Santander Holdings USA, Inc. Announces 2024 Stress Capital Buffer

Rhea-AI Summary

Santander Holdings USA, Inc. (SHUSA) announced that the Federal Reserve has updated its stress capital buffer (SCB) requirement to 3.5% of its Common Equity Tier 1 (CET1) capital, effective October 1, 2024. This update results in an overall CET1 capital requirement of 8.0%. The increase in the SCB from the previous 7.0% is due to a higher projected decline in CET1 under severely adverse scenarios and planned dividends.

SHUSA remains well-capitalized, with $5.1 billion of excess CET1 capital as of March 31, 2024. The company maintains a strong capital position across all forecasted scenarios, including stagflation scenarios. SHUSA’s internal stress tests incorporate lower interest rates, high unemployment, and significant shocks to used car and commercial real estate prices. SHUSA is a subsidiary of Banco Santander (NYSE: SAN) and serves approximately 4.5 million customers.

Positive

• SHUSA retains $5.1 billion of excess CET1 capital over the 8.0% requirement as of March 31, 2024.
• Strong capitalization supports planned capital actions and long-term capital efficiency.
• SHUSA maintains a robust capital position in all forecasted stress scenarios.

Negative

• The SCB requirement increased from 7.0% to 8.0% due to a higher projected decline in CET1 under severe conditions and planned dividends.

Insights

Financial Analyst

The announcement by Santander Holdings USA, Inc. (SHUSA) regarding its updated Stress Capital Buffer (SCB) is significant for investors. The SCB has been set at 3.5% of SHUSA’s Common Equity Tier 1 capital (CET1), resulting in an overall CET1 requirement of 8.0%. This adjustment reflects the Federal Reserve's assessment of SHUSA's resilience under stressful economic conditions. For context, the CET1 ratio is a key metric indicating a bank's financial strength and its ability to withstand economic shocks. An SCB increase signifies that the Fed anticipates potentially higher risks, which could impact SHUSA's profitability and capital management strategies.

Market Research Analyst

SHUSA’s updated SCB has broader implications for the financial sector. By maintaining an SCB of 3.5%, SHUSA ensures it has sufficient capital to absorb losses while continuing operations during economic downturns. This move positions SHUSA competitively among other Category IV firms. Additionally, SHUSA's significant excess CET1 capital of $5.1 billion over the 8.0% requirement underscores its robust capital position. Retail investors should note that this buffer provides a cushion for SHUSA to navigate potential economic uncertainties without immediate need for capital raising, which can dilute shareholder value.

Banking Expert

From a banking perspective, the increase in the SCB stems from the Fed's reassessment of economic scenarios, including the possibility of severe adversities. SHUSA's internal stress tests, which simulate lower interest rates, high unemployment and significant market shocks, indicate a proactive risk management strategy. This proactive approach can instill confidence among investors regarding SHUSA's preparedness for adverse conditions. This could lead to a more stable stock performance in the long term, as the bank’s strategy aligns with prudent risk management practices. However, investors should also remain aware of potential implications for dividend payments and growth initiatives arising from heightened capital requirements.

BOSTON--(BUSINESS WIRE)-- The Board of Governors of the Federal Reserve System (the “Federal Reserve”) informed Santander Holdings USA, Inc. (“SHUSA”) on June 26, 2024, of SHUSA’s updated stress capital buffer (“SCB”) requirement, which becomes effective on October 1, 2024. SHUSA’s updated SCB will be 3.5% of its Common Equity Tier 1 capital (CET1) resulting in an overall CET1 capital requirement of 8.0%.

SHUSA’s strong capitalization supports our planned capital actions and the updated SCB is consistent with our long-term capital efficiency objectives.

As a Category IV firm under the Federal Reserve’s tailoring rule, SHUSA was subject to the Federal Reserve’s 2024 Supervisory Stress Test. SHUSA remains in the top half of the firms subject to the Supervisory Stress Test when measured by the minimum forecasted CET1 capital ratio and the decrease from starting to minimum CET1 capital ratio. As of March 31, 2024, SHUSA maintains $5.1 Billion of excess CET1 capital over the 8.0% capital requirement.

The increase in SHUSA’s 2024 SCB from the current 7.0% requirement is a result of an increase in the Federal Reserve’s projected decline in CET1 under the severely adverse scenario, which was last updated in the 2022 cycle, and planned dividends.

SHUSA completes its own stress tests utilizing our internally developed bank holding company stress scenario as well as the scenarios provided by the Federal Reserve. In our 2024 stress testing exercise, SHUSA maintains a strong capital position under all forecasted scenarios, including the exploratory stagflation scenarios included this year. SHUSA’s internal stress scenario includes lower interest rates, high unemployment and large shocks to used car and commercial real estate prices.

Santander Holdings USA, Inc. (SHUSA) is a wholly-owned subsidiary of Madrid-based Banco Santander, S.A. (NYSE: SAN) (Santander), recognized as one of the world’s most admired companies by Fortune Magazine in 2024, with approximately 166 million customers in the U.S., Europe and Latin America. As the intermediate holding company for Santander’s U.S. businesses, SHUSA is the parent company of financial companies with more than 11,800 employees, 4.5 million customers, and assets of over $165 billion in the fiscal year ended 2023. These include Santander Bank, N.A., Santander Consumer USA Holdings Inc., Banco Santander International, Santander Securities LLC, Santander US Capital Markets LLC and several other subsidiaries. Santander US is recognized as a top 10 auto lender and a top 10 multifamily bank lender, and has a growing wealth management business. For more information about Santander US, please visit www.santanderus.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240628889390/en/

Media:

Andrew Simonelli

andrew.simonelli@santander.us

Source: Santander Holdings USA, Inc.

FAQ

What is the updated stress capital buffer (SCB) for Santander Holdings USA (SAN) in 2024?

The updated stress capital buffer (SCB) for Santander Holdings USA (SAN) in 2024 is 3.5% of its CET1 capital, effective October 1, 2024.

When does the new SCB requirement for Santander Holdings USA (SAN) become effective?

The new SCB requirement for Santander Holdings USA (SAN) becomes effective on October 1, 2024.

How much excess CET1 capital does Santander Holdings USA (SAN) have over the new 8.0% requirement?

Santander Holdings USA (SAN) has $5.1 billion of excess CET1 capital over the new 8.0% requirement as of March 31, 2024.

Why did the SCB requirement for Santander Holdings USA (SAN) increase in 2024?

The SCB requirement for Santander Holdings USA (SAN) increased in 2024 due to the Federal Reserve's higher projected decline in CET1 under severe scenarios and planned dividends.

How does Santander Holdings USA (SAN) perform in stress tests?

Santander Holdings USA (SAN) maintains a strong capital position in all forecasted stress scenarios, including those involving lower interest rates, high unemployment, and shocks to used car and commercial real estate prices.