20 April 2015

Q1 2015

First quarter results will be presented on April 28th.
This post will collect the information.


  • 2015/04/24. Another overview of analysts expectations (4-traders)
  • 2015/04/20. Overview of analysts expectations (cincodias)
    Quaterly earnings up 28% YoY to €1.675bi, revenue at €11bi
EPS at €0.121, net profit €1,717bn, revenue €11.444bn

03 February 2015

Q4 results

2015/02/03. Q4 results (All presentations - EN) (Financial report)

- 2014 €5,816mi net earnings against 5,800 guidance
- Q4 at 1455 down 9.3% QoQ. EPS at €0.112 for 0.131 in Q3

General remarks

  • Results coverage focuses on best statistics (bloomberg) (reuters):
    Net Q4 earnings +70% YoY.
    The QoQ comparison is at -9.3%.
    This is a new approach, and in my opinion a direct consequence of the €7.5bi capital increase reserved to instutionals (and the following 1bi+ shares crash sold by private investors in the 2 following weeks).
    Without FX, 2014 net earnings are +49.3% YoY:
    +140% Spain,
    +65% Portugal,
    +30% UK,
    +12.3% SC,
    +10.8% Latam,
    +6.9% Poland,
    -0.2% US
  • Q4 Results are better than first look:
    The volatile trading gains went from €952mi in Q3 to 620 in Q4. Removing that effect, Q4 net earnings keeps growing at around €150mi each quarter for the 4th consecutive quarter.
  • Non recurring numbers: €1.589bi in net capital gains, against same amount as on debit side: €1bi and restructuring costs, €500mi as impairment of immaterial assets. The saldo, €83mi as provisions

Conference call

  • 4 participants, 3 new figures including the chaiman (Emilio Botin was not in the previous conference calls)
  • Ana Botin is clearly an operating chairman. I wonder what is the role of the new CFO.
    My biggest hope for the Q&A was information about new strategy
    That is fully unfilled: focus organic growth, could be small acquisitions in existing markets, Pioneer still under negociation: no new information

    --> Here is the conference call transcript from seekingalpha
    In the first 4 1/2 pages, Ana Botin speaks about the new strategy
  • Empty guidance: no real figures, and at 2017 horizon!

2014 against 2013 per country

The table below shows the changes in percentage from 2013 to 2014. Green (resp. red) is positive (resp. negative). Black is neither positive nor negative: a consequence of followed policies.
ALL figures are at constants € in order to isolate from the FX changes.

  • Spain
    Net profit up 140%, due to 2 factors: (a) restructuration with 13.7% of the branches closed (and 8.3% less employees) with as consequence Opex down 6.7% and (b) Provisions down 27.6% as a result of previous years cleaning and much improving situation in Spain.
    The 2 effects will continue in 2015-2016.

    On commercial side, much happened. Interest income up 9.4%, despite loans and deposits down. Number of customers is down 11.5%!. Despite that loan market share is up (+0.9 p.p to 13.5%).

    There is a significant shift between time deposits (-22.1%) to demand deposits (+24.5%) with as consequence lower funding costs, and this reinforcing the end of deposit war.
  • UK
    Is probably the prototype of the organic growth strategy to be utilized across the group.
    Sacrifice the fees (1|2|3 account) to gain new customers and demand deposits, together with switch of loan book to higher margins  [as a specificity for UK: heavy weight of mortgage, but going down]

    The +30% in profit is as impressive as the +140% of Spain because the basis was much higher.
    It was mainly achieved by growing demand deposits by 43% in one year (to GBP51.8bi): number of current accounts from  27.9mi to 41.1mi!

    Loan book is up 1.6%. This hides big moves to higher margin segments: Consumer credit +12%, small companies +8% , mid companies: +15%, non core loans (state bonds?): -12%
  • Brazil
    Total income is down 2.9% despite loan book up 10.7% and profit up 8%.
    This includes inflation, around 6.5% in 2014.
    At constants R$, income is down 8.4%!

    There are 2 causes:
    - Serious restructuring with branches down 4.3% and employees 5.9%. Opex: +1.0%
    - Switch of the loan book to lower risk. NPL stock down 0.59 p.p. to 5.05 p.p. Mortgages are up 34.5% (and cover at most 50% of the real estate) and loans to large corporations are up 23.9%
  • Mexico
    All numbers are to look from a strong organic growth push perspective: 7.1% more branches and 14.8% more employees. Profit are suffering (-3.5% through +7.0% opex) during the process.
  • US
    is a mixed bag of 2 entities: SCUSA (very good) and Santander bank NA (very bad)
    The 47% jump of provisions comes from SCUSA growth: provision to be made at loan issuance.

08 January 2015

Capital increase. Dividend cut. Guidance Q4

- Accelerated €7.5bi capital increase. (communicate - ES)
- Proposal to reduce 2015 dividend to €0.20 in 4 installments (1 scrip, 3 all cash)
- Shares quotation suspended in Spanish stock exchanges (communicate - EN) to restart tomorrow 08:30 (Communicate - EN)
- Guidance for Q4 2014 (communicate - EN)
€5.8bi for full 2014, less 4.36 to September gives the puny €1.44bi for Q4 (€0.114 EPS, awful)

--- Presentation (ES), (EN)
This presentation summarizes best the earthquake

Additional information

- The CEO (Alvarez) discards utilization of the capital increase for a major acquisition (ES)
No Espirito Santo, Monte dei Pasci, or Postbank. Belfius? Carige?

- Minimum price for capital increase is €5.72, 16.5% discount on last quotation in Madrid (ES)
We will know this Friday morning.

- New shares have been issued at €6.18, a discount of 9.78% (ES)

- Press release about the capital increase (EN)
Success! in 4 hours 11bi, from 235 privileged institutionals (79% from US/UK). 9.64% new shares. Shame and disgust. Long term confidence break. 

- Big unknown is who are the buyers!
At least one is known: George Soros with €500mi (ES)

- A good coverage from reuters
- Outstanding article on SeekingAlpha (EN)

- Analysts moves:
ES and ES:
Société Générale: 7.3 to 7
RBC Capital Markets: 7.4 to 6.9
Oddo: 8.4 to 7.6
Nmas 1:7.65 to 6.8
Barclays: 5.8 unchanged
Citigroup: 7.1 to 6.7
CS: 7.1 to 6.6

- Shares.
Small investors dumped shares in Madrid on Friday, with volume in the range of 400mi (60mi is a normal day before the operations) and prices down 14%
This Monday (Jan 12th) situation is already much quieter. volume at 180mi, up 2.7% in a market down. Tuesday same.
This Wednesday is much quieter. Shares went ex-div (€0.146). And if you add that value to quotation (€6.03, around 10:30 CET), we are back to capital increase value €6.18!
The situation has basically changed. Expect favorable news in US/UK financial press, with support from institutionals


This article from Segovia details the motivations for the operation.
No acquisition, no financing of organic growth (the official reason), not the consequence of market pressure.
Reason is the pressure from ECB to reach at least 10% tierI capital fully loaded now.
As additional comments, he states:
Professionals are very happy, small investors are not, and have been prejudiced in the operation.

On Jan10th, there is another article from Segovia. It details the dynamics of the operations (dividend cut and capital increase), and asks the question about the strategy, but without answering it

Cold comments

- Strategy. (ES)
In 4 months, Ana Botin changed the board, the CEO, the dividend policy, and the way to get capital.
Organic growth. But probably more to come, especially the business mix and commercial policy.

- Discount.
Increasing number of shares by 9.64% (Communicate - ES) with a discount of 9.78% against €7.5bi, is in fact no discount at all. Simply at same value of equity in each share. 

Heated comments

- We know now the real reason about CEO and members of the board changes.
They were opposing the operation. €7.5bi capital increase reserved to instutionals is inconsistent with the message: "Santander has very comfortable capital levels" (even the above presentation in slide 7 reiterates that message on the numbers before the capital increase). But 10% new shares is just what is needed to change to controlling structure.

- Santander under Ana Botin is a different bank than under her father.
Why making the present to the institutionals (discount for new shares)?
Keeping scrip for FY 2015 and Q1 2016 would have had the same effect on capital with all its advantages for existing shareholders!
I wrongly evaluated Ana Botin. She is not going in the same direction as her father. She just transformed SAN to a common bank by handling control to institutionals . The 10% reserved for them is enough to switch the voting power.  It is only the first step of a long series of moves.  SAN will be moving to much shorter term. Ana Botin will stay chairman as long as  the new controlling majority is pleased.
I HATE the new situation, because whilst I trusted Emilio Botin, I don't trust US/UK institutionals. Perhaps I am wrong on that, and that with them with more money in the game, SAN price will behave better. But they will want a biggest part of the shares first. So first a period of weak share prices, till they are happy with their holdings.
One word to resume:
Treason to existing shareholders, and the end of Santander as it was since 1857.
Perhaps in 2-3 years shares will double value. But I prefer the previous situation.
There is now a basically different situation through a new controlling structure and new bank.

- I was so wrong. Most of opinions in the blog are so wrong that it makes low sense to go on with it. Simply maintaining notices

Own conclusion

- SAN.is no more an outstanding investment. Suddenly, by changing the long term plans, Ana Botin made SAN a plain fair(probably more good than fair, but all need to be reevaluated) banking investment.
What will I do with my long position in SAN?
As told above, I expect shares to be weak, till institutionals succeed to increase the ownership to a higher level. In particular, Q4 figures will be bad. Guidance exists to help manipulation. That is the way to look at the coming financial statements. At longer term (2016 but not before), much better prospects. So I intend no big moves and close my ass.
Probably will sell 1% (of current position) every month, to reach 0 after 8 years.

It exists much better investment opportunities than the new Santander

20 November 2014

BBVA capital increase and Santander dividend

Today BBVA made an accelerated capital increase of €2bi (ES), with discount of 4.5%, no preference for existing shareholders, in order to increase the participation the bank has in Turkey (Garanti). The increase was covered in 20 min by institutionals, with final bidders covering twice the increase.

In contrast Santander increases its capital by €1.5bi every quarter through dividend scrips, and YTD raised an additional €4.2bi of AT1 in the form of coco.

This makes clear how interesting dividend scrips are for existing shareholders are:

  1. No discount
  2. Shareholder structure kept: I trust the current Santander management. It has the support of the board (3%), the small investors (40%) and half of the institutionals (57%). I would hate a short term activist shareholder getting influence on Santander plans.
  3. No dividend tax (or transfer of the taxes to the capital gains when shares are sold)
So far in 2014, we have had a series of disinvestments in insurance and AM with total net capital gains of €2bi. This amount does not hit the earnings. "Used for balance sheet strengthening". I more and more interested to know in details what that means.
On the other side, there have been a series of acquisitions mainly in Consumer Finance. Brazil is a special case with 3 operations: Getnet, JV with Bonsuccesso, 13.65% shares repurchases.

None of these acquisitions implied external capital increases the way BBVA just did. Simply eating small percentage of capital ratios. For example Dec 2013 Bank of Shangai 8% acquisition utilized 1bpp of group capital ratio

Should Santander make a more significant acquisition, especially buying a commercial bank, for example in Italy, we would get confirmation (or not), that the extra capital coming for scrips is (at least partially) intended to capitalize new acquisitions.

That would an excellent news implying that dividend as scrip is going to continue for a significant period as best way to raise capital for growth,

In that optics, keeping €0.15 quarterly dividend (against €0.13 EPS in Q3 2014) is an advantage as it allows quicker growth. The delta (€0.02) comes reserves conversions. Q1 2015 EPS will be around €0.15. At that time, growth machine is fully sustainable.

31 October 2014

Brazilian repurchase results 13.65%


Banco Santander, S.A. (“Banco Santander”) informs of the termination of the
acceptance period of the exchange offer made for the shares of Banco Santander
(Brasil) S.A. (“Santander Brasil”) that are not held by Grupo Santander, which was
formally launched on September 18, 2014 (the “Offer”). Securities representing 13.65% 
of Santander Brasil’s share capital have been tendered in the Offer. Therefore, Grupo
Santander’s shareholding in Santander Brasil will increase to 88.30% of its share capital.
To satisfy the exchange Banco Santander will issue 370,937,066 shares, which
represent approximately 3.09% of Banco Santander’s share capital as of this date,
pursuant to the resolution passed by the extraordinary general shareholders’ meeting
held on September 15, 2014.
The percentage of shares tendered is below the threshold provided in the documentation
relating to the Offer published in Brazil and in the United States for the holders of
securities of Santander Brasil who have not tendered in the Offer to have the right to sell
them to Banco Santander during a 3-month subsequent offering period at the same
exchange ratio. Hence, such right shall not exist.
Boadilla del Monte (Madrid), October 31, 2014

Only 56% of Santander Brasil exchanged their shares. They took the short term 20% premium. Fair enough for the 44%, who like Santander group prefer long term gains.

For the fun coverage in Anglo-Saxon press

  • reuters: full of bad understandings (value, 3.1%, ..., at the basis the value does not consider the ADR, and the 3.1% are the additional SAN shares)
  • reuters: author could not resist: Brazil is faltering
  • Bloomberg: Not bad except at the end: The +7% in net earnings and 3bpp in capital is in case all non controlled shares were exchanged. Roughly 50% were exchanged, so half the effects.

27 October 2014

Stress tests results

  • Communicate
  • Detailed results of Santander
  • Aggregate results. At page 10, list of the 25 banks with capital deficit, for a total of €24.62bi, going down to 11 banks and €9.47bi after considering the capital increases already done in 2014
The exercise has issued a mouse, with only significant problems in Greece, Cyprus and Italy.
In particular, compare with the news below (Jan 2014) where Bloomberg reports a €767bi capital shortfall to the net results: less than €10bi!
That Bloomberg article has no methodology description. The aggregate stress results document has extensive methodology description. Such a difference is a major disturbance. How could they write a €0.75tr capital shortfall???
There is a real problem there and I hope Bloomberg gets to justify previous  article.
But of course it will not occur.
Confirmation of boolshit information in the Anglo-Saxon financial press is the main output of the stress tests! 

Related news (to clean the News tab)
  • 2014/10/28. 36 banks would have failed with BIS III full load (reuters)
    Stress tests results were too good. Full load perspective allows to write negative article. Difference between EZ countries related to the loading rate is also spam. BIS 3 itself  contains the loading rules. The bulk of the legislation is at EU level (CRD IV and CRR). Only CRD IV has local legislation implementation.
  • 2014/10/24. An excellent stress test synthesis (ES)
    By Eduardo Segovia, probably providing the best information about Spanish banks
    Reuters also has an overview before Sunday.
    Finally Bloomberg saying 25 banks to fail
  • 2014/10/23. More rumors on Sunday stress tests results (ES)
  • 2014/10/22. At least 11 banks to fail stress tests (reuters)
    But previous rumors were also listing smaller German banks (not DB and Commerzbank)
    Most of the banks are named here (FR)
    In Belgium: Dexia, In Austria: Erste, In Portugal: Millenium MCP. None in Spain
    As SAN shareholder, I am not interested in Italy, Cyprus and Greece...
  • 2014/10/15. Linde; BdE chief protests to BCE and EBA about the last minutes stress test changes (ES)
    The excluded rules are the same as those taken in other EZ countries, simply taken one month later.
  • 2014/10/09. Stress test results will be communicated to the banks on Friday, Oct 24th (at 12:00 CET, by BdE, with confidentiality agreement (ES), publicly on Sunday Oct 26th, 12:00 CET (ES) (ES)
    Impact of the last hour changes is negative 30-40bpp, and were taken under the pressure of Germany/France.
  • 2014/10/06. Last hour changes in stress tests rules (ES)
    Previous article was expressing the fear it would occur: "even too well". Another version is "the Spanish banks are doing too well, and that is worrying us", dixit one week ago the president of a Spanish bank.
    It happened on Sep 25th. As a result, Santander's tests will go from "excellent" to good or satisfactory. Differences between Spanish banks on one side and German, French, Italian banks on the other side will be less humiliating.
    The changes of tests rules is: legislation changes taken after 01/01/2014 but with application starting at that date are not considered: DTA in Portugal, goodwill, financial participations.
    This decision does not make sense (except on political grounds) as show the following scenario.
    With these new stress test rules, a Spanish bank goes under capital ratio requirements. Must recapitalize; How? Let's apply the excluded legislation rules. Done.
  • 2014/09/24. ECB stress tests results comments about Spanish banks (ES)
    Officially for end end October, but look as the banks always know the results. Anonymous comment "the Spanish banks do very well, even too well".
  • 2014/08/20. EBA publishes details about Oct stress tests data (ES)
  • 2014/04/29. During stress tests, public debt in trading portfolio or AFS is to be valuated at market prices (following the stressed situation, 5.6% for 10Y against 3.1% now) and consumes capital  (ES)
    Germany prevailed on that point. However the general parameters are softer for Spain than for other EU countries (ES)
    And here is the information at its source (EN) in particular the document (EN) that details the parameters.
    Zerohedge article about the parameters: it is a farce because the adverse scenario does not consider deflation. The adverse scenario has low probability to realize. But test results are for sure to trigger some effects. Better to stay at what cannot be controlled.
    On Mai 6th: a clean overview of the effects (ES)
    On May 14th: Colleterals for loans related to real estate loans to companies considered (ES)
    And de Guindos comments: "Stress tests in 2012 by Oliver Wyman" were much tougher".
  • 2014/04/21. Stress parameters to be communicated on April 29th. -1% GDP, 28% unemployment? (ES). Adverse scenario is 27.1% unemployment and recession to 2016 (ES)
  • 2014/04/07. Stress tests parameters under discussion: Spain: GDP -6% on 3 years (ES) and unemployment at 32% (ES)? Pre-stress tests to be done by BdE by April 30th and discussions about parameters (ES). Pre-tests denied the day after (EN)
    Different parameters per country!
  • 2014/03/05. ECB 128 big banks assessment has started (EN)
    That is the first link to spiegel.de I put in the blog. I read the international spiegel every day since beginning of 2012. Should I have started the blog earlier, then there would have been many more links in particular in 2012. Always well documented and investigated articles. The German view is a must to follow Europe.
    More specifically related to Santander, my feeling reading this article is that banks with excess capital will have many M&A possibilities due to the ECB current process.
  • 2014/02/12. ECB to distribute the banks to the big 4 consultancy on Feb 17th for the stress tests (ES). Ernst & Young will handle Santander. (ES)
    Capital level as BISIII phased in, includes out of EU assets, must stay at 8% or higher.
  • 2014/01/31. Stress tests and AQR (EN)
  • 2014/01/18. European banks face a €767bi capital shortfall in AQR (EN)
    In this article, the major deficits are in (1) France [285bi] (2) Germany [199bi]
  • 2014/01/16. Information about the stress tests (ES)
    With so much politics.
  • 2014/01/15. BCE: Sovereign debt (not available for sale) valorized at face value for the stress tests (ES)
  • 2013/11/24. War between Spain and Germany about stress tests (ES)
    1st salvo from Spain. Hard stress tests as last year in Spain
    2nd salvo from Germany (supported by France and Italy): Include sovereign debt
    3rd salvo from Spain. the market value of many bonds are higher than face value
    4th salvo from Germany. In stress tests, we need to simulate ... a stressed situation
  • 2013/10/23. General description about what will be the ECB stress tests (ES)
  • 2013/10/04. de Guindos defies Merkel to make the ECB stress tests as tough as those done for the Spanish banks (ES)

12 October 2014

Q3 2014 and the tempest ahead

Q3 results
All presentations: EN
Net earnings of €1.605bi
EPS €0.131
(I compute 0.134: 1.605bi for 11.988bi shares...)

Excellent quarter across all subsidiaries and lines (except Santander bank US). 
But only one step to the return of normal results: improvement to continue at a rate of around €0.01 per quarter till end of 2016. It is the 3rd consecutive +0.009 quarterly EPS increase.

  • Efficiency plan: 2014 target (€750mi) reached in September. Upped to €1bi for 2014 and €2bi to 2016
  • Net earnings at €1.605bi, up 8.5%. YTD is up 44.7% against 2013 (constant €)
  • 5 net capital gains for 2014 for a total of €2bi. They do not hit the P&L but are put in the balance sheet (Q1: Altmira 385, Q1: SCUSA 730, Q2: UK pensions 220, Q4: Custody: 410, Q4: Insurance: 250)
    With Q4 estimate at €1.75bi (easy to reach, only the Brazilian repurchase will contribute €75mi in net earnings per quarter through lower minority interests), and capital gains in the P&L (will not occur) total net earnings for 2014 will be around €8.1bi! That amount is however the 2014 value creation for shareholders.
  • Capital up 52bpp, 50% from Coco, 50% through scrip.
  • Spain.
    Cost of new deposits at 0.55%, was 1.41% a year ago
    New NPL entries for companies w/o real estate purpose at level 141, was 179 in Q1 and Q2. Mortgages and other loans to people continuing to improve.
  • UK
    Demand deposits up 54% YoY after a rise of 71% of Q3 2013 against 2012. Oustanding success of 1|2|3 accounts to lower the cost of deposits.
  • US
    New SCUSA: loans +33% YoY, not yet impacting earnings as initial provisions put the NPL coverage ratio at 296% 
  • Brazil
    Cost of credit at 5.1% (6.7% in Q3 2013). Continuous improvement for 2 years

Motley: "Interestingly, Santander’s biggest profit growth came in Spain"
Beginning of the year Santander gave as guidance €1.1bi 2014 net earnings in Spain alone. Real numbers will be slightly higher (50mi more) . For 2016, guidance (Spain only) is €3bi

  • 2014/11/03. Bloomberg consensus for Q3: €1.546bi. (€1.055bi in Q3 2013) (ES)
    That is €0.129 EPS, really doable, with Spain on focus. The article put the focus on Latam. I respect elconfidencial opinions.
  • 2014/10/31: Banco Popular: +1.7% but through exceptionals as provisions at +97% (ES)
  • 2014/10/30. Sabadell: YTD +42.5% (ES)
  • 2014/10/29. BBVA YTD -37.3% against 2013, but w/o exceptionals +43.2% (ES)
  • 2014/10/24. Q3 Bankia (ES) and Caixabank (ES) (ES) (reuters)
  • 2014/10/23: Bankinter is the first Spanish bank to report Q3 (ES):
    Net earnings YTD at +31.6%, NIM: +17.9% (interests down, but costs of deposits down quicker)

Santander reports Q3 on Nov 4th

Aside from Emilio Botin's death, quarter was quite.

EPS at €0.13
Spain and UK continuing to improve at slow rate
Brazil neutral
US positive because SCUSA growth less torrid (less advance provisions) and €/$ movements

M&A activity was in the same way as previous quarters, to change in Q4:
- Selling CF insurance with €250mi capital gain (for Q4, but will be parked in a reserve balance sheet account). Selling 51% insurance in Portugal.
- JV in Brazil, $205mi investment
- Ongoing CF expansion in Canada ($201mi), one more country ready to switch to commercial bank (triggered during next financial crisis).
- Exclusive discussion with Unicredit to double the size of AM

Next quarters will not be quite: tempest weather is coming (in general not negative)
- Oct 26th: stress test results and Assets Quality Review
- Nov 4th: ECB takes supervision of 130 biggest EZ banks. When will the RWA rules be uniformized across EZ countries?
- Oct 30th: deadline for exchange offer in Brazil

There are also very active geopolitics without specific impact on Santander:
- Incredible mess in Syria, Iraq, Lybia
- Active new cold war centered in Ukraine, USD, oil, with China scoring and Iran favorably impacted
- Ebola
- Winter in Northern hemisphere coming. Together with the stunning defeat of Ukrainian central forces, this is why the situation is so quite in Ukraine (Ukraine has no global offensive capabilities left, and Russia can let winter work)

There are also several significant local events with direct potential impact on Santander
- Oct 26th: 2nd turn for Brazilian presidential elections (R$/€ exchange rate is the direct impact)
- Weak numbers from Germany (I think one of the main SAN's strategic objective is to start a commercial bank in Germany, and this is a facilitating factor)

As last remark. Weakness from SAN in Madrid came just in time to get the best ratio for the dividend scrip: Ratio is computed with the share prices average the 5 days before Oct 16th (9, 10, 13, 14 and 15 Oct)

10 September 2014

Emilio Botin is dead. Ana Patricia Botin nominated as new chairman

Hart attack, home, last night
Press release

Commission for nominations to meet today. Then administration council at 16:00 CET to ratificate.
His daughter Ana Patricia Botin, currently CEO of Santander UK, is probably the new chairman (ES) and (ES)

reuters with stinky reactions.

Nomination of Ana Botin as new chairman is official: Communicate
FT criticizes the nomination process: too quick (ES) That is senseless. Emilio Botin died at 79. The succession plan was ready and applied.

Photos: Emilio BotinAna Botin
Some peers reactions (bloomberg)
An article from Brazil about Ana Botin (PT)
Parallel biography of Ana Botin with emphasis on her mistakes (ES)

Anecdotes about the Botin's clan with a focus on the women (ES)
Review of the people around Ana Botin (ES)

Speech during Sep 15th General Assembly (EN) with some extracts in 4-traders
Javier Marin confirmed as CEO (ES)
Criticisms of the regulatory changes (ES)

Overview of main shareholders (ES)
- BlackRock : 4.77%
- Capital Research and Management company : 2.96%
- Credit Suisse: 2.87%
- JPM : 2.78%
- Barclays : 2.69%
- BNP : 2.67%
- Emilio Botin : 0.66%
- Ana Patricia Botin : 0.149%
- Francisco Javier Botin : 0.13%

That makes 18.74% (out of the Botin)
Where are the other 80 percents?
This stays my biggest unknown about Santander. How does the Botin family gets its mandate? My guess is that these 80% are mainly in Spain, for generations, active in General Assemblies, and trusting the current management (including in its choice of Ana Botin as chairman) but it is only a guess.

This article from elconfidencial.es gives details:
Institutionals have 57% of the shares, board 3%, and small investors 40%.
The 40%+3% give unconditional support.
The 57% are split, with about half going against Botin family role.
I would not be surprised in case the split of the 57% is following geography (in Spain supportive, ...)

25 August 2014

Missing links (Petrobras and SCUSA subpoena)

You may have noticed that I did not link 2 recent news in the blog:

Petrobras' probe spreading to banks (bloomberg) and
SCUSA subpoena about sub prime car loans (bloomberg)

I consider the publicity given  to first news as market manipulation. There is nothing concrete behind the headline.
For the 2nd news, at best, the start of a new judicial circus, so appreciated in the US, at worst (based on ethics) another market push.

These news went together with downwards pressure on SAN, helped by (1) geopolitics and (2) low volume (50% of the average 3-months volume in Madrid). Additionally the link between IBEX and NYSE was broken: Normally when both IBEX and NYSE are open, converting IBEX quote (51mi daily average trading volume) to USD gives NYSE quote (7mi daily average). There were periods with NYSE quote significantly lower.

Many markets have been manipulated. The fact that shares are basically spared only means it is more difficult to prove manipulations in these cases. How do you go after a pseudo analyst expressing a negative opinion (because his company will benefit)? Or some negative news with a lot of publicity, and focus on worst case scenario?

This does not mean these 2 news could not develop as something significant, but I doubt about this.

10 July 2014

Q2 2014

Results: EPS €0.122 (All presentations)

  • 2014/07/31. Coverage from reuters and bloomberg
  • 2014/07/30. Reminder for tomorrow (Communicate)
  • 2014/07/30. BBVA results (ES) (ES) (bloomberg). -53% YoY (with capital gains). +11.7% (w/o). NPL at 6.4% from 6.8% last quarter.
  • 2014/07/28. BFA-Bankia. Good (ES)
  • 2014/07/25. CaixaBank results. Good: shares +3.5%  (ES) and (reuters)
  • 2014/07/25. Prevision for SAN: €1.46bi (ES) (EPS of €0.124). Also coverage of other banks.
  • 2014/07/24. Bankinter and Sabadell reported good Q2 results (reuters)

Report date is July 31th.
Q2 was so quite.
EPS between €0.12 (bad) and €0.14 (good)
A few points to check:
- UK continuing to shine
- SCUSA still torrid? Effects of the commercial push for ex-Sovereign?
- Brazil improving? Anyway exchange rate is quite favorable this quarter.
- Blips in Spain?

M&A also quite for the quarter: Acquisition: Getnet in Brazil and GE money in Scandinavia. Sell: 50% of custody business.
I don't consider the offer to purchase 25% of Santander Brasil as an acquisition. Simply an opportunistic operation financed with new shares.

But Q3 and following quarters will not be quite. The effects of Espirito Santo's Portuguese bank is only an initial event of a long series.
In the next 2 quarters we will have the ECB stress tests results, EZ banking union, BIS III first loading year and recapitalization of companies in Spain.
The first 3 events will cause significant MA activity. Santander will pass the tests without problems. The company has amassed significant capital surplus to be on the acquisition side.
Not only the capital surplus (including a solid 5 year capital plan whatever the Federal Reserve says) is ready: during Q1, SAN parket €1.1bi of exceptional gains in the balance sheet. The quarter before, a smaller amount was also parked. These funds will be used to cover the restructuring costs after acquisitions. Anyway that is how they utilized capital gains in 2013 (cover the merges in Spain and Poland), and this is in contrast of 2012 where utilization of exceptional gains covered the real estate situation in Spain.

And the best is that in case Santander depletes capital surplus through acquisitions, they will continue to pay the dividend as scrips, the current shareholder most friendly way to raise capital, allowing to spare the 21% Spanish dividend tax for a longer period.

Time goes too slowly.

30 June 2014

Santander's capital

Santander's capital is one of the most important topic when covering the group.

The long term dividend sustainability is a challenge. There are currently 11.78bi shares. At least the next 3 dividend distributions will be as scrips (600mi new shares) and the Santander brasil operation is done by issuing new shares (660mi new shares). Switching to an all cash dividend with a 50% payout requires net earnings of €15.6bi. Clearly restoring the return on existing business is not enough to reach that level of earnings: Growth is needed.

Growth both organic or by M&A requires capital. Historically Santander has secured the needed capital for acquisitions by making ad hoc capital increases. For example in 2004 Santander issued 1.5bi new shares (nearly 30% of the outstanding shares at that time) to acquire Abbey in the UK and in 2008, 1.6bi new shares (25% of the outstanding shares) for the ABN Amro operation.

However, my opinion is that current market conditions are bad for making market capital increases because (1) shares are under valuated and (2) will suffer significant discount (as an example DB's recent capital increase was with 30% discount).

Organic growth is active in UK, Mexico, US. By end of 2014, it should also clearly appear in Spain.
Recent M&A growth (in the commercial bank core activity) is currently active in Consumer finance (Cortes Ingles in Spain, PSA in Europe, GE money in Scandinavia, two 2013 deals in China). Additionally there has been the GetNet acquisition in Brazil, and Bank of Shangai in China.

On the other hand, by end of 2014, we have the ECB stress tests/EZ banking union together with the 1st year of BIS III load. This should provide significant M&A activity mainly in Europe based banks. To participate as a buyer Santander must have the excess capital available.

Regulatory capital ratios

Securing capital for growth is made more complex by the increase in the regulatory capital needs and exclusion of amounts from capital both coming from BIS III as shown below
2013 (end): 4.5% tier I capital, 8% total (tier I+II)
2014 (end): 5.5% tier I capital, 8% total, 20% of exclusions
2019 (end): 6.0% tier I, +2.5% of tier I for the conservation capital buffer, 11.5% total (includes the 1% surcharge as being low risk G-SIFI), 100% of exclusions

Current capital ratio situation 

In June 2014, Santander published Fixed Income Investor Presentation Q1 2014 that has 3 slides linked to the capital situation:

Slide 32: current ratios

Slide 33: Current situation solid?

The information comes from Oliver Wyman (end of) 2012 stress tests. These tests were done as part of the €41bi Spanish bank rescue operation. They are considered tougher than the coming ECB stress tests.
In the adverse scenario, Santander has in 2014 €25.3bi capital surplus.

Future capital ratio (slide 35)

This slide 35 is a rarity in communications coming from Santander:
  • That is the first time (I remember) that there are the words "vision" and "ambition"
  • It has been clearly massively worked from original internal data: In column "Group total ratio", the ">3%" comes from nowhere.
    CORRECTION: regulatory capital requirements end of 2019 for Santander (including the 1% as low risk G-SIFI) are 11.5%. >3% (14.5%-11.5%) means the excess capital end of 2019!
  • Long term 5 years means 2019, at BIS III full load date!

How can it be done?

">11%" CET1 and ">14.5%" total are impressive, and much higher than the regulatory fully loaded capital requirements (300bpp more than required). How can Santander reach these numbers (without making new share issues in the markets).
There are many elements, and these will make clear how irrelevant it is for Santander to provide in 2014 fully loaded capital ratio.

These elements are:
  1. Dividend scrips
  2. DTA
  3. Issuing additional capital in the form of convertible covered bonds
  4. Change in RWA calculation rules
  5. EPS
  6. Excess provisions in Spain

1. Dividend scrips

Dividend as scrips taken at 87% (2013 average) as new shares means that every 3 months, Santander increases capital by about €1.5bi. The bulk comes from retained earnings, but as currently EPS are lower than dividend, some reserves are also converted to capital. A milestone will be when EPS reach €0.15 per quarter. This should occur beginning of 2015. 
Since Q4 2011, Santander has carried out 12 dividend scrips, issuing 2.56bi new shares (30.7% of the outstanding shares at the start of the process), and increasing capital by more than €10bi.
The scrips have many advantages and one potential disadvantage
+ Increase capital whilst shares are under valuated
+ Go around the 21% Spanish dividend tax
+ No discount
+ Still allow shareholders to get cash, by selling the new shares, whilst maintaining their existing shares
- Dilution
I consider dilution as a potential disadvantage, because dilution only matters in case capital increases are not done to capitalize growth. In fact I hope that in future, even long term, Santander will use scrips to raise the capital needed for growth.

2. DTA

Deferred Tax Asset together with BIS III regulations is a negative factor. Some expenses are not immediately tax deductible and the not received tax benefits parked in the balance sheet as DTA till allowed to be recognized. 
In BIS II they are considered as capital. However BIS III excludes the DTA from capital in the case they are not guaranteed to be utilizable (bankruptcy,...). The exclusion happens between 2014 and 2019 at a rate of 20% per loading year. Santander has around €16bi of DTA. The main amounts are €10bi in Spain, €4bi in Brazil, and €1bi in the USA. Should the whole amount be excluded from capital, then capital ratio will go down by 240bpp. Should Santander win the Catalunya bank privatization this year, the DTA amount in Spain will increase by €3.5bi.
DTA in Spain are of different nature than in Brazil and in the USA. In the case of Spain they come from pension provisions, 2012 real estate provisions and previous FY losses. In Brazil and the USA they come from non deductible provisions to be made when a new loan is granted and still performing.
In 2013, Brazil changed the regulation in such a way that the €4bi stay in capital. I never checked the USA rules, but would be stunned it is not the case in that country as well .
In 2013 Spain changed legislation is a more complex way. My understanding is that the pension related DTA can stay in capital whilst the other categories cannot.
As such future earnings in Spain and cleaning of the real estate situation is key to lower the effects on capital. Santander guidance for 2014 Spanish net earnings is €1.1bi in 2014, €3bi starting 2016, means that the DTA linked to previous FY losses will be eaten quickly. For the (companies with) real estate DTA, please read point 6.

3. Issuing additional capital in the form of convertible bonds

Slide 35 makes clear that Santander intends to increase capital significantly through the use of convertible bonds. When these bonds are unconditionally converted to additional shares when capital situation passes a lower level, they are added to normal capital to compute some ratio.
In 2014, Santander made 2 such issues: in March, €1.5bi, 6.25% coupon. In Mai, $1.5bi, 6.375% coupon.

4 Change in RWA calculation rules

The capital and what can be considered as tier I capital is the numerator for computing capital ratio. The denominator is RWA. Currently, the rules for computing RWA from the assets are regulated by each national regulator, and differ per EZ countries. However the EZ banking union that starts in Nov 2014 will uniformize the rules for the 128 biggest European banks. Four big Spanish banks, including Santander, asked to Oliver Wyman to make a comparative analysis between EZ countries plus UK about the subject. The result published in April 2013 can be found here Oliver Wyman report. The conclusion related to Santander is the following:
In case the ECB rules are aligned to the most conservative rules among existing EZ regulators, Santander core capital ratio will increase 0bpp-35bpp. In case the less conservative rules are imposed by ECB, the increase will be between 85bpp-145bpp. Both cases have low probability and let’s take the middle way to estimate the effect:
The ECB taking over the regulation of the main EZ banks will provide a level playing field and increase Santander core capital between 40bpp and 90bpp.

5. EPS

As soon as EPS goes above the €0.15 quarterly dividend, capital increases through retained earnings, and this in addition to the new scrip shares.
In Q1 2014, EPS were €0.113.
Santander does not provide guidance. However in the Sep 2013 BAML presentation, Santander provided 2016 target ROE per main unit. It is complex effort that includes €1.5bi cost cutting effort (€750mi by 2014, then €500mi in 2015, and €250mi in 2016). It also includes redeployment of capital between and within units to concentrate on segment with higher ROE. The figures are detailed in the "Guidance" tab. At current business perimeter, it gives net earnings in 2016 between €8.8bi and €9.4bi. This shows how critical growth is to be able to sustain the dividend at long term.
Santander only provides one kind of financial results: GAAP. I find that incredibly better than the cases where companies put emphasis to No-GAAP figures, even when the exceptionals are recurring (e.g. JPM fines). When Santander has exceptionals, the credit part is applied to the debit part (example restructuring costs). Excess credit is parked in the balance sheet. In Q1 2014, Santander parked €1.135bi of exceptional gains.
A US based company would have reported Q1 2014 net earnings of €2.4bi (EPS of €0.211 for the quarter), and put emphasis on no-GAAP figures in the quarter report

6. Excess provisions in Spain

My opinion is that there is a significant excess of provisions in Spain. The 2016 €3bi net earnings target in Spain alone does not include provisions release.
If 2008 is 100, new NPL entries in Q1 2014 is:

  • 51 for mortgages to individuals
  • 23 for individual cards and customer loans
  • 155 for companies w/o real estate purpose
  • non measurable for companies with real estate purpose (because incredibly bad)
There are significant excess provisions in 2 cases:
- For companies with real estate purpose, NPL are around 50%. In 2012, the Guindos II decree forced the Spanish banks to provision everything. So the current situation is that even the performing loans of that category are provisioned at 30%. Santander has transferred the whole activity to an internal bad bank. Strong effort to clean it, with impact on the corresponding DTA, as Guindos II provisions were not tax deductible.
- For companies without real estate purpose, there is a significant effort under way, with test drive for 4 medium sized companies currently under way (the full scope is 20,000 companies). It consists to restructure part of the non performing loans as capital. After this recapitalization and debt shrinking is completed, non performing and provisioned loan saldo becomes performing and related provisions can be released immediately. There are more details in a past separate post


Santander's capital situation is much better than (usually) estimated. Management has quietly amassed significant capital surplus to cover organic growth together with being able to make significant purchases without having to issue new rights in the market. This is typical of management very long term approach.

10 June 2014

Spanish banks to provide €150bi new capital to non financial companies?

Today appeared this headline in cincodias.es "Banks will save 4 companies, before summer, with a pilot capital-for-debt fund" (ES), also (ES)

We know NPL in Spain for real estate companies are awful. They are also bad for other kinds of non financial companies. However in many cases, the companies are economically viable as far as excess debt problems are cleaned and new capital made available. There are 20,000 such companies in Spain.

The country plan is at the basis simple: Get the banks convert part of the debt into capital, for an amount like €150bi.

That plan became visible in March 2014, with the government taking some measures to make the operation possible. In short all demands of the banks are being answered, and situation has reached the point that 4 big companies have been chosen to validate the process with as target date "before summer". Full scope is 20,000 companies.

Here are some example of the measures (Overview - ES):
  • New rules to make a minority of creditors unable to block a restructuring
  • In case a restructuring occurs, the provisions linked to the debt (not converted into capital) can be released immediately. 
  • In case of bankruptcy, rules for the banks to keep precedence for the new capital at what it was.
  • Systematic dispense for the obligation to offer to buy the whole company when reaching 30% shares
  • Work around to the way BIS III handles non financial participations in RWA calculations (1250% weight).
What the be the effect for the banks, and Santander in particular (should the operation be fully applied)?
  • Banks will become major shareholders of many companies, placed in equity funds, kind of bad bank for private companies capital. This bad bank will take time to sell assets, to the further frustration of vulture funds.
  • Part of the non performing loans will end as equity in the funds. The rest will stay as loans but by default will become performing. Major cleaning of the company related NPL.
  • Indirect economic effects with many companies out of financial distress.

05 June 2014

New section: News - Rating agencies

I have created a new section "News-Rating agencies". 
In "News-Group" I want only the most important group notices. I have cleaned that section (News-Group) from rating agencies changes.
In my opinion rating agencies news are not important for long term investments, because they have too many links with the financial industry.

As a matter of fact, fundamentals's situation in Spain did not change since July 2012, in the sense that all elements to forecast an improvement were available in July 2012. In particular the structural changes were implemented at that time.

So recent Spain (and Santander) ratings upgrades are simply too late, too slow, should they be based on objective data.

This period (July 2012) was so interesting as investor because a lot of money movers were convinced they could break Spain and the EZ. In fact the internal EU politics were complex (at that time and now) and as a consequence perceived as impotent and slow, but I never had any doubt, that should it really be needed, they would act. Please remark I don't consider UK as part of the EU at political level. They are in to control it and twist to own interest, including block.

Draghi's speech in London. That speech is remembered as "ECB is ready to do whatever it takes..." That is not that part I remember: It was done in London in front of the financial community. After saying "ECB is ready to do...", Draghi stopped reading his speech. He took off his glasses, looked at the audience and said "and believe me it will be enough". (even the City knows you don't anger an Italian).

As the most symbolic example of behind the scene activity, at that time, the German constitution was changed, to authorize the German army deployment in Germany itself. (huge for historical reasons. Officially to handle terrorist threads. Real reason: In case Greece leave EZ, and as a consequence occurs a bank run, Germany police would be unable to secure borders and bank branches).
And around same time Shenghen treaty was changed in a way to allow to reactivate borders controls in such a situation.

All this to say that I consider country ratings are irrelevant for long term investment. Rating agencies try to build virginity through this activity (sovereign ratings), whilst their commercial activity is deeply tainted by their customer interests (give good ratings to have future business).

Since Jul-2012, including the dividends, Santander went up 100%+. There is still room to go. Personal target prices are €8 for 2014, €10 2015, €12 2016 (all around year end).
At the basis for this is the opinion SAN will be able to keep its dividend at €0.6 even when all cash and 5% DY is nice (4% net).
The complex way to justify this is in tab "Guidance". This information only covers existing business. "Capital" tab is key to see if there are growth possibilities. "Acquisition" tab is proof that Santander is now bigger than in 2008, having made significant acquisitions in Poland, UK, US and China that more than compensate the sales in Colombia, AM and insurance. However the regulation changes requiring more capital lowers these growth effects.
Another way is: Should €0.6 be unsustainable then management would have reduced it already. In 2 years time of daily news reading about Santander keeping its €0.6 dividend for 5 years, long term sustainability is my best explanation. The only other explanation I read is that Botin wants to proof he has balls (literally, it was in Anglo-saxon economic press and within the English text they used the Spanish word "cojones" for obvious reasons)
Botin is brilliant. Keeping a high dividend in the form of scrip allows Santander to raise €1.5bi capital every quarter, without discount, to use for organics growth and acquisitions starting end of 2014

Keeping a €0.6 dividend when all cash with a 50% payout is a challenge: need net earnings north of €15bi by 2016. Focus on ROE is one part of the effort, with significant operations in Brazil and Mexico. There is the €1.5bi cost cutting effort, including Spanish and Polish restructuring (merge). Organic growth is also very active in UK, Mexico and US. Spain is coming with the raise in deposit market share to translate into more loans. My hope is that Santander will announce a major M&A operation, to use the excess capital they have, starting end 2014, preferably in Germany, but could be also in Austria or any US region other than North-East. All the M&A operations end 2013 to 2014 are not significant: they are small (China, Spain) or capital neutral (China), or capitalized with new share issues (especially the 25% share purchase in Brazil). PSA deal is possibly more significant but will be completed in 2015 only. In case no major M&A possible, then Botin should fall back to a share repurchase program, but this is not in his character.

2016 target (€12), including the dividend gives an additional 100% gain to that date.
However my intention is to start unload 50% of my SAN exposure in the next 4 years (selling same amount each month)
That is a long period, but that slow rate allows me to keep the capital gains tax free.
Also I would not do it without the possibility to reinvest in situations similar to Spain Jul-2012.

The good thing with the current financial world is that there are always similar situation.

29 April 2014

Santander offers to buy back the 25% of Santander Brasil they don't own

Communicate: EN

In the press: (ES), (reuters)

To be paid with up to 665mi new Santander shares!
Will increase group earnings in 2015 by €500mi

The no.1 question about the deal in Brazil is : Why issue new shares?
 Is it because:

a) SAN doesn't have the cash to pay for it?
b) SAN has cash but keeps it for better use elsewhere? Where?
c) Future earnings from the additional 25% in Brazilwill offset/ compensate the negative effect of share dilution for existing shareholders?
d) Something else?

Personal opinion below

(a) Capital is currently king, and till stress tests completed, capital untouched (only exception: cortes ingles)
(b) That is the 1bi question, I stay convinced that BIS3 and banking union will bring M&A. The current available operations are done by clever sellers, before the rush
(c) yes, from day one, the lower minority interests (€500mi) will increase the group EPS, even after dilution (details are in the presentation)
(d) at the basis, this is an opportunistic operation: BSBR is so much under valuated, that this €4.7bi operation is capital neutral, EPS positive despite the 20% premium. A mockery of the anglo-saxon financial world. The same move was done in Mexico: in 2010 SAN bought 25% of BSMX from BAC at a discount. Then in 2012, they IPOed 25% of BSMX with a big profit.

Santander announces an offer to acquire 25% of its Brazilian subsidiary
  • The transaction would be paid for with up to approximately 665 million shares of Banco Santander, equivalent to EUR 4,686 million.
  • The offer reflects Santander’s confidence in its Brazilian subsidiary and in its long-term growth potential.
  • There is no minimum tender condition. Acceptance is voluntary.
  • The offer is attractive to Santander Brasil shareholders, who will receive a 20%  premium.
  • The offer will appeal to Santander’s shareholders given that it would increase earnings per share as from the first year.
  • Santander Brasil would remain listed on the Sao Paulo stock exchange. Santander maintains its policy of operating through subsidiaries independent in terms of capital and liquidity and, if possible, listed.
  • Banco Santander’s shares would be listed on the Sao Paulo stock exchange.

Santander Brasil is also moving from BOVESPA segment level 2 to "Traditional". Level 2 requires at least 25% free float.
Here are the requirements for each Bovespa segments (PT)

07 April 2014

Santander buys GetNet

Santander Brazil buys GetNet for €350mi
Completion in H2 2014
Reuters with some background info
CNMV filing here (EN

03 April 2014

Q1 2014

Q1 results: Group presentation: EN, Presentations for each subsidiary: EN (but SCUSA is missing!)
€1.3bi, EPS 0.112

In the press


  • Does not include 2 pending capital gains: €385mi (Altamira) and €730mi (SCUSA). Amounts were parked in the balance sheet till decision for usage is taken
  • I hate how so few information comes from the Q&A of results presentation. Why could no one (or the investor relationship VP select) ask these 3 questions: 
  1. When will dividends be back all cash? What are the plans to support €0.60?
  2. In several presentations SAN states a capital surplus of €25bi. Can this be elaborated, in particular its utilization. Why is the Brazil 25% OPA financed by issuing new shares?
  3. Effective tax rate in Spain was 29.2%, 130bpp lower than Q1 2013, and 350bpp lower than Q4 2013. To continue? Link with DTA utilization?
  • UK shining (and that means Ana Botin strengthens her chances to become group chairman when her farther retires)
  • Spain back from the dead but still a long way to improve. The full 2014 guidance for Spain is €1.1bi earnings. Based on Q1 figures can really be reached.  
  • Poland, Chile and SCF OK
  • US and Mexico with huge costs for growth. In particular SCUSA (and that is why I am pesting on the missing SCUSA specific presentation). UPDATE: SCUSA presentation is available: +61% YoY growth for loan portfolio and +150% for new loans! This is done at constant operating costs (QoQ), with an efficiency ratio at 13.8%!!! NPL down. Provisions up because of upfront provisions building
  • Restructuring (merge) in Spain and Poland starting to gives results
  • Brazil is a disappointment even at constant exchange rates.

Related News:

  • 2014/04/28. Bloomberg article about tomorrow earnings (EN)
  • 2014/04/25. 6 Q1 analysts estimates (EN)
  • 2014/04/23. Banco do Brasil forecasts for Santander Brasil Q1 2014 net earnings: R$1.36bi, -3.7% QoQ (PT)
  • 2014/04/11. Marin: Loans in Spain increased in Q1 2014 for the first time for 5 years: +€450mi (ES)
Q1 2014 is on April 29th. Here are my feelings about next results

The last 3 quarter earnings (Q2, Q3, Q4 2013) were €1.05bi, €1.055bi, €1.06bi.

This goes together with significant exchange rate differences (e.g. BRL/EUR), and booking of significant exceptional gains/costs. I find this regularity interesting. I have awe in front of bank's balance sheet depth, and believe these numbers are sticking to own internal targets (of course in a legal way and derived from a LT detailed business plan). As an example the capital gains booked in Q4 2013 covered the restructuring costs in Spain and Poland. The capital gains excess was parked in the balance sheet as reserve (around €100mi).

2012 was provisioning the real estate in Spain
2013 was balance sheet improvement
Guidance for 2014 and after is return to profitability and growth.

What is the internal target for 2014 EPS? Feeling is that this is not far from €0.55. And this is set in a 3 years plan to return to a €0.6 all cash dividend by 2016 with a payout ratio at around 50%, on the extended number of shares. Of course this target is based on real business expectations, but at LT with some smoothing. In 2014, there are the €700mi capital gains from the SCUSA IPO that allow smoothing.

In total: Q1 2014 EPS around €0.14

An important point is that Q1 2014 capital will be reported as per BIS III rules.
The activation is progressive to 2019.
In 2014, there is the ordinary capital minimum going from 3.5% to 4%, and 20% of the "soft" (not guaranteed to be utilizable) DTA excluded from capital. The €4bi DTA in Brazil is guaranteed by the state and fully kept in capital. Then we have €10bi in Spain. There have been the new Spanish regulations of Dec 2013. Part of €10bi (guaranteed by the state) to be kept in capital (only information I saw is 50-70bpp fully loaded). 20% of the rest (170-190bpp) will be excluded from capital. All this to say that data from competent people is needed and this should be in Q1 2014. Also interesting related to that are the earnings in Spain and effective tax rate in the country. And not sure how the 20% applies in 2014: beginning of the year? progressively? end of 2014?
Later in 2014, we should get positive news from uniformized RWA calculation rules due to EZ banking union.

27 February 2014

Detailed capital requirements to 2019

New regulations are raining hard on banks and it is easy to get lost.

On Feb 24th, Santander published "Informe con relevancia prudencial 2013", a big document of 200+ pages
Link is here ES

There is a wealth of interesting information, starting with a detailed evolution of capital requirements to 2019 due to BIS III (at page 74). But no information about how the effective capital of Santander is to evoluate during this timeframe.