David Herro of Oakmark commented on the European situation earlier this month. In particular, he has the following assessment for Spain’s Banco Santander (STD):
Using this approach allows us to add good quality businesses at attractive price points to our portfolios. An example of this tactic is our investment in the Spanish bank, Banco Santander. This bank has been on our radar for a long time and, in our view, Banco Santander ranks among the highest quality global financial firms that exist today. Some attributes that have led to this assessment are:
Santander is one of the most profitable banks in the world
We believe Banco Santander is one of the best run banks as measured by total shareholder return, tangible book value per share growth, operational efficiency (C/I ratio), and importantly, by its astute capital allocation. Santander has one of the best track records among its peers with regard to acquisitions and integration. The bank delivers a very good dividend yield, has a solid capital position, strong NPL coverage, robust funding base and, very critically, an extremely profitable business model.
While Santander is the largest commercial bank in Spain, it isjust a Spanish Bank
Santander has excellent geographic diversification and has a significant global presence. In the past Spain and Portugal accounted for half of Santander’s business. Today Spain and Portugal together represent just 31% of its net income and just 27% group value. Over the past decade, management has internationalized the group and Santander is now among the top five market positions and has double digit market shares in Brazil, Chile, Mexico, and the U.K. Plus the bank has a good foothold in the U.S. via its acquisition of Sovereign Bancorp.
We believe Banco Santander can easily earn its way through expected difficulties in Spain and elsewhere. Fears over debt issues in Spain caused the bank’s share price to become recently undervalued (falling 40% YTD) to a level that allowed us to buy shares.
Read David Herro’s complete commentary.