Banco Santander Q1: Good, But Still Not Enough Again

So, Banco Santander delivered a decent quarter, but is that enough to convince investors to pile in? Let’s dig into the numbers and see why this European banking giant is showing progress but still leaving shareholders hungry for more.

The Good: A Solid Start, But Adjust the Lens

On paper, Banco Santander’s Q1 2025 results look respectable. Revenue nudged up 1% to €15.5 billion, while attributable profit soared 19% to €3.4 billion. But here’s the catch: that tax tailwind! A one-time Spanish tax break in 2024 inflated last year’s profit, making this year’s “growth” less impressive. Strip out that distortion, and profit growth slips to a still-respectable 10%.

Customer growth is a bright spot: 9 million new customers pushed the total to 175 million. That’s a record for the bank, and digital adoption is key—88% of Chile’s customers now use its Cuenta Pyme Life platform. But let’s not forget: Santander’s efficiency ratio inched up to 41.8%, a slight retreat from the prior quarter. Cost-cutting isn’t done yet.

Regional Stars and Stumbling Blocks

The real story lies in its regional subsidiaries. Banco Santander Chile (BSAC) is the star, with net income surging 131% to Ch$278 billion. Its net interest margin (NIM) hit 4.1%, a 140-basis-point jump from a year ago, thanks to lower funding costs and a tech-driven overhaul. The efficiency ratio dropped to 35%, which is gold for banks.

But then there’s Brazil—a mixed bag. Banco Santander Brasil (BSBR) hit record profits of R$3.4 billion, fueled by fee income. However, loan loss provisions jumped 7% due to Brazil’s shaky economy. Throw in currency depreciation and regulatory headwinds, and you’ve got a 60-basis-point drag on profits. Ouch.

The Gravity of Tech Transformation

Santander Chile’s Gravity Project—its cloud migration—is a game-changer. Completing the shift from mainframe systems to the cloud in Q1 2025 was a massive win. This move will cut costs and boost customer experience long-term, but it’s not free: legacy write-downs and tech expenses hit short-term earnings. CEO Hector Grisi is right to push this—it’s critical for staying competitive.

In the U.S., Open Bank added 90,000 customers, deposits swelled by $3.5 billion, and funding costs improved. But let’s be honest: the U.S. market is crowded. Santander needs more than incremental gains here.

The “Not Enough” Factors

1. Tax Timing: That Spanish tax break was a one-off. Without it, growth is slower.
2. Currency Headwinds: The Mexican peso and Brazilian real are hammering Santander’s bottom line.
3. Brazil’s Woes: Loan losses and regulatory hurdles aren’t going away soon.
4. Cost Management: The group’s efficiency ratio ticked upward. Investors want downward momentum.

Management’s Gamble: 2025 Targets Are a Stretch

Santander’s leadership is bullish. They’re on track for a 16.5% RoTE, €62 billion in revenue, and a 13% CET1 ratio by year-end. But let’s crunch the numbers:
- To hit the RoTE target, they need strong fee growth and cost discipline.
- Brazil’s 7% loan loss increase and 60-basis-point currency drag could derail revenue.
- The Gravity Project’s benefits are long-term; short-term pain is real.

Conclusion: A Buy, But With Caveats

Banco Santander’s Q1 was a “good but not great” performance. The bank is making progress in digital transformation, customer growth, and capital strength. Chile’s results are stellar, and the CET1 ratio at 12.9% gives a cushion for rough patches.

However, Brazil’s struggles and currency risks are red flags. The stock trades at a P/B of just 0.8x—cheap for a bank with its capital ratios—but investors won’t pay up until macro risks fade.

Bottom Line: Buy Santander if you’re a long-term investor betting on global banking consolidation and digital dominance. But if you’re playing macro bets, wait for clearer skies in Brazil and Europe. The fundamentals are there, but the “not enough” factors are still too many to call this a slam dunk.

Stay hungry, stay Cramer-ized!
—The Mad (But Cautious) Banker