MATERIAL FACT

Banco Santander, S.A. discloses information in connection with the flexible compensation scheme "Santander Dividendo Elección" (scrip dividend scheme) to be applied to the second 2017 interim dividend. An informative document is enclosed for purposes of article 26.1.e) of Royal Decree 1310/2005, of 4 November (implementing Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading).

Boadilla del Monte (Madrid), October 16, 2017

INFORMATIVE DOCUMENT CAPITAL INCREASE CHARGED TO RESERVES

BANCO SANTANDER, S.A.

October 16, 2017

THIS DOCUMENT HAS BEEN PREPARED IN ACCORDANCE WITH ARTICLE 26.1.E) OF ROYAL DECREE 1310/2005.

  1. OBJECT

    The ordinary general shareholders' meeting of Banco Santander, S.A. ("Banco Santander", "Santander" or the "Bank") held on April 7, 2017 resolved, under item six of its agenda, to increase the share capital of Banco Santander, with full charge to reserves, in an amount to be determined in accordance with the terms and conditions set out in the resolution (the "Increase"), delegating the execution of the Increase to the board of directors, with authority to delegate in turn to the executive committee, pursuant to article 297.1.a) of the consolidated Spanish Capital Corporations Law, as passed by means of Royal Legislative Decree 1/2010, of 2 July ("Spanish Capital Corporations Law").

    The executive committee of the Bank, in the meeting held on October 16, 2017, has resolved to execute the Increase in accordance with the terms and conditions set out by the ordinary general shareholders' meeting, and has fixed the overall market value of the Increase (Amount of the Alternative Option) in 640 million Euro, pursuant to that resolution of the general shareholders' meeting.

    In accordance with article 26.1.e) of Royal Decree 1310/2005, of 4 November (implementing Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading), the preparation and publication of a prospectus related to the admission to listing of the shares issued as a consequence of the execution of the Increase will not be necessary "provided that a document is made available containing information on the number and nature of the shares and the reasons for and details of the offer". This informative document provides such information. This document is available at the Bank's website (www.santander.com) and at the CNMV's website (www.cnmv.es).

  2. PURPOSE OF THE INCREASE: "SANTANDER DIVIDENDO ELECCIÓ N" SCHEME

    The Increase serves as an instrument for the shareholder-compensation scheme named "Santander Dividendo Elección" which shall be applied to the second 2017 interim dividend in October / November 2017. This scheme allows shareholders to opt between receiving newly issued Santander shares or an amount in cash broadly equivalent to the second interim dividend of 2017. The "Santander Dividendo Elección" scheme is similar to other programs implemented in the past by other international banks and extended among some of the companies which form part of the IBEX-35. With it Santander's shareholders will be able to adapt their compensation to their preferences and personal situation, also benefiting from a more favourable tax treatment in case they opt to receive new shares.

    "Santander Dividendo Elección" scheme works as follows. Each shareholder will receive a bonus share right for every Santander share held. These rights will be listed on and may be traded on the Spanish Stock Exchanges during a 15 calendar day period. Following the end of this period, the rights will be automatically converted into new Santander shares. Each shareholder may opt for one of the following alternatives:

  3. Receive new Santander shares. In this case, the shareholder will receive free of charge the number of shares corresponding to the number of rights held. The delivery of shares will not be subject to Spanish withholding tax.

  4. Receive a cash payment broadly equivalent to the traditional second interim dividend. To this end, Banco Santander has assumed an irrevocable commitment to acquire the bonus share rights for a fixed price. This option will be offered only to shareholders who have

    acquired their Santander shares no later than 23:59h on the date on which the announcement of the Increase is published in the Official Bulletin of the Commercial Registry ("BORME") (envisaged for 17 October, 2017, as set out in the calendar shown in Section 3.4 below) and who appear as shareholders in the registries of the Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, SAU (Iberclear) as at 23:59h on 19 October 2017, and only with regard to the bonus share rights granted free of charge. Consequently, the bonus share rights acquired on market may not be tendered in Banco Santander´s offer. This option will be subject to the same tax treatment as a dividend distribution and, therefore, the amount to be paid to the shareholders is currently generally subject to a 19 % Spanish withholding tax deduction.

  5. Receive a cash payment through selling rights on market. Given that the rights will be listed, the shareholders may sell them on market at any time during the trading period described in section 3.5 below at the prevailing market price rather than at the guaranteed price offered by Banco Santander. The proceeds for the on market sale are currently subject to a 19% Spanish withholding tax deduction for shareholders who are resident in Spain.

  6. Additionally, shareholders will be able to combine the above mentioned alternatives in view of their specific needs.

    Shareholders who do not make an election will receive new shares unless they have previously given (in previous programs) permanent instructions as described in section 3.5 below.

  7. DETAILS OF THE OFFER
  8. Number of rights needed and number of shares to be issued
  9. Pursuant to the formulae set forth in section 2 of the general shareholders' meeting resolution, the executive committee has set the following details of the Increase:

    1. The number of bonus share rights needed to receive a new share is 142. The shareholders of Banco Santander who have acquired their Santander shares no later than at 23:59h on the day of publication of the announcement of the Increase in the Official Bulletin of the Commercial Registry ("BORME") (envisaged for October 17, 2017) and who appear as shareholders in the registries of Iberclear as at 23.59h on 19 October 2017, will be allotted a bonus share right for each share of Santander held. Therefore, the aforementioned shareholders will have the right to receive a new share for each 142 old shares held on the mentioned date.

      Such number of rights has been calculated as follows, considering that the number of outstanding shares of the Bank is 16,040,573,446, that the Amount of the Alternative Option is 640,000,000 Euros, as indicated above, and that the average market price of the Santander share in the term set out in the capital increase resolution (PreCot) is 5.664 Euros:

      Num. rights = NTAcc / (Amount Alternative Option / PreCot) = 16,040,573,446 / (640,000,000 / 5.664) = 141.95907499710 = 142 rights (rounded up to the nearest whole number).

    2. The number of shares to be issued is 112,961,784. Nevertheless, the actual number of shares which shall be finally issued may be lower, as it will depend on the number of rights acquired by Banco Santander under its commitment to purchase bonus share rights.

    Banco Santander SA published this content on 16 October 2017 and is solely responsible for the information contained herein.
    Distributed by Public, unedited and unaltered, on 16 October 2017 20:19:11 UTC.

    Original documenthttps://www.santander.com/csgs/Satellite/CFWCSancomQP01/en_GB/pdf/HR161017gb.pdf

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