Santander Aims to Boost Capital Buffer -- 2nd Update
September 23 2015 - 07:14AM
Dow Jones News
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
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
September 23, 2015 06:59 ET (10:59 GMT)
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