Analysts temper Santander shareholder payout expectations after Webster deal

Banco Santander SA is set to pay €2.71 billion less than previously expected to shareholders in the coming years as its $12.2 billion planned acquisition of US lender Webster Financial Corp. squeezes its capacity for share buybacks.

The Spanish banking giant had been forecast on Feb. 2, before the Webster deal announcement, to make total payouts including dividends and share buybacks, of €32.76 billion in the three years to the end of 2028, according to analyst consensus estimates data from Visible Alpha. However, as of April 15, those analysts now project Santander will return €30.05 billion to shareholders during that period.

The deal for Webster, which is being financed with a mix of 65% cash and 35% stock, leaves Santander with less capital to distribute to shareholders. The deal will consume 140 basis points of Santander's common equity tier 1 (CET1) capital, a key measure of solvency.

Santander has offered significant growth in shareholder distributions in recent years, paying out more than €10 billion through buybacks alone in the four years to the end of 2025, the data shows. The lender has enjoyed a surge in profitability since 2022 due to higher interest rates, which has driven improved shareholder returns and boosted the bank's stock.

The Webster deal is forecast to contribute 300 basis points to an 800 basis-point improvement in return on tangible equity — a key measure of bank profitability — from Santander's US business by 2028, according to a Feb. 4 deal presentation. The acquisition also helps Santander to increase its exposure to developed markets with more stable currencies like Spain, the UK and the US, away from the emerging markets of Latin America.

A Santander spokesperson told S&P Global Market Intelligence that the bank has been "consistently clear about [its] capital allocation framework, its hierarchy and the relative returns of M&A versus share buybacks, particularly in the context of the recent share price rally."

Analysts expect Santander's ability to fund further buybacks to be particularly affected in 2027. The bank is forecast to purchase almost €2.09 billion less of its own shares next year than previously estimated.

The prospect of lower total returns in the next few years may have taken some of the luster off of Santander's stock, which had been one of the best-performing European banks over the last year. The bank's shares are down more than 8% since the day before the Webster deal was announced, compared to a decline of 7% for the S&P Europe BMI Banks Index.

Santander's deal with Webster was announced after the market closed on Feb. 3.

Still, the trajectory of Santander's total shareholder payouts remains largely positive. The bank is expected to return significantly more capital to shareholders every year through to 2028 compared to recent years. After a more than 41% jump in total payouts in 2026, Santander's annual shareholder distributions are forecast to shrink in 2027 by less than 5%, before rebounding almost 24% to €11.3 billion in 2028.

The addition of Webster should also eventually contribute to a more positive outlook for Santander's dividends. Additional earnings from Webster, which generated more than $1 billion in profit in 2025, should feed higher dividend payouts than previously forecast from 2027 onward. Analysts predict an almost 12.4% increase in dividend payouts in the three years to the end of 2028 to €16 billion compared to previous estimates.

"The contribution of Webster is going to be positive for Santander's net profit and have a positive impact on earnings per share and dividend per share, especially if the payout ratio increases and the number of shares reduce from share buybacks," Nuria Álvarez, bank equity analyst at Madrid-based Renta4Banco, said in an email.

Santander announced a new share buyback of €1.8 billion in February based on earnings for the second half of 2025 and an extraordinary buyback of €3.2 billion.

"As this is a bolt-on acquisition, we're able to reiterate our capital return commitments to remunerate shareholders with a 50% ordinary payout and at least €10 billion in share buybacks for 2025 and 2026 earnings," Santander chair Ana Botín said during the Feb. 4 deal presentation.

Santander on April 23 announced it would suspend all stock buybacks until Webster shareholders sign-off on the pending deal. However, repurchases are expected to resume on May 27.

Analysts expect Santander to fall short of its €10 billion target for buybacks related to 2025 and 2026 earnings by almost €500 million.

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Santander's CET1 ratio following the Webster deal should decline to 12.8% from the current 13.5% if earnings continue on their recent trajectory and shareholder distribution plans are unchanged, according to a Feb. 6 report from Scope Ratings. Santander's CET1 range guidance is between 12% and 13%.

"In 2027, we expect to be back above 13% CET1, creating further capital optionality for additional shareholder remuneration subject to our capital hierarchy," Botín said.