Santander shares soar five per cent as lender bets on Europe to boost pay-outs and ‘ambitious’ profit targets
Santander plans to return half its profits to shareholders after announcing “ambitious” profitability targets for the next three years.
The Spanish banking giant said it was betting on customer growth and higher interest rates in Europe to boost its revenue.
Santander has previously relied on its Latin American presence to offset the tough conditions experienced by European lenders since the financial crisis but banks across Europe are beginning to benefit from higher borrowing costs despite economic uncertainty.
“We do have tailwinds for the first time in eight years, we are running a business in Europe where we are not charging deposits and (not) giving loans close to zero,” Ana Botin, chair of Santander old investors at the bank’s 2023-2025 strategy update in London.
Its shares rose almost 5 per cent by 1250 GMT on news of the planned payouts and after the bank also said it aimed to achieve a return on tangible equity (ROTE) of 15-17 per cent between 2023 and 2025, compared with 13.4 per cent in 2022.
“While the payout target increased to 50 per cent (from current 40 per cent), in line with consensus but below our expectations, we flag the bank’s significantly higher revenue growth ambitions and profitability targets which could offer absolute shareholder distribution amounts well above expectations,” Credit Suisse analysts said in a note.
The remuneration would be in the form of cash payouts and share buybacks.
Chief Financial Officer Jose Garcia Cantera also said he expects a compound annual growth of 6 per cent to 7 per cent in the group’s net interest income between the end of 2022 and 2025.
The eurozone’s second-biggest lender in terms of market value expects to raise its global customer base by 40 million to around 200 million, helping it to grow revenue by around 7-8% per year on average in constant euros in the period, helped by collaboration among global businesses and its network.
Santander’s European region is targeting a 15 per cent ROTE in 2025 compared with 9.28 per cent by the end of 2022, the biggest increase in percentage points among the bank’s three core regions.
This would bring Europe, the lender’s main contributor to the group’s profits, in line with the ROTE target seen for North America.
“Spain is where we see the most opportunities to improve profitability and efficiency,” Santander CEO Hector Grisi said, adding the bank was also redefining its branch model and targeting active customers growth of around 10 per cent in the period.
In the United States, its second-biggest market, it said it is focused on more profitable segments, such as its consumer unit, after recently exiting mortgage activities.
South America, which accounts for 31 per cent of the bank’s profits, targets a ROTE of 19 per cent, still the highest among Santander’s markets, from 18.77 per cent, with the cost of risk to rise to around 320 and 340 basis points from 332 bps.
Santander expects its cost of risk, which measures the cost of managing potential losses for the bank, to hover around 100 and 110 basis points in 2025 from an expected 120 bps this year.
The lender said it also aimed to maintain its core tier-1 fully loaded capital ratio, the strictest measure of solvency, above 12 per cent throughout the three years.
Reuters – Jesús Aguado