Santander – Dividends, Legacy securities and 2021..
Some of Santander’s legacy hybrid securities were downgraded by Ratings Agency Fitch (Link to Fitch Ratings) in early October. This was on the basis that an anticipated loss would stop the Bank from paying coupons in 2021, based on terms and conditions of those particular securities. The Ts & Cs also appear to prevent the payment of equity dividends.
The above also caused some minor uncertainty this week around its AT1 coupons. However, the market then chose to go with the theory that these legacy securities will be called/tendered such that it will not cause an impediment to Santander’s ability to pay a dividend. One of its legacy securities added around 15pts on the hope of an early retirement.
You may all recall that Santander is the first large European Bank to propose a dividend on this year’s financials. The proposal needs to be approved by shareholders on 27 October. The payment of the dividend depends on the ECB lifting its ban on bank dividend payments which is currently in place till January 2021.
I believe there is a wider consideration here with regards to the ambition to resume payment of equity dividends. Is it a sign of confidence from some senior bank management teams that the worst is over in terms of COVID19 impact and that they are comfortable with capital ratios? There are of still of course longer term challenges like lower rates for longer and bringing down bloated cost bases…
Feel free to post comments below.
*Not investment advice. I own investments in the Banks sector*