Banco Santander: Strengths, Weaknesses, Opportunities, Threats

Russ Krull, The Motley Fool
Updated

Spanish banking giant Banco Santander (NYS: STD) has been bouncing around 52-week lows recently, and I decided to give it a once over to decide whether to close my poorly performing CAPScall or let it ride. A SWOT -- strengths, weaknesses, opportunities, and threats -- analysis should help shed some light on the bank's prospects.

Strengths:

  • 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 (NYS: BSAC) and Banco Santander Brasil (NYS: BSBR) . If it needed to raise capital, Santander could sell another slice of operations unaffected by European debt worries.

  • Its shares look cheap, recently changing hands under 60% of book value.

  • The trailing-12-month dividend yield tops 13%.

Weaknesses:

  • 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.


Opportunities:

  • 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.

Threats:

  • Financial trouble in Europe pretty well covers the threats.

Wrap-up:
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.

At the time thisarticle was published Fool contributor Russ Krull doesn't have a position in any company mentioned. You can follow his CAPS picks here. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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