SAN Banco Santander SA

--Santander targets EUR1.2 billion of cost savings as part of new medium-term plan

--The Spanish bank will invest more than EUR20 billion over the next four years in digitalization and technology

 
   By Pietro Lombardi 
 

Banco Santander SA (SAN.MC) will cut costs and boost investment in digital and technology as it aims to improve profitability and strengthen capital.

Spain's largest bank targets 1.2 billion euros ($1.34 billion) of cost savings as part of its new medium-term plan, it said Wednesday ahead of its investor day in London.

The new plan comes after a period of pressure on the stock and may help the bank move on from its handling of the appointment of Andrea Orcel as CEO. Santander decided not to proceed with the appointment of Mr. Orcel as new CEO--announced last year--over compensation issues.

The bulk of the cost savings, or roughly EUR1 billion, will come from Europe, a target Chief Executive Jose Antonio Alvarez sees as "quite ambitious." Of this, the integration of Banco Popular should contribute about EUR250 million.

Spain's largest bank confirmed its main financial targets, which include an underlying return on tangible equity--a key measure of profitability--of 13% to 15% and a core tier 1 ratio of between 11% and 12% in the medium term.

The bank's goal on capital is around 11.5% while 12% should be reached "as soon as we can," Executive Chairman Ana Botin said when presenting the plan.

Analysts have stressed that the bank's capital position is weaker than the average for European peers.

The bank also targets a dividend payout of 40% to 50% and a cost-income ratio of between 42% and 45%.

At the end of 2018, underlying RoTE was 12.1% and the cost-income ratio was 47%.

Santander will invest more than EUR20 billion over the next four years in digitalization and technology. This will improve customer experience and loyalty while also cutting costs.

The first impression on the plan is positive, Bankinter analysts said. The slowdown in Europe and the ECB keeping interest rates low for longer mean that the bank needs additional efforts on costs and commercial business, both in terms of volume and market share, it said.

Santander shares trade 2.1% higher at 0924 GMT but are down roughly 17% over the past 12 months.

The bank is simplifying its management structure to help the execution of the plan, Ms. Botin said.

"Our focus remains on driving greater loyalty within our customer businesses, and leveraging our global scale to accelerate investments in digitalization and capitalizes on cross-border flows," the executive chairman said.

Santander achieved its 2018 targets, which included a double-digit growth in EPS, a core tier 1 ratio above 11% and a RoTE above 11.5%.

Write to Pietro Lombardi at pietro.lombardi@dowjones.com

(END) Dow Jones Newswires

April 03, 2019 06:08 ET (10:08 GMT)

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