States will have to print money to deal with public-sector debt in the aftermath of the coronavirus Covid-19, says Ana Botín, Santander’s group executive chairman.
As Santander announced an 82% dip in profit in the first quarter due to coronavirus, she tells Euromoney that financial leaders, including in Europe, “have to throw away the rule book” to support their economies.
“We’ve never seen this kind of crisis in our lives. We cannot play by the rules. We have to realise that this is a different kind of crisis. If you don’t react quickly, a huge number of companies are going to disappear. And if we do not act now to protect viable businesses then the recovery will take much longer.”
So-called monetary financing is “the only way out in a democracy”, according to Botín, as stringent spending cuts and tax increases are no longer an option.
“You have to inflate your way out,” she says. “In Europe, as we cannot adjust through the currency, so the alternative requires big adjustments to household incomes. That’s what we did in Spain from 2012 onwards. I don’t think we can have that kind of adjustment for a second time in 10 years as the cost to society would be too great.”
With Santander announcing a €1.6 billion provision in the first quarter against economic deterioration, Botín expects a heavy financial cost across the board as a result of the coronavirus.
“Behaviours are going to change in a very significant way, in some cases for ever – accelerating the trend we’ve seen already to digital,” she says.
Weaker governments need financial backing, but she says this cannot be in return for fiscal tightening. States need the slack to the limit the damage to their productive capacity and tax base by propping up businesses, including robust programmes of state-guaranteed loans.
Botín says: “There has to be some kind of fiscal support in a way that is not conditioned to austerity, as in the past, but maybe to other conditions. We should be supporting companies that are solvent but need the liquidity bridge, so that we can return to growth faster. This will save the jobs, and we will be better able to pay for the fiscal excess that we are going to take on during the crisis.”
Helping your neighbours, according to Botín, is the key: “In the same way that the economic success of Latin America is in the US interests, so too is the stability and economic success of Spain, Italy and France in the northern European countries’ interests. We have to work together if Europe is to succeed.”
Responsible banking today requires us to do everything we can to try to save lives- Ana Botín, Santander
Banks too must fulfil their obligations to clients, governments and societies by lending, facilitating payments, and even using their procurement infrastructure – as well as through charitable donations – but not by putting all the burden on shareholder funds. That’s why Santander seeded a fund for medical relief through a pay cut for her and her board in late March, when the bank cancelled its interim dividend.
The fund, initially €25 million and more focused on Spain, meant the bank could immediately respond with €4 million to an urgent call for funds for a field hospital in Madrid, for example.
The group’s employees from around the world have also chipped in, along with some other parties, pushing the fund to €54 million. Redirecting other charitable projects to tackle the outbreak will see the bank mobilise a total of €100 million to the coronavirus.
“Responsible banking today requires us to do everything we can to try to save lives,” says Botín. “One of the other reasons why we took the pay cut is because in order to help others, we couldn’t just take more shareholder funds. We thought that the right and responsible way to help others was by reducing pay and using our network and procurement power in trying to buy masks and supporting efforts of governments and local authorities.”
The bank has also assisted the Mexican government in distributing state cash handouts to poorer parts of society during the crisis, using its newly developed no-frills account provider, SuperDigital.
During the last two weeks in March in Spain, according to Botín, Santander’s credit to private-sector companies rose almost 40% year on year. A €20 billion pre-approved credit line for small and medium-sized enterprises and self-employed people, which it announced as the lockdowns began on March 10, allowed the bank to give new liquidity quickly to borrowers that it knew were creditworthy.
The initiative also prepared the bank to implement the later launch of the Spanish government’s separate €100 billion programme of loans, guaranteed up to 80%.
“We had done a lot of the legwork,” says Botín, “so when the government programme came we were ahead, as we had done a lot of the risk analysis already, and we could actually disburse the funds to the companies much more quickly.”
Every sector has to do its analysis of how you protect your team and continue doing business. That’s really what I’m thinking about all day- Ana Botín
Santander extended an average of €1.1 billion of new loans in the first weeks of April.
“We’re going to support the economy as much as we can, in a prudent way, in a responsible way,” says Botín. “Responsible banking is providing the balance between all our stakeholders.”
Nevertheless, the government guarantees are vital.
“My responsibility, and our responsibility collectively as a management team, is to make sure we have a prudent and strong balance sheet,” she says. “It’s not about supporting the banks. It’s about supporting companies that otherwise would not have access to sufficient credit … I do think that in some cases, the governments should consider a 100% guarantee.”
Botín has also been helping at the international level after IMF managing director Kristalina Georgieva asked her to join a new 12-member external advisory group.
“It’s super important and I am learning a lot,” says Botín. “It’s an incredibly diverse and interesting group and a place where you can have a voice to try to contribute to solve problems and share perspectives.”
Santander’s executive chairman is also communicating within the group a lot more than before.
“I’m doing global townhalls every 10 days or so,” she says. “I talk with the top 30 or 35 people in the company together every week in different groups and I join video calls with our regional managers in Spain as often as possible. And I talk one-to-one with lots of our team.”
Botín first realised the seriousness of the coronavirus threat at a talk given by a public health official during an event with other chief executives in the US in mid February.
“On March 9, we asked most of our teams working in our Madrid headquarters to work from home from the next day,” she says. “That was when the region of Madrid closed the schools and a week before the government asked everyone to stay home. Within 10 days, we had almost 100,000 people teleworking, not just in Spain and Europe but across the world, in the US, Latin America and so on.”
But there will be no return to things like business travel, any time soon.
“This is going to really change behaviours, for a long time,” she says. “The economic impact will be felt well into 2021, but I expect we will see lasting changes in how we live and work.”
Now Santander is exploring what technological means it can use to get its staff back to relatively normal ways of working, while limiting their risk of contracting and spreading the coronavirus.
That includes rolling out an employee health app, so if a member of staff falls ill, they can warn whoever else might be most at risk of contracting the disease to stay at home.
“When you’re asked what your priorities are, I say our people’s safety; then it is the health crisis in general. Linked to these what I call business continuity, us and our customers,” she says. “How do we get back to the new normal? How do we run the business? Every sector has to do its analysis of how you protect your team and continue doing business. That’s really what I’m thinking about all day.”