Santander looks like a stepping stone in European banking investment

Santander has chosen to become a major force in European banking investment, challenging the powers of Wall Street that have come to dominate the industry.

Ambition is a marked departure for Europe’s largest retail provider, which has spent much of the past four decades building a consumer banking empire spanning 20 countries from its domestic market in Spain to Poland and the United States

He also stressed the pressure on Santander to avoid the effects of low interest rates, which have eroded profits in its retail business. But as European rivals such as Deutsche Bank reduce their investment banking operations, Santander believes there is an opportunity to profit from what it believes is a growing inconvenience for the dominance of American financiers.

“In Europe it’s fair to say that we’re starting to be probably from level two to level three [investment bank], ”Said José María Linares, who has been recruited by JPMorgan to expand Santander’s banking and investment division. “The ambition is to be one of the leading European banks.”

Jose Linares: ‘The question [when I arrived] it wasn’t profit and efficiency, it was size ‘

Investment banking accounted for 15% of Santander’s revenues and 28% of pre-tax profit in the first quarter of this year, but most came from its traditional strongholds of the peninsula. Iberian and Latin American.

For the executive presidency of Santander Ana Botin, who last year chaired the bank first annual loss in its 164-year history that the pandemic has ruined its consumer businesses, there is a lot of horsepower on the plans for investment banking. Although Santander’s performances have improved on the first quarter, the bank’s shares have still fallen by nearly 40 percent in the last four years.

Graph of the Division’s profit in proportion to total profits before group tax (%) showing investment banking becomes increasingly important for Santander

Linares acknowledged that the bank would never be “all things to all people,” but said it had already made solid progress in several markets, scaling league tables in areas of relative strength as high-quality credit. .

Last year it was the world’s largest provider of project finance – providing funding for large-scale infrastructure and industrial projects – compared to the eighth in 2018, according to Inframation, an infrastructure data provider.

The lender also jumped from being the 16th player in the capital markets to European investment-grade debt in the fifth year, according to Bloomberg data.

Linares, who joined the bank four years ago, hopes to complement its credit capabilities by building a new business in sectors such as M&A consulting, particularly working with private equity firms.

Rivals take Santander’s efforts seriously, but caution that adding ladder is easier said than done.

“Don’t become the top three just because you decide to go,” said the head of investment banking at a European rival.

The effort to enter the highest level of investment banks in Europe has persisted despite the failure of Santander’s 2018 plan to recruit Andrea Orcel, one of Europe’s top retailers, as chief executive .

The expansion of the investment bank was part of a 10-point plan that Orcel has drawn up for Santander, according to a person who knows the business, but his proposed nomination ended in acrimony and in an ongoing legal battle.

Not even Santander is the only European provider that feels an opportunity. BNP Paribas face a similar boost but starting from a much larger base with 12 billion euros of annual revenue in its corporate and investment banking division before the pandemic, compared to Santander’s 5.2 billion euros.

The two banks benefited while US rivals reduced their appetite for European affairs at the time of the pandemic. While BNP topped European tables for syndicated lending business by value in the first half of 2020, Santander jumped 15 places to third, according to Dealogic data – even though the Spanish bank has fallen out of the top 10 this year.

“Europe must have a strong and sound banking system, no doubt,” Linares said. “It’s obviously good that Americans can provide a competitive offer, but I think especially our European customers want to see European banks with them.”

The Bank of Madrid has its bet that a wave of deals related to the EU’s push towards the energy transition and digitalisation will help it achieve its goals in Europe, as well as Santander’s existing relationships with the smaller ones. European style Mittelstand companies.

However, Santander also pursues its ambitions without significant staff growth. The number in corporate and investment banks has gone from 4,350 in 2018 to 4,550 today – a total that remains untouched by those of Deutsche Bank and BNP.

But Linares insisted it was not an obstacle. “It hasn’t grown enormously, but what you’ve seen is a substantial improvement in the caliber of people,” he said. “I think it’s a business where it’s more important to have some really brave people instead of legions.”

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