Investors in America will have their chance to buy shares of one of the leading Mexican banks this week. Grupo Financiero Santander Mexico, S.A.B. de C.V. (BSMX) will begin trading on the New York Stock Exchange. Shares are expected to price between $10.99 and $12.70. Bloomberg reported this week that shares are seeing heavy demand. Each ADS share in America represents five shares.
The Mexican bank listed these as their market opportunities:
· Stable economy with high potential
· Expansion of the middle class
· Low credit penetration
· Stable and well-regulated financial system
Competitive strengths are:
· Leading market position (#2 net income, #4 assets, deposits, and loans, in Mexico)
· Focus on well-defined profitable client segments resulting in superior track record
· Efficient and business oriented operational platform
· Synergies from our affiliation with the Santander Group
· Proven risk management practices
· Strong and sustainable funding and capitalization profile
· Experienced management team and skilled workforce
The company's key strategies going forward:
· Leverage leading market position
· Expand and develop customer base
· Expand product offerings
Santander Mexico is the second largest financial services company in Mexico. The bank offers services including: retail banking, commercial banking, securities underwriting, brokerage, and asset management. The company's main asset is Banco Santander Mexico. Gestion Santander, the company's asset management subsidiary, is the third largest in Mexico and has assets of $13.2 billion. In the last six months, the subsidiary saw net income of $3.0 million. Casa de Bolsa Santander is the company's broker deal subsidiary. The unit was responsible for 6052 customer contracts. In the last six months, the group saw net income of $7.7 million.
One of the areas Santander Mexico is expanding into is credit cards. Santander is the third largest in Mexico and offers nineteen different Mastercard (MC) and Visa (V) credit cards. Santander has a 12% market share of credit cards in Mexico. Santander Mexico has a joint venture with Elavon, a US Bancorp (USB), to accelerate its presence in the ATM and POS industry in the Latin American country.
Santander Mexico offers home mortgages to Mexican residents in loans up to twenty years. The company is the leader in Mexico, excluding government owned banks. Santander maintains a 15.4% market share for mortgages. In 2010, Santander Mexico acquired GE Capital (GE) residential mortgage business in Mexico.
Santander Mexico has 1097 (as of June 30) branches in the country. This is an increase from 1073 at the end of 2010. The bank served 9.30 million customers in 2011, an increase from 9.07 million in the previous year. The company offers 4779 ATMS across the Latin American country. Internet banking is growing for the company, with thirty three million customers using online banking offered by Santander. Mobile banking is one of Santander's new focuses and could help their retail business grow. Here is a look at the retail outlets by Mexican region:
· Central - 122
· Metro North - 148
· Metro South - 139
· Northeast - 137
· Northwest - 108
· North - 96
· West - 110
· South - 99
· Southeast - 138
Santander Mexico is owned by Spanish banking giant Santander (SAN). In the last six months, Santander Mexico made up 12% of the banking giants profits. Santander has spun off several of its foreign banking operations. In 2009, the company's Brazilian operations were spun off and now trade as symbol BSBR. Shares trade at $8.09 and are down 38.3% since their IPO. Santander's Chile unit has fared much better. Santander Chile (BSAC) shares trade at $73.89 and are up over 279% since their split in 1997. In the last five years, shares of the Chilean bank are up 46%. Santander has plans to have all its subsidiaries spun off in the next five years. Santander owns banking operations in the following regions:
· Brazil (already spun off)
· United Kingdom
· Chile (already spun off)
· Puerto Rico
· Asia/Australia - China, South Koreas, Australia, Japan, Singapore
Recent financial performance has likely led to the strong demand for shares. The company saw consolidated profits of 30.6%. Net income rose 24.1% on higher volume in the company's mortgage portfolio and retail segment. Retail banking saw its operating profit increase 88%. As of June 30th, Santander Mexico had assets of $62.4 billion. In the last six months, the company reported net income of $0.7 billion. The bank saw a return on average shareholders' equity of 19.9% in the last six months.
In Mexico, Santander competes with BBVA Bancomer (BBVA), Banamex (C), Scotiabank (BNS), and HSBC (HBC). Several large banking companies have been buying into the Mexican economy by acquiring banking assets in the country. BBVA bought Bancomer in 2004 and now has the number one position in the country. Citigroup has owned Banamex since 2001. Santander owned the Mexican unit until 2003, when it sold 24.9% to Bank of America (BAC). The partial stake was sold back to Santander in 2010.
I recommend buying shares of Santander Mexico if they stay under $16. With strong demand, shares are likely to be oversubscribed and see a large bounce on the initial trading day. If you can't get in on the Santander Mexico IPO, remember there are two other key trades to make:
BBVA is the largest Mexican bank. Shares trade at $8.33 after trading between a range of $5.30 and $9.94 in the last fifty two weeks. In the last five years, shares are down 64%. Over the past year, shares of the banking giant are up 7% on the year. Expect a bounce from BBVA shares with a successful IPO from Santander as investors look to Mexico for new stock picks. Shares also sport a nice yield of over 5%.
Santander has seen its shares drop 59% over the last five years. Shares trade at $7.94, with a fifty two week range of $4.88 to $9.33. With the European financial crisis, shares of Santander have traded down. Investors will bid shares up as Europe recovers, and as assets like Santander Mexico are recognized.