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.