Wednesday, June 15, 2011


The European banking sector has been especially beaten up over the past months. However, one bank has stood out above all else and has continued to grow at a feverish pace.

Banco Santander (STD) is the stock we will be examining today. Founded in 1857 with a market cap of $89 Billion, STD is the largest bank in the Euro-zone by market capitalization. The bank offers a wide array of financial services in Europe, Latin America and the United Kingdom. 

Before we can consider this stock a buy, lets take a look at some of the pros and cons first:

- Currently yields a 9.1% dividend.
- P/E of 7.8.
- Highly diversified; nearly 60% of profits come from Latin America.
- Latin American profit increased 26.8% yoy.
- 10% decrease in loan loss provisions.
- Conservative banking practices. Fiscally responsible.

- Europe profit decreased 14.1% yoy and U.K. profit decreased 2% yoy.
- Operating expenses up 13.2% in recent quarter.
- Unrest and economic stagnation in Spain.
- Dragged down by sinking PIGS debt crisis.

Amid all of the growing uncertainty in the Euro-zone, STD has continued to grow and strengthen its prospects for the future. The bank has diversified its holdings and is experiencing robust growth within Latin America. It remains poised to benefit from continued growth in Latin America and in Europe when the debt crisis is resolved.

There are certain areas that investors must be cautious of however. Growth in continental Europe and the United Kingdom is decreasing/stagnated and that poses serious drawbacks when evaluating future growth prospects. The bank has remained profitable, yet it is also prone to setbacks (in the short term) from what is happening in Greece and Portugal. 

To conclude, STD looks poised to benefit from an eventual economic upswing  within the Euro-zone. The bank pays a large dividend of 9.1% that should make owning this stock much sweeter. It trades for very cheap multiples with a P/E of less than 8. STD remains a good stock to own in the present because of its dividend yield and in the future because of its international diversification in Latin America and Europe.

I do not own any positions in STD but may initiate one in the near future.

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