Spain is known for the flamenco, a rhythmic musical genre often paired with strong and intricate moves of expert performers. Spain's Banco Santander (NYSE:STD) has been performing its own inspired movements by focusing on building deposits and staying away from complicated derivative securities. While U.S. financials like Citigroup (NYSE:C) and Countrywide (NYSE:CFC) have been slogging through mounds of bad debt, Banco Santander has been moving to its own melody.

Who is Banco Santander?
Banco Santander, one of the largest banks in the Euro zone, is a global financial services firm that has remained profitable by focusing on deriving revenues from retail banking services. Banco Santander generated 84% of its earnings in 2007 from retail banking. Net interest income, fees and insurance produce recurring streams of revenue for Santander and have kept it out of the credit debacle. Santanders local competitor Banco Bilbao Vizcaya Argentaria (NYSE:BBV) (try saying that fast three times) has a very similar focus although it is focusing most of its business in Spain, Portugal and Mexico. Santander has a larger footprint than BBV in Latin America with operations in Mexico, Chile and Brazil.

What's New?
Santander was one of three banks including the Royal Bank of Scotland (NYSE:RBS) and Fortis to complete the acquisition of Dutch bank ABN AMRO last year. As a result of the deal Santander assumed control of Brazil's Banco Real. The Brazilian Banco Real acquisition makes Santander the second largest bank in Brazil in terms of deposits and the third largest in terms of loan origination. Santander views the growing middle class and an improving Brazilian economy as future drivers of growth for its banking services.

Santander's geographical diversification of revenues from Europe, its largest market, Latin America and the UK helped it generate a 31% increase in net operating income for the first quarter of 2008 over the prior year. Latin America, Santander's fastest growing segment, represented 42% of its operating income during the quarter.

Valuation
Santander has a bank policy in place that requires a 50% payout of ordinary profits as dividends. Santander's high dividend yield of 7.8% and its very low price-to-earnings growth (PEG) ratio of 0.59 constitute strong signals for value investors. Remember, a PEG ratio below 1 suggests that the stock is undervalued based on expected future earnings growth. Santander also has a forward price-to-earnings (PE) ratio of 9, which is comparable to BBV's PE of 8.7, but it is worlds apart from Citigroup's PE of 42. Other global players with reasonable PE ratios include HSBC (NYSE:HBC) with a PE 12.3 and JPMorgan Chase (NYSE:JPM) with PE of 14.4. (To learn more, read Move Over P/E, Make Way For The PEG.)

Sticking to What You Know
When media outlets attempted to describe the CMOs and Super SIVs that lead to the credit crisis, the explanations may have left many investors asking for a repeat of what they just heard. Santander prefers to keep its method of generating revenue simple and direct. By focusing on building deposits and expanding into fast growing emerging economies, Santander has found a rhythm that has led the bank to profitability.

For a simple breakdown of these complex structured products, read The Barnyard Basics Of Derivatives.

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!