INDEX

1. MADRID: MANAGEMENT MODEL FOR FINANCIAL INSTITUTIONSProposal for the location of financial activities in Madrid and for the international provision of financial technology services

2. INDEX • 1. Market research (KPMG) …………………………… 1 • 2. Efficiency / Value Chain (Deloitte) ………………… 8 • 3. Innovation (PWC) ……………………………………13 • 4. Technology and Infrastructure (Cap Gemini) ……...20 • 5. CONCLUSION: Comprehensive SWOT Analysis…25

3. Marketresearch KPMG has prepared a market research as part of the technology and innovation working group. The work has consisted primarily of an analysis of key market indicators and the related value chain to extract the success factors of the Spanish market. The study is part of the main tasks to be performed for the strategic diagnosis of the Financial Center in Madrid and will outline the strategy that best suits its capabilities. An important financial centre is identified by its ability to attract funds towards the different markets located within it. • 1-

4. MarketresearchRegulation, supervision and risk management • Madrid is the financial capital of Spain and is the Financial Centre where most of the activity of the Spanish market is focused. • One of the great strengths of the Spanish market is confidence. • Trust is a rising variable, especially today as a result of current events in the markets. • Regulating and supervising bodies play a key role in ensuring the security of the financial market, risk management in financial institutions having become particularly relevant. • The establishment of risk management systems integrated into the culture of organizations, in addition to complying with regulation, help ensure that companies are better run, more transparent and therefore more attractive to investors. • Asking shareholders to support companies that take risks and embark on projects with long-term return requires trust. The Spanish market provides confidence to its agents and emphasizes the solidity of its financial institutions. • 2-

5. MarketresearchRegulation, supervision and risk management (cont) • The tasks of regulation and supervision by the Bank of Spain have helped consolidate the Spanish financial system. • Specifically, the Spanish monitoring system has proven to be effective, in both the interpretation and adjustment of international regulations, notable for having applied a pragmatic approach that has made the adoption of these standards by the Spanish authorities much less traumatic and more homogeneous than in the experience of other european institutions. • Likewise, the prudential supervision performed by the Bank of Spain has allowed our financial institutions to cope with the current crisis and has been recognized both nationally and internationally. • The Bank of Spain has also stood out as a pioneer in introducing measures to mitigate procyclicality, with wide and deserved recognition of its experience in implementing advanced models of risk management and solvency in the context of Basel II. • The Bank of Spain model combines regulatory and supervisory tasks in a single body, resulting in a competitive advantage over other financial markets.. • 3-

6. MarketresearchRelevantaspects KPMG has identified 16 key success factors in the markets: • 4-

7. MarketresearchOtherrelevantaspects • 5-

8. MarketresearchRelevantaspects • 6-

9. MarketresearchConclusion • 7-

10. Efficiency Spanish financial institutions are leading the global benchmark for efficiency ranking in the sector. Madrid has an optimal response to the operational requirements of the value chain of any financial activity, both for the front and back office. DELOITTE has analyzed the value chain of various business and financial activities, showing the differential values of Madrid compared to other locations. • 8-

11. Analysis of theValueChainPerspectives • The value proposition Madrid can provide as a possible recipient of the activities contained in the value chain of the financial sector has been analysed, so that competitive advantages can be extrapolated from the region as it intends to establish itself as a center of international reference. • The conclusion is that Madrid can provide a clear differential value in the execution of certain activities in the value chain. • Two perspectives considered in the analysis: • Local Perspective: Analysis of the competitive advantages gained by an entity established in Madrid for business and leveraging of the existing local market. • Global Perspective: Analysis of the competitive advantages which and entity would obtain by centralizing certain administrative and support processes in Madrid, with the aim of providing these services to its entire multinational structure. In this case, the business entity would be local or global, although run (supported), in whole or in part, from Madrid. • 9-

12. Analysis of theValueChainPerspectives • From the Local Perspective of the analysis, the activities in which Madrid can provide greater value are the following: • Those requiring appropriately skilled human resources. Madrid provides access to qualified human resources in implementing various stages of the value chain. • Access is needed to specialized suppliers and of a certain standard. Madrid provides adequate access to the various suppliers necessary for the conduct of various defined tasks, with varying degrees of expertise and experience in the industry. • The aim is to exploit the local market. Madrid is presented to financial institutions as an attractive market, according to the analysis, as one of the major poles of development at a national and European level and also as an excellent entry point to other markets such as Latin America and the Mediterranean basin. • Access is desired to more competitive costs for resource-intensive tasks. Compared with other countries in their socio-economic environment, Spain, in general, is more cost competitive, which directly implies lower operating costs and increased profit. • In this respect, the activities where Madrid provides more value are: • Study of customer needs, • Technology, • Administrative Management, • Multichannel Distribution, • Risk Management and • Customer Service. • 10-

13. Analysis of theValueChainPerspectives • For the Global Outlook of the analysis conducted in relation to the provision of differential value by Madrid in the execution of tasks defined in the value chain presented, one can conclude that this value is larger and more spread in relation to other financial centers in conducting tasks that require: • Access to skilled human resources and expertise in the implementation of various activities of the value chain, such as technological support functions and administrative activities. • Access to specialized providers. Madrid offers providers nationally and globally for the tasks defined in the value chain. • Access to competitive costs, compared to surrounding countries. This factor, present in all the activities in Madrid, will be more decisive the more intensive the activity is in the use of the Region's own resources, such as human resources or office space. • Thus, the activities in which Madrid will provide more value are: Technology and Administrative Management. • Additionally, Madrid offers its successful experience to other activities of the value chain, with examples of international reference on banking and insurance that can be exportable to other markets. • 11-

14. Analysis of theValueChainComprehensive SWOT Strengths Opportunities • Madrid offers a wide range of highly qualified human resources. • Access to suitable suppliers and experience in most of the activities of the value chain. • More cost competitive than other financial centers, which directly implies lower operating costs and increased profit. • Proliferation of technology parks and clusters with a high level of expertise and development. • Madrid is known as one of the cities with the best quality of life. • Establishment of Madrid as a financial center of reference for Latin America. • Establishment of Madrid as a hub of support activity for Europe. • The current economic climate will cause the concentration of the financial industry, so that Madrid can be positioned as the recipient of these concentrations in some or all stages of the value chain.. • Ostensible improvement in the perception of the Spanish financial system and its regulators at an international level. Weaknesses Threats • Local orientation of both human resources and suppliers. • Knowledge of English among the general population. • Lack of labor market flexibility is seen by companies as a serious problem to solve, especially in relation to the cost of redundancy. • Excessive bureaucratic processes of business establishment and start-ups. • Lower level of investment grants than other parts in Spain. • Within Spain, Madrid is one of the most expensive socio-economic areas. • Spain appears on the last positions of the productivity rankings among the neighboring countries. • The existence of other European financial centers such as Paris or Frankfurt and even in some emerging countries attractive for their low cost. • Latin American financial centers are evolving such as Chile, Panama and Brazil that can take on the role of bridge for access to the Latin American market and oust Madrid from its current position. • The advantage based on "lower cost" may not be sustainable. • Forecasts indicate that Spain will undergo, like most developing countries, a shortage of highly skilled human resources. • 12-

15. Innovation Madrid is the center of innovation in many economic, social and business activities. On the financial front this is clearly reflected in the global leadership of our financial institutions in the development of products and services, the introduction of new models of customer service, the use of new distribution channels and access to customers and markets, the use of models for risk management and, of course, the innovative use of information technology and communication. PricewaterhouseCoopers has assessed the capabilities that Madrid offers the financial world for innovation in its strategic positioning in the development of products and services. • 13-

16. Innovation Excellence in innovation is not the result of chance or good intentions The innovativeness of a financial center is supported by a set of variables (of the environment or specific to the financial sector): Environmental and Demographic Variables Sector and Market Variables • Level of internal competence • Size of financial entities • Level of internationalization • Level of technological development • Level of profitability • Experience of regulating bodies • Population size and critical mass • Access to qualified human capital • Level of language use • Cost of living • Quality of life • Level of job satisfaction • Level of infrastructures • Systemic economies of scale • Orientation of the environment to R&D • Existence of R&D centres Variables analysed in this presentation • 14-

17. Three schools in Madrid (IE, IESE, ESADE) are among the best in all international rankings (Source: FT, Business Week, Wall Street Journal. January 2009). In Madrid, numerous graduate studies specializing in finance are taught (eg Master in Banking and Finance in CEF, Master of Quantitative Finance at CIFF, Master in Management of Financial Institutions in IEB). Madrid, with 43,246 people, is among the leading regions in terms of number of researchers(Source: Eurostat. Total R & D personnel by sectors of performance (employment) and region. 2006) Madrid is the 3rd most important region in Europe according to the number of professionals employed in high tech sectors(Source: Eurostat. "Regional employment in high technology sectors." 2007). Madrid is the fifth most important city in quality of life, making it easier to attract skilled human capital(Source: IDF Magazine: "European Cities and Regions of the Future 2008/09"). Inovation Contributing factors: 1. Access to qualified human capital Madrid is an ideal environment for access to highly qualified human capital, the driving force of innovation strategies • 15-

18. Madrid, with 1.96%, is the region that invests more in R & D relative to GDP (Source: INE 2007). There are numerous public initiatives to support innovation: Plan Avanza 2 financed by the Central Government and the Madrid Region Business Innovation Plan implemented by IMADE In Madrid, there is an extensive network of scientific and technological parks and has been chosen as headquarters for many multinational companies for their R & D centers of excellence(Source: Interes Invest 2007). An additional attraction of Madrid compared to other places is the favorable international tax treatment of R & D. Innovation Contributing factors: 2. Favourable environment for R&D (1) From the perspective of the performance of government, Madrid is an ideal framework for the development of R & D • 16-

19. The high technological development of Spanish financial entities has been a catalyst for creating an environment conducive to R & D. The intensive use of technology has enabled Spanish financial institutions to be leaders in: Use of compensation systems for electronic processing of cheques, transfers, receipts, etc. Data integration to support the advanced management activities of clients. Development of models of transactional integration for the automation of back office processes. Development of advanced models for risk management. Implementation of multichannel management strategies. Innovation Contributing factors: 2. Favourable environment for R&D (2) The development of financial institutions complements the action of Public Administration to create a suitable environment for R&D. • 17-

20. The Madrid Region has the largest concentration of business in Spain (500,000 active enterprises). Most large international companies in Spain (60%) are headquartered in Madrid (Source: Forbes-The Global 2000. 2009). Several Spanish financial institutions with headquarters in Madrid have an international scope with a competitive presence in the banking and insurance markets in Europe and Latin America. Madrid is the decision-making center of two financial institutions among the world's top 30 institutions by asset size, also among the top 10 for profit.. (Source: Bankers-Almanac 2008). Innovation Contributing factors: 3. Existence of systemic economies of scale and the internationalization of financial institutions The innovative capacity of Madrid benefits from a developed business fabric and the size and level of internationalization of financial institutions, which encourages competition and allows the incorporation of knowledge and innovations from other sectors and markets. • 18-

21. The Spanish financial sector, especially in retail banking, shows high levels of innovation in different fields: product, process, organization and marketing innovation. This innovation is based on a combination of factors including the access to skilled human capital, the orientation of the environment for innovation, systemic economies of scale as well as size and level of internationalization of financial institutions. Additionally there are several levers that have enhanced the innovation capabilities of financial institutions: Technological developments The sophistication of customers Increased competitiveness Changes in regulation In summary, Madrid meets the required skills to be an international financial center in the generation of financial products and services. Innovation Conclusion • 19-

22. Technology and Infrastructures Capgemini has examined the extent to which technology is a differential driver for Spanish financial institutions and how Madrid provides resources, skills and technological infrastructure that place it in a position for global leadership. • 20-

23. Technology and InfrastructuresSpanish financial institutions have been internationally recognized as models of success PILLARS OF STRATEGIC GROWTH “Mejor proyecto innovación Web 2.0” ACKNOWLEDGEMENT "Boosting the generation of results through a constant evolution of customer relationships and a strong orientation towards cost efficiency" “European Leader in cost to income ratio 2004-06” "New dynamic of profitable growth and value creation with a very strong business with innovation as a lever for growth" “Global presence and growth leveraged on a common platform that improves short-term operational efficiency" "Model relationship with specific segments of customers leveraged on a multi-channel relationship strategy" “Specific Trade Policies for customer segments, offering expertise and personalized customer profiles for guidance" “Technology awards New channels 2007” "International expansion driven by standardization of best practices on a common operating platform" “Automotive Insurance Solutions Provider Award” “Latibex: entry gate to Latin America and European and American equity market bridge". “Diversification of products and services, innovation and internationalization anticipating future competition " Technology has been a key impetus for the realization of business strategy • 21-

24. This business strategy has been realized in a model of management of the financial business where technology has driven efficiency along the value chain Collaborative model for creating an integrated platform of financial services and human resources for the business customer segment Customization of offerings to customers on the basis of financial information and unstructured information from the web (blogs, forums, networks, ...) The operating platforms have driven the expansion of the entities through the generation of synergies and reduced deployment times Technology has been the support for the implementation of best practices and risk control through the network The ATM network is a channel relationship with the customer and has helped foster the commercial orientation of the branches, absorbing operational tasks Basle II and Solvency II imply an integrated risk management and supervision that delves into the needs of standardizing the exchange of information between regulators and institutions Value Chain of the Financial Sector Internal knowledge management Knowledge of the customer Experience of the customer Operational efficiency Risk management Regulation and Supervision Financial institutions in Spain are examples of how technology applied to business generates tangible results • 22-

25. Technology and InfrastructuresMadrid has become the hub of knowledge and experience in the financial sector Locate in Madrid high-value financial activities: • Business Process Outsourcing • Centralized areas of technology development • Develop solutions and technologies for regulatory compliance • Development and maintenance of solutions and technologies applied to industry • Specialized R & D Exportar el conocimiento experto y mejores practices: • Development of Madrid as a consultancy hub for specialized processes and technology in the sector • Promote a software development cluster for the financial business management • Establish business models co-leveraged on shared experience and knowledge gathered Madrid’s opportunity is to exploit and capitalize on these capabilities • Cluster specialized in the financial sector • Presence of entities, suppliers, regulators and "market makers" (BME) • Specialized human resources • Experience in technology projects of high value • Applied Innovation Hub • Excellent infrastructure for multichanneling By offering value focused on: • 23-

26. Technology and InfrastructuresComprehensive SWOT Strengths Opportunities • Successful model of Spanish financial institutions making the value of technology apply to business • Wide network of service companies with high expertise in the sector, without technological dependence • Proposal for competitive costs and high capacity to generate synergies in Spain and Latin America • Communications infrastructure network with such a strong world-recognized partner as Telefónica • Sample surveys in times of reflection on the future of regulation • Improve the acknowledgement that technology has contributed to the growth strategy of financial institutions in Spain • Make better known the current capacities for which Madrid is a financial "cluster" specialized in retail banking • High capacity to attract multilingual talent to Madrid • Positioning Madrid as a financial reference and exporter of best practices to Latin America • Synergies with other established financial centers in the world Weaknesses Threats • Increasing recognition of Madrid as a specialized technological center • Promote the systematization of technological know-how • Improve learning English as a communication tool at work • Encourage the development and marketing of specific solutions in the financial sector • Facilitate administrative processes and aid management for R & D • Develop the presence of Spanish entities in other, non-retail financial sectors • Countries such as India, Chile, Brazil or Panama, are a threat to Spain at the level of technological expertise and development costs • International financial centers directly manage their relocation models without considering Madrid as a manager in this process • A value proposition based solely on costs is not sustainable in the long term • Mexico, Brazil, Chile, etc. are being consolidated as centers of support for financial markets in the U.S., Spain and Portugal • Difficulty of building sustainable barriers to entry in time • 24-

27. CONCLUSIONS: Comprehensive SWOT Analysis (part I) • 25-

28. CONCLUSIONS: Comprehensive SWOT Analysis (part II) • 26-