Santander has capitalized on the relative strength of its balance sheet and historical ties with Latin America to gain a competitive edge over global rivals operating in the second-fastest growing region in the world. This July, the Spanish bank bought out Bank of America’s minority stake in Santander’s Mexican business for $2.5 billion to consolidate its presence in Latin America’s second-largest economy.
Santander reckons the region’s growth prospects offset the soaring cost of banking assets in the region – Bank of America netted a 56% profit at the end of its seven-year stake in Santander’s Mexican unit.
Last October, Santander hit the headlines again when it raised $8.8 billion with the stock market flotation of its Brazilian business in what was the world’s largest initial public offering of 2009 – and the largest ever for a financial institution in Latin America. Santander’s beefed-up Brazilian unit has also given global investment banking heavyweights in the country, Credit Suisse and JP Morgan, a run for their money.
Santander’s deepening penetration into Latin markets represents a bid to diversify the bank’s revenue base out of its home market in Spain, saddled as it is with sky-high public and corporate debt as well as meagre growth prospects. Latin America could comprise a higher-than-average 40% of the bank’s group profits this year, thanks to the region’s economic rebound.
The jury is out on whether the region will deliver on its growth expectations – but establishing a foothold in the market is the best strategic option Santander has. And for that it deserves credit.