Banco Santander SA (SAN)

Largest bank in Spain. Like most European banks, it has not done particularly well over the last 5 years. This will give you the dividend plus maybe a little bit of growth. Yield is quite high at over 7% and there is a concern that they may have to cut that if the European banking regulations require them to put more capital on.

(A Top Pick Nov 22/13. Up 16.61%.) Headquartered in Spain, but Spain is only a small part of their business. They’re big in the UK and very big in Brazil. He is hoping that the election in Brazil, in 2 months time, changes things. If the election goes the right way, like it did in India, there could be quite an interesting situation develop. 8.5% dividend yield.

Going to buy one of Brazilian’s assets, but questions if it will really go through and if it does what will the combined entity look like. The combination will be a very good powerful entity. If you are going to invest in the emerging markets, now is a pretty good time to do it. Portuguese market is still struggling. He would suggest you wait until it happens.

8.2% dividend yield. He always gets nervous when a bank is paying a big dividend. It tells you that the market is concerned that they may have to cut the dividend.

Pays a great dividend. If he owned, he would continue to collect the dividend. He can see about 33% upside.

This has a lot of credentials as to why you might want to look at it. It is in Spain, but is actually bigger in Britain than it is in Spain, and bigger in Brazil than it is in Europe. Also, has exposure to Mexico and the US. Has a really nice dividend on it. Thinks it can go $12-$14.

A Spanish-based bank. Has 13% market share in Spain, and over 4000 branches there. Some people buy this as a way to play a recovery in Spain. However, they have more exposure to the UK from a profit perspective. If looking to invest in Spain, there are local banks that would be a much better way to play an improving Spanish economy. The outlook is that they are consolidating their business in Brazil and spinning off the UK business. Hopefully, Spain and all the Latin American countries they are exposed to, have bottomed from here, and you get better ROEs. (See Top Picks.)

The difficulty with many of the European banks is simply that business in Europe is really bad. This bank has been using some of their capital to buy back the ownership of some of the regional banks that they spun off a while back, so that they can start to enhance some of their earnings again. This is a good retail operation. It is just the environment that they are working in right now is not the place to be. Until Europe recovers, European banks are probably just going to sit there, struggle and go sideways.

The issue he has is the regulatory rule that was put in place by the Spanish government which basically said they would guarantee the deferred tax asset. (When you make a loss, you get to carry the loss forward and shield your profits.) A lot of Spanish banks are not paying dividends. If you are not paying dividends or tax, you can build up your capital reserves. It is an artificial financial engineering structure that has enabled the banks to move higher. It has cured the balance sheets and stops the requirement of issued capital but hasn’t cured the credit issues that got in the way that caused the problems. If you want global banks, HSBC Holdings (HSBC-N) is better.

Largest bank in Europe, but their major exposure is Spain as well as Latin America including Brazil and Argentina. High dividend yield which is supporting the share price. Not a cheap stock. Not that well situated compared to other banks that he is looking at. A rock solid bank and the dividend looks solid as well. 8.4% dividend yield.

This bank did not take any government money through all the bailout in Europe. In the last 5 years, it has been a buyer of other banks. Positioned in Europe at about 40%, 10% in the US, but very big in Brazil and Mexico. Likes the mix between developed and emerging-market exposure. Growth should come as Latin America turns around. Yield of 8.48%.

The banks in the peripheral regions have recovered fairly well over the last 18 months. The general feeling is that things are improving in the peripheral regions of Europe. This bank has a lot of exposure, not just in Europe, but in Latin America. Not sure that this is not already reflected in the price of the stock and he would worry that the expectations may have gotten ahead of reality.

(Market Call Minute.) He would be cautious of companies that have exposure to Latin America. It would benefit if there was additional easing in Europe. There may be better names.

Met management about 6 months ago and came away with the impression that there are a ton of potential write-offs on their loan book, but they weren’t taking them. If compared to what the US did, they took the pain followed with the medicine on top which resulted in a big recovery in the US. Spanish have not done that and really have not received any government funding of any significance. If they don’t deal with the bad loans on the books, longer-term this will ultimately cause the Spanish banks to turn into Japanese zombie banks. 7% dividend yield. The UK would be a better place to look for banking recovery stories.

Would prefer a local bank in Spain for a Spanish bank. There are less than 10 Spanish banks left standing. Now you have a consolidated industry, plus in an economy that was on its knees until about 6 months ago. Prefers others for global banking exposure.