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Fund for Orderly Bank Restructuring

(FROB)

January 2011

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p. 22

p. 3

Table of Contents

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2

3

4

p. 19

p. 9

p. 25

The FROB: characteristics, objectives and functions

The restructuring of the Spanish banking system.

Securities issued by the FROB

Annex I. FROB’s inaugural issue: post-mortem

p. 32

Financial structure of the FROB.

Annex II. Conditions for FROB’s support: The recapitalization scheme approved by the EC. Annex III. Institutional Protection Schemes (IPS).

p. 28

Annex IV. Regulatory appendix. p. 36

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1. The Fund for Orderly Bank Restructuring (FROB): characteristics, objectives and functions.

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1. The FROB: Main characteristics

The Fund for Orderly Bank Restructuring (FROB) is a public entity created by Royal Decree 9/2009, of26 June, concerning bank restructuring and reinforcing the equity of credit entities.

Characteristics of the FROB:

Strongly capitalized: €9,000Mn

Public control by: Parliament The Ministry of

Economy National Court

of Auditors

Guarantee by the Kingdom of Spain,

up to €27.0bn

Strict and independent governance:

chaired by and with a majority of the

Banco de España and with the participation

of the Deposit Guarantee Funds

(FGD)

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• 5 members from the Banco de España- Deputy Governor (Chairman of the Governing Committee).- General Director of Supervision (Deputy Chairman of the

Governing Committee)- General Director of Regulation- General Director of Internal Services- General Secretary (Secretary of the Governing Committee)

• 3 members on behalf of the Deposit Guarantee Funds

• A representative (without the right to vote) of the General Comptroller Department of the State Administration (Intervención General de la Administración del Estado) will also sit in on the meetings of the Governing Committee

Governing Committee made up of 8 members:

General Director

FROB

Banco de España

FGD

FROB Governance

Initial allocation of €9,000Mn, €6,750Mn has been contributed by the State Budget and €2,250Mn by the Deposit Guarantee Funds

Public control: report submitted to the Ministry of Economy every four months, quarterlyparliamentary control and every time there is an FROB action; audits by National Court ofAuditors

1. The FROB: Main characteristics

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1. The FROB: Objectives and Functions.

Final purpose of the FROB: credit institution equity reinforcement and orderly restructuring of credit entities.

Helping entities which could have difficulties to adapt to the new setting

Adjusting productive capacity and costs Increasing efficiency and productivity Improving management capacity Reinforcing their resiliency and solvency Resuming the normal furnishing of credit to companies and households

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1. The FROB: Objectives and Functions

Supporting entities' integration processes through the temporary injection of capital: Will be carried out by the underwriting of convertible preference shares once an integration plan

has been approved by the Banco de España This support will be on a temporary basis and will be geared towards improving efficiency and

increasing productivity Entities must repurchase the preference shares within a period of 5 years (can be extended for 2

further years). The FROB has the option of converting preference shares into ordinary shares.

Managing the restructuring processes of Spanish credit institutions: First of all, using their own initiative, entities with weaknesses should find a private solution As a second option, they can seek the support of Deposit Guarantee Fund (FGD), if the Banco de

España approves an action plan with the object of assuring the entity's viability If it does not choose either of these options, the Banco de España shall appoint the FROB to interim

administrator of the entity. A restructuring plan will be drawn up, ending with the merger ortransfer - total or partial - of its business

The FROB's support in the restructuring process could include financial support measures(guarantees, loans with favorable conditions, subordinate financings, acquisition of assets, capitalinjections, etc.) and management measures

Res

truct

urin

gIn

tegr

atio

n

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1. The FROB: Objectives and Functions

Supporting entities´ individual recapitalization, in exceptional cases:

According with the Banco de España assessment, when the entity must reinforce its solvency butan integration process is not necessary.

It will be carried out using the same instruments, terms and conditions than apply for integrationprocesses, once the recapitalization plan has been approved by the Banco de España.R

ecap

italiz

atio

n

Thus, the FROB contributes to the resizing and restructuring of the Spanish bankingsystem as a whole, against the backdrop of the international financial crisis, andcomplements the role of the deposit guarantee funds in crisis resolution at individualentities.

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2. The restructuring of the Spanish banking system.

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2. The restructuring of the Spanish banking system

The Spanish banking system has proved a strong relative resistance by virtue of:

Lack of toxic assets Retail business model with high level of efficiency Stringent regulation and supervision: high anti-cyclical provisions, control of off balance sheet

operations

Systemic entities have not needed government bail-outs and emerge from the crisis in a stronger position

Certain small and medium-sized entities, especially in the savings bank sector, arefacing problems due to:

The length and depth of the financial crisis and its impact on the real economy. As businessadjusted to the new demand conditions, it became clear there was excess capacity, implyingthe need to adjust the size of the banking sector.

The economic environment had made it more difficult for entities to conduct their businessefficiently with various factors putting pressure simultaneously on their income statements:rising defaults, especially in the real estate sector, tightening financing conditions on thewholesale markets with the consequent effect on financing costs and the adjustment inbusiness volume mentioned above.

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2. The restructuring of the Spanish banking system

Looking to the future and under this adverse scenario for the savings banks inparticular, a large-scale transformation of their structure, increasing the average size ofthe entities or groups and harnessing synergies, was necessary to gain solidity andraise efficiency, as an essential condition in order to enhance not only the savingsbanks’ competitive position but also their market credibility.

With the last integration plan, involving Banca Cívica and Cajasol, approved at the endof December by the Banco de España, the restructuring of the Spanish savings banksector is almost complete.

The FROB participates in these merger processes when requested to do so by theentities concerned. Not all of the mergers agreed have requested aid from the FROB.

The main figures of this concentration process are summarized in the next slides.

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2. The restructuring of the Spanish banking system

The savings bank sector is being restructured through several integrationprocesses, through mergers or Institutional Protection Schemes (IPS), involving38 of the 45 Spanish savings banks. The restructuring of another institution,Cajasur, taken over by the FROB in May, has culminated on December 31st

with the transfer of its whole assets and liabilities to BBK Bank.

In total, 40 savings banks are participating in the restructuring of the sectorand only 5 savings banks have not been involved in this process.

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2. Map of integration processes

C.A. GaliciaCaixanovaTotal 75.549

Caja EspañaCaja DueroTotal 46.017

C.A. CatalunyaC.A. TarragonaC.A. ManresaTotal 76.649

C.A. SabadellC.A. TerrassaC.A. ManlleuTotal 28.548

La CaixaC.A. GironaTotal 271.338

BANCA CÍVICACajasol+GuadalajaraC.A. NavarraC.A. BurgosC.A. CanariasTotal 71.306

BANCO FINANCIERO Caja MadridBancajaC.A. InsularC.A. LaietanaC.A. ÁvilaC.A. SegoviaC.A. RiojaTotal 334.508

UnicajaC.A. JaenTotal 34.817

BANCO CAJA 3CAI C.A. CirculoC.A. BadajozTotal 20.145

BANCO BASE CAMCajastur+CCMCaja Cantabria C.A. ExtremaduraTotal 125.562

BANCO MARE NOSTRUMC.A. Murcia C.A. PenedesSa NostraC.A. Granada Total 71.026

MERGER IPS Assets in € Mn

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2. The restructuring of the Spanish banking system

Eight integration processes1 have requested aid from the FROB totaling €11.17 billion.

Additional FROB funds for €392 million were granted for the restructuring of CajaSur.

New funds could be injected into those entities that didn’t pass the stress tests (€1.2 bnexpected).

1. Caja Castilla-La Mancha, which was placed under administration by the Bank of Spain pursuant to legislation existing prior to that of the FROB, received €3.78 billion of aid from the Deposit Guarantee Fund and is also participating in an integration process.

Entities involved TypeFROB aid (million)

FROB´s approval

Stage

Approved by Bank of Spain, with FROB aid

1 Catalunya-Tarragona-Manresa Merger 1,250 25/03/2010 Completed2 Manlleu-Sabadell-Terrassa Merger 380 25/03/2010 Completed3 España-Duero Merger 525 25/03/2010 Completed4 Galicia-Caixanova Merger 1,162 29/06/2010 Completed

5BANCO FINANCIERO Madrid-Bancaja-Laietana-Insular Canarias-Ávila-Segovia-La Rioja

IPS 4,465 29/06/2010 Completed

6BANCO MARE NOSTRUM Murcia-Penedés-Sa Nostra-Granada

IPS 915 29/06/2010 Completed

7BANCO BASE CAM-Cajastur+CCM-Cantabria- Extremadura

IPS 1,493 29/06/2010Suscribed.

Pending to be disbursed

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BANCA CÍVICA Navarra-Cajasol+Guadalajara-General Canarias-Municipal de Burgos

IPS 977 22/12/2010Pending to be

suscribed

8,697 Mn

2,470 Mn

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2. The restructuring of the Spanish banking system

The entities that haverequested FROB’ssupport mean the 25%of the Spanish bankingsystem in terms ofRWAs.

GRUPO SANTANDER 562.616 32,2GRUPO BBVA 290.062 15,4SIP BANCO FINANCIERO Y DE AHORROS 223.066 9,9 LACAIXA 162.979 7,9SIP BANCO BASE 86.534 3,9BANCO POPULAR 92.571 3,8BANCO SABADELL (including GUIPUZCOANO) 65.771 2,7CATALUNYA CAIXA 51.861 2,3NOVA CAIXA GALICIA 58.516 2,3SIP BANCA CÍVICA (including CAJASOL) 51.292 2,3SIP BANCO MARE NOSTRUM 45.858 2,1BBK (including CAJASUR) 31.296 1,4BANKINTER 30.659 1,6CAJA ESPAÑA-DUERO 28.881 1,4IBERCAJA 25.291 1,3UNICAJA 21.909 1,0BANCO PASTOR 18.713 0,9UNNIO DE CAIXES (UNNIM) 19.703 0,8KUTXA SAN SEBASTIAN 16.100 0,6SIP BANCO CAJA 3 14.994 0,6BANCA MARCH 9.488 0,4CAJA VITAL 6.652 0,3CAJA ONTINYENT 688 0,0CAIXA POLLENSA 183 0,0

Group RWA% assets/total

system

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2. Consequences and impacts of the restructuring

The first steps in the restructuring of the saving banks sector can be considered almost completed:

Strengthening solvency: €11.6 bn of FROB’s funds are injected into the new entities and groups.

Increasing write-downs and provisions that will cover expected losses: additional provisions amounting €26 bn have been constituted against equity at the time of integration, by the entities that have received FROB’s support.

Strong concentration increasing the average size of the entities: from 45saving banks in 2009 to 18 by the December 31st 2010. This will entaileconomic benefits for the resulting entities through lower operating costs,access to the wholesale markets, better managerial practices,…

Tackling the problem of the excess of capacity in the sector boosting theentities eficiency: closure of 20 to 25% of branches and reducing staff by15%, in average.

€11.6 bn

€26 bn

18 savingbanks

-20% capacity

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2. Future steps in the restructuring

Despite the main goals of the restructuring have been achieved and thepositive results of the measures adopted till now, new efforts could beconsidered to finish off the transformation of the savings bank sectorcontributing to regain markets’ confidence.

In this way, new legal reforms could be carried out to reinforce sector’ssolvency and transparency. Two main ways of action could be considered:

Changes in the saving banks regulation removing obstacles that difficulttheir access to capital markets.

Encouraging and easing the entry of private investors into the entitiescapital increasing transparency and contributing, by this way, to takeadvantage of market discipline benefits.

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2. Future steps in the restructuring

New measures could include incentives to:

Speed up the effective separation between financial business and socialactivities of the saving banks, that will result in a better and independentmanagement.

Strengthen solvency and capital quality requirements preparing theentities in advance to meet the most stringent international capitalstandards and future stress tests. New capital should be obtained:

• From private investors in market conditions.• If necessary the FROB could grant temporal support to help entitiesto raise the funds from private investors.• For the last instance, the FROB could provide the funds directlytaking a stake on the entity on a temporary basis.

Improve the entities assets quality

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3. Financial structure of the FROB.

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3. Financial structure of the FROBInitial allocation of €9,000Mn, 75% of which is furnished by State Budget and 25% by the FGD.

Debt capacity of €27 bn (3 times its allocation)…and can be increased up to 10 times, €90 bn, withthe approval of the Ministry of Economy.

… with the explicit, unconditional and irrevocable guarantee of the Kingdom of Spain (guaranteeof €27 bn, already granted)

Strong position in liquid assets (current account or Public Debt)

A back-up credit line of €3 bnwas agreed, in July, with a pool of 13 banks, providing additional flexibility for FROB’s funding activities.

Liquid assets and other

3.353 Mn

Preference shares

8.697 Mn

Own funds

8.700 Mn

Marketable bonds (**)

3.000 Mn

Credit line available: 3.000 Mn

Off balance:

Other liabilities: 350 Mn (*)

Current FROB’s balance sheet

*Aid for CajaSur restructuring** Subject to possible new issuances

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3. Financial structure of the FROB

Main conclusions:

• Funds available are sufficient to support the restructuring processes of

the savings banks:

11.6 bn committed vs. 15 bn available

•There are still buffers to support additional processes and FROB’s funding

capacity remains almost intact.

•New bonds issuance can be consider to reinforce FROB’s liquidity position.

• Financial incomes expected in 2011 amount € 800 Mn

Total committements

Funding Capacity

€12,8 bn €36 bn

Integration processes

Restructuring of CajaSur Marketable bonds

11,29 Capital

1,2

0,4 3

21Remaining

Estate Guarantee

Recapitalizations (expected)

3 Credit facility

Commitments vs. funds available

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4. Securities issued by the FROB: the guarantee of the Kingdom of Spain

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4. Securities issued by the FROBSimple bonds...

…with the explicit, unconditional and irrevocable guarantee of theKingdom of Spain… (Current rating: Aa1 (Moody’s); AA (S&P); AA+ (Fitch))

Equity Requirements for credit risk: 0% RWA (confirmed by the Banco de España)

Eligible as guarantee assets in ECB monetary policy operations (confirmed by the Banco de España)

• Up to 5 years: Haircut: 4.5%• Between 5 and 7 years: Haircut: 5.5%

Trading on the Public Debt Entry Book Market

The Banco de España will act as a payment agent in FROB issues.

Equivalent treatment for tax purposes to that of the Government bonds

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4. Guarantee of the Kingdom of Spain

Limit of guarantee granted1: €27 bn of principal plus the pertinent ordinary interests (€ 21 bn still available).

Characteristics: Explicit, unconditional, irrevocable and waiving the right of excussion

Guaranteed operations: Marketable securities, loans or credits in euros or other currency with aterm no longer than 7 years, formalised prior to 15.12.2016. Payments agent: Banco de España

Clearing in the event of execution: At the EONIA rate for the days elapsed between the maturitydate of the guaranteed obligation and the date of payment by the guarantor, provided theexecution of the guarantee is requested within the 5 days following the maturity date

Execution procedure: The Banco de España, as the payment agent, and on behalf of thelegitimate creditors, will claim, at the General Directorate of the Treasury and Financial Policy, thepayment through it of the amount not paid to the holders of the affected securities or loans

Payment by the Government: The General Directorate of the Treasury and Financial Policy isauthorised by Royal Decree 9/2009 to carry out the payments arising from the execution of theguarantee, immediately and with no need for further budget-related steps.

1 From 01.01.2010 onwards can be increased up to 10 times, €90,000 Mn, with the approval of the Ministry of Economy.

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Annex I. FROB inaugural issue: post-mortem

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Annex I. FROB inaugural issue: post-mortemIssuer: Fondo de Reestructuración Ordenada Bancaria (FROB)

Amount: €3,000,000,000

Face value 50.000 €

Issue rating: Aaa (Moody´s) / AA+ (S&P) / AAA (Fitch) *

Type: Simple bonds. Single repayment on maturity (bullet). Fixed interest rate.

Range: Senior, guaranteed

Guarantor: Kingdom of Spain

Term: 5 years

Settlement date: 19th November 2009

Maturity date 19th November 2014

Coupon: 3,00% annual (Act/act)

Re-offer price: 99,881%

Re-offer spread: MS+25 bps

Listing:Madrid. Mercado de Deuda Pública en Anotaciones( Entry Book Public Debt Market) (governing body: Bank of Spain)

Representation of bonds: By book entry

Registration: Iberclear

Payments Agent: BANK OF SPAIN

Lead managers: Barclays Capital, BBVA, Calyon, Deutsche Bank, HSBC

* At the time of issuance. Current ratings are: Aa1; AA; AA+

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Germany15%

UK11%

Sw itzerland9%

Spain30%

Middle East & Asia9%

Scandinavia5%

France12%

Others9%

Central Banks11%

Insurance11%

Banks28%

Fund Managers37%

Agency6%

Pension Funds2%

Others5%

Annex I. FROB inaugural issue: post-mortem

Summary of Placement

By region By investor type

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Annex II. Conditions for FROB’s support: The recapitalization scheme approved by the European Commission.

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Annex II. The recapitalization scheme approved by the European Commission

On January 28th 2010, the European Commission (EC) approved theSpanish recapitalization scheme for banks aimed at enhancing thestrength and solvency of credit institutions (State Aid N-28/2010). This schemehas been in force till December 31st.

The scheme laid down the terms and conditions for FROB´s support tointegration and recapitalization procedures and established thecommitments that aid beneficiaries had to assume in order to avoidcompetition distortions. As a consequence, the processes that met theseconditions didn´t need specific approval by the EC.

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Annex II. The recapitalization scheme approved by the European CommissionMain characteristics and conditions of FROB´s support under the scheme(either integration or recapitalization processes):

Support amount was capped: 2% of beneficiary RWA (could be exceeded when justified) or till the maximum amount necessary to reach a Tier 1 ratio of 8% taking into account potential losses.

Support measures took the form of purchase of convertible preference shares, qualifying as Tier 1 capital, which must be bought back within five years (extendable to a total of seven years)

The remuneration of the preference shares has to be equal to the minimum of:a) 7.75% annual yield; orb) 5Y Treasury bonds issued by the Kingdom of Spain plus 500 bp.An additional 15 bp will be added annually as a step-up clause until the fifth year. In the case, the step-up clause will be increased till 100 bp per year for the sixth and seventh years.

FROB’s option to convert, in market conditions, into ordinary shares or cuotas participativaswith voting rights.

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Annex II. The recapitalization scheme approved by the European Commission

Beneficiary’s commitments to avoid competition distortion:

To refrain from non-organic growth

Not to use the fact that they benefit from FROB’s support for advertising or marketingpurposes or carry out aggressive commercial strategies

To accommodate the remuneration of senior management to the applicable Union rules and to the criteria laid down in the Commission Recommendations

To cap dividend payment or, in the case of savings banks, to limit distribution to "obrabenefico-social" up to 30% of annual profits.

Additional safeguards apply in the case of receiving FROB’s support in excess of 2% RWA.

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Annex III. Institutional Protection Schemes (IPS): Characteristics and functions.

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Annex III. Institutional Protection Schemes (IPS): Characteristics and functions.

Institutional Protection Scheme (IPS). What’s that?

Economic integration between two or more entities based on a contractual arrangement. Acentral common institution is usually created (a credit institution with the status of a bank) whichis charged with determining essential management aspects.

The mergers and IPSs are essentially the same as far as the relevant end-effects are concerned,because of the following:

• the attribution to the central institution of the power to define the principal policies,strategies and risk management: the central institution controls the group;•the high degree of commitment between participants to support each other in terms ofsolvency and liquidity. The degree of pooling of solvency must be at least 40 % but, in fact,reaches 100% in the agreements which have been drawn up;• the participants have to mutualise a high percentage of the profit from their activity, atleast 40% but here again the this level reaches 100% in the most of the cases.• the obligation to remain in the institutional protection system for at least 10 years andthe need of the previous approval of the Bank of Spain as a condition to leave the IPS

Entities involved maintain a formal separate legal status and are shareholders of the SIP

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Annex III. Institutional Protection Schemes (IPS): Characteristics and functions.Institutional Protection Scheme (IPS). Main steps

June 30th December 31st 3-5 months December

Integration ProjectIntegration:

Preparation & Formalisation

Integration

- Preliminary negotiations

- Board of Directors´approval- Signature of the Integration Protocol- Viability plan delivered to BofS

- Ratify Contract and Integration project by Board of Directors- FROB funds request- Communications to CNC, CNMV & regional gov.- General Assemblies Calls

- Deliver draft of Contract and Integration Project to BofS

- General Assemblies approvals- FROB approval- Inscription of the New Bank in the mercantile and the BofS register- Regional govs. approval- Goverment bodies of the new bank- New Bank General Meeting

- Execution

- Accounting Consolidation

- Bank of Spain approval- FROB's approval - European Commission approval- New banking license request

- Disbursement of FROB's funds

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Annex III. Institutional Protection Schemes (IPS): Characteristics and functions.Institutional Protection Scheme (IPS). Central body main functions

General

Policies

Business

Services

Financial Management (ALM, Strategy, Planning, etc.)Treasury and Capital Markets (Treasury, Funding, etc)Risk Policies and management: credit risk, market risk, liquidity and interest rate risk, operational risk

Retail Business strategyRetail Banking branches located outside respective core regional marketsWholesale and Corporate BankingNon-banking financial business (Wealth, Insurance, Brokerage)Equity Investments Management

Operations (back-office), Accounting, Administration, PurchasesAudit, Compliance, Legal, TaxTechnology and Information SystemsResearch, Product Factory

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Annex IV. Regulatory appendix

Royal Decree 9/2009, of 26 June, on bank restructuring and reinforcing of equity of credit entities, whichcreates the Fund for Ordered Bank Restructuring (FROB)

Order of the Ministry of Economy and the Treasury, hereby granting a guarantee for the Government as aguarantee for the economic obligations which could be demanded of the Fund for Ordered Bank Restructuring(the Guarantee Order)

Order of the Ministry of Economy and the Treasury, amending the Guarantee Order and extending thedeadline to arrange the transactions secured by the guarantee of the State till Dec. 2016.

Order of the Ministry of the Economy and the Treasury whereby, pursuant to the stipulations of section 1 ofthe single last provision of Royal Decree 505/1987, of 3 April, the regime of Public Debt securities representedusing the entry book system is extended to the securities issued by the Fund for Ordered Bank Restructuring inaccordance with Royal Decree 9/2009 (Pending)

Decision of the Bank of Spain regarding the treatment of the regulation for the equity of credit entities asregards the holding of securities issued by the FROB (RWA: 0%)

Decision of the Bank of Spain regarding the treatment of the securities issued by the FROB as guarantee forthe monetary policy operations of the European Central Bank (Haircut: 4.5%)

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Further and detailed information can be consulted on the website of the Fund for Orderly Bank Restructuring (FROB):

www.frob.es

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DisclaimerThis document and its contents are set out for illustrative purposes only having the information contained herein merely the character of an example and donot constitute an offer, invitation or solicitation to purchase or subscribe to any securities or other instruments, or to undertake or divest investments. Neithershall this document nor its contents form the basis of any contract, commitment or decision of any kind and shall not be deemed to be considered in anycase as an investment advice nor a recommendation to enter into any transaction.

This document and the information, opinions, estimates and recommendations expressed herein, have been prepared by Fund for Orderly BankRestructuring . (hereinafter called “FROB”) as indicative to provide its customers with general information as of its date and are subject to changes withoutprior notice, FROB is not liable for giving notice of such changes or for updating the contents hereof.

The contents of this document is based upon information available to the public that has been obtained from sources considered, in general, to be reliable. However, such information has not been independently verified by FROB and therefore no warranty, either express or implicit, is given regarding its accuracy, integrity or correctness. FROB accepts no liability of any type for any direct or indirect losses arising from the use of the document or its contents. Terms, prices and figures are for information purposes only and not binding and are subject to changes without prior notice, FROB and its clients shall not be bound until they have both agreed to enter into a transaction and have agreed to its material terms. The past performance of securities or instruments or the historical results of investments do not guarantee future performance. The market prices of securities or instruments or the results of investments could fluctuate against the interests of investors.

You acknowledge that the products to which this document refers may not be appropriate for you due to your specific investment goals, financial positions or risk profiles, as these have not been taken into account to prepare this document. Therefore, before entering into a transaction, you should independently evaluate the financial, market, legal, regulatory, credit, tax and accounting risks and consequences involved and should not rely on FROB for this.

FROB shall not assume any liability nor responsibility of any kind for any cost or direct or indirect losses arising from the use of this document or its contents.

No part of this report may be copied, conveyed, distributed or furnished to any person or entity in any country (or persons or entities in the same) in which itsdistribution is prohibited by law, Failure to comply with these restrictions may breach the laws of the relevant jurisdiction. No part of this report may becopied, conveyed or distributed into the United States of America or furnished to any person or entity in the United States or any US person, The failure tocomply with these restrictions may breach the laws of the US.