Banco Santander: Strengths, Weaknesses, Opportunities, Threats

Spanish banking giant Banco Santander (NYSE: STD  ) has been bouncing around 52-week lows recently, and I decided to give it a once over to decide whether to close my poorly performing CAPScall or let it ride. A SWOT -- strengths, weaknesses, opportunities, and threats -- analysis should help shed some light on the bank's prospects.

Strengths:

  • The bank has globally diversified operations. Only 12% of its profit is generated in Spain. Operations in Brazil, Mexico, Chile, Germany, Poland, the United Kingdom, and the United States account for the vast majority of profits.
  • The bank already meets the European Banking Authority's core capital requirements for June 2012.
  • Santander has publicly listed part of its stakes in Banco Santander Chile (NYSE: BSAC  ) and Banco Santander Brasil (NYSE: BSBR  ) . If it needed to raise capital, Santander could sell another slice of operations unaffected by European debt worries.
  • Its shares look cheap, recently changing hands under 60% of book value.
  • The trailing-12-month dividend yield tops 13%.

Weaknesses:

  • It's a bank, in Spain.
  • Nonperforming loans have been trending up for several quarters largely due to the Spanish market.
  • Although loan-loss provisions across the group increased last quarter to 62% of nonperforming loans, provisions for the Spanish market are less than half of those nonperforming loans.
  • The low price-to-book value and high dividend yield mentioned above mean the market is concerned that Santander may need to raise capital or cut its dividend.

Opportunities:

  • Santander recently opened new opportunities in China when its Shanghai branch was licensed to deal in renminbi.
  • Financial trouble in Europe may offer opportunities to pick up assets or banking operations at fire-sale prices.
  • Banco Santander's emerging market operations allow it to benefit from growth in Brazil and the rest of Latin America.

Threats:

  • Financial trouble in Europe pretty well covers the threats.

Wrap-up:
Overall, Banco Santander's discount price seems fair considering the weaknesses in Europe. The loan-loss provisions seem a little on the low side given the weak home economy and growing number of non-performing loans. If I were making a call today, I'd pass. Since I already have a CAPScall, I'll keep it open and see how Banco Santander plays out.

Fool contributor Russ Krull doesn't have a position in any company mentioned. You can follow his CAPS picks here. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 07, 2012, at 3:33 PM, Momentum21 wrote:

    thanks Russ, I share your optimism about STD but we should probably add the recent moves in Argentina and Bolivia into the "risk" or "threat" column. That said, I am still very bullish and very long Santander... : )

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