Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Banco Santander, S.A. (ADR) (SAN): An Undervalued Investment Opportunity

Page 1 of 2

With the advent of The Bank of Nova Scotia (USA) (NYSE:BNS)ing crisis triggered by the collapse of the Spanish property bubble, Banco Santander, S.A. (ADR) (NYSE:SAN), Spain´s largest bank, has seen its share price plunge in value by 36% since the crisis began. This sell off was triggered by investor fears over the quality of the bank´s assets and its exposure to the sovereign debt of those nations on the periphery of the European Union that found their economies in complete disarray. But I believe that this sentiment-based sell down has created a value opportunity for patient long-term, risk-tolerant investors, and in this article I will explain why.

While Banco Santander, S.A. (ADR) (NYSE:SAN) is domiciled in Spain, it is not solely a Spanish bank, it is a global banking group with considerable  exposure to Latin America. In both the Spanish and Latin American markets its key competitor is Spain´s second largest bank Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), while in Latin America it also faces considerable competition from Canadian domiciled The Bank of Nova Scotia (USA) (NYSE:BNS).

At the chart below illustrates, for the first quarter 2013 Banco Santander, S.A. (ADR) (NYSE:SAN) only derived 11% of its attributable profit from Spain, whereas 51% came from Latin America.

Source: Banco Santander, January to March 2013 Financial Report.

Whereas for the same period Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA) derived 37% of its attributable profit from Spain and 45% from Latin America indicating that it has greater exposure to the issues that have engulfed the Spanish economy. Banco Santander, S.A. (ADR) (NYSE:SAN)´s other foreign Latin American competitor The Bank of Nova Scotia (USA) (NYSE:BNS), for the same period ony derived around 5% of its attributable profit from Latin America, but I am expecting this to increase as Scotia Bank focuses on building market presence and revenue in Latin America after its purchase of a 51% controlling stake in Colombia´s eighth largest bank, Banco Santander, S.A. (ADR) (NYSE:SAN). Interestingly, Banco Santander was unable to successfully penetrate the Colombian market and sold its Colombian business to Chile´s CorpBanca (ADR) (NYSE:BCA) in late 2011.

While Banco Santander, S.A. (ADR) (NYSE:SAN)´s dependence upon Spain for its profitability is low, its single largest asset exposure is Spain, with 26% of the bank´s assets located there, while only 23% of the bank´s assets are located in Latin America.

Source: Banco Santander, January to March 2013 Financial Report.

This indicates that the bank´s Latin American operations are giving it a bigger bang for its buck, when it is considered that 23% of the bank´s assets are generating 51% of its attributable profit. But also illustrates that the bank still has a considerable portion of its assets at risk from the ongoing economic and financial problems being experienced by Spain.

Page 1 of 2