By Jeannette Neumann
MADRID-- Banco Santander SA said Tuesday that it will offer to
buy out the 25% of its Brazil unit that it doesn't currently own,
in a deal that could be worth up to EUR4.7 billion ($6.5
billion).
Spain's biggest bank and the euro zone's biggest lender by
market value said it would offer a 20% premium over the last
closing market price and expects to close the deal by October.
Santander said in a statement that the offer reflects the bank's
"confidence in Brazil and its Brazilian subsidiary as well as the
latter's long-term growth potential."
The buyout offer "should be viewed as a net positive for the
group," Daragh Quinn, a banking analyst with Nomura International,
said in a research note.
Santander Chief Executive Javier Marín said Tuesday in a
presentation to analysts following the announcement that the Brazil
deal will have a positive impact on earnings per share and will be
"almost neutral on the capital side." Mr. Marín said Santander has
hired UBS AG and Goldman Sachs Group Inc. to advise it on the
transaction.
Santander took its Brazil unit public in 2009 and priced each
share at 23.50 Brazilian reaias ($10.57). The bank raised about
14.1 billion reais with the operation. Since then, the bank's stock
price has plummeted while shares of Brazilian companies broadly
have slumped due to tepid economic growth. The share price of
Santander's Brazilian unit closed at 12.74 Brazilian reais in São
Paulo on Monday.
Santander is optimistic about the growth of its Brazilian unit
despite "short-term headwinds" in the country, Mr. Marín said.
Santander has no immediate plans to launch additional buyout offers
of its other affiliates, he said. The bank still plans to take its
U.K. unit public. That is a "midterm operation," Mr. Marín said.
"It will take place."
The news of the Brazil deal came shortly before Santander said
that first-quarter net profit rose 8.1% to EUR1.3 billion, slightly
above analysts' expectations. But total lending was down amid what
Santander said was weak demand in Europe, particularly in Spain and
Portugal.
Brazil and Mexico, which account for more than a quarter of
Santander's net profit, experienced big declines. Santander's
Brazil unit saw net profit fall 27% compared with a year earlier,
while its Mexican unit posted a 43% drop. Net profit from its U.K.
unit, which accounts for around one-fifth of the bank's profit, was
up 68%.
Santander Chief Financial Officer José Antonio Alvarez said in
the presentation that corporate loans in the U.K. are growing at a
"significant pace." The bank is optimistic about the unit's
performance for the remainder of the year, he added.
About Brazil, Mr. Alvarez said: "We see a country with
underlying strength, although we have a period where the growth is
below potential."
The bank reported commissions and trading income were down
overall.
Santander posted a EUR1.2 billion net profit for the first
quarter of 2013. Analysts polled by data provider FactSet forecast
net profit of EUR1.2 billion for the first three months of this
year.
Santander also posted a better-than-expected first-quarter net
interest income of EUR6.99 billion, a 3% decrease from the previous
year. Analysts polled by FactSet anticipated net interest income of
EUR6.6 billion this quarter.
Santander's share price was up 1.6% in Madrid on Tuesday
afternoon amid broad trading gains in Spain's IBEX-35, and was
slightly underperforming the STOXX European Banks Index which was
1.7%.
The lender's rate of bad loans--those that were more than 90
days overdue--as a portion of total loans fell to 5.52% from 5.61%
in the fourth quarter of last year. Santander said that was the
first decline in the rate since 2007. In Spain as a whole, the
bad-loan ratio notched up slightly to 7.61% from 7.49% in the
fourth quarter of last year.
But Spanish lenders Caixabank SA, Banco de Sabadell SA and
Bankia SA said in recent days that they had also seen a small
decrease in their bad-loan ratios in the first quarter of this year
compared with the fourth quarter of 2013.
Santander and other Spanish banks are battling a domestic
economy that is hobbling toward recovery. Spain said Tuesday that
the unemployment rate rose slightly in the first quarter to 25.9%
from 25.7% in the previous quarter. Mr. Marín said Tuesday he
didn't think that the bump-up would translate into a noticeable
uptick in loan defaults, which he said were stabilizing.
Investors and analysts have been keeping close tabs on Spanish
banks' bad-loan figures to test their progress in shedding
liabilities that accumulated on their balance sheets during the
financial crisis.
Mounting defaults by homeowners and companies forced Spain to
request a bailout in 2012 and inject EUR41 billion of European
Union funds into its most troubled lenders.
Still, Santander's bad-loan ratio for the first quarter of 2014
is above the 4.75% the bank reported for the same period a year
earlier.
In Spain, the bank said total loans dropped from the previous
year. But there was a slight increase in lending from the previous
quarter, the first rise in five years, Santander said.
In March, the U.S. Federal Reserve rejected the capital plans
for Santander's U.S. unit. Mr. Marín said Tuesday that the problems
cited by the regulator were mainly organizational. Those
deficiencies, Mr. Marín said, are being "solved."
Mr. Marín added later during a news conference that Santander
will present an action plan to the Federal Reserve in June to
address those concerns, followed by a revised capital plan next
year.
In Europe, Santander and other major lenders also face
regulatory reviews of their balance sheets. Mr. Marín said the bank
expects to go through those tests "very, very well."
Rogerio Jelmayer contributed to this article.
Write to Jeannette Neumann at jeannette.neumann@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires