Santander spies salvation in South America

Banco Santander hopes emerging markets, in particular demand for private banking services in Brazil, will buoy 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 the bank’s falling share price over the past 12 months.

Despite the discouraging statistics, the group’s chairman remained optimistic, pointing to Latin American demand for the group’s retail and private banking products as its deliverer 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,” admitted Emilio Botín, chairman of Banco Santander at a recent press conference.

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.

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

Despite the drop in profits, Botin’s mood remained upbeat, partly due to Santander having reached the core capital requirements set by the European Banking Authority (EBA) six months ahead of deadline. But what really lent his speech its cheery 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 currently has 102 million customers worldwide spread between the bank’s 10 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. He pointed out Santander’s dominance in the highly sought-after Brazilian market where Santander has a stake in three of the country’s top private banks. Botín believes other global banks would “find it hard to attain” a similar footprint. Brazil alone made the biggest contribution to the Santander’s earnings in 2011, representing €2.61bn of profits (28% of the total).

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