Santander looks to muscle way into European investment banking

Santander aims to become a major force in the European Investment Bank, challenging the Wall Street powers that have come to dominate the industry.

Ambition is a remarkable departure for Europe’s largest retailer, who has spent much of the past. 40 years Build a retail banking empire that spans 20 countries, from the Spanish domestic market to Poland and the United States.

It also emphasizes pressure on Santander to escape the effects of low interest rates that undermine retail profits. But as European rivals such as Deutsche Bank shrink their investment banking operations, Santander sees an opportunity to take advantage of what he believes is growing insecurity. Domination US creditor.

“In Europe, it’s probably not an exaggeration to say that we’re starting to go from Tier 2 to Tier 3. [investment bank]Jose Maria Linares, who was hired by JP Morgan to expand Santander’s corporate and investment banking sector, said. “Ambition is to be one of Europe’s leading banks.”

Jose Linares:’Question [when I arrived] It was size, not profitability and efficiency. “

Investment banking in the first quarter of this year accounted for 15% of Santander’s revenue and 28% of pre-tax profit, most of which came from traditional locations in the Iberian Peninsula and Latin America.

For Santander executive chair Ana Patricia, who presided over the bank last year First annual loss In the 164-year history of a pandemic devastating consumer business, investment banking plans have had many implications.The performance of Santander First quarter, Bank stocks are still down almost 40% in the last four years.

A line chart of sector profits as a percentage of the group's total pre-tax profits (%), showing that investment banking is becoming more and more important to Santander.

Linares admitted that the bank would never be “everything for everyone,” but surpassed the league table in relatively strong areas such as high levels of credit and already in some markets. He said he was making steady progress.

According to infrastructure data provider Infrastructure, last year it was the world’s largest provider of project finance, funding large-scale infrastructure and industrial projects.

Lenders also jumped fifth this year from the 16th largest player in the European investment grade bond capital markets in 2018, according to Bloomberg data.

Linares, who joined the bank four years ago, wants to complement its creditworthiness in areas such as M & A advisory, especially by working with private equity firms to build new businesses.

Rivals take Santander’s efforts seriously, but keep in mind that adding scale isn’t as easy as it sounds.

“Just because you decide to go, you won’t be in the top three,” said the head of the investment banking division of a European rival.

Efforts to break into the top tier of European investment banks despite Santandale’s failure to hire one of Europe’s most renowned deal makers Andrea Olsel as CEO in 2018 it is continuing.

The expansion of investment banks was part of Olsel’s 10-point plan for Santander, but his proposed appointment was in dire straits and ended in an ongoing court battle.

Also, Santander is not the only European lender to see the opportunity. Made by BNP Paribas A similar impetus, but starting from a much larger foundation with annual revenues of € 12 billion in the pre-pandemic corporate and investment banking sector compared to € 5.2 billion in Santander.

Both banks benefited as US rivals reduced their desire to trade in Europe in the midst of a pandemic. Santander jumped from 15th to 3rd, while BNP surpassed the European table for syndicated loan trading in the first half of 2020, while Spanish banks dropped out of the top 10 this year, according to Dealogic data. Did.

“Europe needs a strong and sound banking system, and there is no doubt about it,” said Linares. “It’s clearly good that Americans can offer competitive offers, but especially European clients want to meet European banks with them.”

Madrid-based banks also said that the wave of transactions related to the EU’s move towards energy conversion and digitization will not only help achieve its goals in Europe, but also the small Mittel stands in Santander and Europe. I am confident that it will also help existing relationships with style companies.

However, Santander is pursuing its ambitions without significantly increasing staff. Corporate banking and investment banking workforce has increased from 4,350 in 2018 to 4,550 today. This is still less than that of Deutsche Bank and BNP.

But Linares argued that it was not an obstacle. “It hasn’t grown that much, but what you’ve seen is a significant improvement in people’s abilities,” he said. “I think it’s more important to have some people who are really better than the corps.”

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