Santander Committed to Brazil as Major Contributor to Bank’s Profits

Chairman Botin confirms the strategic importance of Santander Brazil, which accounts for the vast majority of the bank’s world-wide profits for the 1^st quarter 2012.

By Marco dos Santos

Emilio Botin

The deepening crisis in Spain last week cast shadows over the financial system in Spain. On Monday, April 30, the ratings agency Standard & Poor’s downgraded the notes of 11 local banks. The reasons for the poor numbers were the lack of economic growth and the increasing difficulty of the government to implement its austerity measures. The fiscal tightening could lead to, according to official calculations submitted to the European Commission, a 1.7% contraction in the economy this year and an increase of only 0.2% in 2013. Rising unemployment increases the risk of an increase in defaults, fatal to the results.

The words “bailout” was uttered with an uncomfortable frequency by economists and market professionals. In this scenario of uncertainty, the numbers of Santander bank are no exception. They need to clean up their portfolios of mortgages which contributed to cause a 24% drop in first-quarter results, which shrank to € 1.6 billion.

In late April, the bank had announced their intention to open the capital of its Mexican subsidiary, selling 25% stake in the local market. The extent of bad news triggered a wave of rumors that Santander would be selling its operations in Brazil.

These rumors were dismissed by Emilio Botin, chairman of the board of directors of the bank, passing through Brazil on Tuesday May 1st. “This country has become increasingly important for the Santander Group,” he told MONEY after a meeting with university presidents in Sao Paulo. “We have a great opportunity here.” Days before, to disseminate the results of the first quarter of 2012, Marcial Portela, president of the Brazilian subsidiary, Santander has stated that the appetite for acquisitions. “We are looking for something to buy but could not find good quality assets at reasonable prices,” he said. “Our operation is solid, and the results are gaining importance within the group.”

For the first quarter numbers, Brazil accounts for 27% of the bank’s results, followed by 25% from other Latin American countries and other 25% of continental European countries – Spain, Portugal, Poland and Germany. Santander’s Brazilian operation announced profits of $1.76 billion in the first quarter, down 3.3% over the same period of 2011 and an increase of 7.5% over the last quarter of last year. The most notable result was an increase in defaults, which rose from 5% in the first quarter of 2011 to 5.7% this quarter, considering the delays of more than 60 days.

“The biggest increase occurred in the portfolios of bad debt personal loans and vehicle financing,” says Portela. In addition to checking the progress of business in the country, Botín chaired a meeting of an international advisory board of the Universia network, an organization sponsored by Santander which supports about 1,400 universities in 23 countries. This year, the bank will allocate € 130 million for grants and funding language of international studies for students and teachers. According Botin, Brazilian universities participants will receive $ 200 million over the next two years. “This shows our long-term commitment to Brazil,” said Botin.

Santander’s decision to expand away from Spain could prove to be their saving grace in these difficult times.