Santander shares drop after overnight sale to shore up capital cushion

Stock falls 10% after raising €7.5 billion at discount price; move will fuel organic growth

Ana Patricia Botín addressing shareholders following her father's death.
Ana Patricia Botín addressing shareholders following her father's death.ULY MARTÍN

Santander bank’s share value plummeted nearly 10% on Friday, when trading resumed following its capital increase on Thursday.

The euro zone’s largest bank saw its stock drop 9.99% to €6.17, bringing down the entire Ibex blue-chip index 2%.

On Thursday, Santander raised €7.5 billion by selling new shares at €6.18 a share, representing a 9.91% discount on the stock price at the time trading was suspended.

The overnight sale to institutional investors represents a change of tack for a lender that had repeatedly denied the need for a capital increase in the past.

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But new executive chairwoman Ana Botín, who took over in September after her father’s death, has made a series of changes that include “a new team with new ideas,” she told analysts.

Botín portrayed the move as a way for the group to grow organically rather than through acquisitions.

Santander also announced that dividends are being cut 66% starting this year, although cash payments will increase.

Bank officials said the speed at which shares were sold denotes investor confidence in Santander.

“Those who invested already know us, because nobody can decide to make this kind of investment in 24 hours,” said CEO José Antonio Álvarez.

This is Santander’s third capital increase since 2008. In this time, it has raised around €22 billion, including Thursday’s share sale.

When you are convinced that you need to do something, the sooner the better” CEO José Antonio Álvarez

In a letter to bank employees, Botín said she wanted to shore up the lender’s capital base “to capture opportunities for organic growth, increasing credit and market share in key markets. And this, while fulfilling our role of helping families and businesses prosper.”

Álvarez denied some analysts’ suggestion that the fundraising was suggested by the European Central Bank because of ongoing concerns about low capital ratios at Santander.

“When you are convinced that you need to do something, the sooner the better,” he said. “It had to be done and the market was receptive.”

Following the expansion, Santander’s “fully loaded” capital ratio – its equity in relation to its risk-weighted assets – will be close to 10%, compared with 8.3% at the close of 2014, the lender told securities watchdog CNMV.

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