International Expansion: The Santander Case

Transcription

1 International Expansion: The Santander Case International Symposium on Globalizing Korea s Financial Industry June 2008 Pablo de Castro Corporate Development Grupo Santander

2 Santander- the past years From a regional bank to toa global bank 2 Guiding principles of ofour internationalisation strategy When does a cross-border acquisition create value? The Abbey example When does a cross-border acquisition create value? The ABN Amro (Banco Real) example Conclusions

3 3 Santander; a middle size bank in Spain in Santander 1985 in Nº 152 in the World Nº 6 in Spain A medium sized bank in in a medium sized country

4 into a Global bank in just 20 years Santander today # 8 in the World # 1 in the Eurozone A Global Group Leader in commercial banking Strong balance sheet

5 5 In the 80s, Santander grew with a strategy based on product innovation September 1989: Launching of the La Supercuenta 15% 13,0% 14,1% Growth based on on a strong commercial culture + strengthening customer relationships 12% 9% 6% 8,4%

6 6 In 1994, we took a leap forward through the acquisition of Banesto Nº 45 in the World Nº 1 in Spain Total assets in 1993 Activos totales en ,50 19,0 A strong organic growth track record allows Santander to to lead leadthe theconsolidation process 16,5 14,0 11,5 9,0 6,5 4,0 1,5-1,0 Santander Banesto 12,90 11,60 10,80 2,80 Sant ander BCH BBV Argentaria Popular Fuente: AEB

7 Santander: first wave of acquisitions in LatAm between 1996 & : setting the foundations for our expansion in LatAm 1996 Its Itsleadership position in in Spain allowed Santander to toexpand abroad Banco de Venezuela 1997 Banco Rio Argentina 1997 Santander Mexicano 1998 Bancos Geral de Comercio y Noroeste Brasil

8 8 In 1999, we consolidated our leadership in Spain through the merger with BCH 15 de enero de 1999: Fusión con el BCH The first merger of the Eurozone size is crucial to be efficient and competitive it is important to preserve our independence and the ability to create value To be strong in Europe we need to be strong in our home market Emilio Botín, March 1999

9 New wave of globalisation * Amount of investment in each country Nº 2 in Europe Nº 1 in LatAm Nº 14 worldwide Portugal Brazil Mexico Chile Germany Italy Europe -Totta & Açores - Crédito Predial Portugués - Banespa - Grupo Financiero Serfín - Banco Santiago - AKB Group - Finconsumo - PTF (Polonia) - ELCON (Noruega) - ABFIN (Holanda) (2.618)* (8.226)* (2.323)* (2.179)* (1.369)* (163)* (422)*

10 10 In 2004 moving into the United Kingdom Nº 1 in Europe Nº 1 in LatAm Nº 10 in the World At that point, it was the largest crossborder acquisition in the history of the European banking system EUR 13bn, financed with stock

11 11 In 2007 the ABN Amro Consortium transaction Nº 1 in Europe Nº 1 in LatAm Nº 8 in the World A U$ 100bn deal, in alliance with RBS and Fortis

12 12 Portugal Market position: #3 Market share: 10% Branches: 690 Customers: 1.8m with leading presence in Europe in retail and commercial banking UK Market position: #6 Market share: 9% Branches: 712 Customers: 18.3m Spain Market position: #1 Market share: 18% Branches: 4,417 Customers: 10m

13 Mexico Market position: #3 Market share: 15% Branches: 1,005 Customers: 9.4m Chile Market position: #1 Market share: 22% Branches: 401 Customers: 2.9m as well as the leading retail and corporate banking franchise in Latin America Venezuela Plus: Puerto Rico, Colombia, Peru, Uruguay Market position: #2 Brazil Market position: #3 Market share: 12% Branches: 3,972 Customers: >15m Argentina Market position: #2 13

14 Santander Consumer's presence: access to the largest economies in Europe Presence in 13 European countries Norway Finland 5,304 employees 278 branches 353 mn. inhabitants 14 with the addition of Drive Financial in the US Ireland Portugal Spain United Kingdom Holland Denmark Lithuania Russia Germany Belgium Luxembourg France Switzerland Sweden Austria Italy Czech Rep. Slovenia Croatia Poland Slovakia Hungary Macedonia Albania Greece Estonia Latvia Romania Belarus Bosnia-Herz. Yugoslavia Bulgaria Santander Consumer Ukraine has a strong presence in Moldova the most dynamic countries (Iberia, UK, Hungary, Czech Republic, Poland, Italy, ) Turkey Syria

15 Our growth in the last 20 years has allowed us to take a giant leap in a relatively short period of time 15 From a domestic retail bank to a global bank Number of customers Net profit Market cap EPS TSR* , mill euros 2.5bn euros 0.16 euros mill 7,596 Eur Mill 75bn 1.2 euros 18.8% *Total shareholder return

16 A strong value creation track record for Santander s shareholders Earnings per share* Dividend per share 16 ** 0,53 CAGR: +14% 1,28 CAGR: +15% EUR 0,65 EUR 1,06 0,73 0,84 0,33 0,42 0,38 0,19 0,09 0,22 0,04 0,11 '86* '92* '98* '04 '05 '07 '86 '92 '98 '04 '05 07 (*) Adjusted to splits and capital increases. In 2004 and 2005 under IFRS criteria.

17 Santander is recurrently among the top of our peer group by dividend + share price (Total Shareholder Return) years 5 years 3 years 5º 4º 2º surpassing banking indices +22% +22% +18% +12% +14% +10% SAN DJS Banks* SAN DJS Banks* SAN DJS Banks* (*) Dow Jones Stoxx Banks: Index of 65 European Banks

18 Top 10 by market capitalisation 18 IND & COMM BK OF CHINA - A CHINA CONSTRUCTION BANK-H HSBC HOLDINGS PLC BANK OF CHINA LTD - H JPMORGAN CHASE & CO BANK OF AMERICA CORP BANCO SANTANDER SA CITIGROUP INC MITSUBISHI UFJ FINANCIAL GRO BNP PARIBAS UNICREDIT SPA Number 7 in in the World WELLS FARGO & CO GOLDMAN SACHS GROUP INC BANCO BILBAO VIZCAYA ARGENTA ING GROEP NV-CVA INTESA SANPAOLO

19 Santander- the past years From a regional bank to toa global bank 19 Guiding principles of ofour internationalisation strategy When does a cross-border acquisition create value? The Abbey example When does a cross-border acquisition create value? The ABN Amro (Banco Real) example Conclusions

20 The Spanish banking sector has accomplished a remarkable productivity jump over the past 20 years Loans / employee- Spanish banking system (EUR 000s) x This Thisproductivity improvement has has been been made made possible by: by: Cost Costsynergies resulting from from mergers Use Use of of technology Constructive dialogue with with trade unions

21 Wehaddevelopeda successful business model at home one which we could export to other markets 21

22 Solid retail banking model 22 Commercial focus Client focus Focus on ondistribution Service quality Product innovation Relevant market share Expand the front Efficiency focus Top Toptechnology // shared platform Process improvement Continuous restructuring Cut the back and a strict risk policy Credit risk risk Balance sheet management

23 Internationalisation exporting the strong business models which had been developed at at home 23 Only after developing a strong retail and commercial business model at at home is is moving abroad made possible

24 24 Internationalisation: a triple hurdle Strategic Cyclical Financial Natural owner Timing Good price

25 Santander- the past years From a regional bank to toa global bank 25 Guiding principles of ofour internationalisation strategy When does a cross-border acquisition create value? The Abbey example When does a cross-border acquisition create value? The ABN Amro (Banco Real) example Conclusions

26 Traditional view on mergers only in market mergers create significant value (e.g., FT (12/04/08) 26 We disagree cross border mergers can create value, but ONLY if if certain conditions are met What the acquirer needs to have 1. Clear retail business and organizational model to export 2. Exportable IT 3. with capacity to industrialize operations 4. Spare international management capacity + What the target needs to have 1. Good old franchise 2. Commercially underperforming 3. Lack of management focus 4. Pre industrial operating systems

27 We entered the UK because we considered its banking market to be very attractive 27

28 but it was also a very competitive one which put pressure on the weaker players 28

29 Abbey was the worst performing UK bank at the time HBOS RBS Revenue growth CAGR HSBC Alliance & Leicester Barclays Lloyds TSB Northern Rock Average: Nationwide Business volume -20 Abbey Average: Average cost to income ratio in in terms of of efficiency as as well as as in in terms of of growth Source: Bankscope

30 There was clear upside from a commercial point of view 30 10% Market share by product Abbey s commercial gap Mortgage bank 9% 8% 7% 6% 5% 4% 3% 2% 1% Commercial bank 0% Mortgages Savings accounts Current account General insurance UPL Credit cards Investments SMEs Significant potential to increase share of wallet

31 We designed a clear turnaround plan 31 Execution and Team-Building/Leadership

32 32 Fast-forward three years

33 Abbey is already outperforming its peers (I) 33 in in terms of of revenue growth

34 Abbey is already outperforming its peers (II) 34 in in terms of of cost discipline and efficiency improvement 71% 24pp 47% Q1 05 Q1 08

35 Abbey is already outperforming its peers (III) 35 as as well as as in in terms of of operating jaws

36 This is just the tip of the iceberg 36 Good old fashioned cost discipline + first efforts to recover the commercial pulse Full implementation of our IT platform (Partenon) / 2008 Full development of business lines such as credit cards, SMEs, asset management Strong leadership, team-building and right incentives + synergies with the Group

37 37 Strategic Abbey s triple hurdle Cyclical Financial Natural owner Improve efficiency IT IT Commercial best best practices Trough profitability (losses in in corporate book, book, insurance business) ROI > cost of of capital in in year 3 (2007)

38 Santander- the past years From a regional bank to toa global bank 38 Guiding principles of ofour internationalisation strategy When does a cross-border acquisition create value? The Abbey example When does a cross-border acquisition create value? The ABN Amro (Banco Real) example Conclusions

39 Building the best bank in Brazil 39 n Brazil is an attractive market n The deal would create a leading bank in Brazil Third bank in terms of network and loans; second bank in terms of customer deposits This will translate into a qualitative leap in key segments n Excellent fit with our existing businesses Geographic complementarity: Both banks create a powerhouse in the South/South East of the country (the economic hub of Brazil). Business complementarity: Real stronger in mass market, small businesses, while Santander Banespa is stronger in affluent segments and business banking n Value creation potential through in-market synergies Integration of head offices, central functions; optimisation of distribution networks Santander Banespa has a scalable IT system, which can easily absorb Real s business volume, with very limited additional investment n with low execution risk Santander has extensive experience in integrating banks in the region; specifically in Brazil

40 Brazil: a virtuous circle out of policy improvement and commodity prices leads to the development of local capital markets; on track for an investment grade rating 40 Increased confidence n Reliance on domestic saving... out of necessity Brazil enjoys n Current account surplus n Primary Fiscal surplus n Floating exchange rates competitive adjustments if required n Independent monetary policy Sucessful fight against inflation n Debt issuance Local denominated Long term maturities Fixed rates Long yield curve

41 Brazil has a lot of banking potential compared to other developing countries 41 Lower penetration ratios than other BRIC countries Brazil Other BRIC Developed Countries Loans / GDP 32% 58% 139% Deposits / GDP 30% 79% 97% Mortgages / GDP 2% 5% 61% Insurance Premiums / GDP 3% 3% 10% Source: Merrill Lynch Research Note: Other BRIC includes Russia, India and China and developed countries include the US, the UK, Japan and Germany Based on non-weighted averages

42 and this results into very attractive growth rates of banking volumes 42 Source: Central Bank Brazil

43 The new bank would become the 3 rd franchise in terms of distribution network 43 Branches & PABs Opened in BB Bradesco ABN+SAN ITAÚ ABN Real SAN HSBC Unib N. Caixa

44 44 Excellent geographical fit within Brazil both banks create a power force in the core economic hub of Brazil % of national GDP Market share- SAN Market share- ABN Combined market share Sao Paulo 34% 13% 7% 20% Rio de Janeiro 13% 3% 10% 13% Minas Gerais 10% 2% 7% 9% Rio Grande do Sul 8% 8% 2% 11% Subtotal- "top 4" 64% 9% 7% 16% Brazil- total 100% 6% 6% 12% Excellent complementarity in key states Banespa: stronger in Sao Paulo state Real: strong in Sao Paulo city, Rio, main cities, Northeast which should translate into limited customer attrition

45 as well as an excellent product markets fit 45 SAN Banespa: stronger in the affluent segments + corporate banking ABN Real: stronger in mass market + small companies Large corporates 24% Mortgages 3% Consumer lending + cards 34% Large corporates 8% Corporates 19% Mortgages 4% Consumer lending + cards 44% Corporates 32% SMEs 7% SMEs 25%

46 We have structured a plan composed of five initiatives, starting with a cost rationalization program 46 Phase 1: Cost Reduction Phase 2: Integration I Phase 3: Integration II 1 Efficiency best practices 2 3 IT Integration Operations Integration 4 Head office/central function Integration 5 Full Merger / networks

47 In terms of ordinary efficiency best practices, Real has significant potential to improve administrative expenses Percentage, Cost over volume (%)* Difference 4,19 0,46 General and administrative expenses 3,73 1,85 2,24 0,39 The first step would be to bring Real to Santander Banespa s standalone efficiency level Personnel expenses 1,88 1,96 0,08 Banespa Real (*) Includes loans, deposits and off-balance funds

48 48 These initiatives will allow to capture > EUR 800 million in pre-tax synergies EUR Million Cost 2 IT 3 Ops 4 Head 5 Merger 6 reduction Real Integration Integration Office integration Revenues Total synergies

49 but still below the profit generation levels of peers (even after assumed synergies) 49 Consensus- net profit 2010 (U$ m) Synergies Real SAN - Itau Bradesco SAN + Real Potential to capture the enhanced profitability associated with scale in Brazil

50 50 Santander s has a strong integration track record in Brazil Track Record in Brazil Banco Geral do Comercio Banco Noroeste CF Meridional Banespa We are ready to integrate Real: In Brazil, we now have a single, multi-bank and scalable IT platform

51 51 We have executed several integrations in Latin America over the past decade- e.g., integration of two banks in Mexico and in Chile 60% 55% 2000: acquisition of Serfin 2002: single brand: Santander Serfin 2005: full merger between Serfin and SAN Mexicano becomes effective 50% 45% 40% C/I Mexico 2001: implementation of Altair (IT platform) in Serfin starts 2004: implementation of Altair completed 35% pre NICs In Mexico, the combination of in-market synergies (from the integration of Santander Mexicano and Serfin), along with strong business growth, has allowed us to achieve a significant reduction in our efficiency ratio 2004 NICs Q1 07

52 52 Strategic Banco Real s triple hurdle Cyclical Financial Natural owner Improve efficiency In In market marketsynergies Critical mass mass Brazil s virtuous cycle cycle Growth multiplier (economic growth + increased bancarisation) ROI: 18% EPS: +4% (year 3) 3)

53 Santander- the past years From a regional bank to toa global bank 53 Guiding principles of ofour internationalisation strategy When does a cross-border acquisition create value? The Abbey example When does a cross-border acquisition create value? The ABN Amro (Banco Real) example Conclusions

54 54 International expansion can be a powerful source of value creation but only when carried out in a very disciplined way: Strategic discipline: Financial discipline: The natural owner concept Markets you know well Potential to create value In-market synergies Exporting best practices No strategic acquisitions Every acquisition needs to be done at a price which creates value for the shareholders Communicate clear financial targets. In Santander s case: EPS accretion (year 3) ROI > cost of capital (year 3)

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