Analysts mostly put a positive spin on Santander’s fourth quarter results on Thursday — interpreting the bank’s rise in provisioning as prudent rather than a signal of distress — but that didn’t stop Santander’s shares sinking on the day.
(And much more so than some domestic rivals):
So what could have spooked shareholders?
While we can’t be sure of the reason, we would like to draw your attention to the bank’s Texas ratio (H/T Diapson Commodities’ Sean Corrigan).
For those unfamiliar, the Texas ratio looks at provisions in the context of a bank’s tangible common equity — a measure banking analysts particularly liked for gauging solvency at the peak of 2008 bank crisis. You can read more about the importance of TCE in FT Alphaville’s coverage here, here and here.
The problem at Santander, it transpires, is that the bank’s so-called TCE ratio — as derived from TCE — has not shifted that much since 2007, standing at about 2.9 per cent (according to our rough calculations).
Which happens to put the bank’s current Texas ratio at 35 per cent — a whopping deterioration compared to December 2007, when it was only 12 per cent.
Anything close to 100 per cent, meanwhile, is considered a clear warning signal in terms of banking solvency.
When you look at the dispersion of provisioning as per the chart below, meanwhile, you might ascertain which of Santander’s regional businesses has been busy eating up most of that shareholder equity too:
Related links:
Santander’s prudent provisioning, or not? – FT Alphaville
BBVA, an exercise in Spanish banking losses – FT Alphaville
Shadow bank losses – FT Alphaville