Banking on Santander Just Got Easier

04/15/2011 4:00 pm EST


Jim Jubak

Founder and Editor,

I own Banco Santander (STD) for its growth potential in South America—and for its healthy dividend. (That’s why the stock has been a member of my dividend income portfolio since May 2010.)

But I worry about the risk of something unexpected going wrong in the bank’s home market, Spain.

And that’s why the April 12 earnings report from Banesto, the Spanish retail bank controlled by Banco Santander, was reassuring.

Not that the news was all that great. But there weren’t any significant negative surprises, and the news was, in fact, better than expected.

First-quarter profit did fall to 169.5 million euros ($244.8 million) in the quarter, from 211.5 million euros in the first quarter of 2010—a 20% drop. But that still beat the analyst forecast of 149 million euros.

Bad and doubtful loans as a percentage of assets did climb to 4.15%, from 3.12% in the first quarter of 2010, but that ratio wasn’t much worse than the 4.08% recorded in the fourth quarter of 2010. Problem loans, as everyone knows by now, remained concentrated in property developers, where the bad loan ratio was 26%. The bad loan ratio for household mortgages was just 1.6%.

Banesto’s core Tier One capital ratio was 8.6% at the end of the quarter in March, up from 8.3% at the end of December. Banesto said that it is on track to meet its target of 9% core Tier One capital, using internally generated capital, but now expects to meet that goal by the end of 2011, a year ahead of schedule.

Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. The fund did own shares of Banco Santander as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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