Spain’s Santander’s capital hike gets ratings agencies’ backing

SPAIN'S SANTANDER'S CAPITAL HIKE GETS RATINGS AGENCIES' BACKING

SPAIN’S SANTANDER’S CAPITAL HIKE GETS RATINGS AGENCIES’ BACKING

Spain’s biggest bank Santander took the markets by surprise last month with a 7.5 billion euro capital hike and a dividend cut, which the lender’s new chief Ana Botin said was to help fund the group’s expansion.

The eurozone’s biggest bank by market value sold 1.2 billion shares at 6.18 euros each overnight on January 8, at the bottom of the indicated price range for the share placement and at a 10 percent discount to Santander’s last closing price. This represents a dramatic turnaround in the confidence that investors have in the Spanish banking sector, as Santander was able to raise the desired amount almost immediately. This is a scenario that many thought was impossible to imagine less than a year ago, when the feeling was that the Spanish banking sector was a no-go for investment.

Some retail investors and institutional “yield” investors reacted negatively to the capital increase and even more to the disappointing dividend news. The bank’s stock closed down 14 percent on the day after the placement but top rating agencies Moody’s and Fitch both gave the thumbs up to Santander’s fund-raising move, highlighting it brings its capital ratios into line with many European peers. According to press reports, top hedge fund manager George Soros also approved of the deal, investing 500 million euros in the operation and making yet another bet on Spain’s economic recovery.

 

SANTANDER IN GOOD SHAPE AHEAD OF BASEL III

 

Santander is now better positioned for higher capital requirements under Basel III, the international regulatory framework for banks, according to Fitch. The bank’s good underlying capital generation capacity will benefit from a lower total dividend payout in 2015, the ratings agency also noted.

Santander has always been generous with its dividend payments even during the height of the financial crisis, but analysts and investors have had concerns about its capital ratio compared with other European banks. Shoring up Santander’s capital base was one of the main objectives Executive Chairman Ana Botin set out when she took over in September after the death of her father Emilio Botin. Santander passed a health check of European banks last year, but its capital strength was weaker than peers including Spanish rival BBVA and French lender BNP Paribas under a recession scenario used for the European Banking Authority’s estimates.

Following the capital increase, the Spanish bank estimates its capital ratio will be around 10 percent in 2015, under international regulations known as “fully loaded” Basel III criteria, up from 8.3 percent at end-2014.

 

BACK ON THE ACQUISITION TRAIL?

 

Santander said the cash raised last month will be used to grow in its key markets, including Spain, Brazil, the UK and the United States, hinting that it would focus on organic growth in these areas. However, there has also been speculation that the bank might make another acquisition in the mid-term, with troubled Italian lender Banca Monte dei Paschi in the frame. Santander’s name was linked with Monte dei Paschi last year.

For information on investing in Spain, contact corporate law firm Argali Abogados.

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