Santander’s New Guard Should Break With Dividend Tradition
Ana Botín has Shaken up her Top Team. That Should Just be the First Step
By Paul J. Davies
Nov. 25, 2014 11:23 a.m. ET
Ana Botín has begun to remake her father’s bank in her own image. Changes in leadership and governance at Banco Santander , announced Tuesday, should be just the first step.
The next big questions to address are around capital and dividends. Ms. Botín ’s attitude to acquisitions—or disposals—can wait. With a new team in place, changes to her father’s dividend legacy are likely to be unpopular with retail investors in Spain but need to be tackled.
Ms Botín was elected executive chairman immediately after the sudden death two months ago of Emilio Botín, who built Santander into a global force over almost 30 years of deal-making.
On Tuesday, she replaced a chief executive who was very much her father’s man, promoted her key lieutenant and brought in three new board members.
The larger 15-person board now has more women—five—and more independent directors—nine. But the lead independent director is Bruce Carnegie-Brown, well known to Ms. Botín as a director on her Santander U.K. board for the past two years.
The executive changes are more important. Javier Marín was an almost unknown quantity when promoted to the chief executive role in April 2013: He had been a personal assistant to Mr. Botín and otherwise worked mostly in the private banking side of Santander. He was seen by some as a weak choice that cemented the then-chairman’s control.
His replacement is the chief financial officer of 10 years, José Antonio Álvarez, who is well known and well liked by investors and analysts. His replacement as CFO is José García Cantera, who worked closely with Ms. Botín at Banesto, the Santander unit that she chaired before it was rolled into Santander Spain.
Together, the new leadership faces some difficult decisions, not least of which is how and when to break Mr. Botín’s proud commitment to paying a dividend of €0.60 ($0.75) a share for the past seven years. The bank has only been able to afford that in the past two years because more than 80% is regularly taken in shares rather than cash.
Spanish retail investors pay no income tax on a so-called scrip dividend. But that kind of payment in shares is an illusion and the Bank of Spain wants it to stop.
Santander’s core tier 1 capital ratio is forecast by the bank to be just 8.5% by the end of this year on the full version of the Basel III rules, which will leave it weaker than many European rivals.
The bank cannot simultaneously build up its capital and pay a higher cash dividend. But with a stronger management team of her own design and a rejigged board in place, Ana Botín should be able to take the unpopular but necessary decision to cut pay-outs—and quickly.
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