Update Banco Santander (STD)
When do you demand that all your competitors report kitchen-sink quarters? When you’re convinced that their kitchen sinks are bigger than yours—and when you believe that some at least will go under from the effort of heaving them out the window.
The huge plunge in fourth-quarter earnings at Banco Santander (STD), Spain’s biggest bank, drew most of the attention yesterday, January 31, after the company reported its financial results. Net income fell for the quarter to 47 million euros from 2.1 billion euros for the fourth quarter of 2010. The results fell just a bit short of the consensus Wall Street estimate of 1.78 billion euros for the quarter. (Banco Santander is a member of my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ )
The quarter wasn’t nearly the complete shipwreck that those numbers suggest—if you just look at the results from Santander’s current operations. Read more
The Fed says it will keep rates exceptionally low til the end of 2014–here are the winners and losers in the financial markets
On Wednesday, January 25, the U.S. Federal Reserve said it would keep interest rates at their current exceptionally low level until the end of 2014. Forget about the middle of 2013, which seemed extremely far away when the Fed made that “guarantee” in August. And forget about the beginning or middle of 2014. Now the Fed is talking about the end of 2014.
Almost three years from now. Three years with short-term interest rates near 0%.
Let’s cut straight to the chase for investors: Who wins and who loses from this extraordinary statement of policy by the U.S. central bank? Read more
Update Banco Santander (STD)
Shares of Banco Santander (SAN.SM) are down 3.9% in Madrid today and the U.S. ADRs (American Depositary Receipts) are down 3% (STD) in New York as of 1 p.m. Eastern Time on a big increase in shares outstanding as a result of the conversion of non-listed preferred shares into ordinary shares that count as core capital. The new shares started trading today and represent an increase in shares outstanding of about 3.8%. The conversion is part of Banco Santander’s efforts to raise capital to meet the regulatory requirements set down by the most recent stress test conducted by the European Banking Authority. The conversion increases the bank’s core capital to 10% under the old Basel II global banking rules, 8.9% under the new Basel III rules, and 8.7% under the European Banking Authority rules.
In its December 8 announcement of the results of its latest round of stress tests the European Banking Authority calculated that Banco Santander had a risk-adjusted core capital ratio of 6.77%. Since then Banco Santander has sold off parts of its Brazilian and Chilean operations, sold its entire Colombian subsidiary, and conducted a conversion of preferred to ordinary shares that have brought the bank to within striking distance of the European Bank Authority’s 9% core capital requirement.
To me, the numbers look like Banco Santander will be able to meet the rest of its capital needs—for the moment and pending write downs in its portfolio—from retained earnings.
The ADRs are a member of my Dividend Income Portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ and pay a trailing dividend yield of 11.5%. That yield is attractive, of course, only as long as the bank actually pays out the dividend. That’s not guaranteed but I think it’s more likely than not, especially since about 70% of investors have been willing in recent quarters to take their dividend in shares rather than in cash. The ADRs currently trade at $7.52. I think the ADRs will trade at $9 or better—at $9 that would be roughly a 20% gain from today’s price–once the bank has finished raising capital and has demonstrated that the dividend is secure in the next quarter or two. A longer-term target price would be $12 a share by December 2012.
I think the current ADR price seriously under-estimates the strengths of Banco Santander—and especially the ability of what is still the world’s 11th largest bank by market capitalization to raise capital. Read more
EuroZone banks move two-thirds of the way to funding their refinancing needs for 2012
The European Central Bank held a borrowing party today and everybody came.
A whopping 523 EuroZone banks borrowed a huge 489 billion euros ($638 billion) at the central bank’s first offering of three-year cash.
That’s enough to refinance 63% of the debt, as estimated by Goldman Sachs, of EuroZone banks that will mature and require refinancing next year. The European Central Bank’s next three-year funding will be held in February. At this rate EuroZone banks will be able to pre-fund all their refinancing needs for 2012 and into 2013 that month.
This is either a big step forward in assuring the stability of the European banking system or the next step in building a horrifyingly risky Ponzi scheme. Read more
Stocks soar as world’s central banks move to support big banks just hours after S&P downgraded them
Put that in your new ratings model and smoke it, Standard & Poor’s.
Hours after Standard & Poor’s downgraded 16 of the world’s biggest banks—largely because the company’s new model for awarding credit ratings decided that governments were less likely to support their big banks—six of the world’s central banks, led by the U.S. Federal Reserve, came to the support of the world’s big banks.
In a coordinated move the central banks lowered the cost of emergency dollar funding by 0.5 percentage points. By lowering the cost of dollar funding from the central banks, the move will make it easier for stressed European banks to fund their dollar-denominated activities. The cost to European banks to fund in dollars had climbed to the highest level in three years.
On the news of the central bank move, the German DAX Index was up 4.9%, and the U.S. Dow Industrial Average had climbed by 3.7% and the Standard & Poor’s 500 by 3.6% as of 11:45 a.m. New York time.
Shares of the banks that S&P downgraded yesterday are performing even better. Read more
