Farewell, Emilio Botin: Banco Santander Prepares for Tomorrow

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Wharton's Mauro Guillen on What's Ahead for Banco Santander

The chairman of Banco Santander, Emilio Botin, died on September 10 at age 79. Over the past few decades, he was a key force that transformed the Spanish lender into one of Europe’s largest banks. In a second, not entirely unexpected event, Botin’s daughter has been named as his replacement: Ana Patricia Botin, 53, had been head of Santander in the U.K. She becomes the fourth generation to head up the bank over more than 100 years.

Emilio Botin was a highly respected person in Spain, and some reports have noted that the public often listened to his rare pronouncements about the economy much more closely than they would to statements made by politicians.

Wharton management professor Mauro Guillen, who is also director of The Lauder Institute, talked to Knowledge@Wharton about Botin’s legacy and where the bank goes from here. Guillen is co-author of the book, Building a Global Bank: The Transformation of Banco Santander.

[Disclosure: Banco Santander is a sponsor of Universia Knowledge@Wharton, our Spanish and Portuguese language editions.]

An edited transcript of the conversation appears below.

Knowledge@Wharton: Let’s start with Emilio Botin’s career at Santander, and then discuss the future under his daughter’s leadership. Perhaps you could start with just putting Botin’s career in perspective. How much did he mean to the banking industry, to Spain and to global banking in general?

Mauro Guillen: He was certainly a very, very successful banker. He inherited from his father a bank that was not even the largest in Spain. It was tiny in Spain. It was only the 260th [largest] in the world. And today, the bank is one of the top 10 banks in the world. It is the largest in the eurozone. So from that point of view, he’s certainly somebody who will go down in history as one of the greatest bankers of the second half of the 20th century Twitter . He was a great strategist, but also a great tactician, because he often caught competitors by surprise.

It was also true, of course, that in his home country in Spain, he was a powerful figure. He was running the largest bank in the country, and was the banker at the helm of a major bank for the longest period of time — because he’s been the executive chairman since the 1980s…. He is a very important figure in global banking, and also, of course, in Spanish economic and financial life.

“[Botin is] certainly somebody who will go down in history as one of the greatest bankers of the second half of the 20th century.”

Knowledge@Wharton: His daughter, Ana Patricia Botin, was appointed as his successor as chairwoman. There were worries by some investors before she was appointed that the family had too much influence in the bank, even though they’ve run it so successfully, [and even though] they had only 2% equity stake in the bank. But apparently, there were many, many supporters of the family on the board, and in positions of power. And so I guess you could say it was a shoe-in that she would take over his spot. Is that right?

Guillen: Well, yes. Ana Patricia has a long history at the bank, as well. She obviously belongs to a different generation; she’s in her mid-50s. She’s very cosmopolitan. She speaks several languages. She’s worked in many different areas of the bank. But, of course, there is always this lingering doubt as to whether she had made it to the top of one of the most important financial institutions in the world because of her last name, or because of her merits. And this is something that, no matter how hard she tries, it will never go away.

But let me point out that there are some pluses from having her at the helm. One of them is stability. You know that the current corporate governance structure, which has worked relatively well, will remain in place. Banco Santander has weathered the financial crises, it ran pretty well. It didn’t need any government money. The fact that Banco Santander was diversified geographically across well-developed countries in Europe and emerging economies in Latin America actually helped it overcome the impact of the crisis in ways that many other banks in the world couldn’t.

There is always going to be this question about the role of the Botin family. I would say that rather than thinking about the fact that they have only 2% of the equity in the bank, it’s more important to know that most of the wealth of the family is invested in Santander shares. So, that means that if they’re running the bank in some capacity, the objectives are aligned. That is to say that they want the bank to do well. But I guess this is why most shareholders, especially the institutional shareholders, don’t mind the fact that the bank has been run by grandfather, father, and now daughter, over the last 50 or 60 years.

Knowledge@Wharton: Right. And 2% of the 10th largest bank in the world is quite a lot of money, anyway.

Guillen: It is quite a lot of money. But again, what’s relevant is that most of their wealth is in Santander shares. That is very, very important to keep in mind.

Knowledge@Wharton: Another report I saw today, which I thought was really interesting, argued that Ana Patricia now could be considered the third most powerful woman in finance in the world, behind Janet Yellen at the Federal Reserve and Christine Lagarde at the International Monetary Fund. What’s your thought about that?

Guillen: We go through generational change. We are going through a process in society, and our ambition is in politics, whereby more and more women are reaching top positions. There are still far more men, of course, in positions of power around the world than women. But we’re starting to see change. And it is true that in the world of finance [Ana Patricia Botin] will be the first woman to be at the helm of one of the largest financial institutions in the world….

We actually have many more women at the top in technology. There is a woman CEO at GM, now, and at several other companies around the world. I think the financial services industry needs to change the same way that society is changing, and other industries are changing. It has always been a very male-dominated environment. And this is a step in the right direction.

“The fact that Banco Santander was diversified geographically … helped it overcome the impact of the crisis in ways that many other banks in the world couldn’t.”

Knowledge@Wharton: Botin comes in as the fourth generation to be largely running the bank. The family has run it very successfully. Could you give us a sense of, what is it about their business model that propelled them from 260th in the world to the top 10?

Guillen: Essentially, this is a retail bank that runs a very expensive franchise, or network of franchises, in different parts of the world. They have a lot of branches. They have a lot of employees. They have a lot of depositors. They have a lot of customers. And their business model is to stay focused on bread and butter banking. Although they have some limited investment banking operations, and some limited private banking operations, they’re mostly focused on the commercial business and on retail both for small firms, and for individual customers like yourself, or myself.

It is this focus, this obsession that they have with holding costs down, with establishing risk assessment systems that will enable them to lend money to those people who deserve it, and who can pay the loan back, and not to [loan to] other people who don’t have the means to pay the loan back. It is a focus on all of the good old practices of banking. That I think is a key to success. The other thing that they have done really well is to incorporate information technologies, especially in the back office. They’re very good at that as well.

Knowledge@Wharton: Banco Santander survived, and even thrived, during the financial crisis, in a way that very few banks did. Was that because they weren’t involved in all the higher-risk trading and investment banking and really focused on retail? What were the reasons for that?

Guillen: Correct. They were affected a little bit by the financial crisis that started here in the United States, in the sense that they had some involvement in some of these financial instruments that proved too complex to manage and to assess. They also got a little bit into trouble, if you remember, with the Bernie Madoff debacle. [Banco Santander agreed to pay $235 million to settle potential legal claims by the trustee liquidating Madoff’s brokerage firm. The bank had invested $3 billion of its clients’ money with Madoff.] So, they also were affected by that slightly. But it’s a very large bank. Even though they were exposed to the tune of a few billion dollars in the crisis from some of these investments, the bank was big enough and healthy enough to sustain the blow.

And the other thing that really helped them was the geographical diversification. They had, of course, at the time of the crisis, a very, very large footprint in Spain and in Portugal, and in the U.K. But they also had a very strong presence in economies that continued to grow throughout the crisis, like Brazil or Mexico. I think these are the factors that helped them weather the crisis quite successfully. If you remember, not only did they not shrink during the crisis, but they actually continued making acquisitions during the crisis, in 2008 and 2009.

Knowledge@Wharton: Today, given this generational change, can you tell us, where is Santander heading as an institution, and how might that change under Ana Patricia?

Guillen: Santander right now is in reorganization mode, in the sense that now the emerging economies are not growing, especially in Latin America, as much as they were two or three years ago. [Santander] was selling some assets, and buying some other assets. They were trying to continue cutting costs, and become more efficient. They were trying to reorganize themselves for this new world, in which it’s not clear where the growth is going to be coming from. They were also in the midst of a process to continue attracting young talent to the bank, and to usher in a new generation. So what we’re seeing today, in the wake of the death of the chairman, is a change at the top. But the bank had been, for the last two or three years already, evolving in terms of the second tier or third tier of managers.

“The challenge of this new generation is not so much to enter new markets, but rather to look for ways to engage the younger generation as paying customers.”

In terms of Ana Patricia and the challenges lying ahead of her, I think by far the most important one is how the bank can benefit from information technology and from mobility. And from this new way of thinking about banking and financial services that is emerging, in which non-bank institutions such as Paypal, or now Google, are playing an increasingly important role. I think that’s going to be her biggest challenge. The challenge of this new generation is not so much to enter new markets, but rather to look for ways to engage the younger generation as paying customers. And in that, I think technology will play a very important role.

Knowledge@Wharton: Do they have much of a presence in Asia, or are they planning to have much of a presence in Asia?

Guillen: This is a bank that has been very cautious about Asia. As you know, Asia is a very big place with some very big markets, like China, India or Indonesia. They have established, of course, representative offices and other forms of a presence, because some of their customers, especially corporate customers, require them to do so. But they haven’t really had a retail presence in the region. And I don’t think they’re anywhere near to having a retail presence in the region. They now have a greater presence in China. There’s a wholesale banking and representative banking [presence], and all of that. They are observing the market.

But I think it’s very difficult at this moment for a European bank without a tradition of doing business in Asia, like HSBC, for instance, or Barclays, to have a major presence in that part of the world. I don’t think that’s the next step that the Santander is going to take. I think Asia has its own dynamic, and has its own banks. And I don’t think that’s a potential growth area for them.

Knowledge@Wharton: Given that growth has slowed in emerging markets, as you mentioned, and in some developed countries, where does Santander see growth coming for them in the future? Where are they investing?

Guillen: Right now, they are betting big time on the U.S. market; to be more precise, the Eastern seaboard — the markets between Maine, to the north, and all the way south to Washington, D.C. If you remember, they acquired in steps Sovereign Bank, which has a strong presence in that part of the country. For the last six or seven years, they managed the Sovereign brand as a separate brand. But about a year ago, they made the decision to get rid of the Sovereign brand, and to introduce the Santander brand. And they’re opening new branches. They are hiring hundreds of bankers to staff those branches. They really want to grow in the market. They’re offering, I think, better service than the average retail American bank, and they’re offering very good deals, that are competing on price. So, I think right now, the bank is very much focused on growth in the United States, again, as a way to maybe catch this recovery that is going on right now in the U.S. economy.

Knowledge@Wharton: What else about this changeover at Santander, this generational changeover, would it be important for listeners to know?

Guillen: Not just Santander, but all banks, all retail banks in the world — especially in the United States — they face a very important problem, which is that younger people, people in their 20s and 30s, they really would prefer not to do business with a bank, if they can avoid it. Not only don’t they trust the banks — and the reputation of banks have suffered immensely in the wake of the crisis — but also, they prefer to use their smartphone. They prefer to use Paypal. They prefer to use Google Wallet. There’s a lot of innovation going on, in terms of payments, in terms of how you finance your purchases as a consumer.

I think that is a challenge for this new generation of bankers. They need to understand young people better. They need to be able to leverage technology in a way that they can engage them. And they need to fundamentally rethink their business model, which hasn’t changed much over the last several hundred years. They really need to embrace technology and mobility, and to rethink the way they reach customers, and the way they interact with customers.

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