Please answer the following questions,

using the following passage or any online sources.

5. Why did he not want to set up his own Santander Bank there? 6. What could he have done differently had he not opted to buy Abbey National bank, and why not another bank? (Examples could be Lloyds Bank, Royal Bank of Scotland) 7. What is Parthenon? 8. Find something about Parthenon and link it to Santander Bank SANTANDER: The masters of retail banking Clive Horwood Friday, July 01, 2005 Santander is one of the most remarkable stories in modern banking. Even the group's highly-ambitious chairman, Emilio Botin, is amazed at how the bank has grown from a small Spanish domestic bank to a place in the global top 10 in just 20 years. He reveals the strategy that has made Santander what it is today. Suche Botin: the man and his mission/ Getting back to the Abbey habit/ Awards for excellence- Best bank EMILIO BOTIN calls him the dealmaker. So when Juan Rodriguez Inciarte flew into London in the summer of 2004, it was with a specific - if surprising-purpose in mind. Inciarte spent three days visiting branches of troubled UK retail bank Abbey. He took with him an expert in UK retail banking. Inciarte, the CEO of Santander Consumer, turned up unannounced and pretended to be a customer, attempting to find out more about the bank's products. He wanted to know everything about Abbey's business - branch location, the quality of customer services, the scope of products. After Inciarte flew back to Spain to meet his chairman, a decision was quickly made. Abbey had been identified as a chance to break into Europe's largest and most profitable banking market. Santander's expertise in retail banking would quickly halt, and then reverse, Abbey's profitability. Inciarte arranged to meet Luqman Arnold, the former UBS banker who in October 2002 had been appointed CEO of Abbey to sort out the mess on its balance sheet caused by the collapse of Abbey National Treasury Services. Did Arnold know what was coming? He did not have to wait long to find out. Inciarte headed straight into questions about the business, such as the average number of customers per branch and the average number of products taken up by each customer. Arnold was a brilliant investment banker but had little experience of the retail market. These were not the sort of numbers he had immediately to hand. Inciarte jumped in for the kill. "This is the reason why we should run Abbey," he is alleged to have told Arnold. A few days later, a deal was agreed. The Abbey board announced its recommendations of an all-share offer from Santander valuing Abbey at 8.5 billion( $15.5 billion) 1 Despite a concerted attempted by Abbey's rival HBOS to scupper the bid, the ground- breaking takeover was completed just 108 days after the initial offer. The Abbey deal completed a remarkable two decades for the Santander group, during which it had grown from being the world's 152nd largest bank by market capitalization to the ninth largest, and the seventh largest by assets. It is widely regarded as one of the best - if not the best-retail banking groups. It operates in more than 20 countries, with growing businesses in Latin America and central Europe. And its successful takeover of Abbey, the largest cross- border bank merger in Europe to date, looks set to inspire a wave of consolidation throughout the continent's retail banking industry. Stuff of dreams "Twenty years ago I would never have dreamt that we would be the ninth-largest bank in the world, with projected earnings of over 5 billion Euros," Botin, the chairman of Santander, tells Euromoney. "In the mid 1980s our profits were just 200 million Euros." But he says that the basic model has not changed throughout those 20 years, "We are always conservative and risk averse," he says. "Banks fail because they make bad loans. We are much more conservative than the industry in general." Although now in his eighth decade, Botin still exudes enormous energy, with that hints of mischief that marks out the truly successful. His tie is red, the same hue as Santander's corporate colour. So are the ties of all his colleagues around the table. For someone who takes branding so seriously, Santander's corporate logo -a flame- is somehow appropriate. The fire still burns strongly within Botin, despite almost 50 years at the bank. When Botin took over the reins of Santander from his father in 1986 at the age of 52, the bank was only the sixth largest in Spain. "We knew there had to be consolidation in Spanish banking, and that to survive and prosper Santander had to be one of the three largest banks in the country, "he says. "We are very proud of Abbey, which represents one-third of the Santander group today. The takeover of Central Hispano was also crucial. But without a doubt the most important development in our recent history was buying Banesto. It changed the fabric of the bank. We knew if we wanted to be an international player, we needed to be the number one bank in our home market. Banesto made that possible. It was a quantum leap for Santander." Botin has made a habit of forming alliances with other, largely domestic, banking groups in Europe. None has been more important than Santander's relationship with Royal Bank of Scotland. It began in the late 1980s. Each bank took a stake in the other, and two seats on the board. Botin and Inciarte joined RBS's board, and RBS's then chairman, Lord Younger, and chief executive, George Mathewson, sat in Santander's boardroom. 2 Botin adds: "You cannot overestimate the importance of this relationship. Each time we met, we challenged each other, shared ideas and offered our support. We learnt a lot from each other. And we were there to support each other when help was needed. Analysts cannot understand the importance of such relationships." In any event, Botin says that his stake in RBS was one of the bet investment decisions he has ever made. "We earned 23% return on income on an annualized basis from our stake in RBS over the past 17 years," he says. That is a total return to shareholders of about 4.5 billion Euros. And sitting on the board of RBS for 17 years gave Santander something that was priceless - a unique insight into the UK retail banking market, which meant its management, could hit the ground running when the Abbey takeover was complete. Remaining ambitions Santander is unique among the world's 10 largest banks in deriving the vast majority -82%- of its revenues from retail banking. And Santander is rapidly growing its consumer finance business, in both western and central Europe. It has quickly become the third-largest consumer finance business in Europe. The Microsoft of Banking Retail is in the detail. It's a commonly used phrase when it comes to describing the key to success in retail banking. But attention to detail is not the only competitive advantage that Santander believes it has over its retail banking rivals in Europe. The group has developed a technology platform that it says allows all of its European retail networks to be more flexible, more proactive and more cost efficient than any other bank-so much so, in fact, that its senior managers like to think of Santander as the Microsoft of retail banking. But the platform that now drives Santander's business throughout Europe - called Parthenon - was happy accident. Its first incarnation was thought up by bankers at Banesto. When Santander bought Banesto, Fuster realized the opportunity. "Banesto had started something which had real potential. The senior management of Santander recognized Parthenon's potential and invested heavily in it." To date, the total investment in Parthenon stands at about 500million Euros. But the savings for Santander are estimated at about 265 million Euros a year. The system should be fully operational within the Abbey network, as well as for Santander Totta in Portugal, in 2007. 3 Abbey's CEO, Francisco Gomez-Roldan, says that Parthenon should save the UK bank 100 million annually after three years, and more in subsequent years. The cost of bringing the Parthenon software into Abbey and then implementing the new system across the bank is budgeted at around 240 million. The first challenge in creating a retail bank technology platform is to integrate accounting with management information systems, and then reconciling each of these with a data warehouse of every customer's activity with the bank across each product silo, form personal accounts to debit and credit cards. More recently, new channels have been added to the equation through the growth of non- branch customer activity, such as internet banking. Each new channel or silo creates its own operational risk and, hence, operating cost. The strategic issue for bank management is, therefore, finding a way to integrate customer and channel management. Santander's solution was redesign all of its applications to a new customer-oriented architecture, where the customer database is at the heart of the system. Alongside this, a product catalogue identifies all of the bank's products in one place, making cross-selling much easier. In addition, all of this information is reconciled into a catalogue of all banking operations and a continuous settlement model. The general directory of operations took more than 10 years to develop. To give an indication of the undertaking, Parthenon has 111 applications and more than 6,000 banking operations. Another advantage of Parthenon is that it allows the dissimilar parts of the Santander group. to share in each other's product expertise. "If Abbey, for example, wants to launch a new product it can see if it is in the products catalogue shared with SCH, Banesto and Totta, "says Furster. "That saves a lot of time and investment." Fuster believes most of UK banks are relatively inefficient and exposed to operational risks as they still adopt a silo approach to banking technology, although they are in the process of integrating branches with off-site business channels such as ATMs and telephone and internet banking. Gomez-Roldan says that one of the key advantages of Parthenon is that the cost base hardly rises as business activity grows. "In effect Parthenon gives you a flat back office, "he says. The negative view Not everyone shares this rosy view of Santander. Botin has made quite a few enemies during his career. He has been ruthless in ridding the bank of people who do not share his vision or whom he perceives as a threat. The most famous example of this was the ousting, in 2002, of Angel Corcostegui, who had become CEO and vice-chairman of Santander Central Hispano following the merger of the two banking groups, after internal disputes about the composition of the bank's board. At the time of the consolidation in 1999, 4 Santander and Banco Central Hispano had been described as a "merger of equals". But the board remained heavily slanted in Botin's favour. This allowed Botin to bring back his daughter, Ana Patricia, who had been forced to leave the bank in 1999 following press reports of a power struggle between her and Corcostegui. This perceived nepotism is seen as anomalous in one of the world's top banks, especially as the Botin family owns less than 3% of group stock. A high profile - and Botin is known variously as the Don of Spanish banking and the Pharaoh in his own country- makes you a target. And Botin has also been the target of disgruntled Spanish shareholders and inquisitive magistrates in a high-profile court case. The next challenges for Santander But these are sideshows. The future of Santander involves three major issues. Abbey is the real test to whether the Santander model can work in any retail market. UK retail banking is highly competitive, with six major firms all wanting to be the number one player. The second is the succession issue. Botin says he is going nowhere. In his heart he would surely like his daughter, who now runs Banesto, to take over the firm. But will his increasingly diverse group of institutional investors, many of them US and UK institutions new to Santander since the Abbey takeover, allow it? Botin is at least aware that he needs to raise the profile of trusted and skilled lieutenants such as Santander's CEO Alfredo Saenz, Inciarte and Gomez-Roldan. And the third is what happens next. Although Botin claims to be focusing his attention on organic growth, he is a dealmaker. If an opportunity arises, he will surely take it. Santander's management keep their cards close to their chests. They like to execute deals quickly and without attracting attention. Italy is an obvious candidate for expansion. And would Botin be prepared to chance his arm in the notoriously unprofitable retail banking market in Germany? One thing is sure- if there is a takeover, you won't know about it until the deal is agreed. Unless you spot Juan Inciarte in your local branch. 5 5. Why did he not want to set up his own Santander Bank there? 6. What could he have done differently had he not opted to buy Abbey National bank, and why not another bank? (Examples could be Lloyds Bank, Royal Bank of Scotland) 7. What is Parthenon? 8. Find something about Parthenon and link it to Santander Bank SANTANDER: The masters of retail banking Clive Horwood Friday, July 01, 2005 Santander is one of the most remarkable stories in modern banking. Even the group's highly-ambitious chairman, Emilio Botin, is amazed at how the bank has grown from a small Spanish domestic bank to a place in the global top 10 in just 20 years. He reveals the strategy that has made Santander what it is today. Suche Botin: the man and his mission/ Getting back to the Abbey habit/ Awards for excellence- Best bank EMILIO BOTIN calls him the dealmaker. So when Juan Rodriguez Inciarte flew into London in the summer of 2004, it was with a specific - if surprising-purpose in mind. Inciarte spent three days visiting branches of troubled UK retail bank Abbey. He took with him an expert in UK retail banking. Inciarte, the CEO of Santander Consumer, turned up unannounced and pretended to be a customer, attempting to find out more about the bank's products. He wanted to know everything about Abbey's business - branch location, the quality of customer services, the scope of products. After Inciarte flew back to Spain to meet his chairman, a decision was quickly made. Abbey had been identified as a chance to break into Europe's largest and most profitable banking market. Santander's expertise in retail banking would quickly halt, and then reverse, Abbey's profitability. Inciarte arranged to meet Luqman Arnold, the former UBS banker who in October 2002 had been appointed CEO of Abbey to sort out the mess on its balance sheet caused by the collapse of Abbey National Treasury Services. Did Arnold know what was coming? He did not have to wait long to find out. Inciarte headed straight into questions about the business, such as the average number of customers per branch and the average number of products taken up by each customer. Arnold was a brilliant investment banker but had little experience of the retail market. These were not the sort of numbers he had immediately to hand. Inciarte jumped in for the kill. "This is the reason why we should run Abbey," he is alleged to have told Arnold. A few days later, a deal was agreed. The Abbey board announced its recommendations of an all-share offer from Santander valuing Abbey at 8.5 billion( $15.5 billion) 1 Despite a concerted attempted by Abbey's rival HBOS to scupper the bid, the ground- breaking takeover was completed just 108 days after the initial offer. The Abbey deal completed a remarkable two decades for the Santander group, during which it had grown from being the world's 152nd largest bank by market capitalization to the ninth largest, and the seventh largest by assets. It is widely regarded as one of the best - if not the best-retail banking groups. It operates in more than 20 countries, with growing businesses in Latin America and central Europe. And its successful takeover of Abbey, the largest cross- border bank merger in Europe to date, looks set to inspire a wave of consolidation throughout the continent's retail banking industry. Stuff of dreams "Twenty years ago I would never have dreamt that we would be the ninth-largest bank in the world, with projected earnings of over 5 billion Euros," Botin, the chairman of Santander, tells Euromoney. "In the mid 1980s our profits were just 200 million Euros." But he says that the basic model has not changed throughout those 20 years, "We are always conservative and risk averse," he says. "Banks fail because they make bad loans. We are much more conservative than the industry in general." Although now in his eighth decade, Botin still exudes enormous energy, with that hints of mischief that marks out the truly successful. His tie is red, the same hue as Santander's corporate colour. So are the ties of all his colleagues around the table. For someone who takes branding so seriously, Santander's corporate logo -a flame- is somehow appropriate. The fire still burns strongly within Botin, despite almost 50 years at the bank. When Botin took over the reins of Santander from his father in 1986 at the age of 52, the bank was only the sixth largest in Spain. "We knew there had to be consolidation in Spanish banking, and that to survive and prosper Santander had to be one of the three largest banks in the country, "he says. "We are very proud of Abbey, which represents one-third of the Santander group today. The takeover of Central Hispano was also crucial. But without a doubt the most important development in our recent history was buying Banesto. It changed the fabric of the bank. We knew if we wanted to be an international player, we needed to be the number one bank in our home market. Banesto made that possible. It was a quantum leap for Santander." Botin has made a habit of forming alliances with other, largely domestic, banking groups in Europe. None has been more important than Santander's relationship with Royal Bank of Scotland. It began in the late 1980s. Each bank took a stake in the other, and two seats on the board. Botin and Inciarte joined RBS's board, and RBS's then chairman, Lord Younger, and chief executive, George Mathewson, sat in Santander's boardroom. 2 Botin adds: "You cannot overestimate the importance of this relationship. Each time we met, we challenged each other, shared ideas and offered our support. We learnt a lot from each other. And we were there to support each other when help was needed. Analysts cannot understand the importance of such relationships." In any event, Botin says that his stake in RBS was one of the bet investment decisions he has ever made. "We earned 23% return on income on an annualized basis from our stake in RBS over the past 17 years," he says. That is a total return to shareholders of about 4.5 billion Euros. And sitting on the board of RBS for 17 years gave Santander something that was priceless - a unique insight into the UK retail banking market, which meant its management, could hit the ground running when the Abbey takeover was complete. Remaining ambitions Santander is unique among the world's 10 largest banks in deriving the vast majority -82%- of its revenues from retail banking. And Santander is rapidly growing its consumer finance business, in both western and central Europe. It has quickly become the third-largest consumer finance business in Europe. The Microsoft of Banking Retail is in the detail. It's a commonly used phrase when it comes to describing the key to success in retail banking. But attention to detail is not the only competitive advantage that Santander believes it has over its retail banking rivals in Europe. The group has developed a technology platform that it says allows all of its European retail networks to be more flexible, more proactive and more cost efficient than any other bank-so much so, in fact, that its senior managers like to think of Santander as the Microsoft of retail banking. But the platform that now drives Santander's business throughout Europe - called Parthenon - was happy accident. Its first incarnation was thought up by bankers at Banesto. When Santander bought Banesto, Fuster realized the opportunity. "Banesto had started something which had real potential. The senior management of Santander recognized Parthenon's potential and invested heavily in it." To date, the total investment in Parthenon stands at about 500million Euros. But the savings for Santander are estimated at about 265 million Euros a year. The system should be fully operational within the Abbey network, as well as for Santander Totta in Portugal, in 2007. 3 Abbey's CEO, Francisco Gomez-Roldan, says that Parthenon should save the UK bank 100 million annually after three years, and more in subsequent years. The cost of bringing the Parthenon software into Abbey and then implementing the new system across the bank is budgeted at around 240 million. The first challenge in creating a retail bank technology platform is to integrate accounting with management information systems, and then reconciling each of these with a data warehouse of every customer's activity with the bank across each product silo, form personal accounts to debit and credit cards. More recently, new channels have been added to the equation through the growth of non- branch customer activity, such as internet banking. Each new channel or silo creates its own operational risk and, hence, operating cost. The strategic issue for bank management is, therefore, finding a way to integrate customer and channel management. Santander's solution was redesign all of its applications to a new customer-oriented architecture, where the customer database is at the heart of the system. Alongside this, a product catalogue identifies all of the bank's products in one place, making cross-selling much easier. In addition, all of this information is reconciled into a catalogue of all banking operations and a continuous settlement model. The general directory of operations took more than 10 years to develop. To give an indication of the undertaking, Parthenon has 111 applications and more than 6,000 banking operations. Another advantage of Parthenon is that it allows the dissimilar parts of the Santander group. to share in each other's product expertise. "If Abbey, for example, wants to launch a new product it can see if it is in the products catalogue shared with SCH, Banesto and Totta, "says Furster. "That saves a lot of time and investment." Fuster believes most of UK banks are relatively inefficient and exposed to operational risks as they still adopt a silo approach to banking technology, although they are in the process of integrating branches with off-site business channels such as ATMs and telephone and internet banking. Gomez-Roldan says that one of the key advantages of Parthenon is that the cost base hardly rises as business activity grows. "In effect Parthenon gives you a flat back office, "he says. The negative view Not everyone shares this rosy view of Santander. Botin has made quite a few enemies during his career. He has been ruthless in ridding the bank of people who do not share his vision or whom he perceives as a threat. The most famous example of this was the ousting, in 2002, of Angel Corcostegui, who had become CEO and vice-chairman of Santander Central Hispano following the merger of the two banking groups, after internal disputes about the composition of the bank's board. At the time of the consolidation in 1999, 4 Santander and Banco Central Hispano had been described as a "merger of equals". But the board remained heavily slanted in Botin's favour. This allowed Botin to bring back his daughter, Ana Patricia, who had been forced to leave the bank in 1999 following press reports of a power struggle between her and Corcostegui. This perceived nepotism is seen as anomalous in one of the world's top banks, especially as the Botin family owns less than 3% of group stock. A high profile - and Botin is known variously as the Don of Spanish banking and the Pharaoh in his own country- makes you a target. And Botin has also been the target of disgruntled Spanish shareholders and inquisitive magistrates in a high-profile court case. The next challenges for Santander But these are sideshows. The future of Santander involves three major issues. Abbey is the real test to whether the Santander model can work in any retail market. UK retail banking is highly competitive, with six major firms all wanting to be the number one player. The second is the succession issue. Botin says he is going nowhere. In his heart he would surely like his daughter, who now runs Banesto, to take over the firm. But will his increasingly diverse group of institutional investors, many of them US and UK institutions new to Santander since the Abbey takeover, allow it? Botin is at least aware that he needs to raise the profile of trusted and skilled lieutenants such as Santander's CEO Alfredo Saenz, Inciarte and Gomez-Roldan. And the third is what happens next. Although Botin claims to be focusing his attention on organic growth, he is a dealmaker. If an opportunity arises, he will surely take it. Santander's management keep their cards close to their chests. They like to execute deals quickly and without attracting attention. Italy is an obvious candidate for expansion. And would Botin be prepared to chance his arm in the notoriously unprofitable retail banking market in Germany? One thing is sure- if there is a takeover, you won't know about it until the deal is agreed. Unless you spot Juan Inciarte in your local branch. 5