By Jeannette Neumann 

MADRID-- Banco Santander SA on Wednesday laid out financial targets for the next several years that were broadly in line with previous goals, disappointing some investors and analysts who had hoped for more ambitious objectives.

Santander, Europe's second largest bank by market value, said it is targeting a capital ratio of more than 11% by 2018. Its common equity Tier 1 "fully loaded" capital ratio was 9.8% as of June and it had already set its sights on 10% to 11% over the next several years.

A bank's capital ratio is the amount of equity it holds in relation to risk-weighted assets. Concerns about Santander's capital levels have dogged Executive Chairman Ana Botín and weighed on the bank's stock despite a EUR7.5 billion share sale in January of this year.

That massive sale helped to momentarily assuage long-standing investor concerns that Ms. Botín's predecessor as executive chairman, her late father Emilio Botín, had shirked the financial health of the bank's balance sheet. But relief proved fleeting as analysts and investors look to the future and fret about mounting regulatory requirements, with Santander coming up short compared to its competitors.

"Santander has underperformed its peers year to date," Carlos García González, an equity analyst at Société Générale wrote in a recent research note, "due to a weak capital position."

Santander's goal of building its capital buffer to more than 11% over the next couple of years still leaves the bank playing catch up with its peers. The latest target is below the 11.8% that Exane BNP Paribas analyst Santiago López Díaz said he expects for the broader European banking sector this year.

"The problem is that the current capital position leaves, in our view, limited room for flexibility," Mr. López Díaz wrote in a research report earlier this month.

Santander announced the 11% target in a regulatory filing Wednesday as it kicks off a two-day presentation in London with investors and analysts.

"We will consistently generate capital, to increase dividends per share and earnings per share," Ms. Botín said in a statement. The bank is targeting a cash payout of 30 to 40%, she said.

Santander said Wednesday that it aims to have a return on tangible equity, a measure of profitability, of 13% by 2018. The bank had already set a goal of reaching between 12 to 14% by 2017.

The bank also restated its 2014 and 2015 accounts to redistribute losses from its corporate center unit in a bid to increase "transparency," Santander said in a regulatory filing. The restatement does not affect the group's consolidated figures, so reported net profit last year and in the first half of this year, for instance, remains the same.

Santander had reported losses at the corporate center of EUR1.33 billion in the first half of 2015, which will now be restated to a EUR981 million loss under the new criteria, the bank said.

Investors and analysts have said they are eager to hear details on Wednesday and Thursday from Ms. Botín about how the bank is coping with Brazil, whose economy has entered its deepest economic downturn since the global financial meltdown of 2008-09. The country is one of the bank's biggest profit drivers.

To bolster its capital base, some analysts have said Santander should sell off units that haven't performed as robustly in recent years. Also, investors and analysts have said they want Santander executives to clarify the bank's strategy on mergers and acquisitions at the two-day London event.

"M&A has been the key driver of growth and capital generation at Santander in recent year," Mr. García González wrote in a research note. He estimates that under Emilio Botín, Santander had spent more than $100 billion on acquisitions in the past decade-and-a-half. Ms. Botín has said she would focus on loan growth, rather than buying new banks, but still bid for smaller lenders in Brazil and Portugal.

"We believe guidance on the M&A strategy and the type of targets/markets of interest would reduce uncertainty," Mr. García González wrote.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

 

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(END) Dow Jones Newswires

September 23, 2015 06:59 ET (10:59 GMT)

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