Saenz: Reform could be dangerous

“If all these elements that are being discussed under the Basel III umbrella are put in place… it would be very onerous, a heavy burden on the profitability of the banking system and the banking industry,” Alfredo Saenz, chief executive of Santander, told UK lawmakers recently.

He said it was impossible to accurately predict the impact as details of many of the measures were not known.

Top banks would see annual profits slump by $110bn if proposed regulations to increase capital and liquidity and other reforms are brought in, analysts at JPMorgan estimate, saying it would hurt economic growth and raise bank costs.

As part of the reform process, Santander submitted a “living will” to the Bank of Spain earlier in the month, to outline how it would be wound down if it collapsed, to prevent a wider financial crisis, Saenz said. He said its plan will need to be “fine-tuned” but he thought it was the first bank in the world to submit one.

All systemically important banks need to develop a living will by the end of this year, under proposals set out by G20 countries last year.

Saenz was being quizzed by UK lawmakers as part of a probe on whether banks are “too big to fail”.

He and Executive Chairman Emilio Botin have steered Santander through the financial crisis thanks to a risk-averse model, a focus on retail banking and lucrative operations in Brazil and elsewhere offsetting a tough Spanish market.

More capital for risk
Forcing banks to hold more capital to cover riskier activities would be better than forcing the break-up of big lenders, Saenz said.

“I would be in favour of extra requirements of capital for riskier activities, such as proprietary trading. Rather than a separation, I would advocate for additional requirements of capital,” he told the UK parliament’s influential Treasury Select Committee.

Saenz said Santander had “negligible” activity in so-called “prop trading”, which the US wants banks to separate from other areas. Proprietary trading is when a firm actively trades with its own money, rather than on behalf of a customer, to make a profit for itself.

“I can’t see any benefit in this kind of break up of banking, the community and the customers would lose efficiency which means better prices and better services,” Saenz said.

He said use of a leverage ratio, which the US is pushing to be used more widely, was not popular in Europe as it failed to capture the risk of assets.

Santander is the second-biggest home loans provider in Britain with a market share of 13 percent and wants to bulk up in commercial banking, Saenz said, targeting a market share of between eight percent and 10 percent, from under three percent now.

It could pick up some of the assets being sold by rivals Royal Bank of Scotland or Lloyds, sources familiar with the sales have said previously.