Wall Street vacillates between loving companies that stay lean, focused and specialized and loving those that diversify across the board and across the globe. Banking is no exception; investors often question whether the diversification benefits of global expansion are worth the headaches and the risks. Looking at the first half results from Spain's Santander (NYSE: STD), I think we have a strong tally in the "diversification is good" column.

IN PICTURES: Eight Ways To Survive A Market Downturn

The Quarter That Was
Santander had a relatively good second quarter - that is, it was not a terribly good quarter unless you view it in the context of a pretty unimpressive reporting season for banks overall. Net interest income did grow 4% sequentially and net operating income rose 1% sequentially. How those results came to be is a critical part of the Santander story. Spain and the U.S. were not strong contributors, but the company's operations in Brazil and Latin America did quite well, as Latin American profits rose 12%.

In terms of credit, the news is still bad, but it is getting worse at a slower rate. The company's ratio of nonperforming loans for the Q2 was 3.37% - a tiny uptick from 3.34% in the Q1, but considerably higher than last year's 2.82% level. Here, too, the performance varies with geography, as Spain is certainly more of a credit problem for Santander than Brazil.

Balance Sheet Comparisons
Comparing Santander's balance sheet to Citigroup (NYSE: C), Bank of America (NYSE: BAC), Deutsche Bank (NYSE: DB) and so on shows an interesting split. Whereas many banks have pulled back their lending, Santander is expanding it - loans grew more than 6% on a sequential basis. Even allowing that some of that growth is coming from currency adjustments, the fact remains that Santander is more active on the lending front than the "average" bank.

Moreover, the company is still aggressively collecting deposits and paying to do so. I expect that doing that will get the analyst community riled up, but I can understand Santander's argument that it is leveraging its strength to gain market share. Given that banking customers do tend to be sticky, that could pay dividends in the long run.

The Road Ahead
Santander management does not seem to be under any delusions that Europe will quickly get healthy, though they seem to be among those who say it is not quite as bad as it looks. Still, the U.K. seems to be on the right track (another major market for Santander), Latin America is clearly doing well, and the U.S. will probably not get substantially worse whether it bounces off the bottom or bumps along for awhile.

Santander is also in a position where I expect management to be contemplating its next moves. The company has already made it clear that M&T Bank (NYSE: MTB) is a target of interest, and I expect that the company will make a move (or two) to expand its U.S. business.

The company's U.S. business, Sovereign, is bigger than most people realize, but there is certainly room for the company to expand. Whether it takes a small regional bite - M&T, or maybe a name like Regions (NYSE: RF), Zions (Nasdaq: ZION) or Fifth Third (Nasdaq: FITB) - or a big super-regional bite, I do not believe Santander is done building its U.S. business by acquisition.

Likewise, I do wonder whether Santander has an appetite for more acquisitions in Europe or Latin America.

The Bottom Line
If you had the stomach to step up and buy these shares while Greece was collapsing and everyone was pointing toward Spain as the next to go, I congratulate you on your gains and your courage. For those who did not buy in the dark days, I have some good news - the shares are still trading at a level where I think you can still earn a decent return.

I do not imagine that the recovery from here will be smooth or easy, and I expect we will have at least one more big economic scare (whether it is about a double-dip recession in the U.S. or a teetering economy in Europe). That would probably be an even better time to buy shares. That being said, Santander is a well-diversified bank with key footprints in some very attractive markets. Couple that with a management that employs what I would call "enlightened aggressiveness", and I can see this being a strong core international holding for risk-tolerant investors. (For related reading, see Going International.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  2. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  3. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  5. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  6. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  7. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  8. 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.
  9. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  10. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
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 formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. 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 >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. 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 >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... 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!