Banco Santander Looks to Increase Capital, Cash Dividend

  • Spanish bank targets a capital ratio above 11% by 2018
  • Botin counts on customer loyalty strategy to boost profits

Banco Santander SA stepped up plans to bulk up its capital reserves and promised bigger payouts, saying it would seek to win over millions of customers to finance the new objectives.

The Spanish bank is looking to achieve a fully loaded common equity Tier 1 ratio of more than 11 percent by 2018, it said in a presentation to investors Wednesday that was filed to regulators. The ratio -- a measure of ability to withstand losses in periods of turmoil -- stood at 9.8 percent in June, the lowest among Europe’s 24 largest publicly traded banks.

Santander said it will also seek to increase its dividend from 2016 and target a cash payout of 30 to 40 percent. It aims to achieve double-digit growth in earnings per share by 2018.

“The new plan is doable but also questionable,” said Karim Bertoni, who helps manage more than $6 billion at Bellevue Asset Management AG in Switzerland. “They will need that economic conditions be favorable to achieve their goals.”

Concerns that the bank may resort to another cash call have weighed on Santander’s stock this year. The bank tapped shareholders for 7.5 billion euros ($8.4 billion) and slashed its dividend at the start of the year. Investors and analysts have said those measures may not suffice.

JPMorgan analysts led by Kian Abouhossein said the presentation lacked details on how the bank will build its capital buffers. The filing contains no major news, said Alex Koagne of Natixis, who expects Santander’s shares to remain under pressure from emerging markets, notably Brazil and Mexico.

Customer Loyalty

A profit squeeze in two of its biggest markets, Brazil and Spain, have called into question Santander’s customer loyalty strategy, introduced after Chairman Ana Botin took over from her late father Emilio a year ago.

“Customer loyalty, digitalization and operational excellence will allow us to be more profitable and generate above-market growth for the next 10 years,” Botin said in a statement Wednesday. She cited more efficient use of assets as key to improving profit, pledging to “consistently generate capital, to increase dividends per share and earnings per share.”

Chief Executive Officer Jose Antonio Alvarez said in a separate presentation the bank is looking to cut 3 billion euros in costs by 2018 and to gain market share as that would help the lender achieve higher profitability.

Santander’s stock has dropped 30 percent this year, making it the second-worst performer in the benchmark STOXX Europe 600 Banks Index, which tracks 46 of the region’s banks. It was little changed Wednesday at 4.87 euros at 2:47 p.m. in Madrid.

European regulators are muscling banks to bulk up capital cushions well beyond the minimum requirement of 8 percent of risk-weighted assets. Among Santander’s peers, Deutsche Bank AG was at 11.4 percent at the end of the second quarter, while UniCredit Spa and Banco Bilbao Vizcaya Argentaria SA reported 10.4 percent.

Santander had already raised its CET1 target twice this year, first in January and again in March. JPMorgan estimates the Spanish bank needs as much as 5.5 billion euros in new equity to achieve the latest objective and may also have to cut its dividend again.

The lender had 117 million customers worldwide as of last December, mainly in Spain, the U.K., Brazil, the U.S. and Mexico. The vast majority of these aren’t “loyal,” defined as using Santander as their main bank. In its presentation Wednesday, the lender said it wants to have 18.5 million loyal clients by 2018.

That will help Santander achieve a return on tangible equity of 13 percent by 2018, the bank said. This measure of profitability stood at 11.4 percent in June.

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