By Jeannette Neumann And Christopher Bjork 

MADRID-- Banco Santander SA said it would raise as much as EUR7.5 billion ($8.88 billion) in a capital increase, a bid by its new executive chairman, Ana Botín, to address long-standing concerns among investors and analysts that its financial cushion is thinner than those of other large European banks.

Santander said in a regulatory filing Thursday that it would raise the capital through an accelerated book-building process, which entails selling the stock overnight to institutional investors. Santander chose Goldman Sachs Group Inc. and UBS AG to oversee the sale of 1.26 billion shares set to price Friday morning.

The bank, the eurozone's largest by market value, said the share sale would amount to 9.9% of its capital level before the increase.

Analysts estimated that the increase would put Santander's capital level--under international regulations known as "fully loaded" Basel III criteria--at around 10% of risk-weighted assets, more in line with its European peers.

"The key message is that there is a change in the thinking of management, " wrote Carlos García González, an equity analyst at Société Générale SA, in a research note Thursday. "The bank has, until now, defended its dividend policy and capital levels as adequate."

Santander said in its most recent quarterly earnings report in November that its capital ratio was expected to be about 8.5% to 8.6% of risk-weighted assets at the end of 2014, a source of concern for analysts and investors.

The Spanish stock market regulator suspended trading in the bank's shares Thursday ahead of the afternoon announcement. It said the suspension would be lifted Friday at 8.30 a.m. Madrid time.

Santander said in the filing that the capital increase would help support "organic" growth in its markets in Europe and Latin America.

Ms. Botín said in a conference call with investors Thursday that the bank wasn't planning to use the proceeds to make significant acquisitions soon.

Santander had been mentioned among traders as a potential buyer of Banca Monte dei Paschi di Siena SpA, and the speculation sent the Italian lender's shares soaring on Thursday, closing up 12%.

Santander also said it is slashing its dividend in 2015 to 2 European cents per share, from the 6 cents per share it has paid since 2007. Santander said it would divide the annual payment to shareholders into three cash dividends and one scrip dividend.

The capital increase coupled with the dividend cut means Santander's capital ratio will be 11.8% by 2017, Citigroup Inc. analyst Stefan Nedialkov said Thursday in a research note.

"We view this capital increase and change in dividend policy as a needed reality check," said Francisco Riquel, an analyst with Madrid-based financial-services firm N+1 Group, in a research note. "After years of running the bank with a tight capital position and an unsustainable dividend policy, we think the new chairman is coming with a more orthodox financial policy."

The dividend cut, however, "is likely to disappoint both yield and retail investors," Mr. Riquel said, "thereby putting additional pressure on the share price."

The capital increase is one of several major decisions by Ms. Botín to put her stamp on the bank since taking over as executive chairman in September after the death of her father, longtime chairman Emilio BotíSHYn.

Since then, Ms. BotíSHYn has replaced Javier Marín, an executive who was close to her father, as Santander's chief executive officer. She also disbanded an international advisory board, distancing the bank from a board member who is the target of a criminal investigation into suspected fraud during his leadership of a different bank.

She also appointed a new chief financial officer and three other board members, a bid to rejuvenate a board that analysts and investors had criticized as too old and chummy with Mr. Botín.

Ms. Botín has overseen the launch of competitive terms for a checking account in Catalonia, a bid to bolster the bank's presence in the economically powerful Spanish region. Analysts have said that move won't make a major difference in Santander's revenue in Spain, but shows that Ms. Botín won't be outpaced by rivals that have expanded in Catalonia recently.

Ms. Botín "has put in place a strong new management team. She is now addressing the capital issue," said Mr. Nedialkov, the Citigroup analyst. "What is left is to hear her views on the company's long-term strategy for its businesses around the world."

Write to Jeannette Neumann at jeannette.neumann@wsj.com and Christopher Bjork at christopher.bjork@wsj.com

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