SAN - Banco Santander

[John Hjorth]

SAN AGM today: Ana Botin: "The boards intention is to increase the total dividend per share by 5% again in 2017".

[John Hjorth]

New York Times: Santander Resques Troubled Rival in Test of Europe's New Rules.

 

[My immediate reaction was : *gulp*,*urgh* & *ohh noo - not again*].

 

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I found these documents on the Santander website:

 

Santander Press Release about the aqusition of today.

Santander presentation and write-up of today about the aquisition case and strategic rationale.

 

It appears that this has been in the works for some time, and it is not a weekend transaction, as these things are in most cases. I consider the line of thinking behind the transaction well documented, and that calmes me down at least some.

 

I am worried if the included provisions for RE part of the Banco Popular loan book is sufficient. I really hope that the management team at Santander has got this right. Long term there is to me no doubt that this transaction makes a lot of sense: No payment for the healthy customer relationships in Banco Popular, and an opportunity to further debranch Spain and Portugal because of branch overlap between the two banks involved in the transaction.

 

Please note the built-in mathematical logic about the calculation of new capital required by this transaction to avoid harming the Santander's CET-level and capital plan going forward.

 

I really hope this plays out well in the short term, and that the people involved in this transaction have done their work well. There will be a lot to do in a lot of dimensions on all levels in Santander to get this to work out well, and the 2017H1 financials of SAN in august will for sure be an interesting read.

 

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Edit:

 

The market seems to appreciate the aquisition today - the US ADR is up almost 3 per cent today.

[Cigarbutt]

I understand that Banco Santander will pay 1 Euro for the acquisition.

Do you know how they will finance the acquisition?

 

The press releases talk about shoring up balance sheets. Interesting times.

 

This is too large and complex for me (European banks) but it seems that it just smells like opportunity going forward.

Good luck.

 

 

[morningstar]

I understand that Banco Santander will pay 1 Euro for the acquisition.

Do you know how they will finance the acquisition?

 

The press releases talk about shoring up balance sheets. Interesting times.

 

This is too large and complex for me (European banks) but it seems that it just smells like opportunity going forward.

Good luck.

 

They're planning to raise €7bn of new equity next month to fund the deal

[John Hjorth]

I understand that Banco Santander will pay 1 Euro for the acquisition.

Do you know how they will finance the acquisition?

 

The press releases talk about shoring up balance sheets. Interesting times.

 

This is too large and complex for me (European banks) but it seems that it just smells like opportunity going forward.

Good luck.

 

Thanks, Cigarbutt,

 

From the press release, also ref. the post from morningstar:

 

As part of the transaction Santander will complete a rights issue for a total amount of €7 billion. This will cover the capital and provisions required to strengthen Popular’s balance sheet. Existing shareholders will be given preferential subscription rights. The rights issue is underwritten.

 

I have absolutely no intention of increasing the position in this stock going forward. I'll await the terms of the rights issue in July this year, to avoid dilution in real terms, if even possible. It all depends of the terms of the rights issue. Perhaps some trading on the rights will be needed.

 

In this respect I'm fortunate that the long term memory is the last one to leave me because of age.

 

I haven't forgotten the surprise capital increase in the autumn of 2014, involving heavily dilution of existing shareholders by not giving existing shareholders preferential subscription rights, issuing shares below market price to approx. 200 institutional investors. I remember I ended up stinking furious - almost nuclear - after recognising the outcome - about 18% under water at that time, and considering to dump the whole position to move on.

 

Since then and onwards to the UK Brexit vote I have been living a miserable life with this position so deep in the hole, that the sun here in Northern Europe could not reach me at any time of the year, albeit dividends coming in at a steady clip. At that time [The UK Brexit vote outcome], I almost doubled down below 4.00 for the US ADR, and have reduced the position again  just below 6.00, and the sun can reach me again all year around, if it's not cloudy, and it has continued quite some to run up. Luck/skill? - I don't know ... In this topic I have earlier been nagging about share price increase without material progress in per shares metrics - and now we actually see some progress in the last quarter, after which, this aquisition....

 

- Great to be out the hole, but it's - at least to me - still, & right now - a monster position, that I'm considering to reduce materially going forward short term.

 

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It's not a Spanish bank, it's a not even a southern European bank, it's not even an European bank, it's actually a geograpically diversified bank, with presense in Europe, Southern America & Northern America, with a material foot print with regard to consumer finance in both Europe and America, headquartered in Spain.

[John Hjorth]

For cautionany purposes, I also choose to post the latest releases from Banco Popular, attached. [Most likely, they will disappear from the web soon.]

 

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This is a calamity - the bailed in capital, ref. the messages and presentations from Santander, is about EUR 2B. At the ruling price of EUR ctr. DKK, combined with - for me - the ruling price of milk [DKK 6.50/ltr], that's just 2,288,830 tonnes of spilled milk, for the now former shareholders of Banco Popular [somehow, the name of the bank seem striking...].

 

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For somebody, it's just time to get entrepreneurial - paper routes comes to mind - ... or just to definitely retire.

Banco_Popular_-_Quarterly_Report_1Q17_-_downloaded_20170607.pdf

Banco_Popular_-_Results_Presentation_1Q17_Results_Presentation_-_downloaded_20170607.pdf

[SharperDingaan]

We're in the process of repatriating a good chunk of our capital, and essentially lucked out with a timely sale of our SAN position (to fund our UK distribution) at close to what will probably be the high for the year. The sell decision was driven by the low cost of the USD bought to pay for the position (roughly 1.03 USD/CAD versus the 0.74 USD/CAD of today), and had little to do with SAN itself.

 

Long-term, this is a very good deal; but it is going to drop the price of SAN quite a bit. Both from dilution, and from disgusted folks all selling off at the same time (net supply well > demand = lower price). We would be a buyer when the blood is running through the streets, as we were with DB and HCG.

 

It's unlikely we'll be buying back anytime soon though, as we would need a 39% drop ((1.03/.74)-1)*100 to compensate us for today's high cost of the USD required. We would need BOTH, SAN and the Donald, to screw up in a really big way; there's always hope, but its somewhat unlikely.

 

Long-term it's highly likely that SAN will remain a good place for us to park USD, but we'll need a material improvement in the USD/CAD FX rate. Not going to happen for a couple of years yet.

 

We wish you all luck.

 

SD

 

 

 

 

[John Hjorth]

We're in the process of repatriating a good chunk of our capital, and essentially lucked out with a timely sale of our SAN position (to fund our UK distribution) at close to what will probably be the high for the year. The sell decision was driven by the low cost of the USD bought to pay for the position (roughly 1.03 USD/CAD versus the 0.74 USD/CAD of today), and had little to do with SAN itself.

 

Long-term, this is a very good deal; but it is going to drop the price of SAN quite a bit. Both from dilution, and from disgusted folks all selling off at the same time (net supply well > demand = lower price). We would be a buyer when the blood is running through the streets, as we were with DB and HCG.

 

It's unlikely we'll be buying back anytime soon though, as we would need a 39% drop ((1.03/.74)-1)*100 to compensate us for today's high cost of the USD required. We would need BOTH, SAN and the Donald, to screw up in a really big way; there's always hope, but its somewhat unlikely.

 

Long-term it's highly likely that SAN will remain a good place for us to park USD, but we'll need a material improvement in the USD/CAD FX rate. Not going to happen for a couple of years yet.

 

We wish you all luck.

 

SD

 

Thank you for sharing your thoughts on this bank, SharperDingaan,

 

When a fat dividend has to go out to your family members and friends, based on that your are running your two Canadian partnerships based on a fixed capital base, naturally one or more of your ships set to sea has to be called back to Harbour/HQ - to get sold! : - )

 

Because I have a different functional currency than yours, the calculations are more than a bit different to me, compared to yours. However, I understand your view based on your posts.

 

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Ms. Botin mentioned in her 2016 shareholder letter, that SAN [at the time of disclosure of the 2016 financials] saw, and expected - going forward - macro tailwinds for the whole 2017 - in all markets, where the bank is operating. [Especially Brazil is important here, because a material part of the banks earnings are generated there].

 

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So, I'm holding on for now, however there will be no dividend reinvestment for my part, and at the same time I'll continue to add more capital without buying more SAN. 

 

Here stated for my part as : "For now - subject to change".

[SharperDingaan]

As we're all learning with PWT - a large part of the investment game is learning how to do 'nothing'. I've always found it useful to do something else, & only check in only occasionally.

 

Best of luck to you

 

SD

[John Hjorth]

Santander launches EUR 7,072 B rights issue to support the acquisition of Banco Popular.

 

It seems to involve approx. 17.75 percent discount on the new shares. I'm a bit surprised about that, and at the same time not, when this is about SAN.

 

Oh well.

 

 

 

[TwoCitiesCapital]

Santander launches EUR 7,072 B rights issue to support the acquisition of Banco Popular.

 

It seems to involve approx. 17.75 percent discount on the new shares. I'm a bit surprised about that, and at the same time not, when this is about SAN.

 

Oh well.

 

They need the money to close the deal so they cannot be subject to the whim of their investors and risk it not going through. The large discount is likely to create a great enough incentive in the shareholder base to ensure that they exercise and provide the necessary capital as opposed to letting the rights expire and let themselves get diluted.

 

If everyone participates, it doesn't matter what the discount is. A 20% discount and a 50% discount both still keep the same pro-rate ownership in the company by participating. The analysis changes if not everyone participates. The larger discount promises greater dilution to those who don't by transferring a great amount of wealth to those that do. So by increasing the discount rate to 17-18%, Santander is incentivizing people to participate while not actually harming anyone who already intended to.

 

[John Hjorth]

Santander launches EUR 7,072 B rights issue to support the acquisition of Banco Popular.

 

It seems to involve approx. 17.75 percent discount on the new shares. I'm a bit surprised about that, and at the same time not, when this is about SAN.

 

Oh well.

 

They need the money to close the deal so they cannot be subject to the whim of their investors and risk it not going through. The large discount is likely to create a great enough incentive in the shareholder base to ensure that they exercise and provide the necessary capital as opposed to letting the rights expire and let themselves get diluted.

 

If everyone participates, it doesn't matter what the discount is. A 20% discount and a 50% discount both still keep the same pro-rate ownership in the company by participating. The analysis changes if not everyone participates. The larger discount promises greater dilution to those who don't by transferring a great amount of wealth to those that do. So by increasing the discount rate to 17-18%, Santander is incentivizing people to participate while not actually harming anyone who already intended to.

 

I agree with you here actually, TwoCitiesCapital,

 

The issuance of the new shares is actually insured. It's just July, and the middle of Summer - not time to mess around with corporate actions, at least to me, that is.

 

Perhaps I had some bias while posting... the portfolio of the late MIL - and there is a mirrored SAN position in there, too - got released to the Lady of the House just after I posted about this in this topic, yesterday. [i only had to use the phone one time in the last half year - talk about being a passive investor].

 

Everyday, life gets easier, while I get older.

[TwoCitiesCapital]

I'm being told by Scottrade that ADR holders are ineligible to participate in the rights offering and that rights will be sold and cash distributed.

 

Has anyone else heard this or know why that would be the case? Doesn't really pass the smell test for me and is incredibly unfortunate given the terms of the deal. I don't have much faith in Scottrade explaining this correctly as they also described it as occurring in connection with a 1 for 10 reverse split  ??? ??? ???

 

Also, does anyone know the ticker of the rights that trade so I can follow the price to ball-park the proceeds?

[John Hjorth]

It's actually - in some way - better to have your broker telling you nonsense about a corporate action than having your broker telling you have no corporate actions. [: - / ]

 

If I remember correctly, the window for the offer opened on 9th July. I'll call them tomorrow, if nothing has popped up at the end normal working hours today, and get back here.

[John Hjorth]

As promised yesterday, I have called my broker today about the SAN rights issue. Before calling I was trying to prepare by being careful about checking up on all things in my broker user interface.

 

Still no personal active corporate actions for me and my family, but I checked some other tabs in the user interface, too, that I did not check yesterday.

 

Much to my surprise, I found a "Banco Santander S.A." corporate action on a tab called "Other corporate actions" [meaning corporate actions not relevant to me]. No "Reply" button there for me, the text being [i apologize for bad formatting here], and the ticker for the new issue being BSD2:

 

Vilkår  [Conditions]Tegningsvilkår[ subscription conditions][/q]

10 tegningsretter tegner 1 aktie [10 rights sudscribe to one share]

Tegningskurs [subscription price][/t> 4,85 EUR/aktie [EUR[share]Valørdag [Value date] 2017-07-16 Sidste svardato til Nordnet [Deadline for reply][/t> 2017-07-16Beholdning tegningsretter på dit depot 10488690 [Number of rights] 0 [/t] Extended offer period General offer terms: holders of ordinary shares have received one (1) transferable right for every one share of Banco Santander held as of record date 07/07/17. The terms of the rights are as follows: ten (10) rights entitles the holder to subscribe for one new ordinary share of Banco Santander at a subscription price of EUR4.85 (Euro) per share Please note that any rights not exercised by the expiration date will expire worthless without any payment to the holders of the unexercised rights. Last day to respond is July 16, 2017.You will need to have enough funds on your account by 2017-07-16 to subscribe. Insufficient funds may lead to that the whole or part of the subscription to be denied.Incomplete or erroneous acceptance may be left without consideration.If you choose to accept this offer in another way than through the service Corporate Events a fee will be levied in accordance with Nordnet’s price list.

 

Edit:

 

Danish text in the above quote translated to English in brackets after the Danish text.

[John Hjorth]

Sorry for double posting here, the posting feature here on CoBF has been teasing me while trying to continue typing in my prior post, so I'll just continue here in a new post.

 

Based on that, I gave Nordnet Bank AB, Danish Branch, a call. The employee I spoke with could not give a satisfactory explanantion of the situation I felt to be in. She promised to get back to me ASAP, and today. I asked for a written reply via the built-in e-mail communication system in the user interface.

 

Here is what I have got from her, translated to English in brackets:

 

Hej John [Hi John]

 

Jeg har undersøgt sagen hos vores corporate actions afdeling. [i have investigated the matter at our corporate action department.]

 

Det er kun kunder der har aktien på det tyske marked der bliver tilbudt denne corporate action. [Only those customers that have the share in German market are offered this corporate action.]

 

Det er det melding vi har fået fra selskabet. [That is the message we have received from the company.]

 

Venlig hilsen [best regards]

_____________________________

Christine Helligsø

Nordnet

 

To understand the context of the comment about "the German market" correctly, it is in reality about, that I have access to ordinary shares in Banco Santander S.A. at a side listing in the German market, while my broker does not provide access to the ordinary shares at its primary listing on the Madrid Exchange for me.

 

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So the point here really is, that this rights offering is only for holders of the ordinary shares, not the holders of the US ADRs [, which includes me].

[TwoCitiesCapital]

Confirmed on Bloomberg too.

 

They have a corporate action listed for the distribution from the sale of rights for the ADR. Amount is not listed yet - I assume they are being sold on the 16th.

 

It does currently have it listed as the proceeds being subject to the same 19% withholding tax that applies to dividends :/

 

I'm glad I have 25-30% of my position outside of the parent co missing out on this. Very disappointed that ADR holders aren't given the option to participate and get screwed over like this by having to pay a tax on the distribution and additional transactional costs to avoid dilution.

 

When SAN made the optional tender for Santander Brasil a few years back, ADR holders of BSBR could participate. Dunno why this type of corporate action would be any different ???

[John Hjorth]

Honestly, I'm speachless.

 

At least Cardboard posted something today in another topic to make my day better:

 

... So you can buy it and make big money when Q2 results are released by August 15 or join the growing chorus on Corner of Whiners that there are no bargains out there or the Corner of Amazon Adorers.  ::)

 

Cardboard

 

I hereby put myself in quarantine in this topic about SAN for at least a week. If I start posting about what has been going in my mind about this today, Sanjeev will most likely boot me out, based on fellow board members reporting me to Sanjeev - with reason - for going beserk on the board.

 

I had a plan for today, that this day should be really nice. I should do just this one phone call, and then spend the rest of the day with the book: "Inefficient Market Theory - An Investment Framework Based on the foolishness of the Crowd".

 

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- And please, do not ask me in this topic within the next week about which crowd I feel I'm in today!

[John Hjorth]

From reading the Santander website, I get the impression that the new Santander shares issued to get new capital for the Banco Popular aquisition started trading on 31st July.

 

However I see basically no dilutive effect on the market price of SAN shares or ADRs, perhaps because of the 1H2017 reporting, that looks satisfactory to me.

 

And no cash so far received from the sale of the rights.

 

How do you perceive the situation right now, from your angle, TwoCitiesCapital?

[TwoCitiesCapital]

From reading the Santander website, I get the impression that the new Santander shares issued to get new capital for the Banco Popular aquisition started trading on 31st July.

 

However I see basically no dilutive effect on the market price of SAN shares or ADRs, perhaps because of the 1H2017 reporting, that looks satisfactory to me.

 

And no cash so far received from the sale of the rights.

 

How do you perceive the situation right now, from your angle, TwoCitiesCapital?

 

Same - but you have to think about it like this. It was a 10% issuance at a 17% discount - so the most you'd see in a dilutive market impact would be ~1.7% of price at announcement. If the acquisition is expected to add more than that in value, then you wouldn't see a drop in the shares.

 

The cash from the sale of rights posted in my account today. It will be the 1.7% less withholding taxes - so roughty 1.4%.

 

This whole thing was really frustrating :/

 

Instead of participating and maintaining our ownership stake in the company AND getting shares at a great value, we were forced to transfer 1.7% of our positions into cash and then pay 20% tax on that cash. That cash now has a -20% return from taxes as opposed to a +20% gain from buying shares at a discount! A 40% spread matters. That's real $ removed from our accounts instead of added to it.

 

I'm not quite certain what the custodian charges an ADR fee for if they're not even open to taking direction from ADR holders on what to do with these corporate actions.

 

 

[John Hjorth]

Thank you for sharing all good and valid points here with me, TwoCitiesCapital,

 

Especially your point about the value of what is received under the aquisition skipped my attention. It explains in full the pattern in the share price. I think I read today, that new shares ended up oversubscribed 8.23 times.

 

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I will never forget the feeling I had the day it became clear to me the bank gave a damn about the ADR holders.

[John Hjorth]

Banco Popular agrees to sell majority stake in its real estate asset portfolio to Blackstone.

[TwoCitiesCapital]

From What Are You Buying Today thread.

 

I've significantly reduced my stake in SAN.

 

I've been wrong for a number of years on their ability to hit profitability targets, and while I'm still optimistic that they get there - I can't tell you why they'd be any more likely to get there now versus the last four years where they've failed to achieve it.

 

The stock is signficantly off it's lows and most of my profits in the name have been made relative value trades between it and its subsidiaries. It no longer made sense for SAN to be one of the largest names in my portfolio. 

 

Purchasing more PDER and ATUSF with the proceeds as I continue to move out of financial assets to companies that are backed by REAL assets.

 

 

 

[John Hjorth]

Thank you for sharing, TwoCitiesCapital,

 

You are right. My position right now - I haven't sold anything yet, recently -, is too big, too. It is all about trust.

 

From my monitor:

SAN up within one year: 52.42 per cent [i still think it was undervalued by the market a year ago].

SAN up within this year: 24.86 per cent.

 

That does not change what I consider a fact right now : The performance ref. financials does not justify the price development. It's primarily sentiment driven, I think, despite there has been performance improvements.

 

In October I'll think about how and when to reduce materially. My thoughts are circling right now about a 3 per cent position going forwards, no later than at year end 2017 [, and I hope to get to that position size by selling!].

 

Edit:

 

Disclosure: Just below 7 per cent position right now, after adding quite some cash the last couple of weeks.

[John Hjorth]

Grupo Santander Strategy Update [October 10th 2017].

 

The bank is raising the bar a bit on several fronts. Now I want to see 2017Q3 interim report before decision to sell. I may regret this.

 

Furthermore, I don't know what to think about all that Catalonian fuzz going on right now.