Santander seeks to carve out a niche in European investment banking

Santander has set itself the goal of becoming a major force in European investment banking, challenging the Wall Street powers that now dominate the industry.

Ambition is a marked start for Europe’s largest retail lender, which has spent much of the past four decades build a consumer banking empire spanning 20 countries, from its home market in Spain to Poland and the United States.

He also highlights the pressure on Santander to escape the effects of low interest rates, which have eroded profits from its retail business. But as European competitors such as Deutsche Bank scale back their investment banking operations, Santander believes there is an opportunity to capitalize on what he sees as growing unease about domination American lenders.

“In Europe it’s fair to say that we probably started to be level two to three [investment bank]Said José María Linares, who was recruited by JPMorgan to develop Santander’s corporate and investment banking division. “The ambition is to be one of the leading European banks.

José Linares: “The question [when I arrived] was not profitability and efficiency, it was size ‘

Investment banking business accounted for 15 percent of Santander’s revenue and 28 percent of pre-tax profit in the first quarter of this year, but most of it comes from its traditional strongholds in the Iberian Peninsula and Latin America. .

For the executive president of Santander, Ana Botin, who chaired last year the first annual loss In its 164-year history as the pandemic ravaged its consumer businesses, many projects hinge on the investment banking plans. Although Santander’s performance improved in the first trimesterThe bank’s shares are still down nearly 40 percent over the past four years.

Line graph of division profit as a proportion of total group profit before tax (%) showing that investment banking is becoming increasingly important for Santander

Linares acknowledged that the bank would never be “everything for everyone,” but said it had already made solid progress in several markets, climbing the rankings in areas of relative strength such as high-quality credit. .

Last year it was the world’s largest provider of project finance – which funds large-scale infrastructure and industrial projects – up from the eighth in 2018, according to Inframation, an infrastructure data provider.

The lender also went from 16th player in European investment grade debt capital markets in 2018 to fifth this year, according to Bloomberg data.

Linares, who joined the bank four years ago, hopes to supplement its lending capabilities by creating new businesses in areas such as mergers and acquisitions advice, in particular working with private equity firms.

Rivals take Santander’s efforts seriously, but be warned, adding scale is easier said than done.

“You are not in the top three just because you decide to do it,” said the head of the investment bank of a European rival.

The drive to break into Europe’s top investment bank has persisted despite the failure of Santander’s 2018 plan to recruit Andrea Orcel, one of Europe’s largest principals, as General manager.

The investment bank’s expansion was part of a 10-point plan that Orcel made for Santander, according to a person familiar with the matter, but his proposed appointment has ended in acrimony and an ongoing legal battle.

Santander isn’t the only European lender to feel an opportunity, either. BNP Paribas does a similar push but starting from a much larger base with 12 billion euros in annual revenue in its corporate and investment banking division before the pandemic, against 5.2 billion euros for Santander.

The two banks profited from this, as their American competitors reduced their appetite for Europe agreements at the height of the pandemic. While BNP topped the European rankings for syndicated loan agreements by value in the first half of 2020, Santander jumped 15 places to third place, according to Dealogic data – although the Spanish bank dropped the top 10 this year. .

“Europe must have a strong and healthy banking system, without a doubt,” Linares said. “It’s obviously good that the Americans can offer a competitive offer, but I think our European customers, in particular, want to see European banks with them. “

The Madrid-based bank is also betting that a wave of deals linked to the EU’s drive towards energy transition and digitization will help it achieve its goals in Europe, as well as Santander’s existing relationships with small businesses. European companies of the Mittelstand type.

However, Santander is also pursuing its ambitions without a significant increase in its workforce. The workforce in corporate and investment banking has grown from 4,350 in 2018 to 4,550 today, a total that remains eclipsed by companies like Deutsche Bank and BNP.

But Linares insisted it wasn’t a hindrance. “It hasn’t increased tremendously, 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 rather than legions.”

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