Banco Santander launches surprise €7.5bn capital hike

Spain's Banco Santander said Thursday it will raise up to 7.5 billion euros in fresh funds in a capital hike, an unexpected move by new chairman Ana Botin to dispel concerns among investors that its financial cushion is thinner than those of other big European banks.
The bank, the eurozone's largest by market value, said the share sale -- which will amount to about 10 percent of its current market value -- will be carried out through an accelerated book building process, which entails seiling the stock overnight to institutional investors.
"A stronger capital position will allow the bank to take advantage of organic growth opportunities, increasing lending and market share in key markets," Santander said in a statement.
The capital increase will be the biggest undertaken by Santander since 2008 when it raised 7.2 billion euros ($8.5 billion) to improve its capital ratio at the height of the financial crisis.
A property market collapse in 2008 left Spain's banks awash with bad loans and destroyed millions of jobs.
Santander was not spared from the collapse and had to write off billions in bad home loans, with some 19 billion euros wiped out from its books in 2012 alone.
The bank is seen by some analysts and investors as potentially the least-well capitalised of the biggest eurozone banks, despite easily passing European stress tests in October.
The tests, which modelled a new recession and a slump in house prices, have had their credibility questioned after several banks seen as being at risk passed, and a new exercise this year is expected to be tougher.
Santander said the capital increase would bring forward its compliance with the so-called Basel III capital requirements, which are not compulsory until January 2019, to the current fiscal year.
"Once the capital increase is carried out, the bank will reach a fully loaded capital ratio of around 10 percent this year," it said.
"This level would position the group among the world's strongest banks in terms of capital considering that Santander's geographic diversification and retail banking business model produce low volatility in earnings."
- 'Change in thinking' -
Santander had previously resisted pressure from investors to raise fresh capital and analysts said it was a sign of a significant shift in thinking by the lender under its new chief.
Botin, who took over from her father Emilio Botin in September when he passed away after nearly three decades at the helm of the lender, has said the bank faces a growing challenge from tougher competition and stricter regulations.
"The main message is that there is a change in the way of thinking of the management," said Societe Generale analyst Carlos Garcia Gonzalez.
Two months after Botin took the helm of Santander she removed Javier Marin, who had been appointed chief executive two years earlier by her father as part of a management reshuffle.
She promoted Jose Antonio Alvarez, who had been Santander's chief financial officer for a decade, to the post.
Speculation that Santander would use the capital increase to make an acquisition saw shares in Monte dei Paschi, the deeply-troubled Italian lender, rise by more than 10 percent.
Santander also said it wanted to change its dividend distribution policy and announced that it registered a new profit of around 5.8 billion euros in 2014, an increase of just over 30 percent over the previous year.
It said shareholders will be offered cash for three of the four payments expected this year, while one will be in shares.
The overall dividend payout is likely to be 20 cents a share this year, compared with 60 cents in the previous year, the bank said.
Shares in Santander rose by over three percent on Thursday before trading was suspended by the stock market regulator pending the announcement from the bank.