Photographer: Chris Ratcliffe/Bloomberg

Santander Scales Back Profitability Target Post Brexit

  • Return on equity target by 2018 reduced to 11% from 13%
  • The U.K. is Santander’s largest contributor to earnings

Banco Santander SA lowered its profitability target for 2018 as growth expectations worsened in the U.K. and other countries where the Spanish bank does business.

Santander seeks a return on tangible equity of above 11 percent by 2018, it said in a presentation to investors Friday. The previous target, stated last year, was 13 percent.

“While the environment in some of our markets has deteriorated, our strategy and business model continue to deliver for our customers and shareholders,” Chief Executive Officer Jose Antonio Alvarez said in a separate statement. The lender reiterated its commitment to increase its dividend per share and earnings per share in each of the next three years.

Several European banks, including Royal Bank of Scotland Group Plc, HSBC Holdings Plc and UBS Group AG, watered down their guidance for returns when presenting second-quarter results. Lower interest rates, higher regulatory costs and slower credit demand in mature markets are making it harder for Santander to become more profitable, Alvarez said in Friday’s presentation.

Santander declined as much as 4.9 percent in Madrid trading and was down 3.8 percent at 3.80 euros as of 12:25 p.m.

In the two years since she took over as chairman, Ana Botin has changed the management in some of the lender’s largest units, cut the dividend and reorganized the lender’s domestic business by closing branches and cutting jobs. Over the last year, economic expectations have deteriorated in some countries, particularly Britain, leading to a depreciation of currencies against the euro, Santander said in the statement.

The lender also lowered its 2018 return on tangible equity target for its U.K. business to between 8 percent to 10 percent, Nathan Bostock, head of the unit, said in a presentation. The previous target was 12 percent to 14 percent.

The U.K. is Santander’s largest market, contributing 20 percent of earnings to the group. Profit from the unit fell 28 percent in the in the second quarter from a year earlier to 390 million euros.

The Spanish bank maintained its target to achieve a fully loaded common equity Tier 1 ratio of more than 11 percent by 2018. The ratio, a measure of financial strength, stood at 10.36 percent in June.

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