Trends | Bank Capitalization

As Spaniards returned from the Los Reyes Magos (Epiphany) holiday, Spain’s Santander, Europe’s biggest bank, sold the equivalent of nearly 10% of its capital in one day, raising €7.5 billion ($8.7 billion) in cash and bringing required ratios in line with those of the banking industry.

“They changed the chairman (Ana Botín, the fourth generation of Botíns leading Santander) and the CEO (Jose Antonio Alvarez), and then there was the passage of powers from the Bank of Spain to the European Central bank. These were good reasons for them to act now, and they did,” says David Vaamonde, banking analyst at MainFirst bank in Madrid. “After the deal, the bank’s capital ratio (core equity Tier 1 ratio) is trading at around 9.7%, in line with Spain’s BBVA and its peers.”

In 2015, more European banks are likely to follow suit. Estimates of capital shortfalls range from €25 billion, indicated by the European Central Bank, up to €800 billion, depending on how the calculations are made.

For Santander, time will tell whether new chairman Ana Botín will continue the aggressive expansion of her late father Emilio. The first test will be the sale of Novo Banco, which emerged from the ruins of Portugal’s Banco Espírito Santo. If she presses ahead with the purchase, beating competitors, she will stretch Santander capital again.