Spanish banking giant Banco Santander (LSE:BNC) was back in the news over the weekend. According to media reports, the business — along with Lloyds, NatWest, HSBC and JP Morgan — was solicited to launch a takeover of ailing UK business Metro Bank.
The latter has since obtained critical funding, though talk that parts of it may be picked off by competitors continues. I for one wouldn’t be shocked if one of these banks comes knocking to acquire chunks of Metro Bank before too long.
I think Santander could be a fantastic share for long-term investors to consider buying. However, it has nothing to do with its plans in the UK. Here’s why I’d buy the company for my portfolio.
Near-term danger
Banks are very sensitive to economic conditions. Loan growth can stall or reverse, and credit impairments can balloon during downturns. This has been the case for many London-listed banks during the past 12 months.
The trading backdrop could remain difficult too as inflation persists, meaning central banks could keep interest rates higher for longer. Santander may be seen as extra vulnerable too, given its large exposure to Latin America.
Some of its markets like Brazil have performed better than expected in 2023. But China’s weak economic recovery still casts a cloud over these regions. Many of Santander’s economies rely on strong commodities exports, like copper from Chile and iron ore from Brazil.
Long term rewards
Yet as a long-term investor I still find Santander shares extra appealing. Demand for its financial services could keep soaring from its current low base as personal income levels in Central and South America rocket.
Analysts at McKinsey & Co, for example, reckon that just 30%-50% of over-15s have a bank account in Latin America, compared to more than 90% in countries like the UK and US. This is why they say:
We expect Latin America to remain the growth leader in banking, and to continue closing the gap in banking penetration, with revenues increasing at around 10% per year over the next five years and reaching $675bn before cost of risk.
Santander is making excellent progress in these booming markets. It grew attributable profit 18% in 2022 to all-time peaks of €9.6bn as it continued to build its market share. The bank is one of the top-three lenders in several markets including Brazil, Argentina and Mexico.
It’s investing especially heavily in Latin America to maintain this momentum. Last year it introduced its Superdigital retail banking platform in Argentina, Colombia and Peru, and it’s steadily expanding its corporate and investment banking operations.
Too cheap?
At current prices of 309p, Santander shares offer excellent all-round value right now. The bank trades on a forward price-to-earnings (P/E) ratio of 5.8 times. It also carries a dividend yield of 4.6% for 2023.
I’d certainly rather buy the bank — when I have some spare cash — than UK-focused rivals like Lloyds. Its emerging market operations mean it has much better scope to grow profits than ones that specialise in mature markets. And so it has a great chance to deliver sector-leading share price and dividend growth in the coming years.
