Banco Santander (SAN) is one of Europe's largest banks with a market cap of almost $97 Billion. Shares of SAN are only up just under 6% for the year, but are up 14.6% since I first recommended SAN along with Banco Bilbao Vizcaya Argentaria (BBVA) on August 20th.
Investors were hesitant for a long time to get behind European banks such as SAN due to the uncertainty in the region, but the European Economic Recovery is beginning to gain traction. Many analysts are beginning to project palpable gains in economies across Europe, especially Spain and believe 2014 will be a breakout year. European GDP is expected to break its streak of negative growth and rise 1.0% in the coming year, an improvement from a decline of 0.4% in 2013. European GDP emerging out of the red will be a huge headwind for the continent as a whole, the individual countries and of course, the banks.
SAN's Three Phase Plan
On the company's Q3 2013 Conference Call, CEO Javier Marin Romano outlined the firm's plan to take advantage of this growth movement. Santander's approach consists of three major focal points:
- Improve the profitability of capital to a more efficient allocation
- Improve overall cost efficiency
- Increase integration across the entire company
To achieve step 1, Mr. Romano described the efforts SAN is taking on the CC. The firm has split itself up into different segments (for investigative purposes only) to examine each portion of the business and see where adjustments in "levels of capital to their strategies and growth perspective" can be made. The bank will alter investments based on capital requirements but Romano doesn't believe that this will affect the company's presence across its different markets and businesses.
To improve cost efficiency, SAN is going to restructure the company so it can operate with lower costs. The aforementioned inner probe of the different business segments will most likely provide the company with a map of where to start. SAN's goal is to achieve cost savings of 1.5 Billion Euros ($2.05 Billion) over three years. SAN has not given any projections regarding the costs of this restructuring.
The third step, company-wide integration, will also be benefited by SAN's in-depth look at individual business segments. Given that the company operates in such a wide range of nations, SAN plans to examine each country and identify the best business practices and introduce those across all regions. This assimilation will surely bode well for a company whose global reach is so large.
By implementing this plan, Santander is showcasing its attempt to get ahead of the European Recovery so it will be in pole position to take advantage of it. There is still much debate over whether Europe is out of the woods yet, but either way SAN is working towards being able to capture maximum profits from the recovery, whenever it occurs.
If you are bearish on Europe for 2014 and the near future, then it goes without saying that SAN is not for you. However, if you are one of the (growing) number of investors who believe in Europe, Santander is definitely worth an investment.