January 8, 2015 / 1:43 PM / 3 years ago

Santander to boost capital and cut dividends in Botin shake-up

4 Min Read

People walk past a Banco Santander branch in downtown Rio de Janeiro August 19, 2014.Pilar Olivares

MADRID (Reuters) - Santander's (SAN.MC) new chief Ana Botin continued her shake-up of the Spanish lender on Thursday with plans to boost its capital with a 7.5 billion euro ($8.8 billion) share sale and a cut to its dividends.

The euro zone's biggest bank had long been under scrutiny over its capital levels and had stuck to what some analysts said was an overgenerous dividend policy in the years since the 2007 global financial crisis.

"I think it's the right thing to do. They needed to strengthen their capital base," said Francois Savary, chief investment officer at Swiss bank and fund management group Reyl, which owns some Santander shares.

Santander has weathered a deep economic crisis at home in recent years, helped by revenue from key overseas markets such as Brazil and Britain. The bank, which has several listed subsidiaries including in the United States, had previously resisted calls for it to raise cash from shareholders.

The capital increase through an accelerated share placing surprised some investors and is the latest sign that Botin is stamping her mark on the bank after taking over from her late father, Emilio, who ran Santander for 28 years until his death last September.

But analysts have long questioned whether the Madrid-based parent bank should beef up its finances.

It passed a health check of European banks last year, but its capital strength was weaker than peers including BBVA (BBVA.MC) and BNP Paribas (BNPP.PA). However, it fared better than others, including Deutsche Bank (DBKGn.DE), under a recession scenario used for the European Banking Authority's estimates.

New Broom

Santander is considered systemically important to global banking, which means that it has to hold extra capital because of the damage its collapse could cause to markets.

Ana Botin, who previously ran Santander's British business, is the fourth generation of Botins to hold the reins and the family owns roughly 2 percent of the bank's shares.

Santander ousted CEO Javier Marin in November, replacing the former close ally of Emilio Botin with finance boss Jose Antonio Alvarez.

The shake-up continued on Thursday as the bank announced that its dividends from 2015 earnings would be cut to 0.20 euros per share, from 0.60 euros previously, with three out of four payments to be made in cash. It previously offered investors all payments as scrip dividends.

About 46 percent of Santander's shareholders are small individual investors, often customers of the bank.

Santander did not immediately say why it was raising capital, but in November the bank acknowledged that it would not reach its 2014 year-end target of having its capital ratio at 9 percent under the strictest Basel III criteria.

The share sale and dividend cut should improve Santander's core capital ratio to about 10 percent, from 8.5 percent at the end of 2014, analysts at Citi estimated.

The historically acquisitive Santander is also among those to have expressed interest in the sale of Portugal's Novo Banco, the bank created after the collapse of Banco Espirito Santo last year.

Goldman Sachs (GS.N) and UBS UBSG.VX have been lined up to run the capital increase, a source familiar with the matter said. The banks declined to make immediate comment.

Santander's share price stood at 6.86 euros, up 3.3 percent, before being suspended on Thursday afternoon.

($1 = 0.8495 euros)

Additional reporting by Steve Slater and Sudip Kar-Gupta in London; Writing by Sarah White; Editing by David Goodman

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