Latin America seen underpinning Santander, BBVA profits in foreseeable future

Wednesday, June 29, 2011

Bright economic prospects and the leading positions commanded by most of Spanish banks Santander's (NYSE: STD) and BBVA's (NYSE: BBVA) Latin American units are good reasons to assume that these entities will keep providing adequate and, in some cases, above average profitability ratios compared to those seen in developed markets, Franklin Santarelli, managing director at Fitch Ratings, told BNamericas.

"With the assumption that the region's financial markets should be performing well in general and the fact that some of these banks tend to perform better than their peers, there is no reason to think that Latin America's contribution to overall profits of their shareholders will decrease in the foreseeable future," Santarelli said.

BBVA has strong positions in Colombia, Mexico and Argentina, where it operates BBVA Banco Francés (NYSE: BFR). Santander owns Brazil's fifth largest player, Santander Brasil (NYSE: BSBR), as well as the largest banks in Chile and Argentina - Santander Chile (NYSE: SAN) and Santander Río, respectively. It ranks fourth in Mexico, as well.

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"[BBVA's and Santander's] leadership and conservative business models in Latin America have allowed them to post strong results and, in many cases, even improve it in recent years," Santarelli said.

"The participation in overall profits will be dependent on the performance of operations outside Latin America, which may be driven by lower economic growth opportunities proper of more developed markets, or possible consequences of sluggish economic activity," he said.

BBVA continued to see earnings from its Latin American holdings take on more importance for its bottom line in this year's first quarter, with profits from Mexico and South America accounting for 51% of total earnings.

The group earned 436mn euros (US$630mn) in 1Q11 from its Mexican operations, up 17.3% from the year-ago quarter on a constant exchange basis, with earnings from South America rising 17.5% to 280mn euros.

In turn, Santander saw 2011 first quarter earnings in Latin America increase 26.8% year-on-year to 1.27bn euros for 22.1% ROE, thanks to strong results from its Brazilian and Mexican units.

Santander Brasil, the country's third largest private sector bank, represented one-fourth of the Spanish bank's attributable earnings in the quarter, with Mexico and Chile representing 6% each.


Further boosting the banks' good individual prospects is the fact that the region's economy is performing better than expected this year.

On Wednesday, the UN Economic Commission for Latin America and the Caribbean (Eclac) raised its growth estimate for the region this year to 4.5-5% from 4.2% before, as Ecuador, Argentina and Paraguay are growing at a faster pace than anticipated.