Banco Santander Brasil: Get Ready for Largest IPO in 18 Months

Banco Santander (Brasil) (BSBR), the fourth-largest bank in Brazil and a spin-off of Spanish bank Santander, is expected to go public this week. According to Reuters, at $8.91 billion, this is the largest IPO offer in 18 months.

Business Overview (from prospectus)

We are a leading full-service bank in Brazil, which we believe to be one of the most attractive markets in the world given its growth potential and low penetration rate of banking products and services. We are the third largest non government-owned bank, the largest bank controlled by a major global financial group and the fourth largest bank overall in Brazil with a 10.2% market share in terms of assets, at March 31, 2009. Our operations are located across the country and strategically concentrated in the South and Southeast, an area that accounted for approximately 73.1% of Brazil’s GDP in 2006, and where we have one of the largest branch networks of any Brazilian bank. For the six months ended June 30, 2009, we generated profit before taxes of R$3.8 billion, and at that date we had total assets of R$288.9 billion and shareholders’ equity of R$51.1 billion. Our Basel capital adequacy ratio was 17.0% as of June 30, 2009.

Offering: 525 million shares at $12 - $14 per share. Net proceeds of approximately U.S.$6.8 billion will be used to expand the company's business in Brazil by growing its physical presence and increasing its capital base. Proceeds will also be used to enhance funding structure and, along with traditional funding sources, increase current credit transactions.

Lead Underwriters: Santander Investment, Credit Suisse (CS), BofA Merrill Lynch (BAC)

Financial Highlights:

Net income in the six months ended June 30, 2009 was R$2.4 billion, a 246% or R$1.7 billion increase from R$707 million in the six months ended June 30, 2008. The increase was mainly due to the consolidation of Banco Real in our financial statements. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, net income in the six months ended June 30, 2009 increased by 13% compared to R$2.2 billion in the six months ended June 30, 2008... Santander Brasil’s net interest income in the six months ended June 30, 2009 was R$10.7 billion, a 220% or R$7.3 billion increase from R$3.3 billion in the six months ended June 30, 2008...Administrative expenses changed from R$2.2 billion in the six months ended June 30, 2008, or R$5.5 billion on a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, to R$5.4 billion in the six months ended June 30, 2009...

Competitors:

The Brazilian financial market is highly competitive, and in 2008 and the first half of 2009 experienced significant consolidation, which included the mergers of some of the largest banks in the industry, such as Santander Brasil with Banco Real, Itaú (ITUB) with Unibanco and Banco do Brasil with Nossa Caixa and Banco Votorantim.

Additional Resources:

• Company website
• Reuters: 'ANALYSIS-Santander IPO to cash in on Brazil growth story'
• Reuters: 'Santander IPO "no bargain," but demand seen strong'
• Morningstar: 'Banco Santander Brasil has our attention'
• Portfolio.com: 'Initial Public Optimism'