The Spanish parent of Boston-based Sovereign Bank has been battered by the European economic crisis in recent months, but insists it remains financially strong and doesn’t need a bailout.
Banco Santander’s stock price has fallen by half over the past year amid growing concerns about financial and economic problems in Spain, where the bank is based, and fears of a possible global recession. Shares closed at $6.11 Friday, down from a high of nearly $12 a share last July.
Santander is one of 16 Spanish banks that had their credit worthiness downgraded last month by rating service Moody’s Investors Service. In addition, the bank’s profits dropped 24 percent in the first quarter, largely because it had to set aside money to cover bad real estate loans in Spain and neighboring Portugal. Santander is the largest bank in continental Europe by stock market value.
The trouble comes as the Spanish bank is trying to introduce US consumers to its global brand, with plans to drop the Sovereign name for Santander early next year. Sovereign is one of the largest regional banks in the Northeast and the third largest in Massachusetts, behind Bank of America and Citizens Bank. Sovereign has 229 branches and 2,900 employees in the state.
Santander officials said the European turmoil has not affected Sovereign, and the company continues to invest in its US subsidiary, including a recent upgrade of the firm’s computer platform.
“Sovereign is poised for growth,” said Sovereign chief marketing officer Kathy Klingler.
As in the United States, Spain was hard hit by the housing bubble that burst and left banks holding piles of delinquent mortgages. Investors have been particularly concerned about Spain’s banks recently after the Spanish government was forced to take over the nation’s third-largest lender, Bankia Group, because of its large holdings of troubled real estate loans.
“Santander will likely avoid a bailout,” said Andrea Filtri, an analyst with investment bank Mediobanca, who downgraded Santander’s shares this week. “Nevertheless, Santander will suffer large hits.”
Santander faces several risks, Filtri said. The bank could suffer further loan losses in Spain. It might be pushed or tempted to buy troubled banks in the country or forced to help pay for other banks’ losses through the deposit guarantee fund, leaving it without resources to invest as much in fast-growing Latin American operations. All of this could significantly cut profits, Filtri said.
In addition, the bank could need to raise cash from the Spanish government if Latin American regulators limit the amount of profits Santander can pull out of its operations there to offset losses in Spain and Portugal, Filtri said. More than half the company’s profits came from Latin America last quarter.
Despite the turmoil, Santander said it remains profitable, well capitalized, and more geographically diverse than other Spanish banks. In addition to Spain, Portugal, and the United States, Santander has major operations in Argentina, Brazil, Chile, Germany, Mexico, Poland, and the United Kingdom.
Like most major banks around the world, Santander also has been under pressure from regulators to increase its capital levels to help make sure it can withstand future financial storms. The bank recently sold its Colombia operations and a stake in its Chilean unit for a total of about $1.8 billion, and reported it had a capital ratio of more than 10 percent of its assets, up from less than 6 percent in 2006 and well above the level required by regulators.
Moreover, Santander has remained profitable over the past several years — earning nearly $2 billion last quarter alone — and continued to pay dividends. In a recent speech, Santander chairman Emilio Botin said the company “ended 2011 as one of the soundest, most solvent, and liquid banks in the world.”