,253 To individuals Mortgage loans 5,028,196 6,160,360 Consumer credit and others 1.910,395 1,688,083 Foreign loans To companies Credit on current account 513,165 474,460 Loans 506,966 491,643 Discount and credit securities 318 238 Overdrafts 2,453 1,565 Other credits 5 8 To individuals Mortgage loans 447,323 382,100 Consumer credit and others 36,169 49,043 --------------- --------------- 15,517,101 16,030,462 --------------- --------------- Securitized credit Non subordinated debt securities issued by Portuguese entities Commercial paper 2,086,794 2,461,916 ------------- ------------- Non-derecognized securitized assets Mortgage loans (Note 44) . Hipototta nº 1 522,278 754,662 . Hipototta nº 2 1,464,157 1,951,343 . Hipototta nº 3 2,379,671 2,813,165 . Hipototta nº 4 2,126,001 2,519,735 . Hipototta nº 5 1,807,709 - . Hipototta nº 6 2,151,921 - --------------- ------------- 10,451,737 8,038,905 --------------- ------------- Overdue loans and interest Up to 90 days 16,823 10,811 More than 90 days 87,177 116,293 Non-derecognized securitized assets 37,407 23,479 ----------- ------------ 141,407 150,583 --------------- --------------- 28,197,039 26,681,866 --------------- ---------------


30

2007 2006 Accrued interest Non-securitized credit 85,262 75,620 Securitized credit 8,868 4,674 Non-derecognized securitized assets 59,344 42.571 Deferred expenses 112,157 72.741 Fees and commission relating to amortized cost (net) ( 101,661 ) ( 65,670 ) Value adjustment of hedged assets ( 1,738 ) 207 ----------- ---------- 162,232 130,143 --------------- --------------- 28,359,271 26,812,009 Impairment of loans and advances to customers (Note 22) ( 441,995 ) ( 450,471 ) --------------- ---------------- 27,917,276 26,361,538 ========= =========

In 2007 and 2006 mortgage loans and company loans portfolios, consisting mainly of overdue credit and credit written off, were sold. As a result of these operations the Bank recorded a gain of tEuros 24,272 and tEuros 18,898, respectively (Note 38).

The changes in impairment of loans and advances to customers during 2007 and 2006 are presented

in Note 22.

Overdue loans and interest at December 31, 2007 and 2006 are made up as follows:

2007 2006 Up to three months 19,163 13,259 From three to six months 20,658 20,352 From six months to one year 53,365 53,053 From one to three years 43,690 56,449 More than three years 4,531 7,470 ----------- ----------- 141,407 150,583 ====== ======


31

Loans to customers at December 31, 2007 and 2006 are made up as follows, by business sector:

2007Performing Overdue Total %

Agriculture and forestry 275,676 2,266 277,942 0,99%Fishing 3,271 11 3,282 0,01%Mining 478,607 278 478,885 1,70%Manufacturing:

Food, beverage and tobacco 216,292 810 217,102 0,77%Textiles, leather and clothing 215,584 3,086 218,670 0,78%Wood and cork 73,739 1,176 74,915 0,27%Paper and publishing 102,934 471 103,405 0,37%Chemicals 108,409 121 108,530 0,38%Ceramic, glass and cement 110,479 659 111,138 0,39%Basic metallurgy 106,343 524 106,867 0,38%Machines and vehicles 148,637 2,104 150,741 0,53%

Chemicals and Pharmaceuticals 362 - 362 0,00%Electricity, water and gas 809,964 113 810,077 2,87%Construction and public works 1,635,285 12,005 1,647,290 5,84%Commerce and hotels:

Wholesale trade 523,544 5,979 529,523 1,88%Retail sale 798,996 5,356 804,352 2,85%Restaurants and hotels 192,562 1,129 193,691 0,69%

Transport and communications 890,534 234 890,768 3,16%Non monetary financial institutions 827,390 28 827,418 2,93%Government administration 380,687 2,170 382,857 1,36%Other service companies 2,293,659 9,529 2,303,188 8,17%Loans to individuals 6,943,389 55,001 6,998,390 24,82%Non-derecognised securitized assets 10,451,737 37,407 10,489,144 37,20%Foreign loans 132,292 630 132,922 0,47%Other loans 335,260 320 335,580 1,19%

28,055,632 141,407 28,197,039 100,00%

2006

Performing Overdue Total %

Agriculture and forestry 223,265 3,186 226,451 0,85%Fishing 2,975 53 3,028 0,01%Mining 482,438 323 482,761 1,81%Manufacturing:

Food, beverage and tobacco 207,508 784 208,292 0,78%Textiles, leather and clothing 197,233 5,783 203,016 0,76%Wood and cork 87,594 2,056 89,650 0,34%Paper and publishing 55,176 202 55,378 0,21%Chemicals 86,560 175 86,735 0,33%Ceramic, glass and cement 109,084 1,188 110,272 0,41%Basic metallurgy 114,763 1,014 115,777 0,43%Machines and vehicles 142,258 2,933 145,191 0,54%

Chemicals and Pharmaceuticals 260 - 260 0,00%Electricity, water and gas 510,700 139 510,839 1,91%Construction and public works 1,624,041 18,818 1,642,859 6,16%Commerce and hotels:

Wholesale trade 481,559 6,102 487,661 1,83%Retail sale 882,787 8,310 891,097 3,34%Restaurants and hotels 173,954 1,027 174,981 0,66%

Transport and communications 840,725 966 841,691 3,15%Non monetary financial institutions 750,646 40 750,686 2,81%Government administration 380,666 2,489 383,155 1,44%Other service companies 2,951,517 3,601 2,955,118 11,08%Loans to individuals 7,817,750 67,097 7,884,847 29,55%Non-derecognised securitized assets 8,038,905 23,479 8,062,386 30,22%Foreign loans 148,979 467 149,446 0,56%Other loans 219,940 351 220,289 0,83%

26,531,283 150,583 26,681,866 100,00%


32

The loans in default and performing loans, with and without evidence of impairment, at December 31, 2007 are as follows:

Loans in Performing Total default loans loans Loans to companies . Without evidence of impairment - 10,413,187 10,413,187 . With evidence of impairment 46,869 268,385 315,254 --------- --------------- --------------- 46,869 10,681,572 10,728,441 --------- --------------- --------------- Mortgage loans . Without evidence of impairment - 13,487,377 13,487,377 . With evidence of impairment 67,938 1,995,594 2,063,532 --------- --------------- --------------- 67,938 15,482,971 15,550,909 --------- --------------- --------------- Consumer credit . Without evidence of impairment - 957,536 957,536 . With evidence of impairment 7,226 136,465 143,691 -------- ----------- ----------- 7,226 1,094,001 1,101,227 -------- ----------- ----------- Loans granted through credit cards . Without evidence of impairment - 198,442 198,442 . With evidence of impairment 4,231 25,581 29,812 -------- ----------- ----------- 4,231 224,023 228,254 -------- ----------- ----------- Other loans to individuals . Without evidence of impairment - 468,450 468,450 . With evidence of impairment 15,143 104,615 119,758 --------- ----------- ----------- 15,143 573,065 588,208 ---------- ------------- -------------- 141,407 28,055,632 28,197,039 ====== ========= =========


33

The loans in default and performing loans, with and without evidence of impairment, at December 31, 2006 are as follows:

Loans in Performing Total default loans loans Loans to companies . Without evidence of impairment - 10,782,634 10,782,634 . With evidence of impairment 62,672 137,505 200,177 --------- --------------- --------------- 62,672 10,920,139 10,982,811 --------- --------------- --------------- Mortgage loans . Without evidence of impairment - 12,170,953 12,170,953 . With evidence of impairment 69,123 1,920,756 1,989,879 --------- --------------- --------------- 69,123 14,091,709 14,160,832 --------- --------------- --------------- Consumer credit . Without evidence of impairment - 791,184 791,184 . With evidence of impairment 4,738 107,319 112,057 -------- ----------- ----------- 4,738 898,503 903,241 -------- ----------- ----------- Loans granted through credit cards . Without evidence of impairment - 165,909 165,909 . With evidence of impairment 2,344 25,681 28,025 -------- ----------- ----------- 2,344 191,590 193,934 -------- ----------- ----------- Other loans to individuals . Without evidence of impairment - 341,426 341,426 . With evidence of impairment 11,706 87,916 99,622 --------- ----------- ----------- 11,706 429,342 441,048 ----------- --------------- --------------- 150,583 26,531,283 26,681,866 ====== ========= ========= 13. HEDGING DERIVATIVES This caption is made up as follows:

2007 2006Assets Liabilities Net Assets Liabilities Net

Fair value hedgesInterest rate swaps 73,619 59,204 14,415 176,907 219,409 (42,502)Equity swaps 3,735 175,982 (172,247) 5,588 164,221 (158,633)

Cash Flow hedgesInterest rate swaps 52 - 52 14,880 - 14,880

77,406 235,186 (157,780) 197,375 383,630 (186,255)


34

Derivative financial instruments at December 31, 2007 are made up as follows:

Notional amountsBook Up to 3 From 3 to From 6 to From 1 to More than Notional amounts

Financial Instruments Value months 6 months 12 months 3 years 3 years Total EUR Other

Forwards. Purchased 348,046 10,796 11,215 581,707 - 951,764 677,999 273,765. Sold 341,053 10,676 10,994 581,709 - 944,432 672,934 271,498

Currency swaps. Purchased 3,225,270 139,371 - - - 3,364,641 - 3,364,641. Sold 3,233,341 143,698 - - - 3,377,039 3,377,039 -

Interest rate swapsOthers (76,453) 59,390 105,225 386,143 1,616,256 6,847,137 9,014,151 8,993,321 20,830

Equity swaps 16,419 56,838 106,102 109,641 2,034,838 4,167,816 6,475,235 6,475,235 -FRA's (912) 2,500,000 - - - - 2,500,000 2,500,000 -Futures - 190,331 31,288 13,628 11,254 - 246,501 246,501 -Currency options

. Purchased 19,915 45,123 26,244 - - 91,282 - 91,282

. Sold 19,915 45,123 26,244 - - 91,282 10,000 81,282Equity options

. Purchased 16,400 17,000 185 - - 33,585 33,585 -

. Sold 15,019 21,000 185 - - 36,204 26,204 10,000Interest rate options

. Purchased - - 100,000 20,000 - 120,000 120,000 -

. Sold - - 100,000 20,000 - 120,000 120,000 -Caps (1,308) 141,000 41,110 690,124 3,826,030 2,165,701 6,863,965 6,863,965 -Floors (2,584) - 8,000 25,988 397,458 640,611 1,072,057 956,646 115,411

(91,309) 10,166,518 724,512 1,500,591 9,089,252 13,821,265 35,302,138 31,073,429 4,228,709

2. Hedging derivatives

Fair value hedgesInterest rate swaps

. Liabilities and loans 12,377 3,100 3,606 53,115 1,225,338 273,915 1,559,074 1,436,727 122,347

. Other assets valued at fair value 2,038 - - - - 380,000 380,000 380,000 -Equity swaps (172,247) 3,500 180,353 437,367 1,338,506 1,047,638 3,007,364 2,956,882 50,482

Cash flow hedgesInterest rate swaps. Cash flow 52 - - 750,000 750,000 - 1,500,000 1,500,000 -

(157,780) 6,600 183,959 1,240,482 3,313,844 1,701,553 6,446,438 6,273,609 172,829

1. Derivatives held for trading (Note 8)

(7,036)

(3,270)

724

(13,247)

(3,642)

Derivative financial instruments at December 31, 2006 are made up as follows:

Notional amountsBook Up to 3 From 3 to From 6 to From 1 to More than Notional amounts

Financial Instruments Value months 6 months 12 months 3 years 3 years Total EUR Other

Forwards. Purchased 335,006 11,636 15,842 614,910 - 977,394 522,067 455,327. Sold (334,997) (11,597) (16,153) (614,928) - (977,675) (511,803) (465,872)

Currency swaps. Purchased 2,616,198 185,104 16,009 - - 2,817,311 - 2,817,311. Sold (2,614,169) (180,306) (16,445) - - (2,810,920) (2,810,920) -

Interest rate swapsOthers 3,776 3,173,793 649,884 3,080,301 1,208,373 6,971,526 15,083,877 15,080,915 2,962

Equity swaps 13,290 153,250 63,910 359,298 2,193,460 2,859,162 5,629,080 5,629,080 -Futures - 61,613 1,199 8,152 12,715 - 83,679 83,679 -Currency options

. Purchased 5,163 51,999 48,701 26,673 - 132,536 - 132,536

. Sold 5,163 51,999 48,701 26,673 - 132,536 - 132,536Equity options

. Purchased - - 15,000 185 - 15,185 15,185 -

. Sold - - 15,000 185 - 15,185 15,185 -Interest rate options

. Purchased - - - 2,500 - 2,500 2,500 -

. Sold - - - 2,500 - 2,500 2,500 -Caps 1,805 267,000 862,355 188,524 1,259,095 4,113,323 6,690,297 6,638,041 52,256Floors (1,195) - 235,452 - 304,227 821,763 1,361,442 1,229,348 132,094

17,318 3,668,020 1,921,635 3,762,930 5,036,568 14,765,774 29,154,927 25,895,777 3,259,150

2. Hedging derivatives

Fair value hedgesInterest rate swaps

. Preference shares issued (2,512) - 284,738 - - - 284,738 - 284,738

. Liabilities and loans (30,814) 290,806 - 43,799 1,042,279 8,929,782 10,306,666 10,123,738 182,929

. Other assets valued at fair value (8,680) - - - - 380,000 380,000 380,000 -Cross currency swaps

. Purchased - - 28,333 - - 28,333 28,333 -

. Sold - - (26,128) - - (26,128) - (26,128)Equity swaps (158,633) 132,947 37,097 80,467 841,815 1,351,946 2,444,272 2,435,679 8,592

Cash flow hedgesInterest rate swaps. Cash flow 14,880 - 885,000 1,750,000 - - 2,635,000 2,635,000 -

(186,255) 423,753 1,206,835 1,876,471 1,884,094 10,661,728 16,052,881 15,602,750 450,131

1. Derivatives held for trading (Note 8)

3

(496)

(335)

(243)

(387)

604


35

14. OTHER TANGIBLE AND INTANGIBLE ASSETS

The changes in these captions during the year ended December 31, 2007 were as follows:

Transfers

12-31-2006 Write offs for sale (Note 17) Between fixed assets Depreciation Exchange differences 12-31-2007Accumulated Accumulated Accumulated Accumulated and Reversal Accumulated Accumulateddepreciation depreciation depreciation depreciation amortization of depreciation depreciation

Gross and amortization Impairment Acquisitions Gross and amortization Impairment Gross and amortization Gross and amortization for the year Impairment impairment Gross and amortization Impairment Gross and amortization Impairment Net(Note 22) (Note 22)

Tangible AssetsProperty. Property for own use 386,374 88,939 904 6,629 91 - - (1,746) (381) 9,812 (1) 7,197 131 (10) (43) (6) (2) 400,935 95,748 1,023 304,164. Leasehold improvements 112,167 85,675 - 4,384 9,137 8,805 - - - 3,822 1 4,343 - - (14) (14) - 111,222 81,200 - 30,022. Other property 16,839 3,982 5,001 85 35 - 20 - - (10) - 286 5 - - - - 16,879 4,268 4,986 7,625

Work in progress. Property for own use 5,328 - - 13,165 - - - - - (10,153) - - - - (122) - - 8,218 - - 8,218. Leasehold improvements 538 - - 4,143 5 - - - - (3,425) - - - - - - - 1,251 - - 1,251

521,246 178,596 5,905 28,406 9,268 8,805 20 (1,746) (381) 46 - 11,826 136 (10) (179) (20) (2) 538,505 181,216 6,009 351,280

Equipment. Furniture and fixtures 17,589 7,286 - 1,664 1,212 1,153 - - - 136 (1) 2,084 - - (15) (7) - 18,162 8,209 - 9,953. Machinery and tools 2,989 2,308 - 168 11 10 - - - 2 1 256 - - (11) (5) - 3,137 2,550 - 587. Computer hardware 85,635 59,493 - 13,674 9,634 9,624 - - - 90 - 16,412 - - (22) (12) - 89,743 66,269 - 23,474. Interior installations 86,826 66,092 - 1,224 1,599 1,380 - (7) (3) 37 - 4,462 - - (9) (3) - 86,472 69,168 - 17,304. Vehicles 13,052 6,960 - 3,862 1,593 1,446 - - - - - 2,934 - - (17) (18) - 15,304 8,430 - 6,874. Security equipment 26,921 24,632 - 443 1,182 1,160 - - - 238 - 782 - - (2) (1) - 26,418 24,253 - 2,165. Other equipment 7,031 5,870 - 2,775 6 - - - - 153 - 392 - - - - - 9,953 6,262 - 3,691. Tangible assets in progress 2,354 - - 2,654 458 - - - - (702) - - - - - - - 3,848 - - 3,848

242,397 172,641 - 26,464 15,695 14,773 - (7) (3) (46) - 27,322 - - (76) (46) - 253,037 185,141 - 67,896

Other tangible assetsLeased equipment 372 372 - - 91 91 - - - - - - - - - - - 281 281 - -Art collections 1,517 - - 12 - - - - - - - - - - - - - 1,529 - - 1,529Other 39 39 - - - - - - - - - - - - - - - 39 39 - -

1,928 411 - 12 91 91 - - - - - - - - - - - 1,849 320 - 1,529765,571 351,648 5,905 54,882 25,054 23,669 20 (1,753) (384) - - 39,148 136 (10) (255) (66) (2) 793,391 366,677 6,009 420,705

Intangible assetsSoftware purchased 152,011 107,614 - 37,575 775 763 - - - - - 28,427 5,525 - (14) (13) - 188,797 135,265 5,525 48,007Goodwill 3,585 3,130 - - - - - - - - - 455 - - - - - 3,585 3,585 - -

155,596 110,744 - 37,575 775 763 - - - - - 28,882 5,525 - (14) (13) - 192,382 138,850 5,525 48,007

From/to assets held


36

The changes in these captions during the year ended December 31, 2006 were as follows:

Transfers

12-31-2005 Write offs for sale (Note 17) Between fixed assets Depreciation Exchange differences 12-31-2006Accumulated Accumulated Accumulated Accumulated and Reversal Accumulated Accumulateddepreciation depreciation depreciation depreciation amortization of depreciation depreciation

Gross and amortization Impairment Acquisitions Gross and amortization Impairment Gross and amortization Gross and amortization for the year Impairment impairment Gross and amortization Impairment Gross and amortization Impairment Net(Note 22) (Note 22)

Tangible AssetsProperty. Property for own use 412,177 104,280 49 7,663 10,080 6,523 - (38,008) (17,366) 14,724 - 8,581 860 - (102) (33) - 386,374 88,939 909 296,526. Leasehold improvements 106,075 83,654 - 5,808 2,706 2,573 - - - 3,006 113 4,495 - - (16) (14) - 112,167 85,675 - 26,492. Other property 16,923 3,699 5,067 265 335 3 43 (13) - - - 286 - - (1) - - 16,839 3,982 5,024 7,833

Work in progress. Property for own use 7,276 - - 13,443 93 - - - - (15,298) - - - - - - - 5,328 - - 5,328. Leasehold improvements 1,596 - - 2,319 5 - - - - (3,372) - - - - - - - 538 - - 538

544,047 191,633 5,116 29,498 13,219 9,099 43 (38,021) (17,366) (940) 113 13,362 860 - (119) (47) - 521,246 178,596 5,933 336,717

Equipment. Furniture and fixtures 15,135 5,608 - 2,159 85 24 - - - 406 (155) 1,864 - - (26) (7) - 17,589 7,286 - 10,303. Machinery and tools 2,970 2,142 - 237 279 229 - - - 78 66 363 - - (17) (34) - 2,989 2,308 - 681. Computer hardware 76,335 46,436 - 8,958 1,477 1,359 - - - 1,853 19 14,410 - - (34) (13) - 85,635 59,493 - 26,142. Interior installations 86,335 61,833 - 1,182 553 282 - (334) (205) 212 9 4,714 - - (16) 23 - 86,826 66,092 - 20,734. Vehicles 10,730 6,037 - 3,892 1,581 1,461 - - - 42 22 2,381 - - (31) (19) - 13,052 6,960 - 6,092. Security equipment 26,086 23,924 - 603 97 86 - - - 330 - 794 - - (1) - - 26,921 24,632 - 2,289. Other equipment 6,663 3,149 - 336 398 201 - - - 429 - 2,920 - - 1 2 - 7,031 5,870 - 1,161. Tangible assets in progress 4,213 - - 2,243 699 - - - - (3,403) - - - - - - - 2,354 - - 2,354

228,467 149,129 - 19,610 5,169 3,642 - (334) (205) (53) (39) 27,446 - - (124) (48) - 242,397 172,641 - 69,756

Other tangible assetsLeased equipment 372 372 - - - - - - - - - - - - - - - 372 372 - -Art collections 1,544 - - - 29 - - - - 1 - - - - 1 - - 1,517 - - 1,517Other 114 114 - - - - - - - (75) (75) - - - - - - 39 39 - -

2,030 486 - - 29 - - - - (74) (75) - - - 1 - - 1,928 411 - 1,517774,544 341,248 5,116 49,108 18,417 12,741 43 (38,355) (17,571) (1,067) (1) 40,808 860 - (242) (95) - 765,571 351,648 5,933 407,990

Intangible assetsSoftware purchased 147,910 113,861 - 34,480 30,367 30,356 - - - - - 24,119 - - (12) (10) - 152,011 107,614 - 44,397Goodwill 2,518 2,507 - - - - - - - 1,067 - 623 - - - - - 3,585 3,130 - 455

150,428 116,368 - 34,480 30,367 30,356 - - - 1,067 - 24,742 - - (12) (10) - 155,596 110,744 - 44,852

From/to assets held

Part of the impairment loss recognized in tangible asstes – other property as of December 31, 2007 and 2006, in the amount of tEuros 4,942, relates to the potential loss in a property named “Centro Comercial Gemini”, which is reflected in the books of the subsidiary Totta Urbe – Empresa de Administração e Construções, S.A..

As of December 31, 2007 and 2006, the amounts of tEuros 46,356 and tEuros 38,158, respectively, recorded under the caption software, net of depreciation, were paid to ISBAN PT – Engenharia e Software Bancário, S.A., the Group entity that performs the software development of all corporative applications. This company is entirely owned by entities of the Santander Group.

In the year ended December 31, 2007, an impairment loss in intangible assets – software, in the amount of tEuros 5,525 was recorded, relating to the book value of the application software named “Sintra”, which was discontinued with the entry in production of part of the software named “Partenon”.


37

15. INVESTMENTS IN ASSOCIATED COMPANIES At December 31, 2007 and 2006 this caption was made up as follows: 2007 2006 Effective Book Effective Book participation (%) value participation (%) value Investments in associated companies Domestic . Benim - Sociedade Imobiliária, S.A 25.00 1,978 25.00 1,924 . Totta Crédito Especializado, IFIC, S.A. 16.12 18,987 16.12 20,460 ---------- --------- 20,965 22,384 ===== ===== Benim – Sociedade Imobiliária, S.A. is indirectly owned by the Bank through its equity participation in

Totta Urbe - Empresa de Administração e Construções, S.A.. At December 31, 2007 and 2006 Totta Crédito Especializado, IFIC, S.A. was effectively owned in

99,98% by Santander Totta, SGPS, S.A., which has an effective participation of 99.86%, in the Bank. 16. CURRENT AND DEFERRED TAX ASSETS AND LIABILITIES

At December 31, 2007 and 2006 these captions were made up as follows: 2007 2006 Current tax assets: . Corporate income tax recoverable 2,070 3,630 ==== ==== Current tax liabilities: . Corporate income tax payable 20,318 14,513 . Others 2,965 3,406 --------- --------- 23,283 17,919 ===== ===== Deferred tax assets: . Due to temporary differences 241,036 256,797 . Due to tax losses carried forward - 2,302 ----------- ----------- 241,036 259,099 ====== ====== Deferred tax liabilities: . Due to temporary differences 20,311 41,312 . Due to tax credits 4,783 5,474 --------- --------- 25,094 46,786 ===== =====


38

Taxes in the statement of income for the years ended December 31, 2007 and 2006 are made up as follows:

2007 2006 Current tax . For the year ( 69,475 ) ( 53,136 ) . taxes paid in prior years ( 10,817 ) - . Insufficiency of the estimate ( 3,448 ) ( 225 ) . Additional assessments - ( 5,588 ) --------- --------- ( 83,740 ) ( 58,949 ) --------- --------- Deferred tax . Record and reversal of temporary differences ( 12,672 ) ( 38,511 ) . (Expense)/Income for tax credits 365 ( 3,569 ) --------- ---------- ( 12,307 ) ( 42,080 ) ---------- ----------- ( 96,047 ) ( 101,029 ) ====== ======


39

The changes in deferred tax assets and liabilities in the years ended December 31, 2007 and 2006 were as follows:

Balance at Realized/ Statement Balance at Realized/ Statement Balance at12-31-2005 Increases reversed of income Others 12-31-2006 Increases reversed of income Others 12-31-2007

Application of IAS/IFRS Retirement pensions 126,968 - - (27,348) (1) 99,619 - - (27,523) - 72,096Tangible assets - - - 571 15 586 - - (146) - 440Intangible assets 1,457 - - (846) (22) 589 - - (400) - 189Deferred fees and commission 10,783 - - (2,470) - 8,313 - - (2,078) - 6,235Long service bonus 11,817 - - (5,791) (1) 6,025 - - 159 - 6,184Early retirements recognized by charge to reserves prior to 2001 21,254 - - (6,475) 1 14,780 - - (5,382) - 9,398Provisions temporarily not tax deductible 107,594 - - 2,277 17 109,888 - - 15,281 - 125,169Tax losses carried forward of Totta Urbe 2,478 - - (176) - 2,302 - - (2,302) - -Tax but not accounting gains - - - - - - - - 1,633 (17) 1,616Revaluation of tangible fixed assets (6,592) 222 - 765 (237) (5,842) - 751 1,204 (751) (4,638)Investments in associated companies in accordance with the equity method (504) - - 30 - (474) - - (14) - (488)

275,255 222 - (39,463) (228) 235,786 - 751 (19,568) (768) 216,201

ReclassificationTemporary differences on derivatives held for trading (10,527) - - (3,446) (1) (13,974) - - 7,946 - (6,028)

Application of IAS 32 and IAS 39 Hedging derivatives:. Cash flow (5,090) - 5,245 - (1) 154 (169) - - 1 (14). Fair value of assets 21,571 - - (5,130) (701) 15,740 - - (4,829) - 10,911. Fair value of liabilities (22,484) - - 4,866 1,244 (16,374) - - 4,934 - (11,440)Available-for-sale investments. Deferred tax liabilities (14,430) - 4,714 7 (3) (9,712) - 8,283 - 129 (1,429). Deferred tax assets 273 - (130) - (4) 139 - 7,821 - 16 7,976Debt securities issued - - - 964 - 964 - - (287) - 677Gain on participating units - - - 122 (532) (410) - - 103 - (307)Accrued income - Hipotottas - - - - - - - - (606) 1 (605)

244,568 222 9,829 (42,080) (226) 212,313 (169) 16,855 (12,307) (621) 215,942

Deferred tax assets 304,195 259,099 241,036Deferred tax liabilities (59,627) (46,786) (25,094)

244,568 212,313 215,942

Equity Equity


40

Reconciliation between the nominal rate of income tax and the effective rate for the years ended December 31, 2007 and 2006 is as follows:

Income Incometax rate Amount tax rate Amount

Income before income tax 483,668 454,945

Income tax based on the current tax rate in Portugal and countries in which the subsidiaries are established 23,21% 112,243 23,97% 109,040Profits exempt from income tax (SFE's) -0,14% (666) -0,29% (1,337)Deductible tax losses -0,43% (2,094) -0,59% (2,706)Tax exempt dividends -1,18% (5,688) -1,30% (5,895)Changes in taxable provisions -0,49% (2,355) -0,48% (2,200)Tax benefits -0,78% (3,766) -0,45% (2,063)Non tax deductible costs 0,51% 2,443 0,58% 2,637Taxes paid in prior years 2,24% 10,817 0,00% -Sale of investments -2,08% (10,063) -1,36% (6,200)(Excess)/Insuficiency of the estimate -0,38% (1,815) 0,00% 225Change in Municipal Surcharge rate 0,00% - 1,81% 8,217Additional tax assessments 0,00% - 1,23% 5,588Tax losses resulting from tangible asset sales 0,00% (829) 0,00% -Others -0,45% (2,180) -0,89% (4,277)Income tax for the year 20,03% 96,047 22,21% 101,029

2007 2006

In the transition to the accounting standards established by IAS/IFRS the Bank did not recognize part of the deferred tax assets relating to retirement pensions, because there are doubts as to its recovery. As of December 31, 2007 the unrecorded deferred tax asset amounts to tEuros 49,728 corresponding to taxable income of tEuros 187,653.

The tax authorities can review the Group’s tax situation during a period of four years, except where tax losses carried forward have been used, in which case the right to corrections expires in six years. This can result in possible additional assessments for the years subject to review, due to different interpretations of the tax legislation.

The banks merged into BST on December 16, 2004 were subject to tax inspections for the years up to 2003 as regards CPP and 2004 as regards totta and BSP.

As a result of these inspections the banks received additional assessments, essentially of corporate income tax. The corrections made relate to several matters, including, among others, early retirement costs, provisions in excess of the minimum limits set forth in Bank of Portugal Notice 3/95, questions regarding exemption of income of the offshore financial branches in the Autonomous Region of Madeira, taxes of other branches and increases in shareholders’ equity. Some of these corrections are only temporary, namely those relating to early retirement costs and provisions in excess of the minimum limits required by the Bank of Portugal.

The Bank paid the full amount or part of the amount of the additional assessments or, where applicable, gave a bank guarantee for them. However, the Bank appealed against the majority of the additional assessments.

BST records, in the liability caption “Provisions”, the amount considered necessary to cover the risks of having to pay the recoverable taxes which are reflected in the caption “Other assets”, the additional tax assessments received which were not paid and contingencies relating to prior years not yet reviewed by the Tax Administration. In 2007 the Bank used tEuros 10,362 of the provision (Note 22) to cover the payment of additional tax assessments in the amount of tEuros 10,183 and part of the recoverable tax, in the amount of tEuros 179. In addition, the debit balance of tEuros 10,817 (Note 17) that still remained in the caption “Other assets” was reversed by corresponding entry to the statement of income caption “Current taxes – taxes paid in prior years”. The provision that was recorded for this matter was allocated to other tax contingencies.


41

17. OTHER ASSETS This caption is made up as follows: 2007 2006 Assets received as settlement of defaulting loans: . Property 96,338 108,095 . Promises 21,682 24,198 . Other 293 227 Own property for sale 17,525 19,415 ----------- ----------- 135,838 151,935 ----------- ----------- Accrued income: . from placement of security investment funds managed by Santander SGFIM 4,114 4,014 . from credit operations 3,060 3,782 . from other services rendered 19,889 17,635 . others 1.990 2,403 Deferred expenses 8,364 5,792 Recoverable taxes (Note 16) - 11,548 Other receivables 9,093 6,782 Gold, other precious metals and coin collections 2,427 2,580 Subsidy receivable from the Portuguese State 3,541 2,623 Other cash and deposits 359 353 Amounts to be settled with the pension fund (Note 43) 85,311 56,684 Shareholders’ loans: . Propaço – Sociedade Imobiliária de Paço de Arcos, Lda. (Propaço) 2,411 2,411 . Fafer – Empreendimentos Urbanísticos Construção, S.A. (Fafer) 386 386 . Benim, S.A. 250 250 . Gestínsua – Aquisições e Alienações de Património Imobiliário e Mobiliário, S.A. 126 126 Other equity investments: . Nortrem – Aluguer de Material Ferroviário, A.C.E. (Nortrem) 5,512 6,724 . Trem II – Aluguer de Material Circulante (Trem II) 2,155 2,883 . Trem - Aluguer de Material Circulante, A.C.E. (Trem) 283 371 . Others 9 56 Amounts pending settlement - 46,269 Others 5,701 4,708 ----------- ---------- 154,981 178,380 ----------- ---------- 290,819 330,315 ----------- ----------

Impairment (Note 22): . Shareholders’ loans ( 1,911 ) ( 1,911 ) . Assets received as settlement of defaulting loans ( 38,603 ) ( 41,306 ) . Others ( 4,824 ) ( 2,327 ) --------- ---------- ( 45,338 ) ( 45,544 ) ----------- ----------- 245,481 284,771 ====== ======


42

The changes in the captions “Assets received as settlement of defaulting loans” and “Own property for sale” during the years ended December 31, 2007 and 2006 are made up as follows:

December 31, 2006 Transfers December 31, 2007Gross Accumulated Utilization of from tangible Increase in Decrease in Gross Accumulated Net

amount impairment Increases Sales impairment fixed assets impairment impairment amount impairment amount(Note 14)

Assets received as settlement of defaulting loans. Property 108,095 (36,208) 68,674 (80,431) 14,239 - (14,390) 2,009 96,338 (34,350) 61,988. Promises 24,198 (2,695) 68,022 (70,538) 137 - (1,739) 2,009 21,682 (2,288) 19,394. Other 227 (227) 66 - - - (66) - 293 (293) -Own property for sale 19,415 (2,176) - (3,259) 1,252 1,369 (771) 23 17,525 (1,672) 15,853

151,935 (41,306) 136,762 (154,228) 15,628 1,369 (16,966) 4,041 135,838 (38,603) 97,235

2007

December 31, 2005 Transfers December 31, 2006Gross Accumulated Utilization of from tangible Increase in Decrease in Gross Accumulated Net

amount impairment Increases Sales impairment fixed assets impairment impairment amount impairment amount(Note 14)

Assets received as settlement of defaulting loans. Property 110,542 (26,729) 61,995 (64,455) 10,435 13 (19,914) - 108,095 (36,208) 71,887. Promises 29,220 (3,478) 62,056 (67,078) - - (1,903) 2,686 24,198 (2,695) 21,503. Other 227 (227) - - - - - - 227 (227) -Own property for sale 3,677 - - (5,033) 1,539 20,771 (3,715) - 19,415 (2,176) 17,239

143,666 (30,434) 124,051 (136,566) 11,974 20,784 (25,532) 2,686 151,935 (41,306) 110,629

2006

The caption “Amounts pending settlement” in 2006 refers to amounts due from sales of securities on the

last days of December. 18. RESOURCES OF CENTRAL BANKS This caption is made up as follows: 2007 2006 Resources of the Bank of Portugal Sales with repurchase agreement - securitized mortgage loans 2,130,978 - Deferred expenses ( 10,892 ) - Resources of other Central Banks Deposits 8,212 3,033 Accrued interest 10 4 ------------- ------- 2,128,308 3,037 ======== ====

The caption “Resources of the Bank of Portugal” corresponds to sale operations with repurchase agreements of bonds relating to securitized loans as follows:

Securities Quantity Principal Interest Total Beginning date Ending date Rate

HIPOTOTTA N3 PLC-CLASS A 5,163 350,000 293 350,293 28-12-2007 04-01-2008 4,30HIPOTOTTA N6 Ltd-CLASS A1 2,049 200,000 374 200,374 18-12-2007 04-01-2008 4,21HIPOTOTTA N6 Ltd-CLASS A2 400 38,717 436 39,153 31-10-2007 31-01-2008 4,45HIPOTOTTA N6 Ltd-CLASS A2 1,033 100,000 1,140 101,140 31-10-2007 31-01-2008 4,51HIPOTOTTA N6 Ltd-CLASS A2 516 50,000 565 50,565 31-10-2007 31-01-2008 4,47HIPOTOTTA N6 Ltd-CLASS A2 782 75,695 861 76,556 22-11-2007 21-02-2008 4,55HIPOTOTTA N6 Ltd-CLASS A2 1,550 150,000 1,767 151,767 28-11-2007 28-02-2008 4,66HIPOTOTTA N6 Ltd-CLASS A2 2,101 200,000 2,484 202,484 11-12-2007 13-03-2008 4,86HIPOTOTTA N6 Ltd-CLASS A2 2,101 200,000 2,474 202,474 11-12-2007 13-03-2008 4,84HIPOTOTTA N6 Ltd-CLASS A2 1,051 100,000 1,250 101,250 11-12-2007 13-03-2008 4,89HIPOTOTTA N6 Ltd-CLASS A2 2,101 200,000 2,494 202,494 11-12-2007 13-03-2008 4,88HIPOTOTTA N6 Ltd-CLASS A2 1,576 150,000 1,867 151,867 11-12-2007 13-03-2008 4,87HIPOTOTTA N6 Ltd-CLASS A2 3,118 300,000 561 300,561 18-12-2007 04-01-2008 4,21

2,114,412 16,566 2,130,978


43

19. RESOURCES OF OTHER FINANCIAL INSTITUTIONS This caption is made up as follows: 2007 2006 Resources of domestic financial institutions Inter-bank money market 43,000 50,000 Deposits 917,146 726,442 Sale operations with repurchase agreements 17,333 17,657 Very short term resources 243.905 226,325 Accrued interest 11,923 4,984 Deferred expenses ( 88 ) ( 59 ) ------------- ----------- 1,233,219 1,025,349 ------------- ----------- Resources of foreign financial institutions Consigned resources 400,000 300,000 Very short term resources 398 657 Deposits 3,717,813 3,486,930 Other resources 6,694 10,843 Accrued interest 23,155 17,018 -------------- --------------

4,148,060 3,815,448 -------------- -------------- 5,381,279 4,840,797 ======== ========

Consigned resources at December 31, 2007 and 2006 refers to loans from the European Investment Bank (EIB), to be used exclusively to finance small and medium size projects previously submitted to the EIB for approval. The loans are as follows:

2007 2006 Repayment date

BTA Empréstimo Global II 100,000 100,000 March 15, 2014BTA Empréstimo Global III 150,000 150,000 December 15, 2011Santander Totta GL IV - Tranche A 50,000 50,000 September 15, 2014Santander Totta GL IV - Tranche B 100,000 - June 15, 2015

400,000 300,000

As collateral for the payment of the loan “BTA Empréstimo Global III”, the Bank pledged in guarantee loans to Municipalities in the amount of tEuros 150,000.

As collateral for the payment of the loan “Santander Totta GL IV – Tranche B”, the Bank pledged in guarantee 1,500 Class A2 bonds of Hipototta No. 6 Ltd.


44

20. RESOURCES OF CUSTOMERS AND OTHERS This caption is made up as follows: 2007 2006 Demand deposits 4,831,027 4,791,366 Term deposits 5,230,586 5,118,298 Savings deposits 541,050 682,467 Advance notice deposits 28,048 32,174 Cheques and orders payable 142,233 157,101 Other resources of customers 1,056,606 671,828 Sale with repurchase agreements 14,750 275 Accrued interest and costs 74,479 57,761 Value adjustments of hedging operations ( 52,522 ) ( 60,910 ) -------------- -------------- 11,866,257 11,450,360 ======== ======== 21. DEBT SECURITIES ISSUED This caption is made up as follows: 2007 2006 Bonds outstanding Cash bonds Issued 12,075,413 10,465,375 Repurchased ( 175,000 ) ( 175,000 ) Accrued interest 51,772 32,649 --------------- -------------- 11,952,185 10,323,024 --------------- -------------- Others Deposit certificates 606 567,636 EMTN Programme 2,045,000 2,045,000 Others - 24 Accrued interest 10,756 19,512 -------------- ------------- 2,056,362 2,632,172 -------------- ------------- Value adjustments of hedging operations ( 153,377 ) ( 151,428 ) -------------- ------------- 13,855,170 12,803,768 ======== ========

The conditions of the cash bonds are described in Appendix II.


45

At 31 December 2007 the London Branch had the following bonds issued under the Euro Medium Term Notes Programme:

Issue Maturity date Remuneration Amount

12th December 7, 2010 Euribor 3 months plus 0.125% 500,000 14th May 11, 2009 Euribor 3 months plus 0.075% 425,000 15th May 19, 2008 Euribor 3 months plus 0.05% 300,000 17th November 3, 2008 Euribor 3 months plus 0.07% 500,000 17th September 11, 2008 Euribor 1 month plus 0.04% 290,000 18th October 13, 2008 Euribor 1 month plus 0.04% (1) 20,000 19th December 11, 2008 Euribor 1 month plus 0.04% (1) 10,000 ------------- 2,045,000 ========

(1) As from 11 September 2008 the remuneration becomes Euribor 1 month plus 0.05%. 22. CHANGES IN PROVISIONS AND IMPAIRMENT

The changes in provisions and impairment in 2007 and 2006 were as follows:

Exchange12/31/2006 Increases Reversals Utilized differences 12/31/2007

Provision for tax contingencies 32,903 1,210 (2,868) (10,362) - 20,883Employee benefit costs 8,435 15,323 (109) (12,752) (36) 10,861Impairment of and provisions for guarantees and other sureties given 19,952 10,081 (1,483) - (13) 28,537Other provisions 27,001 14,043 (8,517) (2,278) (63) 30,186

88,291 40,657 (12,977) (25,392) (112) 90,467

2007

Exchange12/31/2005 Increases Reversals Utilized differences 12/31/2006

Provision for tax contingencies 27,139 7,684 - (1,920) - 32,903Employee benefit costs 65,194 1,255 (4) (57,951) (59) 8,435Impairment of and provisions for guarantees and other sureties given 18,342 2,855 (1,232) - (13) 19,952Other provisions 42,882 6,595 (16,041) (6,282) (153) 27,001

153,557 18,389 (17,277) (66,153) (225) 88,291

2006


46

Impairment -2007

Reversal of Impairment impairment Exchange Impairment

12/31/2006 losses losses Utilized differences 12/31/2007 recovery

Impairment of loans and advances to customers (Note 12):Domestic loans 324,600 65,751 (72,192) (4,412) - 313,747 -Foreign loans 3,000 948 (586) - (92) 3,270 -Non-derecognized securitized loans 40,477 21,062 (9,023) - - 52,516 -

Impairment of overdue loans and interest:Loans and advances to banks (Note 11) 17 - - (17) - - -Loans to customers (Note 12):. Domestic loans 72,023 75,456 (1,555) (88,561) - 57,363 (20,985). Foreign loans 3,997 1,958 (420) (1,612) (131) 3,792 (504). Non-derecognized securitized loans 6,374 4,937 (4) - - 11,307 -

450,488 170,112 (83,780) (94,602) (223) 441,995 (21,489)

Impairment of available-for-salefinancial assets (Note 10) 45,170 242 (247) (2,307) - 42,858 -

Impairment of non financial assets:Tangible assets (Note 14) 5,905 136 (10) (20) (2) 6,009 -Intangible assets (Note 14) - 5,525 - - - 5,525 -Other assets (Note 17) 45,544 20,207 (4,500) (15,913) - 45,338 -

51,449 25,868 (4,510) (15,933) (2) 56,872 -

547,107 196,222 (88,537) (112,842) (225) 541,725 (21,489)

2006Reversal of

Impairment impairment Exchange Impairment12/31/2005 losses losses Utilized differences 12/31/2006 recovery

Impairment of loans and advances to customers (Note 12):Domestic loans 341,329 23,802 (40,220) (311) - 324,600 -Foreign loans 2,202 1,452 (553) - (101) 3,000 -Non-derecognized securitized loans 44,605 259 (4,387) - - 40,477 -

Impairment of overdue loans and interest:Loans and advances to banks (Note 11) 19 - - - (2) 17 -Loans to customers (Note 12):. Domestic loans 84,882 71,356 (3,972) (80,244) 1 72,023 (33,814). Foreign loans 6,445 1,609 (3,253) (795) (9) 3,997 (163). Non-derecognized securitized loans 2,255 4,119 - - - 6,374 -

481,737 102,597 (52,385) (81,350) (111) 450,488 (33,977)

Impairment of available-for-salefinancial assets (Note 10) 24,705 22,713 (295) (1,952) (1) 45,170 -

Impairment of non financial assets:Tangible assets (Note 14) 5,116 860 (22) (43) (6) 5,905 -Other assets (Note 17) 34,354 25,964 (2,799) (11,974) (1) 45,544 -

39,470 26,824 (2,821) (12,017) (7) 51,449 -

545,912 152,134 (55,501) (95,319) (119) 547,107 (33,977)

The provision for employee benefits was recorded to cover early retirement costs and contractual indemnities due to early retirement and termination of employment contracts, as a result of the restructuring plan launched following the merger of the commercial banks on December 16, 2004. In 2007, and following the new restructuring plan launched by BST, as a result of the merger of the brands and the consequent need for geographical restructure of the branches, the effect of early retirement of a group of employees was computed. Therefore, an additional provision for restructuring costs of tEuros 13,000 was recorded, of which tEuros 1,000 relating to the Luxembourg branch.

In 2007 the Bank used the provision for early retirement costs of 42 employees in the amount of tEuros 10,580 and indemnities for early retirement of tEuros 1,476. Of these amounts, tEuros 4,084 was paid by utilization of the provision for employees’ retirement benefits recorded at 31 December 2006. The balance of the provision, in the amount of tEuros 3,757, will be used for a supplementary pension plan of the Board of Directors.

In 2006 the Bank used the provision for termination of employment contracts of 161 employees in the amount of tEuros 49,042, as well as indemnities for early retirement in the amount of tEuros 8,891.


47

As of December 31, 2007 and 2006, the caption “Other provisions” includes:

- Provisions for legal processes, following lawsuits of customers and Bank’s employees, in the amounts of tEuros 16,167 and tEuros 13,808, respectively. The legal area of the Bank estimates the expected loss for each process, based on its development as reported by the lawyer responsible for each process;

- Other provisions, recognized whenever the expected benefits of a formal contract are lower than

the estimated expenditures to fulfil the obligations of such contract, in the amounts of tEuros 14,019 and tEuros 13,193, respectively. As of December 31, 2007 and 2006, these amounts include contingencies related to operational risk (frauds, operations pending confirmation, open items and fees) in the amounts of tEuros 6,513 and tEuros 5,482, respectively and contingencies related to the closing of former branches in the amounts of tEuros 1,392 and tEuros 3,324, respectively. These provisions were estimated considering the Bank’s best knowledge of future customer claims and other entities related to the branches.

As a result of the subjective nature of the above mentioned provisions and, most of all, considering that

the occurrence of the respective outflows is, in large respect, depending on third parties, they cannot be estimated with a proper level of accuracy.

23. EQUITY INSTRUMENTS At December 31, 2007 and 2006 this caption was made up as follows: 2007 2006 Preference shares of Pinto Totta Internacional Finance (PTIF) - 94.913 Value adjustment of hedging operations - 2.512 Accrued interest - 3.052 ----------- ----------- - 100.477 ====== ====== In 2006 this caption included preference shares of Pinto Totta International Finance (PTIF), a company

with head office on the Cayman Islands, with capital of 50,000 USD owned in equal parts by BST and Banco Comercial Português, S.A., as a result of the merger of the former BPSM into Banco Comercial Português, S.A.. The company issued 250,000 non voting preference shares at the price of 1,000 USD each, which were fully subscribed for and paid up by third parties, payment of dividends and repayment of the shares being guaranteed jointly by the two banks. The holders of the shares were entitled to a dividend payable half yearly, corresponding to annual remuneration of 7.77%, fixed for a period of 10 years. PTIF repaid all the preference shares as from August 2007, in accordance with an early repayment option approved by the Bank of Portugal, at the price of 1,000 USD per share plus the dividend accrued monthly since the last payment made.


48

24. SUBORDINATED LIABILITIES This caption is made up as follows: 2007 2006 EMTN Programme – Subordinated 300,000 300,000 Subordinated Perpetual Bonds Totta 2000 284,315 284,315 Subordinated Perpetual Bonds BSP 2001 172,833 172,833 Subordinated Perpetual Bonds CPP 2001 54,359 54,359 Subordinated Perpetual Bonds Totta 29,928 29,928 Subordinated Perpetual Bonds CPP 29,928 29,928 Subordinated Cash Bonds CPP Garanteed 6 years 15,050 15,050 Subordinated Cash Bonds CPP Eurostoxx 50 - 11,000 ------------- -------------- 886,413 897,413 Repurchased securities ( 467,701 ) ( 467,701 ) Accrued interest 1,962 1,629 Value adjustment of the hedging operations ( 353 ) ( 591 ) ----------- ----------- 420,321 430,750 ====== ====== The conditions of the subordinated liabilities are presented in Appendix III. 25. OTHER LIABILITIES This caption is made up as follows: 2007 2006 Suppliers 29,168 20,985 Invoices subject to approval 18,792 19,170 Income tax withheld 16,019 13,714 Social Security contributions 2,661 2,607 Contributions to other health systems 1,459 1,411 VAT payable 3,668 1,578 Personnel costs: . Long service bonus 23,339 22,738 . Vacation and vacation bonus 26,339 26,156 . Other variable remuneration 24,462 19,993 . Other payroll expenses 8,493 8,977 Captive resources 15,892 12,301 Other resources 1,667 10,445 Creditors’ balances pending settlement 13,079 7,048 Dividends 99 7,694 Amounts to be settled with banks and customers 58,647 42,212 Advance for the future sale of Banco Totta de Angola 15,000 15,000 Liability operations pending settlement 6,780 9,117 Others 13,911 20,785 ----------- ----------- 279,475 261,931 ====== ====== The caption “Amounts to be settled with banks and customers” at December 31, 2007 and 2006

corresponds to inter-bank electronic transfers that were cleared in the first days of the following year.


49

26. EQUITY The Bank’s share capital at December 31, 2007 and 2006 is made up of 589,810,510 subscribed and

fully paid up shares of one Euro each, held as follows: 2007 2006 Number % of shares participation Amount Amount Santander Totta, SGPS, S.A. 574,356,881 97.380 574.357 574.357 Taxagest, SGPS, S.A. 14,593,315 2.474 14.593 14.593 Others 817,564 0.139 818 839 Treasury shares 42,750 0.007 43 22 ---------------- --------- ----------- ----------- 589,810,510 100.00 589.811 589.811 ========== ===== ====== ======

In accordance with Ministerial Order 408/99 of June 4, published in the Official Journal of the Republic – I B Series number 129, the share premium of tEuros 163,703 cannot be used to pay dividends or to purchase treasury shares.

The other equity instruments refer to supplementary capital contributions made by the shareholder Santander Totta, SGPS, S. A., which do not bear interest or have a defined redemption term. They can only be redeemed by decision of the Bank’s Board of Directors with the prior approval of the Bank of Portugal.

The revaluation reserves at December 31, 2007 and 2006 were made up as follows:

2007 2006 Revaluation reserves - Reserves resulting from fair value revaluation of: Available-for-sale financial assets (Note 10) ( 18,291 ) 71,776 Cash flow hedging instruments 52 ( 584 ) Legal revaluation reserves as of the transition date 23,245 23,245 -------- ---------- 5,006 94,437 -------- ---------- Deferred tax reserves - Temporary differences relating to: Available-for-sale financial assets 6,548 ( 9,556 ) Hedging instruments ( 14 ) 155 Revaluation of tangible assets ( 5,861 ) ( 6,612 ) ----- -------- 673 ( 16,013 ) -------- --------- 5,679 78,424 ===== ===== Revaluation reserves

In 1998 the Bank revalued tangible fixed assets in accordance with Decree-Law 31/98 of February 11, resulting in a net increase of such assets of approximately tEuros 23,245, which was recorded in revaluation reserves. The net amount of the revaluation recorded in accordance with Decree-Law 31/98 of February 11 can only be used to increase capital or to cover losses, as the revalued assets are used (through depreciation) or sold.


50

The caption “Other reserves and retained earnings” at December 31, 2007 and 2006 is made up as follows:

2007 2006 Legal reserve 102,068 70,779 ---------- ---------- Other reserves Reserves of consolidated companies 70,501 46,548 Reserves of companies recorded using the equity method 12,106 9,638 Merger reserve 541,334 541,334 Others 530 372 ----------- ----------- 624,471 597,892 ----------- ----------- Exchange differences in consolidation ( 5,219 ) ( 1,266 ) ---------- ----------- Retained earnings ( 276,662 ) ( 370,131 ) ----------- ----------- 444,658 297,274 ====== ====== Legal reserve In accordance with Decree-Law 298/92 of December 31, amended by Decree-Law 201/2002 of

September 26, the Bank must appropriate at least 10% of its annual net income from its non- -consolidated operations to a legal reserve until the amount of such reserve equals the greater of the amount of share capital or the sum of the free reserves plus retained earnings.

This reserve can only be used to cover accumulated losses or to increase capital.

Merger reserve In accordance with current legislation, the merger reserve is equivalent to the legal reserve and can only

be used to cover accumulated losses or to increase capital.


51

27. CONSOLIDATED NET INCOME FOR THE YEAR Consolidated net income for 2007 and 2006 is made up as follows:

Contribution to Contribution toNet income consolidated Net income consolidatedfor the year net income for the year net income

Non consolidated net income of BST 343,399 343,399 312,884 312,884Net income for the remaining Group companies:

Serfin International Bank & Trust 1,499 1,499 1,448 1,448Madeisisa 222 222 1,409 1,409Totta Ireland, Plc. 84,266 84,266 81,678 81,678Banco Totta de Angola 14,295 14,292 12,835 12,833Totta Urbe 3,657 3,657 222 222Totta Crédito Especializado - IFIC 22,825 3,680 17,425 2,809Totta & Açores Finance Ireland (TAFIL) - - 864 864Totta & Açores, Inc. - Newark 80 80 18 18Totta & Açores, Financing, Ltd 12,584 12,584 12,485 12,485BST International, Inc 18,015 18,015 9,926 9,926

157,443 138,295 138,310 123,692Elimination of dividends:

Totta Ireland, Plc. (89,477) (76,824)Totta Crédito Especializado - IFIC (5,159) -

(94,636) (76,824)

Correction of the capital increase operation of Mermul 293 10Elimination of revaluation reserves of Banco Totta de Angola 126 131Correction of result of Banco Totta de Angola for 2005 - (53)Correction of result of Banco Totta de Angola for 2006 (246) -Correction of result of Madeisisa for 2006 (18) -Elimination of extraordinary recovery of tax of Banco Totta de Angola - 3,191Elimination of BST gains on the sale of Hipototta Notes 796 (2,673)Elimination of equity method applied to Madeisisa investment in SIBT - (1,235)Elimination of deferred tax assets (2,133) (255)Elimination of deferred tax liabilities 160 -Elimination of the gain recognized in the liquidation of TAFIL (1,037) -Adjustment of the provisions of Totta Urbe (1,209) -Elimination of BST's provision for subordinated loans (Hipotottas) 2,250 -Recognition of accrued interest on the Notes with a higher degree of subordination 4,238 -Application of IAS/IFRS - Retirement pensions (1,211) (5,964)Others (1,448) 1,010Consolidated net income for the year 387,619 353,914

20062007

28. MINORITY INTEREST

Third party participation in Group companies, by entity, in 2007 and 2006 is as follows: 2007 2006 Balance Statement Balance Statement sheet of income sheet of income Preference shares BST Puerto Rico 244,549 - 273,349 - TAF (Preference shares 2005) 300,000 - 297,750 - Interim dividends ( 27,608 ) - ( 20,922 ) - Others 206 2 163 2 ----------- --- ----------- ---- 517,147 2 550,340 2 ====== == ====== ==

On June 30, 2006 BST International Bank, Inc (BST Puerto Rico) issued 3,600 non voting preference shares of 100,000 USD each, fully subscribed for and paid up by Banco Santander Central Hispano. The Bank guarantees a dividend on these shares corresponding to annual remuneration of 6.56% payable quarterly, if and when declared by BST Puerto Rico’s directors. BST Puerto Rico may redeem the preference shares, in full or in part, as from June 30, 2016 at 100,000 USD per share plus the amount of the dividend accrued monthly since the last payment made.


52

On June 29, 2005 TAF issued 300,000 non voting preference shares of 1,000 Euros each, fully subscribed for and paid up by Banco Santander Central Hispano. The Bank guarantees a dividend on these shares corresponding to annual remuneration of 4.12% payable quarterly, if and when declared by TAF’s directors. TAF may redeem the preference shares, in full or in part, as from June 30, 2015 at 1,000 Euros per share plus the amount of the dividend accrued monthly since the last payment made.

These issues were classified as equity in accordance with IAS 32. In accordance with IAS 32,

preference shares issued are classified as equity if:

− The Issuer or the Bank does not have a contractual liability to deliver cash or other financial asset to the shareholders; and

− Payment of dividends and repayment of the preference shares are at the discretion of the issuer.

29. OFF BALANCE SHEET ITEMS Off balance sheet items are made up as follows: 2007 2006 Guarantees given and other contingent liabilities Guarantees and sureties 1,457,269 1,602,375 Acceptances and endorsements - 66 Open documentary credits 400,051 220,842 Securities and indemnities 1,962 23,133 Assets pledged in guarantee Securities 211,069 204,615 Others 98 98 Other contingent liabilities 6 6 -------------- -------------- 2,070,455 2,051,135 ======== ======== Commitments Credit lines Revocable 4,192,614 4,313,534 Irrevocable 1,503,943 1,046,947 Term deposit contracts 116,389 2,765 Survivor and pension liability not yet recognized 421 421 Deposit Guarantee Fund 52,426 51,954 Investor Indemnity System 8,738 8,514 Other irrevocable commitments 25,420 30,400 Other revocable commitments 190 570 -------------- -------------- 5,900,141 5,455,105 ======== ======== Responsibility for services rendered Custody and safekeeping 25,623,903 21,210,330 Amounts for collection 130,030 120,525 Assets managed by the institution Other 47,620 49,659 --------------- ---------------- 25,801,553 21,380,514 ======== =========


53

Deposit Guarantee Fund

The Deposit Guarantee Fund was created in November 1994 in accordance with Decree Law 298/92 of December 31, to guarantee customers’ deposits in accordance with the limits established in the General Regime for Credit Institutions. The initial contribution to the Fund, which was established by Ministerial Order of the Ministry of Finance, was made in cash and deposit securities, and was amortized over 60 months as from January 1995. Except as mentioned in the following paragraph, regular annual contributions to the Fund are recorded as expense for the year to which they relate.

In 2007 and 2006, as allowed by the Bank of Portugal, the Bank paid 85% of the annual contribution to the Fund, in the amounts of tEuros 2,675 and tEuros 2,983, respectively (Note 39), and accepted an irrevocable commitment to the Deposit Guarantee Fund to pay the remaining 15% of the annual contribution, if and when demanded. The unpaid amount of the commitment totalled tEuros 52,426 as of December 31, 2007 (tEuros 51,954 at December 31, 2006). The assets pledged in guarantee to the Bank of Portugal are recorded in off-balance sheet accounts at market value.

Investor Indemnity System

The responsibility to pay the Investor Indemnity System is not recorded as a cost, but is covered by the acceptance of an irrevocable commitment to pay that amount, if required to do so, part (50%) of the commitment being guaranteed by a pledge of Portuguese Treasury Bonds. At December 31, 2007 the commitment totalled tEuros 8,738 (tEuros 8,514 at December 31, 2006).

Assets pledged in guarantee at December 31, 2007 and 2006 are as follows:

2007

Deposit Guarantee Investor Indemnity Fund System SPGT

Financial assets designated at fair value through profit and loss 62,939 4,881 143,249

2006

Deposit Guarantee Investor Indemnity Fund System SPGT

Financial assets designated at fair value through profit and loss 63,767 4,771 81,315Loans and advances to customers - - 54,762

63,767 4,771 136,077


54

30. INTEREST INCOME This caption is made up as follows: 2007 2006 Interest on cash and deposits At Central Banks At the Bank of Portugal 11,230 8,253 At other central banks abroad 75 85 At credit institutions 981 438 Other - 1 Interest on loans and advances to banks Banks in Portugal At the Bank of Portugal 1 - At other banks 98,541 63,651 Foreign banks 70,415 83,914 Interest on loans to customers Domestic loans 777,861 662,420 Foreign loans 76,991 58,990 Other receivables (securitized – commercial paper) 70,641 40,015 Commission and fees received relating to amortized cost 12,798 12,429 Securitized assets not derecognized 480,724 362,188 Estimated income on Pension Fund assets, less pension plan interest cost (Note 43) 10,296 - Interest on overdue credit 12,032 7,413 Interest income on other financial assets Financial assets held for trading Securities 7,491 3,390 Derivatives 1,469,794 1,629,882 Available-for-sale financial assets Securities 35,293 32,676 Purchased under the securitization operations 50,085 - Held-to-maturity investments Securities - 320 Hedging derivatives 74,003 143,754 Debtors and other applications 5,261 46 Other interest 2,027 708 -------------- ------------- 3,266,540 3,110,573 ======== ========

The caption “Commission and fees received relating to amortized cost” for 2007 and 2006 relate to loans to customers (Note 12).


55

31. INTEREST EXPENSE This caption is made up as follows: 2007 2006 Interest on customers’ deposits Public sector 14,281 11,815 Emigrants 7,736 7,058 Other residents 151,921 100,988 Non residents 43,486 65,568 ----------- ---------- 217,424 185,429 ----------- ---------- Interest on other resources of customers 688 252 Interest on resources of Central Banks Bank of Portugal 12,191 118,513 Other Central Banks 293 422 Interest on resources of credit institutions Domestic 39,325 29,233 Foreign 162,356 135,146 Interest on debt securities issued Non subordinated Deposit certificates 4,448 68,868 Bonds 516,179 293,552 Other 86,752 54,246 Interest on financial liabilities held for trading - derivatives 1,454,225 1,424,245 Interest on hedging derivatives 73,055 140,205 Interest on subordinated liabilities 24,018 30,398 Pension plan interest cost less estimated return on plan assets (Note 43) - 4,727 Other interest 4,943 6,366 ------------- -------------- 2,378,473 2,306,173 ------------- -------------- 2,595,897 2,491,602 ======== ======== 32. INCOME FROM EQUITY INSTRUMENTS This caption refers to dividends received and is made up as follows: 2007 2006 Available-for-sale financial assets: Banco BPI 3,992 4,096 Unicre 1,845 1,845 SIBS 816 689 Imovest 684 567 Others 121 50 -------- -------- 7,458 7,247 Other equity instruments: Ausant Holding - 388 Ausant Merchant - 217 -------- -------- 7,458 7,852 ==== ====


56

33. FEE AND COMMISSION INCOME This caption is made up as follows: 2007 2006 On guarantees given Guarantees and sureties 13,896 13,634 Open documentary credits 1,457 1,274 On irrevocable commitments to third parties 4,322 1,752 On services rendered Custody and safekeeping 2,940 2,970 Amounts for collection 27,347 31,201 Fund management 48,656 49,526 Transfers 1,427 1,338 Card transactions 50,980 42,974 Annuities 13,823 14,832 Setting up loans 90 3,088 Credit operations 82,629 64,159 On operations carried out on account of third parties Securities 5,598 4,252 Others 223 228 Other fees and commission received Insurance 81,705 62,294 Specialized credit 3,060 3,782 Demand deposits 10,612 14,631 Cheques 13,422 17,548 Booklets 5,392 4,900 Others 508 748 ----------- ----------- 368,087 335,130 ====== ====== 34. FEES AND COMMISSION EXPENSE This caption is made up as follows: 2007 2006 On guarantees received Guarantees and sureties 886 6 On banking services rendered by third parties Asset custody and safekeeping 174 47 Amounts for collections 2,922 2,619 Asset management 847 - Credit operations 24,154 8,384 Customer transactions 18,669 12,709 Others 1,058 2,562 On operations carried out by third parties Securities 836 1,013 Others 6,204 3,286 Other fees and commission paid 1,123 5,441 --------- --------- 56,873 36,067 ===== =====


57

35. RESULT OF ASSETS AND LIABILITIES VALUED AT FAIR VALUE THROUGH PROFIT AND LOSS This caption is made up as follows:

2007 2006Gains Losses Net Gains Losses Net

Financial assets held for trading: Equity instruments 124,462 (83,407) 41,055 358,166 (357,654) 512 Derivative instruments "Forwards" - (912) (912) 8 (11) (3) “Swaps” . Exchange rate contracts 7,896 (9,786) (1,890) 25,506 (21,048) 4,458 . Interest rate contracts 1,446,080 (1,433,192) 12,888 1,188,675 (1,187,425) 1,250 . Equity contracts 10,508 (7,833) 2,675 259,308 (256,959) 2,349 . Others 2,407 (25,776) (23,369) 699 (390) 309 Futures . Interest rate contracts 20,929 (20,065) 864 - - - . Equity contracts 1,946 (1,936) 10 - - - . Others 883 (860) 23 2,304 (1,593) 711 Options: . Exchange rate contracts 70,400 (71,884) (1,484) 105,573 (106,055) (482) . Interest rate contracts 43,240 (43,237) 3 1,946 (1,985) (39) . Equity contracts 5,895,977 (5,922,833) (26,856) 3,119,315 (3,119,933) (618) . Others 481,902 (484,019) (2,117) 2,401,060 (2,399,830) 1,230 Fixed interest rate contracts 2,399,045 (2,397,406) 1,639 1,151,748 (1,151,695) 53

10,505,675 (10,503,146) 2,529 8,614,308 (8,604,578) 9,730Hedging derivatives: “Swaps” . Interest rate contracts 37,411 (2,512) 34,899 29,166 (34,105) (4,939) . Equity contracts 17,822 (19,868) (2,046) 49,532 (86,972) (37,440) Adjustment fo the value of hedged Assets and Liabilities 24,992 (56,774) (31,782) 123,622 (107,818) 15,804

80,225 (79,154) 1,071 202,320 (228,895) (26,575)Total assets and liabilities valued at fair value 10,585,900 (10,582,300) 3,600 8,816,628 (8,833,473) (16,845)

36. RESULT OF AVAILABLE-FOR-SALE FINANCIAL ASSETS This caption is made up as follows:

2007 2006Gains Losses Net Gains Losses Net

Debt instrumentsIssued by residents

Domestic public debt - - - - (2,944) (2,944)Other domestic issuers - (53) (53) 1 (1) -

- (53) (53) 1 (2,945) (2,944)

Issued by non residentsForeign public issuers 1,442 (2,598) (1,156) 19 (104) (85)Other non residents - - - - - -

1,442 (2,598) (1,156) 19 (104) (85)

Equity instrumentsValued at fair value 66,228 - 66,228 44,894 (168) 44,726Valued at historical cost 245 - 245 35 - 35Other 1 - 1 6 (3) 3

66,474 - 66,474 44,935 (171) 44,76467,916 (2,651) 65,265 44,955 (3,220) 41,735

The gain on equity instruments in 2007 and 2006 includes tEuros 65,728 and tEuros 44,390 relating to gain on the the sale of Banco BPI, S.A.’s shares, respectively (Note 10).


58

37. RESULT OF EXCHANGE REVALUATION (NET) This caption is made up as follows: 2007 2006 Gain on revaluation of the exchange position 60,404 66,470 Loss on revaluation of the exchange position ( 46,783 ) ( 61,667 ) --------- -------- 13,621 4,803 ===== ==== 38. RESULT OF OTHER ASSETS This caption is made up as follows: 2007 2006 Gain on the sale of loans to customers (Note 12) 24,272 46,282 Gain on the sale of available-for-sale non-current assets 1,347 18 Gain on tangible assets 154 413 Others 12 73 --------- --------- 25,785 46,786 --------- --------- Loss on the sale of available-for-sale non-current assets ( 804 ) - Loss on tangible assets ( 25 ) ( 494 ) Others ( 1 ) ( 39 ) ------ ------- ( 830 ) ( 533 ) --------- --------- 24,955 46,253 ===== =====

The gain on the sale of loans to customers in 2006 includes tEuros 27,384 relating to gain of Totta Ireland PLC on the sale of a credit operation over PT Multimédia, offset by loss of the same amount in the caption “Result of assets and liabilities valued at fair value through profit and loss – Hedging derivatives”.


59

39. OTHER OPERATING INCOME This caption is made up as follows: 2007 2006 Other operating income Operating lease income 464 416 Reimbursement of expenses 5,546 5,908 Income for sundry services rendered 2,639 2,886 Others 18,823 16,465 --------- --------- 27,472 25,675 --------- --------- Other operating expenses Subscriptions and donations ( 1,260 ) ( 954 ) Contributions to the Deposit Guarantee Fund (Note 29) ( 2,675 ) ( 2,983 ) Other operating expenses ( 29,157 ) ( 16,680 ) Other taxes Direct ( 1,457 ) ( 1,703 ) Indirect ( 1,402 ) ( 926 ) --------- --------- ( 35,951 ) ( 23,246 ) -------- -------- ( 8,479 ) 2,429 ==== ===== 40. PERSONNEL COSTS This caption is made up as follows: 2007 2006 Remuneration Management and supervisory boards 5,693 6,107 Employees 178,663 173,367 Other variable remuneration 29,750 27,319 ----------- ----------- 214,106 206,793 ----------- ----------- Mandatory social charges Charges on remuneration 34,509 34,191 Pensions and other benefit costs (Note 43) 16,155 14,029 Pensions paid 286 1,969 Early retirement (Note 43) 1,572 - Other mandatory social charges 1,222 798 --------- ---------- 53,744 50,987 --------- ---------- Other personnel costs Personnel transfers 581 466 Contractual indemnities (Note 43) 707 3,045 Others 8,780 7,764 -------- -------- 10,068 11,275 ----------- ----------- 277,918 269,055 ====== ======


60

41. GENERAL AND ADMINISTRATIVE COSTS This caption is made up as follows: 2007 2006 Specialized services 60,014 60,439 Communications 18,038 17,187 Maintenance and repairs 13,171 10,521 Publicity and publishing 13,870 23,064 Rent and leasing 12,598 12,338 Supplies Water, electricity and fuel 7,564 6,898 Current consumable material 3,522 3,559 Others 654 345 Travel, lodging and representation expenses 8,757 8,360 Transport 2,104 3,094 Personnel training 2,250 2,336 Insurance 997 2.066 Others 4,985 3,220 ---------- ----------- 148,524 153,427 ====== ====== 42. NET INCOME ON ASSOCIATED COMPANIES This caption is made up as follows: 2007 2006 Totta Crédito Especializado, IFIC, S.A. 3,685 2,468 Benim - Sociedade Imobiliária, S.A. 54 16 -------- -------- 3,739 2,484 ==== ==== 43. EMPLOYEES’ POST EMPLOYMENT BENEFITS For purposes of determining BST’s past service liability relating to active and retired employees,

actuarial calculations were made in 2007 and 2006 by Watson Wyatt International Limited, Portugal branch. The present value of the past service liability and corresponding current service cost were determined based on the Projected Unit Credit method.

The following main assumptions were used as of December 31, 2007 and 2006: 2007 2006 Mortality table TV 88/90 TV 88/90 Pension fund return rate 5.50% 5.00% Actuarial technical rate (discount rate) 5.00% 4.75% Salary growth rate 3.20% 3.20% Pension growth rate 2.50% 2.50% In determining the pension cost for 2008, the same assumptions used to calculate the liability as of

December 31, 2007 were considered and the estimated rate of income of 5.5% of the Pension Fund was maintained.


61

On December 27, 2007 the Directing Council of the Portuguese Institute of Insurance authorized the Banco Santander Portugal Pension Fund and the Crédito Predial Português Pension Fund to be extinguished, and changes to be made in the contract constituting the Banco Totta & Açores Pension Fund, which became called Fundo de Pensões do Banco Santander Totta, following the merger with the two extinguished funds.

The liability for retirement pensions, healthcare and death subsidy and respective funding at December 31, 2007 and 2006 are as follows:

2007 Estimated past service liability: - Serving employees 241,071 - Pensioners 35,054 - Retired and early retired personnel 1,045,467 - Healthcare (SAMS) 139,806 - Death subsidy 18,767 ------------- 1,480,165 ------------- Funding of the liability: - Value of the Fund assets as informed by the managing entity: 1,486,078 ------------- Excess amount funded 5,913 ====

2006 Former Former Former totta CPP BSP BST Estimated past service liability: - Serving employees 11,303 117,671 94,422 223,396 - Pensioners 11,453 17,304 2,941 31,698 - Early retired and retired employees 388,430 551,082 89,400 1,028,912 - Healthcare (SAMS) 82,848 45,253 12,518 140,619 - Death subsidy 276 13,819 5,094 19,189 ----------- ----------- ---------- ------------- 494,310 745,129 204,375 1,443,814 ----------- ----------- ---------- ------------- Funding of the liability: - Value of the Funds’ assets as informed by the managing entities 495,273 746,250 205,324 1,446,847 ---------- ---------- ----------- ------------- Excess amount funded 963 1,121 949 3,033 === ==== === ==== The changes in the past service liability in the years ended December 31, 2007 and 2006 are as follows: 2007 2006 Liability as of December 31, 2006 and 2005 1,443,814 1,358,544 Current service cost 16,155 14,029 Interest cost 67,489 62,668 Actuarial loss 21,526 17,144 Early retirement 12,152 49,042 Amounts paid ( 83,150 ) ( 72,934 ) Employees’ contributions 2,179 1,941 Others - 13,380 ------------- -------------- Liability as of December 31, 2007 and 2006 1,480,165 1,443,814 ======= =======


62

In accordance with Bank of Portugal Notice 4/2005, the cost of employee pensions and other benefits for the year includes current service and interest cost, less estimated return on the plan assets. Pension cost for 2007 is made up as follows:

Current service cost 16,155 Interest cost 67,489 Estimated income ( 77,785 ) -------- Cost for the year 5,859 ==== Pension cost for 2006 is made up as follows: Former Former Former totta CPP BSP BST Current service cost 701 6,675 6,653 14,029 Interest cost 21,981 32,038 8,649 62,668 Estimated income ( 20,312 ) ( 29,548 ) ( 8,081 ) ( 57,941 ) -------- ------- ------- --------- Cost for the year 2,370 9,165 7,221 18,756 ==== ==== ==== ===== In 2007 and 2006 the cost and gain of employee post-employment benefits was included in the following

captions: 2007 2006 Interest income (Note 30) 10,296 - ===== === Interest expense (Note 31) - 4,727 Personnel costs (Note 40) 16,155 14,029 --------- --------- 16,155 18,756 ===== =====


63

The change in value fluctuations in 2006 and 2007 is made up as follows: Former Former Former totta CPP BSP BST Value fluctuation at December 31, 2005 10,563 45,724 12,394 68,681 --------- --------- --------- --------- . Actuarial loss / (gain) on pensions ( 1,096 ) 19,060 ( 5,462 ) 12,502 . Financial gain in pensions ( 11,818 ) ( 16,214 ) ( 3,427 ) ( 31,459 ) . Actuarial loss with healthcare benefits and death subsidy 2,172 1,731 739 4,642 . Financial gain with healthcare benefits and death subsidy ( 361 ) ( 264 ) ( 90 ) ( 715 ) ------ --------- ------- --------- Value fluctuation at December 31, 2006 ( 540 ) 50,037 4,154 53,651 === ===== ==== . Actuarial loss on pensions generated in 2007 26,374 . Financial loss on pensions generated in 2007 3,753 . Actuarial gain with healthcare benefits and death subsidy in 2007 ( 4,848 ) . Financial loss with healthcare benefits and death subsidy in 2007 468 --------- Value fluctuation at December 31, 2007 79,398 ===== The balance sheet amount relating to the pension plan as of December 31, 2007 and 2006 is made up

as follows (Note 17): 2007 2006 Value fluctuation 79,398 53,651 Excess amount funded 5,913 3,033 --------- --------- 85,311 56,684 ===== ===== The actuarial deviation with pensions in 2007 is due to the following: 2007 Change in discount rate ( 48,082 ) Impact of change in legislation relating to Social Security 29,326 Increase in the salary table in 2007 17,066 Change in the population 14,877 Mortality deviations 7,535 Impact of career advances 5,652 --------- 26,374 =====


64

2006 Former Former Former totta CPP BSP BST Changes in the population ( 4,919 ) 2,999 ( 1,686 ) ( 3,606 ) Projected salary increases and career advances 4,992 9,447 ( 2,721 ) 11,718 Non-acceptance of early retirements by the Social Security 8,150 - - 8,150 Impact of the increase in Social Security pensions ( 2,833 ) - - ( 2,833 ) Others ( 6,486 ) 6,614 ( 1,055 ) ( 927 ) -------- --------- ------- --------- ( 1,096 ) 19,060 ( 5,462 ) 12,502 ==== ===== ===== =====

The actuarial deviations with healthcare and death subsidy in 2007 and 2006 are due to the following: 2006 2007 Former Former Former BST totta CPP BSP BST Change in discount rate ( 6,420 ) - - - - Increase in the salary table in 2007 2,018 - - - - Projected salary increases - 842 615 - 1,457 Others ( 446 ) 1,330 1,116 739 3,185 --------- ------- ------- ----- -------- ( 4,848 ) 2,172 1,731 739 4,642 ===== ==== ==== === =====

The increase in the liability for early retirements in 2007 and 2006, in the amounts of tEuros 12,152 and tEuros 49,042, respectively, and indemnities paid for retirement, in the amounts of tEuros 2,183 and tEuros 8,891, respectively, was recorded in 2007 by corresponding charge to the provision for employee benefits (tEuros 10,580 for early retirement and tEuros 1,476 for indemnities) and by corresponding charge to the statement of income (tEuros 1,572 for early retirement and tEuros 707 indemnities). In 2006 the increase was charged in full to the provision for employee benefits.

The effective increase in remuneration in 2007 and 2006 for purposes of Social Security contributions relating to employees of the former totta, was 6.8% and 7.4%, respectively.

The effective increase in pensions in 2007 and 2006 was 2.7% and 2.5%, respectively.


65

At December 31, 2007 and 2006 Santander Pensões, Sociedade Gestora de Fundos de Pensões, S.A. managed the Group’s Pension Funds. The number of participants in the Funds as of those dates was the following:

2006 2007 Former Former Former BST totta CPP BSP BST Serving employees 5,501 2,216 2,048 1,263 5,527 Pensioners 807 553 191 33 777 Retired and early retired personnel 5,500 3,571 1,749 207 5,527 --------- ------- ------- ------- --------- 11,808 6,340 3,988 1,503 11,831 ===== ==== ==== ==== ===== The changes in the Pension Fund assets in 2006 and 2007 were as follows: Former Former Former totta CPP BSP BST Net value at December 31, 2005 360,549 515,392 134,764 1,010,705 ----------- ----------- ---------- ------------- Contributions by the Bank 140,199 213,943 62,877 417,019 Contributions by the employees 660 791 490 1,941 Net income of the funds 32,491 46,026 11,599 90,116 Pensions paid ( 38,626 ) ( 29,902 ) ( 4,406 ) ( 72,934 ) ----------- ----------- ----------- ------------- Net value at December 31, 2006 495,273 746,250 205,324 1,446,847 ----------- ----------- ----------- Contributions by the Bank 46,638 Contributions by the employees 2,179 Net income of the fund 73,564 Pensions paid ( 83,150 ) ------------- Net value at December 31, 2007 1,486,078 =======

The return on assets of the Pension Funds in 2007 and 2006 was as follows: 2007 2006 BST 5.08% - Former totta - 8.24% Former CPP - 8.03% Former BSP - 7.37%


66

The portfolio of the pension funds at December 31, 2007 and 2006 included the following Group company assets:

2006 2007 Former Former Former BST totta CPP BSP BST Leased property 23,580 14,897 2,250 5,903 23,050 Securities (including participation units in investments funds under management) 283,113 61,702 138,009 25,009 224,720 ---------- --------- ---------- --------- ----------- 306,693 76,599 140,259 30,912 247,770 ====== ===== ====== ===== ====== 44. SECURITIZATION OPERATION

Description of the operations

In July and December 2003, December 2004 and 2005 and March and October 2007 BST sold part of its mortgage loans portfolios, in the amounts of tEuros 1,100,000, tEuros 2,650,000, tEuros 3,400,000, tEuros 2,800,000, tEuros 2,000,000 and tEuros 2,200,000, respectively, through six securitization operations. The loans were sold at their nominal value (book value) to Fundo de Titularização de Créditos Hipototta No. 1 FTC (Hipototta FTC No. 1), Fundo de Titularização de Créditos Hipototta No. 2 FTC (Hipototta FTC No. 2), Fundo de Titularização de Créditos Hipototta No. 3 FTC (Hipototta FTC No. 3), Fundo de Titularização de Créditos Hipototta No. 4 FTC (Hipototta FTC No. 4), Fundo de Titularização de Créditos Hipototta No. 5 FTC (Hipototta FTC No. 5) and Fundo de Titularização de Créditos Hipototta No. 6 FTC (Hipototta FTC No. 6), respectively (hereinafter referred to jointly as Hipototta FTC Funds).

The funds are managed by Navegator – Sociedade Gestora de Fundos de Titularização de Créditos, S.A., in which the Group does not have any direct or indirect participating interest. BST continues to manage the mortgage contracts, transferring all the amounts received under the loan contracts to the Hipototta FTC Funds.

To finance the operation, the Funds issued participating units in amounts equal to the loan portfolios purchased, which were fully subscribed for by Hipototta No. 1 PLC, Hipototta No. 2 PLC, Hipototta No. 3 PLC, Hipototta No. 4 PLC, Hipototta No. 5 PLC and Hipototta No. 6 Ltd with head offices in Ireland (hereinafter referred to jointly as Hipototta PLC/Ltd).

The Hipottota FTC Funds pay all amounts received from BST and from the Portuguese Treasury (Direcção Geral do Tesouro) to the Hipototta PLC/Ltd, segregating the instalments between principal and interest.


67

To finance the operation, the Hipottota PLC/Ltd issued notes with different levels of subordination and rating and, consequently, of remuneration. The major characteristics of the notes are as follows:

Hipottta PLC No 1

RemunerationRating Redemption Early Up to early After early

Issued debt Initial Present S&P Fitch date redemption date redemption date redemption date

Class A 1,053,200 490,476 AAA Aaa November 2034 August 2012 Euribor 3 m + 0.27% Euribor 3 m + 0.54%

Class B 32,500 31,625 A+ A1 November 2034 August 2012 Euribor 3 m + 0.65% Euribor 3 m + 0.95%

Class C 14,300 13,937 BBB+ Baa1 November 2034 August 2012 Euribor 3 m + 1.45% Euribor 3 m + 1.65%1,100,000 536,038

Class D 17,600 11,000 November 2034 August 2012 Residual income of the securitized portfolio

1,117,600 547,038

Amount

Hipottta PLC No 2Remuneration

Rating Redemption Early Up to early After earlyIssued debt Initial Present S&P Fitch date redemption date redemption date redemption date

Class A 2,557,200 1,408,971 AAA AAA September 2036 December 2012 Euribor 3 m + 0.22% Euribor 3 m + 0.44%

Class B 39,800 39,800 AA+ AA+ September 2036 December 2012 Euribor 3 m + 0.5% Euribor 3 m + 1%

Class C 53,000 53,000 A A September 2036 December 2012 Euribor 3 m + 0.65% Euribor 3 m + 1.30%2,650,000 1,501,771

Class D 18,550 18,550 September 2036 December 2012 Residual income of the securitized portfolio

2,668,550 1,520,321

Amount

Hipototta PLC No 3Remuneration

Redemption Early Up to early After earlyIssued debt Initial Present Rating Fitch date redemption date redemption date redemption date

Class A 3,206,200 2,219,769 AAA December 2047 December 2013 Euribor 3 m + 0.13% Euribor 3 m + 0.26%

Class B 122,400 122,400 AA December 2047 December 2013 Euribor 3 m + 0.23% Euribor 3 m + 0.46%

Class C 71,400 71,400 A December 2047 December 2013 Euribor 3 m + 0.33% Euribor 3 m + 0.66%3,400,000 2,413,569

Class D 17,000 17,000 December 2047 December 2013 Residual income of the securitized portfolio

3,417,000 2,430,569

Amount


Redemption Early Up to early After earlyIssued debt Initial Present Rating Fitch date redemption date redemption date redemption date

Class A 2,616,040 1,973,752 AAA December 2048 December 2014 Euribor 3 m + 0.12% Euribor 3 m + 0.24%

Class B 44,240 44,240 AA- December 2048 December 2014 Euribor 3 m + 0.19% Euribor 3 m + 0.40%

Class C 139,720 139,720 A December 2048 December 2014 Euribor 3 m + 0.29% Euribor 3 m + 0.58%2,800,000 2,157,712

Class D 14,000 14,000 December 2048 December 2014 Residual income of the securitized portfolio

2,814,000 2,171,712

Amount



Class A1 200,000 39,907 AAA Aaa February 2060 February 2014 Euribor 3 m + 0.05% Euribor 3 m + 0.10%

Class A2 1,693,000 1,693,000 AAA Aaa February 2060 February 2014 Euribor 3 m + 0.13% Euribor 3 m + 0.26%

Class B 26,000 26,000 AA Aa2 February 2060 February 2014 Euribor 3 m + 0.17% Euribor 3 m + 0.34%

Class C 24,000 24,000 A A1 February 2060 February 2014 Euribor 3 m + 0.24% Euribor 3 m + 0.48%

Class D 26,000 26,000 BBB Baa2 February 2060 February 2014 Euribor 3 m + 0.50% Euribor 3 m + 1.00%

Class E 31,000 31,000 BB Ba3 February 2060 February 2014 Euribor 3 m + 1.75% Euribor 3 m + 3.50%2,000,000 1,839,907

Class F 10,000 10,000 CCC- Ca February 2060 February 2014 Residual income of the securitized portfolio

2,010,000 1,849,907

Amount


68

Hipototta Ltd No 6Remuneration


Class A1 224,400 224,400 AAA Aaa July 2060 - Euribor 3 m + 0.20% -

Class A2 1,800,400 1,800,400 AAA Aaa July 2060 - Euribor 3 m + 0.30% -

Class B 52,400 52,400 AA Aa2 July 2060 - Euribor 3 m + 0.60% -

Class C 36,300 36,300 A A1 July 2060 - Euribor 3 m + 1.20% -

Class D 40,700 40,700 BBB Baa1 July 2060 - Euribor 3 m + 2.75% -

Class E 45,800 45,800 BB- Ba3 July 2060 - Euribor 3 m + 4.75% -2,200,000 2,200,000

Class F 11,450 11,450 CCC- Ca July 2060 - Residual income of the securitized portfolio

2,211,450 2,211,450

Amount

The notes issued by Hipototta PLC No. 1, Hipototta PLC No. 2, Hipototta PLC No. 3 and Hipototta PLC No. 4 payable quarterly payable on March 30, June, September and December of each year. The notes issued by Hipototta PLC No. 5 bear interest payable quarterly on February 28, May 30, August and November each year. The notes issued by Hipototta Ltd No. 6 bear interest payable quarterly on January 30, Abril, Julho and Outubro each year.

BST has as the option to redeem the notes early on the above mentioned dates and the possibility of repurchasing the loan portfolios at their nominal value when the outstanding loan portfolio is equal to or less than 10% of the initial amount of the operations.

Additionally, up to five days before each interest payment date, the Hipototta PLC/Ltd have the option to make partial repayments of the Class A, B and C notes, as well as Class D and E for Hipototta PLC No. 5 and Hipototta Ltd No. 6, in order to adjust the amount of the liability to that of the outstanding mortgage loan portfolios.

Remuneration of the Class D notes of the first four Hipototta and of the class F notes of the last two is the last liability to be paid by the Hipototta PLC/Ltd.

Remuneration of those notes correspond to the difference between the income generated by the securitized loan portfolio and the sum of all costs to be incurred in the operation, namely:

- Taxes;

- Expenses and fees calculated based on the amounts of the portfolio (custodian fee and service fee, both charged by BST, and management fee, charged by the Hipototta FTC funds);

- Interest on the other classes of notes; - Impairment losses.

When the securitization operations were launched, the estimate income of the securitized loan portfolios included in the calculation of the remuneration of the class D notes of the Hipototta PLC No. 1, 2, 3 and 4 corresponds to average annual rates 1.1%, 1%, 1.1% and 0.9%, respectively, and of the class F notes of the Hipototta PLC No. 5 and Hipototta Ltd No. 6, corresponds to an annual average of 0.9%, of the total credit portfolio.

The initial costs of the operation were financed by a subordinated loan from BST.

The notes with the highest degree of subordination (class D in the case of the first four Hipototta and class F in the case of the last two) were acquired by a BST Group subsidiary. The remaining notes issued by the first four Hipototta PLC, the class B and E notes issued by the Hipototta PLC No. 5 and the class A1 and A2 notes issued bt the Hipototta Ltd No. 6 were acquired by BST and recorded in the available-for-sale financial assets portfolio in its non-consolidated financial statements. In 2006 the Bank sold all the class A notes of Hipototta PLC No. 2 and Hipototta PLC No. 4 and part of the class A notes of Hipototta PLC No. 1 and Hipototta PLC No. 3.

In addition, a liquidity swap was entered into between the Santander Group and Hipototta PLC No. 1, which corresponds to a facility/credit line in the event of the need for liquidity by Hipototta PLC No. 1.


69

Accounting recognition

In compliance with IAS 27 and SIC 12, the Hipototta FTC Funds and Hipototta PLC/Ltd were included in the consolidated financial statements (Note 5), given that the Bank has the majority of the risks and benefits relating to the operations of these entities. Consequently, the securitized mortgage loans were reflected in the balance sheet and part of the bonds issued by the Hipototta PLC/Ltd, which are held by the Group, were eliminated in the consolidation process.

46. RELATED ENTITIES

BST has the following related entities:

EffectiveRelated entities Head office participation

Entities that directly or indirectly control the Group

Santander Totta, SGPS, S.A. PortugalSantusa Holding, S.L. SpainBanco Santander, S.A. Spain

Entities under direct or indirect control by the Group

Banco Totta de Angola, S.A. Angola 99.98%Totta & Açores Financing, Ltd Cayman Islands 100.00%Serfin International Bank & Trust Cayman Islands 100.00%Totta & Açores, Inc. - Newark USA 100.00%Totta Ireland, PLC Ireland 100.00%Madeisisa, SGPS, Sociedade Unipessoal, Lda Portugal 100.00%TottaUrbe - Empresa de Administração e Construções, S.A. Portugal 100.00%BST International Bank, Inc. Puerto Rico 100.00%

Entities under joint control by the Group

Pinto Totta International Finance, Ltd Cayman Islands 50.00%

Entities significantly influenced by the Group

Benim - Sociedade Imobiliária, S.A. Portugal 25.00%Totta Crédito Especializado, IFIC, S.A. Portugal 16.12%

Entities under direct or indirect joint control by the Group

Open Bank Santander Consumer S.A. SpainSantander Consumer Finance, S.A. SpainSantander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. PortugalSantander Gestão de Activos, SGPS PortugalBanco Santander de Negócios Portugal, S.A. PortugalSantander Gestão de Activos, SGFIM, S.A. PortugalTaxagest, SGPS, S.A. PortugalSantander Totta Seguros - Companhia de Seguros de Vida, S.A. PortugalISBANP - Engenharia e Software Bancário, S.A. PortugalBanco Santander de Puerto Rico Puerto RicoBanco Santander Consumer Portugal, S.A. PortugalMultirent, Aluguer e Comércio de Automóveis, S.A. PortugalBanco Santander Internacional Miami USASantander Central Hispano Bank and Trust SpainCC Bank Aktiengesellschaft GermanyBanco Santander Serfin S.A. MexicoBanco Santander Brasil, S.A. BrazilProduban Servicios Informaticos Generales, S.L. SpainPortal Universia Portugal - Prestação de Serviços de Informática, S.A. PortugalIngeniería de Software Bancário, S.L. SpainHBF Aluguer e Comércio de Viaturas, S.A. PortugalIbérica de Compras Corporativas SpainGrupo Banesto SpainTransolver Finance EFC, S.A. SpainCapital Grupo Santander, S.A. S.G.E.C.R. SpainAbbey National Treasury Services, PLC United KingdomUnión de Créditos Imobiliários, S.A. Spain


70

The balances with related entities at December 31, 2007 are as follows:

Entities Entities Entities under Entities that under joint significantly direct or indirect

directly or indirectly control influenced common control Assets: control the Group by the Group by the Group by the Group

Balances due from banks 272 - - 123,353

Financial assets held for trading 60,894 - - 610,566

Available-for-sale financial assets 80,004 - 2,218 114,449

Loans and advances to banks 974,853 - 2,100,492 372,662

Loans and advances to customers - - - 171,490

Hedging derivatives 25,651 - - 51,174

Other assets - - 3,060 3,764

Liabilities:

Financial liabilities held for trading 130,292 - - 276,031

Resources of other financial institutions 1,205,087 17 - 3,283,878

Resources of customers and others 167,845 - 155 50,943

Debt securities issued - - - 3,980,785

Hedging derivatives 14,149 - - 221,040

Subordinated liabilities - - - 68,267

Other liabilities 27 - - 2,150

Costs:

Interest expense 348,993 - - 737,791

Fee and commission expense - - - 854

Result of assets and liabilities valued at fair value through profit and loss 207,841 - - 6,737,531

Result of exchange revaluation 86 - - -

Personnal costs - - - 2

General administrative costs - - 59 14,472,714

Income:

Interest income 377,902 - 74,603 458,688

Result of assets and liabilities valued at fair value through profit and loss 208,183 - - 6,817,694

Income from equity instruments - - - -

Fees and commission income - - 3,060 125,486

Result of available-for-sale financialassets - - - 1,696

Other operating income - - - 206

Off balance sheet Items:

Guarantees and other contingent liabilities 254,043 - 135 1,840

Guarantees received 899 - 1,247 -

Commitments to third parties 74,220 - 15,790 96,663

Currency operations and derivatives 21,989,902 - - 14,824,133

Responsibility for services rendered 659,952 - - 251,969


71

The balances with related entities at December 31, 2006 are as follows:

Entities Entities Entities under Entities that under joint significantly direct or indirect

directly or indirectly control influenced common control Assets: control the Group by the Group by the Group by the Group

Balances due from banks 423 - - 18,606

Financial assets held for trading 30,331 - - 721,571

Available-for-sale financial assets - - 3,009 193,000

Loans and advances to banks 338,805 - 1,708,430 140,498

Loans and advances to customers - - 609 84,363

Other assets - - 3,782 22,972

Liabilities:

Financial liabilities held for trading 79,215 - - 484,857

Resources of other financial institutions 636,432 19 - 3,310,999

Resources of customers and others 81,965 - - 37,900

Debt securities issued - - - 4,393,255

Subordinated liabilities - - - 68,667

Other liabilities 3,090 - - 3,847

Costs:

Interest expense 414,699 - - 881,058

Fee and commission expense - - - 417

Result of exchange revaluation 29 - - 11

Personnal costs - - - 2

General administrative costs - - 59 7,447

Income:

Interest income 524,416 - 49,560 693,798

Income from equity instruments - - - 605

Fees and commission income - - 3,782 47,409

Result of assets and liabilities valued 5,764 - - 298,275at fair value through profit and loss

Other operating income - - - 200

Off balance sheet Items:

Guarantees and other contingent liabilities 256,732 - 134 4,304

Guarantees received 4,498 - - -

Commitments to third parties 17,678 - 200,128 64,011

Currency operations and derivatives 11,208,194 - - 21,710,883


72

MANAGEMENT AND SUPERVISORY BOARDS

The loans and advances to members of management and supervisory boards at December 31, 2007 and 2006 amounted to tEuros 1,242 and tEuros 1,085 respectively, and were granted in accordance with the mortgage loan policy defined for all the Group employees. Fixed and variable remuneration of the members of the management and supervisory boards in 2007 and 2006 amounted to tEuros 5,693 and tEuros 6,107. These were the most relevant benefits to key management personnel in 2007 and 2006.

The Santander Group, which includes BST, has a worldwide long term incentive plan including 2,601 employees, which consists of Banco Santander, S.A. (SAN) stock options conditional to the market value performance of the shares and to the growth of the earnings per share compared with a group of similar banks. In the case of BST, the group of employees included in this plan amounts to 157, including key management personnel. In relation to key management personnel, the plan’s costs reflected in the financial statements of BST as of December 31, 2007 and 2006 amounted to tEuros 322 and tEuros 287, respectively. The conditions of the plan were met, which will allow the exercise of the stock options at 9.09 Euros. The start and end dates of the exercise period are from January 15, 2008 to January 15, 2009.

In the shareholders’ General Meeting of SAN held at June 23, 2007, the “Stock Plan Entailed to Santander Group Objectives” was approved, for the period from January 1, 2008 up to December 31, 2009 (with a first cycle up to December 31, 2008 and a second cycle up to December 31, 2009). BST is also included in this new plan, after approval in the executive committee meeting of December 19, 2007, with approximately 341 employees. The beneficiaries of this plan received a maximum number of SAN’s shares. The maximum number of shares to be delivered to each beneficiary will be determined by multiplying the maximum number of shares attributed to the beneficiary, by the sum of coefficients obtained in the comparison of SAN’s evolution with the entities understood in a Group with relation to two parameters: the total shareholder’s return and the benefit growth per share. The cost of this plan regarding key management personnel, at December 31, 2007, reflected in the financial statements of BST, amounted to tEuros 738.

In relation to the post-employment benefits, the key management personnel with labour bond to BST are included in the pension plan of the Collective Labour Agreement (“Acordo Colectivo de Trabalho” - ACT) for the banking sector subscribed by BST. The general conditions of this plan are described in Note 1.3 k). At December 31, 2007 the liability related to this benefit amounted to tEuros 217.

In the General Meeting held at May 30, 2007, the BST shareholders approved the “Regulation of complementary attribution of retirement pension for age or disability” for the executive members of the Board of Directors of the ex – BTA who transited to executive members (executive committee) of the BST Board of Directors and were in office for more than ten years. This defined benefit pension plan is a supplement plan and is dependant of the Social Security general regime. The remunerations committee defined the attribution and the amount of the supplement retirement pension for age or disability, being able to complement up to 80% of the gross annual fixed wages depending on the time the member has been in office.

At December 31, 2007 the liabilities regarding this plan amounted to tEuros 5,683 and were covered by a provision of the same amount registered in caption “Provision for employee benefits”.

Regarding employment ceasing benefits, according to the Commercial Law (“Código das Sociedades Comerciais”), whenever the mandate of a member of management or supervisory boards is ceased before it’s term, by means of a BST decision, the Bank shall reimburse the future earnings that the member would be entitled to up to the end of the mandate.


73

46. DISCLOSURES IN ACCORDANCE WITH IFRS 7

BALANCE SHEET

Category of financial instruments

Financial instruments at December 31, 2007 and 2006 had the following book values:

Valued at Valued at Valued atfair value amortized cost historical cost Impairment Net

Assets

Cash and deposits at central banks - 213,013 212,187 - 425,200Balances due from banks - 201,090 179,198 - 380,288Financial assets held for trading 1,387,958 - - - 1,387,958Financial assets designated at fair value through profit and loss 407,028 - - - 407,028Available-for-sale financial assets 1,828,799 - 70,155 (42,858) 1,856,096Loans and advances to banks - 4,369,784 - - 4,369,784Loans and advances to customers 99,600 28,259,671 - (441,995) 27,917,276Hedging derivatives 77,406 - - - 77,406Investments in associates 20,965 - - - 20,965

3,821,756 33,043,558 461,540 (484,853) 36,842,001

Liabilities

Resources of central banks - 2,128,308 - - 2,128,308Financial liabilities held for trading 1,251,020 - - - 1,251,020Resources of other financial institutions - 5,381,279 - - 5,381,279Resources of customers and others 1,415,893 10,450,364 - - 11,866,257Debt securities issued 2,403,736 11,451,434 - - 13,855,170Hedging derivatives 235,186 - - - 235,186Subordinated liabilities 14,707 405,614 - - 420,321

5,320,542 29,816,999 - - 35,137,541

2007

Valued at Valued at Valued atfair value amortized cost historical cost Impairment Net

Assets

Cash and deposits at central banks - 348,014 165,920 - 513,934Balances due from banks - 50,676 212,341 - 263,017Financial assets held for trading 1,100,597 - - - 1,100,597Financial assets designated at fair value through profit and loss 417,754 - - - 417,754Available-for-sale financial assets 366,822 - 53,837 (45,170) 375,489Loans and advances to banks - 3,293,995 - (17) 3,293,978Loans and advances to customers 165,656 26,646,353 - (450,471) 26,361,538Hedging derivatives 197,375 - - - 197,375Investments in associates 22,384 - - - 22,384

2,270,588 30,339,038 432,098 (495,658) 32,546,066

Liabilities

Resources of central banks - 3,037 - - 3,037Financial liabilities held for trading 950,296 - - - 950,296Resources of other financial institutions - 4,840,797 - - 4,840,797Resources of customers and others 1,508,190 9,942,170 - - 11,450,360Debt securities issued 2,350,127 10,453,641 - - 12,803,768Hedging derivatives 383,630 - - - 383,630Equity instruments 100,477 - - - 100,477Subordinated liabilities 25,608 405,142 - - 430,750

5,318,328 25,644,787 - - 30,963,115

2006

There were no reclassification changes in financial assets in the years ended December 31, 2007 and 2006.


74

STATEMENT OF INCOME

The net gain and loss on financial instruments in the years ended December 31, 2007 and 2006 were as follows:

2007

By corresponding entry to profit and loss By corresponding entry to equityGain Loss Net Gain Loss Net

Financial assets held for trading 11,982,959 (11,957,371) 25,588 - - -Financial assets designated at fair value through profit and loss - (7,774) (7,774) - - -Available-for-sale financial assets 160,999 (2,893) 158,106 - (90,067) (90,067)Loans and advances to banks 181,242 - 181,242 - - -Loans and advances to customers 1,637,052 (202,501) 1,434,551 - - -Hedging derivatives 129,237 (95,435) 33,802 635 - 635Resources of central banks and other financial institutions - (214,164) (214,164) - - -Resources of customers and others 60,542 (247,333) (186,791) - - -Debt securities issued 11,639 (624,966) (613,327) - - -Equity instruments 2,512 (4,307) (1,795) - - -Subordinated liabilities 347 (20,368) (20,021) - - -

14,166,529 (13,377,112) 789,417 635 (90,067) (89,432)

Guarantees given 15,573 (2,239) 13,334

2006By corresponding entry to profit and loss By corresponding entry to equity

Gain Loss Net Gain Loss Net

Financial assets held for trading 10,247,579 (10,028,821) 218,758 - - -Financial assets designated at fair value through profit and loss - (21,072) (21,072) - - -Available-for-sale financial assets 85,778 (25,933) 59,845 17,793 - 17,793Loans and advances to banks 156,341 - 156,341 - - -Loans and advances to customers 1,333,892 (167,525) 1,166,367 - - -Held-to-maturity investments 320 - 320 - - -Hedging derivatives 222,452 (261,283) (38,831) - (19,092) (19,092)Resources of central banks and other financial institutions - (289,149) (289,149) - - -Resources of customers and others 89,177 (189,832) (100,655) - - -Debt securities issued 89,348 (446,063) (356,715) - - -Equity instruments 2,804 (16,102) (13,298) - - -Subordinated liabilities 1,270 (14,335) (13,065) - - -

12,228,961 (11,460,115) 768,846 17,793 (19,092) (1,299)

Guarantees given 15,978 (1,122) 14,856

The above amounts do not include gain and loss resulting from exchange revaluation of financial instruments, which for the years ended December 31, 2007 and 2006 amounted to net gains of tEuros 13,621 and tEuros 4,803, respectively.


75

Interest income and expense on financial assets not recorded at fair value through profit and loss, computed in accordance with the effective rate method, for the years ended December 31, 2007 and 2006 is as follows:

Income Expense Net Income Expense NetAssets

Cash and deposits at central banks 11,305 - 11,305 8,338 - 8,338Balances due from banks 981 - 981 438 - 438Financial assets held for trading 85,378 - 85,378 32,676 - 32,676Loans and advances to banks 168,956 - 168,956 147,565 - 147,565Loans and advances to customers 1,435,808 (87) 1,435,721 1,147,706 (62) 1,147,644

1,702,428 (87) 1,702,341 1,336,723 (62) 1,336,661

Liabilities

Resources of central banks - (12,483) (12,483) - (118,935) (118,935)Resources of other financial institutions - (201,681) (201,681) - (170,214) (170,214)Resources of customers and others 9,062 (218,112) (209,050) 10,582 (185,681) (175,099)Debt securities issued - (607,716) (607,716) - (416,666) (416,666)Equity instruments - (4,307) (4,307) - (16,102) (16,102)Subordinated liabilities - (19,784) (19,784) - (14,335) (14,335)

9,062 (1,064,083) (1,055,021) 10,582 (921,933) (911,351)

Guarantees given 15,353 - 15,353 14,908 - 14,908

2007 2006

Fees and commission income and expense on financial assets and liabilities not recorded at fair value through profit and loss, not included in the calculation of the effective rate, for the years ended December 31, 2007 and 2006, are as follows:

Income Expense Net Income Expense NetAssets

Loans and advances to customers 71,070 (30,358) 40,712 52,843 (11,668) 41,175

Passivo

Resources of customers and others 40,985 - 40,985 48,395 - 48,395

2007 2006

In 2007 and 2006 the Bank recognized financial income of tEuros 12,932 and tEuros 11,062, respectively, relating to “Interest income” on overdue credit operations or with impairment.


76

OTHER DISCLOSURES

Hedge accounting

Hedging derivatives and the financial instruments designated as hedged items at December 31, 2007 and 2006 are as follows:

2007

Hedged item Hedging instrumentNominal Gross Fair value Book Nominal Fair

value value adjustments value value value

Fair value hedge:Loans and advances to customers 100,686 101,338 (1,738) 99,600 102,810 1,770Financial assets designated at fair value through profit and loss 380,000 402,488 4,540 407,028 380,000 2,038Resources of customers and others (1,441,557) (1,468,415) 52,522 (1,415,893) 1,534,295 (31,175)Debt securities issued (2,517,863) (2,557,113) 153,377 (2,403,736) 2,522,499 (130,076)Subordinated liabilities (15,050) (15,060) 353 (14,707) 15,050 (389)

Cash flow hedge:Loans and advances to customers 1,500,000 1,500,000 - 1,500,000 1,500,000 52

(1,993,784) (2,036,762) 209,054 (1,827,708) 6,054,654 (157,780)

2006

Hedged item Hedging instrumentNominal Gross Fair value Book Nominal Fair

value value adjustments value value value

Fair value hedge:Loans and advances to customers 164,359 165,449 207 165,656 165,449 (406)Financial assets designated at fair value through profit and loss 380,000 405,439 12,315 417,754 380,000 (8,680)Resources of customers and others (1,536,186) (1,569,100) 60,910 (1,508,190) 1,426,254 (43,662)Debt securities issued (2,470,431) (2,501,555) 151,428 (2,350,127) 2,814,388 (152,359)Equity instruments (94,913) (97,965) (2,512) (100,477) 94,913 4,564Subordinated liabilities (26,189) (26,199) 591 (25,608) (15,050) (592)

Cash flow hedge:Loans and advances to customers 2,635,000 2,635,000 - 2,635,000 2,635,000 14,880

(948,360) (988,931) 222,939 (765,992) 7,500,954 (186,255)

Cash flow hedges

The expected cash flow by periods, that affect the results for the year are as follows:

Up to From 3 months From 6 months From 1 to More than3 months to 6 months to 1 year 3 years 3 years Total

Cash flow hedgeInterest rate swap 2,184 2,139 (4,228) (43) - 52

Up to From 3 months From 6 months From 1 to More than3 months to 6 months to 1 year 3 years 3 years Total

Cash flow hedgeInterest rate swap (16,156) (3,565) 34,601 - - 14,880

2007

2006

For the year ended December 31, 2007, no amounts were recognized in the statement of income relating to ineffective hedges of these products, as the financial derivative instruments contracted in previous years had as maturity date the end of the year and were cancelled during 2007.

For the year ended December 31, 2006, no amounts were recognized in the statement of income relating to ineffective hedges of these products.


77

The gain and loss on fair value hedging operations recognized in the statements of income for the years ended December 31, 2007 and 2006 are as follows:

Result of financial operations

2007 2006Hedged Hedging Hedged Hedging

item instrument Net item instrument Net

Loans and advances to customers (1,944) 1,954 10 (53,199) 25,274 (27,925)Financial assets designated at fair value through profit and loss (7,774) 9,503 1,729 (21,072) 21,701 629Resources of customers and others (18,726) 17,999 (727) 26,049 (25,329) 720Debt securities issued (5,612) 5,706 94 59,952 (59,981) (29)Subordinated liabilities (238) 203 (35) 1,270 (1,270) -Equity instruments 2,512 (2,512) - 2,804 (2,774) 30

(31,782) 32,853 1,071 15,804 (42,379) (26,575)

Fair value of financial instruments

Financial instruments at December 31, 2007 and 2006 are made up as follows:

Valued at Not valued atfair value fair value Total

Assets

Cash and deposits at central banks - 425,200 425,200Balances due from banks - 380,288 380,288Financial assets held for trading 1,387,958 - 1,387,958Financial assets designated at fair value through profit and loss 407,028 - 407,028Available-for-sale financial assets 1,792,795 63,301 1,856,096Loans and advances to banks - 4,369,784 4,369,784Loans and advances to customers 99,600 27,817,676 27,917,276Hedging derivatives 77,406 - 77,406Investments in associates 20,965 - 20,965

3,785,752 33,056,249 36,842,001

Liabilities

Resources of central banks - 2,128,308 2,128,308Financial liabilities held for trading 1,251,020 - 1,251,020Resources of other financial institutions - 5,381,279 5,381,279Resources of customers and others 1,415,893 10,450,364 11,866,257Debt securities issued 2,403,736 11,451,434 13,855,170Hedging derivatives 235,186 - 235,186Subordinated liabilities 14,707 405,614 420,321

5,320,542 29,816,999 35,137,541

2007


78

Valued at Not valued atfair value fair value Total

Assets

Cash and deposits at central banks - 513,934 513,934Balances due from banks - 263,017 263,017Financial assets held for trading 1,100,597 - 1,100,597Financial assets designated at fair value through profit and loss 417,754 - 417,754Available-for-sale financial assets 329,700 45,789 375,489Loans and advances to banks - 3,293,978 3,293,978Loans and advances to customers 165,656 26,195,882 26,361,538Hedging derivatives 197,375 - 197,375Investments in associates 22,384 - 22,384

2,233,466 30,312,600 32,546,066

Liabilities

Resources of central banks - 3,037 3,037Financial liabilities held for trading 950,296 - 950,296Resources of other financial institutions - 4,840,797 4,840,797Resources of customers and others 1,508,190 9,942,170 11,450,360Debt securities issued 2,350,127 10,453,641 12,803,768Hedging derivatives 383,630 - 383,630Equity instruments 100,477 - 100,477Subordinated liabilities 25,608 405,142 430,750

5,318,328 25,644,787 30,963,115

2006

The financial assets and liabilities to which hedge accounting was applied are included as valued at fair value, although only the amounts relating to the hedged risk were subject to fair value adjustment.

The fair value of financial assets and liabilities valued at fair value or subject to fair value adjustments in accordance with hedge accounting at December 31, 2007 and 2006 are as follows:

Value adjustments NetAccrued due to hedging Impairment and book

Cost interest Gain/(Loss) operations amortization value

Assets

Financial assets held for trading 228,369 (3,770) 1,163,359 - - 1,387,958Financial assets designated at fair value through profit and loss 396,830 5,658 4,540 - - 407,028Available-for-sale financial assets 1,830,587 16,976 (18,291) - (36,477) 1,792,795Loans and advances to customers 100,686 652 - (1,738) - 99,600Hedging derivatives - - 77,406 - - 77,406Investments in associates 8,490 - 12,475 - - 20,965

2,556,472 19,516 1,227,014 (1,738) (36,477) 3,764,787

Liabilities

Financial liabilities held for trading - - 1,251,020 - - 1,251,020Resources of customers and others 1,441,557 26,858 - (52,522) - 1,415,893Debt securities issued 2,517,863 39,250 - (153,377) - 2,403,736Hedging derivatives - - 235,186 - - 235,186Subordinated liabilities 15,050 10 - (353) - 14,707

3,974,470 66,118 1,486,206 (206,252) - 5,320,542

2007


79

Value adjustments NetAccrued due to hedging Impairment and book

Cost interest Gain/(Loss) operations amortization value

Assets

Financial assets held for trading 130,110 - 970,487 - - 1,100,597Financial assets designated at fair value through profit and loss 399,765 5,674 12,315 - - 417,754Available-for-sale financial assets 293,855 1,191 71,776 - (37,122) 329,700Loans and advances to customers 164,359 1,090 - 207 - 165,656Hedging derivatives - - 197,375 - - 197,375Investments in associates 8,490 - 13,894 - - 22,384

988,089 7,955 1,251,953 207 (37,122) 2,211,082

Liabilities

Financial liabilities held for trading - - 950,296 - - 950,296Resources of customers and others 1,536,186 32,914 - (60,910) - 1,508,190Debt securities issued 2,470,431 31,124 - (151,428) - 2,350,127Hedging derivatives - - 383,630 - - 383,630Equity instruments 94,913 3,052 - 2,512 - 100,477Subordinated liabilities 26,189 10 - (591) - 25,608

4,127,719 67,100 1,333,926 (210,417) - 5,318,328

2006

The methods used to determine fair value were based on market prices on active financial instrument markets or other valuation techniques, such as discounted cash flows. The book value of financial instruments valued at fair value or subject to value adjustments for hedging operations, by valuation methodology, at December 31, 2007 and 2006, is as follows:

Listings of Other valuationactive markets techniques Total

Assets

Financial assets held for trading 162,150 1,225,808 1,387,958Financial assets designated at fair value through profit and loss 407,028 - 407,028Available-for-sale financial assets 154,204 1,638,591 1,792,795Loans and advances to customers - 99,600 99,600Hedging derivatives - 77,406 77,406Investments in associates - 20,965 20,965

723,382 3,062,370 3,785,752

Liabilities

Financial liabilities held for trading - 1,251,020 1,251,020Resources of customers and others - 1,415,893 1,415,893Debt securities issued - 2,403,736 2,403,736Hedging derivatives - 235,186 235,186Subordinated liabilities - 14,707 14,707

- 5,320,542 5,320,542

2007Method of determining fair value


80

Listings of Other valuationactive markets techniques Total

Assets

Financial assets held for trading 132,983 967,614 1,100,597Financial assets designated at fair value through profit and loss 417,754 - 417,754Available-for-sale financial assets 145,970 183,730 329,700Loans and advances to customers - 165,656 165,656Hedging derivatives - 197,375 197,375Investments in associates - 22,384 22,384

696,707 1,536,759 2,233,466

Liabilities

Financial liabilities held for trading - 950,296 950,296Resources of customers and others - 1,508,190 1,508,190Debt securities issued - 2,350,127 2,350,127Hedging derivatives - 383,630 383,630Equity instruments - 100,477 100,477Subordinated liabilities - 25,608 25,608

- 5,318,328 5,318,328

2006Method of determining fair value

The book value and fair value of these financial instruments valued at amortized cost or historical cost at December 31, 2007 and 2006 is as follows:

Book Fairvalue value Difference

Assets

Cash and deposits at central banks 425,200 425,200 -Balances due from banks 380,288 380,288 -Available-for-sale financial assets 63,301 63,301 -Loans and advances to banks 4,369,784 4,410,485 40,701Loans and advances to customers 27,817,676 28,119,695 302,019

33,056,249 33,398,969 342,720

Liabilities

Resources of central banks 2,128,308 2,128,308 -Resources of other financial institutions 5,381,279 5,400,262 18,983Resources of customers and others 10,450,364 10,453,490 3,126Debt securities issued 11,451,434 11,450,154 (1,280)Subordinated liabilities 405,614 401,532 (4,082)

29,816,999 29,833,746 16,747

2007


81

Book Fairvalue value Difference

Assets

Cash and deposits at central banks 513,934 513,934 -Balances due from banks 263,017 263,017 -Available-for-sale financial assets 45,789 45,789 -Loans and advances to banks 3,293,978 3,293,963 (15)Loans and advances to customers 26,195,882 26,593,805 397,923

30,312,600 30,710,508 397,908

Liabilities

Resources of central banks 3,037 3,037 -Resources of other financial institutions 4,840,797 4,840,638 (159)Resources of customers and others 9,942,170 9,927,997 (14,173)Debt securities issued 10,453,641 10,453,480 (161)Subordinated liabilities 405,142 413,527 8,385

25,644,787 25,638,679 (6,108)

2006

The main assumptions used in determining fair value, by financial instrument type, were the following:

- For loans and resources from banks with term to maturity of less than 6 months, fair value was considered to be equal to the book value. For operations with longer maturity terms, future cash flows were discounted using the interest rate curves for the money market.

- The fair value of variable rate loans to companies and large companies, was considered to be equal

to book value. In the case of loans to private customers (mortgage and consumer loans) and small businesses (loans), the average spread of production in the last quarter of the year was used to discount the future cash flows of the portfolio. In the case of fixed rate loans to companies and private customers, the future cash flows were discounted at the average rates used by the Bank at the end of the year.

- The fair value of demand deposits from clients was considered to be equal to book value. In the case

of term deposits the Bank used the average rates for deposits contracted in the last quarter of the year, for each type of deposit.

- The fair value of cash bonds issued by the Bank was determined by discounting the future cash

flows using the average interest rate of the securities issued at the end of the year.

- The fair value of subordinated liabilities was determined by discounting the future cash flows at market rates for the residual term of each issue.

In 2007 the Bank recognized initial gains on financial instruments valued at fair value through other valuation techniques, in the contracting of derivative operations with customers classified internally as “Retail clients”.

Such procedure was implemented in result of the client segmentation and according to IAS 39, considering that other valuation techniques for the measurement of fair value of the derivative operations with customers classified internally as “Retail clients”, do not inequivocal encompass observed market data.


82

The Group classifies clients internally in accordance with the following criteria:

- Major clients – Large companies and institutional entities (financial sector entities such as banks and insurance companies and public sector companies);

- Retail clients.

As of December 31, 2007, the unrecognized amount regarding these operations corresponds to tEuros 24,979 and is recorded under the caption “Financial liabilities held for trading”.

RISK MANAGEMENT

CREDIT RISK

Credit risk management by the Group includes identification, measurement, integration and evaluation of different credit risk exposures and analysis of return in relation to risk, on an overall basis, as well as for each area of activity.

Credit risk management is provided by an independent area (the Group Risk Area) which is responsible for managing the special client vigilance system, credit risk segmentation based on the characteristics of customers and products and for the scoring systems (applicable to mortgage loans, consumer credit and credit cards) and ratings used by the Bank.

Counterparty risk consists of the potential credit risk on transactions on financial markets, corresponding to the possibility of non-compliance by the counterparty with the contracted terms and subsequent financial loss for the Bank. Such transactions include the purchase and sale of securities, the contracting of sale transactions with repurchase agreements, the loan of securities and derivative instruments. Considering the complexity and volume of the transactions, as well as the requirements of an adequate control of the consolidated risks with certain customer segments, perimeter control is defined in accordance with the segments involved.

Control of these risks is carried out daily based on an integrated system that registers the limits approved, updates the positions in real time, provides information on the limits available and aggregate exposure, also in real time, for the different products and maturities. The system also enables the concentration of risk by groups of customers/counterparties to be controlled on a transversal basis (at several levels).

Derivative position risk (known as Equivalent Credit Risk) is determined as the sum of the present value of each contract (or present cost of substitution) with its Potential Risk, a component that reflects the estimated maximum expected value until maturity, in accordance with the volatility of the underlying market and contracted cash flow structure.

For specific customer segments (namely global corporate customers) the Bank has implemented credit limits considering economic capital, incorporating, in the quantitative control, the variables relating to the credit quality of each counterparty.


83

The maximum exposure to credit risk and corresponding book value of the financial instruments at December 31 2007 and 2006 are as follows:

Book Maximum Book Maximumvalue exposure value exposure

Cash and deposits at central banks 425,200 425,200 513,934 513,934Balances due from banks 380,288 439,709 263,017 265,692Financial assets held for trading 1,387,958 1,387,958 1,100,597 1,100,597Financial assets designated at fair value through profit and loss 407,028 407,028 417,754 417,754Available-for-sale financial assets 1,856,096 1,856,096 375,489 375,489Loans and advances to banks 4,369,784 4,369,784 3,293,978 3,293,978Loans and advances to customers 27,917,276 32,565,828 26,361,538 30,899,204Hedging derivatives 77,406 77,406 197,375 197,375Investments in associates 20,965 20,965 22,384 22,384

36,842,001 41,549,974 32,546,066 37,086,407

Guarantees given 1,857,320 1,857,320 1,823,283 1,823,283

2007 2006

The maximum exposure of “Loans and advances to customers” at December 31, 2007 includes tEuros 455,938 and tEuros 4,192,614 relating to irrevocable credit lines and revocable credit lines, respectively (tEuros 224,132 and tEuros 4,313,534 at December 31, 2006, respectively).

Credit granted

The Bank periodically analyses customer credit and other amounts receivable in order to identify evidence of impairment. For the purpose of analyzing impairment loss collectively, the Bank segments the credit portfolio in accordance with the type of product and type of customer involved in the operations (Note 12). In this respect, customer credit without evidence of impairment, at December 31, 2007 and 2006, is as follows:

2007 2006

Consumer credit 957,536 791,184Mortgage loans 13,487,377 12,170,953Other loans and advances to individuals 468,450 341,426Credit cards of individuals 187,706 151,301

Total credit without evidence of impairment granted to individuals 15,101,069 13,454,864

Loans and advances to large companies 2,460,074 2,426,765Loans and advances to medium size companies 5,040,204 4,876,736Loans and advances to small companies 815,169 971,544Credit cards of companies 10,736 14,608Guarantees given 1,836,886 1,803,930Loans and advances to financial institutions 10,946 45,673Commercial paper 2,086,794 2,461,916

Total credit without evidence of impairment granted to companies 12,260,809 12,601,172Total credit granted without evidence of impairment 27,361,878 26,056,036

The risk analysis are supported by a mandatory internally developed rating model, except for individual customers. The risk level inherent to the customer is implied in the attribution of internal rating levels, which can go from 1 to 9. The risk level is determined based on the following parameters:

. Demand/Market; . Partners/Management; . Access to credit; . Profitability; . Generation of funds; . Solvency.


84

A classification from 1 (minimum) to 9 (maximum) is attributed to these factors in accordance with the following weighting:

Weighting parameters Large Companies Small and medium Companies

Demand/Market 20% 20%

Partners/Management 15% 15%

Access to credit 10% 10%

Profitability 15%

Generation of funds 25%

Solvency 15%

55%

The rating is manually calculated by the analysts, based on information supplied by the costumer, general information of the business sector and external databases. The final rating, by each weighting parameter, is later introduced in the Bank’s computer system.

Therefore, the Bank’s internal rating system is as follows:

Rating 1 – 3: Customer with high credit risk; Rating 4 – 6: Customer with moderate credit risk; Rating 7 – 9: Customer with low credit risk.

Credit granted by the Bank to companies without evidence of impairment, by internal rating, at December 31, 2007 and 2006, is as follows:

2007 2006

Credit Guarantees Credit Guaranteesgranted given granted given

Rating 7 - 9 2,043,453 474,632 2,885,678 561,454Rating 4 - 6 5,570,607 784,591 4,320,049 671,454Rating 1 - 3 36,489 6,426 66,874 5,900

7,650,549 1,265,649 7,272,601 1,238,808Without rating 664,898 497,005 1,002,444 508,842

8,315,447 1,762,654 8,275,045 1,747,650Credit cards of companies 10,736 - 14,608 -Financial institutions 10,946 74,232 45,673 56,280Commercial paper 2,086,794 - 2,461,916 -

10,423,923 1,836,886 10,797,242 1,803,930

The book value of credit granted to customers, in which the conditions have been renegotiated in 2006 and 2007, can be detailed as follows:

Unmatured Loans in loans default Total

Companies: . Large companies 4,579 - 4,579 . Medium companies 16,009 520 16,529 . Small companies 9,781 255 10,036 --------- ------- --------- 30,369 775 31,144 Individuals 43,409 514 43,923 --------- ------- --------- 73,778 1,289 75,067 ===== ==== =====


85

Credit granted to customers with evidence of impairment at December 31, 2007 and 2006 is as follows:

2007 2006

Unmatured loans 2,530,640 2,279,177 Loans in default: . Up to 90 days 35,144 30,781 . Between 90 and 180 days 42,685 45,762 . More than 180 days 63,578 74,040 ------------- ------------- 2,672,047 2,429,760 ======== ========

Guarantees given 20,434 19,353 ===== =====

Overdue credit or impaired credit determined by specific analysis guaranteed by mortgage, pledged deposits at the Bank or debt securities issued by the entity itself, at December 31, 2007 and 2006, is made up as follows:

2007 2006

Principal Value of Principal Value ofdue guarantee/collateral due guarantee/collateral

Credit overdue or impaired determined by individual analysis Guarantee exceeds principal due 475,489 1,198,966 398,019 1,053,491Guarantee less than principal due 41,465 15,983 43,656 17,998

516,954 1,214,949 441,675 1,071,489

The book value of executed guarantees and other collateral relating to credit granted at December 31, 2007 and 2006 amounted to tEuros 81,440 and tEuros 93,390, respectively, and is made up as follows:

2007 2006

Assets received as settlement of defaulting loans (Note 17) 118,247 132,520Available-for-sale assets 22,122 22,122

140,369 154,642

Impairment of assets received as settlement of defaulting loans (Note 17) (36,807) (39,130)Impairment of available-for-sale assets (22,122) (22,122)

(58,929) (61,252)81,440 93,390

LIQUIDITY RISK

Liquidity risk management policy is decided by the top level area in the organization structure responsible for Asset and Liabilities Management (ALM) and the Assets and Liabilities Committee (ALCO), which is presided over by the President of the Executive Commission and includes the members of the Executive Commission responsible for the Financial, Treasury, Commercial, Marketing and International Areas. The Committee meets monthly and analyses balance sheet risks and strategic options.

The following balance sheet risk management limits are defined for the Asset and Liabilities Management Area:

- Limits aimed at controlling interest rate risk, namely financial margin (NIM) sensitivity and asset

value (MVE) sensitivity to unexpected fluctuations in interest rates; and - Limits aimed at controlling liquidity risk through liquidity coefficient and accumulated net illiquidity

indicators.


86

The Bank’s financing policy takes into consideration the evolution of the balance sheet aggregates, the structural position of terms to maturity of assets and liabilities, the net inter-bank indebtedness level given the credit lines available, dispersion of the maturities and minimization of funding activity related costs. In this respect, the medium term bonds issued to retail banking clients are beneficial to the structural adequacy.

Under its liquidity policy, at December 31, 2007 the Bank had an EMTM programme of tEuros 100,000,000, of which tEuros 7,655,000 had not yet been issued.

The Bank does not analyze liquidity risk of financial instruments held for trading.

The non-discounted projected cash flows of financial instruments in accordance with their contractual maturities at December 31, 2007 and 2006 are as follows:

Up to From 3 months From 1 to From 3 to More yhan

On demand 3 months to 1 year 3 years 5 years 5 years Undetermined Total

Assets

Cash and deposits at central banks 250,823 1,838 5,555 182,779 - - - 440,995Balances due from banks 380,288 - - - - - - 380,288Financial assets held for trading 1,387,958 - - - - - - 1,387,958Financial assets designated at fair value through profit and loss 2 3 26,871 157,257 41,728 418,727 - 644,588Available-for-sale financial assets - 20,425 69,343 242,307 307,914 2,375,009 48,528 3,063,526Loans and advances to banks 1,050,055 541,645 238,032 2,493,037 51,334 492,575 - 4,866,678Loans and advances to customers 1,154,282 2,612,755 3,127,775 8,473,365 3,540,352 25,782,672 - 44,691,201Hedging derivatives 77,406 - - - - - - 77,406Investments in associates - - - - - - 20,965 20,965

4,300,814 3,176,666 3,467,576 11,548,745 3,941,328 29,068,983 69,493 55,573,605

Liabilities

Resources of central banks 860,670 1,295,273 - - - - - 2,155,943Financial liabilities held for trading 1,251,020 - - - - - - 1,251,020Resources of other financial institutions 581,294 1,313,419 1,267,185 1,152,111 928,364 567,490 - 5,809,863Resources of customers and others 5,609,302 3,395,876 1,347,093 1,379,249 212,007 91,939 - 12,035,466Debt securities issued 5,374 238,406 4,359,512 2,945,110 2,018,276 9,664,382 - 19,231,060Hedging derivatives 235,186 - - - - - - 235,186Subordinated liabilities - 5,225 23,257 43,707 43,729 573,651 - 689,569

8,542,846 6,248,199 6,997,047 5,520,177 3,202,376 10,897,462 - 41,408,107

2007

Up to From 3 months From 1 to From 3 to More yhanOn demand 3 months to 1 year 3 years 5 years 5 years Undetermined Total

Assets

Cash and deposits at central banks 186,867 2,595 8,395 339,888 - - - 537,745Balances due from banks 263,017 - - - - - - 263,017Financial assets held for trading 1,100,597 - - - - - - 1,100,597Financial assets designated at fair value through profit and loss 1 3 21,145 41,452 41,452 442,403 - 546,456Available-for-sale financial assets 663 1,997 7,150 56,777 12,573 397,672 167,765 644,597Loans and advances to banks 1,630,375 326,673 230,491 1,144,867 32,377 53,564 - 3,418,347Loans and advances to customers 1,888,862 2,397,665 2,274,752 8,025,899 3,068,808 20,931,581 - 38,587,567Hedging derivatives 197,375 - - - - - - 197,375Investments in associates - - - - - - 22,384 22,384

5,267,757 2,728,933 2,541,933 9,608,883 3,155,210 21,825,220 190,149 45,318,085

Liabilities

Resources of central banks 3,037 - - - - - - 3,037Financial liabilities held for trading 950,296 - - - - - - 950,296Resources of other financial institutions 808,466 1,184,322 405,145 2,077,062 911,049 163,377 - 5,549,421Resources of customers and others 6,434,192 2,452,016 1,151,067 1,135,454 349,356 137,345 - 11,659,430Debt securities issued 53,142 267,111 667,543 3,783,115 4,629,692 5,872,022 - 15,272,625Hedging derivatives 383,630 - - - - - - 383,630Equity instruments - - - - - - 100,477 100,477Subordinated liabilities - 5,753 41,908 45,769 42,191 731,931 - 867,552

8,632,763 3,909,202 2,265,663 7,041,400 5,932,288 6,904,675 100,477 34,786,468

2006


87

The projected cash flows of the financial instruments were determined based on principles and assumptions used by the Group to manage and control liquidity resulting from its operations. The following main assumptions were used to determine the projected cash flows:

- The projected cash flows of assets and liabilities with variable remuneration related to the interest

rate curve were calculated considering the forward interest rate curve;

- Financial instruments classified as “non-structural” were considered as maturing on demand, except for investments in associates and equity instruments recorded as available for sale, which were considered of undetermined maturity. Non structural assets and liabilities correspond to assets not subject to changes in interest rate (cash, cash deposits in financial institutions, equity instruments classified as available-for-sale financial instruments and investments in associates) and assets and liabilities held for trading, management of which is based on hedging market risk. In this respect the Group considers the fair value of assets and liabilities held for trading as their market value maturing on demand;

- Credit line operations without defined maturity dates or periodically renewable, such as bank

overdrafts and current account credit lines, were considered to have an average maturity of 25 months;

- The projected cash flows of demand deposits were considered as payable on demand.

MARKET RISK

Market risk consists in general of the potential fluctuation of a financial asset’s value due to unanticipated variations in market variables, such as interest rates, exchange rates, credit spreads, equity security prices, precious metals and comodities.

The standard methodology applied for the Santander Totta Group’s negotiation activity is Value at Risk (VaR). Historical Simulation with a 99% confidence level and a time horizon of one day is used as the basis, statistical adjustments having been applied, to enable the more recent occurrences that affect the level of risk assumed to be included rapidly and effectively. This measure is only used in the Group’s treasury management, the Bank using specific sensitivity measures.

Calculated VaR represents a daily estimate of the maximum potential risk under normal market conditions (individually by portfolio/business sector and for the overall positions), within the assumptions defined in constructing the model.

In addition, other measures are carried out that enable additional risk control to be maintained. In abnormal market conditions Stress Testing is carried out. This consists of defining extreme behavioural scenarios with different financial variables, so obtaining the corresponding potential impact on results. In summary, the analysis of scenarios endeavours to identify the potential risk in extreme market conditions in the verge of probability, not covered by VaR.

Daily positions are also monitored, an exhaustive control being made of changes in the portfolios so as to detect the existence of possible situations that require immediate correction. The preparation of a daily statement of income has the objective of identifying the impact of changes in variables or in the composition of the portfolios.

The Bank uses sensitivity measures and equivalent positions. In the case of interest rate it uses the BPV – estimated impact on results of parallel changes in interest rate curves. Because of the unusual nature of derivative operations, specific sensitivity measures are carried out daily, namely calculation of sensitivity to changes in the underlying prices (delta and gamma), volatility (vega) and time (theta).


88

Quantity limits, classified into two groups, are used for the trading portfolio, based on the following objectives:

- Limits aimed at protecting the volume of losses (VaR, Equivalent positions and sensitivity);

- Limits aimed at protecting/accommodating the volume of effective losses or protecting the results

already achieved during the period (Loss Triggers and Stop Losses).

The model used to analyse interest rate structural risk enables all the factors relating to balance sheet market risks to be controlled, namely risk resulting directly from change in the income curve, given the existing indexing and re-pricing structure, that determine sensitivity of the financial margin and sensitivity of the asset value of the balance sheet instruments.

Interest rate risk

Financial instruments, by exposure to interest rate risk, at December 31, 2007 and 2006 are as follows:

Not subject toFixed rate Variable rate interest rate risk Derivatives Total

Assets

Cash and deposits at central banks - 174,376 250,824 - 425,200Balances due from banks - - 380,288 - 380,288Financial assets held for trading 69,867 - 158,380 1,159,711 1,387,958Financial assets designated at fair value through profit and loss 407,028 - - - 407,028Available-for-sale financial assets 154,145 1,666,522 35,429 - 1,856,096Loans and advances to banks 1,595,184 2,746,292 28,308 - 4,369,784Loans and advances to customers 5,531,386 22,522,507 (136,617) - 27,917,276Hedging derivatives - - - 77,406 77,406Investments in associates - - 20,965 - 20,965

7,757,610 27,109,697 737,577 1,237,117 36,842,001

Liabilities

Resources of central banks 2,139,189 - (10,881) - 2,128,308Financial liabilities held for trading - - - 1,251,020 1,251,020Resources of other financial institutions 2,028,890 3,288,649 63,740 - 5,381,279Resources of customers and others 10,276,457 1,436,645 153,155 - 11,866,257Debt securities issued 2,578,505 11,367,513 (90,848) - 13,855,170Hedging derivatives - - - 235,186 235,186Subordinated liabilities 15,050 403,662 1,609 - 420,321

17,038,091 16,496,469 116,775 1,486,206 35,137,541

2007Exposure to


89

Not subject toFixed rate Variable rate interest rate risk Derivatives Total

Assets

Cash and deposits at central banks - 327,066 186,868 - 513,934Balances due from banks - - 263,017 - 263,017Financial assets held for trading 45,370 - 87,613 967,614 1,100,597Financial assets designated at fair value through profit and loss 417,754 - - - 417,754Available-for-sale financial assets 28,149 179,575 167,765 - 375,489Loans and advances to banks 1,847,521 1,355,290 91,167 - 3,293,978Loans and advances to customers 5,367,740 21,164,247 (170,449) - 26,361,538Hedging derivatives - - - 197,375 197,375Investments in associates - - 22,384 - 22,384

7,706,534 23,026,178 648,365 1,164,989 32,546,066

Liabilities

Resources of central banks 3,033 - 4 - 3,037Financial liabilities held for trading - - - 950,296 950,296Resources of other financial institutions 1,658,218 2,944,100 238,479 - 4,840,797Resources of customers and others 9,740,006 1,587,898 122,456 - 11,450,360Debt securities issued 3,075,119 9,827,909 (99,260) - 12,803,768Hedging derivatives - - - 383,630 383,630Equity instruments 94,913 - 5,564 - 100,477Subordinated liabilities 26,050 403,662 1,038 - 430,750

14,597,339 14,763,569 268,281 1,333,926 30,963,115

2006Exposure to

Financial instruments – structural balance (excluding assets and liabilities held for trading)

Equity value sensitivity is calculated by means of simulating the variation in the market value of assets and liabilities based on changes of 100 basis points (bp’s) in the forward interest rate curve. This methodology assumes the following parameters and assumptions:

- all assets and liabilities that are sensitive to variations in interest rates, that is, whose value and

corresponding contribution to financial margin change as a result of changes in market rates;

- the assets and liabilities are grouped in accordance with their exposure to interest rate risk;

- future cash flows, duly distributed by the re-pricing dates (variable rates) or maturity dates (fixed rate), are calculated for each operation (contract);

- for each group previously defined the operations are sub-grouped by re-pricing/maturity date;

- the intended time intervals for measurement of the interest rate gaps are defined;

- for each group, the flows are re-grouped based on the intervals determined;

- for each product considered to be sensitive, that does not have a defined maturity date, the

distribution parameters are estimated based on previously studied behavioural models;

- the total inflows and outflows are calculated for each interval and the difference between them, corresponding to the interest rate risk gap, is determined for each interval.


90

The interest rate gap enables an approximation to be made of the sensitivity of the asset value and the financial margin to variations in market rates. This approximation has the following assumptions:

- the volumes remain constant in the balance sheet and are automatically renewed;

- interest rates are assumed to vary in parallel, the possibility of actual changes for different terms of

the interest rate curve not being considered;

- different elasticity between the various products is not considered.

In the terms of variation in Equity Value, the increases in interest rates assume a decrease in the amount of the intervals with positive gaps and an increase in the value of the negative gaps. A decrease in interest rates has the opposite effect.

General assumptions of this interest rate sensitivity analysis

- Evolution of the balance sheet – a static balance sheet is assumed, under which the amount of the

contracts that mature are substituted by new operations of the same amount, so that the balance sheet balances remain constant during the period analysed.

- Maturities and re-pricing – the actual maturity and re-pricing dates of the operations are considered.

The assets and liabilities whose value is not changed with changes in interest rates are considered to be not sensitive.

- Indexing factors – the indexing factors defined contractually are considered, and for simulation

purposes a spot curve as of the valuation date with a forward underlying curve is used.

- Nature of New Business (term, spread, indexing factor, etc.) – the conditions applied in the budget for the each product are used. When these characteristics cease being within market conditions for certain products the average conditions practiced in the last month or new commercial directives for each product under review are used.

At December 31, 2007 and 2006 the sensitivity of the equity value of these financial instruments to variations of 100 basis points (bp’s) corresponds to:

2007 2006

Assets

Cash and deposits at central banks 1,717 3,254Available-for-sale financial assets 13,863 609Loans and advances to banks 18,440 20,967Loans and advances to customers 212,972 198,404

246,992 223,234Liabilities

Resources of central banks 19,120 -Resources of other financial institutions 46,963 45,612Resources of customers and others 52,475 52,796Debt securities issued 94,492 90,542Subordinated liabilities 3,152 6,287

216,202 195,237


91

Financial instruments held for trading

The sensitivity of financial instruments held for trading is determined by the Bank through calculation of the cash flows of each instrument, considering the maturities included in the contractual IT System of the Bank and respective forward interest rate curves.

The sensitivity analysis of financial instruments held for trading to changes in interest rates is made based on variations of one basis point over the interest rate for each maturity. In this respect, the Bank determines a vector of sensitivities, which corresponds to difference between the new fair value of the financial instrument and its initial value for each time interval, which corresponds to a series of interest rate risk measurements made over the whole temporal structure. The vector indicates the exact variation in the value of the portfolio for each independent variation of one basis point in each of the rates.

At December 31, 2007 and 2006, sensitivity of the equity value of financial instruments held for trading to positive variations of one basis point (bp) in BST corresponds to:

Maturity 2007 2006

1 day - -1 month - -6 months (1) (1)9 months (3) -1 year (11) -2 years (4) -3 years (6) (2)4 years (20) (8)5 years 21 (4)> 5 years 3 18

(21) 3

Exposure to interest rate risk of the Bank’s financial instruments held for trading is hedged by positions in another Santander Totta Group financial institution. The sensitivity of the equity value of such financial instruments of the Santander Totta Group to positive changes of one basis point (bp) at December 31, 2007 and 2006 corresponds to:

2007

Maturity Total EUR USD

1 day - - -1 month (5) (5) -6 months 8 8 -9 months (4) (4) -1 year 4 5 (1)2 years (9) (5) (4)3 years (1) (1) -4 years (18) (20) 25 years 30 28 2> 5 years 14 3 11

19 9 10


92

2006Maturity Total EUR USD GBP

1 day (4) (3) (1) -1 month (4) - (4) -6 months (1) 2 (3) -9 months 4 4 - -1 year - - - -2 years (1) (1) - -3 years (1) (1) - -4 years (6) (6) - -5 years 4 4 - -> 5 years (4) 2 1 (7)

(13) 1 (7) (7)

Exchange risk

The profile defined for foreign exchange risk is very conservative and is based on the hedging policy adopted. Implementation of the policy is a responsibility of the Treasury Area so that the risks involved are maintained at a low level, this being achieved mainly through currency swaps. Exchange risk limits are established and monitored by the Market Risk Area.

Financial instruments, by currency, at December 31, 2007 and 2006 are as follows:

Other Euros US Dollars currencies Total

Assets

Cash and deposits at central banks 368,280 12,732 44,188 425,200Balances due from banks 368,045 7,822 4,421 380,288Financial assets held for trading 1,316,344 5,517 66,097 1,387,958Financial assets designated at fair value through profit and loss 407,028 - - 407,028Available-for-sale financial assets 1,809,064 22,377 24,655 1,856,096Loans and advances to banks 3,809,611 400,900 159,273 4,369,784Loans and advances to customers 27,680,995 188,550 47,731 27,917,276Hedging derivatives 71,956 5,450 - 77,406Investments in associates 20,965 - - 20,965

35,852,288 643,348 346,365 36,842,001

Liabilities

Resources of central banks 2,128,308 - - 2,128,308Financial liabilities held for trading 1,247,141 3,879 - 1,251,020Resources of other financial institutions 4,719,401 575,239 86,639 5,381,279Resources of customers and others 10,728,701 847,718 289,838 11,866,257Debt securities issued 11,645,792 2,209,378 - 13,855,170Hedging derivatives 222,472 12,714 - 235,186Subordinated liabilities 420,321 - - 420,321

31,112,136 3,648,928 376,477 35,137,541

2007


93

Other Euros US Dollars currencies Total

Assets

Cash and deposits at central banks 477,937 10,081 25,916 513,934Balances due from banks 254,405 3,991 4,621 263,017Financial assets held for trading 1,038,599 9,478 52,520 1,100,597Financial assets designated at fair value through profit and loss 417,754 - - 417,754Available-for-sale financial assets 349,468 6,570 19,451 375,489Loans and advances to banks 2,830,802 327,571 135,605 3,293,978Loans and advances to customers 26,158,625 107,497 95,416 26,361,538Hedging derivatives 194,863 2,512 - 197,375Investments in associates 22,384 - - 22,384

31,744,837 467,700 333,529 32,546,066

Liabilities

Resources of central banks 3,037 - - 3,037Financial liabilities held for trading 923,017 16,650 10,629 950,296Resources of other financial institutions 4,463,181 350,976 26,640 4,840,797Resources of customers and others 10,363,362 803,291 283,707 11,450,360Debt securities issued 11,663,263 1,140,505 - 12,803,768Hedging derivatives 383,630 - - 383,630Equity instruments - 100,477 - 100,477Subordinated liabilities 430,750 - - 430,750

28,230,240 2,411,899 320,976 30,963,115

2006

The Bank’s exchange exposure (“delta exchange rate”), by currency, which corresponds to the maximum loss in equity value of financial instruments held for trading, to changes in the rate of exchange, considering exposure of the balance sheets as of December 31, 2007 and 2006, is as follows:

Currency 2007 2006

USD 1,488 1,695GBP 1,357 (6,085)JPY 26 646CHF 1,179 (1,342)SEK 6 (874)NOK 81 (132)DKK 21 (93)CAD 281 10AUD 80 54SGD 1 2HKD 3 -MOP 43 -ZAR 19 (10)

4,585 (6,129)


94

Equity risk of assets

Exposure to equity risk (delta equity), which corresponds to the maximum loss in equity value of financial instruments held for trading, to changes in market quotations, considering exposure of the balance sheets as of December 31, 2007 and 2006, is as follows:

Financial instrument Currency 2007 2006

Equity swaps, OTC Options EUR (355) -

The Bank’s reduced exposure results from exposure to equity risk on financial instruments held for trading of the Santander Totta Group being concentrated in another financial institution of the Group.

The Santander Totta Group’s exposure to equity risk is as follows:

Financial instrument Currency 2007 2006

Shares, futures and equity options EUR 57,394 26,815Shares, futures and equity options USD - 2,713Equity swaps, OTC Options EUR (62,924) (16,536)

(5,530) 12,992

Volatility risk

Sensitivity of the equity value of financial instruments subject to volatility risk (options and other derivative financial instruments) resulting from a 1% increase in volatility, at December 31, 2007 and 2006, corresponds to:

Maturity Interest rate Equity listings Exchange rate

1 day - - -1 month - - -6 months - - -9 months (2) - -1 year (3) - -2 years (1) 1 73 years 10 - -4 years 9 - -5 years 6 - -> 5 years 6 - -

25 1 7

2007


95

Maturity Interest rate Equity listings Exchange rate

1 day - - -1 month - - -6 months - - -9 months - - -1 year 3 - -2 years 13 (4) 13 years 15 (3) 24 years 13 - -5 years 9 - -> 5 years 3 - -

56 (7) 3

2006

47. CAPITAL MANAGEMENT

At a consolidated level, BST aims to maintain a strong financial solidity, which is substanciated by the maintenance of a capital adequacy ratio – relation between qualifying capital and risk weighted assets - above 8%, which is the minimum legal ratio requirement established by Notice nº 5/2007 of Bank of Portugal.

The distribution of dividends is conditioned to the maintenance of a strong capital base to support the development of the Bank’s business operations, considering its risk policies. Regarding the financial year of 2007, the Board of Directors of the Bank is proposing to pay dividends to shareholders in the amount of tEuros 200,000, which represents a dividend of 0.339 Euros per share.

The Capital components follow the present regulations of Bank of Portugal (Notice nº 4/2007). In particular, since June 2007, 50% of the deduction to Capital regarding investments in financial institutions and insurance companies, which were previously considered entirely in the Tier II ratio, started to be considered in the Tier I ratio. This fact caused a decrease of about 7 basis points in the Tier I ratio in December 2007.


96

The following table summarizes the composition of consolidated regulatory capital of the Bank, at the end of 2007 and 2006 (amounts in million Euros):

2007 2006

A - BASE CAPITAL (TIER I) 1,861 1,844Qualifying Share Capital 889 889Qualifying Reserves and Earnings (excl. Minority Interests) 687 524Minority Interests 376 369IAS adoption impacts (transitory regime) 193 277Deductions to Base Capital (282) (214)

B - Complementary CAPITAL (TIER II) 560 741Perpetual subordinated liabilities 104 83Term subordinated liabilities 303 325Revaluation Reserves 29 51Other elements 124 282

C - DEDUCTIONS TO TOTAL CAPITAL (6) (41)D - TOTAL QUALIFYING CAPITAL (A+B+C) 2,415 2,544E - RISK WEIGHTED ASSETS 24,213 21,159

CAPITAL RATIOS 2007 2006TIER I (A/E) 7,7% 8,7% CORE TIER I 6,1% 7,0%TIER II (B/E) 2,3% 3,5%DEDUCTIONS (C/E) -0,3% -1,6%CAPITAL ADEQUACY RATIO (D/E) 10,0% 12,0%

At a consolidated level, Banco Santander Totta maintains a strong capital base, which can be shown by the core Tier I ratio of 6.1% at December 2007. According to what was planned, the capital adequacy ratio decreased from 12% in the end of 2006 to 10% in the end of 2007, reflecting the early redemption of Pinto Totta International Finance’s preference shares (100 million Euros) and a strong growth of the Bank’s activities.

48. NOTE ADDED FOR TRANSLATION These financial statements are a translation of financial statements originally issued in Portuguese. In

the event of discrepancies, the Portuguese language version prevails.

APPENDIX I1/3

Unit Unit Gain Gain Loss Gain and LossIssuing Face Value Market Accrued affecting affecting affecting affecting Book Accumulated Net Maturity Interest

a e Type Country Currency Quantity (Euros) Value Cost Interest results reserves reserves reserves Value Impairment Value Date Rate

FINANCIAL ASSETS HELD FOR TRADINGParticipating Units

FEI FECHADO - CÂMBIO INVEST Portugal EUR 2,074,893 5.00 5.0528 10,484 - - - - - 10,484 - 10,484 n.a. n.a.FEI COMMODITIES INVEST Portugal EUR 3,590,682 5.00 5.2575 18,878 - - - - - 18,878 - 18,878 n.a. n.a.FEI ENERGIA INVEST Portugal EUR 1,852,639 5.00 5.4751 10,143 - - - - - 10,143 - 10,143 n.a. n.a.FEI SANTANDER INVEST MULTIESTRAT Portugal EUR 68,784 5.00 4.8736 335 - - - - - 335 - 335 n.a. n.a.FEI HEDGE FUND INVEST Portugal EUR 3,941,577 5.00 5.0799 20,023 - - - - - 20,023 - 20,023 n.a. n.a.FEI INFRA ESTRUTURAS Portugal EUR 737,625 5.00 5.1152 3,773 - - - - - 3,773 - 3,773 n.a. n.a.FEI MULTISECTOR INVEST Portugal EUR 1,492,060 5.00 4.9251 7,349 - - - - - 7,349 - 7,349 n.a. n.a.FEI FECHADO MUNDINVEST Portugal EUR 4,644,803 5.00 5.4045 25,103 - - - - - 25,103 - 25,103 n.a. n.a.FEI OPV INVEST Portugal EUR 599,377 5.00 5.0254 3,012 - - - - - 3,012 - 3,012 n.a. n.a.FEI SAÚDE INVEST Portugal EUR 709,093 5.00 4.9639 3,520 - - - - - 3,520 - 3,520 n.a. n.a.SUPER MIX INVEST - FEI Portugal EUR 2,127,861 5.00 5.0181 10,678 - - - - - 10,678 - 10,678 n.a. n.a.FA SANTANDER MULTIOBRIGACOES Portugal EUR 4,631,841 6.00 5.9542 25,795 - 1,783 - - - 27,578 - 27,578 n.a. n.a.IMOVEST Portugal EUR 2,212,834 5.00 9.6136 19,409 - 1,865 - - - 21,274 - 21,274 n.a. n.a.

158,502 - 3,648 - - - 162,150 - 162,150Securities - issued by Non-residents - debt instruments

Issued by Public Non-resident issuersTÍTULOS DO BANCO CENTRAL DE ANGOLA Angola AKZ 7,700,000 9.43 9.0737 69,867 (3,770) - - - - 66,097 - 66,097 n.a. n.a.

69,867 (3,770) - - - - 66,097 - 66,097

228,369 (3,770) 3,648 - - - 228,247 - 228,247AVAILABLE-FOR-SALE FINANCIAL ASSETSDebt instruments

Issued by ResidentsMedium and Long Term

Treasury BondsCONSOLIDADO CENT. 4,00 1940 Portugal EUR 11,929,251 0.01 0.00620 119 2 - - - - 121 (45) 76 01/01/2049 4.000CONSOLIDADO.......2,75 1943 Portugal EUR 6,862,960 0.01 0.00571 69 - - - - - 69 (29) 40 01/03/2050 2.750CONSOLIDADO.......3,00 1942 Portugal EUR 26,328,548 0.01 0.00614 263 1 - - - - 264 (102) 162 01/02/2050 3.000CONSOLIDADO.......3,50 1941 Portugal EUR 3,634,240 0.01 0.00650 36 - - - - - 36 (13) 23 29/12/2049 3.500OT 5.85% MAIO 2010 Portugal EUR 10,000,000,000 0.01 0.01033 104,114 3,613 - - (274) (274) 107,453 - 107,453 20/05/2010 5.850

Other National Public issuersCAMARA MUNICIPAL DE LISBOA/99 Portugal EUR 3,000,000 5.00 4.82783 15,000 4 - - (517) (517) 14,487 - 14,487 30/06/2019 4.510

Non-subordinated DebtShort Term

Other bondsATENEU COMERCIAL DO PORTO S/JURO Portugal EUR 100 4.99 0 - - n.a. n.a.AUTO-SUECO 2004/2009 Portugal EUR 1,500,000 10.00 10 15,000 11 - - - - 15,011 - 15,011 27/12/2009 4.526EDP 25ª EMISSÃO Portugal EUR 498,798,898 0.0033 0.00332 1,658 9 - - (2) (2) 1,665 - 1,665 23/11/2008 3.940MODELO CONTINENTE/2004 - 1EM 03/ Portugal EUR 2,000,000 10.00 10.06 20,000 343 - 120 - 120 20,463 - 20,463 18/03/2009 4.690POLIMAIA / 89 - SERIE C Portugal EUR 15,000 0.10 0 1 - - - - - 1 (1) - 30/11/2008 3.929REDITUS 91 Portugal EUR 16,232,846 0.01 0 77 1 - - - - 78 (78) - 02/09/2010 2.500REVILLA INTERNATIONAL Portugal EUR 700,000 3.28 2.95 2,293 10 - - (230) (230) 2,073 - 2,073 30/11/2008 4.250SONAE DISTRIBUICAO SET 2007/2015 Portugal EUR 7,000,000 10.00 10 70,000 1,104 - - - - 71,104 - 71,104 Set-15 5.000T.L.CORREIA/88 Portugal EUR 49,450 1.50 0 77 - - - - - 77 (77) - n.a. n.a.UNIFER-OLIVEIRA&FERREIR. 87/96/9 Portugal EUR 31,000 4.99 0 154 - - - - - 154 (154) - n.a. n.a.

Other securitiesTAGUS ROSE-07 1 SEC NOTES DEC/12 Portugal EUR 2,500 50,000 50,000 125,000 318 - - - - 125,318 - 125,318 17/12/2012 6.098

Subordinated Debt -BPSM/97 - TOP'S - OB.PERP.SUB.-1./2. Portugal EUR 290,041,495 0.01 0.0097 2,744 13 - 74 - 74 2,831 - 2,831 29/06/2049 5.239BSNP/2004 - PERPETUAS SUBORDINAD Portugal EUR 20,000,000 5.00 3.7250 100,000 581 - - (25,500) (25,500) 75,081 - 75,081 31/12/2049 5.669MC FACTOR/98 - PERP SUBORDINADAS Portugal EUR 239,422,991 0.01 0.0068 2,992 1 - - (776) (776) 2,217 - 2,217 31/12/2049 6.524TOTTA SEGUROS - OBRIG. SUB. 2002 Portugal EUR 280 50,000.00 41,125 14,000 5 - - (2,485) (2,485) 11,520 - 11,520 30/12/2049 6.368

Issued by non residentsIssued by Public Non-resident issuers

OBRIGAÇOES TESOURO DE ANGOLA USD Angola USD 5,456 4,060 4,060 22,151 226 - - - - 22,377 - 22,377 n.a n.aOBRIGAÇOES TESOURO DE ANGOLA AKZ Angola AKZ 28,856 852 852 24,572 (213) - - - - 24,359 - 24,359 n.a n.a

Other non residentsCONSUMO SANTANDER 1 B Espanha EUR 378 100,000 101 37,812 247 - - - - 38,059 - 38,059 15/11/2012 5.005SANTANDER FINANCIACION 1 B Espanha EUR 257 100,000 101 25,712 245 - - - - 25,957 - 25,957 15/11/2012 4.833FTPYME SANTANDER 2 C Espanha EUR 810 100,000 102 81,570 836 - - - - 82,406 - 82,406 18/04/2037 4.955SANTANDER EMPRESAS 1 SERIE B Espanha EUR 806 100,000 101 80,640 613 - - - - 81,253 - 81,253 26/10/2038 4.808FTPYME SANTANDER 1 B2 Espanha EUR 1,343 100,000 101 134,914 872 - - - - 135,786 - 135,786 15/11/2034 4.975SANTANDER EMPRESAS 2 B Espanha EUR 741 100,000 101 74,178 415 - - - - 74,593 - 74,593 23/06/2050 4.804SANTANDER HIPOTECARIO 1 SERIE B Espanha EUR 534 100,000 102 54,007 582 - - - - 54,589 - 54,589 15/07/2042 5.032SANTANDER HIPOTECARIO 2 B Espanha EUR 518 100,000 101 51,851 524 - - - - 52,375 - 52,375 18/01/2049 4.855CONSUMO SANTANDER 1 C Espanha EUR 351 100,000 101 35,128 243 - - - - 35,371 - 35,371 15/11/2012 5.305SANTANDER FINANCIACION 1 C Espanha EUR 617 100,000 101 61,729 598 - - - - 62,327 - 62,327 20/07/2035 4.913SANTANDER HIPOTECARIO 1 C Espanha EUR 469 100,000 104 48,065 532 - - - - 48,597 - 48,597 15/07/2042 5.232FTPYME SANTANDER 1 C Espanha EUR 270 100,000 104 27,766 193 - - - - 27,959 - 27,959 15/11/2034 5.475


SECURITIES PORTFOLIO AT DECEMBER 31, 2007


(Translation of financial statements originally issued in Portuguese - Note 48)

APPENDIX I2/3







FTPYME SANTANDER 2 D Espanha EUR 585 100,000 104 60,278 653 - - - - 60,931 - 60,931 18/04/2037 5.355SANTANDER HIPOTECARIO 2 C Espanha EUR 323 100,000 101 32,427 333 - - - - 32,760 - 32,760 18/01/2049 4.955SANTANDER EMPRESAS 2 C Espanha EUR 363 100,000 101 36,422 208 - - - - 36,630 - 36,630 23/06/2050 4.904SANTANDER EMPRESAS 1 SERIE C Espanha EUR 961 100,000 101 96,208 744 - - - - 96,952 - 96,952 26/10/2038 4.888SANTANDER CONSUMER SPAIN-SERIE B Espanha EUR 780 100,000 100 78,000 134 - - - - 78,134 - 78,134 20/09/2022 5.156SANTANDER EMPRESAS 3-SERIE B NOTES Espanha EUR 397 100,000 101 39,685 426 - - - - 40,111 - 40,111 16/10/2049 5.012SANTANDER EMPRESAS 3 - SERIE C NOTE Espanha EUR 1,173 100,000 101 117,256 1,268 - - - - 118,524 - 118,524 16/10/2049 5.052SANTANDER HIPOTERCAIO 3 - CLASS B Espanha EUR 792 100,000 101 79,200 804 - - - - 80,004 - 80,004 18/01/2050 4.875SANTANDER HIPOTECARIO 3 - CLASS C Espanha EUR 475 100,000 101 47,500 490 - - - - 47,990 - 47,990 18/01/2050 4.955

1,820,668 16,989 - 194 (29,784) (29,590) 1,808,067 (499) 1,807,568bEquity Instruments

Issued by residentsValued at fair value

BPI Portugal EUR 5,111,532 1 5.36 16,035 - - 11,842 (480) 11,362 27,397 - 27,397 n.a. n.a.AMADEU GAUDENCIO Portugal EUR 39,480 5 - 197 - - - - - 197 (197) - n.a. n.a.BEIRA VOUGA-INV.IM.C.INDUST Portugal EUR 9 5 0 - - - - - - - - - n.a. n.a.CAETANO -COM SA Portugal EUR 4 1 1 - - - - - - - - - n.a. n.a.CASA HIPOLITO Portugal EUR 11,385 5 - 57 - - - - - 57 (57) - n.a. n.a.COMP.FIA.TEC.FAFE Portugal EUR 48 5 - - - - - - - - - - n.a. n.a.COMP.FIACAO TECIDOS ALCOBACA Portugal EUR 82,491 5 - 401 - - - - - 401 (401) - n.a. n.a.COMP.PORT.COBRE Portugal EUR 121,950 2 - 9 - - - - - 9 (9) - n.a. n.a.EMAPE-E.AGRO.P.BENAVENTE Portugal EUR 5,500 5 - 45 - - - - - 45 (45) - n.a. n.a.EMPRESA CINEMATOGRAFICA S.PEDRO, Portugal EUR 50 5 - - - - - - - - - - n.a. n.a.ERG Portugal EUR 16,845 5 - 137 - - - - - 137 (137) - n.a. n.a.ESTAMPARIA IMPERIO Portugal EUR 45,578 5 - 603 - - - - - 603 (603) - n.a. n.a.FABRICA PORTUGAL S.A. Portugal EUR 11,170 5 0 1 - - - - - 1 - 1 n.a. n.a.FAFER-EMMP.URBANIST CONSTRUC S.A Portugal EUR 66,522 5 5 1,493 - - - - - 1,493 (1,145) 348 n.a. n.a.FIANDEIRA MIRENSE Portugal EUR 2,100 5 - 1 - - - - - 1 (1) - n.a. n.a.FITOR-COMP.PORT. DE TEXTEIS Portugal EUR 67,969 2 - 804 - - - - - 804 (804) - n.a. n.a.FOMENTO-SOC.GEST. NOMINATIVAS Portugal EUR 146 1 - - - - - - - - - - n.a. n.a.FOMENTO-SOC.GEST. PORTADOR Portugal EUR 70 1 - - - - - - - - - - n.a. n.a.FUNDINIO-FUNDICAO INJEC. ALUMINI Portugal EUR 20,000 5 3 100 - - - - - 100 (42) 58 n.a. n.a.FUNFRAP-FUNDICAO PORTUGUESA, S.A Portugal EUR 100,000 5 3 275 - - - - - 275 - 275 n.a. n.a.GAP-SOC.GEST.PART.SOCIAIS Portugal EUR 9 5 4 - - - - - - - - - n.a. n.a.GARVAL - SOC.DE GARANTIA MUTUA S Portugal EUR 50,000 1 1 50 - - - - - 50 - 50 n.a. n.a.GEOFINANCA - NOMINATIVAS Portugal EUR 75,462 5 0 305 - - - - - 305 (305) - n.a. n.a.GEOFINANCA - PORTADOR Portugal EUR 16,277 5 (0) 65 - - - - - 65 (65) - n.a. n.a.GESTINSUA - AQUIS.ALIEN.PATRIM S Portugal EUR 166 5 - 10 - - - - - 10 (10) - n.a. n.a.GUINOR-CIA DESENVOL.IMOB. SGPS, SA Portugal EUR 1,000 5 - 9,733 - - - - - 9,733 (9,733) - n.a. n.a.HOTAL - SOC IND HOTELEIRA SUL PR Portugal EUR 2,700 5 - 22 - - - - - 22 (22) - n.a. n.a.INCAL Portugal EUR 62 1 - - - - - - - - - - n.a. n.a.JOTOCAR - IND.MOBIL. Portugal EUR 40 5 - - - - - - - - - - n.a. n.a.JUPITER-INDUSTRIA HOTELEIRA Portugal EUR 5 5 5 - - - - - - - - - n.a. n.a.MATUR Portugal EUR 17,098 5 - 205 - - - - - 205 (205) - n.a. n.a.PORTO CAVALEIROS Portugal EUR 128,923 5 - 820 - - - - - 820 (820) - n.a. n.a.POSSE SGPS, SA Portugal EUR 1,400 5 1 12,388 - - - - - 12,388 (12,387) 1 n.a. n.a.PROCAPITAL-INV.IMOBILIARIOS NOMI Portugal EUR 198,333 5 - 1,680 - - - - - 1,680 (1,680) - n.a. n.a.PROCAPITAL-INV.IMOBILIARIOS PORT Portugal EUR 494,126 5 - 4,319 - - - - - 4,319 (4,319) - n.a. n.a.RETUR Portugal EUR 1 5 19 - - - - - - - - - n.a. n.a.SALVADOR CAETANO -COM AUT Portugal EUR 4 5 1 - - - - - - - - - n.a. n.a.SODERA - SOC.DES.REG ALENTEJO S. Portugal EUR 1,828,125 5 0 - - - - - - - - - n.a. n.a.SPE-SOC.P.EMPREENDIMENTOS(NOM) Portugal EUR 1,398 1 - 6 - - - - - 6 (6) - n.a. n.a.TEXTEIS ATMA, S.A. Portugal EUR 2 0 - 418 - - - - - 418 (418) - n.a. n.a.TEXTEIS LOPES COSTA Portugal EUR 8,972 1 - 90 - - - - - 90 (90) - n.a. n.a.TEXTIL LUIS CORREIA / 88 Portugal EUR 19,901 5 - 187 - - - - - 187 (187) - n.a. n.a.UNIFA Portugal EUR 7 5 0 - - - - - - - - - n.a. n.a.VILATEXTIL-SOC.IND.TEXTIL Portugal EUR 45,400 5 - 226 - - - - - 226 (226) - n.a. n.a.F.I.M. EURO PARQUES Portugal EUR 50,000 5 - 249 - - - - - 249 (249) - n.a. n.a.FIQ API CAPITAL II Portugal EUR 40 24,940 4,300 519 - - - - - 519 (347) 172 n.a. n.a.FIQ PME CAPITAL Portugal EUR 58 24,940 13,241 1,342 - - - - - 1,342 (574) 768 n.a. n.a.FIQ PME CAPITAL VALOR Portugal EUR 40 24,940 18,209 783 - - - - - 783 (55) 728 n.a. n.a.FIQ PME INVESTIMENTOS Portugal EUR 50 24,940 19,704 1,247 - - - - - 1,247 (262) 985 n.a. n.a.FIQ PME INVESTIMENTOS RETEX Portugal EUR 40 24,940 16,995 784 - - - - - 784 (104) 680 n.a. n.a.B.S.V.MAQ.AUTOMATICAS, SA - CAUTELAS Portugal EUR 3,774 5 - 19 - - - - - 19 (19) - n.a. n.a.ERG - SOC.CONST. - CAUTELAS Portugal EUR 2,052 5 - 17 - - - - - 17 (17) - n.a. n.a.CENTRO EST.AD. DESENV. Portugal EUR 50 5 - - - - - - - - - - n.a. n.a.COOP.CONS.S.MIGUEL Portugal EUR 100 1 - - - - - - - - - - n.a. n.a.D.C.I. - DES.COM.INTERN. Portugal EUR 10,000 5 - 50 - - - - - 50 (50) - n.a. n.a.INICA - SOC.MIN.INDUSTRIAIS Portugal EUR 100 5 - - - - - - - - - - n.a. n.a.NOVA VOUGA - IND ALIMENTACAO SARL Portugal EUR 60,601 5 - 168 - - - - - 168 (168) - n.a. n.a.

APPENDIX I3/3







PENTA PUBLICIDADE Portugal EUR 500 5 - 2 - - - - - 2 (2) - n.a. n.a.SITURPICO - SOC.INV.PICO Portugal EUR 1,000 5 - 5 - - - - - 5 (5) - n.a. n.a.SOC.TEXTIL A FLOR DO CAMPO.S.A. Portugal EUR 42,500 5 - 212 - - - - - 212 (212) - n.a. n.a.Portugal Telecom SGPS Portugal EUR 48,570 0 9 500 - - - (66) (66) 434 - 434 n.a. n.a.REVILIVRO Portugal EUR 1 125 - - - - - - - - - - n.a. n.a.PT Muitimédia Portugal EUR 6,841 63 - - 3 - 3 66 - 66 n.a. n.a.

Valued at historical cost AENOR - AUTO ESTRADAS NORTE S.A. Portugal EUR 374,854 10 9.99 3,749 - - - - - 3,749 (4) 3,745 n.a. n.a.AENOR - AUTO ESTRADAS NORTE S.A. (Prestações Suplementares) Portugal EUR 3,749 - - - - - 3,749 - 3,749 n.a. n.a.FINANGEST - EMP.FIN.GEST E DESENV Portugal EUR 87,850 5 6.73 1,160 - - - - - 1,160 (569) 591 n.a. n.a.GESTISOL - SOC.G.PART.SOCIAIS Portugal EUR 135,000 5 0.00 4,221 - - - - - 4,221 (4,221) - n.a. n.a.LISGARANTE - SOC. GARANTIA MUTUA S.A. Portugal EUR 607,947 1 0.96 586 - - - - - 586 (3) 583 n.a. n.a.MARGUEIRA - SOC.GESTORA FUNDOS INV.IMOBILIÁRIO Portugal EUR 9,365 5 4.46 47 - - - - - 47 (5) 42 n.a. n.a.NORGARANTE - SOC. GARANTIA MUTUA S.A. Portugal EUR 534,114 1 0.97 523 - - - - - 523 (5) 518 n.a. n.a.OPERANOR - OP.MAN.AUTO ESTRADAS Portugal EUR 667 1 1.00 1 - - - - - 1 - 1 n.a. n.a.INOV CAPITAL - SOC.CAP.RISCO S.A Portugal EUR 200,000 5 4.25 1,065 - - - - - 1,065 (214) 851 n.a. n.a.PME INVESTIMENTOS - SOC.INVESTIMENTOS S.A. Portugal EUR 200,000 5 3.35 1,130 - - - - - 1,130 (461) 669 n.a. n.a.PORTAL UNIVERSIA PORTUGAL - PREST.SERV.INF. S.A. Portugal EUR 5,000 10 1.15 50 - - - - - 50 (44) 6 n.a. n.a.PREVISÃO - SOC.G.F.PENSÕES Portugal EUR 70,660 5 4.21 297 - - - - - 297 - 297 n.a. n.a.SIBS - SOC.INTERBANCÁRIA DE SERVIÇOS SARL Portugal EUR 741,241 5 4.67 3,461 - - - - - 3,461 - 3,461 n.a. n.a.SPGM - SOC.INVESTIMENTO S.A. NOM Portugal EUR 325,000 1 0.98 324 - - - - - 324 (5) 319 n.a. n.a.UNICRE - CARTÃO INTERNACIONAL CRÉDITO S.A. Portugal EUR 361,729 5 2.85 1,032 - - - - - 1,032 - 1,032 n.a. n.a.AEROPLAN - SOC. CONST. AEROPORTOS Portugal EUR 1 479 0.00 - - - - - - - - - n.a. n.a.PROPAÇO-SOC.IMOBILIÁRIA DE PAÇO D'ARCOS,LDA (quotas) Portugal EUR 1 156 0.00 - - - - - - - - - n.a. n.a.PROPAÇO-SOC IMOBILIÁRIA DE PAÇO D'ARCOS,LDA (quotas) Portugal EUR 1 247 0.00 - - - - - - - - - n.a. n.a.CITEVE Portugal EUR 20 0.00 10 - - - - - 10 (10) - n.a. n.a.NOVA BOSTWICK Portugal EUR 1 94,350 0.00 94 - - - - - 94 (94) - n.a. n.a.

Issued by non residentsValued at historical cost

Santander Private Equity S.A, S.G.E.C.R Espanha EUR 2,000 100.00 200 400 - - - - - 400 400 n.a. n.a.CO-Operative Soc.SWIFT Belgica EUR 11 125.00 369 4 - - - - - 4 4 n.a. n.a.COMP.DIAMANTES ANGOLA Angola EUR 76,700 2.49 - 746 - - - - - 746 (746) - n.a. n.a.EMIS-EMPRESA INTERBANCÁRIA DE SERVIÇOS - Luanda Angola AKZ 7,000 2.23 - 188 - - - - - 188 188 n.a. n.a.BOLSA DE VALORES E DERIVADOS DE ANGOLA Angola AKZ - 109 - - - - - 109 109 n.a. n.a.

79,588 - - 11,845 (546) 11,299 90,887 (42,359) 48,5281,900,256 16,989 - 12,039 (30,330) (18,291) 1,898,954 (42,858) 1,856,096

FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSSTreasury bonds

OT 5,45 SET 2013 Portugal EUR 38,000,000,000 0.01 1.056235 396,830 5658 4,540 - - - 407,028 - 407,028 23/09/2013 5.4500396,830 5,658 4,540 - - - 407,028 - 407,028

APPENDIX II1/4

1000

0(Translation of financial statements originally issued in Portuguese - Note 4

Accrual Value adjustments Total ofSubscribed for Consolidated Subscribed for Consolidated of hedging Consolidated Interest Issue Maturity

Securities issued Currency Total by the Group Balance Sheet Total by the Group Balance Sheet operations Balance Sheet rate Date Date Index

Bonds issuedBonds

Totta Rendimento Certo EUR 54,986 - 54,986 - - - (4,114) 50,872 Variable 31-Jan-2005 31-Jan-2013 Euribor 1 yearBTA Euro Inflação EUR 4,000 - 4,000 - - - (65) 3,935 Variable 15-Mai-2003 15-Mai-2008 Eurostat index and Euribor 6 monthsBTA Investimento Global 5 EUR 7,883 - 7,883 341 - 341 (128) 8,096 Variable 29-Ago-2003 3-Set-2008 Basket of 25 sharesBTA Super Estrelas EUR 70,500 - 70,500 4,409 - 4,409 (1,221) 73,688 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Franklin

Mutual Beacon Fund, Merril Lynch International Fund - Global Fundamental Value Fund, Dexia Sustainable Accent Social, MFS Funds - Global Equity Fund - Class A1 - and bond funds.

BTA Super Estrelas 2ªSerie EUR 38,000 - 38,000 2,376 - 2,376 (658) 39,718 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Franklin Mutual Beacon Fund, Merril Lynch International Fund - Global Fundamental Value Fund, Dexia Sustainable Accent Social, MFS Funds - Global Equity Fund - Class A1 - and bond funds

BTA Super Estrelas II EUR 38,011 - 38,011 1,555 - 1,555 (840) 38,726 Variable 28-Nov-2003 28-Nov-2008 Basket of funds - Socgen International SICAV (equity fund), KBC Bonds High Interest - Kap (bond fund) and CS Euroreal (real estate fund)

BTA Super Estrelas III EUR 24,177 - 24,177 968 - 968 (574) 24,571 Variable 29-Dez-2003 29-Dez-2008 Basket of funds - Socgen International SICAV (equity fund), KBC Bonds High Interest - Kap (bond fund) and CS Euroreal (real estate fund)

BTA Euro Rentabilidade EUR 27,686 - 27,686 442 - 442 (103) 28,025 Variable 18-Jun-2004 18-Jun-2008 Euribor 1 YearBTA Oportunidade Crescente 2004 EUR 3,670 - 3,670 79 - 79 (5) 3,744 Variable 29-Jun-2004 30-Jun-2008 Euribor 1 YearBTA Rendimento Mundial EUR 22,524 - 22,524 142 - 142 (659) 22,007 Variable 29-Jul-2004 29-Jul-2009 Basket of 3 indexes - Dow Jones Euro Stoxx 50, Standard &

Poor´s 500, Nikkei 225BTA Oportunidade Crescente II EUR 5,058 - 5,058 - - - (122) 4,936 Variable 2-Ago-2004 4-Ago-2008 Euribor 1 YearBTA Investimento Prestígio EUR 4,685 - 4,685 50 - 50 (656) 4,079 Variable 17-Set-2004 17-Set-2012 Euribor 1 YearBTA Soma Global EUR 21,042 - 21,042 138 - 138 149 21,329 Variable 2-Nov-2004 2-Nov-2009 Indexes: Dow Jones euro Stoxx 50 (Euro zone);Standard & Poor's

500(North American Market)BTA Cabaz África (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - Accor SA, British Petroleum Plc, Lafarge SA,

Total SA, Vinci SA BTA Cabaz América (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - Abbot Laboratories, Altria Group Inc., Bank of

America Corp., Motorola Inc., The Dow Chemical Company

BTA Cabaz Ásia (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - KDDI Corp., Kyocera Corp., Nissan Motor CoLtd, Sumitomo Corp., Suzuki Motor Corp.

BTA Cabaz Europa (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - Metro AG, Nestle SA (Reg), Novartis AG, Telecom Itália SpA, Vivendi Universal SA

BTA Cabaz Oceânia (FEI FECHADO MUNDIVEST) EUR 19,893 - 19,893 473 - 473 (255) 20,111 Variable 3-Dez-2004 2-Jun-2008 Basket of 5 shares - Australia nd New Zealand, Banking Group Ltd, Exxon Mobil Corp., Mitsubishi Corp.,Mitsui & Co Ltd, VodafonGroup Plc

CPP Taxa Fixa 2002 EUR 125,000 87,500 37,500 4,398 3,079 1,319 - 38,819 5.30% 2-Mai-2002 2-Mai-2009 Fixed rate

CPP Investimento Global 5 EUR 3,966 - 3,966 172 - 172 (64) 4,074 Variable 29-Ago-2003 3-Set-2008 Basket of 25 sharesCPP Super Estrelas EUR 35,000 - 35,000 2,189 - 2,189 (610) 36,579 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Franklin

Mutual Beacon Fund, Merril Lynch International Fund - Global Fundamental Value Fund, Dexia Sustainable Accent Social, MFS Funds - Global Equity Fund - Class A1 - and bond funds

CPP Super Estrelas 2ª Serie EUR 23,500 - 23,500 1,470 - 1,470 (409) 24,561 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Franklin Mutual Beacon Fund, Merril Lynch International Fund - Global Fundamental Value Fund, Dexia Sustainable Accent Social, MFS Funds - Global Equity Fund - Class A1 - and bond funds

CPP Super Estrelas II EUR 22,013 - 22,013 900 - 900 (487) 22,426 Variable 28-Nov-2003 28-Nov-2008 Basket of equity funds - Socgen International SICAV, Franklin Mutual Beacon Fund, Merril Lynch International Fund - Global Fundamental Value Fund, Dexia Sustainable Accent Social, MFS Funds - Global Equity Fund - Class A1 - and bond funds

CPP Super Estrelas III EUR 10,307 - 10,307 413 - 413 (245) 10,475 Variable 29-Dez-2003 29-Dez-2008 Basket of funds - Morgan Stanley SICAV Global Class I (equity fund), PAM (L) Bond Universalis Cap (bond fund) and SEB ImmoInvest (real estate fund)

CPP Euro Rentabilidade EUR 15,183 - 15,183 243 - 243 (57) 15,369 Variable 18-Jun-2004 18-Jun-2008 Euribor 1 YearCPP Rendimento Mundial EUR 14,255 - 14,255 90 - 90 (417) 13,928 Variable 29-Jul-2004 29-Jul-2009 Basket of 3 indexes - Dow Jones Euro Stoxx 50, Standard &

Poor´s 500, Nikkei 225


DEBT SECURITIES ISSUED AS OF DECEMBER 31, 2007

(Amounts expressed in thousands of Euros – tEuros

Amount of the issue

APPENDIX II2/4

1000




Bonds issued




Amount of the issue

CPP Soma Global EUR 11,357 - 11,357 74 - 74 80 11,511 Variable 2-Nov-2004 2-Nov-2009 Indexes: Dow Jones euro Stoxx 50 (Euro Zone);Standard & Poor's 500(North American Market); Nikkei 225 (Japanese Market)

BSP 2008 PTE 14,964 - 14,964 302 - 302 (39) 15,227 Variable 9-Jul-1998 9-Jul-2008 Yield benchmark - 10 year TB bondsBSP Euro Futuro Santander EUR 5,000 - 5,000 37 - 37 (187) 4,850 Variable 10-Fev-1999 10-Fev-2009 Euribor 12 monthsSantander Rendimento Certo EUR 19,963 - 19,963 - - - (1,494) 18,469 5.30% 31-Jan-2005 31-Jan-2013 Euribor 1 yearBSP- Taxa Fixa 2002 EUR 125,000 87,500 37,500 4,398 3,079 1,319 - 38,819 Variable 2-Mai-2002 2-Mai-2009 Fixed rateBSP Investimento Global 5 EUR 3,299 - 3,299 143 - 143 (53) 3,389 Variable 29-Ago-2003 3-Set-2008 Basket of shares AXA, Nestle, Pepsi Co, Sony Corporation an

Vodafone Group PlcBSP Super Estrelas EUR 24,500 - 24,500 1,532 - 1,532 (429) 25,603 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, Frankli

Mutual Beacon Fund, Merril Lynch International Fund - GlobaFundamental Value Fund, Dexia Sustainable Accent Social, MF

Funds - Global Equity Fund - Class A1 - and bond funds.

BSP Super Estrelas 2ª Serie EUR 12,000 - 12,000 751 - 750 (210) 12,540 Variable 30-Out-2003 30-Out-2008 Basket of equity funds - Socgen International SICAV, FrankliMutual Beacon Fund, Merril Lynch International Fund - Globa

Fundamental Value Fund, Dexia Sustainable Accent Social, MFFunds - Global Equity Fund - Class A1 - and bond funds.

BSP Super Estrelas II EUR 9,803 - 9,803 401 - 401 (221) 9,983 Variable 28-Nov-2003 28-Nov-2008 Basket of equity funds - Socgen International SICAV, FrankliMutual Beacon Fund, Merril Lynch International Fund - Globa


BSP Super Estrelas III EUR 4,497 - 4,497 180 - 180 (107) 4,570 Variable 29-Dez-2003 29-Dez-2008 Basket of equity funds - Socgen International SICAV, FrankliMutual Beacon Fund, Merril Lynch International Fund - Globa


BSP Euro Rentabilidade EUR 13,903 - 13,903 222 - 222 (52) 14,073 Variable 18-Jun-2004 18-Jun-2008 Euribor 1 yearBSP Rendimento Mundial EUR 13,375 - 13,375 84 - 84 (392) 13,067 Variable 29-Jul-2004 29-Jul-2009 Basket of 3 indexes - Dow Jones Euro Stoxx 50, Standard &

Poor´s 500, Nikkei 225BSP Soma Global EUR 5,908 - 5,908 39 - 39 42 5,989 Variable 2-Nov-2004 2-Nov-2009 Indexes: Dow Jones euro Stoxx 50 (Euro Zone);Standard & Poor

500(North American Market);Santander Totta EUR/USD (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate EUR/USDSantander Totta GBP/USD (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate GBP/USDSantander Totta AUD/USD (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate AUD/USDSantander Totta USD/CHF (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate USD/CHFSantander Totta USD/JPY (CAMBIO INVEST FEI ) EUR 13,927 - 13,927 298 - 298 (294) 13,931 Variable 24-Mar-2005 23-Set-2008 Currency rate USD/JPYSantander Estrategia Rendimento Mais EUR 13,332 - 13,332 177 - 177 (847) 12,662 Variable 2-Mai-2005 3-Mai-2010 Index: Deutsche Bank Forward Rate Bias EUR ("Índice FRB

EUR")Totta Estrategia Valor Mais EUR 50,565 - 50,565 672 - 672 (1,931) 49,306 Variable 2-Mai-2005 4-Mai-2009 Dow Jones stoxx 50 return EUR IndexRelative Value Arbitrage Strategy (HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge FundEquity Hedge Strategy(HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge FundEvent Driven Strategy(HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge FundMacro Strategy(HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge FundDistressed Securities Strategy (HEDGE INVEST FEI) EUR 18,276 - 18,276 235 - 235 (1,304) 17,207 Variable 7-Jun-2005 4-Jun-2010 HFRX Global Hedge FundSantander Rendimento Cresce 6% EUR 15,719 - 15,719 185 - 185 (1,528) 14,376 Variable 25-Ago-2005 25-Ago-2011 Dow Jones Stoxx Small 200 Index; Dow Jones Stoxx Small 50

IndexTotta Rendimento Cresce 6% EUR 57,053 - 57,053 670 - 670 (5,546) 52,177 Variable 25-Ago-2005 25-Ago-2011 Dow Jones Stoxx Small 200 Index; Dow Jones Stoxx Small 50

IndexOuro & Prata (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket

Chumbo & Estanho (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket

Cobre & Niquel (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket

Gasolina & Gas Natural (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basket

Oleo & Petroleo (COMMODITIES INVEST FEI) EUR 21,833 - 21,833 246 - 246 (1,690) 20,389 Variable 3-Out-2005 29-Set-2010 Commodities basketMercado Obrigaccionista ( SUPER MIX INVEST FEI) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 Index iBoxx € Corporates A 5-7 - total return, Bloomberg 'QX5T

<INDEX>'Mercado Monetário ( SUPER MIX INVEST FEI) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 Index European Central Bank Eonia Capitalization 7 day

Mercado Accionista ( SUPER MIX INVEST FEI ) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 Dow Jones Euro Stoxx 50

Mercado Imobiliario ( SUPER MIX INVEST FEI) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 FTSE EPRA/NAREIT Europe Index

Mercado Hedge Funds ( SUPER MIX INVEST FEI ) EUR 13,838 - 13,838 56 - 56 (1,252) 12,642 Variable 20-Dez-2005 17-Dez-2010 HFRX Global Hedge Fund (USD)Super Rendimento Mercados Emergentes EUR 91,771 - 91,771 888 - 888 (5,256) 87,403 Variable 23-Jan-2006 25-Jan-2010 Basket of FundsTotta MultInvestimento EUR 84,510 - 84,510 3,243 - 3,243 (6,582) 81,171 Variable 28-Fev-2006 28-Fev-2011 Basket of FundsTotta Asia Investimento EUR 59,243 - 59,243 1,726 - 1,726 (3,743) 57,226 Variable 3-Abr-2006 5-Abr-2010 Basket of shares

APPENDIX II3/4

1000




Bonds issued




Amount of the issue

Rendimento Premium 7,5% EUR 8,919 - 8,919 74 - 74 (1,043) 7,950 Variable 2-Mai-2006 2-Mai-2012 Indexes: ABN AMRO Alfa Index Europe and Dow Jones Euro Stoxx 50 - Price Return

Banca(MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of sharesMedia (MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of sharesSeguros (MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of sharesUtilities (MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of sharesTelecomunicações(MULTISECTOR INVEST FEI) EUR 15,794 - 15,794 130 - 130 (1,061) 14,863 Variable 9-Mai-2006 9-Mai-2011 Basket of sharesRendimento Premium 7,5% 2ª Serie EUR 9,019 - 9,019 71 - 71 (956) 8,134 Variable 1-Jun-2006 1-Jun-2012 Indexes: ABN AMRO Alfa Index Europe and Dow Jones Euro

Stoxx 50 - Price Return Competição Mundial EUR 77,618 - 77,618 594 - 594 (5,238) 72,974 Variable 19-Jun-2006 21-Jun-2010 Basket of funds: UBS (Lux) Equity Fund – European Opportunity

B; JPMorgan Funds– Middle East Equities A (Acc); DWS Invest TOP 50 Asia Fund; Dexia Equities L Australia; JPMorgan Funds – America Equity A (Acc); MLIIF Latin America Fund – Class A Non-distributing

Solar (ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Solarworld AG; Q-Cells AG; Energy Conversion Devices Inc; Conergy AG; Evergreen Solar In

Eolica(ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Vestas Wind Systems AS; Gamesa Corporation tecnologica SA; FPL Group Inc; Clipper Windpower Plc; Iberdrola SA

Bio Energia(ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Abengoa SA; AES Corp; Pacifc Ethanol Inc; Medis Technologies Ltd; Earth Biofuels In

Agua(ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Veolia Environnement SA; ITT Industries Inc; Severn Trent, Plc; Suez SA; Aqua America Inc

Agro(ENERGIA INVEST FEI) EUR 14,273 - 14,273 104 - 104 (1,351) 13,026 Variable 18-Jul-2006 18-Jul-2011 Basket of shares: Archer-Daniels Midland Co; Monsanto Co; Syngenta AG; K+S AG; Agrium Inc

Diversificaçao Premium 7,50% EUR 7,487 - 7,487 53 - 53 (594) 6,946 Variable 31-Jul-2006 2-Ago-2010 Indexes: Dow Jones Euro Stoxx 50 - Price Return (Eur); iBoxx € Sovereigns Eurozone Performance; Exchange Rate EUR/USD; HFRX Global Hedge Fund (USD

Aqua Rendimento EUR 59,669 - 59,669 406 - 406 (5,567) 54,508 Variable 21-Ago-2006 22-Ago-2011 Basket of shares: Veolia Environnement SA; ITT Industries Inc; Severn Trent, Plc; Suez SA; Aqua America Inc; Pentair Inc; Geberit AG Reg; Pennon Group Plc; Aguas de Barcelona - Class A; Kurita Water Industries Ltd

Rendimento Valor Global EUR 68,900 - 68,900 436 - 436 (7,081) 62,255 Variable 25-Set-2006 26-Set-2011 Basket of indexes: FTSEuroFirst 80 - price return (EUR); FTSE Xinhua China 25 - price return; S&P Latin America 40; Stndard & Poor's 500 Composite Price; Nikkei 225

Gas Natural Premium 10% EUR 9,189 - 9,189 58 - 58 (697) 8,550 Variable 25-Set-2006 27-Set-2010 Basket of shares: Eni Spa; Iberdrola SA; RWE AG; Gaz de France; E.ON AG; ENEL Spa

Banca Premium EUR 10,565 - 10,565 28 - 28 (244) 10,349 Variable 2-Nov-2006 2-Fev-2009 Basket of shares: ABN Amro Holding NV; Unicredito Italiano SpA; Deutsch Bank AG; ING Groep NV; BNP Paribas

Farmaceuticas I (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares: Akzo Nobel NV; Stada Arzneimittel A.G.; Roche Holding A.G.; Abbott Laboratories; Sonofi-Aventi

Farmaceuticas II (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares: Swiss Life Holding; Takeda Pharmaceutical Co. Ltd; Pfizer Inc.; Novartis AG; GlaxoSmithkline Plc

Tecnologias Médicas I (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares;: McKesson Corp.; T&D Holdings Inc; Boston Scientific Corp.; GenzymeCorp.; Allergan Inc

Tecnologias Médicas II (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares: Amgen Inc.; Wellpoint Inc.; Merck KGaA; Cardinal Health Inc.; Nobel Biocare Holdig A.G

Tecnologias Médicas III (SAUDE INVEST FEI) EUR 14,181 - 14,181 102 - 102 (1,022) 13,261 Variable 7-Nov-2006 8-Nov-2010 Basket of shares: UnitedHealth Group Inc; Aetna Inc; Johnson&Jonhson; CSL Limited; IMS Health Inc

Banca Premium 10% - 2ª Serie EUR 8,927 - 8,927 9 - 9 (216) 8,720 Variable 7-Dez-2006 9-Mar-2009 Basket of shares: ABN Amro Holding NV; Unicredito Italiano SpA; Deutsch Bank AG; ING Groep NV; BNP Paribas

OPV Europa e E.U.A (OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 Europe - price return; IPOX - 30 U.S. - price return; Dow Jones EuroStoxx 50 - price return - EUR ; Standard&Poors 500 Composite price

OPV Europa e Asia Pacifico(OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 Europe - price return; IPOX - 30 Asia Pacific - price return; Dow Jones EuroStoxx 50 - price return - EUR ; Nikkei 225

OPV Europa(OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 Europe - price return; Dow Jones EuroStoxx 5- price return - EUR

OPV E.U.A(OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 U.S. - price return; Standard&Poors 500 Composite price

OPV Asia Pacifico(OPV INVEST FEI) EUR 10,384 - 10,384 55 - 55 (1,019) 9,420 Variable 12-Dez-2006 12-Dez-2011 Indexes: IPOX - 30 Asia Pacific - price return; Nikkei 225Rendimento China 8% EUR 100,447 - 100,447 472 - 472 (7,828) 93,091 Variable 22-Jan-2007 24-Jan-2011 Index FTSE Xinhua China 25Rendimento China Premium 10% EUR 15,000 - 15,000 66 - 66 (1,285) 13,781 Variable 12-Fev-2007 14-Fev-2011 Index FTSE Xinhua China 25Infra-estruturas Aeronautica (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 sharesInfra-estruturas Transportes (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 sharesInfra-estruturas Telecomunicações (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 shares

APPENDIX II4/4

1000




Bonds issued




Amount of the issue

Infra-estruturas Energia (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 sharesInfra-estruturas Utilities (INFRA-ESTR. FEI) EUR 18,530 - 18,530 80 - 80 (1,256) 17,354 Variable 20-Fev-2007 21-Fev-2011 Basket of 5 sharesInvestimento Premium 8,25% EUR 15,020 - 15,020 - - - (1,369) 13,651 Variable 26-Mar-2007 28-Mar-2011 Basket of 4 sharesBest Index EUR 2,391 - 2,391 - - - (196) 2,195 Variable 30-Mar-2007 30-Mar-2010 Basket of indexesEuro Premium 7,00% EUR 12,940 - 12,940 - - - (1,177) 11,763 Variable 30-Abr-2007 2-Mai-2011 Basket of 10 shares and indexEuro Banca 7,00% EUR 85,000 - 85,000 279 - 279 (6,812) 78,467 Variable 30-Abr-2007 30-Mai-2011 Basket of 5 shares and indexEuropa 100% EUR 6,975 - 6,975 - - - (229) 6,746 Variable 2-Mai-2007 3-Nov-2008 Index Dow Jones Euro Stoxx 50Europa 100% - 2ª serie EUR 4,250 - 4,250 - - - (140) 4,110 Variable 2-Mai-2007 3-Nov-2008 Index Dow Jones Euro Stoxx 50Dividendos ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 2 indexesJapão ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 1 indexConverg. Europeia ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 2 indexesTaxas de Camio ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 Currency ratesTaxas de Juro ( FEI INVEST MULTIESTRATEGIA) EUR 14,924 - 14,924 41 - 41 (1,066) 13,899 Variable 14-Jun-2007 14-Jun-2011 Interest swap rate usdValor Premium EUR 11,665 - 11,665 29 - 29 (1,076) 10,618 Variable 25-Jun-2007 27-Jun-2011 Index FtseUROFIRST 80Euro Dolar Premium EUR 10,846 - 10,846 - - - (1,288) 9,558 Variable 6-Ago-2007 8-Ago-2011 Euribor 3M and Currency rate EUR/USDSuper Rendimento Campeão EUR 58,907 - 58,907 - - - (6,673) 52,234 Variable 23-Ago-2007 23-Nov-2012 Basket of 5 sharesPremium Bens de Luxo EUR 11,778 - 11,778 273 - 273 (1,058) 10,993 Variable 17-Set-2007 19-Dez-2011 Basket of sharesRendimento Valor Absoluto EUR 79,604 - 79,604 - - - (4,241) 75,363 Variable 27-Set-2007 28-Set-2009 Currency rate EUR/USD and 2 indexesExposição Ásia 2010 EUR 3,375 - 3,375 - - - (417) 2,958 Variable 29-Out-2007 29-Out-2010 Basket of 5 indexes

Infra estrutura Global 2010 EUR 2,900 - 2,900 - - - (322) 2,578 Variable 27-Dez-2007 27-Dez-2010 Index S&P Global infrastructure

Extendible Liquidity Securities EXEL's (Sucursal de Londres) USD 1,018,953 - 1,018,953 (2,053) - (2,053) - 1,016,900 Variable 22-Jun-2006 18-Jul-2011 USD "LIBOR"-

Extendible Floating Rate Notes USD 1,188,778 - 1,188,778 3,700 - 3,700 - 1,192,478 Variable 8/Fev/2007 7/Mar/2012 LIBOR 1 Month

4,975,595 175,000 4,800,595 49,694 6,158 43,535 (153,377) 4,690,753

Bonds - SecuritizedHipototta 1 - Classe A - Notes EUR 154,865 - 154,865 22 - 22 - 154,887 Variable 25-Jul-2003 25-Nov-2034 Euribor 3 months + 0,27% (until early redemption, August 2012)

Euribor 3 months + 0,54% (after early redemptionHipototta 2 - Classe A - Notes EUR 1,414,878 - 1,414,878 195 - 195 - 1,415,073 Variable 23-Dez-2003 30-Set-2036 Euribor 3 months + 0,22% (until early redemption, Decembe

2012); Euribor 3 months + 0,44% (after early redemptionHipototta 3 - Classe A - Notes EUR 1,827,158 - 1,827,158 249 - 249 - 1,827,407 Variable 13-Dez-2004 30-Dez-2047 Euribor 3 months + 0,13% (until early redemption, Decembe

2013); Euribor 3 months + 0,26% (after early redemptionHipototta 4 - Classe A - Notes EUR 1,970,010 - 1,970,010 268 - 268 - 1,970,278 Variable 9-Dez-2005 30-Set-2048 Euribor 3 months + 0,12% (until early redemption, Decembe

2014); Euribor 3 months + 0,24% (after early redemptionHipototta 5 - Classe A1 - Notes EUR 39,907 - 39,907 170 - 170 - 40,077 Variable 22-Mar-2007 28-Fev-2060 Euribor 3 months + 0,05% (until early redemption February 2014);

Euribor 3 months + 0,10% (after early redemptionHipototta 5 - Classe A2 - Notes EUR 1,693,000 - 1,693,000 7,333 - 7,333 - 1,700,333 Variable 22-Mar-2007 28-Fev-2060 Euribor 3 months + 0,13% (until early redemption February 2014);

Euribor 3 months + 0,26% (after early redemption7,099,818 - 7,099,818 8,237 - 8,237 - 7,108,055

12,075,413 175,000 11,900,413 57,931 6,158 51,772 (153,377) 11,798,808

OTHEREMTN's EUR 2,045,000 - 2,045,000 10,754 - 10,754 - 2,055,754

Deposit Certificates EUR 606 - 606 2 - 2 - 608

2,045,606 - 2,045,606 10,756 - 10,756 - 2,056,362

TOTAL DEBT SECURITIES ISSUED 14,121,019 175,000 13,946,019 68,687 6,158 62,528 (153,377) 13,855,170

APPENDIX III


EQUITY INSTRUMENTS AND SUBORDINATED LIABILITIES AT DECEMBER 31, 2007

Amount of the issue Accrual Total

Subscribed or Consolidated Subscribed or Consolidated Subscribed or Consolidated Consolidated

repurchased Balance repurchased Balance repurchased Balance Balance Early repaymentDescription Currency Total by the Group Sheet Total by the Group Sheet Total by the Group Sheet Sheet Interest Rate Maturity as from:

EMTN EUR 300,000 - 300,000 947 - 947 - - - 300,947 3.94% December 9, 2015 December 9, 2010Obrigações Perpétuas Subordinadas Totta 2000 EUR 284,315 270,447 13,868 503 479 24 - - - 13,892 6.46% Perpetual June 22, 2010Obrigações Perpétuas subordinadas BSP 2001 EUR 172,833 145,110 27,723 945 314 631 - - - 28,354 6.34% Perpetual February 23, 2011Obrigações Perpétuas Subordinadas CPP 2001 EUR 54,359 50,085 4,274 97 - 97 - - - 4,371 6.34% Perpetual February 23, 2011Obrigações Perpétuas Subordinadas "Top's" - Totta EUR 29,928 1,063 28,865 126 - 126 - - - 28,991 4.71% Perpetual December 4, 2007Obrigações Perpétuas Subordinadas "Top's" - CPP EUR 29,928 996 28,932 127 - 127 - - - 29,059 4.71% Perpetual December 4, 2007Obrigações de Caixa Subordinadas CPP Garantido 6 anos EUR 15,050 - 15,050 10 - 10 (353) - (353) 14,707 1.00% December 5, 2008 -

886,413 467,701 418,712 2,755 793 1,962 (353) - (353) 420,321

Value adjustments of hedging operations



Documents

Annual Report 2007 - CMVMweb3.cmvm.pt/sdi2004/emitentes/docs/PC18254.pdfThis is not the first time The Banker magazine rewards the bank for its performance. Since 2000, the magazine