Raymond James initiates coverage of Santander unit, downgrades BBVA unit

Wednesday, May 4, 2011

Raymond James (NYSE: RJF) has initiated coverage of Santander Chile (NYSE: SAN), the local unit of Spanish banking group Santander (NYSE: STD), with a market perform 3 rating, and downgraded BBVA Banco Francés (NYSE: BFR), the Argentine subsidiary of Spain's BBVA (NYSE: BBVA).

Santander Chile is "the best positioned among Chilean banks to capture industry growth opportunities," and is also helped by its "defensive profile relative to regional peers," analysts Federico Rey-Marino and Francisco Pereyra wrote in a research note.

However, the analysts noted that both strengths "are fairly priced, thereby limiting short-term upside." Additionally, Chile's "predictability and well-founded economy and the stability and strength of the financial sector" have turned the bank's stock into a "safe harbor" when the regional market environment deteriorates.

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The bank's more retail-oriented profile helps it to capture growth opportunities in that business, with the aid of its distribution network, successful commercial strategy and robust capital base. The bank is Chile's largest bank with a 20% market share and close to US$50bn in assets.

Raymond James expects Santander Chile's main earnings driver in the next two years to be growth in its lending portfolio - 17% year-on-year in local currency for this year, and 14% in 2012. The firm estimates an ROE of 27-28% during this period.


In a separate research note, Raymond James downgraded the Argentina bank to market perform 3 from outperform 2 on relative valuation.

The bank's shares have outperformed other local large-cap banks and thus are not offering much upside on a relative basis.

Since December last year, Grupo Financiero Galicia's (Nasdaq: GGAL) and Banco Macro's (NYSE: BMA) shares have slid 16% and 25%, respectively, driven "by higher risk aversion and the typical uncertainties surrounding presidential elections." By contrast, BBVA Banco Francés' shares have dropped only 11%, which suggests minimal upside on a relative basis.

Raymond James noted that the bank's exposure to government securities reached 11% of total assets as of end-December, well above Galicia's 4% and Macro's 2%. This could leave the BBVA unit's earnings "more affected by the potential fluctuation of bond prices that could come with uncertainties around the [upcoming] election process."

Despite the downgrade, Raymond James raised BBVA Banco Francés' 2011 earnings estimate by 6% to 232mn pesos (US$56.9mn), basically "reflecting the non-recurring gain coming from the sale of its 66% stake participation in [annuity insurer] Consolidar Seguros de Retiro."