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Santander has wanted to become one of the main forces in European investment banking, challenging Wall Street power plants that have come to dominate the industry.
Ambition is a major step forward for Europe’s largest retail lender, which has spent much of the past four decades building a consumer banking empire spanning 20 countries from its domestic market in Spain to Poland and the US.
He also stresses the pressure on Santander to flee the effects of low interest rates, which have eroded the profits of its retail business. But as European rivals such as Deutsche Bank reduce their investment banking operations, Santander sees an opportunity to take advantage of what it believes is growing unrest. the domain of American lenders.
“In Europe it is fair to say that we probably started from two to three [investment bank]”Said José María Linares, who was hired by JPMorgan to expand Santander’s corporate banking and investment division. “The ambition is to be one of the leading European banks.”
Investment banking accounted for 15% of Santander’s revenue and 28% of pre-tax profits in the first quarter of this year, but most came from its traditional strongholds in the Iberian Peninsula and Latin America.
For the executive president of Santander, Ana Botin, who last year chaired the bank first annual loss in its 164-year history, as the pandemic ravaged its consumer business, there are many plans on the investment bank. Although Santander’s performance improved to the first quarter, the bank’s shares have continued to fall by almost 40% in the last four years.
Linares acknowledged that the bank would never be “all for all people,” but said it had already made solid progress in several markets, rising to the league tables in areas of relative strength such as high-grade credit.
Last year it was the world’s largest provider of project financing (providing funding for large-scale infrastructure and industrial projects) compared to the eighth of 2018, according to Inframation, an infrastructure data provider.
The lender has also gone from being the 16th largest player in European investment grade debt capital markets in 2018 to the fifth this year, according to Bloomberg data.
Linares, who joined the bank four years ago, hopes to complement its lending capabilities by setting up new businesses in areas such as mergers and acquisitions advice, particularly working with privately held companies.
Rivals take Santander’s efforts seriously, but it should be noted that adding scale is easier said than done.
“It doesn’t become the top three just by deciding,” said the head of investment banking at a European rival.
The effort to enter the top tier of investment banks in Europe has persisted despite the failure of Santander’s 2018 plan to hire Andrea Orcel, one of Europe’s most high-profile commercial operators, as CEO.
The expansion of the investment bank was part of a ten-point plan that Orcel drew up for Santander, according to a person familiar with the matter, but his nomination proposal ended in bitterness and in an ongoing legal battle. .
Santander is also not the only European lender to sense an opportunity. BNP Paribas is doing a similar boost, but from a much larger base, with € 12 billion in annual revenue in its corporate banking and investment division before the pandemic, compared to € 5 billion of Santander.
Both banks benefited, as US rivals reduced their appetite for European operations at the height of the pandemic. Although BNP topped the European tables for syndicated lending operations in the first half of 2020, Santander moved into third place, according to data from Dealogic, although the Spanish bank has withdrawn. of the top ten this year.
“Europe must have a strong and healthy banking system, without a doubt,” Linares said. “Obviously, it’s good that Americans can offer a competitive offer, but I think mostly our European customers want to see European banks with them.”
The Madrid-based bank is also committed to a wave of agreements related to the EU’s drive towards energy transition and digitalisation to help it meet its goals in Europe, as well as Santander’s existing relations with the smallest companies in Europe in the Mittelstand style.
However, Santander also pursues its ambitions without a significant increase in staff. The exploitation of corporate and investment banking has gone from 4,350 in 2018 to 4,550 today, a total that is missing by people like Deutsche Bank and BNP.
But Linares insisted this was not an obstacle. “It hasn’t grown enormously, but what you’ve seen is a substantial improvement in the caliber of people,” he said. “I think it’s a business where it’s more important to have a few really good people instead of legions.”
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