(Refiles Tuesday's story to correct spelling of name in paragraph 8)

By Jesús Aguado

MADRID, Feb 24 (Reuters) - Santander boss Ana Botin will promise a leaner lender with higher cost savings from the bank's digital drive as she seeks to convince investors on Wednesday that her bet on expanding in core developed markets is the best growth path, people familiar with the plans said.

Santander struck a $12.2 billion deal earlier this month to buy U.S. lender Webster, doubling down ​on the United States as one of three core markets alongside Spain and Britain.

The acquisition, ‌which follows a deal to buy Britain's TSB last year, is a key step towards Executive Chair Botin's long-standing vow to simplify the bank's structure, investors and analysts told Reuters ahead of a three-year strategy update due ⁠at Wednesday's investor day.

Botin - the fourth generation of her family to head the bank - will also outline how the lender plans to raise its profitability ⁠ratio to above 20% by 2028 from 16.3%. 

For decades, Santander's diversification spanning 10 core markets has insulated the bank ‌from economic downturns in individual regions but ‌left it vulnerable to currency depreciations, particularly in Latin America. 

It also kept a lid on the bank's share price. However, record profits and higher growth in markets such as Spain helped its stock soar ​around 80% over the past year. Santander, now worth close to 160 billion euros, has ‌surpassed UBS as the largest lender by market value in continental Europe.

Unlike other European lenders betting on ever-bigger shareholder buybacks, Santander has spent more than $15 billion on acquisitions since mid-2025 to boost growth and fix underperforming parts of the sprawling bank.

"She has further ​to go but... it's a very strong starting point," said Filippo Alloatti, head ​of financials at Federated ‌Hermes and an investor in Santander's bonds. "They are going to be a serious player, not someone flirting with the U.S." 

Investors, though, remain cautious despite the recent share price rally. Santander shares trade at 1.56 times book-to-price value, a common gauge of the value investors put on ⁠a bank. While the ratio has improved and is above the European bank average, it remains lower than some peers.

A source familiar with Santander's ⁠strategy told Reuters that the investor day will focus on cutting costs and boosting efficiency, calling it an "unfinished job" given costs compared unfavourably with Spanish rival BBVA.

'EARLY INNINGS' FROM IMPROVED BUSINESS MODEL

Santander's plans to extract savings are centred on creating a common IT platform and the deployment of a unified operating model across global businesses that it hopes will cut service costs.

"We are at the early innings of the improvement in the business model, ... the market is still somehow sceptical," said Alberto Chiandetti, portfolio manager ⁠of Fidelity International, ‌which owns Santander shares.

Like other European banks, Santander has already cut its workforce to reduce costs, by about ‌14,000 employees in the last two years to below 200,000.

The bank's cost-to-income ratio fell to 41.2% by the end of 2025, from 44.1%. BBVA finished 2025 with a ⁠ratio of 38.8%.

Andrea Filtri, head of Mediobanca Research, forecasts savings tied to Santander's M&A and IT transformation could allow the bank to target a cost-to-income ratio in the 30%-39% range.

Santander's decision to expand in the U.S. and in Britain is part of a recognition the bank needs more scale to fix poor profitability, investors and analysts say.

The Webster and TSB acquisitions lift developed markets' share of Santander's gross operating profit to nearly two thirds on a pro-forma basis, up from 56% without the deals, Santander has said.

It has said so far that annual cost savings from Webster, a deal that will lower its U.S. funding costs and make it a top five player in the U.S. Northeast, would rise to $800 million, ​while synergies from TSB are projected to generate 400 million pounds.

While Santander adheres to a 50% payout policy on ordinary earnings - half distributed in cash, half in shares - some analysts have called for a more generous dividend policy, given the bank's high solvency ratio.

Santander and Botin decided excess capital was better deployed in M&A. ​The Webster deal, the bank estimates, will yield a return-on-invested capital of ‌roughly 19%, about six percentage points higher than a potential return from a share buyback.