Santander Capital Allocation Rating: Standard

Santander offers investors a combination of emerging-market and developed-market banking exposure. This will not be to everybody's taste. Santander points to its track record of lower earnings volatility as vindication of its geographical diversification strategy, while most fund managers will point out that they can use portfolio construction to achieve the same diversification benefits. We believe that Santander could boost its profitability, release capital, and rerate its valuation by trimming its portfolio to operate only in areas where it has a clear competitive advantage. Santander's U.S. regional banking business has been a particular drag on group profitability for the better part of a decade.