Can Latin America Bail Santander in 2012?

98%. That’s the extent by which profits plunged at Spanish stalwart Banco Santander (NYSE: STD  ) . The fourth-quarter earnings freefall was due to one-time charges taken on account of a slump in the Spanish housing market and a rise in allowance for loan losses. Excluding the charges, Santander’s earnings per share fell by 45%.  

With the situation back home only getting tougher as the government comes out with stricter provisioning requirements, the bank can take some heart from its presence outside the troubled European region, especially in Latin America.

A few numbers
Here’s what we see when we take a look at that quarter. Net interest income rose by 5%, helped by a 3.6% rise in lending coupled with a 2.6% hike in customer deposits. However, bad loans to total lending also rose, and the company had to lay aside 16% more for loan losses, which led to total revenues contracting 9%.   

Profits for Santander fell to $61.1 million from $2.82 billion in the same quarter last year -- this as the Madrid-based bank had to set aside $4.2 billion (3.2 billion euros) in extraordinary provisions. The good thing is that $2.37 billion (1.8 billion euros) of the total will be for the disturbed housing market in Spain, increasing the coverage to 50% of foreclosed properties. Santander had an enormous $11.23 billion (8.55 billion euros) in foreclosed properties at the turn of the year and should now be able to sell those properties at half the price without suffering any further losses and weakening its capital ratio.

Considering that banks in Spain will have to recognize real-estate losses at some point or another, Santander has done well to shed a considerable part of the real-estate burden, even at the cost of an ugly-looking bottom line. In contrast, peer Banco Bilbao (NYSE: BBVA  ) in its fourth quarter recorded $10.13 billion (7.71 billion euros) in foreclosed properties and covered only 34% of the value. Bilbao will have to set aside more in the coming quarters.

Looking beyond Europe
As the situation in Europe and Spain worsens, Santander will hope to make the most of its operations abroad. In 2011, the bank earned 51% of its profits from Latin America, which is a first for the bank. Even Bilbao had a fruitful outing in South America, with profits from the region rising by 34%.

While the Spanish economy may shrink by almost 1.5% in 2012 with unemployment likely to breach 23%, the Latin American and Caribbean region is expected to grow by 3.7%. Chile is set to grow somewhere between 4.25% and 5.25%, according to the Central Bank of Chile, while the Brazilian economy is expected to increase by 3.8%. Santander is the largest bank in Chile and the third largest in Brazil -- factors that give me hope that the bank will make the most of the better conditions in the region.

One of the reasons why Santander has managed to remain profitable is its vast operations, and it may have to turn to its international operations again this year to remain in the green. Can Latin America help Santander in 2012? Simply click here and add the stock to your own Watchlist, and we at the Motley Fool will keep you up to date.

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Fool contributor Shubh Datta doesn’t own any shares in the companies listed above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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