Santander looks to make his way into European investment banking

Santander has set its sights on becoming a major force in European investment banking, challenging the powerful forces on Wall Street that have come to dominate the industry.

This ambition marks a remarkable breakthrough for Europe’s largest retail bank, which has spent much of the past Four decades Build a retail banking empire covering 20 countries from its home market in Spain to Poland and the United States.

It also underscores pressure on Santander to escape the effects of low interest rates, which have eroded profits in retail. But with European competitors such as Deutsche Bank scaling back their investment banking operations, Santander believes there is an opportunity to take advantage of what he believes is growing concern. domination of lenders in the United States.

“In Europe, it is fair to say that we probably started from the second to the third level [investment bank]Jose Maria Linares, who has been recruited from JPMorgan to expand Santander’s corporate and investment banking division, said. “The ambition is to be one of the leading European banks.”

Jose Linares: The question [when I arrived] It wasn’t profitability and efficiency, it was scale.

The investment banking business took 15 percent of Santander’s revenue and 28 percent of pre-tax profits in the first quarter of this year, but the bulk comes from its traditional strongholds in the Iberian Peninsula and Latin America.

For Santander CEO Anna Putin, who last year headed the bank First annual loss In its 164-year history as the pandemic has decimated its consumer business, there’s plenty of riding on the investment bank’s plans. Although Santander’s performance improved in First QuarterThe bank’s shares are still down nearly 40 percent over the past four years.

Line chart of department earnings as a percentage of total group earnings before tax (%) showing that investment banking is becoming increasingly important to Santander

Linares acknowledged that the bank would not be “everything for all people,” but said it had already made solid progress in many markets, rising in areas of relative strength such as high-quality credit.

Last year, it was the world’s largest provider of project finance — which provides financing for large infrastructure and industrial projects — compared to the eighth in 2018, according to Inframation, the infrastructure data provider.

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

Linaris, who joined the bank four years ago, hopes to complement its credit capabilities by building new business in areas such as merger and acquisition advisory, particularly working with private equity firms.

Competitors take Santander’s efforts seriously, but caution that the scale is easier said than done.

“You’re not going to get into the top three just because you decided you were going,” said the head of investment banking at a European competitor.

Efforts to break into Europe’s top tier of investment banks continued despite the failure of Santander’s 2018 plan to hire Andrea Orsel, one of Europe’s top deal makers, as chief executive.

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

Nor is Santander the only European lender feeling an opportunity. BNP Paribas makes it A similar boost but starting from a much larger base with annual revenue of 12 billion euros in the corporate and investment banking division before the pandemic, compared with 5.2 billion euros in Santander.

Both banks benefited as US rivals slashed their appetite for European deals at the height of the pandemic. While BNP tops European tables for syndicated loan deals by value in the first half of 2020, Santander jumped 15 places to third place, according to Dealogic data — even though the Spanish bank has dropped out of the top 10 this year.

“Europe must have a strong and sound banking system, there is no doubt about that,” Linares said. “Obviously it’s nice that the Americans can offer a competitive offer, but I think our European customers in particular would like to see European banks with them.”

The Madrid-based bank is also betting that a wave of deals related to the EU’s drive towards energy transition and digitalization will help it achieve its goals in Europe, in addition to Santander’s existing relationships with smaller, mid-tier European companies.

However, Santander is also pursuing its ambitions without a significant increase in staff. The number of employees in corporate and investment banking has risen from 4,350 in 2018 to 4,550 today – a total that’s still tiny compared to the likes of Deutsche Bank and BNP.

But Linares insisted that was not an obstacle. “It hasn’t grown very much,” he said, “but what I’ve seen is a huge upgrade in people’s caliber.” “I think it’s a business where it’s important to have a few really good people rather than hordes.”

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