EUR 850.00 For Business Accounts Only

Morningstar | Santander Report Updated for FY18 Results

We do not believe the takeover of troubled Spanish rival Banco Popular materially changes the investment case for Santander. The EUR 7 billion capital injection that Banco Popular required is effectively the purchase price--this is less than 3% of Santander’s market value. Subsequently, Santander significantly increased provisions against the toxic portion of Popular’s book and then sold off 51% of the toxic assets to fund manager Blackstone.Globally, Santander is one of the few banks that have successfully acquired and integrated retail banking operations across borders. Santander’s integration strategy is to keep the front-end, client-facing activities firmly under the control of local managers with good insight into the opportunities and risks of their home markets. The back-end processing and systems of the business is where Santander sees the opportunity to integrate operations and achieve cost savings. The firm has a record of bolting on acquisitions to a common platform and extracting synergies. We like Santander’s focus on retail and commercial banking, with the investment bank concentrating on the areas where Santander’s presence, local balance sheet, and local expertise and relationships allow it to compete with the global bulge bracket investment banks. Retail and commercial banking typically have much better earnings visibility than investment banking. However, we do not fully understand Santander’s presence in the U.K and U.S., which detracts from overall profitability and growth prospects. The U.S. subprime vehicle finance business adds a different and unnecessary element of risk to the group. We would much prefer Santander to focus on its Iberian and Latin American businesses.The fortunes of Latin America, and specifically Brazil, will be vital to Santander’s prospects. Credit growth will be higher in Latin America than in Europe, which positions Santander on a different growth path to most other European banks. While developing economies bring increased volatility, the diversification between developed economies and developing economies in Santander’s operations reduces volatility.