Targeting growth in South America

Banco Santander is hoping emerging markets, particularly demand for private banking services in Brazil, will boost profits in 2012.

When Banco Santander announced its 2011 corporate results at the end of January, the world’s media was quick to judge the significance of its plunging profit margins, echoed by its falling share price over the past 12 months.

Despite the discouraging statistics, its chairman Emilio Botín remained optimistic, pointing to Latin American demand for Santander’s retail and private banking products as its saviour from economic and regulatory gloom.

“We have gone through the fourth consecutive year in the midst of this crisis, and it has also been the toughest and longest period of volatility since the 1930s,” he admitted at a recent press conference.

Group slump

He said three of the most difficult issues for the bank were weak growth of business activity, pronounced instability in markets, and regulatory measures and changes. Despite these challenges, he said Santander “has completed a year that in my opinion was very good”.

His bright attitude comes as a surprise given Santander’s declining profits and the threat of costly regulatory action in Spain over the group’s bad real estate assets.

Its attributable profit in 2011 was €5.35bn, 35% less than the previous year (€8.18bn). The fall in profits was partly down to the €1.81bn the bank put to one side to cover losses on property assets. Spain’s economy minister Luis de Guindos said last month he expected Spanish banks to pay up to €50bn to cover losses on real estate assets as part of reforms aimed at improving Spain’s financial industry.

Despite the drop in profits, Botín’s mood remained upbeat, partly due to Santander having reached the core capital requirements set by the European Banking Authority six months ahead of deadline.

But what really lent his speech its positive tone was his description of the group’s “diversification and ­recurring nature of income” – in other words, building on and expanding business opportunities in Latin America.

Santander has 102 million customers worldwide spread between the bank’s ten core markets. Five of the core markets are in emerging countries: Brazil, Mexico, Chile, Argentina and Poland. These economies account for the majority (54%) of Santander’s profits. The remaining 46% of profits was generated by five industrialised countries: Spain, the UK, Portugal, Germany and the US.

According to Botín, this positioning is “unique” among global banks as its position in Latin America is twice the size of its nearest competitor.

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