Santander Downgrades Two Important Financial Targets
September 30 2016 - 5:59AM
Dow Jones News
By Jeannette Neumann
MADRID--Banco Santander SA (SAN) downgraded two important
financial targets on Friday, as major European banks feel the
strain of a prolonged period of low interest rates and sluggish
demand for loans.
Santander executives told investors at a presentation in London
that the bank would step up cost-cutting efforts as well as focus
on increasing fees to counterbalance a tougher macroeconomic
outlook in Europe.
Santander lowered the target for its return on tangible equity,
a measure of profitability, to "more than 11%" by 2018 from a
previous target, set a year ago, of around 13% over the same
period.
The bank also raised the target range for its cost-to-income
ratio--a key measure of efficiency--to 45%-47% by 2018. The bank
said last year it aimed for a cost-to-income ratio of below 45%.
The lower the figure the better.
Citigroup analyst Stefan Nedialkov noted that the market
consensus for Santander's 2018 return on tangible equity is
10%--already below the bank's new target.
"We believe today's rebasing of targets is the right thing to
do," Mr. Nedialkov said in a research report. "The ROTE downgrade
seems to be driven by a higher cost-to-income ratio, and
potentially by slightly lower implied net interest income," which
measures lending profitability.
Santander reiterated its target of reaching a capital ratio by
the end of 2018 of more than 11% under international regulations
known as "fully loaded" Basel III criteria. That ratio was 10.36%
at the end of June.
Santander shares were down 3.9% around 11 a.m. local time in
Madrid.
Write to Jeannette Neumann at jeannette.neumann@wsj.com
(END) Dow Jones Newswires
September 30, 2016 05:44 ET (09:44 GMT)
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