You know, I reckon theres a question that every current executive had to answer during the interview process to join Banco Santander (LSE: BNC) (NYSE: SAN.US). The question would go something like this: Did you enjoy playing with Lego during your childhood?. That may sound silly, but even a brief look at the Santander empire and its not difficult to see the groups love of the bolt-on acquisition. Its lazy expansion, but its expansion all the same. Its resulted in the bank being able to boast an impressive portfolio of businesses, and has given it the label as the eurozones largest bank.
In fact, it was Santanders long-time chairman Emilio Botn that transformed Santander from a small, regional lender into the eurozones largest bank by market value. Sadly, he recently died of a heart attack at the age of 79. The board named his eldest daughter, Ana Patricia Botn, as his successor last week. That also extends the familys control over the bank to four generations.
Like any new leader trying to fill some very big shoes, shes tried to reduce the amount of pressure thats been immediately placed on her. She was quoted in the press as saying her fathers success story wouldnt be easy to replicate. She added that: The new competitive and regulatory environments are ever more demanding.
Off to a bad start
Thats especially poignant given recent news that Santanders US arm has been given a slap on the wrist by US regulators for issuing dividends. You see, the Federal Reserve had moved to restrict the groups US unit from issuing dividends (without prior permission) after the bank failed the Feds annual stress tests on capital in January. It failed the test because its procedures for capital management were inadequate (not because it didnt have enough capital). Mind you, Santanders not the first to fail this test. The question is why? Especially when the banks made no secret about its desire to expand in the US.
Im about to give the banks financial performance the quick once over, but just to be clear, I included the above news in my view today because its something to watch if you are an investor in Santander. No corporation is squeaky clean, but this is an obvious oversight from the bank.
Late last year, Banco Santanders UK arm rode the UK housing market revival, boosting its gross mortgage lending by 28% to 18.4 billion. Government programmes to revive the housing market and bank lending, more generally, have also seen wholesale funding costs come down. Recently (in Q2), Santander produced a profit margin of nearly 7% and a return on equity of nearly 8%. Its a solid bank as it stands.
I rarely comment on charts, but its also noteworthy to see such a clear share price turnaround such as the one displayed by Banco Santander in 2012.
You could do a lot worse than choosing Banco Santander to look after your money. There are, however, more risks than usual with this one. The eurozone economic recovery is far from locked-in, the rise in the UKs housing market is arguably unsustainable and unstable, and I suspect banking regulations will continue to be difficult for many banks including Santander to swallow. That said, current market conditions are supporting this Spanish bank right now.
I think Ms Botn summed it up nicely: The UK economic recovery is strengthening, although uncertainties remain in the banking environment for the year ahead. Banco Santander is a potentially profitable investment but, as always, caveat emptor!
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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.