Details of Banco Santander’s IPO of its Brazilian unit serves as a further reminder that its 74 year-old chairman Emilio Botin is a bit of a shrewdie.
While RBS and Fortis blew themselves up with their ill-timed acquisition of ABN AMRO, Santander’s purchase of the Dutch bank’s Latin American business now appears rather slick.
Santander paid $15.6bn for Banco Real as part of the ABN breakup. The IPO of 16 per cent of the Brazilian arm for $7bn makes the subsidiary worth about as much as Deutsche Bank or Société Générale, and represents a canny bit of asset flipping on behalf of Señor Botin.
Indeed, the IPO narrative is an alluring one. As Lex noted on Tuesday:
Brazil is an easy story to buy — or sell. Its investment-grade economy suffered the slimmest of recessions this year and may grow 4 per cent next year. It also has a burgeoning middle class for whom credit is still a novelty. At about 41 per cent of gross domestic product, credit penetration is half the global average.
All well and good, but we should not forget to ask why the bank is opting to raise funds now. If it had held fire, say until next year, then there is a strong chance Santander could have swelled its coffers even further.
But over the next year the Spanish banking system will face further loan losses as one of Europe’s most bubblicious housing markets continues to deflate, meaning Santander and BBVA will need to tread with caution. While its geographical diversification makes Botin’s baby look well placed to benefit from a global recovery, the bank’s Achilles Heel remains very much at home.
When weighing up the benefits of grabbing a relatively stress free chunk of capital now, verses the risk the markets or loan losses will turn sour, Santander appears to have taken the best course of action.
Not only does it put down a valuation marker on the Brazilian business, but the deal provides some cash for snapping up opportunities that come onto the market.
The deal also looks good when viewed in comparison with other “inventive” cash raising schemes by banks, notably Barclays’ sale of BGI. Santander has managed to draw funds from one of its “crown jewels” while still retaining ownership.
Its shareholders should consider themselves lucky that, with most of its rivals having little room to manoeuvre, Santander had a Latin American nest egg to fall back on.
Related links:
Are you a member of the “World’s Safest Banks”? – FT Alphaville
Are Spanish banks hiding their losses? – FT Alphaville