SAN - Banco Santander

[John Hjorth]

Santander Group Strategy update Event in London 30^th September 2016.

 

Reuters: Santander seen mapping out post-Brexit targets in investor update .

[John Hjorth]

Reuters comments on the information provided at the Santander Group Strategy Update Investor Conference held in London today. Presentations are here.

[TwoCitiesCapital]

Reuters comments on the information provided at the Santander Group Strategy Update Investor Conference held in London today. Presentations are here.

 

I definitely had an under-appreciation for the headwinds that their industry was facing when I started buying back in 2013.

 

Here's to waiting for the reflationary trade to come back around. In a normal environment, this would trade at many multiples of where it's at, but it may take us YEARS to get back to a more normal environment in addition to the years that have already been spent waiting.

[John Hjorth]

Reuters comments on the information provided at the Santander Group Strategy Update Investor Conference held in London today. Presentations are here.

 

I definitely had an under-appreciation for the headwinds that their industry was facing when I started buying back in 2013.

 

Here's to waiting for the reflationary trade to come back around. In a normal environment, this would trade at many multiples of where it's at, but it may take us YEARS to get back to a more normal environment in addition to the years that have already been spent waiting.

 

TwoCitiesCapital,

 

Your calculations in your post in this topic of 17 August 2016 still apply. The situation with the Italian banks is not good for the European banking industry as a whole [for the European banking industry much more worse than the recent problems at Deutsche Bank AG], and SAN is getting dragged down by it, on top of that the whole Deutsche Bank AG mess going on right now.

 

I remember my own reaction to the surprise capital increase at SAN in the autumn of 2014 - below market price at that time, with no subscription rights to existing investors - to about 200 institutional investors - I was - simply put - stinking furious - nuclear. Personally - at that time - I did seriously consider to dump the whole position.

 

The capital increase was based on expectations of growth - at that time - going forward. The growth did not happen as expected on overall level. Mrs. Botin has been cutting costs since then, especially in Spain. She is doing the right thing.

 

I agree with you - this has been far from fun.

 

[John Hjorth]

Citi announces Sale of Consumer Business in Argentina to Banco Santander Rio .

[John Hjorth]

Anyone who have any idea what's going on in the market with this stock?

 

I added about 40 percent to the position, measured by number of shares, at the day of Brexit, and I almost hit the buttom. Since then up about 27% [measured in my currency, the obscure DKK, closely related to EUR, I'm invested via the US ADR], and basically no material news from the company since then.

 

I'm still deep, deep in the hole on this stock. It has totally ruined my performance for both 2014 & 2015.

 

I still consider it mispriced, and I'm holding on.

[vox]

It looks like Santander has tracked the STOXX Europe 600 Banks Index (SX7P) pretty closely over the last several months.

[TwoCitiesCapital]

Just holding on and waiting - the progress has been in the right direction, but slower than I had ever anticipated. I've entertained myself with trading around it and its subsidiaries, but still sitting in the red on this one. I've managed to offset about $1.75-2.25 per share of losses though which has helped my resolve to stick around for the day that they make $15B again and trade for 3-4x the current price.

 

Until then, I'll be resolved to re-invest dividends and semi-regularly roll pieces back and forth between the parent and subsidiaries in an attempt to arbitrage valuations differentials between the two. 

 

 

 

 

 

 

[John Hjorth]

Just holding on and waiting - the progress has been in the right direction, but slower than I had ever anticipated. I've entertained myself with trading around it and its subsidiaries, but still sitting in the red on this one. I've managed to offset about $1.75-2.25 per share of losses though which has helped my resolve to stick around for the day that they make $15B again and trade for 3-4x the current price.

 

Until then, I'll be resolved to re-invest dividends and semi-regularly roll pieces back and forth between the parent and subsidiaries in an attempt to arbitrage valuations differentials between the two.

 

Yes, I also plan to reinvest the dividends going forward.

 

2016Q3 report is out today. Still slowly in the right direction, but far from flamboyant. The SAN share is up 0.77% in Madrid today.

[TwoCitiesCapital]

Just holding on and waiting - the progress has been in the right direction, but slower than I had ever anticipated. I've entertained myself with trading around it and its subsidiaries, but still sitting in the red on this one. I've managed to offset about $1.75-2.25 per share of losses though which has helped my resolve to stick around for the day that they make $15B again and trade for 3-4x the current price.

 

Until then, I'll be resolved to re-invest dividends and semi-regularly roll pieces back and forth between the parent and subsidiaries in an attempt to arbitrage valuations differentials between the two.

 

Sold about 20% of the position today at purchased the Mexican subsidiary with the proceeds. I have not done as much analysis on the Mexican subsidiary, but it seemed like a good time to make the move with the exchange rates where they are, the relative P/E and dividend yields, and to once again have the optionality to roll back and forth to capture relative values.

 

I still think the European subsidiaries that aren't traded separately is where much of the value is at, but I'm speculating that the factors holding down BSMX may resolve faster than the issues facing SAN allowing me to roll back into more shares.

[John Hjorth]

2016Q4 and whole year 2016 results are out:

 

Santander earns 6,204 million of Euros in 2016, up 4%.

 

Bloomberg interview with Ms. Botin:

 

Bloomberg: Banco Santander's Botin: Every Market Set to Grow.

[jrallen81]

Does the mexican sub trade on US exchanges?

[dutchman]

Anyone have thoughts on the mexican sub bsmx ?  Is this a well run operation?  Its still not that cheap.

[John Hjorth]

Does the mexican sub trade on US exchanges?

jrallen81,

 

Here, stock ticker BSMX.

[TwoCitiesCapital]

Anyone have thoughts on the mexican sub bsmx ?  Is this a well run operation?  Its still not that cheap.

 

Mostly, this is just speculative dividend/currency arbitrage for me. SAN is up significantly off of its lows in dollars while BSMX is still making new lows. The peso is the lowest versus the dollar in years which has made the company cheap in USD terms. It's also carrying a significantly higher dividend and trades at a lower P/E than the parent giving you better "value" in traditional metrics. 

 

The goal is always to roll back into the parent with more shares by getting relative out-performance. The idea is that hopefully after 12-18 months, I can roll back into SAN shares and have ~5% more of them in addition to whatever performance SAN has put up.

 

I think issues holding down the peso will resolve themselves before the issues holding down the European subsidiaries. This could happen for any number of reasons: mean-reversion, fears of Trump fading, higher oil prices, etc. All will reasonably have had time to play out in the next 12 months where Europe's issues will likely take longer and continue to weigh on the parent.

 

 

 

[John Hjorth]

2016Q4 and whole year 2016 results are out:

 

Santander earns 6,204 million of Euros in 2016, up 4%.

 

Bloomberg interview with Ms. Botin:

 

Bloomberg: Banco Santander's Botin: Every Market Set to Grow.

 

Let my just say - after reading the disclosure in full today - that I'm far from amused.

 

EPS basically flat.

 

Share price increase is basically based on P/E expansion. I take note of the promises going forward with regard to EPS. This bank has to deliver now [within the next year or so, Q by Q], or I'll be out of this stock.

 

I really don't understand why the loan losses don't decline in another pattern short term historically, [and perhaps going forward]. To me, there seem to be something wrong - very wrong - with credit procedures and credit handling when there are problems with certain customer relationships. But that may just be me.

 

- - - o 0 o - - -

 

Personally, I see right now better opportunities in RILBA.CPH or [sHB A.STO or SHB B.STO], but that may just be me. I'm trying to be patient here.

[TwoCitiesCapital]

2016Q4 and whole year 2016 results are out:

 

Santander earns 6,204 million of Euros in 2016, up 4%.

 

Bloomberg interview with Ms. Botin:

 

Bloomberg: Banco Santander's Botin: Every Market Set to Grow.

 

Let my just say - after reading the disclosure in full today - that I'm far from amused.

 

EPS basically flat.

 

Share price increase is basically based on P/E expansion. I take note of the promises going forward with regard to EPS. This bank has to deliver now [within the next year or so, Q by Q], or I'll be out of this stock.

 

I really don't understand why the loan losses don't decline in another pattern short term historically, [and perhaps going forward]. To me, there seem to be something wrong - very wrong - with credit procedures and credit handling when there are problems with certain customer relationships. But that may just be me.

 

- - - o 0 o - - -

 

Personally, I see right now better opportunities in RILBA.CPH or [sHB A.STO or SHB B.STO], but that may just be me. I'm trying to be patient here.

 

It's been frustratingly slow for sure. They're not earning anywhere close to what I thought they should be when I started buying in 2012/2013, but I still like the geographical diversification and the industry leading cost structure. I can't imagine how they don't mint money once the legacy issues wear off, but it's been a LONG time and they're still not gone yet. Probably shouldn't have bought it when I did, but it's harder for me to say that I shouldn't be buying it now.

 

In the meantime, trading between subsidiaries keeps me entertained and has allowed me to significantly limit my losses in the name by profiting handsomely both times I switched to BSBR. Hoping my experience with BSMX will be similar.

[John Hjorth]

Full 2016 Annual Report 2016 available today.

[TwoCitiesCapital]

https://www.bloomberg.com/news/articles/2017-03-28/qatar-to-sell-up-to-900-million-shares-in-santander-brazil-unit

 

The float is about to up in the Brazilian unit. Shares in circulation could increase by about 50%. Probably why the shares dropped quite a bit on the news. Just a heads up for anyone who follows the subs.

 

Anyone have thoughts on the mexican sub bsmx ?  Is this a well run operation?  Its still not that cheap.

 

Mostly, this is just speculative dividend/currency arbitrage for me. SAN is up significantly off of its lows in dollars while BSMX is still making new lows. The peso is the lowest versus the dollar in years which has made the company cheap in USD terms. It's also carrying a significantly higher dividend and trades at a lower P/E than the parent giving you better "value" in traditional metrics. 

 

I think issues holding down the peso will resolve themselves before the issues holding down the European subsidiaries. This could happen for any number of reasons: mean-reversion, fears of Trump fading, higher oil prices, etc. All will reasonably have had time to play out in the next 12 months where Europe's issues will likely take longer and continue to weigh on the parent.

 

It's been three months and BSMX is outperforming SAN by about 20% so far. Trying to determine if I actually wanted to wait my 12-18 month timeline OR choose to not be greedy and take my gains and go after 2-3 months.

[John Hjorth]

TwoCitiesCapital,

 

Do you have any idea what this runup is about? 20 per cent move up compared to SAN it self is pretty amazing to me, because SAN it self has moved up nicely lately.

 

I remember a few months ago, SharperDingaan posted in this topic about his general bearish view on the economies in the South American countries.

 

I simply do not have the capacity to follow closely the listed SAN subs also my self. [Note to self: Perhaps time for me to think a bit about how I allocate my time spent on investing?!]

 

Congrats again on some nice rolling in and out of the SAN subs, TwoCitiesCapital.

[SharperDingaan]

We own SAN but don't really follow it, as it serves an entirely different purpose for us. That said, we clearly should be paying closer attention to it, and probably trading in/out of the subs.

 

Review wise we look at it once/year.

10 years out will it pay enough of an annual dividend to be able to rent a place in Barcelona/Madrid for 3-4 months/year? As long as we don't lose our purchasing power over the interim, the capital hasn't really been a consideration. Something that needs to change.

 

SD 

[TwoCitiesCapital]

TwoCitiesCapital,

 

Do you have any idea what this runup is about? 20 per cent move up compared to SAN it self is pretty amazing to me, because SAN it self has moved up nicely lately.

 

I remember a few months ago, SharperDingaan posted in this topic about his general bearish view on the economies in the South American countries.

 

I simply do not have the capacity to follow closely the listed SAN subs also my self. [Note to self: Perhaps time for me to think a bit about how I allocate my time spent on investing?!]

 

Congrats again on some nice rolling in and out of the SAN subs, TwoCitiesCapital.

 

The peso has recovered, oil hasn't collapsed, and Trump hasn't enacted anything TOO terrible yet. All could be reasons. As I mentioned in my prior post, it was more of a speculative bet on the currency (the peso collapsed after the U.S. election) as well as a recognition that BSMX was hitting new lows even as SAN was significantly off it its lows.

 

I rolled 25% of SAN into BSMX with another 25% ready to go if it continued to fall. That never happened though.

 

I don't follow the subs as closely as the parent, but there are times where it seems obvious to me to make the move. BSBR in 2015/2016 fit the bill of being an obvious steal. While BSMX was less obvious, it seemed like the "troubles" that took it down were mostly temporary and that it would revert when people forgot about them.

 

Without rolling to and from the subs, I'd probably be about flat on my SAN position over the past 4 years. Rolling to and from the subs has resulted in about an 8% compounded gain over the same period. Not a stellar return, but given that SAN has been one of the largest positions in my portfolio over that time, it kept it from being an absolute anchor given that I was wrong about how quickly they'd return to normalized profitability.

[John Hjorth]

Thanks, ShaperDingaan & TwoCitiesCapital,

 

In connection with my reading of all the annual stuff for SAN, I especially noted the content of Capital management and adequasy - 2016 Pillar III disclosures.

 

Based on that report, SAN is now ahead of it's plan for capital generation [which naturally is a disappoinment, based on the growth in business volume has been a disappointment].

 

As long as the existing business volume is profitable, there is no problem with that. It just gives SAN the opportunity to terminate the Scrip Dividend earlier, for existing shareholders to avoid further dilution.

 

Perhaps the last year with a fourth quarter scrip dividend might be this year, and perhaps we might even see some share buy back in 2018 [ref. a post back in time in this topic from SharperDingaan], naturally depending on how things evolve on overall level going forward.

 

This is a complicated thing to assess.

 

- - - o 0 o - - -

 

The Spanish RE financing activity put into run off mode years ago [after all the Spanish GFC folly] does not take any place in the balance sheet any longer, and the remanining parts are running now at a buttom line about zero.

 

The real "Spanish Problem" here for SAN is that Spain has been "overbanked" with the operation of costly physical branches, while the banks strategy is to get customers to go digital.

 

What hasen't been mentioned in this topic so far is, that Ms. Botin took action on this about a year ago.

[TwoCitiesCapital]

Thanks, ShaperDingaan & TwoCitiesCapital,

 

 

As long as the existing business volume is profitable, there is no problem with that. It just gives SAN the opportunity to terminate the Scrip Dividend earlier, for existing shareholders to avoid further dilution.

 

 

 

TBH - I was disappointed, as I imagine that most foreign holders were, when they went from SCRIP to cash. There was no Spanish withholding tax on the scrip dividends. Now there is near a 20% withholdings tax on all cash dividends which means I'm getting 20% less three of the four quarters they pay a dividend. I would love it if they re-instated the scrip.

 

 

[John Hjorth]

Thanks, ShaperDingaan & TwoCitiesCapital,

 

 

As long as the existing business volume is profitable, there is no problem with that. It just gives SAN the opportunity to terminate the Scrip Dividend earlier, for existing shareholders to avoid further dilution.

 

 

 

TBH - I was disappointed, as I imagine that most foreign holders were, when they went from SCRIP to cash. There was no Spanish withholding tax on the scrip dividends. Now there is near a 20% withholdings tax on all cash dividends which means I'm getting 20% less three of the four quarters they pay a dividend. I would love it if they re-instated the scrip.

 

It's a good point, TwoCitiesCapital,

 

I haven't thought about it your way. Your post actually reminds me about that personally I do not get full Danish dividend tax credit for dividend taxes paid to Spain on dividends from SAN, according to ruling double taxation treaty between Denmark and Spain, while I do that [in the calculation the Danish PAL-tax] for holding SAN in tax deferred accounts.