♪ francine: welcome to "leaders." santander is one of the oldest and biggest banks in the world. with a footprint in spain, brazil, the u.k., and the united states, it is a truly global bank with more than 100 million customers. now, recently, the spanish lender has undergone several big changes, most recently when emilio botin, the executive chairman, passed away in 2014. his daughter, ana botin, took over from her father and quickly implemented a share sale of 7.5 billion euros. well, in her first television interview since becoming

chairman, i speak exclusively to ana botin about her vision, emerging markets, and regulation. ana botin, thank you so much for joining us here at bloomberg. we have seen these huge changes in the last 12 months. are we going to see more, or are you happy where the bank is now? ana: the last 12 months have been very intense. the capital raise and changing the dividend policy, but more important the governance of the people changes on the board. not just as a group but in many subsidiaries and the team. we changed the ceo's in our five big countries. that is over. we are ready to actually start executing on our strategy. francine: and your strategy is what -- simpler and fairer? ana: santander has a very strong base, so we are present in 10 core geographies. 10 countries. santander consumer markets with a billion people where we have 170 million customers. and so everything, our focus

going forward is going to be how to do more business with these customers. a hundred million are in our banks and only 13 million are loyal out of 50 million active customers. and so all our strategy is how can we make our customers be better santander customers? so if i ask you, francine, who do you bank with, you say santander. francine: and that makes me a loyal customer. ana: yes, that is not a very ambitious step, there is much more we can do with you -- but that first step is making you a loyal customer, that when they ask you, you say santander is my bank. francine: no asset sales and no further capital raising? ana: we have huge potential just to grow with our existing customers so we do not need to buy. we don't need to buy. we have and we will continue to look at opportunities in our core markets, but that is not

something we need to do. francine: how do you make a customer loyal? is it service, is it marketing, is it something else? ana: i think today, you need to do everything right, so i think customers have high expectations. so you need to deliver excellent service. you need to deliver great products. and you need to deliver them in a very cost-efficient way. i.e., the price has to be right. and the best example is our 1, 2, 3 strategy which we started in the u.k. and we now are rolling out in spain, and it is a strategy. it is about loyal customers, it is about lasting relationships with our customers. francine: the 1, 2, 3 account is something that is quite expensive because you give back to customers. you do make them loyal, but are you concerned that you are giving too much away? or actually is loyalty the most important thing because then you can grow in the years from now? ana: we want to be the best retail and commercial bank. we want to be the best commercial bank for our people, our customers, our shareholders, and our communities.

the strategy has to make sense for our customers, but also for our shareholders. the reason we can square the circle is we have a best in class cost income. we reported in june a cost income ratio of a little bit less than 47%. that is best in class among all the large banks in the world, and that is what allows us to deliver great products with great prices and excellent service. now we are not there yet by any means, and that is exactly what we are going to work on over the next few years, is how we do that in our larger markets. francine: and what was so successful in the u.k. that you can replicate elsewhere? ana: when i was in the u.k. we were probably one of the worst, if not the worst bank in the u.k. in terms of service and since then we are ranked pretty much at the top. and that is very important. also we have, i think, come up with a strategy that customers like, so we have been the biggest beneficiary of the switching service. we are very much a challenge bank. i like to say this. we are a scale challenger, but

we are bringing competition to the u.k. i believe that it is a product that pays interest, gives you cash back, and delivers a great digital experience for people. and i think that is what customers are valuing. francine: so that is what you want to be and push forward. at a time when a lot of european banks are chasing this high net worth individual, the wealth manager, that is not what you want? ana: of course i want that. francine: as well. ana: we want to do high-end retail and commercial banking for the affluent. the majority of the customers in the u.k. are affluent that are coming to us because even though we are only trying to convert active into loyal, we are actually attracting a lot of new customers. so when i say we want to convert customers and make them loyal, we are not going to tell you not to join santander from another bank. we welcome everybody. francine: is there another bank

that you look at and you want to be like a little bit? i'm thinking of wells fargo. is that a right business model or not? ana: there is many similarities and i think the potential and what wells fargo has done -- i admire them a lot in the u.s. -- is not very different from what we are doing. the difference is that we have a billion people in our core market. that is a big number. so the potential growth i think is probably bigger all the time. francine: your share price has come under pressure. i would not say significant pressure, but under pressure. how much do you think that is out of your control? ana: well, i would like -- and i know this is a big ask -- i think we should be measured since we increased capital. we did very well until about mid-april. our share price was up 16%, 17%. in line or better than most of our peers. since then, there have been a number of issues. you know, brazilian banks are

down i think it is 35% since then. spanish banks are down. polish banks are down. so it is the market. i think what is important is that we have shown very strong results and our latest results, profits were up 25%. you know, we have increased our capital ratio to close to 10%. cost income, i mentioned the 47%, and returns on equity, 11.5%. these are our june numbers. and very importantly, after having increased our profits by 30%, so we are doing well. unfortunately, you know, global growth is slowing down and emerging markets are now out of favor, and so that is not helping us. francine: coming up after the break, we find out how currency and emerging market volatility play into santander strategy.

ana: i think global growth will be slower, so it is obviously going to slow down. china is a big economy. i think the most important thing about santander is we are very balanced. francine: more from my exclusive interview with ana botin when we return. ♪

♪ francine: santander is a bank with a huge presence in emerging markets. it needs to have a strategy that cushions volatility. ana botin, the chair of santander, tells us the bank is well-balanced to manage these factors. ana: i think global growth will be slower, so it is obviously going to slow down. china is a big economy. i think the most important thing about santander is we are very balanced. so 50% roughly of our earnings are coming from developed markets, which are huge

beneficiaries of what is going on. so, you know, spain, germany -- we are the biggest consumer bank in germany with a 14% market share. we have a very good business in the u.s. with good returns. we could do much better, but it is doing well. so, you know, that provides a very, very strong buffer against all the emerging markets. i always say santander tends to do better when things are complicated because we are not stable. when things -- everything is doing very well, we are usually going to underperform. and again, if you look at any point in time, if you look january to april, we did really well. so if you look january to now -- i'm quite confident on what we can do for the next few years, in spite of emerging markets, you know, being a bit volatile at the moment. francine: talk to me about

brazil. we talked a little bit about emerging markets and the turmoil in emerging markets. brazil is going through a really rough time independently of what is happening in china. how do you see that business developing? ana: so -- so, our brazilian business for quite a while actually was not performing as well as we would have liked. that is quite clear, and i acknowledge we did not do as well as we should have for a number of years. the last year, 18 months, we have done a lot better. we have done a lot. we have de-risked the bank, which is very important for the times ahead of us. we have strengthened the management also. recently, we have appointed a new ceo. our current ceo has done a very good job on the team on that side. it is not going to be easy, and i think brazil has -- you know,

there is two possibilities. one is the one we believe in. as always -- brazil has had a number of the situations in the past -- has always taken the path of making the reforms, which are not easy for the people and the economy, and that is what is happening right now. and we believe that is going to continue to be the case. there is another scenario which is more negative, that would mean more years of low growth or recession. we think brazil has taken the right measures so far and we are confident that after maybe 2015, and 2016 or half of 2016, we will see growth again. the currency has, you know, depreciated significantly and this will allow exports and volumes to grow hopefully in the next year. not now, but a year forward. francine: how much do you worry about currencies? do you have a fair value for the euro? at the moment, it looks like it is going all over the place. and this will have an influence, of course, on santander. ana: so, currencies have been positive for santander this year. there will probably be a negative effect on our p&l next year, right? because of the latin american currencies.

so our businesses, we expect to do very well, but we will be dragged down by the currency when we convert our earnings into -- into euros. we hedge our capital 100%, so that is not an issue. it is very difficult to know what the fair value of the euro is. i do not know if it is 115, or 112, 118. usually currencies tend to overshoot, so we had the euro at 135, 140. clearly that was not -- you know, the purchasing power parity was not there. it is probably more at 115, so it is roughly where we are today. if it overshoots, it is very hard to know. at the end, currencies move according to improvements. again, our business in europe we expect to do better over the next few years because our customers are doing better. you know, i was just with a customer who buys a lot of things from china, and consumption is going up in spain. and the cost of, you know, of all those products to import is

going down, so they are going to be very competitive. spain has been growing exports in a very significant way over the last 12 months. and so, you know, that should be -- that is one of the effects of the cheaper euro. francine: what is your main concern overall? if we have a global recession, is there something the markets or you think bankers are not really seeing the moment? ana: well, i mean, my biggest challenge is really executing on a strategy. so, you know, we know where we want to go. we now need to execute. again, we are a bank. it is not going to be as exciting as the last 12 months. it is not going to be about new people and raising capital. that is over. it is now about executing for our customers and continuing to deliver for our shareholders, and that is a big task. ok? you know, i always think about our people and our team. if we do not have the best team

-- if we cannot attract the best team -- i want to have the best team in the u.k., the best team in brazil, and i think we have that today. we can maybe do a bit more in terms of building and strengthening at the second and third level, but i think we are at a pretty good place. and then of course the macro is the biggest challenge we all have. but like i said, the balance between developing and developed at santander, so those 10 core markets are in europe and the americas. it is a split between developing and developed, and that will give us more stability than others. as things get quite bad, we should do better than others. now, we will be affected, but less than others. that is what i believe will happen. francine: coming up after the break, we talk regulation, diversity, and how technology is helping santander customers. ana: apple pay is not a good business for santander, but it is a good business for our customers, so i think eventually it will be a great business for us. francine: more from ana botin when we return. ♪

♪ francine: she is one of the most high-profile businesswomen in the world, running a bank with more than 100 million customers. in her first ever television interview since taking over santander, ana botin voices her concerns about taxation in the

u.k. and regulation in europe. ana: i think you need competitive taxation. if london wants to be competitive with other financial centers, it is very important that the u.k. authorities understand how they are taxing financial institutions in the u.k., vis-a-vis other centers. i think with the changes next year we are at a disadvantage in the u.k. i say "we" because we are a part of the u.k. i always say santander always does well in the u.k. we are very much a challenger bank in this country. in the u.k. it has to be competitive with other centers, and at the moment, i do not think it is for the next few years. francine: are european banks in general at a disadvantage because we are that far behind in getting our act together? does the q.e. hurt your margins? ana: no, the u.s. did all the changes, the u.k. has done most

of them. continental europe, the rest of europe is sort of in the process. this has a cost, and so qe needs banks that can then transmit qe to the economy, right, so we can make loans and give you a mortgage and fund a startup. because regulation has still not been implemented in many aspects -- i think i was told in brussels a few days ago there is still 300 pending pieces of legislation in banks. i heard the number 400. let's say it is between 300 and 400. this means that banks are going to be holding back a bit, even though we are increasing lending. for example, we are increasing lending in spain right now, but i think there is a drag effect because of this uncertainty and because this regulation is still in the process of being implemented. francine: you mentioned the u.s. there are concerns around the u.s. because the feds failed the stress tests on santander. how are you addressing it?

ana: i want to say it is not just the fed. we need to meet our own very demanding internal standards. we are working very hard. the first thing we did was change the team and the governance, so we have a new board in the u.s., a new chairman at the level, at santandar consumer, and a new team. so i believe we now understand what we need to do, and our aim is to show significant progress, significant progress next year on the regulatory agenda. francine: so you are keeping it, there is nothing up for sale? ana: we are absolutely committed to the u.s. it is a great country, in spite of the regulatory difficulties. our return on equity in the u.s. is 8.5%, which is not that bad. right? it covers our cost of equity. our aim is to get to 11% return on equity. but as i said, very importantly to meet the regulatory requirements and our own standards. francine: do you worry about

disruptors? about new entrants? i know the recent research shows that only two people out of 10 want an only-online experience. but how much do you look at the competition? you were talking, for example, about offering apple pay as a service. ana: apple pay is not a good business for santander, but it is a good business for our customers, so i think eventually it will be a great business for us. in the u.k., we were in the first group. our customers love it, and we did it because a significant proportion of our santander u.k. customers had an iphone, so we thought we have to offer them apple pay as soon as we can. what is interesting is that we now developed a great app around apple pay, which is making customers more loyal to santander because you can see where you spend money. it is a great tool, and it is very popular. i think we need to continue to innovate, and i think that is the key thing.

having said this, i think the important thing -- and i said this recently in frankfurt at a meeting -- you know, we need a fair play market for all, so the rules have to be the same for banks and new entrants. and i think this is incredibly important. so sharing information, you know -- if i share my customer information, the new entrants should share customer information, because otherwise it is very difficult to run a business. so i think that is a key thing. francine: do you think they will? do you think the regulators are looking at this and understanding? because the problem with disruptors is they move so fast that regulators have to understand the market. ana: i think they are, and i think one of the things we are doing also, and i think there is many of these new companies with which we are collaborating. we are working with apple for

apple pay. funding circle, we are the first bank to team up with them. when i say no to a customer because my lending criteria does not accept his or her credit rating, we send them to funding circle. so i believe in collaboration with the new entrants, but not with all of them, because some of them are actually, you know, not ready to do that. but i think we are trying very hard to work with the new entrants and also to do our own disruptive strategies. francine: and you are considered probably one of the most influential europeans across the globe, and on a most influential around the world list, we seem to understand there are fewer europeans that there should be given the population in this region. why do you think that is? ana: we need more diversity, and it is not just about women. i think we need more diversity in companies and boards. i think women are a significant part of that diversity. i am very proud that we now have a woman chair in the u.k., a woman chair in santander consumer. and we are increasing, you know, the programs to support senior women.

i think it is a matter of time, but there is a lot of work to do, and i think we need to work together with the men. i always say when i get invited to an event where there is only women, you know, you are preaching to the converted, so we need to work together with senior people in the companies to make sure that we can do something. we need to do more. clearly we need to do more. and i think we need to incentivize business leaders to actually do this because it is great for the business. i am convinced it is going to be good not just for the woman but good for the companies. francine: in three years, where will you be, and where will the bank be? ana: we are setting very ambitious targets, so in terms of financial targets, i think in a very ambitious place, but very importantly, you know, i want us to be the best bank in many more markets. we are already the best -- and when i say the best, the best for our people, our customers, also our shareholders, and communities. i think in some of the smaller countries like portugal and chile, we are already there. we want to be there in many more

of our 10 core markets. we define "best," as i said, not just for our shareholders but for all of our stakeholders. francine: thank you so much, ana botin, for speaking with bloomberg. ana: thank you so much. ♪

♪ francine: welcome to bloomberg's davos debate. i am francine lacqua. how can the chinese economy headed -- and how can the economy shift gears without stalling? what is the perception of china, and the task facing regulators. say, an i am pleased to