2013 Annual Report

STRATEGY AND INVESTMENTS STRATEGY AND INVESTMENTS Capital One of the pillars of our business global model is capital discipline. In addition to providing strength to the Bank's operations and security to its clients, it allows Santander Brazil to face any regulatory changes easily while taking advantages of growth opportunities, whether organically or through acquisitions. In 2013, Santander Brazil announced a comprehensive capital optimization effort, sustained by two pillars: adding efficiency to its capital structure and preserving Santander's strength. To that effect, the Bank adopted an innovative solution in order to improve its leverage while compensating its shareholders without reducing the regulatory capital. Under this effort, completed in January 2014, the Bank returned cash to shareholders for the amount of R$ 6 billion while issuing securities for the same amount in foreign countries exclusively allocated to shareholders. Thus, the Bank swapped higher cost capital (shares) for lower cost capital (debt). As a debt instrument chosen for borrowing purposes in the market is deemed to be regulatory capital, the Bank's capital level did not change and it remained as the largest bank in the country among retail banks. Sustainability at the core of strategy G4-2 Santander's positioning in sustainability, as approved by both the Executive Committee and the Board of Directors, is based on three main pillars, which are key for the country's development agenda: Social and Financial Inclusion, Education and Sustainable Business. Sustained by these three pillars, the Bank integrates sustainability in business in virtually all of its operations, from the smallest project to the largest investments. The Social and Financial inclusion pillar includes programs such as the microcredit operation, focused on micro entrepreneurs with no access to traditional credit channels. In this segment, the Bank is the undisputed leader among private sector banks. The second pillar is based on the various education programs provided by the Bank. Among them is the largest corporate program that provides support to university students in Brazil, represented by Santander Universities; the program includes partnerships with 450 colleges and universities and awarded more than 37,000 scholarships in 2013 only. In Sustainable Business, the strategy includes business opportunities in virtually every segment in which the Bank operates. A number of opportunities have arisen out of the need for firms and individuals to adapt to a more sustainable operating model and the risks generated by climate changes and new trends. To that effect the Bank is also pioneers and leaders, i.e.: The first bank to develop an investment fund that includes the Principles for Responsible Investment (PRI), an initiative by the UN to promote Sustainability in financial markets; The only financial institution in the country to invest in renewable energy projects using own funds; The first structure in place to assess Social and Environmental Risk not only for project financing but for credit approval and the acceptance of new clients in Wholesale as well. This topic is also part of the supplier approval process. Investment In 2013 Santander Brazil structured the acquisition of the GetNet operations. The Bank announced its plans to purchase the firm in July and hopes to complete the transaction in the first semester of 2014. GetNet had been the Bank's partner since 2010, and operated as the technology arm in acquiring operations (capturing and processing transactions via credit/debit cards with POS terminals). Operating in this segment is strategic for two main reasons: the credit/debit card market is one of the top growth markets in the country and the capturing of e-transactions has an enormous synergy with commercial bank services for SMEs. By integrating these two activities, the Bank can approve corporate loans in a more assertive manner, with an in-depth knowledge of the client's cash flow. Therefore, the acquisition is set to strengthen both the Bank's position and objectives in a profitable way. Another relevant transaction involved third party asset management, an activity hitherto developed in Brazil by Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. In a global transaction, Santander executed an agreement with global leaders in the area of Private Equity, Warburg Pincus and General Atlantic. Together, the firms now hold 50% interest in a holding company that integrated 11 fund managers with offices in Europe and Latin America, including the Brazilian subsidiary. G4-13 This alliance allows Santander Asset Management to improve their competitive edge against the most prestigious global fund managers, with the additional advantage of relying on both the knowledge and experience in markets in which the Banks operate. The Bank will distribute products for the new manager in countries where operates with a network of branches, while distributing products and services in an international scale, beyond its commercial network. The benefit for the Bank is to increase the range of products and services that offers to its clients. The newly created firm is poised to reinforce the fund management unit in the institutional investor global market, where there exists potential for growth. The new firm plans to double the funds under its management in five years while participating in the process of consolidation in the sector. Another Group company that received additional investment was WebMotors, a digital platform that brings together vehicle buyers and sellers. The business received funds for the amount of R$ 180 million from Australian Carsales, leader in online vehicle classified ads, with operations in both Asia and Oceania. G4-13 The strategic partnership maintains Santander Brazil as a controlling shareholder and its goal is to accelerate the growth of WebMotors while consolidating its leadership in the local market via transfer of technology and growth. In the aftermath of the transaction, Santander's interest is 70% and Carsales is 30%. " THE STRATEGY OF SANTANDER BRAZIL RELIES ON FOUR PILLARS: CLIENT SATISFACTION, MANAGEMENT AND CAPITAL. THE BANK'S POSITIONING FOR SUSTAINABILITY IS BASED ON THREE MAIN PILLARS: SOCIAL AND FINANCIAL INCLUSION, EDUCATION AND SUSTAINABLE BUSINESS. THE MAIN STRUCTURED INVESTMENT IN 2013 WAS THE ACQUISITION OF GETNET, A FORMER PARTNER OF THE BANK PROVIDING TECHNOLOGY SOLUTIONS FOR ACQUIRING OPERATIONS. R$ 108 MILION WAS INVESTED IN TRAINING AND DEVELOPMENT IN SEARCH OF PRODUCTIVITY AND EFFICIENCY 24 Annual Report 2013 25

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