Seekingalpha article 2013/11/27

Today there was a new article about Santander on SA. (EN)
It is positive tone.
But I will never ever have a new activity on SA.
There are 2 main reasons for that:

• US/UK news have a very low quality in general, especially or at least when handling non US topics
• too many frustrating manipulations.

However US/UK news and comments are interesting to follow for the simple reason that they influence a significant share of the total investments. Any significant push can be a significant investment opportunity. As an example I bought 13k SAN ADR on 2012/07/25 and then 13k again on 2012/07/27. The reason: the big investors helped by the press was making the final push to break Spain. It was very efficient: IBEX diving. And because of that it was obvious that a response from the EZ authorities and Spain was imminent. 

The article itself is a sensible presentation of the last Santander financial statements but without any context information and some mandatory topics not touched. Some errors and partial understanding also:

• "It has about $1.9 billion in managed funds
  Must be 1000 times more
• "It is able to achieve this efficiency through cost savings, such as the shared IT platform across its business units"
  Missing the 10% market size requirement, and others (I should dig the Mexico IPO filing. It has a very deep level of information including on that subject)

The current missing mandatory subjects in a article about Santander are DTA, Basel III/capital/acquisitions, EZ banking union, dividend sustainability.

As always I prefer the comments

• "Ive noticed alot of SAN branches opening in my area (NJ) any thoughts?"
  Yeap Sovereign now under Santander brand
• "They used to operate under a different brand. SAN's american divsion decided to rebrand those banks as geniune Santander banks. Not much else to it."
  It is much more than that. It comes together with extra20 account. Part of a major commercial push in NE US. I have never read any rumors about that, but I think one of the main hunting ground for Botin will be US. All will depend on the BISIII effect on opportunities prices.
• "I think the market is near the top, I'm expecting a drop (next 1-2months) to buy at lower prices."
  DTA new regulation is nearby (This Friday?). Low probability he gets a buying window at lower price (except significant non forecastable macro event)
• "The yield is only apparently high. Investors have to consider that taking the scrip dividend they don't get anything they didn't already have before. "
  Plain wrong, but too long for here.
• My friend Jaypar.
  "They've increased the share count tremendously" Please check the capital increases to have a measure of the stuff
  "Maximum cash dividend payout". If BdE extends the measure in 2014, also for companies with capital surplus, could cause perhaps one more dividend under script than initially planned, not much more
  "Would like to see an analysis of what SANs earnings..." That is why I love the leakages Santander did. But this is not enough. Growth is needed, or share repurchases to have a LT payout at 40-50%. That is why I love any news about DTA, capital surplus, deleveraging caused by BISIII or EZ banking union

I have set the copyright notice and made the blog public.

DTA

2013/12/05. Information from CFO Alvarez for analysts, on Monday 2012/12/02 (ES).
Impact of new regulation on fully loaded BIS III: between 50 and 70bpp, meaning a tierI core capital between 8.5-8.7%
That is really less than I thought. Will update the capital tab.
There are so many things that are not clear in my head
Let's start with what is clear.
-When BIS III starts in Jan 2014, some items are excluded from the capital directly. It is not the case for the DTA. The exclusion is 10% per year till 2024. When saying "Fully loaded", that means that the capital situation is evaluated with all DTA out. Before the DTA regulation of last Friday that means 240 bpp out, leaving a fully loaded BIS II tier I capital ratio of 8.2%. After the new DTA regulations, that means 170bpp-190 bpp out, leaving a capital ratio fully loaded between 8.7% and 8.9%. But this will not not occur because together with yearly 10% exclusion, some DTA are also utilized, transforming them into net earnings hence core core capital.
What is not clear:
- What are the exactly the DTA excluded from capital, amount per category?
- At which rate and under which circumstances can they be utilized, per category?
- Using a reasonable net earnings projection in Spain, together with the 10% rate of effective rate of exclusion from capital, how will be effective capital ratio evoluate?

2013/12/03. Start to appear analysis about DTA regulation effects (ES)
However due to the technical complexities of the computation, the entities continue to value the concrete impact.

2013/11/30. Here is the Reuters notice about DTA (EN)
Reuters states that  Santander has €4bi DTA. That is a small mistake, Santander group has €16.9bi net DTA (tax assets less tax credits). Possibly the mistake comes from the fact that one entity of the group "Santander SA" has 3.95bi of DTA. But there are other entities in the group...
However only the DTA generated in Spain are affected by the RDL of Friday. I am trying find the Spanish numbers but to no avail yet. Should be in the range of 12-13bi. Santander has significant tax assets in Brazil  (4.3bi) and US (1.4bi), but there are also significant tax credits in Brazil (395mi), UK (325mi), Consumer Germany (106mi) , and Mexico (112mi). Looking at these numbers, I fear Reuters took Brazil for Spain.
More probably the Reuters news is based on the elconfidencial.es news as here (ES). In that article the DTA for all banks are stated. For Santander the numbers for Brazil are sublisted as "Santander SA" with €4bi, Hence the mistake [Update: I think SA in that elconfidencial.es article stands for South America, mainly Brazil]. This confirms my opinion about the quality of information coming from US sources.
On the credit of Reuters, here is the official publication related to the RDL of Friday (ES). I think the information related to the DTA starts at page 95368. It is unreadable and only a local source can give sense to it.

2013/11/30. Some details appear about the Royal Ley Decree approved yesterday by the Spanish government, and they are unexpectedly favorable to Santander: (ES).
There are 3 categories of DTA: (a) Past losses, (b) provisions, (c) pensions.
Santander has a lot of (b) and (c). The expectations were that (a) and (b) would be kept as core capital. This is not the case: (b) and (c) are kept.
As a result, the boost in core capital for Santander is probably higher than €11.3bi!

Also worth noting: NCG has 4.5bi of DTA, of which nearly 3bi from past losses. This has a direct impact on which company can bid higher for it. Investment funds cannot, because they will not be able to absorb this category of DTA. Santander (and BBVA) can!
This is not limited to NCG. Spanish government could have saved all DTA. By keeping past losses out of core capital, they have build a protection against the takeover of any Spanish company with significant accumulated losses by external funds. They have given an advantage to the buyers with already a significant existing revenue stream in Spain. The cost is low for Spanish companies: some DTA out of capital, but compensated by the believe that future earnings will lower the effect.

!!!New regulation for DTA approved in Spain!!!
Will allow Santander to keep €11.3bi as tier I core capital under BISIII (that is GS numbers, and said brutally, I don't trust US analysts when related to Spain, let's wait for a confirmation from a trustful source before opening the bottle).
This is even more significant as Santander increased capital through script as if that change would not occur.
The company has now effectively a significant capital surplus.
Utilization?
I fear we have to wait until the next shareholder general assembly (March 2014?) for at most hints.

2013/11/29. DTA regulations for later today (ES). 60% of the DTA confirmed by Guindos to be kept as tier I capital (ES), just after the minister council.
and Goldman Sachs uses this to up Santander target prices by 11% to €11.95, but without buy. I think this is incoherent. Probably a typo for the 11.95. Other news says 7.5.
Santander would save €11.3bi of tier I capital

2013/11/26 Guindos: DTA regulation will be approved this Friday 29th. Will only keep 25-30bi in capital (for a total of 50bi of DTA all banks)  (ES)
Only 25-30bi could indicate that "DTA linked to retirement" are not kept. This would be a deception as it hits mainly Santander and BBVA.
Every day the notices are changing. Must be a huge political game involving the banks, the Spanish regions, the Spanish government and EU. Let's hope that this Friday we get the decision to stop the drama. However I am not sure this news is the last episode of the drama.  

2013/11/25 The current news about DTA mixed with uniformity across EZ for stress tests, RWA, and rules for NPL. All favorable for Spanish banks (ES)

2013/11/22. Best article about DTA, and the most optimistic ever. Possible that Santander saves all DTA they have in Spain: 16.9bi! That means an additional 240bpp of core capital available for acquisitions and growth. If that occurs, Botin will have his most interesting period since ABN Amro deal. (ES)

2013/11/21. Still not done with the DTA. Santander pushing to include the DTA related to retirement funds. Last target date is 11/29-12/05. (ES)

2013/11/14. News about DTA! (ES)

Next friday?
and indeed the bids for NCG are suspended till DTA decision

 Santander, BBVA, CaixaBank y en menor medida el venezolano Banesco han condicionado la presentación de su oferta vinculante a la aprobación de los créditos fiscales. El presidente de Banco Santander, Emilio Botín, reconoció públicamente hace casi un mes que para pujar por la firma gallega había antes que conocer la norma para conocer exactamente que créditos fiscales activará el Gobierno en la subasta. Novagalicia tiene en balance a 2.000 millones de euros en créditos fiscales. Y con otros 2.500 latentes, que pueden aflorar si se dan una serie de circunstancias.

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