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representations could affect this approval and should be communicated promptly to
Board staff.

Very truly yours,

(signed) oCloskey Saas

Margaret McCloskey Shanks
Deputy Secretary of the Board

ce: Ms. Julia L. Cox
Federal Reserve Bank of Boston


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footprint of the SAM Subsidiaries going forward, Santander has entered into the
commitments listed in Attachment B.” The Board reserves the right to revoke the
exemption if it determines that Santander has taken actions to expand its presence in the
U.S. through the SAM Subsidiaries beyond that which was presented in its exemption
request or to otherwise evade the IHC requirement, and, as a consequence, Santander
may be required to divest its ownership interest in SAM Holdings.

With respect to BST, the Board has denied Santander’s request. Although
Santander argues that transferring BST to Santander’s IHC would reduce the regulatory
capital of Santander Totta and require approval from the Bank of Portugal and that such
an approval is uncertain, Santander has not otherwise demonstrated that it would be
unable to transfer or restructure BST. While nonbank subsidiaries in Puerto Rico have
historically been treated as non-U.S. subsidiaries for supervisory purposes,
Regulation YY defines a “U.S. subsidiary” to include a subsidiary located in Puerto Rico
because treating Puerto Rico as part of the United States is consistent with the definition
of “State” in the Dodd-Frank Act. Accordingly, BST is considered part of Santander’s
USS. operations, and granting the exemption request would be inconsistent with the stated
objective of Regulation YY to provide a platform for consistent supervision and
regulation of the U.S. operations of a foreign banking organization. Upon the transfer
to the IHC, BST would be subject to oversight by the U.S. risk committee of Santander
and subject to its U.S. risk management framework, consistent with the goals of
Regulation YY.

For the reasons stated above, the Board has granted Santander’s request for
an exemption from Regulation YY’s requirement to transfer its ownership interests in the
ANC Subsidiaries and the SAM Subsidiaries to its IHC and is denying Santander’s
request for an exemption from Regulation YY’s requirement to transfer its ownership
interest in BST to its IHC. This action is based on all the facts of record and on all the
representations and commitments made by Santander in the submissions to the Board in
connection with the request, including the commitments listed in Attachment A and
Attachment B. These representations and commitments constitute conditions imposed in
writing in connection with the findings and decisions herein and, as such, may be
enforced in proceedings under applicable law. Any material change in those facts or

7 Santander has committed that it will not, without the prior approval of the Board,
directly or indirectly, increase its ownership interest in SAM Holdings to greater than

50 percent. Santander has also committed that it will provide written notice to the Board
within 60 days of the end of the calendar quarter in which the total assets of the SAM
Subsidiaries, individually or collectively, exceed $1 billion or 1 percent of the total
consolidated assets of Santander’s IHC, whichever is smaller, or the total assets under
management by the SAM Subsidiaries, individually or collectively, exceed 5 percent of
the SAM Holdings’ total global assets under management.


Attachment A
Commitments by Banco Santander, S.A.

to the Board of Governors of the Federal Reserve System

In connection with the request, dated August 8, 2014, to the Board of Governors of the
Federal Reserve System (the “Board”) for the Board’s approval under section 252.153(c)
of the Board’s Regulation YY for an exemption from Regulation YY’s requirement that
Banco Santander, S.A. (“Santander”), Madrid, Spain, transfer its ownership interest in
two U.S subsidiaries, Abbey National Capital L.P. I and Abbey National Capital Trust I
(together, the “ANC Subsidiaries”), to an intermediate holding company established by
Santander for purposes of compliance with Regulation YY, Santander makes the
following commitments to the Board:

1.

Santander will not, without the prior approval of the Board, directly or
indirectly, issue any new securities through the ANC Subsidiaries;

Santander and its combined U.S. operations, as defined in section
252.2(e) of Regulation YY, will not, without the prior approval of the
Board, directly or indirectly, engage in any activity with either of the
ANC Subsidiaries; and

To the extent the securities issued by the ANC Subsidiaries cease to
qualify as regulatory capital under applicable foreign law, Santander
will, as promptly as practicable, notify the Board and take all necessary
action to liquidate the ANC Subsidiaries or transfer the ownership
interests in the ANC Subsidiaries to its intermediate holding company.

Santander agrees that the foregoing commitments are deemed to be conditions imposed in
writing by the Board in connection with its findings and decisions on Santander’s request
and, as such, may be enforced in proceedings under applicable law.


BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, DC 20551

FEB iu 2016

Mr. Jose Antonio Alvarez
Chief Executive Officer
Banco Santander, S.A.
Santander Group City
Avda de Cantabria s/n
Edif. Pereda, 2nda Planta
28660 Boadilla del Monte
Madrid, Spain

Mr. Scott Powell

Chief Executive Officer
Santander Holdings USA, Inc.
75 State Street, 5th Floor
Boston, Massachusetts 02109

Dear Messrs. Powell and Alvarez:

This letter is in response to your request, dated August 8, 2014, that the
Board permit Banco Santander, S.A. (“Santander”), Madrid, Spain, to hold its ownership
interest in five U.S. subsidiaries, including Abbey National Capital L.P. I and Abbey
National Capital Trust I (the “ANC Subsidiaries”), two U.S. asset management
subsidiaries of SAM Investment Holdings Limited (“SAM Holdings”), a U.K. joint
venture (the “SAM Subsidiaries”), and BST International Bank, Inc. (“BST”) outside of
the intermediate holding company (“JHC”) established by Santander for purposes of
compliance with Regulation YY.

Regulation YY requires a foreign banking organization with $50 billion or
more in total U.S. non-branch assets to establish an IHC and to transfer its ownership
interest in its U.S. subsidiaries to the IHC.! Under Regulation YY, the Board may permit

1 12 CFR 252.152. U.S. non-branch assets are measured as an average of the amount
reported for the four most recent consecutive quarters, as reported to the Board on the
FR Y-7Q.

www.federalreserve.gov


Attachment B
Commitments by Banco Santander, S.A.

to the Board of Governors of the Federal Reserve System

In connection with the request, dated August 8, 2014, to the Board of Governors of the
Federal Reserve System (the “Board”) for the Board’s approval under section 252.153(c)
of the Board’s Regulation YY for an exemption from Regulation YY’s requirement that
Banco Santander, S.A. (“Santander”), Madrid, Spain, transfer its ownership interest in
two U.S subsidiaries owned by SAM Investment Holdings Limited (“SAM Holdings”),
Jersey, United Kingdom, Santander Asset Management USA LLC (“SAM USA”) and
Santander Asset Management LLC (“SAM PR”) (together, the “SAM Subsidiaries”), to
an intermediate holding company established by Santander for purposes of compliance
with Regulation YY, Santander makes the following commitments to the Board:

1.

Santander will not, without the prior approval of the Board, directly or
indirectly, increase its ownership interest in SAM Holdings to greater
than 50 percent;

Santander will provide written notice to the Board within 60 days of the
end of the calendar quarter in which the total assets of the SAM
Subsidiaries, individually or collectively, exceed $1 billion or 1 percent
of the total consolidated assets of Santander’s intermediate holding
company, whichever is smaller; and

Santander will provide written notice to the Board within 60 days of the
end of the calendar quarter in which the total assets under management

by the SAM Subsidiaries, individually or collectively, exceed 5 percent
of the SAM Holdings’ total global assets under management.

Santander agrees that the foregoing commitments are deemed to be conditions imposed in
writing by the Board in connection with its findings and decisions on Santander’s request
and, as such, may be enforced in proceedings under applicable law.


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the foreign banking organization to hold its ownership interest in a U.S. subsidiary
outside of its IHC if circumstances warrant an exception based on the foreign banking
organization’s activities, scope of operations, structure, or similar considerations.”
Santander is a foreign banking organization with billion in total U.S. non-branch
assets as of June 30, 2015. Accordingly, Santander is required to establish an IHC under
Regulation YY.

Santander currently holds its ownership interest in the ANC Subsidiaries
indirectly through Santander UK ple (“Santander UK”), a higher-tier holding company
located in the United Kingdom. The ANC Subsidiaries facilitate the issuance of trust
preferred securities that qualify as regulatory capital for Santander UK (“ANC Capital
Instruments”), and Santander argues that transfer of the ANC Subsidiaries to the IHC
would render the ANC Capital Instruments ineligible as capital for Santander UK. The
ANC Capital Instruments have an outstanding liquidation preference amount of

and would be callable in]. Santander represents that the loss would
equal approximately Milbasis points of tier 1 capital at Santander UK.

Santander has a 50 percent ownership and voting interest in SAM Holdings.
Warburg Pincus and General Atlantic, both of which are U.S-based private equity firms,
share the remaining 50 percent ownership interest. As of September 30, 2015, the SAM
Subsidiaries collectively have assets of approximately [EEE representing
percent of Santander’s IHC pro-forma assets.

Santander has a 100 percent ownership in BST, a U.S. subsidiary licensed
in Puerto Rico as an international banking entity (“IBE”). Santander owns BST
indirectly through its subsidiary, Banco Santander Totta, S.A. (“Santander Totta”), a
Portuguese bank regulated by the Bank of Portugal. BST has total assets of |
and provides international banking services, including time deposit services and
electronic funds transfers upon maturity of deposits, to clients that have accounts in and
outside of Portugal, based on an internet-based, commercial banking business model.
IBEs are prohibited from accepting deposits from residents of Puerto Rico, and BST also
does not accept deposits from residents of Portugal or the United States. In 2006, BST
issued perpetual preferred shares to Banco Santander, and this interest is included in
Santander Totta’s regulatory capital. Santander argues that transferring BST to
Santander’s IHC would reduce the regulatory capital of Santander Totta and require
approval from the Bank of Portugal and that such an approval is uncertain.

3 The ANC Capital Instruments currently are grandfathered securities in tier 1 capital,
although they are included subject to a cap of 70 percent notional amount.


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After consideration of all relevant facts, including Santander’s activities,
scope of operations, structure, and similar considerations, the Board has granted
Santander’s request for an exemption for the ANC Subsidiaries and the SAM
Subsidiaries.

Regulation YY provides that, in considering an exemption request, the
Board may consider whether applicable law would prohibit the foreign banking
organization from owning or controlling one or more of its U.S. subsidiaries through a
single IHC.‘ In this case, under applicable law, transferring the ANC Subsidiaries would
render them ineligible for the limited purpose for which they were established, because
the transfer of the ANC Subsidiaries would disqualify the ANC Capital Instruments from
inclusion in Santander UK’s regulatory capital under U.K. law. Moreover, even if the
ANC Subsidiaries were consolidated with the IHC under applicable accounting
standards, the transfer would have a minimal effect on capital at Santander’s IHC, in light
of the size of the ANC Subsidiaries relative to the pro forma size of Santander’s IHC.> In
addition, the ANC Subsidiaries would not likely pose liquidity risk to Santander’s U.S.
operations given the ANC Capital Instruments’ long duration and the ANC Subsidiaries’
limited activities. In order to limit the size and character of the ANC Subsidiaries and the
interactions between the U.S. operations of Santander and the ANC Subsidiaries,
Santander has entered into the commitments listed in Attachment A.°

With respect to the SAM Subsidiaries, SAM Holdings is a foreign company
without a banking presence in the United States, and the vast majority of its operations
are conducted outside of the United States. Neither of the other joint-venture partners are
required to form an IHC and, thus, are not compelled to facilitate the restructuring.
Santander is not a majority investor in SAM Holdings and cannot require SAM Holdings
to divest the SAM Subsidiaries or to transfer the SAM Subsidiaries to the Santander IHC.
In addition, excluding the SAM Subsidiaries would have an immaterial effect on the
regulatory capital or liquidity requirements of the Santander IHC. In order to limit
Santander’s ownership interest in the SAM Subsidiaries and the size and systemic

4 12 CFR 252.153(c)(2).

5 The ANC Capital Instruments have a liquidation preference of EEE, which is
immaterial relative to the size of the IHC’s pro forma asset size of IE billion
(as reported in Santander’s implementation plan, dated January 1, 2015).

6 Santander has committed that it will not, without prior approval of the Board, directly
or indirectly, issue any new securities through the ANC Subsidiaries or allow the ANC
Subsidiaries to engage in any activity with Santander’s combined U.S. operations.
Santander has also committed that, to the extent that the ANC Capital Instruments cease
to qualify as regulatory capital under applicable foreign law, Santander will, as promptly
as practicable, notify the Board and take all necessary action to liquidate the ANC
Subsidiaries or transfer the ownership interests in the ANC Subsidiaries to its IHC.