Banco Santander (STD)

We are continuing our Sell rating on Banco Santander Central Hispano, S.A. (STD - Snapshot Report), as well as our $7 target price. Santander reported 2008 full-year net earnings of 8.9 billion, up 11% year over year but below our estimate, as loan impairment charges were higher than anticipated. The rise in nonperforming loans was an especially sour note in an otherwise satisfactory performance, relative to European peers.

The company has been on a tear on the acquisition front, with most recent purchases including the UK's Alliance & Leicester, the retail operations of Bradford & Bingley plc in the UK, and the remaining 76% of Sovereign Bancorp that it did not own in the US. On November 28, 2008, Santander completed the sale of 1.599 billion new shares through a rights offering at a price of 4.50 per share for a total capital increase of 7.2 billion.

We are reducing our 2009 EPADS estimates $1.36 from $1.79, due to expectations for higher losses and lower revenues from the global economic slowdown and depreciation of the against the US$. Santander has a particularly large exposure to the property market, both in Spain and the UK, where it is now the second largest bank as measured by share of the mortgage market. The 2008 full-year dividend was maintained at 0.65 (US$0.84) per share.