Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Santander bets on Europe recovery, customers to lift profits and pay-outs

Published 28/02/2023, 07:05
Updated 28/02/2023, 13:16
© Reuters. FILE PHOTO: A Santander company logo is pictured at the company's headquarters in Boadilla del Monte, outside Madrid, Spain, February 2, 2023. REUTERS/Violeta Santos Moura

© Reuters. FILE PHOTO: A Santander company logo is pictured at the company's headquarters in Boadilla del Monte, outside Madrid, Spain, February 2, 2023. REUTERS/Violeta Santos Moura

By Jesús Aguado

MADRID (Reuters) -Spain's Santander (BME:SAN) said it plans to return half its profits to shareholders as it announced ambitious profitability targets for the next three years, betting on customer growth and higher interest rates in Europe to boost revenue.

Santander has relied in the past on Latin America to cope with tough conditions for lenders in Europe 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," Santander Chairperson Ana Botin told investors at the bank's 2023-2025 strategy update in London.

Its shares rose almost 5% 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% between 2023 and 2025, compared with 13.4% in 2022.

"While the payout target increased to 50% (from current 40%), 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 (SIX:CSGN) 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% to 7% in the group's net interest income between the end of 2022 and 2025.

SPANISH OPPORTUNITIES

The euro zone'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% ROTE in 2025 compared with 9.28% 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% 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% of the bank's profits, targets a ROTE of 19%, still the highest among Santander's markets, from 18.77%, 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.

© Reuters. FILE PHOTO: A Santander company logo is pictured at the company's headquarters in Boadilla del Monte, outside Madrid, Spain, February 2, 2023. REUTERS/Violeta Santos Moura

The lender said it also aimed to maintain its core tier-1 fully loaded capital ratio, the strictest measure of solvency, above 12% throughout the three years.

($1 = 0.9448 euros)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.