By Jeannette Neumann And Christopher Bjork
MADRID-- Banco Santander SA said it would raise as much as
EUR7.5 billion ($8.88 billion) in a capital increase, a bid by its
new executive chairman, Ana Botín, to address long-standing
concerns among investors and analysts that its financial cushion is
thinner than those of other large European banks.
Santander said in a regulatory filing Thursday that it would
raise the capital through an accelerated book-building process,
which entails selling the stock overnight to institutional
investors. Santander chose Goldman Sachs Group Inc. and UBS AG to
oversee the sale of 1.26 billion shares set to price Friday
morning.
The bank, the eurozone's largest by market value, said the share
sale would amount to 9.9% of its capital level before the
increase.
Analysts estimated that the increase would put Santander's
capital level--under international regulations known as "fully
loaded" Basel III criteria--at around 10% of risk-weighted assets,
more in line with its European peers.
"The key message is that there is a change in the thinking of
management, " wrote Carlos García González, an equity analyst at
Société Générale SA, in a research note Thursday. "The bank has,
until now, defended its dividend policy and capital levels as
adequate."
Santander said in its most recent quarterly earnings report in
November that its capital ratio was expected to be about 8.5% to
8.6% of risk-weighted assets at the end of 2014, a source of
concern for analysts and investors.
The Spanish stock market regulator suspended trading in the
bank's shares Thursday ahead of the afternoon announcement. It said
the suspension would be lifted Friday at 8.30 a.m. Madrid time.
Santander said in the filing that the capital increase would
help support "organic" growth in its markets in Europe and Latin
America.
Ms. Botín said in a conference call with investors Thursday that
the bank wasn't planning to use the proceeds to make significant
acquisitions soon.
Santander had been mentioned among traders as a potential buyer
of Banca Monte dei Paschi di Siena SpA, and the speculation sent
the Italian lender's shares soaring on Thursday, closing up
12%.
Santander also said it is slashing its dividend in 2015 to 2
European cents per share, from the 6 cents per share it has paid
since 2007. Santander said it would divide the annual payment to
shareholders into three cash dividends and one scrip dividend.
The capital increase coupled with the dividend cut means
Santander's capital ratio will be 11.8% by 2017, Citigroup Inc.
analyst Stefan Nedialkov said Thursday in a research note.
"We view this capital increase and change in dividend policy as
a needed reality check," said Francisco Riquel, an analyst with
Madrid-based financial-services firm N+1 Group, in a research note.
"After years of running the bank with a tight capital position and
an unsustainable dividend policy, we think the new chairman is
coming with a more orthodox financial policy."
The dividend cut, however, "is likely to disappoint both yield
and retail investors," Mr. Riquel said, "thereby putting additional
pressure on the share price."
The capital increase is one of several major decisions by Ms.
Botín to put her stamp on the bank since taking over as executive
chairman in September after the death of her father, longtime
chairman Emilio BotíSHYn.
Since then, Ms. BotíSHYn has replaced Javier Marín, an executive
who was close to her father, as Santander's chief executive
officer. She also disbanded an international advisory board,
distancing the bank from a board member who is the target of a
criminal investigation into suspected fraud during his leadership
of a different bank.
She also appointed a new chief financial officer and three other
board members, a bid to rejuvenate a board that analysts and
investors had criticized as too old and chummy with Mr. Botín.
Ms. Botín has overseen the launch of competitive terms for a
checking account in Catalonia, a bid to bolster the bank's presence
in the economically powerful Spanish region. Analysts have said
that move won't make a major difference in Santander's revenue in
Spain, but shows that Ms. Botín won't be outpaced by rivals that
have expanded in Catalonia recently.
Ms. Botín "has put in place a strong new management team. She is
now addressing the capital issue," said Mr. Nedialkov, the
Citigroup analyst. "What is left is to hear her views on the
company's long-term strategy for its businesses around the
world."
Write to Jeannette Neumann at jeannette.neumann@wsj.com and
Christopher Bjork at christopher.bjork@wsj.com
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