Q1 2015

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

News

• 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

All presentations

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.

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

Reasons

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.
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