Santander Targets $1.4 Billion Cost Savings Amid $20 Billion Digitalization Plan
Banco Santander SA pledged to cut €1.2 billion ($1.4 billion) of annual costs and ramp up investment in digital and its prized Brazilian business as the Spanish lender seeks to revive its moribund share price.
The Spanish banking group plans to achieve the incremental cost cuts over three to four years while investing €20 billion in digitalization, according to its new business plan. The company also said it would allocate more capital to invest in Latin America, its most lucrative region in recent years.
The plan reflects the diverging fortunes of Santander’s global businesses. With relief from negative interest rates postponed yet again, the focus in Europe is on finding ways to reduce spending. In Latin America, Santander plans to increase its investment to more than 30% of risk-weighted assets from the current 27%.
The bank is also seeking to turn the page on a difficult six months dominated by the bungled attempt to hire Andrea Orcel from UBS Group AG as chief executive officer. Santander has come under pressure from some investors over its core capital level, which was below the average among European peers in the fourth quarter. Chairman Ana Botin said she expects the bank to end 2019 with a CET1 ratio above last year’s 11.3% despite an expected drag on capital from regulatory requirements of about 50 basis points.
The bank is targeting a CET1 ratio of 11% to 12% over the course of its business plan. The cost cuts will result in an improved efficiency ratio of 43% to 45%, the bank said.
The bulk of cost cuts in Europe will be driven by IT improvements, especially in cloud-based platforms, the bank said. Santander also plans to intensify the process of consolidation at Banco Popular, the struggling Spanish lender it bought for 1 euro in 2017.
The lender said it will reorganize its management structure, appointing regional heads to improve coordination between its country units. Gerry Byrne will be regional head for Europe; current Brazil CEO Sergio Rial will head South America, and Hector Grisi and Scott Powell will share the role in North America.
As part of the restructuring, Santander will create a payments unit that will incorporate its global trade platforms. The bank last year launched a blockchain-based international money transfer service for customers that allows for same-day delivery.
Botin said the bank will keep the same cash dividend per share, despite announcing last month a potential return to a scrip dividend that may include an improved payout ratio of 40% to 50%.
The bank’s share price has risen 9.8% this year, helping to offset the 42% drop in price since Chairman Ana Botin took office in 2014.
Published Apr 3, 2019, 7:32:16 AM, by Charlie Devereux (Bloomberg)
