European Stock Story of the Month – Santander

Ever since the dark days of the Global Financial Crisis over a decade ago, public opinion has firmly swayed away from the notion that banks and bankers have produced a positive contribution to modern society. Shrouded in opacity and mysterious language, their reputation for shameful self-interest which so often abrogated the duty of care to their customers and other stakeholders, banks have been in the crosshairs of regulators and public inquiries. As is so often the case, the sins of fathers have been visited on sons, with notorious Scottish personalities’ children having to leave their schools, so vitriolic was the attack on them for their father’s arrogance and misdemeanours. Lifetime savings were destroyed, and several of your correspondent’s friends have seen their hard work and lifetime loyalty to an organisation repaid with financial distress and a banishment of hope for a much looked forward to retirement.  

We share much of the concern over the behaviours of banks and their officers, and much of the sector is still in a woeful state, failing to carry out disciplines such as anti-money laundering and responsible lending. We do however feel that there are ‘banks’ and banks. This month’s stock story is about Banco Santander ( Spanish group, which is in our view increasingly focused on the true purpose of a bank, and demonstrating a culture which is shifting away from its legacy under previous leadership towards an organisation which is much more fit for the demands and expectations of a global society which needs to build back better.  

Founded in the Basque country in 1857, Santander was instrumental in the economic progress of the industrial north of the nation. Both Santander and its closest rival financed organisations not only domestically, but also through acquisitions during the latter part of the twentieth century, forming beachheads into the lucrative if volatile markets of South America. Some very large acquisitions and further consolidation transformed these footholds into fast growing and dominant franchises, earning the then chief Don Emilio Botín a reputation akin to the conquistadores of Spain’s Golden Age in the sixteenth century. Botín’s growth strategy extended to Europe and the UK where Santander acquired and rebranded Abbey National in 2004. His acquisitive energy and rapacious appetite for growth led Santander into many scrapes including criminal charges, of which Botín was cleared. In 2014 new management arrived with Ana Botín as chair. Don Emilio’s daughter was at first viewed with circumspection by investors whose concerns of a dynastic approach to management was understandable. Ana Botin is her father’s daughter in terms of intelligence, energy and perspicacity. She is however, her own person and we are both curious and impressed with the changes which Santander is experiencing 

At Castlefield, we are very clear that responsible lending is a necessary element of a bank’s purpose and we look for evidence of transition away from large energy project financing towards a more future proof loan book and a culture that promotes the enfranchisement of those who have not had access to banking services due to their economic status. Santander has made 11 public commitments[1]  to build a more responsible organisation. Amongst these are to improve diversity – 40% of Santander’s board of directors is female, and women hold 24% of leadership positions, with a target of 30% by 2025. The gender pay gap is 1.5% currently and will vanish by 2025.  

Green finance is to quadruple to €120bn by 2025 from current figures, transitioning away from controversial activities such as mining and oil and gas (Brazil and Mexico’s exposure is strong here, which represents a significant challenge, as loans will necessarily diminish to these activities). Exposure to controversial activities is falling in absolute figures and is ahead of the Paris Aligned Pathway[2]. Santander boasts that it is carbon neutral in its own operations. We see that there are several areas for further improvement. Its net zero targets for 2050 are just too far away for us to see them as meaningful or tangible, and we have engaged with the company on the need to stop kicking the can down the road. We also see that remuneration and long-term incentive plans need to encapsulate ESG factors in a very meaningful way. There is increasing demand for this change in how management teams are incentivised and as we have said in the past, the S of ESG is an exceptionally important element of the responsible investment triptych.  

Santander is a very different organisation than the one that I remember trailblazing into Latin America during the 1990’s. The culture of any organisation comes from the top and is a significant input into the success or otherwise of the journey. We do see that Santander’s purpose is now very different from the past and given its size, influence and ability to make positive contributions, we are watching Señora Botín with interest as to how much she can show other bankers the way things can be done better.  

 Written by Rory Hammerson


Sources and references

[1] (p28)

[2] (p77)


Information is accurate as at 06.05.2021. Opinions constitute the fund manager’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part. With investment capital is at risk.