Awards for Excellence 2018
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The bank that has led the way over the last year is Banco Santander, western Europe’s best bank. Santander is already one of the few big banks to prove that internationally diversified retail banks can be more profitable and more stable than domestically focused peers. Now it is in its rightful place, not just Spain’s biggest bank but also the one with the biggest domestic share.
Today, Santander under chief executive Ana Botín enjoys a market share in Spanish credit of about 20%. It has reached that level thanks to its €1 acquisition of Banco Popular last summer after an auction by the European Single Resolution Board and Spain’s Fondo de Reestructuración Ordenada Bancaria. Given Popular’s balance sheet of almost €150 billion, this acquisition is the most important bank merger in Europe since the establishment of the banking union in 2014.
Although the authorities’ handling of the Popular situation is not without its critics, for Santander’s executive chairman Ana Botín, it gives a big leg up to a global strategy for growth in small and medium-sized enterprises. Thanks to Popular’s leading SME franchise, Santander’s share of Spanish SMEs is now 25%. The purchase also makes Santander Totta the biggest privately owned bank in Portugal, with a 17% market share overall.
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Ana Botín. Banco Santander proves that an international retail bank can be more profitable and more stable than a domestically focused one |
Rapid action to address Popular’s asset quality was crucial. After a €7.1 billion rights issue in July, Popular sold a majority stake in a €30 billion portfolio of real estate property and loans to Blackstone in August. Santander’s evident respect for Popular’s leading SME franchise suggests it will preserve the value in the business, including strong relationships between branch managers and business clients.
The last year has also seen Santander do more to take advantage of digital technology, notably with the relaunch in Spain of OpenBank. With just one branch and about 100 employees, OpenBank has around one million customers, served from a new cloud-based IT system. In April, Santander launched One Pay FX, a blockchain-based international payments service for retail customers.
The digital strategy is not about moving away from its roots, rather it is making sure it retains its advantages.
“When the foundations are good, the best you can do is keep them,” says group chief executive José Ántonio Álvarez. “But we are in a disruptive period. We need to make sure we remain one of the best commercial banking operators in the digital age.”
“When the foundations are good, the best you can do is keep them. But we are in a disruptive period. We need to make sure we remain one of the best commercial banking operators in the digital age” -José Ántonio Álvarez, Banco Santander
Happily, Santander’s investors will not have to wait for the fruits of this digital investment nor the completion of the Popular acquisition to see it beat any other listed eurozone bank of its scale in terms of its returns and its premium to book value. It is already the banking union’s biggest bank by market capitalization by some distance.
Increased revenues and a drop in the cost-to-income ratio to 47% helped Santander’s return on tangible equity rise to 11.8% in 2017 and then 12.4% in the first quarter of 2018. Net income rose 7% to €6.6 billion in 2017 and 10% to €2 billion in the first quarter of 2018. The fully loaded common equity tier-1 ratio also rose to 11% in the year to the end of March, in line with its target. Finally, the non-performing loan ratio remained roughly stable at about 4%, despite the Popular acquisition.
