Shares in Banco Santander (BME:SAN) hit a three-year high on Tuesday after the Spanish bank announced a new buyback program, raised its dividend and set itself ambitious new targets for the next three years.
At an investor day presentation, Santander said it had received regulatory clearance for a new €921 million (€1=$1.0585) buyback program and approved a final dividend of 5.95c for last year, bringing total dividends for 2022 up to 11.78c. That’s a rise of 18% from the 2021 level and represents a yield of 3.3% on Monday’s closing share price. Combined with last year’s buybacks, total shareholder payouts amounted to a yield of 8% last year, or 40% of last year’s profit.
Under a new three-year plan, the Spanish-based lender raised its target range for shareholder payouts to between 40% and 50% of net profits. It’s also intending to add some 40 million customers worldwide by 2025, which would grow its current base by around 25%. That will help generate revenue growth of between 7%-8% over the period, it reckons.
Alongside an ongoing efficiency program, the bank expects to generate a return on tangible equity of between 15%-17% between 2023-2025, with its cost-income ratio falling to around 42% by the end of 2025, compared to 45.8% in 2022. Jefferies analysts said the RoTE target – a broad measure of profitability – is “meaningfully” ahead of consensus forecasts.
Santander is the latest of the big European banks to upgrade its ambitions after a decade in which the euro crisis, the European Central Bank’s negative interest rate policy and the pandemic have hobbled its ability to make a profit.
The ECB is now on course to raise its interest rates to the highest level in the euro’s 24-year history, according to short-term interest rate futures. While that trend may widen banks’ interest margins, it may slow Santander’s lending growth and will also raise the risk of credit losses as the Eurozone economy slows in response.
According to ECB data, credit to private-sector entities in the Eurozone grew at its slowest rate since April 2021 in January, up only 3.6% on the year.
By 04:20 ET (09:20 GMT), Santander stock in Madrid was up 2.4%