January 8, 2015 / 2:42 PM / 5 years ago

UPDATE 5-Santander to boost capital and cut dividends in Botin shake-up

* Spanish bank raises 7.5 bln euros with quickfire share sale

* Share placement priced at 6.18 eur per share

* Cuts 2015 dividend to 0.20 euros per share

* Says fundraising will support growth in key markets

* Expects 2014 net profit up 30 pct to 5.8 bln euros (Adds final pricing)

By Jesús Aguado and Sarah White

MADRID, Jan 8 (Reuters) - Santander’s new chief Ana Botin continued her shake-up of the Spanish lender on Thursday by announcing a 7.5 billion euro (US$8.8 billion) capital increase and dividend cut to help to fund its expansion.

Capital levels at the euro zone’s biggest bank had long been under scrutiny, along with what some analysts said was an overgenerous dividend policy in the years since the 2007 global financial crisis.

“I think it’s the right thing to do. They needed to strengthen their capital base,” said Francois Savary, chief investment officer at Swiss bank and fund management group Reyl, which owns Santander shares.

Santander has weathered a deep economic crisis at home in recent years, helped by revenue from key overseas markets such as Brazil and Britain. The bank, which has several listed subsidiaries including in the United States, had previously resisted calls for it to raise cash from shareholders.

However, Santander said on Thursday that the cash raised will be used to grow in its key markets, including Spain, Brazil, Britain and the United States.

The capital increase through an accelerated share placing surprised some investors and is the latest sign that Botin is stamping her mark on the bank after taking over from her late father, Emilio, who ran Santander for 28 years until his death last September.

“Strengthening the capital now will allow the bank to capture the organic growth opportunities, increasing credit and business share in key markets,” the bank said.

Santander also said it will report a net profit of about 5.8 billion euros for last year, roughly 30 percent higher than in 2013. Income should rise about 6 percent from 2013, with losses from bad debts expected to fall by about 10 percent, it said.

It is due to report full 2014 results on Feb. 3.

HEALTH CHECK

Santander passed a health check of European banks last year, but its capital strength was weaker than peers including BBVA and BNP Paribas under a recession scenario used for the European Banking Authority’s estimates.

Santander is considered systemically important to global banking, which means that it has to hold extra capital because of the damage its collapse could cause to markets.

Ana Botin, who previously ran Santander’s British business, is the fourth generation of Botins to hold the reins and the family owns roughly 2 percent of the bank’s shares.

She ousted CEO Javier Marin in November, replacing the former close ally of Emilio Botin with finance boss Jose Antonio Alvarez.

Ana Botin’s shake-up extended to payouts for investors as Santander said that dividends from 2015 earnings would be cut to 0.20 euros per share, from 0.60 euros previously, with three out of four payments to be made in cash. It previously offered investors all payments as scrip dividends.

It intends to pay 30-40 percent of its recurring profits in cash dividends in future, compared with 20 percent currently.

About 46 percent of Santander’s shareholders are small individual investors, often customers of the bank.

Santander said that the cash-raising and dividend cut should lift its core capital ratio, on a full Basel III basis, by about 1.4 percentage points to about 10 percent this year. The ratio was 8.3 percent at the end of 2014.

The historically acquisitive Santander is also among those to have expressed interest in the sale of Portugal’s Novo Banco, the bank created after the collapse of Banco Espirito Santo last year.

Goldman Sachs and UBS are joint bookrunners for the sale of 1.2 billion shares and are fully underwriting it.

These were placed at 6.18 euros per share, Santander said late on Thursday, a discount of around 10 percent to the price the stock closed at earlier in the day, when it was suspended. Two sources had earlier said the stock would be sold within a 6.18-6.50 euro per share price range.

The new shares start trading on Jan. 13. ($1 = 0.8495 euros) (Additional reporting by Steve Slater, Sudip Kar-Gupta and Freya Berry in London, Elisabeth O’Leary in Madrid; Writing by Sarah White; Editing by David Goodman)

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