Santander CEO Alfredo Sáenz tells Karina Robinson that while M&As are there for the taking, it is imperative not to act hastily in the troubled market.
Spanish-headquartered bank Santander is riding the crisis well. First quarter net attributable profits rose by 22% to €2.2bn and the bank reaffirmed its 15% earnings per share target for the full year. At €83bn, it is the largest bank by market cap in the eurozone and seventh in the world.
Its shares, however, have fallen, although it has outperformed the plummeting banking sector by 3% this year to date. The well-diversified group’s stock is suffering from three investor concerns: the problematic Spanish economy with its real estate implosion, the UK slowdown and possible recession and finally, fears that it will be making an acquisition. Although the bank denies it is on the acquisition trail, it has historically said one thing and done another on the merger and acquisition front.
Q Do you ever say no to the chairman, Emilio Botín, who dominates the bank?
A I have, on many things. Otherwise, I would not add value. We have a fantastic relationship that is very professional. Sometimes we are in agreement, sometimes not. I think he greatly appreciates that I can say no.
Q You are in a good position to make an acquisition, with a Tier 1 of 6.25% and no exposure to subprime or toxic assets, although your low share price might make targets more expensive.
A We have no appetite to buy anything. It is a time for opportunities but for prudence as well. Whatever we may want to buy, we would want to do it without a rights issue. And raising funds in the markets is expensive.
Q Surely Alliance & Leicester, the UK bank with which you had talks at the end of last year, would have made your subsidiary Abbey a more meaningful player?
A We said in February we are not interested in acquiring Alliance & Leicester.
Q The market is worried about your exposure to property developers in Spain.
A Our exposure to those corporate credits is very low. We are not very worried about it. It will affect us but far less than our natural market share in the sector.
Q An influential lobby group for big business in Spain says stagflation is on the cards.
A It is a possibility but not probable. I would say very unlikely.
Q How much have you drawn down of the European Central Bank [ECB] special facility and of the Bank of England’s?
A Zero per cent from the ECB. Not one euro. Never. But we have a contingent credit line of €20bn of asset-backed securities that would qualify as collateral if we ever needed to go to the ECB. Abbey has drawn on the Bank of England’s facility, as have all the large banks participating in the scheme.
Q How much more are you paying for your wholesale market funding?
A About 20 to 30 basis points more. Wholesale is 15% of our balance sheet. Some 85% of it comes from retail and other recurrent items.
Q Non-performing loans at the end of the first quarter were 1.16% of total loans. What are your expectations for the full year?
A Non-performing loans of 1.35% or even 1.4%, but not more than that. But you have to look at it in relative terms. This is derisory on a historical basis or when compared with UK or German banks.
Q In February, you said that you would take a $737m write-down on your investment in Sovereign Bancorp, the troubled US savings and loan institution, in which you have a minority stake and an option to increase your shareholding. Was the story true that you wanted to fund all of its recent capital raising?
A This was not true. We said we would subscribe with the aim of not diluting our 24.4% shareholding.
Q Is that stake the worst investment that Santander has made?
A Until now it hasn’t been a good investment. We bought the shares at $24 and they are now at $8.
But it is the end of the first period so there is a long way still to go in the match.
