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Why would anyone own the preferred shares of Banco Santander (STD), writes John Hempton. They...

Why would anyone own the preferred shares of Banco Santander (STD), writes John Hempton. They yield 10%, but offer no chance of capital appreciation. Do the holders believe Spain will do as the U.S., and bail out the banks at no cost to the preferred? It won't happen, says Hempton. Better to own the common - with an earnings yield of 40% and at least the chance of capital gain.
Comments (24)
  • Or you can just avoid STD until everything in Spain clears up.
    28 May 2012, 08:14 AM Reply Like
  • And cut your yield in half, at least.
    28 May 2012, 08:16 AM Reply Like
  • And cut your risk of default by 100%.
    28 May 2012, 08:23 AM Reply Like
  • No risk, no gain. And I doubt STD will default. It is not really a Spanish bank, or even European.
    29 May 2012, 08:28 AM Reply Like
  • You have no idea how the European debt crisis will play out and the market doesn't carefully analyze non-European assets of a Spanish bank when the $h*t is hitting the fan.

     

    If you really need Santander equity in your life why not wait until AFTER the collapse?

     

    What is the hurry?
    29 May 2012, 09:39 AM Reply Like
  • Santander are the strongest Spanish bank, they have extremely highly valued assets outside of Spain, like their Brazilian franchise. They have a diversified loan portfolio, unlike many of the problem banks in Spain.

     

    Lumping them in with the other Spanish banks, simply means you have not done your homework and looked at what the bank does, and where its assets are.
    28 May 2012, 08:30 AM Reply Like
  • How did America's best managed bank, Wells Fargo, do in 2008?
    28 May 2012, 08:34 AM Reply Like
  • I'm not saying it cant be poorly managed, but the assumptions that people make all the time is that Banco Santander are like any other Spanish bank, simply they are not. They have too large of an international presence to just look at their Spanish operations, context is everything.
    28 May 2012, 08:47 AM Reply Like
  • No, you miss my point.

     

    I know Santander is managed excellently.

     

    I just don't think that the market cares during a debt collapse like we are seeing in Europe.

     

    Buy STD AFTER the baby has been thrown out with the bathwater.
    28 May 2012, 09:27 AM Reply Like
  • Why would anyone put money into ANY EU bank?

     

    As stated above , if you must, do it after they crash.
    28 May 2012, 09:32 AM Reply Like
  • Hello! Who to listen to ...lost 50% of my value since purchasing STD in my IRA acct ! Are we talking about "doubling "up on the bet ? How many funds and "SEEKING ALPHA" writers were wrong on this purchase [reason for my purchase]..Yes roll the dice and cross your fingers. this is not investing but gambling ?
    28 May 2012, 11:24 AM Reply Like
  • Ray
    Be not believing everything you read on SA or any other web site.
    28 May 2012, 07:59 PM Reply Like
  • Avoid banks, avoid insurance companies... and bet on Amarin! :-P
    28 May 2012, 11:31 AM Reply Like
  • Yes, I would concur with the author that there are potentially huge rewards in buying STD's common shares at current prices. STD has even continued to pay attractive dividends at their current low valuation. It's rather unlikely that STD will require any bailout similar to Bankia, but, of course, that hasn't prevented STD's shares from coming under pressure. And, if they did get any common-share-dilutive insertion, like Bankia, the common shares would drop significantly further. Frankly, I like STD's common shares at current prices, and would love them even more at a lower price.

     

    The preferred shares, on the other hand do have limited upside. They had not too long ago risen to over $29 versus a par at $25. But, also, keep in mind that STD's preferreds are also investment-grade rated and subject to almost no risk of suspension, as STD could not even pay a single dime of common dividends, if they don't pay the preferred first. How many investment-grade securities are yielding over 10% these days?

     

    Also, contrary to the implication that "grandmothers" hold this stock, I am sure it's held far and wide by knowledgeable investors. If the distinction between the risks attendant to STD's preferred and common were unrecognized, then, I'd expect to see the STD preferred selling at $5, as many U.S. bank preferreds were in 2008 (they're now all back at or above par). Apparently, the market has learned from that episode and is much more reluctant to give into blind fear on the preferreds, this time, providing another once-in-a-lifetime buying opp.
    28 May 2012, 11:50 AM Reply Like
  • The fact that they are still investment grade is a negative thing. Rating agencies are always behind the curve, you will get them downgraded soon
    28 May 2012, 02:51 PM Reply Like
  • I don't understand the STD negative comments:

     

    1) The number of short shares is 0.03% of the float. Not the short interest of something going bust.

     

    2) Yahoo has the book value at $10?

     

    3) STD has been in business since 1857 and their CEO is 70, so they must have some corporate memory of risk and long term cycles.

     

    While not a bank person, STD is almost a index fund for the Spanish speaking world.

     

    If STD and say CS were trending up, they would be buys. I think all of the above comments share in common is that STD is a buy, it's now a marketing timing issue. Finally, with STD and CS, I now understand what a Warren Buffet stock looks like.
    28 May 2012, 12:35 PM Reply Like
  • "STD is a buy,"

     

    You can't be serious!!!!!!!!!!!!!!!...
    28 May 2012, 08:02 PM Reply Like
  • I also don't understand the negative comments.

     

    About two weeks ago, Fitch said STD would not need assistance.

     

    Last week, S&P declined to lower its rating on STD even though they lowered ratings on five other Spanish banks.

     

    Moody's cut STD one notch but it's still in the single-A range and the ratings agency said STD was one of the most credit-worthy banks based in Spain.
    28 May 2012, 01:22 PM Reply Like
  • being one of the most credit-worthy banks based in spain means little these days....
    28 May 2012, 02:49 PM Reply Like
  • Yes, Spain's economic difficulties are in the headlines. Predicting its business future is problematic. But, is STD truly a 'Spanish' bank? STD's Yahoo profile indicates that it has 6.600 branches in continental Europe, but it has over 8,000 branches in the UK, the US and in the growth areas of Latin America. It is an aggressively solid bank in the UK. Who is talking about risk for a company with solid assets and a global reach whose stock selling at less than $6?
    29 May 2012, 01:23 AM Reply Like
  • Well, Nokia too was cheap at $5... that was about a month ago. Now the shares are almost at half that price. What goes down, can go even lower.
    29 May 2012, 04:40 AM Reply Like
  • STD is a double in two years. The fundamentals of the bank will slowly win out.
    29 May 2012, 01:33 AM Reply Like
  • buy STD common or preferreds when nobody wants them. how many of you would have purchased Dow chemical at 6.00/share during the recession? you do your due diligence and take a risk and remain uninvested for long periods of time to buy the oversold stocks. take a small position and watch it like a hawk every day and add to your position as conditions improve. when you buy cheap as STD is now dont panic because it may go lower. you can also play the options on STD. short of a world wide diaster the dividend appears safe.
    1 Jun 2012, 02:58 AM Reply Like
  • Richem...There are probably thousand of stocks that reflect the same STD market situation...but to add more" good money" after a 50% loss without understanding the EU situation or what will be the turn around.. Let's see how long STD will be able to pay the interest rates.. Every day there is a new rumor from EU ! In horse racing .most horses with low odds win the races...STD is not in this category. If this is "play monies" --GOOD LUCK ! I am waiting just to get my 50 % back.. .
    1 Jun 2012, 10:00 AM Reply Like
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