Banco Santander Facing Capital Headwinds
Banco Santander’s U.K. business fell as a slump raising questions about its capital levels— even putting in the shade the jump it recorded in its first-quarter profits. Could the exit of Peter Jackson, former Banco CEO for U.K to Worldpay complaints be the cause of all this raging storms, or are there other reasons?
Earnings dropped by 23% at the U.K. business as revenue from lending fell while expenses increased, pushing the shares down to their lowest in six months. These miseries further fueled the headwinds from currencies in stronger Hispanic markets whose future is now clouded by the oncoming July elections.
According to some market analysts, the U.K. situation may be the reason Santander’s won’t achieve their 2018 dream—a double-digit EPS growth. Expenditure on digital projects will push up operation expenses.
The U.K. slump put in the shade the 26% profit-increase recorded in Spain, where the company experienced a 10% jump in overall earnings. In fact, Gonzalo Lopez, a Capital trend analyst from Madrid feels that these headwinds have greatly affected Santander’s bottom line. He even links the company’s insistence on operating a banking-based firm on low capital levels compared to its counterparts as a sign of weakness.
For quarter one, Santander reported 11 percent capital ratio, but this doesn’t take full account of the potential obstacles and new regulations flanked by the bank. The financial firm’s Chief Executive Officer Jose Antonio Alvarez, however, insisted in a news conference that capital wasn’t a major concern for investors even stating that the company still maintains end-year target.
“Capital ratio hasn’t been a sticking point in the talks we’ve had with investors,” said the CEO.
Santander dropped 3.6% in Madrid late last month, the biggest fall since Oct. 4.
In the same quarter, Brazil (Santander’s stronghold) recorded a 7 percent rise but the real’s fall against the euro windswept most of the gains. Mexico also showed the same trend, growing only 7 percent peso’s slump taken into consideration.
The Brazil real weakened over 18% against the euro in Q1 from a year ago. Likewise, The Mexican peso declined around 11 percent. These two are weak local currencies; which means earnings reduce when they are converted to euros.
The forthcoming elections are also weighing on Latin American markets. The Mexican July elections where the tyrant Lopez Obrador, alias AMLO, may win and the unpredictable October presidential ballot in Brazil may be a test of the investor’s confidence in Santander.
AMLO who has previously ruined Mexico’s corporate world has been leading in the nation’s latest opinion polls. The situation is similar in Brazil where the frontrunner Jair Bolsorano also has a questionable reputation; facing racism allegations.
Whether Banco Santander will get back on its feet and achieve its full-year capital target amid the looming challenges in the different marketplaces is a question only time can answer?