The strength of Santander It is a blessing and a curse for its CEO from January, the Italian Andrea Orcel. The ideal scenario for an incoming executive is to take a company that is basically fine but has obvious avenues to go even better. The figures for the third quarter suggest that it has a limited margin to do so.
Revenues seem to be falling, but after removing the impact of currency fluctuations in countries like Brazil, the entity has managed sales of 35,900 million in January-September, representing an increase of 9% over the previous year.
The largest Spanish bank is also improving in cost management, which fell to 46.9% of revenues in the same period, within its target range of 45% -47%. Thus, Santander has generated 31 additional basic capital points, exceeding the objective of 11% for the whole year.
The economic reactivation of Spain is helping. Thanks to the timely Popular purchase last year, the Spanish business represented 17% of the group's underlying profit in the third quarter, compared to 15% of the second.
Santander is also cleaning out its old loan hedges, with a fall in delinquency to 3.87% from 4.24% the previous year. Brazil, where the bank obtains around a quarter of its income, registered a 24% increase in its net profit in the first nine months of the year, compared to the same period in 2017. Even the United Kingdom has achieved an increase in 5% in your net benefits in the last three months.
Orcel could let his new toy work alone. If it increases revenues by 4.5% and keeps costs where they are, it could reach 14,000 million euros in net profit in 2023, according to our calculations. This would imply a return on the potential tangible capital of 15% and would imply a market valuation of 143,000 million euros, more than double the current market value of Santander.
The risk is that Orcel will undertake a big acquisition in the style of ABN Amro that Santander really does not need. With luck, you will realize that you are in command of a tanker and not a motorboat.
The authors are columnists of Reuters Breakingviews. The opinions are yours. The translation, of Carlos Gómez Down, it is the responsibility of Five days