Santander pivots to Americas as growth in Europe stalls

For Ana Botin, the future of banking isn’t in Europe. The Banco Santander chairman plans to generate even more of her company’s earnings in Latin America and is “ready to grow” in the U.S. after missteps that landed it in regulatory trouble.

“We need to allocate our capital in a better way to the more profitable growth,” Botin said in an interview with Bloomberg Television. “You’ll see good results in the coming years.”

In the U.S., that means providing more financial support for clients who want to do business in Mexico and Brazil, starting a new remittances program for Mexicans who want to send money home and opening an online platform that can gather bank deposits nationally. Botin also wants to underwrite more mortgages in Brazil and Mexico, where the Spanish lender is among the biggest banks, and she remains bullish on Argentina, which just dumped its pro-business president in a return to leftist populism.

Unlike most other European bank leaders, she has a choice. Santander has the biggest banking business in Latin America, generating some 30% of its profit in Brazil and 8% in Mexico. Meanwhile, earnings are flat-lining in Spain and declining in the U.K., due to negative interest rates and the threat of Brexit.

If economists’ forecasts are any guide, the underlying conditions won’t change anytime soon. They see growth in Latin America accelerating to 2.7% in 2021 while Europe and the U.K. are stuck at 1.5% or less.

The problem, as Botin acknowledged, is Santander’s stock has dropped by almost half in five years and trades at less than its theoretical breakup value. She said investors are needlessly concerned with its capital levels and refuse to recognize that the company, Europe’s third-largest bank by stock market value, has doubled profit over the same period and raised its dividend.

“We’re not happy with the share price,” Botin said. “We should be much better than that.”

For years, Santander’s U.S. business was a comparative mess. It failed the Federal Reserve’s bank stress test in 2014, 2015 and 2016, resulting in enforcement actions that hamstrung growth. Botin, who succeeded her late father as chairman in 2014, was effectively unable to make acquisitions or launch new products. While one Fed order is still in place, she can now operate with a freer hand and is committed to raising the return on tangible equity at the U.S. operations, a key measure of profitability, to 12% from an underlying 10% in the first nine months of 2019.

One obvious obstacle is scale. While Santander has $147 billion of assets and 17,300 employees in the U.S., it’s dwarfed by financial giants such as JPMorgan Chase and Bank of America. Botin said Santander doesn’t need to buy a U.S. bank and more generally doesn’t plan on acquisitions elsewhere.

“We have scale in number of customers, we have scale in terms of technology investment,” she said. “Our global expansion will come through the digital platform. We do not need to buy physical assets.”

That digital platform, called Openbank, is the largest of its kind in Europe. Santander has been expanding that business beyond its 1.2 million customers in Spain, opening in Germany in September. Portugal and the Netherlands are next, with Argentina, Mexico and the U.S. coming in the near future, Botin said.

It will have plenty of competition, at least in the U.S. Goldman Sachs has built a digital bank it calls Marcus and partnered with Apple to offer credit cards. Last week, Citigroup announced a plan to sign up new checking-account customers via Alphabet's Google Pay app.