The deepening of the crisis in Spain last week cast a gray cloud over its financial system. On Monday, April 30, the ratings agency Standard & Poor’s downgraded 11 of its local banks. The main reasons for the downgrade, according to S&P, were the the meager economic growth forecasts and the increasing difficulty of the government to implement austerity measures. The cut in spending should result in a 1.7% GDP contraction this year and a growth of only 0.2% in 2013. The rising unemployment also increases the risk of more defaults.
The word “bailout” was uttered with an uncomfortable frequency by economists and market professionals. In this scenario of uncertainty, Santander’s results were no exception and disappointed. The need to clean up their mortgage portfolios caused a drop of 24% in first-quarter earnings to EU$1.6 billion. In late April, the bank had announced their intention to open the capital of its Mexican subsidiary by selling a 25% stake in the stock market. So many bad news triggered a wave of rumors that Santander would be selling its operations in Brazil.
These rumors were dismissed by Emilio Botin, the bank’s Chairman. “This country [Brazil] has become increasingly important for the Santander Group,” he said in a recent interview. “We have great opportunities here.”
Just a few days ago, the bank’s Brazilian subsidiary president Marcial Portela said that they were looking for acquisitions. “We are looking for something to buy but could not find good quality assets at reasonable prices. Our operation is solid, and the local results are gaining importance within the group.”
According to the first quarter results, Brazil accounts for 27% of the bank’s earnings, while other Latin American countries earned another 25% of the total and Europe (Spain, Portugal, Poland and Germany) another 25%. Santander’s Brazilian operation announced profits of R$ 1.76 billion in the first quarter, down 3.3% from the same period last year and up 7.5% over the last quarter. But the most notable result was the increase in defaults, which rose from 5% in the first quarter of 2011 to 5.7% this year. “The highest defaults are in personal loans and vehicle financing,” said Portela.
Botín also mentioned the bank’s grants and funding program aimed at 1,400 universities in 23 countries. According to him, Brazilian participating universities will receive R$ 200 million over the next two years. “This only shows our long-term commitment to Brazil,” he said.