Banco Santander SA (SAN)

A behemoth bank, domiciled originally in Spain, but has global operations. When the US lowered interest rates, ultimately the rest of the world followed. As the US exported capital, hot money moved to different markets. When the US starts to raise rates, capital will flood from other markets. Ultimately there is an expectation that we will see higher rates across the globe when the US raises rates. This bank has big operations in Europe and in south America. An interesting company. Good governance and didn’t blow up during the crisis. He thinks there is more upside here.

They have a growing franchise in the southern US as well as being in all of Latin and South America. There is good growth compared to a retail franchise in Canada, for example. The issue they face is that there is a cloud over the Euro banking system regarding capital ratios. This is hurting them. Their dividend is safe. It is going to take a long time for people to feel comfortable with European banks. It is not an expensive stock, at or below book value. Until you see a better environment in Europe it will be in that cloud. Low rates in Europe are hurting banks there.

He owns this in order to be ready for when reforms go through in the EU and things start to get better. Although a Spanish bank, more sales come out of England than they do out of Spain. It is also very big in Brazil. European banks have been hindered because there is a reform coming to the banking system. There has been a little apprehension about the BREXIT, because so much of their business is done in the UK. Their operations are good and they have a reasonable dividend. (See Top Picks.)

Orange (ORAN-N) or Banco Santander (SAN-N)? This got hit in the last couple of days. Goldman Sachs said it was going to cost them a fortune because of BREXIT and their profits would go way down. However, the CEO said she didn’t expect a lot of impact. Pays a nice dividend and constantly makes money. If he were buying either, it would be this one.

This just got trounced in the past couple of days. It has been on his list for quite a while. He is watching it very closely. They have a lot of problems in Brazil, and have a lot of business in Britain. It pays a nice dividend. Thinks Europe is a good play.

A Spanish bank, and like most banks it trades at a very low multiple, about 8X next year’s earnings, and about .5X BV. About 75% retail, 20% wholesale and 5% asset management. 20% of their business is Latin America, and about half of that is Brazil. The rest of it is North America, UK, Europe and Spain. Over the long-term, Brazil and Latin America will be high growth areas. This is one of the banks you want to own because of its franchise value in the high growth areas.

(A Top Pick April 30/15. Down 37.39%.) European banks and financials globally got creamed last year. He kept this, because he couldn’t see any fundamental reasons to abandon ship. If you own, continue to hold as Europe is going to get better. The dividends are safe.

Doesn’t own any of the Spanish banks, but is starting to get more constructive, more so than he has been in 5 years. Looking forward he can see some optimistic opportunities for Spanish banks.

The UK is the biggest part of their business, and Brazil being #2. It is also big in the US. The problem is just a function of getting them turned. They have been beaten with a stick by the regulators for so long. You think that things are starting to get better, and then they don’t. He is losing patience. Things are getting better in Europe and he thinks this will be a beneficiary of that.

This is fine from a dividend standpoint. Financials in general, globally, have been weak of late. When you think about the cycle for banks and financial institutions, this is really the worse possible time. We have very low interest rates throughout the developed world and there is not a clear visibility in terms of when rates are going to rise. If you are looking out a year, you are generally going to see an increase in rates in the federal reserve, at least in the next year. This would be a good, longer-term hold.

It is under pressure because of fear they may have to raise capital and cut the dividend. This might be in the cards. European banking regulators may be cracking down in a big way. He prefers others as this bank as some geographies that will put them under pressure. DB-N is a preference.

He owns this because Europe is going to get turned around. This is a big, international bank. Their UK operation is a bigger operation than Spain, and the UK economy has been one of the better ones in Europe. Have a good presence in the US and they are large in Brazil. He is going to be a bit more patient with this and see if they get that lift when the European stock markets turn. Dividend yield of 3.6%.

This company operates with most of their operations outside of Spain. Thinks a lot of the European banks have been held back because no one is sure how much they have in Greece. When European operations get going, this bank should improve. He has just recently bought more of this. Yield of 3%.

A very large Spanish based bank. Have big franchises throughout Latin America as well as a British bank. Had to do a large and unexpected capital raise this year. There had been a bit of a relief rally in the Spanish market in 2013 and this did well, but still has too many dead assets on the balance sheet.

Looked at this but decided to own ING Groep NV (ING-N) and Deutsche Bank (DB-N) instead. Both of these are selling at a much lower price to tangible book value. This one is about 1.5, probably 50% more than ING and double Deutsche Bank. However, it is only 13X earnings and he likes the whole European banking sector. There will be some dividend growth as well.