Banco Santander looks to increase capital, cash dividend

BANCO SANTANDER SA raised its capital ratio target for a third time this year, as investors seek assurances the company is tackling a weakness that has weighed on its stock. / BLOOMBERG FILE PHOTO/ANGEL NAVARRETE
BANCO SANTANDER SA raised its capital ratio target for a third time this year, as investors seek assurances the company is tackling a weakness that has weighed on its stock. / BLOOMBERG FILE PHOTO/ANGEL NAVARRETE

MADRID – Banco Santander SA raised its capital ratio target for a third time this year, as investors seek assurances the company is tackling a weakness that has weighed on its stock.

The Spanish bank is now 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 bank, which tapped shareholders earlier this year, said it will seek to reach the goal through organic growth.

Santander will also seek to increase its dividend from 2016 and target a cash payout of 30 to 40 percent, said the bank, which slashed its dividend this year for the first time since 2007.

Its CET1 ratio – a measure of ability to withstand losses in periods of turmoil – stood at 9.8 percent in June. While that was just shy of the previous objective, it was still the lowest among Europe’s 24 largest publicly traded banks.

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Santander has sought to win over new customers and step up business with existing ones to bolster profitability, a strategy introduced after Chairman Ana Botin took over from her late father Emilio a year ago. A profit squeeze in two of its biggest markets, Spain and Brazil, has compromised those efforts.

European regulators are pressing banks to build up their 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.

JPMorgan analysts led by Kian Abouhossein estimate the bank needs as much as 5.5 billion euros in new equity to achieve the new CET1 target. It may also have to cut its dividend again, the analysts said in a note this month.

Customer loyalty

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 9:55 a.m. in Madrid.

The bank lifted its CET1 target in March to 10-11 percent of risk-weighted assets, to be achieved in 2017. It had already increased the goal to 10 percent by 2016 when it tapped shareholders for 7.5 billion euros ($8.4 billion) in January and cut its 2015 payout. Investors and analysts, including JPMorgan Chase & Co, have said those measures may not suffice.

Santander had 117 million customers worldwide as of last December, mainly in Spain, the U.K., Brazil, the U.S. and Mexico. The vast majority 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. Toward that goal, Santander is now targeting an increase to 15 million from 13 million by the end 2016. It is looking to increase the number of digital customers to 20 million from 15 million over the same period, the bank said.

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

The bank said 300,000 people have signed up for an account introduced in Spain in May that returns a portion of their business with the bank. The goal is 2 million by the end of 2016, Botin said. A similar product introduced in the U.K. in 2012 has helped the bank win customers in that market.

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