Annual Report 2010 - Santander · 2014-12-15 · Secretary António Miguel Leonetti Terra da Mota Board of Directors Chairman António Mota de Sousa Horta Osório (1) Vice Presidents

Santander Totta, SGPS 1

Annual Report 2010


Primary Financial Performance Indicators 3

Governing Bodies 4

Relevant Facts and Awards Received in 2010 7

Rating 9

Corporate Values and Business Model 10

Corporate Social Responsibility 11

Business Environment 16

Business Areas 24

Business Support Sectors 34

Economic and Financial Information 38

Risk Management 44

Proposed Earnings Distribution 52

Additional Information and Attachments 53

Corporate Governance 64

Consolidated Financial Statements 74

Notes to the Consolidated Financial Statements 80

Annual Report 2010


2010 2009 Var.

Balance Sheet and Results (million euro) Net Assets 48,182 48,590 -0.8% Net Loans 32,814 32,418 +1.2% Customers' Resources 27,081 26,051 +4.0% Own Funds + Minority Interests + Subordinated Liabilities 3,044 3,490 -12.8%

Net Interest Income (excludind dividends) 721.8 800.4 -9.8% net Commissions and Other Income 381.5 369.6 +3.2% Operating Income 1,168.3 1,264.9 -7.6% Net Operating Income 634.3 713.5 -11.1% Income Before Taxes & Minority Interests 543.1 635.9 -14.6% Net Income 434.6 523.3 -16.9%

Ratios ROE 15.3% 20.8% -5.5 p.p. ROA 0.9% 1.1% -0.2 p.p. Efficiency Ratio (including depreciation) 45.7% 43.6% +2.1 p.p. Solvency Ratio* 11.1% 11.9% -0.8 p.p. Tier I* 11.2% 11.0% +0.2 p.p. Core Capital * 10.3% 9.2% +1.1 p.p. Non Performing Loans (+ 90 days) Ratio 1.3% 1.2% +0.2 p.p. NPL and Doubtful Loans Ratio 1.4% 1.2% +0.2 p.p. NPL Coverage (+ 90 days) 127.2% 135.9% -8.7 p.p. NPL and Doubtful Loans Coverage Ratio 125.8% 133.6% -7.8 p.p.

Other DataEmployees 5,916 5,958 -42Employees in Portugal 5,857 5,895 -38Branches 758 763 -5Total Branches and Corporate Centers in Portugal 716 721 -5

* With results net of payout

Primary Financial Performance Indicators


SANTANDER TOTTA, S.G.P.S., S.A.

Presiding Body of the General Assembly of Shareholders

Chairman José Manuel Galvão Teles Vice President António Maria Pinto Leite

Secretary António Miguel Leonetti Terra da Mota Board of Directors

Chairman António Mota de Sousa Horta Osório (1) Vice Presidents Matias Pedro Rodriguez Inciarte (2)

Nuno Manuel da Silva Amado Members António José Sacadura Vieira Monteiro

José Carlos Brito Sítima José Manuel Alves Elias da Costa Luís Filipe Ferreira Bento dos Santos Miguel de Campos Pereira de Bragança

Audit Committee

Chairman António Mendo Castel-Branco Borges (3) Members Mazars & Associados, S.R.O.C.

Ricardo Manuel Duarte Vidal Castro Substitute Pedro Manuel Alves Ferreira Guerra

Corporate Auditor

Alves da Cunha, A. Dias & Associados, SROC Executive Committee

Chairman Nuno Manuel da Silva Amado Members António José Sacadura Vieira Monteiro

José Carlos Brito Sítima José Manuel Alves Elias da Costa Luís Filipe Ferreira Bento dos Santos Miguel de Campos Pereira de Bragança

Corporate Secretary

Appointed António Miguel Leonetti Terra da Motta Substitute João Manuel da Mota Branquinho e Crespo (4)

(1) Resigned on 13/01/11 (2) Vice-President until 13 January 2011, when he was appointed Chairman of the Board (3) Resigned on 18/02/11 (4) Deceased on 06 August 2010

Governing Bodies


BANCO SANTANDER TOTTA, S.A.

Presiding Body of the General Assembly of Shareholders

Chairman António Manuel de Carvalho Ferreira Vitorino Vice President António de Macedo Vitorino

Secretary António Miguel Leonetti Terra da Mota Board of Directors

Chairman António Mota de Sousa Horta Osório (1) Vice Presidents Matias Pedro Rodriguez Inciarte (2)

Nuno Manuel da Silva Amado Members António José Sacadura Vieira Monteiro

Carlos Manuel Amaral de Pinho Eduardo José Stock da Cunha José Carlos Brito Sítima José Urgel Moura Leite Maia José Manuel Alves Elias da Costa Luís Filipe Ferreira Bento dos Santos Miguel de Campos Pereira de Bragança Pedro Aires Coruche Castro e Almeida

Audit Committee

Chairman António Mendo Castel-Branco Borges (3) Members Mazars & Associados, S.R.O.C.

Ricardo Manuel Duarte Vidal Castro Substitute Pedro Manuel Alves Ferreira Guerra

Corporate Auditor

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

Chairman Nuno Manuel da Silva Amado Members António José Sacadura Vieira Monteiro

José Carlos Brito Sítima José Manuel Alves Elias da Costa José Urgel Moura Leite Maia Luís Filipe Ferreira Bento dos Santos Miguel de Campos Pereira de Bragança Pedro Aires Coruche Castro e Almeida

Corporate Secretary

Appointed António Miguel Leonetti Terra da Motta

Substitute João Manuel da Mota Branquinho e Crespo (4)

(1) Resigned on 13/01/11 (2) Vice-President until 13 January 2011, when he was appointed Chairman of the Board (3) Resigned on 18/02/11 (4) Deceased on 06 August 2010


Functional Organisational Chart

(*) Directors pertaining to the Executive Committee. Luis Dominguez resigned on 01/01/11.

Chairman

Audit &

Human Resources

Nuno Amado

Legal Area, Prevention of

Money Laundering, Compliance

Inspection & General Secretariat

José Carlos Sítima

Institutional Communication, Corporate Image, Shareholders &

Quality

Luís Bento dos Santos

Risks, Recoveries, Universities,

Divestment and Banco Totta de

Angola

António Vieira Monteiro

Companies Network

Construction Promotion and Institutionals

José Manuel Elias da Costa

Technology and Operations

João Leite*

Individuals & Businesses,

Promoters and Brokers,

International Activity

José Urgel Leite

Maia

Large Corporations,

Investment Banking and

Insurance

Pedro Castro e Almeida

Financial, Marketing and

Products

Miguel

Bragança

Accounting and Management

Control

Luis

Dominguez*


Awards in 2010 • Best Bank in Portugal - Global Finance (Feb/10) • Best Bank in Portugal - Euromoney (Jul/10) • Bank of the Year in Portugal - The Banker (Dec/10) • Best Large Bank in Portugal; Most Solid Large Bank;

Most Profitable Large Bank - Exame (Oct/10)

• Certification as a Family Responsible Entity, Fundação

Mais Família • 2010 APCC award "Best Contact Centre in the

Financial Sector" • Most Family Responsible Company - Deloitte and

AESE (2010) • Best Foreign Exchange Banks - Global Finance

Other Relevant Facts in 2010 January • Santander Totta and Coimbra University sign

collaboration agreement • Santander Group donates 1 million Euros to Haiti • Signing of protocol with the 6 de Maio

Neighbourhood Social Centre February • Santander Totta elected "Best Bank in Portugal" by

Global Finance magazine • Research regarding "Magnetism and biomimicry

during separation processes" is awarded the Santander Totta / Universidade Nova de Lisboa Award

• Opening of campaigns for the Latin America Award • Presentation of the 2009 Annual Results

March • Santander Totta supports Madeira reconstruction • Santander Totta strengthened position within the

Premium segment April • 4th edition of the Economic Journalism Award with

open registration • Presentation of the 2010 1st Quarter Results

May • Santander Totta and UBI close an agreement for the

establishment of a strategic partnership for the next 5 years

• Approximately one thousand university deans attend the II International Meeting of University Deans

Relevant Facts in 2010


June • 1,009 Iberian-American universities and 44 university

deans from other countries define the Guadalajara Agenda

• Santander Totta dedicates the week to employees • Primus Inter Pares Award Ceremony • Launching of the 1st edition of the Fotouniversia

Contest • Santander Totta wins the award for the "Best Bank

Contact Centre" • Launching of the Videocall service

July • Best Bank in Portugal Award, issued by Euromoney

magazine • University launches 2nd edition of U>Rock - a

university band contest • Publication of the 2010 1st Semester Results

August • Stress Tests Santander Totta would present the best

levels of solvency within an adverse economic scenario according to the resistance tests

• 7th edition of the Santander Totta Golf Tournament September • "Social Meeting" wins FotoUniversia in Portugal • Santander Totta inaugurates two university-run public

assistance service counters within Coimbra University • RedEmprendia provides 200,000 Euros in support of

the Laser Leap research project conducted by Coimbra University

• 2nd Everything is Connected Conference, conducted as a part of the Green Festival, at which the results of the photography contest are presented to employees

October • Santander Totta launches Integrated Solutions,

focused on savings for every stage of clients» lives • 2nd edition of the Virtual Employment Market and

Universia Entrepreneurship • Santander Totta chosen as the "Best Bank of the

Year" by Exame magazine • Presentation of the 2010 3rd Quarter Results • 3rd Women»s Management Conference

November • Santander Totta Banco issues Scientific Merit Awards

at the UBI • University Open Day Santander Totta receives 20

Catholic University students

• Introduction of a new service for corporate clients: the Payment and Collection Manager

• Availability of the Virtual Employment Market established for the entire year

December • Santander Totta is the 1st company to be certified as

a Family Responsible Institution • Banco Santander Totta elected as the Bank of the

Year in Portugal, by The Banker magazine • CAIS and Santander Totta get to work at Bread

from Everyone for Everyone [Pão de Todos] • Presentation of the book "The University, An

Illustrated History"


Rating

Santander Totta is rated by Fitch Ratings, Moody»s and Standard and Poor»s. At the end of 2010, the best possible rating of Portuguese banks was maintained (AA, A1 and A for long-term debt, respectively). On 29 March, the Fitch Ratings and S&P ratings agencies confirmed ratings issued to Banco Santander Totta for long-term debt as AA and AA-, respectively. On 27 April, S&P lowered the Portuguese Republic long-term and short-term ratings to A-/A-2, respectively. As a direct consequence of this action, S&P also revised ratings issued to Portuguese banks, and in the process, lowered the Banco Santander Totta long-term rating to A and the short-term rating to A-1. In July 2010, Moody's lowered the Portuguese Republic´s rating for long-term debt two levels, from Aa2 to A1. As a result of this decision, the long-term debt rating issued to Banco Santander Totta was also revised, and dropped one level from Aa3 to A1. The outlook was revised from negative to stable, and the short-term debt rating was confirmed at P1. Also in July, Fitch reaffirmed the Banco Santander Totta long-term rating at AA and the short-term rating at F1 with a stable outlook. In early December, S&P placed the ratings issued to Banco Santander Totta and four other Portuguese banks on a negative watch as a result of an identical procedure commenced with the Portuguese Republic. Subsequently, Moody»s also began a review of the ratings issued to Portuguese banks for possible downgrade.

Agency Ratings Fitch Ratings

short-term F1+ long-term AA

outlook Stable individual B

Moody»s short-term P-1 long-term A1

outlook Stable individual C

Standard & Poor's short-term A-1 long-term A

outlook Negative


Santander Totta, in line with the Santander Group, is governed by the following corporate values:

Dynamism

The initiative and agility to discover and exploit business opportunities before our competitors, and the flexibility to adapt to market changes.

Strength

Our strong balance sheet and prudent risk management are the best guarantees of our capacity to grow and generate shareholder value over the long-term.

Leadership

A spirit of leadership with the best teams and a continuous customer and results-orientated outlook.

Innovation

Constant search for products and services that meet newly developed customer needs and result in profitability level increases that are superior to those achieved by our competitors.

Business Orientated and Professional Ethics

Continuous improvement strategy for new client attraction, client satisfaction and fidelity through the broad selection of products and services, and the best possible service quality.

The client is the centre of Santander Totta»s business model

Commercial banking is the core activity performed by Santander Totta. This activity is pursued through a continual strategy which maintains customer proximity, offers a selection of innovative products and services, implements continual improvement of service quality, attracts and retains customers, attracts and retains talented employees, implements prudent risk management practices and continually seeks to increase efficiency through operational excellency based on cutting edge technology.

Business Orientated Commercial

Discipline in Relation to Equity

Efficiency

Corporate Values and Business Model

Prudence in Risks


Santander Totta, in keeping with the Group policy, has established the promotion of knowledge and education as the primary focus of its social responsibility policy. The company particularly targets universities, as the organisation considers that these institutions are the catalysts for societal development. The Bank also maintains active social solidarity and environmental awareness policies, in addition to promoting culture, health and sports. The organisation is aware that the diversity of such interventions is a determining factor which contributes to the deepened corporate and social awareness of the economic players. In 2010, total investment in activities which were directly related to corporate social responsibility in Portugal amounted to close to 5.8 million Euros, representing an increase of 35% in comparison to the prior year. Universities and Universia

Universia During 2010, Universia conducted and strengthened its activities based on the strategies defined for the period spanning 2008 - 2010, which included particular emphasis on employment, training, a science and knowledge observatory, and social networks. At the end of this period, Universia was able to implement noteworthy projects in the diverse segments which comprise its activities while continuing to generate value for the university community. In relation to employment, Universia Portugal once again innovated with its biannual activity: Virtual Employment Market. This year, as a result of the growing difficulty to find skilled employment, the Virtual Employment Market sought a new area, that of entrepreneurship. With renewed commitment to the alternative of self-employment, the seven editions of the virtual market, which are focused on the market of first jobs and junior professionals, received a total of 3.5 million visits to the website, 250,000 individual users, and 5,500 job opportunities. Throughout the two weeks of the last edition, the Virtual Market was able to avail 1,200 job offers, an amount which represented an increase of 70% when compared to the prior edition. The 4000 CV»s submitted as part of this edition also reflect a comparative increase of approximately 60%. Upon the conclusion of this edition of the event, the Virtual Employment Market commenced permanent operations, thus increasing the

flexibility of recruitment procedures for companies and universities through the provision of a previously unavailable tool. Education continues to be the core focus for Universia. In 2010, the scope of action was not limited to innovation alone, but also included improvements to existing services. An example of this is the updated Home Page, which improved navigation and organisation of the site. Other examples include Universia Jobs, the Classifieds and Agenda Universia. These three areas of the site were restyled to reflect a younger, more dynamic design, as well as to provide new features for social networking. The realisation of the II International Meeting of Universia Deans in 2010 strongly reflected the focus on the science and knowledge observatory. More than a thousand universities gathered in the Mexican city of Guadalajara in May 2010 to discuss the future challenges facing higher education and the responses which such educational institutions must provide society. This meeting in Guadalajara was the climax of the several months-long debate heretofore conducted over online channels such as blogs, social networks and audio-visual platforms. The more than 500 ideas and proposals that were collected over these online channels served as the basis for the development of the themes and debates during the event. More than one thousand members, university deans and representatives from higher education institutions from all over the world attended the event. Lastly within this realm of activities, the II edition of U>Rock Universia was organised and the Photo Universia competition was launched using social networks, as events that sought to attract and identify new talents while stimulating participative and creative activities for young university students in the areas of music and photography. In Portugal, a total of 24 bands participated in U> Rock and a total of 10,135 votes were cast. Photo Universia, which was held between 1 June and 1 September, received 1,144 photographic entries and more than 52,000 votes were cast.

Primus Inter Pares Award In 2003, Banco Santander Totta and the newspaper, Expresso, launched the Primus Inter Pares award. This year the Manual Violante Foundation, through McKinsey, also supported the award, which has come to be a renowned award of excellence. Every year an increasing number of applications are received from students studying in one of

Corporate Social Responsibility


the three eligible courses: Economics, Business Administration and Engineering. Gonçalo Videira, a finalist in the course of Business Administration/Strategy and Entrepreneurship, who is a student at the Portuguese Catholic University [Universidade Católica Portuguesa], is the winner of the seventh edition of the Primus Inter Pares Award. Videira has thus won the opportunity to pursue an MBA at a prestigious university.

Seminar on European Union-Latin American Relations The Bank supported the Meeting in Lisbon seminar which was organised by the Euroamerican Foundation [Fundação Euroamérica], the Portuguese-Spanish Foundation [Fundação Luso-Espanhola] and the Real Instituto Elcano. This meeting, focused on European Union - Latin American relations, was held at the Gulbenkian Foundation on January 21 and 22 and was attended by Mário Soares and Ernâni Lopes, among others. Highlights of the debates included public policies regarding R+D+i (Research Development and Innovation), investments in infrastructure and energy efficiency, and technology transfer to Latin America, as a contribution to sustainable development.

Latin American House Undergraduate Programme The Bank signed a protocol with Latin American House creating the "Latin America House/Santander Totta Undergraduate Programme", an initiative to promote the presence of Latin American students in educational programmes in Portugal and to contribute to the development of a culture of rigour and excellence. This undergraduate programme is comprised of a scientific award with two categories, "Social Sciences and Humanities" and "Natural Sciences and Technology," as well as two university scholarships. The winner of each category is awarded a prize of 5,000€. The university scholarships include boarding for one year at the Lisbon City Foundation University Residency. Social Solidarity

Madeira Storm Victim Support

The Bank manifested its solidarity with the population affected by the catastrophe which devastated Madeira in

February through the implementation of a structured programme of support measures. First, the Bank established a solidarity fund account with an initial donation of 100,000€ for the collection of client and employee donations. In addition to the initial donation, the Bank promised to complete the amount of the donations received in the BST Madeira Solidarity Fund Account to reach 250,000€. The donations collected were delivered to the City Halls and the Volunteer Fire Fighters in the most affected regions. Additionally, a set of measures was implemented which directly affected the recovery and normalisation of the local activities and economy.

Bread from Everyone

Getting to work. Why all of us are needed was the theme of the 7th edition of the Bread from Everyone , in which 350 volunteers from the Bank participated, showing their solidarity. The theme of this edition appealed to team spirit and the spirit of sharing for a more just and balanced Portugal. The event Bread from Everyone for Everyone, organised by CAIS (Support Association for the Homeless and Underprivileged Population) and sponsored by Banco Santander Totta since the first edition, innovated during this seventh edition and for the first time visited both Porto and Lisbon. The two cities were the stage for this initiative in which 350 volunteers from the Bank and professionals from the bakery sector ensured the production of thousands of rolls which were offered along with hot chocolate to all of the people who visited the Bread from Everyone tent. Statements such as It was an unforgettable experience! , Next year we will be here again to help! and These types of initiatives honour the company where we work, were the most commonly heard among the Bank employees who with pride and contentment participated in this solidarity initiative.

Collection of Food for the Food Bank The proposal presented was quite simple, quick and of great social value. The DCRH proposed to employees that they purchase coupons in the amount of 1€ or baskets in


the amount of 5€ to purchase basic food products for needy families supported by the Food Bank. The Bank contributed 50,000€ in basic food staples. The results exceeded expectations and the stimulus of being able to help and provide needy families with a better Christmas resulted in the delivery of 582 packages of milk, 350 bottles of olive oil, 179 bottles of cooking oil, 250 cans of sausages, and 1818 baskets of essential goods.

Christmas in a shoe box For the 2nd consecutive year, the Christmas in a Shoe Box project was undertaken. Through this programme, the Bank»s employees» children deliver presents to more than 2,000 children and youths that live in the 64 housing institutions located throughout the country, selected by each one of the Commercial Management Departments. The idea is simple: employees who participated in the programme gave a shoe box to their children and suggested that they fill it with presents that they would like to give a girl or a boy of their own age. On the top of the box, the sex and age of the child to whom the box should be given is written. The boxes were delivered in the different collection locations which are distributed throughout the country, and then they are delivered at the housing institutions. This initiative was supported by the Commercial Management Departments, who locally identified which institutions should be supported, the employees, who locally ensured the provision of logistics, and by the enthusiasm of our children. These were the key factors for the success of the project. The sense of sharing and the spirit of solidarity which was experienced as part of this initiative brought a smile and the magic of Christmas to these children and youths.

CEDEMA

The Bank supported CEDEMA (Association of Parents and Friends of Mentally Disabled Adults) by means of a donation for the construction of the Telhadinho Home and through the sponsorship of the annual golf tournament.

CEBI Foundation

Santander Totta is a founding member of the CEBI Foundation which began in 1995. The Bank supports this private social solidarity institution, participates in the Founders» Assembly, and maintains a representative in the Board of Directors. The primary activity of this institution is the promotion of education. The activity reaches 1,600

students from pre-school to 9th grade, of which approximately 400 benefit from scholarships and social promotion in the amount of 540,000€ per year. Additionally, the foundation provides 250 senior citizens with support in their homes, living support and day centres. Further within the scope of social action, the group took over the care of 49 children, victims of abuse or abandonment, at the Social Emergency Centre and took in single parent families in the Assegura integration community. The foundation also distributed 40,630 Kg of food to 146 families, a total of 590 people, in connection with the Food Bank Against Hunger and local companies. Activities in the area of healthcare are conducted through the Physical and Rehabilitation Clinic at which 5,000 medical examinations are performed per year.

Visão in Braille Visão in Braille Santander Totta has been a supporter since the first edition of VISøO magazine which became available to a broader base of potential readers. This new base included a group which we consider to be very special, the blind. This monthly special edition is non-profit and is distributed free of charge. Additionally, the support policies of other institutions were continued, of which cooperation with Pró Dignatate and the Portuguese Red Cross are of note, among others.

Sportzone / Santander Totta Mini Marathon The streets of the cities of Porto and Vila Nova de Gaia hosted the 4th Half-Marathon and Sportzone/Santander Totta Mini-Marathon, in which more than 300 employees and 50 clients participated. These events were supported by the Bank within the scope of its social responsibility activities and its commitment to promote sports. Approximately 12,000 participants attended the events; of which close to 300 were Bank employees and 50 were Bank clients. Since its first edition, the Sportzone Half-Marathon has been conducted with a social solidarity component which has promoted and supported diverse projects and generated awareness in relation to these. In the most recent edition, funds were raised for the Salvador Foundation.

Institute of Social Entrepreneurship (IES)

In 2009, the Bank became a founding member of IES, which was created through a partnership of social entrepreneurs with INSEAD and with the Cascais City Hall. The objective is to support social entrepreneurs augmenting the impact of initiatives which address growing social and environmental challenges. The goal is to become a research and learning centre for social entrepreneurship. In pursuit of this objective, IES


performs in 4 areas: research, promotion of IES, sharing of knowledge and learning.

Acredita Portugal In 2010, the Bank supported the Believe Portugal Association through the sponsorship of the Make Your Dream Come True contest. The main objective of this contest is to increase the faith among the Portuguese people that they are capable of realising their dreams and projects. Santander Is You Week For the third consecutive year, Santander Totta celebrated

Santander Is You week. The week is dedicated to employees and the advantages of working for Santander are highlighted and promoted. During the week, corporate values are reinforced, and the feeling of belonging is developed. Team unity is also stimulated during this week.

Santander Is Good for You was the theme chosen for the dates, June 7, 8, and 9, during which the following initiatives were conducted: • Employee Day - Santander Is Good for You: Eat

Better, Move More, Breathe Clean Air" • Direct Contact - A day dedicated to teams • Mega Exchange - Change jobs...for a day • Santander for Solidarity - Recycle, Recover, Reuse Old

Mobile Phones Environment

Green Festival and Everything is Connected Santander Totta sponsored one more edition of Green Fest, and as part of this event, the 2nd conference,

Everything is Connected , was held. At the event, many known figures from the science and humanities realm attended. The purpose of the conference is to debate the importance of personal, institutional and disciplinary cooperation and complementary cooperation, in light of the backdrop of a globalised world where interdependence is the rule. Highlighting the contribution made by each one of the knowledge areas and the respective correlation, each participant made an allusion to the need to join together for sustainable development.

Madeira Reforestation Project

Support of 10,000€ to the Madeira Reforestation Project undertaken by the Funchal City Hall. Culture

The University. An Illustrated History in Portugal

In the beginning of December, in Lisbon, Santander Totta presented the book about the university, edited by the Santander Group. Deans from the primary universities in the country were present at the event. The presentation of this work, which took place at the National Museum of Ancient Art, was coordinated and edited by Fernando Tejerina, former dean of the University of Valladolid and former Secretary of State of Universities. Tejerina summarised the various chapters of the book as part of his participation, and highlighted the fact that Coimbra was one of the first universities to appear in Europe in the format of current models for such institutions in 1290. Nuno Amado, the President of Santander Totta, referred to the book as something natural for Santander due to the fact that the Group places an absolute priority on the support of higher education and knowledge as part of its commitment to social responsibility, as well due to the extent of the Bank´s international presence, which has partnerships established with over 800 universities in 15 countries. The book represents the first work which brings together a presentation of the primary people and events which contributed to the development of the history of

knowledge. The book is endowed with magnificent illustrations. Exploring the legacy left by great civilisations and cultures, such as those of China, India, Mesopotamia, Egypt, Greece and Rome, the narrative illustrates the way in which civilisations and universities have walked hand-in-hand throughout history.

Exhibition "Primitivos Portugueses"

Santander Totta supports the Early Portuguese (1450-1550) Exposition. The Century of Nuno Gonçalves in the National Museum of Ancient Art through the sponsorship of the event catalogue. The exposition is a fundamental work for the study of Portuguese painting from the 15th and 16th centuries. The exposition is comprised of more than 160 paintings, and has as its primary objective, in addition to bringing together excellent works, the presentation of a critical panorama which is up-to-date and presents the so-called

primitive Portuguese on a large scale. Through a


technical and material study of the art works, the exposition decisively contributes to the increased dissemination of knowledge and deepened awareness in regards to the period.

Sintra Festival Santander Totta once again began to sponsor the Sintra Festival upon its 45th anniversary. The event is of high artistic quality and national and international prestige. It is a reference within the Portuguese cultural panorama. The Bank sponsored a concert performed by the French pianist, Jean-Marc Luisada, who presented Chopin in one of the most beautiful halls of the National Palace of Queluz: the Throne Hall. Clients from the Institutional, Business and Private and Business Networks were invited to attend the concert.

Gastronomic Food Festival of the Arts Festival The 2nd edition of the Arts Festival was held in Coimbra in July and was organised by the Inês de Castro Foundation. The events were held at the Quinta das Lagrimas. The element water was the central theme of the event which included symphonies, opera, piano concerts, jazz, fado, theatre, conferences, gastronomy and expositions of comics. Santander Totta sponsored the Food Festival and invited clients from the Coimbra region as part of the efforts for the attraction and maintenance of Premium clients. The event was highly successful.

Lisbon University Centennial Celebration The Bank sponsored the jazz concert at Aula Magna which was part of the Lisbon University Centennial commemoration programme. The Bank invited employees and clients to the event. The Army»s Light Big Band Orchestra, under the direction of the Italian Maestro Marco Renzi, and with a special performance by one of the most well-known Italian jazz clarinet soloists, Bepi D»Amato, played American jazz classics and Napolitano songs. The success of the event is unquestionable as it was packed to maximum capacity and the public demanded that the band play two encores.

Music for the Republic»s Centennial The Noble Hall of the Concelho Palace [Salão Nobre dos Paços do Concelho] in Lisbon City Hall was the setting for a Vera Prokic concert, performed on 1 October. The

event, which was supported by Santander Totta, was held for the centennial celebration of the Portuguese Republic. Erudite pieces were heard at the event, including pieces such as Portugal, by Franz Liszt, the revolutionary pianist who lived between 1811 and 1886, as well as other such composers including Alfred Keil and José Vianna da Mota.

Spanish Film Festival, with Santander Totta Support Santander Totta sponsored the 3rd edition of the Spanish Film Festival. The festival provided the opportunity to see some of the most well-known Spanish films free of charge at the São Jorge Theatre in Lisbon. With titles such as Bienvenido Mister Marshall, the culmination of Spanish realism, Tierra de Júlio Medem and Mar Adentro by Alejandro Amenábar, the Spanish Film Festival showed, through movies, the reality in Spain during the 40´s and the 50´s in the 20th century, as well as the current situation, which thus demonstrates significant works in relation to diverse, specific moments in history.


International Economy The world economy recovered in 2010 following the sharp recession in 2009. The IMF estimated global economic growth was at 4.8%, thus demonstrating a return to the rhythm observed during the period immediately prior to the commencement of the international crisis. The growth rate was not steady throughout the year, and significantly pronounced acceleration was recorded in the first quarter. During this period, most economies were already recording positive rate variations (the low point of the recession, in terms of quarters, was observed in the 1st QTR2009). Beyond these statistical effects, the significant volume of public aid implemented in the second semester of 2009 contributed to the recovery of economic activity. The dissipation of the impact stemming from these two factors during the second trimester resulted in a deceleration of growth, which became more accentuated in the beginning of the summer. This situation resulted in rising concerns that the world economy, especially in relation to more developed countries such as the USA, could be on the road to a new recessive phase, which would require the adoption of new stimulus measures.

2008 2009 2010

World 2.8 3.0 4.8

Advanced Economies 0.2 -3.2 2.7 USA 0.0 -2.6 2.6 Euro Area 0.5 2.6 -3.9 United Kingdom -0.1 -4.9 1.7 Japan -1.2 -5.2 2.8Developing Countries 6.0 2.5 7.1 Africa 5.5 2.6 5.0 Asia 7.7 6.9 9.4 China 9.6 9.1 10.5 Central and Eastern Europe 3.0 -3.6 3.7 Middle East 5.0 2.0 4.1 Latin America 4.3 -1.7 5.7 Brazil 5.1 -0.2 7.5

Source: IMF October 2010)

World Economic Growth

At the end of the summer, a renewed acceleration of growth, in a relatively generalised manner, occurred. This acceleration was primarily perceived in emerging markets and in developed economies with the largest commercial relationships with these markets, such as Germany. The

year ended, in this manner, with signs of renewed economic activities, which results in a favourable outlook for 2011. The growth rate among the primary economies was not on the same level as the emerging markets, which maintained particularly stable growth rates, specifically China and also Brazil. The strong economic growth rates seen in China during the last portion of the year forced authorities to adopt measures to cool the economy. One of these measures was to increase the rate of cash reserves a total of 250pb to 18.5%. The Central Bank of China also increased interest rates to 5.81% in order to moderate the demand for credit which grew 19.9%. In the USA, the growth profile was characterised by deceleration in comparison to the rates at the end of 2009. This was more pronounced during the 2QTR, which was also the result of various economic stimulus measures (such as tax benefits related to housing acquisition). This situation gave rise to concerns that the economy could be entering a new recessive phase, and as a result, the Federal Reserve adopted a new stimulus package, including the decision to increase the acquisition of public debt. After having decided in the summer to reapply the amounts of private debt which are maturing into public debt, in November a new programme was announced in the amount of 600 billion dollars to acquire more public debt by June 2011. Additionally, the Federal Reserve maintained an accommodative stance of monetary policy, by keeping reference interest rates at historical lows, and committed to maintaining such levels for a prolonged period of time. The economy in the United Kingdom came out of the recession in the second quarter, due to accelerated economic activity stemming from private consumption due to stable unemployment, investments (benefitting in part from the real estate market), and exports which are benefitting from the devaluation of the pound. The Bank of England did not alter its monetary policy in terms of reference interest rates, which remained at the low of 0.5%, and its quantitative policy, in which the amounts destined to the programme (200 billion sterling pounds), also remained unchanged.

Business Environment


The new British government announced a set of measures aiming to reduce the budget deficit in 2011, which in 2010, reached historic highs of 10.5% of GDP. In the Euro Zone, economic activity also grew, albeit unevenly amongst the member countries. The set of 16 countries experienced growth of 1.9% overall in the third quarter. Of these, Germany and France were the two most dynamic economies, with growth rates of 3.3% and 1.3%, respectively. Greece and Ireland registered negative rates. Spain is no longer in recession and the GDP has grown 0.2% in year-on-year terms.

GDP Inflation

Euro Area 1.7 1.6 Germany 3.3 1.3 France 1.6 1.6 Spain -0.3 1.5 Italy 1.0 1.6

Source: IMF October 2010)

As a result, the rate of deterioration of labour market conditions slowed and the unemployment rate rose to 10.1% in November, as compared to 9.9 % at the end of 2009. Regardless, consumer confidence is low, and is now affected by more restrictive budgetary policies including the restraints on public spending and the increased tax burden.

The budgetary policy shift was determined by the situation in Greece, where the new 2009 were substantially more negative, with a deficit close to 15.4% of GDP, which was worse than expected and resulted in the inability to attain financing in the market. As a result, the country required a European Support Plan with the IMF to ensure the fulfilment of Greece»s financing requirements at least through 2012. In response, Greece commenced a significant plan to reduce the budgetary deficit, seeking the reduction of the deficit to a value of close to 3% of GDP by 2014.

This plan was not sufficient to calm the financial markets, which begin to fear that other countries in Southern Europe, particularly Spain and Portugal, would similarly face difficulties in accessing debt markets and thus become unable to attain required financing. At the end of April and towards the beginning of May, this feeling resulted in a substantially pronounced increase of credit spreads of the Southern European countries. This was the case for the entire spectrum of maturities.

In response, the European Union, with the support of the IMF, developed a new plan, which encompassed the establishment of a global fund budgeted at 750 billion Euros, which would cover the financing needs of Ireland, Spain and Portugal up through 2012. As a result, the countries announced new budgetary deficit reduction

measures, and Portugal and Spain announced they were anticipating by one year the goals initially set.

At the end of the summer, a second round of sovereign crisis occurred and once again resulted in the pronounced increase of credit spreads for levels close to those verified in May. Portugal and Spain announced one more set of measures which were included in the State Budget plans for 2011 as a means for ensuring the previously announced measures. Ireland, however, remained in the line of fire, after yet another financial sector rescue plan.

The costs incurred with the nationalisation of the Allied Irish Banks in 2010, which joined the Bank of Ireland, resulted in an increase of the deficit in 2010 to 32% of the GDP. This deficit would have been 13% without this additional cost.

Source: EC

Public Deficit - 2010 (% GDP)

0.0

2.0

4.0

6.0

8.0

10.0

12.0Be

lgiu

m

Germ

any

Irelan

d

Gree

ce

Spain

Fran

ce

Italy

Luxe

mbou

rg

Neth

erlan

ds

Aust

ria

Portu

gal

Finl

and

Euro

are

a UK USA

Japa

n

32.3

Additionally, the European leaders discussed the creation of a new permanent support mechanism which would substitute the European Financial Stability Fund (EFSF) after 2013. Germany has set the condition that private investors should take burden in the event that the sovereign debt of a Member State requires restructuring.

Of the countries within this framework, Ireland is at the centre of attention of the markets, with Spain and Portugal just behind. At the end of November, the sharp deterioration of market conditions lead Ireland to request the support of the EFSF for an aid package budgeted at 85 billion Euros, which would ensure its financing requirements up through 2013. Part of this aid would be supplied by the IMF (22.5 billion Euros) and the other part, which is destined to recapitalise the banks, is to be provided by the Irish Social Security Capitalisation Fund, in the amount of 17.5 billion Euros. In response, Ireland announced an additional set of measures which are destined to reduce the budgetary deficit. These include new spending cuts, including salaries and social expenses, as well as increased taxes, except for corporate income tax.


Simultaneously, the European leaders agreed upon the basis for the new financial support mechanism. The main difference in comparison to the previous discussion relates to debt restructuring. The request for aid requires a sustainability analysis of the public debt, and only in the event it is determined that the current trajectory is unsustainable, the restructuring should be possible.

The ECB, as part of the financial market support measures, began a public debt acquisition programme in some European countries to seek to re-establish normal operations of the debt markets. By the end of the year, ECB had acquired close to 75 billion Euros of sovereign debt. This acquisition occurred during two large time periods. The first was between May and July, just following the aid request issued by Greece, when close to 60 billion of debt was acquired. The second occurred between the end of November and the first week in December, after the request for aid was issued by Ireland for a total of close to 10 billion Euros. As the result of the second intervention, interest rates in Spain and Portugal dropped, and the 10-year yield in Portugal dropped from 7.5% to 5.8%. Following this, levels close to 6.5% were regained.

Source: ECB

Public Debt Purchases by the ECB (€ bn)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Mai-10 Jun-10 Jul-10 Jul-10 Ago-10 Set-10 Out-10 Nov-10 Dez-100.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Weekly purchases (LHS)

Total purchases (RHS)

Also in response to the worsening conditions in the financial markets, the ECB postponed three times the end of unlimited liquidity provision, each one for periods of three months each. The first postponement occurred in May, lasting through September; then, an extension was issued through the end of the year and finally up through the end of the first quarter of 2011. During the same period, unlimited provision is available for regular weekly operations.

Source: ECB

ECB Liquidity Provision (€ bn)

-600

-400

-200

0

200

400

600

800

1 000

Jan-08 Mai-08 Out-08 Fev-09 Jul-09 Dez-09 Abr-10 Set-10 Jan-11Main refinancing operation Longer-term refinancing operationsDeposit facil ity Total

Even so, these measures were not sufficient to re-establish market confidence, and since May there has been a significant reduction of credit lines granted by other banks to financial institutions based in these countries. This situation manifested itself in a drastic reduction of access to short-term markets for Portuguese banks, which in this manner were obligated to refinance with the ECB. Between March and June, the amount of financing obtained from the ECB by the national banking systems more than doubled, amounting to close to 41 billion Euros. In August, this financing reached 49 billion, after which the amount decreased to close to 39 billion in November.

Source: ECB

Funding at the ECB (% assets)

6.8

1.9

8.5

18.4

0.0

5.0

10.0

15.0

20.0

07 08 09 10

Portugal SpainIreland GreeceItaly GermanyFrance

In relation to the medium and long-term markets, deteriorating conditions and accessibility by the domestic financial institutions was observed and there was a very pronounced increase of credit spreads in the secondary market, in addition to the complete impossibility of debt issuance in the primary market.

The trend in other financial markets was largely influenced by the developments related to the European sovereign crises. In the exchange market, two sizable fluctuations are of note. The first of these was the depreciation of the Euro


in comparison to the dollar, although the trend was not uniform. The lowest values for the Euro occurred in May/June, after the first period of crisis, and then again at the end of the year. In May/June, the dollar was quoted at less than 1.19 dollars per Euro, the strongest level of the dollar since February 2006, and the year closed with the Euro valued at approximately 1.33 dollars.

In November, the dollar presented its minimum value for the year, and each Euro was worth approximately 1.428 dollars. This was due to signs of lesser economic growth and greater acquisition of public debt by the US Federal Reserve.

Source: Bloomberg

Main Exchange Rates (Dec-2009 = 100)

75

80

85

90

95

100

105

Dez-09 Mar-10 Mai-10 Ago-10 Out-10 Dez-10

EUR/USDEUR/GBPEUR/JPYEffective Exchange Rate

The second fluctuation is related to the exchange rate war which was a highlighted theme during the G20 meeting in November. China»s maintenance of its system of an almost fixed exchange rate, similar to other emerging economies, despite the measures announced during the first semester, fed speculation of intervention which has proven to be incorrect up through this time.

In the monetary markets, interest rates remained at historically low levels. In the USA, short-term interest rates rose during the summer, but this trend reversed after signs of slowing economic activity, and the Federal Reserve´s decision to increase the acquisition of public debt.

In the Euro Zone, the 3-month Euribor rate climbed close to 0.6% during the second quarter and up to 1.05% at the end of the year, thus reflecting the end of the Major Operation of 12 month liquidity granting which occurred in June. As of this moment, the Euro Zone had excess liquidity which was deposited in the ECB at the rate of 0.25%, thus placing substantial pressure on the Eonia rate and consequently on all of the monetary market time periods. The rate of increase of the Euribor rates slowed towards the end of the year, following the extension of the unlimited granting of liquidity through the end of the first quarter of 2011.

Source: Bloomberg

3-Months Interest Rates

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

Jan-10 Mar-10 Mai-10 Jul-10 Set-10 Nov-10

Euro areaUSAUK

Long-term interest rates for the USA and Germany reached historic lows, under 2.5%. This situation reflects a movement of flight to quality in Europe following the sovereign crisis, and the extraordinary measures adopted by central banks through the acquisition of public debt, especially in the United States. In spite of the rise of long-term interest rates which occurred during the third quarter, at the end of the year, long-term interest rates were lower than the levels at the end of 2009.

Source: Bloomberg

10 Year Bond Yields

2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%

Dez-09 Mar-10 Mai-10 Jul-10 Set-10 Nov-10

GermanyUSAPortugal

The exception to this is in the peripheral countries, where as a result of the deterioration of the budgetary perspectives and concerns regarding the need to access the EFSF, interest rates increased to the highest levels since the creation of the Euro in 1999. Sovereign credit spreads similarly closed the year at unprecedented highs, even above the levels attained in May at the commencement of the sovereign crisis.


Source: Bloomberg

10 Year Bond Yield Spreads (bp)

0

200

400

600

800

1000

1200

Jan-10 Mar-10 Mai-10 Jul-10 Set-10 Nov-10

FranceItalySpainPortugalGreeceIreland

The acceleration of the global economy, particularly the strong growth in the emerging markets, contributed to the generalised increase of raw materials prices, which reached the highest levels since the peak in 2008. Crude oil is an exceptional example of this, as prices rose 20% and reached over 95 dollars per barrel at the end of the year.

The same trend was verified in relation to base metals. Copper rose to 9.600 dollars, which is the highest level on record.

Source: Bloomberg

Brent crude oil (US$/Barrel) and Commodity Price Index (YoY)

0

20

40

60

80

100

120

140

160

00 01 02 03 04 05 06 07 08 09 10-60

-40

-20

0

20

40

60Brent (US$/b, LHS)

Commodity Prices (YoY, RHS)

In relation to precious metals, the price for gold surpassed 1.400 dollars per ounce, which in nominal terms is the all-time highest level. Gold was favoured in its role as a safe haven investment in times of crises, and as a result, in 2010 there were two linked effects: (1) the sovereign crisis in the Euro Zone; (2) the unconventional monetary policy in the USA, with massive injections of cash into the economy which increased concerns of an inflationary spiral, and consequently generated aversion to the dollar.

Stress related to the sovereign crisis and the concerns regarding a possible double dip in the USA also impacted the behaviour of the stock markets, which in an almost generalised form, closed the year with negative numbers. The North American market was an exception,

as due to increased valuation of 10.8%, it recovered levels observed in the beginning of September 2008, even prior to the failure of the Lehman Brothers investment bank. India was also an exception where the stock market index reflected an increase in value of 18%.

Source: Bloomberg

Equity Markets (Dec-2009 = 100)

75

80

85

90

95

100

105

110

115

Dez-09 Fev-10 Abr-10 Jun-10 Ago-10 Out-10 Dez-10

PortugalEuro areaUSAJapan

In spite of closing the year in negative terrain, overall there was an increase in the value of indexes in comparison to the minimum levels observed in April when the sovereign crisis began, and which particularly affected investors» perception of risk.

Portuguese Economy The Portuguese economy grew more than expected in 2010, and was able to record growth of 1.4% during the year. In 2009, the economy shrank 2.6%.

The factors which most contributed to this growth in 2010 stemmed largely from internal demand, with several specific factors which prejudiced the contributions of net exports.

2008 2009 2010E

GDP 0.0 -2.6 1.4Private Consumption 1.8 -1.0 1.8Public Consumption 0.8 2.9 6.8Investment -0.3 -14.1 -5.0Exports -0.3 -11.8 7.0Imports 2.8 -10.9 6.3

Inflation (average) 2.6 -0.8 1.4Unemployment 7.6 9.5 10.9Fiscal Balance (% GDP) 2.9 9.3 7.3Public Debt (% GDP) 65.3 76.1 82.8Current Account Balance (% GDP) -11.1 -9.4 -8.8

Source: INE, Banco de Portugal, Ministério das Finanças

Macroeconomic Data

Private consumption increased substantially, with growth in the range of 1.8% during 2010. The factors which contributed to this growth include the improvement of


disposable income, associated with low interest rates, as well as greater transfers from the State to families; also, the increased acquisition of durable goods, especially automobiles, in June and December, in anticipation to the VAT increases in June 2010 and January 2011.

This acceleration of demand occurred in spite of the increased level of unemployment, which reached a historic high of 10,9% during the third quarter of 2010, representing a total of more than 600 thousand unemployed individuals. The saving rate remained at the highest levels since 2002, close to 11%, although it fell slightly during the year.

Source: INE

Unemployment Rate

0

2

4

6

8

10

12

98 98 99 00 01 01 02 03 04 04 05 06 07 07 08 09 10 10

Unemployment Rate

The annual average rate of inflation increased to 1.4% as the result of the increased VAT rates and increased prices of food and transportation as the result of rising raw materials prices. The overall rate at the end of the year showed year-on-year inflation at 2.5%.

Public consumption increased during 2010, largely due to the acquisition of military material during the second and fourth quarters of the year. Without this effect, the growth rate would have been close to 3pp lower, 3.8% instead of 6.8%.

This acquisition also affected the behaviour of imports, growing 1.6 pp overall. This effect impacted the contribution of net exports on growth, which became marginally negative (-0.2pp). Had it not been for this specific impact, the contribution would have been positive. Exports grew at the fastest rate since 2007, which clearly benefitted the recovery of demand within the primary commercial partners, particularly France and Germany.

Once again investments shrank, and during 2010 the reduction amounted to close to 5%. This was the result of restrictive fiscal measures as well as the effects of the deteriorating conditions in the financial markets, which presented more restrictive conditions for lending (increased credit spreads and increased requirements for guarantees by the banks). The budgetary containment

measures impacted public investment (direct as well as PPP´s) and the prospects for demand growth.

Source: INE

Contributions to GDP Growth (YoY)

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10Consumo privado Consumo público InvestimentoExportações líquidas PIB

The budgetary question was a dominant theme throughout all of 2010. The deterioration of the perception of risk in the Euro Zone forced the government to issue progressive new measures to more aggressively reduce the budgetary deficit.

From an initial goal of 8.3% of GDP for the deficit in 2010, the government defined the goal of 7.3% of GDP in May after the commencement of the sovereign crisis. For the achievement of this goal, the government announced a set of measures which included an increase of all of the VAT taxes by 1p.p., an increase of individual income taxes by 1.0/1.5% for income below/above 1,500 Euros per month, and an increase of corporate income taxes by 2.5p.p. for chargeable earnings above 2 million Euros.

In regards to expenses, the measures included reductions in public investment, transfers to public companies, and transfers to families through the revision of medication policies, and testing of methods of non-contributory social benefits.

However, the expense-related measures produce only gradual effects, especially when compared to the wage reduction measures implemented in other countries, such as Greece, Ireland and Spain, which had immediate effects. Portugal, in this particular case, compared poorly with the other countries under market scrutiny.

At the end of the year, the government announced a new package of measures which were included in the 2011 State Budget, with additional expense reductions including public employee salary reductions, and a new tax increases. The goal is to reduce the deficit to 4.6% of GDP.

In relation to 2010, and to reach the deficit goal of 7.3% of GDP, the government announced the transfer of 2.8 billion Euros of the Portugal Telecom Pension Fund for


inclusion in the Caixa Geral de Aposentações (the Pension Fund for the Civil Service), an amount representing approximately 1.6 pp. of GDP. This amount has been designated to cover the expenses related to the acquisition of military material, which despite the fact that these were acquired as part of a leasing operation, will be fully booked in 2010. Additionally, this amount will cover certain excess expenses in specific sectors such as health and Estradas de Portugal (state-owned road concessionary).

The Treasury thus maintained its access to financial markets through the issuing of Treasury bills and bonds for a total of 38 billion Euros, of which 27 billion were issued during the most stressful period after the middle of April. Even though demand remained at relatively strong levels, interest rates rose sharply during the course of the year, and the last auction of 12-month Treasury bills recorded an average rate of 5.28% (0.93% during the year´s first 12-month auction in January). The last yield from the auction of 10-year Treasury bonds (OT) was 6.81%, a rise of 247pb in comparison with the first auction of the year in April.

The deficit of the current and capital account fell during the year, and by the 3QTR 2010 sat at 4.3% of the GDP, (8.9% for the year ended at the quarter), as the result of a more pronounced reduction of the deficit of the balance of goods and services, as well as from a slight improvement in deficit of the income account. However, the pronounced increase of interest rates in the second semester of 2010 implies that in 2011 the deficit of the income account will remain substantially high.

Source: Banco de Portugal, INE

Current and Capital Account (% GDP)

-9.3

1.06.0

-4.9

2.0

-5.2

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10Trade Balance Capital AccountBalance of Services Income BalanceTransfers Current and Capital Account

The international investment position became less negative during 2010, 105% of the GDP during the third quarter of 2010, largely as a result of the smaller acquisition of Portuguese public debt by non-residents due to risk aversion stemming from the sovereign debt crisis.

Bank credit growth stabilised at an overall rate of approximately 2.0% in 2010. This evolution was not uniform among all the market segments, and was

comprised of deceleration in the private sector segment and acceleration in credit to non-monetary financial intermediaries and the General Government. In terms of private credit, the moderate acceleration of approximately 3% which occurred in relation to mortgages was not sufficient to counterbalance the effects of decline in consumer credit.

In terms of corporate credit, there was stagnation in general. This was the case for stocks, as well as new production. Credit spreads widened throughout the period.

Client resources grew very moderately, with a marginal increase of term deposits which offset the reduction of the DO´s, thus reflecting the increase of liability interest rates. Investment fund deposits decreased amid the environment of devaluing stock markets. Off balance sheet resources increased, especially financial insurance.

The liquidity gap increased slightly, partially as the result of the restructuring of client resources, but the financing in international monetary markets dropped to close to half of previous levels, with the minimum being observed in April/May during the peak of the financial market stress.

The quality of the credit portfolio of the system continued to deteriorate, especially in terms of consumer credit (also due to base effects), as well as in terms of the level of the companies, in this case especially those pertaining to the construction and manufacturing. The worsening ratio of mortgage defaults was much less due to the low interest rates which compensated for the effects of rising unemployment. Main Risks and Uncertainties in 2011 The risks and uncertainties that may impact activities during 2011 stem from two areas; one of domestic origin, and the other internationally-based. In relation to those of an international nature, the growth outlook for the Euro Zone is most noteworthy in the event that previously announced budgetary containment measures affect economic activity in a generalised manner. This trend may be amplified in the event that the world economy, and especially the emerging markets, show signs of economic slowing. In China, for example, authorities are adopting new restrictive measures in relation to credit growth. At the domestic level, the uncertainties are related to budgetary policy and the resulting impact on economic activity. The need to reduce the budget deficit to 4.6% of the GDP in 2011 resulted in the implementation of more restrictive measures, such as the reduction of salaries paid to civil servants and of social benefit payments to families.


The perspectives of reduced disposable income took consumer confidence levels down to record lows, and forced businessmen to restructure investment decisions for 2011. This restructuring may impact unemployment levels. As a result, internal demand should record sharp reductions in 2011. The risks continue to be negative in the event that it becomes necessary to adopt new budgetary containment measures, which may further accentuate the contraction of economic activity. Related to this factor is the access of national economic agents to international financial markets. The Republic has been able to obtain financing, although the costs for this have been very high. The financial sector continues to be dependent on the ECB, to which such institutions are only ensured access through March 2011, at which time the last 3 month operation providing unlimited liquidity will be performed. Regardless, the manner in which the institutional investors are evaluating the dependence on ECB funds requires the financial sector to

seek other sources of financing, or in the absence of these, to accelerate the leveraging process. In this environment of strong restrictions of liquidity, the cost of credit may continue to increase, and the criteria for its concession will become more restrictive. The return of a climate of confidence in the international markets, which would permit that National Financial Institutions return to the international financing market, is dependent upon the State»s fulfilment of the proposed plans to reduce the public deficit, and upon which the increase of tax revenues depends. However, most importantly, the sustained reduction of public spending is necessary. The failure to fulfil these objectives may delay the return of international financing to the banking system, thus further increasing the risks to the national economy due to sharp, but necessary leveraging.


Commercial Banking

Individuals & Businesses Throughout the year, Santander Totta continued to invest in a customer-focused strategy, concentrating its commercial activities essentially on the capturing and retention of resources, credit spread renegotiation, control of overdue credit, and stimulation of the Corporate, Businesses, and Premium areas. In addition to the suite of traditional savings products, such as 3-Year Growth Accounts , 18-Month Growth Accounts and 3-Year Growth Netbanco Accounts, adjustments to the rates of loan products within the context of the market were made, thus maintaining competitiveness of the selection offered in this business area. The offering of resources availed was enriched with monthly releases of diverse structured product solutions and financial insurance policies (SRS´s). Strong investment in the Premium segment was maintained and included the March launching of the In Sync with You campaign, which Santander Totta exclusively dedicated to this segment. The campaign availed an ample suite of solutions, services and advantages, focusing on the quality of services and relationships which provided the commercial network with the means to present the most adequate solutions to each client in accordance with their specific needs. Within the scope of the client fidelity policy, the Payroll Campaign was newly launched. This campaign is exclusively focused on the Premium segment and to the clients of Protocols and Promoters. The campaign is based on the offering of gifts, exemptions from commissions charged for regular day-to-day services and granting of a 0% promotional rate for overdraft coverage for the 1st year. In December, an attraction campaign for obtaining direct deposits of salaries was launched with a free gift offer. In June, an internal campaign called Champion Resources was launched with the clear objective of capturing new resources with strong ambition for growth in this area. The deposits launched, specifically DP Winner, DP Triumphant and DP Victor required

cross-selling conditions and growth of the average balances showing consistency with the fidelity policy. During the last quarter of the year, the Integrated Solutions campaign was launched, which included substantial advertising through TV, radio and press. The campaign incorporated a suite of broad solutions that are adaptable to various requirements and the phases of life in which each Individual client fits. The primary objectives of this campaign are: (1) support the service counters with new client attraction efforts through a multi-product approach; and (2) increase cross-selling to the current client base. With the objective of attracting clients and generating traffic at the service counters, PACK»s Employment, Savings, House, Car and Children - were made available. These incorporate extremely advantageous financial advantages in diverse anchor products offered by the Bank, and are focused on savings and transactability. A recovery of the residential credit market was noted early in 2010, a trend which had commenced in the middle of 2009. However, a reduction of production levels was recorded during the third quarter reflecting deteriorating economic conditions in Portugal. Within this environment, the strategy became primarily comprised of measures to protect the banking product through client retention activities and increased demands of cross-selling conditions, specifically through the implementation of a new model in February. A special line of Individual credit in the amount of 2 million Euros was availed as part of the corporate social responsibility policy in support of victims of the storms which hit the island of Madeira on 20 February. This line of credit provides extremely advantageous conditions for homeowner clients. As a result of the new market conditions, and in order to primarily focus on product optimisation and simplification, the beginning of 2010 was marked by the implementation of widespread alterations of the selection of offered consumer credit products. Santander Totta reinforced its investments in sustainable development projects and in the support of the national education system through the promotion of products specifically targeted to the areas of renewable energies, university education and education in general; in this last case, such support included the launching of a special

Business Areas


school supplies financing product, Education Plus Credit . Throughout the year, 3 consumer credit campaigns were launched. In March, a campaign for the Premium segment was launched, in which the Bank offered a special product with attractive interest rates benefitting clients with direct deposit in the Bank. During the campaign for transfers of consumer credit, which was launched in the 3rd quarter, specific conditions were availed to clients that intended to transfer their consumer credit to Santander Totta, taking advantage of the beneficial conditions, in which the Bank bore the costs of the anticipated amortization incurred in the transfer of personal credit up to the maximum limit of 2% of the amount contracted in Santander Totta. In the beginning of the 4th quarter, as part of the Integrated Solutions campaign, Integrated Solutions personal credit was launched with a promotional interest rate during the 1st year. In the Corporate segment, the Bank conducted a consolidation strategy, which in spite of the financial crisis resulted in a slight growth of business volume of 0.9%, with a slight credit retraction, -0.1% and a positive variation of resources of 3.2%. During this year, Santander Totta reinforced its position as a Bank that supports companies, as the result of its dynamic behaviour in the segment as demonstrated through the launching of diverse solutions/campaigns, including the following most noteworthy items: • Health Solution:

Specific offer directed at medical clinics, nursing centres and laboratories with special conditions for leasing, factoring and POS.

• Accounting Firm Solution: Campaign launched in April for companies that provide accounting, auditing, tax consulting and notary services, with advantageous conditions of leasing products and Direct Debit Systems.

• Retail Food Solution: Product offered to support small commercial business.

• Solution NSRF (National Strategic Reference Framework): Supply of support conditions through advancing incentives, consulting and investment support lines of credit PME Investe, which recorded an accumulated market share volume of 16%.

• POS Campaign: Launched during the last quarter of the year with advantageous conditions, as these relate to the monthly service fee and the service fee.

• GPC Payment and Collection Manager: This client treasury support management service was also launched in the last quarter of the year. This is an innovative concept that functions on an online platform, which is availed through a completely safe and free manner on NetBanco Empresas.

A tendency of savers to concentrate funds in low risk, liquid assets and term deposits was noted within the Private Banking and Premium segment. New client growth in Private Banking was good as solid banks with stable management were sought for investments. In terms of managed assets, Private grew close to 15% during the year, which resulted in an excellent contribution to the increased business related to Individual resources. In assets, a growth of close to 22% was also noted in this business segment. The selection of products/services for savers was varied and provided a substantially attractive return/risk ratio for clients. The possibility of a diversified portfolio with dynamic management was a relevant factor which provided interesting returns. The integration synergies with the Private Banking Portugal segment with the Global Segment of the Santander Group provided clients with the benefits of a global offering of products. The rigourousness of operations processing, the demand for quality in services rendered, as well as proximity to clients continued to be the objectives of the Private Banking Team. The Premium segment, with business volume growth of approximately 5%, strengthened its position in the heart of the Private Banking segment. A marketing campaign was launched in the beginning of the 2nd quarter which resulted in increased notoriety for the segment, as well as the new definition of a vast offering of financial products and value added services. The 15 Premium centres continued to be a strong presence for client attraction and for the image of the segment. The Premium segment has deserved substantial attention due to the fact that the managers have methods and tools that render them more able to respond to customer needs rapidly and efficiently, as well as to take into account the investment profile and financial needs of these clients so as to anticipate their investment decisions.


Corporate Clients The Corporate Network during 2010 had to frequently adapt the established commercial plans due to the adverse economic framework. In this environment, the main priorities contemplated the utilisation of the balance sheet structure to continue to invest in the Corporate market and more specifically the PME´s, maintaining very tight control over default credit situations. In terms of turnover, the Corporate Network recorded growth of 2.5% in credit and 30.4 % in resources, with the following most noteworthy activities: • The formalisation of 323 operations in the amount of

188.2 million Euros of PME [Small and Medium Business] Investe V and VI Lines, demonstrating Santander Totta´s and the Corporate Network´s serious commitment to and investment in the PME market, thus assuming a very relevant role in the business development of these Small and Medium Business Lines;

• Growth of 35.7% of credit granted in terms of factoring and confirming;

• Growth of the resource portfolio in all of the accounts, reflecting the increasing commercial client proximity policy, presenting innovative and market unique treasury solutions;

• Evolution of past due credit within the foreseen ranges and below market averages, as the result of close relationships with clients and careful and efficient risk management policies.

The strategy followed resulted in growth of 33% in the number of attracted clients when compared to the same period in 2009, and in the growth of 20% of the clients related to the Bank.

PME (Small and Medium Business) Investe Lines Santander Totta continued to be very dynamic in the issuing of PME Investe Lines, and has solidified more than 11,000 operations in the amount of more than 1 billion Euros loaned. It is of note that as the result of the speed of the conclusion of the transactions and the special attention that the Bank has given the contracting of this type of operation, a market share of more than 16% has been achieved, which is far above the natural quota of the Bank. In the specific lines related to the tourism sector, one of the segments in which a strategic investment has been made, including the example of the PME Investe III Tourism Sector Line, the market share is above 30%.

Nº of operations

7,803

11,812

2009 2010

Diverse new lines of protocoled credit were signed by the Bank and made available in a form that is very efficient for clients in order to support corporate investment and strengthen permanent capital. The following are the most noteworthy: • PME Investe V Credit Line; • PME Investe VI and VI additive Credit Line; • IFAP PME 2010 Credit Line, to support the companies

in the agricultural and farming sector; • Support Line for corporate recovery for companies

located on the island of Madeira; • Support Line for unexpected occurrences; • Line of Credit for companies in the Azores; • PME Investe III Line Support of the tourism sector in

the western region; • Support Line for projects related to alternative energy

credit and thermal efficiency; • Support Line for NSRF projects; • Renewal of the protocol of the Azores Invest Credit Line

to expand time periods of previously contracted operations, seeking to improve the conditions of financing already granted.

These lines, in addition to being benefitted with an interest benefit, are generally associated with the System of Mutual Guarantees in order to facilitate corporate access to credit.

Market Share PME Investe (amount)

16.2% 16.2%

2009 2010


Large Corporate Clients In 2010, Santander Totta strengthened the commitment that it undertook with its large clients. The adverse macroeconomic environment and the constant instability of the markets throughout the year required the implementation of a disciplined strategy for greater proximity. The commercial corporate model, which the Group has followed for various years, ensured the consolidation of the position held by Santander Totta in relation to its clients, through the offering of integrated solutions, adjusted to their needs and which result in added value in relation to their activities. In this environment, it was necessary to adequate the credit contracts to the new market conditions. This included the review of financial conditions and the dynamics of cross-selling, thus resulting in the expansion of existing business into other areas of the bank. Promoters and Mediators In regards to external promoters and real estate agents, the reinforcement of proximity in relation to primary partners remained a priority, primarily through diverse business development activities directed to these important channels. As part of this strategy, Santander Totta was present in all of the main real estate agent events, specifically Imobitur, SIL Salão Imobiliária de Portugal [Real Estate Hall of Portugal], and the national conventions of the main real estate sector partners. As part of the commitment to launch new initiatives that further motivate our partners, the following are noteworthy: three editions of PIPE External Promoters Incentive Plans which occurred in 2010, two PIME Mediator Incentive Plans and many other campaigns and incentive plans that resulted in increased visibility for the primary strategic growth variables for the Bank, specifically the attraction of new resources, active client capturing and attraction of clients from the Business segment. This year also marked the launching of the 1st Annual Promoter Award, which in combination with other initiatives, will take approximately 40 external promoters to the Santander Financial City in Boadilla del Monte. Regarding the Promoter Stores, the objective continued to be the expansion of the network, and the year closed with more than 50 net openings, thus resulting in 250 Promoter Stores at year end. The growing importance of this Network to the results attained in the Promoter Channel is additionally worthy of mention.

Payment Methods The pursuit of client fidelity, excellence of services and customer service were constant concerns during 2010. Diverse initiatives to promote the use of cards were undertaken during the year; these were largely characterised by offers and discounts to clients who regularly used Santander Totta cards. Additionally, there were great efforts dedicated to highlight those services most valued by clients, such as card insurance and improvement of levels of service and minimisation of eventual incidents. Effectively, this set of measures resulted in the increased utilisation of cards, with billings in 2010 6.6% higher than those in 2009, and in the reduced number of cards which were cancelled by clients. In the beginning of the year 2010, 2 cards were launched for the Affluent segment: a Gold card for day-to-day usage and a Gold credit card. Santander Totta offers a very complete suite for this client segment, and the client can opt for a Gold card with broad insurance coverage, or for a Gold card related to an airline fidelity mileage programme which can be redeemed with any airline. Santander Totta also invested in the Army and Navy military establishments and offered personalised cards with emblematic images to these organisations. Santander Totta maintained its position as a player in the POS market throughout 2010, and represented a market share of 16% with presence in the primary distribution channels and diverse economic activity segments of the market. Transaction Banking

Cash Management and International Business During 2010, diverse commercial campaigns were conducted in the Corporate and Business segments with the objective of increasing transactions and customer fidelity. As a complement to the commercial network, specialist/stimulator teams were created which together with the customer and product managers developed specific programmes to attract clients and stimulate business. Santander Totta is recognised today as one of the main cash management and international business service providers in Portugal, and has confirmed its presence in corporations. Improvement and expansion of the suite of products and services availed by the Bank were undertaken throughout the year, and two innovative solutions were launched in the domestic market:


• GPC Collection and Payment Manager, an

information system solution which is made available on the Netbanco Corporate environment which helps clients to optimise their treasury, automatically generating collection and payments.

• Home Deposit, availing equipment that provides for

deposits from a distance which enables the bank to centralise collections management.

The international business functionalities which are available over the internet platform were also the object of improvements, which objective was to improve safety and transparency for clients.

Customer Service Currently one of the strongest market differentiation tactics is after-sale services. Today, this important element of fidelity is as important as the quality of the product itself. Santander Totta continued to invest heavily in new ways in which to monitor and control the resolution of incidents, improving response times and satisfying the needs of companies. Additionally, the commercial aspect of this segment was consolidated through joint visits with the commercial department to primary clients, thus supporting and strengthening commercial relationships with corporate clients. Santander Totta, as an exclusive member for Portugal in the IBOS Association, utilises its close commercial partnership with the 12 international groups that are members of this association and that specifically cover countries in the European Union and North America. Complementary Channels

Selfbanking The Selfbanking department continued its strategy in relation to the Multibanco network to optimise the current ATM structure installed for clients. Essentially, this was comprised of the relocation of ATM machines to new locations with high potentials for transactions. The result included more than 5% growth in the number of transactions conducted over ATM»s. In regards to deposit and cheque equipment internal network- automatic control and evaluation mechanisms to verify equipment operability and availability were implemented, thus improving quality. The level of service was increased through the launching of new functionalities, especially of note the search/look-

up of the consolidated client position and the ability to access all of the client´s accounts using a single card. The total outsourcing of operations continued to demonstrate a positive trend, and has already exceeded 50%.

Netbanco New functionalities were launched during 2010 for the NetBanco Individual and Corporate internet platform. These included improved availability and performance of the sites, which resulted in a sustained increase of the number of clients using the system and a strong growth of site traffic which is clearly represented by the 24% increase of site visits. The Netbanco Individuals platform received a new

Personal Finances service which provided clients with a practical and intuitive method with which to organise their income and expenses and availed segment orientated promotional offers, especially to Premium and Private clients, and contact support services with the Bank over Video Call and Click2Chat. In 2010, NetBanco Individual frequent users recorded growth of more than 11%. The Payment and Collections Manager was launched as part of the NetBanco Corporate platform. This product provides companies with a completely free and entirely safe method for treasury management optimisation. The simplification of the adhesion process and diverse improvements of direct draft and direct deposit payment functionalities were also implemented. Frequent users of the NetBanco Corporate platform grew more than 10%.

Telephone Banking During 2010, the Santander Totta Contact Centre was considered as the Best Contract Centre for financial institutions in Portugal by the Portuguese Contact Centres Association. The total number of client contacts in 2010 with Contact Centre operators was slightly higher than in the prior year. The strategy to conduct fewer client contacts and encourage contacts through the Contact Centre and other channels was reinforced, and inbound sales were amplified. Additionally, initiatives were implemented to increase contact with clients that demonstrated interest in acquiring services and products from the Bank through other channels. In collaboration with NetBanco Individuals, the Contact Centre began to ensure customer service through new means of contact over Chat and Video Call, which is a totally innovative service in the Portuguese banking sector.


Services to customers and leasing product suppliers were provided over the telephone in conjunction with Santander Totta Specialised Credit - IFIC. International Activity During 2010, the economic environment, centred on activity financing and market liquidity, remained complex and the primary markets adopted severe control measures for their respective public deficits, which resulted in further reductions of the economic activities and growth of unemployment. In light of this environment, the international activity strategy was focused on the strengthening of client proximity, the transmission of the security and solidity of the Group, and the consolidation of the supply of services and solutions directed at internationally-based residents in strict articulation with the commercial network in Portugal. In regards to adequate conditions for internationally-based Portuguese residents, the launching of the Super Account for Residents Abroad was especially of note, as well as savings products. A suite of diversified products was availed, including financial insurance and capitalisation insurance, and in regards to the USD and CAD, investments with extremely interesting profitability within the current framework of the interest rates for these currencies. In Euros, products were successfully availed which associated returns with the opportunity to strengthen client fidelity. In order to support those communities in which the Bank is represented, systematic presentations were held in order to communicate the opportunities presented by the Portuguese economy in specific sectors, as well as to communicate the performance of Santander Totta and the Group to which it pertains, in order to generate greater confidence among internationally-residing Portuguese citizens. In Paris, an even larger scale event was held targeting individuals and companies which are based abroad. Additionally, the Summer Campaign was conducted with a set of initiatives that seek to establish the best manner in which to handle customers that live and work abroad. This initiative ensured the establishment of a communications structure and means to access assistants especially focused on client support and services. This campaign was previously promoted in the main communities, including over local information media channels in order to ensure a significant level of knowledge in regards to the available support and services.

The London branch, taking into account the modest levels of real estate demand, has been maintaining the availability of a suite of credit products for the purchase of a 2nd home in Portugal, for those who reside in the United Kingdom. Following the measures already taken and given the current framework of the British market, the means and control mechanisms in relation to this credit portfolio were strengthened. Turnover in the area of residents abroad grew 5.2% as a result of both the availed selection of resource products and the evolution of credit in this segment. Efforts to ensure strong connection with clients, representation offices, and service counters in Portugal were maintained and joint visits by commercial managers and counter directors from areas in which emigration was most significant continued to be part of the defined strategic planning. The operating income demonstrated positive trends, although it was affected by the economic environment. The evolution of credit in the segment of Residents Abroad was positive in relation to that verified among Individual residents in Portugal. In relation to channelled transfers of emigrants to Santander Totta, promotion and stimulation efforts in those countries considered to be most important for the segment were conducted with focus on the easiest and most economical manner for clients to conduct their transactions. Finally, the volume of transfers represented positive variation with a slight increase of market share.

Global Banking and Markets Treasury Activities conducted during 2010 were marked by the adaptation of strategies in relation to the macroeconomic crisis, increasing costs of liquidity, elevated volatility and continued expectations of low interest rates for an extended period of time. In the Institutional segment, the Bank continued its strategy supported by the utilisation of global teams of the Santander Group, ensuring the maximisation of its structuring capacity and diversification of the type of operations. The activity in the Large Companies segment was marked by the adaptation of products to the new market reality, and the preference for simple products was continued. The economic environment resulted in extended expectations of low interest rates, which resulted in a


higher demand for interest rate risk management over longer periods. The activity in the Corporate and Business segments was essentially conducted to monitor operations contracted by clients and characterised by an increased simplicity of the products offered, calculated positioning adequate for the market conditions, and presentation of adequate risk management solutions for improved business management within the largely unpredictable scenario which resulted from the financial crisis. The market segment with exchange rate flow activities continued to receive the commitment from the Bank. In this chapter, the increased number of clients and operations conducted reflect the good work and recognition by the clients from the market segment with exchange rate flow activities. The receipt on 22 November 2010 of the Best Foreign Exchange Providers 2011 Global Finance award is also of note. In relation to structured products, and even though 2010 was a harder year for the placement of this type of product, Santander Totta was successful in the commercialisation of these, and exceeded the 600 million Euro threshold in term deposits and cash bonds. From amongst these products, of particular note is the

Renewable Energy Valuation indexed deposit and the World Value Deposit whose remuneration relies on the

valuation of a geographically diversified portfolio of stocks, including stocks from developed and emerging economies. Custody The Institutional Custody activity segment within Santander Totta did not record significant changes in relation to 2009, in spite of the adverse financial market framework and economic situation in Portugal, and in fact an increase in the total volume of custodied assets was recorded. Following the merger through incorporation of Banco Santander de Negócios de Portugal SA with Banco Santander Totta SA, effective as at May 2010, Santander Totta SA, held 2nd place in the national ranking of Custodians, with close to 25% of the share of assets under custody. Equities The environment of uncertainty in 2010 as related to economic growth in Portugal and the deterioration of Portuguese public accounts provoked dropping interest of investors in the stock market in general. Regardless, and as a result of developments within specific Portuguese companies which attracted substantially increased investor interest, the average transaction volume in the Lisbon Stock Exchange increased in comparison to the foregoing year. Santander Totta accompanied this

growth, which positively reflected in the return from this activity. Credit Markets The framework of uncertainty and lack of liquidity of Portuguese financial institutions as a result of the sovereign debt crisis suffered by Portugal since March 2010 lead to the suspension/postponing of various tenders and public investments, as well as delays in private projects. The sovereign debt crisis also caused European Debt Markets (Eurobonds) to close to Portuguese issuers starting in April, and since this time no Portuguese bonds have been issued. Within this context, 2010 recorded a drop in activity, although Santander Totta continued as one of the few institutions with a constant presence in MLP structured financing, which ensured the bank»s participation in almost all of the relevant financing activities conducted this year. Of note in regards to project financing operations, ( Project Finance ) is the Bank»s participation as

Mandated Lead Arranger in the structuring of the financing in the 1st phase of the ENEOP project, which consisted of a portfolio of wind turbine farms with a capacity of 480MW, for a total of 1,200 MW attributed in the tender. ENEOP is a consortium comprised by EDP, Endesa, Generg and TP. Enercom is the group´s industrial partner and holds an industrial facility in Viana do Castelo. It is also important to highlight Santander Totta»s participation as one of the leaders of financing of the ELOS consortium for the 1st phase of the High Speed Project which relates to the Poceirão Caia connection. This project, largely supported with EU community funds, is part of the European commitment to connect all European capitals with high-speed rail. In relation to Acquisition Finance operations, the structuring and participation as Mandated Lead Arranger and Bookrunner for the financing used by Secil to acquire Betecna is of note. This operation was only concluded after authorisation by the authority governing fair trade and competition. In this field, the bank also supported the increase of available financing for Empark through the establishment of a Capex line amounting to 50 million Euros in order that the company attain financial flexibility to take advantage of acquisition opportunities which may occur. In the lending markets, Santander participated as a

Bookrunner in the issuance of European market bonds for EDP, the only emission by a non-financial Portuguese company during 2010. At the end of March, even prior to the closure of the markets and in an extremely volatile


environment, Santander also lead the issuing of 1 billion Euros of mortgage-covered bonds for Banco Santander Totta, which was the last for a Portuguese issuer in 2010. In this framework, to ensure that Brisa managed the best moment to access capital markets, Santander lead, along with Caixa BI and Barclays, the assembly and organisation of point financing (300 million Euros) to issue Eurobonds. Today, Santander is a bank of reference in structured financing and the debt market, and participates in all of the relevant operations conducted within the country. Corporate Finance The Corporate Finance segment conducted intense activities related to mergers and acquisitions throughout the year, thus solidifying Santander»s position as one of the main players in the Portuguese mergers and acquisitions market. The successful conclusion of the following important operations is especially of note in 2010: • Consulting to Brisa - Auto Estradas de Portugal in the

sale process of the organisation»s participation in CCR - Companhia de Concessões Rodoviárias in Brazil;

• Consulting to Mota-Engil and Opway in relation to the acquisition of 50% of the capital of Construtora Idinsa in México;

• Consulting to the Urvasco group in relation to the sale of the Silken Berlim Hotel to the Sana Group.

It is also important to highlight the on-going consulting services being provided to Galp Energia in relation to the divesture of holdings in Galp Gás Natural Distribuição, a holding which possesses the main regulated natural gas distribution infrastructure companies in Portugal. Throughout 2010, the transaction portfolio was strengthened, and various other corporate finance operations consulting processes which will be concluded in coming months, are currently underway.

Asset Management Investment Funds The financial markets in 2010 were characterised by tremendous instability, specifically in relation to the following themes: • Sovereign risk in the peripheral European economies,

specifically the rescue of the Greek and Irish economies;

• Sustainability of the EU and the single currency through the possible spreading of sovereign risk to other countries, specifically Portugal and Spain;

• Sustainability of global economic growth and recovery of the North American market;

• Central Bank intervention through injections of liquidity;

• Regulation of the financial system and consequential impacts.

All of these factors contributed to strong risk aversion by investors with a natural impact on the demand for financial instruments such as investment funds. Although the assets managed by Santander Asset Management have indicated reductions, in terms of real estate investments, 2010 concluded with the establishment ranked as the 3rd largest real estate investment management company in Portugal. The following measures contributed to this result: i) stimulation of the actual suite of products with focus on those funds with added value for the client; ii) launching of new low risk investment funds and active investment strategies. Real estate investment funds in 2010 were characterised by active asset management through the promotion of occupancy of repossessed properties (reduction of close to 15%) and the promotion of real estate projects. Equity Management and Pension Funds The portfolios under management by the Equity Management Corporation, Santander Gest, recorded an increase in volume of close to 7% as a result of the focus on risk control and the conservative vision implemented throughout the year. For Santander pensions, the returns were mixed. The volume under management at the end of 2010 was 1,315 million Euros.

Specialised Credit 2010 was characterised as another difficult economic period, which worsened toward the end of the year. Additional regulatory changes in regards to the business activity occurred, especially in regards to TAEG regulations. Totta Specialised Credit conducted its activities in line with the following strategies: • Investment and dedication to short-term products,

products which support corporate treasury, and those highly associated with transactions, to the detriment of medium and long-term operations with other associated risks and liquidity premiums;


• Evolution of the operating income and adjustment of spreads and commissions in accordance with the cost and risk of the operations;

• Control of the cost structure and improvements of the processes and support structures;

• Adjustment for adequacy of the procedures for the merger with BST.

In relation to leasing and as a result of the economic difficulties and the recorded drop of investment, the Equipment and Real Estate products presented important breaks in production volumes. In regards to automotive vehicle leasing, a very important growth in production was maintained, which accompanied the market trend. With over 22,500 vehicles under contract, Santander Totta continued in its position as an important operator of the national automobile financing market. Automotive leasing more than compensated for the production decreases in the other products, and as a result, there was an overall growth of 9% of leasing as compared to the prior year. Additionally of note is the leasing product for renewable energies which has resulted in a highlighted position of recognition and market share of between 13% and 20%. The products Factoring and Confirming recorded very important growth. These are strategic products for the development of commercial networks, and specific internal plans for each segment have been defined and respective monitoring committees put into place. The positive results attained resulted in the conquering of the market leader position held since the middle of the year, and the international Factoring/Confirming leadership which was attained in July 2009, was also maintained. This situation was possible with the large focus on pricing and repricing of the operations. As a result of the strategy implemented, the global specialised credit portfolio increased 11% as compared to the end of the previous year, and amounted to 3,138 million Euros. The portfolio mix changed, and resulted in Factoring and Confirming representing a share of more than half of the total specialised credit portfolio. The growth of the defaulted credit portfolio was lower than expected in the budget and was more favourable than the 2009 levels. It was also possible to increase the operating income and the net income 12% and 52%, respectively, when compared to the previous year. Totta Specialised Credit was also very focused on the internal support of training of employees in the commercial network and on the development of a

systematic programme of news and broadcasting of good practices. Additionally, special attention was dedicated to the improvement of service quality provided at the commercial networks and to the end customer, and the structures, procedures and processes were newly defined.

Insurance The activity of life insurance, operated by Santander Totta Seguros - Companhia de Seguros de Vida S.A., was guided by profound knowledge in regards to clients, which thus provided for a distribution model that is better adapted to client segments, and their respective needs, profiles, desires and possibilities. In addition to the availability of life insurance products of a simple nature related to credit or other banking products, a special focus was kept on the provision of a product selection focused on life insurance and credit protection, commercialised by the Bank in an open market . Additionally, focus was placed on the adequacy of the sale model. In regards to financial life insurance policies, the launching of monthly financial insurance policies called

Income Plan is of note. These plans are issued in the form of Icae Insurances, not standardised, divided in units of participation (unit linked) which seek to provide a monthly, quarterly or semester-based return (calculated based on the amount underwritten and paid in the form of a partial recovery). In relation to risk life insurance commercialised in the open market, the Job Protection Plan product is of note. This is a life insurance policy with unemployment coverage. The target clients are those with mortgage loans who do not have this type of protection. During 2010, 11,900 plans of this nature were sold. In 2010, more than 36,000 plans of the Life Plan were sold. This plan is aimed at the mass market segment. In order to render this insurance compatible with the specific needs and segments of the clients, an option of reduction of capital insurance was availed to clients over 45 years of age. For the Premium segment, the Premium Life Plan was offered. This plan provides more value added for the client through coverage for the 2nd Opinion by the Best Doctors. During the 4th quarter of 2010, the Integrated Solutions campaign was launched. This organised and focused campaign, , provided the network with a greater commercial dynamic in terms of cross-selling, which led to growth in the alignment between the needs for


coverage and savings and product selection, and a significant increase of the sales of insurance. The campaign covered the various coverage requirements held by the clients, presenting the best insurance coverage and savings. In regards to saving, the selection of products was increased with the launching of a new PPR (PPR Triunfo) and the Seguro Poupança SUB-18 was newly formulated. The value of the premiums issued and contributions for the investment contracts amounted to 1.197 million Euros, an increase of 30% in 2010. In risk and mixed insurance, in spite of the lower volume of new life insurance policies as related to consumer loans (stemming from a decrease in consumer credit), an increase of 1% in relation to premiums for 2010 was recorded. This increase represents 118.4 million Euros and stems from the diversification strategy for the sale of insurance in the

open market.

Outlook 2011

The expectations for banking activity in Portugal in 2011 will largely depend on the execution of the budgetary policy in Portugal and its impact on economic activity. It is expected that during the latter part of the year there will be improvement in the accessibility and conditions of international financing markets as long as the measures defined by the government prove to be effective, and as long as these are rigourously complied with by the State. Within the difficult and complex environment which is very demanding in relation to banking management and which is marked by smaller growth of business volume, higher costs of financing, and increased impairment levels and provisions stemming from increased default ratios, Santander Totta will maintain a strategy based on a client-focused commercial banking model which is disciplined and selective in relation to the prioritisation of lines of action. One of the main priorities established by Santander Totta is the equilibrium of the balance sheet, with a reduction of the commercial gap through the increase of deposits and stabilisation of credit levels. Management of margins, cost control and active management of risks and the quality of the credit portfolio will continue to be critical action areas for 2011.


Human Resources

Proximity to Business Operations and Harmony Human Resources management in 2010 was focused around 2 priorities which were of great importance to the business results attained by the Bank: • Proximity to the commercial network, supporting all

of the Human Resources processes (recruitment, mobility, and training);

• Continuation of the generation of conditions for employees to harmonise their family life with their professional career at the Bank.

Proximity

Within the scope of proximity to the departments and the business, the management of employees, strengthened with the addition of new graduates whenever necessary, ensured the maintenance of a stable team and the fulfilment of client and team needs. The over 1,000 employees interviewed by the Human Resource managers and the close to 400 visits to the service counters demonstrate the efforts made in order to understand and manage the internal potential of the Bank. Rejuvenation, training and favouring of internal promotions (upgrades) to functions of greater responsibilities were activities that marked the year: 304 upgrades to new functions were recorded, of which 45 were to Service Counter Directors. The Mobility and Careers Policy established by the Bank continued to deserve special attention. The Bank has continued to implement on-going dynamic movement as demonstrated through 74 internal recruitments, more than 30 employee transfers from central services to commercial networks and more than 1,000 employee transfers. It is important to refer to the realisation of the 2010 Mobility Programme , a part of the Training and Development Plan which seeks to prepare central service employees for professional career building within the commercial activity. This programme constitutes a challenge for employees and an opportunity to jumpstart their professional careers.

Within the scope of the guideline to remain close to business needs, training has made a relevant contribution through the completion of over 350,000 hours of training. The Commercial Competencies and Products Development Department and the Corporate Commitment and Values Department deserve particular attention having represented 39% and 27%, respectively of the administered training, percentages which amount to a total of close to 100,000 hours. It is also important to highlight the implementation support provided for the Parthenon Project, a unique platform that generates synergies, greater business agility, and improved customer service quality. The project encompassed close to 1,500 assistants and 12,000 hours of training. Additionally, the entire network of service counters was involved in the Programa Arte training, which included the participation of 1,600 employees and over 22,000 hours. The Santander Corporate Learning Platform was implemented, providing an online training environment which is available to all employees. This is an important step for the homogenous dissemination of Group culture and knowledge and for the systematic sharing of best practices.

Quantity of Hours of Training 355,600 Quantity of Hours of Training per Employee 63 Investment in Training 2.7 millionInvestment in Training/Salary Base 1.36% % E-learning Training 14%

Reinvent the Business was the central theme for the

3rd edition of the Women»s Management Conference, in which over 150 managers participated. The event once again affirmed the important role women play in the management of companies and represents a demonstration of the importance given to the Gender Equality Policy. Today, women represent 45.6% of the Bank staff.

Business Support Areas


The 1st Management Conference regarding Human Resource Management Policies was held in a transfer session for close to 100 managers of the policies that we would like to see engrained into team management practices. As part of the close relationship with universities, the Stock Exchange Programme was maintained and close to 350 internships were granted to young new-graduates.

Harmony During 2010, Santander Totta once again strengthened the measures to provide their employees with the conditions needed to harmonise their professional life and their personal life. Two new initiatives were implemented: (i) leave granted to parents so that they can accompany their 1st grade children on the 1st day of school; (ii) the concession of a day or two half days of leave per year for parents who are members of Parent Associations to ensure a more active participation in school life. The interest demonstrated by the participants in the

Parental Coaching programme resulted in a new edition of this program with new activities in Vila Real, Mesão Frio and Aveiro for employees who did not have the opportunity to participate in the 1st edition, and 2nd level activities in Lisbon and Porto. In line with common practice during recent years, the Bank decided to favourably consider the requests presented within the scope of the application for residential credit at ACT rates. For this purpose, the Bank availed a total amount of approximately 68 million Euros and thus provided facilitated access to improved conditions of family life. The children of employees continued to receive special attention, and the Best Students award programme was continued. This programme distinguishes the 12 children of employees who complete the 12th grade with an average of more than 16 points. Additionally, the habitual holiday activity programmes during Easter and Christmas for employee children were held. Approximately 60 children between the ages of 6 and 10 participated. The path that Santander Totta has been treading in terms of harmonisation was recognised this year with the granting of the Most Family Responsible Company award in May by Deloitte and AESE, as well as the receipt in November of the Certification by the Más Familia Fundación as a Family Responsible Company EFR. The Bank was the 1st company in Portugal to obtain this certification, a distinction that affirms the consistency of this line of action towards the harmonisation of

professional and personal life, and which reinforces the objective of being an employer of reference in Portugal.

Santander is You Programme The continuous development of initiatives which seek to reinforce the advantages of working at Santander and the promotion of dialogue between the management and their teams comprise the dominant traits of the

Santander Is You programme. This programme is already recognised and distinguished in the market due to the difference that Santander Totta has been introducing the Personnel Management model, especially as this relates to management in Portugal. The realisation of another edition of Santander Is You Week was held this year with the motto, Santander Is Good for You. This was the high point of the programme which joined a series of activities which involved all of the employees from the most distinct levels and summarised the spirit associated with this brand. Employee Day also is worthy of note, as a day which is dedicated to health and well-being. Direct Contact with a visit by managers to the counters and service centres across the diverse districts throughout the country and Mega Exchange which provides employees with the opportunity to learn the functions of other services are other activities conducted for this purpose. The efforts in relation to internal communication with the employees were continued. This is demonstrated through the more than 250 notices published during the year which provide a permanent flow of internal information with the teams. The implementation and development of various initiatives that decisively contribute to the improvement of living conditions of the needy and underprivileged population constitute a practice that embodies Solidarity, one of the advantages of belonging to Santander.

Recycle, Recover, Reuse Old Mobile Phones, Clean Portugal, A Book for a Smile, a campaign to collect presents for children in institutions, the Bread from Everyone initiative, (this year in Lisbon and in Porto), and a campaign to collect food for the Food Bank were some of the activities conducted in 2010 which the employees responded to with special enthusiasm and efforts.

Technology and Systems The Business Systems and Technology Department of Santander Totta in conjunction with the Corporate Technology and Operations Division is responsible for the identification of the technological means required for the Information Systems in each user department so as to best adapt the respective hardware, software and communications platforms to maximise the advantages of scale, new technologies and integrated management of


resources. Additionally, this department is responsible for the design of business processes, project implementation and operative control of the network. As part of the global strategy implemented by the Santander Group to possess a technologically standardised platform for all of the group units, the Partenón/Alhambra project was continued and following the applications which were migrated during the previous year, in October, the migration of the service counter systematic loan system was conducted. Additionally, the national and international transfers systems was implemented, the migration for which in December had been concluded in close to 398 counters with the objective of integrating, standardising and improving services rendered to clients. As part of this process, the Processes and Implementation Department undertook a critical intervention to redefine the entire operative model for an operative change, training the teams and supporting the network during the implementation of the operational changes that the new system required. With the objectives to continue to ensure the alignment of technological tools with business needs, investments were conducted in strategic areas, especially projects of a legislative, regulatory and/or risk management nature, with an overall investment, excluding the Partenón/Alhambra Project, of 200 thousand software development hours, encompassing close to 370 projects, of which more than 260 were complete and fully operational as of December 2010. One such project includes the online Payment and Collections Management Platform which is an integrated part of the NetBanco Corporate online banking system. This programme permits the optimisation of treasury management for companies through the provision of the following functionalities: • Automated management of payments and

collections; • Automatic issuing of invoices; • Automatic resending of collection notices; • Searching and updating of client and supplier

accounts; • Management information reports.

Additionally, the Client Contact Management Platform was launched. This application provides for the integrated and coordinated management of client contacts through the different channels, ensuring that a client is not contacted excessively, or with incoherent messages, and ensuring that each channel possesses updated information regarding clients who have already been contacted and feedback in regards to this contact.

In order to implement measures stemming from Basileia, several projects were developed to ensure firm steps were taken to comply with the Basileia requirements. With priorities established for compliance, operational continuity and quality, a set of measures was developed and implemented during 2010 in order to improve the efficiency and sustainability of information technologies management, thus gradually reducing the levels of operational risk and ensuring sustainability and continuity of business. In this area, various disaster recovery tests were conducted in order to ensure recovery of information systems in the event of a disaster. In the areas of business processes and implementation, various internal reorganisation procedures were conducted. These achieved results were conducive to the simplification and optimisation of tasks and resources, as well as to the reorganisation and normalisation of processes and coordination of new projects throughout the bank.

Quality Quality of services rendered and excellence of customer service constitute an integral part of the quality policy and the objectives established by Santander Totta as an element of client fidelity and competitive differentiation. Getting to know the customer and the establishment of a relationship of trust is an important factor which impacts customer retention. Customer satisfaction is of no less importance in this respect. After the 2008 Contact Plan, another set of activities which included all of the Bank employees throughout all of the levels of management, called Contact Plan II, was developed. In all, over 870 sessions throughout the Bank structure were held and all of the business areas of the Bank and central services were involved. The objective of Contact Plan II was to increase employee awareness regarding the importance of service quality, client knowledge and trust as essential factors for client satisfaction and fidelity. Client Experience In 2010, the Bank began a project related to client experiences (PEC). With this project, the intent is to improve customer experiences beginning with the improvement of those aspects which have been identified as less positive by the Focus Group with clients, external surveys, a new tool implemented at the end of 2009 which permits the control of all client incidences and the identification of those themes which most negatively impact client relationships with the Bank.


In this manner, a set of themes and respective improvement actions were developed, and a large percentage of these were implemented in 2010. The Radar Project also contributed to the PEC through the identification of situations in procedures which resulted in a lower quality of customer services. Certification The Radar Project also contributed to the PEC through the identification of situations in procedures which resulted in a lower quality of customer services. Complaints In relation to customer complaints, there was a reduction of the formal complaints received in spite of the unfavourable climate which was experienced throughout the year. Santander Totta considers these complaints to be an important source of the detection of potential problems and real opportunities to improve customer relationships. Commercial Networks In regards to the commercial networks, Individuals and Corporate and Business Network, META 100 was maintained in full operation. This is an indicator which incorporates different evaluations (operational metrics and customer satisfaction) and continued to present a very positive evolution in 2010. The percentage of service counters that present META 100 Indicator values considered superior (indicator ≥ 90 points) grew in 2010, reaching close to 81%, which reveals very positive evolution. The growth in the Corporate centres was 20%. Additionally, the percentage of clients that recommended the Bank increased 89%. Quality Management continued its systematic client satisfaction and service level evaluation policy. More than 66,000 telephone inquiries regarding customer satisfaction were made and more than 6,000 mystery contacts were conducted through physical presence and telephone.

Positioning In 2010, a more complete study of market position was conducted which provided much more relevant information in regards to the Bank as compared to its competitors. This study is also the result of the requirement from the corporate headquarters which seeks to compare the positions held by the diverse banks which comprise the group in relation to the various markets in which the group is present.


Consolidated Activity

Introduction In an economic and financial context which is difficult and complex resulting in the overall slowdown of economic activity, the deterioration of the levels of liquidity in markets and the increased defaulting of families and businesses, Santander Totta maintained a policy of balanced business growth, primarily focused on the growth of balance sheet resources and prudent management where risk and liquidity are concerned. This permitted the strengthening of the capital, efficiency and profitability ratios, and at the end of 2010, the Bank achieved core capital of 10.3% (+1.1 pp.), a Tier I of 11.2% (+0.2 pp.), an efficiency ratio (recurring) of 45.7% and an ROE of 15.3%. Santander Totta concluded the 2010 period with a net consolidated income of 434.6 million Euros, which compares to 523.3 million Euros accounted for in the previous year. This represents a 16.9% decrease, which can be explained due to the lower income stemming from the net interest income due to the slowing of credit growth, and pressure on the pricing of balance sheet resources, as well as the increase of structural financing costs, and, due to the strengthening of provisions and impairments in the period. In response to the intense slowing of economic activity, Santander Totta directed its strategy to selective growth, based on the Corporate sector. This included a rigourous

risk evaluation strategy in relation to financing, and resulted in an increase of 3.8% in large companies. Client resources increased 4.0%, especially as this relates to the Corporate segment, with growth of 30.4%, and Individuals grew 4.2% as compared to the previous period. In following an adequate liquidity policy, Santander Totta issued 3-year mortgage bonds during 2010, for a total of one billion Euros. The Bank continued its policy to strengthen those assets which are eligible for European Central Bank financing, and at the end of 2010 these totalled a gross of 15.6 billion Euros.

Net Income (million Euros)

523.3

434.6

2009 2010

Economic and Financial Information


Income Statement (Proforma)

million euro 2010 2009 Var.

Net Interest Income (without Dividends) 721.8 800.4 -9.8%Dividends 4.5 5.6 -21.0%Net Interest Income 726.2 806.0 -9.9%Net Commissions and Other Income 343.2 334.0 +2.8%Insurance Activity 38.3 35.5 +7.8%Commercial Revenue 1,107.8 1,175.6 -5.8%Gain/Losses on Financial Transactions (1) 60.6 89.3 -32.2%Operating Income 1,168.3 1,264.9 -7.6%Operating Costs (534.0) (551.4) -3.2% Personnel Expenses (308.3) (316.9) -2.7% Other Administrative Expenses (158.7) (165.5) -4.1% Depreciation (67.0) (69.0) -2.9%Net Operating Income 634.3 713.5 -11.1%Impairment and Other Provisions (1) (91.2) (77.5) +17.7%Income Before Taxes and MI 543.1 635.9 -14.6%Taxes (103.7) (105.4) -1.6%Income After Taxes 439.3 530.6 -17.2%Minority Interests (4.7) (7.3) +35.6%Net Income 434.6 523.3 -16.9%(1) Includes the reclasification of the gain with the sale of Angola (28,1 M€ in 2009 and 54,0 M€ in 2010), the gains with the sell of loans (4,3 M€ in 2009 and 0,1 M€ in 2010) and the gain with the valuation of the participation in Unicre (21,2 M€ in 2010), from gains on financial transactions to impairment and other provisions

The evolution of the net income was determined primarily by the decrease in the net interest income and gains from financial operations, and by the strengthening of provisions, in spite of the favourable evolution recorded in net commissions, insurance activity and operating costs. The net interest income, the main component of income, amounted to 721.8 million Euros, reflecting a reduction of 9.8% as compared to 2009. This was the result of the slowing rhythm of credit volume growth and the tightening of spreads of client resources, thus reflecting a very competitive environment for the attraction of these, the limited access to and increased costs of funding, and the smaller result of balance sheet coverage which favoured 2009 due to the timing difference between the establishment credit repricing and the drop of the Euribor rate. Net commissions and other income from the banking activity amounted to 343.2 million Euros, as compared to 334.0 million Euros in the same period during the previous year, thus presenting 2.8% growth. This performance is largely the result of the favourable evolution of commissions from investment funds, financial insurance and investment banking. Insurance activity reached 38.3 million Euros, growing 7.8% in comparison to the previous period, a result of

the increase of the technical margin of financial insurance and risk associated with mortgage credit. The gains from financial operations amounted to 60.6 million Euros, representing a reduction as compared to the same period from the previous year of 32.2%. However, this amount represents only 5% in terms of the Bank revenue due to the lower income from this activity with clients. The evolution recorded in the net interest income and stemming from financial operations resulted in a drop of 7.6% in relation to the operating income, amounting to 1,168.3 million Euros at the end of 2010, as compared to 1,264.9 million Euros at the end of 2009.

Operating Income (million Euros)

806.0 726.2

369.6381.5

89.360.6

2009 2010

Gains on Financial TransactionsNet Commissions & Other IncomeNII


Operating costs including personnel expenses, general expenses and depreciation amounted to 534.0 million Euros, corresponding to a decrease of 3.2% in comparison to the similar period from the previous year. This is the result of a rigourous cost control policy,

especially as this relates to the environmental framework of a weak evolution of the operating income. At the end of 2010, the Bank´s commercial network included a total of 758 customer service locations.

million Euros 2010 2009 Var.

Personnel Expenses 308.3 316.9 -2.7%

Other Adninistrative Expenses 158.7 165.5 -4.1%

Operating Costs 467.1 482.4 -3.2%

Depreciation 67.0 69.0 -2.9%

Total Operating Costs 534.0 551.4 -3.2%

Efficiency Ratio (excludes depreciation) 40.0% 38.1% +1.9 p.p.Efficiency Ratio (includes depreciation) 45.7% 43.6% +2.1 p.p.

As a result of the decrease in revenues in excess of the amount recorded in relation to operating expenses, the efficiency ratio (with depreciation) increased 2.1 p.p., passing the 43.6% recorded in 2009, to register 45.7% in 2010.

#REF!

Efficiency Ratio (includes depreciation)

43.6% 45.7%

2009 2010

+2,1 p.p

In relation to productivity, favourable indicators were presented by Santander Totta.

million euro 2010 2009 Var.

Loans(1) per Employee 5.9 5.8 +1.7%Resources per Employee 4.6 4.4 +4.4%Loans(1) per Branch(2) 46.0 45.2 +1.7%Resources per Branch(2) 35.6 34.1 +4.3%(1) Includes guarantees(2) Includes branches (Portugal and abroad), business centers and representation offices

The impairments, net provisions and other income which include the reclassification of the non-recurring amounts totalled 91.2 million Euros, resulting in an increase of 13.7 million Euros as compared to the amounts recorded in 2009. This strengthening reflects the Bank´s policy of prudence in the evaluation of risks and the maintenance of adequate coverage in light of the current macroeconomic environment. However, it also represents the ageing of the due and owing credit portfolio.

Net income from 2010 includes the accounting of a capital gain of 21.2 million Euros due to the increase of the holdings in the Bank in Unicre, and its subsequent new appraisal, as well as a capital gain of 54.0 million Euros stemming from the reduction of the exposure in the Banco Totta Angola (in 2009, an additional capital gain of 28.1 million Euros was recorded).


Balance Sheet and Activity The evolution of activity in 2010 was constrained by the tight restrictions on the institutional debt markets and on the money markets, due to the increased tension of the sovereign debt of Portugal and of other Euro Zone countries.

In this environment of great scarceness of liquidity, Santander Totta followed a selective process of credit concession, while simultaneously maintaining focus on the attraction and retention of balance sheet resources.


Business Volume 61,979 60,565 +2.3%

Total Gross Loans (includes guarantees) 34,898 34,514 +1.1%

Gross Loans (1) 33,351 32,906 +1.4% of which

Commercial Banking 29,114 28,753 +1.3% Loans to Corporates 10,416 10,231 +1.8% SME/Small Business 4,119 4,089 +0.7% Corporates 6,297 6,142 +2.5%

Loans to Individuals 18,698 18,522 +1.0% of which

Mortgage Loans (including securitization) 16,452 16,236 +1.3% Consumer Loans 1,610 1,638 -1.7% Large Corporates 3,900 3,757 +3.8%

Customers' Resources 27,081 26,051 +4.0% Commercial Banking 23,041 21,821 +5.6% Individuals and Small Businesses 21,569 20,692 +4.2% Deposits 13,788 12,271 +12.4% Securities issued (clients), inv. funds, insurance and other 7,781 8,422 -7.6%

Corporates 1,472 1,129 +30.4%

Large Corporates, Institutionals and other 4,040 4,230 -4.5% (1) Includes securitization and commercial paper

2009 Operating Income

Operating Costs

2010Impairment & Other

Provisions

Taxes & MI

Net Income (million euros)

523.3 -96.6

+17.4 -13.7 +4.2 434.6

2009 Operating Income

Operating Costs

2010Impairment & Other

Provisions

Taxes & MI

Net Income (million euros)

523.3 -96.6

+17.4 -13.7 +4.2 434.6


In December of 2010, turnover amounted to 62.0 billion Euros, representing an increase equivalent to 2.3%. Credit, including guarantees, contributed to this figure with a 1.1% rise to a total of 34.9 billion Euros, and client resources with a growth of 4.0%, totalling 27.1 billion Euros. Total deposits grew 12.4%. In an economic framework characterised by a lower demand for credit and greater restrictions for the concession of credit, growth of the credit portfolio was supported on the Corporate sector, and recorded growth of 3.8% in the Large Companies segment and credit granted to PME´s (Small & Medium Businesses), which grew 1.8%. The Bank continued to actively promote the PME Investe Lines, and held a market share of 16.2%. Credit granted to individuals reached 18.7 billion Euros, representing growth of 1.0% in relation to the previous period. This was impacted by the deceleration of the residential credit growth rate which increased 1.3% to reach 16.5 billion Euros, in accordance with the shrinking real estate sector and the reduction of individual purchasing power. Consumer credit continues to show signs of slowing, showing a rate of change of -1.7% as compared to the previous period.

* Includes securitization and guarantees

Loans to clients* (billion Euros)

1.1%

18.5 18.7

10.2 10.4

3.8 3.92.0 1.9

2009 2010

OtherLarge CorporatesCorporatesIndividuals

34,934,5

The deterioration of the economic activity and increasing levels of unemployment resulted in a worsening of the credit portfolio risk quality indicators; however, Santander Totta continues to present NPL ratios which are close to half of the average rates in the banking sector. In December 2010, the ratio of credit that was more than 90 days overdue was approximately 1.34% (+0.19 p.p. as compared to the previous period). The respective level of coverage with provisions was 127.2% (135.9% in 2009). The NPL and doubtful loans ratio as a percentage of total credit, calculated in accordance with the definition established by the Bank of Portugal, reached 1.36% at the end of 2010, above the 1.17% recorded in 2009, but considered positive in light of the current economic conditions.

2010 2009 Var.

Non Performing Loans Ratio 1.43% 1.22% +0.21 p.p.Non Performing Loans Ratio (+90 days) 1.34% 1.15% +0.19 p.p.Non Performing Loans and Doubtful Loans Ratio 1.36% 1.17% +0.20 p.p.

Non Performing Loans Coverage Ratio 119.5% 128.6% -9.1 p.p.Non Performing Loans Coverage Ratio (+90 days) 127.2% 135.9% -8.7 p.p.NPL and Doubtful Loans Coverage Ratio 125.8% 133.6% -7.8 p.p.

Client resources reached 27.1 billion Euros, a 4.0% rise as compared to the amount recorded during the previous period.

Customer Resources (billion Euros)

4.0%

20.7 21.6

1.1 1.54.2

4.0

2009 2010

Large Corporates, Institutionals and OtherCorporatesIndividuals 27,1

26,1


In a context of shortage of liquidity in the international financial markets, the evolution in customer resources of Santander Totta is particularly important, with a growth as compared to 2009 of 4.2% for Individuals and Small Businesses representing 79.6% of total resources. Balance sheet resources amounted to 17.5 billion Euros, representing 65% of the total resources attracted from clients and recorded growth of 11.0%,

while resources off the balance sheet totalled 9.5 billion Euros, having decreased 7.0% as compared to 2009, as the result of the recorded decrease of investment funds. This evolution resulted in a commercial gap reduction of close to 1.3 billion Euros (-7.6%).


Customers' Resources 27,081 26,051 +4.0% On-Balance Sheet Resources 17,577 15,830 +11.0% Deposits 17,018 15,052 +13.1% Securities issued (clients) 559 778 -28.2% Off-Balance Sheet Resources 9,503 10,221 -7.0% Investment Funds 4,524 5,379 -15.9% Clients' assets management 131 122 +7.1% Insurance and Other Resources 4,848 4,719 +2.7%

By Segment:Customers' Resources 27,081 26,051 +4.0% Commercial Banking 23,041 21,821 +5.6% Individuals and Small Businesses 21,569 20,692 +4.2% Deposits 13,788 12,271 +12.4% Securities issued (clients), inv. funds, insurance and other 7,781 8,422 -7.6%

Corporates 1,472 1,129 +30.4%

Large Corporates, Institutionals and other 4,040 4,230 -4.5%

Capital Adequacy Ratio In December of 2010, as a reflection of the financial solidity of Santander Totta, the core capital and Tier I ratios were situated at 10.3% and 11.2%, respectively, including retained earnings and income generated (9.2% and 11.0% in 2009). Excluding retained earnings, the core capital and Tier I ratios reached 9.4% and 10.7%, respectively (8.3% and 10.0% in 2009).

The solvency ratios were calculated within the regulatory context of Basileia II, with the application of the method of internal ratings based (IRB advanced) on the calculation of capital requirements for a substantial part of the loan portfolio. The basic indicator approach was used for calculating the capital requirements for the coverage of operational risk. In December 2010, the risk market, which previously had been calculated according to the standard method, began to be calculated based on internal models for most of the derivatives and FEI»s.


Total capital 2,710 3,140 -13.7%

Tier I Capital 2,719 2,896 -6.1%

Tier II capital -9 244 -103.9%

Risk weighted assets 24,355 26,405 -7.8%

Core Capital 10.3% 9.2% +1.1 p.p.

Tier I 11.2% 11.0% +0.2 p.p.

Solvency Ratio 11.1% 11.9% -0.8 p.p.


Introduction

In accordance with the Group corporate policy, quality in risk management at Santander Totta is a fundamental basis of operations. Prudent risk management associated with the utilisation of advanced management techniques has been a decisive factor, particularly in the environment of great volatility in financial markets.

Credit Risk

Main Principles Underlying Activity During 2010 activity in the area of credit risk was based upon the following main principles:

• Maintenance of the principle of segmentation in relation to credit risk, differentiating the handling of risk as a function of client and product characteristics;

• Strengthening of the quality of risk admission analysis instruments, adjusted and differentiated as a function of each market segment, ensuring the increasing quality in the admission of and monitoring of risks and continual improvement of the quality of credit portfolios;

• In relation to risks within the portfolio, preventative action was pursued in order to seek to anticipate problems. As a result, reduced levels of overdue and defaulted credit were maintained. Simultaneously continuous support was given to commercial networks in order to pursue growth of the banking product and business portfolio: Rones, client visits, pre-classifications, commercial risk and business binomials;

• In relation to standardised risks, information system tools were upgraded through the increased usage of automatic systems, including the behavioural scoring tool Triad, which has a more predictive characteristic and ensures that more proactive intervention can be pursued in relation to clients, maximising business growth, strengthening the quality of service provided to clients and preserving the quality of the portfolio;

• In terms of the monitoring function, continual focus was maintained in relation to improving knowledge in relation to the portfolio and the quality of management information, thus seeking to avoid defaults and in the event of irregularities, to assume

a proactive stance to resolve these through the policy of restructuring agreements;

• Increased focus on recoveries, concentrating on negotiation and attainment of receipt of payments as an alternative to legal action.

Indicators

Loans (million €)

-

5,000

10,000

15,000

20,000

25,000

Dec/09 Dec-10

With real estate guaranteewithout real estate guarantee

% real estate guarantee

56%57%

Risk Model Credit risk stems from the possibility of losses derived from total or partial defaulting in relation to financial obligations contracted with the Bank by clients.

Risk Management

Source: Banco de Portugal

NPL Ratio

0,0 %

0,5 %

1,0 %

1,5 %

2,0 %

2,5 %

3,0 %

3,5 %

4,0 %

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10

Santander Totta

Sector


The credit risk function organisation is specialised in the function of typing clients, and differentiating throughout the risk management process between registered clients in the portfolio and standardised clients (not registered within the portfolio). • Clients registered within the portfolio are those who,

fundamentally as a result of the risk assumed, have a risk analyst attributed to them. In this group are those companies pertaining to wholesale banking, financial institutions and some of the retail banking companies. The evaluation of the risk of these clients is conducted by the analyst, complemented with the decision support tools based on internal risk evaluation models;

• Standardised clients are those who do not have a specifically designated risk analyst to monitor them. In this group are individuals, business people under their individual names and unregistered retail banking companies.

The evaluation of these risks is based on internal valuation models and automatic decisions. These are complemented in a subsidiary manner when the model is not sufficiently precise, by teams of analysts specialised in this type of risk.

Classification Tools (Rating / Scoring)

Santander Totta uses its own solvency classification models or internal ratings for different client segments in order to measure the credit quality of a client or the corresponding operation, and allocate a rating in relation to the probability of default. The overall classification tools are applied to the country risk segments, financial entities and global wholesale banking, not only in determining the rating, but also in the monitoring of risks undertaken. These tools attribute a rating to each client as a result of a quantitative module, or automatically, based on data/balance sheet ratios, or macroeconomic variables, complemented by analysis performed by risk analysts who monitor the client. In relation to retail/personal banking companies and institutions, the rating is attributed based upon the same modules as referenced above, in this case quantitative or automatically through the analysis of the credit behaviour of a sampling of clients and their correlation with a set of data and accounting ratios, and qualitatively based on the risk analysts´ evaluation, who has the obligation to conduct a final revision of the attributed rating. Attributed ratings are periodically reviewed to incorporate new financial information which has become available in the meantime, and qualitatively based on the experience stemming from the evaluation of the existing credit

relationship. This periodicity increases for those clients in which the internal alert systems and risk classification systems so require. For standardised risk portfolios, both for individuals as well as for unregistered businesses, scoring tools are implemented which automatically attribute a valuation/decision regarding presented operations. These decision tools are used in conjunction with a behavioural scoring model, which permits greater predictability of risks assumed and which are used both prior to and after the sale.

Credit Risk Parameters The valuation of the client and/or operation through rating or scoring constitutes an evaluation of credit capacity which is quantified through the probability of default or PD. In addition to the valuation made in relation to the client, the quantitative analysis of the risk considers other aspects such as the time frame for the operation, the type of product, and any existing guarantees. In this manner, not only is the probability of default by the client in relation to his/her contractual obligations taken into account (PD), but also the moment of the default (exposure at default or EAD) and the percentage of the EAD which will not be able to be recovered (loss given default or LGD) are calculated. These factors constitute the main parameters of credit risk. Their combination provides for the calculation of probable or expected loss, which is considered to be an expense from operations, reflecting the risk premium, and this expense is conveniently included in the cost of operations. These are the parameters which also provide for the calculation of unexpected loss which is the basis of the regulatory capital calculation in accordance with the norms of the Basileia capital agreement (BIS II) [Basel Accord]. This unexpected loss is that which reflects a very elevated level of loss, but which is not very probable, and which due to its nature should not be considered as recurring and as such should be duly covered by equity. In small and medium-sized companies, the balance sheet information serves not only to attribute a rating, but also to obtain explicative factors regarding the probability of default. In retail portfolios, the PD is calculated through the observation of the entrances in default and the correlation of these with the scoring attributed to operations. Those portfolios which are exceptions are those which present a lower internal experience of defaults, such as financial institutions, country risk or global wholesale banking. The calculations of these


parameters is conducted based upon alternative sources of information such as market prices or studies by recognised agencies with experience and competence and with portfolios of a sufficient number of entities. (These portfolios are called low default portfolios.) The LGD calculation is based on the observation of the recovery process of operations in default, taking into account not only the revenue and expenses associated with this process, but also the moment in which these occur and the indirect costs stemming from the collection recovery activity. The EAD estimate is based on the comparison of the use of the compromised lines at the time of default and in a normal situation, in order to identify the real consumption of the lines at the time in which the default is verified. The parameters as estimated are then applied to operations which are in a normal situation, and are differentiated to the low default portfolios and the others.

Rating Scale In order to establish equivalency between the internal ratings and the different existing models corporate, country risk, financial institutions, etc. and to ensure the comparison of these to external ratings issued by international agencies, the Bank uses an equivalency table. The equivalency is established through the default probabilities associated to internal ratings with the rates of default associated to the external ratings as periodically published by ratings agencies.

Credit Risk Cycle The risk management process consists of the identification, measurement, analysis, control, negotiation, and decision-making in regards to risks incurred as part of the operations conducted by the Bank. This process begins in the business areas which propose a given propensity to risk. These risks are analysed and decided upon by internal committees, which act based upon competencies delegated by the Executive Committee of the Board of Credit (CSC). It is the CSC that establishes the policies and procedures for risks and establishes the limits and delegation of facilities.

Planning and Establishment of Limits The establishment of risk limits is conceived through a dynamic process that identifies the risk profile which the Bank is willing to assume, through the evaluation of

business proposals and the opinion from the Risk Department. In relation to large corporate groups, a pre-classification model based on an economic capital measurement and monitoring system is used. In relation to registered risks, the most basic level is that of the client and when certain characteristics are present generally a relative level of importance it becomes the

object of an individual limit habitually designated as pre-classification, through a more simplified system and normally for those clients who fulfil determined requisites (good knowledge, rating, etc.). In relation to standardised risks, the planning process and establishment of limits is conducted through the overall preparation by the Risks and Business Department, through Credit Management Programmes (PGC) in which the results expected from the transactions in terms of risk and return are reflected, as well as the limits to which the activity should be subjected and the management of associated risks.

Study of Risk, Operational Decisions, Monitoring and Control

The study of risk is a prerequisite to the authorisation of any operation at Banco Santander Totta. This study consists of the analysis of the capacity of the client to fulfil its contractual commitments with the Bank. This implies the analysis of the client´s creditworthiness, its credit operations, its solvency and its return. Additionally, a study and a review of the rating attributed are conducted whenever a warning or an event which affects the client/operation is verified. The operational decision-making process has as its objective the analysis and decision related to these, taking into account the risk profile and the elements which are relevant to the operation and the definition of a balance between the risk and the return. In order to maintain adequate control of the credit quality of the portfolio, in addition to the activities performed by the Internal Auditing Department, within the Risk Department is a specific monitoring function which is comprised of teams and managers. This function is also specialised in the function of client segmentation and is fundamentally based on the continuous process of observation which provides for the early identification of incidents that may occur in the evolution of the risk of the operations and in relation to the client, in order to adopt a proactive posture of actions designated to mitigate these.


Recovery/Collections Recovery management at Santander Totta is a strategic, integral and business-related activity. The specific objectives of the recovery process are as follows:

• Ensure the collection or the return to current status of amounts in an irregular situation, prioritising solutions based on negotiation, in order that the credit situation of the client returns to normal. In the event that negotiation is not possible, the Recovery Department may seek to recover credits through judicial measures;

• Maintain and strengthen client relations, conditioning

this behaviour based on the level of commitments which the client has contractually assumed with the Bank.

The collections activity is structured in accordance with the commercial segmentation of the clients: Individuals & Businesses and Companies, with specific management models. Collection management, thus segmented, also respects the distinct phases of management: preventative management, management of irregularities, and management of defaults and bankruptcies, which have models, strategies and specific circuits. All of this activity is shared with all of the business areas.

Counterparty Risk Counterparty risk, latent in contracts conducted in financial markets organised markets or the Over the Counter Market (OTC) corresponds to the possibility that the counterparties of the contracted terms will default, and subsequently, financial losses for the institution will occur. The types of transactions covered include the purchase and the sale of stocks, interbank monetary market operations, contracting of repos , loans of stocks and derivative instruments. The control of these risks is conducted through an integrated system that permits recording of approved limits and supplying of available information for these for the different products and maturities. This system also

enables the concentration of risks for determined groups of clients/counterparts to be controlled in a transversal format. The risk of derivative positions, called Credit Equivalency Risk (REC), is calculated as a sum of the present value of each contract (or actual cost of substitution) with the respective potential risk, a component that reflects an estimate of the maximum amount expected up through the due date in accordance with the volatility of the relevant market factors and the contracted structure of flows. During 2010, a reduced exposure to financial entities was maintained. In relation to exposure to non-financial entities, there was an increase due to the evolution of the Euro interest rate, and a reduced volume of new contracts.


Santander Totta SGPSDerivatives - Credit Risk Equivalent as of 31/12/2010 (103 Euros)

<1 Year 1-5 Years 5-10 Years >10 Years TotalInterest Rate Derivatives 11,296 329,988 169,184 1,193,789 1,704,258Foreign Exchange Derivatives 7,832 7,272 62,523 0 77,627Equity Derivatives 3,166 36,662 0 0 39,828Total 22,294 373,922 231,708 1,193,789 1,821,713

<1 Year 1-5 Years 5-10 Years >10 Years TotalInterest Rate Derivatives 3,844 1,438 4,430 0 9,711Foreign Exchange Derivatives 0 0 0 0 0Equity Derivatives 0 36,473 0 0 36,473Total 3,844 37,911 4,430 0 46,184

<1 Year 1-5 Years 5-10 Years >10 Years TotalInterest Rate Derivatives 7,453 328,550 164,755 1,193,789 1,694,547Foreign Exchange Derivatives 7,832 7,272 62,523 0 77,627Equity Derivatives 3,166 190 0 0 3,355Total 18,451 336,011 227,278 1,193,789 1,775,529

Total Consolidated

Financial Groups

Non Financial Groups

Market Risk Activities Subject to Market Risk The segment responsible for the measurement, control and monitoring of financial risks includes operations which assume capital risk. The risk stems from the variation of risk factors interest rate, exchange rate, variable profits and the volatility of these as well as the risk of solvency and risk of liquidity of the diverse products and banking activity markets in which Santander Totta operates. In function of the purpose of the risk, the activities are segmented in the following manner: • Negotiation: in this segment, the activity of financial

service to clients is included; • Balance Sheet Management: interest rate and

liquidity risk as a result of timing differences which exist in relation to due dates and repricing of assets and liabilities. Additionally in this element is the active management of credit risk which is inherent to the banking activity conducted by Santander Totta;

• Structural Risks: − Structural Exchange Rate Risk: exchange rate risk

as a result of the divisions in which investments are made in consolidated or unconsolidated companies;

− Variable Structural Return: included in this item are investments through capital holdings in companies which do not consolidate, financial and non-financial, generating risk of variable return.

Methodologies

Negotiation Activity The standard methodology applied during the 2010 period as part of the banking activity conducted by Santander Totta for the negotiation activity is the Value at Risk (VaR). It is used as a basis for the historical simulation standard, with a confidence level of 99% and a horizontal time line of one day. Statistical adjustments are applied which ensure that the most recent occurrences are included in a rapid and efficient manner and that condition the levels of assumed risks. As a complement, a scenario analysis (stress testing) is used. These consist of the definition of behaviour scenarios of different financial variables and the attainment of the respective impact on results when these are applied to activities. These scenarios can replicate the behaviour of financial variables in relation to factors which have occurred in the past (such as crises), or to the contrary, may determine plausible scenarios which do not correspond to past events. In summary, the analysis of scenarios seeks to identify the potential risk of extreme market conditions and the levels of probability of occurrences which are not covered by the VaR. Various sensitivity measurements are calculated (BPV and Greek) and equivalent volumes. In parallel, daily monitoring of positions is conducted, thus encompassing an exhaustive control of the changes which occur within the portfolios in order to detect profile changes or eventual incidences for corrections. The daily preparation of the income account is an


indicator of risks, to the extent that it permits the identification of the impact from variations of financial variables, or from the alteration of portfolio composition.

Calibration and Contrast Measures (Back-Testing) The reliability of the VaR model is periodically calibrated through a back-testing analysis. Back-testing is comprised of a comparative analysis between the Value at Risk (VaR) calculations and the clean daily income (clean P&L income associated with the revaluation of portfolios as at the close of the day prior to the closing prices of the following day), in which the spot/sporadic deviations of the income are verified in relation to the estimated measurements. Back-testing analyses which are conducted by Santander Totta for the banking activity comply with the BIS recommendations in terms of the comparison of the internal systems used in the measurement and the management of financial risks. Additionally, as part of back-testing, hypotheses are tested: excess testing, normality testing and measurements of average excesses, etc. are also conducted.

Limits For the negotiation portfolios, quantitative limits are used. These are classified in two groups which are established as a function of the following objectives: • Limits set to protect the volume of potential future

losses. An example of this type of limits are VaR limits over sensitivity measurements (BPV or Greek) or over equivalent positions;

• Limits set to protect/accommodate the volume of effective losses or to protect income levels already achieved during the period. This type of limit has as its objective the issuing of alerts regarding positions that are generating losses (loss triggers), thus ensuring that decisions can be made prior to reaching the maximum loss (stop loss), at which point it is considered that losses have reached an unacceptable level and the immediate closure of positions will be made.

Quantitative Analysis of VaR Throughout the Year The evolution of risk as related to the negotiation activity within financial markets during 2010, quantified through VaR and VaE, is as follows:

-300,000.0

-250,000.0

-200,000.0

-150,000.0

-100,000.0

-50,000.0

0.0

50,000.0

100,000.0

150,000.0

200,000.0

250,000.0

05-J

an-1

0

19-J

an-1

0

02-F

ev-1

0

16-F

ev-1

0

02-M

ar-1

0

16-M

ar-1

0

30-M

ar-1

0

13-A

br-1

0

27-A

br-1

0

11-M

ai-1

0

25-M

ai-1

0

08-J

un-1

0

22-J

un-1

0

06-J

ul-1

0

20-J

ul-1

0

03-A

go-1

0

17-A

go-1

0

31-A

go-1

0

14-S

et-1

0

28-S

et-1

0

12-O

ut-1

0

26-O

ut-1

0

09-N

ov-1

0

23-N

ov-1

0

07-D

ez-1

0

21-D

ez-1

0

VaE 99.00% VaR 99.00% The VaR maintained reduced levels, varying between 42 thousand Euros and 240 thousand Euros.

Balance Sheet Risk Decisions regarding the management of structural risk are taken by the Assets and Liabilities Committee (ALCO), which is presided over by the Chairman of the Executive Committee, and in which the highest management bodies of the Group participate. The committee meets on a monthly basis. Interest Rate Risk Interest rate risk for the consolidated balance sheet is measured through a dynamic balance sheet market risk analysis model and the positions of the Bank in regards to assets and liabilities which are sensitive to interest rate variations. The model used permits the measurement and control of all of the risk factors associated to the balance sheet market risk, specifically risk originating directly from the movement of the profitability curves given the existing indexing and revaluation structure which determines the exposure to the interest rate risk of aggregates that comprise the balance sheet. In light of the uncertainty related to the evolution of interest rates during 2009, a policy to maintain sensitivity at low levels was adopted. Exchange Rate Risk The exchange rate risk of commercial activity is measured and controlled through the overall exchange rate position, and the Group has established this as its strategy of total coverage. Liquidity Risk The policy of liquidity which is followed is based upon low liquidity risk and the continual diversification of sources of financing, maintaining in perspective the volume and nature of the financing instruments to be used to ensure the fulfilment and good development of the established business plan.


Through the maintenance of a conservative risk profile, the Bank is more protected from potential crises that affect the business environment and which will provide the Bank more time to prepare an adequate reaction of quality. The policy related to the mix of financing always seeks to establish an adequate liquidity risk level as its basis in accordance with the established limits, and it is the target of monthly appraisals by the ALCO. Risk of liquidity limits are established by an independent management organ that, among other indicators, requires a reasonable volume of liquid assets available to function as a liquidity cushion. All of the liquidity management processes at Santander Totta are centred upon the prevention of crises and not on the reaction to these. This idea is aligned with the contingency plan that is centred on the modelling of potential crisis through analysis of diverse scenarios, the identification of the type of crises, the definition of internal and external communications, as well as the responsibilities of each one of the areas involved in the process. Liquidity management is conducted at the consolidated level. The financing policy takes into account the evolution of the balance sheet aggregates, the structural situation of the time frame for expiration of assets and liabilities, the net level of interbank indebtedness as compared to the available lines, the dispersion of expiration dates and the minimisation of costs associated with funding activity. During 2010 the following contributed to the structural balance: issuing of mortgage bonds of one billion Euros, issuing as part of the EMTN programme 763 million Euros and issuing of medium and long-term liabilities under the form of deposits or bonds, placed with retail clients. Throughout the year, the ECB assumed a role as a counterpart to the system through operations of granting and absorption of liquidity. In order to participate in these operations, it is necessary to detain assets considered to be eligible by the ECB for collateral of these operations. At the end of 2010, the Bank possessed 15.6 billion Euros of eligible assets which comprise a significant liquidity cushion, considerably reducing liquidity risk. Additionally, the possibility that the Bank may seek the issuance of 2 billion Euros as part of the guarantee of the Portuguese State must be considered.

Operational Risk Santander Totta defines operational risk as the risk of loss resulting from deficiencies or failures of internal processes, human resources or systems, or derived from

external circumstances. In general, these are risks that are found in internally generated processes (people, systems, etc.) or as the result of external risks such as natural catastrophes. The objective of operational risk control and management is fundamentally based on the identification, measurement/evaluation, control/mitigation and information in regards to the respective risk. The operational risk management and control model is based on the direct and active management by all of the departments in relation to the entirety of the phases of the operational cycle and which is based on the decentralisation of functions and responsibility, through a central area that controls and supervises, and which is responsible for the implementation of the corporate project. The operational risk management model as implemented has the following advantages: • Provides for the complete and effective management

of operational risk; • Provides better knowledge of operational risks, both

effective as well as potential, and the attribution of these to the supporting business lines.

Additionally, the management target defines management directives in such a way that the control of this risk is determined by the organisation´s high management. The model, as a whole, fulfils the requirements set out by Basileia II, as well as those established by the Bank of Portugal. The implementation and the constant improvement of management targets ensure that the following objectives are achieved: • Identification, evaluation and monitoring of

operational risks throughout all of the business lines and units, facilitating management decision-making and ensuring that priorities are established efficiently;

• Control and mitigation of operational risks from all of the business lines and units, identifying and eliminating the sources of risk.

In this manner providing: • Complete and effective management of operational

risk (identification, evaluation, prevention, control/mitigation, monitoring and reporting);

• Improvement of the knowledge of operational risks, both effective as well as potential and the allocation of these within business lines;

• Improvement of processes and controls and reduction of losses.


As part of the scope of Operational Risk: • Operational risk coordinators are designated within

all of the relevant departments; • Self-evaluation surveys are prepared in which

situations of potential risk are identified and, consequently, recommendations and corrective measures can be applied;

• Indicators are defined for control and operations which are periodically reported by the respective departments. There is a data base containing events related to errors and operational incidents for which a monthly report is issued;

• The events are identified and classified in accordance with the risk categories and business areas as defined in BIS II;

• The most significant and frequent events are identified and mitigation measures are adopted in relation to these;

• Reconciliation between accounting and the database is performed in order to ensure the reliability of the information;

• Information and report mechanisms are established in relation to the event record which include not only the current situation, but also the tendency or comparative evolution with prior periods;

• Limits of operational risk are defined which permit the analysis of the risk profile of the institution.

Reputational Risk Reputational risk is understood to be the probability of the occurrence of negative financial impacts to the institution, with a subsequent impact to income or equity, as the result of an unfavourable perception in relation to the institution»s public image, whether or not this is founded, by the clients, suppliers, analysts, employees, investors, social communication bodies and any other entities with which the institution holds relationships, or by the public opinion in general. The reputational risk policy has as its purpose the management of this risk, such as defined in the foregoing paragraph. The mechanisms and procedures which permit i) minimisation of the probability of such an occurrence; ii) identification, reporting to the administration and procedures to overcome situations which eventually are verified; iii) assurance of the

monitoring and control of these; iv) provision of evidence, when necessary, that the Bank has reputational risk among its essential concerns and possesses the organisation and means required for its prevention, detection and, if necessary, the capacity to overcome such events. Without prejudice to all of the other aspects that stem from this exposure, the global policy related to reputational risk specifically covers the below identified instruments that refer to its particular impact on the prevention and management of risk: • Corporate values; • Compliance policy; • Prevention of money laundering and financing of

terrorism; • Codes of conduct; • New products policy; • Financial risk policy; • Quality policy; • Corporate social responsibility and environmental

protection policies.


The net income from the period, in individual terms and in relation to 2010, was €279,892,299.08 (two hundred and seventy-nine million, eight hundred and ninety-two thousand and two hundred and ninety-nine Euros and eight cents) and the consolidated income in 2010 was €434.627.003 (four hundred and thirty-four million, six hundred and twenty-seven thousand and three Euros). Under the terms of Article 19 of the articles of association the Board of Directors hereby proposes the following distribution of earnings to the General Assembly:

– Legal Reserve: €27,989,229.91 (twenty-seven million, nine hundred and eighty-nine thousand, two hundred and twenty-nine euros and ninety-one cents);

– Dividend Distribution: €205,000,000.00 (two hundred and five million euros), of which €115,000,000.00 (one hundred and fifteen million euros) have already been paid by way of advance;

– The remainder, in the sum of €46,903,069.17 (forty-six million, nine hundred and three thousand and sixty-nine euros and seventeen cents) to retained earnings.

Lisbon, 1 March 2011

THE BOARD OF DIRECTORS

Proposed Earnings Distribution


Prevention of Money Laundering

Banco Santander Totta joins with the authorities and society in general in the concern regarding the consequences and prejudices from money laundering and financing of terrorism, due to the valorisation of the essential aspects of life in society. As such, the Bank follows policies and criteria related to its activities and applies procedures so as to conduct its business in conformity with the applicable legislation, providing for the detection, containment, and impeding of situations of eventual risk. The Bank possesses regulations in line with the legislative structure, fulfils its duties as determined by the law, and avails an organic structure which is exclusively dedicated to the prevention and control of capital laundering and financing of terrorism which is part of the Compliance and Institutional Matters Coordination Management. This team of personnel is trained and updated with respect to this subject matter in order to facilitate the detection of situations of eventual risk and immediately communicate these to the competent authority. The team further possesses information system applications to explore atypical movement and to monitor transactions of eventual risk, and evaluate the transactions which fit into risk typologies with the objective to communicate these to the Attorney General of the Republic and to the Financial Information Unit. The effectiveness of the money laundering and terrorism financing prevention and control system is annually tested through internal audits. Units based abroad are monitored through visits or centralised control. Additionally, verification of the correct functioning of the money laundering and terrorism financing prevention and control systems is conducted. These units apply the procedures instituted within the Bank or those required by the legal framework of the countries where these are located, whichever is most demanding.

Shareholder Structure

Additional Information and Attachments

Accionista Nº acções %

Santusa Holding, S.L. 196.996.017.344 99,848


Implementation of the recommendations made by the Financial Stability Forum and

the Committee of European Banking Supervisors (CEBS) in regards to the transparency of information and valuation of assets

In order to comply with the Bank of Portugal recommendation issued by means of advisory circular No. 97/08/DSBDR of 3 December 2009, the following is the response to the requested questionnaire.

I. Business Model 1. Description of the business model (i.e. reasons for the

conduction of the activities/business and respective contribution for the value generation process) and, if applicable, of the changes made (of example as a result of a period of turbulence);

See Annual Report and Accounts - Chapter: - Business Areas

2. Description of goals and strategies (including strategies and goals specifically related to the accomplishment of securitisation operations and structured products);

See Annual Report and Accounts - Chapters: - Business Areas - Risk Management See Notes to the Consolidated Financial Statements - Notes 11, 24 and 47

3. Description of the importance of the activities conducted and the respective contribution of these to the business (including a quantitative description);

See Annual Report and Accounts - Chapters: - Business Areas - Areas Which Support the Business - Economic and Financial Information See Notes to the Consolidated Financial Statements - Notes 3 and 29

4. Description of the type of activities conducted, including a description of the instruments used, the operation of these and the qualification criteria that the products/investments should fulfil;

See Annual Report and Accounts - Chapter: - Business Areas See Notes to the Consolidated Financial Statements - Notes 1.3 e) and f)

5. Description of the objective and the amplitude of the involvement of the institution (i.e. commitments and obligations assumed), in regards to each activity undertaken;

See Annual Report and Accounts - Chapter: - Business Areas

II. Risks and Risk Management 6. Description of the nature and scope of the risks incurred in

relation to the business activities and instruments used. See Annual Report and Accounts - Chapter: - Risk Management See Notes to Consolidated Financial Statements Note 50 disclosure of financial risk management policies inherent to the Group and the monitoring of these

7 Description of the risk management practices (including, in particular, within the current business environment, liquidity risk) which are relevant to the business activities, description of any facilities/weaknesses identified and the corrective measures implemented;

See point 6 above


III. Impact of the Period of Financial Turbulence on the Results 8. Qualitative and quantitative description of the results with an

emphasis on losses (when applicable) and the impact of write-downs to net income;

N. A

9. Breakdown of write-downs /losses by type of product and instruments affected by the period of turbulence, specifically within the following: commercial mortgage-backed securities (CMBS), residential mortgage- backed securities (RMBS), collateralised debt obligations (CDO), and asset-backed securities (ABS);

N.A.

10. Description of the motives and factors responsible for the impact suffered;

N.A.

11. Comparison of i) impacts between the (relevant) periods and ii) financial statements before and after the impact from the period of turbulence;

N.A.

12. Breakdown of the write-downs into amounts realised and not realised;

N.A.

13. Description of the influence of the financial turbulence on the quotation of the entity´s stock;

N.A.

14. Disclosure of the maximum risk of loss and the description of how the institution»s situation may be affected by the lengthening or worsening of the period of turbulence, or by market recovery;

See Annual Report and Accounts - Chapters: - Economic and Financial Information - Risk Management See Notes to the Consolidated Financial Statements - Note 50

15. Disclosure of the impact from the evolution of the spreads associated with the responsibilities of the institution itself on the net income, as well as the methods used to determine this impact;

See Annual Report and Accounts - Chapter: - Economic and Financial Information All of the liabilities issued by the Santander Totta Group are recorded at their amortised expense.


IV. Levels and Types of Exposures Affected by the Period of Turbulence 16. Nominal value (or amortized cost) and fair market value of the

live exposures; See Annual Report and Accounts - Chapter: - Risk Management See Notes to the Consolidated Financial Statements - Notes 1.3 e) and f) and 50

17. Information regarding mitigation of credit risk (e.g. through credit default swaps) and the respective effect on existing exposures;

See Notes to the Consolidated Financial Statements - Notes 1.3 f), 7, 12 and 50

18. Detailed disclosure in regards to the exposures with breakdown by: - Level of seniority of the exposures/tranches detained; - Level of quality of credit (e.g. ratings, vintages); - Geographic areas of origin; - Activity sector; - Origin of exposures (issued, retained or acquired); - Product characteristics: e.g. ratings, weight/share of associated sub-prime assets, discount rates, spreads, financing;

- Characteristics of subjacent assets: e.g. vintages, loan-to-value ratio, credit privileges, average life considered for the related asset, assumptions regarding the evolution of pre-payment situations, expected losses;

See Notes to the Consolidated Financial Statements - Notes 3, 11 and 50

19. Transactions occurred in the expositions between periods related to the report and the ratios related to these variations (sales, write-downs, purchases, etc.);

N.A.

20. Explanations regarding exposures (including vehicles and in this case, the respective activities) which have not been consolidated (or which have been recognised during the crises) and the associated ratios;

N.A.

21. Exposure to monoline type insurers and quality of assets insured: - Nominal value (or amortized cost) of the exposures insured as well as the amount of credit protection acquired;

- Fair value of live exposures, as well as the respective credit protection;

- Value of write-downs and losses, differentiated between the amounts realised and unrealised;

- Breakdown of the exposures by rating or counterpart;

The Santander Totta Group does not have exposures to insurers of the monoline type.


V. Accounting Policies and Valuation Methods 22. Classification of the transactions of structured products for

accounting purposes and the respective accounting treatment;

See Notes to the Consolidated Financial Statements - Note 1

23. Consolidation of the Special Purpose Entities (SPE) and other vehicles and reconciliation of these with the structured

products affected by the period of turbulence;

N.A.

24. Detailed disclosure of the fair value of financial instruments: - Financial instruments to which fair value is applied; - Hierarchy of the fair value (breakdown of all of the exposures related to the fair value of the hierarchy of fair value and breakdown between the availability of instruments derived as well as the disclosure of the migration between levels of hierarchy);

- Handling of the day 1 profits (including quantitative information);

- Use of the option of fair value (including the conditions for its utilisation) and respective amounts (with adequate breakdown);

See Notes to the Consolidated Financial Statements - Notes 1.3 e) and f), 7, 8, 12 and 50

25. Description of the modelling techniques used for the valuation of the financial instruments, including information regarding: - Modelling techniques and the instruments to which these are applied;

- Valuation procedures (including in particular the assumptions and the inputs which the models are based on);

- Types of adjustment applied to reflect the risk of modelling and other uncertainties in the valuation;

- Sensitivity of the fair value (specifically the variations of assumptions and key inputs);

- Stress scenarios;

See Notes to the Consolidated Financial Statements - Notes 1.3 e), f) and 50

VI. Other Relevant Aspects for Disclosure 26. Description of the disclosure policies and the principles which

are used in the disclosure report and financial statements. See Notes to the Consolidated Financial Statements - Note 1


Organisational Structure by Director

Nuno Manuel Amado

Internal Auditing Javier Pliego Alegria Dept. of Operative Risks Dept. of Credit Risks Dept. of Financial Risks

Human Resources Management Isabel Viegas Dept. of Human Resources Management Dept. of Administrative Management Office of Compensation and Information Office of Training Office of Directives Management

Office of President of the Executive Commission Private Banking North Luís Coimbra Private Banking South Sofia Frère

Dir. Commercial Private Banking South 1 Dir. Commercial Private Banking South - 2

Dept. Private Business Support Miguel Cordovil Office of Private Assets Management Business Systems and Technology (*) Nuno Frias Costa

Office of Planning and Financial Control Office of Government and Compliance Department of Strategic Management and Technical Implementation Dept. of Business Processes Dept. of Internet Media and Resources

Real Estate, General Services and Security (*) Pedro Rodrigues

Office of Security Office of Financial Control Dept. of Construction Works and Maintenance Dept. of Property and Location Management Dept. of General Services

Operations (*) Abel Bernardes Office of Technical Assistance Dept. of Foreign Affairs and Payments Operational Department of Accounts and Markets Dept. of Operational Control and Client Accounts Dept. of Dispatch, Archiving and Clearing Dept. of Custody and Clearing

Credit and Mortgage Management (*) Elsa Graça Office of Legal Support to Loans Dept. of Loans and Network Support Dep. of Technical Support to Loans

Organisation (*) Francisco Moutinho de Freitas Office of Structures Office of Planning and Control

Cost Management (*) Mário Paulino Office of Procurement Management Office of Cost Optimisation and Control

Operational and Technological Risk (*) Esther Casillas

Office of Operational Risk Office of Operational Risk of the Treasury and Intermediation Office of Information Security and Technological Risk

Complementary Channels (*) Joaquim Calça e Pina Contact Centre Office Dept. of Self-Banking Dept. of NetB@nco

(*) For the indicated areas, they are organically assigned to the Director João Baptista Leite, reporting directly to Chief Executive

António Vieira Monteiro

Office of Risk Management Control/Function Manuel Aragão Management of Collections Teresa Ribeiro

Telecollections Division Collections Management Department Collections Department North Collections Department South Office of Legal Monitoring and Control

Management of Standardised Risks Inês Furtado Office of Risk Information Systems Dept. of Individual Risk Dept. of UDO Business North Dept. of UDO Business South Dept. of Monitoring of Non-Portfolio Clients

Management of Risks B. Wholesale and Companies Amílcar Lourenço Office of Technical Services Dept. of Wholesale Banking Dept. of Commercial Banking Dept. of Monitoring of Portfolio Clients Management of Solvency, Markets and Credit Control Alfredo Diez Dept. of Control and Analysis of Commercial Risks

Dept. of Control and Analysis of Wholesale Banking Risks Dept. of Risk Infrastructure and Information Dept. of Financial Risk Dept. of Capital - BIS II

Office of Risk Planning and Projects José Leão Office of Universities Sebastião Beltrão Superior Credit Committee


José Manuel Elias da Costa

Companies North Paulo Natal Dir. Specialists - Promotions North Dir. Commercial Companies Júlio Dinis - Porto 1 Dir. Commercial Companies Braga Dir. Commercial Companies Guimarães Dir. Commercial Companies Maia Dir. Commercial Companies Boavista - Porto Dir. Commercial Companies Aveiro Dir. Commercial Companies Viseu Dir. Commercial Companies Coimbra Dir. Commercial Companies Júlio Dinis - Porto 2 Dept. of Corporate Client Risk North Dir. Commercial Management and Monitoring of Clients North Division of Middle Office of Companies North

Companies South António Velez do Peso Dir. Specialists - Promotions South Dir. Commercial Companies Rua do Ouro - Lisbon Dir. Commercial Companies Conde Valbom - Lisbon Dir. Commercial Companies Montijo Dir. Commercial Companies Odivelas Dir. Commercial Companies Estoril Dir. Commercial Companies Leiria Dir. Commercial Companies Faro Dir. Commercial Companies Funchal Dir. Commercial Companies Columbano B. Pinheiro - Lisbon Dir. Commercial Companies Rodrigo da Fonseca - Lisbon Dir. Commercial Companies Iberian - Lisbon Dept. of Corporate Client Risks - South Dir. Commercial Client Management and Monitoring South Division of Middle Office of Companies South

Office of Corporate Network Business Support Building Credit Management/Construction Incentives António Fontes

Commercial Director Construction Incentives North Commercial Director Construction Incentives South Dept. of Real Estate Risks

Institutional Client Management Pedro Fialho Commercial Director Institutional Clients Dir. Institutional Clients Business Development Office of Collective Protocols

José Carlos Sítima

Legal Advising for the Business António Terra da Mota Dept. of Corporate Advising Dept. of Network Advising Office of Worldwide Wholesale Banking Assistance

Institutional and Compliance Matters João Labareda Office of Compliance Unit Prevention of Money Laundering

Office of Inspection João Pedro Mendes

José Leite Maia

Individuals and Businesses North Manuel Cerejeira Castro

Director of Companies - North Director of Individuals - North Director of Premium - Private Business Development - North Director of Business Support - North Director of Control of Irregularities - North Comm. Director Individuals and Businesses North 1 Comm. Director Individuals and Businesses North 2 Comm. Director Individuals and Businesses North 3 Comm. Director Individuals and Businesses North 4 Comm. Director Individuals and Businesses North 5 Comm. Director Individuals and Businesses North 6 Comm. Director Individuals and Businesses North 7 Comm. Director Individuals and Businesses North 8 Comm. Director Individuals and Businesses North 9 Comm. Director Individuals and Businesses North 10 Comm. Director Individuals and Businesses North 11 Comm. Director Individuals and Businesses North 12 Comm. Director Individuals and Businesses North 13 Comm. Director Individuals and Businesses North 14 Comm. Director Individuals and Businesses North 15

Individuals and Businesses South Jorge Mogo Director of Companies - South Director of Individuals - South Dir. of Premium - Private Business Dev. - South Director of Business Support - South Director of Control of Irregularities - South Comm. Director Individuals and Businesses South 1 Comm. Director Individuals and Businesses South 2 Comm. Director Individuals and Businesses South 3 Comm. Director Individuals and Businesses South 4 Comm. Director Individuals and Businesses South 5 Comm. Director Individuals and Businesses South 6 Comm. Director Individuals and Businesses South 7 Comm. Director Individuals and Businesses South 8 Comm. Director Individuals and Businesses South 9 Comm. Director Individuals and Businesses South 10 Comm. Director Individuals and Businesses South 11 Comm. Director Individuals and Businesses South 12 Comm. Director Individuals and Businesses South 13 Comm. Director Individuals and Businesses South 14 Comm. Director Individuals and Businesses South 15 Comm. Director Individuals and Businesses South 16 Comm. Director Individuals and Businesses South 17 Comm. Director Individuals and Businesses South 18

Business Monitoring Alberto Moura Commercial Director Business Monitoring North Commercial Director Business Monitoring South

Control and Business Development Joaquim Filipe Dept. Planning and Control of Internet Management Dept. Internet Operational Marketing Dept. Internet Management and Commercial Development Office of Support to Internet Projects and Safe Interaction


Promoters and Real Estate Brokers Office of Management Support Commercial Director PMI North Commercial Director PMI South Commercial Director Promoter Locations

International Activity Luís Santos Office of Internet Support and Business Development Dept. Branches and Management Control Commercial Dept. of Emigration

Projecto Vulcão Paulo Lourenço

Luís Bento dos Santos

Quality Management Otília Casquilho Customer Service Dept. Evaluation and Control Dept.

Office of Image, External and Internal Communications Ana Maria Lima

Office of Information and Monitoring Rui Santos Office of Public Relations and Events Cristina Carvalho Office of the Shareholders José Pacheco

Miguel Bragança

Accounting and Management Control Luís Dominguez Office of Internal Control and Standards Office of Prudential Control Payments Division Accounting Dept. Management Control Dept. Group Consolidation Dept.

Financial Management - Manuel Preto Dept. Corporate Finance Dept. Equity Holdings and Tax Legislation Dept. Management of Assets and Liabilities Dept. Short-Term Markets Office of Strategic Planning and Investor Relations Office of Economic Research

Marketing Dept. Marketing Planning and Segments Dept. Publicity and Communication

Products and Services for Individuals Alexandra Brandão Office of Liabilities and Fees

Office of Consumer Credit Office of Mortgage Credit

Corporate Products and Services Inês Oom de Sousa Dept. Credit Products, Resources and Partnerships Office of Transaction Banking Office of International Business Division Customer Service

Payment Methods Inês Gouveia Technical and Control Office POS Office Office of Card Risks Operational Division of Payment Methods Card Dept.

Dir. Studies and CRM Sara Fonseca Technical and Support Office Office of Analysis and Studies

Pedro Castro e Almeida

Corporate and Investment Banking João Veiga Anjos Credit Markets André Gorjão Costa Global Transaction Banking Hélder Gomes

Commercial Director Global Clients - Sales Lisbon 1 Commercial Director Global Clients - Sales Lisbon 2 Commercial Director Global Clients - Sales Porto Dept. Global Clients Products Bus. Development

Rates Cristina Melo Antunes Dept. Corporate Sales Dept. Santander Global Connect Office of Institutional Rate Sales

Equities Luís Capitão-Mor Dept. of Cash-Equity Dep. of Institutional Custody Office of Structured Products

Dept. Middle Office and GBM Control António Rebocho Office of Sales Trading Support Office of Customer Service Support

Office of Business Control José Viegas


Functions Performed by Members of the Board of Directors of Santander Totta in Other Companies

The main activities which the members of the Board of Directors of the companies SANTANDER TOTTA, SGPS, SA, BANCO SANTANDER TOTTA SA performed outside of the companies, which were significant in relation to these, are those listed in regards to the performance of the following functions in the following companies:

Name Company Position Held

Banco Santander, S.A. (Spain) General Manager Member of the Management Committee

Santander Investment, S.A. (Spain) 1 Administrator Santander UK, Plc. (United Kingdom) 2 President of the Executive Committee Portal Universia Portugal, S.A. Vice-Chairman of the Board of Directors

António Mota de Sousa Horta Osório

Bank of England Administrator

Banco Santander, S.A. (Spain) General Manager Member of the Management Committee

Portal Universia Portugal, S.A. Vice-Chairman of the Board of Directors

and President of the Executive Committee

Nuno Manuel Silva Amado

Portuguese and Spanish Chamber of Commerce and Industry Vice President of the Management Body

Banco Santander, S.A. (Spain) Third Vice President of the Board of Directors

Banco Espanhol de Crédito, S.A. Member of the Board of Directors Financeira Ponferrada, S.A. Member of the Board of Directors SCH Seguros e Reseguros, S.A. Member of the Board of Directors União de Crédito Imobiliário, S.A. Chairman of the Board of Directors Operador do Mercado Ibérico de Energia Pólo Espanhol, S.A. Member of the Board of Directors

Matias Rodrigues Inciarte

Sanitas, S.A. Advisor Taxagest - Sociedade Gestora de Participações Sociais, S.A. Chairman of the Board of Directors

Partang, SGPS, S.A. Member of the Board of Directors Unicre Instituição Financeira de Crédito, S.A. Member of the Board of Directors

Miguel de Campos Pereira de Bragança

SIBS Sociedade Interbancária de Serviços, S.A. Member of the Board of Directors

Portal Universia Portugal, S.A. Member of the Board of Directors and the Executive Committee António José Sacadura Vieira

Monteiro Partang, SGPS, S.A.3 Chairman of the Board of Directors

Portal Universia Portugal, S.A. Chairman of the Presiding Board of the General Assembly José Carlos Brito Sítima

Tottaurbe Empresa de Administração e Construções, S.A. Chairman of the Board of Directors

Luís Filipe Ferreira Bento dos Santos Portal Universia Portugal, S.A. Member of the Board of Directors and

the Executive Committee Carlos Manuel Amaral de Pinho Banco Caixa Geral Totta de Angola Member of the Board of Directors and

the Executive Committee

Eduardo José Stock da Cunha Sovereign Bank Member of the Management Executive

Committee Head of Manufacturing

Totta Crédito Especializado, Instituição Financeira de Crédito, S.A. Member of the Board of Directors José Urgel Moura Leite Maia Associação dos Amigos de Recife Chairman of the Audit Committee

Pedro Aires Coruche Castro e Almeida

Santander Totta Seguros Companhia de Seguros de Vida, S.A. Chairman of the Board of Directors

1 Resigned on 16/Dec/2010 2 Resigned on 30/Nov/2010 3 Resigned on 05/July/2010


Hedge Fund Standards Board Chairman CNP Assurances (France) Administrator SCOR (France) Administrator Caixa Seguros (Brazil) Administrator Jerónimo Martins Administrator Heidrick and Struggles (USA) Administrator

António Mendo Castel-Branco Borges

Fundação Champalimaud Administrator Banco Rural Europa, S.A. Member of the Audit Committee Ricardo Manuel Duarte Vidal

de Castro Clube do Autor, S.A. Administrator


Stock Transactions and Obligations of the Members of the Administration and Audit

Bodies In accordance with the terms and for the purposes of the content set out in Article 447 of the Commercial Companies Code and Regulation 5/2008 of the CMVM, in reference to 2010, the following are the stocks and bonds transactions conducted by the members of the administrative and auditing bodies:

Transactions in 2010 Name Securities

Position as at

31/Dec/09 Date Acquisitions Divestitures Unit Price (€)

Position as at

31/Dec/10 Banco Santander Totta, SA shares 157 04-05 11 168

Santander Totta, SGPS, SA shares 142,571 142,571 António Mota de

Sousa Horta Osório Banco Santander Negócios Portugal, SA shares 2 04-05 2 5.77 0

BST-Inv. Premium 2011-8.25% Cx bonds 100 100 Nuno Manuel Silva

Amado BST-Premium Energias Cx 08/2010 bonds 120 03-03 120 0

BST, SA shares 6,053 6,053 Miguel de Campos Pereira de Bragança BTA-Rendimento Certo Cx.

05/2013 bonds 300 300

BST Euro Banca 7% - 7/2011 CX bonds 100 100 António José

Sacadura Vieira Monteiro BTA-Rend. Certo

Cx.05/2013 bonds 300 300

BST Aqua Rendimento 22/08/2011-Cx 300 300

BST Rendimento China Premium 10%-07/2011-Cx 500 500

BST Valor Premium 07/2011 Cx 500 500

José Urgel Moura Leite Maia

BST Global Competition Cx 06/10 100 21-06 100 50 0

ISBAN PT Banking Engineering and Software shares

1 29-07 1 5 0

BST Super Return Emerging Markets CX.-06/2010 bonds

200 25-01 200 50 0

BST Natural Gas Premium CX. 10%-2010 bonds 100 27-09 100 50 0

BTA Rendimento China 8% bonds 280 280

Carlos Manuel Amaral de Pinho

BST Rendimento Best of Sectors CX-08/2010 bonds 120 04-02 120 50 0

BTA Rendimento Certo Cx. 05/2013 bonds SPOUSE

200 200

BSP Rendimento Crescente 6% Cx 08/2011 bonds SPOUSE

500 500

BST Super Rend. Emerging Markets CX.-06/2010 bonds - SPOUSE

300 25-01 300 50 0

Luís Filipe Ferreira Bento dos Santos

BST Rendimento China 8% 07/2011 bonds SPOUSE

400 400


I - Introduction This report is prepared in accordance with the terms of Article 70, No. 2, al b) of the Portuguese Commercial Companies Act. 1. Santander Totta, SGPS, with headquarters located in

Portugal, has as its statutory purpose the management of its equity holdings in other companies as an indirect means of conducting its business.

2. Santusa, SL, a company constituted in accordance

with the legislation of Spain, holds 99.848% of the equity capital of the company.

3. The stocks which are representative of capital are all

of the same species and category, and confer equal rights to the respective titleholders, including the right to vote and to share in the profits.

Thus, there are not privileged shares of any type. Similarly, there are no restrictions of any kind related to the transferability of the shares, which is free from restrictions of any kind.

There is no system implemented relating to the participation by employees in the company capital.

4. Despite the content of the foregoing number, in

accordance with the statutes, one vote is attributed to every one hundred shares.

In order that the shareholders have the right to participate in the General Assembly, the registration or the deposit of the shares with financial intermediaries must be proven as of the fifteenth day prior to the date the meeting is held.

5. The company does not have knowledge of any

extra-corporate agreement that has been signed between the shareholders.

6. The company is structured in accordance with the

provisions of Article 278, No. 1, al a) of the Commercial Companies Code (CSC).

The corporate bodies are: the General Assembly, the Board of Administration and the Audit Committee. Additionally there is an independent Official Auditor which is not a member of the Audit Committee, in

compliance with the provisions set out in Article 413, No. 1 al. and No. 2c of the CSC.

The mandates of the corporate bodies have an ordinary duration of three years.

The Board of Directors is part of the Executive Committee in which all of the powers permitted by Article 407, No. 4 of the CSC are delegated.

The Board of Directors meets at least once per quarter and whenever such meetings might be convened by the respective Chairman or two members of the Board.

The Board of Directors does not have powers to deliberate in regards to increases to the equity capital of the corporation.

There are no defined special rules related to the nomination and substitution of the Directors as well as in regards to statutory changes, and the general law is thus applied to these matters.

7. The Executive Committee is the body responsible for

the on-going management of the business and for the representation of the company. The Committee meets on a monthly basis or whenever called to meet by the Chairman or any two members, continually monitoring the evolution of the business, specifically through the analysis of on-going projects or those to be conducted as well as the results attained.

8. The company does not establish any agreements

which effectiveness is dependent upon the modification of the shareholder composition of the company, or which are changed by or cease as a result.

Additionally, there are no agreements which give the Directors, members of the Board, rights to indemnities when the bond that links them to the company is severed as the result of their own initiative, removal or termination with due cause or following a public offer for acquisition.

Corporate Governance


II. Remuneration Remuneration Policy of the Members of the Board of Directors and the Auditing Committee In accordance with the statutory terms, the Shareholders» Remuneration Committee of the company Santander Totta, SGPS, S.A. (the Company ) shall deliberate in regards to remunerations of the members of the management and auditing bodies. The current Shareholders» Remuneration Committee was elected for a three-year term during the General Assembly meeting held on 29 May 2008, and is comprised as follows:

Santander Totta SGPS, represented by D. Alfredo Saenz Abad António Mota de Sousa Horta Osório Nuno Manuel Silva Amado

In accordance with the terms set out for this purpose in the provisions of Law No. 28/2009 of 19 June, No. 1, Article 2, and Bank of Portugal Notice No. 1/2010 of 26 January (Republic Official Journal 2nd Series, of 9 February 2010), it is the duty of the Shareholders' Remuneration Committee to annually submit a declaration regarding the remuneration policy of the members of the Board of Directors and Audit Committee to the General Assembly for evaluation and approval. As such, and with the objective to provide clear and detailed information about the referenced remuneration policy for 2010, the Shareholders' Remuneration Committee hereby presents and submits for consideration this Declaration, in order to detail the guiding principles adopted and the manner in which it intends to ensure the mitigation of management risks and the alignment of the interests of the members of the management and auditing policies with the interests of the Company. The Company remuneration policy is part of the Santander Group policy, which Group directly or indirectly holds more than 99% of the respective capital of the Company. A. Santander Group Policy Given that the following remuneration policy is required and strongly integrated with the Santander Group policy, it is import to refer to the extremely competitive context in which the business activity is performed and the circumstance by which the realisation of business objectives depends largely upon the quality, capability for work, dedication, responsibility, knowledge of the

business, and commitment to the institution, by those who perform the key functions and lead the organisation. These are the assumptions upon which the Group remuneration policy is generally based, especially as this relates to the Executive Directors, and that ensures the attraction and retention of talent within the organisation in line with the global scope of the market in which the business operates. As a result, and in keeping with the past practices in relation to the Executive Directors, the remuneration policy of the directors has the following objectives: • Ensure that the total remuneration and the

respective structure (comprised of the different components of short, medium, and long-term) are competitive with the practices of the international financial sector, and coherent with the Group»s leadership philosophy;

• Maintain a relevant and balanced fixed component in comparison with the annual variable component, which is indexed upon the realisation of concrete objectives, which are quantifiable and aligned with the shareholders´ interests;

• Include medium and long-term remuneration elements which promote the development of continued careers in the Santander Group, through pension plans, as well as through a plan of stock attributions based upon the evolution of the valuation of Banco Santander in the regulated market, which assures the multi-annual nature of part of the compensation and the relationship of this to the sustainability of the results and the generation of stockholder wealth.

In the case of remuneration related to the performance on non-executive functions, the remuneration policy seeks to equally compensate dedication, qualification and responsibility as required for the performance of the role. On the Group level in 2010, the Retributions Risk Evaluation Committee was created. The members are individuals who have recognised competence and impartiality in order to evaluate the quality of the results, risks incurred and the fulfilment of objectives. Thus, the Group, in continuing with its standard practices, shall continue to align its remuneration policy to the best practices of the market, pre-empting in general and in the correct dosage, the concerns which have now manifested within the new Portuguese regulations.


B. Santander Totta SGPS Remuneration Policy Guidelines In conformance with the content set out herein, the guidelines of the remuneration policy have been and shall be as follows: • Definition of a simple, clear, transparent policy

which is aligned with the culture of the Company, as well as the Group of which it is a part;

• Definition of a policy that is consistent with effective risk control and management in order to avoid excessive exposure to risk and conflicts of interests, as well as ensuring coherences with the objectives, values and long-term interests of the Bank and its employees, as well as the interests of the clients and investors;

• Definition of a competitive policy, taking into consideration the market standards and equitability, and ensuring that the remuneration policy is based on uniform, consistent, just and balanced criteria;

• Alignment of the remuneration policy with the best practices and recent tendencies in the financial sector on both a national and international level with the primary objective of discouraging exposure to excessive risks and encouraging continuity and sustainability of the performance and positive results, specifically: i) creation of maximum limits for the remuneration components which should be balanced amongst themselves; ii) deferring for a time a portion of the variable remuneration; iii) payment of a part of the variable remuneration in financial instruments;

• Calculation of the individual variable remuneration considering the respective performance evaluation (quantitative and qualitative), in accordance with the functions and the level of responsibility, as well as the results of the Bank, and through the comparison with other international entities which operate in the market sector.

C. Components of the Remuneration Policy In accordance with the foregoing principles, the following is assumed: • The remuneration policy of the leaders of the

statutory bodies should be in accordance with the framework of the Group standards which were developed in accordance with the best practices in the sector;

• Of the standards referred to, these specifically include the manner in which the performance evaluations of the Executive Directors, who are simultaneously executive directors of Banco Santander Totta, are conducted. These are based upon their overall performance in accordance with the terms and conditions defined by Banco Santander Totta.

• The members of the auditing body, the non-

Executive Directors, and the Chairman of the Board only receive fixed remuneration, the amount of which is determined in accordance with the criteria and practices used in the remaining companies which pertain to the Group, in proportion to the size of the business and the market in Portugal.

C.1. Fixed Annual Remuneration • Fixed remuneration is paid in 14 instalments during

the year; • The fixed annual remuneration of the Executive

Directors is determined in accordance with the criteria employed by the Group, the Bank»s results, the performance evaluation and the market references, taking into account the individual characteristics and sizes of the market;

• The fixed remuneration of the Executive Directors complies with the limits which are set annually by the Shareholders' Remuneration Committee, and should not represent in 2010 a portion that is less than 32.1% of the total annual remuneration, which was the percentage of the fixed remuneration in 2009.

C.2. Variable Remuneration • The remuneration of the members of the Executive

Committee also has a variable component; • Variable remuneration is adequately balanced in

relation to the annual fixed remuneration and should not represent a portion which is greater than 67.9% of the total annual remuneration, this percentage being that corresponding to the portion of the 2009 remuneration related to variable remuneration;

• In order to render the procedure which determines the dimension of the variable remuneration as increasingly objective and transparent, the quantities and qualitative objectives of the Bank are contemplated as well as the respective indicators as set out in the Strategic Plan and which are defined by the Group on an annual basis;

• The evaluation of the fulfilment of the strategic objectives defined by the Bank, for the Bank, whether in absolute terms, or as the result of a comparison with other entities in the market sector, for the purposes of the establishment of the variable remuneration, ensures the adequate alignment with the medium and long-term interests of the Bank and its shareholders;

• In the event that the shareholders or third-parties hold the Company responsible for acts performed by the management, the variable remuneration may, at the discretion of the shareholders, be suspended until the allegations have been


investigated, and in the event that these are considered to be founded, the respective remuneration may be withheld until such damages have been liquidated.

C.2.1. Annual Variable Remuneration • The determination of the annual variable

remuneration is based upon the following criteria: i) the results obtained by the Company and the Group to which it pertains, although in regards to these with a relatively smaller weight, as based upon the indicators of the efficient consumption of capital and the average growth of the operating income; ii) individual performance, taking into account the quantitative individual results attained, as well as the contribution to the image and reputation of the Bank;

• The attribution of annual variable remuneration equally depends upon the degree to which the defined annual objectives were obtained;

• The objective of annual variable remuneration is to compensate the attainment of annual results and individual performance, and may vary between 0% and 150% of the reference value as defined annually by the Shareholders' Remuneration Committee, within the limit referred to in paragraph c) of No.1 in regards to the minimum percentage that the fixed remuneration can represent in relation to the annual total remuneration (32.1%);

• The Shareholders' Remuneration Committee may decide to defer payment of all or part of the annual variable remuneration in accordance with the Group practices;

• The maximum amount of the annual variable remuneration should represent, in 2010, 67.9% of the total annual remuneration in accordance with that verified in 2009.

C.2.2. Multi-Annual Variable Remuneration The Executive Directors of the Company benefit, in their simultaneous role of Executive Administrators of Banco Santander Totta, and only in this headquarters, from a multi-annual variable remuneration that is attributed by the Bank, in accordance with the terms and conditions defined thereby. C.3. Benefits The Executive Directors and the Chairman of the Board of Directors do not benefit from any complementary retirements plans or life insurance, in addition to those which are attributed to them by Banco Santander Totta, as they perform identical functions thereto.

C.4. Amounts paid by other companies which pertain to the Bank´s dominion or related to the Group Amounts paid to Executive Directors by other companies which pertain to the Bank´s dominion or related to the Group totalled 4.1 million Euros, an amount which is expected to remain constant in 2010. This amount includes the values which represent the multi-annual variable remuneration which is granted to the Executive Directors in their simultaneous roles as Executive Administrators of Banco Santander Totta, in accordance with the terms and conditions defined by the Bank. D. Additional Aspects A stock option plan was not put into practice in 2009, nor is it projected for 2010. In accordance with the provisions set out in the Portuguese Commercial Companies Act, Article 403, Item No. 5, statutory limitations for indemnities for the premature discontinuation of functions by corporate body managers have not been defined or proposed. No indemnities were paid in 2009 for premature discontinuation of functions by corporate body managers, and no such date is foreseen in 2010. E. Compliance with the recommendations defined by the Bank of Portugal in relation to remuneration policies The remuneration policy for the members of the management and auditing bodies for Santander Totta, SGPS, S.A. is entirely in line with the principles set out in Chapter I of Notice No. 2/2010/DSB issued by the Bank of Portugal, and is substantiated upon the simplicity, transparency and adequacy of the Group´s medium and long-term objectives. In this manner, the determination of the total remuneration of the members of the corporate bodies, comprised of both fixed and variable components, as well as the articulation of these two components as set out in this Declaration, ensure the overall adoption of the recommendations contained in Chapter IV of the cited Notice, which manifestly constitutes its core basis. Given that Santander Totta, SGPS, S.A. is an integral part of the Santander Group, which directly or indirectly holds more than 99% of the respective capital of the company, the coherence of the respective corporate policies is necessary. These are developed in accordance with the global nature of the Group, and respect the pertinent international regulations. Within this framework, the adoption of the remaining recommendations of the Notice would implicate procedural redundancy and an artificial regulatory execution without any practical effects. As such,


Santander Totta SGPS, S.A.´s remuneration policy for the management and auditing bodies is comprised within these limits, without prejudice to the overall compliance with the rules of identical significance issued by the competent national authorities at the time that the Group standards were established. The statement referred above refers to the year 2010 and was approved by the General Assembly of Santander Totta, SGPS, S.A. on May 28, 2010. Pursuant to and for the purposes of Article 2, paragraph 1, of Law No. 28/2009 of 19 June and Bank of Portugal Notice No 1/2010 of 26 January (Republic Official Journal, 2nd series, of February 9, 2010), The Remuneration Committee will submit to examination and approval by the General Assembly, the policy statement of the remuneration of members of the Board and the Supervisory Board of the society for the year 2011. Remuneration Policy for Managers and Management Staff of Banco Santander Totta, S.A. In accordance with the terms set out for this purpose in the provisions of Bank of Portugal Notice No. 1/2010 of January 2010 (Republic Official Journal 2nd Series, of 9 February 2010), Article 3, the remuneration policy for the employees which are not members of the management and auditing bodies of Banco Santander Totta, S.A. is published. These individuals receive variable remuneration and perform their professional activity within the scope of the control functions set out in the Bank of Portugal Advisory No. 5/2008 of 1 July, or perform activities which may have a material impact on the Bank»s risk profile. For this purpose, the following are considered: i) the Managing Directors of all of the Bank´s departments; ii) the Front Line Managers of all of the Bank»s departments which directly report to the Executive Committee (all of which are hereinafter designated as Managing Directors); and iii) all of the management Staff (Directors, Assist. Directors and Sub-Directors) who perform functions in auditing, general risks and compliance. A. Framework The remuneration policy of the Managers and management staff follows the current principles in relation to all of the other Bank staff, and the respective operational details are set out in the Internal Control Model approved by the Executive Committee on 17 December 2008 in compliance with the Bank of Portugal Notice No. 05/2008. This Internal Control Model specifically contains the recruitment, compensation and incentives policies, as

well as the training policy and the policy related to the evaluation of the organisational structure, which stem from the directives established by the reference shareholder of the Bank for the entire Santander Group and which were developed in accordance with the best current practices in the sector. The Santander Group holds more than 99% of the capital of Banco Santander Totta. B. Santander Group Policy Given that the following remuneration policy is required and strongly integrated with the Santander Group policy, it is import to refer to the extremely competitive context in which the business activity is performed and the circumstance by which the realisation of business objectives depends largely upon the quality, capability for work, dedication, responsibility, knowledge of the business, and commitment to the institution, by those who perform the key functions and lead the organisation. These are the assumptions upon which the Group remuneration policy is generally based, and that ensures the attraction and retention of talent within the organisation in line with the global scope of the market in which the business operates. As a result, and in keeping with the past practices, the remuneration policy of this group of employees has the following objectives: • Ensure that the total remuneration and the

respective structure (comprised of the different components of short, medium, and long-term) are competitive with the practices of the international financial sector, and coherent with the Group»s leadership philosophy;

• Maintain a relevant and balanced fixed component in comparison with the annual variable component, which is indexed upon the realisation of concrete objectives, which are quantifiable and aligned with the shareholders´ interests;

• Include medium and long-term remuneration elements which promote the development of sustained careers in the Santander Group, through pension plans, as well as through a plan of stock attributions based upon the evolution of the valuation of Banco Santander in the regulated market, which assures the multi-annual nature of part of the compensation and the relationship of this to the sustainability of the results and the generation of stockholder wealth.

On the Group level in 2010, the Retributions Risk Evaluation Committee was created. The members are individuals who have recognised competence and impartiality in order to evaluate the quality of the results,


risks incurred and the fulfilment of objectives, aspects which impact the retributions. Thus, the Group, in continuing with its standard practices, shall continue to align its remuneration policy to the best practices of the market, pre-empting in general and in the correct dosage, the concerns which have now manifested within the new Portuguese regulations. C. Remuneration Policy Guidelines In conformance with the content set out herein, the guidelines of the remuneration policy have been and shall be as follows: • Definition of a simple, clear, transparent policy

which is aligned with the culture of the Bank, as well as the Group of which it is a part;

• Definition of a policy that is consistent with effective risk control and management in order to avoid excessive exposure to risk and conflicts of interests, as well as ensuring coherence with the objectives, values and long-term interests of the Bank and its employees, as well as the interests of the clients and investors;

• Definition of a competitive policy, taking into consideration the market standards and equitability, and ensuring that the remuneration policy is based on uniform, consistent, just and balanced criteria;

• Alignment of the remuneration policy with the best practices and recent tendencies in the financial sector on both a national and international level with the primary objective of discouraging exposure to excessive risks and encouraging continuity and sustainability of the performance and positive results, specifically: i) creation of maximum limits for the diverse remuneration components which should be balanced amongst themselves; ii) deferring for a time a portion of the variable remuneration; iii) payment of a part of the variable remuneration in financial instruments;

• Calculation of individual variable remuneration considering the respective performance evaluation (quantitative and qualitative), in accordance with the functions and the level of responsibility, as well as the results of the Bank, and through the comparison with other international entities which operate in the market sector.

D. Components of the Remuneration Policy D.1.Fixed Annual Retribution • Fixed retribution is paid in 14 instalments during the

year; • The fixed retribution is comprised of the base

retribution and some of the financial payments

which are issued to the all of the Bank employees, in the form of seniority payments or other subsidies, due in accordance with legal or contractual terms;

• Fixed annual retribution is determined in accordance with the criteria employed by the Santander Group, the Bank»s results, the collective labour regulations and market references, taking into account the individual characteristics and sizes of the market;

• Fixed retribution of the Managers complies with the limits set annually by the Shareholders´ Remuneration Committee, and should not represent in 2010 a portion that is less than 51.6% of the total annual remuneration, which was the percentage of the fixed retribution in 2009;

• Fixed retribution of the management staff complies with the limits set annually by the Shareholders´ Remuneration Committee, and should not represent in 2010 a portion that is less than 76.7% of the total annual remuneration, which was the percentage of the fixed retribution in 2009.

D.2. Variable Remuneration • Remuneration of the Managers and management

staff also has a variable component which has both annual and multi-annual components in order to ensure a balance between short and medium-terms; beneficiaries of the multi-annual component are determined by the Executive Committee;

• Variable remuneration is adequately balanced in relation to the annual fixed retribution and should not represent in 2010, in terms of both the annual and multi-annual components, a portion which is greater than 44% of the total annual remuneration, this percentage being that corresponding to the portion of the 2009 remuneration related to variable remuneration;

• In order to render the procedure which determines the dimension of the variable remuneration as increasingly objective and transparent, the quantitative and qualitative objectives of the Bank are contemplated as well as the respective indicators as set out in the Strategic Plan and defined by the Group on an annual basis.

D.2.1. Annual Variable Remuneration

• The determination of annual variable remuneration

is based upon the following criteria: i) individual performance, taking into account the quantitative individual results attained, as well as the contribution to the image and reputation of the Bank; ii) the results obtained by the Bank and the Group to which it pertains, as based upon the indicators of the efficient consumption of capital and the average growth of the operating income;

• The attribution of annual variable remuneration refers to the short-term performance and is


dependent upon the degree to which the defined annual objectives are attained and are individually determined based upon the respective degree of strategic importance, and in accordance with the scale defined in the Performance Evaluation Policy contained in the Internal Control Model;

• The objective annual variable remuneration is to compensate the attainment of annual results and individual performance, and may vary between 0% and 150% of the reference value as defined annually by the shareholders, and may oscillate on an annual basis as a function of the degree to which objectives are fulfilled;

• In 2009, the maximum amount of the annual variable remuneration of the Managers and management staff should represent 39.4% and 20.6%, respectively, of the total annual variable remuneration. It is estimated that in 2010 the amounts will be in line with these parameters.

D.2.2. Multi-Annual Variable Remuneration • As one element of multi-annual variable

remuneration, the Bank implemented a stock plan that is linked to the objectives and through which stock in the Banco Santander is issued;

• This portion of the variable remuneration is determined as a function of the results obtained over a three-year period and is subject to the cumulative verification of the following conditions: i) permanence in the company during a given period; ii) preservation of the level of financial performance of the Santander Group during the three-year period; iii) verification of the absence of mismanagement; iv) compliance with the internal risk standard as approved annually by the Group;

• The number of shares issued also depends upon the valuation of the Banco Santander shares as compared to a reference group comprised of international entities which pertain to the sector, and may, based upon the limit, result in no shares being attributed;

• The shares are delivered to the employees without any maintenance requirements and without any benefit of risk coverage contracts;

• In 2009, the maximum amount of the multi-annual variable remuneration represented 9% of the total annual remuneration. It is estimated that in 2010 the amounts will be in line with these parameters;

• In 2009, the maximum amount of the multi-annual variable remuneration for the management staff which benefitted from this remuneration represented 2.7% of the total annual remuneration. It is estimated that in 2010 the amounts will be in line with these parameters.

D.3.Benefits Without prejudice to residual and incidental attributions as the result of past measures taken by the previous employers (Crédito Predial Português, Banco Totta & Açores, Banco Santander Portugal and Banco Santander de Negócios Portugal), the Managers and management staff enjoy the following benefits: • Supplementary Health Insurance in addition to the

Medical-Social Assistance Service (SAMS) set out in the banking sector collective labour regulations;

• Life Insurance, in accordance with the definitions set out in the banking sector collective labour regulations;

• Individual Accident Insurance, in accordance with the definitions set out in the banking sector collective labour regulations;

• Supplementary Retirement Plan instituted by deliberation of the Board of Directors of the Bank on 25 February 2010.

E. Compliance with the recommendations defined by the Bank of Portugal in relation to remuneration policies The remuneration policy for the Managers and management staff for the Bank is entirely in line with the principles set out in Chapter V of the Notice No. 2/2010/DSB issued by the Bank of Portugal, and is substantiated upon the simplicity, transparency and adequacy of the Bank´s medium and long-term objectives. In this manner, the determination of the total remuneration of this group of employees, comprised of both fixed annual retribution and variable remuneration, as well as the articulation of these two components as set out in this Declaration, ensures the overall adoption of the recommendations contained in Chapter IV of the cited Notice, which manifestly constitutes its core basis. Given that the Bank is an integral part of the Santander Group, which holds more than 99% of its capital, the coherence of the respective corporate policies is necessary. These are developed in accordance with the global nature of the Group, and respect the pertinent international regulations. Within this framework, the adoption of the remaining recommendations of the Notice would implicate procedural redundancy and an artificial regulatory execution without any practical effects. As such, the Banco Santander Totta´s remuneration policy for the Managers and management staff is comprised within these limits without prejudice to overall compliance, and the establishment of Group taxation standards is based upon rules identical in nature issued by the competent national authorities.


Remuneration and Other Benefits Attributed to the Management and Auditing Bodies This information is provided to comply with the provisions of Law 28/2009, Article 3, as published on 19 June, in that which refers to the disclosure of the annual amount of remuneration granted to the members of the management and auditing bodies, both in aggregate and individually.

Fixed and variable remunerations on this date amounted to 713 thousand Euros and 690 thousand Euros, respectively. The individual remuneration of each member of the Board of Directors and the Auditing Committee during the 2010 period is presented in the following:

Board of Directors

Name Position fixed variable

Matias Pedro Inciarte * Chairman - -Nuno Amado Vice - President 194 391António Vieira Monteiro Member 24 29José Elias da Costa Member 26 35José Carlos Brito Sítima Member 27 28Luís Bento dos Santos * * Member 15 29Miguel de Bragança Member 79 178António Horta Osório * * * 348 -

713 690

* Vice-President until 13 January 2011, when he was appointed Chairman of the Board* * Co-opted on 1 May 2010* * * Resigned on 13 de January 2011

Audit Committee

Name Position fixed variable

António Mendo Borges * Chairman - -Mazars & Associados, SROC Member - -Ricardo Castro Member - -

- -

* Resigned on 18 February 2011

Remuneration

Remuneration

Based upon the understanding between Banco Santander Totta, S.A. (BST) and the Company, the expenses incurred with the Audit Committee are entirely borne by the BST. In that which relates to employment termination benefits, in accordance with the Portuguese Commercial Companies Act, whenever due to the desire of the

Company, the term of a member of the corporate bodies is prematurely dismissed, the Company shall reimburse the member of the corporate body for the future remuneration which he/she held the right to up through the end of his/her term.


Declaration referred to in the Stock Exchange Code, Article 245, Item No. 1, paragraph c)

Stock Exchange Code, Article 245, Item No. 1, paragraph c) determines that each one of the individuals responsible for the company issue a declaration of the content as set out in the provisions. The members of the Board of Directors of Santander Totta, S.G.P.S., S.A. nominatively identified herein, individually underwrote the Declaration which is transcribed as follows:

I declare, in accordance with the terms and the purposes of Stock Exchange Code, Article 245, Item No. 2, paragraph c), that, to the extent of my knowledge, the management report, the annual financial statements, the legal certification of accounts, and other accounting documents related to the period 2010 for Santander Totta, S.G.P.S., S.A, have been prepared in accordance with applicable accounting standards, appropriately and truthfully representing current assets and liabilities, the financial status, the company results, as well as that of the other companies included in the consolidation context, and that the Management Report faithfully discloses the evolution of the business, the performance and position of the company and the companies included in the consolidation context, and contains a description of the main risks and uncertainties which are faced.

Board of Directors

Matias Pedro Rodriguez Inciarte

Chairman

Nuno Manuel da Silva Amado

Vice President

António José Sacadura Vieira Monteiro José Carlos Brito Sítima

Member Member

José Manuel Alves Elias da Costa Luís Filipe Ferreira Bento dos Santos

Member Member

Miguel de Campos Pereira de Bragança

Member


Declaration by the Audit Committee regarding the Conformity of the Presented Financial Information

Stock Exchange Code, Article 245, Item No. 1, paragraph c) determines that each one of the individuals responsible for the company issue a declaration of the content as set out in the provisions. The members of the Audit Committee of Santander Totta, S.G.P.S., S.A. nominatively identified herein, individually underwrote the Declaration which is transcribed as follows:

I declare, in accordance with the terms and the purposes of Stock Exchange Code, Article 245, Item No. 2, paragraph c), that, to the extent of my knowledge, the management report, the annual financial statements, the legal certification of accounts, and other accounting documents related to the period 2010 for Santander Totta, S.G.P.S., S.A, have been prepared in accordance with applicable accounting standards, appropriately and truthfully representing current assets and liabilities, the financial status, the company results, as well as that of the other companies included in the consolidation context, and that the Management Report faithfully discloses the evolution of the business, the performance and position of the company and the companies included in the consolidation context, and contains a description of the main risks and uncertainties which are faced.

Audit Committee

Members: Mazars & Associados, SROC, represented by Fernando Vieira Ricardo Manuel Duarte Vidal Castro


Consolidated Financial Statements

SANTANDER TOTTA, SGPS, S.A.

CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2010 AND 2009

(Translation of balance sheets originally issued in Portuguese - Note 52)

(Amounts expressed in thousands of Euros)

2010 2009Amounts before

Impairment, Impairment,depreciation and depreciation and Net Net

ASSETS Notes amortization amortization assets assets Notes 2010 2009

Cash and deposits at central banks 5 316.875 - 316.875 756.411 LiabilitiesBalances due from banks 6 236.283 - 236.283 226.441 Resources of central banks 19 4.807.162 2.026.830Financial assets held for trading 7 1.639.674 - 1.639.674 2.001.709 Financial liabilities held for trading 20 1.262.597 1.485.448Financial assets designated at fair value through profit or loss 8 2.974.695 - 2.974.695 4.005.555 Financial liabilities designated at fair value through profit or loss 21 4.301.702 4.851.247Available-for-sale financial assets 9 6.511.524 67.087 6.444.437 4.961.812 Resources of other financial institutions 22 8.449.191 6.185.646Loans and advances to banks 10 1.914.628 - 1.914.628 2.597.135 Resources of customers and others 23 17.018.297 15.081.297Loans and advances to customers 11 33.350.681 536.657 32.814.024 32.418.346 Debt securities issued 24 7.822.677 14.048.146Hedging derivatives 12 131.512 - 131.512 259.515 Hedging derivatives 12 189.423 237.067Non-current assets held for sale 13 143.614 47.873 95.741 100.291 Provisions 25 107.840 88.118Other tangible assets 14 856.755 462.302 394.453 408.033 Technical provisions 17 446.951 403.842Intangible assets 14 297.452 221.271 76.181 73.833 Current tax liabilities 16 18.051 27.457Investments in associates 15 133.840 500 133.340 1.634 Deferred tax liabilities 16 52.131 41.853Current tax assets 16 29.044 - 29.044 5.405 Subordinated liabilities 26 - 278.851Deferred tax assets 16 392.195 - 392.195 245.064 Other liabilities 27 661.456 623.056Ceded reinsurance technical provisions 17 35.013 - 35.013 36.948 Total liabilities 45.137.478 45.378.858Other assets 18 564.685 11.237 553.448 492.299

Shareholders' equity Share capital 28 1.972.962 1.972.962(Treasury shares) 28 (514) (514)Revaluation reserves 28 (370.426) (51.523)Other reserves and retained earnings 28 551.615 291.177Interim dividends 28 (115.000) (115.000)Consolidated net income attributable to Santander Group 29 434.627 523.263Shareholders' equity attributable to Santander Group 2.473.264 2.620.365Minority interests 30 570.801 591.208 Total shareholders' equity 3.044.065 3.211.573

Total assets, net 49.528.470 1.346.927 48.181.543 48.590.431 Total liabilities and shareholders' equity 48.181.543 48.590.431

LIABILITIES AND SHAREHOLDERS' EQUITY

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

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Notes 2010 2009

Interest income 32 2.034.124 2.385.710Interest expense 33 (1.312.338) (1.585.332)

Net interest income 721.786 800.378

Income from equity instruments 34 4.454 5.639Fees and commissions income 35 404.578 388.990Fees and commissions expense 36 (55.267) (52.237)Gain/(Loss) from assets and liabilities valued at fair value through profit or loss 37 (21.166) 52.565Gain/(Loss) from available-for-sale financial assets 38 (215.398) 6.578Gain/(Loss) from exchange revaluation 39 10.938 19.223Gain/(Loss) from other assets 40 361.514 43.272Insurance business gross margin where the risk is beared by the policyholders 41 9.493 11.657Insurance business gross margin 41 28.805 23.883Other operating income (net) 42 (6.080) (2.709)

Net income from banking activities 1.243.657 1.297.239

Personnel costs 43 (308.325) (316.934)Other administrative expenses 44 (158.741) (165.480)Depreciation and amortization 14 (66.959) (68.994)Provisions, net 25 (8.829) 5.896Impairment losses on loans, net of reversals and recoveries 25 (113.700) (96.304)Impairment losses on other financial assets, net of reversals and recoveries 25 (21.686) (1.469)Impairment losses on other assets, net of reversals and recoveries 25 (26.996) (17.903)Net income from associates 4.653 (103)

Income before taxes and minority interests 543.074 635.948

Taxes Current 16 (97.281) (115.192) Deferred 16 (6.457) 9.816

Income after taxes and before minority interests 439.336 530.572

Income attributable to minority interests 30 (4.709) (7.309)

Consolidated net income attributable to Santander Group 434.627 523.263

Average number of ordinary shares outstanding 197.271.070.331 197.276.864.914Earnings per share (in Euros) 0,0022 0,0027

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


CONSOLIDATED INCOME STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009


(Translation of statements originally issued in Portuguese - Note 52)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009



Other reserves and

Share Treasury Fair Deferred Foreign retained Interim Net Minoritycapital shares value taxes exchange Sub-total earnings dividends income interests Total

Balances as at December 31, 2008 1.972.962 (493) (42.010) (1.029) 903 (42.136) 27.095 (105.000) 517.725 561.366 2.931.519

Appropriation of net income. Interim dividends regularization - - - - - - - 105.000 (105.000) - -. Additional dividends distributed - - - - - - - - (119.972) - (119.972). Transfer to other reserves and retained earnings - - - - - - 292.753 - (292.753) - -. Preference shares - - - - (838) (838) (28.498) - - (1.413) (30.749). Determination of dividends on BST's net income - - - - - - (21) - - (317) (338)Purchase of treasury shares - (21) - - - - - - - - (21)Sale of Banco Caixa Geral Totta de Angola to minority interests - - - - - - - - - 22.359 22.359Increase of Banco Caixa Geral Totta de Angola's share capital - - - - - - - - - 17.359 17.359Others - - 1 153 - 154 (152) - - 65 67Interim dividends - - - - - - - (115.000) - - (115.000)Comprehensive consolidated income for the year - - (1.017) 1.177 (8.863) (8.703) - - 523.263 (8.211) 506.349Balances as at December 31, 2009 1.972.962 (514) (43.026) 301 (8.798) (51.523) 291.177 (115.000) 523.263 591.208 3.211.573

Appropriation of net income. Interim dividends regularization - - - - - - - 115.000 (115.000) - -. Additional dividends distributed - - - - - - - - (119.970) - (119.970). Transfer to other reserves and retained earnings - - - - - - 288.293 - (288.293) - -. Preference shares - - - - 589 589 (29.303) - - (98) (28.812). Determination of dividends on BST's net income - - - - - - (12) - - (329) (341). Determination of dividends on Banco Caixa Geral Totta de Angola's net income - - - - - - - - - (4.368) (4.368)Sale of 1% of Partang (and consequent loss of joint control) - - - - - - - - - (45.085) (45.085)Payment of share-based compensation - - - - - - 1.965 - - 3 1.968Others - - - 156 - 156 (505) - - 113 (236)Interim dividends - - - - - - - (115.000) - - (115.000)Consolidated comprehensive income for the year - - (467.393) 143.077 4.668 (319.648) - - 434.627 29.357 144.336Balances as at December 31, 2010 1.972.962 (514) (510.419) 143.534 (3.541) (370.426) 551.615 (115.000) 434.627 570.801 3.044.065

Revaluation reserves

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

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009



Attributable to Attributable to Attributable to Attributable toSantander Group minority interests Santander Group minority interests

Consolidated net income for the year 434.627 4.709 523.263 7.309Income not recognised in the consolidated income statement. Transfer to results of exchange fluctuation reserves due to sale of associated companies 1.980 2 2.180 4. Transfer to results of exchange fluctuation reserves due to dividends distributed 502 1 - -. Exchange rate fluctuations on foreign subsidiaries 2.186 25.065 (11.043) (15.516). Revaluation reserves of associates valued by the equity method . Fair value 84 - - - . Tax effect (55) - - -. Changes in fair value of available-for-sale financial assets . Fair value (453.036) (577) 35.724 33 . Tax effect 139.379 177 (8.559) (8). Changes in fair value of cash flows hedging derivatives . Fair value (19.384) (27) (32.500) (45) . Tax effect 4.975 7 8.613 12. Change in the "shadow reserve" . Fair value 4.941 - (4.241) - . Tax effect (1.220) - 1.123 -

(319.648) 24.648 (8.703) (15.520)Consolidated comprehensive income for the year 114.979 29.357 514.560 (8.211)

December 31, 2010 December 31, 2009

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

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CONSOLIDATED CASH FLOWS STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009


(Amounts in thousands of Euros)

2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES:Interest, commission and other income 2.181.578 2.799.415Interest, commission and other expense (1.175.718) (1.585.366)Payments to personnel and suppliers (482.587) (504.093)Contributions to the Pension Fund (22.000) (72.772)Foreign exchange and other operating income 62.959 42.516Recoveries from written-off loans 11.091 7.468Insurance premiums received 155.397 127.386Claims paid (16) (27)

Net cash flows before changes in operating assets and liabilities 730.704 814.527

(Increase) / decrease in operating assetsLoans and advances to banks 621.560 (1.257.722)Financial assets held for trading 358.100 (366.040)Loans and advances to customers (594.064) 42.440Financial assets and liabilities at fair value through profit or loss 315.853 448.679Non-current assets held for sale (14.382) (15.382)Other operating assets (46.223) 16.150

640.844 (1.131.875)Increase / (decrease) in operating liabilities:

Resources of financial institutions 5.032.145 929.120Resources of customers and others 2.184.590 (331.177)Financial liabilities held for trading (222.842) 225.848Other operating liabilities 50.216 23.817

7.044.109 847.608

Net cash flows from/(used in) operating activities before income tax 8.415.657 530.260Income tax paid (112.008) (80.255)

Net cash flows from/(used in) operating activities 8.303.649 450.005

CASH FLOWS FROM INVESTING ACTIVITIES:Dividends received 4.454 5.639Purchase of available-for-sale financial assets (3.358.907) (3.018.350)Sale/reimbursement of available-for-sale financial assets 1.217.674 323.831Income from available-for-sale financial assets 187.180 31.063Purchase of tangible and intangible assets (65.034) (80.014)Sale of tangible assets 1.253 1.718Investment in associates (2.555) 66.871

Net cash flows from/(used in) investing activities (2.015.935) (2.669.242)

CASH FLOWS FROM FINANCING ACTIVITIES:Dividends paid (234.970) (224.972)Reimbursement of debt securities and subordinated liabilities (278.733) (1.238)Preference shares dividends payment (29.303) (28.498)Issuance/(reimbursement) of bonds and others (5.951.852) 2.724.364Interest paid on bonds issued and others (158.899) (167.028)Interest paid on subordinated liabilities (5.046) (8.076)

Net cash flows from financing activities (6.658.803) 2.294.552

Net increase/(decrease) in cash and cash equivalents (371.089) 75.315

Cash and cash equivalents at the beginning of the year 982.852 946.803Entities removed from the consolidation perimeter (58.605) (57.308)Entities included in the consolidation perimeter - 18.042Cash and cash equivalents at the end of the year 553.158 982.852

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

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Notes to the Consolidated Financial Statements

SANTANDER TOTTA, SGPS, S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 2010 AND 2009 (Amounts expressed in thousands of Euros – tEuros, unless otherwise indicated)

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INTRODUCTORY NOTE Santander Totta, SGPS, S.A. (hereinafter “Santander Totta” or “ST SGPS”) was established on December 16, 2004, following the demerger/merger of Banco Totta & Açores, S.A. (“Totta”). Under the terms of this operation, the investments in Foggia, SGPS, S.A. (“Foggia”) and Totta Seguros - Companhia de Seguros de Vida, S.A (“Santander Totta Seguros” or “Company”) were demerged from Totta and called-up as share capital of Santander Totta. On the same date, the remaining assets and liabilities of Totta along with those of Banco Santander Portugal, S.A. (“BSP”) were merged into Companhia Geral de Crédito Predial Português, S.A (“CPP”), which then changed its name to Banco Santander Totta, S.A. (“Bank” or “BST”). Santander Totta’s corporate purpose is the management of investments in other companies as an indirect way of performing economic activities and is headquartered in Portugal. Santander Totta is a subsidiary of Santander Group. The main balances and transactions with other companies of Santander Group during 2010 and 2009 are presented in Note 48. The Group has a domestic network of 694 branches (699 branches at December 31, 2009) and foreign exchange posts and has an oversea branch in London, as well as an offshore financial branch and an international offshore financial branch in the Autonomous Region of Madeira. The Group 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, which occurred during 2009. 1. BASES OF PRESENTATION AND MAIN ACCOUNTING POLICIES 1.1. Bases of presentation Santander Totta’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 out in the International Financial Reporting Standards (IAS/IFRS) as adopted by the European Union, Regulation (CE) 1606/2002, dated July 19, of the European Parliament and Council, transposed to the Portuguese legislation by Decree-Law no. 35/2005, dated February 17, and Notice no. 1/2005, dated February 21 of the Bank of Portugal. Where Group companies use different accounting principles, appropriate adjustments to IAS/IFRS were made.

In 2010 Santander Totta adopted the amendments to IFRS 3 - "Business Combinations" / IAS 27

- "Consolidated and Separate Financial Statements" which allowed it to recognize a gain of tEuros 21,201 as a result of the change of control in Unicre (Notes 15 and 38).

Santander Totta reviewed the amendments to IAS 39 - Financial instruments: Recognition and measurement" on recognizing inflation as a hedged risk and the hedging through options, but these had no impact on its financial statements. Amendments to IFRS 2 - "Share-based payment", IFRIC 16 - "Hedges of a net investment in a foreign operation", IFRIC 17 - "Distribution of non cash assets to owners" and IFRIC 18 - "Transfer of assets to customers", also had no impact on its financial statements.

In 2009 Santander Totta adopted IFRS 8 – “Operating Segments”. This standard specifies the

segment information disclosure requirements replacing IAS 14 – “Segment reporting”. This information that corresponds to the Santander Totta’s business segments is presented in Note 3.

Additionally Santander Totta has adopted the amendments of IAS 1 – “Presentation of financial

statements”, which introduced a number of changes in the format and content of the financial statements namely the statement of comprehensive income being presented as a primary financial statement and in the presentation of the statement of changes in shareholders’ equity.

During 2009, Santander Totta adopted the amendments to IFRS 7, which introduced additional

disclosure requirements regarding liquidity risk and determination of fair value. These disclosures are included in Note 50.


82

During 2009, Santander Totta also considered the amendments of IAS 1 and IAS 32 – “Presentation of financial statements” that clarify the criteria to be considered in the classification of financial instruments with a put option, namely if those should be considered financial liabilities or equity instruments. These changes had no impact on its financial statements.

In 2009, Santander Totta considered the amendments to IFRIC 9 and IAS 39 (Amendments) -

"Embedded Derivatives", clarifying that in case of reclassification of financial instruments out of the category "at fair value through profit or loss", under the amendment to IAS 39, embedded derivatives should be assessed and, if necessary, accounted for separately. These changes also had no impact on its financial statements.

In 2009, Santander Totta reviewed the amendments to IAS 27 - "Consolidated and separate

financial statements - Cost of an investment in a subsidiary, jointly controlled entity or associate." The changes made to the text of this standard correspond essentially in clarifying the investment valuation criteria in a subsidiary, jointly controlled entity or associate, as part of a restructuring operation of a group with amendments in the parent company. These changes also had no impact on its financial statements.

At December 31, 2010 the following standards (new and revised) and interpretations issued by

the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretation Committee (IFRIC), respectively, endorsed by the European Union, were available for early adoption:

- IAS 24 (Amendment) – “Related Parties” – The amendment made to the text of this

standard requires changes to the disclosures presented relating to entities in which the State exercises control, joint control or significant influence. Adoption of the new standard is mandatory for reporting periods beginning on or after January 1, 2011.

- IAS 32 (Amendment) - "Financial Instruments: Presentation" - The revised text of the

standard aims to clarify the conditions under which the issued rights can be classified as equity instruments. It will become mandatory for reporting periods beginning on or after February 1, 2010.

- IFRIC 14 – “Limit of the defined benefit asset, minimum funding requirements and their

interaction” - The amendment made to the text of this interpretation aims to clarify the composition and accounting treatment of the minimum funding requirements for future services liabilities. Adoption of the new standard is mandatory for reporting periods beginning on or after January 1, 2011.

- IFRIC 19 – “Settlement of liabilities through the issuance of equity instruments” – This

interpretation aims to clarify the accounting treatment relating the settlement of liabilities through the issuance of equity instruments as well as the criteria for valuing those instruments. Adoption of the new standard is mandatory for reporting periods beginning on or after July 1, 2010.

Although an assessment of the impact of the adoption of the standards and interpretations above

is not yet available when preparing the financial statements, the Santander Totta’s Board of Directors believes that its implementation will not have a material impact.


83

In addition, up to the date of the approval of the accompanying financial statements, the following standards and interpretations, not yet endorsed by the European Union, have been issued:

- IFRS 9 - "Financial Instruments" - The new standard uses an unique approach in setting out

the accounting treatment of a financial asset valued either at amortized cost or fair value, simplifying the classification set out under IAS 39. The classification is based on the contractual characteristics of the financial asset and the entity’s business model for managing that financial asset. The standard does not cover financial liabilities. It will become mandatory for reporting periods beginning on or after January 1, 2013.

- IFRS 7 (Amendment) - "Financial instruments: Disclosures" - The amendments to the

standard, issued in October 2010, are mandatory for reporting periods beginning on or after July 1, 2011.

- "Improvements to IFRS” – Changes will become mandatory in several dates, being the first

for the reporting period beginning on or after July 1, 2011. The financial statements of ST SGPS and its affiliates for the year ended December 31, 2010 are

to be approved in the Shareholders’ General Meeting. However, the Santander Totta’s Board of Directors believes that they will be approved without significant changes.

1.2. Basis of consolidation

Subsidiaries are those companies in which Santander Totta 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 Santander Totta has control over their activities to the time control ceases.

Balances, transactions and the corresponding income and expenses between entities belonging to the consolidation scope are eliminated in the consolidation process. Third party shareholders in subsidiary companies consolidated by the full integration method are accounted for under the caption “Minority interests” (Note 30).

Associated companies are those in which Santander Totta 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 Santander Totta has the power to participate in decisions relating to their financial and operating policies, but does not have control or joint control over them. Participations in associated companies are accounted for in accordance with the equity method from the time Santander Totta 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 or loss of the associated companies attributable to the Group.

Goodwill corresponds to the excess of the cost of acquisition over the effective percentage held in the fair value of the assets, liabilities and contingent liabilities of subsidiary and associated companies.

Santander Totta has decided not to apply IFRS 3 – Business combinations, 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.


84

Acquisitions of subsidiaries and associated companies after January 1, 2004 are accounted for 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. 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 income statement.

With the application of amendments to IFRS 3 and IAS 27, Santander Totta decided to value at

fair value through profit or loss the business combinations achieved in stages. In such cases, the stake acquired prior to the time of the change of control is revalued at fair value through profit or loss (Note 15). Goodwill is determined at a date as the difference between the total acquisition cost and the portion held in the fair value of the associate’s assets and liabilities. Similarly, as consequence of the application of the above-mentioned standards, Santander Totta values at fair value through profit or loss the entities where control is lost (Note 4).

Santander Totta consolidates Special Purpose Entities (SPE), namely SPE’s used for

securitization operations of mortgage loans, by the full integration method. The companies under joint control of the Group and other entities are accounted by the

proportional consolidation method, being integrated into the consolidated financial statements the assets, liabilities and results in the proportion of the equity held by the Group.

ST SGPS has decided to reverse, as of the transition date (January 1, 2004), the reserve

resulting from foreign 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 subsidiaries 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 accounted for in the shareholders’ equity under the caption “Revaluation reserves – Foreign exchange”.


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

Santander Totta uses the accrual basis of accounting for most of its financial statement captions. Therefore, expenses and income are accounted for in the period to which they relate, independently of when they are paid or received.

b) Foreign currency transactions Santander Totta’s accounts are prepared in the currency of the economic environment in

which it operates (functional currency), thus being expressed in Euros. The transactions in a currency other than the functional currency, and the corresponding

income and expenses, are recorded at the exchange rate of the day that they occur. Foreign currency assets and liabilities are translated into Euros at the fixing exchange rates as of the balance sheet date (fixing of the Bank of Portugal).

c) Loans and accounts receivable

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

Loans and advances to customers include loans to customers, as well as commercial paper, not intended for sale in the short term, which are recorded at its nominal value.

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

Commissions and transaction costs implied in the operations underlying the assets included in this category, as well as interest on loans and advances granted, are recognised on an accrual basis of accounting over the period of such operations, using the effective interest rate method, regardless of when those are received or paid. Santander Totta opted to defer commissions received and paid related to credit granted as from January 1, 2004.

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

Impairment

Loans to customers and other receivables are subject to periodic impairment losses assessements. 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 losses: − Corporate customers; − Mortgage loans; − Consumer credit; − Credit granted through credit cards; − Other credit to individual customers; − Guarantees and sureties; and − Derivatives.


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

- Total credits granted over tEuros 5,000;

- Overdue installments of principal and interest of at least tEuros 75 (monitored by recovery managers);

- Installments over 90 days overdue:

. All credits granted over tEuros 300; and

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

− Customers classified in the Bank’s system as “doubtful not in litigation” for special monitoring purposes, as a result of one or more events that could potentially lead to impairment losses other than default.

Customers assessed individually with no evidence of impairment are then assessed on a collective basis, being differentiated between customers with responsibilities over and lower than tEuros 300.

The Group carries out a collective impairment losses assessment for the remaining segments of the loan portfolio.

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 difficulties of the debtor;

- Significant change in the debtor’s equity;

- Other adverse changes, such as:

. Condition and/or ability to pay; and

. 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 probability of being overdue (PI) times the difference between the book value and the estimated discounted cash flows of those credits. PI corresponds to the probability of one transaction, operation or client being overdue during a specified emergency period. Emergency period corresponds to the period between the occurrence of a loss event and the identification of that event by the Group (incurred but not reported). For all loan portfolio segments, the Group considers the emergency period to be 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 and the present value of the estimated future cash flows of those assets, discounted at the interest rate of the asset or financial assets. The book value of the asset or assets is written down by the impairment loss. In the case of credits with floating interest rates, the discount rate used to determine an impairment loss is the in-force interest rate as determined by the contract. Impairment losses are recognised against the income statement.

In accordance to the Group’s current impairment loss 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 necessary, the historical information is updated based on current observable data, in order to reflect the effect of actual conditions.


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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 adjusted accordingly. The amount reversed is directly recognised in the income statement.

The Group periodically writes off overdue loans considered as uncollectible. Any subsequent recoveries on those loans are recognised as decreases of the impairment losses. Impairment losses and recoveries are accounted for in the income statement under the caption “Impairment losses on loans, net of reversals and recoveries”.

Loan sales

Gains and losses from definitive sales of loans are accounted for in the income statement

under the caption “Gain/(loss) from other assets” (Note 40). Such gains and losses correspond to the difference between the sale price and the book value of the assets net of impairment losses. Eventual future collections are not considered in the determination of the proceeds.

Guarantees given and irrevocable commitments

Responsibilities for guarantees given and irrevocable commitments are accounted for as off- -balance sheet items by the respective value at risk, whilst the corresponding interest, commission or other income earned are recorded in the income statement over the period of the operations.

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

Income from a significant service rendered, such as commissions on syndicated loans, is recognised in the income statement when the significant service has been concluded only.

Income from services and commissions obtained as the services are rendered are recognised in the income statement in the period to which they refer.

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

Costs relating to services and commissions are recognised using the same criteria as for

the corresponding income. e) Financial instruments

The following assets and liabilities are recognised 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 and liabilities designated at fair value through profit or loss;

- Available-for-sale financial assets; and

- Other financial liabilities.

i) Financial assets and liabilities held for trading and financial assets and liabilities designated at fair value through profit or 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”.


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The assets at fair value through profit or loss include fixed income securities. As at December 31, 2010 and 2009 the financial assets and liabilities designated at fair value through profit or loss include fixed and floating income securities traded on active markets that Santander Totta has opted to record and value at fair value through profit or loss, as well as the respective funding.

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

The fair value of financial assets held for trading that are transacted on active markets

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.

When discounted cash flow techniques are used, the future cash 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 settle 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 if their fair value cannot be determined reliably, which are then 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 under the caption “Fair value reserve” until they are sold off (or until impairment losses are recognized on them), being transferred to the income statement at that time. Foreign exchange gains and losses on monetary assets are directly recognised in the income statement.

iii) Revenue recognition

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

the nominal value (premium or discount) are recognised in accordance to the effective interest method and accounted for under the caption “Income of the income statement”.

Interest associated to trading of derivative financial instruments is accounted for under

the caption “Gain/(loss) from assets and liabilities valued at fair value through profit or loss” (Note 37).

Income from variable yield securities, namely dividends, is recognised in the income

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


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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 with interest being recorded on an accrual basis.

v) Impairment losses on financial instruments

When there is evidence of impairment losses on an asset or group of financial assets,

the impairment loss is recognised with a corresponding entry in the income statement. Evidence of impairment loss on listed securities is considered to exist when the listed

price is either prolonged or significantly below original cost at initial recognition. Evidence of impairment of unlisted securities is considered to exist when there is a significant impact on the estimated future cash flows of the financial asset, provided that those can be reasonably estimated.

The Group considers the specific nature and characteristics of the assets being valued

in its periodic reviews of the existence of impairment. In terms of objective impairment criteria, the Group considers a 24 months period as adequate for prolonged devaluation of financial instruments in relation to their cost. Additionally, as regards significant devaluation criteria, the Group considers the existence of unrealised losses exceeding 50% of the acquisition cost of the financial instrument, as an objective indicator of impairment. Except as described in the following paragraph, should the amount of the impairment loss decreases in a subsequent period and the decrease is objectively related to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by either adjusting the allowance account (when applicable) or directly the asset’s carrying amount. The amount of the reversal is recognised against the income statement.

Where there is objective evidence of impairment of available-for-sale financial assets

as a result of a significant or 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 income statement. Impairment losses on fixed income securities can be reversed through the income statement 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 unrealised capital 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 recognised in the income statement.

vi) Other financial liabilities

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

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

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

value through profit or loss.


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f) Valuation of derivative instruments and hedge accounting

Derivative instruments traded by the Group are always recognised 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 or loss.

The Group uses derivative financial instruments to hedge interest and exchange rate risks resulting from financing and investing activities. Derivatives that do not qualify for hedge accounting are accounted for as financial instruments held for trading, under financial assets or liabilities held for trading captions, with changes in fair value being reflected in the income statement.

Derivatives that qualify for hedge accounting are recorded at fair value with the corresponding gains or losses being recognised in accordance with the hedge accounting model adopted by the Group.

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

- Formal documentation exists regarding the hedging relationship and risk management strategy of the Group, 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 effectiveness and subsequent monitoring.

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

- During the period of the operation, the hedging effectiveness is maintained within the range of 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 in fair value of the hedging instrument.

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

Fair value hedge

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

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

Hedge accounting is not applied in the case of exchange rate hedging of monetary items. In these cases, the gain or loss on the derivative and on the monetary items are recognised in the income statement for the period.


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Cash flow hedge

Cash flow hedge refers to hedging the exposure to variations in future cash flows that can be attributable to a specific risk relating to a recognised asset or liability or to a highly probable future transaction that may affect profit or loss.

The Group has entered into derivative financial instruments to hedge the future cash flows of interest arising from its floating rate mortgage loan portfolio. In addition, the Bank has derivative financial instruments to hedge future cash flows of interest on liabilities issued.

Cash flow hedge accounting adoption is also subject to the previously mentioned hedge accounting requirements and has the following accounting treatment:

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

directly in a specific equity caption; and

− The ineffective portion is recorded in the income statement.

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

− The accumulated variation in the fair value of the hedging instrument as from the beginning of the hedge; and

− The accumulated variation in 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 recognised in equity, if any, is recorded in the income statement.

Cash flow hedge accounting is discontinued if the hedging instrument matures or is early terminated or if the hedge becomes ineffective or if it is decided to terminate the hedge relationship. In these cases, the accumulated gain or loss resulting from the hedging instrument remains reflected separately in equity, being recorded in the income statement in the same period that the gain or loss on the hedged item is recognised.

g) Other tangible assets

Tangible assets used by the Group in its operations are recorded at cost (including costs directly attributable to the asset in order to put them on the location and conditions necessary to operate) less accumulated depreciation and impairment losses.

Depreciation of tangible assets is recorded on a straight line basis over the estimated useful lifetime period of the assets:

Years of useful lifetime Property for own use 50 Equipment 4 a 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 Group 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, for which the corresponding deferred tax liability is being recorded.


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Impairment tests are made periodically. The branches are considered as cash flows generating units for this purpose with impairment losses being recognised whenever the value of the property is not recovered through the 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 valuations usually consider the “market comparison method” and the value in the assessment corresponds to the market value of the asset in its current state.

h) Intangible assets

The Group recognises in this caption, the costs incurred in the development phase of systems implemented or in the implementation phase, as well as costs of software acquired, provided that future economic benefits are expected to flow beyond the financial year in which the costs are incurred. Assessments are made annually to determine any impairment losses.

Intangible assets are amortised on a monthly straight line basis over the estimated useful lifetime of the assets, which on average corresponds to three years.

i) Non-current assets held for sale

The Group records under the caption “Non-current assets held for sale”, property, equipment and other assets received as settlement of non-performing loans, 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 at the date of the agreement. Such property is subject to periodic appraisals made by independent appraisers with impairment losses being recorded whenever the appraised value (net of costs to sell) is lower than its book value.

This caption also includes the Group’s properties that were for its own use and are 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), cease to be depreciated and are subject to periodic appraisals to determine impairment losses.

The Group does not recognise unrealised gains on these assets, because there is no confirmed expectation of its realization, considering the evolution of the real estate market.

The Santander Totta’s Board of Directors considers the methods adopted to be adequate and that they reflect the reality of the market.

j) Provisions

This liability caption includes provisions recorded in accordance with IAS 37, to cover the specific post-employment benefits of the Board of Directors members, tax contingencies, legal processes and other specific risks arising from Group’s operations (Note 25).

k) Employees’ post employment benefits

The Bank has subscribed 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.


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For employees admitted until December 31, 2008, the BST’s pension plan corresponds to a defined benefit plan, as it establishes 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. The employees of the former Totta were already 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.

From January 1, 2009, employees enrolled in the Bank began to be registered in Social Security and are covered by a defined contribution and a supplementary pension plan of rights acquired under Article 137 – C of ACT. This plan is supported by contributions from employees (1.5%) and from the Bank (1.5%) on the value of the actual monthly salary. To this end, each employee can choose his/her own open pension fund.

In addition, the London branch employees are covered by a defined benefit pension plan, for which the branch has a separate pension fund (Note 46). In 2009, the Bank recognised under “Personnel costs” caption the cost for the year and the additional contribution to the financing of the plan. In 2010 the Bank recognized only the cost of the period and the normal contribution of the year.

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 external experts, the Towers Watson International Limited, branch in Portugal (former Watson Wyatt) 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 income statement 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 income statement 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 recognised in the income statement.

BST records the following as “Personnel Costs” in the income statement: - Interest cost, net of estimated income of the Pension Fund assets;

- Current service cost; and

- Increased liability due to early retirements.


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The retirement pension liability less the fair value of the plan assets and the actuarial gains and losses not recognised in the income statement in accordance with the “corridor” method are recorded in “Other assets” (Note 18).

Bank of Portugal Notice 4/2005 requires pensions in payment liabilities to be fully funded and past service liabilities to be funded at least by 95% for current personnel by the pension fund in place.

The Bank contributed to the pension fund, in order to cover its total liability with employee benefits, including healthcare (SAMS).

In compliance with the collective labour agreement (Contrato Colectivo de Trabalho – CCT) for the insurance sector Santander Totta Seguros – Companhia de Seguros de Vida, S.A. (“Santander Totta Seguros”) has assumed the commitment to pay supplementary pensions to those granted by the Social Security to the employees admitted to the sector before July 22, 1995 when the new CCT came into force, including those transferred from Seguros Génesis under the arrangement entered into between Seguros Génesis and Santander Totta Seguros on June 29, 2001. The supplementary pensions consist of a percentage, which increases with the number of years of service of the employee, applied to the wages in force at the date of retirement. At the end of each year, Santander Totta Seguros follows the procedure of recognizing the liability for the full amount of the present value of the age and disability retirement pensions by corresponding charge to the income statement. The supplementary pension liability was calculated in accordance with the “Projected Unit Credit” method. The actuarial assumptions (financial and demographic) are based on expectations for growth of wages and rely on mortality tables adapted to the population of Santander Totta Seguros. The discount rate is based on market rates for corporate bonds with high rating and term similar to the settlement of liabilities.

The Banco Santander Negócios Portugal, S.A. (BSN) did not sign the Collective Labour Agreement in force for the banking sector. In 2006 the BSN compose a pension fund for defined contribution, which employees could make voluntary contributions. The contribution of BSN depended on the results and corresponded to a percentage of the wages of employees, at an annual minimum of 1,000 Euros per participant. Following the merger of BSN in the BST, the former employees of BSN have been incorporated in the CBA and in the benefit pension plan defined from the BST in May 2010, being recognized seniority for employees hired before 1 July 1997. The increase in past service liability with employees of BSN was recorded in "Personnel costs".

In February 2010, a supplementary defined contribution plan for some Bank’s directors has been approved, being an insurance policy in the amount of tEuros 4,430 underwrote for this purpose (Note 40).

In October 2010, an agreement between the Labour and Social Security Ministry, the Portuguese Association of Banks and the Financial Sector Federation (FEBASE) has been established setting out the integration of the banking sector’s employees into the Social Security General Regime. As a result of this agreement, the Decree-Law no. 1-A/2011, dated January 3, has been published stating that all employed workers as of January 4, 2011 will start to be covered up by the Social Security General Regime in what regards aging retirement, maternity, paternity and adoption. Considering the complementarity with the Collective Labour Agreement in force (the so called “Acordo Colectivo de Trabalho do Sector Bancário”), for the covered employees the Bank will continue to guarantee the difference between the benefits paid out under the Social Security General Regime and those that would result from the mentioned Collective Labour Agreement.


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Following the instructions issued by the National Council of Financial Supervisors, the past services liabilities recognized as at December 31, 2010 are to be unchanged as result of the above-mentioned Decree-Law as the reduction of the pensions payable by the Bank will be applicable for the future service of current employees as from January 1, 2011. As such, the current service cost will be reduced as from that date only, but the Bank will start to support the employer’s Social Security Contribution (the so called “TSU – Taxa Social Única”) of 23.6%. The Bank continues to be responsible for the pensions resulting from disability, survival and sickness benefits.

l) Long service bonuses

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.

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 at 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 under the caption “Other liabilities – long service bonuses” (Note 27).

In 2010 BST has assumed an additional liability of tEuros 432 regarding BSN’s employees.

m) Income taxes Santander Totta, its subsidiaries and associated companies are individually taxed and are

subject to the tax regime established in the Corporate Income Tax Code (“CIRC”).

According to the tax regime of the Financial Holding Companies the results distributed by the associated companies to the holding entity are entirely deductible from Corporate Income Tax under the CIRC.

The branches’ accounts are consolidated with those of the Bank for tax purposes. In addition of 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 91st of CIRC and the Double Taxation Agreements signed by Portugal.

The offshore branch in the Autonomous Region of Madeira benefits from article 33rd of the Statute of Tax Benefits (“EBF”), which grants it exemption from corporate income tax up to December 31, 2011. In accordance with article 33rd-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 92nd of the Corporate Income Tax Code, tax paid under the terms of item 1, article 90th, net of international double taxation and any tax benefits, cannot be less than 75% of the amount that would have been determined if the taxpayer did not have the tax benefits established in item 13, article 43rd and article 75th of the Corporate Income Tax Code.


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Since January 1, 2007, municipal authorities can establish a maximum local income 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.

Law no. 12-A/2010, dated June 30, has introduced an additional corporate income tax on the top of the existent state and municipal ones (the so called “Derrama Estadual”) covering all companies with a taxable income higher than tEuros 2,000 from 2010 on, corresponding to 2.5% over the portion above such amount. As consequence, the nominal tax rate of 29% has been used for deferred taxes determination purposes in 2010, except for any carried-forward tax losses, and for the current tax charge.

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 recognised as deferred tax assets.

Deferred tax assets are recognised 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 realised or the liabilities incurred.

No deferred tax liabilities have been recognized on the realized capital gains of some shareholdings suspended from taxation in the amount of tEuros 206,000 as the reinvestment was made in BST’s share capital increases. No deferred tax liability has been recognized assuming that Santander Group does not intend to sell off its indirect stake in BST in the foreseeable future.

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

n) Finance lease operations

Lease operations are classified as finance leases when substantially all the risks and benefits relating to ownership of the leased asset are transferred to the lessee under the lease contract. Finance lease operations are recorded in accordance with the following criteria:

As lessee

Assets held under finance lease are recorded at their fair value in tangible assets and in liabilities and the corresponding depreciation is recognized.

The lease installments are divided in accordance with the respective financial plan, the liabilities being decreased by the amount corresponding to payment of the principal. Interest included in the installments is recorded in the caption “Interest and similar charges”.

As lessor

Assets under finance lease are recorded in the balance sheet as loans granted, which are repaid by the principal amount in accordance with the financial plan of the contracts. Interest included in the installments is recorded in the caption “Interest and similar income”.


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o) Technical provisions Santander Totta Seguros is the life and non life insurance company of the Group. Insurance contracts and investment contracts with profit sharing that include a discretionary

participation feature, written by Santander Totta Seguros, are recorded in the consolidated financial statements of Santander Totta in accordance with the terms of IFRS 4. In this sense, the technical provisions presented in the consolidated financial statements correspond to the technical provisions recorded by Santander Totta Seguros for these contracts:

- Provision for unearned premiums and deferred acquisition costs

The provision for unearned premiums corresponds to the portion of the premiums written in a year that relate to periods of risk after the balance sheet date and is calculated on a policy-by-policy basis.

This provision is applicable to both life and non life businesses. Since 2004, Santander Totta Seguros started deferring the acquisition costs related to brokerage commissions.

- Life mathematical provision

In life insurance policies with a coverage period exceeding one year, the mathematical provision has been calculated on a policy-by-policy basis, in accordance with the actuarial bases approved by the local insurance regulator (“Instituto de Seguros de Portugal”) and corresponds to the future obligations of the in-force policies.

- Provision for interest rate deficiency

At each reporting date, an assessment is made of whether the yield of the assets backing life mathematical provisions and financial liabilities arising from investment contracts without discretionary participation features is higher than the respective guaranteed technical interest rates. Any eventual deficiency resulting from this assessment is recognised in the income statement by setting up this provision in the balance sheet.

− Provision for claims

The provision for claims comprises all indemnities payable relating to claims incurred but not yet settled and is calculated as follows:

i) A case-by-case analysis of all year-end pending claims and respective

assessment of the related liabilities as at that date.

ii) Estimate of the liability for claims incurred but not reported (IBNR); and

iii) Estimate of the claims handling costs to be incurred up to the settlement of all year-end pending claims.


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- Shadow reserve

Corresponds to the policyholders’ portion on the net unrealised capital gains arising from the investments backing contracts with profit sharing.

The portion belonging to the policyholders is determined based on the statutory financial statements of Santander Totta Seguros prepared in conformity with accounting principles generally accepted in Portugal for the insurance sector. Accordingly, for purposes of preparing the consolidated financial statements, investments backing contracts with profit sharing are classified in the available-for-sale category with the respective unrealised capital gains and losses, net of taxes, being recorded in the “Revaluation reserves” caption. A liability is set up for the portion of the unrealised capital gains and losses belonging to the policyholders in order to avoid distortions on the consolidated income statement and consolidated shareholders’ equity (“Shadow accounting” in accordance with IFRS 4).

− Provision for profit sharing

The provision for profit sharing corresponds to the amounts allocated and not yet distributed to the beneficiaries of contracts with profit sharing, being calculated in accordance with the technical bases of each product.

- Technical provisions for ceded reinsurance

Corresponds to the quota-share of reinsurers’ responsibility in the Santander Totta Seguros technical liabilities, being calculated in accordance with the reinsurance treaties in place and under the same criteria as used for direct insurance.

- Provision for premium deficiency

The provision for premium deficiency represents the amount needed to cover expected claim costs and operating expenses after the end of the year and exceeding the value of the unearned premiums and premiums payable for the current contracts of life insurance. This provision is calculated based on loss ratios, expenditures, lending and income earned in the year in accordance with what is defined by the local insurance regulator (“Instituto de Seguros de Portugal”).

- Provision for unchanged tariffs

From 2006 onwards, Santander Totta Seguros has started to recognise a provision for unchanged tariffs regarding a group life term insurance policies for which tariffs will contractually remain still throughout the coverage periods. This provision corresponds to the net present value of all estimated future premiums inflows deducted from all estimated future claims outflows.

- Liability adequacy test

In compliance with IFRS 4, at each reporting date, Santander Totta Seguros assesses whether or not liabilities for insurance contracts are adequate, using estimates of the present value of the future cash flows in accordance with the terms of the contracts. If that assessment, based on tests of the adequacy of the liabilities, shows that the recorded amount of the liabilities for insurance contracts is insufficient, considering the estimated future cash flows, the full amount of the deficiency is recognised in the income statement.


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p) Allowance for uncollectable premiums

The purpose of the allowance for uncollectable premiums is to adjust the amount of the accounts receivable from policyholders to their estimated realisable value, being calculated in accordance to Circular Letter no. 9/2008, dated November 27, issued by the local insurance regulator (“Instituto de Seguros de Portugal”).

q) Recognition of income and costs – insurance business

Premiums on life insurance contracts and investment contracts with discretionary participation features are recorded, when issued, in the income statement under the “Gain/(Loss) from insurance activity gross margin” caption.

Investment contracts without a discretionary participating feature written by Santander Totta Seguros are recorded in the consolidated financial statements in accordance with IAS 39 under the “Resources of customers and others” caption.

Securities allocated to the insurance business are backing the liabilities of insurance contracts and investment contracts with and without profit sharing. These assets were classified in the consolidated financial statements as “available-for-sale financial assets”, except for securities allocated to investment contracts where the risk is beared by the policyholders (the so called “unit-linked products”), which are recorded in the caption “other financial assets designated at fair value through profit or loss”.

r) Equity long-term incentive plans

The Group has long-term incentive plans for stocks and stock options of Banco Santander, S.A., parent company of Santander Group. Given their characteristics, these plans consist in equity settled share-based payment transactions, as defined in IFRS 2 and IFRIC 11. The management, coverage and implementation of these long-term incentive plans is provided directly by Banco Santander, S.A.. The Group pays out annually the amount for these plans to Banco Santander, S.A..

Acknowledgement of such plans imply the recognition of the Group employees’ right to these instruments in the caption “Other reserves”, against the “Personnel costs” caption as these are granted in remuneration of services rendered.

A description of long-term incentives plans for stocks and stock options of Banco Santander in force in 2010 and 2009 is included in Note 49.

2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY The preparation of financial statements requires estimates and assumptions to be made by Santander

Totta’s Board of Directors, which may affect the amount of assets and liabilities, income and costs, as well as the contingent liabilities disclosed.

Post-employment benefits Retirement and survival 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 Notes 1.3 e) and f) 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 at the balance sheet date.


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

impairment determined by individual assessment corresponds to the Group’s judgment 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 losses determined on a collective basis are 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. In addition, 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.

ST SGPS, as an entity subject to Bank of Portugal’s supervision, must present individual

(non-consolidated) financial statements in accordance to the Adjusted Accounting Standards as issued by the Bank of Portugal’s Notice no. 1/2005, dated February 21, being these the base to calculate taxable income.

With the objective to adapt the Corporate Income Tax Code (“CIRC”) to the International Accounting

Standards endorsed by the European Union and to the new accounting framework (the so called “SNC – Sistema de Normalização Contabilística”), approved by the Decree-Law no. 158/2009, dated July 13, the Decree-Law no. 159/2009, dated July 13, has been approved.

The Decree-Law no. 159/2009, dated July 13, has amended some articles in the CIRC, superseding

the article 57.2 of Budget Law for 2007. These provisions are in force since January 1, 2010. In this sense, the new provisions were observed when assessing the taxable income for the year

2010, in accordance with the interpretations made thereof by the Bank. Technical provisions relating to insurance contracts The value of the technical provisions is computed in accordance with the actuarial bases approved by

the local insurance regulator (“Instituto de Seguros de Portugal”), statistical claims frequency and estimates of costs to settle the claims. The costs to be incurred in the future may differ from the current estimates. Nevertheless, the technical provisions represent the best estimate of the liabilities as at the balance sheet date.


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3. SEGMENT DISCLOSURES Under IFRS 8, the operating segments report is presented below according to the information

analyzed by the management:

Global Banking & Markets:

This area includes investment banking, financial markets, transactional bank and large companies, providing services of financial advice, namely Corporate and Project Finance, as well as services related to the brokerage and custody activities.

Retail banking:

Corresponds mainly to credit granting operations and the obtention of funds to private customers and businesses with turnovers of less than 5 million Euros through the branch network, telephone and internet banking services.

Corporate banking:

This area is directed to companies with a turnover of between 5 and 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.

Asset Management and Insurance:

This area results from the investment fund management activity, which includes the launching of funds, whose objective is create added value products for the Group’s customers. This area also includes life and non-life insurance contracts which, with the cross selling strategy, are placed through the Group’s network of branches.

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. Also includes the Group’s exchange rate and liquidity management, as well as the results from stocks identified as financial investments.

The income statement by segment for the year ended December 31, 2010, is as follows:

Global Asset

Banking Retail Corporate Management Corporate Consolidated& Markets banking banking and Insurance activities total

Net interest income 58,115 492,584 109,452 (53) 61,688 721,786Income from equity instruments - - - 148 4,306 4,454Financial margin 58,115 492,584 109,452 95 65,994 726,240

Net income from fees and commissions 50,561 267,601 22,182 12,758 (3,791) 349,311Other income (4) 8,628 198 (707) (14,195) (6,080)Insurance business gross margin - - - 38,298 - 38,298Commercial margin 108,672 768,813 131,832 50,444 48,008 1,107,769

Income from financial operations 16,686 (2,358) 10,547 (633) 111,646 135,888Income from banking and insurance activity 125,358 766,455 142,379 49,811 159,654 1,243,657

Processing costs (22,027) (393,270) (39,161) (12,608) - (467,066)Amortization (3,588) (58,710) (4,073) (588) - (66,959)Operating results 99,743 314,475 99,145 36,615 159,654 709,632

Net impairment and provisions 260 (109,565) (30,452) (21) (31,433) (171,211)Equity method - - 3,457 - 1,196 4,653Income before taxes and minority interests 100,003 204,910 72,150 36,594 129,417 543,074

Tax expense (19,103) (39,141) (13,782) (6,990) (24,722) (103,738)Income attributable to minority interests - - - - (4,709) (4,709)

Net income 80,900 165,769 58,368 29,604 99,986 434,627


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The assets and liabilities under management for each business segment as at December 31, 2010, considering information used by the Group Management for decision making, is as follows:

Global

Banking & Retail Commercial Asset Corporate ConsolidatedMarkets banking banking Management activities total

AssetsLoans and advances to customers Mortgage Loans - 16,454,458 - - - 16,454,458 Consumer credit - 1,633,797 - - - 1,633,797 Other loans 3,836,826 4,698,836 6,190,107 - - 14,725,769

3,836,826 22,787,091 6,190,107 - - 32,814,024

Total allocated assets 32,814,024Total non-allocated assets 15,367,519Total assets 48,181,543

Liabilities Customers' accounts and other resources 772,785 13,976,607 2,268,905 - - 17,018,297 Debt securities issued - 547,698 446,008 - 6,828,971 7,822,677

772,785 14,524,305 2,714,913 - 6,828,971 24,840,974

Guarantees and other sureties provided 327,137 221,890 998,625 - - 1,547,652

Investment funds - 2,439,449 739,808 1,344,848 - 4,524,105

The income statement for the year ended December 31, 2009 is as follows:

Global AssetBanking Retail Corporate Management Corporate Consolidated

& Markets banking banking and Insurance activities total

Net interest income 44,944 530,467 105,989 (134) 119,112 800,378Income from equity instruments - - - 126 5,513 5,639Financial margin 44,944 530,467 105,989 (8) 124,625 806,017

Net income from fees and commissions 40,849 261,525 23,248 11,642 (511) 336,753Other income (4) 9,834 49 (672) (11,916) (2,709)Insurance business gross margin - - - 35,540 - 35,540Commercial margin 85,789 801,826 129,286 46,502 112,198 1,175,601

Income from financial operations 28,145 1,007 24,856 407 67,223 121,638Income from banking and insurance activity 113,934 802,833 154,142 46,909 179,421 1,297,239

Processing costs (21,564) (412,753) (35,932) (12,165) - (482,414)Amortization (4,355) (59,267) (4,611) (761) - (68,994)Operating results 88,015 330,813 113,599 33,983 179,421 745,831

Net impairment and provisions (1,744) (81,652) (14,985) 3 (11,402) (109,780)Equity method - - - - (103) (103)Income before taxes and minority interests 86,271 249,161 98,614 33,986 167,916 635,948

Tax expense (14,295) (41,286) (16,340) (5,632) (27,823) (105,376)Income attributable to minority interests - (1) - - (7,308) (7,309)

Net income 71,976 207,874 82,274 28,354 132,785 523,263


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The assets and liabilities under management for each business segment as at December 31, 2009, considering information used by the Group Management for decision making, is as follows:

Global

Banking & Retail Commercial Asset Corporate ConsolidatedMarkets banking banking Management activities total

AssetsLoans and advances to customers Mortgage Loans - 16,239,517 - - - 16,239,517 Consumer credit - 1,662,209 - - - 1,662,209 Other loans 3,792,280 4,619,295 6,105,045 - - 14,516,620

3,792,280 22,521,021 6,105,045 - - 32,418,346

Total allocated assets 3,792,280 22,521,021 6,105,045 - - 32,418,346Total non-allocated assets 16,172,085Total assets 48,590,431

Liabilities Customers' accounts and other resources 885,072 12,271,776 1,924,449 - - 15,081,297 Debt securities issued - 766,407 765,603 - 12,516,136 14,048,146

885,072 13,038,183 2,690,052 - 12,516,136 29,129,443

Guarantees and other sureties provided 393,861 233,813 980,240 - - 1,607,914

Investment funds - 2,990,285 592,097 1,797,112 - 5,379,494

SANTANDER TOTTA – SGPS, S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 2010 AND 2009 (Amounts expressed in thousands of Euros – tEuros, unless otherwise indicated)

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DRAFT FOR DISCUSSION PURPOSES ONLY

Santander Totta’s balance sheet as at December 31, 2010, by geographic segments, is as follows:

2010Domestic operations International operations

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

Assets

Cash and deposits at central banks 316,810 65 - - 316,875 - - - - - - 316,875Balances due from banks 511,294 3,699 12,304 (105,774) 421,523 36,395 - 279,758 12,790 328,943 (514,183) 236,283Financial assets held for trading 1,745,428 - - - 1,745,428 1,441,634 - 128 - 1,441,762 (1,547,516) 1,639,674Financial assets designated at fair value through profit or loss 4,425,449 - - - 4,425,449 - - - - - (1,450,754) 2,974,695Available-for-sale financial assets 9,732,900 5,380,272 - - 15,113,172 844,371 - - - 844,371 (9,513,106) 6,444,437Loans and advances to banks 11,215,215 793,615 44,284 (2,896,867) 9,156,247 162,795 - 171,740 330,467 665,002 (7,906,621) 1,914,628Loans and advances to customers 31,658,737 1,185,406 - - 32,844,143 - - - - - (30,119) 32,814,024Hedging derivatives 131,526 - - - 131,526 - - 115 - 115 (129) 131,512Available-for-sale non-current assets 95,741 - - - 95,741 - - - - - - 95,741Other tangible assets 394,110 262 - - 394,372 - - - 81 81 - 394,453Intangible assets 75,864 318 - - 76,182 - - - - - (1) 76,181Investments in associates 29,418 - - - 29,418 - 103,922 - - 103,922 - 133,340Current tax assets 27,226 - 1,819 - 29,045 - - - - - (1) 29,044Deferred tax assets 391,810 385 - - 392,195 - - - - - - 392,195Technical provisions of reinsurance ceded 35,013 - - - 35,013 - - - - - - 35,013Other assets 898,695 22,262 - (41,524) 879,433 - - 6 1,470 1,476 (327,461) 553,448Total Assets, net 61,685,236 7,386,284 58,407 (3,044,165) 66,085,762 2,485,195 103,922 451,747 344,808 3,385,672 (21,289,891) 48,181,543

Liabilities

Resources of central banks 4,807,156 6 - - 4,807,162 - - - - - - 4,807,162Financial liabilities held for trading 1,369,982 10 - - 1,369,992 8,217 - 220 - 8,437 (115,832) 1,262,597Financial liabilities designated at fair value through profit or loss 4,301,702 - - - 4,301,702 - - - - - - 4,301,702Resources of other financial institutions 10,402,961 5,850,070 9,745 (3,003,264) 13,259,512 2,010,443 - 7,633 - 2,018,076 (6,828,397) 8,449,191Resources of customers and others 17,522,373 826,873 58,328 - 18,407,574 - - 150,962 241 151,203 (1,540,480) 17,018,297Debt securities issued 19,102,183 - - - 19,102,183 112,792 - - - 112,792 (11,392,298) 7,822,677Hedging derivatives 189,582 - - - 189,582 - - 11 - 11 (170) 189,423Provisions 89,710 18,129 - - 107,839 - - - - - 1 107,840Technical provisions 447,031 - - - 447,031 - - - - - (80) 446,951Current tax liabilities 14,221 961 - - 15,182 1,919 - 950 - 2,869 - 18,051Deferred tax liabilities 51,467 - - - 51,467 664 - - - 664 - 52,131Subordinated liabilities 398,006 567,260 - - 965,266 - - - - - (965,266) -Other liabilities 866,759 15,305 (1) (15,906) 866,157 68 - 103 159 330 (205,031) 661,456Total Liabilities 59,563,133 7,278,614 68,072 (3,019,170) 63,890,649 2,134,103 - 159,879 400 2,294,382 (21,047,553) 45,137,478

Shareholders' equity 2,122,103 107,670 (9,665) (24,995) 2,195,113 351,092 103,922 291,868 344,408 1,091,290 (242,338) 3,044,065Total liabilities and shareholders' equity 61,685,236 7,386,284 58,407 (3,044,165) 66,085,762 2,485,195 103,922 451,747 344,808 3,385,672 (21,289,891) 48,181,543


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Santander Totta’s balance sheet as at December 31, 2009, by geographic segments, is 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 699,459 61 - - - 699,520 - 56,891 - - 56,891 - 756,411Balances due from banks 372,715 2,497 4,298 400 (14,034) 365,876 12,923 10,192 8,253 12,536 43,904 (183,339) 226,441Financial assets held for trading 2,236,378 30,131 - - (15,192) 2,251,317 - 13,636 231 - 13,867 (263,475) 2,001,709Financial assets designated at fair value through profit or loss 5,157,689 - - - - 5,157,689 - - - - - (1,152,134) 4,005,555Available-for-sale financial assets 11,860,872 - - - - 11,860,872 2,140,787 71,842 - - 2,212,629 (9,111,689) 4,961,812Loans and advances to banks 11,174,404 1,407,200 53,769 - (2,825,551) 9,809,822 3,432,400 37,922 439,847 328,099 4,238,268 (11,450,955) 2,597,135Loans and advances to customers 30,635,680 1,443,385 7,290 - - 32,086,355 299,634 60,973 - - 360,607 (28,616) 32,418,346Hedging derivatives 283,801 - - - - 283,801 - - 346 - 346 (24,632) 259,515Available-for-sale non-current assets 100,291 - - - - 100,291 - - - - - - 100,291Other tangible assets 399,027 483 - - - 399,510 - 8,441 - 82 8,523 - 408,033Intangible assets 73,711 - - - - 73,711 - 122 - - 122 - 73,833Investments in associates 1,634 - - - - 1,634 - - - - - - 1,634Current tax assets 4,762 579 6 - - 5,347 58 - - - 58 - 5,405Deferred tax assets 240,483 - - - - 240,483 4,575 6 - - 4,581 - 245,064Technical provisions of reinsurance ceded 36,948 - - - - 36,948 - - - - - - 36,948Other assets 643,164 1,962 - 1 (26,511) 618,616 69 1,229 5 1,212 2,515 (128,832) 492,299Total Assets, net 63,921,018 2,886,298 65,363 401 (2,881,288) 63,991,792 5,890,446 261,254 448,682 341,929 6,942,311 (22,343,672) 48,590,431

Liabilities

Resources of central banks 2,026,809 2 - - - 2,026,811 - 19 - - 19 - 2,026,830Financial liabilities held for trading 1,752,525 30,082 - - (15,192) 1,767,415 - 7 473 - 480 (282,447) 1,485,448Financial liabilities designated at fair value through profit or loss 4,851,247 - - - - 4,851,247 - - - - - - 4,851,247Resources of other financial institutions 16,192,026 841,217 3,126 - (2,837,964) 14,198,405 2,181,969 34 212 69 2,182,284 (10,195,043) 6,185,646Resources of customers and others 15,323,939 586,710 63,134 - - 15,973,783 - 174,678 176,680 225 351,583 (1,244,069) 15,081,297Debt securities issued 19,278,429 500,293 - - - 19,778,722 3,382,398 - - - 3,382,398 (9,112,974) 14,048,146Hedging derivatives 244,365 - - - - 244,365 - - 90 - 90 (7,388) 237,067Provisions 69,748 16,647 73 287 - 86,755 - 1,363 - - 1,363 - 88,118Technical provisions 403,905 - - - - 403,905 - - - - - (63) 403,842Current tax liabilities 18,658 875 3,026 - - 22,559 1,808 2,275 815 - 4,898 - 27,457Deferred tax liabilities 41,086 - - - - 41,086 767 - - - 767 - 41,853Subordinated liabilities 512,308 847,922 - - - 1,360,230 - - - - - (1,081,379) 278,851Other liabilities 706,927 4,153 10 137 (3,134) 708,093 45 1,795 131 132 2,103 (87,140) 623,056Total Liabilities 61,421,972 2,827,901 69,369 424 (2,856,290) 61,463,376 5,566,987 180,171 178,401 426 5,925,985 (22,010,503) 45,378,858

Shareholders' equity 2,499,046 58,397 (4,006) (23) (24,998) 2,528,416 323,459 81,083 270,281 341,503 1,016,326 (333,169) 3,211,573Total liabilities and shareholders' equity 63,921,018 2,886,298 65,363 401 (2,881,288) 63,991,792 5,890,446 261,254 448,682 341,929 6,942,311 (22,343,672) 48,590,431

2009


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Santander Totta’s income statement for the year ended December 31, 2010, by geographic segments, is as follows:

Domestic operations Inter-segment Inter-segment Consolidated

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

Interest income 2,366,192 255,301 7,550 (363,779) 2,265,264 98,527 - 23,252 13,398 135,177 (366,317) 2,034,124Interest expense (1,814,486) (200,007) (2,030) 363,779 (1,652,744) (25,687) - (3,708) - (29,395) 369,801 (1,312,338)Net interest income 551,706 55,294 5,520 - 612,520 72,840 - 19,544 13,398 105,782 3,484 721,786Income from equity instruments 4,454 - - - 4,454 - - - - - - 4,454Fees and commissions income 446,973 7,218 2,112 (54) 456,249 2,774 - - 1,505 4,279 (55,950) 404,578Fees and commissions expense (106,236) (281) (156) 54 (106,619) (262) - - (769) (1,031) 52,383 (55,267)Gain/(loss) from assets and liabilities valued at fair value through profit or loss (21,199) - (2) - (21,201) - - 35 - 35 - (21,166)Gain/(loss) from available-for-sale financial assets (5,783) - 1,837 - (3,946) (211,452) - - - (211,452) - (215,398)Gain/(loss) from exchange revaluation 5,780 138 4,980 - 10,898 - - 38 2 40 - 10,938

Gain/(loss) from other assets 96,714 25 56,027 - 152,766 208,748 - - - 208,748 - 361,514

Insurance business gross margin where the risk is beared by the policyholders 9,493 - - - 9,493 - - - - - - 9,493

Insurance business gross margin 28,726 - - - 28,726 - - - - - 79 28,805Other operating income (net) (1,421) (144) (285) - (1,850) - - (4) (95) (99) (4,131) (6,080)Net income from banking activities 1,009,207 62,250 70,033 - 1,141,490 72,648 - 19,613 14,041 106,302 (4,135) 1,243,657Personnel costs (303,169) (1,618) (2,364) - (307,151) (177) - (204) (793) (1,174) - (308,325)Other administrative expenses (158,469) (1,133) (2,411) - (162,013) (403) - (101) (356) (860) 4,132 (158,741)Depreciation and amortization (66,340) (329) (253) - (66,922) - - - (37) (37) - (66,959)Provisions, net (6,581) (1,481) (767) - (8,829) - - - - - - (8,829)Impairment losses on loans, net of reversals and recoveries (110,614) (3,059) (363) - (114,036) 336 - - - 336 - (113,700)Impairment losses on other financial assets, net of reversals and recoveries (21,687) - - - (21,687) - - - - - 1 (21,686)Impairment losses on other assets, net of reversals and recoveries (26,540) (456) - - (26,996) - - - - - - (26,996)Net income from associates 1,194 - - - 1,194 - 3,459 - - 3,459 - 4,653Income before taxes and minority interests 317,001 54,174 63,875 - 435,050 72,404 3,459 19,308 12,855 108,026 (2) 543,074Current tax (82,528) (1,158) (3,438) - (87,124) (9,137) - (976) (44) (10,157) - (97,281)Deferred tax (6,345) (193) - - (6,538) 88 - - - 88 (7) (6,457)Income after taxes and before minority interests 228,128 52,823 60,437 - 341,388 63,355 3,459 18,332 12,811 97,957 (9) 439,336Income atributable to minority interests (477) - - - (477) (6) (4,185) (24) (17) (4,232) - (4,709)Consolidated net income attributable to Santander Group 227,651 52,823 60,437 - 340,911 63,349 (726) 18,308 12,794 93,725 (9) 434,627

2010International operations


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Santander Totta’s income statement for the year ended December 31, 2009, by geographic segments, is as follows:

Domestic operations International operationsInter-segment Inter-segment Consolidated

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

Interest income 2,569,214 354,151 1,953 82 (107,139) 2,818,261 171,623 6,013 23,770 13,481 214,887 (647,438) 2,385,710Interest expense (1,951,913) (325,049) (1,088) (37) 107,139 (2,170,948) (57,846) (874) (6,279) - (64,999) 650,615 (1,585,332)Net interest income 617,301 29,102 865 45 - 647,313 113,777 5,139 17,491 13,481 149,888 3,177 800,378Income from equity instruments 5,639 - - - - 5,639 - - - - - - 5,639Fees and commissions income 430,934 6,603 - 12 (73) 437,476 - 2,104 - 1,589 3,693 (52,179) 388,990Fees and commissions expense (99,708) (400) - (9) 73 (100,044) (285) (80) - (767) (1,132) 48,939 (52,237)Gain/(loss) from assets and liabilities valued at fair value through profit or loss 52,423 - - - - 52,423 - (50) 192 - 142 - 52,565Gain/(loss) from available-for-sale financial assets 1,124 - - - - 1,124 - 5,454 - - 5,454 - 6,578Gain/(loss) from exchange revaluation 7,513 161 (4) - - 7,670 - 11,776 (236) 13 11,553 - 19,223

Gain/(loss) from other assets 35,726 (2) 7,546 2 - 43,272 - - - - - - 43,272

Insurance business gross margin where the risk is beared by the policyholders 11,657 - - - - 11,657 - - - - - - 11,657Insurance business gross margin 23,820 - - - - 23,820 - - - - - 63 23,883Other operating income (net) 1,594 (115) (52) 27 - 1,454 - 155 (3) (85) 67 (4,230) (2,709)Net income from banking activities 1,088,023 35,349 8,355 77 - 1,131,804 113,492 24,498 17,444 14,231 169,665 (4,230) 1,297,239Personnel costs (308,558) (4,958) - (139) - (313,655) (174) (2,126) (192) (787) (3,279) - (316,934)Other administrative expenses (165,065) (1,185) (11) (474) - (166,735) (423) (2,057) (126) (367) (2,973) 4,228 (165,480)Depreciation and amortization (68,474) (257) - - - (68,731) (1) (241) - (21) (263) - (68,994)Provisions, net (4,717) 11,073 - (259) 72 6,169 - (282) - 9 (273) - 5,896Impairment losses on loans, net of reversals and recoveries (89,672) (3,202) 72 670 (72) (92,204) (336) (3,764) - - (4,100) - (96,304)Impairment losses on other financial assets, net of reversals and recoveries (1,469) - - - - (1,469) - - - - - - (1,469)Impairment losses on other assets, net of reversals and recoveries (17,903) - - - - (17,903) - - - - - - (17,903)Net income from associates (103) - - - - (103) - - - - - (103)Income before taxes and minority interests 432,062 36,820 8,416 (125) - 477,173 112,558 16,028 17,126 13,065 158,777 (2) 635,948Current tax (92,519) (1,800) (3,036) 102 - (97,253) (14,619) (2,442) (845) (33) (17,939) - (115,192)Deferred tax 8,717 579 - - - 9,296 520 - - - 520 - 9,816Income after taxes and before minority interests 348,260 35,599 5,380 (23) - 389,216 98,459 13,586 16,281 13,032 141,358 (2) 530,572Income atributable to minority interests (581) - (5) - - (586) (11) (6,667) (30) (15) (6,723) - (7,309)Consolidated net income attributable to Santander Group 347,679 35,599 5,375 (23) - 388,630 98,448 6,919 16,251 13,017 134,635 (2) 523,263

2009


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4. GROUP COMPANIES AND TRANSACTIONS DURING THE YEAR

The subsidiary and associated companies, as well as the most significant financial data extracted from their individual financial statements, excluding adjustments to IAS/IFRS, as at December 31, 2010 and 2009, are as follows:

Direct Effective Shareholders'

participation (%) participation (%) Total assets (net) equity Net incomeCompany 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009

SANTANDER TOTTA , SGPS - - 100.00 100.00 3,154,079 3,047,259 2,976,476 2,931,554 279,892 265,901BANCO SANTANDER TOTTA , S.A. (3) 97.52 97.39 99.86 99.86 48,696,964 51,488,163 1,753,362 2,102,201 278,010 439,048BANCO CAIXA GERAL TOTTA DE ANGOLA, S.A. - - 24.96 25.47 814,340 534,269 158,703 166,035 30,895 36,382TOTTA & AÇORES FINANCING (1) (6) - - 99.86 99.86 311,788 311,786 311,788 311,786 12,360 12,360SERFIN INTERNATIONAL BANK & TRUST - - 99.86 99.86 32,923 30,417 32,665 30,109 204 300TOTTA & AÇORES, INC. - NEWARK - - 99.86 99.86 1,113 966 968 846 56 126TOTTA IRELAND, PLC (5) - - 99.86 99.86 2,133,547 5,927,895 280,234 360,188 4,639 8,311SANTOTTA INTERNATIONAL, SGPS, SOCIEDADE UNIPESSOAL, LDA. - - 99.86 99.86 90,723 93,851 64,473 66,471 149 4,959TOTTA URBE - Emp.Admin. e Construções, S.A. (2) - - 99.86 99.86 193,293 121,191 114,784 116,060 (1,195) 4,729BENIM - Sociedade Imobiliária, S.A. - - 25.78 24.97 nd 11,584 nd 6,609 nd (596)TOTTA CRÉDITO ESPECIALIZADO, IFIC,S.A. (Totta IFIC) (3) 83.19 83.19 99.98 99.98 4,528,812 4,237,517 166,818 134,234 24,958 16,403SANTANDER - GESTÃO DE ACTIVOS,SGPS,S.A. - - 99.86 100.00 14,307 35,286 14,304 35,281 23 21,845BST INTERNATIONAL BANK, INC. - PORTO RICO (1) (7) - - 99.86 99.86 451,724 448,479 291,841 270,418 18,150 16,346BANCO SANTANDER NEGOCIOS PORTUGAL,S.A. (3) - 100.00 - 100.00 - 1,033,118 - 101,860 - 18,122SANTANDER ASSET MANAGEMENT SGFIM, S.A. - - 99.86 100.00 33,628 27,962 26,689 20,315 6,331 4,807TAXAGEST, SGPS, S.A. 1.00 1.00 99.86 100.00 60,374 67,160 60,363 67,045 (2,435) 8,478SANTANDER TOTTA SEGUROS - COMPANHIA DE SEGUROS DE VIDA, S.A. 100.00 100.00 100.00 100.00 5,099,781 5,135,023 118,977 113,491 20,678 20,069SANTANDER PENSÕES - SOCIEDADE GESTORA DE FUNDOS DE PENSÕES, S.A. - - 99.86 100.00 6,204 5,057 5,847 4,702 1,137 1,139ISBAN PT - ENGENHARIA E SOFTWARE BANCÁRIO, S.A. - 49.90 - 49.90 - 10,928 - 666 - 128PARTANG, SGPS, S.A. - - 48.93 49.93 94,771 87,493 92,427 87,483 4,944 (2)HIPOTOTTA No. 1 PLC (4) - - - - 282,445 323,381 (2,881) (2,748) (1,124) (468)HIPOTOTTA No. 2 PLC (4) - - - - 909,493 1,022,421 (10,705) (10,385) (1,983) (2,235)HIPOTOTTA No. 3 PLC (4) - - - - 1,581,593 1,743,436 (17,363) (15,519) (3,618) (4,713)HIPOTOTTA No. 4 PLC (4) - - - - 1,464,881 1,592,660 (17,578) (15,399) (2,912) (3,276)HIPOTOTTA No. 5 PLC (4) - - - - 1,255,211 1,423,277 (8,127) 6,187 (1,318) (1,537)HIPOTOTTA No. 6 Ltd (4) - - - - - 1,821,552 - (7,430) - (2,463)HIPOTOTTA No. 7 Ltd (4) - - - - 1,641,785 1,785,966 (9,781) (6,541) (1,729) (1,982)HIPOTOTTA No. 8 Ltd (4) - - - - 1,040,297 1,104,171 (5,454) (3,857) (151) (1,327)HIPOTOTTA No. 10 Ltd (4) - - - - 825,853 876,806 (2,785) (24) (394) (24)LEASETOTTA No. 1 Ltd (4) - - - - 1,368,933 1,373,152 (3,402) - 1,183 -HIPOTOTTA No. 1 FTC (4) - - - - 272,269 313,811 269,705 309,421 (1,651) (1,454)HIPOTOTTA No. 2 FTC (4) - - - - 895,884 1,009,324 885,025 992,861 (4,803) (4,005)HIPOTOTTA No. 3 FTC (4) - - - - 1,575,344 22,259,671 1,556,184 1,713,727 (6,529) (6,975)HIPOTOTTA No. 4 FTC (4) - - - - 1,447,882 1,579,952 1,431,778 1,558,174 (7,264) (6,432)HIPOTOTTA No. 5 FTC (4) - - - - 1,249,022 1,419,228 1,240,708 1,407,666 (4,939) (4,025)HIPOTOTTA No. 6 FTC (4) - - - - - 1,816,362 - 1,799,534 - (4,023)HIPOTOTTA No. 7 FTC (4) - - - - 1,625,006 1,767,804 1,614,575 1,753,669 (7,071) (3,013)HIPOTOTTA No. 8 FTC (4) - - - - 1,020,165 1,085,914 1,011,190 1,074,774 (3,483) (1,363)HIPOTOTTA No. 10 FTC (4) - - - - 808,389 856,650 803,778 854,522 (613) (24)Tagus - Sociedade de Titularização de Créditos, S.A. (HIPOTOTTA No. 11) - - - - 3,861,233 - 38,412 - - -LEASETOTTA No. 1 FTC (4) - - - - 1,306,509 1,308,465 1,295,414 1,300,000 - -UNICRE - - 21.47 18.06 310,155 298,563 73,102 72,410 11,270 15,153


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ConsolidationCompany Business Head office method

SANTANDER TOTTA , SGPS Holding company Portugal Holding CompanyBANCO SANTANDER TOTTA , S.A. (3) Banking Portugal FullBANCO CAIXA GERAL TOTTA DE ANGOLA, S.A. (8) Banking Angola Equity methodTOTTA & AÇORES FINANCING (1) (6) Banking Cayman Islands FullSERFIN INTERNATIONAL BANK & TRUST Banking Cayman Islands FullTOTTA & AÇORES, INC. - NEWARK Obtaining funds USA FullTOTTA IRELAND, PLC (5) Investment management Ireland FullSANTOTTA INTERNATIONAL, SGPS, SOCIEDADE UNIPESSOAL, LDA. Holding company Portugal FullTOTTA URBE - Emp.Admin. e Construções, S.A. (2) Real estate management Portugal FullBENIM - Sociedade Imobiliária, S.A. (8) Real estate Portugal Excluded from consolidationTOTTA CRÉDITO ESPECIALIZADO, IFIC,S.A. (3) Security leasing Portugal FullSANTANDER - GESTÃO DE ACTIVOS, SGPS,S.A. Holding company Portugal FullBST INTERNATIONAL BANK, INC. - PORTO RICO (1) (7) Banking Puerto Rico FullBANCO SANTANDER NEGOCIOS PORTUGAL, S.A. (3) Banking Portugal FullSANTANDER ASSET MANAGEMENT SGFIM, S.A. Funds management Portugal FullTAXAGEST, SGPS, S.A. Holding company Portugal FullSANTANDER TOTTA SEGUROS - COMPANHIA DE SEGUROS DE VIDA, S.A. Insurer Portugal FullSANTANDER PENSÕES - SOCIEDADE GESTORA DE FUNDOS DE PENSÕES, S.A. Pension Funds management Portugal FullPARTANG, SGPS, S.A. (8) Banking software and engineering Portugal Excluded from consolidationUNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. (8) Holding company Portugal Excluded from consolidationHIPOTOTTA No. 1 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 2 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 3 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 4 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 5 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 6 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 7 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 8 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 10 FTC (4) Securitized loans fund Portugal FullTagus - Sociedade de Titularização de Créditos, S.A. (HIPOTOTTA No. 11) (9) Securitized loans fund Portugal FullLEASETOTTA No. 1 FTC (4) Securitized loans fund Portugal FullHIPOTOTTA No. 1 PLC (4) Investment management Ireland FullHIPOTOTTA No. 2 PLC (4) Investment management Ireland FullHIPOTOTTA No. 3 PLC (4) Investment management Ireland FullHIPOTOTTA No. 4 PLC (4) Investment management Ireland FullHIPOTOTTA No. 5 PLC (4) Investment management Ireland FullHIPOTOTTA No. 6 Ltd (4) Investment management Ireland FullHIPOTOTTA No. 7 Ltd (4) Investment management Ireland FullHIPOTOTTA No. 8 Ltd (4) Investment management Ireland FullHIPOTOTTA No. 10 Ltd (4) Investment management Ireland FullLEASETOTTA No. 1 Ltd (4) Investment management Ireland Full

(1) These companies shareholders’ equity includes preference shares subscribed by Santander Group’s

companies (Note 30).

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

(3) Individual financial statements are presented in accordance with the Adjusted Accounting Standards.

(4) In compliance with IAS 27 and SIC 12, the Group’s consolidated financial statements started to include special purpose entities created for securitization operations purposes, given that most of the risks and rewards of their activity are held by the Group, once it has bonds in its portfolio with a higher degree of subordination (Note 47). These entities include the Hipototta and Leasetotta FTC Funds (securitized loans funds) and Hipototta and Leasetotta PLC or Ltd entities (entities which acquired the participating units issued by the securitized loans funds).

(5) The amounts reflected in the columns “Net income” corresponds to the net income of December of each

year, as this entity closes its economic year as of November 30. In the periods between January 1 to November 30 of 2010 and 2009, Totta Ireland PLC net income amounted to tEuros 59,332 and tEuros 93,787, respectively.

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

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

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

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

(8) This company is valued using the equity method.

(9) In accordance with IAS 27 and SIC 12, the Group includes in its consolidated financial statements Tagus -

Sociedade de Titularização de Créditos, S.A.’s financial statements, corresponding to the Hipototta No.11, since it holds most of the risks and benefits associated with this securitization transaction, as it has in its portfolio obligations of a higher degree of subordination (Note 47).


110


On May 26, 2009, Santander Totta Seguros has called-up for an increase in its share capital from Euros 22,500,000 to Euros 47,250,000, which was fully subscribed and paid-up by Santander Totta.

Follow the agreement signed in August 2008 between Caixa Geral de Depósitos, S.A. (“CGD”) and the BST, on June 3, 2009, the Bank carried out the Madeisisa capital increase in the amount of tEuros 50,898 through a transfer of shares representing 50.5% of Banco Totta de Angola, S.A..

On June 4, 2009, a new company has been established, Partang SGPS, S.A. (Partang), by a delivery of shares of Banco Totta de Angola, S.A. corresponding to 50.5% and 0.5% of its share capital in Madeisisa and the BST, respectively.

Additionally, it was made a capital increase of Partang subscribed exclusively by CGD. Partang became 50% owned by the Group. For this purpose, BST and Madeisisa previously ceded their subscription rights in capital increases to CGD, for tEuros 150 and tEuros 15,130, respectively.

Follow this operation, the Bank recorded a sale transaction of 48.985% of Banco Totta de Angola, S.A. to Angolan entities in the amount of tEuros 66,590.

Under the original agreement of March 2006, the BST had received tEuros 15,000 from CGD. In 2009, this amount plus interest was repaid to CGD.

As a result of the operation, it was recognized a consolidated gain in the amount of tEuros 28,096, of which tEuros 28,058 allocated to the Group and tEuros 38 allocated to minority interests (Notes 29, 39 and 40) and the effective participation of Santander Totta in Banco Totta de Angola was reduced to 25.47%.

The joint control of Partang in equal stakes of 50% by the Group and CGD has determined this Company to be consolidated by the proportional method as well as its participation in Banco Totta de Angola.

On July 2, 2009, Banco Totta de Angola has called-up for an increase of its share capital from 793,609,000 Kwanzas to 8,575,000,000 Kwanzas. This capital increase was carried out with the cash contribution of 7,780,600,000 Kwanzas, corresponding to 100,000,000 Dollars, by all shareholders in the proportion of the respective shareholdings. Accordingly, Partang has made a contribution of 51,000,000 US Dollars. The remaining 791,000 Kwanzas of share capital increase resulted from distribution of free reserves. Following this operation, share capital was represented by 857,000,000 shares, whose nominal value was then redenominated from 10 Kwanzas to 500 Kwanzas. Accordingly, share capital started to be represented by 17,150,000 shares.

On the same date, Banco Totta de Angola changed its name to Banco Caixa Geral Totta de Angola, S.A. (BCGTA), which still is its current name.

On November 13, 2009, Madeisisa – SGPS, Sociedade Unipessoal, Lda. changed its name to Santotta International, SGPS, Sociedade Unipessoal, Lda..

Under the agreement signed by both BST and CGD on July 5, 2010, CGD has exercised the option to buy 1% of Partang’s share capital, which is the entity that holds 51% of the Banco Caixa Geral Totta de Angola’s share capital. Following this operation, the BST Group’s stake in Partang has been reduced down to 49%, thus ceasing to have joint control over BCGTA. Under IAS 27, the Bank valued at fair value the stake previously held, having recorded a consolidated capital gain in the amount of tEuros 54,045, from which tEuros 53,973 attributable to the Group and tEuros 72 to the minority interests (Notes 29, 39 and 40). As result of this operation, the shareholding has started be valued by the equity method.

On May 3, 2010, the Bank carried out the merger by incorporation of Banco Santander de Negócios Portugal, S.A. (“BSN”). The merger was effective for accounting purposes, as from January 1, 2010.

On July 22, 2010, the Bank’s Board of Directors approved the merger with Totta Crédito Especializado – Instituição Financeira de Crédito, S.A. (Totta IFIC). This transaction was authorized by the Bank of Portugal in its letter dated January 19, 2011.


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5. CASH AND DEPOSITS AT CENTRAL BANKS

As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Cash 217,801 231,990 Demand deposits European Central Bank 99,074 473,910 Foreign Central Banks - 50,511 ----------- ---------- 316,875 756,411 ====== ====== In accordance with the European Central Bank Regulation 2,818/98 dated December 1, 1998, as from

January 1, 1999 credit institutions in participating member states must maintain minimum cash reserves at the participating National Central Banks. The basis for determining the amount of the reserves includes all deposits at central banks and at 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 Banks System.

6. BALANCES DUE FROM BANKS

As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Balances due from domestic banks Demand deposits 1,466 952 Cheques for collection 110,057 109,863 Balances due from foreign banks Other credit institution Demand deposits 123,514 113,708 In foreign central banks 1,246 1,918 ----------- ---------- 236,283 226,441 ====== ======


112


7. FINANCIAL ASSETS HELD FOR TRADING

As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Securities Debt instruments Issued by non residents Central Bank of Angola’s securities - 13,636 Equity instruments Issued by residents Participating units 406,281 507,661 ------------ ----------- 406,281 521,297 Derivatives Derivative instruments with positive fair value 1,233,393 1,480,412 ------------- -------------- 1,639,674 2,001,709 ======= ======= The caption “Participating units” as at December 31, 2010 and 2009 refers essentially to security and

real estate funds managed by Santander Group entities and breakdown as follows: 2010 2009

Special Investment Funds 127,258 227,840 Securities Investment Funds 255,930 227,538 Real Estate Investment Funds 23,093 52,283

----------- ---------- 406,281 507,661 ====== ====== The caption derivative instruments held for trading is made up as follows:

2010 2009Assets Liabilities Net Assets Liabilities Net

(Note 20) (Note 12) (Note 20) (Note 12)

FRA's 550 - 550 2,004 1,659 345Forwards - 197 (197) 5,202 5,127 75Swaps

Currency swaps - 8,279 (8,279) 26,721 228 26,493Interest rate swaps 473,815 487,332 (13,517) 835,661 831,632 4,029Equity swaps 4 2,750 (2,746) 4,795 17,223 (12,428)

Options 109,545 112,963 (3,418) 154,459 175,823 (21,364)Caps & Floors 649,479 651,076 (1,597) 451,570 453,756 (2,186)

1,233,393 1,262,597 (29,204) 1,480,412 1,485,448 (5,036)


113


8. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Debt instruments: Issued by residents Treasury bonds 526,000 99,894 Unsubordinated debt 264,011 314,728 Issued by non residents Foreign public issuers 24,646 28,814 Other issuers 2,131,104 3,030,572 Equity instruments Issued by residents 26,538 29,715 Issued by non residents 2,396 1,832 Other securities - 500,000 -------------- ------------- 2,974,695 4,005,555 ======== ======= As at December 31, 2009, the caption “Equity Instruments – other securities issued by non residents”

is made up by participating units, acquired in August of 2008 redeeming in 2017, subject to early redemption. To finance this operation, the Bank entered into a sale operation with repurchase agreement with the Bank of Portugal, by the same amount, which is recorded in the caption “Financial liabilities designated at fair value through profit or loss” (Note 21). On June 30, 2010, date of the last dividends payment, the Bank exercised its right to an early sell.

The dividends, interest and valuation results of these operations designated at fair value are recorded

in the caption “Gain/(loss) from assets and liabilities valued at fair value through profit or loss” (Note 37).

Securities included in the “Other financial assets at fair value through profit or loss” caption as at

December 2010 and 2009 break down as follows:

Accrued Accrued Gains / Fair Accrued Accrued Gains / FairDescription Capital interest Capital interest Losses value Capital interest Capital interest Losses value

Debt InstrumentsIssued by residents

Treasury bonds 423,016 9,698 91,897 1,344 45 526,000 - - 92,593 1,344 5,957 99,894Not subordinated debt 262,354 1,657 - - - 264,011 313,242 1,486 - - - 314,728

Issued by non residentsForeign governments 23,938 708 - - - 24,646 28,279 535 - - - 28,814Other non residents 2,094,790 36,314 - - - 2,131,104 2,981,042 49,530 - - - 3,030,572

Equity InstrumentsIssued by residents 26,538 - - - - 26,538 29,715 - - - - 29,715Issued by non residents 2,396 - - - - 2,396 1,832 - - - - 1,832Other titles - - - - - - - - 500,000 - - 500,000

2,833,032 48,377 91,897 1,344 45 2,974,695 3,354,110 51,551 592,593 1,344 5,957 4,005,555

2010 2009"Unit link" products Other products "Unit link" products Other products


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9. AVAILABLE-FOR-SALE FINANCIAL ASSETS

As at December 31, 2010 and 2009, this caption is made up as follows:

Fair value reserveAcquisition Accrued Impairment Book

cost interest Positive Negative Total Others (Note 25) valueDebt Instruments

Issued by residentsTreasury bonds 2,250,229 31,498 - (243,495) (243,495) 49,489 (231) 2,087,490Other Portuguese Government entities 133,505 987 - (8,496) (8,496) - - 125,996Other Portuguese entities

Acquired in securitization operations 175,199 207 - (19,431) (19,431) - - 155,975Non subordinated debt 640,948 8,682 4,788 (22,301) (17,513) - (231) 631,886Subordinated debt 84,336 105 - (32,230) (32,230) - - 52,211

Issued by non residentsForeign governments 3,288,998 76,336 7,180 (186,543) (179,363) 23,548 - 3,209,519Other non residents 25,213 482 272 (1,576) (1,304) - - 24,391

6,598,428 118,297 12,240 (514,072) (501,832) 73,037 (462) 6,287,468

Equity InstrumentsIssued by residents

Fair value 205,921 - - (12,528) (12,528) - (57,067) 136,326Historical cost 25,424 - - - - - (6,624) 18,800

Issued by non residentsFair value 2,523 - 318 - 318 - (1,535) 1,306Historical cost 1,936 - - - - - (1,399) 537

235,804 - 318 (12,528) (12,210) - (66,625) 156,9696,834,232 118,297 12,558 (526,600) (514,042) 73,037 (67,087) 6,444,437

2010

Fair value reserveAcquisition Accrued Impairment Book

cost interest Positive Negative Total Others (Note 25) valueDebt Instruments

Issued by residentsTreasury bonds 1,572,977 16,223 5,009 (3,049) 1,960 7,767 (187) 1,598,740Other Portuguese Government entities 135,000 1,012 - (2,975) (2,975) - - 133,037Other Portuguese entities

Non subordinated debt 788,548 8,587 13,093 (1,851) 11,242 - (260) 808,117Subordinated debt 84,333 91 - (17,514) (17,514) - - 66,910

Issued by non residentsForeign governments 939,571 27,252 9,694 (3,067) 6,627 - - 973,450Other non residents 1,244,352 3,152 1,081 (37,603) (36,522) - - 1,210,982

4,764,781 56,317 28,877 (66,059) (37,182) 7,767 (447) 4,791,236

Equity InstrumentsIssued by residents

Fair value 206,109 - 2 (23,545) (23,543) - (35,395) 147,171Historical cost 28,025 - - - - - (6,655) 21,370

Issued by non residentsFair value 2,452 - 295 (1) 294 - (1,535) 1,211Historical cost 2,223 - - - - - (1,399) 824

238,809 - 297 (23,546) (23,249) - (44,984) 170,5765,003,590 56,317 29,174 (89,605) (60,431) 7,767 (45,431) 4,961,812

2009

As at December 31, 2010 and 2009, the Group had at a consolidated level 15,032,413 shares of

Banco BPI, S.A., with an acquisition cost of tEuros 42,164. As at December 31, 2009, the negative fair value reserve before taxes was of tEuros 10,296. In 2010 the Group recognized impairment losses for these securities in the amount of tEuros 21,345.

As at December 31, 2010 and 2009, the Treasury Bonds caption and the Foreign Public Issuers

include recognised capital gains in the amount of tEuros 73,037 and tEuros 7,767, respectively, related to corrections of hedging operations.


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As at December 31, 2010 and 2009, these items include the following securities:

2010

Accrued Fair value Fair value Book Accrued Fair value Fair value BookDescription Cost interest hedging reserve Impairment Value Cost interest hedging reserve Impairment Value

Treasury bonds - Portugal

. Maturity in one year 34,362 540 - (267) - 34,635 101,538 3,653 - 1,222 - 106,413

. Maturity between one and three years 165,394 2,356 - (4,243) - 163,507 23,141 544 - 7 - 23,692

. Maturity between three and five years 1,240,427 9,698 15,428 (103,669) - 1,161,884 1,330,924 11,013 7,767 3,565 - 1,353,269

. Maturity between five and ten years 791,842 18,743 34,061 (134,667) - 709,979 116,887 1,009 - (2,834) - 115,062

. Maturity over ten years 7,495 157 - (597) - 7,055 - - - - - -

Treasury bills - Portugal 10,222 - - (52) - 10,170 - - - - - -Other 487 4 - - (231) 260 487 4 - - (187) 304

2,250,229 31,498 49,489 (243,495) (231) 2,087,490 1,572,977 16,223 7,767 1,960 (187) 1,598,740

Treasury bonds - Spain

. Maturity in one year 5,739 51 - 24 - 5,814 - - - - - -

. Maturity between one and three years 1,454,800 27,797 (2,077) (36,588) - 1,443,932 10,267 60 - 453 - 10,780

. Maturity between three and five years 650,855 24,857 - (30,195) - 645,517 17,462 629 - 536 - 18,627

. Maturity between five and ten years 1,000,000 23,028 25,625 (118,265) - 930,388 641,792 24,230 - (2,630) - 663,3923,111,394 75,733 23,548 (185,024) - 3,025,651 669,521 24,919 - (1,641) - 692,799

Treasury bonds - Other coutries

. Maturity in one year 51,036 252 - 1,102 - 52,390 3,930 99 - - - 4,029

. Maturity between one and three years 23,853 115 - 425 - 24,393 68,790 298 - 3,001 - 72,089

. Maturity between three and five years 31,919 223 - 1,152 - 33,294 55,778 330 - 2,322 - 58,430

. Maturity between five and ten years 40,216 - - 3,438 - 43,654 38,425 17 - 2,449 - 40,891

. Maturity over ten years 30,580 13 - (456) - 30,137 33,155 2 - 496 - 33,653- -

Treasury bonds - Angola - - - - - - 69,972 1,587 - - - 71,559177,604 603 - 5,661 - 183,868 270,050 2,333 - 8,268 - 280,651

5,539,227 107,834 73,037 (422,858) (231) 5,297,009 2,512,548 43,475 7,767 8,587 (187) 2,572,190

2009

As at December 31, 2010 and 2009, the Group holds in its portfolio Treasury Bonds of Portugal and

Spain in the amount of tEuros 4,725,398 and 1,586,220 tEuros, respectively, used as collateral to obtain funding (Note 22).

As at December 31, 2010, the “Debt Instruments – other residents” caption includes the following

securities:

2010Accrued Fair value Book Accrued Fair value Book

Description Cost interest reserve Impairment Value Cost interest reserve Impairment ValueAcquired in securitization operationsENERGYON NO.2 CLASS A NOTES MAY 105,283 134 (17,471) - 87,946 110,200 184 - - 110,384TAGUS ROSE-07 1 SEC NOTES DEC/12 69,867 72 (1,953) - 67,986 104,798 93 (101) - 104,790Other 49 1 (7) - 43 - - - - -

175,199 207 (19,431) - 155,975 214,998 277 (101) - 215,174

Unsubordinated debtPARPUBLICA 3.5 07-2013 139,772 2,376 2,209 - 144,357 139,681 2,377 867 - 142,925GALP ENERGIA 05-2013 90,000 514 1,341 - 91,855 90,000 432 7,888 - 98,320BANCO ESPIRITO SANTO 3.75% 01/12 77,586 2,750 (2,148) - 78,188 78,002 2,750 1,390 - 82,142CAIXA GERAL DEPOSITOS 3.875% 12/ 74,176 156 (1,492) - 72,840 74,680 156 1,325 - 76,161SONAE DISTRIBUICAO SET 2007/2015 70,000 370 (10,115) - 60,255 70,000 352 (1,749) - 68,603BANCO INTL DO FUNCHAL SA 3.25 5/ 59,976 1,272 (2,141) - 59,107 59,958 1,272 1,137 - 62,367IBERWIND II P- CONSULTORIA SENIO A 35,903 52 1,189 - 37,144 - - - - -OBRIGAÇÕES ZON MULTIMÉDIA 2010/2 24,300 63 - - 24,363 - - - - -BANCO COMERC PORTUGUES 3.625% 01 23,708 813 (654) - 23,867 23,812 813 415 - 25,040EDIA 2010/2030 19,250 291 (4,289) - 15,252 - - - - -AUTO SUECO 2009/2014 15,000 4 (1,454) - 13,550 15,000 4 - - 15,004PORTUCEL FLTG 2005/2010 - - - - - 19,940 105 42 - 20,087Other 11,277 21 41 (231) 11,108 2,477 49 28 (260) 2,294

640,948 8,682 (17,513) (231) 631,886 573,550 8,310 11,343 (260) 592,943

Subordinated debt

CXGD Float 06/49 45,780 8 (18,780) 27,008 45,780 7 (10,680) - 35,107CXGD Float 49-15 14,533 2 (5,252) 9,283 14,533 1 (2,346) - 12,188BPI Cap Fin Float 49 21,268 90 (6,893) 14,465 21,268 79 (3,767) - 17,580Other 2,755 5 (1,305) - 1,455 2,752 4 (721) - 2,035

84,336 105 (32,230) - 52,211 84,333 91 (17,514) - 66,910

2009


116


As at December 31, 2010 and 2009, the “Debt instruments - issued by other non residents” caption includes the following securities:

2010

Acquisition Fair value Book Acquisition Fair value BookDescription cost reserve Impairment Value cost reserve Impairment Value

Debt Instruments - issued by other non residents

Santan FRN 14/06/13 4,718 3 31 4,752 - - - -BCPN FLOAT 12/16 4,499 2 (1,259) 3,242 4,498 1 (469) 4,030Santander 17-12 1,906 19 (186) 1,739 1,980 21 106 2,107Euro DM Cpn 0 03/11 1,773 - 11 1,784 1,693 - 59 1,752Irish Life 6.25 0211 1,701 93 (52) 1,742 1,717 93 (47) 1,763AYT Cedulas 4% 04/14 1,495 44 (70) 1,469 1,493 44 9 1,546BBVSM 4.25% 07/14 1,405 28 (8) 1,425 1,507 30 64 1,601HSBC 5.375% 12/12 1,305 2 52 1,359 1,307 2 82 1,391Socgen 5.625% 02/12 1,027 51 25 1,103 1,034 51 51 1,136CCCi 5.875% 04/12 1,004 40 30 1,074 1,066 42 33 1,141SANTANDER EMPRESAS 3 - SERIE C - - - - 117,265 266 (5,123) 112,408SANTANDER EMPRESAS 1 SERIE C - - - - 96,178 157 (1,983) 94,352FTPYME SANTANDER 1 B2 - - - - 91,578 130 (747) 90,961FTPYME SANTANDER 2 C - - - - 81,406 173 (980) 80,599SANTANDER EMPRESAS 1 SERIE B - - - - 80,628 121 (655) 80,094SANTANDER HIPOTERCAIO 3 - CLASS B - - - - 79,200 156 (2,117) 77,239SANTANDER CONSUMER SPAIN-SERIE B - - - - 78,000 24 (4,542) 73,482SANTANDER EMPRESAS 2 B - - - - 74,154 81 (1,418) 72,817SANTANDER FINANCIACION 1 C - - - - 61,719 125 (3,134) 58,710FTPYME SANTANDER 2 D - - - - 59,773 173 (2,028) 57,918SANTANDER HIPOTECARIO 1 SERIE B - - - - 53,880 121 (1,683) 52,318SANTANDER HIPOTECARIO 2 B - - - - 51,843 100 (1,456) 50,487SANTANDER HIPOTECARIO 1 C - - - - 47,821 126 (2,768) 45,179SANTANDER HIPOTECARIO 3 - CLASS C - - - - 47,500 102 (2,293) 45,309SANTANDER EMPRESAS 3-SERIE B - - - - 39,688 87 (903) 38,872SANTANDER EMPRESAS 2 C - - - - 36,385 44 (1,565) 34,864SANTANDER HIPOTECARIO 2 C - - - - 32,408 69 (1,667) 30,810FTPYME SANTANDER 1 C - - - - 27,452 56 (802) 26,706SANTANDER FINANCIACION 1 B - - - - 25,708 48 (619) 25,137Domos 2000 A4 12/29 - - - - 10,592 61 (188) 10,465Santander Float 04/10 - - - - 5,952 16 12 5,980Santander Float 14/06/13 - - - - 4,615 2 247 4,864Santan 6.375% 07/10 - - - - 4,524 141 34 4,699Santander Float/10 - - - - 4,196 6 4 4,206Santan 6% 03/14/11 - - - - 3,183 153 114 3,450OTE 3.75% 11/11/11 - - - - 1,220 6 17 1,243TITIM 4.5% 01/11 - - - - 1,208 50 25 1,283VW 4.75% 07/19/11 - - - - 1,167 25 25 1,217Halifax GRP 29/12/49 - - - - 1,091 5 (395) 701FRTEL 6.625% 11/10 - - - - 1,047 10 22 1,079Alliance & Leic 5% - - - - 1,003 12 14 1,029Other 4,380 200 122 4,702 5,673 222 142 6,037

25,213 482 (1,304) 24,391 1,244,352 3,152 (36,522) 1,210,982

2009

As at December 31, 2010 and 2009, the caption “Equity Instruments” breakdowns as follows:

2010Capital Reserves Book Capital Reserves Book

Description Cost Gains / Losses Impairment Value Cost Gains / Losses Impairment Value

Fair Value

FUNDO INV MOB TOTTA MULTIOBRIGAÇÕES 106,923 (12,434) - 94,489 118,090 (13,129) - 104,961BPI 42,164 - (21,345) 20,819 42,164 (10,296) - 31,868FUNDO RECUPERAÇÃO FCR 11,816 - - 11,816 2,157 - - 2,157GARVAL - SOC.DE GARANTIA MUTUA S.A. 3,154 - - 3,154 2,469 - - 2,469Others 10,214 224 (3,084) 7,354 9,712 176 (2,961) 6,927Totally impaired securities 34,173 - (34,173) - 33,969 - (33,969) -

208,444 (12,210) (58,602) 137,632 208,561 (23,249) (36,930) 148,382

Historical cost

ASCENDI NORTE - AUTO ESTRADAS NORTE, S.A. (prestaçõ 3,749 - - 3,749 3,749 - - 3,749ASCENDI NORTE - AUTO ESTRADAS NORTE S.A. (EX - AEN 3,749 - (4) 3,745 3,749 - (4) 3,745SIBS - SOC.INTERBANCÁRIA DE SERVIÇOS SARL 3,461 - - 3,461 3,461 - - 3,461Others 10,297 - (1,915) 8,382 13,154 - (1,915) 11,239Totally impaired securities 6,104 - (6,104) - 6,135 - (6,135) -

27,360 - (8,023) 19,337 30,248 - (8,054) 22,194

2009


117


As at December 31, 2010 and 2009, the negative fair value reserves compared with the respective acquisition costs in percentage is as follows:

2010

Acquisition cost

Accrued interest

Fair value hedging

Negative fair value reserve

BookValue

Acquisition cost

Accrued interest

Negative fair value reserve

BookValue

Debt instruments. between 0% and 25% 6,032,350 114,229 73,037 (480,583) 5,739,033 2,267,730 28,544 (64,943) 2,231,331. between 25% and 50% 88,836 107 - (33,489) 55,454 3,843 9 (1,116) 2,736

6,121,186 114,336 73,037 (514,072) 5,794,487 2,271,573 28,553 (66,059) 2,234,067Equity instruments

. between 0% and 25% 107,423 - - (12,528) 94,895 160,760 - (23,512) 137,248

. over 50% - - - - - 63 - (34) 29107,423 - - (12,528) 94,895 160,823 - (23,546) 137,277

6,228,609 114,336 73,037 (526,600) 5,889,382 2,432,396 28,553 (89,605) 2,371,344

2009

10. LOANS AND ADVANCES TO BANKS

As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Loans and advances to other Portuguese banks Very short term loans and advances - 12,175 Loans 131,167 746,824 Accrued interest 828 1,131 Other applications 500,000 - ----------- ----------- 631,995 760,130 ----------- ----------- Loans and advances to foreign banks Very short term loans and advances 564 1,143,036 Deposits 1,106,000 658,114 Other applications 141,787 5,253 Accrued interest 34,282 30,602 ------------- -------------- 1,282,633 1,837,005 ------------- -------------- 1,914,628 2,597,135 ======== ========


118


11. LOANS AND ADVANCES TO CUSTOMERS

As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Non-securitized credit Domestic loans To companies Credit on current account 1,594,663 1,831,168 Loans 5,100,288 4,825,782 Factoring 1,517,055 1,147,816 Finance leasing 549,698 462,288 Discount and credit securities 254,255 292,491 Overdrafts 399,902 332,686 Other credits 25,686 54,829 To individuals Mortgage loans 5,781,267 4,844,315 Consumer credit and other 2,078,614 2,123,527 Foreign loans To companies Credit on current account 244,631 209,872 Loans 548,047 618,786 Discount and credit securities 92 421 Overdrafts 4,622 4,122 Factoring 109,541 75,655 Other credits 3,077 1,693 To individuals Mortgage loans 387,392 442,557 Consumer credit and other 44,472 32,327 -------------- -------------- 18,643,302 17,300,335 -------------- -------------- Credit granted in the form of Notes Non subordinated debt securities issued by Portuguese entities Commercial paper 2,633,386 2,658,983 ------------- ------------- Securitized credit (not derecognised) Mortgage loans (Note 47) . Hipototta No. 1 268,027 307,146 . Hipototta No. 2 876,988 982,608 . Hipototta No. 3 1,543,260 1,700,765 . Hipototta No. 4 1,422,287 1,547,175 . Hipototta No. 5 1,231,046 1,397,600 . Hipototta No. 6 - 1,777,772 . Hipototta No. 7 1,601,178 1,739,359 . Hipototta No. 8 978,832 1,058,856 . Hipototta No. 10 802,442 852,134 . Hipototta No. 11 1,873,515 - Lease and long-term rental (Note 47) . Leasetotta No. 1 907,556 1,086,930 --------------- --------------- 11,505,131 12,450,345 --------------- --------------- Overdue loans and interest Up to 90 days 31,711 28,785 Over 90 days 444,921 372,770 ----------- ----------- 476,632 401,555 --------------- --------------- 33,258,451 32,811,218 --------------- ---------------


119


2010 2009

Accrued interest Non-securitized credit 60,603 56,442 Commercial paper 5,510 3,571 Securitized credit (not derecognised) 25,417 26,930 Deferred expenses 114,721 122,154 Commission relating to amortised cost (net) ( 118,327 ) ( 118,590 ) Value adjustment of hedged assets 4,306 4,082 ----------- ----------- 92,230 94,589 --------------- ---------------- 33,350,681 32,905,807 Impairment of loans and advances to customers (Note 25) ( 536,657 ) ( 487,461 ) --------------- ---------------- 32,814,024 32,418,346 ========= =========

In 2010 and 2009 mortgage loans and company loans, consisting mainly of overdue and written off loans, were sold off. As a result of these operations, the Bank recorded a net capital realised gain of tEuros 78 and tEuros 4,278, respectively (Note 40).

The changes in impairment losses of loans and advances to customers during 2010 and 2009 are presented in Note 25.

Overdue loans and interest as at December 31, 2010 and 2009 are made up as follows:

2010 2009 Up to three months 31,711 28,785 From three to six months 36,847 30,664 From six months to one year 122,625 133,152 From one to three years 236,862 190,686 Over three years 48,587 18,268 ----------- ----------- 476,632 401,555 ====== ======


120


Loans to customers as at December 31, 2010 and 2009 are made up as follows, by business sector:

2010

Performing Overdue Total %

Agriculture 204,513 3,507 208,020 0.63%Forestry 39,670 240 39,910 0.12%Fishing 34,886 214 35,100 0.11%Mining 413,086 1,204 414,290 1.25%Food manufacturing 295,715 1,672 297,387 0.89%Beverage and tobacco manufacturing 191,845 468 192,313 0.58%Textiles, leather and clothing 532,074 4,659 536,733 1.61%Wood and cork manufacturing 133,316 2,012 135,328 0.41%Paper and publishing manufacturing 185,090 1,477 186,567 0.56%Chemicals 180,391 556 180,947 0.54%Ceramic, glass and cement 248,443 1,848 250,291 0.75%Basic metallurgy 176,447 3,766 180,213 0.54%Machines and vehicles 351,297 5,167 356,464 1.07%Electricity, water and gas 292,242 1,104 293,346 0.88%Construction and public works 2,299,367 72,530 2,371,897 7.13%Wholesale trade 855,863 11,055 866,918 2.61%Retail sale 837,847 14,849 852,696 2.56%Restaurants and hotels 477,846 5,838 483,684 1.45%Transports and storage 1,002,116 2,484 1,004,600 3.02%Communications 254,558 1,697 256,255 0.77%Non monetary financial institutions 1,117,600 12 1,117,612 3.36%Government administration 1,072,916 2,663 1,075,579 3.23%Other service companies 2,431,911 37,755 2,469,666 7.43%Loans to individuals 18,322,184 285,678 18,607,862 55.95%Foreign loans 382,353 2,454 384,807 1.16%Others 448,243 11,723 459,966 1.39%

32,781,819 476,632 33,258,451 100.00%

2009

Performing Overdue Total %

Agriculture 210,678 3,933 214,611 0.65%Forestry 40,358 260 40,618 0.12%Fishing 34,349 158 34,507 0.11%Mining 421,870 686 422,556 1.29%Food manufacturing 315,335 1,350 316,685 0.97%Beverage and tobacco manufacturing 169,927 336 170,263 0.52%Textiles, leather and clothing 531,893 4,123 536,016 1.63%Wood and cork manufacturing 183,495 5,446 188,941 0.58%Paper and publishing manufacturing 173,444 1,499 174,943 0.53%Chemicals 141,562 676 142,238 0.43%Ceramic, glass and cement 173,553 1,144 174,697 0.53%Basic metallurgy 178,539 1,555 180,094 0.55%Machines and vehicles 235,268 6,667 241,935 0.74%Electricity, water and gas 532,658 465 533,123 1.62%Construction and public works 2,217,290 41,972 2,259,262 6.89%Wholesale trade 774,660 11,579 786,239 2.40%Retail sale 869,078 12,772 881,850 2.69%Restaurants and hotels 437,177 3,954 441,131 1.34%Transports and storage 663,680 2,289 665,969 2.03%Communications 242,721 1,466 244,187 0.74%Non monetary financial institutions 1,102,276 533 1,102,809 3.36%Government administration 825,877 78 825,955 2.52%Other service companies 2,704,353 35,996 2,740,349 8.35%Loans to individuals 18,281,019 257,755 18,538,774 56.50%Foreign loans 269,588 2,091 271,679 0.83%Others 679,015 2,772 681,787 2.08%

32,409,663 401,555 32,811,218 100.00%


121


Overdue and performing loans, with and without evidence of impairment, as at December 31, 2010 are as follows:

Overdue Performing Total loans loans loans Loans to companies . Without evidence of impairment - 13,737,287 13,737,287 . With evidence of impairment 180,390 262,991 443,381 ----------- --------------- --------------- 180,390 14,000,278 14,180,668 ----------- --------------- --------------- Mortgage loans . Without evidence of impairment - 15,360,671 15,360,671 . With evidence of impairment 202,461 1,263,316 1,465,777 ----------- --------------- --------------- 202,461 16,623,987 16,826,448 ----------- --------------- --------------- Consumer credit . Without evidence of impairment - 1,179,495 1,179,495 . With evidence of impairment 20,568 128,021 148,589 --------- ------------- ------------- 20,568 1,307,516 1,328,084 --------- ------------- ------------- Loans granted through credit cards . Without evidence of impairment - 258,758 258,758 . With evidence of impairment 18,338 24,367 42,705 --------- ----------- ----------- 18,338 283,125 301,463 --------- ----------- ----------- Other loans to individuals . Without evidence of impairment - 434,810 434,810 . With evidence of impairment 54,875 132,103 186,978 --------- ----------- ----------- 54,875 566,913 621,788 ---------- ---------------- --------------- 476,632 32,781,819 33,258,451 ====== ========= ========


122


Overdue and performing loans, with and without evidence of impairment, as at December 31, 2009 are as follows:

Overdue Performing Total loans loans loans Loans to companies . Without evidence of impairment - 13,739,546 13,739,546 . With evidence of impairment 138,850 197,987 336,837 ----------- --------------- --------------- 138,850 13,937,533 14,076,383 ----------- --------------- --------------- Mortgage loans . Without evidence of impairment - 15,302,418 15,302,418 . With evidence of impairment 199,295 1,021,664 1,220,959 ----------- --------------- --------------- 199,295 16,324,082 16,523,377 ----------- --------------- --------------- Consumer credit . Without evidence of impairment - 1,187,917 1,187,917 . With evidence of impairment 21,608 136,133 157,741 -------- ------------- ------------- 21,608 1,324,050 1,345,658 -------- ------------- ------------- Loans granted through credit cards . Without evidence of impairment - 252,577 252,577 . With evidence of impairment 12,098 29,728 41,826 -------- ----------- ----------- 12,098 282,305 294,403 -------- ----------- ----------- Other loans to individuals . Without evidence of impairment - 383,853 383,853 . With evidence of impairment 29,704 157,840 187,544 --------- ----------- ----------- 29,704 541,693 571,397 ----------- --------------- ---------------- 401,555 32,409,663 32,811,218 ====== ========= ========= 12. HEDGING DERIVATIVES

As at December 31, 2010 and 2009, these captions are made up as follows:

Assets Liabilities Net Assets Liabilities Net

Fair value hedgesInterest rate swaps 59,310 119,988 (60,678) 33,169 33,366 (197)Equity swaps 16,769 48,112 (31,343) 155,872 181,335 (25,463)AutoCallable options 14,638 21,162 (6,524) 2,534 22,366 (19,832)

Cash flow hedgesInterest rate swaps 40,795 161 40,634 67,940 - 67,940

131,512 189,423 (57,911) 259,515 237,067 22,448

2010 2009


123


Derivative financial instruments as at December 31, 2010 are made up as follows:

Notional amountBook Up to 3 From 3 to From 6 to From 1 to Over Notional amountvalue months 6 months 12 months 3 years 3 years Total EUR USD GBP JPY Others

1. Derivatives held for trading (Note 7)Forwards (197) 47,807 83,791 22,633 34,926 - 189,157 96,472 71,977 9,421 4,595 6,692Currency swaps (8,279) 2,147,426 - 45,798 - - 2,193,224 1,100,813 981,672 58,140 - 52,599Interest rate swaps (13,516) 222,166 1,120,119 995,425 5,325,232 5,193,657 12,856,599 12,625,388 56,944 174,267 - -Equity swaps (2,747) 196,679 202,148 576,881 3,072,435 1,460,930 5,509,073 5,481,717 27,356 - - -Futures - - - - - - - - - - - -Options (3,419) 113,936 66,759 23,671 44,529 458,037 706,932 493,641 195,848 3,253 3,682 10,508FRA 550 75,000 50,000 - - 10,860 135,860 135,860 - - - -Caps & Floors (1,596) 215,712 16,868 84,512 948,367 2,338,065 3,603,524 3,569,397 34,127 - - -

(29,204) 3,018,726 1,539,685 1,748,920 9,425,489 9,461,549 25,194,369 23,503,288 1,367,924 245,081 8,277 69,799

2. Hedging derivativesFair value hedges

Interest rate swaps (60,678) 421 42,844 51,736 3,218,592 3,320,164 6,633,757 6,559,511 74,246 - - -Equity swaps (31,343) 248,000 229,060 164,080 458,849 728,597 1,828,586 1,706,983 121,603 - - -Cross currency swaps (6,524) 70,938 179,905 284,547 541,686 - 1,077,076 1,076,695 381 - - -

Cash flow hedgesInterest rate swaps 40,634 1,918,200 1,000,000 - 550,000 200,000 3,668,200 3,668,200 - - - -

(57,911) 2,237,559 1,451,809 500,363 4,769,127 4,248,761 13,207,619 13,011,389 196,230 - - -

Financial Instruments

Derivative financial instruments as at December 31, 2009 are made up as follows:

Notional amountBook Up to 3 From 3 to From 6 to From 1 to Over Notional amountvalue months 6 months 12 months 3 years 3 years Total EUR USD GBP JPY Others

1. Derivatives held for trading (Note 7)Forwards 75 676,824 29,198 60,499 36,391 - 802,912 402,891 283,594 43,254 22,385 50,788Currency swaps 26,493 4,464,111 51,243 - - - 4,515,354 2,244,684 1,441,413 750,502 - 78,755Interest rate swaps 4,029 408,548 728,776 2,368,047 5,454,896 6,775,527 15,735,794 15,516,243 50,651 168,900 - -Equity swaps (12,428) 65,257 144,139 641,205 2,062,889 4,081,054 6,994,544 6,994,530 14 - - -Futures - 416,193 - - 125,362 - 541,555 541,555 - - - -Options (21,364) 76,505 95,478 194,475 13,791 489,873 870,122 514,936 343,170 - 12,016 -FRA 345 100,000 - - - 10,860 110,860 110,860 - - - -Caps & Floors (2,186) 163,051 13,370 2,089,808 1,083,302 2,387,437 5,736,968 5,718,920 18,048 - - -

(5,036) 6,370,489 1,062,204 5,354,034 8,776,631 13,744,751 35,308,109 32,044,619 2,136,890 962,656 34,401 129,543

2. Hedging derivativesFair value hedges

Interest rate swaps (197) 22,227 8,108 1,279,822 1,110,021 1,731,421 4,151,599 4,120,703 30,896 - - -Equity swaps (25,463) 176,468 194,388 494,163 952,809 484,527 2,302,355 2,221,126 81,229 - - -Cross currency swaps (19,832) 162,416 6,000 155,931 673,646 252,160 1,250,153 1,249,800 353 - - -

Cash flow hedgesInterest rate swaps 67,940 - - 12,607,293 2,918,200 - 15,525,493 15,525,493 - - - -

22,448 361,111 208,496 14,537,209 5,654,676 2,468,108 23,229,600 23,117,122 112,478 - - -

Financial Instruments


124


13. NON-CURRENT ASSETS HELD FOR TRADING

As at December 31, 2010 and 2009, non-current assets held for trading are made up as follows: 2010 2009 Real estate received as settlement of non-performing loans 120,751 122,075

Property for own use for sale 21,284 20,543 Equipment 1,579 - ----------- ----------- 143,614 142,618 Accumulated impairment losses (Note 25) ( 47,873 ) ( 42,327 ) ----------- ----------- 95,741 100,291 ====== ======

The movement on these captions during the years ended December 31, 2010 and 2009 can be

presented as follows:

2009 Tranfers 2010Gross Accumulated from tangible Utilization of Impairment Gross Accumulated Net

amount impairment Increases Sales fixed assets impairment Increase Reversal amount impairment amount

Real Estate received as settlement of non-performing loans 122,075 (38,139) 92,973 (93,407) (890) 13,667 (24,330) (11,832) 120,751 (36,970) 83,781Property for own use for sale 20,543 (4,188) 84 - 657 - (6,402) (467) 21,284 (10,123) 11,161Equipment - - 3,285 (2,619) 913 324 (1,104) - 1,579 (780) 799

142,618 (42,327) 96,342 (96,026) 680 13,991 (31,836) (12,299) 143,614 (47,873) 95,741

2010

2008 Tranfers 2009Gross Accumulated from tangible Utilization of Impairment Gross Accumulated Net

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

Real Estate received as settlement of non-performing loans 127,087 (41,394) 95,755 (100,767) - 18,824 (15,631) (62) 122,075 (38,139) 83,936Property for own use for sale 18,090 (2,640) - (921) 3,374 469 (2,017) - 20,543 (4,188) 16,355

145,177 (44,034) 95,755 (101,688) 3,374 19,293 (17,648) (62) 142,618 (42,327) 100,291

2009


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14. OTHER TANGIBLE ASSETS AND INTANGIBLE ASSETS

The changes in these captions during the year ended December 31, 2010 were as follows:

Accumulated Depreciation and ReversalAccumulated depreciation Impairment depreciation Accumulated depreciation Accumulated depreciation Accumulated depreciation amortization for of Accumulated depreciation Accumulated depreciation Impairment

Gross and amortization (Note 25) Gross and amortization Impairment Acquisitions Gross and amortization Impairment Gross and amortization Gross and amortization the year Impairment impairment Gross and amortization Impairment Gross and amortization (Note 25) Net

Tangible assetsProperty. Property for own use 418,970 (110,158) (2,394) (2,673) 276 20 11,115 80 16 - (533) (111) 1,549 (309) (7,984) (109) - 309 (29) (2) 428,657 (118,299) (2,485) 307,873. Leasehold improvements 130,457 (93,524) - (78) 27 - 4,557 - - - (15) 5 (1,550) 313 (5,997) - - 21 (13) - 133,392 (99,189) - 34,203. Other property 1,538 (274) (698) - - - 4 - - - - - - - (21) - - - - 1,542 (295) (698) 549

Work in progress. Property for own use 5,416 - - (6,126) - - 3 - - - - - - - - - - 708 - - 1 - - 1. Leasehold improvements 1 - - - - - - - - - - - - - - - - - - - 1 - - 1

556,382 (203,956) (3,092) (8,877) 303 20 15,679 80 16 - (548) (106) (1) 4 (14,002) (109) - 1,038 (42) (2) 563,593 (217,783) (3,183) 342,627

Equipment. Furniture and fixtures 22,416 (13,956) - (258) 100 - 1,146 - - - - - 1 - (2,168) - - 32 (13) - 23,337 (16,037) - 7,300. Machinery and tools 4,177 (3,848) - (153) 73 - 41 4 4 - - - - 1 (135) - - 19 (10) - 4,080 (3,915) - 165. Computer hardware 115,512 (92,566) - (476) 252 - 7,041 321 310 - (3) 3 - - (9,567) - - 56 (28) - 121,809 (101,596) - 20,213. Interior installations 89,254 (76,960) - (257) 89 - 847 34 27 - (4) 1 2 (3) (3,103) - - 29 (11) - 89,837 (79,960) - 9,877. Vehicles 18,799 (10,504) - (555) 415 - 4,250 3,593 3,471 - - - - - (3,878) - - 73 (50) - 18,974 (10,546) - 8,428. Security equipment 27,446 (25,739) - (62) 20 - 390 - - - (1) 1 - (1) (623) - - 7 (2) - 27,780 (26,344) - 1,436. Other equipment 5,107 (1,979) - (2) 1 - 384 - - - - - (2) (1) (639) - - - - - 5,487 (2,618) - 2,869. Tangible assets in progress - - - - - - - - - - - - - - - - - - - - - - -

282,711 (225,552) - (1,763) 950 - 14,099 3,952 3,812 - (8) 5 1 (4) (20,113) - - 216 (114) - 291,304 (241,016) - 50,288

Other tangible assetsLeased equipment 281 (281) - - - - - - - - - - - - - - - - - - 281 (281) - -Art collections 1,540 - - (3) - - - - - - - - - - - - - 1 - - 1,538 - - 1,538Other 39 (39) - - - - - - - - - - - - - - - - - - 39 (39) - -

1,860 (320) - (3) - - - - - - - - - - - - - 1 - - 1,858 (320) - 1,538840,953 (429,828) (3,092) (10,643) 1,253 20 29,778 4,032 3,828 - (556) (101) - - (34,115) (109) - 1,255 (156) (2) 856,755 (459,119) (3,183) 394,453

Intangible assetsSoftware 264,340 (191,808) - (563) 487 - 26,108 6,560 6,560 - - - 7,704 - (32,844) - - 65 (53) - 291,094 (217,658) - 73,436Underway intangible assets - - - - - - 9,148 - - - - - (7,704) - - - - - - - 1,444 - - 1,444Other intangible assets - - - - - - - - - - - - - - - - - - - -. Goodwill 3,614 (3,613) - - - - - - - - - - - - - - - - - - 3,614 (3,613) - 1. Others 1,300 - - - - - - - - - - - - - - - - - - - 1,300 - - 1,300

269,254 (195,421) - (563) 487 - 35,256 6,560 6,560 - - - - - (32,844) - - 65 (53) - 297,452 (221,271) - 76,181

Exchange differences 31/12/2010

Entities included in and removedfrom the consolidation scope Transfers

31/12/2009 Write offs From/to assets held for sale Between fixed assets


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The changes in these captions during the year ended December 31, 2009 were as follows:

Accumulated Depreciation and Reversal

Accumulated depreciation Impairment depreciation Accumulated depreciation Accumulated depreciation Accumulated depreciation amortization for of Accumulated depreciation Accumulated depreciation ImpairmentGross and amortization (Note 25) Gross and amortization Impairment Acquisitions Gross and amortization Impairment Gross and amortization Gross and amortization the year Impairment impairment Gross and amortization Impairment Gross and amortization (Note 25) Net

Tangible assetsProperty. Property for own use 417,759 (104,251) (1,038) (2,682) 177 21 6,872 - 1 - (5,067) 1,700 2,649 - (7,831) (1,384) - (561) 46 7 418,970 (110,158) (2,394) 306,418. Leasehold improvements 125,238 (88,825) - (81) 20 - 6,160 1,251 1,148 - (5) 1 418 4 (5,882) - - (22) 10 - 130,457 (93,524) - 36,933. Other property 7,675 (2,054) (4,986) - - - - 6,137 1,800 4,040 - - - - (20) - 248 - - - 1,538 (274) (698) 566

Work in progress. Property for own use 8,724 - - (4,172) - - 4,591 - - - - - (2,895) - - - - (832) - - 5,416 - - 5,416. Leasehold improvements 1 - - - - - 171 - - - - - (171) - - - - - - - 1 - - 1

559,397 (195,130) (6,024) (6,935) 197 21 17,794 7,388 2,949 4,040 (5,072) 1,701 1 4 (13,733) (1,384) 248 (1,415) 56 7 556,382 (203,956) (3,092) 349,334

Equipment. Furniture and fixtures 21,334 (11,853) - (246) 78 - 1,452 67 45 - - - (5) - (2,246) - - (52) 20 - 22,416 (13,956) - 8,460. Machinery and tools 4,340 (3,769) - (146) 59 - 44 29 26 - - - - - (179) - - (32) 15 - 4,177 (3,848) - 329. Computer hardware 106,762 (82,908) - (475) 200 - 9,523 201 179 - - - - - (10,086) - - (97) 49 - 115,512 (92,566) - 22,946. Interior installations 88,580 (73,691) - (244) 67 - 1,151 132 99 - (51) 48 - - (3,500) - - (50) 17 - 89,254 (76,960) - 12,294. Vehicles 18,945 (11,001) - (463) 307 - 4,610 4,193 3,953 - - - - (4) (3,840) - - (100) 81 - 18,799 (10,504) - 8,295. Security equipment 27,081 (25,114) - (60) 15 - 505 67 67 - - - - - (711) - - (13) 4 - 27,446 (25,739) - 1,707. Other equipment 4,791 (1,391) - (2) 1 - 345 31 8 - - - 5 - (597) - - (1) - - 5,107 (1,979) - 3,128. Tangible assets in progress 23 - - - - - - 23 - - - - - - - - - - - - - - - -

271,856 (209,727) - (1,636) 727 - 17,630 4,743 4,377 - (51) 48 - (4) (21,159) - - (345) 186 - 282,711 (225,552) - 57,159

Other tangible assetsLeased equipment 281 (281) - - - - - - - - - - - - - - - - - - 281 (281) - -Art collections 1,545 - - (3) - - - - - - - - (2) - - - - - - - 1,540 - - 1,540Other 39 (39) - - - - - - - - - - - - - - - - - - 39 (39) - -

1,865 (320) - (3) - - - - - - - - (2) - - - - - - - 1,860 (320) - 1,540833,118 (405,177) (6,024) (8,574) 924 21 35,424 12,131 7,326 4,040 (5,123) 1,749 (1) - (34,892) (1,384) 248 (1,760) 242 7 840,953 (429,828) (3,092) 408,033

Intangible assetsSoftware 185,559 (138,424) - (582) 378 - 22,436 (19,747) (19,763) - - - 37,301 (34,093) (121) 94 - 264,340 (191,808) - 72,532Underway intangible assets 15,147 - - - - - 22,154 - - - - - (37,301) - - - - - - - - - - -Other intangible assets. Goodwill 3,614 (3,604) - - - - - - - - - - - - (9) - - - - - 3,614 (3,613) - 1. Others 1,300 - - - - - - - - - - - - - - - - - - - 1,300 - - 1,300

205,620 (142,028) - (582) 378 - 44,590 (19,747) (19,763) - - - - - (34,102) - - (121) 94 - 269,254 (195,421) - 73,833

TransfersFrom/to assets held for sale31/12/2008 Write offs Between fixed assets

from the consolidation scopeExchange differences 31/12/2009

Part of the impairment loss recognised in tangible assets – other property as at December 31, 2010 and 2009, in the amount of tEuros 653, relates to the potential loss in a property named “Centro Comercial Gemini” (Shopping Centre Gemini), which is reflected in the books of the subsidiary Totta Urbe – Empresa de Administração e Construções, S.A.. In April 2009, most of the stores held in this property were sold off, having been used provisions in the amount of 4,040 tEuros and reset provision of tEuros 248. Consequently, no realised gain or loss has been recognised.

As at December 31, 2010 and 2009, the amounts of tEuros 61,241 and tEuros 69,371, respectively, recorded under the caption software, net of depreciation, were paid out 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.


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15. INVESTMENTS IN ASSOCIATES

As at December 31, 2010 and 2009 this caption is made up as follows: 2010 2009 Effective Book Effective Book participation (%) value participation (%) value Investments in associated companies Domestic . Benim - Sociedade Imobiliária, S.A. 25.78 2,221 24.97 1,801 . Partang, SGPS, S.A. 48.93 103,922 - - . Unicre - Instituição Financeira de Crédito 21.47 27,697 - - . ISBAN PT – Engenharia e Software Bancário, S.A. - - 49.90 333 ---------- ------- 133,840 2,134 ---------- -------- Impairment in investments in associated companies (Note 25) . Benim - Sociedade Imobiliária, S.A. ( 500 ) ( 500 ) ---------- ------- 133,340 1,634 ====== ==== The share in 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. (Totta Urbe). In July 2010, Benin made a share capital increase of tEuros 1,679 with a premium of tEuros 504,

having Totta Urbe subscribed 87,500 new shares by tEuros 437 and share premium of tEuros 131. After the share capital increase, Benin repaid shareholders’ loans to Totta Urbe in the amount of tEuros 250 (Note 18).

As mentioned in the Note 4, Partang, SGPS, S.A. holds 51% of Banco Caixa Geral Totta de Angola. The Group has a put option to sell its stake in Partang to Caixa Geral de Depósitos, S.A., exercisable during 4 years time as from July 2, 2011. Moreover, CGD has a second call option over the Group’s stake in Partang with a cap of up to 80% of its share capital and voting rights, exercisable in the first month of the fifth anniversary of the Partang’s share capital increase date (July 2, 2009).

In March 2010 a project for a new shareholder structure and a new model of governance of Unicre –

Instituição Financeira de Crédito, S.A. (“Unicre”) was presented. Following this project, Caixa Geral de Depósitos, S.A., BNP Paribas, Banco Português de Negócios, S.A. and Unicre itself sold off their shares to Banco Comercial Português, S.A. (BCP), which served as a distribution vehicle. Therefore subsequently it sold off part of the shares purchased to the remaining shareholders, increasing their participations accordingly.

As result of this operation, on June 30, 2010 BST has increased its stake in Unicre from 361,729 shares (corresponding to 18.08% of the share capital) to 430,000 shares (corresponding to 21.5% of the share capital). In this sense, Unicre’s stake has been reclassified to the caption “Investments in associates” as the Bank now holds a stake greater than 20%. Accordingly, the Bank valued at fair value the shareholding previously held as allowed under IAS 27, having recognized a capital gain in the amount of tEuros 21, 201 (Note 38), from which tEuros 21,173 attributable to the shareholders.

On August 5, 2010, the Group sold off to Ingenieria de Software Bancario 50,100 shares of ISBAN PT with a nominal value of 5 euros per share. Following this operation, the Group recognized a capital gain in the amount of tEuros 713 (Note 40).


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16. TAX ASSETS AND LIABILITIES

As at December 31, 2010 and 2009 these captions are made up as follows: 2010 2009 Current tax assets: . Corporate income tax receivable 22,159 4,833 . Others 6,885 572 -------- -------- 29,044 5,405 ===== ==== Current tax liabilities: . Corporate income tax payable 12,724 8,788 . Others 5,327 18,669 --------- --------- 18,051 27,457 ===== ===== Deferred tax assets: . Due to temporary differences 392,195 243,302 . Due to tax losses carried forward - 1,762 ----------- ----------- 392,195 245,064 ====== ====== Deferred tax liabilities: . Due to temporary differences 47,819 37,631 . Due to tax credits 4,312 4,222 --------- --------- 52,131 41,853 ===== =====

Current taxes in the income statement for the years ended as at December 31, 2010 and 2009 are made up as follows:

2010 2009 Corporate income tax of the year ( 76,713 ) ( 101,283 ) Consortiums (“ACE’s”) ( 1,771 ) ( 2,165 ) Others ( 18,797 ) ( 11,744 ) ---------- -------- ( 97,281 ) ( 115,192 ) ====== =====


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The changes in deferred tax assets and liabilities in the years ended December 31, 2010 and 2009 were as follows:

Balance at Income Balance at Income Balance at31/12/2008 Equity statement Other 31/12/2009 Equity statement Other 31/12/2010

Adoption of IAS/IFRS Retirement pensions 62,255 - (12,522) - 49,733 - (5,308) - 44,425Tangible assets 294 - (80) (9) 205 - (54) (6) 145Intangible assets - - 174 - 174 - 387 - 561Deferred fees and commissions 4,156 - (2,078) - 2,078 - 3,777 - 5,855Deferred fees and comissions by Totta Crédito Especializado IFIC (133) - 66 - (67) - 67 - -Long service bonuses 6,413 - 505 - 6,918 - 977 - 7,895Early retirements recognised by charge to reserves prior to 2001 5,385 - 17,584 - 22,969 - (3,129) - 19,840Provisions temporarily not tax deductible 118,529 - 58 (25) 118,562 - 31,483 - 150,045Tax losses carried forward 347 - 2,286 - 2,633 - (2,633) - -Equity method application in Benim valuation (485) - 44 - (441) - 39 - (402)Revaluation of tangible fixed assets (4,479) - 324 - (4,155) - (184) - (4,339)Tax losses that are not accounting losses (198) - 104 - (94) - (4,269) - (4,363)Tax gains that are not accounting gains 2,841 - 46 - 2,887 - (1,702) - 1,185Pension fund - London branch - - 579 - 579 - (193) - 386Long term incentives - - - - - 2,333 - 2,333

194,925 - 7,090 (34) 201,981 - 21,591 (6) 223,566

ReclassificationsTemporary differences on derivatives held for trading (13,539) - 3,196 - (10,343) - 10,309 - (34)

Adoption of IFRS4. Insurance liabilities at fair value - "Shadow reserve" 1,124 1,123 - 1 2,248 (1,220) - (1) 1,027. Insurance liabilities at fair value - Other (87) - 2 - (85) - (86) - (171). Income at effective interest rate 69 - (17) - 52 - (19) - 33

Adoption of IAS 32 and IAS 39 Hedging derivatives:. Cash flow (15,480) 8,625 - 1 (6,854) 4,982 - - (1,872). Fair value of assets 8,888 - (48) (3,812) 5,028 - 204 (3,813) 1,419. Fair value of liabilities (9,044) - - 3,812 (5,232) - - 3,813 (1,419)Available-for-sale financial assets. Deferred tax liabilities (649) (6,307) - (1) (6,957) 5,377 - 1 (1,579). Deferred tax assets 18,786 (2,260) - - 16,526 134,177 - - 150,703Deferral of derivative commissions of BSNP 10,152 - (1,357) - 8,795 - (8,260) - 535Hipotottas:. Debt issued discount/premium 494 - (125) - 369 - (864) - (495). Recognition of accrued interest on the Notes with a higher degree of subordination (2,522) - (1,618) - (4,140) - (2,911) - (7,051). Results in acquisitions of intragroup securities (664) - (2,718) - (3,382) - (27,024) - (30,406)Gains on the participating units in held for trading portfolio (204) - 103 (2) (103) - 103 - -Investments in subsidiaries, associates and joint ventures - - 5,308 - 5,308 - 500 - 5,808

192,249 1,181 9,816 (35) 203,211 143,316 (6,457) (6) 340,064

Deferred tax assets 239,733 245,064 392,195Deferred tax liabilities (47,484) (41,853) (52,131)

192,249 203,211 340,064


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Reconciliation between the nominal and the effective corporate income tax rates for the years ended December 31, 2010 and 2009 is as follows:

Income Incometax rate Amount tax rate Amount

Income before taxes and minority interests 543,074 635,948

Income tax based on the current tax rate in Portugal and countries where the subsidiaries are established 13.42% 72,858 23.57% 149,891Early retirements -2.16% (11,724) -4.10% (26,100)Profits exempt from income tax (SFE) 0.00% 3 -0.03% (197)Tax exempt dividends, net of taxes paid abroad -2.71% (14,726) -2.84% (18,088)Tax benefits -0.04% (236) -0.76% (4,858)Tax losses carried forward -0.22% (1,176) -0.58% (3,712)Provisions 0.40% 2,175 0.34% 2,141Non deductible costs 0.59% 3,226 0.28% 1,799Additional corrections 0.23% 1,256 0.60% 3,801Disposal of participations 0.60% 3,251 -1.39% (8,851)Tangible asset sales 0.00% - -0.11% (716)Autonumous taxation 0.55% 3,000 0.13% 800(Excess)/Insuficiency of the income tax estimate 0.57% 3,108 -0.82% (5,208)Impact of the additional state corporate income tax rate on deferred tax -2.15% (11,676) 0.00% -Repurchase of issued liabilities 6.16% 33,477 0.00% -Other 3.85% 20,922 2.31% 14,674

Income tax for the year 19.10% 103,738 16.57% 105,376

2010 2009

The tax authorities may review the Group’s tax situation during a period of four years, except when 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 Bank was subject to tax inspections for the years up to 2008, excluding the year 2006.

As a result of these inspections, the Bank has received additional assessments, essentially related with corporate income tax. The corrections made relate to several matters, including, amongst others, early retirement costs, allowance for overdue credit in excess of the minimum limits set out in Bank of Portugal’s Notice 3/95, challenge of some exempted income from the Autonomous Region of Madeira Branch, taxes of other branches and increases in shareholders’ equity and properties sale value. Some of these corrections are temporary, namely those relating to early retirement costs and allowance for overdue credit in excess of the minimum limits required by the Bank of Portugal.

In 2009, the Bank paid out an additional amount of tEuros 4,424 as consequence of the tax inspection for the year 2007. Tax authorities have challenged the deductibility of some additional reintegration and amortization costs, the transfer value of some properties, the allowance for overdue credit above the minimum limits required by the Bank of Portugal and some other corrections made in assessing the taxable income. For this purpose, the Bank recognised costs in the amount of tEuros 3,541.

The Bank paid out the full or partial amount resulting from these additional assessments and, when applicable, has provided for a bank guarantee. Notwithstanding, the Bank as administratively challenged the majority of these additional assessments.

Under the caption “Provisions”, Santander Totta provides for the additional assessments issued by the Tax Authorities and not paid out as well as for contingencies from prior years not yet reviewed by the Tax Authorities.


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17. TECHNICAL PROVISIONS As at December 31, 2010 and 2009, these captions are made up as follows: December 31, 2010 Deferred Book Gross acquisition value amount costs (net amount) Mathematical provisions (direct insurance): - “PPR/E Maxinveste” 24,292 - 24,292 - “Plano Génesis” 7,497 - 7,497 - “PPR/E Garantido” 311,871 - 311,871 - Welfare System 4,493 - 4,493 - Other products 3,087 - 3,087 ----------- -------- ----------- 351,240 - 351,240 Provision for unearned premiums (direct insurance) - Term Life Individual/Group products 70,090 ( 7,098 ) 62,992 ----------- -------- ----------- 421,330 ( 7,098 ) 414,232 Provision for unchanged tariffs 4,670 - 4,670 ----------- -------- ----------- 426,000 ( 7,098 ) 418,902 Provision for claims (direct insurance) – life 23,648 - 23,648 Provision for claims (direct insurance) – non life 11 - 11 ----------- -------- ---------- 449,659 ( 7,098 ) 442,561 Provision for profit sharing (direct insurance): - “PPR/E Maxinveste” 4 - 4 - “PPR/E Garantido” 37 - 37 - “Plano Génesis” 3 - 3 - Term Life Individual/Group products 719 - 719 - Welfare System 11 - 11 ----- ----- ----- 774 - 774 Shadow reserve (direct insurance): - “PPR/E Maxinveste” 746 - 746 - “PPR/E Garantido” 2,638 - 2,638 - “Plano Génesis” 157 - 157 ------- ------ ------- 3,541 - 3,541 ------- ------ ------- Total provision for profit sharing 4,315 - 4,315 ------- ------ ------- Provision for unearned premiums – non life 75 - 75 ----------- -------- ----------- Total direct insurance technical provisions 454,049 ( 7,098 ) 446,951 ====== ==== ====== Provision for unearned premiums (ceded reinsurance) ( 29,806 ) - ( 29,806 ) Provision for claims (ceded reinsurance) ( 5,207 ) - ( 5,207 ) --------- -- --------- Total of technical provisions for ceded reinsurance ( 35,013 ) - ( 35,013 ) ===== == =====


132


December 31, 2009 Deferred Book Gross acquisition value amount costs (net amount) Mathematical provisions (direct insurance): - “PPR/E Maxinveste” 26,221 - 26,221 - “Plano Génesis” 8,413 - 8,413 - “PPR/E Garantido” 268,118 - 268,118 - “Super Investimento” 1,191 - 1,191 - Other products 3,204 - 3,204 ----------- -------- ----------- 307,147 - 307,147 Provision for interest rate deficiency 1,867 - 1,867 ----------- -------- ----------- 309,014 - 309,014 Provision for unearned premiums (direct insurance) - Term Life Individual/Group products 65,983 ( 5,760 ) 60,223 ----------- -------- ----------- 374,997 ( 5,760 ) 369,237 Provision for unchanged tariffs 4,070 - 4,070 ----------- -------- ----------- 379,067 ( 5,760 ) 373,307 Provision for claims (direct insurance) – life 20,940 - 20,940 Provision for claims (direct insurance) – non life 4 - 4 ----------- -------- ---------- 400,011 ( 5,760 ) 394,251 Provision for profit sharing (direct insurance): - “PPR/E Maxinveste” 24 - 24 - “Plano Génesis” 34 - 34 - “PPR/E Garantido” 430 - 430 - Term Life Individual/Group products 549 - 549 ----- ----- ----- 1,037 - 1,037 Shadow reserve (direct insurance): - “PPR/E Maxinveste” 715 - 715 - “PPR/E Garantido” 7,752 - 7,752 - “Super Investimento” 15 - 15 ------- ------ ------- 8,482 - 8,482 ------- ------ ------- Total provision for profit sharing 9,519 - 9,519 ------- ------ ------- Provision for unearned premiums – non life 72 - 72 ----------- -------- ----------- Total direct insurance technical provisions 409,602 ( 5,760 ) 403,842 ====== ==== ====== Provision for unearned premiums (ceded reinsurance) ( 31,294 ) - ( 31,294 ) Provision for claims (ceded reinsurance) ( 5,654 ) - ( 5,654 ) --------- -- --------- Total of technical provisions for ceded reinsurance ( 36,948 ) - ( 36,948 ) ===== == =====


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The mathematical provisions for life insurance contracts represent all the commitments assumed with the beneficiaries of such contracts, including the profit sharing to which the policyholders are already entitled to. As at December 31, 2010 and 2009, the provisions were computed using the mortality tables PF60/64, GKF80, GRF95 and GRM95, for life assurance and PM60/64 and GKM80 for death assurance. The technical interest rates used were 4%.

18. OTHER ASSETS As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Other cash and deposits 348 332 Debtors and other applications . Overdue principal 568 568 . Debtors on operations over futures and options 82,226 32,944 . Security account 50 52 Other receivables - 5 VAT receivable 812 8,180 Shareholders’ loans: . Benim – Sociedade Imobiliária, S.A. - 250 . Fafer – Empreendimentos Urbanísticos Construção, S.A. 565 565 . Gestínsua – Aquisições e Alienações de Património Imobiliário e Mobiliário, S.A. 126 126 . Pavril 269 269 . Propaço – Sociedade Imobiliária de Paço de Arcos, Lda. 2,443 2,430 . Supergolf, SGPS 170 170 Government grants receivable from the Portuguese State 9,063 8,323 Assets received as settlement of non performing loans 45,856 35,421 Other sundry debtors 31,836 14,284 Gold, other precious metals, coins and medals 2,540 2,483 Debtors for direct insurance and reinsurance 5,618 2,794 Amounts to be settled with the Pension Fund (Note 46) 332,384 329,083 Accrued income . Other interests and similar income 29,207 - . Other receivable income 8,628 10,988 Deferred expenses 5,623 7,164 Other equity investments: . Nortrem – Aluguer de Material Ferroviário, A.C.E. (Nortrem) 3,487 4,468 . Trem II – Aluguer de Material Circulante (Trem II) 936 1,225 . Trem I – Aluguer de Material Circulante, A.C.E. (Trem I) 355 448 Asset operations pending to be settled 1,552 28,886 Other operations pending to be settled 23 6,857 ----------- ----------- 564,685 498,315 ----------- ----------- Impairment (Note 25): Debtors and other applications ( 8,606 ) ( 3,399 ) Shareholders’ loans ( 2,631 ) ( 2,617 ) ----------- --------- ( 11,237 ) ( 6,016 ) ----------- ----------- 553,448 492,299 ====== ======


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As at December 31, 2010, the caption "Accrued income - other interest and similar income" refers to the amount receivable resulting from the "Swap Agreements" between the Bank and Grupo Santander and between the Bank and Hipototta No. 7, No. 8 and No. 10 and Hipototta Ltd No. 11 (Tagus). The amount payable on these transactions is recorded under "Other liabilities - other interest and similar charges (Note 27).

The caption "Debtors on futures trading" refers to the current accounts maintained by the Bank in international financial institutions regarding to trading of futures. Futures margin accounts are recorded under "Other liabilities - creditors on futures trading (Note 27).

19. RESOURCES OF CENTRAL BANKS As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Resources of the European Central Bank Sales with repurchase agreement – bonds issued as result of securitized mortgage loans operations 4,802,150 2,013,326 Resources of other Central Banks Deposits 5,011 13,497 Accrued interest 1 7 -------------- ------------- 4,807,162 2,026,830 ======== ========

As at December 31, 2010 and 2009, the caption “Resources of the European Central Bank” corresponds to the funding obtained from the Eurosystem. For this purpose BST used a part of its portfolio of eligible assets as collateral. As at December 31, 2010, the total amount of eligible assets backing the funding obtained from the European Central Bank was as follows:

2010

Asset Capital Total interest Deferred cost Total Maturity

Bonds issued in securitization transactions 4,590,000 3,605 (1,595) 4,592,010 January 2011

Commercial paper 210,000 245 (105) 210,140 January 20114,800,000 3,850 (1,700) 4,802,150

2009

Asset Capital Total interest Deferred costCorrection of

value Total MaturityBonds issued in securitization transactions 2,002,167 18,444 (10,056) 2,771 2,013,326 July 2010

The bonds issued in securitization transactions corresponds to debt securities issued by Hipototta PLC / Ltd (Note 24).

20. FINANCIAL LIABILITIES HELD FOR TRADING As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Derivatives Derivative instruments with negative fair value (Note 7) 1,262,597 1,485,448 ======== =======


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21. FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Liabilities resulting from investment contracts where the risk is beared by the policyholders (life insurance business) (Note 50) 4,301,702 4,348,608 ------------- ------------- Resources from Central Banks . Principal - 500,000 . Interest - 5,153 . Accrued expenses - ( 2,514 ) ------------- ------------- 4,301,702 4,851,247 ======== ======== The caption “Liabilities resulting from investment contracts where the risk is beared by the

policyholders (life insurance business)” corresponds to the proceeds for the subscription of “Unit Linked” products of Santander Totta Seguros and to the fair value variation of the financial assets in which those proceeds were invested in.

As at December 31, 2009 the “Resources of Central Banks” correspond to a sale operation with repurchase agreement with the Bank of Portugal, with the objective of financing the acquisition of the participating units referred to in Note 8. These operations ended on July 1, 2010.

22. RESOURCES OF OTHER FINANCIAL INSTITUTIONS As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Resources of domestic financial institutions Very short term resources 70,000 - Deposits 187,358 945,560 Loans - 5 Other resources - 21 Accrued interest 164 5,205 ----------- ----------- 257,522 950,791 ----------- ----------- Resources of foreign financial institutions Consigned resources 489,000 420,000 Very short term resources 252,151 34,034 Deposits 2,452,334 3,188,051 Sales operations with repurchase agreement 4,979,144 1,587,609 Other resources 15,888 902 Accrued interest 3,152 4,259 -------------- -------------- 8,191,669 5,234,855 -------------- -------------- 8,449,191 6,185,646 ======== ========


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Consigned resources as at December 31, 2010 and 2009 refer to loans granted by European Investment Bank (EIB), to be used exclusively in financing small and medium size projects previously submitted to the EIB for approval.

As at December 31, 2010 and 2009, the detail of the consigned resources by residual terms is as follows:

2010 2009

Refund in less than one year 150,000 150,000Refund between three and five years 250,000 250,000Refund between five and ten years 29,000 -Refund over ten years 60,000 20,000

489,000 420,000

As collateral for the payment of one of the loans, named “Project BTA Empréstimo Global III”, the

Bank pledged in guarantee loans granted to Municipalities in the amount of tEuros 150,000. As collateral for the payment of the “Santander Totta GL IV – Tranche B” loan, the Bank pledged in

guarantee 1,500 Class A2 bonds of Hipototta No. 6 Ltd, in the amount of tEuros 145,793. Due to the redemption of Hipototta No 6 Ltd. on April 1, 2010, the Bank pledged 1,785 Class A2 bonds Hipototta No. 8 Ltd. in the amount of tEuros 164,189.

As at December 31, 2010 and 2009 the caption “Resources of foreign financial institutions - Sale operations with repurchase agreements” has the following composition, by type of underlying asset and residual maturity:

2010

Description Principal Interest Deferred costs Total

Treasury Bonds - Portugal. Maturity in less than one month 1,790,931 2,137 (668) 1,792,400. Maturity between one and two months 49,940 109 (70) 49,979

1,840,871 2,246 (738) 1,842,379

Treasury Bonds - Spain. Maturity in less than one month 2,039,054 1,974 (905) 2,040,123. Maturity between one and two months 258,224 686 (403) 258,507. Maturity between two and three months 587,249 2,380 (1,920) 587,709

2,884,527 5,040 (3,228) 2,886,339

Bonds issued by the BST Group in securitization transactions. Maturity between two and three months 250,314 942 (830) 250,426

4,975,712 8,228 (4,796) 4,979,144

2009

Description Principal Interest Deferred costs Total

Treasury Bonds - Portugal. Maturity between two and three months 518,470 1,111 (447) 519,134. Maturity between three and four months 517,750 1,453 (838) 518,365

1,036,220 2,563 (1,285) 1,037,498

Treasury Bonds - Spain. Maturity between two and three months 550,000 715 (604) 550,111

1,586,220 3,278 (1,889) 1,587,609


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23. RESOURCES OF CUSTOMERS AND OTHERS As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Demand deposits 5,243,105 4,894,460 Term deposits 10,113,138 8,623,096 Savings deposits 198,054 249,464 Financial products without profit sharing (Note 50) 31,835 29,593 Advance notice deposits 33,601 25,504 Cheques and orders payable 105,924 82,241 Other resources of customers 1,237,250 1,144,100 Sale with repurchase agreements - 132 Accrued interest and costs 74,817 46,518 Deferred expenses - ( 49 ) Value adjustments of hedging operations ( 19,427 ) ( 13,762 ) -------------- -------------- 17,018,297 15,081,297 ======== ======== 24. DEBT SECURITIES ISSUED As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Bonds outstanding Covered bonds Issued 3,000,000 2,000,000 Repurchased ( 69,550 ) - Accrued interest 50,809 33,184 Bonds issued as a result of securitization operations 2,640,218 4,729,370 Repurchased ( 747,614 ) - Accrued interest ( 1,880 ) 304 Cash bonds Issued 1,423,859 2,078,171 Repurchased ( 455,514 ) ( 552,420 ) Accrued interest 11,286 18,488 -------------- -------------- 5,851,614 8,307,097 -------------- -------------- Others EMTN Programme Issued 2,470,420 2,564,570 Repurchased ( 651,260 ) ( 218,650 ) Euro Commercial Paper 112,493 3,379,765 Accrued interest 21,398 22,905 -------------- -------------- 1,953,051 5,748,590 -------------- -------------- Value adjustments of hedging operations 18,012 ( 7,541 ) -------------- -------------- 7,822,677 14,048,146 ======== ======== The conditions of the cash bonds and the covered bonds are described in Appendix I.


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In May 2008 and October 2009, BST issued covered bonds under the “€ 5,000,000 Covered Bonds Programme”, dated April 2008, of mEuros 1,000,000 each. As at December 31, 2010 and 2009, the assets backing such covered bonds are as follows:

2010 2009

Loans and advances to banks 720,708 523,275 Loans and advances interest 987 402 ----------- ----------- 721,695 523,677 ----------- ----------- Loans and advances to clients 3,168,738 1,744,094 Interest on credit granted 4,918 2,255 Commissions ( 19,915 ) ( 10,518 ) Accrued expenses 10,574 7,968 -------------- -------------- 3,164,315 1,743,799 -------------- -------------- Hedging derivatives 39,945 32,946 -------------- -------------- 3,925,955 2,300,422 ======== =======


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As at December 31, 2010 the BST had the following bonds issued under the Euro Medium Term Notes Programme:

Serie Date of Maturity Remuneration Amount

25 th June 27, 2016 Euribor 6 months plus 0,5% 32,10026 th June 27, 2016 Euribor 6 months plus 0,5% 32,10027 th June 27, 2016 Euribor 6 months plus 0,5% 31,35028 th October 6, 2016 Euribor 6 months plus 0,5% (1) 29,95029 th May 7, 2014 Indexed to a basket of shares 51,28030 th February 26, 2014 Indexed to a basket of shares 32,86031 th April 2, 2014 Indexed to a basket of shares 26,17032 th April 26, 2014 Indexed to a basket of shares 2,60033 th March 20, 2012 Indexed to a basket of shares 3,20034 th January 25, 2012 Indexed to a basket of shares 3,05035 th June 12, 2012 Fixed rate of 3,75% 1,000,00036 th July 15, 2011 Euribor 3 months plus 0,75% (2) 394,00037 th October 26, 2017 Fixed rate of 4,156%(3) 20,00038 th November 30, 2017 Fixed rate of 4,152%(4) 43,40039 th December 31, 2017 Fixed rate of 4,04%(5) 28,35040 th January 22, 2018 Fixed rate of 3,63% (6) 41,10041 th May 21, 2013 Fixed rate of 2,527% 4,05042 th May 21, 2013 Fixed rate of 2,527% 4,05043 th May 21, 2013 Fixed rate of 2,527% 4,05044 th May 21, 2013 Fixed rate of 2,527% 4,05045 th May 21, 2013 Fixed rate of 2,527% 4,15046 th May 28, 2012 Euribor 3 months plus 0,55% (7) 20,00047 th June 9, 2015 Indexed to a basket of shares 1,00048 th June 9, 2015 Indexed to a basket of shares 1,00049 th June 14, 2012 Euribor 3 months plus 0,75% (8) 75,00050 th June 25, 2015 Fixed rate of 3,11% 16,87551 th June 25, 2020 Fixed rate of 2,96% (9) 21,10052 th July 27, 2012 Fixed rate of 2,9231% 39,50053 th July 27, 2015 Fixed rate of 3,1% 8,95054 th July 27, 2020 Fixed rate of 2,5297% (10) 9,85055 th August 25, 2012 Euribor 3 months plus 0,4% (11) 40,00056 th September 3, 2012 Fixed rate of 2,8973% 88,00057 th September 3, 2015 Fixed rate of 3,62375% 13,60058 th September 3, 2020 Fixed rate of 3,85% (12) 16,90059 th September 28, 2012 Fixed rate of 2,828% 47,80060 th September 29, 2015 Fixed rate of 3,414% 8,85061 th September 29, 2018 Fixed rate of 3,250% (18) 10,05062 th October 26, 2015 Fixed rate of 3,488% 4,95063 th October 26, 2012 Fixed rate of 2,947% 45,00064 th October 26, 2018 Fixed rate of 3,3% (13) 5,91065 th May 3, 2013 Euribor 1 month plus 0,425% (14) 100,00066 th November 18, 2012 Fixed rate of 2,975% 40,00067 th November 18, 2015 Fixed rate of 3,7% 6,00068 th November 18, 2018 Fixed rate of 3,5% (15) 4,90069 th September 27, 2013 Fixed rate of 3,225% 29,75070 th December 23, 2013 Fixed rate of 3,88% 7,42571 th December 21, 2018 Fixed rate of 3,75% (16) 6,15072 th December 3, 2012 Euribor 1 months plus 0,42% (17) 10,000

2,470,420(1) Remuneration aplicable until October 5, 2012. The "spread" decreases in the subsequents periods.(2) Remuneration aplicable until January 15, 2011. The “spread” increases in the subsequents periods.(3) Remuneration aplicable until October 26, 2011. The rate increases in the subsequents periods.(4) Remuneration aplicable until November 29, 2011. The rate increases in the subsequents periods.(5) Remuneration aplicable until December 28, 2012. The rate increases in the subsequents periods.(6) Remuneration aplicable until January 22, 2011. The rate increases in the subsequents periods.(7) Remuneration aplicable until Febuary 28, 2011. The “spread” increases in the subsequents periods.(8) Remuneration aplicable until March 14, 2011. The rate increases in the subsequents periods.(9) Remuneration aplicable until June 24, 2011. The rate increases in the subsequents periods.(10) Remuneration aplicable until July 27, 2011. The rate increases in the subsequents periods.(11) Remuneration aplicable until Febuary 25, 2011. The "spread" increases in the subsequents periods.(12) Remuneration aplicable until September 3, 2011. The rate increases in the subsequents periods.(13) Remuneration aplicable until October 26, 2011. The rate increases in the subsequents periods.(14) Remuneration aplicable until January 3, 2011. The "spread" increases in the subsequents periods.(15) Remuneration aplicable until November 17, 2011. The rate increases in the subsequents periods.(16) Remuneration aplicable until December 20, 2011. The rate increases in the subsequents periods.(17) Remuneration aplicable until March 3, 2011. The "spread" increases in the subsequents periods.(18) Remuneration aplicable until September 27, 2011. The "spread" increases in the subsequents periods.


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25. CHANGES IN PROVISIONS AND IMPAIRMENT

The changes in provisions and impairment in 2010 and 2009 were as follows:

Entitiesremoved from the

consolidation Exchange12/31/2009 scope Increases Reversals Utilizations differences Others 12/31/2010

Provision for tax contingencies 17,922 - 2,356 (2,270) (125) - 15,100 32,983Employee benefits 9,402 (631) 1,086 (71) (301) 80 - 9,565Impairment and provisions for guarantees and other sureties given 29,415 (633) 14,131 (9,972) - 53 - 32,994Other provisions 31,379 (848) 7,993 (4,424) (1,901) 99 - 32,298

88,118 (2,112) 25,566 (16,737) (2,327) 232 15,100 107,840

2010

Entitiesremoved from the

consolidation Exchange12/31/2008 scope Increases Reversals Utilizations differences Others 12/31/2009

Provision for tax contingencies 11,311 - 543 (5,600) (32) - 11,700 17,922Employee benefits 8,687 (520) 2,041 (431) (242) (133) - 9,402Impairment and provisions for guarantees and other sureties given 33,487 (184) 7,053 (10,888) - (53) - 29,415Other provisions 32,434 (617) 19,235 (17,849) (1,665) (159) - 31,379

85,919 (1,321) 28,872 (34,768) (1,939) (345) 11,700 88,118

2009

Entitiesremoved from the Reversal of

consolidation Impairment impairment Exchange Impairment12/31/2009 scope losses losses Utilizations differences 12/31/2010 recoveries

Impairment of loans and advances to customers (Note 11):Domestic loans 213,476 - 48,654 (79,007) - - 183,123 -Foreign loans 2,915 (1,486) 1,017 (770) - 183 1,859 -Non-derecognised securitized loans 68,316 - 9,970 (15,396) - - 62,890 -Other loans and receivables securitized - - 7,680 - - - 7,680 -

Impairment of overdue loans and interest:Loans to customers (Note 11):. Domestic loans 152,581 - 139,737 (4,969) (66,271) - 221,078 (11,072). Foreign loans 5,985 (979) 5,211 (1,384) (3,996) 439 5,276 (19). Non-derecognised securitized loans 44,188 - 16,710 (3,441) (3,485) - 53,972 -Other loans and receivables securitized - - 779 - - - 779 -

487,461 (2,465) 229,758 (104,967) (73,752) 622 536,657 (11,091)

Impairment of available-for-sale financial assets (Note 9) 45,431 1 21,716 (30) (31) - 67,087 -Impairment of investiments in associated companies (Note 15) 500 - - - - - 500 -

45,931 1 21,716 (30) (31) - 67,587 -

Impairment of non financial assets:Tangible assets (Note 14) 3,092 (20) 109 - - 2 3,183 -Non-current assets held for trading (Note 13) 42,327 - 31,836 (12,299) (13,991) - 47,873 -Other assets (Note 18) 6,016 - 9,797 (2,447) (2,129) - 11,237 -

51,435 (20) 41,742 (14,746) (16,120) 2 62,293 -584,827 (2,484) 293,216 (119,743) (89,903) 624 666,537 (11,091)

2010


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Entitiesremoved from the Reversal of

consolidation Impairment impairment Exchange Impairment12/31/2008 scope losses losses Utilizations differences 12/31/2009 recoveries

Impairment of loans and advances to customers (Note 11):Domestic loans 258,822 - 47,234 (92,345) (235) - 213,476 -Foreign loans 3,506 (1,153) 2,226 (1,348) - (316) 2,915 -Non-derecognised securitized loans 65,988 - 16,075 (13,747) - - 68,316 -

Impairment of overdue loans and interest:Loans to customers (Note 11):. Domestic loans 85,045 - 122,929 (2,008) (53,385) - 152,581 (7,257). Foreign loans 2,762 (590) 11,872 (6,761) (708) (590) 5,985 (211). Non-derecognised securitized loans 26,061 - 19,718 (73) (1,518) - 44,188 -

442,184 (1,743) 220,054 (116,282) (55,846) (906) 487,461 (7,468)

Impairment of available-for-sale financial assets (Note 9) 44,828 - 5,452 (3,983) (867) 1 45,431 -Impairment of investiments in associated companies (Note 15) 500 - - - - - 500 -

45,328 - 5,452 (3,983) (867) 1 45,931 -

Impairment of non financial assets:Tangible assets (Note 15) 6,024 (21) 1,384 (248) (4,040) (7) 3,092 -Non-current assets held for trading (Note 13) 44,034 - 17,648 (62) (19,293) - 42,327 -Other assets (Note 18) 10,064 - 3,029 (3,848) (3,229) - 6,016 -

60,122 (21) 22,061 (4,158) (26,562) (7) 51,435 -547,634 (1,764) 247,567 (124,423) (83,275) (912) 584,827 (7,468)

2009

As at December 31, 2010 and 2009, this provision includes tEuros 9,565 and tEuros 8,529 for a supplementary pension plan of the Board of Directors (Note 48).

As at December 31, 2010 and 2009, the caption “Other provisions” includes:

- Provisions for legal processes, following lawsuits from customers and Bank’s employees, in the

amount of tEuros 12,178 and tEuros 12,463, respectively. The legal department of the Bank estimates the expected loss for each process, based on its development as reported by the respective responsible lawyer;

- Provisions for contingencies related to operational risk (frauds, operations pending confirmation,

open items and fees) amounts to tEuros 15,638 and tEuros 11,983, respectively. 26. SUBORDINATED LIABILITIES

As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 EMTN Programme – Subordinated - 300,000 Subordinated Perpetual Bonds Totta 2000 270,447 284,315 Subordinated Perpetual Bonds BSP 2001 41,541 172,833 Subordinated Perpetual Bonds BSNP 2004 - 100,000 Subordinated Cash Bonds CPP 2001 4,275 54,359 Subordinated Loan 2007 – Totta IFIC 50,000 50,000 Subordinated Perpetual Bonds – Totta Seguros 2002 14,000 14,000 Subordinated Loan 2002 – Totta IFIC 10,000 10,000 Subordinated Perpetual Bonds 98 2,993 2,993 ------------- ------------- 393,256 988,500 ------------- ------------- Repurchased securities ( 393,256 ) ( 709,827 ) Accrued interest - 178 -- ---------- - 278,851 = =======

On November 10, 2010, BST proceeded to an early repayment of the EMTN program issued by the London branch in the amount of tEuros 300,000.

The conditions of the subordinated liabilities are presented in Appendix II.


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27. OTHER LIABILITIES

As at December 31, 2010 and 2009, this caption is made up as follows: 2010 2009 Creditors and other resources Creditors for operations with futures contracts (margin accounts) 82,115 32,349 Other resources Captive resources 25,493 22,058 Surety resources 916 1,385 Other resources 1,330 1,371 Government administration VAT payable 8,088 7,731 Income tax withheld 32,730 16,715 Social security contributions 3,001 2,975 Other 941 757 Collections on behalf of third parties 163 161 Accrued interest, dividends and other capital remuneration Bond interest and return from treasury perpetual debt (“títulos de participação”) 54 54 Dividends 115,222 115,182 Other interests and similar expenses (Note 18) 29,188 - Contributions to other healthcare systems 1,529 1,507 Sundry creditors From factoring contracts 57,640 50,324 From operations with securities 154 2,274 General suppliers 8,659 15,365 Other creditors 39,131 33,733 Other accrued costs From banking services and operations rendered by third parties 2,221 1,979 Relating with personnel Long service bonuses 27,221 26,102 Vacation pay and vacation bonuses 29,439 30,870 Other variable remuneration 31,820 33,289 ACTV and social costs 10,108 10,130 Other payroll expenses 3,440 2,008 General administrative costs 977 1,414 Invoices subject to approval 39,534 32,129 Other deferred income 4,124 8,804 Amounts to be settled with banks and customers 85,687 70,097 Stock exchange operations pending to be settled 119 98,832 Other 20,412 3,461 ----------- ----------- 661,456 623,056 ====== ====== As at December 31, 2010 and 2009, the caption “Dividends” includes special dividends to

shareholders in the amount of tEuros 115,000. The caption “Amounts to be settled with banks and customers” as at December 31, 2010 and 2009

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

As at December 31, 2009, the balance of the caption “Stock exchange operations pending to be settled” include tEuros 98,827 related with the purchase of class A Hipototta no. 4 PLC Notes, settled after the balance sheet date.


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28. SHAREHOLDERS’ EQUITY

Santander Totta’s share capital as at December 31, 2010 and 2009 is made up of 197,296,207,958 shares fully subscribed for and paid up of 0,01 Euro each, held as follows:

2010 2009 Number % of shares participation Amount Amount Santander Group 196,996,017,344 99,85 1,969,960 1,969,960 Other 275,052,987 0,14 2,751 2,751 Treasury shares 25,137,627 0,01 251 251 ---------------------- --------- ------------- -------------- 197,296,207,958 100.00 1,972,962 1,972,962 ============= ===== ======= =======

During 2009 Santander Totta bought 1,015,105 treasury shares in the amount of tEuros 21, in accordance with the powers delegated by the Shareholders General Meeting (5,975,139 treasury shares by tEuros 124 in 2008).

On May 27, 2009, Santander Totta’s Shareholders General Meeting decided to distribute additional dividends related to the year 2008 in the amount of tEuros 120,000.

On December 15, 2009, Santander Totta’s Board of Directors decided to distribute interim dividends in the amount of tEuros 115,000.

On May 28, 2010, Santander Totta’s Shareholders General Meeting decided to distribute additional dividends related to the year 2009 in the amount of tEuros 120,000.

On December 30, 2010, Santander Totta’s Board of Directors decided to distribute interim dividends in the amount of tEuros 115,000.

Revaluation reserves

The revaluation reserves as at December 31, 2010 and 2009 were made up as follows:

2010 2009 Revaluation reserves Reserves resulting from fair value revaluation of Available-for-sale financial assets ( 513,332 ) ( 60,382 ) Cash flow hedging instruments 6,454 25,838 Reserves resulting from fair value revaluation of insurance liabilities (“shadow reserve”) (Note 41) ( 3,541 ) ( 8,482 ) Exchange fluctuation reserves ( 3,541 ) ( 8,798 ) Reserves resulting from companies at equity method 84 - --- ------ --------- ( 513,960 ) ( 51,824 ) ------ --- --------- Deferred tax reserves Temporary differences relating to: Reserves resulting from fair value revaluation of Available-for-sale financial assets 148,890 9,568 Cash flow hedging instruments ( 1,872 ) ( 6,847 ) Resulting from fair value revaluation of insurance liabilities (“shadow reserve”) (Note 41) 1,027 2,247 Revaluation of tangible assets ( 4,509 ) ( 4,667 ) --------- -------- 143,534 301 ---------- --------- ( 370,426 ) ( 51,523 ) ====== =====


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In 1998, the Bank revalued tangible fixed assets in accordance with Decree-Law no. 31/98, dated February 11, resulting in a net increase of such assets by approximately tEuros 23,245, which was recorded in revaluation reserves. The net amount of the revaluation recorded can only be used to increase capital or to cover losses, as the revalued assets are used (through depreciation) or sold.

Other reserves and retained earnings

As at December 31, 2010 and 2009, the caption “Other reserves and retained earnings” were made up as follows:

2010 2009

Legal reserve 128,088 101,498 Merger reserve 640,575 640,575 Consolidated reserves Consolidated companies using the full or proportional method ( 308,307 ) ( 524,397 ) Companies revalued using the equity method 3,207 19 Retained earnings 91,176 73,482 Reserves resulting from companies at equity method ( 3,124 ) - ----------- ----------- 551,615 291,177 ====== ======

Legal reserve In accordance to Decree-Law no. 298/92, dated December 31, amended by Decree-Law

no. 201/2002, dated September 26, Santander Totta must retain at least 10% of its annual net income on a stand alone individual basis until the legal 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 negative retained earnings or to increase share capital.

Merger reserve In accordance to current legislation, the merger reserve can be used under the same circumstances of

the legal reserve (i.e. to cover negative retained earnings or to increase share capital).


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29. CONSOLIDATED NET INCOME FOR THE YEAR Consolidated net income for 2010 and 2009 is made up as follows:

2010 2009Contribution to the Contribution to the

Net income consolidated Net income consolidatedfor the year net income for the year net income

Non consolidated net income of Santander Totta, SGPS (individual activity) 279,892 279,892 265,901 265,901Net income for the remaining Group companies:

Banco Santander Totta, S.A. 278,010 277,639 439,048 438,447Totta Crédito Especializado, IFIC (Totta IFIC) 24,958 24,953 16,403 16,399Banco Caixa Geral Totta de Angola (ex-Banco Totta de Angola) 30,895 7,710 36,382 9,265BST International Bank,Inc (Puerto Rico) 18,150 18,126 16,346 16,324Totta & Açores Inc. New ark 56 56 126 126Totta Ireland PLC 63,971 63,883 102,098 101,957Totta & Açores Financing 12,360 12,343 12,360 12,343Santotta Internacional, SGPS (ex Madeisisa - SGPS) 149 149 4,959 4,953Serfin - International Bank & Trust 204 203 300 299Totta Urbe (1,195) (1,194) 4,729 4,723Banco Santander de Negócios Portugal - - 18,122 18,122Santander Pensões 1,137 1,135 1,139 1,139Santander Gestão de Activos, SGPS 23 23 21,845 21,845Santander Asset Management SGFIM 6,331 6,323 4,807 4,807Taxagest, SGPS (2,435) (2,432) 8,478 8,478Santander Totta Seguros 20,678 20,678 20,069 20,069ISBAN PT - Engenharia e Softw are Bancário - - 128 64Partang, SGPS 4,944 2,419 (2) (1)Unicre - Instituição Financeira de Crédito, S.A. 11,270 2,420 - -Hipototta No. 1 PLC (1,124) - (468) -Hipototta No. 2 PLC (1,983) - (2,235) -Hipototta No. 3 PLC (3,618) - (4,713) -Hipototta No. 4 PLC (2,912) - (3,276) -Hipototta No. 5 PLC (1,318) - (1,537) -Hipototta No. 6 Ltd - - (2,463) -Hipototta No. 7 Ltd (1,729) - (1,982) -Hipototta No. 8 Ltd (151) - (1,327) -Hipototta No. 10 Ltd (394) - (24) -Leasetotta No. 1 Ltd 1,183 - - -Hipototta No. 1 FTC (1,651) - (1,454) -Hipototta No. 2 FTC (4,803) - (4,005) -Hipototta No. 3 FTC (6,529) - (6,975) -Hipototta No. 4 FTC (7,264) - (6,432) -Hipototta No. 5 FTC (4,939) - (4,025) -Hipototta No. 6 FTC - - (4,023) -Hipototta No. 7 FTC (7,071) - (3,013) -Hipototta No. 8 FTC (3,483) - (1,363) -Hipototta No. 10 FTC (613) - (24) -Leasetotta No. 1 FTC - - - -

421,107 434,434 657,998 679,359Elimination of dividends:

Banco Santander Totta (239,660) (229,665)Totta Ireland PLC (67,552) (106,326)Santotta Internacional, SGPS (4,794) -Totta Crédito Especializado, IFIC - (11,998)Banco Santander de Negócios Portugal (36,109) (7,507)Taxagest, SGPS (8,439) -Santander Gestão de Activos, SGPS (20,972) (11,700)Santander Totta Seguros (10,112) (24,750)Santander Asset Management SGFIM - (19,000)Santander Pensões - (2,700)Banco Caixa Geral Totta de Angola (4,540) -

(392,178) (413,646)Partial sale of Banco Totta Angola in 2009:. Proportion of 75% of the Banco Totta Angola f irst half income (2009) - 7,616. Elimination of non consolidated income from Banco Totta Angola operation - (62,338). Recognition of the consolidated gains from Banco Totta Angola operation (Note 4) - 28,058

Sale of 1% of Partang resulting in loss of joint control in 2010:. Elimination of individual incomes (854) -. Recognition of fair value at the date of loss of joint control (Note 4) 53,973 -. Proportion of the income in the f irst half of 2010 of Partang and of the Banco Totta Caixa Geral de Angola 152 -

Purchase of Unicre and implementation of equity method:. Elimination of the Unicre's f irst semester income (1,183) -. Valuation at fair value on the date of acquisition of signif icant inf luence 21,173 -

Sale of IsbanP:. Consolidated gain 713 -. Elimination of the individual gain (900) -. Gains in associates at the time of sale 105 -Correction of Mermul capital increase 414 (479)Application of IAS/IFRS:

Retirement pensions 8,007 1,079Hedging operations (115) 713Deferral of derivative commissions of BSNP 3,215 3,764Provisions for securities recorded in Tottaurbe that do not correspond to impairment (2,932) (427)Provisions for securities recorded in Taxagest that do not correspond to impairment - (2,271)

Elimination of the internal commissions by the issuance of preferred shares 264 313Elimination of accrued interest on commissions to be paid by Totta Crédito Especializado IFIC to BST (210) (495)Elimination of the equity by Santotta Internacional to Serf in 600 (309)Elimination of the US GAAP by BSTI, Puerto Rico 141 (144)Hipotottas:. Elimination of BST gains on the sale of issued Notes 2,235 350. Recognition of gain on repurchase by the Group of issued Notes 72,397 7,528. Recognition of accrued interest on the Notes w ith a higher degree of subordination 19,919 11,052. Elimination of the BST provision for the Subordinated Loans granted - 71. Write offs of securitized credits (3,064) (1,516). Increase of impairment and securitized credit commissions (61,041) -Other (530) (916)

112,479 (8,351)434,627 523,263


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30. MINORITY INTERESTS

Third party participation in Group’s companies, by entity, in 2010 and 2009 is as follows: 2010 2009 Balance Income Balance Income Sheet statement Sheet statement Preference shares BST Puerto Rico 269,421 - 249,896 - TAF (Preference shares) 300,000 - 300,000 - Special dividends ( 1,432 ) - ( 1,373 ) - Banco Caixa Geral Totta de Angola - 4,185 39,731 6,657 Other 2,812 524 2,954 652 ----------- ----------- ----------- ------- 570,801 4,709 591,208 7,309 ====== ====== ====== ====

On June 30, 2006 BST International Bank, Inc (BST Puerto Rico) issued 3,600 nonvoting preference shares of 100,000 USD each, fully subscribed for and paid up by Banco Santander. The Bank guarantees a dividend on these shares corresponding to an annual remuneration of 6.56% payable if and when declared by BST Puerto Rico’s directors, at the beginning of January of each year. 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.

On June 29, 2005 TAF issued 300,000 nonvoting preference shares of 1,000 Euros each, fully subscribed for and paid up by Banco Santander. The Bank guarantees a non cumulative dividend on these shares corresponding to annual remuneration of 4.12% payable if and when declared by TAF’s directors, at the beginning of January of each year. 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. Under this standard, 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.

As mentioned in Note 4, Banco Caixa Geral Totta de Angola has not been consolidated since the second semester of 2010, following the sell of 1% of Partang’s share capital to CGD. The income attributable to minority interests has been determined in the first semester of 2010.


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31. OFF BALANCE SHEET ITEMS As at December 31, 2010 and 2009, off balance sheet items are made up as follows: 2010 2009 Guarantees given and other contingent liabilities Guarantees and sureties 1,547,652 1,607,914 Open documentary credits 588,817 531,316 Other contingent liabilities 6 6 Assets pledged as guarantee Securities 216,914 303,000 Other assets pledged as guarantee 15,253 - -------------- ------------- 2,368,642 2,442,236 ======== ======== Commitments Credit lines Revocable 5,807,929 5,986,314 Irrevocable 1,982,317 2,240,834 Term deposit contracts 31,978 844 Deposit Guarantee Fund 53,656 53,256 Investor Indemnity System 3,254 2,480 Other irrevocable commitments 31,141 15,954 Other revocable commitments 35,206 38,092 -------------- ------------- 7,945,481 8,337,774 ======== ======== Responsibility for services rendered Custody and safekeeping 77,348,583 85,455,123 Amounts for collection 146,661 107,479 Assets managed by the institution Other values 4,670,138 5,727,776 Other - 768 ---------------- --------------- 89,217,489 91,291,146 ========= ========= Deposit Guarantee Fund

The Deposit Guarantee Fund was created in November 1994 in accordance with Decree Law no. 298/92, dated December 31, to guarantee customers’ deposits in accordance to 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 deposits, being amortised 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 2010 and 2009, as allowed by the Bank of Portugal, the Bank paid out 90% of the annual contribution to the Fund, in the amounts of tEuros 3,621 (Note 42), and accepted an irrevocable commitment to the Deposit Guarantee Fund to pay the remaining 10% of the respective annual contributions, if and when demanded to do so. The unpaid amount of the commitment totaled tEuros 53,656 as at December 31, 2010 (tEuros 53,256 as at December 31, 2009). The assets pledged in guarantee to the Bank of Portugal are recorded in off-balance sheet accounts at market value.


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Investor Indemnity System

The responsibilities to the Investor Indemnity System is not accounted for as a cost, through those responsibilities are covered by the acceptance of an irrevocable commitment to pay the indemnities, if required to do so. Part (50%) of the commitment is being guaranteed by a pledge of Portuguese Treasury Bonds. As at December 31, 2010, total commitment amounted to tEuros 3,254 (tEuros 2,480 as at December 31, 2009).

Assets pledged in guarantee as at December 31, 2010 and 2009 are as follows:

2010

Deposit Guarantee

Investor Indemnity

Settlement clearing

Fund System SPGT systems Total

Financial assets designated at fair value through profit or loss 62,175 4,739 - 15,253 82,167Loans and advances to customers - - 150,000 - 150,000

62,175 4,739 150,000 15,253 232,167

2009Deposit

GuaranteeInvestor

Indemnity Settlement

clearingFund System SPGT systems Total

Financial assets designated at fair value through profit or loss 26,768 5,104 - - 31,872Available-for-sale financial assets 36,478 - - 56,035 92,513Loans and advances to customers - - 178,615 - 178,615

63,246 5,104 178,615 56,035 303,000

Loans and advances to customers pledged as collateral of “Large Transactions Payment System” (SPGT) are made up of Notes issued by the Group resulting of securitized credit mortgages carried out also by the Group (Note 47). Within the consolidation process, those Notes are eliminated and the respective underlying credits are shown in the balance sheet.


149


32. INTEREST INCOME This caption is made up as follows: 2010 2009 Interest on cash and deposits At Central Banks At the Bank of Portugal 4,021 5,340 At foreign credit institutions 30 188 At credit institutions in Portugal 137 617 Interest on loans and advances to banks Banks in Portugal At the Bank of Portugal 305 305 At other credit institutions 12,630 14,835 At foreign credit institutions 38,941 35,014 Interest on loans to customers Domestic loans 549,832 641,633 Foreign loans 35,912 43,601 Other receivables (securitized – commercial paper) 45,894 55,891 Commissions and fees received relating to amortised cost 44,774 44,048 Interest on securitized assets not derecognised 243,423 430,216 Interest on overdue loans 4,373 5,221 Interest income on other financial assets Financial assets held for trading Securities 979 274 Derivatives - 2,379 Available-for-sale financial assets Securities 249,160 85,397 Other financial assets at fair value through profit or loss 4,210 4,210 Hedging derivatives 796,705 1,013,682 Debtors and other applications 147 117 Other interest 2,651 2,742 -------------- ------------- 2,034,124 2,385,710 ======== ========


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33. INTEREST EXPENSE This caption is made up as follows: 2010 2009

Interest on customers’ deposits Deposits of: Residents 166,292 230,756 Non residents 14,261 30,221 Other resources 4,610 5,304 ----------- ----------- 185,163 266,281 ----------- ----------- Interest on resources of Central Banks Bank of Portugal 42,589 21,604 Other Central Banks 32 57 Interest on resources of credit institutions Domestic 12,252 19,547 International financial organizations 4,089 6,952 Foreign 57,812 71,328 Interest on debt securities issued Bonds 98,596 136,828 Other bonds 67,035 14,729 Euro Commercial Paper 12,987 31,708 EMTN 79,889 82,076 Other debt securities issued 495 - Interest on subordinated liabilities 4,868 7,570 Interest on financial liabilities held for trading Derivatives instruments Swaps - 340,536 Other financial liabilities held for trading - 103 Interest on hedging derivatives Fair value hedge 513,533 406,990 Cash flow hedge 232,392 176,159 Commissions paid related to the amortised cost of credit 606 662 Other interest expense - 2,202

------------- ------------- 1,312,338 1,585,332 ======== ======= 34. INCOME FROM EQUITY INSTRUMENTS This caption refers to dividends received and is made up as follows: 2010 2009 Available-for-sale financial assets: Unicre 2,080 2,894 Banco BPI 1,093 1,004 Visa 6 2 SIBS 1,086 943 Imovest - 681 Other 189 115 ------- -------- 4,454 5,639 ==== =====


151


35. FEES AND COMMISSIONS INCOME This caption is made up as follows: 2010 2009 On guarantees given Guarantees and sureties 16,878 16,970 Open documentary credits 1,972 3,476 On irrevocable commitments to third parties 5,955 5,546 On services rendered Asset custody and safekeeping 21,863 21,020 Fund management 45,671 40,694 Card transactions 66,759 62,796 Annuities 14,285 14,880 Credit operations 55,880 54,600 Other services rendered 2,647 5,074 On operations carried out on behalf of third parties Securities 18,837 13,877 Other 704 873 Other fees and commissions received Insurance 111,194 108,844 Demand deposits 15,858 14,572 Cheques 15,136 16,926 Advisory 10,937 8,829 Other 2 13 ----------- ----------- 404,578 388,990 ====== ====== 36. FEES AND COMMISSIONS EXPENSE This caption is made up as follows: 2010 2009 On guarantees received Guarantees and sureties 1,357 1,581 On banking services rendered by third parties Custody, safekeeping and amounts for collections 6,499 6,762 Credit operations 12,629 10,628 Customer transactions 26,331 24,898 Other banking services 3,622 3,736 On operations carried out by third parties Securities 2,143 1,353 Other 2,352 2,561 Other fees and commissions paid 334 718 --------- --------- 55,267 52,237 ===== =====


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37. GAIN/(LOSS) FROM ASSETS AND LIABILITIES VALUED AT FAIR VALUE THROUGH PROFIT OR LOSS

This caption is made up as follows:

2010 2009Gains Losses Net Gains Losses Net

Financial assets held for trading: Debt instruments 672,454 (671,030) 1,424 19,982 (5,592) 14,390 Equity instruments 22,440 (17,646) 4,794 15,309 (11,724) 3,585 Derivative instruments: "Forwards" 100 (150) (50) 126 - 126 “Swaps” . Exchange rate contracts 44,582 (46,597) (2,015) 588,307 (587,617) 690 . Interest rate contracts 6,658,685 (6,754,450) (95,765) 4,107,979 (3,850,885) 257,094 . Index contracts 45,825 (61,674) (15,849) 193,763 (162,773) 30,990 . Others 192,442 (125,144) 67,298 98,037 (77,799) 20,238 Futures . Interest rate contracts - - - 8,263 (10,822) (2,559) . Index contracts - - - 886 (820) 66 . Others - - - - (9) (9) Options: . Exchange rate contracts 176,220 (173,541) 2,679 96,303 (96,942) (639) . Interest rate contracts - - - 2,404 (2,303) 101 . Index contracts 1,534,502 (1,501,588) 32,914 1,858,158 (2,131,157) (272,999) . Others 1,003,316 (1,031,764) (28,448) 1,030,404 (1,038,963) (8,559) Guaranted fixed interest rate contracts 2,506,227 (2,503,887) 2,340 801,186 (809,347) (8,161)

12,856,793 (12,887,471) (30,678) 8,821,107 (8,786,753) 34,354

Financial assets and liabilities designated at fair value through profit or loss . Equity Instruments 108,583 (101,660) 6,923 165,798 (152,107) 13,691 . Debt Instruments - (5,912) (5,912) - - -

108,583 (107,572) 1,011 165,798 (152,107) 13,691

Hedging derivatives: “Swaps” . Interest rate contracts 41,782 (71,947) (30,165) 6,676 (60,658) (53,982) . Index contracts 8,015 (46,972) (38,957) 82,109 (19,458) 62,651 Options

. "AutoCallable" 406,398 (393,272) 13,126 327,828 (335,496) (7,668) Value adjustment of hedged assets and liabilit 143,764 (79,267) 64,497 99,927 (96,408) 3,519

599,959 (591,458) 8,501 516,540 (512,020) 4,520Total assets and liabilities valued at fair value 13,565,335 (13,586,501) (21,166) 9,503,445 (9,450,880) 52,565


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38. GAIN/(LOSS) FROM AVAILABLE-FOR-SALE FINANCIAL ASSETS This caption is made up as follows:

2010 2009Gains Losses Net Gains Losses Net

Debt instrumentsIssued by residents

Domestic public debt 9 (19,524) (19,515) - - -Other domestic issuers - - - 21 (83) (62)

Issued by non residentsForeign public issuers 2,493 (656) 1,837 9,166 (2,796) 6,370Other foreign issuers - (211,452) (211,452) - - -

Equity instrumentsValued at fair value 21,201 (1,015) 20,186 260 - 260Valued at historical cost 4,650 - 4,650 17 - 17Other - (11,104) (11,104) - (7) (7)

28,353 (243,751) (215,398) 9,464 (2,886) 6,578

In 2010, the caption "Debt instruments – International financial organizations" refers to the loss resulting from the sale of bonds issued in securitization transactions of the Santander Group (Note 9). The bonds were sold off by Totta Ireland in October 2010 to a company of the Santander Group by tEuros 952,254.

In 2010, the caption “Equity Instruments – Valued at historical cost” includes the gain resulting from the revaluation of the stake in Unicre in the amount of tEuros 21,201 (Note 15).

39. GAIN/(LOSS) FROM EXCHANGE REVALUATION This caption is made up as follows: 2010 2009 Gains on revaluation of the exchange position 45,361 41,468 Losses on revaluation of the exchange position: . Sale of Partang and Banco Caixa Geral Totta de Angola (Note 4) ( 1,982 ) ( 2,184 ) . Dividends of Banco Caixa Geral Totta de Angola ( 503 ) - . Others ( 31,938 ) ( 20,061 ) --------- --------- 10,938 19,223 ===== =====


154


40. GAIN/(LOSS) FROM OTHER ASSETS This caption is made up as follows: 2010 2009 Gains on the Banco Caixa Geral Totta de Angola sale (Note 4) 56,027 30,280 Gains on the sale of customers loans (Note 11) 78 5,037 Gains on the sale of non-current assets held for trading 1,333 1,047 Gains on other tangible assets 1,186 1,179 Gains on assets backing insurance liabilities 74 157 Gains on the repurchase by the Group of bonds issued resulting from securitized mortgage operations 305,879 10,257 Gains on the sale of ISBAN PT 713 - Other gains on financial operations 22 388 ---------- --------- 365,312 48,345 ---------- --------- Losses on the sale of loans to customers (Note 11) - ( 759 ) Losses on other tangible assets ( 137 ) ( 244 ) Losses on assets backing insurance liabilities ( 8 ) ( 284 ) Losses on the sale of non-current assets held for trading ( 1,410 ) ( 664 ) Gains on the repurchase of Hipotottas Notes ( 214 ) - Other losses on financial operations ( 2,029 ) ( 3,122 ) --------- --------- ( 3,798 ) ( 5,073 ) ----------- --------- 361,514 43,272 ====== ===== The caption "Gains in the repurchase of Hipotottas Notes" includes gains of tEuros 282,069 and

losses of tEuros 214, resulting from the repurchase of notes to Santander Group entities. 41. INSURANCE BUSINESS GROSS MARGIN Gross margin of the insurance business is as follows: 2010 2009 Gross written premiums, net of ceded reinsurance 95,832 66,742 Cost of claims, net of ceded reinsurance ( 46,391 ) ( 52,543 ) Change in technical provisions, net of ceded reinsurance ( 47,011 ) ( 24,015 ) Commissions and profit sharing of ceded reinsurance 12,743 21,375 Interest income and investment return on assets backing technical liabilities 13,005 12,493 Interest net of expenses on insurance liabilities 187 ( 532 ) Net capital gains on assets backing technical liabilities 1,254 1,165 Charges for services and commissions relating to technical liabilities ( 814 ) ( 802 ) --------- ---------

28,805 23,883 ===== ===== Insurance business gross margin where the risk is beared by the policyholders 9,493 11,657 ==== ===== The technical provisions include liabilities for insurance contracts and financial liabilities for investment

contracts with discretionary profit sharing.


155


The liabilities for investment contracts without discretionary profit sharing are not considered in the calculation of the gross margin of the insurance business.

The caption “Gross written premiums, net of ceded reinsurance” is made up as follows: 2010 2009 Retirement and Education Savings Plan (PPR/E) 57,106 42,009 Term life Individual/Group products 59,899 57,772 Traditional products 807 999 Insurance of deferred capital 4,422 - Personal accidents (non-life insurance) 1,272 1,101 Other products 5 - ----------- ----------- 123,511 101,881 Ceded reinsurance ( 27,679 ) ( 35,139 ) --------- ---------- 95,832 66,742 ===== ===== As at December 31, 2010 and 2009, the caption “Cost of claims, net of ceded reinsurance” is made up

as follows: 2010 Change Claims in the provision paid for claims Total “PPR/E Maxinveste” 3,797 ( 35 ) 3,762 “PPR/E Garantido” 23,042 266 23,308 “Plano Génesis” 1,719 ( 4 ) 1,715 Term life Individual/Group products 21,030 2,210 23,240 Other products 1,400 277 1,677 --------- -------- ---------- 50,988 2,714 53,702 --------- -------- --------- Ceded reinsurance ( 7,758 ) 447 ( 7,311 ) --------- ------- ---------- 43,230 3,161 46,391 ===== ==== ===== 2009 Change Claims in the provision paid for claims Total “PPR/E Maxinveste” 4,450 ( 49 ) 4,401 “PPR/E Garantido” 34,564 ( 1,563 ) 33,001 “Plano Génesis” 2,382 ( 68 ) 2,314 Term life Individual/Group products 17,894 1,925 19,819 Other products 658 ( 39 ) 619 --------- ------ ---------- 59,948 206 60,154 --------- ----- --------- Ceded reinsurance ( 7,737 ) 126 ( 7,611 ) --------- ----- -------- 52,211 332 52,543 ===== === =====


156


In 2010 and 2009, the caption “Change in technical provisions, net of ceded reinsurance” is made up as follows:

Change in the provisions for unearned premiums and unchanged tariffs Provision for unearned premiums and unchanged tariffs, net of ceded reinsurance, as at December 31, 2008 25,517 --------- Change in the provision for unearned premiums, net of ceded reinsurance in 2009 7,581 Change in deferred acquisition costs ( 1,027 ) Change in provision for unchanged tariffs 1,000 ---------- Provision for unearned premiums and unchanged tariffs, net of ceded reinsurance, as at December 31, 2009 (Note 17) 33,071 --------- Change in the provision for unearned premiums, net of ceded reinsurance in 2010 5,598 Change in deferred acquisition costs ( 1,338 ) Change in provision for unchanged tariffs 600 ---------- Provision for unearned premiums and unchanged tariffs, net of ceded reinsurance, as at December 31, 2010 (Note 17) 37,931 ===== Change in the mathematical provision and in the provision for interest rate deficiency Mathematical provision and provision for interest rate deficiency, net of ceded reinsurance as at December 31, 2008 294,240 ----------- Change in mathematical provision net of reinsurance in 2009 14,224 Change in the provision for interest rate deficiency in 2009 1,867 Others ( 1,317 ) ----------- Mathematical provision and provision for interest rate deficiency, net of ceded reinsurance as at December 31, 2009 (Note 17) 309,014 ----------- Change in mathematical provision net of reinsurance in 2010 44,042 Change in the provision for interest rate deficiency in 2010 ( 1,867 ) Accruals for distribution of profit sharing 51 ----------- Mathematical provision and provision for interest rate deficiency, net of ceded reinsurance as at December 31, 2010 (Note 17) 351,240 ======


157


Change in the provision for profit sharing Provision for profit sharing as at December 31, 2008 686 ----- Profit sharing paid out ( 19 ) Profit sharing in 2009 370 ------ Provision for profit sharing as at December 31, 2009 (Note 17) 1,037 ------ Profit sharing paid out ( 188 ) Transfer to mathematical provision ( 51 ) Profit sharing in 2010 ( 24 ) ----- Provision for profit sharing as at December 31, 2010 (Note 17) 774 === Change in the shadow reserve Shadow reserve as at December 31, 2008 4,241 -------- Change in equity in 2009 4,241 -------- Shadow reserve as at December 31, 2009 (Note 17) 8,482 ------- Change in equity in 2010 (Note 28) ( 4,941 ) ------- Shadow reserve as at December 31, 2010 (Note 17) 3,541 ==== 42. OTHER OPERATING INCOME (NET) This caption is made up as follows: 2010 2009 Other operating income Rents with operating leases 144 149 Reimbursement of expenses 5,519 5,855 Income from sundry services rendered 5,879 5,691 Other 19,989 21,367 --------- --------- 31,531 33,062 --------- -------- Other operating expenses Levies and donations ( 3,183 ) ( 2,477 ) Contributions to the Deposit Guarantee Fund (Note 31) ( 3,621 ) ( 3,621 ) Other operating expenses ( 27,210 ) ( 26,755 ) Other taxes Direct ( 1,933 ) ( 1,401 ) Indirect ( 1,664 ) ( 1,517 ) --------- --------- ( 37,611 ) ( 35,771 ) --------- -------- ( 6,080 ) ( 2,709 ) ===== ====


158


43. PERSONNEL COSTS This caption is made up as follows: 2010 2009 Salaries and wages Management and supervisory boards (Note 48) 8,294 7,262 Employees 227,255 234,568 ----------- ----------- 235,549 241,830 ----------- ----------- Mandatory social charges Charges on salaries and wages 38,601 38,645 Charges on pensions and other benefits (Note 46) 10,392 17,494 Pensions paid - 188 Contributions to pension fund with a defined contribution plan 152 120 Early retirements (Note 46) 3,539 3,159 Amortization of the actuarial gains and losses fallen outside corridor limits (Note 46) 5,168 5,654 Other mandatory social charges 1,997 1,845 --------- --------- 59,849 67,105 --------- --------- Other personnel costs Early retirement indemnities (Note 46) 1,283 697 Personnel transfers 675 630 Complementary retirement plan (Note 46) 4,430 - Other 6,727 6,672 --------- ------- 13,115 7,999 ----------- ----------- 308,325 316,934 ====== ====== 44. OTHER ADMINISTRATIVE EXPENSES This caption is made up as follows: 2010 2009 External supplies: Water, energy and fuel 8,071 7,875 Current consumable material 3,141 3,330 Other external supplies 441 506 External services: Specialized services 46,082 46,423 Maintenance of electronic equipment 35,741 35,796 Communications 17,458 19,545 Marketing and publications 14,556 15,639 Rentals and leases 11,986 12,598 Travel, lodging and representation expenses 7,212 6,627 Maintenance and repairs 3,309 4,916 Transportation 2,356 2,366 Professional training 2,444 2,674 Insurance 744 844 Other external services 5,200 6,341 ----------- ---------- 158,741 165,480 ====== ======


159


45. NET INCOME OF ASSOCIATES This caption is made up as follows: 2010 2009 Banco Caixa Geral Totta de Angola 3,476 - Unicre - Instituição Financeira de Crédito, S.A. 1,240 - Benim - Sociedade Imobiliária, S.A. ( 149 ) ( 167 ) Partang, SGPS, S.A. ( 19 ) - ISBAN PT - Engenheria e Software Bancário, S.A. 105 64 -------- ----- 4,653 ( 103 ) ==== === 46. EMPLOYEES’ POST EMPLOYMENT BENEFITS For purposes of determining BST’s past service liability relating to active and retired employees,

actuarial calculations were made in 2010 and 2009 by Towers Watson International Limited, Portugal Branch (ex-Watson Wyatt). 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 at December 31, 2010 and 2009: 2010 2009 Mortality table TV 88/90 TV 88/90 Pension fund return rate 5.50% 5.50% Actuarial technical rate (discount rate) 5.25% 5.25% Salary growth rate 3.20% 3.20% Pension growth rate 1.75% 1.75% Inflation rate 1.75% 1.75%

The same assumptions used to calculate the liability as at December 31, 2010 were used in determining the pensions cost for 2011.

The basis for the expected rate of return on the Pension Fund’s assets is the estimated return of the Fund’s portfolio as at December 31, 2010 made by the appointed actuaries.

The discount rate used is determined by reference to market yields on high quality corporate bonds, denominated in Euro and with similar maturity to the obligations arising from the Plan.

More specifically, amongst other sources, the return rates of a sample of private companies bonds in Euros with rating Aa- (credit risk rating, based on four rating agencies - Moody's, Standard & Poor's, Fitch and Dominion Bond Rating Service). This information was taken from Bloomberg.


160


The liability for retirement pensions, healthcare and death subsidy as at December 31, 2010 and in the four previous years, as well as the respective coverage are as follows:

2010 2009 2008 2007 2006

Estimated past service liability:- Pensions

. Serving employees 275,580 255,009 231,114 241,071 223,396

. Pensioners 36,406 34,692 34,895 35,054 31,698

. Retired and early retired personnel 855,952 896,251 973,904 1,045,467 1,028,9121,167,938 1,185,952 1,239,913 1,321,592 1,284,006

- Healthcare (SAMS) 127,822 127,877 132,522 139,806 140,619- Death subsidy 18,184 17,728 17,994 18,767 19,189

1,313,944 1,331,557 1,390,429 1,480,165 1,443,814

Funding of the liability:- Pension Fund's net asset value 1,312,888 1,395,849 1,391,585 1,486,078 1,446,847

Surplus/(deficit) (1,056) 64,292 1,156 5,913 3,033

Actuarial and financial deviations- Change in the assumptions - (51,086) (100,674) (54,502) -- Experience adjustments:. Other actuarial (Gains) / Losses (29,458) (21,172) (4,100) 76,028 17,144. Financial (Gains) / Losses 103,392 61,639 306,680 4,221 (32,174)

73,934 40,467 302,580 80,249 (15,030)73,934 (10,619) 201,906 25,747 (15,030)

The liability for healthcare with a variation of 1% in the contribution rate as at December 31, 2010 and 2009 is as follows:

2010 2009

Contribution rate Contribution rate Contribution rate Contribution rateNumber -1% + 1% Number -1% + 1%

Serving employees (Defined Benefit Plan) 5,431 25,930 35,630 5,448 23,760 32,400Serving employees (Defined Contribution Plan) 175 24 32 100 6 8Pensioners 912 4,165 5,679 879 4,006 5,462Retired and early retired personnel 5,381 78,038 106,416 5,430 80,432 109,680

11,899 108,157 147,757 11,857 108,204 147,550

The changes in the past service liability for the years ended December 31, 2010 and 2009 are as follows, regarding the Bank’s pension plan:

2010 2009 Liability at the beginning of the period 1,331,557 1,390,429 Current service cost 15,389 14,455 Interest cost 68,280 74,207 Actuarial loss/(gain) ( 29,458 ) ( 72,258 ) Early retirement 3,539 3,159 Amounts paid ( 78,567 ) ( 80,946 ) Employees’ contributions 2,426 2,511 Accrued liabilities (former BSN) 778 - ------------- ------------- Liability at the end of the period 1,313,944 1,331,557 ======= =======


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The pensions costs for the year includes current service cost and interest cost, deducted from the estimated return on the Fund’s assets. Pensions costs for 2010 and 2009 is made up as follows and were recorded under the item "Personnel costs” (Note 43):

2010 2009 Current service cost 15,389 14,455 Interest cost 68,280 74,207 Estimated return on the Fund’s assets ( 74,572 ) ( 74,337 ) ------- -------- Cost for the year – Defined benefits plan 9,097 14,325 Cost for the year – Defined contribution plan 32 9 Cost for the year – London branch plan 485 3,160 Cost for the year – Accrued liabilities with BSN 778 - --------- --------- 10,392 17,494 ===== ===== The change in value fluctuations in 2009 and 2010 is made up as follows: Value fluctuation as at December 31, 2008 281,304 ----------- . Actuarial gains on pensions generated in 2009 ( 64,152 ) . Financial losses on pensions generated in 2009 54,934 . Actuarial gains with healthcare benefits and death subsidy in 2009 ( 8,106 ) . Financial losses with healthcare benefits and death subsidy in 2009 6,705 . Amortization of the actuarial gains and losses fallen outside corridor limits (Note 43) ( 5,654 ) ----------- Value fluctuation as at December 31, 2009 265,031 ----------- . Actuarial gains on pensions generated in 2010 ( 26,243 ) . Financial losses on pensions generated in 2010 92,075 . Actuarial gains with healthcare benefits and death subsidy in 2010 ( 3,215 ) . Financial losses with healthcare benefits and death subsidy in 2010 11,317 . Amortization of the actuarial gains and losses fallen outside corridor limits (Note 43) ( 5,168 ) ---------- Value fluctuation as at December 31, 2010 333,797 ======


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The balance sheet amount relating to the pension plan as at December 31, 2010 and 2009 is made up as follows (Note 18):

2010 2009 Value fluctuation 333,797 265,031 Excess amount funded (surplus) ( 1,056 ) 64,292 ----------- --------- 332,741 329,323 ----------- --------- Value fluctuation – London branch pension fund ( 357 ) ( 240 ) ----------- ---------- 332,384 329,083 ====== ====== The actuarial deviation with pensions in 2010 and 2009 is due to the following: 2010 2009 Change of actuarial assumptions - ( 44,621 ) Change of the salary table in 2010/2009 with impact in pensions and salaries ( 18,601 ) (13,748 ) Change in the population ( 735 ) ( 175 ) Mortality deviations . By exits ( 9,721 ) ( 8,270 ) . By maintenance 6,947 6,555 Transfer from early retirements to retirements ( 4,133 ) ( 3,893 ) ----------- --------- ( 26,243 ) ( 64,152 ) ====== =====

In 2009, the changes of actuarial assumptions include the effect of the discount rate decrease of 5.5% to 5.25% and the changes in the pension’s growth and inflation rates of 2.5% to 1.75% and 2% to 1.75%, respectively.

The actuarial deviations with healthcare and death subsidy in 2010 and 2009 are due to the following:

2010 2009 Change in discount rate - ( 6,465 ) Change in the salary table ( 2,481 ) ( 1,353 ) Others ( 734 ) ( 288 ) -------- -------- ( 3,215 ) ( 8,106 ) ==== ====

The increase in the liability for early retirements in 2010 and 2009 regarding 20 and 12 employees, in the amount of tEuros 3,539 and tEuros 3,159, respectively, and indemnities paid for retirement, in the amount of tEuros 1,283 and tEuros 697, respectively, were recorded against income statement (Note 43).

The actual increase of salaries in 2010 and 2009 for purposes of Social Security contributions regarding the employees of the former Totta was 5.8% and 3.5%, respectively.

The actual increase of the pensions and wages in 2010 and 2009 was 1% and 1.5%, respectively.


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As at December 31, 2010 and 2009, Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. managed BST’s Pension Fund. As at those dates, the number of participants in the Fund were as follows:

2010 2009 Serving employees (1) 5,606 5,548 Pensioners 912 879 Retired and early retired personnel 5,381 5,430 -------- --------- 11,899 11,857 ===== =====

(1) From which 175 and 100 employees belong to the new contribution plan, as at December 31, 2010 and 2009, respectively.

The main demographic changes in 2010 and 2009 are as follows:

Retired andServing early retired

employees personnel Pensioners

Total number as at December 31, 2008 5,583 5,479 842

Exits:. Of serving employees (116) - -. Mortality (6) (72) (23). Others - - (8)Transfers (15) 15 -Entries 102 8 68


Exits:. Of serving employees (110) - -. Mortality - (80) (21). Others - - (12)Transfers (21) 21 -Entries of BSN employees 84 - -Entries 105 10 66



164


The changes in the Pension Fund’s net asset value in 2009 and 2010 were as follows: Net asset value as at December 31, 2008 1,391,585 ------------- Contributions by the Bank (in cash) 70,000 Contributions by the employees 2,511 Net investment return 12,699 Benefits paid ( 80,946 ) ------------- Net asset value as at December 31, 2009 1,395,849 ------------- Contributions by the Bank (in cash) 22,000 Contributions by the employees 2,426 Net investment return ( 28,820 ) Benefits paid ( 78,567 ) ------------- Net asset value as at December 31, 2010 1,312,888 ======== The net investment return yields of the Pension Fund in 2010 and 2009 were -2.1% and 0.9%,

respectively. The portfolio of the BST’s pension fund as at December 31, 2010 and 2009 had the following asset

mix: 2010 2009 Debt instruments 632,370 800,575 Real estate mutual funds 229,267 238,881 Securities mutual funds 130,708 76,017 Equities 2,221 9,277 Properties 88,155 88,273 Deposits 223,664 180,638 Other assets 6,502 1,856 ------------- ------------- 1,312,888 1,395,849 ======== =======

The portfolio of the pension fund as at December 31, 2010 and 2009 included the following Group assets:

2010 2009 Rented properties 23,839 23,799 Securities (including participation units in mutual funds under management) 209,548 247,382 ----------- ------------ 233,387 271,181 ====== ====== An insurance policy has been underwrote during 2010 to back the responsibilities arising from a new

complementary defined contribution plan for the Bank’s directors in the amount of tEuros 4,430 (Note 43).


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Defined benefit pensions plan – London branch

As at December 31, 2010 and 2009, the main assumptions used to calculate the liability for retirement pensions regarding the London Branch’s employees are as follows:

2010 2009 Mortality table AM92/AF92 AM92/AF92 Pension fund return rate 5.50% 6.20% Actuarial technical rate (discount rate) 5.70% 5.70% Salary growth rate 3.50% 4.70% Pension growth rate 3.20% 3.50% Inflation rate 3.50% 3.70% As at December 31, 2010 and 2009, the liability arising from the London Branch defined benefit

pension plan and the respective funding are as follows: 2010 2009 Estimated past service liability 25,003 24,012 Funding of the liability – Pension Fund’s net asset value 23,112 21,457 ------- --------- Amount not funded (deficit) – London Branch ( 1,891 ) ( 2,555 ) ==== ==== Regarding the London branch pension plan, the changes in the past service liability specific for the

years ended December 31, 2010 and 2009 are as follows: Liability as at December 31, 2008 19,510 ---------- Current service cost 185 Interest cost 1,231 Actuarial loss 3,630 Amounts paid ( 544 ) --------- Liability as at December 31, 2009 24,012 -------- Current service cost 239 Interest cost 1,395 Actuarial gain ( 817 ) Amounts paid ( 589 ) Exchange fluctuations 763 --------- Liability as at December 31, 2010 25,003 =====


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The change in the Pension Fund of the London branch for 2009 and 2010 was as follows: Net asset value as at December 31, 2008 16,697 Net investment return 2,343 Contributions by the Bank 2,772 Contributions by the employees 189 Benefits paid ( 544 ) ---------- Net asset value as at December 31, 2009 21,457 ---------- Net investment return 1,378 Contributions by the Bank 184 Benefits paid ( 589 ) Exchange fluctuations 682 --------- Net asset value as at December 31, 2010 23,112 ====== The cost in 2010 and 2009 for the London Branch breakdown as follows: 2010 2009 Contributions by the Bank – Fund financing 184 2,772 Current service cost 239 185 Interest cost 1,395 1,231 Estimated income ( 1,333 ) ( 1,028 ) ----- --------- 485 3,160 === ===== The change in value fluctuations as at December 31, 2010 and 2009 is made up as follows: 2010 2009 Actuarial loss on pensions in 2009 3,630 3,630 Actuarial gain on pensions in 2009 ( 1,315 ) ( 1,315 ) Actuarial loss on pensions in 2010 ( 817 ) - Actuarial gain on pensions in 2010 ( 45 ) - Exchange fluctuation 81 - Amount not funded ( 1,891 ) ( 2,555 ) ------- ------ Value fluctuation ( 357 ) ( 240 ) === ===


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The portfolio of the London Branch pension fund as at December 31, 2010 and 2009 has the following assets mix:

2010 2009 Debt instruments 19,254 11,073 Equity instruments 3,758 9,399 Deposits 100 985 --------- --------- Fund’s value 23,112 21,457 ===== ===== For purposes of determining Santander Totta Seguros’ past service liability relating to serving

employees included in Santander Totta’s pension fund (Note 1.3 k)), actuarial calculations were made by Towers Watson International Limited, Portugal Branch. The present value of the past service liability as at December 31, 2010 and 2009 was tEuros 200 and tEuros 183, respectively. As at those dates, the value of the pension fund was tEuros 205 and tEuros 188, respectively.

47. SECURITIZATION OPERATIONS

Description of the operations Between July 2003 and August 2009, BST sold part of its mortgage loans portfolios, through ten

operations, with a total initial amount of tEuros 19,950,000. The loans were sold at their nominal value (book value) to Hipototta FTC Funds.

In April 2009, Totta – Crédito Especializado, Instituição Financeira de Crédito, S.A. (Totta IFIC) sold part of its portfolio of leasing and long-term rental, through an operation with a total initial amount of tEuros 1,300,000. The loans were sold at nominal value (book value) to LeaseTotta FTC No. 1.

To finance the operation, LeaseTotta No. 1 FTC issued participating units in the same amount of the loan portfolio purchased, which were fully subscribed by LeaseTotta No. 1 Limited, a special purpose entity based in Ireland.

The Fund LeaseTotta FTC No. 1 pays all the amounts received from Totta IFIC to LeaseTotta No.1 Limited, segregating the instalments between principal and interest.

In October 2009, the BST liquidated Hipototta No. 9 which was created under the securitization

operation of November 2008 by an initial credit amount of tEuros 1,550,000. The referred liquidation occurred after a “Mortgage Retransfer Agreement”, on which the Bank repurchased the securitized credits by an amount of tEuros 1,462,000.

The funds Hipototta and LeaseTotta No. 1 FTC 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 securitized mortgage contracts, transferring all the amounts received under the loan contracts to the Hipototta FTC Funds. Totta IFIC continues to manage the securitized lease and long-term rentals contracts, transferring all the amounts received under the loan contracts to the LeaseTotta No. 1 FTC Fund.

In July 2010, BST has carried out a securitization of part of its mortgage loans portfolio, named Hipototta No. 11, by an initial amount of tEuros 2,000,000. The credits were sold at nominal (book) value to Tagus – Sociedade de Titularização de Créditos, S.A. (Tagus). BST continues to manage those mortgage loans, transferring all amounts received under the loan contracts to Tagus.

To finance these operations, the Hipototta and LeaseTotta No. 1 FTC Funds and Tagus have issued participating units in the same amount of the loan portfolio purchased, which were fully subscribed by Hipototta PLC/Ltd. and LeaseTotta Ltd., all based in Ireland, and by BST, respectively.


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The Hipottota FTC Funds pays 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. The LeaseTotta No.1 FTC Fund pays all amounts received from Totta IFIC to the LeaseTotta No.1 Limited, segregating the instalments between principal and interest.

To finance these operations, the Hipottota PLC/Ltd and the LeaseTotta No.1 Ltd. and Tagus have issued notes with different levels of subordination and rating and, consequently, of return. The major characteristics of these notes are as follows:

Hipottta No. 1 PLC

ReturnRating Redemption Early Up to early After early

Subordination Inception Actual S&P Moody's date redemption date redemption date redemption date

Class A 1,053,200 247,612 AAA Aaa November 2034 August 2012 Euribor 3 m + 0.27% Euribor 3 m + 0.54%

Class B 32,500 15,966 A+ A1 November 2034 August 2012 Euribor 3 m + 0.65% Euribor 3 m + 0.95%

Class C 14,300 7,036 BBB+ Baa1 November 2034 August 2012 Euribor 3 m + 1.45% Euribor 3 m + 1.65%1,100,000 270,614

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

1,117,600 281,614

Outstanding

Hipottta No. 2 PLCReturn

Rating Redemption Early Up to early After earlySubordination Inception Actual S&P Moody's date redemption date redemption date redemption date

Class A 2,557,200 825,711 AAA AAA September 2036 December 2012 Euribor 3 m + 0.22% Euribor 3 m + 0.44%

Class B 39,800 27,473 AA+ AA+ September 2036 December 2012 Euribor 3 m + 0.5% Euribor 3 m + 1%

Class C 53,000 36,630 A A September 2036 December 2012 Euribor 3 m + 0.65% Euribor 3 m + 1.30%2,650,000 889,814

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

2,668,550 908,364

Outstanding

Hipottta No. 3 PLC

Redemption Early Up to early After earlySubordination Inception Actual Rating Fitch date redemption date redemption date redemption date

Class A 3,206,200 1,386,866 AAA December 2047 December 2013 Euribor 3 m + 0.13% Euribor 3 m + 0.26%

Class B 122,400 112,702 AA December 2047 December 2013 Euribor 3 m + 0.23% Euribor 3 m + 0.46%

Class C 71,400 65,743 A December 2047 December 2013 Euribor 3 m + 0.33% Euribor 3 m + 0.66%3,400,000 1,565,311

Class D 17,000 17,000 December 2047 December 2013 Residual income of the securitized portfolio

3,417,000 1,582,311

OutstandingReturn


Redemption Early Up to early After earlySubordination Inception Actual Rating Fitch date redemption date redemption date redemption date

Class A 2,616,040 1,256,344 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 1,440,304

Class D 14,000 14,000 December 2048 December 2014 Residual income of the securitized portfolio

2,814,000 1,454,304

Outstanding


Rating Redemption Early Up to early After earlySubordination Inception Actual S&P Moody's date redemption date redemption date redemption date

Class A1 200,000 - AAA Aaa February 2060 February 2014 Euribor 3 m + 0.05% Euribor 3 m + 0.10%Class A2 1,693,000 1,136,262 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 1,243,262

Class F 10,000 10,000 CCC- Ca February 2060 February 2014 Residual income of the securitized portfolio2,010,000 1,253,262

Outstanding


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Hipototta No. 7 Ltd

Rating RedemptionSubordination Inception Actual S&P Moody's date Return

Class A1 200,000 - AAA Aaa February 2061 Euribor 3 m + 0.20%Class A2 1,596,000 1,412,425 AAA Aaa February 2061 Euribor 3 m + 0.30%

Class B 60,000 60,000 AA Aa2 February 2061 Euribor 3 m + 0.60%

Class C 50,000 50,000 A A2 February 2061 Euribor 3 m + 1.2%

Class D 44,000 44,000 BBB Baa2 February 2061 Euribor 3 m + 2.75%

Class E 50,000 50,000 BB B1 February 2061 Euribor 3 m + 4.75%2,000,000 1,616,425

Class F 20,000 20,000 CCC- Ca February 2061 Residual income of the securitized portfolio2,020,000 1,636,425

Outstanding

Hipototta No. 8 Ltd

Rating RedemptionSubordination Inception Actual Moody's date Return

Class A1 125,000 - Aaa July 2061 Euribor 3 m + 0.20%

Class A2 1,021,900 909,449 Aaa July 2061 Euribor 3 m + 0.30%

Class B 40,600 40,600 Aa3 July 2061 Euribor 3 m + 0.60%

Class C 25,000 25,000 A2 July 2061 Euribor 3 m + 1.2%

Class D 12,500 12,500 Baa2 July 2061 Euribor 3 m + 2.75%

Class E 25,000 25,000 Ba2 July 2061 Euribor 3 m + 4.75%1,250,000 1,012,549

Class F 22,550 22,550 Ca July 2061 Residual income of the securitized portfolio1,272,550 1,035,099

Outstanding

Hipototta No. 10 Ltd


Class A 927,500 733,370 Aaa 2062 Euribor 3 m + 0.20%

Class B 20,000 20,000 Aa3 2062 Euribor 3 m + 0.60%

Class C 20,000 20,000 A3 2062 Euribor 3 m + 1.20%

Class D 20,000 20,000 Ba1 2062 Euribor 3 m + 2.75%

Class E 12,500 12,500 B1 2062 Euribor 3 m + 4.75%1,000,000 805,870

Class F 20,000 20,000 2062 Residual income of the securitized portfolio1,020,000 825,870

Outstanding

Hipototta No. 11 Ltd


Class A 1,760,000 1,646,835 AAA 2063 Euribor 3 m + 0.20%

Class B 240,000 240,000 BBB+ 2063 Euribor 3 m + 0.60%

2,000,000 1,886,835

Class C 40,000 40,000 2063 Residual income of the securitized portfolio2,040,000 1,926,835

Outstanding


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LeaseTotta No. 1 Ltd

Rating RedemptionSubordination Inception Actual S&P date Return

Class A 1,040,000 1,040,000 AAA January 2042 Euribor 3 m + 0.30%

Class B 260,000 260,000 - January 2042 Euribor 3 m + 4.75%

1,300,000 1,300,000

Class C 65,000 65,000 - January 2042 Residual income of the securitized portfolio1,365,000 1,365,000

Outstanding

The notes issued by Hipototta PLC No. 1, Hipototta PLC No. 2, Hipototta PLC No. 3, Hipototta PLC No. 4 and Hipototta PLC No. 10 bear interest payable quarterly on March 30, June 30, September 30 and December 30 of each year. The notes issued by Hipototta PLC No. 5 and Hipototta Ltd No. 7 bear interest payable quarterly on February 28, May 30, August 30 and November 30 of each year. The notes issued by Hipototta Ltd No. 8 and Hipototta No. 11 bear interest payable quarterly on January 30, April 30, July 30 and Outober 30 of each year.

Outstanding balances (nominal value) of the notes issued by LeaseTotta No. 1 Limited will not be repaid until October 2010. Until that date, the amortization of securitized loans will be used to buy new credits up to the initial nominal value (mEuros 1,300). Classes A and B bear interest payable quarterly on January 15, April 15, July 15 and October 15 of each year.

BST and Totta IFIC have the option to redeem the notes early on the above mentioned dates. For all Hipotottas and LeaseTotta, BST and Totta IFIC have 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, Hipototta Ltd No. 6, Hipototta Ltd No. 7, Hipototta Ltd No. 8 and Hipototta Ltd No. 10, 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 Hipotottas, the Class F notes for Hipottota No. 5, Hipottota No. 7, Hipottota No. 8 and Hipottota No. 10 and the Class C notes for the Hipototta No. 11 are the latest liabilities to be paid by Hipototta PLC/Ltd. The Class C notes are the latest liabilities to be paid by LeaseTotta No. 1 Limited.

The return of those notes corresponds to the difference between the income generated by the securitized loan portfolio and the sum of all costs 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 Totta IFIC, and management fee, charged by the Hipototta FTC funds and by LeaseTotta No. 1 FTC);

- Interest on the other classes of the notes; and - Impairment losses.

When the securitization operations were launched, the estimated 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 corresponded to an average annual rates of 1.1%, 1%, 1.1% and 0.9%, respectively. For the Class F notes of the Hipototta PLC No. 5 and Hipototta Ltd No. 6 corresponded to an annual average rate of 0.9% on the total credit portfolio. For the Class F of Hipototta PLC No. 7, 8, and 10 and the Class C of Hipototta No. 11 corresponded to an annual average rate of 0.7% on each of the loan portfolios.

The Group holds the majority of the bonds issued in securitization transactions. The bonds held by other entities in the amount of tEuros 1,892,604 are recorded under "Debt securities issued" and are detailed in Appendix I.


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BST has entered into an instruments to provide liquidity to the LeaseTotta No. 1 Ltd., backing at the same time such instruments with Totta IFIC.

On the dates when the securitization operations were established, subordinated loans contracts have

been signed between BST and Hipotottas, corresponding to liquidity facilities/credit lines in the eventuality of Hipotottas need of liquidity. Swap agreements have also been established between Santander Group and the first six Hipotottas and between BST and the remaining Hipotottas to hedge interest rate risk.

Accounting recognition

In compliance with IAS 27 and SIC 12, the Hipototta FTC Funds and LeaseTotta No. 1 FTC and the

Hipototta PLC/Ltd and LeaseTotta No. 1 Limited are within the consolidation scope (Note 4), as the Bank and Totta IFIC substantially retains the risks and rewards regarding the operations of these entities. Consequently, the securitized mortgage loans were reflected in the balance sheet and the bonds issued by the Hipototta PLC/Ltd and LeaseTotta No. 1 Limited, which are held by the Group, were eliminated in the consolidation process.


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48. RELATED PARTIES

ST SGPS and the Group entities have the following related entities with which they have balances or had transactions in 2010 and 2009:

Related entities Head office participation

Entities that directly or indirectly control the Group

Banco Santander, S.A. SpainSantusa Holding SL Spain

Entities under direct or indirect control by the Group

Banco Santander Totta, S.A. PortugalTotta & Açores Financing Cayman IslandsSerfin International Bank & Trust Cayman IslandsTotta & Açores, Inc. - New ark USATotta Ireland, PLC IrelandSantotta Internacional - SGPS PortugalTottaurbe - Emp. Administração e Construções, S.A. PortugalTotta Crédito Especializado, IFIC, S.A PortugalSantander Asset Management, SGFIM, S.A. PortugalSantander Gestão de Activos SGPS, S.A. PortugalSantander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. PortugalBST International Bank, Inc. - Porto Rico Puerto RicoTaxagest, SGPS, S.A. PortugalSantander Totta Seguros - Companhia de Seguros de Vida, S.A. PortugalBanco Santander de Negócios, S.A. Portugal

Entities significantly influenced by the Group

Benim - Sociedade Imobiliária, S.A. PortugalBanco Caixa Geral Totta de Angola, S.A. AngolaPartang, SGPS. S.A. PortugalUnicre - Instituição Financeira de Crédito, S.A. Portugal

Entities under direct or indirect common control by the Group

Abbey National Treasury Services Investments Limited United KingdomAbbey National Treasury Services PLC United KingdomAlliance & Leicester PLC United KingdomBanco Banif, S.A. SpainBanco Santander (Suisse), S.A. Sw itzerlandBanco Santander Brasil, S.A. BrazilBanco Santander International Miami USABanco Santander (México), S.A., Instituición de Banca Múltiple, Grupo Financiero Santander MexicoBanesto Financial Products, PLC SpainCapital Grupo Santander, SA SGECR SpainCatter Allen International, LTD United KingdomGeoban, S.A. SpainGrupo Banesto SpainIbérica de Compras Corporativas, S.L. SpainIngeniería de Softw are Bancário, S.L. SpainKonecta Portugal, Lda. PortugalMultirent, Aluguer e Comércio de Automóveis, S.A. PortugalOpen Bank Santander Consumer, S.A. SpainPortal Universia Portugal, Prestação de Serviços de Informática, S.A. PortugalProduban Servicios Informaticos Generales, SL SpainSantander Back-Off ice Globales Mayorista SpainSantander Bank and Trust, Ltd. BahamasSantander Central Hispano Issuances, Ltd. Cayman IslandsSantander Consumer Finance, S.A. SpainSantander Consumer EFC, S.A. SpainSantander Investment Services, S.A. SpainSantander Issuances, S.A. SpainSantander Tecnologia y Operaciones AEIE SpainSantander UK PLC United KingdomUnión de Créditos Inmobiliários, S.A. SpainISBAN PT - Engenheria e Softw are Bancário, S.A. Portugal


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Related entities Head office

Entities under direct or indirect common control by the Group (continued)

Banco Santander Puerto Rico Puerto RicoBanco Santander Consumer Portugal, S.A. Portugal Santander Investment Securities, Inc USAAll Funds Bank, S.A. SpainSantander Consumer Spain Auto 07-1 SpainFondo de Titulización de Activos Santander Empresas 1 SpainFondo de Titulización de Activos Santander Empresas 2 SpainFondo de Titulización de Activos Santander Empresas 3 SpainFondo de Titulización Santander Financiación 1 SpainFTPYME Santander 2 Fondo de Titulización de Activos SpainSantander Hipotecario 1 Fondo de Titulización de Activos SpainSantander Hipotecario 2 Fondo de Titulización de Activos SpainSantander Hipotecario 3 Fondo de Titulización de Activos SpainSantander Seguros y Reaseguros, Compañia Aseguradora, S.A. SpainH.B.F. Aluguer e Comércio de Viaturas, S.A. SpainSantander International Debt, S.A. Spain

Special Purpose Entities

HIPOTOTTA NO. 1 FTC PortugalHIPOTOTTA NO. 2 FTC PortugalHIPOTOTTA NO. 3 FTC PortugalHIPOTOTTA NO. 4 FTC PortugalHIPOTOTTA NO. 5 FTC PortugalHIPOTOTTA NO. 6 FTC PortugalHIPOTOTTA NO. 7 FTC PortugalHIPOTOTTA NO. 8 FTC PortugalHIPOTOTTA NO. 9 FTC PortugalHIPOTOTTA NO. 10 FTC PortugalTAGUS - Sociedade de Titularização de Créditos, S.A. (HIPOTOTTA No. 11) PortugalLEASETOTTA NO. 1 FTC PortugalHIPOTOTTA NO. 1 PLC IrelandHIPOTOTTA NO. 2 PLC IrelandHIPOTOTTA NO. 3 PLC IrelandHIPOTOTTA NO. 4 PLC IrelandHIPOTOTTA NO. 5 PLC IrelandHIPOTOTTA NO. 6 Ltd IrelandHIPOTOTTA NO. 7 Ltd IrelandHIPOTOTTA NO. 8 Ltd IrelandHIPOTOTTA NO. 9 Ltd IrelandHIPOTOTTA NO. 10 Ltd IrelandLEASETOTTA NO. 1 Ltd Ireland


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The balances with related entities as at December 31, 2010 are as follows:

Entities Entities under Entities that significantly direct or indirect

directly or indirectly influenced common control Assets: control the Group by the Group by the Group

Balances due from banks 13,517 - 9,928

Financial assets held for trading 199,977 - -

Financial assets and liabilities valued at fair value through profit or loss 1,496 - 441,309

Available-for-sale financial assets 798 - 49,891

Loans and advances to banks 1,140,625 40 68

Loans and advances to customers - - 129,308

Hedging derivatives 122,826 - -

Other tangible assets - - -

Intangible assets - - -

Investments in associates - 133,697 -

Current tax assets - - -

Other assets 111,457 5 -

Liabilities:

Financial liabilities held for trading 1,102,372 - -

Resources of other financial institutions 2,669,914 77,690 721,357

Resources of customers and others - 7,776 5,583

Debt securities issued 66,941 - 217,474

Hedging derivatives 164,490 - -

Subordinated liabilities -

Other liabilities 144,051 - 647

Costs:

Interest expense 641,222 40 23,800

Fees and commissions expense 1,160 91

Gain/(loss) from assets and liabilities valued at fair value through profit or loss 8,626,735 - 2,747

Gain/(loss) from available-for-sale financial assets 211,452 - -

Gain/(loss) from other assets 214 - -

Insurance business gross margin where the risk is beared by the policyholders 51 - 18,828

Insurance business gross margin 9 - 468

Gain/(loss) from assets backing insurance liabilities - - 187

Gain/(loss) from investments in associates and joint ventures - 4,102 -

Other administrative expenses - - 36,002

Income:

Interest income 688,051 9 14,606

Gain/(loss) from assets and liabilities valued at fair value through profit or loss 7,931,819 - 3,011

Gain/(loss) from exchange fluctuation 4,705 - -

Gain/(loss) from other assets 282,069 - 713

Revenue from equity instruments - - 552

Revenue from services rendered and commissions income 56 - 245

Insurance business gross margin where the risk is beared by the policyholders 340 - 13,762

Insurance business gross margin 71 - 180

Off balance sheet items:

Guarantees and other contingent liabilities 463,746 - 344

Guarantees received 715 - 1,400

Commitments to third parties 3,851 914 40,047

Currency operations and derivatives 28,544,177 - -


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The balances with related entities as at December 31, 2009 are as follows:

Entities Entities under Entities that Entities jointly signif icantly direct or indirect

directly or indirectly controlled by influenced common control Assets: control the Group the Group by the Group by the Group

Balances due from banks 20,694 - - 7,702

Financial assets held for trading 502,852 - - 4,819

Financial assets and liabilities valued at fair value through profit or loss 9,743 - - 802,010

Available-for-sale f inancial assets 1,628 - - 1,058,166

Loans and advances to banks 697,294 - - 13,310

Loans and advances to customers - - 2 154,774

Hedging derivatives 233,982 - - 2,941

Investments in associates and subsidiaries excluded from consolidated - - 2,634 -

Other assets 22 3 268 -

Liabilities:

Financial liabilities held for trading 1,002,290 - - -

Resources of other f inancial institutions 1,583,861 19,340 - 2,604,012

Resources of customers and others - 258 9,728 13,301

Debt securities issued 97,008 - - 2,383,484

Hedging derivatives 190,280 - - 2,227

Subordinated liabilities 25,016 - - -

Other liabilities 114,848 3 5 15

Costs:

Interest expense 674,492 33 1 71,271

Fees and commissions expense 1,334 - - -

Gain/(loss) from assets and liabilities valued at fair value through profit or loss 6,307,464 - - 70,999

Gain/(loss) from exchange revaluation 4,436 - - -

Insurance business gross margin w here the risk is beared by the policyholders 413 - - 1,217

Insurance business gross margin - - - -

Gain/(loss) from investments in associates and joint ventures - - 103 -

Other administrative expenses - - 15,775 19,541

Income:

Interest income 783,821 - - 33,537

Gain/(loss) from assets and liabilities valued at fair value through profit or loss 6,315,424 - - 73,586

Revenue from services rendered and commissions income 25 - - 443

Insurance business gross margin w here the risk is beared by the policyholders 956 - - 80,921

Insurance business gross margin 113 - - 1,468

Off balance sheet items:

Guarantees and other contingent liabilities 415,514 - - 324

Guarantees received 715 - - -

Commitments to third parties 2,450 25 8 27,069

Currency operations and derivatives 64,272,141 869 - 114,109


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MANAGEMENT AND SUPERVISORY BOARDS

The loans and advances to members of management and supervisory boards as at December 31, 2010 and 2009 amounted to tEuros 1,228 and tEuros 1,178, respectively. Fixed and variable remuneration of the members of the management and supervisory boards in 2010 and 2009 amounted to tEuros 8,294 and tEuros 7,262 (Note 43), respectively.

The Santander Group, which includes BST, also has a worldwide long term incentive plan, which is described in Note 49 and is divided into cycles. The cost recognised in ”Personnel Costs” for key management personnel as at December 31, 2010 and 2009 is as follows:

2010 2009 First cycle – PI09 – assigned in 2007 and exercised in July, 2009 - 112 Second cycle – PI10 – assigned in 2007 and exercised in July, 2010 152 304 Third cycle – PI11 – assigned in 2008 and exercisable in July, 2011 362 362 Forth cycle – PI12 – assigned in 2009 and exercisable in July, 2012 311 155 Fifth cycle – PI13 – assigned in 2010 and exercisable in July, 2013 161 - ----- ----- 986 933 === ===

On July 6, 2009 the first cycle of the action plan linked to objectives has been completed. In this context, the total number of shares allocated to members of the Board of Directors was 97,676 with a value per share of 8.49 Euros.

On July 8, 2010, the second cycle of the action plan linked to objectives was completed. In this context, the total number of shares allocated to members of the Board was 140,124, at a price of 8.77 Euros per share.

In what regards post-employment benefits, the key management personnel with labour link 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). As at December 31, 2010 the liability related to this benefit amounted to tEuros 164 (tEuros 140 as at December 31, 2009).

In the Shareholders’ General Meeting held on May 30, 2007, the BST shareholders approved the “Regulation for suplementary attribution of retirement pensions for age or disability” for the executive members of the Board of Directors of the former BTA that are executive members of the BST Board of Directors (executive committee) and were in office for more than fifteen years, consecutive or interpolated. Under this Regulation they will be entitled to a pension supplement equivalent to 80% of gross annual salary. The amount of the supplementary retirement pension shall be determined by the Compensation Committee when the time in office is less than fifteen years. For these situations, it is defined that the supplement of the pension will be 65% of gross annual salary, whenever the time in office equals to or is greater than ten years, and 75% of gross annual salary, whenever the time in office equals to or is greater than twelve years. This defined benefit plan is a supplementary plan dependent from the general Social Security system.

As at December 31, 2010 and 2009, the liabilities regarding this plan amounted to tEuros 9,565 and tEuros 8,529, respectively, fully provided for by a provision in the same amount recorded under the caption “Employee benefits - Provision for pensions and other expenses” (Note 25).

In 2010, the Bank’s board members not included in the above-mentioned specific defined benefit plan are included in the new complementary retirement plan. The contribution for this new plan in 2010 amounted to tEuros 892.

Regarding employment termination benefits, as set out under the Portuguese Companies Act, should a board member early terminates its term by means of a BST’s decision, BST will pay all future wages until the end of the respective term.


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Statutory Auditors The Statutory Auditors fees in 2010 amounted to tEuros 72. 49. INCENTIVE PLANS – STOCKS In the Shareholders’ General Meeting of Banco Santander held on June 23, 2007, the “Stock Plan

Linked to the Santander Group’s Objectives” was approved, for the period from June 23, 2007 to July 31, 2009 (with a first cycle up to July 31, 2009 and a second cycle up to July 31, 2010). The Santander Totta is also included in this new plan, with approximately 340 employees.

Each beneficiary of the Plan is entitled to receive a maximum of Banco Santander shares. The final

number of shares to be attributed is determined multiplying the maximum number of shares by the sum of coefficients linked to Banco Santander’s performance, which is made by comparison with other entities belonging to another Group defined upfront. Such comparison is measured bearing in mind two parameters: the return to the shareholder and the earnings per share growth.

In 2009, the first cycle of the plan linked to the objectives has been completed (PI09). The percentage

applied to the maximum number of shares attributable at the beginning of the first cycle was 90.79%. This percentage reflects Banco Santander’s evolution in both parameters mentioned above. In relation to the return to the shareholder, Banco Santander positioned itself in 7th place with 53.79%. Regarding earnings per share growth, Banco Santander ranked first place in the reference group with 7.70%. The delivery of the mentioned shares took place on July 6, 2009, at the opening share price of Banco Santander on that day (8.49 Euros per share).

In 2008, the above Plan was extended for a third cycle up to December 31, 2010 and in 2009 for a

fourth cycle up to December 31, 2011 (with delivery dates up to July 31, 2011 and July 31, 2012, respectively). These extensions covered about 341 and 337 employees, respectively. In 2010, the Plan was extended to a fifth cycle until December 31, 2012 (being the date of delivery of the shares until July 31, 2013). This extension covered about 335 employees.

As mentioned in Note 1.3 r), acknowledgement of such plans imply the recognition of the Group

employees’ right to these instruments in the income statement for the year under “Personnel costs” caption as these are granted in exchange of services rendered. Management, coverage and implementation of these plans are ensured centrally by Banco Santander for all employees worldwide.

In 2010 and 2009, the total cost of this plan can be presented as follows: Stock Plan Linked to the Santander Group’s Objectives 2010 2009 First cycle – PI09 - 634 Second cycle – PI10 627 1,254 Third cycle – PI11 1,283 1,283 Fourth cycle – PI12 1,167 583 Fifth cycle – PI13 743 - ------- ------- 3,820 3,754 ==== ====


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The employees are entitled to the shares upon their permanence in Santander Group (vesting condition). Share as well as the dates to delivery the shares are summarized in the table below:

Number of

Number of Cost per share Dates to delivery employees GrantedStocks' plans shares (Euro) the shares covered year

Plans in place as at December 31, 2008PI09 424,919 5.7474 Jul/2009 330 2007PI10 636,663 5.6936 Jul/2010 330 2007PI11 707,381 5.4419 Jul/2011 341 2008

Change in 2009:PI09 - Reversals (*) (540) - - (1) -PI09 - Shares available (385,936) - Jul/2009 (329) -PI09 - Shares not available (**) (38,443) - - - -PI10 - Reversals (*) (800) - - - -PI12 - Entitlement 775,819 4.5112 Jul/2012 337 2009


Change in 2010:PI10 - Reversals (*) (22,850) - - (2) -PI10 - Shares available (554,988) - Jul/2010 (327) -PI10 - Shares not available (**) (58,025) - - - -PI11 - Reversals (*) (28,890) - - (7) -PI12 - Reversals (*) (2,030) - - (3) -PI13 - Entitlement 800,103 5.5707 Jul/2013 335 2010


Notes:(*) Reversal of the rights granted to beneficiaries who have not completed the permanence requirements in the Santander Group asestablished by the Regulation Plan.(**) Difference between the maximum number of allocated shares and the number of shares actually delivered. The number of allocated shares results from the coefficient linked to the Santander Group's performance times the maximum number of shares allocated.

In addition, the Santander Group, on which Santander Totta is included, had a long-term incentive

plan worldwide (PI06), covering 2,601 employees, which consisted in Banco Santander share options subject to the increase of both share market value and earnings per share compared to a group of comparable banks. The granted dates were between January 15, 2008 and January 15, 2009.

For the stock plans linked to objectives in force as at December 31, 2009 (second, third and fourth

cycles), the fair value was determined according to the following methodology:

- It was considered that beneficiaries remain in Santander Group during the period of each plan.

- The value related to the relative position of the Total Return to Shareholders (TRS) has been determined at the vested date based on the report of an independent expert who carried out a stochastic valuation using “MonteCarlo” model with 10,000 simulations performed to determine the TRS for each entity included in the group of comparables. The results (each one representing the delivery of a number of shares) are sorted on a descending basis, calculating a weighted average and discounting the amount at a risk free interest rate.

PI11 PI12 PI13

Volatility (*) 19.31% 42.36% 49.65%Annual dividend yield in recent years 3.47% 4.88% 6.34%Risk-free interest rate 4.835% 2.040% 3.330%(*) Historical volatility in the period (2 or 3 years)


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The result of the simulation model appliance assumes a percentage of 44.9% to PI11, 55.42% to PI12 and 62.62% to PI13 on which it is applied 50% of the assigned value to determine the incentive accounting cost with TRS. Since this valuation refers to a market condition, it is not subject to adjustment after the granted date;

- Given the high correlation between TRS and the growth of earnings per share (BPA), it is considered

that the valuation of TRS is also valid for BPA. Since this valuation refers to a non-market condition, it is reviewed and adjusted annually.

50. DISCLOSURES IN ACCORDANCE TO IFRS 7

BALANCE SHEET

Categories of financial instruments

Financial instruments as at December 31, 2010 and 2009 had the following book values:

Valued at Valued at Valued atfair value amortised cost historical cost Impairment Net

Assets

Cash and deposits at central banks - 99,074 217,801 - 316,875Balances due from banks - 124,980 111,303 - 236,283Financial assets held for trading 1,639,674 - - - 1,639,674Financial assets designated at fair value through profit or loss 2,974,695 - - - 2,974,695Available-for-sale financial assets 6,484,164 - 27,360 (67,087) 6,444,437Loans and advances to banks - 1,914,628 - - 1,914,628Loans and advances to customers 65,072 33,285,609 - (536,657) 32,814,024Hedging derivatives 131,512 - - - 131,512

11,295,117 35,424,291 356,464 (603,744) 46,472,128

Liabilities

Resources of central banks - 4,807,162 - - 4,807,162Financial liabilities held for trading 1,262,597 - - - 1,262,597Financial liabilities designated at fair value through profit or loss 4,301,702 - - - 4,301,702Resources of other financial institutions - 8,449,191 - - 8,449,191Resources of customers and others 1,249,362 15,768,935 - - 17,018,297Debt securities issued 4,064,822 3,757,855 - - 7,822,677Hedging derivatives 189,423 - - - 189,423Technical provisions - 377,126 - - 377,126

11,067,906 33,160,269 - - 44,228,175

2010

Valued at Valued at Valued atfair value amortised cost historical cost Impairment Net

Assets

Cash and deposits at central banks - 524,421 231,990 - 756,411Balances due from banks - 114,660 111,781 - 226,441Financial assets held for trading 2,001,709 - - - 2,001,709Financial assets designated at fair value through profit or loss 4,005,555 - - - 4,005,555Available-for-sale financial assets 4,976,995 - 30,248 (45,431) 4,961,812Loans and advances to banks - 2,597,135 - - 2,597,135Loans and advances to customers 77,203 32,828,604 - (487,461) 32,418,346Hedging derivatives 259,515 - - - 259,515

11,320,977 36,064,820 374,019 (532,892) 47,226,924

Liabilities

Resources of central banks 1,259,368 767,462 - - 2,026,830Financial liabilities held for trading 1,485,448 - - - 1,485,448Financial liabilities designated at fair value through profit or loss 4,851,247 - - - 4,851,247Resources of other financial institutions - 6,185,646 - - 6,185,646Resources of customers and others 1,149,695 13,931,602 - - 15,081,297Debt securities issued 4,696,343 9,351,803 - - 14,048,146Hedging derivatives 237,067 - - - 237,067Technical provisions - 337,589 - - 337,589Subordinated liabilities - 278,851 - - 278,851

13,679,168 30,852,953 - - 44,532,121

2009


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There were no reclassifications of financial assets in the years ended December 31, 2010 and 2009.

The assets and liabilities for which hedge accounting has been applied are valued at fair value, although only the amounts relating to the hedged risk were subject to fair value adjustment.

The caption “Technical provisions” presented in this Note corresponds to technical provisions of life insurance products with profit sharing.

As at December 31, 2010 and 2009, the caption “financial liabilities designated at fair value through profit or loss” includes the amounts of tEuros 4,301,702 and tEuros 4,348,608, respectively, related with the valuation of life business investment contracts sold by the Group, where the investment risk is beared by the policyholders (Note 21).

As at December 31, 2010 and 2009, the caption “Resources of customers and others” includes the amounts of tEuros 31,835 and tEuros 29,593, respectively, of life business financial products without profit sharing (Note 23).

Life business products where the investment risk is beared by the policyholders correspond to collective investment funds, made up of securities or baskets of securities, subscribed for through the acquisition of participating units. The securities included in these collective investment funds are recorded under the caption “Financial assets designated at fair value through profit or loss” and as at December 31, 2010 and 2009 amounted to tEuros 2,881,409 and tEuros 3,405,661, respectively (Note 8).

The Group’s liability to the holders of the participating units at the maturity date are covered by the securities and respective return backing these products.

INCOME STATEMENT

The net gain or loss on financial instruments for the years ended December 31, 2010 and 2009 were as follows:

2010

Gain Loss Net Gain Loss Net

Financial assets and liabilities held for trading 12,862,095 (12,887,471) (25,376) - - -Financial assets designated at fair value through profit or loss 460,336 (411,247) 49,089 - - -Available-for-sale financial assets 363,395 (266,371) 97,024 4,941 (453,036) (448,095)Loans and advances to banks 56,064 - 56,064 - - -Loans and advances to customers 1,088,868 (245,346) 843,522 - - -Hedging derivatives 1,248,577 (1,257,332) (8,755) - (19,384) (19,384)Financial liabilities designated at fair value through profit or loss 1,021,278 (1,055,465) (34,187) - - -Resources of central banks and other financial institutions 2,771 (116,774) (114,003) - - -Resources of customers and others 76,138 (206,678) (130,540) - - -Debt securities issued 359,808 (317,713) 42,095 - - -Subordinated liabilities - (4,868) (4,868) - - -Technical provisions 106,641 (92,281) 14,360 - - -

17,645,971 (16,861,546) 784,425 4,941 (472,420) (467,479)

Guarantees given 19,674 (896) 18,778

Against income statement Against fair value reserve

2009

Gain Loss Net Gain Loss Net

Financial assets and liabilities held for trading 9,141,218 (9,273,030) (131,812) - - -Financial assets designated at fair value through profit or loss 841,467 (183,394) 658,073 - - -Available-for-sale financial assets 128,271 (9,336) 118,935 35,724 (4,241) 31,483Loans and advances to banks 56,298 - 56,298 - - -Loans and advances to customers 1,398,490 (234,664) 1,163,826 - - -Hedging derivatives 1,112,840 (991,083) 121,757 - (32,500) (32,500)Financial liabilities designated at fair value through profit or loss 774,634 (1,256,272) (481,638) - - -Resources of central banks and other financial institutions - (122,259) (122,259) - - -Resources of customers and others 93,818 (286,728) (192,910) - - -Debt securities issued 51,993 (340,110) (288,117) - - -Subordinated liabilities - (7,570) (7,570) - - -Technical provisions 93,016 (82,260) 10,756 - - -

13,692,045 (12,786,706) 905,339 35,724 (36,741) (1,017)

Guarantees given 21,301 (642) 20,659

Against income statement Against fair value reserve


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The above amounts do not include gains and losses resulting from foreign exchange revaluation of the financial instruments, which for the years ended December 31, 2010 and 2009 amounted to net gains of tEuros 10,938 and tEuros 19,223, respectively.

Interest income and expense on financial assets not recorded at fair value through profit or loss, valued in accordance to the effective interest method, for the years ended December 31, 2010 and 2009 are as follows:

Income Expense Net Income Expense NetAssets

Cash and deposits at central banks 4,021 - 4,021 5,340 - 5,340Balances due from banks 167 - 167 805 - 805Available-for-sale financial assets 263,131 - 263,131 99,256 - 99,256Loans and advances to banks 51,876 - 51,876 50,153 - 50,153Loans and advances to customers 930,093 (606) 929,487 1,225,866 (662) 1,225,204

1,249,288 (606) 1,248,682 1,381,420 (662) 1,380,758

Liabilities

Resources of central banks - (42,621) (42,621) - (21,661) (21,661)Resources of other financial institutions - (74,153) (74,153) - (97,827) (97,827)Resources of customers and others 8,400 (185,163) (176,763) 8,818 (266,281) (257,463)Debt securities issued - (259,002) (259,002) - (265,340) (265,340)Subordinated liabilities - (4,868) (4,868) - (7,570) (7,570)

8,400 (565,807) (557,407) 8,818 (658,679) (649,861)Guarantees given 18,850 - 18,850 20,446 - 20,446

2010 2009

Fees and commissions income and expense on financial assets and liabilities not recorded at fair value through profit or loss, not included in the calculation of the effective rate, for the years ended December 31, 2010 and 2009, are as follows:

Income Expense Net Income Expense NetAssets

Loans and advances to customers 40,728 (14,981) 25,747 41,390 (13,189) 28,201

Liabilities

Resources of customers and others 46,146 - 46,146 44,708 - 44,708

2010 2009

In 2010 and 2009 the Group recognised financial gains of tEuros 4,373 and tEuros 5,221, respectively, relating to “Interest income” on overdue or impaired credit operations (Note 32).


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OTHER DISCLOSURES

Hedge accounting

Hedging derivatives and the financial instruments designated as hedged items as at December 31, 2010 and 2009 are as follows:

2010

Hedged item Hedging instrumentNominal Gross Fair value Book Notional Fair

Value Value adjustments Value Amount Value

Fair value hedge:Loans and advances to customers 60,277 60,561 4,306 64,867 60,279 (4,639)Available-for-sale financial assets 2,799,668 2,866,636 73,037 2,939,673 2,775,000 (109,711)Resources of central banks (1,262,055) (1,268,789) 19,427 (1,249,362) 1,492,218 (24,096)Debt securities issued (3,994,405) (4,046,810) (18,012) (4,064,822) 5,211,922 39,901

Cash flow hedge:Resources of other financial institutions 2,709,100 2,709,100 - 2,709,100 2,709,100 55,600Debt securities issued (959,100) (959,100) - (959,100) 959,100 (14,966)

(646,515) (638,402) 78,758 (559,644) 13,207,619 (57,911)

2009Hedged item Hedging instrument

Nominal Gross Fair value Book Notional FairValue Value adjustments Value Amount Value

Fair value hedge:Loans and advances to customers 72,573 73,121 4,082 77,203 72,575 (4,469)Financial assets designated at fair value through profit or loss 90,000 93,937 5,957 99,894 90,000 (6,732)Available-for-sale financial assets 400,000 403,077 7,767 410,844 400,000 (6,617)Resources of central banks (1,250,000) (1,256,597) (2,771) (1,259,368) 1,250,000 7,419Resources of customers and others (1,159,601) (1,163,457) 13,762 (1,149,695) 1,166,698 (28,611)Debt securities issued (4,633,472) (4,703,884) 7,541 (4,696,343) 4,540,264 (6,482)

Cash flow hedge:Loans and advances to customers 9,512,747 9,512,747 - 9,512,747 9,512,747 90,674Resources of other financial institutions (1,659,100) (1,659,100) - (1,659,100) 1,659,100 (7,800)Debt securities issued (4,353,646) (4,353,646) - (4,353,646) 4,353,646 (14,934)

(2,980,499) (3,053,802) 36,338 (3,017,464) 23,045,030 22,448

Cash flow hedge

The expected cash flows by periods that will impact profit or loss for the year are as follows:

Up to From 3 months From 6 months From 1 to Over3 months to 6 months to 1 year 3 years 3 years Total

Cash flow hedgeInterest rate swap 7,519 29,107 (3,842) 5,992 1,858 40,634

2010

Up to From 3 months From 6 months From 1 to Over3 months to 6 months to 1 year 3 years 3 years Total

Cash flow hedgeInterest rate swap 4,171 35,315 3,117 25,337 - 67,940

2009

For the years ended December 31, 2010 and 2009, no amount has been recognised in the income statement due to cash flows hedges ineffectivenesses.


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The gains or losses on fair value hedges recognised in the income statement for the years ended December 31, 2010 and 2009 are as follows:

Results on financial operations

2010 2009Hedged Hedging Hedged Hedging

item instruments Net item instruments Net

Loans and advances to customers 224 (224) - 1,073 (1,073) -Financial assets designated at fair value through profit or loss - - - 1,771 (1,796) (25)Available-for-sale financial assets 65,270 (66,420) (1,150) 7,767 (6,617) 1,150Resources of central banks 2,771 (2,771) - (2,771) 2,771 -Resources of customers and others 1,035 6,632 7,667 21,424 (17,970) 3,454Debt securities issued (4,803) 6,788 1,985 (25,745) 25,686 (59)Subordinated liabilities - - - - - -

64,497 (55,995) 8,502 3,519 1,001 4,520

Fair value of financial instruments

Financial instruments as at December 31, 2010 and 2009 are made up as follows:

Valued at Not valued atfair value fair value Total

Assets

Cash and deposits at central banks - 316,875 316,875Balances due from banks - 236,283 236,283Financial assets held for trading 1,639,674 - 1,639,674Financial assets designated at fair value through profit or loss 2,974,695 - 2,974,695Available-for-sale financial assets 6,425,100 19,337 6,444,437Loans and advances to banks - 1,914,628 1,914,628Loans and advances to customers 64,867 32,749,157 32,814,024Hedging derivatives 131,512 - 131,512

11,235,848 35,236,280 46,472,128

Liabilities

Resources of central banks - 4,807,162 4,807,162Financial liabilities held for trading 1,262,597 - 1,262,597Financial liabilities designated at fair value through profit or loss 4,301,702 - 4,301,702Resources of other financial institutions - 8,449,191 8,449,191Resources of customers and others 1,249,362 15,768,935 17,018,297Debt securities issued 4,064,822 3,757,855 7,822,677Hedging derivatives 189,423 - 189,423Technical provisions - 377,126 377,126

11,067,906 33,160,269 44,228,175

2010


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Valued at Not valued atfair value fair value Total

Assets

Cash and deposits at central banks - 756,411 756,411Balances due from banks - 226,441 226,441Financial assets held for trading 2,001,709 - 2,001,709Financial assets designated at fair value through profit or loss 4,005,555 - 4,005,555Available-for-sale financial assets 4,939,618 22,194 4,961,812Loans and advances to banks - 2,597,135 2,597,135Loans and advances to customers 77,203 32,341,143 32,418,346Hedging derivatives 259,515 - 259,515

11,283,600 35,943,324 47,226,924

Liabilities

Resources of central banks 1,259,368 767,462 2,026,830Financial liabilities held for trading 1,485,448 - 1,485,448Financial liabilities designated at fair value through profit or loss 4,851,247 - 4,851,247Resources of other financial institutions - 6,185,646 6,185,646Resources of customers and others 1,149,695 13,931,602 15,081,297Debt securities issued 4,696,343 9,351,803 14,048,146Hedging derivatives 237,067 - 237,067Technical provisions - 337,589 337,589Subordinated liabilities - 278,851 278,851

13,679,168 30,852,953 44,532,121

2009

The financial assets and liabilities (hedged items) to which hedge accounting has been applied are included as valued at fair value, although the carrying amount of the hedged items are adjusted against the year profit or loss in the extent attributable to the hedged risk only.


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The fair value of financial assets and liabilities valued at fair value or subject to fair value adjustments in accordance with hedge accounting as at December 31, 2010 and 2009 are as follows:

Value adjustments Net

Acquisition Accrued due to hedging Impairment and bookcost interest Gain/(Loss) operations amortization value

Assets

Financial assets held for trading 406,355 - 1,233,319 - - 1,639,674Financial assets designated at fair value through profit or loss 2,924,930 49,720 45 - - 2,974,695Available-for-sale financial assets 6,806,872 118,297 (514,042) 73,037 (59,064) 6,425,100Loans and advances to customers 60,277 489 - 4,306 (205) 64,867Hedging derivatives - - 131,512 - - 131,512

10,198,434 168,506 850,834 77,343 (59,269) 11,235,848

Liabilities

Financial liabilities held for trading - - 1,262,597 - - 1,262,597Financial liabilities designated at fair value through profit or loss 4,301,702 - - - - 4,301,702Resources of customers and others 1,262,055 6,734 - (19,427) - 1,249,362Debt securities issued 3,994,405 52,405 - 18,012 - 4,064,822Hedging derivatives - - 189,423 - - 189,423

9,558,162 59,139 1,452,020 (1,415) - 11,067,906

2010

Value adjustments NetAcquisition Accrued due to hedging Impairment and book

cost interest Gain/(Loss) operations amortization value

Assets

Financial assets held for trading 526,831 (562) 1,475,440 - - 2,001,709Financial assets designated at fair value through profit or loss 3,946,703 52,895 5,957 - - 4,005,555Available-for-sale financial assets 4,973,342 56,317 (60,431) 7,767 (37,377) 4,939,618Loans and advances to customers 72,573 548 - 4,082 - 77,203Hedging derivatives - - 259,515 - - 259,515

9,519,449 109,198 1,680,481 11,849 (37,377) 11,283,600

Liabilities

Resources of central banks 1,250,000 6,597 - 2,771 - 1,259,368Financial liabilities held for trading - - 1,485,448 - - 1,485,448Financial liabilities designated at fair value through profit or loss 4,848,608 2,639 - - - 4,851,247Resources of customers and others 1,159,601 3,856 - (13,762) - 1,149,695Debt securities issued 4,633,472 70,412 - (7,541) - 4,696,343Hedging derivatives - - 237,067 - - 237,067

11,891,681 83,504 1,722,515 (18,532) - 13,679,168

2009


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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 due to hedging operations, by valuation methodology, as at December 31, 2010 and 2009, is as follows:

Quoted pricesin active markets Total

(Level 1) (Level 2) (Level 3)Assets

Financial assets held for trading 406,281 1,233,393 - 1,639,674Financial assets designated at fair value through profit or loss 2,853,984 120,711 - 2,974,695Available-for-sale financial assets 5,982,445 438,273 4,382 6,425,100Loans and advances to customers - 64,867 - 64,867Hedging derivatives - 131,512 - 131,512

9,242,710 1,988,756 4,382 11,235,848

Liabilities

Financial liabilities held for trading - 1,262,597 - 1,262,597Financial liabilities designated at fair value through profit or loss - 4,301,702 - 4,301,702Resources of customers and others - 1,249,362 - 1,249,362Debt securities issued - 4,064,822 - 4,064,822Hedging derivatives - 189,423 - 189,423

- 11,067,906 - 11,067,906

2010Fair value measurements

Other measurement techniques

Quoted pricesin active markets Total

(Level 1) (Level 2) (Level 3)Assets

Financial assets held for trading 507,661 1,480,412 13,636 2,001,709Financial assets designated at fair value through profit or loss 3,334,166 - 671,389 4,005,555Available-for-sale financial assets 3,288,695 420,899 1,230,024 4,939,618Loans and advances to customers - 77,203 - 77,203Hedging derivatives - 259,515 - 259,515

7,130,522 2,238,029 1,915,049 11,283,600

Liabilities

Resources of central banks - 1,259,368 - 1,259,368Financial liabilities held for trading - 1,485,448 - 1,485,448Financial liabilities designated at fair value through profit or loss - 4,348,608 502,639 4,851,247Resources of customers and others - 1,149,695 - 1,149,695Debt securities issued - 4,696,343 - 4,696,343Hedging derivatives - 237,067 - 237,067

- 13,176,529 502,639 13,679,168

Other measurement techniques

2009Fair value measurements


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The valuation of the assets and the liabilities of the Bank comprise three levels in terms of IFRS 7:

- Level 1 – Fair value measurements derived from quoted prices in active markets, comprising mainly government debt, private debt and listed shares in active markets.

- Level 2 – Fair value measurements derived from internal valuation models that use significant

observable market data. This category includes some securities classified under the available-for- -sale financial assets category and derivative financial instruments used for hedging and trading. Note that the internal valuation models used correspond mainly to discounted cash flows and "Black-Scholes" for options and structured products. The discount cash flows models (“present value method") use the applicable market observable yield curve.

For derivative financial instruments, the main valuation techniques are as follows:

Derivative Financial Instrument Main Valuation Technique

Forwards Present Value ModelInterest Rate Swaps Present Value ModelCurrency Swaps Present Value ModelEquity Swaps Present Value ModelFRA's Present Value ModelCurrency Options Black-Scholes Model, Monte Carlo ModelEquity Options Black-Scholes Model, Heston ModelInterest Rates Options Black-Scholes Model, Heath-Jarrow-Morton ModelOptions - Others Black-Scholes Model, Monte Carlo Model, Heath-Jarrow-Morton ModelCaps/Floors Black-Scholes Model, Monte Carlo Model, Heath-Jarrow-Morton Model - Level 3 – Fair value measurements derived from internal models with some unobservable market

data inputs. Some unlisted securities in active markets for which the Bank uses market data extrapolations have been classified under this category.

The book value and respective fair value of the financial instruments valued at amortised cost or historical cost as at December 31, 2010 and 2009 is as follows:

UnrealisedBook Fair capitalvalue value gain/(loss)

Assets

Cash and deposits at central banks 316,875 316,875 -Balances due from banks 236,283 236,283 -Available-for-sale financial assets 19,337 19,337 -Loans and advances to banks 1,914,628 2,004,768 90,140Loans and advances to customers 32,749,157 32,026,907 (722,250)

35,236,280 34,604,170 (632,110)

Liabilities

Resources of central banks 4,807,162 4,807,714 (552)Resources of other financial institutions 8,449,191 8,472,419 (23,228)Resources of customers and others 15,768,935 15,847,031 (78,096)Debt securities issued 3,757,855 3,681,395 76,460Technical provisions 377,126 377,126 -

33,160,269 33,185,685 (25,416)

2010


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UnrealisedBook Fair capitalvalue value gain/(loss)

Assets

Cash and deposits at central banks 756,411 756,411 -Balances due from banks 226,441 226,441 -Available-for-sale financial assets 22,194 22,194 -Loans and advances to banks 2,597,135 2,683,343 86,208Loans and advances to customers 32,341,143 32,316,292 (24,851)

35,943,324 36,004,681 61,357

Liabilities

Resources of central banks 767,462 767,688 (226)Resources of other financial institutions 6,185,646 6,238,220 (52,574)Resources of customers and others 13,931,602 13,957,294 (25,692)Debt securities issued 9,351,803 9,298,482 53,321Technical provisions 337,589 337,589 -Subordinated liabilities 278,851 276,469 2,382

30,852,953 30,875,742 (22,789)

2009

The main assumptions used in determining fair value, by kind of financial instrument, were the following:

- The future flows arising from applications and resources of credit institutions were discounted

using the interest rate curves for the money market.

- The fair value of floating rate loans to companies has been considered to be equal to book value. In the case of loans to private customers (mortgage and consumer loans) and small businesses, the last quarter of the year average spread has been 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 during the last quarter of the year.

- The fair value of demand deposits from clients has been considered to be equal to its book value.

In the case of term deposits the Bank has considered the average rates for deposits subscribed during the last month of the year, for each kind of deposit.

- The fair value of debt securities issued was determined by discounting the future cash flows using

the discount rate applicable for similar operations at the year-end.

- 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 accordance with IFRS 4, Santander Totta Seguros performed liability adequacy tests on its insurance liabilities, with and without profit sharing, in which the Company assumes the investment risk and in which the coverage exceeds one year, in order to assess the adequacy of the technical provisions recorded.

The Bank recognizes in the balance sheet the upfront gains on financial instruments valued at fair value derived from other valuation techniques, namely in derivative operations entered into with customers classified internally as “Retail clients”.


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Such procedure was implemented in accordance with IAS 39 as fair value measurements derived from other valuation techniques also include inputs that are not based on observable market data.

The Group classifies clients internally in accordance to 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 at December 31, 2010 and 2009, the unrecognised amount regarding these operations corresponds to tEuros 15,088 and tEuros 23,300, respectively, and are recorded under the caption “Financial liabilities held for trading”.

RISK MANAGEMENT

CREDIT RISK

Bank activity and others

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 for the 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 aggregates 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 Group has implemented credit limits considering economic capital, incorporating, in the quantitative control, the variables relating to the credit quality of each counterparty.


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Insurance activity

Credit risk arises essentially in debt securities where the issuer risk is represented in credit spread.

Generally, limits are defined based on the rating of the issuer/issue in Euro, for all the portfolios managed by Santander Asset Management. For insurance contracts with guaranteed or indicative rates, acquisitions of securities (LT2 and Corporate) are only authorized with minimum ratings of BBB-with a stable outlook (by Moody’s and S&P rating agencies) and credit spread below 400 basis points in relation to the equivalent swap rate at the purchase date.

Exceptionally, a maximum limit may be defined for a given issuer. This limit is defined based on the degree of knowledge and other matters relating to the issuer and to the market, as well as the investment policy relating to the portfolios associated with the products. The reason for the acquisition must always be documented and duly justified.

The limits can be revised whenever events occur that justify it (for instance, an adjustment in rating). If no events arise to justify a review of those limits, they are only reviewed annually.

Definitive approval of global and/or new issuers’ limits is given by the Investment Committee and obeys to prudential criteria and limits established and approved by the Santander Group.

In the control over credit risk, it is important that all assets have a rating and in the absence thereof, there must be a possibility of associating a rating within the rules adopted.

Rating consists of classifying a bond issuance or other debt security on a risk notation scale intended to reflect a value judgment about the capability of repaying capital and interest on a timely basis.

The rating given by an Agency only expresses its opinion that the higher the rating, the lower the probability of default, not constituting any kind of warranty. For any rating, the probability of default should not be regarded as nonexistent as the rating is a measure of risk ex-ante that enables to qualify, in relative terms, the type of risk.

In terms of ratings, the Group uses data provided by the following agencies: Moody’s, Standard & Poors and Fitch Ibca.

The rating used refers to the issuance and whenever there is no available rating the following criteria is used:

- For bonds and other debt securities, by default the rating is that of the senior debt;

- In case of vehicles or credit linked notes, will be considered the rating(s) of the collateral asset(s) or issuers referenced through CDS (credit default swap) for the type of debt involved. The rating obtained should consider the structure of the asset (pro-rata, lowest rating in the case of first-to-default, rating of the collateral in case of being lower than the assets referenced through CDS).

- Where there is no possibility of assigning a rating, the issue is considered to be not rated.

- In case of deposits, it is considered that the rating corresponds to the senior debt of the entities where the deposits are.

The rating used is the lower between Moody’s and Standard & Poor’s. The rating by Fitch Ibca is only used when there is no information from the other companies.

A regular monitoring over the credit spreads of different sectors and maturities is made as a way to support the valuation of assets: bonds, structures and derivatives.


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In what regards reinsurers, Santander Totta Seguros works mainly with six companies: Swiss Re, General Cologne Re, Partner Re, New Re, Genworth and Munich Re. The ratings of the main reinsurers are as follows:

Ratings of Reinsurers

General Cologne Re AA+

Genworth A-

Munich Reinsurance Co. AA-

New Re AA-

National Re A+

Cardif AA

CNP AA-

Partner Re AA-

Swiss Re A+

The maximum exposure to credit risk and respective book value of the financial instruments held as at December 31, 2010 and 2009 are as follows:

Book Maximum Book Maximumvalue exposure value exposure

Cash and deposits at central banks 316,875 316,875 756,411 756,411Balances due from banks 236,283 236,791 226,441 226,863Financial assets held for trading 1,639,675 1,639,675 2,001,709 2,001,709Financial assets designated at fair value through profit or loss 2,974,694 2,974,694 4,005,555 4,005,555Available-for-sale financial assets 6,444,437 6,444,437 4,961,812 4,961,812Loans and advances to banks 1,914,628 1,914,628 2,597,135 2,597,135Loans and advances to customers 32,814,024 40,604,270 32,418,346 40,645,494Hedging derivatives 131,512 131,512 259,515 259,515

46,472,128 54,262,882 47,226,924 55,454,494

Guarantees given 2,136,469 2,136,469 2,139,230 2,139,230

2010 2009

The maximum exposure of “Loans and advances to customers” as at December 31, 2010 includes tEuros 1,982,317 and tEuros 5,807,929 relating to irrevocable credit lines and revocable credit lines, respectively (tEuros 2,240,834 and tEuros 5,986,314 as at December 31, 2009, respectively).


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Credit granted

The Group periodically reviews customer credit and other amounts receivable in order to identify evidence of impairment. For the purpose of analyzing impairment losses collectively, the Group segments the credit portfolio in accordance with the type of product and type of customer involved in the operations (Note 11). In this respect, customer credit without evidence of impairment as at December 31, 2010 and 2009 is as follows:

2010 2009

Consumer credit 1,179,495 1,187,917Mortgage loans 15,360,671 15,302,418Other loans and advances to individuals 434,810 383,853Credit cards of individuals 247,990 240,268

Total credit without evidence of impairment granted to individuals 17,222,966 17,114,456

Loans and advances to large companies 3,795,822 2,135,125Loans and advances to medium size companies 6,047,348 7,057,740Loans and advances to small companies 1,260,731 1,886,687Credit cards of companies 10,768 12,309Loans and advances to financial institutions - 1,011Commercial paper 2,633,386 2,658,983

Total credit without evidence of impairment granted to companies 13,748,055 13,751,855Guarantees given 2,103,616 2,112,715

Total credit granted without evidence of impairment 33,074,637 32,979,026

The risk analysis is 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.

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 customer,

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.


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Therefore, the Group’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, 2010 and 2009, is as follows:

2010 2009

Credit Creditgranted Collateral granted Collateral

Rating 7 - 9 1,044,258 80,141 1,472,002 137,090Rating 4 - 6 8,049,184 1,341,733 7,434,913 1,325,342Rating 1 - 3 659,695 83,130 562,246 70,065

9,753,137 1,505,004 9,469,161 1,532,497Without rating 1,350,764 116,917 1,610,391 130,649

11,103,901 1,621,921 11,079,552 1,663,146Credit cards of companies 10,768 - 12,309 -Financial institutions - 481,695 1,011 449,569Commercial paper 2,633,386 - 2,658,983 -

13,748,055 2,103,616 13,751,855 2,112,715

Regarding credit granted to individuals without evidence of impairment, the provisions resulting from the impairment model used by the Bank as at December 31, 2010 and 2009 are tEuros 46,504 and tEuros 53,355, respectively, which corresponds to 0.27% and 0.31% of the total credit granted, respectively.

As at December 31, 2010 and 2009, the book value of credit granted to customers, for whom the conditions have been renegotiated between 2006 and 2009, can be detailed as follows:

Performing Overdue Total Performing Overdue Total

CompaniesMedium size companies 27,825 6,923 34,748 24,596 5,559 30,155Small companies 41,450 3,830 45,280 34,890 3,142 38,032

69,275 10,753 80,028 59,486 8,701 68,187Individuals 164,733 36,669 201,402 124,890 20,350 145,240

234,008 47,422 281,430 184,376 29,051 213,427

2010 2009

Credit granted to customers with evidence of impairment as at December 31, 2010 and 2009 is as follows:

2009 2008

Performing loans 1,810,798 1,543,352 Overdue credit: . Up to 90 days 31,711 28,785 . Between 90 and 180 days 36,847 30,664 . Over 180 days 408,074 342,106 ------------- ------------- 2,287,430 1,944,907 ======== ======== Guarantees given 32,853 26,515 ===== =====


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Overdue or impaired credit determined by specific analysis and secured by mortgage, pledged deposits at the Bank or debt securities issued by the entity itself, as at December 31, 2010 and 2009, is made up as follows:

2010 2009

Value of Value ofOutstanding guarantee/collateral Outstanding guarantee/collateral

Overdue or impaired credit determined by individual analysis Guarantees in excess of the outstanding amount 386,613 922,284 349,430 823,805Outstanding amount in excess of the guarantees given 111,401 42,464 96,760 40,536Without guarantees 604,622 - 394,667 -

1,102,636 964,748 840,857 864,341

The book value of executed guarantees and other collaterals relating to credit granted as at December 31, 2010 and 2009 amounted to tEuros 122,967 and tEuros 117,062, respectively, and is made up as follows:

2010 2009

Properties received as settlement for non-performing loans (Note 13) 120,750 122,075 Equipment 1,579 2,159 Other assets received as settlement for non-performing loans 45,856 33,262 Available-for-sale financial assets 22,120 22,120 ----------- ----------- 190,305 179,616 ----------- ----------- Impairment of properties received as settlement for non-performing loans (Note 13) ( 36,973 ) ( 38,139 ) Impairment of equipment ( 780 ) ( 1,173 ) Impairment of other assets received as settlement for non-performing loans ( 7,465 ) ( 1,122 ) Impairment of available-for-sale financial assets ( 22,120 ) ( 22,120 ) -------- --------- ( 63,338 ) ( 62,554 ) ----------- ----------- 122,967 117,062 ====== ======


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Debt instruments

As at December 31, 2010 and 2009, the book value concerning debt instruments, by external rating, is made up as follows:

2010 2009

Financial assets held for tradingRating S&P/Moody's

Without an external rating - 13,636- 13,636

Financial assets designated at fair value throught profit or lossRating S&P/Moody's

AAA 113,171 169,613AA + / AA / AA - 795,735 1,372,986A + / A / A - 1,606,081 1,479,662BBB + / BBB / BBB - 323,488 322,428BB - 20,509 9,597B + 46,026 44,416CCC - 2,526D 10,645 7,283Without an external rating 30,106 65,497

2,945,761 3,474,008

Available-for-sale financial assetsRating S&P/Moody's

AAA 123,792 178,697AA + / AA / AA - 3,097,820 1,123,339A + / A / A - 2,296,589 2,224,607BBB + / BBB / BBB - 174,664 307,575BB + / BB - 153,359B + - 700Without an external rating 594,603 802,959

6,287,468 4,791,2369,233,229 8,278,880

LIQUIDITY RISK

Bank activity and others

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 chaired 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 analyzes 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;

- Limits aimed at controlling liquidity risk through liquidity coefficient and accumulated net illiquidity indicators.


196


The Group’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, as at December 31, 2010 the Bank had an Euro Medium Term Notes programme (EMTN) of tEuros 10,000,000, of which tEuros 7,529,580 had not yet been issued.

The Bank does not analyze liquidity risk of financial instruments held for trading.

Insurance activity

Liquidity risk is the risk that the Company might have difficulties in obtaining funds in order to fulfill its commitments. Liquidity risk can be reflected, for example in the inability to quickly sell a financial asset at a value near fair value.

Liquidity risk is monitored monthly by the Risk Committee. Limits have been defined for balance sheet management regarding:

- Sensitivity to parallel interest rate changes on financial assets and technical liabilities (liabilities

resulting from insurance and investment contracts) in short-term (maturity equal or less than one year); and

- Sensitivity of shareholders’ equity to parallel interest rate changes over the entire portfolio of financial assets and technical liabilities.

The main assumptions used in the calculation of estimated cash flows were as follows:

- The estimated cash flows of financial assets and technical liabilities with fixed income associated to the interest rate curve are calculated using the forward interest rate curve;

- The financial assets and technical liabilities associated to "unit-linked" products are considered to be payable "on demand" by the amount of the fair value of these assets and liabilities at the date of each financial reporting.

The non-discounted projected cash flows of financial instruments in accordance with their contractual maturities as at December 31, 2010 and 2009 are as follows:

Up to From 3 months From 1 to From 3 to Over

On demand 3 months to 1 year 3 years 5 years 5 years Undetermined Total

Assets

Cash and deposits at central banks 251,033 161 503 66,614 - - - 318,311Balances due from banks 236,283 - - - - - - 236,283Financial assets held for trading 1,639,674 - - - - - - 1,639,674Financial assets designated at fair value through profit or loss 2,881,408 - 4,831 98,302 - - - 2,984,541Available-for-sale financial assets 2 66,131 353,256 2,468,215 2,427,114 2,588,161 223,595 8,126,474Loans and advances to banks 711,674 77,771 521,025 93,123 371,740 309,369 - 2,084,702Loans and advances to customers 548,642 4,399,668 5,707,716 8,353,221 4,414,349 14,332,325 - 37,755,921Hedging derivatives 131,512 - - - - - - 131,512

6,400,228 4,543,731 6,587,331 11,079,475 7,213,203 17,229,855 223,595 53,277,418

Liabilities

Resources of central banks 1,800,000 3,008,865 - - - - - 4,808,865Financial liabilities held for trading 1,262,597 - - - - - - 1,262,597Financial liabilities designated at fair value through profit or loss 4,301,702 - - - - - - 4,301,702Resources of other financial institutions 2,265,663 4,409,546 891,039 39,479 579,871 382,688 - 8,568,286Resources of customers and others 5,936,551 3,899,478 4,081,360 1,489,163 1,786,260 19,483 - 17,212,295Debt securities issued 105,000 931,725 1,926,176 2,669,699 1,454,675 1,273,522 - 8,360,797Hedging derivatives 189,423 - - - - - - 189,423Technical provisions 26,267 1,122 21,299 17,440 15,289 295,735 - 377,152

15,887,203 12,250,736 6,919,874 4,215,781 3,836,095 1,971,428 - 45,081,117

2010


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Up to From 3 months From 1 to From 3 to OverOn demand 3 months to 1 year 3 years 5 years 5 years Undetermined Total

Assets

Cash and deposits at central banks 282,849 776 3,620 479,439 - - - 766,684Balances due from banks 226,441 - - - - - - 226,441Financial assets held for trading 2,001,709 - - - - - - 2,001,709Financial assets designated at fair value through profit or loss 3,405,661 501,070 5,046 10,096 97,636 - - 4,019,509Available-for-sale financial assets 2 66,451 233,144 638,224 2,391,675 2,109,026 215,561 5,654,083Loans and advances to banks 1,714,452 92,244 175,563 125,811 68,371 615,668 - 2,792,109Loans and advances to customers 810,852 3,905,335 4,882,334 6,752,815 3,584,065 19,431,896 - 39,367,297Hedging derivatives 259,515 - - - - - - 259,515

8,701,481 4,565,876 5,299,707 8,006,385 6,141,747 22,156,590 215,561 55,087,347

Liabilities

Resources of central banks 5,028 8,480 2,020,611 - - - - 2,034,119Financial liabilities held for trading 1,485,448 - - - - - - 1,485,448Financial liabilities designated at fair value through profit or loss 4,348,608 - 505,153 - - - - 4,853,761Resources of other financial institutions 626,652 2,397,711 640,806 1,909,878 217,444 671,870 - 6,464,361Resources of customers and others 5,534,167 4,198,176 3,228,536 678,249 1,541,677 25,792 - 15,206,597Debt securities issued 177,531 4,179,488 1,211,708 3,632,063 1,754,008 3,905,488 - 14,860,286Hedging derivatives 237,067 - - - - - - 237,067Technical provisions 30,801 1,509 10,519 33,268 16,034 245,458 - 337,589Subordinated liabilities - 1,186 3,078 8,539 8,529 393,496 - 414,828

12,445,302 10,786,550 7,620,411 6,261,997 3,537,692 5,242,104 - 45,894,056

2009

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 to have 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, for which management is based on the control of market risk exposure. In this respect, the Group considers the fair value of assets and liabilities held for trading to be its settlement value;

- Credit line operations without defined maturity or periodically renewable dates, 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;

- The assets and liabilities backing unit-linked products related to the Group’s insurance activity

were considered as payable on demand at their fair value as at December 31, 2010 and 2009.

MARKET RISK

Market risk generally consists of potential fluctuations in 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 commodities.

The standard methodology applied to the trading activity is the Value at Risk (VaR). Historical simulation with a 99% confidence level and a timeframe of one day is used as the basic pattern and statistical adjustments have been applied that helped contain quickly and efficiently the most recent events, in order to control the levels of risk assumed.

Calculated VaR represents a daily estimate of the maximum potential loss under normal market conditions (individually by portfolio/business sector and for the overall positions), within the assumptions defined in constructing the model.


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In addition, other measures are carried out by the Group that enable additional market risk control, namely Stress Testing, which consists of defining extreme behavioral scenarios with different financial variables, in order to obtain 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 is an excellent risk indicator, as it allows identifying the impact of changes in variables or in the composition of the portfolios.

It is also used 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. We are referring to calculation of sensitivity to changes in the underlying prices (delta and gamma), volatility (vega) and time (theta).

Quantitative limits, classified into two groups, are used for the trading portfolio, based on the following objectives:

- Limits aimed at protecting the volume of potential 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 analyzes interest rate structural risk enabling 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 the sensitivity of the financial margin and the sensitivity of the book value of the balance sheet instruments.

Interest rate risk

Financial instruments, by exposure to interest rate risk, as at December 31, 2010 and 2009 are as follows:

Not subject toFixed rate Variable rate interest rate risk Derivatives Total

Assets

Cash and deposits at central banks - 99,074 217,801 - 316,875Balances due from banks - - 236,283 - 236,283Financial assets held for trading - - 406,281 1,233,394 1,639,675Financial assets designated at fair value through profit or loss 1,869,020 1,026,976 78,698 - 2,974,694Available-for-sale financial assets 6,047,833 550,595 (153,991) - 6,444,437Loans and advances to banks 1,669,483 68,244 176,901 - 1,914,628Loans and advances to customers 1,957,163 30,856,928 (67) - 32,814,024Hedging derivatives - - - 131,512 131,512

11,543,499 32,601,817 961,906 1,364,906 46,472,128

Liabilities

Resources of central banks 4,805,011 - 2,151 - 4,807,162Financial liabilities held for trading - - - 1,262,597 1,262,597Financial liabilities designated at fair value through profit or loss 4,301,702 - - - 4,301,702Resources of other financial institutions 5,912,145 2,417,521 119,525 - 8,449,191Resources of customers and others 11,579,852 5,275,370 163,075 - 17,018,297Debt securities issued 5,127,249 2,595,803 99,625 - 7,822,677Hedging derivatives - - - 189,423 189,423Technical provisions 377,126 - - - 377,126

32,103,085 10,288,694 384,376 1,452,020 44,228,175

2010Exposure to


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Not subject toFixed rate Variable rate interest rate risk Derivatives Total

Assets

Cash and deposits at central banks - 473,910 282,501 - 756,411Balances due from banks - - 226,441 - 226,441Financial assets held for trading 14,198 - 507,099 1,480,412 2,001,709Financial assets designated at fair value through profit or loss 2,399,089 1,516,067 90,399 - 4,005,555Available-for-sale financial assets 3,037,836 1,726,945 197,031 - 4,961,812Loans and advances to banks 1,860,859 176,014 560,262 - 2,597,135Loans and advances to customers 5,176,542 27,229,935 11,869 - 32,418,346Hedging derivatives - - - 259,515 259,515

12,488,524 31,122,871 1,875,602 1,739,927 47,226,924

Liabilities

Resources of central banks 2,015,638 - 11,192 - 2,026,830Financial liabilities held for trading - - - 1,485,448 1,485,448Financial liabilities designated at fair value through profit or loss 4,848,608 - 2,639 - 4,851,247Resources of other financial institutions 3,287,391 2,328,996 569,259 - 6,185,646Resources of customers and others 10,108,637 4,803,693 168,967 - 15,081,297Debt securities issued 8,013,236 5,967,570 67,340 - 14,048,146Hedging derivatives - - - 237,067 237,067Technical provisions 337,589 - - - 337,589

Subordinated liabilities - 278,673 178 - 278,85128,611,099 13,378,932 819,575 1,722,515 44,532,121

2009Exposure to

Banking activity and others

Financial instruments – structural balance (excluding assets and liabilities held for trading)

Equity value sensitivity is calculated by means of simulating the change 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:

- identifying all assets and liabilities that are sensitive to changes 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 (floating rates) or maturity dates (fixed

rates), 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 behavioral 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.

The interest rate gap enables an approximation to be made of the sensitivity of the book 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;

- the movement in interest rates are assumed to be 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.


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In terms of variation in the equity value, the increases in interest rates assume a decrease in the amount of the intervals with positive gaps and an increase in the amount of the intervals with 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 replaced by new operations of the same amount, so that the balance sheet balances remain constant during the period under analysis, with an exception to the financial operations that allow redemption.

- 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, re-pricing, volumes, spread, indexing factor) – the conditions applied in the budget for each product are used. When these characteristics start to be out of market conditions for certain products the average conditions in place during the last month or new commercial directives for each product under review are used.

As at December 31, 2010 and 2009 the sensitivity of the equity value of these financial instruments to positive and negative changes of 100 basis points (bp’s) corresponds to:

2010 2009

Variation Variation Variation Variation+100 bp's -100 bp's +100 bp's -100 bp's

Assets

Cash and deposits at central banks 658 (649) 4,726 (4,412)Available-for-sale financial assets 3,438 (3,423) 14,066 (13,646)Loans and advances to banks 8,714 (8,713) 13,677 (13,056)Loans and advances to customers 234,639 (234,188) 246,682 (239,530)

247,449 (246,973) 279,151 (270,644)

Hedging derivatives (28,918) 28,900 (24,326) 19,606

Liabilities

Resources of central banks - - (9,389) 9,389Resources of other financial institutions 136,632 (136,476) (78,307) 76,542Resources of customers and others 68,750 (65,339) (71,500) 65,655Debt securities issued 15,026 (14,992) (40,638) 40,484Subordinated liabilities - - (2,829) 2,822

220,408 (216,807) (202,663) 194,892


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Financial instruments held for trading

The basic applicable general parameters for the calculation of VaR, besides the calculation itself, are the following:

- Timeframe: The period of time for which potential losses are calculated on a portfolio for

measuring VaR (daily) is 1 day.

- Confidence level: either VaR (potential loss) or VaE (potential gain) are determined with a confidence level of 99% (1% and 99% percentiles, respectively, of the distribution of loss and gain).

- Exponential decay factor: Enables the amount of change of market factors to be exponentially

weighted over time, by giving less weight to more distant observations in time. The applied exponential decay factor is calculated periodically by Market Risk Methodology.

In any case, the values of VaR will be those which are greater when the calculation is made with the factor of decay in force and the calculation with uniform weights.

- Currency of calculation: VaR calculations are carried out in Euros, which guarantees local currency

to be the risk-free currency. However, VaR results are reported in US Dollars in order to allow aggregation of different units.

- Market data timeframe: Uses a 2 years time or at least 520 items of data obtained from the VaR

calculation with the reference date going back in time.

The calculation of the VaR Percentile assumes granting the same weight to the set of 520 observations considered. The VaR Weighted Percentile assumes the granting of a significantly higher weight to the more recent observations in relation to the reference date of the analysis.

Historic simulation consists of using historic changes as a distribution model of possible changes in risk factors. Therefore the period chosen must be sufficiently long and significant, so that all the interactions between the market factors, the volatilities and correlations between them, are well reflected in the historical period selected.

On the other hand, the complete revaluation of the portfolio requires an exact evaluation of each of the instruments, using the respective mathematical expression in order to obtain the market value of each individual position. Upon using revaluation forms, the implicit non linear effects on certain financial products as a result of market factor changes are calculated exactly and are retained in the VaR amounts.

As at December 31, 2010 and 2009, the VaR associated with interest rate risk is:

2010 2009

VaR Percentil 99% (70) (110)VaR Weighted Percentil 99% (47) (43)


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Insurance activity

The products subject to this type of risk are those for which the guarantees consist of assets sensitive to changes in interest rates, being more or less sensitive based on their maturity.

Generally, interest rate assets in this type of product are floating or fixed rate bonds.

Floating rate bonds are less sensitive to interest rate changes, since up to their maturities the coupons are periodically reset and their risk lies mainly in the credit spread, representing the issuer’s credit risk at the issue date.

Therefore, the value of floating rate bonds is more stable than the fixed rate bonds.

The sensitivity index to the volatility of interest rates of fixed rate assets is the MDuration, which measures price sensitivity of a bond to a change in the yield rate up to its maturity.

For portfolios with fixed interest rate characteristics the average MDuration and maximum deviation permitted are defined by the Investment Committee, which are calculated periodically and reported to the Investment and Risk Committees.

The Company also verifies control over compliance with legal requirements in accordance with the characteristics and legal classification of the products.

The sensitivity of the asset value of financial instruments regarding insurance products (excluding unit-linked products) to positive and negative changes of 100 basis points (bp’s) as at December 31, 2010 and 2009 corresponds to:

2010 2009

+ 100 bp's (33) 264- 100 bp's 33 (264) The sensitivity of the book value relating to life investment contracts, where the investment risk is beared by the policyholders is considered to be immaterial due to the symmetric behavior of assets and liabilities backing these products.


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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, as at December 31, 2010 and 2009 are as follows:

Other Euros US Dollars currencies Total

Assets

Cash and deposits at central banks 311,871 2,699 2,305 316,875Balances due from banks 211,072 14,069 11,142 236,283Financial assets held for trading 1,625,510 13,140 1,025 1,639,675Financial assets designated at fair value through profit or loss 2,962,307 12,387 - 2,974,694Available-for-sale financial assets 6,435,245 9,192 - 6,444,437Loans and advances to banks 644,047 1,233,433 37,148 1,914,628Loans and advances to customers 32,594,043 184,676 35,305 32,814,024Hedging derivatives 131,176 336 - 131,512

44,915,271 1,469,932 86,925 46,472,128

Liabilities

Resources of central banks 4,807,156 - 6 4,807,162Financial liabilities held for trading 1,248,457 13,117 1,023 1,262,597Financial liabilities designated at fair value through profit or loss 4,301,702 - - 4,301,702Resources of other financial institutions 8,010,031 417,152 22,008 8,449,191Resources of customers and others 16,042,327 815,929 160,041 17,018,297Debt securities issued 7,822,677 - - 7,822,677Hedging derivatives 188,024 1,399 - 189,423Technical provisions 377,126 - - 377,126

42,797,500 1,247,597 183,078 44,228,175

2010

Other Euros US Dollars currencies Total

Assets

Cash and deposits at central banks 694,880 49,066 12,465 756,411Balances due from banks 194,818 19,438 12,185 226,441Financial assets held for trading 1,941,307 36,893 23,509 2,001,709Financial assets designated at fair value through profit or loss 3,993,648 11,907 - 4,005,555Available-for-sale financial assets 4,881,733 19,485 60,594 4,961,812Loans and advances to banks 2,112,410 431,480 53,245 2,597,135Loans and advances to customers 32,159,376 225,735 33,235 32,418,346Hedging derivatives 258,359 1,156 - 259,515

46,236,531 795,160 195,233 47,226,924

Liabilities

Resources of central banks 2,023,341 3,471 18 2,026,830Financial liabilities held for trading 1,461,477 13,887 10,084 1,485,448Financial liabilities designated at fair value through profit or loss 4,851,247 - - 4,851,247Resources of other financial institutions 5,281,886 318,554 585,206 6,185,646Resources of customers and others 14,019,735 835,205 226,357 15,081,297Debt securities issued 13,182,522 166,525 699,099 14,048,146Hedging derivatives 233,207 3,860 - 237,067Technical provisions 337,589 - - 337,589Subordinated liabilities 278,851 - - 278,851

41,669,855 1,341,502 1,520,764 44,532,121

2009


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As at December 31, 2010 and 2009, the VaR associated with foreign exchange risk on the banking activity of the Group represents:

2010 2009

VaR Percentil 99% (14) (110)VaR Weighted Percentil 99% (9) (43)

The assets and liabilities associated with the insurance activity are essentially expressed in Euros, being the currency risk immaterial.

Equity risk of assets

As at December 31, 2010 and 2009, financial instruments exposed to risks associated with the market price of the equity instruments are recorded as financial assets held for trading and available-for-sale financial assets. As at December 31, 2010 and 2009, the Group had no risk related to equity instruments held for trading, so the VaR associated to this risk is zero.


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51. CAPITAL MANAGEMENT

At a consolidated level, Santander Totta aims to maintain a strong financial strenght, which is materialized 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, as well as having the equity ratios that allow to sustain its high ratings.

The distribution of dividends is conditioned to the maintenance of a strong capital base to support the development of the Group’s business operations, considering its risk policies. Regarding the financial year of 2010, the Board of Directors of Santander Totta is proposing to pay out dividends to shareholders in the amount of tEuros 205,000 (of which tEuros 115,000 have already been paid out), which represents a dividend of 0.10 Euros per share.

As from June 2009, ST SGPS used the mixed method for credit risk, particularly the advanced method (IRB) for some portfolios and the standard method for others (sovereign risk, cards and small businesses). As from December 2010, BST started to use the mixed method for market risk, particularly internal models for most of trading derivatives and SIF (IRB) and the standard method for the remaining trading portfolio. ST SGPS has used the basic indicator for operational risk.

The following table summarizes the composition of the consolidated regulatory capital of Santander Totta SGPS as at the end of 2010 and 2009 (amounts in millions of Euros):

2010 2009

A - CORE CAPITAL (TIER I) 2,719 2,896 Qualified share capital 1,972 1,972 Qualified reserves and retained earnings (excluding minority interests) 534 410 Qualified minority interests 566 584 Adoption of IFRS/IAS (transitional regime) 86 114 Deductions to core capital (439) (184)B - SUPPLEMENTARY CAPITAL (TIER II) - 253

Perpetual subordinated liabilities 32 46Term subordinated liabilities - 300Revaluation reserves - -Other elements / deductions to supplementary capital (32) (93)

C - DEDUCTIONS TO TOTAL CAPITAL (9) (9)D - TOTAL QUALIFIED CAPITAL (A+B+C) 2,710 3,140E - RISK WEIGHTED ASSETS 24,355 26,405

CAPITAL RATIOS 2010 (*) 2009TIER I (A/E) 11.2% 11.0% CORE CAPITAL 10.3% 9.2%TIER II (B/E) 0.0% 1.0%CAPITAL ADEQUACY RATIO (D/E) 11.1% 11.9%

(*) According to Instruction no. 16/2004 of the Bank of Portugal, excluding the result generated in 2010, the capital adequacy ratio is 10.6%, TIER I is 10.7% and Core Tier I is 9.4%.

Santander Totta, SGPS maintains a strong capital base, which can be shown by the core Tier I ratio of 10.3% and a TIER I ratio of 11.2% as at December 31, 2010. The incorporation of the result of the year after the estimated distribution of dividends and the optimization of risk-weighted assets, including the adoption in December 2010 of internal models for most of the trading derivatives and other trading assets contributed to an increase in year 2010 of the core capital ratios Tier I. The ratio of capital adequacy has declined from 11.9% in December 2009 to 11.1% in December 2010, mainly as result of the subordinated loans redemption in the amount of tEuros 314,000.


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52. NOTE ADDED FOR TRANSLATION These financial statements are a translation of the financial statements originally issued in Portuguese

language. In the event of discrepancies, the Portuguese language version prevails.

APPENDIX I

1000

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 IndexBonds issued

Bonds

Agro(ENERGIA INVEST FEI) EUR 14.273 - 14.273 318 - 318 26 14.617 Floating 7-18-2006 7-18-2011 Basket of shares: Archer-Daniels Midland Co; Monsanto Co; Syngenta AG; K+S AG; Agrium Inc

Agua(ENERGIA INVEST FEI) EUR 14.273 - 14.273 318 - 318 26 14.617 Floating 7-18-2006 7-18-2011 Basket of shares: Archer-Daniels Midland Co; Monsanto Co; Syngenta AG; K+S AG; Agrium Inc

Aqua Rendimento Clientes EUR 59.669 18.873 40.796 889 - 889 114 41.799 Floating 8-21-2006 8-22-2011 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 of Barcelona - Class A; Kurita Water Industries Ltd

AutoCallable 80-20 EUR 8.055 - 8.055 - - - (901) 7.154 Floating 6-7-2010 6-7-2011 Basket of sharesAutoCallable 80-20 2ª serie EUR 14.750 - 14.750 - - - (2.912) 11.838 Floating 8-30-2010 8-30-2013 Basket of sharesBanca(MULTISECTOR INVEST FEI) EUR 15.794 - 15.794 367 - 367 36 16.197 Floating 5-9-2006 5-9-2011 Basket of sharesBio Energia(ENERGIA INVEST FEI) EUR 14.272 - 14.272 317 - 317 26 14.615 Floating 7-18-2006 7-18-2011 Basket of shares: Abengoa SA; AES Corp; Pacifc Ethanol Inc; Medis

Technologies Ltd; Earth Biofuels IncCabaz Mundial Euribor Clientes EUR 7.650 50 7.600 - - - (261) 7.339 Floating 1-21-2008 1-21-2011 Basket of 3 indexesCabaz Mundial Euribor II EUR 5.500 - 5.500 - - - 21 5.521 Floating 3-7-2008 3-7-2011 3 indexesCabaz Mundial Outubro 2012 EUR 7.050 - 7.050 - - - (2.160) 4.890 Floating 10-12-2009 10-12-2012 Basket of indexesConverg. Europeia ( FEI INVEST MULTIESTRATEGIA) EUR 14.924 - 14.924 265 - 265 56 15.245 Floating 6-14-2007 6-14-2011 2 stock exchange indexesDividendos ( FEI INVEST MULTIESTRATEGIA) EUR 14.924 - 14.924 265 - 265 56 15.245 Floating 6-14-2007 6-14-2011 2 stock exchange indexes Energias Renováveis 10% VI EUR 5.900 - 5.900 - - - 1 5.901 Floating 3-25-2008 3-25-2011 Basket of sharesEolica(ENERGIA INVEST FEI) EUR 14.273 - 14.273 318 - 318 26 14.617 Floating 7-18-2006 7-18-2011 Basket of shares: Vestas Wind Systems AS; Gamesa Corporation

tecnologica SA; FPL Group Inc; Clipper Windpower Plc; Iberdrola SA

Euro Banca 7,00% Clientes EUR 85.000 10.917 74.083 - - - 503 74.586 Floating 4-30-2007 5-30-2011 Basket of 5 shares and share indexEuro Premium 7,00% Clientes EUR 12.940 1.149 11.791 158 - 158 63 12.012 Floating 4-30-2007 5-2-2011 Basket of 10 shares and share indexEuropa 5 EUR 7.424 - 7.424 216 - 216 (263) 7.377 Floating 3-8-2010 3-8-2013 Basket of sharesEuropa 5 2ªserie EUR 3.094 - 3.094 47 - 47 (89) 3.052 Floating 5-25-2010 5-25-2013 Basket of sharesEuropa 155 EUR 1.920 - 1.920 - - - (19) 1.901 Floating 6-28-2010 6-28-2014 Share indexInfra-estruturas Aeronautica (INFRA-ESTR. FEI) EUR 18.530 - 18.530 358 - 358 25 18.913 Floating 2-20-2007 2-21-2011 Basket of 5 sharesInfra-estruturas Energia (INFRA-ESTR. FEI) EUR 18.530 - 18.530 358 - 358 25 18.913 Floating 2-20-2007 2-21-2011 Basket of 5 sharesInfra-estruturas Telecomunicações (INFRA-ESTR. FEI) EUR 18.530 - 18.530 358 - 358 25 18.913 Floating 2-20-2007 2-21-2011 Basket of 5 sharesInfra-estruturas Transportes (INFRA-ESTR. FEI) EUR 18.530 - 18.530 358 - 358 25 18.913 Floating 2-20-2007 2-21-2011 Basket of 5 sharesInfra-estruturas Utilities (INFRA-ESTR. FEI) EUR 18.530 - 18.530 358 - 358 25 18.913 Floating 2-20-2007 2-21-2011 Basket of 5 sharesInvestimento Premium 8,25% Clientes EUR 15.020 1.621 13.399 - - - 43 13.442 Floating 3-26-2007 3-28-2011 Basket of 4 sharesJapão ( FEI INVEST MULTIESTRATEGIA) EUR 14.923 - 14.923 264 - 264 56 15.243 Floating 6-14-2007 6-14-2011 Stock Exchange indexMedia (MULTISECTOR INVEST FEI) EUR 15.794 - 15.794 367 - 367 36 16.197 Floating 5-9-2006 5-9-2011 Basket of sharesObrigaçoes Europa 2ªSerie EUR 1.210 - 1.210 - - - (47) 1.163 Floating 11-9-2009 11-9-2012 Basket of sharesOPV Asia Pacifico(OPV INVEST FEI) EUR 10.384 - 10.384 210 - 210 45 10.639 Floating 12-12-2006 12-12-2011 Indexes: IPOX - 30 Asia Pacific - price return; Nikkei 225OPV E.U.A(OPV INVEST FEI) EUR 10.384 - 10.384 210 - 210 45 10.639 Floating 12-12-2006 12-12-2011 Indexes: IPOX - 30 U.S. - price return; Standard&Poors 500 Composite

priceOPV Europa e Asia Pacifico(OPV INVEST FEI) EUR 10.384 - 10.384 210 - 210 45 10.639 Floating 12-12-2006 12-12-2011 Indexes: IPOX - 30 Europe - price return; IPOX - 30 Asia Pacific - price

return; Dow Jones EuroStoxx 50 - price return - EUR ; Nikkei 225

OPV Europa e E.U.A (OPV INVEST FEI) EUR 10.384 - 10.384 210 - 210 45 10.639 Floating 12-12-2006 12-12-2011 Indexes: IPOX - 30 Europe - price return; IPOX - 30 U.S. - price return; DowJones EuroStoxx 50 - price return - EUR ; Standard&Poors 500 Composite price

OPV Europa(OPV INVEST FEI) EUR 10.384 - 10.384 210 - 210 45 10.639 Floating 12-12-2006 12-12-2011 Indexes: IPOX - 30 Europe - price return; Dow Jones EuroStoxx 50 - price return - EUR

Performance Mais EUR 63.095 62.334 761 66 66 - (1.268) (507) Floating 11-24-2009 11-24-2014 Basket of indexes

Performance Mais II EUR 13.731 13.633 98 4 4 - (432) (334) Floating 12-22-2009 1-15-2015 Basket of indexesPremium Bens de Luxo Clientes EUR 11.778 414 11.364 - - - (14) 11.350 Floating 9-17-2007 12-19-2011 Basket of sharesRendimento China 8% Clientes EUR 100.447 17.587 82.860 1.631 - 1.631 31 84.522 Floating 1-22-2007 1-24-2011 Index FTSE Xinhua China 25Rendimento China Premium 10% Clientes EUR 15.000 2.854 12.146 236 - 236 5 12.387 Floating 2-12-2007 2-14-2011 Index FTSE Xinhua China 25Rendimento Europeu EUR 99.796 94.948 4.848 469 446 23 (759) 4.112 Floating 8-6-2009 8-6-2014 Stock Exchange indexRendimento Global EUR 3.767 - 3.767 - - - (125) 3.642 Floating 1-18-2010 1-18-2013 Basket of sharesRendimento Premium 7,5% 2ª Serie Clientes EUR 9.020 918 8.102 - - - 11 8.113 Floating 6-1-2006 6-1-2012 Indexes: ABN AMRO Alfa Index Europe e Dow Jones Euro Stoxx 50 - Price

Return Rendimento Valor Global Clientes EUR 68.900 21.627 47.273 - - - 208 47.481 Floating 9-25-2006 9-26-2011 Stock exchange 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

Santander Rendimento Certo Clientes EUR 19.963 4.167 15.796 - - - - 15.796 Floating 1-31-2005 1-31-2013 Euribor 1 yearSantander Rendimento Cresce 6% EUR 15.719 2.888 12.831 - - - (1) 12.830 Floating 8-25-2005 8-25-2011 Dow Jones Stoxx Small 200 Index; Dow Jones Stoxx Small 50 Index

Seguros (MULTISECTOR INVEST FEI) EUR 15.794 - 15.794 367 - 367 36 16.197 Floating 5-9-2006 5-9-2011 Basket of sharesSolar (ENERGIA INVEST FEI) EUR 14.273 - 14.273 318 - 318 26 14.617 Floating 7-18-2006 7-18-2011 Basket of shares: Solarworld AG; Q-Cells AG; Energy Conversion Devices

Inc; Conergy AG; Evergreen Solar Inc

SANTANDER TOTTA - SGPS, S.A.

DEBT SECURITIES ISSUED AS AT DECEMBER 31, 2010 (NOTE 24)

(Amounts expressed in thousands of Euros – tEuros)

Amount of the issue

(Translation of financial statements originally issued in Portuguese - Note 52)

207

APPENDIX I

1000

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 IndexBonds issued


DEBT SECURITIES ISSUED AS AT DECEMBER 31, 2010 (NOTE 24)


Amount of the issue


ST Diversificaçao Invest 1º amortização Clientes EUR 23.913 22.549 1.364 1.939 1.825 114 (476) 1.002 Floating 3-17-2009 3-28-2011 EUR3MST Diversificaçao Invest 2º amortização Clientes EUR 23.913 22.549 1.364 - - - (476) 888 Floating 3-17-2009 3-28-2013 EUR/USDST Diversificaçao Invest 3º amortização Clientes EUR 23.913 22.549 1.364 - - - (476) 888 Floating 3-17-2009 3-28-2015 Basket of indexesST Diversificaçao Invest 4º amortização Clientes EUR 23.913 22.549 1.364 - - - (476) 888 Floating 3-17-2009 3-28-2017 Basket of indexesSuper Rendimento Campeão Clientes EUR 58.906 7.414 51.492 - - - 221 51.713 Floating 8-23-2007 11-23-2012 Basket of 5 sharesTaxas de Cambio ( FEI INVEST MULTIESTRATEGIA) EUR 14.924 - 14.924 265 - 265 56 15.245 Floating 6-14-2007 6-14-2011 Exchange ratesTaxas de Juro ( FEI INVEST MULTIESTRATEGIA) EUR 14.924 - 14.924 265 - 265 56 15.245 Floating 6-14-2007 6-14-2011 Interest rate swap usdTelecomunicações(MULTISECTOR INVEST FEI) EUR 15.794 - 15.794 367 - 367 36 16.197 Floating 5-9-2006 5-9-2011 Basket of sharesTotta MultInvestimento Clientes EUR 84.511 81.064 3.447 4.634 4.286 348 59 3.854 Floating 2-28-2006 2-28-2011 Basket of fundsTotta Rendimento Certo Clientes EUR 54.986 12.343 42.643 - - - - 42.643 Floating 1-31-2005 1-31-2013 Euribor 1 yearTotta Rendimento Cresce 6% Clientes EUR 57.053 9.871 47.182 - - - (5) 47.177 Floating 8-25-2005 8-25-2011 Dow Jones Stoxx Small 200 Index; Dow Jones Stoxx Small 50 Index

Utilities (MULTISECTOR INVEST FEI) EUR 15.794 - 15.794 367 - 367 36 16.197 Floating 5-9-2006 5-9-2011 Basket of sharesValor Premium Clientes EUR 11.665 646 11.019 - - - 2 11.021 Floating 6-25-2007 6-27-2011 Index FtseUROFIRST 80Valorização Performance 5 anos EUR 21.533 - 21.533 28 - 28 (1.395) 20.166 Floating 9-30-2010 9-30-2015 Basket of indexesValorização Performance 5 anos OUTUBRO 2010 EUR 9.987 - 9.987 8 - 8 (749) 9.246 Floating 11-2-2010 11-2-2015 Basket of indexesValorização Dolar EUR 3.645 - 3.645 - - - (134) 3.511 Floating 4-12-2010 4-12-2013 EUR/USD exchange rate

1.423.859 455.514 968.345 17.913 6.627 11.286 (11.216) 968.415

Bonds - Securitized

Covered Bonds EUR 1.000.000 - 1.000.000 28.929 - 28.929 10.230 1.039.159 4,75% 5-23-2008 5-23-2011 Fixed interest rateCovered Bonds - 2nd emission EUR 1.000.000 44.150 955.850 4.698 33 4.665 20.687 981.202 3,25% 10-21-2009 10-21-2014 Fixed interest rateCovered Bonds - 3rd emission EUR 1.000.000 25.400 974.600 17.692 477 17.215 1.976 993.791 2,63% 4-15-2010 4-15-2013 Fixed intetest rate until maturity, floating if maturity is extendedHipototta 1 - Class A - Notes EUR 247.612 169.933 77.679 301 12 289 - 77.968 Floating 7-25-2003 11-25-2034 Euribor 3m+0.27% (until early reimbursement in August, 2012); Euribor

3m+0.54% (after early reimbursement)Hipototta 4 - Class A - Notes EUR 1.256.344 338.113 918.231 (2.409) 21 (2.430) - 915.801 Floating 12-9-2005 12-30-2048 Euribor 3m+0.12% (until early reimbursement December, 2014); Euribor

3m+0.24% (after early reimbursement)Hipototta 5 - Class A2 - Notes EUR 1.136.262 239.568 896.694 508 247 261 - 896.955 Floating 3-22-2007 2-28-2060 Euribor 3m+0.13% (until early reimbursement February, 2014); Euribor

3m+0.26% (after early reimbursement)5.640.218 817.164 4.823.054 49.719 790 48.929 32.893 4.904.876

7.064.077 1.272.678 5.791.399 67.632 7.417 60.215 21.677 5.873.291

OTHEREMTN's EUR 2.470.420 651.260 1.819.160 24.373 3.274 21.099 (3.669) 1.836.590EURO COMMERCIAL PAPER EUR 112.493 - 112.493 299 - 299 - 112.792

2.582.913 651.260 1.931.653 24.672 3.274 21.398 (3.669) 1.949.382

TOTAL DEBT SECURITIES ISSUED 9.646.990 1.923.938 7.723.052 92.304 10.691 81.613 18.008 7.822.673

208

APPENDIX II


EQUITY INSTRUMENTS AND SUBORDINATED LIABILITIES AS AT DECEMBER 31, 2010 (NOTE 26)



Accrual Total ofSubscribed or Consolidated Subscribed or Consolidated Consolidated

repurchased Balance repurchased Balance Balance Interest Early repaymentSecurities issued Currency Total by the Group Sheet Total by the Group Sheet Sheet rate Maturity as from:

- Subordinated Perpetual Bonds 2000 EUR 270.447 270.447 - 224 224 - - 3,02% Perpetual June 22, 2010- Subordinated Perpetual Bonds CPP 2001 EUR 4.275 4.275 - 42 42 - - 2,76% Perpetual February 23, 2011- Subordinated Perpetual Bonds BSP 2001 EUR 41.541 41.541 - 412 412 - - 2,76% Perpetual February 23, 2011

- Subordinated Loan 2002 - Totta IFIC EUR 10.000 10.000 - 21 21 - - 1,03% Perpetual- Subordinated Loan 2007 - Totta IFIC EUR 50.000 50.000 - 3 3 - - 1,69% Perpetual June 29, 2017- Subordinated Perpetual Bonds 98 EUR 2.993 2.993 - 1 1 - - 3,78% Perpetual December 30, 2008- Subordinated Perpetual Bonds - Totta Seguros 2002 EUR 14.000 14.000 - 2 2 - - 2,84% Perpetual

393.256 393.256 - 705 705 - -

Amount of the issue

209

Documents

Annual Report 2010 - Santander · 2014-12-15 · Secretary António Miguel Leonetti Terra da Mota Board of Directors Chairman António Mota de Sousa Horta Osório (1) Vice Presidents