Banco Santander SA, the Spanish bank selling assets to bolster its capital, may be emboldened to cut its “artificially high” dividend in the wake of Telefonica SA’s reduction, according to F&C Investments’ David Moss.
Telefonica’s cut “will take away the stigma for other companies” that vowed to stick to plans to distribute profits, said Moss, director of European equities at the London-based investment manager. Telefonica, Spain’s largest phone company, cut its dividend two days ago for the first time in a decade.
Santander and Telefonica, the two biggest stocks in Spain’s benchmark IBEX 35 index, now both rely on their Latin American businesses as their home market suffers. Santander is selling its Colombian bank and a stake in its Brazilian unit, and has sold part of its Chilean business to meet a capital shortfall. It has also begun paying some dividends in stock, though Chairman Emilio Botin has ruled out the payout cuts seen at Italy’s UniCredit SpA and France’s Credit Agricole SA.
“For a long-term shareholder it’s more important to retain a full share of the fine bank Santander owns in Chile than maintain a dividend that looks artificially high,” said Moss, who holds Santander shares as part of the 8.5 billion euros ($11 billion) he helps manage at F&C.
Santander, which estimated its capital shortfall at 5.2 billion euros in October amid mounting real-estate losses, may be balking at a dividend cut due to concern about how its 3.3 million individual shareholders would react, Moss said. A spokesman for Santander, who asked not to be named in line with company policy, declined to comment.
Telefonica’s Dec. 14 dividend cut showed the financial turmoil in Spain isn’t just hurting banks. The phone company reduced its 2012 dividend forecast by 14 percent, saying Spaniards were canceling subscriptions amid rising unemployment and the company needed to retain capital to pay down debt.
The phone company’s dividend yield of 12.1 percent compares with 9.7 percent for Santander, the highest of the 16 global banks it compares itself with when setting executive pay.
“Telefonica is trying to preserve its capital, and that also seems to me a reasonable step for the banks,” said Peter Braendle, who helps manage about $60 billion, including Santander and Banco Bilbao Vizcaya Argentaria SA shares, at Swisscanto Asset Management in Zurich. “I’m interested in the long-term outlook for companies, and for me it would be a reasonable step for them to cut the dividend.”
BBVA has said it has no plans to cut its dividend. Credit Agricole, France’s second-biggest bank by assets, scrapped its dividend for 2011 on Dec. 14 and said the debt crisis would result in a yearly loss and writedowns on its stakes in banks in Spain and Portugal. UniCredit, the biggest Italian bank, scrapped its dividend last month.
Santander’s dividend target is 60 cents a share this year. It estimates that profit this year, excluding one-time items such as compensation for U.K. clients who were mis-sold insurance, will be similar to last year’s 8.18 billion euros.
The bank began offering “scrip dividends” of new stock in 2009 to preserve cash. It now gives shareholders the option to receive its second and third interim dividends in stock.
Santander, BBVA and Banco Sabadell SA have also offered to exchange preferred shares held by their retail customers for stock, diluting their shareholders further and raising funds.
Santander’s efforts to preserve capital without cutting its dividend have boosted the shares in circulation to 8.44 billion from 7.99 billion at the end of 2008. The shares have declined 17 percent during that time.