Fed Rejects Santander Holdings USA Inc's Capital Plan
30 June 2016 - 7:00AM
Dow Jones News
By Peter Rudegeair and Jeannette Neumann
The Federal Reserve rejected the capital plan of Santander
Holdings USA Inc. in the regulator's annual stress test released
Wednesday.
This marks the third consecutive year in which the Fed faulted
the U.S. unit of Spain's Banco Santander SA in its yearly review.
Although the U.S. central bank found that the unit had enough
capital to weather a severe economic downturn, it rejected
Santander's capital plan for so-called qualitative reasons, citing
"material unresolved supervisory issues."
Among the deficiencies the Fed identified at Santander were
weaknesses in "internal controls, governance, and oversight
functions" as well as problems measuring and monitoring risk.
Santander executives have said during the past couple of years
that the regulatory troubles in the U.S. are partially the result
of growing pains as the lender builds up from scratch a holding
company to oversee its banking unit and consumer-lending
subsidiary.
At the low point of a hypothetical recession, Santander's common
equity Tier 1 ratio -- which measures high-quality capital as a
share of risk-weighted assets -- were estimated at 11.9%, well
above the 4.5% level the Fed views as a minimum. The new ratio,
unlike the one reported last week by the Fed in a related test,
takes into account the bank's proposed capital plan.
Santander's Tier 1 leverage ratio, which measures high-quality
capital as a share of all assets, would have reached as low as
10.1% in a hypothetical recession according to the regulator's
calculation, well above the 4% Fed minimum.
The latest stress-test result incorporates quantitative factors
assessed in data released by the Fed last week. These included a
simulation of how the bank's capital buffers would hold up under a
world-wide recession. The Fed's "severely adverse" scenario of
financial stress this year included a 10% U.S. unemployment rate,
significant losses in corporate and commercial real estate lending
portfolios, and negative rates on short-term U.S. Treasury
securities.
This second-part of the test also included a qualitative
assessment by the Fed of a bank's capital-planning process and
internal controls. The Fed has the ability to object to a bank's
capital plan on either quantitative or qualitative grounds.
The Fed's Wednesday results are arguably the more important part
of the stress-test process since they dictate how much capital will
be returned to shareholders. Increased dividends and buybacks can
help to bolster a bank's share price.
Santander's rejected capital plan is the latest in a string of
setbacks in the U.S. Last July, the Fed faulted the bank's U.S.
unit for failing to meet regulators' standards on a range of basic
business operations.
At the end of February, Santander revealed that executives at
the consumer-lending unit, a major issuer of risky car loans in the
U.S., had delayed the filing of its annual report after the U.S.
Securities and Exchange Commission raised questions about how it
provisions for loans.
"It is just a clarification we are working on with the SEC,"
Santander Chief Financial Officer Jose Garcia Cantera said in an
interview at the time.
Santander Consumer USA Holdings Inc. eventually published its
annual report at the end of March.
The company said in the filing that its "CEO and CFO have
concluded that as of December 31, 2015, we did not maintain
effective disclosure controls and procedures," citing problems with
how it estimates provisions for loan losses; ineffective oversight
of the inputs and assumptions used in its models and a
badly-managed hiring process that left the company with
poorly-trained and ill-experienced financial staff.
"We are currently working to develop plans to remediate the
material weaknesses," the company added in the March 31 filing.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com and
Jeannette Neumann at jeannette.neumann@wsj.com
(END) Dow Jones Newswires
June 29, 2016 16:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Banco Santander (NYSE:SAN)
Historical Stock Chart
From Apr 2024 to May 2024
Banco Santander (NYSE:SAN)
Historical Stock Chart
From May 2023 to May 2024