Banco Santander SA (SAN)

Doesn’t own any Spanish banks and doesn’t know why anyone would. The Spanish market has a tremendous amount of overcapacity. Spanish lenders say that the origination spreads on new loan production just keeps on compressing, which tells him there is absolutely no point in being involved.

The politics is what is holding this one back because of the potential separation of the Caledonian region. The company itself was looking great until the last months’ political matters. You have to hold your nose until the politics gets out of the way and then you are good to go. 2/3rds of the bank’s business is not in Spain. It is simply tarnished with the brush of Spain.

This is up 15% this year, but is starting to slow down because of what is going on in Spain. If Catalan were to break away, the Basque people would want to break away as well. Outside of Spain, England retail is doing fine. The US is a little dicey. Loan growth is -.03%. Dividend yield of 3.5%.

What to buy in Europe? He likes that we are seeing “return to growth” in a lot of the European economies. Unemployment is coming down. The kind of business you want to buy would be the banks. They are based on the economy of the country. Something like this is a great story. It is a global bank, but has a very strong presence in the UK and Europe. It is in all of South America and in the southern part of the US.

If looking at European banks, Banco Santander (SAN-N) or HSBC Holdings (HSBC-N) are two that he would consider.

A very unique company. A Spanish bank with a Spanish retail business, but also has a big UK presence, and are very big in Latin and South America and certain parts of the southern US. They are in some very high growth areas. Acquired Banco Popular, which gives them a fairly good beachhead in real estate in Spain. He thinks you can see this company do very, very well. They are very big in auto loans in the US, which is something you have to keep an eye on. Not an expensive stock.

A very unique global franchise. A Spanish bank, but is all over South and Latin America, with a big franchise in the UK and Europe. Not very expensive, trading at slightly below BV. Spain and Europe are coming back. Banks are a proxy for the economies. The value of the franchise in Latin America over the next 10-20 years is fantastic. A premier retail bank in these areas.

The biggest bank in Spain and a global behemoth. A global bank with operations in the US and South America. It is a quality bank. In the last 12 months, it has been up 76%. They are talking about raising rates in Europe, and higher rates will be good for this bank.

Just announced they had acquired Banco Popular, a real estate lender, with a lot of loans in a very tough housing market. There is going to be a lot of work to be done. It is going to make them a real powerhouse in Spain. Their market share is going to be roughly 25% out of Brazil, 25% out of England, and this could equal that coming out of Spain. They still have European and US capabilities as well. The European banks have turned and there is lots of upside.

He was looking at it below $5 and came close to buying it. They have interesting operations in Brazil. There is tremendous upside and the CEO has a good idea what she is doing. It may come down.

The largest Spanish bank, roughly equivalent in size to the Royal Bank (RY-T). It held up quite well during the global financial crisis, despite the fact that it had Latin American operations as well as significant exposure to the Spanish market. Quite an interesting story if you want to take European financial risks, in the context of perhaps a 2-year timeframe for rising rates. If you take that view, you could probably get a relatively cheaper American bank. However, this is an interesting opportunity. He is positively disposed to this at these levels.

(Top Pick Feb 27/17, Up 27%) He still likes the company and is adding on every pullback. There is going to be a resolution on zero interest rates and austerity. He really likes European banks as well as US Banks. Canadian banks are way too expensive. You should stand back on UK banks because of BREXIT. Greece will be a big beneficiary of all of this.

They are well positioned in emerging markets. They have some of the strongest franchises in Latin American countries. The Spanish economy is doing much better. It is the favourite of the Spanish banks.

A frustrating holding, but over the long haul, it is worth hanging in. Stocks based overseas, as a general proposition, have a lower valuation. Although Spanish based, it operates worldwide. Has a lot of operations in Mexico, US, Latin America and elsewhere in Europe. Valuation is very, very cheap. If you feel Europe can get out of its malaise and not disintegrate and people will gravitate back outside of the US for investment opportunities, then you are going to enjoy some dividends in the meantime, and this bank is a great way to play that trend. Dividend yield of 3.9%.

This hasn’t turned a corner yet. They are doing fine in Britain. Spain is still an issue. They are having problems in the US, Mexico and Brazil. This is emerging markets, and this is a common theme of many companies out there, especially the banks. You get a slowdown because of the rising US$. The net interest income growth is negative. Efficiency ratios are good and have their costs under control. The nonperforming loans are a little high, which has to do with Spain and Brazil. Trading at 12X earnings. He would be looking at Barclays (BCS-N) which wants to turn itself around and get its BBB credit rating back and are selling off assets in a big way. Tier 1 capital is starting to rise in a big way so it is becoming more profitable. There is also a Swedish bank, Svenska Handlesbanken (?) which has branches in Sweden, Norway, Finland, England, Lithuania, Latvia and Estonia. Their business model uses the steeple effect, where head office will give them the product, but it is up to the branch managers to climb to the top of the steeple and whatever they can see in 360° is their territory. They end up with having better margins and better efficiencies because the branch managers have to be accountable for their actions. Dividend has been growing at a 15% clip per year. A rise in interest rate will be beneficial for them.