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HomeBank CapitalCapital Calls: Santander’s Brazil gloom looks overdone

Capital Calls: Santander’s Brazil gloom looks overdone

Banco Santander’s chairwoman Ana Patricia Botin attends an annual results presentation at the bank’s headquarters in Boadilla del Monte, outside Madrid, Spain, January 30, 2019.

Concise insights on global finance.

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UNFAIR DUES. Investors are not giving Ana Botin enough credit. Shares in Banco Santander (SAN.MC), the 53 billion euro Spanish bank she runs, fell 1% on Wednesday despite reporting a nearly two-thirds year-on-year rise in first-quarter pre-tax profit to 3.1 billion euros. A vaccination drive helped the United States eclipse Brazil as Botin’s largest profit contributor. But even in the crucial lusophone country , racked by alarmingly high infection rates read more , bad debt charges remained broadly stable.

South American resilience should mollify concerns about credit quality. If Botin can keep dud loans at 1.08% of lending, meaning perhaps 10 billion euros in annual loan-loss provisions, she stands to make 8.6 billion euros in annual net income, according to Breakingviews calculations based on Refinitiv-compiled analyst estimates and a 36% tax rate. That would equate to an impressive 13% return on tangible equity, implying shares currently priced at 80% of tangible book value should trade at a premium, assuming a 10% cost of equity. Such would be a fitting riposte to market sceptics. (By Christopher Thompson)

On Twitter http://twitter.com/breakingviews

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