Botin Says Higher Dividend Is Option as Santander Builds Capital

Updated on
  • Earnings from Brazilian unit exceed analyst consensus
  • Chairman Botin says bank on course to meet 2018 targets

Banco Santander SA Chairman Ana Botin held out the prospect that Spain’s biggest bank could increase its dividend as it continues to build capital.

“Once we get to the capital levels we want, we obviously can do two things,” Botin said Wednesday after Santander reported fourth-quarter earnings. “We can continue our profitable growth if those returns are where we want them to be,” as the bank has done organically and through some smaller acquisitions, “or we can increase our dividend.”

Santander on Wednesday reported earnings that beat analysts’ estimates as Brazil, the largest contributor to the bottom line, helped Botin post her third straight year of profit growth. Latin America’s largest economy offset a slump in the U.K., Santander’s second-largest source of earnings, where the collapse of builder Carillion Plc and uncertainty around Brexit hurt business.

Santander continued to build capital during the quarter, albeit at a slow pace. The lender’s fully-loaded core equity tier one ratio closed the year at 10.84 percent compared with 10.8 percent in September. The lender’s goal is to end the year above 11 percent. While that would still be well below European peers, Botin argues that’s appropriate for a bank that’s focused on lending, rather than the more volatile trading at investment banks.

Capital Gap

Santander's capital ratio lags peers

Source: Earnings reports

CET1 FL comparison

The bank estimates its dividend against 2017 profit at 22 cents per share made in three cash payments and one as scrip. Botin said Wednesday that any decision on dividend policy would be announced in time for the annual shareholders meeting, and the bank’s intention in any case was to continue to pay less of its dividend in shares.

“I don’t think they are promising very much and I don’t think they will deliver very much,” Neil Smith, an analyst at Bankhaus Lampe, said by phone. The impact of new regulation on Santander’s ability to keep building capital remains far from clear, he said.

Carillion Loss

In the U.K., impairment losses on loans and advances almost tripled for the full year, primarily reflecting the collapse of Carillion. The construction company, whose government contracts ranged from hospitals to a high-speed rail project, collapsed under a mountain of debt earlier this month.

The “U.K. is probably the most challenging market for us next year; volumes and margins will continue to be under some pressure,” Botin said on a call with analysts.

Other highlights of the report:

  • 4Q net income EU1.54 billion, estimate EU1.46 billion (range EU1.34 billion to EU1.54 billion) (Bloomberg data)
  • 4Q bad loans ratio 4.08%
  • Earnings from Spain rose 12% from a year earlier to EU265 million, boosted by higher fee revenue
  • Earnings from the U.K. fell 12% from a year earlier to EU297 million
  • Santander took EU752 million charge in quarter relating mainly to impairment of goodwill for investment in Santander Consumer USA; charge was partially offset by EU297 million of capital gains from sale of AllFunds Bank and EU73 million gain from U.S. fiscal reforms
  • 4Q net interest income rose 6.3% to EU8.61 billion, estimate EU8.59 billion

— With assistance by Thomas Gualtieri

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