Abigail with attitude: Storm clouds on Santander’s horizon


Abigail Hofman
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Ever since Banco Santander was named Euromoney’s bank of the year for 2012, I have been keeping a wary eye on the Spanish lender, which is also Europe’s largest bank. The share price bottomed at approximately €4 around the time of the award. This was the same level reached in March 2009. Since last July, Santander shares rose, phoenix-like, to nearly €6.50 in late January 2013, before falling back a bit. Interestingly, the chart of Santander’s stock price is similar to that of the overall Spanish market (the IBEX 35) which is probably not surprising.

In late January, the Financial Times published an article entitled "Emilio’s perfect storm". Emilio Botín, the chairman of Santander, is a wily septuagenarian and the longest-serving head of any big global bank. The article pointed out that by a variety of measures – operating profits, dividend yield, market value, balance-sheet size – Santander is one of the top 10 banks in the world.

However, there are clouds on the horizon, starting with the fact that at 78 years of age Botín needs to implement a clear succession plan. Also the bank’s main markets – Spain, Brazil and the UK – are struggling to deal with weak or weakening growth. Normally, as the economy goes, so go the banks. Last year at the March AGM, Botín’s re-election was opposed by nearly a quarter of investors as a protest against the bank’s lack of independent directors. Some also argue that the high dividend policy is unsustainable and reflects both Botín’s dominance at the bank and the family’s need to sustain its lavish lifestyle. The Botín family controls about 2% of the bank’s shares.

In late January, Santander missed analysts’ estimates for the fourth quarter of 2012 because of higher provisions in Spain and Brazil and slowing revenue growth in some of its key markets. Investors also received an unpleasant early Valentine’s gift when, on February 12, the Spanish Supreme Court partly revoked the pardon given to Santander’s 70-year-old chief executive, Alfredo Saenz, by the previous Spanish government. Apparently, the Bank of Spain will now decide if Saenz should step down from his management role at Santander. I intend to monitor closely events at Santander during the next few months and I will keep you updated.