Duncan Mavin is a former Bloomberg Gadfly columnist.

(Corrected )

Like Spain's politicians, Banco Santander is locked in a stalemate, with little hope of a decisive shift any time soon.

Santander Sinks
BNP Paribas has surpassed Santander as Europe's biggest bank by market value

The bank's shares are down 11 percent since last month's Spanish election, the inconclusive outcome of which threatens a period of prolonged political stagnation and stunted economic growth.

Yet even before the vote, Santander Chairman Ana Botin had failed to stem a steady decline in the stock. The shares are down by more than a third since a 7.5 billion-euro ($8.1 billion) rights offering in January 2015 -- erasing 25 billion euros of shareholder value. In the meantime, BNP Paribas has surpassed Santander as continental Europe's biggest bank by market value.

Botin's pitch is that she is modernizing the bank her father built, already cutting the number of divisions to 10 from 15, and refreshing senior management.

The bank's U.K. business remains a bright point -- a cash cow that enjoys decent market share in a relatively sturdy economy. Some of the lessons the bank has learned in the U.K. -- about attracting retail deposits, for instance -- are now translating into market share gains in Spain.

Trailing Peers
Santander's Tier 1 capital ratio is one of the lowest in Europe

At 9.7 percent, the bank's Tier 1 capital ratio is among the lowest of the major banks in Europe right now. But it should climb to 11.6 percent in 2016, leapfrogging many peers, according to Bloomberg Intelligence.

Still, Santander faces problems at home and abroad: on the domestic front, Spain's banks, of which Santander is the biggest, have struggled to convert the country's broader rebound into strong performance.

Growth in new loans has not offset post-crisis deleveraging, while competition for customers has eaten into profits too: Santander's Spanish loan book shrank 1.3 percent in the first nine months of 2015, with net interest income down 1.8 percent on the year-earlier period.

Spain's stymied political scene could now delay significant improvement in these trends.

Latin America -- source of 41 percent of Santander's net income in 2014 -- is a bigger concern. Economists expect the region's economy to shrink by 0.2 percent in 2016, compared with growth of 3.8 percent on average between 2010 and 2014, according to Bloomberg Intelligence. Rising loan losses and unfavorable exchange rates are a worry.

Commodity-dependent Brazil is in particular trouble, afflicted by soaring inflation, an ailing currency and politics that are paralyzed like Spain's. Santander's share price has closely tracked Brazil's woes over the past year as this chart shows. The bank has underperformed Spanish stocks, but it's more-or-less in line with Brazilian shares in euro terms (for which the Lyxor Brazil Ibovespa ETF is a decent proxy).

Tracking Brazil
Santander's stock performance closely mirrors Brazil's benchmark index (expressed in euros)

Against that backdrop, Botin may have to generate fresh capital to invest in significant growth. She could potentially pay a greater proportion of the dividend in scrip or sell down stakes in some business units, including its British operations and its U.S. auto-lending business. Its stake in the latter is valued at about $3.1 billion at current market prices. Shareholders would surely squeal if she asked them to dip into their pockets for another round of funding.

Santander's Discount
The Spanish bank trades at a discount to book value per share
Bloomberg Intelligence

The bank still trades at a 35 percent discount to book value, compared with the 8 percent average for Europe's major banks, according to Bloomberg Intelligence. The biggest concern for shareholders right now must be that it's hard to see a re-rating of the stock barring a turnaround in macro problems outside of Botin's control.

Stagnant Spanish politics and a prolonged downturn in the Brazilian economy threaten to drag on the bank's profitability for some time. For all Botin's efforts to spruce up Santander, shareholders will have to wait.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Corrects Botin's job title in third paragraph.)

To contact the author of this story:
Duncan Mavin in London at

To contact the editor responsible for this story:
Edward Evans at