PAYING DIVIDENDS? Pedestrians pass the entrance to a Banco Santander SA branch in Madrid. The European bank purchased Sovereign Bancorp four years ago, a move that analysts say could help the parent company in the near future.
Spain’s Banco Santander purchased Sovereign Bancorp four years ago when the United States banking industry was in crisis and Sovereign was deep in red ink.
How times have changed.
In 2012, Sovereign posted its third consecutive annual profit – with net income surging 38 percent from 2011 – as the American financial sector continued to rebound.
From having to be rescued by Santander four years ago, Sovereign is now one of the healthiest parts of the company.
But what does the reversal mean for Sovereign, now based in Boston and the third-largest bank in the Providence area (including Bristol County, Mass.) with $3.1 billion in 2012 deposits?
While having a global parent was an advantage with the American economy struggling, it could become a liability for Sovereign as domestic conditions improve and locally owned banks pursue growth.
In Spain, economic conditions aren’t favorable.
Last year, Santander was one of 16 Spanish banks to see its credit rating downgraded by Moody’s Investors Services as the country’s 2012 gross domestic product shrank an estimated 1.3 percent.
Unlike other Spanish banks, Santander remains in the black, bringing in 2.2 billion euros in 2012 profit.
But that profit was down from 5.4 billion euros in 2011 and Santander earnings missed analyst forecasts in the fourth quarter of last year, with revenue dropping 4 percent from the third quarter. Santander’s nonperforming-loan percentage rose .36 percentage points from the third quarter to fourth quarter.
“Our current recommendation on the stock is neutral and we don’t see much change to become more positive just now,” JPMorgan analyst Jaime Becerril wrote in a report on Santander issued last month.
Between 2012 and 2013, the nonperforming loan percentage in Santander’s U.S. unit, which includes Sovereign, dropped from 4.61 percent to 2.29 percent, while it rose for the group as a whole from 3.55 percent to 4.54 percent, according to the bank’s 2012 report.
“It is to Sovereign’s credit that it has been able to recover, but given global financial weakness, my guess is that Sovereign will be in a position of supporting its parents though a dividend, which could limit its reinvestment in its systems and people in the U.S,” said Merrill W. Sherman, former president of Bank Rhode Island.