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 a 10% capital ratio by the end of this year.

A bank's capital ratio is the amount of equity it holds in relation to risk-weighted assets on its balance sheet. 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 Spanish bank's move, the pace of improvement was a disappointment to 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 earlier this month.

Santander said Wednesday that it aims to have a return on tangible equity, a measure of profitability, of 13% by 2018, as well as a cash payout of 30% to 40%. The bank said it was targeting a cost-to-income ratio of less than 45% during that time.

The bank also restated its 2014 and 2015 accounts to redistribute losses from its corporate center unit in a bid to increase "transparency," it said. The restatement doesn't 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 from Ms. Botín about how the bank is coping in 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 05:38 ET (09:38 GMT)

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