Banco Santander : Santander launches EUR 7,072 million rights issue to support the acquisition of Banco Popular

• The rights issue, which is fully underwritten will allow shareholders to subscribe 1 share for every 10 shares they hold at a price of €4.85 per share, a discount of 17.75% compared to the theoretical ex-rights price ('TERP') based on the closing price at 3 July 2017.
• It is expected that the preemptive subscription period will begin on 6 July 2017 and will last until 20 July 2017. New shares are expected to begin trading on 31 July 2017 with full dividend rights from their issuance date, expected to be 27 July 2017.
• The transaction will support the acquisition of Banco Popular, which is expected to deliver a return on investment of 13-14% by 2020. The net impact of the Banco Popular acquisition and the rights issue on Santander's CET1 capital ratio will be neutral.
• During the first half of 2017, before considering the contribution of Popular, Santander earned an estimated attributable profit of €3,600 million euros, up 24% when compared to the same period last year, and +11% excluding exceptional items recorded in the first half of 2016 and the impact of currency movements.

Banco Santander Group Executive Chairman, Ana Botín, said:
"The acquisition of Popular is a unique opportunity to accelerate our strategy in Spain and Portugal. We expect it will deliver excellent returns for the bank and its shareholders, while providing important stability for Popular's customers and the Spanish economy. We expect the acquisition will enhance all our key financial performance measures for the Group from 2019 and beyond, generating a return on investment of 13-14% by 2020"

Madrid, 03 de julio de 2017 - Banco Santander, S.A. ("Santander") is today launching a rights issue to raise a total of €7,072 million. The transaction will support the acquisition of Banco Popular Español, S.A. ("Popular") as announced on 7 June 2017.

Santander will issue 1,458 million new shares of the same class and series as those already outstanding, providing existing shareholders preferential subscription rights.

Santander shareholders will be able to subscribe 1 new share for every 10 shares they hold for a price of €4.85 per share, a discount of 17.75% when compared to the theoretical ex-rights price (TERP) based on the closing price at 3 July 2017. Shareholders who wish to exercise their right to subscribe shares may do so for a 15-day period, from 6 July to 20 July 2017.

The prospectus needed for the rights issue is pending approval from CNMV, the Spanish market regulator.

To participate in the rights issue shareholders may contact the bank or custodian where their shares are held.

The new shares are expected to begin trading on 31 July 2017 with full dividend rights from their issuance date, expected to be 27 July 2017. The board reported on 7 April this year that it intends to pay a full year dividend for 2017 of €0.22 per share. The first interim dividend for 2017 of €0.06 per share will be paid on 4 August 2017.

The transaction is fully underwritten, with Santander, Citi and UBS acting as global coordinators, and Banca IMI, Barclays, BBVA, BNP Paribas, CaixaBank, Crédit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, ING, Jefferies, Mediobanca, Morgan Stanley, RBC, Société Générale and Wells Fargo acting as bookrunners.

Expected timeline:

• 3 July - Rights issue terms announced
• 6 July - Subscription period begins
• 20 July - Subscription period ends
• 27 July - Closing of capital increase
• 28 July - H1 results presentation
• 31 July - New shares begin trading
• 4 August - First 2017 dividend payment

Banco Santander estimated results - First Half 2017

To ensure shareholders have a clear view of the Banco Santander's financial performance, the Bank has today published details of its estimated performance for the six months ending 30 June 2017. The results statement for the period will be published on 28 July 2017.

Banco Santander (before considering the contribution of Popular)

Banco Santander expects to post an attributable profit for the first half of 2017 of approximately €3,600 million, an increase of 24% when compared to the same period last year. Excluding exceptional items recorded in the first half of 2016 and the impact of currency movements, profit is expected to increase by 11%.

Excluding currency movements: Total revenues are expected to increase by approximately 7% compared to the first half of 2016, driven by an increase in net interest income (+6%) and fee income (+11%). Costs are expected to have risen by slightly less than 4%, below average inflation across the Group's main markets.

Loan loss provisions are estimated to reduce by approximately 6% with the cost of credit remaining below 1.2% (1.19% at 30 June 2016). The Group's non-performing loan rate is expected to improve to 3.6% with the coverage ratio remaining stable at c.73%.

The Group's fully loaded common equity tier 1 ("CET1") capital ratio is expected to increase during the period to 10.7%.

Estimated contribution to Santander of Banco Popular

Banco Popular and its subsidiaries are consolidated in the accounts of the Santander Group as of 7 June 2017, the date of the acquisition. After the integration of Popular, Santander's net attributable profit, as of June 30, 2017, will vary only minimally relative to the estimated €3.6 billion that would have resulted had the acquisition not taken place.

Banco Popular contributes net loans of approximately €82 billion and deposits of €65 billion, representing approximately 10% and 8.5% respectively of the Group's overall loans and deposits following integration.

Banco Popular's non-performing loan ratio is c.20%, with an estimated coverage ratio of 61% following the acquisition adjustments. It has approximately €17.5 billion (gross) in real estate assets which, after write downs, are reduced to €6.5 billion in net book value, with a resulting coverage ratio of approximately 63%.

The non-performing loan and coverage ratios of the Group after the acquisition of Banco Popular stand at approximately 5.4% and 70% respectively.

The fully loaded CET1 ratio at 30 June, following the completion of the announced €7,072 million share issue, will be approximately 10.7%.

It is expected that any goodwill resulting from the purchase price adjustments of the acquisition will be immaterial in the context of the deal. The main adjustments occur due to the recognition of Popular's property assets and customer loans at fair value. This will entail an approximate value reduction of €7.2 billion. Under accounting rules, Santander has until June 2018 to definitively assess the fair value of Banco Popular's assets and liabilities.

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