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Santander Plans $8.9 Billion Capital Increase to Strengthen Balance Sheet

Emilio Botín reshaped Banco Santander into one of the largest financial institutions in Europe through a series of major acquisitions.

Now his daughter, Ana Patricia Botín, is determined to make just as strong an imprint on the bank as her father.

Santander said on Thursday that it would begin a capital increase of as much as 7.5 billion euros, or $8.9 billion, and cut its dividend payouts sharply to ease investor concerns about the strength of its balance sheet. The capital increase is equal to almost 10 percent of its current stock market value.

Ms. Botín, 54, was appointed executive chairwoman in September after her father's death. In November, she overhauled the management that her father had put in place, removing Javier Marín, who had been appointed chief executive less than two years earlier, and promoting José Antonio Álvarez, Santander's chief financial officer, as the new chief.

On Thursday, the bank estimated that its net profit had reached 5.8 billion in 2014, an increase of 32 percent from the previous year.

Under Mr. Botín, who took over from his father in 1986 and then ran the bank for more than two decades, Santander was transformed from a family-controlled regional lender into Spain's largest bank by assets, in large part because of a big expansion overseas, into Brazil and Britain as well as the United States, where Santander bought Sovereign Bank in 2009.

Santander's capital-raising goal would be the second-largest set by a bank over the last year, after Deutsche Bank's 8.5 billion, or $10.1 billion, equity offering in June, according to data from Thomson Reuters.

The capital increase, coupled with the dividend cut, addresses two top worries of investors, according to a note published on Thursday by Citigroup analysts.

First, they wrote, is "the perception and reality -- that Santander is the weakest capitalized major bank in Europe," as measured under the international rules known as Basel III. Second, the analysts' report said, is that "its payout ratio is excessive."

Santander said that the fundraising would be completed overnight. The additional funding is being raised in an "accelerated'' and discounted sale of almost 1.3 billion shares to institutional investors. In 2008, it undertook a similarly large capital increase of 7.2 billion, or $8.5 billion at today's exchange rates.

Santander does not regularly make public its capital ratio, unlike most of its European rivals. Mr. Marín, however, estimated soon before his ouster that the capital ratio would be about 8.5 percent at the end of 2014 under Basel III rules, slightly below the 9 percent level the bank had initially forecast.

The latest plan introduced by Ms. Botín should raise that ratio to about 10 percent, according to the Citigroup analysts.

Shares in Banco Santander rose 3 percent on Thursday before trading was suspended by the stock market regulator pending a statement from the bank.

The bank also announced a cut in its dividend payouts, a decision that "ends a long period of uncertainty hanging over Santander dividends," according to a report by Barclays Capital analysts, who said they had long warned about the possibility of such a reduction.

The overall dividend payout is likely to be 20 cents a share this year, the bank said, compared with 60 cents last year.

Shareholders will be offered cash for three of the four payments expected this year. The other will be in shares.

Retail investors could be disappointed by the dividend cut and the fact that the discounted capital increase was reserved for larger, institutional investors. But analysts welcomed the speed with which Ms. Botín had worked since taking charge in September to address some of the concerns about the bank.

"What is left is to hear her views on the company's long-term strategy for its businesses around the world," the Citigroup analysts said.

[Source: By Raphael Minder, The New York Times, 08Jan15]

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small logoThis document has been published on 12Jan15 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.