Investors Can Bank on Banco Santander - Barron's

Includes: CS, HSBC, SAN, UBS
by: Rachael Granby

Banco Santander (STD) may be the least well-known major bank among U.S. investors, writes Barron's Vito J. Racanelli, but that's likely to change as the bank continues to grow and shares continue to rise.

Santander's acquisition strategy is to buy and fix troubled banks, making it likely that Santander will boost its U.S. presence. Santander already has a sprawling empire, with 14,000 branches in 40 countries. As the global economy recovers, Santander should benefit from its geographic diversity and strong capital structure.

Santander has a problem with nonperforming loans but has steered clear of subprime or toxic assets and risky derivatives. Of the major players, it's the best-positioned and least-risky investment. Shares should be higher but investors are worried about Santander's exposure to its home market, as Spain is experiencing a housing market bust and the country's growth may not return until 2011.

Operating costs total just 43% of gross income, with a cost ratio below 50% considered efficient. This banking efficiency probably isn't appreciated by the markets and the stock should also benefit from the continued integration of acquisitions. The ADRs have a 7% dividend yield, and could provide a 10-15% annual return over the next three years depending on the recovery of the global economy.

Analysts point out that during the current crisis, Santander will be the most profitable bank in the world outside China, with net income topping the combined profits of the three largest U.S. banks last year. It has focused on a simple and conservative retail business strategy and is taking its cost-conscious model around the world. In the meantime, investors have a rare opportunity to buy shares at a reasonable price.


  • Santander CEO Alfredo Saenz told investors the eurozone's largest bank will emerge from the global financial crisis stronger than its rivals. Santander has emerged from the rubble of the global downturn as a predator in both the U.S. and U.K.
  • Santander, one of Madoff's most active funnels, agreed to pay $235M to settle potential claims by Madoff's bankruptcy trustee.
  • In an April research note, KBW said bank investors should seek out stocks with healthy profits (before provision) and strong capital levels, pointing to HSBC (HBC) and Santander (STD), while avoiding expensive banks like Credit Suisse (NYSE:CS) and UBS (NYSE:UBS).