Santander seeks to reduce costs by € 1.2 billion to achieve "ambitious" goal

Banco Santander announced Wednesday an additional € 1.2 billion cost reduction in order to move closer to the financial targets becoming more demanding after the European Central Bank (ECB) announced its intention to maintain an ultra-loose monetary policy .

In January, the Madrid-based lender announced its objective of increasing the return on its tangible capital – a measure of profitability – by 13 to 15% in the next three years, compared to 11.7% in 2018.

At that time, badysts called the profitability objective of "ambitious" and this goal became even more ambitious after the ECB had signaled that it was unlikely that the rates of return would be "high". interest increase in the near future.

The central bank hopes that its accommodative policy will stimulate slower growth in the eurozone, but this policy may further reduce the profitability of European lenders already in trouble.

The unveiling of Santander's three-year strategic plan was partially overshadowed by a dispute over the bank's failed attempt to engage Andrea Orcel, the former boss of the UBS investment bank, as the next managing director.

Santander canceled the job offer in January after finding that she could not defend a package of signatures worth tens of millions of euros. Mr. Orcel has since hired lawyers to investigate lawsuits against the Spanish lender.

Nearly € 1 billion of new cost reductions will affect Santander's operations in Europe, about a tenth of which will be in the United Kingdom, while executives hope to save € 270 million in Latin America by reforming the technology systems of the region. bank.

Santander said the additional savings would lead to a cost / income ratio of less than 45% in the space of three years, up from 47% currently. To achieve this, the lender must reduce its cost base from about 9 billion euros to 9 billion euros.

The bank said it hoped to achieve an additional saving of 250 million euros thanks to the integration of Banco Popular, its troubled national counterpart, which she had bought for 1 euro in euros. 2017, while she was preparing to remove several thousand jobs and close hundreds of branches.

Santander is also set a three-year deadline to turnaround its troubled US operations. Santander US generated a return on equity of 4.12% in 2018, well below its cost of equity estimated by the bank at 8-9%.

Santander, led by Executive President Ana Botin, is a retailer in nine countries in Europe and the Americas. Over the past two years, she has reduced her agency network in Spain and the UK, while she's trying to improve returns against a backdrop of low interest rates and Brexit.

In addition to further cost reductions, Santander said it hoped to increase sales in fast-growing Latin American countries such as Brazil. The region currently accounts for 25% of the lender's risk-weighted badets, but the bank has indicated that this figure could rise to 30% in the medium term.

Santander also said the number of executives who would sit on the steering committee from 24 to 11 would be reduced to allow the lender to make decisions faster.

Nathan Bostock, managing director of Santander UK, will no longer sit on the committee. Europe is represented by Gerry Byrne, who directs the group's activities in Poland.

Santander reiterated its intention to increase its Tier 1 capital ratio – a measure of the strength of its balance sheet – from around 11% currently to 12% by the end of 2021.

Investors and badysts have criticized the bank's capital position, which is weaker than most of its European counterparts, saying that the lender had very little room for maneuver if he ran into difficulties.

"This is not high enough for a bank with large-scale operations in Brazil, Mexico, Chile, the consumer credit sector in the United States and for a major UK bank facing the risk of bankruptcy. Brexit, "said an investor. "There is really a purpose to do it."

Santander also announced that it would invest 20 billion euros in technology over the next four years to digitize its activities and that it would consider deploying its exclusively digital bank in Spain in other markets where she operates.

"Technology is changing the banking sector as we know it," Botin said. "Our digital and technology investments will enable us to improve the customer experience while improving our growth and profitability."