Board of Governors of the Federal Reserve System

Washington, DC 20551

February 5, 2019

Mr. Scott Powell, CEO

Santander Holdings USA, Inc.

75 State Street, 5th Floor

Boston, MA 02109

Dear Mr. Powell:

Pursuant to the Board’s Regulation YY, Santander Holdings USA, Inc. (“Santander”) is

required to participate in the supervisory and company-run stress tests for the stress test cycle

that starts on January 1, 2019.1 For the reasons stated below, the Board is providing relieffor

Santander from all regulatory requirements, including disclosure requirements, related to

supervisory stress testing and company-run stress testing for the 2019 stress test cycle and is

providing related relieffrom certain capital planning and regulatory reporting requirements that

would otherwise apply in the 2019 stress test cycle. In addition, as discussed in detail below,

Santander will not be required to submit a capital plan to the Board in 2019, or participate in the

2019 Comprehensive Capital Analysis and Review (“CCAR 2019”).2

1 Pub. L. No. 111-203, 124 Stat. 1376 (2010); see 12 CFR 252, subparts E and F. See 12 CFR

252.153(e)(5).

2 Santander remains subject to the requirement to develop and maintain a capital plan, and the

board of directors of Santander (or designated subcommittee thereof) remains subject to the

requirement to review and approve the firm’s capital plan.

3 12 CFR 252.3(b).

The Board may extend any compliance date in Regulation YY, including the dates of

compliance for the stress test requirements, ifit determines that such extension is appropriate.3

In determining whether an extension is appropriate, the Board considers the effect ofthe

modification on financial stability, the period oftime for which the modification would be

necessary to achieve compliance with Regulation YY, and the actions the company is taking to

come into compliance with Regulation YY.
In assessing a company’s risk profile, the Board takes into consideration the company’s

size, scope of operations, activities, and systemic importance. Size provides a measure ofthe

extent to which customers or counterparties may be exposed to a risk ofloss or suffer a

disruption in the provision ofservices if a firm were to experience distress and can serve as an

indicator of operational and managerial complexity. Nonbank assets may involve a broader

range ofrisks than those associated with purely banking activities, and reflect the degree to

which a firm may be engaged in activities through legal entities that are not subject to separate

capital requirements or to the direct regulation and supervision applicable to a regulated banking

entity. Other measures ofrisk include cross-jurisdictional activity, off-balance sheet exposure,

and weighted short-term wholesale funding, which provide measures of a firm’s complexity,

interconnectedness, and liquidity risk. As of September 30, 2018, Santander reported total

consolidated assets of $131.6 billion, $50.0 billion in nonbank assets, $10.7 billion in off-balance

sheet exposure,4 $4.7 billion in weighted short-term wholesale funding, and $8.7 billion in crossjurisdictional activity.

4 Measured as total exposure, as defined on FR Y-15, minus total consolidated assets, as

reported on the Consolidated Financial Statements for Holding Companies (FR Y-9C).

5 12 CFR 225.8(e)(1)(ii).

6 Id.

7 12 CFR 225.8(e)(1)(i), (iii).

In assessing Santander’s risk profile, the Board also considered reports of examination

and other supervisory information, including a review of Santander’s 2018 capital plan and

capital planning process, and the result ofthe Board’s 2018 supervisory stress test, as well as

other publicly reported information. In 2018, Santander received notice that the Federal Reserve

did not object to its capital plan or planned capital actions. Based on all the facts ofrecord, the

Board has determined to provide a one-year extension oftime for Santander to comply with the

Board’s stress test requirements. Specifically, Santander is not required to participate in the

Board’s supervisory stress test or conduct a company-run stress test for the 2019 stress test cycle.

Extension of 2019 capital plan submission requirement

Pursuant to the capital plan rule, Santander is required to submit a capital plan to the

Federal Reserve on an annual basis.5 Consistent with the relief described above, the Board is

providing a one-year extension ofthe requirement to submit a capital plan until April 5, 2020.6

Santander is not required to participate in CCAR 2019. Santander remains subject to the

requirement to develop and maintain a capital plan, and the board of directors of Santander (or

designated subcommittee thereof) must review and approve the firm’s capital plan.7 The Federal

Reserve will continue to review the capital planning and risk-management practices of Santander

through the regular supervisory process.

As noted above, Santander received notice that the Federal Reserve did not object to the

capital plan submitted in 2018, including distributions planned for the period beginning

July 1, 2018, through June 30, 2019. For the period beginning July 1, 2019, through
June 30, 2020, the Board has approved Santander to make capital distributions up to the amount

that would have allowed the firm to remain above all minimum capital requirements in CCAR

2018, adjusted for any changes in the firm’s regulatory capital ratios since the Federal Reserve

acted on the capital plan of Santander. In particular, Santander is authorized to distribute, net of

any issuance of capital, up to the sum ofthe following: (1) the additional capital the firm could

have distributed in CCAR 2018 and remained above minimum requirements; plus (2) capital

accretion, as measured by the change in its capital ratios since CCAR 2018; plus (3) its approved

planned capital distributions for the period January 1,2018, through June 30, 2019; minus (4) its

actual capital distributions in the first quarter of 2019 and its planned capital distributions for the

second quarter of 2019.8

8 This letter also constitutes approval under 12 CFR 217.20 for any repurchases or redemptions

of capital instruments made by Santander that are included in the amount of capital distributions

approved as part ofthis order. Such repurchases or redemptions must be included on the firm’s

list of planned distributions provided to the Board by April 5, 2019.

9 12 CFR 252.57(a)(1). If Santander’s capital plan includes any material business plan changes,

it may be required to provide supplemental information on any ofthese changes. The Board may

request additional information regarding Santander’s capital adequacy and capital planning. 12

CFR 225.8(e)(3).

10 If Santander wishes to make additional capital distributions beyond the amount approved

under this letter, Santander may submit a capital plan to the Board or submit a request to the

Federal Reserve for approval to make such distributions before March 1,2019, or after

July 1, 2019. 12 CFR 225.8(g)(4).

11 See, e.g., 12CFR217.11.

In addition, the Board is extending the deadline for submission of Schedule A -

Summary, Schedule B - Scenario, and Schedule F - Business Plan Changes ofthe FR Y-14A

until April 5, 2020.9 Santander must continue to submit Schedule C - Regulatory Capital

Instruments and Schedule E - Operational Risk ofthe FR Y-14A, as well as all FR Y-14M and

FR Y-14Q reports.

Santander must submit its planned capital actions for the period between July 1, 2019,

through June 30, 2020, by April 5, 2019.10 If Santander chooses to submit a capital plan to the

Board in the 2019 capital plan cycle notwithstanding the Board’s approval ofthe additional

capital distributions described above, Santander must submit the capital plan to the Board by

April 5, 2019, in accordance with the Board’s capital plan rule, and the firm will be subject to a

supervisory stress test by the Board, notwithstanding the relief provided in this letter.

The actions ofthe Board are based on the foregoing and all the facts ofrecord. The

actions should not be construed as granting relief from any other conditions or commitments to

which Santander may be subject, including regulatory capital requirements11 and any
requirements under the Board’s stress test rules and related reporting requirements in the year

2020. Please contact Celeste Molleur at 202-452-2783 if you have questions.

Sincerely yours, (signature)

Ann Misback

Secretary ofthe Board

cc: Theresa J. Barry, Vice President

Steven Fay, Exam Manager

Federal Reserve Bank ofBoston
Appendix: Details on Federal Reserve’s calculation of maximum approved planned capital

actions for 2019

The Federal Reserve will use the following worksheet to compute the maximum planned capital

distributions that Santander can make from July 1,2019, through June 30, 2020, without seeking

approval from the Federal Reserve.

Worksheet for determining pre-approved 2019-2020 capital distributions, millions of dollars

Line / Item

A

CET1

capital

ratio

B

Tier 1

risk-based

capital

ratio

C

Tier 1

leverage

ratio

D

Total riskbased

capital

ratio

1. CCAR 2018 distributable capital

a. Capital ratio as of 12/31/2018

b. Decline in capital ratio in CCAR 2018 1.6 2.2 1.9 2.4

c. Minimum Requirement 4.5 6.0 4.0 8.0

d. Capital ratio denominator as of 12/31/2018

2. Adjusted CCAR 2018 additional distributable

capital

= ((1.a - 1.b - 1.c)*(1.d/100))

3. Planned capital actions

a. Planned capital actions PQ1-6 of CCAR 2018 [redacted]

b. Actual capital actions 2019:Q1

c. Approved planned capital actions 2019:Q2

4. 2019:Q3 - 2020:Q2 capital distribution capacity

= (2. + 3.a - 3.b - 3.c)

5. Maximum approved capital actions for 2019:Q3-2020:Q2

a. Net planned distributions from tier 2 capital

=(4.D)

b. Net planned distributions from additional tier 1 capital

= (Min (4.B, 4.C,

4. D - Net planned distributionsfrom tier 2 capital))

c. Net planned distributions from CET1 capital

= (Min (4.A,

4.B - net planned distributionsfrom additional tier 1 capital,

4. C- net planned distributionsfrom additional tier I capital,

4. D - net planned distributionsfrom additional tier 1 and tier 2 capital))
The Federal Reserve will complete the worksheet computing the maximum planned capital

distributions that Santander can make from July 1, 2019, through June 30, 2020, consistent with

the following description of each line item:

Line 1. CCAR 2018 distributable capital.

This section includes the information necessary to determine the additional capital distributions

that the firm could have made in CCAR 2018 and remained above minimum capital

requirements in the supervisory quantitative assessment, adjusted for the firm’s updated starting

capital ratios.

Line 1.a. Capital ratio as of 12/31/2018.

The regulatory capital ratios calculated using the standardized approaches as reported on the FR

Y-9C as ofDecember 31,2018. Specifically, for line 1.a., column A, the common equity tier 1

capital ratio (BHCAP793); for line 1.a., column B, the Tier 1 capital ratio (BHCA7206); for line

1.a., column C, the Tier 1 leverage ratio (BHCA7204), and for line 1.a., column D, the total

capital ratio (BHCA7205).

1.b. Decline in capital ratio in CCAR 2018.

For each capital ratio, the decline in the capital ratio equals the starting capital ratio minus the

minimum capital ratios in the CCAR 2018 supervisory quantitative assessment under the

severely adverse scenario or in any subsequent supervisory quantitative assessment conducted to

evaluate a resubmitted capital plan.

1.c. Minimum Requirement.

The applicable minimum requirement for each regulatory capital ratio. Specifically, for the line

1.c., column A, a 4.5 percent common equity tier 1 ratio; line 1.c., column B, a 6 percent tier 1

capital ratio; line 1.a., column C, a 4 percent tier 1 leverage ratio, and column D, an 8 percent

total capital ratio.

1.d. Capital ratio denominator as of 12/31/2018.

The applicable denominator for each regulatory capital ratio using the standardized approaches

as reported on the FR Y-9C as of December 31, 2018. Specifically, for line 1.d., column A, B,

and D, total risk-weighted assets (BHCAA223) and for line 1.d, column C, total assets for the

leverage ratio (BHCAA224). To align with the format ofthe FR Y-14A, this item is divided by

1,000 so as to be expressed in millions of dollars.

2. Adjusted CCAR 2018 additional distributable capital.

For each column equal to (Line 1.a-line 1.b-line 1.c)*(line 1.d/100)).

This is the amount of additional capital the firm could have distributed in CCAR 2018 or in any

subsequent quantitative assessment conducted to evaluate a resubmitted capital plan and

remained above minimum requirements.
3. Planned capital actions.

The capital ratio declines in line 1.b. include the effect ofthe firm’s 2018 planned capital actions.

The sum ofthe additional distributable capital calculated in line 2 and the firm’s 2018 planned

capital actions comprise the maximum planned capital distributions that the firm can make for

the 2019 capital plan cycle without seeking approval from the Federal Reserve.

Lines 3.a, 3.b, and 3.c adjust for any changes to the firm’s planned capital actions for PQ1-6.

The firm’s 2018 PQ7-9 planned capital actions are assumed to be representative ofits 2019 PQ7-

9 planned capital actions.

For column A, common equity tier 1 planned capital actions are the sum of cash dividends

declared on common stock (CPSK4460), cash dividends declared on preferred stock

(CPSK4598), and total share repurchases (CPSDQ288) minus total issuance of common stock

(CPSDQ285).

For column B and C, tier 1 capital planned capital actions are the sum of common equity capital

actions in column A plus the amount recognized in regulatory capital from redemption or

repurchases of non-cumulative perpetual preferred stock (CACIY515) and other additional tier 1

instruments (CACIY527) minus issuance of non-cumulative perpetual preferred stock

(CACIY544) and other additional tier 1 instruments (CACIY556).

For column D, total capital planned capital actions are the sum oftier 1 capital actions in

columns B and C plus the amount recognized in regulatory capital from redemption or

repurchases ofsubordinated debt (CACIY528), cumulative dated preferred (TRUPS) instruments

(CACIY535), and tier 2 capital instruments issued by subsidiaries (CACIY529) minus issuance

ofsubordinated debt (CACIY557), cumulative dated preferred (TRUPS) instruments

(CACIY564), and tier 2 capital instruments issued by subsidiaries (CACIY558).

3.a. Planned capital actions PQ1-6 of CCAR 2018.

For each category ofregulatory capital, the firm’s planned capital actions for the first through

sixth quarters ofthe CCAR 2018 planning horizon.

3.b. Actual capital actions 2019:Q1.

The firm’s actual capital actions taken in 2019:Q1 as reported on the FR Y-9C and FR Y-14.

3. c. Approved planned capital actions 2019:Q2.

The firm’s capital distributions already included in the capital plan from the prior year and not

objected to by the Federal Reserve for that quarter, including any approved requests for

additional planned capital distributions.

4. 2019:Q3 - 2020:Q2 capital distribution capacity.

For each column equal to Line 2. + line 3.a -line 3.b -line 3.c.
This amount represents the amount of capital above each minimum requirement that the firm

could distribute and still remain adequately capitalized in the severely adverse scenario, based on

the CCAR 2018 supervisory quantitative assessment.

5. Maximum approved capital actions for 2019:Q3 - 2020:Q2.

This section computes the maximum net planned distributions approved for each category of

regulatory capital (i.e. common equity tier 1 capital, additional tier 1 capital, tier 2 capital) that

the firm can make for the period 2019:Q3 through 2020:Q2 without seeking approval from the

Federal Reserve. Each value is expressed in millions of dollars.

5.a. Net planned distributions from tier 2 capital.

Equal to line 4. Column D.

5. b Net planned distributions from additional tier 1 capital.

Equal to the minimum of:

• line 4. Column B;

• line 4. Column C; and

• line 4. Column D - net planned distributions from tier 2 capital.

5. c Net planned distributions from CET1 capital.

Equal to the minimum of:

• line 4. Column A;

• line 4. Column B - net planned distributions from additional tier 1 capital;

• line 4. Column C - net planned distributions from additional tier 1 capital; and

• line 4. Column D - net planned distributions from additional tier 1 capitaland tier 2

capital.