Santander's U.S. Unit Fails Fed's "Stress Test"--Update

By James Sterngold 

Santander Holdings USA Inc., a unit of Spain's Banco Santander SA, failed the Federal Reserve's "stress test" for the second year in a row.

The result came not because of insufficient reserves of capital after suffering hypothetical losses, but because of weak internal procedures for managing through the stressed economic scenario, or so-called "qualitative" concerns, the Fed said.

In fact, Santander was among the stronger bank holding companies purely in terms of its capital measurements. Its projected minimum Tier 1 risk-based capital ratio under the adverse economic scenario was 13%, according to the Fed analysis, while some other banks, such as Ally Financial Inc., Fifth Third Bancorp and KeyCorp, were considerably lower.

But the Fed said that Santander had "widespread and critical deficiencies across" its planning procedures. The statement identifying the shortcomings was identical to the Fed's statement from last year, saying the deficiencies included "governance, internal controls, risk identification and risk management, management information systems (MIS), and assumptions and analysis that support the BHC's capital planning processes."

Since its failure last year, Santander Holdings USA has revamped its senior management, putting in place a new chairman, chief executive, chief financial officer and chief risk officer.

The new chief executive officer, Scott Powell, said: "The qualitative assessment highlights that we still have meaningful work to do to meet our regulator's expectations and our own standards of excellence," and the chairman, T. Timothy Ryan, Jr., added that new management and governance changes "are forthcoming."

Write to James Sterngold at [e-mail]

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