"The Future Is Not What It Used to Be," But It's Time to Reassert Our Trust in Banking

Because I am confident about the future of banking. Since 2008, we have implemented many changes. Mark Carney, the governor of the Bank of England, said this summer that "reform is strengthening the resilience of major banks."
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This post is drawn from Ana Botín's speech at the VIII Santander International Banking Conference.

The American baseball great, Yogi Berra, once said "the future is not what it used to be."

I for one have been to enough conferences in recent years where the future of our industry was said to be in jeopardy.

We have had the crisis, the regulatory response, and years of low interest rates. The very business model and indeed relevance of banks has been questioned.

An important regulator said recently over dinner with bankers that we have to "get real!" - and this was not meant as a compliment.

Just last month, I read a piece in the Financial Times which described banks as "huge whales", easy targets for the "nimble piranhas" at financial technology start-ups.

But my hope today is that you will leave here inspired. Confident that the challenges we have endured together have made us strong - and that the future really isn't what it seemed to be in the dark years following the crisis.

Because I am confident about the future of our industry.

Since 2008, we have implemented many changes. Mark Carney, the governor of the Bank of England, said this summer that "reform is strengthening the resilience of major banks."

This has involved increasing capital in the system ten-fold and liquid assets four-fold.

But it also involves our collective efforts to improve our conduct. The way we do things.

I am confident that our experience, our scale, our intimate knowledge of the needs of our customers put us on the front line of economic and social progress.

We can help on the micro scale by lending to small and medium sized enterprises which create the most jobs in our societies.

We can support innovators and entrepreneurs.

We can help families buy their homes and invest in their educations.

We can also help on the macro scale by partnering with governments and contributing to stable economies.

We can help companies committed to addressing global challenges such as climate change.

I believe more than ever in the importance of responsible banking to help in all these challenges and many more.

And I much hope that after today's discussions, you will share in my confidence.

Throughout our history, Santander has seen change as an opportunity to improve our business.

During the 1990s and 2000s, we responded to changes in Europe's banking industry by growing rapidly through acquisitions.

This brought us the advantages and responsibilities of scale.

Today, we serve more than 100 million customers in markets with a billion people.

Our opportunity now is to deliver the strength and trust demanded of a major global bank with the agility of an entrepreneurial firm.

We must adapt our model, our networks and relationships, to an environment of accelerating technological change.

We must constantly upgrade our risk management and lending standards to ensure growth and stability - while delivering banking services which are better, more reliable, faster and cheaper in increments of milliseconds and fractions of a cent.

We must deal with the challenge and fall-out of "too big to fail", while competing with start-ups that have not caught the eye of the regulators.

These tensions are straining the traditional business model for banks and challenging the expectations of investors.

But I believe that there is a way to resolve these tensions.

It is by focusing on what we do best: sustainability built on a strong team and long term customer relationships

Taking the best of what we have always done and making it fresh and relevant for this new era.

If we were to read the minds of today's regulators and draw up a model for a "preferred challenger bank" it would be small and local, with balanced exposure and funded with retail deposits.

It would serve SMEs and be content with an ROE of 5%.

That ideal bank is not easy to find! The closest might be an American regional bank.

The world economy needs a diverse ecosystem with large and small, global and local banks, with different business models, funding structures and groups of customers.

Size is not the issue. What matters for our economic security is whether a bank is capable of being managed effectively.

And in that sense, I believe that Santander comes close to the regulators' ideal. We are a global bank, but the roots of our strength are local.

We have critical mass in nine countries and are a force in European Consumer Lending.

We give our country managers and local boards the authority to manage and build their businesses, because we trust that they are the best placed to understand their markets and their customers.

But we demand accountability in return.

That blend of trust and accountability is at the core of how we manage. We want every branch in every country to be local , even as it takes advantage of being part of the Santander Group.

And be in no doubt that those advantages are significant.

When we moved into the UK SME market six years ago, we had the size to invest in sophisticated risk assessment systems to serve customers rejected by the incumbent banks - whilst maintaining a prudent risk profile.

We have since increased our support to these SMEs with 70 regional centers, more advisors and more banking services for the businesses which drive economic growth.

Our size has enabled us to help thousands of European companies to grow within Europe and to take their first steps in Latin America, and vice versa for our customers in Latin America.

Large, international banks contribute to trade and investment flows among countries.

Large banks play an important role in collaborating with the public sector.

They help execute fiscal policy through efficient tax collection.

They assist in security by implementing anti-bribery and money-laundering procedures.

They create the financial tools to fund infrastructure and other public needs. They can help address major social problems such as climate change by investing in renewable energy companies and setting an example through their environmental risk policies.

There is a lot of talk about banks being dis-intermediated in this new world.

But what is actually happening is that companies which are not banks are doing some bank-like things: making payments, granting credit and even providing maturity transformation.

They are competing in significant niches of our market.

But they are not banks. They operate on a different timeframe. And they cannot do most of the things we can.

We can lead because we have our customers' trust..

We can deliver value in ways which are unique.

But to stay relevant, we must address three key areas: responsibility; adaptability; and profitability.

Responsibility is not a choice for Santander. It is essential to our culture.

In practical terms it means ensuring that everything we do is simple, personal and fair.

Simple, because we believe that is the way to generate trust and loyalty. To ensure clarity in the pursuit of our mission of helping people and businesses prosper.

Simplicity also leads to transparency, an important value in this digital age.

Personal, because we aim to make life easier for our people and customers. Even with big data, we believe that everyone deserves to be treated as an individual, with respect. Not just as a number.

Fair, because we believe that fairness leads to trust, and trust to prosperity. In 1975, there were only 5,000 mobiles in the world and no smartphones.

Today there are 3.6 billion. 81% are smartphones.

The number of networked devices is multiplying.

And the exponential growth of technology is leading to greater fairness by breaking down barriers for millions more to learn and to network. To access new services, raise their productivity and fulfill their potential.

We are experiencing a social revolution as much a technological one - and we want to be able to play our part.

When banks behave responsibly, they can operate and compete effectively and prosper with their customers.

Santander's model of operating strong, local banks makes us more resilient in the face of volatility.

We operate in Europe and the Americas, the developed and developing worlds. And we are proud that our approach to banking and geographic diversification meant we did not experience a negative year or even a quarter at any stage of the crisis.

We have paid dividends to our shareholders for the last least fifty years.

And we have increased our net profit by 54% in 2 years (first 9 months of 2015 vs. first 9 months of 2013).

Operating from a strong balance sheet delivers the security which regulators and customers demand, and the stability from which to pursue continuous improvement.

We will continue to change and adapt from this position of strength.

All of us in banking know that our customers' expectations are being transformed by technology.

They want to bank as easily as they text or share photographs.

There are already many start-ups offering slick payments, peer-to-peer lending, low-cost currency transactions.

These businesses are digital natives. They employ great engineers and operate without our cost and regulatory overheads. Customers love them.

Take Blockchain. It offers a simple and very attractive proposition: faster, cheaper settling of transactions. It is already changing our industry.

We can participate in this change but it requires, first, to change how we operate internally. Every bank, including ours, is becoming a technology company.

It requires also, to learn how to partner with the best financial technology firms on the planet.

I spend a lot of time talking to technologists and young companies in financial technology. I can see how exciting it is to work at a start-up.

But I always invite those I meet to imagine the impact of their technology delivered over our platform to our 100 million customers.

Santander offers one of the greatest platforms for financial innovation that exists. We invite innovators, entrepreneurs and engineers to work with us, so they can reach the largest possible number of customers. And so we can become a better bank.

Relentless change of all types, has taken a toll on our industry. We have and will struggle to deliver the level of returns our investors enjoyed before the crisis.

The cost of equity for European banks has remained at around 10% throughout these past, years.

But the returns on that equity have dropped sharply from 20% in 2007 to around 4% today.

Added to the very low interest rates and muted growth in key developed markets this has proved challenging for the banking sector.

That is simply the reality of the post-crisis banking world.

The good news is that [I hope] we are closer to the end than the beginning of this cycle which started with the financial crisis.

We expect to see global growth accelerate soon and with it our capacity to grow with our customers and generate higher returns. The IMF estimates that global GDP will rise from 3.1% this year to 3.6% in 2016.

Policy makers are openly supporting growth, and their structural reforms are starting to bear fruit. Low energy prices are helping manufacturers and consumers.

The regulatory environment, so uncertain for so long, finally seems to be settling into something we can depend on for the foreseeable future.

The Tier 1 capital in European banks grew from 9% in 2009 to 12% in the first quarter of 2015.
From 2010 to 2015, Europe's banks raised $300 billion in fresh capital.

Now it's time to put our new strength to work.

Internally, we are transforming our organization, reassessing how we run the bank and the sources of our revenue.

We no longer think about growth purely in terms of market share or assets. Our goal now is profitable organic growth, transforming our commercial model, which will allow us to maximize our earnings per share.

These are major changes and they will take time.

Yet, even as we change, we continue to deliver dividends and increase our profits.

When a bank is profitable, there is so much it can do.

It can lend more to its customers.

It can help create jobs and support economic growth.

It can reinvest its earnings to deliver better products and services.

It can return higher dividends to its investors.

And it can create philanthropic programs like Santander Universities, through which we invest hundreds of millions of Euros in universities and research institutes around the world to support students and social progress. Responsibly earned profit is an honorable goal. All of us should be proud to pursue it.

Yogi Berra was right. The future isn't what it used to be.

But if we approach it in the right way, it can be better than ever.

We can be better than ever at fulfilling our purpose of helping people and businesses prosper.

Our changing, complex environment requires organizations capable of turning well-thought out strategies into action.

The leaders of these organizations must welcome new knowledge and new challenges. They must value effort and learn from failure.

And above all they must act with integrity.

Christine Lagarde said recently that "without integrity, the best regulatory and governance structures can be gamed."

Perhaps she had been listening to Warren Buffett, who once observed: "You want to hire people with three qualities: integrity, intelligence and energy. And if you don't have the first, the other two will kill you."

Banking has never lacked for people of great intelligence and energy. It is our integrity which will determine our success in the years ahead. Thank you very much.

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