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Santander

10 July 2024

IAM Capital Markets

Santander A$ Subordinated 5 year call

Pricing on Santander 10NC5 Tier 2’s looks good for the risk. Santander is a G-SIB which means there is more onus on the bank being protected to ensure global financial stability. Santander Group’s CET1 levels are also well above the minimum loss absorption trigger of 5.125%: EUR45.8bn which means there is ample buffer to account for a stressed scenario. However, what gives me most conviction is that Santander has never been prohibited from making a Tier 1 payment or dividend due or cancelled the payment of coupons of any of its Tier 1 securities.

New Santander 10NC5 – Credit Comments

Issuer Ratings: A2 (positive) (Moody’s) | A+ (stable) (S&P) | A- (stable) (Fitch)
Issue Ratings: Baa2 (Moody’s) | BBB+ (S&P) | BBB (Fitch)

Santander is the leading financial group in Spain (or local champion). The group’s stable capital generation has been supported by strong pre-provision profits providing Santander with a high capacity to absorb losses. The strong capital levels are a function of Santander’s business model and areas where it operates with an independent subsidiary model in terms of capital and liquidity. Its liquidity position is compliant with regulatory requirements and ahead of schedule.

Q1 2024 results for the group were strong and Santander is on track to deliver 2024 targets. Santander’s focus on profitability and efficiency, as opposed to growth, is credit positive.

In terms of the credit, we have high conviction in the credit profile of Santander.

  • A significant amount of customer lending is within Europe (and the UK), with the rest exposed to North/South America making it a globally systemically important bank (G-SIB). Being a G-SIB means there is more onus on the bank being protected to ensure global financial stability.
  • Santander Group’s CET1 levels are well above the minimum loss absorption trigger of 5.125%: EUR45.8bn
  • Santander has never been prohibited from making a Tier 1 payment or dividend due. Santander has never cancelled the payment of coupons of any of its Tier 1 securities.

Financial Highlights

Structure of 10NC5

Note, there has been regulatory amortization in the last 5 years, for UK, France, and Spain, which also creates very low call risk for these European Tier 2 structures for, e.g. new Santander 10NC5.