Thread: Santander pays B of A $2.5 billion for stake in Mexico unit

June 9, 2010, 10:21 a.m. EDT

Banco Santander pays $2.5 billion for stake in Mexico unit

Price represents 56% gain for Bank of America over seven years
By Barbara Kollmeyer & Simon Kennedy, MarketWatch

MADRID (MarketWatch) -- Spanish banking giant Banco Santander on Wednesday said it will pay $2.5 billion to buy back the 24.9% stake in its Mexican arm, Grupo Financiero Santander, currently owned by Bank of America.

/quotes/comstock/13*!std/quotes/nls/std
STD 9.15, +0.16, +1.78%

/quotes/comstock/13*!bac/quotes/nls/bac
BAC 15.02, +0.01, +0.07%

200%100%0%-100%01020304050607080910The sale price values the entire unit at around $10 billion and represents a 56% gain for Bank of America /quotes/comstock/13*!bac/quotes/nls/bac (BAC 15.02, +0.01, +0.07%) in the seven years since it bought the stake from Santander for $1.6 billion.

The deal will lift Banco Santander's /quotes/comstock/06x!csan (ES:SAN 7.64, +0.28, +3.86%) /quotes/comstock/13*!std/quotes/nls/std (STD 9.15, +0.16, +1.78%) stake in the Mexican group to 99.9% and is expected to be completed within the next 90 days, the banks said.

With its home market experiencing a deep recession, Santander's international operations, especially in Latin America, have become a key driver of growth. Analysts had previously flagged an acquisition of the Bank of America stake as the most likely way Santander could grow in Mexico.

Deutsche Bank analyst Carlos Berastain Gonzalez said that financially the deal "looks sensible" and that it should add around $375 million to earnings in 2012.

"Santander regains full control of the Mexican earnings at a time where we expect earnings to get increasingly positive momentum driven by slowly picking up lending activity and significant reductions in the cost of risk," Gonzalez said in a note to clients.

Banco Santander Mexico is the third biggest financial group in that country, with a market shares of 14.8% in deposits and 13% in loans.

"This acquisition reinforces Santander's commitment to Mexico, a country with a very positive outlook for growth, and furthers the geographic diversification of our group," said Santander Chairman Emilio Botin.

Santander said the transaction will have a positive impact of 1.3% on its earnings per share from the first year and a return on equity of 15% from the third year, based on market consensus estimates of Banco Santander's Mexico earnings.

The transaction is estimated to reduce Santander's core capital by around 0.3 percentage points.

Shares in Santander rose 2.5% in Madrid, while Bank of America slipped 0.5% in early Wall Street trading.

Santander has made a string of acquisition in recent years, including Brazil's Banco Real, which it bought for around 11 billion euros ($13.1 billion) as part of the break up of ABN Amro in 2007.

It's also expanded in the U.K. with the purchase of Abbey in 2004, followed by Alliance & Leicester and parts of Bradford & Bingley in 2008 as the credit crunch hit U.K. lenders. Apparently they are seen as lead bidder for SEB's /quotes/comstock/22u!seb-a (SE:SEBA 40.12, +1.28, +3.30%) German branches. See related story on unlisted Europe banks.

As for Bank of America, spokesman Jerry Dubrowski said the Mexican stake sale was part of a "broader strategy to focus on our core businesses." The investment bank had agreed to hold the stake for at least three years and then sell it back to Santander or investors after that time expired. A month ago, Bank of America announced plans to shed its stake in Brazilian lender Itau Unibanco Holding. See related story

"It was a strategic investment and we conducted a business review at the end of last year/beginning of this year, looking at all our investments and decided this was a non-core investment and decided to divest to Santander," said Dubrowski.

Bank of America's total exposure to Mexico for Bank of America was $5.3 billion in loans and other commitments as of the end of the first quarter, including that Santander exposure. The investment bank's total loan book exposure globally is $1 trillion, he said.

Barbara Kollmeyer is an editor for MarketWatch in Madrid.

Simon Kennedy is the City correspondent for MarketWatch in London.

http://www.marketwatch.com/story/santan ... 2010-06-09

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