Company Reports

Santander generates around 45% of its earnings from its highly profitable Latin American operations. The subscale returns Santander has historically recorded in Europe and the US have obscured the high-double-digit/early-20s returns on equity Santander generates from its Latin American operations. Santander is confident that it can significantly improve the profitability of its European and US businesses, supported by higher interest rates. We wonder if Santander could boost its profitability, release capital, and rerate its valuation by trimming its portfolio, so that it operates only in areas where it has a clear competitive advantage.

We rebase our Santander model for the Poland disposal, TSB consolidation, the approved Webster acquisition, and the restated reporting basis. We credit most of the 2026-28 plan but assume roughly half the cost program, leaving 2028 returns just short of management's target.

Santander generates around 45% of its earnings from its highly profitable Latin American operations. The subscale returns Santander has historically recorded in Europe and the US have obscured the high-double-digit/early-20s returns on equity Santander generates from its Latin American operations. Santander is confident that it can significantly improve the profitability of its European and US businesses, supported by higher interest rates. We wonder if Santander could boost its profitability, release capital, and rerate its valuation by trimming its portfolio, so that it operates only in areas where it has a clear competitive advantage.

Santander reported a 16% increase in profit before tax for the final quarter of 2025. However, if we strip out nonrecurring items, profit growth would have been flat. Santander also announced that it will acquire US regional bank Webster Financial for EUR 10 billion.

Santander continued to grow its top line, reporting a 4% revenue increase in the third quarter. Improved efficiency and a lower cost of risk supported a 5.5% rise in net operating income, despite the declining interest rate environment. Shares rose 4% in intraday trading on Oct. 29.

Santander generates around 45% of its earnings from its highly profitable Latin American operations. The subscale returns Santander has historically recorded in Europe and the US have obscured the high-double-digit/early-20s returns on equity Santander generates from its Latin American operations. Santander is confident that it can significantly improve the profitability of its European and US businesses, supported by higher interest rates. We wonder if Santander could boost its profitability, release capital, and rerate its valuation by trimming its portfolio, so that it operates only in areas where it has a clear competitive advantage.

The UK Supreme Court overturned a Court of Appeal decision related to the motor finance probe, ruling that motor dealers acting as credit brokers do not owe fiduciary duties to their customers.

Narrow-moat Santander reported attributable profit of EUR 3.3 billion for the fourth quarter of 2024, surpassing the company-compiled consensus estimate of EUR 2.9 billion.

Narrow-moat Banco Santander reported an attributable profit of EUR 3.2 billion for the second quarter of 2024, 12% higher than a year earlier and slightly ahead of the expectations of the consensus of analysts polled by the bank. However, as we expected, the momentum of earnings is slowing down. Attributable profit was flat compared with the second quarter of 2024, with revenue declining by 3%. Santander remains on course to meet its fiscal 2024 guidance of a 16% return on tangible equity, and its guidance for 2025 is ahead of consensus. The market chose to focus on the potential fallout from an adverse Supreme Court ruling in the UK around commissions paid by UK banks to auto dealerships, with the shares trading down 3% on the day. We maintain our EUR 5.80 per share fair value estimate and believe the share price weakness represents an entry opportunity for long-term investors.

Narrow-moat Banco Santander reported an attributable profit of EUR 3.2 billion for the second quarter, 20% higher than the EUR 2.7 billion it reported a year earlier and in line with the consensus expectations of analysts polled by the bank. However, a EUR 687 million (noncash) hyperinflation adjustment for the Argentinian operations hurt results. Santander increased its 2024 guidance slightly and now expects upper-single-digit revenue growth for 2024 compared with midsingle digits previously. We will incorporate the results in our model and may change our EUR 5.80 fair value estimate.

Narrow-moat Santander continues to benefit from the elevated rate environment, reporting a 13% increase in net interest income (excluding currency effects) in the first quarter of 2024 compared with the same quarter a year earlier. At the same time, it kept an eye on cost control, improving its efficiency ratio by 150 basis points over the last year and showing one of the lowest efficiency ratios in the industry at 42.5%. Despite being subject to a temporary Spanish government levy for interest income, Santander reported a 15% return on tangible equity for the last quarter, which differentiates it as one of the most profitable banks in our coverage. We keep our fair value estimate of EUR 5.80 per share as we believe higher-than-expected growth in the first quarter could be offset by expected rate cuts later in the year.

Narrow-moat Santander presented robust results for 2023 ahead of our forecasts. Santander's attributable profit saw a 15% increase compared with 2022, beating our forecast by 7% and contributing to an impressive 10% profit CAGR over the past decade. Despite the positive year closure, we believe future results would not be as remarkable as 2023 due to the expected decrease in interest rates. We increase our fair value estimate by 7% to EUR 5.80 per share compared with EUR 5.40 provided previously and keep a narrow moat. We believe that the shares are undervalued. Santander currently trades at 6.5 times earnings compared with 11 times the earnings average of our coverage, providing a 13% return on equity, 50% payout and stable earnings over the past decade.

Santander generates around 45% of its earnings from its highly profitable Latin American operations. The subscale returns Santander has historically recorded in Europe and the U.S. have obscured the high-double-digit/early-20s returns on equity Santander generates from its Latin American operations. Santander is confident that it can significantly improve the profitability of its European and U.S. businesses, supported by higher interest rates. We wonder if Santander could boost its profitability, release capital, and rerate its valuation by trimming its portfolio, so that it operates only in areas where it has a clear competitive advantage.

Narrow-moat Santander reported a net income of EUR 2.9 billion for the third quarter of 2023, a 20% increase year on year and 9% higher than it reported for the second quarter of 2023. Santander is well on track to reach our net income estimate of EUR 10.4 billion for 2023. While net interest income still showed healthy growth, the tailwind from higher interest rates is clearly starting to dissipate. For the first nine months of 2023, Santander's 15% return on equity aligns with its 2025 target. We, however, see limited scope for material earnings growth from current levels. Net interest margins are unlikely to expand much more, and if interest paid on deposits starts to show its long-expected increase, net interest margins could decline. Loan loss provisions have been steadily increasing, and while credit quality remains sound, we expect this trend to continue. In contrast to many of its European peers, Santander has limited scope to increase its shareholder payouts to boost profitability further.

Narrow-moat Santander reported a net income of EUR 2.7 billion for the second quarter of 2023, a 14% increase year on year and 4% higher than it reported for the first quarter of 2023. Santander is well on track to reach our net income estimate of EUR 10.4 billion for 2023. Revenue growth came primarily from the net interest income line, especially in the group's European operations, where it continues to benefit from the tailwind from higher interest rates. Loan loss provisions are tracking below our expectations and company guidance, while Santander contained cost growth well—apart from Brazil. While it was a solid set of results, we do not see a clear pathway for Santander to achieve its ambitious goal of a 15%-17% return on tangible equity by 2025. Santander reported a 14% return on tangible equity for the first half of 2023. With the tailwind from higher interest rates already starting to fade, revenue growth is likely to moderate while cost pressure is building. Reducing its capital base to boost profitability is also not an option for Santander.

Santander generates around 45% of its earnings from its highly profitable Latin American operations. The subscale returns Santander has historically recorded in Europe and the U.S. have obscured the high-double-digit/early-20s returns on equity Santander generates from its Latin American operations. Santander is confident that it can significantly improve the profitability of its European and U.S. businesses, supported by higher interest rates. We wonder if Santander could boost its profitability, release capital, and rerate its valuation by trimming its portfolio, so that it operates only in areas where it has a clear competitive advantage.

Santander offers investors a combination of emerging-market and developed-market banking exposure. This will not be to everybody's taste. Santander points to its track record of lower earnings volatility as vindication of its geographical diversification strategy, while most fund managers will point out that they can use portfolio construction to achieve the same diversification benefits. We believe that Santander could boost its profitability, release capital, and rerate its valuation by trimming its portfolio to operate only in areas where it has a clear competitive advantage. Santander's U.S. regional banking business has been a particular drag on group profitability for the better part of a decade.

Narrow-moat Santander reported pretax profits of EUR 3.8 billion for fourth-quarter 2021, 44% ahead of the EUR 2.7 billion it reported for the same quarter a year ago. Lower loan-loss provisions were again the main earnings growth driver; preprovision profit growth was flat year on year. Excluding the EUR 750 million loan-loss provision overlay Santander released during the quarter, pretax profits increased by only 16% year on year and declined by 20% quarter on quarter. Inflationary pressure has been evident over the past two quarters, and Santander's main challenge for 2022 will be to create positive operating leverage. Higher interest rates could support net interest income, and Santander anticipates an additional EUR 1 billion cost-saving from restructuring its main European businesses. We maintain our EUR 4/share fair value estimate and our narrow moat rating.

We give Santander a Standard capital allocation rating. We do not believe that Santander has any competitive advantages in its U.S. retail banking operation or in its U.K. retail banking business. Both businesses also earn returns materially below their cost of capital. Santander, however, views these businesses as core to its operations. We believe Santander should exit these businesses. It could potentially free up capital to strengthen Santander’s weak balance sheet. In our view, Santander’s shareholder distribution policy is appropriate. We maintain our narrow economic moat rating and our EUR 4 per share fair value estimate.

Santander offers investors a combination of emerging-market and developed-market banking exposure. This will not be to everybody's taste. Santander points to its track record of lower earnings volatility as vindication of its geographical diversification strategy, while most fund managers will point out that they can use portfolio construction to achieve the same diversification benefits. We believe that Santander could boost its profitability, release capital, and rerate its valuation by trimming its portfolio to operate only in areas where it has a clear competitive advantage. Santander's U.S. regional banking business has been a particular drag on group profitability for the better part of a decade.