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Spain’s Banking Giant Bets Big on Mexico

12 September, 2012

Banco Santander,the largest Spanish lender,announced Wednesday that it is buying back the 25% stake it sold to Bank of America (Mexico) for $1.6 billion less than 7 years ago. Surprisingly,the Euro-zone’s largest bank is paying a 56% premium to get its Mexican shares back. Why so bullish on Mexico?

Banco Santander’s home market is experiencing a deep recession resulting in a tough financing condition for most Spanish banks. Investing more in Mexico is expected to be a key driver for Santander’s strategy for future growth. Banco Santander’s savvy Chairman,Emelio Botin,said “Mexico is a country that has a very positive outlook for growth” and all the leading indicators may indeed prove him right.

What Botin Knows

Mexico’s economy is surging out of the global crisis,recording a 4.3% growth rate in the first quarter of 2010 alone (much faster than the U.S.) which represents a trough-to-peak increase of 10% in just one year. The only other country expected to grow that quickly is Turkey. Mexico can expect similar growth for the entire year according to Moody’s Latin America as the government expects $20 billion in foreign direct investment this year. Mexico is doing quite well. In fact,in case you haven’t noticed,the Mexican,Carlos Slim,just surpassed Bill Gates as the reigning “Richest Man in the World.”

There are now over 18,000 major American companies currently investing and operating in Mexico including Starbucks,Walmart,Costco,Lowes,Blockbuster,Office Depot,General Motors,Ford Motors,GE,Bristol-Myers Squibb,Xerox,Coca-Cola,Hershey's,Kimberly-Clark(Kleenex),Raytheon and John Deere Tractor just to name a few. Currently over 1 million Americans are investing,buying,building and/or retiring in Mexico with many more on the way. 

Perhaps the biggest gains for investors in Mexico are being taken in the real estate sector. In key areas, real estate development in Mexico is far outpacing growth in other countries. For example,Playa del Carmen was named the fastest growing area in the world just a few years ago and Tulum,just to the south,is poised to grow even faster in the next 5 years. Perhaps Emelio Botin sees what the The London Financial Times (England’s Wall St. Journal) aptly called “Spain of 20 Years Ago” referring to this part of the Mexican Caribbean.

Bullish on Botin

Botin has been quite a canny deal maker in the past with his early entry into Brazil and timely transactions in Britain and Italy. Now he is looking to do it again in Mexico. Under Botin’s solid leadership,Santander shares have outperformed European banks as a whole by 55 percent over the last 12 months. In the first quarter of this year,Santander bucked the global trend of severe banking write downs with a 22 percent rise in profits and a 19 percent rise in revenue. 

An Ibersecurities author and analyst recently wrote of the Santander Chief, "In Mr Botin We Trust". With Banco Santander forecasting a 15 percent compounded annual growth rate for 2010 right smack-dab in the middle of Spain’s deep recession,perhaps all of us could do with taking a few investment cues from the visionary Santander savior.

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