Banco Santander SWOT & PESTLE Analysis

Strength

1. Leading financial holding company: Banco Santander is one of the leading financial holding company with strong financials. The net interest income grew by 10.2%, capital ratios improved and EPS grew by 0.9% in 2017. Its total assets grew by 7.9% to 1,444,305 million euros. Strong financials buttress bank solvency and prevents crash-landing failures in times of economic crisis. It also helps in meeting leverage ratio and cash reserves in adverse scenarios during business cycle fluctuations. The group’s earning has been least volatile over the last 20 years as compared to its peers. The bank has earned credibility and trust which adds more customers and investors & boosts its global value proposition. It helps in expansion and diversification of business to generate more capital.

2. Dominance in European and Latin American Markets: The Company has strong presence in countries like Portugal, Germany, Poland, UK, north-eastern United States, Chile and Puerto Rico. Portugal & Brazil which is evident from the 85% contribution to profits from international operating zones and market leadership among private banks in Spain, Argentina, Portugal and Chile. It is also one of the leading financial companies in Latin America where it won Bank of the year award. This is due their balanced & diversified business in every country which gives long term sustainable results throughout the cycle. The emerging markets provide growth momentum and developed markets provide stability.

3. Innovation and optimal service delivery: Banco Santander have always valued providing best in class services and healthy dealing with customers as its top priority, this in turn is one of the main reason for its success. It has specialized services for clients in 14 countries. Operational efficiency is at the core of the group’s strategies of multi-channeling, deepening digital strategy, strengthening the distribution model and launching new commercial initiatives which decreased cost of credit for the fifth consecutive year by 11 bps. There was a 30% increase in loyalty and 60% less attrition in 2017.

4. Growing wealth management division: The group has integrated its Asset management and private banking businesses for specialization in wealth management in Europe and Americas. It managed assets worth €333 billion in 2017. The personalized services created synergies and also gives it a competitive advantage. This gives a fillip to revenue as the group strengthens its market leadership in core markets. This will also help the group leverage connectivity between the franchises and in building new digital capabilities. Integration increased their loyal customer base by 13% to 17.5 million.

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Weakness

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Opportunity

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Threat

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Political

1. Impact of political stability on credit market: Political instability makes the market volatile like it did during Brexit, general elections in Spain and the US, political-economic situation in Brazil & constitutional referendum in Italy in 2016. This also slows down economic growth and cause exchange rate headwinds. Depreciation of pound following the Brexit referendum adversely affected their core capital coverage ratio. The uncertainty due to Brexit has can affect the retail business which is expected to grow by 1.4% only in 2018. Political risk rose before France elections which led to increase in risk premiums of public debt, however it considerably declined after Emmanuel Macron's victory. The political stability in advanced and emerging economies in 2017 positively affected global trade and created confidence from which the group benefitted due to renewed buoyancy.

2. Impact of US tax reform: Banco’s overall profits fell in US by 7% in 2017, but were partially offset by the gains from new tax reform of reduction in corporate tax rates from 35 to 20 percent. But it also made capital gain €73 million from the United States tax reform. It will redistribute the gains from the lower tax rate by giving the regional workers a wage raise. It will also increase new lending as investment picks up due to better profitability. The reform will increase the group’s net income and gross margins.

Economic

1. Impact of political stability on credit market: Political instability makes the market volatile like it did during Brexit, general elections in Spain and the US, political-economic situation in Brazil & constitutional referendum in Italy in 2016. This also slows down economic growth and cause exchange rate headwinds. Depreciation of pound following the Brexit referendum adversely affected their core capital coverage ratio. The uncertainty due to Brexit has can affect the retail business which is expected to grow by 1.4% only in 2018. Political risk rose before France elections which led to increase in risk premiums of public debt, however it considerably declined after Emmanuel Macron's victory. The political stability in advanced and emerging economies in 2017 positively affected global trade and created confidence from which the group benefitted due to renewed buoyancy.

2. Impact of US tax reform: Banco’s overall profits fell in US by 7% in 2017, but were partially offset by the gains from new tax reform of reduction in corporate tax rates from 35 to 20 percent. But it also made capital gain €73 million from the United States tax reform. It will redistribute the gains from the lower tax rate by giving the regional workers a wage raise. It will also increase new lending as investment picks up due to better profitability. The reform will increase the group’s net income and gross margins.

Social

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Technological

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Legal

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Environmental

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