Santander has set its sights on becoming a major force in European investment banking, challenging the Wall Street powerhouses that have come to dominate the industry.

The ambition is a marked departure for Europe’s largest retail lender, which has spent much of the past four decades building a consumer banking empire spanning 20 countries from its domestic market in Spain to Poland and the US.

It also underlines the pressure on Santander to escape the effects of low interest rates, which have eroded profits at its retail business. But as European rivals such as Deutsche Bank shrink their investment banking operations, Santander reckons there is an opportunity to take advantage of what it believes is a growing unease about the dominance of US lenders.

“In Europe it is fair to say that we started being probably a tier two to tier three [investment bank]”, said José María Linares, who was recruited from JPMorgan to expand Santander’s corporate and investment banking division. “The ambition is to be one of the leading European banks.”

Jose Linares: ‘The question [when I arrived] was not profitability and efficiency, it was size’

Investment banking activity accounted for 15 per cent of Santander’s revenues and 28 per cent of pre-tax profit in the first quarter of this year, but the bulk comes from its traditional strongholds of the Iberian peninsula and Latin America.

For Santander executive chair Ana Botin, who last year presided over the bank’s first annual loss in its 164-year history as the pandemic ravaged its consumer businesses, there is a lot riding on plans for the investment bank. Although Santander’s performance improved in the first quarter, the bank’s shares are still down almost 40 per cent over the past four years.

Line chart of Division's profit as a proportion of group's total pre-tax profits (%) showing Investment banking is becoming increasingly important for Santander

Linares acknowledged that the bank would never be “all things to all people”, but said it had already made solid progress in several markets, climbing up league tables in areas of relative strength such as high-grade credit.

Last year it was the largest provider globally of project finance — which supplies funding for large-scale infrastructure and industrial projects — compared with eighth in 2018, according to Inframation, an infrastructure data provider.

The lender has also jumped from being the 16th largest player in European investment-grade debt capital markets in 2018 to fifth this year, according to Bloomberg data.

Linares, who joined the bank four years ago, hopes to complement its credit capabilities by building new business in areas such as M&A advisory, particularly working with private equity firms.

Rivals are taking Santander’s efforts seriously, but caution that adding scale is easier said than done.

“You don’t become top three just because you decide you are going to,” said the head of investment banking at a European rival.

The effort to break into the top tier of investment banks in Europe has persisted despite the failure of Santander’s 2018 plan to recruit Andrea Orcel, one of Europe’s highest-profile dealmakers, as chief executive.

Expanding the investment bank was part of a 10-point plan Orcel drew up for Santander, according to a person familiar with the matter, but his proposed appointment ended in acrimony and an ongoing legal battle.

Nor is Santander the only European lender sensing an opportunity. BNP Paribas is making a similar push but starting from a much larger base with €12bn of annual revenues at its corporate and investment banking division before the pandemic, compared with Santander’s €5.2bn.

Both banks benefited as US rivals reduced their appetite for European deals at the height of the pandemic. While BNP topped the European tables for syndicated loans deals by value in the first half of 2020, Santander jumped 15 places to third, according to Dealogic data — though the Spanish bank has dropped out of the top 10 this year.

“Europe has to have a strong, healthy banking system, no shred of a doubt,” said Linares. “It is obviously good that Americans can provide a competitive offer, but I think that especially our European clients want to see European banks with them.”

The Madrid-headquartered bank is also betting that a wave of deals related to the EU’s drive towards energy transition and digitalisation will help it to realise its goals in Europe, as well as Santander’s existing relations with Europe’s smaller Mittelstand-style companies.

However, Santander is also pursuing its ambitions without a significant increase in staff. Headcount within corporate and investment banking has risen from 4,350 in 2018 to 4,550 today — a total that remains dwarfed by the likes of Deutsche Bank and BNP.

But Linares insisted that was not an obstacle. “It has not grown enormously, but what you have seen is a substantial upgrade in the calibre of people,” he said. “I think it’s a business where it’s more important to have a few really good people rather than legions.”



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