Speaking at breakneck speed, even for a Spaniard, chairman Ana Patricia Botín outlines Banesto’s medium-term strategy. It does not include being used by its parent, Santander Central Hispano, which holds a majority stake, as currency in a possible merger – although the head of Spain’s third-largest commercial bank was careful to give the final word to the parent bank.
“You have to ask Santander that question. But I think today it is very clear that Banesto brings a lot of value to the Santander group: above all, growth in profit and market share and being at the forefront of technology,” says the 44-year old, who has a seat on Santander’s board. “Remember that Banesto plus Santander in Spain has about a 20% market share, which is not that large compared with, say, the UK banks. I would not recommend that Santander be smaller in its home market. It would make no sense.”
Independence is vital
As for why Santander does not fully integrate Banesto – to all appearances an obvious move when it owns 89% of the shares – Ms Botín is adamant that where it makes sense and can be done, costs are shared. But she believes that revenues would fall if Banesto was totally folded into its parent.
On the technology side, the two banks use the same platform and share 80% of their costs. More or less the same goes for auditing and fund management. The overlap in their branch network is minimal, following the closure of about 2000 branches of the banks about five years ago.
On the revenue side, offering a different proposition through the Banesto brand means the bank has grown its profits and market share more than the market. In fact, it is the fastest growing bank in Spain, although it started from a very low base.
“I tell people, and I firmly believe, that Banesto has all the advantages of being part of a global group and all the advantages of being medium-sized and focused on the domestic market,” says Ms Botín, in her traditionally decorated office in the brick Banesto headquarters in drab northeast Madrid.
The technology synergies are clearly advantageous, analysts concur. Chevreux, the French broker, noted that “superior IT capabilities are the key to success” for Banesto, along with product innovation. Banesto’s Partenón core banking platform, which is being rolled out in the Santander network in Spain, the UK and Portugal, is one of the reasons why Santander’s bid for Abbey included large cost savings, despite the cross-border nature of the bid.
Automation project
Meanwhile, the next generation Alhambra project, launched by Banesto in 2004, will automate business processes further. All mortgage applications, for instance, will be automated for the Santander operations in Spain, Portugal and the UK, using Java and html. Banesto believes no other large bank has yet done this.
Banesto’s size – a market capitalisation of less than €8bn and a 16% growth in net operating income to €827m, in 2004 – ensures that it can be used as “a trial bank or a laboratory” for new technology and as a business model, which (if successful) can then be implemented across the group, says Ms Botín. Its use of technology also means that Banesto’s cost/income ratio is an admirable 45%. The aim is to lower it to 42% in 2005.
In addition, due probably to its rural roots, its brand is perceived as closer to that of the cajas (savings banks), which are seen as more humane, rather than the aggressive Santander brand.
Family business
Now, the chattering classes in Madrid believe that another reason to keep Banesto independent is to allow Ms Botín to prove her abilities as a retail banker so that she can be a prime candidate to take over Santander from her 70-year-old father, Emilio Botín. She has a wealth of experience in other banking fields. Starting at JPMorgan, she joined Santander as a debt trader, then helped to build up its Latin American franchise. She spent several years in the US trying to build up Santander’s investment bank – a poisoned chalice handed to her when she was still under 30 years old – and was also involved in the acquisition of US bank First Fidelity.
She spent some time in the wilderness after Santander’s merger with Banco Central Hispano, when bosses of the latter bank asserted their authority. Following the ousting of the Central Hispano executives in 2002, she received her current appointment.
Mr Botín is a visionary banker. He is also obsessive about his health and reportedly gave up his cigar habit to stay in power and finish his Santander project. And perhaps to hand the bank over to his daughter – although he is tough and uncompromising with her, according to a family friend.
Seeing off Popular
Ms Botín’s remit at Banesto is to conquer Popular, Spain’s third largest bank and a retail master (see The Banker, May 2005), according to a competitor. Although in many ways it is an impossible task, she has nonetheless come up with innovative products to attack Popular’s strong franchise in small- and medium-sized enterprises (SMEs).
One of these products is Banespyme, a scheme to help companies run their businesses better. Banesto is running it in association with technology giants Microsoft and HP, Spanish communications company Telefónica and Spanish internet company Barrabés, as well as universities and local governments. The partners host free events with free transport all over the country. One event in Madrid had a record attendance of 3000 because of the presence of Microsoft’s Bill Gates, and El Bulli’s Ferrian Adriá, one of the best chefs in the world, drew interest in an event in Barcelona.
“We try to bring speakers who have local appeal. In Madrid it is difficult to get people excited but with Bill Gates they were,” says Ms Botín.
All the partner companies make their pitches at these events and Banesto bankers get a more sympathetic hearing when they go to see potential clients, or clients for whom Banesto is just one of many banks, in the days that follow.
The bank says that its SMEs business has increased by 100% in two years and is bringing in 2000 new clients per month. Ms Botín’s competitors accuse Banesto of buying market share in that segment – it is up almost 6% in the past two years, according to DMR Consulting – at the expense of profits.
But Ms Botín says emphatically: “We are not lowering prices to buy market share in PYMES (SMEs), nor in mortgages. We have not lost margin in the last six months. Everyone will see this because we will be giving information by business segments soon.”
The bank’s return on equity rose to 18.3% in the first quarter of 2005, from 17.4% a year ago.
Growth prospects
Banesto underwent a restructuring after Santander acquired it in 1994. Ms Botín credits an earlier team with that and says it gave her team “the opportunity of starting with a blank sheet to build the foundations of a modern bank”.
In the past three years, Banesto has gained more than 2% in market share, giving it about a 9% market share of total loans and deposits in Spain. Its other growth areas are credit cards, growing at 30% a year, on the back of an innovative cash back card; a Real Madrid football team card, which gives the holder money for every goal the team scores; and mortgages, which are also growing at about 30%. Mortgages are 50% of total loans. The expected slow-down in that market has yet to materialise.
In the next years, Banesto hopes its client segmentation plan will also yield results.
Whether or not Ms Botín, who is married with three children, ends up running Santander, she is busy earning her spurs on the retail front. And she has been doing a good job, say analysts, many of whom have an overweight rating on Banesto shares, and investors, whose share purchases have led the stock to outperform the market. Some believe, though, that a rights issue will soon be necessary to fund the growth.
At the end of the interview, Ms Botín hands over a thick wad of positive analyst reports. Who can blame her?
