Latin Finance - March/April 2010 - 26

santander cfo interview Backing a Challenger by Dan Shirai S antander’s steep ascent through the ranks of Brazilian banking has been nothing short of impressive. In 2008 it acquired Banco Real, making it the third largest private sector bank, up from a distant seventh the previous year and eighth in 2000, with less than a ﬁfth of the total assets of the leading institution. It must now gain credibility as a member worthy of its class, which includes two of the region’s most formidable and war-tested private sector banks, Bradesco and Itaú Unibanco. Santander Brazil’s ﬁrst two quarters as a public institution failed to impress. However, Carlos Galán, the CFO of the Spanish bank’s Brazil unit, tells LatinFinance in an exclusive interview that it will take time to earn the market’s reverence. The bank’s management is said to have initially targeted an IPO valuation in line with Bradesco’s, though investors were emphatic in insisting on a discount until a track record is established. In the company’s October IPO, they got one. The deal priced at the 23.50 real midpoint of the range but quickly traded down and as of mid-February, was 2% below issue price. The deal launched at 2.7x price to tangible book and a P/E of 10.7x, substantially below Bradesco. In mid-February, Santander trades at a discount to Bradesco’s preferred shares of over 20% on a P/E basis and 20% on a P/BV basis, according to Economatica. Discounts to Itaú Unibanco preferred shares were approximately 35% and 40% for P/E and P/BV, respectively. “They promised a lot of things during the IPO and are having trouble delivering them,” says a São Paulo-based banks analyst at a European institution, referring to performance metrics, including proﬁtability, and market share expansion. The analyst asks not to be identiﬁed. “We found weaker margins and the After a 14 billion real IPO, Santander Brazil is ﬂexing its muscles to take on Bradesco and Itaú Unibanco. Credit cards and corporate banking will drive growth. I expect we will converge and capture the di erential we have with [Bradesco and Itaú],” says Galán. Mapping a Growth Spurt Converging with Brazil’s heavyweights: Galán stagnant asset quality disappointing,” says Goldman Sachs in a report following Santander’s fourth quarter earnings announcement. The bank, which was the ﬁrst to initiate coverage of Santander’s Brazil listing, has a neutral recommendation on the stock. The goal for Santander now is to converge with its native counterparts on valuation, says Galán. He expects this to take up to two or three years from the October 2009 IPO date. “To expect to converge [with other banks’ valuations] this year would be unrealistic,” the CFO says. He notes integration of Santander Banespa and ABN AMRO Real’s operations, which began in 2008, is nearing completion, to be capped by brand uniﬁcation in the second or third quarter of 2010. “As we gradually fulﬁll our objectives, Among the main thrusts for Santander’s Brazil unit is credit cards, where the Spanish parent has a demonstrated track record. In Brazil, the focus is leveraging payment processing technology to increase the number of transactions done across electronic networks, says Galán. “This is a big opportunity in the medium term,” he notes. To pursue it, Santander is setting up its own payments venture alongside Getnet, a payments technology company, putting it in direct competition with local incumbents Redecard and Cielo. Santander Brazil was a Cielo joint shareholder, but exited last year by selling the stake to Santander in Madrid. In insurance, Galán admits Santander has a lot of work to do. “We have a very low penetration in this area,” says the CFO, noting Banco Real’s adoption of the bankassurance model is virtually nonexistent. Santander will rely heavily on organic growth for insurance growth, claims Galán. Banco do Brasil and Itaú Unibanco have made sizable acquisitions in various areas of insurance in the past year amid growing acceptance of the product class’ importance. The focus for this and other retail product rollouts will be improving client UPDATE > For daily news on Brazil’s banking sector, see www.latinﬁnance.com 26 LATINFINANCE March/April 2010

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Latin Finance - March/April 2010

Table of Contents for the Digital Edition of Latin Finance - March/April 2010