Santander juggles assets to raise capital

Santander, Spain’s biggest bank, has boosted its capital by about €1.5bn from the previous sale of a stake in its Brazil subsidiary, in the latest of a series of transactions that have boosted its core capital to the targeted 9 per cent of assets, six months ahead of a European deadline.

In a statement on Monday, the bank said it had this month transferred 4.41 per cent of Santander Brazil to a “major international financial institution”. The shares will later be delivered to Qatar Holding, which in 2010 bought convertible bonds in the Brazil unit that convert in 2013.

“We got the cash in 2010 and what we get now is the treatment as capital,” said José Antonio Alvarez, Santander finance director.

The Brazil deal follows a series of transactions aimed at raising core capital and strengthening the group’s balance sheet, partly by selling stakes in Santander’s profitable Latin American operations.

Santander executives see such methods as preferable to launching the kind of capital raising issue that has punished the share price of UniCredit, the big Italian bank seeking to raise €7.5bn ($9.5bn) in a deeply discounted rights issue.

The European Banking Authority has ordered big European banks to increase core capital to 9 per cent of risk-weighted assets by June. Santander says it will reach a ratio of 10 per cent by the June deadline.

Santander, the largest eurozone bank by market capitalisation, was also the European bank with the biggest core capital shortfall identified by the EBA last year, and was required to raise €15.3bn.

Santander said on Monday that it had already reached the threshold, with €6.83bn coming from the inclusion of Santander group fixed-price mandatory convertibles (they do not convert into shares until October, but the EBA gave Santander a special extension beyond June).

A further €1.94bn comes from the exchange of preferred shares for new ordinaries, €1.66bn from last year’s scrip dividends, and €4.89bn from other sources, including the Brazil convertibles deal, organic generation of capital from group profits, and €600m from the sale of a stake in the business in Chile.