Back in June, Santander, in a fit of swagger, declared that it was setting a target of earning €10bn in net profit in 2008.
Alas.
And thus reports El Mundo today:
El Santander renuncia a ganar 10.000 millones por prudencia y el lastre de Madoff y Lehman
Santander is poised to abandon its €10bn profit target.
Surely though, abandoning that target is not down to those two black swans - Madoff and Lehman - alone. In fact, we’d suggest, they’re probably rather convenient scapegoats.
Since June, there has been a string of high profile corporate failures in Spain. The property market there continues to dive. LatAm isn’t looking too peaky either. Those are three reasons alone to make an already bullish profit target look wildly optimistic.
From MB Capital Markets:
We think it makes sense for Santander to reduce its aggressive net profit target (+20% in recurrent profits) set for this year as a result of the different impacts of the financial crisis on the bank’s P&L account. We believe the cut in the third interim dividend was not expected by the market consensus and could be mirrored by other banks willing to increase their solvency ratios. In this regard, Bank of Spain has been highlighting at different times that banks need to increase their capital generation by increasing profit retention (saving banks cutting money destined to social projects).
Note that Santander committed at the time of the last rights issue to grow its DPS (dividend per share) in 2008 vs 2007 and report a flat DPS in 2009. In 2007, the bank’s DPS was €0.65/share. Hence, in 2008, the last dividend (final) should be, at least, €0.26/share. Assuming the 2008/09 dividend of the bank were to be €0.68/share (+5% on 2007 DPS), the current 2009 dividend yield would be 9.43%.
