Santander has pledged to increase shareholder payouts after a bruising two years during the pandemic, with the Spanish lender expecting to benefit from an upswing in the global economy and rising interest rates.
The bank, which has operations extending from Brazil to the US, on Wednesday reported better than expected fourth-quarter profits as it unwound €750mn of coronavirus-related loan loss provisions.
That helped drive its profits for last year to €8.1bn, a marked reversal from 2020 when it suffered an €8.8bn loss due to a combination of writedowns, restructuring costs and historically high reserves to cover potential bad debts.
Executive chair Ana Botín said Santander was likely to see a boost in earnings from rising interest rates in the UK and US, two of its biggest markets. As a result, it plans to lift the proportion of underlying profits distributed to shareholders above the current 40 per cent threshold. The payouts will be split evenly between dividends and stock buybacks.
Santander, which lacks a substantial investment banking operation, has missed out on the boom in trading and M&A advisory earnings enjoyed by Wall Street rivals and European competitors such as BNP Paribas and Barclays.
It is primarily a retail and commercial bank and is the eurozone’s second-biggest lender and has significant operations in Latin America.
Although Santander shares have climbed 25 per cent in the past year, they have lagged behind the 48 per cent jump in the European Stoxx banks index. Over five years, Santander’s stock is down 38 per cent compared with a 9 per cent fall in the benchmark index.
Botín said on Wednesday that Santander’s results showed “the value of our scale and presence across both developed and developing markets, with attributable profit 25 per cent higher than pre-Covid levels in 2019”.
The bank’s promise to lift shareholder payouts comes after a Madrid court in December ordered Santander to pay Andrea Orcel €51.4mn over its U-turn on hiring the Italian banker as chief executive.
The saga has proved an embarrassing one for Botín, who was formerly close to Orcel, one of Europe’s best-known investment bankers and an adviser to her father and predecessor, Emilio. Orcel is now head of Italy’s UniCredit.
In its results announcement, Santander said its performance was driven by a rebound in activity with loans and deposits growing 4 per cent and 6 per cent respectively in 2021 from the year before.
“A solid set of results . . . although provisions were again the main driver of the beat,” said Benjie Creelan-Sandford, an analyst at Jefferies. Executives provided “upbeat outlook for 2022 with the bank guiding to further improvement in profitability”.
The bank’s profits in the UK, where it has about 14mn customers and almost 21,000 employees, reached €1.6bn, four times the level of 2020. An increase in net interest income and lower loan loss provisions due to the recovering economy drove the increase.
Underlying profit of €2.3bn in the US was up 230 per cent from a year earlier as the group’s consumer arm, notably its second-hand car financing business, prospered as Americans resumed spending following the shock of the pandemic.
In Brazil, underlying profit of €2.3bn was up 21 per cent. Benjamin Toms, an analyst RBC Capital Markets, said the country has emerged as Santander’s most important market, accounting for 55 per cent of its pre-tax profit growth between 2015 and 2021.
Brazil’s general election in October will be closely watched as it brings significant “political risk and uncertainty” for business, he said.
Botín also confirmed Santander will consider a bid for Citigroup’s Banamex, the third-largest bank in Mexico, which the US lender said last month it would sell.
Santander upgraded its profitability targets and is now seeking “mid-single digit growth in revenues” and a return on tangible equity of greater than 13 per cent, compared with 12.7 per cent for 2021.
The bank, which had long been criticised by analysts for maintaining one of the lowest capital buffers of any European lender, said its common equity tier one capital surpassed 12 per cent for the first time, adding that it intended to maintain at least this level.
