Why are Santander’s shares falling when the company shows record results? | Financial markets

Banco Santander today reported record third-quarter earnings. It earned €9.309 million, up 14%, and did so amid falling rates and even beating net profit estimates in Spain. But the release of the results today was overshadowed by the bank’s decision to delay filing its accounts at its UK subsidiary, where it will face the fallout from a court ruling condemning the sector for a lack of transparency in its lending. loans for car purchases. Added to this is some disappointment at not being able to raise the CET 1 capital target despite delivering record profits.

“The bank gave a positive signal about how it faces a lower interest rate environment, but this was not enough for the market. Santander has scope for more ambitious goals for the capital; Rate cuts should not be a barrier,” defends Nuria Alvarez, an analyst at Renta 4, who has an overweight recommendation on the bank’s shares. Santander maintains its target of a CET1 capital ratio above 12% following the full implementation of Basel III standards, a level that is below other European banking giants and which it managed to beat in the third quarter with a ratio of 12.5%. The company organically generated 43 basis points of capital during the quarter, of which 26 basis points must be subtracted for shareholder compensation and another 18 for regulatory and modeling impacts, the bank said. “Creating organic capital should allow for improved goals,” Alvarez defends.

Santander will distribute a dividend of 0.10 euros gross per share this Friday as part of its remuneration policy, under which it distributes half of its profits to shareholders, accounting in equal parts for the payment of dividends and share buybacks. Today, Tuesday, is the last day to purchase bank securities entitled to receive this payment, so investors selling Santander shares are also foregoing the dividend payment to which they are entitled.

Aside from the relative disappointment that the results and previous expectations may have caused, quarterly results were lackluster in the market due to the company’s decision to delay reporting results in the United Kingdom. Profits at the UK unit fell 18.5% to 346 million euros in the third quarter, but Santander will not publish the results in detail until it analyzes the impact of a court ruling that found the sector was applying illegal fees on purchase loans. cars. The organization appealed the decision, and its chief financial officer, Jose Garcia Cantera, indicated in a statement to Bloomberg that the bank would nonetheless meet the targets communicated to the market for the year as a whole. Even so, the estimated damage would be “significantly” less than £600 million, less than 1% of the financial group’s tangible value.

Cantera also announced that the company’s interest margins in Spain will grow at a high single-digit rate this year, up from the previous forecast of mid-single digits. Thus, growth will be closer to 10% than 5%, while growth by 2025 is projected to be between 3% and 3% globally.

Following the earnings release, Citi continues to recommend Santander shares as a buy and notes that the results were in line with expectations. He acknowledges that a delay in the publication of UK results “could impact market sentiment”. Market consensus includes a majority of buy recommendations for Santander, with 74.2% of the total according to opinions compiled by Bloomberg, with another 22.6% recommending holding the stock. Only one firm, Autonomous Research, advises selling.