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Santander seen mapping out post-Brexit targets in investor update

* Santander strategy update due Sept. 30

* Santander UK in focus after Brexit vote

* Brazil bottoming out, margins in Spain weak

By Jesús Aguado

MADRID, Sept 29 Banco Santander is expected to adopt more conservative targets in Britain to reflect the immediate impact of the Brexit vote when the Spanish bank updates investors on its strategy on Friday.

Santander benefits from its geographical diversification, say analysts, with weaker forecasts for economic activity in Britain expected to be offset by a slow but steady improvement in Brazil where it generates 19 percent of its earnings.

However, the Europe Union's third-largest bank by market value is seen stressing cost cutting and efficiency measures in the presentation in an effort to persuade investors that profitability and capital targets can be left unchanged.

Santander's London presentation is expected to focus on Britain, Brazil and Spain, its three main markets which accounted for more than half of its underlying profits as of June. The bank declined to comment ahead of the event.

A 20 percent profit rise in Brazil in the second quarter from the previous one pointed to a recovery in a country stuck in its worst recession in a century.

Low interest rates and aggressive pricing continue to pressure Santander's margins in Spain, mirroring the experience of other Spanish banks, and its net profit there was down almost a third in the second quarter against the previous three months.

But brokerage N+1 expects profits in Britain to fall by as much as 30 percent between 2015 and 2017 as net interest income -- the spread between what banks earn from lending and what they pay on their liabilities -- shrinks due to the Bank of England's interest rate cut following the June vote to quit the EU.

Santander Chairman Ana Botin's previous targets for the UK business, worth a fifth of the bank's profits, saw a 12 percent to 14 percent return-on-tangible equity (ROTE) by 2018, a target that may be cut to 8 percent for 2017-2018, N+1 said.

"Santander needs to be more conservative in the UK now. This strategy could be offset by cost cuts it has been implementing this year in Spain," a Spanish banker told Reuters.

The lender is also expected to lower its cost targets after having said in April it expected to achieve savings of 100 million euros ($112.20 million) a year in Spain following 450 branch closures.

CAPITAL COUNTS

Investors will be looking for reassurance on Santander's plans to achieve a fully-loaded core capital ratio of 11 percent in 2018. This stood at 10.36 percent at the end of June.

They will also focus on whether the Madrid-based bank can maintain its return-on-equity target of 13 percent for 2018 amid ultra-low interest rates.

While some still complain about a 2015 dividend payout cut of more than 60 percent, analysts do not expect to see any changes. The lender currently pays three dividends in cash and one scrip, with a 30-40 percent pay-out.

"We don't want to receive new shares which will just have a dilutive effect. The bank should move towards fully cash payments," Indian investor Ram Bhavani, who holds around 100,000 Santander shares in an investment vehicle, told Reuters. ($1 = 0.8913 euros) (Editing by Paul Day and Alexander Smith)

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