Tuesday, August 9

Banco Santander: strong division among analysts after the share’s fall

The price of Banco Santander reacted with falls of more than 2 percent to the results presented this Tuesday by the entity. The numbers caused a sharp division among analysts tracking the value.

The experts consulted by Finanzas.com highlighted that the results are “solid” and the punishment “is not justified”. However, they cited as an excuse to collect benefits the falls due to the evolution of commissions and operating costs, in addition to the capital ratio.

The bank reported a net profit until September of 5,849 million euros, thanks in particular to the contribution of the United States, which surpassed Brazil as the engine of profits.

Collection of profits at Banco Santander

The point is that the entity rises in the year by 32 percent, while in the last month it accumulates a rally of 16 percent, which left the value close to the annual maximums. It is one of the factors that accelerated the decline.

“The falls may be because the markets were discounting these types of results and hence they reap benefits,” said Joaquin Robles, Analist of XTB.

In the opinion of Nuria Alvarez, Analist of Rent 4 Bank, the fall is not justified because “the bank continues to perform relatively worse than BBVA and the Eurostoxx Banks, especially when the results are showing a very strong operating evolution,” explained this expert to finance.com.

Commissions and costs detract from the numbers

Some international banks, like JP Morgan or RBC, blamed the drops on cost performance, which were above market forecasts.

Additionally, the same sources pointed to flat fee growth in the third quarter as another negative factor.

But not all experts shared this view. “I do not see the issue of costs as important, the same as commissions,” Álvarez stressed.

That the commissions remain flat in the quarter “it is logical since this period is always weaker due to a seasonal issue, especially in Europe ”, added this expert.

Cost pressures due to the effect of inflation

The sources consulted recognized that operating expenses have grown above revenues in regions such as Brazil. Therefore, “perhaps there could be a negative reading on this side,” the experts pointed out.

In any case, it must be borne in mind that operating expenses are going to go up because now there is an inflation scenario. This could mitigate somewhat the positive effect that efficiency plans could have in the different regions in which Banco Santander operates.

Inflation also affects risk-weighted assets, hurting regions like Brazil, where these assets are growing at double digits. “A growth in these risk-weighted assets mitigates the positive effect of generating net profit “, stressed the sources consulted by finance.com.

Doubts about the capital of Banco Santander

Another of the moles that the experts detected has to do with the capital ratio. The market may not have understood well that the bank expects the CET1 ratio to continue to remain in the 11-12 percent range next year.

“The progression of the CET1 ratio is a little more moderate,” he pointed out. Daragh Quinn, Analist of KBW. The truth is that the following question arose: What is it that is leading you to prevent the capital ratio from improving if the bank has already said that it can generate capital organically?

In Álvarez’s opinion, the bank will continue to have the impact of certain regulatory effects, although now less than in the previous two years, in addition to the problem of inflation on risk-weighted assets.

The sources consulted also lowered the optimistic tone generated by the results in the United States. Here it is true that, due to the high part of the account, they grow a lot in income, but part of the increase in net profit is explained by lower provisions.

“You have a cost of risk that is unusually low. In other words, the net profit grew due to something that cannot be extrapolated to other years ”, pointed out the experts.