Capital raising fears, analysts recommend selling Santander

The Italian firm UniCredit was the first major European lender to confess that they needed to raise capital. It is clear that market conditions are deteriorating the bank, but some lenders insists that they will not have to raise funds by issuing new shares. The perception from outside is quite clear, and the door has been opened to operations of this kind. Among all the Spanish lenders, Santander is the most susceptible.

By now it is obvious that Emilio Botín's bank is looking for ways to bolster itself through a capital campaign. Generally, "it is difficult to think that the firms will be able to comply with capital requirements within the given time frame. There is significant risk of direct and concealed capital campaigns (through convertible bonds) such as cutting shareholder dividends," said Félix González from Capitalia Familiar.

In Santander's last meeting with analysts and investors in late September, the bank tried to convey a different message in regard to dividend payments. Still, two big problems must be kept in mind. First, "the biggest Spanish banks are the ones who need the most capital reserves," as González pointed out. Second, Santander is the only bank with systemic risk according to the European Council for Financial Stability. This means that Santander will have to accumulate bigger capital reserves than other banks in Spain.

The new mandatory regulation forces lenders to boost their core capital amounts by 7% and, further, they will have to apply an additional buffer of 1-2.5%. Some sources indicate that Santander will only have to come up with the 1% minimum amount.