STD Banco Santander, S.A. Sponsored Adr (Spain)

By Jeannette Neumann 

MADRID-- Banco Santander SA on Wednesday said it aims boost the capital its sets aside to cover future potential losses amid investor concerns about the strength of its balance sheet.

Santander, Europe's No. 2 bank by market value, said it is targeting a capital ratio of 11% by 2018. Its common equity Tier 1 "fully loaded" capital ratio was 9.8% as of June and it had set its sights on 10% by the end of this year.

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 despite a EUR7.5 billion share sale in January of this year.

While investors are likely to welcome the Santander move, the pace of improvement may disappoint some.

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.

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

Investors and analysts have said they are eager to hear comments 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," Carlos García González, an equity analyst at Société Générale wrote in a research note. He estimates that under Ms. Botín's predecessor, her late father 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 in recent months.

"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 04:39 ET (08:39 GMT)

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