When Banco Santander SA offered to buy out minority investors in its Brazil unit last year, many saw it as a chance to ditch the country’s worst-performing bank stock. They should have held on.
Since Oct. 31, when the deal to swap Brazilian shares for a stake in the parent company took effect, Santander Brasil SA has climbed 26 percent, while shares of the Spanish firm are up just 7 percent in local-currency terms.
“Santander Brasil is living in a better moment now, with good capital levels,” Rodolfo Amstalden, an analyst at investment-consulting firm Empiricus Research in Sao Paulo, said in a telephone interview. “It may deliver better return on equity to its shareholders in the future.”
The Brazilian bank is posting the best return among the nation’s top financial firms this year. That’s not how it looked last October. Shares of Santander Brasil had dropped 41 percent in the five years before the swap, the worst-performing financial stock in Brazil.
After raising $8 billion in a 2009 initial public offering, the bank was struggling to make its expansion plans work.
Itau Unibanco Holding SA, Latin America’s largest lender by market value, more than doubled its loan book from the end of 2009 through December 2014, 42 percentage points faster than Santander Brasil, according to the central bank. At the same time, excess capital was holding back return on equity, and delinquency rates climbed.
Below Potential
“Despite its strong capital position, Santander has never consistently outperformed its peers’ expansion pace, maintaining a portfolio well below its full potential,” Grupo Bursatil Mexicano wrote in a January 2014 note to clients.
The turnaround started this year. First-quarter profit beat analysts’ estimates after the Brazilian bank’s bad-loan provisions fell to the lowest level in four years, and Brazil became the Spanish bank’s largest market, representing 21 percent of consolidated earnings.
“Santander Brasil’s first-quarter results were the best in a long time,” Alexandre Silverio, who helps manage about 2 billion reais ($646 million) at AZ Quest Investimentos in Sao Paulo, said in an interview.
Shareholders who benefited by sticking with the local unit’s shares do have to contend with a less liquid investment. Santander Brasil’s average daily trading volume has dropped to about a quarter of the level before the transaction was completed and is less than 10 percent of Itau’s, according to data compiled by Bloomberg.
Santander fell 0.6 percent to 6.69 euros at 3:50 p.m. in Madrid, while Santander Brasil declined 1.4 percent to 16.64 reais at 10:50 a.m. in Sao Paulo.
Capital Levels
Among the largest Brazilian banks, Santander is the one with the highest capital ratios, Victor Martins, an analyst at Planner Corretora de Valores, said by phone from Sao Paulo.
“If the economy picks up, they’ll be in a better position to take advantage of that,” Martins said. “It’s all in their hands to do it.”
Santander Brasil’s capital ratio of 16 percent compares with 16.02 percent at Banco do Brasil SA at the end of the first quarter. It exceeded Itau’s 15.3 percent and Banco Bradesco SA’s 15.2 percent.
Santander declined to comment on its performance since the share-swap offer, which began in April 2014. That’s when the bank offered to buy back the 25 percent stake in the Brazil unit it didn’t already own at a price 20 percent above where it was trading at the time.
The deal was to exchange shares of the local unit for those of the parent. The majority of analysts covering the company recommended investors accept the offer, citing what they saw as a fair price and the risk of holding a stock with low liquidity.
“The market doesn’t believe in our franchise, but we do,” Javier Marin, Banco Santander’s chief executive officer when the deal was announced, told reporters at the time. “That’s why we’re carrying out this transaction.”
bloomberg.com
Since Oct. 31, when the deal to swap Brazilian shares for a stake in the parent company took effect, Santander Brasil SA has climbed 26 percent, while shares of the Spanish firm are up just 7 percent in local-currency terms.
“Santander Brasil is living in a better moment now, with good capital levels,” Rodolfo Amstalden, an analyst at investment-consulting firm Empiricus Research in Sao Paulo, said in a telephone interview. “It may deliver better return on equity to its shareholders in the future.”
The Brazilian bank is posting the best return among the nation’s top financial firms this year. That’s not how it looked last October. Shares of Santander Brasil had dropped 41 percent in the five years before the swap, the worst-performing financial stock in Brazil.
After raising $8 billion in a 2009 initial public offering, the bank was struggling to make its expansion plans work.
Itau Unibanco Holding SA, Latin America’s largest lender by market value, more than doubled its loan book from the end of 2009 through December 2014, 42 percentage points faster than Santander Brasil, according to the central bank. At the same time, excess capital was holding back return on equity, and delinquency rates climbed.
Below Potential
“Despite its strong capital position, Santander has never consistently outperformed its peers’ expansion pace, maintaining a portfolio well below its full potential,” Grupo Bursatil Mexicano wrote in a January 2014 note to clients.
The turnaround started this year. First-quarter profit beat analysts’ estimates after the Brazilian bank’s bad-loan provisions fell to the lowest level in four years, and Brazil became the Spanish bank’s largest market, representing 21 percent of consolidated earnings.
“Santander Brasil’s first-quarter results were the best in a long time,” Alexandre Silverio, who helps manage about 2 billion reais ($646 million) at AZ Quest Investimentos in Sao Paulo, said in an interview.
Shareholders who benefited by sticking with the local unit’s shares do have to contend with a less liquid investment. Santander Brasil’s average daily trading volume has dropped to about a quarter of the level before the transaction was completed and is less than 10 percent of Itau’s, according to data compiled by Bloomberg.
Santander fell 0.6 percent to 6.69 euros at 3:50 p.m. in Madrid, while Santander Brasil declined 1.4 percent to 16.64 reais at 10:50 a.m. in Sao Paulo.
Capital Levels
Among the largest Brazilian banks, Santander is the one with the highest capital ratios, Victor Martins, an analyst at Planner Corretora de Valores, said by phone from Sao Paulo.
“If the economy picks up, they’ll be in a better position to take advantage of that,” Martins said. “It’s all in their hands to do it.”
Santander Brasil’s capital ratio of 16 percent compares with 16.02 percent at Banco do Brasil SA at the end of the first quarter. It exceeded Itau’s 15.3 percent and Banco Bradesco SA’s 15.2 percent.
Santander declined to comment on its performance since the share-swap offer, which began in April 2014. That’s when the bank offered to buy back the 25 percent stake in the Brazil unit it didn’t already own at a price 20 percent above where it was trading at the time.
The deal was to exchange shares of the local unit for those of the parent. The majority of analysts covering the company recommended investors accept the offer, citing what they saw as a fair price and the risk of holding a stock with low liquidity.
“The market doesn’t believe in our franchise, but we do,” Javier Marin, Banco Santander’s chief executive officer when the deal was announced, told reporters at the time. “That’s why we’re carrying out this transaction.”
bloomberg.com
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