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.

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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.)

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