Santander seeks to enter European investment banking business

Santander has set its sights on becoming a major force in the European investment banking industry, challenging the Wall Street giants that have dominated the industry.

This ambition is a clear departure from Europe’s largest retail bank, which has Four decades Build a consumer banking empire spanning 20 countries, from the Spanish domestic market to Poland and the United States.

It also highlighted Santander’s pressure to get rid of the impact of low interest rates, which have eroded the profits of its retail business. But as European competitors such as Deutsche Bank scale back their investment banking operations, Santander sees an opportunity to capitalize on what it considers to be growing anxiety. Dominance Of US lenders.

“In Europe, it’s fair to say that we might start at Level 2 to Level 3. [investment bank]”, said José María Linares, who recruited from JPMorgan Chase to expand Santander’s corporate and investment banking division. “Our goal is to become one of the leading banks in Europe. “

In the first quarter of this year, investment banking accounted for 15% of Santander’s revenue and 28% of its pre-tax profit, but most of it came from traditional locations in the Iberian Peninsula and Latin America.

Santander Executive Chairman Ana Botin chaired the bank’s First annual loss In the 164-year history of the pandemic that ravaged its consumer business, the investment bank has many plans.Although Santander’s performance has improved the first season, The bank’s stock price has fallen nearly 40% in the past four years.

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

According to data from infrastructure data provider Inframation, it was the world’s largest project financing provider last year-financing large infrastructure and industrial projects-by comparison, it ranked eighth in 2018.

According to Bloomberg data, the bank also jumped from the 16th largest participant in the European investment-grade debt capital market in 2018 to 5th this year.

Linares, who joined the bank four years ago, hopes to supplement its credit capabilities by establishing new businesses in areas such as mergers and acquisitions consulting, especially with private equity firms.

Competitors are taking Santander’s efforts seriously, but warn that scaling up is easier said than done.

“You won’t be just because you decided to be in the top three,” said the head of investment banking for a European competitor.

It is obviously a good thing that Americans can provide competitive quotations, but I think our European customers especially want to see European banks working with them, and we are the choice

Although Santander’s plan to hire Andrea Orcel, one of Europe’s most well-known deal maker, as CEO failed in 2018, efforts to break into Europe’s top investment banks continue.

According to people familiar with the matter, the expansion of the investment bank was part of Auxer’s 10-point plan for Santander, but his proposed appointment ended in a quarrel and ongoing legal battle.

Santander is not the only European bank that feels the opportunity. BNP Paribas is doing A similar push, but starting from a larger foundation, before the pandemic, its corporate and investment banking sector had annual revenues of 12 billion euros, while Santander’s annual revenues were 5.2 billion euros.

As American competitors reduced their interest in European transactions at the height of the pandemic, both banks benefited. Dealogic’s data shows that although BNP Paribas ranked first in Europe in syndicated loan transactions in the first half of 2020, Santander jumped 15 places to third, even though the Spanish bank has fallen out of the top ten this year.

“There is no doubt that Europe must have a strong and healthy banking system,” Linares said. “It is obviously a good thing that Americans can provide competitive prices, but I think our European customers especially want to see European banks work with them.”

The Madrid-headquartered bank is also betting that a wave of transactions related to the EU’s energy transition and digitization will help it achieve its European goals and Santander’s existing relationship with European small and medium-sized companies.

However, Santander also achieved its ambitions without significantly increasing the number of employees. The number of employees in corporate and investment banking has increased from 4,350 in 2018 to 4,550 today-a total that still pales in comparison with companies such as Deutsche Bank and BNP Paribas.

But Linares insisted that this was not an obstacle. “It hasn’t grown substantially, but what you are seeing is a substantial increase in the quality of personnel,” he said. “I think this is a more important industry with some really good people rather than a legion.”