The Unknown Global Banking Giant

09/08/2009 1:00 pm EST


John Christy

Founding Editor, Forbes International Investment Report

John H. Christy III, editor of Forbes International Investment Report, says Banco Santander is one of the world’s biggest banks and survived the crisis unscathed.

Sir John Templeton once said that “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” Right now we’re probably moving beyond the pessimism phase, but there are still plenty of skeptics out there. And that’s a very good sign for investors.

Although the truly spectacular gains may be elusive, there is still a lot of money to be made as the global economy continues its path to recovery. And you don’t need to fish among speculative names to do it.

Our stock of the month, Banco Santander (NYSE: STD) is a good example. At a recent $15, you’re probably not going to triple your money in the next few months. But revisiting pre-crisis levels in the low $20s certainly isn’t a stretch. You could do a lot worse than a 40% move while investing in one of the strongest banks in the world.

Quick quiz: Which bank has the world’s largest branch network? Most folks might guess Citi or HSBC. Not even close. It’s actually Spain’s Banco Santander, which has more than 14,000 branches around the globe.

With $1.5 trillion in assets, Santander is Europe’s largest bank and the third largest in the world. The bank derives about half [its] earnings from Continental Europe and 15% from the UK It also has a huge footprint in Latin America, which accounts for nearly 40% of earnings.

And yet, you can watch CNBC all day and you won’t hear a peep about Santander. Part of the reason is that there hasn’t been much bad news to talk about. Of course, Santander did get some egg on its face in the Bernie Madoff scandal; about $3 billion of client money was invested with Madoff via Santander’s Optimal Investment Services unit, according to The New York Times.

But otherwise, the bank has emerged from the Great Credit Panic relatively unscathed.  Santander had negligible subprime exposure and wasn’t a recipient of a government bailout. In fact, Santander was able to pounce on opportunities to scoop up troubled banks such as Britain’s Bradford & Bingley, which failed last September. Overall, Santander’s 2008 earnings per share fell a modest 8.4% while many of its global peers were spilling buckets or red ink and begging for bailout money.

How did they do it? The old-fashioned way: by focusing on basic banking services and not getting caught up in Wall Street’s latest fads. More than 80% of Santander’s business comes from plain old retail banking—taking deposits and making prudent loans.

With the worst of the crisis (probably) behind us, many financial institutions are now busy telling investors some version of a “back to basics” story. Why not invest in a bank that had the formula right all along? At a recent $15, Santander sells for just [ten times estimated 2010] times earnings [and] 1.4x book value and pays a nearly 5% dividend yield.

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