Last week, with a two-paragraph announcement headed “Material fact”, one of Europe’s biggest banks slashed its dividend by two-thirds and raised E7.5bn in new equity. If ever there was a demonstration that Santander, owner of Abbey National and Alliance & Leicester in Britain, is not like other banks, this was surely it.
A quick presentation disclosed a 30 per cent rise in net profits, highlighting a capital position that implied little need for new funds. Then followed a mega “accelerated book build” by Goldman Sachs and UBS. to issue the maximum allowed under the rules restricting share sales to outsiders.
There was no tedious underwriting of an offer to shareholders, which considering Santander’s vast shareholder register following its British takeovers, is understandable. Rather than view small shareholders as an unwanted cost, the bank had positively welcomed fragmentation of the register. It had also allowed holders to take more shares instead of cash dividends, an option encouraged by the tax rules for Spanish holders. It worked. Dividend declarations of over E6bn in 2013 cost less than E1bn in cash payments.
The drip-feed of returning capital increased the number of shares in issue by a quarter in five years. Yet the price defied this watering of the stock, and last September brokers Berenberg, pointing to its gravity-defying nature, rated the shares a sell at E7.66.
At the same time, a new executive chairman arrived. Exhaustive selection processes are for other banks, but Ana Botin is the daughter of the founder, and while Santander is no longer a family firm, the family doesn’t seem to have noticed. Despite its controlling only 2 per cent of the Santander equity, there was never any argument about who should succeed Emilio Botin.
It may be that Ms Botin is sufficient of a chip off the old block to steer the bank as competently as a conventionally-chosen chief executive. The hedge funds which snapped up 60 per cent of the issue at E6.18 apiece must believe it. Perhaps they were encouraged by Ms Botin’s pledge that in future most of the dividend would be paid in cash, rather than the sleight-of-hand issue of new shares.
As for the by-passed small shareholders, they shouldn’t grumble. No only were the E75m of fees paid to Goldman Sachs and UBS modest by today’s standards – a rights issue would have cost much more than 1 per cent of the sum raised – but they can buy all the shares they want today at E5.98.
When you’re in a hole…
If there’s an enthusiastic buyer with a big slug of cash he’s pledged to invest, you might think it would provide some protection against a falling share price. You’d be wrong. Every market day since Christmas, traders for Glencore have been buying back the company’s shares, in ever-larger numbers. The sellers, though, just keep on coming, and while all the miners have had an unhappy new year, few major stocks have fallen as far as Glencore.
So far, almost half of the £120m the company earmarked on Christmas Eve for buybacks has been spent, and the shares are down 20 per cent. At 240p they are well under half the 2011 flotation price, and a considerable embarrassment for the smartest guys in the room.
We shall have to wait to see how well Glencore’s own traders coped with the plunging copper price. Unfortunately, as the world’s largest miner of the metal, it’s pretty exposed. However, those traders buying shares for the company, having spent the equivalent of about 0.5p a share, might learn from their experience and suggest paying the rest direct to the remaining shareholders instead.
Jordan’s a stunner
Oi ref! That Thomas Jordan’s well offside. That move is against the rules of the central bankers’ game. Look at all the money we’ve lost! And, adds Christine Lagarde at the International Monetary Fund, the bankers’ referee, he didn’t even tell me he was going to free the Swiss franc.
Well, no, of course he didn’t. Ask George Soros how much you can make getting ahead of a step change in the value of a currency. The least expensive way to do it is without warning, as the Swiss National Bank did on Thursday morning. The short-term cost to the bank’s credibility and the Swiss economy is high, but nothing like as high as continuing to defend the indefensible.
Currency pegs break. However appropriate the rate is at the start, diverging economic performance builds up intolerable stress over time, as Britain discovered in 1992. The Swiss economy has grown by 7 per cent since 2008, while the eurozone’s is still smaller. Even without the threat of yet more euros to add to its mountains, the fixed exchange rate was unsustainable. That Thomas Jordan. What a player!
Gold interest, sort of
The drawback of owning gold, the textbooks point out, is that it earns no interest. Well, these things are all relative. It earns more than a deposit at a Swiss bank, since you must now pay them 0.75 per cent to look after your newly-revalued francs. Finland, Germany and Japan all have zero rates, and deposits in France earn next to nothing. All this before the European Central Bank starts its money-printing programme. At least with gold the bank won’t charge you an interest rate for holding it.
This is my FT column from Saturday