10 July 2014

Q2 2014

Results: EPS €0.122 (All presentations)

News:
  • 2014/07/31. Coverage from reuters and bloomberg
  • 2014/07/30. Reminder for tomorrow (Communicate)
  • 2014/07/30. BBVA results (ES) (ES) (bloomberg). -53% YoY (with capital gains). +11.7% (w/o). NPL at 6.4% from 6.8% last quarter.
  • 2014/07/28. BFA-Bankia. Good (ES)
  • 2014/07/25. CaixaBank results. Good: shares +3.5%  (ES) and (reuters)
  • 2014/07/25. Prevision for SAN: €1.46bi (ES) (EPS of €0.124). Also coverage of other banks.
  • 2014/07/24. Bankinter and Sabadell reported good Q2 results (reuters)


Report date is July 31th.
Q2 was so quite.
EPS between €0.12 (bad) and €0.14 (good)
A few points to check:
- UK continuing to shine
- SCUSA still torrid? Effects of the commercial push for ex-Sovereign?
- Brazil improving? Anyway exchange rate is quite favorable this quarter.
- Blips in Spain?

M&A also quite for the quarter: Acquisition: Getnet in Brazil and GE money in Scandinavia. Sell: 50% of custody business.
I don't consider the offer to purchase 25% of Santander Brasil as an acquisition. Simply an opportunistic operation financed with new shares.

But Q3 and following quarters will not be quite. The effects of Espirito Santo's Portuguese bank is only an initial event of a long series.
In the next 2 quarters we will have the ECB stress tests results, EZ banking union, BIS III first loading year and recapitalization of companies in Spain.
The first 3 events will cause significant MA activity. Santander will pass the tests without problems. The company has amassed significant capital surplus to be on the acquisition side.
Not only the capital surplus (including a solid 5 year capital plan whatever the Federal Reserve says) is ready: during Q1, SAN parket €1.1bi of exceptional gains in the balance sheet. The quarter before, a smaller amount was also parked. These funds will be used to cover the restructuring costs after acquisitions. Anyway that is how they utilized capital gains in 2013 (cover the merges in Spain and Poland), and this is in contrast of 2012 where utilization of exceptional gains covered the real estate situation in Spain.

And the best is that in case Santander depletes capital surplus through acquisitions, they will continue to pay the dividend as scrips, the current shareholder most friendly way to raise capital, allowing to spare the 21% Spanish dividend tax for a longer period.

Time goes too slowly.

6 comments:

  1. Hi Vincent, love your posts and breakdowns of SAN. Very easy to understand and grasp the big picture. I was wondering if you could cover the current EGM agenda as it relates to the Santander Brasil "acquisition." I am having a hard time digesting the info and am not sure which way to vote. Thank you in advance for future hard work. - Rob O.

    ReplyDelete
    Replies
    1. Thanks Rob.
      SAN is my biggest position. This blog's main objective is to organize information about the group for my own use. Making that publicly forces better discipline.
      Related to the Extraordinary General Assembly of Santander Brasil. There have been 2 this year:
      - June 9th. Approval of change of level of SANB3, 4 and 11 in Bovespa (previous level 2, requires at least 25% of free float). Approval of company (Rothschild and Sons Ltda) to evaluate company value
      - March 18th; Subjects not related to exchange offer

      As far as I know, the voluntary exchange operation has been approved during AGM of April 30th.

      No additional EGM or AGM scheduled for this year.
      SAN group holds 75% of the voting rights of Santander Brasil: other votes are not relevant.

      What is left to decide for current BSBR/SANB11 holders, is to exchange or not for SAN with Oct 10th as deadline.

      Delete
    2. Sorry for previous message.

      You are referring to the group EGM of Sep 30th.
      That EGM is to authorize increase of SAN group capital for the Santander Brasil exchange.

      This operation is a no brainer: SAN shareholders should vote yes. Should all 25% (Santander Brasil) be exchanged (against SAN shares), SAN share number will increase by 665mi. However the lower minority interests when consolidating will means higher SAN EPS despite higher share numbers.

      Of course this is based on future Santander brasil earnings estimates but that risk is low.

      Furthermore, this will allow future capital gains for SAN: When conditions are good, group will IPO back the Santander Brasil shares they are acquiring to go back to 75% interest..

      Delete
    3. Similar operation was done in Mexico
      In 2010, SAN acquired 25% of BSMX (from BAC)
      Then they IPOed these shares in 2012 with nice capital gain.

      Brazil exchange offer is an opportunistic operation made possible but Santander Brasil shares being undervaluated.
      It is a big laugh. For years there were rumors of SAN being forced to sell Brazil at discount in order to raise capital. They are doing the opposite!

      Delete
    4. to be fair, it is not fully the opposite. (they are issuing new shares to capitalize the ops),

      Delete
    5. Thank you again for the insight Vincent!

      Delete