SAN - Banco Santander

[TwoCitiesCapital]

Anyone looking to buy SAN or who already has a position should consider the following:

 

SAN has offered the option to BSBR holders of the right, but not the obligation, to convert sell their shares to SAN at 0.7 SAN to 1 BSBR.

 

This is a very valuable option as BSBR is better capitalized and trades at a larger discount to SAN. The shares also trade at a 3-5% discount to conversion price.

 

If you want exposure to SAN, buy BSBR at prices lower than .7x SAN and wait.

 

This gives you all the upside of SAN while removing much of the risk of dilution that Kyle Bass is concerned about due to stress test results.

 

If SAN appreciates so will BSBR. If SAN depreciates, BSBR should depreciate less since its better capitalized and trades at a larger discount and the conversion is optional. If something bad happens to BSBR, like current lawsuits going against them, you're protected by the conversion ratio. All you lose is the difference in one quarter of dividends which can be made up at a large enough spread.

 

I just converted all SAN to BSBR at 0.67 SAN to 1 BSBR which is about a 5% discount. Easy money for my second largest position.

 

 

 

[VersaillesinNY]

Emilio Botin, Chairman of Spain’s Banco Santander, Dies

 

http://www.bloomberg.com/news/2014-09-10/emilio-botin-chairman-of-spain-s-banco-santander-dies.html

 

http://elpais.com/elpais/2014/09/10/inenglish/1410359438_308039.html

 

http://economia.elpais.com/economia/2014/09/10/actualidad/1410344425_083173.html

 

It's like the Normandy invasion when you send tanks to the beachhead. Now comes the commander to take over once the battle has been won.

Emilio Botin

[TwoCitiesCapital]

Back in January, the CEO said that they weren't planning on a major acquisition, but would not rule out smaller transactions like those that occurred in 2014. Santander hand increased it's ownership of BSBR from 75% to 88% in a voluntary tender during 2014. I am beginning to speculate that with the increased earnings power, high reserves, and improvement in Spain, and the price action of subsidiaries that it is becoming a possibility that Santander will do something similar again and am thinking about buying shares in the subsidiaries as opposed to increasing my holdings in the SAN directly.

 

All of the publicly traded subsidiaries are down, in euro terms, for the year:

 

Banco Santander Chile: -1.5% YTD

Banco Santander Brasil: -33% YTD

Banco Santander Mexico: -24% YTD

 

Does anyone have any thoughts on the possibility for another tender/acquisition? Also, I thought I recalled reading somewhere that the capital they have to hold against these publicly traded subsidiaries was quite high. Does anyone have any generalized banking knowledge on that subject that might help me understand the contrary argument?

 

Thanks,

[John Hjorth]

I feel confident this is on "the internal agenda" for Ana Botin, if the right opportunities occur with regard to this for SAN. I write "the internal agenda", because all primary information from SAN in the last period is saturated with words about organic growth [i.e. not growth by acquisitions].

 

What would be better than to buy something you already control and know inside out and have just about full information about that you consider mispriced compared to alternative investments?

 

By investing in the listed bank subsidiaries you'll of course not get the built in geografical banking diversification at place in the SAN share/ADR.

 

I haven't made any calculations on the listed bank subsidiaries of SAN. Does the P/E's etc. of those reflect the more harsch macro environment in Southern America right now?

 

Based on the performance for 1H2015 and the price of today I have calculated P/E to about 10 for SAN.

 

To me the ship has to stay afloat even without any SAN tenders.

 

- - - o 0 o - - -

 

SAN is a material position for me, and it has been utterly hammered recently - much more than the other material positions of mine. I'll buy more next week, when I add more funds to my capital invested in stocks.

[TwoCitiesCapital]

http://finance.yahoo.com/news/santander-brasil-plans-buy-back-214117795.html

 

Well, SAN isn't buying it, but BSBR announced a repurchase plan of up to $155M over the course of the next year. This would reduce the current float by nearly 10% and would leave only about 11% of the company shares outstanding.

 

SAN may not be buying it, but their ownership increases without having to spend a dime of their own money.

[TwoCitiesCapital]

http://www.bloomberg.com/news/features/2015-11-23/santander-s-ana-bot-n-has-something-to-prove?cmpid=yhoo.headline

[John Hjorth]

SAN makes a small bolt-on aqusition in Portugal, acquires the healthy parts [the "green bank part"] of the bank Banco Banif, thereby becoming private bank #2 in Portugal :

 

http://www.santander.com/csgs/Satellite/CFWCSancomQP01/es_ES/Corporativo/Sala-de-comunicacion/Santander-Noticias/2015/12/21/Santander-Totta-segundo-banco-privado-de-Portugal-tras-adquirir-el-negocio-de-Banco-Banif.html?leng=en_GB

 

 

Some background stuff about the transaction :

 

https://investmentwatchblog.com/how-many-more-banking-collapses-will-we-see-in-portugal/

[Phaceliacapital]

FYI: I saw the CEO present in beginning of december, left the room with zero confidence that this is a good business to be in. The days of juicy returns on capital are gone.

[TwoCitiesCapital]

FYI: I saw the CEO present in beginning of december, left the room with zero confidence that this is a good business to be in. The days of juicy returns on capital are gone.

 

Was this the CEO of SAN or the CEO of one of the subsidiaries? What did he/she say that left the room questioning return on assets/capital/equity? From what I can see, if we weren't still dealing with the aftermath of the high writeoffs in Spain, and now the high reserving in Brazil, hitting 1% return on assets wouldn't be that hard and this would be trading at about 5x that number at current euro exchange rates.

[John Hjorth]

SA article about the Banif aquisition :

 

http://seekingalpha.com/article/3792426-breaking-banco-santander-down-in-parts-lets-have-a-look-at-portugal

[John Hjorth]

Santander's play for Williams & Glyn raises capital concerns :

 

https://uk.news.yahoo.com/santanders-play-williams-glyn-raises-capital-concerns-190541853--sector.html .

[TwoCitiesCapital]

Santander's play for Williams & Glyn raises capital concerns :

 

https://uk.news.yahoo.com/santanders-play-williams-glyn-raises-capital-concerns-190541853--sector.html .

 

Interesting. I wonder if this is what moves them forward with an IPO of their U.K. unit. The IPO could help provide the funds that would then be used to purchase the company and consolidate with the U.K. unit.

 

I certainly wouldn't mind a rights offering for an advantageous purchase either, though I wish they'd go back to the SCRIP dividend for another year or two to continue to conserve cash and so I could avoid the 20% withholdings tax....

[John Hjorth]

Santander's play for Williams & Glyn raises capital concerns :

 

https://uk.news.yahoo.com/santanders-play-williams-glyn-raises-capital-concerns-190541853--sector.html .

 

Interesting. I wonder if this is what moves them forward with an IPO of their U.K. unit. The IPO could help provide the funds that would then be used to purchase the company and consolidate with the U.K. unit.

 

I certainly wouldn't mind a rights offering for an advantageous purchase either, though I wish they'd go back to the SCRIP dividend for another year or two to continue to conserve cash and so I could avoid the 20% withholdings tax....

 

TwoCitiesCapital,

 

I certainly agree with you on the Scrip dividend.

 

Let's see how this plays out. I really hope that Ana Botin does not do something dumb here. The contemplated transaction isen't pocket money, not even for SAN.

[John Hjorth]

High street bank giant Santander reveals 4.1% fall in UK profits after £450m hit for future PPI payouts :

 

http://www.dailymail.co.uk/money/markets/article-3418923/High-street-bank-giant-Santander-reveals-4-1-fall-UK-profits-450m-hit-future-PPI-payouts.html

 

[TwoCitiesCapital]

High street bank giant Santander reveals 4.1% fall in UK profits after £450m hit for future PPI payouts :

 

http://www.dailymail.co.uk/money/markets/article-3418923/High-street-bank-giant-Santander-reveals-4-1-fall-UK-profits-450m-hit-future-PPI-payouts.html

 

Progress on growing that net income figures is lower than I had initially thought - but everything is moving the right direction. Just a shame that the currency crash and high reserving in Brazil impacted earnings the way it did - they're currently reserving something like 40-50% of pre-provision profits from all of LatAm and what does hit the bottom line has depreciated in value by 15-20% in EUR terms...

 

Write offs still remain elevated though which is disappointing. We are losing EUR 12.5B a year to NPL writeoffs which is 1.5% of total loans. That's on top of the additional 1.25% in reserving for new loans. That's 2.75% of assets ($831B) that is being withheld from the bottom line every year due to bad loans. That's huge!

 

When you look at a net profit of $6.5B - it's obvious that any variation in reserving/write-offs would have a massive impact on the bottom line. For every 25 bps that 2.75% drops, you get another EUR 1.5B that will hit the bottom line post-tax. That would be a huge impact without ever considering improving efficiency ratios, growing loan book, or interest rate moves.

 

It's moving the right direction - just more slowly than I had hoped when I started accumulating nearly 3 years ago. I've been banking on $15B in earnings per year since that time. Just waiting to be right :/

[John Hjorth]

Banco Santander Chile Announces a Cash Tender Offer for up to $500,000,000 Combined Aggregate Principal Amount

 

Banco Santander Chile Announces a Cash Tender Offer for up to $500,000,000 Combined Aggregate Principal Amount of its 3.875% Senior Fixed Rate Notes due 2022  (ISIN/CUSIP US05967BAB18/05967BAB1  (144A) and US05967FAB22/05967FAB2 (Reg S)) and its Senior Floating Rate Notes due 2018 (ISIN/CUSIP US05967PAD69/05967PAD6  (144A) and US05967QAD43/05967QAD4 (Reg S))

 

http://finance.yahoo.com/news/banco-santander-chile-announces-cash-183005762.html

[DanielGMask]

I've been an investor in SAN before but I'm not a shareholder right now. I've been following the stock and during the weekend did a simple comparison between WFC and SAN just to see if it was as cheap as it looked after the stock dropped so much. My conclusion, it doesn't look that cheap! I've attached a simple excel spreadsheet with some data taken from both companies' 10-ks. Wells' data is from 2014 and SAN from 2015, so the data is not that accurate, but sufficient to conclude that WFC looks like a better buy.

SAN_vs_WFC.xlsx

[TwoCitiesCapital]

I've been an investor in SAN before but I'm not a shareholder right now. I've been following the stock and during the weekend did a simple comparison between WFC and SAN just to see if it was as cheap as it looked after the stock dropped so much. My conclusion, it doesn't look that cheap! I've attached a simple excel spreadsheet with some data taken from both companies' 10-ks. Wells' data is from 2014 and SAN from 2015, so the data is not that accurate, but sufficient to conclude that WFC looks like a better buy.

 

I think you're comparing Apples and Oranges. Wells Fargo isn't dealing with legacy issues or high write offs. Wells is literally near the peak of it's cycle.

 

Santander still has high write-offs and reserves in Spain that continue to improve (but the EUR depreciated against the dollar offsetting much of this benefit). Then, the Brasilian unit which has historically been responsible for 25% of profits has begun reserving 50% of it's income AND it's reporting currency depreciated greatly against the EUR. Despite Brazil's economic depression, BSBR reported significantly higher YoY profits in local currency terms even with high reserves.

 

Realistically, if SAN was in its peak earnings in a position comparable to Wells, it'd probably be earning twice the amount it is currently.

[John Hjorth]

A new SA article on SAN:

 

Banco Santander Is A Good Quality Bank At A Bargain Price [P/E 8]

 

www.seekingalpha.com/article/3911356-banco-santander-good-quality-bank-bargain-price-p-e-8

[TwoCitiesCapital]

Raising dividend.

 

https://beta.finance.yahoo.com/news/santander-seeks-win-over-investors-124702934.html

[alpha asset strategies]

What are the current opinions on SAN?  It looks as if it's trading near 20 year lows and is still profitable.  After the Brexit fallout, I keep comparing some of these foreign banks - especially the profitable ones - to some of the U.S. banks (ie. WFC and others) that saw huge gains after the financial crisis in 2008 / 2009.  Do you think that could be a valid comparison?

 

I guess the "million dollar" question is whether or not the worst is over in Europe?  I see relatively little chance that SAN is going bust, but I'm just not sure if it could turn into a long-term value trap.  I'm also concerned that we are nearing the top of the credit and business cycles.

[SharperDingaan]

SAN is one of our core holdings, bought when the CAD/USD rate was >1.03. Quite some time ago we sold off 80% of our holding with the intent to repurchase later at a lower price - & put the funds into USD treasuries. In this arrangement, a sale > 50% of the position reflects a bearish view, & it has worked out very well for us.

 

We think it highly likely that Brazil will have a very difficult time post Olympics, & that at least 1-2 SA countries will experience the debt and currency collapses common to that part of the world. A perfect storm in SANs major markets, coupled with Brexit related EU stress - does not bode well for the short & intermediate term.

 

SAN is a very well run bank, & long term we are very bullish - but we think it is a good 3-5 years away at best.

If you believe there is a good chance of a EU break-up, or a 're-negotiation'; holding a large quantity of the dominant Spanish bank is a great place to be. More so when you recognize the banking system improvements retired Canadian regulators have made over the years. But it is pretty hard to see why the price of SAN wouldn't drop materially when all these storm clouds break.

 

Where you buy, & the currency you hold in - matters a great deal here.

We measure in CAD but are revaluing a USD treasury position (SAN 80% sale proceeds) - unrealized 30% FX gain. As we could repurchase the SAN on a EU exchange - using those USD, EU/USD devaluation is likely to increase share count another 10-15%. And all this in ADDITION to the additional share count we might obtain by eventually reinvesting our sale proceeds at 20-30c in the dollar.

 

Ultimately, a modest & rising cash dividend on a large number of shares - adds up to a very nice future retirement income. Obviously, if the future shareprice ultimately rises as well - a modest property in Barcelona is not out of the question either.

 

Just a different POV

 

SD 

[TwoCitiesCapital]

What are the current opinions on SAN?  It looks as if it's trading near 20 year lows and is still profitable.  After the Brexit fallout, I keep comparing some of these foreign banks - especially the profitable ones - to some of the U.S. banks (ie. WFC and others) that saw huge gains after the financial crisis in 2008 / 2009.  Do you think that could be a valid comparison?

 

I guess the "million dollar" question is whether or not the worst is over in Europe?  I see relatively little chance that SAN is going bust, but I'm just not sure if it could turn into a long-term value trap.  I'm also concerned that we are nearing the top of the credit and business cycles.

 

My position in SAN has been frustrating to say the least - the majority of my bullish thesis is coming to fruition even though it took longer than I thought. Earnings have improved, a large amount of non-performing assets have been written off, and capitalization is increasing from retained earnings (and the surprise stock offering at the start of 2015). That being said, the stock went from $6 to $10 to $4 through that period of time.

 

I think SD is right in that the next 3-5 years will be challenging and we may see new lows as they work through the uncertainty in Brazil and Europe, but ultimately they are well positioned. They have a diversified base of earnings and a large amount of exposure to countries that do not have anywhere close to negative rates. I'm relatively unconcerned about their future seeing as they managed just fine throughout the 2008/2009 property crisis with a lot of exposure to Spain and a lot less capital than they hold now. I've been adding opportunistically to increase 5-10% here and there when prices suffer a major drop (recently picked some up on $3.83 after the Brexit announcement), but it will mostly be re-investing the 5-6% dividend here on out.

 

 

[TwoCitiesCapital]

Back in January, the CEO said that they weren't planning on a major acquisition, but would not rule out smaller transactions like those that occurred in 2014. Santander hand increased it's ownership of BSBR from 75% to 88% in a voluntary tender during 2014. I am beginning to speculate that with the increased earnings power, high reserves, and improvement in Spain, and the price action of subsidiaries that it is becoming a possibility that Santander will do something similar again and am thinking about buying shares in the subsidiaries as opposed to increasing my holdings in the SAN directly.

 

All of the publicly traded subsidiaries are down, in euro terms, for the year:

 

Banco Santander Chile: -1.5% YTD

Banco Santander Brasil: -33% YTD

Banco Santander Mexico: -24% YTD

 

Does anyone have any thoughts on the possibility for another tender/acquisition? Also, I thought I recalled reading somewhere that the capital they have to hold against these publicly traded subsidiaries was quite high. Does anyone have any generalized banking knowledge on that subject that might help me understand the contrary argument?

 

Thanks,

 

Well, Santander didn't buy any of them, but it wasn't a bad time to be buying them. Below are the returns, not including dividends, since that post.

 

Banco Santander Chile: +23.87%

Banco Santander Brasil: +131%

Banco Santander Mexico: +30.92%

 

Despite this incredible performance from it's subsidiaries, SAN itself is down -17.53% over the same period currently sporting a market cap of $60B. This has significantly shifted the market implied values of operations in Europe (only accessible by buying a stake in the parent).

 

If we look at it's ownership in its public subsidiaries and the Americas and their market caps, (BSBR - 88.3% OF $26B, BSMX - 75% of 12.59B, and BSAC - 67% of 10.3B, SC - 58.9% of 4B), we see that it's ownership in public subsidiaries is around $42.5B against it's current market cap of $60B.

 

So what that is telling us is that the market implied value of the remainder of U.S. and European operations is only $17.5B - or roughly 4x it's earnings contribution (~4.5B - 1st half of 2016 annualized) while America's trades closer to 15x (~2.8B - 1st half annualized). I still think America's offers decent value with a long runway for growth, but methinks it's time to roll out of the subsidiaries and back into the parent to increase that European exposure.

 

 

[John Hjorth]

RBS sees Santander walk away for a second time over Williams & Glynn sale .