Spanish banking giant Banco Santander
- 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
and Banco Santander Brasil (NYSE: BSAC) . If it needed to raise capital, Santander could sell another slice of operations unaffected by European debt worries. (NYSE: BSBR)
- Its shares look cheap, recently changing hands under 60% of book value.
- The trailing-12-month dividend yield tops 13%.
- 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.
- 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.
- Financial trouble in Europe pretty well covers the threats.
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.