Can Ana Botín win
2022.12.21 04:33
Can Ana Botín win
Budrigannews.com – Financial backers aren’t accepting what Ana Botín is selling. Comparatively, Banco Santander (SAN.MC) is valued much lower. It is time to consider a breakup unless the executive chair of the Spanish lender is able to change that in 2023.
Less than two-thirds of the bank’s anticipated tangible book value at the end of 2023 is represented by its market capitalization of nearly 50 billion euros in the middle of December. It has remained at that multiple for nearly a year. Considering that analysts anticipate Santander to achieve a respectable 11% return on tangible equity (ROTE) over the next twelve months, this is striking. Inferring the required return for investors to hold the bank’s shares is one way to illustrate the discrepancy between those numbers. According to calculations made by Reuters Breakingviews, Santander’s cost of equity averaged 18% on this metric from the beginning of 2022 to the middle of December. The assumed number is 13% for rivals worldwide.
Bad debt in the Brazilian and Mexican units of the bank, where default rates are typically higher, may cause investors concern. By maintaining low loan-loss charges, Botn can demonstrate her control over credit risk in this scenario. However, Santander’s implied cost of equity is higher than that of its rivals in South America, such as Grupo Financiero Banorte (GFNORTEO.MX) and Ita Unibanco (ITUB4.SA) in Brazil. This suggests that the discount extends beyond the company’s exposure to emerging markets.
The fact that investors dislike Santander’s geographical spread makes this explanation more plausible. Botn believes that her global businesses, which span from Rotherham to Rio de Janeiro, provide diversification. In any case, financial backers can enhance for themselves. Credit Suisse analysts estimate that the group’s components should be worth approximately 70 billion euros when valued country by country.
Botn must demonstrate that Santander is the best owner of its component bits in order to avoid that discount. That is not always obvious. For instance, in the first nine months of 2022, its Spanish division posted ROTE of 7.5 percent, which was lower than CaixaBank’s (CABK.MC) 8.4 percent. With 17%, Santander’s Mexican unit is behind Banorte’s 25%. The larger Lloyds Banking Group (LLOY.L), which reported a return of 13%, outperformed the British arm’s 11% ROTE.
Botín could work on those numbers by spreading innovation spending and different costs all the more generally. The average cost of providing services to Santander’s 160 million global customers should decrease as a result.
However, her rivals are going in a different direction. BNP Paribas (BNPP.PA), HSBC (HSBA.L), BBVA (BBVA.MC), and HSBC (0005.HK) have all recently sold their North American retail banks for high valuations. Credit Suisse analysts estimate that Santander’s U.S. unit, which primarily writes subprime auto loans, is worth 11 billion euros and may attract a local competitor. The radical option of selling national businesses to investors would be one. That would be contrary to everything Botn is attempting. Be that as it may, except if the rebate limits, she should think about it.
Between the end of 2019 and December 12, 2022, Banco Santander’s share price fell by roughly one fifth, while the Euro STOXX Banks Index fell by 4%.
In the first nine months of 2022, the company achieved an annualized return on tangible equity of almost 14%.
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