Morgan Stanley has moved Banco Santander from an "overweight" rating to "equal-weight," pointing to reduced valuation upside following a strong run in the shares and elevated execution risk related to the Spanish lender's planned U.S. expansion after agreeing to buy Webster Financial.
Shares of the Spain-headquartered group fell 3.5% at 06:10 ET (11:10 GMT). The bank's price target at Morgan Stanley was nudged up to e11.50 from .00, but Santander was removed from the broker's Top Pick list. The shares closed at .09 on Feb. 3, 2026.
Why the downgrade
Morgan Stanley framed its decision around valuation and integration risk rather than questioning the strategic rationale for the Webster transaction. Santander agreed to acquire Webster for $12 billion, paying about a 15% premium. That premium values the U.S. lender at approximately 11.3x 2026 estimated earnings and roughly 2x fourth-quarter 2025 tangible book value.
While Morgan Stanley characterized the deal economics as reasonable, the firm warned investors are unlikely to give Santander the benefit of the doubt on integration execution in the U.S., a market where the group lacks a comparable track record.
Financial impact assumptions
On its own calculations, Morgan Stanley estimates the transaction would generate a return on investment of 13% to 14%, which the broker said is below Santander's internal targets. The acquisition is forecast by Morgan Stanley to be 5% to 6% earnings accretive by 2028E.
Those projections assume cost synergies in excess of $800 million, equal to about 55% of Webster's cost base. Morgan Stanley described that level of cost savings as ambitious when compared with the 30% to 35% typically achieved in recent comparable U.S. regional bank mergers, citing past deals such as Fifth Third Bancorp's acquisition of Capital Bancorp and Huntington Bancshares' acquisition of Cadence Bank.
The analysts highlighted that the scale of planned cost reductions, together with an additional $200 million of standalone cost cuts already planned at Santander U.S., could increase the risk of revenue attrition. Morgan Stanley warned this pressure on revenue could limit the upside from expected funding synergies.
Additionally, Morgan Stanley excluded a further $100 million of funding efficiencies that Santander had assumed in its own ROI calculations, saying there is insufficient detail available at this stage to incorporate those benefits.
Valuation and near-term outlook
Valuation was a central element in the downgrade. Morgan Stanley said Santander's shares are trading at about 1.8x tangible book value on the broker's estimates, which leaves limited upside even after a strong fourth-quarter performance.
The brokerage also noted that integration work remains underway on multiple fronts. Both the integration of TSB in the U.K. and the planned integration of Webster in the U.S. are still ahead, and Morgan Stanley characterized 2026 as a transition year for Santander.
Quarterly pre-release and capital position
The downgrade followed Santander's pre-release of fourth-quarter results. Those figures showed CET1 capital of 13.5%, up 40 basis points quarter-on-quarter and roughly 30 basis points above Morgan Stanley's expectations.
Santander simultaneously announced a billion share buyback, including an extraordinary buyback tied to the disposal of its Polish business, in line with Morgan Stanley's estimates.
While Morgan Stanley raised its net profit forecasts by 1% to 2.5% for some years, the broker left its 2028 earnings-per-share forecast unchanged. The unchanged 2028 EPS reflects Morgan Stanley's expectation of lower buybacks as capital is deployed to fund the Webster acquisition.
Analyst view on Webster
Morgan Stanley reiterated that Webster represents a solid franchise with a diversified funding base, including about $9 billion of Health Savings Account deposits. However, the brokerage emphasized that investor confidence in the acquisition is likely to hinge on demonstrable evidence of successful integration rather than on management's stated targets alone.
In short, Morgan Stanley's move to equal-weight reflects a combination of limited valuation upside at current prices and heightened execution risk associated with integrating a significant U.S. acquisition into a group that has limited precedent for such deals in that market.
Bottom line
Morgan Stanley's downgrade and removal of Santander from its Top Pick list signal caution for investors, centering on integration execution and valuation constraints even as the bank reports a stronger capital position and a major buyback plan.