Santander's Botin Loses in Latin America, Seeks European Profit

By Todd White

Madrid, April 25 (<a href=quote.bloomberg.com>Bloomberg) -- Santander Central Hispano SA Chairman Emilio Botin last year oversaw the first profit drop at Spain's biggest bank in 15 years, hurt by its Latin American business. He's shifting the focus to Europe to revive earnings.

Botin, who led almost $17 billion of acquisitions in Latin America in the past decade, is selling assets in the region and buying consumer-finance businesses across the European Union, which will grow to 25 member states from 15 next year. Botin also plans to open retail branches in Spain and hire 500 employees.

The strategy shift by the 68-year-old executive helped cushion a drop in first-quarter earnings, analysts said. Rising profit in Europe, and 11,800 job cuts around the world last year, partly offset a decline in Latin America, where Santander is the biggest bank. The Madrid-based company releases earnings Monday.

He's making a good wager,'' said Miguel Larruga, who owns Santander shares and manages the equivalent of $220 million at Ahorro Andaluz. The European Union is taking on new members, and economic growth is more certain than in Latin America.''

Santander shares have gained 13 percent in the last three months, compared with a 6 percent increase in shares of Banco Bilbao Vizcaya Argentaria SA, the No. 2 bank in Spain and Latin America. The 78-member Bloomberg Europe Banks and Financial Services Index has climbed 7 percent in the period.

Profit from retail banking in Latin America probably fell 32 percent in quarter, compared with a 15 percent gain in Europe, estimates Jose Luis de Mora, an analyst at Merrill Lynch & Co.

Currency Hedges

Currencies in Brazil, Mexico and Venezuela dropped against the euro in the past 12 months, leading Santander to post a 10 percent drop in first-quarter profit to 606 million euros ($664 million), the median estimate of six analysts surveyed shows.

The Brazilian real dropped 44 percent against the euro in the past 12 months, while the Venezuelan bolivar declined 58 percent against the single currency. The Mexican peso fell 31 percent.

``Latin America still hangs over earnings, but that's changing,'' said Jose Manuel Jimenez, who helps manage the equivalent of $7.7 billion at Grupo Generali in Madrid.

In February, Santander officials said the bank increased hedging against the impact of Latin American currencies. The bank also hedged 100 percent of the impact on reserves for the Mexican and Chilean peso, and 35 percent for the real. The Chilean peso has lost 26 percent against the euro in 12 months.

Consumer Finance

At the same time, Botin is expanding in Europe. In Spain, Botin plans to open 100 offices in 2003 and hire 500 employees, mostly in sales, at its flagship SCH retail bank. It has lost market share in Spanish loans after closing 1,700 branches in three years at SCH and its local Banesto unit.

Botin, who earned 2.47 million euros in salary and had 1.38 million euros in company loans in 2002, may also make more purchases in consumer finance following the 1.1 billion-euro acquisition of a German auto-leasing company two years ago, analysts said.

Last month Santander bought the remaining 50 percent of its Italian consumer finance company Finconsumo from San Paolo-IMI SpA. Eastern Europe is the next target, bank officials say.

Now's the time to get positioned in this business,'' said Roma Vinas, who owns Santander shares and helps manage the equivalent of $160 million at Privatbank in Barcelona. Consumer lending is risky because bad loans can balloon easily, though consumers will drive the business when the economy rebounds.''

Financing cars, appliances and credit cards earned a 25 percent return on equity last year, the 146-year-old Santander's top division by that measure after asset management.

Consumer finance probably surged 84 percent in the first quarter, Merrill's de Mora estimated.

Third Generation

Investors like this re-focus on Europe, especially on consumer finance,'' said Jean Baptiste Bellon, an analyst at Deutsche Bank who rates Santander a short-term buy.''

Botin, the third-generation of his family to head Santander, is cutting the bank's dependence on Latin America by selling assets, while rivals take advantage of a slowdown to buy them. ABN Amro Holding NV this month agreed to pay about $750 million in cash and stock for Brazilian bank Banco Sudameris Brasil SA.

``Investors were glad Santander didn't buy Sudameris,'' said Deutsche Bank's Bellon.

Last year, Botin sold $7 billion of assets, including a quarter of the Serfin unit, Mexico's third-biggest bank, to Bank of America Corp. The sale probably yielded a first-quarter capital gain of 600 million euros, analysts estimate.

Latin America will probably account for 29 percent of Santander's total profit this year, down from 35 percent in 2002, according to analysts at Morgan Stanley. Rising profit in Europe and lower losses in Latin America should enable Santander to post an increase in profit again in the full year, analysts said. Last Updated: April 24, 2003 19:02 EDT