Santander Seeks to Move Past Orcel Fiasco With New Plan

(Bloomberg) -- Banco Santander SA is seeking to put the botched hiring of Andrea Orcel behind it, with a promise to lay out a new three-year plan this spring.

The lender’s efforts to turn the page were aided by better-than-expected fourth-quarter earnings that helped the Spanish retail banking giant meet the targets of its previous three-year plan.

While Santander had insisted that Orcel’s hiring wouldn’t mark any change of strategy, tapping an investment banker best-known for his ability to close merger and acquisition deals raised speculation about a return to the buying spree the bank undertook when Chairman Ana Botin’s father Emilio was at the helm of the Spanish lender.

“The board came -- after a very diligent process -- to the conclusion that the amount that Santander would have to assume for his buyout was something that was not right for us as a retail commercial bank” Botin said in a Bloomberg TV interview about the failed attempt to hire Orcel. CEO Jose Antonio Alvarez has “total confidence of markets and of the board,” she said.

While profit jumped by more than a third in the quarter, a decline in earnings in the U.K. and slowing growth in Brazil underscore the challenges ahead. The bank will outline how those issues will be tackled at its investor day on April 3, it said in a statement on Wednesday.

“We’ll continue with the same strategy,” Botin said in the interview. “We’re very, very focused on digital transformation, building global platforms so we can take advantage of our scale.”

Santander, which traded without rights to its most recent dividend, was down 0.7 percent 4.24 euros in Madrid trading as of 12:23 p.m. The stock has fallen 28 percent over the last 12 months, similar to the decline in the STOXX Europe Banks Index.

The bank has made few public statements about what a new plan could entail, simply saying that its future lies in further digital transformation and the integration of platforms across its global business. But its actions have pointed at more prudence and cost-cutting.

The U.K. business, which represents about 13 percent of earnings, was a weak link for Santander in the quarter, with a 3.7 percent decline in profit.

“We had to invest a lot in ring-fencing and other regulatory projects,” Botin said. “We believe that the sector is ready for Brexit. There is one thing that would harm the economy, and that would not be good for our customers, would not be good for SMEs, and that’s a no-deal Brexit.”

Santander surprised investors with the magnitude of its increase in core capital levels in the third quarter after previously insisting it could afford weaker capital compared to its peers because its core business of lending is less volatile than investment banking.

The bank’s CET1 fully-loaded ratio rose to 11.3 percent, a 125 basis-point gain over three years. Santander said on Wednesday that it’s mid-term goal is a ratio of 11 percent to 12 percent.

Key Highlights

  • Spain was the star performer with profits growing 31 percent, boosted by Santander’s acquisition of Banco Popular
  • Capital levels rose again in the quarter after jumping 31 basis points in the previous three months. Santander trails its European peers significantly on core capital buffer levels, something that has concerned investors
  • Net interest income surprised on the upside, growing to 9.1 billion euros, beating estimates. Net income rose 34 percent to 2.1 billion euros, also exceeding estimates
  • Brazil continued to lead profits with income growing 3 percent in the period
  • U.K. profits fell 3.7 percent. With Brexit approaching, investors want to know what the implications might be for a unit that represents about 15 percent of the group’s profit

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