Banking in Europe remains a national sport, with only a handful of domestic champions also running large businesses beyond their home markets. Banco Santander is recognized as the region’s best bank this year as a reflection of its progress in moving operations in Portugal, Spain and the UK onto a single operating platform along with those in Poland, which it also includes in its Europe division.
That division serves 46 million customers and contributes one third of the profits of a group that prizes geographic diversification as the best way to withstand periodic setbacks in different regions and countries.
Initiatives are common in corporate and investment banking, but ‘One Santander’ is different. In Europe, Santander already has credit cards on one platform and is moving to do the same for basic retail banking and mortgage lending. The idea is that a simpler, faster service offering will be easier for customers to use, will attract more of them and allow for efficiencies that will boost returns to shareholders.
Recent results suggest this is what is happening. Underlying return on tangible equity in the Europe division more than doubled from around 4% in 2020 to around 10% in 2021. The bank has achieved top-three net promoter score rankings in these countries and has reduced its cost-to-income ratio by 5.4 percentage points.
And this progress continued in the first quarter of 2022, with underlying attributable profit 21% higher in Spain than in the first quarter of 2021 and 26% higher in the UK, while customer deposits rose 7% in Portugal and mutual funds rose 14%.
Executive chairman Ana Botín recently told shareholders: “We have not only weathered the challenges the pandemic has thrown at us, but we have emerged a stronger bank, achieving remarkable results in 2021.”
On June 17, she announced that Héctor Blas Grisi Checa, chief executive of Santander Mexico and head of the bank in North America, will become chief executive at the beginning of next year. He succeeds José Antonio Álvarez, who will remain on the board as non-executive vice-chair.
The effort to update the entire banking business model in Europe – with branches becoming work cafés and initiatives on the wholesale side to run its payments business, PagoNxt, as a global business for corporates, small and medium-sized enterprises, merchants and consumer payments – point to a single digital consumer bank for auto, consumer lending and retail across 15 countries.
There is a longer term vision at work here that Botín spelled out to shareholders.
“As fiscal stimuli unwind and interest rates rise,” she said, “it is imperative that a stronger and deeper European capital market and a genuinely integrated European banking system are created to finance growth.”
We have not only weathered the challenges the pandemic has thrown at us, but we have emerged a stronger bank
Ana Botín
When cross-border consolidation eventually comes to European banking, as it eventually must, a bank that already knows how to support multiple countries on a single technology backbone is likely to be ahead.
The target for 2022 is to deliver a further €1 billion of efficiencies in Europe and run a cost-to-income ratio of 45%, with a 13% RoTE off a 12% fully loaded common equity tier-1 ratio. These are US bank-style returns with a higher capital base than US banks get away with.
Santander is also one of the banks leading efforts to combat climate change beyond seeking mandates for green bonds and sustainability-linked loans. The bank puts its own money to work.
In March 2022, it created Santander Green Investment, a platform to invest in renewable energy projects under development and construction. As part of this initiative, led by the Santander corporate and investment banking (SCIB) division, the group has already invested in nine solar and wind energy projects in Spain, whose combined capacity amounts to some 500 megawatts.
And it also sees the opportunity to profit from transition. SCIB is a growing force, focusing on becoming a leader in structured finance, asset finance and most particularly in project finance, often related to infrastructure, energy and natural resources, and specializing in renewables.
In Europe, Santander participated in the financing of 5,929 megawatts of new renewables installed capacity in 2021, lending more than any other bank.
It was sole financial and M&A adviser to Global Infrastructure Partners, which led the group of French institutions that bought the New Suez water and waste and recycling assets in a €10.4 billion deal last year, as well as mandated lead arranger on the financing.
This is paying off for shareholders. While the earnings of the big global investment banks shrank in the first quarter of 2022 thanks to lower equity and debt capital markets volumes, SCIB had the best quarter in its history.
