Banco Santander SA (SAN)

Dividend growth for last 5 years OK, last 10 years negative. Implores investors, please don’t chase yield. Think about long-term growth rate of the dividend. YTD down 14%. Likes that it’s a retail bank, but Spain is a problem right now. Not a lot of growth out of Europe. Impact of Spain separatism is that economy will slow down, loan loss provisions pick up.

This bank had some issues a few years ago. The dividend is secure, he believes. Europe is in recovery mode and there is good growth opportunity with this holding.

This suffered in the global crisis, like all other banks. They do business in the US, Latin America and Spain and are doing OK. Higher interest rates are coming and they will be good for the banks. This should do well in the next 3-to-5 years.

The European banks are behind the Canadian and US in recovery from the financial crisis. This is not a Spanish bank as it gets only 25% of revenue from Spain. They are well diversified. They are working through an organization they were handed to manage.

The positive for this bank is that it is a retail global bank. They are in Europe, South America, Latin America and North America, but not a lot in Asia. The bad news is that there are political machinations going on in Spain that are not making people happy. Also, it is the largest car loan issuer in the US, and that is not going well. Raised the dividend 9% last year, but over the last 5 years it has fallen 13%.

This is a big, big bank. Operations are in Europe as well as Latin American. If you owned a bank in the last 8 years and is one of the global behemoth's, you are probably underwater if you owned it before the global financial crisis. Since the financial crisis, banks have raised substantial amounts of capital, with a global economy that is starting to recover nicely. He wouldn't sell at this time.

Spanish Bank. Synchronized global growth benefits it. It drives productivity growth. So financials should do well. There is still rate correction to go on there. The yield curve is steepening there. It has a history of being aggressive with credit and M&A philosophy so he would be careful there. On the whole it checks a lot of boxes.

Banks in Spain, like the Italian banks were coming off a bottom about a year or so. This one has about 50-60% of profits from Spain and then the rest from Latin America. There should be improvements in both markets. He prefers BBVA-N, which he marginally prefers right now.

Effects of Catalonia on this bank? 42% of revenues are from Latin America with the other 41% in Europe, mostly Spain and Britain. Valuations are up 20% this year. PE multiple is 13.4. Cheap on a Price to Book and Price to Sales method, but Catalonia is a little wart that is on their backside right now. He is not interested in this, because dividend growth for him has to be over 10%. Dividend yield of 3.5%.

Doesn’t own any Spanish banks and doesn’t know why anyone would. The Spanish market has a tremendous amount of overcapacity. Spanish lenders say that the origination spreads on new loan production just keeps on compressing, which tells him there is absolutely no point in being involved.

The politics is what is holding this one back because of the potential separation of the Caledonian region. The company itself was looking great until the last months’ political matters. You have to hold your nose until the politics gets out of the way and then you are good to go. 2/3rds of the bank’s business is not in Spain. It is simply tarnished with the brush of Spain.

This is up 15% this year, but is starting to slow down because of what is going on in Spain. If Catalan were to break away, the Basque people would want to break away as well. Outside of Spain, England retail is doing fine. The US is a little dicey. Loan growth is -.03%. Dividend yield of 3.5%.

What to buy in Europe? He likes that we are seeing “return to growth” in a lot of the European economies. Unemployment is coming down. The kind of business you want to buy would be the banks. They are based on the economy of the country. Something like this is a great story. It is a global bank, but has a very strong presence in the UK and Europe. It is in all of South America and in the southern part of the US.

If looking at European banks, Banco Santander (SAN-N) or HSBC Holdings (HSBC-N) are two that he would consider.

A very unique company. A Spanish bank with a Spanish retail business, but also has a big UK presence, and are very big in Latin and South America and certain parts of the southern US. They are in some very high growth areas. Acquired Banco Popular, which gives them a fairly good beachhead in real estate in Spain. He thinks you can see this company do very, very well. They are very big in auto loans in the US, which is something you have to keep an eye on. Not an expensive stock.