FOURTH SUPPLEMENT (dated 19 July 2010)

to the

BASE PROSPECTUS (dated 4 April 2008)

Banco Santander Totta, S.A. (incorporated with limited liability in Portugal)

€5,000,000,000

Covered Bonds Programme

This fourth Supplement dated 19 July 2010 (the “Supplement”) to the Base Prospectus dated 4

April 2008, as supplemented on 30 April 2008, 17 July 2008 and 17 July 2009 (the “Base

Prospectus”), constitutes a supplement to the Base Prospectus for the purposes of Articles 135-C,

142 and 238 of the Portuguese Securities Code prepared in connection with the Covered Bonds

Programme (the “Programme”) established by Banco Santander Totta, S.A. (the “Issuer”, fully

identified in the Base Prospectus). Terms defined in the Base Prospectus have the same meaning

when used in this Supplement.

Each of the Issuer, the members of its Board of Directors, the members of its Supervisory Board

(see Management and Statutory Bodies) and its Statutory Auditor (see Management and Statutory

Bodies) declares the same in respect of the information incorporated into the Base Prospectus

pursuant to this Supplement as declared in respect of the information contained in the Base

Prospectus.

This Supplement is supplemental to, and should be read in conjunction with, the Base Prospectus.

To the extent that there is any inconsistency between any statement in this Supplement and any

other statement in or incorporated by reference in the Base Prospectus, the statements in this

Supplement will prevail.

Save as disclosed in this Supplement, no other significant new factor, material mistake or

inaccuracy relating to information included in the Base Prospectus has arisen or been noted, as the

case may be, since the publication of the Base Prospectus.

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I. GENERAL AMENDMENTS

1. This Supplement dated 19 July 2010 shall be referred to together with the supplements

dated 30 April 2008, 17 July 2008 and 17 July 2009, and references to, and the definition

of, the Base Prospectus shall be amended accordingly.

2. References to the consolidated financial statements of BST as of and for the years

ended 31 December 2007 and 2008 shall be amended to 31 December 2008 and 2009,

respectively.

3. The following sentence shall be included at the end of the second paragraph on the

Cover Page, after the first sentence of the first paragraph of the General Description of

the Programme and as a third paragraph of the section headed “Programme Size” of

the Summary of the Covered Bonds Programme:

“Covered Bonds may be issued under the Programme up to 4 April 2018.”

4. The Dealer’s legal name “Bayerische Hypo- und Vereinsbank AG” shall be amended to

“UniCredit Bank AG” and ordered alphabetically.

5. Deutsche Bank Aktiengesellschaft is added, in alphabetical order, to the list and

definition of Dealers.

6. The following definitions shall be amended as follows:

““EUR”, “€” or “Euro” or “euro” means the lawful currency of Member States of

the European Union that adopt the currency introduced at the start of the third stage of

the European economic and monetary union pursuant to the Treaty.”

““USD” or “U.S. dollars” are to United States dollars, the lawful currency of the

United States of America, and to “£” or “GBP” or “pounds sterling” are to pounds

sterling, the lawful currency of the United Kingdom.”

““Treaty” means the treaty on the Functioning of the European Union, as amended

from time to time.”

II. COVER PAGE

7. The Dealers’ names “Merrill Lynch International” and “UniCredit Group (HVB)” shall

be amended to “BofA Merrill Lynch” and “UniCredit Bank” respectively, and such

Dealers’ names shall be ordered alphabetically.

8. “Deutsche Bank” shall be included as Dealer and ordered alphabetically.

III. RESPONSIBILITY STATEMENTS

9. The last paragraph shall be amended as follows:

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“In this Base Prospectus, unless otherwise specified or the context otherwise requires,

references to “EUR”, “€” or “euro” are to the lawful currency of the Member States

of the European Union that adopt the currency introduced at the start of the third stage

of the European economic and monetary union pursuant to the Treaty on the

Functioning of the European Union (as amended), to “U.S.$”, “USD” or “U.S.

dollars” are to United States dollars, the lawful currency of the United States of

America, and to “£” or “GBP” or “pounds sterling” are to pounds sterling, the lawful

currency of the United Kingdom.”

IV. RISK FACTORS

10. Before the heading “Banking Markets” the following paragraph shall be inserted:

“Where information has been sourced from a third party the Issuer confirms that, as

far as the Issuer is aware, it has accurately reproduced such information. The Issuer

accepts responsibility to the extent that no facts have been omitted which would render

the reproduced information inaccurate or misleading. The Issuer calculates its market

share data using official sources of information, governmental or otherwise (as

applicable). Where no official sources exist, the Issuer relies on its own estimates.”

11. The last sentence of the first paragraph under the heading “Banking Markets” shall be

amended as follows:

“The principal competitors of the Santander Totta Group in the banking sector

(ranking in terms of assets as of 31 December 2009) are Caixa Geral de Depósitos, the

Millennium BCP Group, the BES Group and the BPI Group.”

12. The section with the heading “Portuguese Economy” shall be replaced with a section

with the same heading as follows:

“After the stagnation reported the previous year, the Portuguese gross domestic

product (GDP) declined by 2.7 per cent. in 2009, as a result of the global economic

and financial crisis. This has been the sharpest decline in GDP since the 1970s.

The two variables which have most contributed to the recession in 2009 have been: (i)

the sharp decline in exports (more than 11 per cent. since 2008), reflecting the global

crisis and the decline in international trade; and (ii) the slowing down of investment

(down by more than 12 per cent. since 2008) as a consequence of the decline in

demand, the increased difficulties in the access to credit (both in relation to bank loans

and debt markets), and the increase of spreads.

Although the slowing down of exports was widespread, the trend of the decline was not

uniform throughout the year. The biggest decline in exports occurred during the early

months of the year, at the peak of the crisis, then there were some signs of recovery,

and finally the year ended at a lower level than in 2008. Sales to non-European

markets, such as Singapore and the USA, were the most affected, as a result of the

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insolvency process of Qimonda and the decline of oil prices. Although exports to

Angola have kept at a strong pace, they have not been able to offset the reduction of

sales to other markets.

The slowing down of investment followed the same annual trend as the decline in

exports, with the sharpest decline being recorded at the beginning of the year. During

the third quarter of 2009, the levels of investment increased (although it did not reach

2008 levels) as a result of public investments which preceded the national elections.

Although there was no similar situation during the last quarter of 2009, the recovery

trend continued until the end of the year.

Source: INE

Contributions to GDP Growth (YoY)

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09Private Consumption Government Consupt. Investment

Net Exports GDP

The recovery of investment was largely due to the increase of public consumption, the

government support initiatives and the automatic stabilisers.

For the first time since the 1993 recession, private consumption slowed down as well,

reflecting the household reaction to the increase of unemployment and a growing focus

on saving. Although the families of those employed benefited from an increase in real

wages, as a result of the decrease of consumer prices, the lower interest rates and the

reduction in energy prices, consumption was not stimulated.

The unemployment rate rose sharply during the year and ended 2009 at a level higher

than 10 per cent. (10.1 per cent. in the last quarter of 2009). The increase was most

significant after the summer, with several companies closing down (especially in those

sectors most exposed to the international crisis) and a decline in vacancies in the

tourism sector.

Household savings increased during the year. This increase was caused mainly by the

decline in interest rates to historically low levels and the consequent reduction of costs

incurred with mortgages. As a result, the savings rate rose from 5.7 per cent. in 2008 to

8.3 per cent. in the third quarter of 2009.

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Consumer prices fell 0.8 per cent. in 2009, mainly because of the lower prices of fuel

and food (as a consequence of the decrease of the prices of raw materials) and of the

various retail sales and discounts organised so as to confront the decline in demand.

The negative contribution of fuel prices to inflation peaked in June and reversed by the

end of the year.

Indicators for Portugal

2007 2008 2009

GDP 1.9 0.0 -2.7

Private Consumption 1.6 1.7 -0.8

Public Consumption 0.0 1.1 3.5

Investment 3.4 0.5 -12.6

Exports 7.8 -0.5 -11.6

Imports 6.1 2.7 -9.2

Inflation (average) 2.5 2.6 -0.8

Unemployment 8.0 7.5 9.5

Fiscal Balance (% GDP) -2.7 -2.7 -9.3

Public Debt (% GDP) 63.6 66.3 77.2

Current Account Balance (% GDP) -8.1 -10.5 -9.4

Source: INE, Banco de Portugal, Ministério das Finanças

The current and capital account deficit fell by 1 p.p. in 2009, as a consequence of the

significant decline in the trade deficit, the slowing down of domestic demand,

investment and private consumption; and the decline of the prices of energy and raw

materials during 2009.

However, this reduction in the current and capital account deficit had no perceptible

effect on the rate of deterioration of the international investment position, which rose

to 111.7 per cent. at the end of 2009, reflecting the decline of the nominal GDP.

In 2009 the budget deficit was at 9.3 per cent. of the GDP, with the public debt to GDP

ratio rising to 76.6 per cent.. These percentages were worse than the budget’s forecast,

although not as bad as the budget deficit of other countries in the Eurozone, such as

Greece or Spain.

Despite the decrease of interest rates, bank credit slowed down sharply, especially in

the individuals segment, with mortgage loans falling to their slowest rate of growth

since the 1980s, reflecting the sharp reduction of home purchases and the 30 per cent.

decrease in house construction.

The number of new loans granted to companies also decreased and was 26 per cent.

lower than in 2008. This figure would have risen further, if it were not for an increase

in demand at the end of 2008 and in the beginning of 2009, at the height of the crisis,

when uncertainty in relation to access to credit reached its zenith.

Despite the rise in household savings, customer resources grew only moderately during

the year. In the second half of 2009 there was an increase in the diversification of

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investments and a decrease in deposits, reflecting both the existence of lower interest

rates and a greater appreciation of the equity markets.

National banks continued redirecting their sources of funding, by reducing recourse to

the international money markets and increasing the volume of debt issues. As a result,

the liquidity gap of the system (the difference between loans & advances and balance-

sheet funds) fell to its lowest level since 2002.

Despite all of the above, the leverage of the economy has increased, since credit

continued to grow, while GDP felt in nominal terms and public debt grew at a higher

rate.

The quality of the loan portfolios deteriorated sharply in 2009, with the ratio of non-

performing loans reaching historic peaks, in particular in relation to consumer and

company loans. However, this deterioration of the ratios was mainly due to the

slowdown of the rate of growth of the total portfolio and there has been a decline in the

number of new non-performing loans.”

13. After the section with the heading “Adverse Changes in the Economic

Environment” two new sections with the heading “Main Risks and Uncertainties in

2010” and “The Portuguese Republic may be subject to a downgrade by rating

agencies, with implications for the financing of the economy” respectively shall be

inserted as follows:

“Main Risks and Uncertainties in 2010

There are various risks and uncertainties (both at international and at domestic levels)

that may have an impact on the business of the Santander Totta Group.

With regard to the global financial situation, the sustainability of the recent economic

upturn recorded towards the end of 2009 is questionable. Despite evidence of

improvement, market activity continues to be highly dependent on the stimulus

measures that were implemented throughout 2009 and on the recovery of the

employment market.

As a result of a seemingly healthier economic environment, national governments have

come under increasing pressure to remove such measures. There are further concerns

in relation to the impact of continued deterioration of public accounts on loan spreads

and the credit risk appraisal of sovereign issuers.

The recent increase of spreads in Greece, as well as in Portugal, Ireland and Spain,

has emphasised the need to control public expenditure, especially where the average

age of the national population is relatively high.

European central banks have chosen not to extend their current rescue operations,

which include quantitative easing and the injection of liquidity into European

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economies. Such operations will, however, continue to provide support where needed

for the immediate future.

On the basis of the above, the withdrawal of national stimulus measures and European

support operations may impede and stifle the recent signs of recovery of economic

activity.

A further risk remains with regard to the position of leading global financial groups, to

the extent that their balance sheets continue to be exposed to high-risk assets and their

loan portfolios are directly affected by market conditions and liquidity.

The continuing presence of such financial and credit risks may potentially affect the

ability of BST to access the international wholesale markets, either because of

increases in the cost of borrowing or the reduction of credit lines available to

Portuguese entities which have medium and long term financing requirements.

At a national level, the macroeconomic situation reveals a weak growth and a potential

divergence from the situation of the eurozone area. This has various implications for

the future activity of BST.

On the one hand, slow economic growth maintains high levels of unemployment and

therefore increases the risk of loan defaults. On the other hand, there is a risk that the

monetary policies applicable to Portugal, as defined for the eurozone area by the

European Monetary Union, would be out of step with national economic activity. An

increase of the refinancing rate could deteriorate the quality of Portuguese loan

portfolios.

The budget deficit and levels of foreign debt exemplify further the structural

imbalances of the Portuguese economy. This is reflected in the recent assessment (in

2009) by several rating agencies that the economic outlook for Portugal is "negative".

Such ratings profoundly affect the confidence of investors as to the quality of sovereign

debt.

The proposed measures for the regulation of the banking industry present further risk

to the business of BST. The majority of these measures are due to be enforced in the

middle of 2010 and impose restrictions as to the type and quality of capital required, as

well as to overall liquidity levels.

With regard to capital requirements, there have also been discussions as to the possible

introduction of measures to regulate credit growth by way of compliance with new

leverage ratios.

In relation to liquidity requirements, the proposed measures include a restrictive

definition of the "liquidity levels" for one week and one month liquidity horizons, with

only the following assets being considered eligible for this purpose: "eligible assets"

8

for European Central Bank purposes, deposits covered by the Deposit Guarantee Fund

and debt issues with a maturity of over one year.

Finally, within the scope of the new Basel III regulatory framework, there are ongoing

discussions as to the possible creation of a liquidity ratio (the Bank of Portugal

implemented such ratio in 2000).

The Portuguese Republic may be subject to a downgrade by rating agencies, with

implications for the financing of the economy

“In April 2010 Standard & Poor’s downgraded the rating of the Republic of Portugal

to “A-” and in July 2010 Moody’s downgraded the rating of the Republic of Portugal

to “A1”. The rating agencies’ concerns were justified by the lack of significant and

credible measures to control the Portuguese budget deficit on behalf of the

Government, when public debt is approaching 100 per cent. of GDP and by the lack of

consensus between the Government and the opposition on measures to be implemented

for public finance consolidation in order to achieve the necessary convergence with

countries of similar rating. The rating agencies’ outlook on the Republic of Portugal is

dependent on the measures included in the Stability and Growth Programme and on

the feasibility and credibility of the plan to reduce the public deficit to 3 per cent. of the

GDP by 2013. In the past, downgrades of the rating of the Republic of Portugal have

led to the rating downgrade of Banco Santander Totta, S.A. and it is most likely that

the evolution of Banco Santander Totta, S.A.’s rating continues to be affected by the

sovereign rating of its home country and by the developments in the domestic economy.

The rating of the Republic of Portugal may be downgraded again in the future in the

event of a more drastic deterioration in public finances resulting from poorer

performance in economic activity or from the measures proposed by the Government

being perceived as insufficient. Accordingly, an adverse impact on the Republic of

Portugal may result in negative side effects on Portuguese banks and companies in

general and hence on their financial results.

Information on the ratings granted to the Issuer are available on the CMVM’s website

(www.cmvm.pt), under the section Material Information through the following link:

http://web3.cmvm.pt/english/sdi2004/emitentes/emit_fact.cfm?num_ent=%23%224W

%5D%0A.”

14. The fourth paragraph under the heading “Regulation” shall be replaced with the

following:

“Portuguese banks are required to maintain a solvency ratio of at least 8.0 per cent..

The solvency ratio is defined as Tier I capital plus Tier II capital divided by risk-

weighted assets. The Bank of Portugal minimum requirement for Tier I capital is 4 per

cent.. The solvency ratio of the Santander Totta Group complies with the Bank of

Portugal rules and in accordance with the Basel II regulatory framework and the

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application of: (i) the internal notations method (advanced by IRB) for calculating the

equity requirements in relation to substantial part of the relevant loan portfolio; (ii) the

standard method for calculating market risk; and (iii) the basic indicator method for

calculating the equity requirements in relation to operational risk, Tier I Capital and

Core Capital of BST rose, as of 31 December 2009, to 9.1 per cent. and 7.6 per cent.

respectively (to include profit gained in 2009). This demonstrates the solid and solvent

nature of the BST balance sheet. The capital adequacy requirements applicable to BST

limit its ability to advance loans to customers and may require it to issue additional

equity capital or subordinated debt in the future, which are expensive sources of funds.

As far as the required minimum level of own funds is concerned, the Bank of Portugal

has generally recommended that, no later than the end of September 2009, credit

institutions shall have a minimum Tier 1 capital level of 8 per cent.. Furthermore, in

accordance with Law 63-A/2008 of 24 November 2008 - referring to the reinforcement

of financial stability of credit institutions, namely to capitalisation measures through

public investment - the Portuguese Government may, by ministerial order, define the

level of own funds of credit institutions in such a capitalisation context; BST does not

foresee that it will be necessary to recapitalise with the aid of the Portuguese

government.”

15. The sections with the heading “Balance sheet and activity” and “Financial crisis

impact in the Issuer’s activity” shall be replaced with a section with the heading

“Balance sheet, Income Statement and activity” as follows:

“As at 31 December 2009, the turnover of BST amounted to €56.1 billion, (an increase

of 1.2 per cent. in comparison with the previous year), as a result of credit (which

includes guarantees) totalling €31.7 billion (representing a decrease of 0.9 per cent. in

comparison with the previous year) and of customer resources totalling €24.4 billion

(representing an increase of 4 per cent. in comparison with the previous year).

10

million euro 2009 2008 Change

Business Volume 56 097 55 457 +1.2%

Total Gross Loans (includes guarantees) 31 737 32 038 -0.9%

Gross Loans (1)

30 010 30 424 -1.4%

of which

Loans to Corporates 11 087 11 852 -6.5%

SME/Small Business 3 095 2 769 +11.8%

Corporates 4 530 4 523 +0.1%

SME/Small Business+Corporates 7 625 7 292 +4.6%

Large Corporates 3 462 4 561 -24.1%

Loans to Individuals 18 289 17 929 +2.0%

of which

Mortgage Loans (including securitization) 16 236 15 983 +1.6%

Consumer Loans 1 638 1 522 +7.6%

Customers' Resources 24 361 23 419 +4.0%

On-Balance Sheet Resources 16 059 16 593 -3.2%

Deposits 15 281 15 525 -1.6%

Securities issued 778 1 068 -27.1%

Off-Balance Sheet Resources 8 302 6 826 +21.6%

Investment Funds 3 582 2 498 +43.4%

Insurance and Other Resources 4 719 4 328 +9.0%

(1) Includes securitization, commercial paper and guarantees

As at the end of 2009, the loan portfolio (including guarantees) totalled €31.7 billion,

showing a small decrease compared to the previous year (less 0.9 per cent.), as a result

of the important performance of the Large Companies loan portfolio in the context of

greater demand for credit.

As a consequence of pursuing a selective policy of offering credit to economically

viable companies, the total amount of credit offered by BST to businesses and medium-

sized enterprises has increased by 4.6 per cent.. This is a result of the contributions

made by several state-supported financing programmes (for example, the SME Invest

programme).

The performance of the Large Companies loan portfolio has been directly influenced

by the development of spread margins. In the present environment, this has resulted in

an increased disintermediation within this segment.

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The amount of credit offered to individual borrowers totalled €18.3 billion, (an

increase of 2 per cent. in comparison with the previous year), as a result of declining

growth in the residential loan market. The amount of mortgage loans made by BST

totalled €16.2 billion (an increase of 1.6 per cent. in comparison with the previous

year), and reflects the downturn of the Portuguese property market, as well as the

decreased purchasing power of individuals. There was, however, a remarkable

improvement in the volume of production during the second half of 2009.

The performance of the consumer credit portfolios was more dynamic and increased

7.6 per cent. in comparison with the previous year.

The loan portfolio quality indicators reflect an increase (from 0.78 per cent. to 1.21

per cent.) in the number of loans in default for more than 90 days. Once again, this

figure is a direct result of decreased economic growth and a rise in unemployment

levels, and, despite current market conditions, it remains below the industry average.

The non performing loans coverage ratio (by more than 90 days) stood at 124.8 per

cent..

2009 2008 Change

Non Performing Loans Ratio 1.30% 0.87% +0.43 p.p.

Non Performing Loans Ratio (+90 days) 1.21% 0.78% +0.43 p.p.

Non Performing Loans and Doubtful Loans Ratio 1.23% 0.78% +0.45 p.p.

Non Performing Loans Coverage Ratio 116.4% 156.1% -39.6 p.p.

Non Performing Loans Coverage Ratio (+90 days) 124.8% 175.5% -50.7 p.p.

NPL and Doubtful Loans Coverage Ratio 122.6% 173.9% -51.3 p.p.

As of 31 December 2009, customer resources totalled €24.4 billion, (an increase of 4

per cent. in comparison with the previous year). This figure is underpinned by a 43.4

per cent. increase in investment funds and by a 9.0 per cent. increase in capitalisation

Including securitization and guarantees

Loans* (billion euro)

17.9 18.3

11.9 11.1

2008 2009

Other Corporates Individuals 31.7 32.0

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insurance, both of which began their recovery as at the end of the first quarter of 2009.

In contrast, the total amount of term deposits fell by 1.6 per cent., reflecting the

considerable pressure on liquidity levels.

The following is the Issuer’s income statement as of 31 December 2009:

million euro 2009 2008 Change

Net Interest Income (without Dividends) 761.8 705.8 +7.9%

Dividends 5.0 5.9 -14.2%

Net Interest Income 766.9 711.6 +7.8%

Fees and Other Income 311.8 307.8 +1.3%

Commercial Revenue 1 078.7 1 019.4 +5.8%

Gain/Losses on Financial Transactions 71.4 50.7 +40.8%

Operating Income 1 150.1 1 070.1 +7.5%

Operating Costs (521.5) (498.3) +4.7%

Personnel Expenses (302.3) (283.2) +6.7%

Other Administrative Expenses (154.7) (151.8) +1.9%

Depreciation (64.5) (63.3) +1.9%

Net Operating Income 628.6 571.9 +9.9%

Impairment and Other Provisions (61.9) (43.3) +42.9%

Income Before Taxes and MI 566.7 528.6 +7.2%

Taxes (87.1) (90.1) -3.4%

Minority Interests (6.7) (0.0) >+200,0%#DIV/0!

Net Income 473.0 438.4 +7.9%

* Includes the reclasification of the gain with the sale of Angola (28,1 M€) in 2009 and gains with loan sells

(1,5 M€ in 2008 and 4,3 M€ in 2009) from gains from financial operations to impairment and other provisions and results

”

BST achieved a consolidated net income of €473.0 million at the end of 2009, a 7.9 per

cent. increase from the net income of €438.4 million recorded at the end of 2008.

This increase in net income has resulted largely from the performance of strict net

interest income, of net commissions and other banking income, and financial

Customers Resources (billion euro)

16,6 16,1

6,8 8,3

2008 2009

Off Balance Sheet On Balance Sheet

24,4 23,4

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transactions which increased by 7.9 per cent., 1.3 per cent. and 40.8 per cent.,

respectively. The performance of these headings caused operating income to increase

overall by 7.5 per cent. from 2008. On the other hand, operating costs rose by 4.7 per

cent., in comparison with the costs incurred in 2008. Given that the growth of

operating income was greater than the increase in operating costs, the net operating

profit increased by 9.9 per cent. from 2008. Provisions were made so as to maintain an

adequate level of protection for loan portfolios and advances made to customers, as

well as in relation to other contingencies, thus absorbing a part of the gain achieved as

a result of the reduction of the holding in Angola.

Net interest income (without dividends), as the main source of income, rose to €761.8

million, an increase of 7.9 per cent. from the net interest income of €705.8 million

recorded in 2008. This was the result of prudent spread management and policy in

relation to volume of business, and, at the same time, maintaining adequate cover with

regard to net interest income sensitivity and a comfortable liquidity position, against a

background of rising funding costs, a continuation of interest rates at historically low

levels and a sharp deceleration in the growth of credit.

Net commissions and other banking income increased by 1.3 per cent. to €311.8

million in 2009, in comparison with the figure of €307.8 million for 2008. This is a

result of the increase in the aggregate of fees payable for services, payment means,

credit, risk insurance and investment banking, which has offset the reduction in fees

associated with investment funds, financial insurance and mortgage loans as a result

of the decline in the volume of marketing of these products.

Net income arising from the performance of financial transactions totaled €71.4

million, comparing favourably with the figure of €50.7 million recorded in 2008, which

represents an increase of 40.8 per cent. and accounts for 6 per cent. of the BST's

income. Transactions conducted with major customers and in relation to project

finance performed well, offsetting the decrease in sales of derivative products to retail

customers, conditioned further by low interest rates.

In 2009, BST recorded an overall operating income of €1,150.1 million, which

represents a sustained and balanced growth of 7.5 per cent., achieved against a

macroeconomic background of recession and with a moderate increase of the business.

Operating costs in 2009 totaled €521.5 million, which represents an increase of 4.7 per

cent. in comparison with the costs incurred in 2008. This increase is largely related to

the growth in staff costs, as a result of the book difference between the expected return

on the pension fund and its discounted rate. If it were not for this discrepancy,

operating costs would have increased by only 3.1 per cent.. The 1.9 per cent. increase

14

in the depreciation charge is directly linked to the non-recurring costs related to the

investment in the Parthenon IT platform.”

16. The paragraph under the heading “Risks associated with the implementation of its

risk management policies” shall be amended by replacing “The Santander Totta

Group” at the beginning of the first sentence with “BST”.

17. The third paragraph under the heading “Credit Risk” shall be replaced with the

following:

“In 2009, overdue loans (defaults longer than 90 days) represented 1.21 per cent. of

the total credit portfolio and the overdue loans coverage ratio stood at 124.8 per cent.

as at 31 December 2009. The Issuer cannot assure potential investors that its level of

provisions and other reserves will be adequate or that the Issuer will not have to take

significant additional provisions for possible impairment losses in future periods.”

18. The first sentence of the fourth paragraph under the heading “Other factors that may

affect the Issuer’s ability to fulfil its obligations under the Covered Bonds” shall be

amended as follows:

“Mortgage lending represented around 54 per cent. of the credit portfolio in 2009.”

19. The section with the heading “EU Savings Directive” shall be replaced with a section

with the same heading as follows:

Under Council Directive 2003/48/EC, of 3 June 2003, on taxation of savings income in

the form of interest payments (the “Directive”), Member States are required to provide

to the tax authorities of another Member State details of payments of interest (or

similar income) paid by a person within its jurisdiction to an individual resident in that

other Member State of the EU or to certain limited types of entities established in that

other Member State of the EU. However, for a transitional period, Luxembourg and

Austria are instead required (unless during that period they elect otherwise) to operate

a withholding system in relation to such payments (the ending of such transitional

period being dependent upon the conclusion of certain other agreements relating to

information exchange with certain other countries). A number of non-EU countries

and territories, including Switzerland, have adopted similar measures (a withholding

system in the case of Switzerland). On 15 September 2008 the European Commission

issued a report to the Council of the European Union on the operation of the Directive,

which included the Commission’s advice on the need for changes to the Directive. On

13 November 2008 the European Commission published a more detailed proposal for

amendments to the Directive, which included a number of suggested changes. The

European Parliament approved an amended version of this proposal on 24 April 2009.

If any of the proposed changes are made in relation to the Directive they may amend or

broaden the scope of the requirements described above. If a payment were to be made

or collected through an EU Member State which has opted for a withholding system

15

and an amount of, or in respect of, tax were to be withheld from that payment, neither

the Issuer nor any Paying Agent nor any other person would be obliged to pay

additional amounts with respect to any Covered Bond as a result of the imposition of

such withholding tax. The Issuer is required to maintain a Paying Agent in an EU

Member State that is not obliged to withhold or deduct tax pursuant to the Directive.

V. DOCUMENTS INCORPORATED BY REFERENCE

20. The section referring to the audited consolidated financial statements of the Issuer in

respect of the financial year ended 31 December 2007 shall be deleted.

21. The section referring to the audited consolidated financial statements of the Issuer in

respect of the financial year ended 31 December 2008 shall be listed under (a).

22. The following shall be included as the new section (b):

(b) the audited consolidated financial statements of the Issuer in respect of the

financial year ended 31 December 2009, together with the auditors’ reports

prepared in connection therewith (available at www.santandertotta.com and at

www.cmvm.pt), including the information set out at the following pages in

particular:

Consolidated financial statements (prepared in

accordance with IFRS) for the year ended 31

December 2009

Pages 63 to 67 (out of 184)

Consolidated Statement of Income Page 64 (out of 184)

Consolidated Statements of comprehensive income

for the year ended 31 December 2009

Consolidated Balance Sheet

Page 65 (out of 184)

Page 63 (out of 184)

Consolidated statement of cash flow Page 67 (out of 184)

Statement of changes in consolidated

shareholder’s equity

Page 66 (out of 184)

Notes to the financial statements Page 68 to 181 (out of 184)

Legal Certification of Accounts and Auditors’

Report

Page 182 to 184 (out of 184)

VI. TERMS AND CONDITIONS OF THE COVERED BONDS

23. Condition 5.6 (i) shall be replaced with the following:

16

“a day on which commercial banks and foreign exchange markets settle payments and

are open for general business (including dealing in foreign exchange and foreign

currency deposits) in:

(A) the relevant place of presentation; or

(B) any Additional Financial Centre specified in the applicable Final Terms; and”

VII. DESCRIPTION OF THE ISSUER

24. The entire section shall be replaced with the following:

(as attached)

17

“DESCRIPTION OF THE ISSUER

Incorporation and Registered Office

Banco Santander Totta, S.A. (the “Issuer” or “BST”) is a limited liability company (sociedade

anónima) registered and incorporated in Portugal on 19 December 2004 (registered number and

corporate identification number 500 844 321) under the laws of Portugal, having its registered

office at Rua Áurea, no. 88, 1100-063 Lisbon, Portugal (with, telephone number +351 21

3262031). The Issuer is a credit institution whose activities are governed, inter alia, by the

Portuguese Credit Institutions’ General Regime (Decree-law 298/92, of 31 December, as amended

from time to time), the Portuguese Securities Code (Decree-law 486/99, of 13 November, as

amended from time to time) and the Portuguese Companies Code (Decree-law 262/86, of 2

September, as amended from time to time). The Issuer has a fully-paid up share capital of EUR

620,104,983.

Information from third parties

Where information has been sourced from a third party the Issuer confirms that, as far as the

Issuer is aware, it has accurately reproduced such information. The Issuer accepts responsibility

to the extent that no facts have been omitted which would render the reproduced information

inaccurate or misleading.

The Issuer calculates its market share data using official sources of information, governmental or

otherwise (as applicable). Where no official sources exist, the Issuer relies on its own estimates.

Business overview

The Issuer’s commercial banking business is managed through its retail network. The investment

banking business of BST, formerly managed through Banco Santander de Negócios Portugal, S.A.

(“BSN”), is now directly managed by BST, following the merger by incorporation of BSN into

BST in May 2010. The specialised credit (including leasing, factoring and consumer credit) and

investment funds management business is managed by operating companies indirectly owned by

Santander Totta, SGPS, S.A. BST’s retail network regularly distributes Santander’s products. The

strategy of Santander is to position BST as a full service bank offering clients a full range of

banking products.

The commercial banking business is sub-divided into four core business areas:

(i) individuals and self-employed;

(ii) small and medium-sized businesses;

(iii) corporate and institutional customers; and

(iv) high net worth individuals.

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Distribution channels

BST has an extensive and integrated network of distribution channels.

Branches

At the end of 2009, following BST’s three year programme of expansion, the total number of

branches increased to 762 customers’ assistance offices (Postos de Atendimento), 698 of which

are branches. This number includes 14 premium centres, five in Lisbon, two in Porto and one in

each of Estoril, Leiria, Coimbra, Viseu, Braga, Maia and Matosinhos, specially designated for

premium clients.

BST’s strategy for leading the university sector continued throughout 2009, where BST maintained

its presence with 28 university branches in the domestic market.

In addition to the network of traditional branches, BST increased its promotional stores in

suburban areas to 200 by virtue of the Promoting Offices programme (Lojas Promotores).

Electronic/Complementary Channels

In 2009, the selfbanking activity focused on the renegotiation of the already existing ATM network

installed at BST client premises and on installing new ATM machines in places with a high volume

usage potential.

BST had an 11.8 per cent. market share in the ATM market, including ATM machines installed at

its branches and with its clients. The internal network of machinery responsible for making

deposits and cashing cheques was increased from the previous year, surpassing the 500 existing

machines installed and corresponding to a coverage of over 60 per cent. of branches of the BST

commercial network. Outsourcing was increasingly used by the selfbanking activity, evidencing

BST’s clear commitment to this distribution channel.

In 2009, the NetBanco Individuals and Corporate segment functionalities were improved. Within

the Individuals segment, dispatch procedures for notices were enhanced, digital credit card

extracts and new campaigns for personalised messages for credit concessions were launched while

public areas within the branches network were redesigned. BST also enhanced its standards under

the European Directives plan and in particular the Directive 2004/39/EC (“MiFID”) rules. In the

Corporate segment a new anti-fraud system for the signing of operations was developed, each user

now being able to choose between using a dynamic code provided by a matrix card, or an

authorisation code sent to the client’s mobile phone.

In 2009 there was an increase of 11 per cent. in the NetBanco Individuals and Corporate

segments. The share of migrated transactions in the Individuals segment was approximately 70 per

cent., evidencing a 13 per cent. increase during the course of 2009. The number of visits to the

NetBanco website also increased by 17 per cent. in 2009.

International

19

On an international level, BST sought to increase proximity with its clients in order to highlight

the strength of the BST Group’s balance sheet, and to consolidate and innovate its offer of banking

solutions to clients resident abroad, despite the difficult economic environment.

The banking solutions offered to clients during 2009 included the Super Account for Residents

Abroad (Super Conta Residentes no Estrangeiro), and saving products for the most significant

currencies. BST also provided a number of advantages in terms of pricing and a variety of

applications.

The offer of diversified products included financial and investment insurance products and

structured products in dollars, with an expected higher return compared to the standard return of

the market.

BST hosted events abroad, notably in South Africa and Venezuela, with the purpose of presenting

on existing business opportunities within certain segments of the Portuguese economy and

commenting on the performance of the Santander Totta Group, so as to improve the confidence of

local Portuguese communities.

There were also initiatives such as a "Summer Campaign", directed at customers living and

working abroad. During the “Summer Campaign” initiative, BST employed communication

resources and assistants to better attend to client needs.

During the second half of 2009, the Luxembourg branch was successfully closed with due regard

to the best interests of the clients, as well as to the relevant local authority rules.

The London branch continued to focus on credit solutions for UK and Irish residents seeking to

acquire a second residence in Portugal. At the same time, the London branch introduced better

control mechanisms in relation to credit portfolios.

In 2009, the volume of business grew by 4.2 per cent. in the Non-Residents segment, with a notable

improvement within the last quarter. In an effort to promote a strong relationship between clients,

local offices and branches, Portuguese commercial directors organised 39 visits to Portuguese

regions with high rates of immigration, in order to offer the most adequate banking solutions.

The operating income of the Non-Residents segment showed a steady increase, although it

remained below growth rates in the past years. During 2009, the credit granted to clients in this

segment increased by 10.9 per cent..

In 2009, BST maintained its market share in the Portuguese Emigrants’ Transfers segment. This

was as a result of an important effort by the Bank to inform its clients of the most efficient way to

execute these transactions. Also in 2009, BST created a specific site for the Non-Residents segment

named Portuguese Abroad, (Portugueses no Estrangeiro) which is linked to the BST webpage.

Outlook for 2010

20

Economic indicators during the last quarter of 2009 have suggested that 2010 will be a year of

recovery for the Portuguese economy. However, some analysts have reported that such recovery

might take longer than expected and there is some uncertainty as to its sustainability.

BST is prepared to face the difficulties and challenges of 2010, which will include lower business

growth levels, higher funding costs, increased levels of impairment and provisions relating to

increased default ratios.

BST has a solid and well-provisioned balance sheet as well as no capital or liquidity restrictions.

The BST Group will maintain its strategy of focusing its commercial banking model on client needs

and making careful choices with respect to such needs.

Net operating margins, cost control, and the dynamic management of global banking risks and

portfolio credit quality will all continue to be the fundamental focus for 2010.

BST will continue to grow due to its corporate brand and operational efficiency, thereby

maintaining its support for the Portuguese business sector. In the Individuals segment, BST will

focus on the consolidation of its market position within specific sectors, such as the university and

premium sectors.

Operations

Commercial Banking

Throughout 2009, BST continued its client-centred strategy, employing its dynamic commercial

activity in a manner that would allow the BST Group to attract and retain resources, manage

credit spreads, control credit defaults and increase the success of the Corporate segment.

Furthermore, BST launched two client campaigns in order to consolidate this commercial banking

strategy. The first client campaign was held in April and entitled "I Need a Zero", while the second

campaign was held in October and entitled "Ordenados Dá". Both campaigns highlighted the

advantages of the Super Payroll Account (Super Conta Ordenado).

These campaigns were set up for potential clients to open future payroll accounts with BST,

offering technological equipment, exemption from commission, and 0 per cent. interest rate on

overdraft utilised during the first year.

It’s important to note that, during the last quarter of 2009, BST launched a commercial banking

synergy programme in order to motivate the retail professional teams and to improve their

performance in the following areas: clients’ resources, mortgage loans, consumer loans, factoring,

confirming and new payroll accounts.

Over the course of 2009, the volume of business in the Individuals and Business segments

increased by 3 per cent..

Credit risk

21

Principal areas of activity

During 2009, the activity of the credit risks area was mainly directed at the following:

Maintaining the segmentation principle in processing credit risks, differentiating the approach to

such risks in light of the characteristics of customers and products;

• Increasing the quality of risk-admission analysis instruments, suited to and differentiated in

light of each segment, allowing for an increase in the quality of admission and follow-up of

such risks, with a consequent improvement in the quality of loan portfolios;

• Strengthening of commercial areas with a view to growth of the business and strict

observance of the Group's risk-admission criteria, allowing for the control of default levels

and the consequent continuation of healthy loan portfolios;

• In respect of portfolio customers (those assigned a credit analyst), the number of pre-

classified customers was increased and greater support was given to the commercial area in

attracting new customers;

• In respect of individual customers and standardised risks, greater use was made of the Triad

comportmental scoring model. This instrument is of a more predictive nature as to the risks

assumed, simultaneously allowing for: more proactive intervention in respect of customers,

driving the growth of the business, the increase of quality and the preservation of portfolio

quality;

• In respect of standardised risks in the Businesses segment, a new automatic transactions-

decision system came into operation, impacting not only on the quality and cost of customer

service, but also on the consistence and coherence of the service quality of the credit risks

area;

• As a result of the quality of risks admitted and of instruments used, insofar as Basel Capital

Accord (“BIS II”) is concerned, BST obtained authorization from the Bank of Portugal and

the Bank of Spain to use, as from 30 June 2009, advanced internal (IRB advanced) models in

processing the credit risk of the majority of its portfolios (approximately 90 per cent.);

• As a result, particular attention continued to be focussed on the control of past-due loans,

with an increase in the quality of management information so as to allow for a more

proactive role in the identification of problems and the search for solutions. The focus was on

ongoing monitoring of portfolios by specialised teams and on the promotion of new products,

with a view to the settlement of debts, so as to reduce the amount of non-performing loans

and management delays, and to preserve the quality of the loan portfolios in question;

22

• In the recoveries area, there was a greater focus on the management of irregular assets, with

a strengthening of the restructuring agreements policy and obtaining payments in kind, rather

than going through legal proceedings.

Risk Model

Credit risk is the possibility of losses stemming from full or partial non-fulfilment of financial

obligations entered into with the Bank by its customers.

The organisation of credit-risk management is dependent on the type of customer in question, with

a different approach adopted, throughout the whole of the risk management process, for portfolio

customers and for standard customers.

• Portfolio customers are those who because of the risks assumed, are assigned a risk

analyst. This group includes Corporate Banking customer companies, financial institutions

and part of the Retail Banking customer companies. Assessment of these risks is undertaken

by the risk analyst, complemented by decision-support tools based on internal risk

assessment models.

• Standard customers are those who are not assigned an analyst to monitor them specifically.

This group includes individuals, one-man businesses and non-portfolio Retail Banking

companies. Assessment of these risks is based on internal assessment and automatic-

decision models, complemented, in a subsidiary manner when the model is not sufficiently

precise, by teams specialised in risks of this type.

Metrics and measurement tools

BST uses it own solvency classification assignment models or internal ratings for the various

customer segments. These are used to measure the creditworthiness of a customer or transaction,

each rating corresponding to a different probability of default.

The overall classification tools are applied to the country-risk, financial entities and Global

Corporate banking segments, both to determine their rating and also in monitoring the risks

assumed.

These tools assign a rating to each customer as a result of a quantitative or automatic module

based on balance sheet data and/or ratios or macroeconomic variables, complemented by an

analysis performed manually by the risk analyst monitoring the customer.

The ratings are reviewed periodically to incorporate new financial information becoming

available in the meantime and also, at a qualitative level, the experience acquired through the

assessment of the existing credit relationship. The frequency of these reviews increases for those

customers if the internal warning and risk-classification systems so require.

It should be pointed out that the decision-support tools are themselves subject to review and/or

performance evaluation.

23

For the standard-risk portfolios, both of individuals and of non-portfolio businesses, scoring tools

have been implemented that automatically assign a score or decision to loan applications

received. These standard-risk decision tools are complemented by a comportmental scoring model,

an instrument that brings greater predictability as to the risks assumed, which are used both for

pre-sales and for sales.

Credit-risk parameters

Assessment of the customer and/or of the transaction through rating or scoring constitutes an

evaluation of their creditworthiness, which is quantified through the probability of default (“PD”).

In addition to the appraisal of the customer, quantitative analysis of the risk considers other

aspects, such as the life of the transaction, the type of product and the guarantees that exist.

Therefore, not only is the probability of the customer defaulting on his contractual obligations

(PD) taken into account, but an estimate is also made of the moment of exposure at default

(“EAD”) and the percentage of EAD that cannot be recovered (loss given default or LGD).

These are the principal parameters of the credit risk. Their combination allows a calculation of the

probable or expected loss, which is considered as yet another business cost reflecting the risk

premium, a cost that is appropriately reflected in the price of the transactions.

It is these risk parameters that allow a calculation to be made of the regulatory capital in keeping

with the BIS II. Indeed, this regulatory capital is determined be the difference between the

unexpected loss and the expected loss.

The estimate of the risk parameters (PD, LGD and EAD) is based on: in-house experience, the

analysis of contracted transactions, observation of defaults and the experience in recovering the

main defaults encountered.

Calculation of the LGD is based on observation of the process of recovery in non-performing

loans, not only the income and costs associated with such process, but also the moment in which

they occur and the indirect costs stemming from recovery activity.

The EAD is estimated on the basis of a comparison between the use of the contracted lines at the

time of default and a normal situation, so as to determine the real consumption of the lines at the

time of default.

Rating Scale

To establish an equivalence between the internal ratings of the various models that exist –

corporate. country-risk, financial institutions, etc. – and to allow their comparison with the

external ratings assigned by the international agencies, the Bank uses an equivalence table.

The equivalence is established through the probability of default associated with each rating.

Probabilities calibrated internally are compared with the external ratings periodically published

by the rating agencies.

24

Real loss

To complement the use of the advanced methods described above, other metrics are usually used,

allowing prudent, effective management of the credit risk on the basis of losses occurring.

At BST the cost of the credit risk is measured, above all, through the default management

variation, known as VMG (final doubtful - initial doubtful + write-offs - write-offs recovered).

These three approaches measure the same situation and therefore converge in the medium- to

long-term, even though they represent successive moments of the cost of credit: default flows

(VMG), cover of doubtful debt and cover of bad debt respectively.

Credit-risk cycle

The risk-management process consists of identifying, measuring, analysing, controlling,

negotiating and decision-taking in respect of the risks incurred by the Bank's operations. This

process starts with the business areas that propose a given risk propensity. These risks are

approved, or not, by special committees, which act by delegation of powers by the Executive

Committee on the Senior Credit Board (“CSC”).

The CSC establishes the risk policies and procedures and establishes the limits and delegation of

powers.

Planning and establishing limits

The establishment of risk limits is conceived as a dynamic process that identifies the profile of

those risks the Bank is prepared to accept, through appraisal of the loan applications and of the

opinion of the credit risks area.

The limits are based on two basic structures: the customers and/or segments and the products.

For major corporate groups a pre-classification model is used, based on a system of economic-

capital measurement and follow-up.

At the level of portfolio-customer risks, the most basic level is the customer. Where certain

characteristics are involved – generally of relative importance – there is an individual limit,

usually known as pre-classification, normally involving a simpler system for those customers that

meet certain requirements (well known to the Bank, ratings, etc.).

For the standard risks, the process of planning and establishing limits involves joint preparation

by the risks and business areas of credit management programmes (PGC) reflecting the expected

results of the deal in terms of risk and returns as well as the limits to which the activity and the

associated risk management will be subject.

Risk study and loan classification process

25

A requirement prior to the authorisation of any transaction at BST is the performance of a study of

the risk.

This study consists of analysing the ability of the customer to fulfil its contractual commitments

towards the Bank. This implies an analysis of customers' creditworthiness, their loan transactions,

their solvency and their profitability.

The risk study is performed for each new customer or transaction, its frequency predetermined in

the light of the segment in question.

Additionally, a study is also performed and the assigned rating is reviewed in the event of an alert

or event affecting the customer and/or the transaction.

Operations Decision

The decision process involved in the transactions is aimed at their analysis and decision, taking

into account the risk profile and the relevant elements of the transaction in the definition of a

balance between risk and return.

Follow up and Control

To maintain adequate control of the quality of the loan portfolio, and in addition to the measures

undertaken by Internal Audit, a specific follow-up process has been set up, involving special teams

and managers.

This follow-up procedure is fundamentally based on an ongoing process of observation allowing

advance detection of incidents that might occur in the in the evolution of the risk, of the

transactions and of the customer, to be able to implement in advance measures designed to

mitigate them.

Recoveries

Recovery management at BST is a strategic, integral and business activity. The specific goals of

the recovery process are as follows:

• To obtain payment or settlement of outstanding balances of payments to ensure that the

situation returns to normal. Should this not be possible, the aim is to recover the debts in

full or in part, no matter what their situation is at the time;

• To maintain and strengthen the relationship with the customer, ensuring the customer's

proper conduct in the light of commitments contractually entered into with the Bank.

Recovery activity also differs in accordance with the commercial segments in question: standard

customers and portfolio customers, each with their own specific management model. Recovery

management, segmented in this way, determines the various management stages: preventative

management, irregularities management, doubtful debt and bad-debt management, which have

26

their own specific models, strategies and circuits. All this activity is shared with the business

areas.

Counterparty risk

Counterparty risk refers to the possibility of default by a counterparty of terms agreed within

contracts executed on the financial markets, such as the organised markets or the over-the-counter

market (“OTC”), and the subsequent financial losses incurred by the non-defaulting party.

The relevant types of transactions include the purchase and sale of securities, interbank money

market operations, repos contracting, securities borrowing and derivative instruments.

The control of these risks is carried out through an integrated system, to enable the recording of

approved limits and to provide information on the availability of different products and maturities.

The same system also allows for the monitoring of risk concentration at the customer/counterparty

level.

The risk in derivatives transactions, called Credit Risk Equivalent (“CRE”), is calculated as the

sum of the current value of each contract (or current replacement cost) and the respective

potential risk. This provides an estimate of the maximum expected value until maturity, subject to

underlying market volatility and contracted flow structure.

Market risk

Activities subject to market risk

The financial risk measurement, control and monitoring segment includes those operations in which

an asset risk is assumed. The risk stems from the variation of risk factors, interest-rate, exchange-

rate, floating-rate and their volatility as well as the solvency risk and the liquidity risk of the

various products and markets in which BST operates.

In light of the purpose of the risk, the activities are segmented as follows:

Trading: this heading includes financial service activity for customers;

Additionally, this point includes active management of the credit risk inherent in the balance

sheet of BST's banking business.

Structural Risks:

- Structural exchange-rate risk: the exchange-rate risk stemming from the currencies in

which investments are made in companies that may or may not be consolidated;

27

− Structural Variable Returns: this heading includes investments through equity holdings

in financial and non-financial companies that are not consolidated, generating a

variable-return risk.

Methodologies

Trading Activity

The standard method for trading activity applied during 2009 within the scope of BST's banking

business, was the Value at Risk (VaR). The historic simulation standard is used as the basis, with a

confidence level of 99 per cent. and a time spar of one day. Statistical adjustments were applied,

allowing fast, effective inclusion of more recent events conditioning the levels of risk assumed.

Complementing this is scenario analysis (stress testing), which consists of defining scenarios

covering the conduct of various financial variables and determining their impact on results when

applying them to the activities. Stress testing can replicate the conduct of financial variables that

occurred in the past (such as crises) or, on the contrary, it can determine plausible scenarios that

do not correspond to past events. In short, stress testing seeks to determine the potential risk under

extreme market conditions and on the fringes of probability of occurrence not covered by the VaR.

In parallel, positions are monitored on a daily basis and exhaustive control is undertaken of

changes to the portfolios with a view to detecting alterations of the profile or other incidents, in

order to correct them. Daily preparation of the income statement is a risk indicator to the extent

that it allows identification of the impact of the variations on the financial variables or of the

alteration of the composition of the portfolios.

Calibration and contract measures (Back-testing)

Reliability of the VaR model is periodically gauged through back-testing analysis. Back testing

consists of a comparative analysis between the calculations of the Value at Risk (VaR) and the

clean P&L (the result is associated with the re-evaluation of portfolios at the closing price of the

previous day and at the closing price of the following day), in which an analysis is performed of

sporadic deviations of the results compared with the estimated measurements.

Back-testing analyses performed at BST for its banking business meet BIS requirements in the

matter of comparison of internal systems used in the measurement and management of financial

risks.

Additionally, in back testing, hypothesis tests are performed: excess tests, normality tests, average

excess measurements, etc.

Limits

28

Quantitative limits are used for trading portfolios, classified into two groups in light of the

following objectives:

Limits designed to protect the volume of potential losses. Examples of limits of this type

include VaR limits on sensitivity measures (BPV or greeks) or on equivalent positions;

Limits designed to protect and accommodate the volume of actual losses or to protect results

already achieved during the period. The aim of this type of limit is to provide warnings on

positions that are generating losses (loss triggers), allowing decisions to be taken before the

maximum loss limit is reached (stop loss), as from which losses are considered as having

reached an unacceptable degree and the position will immediately be closed.

Balance sheet risk

Decisions relating to structural risk management are made by the Asset and Liability Committee

(“ALCO”), which is chaired by the President of the Executive Committee. The ALCO is comprised

of executive directors responsible for Financial, Treasury, Commercial, Marketing and

International departments of the BST Group. The ALCO meets every month to analyse balance

sheet risk and to make relevant decisions with regard to structural risk.

Interest rate risk

The interest rate risk of the consolidated balance sheet is measured through a dynamic risk

analysis model, which measures the increase of risk factors over time as well as the position of

BST in relation to assets and liabilities sensitive to interest rate changes. This model enables the

measurement and control of every risk factor associated with balance sheet risk, in particular the

risk directly created by yield curve movements. The existing index and re-pricing structure ensure

that yield curve movements determine the exposure of balance sheet aggregates to interest rate

risk.

Foreign exchange rate risk

Foreign exchange rate risk in commercial activity is measured and controlled by the global

foreign exchange position. The BST Group has a strategy that enables absolute coverage.

Liquidity risk

The BST Group liquidity policy is based on low liquidity risk and ongoing diversification of

funding sources, taking into consideration the volume and nature of the financing instruments to

be used. This is so as to allow for the implementation and good performance of the established

business plan.

By maintaining a conservative risk profile, BST is better protected against a potential liquidity

crisis, as it would have more time to prepare and implement adequate measures.

29

The mixed funding policy is based on adequate liquidity risk and compliance with established

limits. It is reviewed by the ALCO on a monthly basis. Liquidity risk limits are determined by an

independent body of management, which amongst other requirements, demands that a reasonable

volume of liquid assets are always available as a liquidity cushion.

All of the BST liquidity risk management processes are focused on crisis prevention and not on

post-crisis reaction. This principle underlies the BST Group contingency plan, which is focused on

envisaging potential crisis scenarios so as to determine the types of crisis that may arise, the

internal and external communications that may be required and the relevant responsibilities to be

allocated.

Liquidity risk management is undertaken at a consolidated level. The funding policy takes into

account changes to balance sheet aggregates, the structural adequacy of mature assets and

liabilities, the level of net interbank debt in light of available funding, the dispersion of mature

assets and liabilities, and the minimisation of costs inherent to the funding activity.

The following transactions contributed to the overall structural balance of the Issuer in 2009: a

securitisation operation in the sum of about €1 billion; a Covered Bonds issue in the sum of €1

billion; issues under the EMTN programme totalling €1.57 billion and the issue of long-term

liabilities in the form of deposits or bonds placed with retail customers.

Activity within the capital markets was irregular throughout 2009. As a result, the ECB acted as

counterparty by enabling liquidity injections and absorption. To take part in these operations,

banks must hold assets regarded by the ECB as eligible collateral. At the end of 2009, BST had

€9.8 billion of eligible assets, representing a comfortable liquidity cushion which considerably

reduces the liquidity risk of the BST Group. Furthermore, BST may also issue up to €2 billion

notes which will be guaranteed by the Portuguese Republic.

Operational risk

The BST Group defines operational risk as: "the risk of loss resulting from deficiencies or flaws in

internal processes, human resources or systems, or from external circumstances".

The operational risk management model is based on direct, active management by all departments

at every stage of the operational cycle. This involves the decentralisation of certain duties and

responsibilities. There is a central department that controls, supervises and is responsible for

implementing the operational risk model.

In addition, the "Management Milestone", which incorporates the rules of management, dictates

that the control of operational risk shall also be determined by the top management of the BST

Group. As a whole, the BST operational risk model meets the requirements established by Basel II,

as well as those determined by the Bank of Portugal.

The implementation and constant improvement of the Management Milestone allow for the:

30

• identification of operational risk inherent in all BST activities, products, processes and

systems;

• measurement and assessment of the operational risk in an objective, ongoing manner

consistent with Basel II;

• ongoing monitoring of operational risk exposures in order to detect risk levels, implement

control procedures, improve in-house knowledge and mitigate losses; and

• establishment of mitigating measures to eliminate and/or minimise operational risk.

The measures listed above allow integral and effective management of operational risk,

improvement of knowledge in relation to actual and potential operational risks as well as

improvement of processes and controls, whilst always aiming for a reduction of losses.

Technology and Systems

The BST Technology and Systems department has benefited from the improved manageability of

software, hardware and communications platforms, which increase BST’s technological power

and its ability to manage macro contracts worldwide.

In 2009, BST continued with project Partenon/Alhambra started in 2008, which allowed it to

capture synergies, to share structures and technological developments so as to standardise

services to world clients and pursue a uniform technological platform for all of the BST Group.

This project started with the implementation of a new platform to support all banking activity, with

the aim of migrating accounts from the legacy system to this new platform. BST opted to

systematise the migration of its retail network in order to minimise the negative impact on clients,

starting with the small branches in May 2009 and continuing with the large branches in December

2009.

Investment in supporting strategic areas continued throughout 2009, such as the support provided

to standardised risk decision systems, risk analysis tools and fulfilling the measures under Basel II.

Inter alia, BST also implemented solutions regarding: international means of payment, measures

required by MiFID, the centralisation of risk tools, consumer credit applications and measures to

prevent real estate exposure in case of an increase in unemployment levels. In addition, dynamic

commercial applications were reinforced by offering supporting tools to the commercial

management of the local network. Further investments were made to update and maintain the

uniform technological platform, in accordance with the requirements of current legislation.

Within the NetBanco segment, there was an increase in the offer of certain services and

functionalities, such as digital credit cards and duplicates of electronic payments.

In the Global Banking and Markets segment there was a greater focus on offering products and

solutions that are aligned to market expectations, particularly given the recent instability and

volatility within the markets.

31

The BST Compliance, Operational Continuity and Quality departments developed and

implemented a set of measures to effect the efficient management of technological systems, aiming

to reduce operational risk and enhance business sustainability. In this context, the Disaster

Recovery program was piloted in order to avoid disruption to the information system in case of

technological difficulties.

In order to ensure the continuous enhancement of Internal Risk Control, BST reinforced its policy

of monitoring and reporting available services, analysing profiles and authorising access to users

only in accordance with the recommendations of the Bank of Portugal.

Quality

The BST Group continued to maintain and develop its commitment to quality of service and

excellence in client attention, so as to increase client loyalty and satisfaction.

The Quality of Service department developed quality tables for the different areas of business and

business support, with a special emphasis on the review of client service levels. Throughout 2009,

almost 100 internal and external quality audits have been undertaken (the latter carried out by

APCER), giving rise to 220 improvement recommendations within a network of 1,700 employees.

In 2009, the percentage of satisfied clients and of clients who were happy to recommend BST

increased to 82 per cent. and 88 per cent. respectively.

Over 88 per cent. of the local network achieved the META 100 score, which is an indicator of

quality of service.

The total amount of telephone surveys completed by clients reached 70,000 and more than 4,000

unscheduled visits took place, with around 2,700 telephone audits to local branches being

conducted. In 2009 BST maintained the highest score in the valuation of unscheduled visits within

the domestic retail network, as calculated by Multimétrica.

The number of formal customer complaints increased as a result of the market crisis during the

first semester of 2009. However, BST uses such complaints as a tool to improve its relationship

with clients. BST handles client complaints by virtue of a centralised process, in order to provide

the whole network with important data that will rapidly solve any complaints that may arise.

Organisational Structure

Santander Totta Group

The Santander Totta Group in Portugal is a global financial group focusing its operation in two

main business areas: commercial retail banking and investment banking. The Santander Totta

Group in Portugal provides a full range of products and services to individuals, companies and

institutional investors, and comprises the commercial retail and, following the incorporation of

BSN by BST, the investment bank networks of the Issuer, and the related group of operating

companies which are controlled by Santander Totta, SGPS, S.A.

32

The holding company in Portugal, Santander Totta, SGPS, S.A., separates the activities of the

participating companies and the investment bank business from the activities of the Issuer. The aim

of this corporate structuring, whereby all the banks and operating companies of the Santander

Totta Group are controlled by Santander Totta, SGPS, S.A., is essentially to increase the Santander

Totta Group’s strength and solvency, as well as to provide transparency to the marketplace and

allow for adequate supervision on a consolidated basis.

The diagram on the next page shows the structure of the Santander Totta Group as at 31 May

2010.

* Own shares: Santander Totta SGPS has 0.013 per cent.;

Banco Santander Totta has 0.009 per cent.; and

Santander Gestão de Activos SGPS has 0.267 per cent.

** Issuer: Banco Santander Totta is highlighted in red in the center of the chart.

History of Banco Santander Totta, S.A.

Following an agreement entered into on 7 April 2000 between Banco Santander Central Hispano

(“BSCH”), Mr. António Champalimaud (the former controlling shareholder of Banco Totta &

Açores, “BTA”) and Caixa Geral de Depósitos S. A., BST acquired a controlling interest of 94.68

per cent. in BTA and 70.66 per cent. in Crédito Predial Português (“CPP”). In June 2000, through

its associate Santusa, BSCH made a public acquisition offer for all of the outstanding shares of

BTA and CPP. In December 2000, following a capital increase of BTA and the restructuring of the

investments of the BST Group in Portugal, BTA became the head of the BTA Group, which, in

addition to CPP, comprised Banco Santander Portugal (“BSP”) and BSN. The first complete year

under the Santander Group structure was 2001.

BST was established following a corporate restructuring process completed in December 2004,

which merged the commercial banks within the Santander Group in Portugal (being BTA, CPP and

BSP) into a single legal entity. The outcome was a holding company (Santander Totta), holding the

commercial bank BST and the investment bank BSN. The restructuring process has been approved

by the Bank of Portugal and at the Shareholders' General Meetings of BTA, CPP and BSP on 15

October 2004, with the granting and filing of the deed completed on 19 December 2004.

The restructuring was an internal reorganisation of the BST Group in Portugal and resulted in BTA

transferring, by operation of the merger, all of its assets into BST, which assumed all the

obligations of BTA by operation of law.

In May 2010, BSN was incorporated into BST following a merger process that was initiated in

2009.

As a result of the merger the share capital of BST increased from €589.810.510 to €620.104.983.

BST is the parent company to various subsidiaries and its financial results are affected by the

cashflows and dividends from its subsidiaries.

As at 31 May 2010, the majority shareholders of BST were:

Shareholder Quantity of shares Equity (per cent.)

Santander Totta, SGPS 604,651,319 97.508

Taxagest 14,593,315 2.353

Considering that both the shareholders of BST – Santander Totta, SGPS, S.A. and TaxaGest SGPS,

S.A. (two holdings comprised in the Santander Totta Group) – are indirectly fully owned by Banco

Santander, S.A., the Bank is indirectly fully owned by Banco Santander, S.A..

35

BST, being (i) a credit institution and (ii) a financial intermediary (i.e. an entity which provides

investment services/activities and ancillary services) and an issuer of securities admitted to trading

on a Portuguese regulated market, is subject to the supervision of respectively (i) the Bank of

Portugal and (ii) the CMVM, which, among other regulatory areas, supervise the acquisition and

disposition of substantial holdings in BST.

BST is managed by a Board of Directors (Conselho de Administração) elected at the General

Shareholders’ Meeting for a three-year period and each of its members is governed by principles of

legality, transparency and responsibility in order to boost and optimise the interests of its

shareholders and creditors (in accordance with Commercial Companies Code – Article 64). The

Board of Directors is responsible to the Bank’s creditors if, through its non-observance of the law,

it allows property dilapidation (in accordance with Commercial Companies Code – Article 78).

The General Shareholders’ Meeting also elects for a three year period (i) the members of its

Supervisory Board (Conselho Fiscal), in charge inter alia of supervising BST’s activity, (ii) its

Statutory Auditor (Revisor Oficial de Contas) responsible for certifying the Issuer’s accounts

(revisão oficial de contas) and (iii) the members of the General Shareholders’ Meeting Board (Mesa

da Assembleia Geral).

Management and Statutory Bodies

Statutory Bodies for the business years 2010-2012

BOARD OF DIRECTORS

Chairman: António Mota de Sousa Horta Osório

Deputy-Chairmen: Matías Pedro Rodriguez Inciarte

Nuno Manuel da Silva Amado

Directors: Miguel de Campos Pereira de Bragança

António José Sacadura Vieira Monteiro

José Manuel Alves Elias da Costa

Carlos Manuel Amaral de Pinho

Luís Filipe Ferreira Bento dos Santos

Eduardo José Stock da Cunha

José Carlos Brito Sítima

Pedro Aires Coruche Castro e Almeida

José Urgel Moura Leite Maia

36

EXECUTIVE COMMITTEE

Chairman: Nuno Manuel da Silva Amado

Members: António José Sacadura Vieira Monteiro

José Carlos Brito Sítima

José Manuel Alves Elias da Costa

José Urgel Moura Leite Maia

Luís Filipe Ferreira Bento dos Santos

Miguel de Campos Pereira de Bragança

Pedro Aires Coruche Castro e Almeida

SUPERVISORY BOARD

Chairman: António Mendo Castel-Branco Borges

Members: Mazars & Associados, SROC, S.A., represented

by Fernando Jorge Marques Vieira

Ricardo Manuel Duarte Vidal Castro

Alternate: Pedro Alves Guerra

STATUTORY AUDITOR

Main: Deloitte & Associados - SROC, S.A.,

represented by Maria Augusta Cardador

Francisco

Alternate: Carlos Luís Oliveira de Melo Loureiro, ROC

GENERAL SHAREHOLDERS’

MEETING BOARD

Chairman: António Manuel de Carvalho Ferreira Vitorino

Vice-Chairman: António de Macedo Vitorino

Secretary: António Miguel Leonetti Terra da Mota

37

Principal activities of directors outside of BST

Name Company Function

António Mota de Sousa Horta Osório

Banco Santander, S.A. (Espanha) General Director

Member of the Directive Committee

Santander Investment, S.A. (Espanha) Director

Abbey National, Plc. (Reino Unido) Chairman of the Executive Committee

Santander Totta, S.G.P.S., S.A. Chairman of the Board of Directors

Portal Universia Portugal, S.A. Deputy-Chairman of the Board of

Directors

Bank of England Director

Nuno Manuel Silva Amado

Banco Santander, S.A (Espanha) General Director

Member of the Directive Committee

Santander Totta, S.G.P.S., S.A. Deputy-Chairman of the Board of Directors and Chairman of the

Executive Committee

Portal Universia Portugal, S.A. Deputy-Chairman of the Board of Directors and Chairman of the

Executive Committee

Câmara de Comércio e Indústria Luso Espanhola

Deputy-Chairman of the Directive Board

Matias Rodrigues Inciarte

Banco Santander, S.A (Espanha) Third Deputy-Chairman of the Board

of Directors

Banco Espanhol de Crédito, S.A. Director

Santander Totta, S.G.P.S., S.A. Deputy-Chairman of the Board of

Directors

Financeira Ponferrada, S.A. Director

SCH Seguros e Reseguros, S.A. Director

União de Crédito Imobiliário, S.A. Chairman of the Board of Directors

Operador do Mercado Ibérico de Energia Pólo Espanhol, S.A.

Director

Sanitas, S.A. Advisor

38

Miguel de Campos Pereira de Bragança

Santander Totta, S.G.P.S., S.A. Director and member of the Executive

Committee

Taxagest - Sociedade Gestora de Participações Sociais, S.A.

Chairman of the Board of Directors

Partang, SGPS, S.A. Director

SIBS – Sociedade Interbancária de Serviços, S.A.

Director

António José Sacadura Vieira Monteiro

Portal Universia Portugal, S.A. Director and member of the Executive

Committe

Santander Totta, S.G.P.S., S.A. Director and member of the Executive

Committe

Partang, SGPS, S.A. Chairman of the Board of Directors

Eduardo José Stock da Cunha

Santander Totta, S.G.P.S., S.A.* Director and member of the Executive

Committe

SIBS – Soc. Interbancária de Serviços, S.A. *

Director

Sovereign Bank

Member of the Management Executive Commitee

Head of Manufacturing

José Manuel Alves Elias da Costa

Santander Totta, S.G.P.S., S.A. Director and member of the Executive Committe

José Carlos Brito Sítima Portal Universia Portugal, S.A. Chairman of the General Shareholders’ Meeting

Santander Totta, S.G.P.S., S.A. Director and member of the Executive Committe

Tottaurbe – Empresa de Administração e Construções, S.A.

Chairman of the Board of Directors

Luís Filipe Ferreira Bento dos Santos

Portal Universia Portugal, S.A. Director and member of the Executive Committe

Pedro Aires Coruche Castro e Almeida

Santander Totta Seguros – Companhia de Seguros de Vida, S.A.

Chairman of the Board of Directors

José Urgel Moura Leite Totta – Crédito Especializado

Instituição Financeira de Crédito,

Director

39

Maia S.A.

Associação dos Amigos do Recife Chairman of the Supervisory Board

The address of each of the directors above is Banco Santander Totta, S.A., Rua Áurea, no. 88,

1100-063 Lisbon, Portugal.

Principal activities of members of the Supervisory Board outside of BST

Name Company Function

António Mendo Castel-Branco Borges

Santander Totta, S.G.P.S., S.A. Chairman of the Supervisory Board

Hedge Fund Standards Board Chairman

CNP Assurances (France) Director

SCOR (France) Director

Caixa Seguros (Brasil) Director

Jerónimo Martins Director

Heidrick and Struggles (USA) Director

Fundação Champalimaud Director

Mazars & Associados, S.R.O.C.

Santander Totta, SGPS, S.A. Member of the Supervisory Board

TC – Turismo Capital, SCR, S.A. Member of the Supervisory Board

Ricardo Manuel Duarte Vidal de Castro

Santander Totta, S.G.P.S., S.A. Member of the Supervisory Board

Banco Rural Europa, S.A. Member of the Supervisory Board

Pedro Manuel Alves Ferreira Guerra

Santander Totta, S.G.P.S., S.A. Alternate member of the Supervisory Board

The address of each of the members of the Supervisory Board is Banco Santander Totta, S.A., Rua

Áurea, no. 88, 1100-063 Lisbon, Portugal.

Employees

Certain terms and conditions of employment in the banking sector in Portugal are negotiated with

trade unions and wage negotiations occur on an industry-wide basis. BST has not experienced any

material labour problems and it believes that its relations with its employees are generally

40

satisfactory. The major objectives of the Santander Totta Group’s staff management programme

are directed at creating and improving team spirit through, among other measures, recruitment,

training plan and early retirement schemes.

Material Contracts

As at the date of this Base Prospectus, there are no material contracts that are reasonably likely to

have a material effect on the Base Prospectus.

Conflicts of Interest

There are no potential conflicts of interest between any duties to the Issuer by any of the members

of either the Board of Directors, the Executive Committee or the Supervisory Board in respect of

their private or other duties.”

41

VII. PORTUGUESE BANKING SUPERVISION AND REGULATION

25. The fourth subparagraph under the second paragraph under the heading “General

Regulatory Framework of Credit Institutions and Financial Companies” shall be

replaced with the following:

“improving controls over supervised institutions by changing the notion of a qualifying

shareholding, which has been further amended by Decree-Law 52/2010 of 26 May,

implementing Directive 2007/44/EC, so that there is an assumption that significant

influence can be exercised over management when one person or entity holds at least

10 per cent. of the voting rights or share capital of the institution. Additionally, lower

holdings of at least 5 per cent. of the voting rights or share capital of credit institutions

and certain financial companies may also be classified as qualifying holdings by the

Bank of Portugal; and”

26. The section with the heading “Capital Adequacy and Solvency Ratios” shall be

replaced with a section with the same heading as follows:

“Portuguese banks are required to have a certain minimum level of own funds. These

requirements conform with the EU directives, fixing common standards for the

measurement of capital (generally referred to as the “Own Funds Directive”) and

establishing a system for weighting assets according to credit risk (generally referred

to as the “Solvency Ratio Directive”) with the requirement that the capital adequacy

ratio may not be lower than 8 per cent.; in particular cases, the Bank of Portugal may

impose a higher solvency ratio to ensure assets are weighted according to credit risk,

which has not been imposed on BST. The Bank of Portugal minimum mandatory

requirement for Tier 1 capital is 4 per cent.

The solvency ratio of the Santander Totta Group complies with the Bank of Portugal

rules and in accordance with the Basel II regulatory framework and the application of:

(i) the internal notations method (advanced by IRB) for calculating the equity

requirements in relation to substantial part of the relevant loan portfolio; (ii) the

standard method for calculating market risk; and (iii) the basic indicator method for

calculating the equity requirements in relation to operational risk, Tier I Capital and

Core Capital of BST rose, as of 31 December 2009, to 9.1 per cent. and 7.6 per

cent.respectively (to include profit gained in 2009). This demonstrates the solid and

solvent nature of the BST balance sheet.”

42

million euro 2009 2008 Change

IRB Standard

Total capital 2 564 2 576 -0.5%

Tier I Capital 2 193 2 091 +4.9%

Tier II capital 371 486 -23.6%

Risk weighted assets 24 074 24 956 -3.5%

Core Capital 7.6% 6.7% +0.9 p.p.

Tier I 9.1% 8.4% +0.7 p.p.

Solvency Ratio 10.7% 10.3% +0.4 p.p.

”

27. In the paragraphs under the heading “Impairment” reference to “Santander Totta

Group shall be replaced with references to “BST”.

28. The second and third paragraphs under the heading “Deposit Guarantee Fund” shall

be replaced with the following:

“The annual contributions are defined according to the monthly average of the

deposits balance accepted in the previous year and to the fixed contribution rate,

weighted by the average solvency ratio of each institution in the previous year (the

lower an institution’s ratio, the higher its contribution). The annual contributions rate

is determined yearly by the Bank of Portugal up to a limit of 0.2 per cent. and was

settled at 0.03 per cent. for the year of 2010, by means of regulatory instruction no.

19/2009.

The Bank of Portugal defines the limit, between 0 per cent. and 75 per cent., up to

which the payment of the annual contributions may be replaced by an irrevocable

contract, guaranteed where necessary by securities having a low credit risk and high

liquidity. The Bank of Portugal settled this limit at 10. per cent. for the year 2010, by

means of regulatory instruction no. 20/2009. If the resources are insufficient to comply

with its commitments, the Ministry of Finance, as per a ministerial order (Portaria),

may determine that additional contributions shall be made by the participants in the

DGF.”

VIII. THE PORTUGUESE MORTGAGE MARKET

29. The entire section shall be replaced with the following:

“The Portuguese residential mortgage market is valued at €121,063,000,000, as at 31

December 2009 (as reported by the Bank of Portugal and including securitised

mortgages).

Following solid growth over the past few years (with the number of new mortgages

averaging 150,000 per year), the mortgage market has seen a substantial deceleration,

as a reaction to the financial and economic crisis which started in mid-2007.

43

In 2008, the number of new mortgages fell to 108,931, the lowest annual number since

1995. This reflects both a lower demand, given the constraints on household budgets

(as a result of higher interest rates and rising unemployment), and a lower supply (as a

result of very challenging financial conditions which made it difficult for banks to

access the wholesale markets). Although there is no data available for 2009, the Bank

of Portugal has reported that the granting of mortgages fell by 30 per cent. to

€9,300,000.

At the same time, the average value of each mortgage loan has stabilised at around

€96,500, following a sustained increase at the start of the decade, where the average

mortgage size increased by 50 per cent..

The charts below have been sourced from the Direcção Geral do Tesouro (the

“DGT”), the Portuguese Treasury Department, and the Instituto Nacional de

Estatística (the “INE”), the Portuguese National Statistics Institute, and illustrate the

above statistics for up to 2008.

Average mortgage (thousand euros)Average mortgage (thousand euros)New mortgages (number and value)New mortgages (number and value)

Sources: INE, DGT

95.696.7 97.7

93.7

0

10

20

30

40

50

60

70

80

90

100

110

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

1T

07

2T

07

3T

07

4T

07

1T

08

2T

08

3T

08

4T

08

Value 95.696.7 97.7

93.7

0

10

20

30

40

50

60

70

80

90

100

110

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

1T

07

2T

07

3T

07

4T

07

1T

08

2T

08

3T

08

4T

08

Value

108.9

149.0

149.1 10.5

14.0

13.9

0

50

100

150

200

250

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1T

07

2T

07

3T

07

4T

07

1T

08

2T

08

3T

08

4T

08

10^3

0

2

4

6

8

10

12

14

1610^6

Number of contracts Total Amount

108.9

149.0

149.1 10.5

14.0

13.9

0

50

100

150

200

250

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1T

07

2T

07

3T

07

4T

07

1T

08

2T

08

3T

08

4T

08

10^3

0

2

4

6

8

10

12

14

1610^6

Number of contracts Total Amount

In recent years, there has been a steady and balanced relationship between housing

demand and supply. This has allowed for the increase in demand to be met by an

increase in supply, thus enabling a stabilisation of Portuguese housing prices in recent

years, in contrast with the position of certain other EU countries.

In 2008 and 2009, the decrease in demand has been reflected in a decrease of supply,

thus resulting in a situation where housing prices have remained fairly stable, once

again, in contrast with the position of other European countries, where, following the

burst of the residential housing bubble, such prices have fallen steeply.

In 2009, building permits fell to their lowest level in two decades, due to the significant

decline in demand. The INE has revised its methodology for determining the number of

housing completions (so as to now include the issuance of building permits) but has

not released new information for the first quarter of 2009.

44

Housing completionsHousing completionsBuilding PermitsBuilding Permits

Note: acording to the new methodology, completions are computed based on past permits, assuming that the building process is 18 months long

41 332

15 914

0

10 000

20 000

30 000

40 000

50 000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

-35

-25

-15

-5

5

15

25

35

Building Permits

YoY (RHS)

41 332

15 914

0

10 000

20 000

30 000

40 000

50 000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

-35

-25

-15

-5

5

15

25

35

Building Permits

YoY (RHS)

124 297

79 565

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

Dez

-90

Dez

-91

Dez

-92

Dez

-93

Dez

-94

Dez

-95

Dez

-96

Dez

-97

Dez

-98

Dez

-99

Dez

-00

Dez

-01

Dez

-02

Dez

-03

Dez

-04

Dez

-05

Dez

-06

Dez

-07

Dez

-08

Dez

-09

-30

-20

-10

0

10

20

30

40Housing completions

YoY (RHS)

124 297

79 565

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

Dez

-90

Dez

-91

Dez

-92

Dez

-93

Dez

-94

Dez

-95

Dez

-96

Dez

-97

Dez

-98

Dez

-99

Dez

-00

Dez

-01

Dez

-02

Dez

-03

Dez

-04

Dez

-05

Dez

-06

Dez

-07

Dez

-08

Dez

-09

-30

-20

-10

0

10

20

30

40Housing completions

YoY (RHS)

Sources: INE

Since 2000, housing prices in Portugal have increased in line with the consumer price

index (published by INE), that is to say, an increase of 2 to 3 per cent. per year.

Portuguese housing prices have therefore experienced a relatively lower increase in

comparison to that of other EU countries, such as Spain, Ireland and France. This

lower volatility is reflected in the more moderate price developments of 2009, where

Portuguese housing prices remained stable, in contrast with the majority of the

developed world.

Cumulative House Price Increases (%)Cumulative House Price Increases (%)House Prices (%, YoY)House Prices (%, YoY)

Sources: Confidencial Imobiliário, Reuters, Banco de Portugal

Until 2008, the structural reduction in interest rates (since the introduction of the

Euro) allowed for continued growth in the demand for housing, which in turn

supported the growth in the number of mortgages by up to 10 per cent. per year, in

spite of a slowing economy. However, as of late 2008, weak economic prospects and

the rise in Euribor interest rates have resulted in a decreased demand for housing. In

2009, the demand for housing rapidly declined, with mortgage credit increasing by

approximately 3 per cent..

The rise in interest rates between 2006 and 2008, in association with high levels of

(largely mortgage-related) debt, has resulted in an increase of interest costs, to

45

approximately 8.1 per cent. of disposable income (as in 2008). In 2009, the sharp

reduction in interest rates instigated by the European Central Bank allowed for a

reduction of such costs, to less than 6 per cent. of disposable income.

Household Indebtedness (% disp. Income)Household Indebtedness (% disp. Income)Credit to Households (%, YoY)Credit to Households (%, YoY)

Sources: Banco de Portugal, INE

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Mortgages

Other Consumption

YoY, %

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Mortgages

Other Consumption

YoY, %

0

20

40

60

80

100

120

140

160

1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Mortgages

other credit

Interest (RHS)

0

20

40

60

80

100

120

140

160

1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Mortgages

other credit

Interest (RHS)

As evident from the chart on the left, and marked in red therein, the number of

mortgage loans has decreased from approximately ten per cent. (in 2006 and 2007) to

approximately three per cent. (in 2009).

Mortgage growth is forecast to remain subdued, although it is possible that it will

remain above the growth rate of GDP, as opposing trends are likely to dominate

market dynamics. Contributing factors to subdued mortgage growth will be: (i) the

cycle of business, particularly with regard to rising unemployment and tightening

credit standards for retail mortgages; and (ii) tightening credit standards for wholesale

loans, accompanied by rising costs for the Portuguese banking sector. On the other

hand, the absence of a rental market will result in higher rates of ownership and

interest rates will, together with housing prices, remain relatively low.”

IX. ISSUER’S STANDARD BUSINESS PRACTICES

30. The entire section shall be replaced with the following:

“The internal procedure for the approval of an application for a mortgage-backed loan

involves: (i) the creation of an application by the relevant branch within the internal

financial system; and (ii) the receipt of the relevant documentation (either the originals

or authenticated copies) from the potential borrower. In respect of each mortgage-

backed loan application, the transaction and client in question are analysed by a risk

analyst who will focus, among other things, on the loan application, the security to be

given, the maturity of the loan, and the borrowing capacity, scoring and income of the

potential borrower.

After an application has been accepted, the branch and client begin the contractual

process. This process may be summarised as follows:

46

On a broader scale, the full process may be summarised as follows:

Valuation

Valuations of mortgaged houses are randomly distributed to, and carried out by,

valuation companies that work with BST under an outsourcing scheme (which includes

only national valuation companies certified by the CMVM), and subject to quotes that

are defined from time to time by BST. Such valuation companies organise for their

assessors to visit the houses in question, and to make the relevant assessment and

valuations in accordance with applicable prospect values. Each of these valuation

companies has a central department that validates each valuation that has been

carried out. The results are subsequently uploaded on the internal website of BST. A

Proposal

Reception

Information

Analysis and

Treatment

Approved?

Denied

End of the

Process

Yes

Process

Formalization

No

Yes

Client

Decision

No End of the

Process

Process

Creation

Income/

Expenses

Introduce job

related info

Introduce

Mortgage info

Document checking

Digital scanning

Related

processes?

Yes Associate

Loans

No

Send to

Scoring

(*)

STW Decision:

Denied?

Yes Go on with

the proposal?

No Denied

Yes

Put under

analysis

Credit

Risk

Approval

Modify?

Yes Return to

Scoring

Change data

No

STW

Decision

:

Review?

No STW Decision:

Conditional

Approv. 2 Yes

Wait for

Bank

of Portugal

?

Yes STW Decision: Approved

Risk Credit Approval Yes

The

Branch

has power

s?

No

Yes

APPROVE D

CH

No

Higher level of

authority required

Distribute

Propposal

Mod

ify? No

Return to

Scoring

Yes

Change data

Credit

Risk

Approval

Send to Scoring

UDO

has

powers

?

No

Higher level of

authority

required

Yes DECIDE

UDO

Approves?

No

Branch

If re-appreciation is required, receive the loan,

Reactivate the process (it goes back to (*)).

Yes

No

47

group of independent engineers (that are hired by BST) monitor the quality of such

valuations using appropriate valuation samples.

Monitoring process

The monitoring process is comprised of three stages: (i) the branch level; (ii) the call

center level; and (iii) the pre-non-performing loan level, that are applicable depending

on the number of days by which the borrower is in default.

At the branch level, during the first five days of arrears the relevant branch will

contact the borrower in an informal way so as to arrange for the default to be

remedied.

The call center level is applicable after the fifth day of arrears, where the call center

will contact the borrower on a regular basis so as to reach an agreement. The call

center will follow standardised procedures and all action taken will be registered.

Credit recovery organisational model

”

X. TAXATION

31. References to the website “www-dgci.min-financas.pt” shall be replaced with

references to the website “www.portaldasfinancas.gov.pt”.

32. The section with the heading “1. Covered Bonds not held through a centralised

control system” shall be replaced with a section with the same heading as follows:

48

“Interest and other types of investment income obtained on Covered Bonds by a

Portuguese resident individual is subject to individual tax. If the payment of interest or

other investment income is made available to Portuguese resident individuals,

withholding tax applies at a rate of 21.5 per cent, which is the final tax on that income

unless the individual elects to include it in his taxable income, subject to tax at

progressive rates of up to 45.88 per cent. tax rate (this progressive tax rate shall be

increased as from 1 January 2011 to 46.5 per cent.). In this case, the tax withheld is

deemed a payment on account of the final tax due.

In the case of zero coupon Covered Bonds, the difference between the redemption value

and the subscription cost is qualified as investment income and is also subject to

Portuguese income tax.

Capital gains obtained by Portuguese resident individuals on the transfer of Covered

Bonds are not subject to tax. Accrued interest qualifies as investment income, rather

than as capital gains for tax purposes. Note that it is expected that during 2010 capital

gains taxation arising from the disposal of Notes obtained by Portuguese tax resident

individuals will be taxed at a special tax rate of 20 per cent. on the positive difference

between the capital gains and capital losses of each year. Accordingly, the effect of

these proposed changes will be that any gains arising from the disposal of Covered

Bonds obtained by Portuguese tax resident individuals and not offset against any

available capital losses will be taxed at 20 per cent in 2010. In this respect, it is also

expected that an income tax exemption will apply if such annual positive difference

does not exceed € 500.

Interest and other investment income derived from Covered Bonds and capital gains

realised with the transfer of Covered Bonds by legal persons resident for tax purposes

in Portugal and by non resident legal persons with a permanent establishment in

Portugal to which the income or gains are attributable are included in their taxable

income and are subject to a progressive corporate tax rate according to which a 12.5

per cent tax rate will be applicable on the first € 12,500 of taxable income and a 25

per cent tax rate will be applicable on taxable income exceeding €12,500, which may

be subject to a municipal surcharge (derrama) of up to 1.5 per cent over their taxable

profits. Corporate taxpayers with a taxable income of more than € 2,000,000 are also

subject to State surcharge (derrama estadual) of 2.5 per cent. on the part of it’s taxable

profits that exceeds € 2,000,000. Withholding tax at a rate of 21.5 per cent will be

applied on interest and other investment income, which is deemed a payment on

account of the final tax due.

Financial institutions, pension funds, retirement and/or education savings funds, share

savings funds, venture capital funds incorporated under the laws in Portugal and some

exempt entities, among other entities, are not subject to withholding tax. Interest and

other types of investment income obtained by non resident beneficial owner’s

individuals are subject to withholding tax at a rate of 21.5 per cent., which is the final

tax on that income. As for non-resident beneficial owners that are legal persons

49

without a Portuguese permanent establishment to which the income is attributable,

interest and other types of investment income obtained are subject to withholding tax at

a rate of 20per cent., which is the final tax on that income. Under the tax treaties

entered into by Portugal which are in full force and effect on the date of this Base

Prospectus, the withholding tax rate may be reduced to 15, 12, 10 or 5 per cent.,

depending on the applicable treaty and provided that the relevant formalities

(including certification of residence by the tax authorities of the beneficial owners of

the interest and other investment income) are met. The reduction may apply at source

or through the refund of the excess tax. The forms currently applicable for these

purposes were approved by Order (Despacho) 30.359/2007, of the Portuguese Minister

of State and Finance, published in the 2nd

Series of Portuguese official gazette no. 251,

of 31 December, which may be available at www.portaldasfinancas.gov.pt.

Capital gains obtained by non resident individuals on the transfer of Covered Bonds

are not subject to tax. However, it is expected that during the course of 2010: (i)

capital gains obtained by non-resident individuals in a country, territory or region

subject to a clearly more favourable tax regime included in the “low tax jurisdictions”

list approved by Ministerial Order 150/2004, of 13 February (Lista dos países,

territórios e regiões com regimes de tributação privilegiada, claramente mais

favoráveis) that do not have a permanent establishment in Portugal to which the

income is attributable will be exempt from personal income tax, and (ii) capital gains

obtained by non-resident individuals that are not entitled to said exemption will be

subject to taxation at a 20 per cent flat rate. Accrued interest does not qualify as

capital gains for tax purposes.

Gains obtained on the disposal of Covered Bonds by a legal person non resident in

Portugal for tax purposes and without a permanent establishment in Portugal to which

gains are attributable are exempt from Portuguese capital gains taxation, unless the

share capital of the beneficial owner is more than 25 per cent. directly or indirectly

held by Portuguese resident entities or if the beneficial owner is resident in a country,

territory or region subject to a clearly more favourable tax regime included in the “low

tax jurisdictions” list approved by Ministerial Order 150/2004, of 13 February (Lista

dos países, territórios e regiões com regimes de tributação privilegiada, claramente

mais favoráveis). If the exemption does not apply, the gains will be subject to corporate

income tax at a rate of 25 per cent.. Under the tax treaties entered into by Portugal,

such gains are usually not subject to Portuguese corporate income tax, but the

applicable rules should be confirmed on a case by case basis.

Stamp tax at a rate of 10 per cent. applies to the acquisition through gift or inheritance

of Covered Bonds by an individual who is domiciled in Portugal. An exemption applies

to transfers in favour of the spouse, de facto spouse, descendants and

parents/grandparents. The acquisition of Covered Bonds through gift or inheritance by

50

a Portuguese resident legal person or a non resident acting through a Portuguese

permanent establishment is subject to a progressive corporate tax rate according to

which a 12.5 per cent tax rate will be applicable on the first € 12,500 of taxable

income and a 25 per cent tax rate will be applicable on taxable income exceeding

€12,500, which may be subject to a municipal surcharge (derrama) of up to 1.5 per

cent over their taxable profits. Corporate taxpayers with a taxable income of more

than € 2,000,000 are also subject to State surcharge (derrama estadual) of 2.5 per

cent. on the part of it’s taxable income that exceeds € 2,000,000.

No stamp tax applies to the acquisition through gift and inheritance of Covered Bonds

by an individual who is not domiciled in Portugal. The acquisition of Covered Bonds

through gift or inheritance by a non resident legal person is subject to corporate

income tax at a rate of 25 per cent.. Under the tax treaties entered into by Portugal,

such gains are usually not subject to Portuguese tax, but the applicable rules should be

confirmed on a case by case basis.

There is no wealth or estate tax in Portugal.”

33. The section with the heading “EU Savings Directive” shall be replaced with a section

with the same heading as follows:

Under Council Directive 2003/48/EC, of 3 June 2003, on taxation of savings income in

the form of interest payments (the “Directive”), Member States are required to provide

to the tax authorities of another Member State details of payments of interest (or

similar income) paid by a person within its jurisdiction to an individual resident in that

other Member State of the EU or to certain limited types of entities established in that

other Member State of the EU. However, for a transitional period, Luxembourg and

Austria are instead required (unless during that period they elect otherwise) to operate

a withholding system in relation to such payments (the ending of such transitional

period being dependent upon the conclusion of certain other agreements relating to

information exchange with certain other countries). A number of non-EU countries

and territories, including Switzerland, have adopted similar measures (a withholding

system in the case of Switzerland). On 15 September 2008 the European Commission

issued a report to the Council of the European Union on the operation of the Directive,

which included the Commission’s advice on the need for changes to the Directive. On

13 November 2008 the European Commission published a more detailed proposal for

amendments to the Directive, which included a number of suggested changes. The

European Parliament approved an amended version of this proposal on 24 April 2009.

If any of the proposed changes are made in relation to the Directive they may amend or

broaden the scope of the requirements described above. If a payment were to be made

or collected through an EU Member State which has opted for a withholding system

and an amount of, or in respect of, tax were to be withheld from that payment, neither

51

the Issuer nor any Paying Agent nor any other person would be obliged to pay

additional amounts with respect to any Covered Bond as a result of the imposition of

such withholding tax. The Issuer is required to maintain a Paying Agent in an EU

Member State that is not obliged to withhold or deduct tax pursuant to the Directive.

XI. SUBSCRIPTION AND SALE AND SECONDARY MARKET ARRANGEMENTS

34. In the section with the heading “Portugal” under (v) the word “regulated” shall be

inserted before “market”.

XII. GENERAL INFORMATION

35. The paragraph under the heading “Authorisation” shall be amended as follows:

“The establishment of the Programme was duly authorised by a resolution of the

Executive Committee of the Board of Directors of the Issuer on 9 January 2008, its

update for 2009 was authorised by a resolution of the Executive Committee of the

Board of Directors of the Issuer on 17 June 2009, and its update for 2010 was

authorised by a resolution of the Executive Committee of the Board of Directors on 16

June 2010, in accordance with the provisions of the Covered Bonds Law.”

36. The paragraph under the heading “Significant or material change” shall be amended

as follows:

“Save as disclosed in the Outlook for 2010 section of this Base Prospectus, there has

been no significant change in the financial or trading position of the Issuer since 31

December 2009 and there has been no material adverse change in the financial

position or prospects of the Issuer since 31 December 2009”.

37. The second sentence of the fourth paragraph under the heading “Accounts” shall be

amended as follows:

“The years ended 31 December 2008 and 31 December 2009 were audited by Deloitte

& Associados - SROC, S.A., represented by Maria Augusta Cardador Francisco, and

the financial statements are incorporated by reference in this Base Prospectus.”

XIII. ANNEXES

38. References to article 90 of CIRC shall be replaced with references to article 97 of

CIRC.

XIV. LAST PAGE

39. “Merril Lynch Financial Centre” shall be deleted from the address of the Dealer Merril

Lynch International.

52

40. References to Deutsche Bank Aktiengesellschaft, as Dealer shall be understand as

follows:

“Deutsche Bank Aktiengesellschaft

Grosse Gallusstrasse 10-14

Frankfurt am Main,

Germany ”