Banco Santander: Botin focuses on the real spiel — payouts

Shopping channel salespeople are fond of the repeated segue “and there’s more!” That product claim has confused rather than persuaded potential investors in Banco Santander. A diversified business encompassing Spanish mortgages, US auto loans and international payments has equated to a bedside clock radio that also makes tea.

“Santander will pay you more” was the improved message of executive chair Ana Patricia Botin at Tuesday’s investor conference. The Madrid-based bank set higher targets for revenue growth and shareholder payouts. Better late than never.

Santander plans to lift dividends plus share buybacks by a fifth to 50 per cent of underlying profits. On this basis, by 2025 the bank is promising a minimum return on tangible equity of 15 per cent, compared with 13.4 per cent in 2022.

The shares rallied 5 per cent, ahead of BBVA and CaixaBank. But Santander stock, unlike those rivals, has yet to exceed pre-pandemic peaks.

It has a newfound focus on improving per-share measures. For years, the share count has climbed. It has dropped by 5 per cent since 2019. Santander will lean towards buybacks in its payouts. That should help the bank achieve double-digit growth in tangible book value and dividends per share “through the cycle” — whatever the latter means.

The balance of Santander’s profits will go to maintaining its target common equity tier one buffer of 12 per cent of risk weighted assets. This includes any extra capital needed to satisfy the Basel 3.1 standards.

That suggests plenty of cash flow had been allocated to projects to expand customer numbers. Unfortunately, none of these seem to have grabbed shareholders’ attention. The bank appears to acknowledge this by promising to share innovations better across the group. The aim is to reduce the cost-to-income ratio by 380 basis points to 42 per cent by 2025.

Presentationally, Santander has upped its game. An elevator pitch is always preferable to a lengthy spiel — except on a home shopping channel. The onus is now on the bank, which has a history of disappointing performance, to deliver on its streamlined promise.