Santander Raises $8B in Brazil IPO

Banco Santander, S.A. (STD - Snapshot Report) has raised $8.1 billion (14.1 billion Brazilian reals) in a record initial public offering (IPO) of its Brazilian operations as the bank seeks growth away from the ailing Spanish economy.

The Brazilian arm sold 600 million shares for 23.50 reals ($13.43) per share, to the public through a concurrent offering in Brazil and New York. The price was in the middle of the expected range of 22 reals to 25 reals.

Santander had initially filed to sell 525 million units, with each representing 55 common shares and 50 preferred shares, but the offering was increased by 75 million units to meet demand from investors.

In the U.S., the new stock will trade on the Big Board under the ticker symbol "BSBR." Trading of the units will begin on the New York and Sao Paulo stock exchange begins today.

The IPO marks the biggest offering in Brazil's history and the largest on a global basis since Visa, Inc. (V - Snapshot Report) went public in March 2008. The IPO is expected to boost the company’s core Tier-1 capital by 0.6 percentage points from its level of around 7.5% at the end of the second quarter of 2009.

Santander plans to use the proceeds to open around 600 new branches in Brazil by 2013, expanding its network in the country by almost 33%. The company has already invested heavily in the region in the last several years, including the acquisition of ABN Amro's Brazilian business when it was split two years ago.

Looking at Santander's expansion plans, by 2011, Latin America will contribute 41% of the company’s total group's profits, up from 33% now, with Brazil representing 50% of the total Latin American business.

Brazil is expected to deliver strong growth to Santander, as the country's gross domestic product is expected to grow in the range of 3% to 5% in 2009. On the other hand, the European economy will only grow between 1% and 2%. Soaring unemployment in Spain has pushed up non-performing loans on Santander's books and the situation could get even worse.

However, there are concerns in the near term regarding the continued stabilization of a volatile Brazilian economy, which does appear to be on-track at present. Further, the percentage of their non-performing loans is much higher than their competitors while their reserves are, ironically, lower.

We maintain our Neutral recommendation on the stock.