Banco Santander (SAN) stock surged Tuesday as investors bet on the prospect of accelerated shareholder returns after a report that confirmed the bank's capital strength.
The speculation was prompted by the conclusion of the European Central Banks recent review of capital buffers and targets across the sector, which was broadly positive for the Spanish lender and revealed in a release published by Santander Tuesday.
Santander stock rose by as much 2.6% in Madrid to change hands at €4.30 each, trimming the year-to-date loss to 6.5%. Spain's biggest lender, however, has missed out on the Trump reflation trade that has lifted many of the largest European banks since the November 8 election, falling 6.9% compared to a 3.5% gain for the Stoxx 600 Banks Index.
The ECB told Santander that it must maintain a consolidated common-equity-tier-1 ratio (CET1) of 7.75% during year ahead, much less than the 12.4% ratio reported at the end of the third quarter, which now leaves the bank with excess capital to deploy. On an individual basis, the ECB has instructed Santander to maintain a CET1 ratio of 7.25%, markedly below the 14.31% individual CET1 for the bank.
"The strength of the Group business model and its geographical diversification ... provide us with ample support to continue implementing our strategy going forward," CEO Jose Antonio Alvarez said in the statement.
The out performance has not been without merit. The bank beat expectations for third quarter earnings and reported an 8% increase in adjusted earnings for the first nine months of the year. The increased headroom in its capital buffer could ostensibly support increased payouts.