The Spanish bank Banco Santander, S.A.SAN disclosed its strategic plan for 2016-2018 in a presentation at Investor Day held in London. The company's primary targets are increasing capital reserves and accelerating the growth pace by 2018.
ADRs of Banco Santander fell by nearly 3% as the outlined goals were largely in line with the company's previous targets, which resulting in disappointed sentiments among investors. The bank's ADRs have declined nearly 37% year-to-date.
Banco Santander presented the following growth objectives and provided information regarding the commercial transformation taking place based on client loyalty, digitalization and operational excellence.
- Grow earnings per share ("EPS") and attain double-digit growth by 2018.
- Return on tangible equity ("ROTE") estimated to be 13% by 2018.
- Cost to income ratio projected to be less than 45% by 2018.
- Fully Loaded Core Tier 1 Equity ("CET1") ratio of over 11% by 2018, compared to 9.8% in the first half of fiscal 2015.
- An average cost of risk for the period 2015-2018 of 1.2%.
- Growth in loyal customers from 13 to 15 million (15%) and digital customers from 15 to 20 million (33%).
Other Growth Targets
Apart from these goals, Banco Santander looks forward to make more efficient use of assets, thereby improving the bank's profitability. The company plans to buffer up capital balance to elevate earnings and dividends.
The bank also restated its 2014 and 2015 accounts to redistribute losses from its corporate center unit in order to enhance transparency, Santander said in a regulatory filing. The restatement will not impact the company's consolidated figures.
We will consistently generate capital, to increase dividends per share and earnings per share", said Santander's Executive Chairman, adding that, in the context of the bank's policy of a cash payout between 30% and 40%, "the dividend per share will increase from 2016 and earnings per share will reach double-digit growth by 2018".
Chairman Ana Botin referred to operational excellence as a lever for transformation. "Digitalisation will be key to reach our goal of improving customer satisfaction while we improve the efficiency ratio", she stressed. "We are increasing the number of digital customers at a rate of 15% or 20% annually, which will allow us to reach the goal of 30 million digital clients in 2018.
"Santander didn't detail how it would build up that capital, though", JPMorgan analysts said, and Bellevue's Karim Bertoni said "They will need that economic conditions be favorable to achieve their goals."
Investors and analysts seem to have doubts about Banco Santander's outlook. The reason is the 7.5 billion euros cash call and dividends cut made by the bank at the start of the year. Moreover, the bank is expected to remain pressurized due to emerging markets such as Brazil and Mexico.
The bank has already raised its CET1 objective twice this year. However, to fulfil the latest increase, the bank will require around 5.5 billion euros in new equity. Also, shareholders may have to suffer another dividend slash.
Further, with European regulators pushing banks to expand capital cushions well ahead of the minimum requirement of 8% of risk-weighted assets, the road ahead seems difficult for the bank. Among Banco Santander's counterparts, Deutsche Bank AG DB CET1 capital ratio stood at 11.4%, The Royal Bank of Scotland Group plc RBS at 12.3% and Banco Bilbao Vizcaya Argentaria, S.A. BBVA at 10.4%.